Banks Warn Fed They May Have To Start Charging Depositors

 The Fed's Catch 22 just got catchier. While most attention in the recently released FOMC minutes fell on the return of the taper as a possibility even as soon as December (making the November payrolls report the most important ever, ever, until the next one at least), a less discussed issue was the Fed's comment that it would consider lowering the Interest on Excess Reserves to zero as a means to offset the implied tightening that would result from the reduction in the monthly flow once QE entered its terminal phase (for however briefly before the plunge in the S&P led to the Untaper). After all, the Fed's policy book goes, if IOER is raised to tighten conditions, easing it to zero, or negative, should offset "tightening financial conditions", right? Wrong. As the FT reports leading US banks have warned the Fed that should it lower IOER, they would be forced to start charging depositors.In other words, just like Europe is already toying with the idea of NIRP (and has been for over a year, if still mostly in the rheotrical and market rumor phase), so the Fed's IOER cut would also result in a negative rate on deposits which the FT tongue-in-cheekly summarizes "depositors already have to cope with near-zero interest rates, but paying just to leave money in the bank would be highly unusual and unwelcome for companies and households."If cutting IOER was as much of an easing move as the Fed believes, banks should be delighted - after all, according to the Fed's guidelines it would mean that the return on their investments (recall that all US banks slowly but surely became glorified, TBTF prop trading hedge funds since Glass Steagall was repealed, and why the Volcker Rule implementation is virtually guaranteed to never happen) would increase. And yet, they are not:Executives at two of the top five US banks said a cut in the 0.25 per cent rate of interest on the $2.4tn in reserves they hold at the Fed would lead them to pass on the cost to depositors.Banks say they may have to charge because taking in deposits is not free: they have to pay premiums of a few basis points to a US government insurance programme.“Right now you can at least break even from a revenue perspective,” said one executive, adding that a rate cut by the Fed “would turn it into negative revenue – banks would be disincentivised to take deposits and potentially charge for them”.Other bankers said that a move to negative rates would not only trim margins but could backfire for banks and the system as a whole, as it would incentivise treasury managers to find higher-yielding, riskier assets.“It’s not as if we are suddenly going to start lending to [small and medium-sized enterprises],” said one. “There really isn’t the level of demand, so the danger is that banks are pushed into riskier assets to find yield.”All of the above is BS: lending has never been a concern for the Fed because if it was, then one could scrap QE right now as an absolute faiure. Recall that as we showed recently, the total amount of loans and leases in commercial US banks has been unchanged since Lehman, with the only rise in deposits coming thanks to the fungible liquidity injected by the Fed.Furthermore, contrary to what the hypocrite banker said that "the danger is that banks are pushed into riskier assets to find yield”, banks are already in the riskiest assets: just look at what JPM was doing with its hundreds of billions in excess deposits, which originated as Fed reserves on its books - we explained the process of how the Fed's reserves are used to push the market higher most recently in "What Shadow Banking Can Tell Us About The Fed's "Exit-Path" Dead End."What the real danger is, is that once the Fed lowers IOER and there is a massive outflow of deposits, that banks which have used the excess deposits as initial margin and collateral on marginable securities to chase risk to record highs (as JPM's CIO explicitly and undisputedly did) that there would be an avalanche of selling once the negative rate deposit outflow tsunami hit.Needless to say, the only offset would be if the proceeds from the deposits outflows were used to invest in stocks instead of staying inert in some mattress or, worse (if only from the Fed's point of view) purchase inert assets like gold or Bitcoin.Which brings us back to the first sentence and the Fed's now massive Catch 22: on one hand, shoud the Fed taper, rates will surge and stocks will once again plunge, as they did, in early summer, just to teach the evil, non-appeasing Fed a lesson.On the other hand, should the Fed cut IOER as a standalone move or concurrently to offset the tapering pain, banks will crush depositors by cutting rates, depositors will pull their money from banks en masse, and banks will have no choice but to close on a record levered $2.2 trillion in margined risk position.Average: Your rating: None Average: 4.8 (6 votes)

Let's Hear It For The Volcker Rule: Goldman Loses Over $1 Billion In FX Trade Gone Bad In Q3

aWith such a spectacular source of impeccably timed, if always wrong, FX trading recommendations as Tom Stolper, who has cost his muppets clients tens of thousands of pips in currency losses in the past 5 years, and thus generated the inverse amount in profits for Goldman's trading desks, the last thing we expected to learn was that Goldman's currency traders, who by definition takes the opposite side of its Kermitted clients - because prop trading is now long forbidden, (right Volcker rule?) and any prop trading blow up in the aftermath of the London Whale fiasco is not only a humiliation but probably illegal - had lost massive amounts on an FX trade gone wrong. Which is precisely what happened.According to the WSJ, "a complex bet in the foreign-exchange market backfired on Goldman Sachs Group Inc. during the third quarter, people familiar with the matter said, contributing to a revenue slump that prompted senior executives to defend the firm's trading strategy. Revenue in Goldman's currency-trading business fell sharply in the third quarter from the second. Within that group, the firm's foreign-exchange options desk posted a net loss during the period, the people said." The trade in question: "A structured options trade tied to the U.S. dollar and Japanese yen steepened the decline, according to the people. It isn't clear how large the trade was or how long it was in place."Curious: does this perhaps explain why just after Q3 ended, on October 3, Goldman's head FX strategist Tom Stolper came out with an FX trade in which Goldman "recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80." Obviously, we promptly took the inverse side: "The only question we have: will the length of time before Stolper is once again Stolpered out be measured in days, or hours?" Naturally, Stolper was stolpered stopped out in a few short days, leading to a few hundred pips in profits for those who faded Stolper... and yet we wonder: was Goldman merely trying to offload its USDJPY exposure gone wrong on its clients in the days after the "trade tied to the USD and the JPY steepened the decline"? If so, that would be even more illegal than Goldman pretending to be complying with the Volcker Rule.As for the size of the total loss we had a hint that something had gone very wrong when we reported Goldman's Q3 earnings broken down by group. Back then we said "the only bright light were Investment banking revenues which were $1.7 billion, unchanged from a year ago, if down 25% from Q2. It's all downhill from here, because the all important Fixed Income, Currency and Commodities group printed just $1.247 billion, down a whopping 44% Y/Y, well below expectations." Indicatively, Goldman had made $2.5 billion in FICC the prior quarter, and $2.2 billion a year prior. Obviously something bad had happened.We now know that that something was an FX trading crashing and burning in Goldman's face. Reuters added:Goldman Sachs Group Inc lost more than $1 billion on currency trades during the third quarter, recent regulatory filings show, offering some insight into why the firm, considered one of Wall Street's most savvy traders, reported its worst quarter in a key trading unit since the financial crisis.Goldman's currency-trading problems came from the way the bank had positioned itself in emerging markets, two sources familiar with the matter said.Specific positions could not be learned, but the bank was anticipating that the Federal Reserve would begin winding down its monetary-easing programs, the sources said. When the Fed unexpectedly announced that it would keep its massive bond-buying program in place, Goldman was left with positions that, "absolutely got annihilated," as one person familiar with the matter put it.Since as the WSJ first reported the position involved the USDJPY, which first spiked then plunged following the Fed's non-taper announcement, and kept sliding until it hit 96.50 in early October just when Stolper suggested putting on the short USDJPY trade (when USDJPY soared), it seems that at least this one time both Goldman's prop traders and the trade recommended by Stolper were on the same side.Which resulted in a $1+ billion loss for Goldman.Congratulations Tom: that in itself is worth ignoring that Goldman completely made a mockery out of any and all Volcker prop-trading prohibitions. In fact, keep it up and keep those trade recommendations coming.Average: Your rating: None Average: 5 (8 votes)

FOMC Minutes Reveal Taper Likely In "Coming Months"

