First Impressions

A Momentary Lapse
Douglas Ashburn – John Lothian News

There appears to be a movement afoot to bring the term “Lehman Moment” into the vernacular. But like most financial buzzwords, the phrase is usually not used in the right context. The Lehman bankruptcy occurred in the middle stages of a worldwide selloff. Lehman was but one casualty among many to occur between late 2008 through the first quarter of 2009. Right now, developed markets are only slightly below all-time highs, and have been on a one-way rally for several years. This, however, did not stop a Bloomberg editor from calling the bailout of a China trust fund a “Lehman Moment.”

So, what is a “Lehman Moment” actually? Is the story is referring to the early signs of a crisis, the proverbial “canary in the coal mine?” If so, I would suggest to use instead the phrase “Bear Stearns Moment.” If the story is about the trigger point to which a central bank steps in, that would be a “Long-Term Capital Moment.” If the story is about a massive head-fake during a period of market stress, it is a “Flash Crash Moment.”

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Quote of the Day

“This particular case can serve as a benchmark or test case for how the Chinese government is going to approach any default or fallout from the shadow-banking system. In a way, it’s to avoid some kind of Lehman moment for China.”

Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore in the story, “China Bond Risk Drops as Trust Rescue Offer Avoids Lehman Moment”.

Lead Stories

Pressure mounts on EM nations to lift rates
John Paul Rathbone and Jonathan Wheatley in London –
Emerging market countries faced fresh pressure on Monday to put up interest rates as Brazil warned that others would need to follow its lead in tightening monetary policy and Turkey’s central bank convened an emergency rate-setting meeting.
***DA: The market will tighten their monetary policies for them. The central banks will follow  down the path, not lead the way.

China’s ‘invisible man’ quits forex role
Simon Rabinovitch in Shanghai –
The “invisible man” who held one of the world’s most important investment jobs for the past four years in leading the diversification of China’s foreign currency wealth has resigned.
***DA: A regular Keyser Soze.

China Bond Risk Drops as Trust Rescue Offer Avoids Lehman Moment
The cost of insuring China’s bonds against non-payment fell the most since September and debt linked to municipalities gained after the bailout of a troubled trust product averted a default that may have spooked markets.
***DA: It was a Long-Term Capital Management moment, actually.

A good shepherd for Europe’s revival
After years of firefighting against the eurozone sovereign debt crisis, Mario Draghi has become a little more optimistic. In a speech at Davos last week, the European Central Bank president said he saw “dramatic” improvements in the euro area, with risks declining in both the core countries of the north and the periphery. On the whole his assessment looks accurate. Yet, as Mr Draghi knows well, the eurozone has not yet turned the corner.
***DA: What numbers is he looking at? All I see is a coming wave of deflation.

Jury out on African Eurobonds amid Fed-tapering threat
Kanika Saigal – Euromoney magazine
A flurry of Eurobond issuance out of Africa was characterized by cheap funding as portfolio funds flooded Africa looking for yields, but as Fed tapering comes to the fore, African sovereigns might tilt back towards local currency bond markets.
***DA: Don’t need to reach for yield if it is within your grasp at home.

Portugal on course for ‘clean’ bailout exit
Peter Wise –
Portugal is jostling to be next in line to perform the periphery escape trick. The fact that Portugal can even consider emerging from its own EUR 78bn international bailout without the safety net of an EU credit line is testimony to how debt market sentiment has changed in favour of the eurozone’s crisis-hit periphery.
***DA: I would take my chances on Portugal at these rates than France at its 10-yr rate.

Bundesbank proposes wealth tax for EU states facing bankruptcy
Jeevan Vasagar in Berlin and Peter Spiegel in Brussels –
Eurozone governments facing the threat of bankruptcy should impose a one-off wealth tax on their citizens before seeking help from others, Germany’s Bundesbank proposed on Monday.
***DA: Careful what you wish for. If it is good for the goose today it may be good for the gander tomorrow.

