First Impressions

Today’s newsletter features a call for patience on Abenonics, a 5-year look back on the 2009 Financial Stability Plan, a court case that may be a precursor to an Argentinian default, plus our usual daily roundup of central bank, FX, index and metals news.

We begin, though, with a sendoff of one of our colleagues, Ryan Lothian, who it taking his digital media expertise to the Cook County Forest Preserve.

A Journey to Excellence
John J. Lothian – John Lothian News
Ryan Lothian is leaving John J. Lothian & Company, Inc. and John Lothian News. After five years of helping us build our social media infrastructure and news organization, he is moving on to the next chapter in his career, a job managing digital projects with the Cook County Forest Preserve.

One can’t understate the influence that Ryan has had on the growth and development of our enterprise since 2009. His skill in designing websites, graphic design and technical integration has helped give John Lothian News and John Lothian Productions a reputation of excellence. His logical, thoughtful and artful work has given us elegant and dynamic platforms to deliver the content we produce.

Read More >>>

Quote of the Day

“After a long period of deleveraging, households are borrowing again.”

Wilbert van der Klaauw, senior vice president and economist at the New York Fed, in the NYT article, “An Ambiguous Omen”

Lead Stories

Too Early To Call Abenomics a Failure
Alen Mattich – MoneyBeat – WSJ
Is Japan’s disappointing fourth quarter GDP data evidence that Abenomics is doomed to failure, or merely a bump in the road? Though the evidence is open to interpretation, it’s probably premature to say Abenomics hasn’t worked.

***DA: Sure, but since they keep asking for more and more, at what point may it be deemed a failure? Two years? Five? Twenty?

China Bulked Up on Longer-Term Treasurys in 2013
Min Zeng – MoneyBeat – WSJ
China, the largest foreign owner of U.S. Treasury debt, ramped up its holdings of longer-term securities last year at the fastest pace in five years, signaling no worries over the sharp rise in U.S. interest rates during that period.

***DA: Or signaling that it beats all available alternatives.

Pimco’s Bill Gross Praises Firm’s ‘Broader Bench’
Sarah Krouse – MoneyBeat – WSJ
Six deputy chief investment officers are better than none. That’s the message from the latest round of assurances from Pacific Investment Management Co., which says its “broader bench” of investment leadership is a sound decision.

***DA: Call it “an enhanced trial period to determine succession plan.”

Brazil onshore structured note issuance expected to hit $500m per month
Richard Jory –
Brazil’s onshore market for structured products opened with healthy issuance volumes in January, and bankers are hoping for turnover equivalent to $500 million every month

Scotland to Be Granted Power to Issue Bonds
Scotland will be able to issue a limited amount of bonds for the first time next year, even though it is expected to be a more costly form of raising funds than borrowing through the British government.

***DA: You mean, like Sean Connery?

An Ambiguous Omen, U.S. Household Debt Begins to Rise Again
American households took on $241 billion in additional debt in the fourth quarter of last year, signaling the end of an extended period of hunkering down. Total household debt increased 2.1 percent, the largest quarterly increase since before the recession, according to a new report from the Federal Reserve Bank of New York.

***DA: Hmm. The country’s fiscal deficit shrunk by about that much in the fourth quarter.

The Bank Rescue, Five Years Later
Phillip Swagel –
Sometimes government programs that seem flawed at their launch turn out to succeed against all expectations. No, this is not a post about the Affordable Care Act — I still think that will prove to be an unsustainable fiscal train wreck. I have in mind the Obama administration’s Financial Stability Plan to continue the bank rescue, kicked off in a speech by Timothy F. Geithner as Treasury secretary just over five years ago, on Feb. 10, 2009.

***DA: But the five trillion in deficit spending and the piling on of moral hazard are not a fiscal train wreck? Please.

Argentina asks U.S. Supreme Court to hear bonds case
Argentina filed an appeal to the U.S. Supreme Court on Tuesday seeking to reverse lower court decisions ordering the country to pay $1.33 billion to hedge fund creditors in a case Argentine officials warn could force it to default on its sovereign debt.

***DA: I doubt the Supreme Court will want to establish this precedent, as it would change all the rules of engagement on restructurings, and thus change the math behind default pricing.

Central banks are better off being ‘reassuringly vague’
George Magnus
The recent fuss over the Fed’s tapering strategy, Janet Yellen’s ambiguous testimony to Congress about forward guidance, Mark Carney’s reboot of forward guidance in the UK after just six months, and the German Constitutional Court’s judgement on the ECB’s Outright Monetary Transaction (OMT) initiative have all served as timely reminders that there are no constants in central banking, and never have been.

***DA: Then why bother at all?

An EM credit crunch, not a sudden stop
Gavyn Davies | FT Alphaville
The crisis in the emerging markets’ “fragile 8”, which threatened to sweep all before it a few weeks back, seems to have settled down almost as quickly as it erupted onto the scene. Investors are already asking whether it is now safe to enter the undoubted attractive valuations in the emerging world.