aWith the schizophrenia that seems to have availed across the FOMC members (hawks are doves, doves are hawks, tapering is not tightening, etc.) it is not surprising that the minutes reflect some confusion:*FOMC SAW `SEVERAL SIGNIFICANT RISKS' REMAINING FOR ECONOMY *FED TAPER LIKELY IN COMING MONTHS ON BETTER DATA, MINUTES SHOW*METLIFE FOUNDATION, SESAME WORKSHOP PARTNER TO PROVIDE FINL*FOMC SAW DOWNSIDE RISKS TO ECONOMY, LABOR MARKET `DIMINISHED'*FOMC SAW CONSUMER SENTIMENT REMAINING `UNUSUALLY LOW'*FOMC SAW RECOVERY IN HOUSING AS HAVING `SLOWED SOMEWHAT'So summing up - when we get to an unknown point in the future with an unknown state of parameters, we may do an unknown amount of tapering - maybe possibly. Pre-Minutes: SPX 1791, 10Y 2.75, EUR 1.3444, Gold $1262Key sections: on taper in coming months as well as a Taper even if there is no economic improvement:During this general discussion of policy strategy and tactics, participants reviewed issues specific to the Committee’s asset purchase program. They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in la-bor market conditions and would thus warrant trim-ming the pace of purchases in coming months. However, participants also considered scenarios under which it might, at some stage, be appropriate to begin to wind down the program before an unambiguous further improvement in the outlook was apparent.on the calendar scheduling of the taper:Participants generally expressed reservations about the possibility of introducing a simple mechanical rule that would adjust the pace of asset purchases automatically based on a single variable such as the unemployment rate or payroll employment. While some were open to considering such a rule, others viewed that approach as unlikely to reliably produce appropriate policy out-comes. As an alternative, some participants mentioned that it might be preferable to adopt an even simpler plan and announce a total size of remaining purchases or a timetable for winding down the program. A calendar-based step-down would run counter to the data-dependent, state-contingent nature of the current asset purchase program, but it would be easier to communicate and might help the public separate the Committee’s purchase program from its policy for the federal funds rate and the overall stance of policy. With regard to future reductions in asset purchases, participants discussed how those might be split across asset classes. A number of participants believed that making roughly equal adjustments to purchases of Treasury securities and MBS would be appropriate and relatively straightforward to communicate to the public. However, some others indicated that they could back trimming the pace of Treasury purchases more rapidly than those of MBS, perhaps to signal an intention to support mortgage markets, and one participant thought that trimming MBS first would reduce the potential for distortions in credit allocation.on lowering the IOER:Participants also discussed a range of possible actions that could be considered if the Committee wished to signal its intention to keep short-term rates low or rein-force the forward guidance on the federal funds rate. For example, most participants thought that a reduc-tion by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions. By contrast, participants expressed a range of concerns about using open market operations aimed at affecting the expected path of short-term interest rates, such as a standing purchase facility for shorter-term Treasury securities or the pro-vision of term funding through repurchase agreements. Among the concerns voiced was that such operations would inhibit price discovery and remove valuable sources of market information; in addition, such operations might be difficult to explain to the public, complicate the Committee’s communications, and appear inconsistent with the economic thresholds for the fed-eral funds rate. Nevertheless, a number of participants noted that such operations were worthy of further study or saw them as potentially helpful in some cir-cumstances.On lowering the 6.5% unemployment rate threshold:As part of the planning discussion, participants also examined several possibilities for clarifying or strength-ening the forward guidance for the federal funds rate, including by providing additional information about the likely path of the rate either after one of the economic thresholds in the current guidance was reached or after the funds rate target was eventually raised from its cur-rent, exceptionally low level. A couple of participants favored simply reducing the 6½ percent unemployment rate threshold, but others noted that such a change might raise concerns about the durability of the Com-mittee’s commitment to the thresholds. Participants also weighed the merits of stating that, even after the unemployment rate dropped below 6½ percent, the target for the federal funds rate would not be raised so long as the inflation rate was projected to run below a given level. In general, the benefits of adding this kind of quantitative floor for inflation were viewed as uncer-tain and likely to be rather modest, and communicating it could present challenges, but a few participants re-mained favorably inclined toward it. Several partici-pants concluded that providing additional qualitative information on the Committee’s intentions regarding the federal funds rate after the unemployment thresh-old was reached could be more helpful. Such guidance could indicate the range of information that the Com-mittee would consider in evaluating when it would be appropriate to raise the federal funds rate. Alternative-ly, the policy statement could indicate that even after the first increase in the federal funds rate target, the Committee anticipated keeping the rate below its longer-run equilibrium value for some time, as eco-nomic headwinds were likely to diminish only slowly.Full minutes (pdf)Average: Your rating: None Average: 4 (1 vote)

No High School Diploma? No Problem: Here Are The Best Paying Jobs For You

aWhile we hope that the attached Bloomberg chart showing the best paying jobs for people without a high-school diploma will be of no use to our readers (for the simple reason that we assume Zero Hedge readers are well-educated in anything but conventional economics - that subset will likely be found at the end of a Krugman column), as more and more Americans finds themselves questioning not only the utility of a university education (and especially the associated loans) but the educational system in general, the reality is that there are many well-paying jobs available regardless of one's educational level, most of which pay above the median US income. Some notable omissions - any position on Wall Street. Some notable inclusions - tapers. Maybe this is why the Fed never wants to mention the "trimming the pace of asset purchases" by its true name.Source: BloombergAverage: Your rating: None Average: 4.9 (7 votes)

"Success Story" wife of Obama refinanced Out of the Obamacare

Submitted by Michael Krieger of Liberty Blitzkrieg blog,.Meet Jessica Sanford.During the implementation of the Obamacare, it was 1 maybe 5 people across the country who managed to access the site and register by one of the State exchanges. In his case, it is the exchange of Washington.She was so happy to purchase, she wrote a letter to the president Barrack Obama expressed his eternal gratitude.Given that his letter was very probably the letter as positive, the Administration received, the President proudly read aloud in his speech of the Obamacare October 21.The only problem is that a few days later, it has refinanced out of Obamacare. So it is now again not insured...Average: Your rating: no average: 4.9 (14 votes)

Crowdfunding in Southeast Asia

aBy: Mark Wallace at http://www.capitalistexploits.at/We just concluded our Meet Up in Singapore, center of the SE Asian financial universe. It's a vibrant and energetic place where capitalism is thriving. Over the course of about a week we heard from experts in the banking, legal, brokerage and risk control industries. CEOs of companies we've funded, merchant bankers and residency experts were present to address our attendees, answer questions and provide insight into their businesses and the SE Asian markets they operate in. We also had the privilege of attending a Bitcoin pitch session held by the guys that run Seedcoin. Founders of a half dozen Bitcoin startups presented their companies to our group of about 30 interested and engaged investors from about a dozen countries. We all walked away impressed and convinced that Bitcoin is a force to be reckoned with!But today we're going to talk about crowdfunding startups in SE Asia...Once upon a time small startups relied almost exclusively on bootstrapping, friends and family, or perhaps a handful of angel investors, for startup capital. The recent buzzword however in small-scale fundraising, is Crowdfunding.In the North Americas, the Crowdfunding trend has gone mainstream. With the Jumpstart Our Business Startups (JOBS) Act back in 2012, unaccredited investors now have a regulatory framework for investing in equity based Crowdfunding in the United States. The implications of the JOBS act promise to be far reaching and entrepreneurs are moving rapidly forward, setting up a variety of platforms aimed at assisting both startups as well as investors looking to participate in exciting growth companies.We've spoken extensively about Crowdfunding on our site.Growth in the Crowdfunding space on the other side of the Pacific, here in Southeast Asia where we tend to hang our collective hats, is picking up as well despite the language, regulatory and platform barriers. Figure 1: Selected GDP Growth Rate of Major South East Asian EconomiesThe majority of South East Asian economies withstood the shocks from the Global Financial Crisis relatively well, and those who fared worse than their counterparts are now rebounding (Figure 1).Southeast Asia is now home to a rapidly emerging entrepreneurial ecosystem. Recent developments indicate that global investors are taking notice of the colossal growth opportunity offered by startups in the region. When compared to North America a lack of Crowdfunding platforms in the region has meant that only more recently have Crowdfunding opportunities arisen.The task of screening companies in Southeast Asia is complicated due to the lack of information available on startups from a centralized platform, such as Indiegogo. Additionally language barriers have made it difficult, even for investors from neighbouring countries, to cross-invest. A lack of regulatory support from Governments across the region is also holding back the growth potential of Crowdfunding as general solicitation is still not permitted in most countries. Beside a few exceptions, Crowdfunding growth in Southeast Asia is dependent on local, national level, platforms.KitaBisa, IndonesiaKitaBisa is an Indonesian version of KickStarter. In Bahasa Indonesia, KitaBisa means, “we can” and the founders have certainly proved they can. Since the soft launch in June 2013, a few projects have successfully raised tens of millions of Indonesian Rupiahs through the platform. Based on the KickStarter’s all or nothing formula, KitaBisa has so far funded interesting projects such as the one to empower out-of-work housewives by teaching them how to build handmade crafts and marketing it to local communities.SeedAsia, ChinaBased in Shanghai, SeedAsia is offering accredited investors a platform to find and invest in a range of pre-screened Chinese and South East Asian startup companies in the technology niche. Unlike many donations based platforms in Asia, SeedAsia is an equity based Crowdfunding platform. The company screens potential investors and sets a minimum floor of US$2,000 to ensure only serious investors get the opportunity to fund the next Asian Google.Crowdbaron, Hong KongThe Hong Kong based Crowdvesting platform , Crowdbaron recently secured funding from Grow VC Group, and are planning to help investors make substantial investments in real estate. The innovative idea behind Crowdbaron is that, unlike timeshares, you will not actually own the right to occupy the premises. A pool of investors will own a property, which will then be rented out. Investors earn periodic rents based on their percentage of stake and may profit from price appreciation. Crowdbaron hopes that people who either can’t or don’t wish to purchase whole properties will be able to utilize their service to gain from the continued appreciation of Hong Kong’s real estate market.ToGather.AsiaUnlike the others ToGather.Asia is focused on the entire Southeast Asian regional market. Started in 2012, ToGather.Asia is a Singapore based company targeting a broad range of countries in Southeast Asia. It is slowly gaining traction in terms of project creators and crowd funders. According to Bryan Ong , the founder of ToGather.Asia, the majority of the international Crowdfunding sites feature projects from North American, if not European locations. Due to cultural difference, Asian funders find it difficult to trust projects found on existing international sites. Moreover, Asian project creators often fear that due to rampant copyright infringement in the region their ideas might be stolen if they try to Crowdfund their projects. Rather than becoming disheartened by this, ToGather founders saw this as an opportunity to educate people in Asia about Crowdfunding and to converge local creative types and their potential patrons within the region.While the majority of the Crowdfunding platforms are mushrooming as a copy of the western model, there are some innovative Crowdfunding hubs to keep an eye on in Southeast Asia.As we’ve mentioned many times before, we believe these emerging economies will become the leading economies within the next few decades, if not sooner. Investing into startups in the region can prove to be an exceptionally well-timed investment as well as provide a good vehicle for diversification for small investors.Accredited investors can contact us directly if they wish to receive more information about our private, members-only service dedicated to finding such opportunities.- - MarkAverage: Your rating: None Average: 4.3 (3 votes)

