Category: zerohedge

David Stockman’s exclamation at the “betrayal” realized within the latest so-called “festerng fiscal” budget deal is taken a step further with Peter Schiff’s head-shaking diatribe on Congress’ inability to show that it is truly “capable of tackling our chronic and dangerous debt problems.” So America blissfully sails on, ignoring the obvious fiscal, monetary, and financial shoals that lay ahead in plain sight. I believe that will continue this dangerous course until powers outside the United States finally force the issue by refusing to expand their holding of U.S. debt. That will finally bring on the debt and currency crisis that we have created by our current cowardice.

Submitted by Peter Schiff via Euro Pacific Capital,

They Bravely Chickened Out

Earlier this week Congress tried to show that it is capable of tackling our chronic and dangerous debt problems. Despite the great fanfare I believe they have accomplished almost nothing. Supporters say that the budget truce created by Republican Representative Paul Ryan and Democratic Senator Patty Murray will provide the economy with badly needed certainty. But I think the only surety this feeble and fictitious deal offers is that Washington will never make any real moves to change the trajectory of our finances, and that future solutions will be forced on us by calamity rather than agreement.

There can be little doubt that the deal resulted from a decision by Republicans, who may be still traumatized by the public relations drubbing they took with the government shutdown, to make the 2014 and 2016 elections a simple referendum on Obamacare. Given the ongoing failures of the President’s signature health care plan, and the likelihood that new problems and outrages will come to light in the near future, the Republicans have decided to clear the field of any obstacles that could distract voters from their anger with Obama and his defenders in Congress. The GOP smells a political winner and all other issues can wait. It is no accident the Republican press conference on the budget deal was dominated by prepared remarks focusing on the ills of Obamacare. 

Although he had crafted his reputation as a hard nosed deficit hawk, Paul Ryan claimed that the agreement advances core Republican principles of deficit reduction and tax containment. While technically true, the claim is substantively hollow. In my opinion the more honest Republicans are arguing that the Party is simply making a tactical retreat in order to make a major charge in the years ahead. They argue that Republicans will need majorities in both houses in 2014, and the White House in 2016, in order to pass meaningful reforms in taxing and spending. This has convinced them to prioritize short term politics over long term goals. I believe that this strategy is wishful thinking at best. It magnifies both the GOP’s electoral prospects (especially after alienating the energetic wing of their party) and their willingness to make politically difficult decisions if they were to gain majority power (recent Bush Administration history should provide ample evidence of the party’s true colors). Their strategy suggests that Republicans (just like the Democrats) have just two priorities: hold onto their own jobs, and to make their own party a majority so as to increase their currency among lobbyists and donors. This is politics at its most meaningless.  I believe public approval ratings for Congress have fallen to single digit levels not because of the heightened partisanship, but because of blatant cowardice and dishonesty. Their dereliction of responsibility will not translate to respect or popularity. Real fiscal conservatives should continue to focus on the dangers that we continue to face and look to constructive solutions. Honesty, consistency and courage are the only real options. 

In the meantime we are given yet another opportunity to bask in Washington’s naked cynicism. Congress proposes cuts in the future while eliminating cuts in the present that it promised to make in the past! The Congressional Budget Office (which many believe is too optimistic) projects that over the next 10 years the Federal government will create $6.38 trillion in new publicly held debt (intra-governmental debt is excluded from the projections). This week’s deal is projected to trim just $22 billion over that time frame, or just 3 tenths of 1 percent of this growth. This rounding error is not even as good as that. The $22 billion in savings comes from replacing $63 billion in automatic “sequestration” cuts that were slated to occur over the next two years, with $85 billion in cuts spread over 10 years. As we have seen on countless occasions, long term policies rarely occur as planned, since future legislators consistently prioritize their own political needs over the promises made by predecessors.

The lack of new taxes, which is the deal’s other apparent virtue, is merely a semantic achievement. The bill includes billions of dollars in new Federal airline passenger “user fees” (the exact difference between a “fee” and a “tax” may be just as hard to define as the difference between Obamacare “taxes” and a “penalties” that required a Supreme Court case to decide). But just like a tax, these fees will take more money directly from consumer’s wallets. The bigger issue is the trillions that the government will likely take indirectly through debt and inflation.

The good news for Washington watchers is that this deal could finally bring to an end the redundant “can-kicking” exercises that have frustrated the Beltway over the last few years. Going forward all the major players have agreed to pretend that the can just doesn’t exist. In making this leap they are similar to Wall Street investors who ignore the economy’s obvious dependence on the Federal Reserve’s Quantitative Easing program as well as the dangers that will result from any draw down of the Fed’s $4 trillion balance sheet.

