Larry Summers On Why "Stagnation Might Be The New Normal"… And Bubbles

Larry Summers, who was nearly picked by Obama as the next Fed Chairman before for some inexplicable reason the Economist lobby deemed him “hawkish” and that he would put a halt to the Fed-Treasury cross monetization complex, is no stranger to providing hours of entertainment with his aphoristic quotes. Recall from October 2011, where he said that the solution to record debt is more debt:

The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending.” Larry Summers, source

Or his follow up from June 2012, where he submitted that insolvent governments can “improve their creditworthiness” by becoming more insolvent:

Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.”  Larry Summers, source.

This of course led to his pronouncement last month that the US economy needs “bubbles” to “grow“, which promptly won him accolades from none other than his former basher Paul Krugman, best known for this line from 2002: “To fight this recession the Fed needs…soaring household spending to offset moribund business investment. Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” Yes, somehow this person was seen as hawkish.

Either way, it seems Larry was modestly disgruntled with the prevailing assessment of the media world ascribing to him the title of the next Krugs, in proposing a policy of endless bubble booms and busts, and as a result, he decided to take to the pages of that hallowed bastion of “free and efficient markets”, the FT, to explain what he really meant. His full essay is below but the punchline is as follows:

Some have suggested that a belief in secular stagnation implies the desirability of bubbles to support demand. This idea confuses prediction with recommendation. It is, of course, better to support demand by supporting productive investment or highly valued consumption than by artificially inflating bubbles. On the other hand, it is only rational to recognize that low interest rates raise asset values and drive investors to take greater risks, making bubbles more likely. So the risk of financial instability provides yet another reason why preempting structural stagnation is so profoundly important.

Apparently “some” does not include Larry, but what his clarification seems to clarify, is that while proposing bubbles as a policy tool is short-sighted, should they indeed arrive (and many have stated that the current “stock market” on the back of $10 trillion in central bank liquidity and another $25 trillion in Chinese bank asset increases is nothing else), well then – we’ll cross that bridge when we come to it. In the meantime, “stagnation may be the new normal.” Stagnation for the 90% mind you – not the 10% whoe actually benefit day in and day out from the Fed’s ceaseless attempt to get the world to said bridge as fast as possible…

From Larry Summers:

In the past decade, before the crisis, bubbles and loose credit were only sufficient to drive moderate growth

Is it possible that the US and other major global economies might not return to full employment and strong growth without the help of unconventional policy support? I raised that notion – the old idea of “secular stagnation” – recently in a talk hosted by the International Monetary Fund.

My concern rests on a number of considerations. First, even though financial repair had largely taken place four years ago, recovery has only kept up with population growth and normal productivity growth in the US, and has been worse elsewhere in the industrial world.

Second, manifestly unsustainable bubbles and loosening of credit standards during the middle of the past decade, along with very easy money, were sufficient to drive only moderate economic growth.

Third, short-term interest rates are severely constrained by the zero lower bound: real rates may not be able to fall far enough to spur enough investment to lead to full employment.

Fourth, in such situations falling wages and prices or lower-than-expected are likely to worsen performance by encouraging consumers and investors to delay spending, and to redistribute income and wealth from high-spending debtors to low-spending creditors.

The implication of these thoughts is that the presumption that normal economic and policy conditions will return at some point cannot be maintained. Look at Japan, where gross domestic product today is less than two-thirds of what most observers predicted a generation ago, even though interest rates have been at zero for many years. It is worth emphasizing that Japanese GDP was less disappointing in the five years after the bubbles burst at the end of the 1980s than the US GDP has since 2008. In America today, GDP is more than 10 per cent below what was predicted before the financial crisis.

If secular stagnation concerns are relevant to our current economic situation, there are obviously profound policy implications. But before turning to policy, there are two central issues regarding the secular stagnation thesis that have to be addressed.

First, is not a growth acceleration in the works in the US and beyond? There are certainly grounds for optimism: note recent statistics, the strong stock markets and the end at last of sharp fiscal contraction. One should also recall that fears of secular stagnation were common at the end of the second world war and were proved wrong. Today, secular stagnation should be viewed as a contingency to be insured against – not a fate to which we ought to be resigned. Yet, it should be recalled that the achievement of escape velocity has been around the corner in consensus forecasts for several years and we have seen several false dawns – just as Japan did in the 1990s. More fundamentally, even if the economy accelerates next year, this provides no assurance that it is capable of sustained growth at normal real interest rates. Europe and Japan are forecast to have grown at levels well below the US. Across the industrial world, inflation is below target levels and shows no signs of picking up – suggesting a chronic demand shortfall.

Second, why should the economy not return to normal after the effects of the financial crisis are worked off? Is there a basis for believing that equilibrium real interest rates have declined? There are many a prior reasons why the level of spending at any given set of interest rates is likely to have declined. Investment demand may have been reduced due to slower growth of the labor force and perhaps slower productivity growth. Consumption may be lower due to a sharp increase in the share of income hel
d by the very wealthy and the rising share of income accruing to capital. Risk aversion has risen as a consequence of the crisis and as saving – by both states and consumers – has risen. The crisis increased the costs of financial intermediation and left major debt overhangs. Declines in the cost of durable goods, especially those associated with information technology, mean that the same level of saving purchases more capital every year. Lower inflation means any interest rate translates into a higher after-tax rate than it did when inflation rates were higher; logic is supported by evidence. For many years now indexed bond yields have been on a downward trend. Indeed, US real rates are substantially negative at a five year horizon.

