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Skepticism and critical thinking is not panacea, but can help to understand the world better

Financial Skeptic Bulletin, January 2013

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec


This one year old selection of news. It's really funny to read forecasts that are just one year old.

Note: Despite doom and gloom stock market went from 1260 to 1460 in one year. This new stock and bonds bubble was supported by Fed.

Some positive points

Some negative points:

The "recovery" is now the worst in US history, having just dipped below the heretofore lowest on record.

If there was any debate whether the Fed's policies have helped the economy or just the market (and specifically the Bernanke-targeted Russell 2000), the following two charts will end any and all debate. As the following chart from the St Louis Fed shows, as of the just completed quarter, US GDP "growth" since the "recovery" is now the worst in US history, having just dipped below the heretofore lowest on record. (It's Official: Worst. Recovery. EVER)

"...the formal debt/GDP is now 103.8% and growing fast."

Previously, when calculating debt/GDP metrics for the US, we naturally assumed some GDP growth in Q4. Following today's GDP data we now know what Q4 GDP is. We also know that, at least on a preliminary basis, it posted a decline on an annualized basis. This means that we now have an official print for US Debt/GDP as of December 31, 2012. The numerator, or debt: $16.432 trillion, or the debt ceiling, which as we know was breached on the same day, and which has yet to be formally raised. The denominator, or GDP: $15.829 trillion. This means that the formal debt/GDP is now 103.8% and growing fast.[Jan 30, 2013] US Ends 2012 With 103.8% Debt To GDP by Tyler Durden

Shrinkage: US Economy Declined By -0.1% In Q4

A stunner out of the BEA which just reported a Q4 GDP of -0.1% that was leaps and bounds below the 1.1% estimate, and a plunge from Q3's 3.1%. The factors: Private Inventories, Exports and Government Expenditures all of which contracted, by -1.27%, -0.81%, and -1.33%. The silver lining was in Personal Consumption Expenditures which added 1.52% to the negative print, most of it however driven by a surge in spending ahead of the fiscal cliff. Ironically, this was the biggest government-driven detraction from growth since Q1 2011, when GDP led to a -1.49% cut in the GDP, same in Q4 when government spending on defense fell the most since 1972. The solution is simple: print moar drones. Enter Mali. And since everything is now AMZN-ing, we can't wait for the spin that the GDP's margins were actually better than expected, leading to a 200 point surge in the DJIA.[Jan 30, 2013] Shrinkage: US Economy Declined By -0.1% In Q4

The Removal Of 'Event Risk'

The removal of "event risk" is the bottom line which defines the markets currently and which is why there is such a large disparity between economic fundamentals and the markets' collective reaction.

Short and sweet; risk has subsided or at least that is the common perception. This does not mean that the collective thinking is correct or even that it will be the "collective thinking" for long.

The lack of a "fear factor" will push "relative valuations" in new directions which will impact the Dollar/Euro ratio causing even greater financial issues for Europe and higher Treasury yields will impact not just bonds with credit risk but equities as a matter of comparison.

Yields in Europe, which went down because of the Draghi promise coupled with our great slosh of capital and the "delay, defer and postpone" mindset of the Europeans may begin to rise again because of other factors which primarily would be their "relative valuations" against their American counterparts. The lack of "event risk" has two sides and two sets of consequences.

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Old News ;-)

[Jan 31, 2013] Ripe For The Picking Time to Short Muni Bonds By The ETF Professor

Let's look at this advice year later -- right, you would earn ton of money following this advice ;-)
Jan 30, 2012 | Forbes

ETFs tracking municipal bonds defied logic in 2011. Well, at least they proved doubters, Meredith Whitney among them, wrong on the road to some stellar performances.

Yes, concerns about major budget issues facing scores of U.S. states, cities and towns were and still are legitimate. However, yield-starved investors put those concerns on the back burner and did some serious shopping with muni bond ETFs.

There are no guarantees of imminent declines, but looking at the charts and indicators of many muni bond ETFs, it's clear this group has moved up in a big way and the time might be right for some profit-taking if not all-out shorting of these ETFs.

How The Stock Market Became The "Food Stamps" for the 1% by Tyler Durden


Food stamps are just a payoff to the poor. It keeps them off the streets. It's an unspoken bribe plain and simple. The oligarchs do not want angry, roving, hungry masses on the streets while they strip mine what's left of the economy. However, the oligarchs have another problem to deal with - the huge group of people that resides in between them and the poor. The average person can feel themselves getting poorer despite the nonsense spewed by the mainstream media; and this is where the stock market comes into play. More than any other group, the 1% has been convinced that the stock market represents some sort of leading indicator of wealth and prosperity. A rising stock market today is actually a leading indicator of the destruction of the middle class, cultural destitution and a society in collapse. The stock market is like slop in a pigpen. It is a key instrument used to keep the 1% from getting antsy. Unlike the middle class (a group that isn't falling for any of the tricks), many of the 1% work on Wall Street or related industries and own stocks. They must be kept quiet as the coup that started in 2008 is brought to fruition. So as the 1% sits around analyzing a casino, the poor collect food stamps and the middle class dies.

[Jan 31, 2013] Art Cashin's 65-Year-Old Reason We Are Heading Into Recession

"GDP for 2012 at about 1.5% (not the 4% growth that was the Fed's projection, he snarks); and it is that 1.5% growth rate that has a 65-year history of concerning implications..."
Submitted by Tyler Durden on 01/31/2013 - 12:46

Stocks have slipped, precious metals have round-tripped, and the FOMC did nothing to save us but nevertheless the world's analysts and economists came to the rescue of yesterday's negative GDP growth print yammering over a never-ending series of reasons why ignoring the bad parts, it was great.

UBS' Art Cashin, as always, cuts through all the spin as he notes, while most of headlines concentrated on the 4th Quarter GDP, it did give us a look at the annual GDP for 2012 at about 1.5% (not the 4% growth that was the Fed's projection, he snarks); and it is that 1.5% growth rate that has a 65-year history of concerning implications...

[Jan 30, 2013] Why Economists Get Things Wrong by Tyler Durden


Following today's 3-sigma miss in GDP by the greatest and goodest economists of the world, we thought David McWilliams brief 'Punk Economics' clip on "why economists get things wrong" was particularly appropriate. With Mark Zandi's "this didn't really happen" comment this morning on GDP, McWilliams starts by warning of the most dangerous of economic soothsayers - the overconfident and over-optimistic forecaster.

Perhaps, he notes, the Queen was on to something when she asked (about the crisis), "why didn't you see this coming? ...and why should I listen to you now?" The key fact driving economists' inability to predict the future is a lack of understanding of the present thanks to the "complete and utter nonsense" that economists see the world as rational - which, he shows, we certainly are not. There is no economics for emotions, exuberances, impulses, or frenzies (as is all too clear currently).

We simply don't learn from our mistakes and always believe this time will be different. Indeed...

[Jan 30, 2013] Elliott's Paul Singer On How Money Is Created... And How It Dies by Tyler Durden

"History is replete with examples of societies whose downfalls were related to or caused by the destruction of money"

"History is replete with examples of societies whose downfalls were related to or caused by the destruction of money. The end of this phase of global financial history will likely erupt suddenly. It will take almost everyone by surprise, and then it may grind a great deal of capital and societal cohesion into dust and pain.

We wish more global leaders understood the value of sound economic policy, the necessity of sound money, and the difference between governmental actions that enable growth and economic stability and those that risk abject ruin. Unfortunately, it appears that few leaders do."

