This may be good for Starbucks Corporation (NASDAQ: SBUX) as Einhorn believes that the deal is not as positive as the bulls believe and that Starbucks looks to be getting the better end of the profits.  Einhorn did disclose having a position (obviously a short-sell position).  What investors need to know is that this observation is crushing the stock and it is having more of an impact (on the flip-side) than if Warren Buffett had disclosed a position.

Einhorn often challenges companies.  He went against The St. Joe Company (NYSE: JOE) and Bruce Berkowitz of Fairholme Capital earlier this year saying that St. Joe was too aggressive in acquiring property and called it very overvalued.  It turns out that this one did fall and it sits very close to 52-week lows and trades at half the peak of the last year or so.

It looks as though Einhorn was probably caught long and wrong in Sprint Nextel Corporation (NYSE: S) from when he called it an undervalued real estate play due to vast spectrum assets.

Einhorn had also made decent sized bets disclosed in May of this year in Best Buy Co. Inc. (NYSE: BBY) at about 6 million shares worth over $172 million (down to around $150 million today on a static basis) and General Motors Co. (NYSE: GM) with a new position of more than 3.5 million shares worth more than $100 million (down close to $80 million today on a static basis). 

Betting against companies and being vocal about them is one thing.  It certainly does not assure success.  What is funny is that Green Mountain was just featured as a very expensive stock by us due to the market valuations but also as one of the dozen or so companies which are expected to outperform the fanboy holders of Apple Inc. (NASDAQ: AAPL).  

Green Mountain shares are down 11% at $81.76 and now the implied upside would be closer to 50% if the analysts are correct in their price targets.  If…  Einhorn is having a sharp impact today and now the battle will be known in time over whether or not he was right or if the bullish analysts were right for remaining so positive.

JON C. OGG

If you invest in companies with high exposure to China, this might matter.  If you invest in key ETFs like iShares FTSE/Xinhua China 25 Index (NYSE: FXI), SPDR S&P China (NYSE: GXC), and Guggenheim China Real Estate (NYSE: TAO) or if you prefer closed-end funds like The China Fund, Inc. (NYSE: CHN) or Templeton Dragon Fund Inc. (NYSE: TDF) then this really matters.  Keep in mind that Jim Chanos has been bearish on China for some time.  The problem is that with things slowing elsewhere the issues at hand could be coming to a real head.  These funds and ETFs are generally down about 25% from year highs and most are closer to their lows of the last year.

Chanos recently spoke to Carol Massar on Bloomberg TV in this video.

On the debt issue… “The Chinese government’s balance sheet directly does not have a lot of debt. The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse.”

The property bubble… “I think that will be the surprise going into this year, and into 2012 – that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They’re turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China.

“Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in.”

What Chanos is shorting… “We are short Chinese banks, the property developers, commodity companies that sell into China, anything related to property there is still a short.”  Oddly enough, Melco Crown Entertainment Ltd. (NASDAQ: MPEL) might be an indirect winner as Chanos is long the Macau casinos which are growing at a faster rate even than the property developers.

Chanos also outlined an IMF downgrade to China’s growth he outlined tha the write-offs make China’s 9% growth really about zero.

Chanos has been shorting China for some time and a recent CNBC video shows more on the matter.  Oddly enough, in August the Asian sector funds netted in a half-billion dollars in inflows.

JON C. OGG

No money was injured while filming

The American Jobs Act is a bill which is supposed to be “fully paid for.”  It isn’t.  In the attack on wealth at all costs, the measure to tax municipal bond interest for the wealthy ($200K individuals and $250K households) is already coming under fire.  When Obama made his speech last week, we noted that the line in the sand was just drawn much deeper.  Including the muni-tax is something that his the bond sector of investors a bit up in the air.  The good news is that most of what we have found and most of what we have been told directly by market participants indicates that this tax is probably a bit of an over-reach.

We have been reviewing many comments on this matter and have some serious questions about the effort to tax muni-bonds for the wealthy.  Are the sub-$250K households about to pick up all the slack in the Municipal bond market?  Highly unlikely.  Meredith Whitney has already scared the non-investor class away from munis with her predictions of impending waves of default from cities, counties, and other municipalities.  Sadly, Mr. Obama’s tax ambitions may only make that possibility come closer to the truth.

