skip to main |
skip to sidebar
When listening to a speech like this, one has to remember who is speaking and under what conditions. A Fed Chairman has a thousand watt megaphone attached to his chest, and so he must speak quietly and calmly, in order not to disrupt markets and place the Fed in the middle of political controversies. Unless you have actually been close to or in a position of power, where your words carry great significance, it is all too easy to forget this.
Bernanke addressed his problem with the dysfunctional Congress, gridlocked by luddites and libertines, and the serpentine leadership style of Obama. He is trying to stand his monetary policy on a two legged stool, and it is not working. The all important fiscal side of economic governance is broken. Not so much that it is doing the wrong things. Rather, the process itself is broken, hopelessly frozen by ideological warfare and implacable extremes.
He reiterated that the Fed has the additional policy tools to deal with the situation, in addition to the unprecedented actions they have taken already, although there is a lack of consensus on his own Fed. It is significant that they have expanded their September meeting from one to two days in order to discuss this more fully.
Bernanke gave a particularly sharp rebuke to the Congress, at least by Fed Chairman standards, for the debt ceiling deadlock and discussions that recently shook confidence in the markets.
There is little doubt in my mind that the Fed will put some additional scalable programs in place before the end of the year. The introduction of new programs during a Presidential election year is typically considered to be only acceptable at extreme risks to the banking system and obvious duress to the economy.
As a reminder, there will be another Non-Farm Payrolls number out next week.
There are forces in the US that are on the offensive, and pushing for a crisis in order to better obtain their objectives. What Bernanke is doing is positioning the Fed on the sidelines as best he can, while signaling that they will act once again, overtly or quietly, to prevent a major financial breakdown.
But he is stressing that the Fed has done quite a bit already, and they cannot do it alone. The monetary actions are ineffective without a fiscal counterpart. Like most observers, the Fed sees a broken governance process, and the new super-committee is likely destined to fail in more gridlock. The Fed will not act again except under the duress of an approaching crisis, although they will have the programs in place in anticipation of that crisis.
The US is a house divided against itself. Until the system of governance is repaired, the Fed cannot be reasonably expected to take up the burden of the nation's problems on its own.
So for the future, listen to what the Fed says, but more importantly, watch what the Fed does. And some of that may be opaque, at least for the time being.
This is not necessarily what I think, or what I would do if, God forbid, I was the Fed Chairman. This is what Bernanke is thinking in his own words, and what I believe he is doing, and to some extent, why he is doing it.
Fri Aug 26, 2011 10:00am EDT
JACKSON HOLE, Wyoming, Aug 26 (Reuters) - The following are highlights of Federal Reserve Chairman Ben Bernanke's speech on Friday to a central bank conference sponsored by the Kansas City Federal Reserve Bank.
On economic growth, inflation outlook:
"The recent data have indicated that economic growth during the first half of this year was considerably slower than the Federal Open Market Committee had been expecting, and that temporary factors can account for only a portion of the economic weakness that we have observed. Consequently, although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters.
"With commodity prices and other import prices moderating and with longer-term inflation expectations remaining stable, we expect inflation to settle, over coming quarters, at levels at or below the rate of 2 percent, or a bit less, that most Committee participants view as being consistent with our dual mandate."
On what the Fed's recent policy decision means:
"We indicated that economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. That is, in what the Committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years."
On what other tools the Fed has:
"In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus. We discussed the relative merits and costs of such tools at our August meeting. We will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."
On market volatility:
"Financial stress has been and continues to be a significant drag on the recovery, both here and abroad. Bouts of sharp volatility and risk aversion in markets have recently reemerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling. It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth. The Federal Reserve continues to monitor developments in financial markets and institutions closely and is in frequent contact with policymakers in Europe and elsewhere."
On long-term economic growth prospects:
"It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals ... Notwithstanding the severe difficulties we currently face, I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if -- and I stress if -- our country takes the necessary steps to secure that outcome."
