The financial markets’ faith in the world central banks would be touching if it weren’t so scary.

In the late 1990s we had what was called the Greenspan put. In the dark days when the collapse of a hedge fund portfolio at Long-Term Capital Management threatened global financial markets, then Federal Reserve chairman Alan Greenspan led a massive intervention to stabilize the markets. Investors studying Fed policy concluded that the Fed would intervene to prevent any future collapse in asset prices and that therefore piling on risk was a good investment strategy. We all know how well that ended.

What progress we’ve made! It looks like we’ve replaced the Greenspan put with a global put backed not just by the U.S. Federal Reserve but also by the central banks of the United States, the EuroZone, and the People’s Bank of China. You’re entitled to worry about how this will end. Read more

Talk about fine-tuning. The changes in wording—let alone any shift in policy—made in today’s 12:30 statement from the Federal Reserve’s Open Market Committee are miniscule.

So, for example, today the Fed said “Despite some signs of improvement, the housing sector remains depressed…” while in its last statement on March 13 it noted that “The housing sector remains depressed…”

Inflation has picked up somewhat, according to today’s statement, but the increase is expected to be temporary. Last month, the Fed said inflation was subdued.

And here’s my favorite big change: In March the Fed said it expects moderate growth over coming quarters but today it said it expects growth to remain moderate over coming quarters and then to pick up gradually.

In short, nothing here to send those betting on Federal Reserve easing off to buy gold and nothing to drive those worried about growth kicking off higher inflation to sell their Treasuries.

The Federal Reserve did confirm its promise to keep rates at 0% to 0.25% through the end of 2014.

Federal Reserve Chairman Ben Bernanke is scheduled to give his regular post-meeting press conference today at 2:15.

Masochists can watch it live on the Federal Reserve website http://www.federalreserve.gov/ .

If bad economic and bond market news raises the odds that the Federal Reserve and other central banks will launch another round of monetary stimulus, then “bad” news is really “good” news, right?

That’s the logic today when despite—perhaps better yet, “because of”—bad news on U.S. unemployment and Italian bond yields, global stock markets have moved back into rally mode.

This morning the Department of Labor announced that initial claims for unemployment increased by 13,000 to 380,000 for the week that ended on April 7. (The jump would have been bigger except that initial claims for the previous week were revised upwards to 367,000 from 357,000.) That was the highest level since January 28. The less volatile four-week moving average climbed to 368,500 from 364,250. Economists surveyed by Bloomberg had expected 355,000 initial claims for the week.

At today’s bond auction in Italy the government sold 2.88 billion euros ($3.78 billion) of its 3-year note at a yield of 3.89%. Read more

Federal Reserve minutes disappoint a market looking for signs that another round of central bank cash is on the way

Somehow Wall Street managed to convince itself that the Federal Reserve minutes released today from the Open Market Committee meeting on March 13 would show that the Fed is thinking about another round of quantitative easing in June.

When the minutes, released at 2 p.m. New York time, didn’t show any indication that the Fed was planning to expand its balance sheet again and do more bond buying, stocks staged a mild retreat, falling to 1404.70 on the Standard & Poor’s 500 Stock Index at 2:40 p.m. from 1414 at 2 p.m.

To those on Wall Street who were convinced that the Fed had talked about plans for more quantitative easing, the February minutes were especially disappointing since they were a step back from the comments at the January Fed meeting about the need for a new program of bond buying. In the minutes from the January meeting a couple of members said that if the economy continued at its current pace it “could warrant the initiation of additional securities purchases before long.” In the February minutes that weakened to several expressions of the need for another round of quantitative easing if the economy weakened.

Today’s retreat (even if modest) in stock prices on an absence of comments about the need for more monetary easing would seem to buttress the position of critics of global central bank policy who say that the financial markets have gotten addicted to ever increasing floods of money from the Federal Reserve, the European Central Bank, the Bank of Japan, and others into the financial markets. And who worry that the recent recovery in asset prices isn’t sustainable once banks stop adding to the global money supply.

I’m not sure, however, that investors should find any comfort in any vindication of that position. Read more

Dollar Ben Bernanke was very good for gold yesterday

Stocks liked Fed chairman Ben Bernanke’s speech yesterday that emphasized the Federal Reserve’s doubts about the strength of the recovery in the job market. But the gold market liked it even more. The SPDR Gold Shares climbed to $164.40 yesterday from $161.53 on Friday, March 23. That was a 1.8% gain for the gold bullion ETF.

Bernanke chose a glass-half-empty approach to recent job gains in his speech to the National Association of Business Economists. The rapid drop in the unemployment rate in the last six months to 8.3% from 9.1%, he said, may reflect a one-time bounce reversing the job cuts of 2008 and 2009. “To the extent that this reversal has been completed,” Bernanke said, “further significant improvements in the unemployment rate will probably require a more rapid expansion from consumers and businesses, a process that can be supported by continued accommodative policies.”

In other words the Fed isn’t even vaguely thinking of rescinding its promise to keep interest rates at current extraordinarily low levels through the end of 2014. And the possibility of another round of quantitative easing remains on the table.

The stock market, accurately, heard the sounds of printing presses churning out dollar bills in Bernanke’s remarks. Stocks rallied because increases in the money supply support faster economic growth (in the short-run anyway and who worries about the long-run on Wall Street right now?) and because lower interest rates make stocks look even better against bonds. (The S&P 500 stocks currently yield 1.86%. That’s more than the 1.02% yield on the 5-year Treasury note and not far behind the 2.18% yield on the 10-year Treasury.)

So too did the gold market where the sound of printing presses argues for a falling dollar (good for gold) and an eventual increase in inflation (good for gold).

Right now it looks like the SPDR Gold Shares ended their 10% or so correction from their February 28 intraday high at $174 to a bottom at $158 and have, with yesterday’s move broken through resistance to start a new rally.

Potentially anyway. Read more