- Paul Singer, Elliott Management

[Jan 30, 2013] Dow Transports And Oil Revert To Old Normal?

Submitted by Tyler Durden on 01/30/2013 - 19:00

Since the peak in 2008, the Dow Transports and the price of crude oil has been extremely highly correlated. Whether this is due to the inextricable factor of central bank liquidity flushing 'money' into each and every market around the world - or an increase in the link between demand for energy and increasing transportation needs - it seems something has recently changed.

Oil prices have been stymied in the last year as global growth slowed and in spite of a plethora of hot-spots for geo-political risk flares has been unable to see premia rise. On the other hand, the Dow Transports have screamed higher.

Different this time? It would appear so... or is this a return to the anti-correlated (somewhat more sensible) energy-cost-to-transports world that existed before the crisis?

[Jan 30, 2013] Ken "Ain't Different" Rogoff Crushes The Infinite Dream Of Crude Keynesian Stimulus

Submitted by Tyler Durden on 01/30/2013 - 18:25

Following today's dismal GDP print, the massive ongoing borrowing being undertaken by our government, and the Bernankian policies which appear inescapable (and entirely ineffective for anything but the market), we thought Ken Rogoff's recent op-ed from the FT was extremely appropriate. Many foreign observers look at the US budget shenanigans with confusion and dismay, wondering how a country that seems to have it all can manage its fiscal affairs so chaotically. The root problem is not just a hugely elevated level of public debt, or a patently unsustainable trajectory for old age entitlements. It is an electorate deeply divided over the direction of government, with differences compounded by changing demographics and sustained sluggish growth. It is hard to escape the notion that today's budget battles are but a skirmish in a much longer-term war that won't be settled soon. The idea that one should just ignore all these problems and apply crude Keynesian stimulus is a dangerous one. It matters a great deal how the government taxes and spends, not just how much. The US debt level is a constraint.

[Jan 30, 2013] Guest Post: The New Regime For Precious Metals

Submitted by Tyler Durden on 01/30/2013 - 17:43

Today we look at long term charts of some key commodities and investigate means by which we might gain insight into the dynamics of their price movements. The charts are most commonly studied as a plot of price vs time. However, the dynamical evolution of a complex system is described by a succession of states through which the system has evolved. Even though gold and silver have been in a bull market for over ten years, the real regime change only happened about three years ago. What was evident was the separation of the precious metals (which still includes silver) from the industrial metals and agricultural commodities. What happened?

[Jan 30, 2013] Eric Sprott On Ignoring The Obvious by Tyler Durden

The purpose of asset purchases by the Fed might no longer be improvements in the real economy, but rather a more subtle financing of U.S. government deficits.

The purpose of asset purchases by the Fed might no longer be improvements in the real economy, but rather a more subtle financing of U.S. government deficits.

However, in the long run, expanding the money supply inevitably leads to inflationary pressures. Luckily for the Fed and the U.S. government, there is so much slack in the labour market that inflation might be years away.

And, if we are right about the long run unemployment rate being structurally higher, then the Fed has all the room it needs to continue Quantitative Easing (QE) to infinity. This might allow them to continue to hide the true financial position of the government for many years to come.

Nonetheless, the rising GAAP deficit and the sheer size of the U.S. Federal Government's liabilities to its citizens makes it clear that one day or another, services (health care, social security) will have to be cut. Financial alchemy can hide reality, but it does not provide any tangible services. Europe's (unresolved) experience with its debt crisis provides an insightful window into the future.

Austerity measures in Ireland, Portugal, Spain and Greece have caused tremendous pain to their citizens (25% unemployment rates) and wreaked havoc in their economies (double digit retail sales declines). Are we going to ignore the obvious?

[Jan 29, 2013] Consumer Confidence Crashes To 2011 Levels After Biggest Plunge Since August 2011 Debt Ceiling Debacle by Tyler Durden

"For every income levels (except those earning under $15k) confidence plunged with the $35k-$50k bracket crashing the most."

It would appear that the hike in taxes on 77% of Americans that was heralded as a success, has dented confidence just a little. As the efficient stock market moves to all-time nominal highs in many cases, Consumer Confidence just fell off a cliff. The conference board printed at the worst level in 13 months - so all those 2012 gains are gone - and fell month-over-month by the most since the August 2011 fiscal cliff debacle. For every income levels (except those earning under $15k) confidence plunged with the $35k-$50k bracket crashing the most. It would appear that the driver of 70% of the US economy is not buying the new normal being fed to us daily by any and every media outlet possible. No matter how much the market is held up by mysterious runs in FX markets or volatility compression, it would appear that - just as we have been noting - the underlying macro fundamentals will eventually be priced in, as this does not bode well for retail sales.

Marc Faber Fears 1987 Redux As "Markets Will Punish Interventionists"

Submitted by Tyler Durden on 01/25/2013 - 18:59

"Regardless of what the markets do near-term, a correction is overdue," Marc Faber tells Bloomberg TV's Betty Liu. From discussing Europe's 'apparent' stabilization - "anything can go up when you print money"; to US equity exuberance - "a correction is overdue and February is a seasonally weak month"; Faber sees no change from Geithner's handover to Lew as he opines: "The only thing I know is one day the markets will punish the interventionists, the Keynesians and the monetary policy that the Federal Reserve and ECB has enforced because the markets will be more powerful one day. How will this look like? Will the bond market collapse or equity markets become a bubble, which would be embarrassing for the Fed's sake if the U.S. market became a gigantic bubble and at the same time the economy does not recover."

Bob Shiller's Healthy Dose Of Skepticism by Tyler Durden


In a week dominated by prognosticators pointing reflexively to a nominal price index flashing green on their TV as indication that all is well in the world, Bob Shiller provides some much-needed healthy skepticism on not just the state of the housing market but the broad economy itself.

While Bloomberg TV's Tom Keene presses his short-term anchoring-biased view of a world heading for much better growth and a US housing recovery that will seemingly save us all; Shiller warns we have seen this before (in 2009's housing market) and that the housing decline could go on. When Keene tries to translate the market's performance into economic performance expectations, Shiller responds "you are talking to wrong man."

From the fact that we should be growing super-normally now to return to 'normal' market conditions to his view of many more years to go in this stagnation, four minutes of Shiller's historical prescience is the perfect foil to the tick-watching talking-heads exuberance (especially in light of today's dismal new home sales).

The "Undisputed Housing Recovery" Is Unmissable On This New Home Sales Chart

Submitted by Tyler Durden on 01/25/2013 - 10:23

We could bore readers with the details of the just announced New Homes Sales data from the Census Bureau, which put a somewhat largish dent in the "undisputed" housing recovery fairytale taking place in America (perhaps in the Hamptons, and triplexes in Manhattan where the NAR continues to launder Chinese and Russian oligarch money).... or we could just show this chart of the non-seasonally adjusted, unannualized New Home Sales in the past decade, and ask: just where is this recovery everyone keeps on talking about?

[Jan 27, 2013] Shiller: Don't Count on a New Housing Boom

Robert Shiller says caution is in order in housing markets:

A New Housing Boom? Don't Count on It, by Robert Shiller, Commentary, NY Times: We're beginning to hear noises that we've reached a major turning point in the housing market - and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target?
It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don't clearly suggest any particular path for prices, either up or down..., any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years. ...
The bottom line for potential home buyers or sellers is probably this: Don't do anything dramatic or difficult. There is too much uncertainty... If you have personal reasons for getting into or out of the housing market, go ahead. Otherwise, don't stay up worrying about home prices any more than you do about stock prices. ...