On the impact of monetary and fiscal policy:
"Normally, monetary or fiscal policies aimed primarily at promoting a faster pace of economic recovery in the near term would not be expected to significantly affect the longer-term performance of the economy. However, current circumstances may be an exception to that standard view ... The quality of economic policymaking in the United States will heavily influence the nation's longer-term prospects. To allow the economy to grow at its full potential, policymakers must work to promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies."
Some option expiration. Can you believe the nerve of these guys?
Bought the dip, and flipped out at the close. Didn't exactly see that coming, but why say no to free money?
I don't think we're in Kansas anymore, Toto. At least not judging by the size of these waves.
I maintained a core position mostly in gold. Some of the swings today in the miners were pretty impressive to say the least. I won't mention any particular names, but watch how miners perform on days like today, and you will be able to sort out the nuggets from the clinkers.
WWBD. What Will Ben Do.
Benny speaks tomorrow. Commentary here intraday.
If the Fed does nothing tomorrow, and only hints around at it, give the market a little time, maybe a week or two, to pry some candy out of Benny's goody bag.
The gold and silver traders are really feeling the stress.
Famed analyst and metals perma-bear Jon Nadler elaborates---
Volatility remains elevated, to say the least, and the major indices appear to be 'coiling for a move,' as they say.
Hurricane Bernanke may provide whatever is required to make that move happen tomorrow, either by what he does, or does not do.
I would look for some aftershocks from this in the coming weeks as additional economic data rolls in.
I ended up NOT going short stocks, since playing the dip in gold and some miners today and flipping out of them into the close provided a more than sufficient amount of short term kicks, bangs and thrills. I had to remind myself that I am not a daytrader these days, and such extravagant profits are often illusory, being quickly dissipated by losses.
Ben Bernanke and his gangsta bankas have been following the approach outlined in this paper from 2004, Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment, which is excerpted below, and also in his famous 'printing press' speech on avoiding deflation from 2002.
I have written about this before several times over the years, but perhaps it is a good time to review the Fed's game plan.
The first item, communications to model and influence the perception of the markets, is obvious. Jawboning is a major element of any financial intervention. Acknowledging or denying the intervention is all about the message as well.
The most recent statement from the Fed, for example, about keeping rates at the zero bound for the next two years, depending on how the economy fares, is a good example of this. Other actions they may take through their own speeches, and the statements of informal intermediaries in the industry and the press, are good examples as well.
The expansion of the Fed's Balance Sheet is also known as quantitative easing, and that has been done at least twice now, and in epic proportions.
The third option, the targeted purchasing of certain assets, has been done to a large extent to support the banking and mortgage system, but not necessarily the real economy. This is the program by which the Fed has been taking non-traditional assets into its portfolio in the various vehicles it has constructed in order to shore up the shaky creditworthiness of the TBTF asset profiles.
What the Fed is not doing in a major program yet, although it certainly has done it in the past, is to conspiculously shift the duration of its Treasury bonds portfolio in order to achieve certain interest rate objectives, effectively setting caps on target rates up the curve.
In 1961 in a program called Operation Twist, the Fed moved the duration of its portfolio to help lower longer term rates. It should be noted that OT1, if you will, was conducted during the fixed exchange rate period known as Bretton Woods I, which included the redeemability of dollars for gold. Also, although the short end of the Treasury curve was not at the zero bound, it was not viewed as adjustable for policy constraints than the zero bound.
So there are some subtle differences perhaps in any OT2 which the Fed might announce this week, or soon thereafter.
John F. Kennedy was elected president in November 1960 and inaugurated on January 20, 1961. The U.S. economy had been in recession for several months, so the incoming Administration and the Federal Reserve wanted to lower interest rates to stimulate the weak economy. Under the Bretton Woods fixed exchange rate system then in effect, this interest rate differential led cross-currency arbitrageurs to convert U.S. dollars to gold and invest the proceeds in higher-yielding European assets. The result was an outflow of gold from the United States to Europe amounting to several billion dollars per year, a very large quantity that was a source of extreme concern to the Administration and the Federal Reserve.
The buying of the longer end of the curve, moving out from the bills to the shorter notes, has been telegraphed repeatedly to the markets this year. So it does appear likely.
