First Impressions

Quote of the Day

“A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”

– The salient quote from Ben Bernanke’s 2002 now-famous speech that earned him the “Helicopter Ben” moniker. The quote was referenced in the FT article “Look to ‘Helicopter’ Ben for clues to Yellen’s Fed”

Lead Stories

The downsides of quantitative easing, Cardiff Garcia smackdown watch
Cardiff Garcia | FT Alphaville
Brad DeLong asks (politely) why oh why can’t we have better QE weblogging, and then issues a challenge: Toward the end of an otherwise very good think piece, the intelligent and thoughtful Cardiff Garcia mysteriously writes: “But the downsides to continued QE aren’t trivial either.” Which makes me ask: what are the downsides to continued QE?
***DA: How about this one – dropping money from a helicopter benefits those standing under the helicopter, but creates price distortions that intensify the further away you are from the drop zone.

Housing Bubbles Upend Central Bankers’ Rate Plans: Nordic Credit
Central bankers in Sweden and Norway are finding their efforts to steer inflation are being disrupted by a persistent threat of housing bubbles.
While policy makers in both countries will keep interest rates unchanged tomorrow, according to economists surveyed by Bloomberg, distortions in the two nations’ property markets are adding a layer of uncertainty to outlooks.
***DA: Here’s another one.

The reality of America’s fiscal future
Martin Wolf –
From the frenzied political battle and clashes of opinion of recent weeks, an observer might conclude the US faces fiscal catastrophe. It does not. The fiscal position has improved dramatically and poses no medium-term risks. The only fiscal crisis the US faces is one inflicted by a purported desire to avert one. The real issue is what government Americans want and how they choose to pay for it.
***JM: A well-considered piece as usual from Martin, but it assumes that people in the country and in charge are rational and thoughtful people when it comes to national finance. To me, I think we’re closer to the folks buying new shoes and cars even though we’ve been told that one more missed mortgage payment and we’ll lose our house.

South Korea Denies Australia, New Zealand, Switzerland Currency-Swap Talk
Kwanwoo Jun – MoneyBeat – WSJ
While South Korea really is interested in signing currency-swap deals with trading partners, officials aren’t at all pleased about news of reportedly imminent deals. Such reports could jeopardize future negotiations, they say.

Banks Said to Seize ‘Footnote 513’ to Keep Swaps Private
Wall Street, trying to preserve profits from swap trading in the face of tougher scrutiny from Washington, has found a new way to keep some of its overseas deals private. It’s called Footnote 513.
***DA: No one said this transparency thing would be easy.

In Asia, Risky Bonds Return After Summer Lull
Fiona Law – MoneyBeat – WSJ
Risky bonds are making a comeback in Asia after falling out of favor over the summer, as recent developments in the U.S. have prompted investors to embrace increased risk in exchange for higher yields.

China bond market emerges from the shadows
Josh Noble in Hong Kong –
Since the days of Marco Polo, China has been stuck with the label of the world’s largest untapped market. While the success of Louis Vuitton, General Motors, KFC and others has chipped away at that notion, there is one place the description remains apt: the bond market.

Suspicious Trades Before Jobs Report in Three Charts
Steven Russolillo – MoneyBeat – WSJ
Another major economic report, another round of speculation about suspicious trading activity seconds before its release. A number of futures contracts Tuesday morning showed “distinct activity just before 8:30:00,” says Eric Hunsader, founder of Nanex, a Chicago firm that studies and distributes stock-market data.
***JM: Could someone be trading speculatively without actually (illegally) having early data? Sure; why not? This is like finding a smoking gun at a shooting range. A crime MAY have been committed, but you need to also have a dead body somewhere. Figuratively speaking, of course.

JPMorgan’s Eminence Seen Fading in Default Swaps: Credit Markets
JPMorgan Chase & Co. (JPM)’s advantage over its Wall Street peers is fading in the eyes of credit-derivatives traders as fines and regulator probes hobble profits while firms from Citigroup Inc. to Morgan Stanley rebound.

MarketAxess Reports Third Quarter 2013 Revenues
Press Release
Total revenues for the third quarter of 2013 increased 31.7% to a $61.1 million, compared to $46.4 million for the third quarter of 2012. Pre-tax income was $26.4 million, compared to $21.5 million for the third quarter of 2012, an increase of 22.7%. Pre-tax margin was 43.2%, compared to 46.3% for the third quarter of 2012. Net income from continuing operations totaled $18.3 million, or $0.48 per share on a diluted basis, compared to $13.7 million, or $0.37 per share on a diluted basis, for the third quarter of 2012.

Central Banks

Look to ‘Helicopter’ Ben for clues to Yellen’s Fed
Scott Minerd –
What can we expect from a Federal Reserve helmed by newly nominated chair Janet Yellen? Unlikely as it may sound, we can draw insight from a decade-old misinterpreted remark.
***DA: In other words, Yellen will not be a leader at the Fed, but rather a follower, of the equity and bond markets, and will turn hawkish only when the bond market demands a higher risk premium on U.S. debt.

