Tag: finance

Submitted by Mark St. Cyr

The Shot Heard Round The Valley World

The greatest issue facing Silicon Valley is the one thing many newly minted and aspiring entrepreneurs have taken for granted: the money.

Many believe this gravy train of a never-ending Venture Capital/Angel Investor class will not only always be there, but the ranks will swell becoming even larger with burgeoning pocketbooks filled with their own newly minted IPO greenbacks.

Problem is for a great many, they have never seen the real Jeckyll and Hyde personality of “investor funding.”

Initial Public Offerings (IPO) has been the rallying cry for many over the last 5 years to the detriment of what it really means to be an entrepreneur. (i.e., creating something that becomes bigger than one’s self)

The term has now morphed into something akin to: I’m going to push this idea, get it funded, IPO it, and cash out! Rinse – repeat. For I’m a “Trep!” (For those not familiar with the term, it’s the newest self-appointed moniker for the person who seems to be following this pattern of entrepreneurship.)

For what it’s worth, this style of thinking about entrepreneurship from my perspective is very worrisome. The reason? It’s only about the “Benjamins.”

Is there anything wrong with that? Absolutely not. However: If your purpose was to bring a real company, (what ever the field,) run and grow it to its full potential you’ll find too your detriment – money alone will not do it. Regardless of how much.

And, if your sole focus for your existence hasn’t been on sales, customers, and net profit. Or, you’ve been lackadaisical in any other manner because the dominating thought in your mind is – “I just need to get another round, then I can IPO and be through with this?” Your time is probably up.

Come this October the Federal Reserve will make its final tranche of QE available. The amount assumed by many is that it will be 50% larger than what we’ve seen over these last years. ($15 Billion as opposed to $10)

One may see an increased flurry of buying into anything and everything that has even the slightest possibility of making a profit. Or, what Wall Street cares about even more; a growth story that can be perpetuated via financial engineering that sticks during earnings seasons.

But, one shouldn’t read into this as “confirmation” the risk appetite story is not only alive but growing. For that is all about to change.

Once the Fed shuts down the section of QE that has been pumping Billions upon Billions of dollars every month – it’s over for a great many of today’s Wall Street darlings.

Think of it this way: Who is going to fund your next round when they no longer have access to the Fed.’s piggy bank? Let alone pump more money into older start-ups that just haven’t produced any real money (as in net profit,) but have produced nothing more than great new employee digs or benefits?

Tack along side this the culture shock in what will seem near instantaneous with the shunning that will take place of any business resembling the, 3 employee, menial customer base, Zero if not negative profit margin businesses formed with the implicit intent as to be bought up or “acquired” for Billion dollar pay days.

These will be the first to go. That formulation is going way of the now infamous Pets dot-com sock puppet. This will be the first true shock to Silicon Valley culture that hasn’t been seen in many years. And it will be far from the only one.

Many will point directly at the darling of both Silicon Valley as well as the touchstone of riches for aspiring entrepreneurs; Facebook™ (FB) as proof this line of thinking is off base. And why shouldn’t they? The price has never been higher.

Yet, what many shield their eyes from and a great deal more turn their heads from entirely is what I and very few others have been arguing: “It’s all been possible via the Federal Reserve’s interventionist policies.” And the greatest source of that inflow of cash made available via “investors” is about to be shut down.

Let me go on the record here and point out what I believe will prove my point in the coming weeks and months.

Currently Zuck and crew have been lauded over with the prowess in its acquisition choices. You will know everything has changed when the calls to rescind Mark Zuckerberg’s authority in having carte blanche via not needing board approval for acquisitions going forward is demanded by Wall Street.

And that won’t be the only monumental shift coming. Maybe, one at an even faster pace: The meaning of IPO.

IPO is not going to have the same term of endearment it now has. I believe it will turn into the last and most dreaded three-letter acronym no one ever imagined in Silicon Valley.

The IPO screams of joy will turn into wails of terror when those VC “angels” meet at many “treps” desk and state – they’re IPO-ing.

No, not getting one set up for the big pay-day. No IPO will mean: “I’m pulling out.” i.e., “Have a nice day. Where’s the rest of my money?”

The once renowned purchases of “Billion dollar babies” will prove out not to be worth two cents in this environment.

Valuations will get crushed and people will be shocked at just how fast a company touted across the financial channels and other media as “fantastic buys” are flogged and fleeced when Wall Street comes back for their “investment.”

If the story or the numbers aren’t there – neither will these once darlings of Wall Street. Regardless of size or stature.

People will continue pointing at FB and others as proof that this whole idea of what I’m professing is off base. Again, they’ll point to the stock prices and say, “Look! During the recent sell off some they went higher! This proves, blah, blah, blah.”

What it proves is this in my opinion: It’s a last gasp effort to have exposure in these companies during this newest round of earnings season. i.e., As to have the possibility (more inline with hope) of any earnings windfall, whether it be real, or financially engineered. Because: There isn’t going to be another shot after this one. The money to take these stylized chances will no longer be there. Period.

I watched and read many viewpoints on what has now been circulated throughout Silicon Valley as the “tweet storm” unleashed by well-known Silicon Valley sage Marc Andreessen where he ended his views with the word “WORRY.” I believe he is spot on.

Many in the so-called “know” of any and all related to Silicon Valley pontificate that his alarm bells are a little “over the top.” Some have stated in rather condescending tones that “It’s not like the current crop of Silicon Valley has never had issues with funding. I mean, it was hard in 2009.”

Oh yes, it was – for about a week!