"The Course of Empire": A Retrospective On The US Housing Crisis

aA decision by the FHFA requiring the GSEs to finally release detailed information on loans they acquired and guaranteed uncovers an ugly truth about the GSEs that many should be aware of (as we noted the exuberance here). The release was only required on 35 million fully-amortizing, full documentation, 30-year fixed rate mortgages, which means as JPMorgan's Michael Cembalest notes the underwriting histories on another 20-30 million loans (e.g., the riskier ones) remain a mystery (and likely will forever). As Cembalest concludes, some people made up their minds on all the factors causing the housing crisis in 2009, and others in 2011. As long as new information keeps coming out, it seems premature to close the book on it, he adds, first, the private sector descent into underwriting hell took place well after the multi-trillion dollar GSE balance sheets had gone there first; and second, there are many reasons to wonder how bad the former would have been had the latter not preceded it.Via JPMorgan's Michael Cembalest,"The Course of Empire": A Retrospective On The US Housing CrisisThomas Cole’s 19th century paintings entitled Course of Empire, chronicling the rise and fall of civilizations, have been reinterpreted below as a commentary on the US housing crisis. Why now? This retrospective is made possible in part by a decision by the Federal Housing Finance Authority requiring Freddie Mac and Fannie Mae to finally release detailed information on loans they acquired and guaranteed1. The release was only required on 35 million fully-amortizing, fulldocumentation, 30-year fixed rate mortgages, meaning that the underwriting histories on another 20-30 million loans (e.g., the riskier ones) remain a mystery. Some people made up their minds on all the factors causing the housing crisis in 2009, and others in 2011. As long as new information keeps coming out, it seems premature to close the book on it; it took 30 years for Friedman to diagnose the Great Depression. This latest disclosure, though partial and purposefully incomplete, adds to the evolving understanding of what took place, why, and in what sequence. Everyone is entitled to their opinion; the charts and the data below explain mine.“The Pastoral State”Informed by the experience of the 1980’s housing crisis, by 1990, government sponsored enterprises Fannie Mae and Freddie Mac adhered to prudent underwriting on single family mortgages. The GSEs had a small allowance for loans outside traditional investment-grade standards: loans with debt-to-income ratios above 38%, loan-to-values above 90% on purchase loans, or loan to values on cash-out refinancing loans above 75%2. However, these exceptions were typically justified by compensating factors such as higher cash reserves or higher levels of equity. Even the Federal Housing Administration, which focuses on lower income households and first time homebuyers, acted with more restraint than in later years when measured by their LTVs over 97%.The GSEs had a one third share of outstanding mortgages compared to GSE plus private sector lending. Private sector subprime had existed for decades, but was limited in size at ~10% of annual residential mortgage origination. Home ownership rates and home prices relative to income and replacement cost were stable at post-war averages.“Consummation of Empire”The era of sound GSE lending did not last. The 1992 “Federal Housing Enterprises Financial Safety and Soundness Act” enabled the Department of Housing and Urban Development to set formalized minimum affordable lending standards for the GSEs. Only George Orwell could have named a bill that was so fundamentally contradicted by its purpose and consequence. HUD first set Low & Moderate Income standards at 30% of annual GSE acquisitions, and raised them to 50% in the week before the November 2000 election. In the wake of the bill, in 1994, Fannie Mae issued a press release citing its commitment to transforming the housing finance system, vowing to provide $1 trillion in targeted lending, and citing a goal of eliminating the “no” in the mortgage application process. Prudent 1990 GSE underwriting standards, designed to benefit future borrowers and not just current ones, were discarded. Home ownership rates jumped, and home prices relative to replacement cost, rent and household income began to rise above historically stable levels.By 2002, the revolution is complete: the GSEs increased their market share from one third to 60% as the size of the mortgage market rose by 2.5x vs. 1990; Freddie Mac’s non-traditional loans were ~45% of their annual acquisitions and guarantees; Fannie Mae claimed that the FHA was its only competitor, asserting that it had become overwhelmingly an affordable housing company; and more than 40% of Fannie Mae’s Alt A (low documentation) loans qualified for the HUD-determined affordable housing goals. These developments were celebrated by HUD as a “revolution” in affordable lending. In 2002, Nobel Laureate Joseph Stiglitz and future OMB Director Peter Orszag cited the probability of a shock to GSE balance sheets as “substantially less than one in 500,000”, and estimated the expected cost to the government of guaranteeing $1 trillion of mortgages at $2 million. Yes, you read that correctly.Note that the GSE revolution takes place before the explosion in private sector subprime and Alt A loans. The private sector, seeing its market share shrink, organizes several not-so-successful efforts to constrain GSE expansion. Private sector subprime and Alt A market shares remain constant, but its underwriting becomes riskier as the GSEs encroach on their territory with a multi-trillion dollar balance sheet.“Prelude to Destruction”GSE non-traditional loans eventually converge to 40%-50% of their annual underwriting, culminating with a warning from Fannie Mae to shareholders about losses from affordable lending. There are some remarkable quotes from HUD in 2000 on how it expected this GSE revolution to result in a private sector revolution as well; it eventually did. The private sector finds a way to compete: the deepening of private mortgage backed securities markets. Propelled by demand when the Fed cut policy rates to 1% in 2002, PMBS markets did not price much of a differential between subprime and traditional risk. As a result, the funding advantage enjoyed by GSEs was conveyed to private sector originators. Privately securitized mortgages skyrocket, home prices surge further, and the mortgage market doubles in size vs. 2002. The private sector regains market share, mostly through subprime and Alt A loans which rose to 40% of annual origination. To be clear, private sector defaults and losses per dollar on subprime were much worse than on GSE loans, particularly when related to malignant derivative offshoots. To complete the circle, the GSEs support private sector origination by purchasing $275 billion of mostly subprime mortgage-backed securities by 2005. With these trends in place, it’s only a matter of time before it all comes undone.I did not reproduce Cole’s last painting in the series (“Desolation”) since we know what came next. The paintings above convince me of 2 things. First, the private sector descent into underwriting hell took place well after the multi-trillion dollar GSE balance sheets had gone there first. Second, there are many reasons to wonder how bad the former would have been had the latter not preceded it. I have doubts that public consciousness is aware of this timeline and the impact of public policy on it, and stronger doubts that data on the millions of undisclosed, riskier Fannie Mae and Freddie Mac loans will ever be released. Let’s just leave it at that.Average: Your rating: None Average: 4.7 (6 votes)

China Flash PMI Drops Most In 6 Months

aChina's HSBC Flash PMI missed expectations rather notably (50.4 vs 50.8 exp) and dropped its most MoM since May as the hope-mongering of a China-led renaissance in global growth is dashed on the shores of liquidity reality. It was a mixed bag - providing just enough for everyone under the covers. New exports orders dropped to 3-month lows and employment flipped into the deteriorating camp but manufacturing output rose to its highest in 8 months (sure, why not - the "if we build it then we'll vendor finance it" model worked before, right?) Market reactions are generally bad-news-is-bad-news with US equity futures down and the Hang Seng extending losses.The PBOC is offering up some liquidity today but at notably higher rates once again - so the tightening bias remains...Average: Your rating: None Average: 3 (1 vote)

Americans Are More Skeptical About NSA Spying than Ever ... Despite Massive Propaganda Campaign

aWe’ve previously noted:Only 11% of Americans trust Obama to actually do anything to rein in spyingDespite the massive propaganda push by the NSA and its lackeys in Congress, the people still aren’t buying it.Bill Moyers notes:A new poll finds that Americans are increasingly concerned about their online privacy — and it’s the result of increased media attention on NSA surveillance. The poll, USA Today’s Byron Acohido writes, is the “latest proof point of what could, at the end of the day, take hold as a tectonic societal shift: the return of privacy as a social norm. Call it the Edward Snowden effect.” The poll, conducted by Harris Interactive and commissioned by software company ESET, found that four out of five Americans have changed their social media security settings, and most of those people have made the changes in the last six months. Acohido writes:…[T]he steady flow of revelations from the Snowden documents, detailing the pervasive nature of the National Security Agency’s anti-terrorism surveillance activities, has kept privacy top of mind for many consumers.Of course the NSA can tap into online data to the extent it does largely because commercial companies, led by Google and Facebook, pursue business models that treat consumer privacy as a free profit-making resource.It took a wild card, in the form of Edward Snowden, to get the masses focused on who is doing online tracking and profiling, and for what agendas.Huffington Post notes:A majority of Americans think that current oversight over data the NSA can collect about Americans is inadequate, and almost half think oversight of the data the NSA collects about foreigners is inadequate, according to a new HuffPost/YouGov poll.According to the new poll, 54 percent of Americans think federal courts and rules put in place by Congress do not provide adequate oversight over the phone and Internet data the NSA can collect about Americans, while only 17 percent said that the oversight is adequate.And the Washington Post writes:[A] poll of 1,000 people, conducted by YouGov from Oct. 5 to Oct. 7 …  indicated, however, that the National Security Agency had not demonstrated that its phone and Internet data-collection programs were “necessary to combat terrorism” as it tried to deal with recent disclosures based on documents released to journalists by former NSA contractor Edward Snowden.Postscript: It probably doesn’t help that – instead of coming clean – the NSA and its supporters have been caught lying again and again, or that they are still so tone deaf that they are cheerfully trying to sell singing the glories of a surveillance state.Mass spying by the NSA has never stopped a single terrorist attack.Mass surveillance actually interferes with our ability to stop terrorism.Today, 3 current U.S. Senators (Ron Wyden, Mark Udall and Martin Heinrich)  who are all on the Senate Intelligence Committee – with top security clearance and access to classified NSA briefings – filed a “friend of the court” brief pointing out that the NSA’s mass spying hasn’t stopped a single attack:Now that the government’s bulk call-records program has been exposed, the government has defended it vigorously.  Amici [i.e. friends of the court ... the 3 Senators, along with numerous security experts] submit this brief to respond to the government’s claim, which it is expected to repeat in this suit, that its collection of bulk call records is necessary to defend the nation against terrorist attacks.  Amici make one central point: As members of the committee charged with overseeing the National Security Agency’s surveillance, Amici have reviewed this surveillance extensively and have seen no evidence that the bulk collection of Americans’ phone records has provided any intelligence of value that could not have been gathered through less intrusive means. The government has at its disposal a number of authorities that allow it to obtain the call records of suspected terrorists and those in contact with suspected terrorists. It appears to Amici that these more targeted authorities could have been used to obtain the information that the government has publicly claimed was crucial in a few important counterterrorism cases.***As Amici and others have made clear, the evidence shows that the executive branch’s claims about the effectiveness of the bulk phone-records program have been vastly overstated and, in some cases, utterly misleading….For example, the executive branch has defended the program by claiming that it helped “thwart” or “disrupt” fifty-four specific terrorist plots…. But that claim conflates the bulk-collection program with other foreign-intelligence authorities.  In fact, as Amici know from their regular oversight of the intelligence community as members of the SSCI, “it appears that the bulk phone records collection program under section 215 of the USA Patriot Act played little or no role in most of these disruptions.” …. Indeed, of the original fifty- four that the government pointed to, officials have only been able to describe two that involved materially useful information obtained through the bulk call-records program…. Even the two supposed success stories involved information that Amici believe—after repeated requests to the government for evidence to the contrary—could readily have been obtained without a database of all Americans’ call records….In both public statements and in newly declassified submissions to the SSCI, intelligence officials have significantly exaggerated the phone-records program’s effectiveness. Based on the experience of Amici, the public—and this Court—should view the government’s claims regarding the effectiveness of its surveillance programs with searching skepticism and demand evidence rather than assurances before accepting them.Indeed, NSA spying is not very focused on terrorism at all.  And even if some mass surveillance program were somehow necessary, counter-terror experts say we can keep everyone safe without violating the Constitution … more cheaply and efficiently than the current system.The NSA’s whole domestic spying program is a sham …Average: Your rating: None Average: 5 (13 votes)