If there is one asset manager that matters when it comes to municipal bonds, it is Nuveen Asset Management.  Nuveen has more municipal bond funds than anyone else that we have seen. The firm had more than $210 billion of assets under management as of June 30, 2011 and it has published a fairly scathing report called ‘Obama’s Jobs Bill Proposal to Restrict Municipal Tax Exemption: Likely a Non-Starter’

Nuveen noted, “The bill proposes to prevent individuals with incomes of $200,000 or more, and married couples with incomes of $250,000 or more, from deriving more tax savings from the use of tax-exempt bonds and other tax benefits than they would have if they were in the 28% tax bracket.”  It goes on to note, “Nuveen Asset Management believes that the proposal to modify the tax treatment of municipal bonds will ultimately be scrapped. In our opinion, the proposal lacks a broad constituency to support it and likely faces strong and coordinated opposition…”

24/7 Wall St. was forwarded some data from the public relations for the Glenmede fixed income team, a firm with over $20 billion in assets under management.  The team noted, “Their particular focus is on the tax-exempt income aspect. Despite their comments, it’s important to note that their assessment says this has a low probability of passing, but a high probability of stirring passionate investor discussion.” Glenmede’s figures on taxing munis:

• Punitive to high tax bracket investors and all issuers;
• Existing bond prices would fall modestly;
• Future issuance costs would increase;
• Under current tax rates, 10-year municipal yields would increase approximately 32 bps and 60 bps if top marginal rates increased to 40%.

Glenmede’s team further noted, “While we do feel as though tax-exempt bonds are under attack and the probability of a significant change at some point in the future has materially increased during the past two years, we don’t believe this proposal has a high probability of passage.”

We were also given a direct comment from Bryon Townsend, a Certified Financial Planner for W.R. Anderson & Co, LLC in Houston, Texas.  Townsend noted, “President Obama’s attempt to put caps on the “tax-free” status of muni bond income is another attempt to throw something against the wall without thinking about the actual impact in the real world.  This attempt to tax the wealthy, will put even more financial pressure on already struggling State and City governments by increasing the amount they will have to pay to issue debt.  It is seems careless that, in his jobs bill, Obama will risk crippling the one sector of our economy that is already having largest job losses.”

SGI is the institutional name under investment manager Rydex|SGI, which manages about $23 billion in assets under management.  The SGI Mid Cap Value strategy offers access to the same investment team, and while nearing capacity, is currently open to new investors.

On the retail side, Schier also manages an equally notable fund, Rydex Small Cap Value, which is open to new investors and recently attained a 3-year track record Rydex Small Cap Value Fund is rated 5-Stars by Morningstar; the Rydex Mid-Cap Value Fund (SEVAX) is rated 4-stars.

The explanation behind “nearing capacity” is rather simple.  The strategy is currently about $3 billion at SGI. The trick is to avoid owning a fund that is too large compared to its investment targets.  Since the fund has roughly 85 holdings, it is conceivable that the fund could have a real impact down the road on a stock simply by getting in and out of positions or when inflows or if redemptions hit in the future. The fund generally holds 65 to 100 positions.

Schier likes to play his cards close to the vest as he does not like to give away his investment strategy to outside managers and he does not want shadow trading around his entrance and exits of positions.  That being said, Schier did note that three areas offering great opportunity are property and casualty (P&C) insurance and energy, with a surprise sector interest in companies with significant public market exposure in various industries.  The surprise is that in the age of austerity, many companies selling to and servicing the federal government expect caution in orders.

In the realm of property and casualty insurance, or P&C, Schier likes The Hannover Insurance Group Inc. (NYSE: THG).  Despite being down about 30% from its highs in the last year, this one trades at a wide discount to peers.  It also pays a 3.2% dividend for you income seekers out there.  Schier credited them by saying, “They are effective operators.  They are gaining market share and their underwriting results are usually above peers.”  A recent acquisition of Chaucer in the United Kingdom is something the Schier expects will only add to earnings and profitability ahead.

Question: What is your investment process and how do you derive value today?

Our process seeks to uncover value stocks in virtually any market, including the volatile markets of today. The process includes three steps:

• 1. Screen for financially sound large cap companies with rising revenues, rising earnings, low debt to equity, favorable price to earnings, and favorable price to book ratios.
• 2. From that group, select only dividend paying stocks.
• 3. Add a covered call strategy on all stocks in the portfolio, to supplement cash from dividends.

Question: How does covered call strategy help in volatile market?