I would remind everyone to remember what took place in 2009? The birth of QE. Then it was off to the races. Or should I say “coding?” And as of today there has been no need to look back. Until now.

This next bout of what I believe to take place will not be limited to just the small-sized, or start-up class. It will be just as abrupt of a sea change for the current crop of Wall Street darlings that have produced what many have seen as “skeptical” results. e.g., FB, Twitter™, Pandora™, LinkedIn™, et al.

They are going to face harsh skepticism this earnings release period. Far more, and certainly more harsh or critical than any previous in my opinion.

The reasoning is: With no more “free money” pouring in from the Fed. for “investors” to slap around anywhere and everywhere in the hopes of something sticking. They’re going to do what anyone would do. Buy Nothing – Sell Anything and everything that isn’t making real money. For th
ey are well aware their bankers or margin clerks – don’t accept “likes” as legal tender for deposits in their accounts either.

One last thing: If you think all this “worry” stuff is just nonsense. Let me leave you with this one line…

Yahoo™ just announced it’s interested in AOL™.

Feel better now?

via Zero Hedge http://ift.tt/1BsecBN Tyler Durden

By Charles McFarlane of Modern Farmer

Why Is The USDA Buying Submachine Guns?

“Submachine guns, .40 Cal. S&W, ambidextrous safety, semi-automatic or 2 shot bur[s]t trigger group, Tritium night sights for front and rear, rails for attachment of flashlight (front under fore grip) and scope (top rear), stock-collapsib[l]e or folding, magazine – 30 rd. capacity.”

In May, the USDA’s Office of Inspector General filed a request for these weapons. But why exactly do they need them?

According to a USDA press rep, the guns are necessary for self-protection.

“OIG Special Agents regularly conduct undercover operations and surveillance. The types of investigations conducted by OIG Special Agents include criminal activities such as fraud in farm programs; significant thefts of Government property or funds; bribery and extortion; smuggling; and assaults and threats of violence against USDA employees engaged in their official duties,” wrote a USDA spokesperson.

Those seem like legitimate enforcement activities, but still: submachine guns? Not everyone believes the USDA being armed to the teeth is justifiable. On Aug. 2, the Farm to Consumer Legal Defense Fund launched a petition to support a bill that would curb the ability of agencies like the USDA to arm themselves. They see it as overkill and scare tactics, especially for smaller producers.

“What we have seen happen, with the FDA especially, is they have come onto small farms, raw milk producers, and raided the heck out of them with armed agents present,” says Liz Reitzig, co-founder of the Farm Food Freedom Coalition. “Do we really want to have our federal regulatory agencies bring submachine guns onto these family farms with children?”

The Farm to Consumer Legal Defense Fund petition focuses on two now infamous blows to the raw milk community – the 2010 and 2011 raids on Rawsome Food Club in Venice, California. These raids were carried out by armed federal agents, from the FDA and other agencies.

The OIG’s Investigation Development bulletins show there have been three incidents in the last year that involved firearms and two in which USDA agents were verbally threatened. Still, most of their enforcement operations surround white-collar fraud of government programs, often involving SNAP programs. “If there is fraud in the SNAP program, look at how it is implemented and make changes in the entire program,” says Reitzig. “Don’t bring machine guns onto farms.”

The Farm to Consumer Legal Defense Fund are not the only ones interested in taking guns out of the hands of USDA agents. Utah Congressman Chris Stewart is the sponsor of the bill on the FTCLDF petition. “At its heart it comes down to this: To myself, and for a lot of Americans, there is great concern over regulator agencies with heavy handed capabilities,” Rep. Stewart told Modern Farmer.

His bill, H.R. 4934, hopes “to prohibit certain federal agencies from using or purchasing certain firearms, and for other purposes.” When asked about the USDA’s plan for submachine guns, he said, “I can’t envision a scenario where what they are doing would require that.”

Another concern is simply accountability. The request for submachine guns from the USDA doesn’t say how many guns — asking them seems like a non-starter. “They have been very unhelpful in trying to find out any information about this,” said Rep. Stewart. “We couldn’t get answers — it doesn’t seem right to me.”

However, he also cautioned: “We have never argued that federal regulators don’t need to protect themselves.” But if USDA investigations were perceived to be potentially violent he suggested, “They should do what the rest of us do, call the local sheriff.”

via Zero Hedge http://ift.tt/YxrZdL Tyler Durden

The key event in the week ahead is the ECB meeting.  The ECB surprised many in early September by cutting
key interest rates.  We had anticipated it because although Draghi had
indicated their rate policy had been exhausted, he acknowledged there some
still scope for technical adjustments.  We
had thought it bolstered the chances of a successful TLTRO, as with a five bp
repo rate there could be little hope in lower rates later.  

 

Although many think that there can be no further interest
rate cuts, Draghi did point to the possibility of some adjustment in the rate
corridor. For example, it
is conceivable that the ECB could cut the lending rate, which is the top of the
corridor.   Still, it is unreasonable to expect a change in the rate
corridor this week.  Instead, the focus is on the “modalities”
or terms of the asset-backed purchase facility that Draghi in early September.
 

 

After the low takedown at the initial TLTRO, market
participants are anxious for details about the ABS and covered bond purchase
plans.  The idea being that the low TLTRO
borrowing points to a more aggressive asset purchase program.  The key is boosting the ECB’s balance sheet,
as Draghi indicated, back to levels in mid-2012, which is about one trillion
euros from current levels.  

