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The next financial crisis -- how good rules go bad
Karen Shaw Petrou’s Federalist Society speech titled, “The Next Financial Crisis – How Good Rules Go Bad” It is an honor to speak here today with Senator Gramm, a man whose name graces many of the most important banking and budgetary bills enacted during the decades he represented Texas voters – I know they miss him still. He has just…
Daily Scan: Energy stocks boom with fears of oil supply disruption
November 16, 2015 Stocks rose Monday, despite concerns that the attacks in Paris would scare investors. The S&P 500 added 1.5%, led by the energy sector, which gained 3.3%.  U.S.-traded crude oil rose 3% to $42.08/barrel as investors showed their concern that airstrikes in the Middle East could lead to oil-supply disruptions. The Dow was up 1.4%, and the Nasdaq added 1.15%.…
The shadow rate casts gloom
Nearly 92% of economists surveyed this week by the Wall Street Journal expect that our eight-year experiment with unprecedented monetary easing from the Federal Reserve will come to an end at the next Fed meeting in December. Since we have had the monetary wind at our back for so many years, at least a few have begun to question our…
The gig economy is the new normal
<p>An already-confusing employment environment grew even more complicated this past week. Many readers responded to my “Crime in the Jobs Report” letter with their own stories. Some confirmed what I wrote, while others disputed it. Some of the stories I read from readers who are stuck far from where they want to be in this job market were very moving. I think everyone agrees the labor outlook is uncertain. I sense a lot of nervousness, even from those who have secure jobs that pay well. In today’s letter, I’m going to respond to some of the observations and data that came in this week on employment.</p> <p>Read more at Advisor Perspectives <br /> Photo: Quazle</p> <p>&nbsp;</p>
Daily Scan: Asian shares fall; bond prices higher after terrorist acts in Paris
Updated throughout the day November 16, 2015 Bonds edged higher in the Eurozone and most Asian stocks sank after the terrorist attacks in Paris Friday night.  News that Japan is in a recession for the second time in two years didn't help. The Hang Seng Index dropped 1.72%, the Hang Seng China Enterprises Index tanked 1.99%, and the Nikkei 225 fell 1.04%. China bucked the&hellip;
Weekend Scan: Three brothers, a woman part of terrorist crew in Paris; France bombs ISIS in Syria
<p>Leur rendre hommage à la hauteur de nos tristesses #Bataclan #PrayForParis #PrayForPeace ?????❤️??<br /> A photo posted by Laeticia Hallyday (@lhallyday) on Nov 15, 2015 at 7:21am PST</p> <p>November 15, 2015</p> <p>The week opens in the shadow of the coordinated attacks in Paris that left at least 129 dead, 349 injured, 96 in critical condition.  Sunday evening France bombed terrorist strongholds in Syria, reportedly Raqqa, the "self-proclaimed capital" of the Islamic caliphate (paywall). Previously, France had played a smaller role in the airstrikes in Syria. The U.S. is now reportedly providing strategic intelligence (paywall) to help pinpoint targets.</p> <p>Here's what else you need to know:</p> <p>Japan slips back into recession. The Japanese economy shrank 0.8% in the third quarter, worse than analyst estimates of a 0.3% fall. While a massive blow to Abenomics as well as to the Bank of Japan’s decision to hold off additional stimulus measures, a breakdown of the figure suggests that this may be temporary, as a rundown in inventory drove most of the fall. Financial Times (paywall)</p> <p>A woman and three brothers part of the kamikaze terror crew. Three separate teams of terrorists led the attack. Eyewitnesses say that a woman was among the gun-toting terrorists who mowed down concertgoers at the Bataclan. Two of the seven dead terrorists posed as Syrian migrants saved from a sinking boat and reached France through Greece.  