|Today's Commentaries on Economic & Resource News by Ian R. Campbell FCPA FCA FCBV|
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On October 7 Reuters reported that the world’s biggest investment banks have agreed to changes in derivatives protocols that will take effect January 1, 2015. As I understand it these protocols, which Reuters claims will be announced in the next few days, apparently are (perhaps among other things) expected to result in a postponement of the “closing out” of derivatives contracts by those “on the other side of the trade” in the event a financial institution encounters financial difficulty (e.g. Lehman Bros. in September 2008).
From what I have read on this, I think an important issue here is that if “those on the other side of the trade” close out their derivative contracts with a distressed bank ahead its bankruptcy those firms may “get ahead” of other creditors of the distressed bank – making a bank failure more difficult for regulators to deal with than might otherwise be the case.
I have long thought the derivatives markets to be a major financial institution risk that is generally not well understood. The complexity of even this issue – where I think I understand it but am not entirely sure I do – is for me but one example of the risks related to derivatives being “not well understood”.
Banks to change rules governing derivatives market: FT (Reuters – reading time 2 minutes). Fight Brews on Changes That Affect Derivatives (New York Times – reading time 4 minutes, thinking time longer).
As you no doubt well know, economic concerns continue to build – seemingly at an escalating rate – in the Eurozone.
In the past few days the ECB agreed to buy re-packaged bundles of debt in what may prove to be (or so I think) a precursor to new quantitative easing measures. See ECB targets bundled-debt market to boost economy. Also in the past few days France has said it will not meet the budget deficit criteria set out by the European Central Bank. See France on collision course with EU over budget deficit.
Finally this morning, you no doubt read or heard in the past 48 hours that in August German factory orders dropped by 5.7% and exports fell by about the same percentage. These things presumably signal either a one-month slowdown or bigger near-term issues than that. See
Have you linked this German announcement with U.S. financial markets activity? For example, yesterday the Dow made its biggest one day gain of 2014. Commentator reasons given seem to center around U.S. Federal Reserve statements made yesterday that broadly said the Federal Reserve was rethinking the timing of (i.e. postponing) interest rate increases in light of the current strong U.S. dollar and global economic slowdown. One can only imagine how short-term the horizons must be of a high percentage of financial market participants.
The U.S. Federal Reserve surely can be assumed to have some of the strongest economic minds in the world within their organization and on retainer. How is it possible what is going on in eurozone and elsewhere outside the U.S. (and for that matter within the U.S.) can be "new or unanticipated news" to Federal Reserve officials.
It seems to me to be a legitimate concern that all the talk of world GDP growth and recovery from the 2008 financial crisis is proving to be more hype than reality. If good news does not soon start coming out of Europe perhaps some chickens with damaged wings are coming into sight as they come home to roost.
The World Bank, the International Monetary Fund, the Federal Reserve and presumably every other thinking person are watching what is going on the eurozone with increasing concern – and if they aren’t, I think they ought to be.
ECB targets bundled-debt market to boost economy (Reuters – reading time 4 minutes,thinking time longer). France on collision course with EU over budget deficit (CityAM – reading time 2 minutes). German factory orders drop 5.7 percent on the month in August, canceling out previous rise (Fox Business – reading time 1 minute). German recession fears mount as exports plunge (Reuters - reading time 3 minutes).
Do you think, as John Maynard Keynes apparently once said, that physical gold is a “barbarous relic”?
Gold is making a dramatic comeback in the financial system is a very much 20,000 foot view of one man's opinion on physical gold. If you haven't read it you might think about doing that.
I find the following quote in the article insightful while at the same time forming an interesting mental image: "Looking at the gold price moving up and down in US dollars is something like sitting in a rowboat on choppy waters believing that it’s the beach that’s moving up and down".
Gold is making a dramatic comeback in the financial system (Sovereign Man – reading time 3 minutes).
When comparing things it is always important to ensure when reaching conclusions that the things being compared are indeed comparable.
Last Friday's U.S. jobs report stated the unemployment rate to have dropped in September to below 6%. Yet the number of part-time jobs included in the work force that gives rise to that statistic is up significantly from pre-2008 levels.
Further, to get a proper comparator, statistics such as the average annual wage earned by workers needs to be factored in.
For additional details, read A Strong Jobs Report, Charted published by The New York Times, and 5 Takeaways From The September Employment Report published by the Wall Street Journal. Both were published last Friday after the U.S. jobs report came out.
Yesterday, where the U.S. employment situation - and its ever more popular view it is at least partially based on "structural issues" (something I have been contending for years) presumably in part bears on Federal Reserve thinking, the Fed made statements that suggest probable postponement of U.S. interest rate increases. This where I continue to be of the view that Federal Reserve officials are not as sure as they would like to be what impact an increased interest rate could have on what I continue to think is at best a fragile U.S. economic recovery - and an economy that could be impacted by eurozone economic malaise and other things ongoing outside the U.S.
Afternoon Must-Read: Adam Ozimek: Part-Time Work is Up Even Among the Self-Employed (Washington Center for Equitable Growth – reading time 1 minute). Waiting for wage growth (Washington Center for Equitable Growth – reading time 3 minutes). A Strong Jobs Report, Charted (New York Times – reading and chart review time 5 minutes). 5 Takeaways From The September Employment Report (Wall Street Journal – reading time 3 minutes).
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