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After Congressional Republicans sent Fed Chief Bernanke a letter that
politely demanded the Fed cease on desist on all stimulus activities, I
half expected Bernanke to drop a liquidity bomb on the market
yesterday.
Instead, the Fed opted for the "twist" maneuver. It will sell $400 billion
of its short-term bills and buy long bonds.
The move is designed to put pressure on long-term interest rates and keep
costs as low as possible for mortgages and other loans.
Given that this is not "new" money, but rather re-positioning money already
in the system, I doubt there will be the same type of inflationary effect
as QE2 created.
It’s important to remember that the Fed can’t fix this economy. Bernanke
& Co. are trying to create conditions favorable to recovery. They can
make loans attractive. That doesn’t mean loans will be made.
Now, as for that letter from the GOP, some speculate that they simply don’t
want to see an improving economy as we head into an election year. That’s
not a comforting thought. But it may not be surprising, after some
politicians openly said U.S. default was an option worth considering. And
I’d say it’s no coincidence that the president waited this long to unveil a
jobs bill.
So much for the potentially bullish catalyst for Bank of America
(NYSE:BAC). You may recall that I speculated that BofA’s threat to
put Countrywide into bankruptcy might be a bullish catalyst for the stock
as it tries to settle mortgage related lawsuits.
Well, after Moody’s downgraded BofA’s
debt yesterday, I have no choice to put the stock back in "broken"
category. Whether or not Moody’s thesis — that government will not support
more bank bailouts — is accurate, the simple fact is, this downgrade will
not encourage buyers.
Moody’s also downgraded debt from Wells Fargo (NYSE:WFC)
and Citi (NYSE:C).
Jason Cimpl from TradeMaster alerts went
short banks this week. I should have taken his advice.
Ever since Christine Lagarde took over at the IMF, it’s become much more
vocal about what’s going on in the global economy. The IMF has warned that
austerity will lead to recession, and has lowered global growth estimates
at least twice, and yesterday, the IMF said Euro-banks have $410 billion in
credit risk related to Greek debt.
That’s roughly in line with figures we’ve discussed here in Daily
Profit.
The IMF report recommended that Euro-banks should immediately raise capital
to offset potential losses from Greece, and perhaps Italy and Spain.
It’s obvious that there is a lack of confidence in Euro-banks right now.
The IMF is stating the obvious. And still, ECB president Trichet found
grounds to argue against the recommendation. How can more capital for banks
faced with potentially significant losses on Greek bonds be a bad
thing?
It’s enough to make me wonder if Trichet isn’t actively trying to make the
European situation worse. I honestly can’t remember the last time he said
something that was actually helpful.
When Hewlett-Packard (NYSE:HPQ) CEO Leo Apotheker
announced that HP would spin off its PC division and cancel its tablets, it
seemed like a bad move. Even though computer sales are slow and margins are
slim, the PC division is still HP’s biggest source of revenue.
And the tablet space is expected to show tremendous growth in the future,
even at the corporate level. Tablets are great for order and inventory
tracking, for instance. It seems likely that tablets will remain part of
the tech device landscape.
I get that competing with Apple (Nasdaq:AAPL) is not easy.
But to give up on tablets after they’ve only been on the market a year
seems hasty. And it’s decision like these that may cost Apotheker his job.
Rumor has it he’s getting the axe after less than a year.
HP stock ramped on the news. But I wouldn’t expect much more upside. This
company has problems, and it starts at the top with the Board of
Directors.
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