The effects would be to lower real rates more broadly across the curve, perhaps taking them all negative, or at least closer to zero on the longer end depending on how one wishes to calculate inflation. I think the Fed uses their chain deflator. I doubt its accuracy for practical purposes, but let's not quibble.
This is 'bad' for the dollar and good for gold and longer dated Treasuries which will enjoy a brief rally. However it will drive yield hungry investors to seek other alternatives, perhaps in the stock market and overseas. It may shake up the Treasury markets on the longer end moreso than we might expect if there is an erosion in confidence in the US' ability to put its house in order without devaluation of the dollar debt. That erosion may be well-founded.
Such a policy move is intended to stimulate consumption and investment in situations where the middle of the curve and out is used as a benchmark for setting non-governmental interest rates. There is thinking that by moving out from the short maturies, the pull lower on the even longer rates will be more pronounced.
I do not think this alone will work. Banks are reluctant to lend at any price, and lowering the rates would not improve the credit risk profile of potential borrowers.
The Fed could also reduce the interest it pays on reserves to zero, or even place a negative rate on it. This would stimulate banks to put the money to work in the markets for projects with positive yields. This is not so different from the Fed's actions in driving consumers out of short term bonds and zero interest savings accounts, which they have done from time to time.
There is some further indications that the Fed will be using a reverse repo mechanism in order to grow bank credit in a more targeted fashion. I will not get into that further here, because if it does develop I am sure there will be much more lucid explanations given in some detail based on Fed announcements.
But it does follow the theme of actively stimulating lending in ways other than lowering rates, even on the longer ends of the curve.
The Fed might couple this with government guarantees on loans for example, for certain situations where the government wishes to stimulate activity, such as housing for example. It is hard to imagine anything like this passes through the dysfunctional Congress.
There is another option that the Fed has, which is not cited in the summary of this paper shown below.
For this we have to turn to Chairman Bernanke's famous speech on Deflation in 2002 in which he stated that 'the Fed's owns a printing press' and highlighted various steps which they might take to insure that deflation does not happen in the US, the ability and the resolve of the Fed to prevent it, and some of the options the Fed might have if they reach the infamous zero bound:
However, a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition. As I will discuss, a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero. In the remainder of my talk, I will first discuss measures for preventing deflation--the preferable option if feasible. I will then turn to policy measures that the Fed and other government authorities can take if prevention efforts fail and deflation appears to be gaining a foothold in the economy...
What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure--that is, rates on government bonds of longer maturities.
There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates.
A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.
Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation. Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years. Yet another option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association). Historical experience tends to support the proposition that a sufficiently determined Fed can peg or cap Treasury bond prices and yields at other than the shortest maturities...
If lowering yields on longer-dated Treasury securities proved insufficient to restart spending, however, the Fed might next consider attempting to influence directly the yields on privately issued securities. Unlike some central banks, and barring changes to current law, the Fed is relatively restricted in its ability to buy private securities directly. However, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window. Therefore a second policy option, complementary to operating in the markets for Treasury and agency debt, would be for the Fed to offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. (Obviously the Fed has already been doing this as well).
Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt's devaluation.
Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money. (I think the Obama Administration used this as the rationale for extending the Bush tax cuts).
Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets. If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets. (I believe the Fed has already been doing this with the help of a few Primary Dealers.)
In summation, I think Bernanke's next move will be to start capping the two and three year rates, with the five year to follow. The purpose will be to keep rates low for the purpose of enabling spending and devaluing the dollar. I do not think he will have to expand the Fed's Balance Sheet to accomplish this.
But it is important to note that while the Congress can enforce a debt ceiling on the US Treasury, there is no such hard ceiling on the Fed's Balance Sheet. And this is probably the genesis of Presidential candidate Perry's scarcely veiled threat to Mr. Bernanke and the use of the word 'treason.'
I am not saying that the Fed is right in what they are doing. I am using Bernanke's thinking, and his own words, to determine what the Fed is likely to do next. I have been using this model for the past five years, and it has served me well.
I have some sympathy for Bernanke, because he has few allies, especially among the libertine left and the luddites of the right, and the serpentine Obama. The major obstacle to the US recovery is a failure in governance.