The recent slew of employment and GDP reports have convinced the vast majority of market watchers that the Fed will begin tapering its $85 billion per month bond purchases either later this month or possibly by March of 2014. Many also expect that the program will be fully wound down by the end of next year. However, that has not caused any widespread concerns that the current record prices of U.S. markets are in danger. Additionally, given the Fed’s current centrality in the market for both Treasury and Mortgage bonds, I believe the market has failed to adequately allow for severe spikes in interest rates if the Fed were to reduce its purchasing activities. With little fanfare yields on the 10 year and 30 year Treasury bonds are already approaching multi-year highs. Few are sparing thoughts for yield spikes that could result if the Fed were to slow, or stop, its buying binge.

So America blissfully sails on, ignoring the obvious fiscal, monetary, and financial shoals that lay ahead in plain sight. I believe that will continue this dangerous course until powers outside the United States finally force the issue by refusing to expand their holding of U.S. debt. That will finally bring on the debt and currency crisis that we have created by our current cowardice.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bf12rUwErjU/story01.htm Tyler Durden

David Stockman’s exclamation at the “betrayal” realized within the latest so-called “festerng fiscal” budget deal is taken a step further with Peter Schiff’s head-shaking diatribe on Congress’ inability to show that it is truly “capable of tackling our chronic and dangerous debt problems.” So America blissfully sails on, ignoring the obvious fiscal, monetary, and financial shoals that lay ahead in plain sight. I believe that will continue this dangerous course until powers outside the United States finally force the issue by refusing to expand their holding of U.S. debt. That will finally bring on the debt and currency crisis that we have created by our current cowardice.

Submitted by Peter Schiff via Euro Pacific Capital,

They Bravely Chickened Out

Earlier this week Congress tried to show that it is capable of tackling our chronic and dangerous debt problems. Despite the great fanfare I believe they have accomplished almost nothing. Supporters say that the budget truce created by Republican Representative Paul Ryan and Democratic Senator Patty Murray will provide the economy with badly needed certainty. But I think the only surety this feeble and fictitious deal offers is that Washington will never make any real moves to change the trajectory of our finances, and that future solutions will be forced on us by calamity rather than agreement.

There can be little doubt that the deal resulted from a decision by Republicans, who may be still traumatized by the public relations drubbing they took with the government shutdown, to make the 2014 and 2016 elections a simple referendum on Obamacare. Given the ongoing failures of the President’s signature health care plan, and the likelihood that new problems and outrages will come to light in the near future, the Republicans have decided to clear the field of any obstacles that could distract voters from their anger with Obama and his defenders in Congress. The GOP smells a political winner and all other issues can wait. It is no accident the Republican press conference on the budget deal was dominated by prepared remarks focusing on the ills of Obamacare. 

Although he had crafted his reputation as a hard nosed deficit hawk, Paul Ryan claimed that the agreement advances core Republican principles of deficit reduction and tax containment. While technically true, the claim is substantively hollow. In my opinion the more honest Republicans are arguing that the Party is simply making a tactical retreat in order to make a major charge in the years ahead. They argue that Republicans will need majorities in both houses in 2014, and the White House in 2016, in order to pass meaningful reforms in taxing and spending. This has convinced them to prioritize short term politics over long term goals. I believe that this strategy is wishful thinking at best. It magnifies both the GOP’s electoral prospects (especially after alienating the energetic wing of their party) and their willingness to make politically difficult decisions if they were to gain majority power (recent Bush Administration history should provide ample evidence of the party’s true colors). Their strategy suggests that Republicans (just like the Democrats) have just two priorities: hold onto their own jobs, and to make their own party a majority so as to increase their currency among lobbyists and donors. This is politics at its most meaningless.  I believe public approval ratings for Congress have fallen to single digit levels not because of the heightened partisanship, but because of blatant cowardice and dishonesty. Their dereliction of responsibility will not translate to respect or popularity. Real fiscal conservatives should continue to focus on the dangers that we continue to face and look to constructive solutions. Honesty, consistency and courage are the only real options. 

In the meantime we are given yet another opportunity to bask in Washington’s naked cynicism. Congress proposes cuts in the future while eliminating cuts in the present that it promised to make in the past! The Congressional Budget Office (which many believe is too optimistic) projects that over the next 10 years the Federal government will create $6.38 trillion in new publicly held debt (intra-governmental debt is excluded from the projections). This week’s deal is projected to trim just $22 billion over that time frame, or just 3 tenths of 1 percent of this growth. This rounding error is not even as good as that. The $22 billion in savings comes from replacing $63 billion in automatic “sequestration” cuts that were slated to occur over the next two years, with $85 billion in cuts spread over 10 years. As we have seen on countless occasions, long term policies rarely occur as planned, since future legislators consistently prioritize their own political needs over the promises made by predecessors.