There's a manhunt now for 26-year-old Salah Abdeslam a Frenchman living in Brussels with his two brothers, one of the terrorists who killed himself. The other brother has been arrested in Brussels.  Daily Mail/New York Times (paywall)</p> <p>G20 members promise to respond to terror; Obama, Putin have private chat The two-day meeting in Antalya, a resort town in Turkey, has quickly shifted the original agenda from climate change and the economy to Syria and ISIS. Presidents Obama and Putin stepped aside along with security advisor Susan Rise and a Russian aide for an impromptu chat. French President Hollande cancelled his trip and sent his foreign minister to the meeting.  MarketWatch/CBS News</p> <p>Markets appear set to open lower in wake of attacks. Stocks ended on a soft note last week with the S&amp;P 500 ending 3.6% lower, ending a six-week streak of positive returns; it was the worst performance since September 4. Bonds recovered some of their losses last week. After disappointing reports on retail sales and further slides in commodity prices, the 10-year note yield dropped 5 basis points to 2.28% and the 2-year note trimmed 4 basis points to 0.85% (yields fall when prices rise). MarketWatch/T.Rowe Price</p> <p>Robin Hood Investors Conference begins Monday. Greenlight Capital’s David Einhorn, Kase Capital’s Whitney Tilson and Third Point’s Daniel Loeb are among the hedge fund managers sharing ideas at the two-day confab. Speakers list here.</p> <p>Inflation and production numbers on board in the U.S. this week. Last week, retail sales from the Commerce Department were disappointing. Investors will look for signs of inflation in the CPI report for October and weigh the strength of the factory sector as the Federal Reserve considers a rate hike in December. On Wednesday, the Fed releases the minutes from its October meeting, which could provide insights into what the policymakers may be inclined to do next. Complete weekly calendar here.</p> <p>Democratic presidential nominees spar Saturday night. The terrorist attacks in Paris cast a pall on the evening debates, the second set for the rivals. But the contenders, the dominant Hillary Clinton, Bernie Sanders, and Martin O'Malley soldiered on. Weirdest moment of the night: Clinton used the 9/11 attack to defend her Wall Street donations. Politico</p> <p>IMF backs yuan to join elite basket. The International Monetary Fund’s staff has recommended that China’s yuan should join the elite basket of currencies used to value its own de facto currency. It’s a vote of confidence in China’s economic reforms and efforts to establish the currency as a
Barron's weekend roundup: Trump is dead wrong about China
<p>&nbsp;</p> <p>Republican front runners Donald Trump and Ben Carson have been talking about China, and according to Barron's this week, they need a reality check. Trump said last week that  “the worst” of Beijing’s “sins” is the “wanton manipulation of China’s currency, robbing Americans of billions of dollars of capital and millions of jobs.” Writes Barron's, "Trump’s diagnosis of its currency maneuvers is demonstrably wrong. And his prescription is certain to be ineffective and have horrendous side effects."</p> <p>A restructure of Emerson Electric could drive the stock up, writes Barron's. Emerson's stocks have fallen 26% in the last year, driven by the slump of the oil and gas industry. The company is planning a spin off of its poorly performing network-power unit, and Barron's expects the stock will benefit.<br /> Photo: Gage Skidmore <br /> &nbsp;</p>
'Markets have rewarded discipline'
<p>In the aftermath of the attacks in Paris, a number of people have been asking what will happen next in the markets. Josh Brown, wealth manager and author of The Reformed Broker blog posted this chart to his website, in part to answer just that question:</p> <p>Chart by Dimensional Fund Advisors.</p>
Can bank managers ride herd on investment banking?
