Federal Reserve Bank

New Fed minutes reveal powerful CEO voted to make William Dudley president of FRBNY and grant him conflicts waivers for investments in CEO's own company.

Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the "return of inflation" to 'Brixit' and from the "BoJ buying Euro-are bonds" to a "US housing recovery stall out" - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.

No one wants to mention that the Fed Chairman has changed the rules of the game in the middle of the game but there you are; a backsliding Federal Reserve Bank whose statements are only crafted for the moment and future moments may be brief; we just don’t know. Apparently we have transitioned to a “whatever is convenient” policy at the Fed and we all should bear that in mind when assessing probable actions. When money talks, nobody pays any attention to the grammar. The Treasury issues, the Fed prints money and buys, the cost of financing for the country is incredibly low and the yields for investors are paltry. In the risk markets there will now be a demand as instigated by the Fed, that overwhelms the supply of new issuance. Between the coupons paid and the maturities for 2013 the figure is about $1 trillion in excess demand more than estimated forthcoming supply. Given the 36% loss in wealth that took place in America during the 2008/2009 period the odds of an asset allocation shift out of bonds and into equities is de minimis in my opinion and so the “Great Compression” will continue.

With gold and silver down this morning - following a mysterious vertical plunge last night (once again) - we thought ConvergEx's Nick Colas' timely discussion of gold was worthwhile. As he notes, Gold is the ultimate personality test for investors.  Some hate it, excoriating its adherents for their lack of faith in human ingenuity – gold has been valuable since before humans could write. And some swear by the yellow metal, in the belief that it is the last vestige of rationality in a world of financial assets manipulated by central banks and opaque trading venues.  What gets lost in the wash is that gold is a commodity and can be analyzed as such. On that basis, here is the 'Top 10' list of real-world fundamentals for gold.

We are sorry to interupt regularly scheduled Banzai7 Holiday Programming with this consummate farce...

Gold fell $3.10 or 0.18% in New York yesterday and closed at $1,693.60/oz. Silver climbed to $33.24 then slid to $32.51, but finished after an afternoon rally with a loss of 0.33%.

Gold inched down on Thursday, near the monthly low reached in the prior session under pressure from a stronger greenback as players await the European Central Bank rate decision at 1245 GMT and US Initial Jobless Claims at 1330 GMT.

Physical buying of gold bullion has increased on the dip, particularly in Asia, and many are seeing these levels as a floor for prices.

In what is the first formal speech of Simon "Harry" Potter since taking over the magic ALL-LIFTvander wand from one Brian Sack, and who is best known for launching the Levitatus spell just when the market is about to plunge and end the insolvent S&P500-supported status quo as we know it, as well as hiring such sturdy understudies as Kevin Henry, the former UCLA economist in charge of the S&P discuss the "role of central bank interactions with financial markets." He describes the fed "Desk" of which he is in charge of as follows: "The Markets Group interacts with financial markets in several important capacities... As most of you probably know, in an OMO the central bank purchases or sells securities in the market in order to influence the level of central bank reserves available to the banking system... The Markets Group also provides important payment, custody and investment services for the dollar holdings of foreign central banks and international institutions." In other words: if the SPX plunging, send trade ticket to Citadel to buy tons of SPOOSs, levered ETFs and ES outright. That the Fed manipulates all markets: equities most certainly included, is well-known, and largely priced in by most, especially by the shorts, who have been all but annihilated by the Fed. But where it gets hilarious, is the section titled "Lessons Learned on Market Interactions through Prism of an Economist" and in which he explains why the Efficient Market Hypothesis is applicable to the market. If anyone wanted to know why the US equity, and overall capital markets, are doomed, now that they have a central planning economist in charge of trading, read only that and weep...

What does the Fed's QE 3, a Spanish default, the systemic crisis in the EU and Lehman all have in common?

Throw the indicators away. 

The week's most anticipated speech (given Obama's absence from DC) is here. Bernanke's Economic Club of New York extravaganza - where he has previously hinted at new or further policy - is upon us. Sure enough, it's a smorgasbord of we'll do whatever-it-takes (but won't bailout Congress) easing-to-infinity, housing's recovering but we want moar, simply re-iterating his comments from last week...

• *BERNANKE SAYS FISCAL CLIFF WOULD POSE `SUBSTANTIAL THREAT'
• *BERNANKE SAYS CONGRESS, WHITE HOUSE NEED TO AVERT FISCAL CLIFF
• *BERNANKE SAYS FED TO ENSURE RECOVERY IS SECURE BEFORE RATE RISE
• *BERNANKE SAYS HOUSING RECOVERY `LIKELY TO REMAIN MODERATE'
• *BERNANKE SAYS CRISIS REDUCED ECONOMY'S POTENTIAL GROWTH RATE

However, as we have noted previously, once you've gone QE-Eternity, you never go back... and we would this is the 3rd time in a row that someone from the Fed has spoken and stocks have sold off.

[And now it’s time for Mr. Obama to start paying for all those votes by reaching deep into our pockets. If you intend to avoid paying your “fair share,” however, please take note: There will be  few places to hide. For a gimlet-eyed view of what may lie in store for taxpayers and citizens of all political persuasions during the next four years, ponder the guest commentary below, from Wayne Siggard, a regular in the Rick’s Picks forum. RA]

Together, the market and democracy are what we like to call "the system." The system has driven and enticed bankers and politicians to get the world into trouble. One of the side effects of the crisis is that all ideological shells have been incinerated. Truths about the rationality of markets and the symbiosis of market and democracy have gone up in flames. Is it possible that we are not experiencing a crisis, but rather a transformation of our economic system that feels like an unending crisis, and that waiting for it to end is hopeless? Is it possible that we are waiting for the world to conform to our worldview once again, but that it would be smarter to adjust our worldview to conform to the world? At first glance the world is stuck in a debt crisis; but, in fact, it is in the midst of a massive transformation process, a deep-seated change to our critical and debt-ridden system, which is suited to making us poor and destroying our prosperity, social security and democracy, and in the midst of an upheaval taking place behind the backs of those in charge. A great bet is underway, a poker game with stakes in the trillions, between those who are buying time with central bank money and believe that they can continue as before, and the others, who are afraid of the biggest credit bubble in history and are searching for ways out of capitalism based on borrowed money.

You've probably noticed the cookie-cutter format of most financial media "news": a few key "buzz words" (fiscal cliff, Bush tax cuts, etc.) are inserted into conventional contexts, and this is passed off as either "reporting" or "commentary" depending on the number of pundits sourced. Correspondent Frank M. kindly passed along a template that is "officially deny its existence" secret within the mainstream media. With this template, you could launch your own financial media channel, ready to compete with the big boys. Heck, you could hire some cheap overseas labor to make a few Skype calls to "the usual suspects," for-hire academics, hedge fund gurus, etc. and actually attribute the fluff to a real person.

"Recently, Johnson Matthey have put 172 “bad delivery” U.S. Assay Office bars into good delivery form for account of the Deutsche Bundesbank. These bars formed part of recent shipments by the Federal Reserve Bank to provide gold in London in repayment of swaps with the Bundesbank. The out-turn of the re-melting showed a loss in fine ounces terms four times greater than the gross weight loss... No indication should, of course, be given to the Bundesbank, or any other central bank holder of U.S. bars, as to the refiner’s views on them."

May 1968