The lack of new taxes, which is the deal’s other apparent virtue, is merely a semantic achievement. The bill includes billions of dollars in new Federal airline passenger “user fees” (the exact difference between a “fee” and a “tax” may be just as hard to define as the difference between Obamacare “taxes” and a “penalties” that required a Supreme Court case to decide). But just like a tax, these fees will take more money directly from consumer’s wallets. The bigger issue is the trillions that the government will likely take indirectly through debt and inflation.

The good news for Washington watchers is that this deal could finally bring to an end the redundant “can-kicking” exercises that have frustrated the Beltway over the last few years. Going forward all the major players have agreed to pretend that the can just doesn’t exist. In making this leap they are similar to Wall Street investors who ignore the economy’s obvious dependence on the Federal Reserve’s Quantitative Easing program as well as the dangers that will result from any draw down of the Fed’s $4 trillion balance sheet.

The recent slew of employment and GDP reports have convinced the vast majority of market watchers that the Fed will begin tapering its $85 billion per month bond purchases either later this month or possibly by March of 2014. Many also expect that the program will be fully wound down by the end of next year. However, that has not caused any widespread concerns that the current record prices of U.S. markets are in danger. Additionally, given the Fed’s current centrality in the market for both Treasury and Mortgage bonds, I believe the market has failed to adequately allow for severe spikes in interest rates if the Fed were to reduce its purchasing activities. With little fanfare yields on the 10 year and 30 year Treasury bonds are already approaching multi-year highs. Few are sparing thoughts for yield spikes that could result if the Fed were to slow, or stop, its buying binge.

So America blissfully sails on, ignoring the obvious fiscal, monetary, and financial shoals that lay ahead in plain sight. I believe that will continue this dangerous course until powers outside the United States finally force the issue by refusing to expand their holding of U.S. debt. That will finally bring on the debt and currency crisis that we have created by our current cowardice.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bf12rUwErjU/story01.htm Tyler Durden

Japanese stocks are confused this evening (whether good news is bad news or bad news is good news). The headline Tankan business conditions (soft-survey) beat expectations modestly (a la Europe’s in the summer as it rode a wave of short-lived optimism) and pressing to 6 years highs (oh no – less QE?) But, the more forward-looking “manufacturing outlook” missed expectations by the most since March 2012. On the services side, things were worse, as the outlook there missed for the 11th quarter in a row. And the triple-whammy was the Capex spend missing expectations significantly (what no investment? where have we seen that before). The result – mixed news is bad news – Nikkei futures are down 150 from Friday’s close and JPY crosses have drifted back lower.

Headlines are “good” but the details are “bad”

 

 

And stocks are disappointed…

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jd1HFLwjZEo/story01.htm Tyler Durden

Despite the ongoing declarations by Wall Street’s strategists and Washington’s leaders that recovery is here (or just around the corner), record numbers of Americans in poverty and government handouts suggest otherwise. However, the insidious chipping away at the possibility of the American Dream has been replaced by an IPO-chasing, zero-interest-income-earning, yield-reaching, insider-trading, ‘dance-while-the-music-is-playing’, beggars can be choosers, get-rich-quick-scheme nation of takers (and entitled-ers)…

 

 

h/t Sunday Funnies at The Burning Platform blog

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/IOvPRTw1n-s/story01.htm Tyler Durden

The S&P 500 is set to resume higher, according to BofAML’s Macneil Curry pointing to the week of December Triple Witching as historically one strongest of the year for the S&P500. With fundamentals a thing-of-the-past, paying attention to the technicals in a world of one driver of stocks (Fed balance sheet), for short-term trading signals may have some value. Of course, with an ‘event’ as potentially huge as the FOMC meeting this week, adding risk on an already good year (when the world already believes a taper is “priced in”) may be more greatest fool than momo monkey.

 

Via BofAML,

S&P500 set to resume higher

The week ahead should take its cue from US equities. This Friday is December Triple Witching (the term used for the quarterly expiry of US equity index futures, options on equity index futures and equity options). Consistently the week of December Triple Witching is one strongest of the year for the S&P500. In the 31 years since the creation of equity index futures, the S&P500 has risen 74% of the time during this week. More recently, it has risen in ten of the past 12 years. With equity volatility fast approaching a buy signal, the conditions are growing ripe for an end to the month long range trade and resumption of the larger bull trend (we target 1840/1850 into year-end). This should be bearish for US Treasuries with 10s targeting 2.95%/3.00% and 5s targeting 1.67%/1.69% (we are short TYH4). From an FX perspective, this environment should be bullish for the US $. We continue to look for a €/$ top and recommend sticking with $/¥ longs for 104.60/105.00. 

