Wednesday, December 12, 2012
The 'Fiscal Cliff' negotiations are reportedly making progress,
but a deal may not come through before the last minute. Judging
from the market's behavior thus far, investors don't seem to be
overly concerned about the delay, expecting the political
leadership to come through in the end. Market participants also
expect the Fed to come through with additional stimulus at the
conclusion of the two-day FOMC meeting today, replacing the
expiring 'Operation Twist' with a new round of Treasury bond
purchases.
Minutes of the last FOMC meeting and the official post-meeting
statement indicated that the central bank would be open to
additional monetary easing measures if the labor market did not
improve. And notwithstanding the upward revision to third quarter
GDP, largely a function of non-material items, the economy and
the labor market remain weak. This forms the basis for the
market's expectation of a new round of bond purchases as the
existing duration extending 'Twist' program comes to an end at
the end of the month.
Fresh purchases of Treasury bonds in magnitudes equivalent to the
expiring program will effectively be QE4, a significant ramp up
in the Fed's stimulus measures. This would also indicate that the
Fed perceives the economy weak enough to be needing such help.
That said, there is room for disappointment from the market's
perspective, particularly with respect to the size or duration of
the new program. The Fed has also been thinking about replacing
communication about its exit program from the current explicit
calendar period (mid-2015) to specific economic targets. The
issue was reportedly debated at length in the last meeting as
well, though nothing concrete came out of it. We will most likely
not see a resolution of that issue today either, but this
definitely something on the Fed's to-do list.
In corporate news,
Sprint
(
S
) is reportedly in talks to acquire the remaining 49% of
Clearwire Corp
(
CLWR
) that it doesn't already own. The move is seen as improving
Sprint's competitive position by giving it access to Clearwire's
vast spectrum reserves, but is complicated by the carrier's
pending acquisition by Japan's Softbank.
Sheraz Mian
Director of Research
CLEARWIRE CORP (CLWR): Free Stock Analysis
Report
SPRINT NEXTEL (S): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report