Bernanke Speaks, But Who's Buying the Rally?

As expected, Fed Chairman Ben Bernanke gave his highly-anticipated speech at Jackson Hole, Wyoming this morning and did not outline any further Federal Reserve policies - specifically another round of quantitative easing (QE) - that would have signaled not only a weak, struggling economy, but more easy money for bankers, stock traders and the like.

Not that money isn't easy already. The Fed, in its last policy statement earlier this month, specifically stated that they would keep federal funds rates at close to zero until the middle of 2013. In the simplest of terms, the cost of money can't get any lower than zero, so any other stimulative motions would have - as have the last two rounds of QE - essentially been throwing good money after bad.

Wall Street's reaction to the Chairman's relaxed posture on monetary policy was not unexpected, but still a bit obtuse. After falling off precipitously in early trading (the Dow registered a 200+ point loss), stocks gathered momentum, went positive and ended the day - and the week - with broad gains. The only factor missing from the upside move was volume. Today's rally, like many which preceded it during the days of QE2, was rather muffled.

Two events, an ocean apart, will likely have major impacts moving forward into Monday. The Greece rescue plan has run into some turbulence, as Greece has set terms for the level of private participation and Euro nations spar and debate collateral obligations from the Greeks, now that Finland and Austria have secured such from the Greek government.

Along the Eastern coast of the United States, shorelines were being evacuated as Hurricane Irene meanders toward the Mid-Atlantic states of South and North Carolina, Virginia, Maryland and Delaware. The sizable storm is expected to make landfall on Saturday at North Carolina's Outer Banks and proceed with a bee-line path toward the major metropolitan areas of Philadelphia, Northern New Jersey, New York and Boston.

Expected to raise water levels with a storm surge of as much as 20 feet, Irene has the potential to bring devastation to some of the most populated areas of the country.

Traders didn't seem to make much of such turbulent conditions in both the weather and the global economy. They also shrugged off the decline in the second estimate of GDP, from 1.3% to 1.0%, which was announced prior to the opening bell. The University of Michigan's consumer confidence index also rose slightly, from 54.9 to 55.7, but, like Bernanke's speech, the news seemed unimportant.

As it turned out, the major indices put in their first winning week in the last five, a hopeful sign that the averages have encountered only a correction and have not fallen back into bear market territory, even though there's quite a bit of chatter about a resumption of the recession, muted growth prospects and a subtle notion that the FOMC will announce some policy directions at their September meeting, possibly to include some form of monetary easing.

Dow 11,284.54, +134.72 (1.21%)
NASDAQ 2,479.85, +60.22 (2.49%)
S&P 500 1,176.80, +17.53 (1.51%)
NYSE Composite 7,245.82, +96.15 (1.34%)

Despite the exceedingly low volume, advancers slaughtered decliners, 5258-1302. NASDAQ new highs numbered just nine (9), with 106 making new lows. On the NYSE, there were 13 new highs, but 101 new lows. The combined totals of 22 new highs and 207 new lows continue to suggest further downside developments.

NASDAQ Volume 1,860,127,125
NYSE Volume 4,936,341,500

Oil was relatively unchanged for the second straight day, with WTI crude futures posting a gain of just seven cents, closing out the week at $85.37.

Gold roared back against the margin hikes and central bank shorting, posting a wicked gain of $56.20, boosting the price per ounce back to $1827.50. Silver continued its bounce, up 22 cents, to $41.34.

With stocks and precious metals both rising on the day, one questions which group of speculators has the market sentiment measured correctly as the two asset groups are usually polar opposites.

As long as there's more debt being created to pay back already soured debt, you can bet the gold bugs and silver eagles have it right.

Uncle Warren to the Rescue of Bank of America; Jobs Steps Down at Apple

Two luminaries of the corporate world made moves that affected the overall markets, but a couple of stocks in particular.

Late Wednesday, Apple (AAPL) founder and CEO, Steve Jobs, announced that he was, effective immediately stepping down as CEO of the company due to health reasons and will now take up duties as Chairman of the Board.