Our covered call strategy is more art than science. What it does is protect the downside somewhat at the expense of full participation in a large upside. We write calls on about a third of each of the stocks in our portfolio. We track our stocks to see if their movements reflect what the wider market is doing or if a stock is really going down on its own. In the latter case, we may dump the stock, but our loss is buffered by the covered calls we have issued in the past.

Question: When you screen for value, which two sectors are you finding to be the best?

The insurance sector and the consumer products sector present good value today. The energy sector is also displaying several stocks with good value.

Question: What are three of your top value stock picks and why?

We like Chevron Corp. (NYSE: CVX), Public Service Enterprise Group Inc. (NYSE: PEG), and Raytheon Co. (NYSE: RTN). Each of these stocks meets all our criteria (rising revenues, rising profits, low debt-to-equity, favorable P/E ratio and favorable price/book ratio) and each pays a nice dividend. Chevron’s dividend yield is 3.0%, Public Service Enterprise’s yield is 4.2%, and Raytheon’s is 3.4%.

Question: Raytheon seems like a risky recommendation, given the proposed cut of $400 billion in defense spending over the next 12 years.

We think that Raytheon is a good solid value, though perhaps more a tortoise than a hare. Its P/E is around 10 and its price-to-book is less than 2. We’re comfortable with those numbers.

Question: The fund also invests heavily in oil field services stock, which had a blowout year in 2010. This year the sector is doing considerably less well. Do you see some changes to the portfolio because of that?

Because we do a bottom-up analysis of our stocks, we don’t consciously try to overload on one sector or another. We hope for diversity, but we don’t push it. The oil field services sector is still a bread and butter area for us and we’ll stay with the stocks as long as they continue to pay dividends and as long as we don’t feel that they’re hurting our investors.

Question: With second quarter’s earnings season due to start next week, we’d like to know where you stand on second-quarter earnings and what’s your outlook on guidance?

We believe that corporate earnings will continue to show strength as a result of belt tightening, cost cutting, and debt reduction by many well-managed companies. Earnings will not reach record levels, but steady improvement will gradually lead us out toward full recovery — although we still have a long way to go.

Question: Value stocks fell victim to the recession just like the growth stocks, but do you expect them to hold up better than growth stocks and broader indexes (DJIA and S&P500) if the market rolls over again?

Value stocks will definitely hold up better in downside markets and volatile markets, especially stocks in those companies that pay dividends. When full recovery comes, growth stocks will probably be leaders on the upside. But as I said, we still have a long way to go before full recovery occurs.

Question: . Are there any special situations (M&A, spin-off, reorganization, etc.) out there that the market is either discounting entirely or has overlooked?

We assume continued market volatility for the forseeable future. We don’t know what will by the next Greek economic crisis, the next Japan earthquake disaster, the next Egypt or Libya political unrest, or how the politicians in our own country are going to handle the debt ceiling crisis, as well as the continued need for economic stimulus.

Therefore, we choose to stay the course and find good financially sound companies, who pay dividends and control their own debt. Special situations worry us because they involve too many unknown factors, which could be adversely impacted by the volatility flowing from whatever might be the next crisis.

Question: What do you mean when you say that more economic stimulus is needed?

I don’t necessarily mean a third round of quantitative easing. That’s a political question, and I don’t have a crystal ball that gives me any special insight into how that kind of question will be resolved.  But I will say that the future of the US economy depends on creating new jobs in the private sector. That will require capital investment on the part of US companies, and that will create more jobs and more spending.

Interview by Paul Ausick

24/7 Wall St. was given a chance to ask Tim Keating some questions in an interview about Keating Capital, as well as regarding industry trends and some recent deals that have been seen.  He has roughly 26 years of history in the capital markets and investing and his Denver, Colorado-based Keating Investments was founded in 1997.  Its site can be accessed here.

Keating has raised roughly $53 million through the end of May and that figure is expected to be roughly $70 to $75 million upon completion.  It is also expected to have about 3,500 shareholders by the time it is said and done.  Keating’s specialty is making pre-IPO investments in innovative and high growth private companies that are committed to becoming public within roughly eighteen months of the investment coming about.  Each investment is expected to be about 5% of the fund’s capital, implying up to $3 million to $4 million per investment.

