First Impressions

Happy New Year (if a bit belated) to all our readers. We’re just about done digging out from our New Year’s Eve snowstorm in Chicago and now looking forward to more snow and then truly frigid weather in the next few days.

Chicagoans are a hearty bunch though so we will continue to bring you the best news in the financial world and look forward to expanding our original content and videos in the coming year. We’re excited for the coming year and hope it will be a good one for you too.

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Quote of the Day

“The size of the problem suggests that restructurings will be needed, particularly, for example, in the periphery of Europe, far beyond anything discussed in public to this point.”

Carmen Reinhart and Richard Rogoff, cited in the WSJ story “Three Ways for Europe to Cut its Debt Load”

Lead Stories

The Euro Zone’s Recovery Or Hangover?
Alen Mattich – MoneyBeat – WSJ
The latest batch of European manufacturing purchasing managers’ surveys released on the first trading day of the new year offered up a mild irony: countries with their own currencies generally saw a softening performance while those in the euro zone mostly firmed.
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***DA: Beware the single metric. Too many moving parts to read too much into a couple months of PMI data.

Three Ways for Europe to Cut Its Debt Load
WSJ.com
Before financial crises there’s the party, followed by the crash. Then comes the hangover: huge debt burdens that can leave countries with a yearslong economic headache of slow growth and high unemployment.
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***DA: Hard to feel the hangover when one is still guzzling from the punch bowl.

Reinhart-Rogoff Find Hangovers in Bank Crises: Cutting Research
Simon Kennedy and Stefan Riecher – Bloomberg
It takes eight years on average for economies to regain the level of income lost in a banking crisis, and the U.S. and Germany are alone among 12 in having already done so since the 2008 turmoil, according to Harvard University professors Carmen Reinhart and Kenneth Rogoff.
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Gross’s Mistake on Fed Taper Echoes Across Pimco Funds
Charles Stein and Alexis Leondis – Bloomberg
Bill Gross, the money manager known as “The Bond King,” misjudged the timing and impact of the Federal Reserve’s plan to scale back its asset purchases in 2013, spurring the Pimco Total Return Fund’s (PTTRX) biggest decline in almost two decades.
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***DA: Pimco is faced with a conundrum. It is hard to be nimble with a couple trillion under management. Transitioning is a multi-year project, and market timing is near impossible.

China’s credit spiral
David Keohane | FT Alphaville
Just when you think there’s nothing left to say about China’s debt dilemma up pop some more pieces to greet the new year. Two of the most recent saw Soros on the self-contradiction in Chinese policy boat saying that “restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years” and Patrick Chovanec providing a touch more detail about what all that messy debt actually means
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***DA: Oh, my. I knew it was bad, but the numbers here are staggering. $15 trillion in new loans since 2008, and the “official” nonperformance rate is one percent. This could be a subprime-type crisis on steroids.

Structured Note Sales Slump to 11-Year Low as Regulations Bite
Alastair Marsh – Bloomberg
Sales of structured notes in Europe and Asia fell to the lowest in 11 years in 2013 as investors spurned the securities in favor of bonds while issuers quit the industry amid greater regulatory scrutiny.
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Breaking through the ZLB with virtual currencies
Izabella Kaminska | FT Alphaville
Here’s a crazy thought to start the New Year year with. What if virtual currencies were born less of an organic anti-government peoples’ movement and more of extreme unconventional monetary policy by the state? The ultimate central bank Jedi mind trick if you will, which takes easing to levels that conventional policy just cannot go.
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**DA: A cashless society, with expiration dates on money. That would stir consumerism.

Return of inflation is inevitable says Aronstein
Stephen Foley – FT.com
Markets are underestimating a coming rout in bond prices, and missing early signs of the return of inflation, according to the US mutual fund manager who has raised more money than any other in the past year.
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***DA: If you have bought groceries, health insurance, gas, college tuition, or the S&P 500 lately, you have not missed the signs of inflation.

Anti-EU Parties Gather Strength in Europe
Naftali Bendavid And Gabriele Parussini – WSJ.com
European leaders are bracing for an electoral surge next spring by parties hostile to the European Union—a potential setback to more established parties that could hamper EU efforts to pursue far-reaching policies.
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***DA: When the going gets tough, it is every man for himself.