<p>&nbsp;</p> <p>John Reed, former Citibank Chairman, opined in the Financial Times that “We were wrong about universal banking.” By being wrong about universal banking, Reed means that it was a mistake to repeal key provisions of Glass-Steagall. He wrote the opinion piece as if he had been a prime architect of the changes who now has recanted. That is revisionist history, say I. He went along, but he never was a prime advocate of the changes in the law.</p> <p>John Reed was chairman of Citicorp before its merger with Travelers in 1998. He was known as a technology and consumer banking expert. After Sandy Weill eased him out of Citi soon after the merger, Mr. Reed disappeared from the banking scene.</p> <p>Sandy was an apostle of the banking conglomerate. He was a deal maker first and foremost, having cut his teeth putting together the brokerage firm Carter Berlind &amp; Weill in the 1960s, through mergers making that into Shearson Loeb Rhodes in the 1970s, before selling to American Express in 1981. Sandy’s deal-making style was not compatible with America Express, and he became the odd man out.</p> <p>But Sandy was a force on Wall Street—even if he did have to move to Baltimore to prove it by acquiring Commercial Credit Corp., through which he built his next financial conglomerate. And eventually, he rose to the top of the heap as Chairman of Citigroup, America’s largest financial company, by selling Travelers, his bankless financial conglomerate that he had built from the inauspicious origins of Baltimore-based Commercial Credit Corp.</p> <p>It was Sandy who, more than anyone else, was responsible for repeal of key parts of the Glass-Steagall Act in 1999 in order to validate the deal that had created Citigroup.</p> <p>I was an advocate for those changes, going back into the late 1970s when few people even had heard of Glass-Steagall. Actually, few people ever have known what that law said, even among those who debate its relative merits.</p> <p>But back in the 1970s and early 1980s when we developed the early logic for repealing parts of Glass Steagall, investment banks were not, for the most part, engaged in trading (other than Treasury securities), and what commercial bankers wanted to be able to do was to advise on and support M&amp;A, to underwrite corporate debt and equity, and to manage money without needing for that function to be in the trust department. We reasoned that those activities were not fundamentally any more risky than commercial lending and that they were more profitable. They therefore would strengthen the banking system and, through increased competition, lower financing costs for American businesses.</p> <p>John Reed says that the legal changes were a mistake, largely because the commercial banking culture and the investment banking culture—and particularly the trading culture—are not compatible. That is why the European universal banks are having so much trouble configuring their strategies for profitability, he says.</p> <p>I heartily agree with Reed that the two cultures have become incompatible in many ways. But that does not mean that the legal change was wrong. Managements, boards of directors and stockholders have to choose what businesses they want to be in and how to manage those businesses. Prohibiting such choices should be done only to curb excessive risk—not to have Congress and the regulators micromanaging financial firms.</p> <p>It appears to me quite possible for a banking organization to engage in the forms of investment banking that are more compatible with commercial banking, such as M&amp;A, underwriting of corporate debt and equity, and money management, without having to deal with the very different culture and mentality of trading. It also seems to me quite consistent with these thoughts to help bank managements by prohibiting proprietary trading, as the Volcker Rule has done. Whereas the other investment banking functions are extremely useful to society—indeed, they are the functions that now provide about 80% of financing in America, which puts us way ahead of bank loan
Markets set to tumble post-Paris attacks
<p>Bourses around the world are set to open as usual on Monday, though a short term hit in equities is likely to happen, the Guardian reports.</p> <p>The attack is unlikely to dent the global economy though, as Shane Oliver, chief economist of Australia’s AMP Capital, told the British rag:<br /> “History will tell us that if the economic impact is limited – and I think it will be – that markets will quickly recover and go on to focus on other things.”<br /> SMBC Nikko Securities’ Hidenori Suezawa meanwhile, noting tourism’s large contribution to the French economy, had this to say:<br /> “Given that France has a big tourism industry there may be some damage to the economy if this leads to a fall in visitors to France, or in tourism in general after the crash of a Russian plane…I do not expect this impact to go so far as to affect the Fed’s monetary policy though at this point.”<br /> Still, how Europe handles this should have massive consequences. Germany, Spain, and Italy for instance are wrangling serious political issues at the moment, and the attacks could put a damper to Merkel’s, Rajoy’s, Renzi’s attempts to maintain their grip. France meanwhile -- as the FT's Gideon Rachman points out -- will be holding its regional elections next month, and far-right parties such as The National Front could easily use the tragedy to gain power.</p> <p>In any case, expect a massive rush to safety right out of the gate on Monday. U.S. Treasuries – along with the dollar – will surely be putting on some points on the board, while Eurodollars – which surged post 9/11 – might put on a show as well.<br /> Photo: Sandro Schroeder</p>