I wrote this last Thanksgiving but not only is it still relevant, it is still going on. NO resolution, NO overhaul. Are we surprised? From 2013:

The turkeys are squabbling….the big turkeys that is. This Thanksgiving battle is not pilgrims versus Indians, but the big banks suing the regulators.

JPMorgan Chase, Goldman Sachs and their other compadres are fuming over far-reaching new rules passed in the wake of the financial crisis. So guess what, they plan to haul the Commodity Futures Trading Commission to court.

The banks, represented by industry lobbying groups, plan to sue the CFTC for violating rule-making procedures when it proposed new Dodd-Frank era regulations.A source familiar with the matter said that lawsuit, led by the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association, is “imminent.”At issue are new rules spearheaded by outgoing CFTC Chairman Gary Gensler, which some bank officials have described as a parting shot at Wall Street.

According to Bloomberg:

The banks grouse that the proposals would grant the CFTC oversight over complex international swaps deals — even if a US institution has a minor or passing role in the transaction.

“[The proposed rules] could adversely impact market liquidity and the ability of end-users to manage their risks,” an ISDA spokesman said in a statement.

“Market participants and international policy-makers are extremely concerned about the impact of the CFTC’s cross-border guidance and related recent advisories,” the spokesman said.

SIFMA and the CFTC did not return calls for comment.

One source said that the lawsuit seeking to block implementation of the rules, which could kick in before year-end, would likely be filed in either Washington, DC, or Manhattan federal court.

The suit will claim that the CFTC overstepped when it proposed the rules without giving industry participants a chance to weigh in first during a comment period.

“This rule is simply a work-around by Gensler that he’s trying to get through as he’s headed out the door,” said on industry official familiar with the looming lawsuit.

The new rules would force derivatives dealers to seek clearance of complex derivatives through both European and US platforms instead of one platform as is currently the norm.

Bank officials argue the move would ring up additional costs and create unnecessary duplication.

I say let’s free up the court system and have them pull the wishbone.


So now that we are a few weeks past the mid-term elections and the markets have continued to travel higher, should we be surprised? Of course not!

With a Democratic president and a Republican Congress, the one thing we can be certain of is continued gridlock. And the folks on Wall Street love this as they can ostensibly operate without interference from the politicians

From the New York Times:

For example, in periods like the one to begin in January — those with a Democratic president and Republican control of both houses — the market has gained 10.32 percent, annualized. That’s been the second-best political alignment, as far as stock market returns go.

For all combinations of gridlock under a Democratic president, the annualized gain was 10.58 percent. Under a Republican president with gridlock, it was only 1.37 percent. Why? It could be coincidence. But Mr. Hickey surmised that “the market likes a Democratic C.E.O. and a Republican C.F.O.” The idea is that in general, the market has prospered under Democratic presidents, but prefers that their spending be curtailed by Republicans in Congress.

Keith T. Poole, a professor of political science at the University of Georgia, who, like Professor Rosenthal, is an expert on political polarization, said people on Wall Street might have personal reasons for liking gridlock.

Rising political polarization in Congress correlates closely with rising income inequality in America, he said. “We’re now approaching levels of inequality we haven’t seen since the Gilded Age,” he said. This has been accompanied by disproportionately high earnings on Wall Street, he observed. With a highly polarized, Republican-dominated Congress likely to be bickering with a Democratic president in his last two years in office, he said, major tax and regulatory legislation to restore a more equitable balance is unlikely.

“Wall Street is getting very rich,” he said. “And with gridlock, that trend is likely to continue. It’s no wonder that Wall Street likes gridlock.”

Trade With Larry

Just because it’s the weekend, don’t think the central bank machinations stop. Let’s face it, global monetary manipulation just can’t fit in a five day work week.

On Saturday, we heard from ECB Vice President Victor Constancio , who echoed Super Mario Draghi’s comments on Friday that there needs to be action to raise inflation, which ran at .4 percent in the last month.

“This has to be done with monetary policy,” said Constancio, “it’s the ECB”s responsibility.” He went on to add that he really believes that the inflation reading is in actuality a minus one.

Well, at least the Europeans will cop to the inaccuracy and perhaps the intentionally skewed nature of their economic data. Here in the US, we just like to smile, nod, and never delve too far into the numbers.

So what does this all mean for the US markets and the upcoming week?

From Zero Hedge:

US equity futures are also poised for another session at record highs thanks to a German IFO business climate print which followed last week’s ZEW rebound, and rose for the first time in 7 months, printing at 104.7, above the 103.0 expected, up from 103.2 in October. Expect more multiple expansion just that much more on their way to a 20x GAAP P/E on the S&P 500.

