First Impressions

Taper Schmaper
Doug Ashburn – John Lothian News

A scan of today’s headlines yields a cornucopia of views on Federal Reserve policy and, specifically, whether the central bank will be scaling back its bond buying program. Most views either overestimate the negative effects of tapering, or overestimate the health of the economy, ignorant of the fact that the numbers have been “goosed” by balance sheet expansion.

The bond-buying campaign is an unprecedented expansion of the Fed’s balance sheet. Let us not forget that a taper is not a curtailment, but rather a slower rate of unprecedented expansion. The Fed can, over time, taper, re-flare (the opposite of tapering?) and re-taper ad nauseum, depending on how the economy responds.

There is nothing on the horizon that will make the markets crash or stage a huge rally. This is a long, tough road with no turning back.

Quote of the Day

“Chinese officials have been saber rattling for some time. But in truth, Chinese officials know that as long as their foreign currencies reserves increase coupled with the realization that the US economy is likely to lead other developed economies forward in 2014, China will continue to be net buyers of US debt.”

Adrian Miller, director of fixed income research at GMP Securities, in the WSJ article “Unperturbed by Government Shutdown, China Buys More Treasury Debt”

Lead Stories

Unperturbed by Government Shutdown, China Buys More Treasury Debt
Min Zeng – MoneyBeat – WSJ
China scooped up more Treasury debt in October than any other foreign investor, a sign recent U.S. fiscal troubles haven’t tainted the Treasury bond market’s status as a global safe harbor.

***DA: In for a penny, in for a pound (well, a dollar actually). Besides, under QE-infinity they can always find a willing buyer in the Fed.

Many Detect End of Line For Stimulus By the Fed
The beginning of the end probably will not come on Wednesday, but it is coming soon. The Federal Reserve has made clear that its bond-buying campaign will not continue at the present pace for much longer.

***DA: See “First Impressions” above for our comment on this story.

Can Yellen’s Fed sidestep lurking monsters?
John Plender –
When Janet Yellen takes over as chair of the US Federal Reserve from Ben Bernanke in February, she will confront an economy that is ostensibly in good shape. Yet Ms Yellen will no doubt be conscious that a similarly benign outlook was mooted before Mr Bernanke’s ascent to the Fed chairmanship in 2006.

***DA: With the notable difference being that when Bernanke took over, the Fed had an arsenal of available policy options.

Goldman Sachs Wins Bond Investors to Flexible Mutual Fund
Charles Stein – Bloomberg
Goldman Sachs Group Inc. (GS) is drawing record deposits into a bond mutual fund that’s making money even as interest rates rise, giving the bank a boost in one of the few Wall Street businesses it hasn’t dominated.

Ex-UBS Trader Hayes Pleads Not Guilty Over Libor Rigging
Suzi Ring – Bloomberg
Tom Hayes, a former trader at UBS AG (UBSN) and Citigroup Inc., pleaded not guilty to conspiring to manipulate Libor in the first prosecution stemming from a global investigation into rate rigging.

Macro Horizons: Positive Global Survey Data Bode Well For Year-End Mood
Michael J. Casey, Michael Arnold and Colin Ng – MoneyBeat – WSJ
As we head into the quieter holiday season, data from advanced economies continue to show positive momentum, on balance–as seen in business survey results. All things being equal, that should be positive for markets around the world.

***DA: What could possibly go wrong?

Cheap Funding Spurs Record Euro Bond Sales From Global Borrowers
Katie Linsell – Bloomberg
Microsoft Corp. (MSFT) and China Petrochemical Corp. helped spur record sales of euro bonds by companies outside Europe this year as they took advantage of cheap funding costs and increased confidence in the region.

***DA: So long as the “confidence” is not fueled by a rising stock market, fueled by stock buybacks, fueled by cheap borrowing. That would indeed be a confidence game.