Goldman's FOMC Post-Mortem: "Relatively Neutral" But "December Taper Possible"

aConsidering Jan Hatzius and NY Fed's Bill Dudley are close Pound & Pence drinking buddies, when it comes to assessing what the Fed "meant" to say, one should just throw the embargo-minutes penned Hilstanalysis in the garbage and just focus on what the Goldman chief economist thinks. His summary assessment: the minutes were relatively neutral, March is the most likely first taper date although "December is still possible."From Goldman:We see the October FOMC meeting minutes as relatively neutral. Members generally did not appear to believe that tapering would be warranted in the immediate term at the time of the meeting, although that was before some recent better-than-expected data. There was discussion of potential enhancements to the forward guidance, but no consensus. We continue to think that March is the most likely date for the first reduction in asset purchases, although December is still possible. MAIN POINTS:1. With respect to the forward looking outlook for asset purchases, the minutes stated "some [members] pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings." In contrast, participants?including non-voting regional Presidents?generally felt that trimming the rate of purchases would likely be appropriate "in coming months." However, ever the more hawkish language describing participants' views represents a change from the September minutes, in which "most" thought that it would be appropriate to begin reducing the pace of asset purchases by the end of the year. Also suggesting a lack of appetite for near-term tapering, "a number of participants noted that recent movements in interest rates … suggested that financial markets viewed … asset purchases and forward guidance ... as closely linked." However, December remains on the table as a possibility, in particular given stronger incoming data since the October meeting. 2. Participants seemed unenthusiastic about adopting a mechanical rule tying the pace of purchases to a single variable such as the unemployment rate. Some suggested announcing a total size of remaining purchases or a timetable for winding down the program as an alternative. Regarding the composition of tapering, "a number believed that making roughly equal adjustments to Treasury and MBS purchases would be appropriate," suggesting a stronger preference for equal tapering of Treasuries and MBS than that expressed in prior minutes. 3. On potential future enhancements to the forward guidance, "a couple" participants noted the merits of simply reducing the current 6-1/2% unemployment rate threshold, although others noted concerns about such a change. Others brought up the possibility of an inflation floor, although the benefits of such a change were viewed as "uncertain and likely to be rather modest." Several participants concluded that providing more qualitative information regarding the Committee's intentions after the threshold was reached could be most helpful. Overall, we see this discussion as representing a lack of consensus at the time of the October meeting on how the forward guidance should be adjusted in the future. 4. The minutes also noted that "most participants" thought that a reduction in the interest rate paid on excess reserves was "worth considering at some point" although the benefits of such a step were "generally seen as likely to be small except possibly as a signal of policy intentions."

U.S. To reach the actual debt in March (or June) limit 2014

By EconMattersIt was last month that many US Lawmakers negotiated an agreement suspending the ceiling of the debt through February 7 to put an end to the closure of the Government, and the Treasury Department could continue borrowing.  After February 7, Treasury will still be able to use "exceptional measures" to avert default.With the current national debt to one without previous $17.1 trillion (one analyst thinks it could double to 34 trillion $), any reasonably intelligent person wonder how long will last this foot-le-RCA one band-aid.  Both the Bipartisan Policy Center and the Board of Treasury Secretary Jacob J. Lew suggested that extraordinary measures were passed in a month or two, i.e. in March 2014.Now, according to a report released today by the Congressional Budget Office (CBO), U.S. may be able to revise the date of debt ceiling no later than June because tourism revenue around the tax deadline April 15 tax could provide more cash cushion to carry out the obligations laid down.CBO:Overall, the federal Government should run a deficit for fiscal year 2014... Given the volume of daily cash from the Government and uncertainty about the extent of the main transactions..., the treasure could exhaust its extraordinary measures and permission to borrow as soon as March or as late as in may or June.How America got itself in this situation?  Slowly but surely... by outspending its income.  The following table in USA Today shows federal income vs federal spending since 1996 (in thousands of billions of current dollars).Meanwhile, OECD is already panic at the idea of a binding of the US debt ceiling.  In his presentation of the World Economic Outlook yesterday, OECD included these three tables scary to demonstrate the disastrous economic consequences to the United States and the rest of the world with an abyss of debt for a whole year ceiling.It is highly unlikely that the US Congress could re-election leaving the debt limit traffic jams (and judgment of the Government) go during a whole year.  However, I believe that OECD is concerned about the negative impact on the already fragile global economy and stock markets, even for a few weeks.Remember that the increase in the debt ceiling does not solve the root cause of breach of limit of debt. To avoid recurring debt ceiling confrontation, Washington must address how to reduce federal spending or to increase their income.  Unfortunately, any increase in federal revenues, in my opinion, will involve some sort of tax increase mostly to the middle income class.  And cutting federal spending seems to be in constant mode of a step forward, two steps back.Unlike the Fed QE which mainly benefits the rich 1% (and should be "tapered"!), federal spending, however unprofitable, it can be sometimes, actually get injected into the real economy. So when billions of federal spending disappears from the economy, it will result in loss of revenue and jobs affecting many entrepreneurs of the State and the average income for America.  Furthermore, whatever expenditure savings that can materialize tend to get sucked by a program of Government colossally mismanaged as ObamaCare, which bills will eventually be angular, again by none other than the middle income class.While the middle class has been a major force reshaping the America since the second world war, I doubt that he is everything left to help dig the country of this juice debt trap.  Overall, 2014 is expected to be a year of several crucial decisions for the United States on its debt limit permitted, monetary programme (QE), or perhaps Obama will remain in history as a president of the ObamaCare hits the coin $1 billion Platinum?© EconMatters all rights reserved | Facebook | Twitter | Alert poster | Kindle

