First Impressions

There’s no such thing as optional income
Jon Matte
The Fed unsurprisingly extended its stimulus program.  I say “unsurprising” not in the sense of, “I note and concur with all those analysts who follow the Fed,” but from the perspective that it’s nearly impossible to receive no-strings-attached assistance without almost immediately coming to rely on it.  From the outset, the Fed’s introduction of its stimulus package sounded ominously similar to those words that turn nearly every parent’s palms clammy and cold: “C’mon, mom and dad, I just need to stay here for a few days until I can find a new place; y’know, with rent low enough that I can afford it with my part-time job.”  Six months later…

What puzzles me is that in a country where the economy is labeled either as “Recession” or “Not growing well enough and vulnerable to recession”, that people even bother to pretend like there’s an actual choice being made. My guess is that when the stimulus process ends, it will more likely be NOT because things are finally great again in the USA, but because of some other secondary factor, like, “We ran out of ink,” or, “Actually, a bankrupt country is kind of funny when you think about it. More squirrel, George?”

Quote of the Day

“Even Federal Reserve Chairman Ben Bernanke opposed Section 716 as written, stating that the way it forces these activities out of insured depository institutions ‘would weaken both the financial stability and strong regulation of the derivatives activities.’ “

~ Rep. Carolyn Maloney (D-N.Y.), the second-ranking Democrat on the House Financial Services Committee in the story, “House votes for bipartisan change to Dodd-Frank on bank swaps”.

Lead Stories

How the Federal Reserve is like a snake eating itself
Neil Irwin, The Washington Post
The Federal Reserve concluded a two-day policy meeting Wednesday, and, as expected, it was a snoozer. The central bank is keeping up its $85 billion-a-month in bond purchases (that is, not starting to taper them now), along with its near-zero interest rates.
http://jlne.ws/Hukw7a

Fed Extends Stimulus as Growth Stumbles
BINYAMIN APPELBAUM – NYTimes.com
The Federal Reserve is still waiting for clear evidence that the economy can grow decently without its help. The Fed’s widely expected announcement on Wednesday that it would press ahead with its stimulus campaign of asset purchases and low interest rates reflected the reality that the nation’s central bankers gained little clarity in the six weeks since their last meeting, in part because the government shutdown delayed and distorted key economic indicators.
http://jlne.ws/19eiv93
**JK – Why does it feel more like Japan, every FMOC meeting?

Debunking the theory of hallowed carry
Izabella Kaminska | FT Alphaville
Kudos to Krugman for attempting to explain to Pimco’s Bill Gross that return on capital is not something that can be taken for granted. His comments follow remarks from Gross that capitalism “needs carry” to survive. Now, Gross certainly isn’t wrong to make that observation. But what Gross seemingly fails to understand is the causation at play.
http://jlne.ws/19eiv98
**JK – That reminded me of a MASH classic from Hawkeye Pierce: “I will not carry a gun, Frank. When I got thrown into this war I had a clear understanding with the Pentagon: no guns. I’ll carry your books, I’ll carry a torch, I’ll carry a tune, I’ll carry on, carry over, carry forward, Cary Grant, cash and carry, carry me back to Old Virginia, I’ll even ‘hari-kari’ if you show me how, but I will not carry a gun!”

House votes for bipartisan change to Dodd-Frank on bank swaps
Pete Kasperowicz – The Hill
A bipartisan tweak to the Dodd-Frank financial reform law passed the House Wednesday, one that would give banks more flexibility to use complex financial instruments known as swaps to hedge risk.
http://jlne.ws/HulxMI

The Perils of a Free Trade Pact With Europe
SIMON JOHNSON – NYTimes.com
Currently slightly beneath most people’s radar, but coming soon to the fore is a potential free trade agreement with Europe. Negotiations started in October and, after a delay because of the government shutdown, may now pick up speed. Some parts of this potential agreement make sense, but there is also an important trap to be avoided: European requests on financial services.
http://jlne.ws/19eiv99

Bear hunting
James Mackintosh | FT Alphaville
Where are all the bears? Even some of the usual suspects have stopped growling, with David Rosenberg of Gluskin Sheff going so far as to dispute the idea that he’s a permabear. There are a few still carrying the flame – Russell Napier, the stock market historian, thinks the S&P 500 will fall to 500 – but with the S&P now at 1,772 there are few willing to listen to the growls.
http://jlne.ws/19eiwd9

When risk is sticky
Dan McCrum | FT Alphaville
Something has been nagging at us this month — why were there so few market nerves apparent ahead of the possibility of a US government default, if the debt ceiling wasn’t lifted?
http://jlne.ws/19eiwdc

Top Chinese Banks Post Biggest Bad-Loan Surge Since 2010
Bloomberg
China’s top four banks posted their biggest increase in soured loans since at least 2010 as a five-year credit spree left companies with excess manufacturing capacity and slower profit growth amid a cooling economy.
http://jlne.ws/HuiNio

Central Banks

Central banks agree to retain swap lines
Claire Jones – FT.com
The world’s major central banks have agreed to keep one of their main crisis-fighting tools in place permanently. Temporary swap lines, introduced by the Federal Reserve in 2007 to combat a global shortage of dollars, allow monetary authorities to pump foreign currency into their home markets. On Thursday, six central banks said that they would turn their temporary lines into standing ones, which would remain in use until further notice.
http://jlne.ws/19eiwdd

