Today is Fed day. Bernanke will have spoken by the time you read this, so I
will not go into any detail about my own expectations. Suffice to say I
don’t expect the Fed to announce any new stimulus.
The U.S. economy expanded at a 1% rate in the second quarter. This is
revised lower from 1.3%. Investors expected this, so it’s not a market
Growth actually improved from the first quarter, and that’s one reason I
think the Fed stands down today. We should expect growth to pick up a bit
more for the end of the year.
I’ve said it before, but this is an opportunity for Bernanke to instill a
little confidence, rather than repeat his “growth is slower than desired”
For comparison’s sake, growth in the U.K. came in at 0.3%. The weakness is
attributed to austerity measures.
Oil prices are below $85, which seems like a knee-jerk reaction to the GDP
number. You know the playbook. Improving growth means higher oil. Weakening
growth means lower oil.
I’ve seen some estimates for oil prices to fall into the $70s. All I can
say is: if it does, buy oil stocks with both hands.
I find it amusing that investors still assume that U.S. demand drives oil
prices. Maybe it does for a day or two. But over time, demand from emerging
markets like China have every bit as much to do with the price of oil as
the U.S. That’s not to mention the fact that new production is far more
expensive than OPEC’s output.
Promises by politicians that they can deliver $2 a gallon gasoline are
Investors got a pleasant surprise yesterday morning when the news broke
that Warren Buffett was investing $5 billion in troubled Bank of America
(NYSE:BAC). After all, Bank of America stock has been hit hard lately as
estimates of its mortgage liability run as high as $70 billion.
So the fact that Buffett would give the “all clear” signal with such a
large investment seems bullish for the bank. But the details of the
investment may tell a different story.
For one, Buffett bought preferred shares that pay a dividend, so he will be
recouping his investment, even if the shares fall in value. And second, he
was also granted warrants to buy an additional 700 million shares of Bank
of America common stock — at around $7 a share.
The details of the investment make it look more like Buffett is bailing out
a troubled company than making a value investment. And that makes sense
when you consider the amount of money Bank of America could potentially owe
for mortgage problems could dwarf Buffett’s $5 billion.
No wonder Bank of America stock finished well off its highs yesterday. And
volume was unbelievable. Over 800 million shares traded. The lows may be in
for Bank of America, but I don’t expect a lot of upside for the stock until
the mortgage issues are dealt with.
My colleague and fellow trader, Jason Cimpl, over at
TradeMaster, gave his subscribers a great way to
profit from the hurricane that’s headed for the coasts. He tells me, “In
the majority of large scale natural disasters, the proper way to trade is
to be bearish on insurance and financial companies, and in major disasters
(tsunami Japan) you should get long gold and the local currency.
But in a hurricane there is one bullish alternative.” I’ve read about this
stock, and if he’s right, those
shares could rise 20%.
Finally, for those on the East Coast, good luck this weekend. I’m hoping
that we don’t lose power here in Vermont.