Finally, with volumes exceedingly thin headed into Thanksgiving, this week’s eco calendar relatively light, and Japan away from market overnight the mandated wealth effect levitation is set to continue: even crude has managed to bounce modestly from extremely oversold conditions, on hopes this week’s OPEV meeting will result in a production cut. Perhaps the only place where central banks are so far failing to buoy prices is iron ore futures which fell below $70/tonne for the first time since 2009.

Welcome to the holiday season!


Minutes are the notes of the most prior Fed meeting, which is the bankster gathering that decides how global interest rates should move. The last time that the FOMC Minutes were released, the Fit Hit the Shan: market volatility SPIKED!

The most recent FOMC Minutes to be released happened Wednesday afternoon and was a letdown compared to the most recent statement. OK, let’s be honest; it’s just back to normal – zzzzzzz.

A few of the FOMC comments are below…

Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.

…It was observed that if foreign economic or financial conditions deteriorated further, U.S. economic growth over the medium term might be slower than currently expected. However, many participants saw the effects of recent developments on the domestic economy as likely to be quite limited. These participants suggested variously that the share of external trade in the U.S. economy is relatively small, that the effects of changes in the value of the dollar on net exports are modest, that shifts in the structure of U.S. trade and production over time may have reduced the effects on U.S. trade of developments like those seen of late, or that the slowdown in external demand would likely prove to be less severe than initially feared. Several participants judged that the decline in the prices of energy and other commodities as well as lower long-term interest rates would likely provide an offset to the higher dollar and weaker foreign growth, or that the domestic recovery remained on a firm footing.

…Inflation was continuing to run below the Committee’s longer-run objective. Market-based measures of inflation compensation declined somewhat, while survey-based measures of longer-term inflation expectations remained stable. Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee’s 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee’s objective for quite some time. Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly

So the FOMC met and decided…uhhh, not much. Well, it did mention that it dislikes inflation below 2%. You see, the Fed is not happy unless it steals 2% per year, MINIMUM, from you and if it’s below that – it’s upset. And if that wasn’t enough, well ZERO percent paid to you on your savings ought to make it right.

After all, a banking thief has got to get his mistress a new diamond ring once in a while to keep her happy – right? Come on brother, pitch in a few % – wont’cha?


I read an interesting op-ed that ran in the Wall Street Journal from Charles Schwab. I found it intriguing to read a Wall Street veteran that didn’t sound like one of the high-priests of the Keynesian religion of economics. I hope you enjoy it too.

For America’s 44 million senior citizens, plus tens of millions of others who are on the threshold of retirement, last month marked a watershed moment that is worth celebrating. At the end of October, the Federal Reserve announced the first step in returning to a more normal monetary policy. After nearly six years of near-zero interest rates and quantitative easing, the Fed is ending its bond-buying program and has signaled a plan to eventually begin raising the federal-funds rate, raising interest rates to more normal levels by 2017.

U.S. households lost billions in interest income during the Fed’s near-zero interest rate experiment. Because they are often reliant on income from savings, seniors were hit the hardest. Households headed by seniors 65-74 years old lost on average $1,900 in annual income over the past six years, according to a November 2013 McKinsey Global Institute report. For households headed by seniors 75 and older, the loss was $2,700 annually.

With a median income for senior households in the U.S. of roughly $25,000, these are significant losses. In total, according to my company’s calculations, approximately $58 billion in annual income has been lost by America’s seniors since 2008.

Retirees depend on income from their savings for basic living expenses. Without that income, many seniors have taken on greater risk to increase the potential yield on their savings, or simply spent down their nest eggs. After decades of playing by the rules, putting off spending and socking away money, seniors have taken it on the chin. This strikes a blow at the core American principles of self-reliance, individual responsibility and fairness.

Their lost income affects all Americans. Seniors make up 13% of the U.S. population and spend about $1.2 trillion annually—a big chunk of America’s $11.5 trillion consumer economy. In general, seniors spend more than their income, withdrawing each year from accumulated savings, and so their interest earnings get spent right back into the economy.

This makes for a potent multiplier effect. My company estimates that the $58 billion in annual interest income lost by seniors over the past six years would have boosted GDP by $115 billion a year during this period. In a $17 trillion economy that amounts to an additional 0.7% of GDP growth, by no means inconsequential—a 1% increase in GDP typically leads to an increase of more than a million jobs.

Normalized interest rates are also good for the economy broadly. Total short-term interest-bearing assets are today close to $11 trillion. Based on that, a 1% increase in interest rates will generate over $100 billion in increased income. And there is ample room to raise rates. Today the one-year return on a CD is just north of 1%. In a more normal environment, the annual return on a one-year CD has been about 6.15%. As interest rates begin to normalize, increased personal income will drive spending, economic growth and jobs.

Will more historically normal interest rates have negative impacts on others? The cost of home ownership may be higher and borrowing in general will be more expensive. But these costs are largely born by middle-class and higher-income families and they will see that impact lessened over time through inflation. But is it fair that seniors subsidize cheaper credit for others? Most people wouldn’t think so.