The firm has already enjoyed some success even before being truly public on the markets.  Two of its investments have already made it to come public: Solazyme, Inc. (NASDAQ: SZYM) is a renewable oil and green bioproducts company; and  NeoPhotonics Corporation (NYSE: NPTN) a developer and manufacturer of photonic integrated circuit based components for use in telecommunications networks.  The group has also recently been involved in several other capital transactions and investments:

• Xtime, a service provider of Web scheduling and CRM solutions for automotive service departments;
• BrightSource, a developer solar energy generating facilities for utility and industrial companies;
• MBA Polymers, a company engaged in plastics recycling;
• Harvest Power which acquires and operates organic waste facilities.

We asked Tim Keating about this week’s news that GSV Capital Corporation (NASDAQ: GSVC) had announced a tentative transaction to buy shares in Facebook that reportedly assigned a $70 billion valuation.  On this front Keating noted the successes of Michael Moe, GSV’s chairman and CEO.  As far as the valuation, Keating noted that the Facebook valuation is dependent upon its real financial situation and we all know that the internal finances of that social media giant are under lock and key.

As far as the valuation for LinkedIn Corporation (NYSE: LNKD), Tim Keating noted that limited float and high valuation multiples seem sustainable “only if that dramatic growth can remain in place.”

Just yesterday came news that it saw a 33% gain in its adjusted EBITDA to $27.2 million in its first quarter of fiscal 2011 and as its first earnings report as a public company.  The company noted that operating income was up 52% to $19.7 million and its adjusted cash flow rose 60% to $14.3 million.  More importantly, its net loss fell to -$0.27 EPS from -$0.60 EPS a year earlier.

The company’s CEO was just on CNBC and his video presentation talked about growing faster and being larger than most social media including Facebook.  Before banking too much on this, the company said that revenue for the first quarter of 2011 was $83.52 million and there was no comparison to its prior year on that front in its press release.  That is a concern and a flag for us under overly selective disclosure so we went into its quarterly SEC filing and saw why they did not include the data…. Net revenue in the first quarter of 2010 was $86.205 million.  It turns out that the shrinkage was in both service and in product revenues.

The company also noted that it was currently considering several acquisition candidates in its press release, but when asked if it was for sale when it was on CNBC the only real answer given was that anything is for sale at the right price.

Shares hit a post-IPO low of $4.80 this morning but since the CEO was on CNBC touting the ‘Growth’ the shares are up about 17% at $5.82 on more than 1.4 million shares.  The market has barely been open for an hour and today is already the most active trading day since its IPO when 2.7 million shares traded hands.

Before you get too excited, keep in mind that the IPO price of $10.00 lasted for all of about three seconds.

JON C. OGG

This interview came at a very unique time.  It has been impossible to not notice that many key gold stocks have sold off much more than gold.  All you have to do is follow the move in the Market Vectors Gold Miners ETF (NYSE: GDX) with a loss of 15% or so in less than a month.  This was after the rapid cratering of silver seen in the iShares Silver Trust (NYSE: SLV) with roughly a 30% fall in less than a month.  Tom Winmill did not focus on silver in our interview, but this rapid drop after an equally rapid rise has been an influencing event in many shares tracking precious metals.

Winmill sees this latest drop as a buying opportunity for a long-term thesis in many of the key miners, explorers and producers of gold.  He noted, “Equity investors are pricing in much lower gold prices and that doesn’t look to be the case.  The companies involved in gold are now trading at lower valuations and I am getting more excited about gold stocks here now that margin expansion is taking place.” Winmill is looking for a peak of around $1,700.00 per ounce in the coming months and he expects that the year-end price is likely to be around $1,600.00.  As far as a year average for 2011, he expects that the average daily price of gold in 2011 will be closer to 1,500.00 per ounce.

We always try to offer both sides of critical situations, so we could not ignore that the year-to-date performance of the fund has lagged the market.  So far, the drop for 2011 has been about 17.5%.  The difference is that Midas Fund is up more than 26% if you use a one-year performance now and that in turn implies that the return was significantly higher at the end of 2010.  Rather than just buying bullion or derivations of the SPDR Gold Shares (NYSE: GLD), the Midas Fund invests in shares of the miners, explorers, and producers and we already know how much those have been hit so far this year.  24/7 Wall St. even just gave a list of the most sold-off gold stocks of any size in 2011 this week and that will explain more of the severity of the drop.