Some have suggested that a belief in secular stagnation implies the desirability of bubbles to support demand. This idea confuses prediction with recommendation. It is, of course, better to support demand by supporting productive investment or highly valued consumption than by artificially inflating bubbles. On the other hand, it is only rational to recognize that low interest rates raise asset values and drive investors to take greater risks, making bubbles more likely. So the risk of financial instability provides yet another reason why preempting structural stagnation is so profoundly important.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/sv-XRJr4_mw/story01.htm Tyler Durden

Lack Of Cash Flows Ends Greek Export “Miracle”

While cash flows may be an anachronism in a time when the return of the dot com bubble means only future corporate prospects of growth matter, and the lower the actual profits or earnings the greater the upside stock potential due to ridiculous future PE multiples (flashing back to the year 2000), for some the lifeblood of success is still dependent on cash flow. Or the lack thereof. Such as Greece, where a brief episode known as the “Grecovery” driven by a recent export surge was put on indefinite hiatus where as Kathimerini says “exports run out of steam due to cash flow problems.” It explains: “The rise of Greek exports sadly proved short-lived, as the momentum observed in the last couple of years has all but vanished. Exporters estimate that 2013 will end with a rise of 3 to 4 percent. But that figure includes fuel products, and when they are taken out of the equation it turns into an annual drop of 2 to 3 percent.”

The loss of momentum is due to the cash flow problems Greek enterprises are facing, which are preventing them from reaching out to new customers. External factors also play a role: According to World Trade Organization estimates, the growth rate of global commerce will drop to 2.5 percent this year from an original forecast for 3.3 percent.

 

Even if we had large orders we would not have been able to fulfill them,” an exporter says. Acquiring raw materials from abroad remains difficult while the high energy costs are a major obstacle. The latest data from the monthly PMI index issued by Markit show that the inflow of new orders from abroad declined in November for a third consecutive month.

It’s always something. And better to have bled cash and exported than never to have exported at all, or whatever the saying is in a day when liquidity injections and made up trade data between China and Hong Kong mask the global trade flow contraction shown best by the following IMF chart “forecasting” future trade growth. Or the lack thereof.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6qx1pPGQZC8/story01.htm Tyler Durden

Lack Of Cash Flows Ends Greek Export "Miracle"

While cash flows may be an anachronism in a time when the return of the dot com bubble means only future corporate prospects of growth matter, and the lower the actual profits or earnings the greater the upside stock potential due to ridiculous future PE multiples (flashing back to the year 2000), for some the lifeblood of success is still dependent on cash flow. Or the lack thereof. Such as Greece, where a brief episode known as the “Grecovery” driven by a recent export surge was put on indefinite hiatus where as Kathimerini says “exports run out of steam due to cash flow problems.” It explains: “The rise of Greek exports sadly proved short-lived, as the momentum observed in the last couple of years has all but vanished. Exporters estimate that 2013 will end with a rise of 3 to 4 percent. But that figure includes fuel products, and when they are taken out of the equation it turns into an annual drop of 2 to 3 percent.”

The loss of momentum is due to the cash flow problems Greek enterprises are facing, which are preventing them from reaching out to new customers. External factors also play a role: According to World Trade Organization estimates, the growth rate of global commerce will drop to 2.5 percent this year from an original forecast for 3.3 percent.

 

Even if we had large orders we would not have been able to fulfill them,” an exporter says. Acquiring raw materials from abroad remains difficult while the high energy costs are a major obstacle. The latest data from the monthly PMI index issued by Markit show that the inflow of new orders from abroad declined in November for a third consecutive month.

It’s always something. And better to have bled cash and exported than never to have exported at all, or whatever the saying is in a day when liquidity injections and made up trade data between China and Hong Kong mask the global trade flow contraction shown best by the following IMF chart “forecasting” future trade growth. Or the lack thereof.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/6qx1pPGQZC8/story01.htm Tyler Durden

Frontrunning: December 16

  • Tough Question for Fed: Time to Act? (Hilsenrath )
  • Merkel Begins Third Term Strengthened by SPD Partner Backing (BBG)
  • Wary of Roma, Europe cold-shoulders its new eastern workmates (Reuters)
  • New Medicines Emerge, but Few Blockbusters (WSJ)
  • SIP in the crosshairs: U.S. Exchanges Near Deal for Infrastructure Upgrade (WSJ)
  • Secret Inside BofA Office of CEO Stymied Needy Homeowners (BBG)
  • AIG Said to Near Sale of Plane Unit to AerCap (BBG)
  • Inside the Saudi 9/11 coverup (NYPost)
  • Russian Bank Chief Weighs Firings as Costs Absorb Revenue (BBG)
  • Video Boom Forces Verizon to Upgrade Network (WSJ)
  • Chinese Manufacturing Slows (AP)
  • Euro-Area Factory Output Expands Faster Than Forecast (BBG)
  • Deal Reached to Shoot Avatar Sequels (WSJ)
  • GOP Incumbents Lean on Donors to Beat Back Primary Foes (WSJ)

 

Overnight Media Digest

WSJ

* A malfunctioning HealthCare.gov website and confusion over canceled policies have kept millions of Americans from choosing new health plans so far this fall. But with website access improving and the initial deadline to sign up for coverage looming Dec. 23, insurers are starting to blanket the airwaves and social media with glitzy ads urging consumers to buy their plans.

* American International Group Inc is in advanced talks to sell its jet-leasing business to AerCap Holdings for $3 billion in cash and a minority stake in the smaller, Netherlands-based company, said people with knowledge of the talks.

* Representatives of Amazon.com Inc workers in Germany will take their beef with the e-commerce giant to the United States on Monday, staging a protest at the retailer’s Seattle headquarters in tandem with strikes planned at Amazon sites in Germany.

* Bond investors are showing the most confidence in corporate America since the financial crisis, underscoring expectations that the U.S. economy will keep rolling as the Federal Reserve prepares to trim monetary stimulus. Purchasers of corporate debt are demanding the smallest interest-rate premium to comparable government bonds since 2007.

* U.S. exchanges are near an agreement to upgrade a central piece of the country’s trading infrastructure that critics say has been neglected and caused a serious market outage in August, according to people with knowledge of the discussions.

