category: ECB

The Week’s News

 

Around the World

 

US: The S&P 500 was up 0.3% on the week. Year to date it’s up 8.9%. A big percentage of this increase (13%) has been attributed to the performance of Apple.

 

Europe: The Euro Stoxx 50 was up 0.9% on the week. Year to date it’s up 9.9%

 

China: The Shanghai Index was up 0.4% on the week. Year to date it’s up 11.8%.

 

Gold: As measured by GLD was down 3.4% on the week. Year to date it’s up 9.4%.

 

High Level Summary

 

Europe

The situation in Europe is not getting that much better. In fact, the ratings agency Standard & Poors was the first to rate the Greece in default this week.

Read: Forbes: Greece in Selective Default, S&P says and B&BE: What is a Ratings Agency?

However, the market isn’t as sensitive to European news anymore. It would appear that a lot of negative news was priced into the market in 2011. And now that the European Central Bank is behind the continent with their LTRO program—investors feel more comfortable.

Read: Seeking Alpha: LTRO: What it Meant, What it Means

 

China

China continues to blaze ahead. Hong Kong’s Heng Seng market has been the best performer globally year to date.

 

Gold

And Gold—the precious metal took a hit this week as Fed Chairman Bernanke didn’t signal any additional quantitative easing in the near term. The market perceived this as less dovish more hawkish than his usual stance.

Read: What are the Doves and the Hawks?

So, when the market expects the U.S. government to print less money, people are less concerned about the value of the dollar and less interested in buying Gold as a hedge.

 

Want to Buy a Lighthouse?

Sardinia, the Italian island, will lease the formerly state owned lighthouses to private developers.

What on earth can you do with a lighthouse? Well, you can start a luxury lighthouse hotel like this gorgeous number, Faro Capo Spartivento.

Read: Yahoo News: Euro Crisis: Cash Strapped Italy Sells off Iconic Lighthouses

 

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Quick Weekly Summary

This Week’s News:

US: The S&P 500 was up 0.1% on the week and 4.7% year to date.

Europe: The Euro Stoxx 50 was up 0.4% on the week and 5.1% year to date.

China: The Shangahi Index was up 4.8% on the week and 5.1% year to date.

Gold: Gold (as measured by GLD) was up 4% on the week and 8.4% year to date.

It looks like all markets have been off to a nice start.

 

Quick World Summary

In the U.S., GDP grew a bit less than the market expected. Italian and Spanish bond yields continue to fall (meaning that people find those countries less risky since the ECB stepped in). However Spanish unemployment rose to 23% and Italian confidence hit it’s lowest level since the survey began.

It would appear that while the ECB is trying to create a necessary, but temporary, band-aid– deep problems in the Euro-Zone still exist.

 

What Was the Big News on the Week?

The Federal Reserve (the U.S. Central Bank) made a big announcement this past week. They stated that they were going to hold the Federal Funds Rate at zero until the end of 2014.

 

Why Did They Do That?

The Central Bank in the United States (The Fed) has a mandate unlike any other one in the entire world. They are to promote both full employment and inflationary stability. All other Central Banks globally focus just on inflation. This unique role of the U.S. Fed is called—the dual mandate (note: we thought we were pretty clever here).

So, as a result of this dual mandate, the U.S. has been behaving a bit differently than the rest of the world’s Central Banks. Why?

Other Central Banks aren’t moving too much. Why? Inflation across the world is already, broadly, within the a Central Banker’s comfort zone. In the U.S. it is at about 3%. So, to a ‘normal’ central bank, that would mean—do nothing.

However in the U.S. Unemployment is still high. And because of that the Fed is still taking action. The action in this case is keeping interest rate very low. For more on various types of rates, read here: The Rates: Fed Funds, Discount and Prime.

 

What Effect Does this Have?

This has an effect upon all types of markets.

Rates: This can help keep mortgage rates and other borrowing rates low.

Investments: This keeps your investments in bank checking accounts earning practically 0%. This keeps bond yields very low—so you are not paid as much to own bonds today. A move like this tries to push investors into riskier assets.

The Dollar: This weakens the value of the U.S. Dollar, which fell this week.

Gold:  Gold is sometimes viewed as a substitute when people don’t want to hold paper money. So in moves like this, Gold rises.

 

Don’t Stress – Do Yoga in the Airport

San Francisco strikes again! They opened a yoga room in SFO for frazzled travelers, nervous flyers and people who just need to stretch.

We, at Bull & Bear, are thrilled and can’t wait to get in there. Check it out.

Do some free yoga classes while you’re in there with our favorite, Yoga Today- filmed in Jackson Hole.

 

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