There is no point in trying to avert or prevent bubbles caused by monetary pumping by regulatory means. If one avenue for bubble formation is cut off, the newly created money will simply flow into another area. In fact, new bubbles almost always become concentrated in new sectors. If there were a genuine desire to keep the formation of bubbles in check, adopting sound money would be a sine qua non precondition. However, no-one who has any say in today's system has a desire to adopt sound money and give up on the failed centrally planned monetary system in favor of a genuine free market system. Our guess is that the booms and busts the current system inevitably produces will simply continue to grow larger and larger until there comes a denouement that can no longer be 'fixed'.
Just five years after President Obama was awarded the Nobel Peace prize (to much global amazement), Norwegian politicians have nominated none other than Edward Snowden for this year's award for contributing to transparency and global stability by exposing a U.S. surveillance program. As Reuters reports, Snowden’s "actions have in effect led to the reintroduction of trust and transparency as a leading principle in global security policies." Is this the Nobel's last best effort to regain some credibility?
President Obama has just nominated Lael Brainard as a Fed Governor, Jerome Powell to his second term and most notably, Stanley Fischer (ex Head of the Bank of Israel) as Vice-Chairman of the Fed. "These three distinguished individuals have the proven experience, judgment and deep knowledge of the financial system to serve at the Federal Reserve during this important time for our economy,” Obama said in statement. Bear in mind that Fischer is skeptical of forward-guidance (as we note below) which is soon to become the Fed's main weapon to jawbone markets.
Stanley Fischer's term as governor runs through 2020 (vice chair through 2018), Brainard's term through 2026 and Powell's through 2028!
Tenure anyone? We are sure they will still do a great job...
If one listens to Goldman's chief economist Jan Hatzius these days, it is all roses for the global economy in 2014... much like it was for Goldman at the end of 2010, a case of optimism which went stupendously wrong. Goldman's Dominic Wilson admits as much in a brand new note in which he says, "Our economic and market views for 2014 are quite upbeat." However, unlike the blind faith Goldman had in a recovery that was promptly dashed, this time it is hedging, and as a result has just released the following not titled "Where we worry: Risks to our outlook", where Wilson notes: "After significant equity gains in 2013 and with more of a consensus that US growth will improve, it is important to think about the risks to that view. There are two main ways in which our market outlook could be wrong. The first is that our economic forecasts could be wrong. The second is that our economic forecasts could be right but our view of the market implications of those forecasts could be wrong. We highlight five key risks on each front here." In short: these are the ten things that keep Goldman up at night: the following five economic risks, and five market view risks.
- Yellen’s Record-Low Senate Support Reflects Fed’s Politicization (BBG)
- Euro-Zone Inflation Rate Falls in December, even further below ECB's target (WSJ)
- Zambia politician charged for calling president a potato (AFP)
- Blame gold: India Savings Deposit Scam Collapse Leaves Thousands Penniless (BBG)
- Hedge Funds Raise Gold Wagers as Yamada Sees $1,000 (BBG)
- George Osborne limits cuts options with pensions promise (FT)
- Vietnam Raises Foreign Bank Ownership Caps to Aid System (BBG)
- But they said buy a year ago... Goldman to JPMorgan Say Sell Emerging Markets After Slide (BBG)
- SAC Trial Seen by Probe Convict as Latest Abusive Tactic (BBG)
The predictions of Blackstone's octogenarian Byron Wien (born in 1933) have been all over the place in the past 10 years, some correct, most wrong (with a recent hit rate of about 25%) - his 2013 year end S&P forecast was for 1300 - yet always entertaining. Which is the only value in the latest release of his 10 forecasts for 2014. Naturally, take all of these with a salt mine.
The "polar vortex" (no, really) which is about to unleash even record-er cold temperatures upon the US may be the greatest thing to happen to the economy: after all once Q1 GDP estimates miss once again, what better scapegoat to blame it on than cold winter weather during... the winter. However, for the overnight markets, the weather seems to have had an less than desired effect following both much weaker Services PMI data out of China, and after the entire USDJPY ramp achieved during Bernanke's late Friday speech evaporated in the span of two hours in Japanese Monday morning trading, sending the Nikkei reeling lower by 2.35%. One reason for this may be that like in the early summer when both the Yen and the Nikkei froze in a rangebound formation, South Korea has vocally started t0 complain about the weak Yen, which as readers may recall was one of the catalysts to put an end to the surge in the USDJPY and EURJPY. This time may not be different, furthermore as Goldman forecast overnight, it now expects a BOK rate cut of 25 bps as soon as this Thursday. Should that happen expect the JPY coiled-short spring to pounce.
The past can offer clues to the future but it doesn’t give us a blueprint. The bigger message is that today’s valuations don’t bode well for long-term returns, where long-term means beyond the next market peak. Prices could surely bubble upwards from here, but bubbles are invariably followed by severe bear markets. More importantly, we shouldn’t be fooled by traditional valuation measures. P/Es, in particular, have several flaws. We’ve shown in past articles that we get completely different results when we adjust earnings to account for mean reversion. Either way, our conclusions are a far cry from the “nothing to see here” that we keep hearing from the Fed.
