Gambling

When it is on the receiving end of coure.

Think frontrunning clients, trading against recommendations, manipulating LIBOR, and slamming gold at the London fixing is all investment bankers do? Wrong. What really happens in banker life is far more exciting and enjoyable (at least for preferred banker clients) as the following story by the WSJ's David Enrich shows. In reality, the activities that bankers seem to spend the most time on, is treating their "preferred clients" with free gambling trips to Las Vegas, skiing in Chamonix, flying wives and girlfriends in helicopters, doing blow in industrial amounts, and, of course, cavorting with strippers and hookers. All paid for by some unwitting clients of course. It is this environment of utter and perfectly permitted, if not encouraged, debauchery that allowed scandals such as the Libor fixing "conspiracy" (first theory, then fact of course), to flourish, and which makes being a banker still the most desired job in the world (contrary to beliefs that it was all about the passion of crunching goalseeked DCFs at 2 am in the morning).

• The number of bond funds that own stocks has surged to its highest point in at least 18 years (WSJ)
• Clubby London Trading Scene Fostered Libor Rate-Fixing Scandal (WSJ)
• Cheap money bankrolls Wall Street's bet on housing (Reuters)
• Bank of Japan reveals concerns over easing policy (FT)
• iPads and low-end rivals propel higher tablet shipments  (Reuters)
• China Cyberspies Outwit U.S. Stealing Military Secrets (BBG)
• Draghi Fuels Bets on Rate Cut With Risk of Limited Impact (BBG)
• China guides renminbi to fresh high against US dollar (FT)
• Japan is preparing to start up a massive nuclear-fuel reprocessing plant (WSJ)
• Apple’s Ive Seen Risking iOS 7 Delay on Software Overhaul (BBG)
• UBS faces calls for break-up at investor meeting (Reuters)

Stanley Fischer, who cost his central bank a lot of money with his ill-timed bet to invest billions of the Bank of Israel's foreign  currency reserves on names such as Apple last year, has demonstrated that Einstein's definition of insanity is alive and well when it comes to central-planners, has just decided to double down on stocks. Alas, this is not a joke. Bloomberg reports that "The Bank of Israel plans to almost double equity holdings by the end of the year after falling bond yields prompted the central bank to invest in European shares for the first time. The bank will increase its stock holdings to as much as 6 percent of foreign-exchange reserves, or about $4.5 billion, from 3 percent at the end of 2012, according to Yossi Saadon, a Bank of Israel spokesman. Investments in shares rose to about 4.5 percent of assets in the first four months of 2013 as the institution made a “small allocation” to European equities in addition to its U.S. funds, he said." Well, if the BOI's investment in AAPL was the beginning of the end for that company, one can start shorting Europe - an academic Keynesian just called the top.

The latest personal income and expenditure report for March was of particularly interesting reading.  However, as opposed to the mainstream headlines that immediately reported that despite higher payroll taxes consumers were still spending, and therefore a sign of a strong economy, it was where they were spending that was most telling. In reality, The personal income and spending report does little to brighten the economic picture. The reality is that we now live in a world where "freely traded markets" are an anachronism and fundamental rules simply no longer apply.  However, the problem is that such actions continually lead to asset bubbles, and eventual busts, that not only impact economic stability but destroy the financial stability of families. The consumer is clearly delivering a message about the state of the real economy.  Eventually, the disconnect between the economy and the markets will merge.  Unfortunately, there is no historical evidence of such reversions being a positive event.

The crypto-currency Bitcoin is still merely a speck on the global monetary landscape. It is young, experimental, and for all we know, it may ultimately fail to break into the monetary mainstream. However, on a conceptual level some are willing to call it a work of genius and arguably the most exciting development in the field of money for more than 130 years. The outcome is probably binary: Either Bitcoin ultimately fails and the individual Bitcoins end up worthless. Or Bitcoin takes off and Bitcoins are worth hundreds of thousands of paper dollars, paper yen, paper euros, or paper pounds. Maybe more. Those who buy Bitcoin as a speculative investment should consider it an option on the future success of the crypto-currency. We still consider gold to be the essential self-defense asset in the ongoing paper money crisis. The brand-new crypto-currency Bitcoin has to first earn its stripes as a monetary asset by proving itself as a ‘common’ medium of exchange. That is why we view Bitcoin very differently from gold, although the attraction of both has its origin in the demise of entirely elastic, politicized state fiat money. In the meantime, the debasement of paper money continues.

The United States is a deeply unhappy place.  We are a nation that is absolutely consumed by fear, stress, anger and depression.  It isn't just our economy that is falling apart - the very fabric of society is starting to come apart at the seams and it is because of what is happening to us on the inside. We are overwhelmed by anxiety, and much of the time the ways that we choose to deal with those emotions lead to some very self-destructive behaviors.  Americans have experienced a standard of living far beyond the wildest dreams of most societies throughout human history, and yet we are an absolutely miserable people.  Why is this?  Why is America #1 in so many negative categories? There is vast material wealth all around us.  So why can't we be happy?