When E.F. Hutton Talks

AppId is over the quota AppId is over the quota Authored by Epsilontheory.comIf you like your health plan, you can keep your health plan.      – Barack ObamaOf course, one objective of both traditional and nontraditional policy during recoveries is to promote a return to productive risk-taking.      – Ben BernankeMost people are other people. Their thoughts are someone else’s opinion, their lives a mimicry, their passions a quotation.      – Oscar Wilde (“De Profundis”)Don’t piss down my back and tell me it’s raining.     – Fletcher (“The Outlaw Josey Wales”)     – Paul Samuelson, Nobel Prize winner, author of all-time best-selling economics textbookThrough his research, teaching, and writing Paul Samuelson had more impact on the economic life of this country and the world than any government economic official and many presidents.      – Larry Summers, former Treasury Secretary (and Paul Samuelson’s nephew)      – Edward Thorp, hedge fund manager, author of all-time best-selling gambling textbookEdward O. Thorp and the Kelly criterion have been a lighthouse for risk management for me and PIMCO for over 45 years. First at the blackjack tables, and then in portfolio management, the Kelly system has helped to minimize risk and maximize return for thousands of PIMCO clients.     – Bill Gross, Co-CIO PIMCOWhen E.F. Hutton TalksThe concept of utility is the most fundamental concept in economics. It gets wrapped up in impressive sounding terms like “exogenous preference functions”, and written in all sorts of arcane runes and formulas, but all utility means is that you like something more than something else. The assumptions that economic theory makes about utility are really pretty simple and mostly about consistency – if you like vanilla ice cream more than chocolate ice cream, and chocolate more than strawberry, then economic theory assumes you also like vanilla more than strawberry – and continuity – if you like one scoop of vanilla ice cream, then you like two scoops even more. But as far as what you like, what your tastes or preferences are in ice cream or music … or health insurance plans … economic theory is intentionally silent. Economics is all about making rational decisions given some set of likes and dislikes. It doesn’t presume to tell you what you should like or dislike, and it assumes that you do in fact know what you like or dislike.Or at least that’s what economic theory used to proclaim. Today economic theory is used as the intellectual foundation for a political stratagem that goes something like this: you do not know what you truly like, and in particular you do not know your economic self-interest, but luckily for you we are here to fix that. This is the common strand between QE and Obamacare. The former says that you are wrong to prefer safety to risk in your investments, and so we will fix that misconception of yours by making it extremely painful for you not to take greater investment risks than you would otherwise prefer. The latter says that you are wrong to prefer no health insurance or a certain type of health insurance to another type of health insurance, and so we will make it illegal for you to do anything but purchase a policy that we are certain you would prefer if only you were thinking more clearly about all this.Anyone who believes that this political maneuver is inherently a phenomenon of the Left is kidding himself. The Right – in the form of sectarian or secular authoritarianism that imposes behavioral politics on the justification that this is how to get into heaven or demonstrate true patriotism – is no stranger to exactly this sort of political aggrandizement. Nor am I arguing that it’s smart to put your money under a mattress or that it’s wise to use the local emergency clinic as your primary care provider. What I’m saying is that the notion that we know your interests better than you know your interests is inherently an anti-liberal position, whether it comes from the Left or the Right. That’s liberalism with a small-l, the liberalism of Adam Smith and John Stuart Mill, not Walter Mondale … a political philosophy that argues for your right to be as stupid as you want to be in your personal economic decisions.While there are hundreds of examples of anti-liberal policies in the annals of Western history, QE and Obamacare stand out in two important respects.First, they’re big. Really big. Either policy on its own would be the largest instantiation in human history of what the French call dirigisme, at least on an absolute scale. I suppose you could argue that the US Social Security system has evolved into something even larger, but that took 70+ years to match what QE and Obamacare have accomplished in a few dozen months. I’ve written at length about the manner in which emergency policy responses to national traumas like wars and depressions are transformed into permanent government programs, so I won’t repeat that here. Suffice it to say that it’s not a coincidence that Social Security is a child of the Great Depression in the same way that both QE and Obamacare are children of the Great Recession. The institutionalization and expansion of centralized economic policy is what always happens after an economic crisis, but the scale and scope of QE and Obamacare, particularly when considered together as two sides of the same illiberal coin, are unprecedented in US history.Second, and this is what really distinguishes the dirigiste policies of today from those of the past, the political and bureaucratic advocates of QE and Obamacare have co-opted the Narrative of Science to promote these policies to the public. If you look at the financial media’s representation of monetary policy during, say, the Volcker years, you see a curious thing. These articles almost never mention academic papers or Fed research. Today you can’t go a week without tripping over a prominent WSJ or FT article trumpeting this Fed publication or that IMF working paper as the reason behind a monetary policy rhyme. The authority vested in the Volcker Fed was based on a Narrative of Experience, an argument for trust based on a representation of personal leadership and experiential wisdom. Today, the argument for trusting the Fed places zero weight on the real-world experience or personal wisdom of the Fed Chair. Instead, both Bernanke and Yellen are presented as Wizards who channel the transcendent magic of economic theory. For better or worse, a popular faith in Economic Science is the source of their authority.As for healthcare policy … the entire edifice of Obamacare has been presented as a self-consciously scientific, enlightened economic argument. This allows its political adversaries to be painted as bizarrely opposed to an objectively correct scientific position, as either know-nothing rubes who probably don’t even believe in evolution or as greedy stooges of the criminally rapacious insurance industry. Contrast this to the media presentation of healthcare policy initiatives in the 1960’s, particularly the establishment of Medicare as part of Johnson’s Great Society. As the phrase “Great Society” implies, arguments for Medicare had nothing to do with macroeconomic theories of efficiency and everything to do with political theories of justice. All of Johnson’s political initiatives, from Medicare to the Civil Rights Act, were based on a Narrative of Social Justice, an explicitly political argument that made little pretense of marshaling social science to prove the point. Seems like a more honest mode of politics to me, one that recognizes and embraces the hot-blooded nature of politics for what it is rather than hiding it within a cool armor of Science, and maybe that’s why Johnson’s policies have stood the test of time.Why has the Narrative of Science been co-opted in this way? Because it works. Because Science is the dominant religion, i.e. belief system in transcendent forces, in the West today. Because politicians have always sought to direct or tap into these belief systems for their own ends. In exactly the same way that French kings in the 13th century used ecclesiastical arguments and Papal bulls to justify their conquest of what we now know as southern France in the Albigensian Crusades, so do American Presidents in the 21st century use macroeconomic arguments and Nobel prize winner op-eds to justify their expansionist aims. Economists play the same role in the court of George W. Bush or Barack Obama as clerics played in the court of Louis VIII or Louis IX. They intentionally write and speak in a “higher” language that lay people do not understand, they are assigned to senior positions in every bureaucratic institution of importance, and they are treated as the conduits of a received Truth that is – at least in terms of its relationship to politics – purely a social construction. I’m not trying to be flippant about this, but when you read the history of the Middle Ages I find it impossible not to be struck by the similarity in social meaning between clerics then and economists today.So why does this bug me so much? What's the big deal about wrapping a political argument in the mantle of Economics in the same way that it used to be wrapped in the mantle of Catholicism? Isn’t this what powerful political and commercial interests have done since the dawn of time, drawing on some outside source of social authority to support their cause?Part of the answer is that as a limited government, small-l liberal I’m on the losing side of this particular political argument. I believe that it’s crucial to allow everyone to be as stupid as they want to be in their personal economic decisions because a) economic vitality and growth in the aggregate requires plenty of individual mistakes and losers along the way (sorry, but it does), and b) the alternative – allowing or requiring government to make these decisions on our behalf – inevitably creates a terribly fragile system where a single poor decision can lead to permanent ruin. Is it difficult and at times inefficient to maintain limited government in a mass society? Absolutely. Should we make small exceptions to these liberal principles to grease the wheels of effective governance in ordinary times, and big exceptions to these principles in a national emergency? Without a doubt. I think Lincoln saved the United States in 1861 when he suspended habeas corpus and imposed martial law in wide swaths of the country. I think Bernanke saved the world in 2009 when he implemented QE 1. But like the Roman dictator Cincinnatus, a great leader goes back to the farm after he saves the Republic. It’s the hardest thing to do in politics … to voluntarily relinquish emergency powers used wisely for the common good, to maintain a personal humility and trust in the system in the aftermath of great success. George Washington did it, and that’s why he’s the greatest President this country ever had. I understand that it’s not terribly likely we’ll ever see Washington’s like again … different times, different world, etc., etc. … but hope springs eternal.The other part of the answer is that using Science for political ends subverts its usefulness (as does using Religion for political ends … just ask Martin Luther). We lose something very important when we associate a particular social scientific hypothesis with a winning policy outcome or a losing policy outcome, and that’s the recognition that social science – particularly economic science – is never True or False, but only more or less useful depending on whatever it is in life that you value … your utility function. Both as individuals and as collectives, we can achieve much greater levels of utility – we can be happier – if we maintain this agnostic view of Truth when it comes to social science. Politicians want to sell us on the notion that they have The Answer, that they can deliver the good life if only we keep them in power. Social scientists – or at least honest ones – recognize that there are no Answers in the patterns and relationships they identify, even if those patterns can be written in the highly precise language of mathematics. There is More Useful and Less Useful in social science … that’s all … and claims to the contrary detract from the very real benefits and advances that social science can provide.Here’s a concrete example of what I mean …Let’s say that you’re interested in wealth maximization, that this is the utility function you are most concerned with as an investor, and you want to know what percentage of your wealth you should allocate to the different investment opportunities you can choose from. Paul Samuelson, the most influential economist of the post-World War II era and the first American winner of the Nobel prize in Economics has an answer for you: . Translation: the more confident you are in the expected return of the investment choice, the more you should allocate to that choice, but in a more or less linearly proportional manner. On the other hand, Edward Thorp, author of “Beat the Dealer” and evangelist of the Kelly Criterion – an algorithm designed by mathematician John Kelly at Bell Labs in the 1950’s and used by investors like Warren Buffett, Bill Gross, and Jim Simons (if you’ve never read “Fortune’s Formula”, by William Poundstone, you should) – has a different answer for you:  . Translation, the more confident you are in the expected return of the investment choice, the more you should allocate to that choice, but in a logarithmically proportional manner.The difference between investing on the basis of linear proportionality and logarithmic proportionality is vast and incommensurable. With the Kelly criterion, even a small expected advantage in the investment odds – say a 52% chance of doubling your investment and a 48% chance of losing it all – requires you to invest a significant portion of your overall wealth, in this case about 2%. With a larger expected advantage in the investment odds, the recommended allocation gets very large, very fast. If the odds are 60/40 on doubling up/losing the entire investment, Kelly says invest 20% of your total wealth; if the odds are 80/20, Kelly says invest 60% of your total wealth in this single bet! Definitely not for the faint of heart, and definitely a far riskier strategy at any given point in time than the straightforward Samuelson expected utility approach. But you never lose ALL of your money with the Kelly criterion, and over a long enough period of time (maybe a very long period of time) with infinitely divisible bet amounts and correct assessment of the investment odds, the Kelly criterion will, by definition, maximize the growth rate of your wealth.These are two VERY different answers to the wealth maximization question by two world-class geniuses, each with a legion of world-class genius supporters. Samuelson is a lot more famous and received far more public accolades; Thorp made a lot more money from investing (Kelly died of a stroke at age 41 in 1965 and never made a dime from his theory). But they can’t BOTH be right, the politician would say. What’s The Answer to the wealth maximization question so we can institute the right policy? Well … they ARE both right, there is no Answer, and the correct choice between the two depends entirely on your individual utility function. In fact, choosing either wealth maximization algorithm and imposing it on everyone is guaranteed to make everyone worse off in the aggregate.How’s that? Let’s say I’m investing my life savings, and I’ve only got one shot to get this right. Not one investment, but one shot at implementing a coherent investment strategy for this, the only life’s savings I will ever have. If that’s my personal situation, then I would be nuts to choose the Kelly criterion to drive that strategy. It’s just too risky, and if I’m unlucky I’ll be down so much that I’ll hate myself. Maybe in the long run it maximizes my wealth growth rate, but in the long run I’m also dead. On the other hand, let’s say I’m investing a small bonus. It’s not the only bonus I’ll ever receive, and in and of itself it’s not life changing money. If that’s my personal situation, then I would be nuts NOT to choose the Kelly criterion because it has the very real possibility of transforming the small bonus into life changing money.No one’s utility function for money is linear – $20 has more than 20 times the utility to me than $1 – and no two people have the same utility function for money – I’m sure there are people out there who care as little about $20 as I do about $1. Everyone’s utility function for money changes over time, and most are contextually dependent. It is impossible to design a one-size-fits-all wealth maximization formula, which is why human financial advisors have such an important job. It’s also why government efforts to force us to converge on a utility function for investment choices, healthcare choices, or any other sort of personal economic choice result in such a widespread gnashing of teeth and popular dissatisfaction. At best, it’s a myopic conception of how to generate more economic utility. At worst, it’s an intentional subversion of useful social science to cloak politics as usual. In either event, it’s something that deserves to be called out, and that’s what I’ll keep doing with Epsilon Theory.PostscriptTwo quick points on portfolio management, utility functions, and the Kelly criterion that I’ll present without elaboration and will probably only be of interest to professional investors who are immersed in this sort of thing.1) In several important respects, risk parity investment allocations are to 60/40 stock/bond allocations what the Kelly criterion is to Samuelson expected utility.2) The allocation of capital by an investment manager who wants to establish multiple independent Kelly criterion strategies across traders or sub-investment managers, each of whose individual utility functions favors a fractional Kelly or Samuelson expected utility function, is a solvable game.Average: Your rating: None Average: 4.4 (9 votes)

