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Keith Springer
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Keith Springer is the author of "Facing Goliath: How to Triumph in the Dangerous Market Ahead," radio host of "Smart Money with Keith Springer" on 1530 KFBK, editor of the Smart Money Newsletter, a market technician, a financial writer, multinational philanthropist, and... More
My company:
Springer Financial Advisors
My blog:
Keith Springer's Financial Blog
My book:
Facing Goliath: How to Triumph in the Dangerous Market Ahead
  • A Horse By Any Other Name is Still a Horse

    All eyes were on Ben Bernanke and his financial puppeteers at the Federal Reserve this week, as they gave their first ever press conference which would "hopefully" give us some insight into the economy. They quickly reiterated their persistent message that the economy was on firm footing, that they were not going to do any further stimulus programs...and then promptly initiated another stimulus program, but without a name!

     

    What Helicopter Ben came up with was to let QE2 run out in June but to use the proceeds from these existing bonds to buy more bonds. Even more importantly was that they kept the language in their statement about keeping interest rates at zero for as long as the eye can see. Hmmm, sure sounds like QE3 to me...which is exactly what I have been expecting.

     

    This is clear evidence that the Fed sees more risk in the economy than they are telling us, and feel the threat of a recession and deflation is far greater than inflation. After all, stimulus is not needed if the economy is in good shape. This was confirmed this morning when the Commerce Department reported that US Q1 GDP grew at a less than expected 1.8% pace, below the market's forecast of a 2.0% gain and last quarter's 3.1% pace. $14 Trillion in stimulus and this is all we can come up with? Clearly the economy would sag without it. Worse off is that each time it has less of an affect.

     

    The good news is that the economy is at peak performance. U.S. productivity, measured as employee output per hour, rose 3.9 percent last year, the most since 2002, according to Labor Department statistics released in March. Labor costs fell 1.5 percent following a 1.6 percent decrease in 2009, the first. Going forward, companies will have a harder time cutting costs and working labor harder to increase productivity. Sales are going to have to increase dramatically. Unfortunately, with an over indebted populace, an aging baby boomer, rising inflation and tremendous unemployment, that is just not likely. 

     

    Continued stimulus... or quantitative easing...or....whatever horses name you want to place on it, is clearly good news for the stock market which is absolutely addicted to the stimulus like a crack addict is to crack, or what I first deemed The Great Viagra Market. Keep the free money flowing baby, and the market will stay firm. Sometime soon the benefits will dissipate where all you get is inflation but with little growth, otherwise known as stagflation. Therefore, they are eventually going to have to let the economy find it's natural equilibrium and alleviate the massive debt bubble. When that happens, all hell will break loose again. Therefore, investors must be active and nimble enough to take what the market gives you in the interim, but prepared with a personal exit strategy.    



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Apr 29 11:18 AM | Link | Comment!
  • Earnings surprises continue… but for how long?
    Earnings continue to push stocks higher, as Intel, Qualcom, GE and McDonalds, to name just a few, all reported earnings better than expected. Clearly the Quantitative easing programs are working. After all, $14 trillion in stimulus had better do some good. The problem is for how long. What happens when the QE programs end, and how long can earnings actually “surprise” investors.

    Eventually, investors will catch on and begin to expect exceptional earnings and companies will be hard pressed to deliver not only these “exceptional” earnings but actual positive surprises. Given the level of optimism, earnings surprises and the end of the Federal Reserve’s stimulus programs, we could very well be seeing the peak in earnings this quarter relative to surprises. Once earnings begin to disappoint, even if they are relatively good, the rally will be over.

    In the short term, there is still some room in this market for nimble investors, as earnings surprises are likely to continue through earnings season and as optimism grows for the 3rd quarter. However, if earnings come in short, a market top will be close at hand. Investors should not get impatient and/or carried away with the market’s recent performance, throw caution to the wind and think it’s going to be easy. We continue to look for the best “Total Return” investments, that provide above average dividends/income, upside potential and most importantly, downside protection. We are still finding yields of 7-10% and although these may underperform the high fliers in the news, when the market turns, investors will be happy to have maintained reasonable objectives.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Apr 21 5:15 PM | Link | Comment!
  • What Happens When The Party’s Over? -The end of QE2 creates a real dilemma

    The Fed’s in a pickle. Keep up with QE2, QE3 or another stimulus by another name and risk runaway inflation. End it, and risk the collapse of the economy which very likely cannot stand on its own.

    The good news is that there is no real inflation, that being asset inflation. Real estate is dead in the water and will continue to be for several more years, cars cost about the same as they did a few years ago, we’re paying the same for airline travel that we did 10 years ago (albeit with worsening service), computers are getting cheaper and the list goes on. However, it doesn’t feel like that as food and energy scream higher. The Fed likes to remove food and energy from the inflation index, but last I checked, most of us eat and drive.

    This has sent the price of oil screaming higher. The worst part is that the turmoil in the Middle East and North Africa is being caused by our QE programs, which I discuss in depth in my The Great Pharaohs Rebellion commentary. This will undoubtedly keep prices under a great deal of pressure and this will further rein in global economic growth. In the US, rising energy prices have absorbed a great deal of the tax cuts enacted last December and have substantially reduced the stimulating effects these cuts were intended to produce. Although it is difficult to estimate, rising energy prices will have a distinctly adverse impact on US GDP; the higher the price of oil, the larger the negative effect. In addition, higher energy prices will spur inflation both at the wholesale and consumer level, which at least in the short run will put additional upward pressure on interest rates.

    This is hitting the Consumer Confidence Index hard, as it recently declined almost -8 points to 63.4. Clearly, rising gasoline and food prices are having an impact on confidence. Although consumer confidence is higher than it was in early 2009, at the depths of the recession, it remains stubbornly low at this point in the business cycle, almost two years after the end of the recession. Until we see some improvement in the labor markets and relief at the gas pump, uncertainty will dominate consumer attitudes.

    So, from an inflationary standpoint, the stimulus programs must end… but that’s not reality. The real world is that the stock market is addicted to the stimulus and if it disappears, stocks are in trouble. We have to remember that the Fed is not throwing trillions of dollars into this economy because things are good. They are trying their best to get people spending, but most Americans are tapped out.

    Given that, I do not expect Quantitative Easing to end. The Fed may say they are going to and stop it to see if the economy can stand on its own. However, that experiment will be short lived just like it was after QE1. At that point we must start to worry about a crisis of confidence, but those always take longer than you would expect.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 31 1:02 PM | Link | Comment!
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