Chart of the week: The week of December Triple Witching 

 

The S&P500 historically performs very well during the week of December Triple Witching. Since 1982, it has averaged a rise of .63% and risen 74% percent of the time. To put this in perspective, the average weekly return since 1982 is .19% and the index has risen 57% percent of the time. This is a bullish setup 

S&P500 volatility says the correction is drawing to an end

In addition to positive seasonals; equity volatility says that the range trade/correction of the past month is drawing to a conclusion. Specifically, the VXV/VIX ratio (VXV is the BBG ticker for 3m SP500 Volatility) is about to reach levels that have repeatedly coincided with a resumption of the larger bull trend. While allowing for one last dip into 1775/1745 support, the bull trend is about to resume.

Stay bearish US Treasuries. TYH4 is resuming its bear trend

 

A resumption of the larger bull trend in US equities should put added weight on the US Treasury market. We remain bearish and short TYH4. We look for 10s to test 2.95%/3.00% in the weeks ahead, while 5s remain on track for 1.67%/1.69%. TYH4 targets 122-06+ following the completion of a 2m Head and Shoulders Top.

The US $ should do well. Stay bullish $/¥

 

The combination of bullish US equities and bearish US Treasuries should be supportive for the US $, particularly against the Japanese ¥. We continue to target 104.60/105.00 (and potentially beyond) into year-end. Pullbacks should hold 101.62, but $/¥ bears don’t gain control UNTIL A BREAK OF 100.62.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FyvgV7f5R4M/story01.htm Tyler Durden

The S&P 500 is set to resume higher, according to BofAML’s Macneil Curry pointing to the week of December Triple Witching as historically one strongest of the year for the S&P500. With fundamentals a thing-of-the-past, paying attention to the technicals in a world of one driver of stocks (Fed balance sheet), for short-term trading signals may have some value. Of course, with an ‘event’ as potentially huge as the FOMC meeting this week, adding risk on an already good year (when the world already believes a taper is “priced in”) may be more greatest fool than momo monkey.

 

Via BofAML,

S&P500 set to resume higher

The week ahead should take its cue from US equities. This Friday is December Triple Witching (the term used for the quarterly expiry of US equity index futures, options on equity index futures and equity options). Consistently the week of December Triple Witching is one strongest of the year for the S&P500. In the 31 years since the creation of equity index futures, the S&P500 has risen 74% of the time during this week. More recently, it has risen in ten of the past 12 years. With equity volatility fast approaching a buy signal, the conditions are growing ripe for an end to the month long range trade and resumption of the larger bull trend (we target 1840/1850 into year-end). This should be bearish for US Treasuries with 10s targeting 2.95%/3.00% and 5s targeting 1.67%/1.69% (we are short TYH4). From an FX perspective, this environment should be bullish for the US $. We continue to look for a €/$ top and recommend sticking with $/¥ longs for 104.60/105.00. 

Chart of the week: The week of December Triple Witching 

 

The S&P500 historically performs very well during the week of December Triple Witching. Since 1982, it has averaged a rise of .63% and risen 74% percent of the time. To put this in perspective, the average weekly return since 1982 is .19% and the index has risen 57% percent of the time. This is a bullish setup 

S&P500 volatility says the correction is drawing to an end

In addition to positive seasonals; equity volatility says that the range trade/correction of the past month is drawing to a conclusion. Specifically, the VXV/VIX ratio (VXV is the BBG ticker for 3m SP500 Volatility) is about to reach levels that have repeatedly coincided with a resumption of the larger bull trend. While allowing for one last dip into 1775/1745 support, the bull trend is about to resume.

Stay bearish US Treasuries. TYH4 is resuming its bear trend

 

A resumption of the larger bull trend in US equities should put added weight on the US Treasury market. We remain bearish and short TYH4. We look for 10s to test 2.95%/3.00% in the weeks ahead, while 5s remain on track for 1.67%/1.69%. TYH4 targets 122-06+ following the completion of a 2m Head and Shoulders Top.

The US $ should do well. Stay bullish $/¥

 

The combination of bullish US equities and bearish US Treasuries should be supportive for the US $, particularly against the Japanese ¥. We continue to target 104.60/105.00 (and potentially beyond) into year-end. Pullbacks should hold 101.62, but $/¥ bears don’t gain control UNTIL A BREAK OF 100.62.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FyvgV7f5R4M/story01.htm Tyler Durden

The recent string of data has convinced many observers that the US economic expansion has accelerated to the point where the Fed could begin to slow its assets purchases as at this week’s meeting.  

 

Although we had initially favored a Dec tapering over a Sept move, we have become less convinced.  The key to argument is two-fold:   core PCE inflation is low and is likely to fall sharply over the next few months, and the credibility of  forward guidance, which is to replace the asset purchases, is enhanced by letting the post-Bernanke Fed announce and implement.