Maduro's First Socialist "Decree" - $250 Samsung Trinkets For Every Venezuelan

aDays after being granted omnipotent "decree" powers, and a week after the Venezuelan president wielded his mighty Marxist sword and jailed 100s of "bourgeois, barbaric, capitalist parasites"; Maduro has unveiled his latest "keep the masses happy" trick...*VENEZUELA TO SPEND $100M ON SAMSUNG IMPORTS: RAMIREZ*VENEZUELA TO IMPORT 400,000 SAMSUNG PRODUCTS, RAMIREZ SAYSWhy didn't AAPL get the nod? As Maduro explained yesterday, 15-30% margins are "enough"... Of course, the US is disappointed in the decision to grant Maduro "decree power" - perhaps as they didn't think of it sooner (though they do have the Obamaphone?).Via Bloomberg (from Venezuelan State TV):Venezuela to pay $100m in cash for Samsung product imports, Ramirez saysSamsung products to arrive before Christmas, Ramirez saysGovt, Samsung create joint venture, looking for factory sites, Ramirez saysAverage: Your rating: None Average: 5 (4 votes)

Gold Market Halted For 2nd Time Today Following FOMC Minutes Monkey-Hammering

aFor the second time today (and 4th in the last 3 months) - at least this time on some actual news - Nanex notes that gold futures have been halted for 20-seconds following the release of the FOMC minutes. 1,500 contracts took us down at 6:26ET this morning, this time it was even more...9. December 2013 Gold (GC) Futures Trades.10. December 2013 Gold (GC) Futures Quote Spread.Source: NanexAverage: Your rating: None Average: 5 (6 votes)

