European Central Bank
- From the guy who said the market is not overvalued: Q&A with Fed’s Williams on Upbeat 2014 Outlook and What Keeps Him up at Night (Hilsenrath)
- Obama Readies Revamp of NSA (WSJ)
- Indian envoy leaves U.S. in deal to calm diplomatic row (Reuters)
- China overtakes US as largest goods trader (FT)
- Wall Street Predicts $50 Billion Bill to Settle U.S. Mortgage Suits (NYT)
- Low-End Retailers Had a Rough Holiday: Family Dollar, Sears Struggle as Lower-Income Customers Remain Under Pressure (WSJ)
- ECB charts familiar course as Japan, US and UK begin to diverge (FT)
- Housing experts warn of hiccups as new U.S. mortgage rules go live (Reuters)
- It's a HFT eat HFT world: Infinium ex-employees sue over $4.1m loss (FT)
- Slowing China crude imports to challenge exporters (FT)
The possibility of a French recession is not exactly new: even the venerable Economist penned an an extensive article - with a humorous cover - over a year ago describing just such a possibility (the French were unamused). Yet to this date, not only has France managed to avoid the dreaded "Triple Dip" but its bonds continue to be well-bid, with the yield on the 10 Year well inside the US, at only 2.53%, nearly 1% below the wides seen in 2011. However, and especially now that Hollande's 75% millionaire tax has finally been enacted, the fuse on the baguette time bomb is getting shorter. So a French recession would be a bad thing, right? Well, yes - for the French population, and certainly whatever is left of its middle class. However, it is the wealthiest 1% and the stock market which, in keeping up with the old bad news is good news maxim, that may be the biggest beneficiary of a French triple dip. The reason, at least according to GaveKal and increasingly others, is that a French re-re-recession would be precisely the catalyst that forces the ECB out of its inaction slumber and pushes it to engage in what every other "self-respecting" bank has been doing for the past five years - unsterilized quantitative easing: an event which the soaring European stocks have largely been expecting in recent weeks and months.
- Threatening snowstorm may be early test for N.Y. Mayor de Blasio (Reuters), U.S. Northeast Threatened With Blizzard, Travel Delays (BBG)
- Scarred U.S. consumers a hard sell for traditional retail (Reuters)
- Edward Snowden, Whistle-Blower (NYT)
- A Few Brave Investors Scored Huge, Market-Beating Wins (WSJ)
- Fiat gets full control of Chrysler for $4.35 billion (Reuters)
- Billions Vanish in Kazakh Banking Scandal (WSJ)
- SAC’s Cohen Focus of Trial as Martoma Rebuffs U.S. (BBG)
- World's first state-licensed marijuana retailers open doors in Colorado (Reuters)
- Hyundai, Kia face fading growth as currency tides buoy Japan rivals (Reuters)
- Bond investors braced for new year shock (FT)
- Putin vows total destruction of 'terrorists' after bombings (AFP)
Risk is an ever-present characteristic of life; it cannot be eliminated, it can only be masked or hedged. We know this intuitively, yet we blithely accept official assurances that risk can be eliminated by the monetary machinations of the Federal Reserve, the Central Bank of China, the Bank of Japan and the European Central Bank. To confuse masking risk with the elimination of risk is the acme of hubris and the perfect setup for disaster.
With equity markets reacting enthusiastically to the Fed’s historic policy change announced last week, PIMCO's Mohamed El-Erian notes many have rushed to declare victory. Whether in asserting investor comfort with the policy regime shift or in declaring the definitive end of dependence on quantitative easing (“QE”), they believe that the markets’ short-term reaction can indeed be extrapolated into the longer-term. While most Fed officials will welcome the markets’ favourable reaction – and especially so after the May-June shock – El-Erian suspects that they are much more cautious. Indeed, in this FT Op-Ed, he lays out four reasons why such caution is understandable.
A look ahead into 2014.
A little followed development is revealing about the emerging financial architecture and the role of the dollar. A dispassionate discussion.
