uber driverÜber Wages Lag The Über Economy

“Today’s great paradox is that we feel the impact of technology everywhere — in our cars, our phones, the supermarket, the doctor’s office — but not in our paychecks…since the beginning of the personal computer revolution three decades ago, the median wage has remained stagnant…Too often, when people think about technology, they only think about the initial invention…Yet most major technologies develop over decades, as large numbers of people learn how to apply, adapt, and improve the initial invention…The problem isn’t that technology has eliminated the need for mid-skill workers overall.  New opportunities are there, but grasping them is difficult…If we meet that challenge, then large numbers of ordinary people will benefit substantially from new technology, just as they have for the past two hundred years.”  Meanwhile, “working for Uber might come with its perks, but it also comes without the benefits and protections many businesses provide for their employees.  That’s unfair and illegal, a Boston labor lawyer is now arguing in court, potentially threatening the business models of the dozens and dozens of popular apps that make up the so-called ‘on-demand economy’…her suit, and others like it, might fundamentally change the calculus used by the venture-capital firms pumping money into these businesses.”  Then again, “states could create new worker designations to fit this burgeoning industry,” both ensuring that “businesses would benefit from an easily scaled labor force,” and workers would benefit from “protections against earning less than the minimum wage.”  Meanwhile, “the U.S. stock market has been a compounding machine since the early-1900s.  As long as people continue to innovate and set out to improve their lives I see no reason why stocks can’t give investors a decent return above the rate of inflation in the future.”


Speaking Of Inflation

Eurostat is reporting “no inflation in the 19-member region (alt) in the year from April 2014, up from minus 0.1 per cent in March…The price of Brent Crude has risen over 20 per cent from April 1 to today…helping to lift consumer prices.  Core consumer inflation, which strips out more volatile prices such as those for food and energy goods, remained at a record low of 0.6 per cent.”  Furthermore, the ECB thinks that “longer-term inflation expectations had started to recover after hitting low levels in January.  ‘The decline observed over the previous two years has come to a halt.  These movements — with some differences — were also observed in the United States and the United Kingdom.’”  Meanwhile, Goldman connects the dots between inflation expectations and the equity risk premium: “we find it more challenging to rationalize high PE multiples.  A fundamentally-based argument would need to argue that relative to past rate-hike cycles, some combination of the following three factors would presumably need to hold true: that expected growth is higher, equity risk premia are lower, and/or risk-free discount rates are lower…the latter is the easiest [argument] to make…That said, if term premia are low due to low and falling inflation risk, and if equities hedge inflation risk better than fixed-coupon bonds, then the drop in term premia doesn’t necessarily imply higher equity PE multiples.  The links between bond premia and equity premia are subtle; one needn’t imply the other.”  Meanwhile, “given the amazing strength in the US dollar over the last six months, the lack of momentum in US (or Chinese) economic data and the effects of the oil crash still lingering, one thing virtually no one is predicting is any kind of comeback for the commodities market.”


USA: The Country’s Economic Gravity Is Moving West


USA: Of Bubbles, Synapses & Slime Molds

The Belief That We Are Going To Make Fewer Babies Indefinitely Is Behind Secular Stagnation



Stories, Markets, Luck And You

“China’s central bank reduced the amount of reserves commercial banks are required to hold, freeing up about $200 billion for lending in the latest easing measure.”  The “larger-than usual reduction…is the second cut in banks’ reserve requirement in less than three months and comes after the economy decelerated to 7%…’The question is whether the PBOC is a little slow on easing.  They’re fighting the last battle, like generals do.’”  Speaking of generals, “perhaps Mr. Tsipris will step back from the brink, ditch his party’s hard-line left-wing and recast his coalition with moderate pro-Europeans willing to back reforms, thereby securing a last-gasp deal to avert disaster…The more likely scenario is that Greece defaults.”  “News from Greece and China disrupted U.S. markets on Friday, but the deeper problem was closer to home.  First-quarter U.S. corporate revenue, now beginning to be reported, is coming in even lower than analysts’ sharply reduced forecasts had indicated…’It is making investors cautious, maybe a little bit confused.’”  Meanwhile, “we like stories, we like to summarize, and we like to simplify, i.e., to reduce the dimension of matters…the [narrative fallacy] is associated with our vulnerability to overinterpretation and our predilection for compact stories over raw truths.”  Also, “the biggest threat to your portfolio is you.  China is not threatening your portfolio, nor is the price of oil or the level of the Fed Funds rate.  What’s threatening your portfolio is the way in which you may react to any of these items, plain and simple…No one will see the thing coming that derails the economy or the market next time around.  It certainly won’t be something that’s on the front page of the newspaper like Greece or interest rates…If we cannot even identify the reason for why a market tops or crashes on a given day with the benefit of looking back, what makes any of us think we can do so in real-time or in advance?  More importantly, doesn’t it make more sense to recognize the durability of the capital markets in the face of all these threats rather than try to play hopscotch with our retirement assets each time a new one arises?”  “In the financial markets, where so many investors are highly skilled (…), their actions cancel each other out as they quickly bid up the prices of any bargains — paradoxically making luck the main factor that distinguishes one investor from another.  And a streak of being right can make anyone forget how important luck is in determining the outcome…Guarding against the illusion of control takes constant vigilance.  The longer you’ve been right, the harder it gets.”