 

The problem is the that the ABS market is relatively small.  The outstanding ABS at the end of
the 2013 was roughly one trillion euros.  Of this amount, only about half
is estimated to be in the market. The other half is being used for collateral
for funding at the ECB.   This is an important point about the potential
for the ABS purchase program, but also about the ECB’s experience in assessing
the risk and pricing such securities.  

 

There are four components to the ABS universe that is
relevant here.  The single biggest part by far in
the assets back by real estate mortgages.  That is roughly 60% of the ABS
market in Europe. The size of the remaining components shrink dramatically.
 Traditional ABS, backed by car loans, leases and that sort of activity,
is about 15% of the outstanding market.   Another 10% of the market are
ABS backed by loans to small businesses.  ABS backed by loans in the form
of collateralized debt obligations account for roughly the same amount.  

 

Of the existing stock of ABS securities, Netherlands
accounts for a little more than a quarter.  Italy and Spain together account for
about a third, which is evenly divided between the two.  It falls considerably
after these three.  Belgium accounts for about 8% and Germany 6%.
 Ireland is just shy of 4%, and France’s share is a tad lower, just below
3.5%.

 

There are three elements that investors want to know from
Draghi:  the size, components, and duration of the ECB’s purchase plan,
which will be conducted by an asset management firm. Reuters reported recently that the initial
plan for the ABS (and covered bond) purchase program anticipated up 500 bln
euros.  This suggests that the TLTROs
were anticipated to expand the balance sheet by another 500 bln euros).  
The risk is that the ECB does not announce the size of its program. This
preserves the most about of flexibility by not doing so.   

 

By telling the market the components of its ABS purchases,
investors can quick estimate the maximum the ECB could purchase of the existing
stock, and make judgments accordingly.   There are several other moving
parts here.  For example, it is not yet clear what Draghi meant by
“simple and transparent” ABS that the ECB would purchase.  The
ECB could also lower the rating of ABS that is is willing to accept.  This
would boost the securities available, of course, and assist the peripheral
banks more.  

 

Under QE3+, the Federal Reserve told the amount it would
buy of long-term securities, but left the duration of the program open-ended.  The ECB could turn this formulation
on its head.  It could indicate that it would make monthly ABS purchases
for the next two years.  This would encourage banks to
“manufacture” the securities the ECB will purchase, the same way they
are manufacturing the collateral the ECB was willing to accept.  

 

If the ECB limits itself to new securities only, the impact
will likely be small.  There was an estimated 240 bln euros
in ABS issued in 2013 and about 150 bln euros in H1 2014.  Much of this
may already sit with the ECB in the form of collateral.  Buying old
issuance may not offer a power incentive to increase current and future
lending, though it does help banks de-leverage.  

 

If the ECB wants a large program, it needs to provide banks
incentives to create more.  This implies a slow start.  If
the ECB wants to start quickly, it may find that its program will be small. It
may adopt other technical polici
es that will help augment the purchase program,
including collateral and credit rules.   

 

While the ECB meeting dominates
the agenda, it is, of course, not the only event of the week.  A second highlight is the US jobs
data. The market expects a large bounce back after the surprisingly weak August
non-farm payroll increase of 142k.  We
expect that the US economy loses some momentum seen in the middle two quarter
of he year.  Q2 GDP was revised to 4.6%
last week and Q3 appears to be tracking something a bit north of 3%.   Expectations will be fine tuned after this
week’s personal expenditure, construction spending, and trade balance reports. 

 

We suspect Q3 is ending on a
soft note and that payback will be seen in Q4. 
It is difficult to
envision US auto sales building on the strong 17.45 mln pace.  That said, GM, Ford and Chrysler likely
picked up market share. 

 

Weekly initial jobless claims
bottomed in mid-July, and although they have not deteriorated, the improvement
has stalled. Republicans
appear to have a strong chance to capture the Senate from the Democrats in November.
  This may freeze some private sector decision making
in anticipation of better legislative climate, including corporate tax
reform. 

 

The market may get the 215k
increase in non-farm payrolls the Bloomberg consensus shows.  However,
it may not be in quite the form it would like. 
Given historical patterns the August series is likely to be revised
higher. 

 

We do not expect this week’s
data in the US, Europe or Japan to influence the outlook for policy.  It
would be only mildly encouraging to see, for example, a tick up in the euro area
flash September CPI.  It is too early to
see expect the impact from the euro’s decline. 
The euro area PMIs will be interesting only for mapping relative
movement of the core and periphery. 

 

The UK’s three PMIs are unlikely
to alter the view of a BOE rate hike in Q1 15. 
The readings may be consistent with a moderation of activity, but they
are expected remain at elevated levels. 

 

Japan’s Tankan survey is
expected to show that corporate Japan is a bit less optimistic on balance.  The
sales tax increase is have a greater and longer impact than the government had
expected, and recently the government has downgraded its assessment.  It is little wonder that businesses do also
downgrade their assessment.  We suggest
the focus of the policy response will be on a supplemental budget rather than
the expanding the BOJ’s asset purchase program. 
We anticipate the the yen’s recent sharp decline will boost inflation in
the coming period. 

 

 

 

via Zero Hedge http://ift.tt/YxfOgR Marc To Market

Three weeks ago, in “A Quick Reminder Of The Only Thing That Matters, In One Chart” we did just that, showing the ever greater amount of global liquidity injected by the central banks, thanks to which they have so far successfully masked the accelerating economic collapse of the world, as shown by cratering “benign” inflation expectations to levels not seen since Lehman: hardly a confirmation of economic stability and growth:

… we and quoted none other than JPM that “the current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude and the ECB actions have the potential to make it even more extreme.”