I have very little sympathy for the manipulation of certain markets traditionally viewed as safe havens, based on the rationale outlined in Larry Summer's paper about Gibson's Paradox, and the linkage between interest rates and gold. That appears to be roughly analagous to machine-gunning the lifeboats.
Deflation or inflation are truly policy decisions in an unconstrained fiat currency regime such as that enjoyed by the US. On this Mr. Bernanke is correct, and anyone who thinks otherwise does not understand a fiat money system. It really is that simple. To their credit, the Modern Monetary Theorists understand it very well, except for the downside of excessive money creation in a co-dependent world, even if one does enjoy the exorbitant privilege of the world's reserve currency.
Various interests have been seeking to restrain the Fed, ranging from large creditors such as China, and the domestic monied interests who have already received their bonuses and bailouts, and who do not wish to see their dollar wealth erode. One is richer if all around them are made relatively poorer, or so some lines of thinking go. And of course there are the prudent savers, who have been fleeing the dollar to the relative safety of some foreign currencies and hard assets like gold and silver.
I would hope that by now that any reader here would know that, at least in my judgement, deflation through hard money and austerity, or inflation through stimulus and money printing, are both unable to achieve a sustainable economic recovery because the system is caught in a credibility trap in which the governance of the country is unable to act justly and reform the system without implicating themselves in the compliant corruption that caused the unbridled credit expansion, massive frauds, and financial collapse in the first place.
This was a major contributor to Japan's lost years. The lack of will was in the failure of their largely single party system to correct the inefficiencies and crony capitalism of the banks and their keiretsus that provided a drag on all stimulus and the real economy, siphoning off the additional money into unproductive projects and support for zombie corporations.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.
Federal Reserve
Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment
Ben S. Bernanke, Vincent R. Reinhart, Brian P. Sack
8 April 2004
Abstract
The success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound.
When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely on “non-standard” policy alternatives. To assess the potential effectiveness of such policies, we analyze the behavior of selected asset prices over short periods surrounding central bank statements or other types of financial or economic news and estimate “no-arbitrage” models of the term structure for the United States and Japan.
There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset.
Non-Technical Summary
Central banks usually implement monetary policy by setting the short-term nominal interest rate, such as the federal funds rate in the United States. However, the success over the years in reducing inflation and, consequently, the average level of nominal interest rates has increased the likelihood that the nominal policy interest rate may become constrained by the zero lower bound on interest rates. When that happens, a central bank can no longer stimulate aggregate demand by further interest-rate reductions and must rely instead on “non-standard” policy alternatives.
An extensive literature has discussed monetary policy alternatives at the zero bound, but for the most part from a theoretical or historical perspective. Few studies have presented empirical evidence on the potential effectiveness of non-standard monetary policies in modern economies. Such evidence obviously would help central banks plan for the contingency of the policy rate at zero and also bear directly on the choice of the appropriate inflation objective in normal times: The greater the confidence of central bankers that tools exist to help the economy escape the zero bound, the less need there is to maintain an inflation “buffer,” bolstering the argument for a lower inflation objective.
In this paper, we apply the tools of modern empirical finance to the recent experiences of the United States and Japan to provide evidence on the potential effectiveness of various nonstandard policies. Following Bernanke and Reinhart (2004), we group these policy alternatives into three classes:
- using communications policies to shape public expectations about the future course of interest rates;
- increasing the size of the central bank’s balance sheet, or “quantitative easing”; and
- changing the composition of the central bank’s balance sheet through, for example, the targeted purchases of long-term bonds as a means of reducing the long-term interest rate.
We describe how these policies might work and discuss relevant existing evidence...
Additional Reading:
The Upcoming Expansion of US Bank Credit - Alasdair MacLeod
Gold and Interest Rates: More than Joined at the Hip - Rob Kirby
“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.”
John Kenneth Galbraith
Well, it looks like an option expiration week to me.
I pulled my 'defensive positions' in the metals today (short positions), and came out of 'flat' to stick a toe into the gold and silver markets in terms of both metals and a couple of miners that looked rather oversold intraday.
As a reminder, tomorrow is options expiration on the Comex.