USA: Dr. Ed Lays Out The Evidence For Wage Pressure


USA: Deutsche Bank Says Defaults Are Very Low Compared To Historical Standards


China: $46 Billion Rail/Road To Wealthy Consumers In Europe


USA: Financial Situation “Getting Better” For Over Half Of Americans Surveyed By Gallup

Meanwhile, half are in, half are out, and half of those “because they simply don’t have the money.”


What: Jon Corzine Is “Gratified That Others Might Want To Invest With Him”

crochet unicornPeople And Their Toys Tools Technology

“Data collected by the marketing company Lifehack tells us that the average social media user ‘reads’ — or perhaps just clicks on — 285 pieces of content daily, an estimated 54,000 words.  If it is true, then we are reading a novel slightly longer than The Great Gatsby every day…It’s possible that streamlined scrolling of browsers and e-books, as opposed to reading on paper, can lead to what psychologists call ‘the misinformation effect.’”  “The Internet has caused society to experience a transition from a scarcity of signals to a surfeit of signals.  More information means more good information but also more bad information…We are in a world where there is vastly more to know, yet our cognitive capacities remain what they were in the Stone Age.”  “Digital natives — students who grew up with laptops in classrooms — at American University are beginning to show a preference for reading books in print…’I like holding it.  It’s not going off.  It’s not making sounds.’”  Meanwhile, “the online craft bazaar Etsy made its debut on the Nasdaq stock market Thursday, signaling the birth of an unusual public corporation — and not just because its employees carry around compost on bicycles, or because its regulatory filings are peppered with phrases like, ‘We keep it real, always.’  Etsy is one of a growing number of companies, called B Corps, that pledge to adhere to social and environmental accountability guidelines.”  Etsy is “the second for-profit company to go public out of more than 1,000 companies that have that certification…’We have a right to ask more of our corporations, and they should not exist simply to generate profit.’”  Meanwhile, Virtu Financial is a company known for “a culture that encourages its math-minded employees to continuously hone trading algorithms” and it also went public.  “Virtu’s IPO will be the first for a pure high-frequency trading firm and symbolizes how lean, technology-focused companies can have an outsize impact on global trading…’We focus on one thing and one thing only: making the tightest bid and offer on more than 11,000 financial instruments around the world.’”  Meanwhile, “the more unfamiliar someone is with the wild Black Swan-generating randomness, the more he or she believes in the optimal working of evolution…Evolution is a series of flukes, some good, many bad.  But, in the short term, it is not obvious which traits are really good for you…The idea that we are here, that this is the best of all possible worlds, and that evolution did a great job seems rather bogus.”  Meanwhile, “prospecting with a fintech tool is not nearly as fun as the old days, but it is a helluva lot smarter and more efficient.”



“There’s a new term cropping up in startup pitch meetings: ‘One-on-one.’  It means the company is seeking to raise $100 million at a valuation of $1 billion.”  Meanwhile, “Snoop Dogg has invested in a start-up called Eaze, an ‘Uber for weed’…Ashton Kutcher is putting money into Spring, a mobile commerce app that is ‘Tinder for fashion’.  The Winklevoss twins, whose claim to have” it goes on.


