Today was Fed cleanup day. Global markets adjusted to the non-taper news and whatever comes next. U.S. stock benchmarks could not extend Wednesday’s record highs, but gold padded its weekly gain.
Now that the dust is settling, what comes next? The early bets are on December as the new taper target. That may be a good guess — but a lot can happen between now and then.
The Fed news diverted attention from some other important developments, too. Let’s see what we missed.
In Ben Bernanke’s post-meeting Q-and-A, someone asked when The Taper could begin. The chairman pointedly did not use the word "taper" when he answered. He simply said the committee "could" reduce its monthly bond purchases before the end of this year.
The Federal Open Market Committee has two more meetings this year: Oct. 29-30 and Dec. 17-18. They can also convene via teleconference anytime they wish, but that’s unlikely unless some dire emergency develops.
We could have a Halloween Oct-Taper, a Santa Claus Taper or no taper at all. Some analysts think Bernanke wants to begin the new course before his term ends in January. That’s possible — but he is still only one vote.
It’s also quite possible Bernanke will be in the room for next year’s meetings, too. Even if he is no longer chairman, his term as a board member runs until 2020. We don’t know who would take his board seat. If the Senate doesn’t confirm someone else, Bernanke might stay around rather than leave his successor short-handed at a critical time.
The FOMC should keep its teleconference system ready. The kind of "dire emergency" that requires a special meeting could easily develop before Oct. 29.
As of today, the federal government still has no budget or legal authority to spend money after Sept. 30. Congress and the White House could buy some time with a temporary extension, but it won’t happen automatically. Someone has to take the first step.
That’s not all. By mid-October, the Treasury expects to hit the national debt ceiling and stop borrowing money. What happens then? Some Republicans think they can use it to extract concessions from the Obama administration. The White House says it will not negotiate the debt ceiling with Congress.
This is a very high-stakes game. For now, Treasury bond investors are not concerned. One way or the other, we will soon know who blinks. Who do you think will give in?
The Syrian chemical weapons deal escaped the spotlight the last few days. Media interest moved elsewhere after it was clear the U.S. would not attack.
One of my favorite news sources, the British weekly Economist magazine, is not at all happy with this outcome. Here is an excerpt from their editorial leader this week.
"In July 1972 Anwar Sadat, president of Egypt, suddenly decided to turf out thousands of Soviet military advisers. Menaced by Egyptian leftists and undervalued by the Kremlin, he calculated that he had more to gain from siding with America.
"Henry Kissinger, Nixon’s secretary of state, administered some deft diplomacy to broker a ceasefire between Egypt, Syria and Israel in the Yom Kippur war, and American aid duly flooded into Cairo. So did American influence: The Soviet hold over the Middle East never recovered.
"The plan to wrest chemical weapons from Syria, shortly to be embodied in a UN resolution, has echoes of that era — except that the modern Metternich is a serial abuser of human rights and occasional op-ed writer on democracy for the New York Times, called Vladimir Putin.
"Russia, the country he leads, is too frail to regain its place in the Middle East. But this week, a decade after the invasion of Iraq, it suddenly became clear just how far the influence of the West has ebbed. The pity is how few Americans and Europeans seem to care about that."
You can follow the link the read the rest. I agree with them on some points, but definitely not all. What do you think? Are they right that the West has lost influence? If so, should we care?
If nothing else, investors care about oil prices. Crude oil dropped again today, but not because of Syria. The bigger factor seems to be restoration of Libyan production. Several large oil fields there recently re-opened after large protests subsided.
Yesterday I shared a Colorado reader’s comment about possible flood damage from Colorado oil and gas sites. Another reader sent this last night.
Reader "Old Hat" says: "I see far too many people who are fundamentally uninformed in the technology and ethics in management of the oil and gas business sounding off about something they know nothing or little about.
"But I must ask if you really consider a resource that is thousands of feet underground (to be) directly related to the surface activity after it is safely and carefully engineered to be as reliable and fail-safe as possible. After all, why drill a hole in the ground if it will ultimately waste millions of dollars?
"Fracking is definitely not new. My brother ran a company that built field service trucks for a major international company in the early ’80s in Denver. The only truly major difference now is the improved technology and methods used today. Maybe some cases in the past might have had negative effects, but very seldom when the risk is reasonably reviewed.
"The increased surveillance of environmental impacts and safety requirements has greatly reduced risk of disaster or accidents. I find it odd that we see speculative opinions in an investment environment where it appears there is no negative news other than a major flood and the impacts on human safety it has made.
"The flood impacts were on the east side of the continental divide. Yes, there are some oil/gas facilities under duress. A major number of facilities exist here on the west side of the mountains also. There is no emergency here. Consider the fact that the managements of these facilities are not unprepared and they do take actions to prevent uncontrolled damage, regardless of the location.
"And the major areas west of the divide have only received an abnormal (and welcome) amount of moisture for this time of the year. Colorado is definitely under duress from a human impact viewpoint, but the whole state is not suffering the same sad fate."
Brad: Thanks for the thoughts. I am glad to know people west of the mountains are safe, according to "Old Hat" who lives there.
I’m not an engineer, I’m not in Colorado and I don’t know what, if any, environmental damage occurred. I do know many people are concerned. They could be wrong. As I noted before, the oil and gas industry says it took precautions.
I ran this letter to make a different point: Speculation goes both ways.
One person can look at TV images and see catastrophe. Another person can view the same images and not worry at all. Neither person knows for sure.
With all the other news this week, I would not be at all surprised if the media hasn’t covered the Colorado floods thoroughly. They can’t report everything.
In the absence of more-reliable data, it is "speculation" to say the fracking and flooding caused catastrophe in Colorado. It is also "speculation" to say they did not cause minor or no damage. The only correct answer is "We don’t know yet."
The oil industry has its share of accidents. The Exxon Valdez tanker ship ran aground in Alaska. BP’s oil platform exploded in the Gulf of Mexico. Smaller incidents occur all the time, even when companies try to avoid them. These things do happen and it’s reasonable to be concerned.
I find the best information comes from people who are in the affected areas and can observe events directly. If that describes you, please tell me what you see.
The new iPhones become available in just a few hours. In the meantime, the markets had plenty to keep them busy today.
- Despite brisk volume, U.S. stock benchmarks could not repeat Wednesday’s impressive rally. The Nasdaq Composite posted a small gain, but the Dow and S&P 500 both fell.
- That Nasdaq gain was due in part to a 1.64% rally in Apple (AAPL). The technology giant led its sector generally higher.
- Fellow Nasdaq stock Tesla (TSLA) added 7% today on a Deutsche Bank upgrade to its price target. The automaker’s shares hit a record $180.47 in today’s trading.
- At the top of the alphabet, ticker-wise anyway, Agilent (A) rose 3.4% after announcing mitosis plans. The company will split itself in two. The life sciences business will go one way while the electronics business goes another.
- Gold prices stayed strong, and James DiGeorgia and Geoff Garbacz grabbed gains on that gold trade I told you about yesterday. Find out how you can get in on their next round of trades by clicking this link here.
- The initially bullish response to Oracle (ORCL) earnings faded fast. The software company ended the day with a 3% loss.
- JPMorgan Chase (JPM) will pay $920 million in fines for violations connected to the 2012 "London Whale" losses. Senior management looked the other way while traders tried to disguise the losses.
- Is drug store chain Rite Aid (RAD) on stimulants? The shares vaulted 23.45% today after raising profit and revenue forecasts. A wave of new ObamaCare customers may spur pharmacy sales.
Good luck and happy investing,
Uncommon Wisdom Daily