* After years of anemic productivity, pharmaceutical companies are launching new drugs at the fastest pace since the 1990s, including 39 last year alone. But there is a problem: selling the new drugs.

* Andrew Farkas’s recent venture in commercial real-estate brokerage is quietly downsizing its New York office. NAI Global, a network of more than 200 brokerage firms around the world, has reduced the number of brokers in its Manhattan office from 12 to four, according to people familiar with the matter.

* Hollywood may leave movie-goers feeling a little too stuffed this holiday season. Twelve movies are set to open at 500 theaters or more between Dec. 12 and Dec. 25, the highest number in recent time. Over the past decade, the number of movies opening nationwide in the two weeks leading up to Christmas has averaged fewer than 10.

* The leadership upheaval at BlackBerry Ltd continues under interim Chief Executive John Chen, according to people familiar with the matter. The smartphone makers’ executive vice president in charge of global sales, Rick Costanzo, will be leaving the company by early next year, while Chris Wormald, who was in charge of BlackBerry’s mergers and acquisitions strategy, will be gone by the end of this month.

* Oracle Corp has had a rocky year. On Wednesday, investors will get a better read on whether it was a blip, or if the competition is starting to dent the corporate-technology giant.

* Corporate acquirers are no longer willing to settle for “buyer beware.” In a number of recent mergers, acquirers have demanded unusually tight protection against undiscovered alleged criminal activity that could result in big fines or reputation hits down the road.

* The collapse of a regional Australian airline, Brindabella Airline, flying to remote mining towns has highlighted pressures facing companies that rode the wave of booming investment in resources but which have recently seen business dry up.

 

FT

Royal Bank of Canada, the country’s largest bank, is mulling over spinning off parts of its proprietary trading business, a move that demonstrates the long reach of the United States’ new Volcker rule against banks speculating with their own money.

Toshiba’s U.S. unit Westinghouse is close to announcing plans to buy Spanish utility Iberdrola’s 50 percent stake in British nuclear consortium NuGen for over 100 million pounds ($163 million), according to sources.

Vodafone’s Greek business has been slapped with a 250 million euro ($343 million) lawsuit claiming that the world’s No. 2 mobile operator breached its contracts with a Greek retail partner.

Sompo Japan Insurance is in advanced talks to buy the privately held Lloyd’s of London syndicate Canopius Group for about 600 million pounds.

Credit Suisse plans to back an online marketplace for investment banking and hedge fund software, highlighting the latest attempt by an investment bank to reduce the sector’s fast-rising technology costs.

 

NYT

* All across the country, booksellers have a Christmas wish: that the e-book thrill is gone. There is reason to believe it will come true. E-book sales have flattened in 2013, giving publishers and bookstores hope that consumers’ appetite for print books will be renewed during the most crucial sales period of the year.

* BigDog, Cheetah, WildCat and Atlas have joined Google’s growing robot menagerie. Google confirmed that it had completed the acquisition of Boston Dynamics, an engineering company that has designed mobile research robots for the Pentagon. The company has gained an international reputation for machines that walk with an uncanny sense of balance and even – cheetahlike – run faster than the fastest humans.

* A proposed $745 mi
llion tie-up between the Chinese supermarket operator Wumart Stores and C.P. Lotus, a retailer in China controlled by the Thai billionaire Dhanin Chearavanont, has fallen apart after the two sides failed to agree on final terms of the deal, both companies said Monday.

* Tim Armstrong, chief executive of AOL, is finally winding down Patch, a network of local news sites that he helped invent and that AOL bought after he took over.

* Budget Travel, the 15-year-old magazine that printed its last issue in October 2012, has spent 2013 fighting to survive in bankruptcy court. But it appears that Budget Travel may be turning a corner as it has found ways to generate revenue through digital subscriptions on iPad, Kindle, Nook and Android devices.

* Airbnb, which lets travelers rent accommodations in private residences worldwide, is introducing its first integrated, national advertising campaign on Monday, using birds and bird houses as a metaphor for its customers and their accommodations.

* The bond between banker and diamond dealer has long been a cozy one in an industry shaped by an insular culture of carats and cash, secrets and intrigues, weddings and bar mitzvahs. But lately those old bonds are dissolving in the packed square mile of gem traders here that forms the hub of the global diamond industry. A flurry of legal cases, investigations and leaked bank documents have drawn attention to the opaque movement of diamond-backed money.

* Established electronics retailers have gone to great lengths in recent months to overhaul their stores. And the heavyweights behind many of the devices – the Microsofts, Googles and Intels – have moved to open retail stores of their own. Behind all the investments in retailing is one of the technology industry’s favorite buzzwords: “user experience.”

 

Canada

THE GLOBE AND MAIL

* Ontario Progressive Conservative Leader Tim Hudak is pledging to put subway construction at the top of the government’s priority list – and move other infrastructure projects down – in a bid to break gridlock in the Toronto region.

* The federal government’s proposal to create a national securities watchdog is a violation of the Constitution and an intrusion into a provincial jurisdiction that defies a recent a Supreme Court of Canada ruling, says Quebec Finance Minister Nicolas Marceau.

Reports in the business section:

* Prince Edward Island is floating a plan to delay the launch of an expanded Canada Pension Plan to 2018 in a bid to forge a consensus among the provinces, and to push the federal government to act in reforming retirement benefits.

* They may take home huge paychecks, but Canada’s top CEOs are also writing big checks to cover their income tax bills. The chief executive officers of Canada’s 60 largest companies paid about $2.5 million each in income tax in 2010 on average total compensation of $6.2 million, according to a new study by compensation consulting firm McDowall Associates.

* Barrick Gold Corp is seeking to align the bulk of its executives’ compensation with the gold company’s performance and is expected to require top managers to hold their stock until retirement.

NATIONAL POST

* Police would have the option of ticketing people for a range of minor offences – instead of laying criminal charges – under a plan that could yield significant savings for the cash-strapped justice system.