Goldman's Top Ten 2014 Market Themes

aTranslate Request has too much data Parameter name: request The following Top Ten Market Themes, represent the broad list of macro themes from Goldman Sachs' economic outlook that they think will dominate markets in 2014.Showtime for the US/DM RecoveryForward guidance harder in an above-trend worldEarn the DM equity risk premium, hedge the riskGood carry, bad carryThe race to the exit kicks offDecision time for the ‘high-flyers’Still not your older brother’s EM......but EM differentiation to continueCommodity downside risks growStable China may be good enoughThey summarize their positive growth expectations: if and when the period of stability will give way to bigger directional moves largely depends on how re-accelerating growth forces the hands of central banks to move ahead of everybody else. And, in practice, that boils down to the question of whether the Fed will be able to prevent the short end from selling off; i.e. it's all about the Fed.Top Ten Market Thesme For 20141. Showtime for the US/DM RecoveryUS growth to accelerate to 3%+Lower growth, but equivalent acceleration in EuropeFiscal drag eases outside JapanDM acceleration the main positive impulseLarge output gap still in DM, keeping inflation at bayMarket issues: Our 2013 outlook was dominated by the notion that underlying private sector healing in the US was being masked by significant fiscal drag. As we move into 2014 and that drag eases, we expect the long-awaited shift towards above-trend growth in the US finally to occur, spurred by an acceleration in private consumption and business investment. While the US (and the UK) represents the cleanest version of that story, we forecast a similar acceleration in GDP growth from lower levels in the Euro area. Although growth is likely to remain unbalanced across the Euro area, some fiscal relief and supportive financial conditions should push GDP growth to just above 1% for the year. Japan is the exception to this rule, where increased fiscal drag from the consumption tax hike in the spring is likely to offset other forces for acceleration, leaving growth stable. Nevertheless, our forecast of an improving domestic impulse is to a reasonable degree a DM-wide story. This improving DM impulse should also help EM growth. But with less slack, more inflation and ongoing imbalances, there is less scope for acceleration and the improvement in growth is more externally driven.An improving global (and US) growth picture is widely forecast but, in our view, also still doubted in the investor community because of the stop-start nature of the recovery hitherto and the possibility of a renewed US fiscal logjam in early 2014. We therefore still see room for markets to price a better cyclical story or, perhaps more accurately, increased confidence that cyclical risk is diminishing. On balance, that should make 2014 another year in which equities and bond yields move higher together. On our forecasts, despite the outperformance of DM assets, our confidence is highest in the US and DM cyclical picture and we still favour assets exposed to that theme. While the growth picture is set to improve – and the ‘volatility’ of growth views may fall – the absolute growth trajectory is only clearly above trend in the US and still perhaps a shade below trend globally. So it is still an open question whether this kind of picture is enough to fuel real outperformance of global cyclical equities – although our bias is clearly to lean in that direction.2. Forward guidance harder in an above-trend worldG4 policy rates still at zero through 2014 as Fed firms up guidanceLow and anchored inflation and expectations in the G4 as output gaps lingerAbove-trend growth will fuel bouts of doubt about easy policyOnly a gradual normalisation of real ratesMarket issues: Despite the improvement in growth, we expect G4 central banks to continue to signal that rates are set to remain on hold near the zero bound for a prolonged period, faced with low inflation and high unemployment. In the US, our forecast is still for no hikes until 2016 and we expect the commitment to low rates to be reinforced in the next few months. Against that, we expect a gradual tapering in bond purchases to begin, most likely in March. But the broad message from a Fed led by Janet Yellen is likely to be reassurance that financial conditions will remain easy and we expect a common desire among G4 central banks to lean against the kind of rapid tightening in financial conditions that we saw a few months ago. Our new 2017 forecasts reinforce the notion that when US tightening begins it may proceed more rapidly than the market is pricing. This is also consistent with recent Fed research into the optimal path for the Fed funds rate.The combination of still-easy policy and improving growth should, on balance, be a friendly one for equities and other risky assets, while preventing sharp increases in longterm yields. But, as growth improves, the market is likely to experience bouts of doubt about the firmness of the commitment to forward guidance. The experience of the Bank of England in trying to keep expectations of rate hikes in 2015 at bay is a reminder of the fact that, confronted with above-trend growth, markets will reassess the odds of the macro thresholds being reached, and reprice the path for rate policy accordingly.We therefore expect to see periods of pressure on rates markets, followed by reassurance from policymakers. As a result, the dance between improving growth and rising rates is likely to remain a key axis in 2014. This is particularly true during periods in which a dovish view is well reflected and the front-end risk premium is low (US 1y1y OIS is back at 27bp). It is the ‘belly’ of the curve – the point at which tightening is likely to occur – that looks most vulnerable to this kind of volatility. Without a shift in front-end rate views, it may be hard to push long-term yields rapidly higher. But even with anchored policy rates, the improving growth profile is likely to put moderate but steady upward pressure on longerdated US and European yields at a pace that is somewhat faster than the forwards. So, while we would look for assets with exposure to the growth recovery, our bias is to avoid areas with significant vulnerability to higher rates.3. Earn the DM equity risk premium, hedge the riskLower risk premia across assets than last yearDM equity risk premium narrower but still historically highMultiple expansion possible from above-average levels if real rates stay lowBut earnings growth may need to pick up some of the burdenRising bond yields would close the equity-bond gap from the other sideMarket issues: Over the past few years, we have seen very large risk premium compression across a wide range of areas. While not at 2007 levels, credit spreads have narrowed to below long-term averages and asset market volatility has fallen. Even in a friendly growth and policy environment such as the one we anticipate, this is likely to make for lower return prospects (although more appealing in a volatility-adjusted sense). In equities, in particular, the key question we confront is whether a rally can continue given above-average multiples. We think it can. In part, this is because moderate earnings growth should continue as top-line growth does more of the running relative to margins. But the equity risk premium remains historically high. Put simply, if real 10-year US yields remain at or under 1% for the next couple of years, as the forwards are pricing, and if our forecast of above-trend growth is also correct, we think it would be hard to justify an unusually large spread for earnings yields to real bond yields. Multiples could then legitimately be higher – and higher-than-average – but in a context where the real risk-free rate was unusually low.This broad story is also likely to play out in European equity markets, where arguably there is a greater risk premium embedded relative to the US, and the scope for margin expansion is also greater. While we worry about the lack of a resolution to the deeper institutional and debt sustainability issues, we doubt these will come more sharply into focus in an environment of improving growth. Given low inflation and a policy easing bias, this could help European equities – including banks – more than the currency.The key risk to that story – beyond the failure of the growth recovery to materialise – is that real bond yields do not stay low and that the equity risk premium closes through pressure on bond markets. Our own forecasts see the risk premium closing from both sides. So we continue to like strategies that involve earning the DM equity risk premium through long equity positions, while trying to protect against the risk that US yields increase more rapidly than we or the markets expect, or that the market worries again about Fed exit. While short bond positions are the most direct form of that exposure (including towards the front end), we have highlighted the advantage of finding assets that are likely to reward investors even without a sharp move in rates, but that may move more rapidly with such a move. Long USD positions against gold, and some EM and commodity currencies fall into that camp.4. Good carry, bad carryHigher growth, anchored inflation supportive of low volatility on averageRisk premium more obvious lower down the capital structureBut spikes in rate volatility are the primary risk to carry strategiesVariations in carry not perfectly aligned with fundamental riskMarket issues: Our 2014 forecast of improving but still slightly below-trend global growth and anchored inflation describes an environment in which overall volatility may justifiably be lower. Markets have already moved a long way in this direction, but equity volatility has certainly been lower in prior cycles and forward pricing of volatility is still firmly higher than spot levels. In an environment of subdued macro volatility, the desire to earn carry is likely to remain strong, particularly if it remains hard to envisage significant upside to the growth picture. As always, the primary challenge is to identify places where the reward clearly exceeds these – and other – risks. Given how far spreads have compressed, that may require moving down the capital structure and more deeply into illiquid areas than before. Parts of high yield (HY) credit and subordinated debt for banks offer some of that profile.We warned last year that termites were eating at the ‘search for yield’, particularly given the risk that longer-dated real risk-free rates could move higher. Even more than with long equity positions, this remains the primary risk to many carry strategies. But after a substantial shift already, the vulnerability to shocks here may ironically be lower than a year ago. We have made that argument in FX, where carry has more clearly increased in places and the underperformance of high-carry areas has increased. And we have shown in the EM context that some countries that offer similar carry in FX (or roll-down in rates) have very different fundamental risks.We remain wary of owning assets for carry purposes where we do not think the underlying asset also has scope to appreciate (or a low risk of depreciation). But there may be scope to fund ‘good carry’ out of ‘bad carry’ areas within asset classes: high-yield credits versus investment grade (IG), and the more vulnerable EM credits and currencies against other comparable carry equivalents (more on this below).5. The race to the exit kicks off2014 should see some DM and EM countries begin tighteningMarket may begin to move away from pricing a ‘synchronised’ exitSeparation may become a driver of relative currency movesNon-G4, EM likely to leadMarket issues: 2013 has already seen some EM central banks move to policy tightening. As the US growth picture improves – and the pressure on global rates builds – the focus on who may tighten monetary policy is likely to increase. As we described recently (Global Economics Weekly 13/33), the market is pricing a relatively synchronised exit among the major developed markets, even though their recovery profiles look different. Given that the timing of the first hike has commonly been judged to be some way off, this lack of differentiation is not particularly unusual. But the separation of those who are likely to move early and those who may move later is likely to begin in earnest in 2014.We currently expect New Zealand, Norway and Sweden to hike first within the G10 in the second half of 2014. We still expect Australia to go against the grain with one more cut in early 2014. Within the G4, we see conditions for exit in the UK arriving earlier (but still in late 2015) than the others, and we expect more easing from the Bank of Japan – most likely in April. There is also the prospect of a further shift towards easing in the Euro area through LTROs and perhaps a deposit rate cut, especially if deflationary forces are stronger than forecast. These patterns are partly reflected by the market, but market pricing of the change in policy rates between now and the end of 2016 in the US, UK, Euro area, Sweden, Canada and Australia is still quite tightly clustered.In general, our G4 forecasts are more dovish than the market, while our non-G4 views are not. We also expect Israel, Korea, Malaysia, Thailand and the Philippines within the EM universe to begin a tightening cycle in the second half of 2014. Our views on Israel and Korea in particular are more hawkish than the forwards in the next year or two. The growing separation of monetary policy profiles will likely be an increasingly important driver of relative currency moves. For instance, the logical upshot of our view of fresh easing by the BoJ (including purchases of equity ETFs) versus Fed tapering is support for another leg of $/Yen downside and Nikkei (and Topix) upside. A more positive view of the NZD versus the AUD is likely to be reinforced, and we may even see some of the weakness in the NOK and SEK from this year begin to reverse.6. Decision time for the ‘high-flyers’Stronger US, global recovery may highlight domestic imbalances elsewhereSmaller economies with housing/credit booms may face them more activelyFear of FX strength a constraint, but one that may be softeningMarket issues: A number of smaller open economies have imported easy monetary policy from the US and Europe in recent years, in part to offset currency strength and in part to compensate for a weaker external environment. In a number of these places (Norway, Switzerland, Israel, Canada and, to a lesser extent, New Zealand and Sweden), house prices have appreciated and/or credit growth has picked up. Central banks have generally tolerated those signs of emerging pressure given the external growth risks and the desire to avoid currency strength through a tighter policy stance. As the developed market growth picture improves, some of these ‘high flyers’ may reassess the balance of risks on this front.Macro-prudential tightening has been the instrument of choice so far, but these dynamics could lead to a faster switch towards earlier interest rate tightening than in other places, consistent with the previous theme. The currency has played an important role in the assessments of central banks in most of these places. For several of them, the ideal combination would be for rates to be higher and currencies weaker. Israel and Canada arguably fall into this camp, as perhaps do Switzerland and New Zealand. The question in these economies is whether improving growth in the US and Europe is sufficient to alleviate the upward pressure on their currencies, thereby increasing the room for domestic policy rate hikes. For Sweden and Norway, the need for currency weakness is less clear, so the issue may be a more straightforward one of whether a tighter policy stance overall is needed. Of course, paying rates in some of these areas where our views are hawkish is complicated by negative carry and the downward drag of the G4 zero-rate environment. Short positions relative to receiving in places where we have a dovish view are one way to offset the carry cost, although this introduces other risks.7. Still not your older brother’s EM...Despite asset shifts, further need to address imbalances in several countriesBouts of pressure on EM FX and rates likelyChina and rate risks are better known, so pressure may be less acuteBut EM unlikely to gain as much from global growth/low rates as they used toMarket issues: 2013 has proved to be a tough year for EM assets. 2014 is unlikely to see the same level of broad-based pressure. The combination of a sharp downgrade to expectations of China growth and risk alongside the worries about a hawkish Fed during the summer ‘taper tantrum’ are unlikely to be repeated with the same level of intensity. Moreover, after the initial shock and deleveraging and a significant repricing of assets, the fundamental vulnerabilities are lower. We still do not believe, however, that the adjustments in many places are complete.EM FX is the asset class where we are most cautious, and the bouts of pressure in US rate markets are likely to be reflected here most directly. Although forward FX carry is now generally higher – and hence shorts are more costly – in several countries, we think it does not offer enough protection relative to the fundamental depreciation risks. And the need for depreciation comes not just from US rate adjustment but from the need to improve current account deficits.Long-term yields in EM should continue to head north as curves steepen in the DM world. EM front ends are also likely to be at risk given the sensitivity to FX depreciation and US long rates in EM central bank reaction functions. But markets are pricing more tightening than we think central banks will deliver in many places – such as Turkey, South Africa and Brazil – and there may be periods in the year when the risk-reward for receiving rates in specific places improves. There may also be scope to combine receivers with long USD positions against EM currencies to offset some of the risks.EM equities are better placed relative to other EM assets. The acceleration in DM growth should continue to help EM activity and, in an equity-friendly environment globally, EM equities (in local currency) should move higher in 2014 outside of the bouts of pressure on EM FX and rates. But given the continuing need to address domestic and external imbalances, it is harder to make the case for EM equity outperformance relative to DM, which has tended to characterise environments of accelerating global growth over the past decade. At the aggregate level, EM credit is likely to continue to perform broadly in line with equities – as it has this year – but differentiation across credits is likely to increase (see the next theme).8. ...but EM differentiation to continuePenalties continue for CA deficits, low DM exposure, low GES, overheatingNot only the obvious candidates that need weaker currenciesDifferentiation even among the most vulnerable as policy response variesMarket issues: 2013 saw countries with high current account deficits, high inflation, weak institutions and limited DM exposure punished much more heavily than the ‘DMs of EMs’, which had stronger current accounts and institutions, underheated economies and greater DM exposure. This is still likely to be the primary axis of differentiation in coming months, but in 2014 we would also expect to see greater differentiation within both these categories.Within the most vulnerable countries, we could potentially see a greater separation between countries with credible tightening policies (Brazil, India) and those where imbalances are allowed to grow (Turkey). Places with hitherto sound, but deteriorating current account balances (Thailand and Malaysia) may be more affected, although they should be helped by the DM recovery; and the downside risks on commodities (which we discuss next) may exacerbate pressure on the commodity producers (South Africa and Chile). The EMs most likely to benefit from stronger DM demand (without being hurt by the higher rates that come in its train) are the underheated economies of Central and Eastern Europe (Poland, Czech Republic and Hungary), where we expect to see inflation-less accelerations, and Korea and Taiwan in North Asia.There is also likely to be increased focus on the small number of countries showing more classic EM-style problems. The macro environment in Venezuela is deteriorating rapidly and we expect a large devaluation and further credit pressure. Argentina’s macro backdrop is also unfriendly. And we continue to think that Ukraine will choose to devalue and seek external support in the coming months. Given the idiosyncrasies in each case, our central case is that these issues will not create much contagion. But they may make the market less patient than in the past with any signs that others are flirting with more heterodox policy paths. And we do think there is insufficient credit risk premium priced into some higher-debt EM countries, both absolutely and compared with lower-debt EM and perhaps also the peripheral European economies.9. Commodity downside risks growLower prices in metals, beans, gold – at least later in 2014Oil more stable but with downside riskShale still supporting demand pick-up from global recoveryCommodity producers still adjusting to the ‘new reality’Market issues: Last year we pointed to the ongoing shift in our commodity views, ultimately towards downside price risk. The impact of supply responses to the period of extraordinary price pressure continues to flow through the system. And we are forecasting significant declines (15%+) through 2014 in gold, copper, iron ore and soybeans. Energy prices clearly matter most for the global outlook. Here our views are more stable, although downside risk is growing over time and production losses out of Libya/Iran and other geopolitical risk is now playing a large role in keeping prices high. Relative to the past, shifting oil dynamics – especially increased shale production in the US – remain a key positive, in the sense that energy price constraints are unlikely to short-circuit an acceleration towards trend global growth. That continues to be an advantage for the recovery relative to the previous cycle.Translating these downside pressures in commodities into market views is complicated by two factors. First, we expect these pressures mostly to become visible later in 2014. On that basis, it may be difficult to position early given the natural volatility going into an improving growth picture. Second, for iron ore in particular – where our downside view is strongest – direct trading is difficult. However, we do think the shifts in these markets add to the downside pressures on several of the commodity currencies, including the AUD (iron ore, copper), ZAR (gold), CLP (copper) and perhaps BRL (soybeans, iron ore).These pressures are also likely to reinforce some of the other core themes discussed here – loosening what has been a key constraint on DM and global growth in recent years, keeping inflation subdued and preventing long rates from rising much above forwards. On the flipside, meaningful downside moves in oil and gold prices would alleviate some of the concerns around inflation and current account deficits in EMs such as India and Turkey.10. Stable China may be good enoughChina growth expectations have reset lowerStable but unimpressive growth may be enough to reassure for nowImproving external backdrop may see market overlook medium-term risksMore support for Asian economies and markets, especially equitiesMarket issues: Expectations of Chinese growth have reset meaningfully lower as some of the medium-term problems around credit growth, shadow financing and local governance have been widely recognised over the past year. Some of these issues continue to linger: the risks from the credit overhang remain and policymakers are unlikely to be comfortable allowing growth to accelerate much. But the deep deceleration of mid-2013 has reversed and even our forecast of essentially flat growth (of about 7.5%) may be enough to comfort investors relative to their worst fears. The details from the recent Third Party Plenum were also more encouraging about the prospects for further market liberalisation and rural/land reform, and have boosted market sentiment.At this juncture, the market pricing of China’s growth prospects is negative enough that this stability, alongside an improving external impulse, may be enough to be reassuring. Our China ‘risk factor’ has substantially underperformed market perceptions of US and Euro-related risks this year. If the market were to relax about China growth risk, this would help improve the case for EM equities and credit, and make long USD positions more risky. Our views on each of these areas remain a balancing act, as previous themes have elaborated, but this is one of the reasons why we are less negative across the board on EM assets, and why there is more need to discriminate across asset classes and countries. And so we are more open to China-sensitive exposures than last year, especially when they have other desirable features. We also think the continued strength of inflows will keep the CNY and CNH under upward pressure.Average: Your rating: None Average: 3.3 (3 votes)