We left it off with the “one chart that should put everything in perspective, and explain why the world has reached a plateau of permanent addiction to monetary liquidity injections, and why nothing else matters.”

 

So, with everyone fearing imminent Fed tightening, what does this chart look like in the coming years? For the answer of what the “only chart that matters” projected until 2016 looks like, we go to Barclays, where we find that absolutely nothing is about to change to the slope of the infinitely fungible, globally interconnected, liquidity excess.  In fact, as Barclays puts it best, “central bank balance sheet growth will be broadly unchanged in the next 12-15 months.” So much about all those fears of a global rate hike cycle…

In fact, the only difference is that if and when the Fed’s QE ends and the US balance sheets declines modestly as a % of GDP, both Europe and Japan will take its place at the forefront of the global monetary firehose.

Of course, the assumption here is that once the Fed ends QE in 1 month, and concerns that a US rate hike is imminent, the market won’t crash and thus force the Fed to promptly return to what it does best, CTRL-P. In fact, the €64K question is whether the hand off from the Fed to the ECB and BOJ will be smooth enough to avoid a stock market crash between now and the end of 2016. Everything else is semantics.

via Zero Hedge http://ift.tt/1t8FA36 Tyler Durden

Three weeks ago, in “A Quick Reminder Of The Only Thing That Matters, In One Chart” we did just that, showing the ever greater amount of global liquidity injected by the central banks, thanks to which they have so far successfully masked the accelerating economic collapse of the world, as shown by cratering “benign” inflation expectations to levels not seen since Lehman: hardly a confirmation of economic stability and growth:

… we and quoted none other than JPM that “the current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude and the ECB actions have the potential to make it even more extreme.”

We left it off with the “one chart that should put everything in perspective, and explain why the world has reached a plateau of permanent addiction to monetary liquidity injections, and why nothing else matters.”

 

So, with everyone fearing imminent Fed tightening, what does this chart look like in the coming years? For the answer of what the “only chart that matters” projected until 2016 looks like, we go to Barclays, where we find that absolutely nothing is about to change to the slope of the infinitely fungible, globally interconnected, liquidity excess.  In fact, as Barclays puts it best, “central bank balance sheet growth will be broadly unchanged in the next 12-15 months.” So much about all those fears of a global rate hike cycle…

In fact, the only difference is that if and when the Fed’s QE ends and the US balance sheets declines modestly as a % of GDP, both Europe and Japan will take its place at the forefront of the global monetary firehose.

Of course, the assumption here is that once the Fed ends QE in 1 month, and concerns that a US rate hike is imminent, the market won’t crash and thus force the Fed to promptly return to what it does best, CTRL-P. In fact, the €64K question is whether the hand off from the Fed to the ECB and BOJ will be smooth enough to avoid a stock market crash between now and the end of 2016. Everything else is semantics.

via Zero Hedge http://ift.tt/1t8FA36 Tyler Durden

We have yet to read Owen Jones’ “The Establishment… And how they get away with it“, although Russell Brand’s take of the author has certainly piqued our interest: ”Owen Jones may have the face of a baby and the voice of George Formby but he is our generation’s Orwell and we must cherish him.” We do know, however, that the young author and Guardian columnist is one of those who are not afraid to think critically while accepting there is far more than meets the eye, and certainly than the controlled media would like revealed. To wit, from the book’s official blurb:

Behind our democracy lurks a powerful but unaccountable network of people who wield massive power and reap huge profits in the process. In exposing this shadowy and complex system that dominates our lives, Owen Jones sets out on a journey into the heart of our Establishment, from the lobbies of Westminster to the newsrooms, boardrooms and trading rooms of Fleet Street and the City. Exposing the revolving doors that link these worlds, and the vested interests that bind them together, Jones shows how, in claiming to work on our behalf, the people at the top are doing precisely the opposite. In fact, they represent the biggest threat to our democracy today – and it is time they were challenged.

The following infographic from the book, showing “how the media controls Britain” reveals the schism between popular British sentiment about key social issues courtesy of media influences and reality, indicating that the “establishment” is more than happy to sow discord within the working/middle classes using its traditional “objective” distribution channels, while it remains aloof, collecting the rent its record capital provides.

 

And while the middle class around the world fights for scraps, and has seen its real wages over the past three decades largely unchanged, the “establishment”, wrapped in a comfortable cocoon spun by the captured media, benefits:

via Zero Hedge http://ift.tt/1rvtvsj Tyler Durden

We have yet to read Owen Jones’ “The Establishment… And how they get away with it“, although Russell Brand’s take of the author has certainly piqued our interest: ”Owen Jones may have the face of a baby and the voice of George Formby but he is our generation’s Orwell and we must cherish him.” We do know, however, that the young author and Guardian columnist is one of those who are not afraid to think critically while accepting there is far more than meets the eye, and certainly than the controlled media would like revealed. To wit, from the book’s official blurb:

Behind our democracy lurks a powerful but unaccountable network of people who wield massive power and reap huge profits in the process. In exposing this shadowy and complex system that dominates our lives, Owen Jones sets out on a journey into the heart of our Establishment, from the lobbies of Westminster to the newsrooms, boardrooms and trading rooms of Fleet Street and the City. Exposing the revolving doors that link these worlds, and the vested interests that bind them together, Jones shows how, in claiming to work on our behalf, the people at the top are doing precisely the opposite. In fact, they represent the biggest threat to our democracy today – and it is time they were challenged.

