First Impressions

Vision Test: The Fed’s older, but wiser?
Doug Ashburn – John Lothian News

Hindsight, according to the old cliche, is 20/20. Sometimes I wish that were so.

Last week we were offered a little trip down Memory Lane, compliments of the U.S. Federal Reserve, which last week released thousands of pages of transcripts from meetings that took place on and around the 2008 bailouts of Bear Stearns and AIG, and the “non-bailout” of Lehman Brothers. While many of the comments, especially those that severely underestimated the crisis in the early days, were fun to read, it does not appear we have gotten much smarter over the last five years.

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Quote of the Day

One result is that we’ve just expanded the safety net to a much wider set of institutions, and we are in a brave new world here, and it is very disturbing.

Former Fed governor Frederic Mishkin, in response to the 2008 Bear Stearns bailout, as quoted in recently released transcripts.

Lead Stories

G20 aspires to faster economic growth, roadmap sketchy
Reuters
The world’s top economies have embraced a goal of generating more than $2 trillion in additional output over five years while creating tens of millions of new jobs, signaling optimism that the worst of crisis-era austerity was behind them.
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***DA: A new era of prosperity through debt accumulation. I can hardly wait.

Greece resumes protracted bailout talks with lenders
Reuters
Greece resumes bailout talks with its international lenders on Monday, hoping to end six months of wrangling over the release of new rescue loans it needs to avoid default.
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***DA: Speaking of debt accumulation…

Fed Failed to See Lehman’s Fallout for Economy, Transcripts Show
Joshua Zumbrun – Bloomberg
The day after Lehman Brothers Holdings Inc. declared the largest bankruptcy in U.S. history in 2008, Federal Reserve officials remained unsure whether the financial crisis would do lasting damage to the U.S. economy.
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***DA: Keystone cops on the beat?

A New Light on Regulators in the Dark
NYTimes.com
In the five years that have elapsed since the direst days of the financial crisis, we’ve learned much about how the nation’s high-level banking regulators worked to keep the debacle from turning into a full-blown economic Depression.
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Insurers, MFs await regulatory go-ahead for bond trading
Business Standard
Mutual funds and insurance firms are awaiting go-ahead from their respective regulators — Sebi and IRDA — with regard to their participation in the newly launched Interest Rate Futures (IRF) on stock exchanges.
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China Sees Expansion Outweighing Yuan, Shadow Bank Risk
Bloomberg
China’s Finance Minister Lou Jiwei played down yuan declines and the risks from shadow banking as central bank Governor Zhou Xiaochuan signaled that the nation’s economy can sustain growth of between 7 percent and 8 percent.
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Scottish bonds will be riskier than Gilts
Andrew Bolger – FT.com
It is now certain that Scotland will issue its own bonds, but the big question is whether this will de done by an independent government, or a devolved administration at Holyrood.
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Dealers Seek U.S. Treasury’s Help in Regaining Grip on Debt
Daniel Kruger, Kasia Klimasinska and Caroline Salas Gage – Bloomberg
The Masters of the Universe immortalized by Tom Wolfe in his 1987 novel “The Bonfire of the Vanities” are feeling like mere mortals. The Wall Street banks known as primary dealers because they get to trade with the Federal Reserve and raise the money that the U.S. government needs to operate are concerned they are being marginalized because of advances in technology.
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European Banks Are Cooking Up a Nice Regulatory Arbitrage
Matt Levine – Bloomberg
I don’t have much to add to this International Financing Review article titled “Banks target DTAs to boost capital,” but it brought tears of joy to my eye, and I’ll pass it along because at least some of my readers share at least some of my aesthetic sensibilities. That’s probably a minority, even of my readers.
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***DA: If the choice is between raising more capital and using it as a buffer against losses, or creating a new financial gizmo to sidestep capital buffer, take a wild guess as to which one I choose.

Time for central banks to step back
George Magnus – FT.com
Central banks have been on the back foot recently. The Federal Reserve has been criticised for its tapering strategy. Forward guidance in the US and UK has become a little discredited. Higher policy rate expectations are played down but are no longer an academic issue. The European Central Bank’s unused lender-of-last-resort policy tool for sovereign governments may have been rendered unusable.
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***DA: Every policy choice created winners and losers. The winners will call it “appropriate” and the losers will criticize.

Kuroda, here be expectations
David Keohane | FT Alphaville
That shows 94 per cent of analyst from Bloomberg’s monthly survey expecting more QE from the BoJ, be it this quarter or not. There’s “priced in” and then there’s maybe over-priced in…
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Buffett derivatives, feel the (credit) quality
Dan McCrum | FT Alphaville
In our exploration so far of the very large put option contracts sold by Berkshire Hathaway, we have looked at the reasons to sell them (cheap float), the potential liabilities created and the mystery of Warren Buffett’s financial disclosure.
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Central Banks

Fed Fretted Over Reaction to Demise of Lehman
NYTimes.com
Six weeks after Lehman Brothers filed for bankruptcy in September 2008, Ben S. Bernanke, then chairman of the Federal Reserve, gave his central bank colleagues an imitation of the people who were already criticizing the government’s decision to let the Wall Street bank collapse.
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***DA: In this case, even hindsight is not 20/20.