• China’s Recovery Falters as Manufacturing Growth Cools (BBG)
• Gloomy eurozone output points to rate cut (FT)
• Limit Austerity, EU appartchik Barroso Says (WSJ)
• Regulators Get Banks to Rein In Bonus Pay (WSJ)
• SEC looks to ease rules for launching ETFs (Reuters)
• Easy come, easy go: U.S. Seizes $21 Million From Electric Car Maker Fisker (WSJ)
• Japan nationalists near disputed isles (Reuters)
• OECD in fresh warning on Japan debt (FT)
• S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics (Reuters)

After a disastrous few days in early April, bitcoin is back over $100 and up on the month, the year and its short lifetime.  ConvergEx's Nick Colas is intrigued and continues to believe that this phenomenon is the most provocative economic experiment since the invention of the euro and well worth watching.  The next chapter of the story, he believes, will be the entry of a host of "Smart money" venture capitalists looking to build the currency's infrastructure.  Money and currency are exactly the kind of large, scalable and complex opportunity that gets VCs very, very excited.  Yes, it could all still end in tears, either by regulation or mismanagement.  But bitcoin isn’t dead just yet, and it remains one of the most potentially disruptive forces in modern finance. In summary, bitcoin is what he calls a "Beta currency." How it all shakes out, however, will be both instructive to watch and potentially profitable for those on the right side of this very novel trade.

The problem with cutting the links between risk and consequence and the real economy and the stock market is that a market deprived of feedback from reality is prone to disorderly disruption. Why is this so? Participants make decisions based on the information made available to them. If the information from the real world is suppressed or limited, then the decisions made by participants will necessarily be misinformed, i.e. wrong.  If feedback from the real world is suppressed, then decisions will necessarily be bad. The only choice for participants who have lost faith in central planning's promise of permanently higher markets will be to abandon the manipulated markets entirely.

• Venezuela Says Chávez Successor Wins Vote (WSJ)
• China growth risks in focus as first quarter data falls short (Reuters)
• Japan Gets Calls From U.S. to Europe Not to Drive Down Yen (BBG)
• EU Set to Clash on Bank Deal as Germany Sees Treaty Limit (BBG)
• Dish Launches $25.5 Billion Bid for Sprint (WSJ)
• Commodities Tumble, Stocks Slide as China Growth Slows (BBG)
• Top fund managers take home $8bn less (FT)
• Obama Programs Derided by Republicans as Pejorative Entitlements (BBG)
• Gene swapping makes new China bird flu a moving target (Reuters)
• McDonald's Cranks Up The Volume on 'Value' (WSJ)
• UK pension deficits set to rise by £100bn (FT)

Now is the time to think about how you would live your life if your real value was appreciated and fairly compensated.

Need yet another confirmation showing the US consumer has entered a phase of terminal retrenchment (in addition to all the other ones of course)? Below is a chart of Casino gaming spending in the past 15 years. What the chart shows is quite clear: at a drop of 4.3% Y/Y, far below the cyclical rises in 2011 and 2012, discretionary spending allocated for proceeds one can "afford to lose" is back to Great Recession levels, and sliding lower. As Bloomberg Brief summarizes, Gary Loveman, CEO for Caesars Entertainment, said the company felt the impact of curtailed consumer discretionary spending in their most recent quarterly results. Loveman noted that his company’s strategy was implemented “against the backdrop of ongoing uncertainty in the macroeconomic picture in this country and consumer weakness in the U.S. economy that negatively affected discretionary consumer spending and ultimately our gaming results." On the other hand, with most of the gambling these days taking place in your retail brokerage screen with bets on when the Fed's record high house of superglued cards finally comes tumbling down, perhaps consumers have merely changed their definition of gambling. It was once known as "investing."

Every two years the 50 states compete for the title of "Most Free State," and George Mason University's Mercatus Center rankings based on 200 factors generalized under Fiscal Policy, Regulatory Policy, and Personal Freedom, provide significant color on just how free (or not) the various states are. New Hampshire was the 'free-est' state in 2011 but fell to 4th this year as North Dakota is 2013's 'free-est' state. New York and California bring up the rear as the least free states but the following clip and charts show just where the freedom is spreading - Georgia, Arizona, and Idaho; and where it is not - Oregon, Kansas, and Colarado.

• The revolving door continues: Mary Schapiro joins Promontory Financial (WSJ)
• First Peek at Health-Law Cost (WSJ)
• Abe warns over Japan inflation target: warns 2% inflation target may not be reached within two years (FT)
• BoJ's Kuroda tested by divided board (Reuters)
• Nanjing poultry butcher fourth person infected with H7N9 bird flu (SCMP)
• What time do top CEOs wake up? (Guardian)
• Cyprus Seeks More Time to Meet Targets in Talks With Troika (BBG)
• Investors Ignore Negativity at Their Peril (WSJ)
• Apple bows to Chinese pressure (FT)
• One can only laugh: North Korea to restart nuclear reactor in weapons bid (Reuters)
• Visa Demand Jumps (WSJ)
• Bloomberg's refutation of Stockman: yes, yes but... look over there, stocks are up! (BBG)