Core inflation barely budges in February–but headline consumer price inflation hits a 2.9% annual rate

Headline inflation rose by 0.4% in February. That was a jump from the 0.2% increase in the Consumer Price Index in January and the biggest increase in consumer prices since April 2011.

The big culprit was the cost of energy. Gasoline prices rose 6.0% in the month and accounted for 80% of the increase in headline inflation.

Core inflation—which doesn’t include volatile food and energy prices—rose 0.1% in February. That was actually a drop from the 0.2% increase in January.

Economists surveyed by Briefing.com had expected the headline inflation number to show a 0.4% increase in February. Economists surveyed by Bloomberg had projected that the core rate would climb by 0.2%.

The Federal Reserve watches the core inflation number and there’s nothing in the less than projected 0.1% increase in core inflation in February to make Ben Bernanke and company rethink their commitment to keeping short-term interest rates at 0% to 0.25% through the end of 2014. Inflation, by this measure, is under control.

The worry these numbers have likely created at the Fed is, in fact, in the other direction—they show a significant drag on growth from higher energy prices that may slow the economy. Read more

The global casino is moving on.

Now that the European Central Bank has flooded the European banking system with 1 trillion in euros, and now that Federal Reserve Chairman Ben Bernanke has said that the U.S. central bank isn’t thinking of a new program of quantitative easing, the best candidate for a big injection of central bank cash into global asset markets is the People’s Bank of China.

So the big money is moving on. In the new “Paranormal” market (see my March 2 post http://jubakpicks.com/2012/03/02/call-it-the-new-paranormal-market-youll-need-some-new-investing-tools-but-the-profits-are-out-there/ ) global cash flows count more than economic or company fundamentals. At least in the short term.

Italian banks such as the country’s biggest UniCredit or Banca Popolare di Milano Scarl closed March 2 up 80.2% and 107.3%, respectively, from the January 9 low. Weak banks did better than the soundest institutions in the wake of the European Central Bank’s lending spree, but even a solid bank such as Spain’s Banco Bilbao Vizcaya (BBVA) is up 18.5% from January 9 through March 2. The run-up in European banking stocks probably isn’t over—but the biggest money has been made and the odds of a retreat in the sector are rising.

Getting in early on the next spin of the central bank wheel in China looks like a more attractive gamble than sticking it out in Europe in the hope that the Greek rescue deal and the EuroZone fiscal discipline pact will produce economic facts to back up the current optimism.

I think that’s true even though China yesterday lowered its target for 2012 growth to 7.5% from 8%. (For my take on the meaning of that change see my post of March 5 http://jubakpicks.com/2012/03/05/china-cuts-growth-target-to-7-5-from-8-but-i-dont-think-chinas-leaders-are-forecasting-slower-growth/ )

Predicting where global cash will slosh next—and then betting on the markets it’s sloshing into and against those markets it’s sloshing out of—is the current name of the investment game for big money players. You may not like this game, but there’s nothing stopping individual investors from making money off these relatively short-term trends.

On the other hand, you don’t need to play in this casino. I think investors that measure time horizons in more than a quarter or two can even make money by picking up bargains in solid stocks in markets that the big money has deserted and holding them until the wheel spins in their direction again.

But play or not, you do need to understand the game, if only so that the short-term volatility doesn’t scare you out of good long-term positions and so you understand why for weeks on end the markets might sell down an absolutely fundamentally sound stock.

So let’s look at why I think the wheel is spinning away from Europe, and toward China, and at some specific stocks to use if you choose to play this turn of the wheel. Read more

On Wednesday, January 25, the U.S. Federal Reserve said it would keep interest rates at their current exceptionally low level until the end of 2014. Forget about the middle of 2013, which seemed extremely far away when the Fed made that “guarantee” in August. And forget about the beginning or middle of 2014. Now the Fed is talking about the end of 2014.

Almost three years from now. Three years with short-term interest rates near 0%.

Let’s cut straight to the chase for investors: Who wins and who loses from this extraordinary statement of policy by the U.S. central bank? Read more

At 2.8% fourth quarter 2011 GDP growth disappoints–and now we can see what the Fed fears

Is this what the Federal Reserve saw in the fourth quarter GDP numbers that made it pessimistic enough on Wednesday to say that exceptionally low interest rates will be with us until the end of 2014 instead of “just” the middle of 2013?

I’m not talking about today’s headline GDP number, although that was disappointing. The “advance estimate”  (the first estimate and subject to future revisions) showed real GDP climbed at an annual rate of 2.8% in the fourth quarter of 2011. That was below the consensus among economists surveyed by Briefing.com of 3.2%. But well above the 1.8% annual growth recorded in the third quarter of 2011. Fourth quarter growth was the strongest since the second quarter of 2010.

But 2.8% was still disappointing because in recent weeks economists and Wall Street had pushed their expectations above 3% to as high as 3.5% for the quarter.

The real problem with this number is where the growth came from and what that forecasts for the first quarter of 2012. Read more

Fed surprise as central bank says it will keep rates exceptionally low through end of 2014

Actually something of a surprise from the Federal Reserve’s Open Market Committee today.

The committee decided to keep its target rate for short-term interest rates at 0% to 0.25%.

No surprise there.

But then it said it anticipated keeping rates at that exceptionally low level through at least late 2014. Previously the Fed had said “though mid-2013.” Read more