* Canada’s newest union has expanded its membership to include everyone. Unifor – Canada’s largest private sector union, which formed on Labor Day from the existing Canadian Auto Workers and Communications, Energy and Paperworkers Union of Canada – has opened its doors to part-time workers, the self-employed, those without a job and even political activists by asking people to organize “community chapters” around a common cause, rather than an employer.

FINANCIAL POST

* Canada Post’s $6.5 billion pension shortfall is just a fraction of the more than $150 billion in unfunded pension liabilities facing the federal government for its employee pension plans, raising new questions about the solvency of those plans, benefits for workers and costs for taxpayers.

* WestJet Airlines Ltd has big plans to push into the East in 2014 by expanding its new low-cost regional carrier Encore in the spring, and launching flights to Europe from Atlantic Canada next summer. To accommodate these changes, WestJet will establish bases in Vancouver and Toronto, in addition to Calgary, early next year.

 

China

CHINA SECURITIES JOURNAL

– National Development & Reform Commission, China’s top planning body, said the country will allocate more resources for fundamental and strategic projects such as railway construction and low-income housing projects, while cutting investments in smaller projects in competitive sectors.

SHANGHAI DAILY

– China’s lunar lander and the rover it carried have sent back photos they took of each other to Earth.

CHINA DAILY

– China’s top drug administration is holding back 450,000 hepatitis B vaccines after two babies died following injections last week. Officials said no clear link has been established between the vaccines and the deaths.

PEOPLE’S DAILY

– In order to improve the work ethics of party members, institutional mechanisms must also change, said a commentary in the paper that acts as the party’s mouthpiece.

CHINA FINANCE NETWORK

Central Huijin Investments, a government-owned asset management firm, has quietly increased its holdings in New China Life Insurance and Everbright Bank.

 

Britain

The Telegraph

STANDARD CHARTERED FORCED BY BANK TO STRIP TOP EXEC OF RISK ROLE

The Bank of England has forced Standard Chartered to strip its finance director, Richard Meddings, of his responsibility for risk at the emerging markets-focused lender.

JAPAN’S SOMPO DUE TO BUY INSURER CANOPIUS

The Lloyd’s of London insurer Canopius is expected to be bought by Sompo Japan Insurance for 100 billion yen($969.56 million) this week.

ADIDAS MAY CUT SPORTS DIRECT FROM SUPPLY OF WORLD CUP 2014 FOOTBALL SHIRTS

Adidas may refuse to supply Sports Direct with Argentina, Germany and Spain football shirts ahead of the 2014 World Cup over concerns about the state of the discount retailer’s stores and customer service.

BIRDS EYE OWNER ASKS LENDERS FOR EXTRA BREATHING SPACE

Iglo, the debt-laden company behind Birds Eye frozen food, has asked its lenders for extra breathing space as its new chief executive, Elio Sceti, seeks to double sales by 2020.

The Guardian

INSURANCE FIRM RSA DENIES INVESTOR DEMAND FOR SALE

The troubled insurance firm RSA has denied that leading shareholders have demanded it put itself up for sale but admitted it was considering its options, including disposals and cost cuts.

VIRGIN MONEY TO ENTER CURRENT ACCOUNT MARKET

Virgin Money, the financial services company that took over Northern Rock, is expected to offer current accounts for the first time next year.

The Times

BOOST FOR JOHN LEWIS AS CHRISTMAS APPROACHES

Demand for sofas and carving trays helped John Lewis to post a 1.4 percent year-on-year rise in sales in the week to Dec. 14. Sales of 149.9 million pounds ($244.01 million) were up 12.6 percent on two years ago and an increase of 3.7 percent compared with last week’s figures.

FRACKERS SEEK COMIC RELIEF IN DISHING OUT BENEFIT FUNDS

The shale gas industry is in talks with the organisation that distributes donations on behalf of Sport Relief and Comic Relief to run its proposed 1.1 billion pound community benefit fund.

 

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Allison Transmission (ALSN) upgraded to Buy from Neutral at BofA/Merrill
CRH Plc. (CRH) upgraded to Neutral from Underperform at BofA/Merrill
Charles Schwab (SCHW) upgraded to Equal Weight from Underweight at Evercore
Citigroup (C) upgraded to Overweight from Equal Weight at Evercore
Exxon Mobil (XOM) upgraded to Buy from Neutral at Goldman
FMC Technologies (FTI) upgraded to Neutral from Sell at Goldman
Fidus Investment (FDUS) upgraded to Strong Buy from Outperform at Raymond James
Fifth Street Finance (FSC) upgraded to Overweight from Equal Weight at Barclays
Fifth Third Bancorp (FITB) upgraded to Overweight from Equal Weight at Evercore
Lumber Liquidators (LL) upgraded to Buy from Neutral at Goldman
Monster Beverage (MNST) upgraded to Top Pick from Outperform at RBC Capital
Moody’s (MCO) upgraded to Overweight from Equal Weight at Barclays
Oceaneering (OII) upgraded to Buy from Neutral at Goldman
Old Dominion (ODFL) upgraded to Buy from Hold at Deutsche Bank
St. Jude Medical (STJ) upgraded to Outperform from Market Perform at BMO Capital
TASER (TASR) upgraded to Overweight from Neutral at JPMorgan
Yum! Brands (YUM) upgraded to Outperform from Market Perform at Bernstein

Downgrades

AMD (AMD) downgraded to Underperform from Perform at Oppenheimer
Aveo (AVEO) downgraded to Underperform from Sector Perform at RBC Capital
Broadcom (BRCM) downgraded to Perform from Outperform at Oppenheimer
Cirrus Logic (CRUS) downgraded to Underperform from Perform at Oppenheimer
Con-way (CNW) downgraded to Hold from Buy at Deutsche Bank
Hercules Technology (HTGC) downgraded to Market Perform at Raymond James
Jazz Pharmaceuticals (JAZZ) downgraded to Neutral from Buy at Goldman
Leap Wireless (LEAP) downgraded to Equal Weight from Overweight at Barclays
Marathon Oil (MRO) downgraded to Neutral from Buy at Goldman
Navistar (NAV) downgraded to Neutral from Outperform at RW Baird
Nielsen (NLSN) downgraded to Market Perform from Outperform at BMO Capital
PNC Financial (PNC) downgraded to Equal Weight from Overweight at Evercore