[Jan 24, 2013] Shiller Says U.S. Housing Market May Drop Further: Tom Keene by Scott Hamilton

Jan 24, 2013 | Bloomberg

A U.S. housing-market revival may prove illusory and the threat of further weakness remains, said Robert Shiller, a professor at Yale University and co-creator of the S&P/Case-Shiller index of property values.

"The housing market has been declining for something like six years now, it could go on, that's my worry," Shiller told Tom Keene in a Bloomberg Television interview today in Davos, Switzerland. "The short-term indicators are up now, it definitely looks better, but we saw that in 2009."

The property market has shown signs of recovery and homebuilding has rebounded as low borrowing costs spur buyer demand, bolster prices. Values rose 7.4 percent in November from a year earlier, the ninth straight increase and the biggest gain since May 2006, Irvine, California-based data provider CoreLogic said last week.

"It's a good housing market in the sense that mortgage rates are very low and prices have come down to normal levels, so yes, it's a good time to buy if nothing bad happens," Shiller said. "But it's also a very bad housing market in that most of the mortgages are being supported by the government, and we have the Fed and this buying program. It's a very abnormal market. There's a lot of uncertainty going forward."

The average rate for a 30-year fixed mortgage fell to 3.38 percent in the week ended Jan. 17 from 3.4 percent, McLean, Virginia-based Freddie Mac (FMCC) said that day. The average rate dropped to a record 3.31 percent in November. New-home sales in December picked up to a 385,000 annual rate, according to the median forecast of economists surveyed by Bloomberg ahead of a Commerce Department report tomorrow.

Attending Davos

The S&P/Case-Shiller index of property values in 20 cities increased an annual 4.3 percent in October, the biggest 12-month advance since May 2010, the group said on Dec. 26. The next report is due on Jan. 29.

Data on Jan. 22 showed sales of U.S. existing homes unexpectedly fell in December. Purchases fell 1 percent to a 4.94 million annual rate last month, the National Association of Realtors said. The median forecast in a Bloomberg survey was for a gain to a 5.1 million rate.

Shiller, who spoke while attending the World Economic Forum's 2013 annual meeting, also said that while global economic conditions are "a little better," there are still risks to the recovery.

"We've been five years in a slow economy, and it could go quite a bit longer," he said. "We've seen gross domestic product growth at sub-normal levels."

He added, "I think we're pretty far from irrational exuberance, maybe 50 years away."

Guest Post: Energy Industry Doesn't Understand Algeria Attack

Submitted by Tyler Durden on 01/24/2013 - 20:46

The attack on BP-operated Amenas gas facilities in the Algerian Sahara was a spectacular lesson for the energy industry: No amount of high-tech security is invulnerable to Sahelian militants. Billions will now be spent on securing Western energy interests across the region and investment will take a hit at a time when the big news was that the industry's junior players - particularly American and Canadian - were growing ever so bold and willing to take risks in unstable regions. Their markets may not be able to sustain this bravery much longer.

The biggest mistake the industry makes is to ignore regional and geopolitical dynamics. The markets - like the industry - do not respond to complicated geopolitics. They respond to specific incidents and there will be another one. That is to say, the markets will not take the Algerian incident as seriously as it should.

Guest Post: The Tangled Relationship Between Wealth & Money

Submitted by Tyler Durden on 01/24/2013 - 13:19

One of the most dangerous mistakes possible to make in trying to understand the shape of the economic future is to think of the fundamental concepts of economics as simple and uncontroversial. They aren't. In economics, as in all other fields, the fundamentals are where disguised ideologies and unexamined presuppositions are most likely to hide out, precisely because nobody questions them. In this note we will explore a number of things that seem, at first glance, very obvious and basic.

There are lessons of crucial and deeply practical importance to anyone facing the challenging years ahead. This is, above all, true of the first thing we want to talk about: the tangled relationship between wealth and money.

Chris Martenson, likes to remind us all that money is not wealth, but a claim on wealth. He's quite right, and it's important to understand why.

S&P 500 Crosses 1500

Submitted by Tyler Durden on 01/24/2013 - 10:13

If there was one day needing some truly epic distraction from the bloodbath of the world's most widely held stock (held by some 231 hedge funds as of September 30, and countless mutual and other plain vanilla funds), it was today. And sure enough, it came courtesy of the S&P, which "restored" confidence that 'all is well' after it just crossed 1500 for the first time since 2007. The only thing missing were balloons falling from the sky saying "all is well, keep calm, the NY Fed-Citadel fat trading pipe is working perfectly and will keep buying stuff as long as needed." It would appear the Long-AAPL, short S&P trade is in full unwind mode - and we note that trade size is large up here.

Faber To Shiller: "You Keep Your U.S. Dollars And I'll Keep My Gold"

Submitted by Tyler Durden on 01/24/2013 - 07:48

"Everyone should keep gold in their portfolios" as the precious metal will be able to offer value to investors even in a worst-case scenario, said Marc Faber, the publisher of the Gloom, Boom & Doom report. "In the worst case scenario, in the systemic failure that I expect, it would still have some value," Faber, who is also the founder and managing director of Marc Faber Ltd., said today at an event hosted by Evli Bank Oyj in Helsinki. Faber said his outlook was so bleak that he is "hyper bearish". He joked that "sometimes I'm so concerned about the world I want to jump out of the window."..

In response to a question from Yale University's Robert Shiller querying the recommendation to hold gold, Faber said:

"I'm prepared to make a bet, you keep your U.S. dollars and I'll keep my gold, we'll see which one goes to zero first."

Shiller, who is the co-creator of the S&P/Case-Shiller index of property values, responded "I'm inclined to think gold prices after this crisis might return to a lower level. Given the low yields of the alternatives [ie, bonds], the valuation of the stock market doesn't look so bad." Faber, whose advice has protected millions of investors in recent years, warned of a global systemic crisis possibly due to massive size of the global derivatives market which is now worth over an incredible $700 trillion. He warned "when the system goes down," and only plastic credit cards are left, "maybe then people will realize and go back to some gold-based system."

Prospects for the Global Economy - Country-specific data

"growth for the year is likely to be modest". Forecast 2013 - 2.4, 2015 - 2%.

Prospects for the Global Economy - Significant headwinds imply moderate growth going forward

Notwithstanding that activity in both developed and developing countries picked up in early 2012, growth for the year is likely to be modest because of uncertainty in Europe, ongoing banking-sector deleveraging, fiscal consolidation in high-income countries, and capacity constraints in developing countries.

Analysis Higher U.S. bond yields could impede economic recovery By Richard Leong and Ellen Freilich

Just last March, Bill Gross, manager of the world's largest bond fund, the PIMCO Total Return fund, sharply cut his exposure to U.S. Treasuries.
Yahoo! Finance

A rough couple of months in the U.S. bond market has lifted interest rates off record lows and now could impede a slow economic recovery heavily dependent on cheap money to keep going.

While stocks have surged to near-record levels from five years ago, an accompanying rally in the $11.6 trillion U.S. Treasury debt market appears to have run out of steam and bond prices have dropped steadily since early December. That has pushed up bond yields, which move in the opposite direction to prices and they are now at the highest levels since last spring.