The caveat to a rise in the price of gold is a rise in the real returns of short-term interest rates, according to Winmill.  The current climate of negative real returns after inflation is helping gold remain high.  With more and more currency being created, the move into hard assets is likely to remain.  We were also given the opportunity to discuss some key stock picks in the gold sector.  We saw the top ten holdings of the Midas Fund and we wanted to know which were among his favorites based upon the current share prices today.

Winmill first noted Eldorado Gold Corp. (NYSE: EGO), even if gold prices were to retreat as he noted it is one of the lowest-cost producers and has a great management team.  After looking at the current price of about $15.50, the 52-week range is $14.45 to $20.23.  Thomson Reuters even has a consensus price target of about $22.73, so even the consensus analyst group is expecting a move of nearly 50% here in Eldorado shares.

The new “8-Pack of Dividends” includes Whirlpool Corporation (NYSE: WHR) and The Home Depot, Inc. (NYSE: HD) as having pent-up U.S. demand & global consumer growth.  Two dividend  picks for the U.S. industrial renaissance are Union Pacific Corporation (NYSE: UNP) and United Technologies Corp. (NYSE: UTX).  Air Products & Chemicals Inc. (NYSE: APD) and ConocoPhillips (NYSE: COP) are two dividend picks for the run in commodities.  Lastly, the “Safe & Steady” picks were in Pepsico, Inc. (NYSE: PEP) and in Johnson & Johnson (NYSE: JNJ).

While these two tech giants were not a part of this “8-Pack,”  Hank Smith gave some interesting insight when it comes to Intel Corporation (NASDAQ: INTC) versus Microsoft Corporation NASDAQ: MSFT).  As you have likely read, Intel just raised its dividend yet again last week and is now among the highest dividend yields in technology.  He called this very shareholder friendly.  Smith maintains that the acquisition of Skype is not as much of a shareholder-friendly move as it would have been to see a significant boost to Microsoft’s dividend.  Smith noted, “If Microsoft would have opted to double its dividend and commit to a 10% to 12% dividend growth strategy rather than making a large acquisition of a questionable company, then Microsoft’s share price would be significantly higher.”

Haverford mostly handles managed accounts but a smaller Large-Cap fund it manages is Haverford Quality Growth Stock (HAVGX) fund, and its returns have been solid during the recovery when you consider the dividend aspect of this growth.  Since the early-2009 lows, this fund has jumped up nearly 85% from the bottom.

When you look at the “8-Pack of Dividends,” these all have relatively high payouts and have all increased those payouts recently.  We included the company, the approximate dividend yield, and by how much the dividend hike was in each:

• Whirlpool Corporation (NYSE: WHR) yields 2.4% and its recent payout was raised by 16%.
• The Home Depot, Inc. (NYSE: HD) yields 2.7% and its recent payout was raised by 6%.
• Union Pacific Corporation (NYSE: UNP) yields 1.8% and its recent payout was raised by 25%.
• United Technologies Corp. (NYSE: UTX) yields 2.1% and its recent payout was raised by 11%.
• Air Products & Chemicals Inc. (NYSE: APD) yields 2.5% and its recent payout was raised by 18%.
• ConocoPhillips (NYSE: COP) yields 3.5% and its recent payout was raised by 20%.
• Pepsico, Inc. (NYSE: PEP) yields 2.9% and its recent payout was raised by 7%.
• Johnson & Johnson (NYSE: JNJ) yields 3.5% and its recent payout was raised by 6%.

Mr. Smith also noted that today’s environment offers dividend investors a tremendous opportunity in dividend-growing stocks.  After 18 months to 24 months of a recovery, now companies are really moving to return more capital to shareholders.

One additional point was made as far as which companies are strong… Smith said, “About three-quarters of dividend portfolio companies actually managed to raise dividends during the recession.”  The current dividend yield for most managed accounts at Haverford today is 2.5%, but they also have a dividend value strategy that includes utilities and other dividend-paying companies with a combined portfolio yield that is closer to 3.8% today.

When we are given a large group of picks in this manner, it is almost impossible not to ask for which of the lot is the best of the best.  Haverford Investments’ Hank Smith believes that the giant recovery is becoming the mature stage of the recovery period now.  In this stage, he is more inclined to look at some of the more defensive names which have lagged many of the others in their performance.  Those two names were Pepsico, Inc. (NYSE: PEP) and Johnson & Johnson (NYSE: JNJ).

