First Impressions

Lowering the Labor Force

The markets got a nice bump last week when the labor report showed solid job growth. But today’s column called “Three Questions on the Jobs Picture” from the New York Times, points out the other side of that picture, which is the shrinking labor market.

That is a number worth watching and raises the question, is the US job force and its economy really growing?

Quote of the Day

“We may well need in the years ahead to think about how we manage an economy in which the zero nominal interest rate is a chronic and systemic inhibitor of economic activity.”

Larry Summers in the New York Times’ piece: “Candid Criticism for Fed That Wasn’t on the Agenda.”

Lead Stories

Local currency bond market given revamp
Robin Wigglesworth –
Yield-hungry investors undeterred by the developing world’s economic slowdown and the threat of reduced US stimulus, are hoping last month’s revamp of the local currency corporate bond market has breathed new life into an overlooked asset class. Bank of America Merrill Lynch has launched a suite of indices that track the performance of local currency corporate bonds.

SGX forex futures launch signals market evolution
The Singapore Exchange (SGX) is reattempting a launch of its Asian currency futures offering after its predecessor the Singapore International Monetary Exchange failed to attract interest to its first currency futures offering on the dollar, the pound and the Deutschmark in 1984.

ECB rate cut may hit exchange revenues
Anish Puaar – Financial News
The surprise decision by the European Central Bank to cut its interest rate to a record low could impact exchange group revenues, particularly those of Deutsche Börse, analysts have warned.
***DA: Not to mention the FCMs whose revenue model is based partially on interest income.

Candid Criticism for Fed That Wasn’t on the Agenda
It started off as yet another staid International Monetary Fund conference on financial crises, filled with ample praise for one of its high-wattage speakers, Ben S. Bernanke, the Federal Reserve chairman, and carefully calibrated comments on optimal monetary policy. Enter Lawrence H. Summers.

When candyfloss costs dear
Gillian Tett –
Seven long years ago, I had a chance to meet Sheikh Muhammad Taqi Usmani, a Pakistani scholar who is also a leading expert in Islamic finance. It was an unexpectedly memorable conversation. Back then, during the height of the credit bubble, there were very few people who expressed strong criticisms of how western finance worked. But Usmani was scathing. Most notably, he bewailed the tendency of American and European banks to create money untethered from any real assets; or, as he put it, to spin “derivatives out of more derivatives”.
***DA: No argument here. I rather liked crude at $32 like it was in 2009. How many in Usmani’s part of the world share that sentiment?

Three Questions on the Jobs Picture
As I have noted on my blog, the jobs report for October came in a lot better than expected, especially on the payroll side.  Not only did the payroll growth of 204,000 cleanly clear the diminished expectations borne of the government shutdown, but the unemployment rate hardly changed at all, up from 7.24 percent to 7.28 percent.
**JK: An interesting look at the labor force numbers. Do we have a shrinking economy?

The Third Plenum: What the Markets Are Watching
Chao Deng and Shen Hong – MoneyBeat – WSJ
The Chinese leadership confab that opened over the weekend could be a game-changer for investors willing to gamble on how policy changes might affect the country’s stock market. While Beijing has been mum on details of the widely-anticipated reforms, the investment community has mapped out its expectations.

Pimco Hurt by Near $39 Billion Net Outflow
Sarah Krouse –
Bond giant Pimco reported net outflows of €28.8 billion ($38.6 billion) in the third quarter, suffering from a selloff in fixed income during the period triggered by fears of rising interest rates.
**JK: Bad news for Bill Gross.

Risk-Adjusted: Where is the value in Emerging Markets?
Profit & Loss Webinar in association with CME Group
In this first of a series of free live audio webinars in association with CME Group, we look at trends in emerging markets, Tuesday, November 12, 11am EST/10am CST/4pm GMT. Register below.

Central Banks

Global Economy: Surprise tactics sweep central banking
After slashing interest rates to almost nothing and printing trillions of dollars, central banks are becoming increasingly reliant on another policy weapon: sucker punching markets.

Euro Zone’s Fizzling Growth Seen to Back Draghi Cut Case
Stefan Riecher & Kristian Siedenburg – Bloomberg
Euro-area growth data this week may show the region’s nascent recovery slowing to a crawl, supporting Mario Draghi’s case for an interest-rate cut to help the economy get back to its feet.

Draghi to Bernanke Inflation Slump Dims BOJ Target
Masaki Kondo & Yumi Ikeda – Bloomberg
Bank of Japan Governor Haruhiko Kuroda’s bid to end 15 years of persistent deflation is endangered by the failure of counterparts in the U.S. and Europe to meet their own price goals.