The practicalities of EU QE
David Keohane | FT Alphaville
Actually, it’s a EUR 1.5tn question, at least according to SocGen. But it’s not very clear if that matters considering the barriers to euro area QE are so high.

***DA: In order for a QE program to truly effect change, there must be solidarity. None here.

I love the smell of carry trade in the morning
David Keohane | FT Alphaville
That isn’t one of the pungent lines from a BofAML note on Tuesday — dissecting “an international leverage binge, yet another carry trade, the third in 20 years,” by issuers of corporate bonds in emerging markets. But there are plenty already:

***DA: I hate the smell of cliches in the afternoon.

Affordability backwards
Dan McCrum | FT Alphaville
So, mortgages are more affordable because interest rates are low, right? Pick your chart provider and timespan of choice, but it is a well worn argument in favour of higher house prices: afford bigger mortgage, buy bigger more expensive house. Not so fast.

Central Banks

Australian central bank walks a currency tightrope
Josh Noble in Hong Kong and Jamie Smyth in Sydney –
When Italian football star Alessandro Del Piero quit Juventus for Sydney FC in Australia in September 2012, he may have had currency markets on his mind. The Australian dollar had just hit a record high against the euro, making his A$2m-a-year salary all the more attractive.

***DA: Send in the clowns.

How the BOJ Helped Avoid Negative Bond Yields
MoneyBeat – WSJ
While stock investors initially cheered the Bank of Japan’s decision to increase two lending programs on Tuesday, bond traders pointed to possible success for BOJ Gov. Haruhiko Kuroda on another front: avoiding negative interest rates on government debt.

Central Banks Take Advantage of Calm in Markets
Turkey’s central bank held interest rates steady and Hungary cut rates for a 19th straight month while leaving the door open to do more, as central bankers took advantage of the recent calm in financial markets to shore up their economies.

Hungary Cuts Key Rate Again
Hungary cut its main monetary policy rate to a record low Tuesday in an effort to buoy recovery in an election year, despite the sharp weakening of its currency and the recent turmoil in emerging markets that has heightened the risk of capital outflow.


FX probe sparks shift in social trading
Rob Daly – Euromoney magazine
Amid litigation fears and calls for greater communication transparency, financial institutions have imposed heavy restrictions on traders’ electronic communications. However, social trading is here to stay and new platforms, such as Saxo Bank’s portal, are capitalizing on the gap in the market.

***DA: You can’t stop progress, and you ignore it at your peril.

RBS Said to Suspend Third Currency Trader Amid Internal Probe
Gavin Finch – Bloomberg
Royal Bank of Scotland Group Plc suspended a third foreign-exchange trader amid an internal probe into the alleged manipulation of currencies, according to a person with knowledge of the decision.

BitBeat: Mt. Gox’s Pyrrhic Victory
MoneyBeat – WSJ
When Mt. Gox first brought up the issue of “transaction malleability,” the cause of its latest strife, the general response was that it was trying to shift the blame. Then the software glitch became a Trojan Horse for hackers, and all the other major exchanges were subjected to the same undermining attacks. We can imagine the exchange’s team having a chuckle at that. They scored a victory, of sorts. But it’s been of the Pyrrhic variety.

Indexes & Index Products

NASDAQ OMX Launches Two New Indexes in the NASDAQ IBIS Index Family
Press Release (NASDAQ via The Wall Street Journal)
The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) has introduced two new indexes on the Global Index Data Service 2.0 (GIDS 2.0) – the NASDAQ IBIS Focused Growth Index (NQIBIS); and the NASDAQ IBIS Focused Growth Total Return Index (NQIBIST).


Gold Prices Hurdle Technical Milestone
Steven Russolillo – MoneyBeat – WSJ
Gold prices are back in vogue. The precious metal has kicked off 2014 on a hot streak and recently jumped above a key technical indicator that bolsters the case for continued gains ahead.

***JM: And as you can see from the enclosed chart, when Gold broke below the average in late 2011 (some months after the peak), it signaled the start plus some months of the selloff… other than, y’know, when it went back over the line again some days later, and then down again later… and then back and forth over it about six more times. Yep, these indicators really are startling in their predictive ability!

India May Cut Import Tax on Gold
Prasanta Sahu And Biman Mukherji – The Wall Street Journal
India is likely to cut its import tax on gold before the end of February to between 6% and 8% from the current level of 10%, a senior government official said Wednesday.

Gold’s time has come! Get long the miners: Ryan Detrick
Jeff Macke – Yahoo Finance
The stock market’s main function is to extract the most money from the largest possible amount of people. Two years ago the price of gold was over $1,700 per ounce and the question was when, not if, investors should be buying dips.

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