USA: Wages For About 80% Of Americans Peaked In 1972


China: Futures Tumble On Regulation To Decrease Borrowing, Increase Short Selling


Oil: Bloomberg Is Calling It

largest restaurant and retail employers in US


A modest bidding war has broken out among the retailers who hire from the bottom of the labor pool, buoyed in part by improving sales…Turnover in the retail sector has been steadily rising and now stands at 5 percent a month.  At this rate, if Walmart’s workforce were to hold to the national average, over a full year it would be losing 60 percent of its sales staff.”  Meanwhile, “employers added 295,000 jobs in [February] (alt), up from an average gain of 266,000 over the previous 12 months and comfortably above Wall Street expectations…The rate of unemployment fell from 5.7 per cent to 5.5 per cent…Pay growth was muted, however, with average hourly earnings rising by 3 cents, leaving earnings up 2 per cent on the year…The [participation rate] was little changed at 62.8 per cent.”  The dollar is trading higher on the news; EUR/USD exchange rate is now 1.08.  Meanwhile, “since December, 22 major foreign currencies have declined an average of 4.5 percent against the [$US].  A cheaper currency makes exports less expensive and thus more attractive to foreign buyers.  A devalued currency also drives up import prices, which discourage domestic consumers from purchasing foreign goods…Call it currency manipulation or domestic economic policy…almost every country in the world want their money to be cheaper.”  Keyword: almost.  “The renminbi has weakened against the dollar by about 4 per cent since October, a meaningful change in a semi-fixed exchange rate regime…This has been driven mainly by a reversal in private sector capital flows, which have traditionally been in large surplus but are now in deficit…The capital outflow has also tightened the domestic money markets, a very unwelcome development for the People’s Bank of China given the powerful contractionary forces that have taken hold in the domestic economy…Although the renminbi has fallen against the dollar, the semi-fixed band has resulted in China’s overall effective exchange rate rising by 11 per cent since early 2014…China is finding it increasingly difficult to remain tied to the dollar bloc at a time when the US Federal Reserve is tightening monetary policy and the dollar is rising…Other countries may complain about ‘currency wars’, but a gradual renminbi adjustment would be far safer for the world economy than a failed attempt to maintain a fixed rate that has outlived its usefulness.”  Meanwhile, here are some insane statistics about China: 1) There are more internet users in China than there are people in the United States and Europe combined, 2) Chinese construction firms broke ground last year on enough homes for the entire population of Australia, 3) They also built or at least worked on 143k miles of road, which is longer than five times the circumference of the earth.


USA: Grain Of Salt

Despite the positive jobs report this morning, there have actually been quite a few negative economic data points from the United States recently.  


WM: Funds Indexed To The Dow Are Gonna Have To Buy Apple And Sell AT&T


EU: Being A Tourist In Greece Is About To Get Real Awkward (Alt)


USA: Researchers Say 1 In 8 Spinoffs Preceded By Suspicious Trading In Options Markets


WM: JPMorgan Is Super Good At Returns

weasel woodpecker


“After an absence of 15 years, investors briefly watched the Nasdaq Composite trade above the fabled 5,000 threshold on Monday (alt)…with many global equity benchmarks recording all-time and multiyear highs, as central banks continue pumping money into the financial system, the Nasdaq is finally approaching a peak that many investors thought would take decades to reclaim.”  Meanwhile, Gavyn Davies is capitulating to his fear of heights: “The global equity bull market, at least in the advanced economies, has been driven by two key fundamentals — a moderate but continuous recovery in real GDP and corporate earnings, and aggressively easy monetary policy.  Because the US has been at the forefront of both these phenomena, the S&P 500 has vastly out-performed the global market for 6 successive years.  Both of these key fundamental drivers are now less convincing than before.”  Furthermore, “about three-quarters of the rise in US equity prices in the past 12 months has been due to a rise in the market’s price/earnings ratio (ie ‘multiple expansion’).  This has taken market valuations into fairly expensive territory compared to long term history.”  Meanwhile, Draghi’s QE moves to the starting line as the outlook in Europe brightens: “Draghi will have an opportunity in two days to add to details of the 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan…Purchases under the expanded asset-purchase program are set to start as early as this week.”  Which might explain why European debt has gone negative recently.  But people are scared: “the fundamental concern is not the specifics of the small Greek economy or the legalities of leaving the euro or the EU, but rather Europe’s continued inability to resolve its Greek tragedy…’Much of Europe is at risk of difficult economic times, and when you have difficult times and populist parties, politics becomes extremely unpredictable.’”  For example.