The following infographic from the book, showing “how the media controls Britain” reveals the schism between popular British sentiment about key social issues courtesy of media influences and reality, indicating that the “establishment” is more than happy to sow discord within the working/middle classes using its traditional “objective” distribution channels, while it remains aloof, collecting the rent its record capital provides.

 

And while the middle class around the world fights for scraps, and has seen its real wages over the past three decades largely unchanged, the “establishment”, wrapped in a comfortable cocoon spun by the captured media, benefits:

via Zero Hedge http://ift.tt/1rvtvsj Tyler Durden

For several days we had heard a persistent rumor, that one of the most famous members of the New York Fed’s Markets Group, also known as the Plunge Protection Team, Kevin Henry was moving to the HFT capital of the world, Chicago. We refused to believe it because, let’s face it, when the trading desk on the 9th floor of Liberty 33 needs to get its hands dirty in stocks, it simply delegates said task using just a little more than arms length negotiation, with the world’s most levered HFT hedge fund: Ken Griffin’s Citadel. Why change the status quo.

And then, it turned out to be true because as the Chicago Fed announced just a few short days ago:

The Markets Group at the Federal Reserve Bank of New York manages the size and composition of the Federal Reserve System’s balance sheet consistent with the directives and the authorization of the Federal Open Market Committee (FOMC), supports debt issuance and debt management on behalf of the U.S. Treasury, provides foreign exchange services to the U.S. Treasury and provides account services to foreign central banks, international agencies and U.S. government agencies.

 

Markets Group is establishing a presence at the Federal Reserve Bank of Chicago and has openings for both experienced professionals and recent graduates.

So instead of interacting with the HFT momentum ignition algos using the microwave line of sight towers from NY all the way to Chicago, the NY Fed has decided it needs to be present on location in the windy city to buy up every ES contract and reverse the selling momentum when the day of reckoning finally hits.

But what does that mean for Citadel? Well, considering Ken Griffin has more pressing issues on his mind, we can understand why Bill Dudley is suddenly concerned the NY Fed’s orders may get less than optimal “best practice” execution, and thus the need to finally get the Fed’s hands wet. After all, by now everyone knows the Fed is directly and indirectly manipulating and intervening in markets on a daily basis, so why not.

As to just what specific skills the NY Fed is seeking as it builds out its HFT practice on the ground in Chicago, here are the two indicated positions with which the expansion is set to start:

Markets Group – Policy & Markets Analysis Associate – Cross Market Monitoring

 

Primary Location: IL-Chicago
Full-time / Part-time:  Full-time
Employee Status:  Regular
Overtime Status:  Exempt
Job Type:  Recent Graduate
Travel:  Yes, 5 % of the Time
Shift:  Day Job
Job Sensitivity Not Evaluated

Job Title: Policy & Markets Analysis Associate – Cross Market Monitoring
Group:  Markets Group
Location: Chicago, IL
Start Date: Summer 2015
 
The Markets Group at the Federal Reserve Bank of New York consists of multiple business areas that fulfill a range of responsibilities, from planning and executing open market operations, monitoring and analyzing financial market developments, to managing foreign customer accounts.

 

Through its analytical and operational areas, the Markets Group:

• Manages the size and composition of the Federal Reserve System’s balance sheet consistent with the directives and the authorization of the Federal Open Market Committee (FOMC);
• Monitors and analyzes financial market developments for key stakeholders and policymakers within the Federal Reserve System;
• Monitors and analyzes developments related to financial stability;
• Supports debt issuance and debt management on behalf of the U.S. Treasury;
• Provides foreign exchange services to the U.S. Treasury; and
• Provides account services to foreign central banks, international agencies, and U.S. government agencies.

RESPONSIBILITIES:

• Monitors, analyzes and reports to policy makers on global financial market developments:
  • Tracks intra-day and longer-term global asset price movements;
  • Interfaces with market participants to obtain context for asset price movements;
  • Analyzes findings and identifies themes relevant to the monetary policy process;
  • Prepares detailed written analysis and presents oral briefings on market developments to officials in the Federal Reserve, the Treasury, and other institutions;
  • Relates developments in financial markets to issues pertaining to financial stability; and
  • Assumes responsibility over time as a Markets Group specialist for a specific aspect of financial markets.
• Plans and executes transactions in foreign exchange or fixed income markets on behalf of the U.S. monetary authorities, foreign central banks, and other customers
• Participates in projects within the Markets Group related to increasing the effectiveness and efficiency of transactional business areas
• Performs related duties as required

REQUIREMENTS:

• Master’s degree in Business Administration, Economics, or Public Policy and a minimum of one year relevant work experience in an analytical capacity related to global financial markets
• We will consider recent graduates/current students and those with up to 5 years of relevant work experience
• Demonstrated analytical skills, including knowledge of financial instruments and financial market structure, macroeconomic theory and monetary policy
• Proven ability to provide concise, articulate and insightful economic analysis in written and verbal form.
• Ability to analyze complex market issues, make sound decisions and respond under pressure
• Ability to work productively in a high-performance team atmosphere and as an independent analyst
• Must adhere to area specific financial disclosure requirements

… and a European-focused plunge protector:

Policy & Market Associate – Chicago-237531

 

Primary Location: IL-Chicago
Full-time / Part-time: Full-time
Employee Status: Regular
Overtime Status: Exempt
Job Type: Experienced
Travel: Yes, 10 % of the Time
Shift Day: Job

 

The Markets Group at the Federal Reserve Bank of New York is responsible for the implementation of monetary and foreign exchange policy, providing payments and custody services to foreign central banks, and auctioning and issuing Treasury debt as the fiscal agent for the U.S. Treasury.  As part of these duties, the Market Operations Monitoring and Analysis Function (MOMA) within the Markets Group executes transactions in the open market and conducts detailed analysis of financial market developments in support of the monetary policy decision-making process.

