First Impressions

The word of the day is “fearless.” This morning’s payroll data show a surge in hiring in virtually all segments, notably in manufacturing and construction. As of midday, the stock market has soared higher on positive employment figures. Naturally, the VIX and other volatility indices have headed south. Consumer sentiment also rose more than expected. Though the empirical evidence from Black Friday were off somewhat, the word is that shoppers have merely migrated to the online world. Everything is coming up roses. Even bitcoin bounced back from yesterday’s selloff led by China’s announcement of a clampdown.

It is Friday; I would not dream of raining on anyone’s parade. However, if I were to say anything negative, it would be to remind investors of the extent to which the current economic environment flows from Federal stimulus. Is that really all we needed to do to stoke long-term aggregate demand – transferring the bad debt to the public, stimulating conspicuous consumption by squashing rates, and promising to keep said rates low for a long long time?

If so, that would be a new one.

In all the “taper talk” bad news has been good. Today, good news is also good. I am not convinced. The next sign for me will be the “moving of the goal posts” by the Fed, meaning they will find new reasons to keep blowing helium into the balloon.

Today the world is fearless. That scares me.

Quote of the Day

We are seeing another rush of high-yield issuance ahead of market-moving events such as the Fed’s next meeting.said Ed Marrinan, head of macro-credit strategy at RBS

RBS Securities’ Ed Marriman, in the FT story “Pre-Fed junk bond rush sets fresh record”

Lead Stories

U.S. Employers Add 203,000 Jobs; Unemployment Rate Falls to Five-Year Low
Wall Street Journal
U.S. employers hired at a steady pace in November and the unemployment rate fell to its lowest level in five years, signs of a strengthening labor market that will intensify debate at the Federal Reserve about paring back bond purchases as early as this month.

***DA: Cue the taper talk.

Pre-Fed junk bond rush sets fresh record
Vivianne Rodrigues in New York –
Corporate borrowers with weaker credit quality are taking advantage of investors’ relentless search for higher yields to raise their last batch of funds in 2013 in the coming days.

***DA: Is fear dead? Or is it, like in the old Monty Python sketch, just resting?

Central Banks Warn of Bitcoin Risks
Central bankers and regulators around the world are ratcheting up warnings about bitcoin, as prices of the virtual currency soar, more merchants accept it for payment and investors pour money into new bitcoin-related ventures. Officials in China and France and from the European Union voiced their strongest concerns yet about the potential for speculative trading and money laundering in bitcoin and the potential risks for ordinary…

**JB: No question about it. Bitcoin is the wild west but then many see that as an attraction.

Shaking the Bitcoin Believers
So much for China’s willingness to tolerate financial innovation. Regulators have barred the country’s banks from trading Bitcoin, while denying the pseudo-money legal status and cracking down on anonymous users. Though China has stopped short of an outright ban, the move dashes hopes the country might allow start-up currencies to exist alongside the official renminbi.

Irrational Exuberance, 17 Years Later
Steven Russolillo – MoneyBeat – WSJ
Seventeen years ago today, former Fed Chairman Alan Greenspan coined “irrational exuberance,” a phrase that is still ringing across Wall Street as bubble talk once again ratchets up.

***DA: The megabulls would say my pessimism is irrational right now.

Record Fund Exodus Propels Biggest Surge in Trading: Muni Credit
Brian Chappatta & Priya Anand – Bloomberg
A historic exodus from municipal mutual funds is propelling the biggest jump in trading in local debt since 2011 as individuals and money managers bet an expanding economy will drive up interest rates.

U.S. Company Bond Sales of $1.48 Trillion Set Annual Record
Sarika Gangar – Bloomberg
Sales of dollar-denominated corporate bonds soared to a record for the second straight year, led by speculative-grade borrowers that rushed to offer debt before the Federal Reserve cuts its unprecedented stimulus.

***DA: Want another annual record? Stock buy-backs. Coincidence? Nope.

Autumn Statement 2013: Britain’s needlessly slow recovery
Martin Wolf –
George Osborne is quite sure that “Britain’s economic plan is working”. Now, with growth returning, he argues for a “responsible recovery”. But the prior question is: what is the UK recovering? Policy makers have given up on recovering what the economy has lost. They believe the public will and must accept far less. Only those equally pessimistic should regard such an outcome as a vindication of government policies.

China widens bad banks’ asset options
Simon Rabinovitch in Shanghai –
China has given its new provincial “bad banks” a wider channel for selling assets, in an effort to strengthen their ability to handle non-performing loans.

Central Banks

Kuroda $235,000 Salary Highlights Goldman Concern
Masaki Kondo, Mariko Ishikawa & Shigeki Nozawa – Bloomberg
Bank of Japan Governor Haruhiko Kuroda’s payslip is 38 percent less than his predecessor’s 15 years ago, underscoring Goldman Sachs Group Inc.’s warning that wages must rise for Abenomics to succeed.