Initiations

Analogic (ALOG) initiated with a Buy at Brean Capital
Avianca (AVH) initiated with a Buy at Citigroup
Evogene (EVGN) initiated with a Neutral at Piper Jaffray
Impax (IPXL) coverage resumed with a Buy at Goldman
Navigator Holdings (NVGS) initiated with a Buy at Jefferies
Navigator Holdings (NVGS) initiated with an Overweight at Evercore
PVH Corp. (PVH) initiated with a Buy at UBS

HOT STOCKS 

AerCap (AER) to acquire ILFC from AIG (AIG) for $3B in cash, 97.56M shares
Harvest Natural (HNR) reported share purchase agreement to sell interests in Venezuela
Carlyle Group (CG) committed up to $200M in Discover Exploration Limited
CME Group (CME) announced solution to delivery gap in Treasury futures
IBM (IBM) said will ‘vigorously fight’ lawsuit by Louisiana Sheriffs’ Pension Fund
GSK (GSK) initiated offer to increase stake in Indian subsidiary
Alaska Air (ALK), flight attendants tentatively agreed on five-year contract

NEWSPAPERS/WEBSITES

  • Fed officials face a delicate decision at their policy meeting this week, with stronger economic figures and a Washington budget deal adding fuel to the debate over whether to pull back on their signature bond-buying program, the Wall Street Journal reports
  • With HealthCare.gov website access improving and the initial deadline to sign up for coverage looming December 23, insurers are starting to blanket the airwaves and social media with glitzy ads urging consumers to buy their plans (WLP, AET, CI, WPPGY, IPG), the Wall Street Journal reports
  • Telecom Italia (TI) has not received information from BlackRock (BLK) regarding an increase in its stake in the Italian telecoms group to 10.14%. That stake would make BlackRock the second biggest shareholder in Telecom Italia, and give it a potentially pivotal role at a shareholder vote on Friday on whether to oust the company’s board, Reuters reports
  • Workers at Amazon.com’s (AMZN) German operations were set to go on strike today in a dispute over pay that has been raging for months. A delegation of German workers will also protest at Amazon’s headquarters in Seattle, helped by U.S. workers unions, Reuters reports
  • U.S. and Hong Kong stock market regulators are demanding that Chinese companies provide investors more warnings about the risks of a legal structure commonly used to list those shares overseas. The SEC pressed Baidu Inc. (BIDU) to make additional disclosures about its corporate structure, citing the potential for foreign owners to lose control, Bloomberg reports
  • Facebook (FB), Wal-Mart (WMT) and other companies planning to use facial-recognition scans for security or tailored sales pitches will help the Commerce Department write rules for how images and online profiles can be used, Bloomberg reports

BARRON’S

PayPal could drive eBay (EBAY) stock 20% higher
YPF SA (YPF) could be worth three times its current price
Innophos Holdings (IPHS) could rise 30%
Hilton Worldwide (HLT) looks expensive
athenahealth (ATHN) will probably report losses this year, next year
Time to take profits in Deckers Outdoor (DECK)

SYNDICATE

Kips Bay Medical (KIPS) files to sell 539,620 shares for holders
RMG Networks (RMGN) files to sell 150,000 shares for holders


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8FMSnP_0VO0/story01.htm Tyler Durden

Obama Needs Help From Islamic Front For Diplomacy To Succeed in Syria

A recent
op-ed
by Doyle McManus of the Los Angeles Times, who
advocated for increased U.S. intervention in Syria
back in March
, highlights an uncomfortable reality relating to
the Obama administration’s policy on Syria:

For the Obama administration’s diplomacy to succeed, it now
needs help from an armed group with the unpromising name of the
Islamic Front.

The Islamic front has been the subject of increased attention
recently. Last week, it was reported that the U.S and the U.K. were

suspending their aid to rebels in northern Syria
after members
of the Islamic Front captured bases held by the Free Syrian Army,
the rebel group backed by the U.S.

In the wake of the news that the Islamic Front were expanding
their foothold in northern Syria
stories

emerged
that the Free Syrian Army’s Gen. Salim Idris had fled
Syria. Idris has
denied the reports
, saying that he moved to an office on the
Turkish border.

McManus quotes  Andrew J. Tabler of the Washington
Institute for Near East Policy, who characterized the Islamic Front
as “Salafists but not extremists.” However, while the Islamic Front
may not be directly linked to Al Qaeda-linked groups, the BBC
reports
that they are open to working with them.

If, as McManus says, the Obama administration’s diplomatic
efforts in Syria will rely on help from the Islamic Front, it is
another sign that the U.S. should be less involved in the Syrian
conflict given their desire to establish an Islamic state
in a post-Assad Syria. 

Regardless of what policy the Obama administration decides to
pursue, it is unlikely that the Saudis are going to stop sending
lethal military aid to Assad’s opposition, including groups like
the Islamic Front. Over at
The Daily Beast
, Jamie Dettmer has written about the worrying
groups being helped by the Saudis and the number of Saudis who have
traveled to Syria to take part in the conflict. Dettmer also quoted
an unnamed American intelligence official, who said that Saudi
involvement in the Syrian conflict could result in Afghanistan-like
blowback:

The Saudis are in jeopardy of repeating history, says an
American intelligence official who declined to be named for the
article. “There was blowback for the Saudis from jihadists fighting
in Afghanistan in the 1980s and that could happen again.”