Some of what's behind the sell-off can be seen as positive - greater investor confidence in riskier assets such as stocks, signs the European debt crisis is abating and a spate of U.S. economic indicators that point to more growth.

As bonds fall out of favor, however, credit-sensitive corners of the economy could start to feel the pinch. The housing market, car sales and business and public sector investment will be vulnerable as the cost of borrowing rises because all credit costs are ultimately tied to the Treasury market.

"I do fall into the camp of people who worry what will happen when rates go up," said Tom Nelson, chief investment officer at New York-based Reich & Tang, a firm with nearly half of its $28 billion in assets under supervision in money market mutual funds.

Of course, the demise of the three-decade bond-market rally has been forecast repeatedly in recent years. Just last March, Bill Gross, manager of the world's largest bond fund, the PIMCO Total Return fund, sharply cut his exposure to U.S. Treasuries. Bonds proceeded to rally through November, driving the yield on the benchmark 10-year Treasury note to well below 2 percent.

The threat of a major sell-off remains distant in many investors' minds because the market enjoys one big source of demand - the U.S. Federal Reserve. As part of its latest effort to prop up the economy by flooding the banking system with cash, the Fed has been buying $85 billion of Treasuries and mortgage bonds from banks each month since September and has no plans to ease up anytime soon.


Still, investors have grown more hungry for higher yields, driving investment fund flows into equities and away from bonds in the past couple of months. The Standard & Poor's 500 index has delivered a total return in excess of 6 percent since the end of November, while the return on Treasuries has been a negative 1.3 percent, according to Bank of America/Merrill Lynch Fixed Income Index data.

As a result, the 10-year yield last week rose to more than 2 percent for the first time in nine months. Expectations are for yields to move higher, at least modestly.

"This is the biggest risk for bond investors," Hans Mikkelsen, a bond strategist with Bank of America Merrill Lynch in New York. "I'm surprised we have gotten to 2 percent already."

In October, Mikkelsen forecast a "Great Rotation" from bonds into stocks in early 2013. Also, a survey last week by J.P. Morgan showed that one in four investors own fewer Treasuries than their portfolio benchmarks, the most in almost 19 months.

And ultimately, analysts agree the Fed's highly accommodative monetary policy must come to an end.

Nelson from Reich & Tang recalled 1994, when the Fed raised its benchmark federal funds rate six times, to 5.50 percent from 3 percent.

"When the Fed starts to raise rates, they're not going to go to 35 basis points," Nelson said. "There's a high probability that they will move faster than they did in 1994 because just getting back to neutral will mean a sharp rise in rates."


The spike in Treasury yields, from which most U.S. mortgage interest rates are derived, comes at a sensitive moment for a housing market that has just started gaining traction. Rising mortgage costs could slow investments in real estate, which contributed to economic growth in 2012 for the first time since the housing bubble burst five years ago.

The average interest rate on 30-year mortgages, the most widely held type of U.S. home loan, has increased by 0.15 percentage point to 3.67 percent, according to the Mortgage Bankers Association. That rate would probably have to rise to about 4 percent to hurt housing by discouraging investors from pouring more cash into the sector, analysts said.

Rapidly rising yields would also squeeze businesses and local governments looking to borrow to spend on building plants and roads or hire workers. Like mortgage rates, public and private borrowing costs are linked to Treasury yields.

Berkshire Hathaway Inc (BRK-A), run by billionaire investor Warren Buffett, sold $2.6 billion of debt last week. The timing was seen as a response to a recent rise in U.S. Treasury rates and Buffett has a reputation for spotting turning points.


Still, the bond market has seen this before. In the last two years, bond yields rose in the first quarter, only to fade by spring as growth slowed and Europe's debt crisis flared up.

"Each year we've had waves of optimism and pessimism. Right now, investors are on the optimistic foot," said Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, New Jersey.

Even if yields rise modestly, it is not bad for everyone. Banks would see profit margins improve as their short-term borrowing costs will likely remain near zero because the Fed is expected to stick to ultra loose monetary policy into 2015.

For savers who have seen their incomes dwindle, a pickup in interest on bank accounts and money mutual funds should be a relief and perhaps encourage them to spend a bit more.

Overall, economists do not think the ingredients are in place for more than a modest rise in rates in 2013. The economic growth trend is still spotty. Even an aggressive forecast would still not bet on Fed raising rates until somewhere in 2014.

"It's not the final bell for the bond market just yet, though it's getting closer," said Daniel Heckman, senior fixed income strategist at U.S. Bank Wealth Management in Minneapolis.

(Reporting by Richard Leong and Ellen Freilich; Editing by David Gaffen and Andre Grenon)

Retail Sales and Jobs

January 16, 2013 | Panzner Insights:

Economists rely on a variety of indicators to try and get a read on the economy. But the apparent connection between certain data points and trends and future activity isn't always obvious or straightforward.

That doesn't seem to be the case in regard to the connection between retail sales and employment. Indeed, it makes sense that concerns about the job market would be quickly felt when it comes to household spending. If workers fear they might lose their jobs, they don't wait until they get the bad news before cutting back.

More broadly, if a large enough number of workers believes the job market is deteriorating, then it's a good bet the overall trend of retail sales will signal the change before the payroll data does.

As the following chart shows, this has been the pattern previously. Under the circumstances, the latest readings on the pace of retail sales suggest it's only a matter of time before the headline employment data reveals that the jobs market is heading south.

[Jan 14, 2013] What I Am Thinking About As Markets Resolve Issues

Jan 14, 2013 | The Big Picture

GOP bluffing again…

"…I think it is possible that we would shut down the government to make sure President Obama understands that we're serious," House Republican Conference Chairwoman Cathy McMorris Rodgers of Washington state told us…"

Obama will say "Well People, the GOP wants to shut down gov't. They haven't given their detailed list of cuts that will get to a balanced budget, but they want to shut down gov't to get my attention…"

Hey GOP, why not publish a detailed list of cuts? That will get everybody's attention.

The GOP is desperate for attention? They sound like the caricatures of the union leaders they hate: "We will shut down this enterprise!"

Why not publish your list of cuts, how they balance the budget and then let people see where you stand? How will you exactly cut $1T in spending right now? Tell us GOP. Enlighten us.

Why? ….because they can't.. They can't possibly cut programs for old white people that make up the majority of the spending. They want to cut the deficit to zero right now?!

The last election shows 52% of the nation has figured this out. It's time for a few more Republican voters to do the same, and laugh at these cheap GOP tricks. Shutting down the government? Again? Really? TSA? The military? FBI? Really? No Social Security checks? No Medicare payments? Really?

OK. Let's shut it down for real this time. And the way it geets turned back on is one way, when the GOP decides to. That's it. Hey GOP, make sure your staff isn't shut down so you can hear from the same folks who made you back down on your "fervent" anti-tax rhetoric.

The GOP is a bunch of clowns

[Jan 12, 2013] 10 trends to watch in finance for 2013 by Barry Ritholtz

I would add a deep crisis in US ideology and society.

Jan 12, 2013 | The Washington Post

Its more than the crisis: Technology and productivity gains make it easier to operate with fewer workers. My office is a perfect example: Twenty years ago, it would have taken a huge staff to manage the assets we run, handle all the administrative functions, take care of the monthly reporting and manage compliance. What would have taken two dozen people in the 1980s is easily managed by five people today. Oh, and everyone in the office is required to do research or publish commentary. That would have been impossible 30 years ago.

Over the past 40 years, the financial sector over-expanded. Much of what is happening on Wall Street now reflects the process of reversing that excess capacity.

