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/ .

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

Are we headed back to the days of ‘risk off’?

It certainly looked like it last week with the market worried about slowing growth in Europe and about a hard landing in China.

The most striking indicator to me was the reversal in the Treasury market. After climbing for the week that ended on Friday, March 16, in the aftermath of the Fed’s slightly more positive take on the U.S. economy, Treasury yields fell this past week as investors looking for safety bid up prices. (Yields fall on Treasuries as prices rise.)

Yields on the 10-year U.S. Treasury notes fell the most since January, dropping from last week’s five-month highs. Yields fell 0.06 percentage points to 2.23% for the week that ended on March 23. That almost exactly wiped out the increase in yields of 0.27 percentage points in the week that ended on March 16.

The risk-off trade that alternated with period of risk-on trading in 2011 is characterized by flight to dollar and yen denominated assets, selling of emerging market currencies, bonds, and equities, and relative outperformance by “safe” markets such as the United States against “risky” markets such as China or Brazil.

Of course, the shift from risk-on to risk-off takes a bite out of all markets as investors in “safe” markets sell the riskier assets in those markets.

The strength of the “risk-off trend” will get a test in the upcoming week when the U.S. Treasury is scheduled to auction $99 billion in two-year to seven-year maturities.

If yields still drop even in the face of that jump in supply, it means that investors are looking for safety again and are willing to pay a big premium for it in the Treasury market. If that’s the case then I’d say risk-off is likely to last for a while.

The rout in the Treasury market continues: Yields on the 10-year note close at 2.38%, up from just 2% a little more than a week ago

Last week’s inflation numbers with the Consumer Price Index rising a steeper than expected 0.4% in February to push the annual headline inflation rate to 2.9% haven’t done anything to put the bond market in a better mood.

On March 16, the day of the inflation announcement ,10-year U.S. Treasury notes fell taking the yield to 2.31% at noon New York time. That was a huge change from Monday, March 12,  when the benchmark U.S. 10-year Treasury yielded just 2%.

This week hasn’t begun any better. The 10-year Treasury note fell in price (which means they climbed in yield) for the ninth straight day. The yield on the 10-year Treasury rose to close at 2.38%, the highest yield since October 28, 2011.

Last week’s inflation numbers reminded bond buyers that at 2% or even 2.3%, 10-year Treasuries are losing ground to inflation. Read more

Where does the stock market go from here? For those of us who started the year skeptical, is it time to abandon our skepticism and jump in whole hog? For those of us who have caught all or much of the rally is it time to start taking profits or is the best course to stand pat?

I ended 2011 and started 2012 saying that I thought the first half of 2012 would be scarily volatile and investors should keep their powder dry for a second half rally after the People’s Bank cut interest rates. Wrong as of seven weeks into 2012.

About two weeks ago I opined that the rally now underway would run through February 29—when the European Central Bank offered European banks another 1 trillion euros in loans. Until then, I said it was safe to play the rally. After that, the odds of a correction would increase. Do I still think that?

Let me give you my take on where we are now and what moves are most likely to result in good returns with a reasonable amount of risk. Read more