 

The core PCE deflator, the Fed’s preferred inflation measure rose 1.1% in October from a year ago.  Consider the base effect when Nov 2012 monthly increase of 0.8% and Dec 2012 monthly increase of 0.5% drops out of the comparison.     It is more prudent to taper at least when inflation is not falling especially from so such low levels. 

 

There will be significant changes in the composition of the Federal Reserve Board of Governors, which extend beyond the chairmanship itself.  The credibility of forward guidance dictates that the new Fed, under Yellen’s leadership, articulates a new forward guidance that will coincide with the tapering decision. 

 

There are other, less compelling reasons for the Fed not to taper, like avoiding unsettling money markets over the sensitive year-end period, or that more data is needed to confirm the economy has turned a corner.  The point is that many observers seem to have simply extrapolated from some arguably strengthening of economic activity to conclude Fed tapering, without adequately taking into account the low and falling inflation and the need to maximize the credibility of forward guidance to ensure the market continues to recognize the difference between tapering and tightening. 

 

The euro area reports the flash Dec PMI on Monday.   While the PMIs generally do a good job tracking real sector activity, we note that they appear to be running ahead now.  The weakness in the Nov industrial production figures, for example, was not anticipated by the survey data.  More broadly, the contraction in the euro area as a whole has ended, but in its place is stagnation.  In the euro area, a recovery has yet to begin.  In the US, the issue is the strength of the expansion. 

 

The divergence between the economic performance of France and Germany has been more evident in the PMI data than the performance of the asset markets.  In part, due to robust Asian investment flows, France appears to have retained investor confidence.  A continued poor performance of the French economy may become a greater market force next year. 

 

At the end of the week, the last European Council, of the heads of state, will hold their last summit of the year.  The most important issue will be the formal decision on the single resolution mechanism.  The ECB will be the supervisor, working with the European Banking Authority.  The debate over the mechanism itself has been fierce.  The compromise seems to be that national authorities retain much control and responsibility for the process.   It is not so much a banking union, especially in the first several years, as an agreed upon extension of the status quo. 

 

Nevertheless, the pieces will be in place that will allow the Asset Quality Review and the stress test to proceed as planned for 2014.  In the next phase of the construction of a banking union, the focus will be on the creation of a Single Resolution Fund.   The way the resolution mechanism was worked out will shape the fund, especially before it can be adequately funded by the banks.  Essentially, the bank and its investors are the first line of defense.   The German desire for a banking union is limited by its wiliness to 1) let Brussels make decisions about the landesbanks, and 2) willingness to fund a resolution mechanism. 

 

Outside of the US and euro area, there are several more events that investors will be monitoring.  The UK has three events that will be noteworthy:  inflation report, the latest reading on the labor markets and minutes from the recent BOE meeting. 

 

Inflation expectations remain anchored, but price pressures remain sticky in the UK.  Of particular interest will be the effect of the previously announced increase in utility prices.  The BOE’s forward guidance, like the Fed’s, has provided an unemployment threshold (7.0% vs 6.5% for the Fed).  The unemployment rate is likely to tick down to 7.5%.  The UK’s participation rate has held up better than in the US (and Australia) by contrast, but the price has been lower productivity.

 

As BOE Governor Carney pointed out in NY last week, the atrophy of skills is taking place in the UK on the job (labor shifted form high productivity to lower productivity positions) as opposed to among the long-term unemployed, as seems to be the case elsewhere. Finally, the BOE’s minutes will be studied for clues to how forward guidance may evolve next year, especially in terms of labor market dynamics. 

 

Sweden’s Riksbank meets.  It is a close call.  Important real sector data has deteriorated and disinflationary conditions threatened to morph into deflation.  Interest rates policy is recognized (by at least some board members) as an inefficient tool to address the elevated household debt levels.  If a cut is not delivered, the krona may be subject to a short-covering bounce, but expectations for a cut will simply shift to early next year. 

 

The Bank of Canada meets.  It had previously distanced itself from the forward guidance that was inherited from Carney that indicated the “removal of accommodation” (i.e. a rate hike) would be delivered soon (though it repeatedly pushed out in time what that would be necessary).    

 

Canada is experiencing disinflation and the impact on the real economy is likely to be a 2014 story.  Headline inflation is running at 1.0% year-over-year, while the core rate at 1.2% is essentially the same as the US rate.   However, a key difference is that Canada’s housing prices and consumer debt are at record levels.  

 

Although some Canadian banks have tried to play down the extent of the over-valuation in the housing market, it is clearly on the central bank’s radar screen. Last week Governor Poloz recognized the housing market as the single biggest domestic economic threat.   Mortgage borrowing increased another 1.8% in Q3, bringing household debt to 163.7% of disposable income. 