JON C. OGG

First and foremost, here is the summary of the FOMC rate decision, with no changes to Fed Funds, and the outlook on inflation and the economy in general with that same language of exceptionally low rates for an extended period of time.  Bernanke did just add in at 2:16 PM that the Fed can adjust its holdings of securities as necessary.

The FOMC, or The Bernank!, sees….

2011 GDP now at 3.1-3.3% from 3.4-3.9%…. The FOMC mandate is 1.7-2.0% for a target inflation rate… The current recovery is at a moderate pace and labor continues to improve gradually… A moderate recovery is expected to continue through 2011 and a slight uptick in both 2012 and 2013 with a slight downgrade to the predictions made in January. It is also increasing its inflation expectations a bit (more to follow)… 2011 unemployment forecast is now 8.4-8.7% vs. 8.8-9/0% prior; 2012 expects 7.6-7.9% versus prior 7.6-8.0%; after 2013 unemployment expectation is unchanged at 6.8-7.2%; and long-term the unemployment expectation is now 5.2-5.6% versus a prior estimate of 5% to 6%…. 

The FOMC must meet its dual mandate for the next one year or two years, in the medium-term… It is not required for the Fed to tighten monetary policy at this time (2:25 PM EST)…

NOTE: an “extended period” now appears to mean a couple to several meetings if you read into The Bernank’s comments today.

The FOMC will carefully consider parts of its dual mandate when appropriate…

QUESTION 1… on GDP

Bernanke said he has not seen the number yet but is expecting a relatively weak number at just under 3% (2:27 PM EST)

QUESTION 2… How Soon before withdrawing extraordinary help….

We are looking closely at indicators, looking at job market, looking at inflation as part of the mandate… inflation should come down to a normal level.  As far as the extended period, once the conditions are violated or are moving away, then we will begin to tighten.  This more vague terminology is used because they don’t always know.

QUESTION 3 Steve Lisman of CNBC…. (missed first part) on the dollar and the standard of living

Strong dollar policy continues, keeping inflation low with a stronger economy and maximum employment is the goal…   2:32 PM EST

Another issue brought up was the ‘safe haven effect’ of the US Dollar… The best thing we can do for strong dollar fundamentals is low inflation and a strong economy

QUESTION 4 WSJ… on gas and food prices… Can the Fed or should the Fed do anything about that?

The Bernank! says… gasoline prices have risen and price pressure are a bad development… these make economic development less favorable… drags down purchasing power of households… our interpretation is supply and demand with the demand for commodities very strong (including oil)…. Demand is coming from growth economies… Supply side is facing disruptions from Middle-East and North Africa…. This accounts for almost all of the near-term inflation pressure and there is not much the Fed can do to target gasoline prices and cannot control growth of emerging economies.  2:36 PM EST

Question 5 Bloomberg… recovery won’t be fully established until stronger job creation….

Growth was very moderate when securities purchases began, payrolls have picked up in recent months and unemployment is getting better… it is encouraging but the pace of improvement is slow… we are still about 7+ million jobs short of where we were before the recent mess.   2:38 PM EST

QUESTION 6 FINANCIAL TIMES… inflation remaining stable… Can the Fed curb public inflation expectations?

The Bernank says inflation expectations rise significantly with higher commodity prices but medium term inflation expectations have not moved very much and they want to keep inflation within that mandated range… will communicate to the public…. if inflation persists or begins to get higher, then appropriate action has to be taken…..  2:40 PM EST

QUESTION 7… Young lady… How long will the Fed continue to allow investments

We will complete the program by June… our view is that the end of the program is unlikely to have sweeping effects on the market and the economy… The Fed is trying to telegraph well in advance…. We subscribe to THE STOCK VIEW of securities purchases, not the pace but the size of the portfolio… will continue to reinvest maturing securities… do not expect a major effect…. At some point I expect that an early step would ultimately be to stop reinvesting some or all of maturing securities… but that acts as a form of Fed Tightening, so that decision will be based on the outlook and expectations. 2:44 PM EST

QUESTION 8 (unknown man) How Would the FOMC Cut The Rate of Unemployment?

take all steps beyond what was taken already with monetary policy… have used forward guidance to affect expectations… many rounds of securities purchases… we will have to make judgments about what measures can be taken while keeping in mind the dual-mandate of full employment and inflation…..

QUESTION 9 John with NPR NEWS…. Can you really afford to stop the securities purchases in June?