Bair, Critic of the Revolving Door, Joins Board of Santander
Sheila C. Bair, a former head of the Federal Deposit Insurance Corporation who once argued that former regulators should be barred from joining the banks they oversaw, is joining the board of Banco Santander, the Spanish bank said on Monday.
***JM: The true test of will comes at, not before, the point of temptation. Having said that, I think that whole revolving-door angst thing is kind of dumb, so whatever, enjoy your new job, Sheila.

Profits Up, Wages Down: What Economics Has to Say
It won’t surprise many readers to learn that in recent years profits have been doing a whole lot better than most workers’ wages. We just learned that for the fourth year in a row, the real median weekly earnings for full-time workers fell slightly.

Indonesia the most vulnerable of a fragile five
Jeremy Weltman – Euromoney magazine
A toxic combination of large external financing gaps and US liquidity withdrawal has increased the risks of investing in triple-B rated emerging market (EM) sovereigns. With many countries facing elections this year and stalling on structural reforms, economists taking part in Euromoney’s Country Risk Survey have placed five of the larger EMs under the microscope.

Bouncy Bunds and jumping JGBs, the rate volume watch
Dan McCrum | FT Alphaville
The whole we’ll taper soon, oh no, actually not yet behaviour from the Federal Reserve last summer had, as you would expect, an impact on the volume of US treasury trading.

COLUMN-What would Keynes have done?
John Wasik | Reuters
What many people don’t realize about economist John Maynard Keynes is that he was a professional investor, not just a thinker who addressed big issues.
***DA: Keynes would never have gotten into this mess because he advocated aggressive tightening during booms, not just relaxed credit during busts.

Michelle Smith, working behind the scenes to shape the Fed’s public image
Zachary A. Goldfarb – The Washington Post
Before she helped Ben S. Bernanke transform the Federal Reserve, before she was a top aide to Alan Greenspan, before she was a confidante to Timothy Geithner and a senior adviser to Lawrence Summers, Michelle Smith made a mistake that could have ended her career. She told a group of reporters not to get lunch.
***DA: Well written piece, but there is controversy as to whether Smith is an admirable public servant or a spin doctor for a massive transfer of wealth to the perpetrators of the last crisis. Read it and make up your own mind.

Central Banks

Goldman Sachs Sees Rate Cut as ECB Best Option on Money Markets
Alessandro Speciale – Bloomberg
A rate cut is the European Central Bank’s best option to respond to rising borrowing costs in euro-area money markets, Goldman Sachs Group Inc. said in a note.
***DA: It may buy some time, anyway.

Turkish central bank, under rate hike pressure, vows decisive action
Turkey’s central bank governor raised expectations for an emergency interest rate hike on Tuesday, denying he was hostage to political pressures and vowing decisive action to fight rising inflation and a tumbling lira.
***DA: Like when the losing NFL coach says he is “here to stay” it means he is about to be sacked.

Q&A: An Advocate for a Quicker Taper
As the voting membership of the Federal Reserve’s policy-making committee, the Federal Open Market Committee, turns over at a meeting this week, one of the new votes will be cast by Richard W. Fisher, president of the Federal Reserve Bank of Dallas.
***DA: Though the FOMC’s voting makeup turned hawkish this year, it is likely not enough to aggressively end the taper.

Q&A: A Voice for an Activist Fed
The Federal Reserve is often described as if it were a person – just one person – but it actually makes decisions by committee, and that committee is in flux. Only six of the 12 officials who voted on policy last January will still be voting when the Federal Open Market Committee holds its first meeting of 2014 this week.


Janet Yellen Inherits ‘Another Nice Mess’
Paul Vigna – MoneyBeat – WSJ
Currencies from South Africa to Turkey to the Ukraine to Argentina are plunging, roiling not just investors but the lives of millions of people. U.S. stock markets just had their worst week in a couple of years. Ben Bernanke, the architect of the Federal Reserve’s unprecedented stimulus program, is stepping down at the end of the month.
***DA: Hopefully Yellen, unlike her predecessors, understands that stock price appreciation is not among the Fed’s mandate.