Health check and rates creep leave ECB in a dilemma
Michael Steen in Frankfurt – FT.com
The European Central Bank’s dilemma over the potential need to extend more long-term liquidity to banks is proving to be an early test of the conflicting pressures it will face in combining the roles of monetary policy guardian and chief bank supervisor.
http://jlne.ws/19eiv9e

HIGHLIGHTS-Key quotes from BOJ chief Kuroda’s news conference
Reuters
Three Bank of Japan board members dissented against the central bank’s latest semi-annual report on the economy, objecting to the bank’s time frame for achieving its 2 percent inflation goal or citing stronger downside risks to the economy, BOJ Governor Haruhiko Kuroda said on Thursday.
http://jlne.ws/19eiwdl

Nowotny says ECB will provide more liquidity by end of LTROs -CNBC
Reuters
The European Central Bank will provide more liquidity by the time cheap long-term loans it made in late 2011 and early 2012 expire, governing council member Ewald Nowotny told CNBC.
http://jlne.ws/19eivpv

China Money Rates Slide as PBOC Adds Cash, Seasonal Factors Wane
Bloomberg
China’s money-market rates fell and interest-rate swaps retreated from the highest level since June as the central bank added cash to the financial system for the second time this week.
http://jlne.ws/HujrMK

Currencies

Forex probes raise fears of a repeat of Libor scandal
Daniel Schäfer and Alice Ross – FT.com
Barclays on Wednesday became the latest bank to confirm that it has launched an internal probe into its foreign exchange trading, adding to a growing sense among bankers and investors that an industry-wide investigation is rapidly spiralling into a scandal that might eventually match the scale of the Libor manipulation saga.
http://jlne.ws/19eivpB

Hurrah for India’s FX swap strategy, or not?
Izabella Kaminska | FT Alphaville
The Indian government’s efforts to support the rupee seem, for now, to have worked: In fact, the reversal has been so strong that the Reserve Bank of India, saw fit to roll back some of the emergency measures it put in place in July to support the currency. On Tuesday, the RBI cut its Marginal Standing Facility rate by 25bps to 8.75 per cent, in a bid to ease liquidity in the banking system.
http://jlne.ws/19eiwtA

U.S. Report on Currency Intervention Draws Shrugs in South Korea
Kwanwoo Jun – MoneyBeat – WSJ
South Korean officials on Thursday largely shrugged off the U.S. Treasury Department’s latest admonition about intervening in currency markets, saying they will continue to stabilize the Korean won whenever necessary.
http://jlne.ws/19eiwtB

Weak Inflation, Current Account Surplus. Euro Looks More and More Yen-Like
David Cottle – MoneyBeat – WSJ
As euro-zone inflation once again comes in extremely feebly, we might ask if the poor old euro is starting to resemble the Japanese yen we used to know.
http://jlne.ws/19eivpF

Bitcoin Pursues the Mainstream
NICK WINGFIELD – NYTimes.com
The currency known as bitcoin — a much-hyped and much-doubted type of digital cash that can be bought with traditional money — has mostly attracted attention for its popularity in the black market, and for its wildly gyrating valuation.
http://jlne.ws/19eiwtC

Indexes and Index Products

Boost ETP Launches First Short And Leveraged ETPs Tracking FTSE MIB Indices
http://jlne.ws/19egTwd

NASDAQ OMX Iceland Starts Trading The First Ever Bond ETF Issued By Landsbref
The NASDAQ OMX Group, Inc. today announced that NASDAQ OMX Iceland has for the first time listed a fixed income exchange traded fund issued by the Icelandic fund management company Landsbref.
http://jlne.ws/19egTMt

Gold

India: Part of the fabric
Avantika Chilkoti and James Crabtree – FT.com
Amid the rush of Mumbai’s chaotic international airport, customs officers beckon a passenger to step aside. A cardboard box held together by a large number of tiny staples catches their attention. Closer inspection reveals the joins are made of gold, moulded and coloured to resemble steel stationery.
http://jlne.ws/19eivpI

Swiss central bank hit hard by gold price
By AAP
Switzerland’s central bank says it lost billions during the first nine months of the year amid a sharp drop in gold prices.
http://jlne.ws/19eivpJ

Miscellaneous

Treasuries Erase Gains as Chicago Business Barometer Advances
Susanne Walker – Bloomberg
Treasuries erased gains after the MNI Chicago Report (CHPMINDX) business barometer unexpectedly jumped more than forecast in October.
Benchmark 10-year notes trimmed their first back-to-back monthly advance since April as another report showed weekly jobless claims dropped.
http://jlne.ws/Hui9kV

Batista Repudiates Pimco-Led Creditors in OGX Bankruptcy
Juan Pablo Spinetto & Peter Millard – Bloomberg
OGX Petroleo & Gas Participacoes SA (OGXP3)’s bankruptcy protection filing in Latin America’s largest corporate default is dimming the prospect holders of the world’s worst-performing bonds will recoup their ill-fated investment in Eike Batista’s oil ambitions.
http://jlne.ws/Huk7Sp

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