First Impressions

By Douglas Ashburn, John Lothian News

Four years ago, as the economy was backing away from the abyss, and the G20 was busy working together to a) solve the crisis and b) promise that changes would be made to ensure it would never happen again, a fellow trader cautioned me to look out for signs the congeniality was coming to an end, for that would be the beginning of the end.

“It’s inevitable,” he said. “We will work together until the greater powers learn it is not in their best interest to continue. Then we will devolve into competitive devaluation and, yes, ‘beggar-thy-neighbor’ policies. Such policies will always be accompanied by denials that you are participating in such a scheme, as well as accusations that others are.”

Smart guy. Smarter than me, anyway.

A scan of today’s headlines highlights several pieces of such evidence. David Cameron calls for permanent austerity while the Bank of England says rate hikes are closer than we think. Meanwhile, the ECB, against the wishes of Germany, has just cut rates in hopes of stimulating a moribund economy, but even that is called “too little, too late” by the FT’s Martin Wolf. Here in the U.S., Dallas Fed president Richard Fisher says that that QE has outlived its effectiveness and the taper must end “soon,” just as it is becoming clear that a Yellen-led Fed will favor more bouts of stimulus. Emerging markets are in the middle of a drubbing. And, of course, Japan continues to print mercilessly.

What is going on here?

To view the rest of the commentary, click HERE.

Quote of the Day

“[David Cameron] said the best way to keep the cost of living down was to take “difficult decisions on public spending” to leave “a state we can afford”.”

David Cameron speaking at the Lord Mayor’s Banquet in the City of London amid an opulent setting from the article, “Here’s David Cameron Calling For Permanent Austerity In Front Of All Kinds Of Ridiculous Gold Things”.

Lead Stories

Switzerland’s Proposal to Pay People for Being Alive
This fall, a truck dumped eight million coins outside the Parliament building in Bern, one for every Swiss citizen. It was a publicity stunt for advocates of an audacious social policy that just might become reality in the tiny, rich country. Along with the coins, activists delivered 125,000 signatures — enough to trigger a Swiss public referendum, this time on providing a monthly income to every citizen, no strings attached.
***DA: Once they establish where the money is going, they will need to figure out from where it will be extracted.

Why Draghi was right to cut rates
Martin Wolf –
The monetary policy of the European Central Bank has been too tight. This is shown in the fall of core annual inflation to just 0.8 per cent in the year to October 2013. The case for the monetary easing undertaken last week was overwhelming. Indeed, it was long overdue.
***DA: Amid the angry talk from Mr. Wolf, it is important to not lose sight of the reality here. The refi rate was at one-half of one percent before the cut, and now stands at one quarter. Kind of splitting hairs here. Are there really investments out there that were not economically feasible before that suddenly are?

Business Conditions are Improving: They’re Almost at Zero
Paul Vigna – MoneyBeat – WSJ
Somebody call the Fed. We need to start tapering right now. One of our favorite, lesser known indicators, the Chicago Fed’s National Activity Index, showed some improvement in its September reading

How Hedge Funds are Trading Muniland
Matt Wirz – MoneyBeat – WSJ
What’s a distressed-debt fund manager to do in this Goldilocks credit market? The answer for many is to play municipal bonds. But the vulture-fund strategies don’t translate perfectly in the municipal market and the hedge funds hunting for bargains there are trying out new tactics.
***DA: If one can borrow at or near the Fed window, any yield higher than that is a bet worth taking. The last bonus check won’t clear but that is a problem for another day.

A deficit of deficit credibility
David Keohane | FT Alphaville
As Izzy said recently, ‘deficit’ continues to be a dirty word in the US (despite *those* findings…) which makes this paragraph from Andrew Smithers either raunchy or worrying: As retained profits of corporate business in Q2 2013 amounted to 2.3% of GDP, it seems likely that they would fall to near zero if the CBO’s forecast for the fiscal deficit were to prove accurate and such a fall is likely to be accompanied by large falls in dividends.

Analysis: Wall Street sees social-impact bonds as way to do good and do well
Jessica Toonkel | Reuters
Wall Street banks are eyeing a nascent market that improves their public image at a low risk and still offers them a reasonable return on capital. The market is in so-called social-impact bonds, also known as pay-for-performance contracts, through which private capital can be funneled into philanthropic projects usually funded by governments and charities.
***DA: Down the road, I see social impact funds that invest only in companies below a compensation ratio threshold. Don’t know what I am talking about, visit the Pay Ratio Disclosure page in MarketsReformWiki

Here’s David Cameron Calling For Permanent Austerity In Front Of All Kinds Of Ridiculous Gold Things
Joe Weisenthal – Business Insider
Last night, David Cameron gave a speech at a banquet calling for permanent austerity.
***JM: “Austerity”: n. 1. The act of reducing one’s living standards as a consequence of difficult financial circumstances; for example, being forced to use a smaller table for a sumptuous feast, requiring that the guests’ golden thrones are placed slightly closer together than before.

Central Banks

Draghi Goes Face-to-Face With Bank Chiefs on Asset Health
Jeff Black & Boris Groendahl – Bloomberg
Bank executives traveled to Frankfurt for a first meeting with European Central Bank President Mario Draghi on the ECB’s review of lenders’ assets.
Chief executive officers from banks from five countries — Germany, Belgium, Cyprus, Malta and Luxembourg — met today with Draghi and other board members at ECB headquarters, a spokeswoman for the central bank said by telephone.

Yellen’s Challenge at the Fed – Speaking Persuasively to Investors
Janet L. Yellen, President Obama’s choice to lead the Federal Reserve over the next four years, has championed the idea that the Fed can stimulate the economy simply by speaking clearly.
***DA: And carry a big stick, or something to that effect.