WM: Riskalyze Report: Advisors Sold Strategic/Tactical Income And Other Bond Proxies Last Week


USA: Walmart’s Visible Hand

Krugman says Walmart’s announcement to raise wages for half a million workers is “a very big deal, for two reasons.  First, there will be spillovers: Walmart is so big that its action will probably lead to raises for millions of workers employed by other companies.  Second, and arguably far more important, is what Walmart’s move tells us — namely, that low wages are a political choice, and we can and should choose differently.”


USA: Today’s $100M+ Late-State Private Rounds Are Very Different From An IPO


What: Uber Just Launched A Quarterly Print Magazine

no deflation in core prices Feb2015real adjusted earnings going up feb 2015


Tumbling oil prices have dragged US inflation into negative territory (alt) for the first time since 2009 — but excluding the influence of energy there are signs of steadier price growth.  The consumer price index fell 0.1 per cent on an annual basis in January,” however core inflation “showed an annual gain of 1.6 per cent…unchanged from the prior month.”  Furthermore, “a mix of falling inflation and rising wages last month gave Americans their biggest real raise in more than six years.  Inflation-adjusted hourly earnings jumped a seasonally adjusted 1.2% in January, the largest monthly gain since December 2008.”  Meanwhile, consumer confidence and sentiment indices don’t seem to agree with the pundits about the distress of the middle class.  Here’s the bottom line: “If the extra disposable income [from cheaper gasoline] finds its way into higher discretionary spending it could prove a boost to inflation in the months ahead.”  So…why isn’t the Fed worried about collapsing breakevens (inflation expectations)?  For one thing, these expectations are built from security prices indexed to headline inflation.  But here’s Janet Yellen to explain why she ain’t scared: “We refer to this…as ‘inflation compensation’ rather than ‘inflation expectations’…The risk premium that’s necessary to compensate for inflation, that might especially have fallen if probabilities attached to very high inflation have come down.”  In other words, if the Weimar routine stops convincing people, then the risk premium embedded in inflation-indexed securities should drop.  They’re sticking to this idea in the latest Monetary Policy Report: “information gleaned from 10-year inflation options…suggests that investors may have recently become more concerned about lower inflation outcomes and less concerned about higher inflation outcomes.  This shift could reflect an increase in the investors’ perceived likelihood of low inflation outcomes, but it could also reflect an increased willingness to pay higher premiums for insurance against such outcomes as well as other possible factors.”


Today’s Highs Are Tomorrow’s Middle

Stocks might be overbought, but momentum remains on their side.”  Pause.  Breathe.  “Another consolidation is due, but timing is difficult [to predict]…Overbought indicators can stay overbought and the market can continue to grind higher.”  Meanwhile, Cullen Roche says “there’s a strong tendency in the financial markets to live in the extremes…But like most things in life, the best place to be is often somewhere in the middle.  Living on the extremes results in extreme and oftentimes irrational outcomes.”  Furthermore, “there’s great drama to be mined with breathless analysts telling us that the lastest data point from 20 minutes ago is a game-changer…Unfortunately, it’s never really clear what stress points will be crucial the next time, or when.  The next best thing is keeping an eye on a proxy that draws on a broad set of cyclical signals…That’s a yawn if you’re looking for snappy headlines, but it’s the only solution if you’re trying to minimize the potential for surprises in the art/science of business-cycle analysis.”


China: Foreign Companies Fleeing China En Masse As Costs, Risks Rise

The story about companies offshoring from China seems to be building an audience…stay tuned.


