Paul Krugman On Monetary Hawks: “Aim For The Head”

“One of the side effects of Britain’s recovery is a growing list of economists that favour an interest-rate rise.”  The Economist argues a rise in rates is a long ways off, however, thanks to 1) inflation is under control, 2) wages aren’t growing, and 3) rising asset prices and excessive risk taking was all part of the QE plan.  Paul Krugman says tight-money advocates, or rentiers, such as these “are turning into that old horror movie cliche of the killer/zombie/psychopath who just won’t die quietly — even when you think you’ve killed him multiple times.”  Furthermore, “herein lies the problem with those demanding higher interest rates and crusading for hard done by savers.  In a well functioning meritocratic society savings should never outperform the economy.  Unfortunately, these people, like Haley Joel Osment in the Sixth Sense, condition themselves to see inflation everywhere.”  Also, using the word “rentier” makes the Pragmatic Capitalist squirm.

The Final Reckoning Probably Sounds Something Like This: “Credit Equals Gold No. 1”, “Nontransparent ETFs”, “Buffett Needs A Bailout”

A ruling Wednesday by a “Securities and Exchange Commission administrative law judge to suspend the Big Four’s China-based affiliates from auditing U.S.-traded companies for six months” may be “another step down the road toward a final reckoning with a broader, fundamental dispute: The U.S. wants to regulate and investigate China-based companies that trade on U.S. markets, but China has put up roadblocks to those efforts.”  Meanwhile, the Industrial and Commercial Bank of China (ICBC) is looking like it’s not going to bail out the investors in its brilliantly named “Credit Equals Gold No. 1” investment product.  The 3 billion-yuan ($496 million) trust product “raised funds for a coal mining company that collapsed after its owner was arrested.”  While default “threatens to shake investor faith in China’s $1.67 trillion trust industry and add to challenges to the Communist Party’s ability to ensure stable growth in the world’s second-biggest economy,” it could also send a message to investors about the practical realities of investing in a market so rife in shadow banking (which, by the way, is totally manageable, OK?  And even Dr. Doom is learning mandarin, so)  Also, the New York Stock Exchange is challenging the ICBC’s financial product naming genius with “nontransparent ETFs”; basically ETFS that are only required to report their holdings quarterly.  “Proponents of the change argue that nontransparent ETFs would allow managers engaged in actively picking stocks and other securities to compete much more effectively with traditional mutual funds.”  Also, Berkshire Hathaway might be Too Big To Fail.  If Treasury Secretary Jack Lew and the U.S. Financial Stability Oversight Council deem BRK as “systemically important,” it would come under increased Fed supervision and capital requirements.  “Non-bank financial companies that have $40 billion or more in assets and meet any of the five other criteria, including having $30 billion in credit-default swaps linked to their debt, can be evaluated.  Berkshire had $458.1 billion of assets as of Sept. 30…it had $31.4 billion in credit-default swaps linked to its debt as of Jan. 17.”

Emerging Markets: Priced At Dennis Rodman Level Lows

Yesterday may have been “The Worst Day of 2014” because not only were markets down (and emerging markets apparently have some contagion doom virus) but there still seems to be a lot of lingering fear over Fed tapering, China’s slowdown, housing market cooldown etc.  Josh Brown warns of a “current lack of tolerance for stock market losses,” and chides the market for being in an “overly sensitive, emotionally fragile condition.”  Don’t believe him?  Listen to this: “A full-scale flight from emerging market assets accelerated on Friday, setting global shares on course for their worst week this year and driving investors to safe-haven assets including U.S. Treasuries, the yen, and gold.”  Michael Santoli says “investors should prepare to scoop up some emerging-market stocks for cheap, long-term exposure to world growth, especially in the event of one more big dump in the sector…Whether Wednesday night’s disappointing Chinese manufacturing data, the struggles of Brazil and Turkey to defend their currencies or Indonesia’s new curbs on iron-ore exports, reasons abound for investors to permit themselves to avoid these struggling economies that feature seemingly spring-loaded risks of capital flight.”  A strategist at Merrill Lynch puts it this way: “emerging markets are about as popular as Dennis Rodman at a UN Security Council meeting.”  So the point is this: with their unpopularity comes a cheap price tag which makes for an intriguing opportunity.

China’s Richest Businessman Prefers United Kingdom Over United States

In case you haven’t heard, all of the world’s biggest egos decided to get together in Davos, Switzerland, this week, in one massive ivory tower of a summit on economics (with the occasional “taxidermy party”).  Here’s an anecdote from Wang Jianlin, China’s richest man: “If we compare [the United States and the European Union], the U.S. is more open [for business] than the EU.  But the U.K. is the most open.”  He went on to scold some Harvard Professor for bringing up politics (of all things) at an economics conference and then Jamie Dimon ripped on Bitcoin or something so, yeah, if you can’t tell already, the finance/economics media is going kind of stupid over this whole Davos thing and I apologize for wasting your time.

ItsFriday: Stupid Things Finance People Say