Dallas Fed president Richard Fisher: QE won’t last forever
Katie Holliday , Dhara Ranasinghe – CNBC
The Federal Reserve’s monetary stimulus program cannot continue forever, Richard Fisher, President of the Federal Reserve Bank of Dallas told CNBC on Tuesday.
“We’ve changed and impacted the markets because of our intervention and I understand there’s sensitivity, but markets should also bear in mind that this program cannot go on forever,” he said.

BOE May Consider Earlier Rate Rise
The Bank of England may consider raising the U.K.’s main interest rate as soon as in the third quarter of 2015, nine months earlier than previously anticipated, officials from the central bank said Wednesday, sending sterling sharply higher.
***DA: Meanwhile the ECB is still in cutting mode.

100 Years Later, Was The Federal Reserve A Good Idea?
Gerald P. O’Driscoll Jr. – Forbes
Not since the Great Inflation of the early 1980s has the Fed been so controversial. Its causal role in the housing boom and bust remains contentious. Other factors aside, the Fed was a poor overseer of the safety and soundness of the financial system. At best, the central bank was a passive bystander during the boom and early stages of the housing bust; it couldn’t even accept that we were in the midst of nationwide housing downturn.


Foreign exchange: The big fix
Daniel Schäfer, Alice Ross and Delphine Strauss –
For years, the chatroom cacophony in the clubby world of foreign exchange traders was peppered with allusions to drinks, drugs and women. But in the spring of 2012, debate in the private Bloomberg chats suddenly turned serious.

Biggest banks face forex questions
Daniel Schäfer and Caroline Binham –
The global probe into foreign exchange manipulation has widened to include 15 of the world’s biggest banks and some of the most actively traded currencies, as lenders scramble to help authorities in exchange for leniency.

SEF rules slow transition to FX multi-dealer platforms
The recent movement of the foreign exchange trading market towards multi-dealer platforms is being stunted by the implementation of swap execution facility rules by the CFTC, according to a report released by Greenwich Associates today.

Emerging Currencies Are Pressured Anew
Anjani Trivedi –
Investors worried about a cutback to the Federal Reserve’s easy-money policies are withdrawing from some emerging markets, sparking a currency selloff that echoes last summer’s rout.

Bitcoin is tulip mania 2.0-not gold 2.0: Schiff – HITC Business
The Winklevoss twins may say that bitcoin resembles “gold 2.0,” but CEO of Euro Pacific Capital and Peter Schiff says the somewhat mysterious online currency more closely resembles tulip mania 2.0.
***JM: To be fair, gold sometimes also looks like a version of Tulip Mania.

Indexes and Index Products

CBOE Russell 2000 Volatility Index Futures And Options Launch Dates Announced
CBOE Holdings, Inc. today announced it will launch futures and options on the CBOE Russell 2000 Volatility Index in coming weeks. CBOE Futures Exchange will begin trading the futures on Monday, November 18, and Chicago Board Options Exchange plans to introduce trading in the options on Monday, December 2.

NASDAQ OMX Launches Fourteen New Indexes in the NASDAQ Newfound Index Family
Press Release (via MarketWatch)
The NASDAQ Newfound Index Family features rules-based, quantitatively enabled investment strategies created by Newfound Research LLC and tracks specific investment strategies through the use of exchange-traded funds (ETFs). The indexes are designed to utilize ETFs to allow for specific outcomes to be achieved as an overlay on a broad market experience.

RBI chief says bonds to be part of global indexes at some point
The Reserve Bank of India governor said that the country’s debt will be part of global bond indexes at some point, though he did not give a time frame.


Gold turns £27,800 into £1m
Kyle Caldwell – The Telegraph
If you were an early investor in gold and have stuck by the precious metal for the past 43 years you will have made a small fortune.
A new report, released today by the Centre for Economics & Business Research and CoinInvestDirect, an online precious metals dealer, has found that the gold price has soared by some 3,500pc since 1970. This means an investor who spent £27,800 on gold and retained their investment ever since will today be a millionaire.
***JB: If only foresight was as good as hindsight.

Gold: The lead in too many portfolios
Financial Mirror
The recent news flow could hardly have been better for gold-bugs: a possible US debt default, QE tapering delayed, Janet Yellen nominated to the helm of the Federal Reserve, the Bank of Japan continuing to print aggressively. And yet, precious metals continue to bring up the rear in this year’s league tables. What should we make of gold’s continuing disappointing performance?

Bangladesh police seizes 320 gold bars from Qatar Airways flight
Less than two weeks after seizing about 200 gold bars, police in Bangladesh’s main airport in capital Dhaka on Tuesday morning again seized 320 gold bars weighing about 37 kilograms from an arriving plane from Doha, an official said.
***JM: “That settles it,” said a spokesman from multinational bank JPMorgan Chase. “We’re for sure going to change how we shift our inventory around.  When you’ve ‘lent’ your gold so many times over, you really need to not keep losing what little you have to regional police forces.”  Ok no, not really.

The Dollar Is Losing Utility As World Reserves Shift – But What Of Gold’s Role?
Seeking Alpha
The purpose of this article is not to ignite a political discussion. Though misguided politics and bad policies are front and center of this problem, rather than point fingers, let’s look at factual indicators painting a grim picture for the U.S. dollar’s continued world dominance.


Attack on Junk-Loan Excess Risks LBO Profits as U.S. Cracks Down
Caroline Salas Gage, Craig Torres & Kristen Haunss – Bloomberg
Fees for bankers and payouts for leveraged-buyout funds are at risk of being crimped as federal regulators crack down on underwriting standards in the market for high-risk, high-yield loans.


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