Financial Review

Tuesday, January 03, 2012

DOW + 201 = 12418SPX + 21 = 1278NAS +44 = 264910 YR YLD +.09 = 1.96%OIL +4.22 = 103.05GOLD +37.20 = 1604.60SILV +1.85 = 29.81 (biggest % gain in 3 years)PLAT + 32.00 = 1435.00 Here is the basic question for investing in 2012: will we see a turnaround? Will we see economic growth or is the economy so inherently damaged that you should fear it and possibly short it? The Federal Reserve has been driving the bus, so let’s start there. The Fed has been active in Quantitative Easing. This means the Fed has been adding tremendous amounts of money into the financial system by selling treasuries directly from the government to the big banks at auction.  The Fed then purchases the treasuries from the big banks, also known as primary institutions, and pays the banks by crediting their accounts. The big banks get paid for holding the treasuries in reserve. And the big banks now have new “cash” for their banking activities. You have to think the Fed intervention had something to do with treasury bonds posting one of their biggest annual gains last year. Further, the Fed has a ZIRP Policy, or Zero Interest Rate Policy. The Fed has held interest rates to the big banks at near zero for the past 3 years, and they announced today they will communicate any intention to change the ZIRP – there will be no surprise interest rate hikes, but eventually there must surely be an interest rate hike. …