First Impressions

Today’s Head-scratcher
Doug Ashburn – John Lothian News

“Everything is fine, there are no problems, and the problems are not our fault.”

This sentiment has been expressed, directly and indirectly, in recent policy discussions. It seems that the overriding concern is not long-term economic health, but the short-term appearance a healthy economy. Absent short-term health, the overriding concern is blame shift.

Exhibit A is yesterday’s speech by Dallas Fed chief Richard Fisher. According to his logic, buying bonds worth $85 billion a month is stimulative, but issuing these bonds and engaging in deficit spending is damaging to the long-term fiscal health of the U.S. Fisher has also been outspoken in his criticism of quantitative easing. So, I am not sure where he stands, except that whatever happens is not his fault.

Exhibit B is the ECB, which was giddy with self-praise this past summer when the pundit class declared the crisis as over and the ECB victorious. Now, with unemployment at record highs, with further credit contraction in Greece and Italy threatening the system, the attitude has changed from “we will do whatever it takes” to “what do you expect us to do about it?”

Exhibit C is Japan, where the bloom is off the Abenomics rose, as its CPI took a nosedive and is rapidly headed toward deflation. If that occurs, considering the breadth of the stimulative programs enacted this year, look out below. The Japanese economic technocrats have turned rather silent in recent days.

It is easy to take credit for successes. Accepting blame for failures is quite difficult.

Quote of the Day

“Beta is just beta.”

~ Rick Ferri, founder of advisory firm Portfolio Solutions LLC in the story, Some Indexers Grouse About ‘Smart Beta’ Approaches

Lead Stories

Fed’s Fisher says U.S. government bears blame for slow recovery
An ineffective, fractious and fiscally irresponsible government has slowed the U.S. recovery and counteracted the stimulative effects of Federal Reserve’s super-accommodative monetary policy, a top Fed official said on Monday.

Pressure Grows on ECB To ‘Do Something’
Alen Mattich  – MoneyBeat – WSJ
Poor euro-zone economic data have spurred calls for the ECB to do more at its monthly policy meeting next week. The question is, what can it do that might be in the least bit effective? After all, by some calculations, interest rates for some parts of the single currency region need to be as low as minus 15% to match their economic circumstances.
**JK: The perils of an ECB straight jacket.

FX Math: Weak Job Markets, Washington Rancor Mean No Taper in 2014
Vincent Cignarella – MoneyBeat – WSJ
Put a lid on the taper talk. The Federal Reserve won’t be cutting back on its bond-buying program this year–and it probably won’t do it next year either. Blame the never-ending gridlock in Washington and the flaccid U.S. job market for the delay. Both will play a big role in keeping the Fed’s spigot wide open.
**DA: Tapering would require a non-politicized Fed capable of making a decision that would be painful in the short-term but highly beneficial long-term.

US debt ceiling a non-crisis, say hedge funds
Damian Handzy, Michael Petnuch, Paul Rodriguez –
The US government funding crisis did not spark panic among hedge funds, reports risk management consultant Investor Analytics
***JM: That’s because the fools dancing at the cliff’s edge know better than to jump off.  However, the panic should still come from those three little words: “Accidents can happen.”

Athens’s Love Affair With the Euro Persists –
Across Europe, there is now a broad consensus that the decision to allow Greece to join the euro was a mistake. Yet ironically, the one place where this view is not widely shared is Greece itself.
**DA: Depends on whom you ask. I have seen quite a number of Greek citizens who acknowledge it was a mistake.

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content from:

Slow-motion regulatory explosion update
Dan McCrum | FT Alphaville
In the latest instalment in an occasional series — Dodd-Franking — let’s check in on the progress of regulators writing the 398 different sets of rules required by the signature piece of post-crisis financial reform legislation.

China’s Leaders to Start Reform Summit With Recovery
Bloomberg News
China’s Communist Party leaders will enter a policy-making summit this week with the economy on an upswing, services and manufacturing surveys show.
A non-manufacturing Purchasing Managers’ Index (CPMINMAN) rose to the highest level this year in October, a government report showed yesterday. The increase follows faster-than-estimated growth in two manufacturing indexes last week.

CBI Backs Cameron on ‘Fundamental’ Need for U.K. in Reformed EU
Thomas Penny – Bloomberg
The Confederation of British Industry backed Prime Minister David Cameron’s position on membership of the European Union in a report that said the single market is “fundamental” to Britain’s economic future.

Central Banks

European Central Bank faces falling inflation with few tools left to stimulate economy
On top of high unemployment and sluggish growth, the European Central Bank has a new headache: an unexpected drop in inflation.
**DA: Deflation is not a headache; it is a tumor.

ECB report details structural changes in the euro area banking sector
The European Central Bank (ECB) is today releasing the Banking Structures Report, which analyses the main structural developments in the euro area banking sector: the capacity, consolidation and concentration of banks and related changes over time. The report covers the period from 2008 to 2012 and includes indicators for the first half of 2013.

How central bankers are talking their way out of trouble
David Taylor – Yahoo
Most people – I think – would like to come across as being smooth. It helps on a first date, in a job interview, networking at a cocktail party, and – I can tell you – talking live on television. For some it comes naturally, for others it’s a skill that’s acquired over many years. One thing is for certain, you can’t be smooth without being confident.