While one may criticize now-ex CFTC commissioner Bart Chilton for years and years of sound and fury signifying nothing, countless promises of regulatory enforcement (all of which fell short of the target) and finally putting an end to precious metals manipulation only for the world to discover that while every other asset class is manipulated (involving such individuals as JPM's chief currency dealer), gold and silver are exempt, one must admit the former regulator does have a way wtih words (and of course haircuts). Sure enough, Chilton's most memorable parting gift will not be something he did, but rather what he said. William Cohan memorializes his parting message: "As we long suspected, Wall Street continues to use every trick in its playbook to do whatever it can to eviscerate numerous post-financial-crisis rules. The arsenal includes high-powered lobbyists who outnumber lawmakers 10-to-1; $1,000-an-hour letter-writing lawyers who gain strength from negotiating over arcana; and the occasional hoodwinking of a president whose knowledge of the ways of finance are close to nil." Chilton's take home message: “The lesson for me is: The financial sector is so powerful that they will roll things back over time,” Chilton says. “The Wall Street firms have tremendous influence, and they can impact policy to a greater degree than any one regulator or a small group of regulators can.”
From the first headline to the last, the following brief month-by-month summary of the year shows just how far markets and global happenings have come...
"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." - Carroll Quigley, member of the Council on Foreign Relations
Overnight one of the main stories is that the European Union has been downgraded to AA+ from AAA by S&P. While the market digests the impact of the downgrade, all eyes remain on the US treasury market. As Deutsche Bank notes, treasuries are increasingly being viewed as a potential sign of the success or not of the Fed taper in early 2014. From the lows in the immediate aftermath of Wednesday’s FOMC, 10yr UST yields have added more than 10bp. Yields continue to leak this morning (-2bp to 2.95%) though we’re still hovering at levels last seen in early September just before the Fed surprised markets with its non-taper. Despite this, US equities and credit were both reasonably well supported yesterday. However the combination of higher UST yields and a stronger dollar resulted in a fairly difficult day for EM. In EMFX, the Brazilian Real fell 1.1% against the USD, underperforming most other EM currencies. The move was exacerbated by the announcement from the BCB that it would wind back its intervention in the currency market, following the initial positive reaction to tapering on Wednesday. Other EM currencies also struggled including the TRY (-0.7%), MXN (-0.7%) and IDR (-0.3%). A number of EM equity markets struggled including in Poland (-0.7%) and Turkey (-3.5%).
Today (like pretty much every other day), it will be all about the Fed and the start of its 2-day FOMC meeting, whose outcome will be influenced by today's 8:30 am CPI report as inflation (Exp. 0.1%) according to many is the only thing stopping the Fed from tapering in light of better than expected recent economic data as well as a clearer fiscal outlook. Or at least that's what the watercooler talk is. The hardliners now agree that since the Fed openly ignored the bond market liquidity considerations in September, that it will plough on through December with no announcement, and potentially continue into 2014 with zero chances of tapering especially now that we approach the end of the business cycle and the Fed should be adding accommodation not removing it. To that end, the consensus still is in favour of January or March for the first taper so markets are not fully set up for a move; conversely a dovish statement would probably result in yet another pre-Christmas, year end market surge, which in the lower market liquidity days of December is likely what the Fed is going for, instead of a volatile, zero liquidity sell off, despite Thursday's double POMO.
it's not Spago, nor Per Se. It isn't located on Rodeo Drive or in Columbus Circle. The restaurant with the longest waiting list, five-years to be precise, is a small, nondescript, 12-table basement located in Earlton, N.Y., named simply enough Damon Baehrel after its owner and chef. Its guests come from 48 countries and include such celebrities as Jerry Seinfeld, Martha Stewart and Barack Obama himself. However what makes Baehrel's restaurant the most exclusive restaurant in the world is not the decor, nor the patrons, some who fly overnight from Manhattan to pay $255 for dinner (before wine and tip), nor the hype (although all the advertising is through word-of-mouth), but the food, which is all cultivated, grown, prepared, cooked and served from and on the property, and where Baehrel is literally the only employee. "I’m the chef, the waiter, the grower, the forager, the gardener, the cheesemaker, the cured-meat maker, and, as I will explain, everything comes from this 12-acre property."
Since the bank that decides what happens at the NY Fed, and by implication, at the broader Federal Reserve system, is none other than Goldman Sachs, it would be informative to read what none other than Goldman thinks of Ben Bernanke's thesis advisor Stanley Fischer, formerly head of the Bank of Israel, as the next vice chairman - as he is now actively rumored to become shortly. Conveniently, here is just such a Q&A from Goldman's Jan Hatzius - the man who feeds Bill Dudley all his economic and monetary insights over lobster sandwiches at the Pound and Pence.