It's a winter ritual: Seers, prognosticators and other gurus tell us which stocks to buy for the year ahead, where they think the Dow will close in December and which momentous events will take place.

History teaches us that the majority of these charlatans will be wrong, and the ones who get it right are mostly lucky. If you have been reading my column for any length of time, you know to ignore them. (See 2011's Forecaster Folly.)

When it comes to predictions, I do the following: Note down the forecasts made this month and look back at them in a year. Repeat every year. I use my desktop calendar and an e-mail Web service called to keep me on track. I started doing this almost a decade ago, and I found it terribly liberating. It will be always be instructive, and, as with the class of 2008 forecasters, occasionally hilarious.

Doing this taught me to ignore the forecasts I see or read, as well as to keep the piehole in the middle of my face closed whenever anyone asks me for a forecast. I defer, saying, "I have no idea. No one does." It is fun to watch the TV anchors' heads spin like Linda Blair's in "The Exorcist."

A better use of your time? Discern what's happening here and now. It's been my experience that investors spend so much time worrying about what might come next that they miss what just happened.

To that end, let's look at what's driving the world of finance. Major shifts have already taken place, and if you understand what they are, it will help your financial planning. From my perspective, these are the more significant trends that will probably continue into 2013:

  1. ETFs are eating everything.

    The revenge of John Bogle continues apace. As investors figure out that they are not good at stock-picking or managing trades, they have also learned that most professionals are not much better. Paying high mutual fund expenses to a manager who underperforms a benchmark makes little sense. This realization has led to the rise of inexpensive exchange-traded funds and indices.

    This "ETFication" has obvious advantages: low costs, transparency, one-click decision-making. ETFs are accessible through the stock market for easier execution, with no minimum investment required. Even bond giant Pimco recognized this trend and created an ETF version of Bill Gross's flagship vehicle, the Total Return Fund. Pimco actually charged more for the ETF than its mutual fund to prevent an exodus of investors from the world's largest bond fund. This will eventually shift.

    Note that Bloomberg, Yahoo Finance and Morningstar all have robust ETF sites that are free (Morningstar charges for some data).

  2. The financial sector continues to shrink; advisers continue to leave large firms for independents.

    Since the financial crisis, Wall Street has shrunk considerably. According to the Bureau of Labor Statistics, there were about 7.76 million people employed in finance and insurance as of November. That's down almost 10 percent from the pre-crisis 2007 peak of about 8.4 million workers.

  3. Increased pressure on fees and commissions. This trend predates ETFs and Wall Street shrinkage; highly paid people are being replaced with cheap software and online services. This is likely to continue for the foreseeable future.

    This is a very good thing for investors: Academic studies have shown that fees are a drag on returns, and lowering these costs is a risk-free way to improve your returns.

  4. Hedge fund troubles. This was not a stellar year for the hedge fund industry. First, there was the issue of underperformance, with the hedgies getting stomped - they underperformed markets by 15 percent. Although being beaten by the market is part of the business, it must be tough explaining to clients why an $8 ETF outperformed a service for which they were being charged 2 percent plus 20 percent of the profit. Then there were the legal troubles and insider-trading indictments. A few high-profile closings also hurt the industry's reputation.

    What the industry has going for it is human nature (also known as "greed"). At the first sign of outperformance, the formerly skittish client base will come stampeding back.

  5. Dispersal of financial news. As the finance industry gets smaller, the media that covers it is also shrinking. If investors are moving away from stock-picking, there is less of a need for the chattering classes to tell you all about it. That is reflected in a variety of ways: Cable television channel CNBC's ratings plummeted, and Dow Jones shuttered the 20-year-old magazine SmartMoney.

    At the same time, alternative sources of news are rising. Blogs continue to be a source of intelligent analysis and commentary; Twitter has become the new tape/newswire. And start-ups such as StockTwits allow traders and investors to share ideas in real time. (Disclosure: I am an investor in StockTwits.)

  6. Demographics are a huge driver. I am not in the camp that believes demographics are the be-all-end-all, but one should not underestimate how significant a factor they are. The aging of the baby boomers is affecting housing (they are downsizing), job creation (they are working longer), investment planning (they have been heavy bond buyers) and generational wealth transfer (it's a-comin').

    The pig is still moving through the python, and the ramifications will be felt for years.

  7. The death of buy-and-hold has been greatly exaggerated. Investors have a tendency to take the wrong lesson from recent experiences, and this one is no different.

    Buy-and-hold investors don't have a lot to show since the market peak - 2000 or 2007 - but that is more about valuation than anything else.

    Since the punditocracy declared the end of buy-and-hold investing, something interesting has happened: Ten-year buy-and-hold returns became half-decent. Time has moved today's 10-year-return start date near the post-2003 dot-com bust lows (March 2003). And three-year returns have outperformed both tactical portfolios and global macro as an investment style.

    For trends to watch in finance in 2013, look to 2012.

    The lesson here is not that buy-and-hold is dead. Rather, it's that when you begin investing, the valuation you pay matter a great deal to your returns.

  8. What hyperinflation?

    The deficit scolds have been warning for years that hyperinflation is imminent. I have been hearing these ominous warnings my entire adult life. "This is unsustainable! Inflation is about to explode!" But inflation has been rather tame, and we are not experiencing anything remotely like hyperinflation.

    They keep using that word "unsustainable," but with all due respect to Inigo Montoya, I do not think that word means what they think it means.

  9. The bond bull market has ended/interest rates are spiking. Similar to what we keep hearing about hyperinflation, we have also been told that the bond market's bull run is over and that rates are about to go much higher. Indeed, we have been hearing this for nearly a decade.

    If you make the same prediction annually, you will eventually be right. Of course, that prediction will be of absolutely no value to anyone. I hereby declare that after three years of the same wrong forecast, you lose your pundit's license. After five years, you must shut it - forever.

  10. The Fed still holds the system together.

    This is the one trend that rules them all: The Fed has held the system together with a combination of ultra-low rates and massive liquidity injections known as QE, or quantitative easing.

    Without this extraordinary intervention, the United States would probably be in a deep recession, home foreclosures would be considerably higher and major money-center banks would either be begging for another bailout or declaring bankruptcy.

    The announcement of QE4 means that this trend is likely to continue for the foreseeable future - and perhaps even further.

    You may not have thought all that deeply about these trends, if at all. But I can assure you that understanding these forces is much more productive than reading someone else's guesses as to what may or may not be true one year from now.

Yield to global, short-term bond funds in 2013 by Deborah Levine

Credit: stay short. "The best place to be is very defensive and very short-term,"
Jan 2, 2013 | Yahoo! Finance:

The main risk is that if interest rates climb as the economy grows, current bond yields are so low that they offer little cushion. Bond prices decline as interest rates rise.

That's making it more dangerous to embrace higher-yielding assets in a bid for income, as investors have done since the U.S. financial crisis, said managers of some of investment researcher Morningstar Inc.'s highest-ranked bond mutual funds.

Investors nowadays are better off in funds that are less sensitive to rate rises, or in global bonds where currency gains against the U.S. dollar can boost returns, they said.

""The good returns in the bond market are in the rearview mirror," said Ken Volpert, head of Vanguard Group's taxable bond group and co-manager of the Vanguard Total Bond Market Index Fund (VBMFX), which added 4% in 2012. "Investors would be wise to be cautious about reaching for yield" in either lower-rated or longer-term debt, he added.