 

The International Market (IM) Directorate within MOMA is responsible for providing in-depth analysis of global financial mar
ket developments and international policy matters that contributes directly to the broader analytical work conducted by the Markets Group specifically and the Federal Reserve System more broadly. The Directorate also has many operational responsibilities, including executing U.S. foreign exchange policy and foreign exchange customer transactions, managing the U.S. foreign exchange reserves, and managing foreign exchange swap lines with foreign central banks.

 

The IM Directorate is currently seeking a Policy and Markets Associate to produce high quality analysis on global policy and financial market developments that contributes directly to the broader analytical work conducted by the Markets Group specifically and Federal Reserve System more broadly.  This position will focus specifically on the euro area, but may include some coverage for other regions.  Applicants should be familiar with matters relating to international economic policy frameworks and global financial markets analysis, and should be able to develop and convey their views in a concise manner, both verbally and in writing, to senior policy makers throughout the Federal Reserve System and U.S. Treasury.  The candidate will also be expected to participate in the myriad of operations under the Directorate’s purview.

 

Responsibilities

• Prepare analysis of global financial market developments with a focus on the euro area.
• Convey and develop views to senior policy makers on such topics through daily and/or weekly written and/or oral briefings.
• Collaborate with other Groups within the Federal Reserve Bank as well as other Federal Reserve Banks within the system as well as the U.S. Treasury in related areas.
• Collaborate with other central banks on relevant policy initiatives, information exchange on financial markets, domestic policy developments and reserve management.
• Remain current on relevant economic and finance literature and financial markets and developments pertaining to monetary and foreign exchange policy frameworks and approaches.
• Develop contacts within the global financial community, including with investment banks, central banks and other policy institutions such as the U.S. Treasury and IMF.
• Learn and conduct the broad range of the Directorate’s operations, including related to foreign reserves management, foreign exchange transaction and foreign exchange swaps.

Requirements

• Post-graduate degree in economics, finance or a related field.
• Minimum of 3 years’ experience analyzing financial market developments and/or international policy issues.
• Strong written and oral communication skills that will enable the candidate to convey their views to senior policy makers in a clear, concise and consistent manner.
• Strong interpersonal skills to interact and collaborate effectively with peers, subordinates, senior management and external parties.
• Operational experience not required, but candidate should have strong attention to detail.
• Ability to represent effectively the business area and the Bank, as appropriate, on issues related to global financial markets.

Finally, and we assume this was done in very good humor, the Fed is also hiring a Risk Management Specialist.

#Hiring– Risk Management Specialist – C: http://t.co/68I1jRIgjR.

— Federal Reserve Jobs (@FedReserveJobs) September 26, 2014

About time?

via Zero Hedge http://ift.tt/YwnYGs Tyler Durden

When a member of the black community was shot by a local Ferguson cop on August 9, under circumstances still undetermined, it led to several weeks of angry rioting by the largely impoverished population of this St. Louis suburb, not to mention broad popular outcry against the tactics employed by the Ferguson PD and wholesale punditry taking over primetime TV for hours on end. Fast forward several weeks when last night, Reuters reports, a police officer from the “strife-hit Missouri city of Ferguson was shot and authorities are still searching for the shooter, law enforcement officials said.”

According to Lt. Louis County Police Chief Jon Belmar the shooting did not seem connected to protests occurring elsewhere in Ferguson. “I wouldn’t have any reason to believe right now that it was linked in any way, shape, manner or form with the protests,” he said. Still a question now arises: will this latest mirror image violence in Ferguson merely stoke the already latent hostilities between all members of society? Then again, the situation is not an exact mirror image as the police officer was not killed, but “merely” shot in the arm by an unknown assailant.

The details of what happened from Reuters:

The officer was chasing the suspect outside the Ferguson Community Center on Saturday night when the person turned and shot him in the arm, St. Louis County Police Sergeant Brian Schellman said.

 

The officer, who was treated at a local hospital, returned fire but apparently did not hit the suspect, Schellman said. The shooter disappeared into a nearby wooded area, eluding arrest.

 

Police said earlier that there were two suspects, but detectives later determined there was only one, Schellman said.

 

Several hours later, an off-duty St. Louis City police officer was shot at and suffered a minor arm injury from broken glass while driving on a nearby freeway in a personal car, police said.

 

It was not immediately clear if the two shootings were related.

Meanwhile, a crowd of about 100 people gathered near the scene of the night’s first shooting, with a group breaking off to protest at Ferguson police headquarters, according to Kareem Jackson, 27, a musician who goes by the stage name Tef Poe and is a member of the activist group HandsUp United.

“People are peaceful as a duck, just literally standing on the side of the street watching,” he said in a phone interview from the site where protesters had gathered.

To be sure, if the shooting is found to have been in retaliation for the death of Michael Brown, one can be certain the duck will hardly be peaceful. Although, for the time being, when it comes to global riotwatch, all eyes remain glued to Hong Kong, where the Ferguson baton has so far been quite sucessfully passed on.

via Zero Hedge http://ift.tt/1t87I6v Tyler Durden

Submitted by Erico Tavares of Sinclair & Co.