The limits of Federal Reserve forward guidance on interest rates
Pedro da Costa – Reuters
The ‘taper tantrum’ of May and June, as the mid-year spike in interest rates became known, appears to have humbled Federal Reserve officials into having a second look at their convictions about the power of forward guidance on interest rate policy.

UBS: Here’s How We Get To The Fed’s 6.5% Unemployment Rate Threshold
Steven Perlberg – Business Insider
The unemployment rate — determined by the balance between job and labor force growth — may become “the single most important interest rate determinant over the next few years,” according to the UBS economics team.


Barx architect takes new e-trading position, and other recent job moves
Garima Chitkara –
Tim Cartledge has been promoted to lead a new electronic fixed-income, currencies and commodities (e-Ficc) trading group at Barclays, prompting a raft of foreign exchange management changes at the bank globally. Cartledge was previously head of Barx FX trading, head of forex trading Asia and global head of spot forex at Barclays in Singapore.

Chip designers see dollar signs in Bitcoin miners
Tucked away in an air conditioned data center in Silicon Valley is a hodgepodge of black boxes, circuit boards and cooling fans owned by 27-year-old Aaron Jackson-Wilde, a modern-day prospector looking for Bitcoins.

Forex probes may lead to further regulation of industry: Saxo Bank CEO
Recent investigations into alleged manipulation of foreign exchange rates could be used by politicians as an excuse for new regulation of the industry, the co-head of Denmark’s Saxo Bank has warned.

INSIGHT-Won for the money: North Korea experiments with exchange rates
In a dimly-lit Pyongyang toyshop packed with Mickey Mouse picture frames and plastic handguns, a basketball sells for 46,000 Korean People’s Won – close to $500 at North Korea’s centrally planned exchange rate.

Indexes and Index Products

Some Indexers Grouse About ‘Smart Beta’ Approaches
Karen Damato and Ari I. Weinberg – The Wall Street Journal
If you’re not “smart,” does that mean you’re “dumb?”
That’s the question proponents of classic index investing are asking these days.

Gross Loses World’s Largest Mutual Fund Title to Vanguard
Charles Stein – BloombergBusinessweek
Bill Gross no longer runs the world’s largest mutual fund.
Gross’s Pimco Total Return Fund (PTTRX:US) has shrunk by $37.5 billion since the start of this year, ending last month with $247.9 billion in assets, according to data provided by Pacific Investment Management Co. in Newport Beach, California, and compiled by Bloomberg.

Levine on Wall Street: Ditch Your Index Funds
Matt Levine – Bloomberg
Actively managed mutual funds have been so maligned for so long that I guess they were due for a good year, and so Reuters reports that “Some 57 percent of U.S. funds run by active managers are beating their benchmark indexes this year.”

Money Poured into Stock ETFs in October
Chris Dieterich – MoneyBeat – WSJ
Investors continued to pile into stock exchange-traded funds last month. According to preliminary data from asset manager BlackRock Inc., the bulk of the cash was directed at U.S. stock ETFs; some $20.9 billion went into U.S. stock ETFs last month through Oct. 30, compared with $12.9 billion in September.

Goldman Sachs Asset Management to Acquire RBS’ Money Market Funds
Goldman Sachs Asset Management announced today that it will acquire the Global Treasury Funds, which are a range of money market funds managed by RBS Asset Management.

WisdomTree To Use Bloomberg Dollar Index
Hung Tran – IndexUniverse
Bloomberg Indexes has released the Bloomberg U.S. Dollar Index to provide investors with a new way to assess, trade or invest in the value of the dollar against major global currencies, and the fundamental ETF firm WisdomTree Investments agreed to license the new benchmark.


Gold Bug Schiff Counters Goldman Sachs on First Drop Since 2000
Isaac Arnsdorf – Bloomberg
Peter Schiff lays an iPod-sized bar valued at about $40,000 on the sun room floor of his Connecticut mansion, and calculates it would cost about $250,000 for each floor tile to pave the room with gold.

What’s Next for Gold
Joe Light –
To its fans, gold is an inflation-fighting, economy-hedging, dollar-busting superhero asset class. Lately, it has just been a dud.

Swiss Gold Refiner Accused Of Abetting Congo War Via Money Laundering
Kerry A. Dolan – Forbes
The war in the Democratic Republic of the Congo has been a terrible ordeal, costing an estimated 6 million lives since 1997. Part of what funded the long conflict was gold mined illegally in the resource-rich Congo. So far the parties that have been sanctioned by the United Nations for illegal mining and exploitation of the gold have all been African.


Swiss Banks May Shrink on Higher Leverage, JPMorgan Says
Elisa Martinuzzi – Bloomberg
UBS AG (UBSN) and Credit Suisse Group AG (CSGN), Switzerland’s biggest banks, may have to shrink their fixed-income, currencies and commodities activities if the nation’s regulator imposes higher leverage ratios than currently planned, according to JPMorgan Chase & Co. (JPM) analysts.

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