Global: Blackstone Would Rather Be Berkshire


WM: 5 Tips For Savvier Consumption Of Financial Media


Buffett: Nutrition Tips From A Billionaire Investor


What: This ATM Is Ruthless

pushing chips all in

European QE Is Moving Chips

George Soros and others are shifting into international equities.  Leon Cooperman remains “bullish on the U.S., while predicting bigger gains elsewhere.”  Robert Shiller told CNBC he’s “thinking about getting out of the United States somewhat,” and he ain’t talkin’ bout a vacation! (ba-doom-pah!).  Meanwhile, “given the barren bond yield environment, perhaps the new ‘great rotation’ in 2015 will be out of domestic equities into higher yielding international equity markets.”  Also, Jason Bachman says “in the 45 years since the MSCI EAFE index was created, stocks finished the year down twenty percent or more four times, or just under nine percent of the time.  Stocks were up twenty percent 18 out of the 45 years, forty percent of the time.”  Meanwhile, “automation in the investment process is all about making level-headed decisions ahead of time.  If you’re able to create if/then rules to guide your actions you can systematically keep overconfidence and overreactions out of your investment decisions during difficult market environments…Taking emotions out of the decision-making process will almost always be the right move because most of the time it’s difficult to see our own behavioral biases.”  


Don’t Worry, This Ain’t THAT Kind Of Boom

New research from the Bank for International Settlements says “productivity growth in the rich world started slowing down around the same time that the financial sector’s share of economic activity started rising rapidly.”  They attribute this to (1) high financial sector salaries attract talent away from innovative companies, and (2) financial sector growth = mortgage lending growth = construction activity growth = lower productivity.  Meanwhile, “for the first time in decades, New York is proving that it can grow at a rapid pace without leaning on Wall Street.  The city has added about 425,000 jobs since the end of 2009;” Wall Street’s contribution has been “less than 1 percent.”  “It isn’t that kind of boom…It isn’t ‘Bonfire of the Vanities.’  It’s a wide variety of firms in different industries that are contributing to a more diversified job growth.’”


Still Praying For The Oil Dividend

“Economists have been wondering why the plunge in gasoline prices has not translated into a strong gain in retail shopping…consumers may be holding off from spending the pump windfall on big-ticket items until they are convinced that cheap gas will hang around for a long time.”  Also, “with winter storms continuing to batter broad parts of the U.S., demand for heat should continue to rise this month…consumers may well have to use the money saved from cheaper gasoline.”  Meanwhile, here’s a good way to summarize the “financialization of oil” theory: “Everything takes a long time in the oil industry…Unlike finance, oil extraction is done with heavy equipment and in constant combat with the forces of nature.  In the oil market, by contrast, nothing takes a long time.  It’s a financial market in which the only things that really matter are the dance of digits on a computer screen and the quick minds of people watching them.”


USA: Atlanta Fed Researchers Don’t See Much Wage Growth Recovery Happening Anywhere


USA: Close To Half Of ETF Inflows This Year Have Been Currency-Hedged Products


WM: Investors Are Not Always Rational: Dem Furreners Er Takin’ Er Jobs Edition


What: The Bard Bond Guru

Fed purchases of US Treasury and Agency bonds

Quantitative Tightening?

“At the heart of the challenge facing the Fed is a notion in economics that there is a short-run trade-off between unemployment and inflation…But the estimate of how low unemployment can go is imprecise and moves around depending on what else is happening in the economy…In the absence of hard-and-fast rules, Fed officials are watching wage gains”– you know all this.  The NFIB released more data on small business activity today and “the most positive news from the small business sector continued to be the demand for labor…Hiring might be higher if not for the difficulty in finding skilled workers.  The January survey found 26% of small business owners reported having job openings they cannot fill right now…’The percent of owners reporting higher worker compensation held at 25%, the best reading since late in 2007.’”  Also, the JOLTS survey released this morning shows “US job openings climbed to more than 5m in December…The figures, which eclipsed expectations for a rise to 4.98m, reached its highest level since January 2001…the monthly JOLTS survey is a favourite of Ms Yellen and the strong reading could prompt a relatively hawkish assessment of the labour force.”  Meanwhile, who says you have to raise rates before you sell the bond portfolio?  “A rate hike without draining reserves requires the use of facilities such as RRP, TDF, and others to temporarily drain reserves.  The permanent draining of reserves through letting the bonds runoff would start the process towards a system where a normal supply/demand market could exist for fed funds.”  QE “has added trillions of dollars of deposits to the banking system.  If those deposits were gone the fight for loans would be different…an overnight rate hike wouldn’t slow/tighten the channel of lending as much as a gradual balance sheet reduction.”  Meanwhile, here’s a bunch of graphs on the Fed’s current balance sheet, RRP balances, other central bank assets, etc.