You should be able to spot the support on the chart (at 1720, the top of the green trendlines). That *might* hold, but we may not have a bottom in yet. However, unless there is a game changing event like a sudden balancing of the budget, I would be very surprised if 1658 does not hold in the worst case of a decline, with something north of 1700 more likely.
But I could be wrong. It is hard to forecast price movements in the short term when the biggest and most subsidized traders and the government act informally in collusion with the exchanges to put out a spin to support policy decisions. So we will have to wait and see how far this goes.
A lot of it is going to depend on what Benny has to say on Friday. I have not shorted stocks yet, although the temptation is on the table. Maybe tomorrow ahead of the Fed, once I see how the metals act in expiry.
I was performing useful, real world activities for much of the day.
Those wild and crazy free market capitalists and Wall Street welfare queens want another central bank handout, and might toss a tantrum if they don't get it. I don't expect Ben to actually DO anything this week, but he might drop some hints about playing games with the longer end of the curve.
If he doesn't do or say anything, the markets will test his resolve, next week at the latest.
The dissenting governors are prats, so Ben is really in a tough spot with few allies. His biggest problem is the Congress, the economic luddites on the right and libertines on the left, and of course the spinelessly serpentine Obama, but he can do little about them.
He might have the sack to call their bluffs and let the markets tank, standing on principle, but it is not in the nature of the Fed to do anything like that if it threatens the banking system. Bankers have a bias to propping things up, far beyond the point of hope.
The blatant and heavy handed bear raid in the metals, although a source of some profits and very much anticipated here, still makes one want to gag at its arrogant carelessness and cheap obviousness.
Marketwatch
CME raises gold margin requirements again
August 24, 2011, 5:17 PM.
For the second time this month, the CME Group Inc., the parent company of the main metals and energy exchanges in the U.S., announced late Wednesday an increase in margin requirements to trade gold. It raised the amount of money needed to trade gold contracts by 27% to $9,450 per 100-ounce contract.
The move comes on the heels of a $104-an-ounce drop in gold futures prices, which some analysts had blamed partly on speculation that the CME would raise margin requirement again.
Gold’s approach to $2,000 an ounce “invited excess speculation and therefore margin concerns for exchanges,” said Richard Hastings, a macro strategist at Global Hunter Securities. “The quasi-exponential price behavior was dangerous and the exchanges today view this with significant concern — and act quickly.”
Steve Jobs is everything that Bill Gates pretends to be. I am sorry to see him pulling back from his duties at Apple for obvious health reasons.
He is a one of the great ones.
Steve Jobs resigns from Apple, Cook becomes CEO
By Poornima Gupta and Edwin Chan
SAN FRANCISCO (Reuters) - Silicon Valley legend Steve Jobs on Wednesday resigned as chief executive of Apple Inc in a stunning move that ended his 14-year reign at the technology giant he co-founded in a garage.
Apple shares were suspended from trade before the announcement. They had gained 0.7 percent to close at $376.18.
The pancreatic cancer survivor and industry icon, who has been on medical leave for an undisclosed condition since January 17, will be replaced by COO and longtime heir apparent Tim Cook.
"I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple's CEO, I would be the first to let you know. Unfortunately, that day has come," he said in a brief letter announcing his resignation.
The 55-year-old CEO had briefly emerged from his medical leave in March to unveil the latest version of the iPad and later to attend a dinner hosted by President Barack Obama for technology leaders in Silicon Valley.
Jobs' often-gaunt appearance has sparked questions about his health and his ability to continue at Apple.
"I will say to investors: don't panic and remain calm, it's the right thing to do. Steve will be chairman and Cook is CEO," said BGC Financial analyst Colin Gillis.
On Friday Uncle Ben will be speaking from Jackson Hole, and the markets are eagerly awaiting some words regarding any version of QE3.
This is of course one of the best signs of how utterly dislocated and distorted the real economy can be.
It is also a clear sign of how many 'free market capitalists' are really on the government feedbag, from bailouts to subsidies to tax breaks, of one kind or another.
PHYS continues to be interesting in the out of character thinness of its premium to NAV.
CEF is running at a negative.