As Crisis Loomed, Yellen Made Wry and Forceful Calls for Action
NYTimes.com
As the world’s financial system stood on the verge of collapse in October 2008, Janet L. Yellen was not even a full voting member of the Federal Reserve’s policy-making committee, but she was not shy about admonishing her colleagues for not acting faster.
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Yellen Wins G-20 Praise as Emerging Markets’ Angst Eased
Paul Badertscher, Jason Scott and Raymond Colitt – Bloomberg
The world’s major economies pledged to maintain generally accommodative policies and pay heed to the international repercussions of their actions as Federal Reserve Chair Janet Yellen won praise for helping smooth emerging-market concerns.
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Draghi: ECB Prepared to Add Stimulus on Deflation Risks
Matthew Brockett – Bloomberg
European Central Bank President Mario Draghi said policy makers are ready to add to stimulus if the outlook for prices deteriorates, though there are currently no signs of deflation in the euro area.
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How the Fed Saw a Recession, Then Didn’t, Then Did
ANNIE LOWREY – NYTimes.com
Federal Reserve officials went back and forth on whether the economy was in a recession in 2008. In winter, they thought it likely. In spring, they were certain. In summer, they changed their minds.
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***DA: Thanks for nothing.

Plosser didn’t like the idea of the Fed issuing its own debt
Izabella Kaminska | FT Alphaville
The Fed’s December transcript reveals some interesting foresight by Philadelphia Fed president Charles Plosser in discussions about how the Fed should communicate its regime shift (i.e. that it was moving away from targeting the Fed Funds rate towards using base money, balance sheet and other quantitative measures as its primary tools).
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Markets mourn demise of Nigerian central bank independence post-Sanusi
Sid Verma – Euromoney magazine
Nigerian central bank independence passed away this week, according to traders, after a long battle with government officials that culminated in the downfall of the celebrated reformer Lamido Sanusi.
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Fed’s Aid in 2008 Crisis Stretched Worldwide
NYTimes.com
Tuesday morning, Sept. 16, 2008, was perhaps the darkest time for the United States economy in modern memory — even if nobody knew it quite yet. It was barely 24 hours removed from the bankruptcy of Lehman Brothers, and a few hours before the government would rescue the insurer American International Group.
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BOJ can wait to decide if more easing steps needed, Abe aide
Reuters
The Bank of Japan can wait for more data in the summer before it decides whether to ease policy further, a key aide to Prime Minister Shinzo Abe said, indicating the government is not pressing the central bank to immediately bolster the economy.
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Currencies

Mt. Gox CEO Resigns From Bitcoin Foundation Board
WSJ.com
Mark Karpelès, chief executive officer of Mt. Gox, the embattled Tokyo-based bitcoin exchange, resigned on Sunday from the board of the Bitcoin Foundation, according to a person familiar with the situation.
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Investors shaken as renminbi’s reputation as ‘one-way bet’ sours
Josh Noble in Hong Kong – FT.com
Last week the renminbi did something it has not done for years – it shocked the market. During the final three trading sessions of the week, the Chinese currency dropped as much as 1.3 per cent against the US dollar, marking its biggest three-day fall since 2011.
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***DA: Another entrant in the competitive devaluation game?

FX hedge funds’ underperformance to reverse as macro trends shift
Simon Watkins – Euromoney magazine
Global macro trends will normalize, boosting volatility and FX returns, argue analysts, despite the unflattering returns of FX hedge funds, the fall in AUM of currency-specific funds last year – even as the industry received bumper inflows – and recent high-profile failures.
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Banks struggle to fill staff gaps in FX rigging row
Reuters
A void is appearing in the upper reaches of the world’s biggest and most powerful financial market as banks struggle to replace currency traders suspended or fired during a global investigation into allegations of foreign exchange rate-rigging.
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ParFX gains credibility as first phase of on-boarding nears completion
Joel Clark – Euromoney magazine
The addition of JPMorgan and Citi to start-up trading platform ParFX marks the acceleration of the platform’s growth as it plans to open to the buy side in the summer.
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Yuan’s Decline Seen Creating Possible Liquidity Challenges for PBOC
Wynne Wang – MoneyBeat – WSJ
The Chinese yuan’s relentless appreciation may be drawing to a close for now, and that could end up creating a challenging liquidity squeeze later, according to UBS
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BTC China to Lower Trading Commission Fee
newsBTC
Chinese bitcoin exchange BTC China this weekend announced plans to reduce trading commission fees from 0.3% to 0.1% for all users.
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Indexes & Index Products

ETFs cash in by copying hedge fund stock picks, but some see risks
Reuters
When big name U.S. hedge fund managers disclosed their fourth-quarter stock holdings last week, a couple of exchange-traded fund companies took particular note.
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Barclays ETN follows Nobel strategy
Yakob Peterseil – Risk.net
When it teamed with 2013 Nobel laureate Robert Shiller to build an ETN based on the Cape ratio, Barclays became just the latest bank to partner with a celebrated academic.
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China RQFII ETF managers secure capital gains tax exemptions
Justin Lee – Risk.net
China AMC and CSOP Asset Management no longer withholding 10% of fund appreciation for capital gains tax provisions
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ETF roundup: BAML reports big rise in high-yield ETF inflows
Risk.net
9.8% increase in flows year on year; equity redemptions hit ETPs in January; North American ETFs suffer worst quarter for five years; iShares lists Europe’s first fund to use international security structure
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Gold

Red Flag for Gold: Is Fear Fading?
MoneyBeat – WSJ
Gold is the stuff myths are made of. Among the myths: that it is a store of value, a hedge against inflation or a hard alternative currency.
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Indian Migrant Workers Act as Gold ‘Couriers’
WSJ.com
More than 50 passengers on a recent Air India flight from Dubai arrived in this small city on India’s Malabar Coast carrying gold bars that customs officials valued at $2.5 million. The passengers arrived at the customs line in the dusty airport here and handed over declaration forms for the gold and paid the 10% duty, many saying…
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Miner Digs for Gold in the Arctic
WSJ.com
Gold miner Alain Belanger contends with 75 mile an hour winds, winter temperatures so cold they have cracked the steel on his 287-ton excavator and white-out blizzards that can halt mining for days.
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