FOMC Meeting Something of a Nailbiter
Tim Duy’s Fed Watch
Another FOMC meeting, another chance for the Fed to think about tapering, and probably decide not to

***DA: Biting one’s nails is a nasty habit. To kick it, I suggest taking up smoking.

Central Banks

Year In Numbers: The Federal Reserve’s $85 Billion Question
John Ydstie – NPR
Many economists and investors think there’s a good chance that at the end of their two-day meeting that begins Tuesday, Fed policymakers will announce they’ll begin reducing their $85 billion dollar monthly stimulus, their third round of quantitative easing or QE3.

German woman with bank expertise front-runner to join ECB board
Sabine Lautenschlaeger, a German bank supervision expert with no monetary policy record, is an early favorite to replace Joerg Asmussen on the ECB’s executive board after his decision to leave early to spend more time with his family.

ECB Chief Urges Action on Banking Authority
Brian Blackstone And Christopher Lawton –
European Central Bank President Mario Draghi Monday urged governments to step up their efforts to create an authority backed by single funds to swiftly resolve failing financial institutions in the euro zone and warned that plans may lead to unwelcome delays in identifying and addressing problem banks.

Fingers at the Ready: The ECB Lays Down a New Challenge
Christopher Lawton and Shane Strowmatt – MoneyBeat – WSJ
It’s game time at the European Central Bank. In a season when you might be expecting challenges to test your opinion on whether the Fed will taper, or gauge your outlook for the coming year, the ECB’s gone a little less mainstream, with a game about… …the new 10 euro note.

Germany central bank chief urges faster eurozone economic integration
Stefan Wagstyl and Claire Jones in Frankfurt –
The head of Germany’s central bank has pressed eurozone governments to accelerate economic integration ahead of this week’s EU summit in Brussels, saying a lack of progress is hindering the task of the currency bloc’s central bankers.

U.S. Federal Reserve Chairman Ben S. Bernanke At The Ceremony Commemorating The Centennial Of The Federal Reserve Act, Washington, D.C., Concluding Remarks


Our chance to slash the high costs of currency manipulation
Fred Bergsten –
The US and most of its main economic partners are aggressively negotiating large regional trade agreements. Taken together the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership could produce the largest trade liberalisation in history. They also aim to become templates for global trade rules for the 21st century.

Analysis: Complex foreign exchange options not ready for prime time
Trading forex options on registered U.S. platforms is a long-awaited step in making derivatives markets more transparent, but so far it has failed to take off.

Trend of AUD/NZD at Five-Year Lows May Be Set to Break Soon
Lucy Craymer – MoneyBeat – WSJ
The Australian and New Zealand currencies have moved in opposite directions throughout the year, with the Aussie regularly hitting fresh five-year lows against the Kiwi in recent weeks, but the trend may stop soon.

Exegy Grows FX Coverage with Bloomberg, Currenex, Gain Feed Handlers
Max Bowie – WatersTechnology
St. Louis, MO-based low-latency feed handler and data platform appliance vendor Exegy has rolled out new feed handlers for foreign exchange trading platforms Bloomberg Tradebook, Currenex ITCH and Gain GTX within its Exegy Ticker Plant to expand its existing base among FX trading clients, in response to increased demand for low-latency data technology in the FX markets.

Not particularly optimistic about Bitcoin’s future: Hal Varian
Business Standard
Bitcoin may be gaining popularity but a senior official of Internet giant Google today said he was not “particularly optimistic” about the digital currency’s future since it suffers from being the first in that space.

Indexes & Index Products



The Charts Are Crying for a Gold Bottom, Again
Tomi Kilgore – MoneyBeat – WSJ
The charts are starting to say that gold is near a bottom, but after more than two years of being wrong, technicians have become reluctant to listen.

***JM: And if a chart routinely either does or doesn’t pick a bottom, what should that be saying about the chart this time? The article forgot to put that part in, for some reason.

Gold Slides in New York Before Fed Meeting; Silver Also Declines
Maria Kolesnikova – Bloomberg
About 34 percent of economists surveyed by Bloomberg on Dec. 6 predicted that the Fed’s Federal Open Market Committee will start paring stimulus when it concludes a two-day policy meeting tomorrow.

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