 

Comments by the Governor of the Reserve Bank of Australia that provided a specific bilateral exchange rate target of $0.8500 for the Australian dollar violate the spirit of G20 agreements.  He is unlikely to repeat this faux pas.  It is well understood and appreciated that the Australian dollar is over-valued by almost any metric one wants to use.  However, a nominal bilateral exchange rate is a poor proxy for the competitiveness of the currency.

 

Moreover, macro-economic variables do not appear very sensitive to a few percentage point move that Steven’s target entails.   The new government will provide new economic forecasts and a fiscal update.  Australia debt is rising and this issue will likely become more significant next year. 

 

We note that of all forces that impact foreign exchange prices, the wishes of policy makers, unless a signal of action, tend not to be very salient.  The largely speculative market seized on Steven’s comments to push against the bottom pickers who were arguably poised to take a stand.&nbsp
;

 

The Bank of Japan holds its final meeting for 2013.   It is most unlikely to take any fresh initiatives.  There seems to be a general expectation that the BOJ will take additional action, but there is much debate over when.  We think it does not come before officials have greater visibility on the impact of the retail sales tax increase on April 1. 

 

The Tankan report first thing Monday in Tokyo is expected to confirm a gradual increase in business sentiment in Japan.  However, we note that businesses are not the most ardent supporters of Abenomics in deed, regardless of their support for the LDP.  This is especially true in two important areas in which Abenomics has been disappointing:  capital expenditures and sharing the windfall profits generated by a weaker yen in the form of base wage increases.

Turning to emerging markets, five central banks meet.  India is expected to hikes for the third consecutive time.  A 25 bp increase will take the key overnight rate to 8%.  Hungary is expected to deliver another 20 bp rate cut that would put its key rate at 3%.  The central banks of the Czech Republic, Colombia and Turkey meet, but no action is expected. 

 

Lastly, China seems to be on the move.  Tensions over the disputed islands, airspace, and sea lanes have intensified and the risk of an international incident has increased markedly.  China does not appear to be afraid of a confrontation, but, to the contrary, appears to be looking for one. 

 

 With the successfully landing and deployment of the Jade Rabbit rover, China became the third country and the first in almost four decades to have an unmanned moon landing.  Neither of these developments appears to be having a particular impact on financial assets.  However, many will be scrutinizing the bilateral trade flows, especially with Japan and South Korea, to see if China is linking the political dispute with trade, which it has done previously. 

 

 

While the moon landing is a great feat from an engineering point of view, one can’t help but wonder about the price for what appears to be an expensive way to bolster status and prestige.  Recall that despite China being the second largest economy in the world; it is still a poor country, where GDP per capita is about $6500 a year.    The Chinese economy is a little more than half the size of the US, its GDP per capita is roughly a fifth the size.  

 

The soft moon landing may say more about China’s desire to be seen as a great power, the egos of the key decision makers (individually or collectively) and the surplus accumulated by the state, than it does about China’s space prowess.  The terrestrial implications are more significant.  

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/XjpOPqCuvAs/story01.htm Marc To Market

Earlier in the week, we detailed JPMorgan's attempt to create their own "web cash" alternative to Bitcoin (and Sberbank's talk of doing the same). However, as M-Cam details, following the failure of the first 154 'claims', JPMorgan issued a further 20 claims – which were summarily rejected (making JPMorgan 0-175 for approved claims). As they note, The United States Patent & Trademark Office (USPTO)’s handling of applications like JPMorgan’s ‘984 application ("Bitcoin Alternative") highlights the need to fix a broken system – patent applications of existing inventions need to be finally rejected and not be resurrected as zombies (no matter how powerful the claimant).

 

Via M-Cam,

“BITCOIN is booming.”…?

On August 5, 2013 JPMorgan Chase & Co (JPMorgan) filed an application for an electronic mobile payment system which has eerie similarities to the popular online currency Bitcoin. Unfortunately for JPMorgan, all of the claims, totaling 175 claims, as of October 18, 2013, for published US patent application 20130317984 (the ‘984 application) have been either cancelled or rejected.

Analysis

Below is a view of JPMorgan’s ‘984 application.

After the initial 154 claims were abruptly cancelled, JPMorgan’s attorney submitted 20 additional claims which the examiner, Jagdish Patel, issued non?final rejections for all 20 of the new claims in October 2013. This makes JPMorgan 0?175 in terms of approved claims. The last 20 claims were rejected for non?patentability and indefiniteness under Title 35 United States Code (U.S.C.) Sections 101 and 112.