As horrific as the situation in Syria is, the reality is that it
remains a bad environment for increased U.S. intervention. McManus
points out that the Obama administration’s most likely policy,
which will reduce the risk of direct U.S. military involvement,
will not end the suffering and the dangers posed by
“jihadist mini-armies” in Syria.

from Hit & Run http://reason.com/blog/2013/12/16/obama-needs-help-from-islamic-front-for
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Overnight Ramp Capital Defends 50 DMA, Sends Futures Surging On Latest Low Volume Melt Up

Following last night’s freak central-planning accident (previously in history known as “selling”) in the S&P futures, we said that “we expect Overnight Ramp Capital to arrive promptly or else confidence in central-planning may take a hit ahead of the Wednesday Taperish FOMC, and Thursday’s double POMO.” A few hours later, even we were surprised by how high the low volume tape managed to drag ES, which staged a dramatic 20 point comeback, on the back of a sharp reversal in FX driven higher by both a stronger Euro (helped by better than expected German and Eurozone PMIs offsetting China PMI weakness, and lack of optimism in the core Japanese Tankan) and a weaker Yen, the two key signals for E-mini directionality. Sure enough, at last check the futures we trading just why of the “independence day” 1776, after briefly breaking the 50-DMA and then being supported by 1760 in the futures. The rest is perfectly predictable central-planning history.

Summarizing, tonight’s action, FOMC week has kicked off with Asian markets down after a lower than expected Chinese manufacturing PMI, raising fears that the Chinese economy may not be picking up steam as well as some anticipated. This lead to the previously reported big block trade in the S&P futures which tested the 50 DMA. The Nikkei closed down -1.6%, the Hang Seng is down -0.6% and the Shanghai Composite is down -1.6%.

However, European easily equities shrugged off a risk-averse Asia-Pacific trading day after Tokyo trade saw a break of the 50DMA in S&P futures saw a significant block trade passing through, sending the US equity futures and regional indices lower in a poor start to the week. European equities capitalised on the losses amid touted bargain-hunting to register gains at the mid-point of the session. The telecoms sector tops the board after reports that Sprint could be eyeing Deutsche Telekom’s T-Mobile US unit, and news that US fund BlackRock have acquired a significant stake of Telecom Italia’s equity. As was the case last week, volumes remain particularly thin, with traders sitting on the side-lines ahead of the FOMC rate decision on Wednesday. European fixed income markets trade flat after pulling back from intraday highs as German Manufacturing PMI exceeded expectations, driving the Eurozone-wide figure forward and countering France’s disappointing submissions.

Markets continue to reprice their Fed taper expectations, as Goldman Sachs reaffirm their call for a March taper due to low inflation, a preference for stronger forward guidance and the minority view of a December taper.

The rest of today’s session looks ahead to empire manufacturing and industrial production data from the US ahead of a scheduled appearance from the Fed Chairman Ben Bernanke at 1900GMT/140EST, although it is highly unlikely he will make any reference to policy ahead of the convening of the FOMC tomorrow. ECB’s Draghi is scheduled to speak in front of European parliament at 1400GMT/0900EST

Event Calendar

  • ECB president Draghi speaks at the EU Parliament (9:00)
  • Empire mfg survey, cons 5.0 (8:30)
  • Industrial output, cons 0.6%, capacity use, cons 78.4% (9:15)
  • Markit PMI, cons 55.0 (8:58)
  • TIC capital flows, cons $40bn (9:00)
  • POMO:  Fed to purchase $2.75b-$3.5b in 2021-2023 sector (11:00)

Overnight headline bulletin from Bloomberg and RanSquawk

  • European equities shrugged off a risk-averse Asia-Pacific trading day following the release of a better than expected German and Eurozone Manufacturing PMIs.
  • Goldman says first Fed tapering move is more likely in March, with the taper this week unlikely because the case for tapering is mixed on basis of data since Oct.
  • Early USD weakness was further exacerbated by the possibility of repatriation flows for EUR as banks prepare for the ECB’s Asset Quality Review.
  • Treasuries gain, 30Y leads, as market waits Wednesday’s Fed decision on QE purchases and interest rates; views on tapering are split after jobs data; roundup here.
  • 10Y yield little changed over five trading days ended Dec. 13; on Thursday closed at highest since Sept. 13 after retail sales data suggested a higher probability of Fed taper
  • After misleading investors with a time line for tapering its unprecedented stimulus, the Fed now is stressing that any reduction in bond purchases will depend on the economic outlook — and the message is sinking in
  • HSBC/Markit’s index of Chinese manufacturing fell to 50.5 in Dec., a three-month low, from 50.8 the previous month and median est. of 50.9 in Bloomberg survey
  • Euro-area factory output rose to 52.7 in Dec. from 51.7 in Nov., median est. 51.9; Germany led, with PMI manufacturing at 54.2 vs est. 53.
  • Large Japanese businesses pared their projections for capital spending this fiscal year, signaling challenges for Abenomics as a sales-tax increase looms in April
  • The London housing market will cool next year as a proposed tax on property sales limits demand from overseas buyers, Rightmove Plc said
  • The Obama administration last year took longer than normal to clear rules ranging from environment protection to food safety, a shift that an advisory body says may have been politically motivated
  • The U.S. failed to send data to health insurers for about 15,000 people who enrolled in Obamacare through early December, an error corrected this week before it could jeopardize their coverage, the government said
  • Sovereign yields mostly lower. EU peripheral spreads steady. Asian stocks decline; European stocks and U.S. equity index futures gain. WTI crude and copper higher; gold declines

Asian Headlines

Chinese HSBC Flash Manufacturing PMI (Dec) M/M 50.5 vs. Exp. 50.9 (Prev. 50.8); 3-month low.

China have set their 2014 growth target at about 7.5%. China’s economy is still under downward pressure and the country should keep its policies stable and flexible, paving the way for further reforms, according to a statement from the annual Central Economic Work Conference which sets the tone for next year’s macroeconomic policies.

