hawk or doveYellen’s Ad Hocery

In her first press conference as Federal Reserve Chairman yesterday, Janet Yellen announced the FOMC would continue The Taper at a $10bn/meeting rate (bringing us down to $55 billion by the end of April), that US growth expectations haven’t really changed at all since December, that the weather is probably at fault for some of the poor data, and that the 6.5% unemployment threshold is no longer useful.  People are really divided over whether the announcement would be a hawk or a dove if it had a spirit animal (Robert Shiller, for one, loves him some spirit animals).  On the one hand, you have the screeching (alt): an “upward drift” in the interest rate forecasts of Fed officials (John Hilsenrath of WSJ is screeching real loud about this), and statements like “sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.”  Then again, you have the cooing (alt): “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”  Somewhere in the middle of all this confusing bird noise is more (planned) confusion: forward guidance is becoming more qualitative.  Ms. Yellen said the Committee will assess progress through a “wide range of information, including measures of labor market conditions, indicators of inflation pressures…and readings on financial developments.”  Here’s the statement and some reactions.  I especially like this one: “The more qualitative approach means looking at a wide range of variables, but ultimately is euphemism for ad hocery.”  Ad hocery does seem like the best way, however, to kill Bernanke’s monster (i.e. forward guidance).  Also, here’s the key question for Yellen: Is this as good as it gets?  Meanwhile, on Twitter

The Problem Of Ukraine’s Russia Bond

The Finance Ministers in Ukraine and Russia would like you to believe that all is well in the world of debts owed between quasi-warring countries.  That being said, Russia will not be bailing anybody out, OK?  Also, Ukraine has a bit of a catch-22 situation on its hands in regards to the $3bn owed to Russia.  On one hand, it probably doesn’t feel like paying anything to the country that just claimed its beach paradise.  On the other hand, Ukraine’s debt is in the form of a Eurobond, meaning it can be sold on the market.  Meaning it can be sold to a vulture-fund outside of Russia, where Western courts treat hedge funds differently than they would Vladimir Putin.  Meaning this isn’t very good for Ukraine at all.  Then again, another route for dealing with Yanukovych’s “Goodbye” bonds may be found in Odious Debt theory: “the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable.”  Here’s a question: “When your creditor takes some of your territory — can you make that territory take some of your debt?”  i.e. Can Ukraine just saddle up Crimea with the $3bn in debt (or probably less) and wish them well?  Meanwhile, here’s 12 ways in which Putin’s rhetoric matches that of Nazi Germany circa 1938.  Also, Merkel isn’t Russian (…) to impose any sanctions.  However, the EU is adding (alt) “12 new names to add to the 21 already on their list of Russian officials subject to visa bans and asset freezes.”   So that brings the number of rich Russians with frozen assets to 39 (7 by the United States).  Seems like there is a really strong argument for income inequality here…

BigData: When To Act On A Correlation, And When Not To

“Causality is dead,” say the priests of analytics and machine learning.  They argue that given enough statistical evidence, it’s no longer necessary to understand why things happen — we need only know what things happen together…For consumers of big data, the key question is ‘Can I take action on the basis of a correlation finding?’  The answer to that question is ‘it depends’ — primarily on two factors:” 1) Confidence that the correlation will reliably recur in the future, and 2) The tradeoff between the risk and reward of acting.

YHOO: Impatient Funds Load Up On Synthetic Alibaba Shares (Alt)

“Though the [IPO] of [Alibaba] is in motion, some hedge funds in Hong Kong have already been loading up on synthetic shares, sold by investment banks as certificates.  The process involves taking one of Alibaba’s two biggest shareholders — Yahoo or SoftBank — evaluating their constituent parts, and then using short positions to remove everything that the company owns other than its Alibaba stake.”

Tax: Havens Set Deadline For Reporting Investors’ Tax Details (Alt)

44 countries, including The British Virgin Islands, Liechtenstein, India, Argentina and Colombia, have agreed to “a deadline of September 2017 for reporting investors’ tax details to their home governments, under pioneer plans aimed at leaving ‘no hiding place for tax evasion.’”  “The details to be reported include interest, dividends, account balance, income from certain insurance products, sales proceeds from financial assets and other income generated from assets held in the account.”

USA: Activist Hedge Funds Are Making Friends

SV: Silicon Valley Won’t Stop Using Terribly Inappropriate Historical Metaphors (Also)


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