The Bernanke Put
When I saw the headline that “Greek Aid Package to be decided by June” my first thought was “Great! That’s tomorrow…”
But of course, first impressions can be deceiving, as can misleading headlines.
The deadline for a(nother) Greek bailout is the end of June, which means we get to hear about for another month. I’m sure you’re very bit as excited about that as I am.
Even though EU officials were adamant that no debt-restructuring occur, it seems pretty likely that there will, in fact, be restructuring. The reason this is significant (aside from the fact that officials were so vocal in opposing it) is that restructuring means current bond holders will take some losses.
Greek 10 year bonds are trading with an interest rate of 16%. And with an implied EU backing, that 16% sounds attractive. Except that these bonds will likely be not effected by any restructuring. Even with a bailout coming, these bonds may not move much.
Then, of course, the EU has to deal with Spain, Portugal and Ireland.
*****With all those problems in Europe, you’d think the euro would be in a consistent tailspin versus the U.S. dollar. Ah, but the U.S. has a wild card that Europe lacks: the Fed.
The Fed has the ability to halt any dollar strength in its tracks. And it can also ramp oil and other commodity prices by simply threatening to flip the monetary switch.
Even though Bernanke & Co. have said that QE3 is not forthcoming, we know full well that it depends on economic data.
The U.S. economy has hit a “weak patch.” And while the current interpretation of a weak patch is that it will be temporary, if it lingers, the Fed will flip the switch. Traders know this, and it likely puts a floor under the market.
Last week, after another round of weak manufacturing data, I started hearing rumbling about QE3. Not from any influential sources, mind you. I only mention this to demonstrate that the “Bernanke put” is in effect.
Of course, we don’t know if the Fed will act again until it actually does. And that’s part of the Fed’s power. It can, and does, affect the market just by being there.
*****Last Friday, the transformer right in front my Richmond, Vermont headquarters exploded. Talk about technical difficulties.
As a result, you may not have received the 50% discount offer for TradeMaster Daily Stock Alerts.
Jason gave his readers (and us) an early warning about the current weak patch. If you recall, Jason was looking for the S&P 500 to make a test of support at 1,301. The S&P 500 made it within 10 points of that level yesterday before turning higher.
Jason has called every move of this 10-month old rally. So when he says he thinks a move back to the 52-week high on the S&P 500 is coming, I believe him. He has added three new trading positions to the TradeMaster Daily Stock Alerts portfolio since yesterday. They are all showing gains.
Not only that, but the Top 10 Trades for June Special Report came out this weekend. Gains from recent Top 10 reports have included 36%, 22%, 17% and 15% winners, all in a matter of a few days.
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