So celebration is in order. First, because the famine for savers and seniors over the past six years may soon be over. And second, because good news for savers is good news for the economy and job seekers. Savings are closely tied to investment and growth. The more savings people have, the more money there is to spend or invest, and the faster the economy grows.

Because it creates a direct shot of consumer income that in turn becomes consumer spending, the return of normal market-based interest rates will increase the velocity of money in ways that the policies of the past six years have not. That is a good reason to encourage the Fed to be even more aggressive and normalize monetary policy as quickly as possible. But today, let’s celebrate the Fed’s first steps in that direction and the monetary benefits they’ll have for seniors and savers.


Yes, I have written about Goldman before but it’s hard to ignore these stories.

From Zero Hedge:

If only the $3.2 billion Goldman Sachs Global Opportunities hedge fund had listened to the firm’s equity strategists, life would have been great. However, as Bloomberg reports, the so-called ‘best-ideas’ fund dropped 5.6% in October leaving it down 2.6% for 2014 as interest-rate bets went pear-shaped amid the crash-and-dash that was October’s market manipulation. “We believe monetary policy needs to catch up with growth, and that interest rates in the US and UK are likely to rise by a significant amount,” the fund wrote. It seems Goldman ‘muppeted’ itself.Things aren’t working out… and as a gentle reminder, the fund lost 35% in 2008.

As Bloomberg reports,

A $3.2 billion Goldman Sachs Group Inc. hedge fund that pools some of the firm’s best ideas declined 5.6 percent last month as a bet on the direction of U.S. interest rates went wrong, two people with knowledge of the matter said.

Goldman Sachs Global Opportunities Fund, which invests based on the trade ideas from the money-management unit’s fixed-income team, took a position that interest rates would rise, only to see them decline, said the people, who asked not to be identified because the information is private.

.”We believe monetary policy needs to catch up with growth, and that interest rates in the US and UK are likely to rise by a significant amount in the next one to two years,” according to a March paper written by the asset management arm.

The fund, which has counted former presidential contender Mitt Romney among its investors, is a relative value pool that takes positions on rising and falling prices in the global fixed-income and foreign exchange markets. The fund, which was started in 2001, had $3.2 billion in assets as of June, the people said.

Since inception, the fund has generated a net internal rate of return of 9.1 percent, said one of the people. It declined 2.6 percent in 2014 through October. If that performance holds, it would lead to the second calendar-year loss in the fund’s history. The fund declined 35 percent in 2008, according to the people.

The fund is overseen by Jonathan Beinner, co-head of global fixed income at Goldman Sachs Asset Management, and Samuel Finkelstein,head of macro strategies within the fixed-income team, according to a regulatory filing this year.

* * *

Goldman “muppeted” itself..


Ebola, ISIS, falling oil prices, recession…you name it, there’s something scary looming on the horizon. But the newest concern may be the one to finally send us all screaming in the streets – a potential chocolate shortage.

Candy and chocolate manufacturers, including Mars and Hershey, have been raising prices as the global consumption of cocoa has outpaced production.

Central Banks, can we please intervene. Is there some sort of Quantitative Eating program to save us from a life without sweets?

From the Fiscal Times.

The International Cocoa Organization (ICCO) said in June it sees a deficit of 30,000 tons in the current 2013-2014 time frame– about 100,000 tons lower than its forecast at the start of the season. It predicted that the deficit for next season (2014-2015) should also hover around 100,000 tons.

“Production will decline and demand will continue to increase,” said Laurent Pipitone, director of economics and statistics at the ICCO during the second World Cocoa Conference, held in Amsterdam.

Demand for cocoa has been on the rise, especially as North American consumers opt for the healthier dark chocolate, which has a higher cocoa content. Yet supply has been shrinking for several reasons:

• A growing taste for chocolate and therefore higher demand from China.

• Dry weather in West Africa, the main cocoa production region.

• A deadly fungus called frosty pod.

• And to a lesser extent, Ebola, as harvesting and shipping of cocoa in Guinea, Liberia and Sierra Leone have been seriously curtailed because of the disease’s impact on the population there.

As a result, the price of cocoa has been risen this year, although it fell last month. In October, the ICCO daily price averaged $3,101 per ton, down by $120 compared to the average price in the previous month.

The rising price of cocoa has in turn prompted major chocolate manufacturers to increase their prices. Mars Inc., which makes M&M’s and Snickers, announced in July it would raise prices by an average of 7 percent to offset rising costs, for its first increase in three years.

Janet, Mario…send the central farmers! We need to be able to afford a Hershey bar.