ECB split stokes German backlash fears
Peter Spiegel in Brussels and Stefan Wagstyl in Berlin –
Divisions at the heart of the European Central Bank over last week’s rate cut have revived fears in Frankfurt of a German popular backlash against the bank’s policy making, even as the ECB faces decisions critical to the eurozone’s future.

European Central Bank too big for new headquarters building
City A.M.
THE EUROPEAN Central Bank (ECB) will not be able to fit all of its staff into its new headquarters, it said over the weekend.
***JM: Well, if the EU can’t grow, at least the ECB is getting it done.


FX market faces challenges to meet Emir start date for trade reporting
Kathy Alys, Joel Clark –
The European Securities and Markets Authority (Esma) last week approved the first four trade repositories to operate under the European Market Infrastructure Regulation (Emir), marking the start of the countdown to mandatory trade reporting, which will now begin for all asset classes in February – despite concerns the foreign exchange market may still not have the necessary infrastructure to meet the requirements.

Race to Bottom Resumes as Central Bankers Ease Anew: Currencies
The global currency wars are heating up again as central banks embark on a new round of easing to combat a slowdown in growth.

Fresh tremors for the rupee?
Abheek Barua | Business Standard
The rupee has shown remarkable stability in the range of 61 to 62 to the dollar, and our policy makers have begun to assume (at least if one goes by the public statements coming from North Block) that this is the level at which the exchange rate will settle for a while to come. One could argue that this might not be a tenable assumption and the next few weeks could see a turning point for the rupee with another round of depreciation.

ECB must act to prevent euro aping strong yen –
Mansoor Mohi-uddin
The euro is at risk of resembling the yen of the 1990s and 2000s – a strong currency with weak economic fundamentals – if the eurozone keeps following Japan’s post-bubble path of slow bank deleveraging and poor credit expansion.

FXall Named “Best FX Dealing Portal” In Treasury Management International Awards For Innovation & Excellence In Treasury 2013

Indexes and Index Products

One Answer to the Index Fund: Build a Better Index
Jeff Sommer – Dealbook
PAUL A. SAMUELSON made a startling and significant case for index funds in 1974. In a deliberately provocative essay, Mr. Samuelson, who had already won the Nobel in economic science and written the most influential economics textbook in history, said most professional investment managers should “drop dead.”
At the very least, he said, they should “go out of business.”
***DA: The problem with schemes, systems and “better mousetraps” is that it is obsolete as soon as it is discovered. Add any scale to it and the advantages disappear. The beta of the market is 1.

According To ETFGI: Global ETF And ETP Assets Reached US$2.3 Trillion, A New Record High, At The End Of October 2013
October marked another month of strong inflows for global ETFs/ETPs. Combining the US$32.6 billion of net inflows with positive market performance during October global ETF/ETP assets reached a new record high of US$2.3 trillion, according to preliminary findings from ETFGI’s October 2013 Global ETF and ETP industry insights report.

Tokyo Stock Exchange ETF/ETN Monthly Report For Oct 2013 – Trading Value Remained High In October


Hedge Funds Cut Bullish Gold Bets on Fed Stimulus Outlook
Debarati Roy – Bloomberg
Hedge funds cut bullish gold bets, adding the most short contracts in four weeks, as U.S. economic growth fuels speculation the Federal Reserve will trim stimulus. Holdings across commodities dropped the most since April.

Gold sinks to lowest level in three weeks
Neil Hume in London –
Gold slid to its lowest level in three weeks as the dollar jumped in the wake of US strong jobs data that raised the chances of the Federal Reserve slowing assets purchases before the end of the year.

Barrick Gold signals founder Peter Munk to step down
Barrick Gold Corp signaled on Friday that founder and Chairman Peter Munk will likely leave the board at next year’s annual meeting, a move that sources say is intended to persuade reluctant investors to buy into the miner’s $3 billion equity offering.

Gold Vault Opens in China as Bullion Goes From West to East
Chanyaporn Chanjaroen & Stephen Engle – Bloomberg
A gold vault that can store 2,000 metric tons, double China’s projected consumption this year, opened in Shanghai this month as owner Malca-Amit Global Ltd. seeks to benefit from rising demand in Asia’s largest economy.


Fed Really, Really Wants to End Too Big to Fail
Barry Ritholtz – Bloomberg
Quite a few people are discussing the speech given by Federal Reserve Chairman Ben Bernanke last week, titled The Crisis as a Classic Financial Panic.
But while everyone is looking at the big dog, the rest of the pack has been out making very interesting noises.

All That Glitters
Vanity Fair
From the re-discovered mines of a gold-rich empire lost in the Sahara Desert to the secretive trading rooms of the London Bullion Market, the greatest gold rush in history—today’s!—has sent the precious metal cascading into the public consciousness as never before.

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