Jobs' contributions to computing and high tech in general are the stuff of legend. Not since the heyday of Thomas Edison has the world been so influenced by one man's innovations. Jobs was a pioneer in personal computing and communications, first, with the Apple I and II, then the Macintosh, and more recently, the creation of the iPod, iPhone and iPad.

While Jobs will still have a hand in the operation of the company he founded in Cupertino, California (where it is still headquartered today) in 1976, most of the day-to-day operations will be left to newly-named CEO, Tim Cook and his staff.

Today, amid a firestorm of controversy concerning the fiscal health of Bank of America, billionaire Warren Buffett stepped up and injected $5 billion into the bank via a private offering which will net one of the world's richest men a 6% dividend over five years.

Buffett's holding company, Berkshire Hathaway, also received warrants to buy 700 million shares of common stock at just over $7.14 per share, with an unusually long 10-year exercise period.

The deal answers the question of whether Bank of America (BAC) was indeed in need of additional liquidity with a resounding "yes." Otherwise, Buffett's offer would have been turned down, as it is somewhat expensive for the bank.

The deal really solves none of BofA's liquidity and solvency issues. They are highly-levered, beset on all sides by the mortgage mess that has evolved since their purchase of Countrywide Financial in 2008, and in need of funds to meet new capital requirements. A paltry $5 billion from a rich uncle isn't going to cut it, and Buffett's bold maneuver may turn out to be another bad bet. Buffett made similar deals at the height of the financial crisis, taking out stakes in Goldman Sachs (GS) and General Electric (GE).

Inital reactions to both events were highly-charged. Apple stock fell nearly 7% in after hours trading on Wednesday, but, by the market close on Thursday, the stock was only down 2.46, or less than 1%.

On the news of Buffett's investment, Bank of America stock spiked as high as 8.80, after closing Wednesday at 6.99. At the end of the Thursday session, most of the froth had been sold off, with the nation's largest bank by deposits closing at 7.65, nearly a 10% gain.

The broader market fared less well, putting an end to the three-day winning streak which began on Monday. Uncertainty over just what Fed Chairman Ben Bernanke will say in his Friday morning speech at Jackson Hole had traders on the edge of their seats, with many deciding to take a wait-and-see position.

Bernanke is scheduled to give his keynote address at 10:00 am EDT.

On Friday morning, prior to the Chairman's speech, the government will announce its second estimate of second quarter GDP, which is expected to be revised down to 1.0% after the initial reading of 1.3%.

Most analysts are not expecting Bernanke to make any great policy pronouncements, though some are still clinging to hopes that he will announce another round of quantitative easing.

For the most part, traders were selling off positions in advance of the speech.

Dow 11,149.82, -170.89 (1.51%)
NASDAQ 2,419.63, -48.06 (1.95%)
S&P 500 1,159.27, -18.33 (1.56%)
NYSE Composite 7,149.67, -123.46 (1.70%)

In a broad retreat, declining issues outpaced advancers, 5044-1552. The NASDAQ had just eight (8) stocks making new highs, with 65 hitting new lows. Over at the NYSE, there were 14 new highs and 53 new lows. The combined total of 22 new highs and 118 new lows continues to signal risk to the downside. Volume was light.

NASDAQ Volume 1,812,493,625
NYSE Volume 5,741,944,000

Oil gained 14 cents, to $85.30. Gold, in a dramatic reversal, picked up $22.20, to $1773.50, but silver was the big winner, adding $1.39, to $41.08.

Despite Buffett's "calming effect" markets are still very shaky, as none of the issues which ignited the volatility of the past two weeks have been resolved. Bernanke's speech will likely only add some fuel to the fire, especially if, as many believe, he will not open the door to QE3. On top of all that, Wall Street is bracing for a water-logged Monday, as Hurricane Irene races along the US Eastern seaboard.

The outlook for days and weeks ahead is still quite uncertain.