Guest Post: Have A Merry DeGrowth Christmas--Boycott Black Friday

aSubmitted by Charles Hugh-Smith of OfTwoMinds blog,The "aggregate demand is God" Keynesian Cargo Cult fetish of focusing on holiday sales is worse than meaningless--it is profoundly misleading. Counting on strong holiday retail sales to "boost the economy" is like eating triple-paddy cheeseburgers and fries to lose weight. The last thing a debt-dependent economy needs is more borrowing to buy excess consumption, and the last thing an economy that imports most of the junk being purchased needs is empty-headed economists declaring that the purchase of more low-quality, mostly needless junk is anything other than a waste of money and resources. Since most of the junk (and it is junk--most Americans have either forgotten what actual quality is or they have never experienced it) is made overseas, the "boost" to the economy generated by rampant charge-card consumption flows to only one slice of the the U.S. economy: corporate profits. U.S.-based global corporations skim most of the profits made when junk is made overseas; how much profit do you think the Chinese and Taiwanese suppliers of the iPad and iPhone components make? If you guessed 1%-2% of their part of the cost, you're right. So if a $300 device costs $100 to actually manufacture in China, the Chinese suppliers make a dollar or two. Apple skims about $100 and the distribution/retail channels skim the other $100. I have covered this dynamic in depth over the years: for example: Trade with China: Making Out Like a Bandit (March 30, 2006)Much of China's manufacturing is owned and managed by foreign corporations. In effect, the companies aren't Chinese at all; only the workers are Chinese. Trade and "Trade War" with China: Who Benefits? (October 5, 2010) In effect, Black Friday is not about "deals," it's about padding already record-high corporate profits with excess consumption of 1) junk 2) needless stuff. Please, Santa, Let This Be the Last Christmas in America (that's supposed to "save" the U.S. economy) (November 23, 2010): The propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is "growing at a healthy clip."The entire retail sector is 7.9% of the GDP compared to a 21.4% share for the FIRE tranch (finance, insurance and real estate) of the economy.Santa, you have my deep gratitude if you could jam the propaganda machine so that this is the last Christmas in America where trivial retail sales are hyped as the bellwether for the $16 trillion U.S. economy. The "aggregate demand is God" Keynesian Cargo Cult fetish of focusing on holiday sales is worse than meaningless--it is profoundly misleading. What the economy needs is not more mindless debt-based consumption (the "aggregate demand" that the cargo cult sees as a "folk cure" for everything that's wrong with the economy) but the exact opposite: paying down debt, reducing the share of the national income skimmed by a parastic banking sector, a boycott of low-quality junk (i.e. 90% of what's bought on Black Friday) and an evolution beyond a model of "growth" that's dependent on ever-rising debt and consumption of needless junk made overseas to benefit Corporate America's bulging bottom line. If you missed my recent entry on the Degrowth movement in Europe, please check it out: Degrowth, Anti-Consumerism and Peak Consumption (May 9, 2013) The anti-consumerism Degrowth movement is gaining visibility and adherents in Europe. Degrowth (French: décroissance, Spanish: decrecimiento, Italian: decrescita) recognizes that the mindless expansion of mindless consumption fueled by credit and financialization is qualitatively and quantitatively different from positive growth. Degrowth is based on a number of principles:1. Consumerism is psychological/spiritual junk food (French: malbouffe) that actively reduces well-being (bien-etre) rather than increases it.2. Better rather than more: well-being is increased by everything that cannot be commoditized by a market economy or financialized by a cartel-state financial machine-- friendship, family, community, self-cultivation--rather than by acquiring more. The goal of economic and social growth should be better, not more. On a national scale, the cancerous-growth measured by gross domestic product (GDP) should be replaced with gross domestic happiness/ gross nation happiness (GNH). 3. A recognition that resources are not infinite, despite claims to the contrary. Even if fossil fuels were infinite and low-cost (cheerleaders never mention the external costs), fisheries, soil and fresh water are not. For one example of many: China Is Plundering the Planet's Seas (The Atlantic). Indeed, all the evidence suggests that access to cheap energy only speeds up the depletion and despoliation of every other resource. 4. The unsustainability of consumerist consumption dependent on resource depletion and financialization (i.e. the endless expansion of credit and phantom collateral). 5. The diminishing returns on consumption. Investing in clean air and water, public transit, universally accessible knowledge/information--these forms of consumption yield high returns in public health, affordable mobility, etc. Buying clothing to wear once or twice and then throw away does not. The investment in the rule of law, public infrastructure and universal access to clean air, water and education moves nations from developing to developed and greatly improves the material lives of the residents. Beyond this, consumption of resources offers diminishing returns up to a point of social/spiritual/ psychological derangement. Consumption beyond this point actively reduces well-being. 6. The failure of neoliberal capitalism and communism alike in their pursuit of growth at any cost. Both the religion of growth and its Cargo Cult enablers are merely superficial facades masking the real force: the expansion of global finance via financialization. Expanding capital, profits and power is the key agenda, and the quasi-religion of growth is just the public-relations narrative that mesmerizes the debt-serfs, political toadies and media sycophants. What does Degrowth mean in practical terms? Use the thing until it cannot be repaired. Don't ditch the mobile phone, auto, dress or digital device until it can no longer repaired. Buy local rather than than global-corporate whenever feasible. Crave less, need less, want less, resist the brainwashing of 24/7 marketing. Learn to become a person who does not need corporate-status signifiers for a sense of identity. What if Progress requires less consumption, less debt, less shopping-gives-me-meaning? A DeGrowth Christmas does not mean a "no gift" Christmas: it means either making gifts, regifting (making a gift of something that is perfectly usable or in many cases, still in the box), giving an experience (i.e. time with someone), or (at least in my opinion) giving a well-made tool or book that leverages new skills or new understanding. Does excess consumption really add that much to our lives? Goodness gracious, people, look in the closets of America--they're stuffed to the gills with clothing, shoes, sporting goods, etc. etc. etc. Even "poor people" have endless gadgets, multiple TV sets, etc. etc. Look at the storage units crammed with excess everything. There's a new documentary on DeGrowth: GrowthBusters: Hooked on Growth; free screenings are being held on Black Friday in select cities. 1:39 minute video on the documentary: Attack of the Zombie Shoppers. Of related interest: The Last Christmas in America (December 23, 2010) Average: Your rating: None Average: 4.4 (13 votes)

30 Minutes Later - Markets Tapering (Gold Limit Down)

aThe initial knee-jerk taper-on move was met with reactive buying (as per trading guru Steve Liesman's wisdom) but that hope bounce (really only seen in stocks) has faded now and assets are pressing their extremes. USD pushing higher, Treasury yields higher, stocks and gold lower... Of course, all it takes is for one algo to get the idea of pricing in the inevitable subsequent un-taper and to send the entire risk complex soaring. Silver is now below $20 and Gold is Limit Down

The Tapir Strikes Again

aWhile the Fed would dearly love the market to believe that "tapering is not tightening," the message of today's reaction to merely the sugestion that a taper is closer than 'some' believed says it all about how boxed in the Fed really is. US equities have retraced half the pre-Yellen ramp gains, US Treasury yields had their 2nd worst day in 5 months, gold (and silver) collapsed (limit down for a while); the USD jerked higher (+0.3% on the week). VIX and credit markets had been hinting that markets were restless and while today's drop was only 0.5%, the sad psychological truth is that given realized volatility, it is significant. The ubiquitous late-day ramp saved us from a "deer" day - but nether FX carry nor VIX supported that lift. This is the first 3-day losing streak for the S&P in 2 months.It just feels like a "deer" day... but not quite... Oops...Some context for today's move - from when the Yellen excitement began last week... Spot The Odd One Out...This morning's ECB negative rates comment broke the FX carry game - but the FOMC Minutes recoupled tyhat reality...Credit remains under-impressed and over-saturated - not exactly supportive of moar buybacks...and VIX remains bid...Off the debt-ceiling lows, things are rolling over... led by homebuilders (and it seems financials didn't get the mainstream edia memo that higher rates are good)Charts: BloombergBonus Chart: The last time China-US bonds were this far apart, Treasury yields hammered higher...(h/t Brad Wishak of NewEdge)Average: Your rating: None Average: 4.4 (7 votes)