The Upside Surprises Causing BOE Headaches
Paul Hannon – MoneyBeat – WSJ
A relatively strong run of economic data releases from the U.K. is welcome news for long-suffering Britons, but is providing a minor headache for the Bank of England.

ECB says bank health test to strengthen confidence
The European Central Bank vowed on Wednesday to submit the euro zone’s top banks to a comprehensive batch of tests next year, staking its credibility on a review that is crucial to rebuilding confidence in the sector.

Australia Gives Central Bank Billions, Citing Global Risks
Australia’s new conservative government gave the central bank a multibillion-dollar cash injection, saying it was necessary to protect the nation from potential global economic shocks.

India to build $300 billion forex chest to counter a slimmer QE figure
The Economic Times
India hopes to have a $300-billion war chest ready by the end of the year as a frontline defence against tapering by the US Federal Reserve, which is now expected to begin sometime early next year.

Wanted: 770 ECB banking supervisors within a year
Fabrizio Dicone had just one day to decide if he wanted to leave Rome and help create “the third big bang” – a new watchdog for Europe’s troubled banking industry. Within a few weeks Dicone had cleared his desk at the Bank of Italy, said goodbye to his family and friends, and moved to Frankfurt – where the European Central Bank must set up the supervisory body from scratch by this time next year.

Brazil Plans Benchmark Sale of Bonds Due 2025 Amid Buybacks
The debt may yield about 2 percentage points, or 200 basis points, more than similar-maturity U.S. bonds, according to a person familiar with the matter who asked not to be identified because terms aren’t set. Proceeds will be used to repurchase up to $12.6 billion of securities maturing between 2017 and 2030. Banco Bradesco SA (BBDC4), Deutsche Bank AG and HSBC Holdings Plc are managing the sale, which may take place as soon as today.


Brazil’s FX moves reveal policy tensions
Joe Leahy in São Paulo and Delphine Strauss in London –
When Alexandre Tombini launched in August a determined response to a wave of currency depreciations sweeping emerging markets, central bankers of other embattled nations must have looked at the Brazilian with envy.

FX Concepts closure signals shift in FX investing
Joti Mangat – Euromoney magazine
Robert Savage, chief FX strategist with the firm in New York, says structural changes, including global deleveraging and fragmentation in global economic and monetary policy objectives, have undermined traditional investment approaches, leaving the industry looking for new ideas to make money.

The Rising Euro: No-One’s Favorite Trade
Katie Martin – MoneyBeat – WSJ
Currency traders and investors love trends. When a major currency picks out a clear direction and pretty much sticks to it, they rake it in. So presumably, they are jumping for joy about the rise and rise of the euro? Well, probably not, no.

FX Broker Pepperstone Hires Berkshire Capital to Consider Sale, IPO
Gillian Tan – MoneyBeat – WSJ
Pepperstone Financial Pty Ltd.–Australia’s largest foreign exchange broker–has hired New York-based boutique investment bank Berkshire Capital to advise the company on strategic options, including a sale or initial public offering.

Indexes and Index Products

NYSE Euronext lists Gold Bullion Securities in Brussels
NYSE Euronext has announced that it has began listing Gold Bullion Securities, the world’s first physically-backed gold ETP on its Brussels market. GBS is a product of ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products.

New FTSE-BOCHK Offshore RMB Bond Index Series

Morningstar Announces Speakers and Agenda for 2013 European ETF Invest Conference 7-8 November in Milan
Morningstar Inc., today announced the speaker and programme details for its second European ETF Invest Conference, to be held in Milan on 7 and 8 November, 2013. The conference will feature thought leaders from across the European exchange-traded product (ETP) industry, investment experts, and Morningstar analysts, to provide detailed discussion and debate for professional investors.


Scientists find gold growing in trees in Australia
Parents beware: You’re about to have one less idiom in your repertoire. Scientists in Australia have discovered gold deposits on eucalyptus trees in the Outback. Yes, you read that right — money can actually “grow” on trees.

NYSE Euronext : lists Gold Bullion Securities in Brussels
NYSE Euronext listed Gold Bullion Securities (GBS), the world’s first physically-backed gold ETP on its Brussels market. GBS is a product of ETF Securities, one of the world’s leading, independent providers of Exchange Traded Products (ETPs). In addition, ETF Securities also passported to the Belgian market a full range of broad, sector and single commodities, and currency investment solutions.

One Thing You Should Know About the Real Price of Gold
Dan Hassey – Uncommon Wisdom
When it comes to the value of gold, you only need to know one simple thing – producers want to make money.

Supply issues remain for Gold ETFs even as festive season nears
Business Standard
Procurement of physical gold continues to remain a challenge following restrictions imposed by the Reserve Bank of India (RBI) coupled with import duty hike imposed by the government. The marketing of gold ETFs, unlike past few years, too is likely to remain subdued.

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