The Eurozone’s Unresolved Situation

Can market forces prevail in the Eurozone?

With another round of central bank intervention coming four plus years after the start of the Eurozone debt crisis, this is a question worth considering, at a time when the Southern Eurozone members – Italy, Spain, Greece and Portugal, which collectively account for over 30% of the GDP of the early adopters of the Euro as a whole – continue to struggle.

This is a complex topic for sure, but a simple economic indicator can be used to help frame the situation.

The Real Effective Exchange Rate, or “REER”, is a weighted average of a country’s currency relative to an index or basket of other major currencies adjusted for the effects of inflation. A country with higher inflation will seek to devalue its currency to maintain competitiveness in relation to its trading partners (the reverse also applies of course, but these days nobody seems to want a strong currency). The REER therefore provides a gauge of that country’s competitiveness in foreign markets.

Under a fixed foreign exchange regime, policy options are much more limited. A Eurozone member can become much less competitive relative to another member with a lower inflation rate. Stated differently, its REER will increase in that situation. This dynamic provides an insight as to how the Southern European countries got into trouble in the first place, and some of the challenges associated with its resolution.

Historical Context Leading Up to the 2008 Financial Crisis

The oil shocks of the 1970s had very damaging effects in the southern contingent of the Eurozone, with inflation rates skyrocketing. Devaluations were therefore a necessity to regain competitiveness, although these also provided an inflationary feedback loop. In contrast Germany, and to a lesser degree France, more or less kept inflation under control during this turbulent period.

Figure 1: Historical CPI Inflation in Selected Eurozone Countries, 1965-2001

Source: www.inflation.eu.

It is important to understand this context, as these economies evolved out of a system that systematically used currency devaluation as a policy tool for many years.

In the 1980s, Portugal, Greece and Spain formally joined the European Community, having just transitioned to a democratic system in the prior decade. A program to promote economic convergence with the European “core” was then implemented. This included the establishment of trading bands with other European currencies in order to avoid wild swings and competitive devaluations between trading partners, as well as facilitate greater economic integration going forward.

As currency fluctuations narrowed, inflation at home would have to come down, otherwise the REER would increase as a reflection of higher prices for their goods and services abroad. Figure 2 shows this process of “convergence” in the Southern European countries from 1995 up until the last business cycle peak in 2007.

Figure 2: REER Yearly Index in Selected Eurozone Countries (1995 = 100), 1995-2007

Source: Eurostat.

(a) Based on the current 18 countries of the Eurozone.

Portugal’s “currency” (speaking figuratively) had appreciated in real terms by almost 15% over that period. Spain, Greece and Italy were not far behind. At the same time, the REER of their core Eurozone partners went in the other direction, declining by almost 10%, and thus gradually eroding the cost advantage and competitive edge of Southern Europe.

As shown in Figure 3, this loss of competitiveness had a very negative effect on the trade balance (goods and services exported minus imported) down south, with generally expanding deficits recorded over the period.

Figure 3: Trade Balance as % of GDP, 1995-2007

Source: Eurostat.

(a) Remaining founding members of the Euro combined.

Not even Italy, with its dynamic exporting sector in the northern part of the country, was able to buck the trend. On the other hand, the core countries as a whole were able to increase their trade balance throughout the period.

Figure 4 depicts the situation in absolute terms in 2007. Out of 188 countries in the world, our Southern European friends made the top 10 list ranked by current account deficits. Spain made it all the way to #2; Greece, at #6, had net imports of almost $4,000 per person, the highest by far in the ranking.

Figure 4: Top 10 Countries Ranked by Current Account Deficit in 2007 (US$ bn.)

Source: CIA World Factbook.

It should also be noted that China emerged as a trading powerhouse over this period. By 2007 it already boasted the world’s largest current account surplus. Southern Europe’s industries like textiles and light manufacturing, which historically had contributed significantly to their economies, were particularly vulnerable to Chinese imports. This was much less so in the core countries, which stood to gain disproportionately more from trading with Asia. So the composition of the export sector is also an important consideration.

If we rank the Southern European countries in accordance with their trade deficit as % of GDP in 2007, we get the same domino sequence of economies tumbling down during the 2010-11 Eurozone debt crisis: first Greece, then Portugal, followed by Spain, and narrowly missing Italy with the same virulence (Ireland is not shown here, but the crisis there was rooted in a different economic model).

For all the talk about government finances, turns out that trade deficits actually matter – even inside a fixed currency regime like the Euro. Years of heavy borrowing by the private and public sectors led to inflation in the form of relatively higher price levels and burgeoning trade deficits, further undermining the competitiveness of the economy at a time when the international markets were opening up.

At some point those imports become unsustainable and foreign lenders that provide the credit close the tap. And that’s precisely what followed.

After the 2008 Financial Crisis

Figure 5 shows how Southern Europe started to devalue in real terms as financial conditions deteriorated from 2008 onwards. The decline in REER is particularly pronounced in Greece, Spain and Portugal, spurred on by deep austerity measures and a big curtailment of credit to the private sector.

Figure 5: REER Yearly Index in Selected Eurozone Countries (1995 = 100), 2007-2013

Source: Eurostat.

(a) Based on the current 18 countries of the Eurozone.

And once again we see the trade deficits responding in tandem, as shown in Figure 6.

Figure 6: Trade Balance as % of GDP, 2007-2013

Source: Eurostat.

(a) Remaining founding members of the Euro combined.

