June 18, 2013 Update

DJIA:15,179 S&P 500:1,639 NASDAQ:3,452 Gold:$1,378 Oil:$97.64 EURO:$1.34 YEN:95.39

Playing Chicken with Helicopter Money

Yesterday’s market behavior portrays the classic childhood game of chicken. At this point, most investors have recognized that the Federal Reserve is going to have to eventually cut back on their extensive asset purchases, and let the economy recover on its own. The $85B monthly asset purchases have acted as a bandaid for equities, as it has stopped the market from bleeding and kept it clean from infections. Everyone knows the only way to rip off a bandaid is to do so slowly, and I believe this childhood approach will be no different when it comes to the tapering policy. Most investors know that Bernanke can only tend to the wound for so long, but just because we know something does not mean we believe it and certainly does not mean that investors aren’t buying into the asset and credit bubble that The Federal Reserve has created. With President Obama’s recent announcement that Bernanke has, “already stayed a lot longer than he wanted or he was suppose to,” it seems even more unlikely the serious tapering talks will begin this week (with bulls interpreting this as cutbacks will not being until January 31st). Just remember that even if tapering plans are not announced today or tomorrow, it is not a sign that it will go on indefinitely. Nevertheless, when Bernanke does go about ripping off the bandaid, do not be the investor with the infection because you were too stubborn to put on Neosporin. 

Domestic News

• Market Update Futures are moving higher as investors remain confident that today’s CPI will show controlled inflation and that housing starts will display a rebound in new home construction.
• The CPI is due to be released at 8:30, and is expected to increase a seasonally adjusted 0.2% for May, with rising food and gasoline costs driving the increase.
• Housing starts are also due at 8:30, and are expected to rise at an annual rate of 953,000 in May, showing a rebound from April’s 853,000 rate (which was the lowest since November). 

International Updates

Asia

• Market Update Overall, Asians markets are fighting for direction. Japan and Hong Kong equities closed with minimal gains as investors worry about today’s FOMC meeting.  
• Interest rates at the Chinese interbank funding market are ripping while foreign-capital inflows are slowing thanks to the country’s determination to slowdown the rapid credit growth. Banks want the People’s Bank of China to inject liquidity via decreasing reserve requirement. 

Europe

• Market Update Also fighting for direction ahead of tapering uncertainty. 
• ECB’s President Draghi at a conference in Jerusalem today announced that the central bank will use non-standard measures and interest rates to help mend their financial dilemmas.
• Investor confidence rises in Germany, a sign that the recovery is gaining momentum.

Corporate

• Sprint Nextel (S) filed a lawsuit against Dish Network (DISH) and Clearwire (CLWR) in a patetic attempt to stop Dish’s tender offer for Clearwire. 

Commodities

• For the first time, the US is exporting more oil now than in the 1970’s! 
• Copper and gold retreats from Fed inactivity.