GURU Watch: Marc Faber on Operation Twist, outlook on US economy

Marc Faber speaks on Reuters Insider: The Fed just stated the obvious. The global stocks' sharp decline in the last few days only reflect their concern about the outlook of the world economy. The US sptock market peaked this year on May 2nd, when the S&P went to 1370 and the market has been declining since then. The Fed's decision to shift asset holdings from short-term to long term will pose significant challenge in the future when there's a need for the Fed to increase interest rates (for whatever reasons such as concerns about inflation). Doing so would put pressure on  the bond market.

His view is that if the S&P drops to around 900 to 950, the Fed will implement QE3. The dollar will continue to gain momentum because he thinks USD is still better than other currencies. Regarding China, there are views that the Chinese bubble is bursting (as indicated by the Hong Kong stock market). The Chinese economy is slowing down and might crash. Gold will continue to high value because when asset prices go down, Mr. Faber believes everyone will pressure the Fed to print money

Youtube Rock in rio

artists katy perry, elton john, rihanna.
http://www.youtube.com/rockinrioeuvou?feature=ticker
Does anyone know the artists' calendar? When is each one performing, so I can be watching.

Facebook timeline and open graph reaction

From Zuck's keynote speech, Timeline is a way to engage your friends and family "all your stories, all your apps and the new way to express who you are." Facebook staff learned that people are interested in using application to express themselves but the old design became unwieldy when they started putting boxes at the end of their profiles. The next new feature is Open Graph, to identify new vocabulary that helps people connect. There is a new way to express light-weight activities called "ticker".

Trending at the moment: Magic brownie

According to Wikipedia, magic brownie is a type of brownie made with cannabis butter. But why is this trending on twitter?

So what are tools that the Fed has in order to carry out its dual mandate?

The Federal Reserve essentially have three important tools that it can use to accomplish its dual mandate of maximum employment and price stability. They are the open market operations, reserve requirements and discount rate.

Word cloud for today's FOMC press release

The Fed made "Operation Twist" official after the FOMC Meeting

Not a shock and awe operation as some might have expected from the Fed's statement today after the FOMC meeting. The Fed basically will buy $400 billion of long-term Treasury and sell $400 in short-term (which some might call this "Operation Twist") until the middle of 2012. This is equivalent of trying to flatten the yield curve.  As a result, there will be no significant money supply expansion for the time being.  However, this is only the official stance of the Fed's policy as of now. The Fed can of course step in anytime to pump in liquidity into the market if need be. From the statement, the Fed's view is that the US economy is still struggling to find a foot hold and remains anemic.

Trends as results of announcement:     bank stocks  DOWN  gold  DOWN 
                              

What is operation twist ?

Operation Twist, named after the dance that was popular during the Kenedy administration, is a way of trying to lower long-term interest rates that are used in the housing market and at the same time keeping short-term rates unchanged. By doing so, the Fed will try to keep the USD strong while making it easier for the housing market to recover.

This week's important economic data

The highlight of this week's economic view will be the FOMC rate decision on Wednesday September 21st. The  FOMC meets eight times per year and one of the key tasks of the committee is to set the overnight lending rate, which is, in effect, the benchmark rate that influences banks' short-term lending rates. Many interest rates in the financial market, such as mortgage rate, bond, and consumer loans, are affected by this rate, along with the future trend of the strength of the US Dollar. An increase in rates normally signal the strengthening of the US Dollar, as investors seek higher rate of returns on their currency holdings. There seem to be consensus in the market that this upcoming FOMC meeting will not have much impact on the USD as pointed out by two analysts at Citi and BOA. They also pointed out that the market are primarily concerned with development on the Euro front which is still dealing with the looming Greek default. Investors looking for movement in the currency market should look for opportunities in Europe.

Along with the FOMC rate decision, analysts will pore over the accompanying Fed statement to find clues about the possibility of QE3. The Fed Chairman, Ben Bernake, gave a speech in Jackson Hole, basically saying that another round of monetary accommodation (QE3) would hinge on further deterioration of economic outlook and deflation. The statement will be released on Wednesday 2.15pm EDT.

On Tuesday September 20, we have housing starts data from the Census Bureau, a key rate that indicates activities in the real estate market. Housing starts indicate the number of housing units whose construction begins each month.