No End In Sight

“As for staying power as an oil producer, North Dakota has 11 billion to 14 billion barrels of recoverable oil, according to the state, or 7.4 billion, according to the 2013 U.S. Geological Survey.  ‘That’s enough to keep the state drilling for the next 20 to 25 years, with existing wells expected to continue to produce oil for 45 years.’”  Furthermore, the IEA expects the supply growth of US shale to “slow to a trickle but regain momentum later, bringing its production to 5.2 million barrels per day (bpd) by 2020…The United States will remain the world’s top source of oil supply growth up to 2020.”  Meanwhile, Texas is producing the lion’s share of job cuts so far in the energy industry.


China: Slowing More Than Expected? Imports Fell 21% In January


USA: Google, Alibaba, Apple And…Warby Parker Who The Hell?


EU: Germany Can Smell Your Fear

But not the wine on Varoufakis’ breath.

Also, Greeks maybe like capital controls less than they like putting money in a Greek bank.


WM: Apparently There Is More Than One Reason Why Apple Likes Free Money Bonds In Switzerland

Kid Rock Demonstrates Price Rigidity Denial

GDP vs earningsXhoursXpayrolls

The Whites Of Larry Summers’ Eyes

“The vast US interest rate futures market now reflects odds of 65 per cent that the policy makers will shift borrowing costs higher by June.  That is up from about odds of 40 per cent earlier this month…’Rates are way too low and investors have made a mistake in thinking the Fed would tighten policy at the end of this year or in 2016.’”  Matt Busigin looks at the jobs report from last Friday and says goodbye to the new normal: “Nominal GDP, as estimated by January’s employment report (i.e. average weekly hours X average hourly earnings X payrolls), is now running at the fastest rate (5.18% y/y) since 2006.  For January, that number is 8.35% annualized.  The deflationary scare is just that — a scare.”  Meanwhile, Larry Summers is trembling (alt): “The core consumer price index has averaged 1.1 per cent over the past six months…Perhaps most troubling: market indications suggest inflation is more likely to fall than rise…I cannot recall a moment when the gap between what the markets expect the US Federal Reserve to do and what the Fed itself has forecast it will do has been as large…the Fed could inject much needed confidence in the economy today and minimise future risks by announcing and following a strategy of not raising rates until it sees the whites of inflation’s eyes.”  So that’s where we’re at now: “what is inflation (headline, core and expected) doing?” is the question on everyone’s mind.  Meanwhile, an Economist journalist has a theory about lackluster wage growth: “At the end of December 2013, Congress refused to reauthorise legislation that provided very long-term benefits to the unemployed…As people lost benefits, so they were willing to accept lower wages…Now that a year has passed since the reform of the benefits system, its effect may be wearing off.  People who shifted into low-wage jobs may have built up some experience (and some courage), and may now be asking for wage rises.”  Meanwhile, James Pethokoukis says there was some “weird stuff” in the jobs report: “As good as the January jobs report was…official GDP growth wasn’t that hot as 2014 came to a close…Maybe the technology optimists are right, and economic metrics made for a wheat and steel economy are increasingly inadequate for a digital economy.”  Furthermore, there was some divergence in wage growth between managers and all workers, which he says is “more evidence of an ‘average is over’ economy where high- and low-skills jobs are growing, but not those in the middle thanks to automation and globalization.  Only tech-savvy workers and managers see steadily higher wages.”  Speaking of managers’ wages, meet HourlyNerd: the Uber of business consulting.  “You get access to really smart people without having to make an annual commitment and pay benefits.”  Also, here’s something interesting to consider: Teach for America is experiencing a sudden decline in applications.  “In the shadow of the recession, college graduates are moving away from public and service-oriented work and gravitating towards professions they perceive as more stable and financially sustainable.”


The Fruits Of Production, Revisited

“The near 50 per cent fall in oil prices since mid-June cannot be solely explained by changes in consumption and production (alt), according to the Bank for International Settlements, which says heavy trading on commodity futures markets has also played a part…daily futures volume in oil has risen from 3.4 times global demand in 2005, when the International Petroleum Exchange went electronic, to 17 times at the end of 2014 and has ratcheted up even further to over 20 times since the beginning of the year.”  Furthermore, “the indebtedness of energy companies (“a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets”) combined with a new operating environment when it comes to the trading of swaps and bonds appears to have reinforced the slippery decline in oil prices.”  Izzy Kaminska isn’t too sure: “while we’re not trying to suggest that high sector indebtedness isn’t a problem, it’s [just] a very different sort of financialisation effect — and one that doesn’t necessarily make sense on cause and effect grounds.”