Fund managers are fairly sanguine on the U.S. economic outlook, so expressed little love for Treasury bonds or anything else considered insurance against a downturn.

Corporate bonds remain attractive, though fund managers suggest shorter-term commitments and to be highly diversified. Taxable-bond mutual funds rose more than 8% in 2012 on average, while comparable exchange-traded funds gained about 7%, according to preliminary Morningstar data.

U.S. dollar-based investors also need to consider debt of countries and companies worldwide. Emerging-markets bond funds were standouts in 2012, rising 18.1% on average. The world bond category gained 7.2%; tiny Chou Income Fund (CHOIX) led this group and all taxable-bond funds in 2012 with a gain of 34.9%. Read more: Be choosy about international stock funds in 2013.

As for high-yield, the category is riskier now that yields on such lower-quality bonds have fallen so much. The average high-yield bond fund soared 14.6% in 2012.

High-yield funds extended gains of the prior three years. But the category's benchmark index's effective yield is now 6.24% - not what many investors would consider particularly high. Read story on junk bond yields, fund outflows.

Also, more investors in all tax brackets should consider municipal bonds, because they offer some of the best values regardless of the outcome of the debate in Washington over taxes. Read more: Muni bonds may be money makers in 2013.

Still, yields remain not much above all-time lows in some sectors, while the gap between benchmark Treasury rates and other securities has already narrowed, reducing the chance for a lot of price appreciation to boost returns. It may be a better rule of thumb now to look at the yield on a security or a fund and consider that to be the likely return.

"We've tried to caution clients about their expectations for bond returns," said Ford O'Neil, co-manager of Fidelity Total Bond Fund (FTBFX), an intermediate-term offering that gained 6.5% in 2012.

Corporate bonds of all maturities returned more than 10% for the year, continuing the group's solid gains of the prior two years, according to an index compiled by Bank of America Merrill Lynch. But the effective yield on the index is now 2.75%.

Treasury bonds of all maturities eked out a 2.3% gain in 2012, according to Bank of America. The effective yield is about 0.94%.

"Expectations now have to be for much more modest returns" of between zero- to 4%, O'Neil said.

Look out for the economic outlook

Even as the U.S. economy is expected to grow around 2% in the coming year, the Federal Reserve has said it will buy Treasury and mortgage-backed securities every month and keep interest rates low for another few years possibly, which will keep U.S. government and MBS rates too thin to be attractive for most funds.

Some managers said the only real purpose of holding Treasurys will be as a buffer against the possibility of notably slower growth or recession. But that's not a consensus view, even considering that less government spending and higher taxes are inevitable - it's only a question of how much.

"Our longer-term, secular view is that we're in a low-rate environment for the rest of our lives," said Michael Collins, senior investment officer at Prudential Fixed Income and co-manager of the Prudential Total Return Bond Fund (PDBAX), which rose 9.6% in 2012.

Long Government bond funds rose 6.2% in 2012. Benchmark rates can and probably will rise, but 10-year Treasury yields (ICAP.SD:10_YEAR) should range from 1.5% to 3.5% for the next five to 10 years, Collins said. The yield on the benchmark bond ended the year at 1.76%. Read: Treasury yields end 2012 at lowest in decades.

"The only reason to own government debt is just in case things get ugly over the next year or so, as an insurance policy," Collins said. "That's a really low probability."

Credit: stay short

Managers still see the sweetest spots within the corporate bond market, but stress that investors can't rely on a broad rally. Moreover, the extra yield investors demand to own debt other than Treasurys - called the "yield spread" - is closer to its long-term average and unlikely to tighten much more.

"Investment-grade returns are going to be much more driven by the general level of interest rates, the coupon, and not a lot of spread tightening," said Matt Eagan, co-manager of Loomis Sayles Investment Grade Bond Fund (LIGRX), which gained 12% in 2012.

Investors also have to watch out for the sensitivity of their fund to changes in interest rates. One factor is the maturity of the bond: the longer-term the debt is, the harder it's hit by a rise in rates. A measure of that sensitivity to interest-rate swings is called "duration." Collins said a bond fund with a duration of around 4.5 years cushions an investor from changes in Treasury rates.

Top-flight corporate bonds - AA and even A-rated, will closely track Treasury yields, Collins said, so he prefers slightly lower-rated debt.

"The best place to be is very defensive and very short-term," added Vanguard's Volpert. Within his firm's stable, he pointed to Vanguard Short-Term Corporate Bond ETF (VCSH) or Vanguard Short-Term Investment-Grade Fund (VFSTX) .

Go global

Bond managers increasingly see better returns outside of the U.S. Other countries' sovereign debt can carry higher rates and be just as safe as the U.S. - if not in a better economic and fiscal position. However, investors need to be especially aware of currency risk. World Bond funds that Morningstar tracks gained 7.2% on average in 2012.

Loomis Sayles' Eagan highlighted European corporate debt, as the euro zone has "turned a corner" in making the fiscal and monetary policy changes to confront its sovereign debt problems.

Money may even shift out of core countries, like Germany, to peripheral euro-zone countries that have been under attack, supporting those bond markets, he said.

Eagan also favors emerging-market debt, which offers higher yields and a chance of an appreciating currency. He is bullish on Mexico, Malaysia, Chile and Brazil.

Prudential's Collins also noted emerging-market and foreign bonds, but would avoid government debt, especially of Germany and Japan - extremely low-yielding markets with a lot of central-bank intervention that likely will keep rates low.

Linked to bonds

As for speculative-grade debt - rated BB+ or lower by Standard & Poor's - while some may find it hard to call them "high-yield" bonds, many of these companies are in good fundamental shape.

"Credit quality is improving as they build capital, and spreads are still wider," giving room for a rally, Collins said, though he cautions that if the economy slows, lower-rated debt tends to underperform.

Overall, it doesn't mean investors should completely shift out of fixed income just because rates are expected to rise. There are still plenty of risks out there to buoy bonds, chief among them the U.S. fiscal problems, Europe's debt and China's growth outlook.

"Many of the reason yields are here today still exist," Fidelity's O'Neil said. "Because of that, there are a lot of benefits to having an asset class that pays income and provides diversification and conservation of principal."

Deborah Levine is a MarketWatch reporter, based in San Francisco. Follow her on Twitter @dlevineMW.

[Jan 1, 2013] 17 Macro Surprises For 2013 by Tyler Durden

12/16/2012 Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the return of inflation to 'Brixit' and from the BoJ buying Euro-are bonds to a US housing recovery stall out - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.

Via Morgan Stanley:

Just When You Thought it Was Dead, Inflation Returns (Joachim Fels/Charles Goodhart)

A strong economic rebound in China and the US, adverse supply shocks in agriculture and worries about swelling central bank balance sheets lead to a sharp rise in actual and expected global inflation.

Central banks don't dare to respond, given high debt levels and financial fragilities, and either continue to ignore or abandon their inflation targets. Rising wheat prices lead to bread riots. In the UK, Chancellor Osborne advises the British to eat oatcakes instead.

Debt Cancellation (Spyros Andreopoulos)

The US Treasury, Japan's Ministry of Finance and Her Majesty's Treasury jointly announce that the Treasury debt held by the Federal Reserve, Bank of Japan and Bank of England respectively as a consequence of QE purchases are cancelled, and that these central banks will operate with negative equity until further notice. As a consequence, government debt/GDP ratios are brought down by 11pp, 18pp and 25pp, respectively. Ratings agencies love it, as does the bond market – until it realizes that large-scale debt monetization has just taken place, and sells off sharply.

