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Federal Reserve Chairman Ben Bernake. The Fed today decided to undertake another round of quantitative easing to stimulate the U.S. economy.
The Federal Reserve's Open Market Committee wrapped up its September meeting and, as expected, it's decided to undertake another round of "quantitative easing" — injecting money into the economy in order to stimulate economic activity and lower the 8.1 percent unemployment rate. The markets took off in response to news, with the Dow up 110 point in early afternoon trading.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
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President Barack Obama speaks on stage as he accepts the nomination for president during the final day of the Democratic National Convention. The August jobs report could be critical for his re-election hopes.
The Labor Department has just released its jobs report for August. This one has been called the most important report of the entire year — and maybe the past four years — as it falls right after the end of the Democratic National Convention and just a few hours after President Obama's nomination acceptance speech.
The number is bad: We added only 96,000 jobs in August. The headline unemployment rate dropped to 8.1 from 8.3 percent. This is far worse that what ADP reported yesterday — 201,000 — and well below expectations. It is, however, in line with an economy that's expanding very weakly, with GDP growth at less than 2 percent currently.
So no beat of expectations, or a surprise to the upside. This pretty well guarantees that the Federal Reserve will pull the trigger on another round of "quantitative easing," injecting money into the U.S. economy to stimulate growth and get the sluggish jobs market moving. We'll get a decision on that next week, when the Fed meets.
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Ron Paul speaks during a campaign event. He plans to go to the Republican National Convention in Tampa and be placed on the nominating ballot.
Mitt Romney may be the presumptive GOP presidential nominee, but Texas congressman Ron Paul never planned to go away quietly before the Republican National Convention in Tampa in August — and neither did one of his staunchest supporters, L.A. hedge fund investor Mark Spitznagel.
It’s partly Spitznagel’s doing that Paul held out for delegates at one of the campaign's final acts, the Nebraska state Republican Party Convention, which took place a week and half ago, more than a month after the state's primary. (Paul failed to gain a plurality, dooming his chances at speaking in Tampa.) All along, the hedge funder helped keep Paul in the race, both by raising money and by providing the campaign with intellectual oomph.
Spitznagel, who runs Universa Investments, which he founded in 2007, lives in Bel Air and operates out of an office in Santa Monica. Why is the Michigan native so far out west, anyway? After all, hedge funds are supposed to be in Connecticut. Or at the very least, Manhattan. That wasn't Spitznagel's scene. "I wanted to get out of that groupthink of Wall Street," he said on the phone recently. "Everyone there is crammed into a handful of blocks." But it's perhaps more than just the non-NYC quality of L.A. that has made it a comfortable place for Spitznagel.
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A jobs sign hangs above the entrance to the US Chamber of Commerce building in Washington, DC.
Time to take a crack at handicapping tomorrow's official March jobs report from the Bureau of Labor Statistics (BLS). If you'll recall, February came in at 227,000 and the national unemployment rate remained at 8.3 percent. That was good but not great; the economy really needs to add close to 400,000 jobs each month to reduce the rate to a pre-crisis level. But for the moment, adding 200,000-plus jobs each month shows that the economy is slowly recovering and expanding, even if GDP growth is only running at 2-2.5 percent.
There's a wrinkle to the March numbers — the data is usually released in the first Friday of the month, and this time around Friday is a holiday for the stock market (Good Friday). This basically gives traders a long weekend to digest the news.
Anyway, to the handicapping! The ADP report came out yesterday and said the economy added 209,000 in March. The Bloomberg consensus — a survey of 77 economists — says the number will be 205,000. Business Insider has been crunching various datasets of late and comes up with 193,000, a somewhat alarming figure given that we want to see 200,000 at least to support the idea that GDP is puttering along at around 2-2.5 percent, down from the 3 percent we saw in the fourth quarter of last year, but not the discouraging sub-2-percent pace we witnessed in much of 2011.
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The Federal Reserve Building in Washington, DC.
The Federal Reserve released the minutes from its most recent Open Market Committee meeting today. Bottom line: There will be no additional round of "quantitative easing," or QE3. This means the Fed won't print more money to buy bonds and drive down long-term interest rates.
At the Huffington Post, Mark Gongloff had the best take:
This affront to humanity sent the stock market tumbling immediately, making it seem almost as if the market's rally to multi-year highs had less to do with actual economic growth than with an addiction to Fed stimulus.
At the worst moment for the market this afternoon, the Dow Jones Industrial Average was down about 130 points, or about one percent, while the S&P 500 stock index was also down about one percent. Both markets were on track for one of their worst days of the year.
Gold, silver and platinum, which have thrived under a free and easy Fed, fell even harder. Gold at last check was down nearly 2 percent to $1650.40 an ounce.
U.S. Treasury bonds fell, too, as the Fed's minutes disappointed market hopes that Bernanke & Co. would soon launch another program to print money and buy bonds. The 10-year Treasury note recently yielded 2.25 percent, which is still ridiculously low, thanks in part to the Fed still keeping its promise to hold short-term interest rates near zero until sometime around the Second Coming.