Capital flows: Ghana rating actions show African currency risks
Kanika Saigal – Euromoney magazine
Fiscal slippage, less FDI and lower export prices make Ghana among most vulnerable; Eurobond access still cheap

Availability of RMB instruments lags demand for insurance – Wim Hekstra profile
Aaron Woolner –
While the UK’s politicians have recently flirted with the idea of forcing visitors from certain countries to hand over a “security bond” worth $5,000 to encourage them to leave at the end of their stay, Hong Kong’s authorities have instead been using financial instruments to enable foreigners to gain residency.

Argentina Spends $135 Million to Defend Peso Monday
Argentina’s central bank spent around $135 million on Monday to prevent the peso from depreciating further, said a person familiar with the matter.

Bitcoin Crime Risk Sparks Warning at Top Nordic Forex Bank
Niklas Magnusson – Bloomberg
SEB AB (SEBA), the largest Nordic foreign currency trader, is rejecting requests from clients seeking to set up accounts to manage Bitcoin amid concern the software could be used to aid crime.
***JB: As if no one has ever used the current system to commit a crime.  As the story below shows committing crimes with Bitcoin is nowhere near as simple as many make it out to be.  Plenty of people get caught using it for illicit purposes.

Bitcoin Figure Is Accused of Conspiring to Launder Money
One of the most prominent players in the Bitcoin universe, Charles Shrem, was arrested by federal authorities on Sunday and accused of helping smooth the way for drug transactions on the now-defunct online bazaar Silk Road.
***JM: This is less about Bitcoin and more about somebody who used it for crime; we don’t hiss angrily at the US Treasury department every time somebody uses USD for laundering… right?

Pay Me in Bitcoin, IT Professionals Say
Michael J. Casey – MoneyBeat – WSJ
A majority of U.S technology professionals would welcome being paid in bitcoin, according to a survey by event organizer Tech in Motion. Out of 847 responses to a questionnaire sent to Tech in Motion’s 18,000 members, 51.12% answered “yes, absolutely,” to the question “Would you be interested in being paid for your work in cryptocurrencies like Bitcoin?”
***JM: I must be really weird. I want to get paid so that I can afford rent, food, internet access, and so on. “Novelty” and “innovation” are not in the slightest a part of my paradigm of food, clothing and shelter; just put regular money in a bank where I can use it, thanks.


ISE ETF Ventures Inaugural Year-in-Review
The International Securities Exchange Holdings, Inc. (ISE Holdings) announced the inaugural year-in-review for ISE ETF Ventures, the business unit within ISE Holdings dedicated to bringing new exchange traded products (ETPs) to market through capital commitment, business development, and marketing support.

No.1 platinum ETF sees biggest weekly outflow since launch
The world’s largest platinum-backed exchange-traded fund, Johannesburg-listed NewPlat ETF, recorded its largest weekly outflow since its launch in April last year, data from the fund showed on Monday.

VIX falls along with equity indexes
Equity indexes tried to rebound yesterday after but ended up losing more ground by the close. The CBOE Volatility Index also finished lower.


Gold Flows East as Bars Recast for Chinese Defying Slump
Nicholas Larkin, Chanyaporn Chanjaroen and Glenys Sim – Bloomberg
Gold’s biggest slump in three decades has been a boon for MKS (Switzerland) SA’s PAMP refinery near the Italian border in Castel San Pietro, whose bullion sales to China surged to a record as demand rose for coins, bars and jewelry.

Long gold as a crisis hedge: A loser’s game?
Nyshka Chandran – CNBC
Gold rallied this week as investors sought shelter under its safe-haven status amid emerging market turmoil, but according to one analyst, going long gold as a crisis hedge may not be the smartest trade out there.

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