US Over the Cliff and Likes it (Vincent Reinhart)

The US goes over the fiscal cliff and likes it. A deal delayed to early 2013 in which politicians compromise because of concerns about financial markets would resolve uncertainty more assuredly than the baseline of stop-gap legislation followed by a plan later in the year. As a consequence, confidence gets a boost, pent-up business investment kicks in and the labour market improves more rapidly.

US Housing Stalls Out (David Greenlaw)

The burgeoning housing recovery in the US begins to stall due to credit tightening. There is still no private mortgage market at this point and financial problems are brewing at the FHA which could lead to a dramatic reduction in credit availability for first-time homebuyers. Meanwhile, putback risk continues to cause originators to increase scrutiny for conforming loans.

BoJ Leads World in Adopting Rule-Based Monetary Policy, but Exit from Deflation Lags (Robert Feldman/Takeshi Yamaguchi)

Following a change in its leadership, the Bank of Japan switches to target the ex-food ex-energy CPI, adopts price level targeting to make up for past deflation, and implements a base money growth rule based on deviations of the actual CPI from the desired path. However, the targeted CPI measure remains negative year on year in December 2013, and the BoJ maintains aggressive policy into 2014 and beyond.

BoJ First to Buy Euro Area Bonds, ECB Left Watching and Waiting (Elga Bartsch)

The Bank of Japan, as part of its more aggressive policy stance to fight deflation (see above), starts to acquire euro area government bonds in order to push down the yen before the ECB is able to activate its OMT program. While the BoJ acts, the ECB waits in vain for the Spanish government to apply for an ESM credit line and OMT bond purchases. The BoJ focuses its purchases on ESM/EFSF bonds as well as higher-yielding core and large peripheral markets and thus effectively becomes a lender of last resort for the euro area.

Italian Politics Revives the CRIC Cycle and Triggers OMT (Elga Bartsch/Daniele Antonucci)

A lively anti-austerity campaign in the run-up to the early elections causes investors to seriously worry as to whether Italy could be contemplating an exit from the euro. The convertibility risk, which the ECB's OMT announcement had reduced, returns and Italy is forced to seek an ESM credit line and becomes the first country to trigger the OMT. Unfortunately, the damage has been done as markets now believe that the convertibility risk is political rather than monetary. Investors sell the euro and peripheral assets and stock up on tinned food and mood-boosting pills.

From 'Grexit' to 'Brixit' (Elga Bartsch)

Financial markets come round to the idea that Greece will stay in the euro for the foreseeable future. Instead, investors are getting increasingly concerned about the UK's political stance on Europe, especially in view of a possible referendum on EU membership. Polls during 1H13 start to suggest that an exit of the UK from the EU is now seen as more likely than an exit of Greece from the euro. The London property market wobbles as financial institutions start making contingency plans for moving employees to Frankfurt and Paris.

The UK Formally Gives Up the Fight Against Inflation (Melanie Baker)

As inflation looks set to remain well above 2% for yet another year, the government begins to fear that targeting inflation at the 2% level will mean an abrupt end to very low interest rates in the not-too-distant future...or a sharp loss of Bank of England credibility. MPs increasingly argue that embedding a bit more inflation might be a good thing for helping the UK economy out of its difficulties. The government raises the MPC's inflation target and, for good measure, it merges the Monetary Policy Committee and Financial Policy Committee together.

Recession Returns to Australia (Gerard Minack)

Australia hasn't had a recession for 21 years - arguably, one is overdue. Markets view the risk as low: fixed income markets are pricing in only 1-2 more rate cuts, and equities have re-rated through 2012.

Not the Right Green Shoots in EM (Manoj Pradhan)

EM green shoots develop further, but from the 'wrong' sources of growth. Better DM growth and/or an unwinding of the shock to global exports stabilizes EM exports and hence production. Complacency sets in and structural reforms to move away from the broken, export-investment-led model are put on the back-burner. The result? EM growth deteriorates shortly after.

China's Shocking Tightening (Helen Qiao)

The Chinese government inadvertently tightens financial conditions aggressively by applying a 'shock therapy' during the early stage of the recovery. Off-balance sheet lending activities are banned and forced to roll back onto commercial banks' balance sheets, causing a major liquidity freeze in the system. More credit defaults occur, giving rise to higher systemic risks. The economic recovery unravels.

The AXJ Productivity Booster (Chetan Ahya)

Policy-makers in Asia ex-Japan move aggressively to implement policy reforms, boosting the region's productivity dynamic. China accelerates the move up the value chain and boosts consumption growth; India unveils more measures to lift investment in the economy; and Indonesia initiates reforms which improve the competitiveness of the non-commodity sectors. This raises productivity growth in the region, which has slowed significantly since the crisis, and results in higher corporate profitability.

Mexico's Moment Arrives in its Long-Troubled Oil and Gas Industry (Gray Newman/Luis Arcentales)

Newly inaugurated President Enrique Peña Nieto surprises with a passage of aggressive constitutional change in Mexico's oil and gas industry – he gains the political upper hand in energy and fiscal reform by starting his six-year term with a big boost in social programs and promises that energy/fiscal reform will provide even more revenues for social spending. MXN rallies on the prospects of a new FDI wave and the sovereign sees an upgrade.

Brazilian Policy Shifts from Stimulating Demand to Boosting Supply, with Ambitious Infrastructure Program (Gray Newman/Arthur Carvalho)

President Dilma Rousseff surprises most Brazil watchers as she follows through on her promise of an ambitious infrastructure program, lifting the globe's sixth-largest economy from near the bottom of the globe's infrastructure rankings. The technical details show attractive IRR triggering large investment inflows from abroad. BRL rallies more than expected on the news.

Turkey Goes Boringly Orthodox in Rates (Tevfik Aksoy)

The Central Bank of Turkey switches back to a conventional, orthodox and less exciting monetary policy in 2013. It removes the non-standard and creative tools designed to achieve inflation and financial stability goals at the same time. As a consequence, it faces new challenges of currency appreciation, currency volatility and no meaningful decline in the current account deficit. The experiment fails and policy switches back to non-conventional measures later in the year in an attempt to recoup the loss of credibility.

Back in the USSR (Jacob Nell)

Putin is successful in enticing Ukraine into the Eurasian Customs Union in return for energy subsidies which reduce its balance of payments financing need to a level which requires neither painful policy adjustment nor a sharp FX adjustment. This closes the door on EU entry for Ukraine, since you can't be a member of two customs unions at once, and leads to economic reintegration of the main post-Soviet states – Russia, Ukraine, Kazakhstan and Belarus. The removal of trade and investment barriers – particularly if accompanied by a pro-investment, pro-market set of Russian-led policies – triggers higher growth across the region, while Russian energy subsidies would stabilize the hyrvnia and ruble.

Similar Articles You Might Enjoy:

US Over the Cliff and Likes it (Vincent Reinhart)
The US goes over the fiscal cliff and likes it. A deal delayed to early 2013 in which politicians compromise because of concerns about financial markets would resolve uncertainty more assuredly than the baseline of stop-gap legislation followed by a plan later in the year. As a consequence, confidence gets a boost, pent-up business investment kicks in and the labour market improves more rapidly.

LOL. Yeah, pent up business investment kicks in and the labour market improves more rapidly...and Krugman's aliens attack earth. Get fucking real.