However, Mr. Patel might well have rejected the claims because of the ‘On Sale Bar’ rule under 35 U.S.C. Section 102(b), meaning that if the invention has been on sale for over a year then the invention is no longer patentable. Under the ‘On Sale Bar’ rule, the application could be invalid because it closely mirrors Bitcoin with features such as making free and anonymous electronic payments and Bitcoin has been in circulation since 2009.

Conclusion

The United States Patent & Trademark Office (USPTO)’s handling of applications like JPMorgan’s ‘984 application highlights the need to fix a broken system.

Patent applications of existing inventions need to be finally rejected and not be resurrected as zombies.

 

Part of the problem of a system in which one third of patents are seriously or fatally impaired is that companies are allowed to patent items that their competitors have already invented.

Obviously, large financial institutions want in on the online alternative currency action. But they would be well advised to pursue novel and non?obvious approaches that do not duplicate existing commercial options with respect to a virtual medium of exchange.

Full Patent Glossary here (PDF)

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

Earlier in the week, we detailed JPMorgan's attempt to create their own "web cash" alternative to Bitcoin (and Sberbank's talk of doing the same). However, as M-Cam details, following the failure of the first 154 'claims', JPMorgan issued a further 20 claims – which were summarily rejected (making JPMorgan 0-175 for approved claims). As they note, The United States Patent & Trademark Office (USPTO)’s handling of applications like JPMorgan’s ‘984 application ("Bitcoin Alternative") highlights the need to fix a broken system – patent applications of existing inventions need to be finally rejected and not be resurrected as zombies (no matter how powerful the claimant).

 

Via M-Cam,

“BITCOIN is booming.”…?

On August 5, 2013 JPMorgan Chase & Co (JPMorgan) filed an application for an electronic mobile payment system which has eerie similarities to the popular online currency Bitcoin. Unfortunately for JPMorgan, all of the claims, totaling 175 claims, as of October 18, 2013, for published US patent application 20130317984 (the ‘984 application) have been either cancelled or rejected.

Analysis

Below is a view of JPMorgan’s ‘984 application.

After the initial 154 claims were abruptly cancelled, JPMorgan’s attorney submitted 20 additional claims which the examiner, Jagdish Patel, issued non?final rejections for all 20 of the new claims in October 2013. This makes JPMorgan 0?175 in terms of approved claims. The last 20 claims were rejected for non?patentability and indefiniteness under Title 35 United States Code (U.S.C.) Sections 101 and 112.

However, Mr. Patel might well have rejected the claims because of the ‘On Sale Bar’ rule under 35 U.S.C. Section 102(b), meaning that if the invention has been on sale for over a year then the invention is no longer patentable. Under the ‘On Sale Bar’ rule, the application could be invalid because it closely mirrors Bitcoin with features such as making free and anonymous electronic payments and Bitcoin has been in circulation since 2009.

Conclusion

The United States Patent & Trademark Office (USPTO)’s handling of applications like JPMorgan’s ‘984 application highlights the need to fix a broken system.

Patent applications of existing inventions need to be finally rejected and not be resurrected as zombies.

 

Part of the problem of a system in which one third of patents are seriously or fatally impaired is that companies are allowed to patent items that their competitors have already invented.

Obviously, large financial institutions want in on the online alternative currency action. But they would be well advised to pursue novel and non?obvious approaches that do not duplicate existing commercial options with respect to a virtual medium of exchange.

Full Patent Glossary here (PDF)

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Submitted by Russell Lamberti of the Ludwig von Mises Institute,

US lawmakers reached a budget deal this week that will avert the sequester cuts and shutdowns. These fiscal “roadblocks” supposedly damaged investor confidence in 2013, although clearly no one told equity investors who’ve chased the S&P 500 up 26 percent this year. But even so the budget deal is seen by inflationists as only half the battle won, because it doesn’t deal with the pesky debt ceiling. Unsurprisingly, the old calls for a scrapping of the debt ceiling are being heard afresh.

Last week, The Week ran an opinion piece by John Aziz which argues that America (and all other nations for that matter) should keep borrowing until investors no longer want to lend to it. To this end, it is argued, the US should scrap its debt ceiling because the only debt ceiling it needs is the one imposed by the market. When the market doesn’t want to lend to you anymore, bond yields will rise to such an extent that you can no longer afford to borrow any more money. You will reach your natural, market-determined debt ceiling. According to this line of reasoning, American bond yields are incredibly low, meaning there is no shortage of people willing to lend to Uncle Sam. So Washington should take advantage of these fantastically easy loans and leverage up.

Here’s part of the key paragraph from Aziz:

Right now interest rates are very low by historical standards, even after adjusting for inflation. This means that the government is not producing sufficient debt to satisfy the market demand. The main reason for that is the debt ceiling.