Japanese Tankan Large Manufacturers Index (Q4) Q/Q 16 vs. Exp. 15 (Prev. 12); Highest level in 6-years.

Japan may set FY 2014 real GDP growth estimate at 1.3% from 1.0% after considering the impact of the stimulus package.

EU & UK Headlines

ECB’s Draghi said ECB is ready and able to take further action to stimulate growth and sees Euro area growth of 1.1% in 2014 and 1.5% in 2015.

ECB’s Asmussen said he will resign as ECB board member shortly, saying he has accepted an offer to become deputy labour minister in the new German government. There were also reports that Bundesbank VP Sabine Lautenschlaeger is to replace Asmussen in ECB.

German SPD members back coalition with Merkel’s CDU-CSU bloc, with 76% of the vote, clearing the way for a German coalition.

German finance minister Schaeuble says main goal for next 4 years to stabilize Euro area.

Bundesbank expects German economy to expand strongly in Q4 2013 and Q1 2014 with an expected piku up in industrial production, particularly cars.

Rightmove said that asking prices for houses in England and Wales could climb next year at their fastest rate since 2006, rising another 8% due to shortage of homes on the market

German PMI Manufacturing (Dec A) M/M 54.2 vs Exp. 53.0 (Prev. 52.7) – German PMI Services (Dec A) M/M 54.0 vs Exp. 55.3 (Prev. 55.7)

Eurozone PMI Manufacturing (Dec A) M/M 52.7 vs Exp. 51.9 (Prev. 51.6)

– Eurozone PMI Services (Dec A) M/M 51.0 vs Exp. 51.5 (Prev. 51.2)
– Eurozone PMI Composite (Dec A) M/M 52.1 vs Exp. 51.9 (Prev. 51.7)

French PMI Manufacturing (Dec P) M/M 47.1
vs Exp. 49.0 (Prev. 48.4)

– French PMI Services (Dec P) M/M 47.4 vs Exp. 48.7 (Prev. 48.0)

Eurozone Trade Balance SA (Oct) M/M 14.5bln vs Exp. 14.5bln (Prev. 14.3bln, Rev. 12.4bln)

– Eurozone Trade Balance NSA (Oct) M/M 17.2bln vs Exp. 15.0bln (Prev. 13.1bln. Rev. 10.9bln)

US Headlines

Goldman says first Fed tapering move is more likely in March, with the taper this week is unlikely because the case for tapering mixed on basis of data since Oct.

Fed watcher Hilsenrath said that Fed officials face a delicate decision at their policy meeting this week, with stronger economic figures and a Washington budget deal adding fuel to the debate over whether to pull back on their signature bond-buying program. Hilsenrath added that whenever the Fed starts winding down the bond program, it is clear it is on the way toward removing a tool that has been the market’s crutch for more than a year. Mr. Bernanke might start the process, but it will be Ms. Yellen’s job to finish it.

US Senate Majority Whip Durbin says Senate Democrats are still short of the votes needed to pass the bipartisan budget deal that was passed by the House of Representatives last week.

Republicans are gearing up for a new fight with President Obama over the need to lift America’s borrowing limit early next year, raising concerns that the fiscal truce established in last week’s bipartisan deal may be shortlived.

Equities

European equities have continued to rise in recent trade amid light volumes and initially being red across the board in early trade following the risk off sentiment seen across the Asia session. In terms of sectors, financials are one of the top performers this morning following a slight altering in the Fed taper timeline after Goldman Sachs  said the central bank is likely to hold off from tapering its USD 85bln monthly bond-buying program until next year. Aggreko are the outperforming stock this morning after the Co. said FY likely to be ‘slightly’ ahead of expectations.

Deutsche Telekom are also seen with gains after reports for T-Mobile US, which the co. owns a 66.83% stake in, Sprint are said to be working for a bid for T-Mobile US.

FX

From an FX perspective, the USD index is seen down around 0.25%, after initially being lead lower by USD/JPY after printing multi-year highs last week, with focus remaining on this week’s FOMC decision. As European participants came to market, early USD weakness was further exacerbated by the possibility of repatriation flows for EUR as banks prepare for the ECB’s Asset Quality Review. Furthermore, this morning’s three-month Euribor fix showed another increase as it came in at 0.290% vs. Prev. 0.282%. It is worth noting that overnight, AUD was initially pressured by the weaker than expected Chinese PMI data and comments from RBA Stevens that the government are to abandon their budget surplus targets. However, AUD did recover as it came in to strong bids towards 0.8900.

Commodities

WTI and Brent futures are trading higher with attention placed upon comments from Eastern Libya rebel leader Jedran said oil ports are not to reopen after the Libyan government did not meet conditions for handover of control.

Iraq are currently producing 3.3mln bpd of oil and are targeting more than 4mln bpd of crude next year according to deputy PM Al-Shahristani.

The Keystone XL pipeline has lost support from Continental Resources, one of the companies committed to ship crude on the pipeline, after they said the XL pipeline is no longer needed.

* * *

DB’s Jim Reid concludes the overnight recap

So all eyes on 2pm EST (7pm GMT) Wednesday as the 2-day FOMC meeting concludes with a knife-edge decision. It’s worth reminding readers that our Chief US Economist Peter Hooper thinks that the Fed might not make their final decision until after tomorrow’s CPI is known to them. Peter argued on DB’s World Outlook call last week that three of four criteria for the Fed to start tapering now look to be met, with the only missing element being their commitment to keeping inflation on target, which is an important miss in our eyes, especially in an era of very high debt. The other three that Peter sees as being met are (1) a significant improvement in the labour market, (2) confidence that the economic recovery is self sustaining (very close, especially with recent data), and (3) the removal of fiscal uncertainty (the deal over the past week has lessened concerns significantly).