The U.S. isn't going over the fiscal cliff.

2013 will be a carbon copy of 2012.

More printing. More people out of the labor force. Contractions in Europe.

Wash, rinse, repeat.


Printing only helps (a few) bankers. Corporations need us to buy their stuff.


Byron, why do they call it Blackstone

and why is your offspring called Blackrock?

and spare us the yiddish/greek schwarzpertos bs

my name is Zer0Head

but I don't call my fcking company noBlowJob


Thank god I tuned in just in time to listen to the Banker bullshit! NOW I can start investing soon as I stop pissing myself laughing....I'll fade any of their bullshit


"The U.S. isn't going over the fiscal cliff. 2013 will be a carbon copy of 2012."

Yeah, it looks like a slow bleed-out death is what we're going to have. Everyone is waiting for a crash, but it's just going to slowly wind down with more and more people falling over the edge while those close to the edges themselves hope they don't fall over as they slip closer and closer. Meanwhile, the ultra wealthy and powerful will rake in more and more as the remaining wealthy rushes toward them. The transfer of wealth upwards has been ongoing for decades now. Funny how that one doesn't get everyone in a frenzy. Try transferring it downward and watch folks get all worked up.

Of course, food shortages, or something beyond the control of the owners, or something that awakens this heavily drugged and slumbering society could change that quickly. For now, the slow death continues.


That one, the "Chancellor tells Brits to eat (oat)cake" and the Debt Cancellation ones seem more like jokes while the rest seem like unlikely but possible scenarios.


More like 2 million are laid off from the sequester and 10 million laid off from the 500 billion tax increase that goes straight to the deficit without stimulus and 1 million are laid off from the price Boner will want for the debt ceiling increase. Business types will be just giddy. If it does turn out that the business types are giddy, we should raise taxes because there will be more unemployment and severance to pay.


Barron's published their "Outlook 2013" this weekend.

Review of Barron's -- Dated 17 December 2012

Currency is Debt

fonzanoon, ill double dare them with you. When you anchor rates at a certain level, there is x amount of elasticity before you create a new recession. Most of this money was issued at 0% ish to the banks. 2% is attractive versus 0% 2-4% is attractive. if rates hit 3-4% party stops


Surprise #19

Israelis withdrawl all Jewish settlements from occupied Palestinian territories...


[Has about as much chance of happening as the rest of this slobbering bullshit brought to by banking analysts pretending to be relevant ~ See... anyone can pull shit out of their ass if they're determined enough]


Agreed. All of the above scenarios seem like made-up BS fantasies.


Surprise #20

Israel signs the Non Proliferation Treaty and opens its nuclear sites to international inspection.

[Just joking -- John Kerry's not gonna let fairness and reasonableness ruin a great land grab!]

Yen Cross

Rates are locked in(2016)--- need moar trees----to print paper....

Currency is Debt

AUDUSD Chart 1996-2012

Record net longs on the aud at the minute.

Yen Cross

Hey C/D, you are pretty smart. You caught that drop (gap down) in aud/usd. Good job! Do not step in yet/ That is why i mentioned the DXY h-4 chart earlier.

Dollar Dives Decidedly (TraderTimm)

Debt finally reaches unsustainable levels (in terms of hiding and press spin), and the Treasury Curve goes nonlinear.

China, having laid the groundwork for making Yuan-denominated trades with its economic partners - pulls the plug and takes the U.S. investment writedown to save itself. In a final stroke of irony, the US Dollar plunges below parity with the Euro.

Wheat Futures Chart, 2009-2012

Inflation measured by commodities huge in recent years. To list a few Crude Oil, Wheat, Corn etc.

Crude Oil, WTI is up over 850% from 1999-to date


We Are Headed To A Historic Collapse Of The Financial System And US Will Lose Its Status As The Sole Superpower Which Will Bring About Global Chaos In 2013, With The "World After" Beginning To Emerge.

Sun, 12/16/2012 - 22:40 | 3070112 lolmao500

I like LEAP overall but they are clearly blind to Europe (where they live). They think the ESM will be all right, that more integration is good and that all will be solved real soon. RIIIIIIIIIIIGHT.

Sun, 12/16/2012 - 19:08 | 3069581 Snakeeyes

If these numbers are positive, that WILL be a surprise! But with no money velocity, declining salaries and wages, and a Fed Gone Wild!, I predict a less than stellar recovery for 2013.


The market raises US rates, the Fed's balance sheet implodes, debt is transferred to the Treasury (you and me) and Amerika gets a big fat IMF bailout. We The People are finally recognized as globalist chattel.


18. Food prices remain stable , but size portions are cut 90%

Michelle goes on Oprah to discuss the benefits of a slimmer society and calls this "the best thing to happen to America since my husband was elected"

Wookie and Oprah both drop their drawers on live TV and Amerika is shocked to discover which butt is huger

Food rationing? Very possible.


The Saudi Royal Family is overthrown by the people of Saudi Arabia, much like in Egypt. OPEC sells oil in it's own currency.


That would only be allowed to happen if the Bankster cartel were to be able to seize their foreign assets


I believe they pulled assets to safety when they were threatened to be sued for 9/11. Still, stolen promises aren't worth as much as oil in the ground, especially if you have to pay the new price.


Restoration of the Caliphate

The Muslim Brotherhood gains power in Iraq, Syria and Saudi Arabia. Along with Egypt, these four countries merge together to form a new Caliphate with a single constitution, gold backed currency and sharia law.


Won't happen. The Royal family have a big ass praetorian guard protecting them and they are not doing it for the money or for the country, but for GOD. The only way you get the royal family is if you kill all their protectors... the Saudis have it way too good (because of oil money) for that to happen.


They say the cost of keeping them happy is $96 a barrel due to some of the recent happiness bonuses. It's well below that now with a global slowdown and economic cliff coming.

3070115 Matt

And there are like 40,000 princes, so they have sheer numbers on their side, too.

Fiscal Cliff Will Stocks Rise or Get Rocked By Chris Nichols

Yahoo! Finance

Don't panic, in other words, is what you'll hear, because you're thinking years into the future. Panic is for people with giant amounts of capital who have to do something now. The somewhat good news is history has shown us that investors do learn to adapt to the circumstances they're given, even when they're unfavorable. The ultimate take-your-ball-and-go-home alternative of hoarding cash under the mattress hasn't ever proven popular on a massive scale. The near term, though, can be stomach-churning as new rules are ingested and become familiar.

For tomorrow: To get a sense of what might happen in the U.S. markets, you can tune in a few hours early and look at major markets in Asia and Europe. Check around 9 p.m. or 10 p.m. ET (Tokyo is closed) to see the direction of the Kospi (^KS11) in South Korea and the Hang Seng (^HSI) in Hong Kong. Overnight and pre-dawn ET, get the data on the FTSE 100 (^FTSE) in London, the DAX (^GDAXI) in Frankfurt and the CAC 40 (^FCHI) in Paris. Markets are interconnected, and while they don't always move in lockstep, we might be able to get some clues as to how the fiscal cliff progress, or lack thereof, is being treated in the overseas averages.

Beyond the immediate trading impact, the longer lawmakers go without finalizing a fiscal cliff package, the worse it could get for the nation's finances. Should the full cliff be realized, many market and economic observers expect gross domestic product to suffer mightily, and a number have predicted a recession is all but certain.



Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy


War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotesSomerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose BierceBernard Shaw : Mark Twain Quotes


Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law


Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D

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