USA: Strong Dollar → Higher Capital Requirements?


EU: Alan Greenspan Is Pretty Sure Europe Was Joking About The Euro

Meanwhile, it’s very possible that Europe really was joking about the euro.

Also, He Who Shall Not Be Named is recruiting Italians.


USA: Why Google And Others Are Excited About Selling Driverless Cars


WM: Leaked Documents Reveal How Swiss Banks Helped Clients Avoid Taxes


WM: Rumors That Goldman Would Like To Double Down On The Whole “Most-Hated” Thing


What: Ukraine’s Currency Just Collapsed 50 Percent In Two Days

FX volatility Feb 2015

Currency Wars Monetary Easing

A Merrill Lynch analyst has constructed a “GDP-weighted range-based currency volatility index” to show that the current level of volatility in currencies is “the highest for non-crisis periods in twenty years.”  He also argues that “a weak currency might provide a short-term boost to the countries engaging in currency devaluation.  However, if everyone is playing the same game, all we will end up with is more and higher FX volatility.  This in turn will likely exact a toll on global trade and capital flows.”  Also, “since interest rates (short-term as well as long-term rates) are currently so close to zero, the exchange rate has become the main transmission channel of monetary easing…but the benefits that exist independent to the exchange rate are shrinking alongside rates.”  Quite.  Cue the PBoC: “China’s central bank cut the required reserve ratio for its banks (alt) as it stepped up efforts to counter the impact of capital outflows and encourage banks to boost lending amid fresh data showing a weakening economy…The required reserve ratio, known as the RRR, specifies the portion of a commercial bank’s deposits that must be held on reserve at China’s central bank, where it is unavailable for loans and other investments.”  Most analysts, however, seem to think that the RRR cut reflects new concerns about yuan liquidity, and not necessarily an attempt at currency devaluation: “Once upon a time China’s trade surpluses were so large and the capital inflows so strong that [these] inflows provided more than enough base money to fuel any amount of credit expansion that China authorities desired.  In fact, there were excess inflows that China had to sterilize.  Now the trade surpluses have diminished and the speculative inflows have cooled…If RRR were not cut, there would be an effective tightening of liquidity conditions.”  


Jobless Claims Steady Despite Energy Layoffs

Fewer Americans than forecast filed jobless claims last week, hovering around levels that are typically associated with an improving job market.”  This is great news considering all the energy sector layoffs last month: “U.S.-based employers shed 53,041 jobs last month…with 40% of those directly related to oil prices.  It was the highest monthly job cut tally since February 2013 and an 18% increase from the same month a year ago.”  “All eyes are on Friday, when a Labor Department report is projected to show the [US] added more than 200,000 jobs in January for a 12th consecutive month, and unemployment held at 5.6 percent, a more than six-year low.”


How Do Ya Like Dem Wages?

The Labor Department says “unit labor costs, a key gauge of inflation and profit pressures that measures the price of labor for any given unit of output, increased at a 2.7 percent rate in the fourth quarter after falling at a 2.3 percent rate in the third quarter.  For all of 2014, unit labor costs rose 1.5 percent compared to a gain of 0.2 percent in 2013.”


The Problem With “Make My Day” Is That It Can Go Both Ways

Greeks have got themselves in a bit of a dilemma.  On the one hand, they don’t really wanna leave the European Union.  But also, they don’t really wanna leave their money in a Greek bank.  Also, “game theory has a couple of weaknesses.  First, it tends to work best in situations like mobile phone spectrum auctions where you can be reasonably sure that all the other players are playing game theory too.  And second, it will only give you the correct steer if you have made the right assumptions about the other guy’s objective function.”  Here’s the problem: everyone’s objective function is probably something like “don’t destroy the European Union,” but Syriza is holding a grenade (debt default), and the ECB is holding a bazooka (Greek banking collapse)….decisions…


EU: European Commission Raises Forecasts For Eurozone Growth: From 1.1 To 1.3% In 2015


USA: Prudential’s Stock Price Is About To Get Real Efficient

Oil Fund Is Gonna Take The High Road On Fossil Fuels (Alt)