With regards to inflation, Friday’s PPI number left YoY PPI and core PPI at just  +0.7% and +1.3% respectively against consensus of +0.8% and +1.4%. Given the Fed’s dual mandate recent low inflation numbers are a genuine reason not to taper if the Fed believe they will be sustained into 2014. However most of their forecasts see it climbing higher with the economy next year so they could excuse the current low prints if they were so minded and assume it will improve but it would help their argument if tomorrow’s CPI wasn’t weak. Consensus is expecting a +1.3% number for the YoY CPI number and +1.7% for YoY Core CPI. So a possible pivotal release tomorrow.

Ahead of this, FOMC week has kicked off with Asian markets down after a lower than expected Chinese manufacturing PMI, raising fears that the Chinese economy may not be picking up steam as well as some anticipated. As we type the Nikkei is down -1.1%, the Hang Seng is down -0.5% and the Shanghai Composite is down -1.4%. Credit is marginally outperforming, with the Asia XJ index tighter by around 1.4bps.

Over the weekend the tensions in the East China Sea went up another notch after Japanese PM Abe stated after an ASEAN summit that China’s new air defence identification zone was a violation of international law. China responded by expressing their, “strong dissatisfaction,” with his comments. The concern is that whilst direct confrontation seems extremely unlikely China’s new defence zone has certainly raised the chances that a miscalculation by either side in this hotly contested area could see tensions rise to dangerous heights. In Europe members of Germany’s SPD party voted overwhelmingly to back the SPD’s planned coalition with Merkel’s CDU which should see the new Grand Coalition government take office this week as Merkel presents here new government to the Bundestag on Tuesday.

European equity markets were marginally down and US markets slightly positive on Friday after a weak open stabilised later in the day helped in part by the low US PPI number which softened some taper expectations. Credit outperformed on the day, with Europe’s Main, Xover and US CDX HY all tighter by 1bp, 6bps and 3bps respectively after European credit opened strongly following a weak Thursday.

In terms of news flow Friday saw reports that the US Congress had reached an agreement on legislation (known as Trade Promotion Authority) to allow fasttrack votes in 2014 if the White House achieves its aim to agree new trade deals with both the EU and Pacific Rim nations (the TPP deal). The bill will be put to a vote in January and if passed would allow any trade deals to face a simple up-or-down vote and stop Congress from adding amendments to the deal. This should help the US reach trade agreements as it will ease other nations concerns that any deal they reach with the US President will be altered significantly by Congress. As the FT reports, this Trade Promotion Authority legislation is a controversial subject and will likely see fierce battles in Congress in the new year. Looking ahead if the US can agree trade deals with European and Pacific Rim nations in 2014, these with the recent Doha agreements have the chance to provide a positive tailwind for global growth in the medium- and long-term.

With what continues to be a busy December for us here it’s good to see that economic data isn’t slowing down yet for Christmas eit
her in what will be a busy week of data releases. In the US, today will see Empire Manufacturing, Nonfarm Productivity and an important US PMI Preliminary number (consensus is expecting a rise to 55). As we’ve already flagged Tuesday will see CPI data and Wednesday we will get the Fed’s rates and purchase decision. On Thursday we have initial jobless claims before Friday’s Q3 GDP revisions and PCE data. In Europe today we have PMI’s for Germany and the Eurozone. UK and Eurozone inflation data will be released on Tuesday and we’ll have theBank of England’s minutes on Wednesday. Nevertheless, all eyes will be on the Fed’s decision on Wednesday


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ODcBAOgnGFg/story01.htm Tyler Durden

Steve Chapman on the Phony Promise of Minimum Wage Hikes

Crumpled dollarIf you offer people something that is too good to
be true, you will always find takers. Ask Bernie Madoff. Or ask
Barack Obama, who recently proposed an increase in the minimum
wage. That’s an idea that suits the natural predilections of many
people enough to distract them from the unsentimental and unwelcome
logic of economics, writes Steve Chapman. The proposal rests on the
assumption that the government can decree the price of a
commodity—in this case, labor—in defiance of the dictates of the
market, without ill effects. But that view requires a heroic
suspension of disbelief.

View this article.

from Hit & Run http://reason.com/blog/2013/12/16/steve-chapman-on-the-phony-promise-of-mi
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Brickbat: What Are You Looking At?

A man in Barcelona,
Spain, claims police fined him 90 euros for looking
at a discarded painting
. Public defender Maria Assumpció Vilàs
says cops charged him with rummaging through trash but the painting
had actually been left next to a bin.

from Hit & Run http://reason.com/blog/2013/12/16/brickbat-what-are-you-looking-at
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Fayette County arrests report – Dec. 3–9

The following arrests were reported by local law enforcement agencies for the past week. All persons are considered innocent until proven guilty. Rather than indicating the age of those arrested, only the year of birth will be noted below due to law enforcement procedural changes.

Tuesday, Dec. 3 – Monday, Dec. 9

Fayette County Sheriff’s Office

Heather L. Briggs, born in 1974, of Sandy Lane, Brooks, for driving with suspended registration, state drug law violation, no insurance and less than an ounce of marijuana.

read more

via The Citizen http://www.thecitizen.com/articles/12-16-2013/fayette-county-arrests-report-%E2%80%93-dec-3%E2%80%939

PTC buys 7 new police cars for fleet

Peachtree City will be getting new police cruisers after a $199,290 bid was approved for seven new Chevy Caprice models last week.

The low bid came from Brannen Motor Company, who underbid the state contract holder by nearly $800 per vehicle. It was unanimously approved last week by the Peachtree City Council.

The city expects to spend another $196,000 equipping the seven new cars with video cameras, radios, graphics and other aftermarket accessories. The other accessories including emergency lights, sirens, prisoner cages, radars, gun mounts and a push bumper.

read more

via The Citizen http://www.thecitizen.com/articles/12-15-2013/ptc-buys-7-new-police-cars-fleet