This week in finance, some perky numbers for the U.S. economy, extended tax cuts and a roller coaster for U.S. Treasuries. And don't forget about the latest FBI-led insider trading bust. Can you keep up with it all? (The better you understand why insider trading can be criminal, the better you'll understand how the market works. See Defining Illegal Insider Trading.)
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U.S. Treasuries & Dollar Bills
This week marked one of what will likely be many volatile periods for U.S. Treasuries, as investors may be looking to lock in gains as the year comes to a close. On Monday, December 13, 10-year Treasury yields fell four basis points, dragging the U.S. dollar with it as the currency toppled 1.3% against the euro from its December 10 value. By Thursday, December 16, key yields hit a seven-month high, which sent Treasury prices back up, with 10-year notes yielding 3.475%.
That rise also affected the U.S. dollar, leading to its strongest position against the euro in two weeks, up 0.4% to $1.3188 per euro as of Friday, December 17, 2010.
A Little More Insider Trading
In a move that seems to be straight out of a Hollywood movie plot, the FBI charged four corporate managers with insider trading-related offenses, like selling company secrets about products such as Apple's iPhone. The four charged worked as consultants for Primary Global Research LLC out of Mountain View, California.
The investigation relied on wiretapped conversations from two telephones at Primary Global's offices and cell phones of two of the accused, according to the New York Times.
Fed Impatient For Recovery
New jobless claims fell again last week, marking the sixth straight week of decline, and bringing that number down to the lowest level since the pre-recession summer 2008. For those with their eyes on the housing market, starts were up slightly in November, rising by 3.9%, but the high levels of inventory remain a concern. There are simply too many houses with not enough buyers.
Despite these hopeful numbers, according to the Fed, the recovery has been "disappointingly slow", prompting the Fed to stick to $600 billion of Treasury purchases and vow to keep interest rates low for the foreseeable future. That repurchase number is in addition to the long-term Treasuries that the Fed has been buying since August with revenue from maturing mortgage debt at a rate of about $110 billion per month, according to Bloomberg. Under QE2, $114.1 billion worth of Treasuries have been purchased since November 12.
On Friday, President Barack Obama signed an $858 billion tax cut bill which will extend Bush-era tax cuts for the next two years, saying the law is "a good deal for the American people". The law is being described as a "bipartisan effort" (Washington-speak for "compromise"), as it extends tax cuts for the wealthy, but also benefits for the unemployed, according to ABC World News. The tax cuts for the wealthiest Americans have received a lot of attention, with high profile figures like Warren Buffett expressing their opinions that those with the most should also be taxed the most heavily. (Learn more by reading How Will The Expiring Bush Tax Cuts Affect You? and 8 Tax Cuts Set To Expire In 2011.)
As usual, both sides feel they made too many concessions and promised to continue to fight for their version of the package. The feeling seems to be one of grudging acceptance from both parties, yet the bill passed with strong support, 277 to 148.
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The Bottom Line
The song remains the same: we're in recovery, but we want to recover faster. Luckily, while we're waiting, the Hollywood-style stories of insider trading, greed and deception should keep us entertained. (Recovering from an economic slump isn't the easiest thing to do, but here are a few potential methods of rebuilding. Check out Profiting From A Consumerless Recovery.)
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