Advice for Fed: Don't Do the Twist Again
NEW YORK (TheStreet) -- If Federal Reserve policymakers issue a statement Wednesday that they're creating QE3 or extending "Operation Twist," they will only help the "too big to fail" banks and the bigger regional banks by inviting another round of speculation in commodities and equities.
If the Federal Open Market Committee continues to include the phrase "the housing market remains depressed" in its statement without offering a solution, then shame on it.
Regional banks have not passed the benefits of lower interest rates on to consumers or small businesses. Banks pay next to nothing on CDs and money market funds, while they have raised rates on credit cards and small business loans.
For example, Wells Fargo(WFC) sent a notice to clients earlier in the year that significantly raised the interest rate on Small Business Line of Credit Accounts in May.
The interest rate on lines of credit was 5.75%, 250 basis points higher than the prime rate, which is 3.25%. But now the spread is 500 basis points, and the bank is charging an interest rate of 8.25%.
A QE3 or an extension of "Operation Twist" will thus not help Main Street USA, so let's not twist again!
Today I will profile the 24 banks in the KBW Bank Index(BKX.X) to measure the risk/reward in these stocks in reaction to the FOMC decision at 12:30 p.m. EDT Wednesday. Federal Reserve Chairman Ben Bernanke begins his press conference at 2:15 p.m. EDT.
In my judgment, additional Fed easing is not justified unless it is specifically directed at helping the housing and mortgage markets.
The daily chart for the KBW Bank Index shows rising momentum (12x3x3 daily slow stochastic).
The BKX is above its 21-day and 200-day simple moving averages at $43.54 and $42.38, respectively.
Tuesday's high was a test of the 50-day simple moving average at $45.64.
My annual value level is $42.98 with downtrend resistance at $47.72. The downtrend connects the highs of March, April and May.
The BKX is up 15.3% year to date and up 39.5% since its Oct. 4, 2011 low, and is down 10.4% from its March 19 high.
Chart Courtesy of Thomson/Reuters
ValuEngine Data and Value Levels/Risky Levels for the 24 Stocks in the BKX