Bank of Finland Warns Debt Level Poised to Double: Nordic Credit
Kasper Viita – Bloomberg
The Bank of Finland is warning that the euro area’s best-rated economy risks sliding down a path that could see its debt burden rival Italy’s.
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Central Banks

The European Central Bank: Unpalatable choices
The Economist
SINCE the financial crisis the European Central Bank (ECB) has ploughed a solitary course, reflecting its unique status as a monetary authority without a state. While other big central banks, notably America’s Federal Reserve, adopted quantitative easing—buying government bonds by creating money—to stimulate recovery, the ECB relied mainly on lowering interest rates and providing unlimited liquidity to banks on longer terms and against worse collateral. But as the Fed phases out its asset-buying programme in 2014, it may be the ECB’s turn to become unorthodox.
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Euro-Zone Private Lending Plunges
WSJ.com
Lending to the private sector in the euro zone plunged in November at the sharpest annual rate since records began over 20 years ago, data from the European Central Bank showed Friday, suggesting that the region will struggle to get its anticipated economic recovery in full gear.
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ANALYST: The Fed Is About To Strike Back
Matthew Boesler – Business Insider
On the first day of trading in 2014 the S&P 500 fell 0.9%.
Today, however, the Fedspeak calendar is packed, thanks to the AEA/ASSA annual meeting in Philadelphia, at which several members of the Federal Open Market Committee are scheduled to speak.
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Federal Reserve Asks Financial Industry Lobbyists For Personnel Recommendations
Huffington Post
Financial industry lobbyists are among those being asked to suggest who should replace Sandra Braunstein, the retiring Federal Reserve official who oversaw the regulator’s lackluster efforts to protect consumers in the years preceding the U.S. mortgage meltdown.
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***JB: Asking the foxes who should be in charge of the hen house. What could possibly go wrong?

Turkey’s Central Bank Faces Pressure to Raise Rates
WSJ.com
Turkey’s central bank is under mounting pressure to raise interest rates as New Year tax increases pump up inflation forecasts for this year that have already been boosted by a collapse in the lira.
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RBI likely sold US dollars via PSU banks: Dealers
The Economic Times
The Reserve Bank of India likely sold dollars via state-run banks to pull back the rupee from one-month lows in late Friday trading, three dealers told Reuters.
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Currencies

Best Foreign-Exchange Mutual Funds Diverge on Dollar
Joseph Ciolli – Bloomberg
The only two actively managed U.S. foreign-exchange mutual funds to turn a profit last year have divided views on how the dollar will perform in 2014, casting doubt on the notion of a market consensus on the greenback.
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Obstacles loom for robust euro
Neil Dennis – FT.com
Central bank divergence will be an important theme on foreign exchanges this year as the Federal Reserve looks to step up its tapering.
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Thatcher Told Treasury, BOE Tried to Hamper Pound Float
Robert Hutton – Bloomberg
Margaret Thatcher’s aides warned as early as 1984 that the Treasury and the Bank of England were trying to undermine her policy of letting the pound float.
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Dollar Is Off to a Roaring Start in the New Year
Nicole Hong – WSJ.com
The dollar soared on the first trading day of 2014, as expectations of a resurgent U.S. economy lured investors from around the world.
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Who Needs Bitcoin? Venezuela Has Its ‘Sucre’
WSJ.com
Satoshi Nakamoto and Hugo Chávez had at least one thing in common: Both created virtual currencies whose popularity is growing but which are also raising alarms among law-enforcement officials.
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Indexes & Index Products

NYSE Euronext introduces new Amsterdam equity indices
ETF Strategy
NYSE Euronext, a wholly owned subsidiary of IntercontinentalExchange Group (ICE), has expanded its range of indices with the introduction of two new Dutch equity products: the AEX All-Tradable Index and the AEX All-Tradable Alternative Weighting Index.
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Gold

Gold Still Glorious in Asia
Abheek Bhattacharya – MoneyBeat – WSJ
Gold has started 2014 on a shiny note, up 3%. But gold bugs still have to live with the metal’s annual loss in 2013—its first in in 13 years. They once more hear the bears’ taunt that gold is a “barbarous relic.” But as the price fell last year, someone was buying.
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Coins Remain a Bright Spot for Gold
WSJ.com
Sales of gold coins are booming even as the metal’s price is falling, a testament to gold’s continued appeal for small investors and collectors despite its first bear market in more than a decade.
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From Ore to Nuggets, With Peril
JOE COCHRANE – NYTimes.com
In the remote mountains of West Java, workers like 15-year-old David Mario Chandra are an integral part of Indonesia’s gold industry. A workshop next to his family’s house in Cisitu, in Banten Province, contains machinery that turns gold ore into usable nuggets.
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Gold Extends Rally From Biggest Loss Since ’81; Platinum Gains
Glenys Sim – Bloomberg
Gold extended its rally from the biggest annual loss in three decades on signs the slump is spurring demand. Platinum rose to the highest since November.
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