Thursday, November 29, 2012
Stocks have recovered most of the post-election losses on hopes
of a 'Fiscal Cliff' resolution. But the positive market momentum
may not solely be centered on the 'Cliff' question - growing
hopes of further support from the Bernanke team also may be at
play here. Favorable economic data such as the positive start to
the holiday shopping season and continued momentum in the housing
sector also help. This morning's positive revision to third
quarter GDP to 2.7% from the original 2% and the decline in
initial Jobless Claims would also fall in the latter category.
'Operation Twist', in which the Fed uses roughly $45 billion a
month in sales proceeds of its short-term treasury bonds to
purchase longer dated instruments, is coming to an end at the end
of December. The program was to end earlier, but the central bank
extended it through the end of the year at the time of initiating
the open-ended QE3 program, in which it purchases $40 billion a
month of mortgage-backed securities. Bernanke had indicated at
his September news conference that the FOMC would review all the
ongoing asset purchase programs at the of the year. And the time
for that review is fast coming up at the December 11-12 FOMC
The prospect of an open-ended QE4 to replace Operation Twist
could very well more than just speculation. Many FOMC members,
including Bernanke, believe that the Fed's multiple bond-purchase
programs since 2008 have been beneficial to the economic
recovery. Some studies of QE1 and QE2 credit the $2.3 trillion in
asset purchases under those programs to contributing
approximately 3% in GDP growth. It is perhaps premature to credit
QE3 with the positive developments in the housing sector, but I
am sure there is no shortage of those who will do just that.
Bernanke has acknowledged the diminishing value and potential for
market distortions of these unconventional monetary measures. But
many on the FOMC would be tempted to offset the 'Fiscal Cliff'
drag with a new round of treasury bond purchases. May be the Fed
will decide to wait till March to make such a call, but it will
be impossible to undo the damage by then should the economy
stumble due to the 'Fiscal Cliff'.
In corporate news, we got weaker than expected November
same-store sales numbers from
) and others, likely a result of Sandy-related disruptioons.
) announced a 25% increase in its quarterly dividend.
Director of Research
DISNEY WALT (DIS): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
KOHLS CORP (KSS): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
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