I am convinced that the securities purchases worked… was similar to ordinary easing of Fed Funds rate… first round was March 2009, then came the significant easing of this program… When I first indicated this step economists updated their forecasts for growth… The conclusion that the second round of securities purchases was ineffective was coming when fears of a double-dip recession and deflation were coming… no panacea… I think it was successful….. The trade-offs are becoming less attractive now as inflationary pressures are a bit higher… 2:50 PM EST

QUESTION 10 from DOW JONES… On oil and inflation… What is the best strategy?

our anticipation is that oil will stabilize or come down and that will bring inflation down to our objectives…. I think inflation expectations will be a key thing we look at…

QUESTION 11… NIGHTLY BUSINESS REPORT (?)….  can the Fed influence long-term unemployment?

Something like 40% of the unemployed have been out of work for over six months and that is troubling.. We saw in Europe in the 1980s and 1990s can lead to long periods of high unemployment…. we hope to bring many of these people back to work … As workers become discouraged and stop, it falls out of the scope of monetary policy…  2:54 PM EST

QUESTION 12 FOX BUSINESS NETWORK… about US going on S&P Credit watch? Is that a worry?

S&P did not offer anything new, but this is hopefully one more incentive for Congress to get the budget and deficit in line… This is unsustainable but has to be solved in long run…

QUESTION 13 (John Berry?)… Congress appears intent on cutting spending significantly could stall recovery.. What can Fed do to address budget cuts?

Addressing the deficit is a top priority and leaders have to address this… not seeing consequences for short-term economic activity…. If the focus is all short-term it can have consequences… so far not seeing fiscal changes impacting…

QUESTION 14… Japanese Newspaper (?)… What is uncertainty risk and impact risk of outside events?

FOMC Minutes in a few weeks will include more detail but FOMC participants do see quite a bit of uncertainty coming from global factors… commodity prices, North Africa, Middle East, if the E.U. situation continues… been speaking with Japanese counter-parts and we are admiring of Japanese courage in the response and a good job from the central bank in Japan to stabilize the local markets…. we believe impact will be short-term… for the U.S. we have noted supply chain disruptions particularly from auto parts… may be some moderate and temporary…. 3:01 PM EST 

QUESTION 15 on keeping inflation expectations low… is this policy acting as a flame for inflation?

It is true we have used extraordinary tools but we are monitoring the state of the economy and the inflation outlook… we will adjust the policy when it is appropriate….. Choosing the appropriate path at the exact right time is difficult but we anticipate we’ll tighten at the right time…. at the same time keeping inflation low and stable

QUESTION 16… AFP… on FOREX rate, would you change policy if threat grows?

We continue t believe in a strong dollar, we’ll keep inflation low and foster economic growth, those will create appropriate and healthy levels for the US Dollar…… 3:05 PM EST

QUESTION 17….. Anthony Mason at CBS… Talk about your decision to hold this historic news conference

We have been looking for ways to make more transparency for years… As recently as 1994 the FOMC did not even tell the public about its decision to change interest rates…. We have substantial means to communicate with speeches and to garner transparency… This offers additional color and context as a natural next step… we are not done at being more transparent and we will do more…. need the public and markets to understand what we are doing…. 3:08 PM EST….

QUESTION 18….. When you have a crisis it takes longer to recover… Will it be too slow?

Recoveries following crisis tend to be very slow recoveries… other aspects would be credit impact on housing… policy responses in past might not have been adequate and might not have been sufficient… Bernanke admits it is a slow recovery and was triggered by the housing market and it remains very weak today… now we are seeing high oil prices and other factors holding the recovery back…. hard to blame America for wanting better economy and why they are impatient… While the recovery looks to remain moderate, I do think the pace will pick up and in long-run the US will return to one of the best economies in the world again…    3:11 PM EST

The Bernank ends… THANK YOU VERY MUCH AND THANK YOU FOR COMING!!!!! 3:12 PM EST

AT 3:22 PM EST THE MARKETS ARE AS FOLLOWS:
DJIA…..  12,666.17 (+70.80; +0.56%)
NASDAQ 2,863.19 (+15.65; +0.55%)
S&P500… 1,352.78 (+5.54; +0.41%)
30YR TBOND 4.463% (+0.064)
10YR TNOTE 3.368% (+0.048)
VIX 15.44 (-0.18; -1.15%)
EUR/USD 1.4740 (+0.0091)
USD/JPY 82.1850 (+0.5800)
GBP/USD 1.6603 (+0.0118)

JON C. OGG