The decline in trade deficits as % of GDP has been very substantial, after the large chronic deficits of “happier times” [Note: GDP accounting changed in all of these countries over this period to include things like illegal drugs and prostitution, which in some cases added 3% to the final calculation. Hmmm…]

Services Inflation

Under a fixed exchange rates regime, REER changes are fundamentally driven by differen
ces in the inflation rate. We can break this down by: (i) goods inflation, which broadly reflects price changes in items that are easily traded across borders; and (ii) services inflation, for those which are not.

With open borders goods inflation should be fairly aligned across member states. As such, the key driver behind overall changes in competitiveness must be services inflation. This is shown in Figure 7 below.

Figure 7: Services Inflation by Eurozone Area, 1999-2014

Source: Eurostat, Clemente de Lucia (BNP Paribas).

Note: “Periphery” includes Greece, Spain, Portugal, Italy and Ireland; “Core” includes the Netherlands, Austria, Luxemburg, Belgium, Finland, Germany and France.

Going back to 1999, services inflation in the periphery was consistently higher than in the core up until 2009. This is very much in line with the relative performance of the REER over this period, as outlined previously.

However, with fixed exchange rates and open borders, what is driving this significant services inflation differential?

Figure 8: Relative GDP Performance vs Service Inflation Differential, 1998-2013

Source: Eurostat, Clemente de Lucia (BNP Paribas).

(a) Includes only the Eurozone founding members plus Greece.

(b) Difference between “Periphery” and “Core” services inflation rates in percentage points.

Figure 8 shows that faster GDP growth in the periphery was accompanied by relatively higher services inflation. With the onset of the Eurozone debt crisis in 2009, the trend reversed and the periphery started to grow much slower, as shown in the shaded area. Services inflation responded accordingly. This makes economic sense of course: under similar conditions, countries growing faster should experience higher price growth in non-tradable items.

Therefore, the lack of economic vitality in Southern Europe is adding significant deflationary pressure.

The Eurozone’s Unresolved Situation

Can the Southern European economies restructure their economies with the aid of a declining REER, that is, their goods and services becoming relatively cheaper abroad, and reverse the trend that has led to a steady accumulation of massive trade deficits over a decade and a half?

Recent experience suggests that this could be possible. However, sustaining that decline in the real value of the “currency” going forward will be very difficult for the following reasons:

• Deflation improves competitiveness outright by reducing the cost base of the country (e.g. lower salaries). But this is very problematic for Southern European economies, as the already stratospheric debt levels continue to rise as the income needed to repay them goes down in nominal terms. Which is why the European Central Bank is so concerned with deflation.
• The core Eurozone partners could conceivably endure relatively higher inflation to reduce their relative competitiveness, but this is also problematic: (i) as we have seen, this differential is largely driven by economic performance, meaning that Southern Europe could be failing to achieve the escape velocity needed to bring down debt ratios; (ii) the inflation rate differential needed to make a difference down south would likely to be too high for the core countries; and (iii) core countries compete against many other countries.
• Greece has already seen a massive correction in its REER, which is now below the level in 1995. And yet the trade deficit remains stubbornly high compared to its closer peers. It is unclear by how much more prices would need to adjust to correct this. Sanctions against Russia, a major export market for them, could not have come at a worse time.
• Politically, devaluation is not on the table. In any event, foreign debts resulting from a generational accumulation of trade deficits would explode in value overnight.

The inability of these countries to rebalance their foreign terms of trade highlights a major flaw of the Eurozone construct, which is largely based on conventional international economics thinking.

All the talk about free movement of labor, price adjustments and so forth breaks down once we realize the adverse implications that the required adjustments will have on debt ratios. It looks like we have hit one major economic SNAFU.

Figure 9: Eurozone Government Debt as % of GDP, 2013

Source: Eurostat.

(a) Remaining founding members of the Euro combined.

Figure 9 reminds us of how extreme the debt situation has become in Southern Europe, in this case just by looking at the public sector. In 2013, all the countries added together had a Government Debt as % of GDP ratio of 121.5%, much higher than their core Eurozone partners and more than double Maastricht Treaty levels. The ratio increased by a staggering 40 percentage points in just five years.

At these dizzying heights market forces just can’t be allowed to play out; and the debt situation in the southern Eurozone complex remains unresolved. Debt is the one thing that has steadily grown over the last four years in these countries.

Sure, we can all live in a world where central banks continue to keep interest rates at absurdly low levels (again, the market is not allowed to function) and paper over any sovereign blow-ups. However, the system becomes increasingly unstable. Moreover, the economic fundamentals continue to deteriorate as those countries struggle to regain competitiveness under a massive debt burden. And it is tackling that burden with non-conventional measures that eventually needs to be considered, but that’s a story for another time [Hint: that process starts with an “R”].

But OK, these are very pleasant countries to live in, with friendly people, great food and beautiful weather. For sure this can attract foreign companies and eventually develop such a productive economy that will mitigate any pricing disadvantages and help pay off the debts right?

And that would be excellent, except for the fact that these are pretty difficult countries to do business in. According to the latest “Doing Business Survey” by the World Bank, here’s how they ranked out of 31 OECD countries: Portugal (#19), Spain (#27), Italy (#29) and Greece (#30). Add the strong likelihood of higher taxes and pension costs to pay for all the debts as they come due and you might be better off just visiting.

If more goods and services don’t start leaving these countries more and more young people will, motivated by high unemployment at home and the prospect of a better life elsewhere. At least someone is working towards a real resolution.

via Zero Hedge http://ift.tt/1nqPIrK Tyler Durden