Overnight we found out that things have gotten even worse economically in Japan. It has just recorded a triple dip recession. A recession is usually defined by a period of economic decline, or negative GDP, for two consecutive quarters. Double dip recessions are two recessions separated by a brief period of positive GDP, usually a month or two. A triple dip recession is simply extended by one more positive GDP surge, then right back into “negative growth,” which is where Japan finds itself today.


The Japanese government had said some time ago that it would once again raise sales taxes but hasn’t followed through. In fact, one might wonder if it was a bluff all along because over the last several weeks the government declared a stay of execution of sorts. With each announcement that the tax hike would be delayed, the Japanese markets significantly rallied, as well as our own.

Was Prime Minister Abe just attempting to boost the markets and hopefully the economy in order to goose final GDP and thus avoided the dreaded triple dip recession?

Clearly Abenomics is a complete failure; but when has failure ever.


Short selling; do you remember that? It has been fraught with so much danger since the global central banks decided to rig the equity markets that it seems to have just gone away. Short selling individual stocks over short time horizons is still viable; however, short funds are always working on a longer time horizon, which makes it much more difficult.

Interesting comments from SocGen’s Andrew Lapthorne follow.

Aided and abetted by QE, the last three years has seen the MSCI World Index rise by 38% whilst reported profits have risen by just 3%.This complete disconnection with fundamentals has been painful for short-funds looking to generate returns out of companies with weak business models.

With the global equity markets up almost 150% since the 2009’s low, fueled by cheap money and central bank QE, it is little wonder investors have lost interest in shorting. Indeed, many dedicated short funds have simply closed up shop recently or have returned investor’s cash whilst awaiting richer pickings or at least some return to a market more focused on fundamentals, rather than central bank largesse.

Long/short equity strategies have struggled in this environment (see below) and dedicated short funds have suffered most. That short funds suffer during rising markets is not unusual, minimizing the pain in the good times and then delivering during a crisis is usually the objective. However the last few years have been particularly painful. For example during the bull market run in equities during 2003/07, whilst dedicated short funds underperformed, they held their ground in absolute terms. This allowed long/short equity to do well even despite the rapid market rise, i.e. the short side did not detract from the overall performance. The same cannot be said of more recent performance, where short strategies performance has been so painful that we suspect many have simply given up.

QE has helped kill off the dark arts.

Why have short-strategies suffered so much? We suspect QE may be part of the problem. As is now well recognized QE has helped drive up equities, but has done little to improve underlying earnings, as such it has pushed up share prices well in excess of what might be justified by fundamentals.

We are still amazed by the chart [below], but it summarizes the problem for those seeking to short stocks with fundamental weaknesses. In the last three years, the MSCI World Index has risen by 38% (11% per annum) whilst reported profits have risen by just 3% (that’s just 1% per annum!).

As the events of last month attest, central bank actions–not profits–are driving equities forward.



This morning regulators in the U.S., Britain and Switzerland ordered five banks to pay about $3.3 billion in the first wave of penalties since authorities began a global probe into the rigging of key foreign-exchange benchmarks last year.

While these sound like big scary numbers, we have to remember who is getting whacked. How could any entity survive these fines? Well, the banks have set aside about $5.3 billion in recent weeks for legal matters, including the currency investigations. The fact is that the balance sheets of the big banks can absorb this kind of hit. Not bad to have a spare couple of billion dollars in the rain day fund.

From Bloomberg we get the details:

Switzerland’s UBS AG (UBSN) was ordered to pay the most at $800 million, according to statements from the U.S. Commodity Futures Trading Commission, Britain’s Financial Conduct Authority and the Swiss Financial Market Supervisory Authority. Citigroup Inc. (C) will pay $668 million, followed by JPMorgan Chase & Co. (JPM) at $662 million. Royal Bank of Scotland Group Plc was fined about $634 million and HSBC Holdings Plc (HSBA) $618 million. Barclays Plc (BARC), which had been in settlement talks, said it wasn’t ready for a deal.

Banks and individuals could still face further penalties and litigation following the 13-month probe into allegations dealers at the biggest banks colluded with counterparts at other firms to rig benchmarks used by fund managers to determine what they pay for foreign currency. The U.S. Justice Department and Britain’s Serious Fraud Office are also leading criminal probes into the $5.3 trillion-a-day currency market.

“The traders put their own interest ahead of their customers, they manipulated the market — or attempted to manipulate the market — and abused the trust of the public,” FCA Chief Executive Officer Martin Wheatley told reporters at a briefing in London today. The regulator will press firms to review their bonus plans and claw back payments already made.

With these harsh words and stiff penalties the European banks stocks must have taken a hit overnight? Nope.

UBS rose 0.4 percent to 16.82 francs in Zurich, while RBS was also up 0.5 percent at 379.60 pence. Only Barclays fell 1.5 percent to 231.15 pence as of 10:36 a.m. in London trading. By delaying, Barclays won’t now receive the 30 percent reduction in its penalty the FCA awarded the other banks settling today.