Beware the curse of the new Fed chair?
Alex Rosenberg – CNBC
Markets may be excited by the idea of a Federal Reserve led by Janet Yellen, but if history is any indication, stocks could be in for a rough patch as she begins her tenure. Over the past 25 years, a distinct and disturbing trend has emerged—one that has been deemed the “curse of the new Federal Reserve chair.”

Fed Beige Book Offers “Modest” Optimism
Dan Collins – Dan Collins Report
Although the Federal Reserve’s Beige Book (Summary of Commentary on Current Economic Conditions by Federal Reserve District) released on Wednesday Dec. 4 used the words modest or moderate seven times in its three-paragraph introduction, Miller Tabak’s Chief Economic Strategist Andrew Wilkinson saw signs of more robust optimism.


Central Banker On Bitcoin, At Least With Tulipmania You Got a Tulip At The End
Tim Worstall – Forbes
The retired head of the Dutch central bank has commented that Bitcoin is indeed a bubble, just like tulipmania, and has gone on to point out that at the end of tulipmania, after the prices collapsed, at least you still had a tulip. He does have a point, the pricing issue does make it look as if there’s a bubble in Bitcoin, but he’s also missing something as well.

As Bitcoin’s Wild Ride Heats Up, So Does the Debate Over its Viability
Michael J. Casey – MoneyBeat – WSJ
As bitcoin’s rollercoaster price ride grabs headlines, everyone from the People’s Bank of China to Wall Street currency analysts is weighing in on the digital currency’s future viability – and middle ground is very hard to find.

In the Murky World of Bitcoin, Fraud Is Quicker Than the Law
The call went out on Twitter: “For insane profits come and join the pump.” It was an invitation to a penny stock-style pump-and-dump scheme — only this one involved Bitcoin, the soaring, slightly scary virtual currency that has beckoned and bewildered people around the world.

Euro Displays Uncommon Strength
The euro, once synonymous with debt crises and economic collapse, is poised to gain a new title: world’s strongest major currency.

Indexes & Index Products

According To ETFGI: Global ETF And ETP Assets Reached US$2.4 Trillion, A New Record High, At The End Of November 2013
The combination of US$17.0 billion in net inflows and positive market performance pushed assets in the global ETF/ETP industry to a new record high of US$2.4 trillion at the end of November, according to preliminary findings from ETFGI’s November 2013 Global ETF and ETP industry insights report. Net inflows into global ETFs/ETPs in November were weaker than the US$32.6 billion of net inflows in October and the US$35.7 billion net inflows in September.

Deutsche Bank quits commodities, but keeps index funds
Barani Krishnan – Reuters
Deutsche Bank, which is quitting trading in most raw materials markets, will retain its near $9 billion commodities index fund business, a strategy industry experts said helps the German bank profit from fees and maintain ties with some of the largest investors.

Benchmark regulations force governance rethink
Sarah Krouse – Financial News
Banks and other firms that produce indices in-house may be forced to rejig the governance of those products under proposed European benchmark regulations, a change that could force a greater reliance on independent index providers.

US bond ETPs caught in tapering mire
Sarah Krouse – Financial News
Net inflows into fixed-income exchange-traded products in Europe have outpaced those into US products this year, as concerns about looming Fed tapering weighed on investor sentiment across the pond.

Deutsche Bank quits commodities, but keeps index funds
Deutsche Bank, which is quitting trading in most raw materials markets, will retain its near $9 billion commodities index fund business, a strategy industry experts said helps the German bank profit from fees and maintain ties with some of the largest investors.

SEC targets ‘protected’ and ‘guaranteed’ fund names
Yakob Peterseil –
After criticising the use of the term “principal protected” in structured notes, the SEC turns to ETFs and mutual funds that promise protection from loss in their names

CORRECTED-Macquarie index aims to be lead indicator of food inflation
Macquarie Commodities Research has created a new global agricultural commodity index designed to indicate the future level of food inflation, it said on Wednesday.


Battered Gold Miners Take Another Look at Hedging
Matt Day – MoneyBeat – WSJ
Barrick Gold Corp. has signaled a potentially titanic shift in the gold-mining industry: a second look at hedging. There was a time when gold miners employed the futures market to lock in some metal sales, a method to guarantee some cashflow deployed by raw materials makers from aluminum smelters to natural-gas drillers.

China’s biggest jeweler sees gold in the masses | Reuters
The world’s most valuable jewellery retailer Chow Tai Fook, which counts Cartier and Tiffany & Co as competitors, is on a quest to conquer the hearts of China’s future big spenders. Its weapons of choice: Hello Kitty and Winnie the Pooh.

***JM: Good mental picture of a post-apocalyptic gold bug bartering for more ammunition with a gold Hello Kitty pendant.

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