What this fails to appreciate is that interest rates are a heavily controlled price in all of today’s major economies. This is particularly true in the case of America, where the Federal Reserve controls short-term interest rates using open market operations (i.e., loaning newly printed money to banks) and manipulates long-term interest rates using quantitative easing. By injecting vast amounts of liquidity into the economy, the Fed makes it appear as though there is more savings than there really is. But US bond yields are currently no more a reflection of the market’s demand for US debt than a price ceiling on gasoline is a reflection of its booming supply. Contra the view expressed in The Week, low rates brought about by contrived zero-bound policy rates and trillions of dollars in QE can mislead the federal government into borrowing more while at the same time pushing savers and investors out of US bond markets and into riskier assets like corporate bonds, equities, exotic derivatives, emerging markets, and so on.

Greece once thought that the market was giving it the green light to “produce” more debt. Low borrowing rates for Greece were not a sign of fiscal health, however, but really just layer upon layer of false and contrived signals arising from easy ECB money, allowing Greece to hide behind Germany’s credit status. As it turned out, a legislative debt ceiling in Greece (one that was actually adhered to) would have been a far better idea than pretending this manipulated market was a fair reflection of reality. Investors were happy to absorb Greece’s debt until suddenly they weren’t.

This is the nature of sovereign debt accumulation driven by easy money and credit bubbles. It’s all going swimmingly until it’s not. And there is little reason to think this time the US is different. Except that America might be worse. The very fact of the Fed buying Treasuries with newly printed money proves Washington is producing too much debt. China even stated recently that it saw no more utility accumulating any more dollar debt assets. If the whole point of QE is to monetize impaired assets, then the Fed likely sees Treasury bonds as facing considerable impairment risk. Theory and history are clear about the reasons for and consequences of large-scale and persistent debt monetization.

Finally, it is wrong to assert that the debt ceiling is the main reason for America’s fiscal deficit reduction. The ceiling has never provided a meaningful barrier to America’s borrowing ambitions, hence the dozens of upward adjustments to the ceiling whenever it threatens to crimp the whims of Washington’s profligate classes. America’s rate of new borrowing is falling because all the money it has printed washed into the economic system and found its way back into tax revenues. Corporate profits are soaring to all-time highs on dirt cheap trade financing. Corporate high-grade debt issuance has set a new record in 2013. Companies are rolling their short-term debts, now super-cheap thanks to Bernanke’s money machine, and issuing long, into a bubbly IPO and corporate bond market. The last time corporate profits surged like they’re doing now was during the credit and housing bubble that preceded the unraveling and inevitable bust in 2008/09.

These are money and credit cycle effects. The debt ceiling has had precious little to do with it. Moreover, US debt is neither crimped nor the US Treasury Department austere. Instead, the national debt is soaring, $60,000 higher for every US family since Obama took office and rising. Add to this the fact that the US Treasury’s bond issuance schedule is actually set to rise in 2014 due to huge amounts of maturing debt needing to be rolled over next year, and the fiscal significance of the debt ceiling fades even further.

The singular brilliance of the debt ceiling however, is that it keeps reminding everyone that there is a growing national debt that never seems to shrink. That is a tremendous service to American citizens who live in the dark regarding the borrowing machinations of their political overlords. Yes, politicians keep raising the debt ceiling, but nowadays they have to bend themselves into ever twisty pretzels trying to explain why to their justifiably skeptical and cynical constituents. Most people don’t understand bond yields, quantitative easing, and Keynesian pump-a-thons too well, but they sure understand a debt ceiling.

 

Conclusion

Those who adhere to the don’t-stop-til-you-get-enough theory of sovereign borrowing, and by extension argue for a scrapping of the debt ceiling, couldn’t be more misguided. In free markets with no Fed money market distortion, interest rates can be a useful guide of the amount of real savings being made available to borrowers. When borrowers want to borrow more, real interest rates will rise, and at some point this crimps the marginal demand for borrowing, acting as a natural “debt ceiling.” But when markets are heavily distorted by central bank money printing and contrived zero-bound rates, interest rates utterly cease to serve this purpose for prolonged periods of time. What takes over is the false signals of the unsustainable business cycle which fools people into thinking there is more savings than there really is. Greece provides a recent real-world case study of this very phenomenon in action. In these cases we are likely to see low rates sustained during the increase in government borrowing, only for them to quickly reset higher and plunge a country into a debt trap which may force default or extreme money printing.

Debt monetization has a proven track record of ending badly. It is after all the implicit admission that no one but your monopoly money printer is willing to lend to you at the margin. The realization that this is unsustainable can take a while to sink in, but when it does, all it takes is an inevitable fat-tail event or crescendo of panic to topple the house of cards. If the market realizes it’s been duped into having too much before the government decides it’s had enough, a debt crisis won’t be far away.

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