From the United States to Europe and Asia: The world's central banks are flooding markets with liquidity and pushing deeper into unknown monetary policy territory. Jim Grant tells Germany's Finanz und Wirtschaft that he "fears that this journey will not end well." The sharply thinking Wall Street veteran doesn’t trust the theoretical models of the central banks and warns of irrational exuberance in the financial markets adding that "the stock market is increasingly full of stocks that are borne aloft by hope rather than demonstrated performance."
Following Joerg Asmusen's somewhat surprisingly short 2-year stay at the ECB, stepping down as board member to become Germany's secretary of state for labor, the voice of economic reason in Europe has proposed 49-year-old female Sabine Lautenschlaeger to the ECB. Filling Asmussen's shoes among the ECB's "whatever it takes" crowd will be hard and while little is known of Lautenschlaeger's policy perspective, Reuters notes, she has been among those who have warned about potential conflicts of interest when the ECB has responsibility for both monetary policy and banking supervision, and argued against treating government bonds as risk-free assets in bank books.
Two phrases sum up the 'new normal' farce that is the world's equity markets in 2013... "Don't fight the Fed (or BoJ, or PBoC, or BoE)" and "Climbing the wall of worry"... one wonders, of course, what happens to 'climber' once the central bank's 'belay' is taken away (but that's just silly talk because it's all priced in, right?)...
"Twas the Friday before the Friday before Christmas..." and as the year end rapidly approaches the mainstream consensus is that 2014 will be another bouyant year for the stock market despite the impact of a potential Federal Reserve tapering. The optimistic view is an easy one. While it isn't popular, or fun, to look at the non-bullish view it is nonetheless important to consider the risks that could potentially lead to a larger than expected loss of investment capital. There is one simple truth about financial markets and investing: what goes up must come down. It is the downside risk that is most damaging to long term investment returns. Therefore, this week's "Things To Ponder" is a sampling of views and thoughts on what to watch out for as we enter the new year.
- J.P. Morgan to Pay Over $1 Billion to Settle U.S. Criminal Probe Related to Madoff (WSJ)
- Ford board aims to pin down CEO Mulally's plans (Reuters)
- Raising Minimum Wage Is a Bad Way to Help People (BBG)
- Japan Lawmakers Demand Speedy Pension Reform (WSJ)
- EU reaches landmark deal on failed banks (FT)
- In which Hilsenrath repeats what we said in August: Fed Moves Toward New Tool for Setting Rates (WSJ)
- Senators Vow to Add to Iran Economic Sanctions in 2014 (BBG)
- Centerbridge in $3.3bn LightSquared bid (FT)
- Banks, Agencies Draw Battle Lines Over 'Volcker Rule' (WSJ)
For the last year or two, European banks have engaged in the ultimate of self-referential M.A.D. trades - buying the sovereign debt of their own nation in inordinate size to maintain the ECB's illusion of control (even as their economies collapse and stagnate) while referentially obtaining the funding for said purchase from the ECB by repoing the purchase back to the central bank, usually with no haircut to mention. Today though, as The FT reports, a top official at the European Central Bank has signalled it will try to force eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.
The FSB's first chairman was Mario Draghi, current President of the European Central Bank, while its current chairman is Mark Carney, Governor of the Bank of England. The inclusion of Financial Market Infrastructures means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in including exchange traded funds.
- Glass-Steagall Fans Plan New Assault If Volcker Rule Deemed Weak (BBG) ... "if"? The banks control the legislators and regulators...
- Cellphone data spying: It's not just the NSA (USA Today)
- Major tech companies push for limits on government surveillance (Reuters)
- Shanghai Warns Kids to Stay Indoors for Seventh Day on Smog (BBG)
- Protesters fell Lenin statue, tell Ukraine's president 'you're next' (Reuters)
- Everyone must be flying private these days: EADS to cut 5000-6000 jobs, close Paris HQ in restructuring (FT)
- Big Players Trade 'Upstairs' (WSJ)
- There’s no way to tell how many people who think they’ve signed up for health insurance through the U.S. exchange actually have (BBG)
- Slower China inflation reduces worries of tighter policy (Reuters)