Stephen S. Roach: "China’s Stability Gambit"

One of the brighter guys in the biz.
From Project Syndicate:

The first principle that I learned when I started focusing on China in the late 1990’s is that nothing is more important to the Chinese than stability – whether economic, social, or political.

Given centuries of turmoil in China, today’s leaders will do everything in their power to preserve stability. Whenever I have doubts about a potential Chinese policy shift, I examine the options through the stability lens. It has worked like a charm.

Stability was on everyone’s mind at the annual China Development Forum (CDF) held March 17-20 in Beijing. Hosted by Premier Wen Jiabao, with many ministers of the State Council in attendance, the CDF is China’s most important international conference. Yet, literally two days before this year’s CDF began, the controversial Bo Xilai was removed as Party Secretary of Chongqing. As a strong candidate to join the Standing Committee of the Politburo, China’s inner circle of leadership, Bo’s sudden demise was stunning. There was a palpable buzz in the air as we convened in the Diaoyutai State Guesthouse.

The formal sessions played out predictably, placing great emphasis on the coming structural transformation of China’s growth model – a colossal shift from the all-powerful export- and investment-led growth of the past 32 years to a more consumer-led dynamic. There is now broad consensus among China’s senior leadership in favor of such a rebalancing. As one participant put it, “The debate has shifted from what to do to how and when to do it.”

Many of the other themes flowed from this general conclusion. A shift to services-led growth and an innovations-based development strategy were highlighted. At the same time, there was considerable concern about the recent resurgence of state-owned enterprises, which has tilted the distribution of national income from labor to capital – a major impediment to China’s pro-consumption rebalancing. The World Bank and the China Development Research Center (the CDF’s host) had just released a comprehensive report that addressed many aspects of this critical issue.

But the CDF’s formal proceedings never even hinted at the elephant in the chambers of Diaoyutai. There was no mention of Bo Xilai and what his dismissal meant for China’s domestic politics in this critical year of leadership transition. While it is easy to get caught up in the swirling tales of palace intrigue that have followed, I suspect that Bo’s removal holds a far deeper meaning....MORE

AdSense Creator: "Time machines, robots and silicon gods"

From Information Processing:

The NY Times has a great profile of Gil Elbaz, founder of the startup which eventually became Google AdSense.

Elbaz's early aspirations sound like those of other Caltechers, except perhaps the part about being rich :-)

NYTimes: AT 7 years old, Gilad Elbaz wrote, “I want to be a rich mathematician and very smart.” That, he figured, would help him “discover things like time machines, robots and machines that can answer any question.”

He is old enough to have experienced the horribly dull pre-internet technology world. Young people these days can't imagine how much more limited opportunities were then for people with math/sci/engineering ability. From the article, Elbaz definitely had an entrepreneurial bent already as a kid.

... At Caltech, Mr. Elbaz majored in applied science and economics. Interested in the subject of monopolies, he won an award for a paper that determined that companies would take financial losses to corner their markets.

He worked for I.B.M. for two years, looking at the use of computers in problems of manufacturing, then went to Sybase, a database company. This was in the early 1990s, when I.B.M. was stumbling in the transition from mainframe computers to servers and PCs.

His younger brother says he thinks that the experience changed him. Many employees were “just trying to hold on to their jobs, not working together for the company,” Eytan says. He recalls how Gil, concerned about how employees were hoarding their data, “started talking about how much better it would be if people shared data.”

Mr. Elbaz then joined a semiconductor start-up called Microunity and became a consultant, saving money and playing the stock market to help finance his own first business. His father gave him $10,000 to invest for him, which Mr. Elbaz tripled in 18 months. When Mr. Elbaz and a Caltech friend decided to form a company in 1998 — it became Applied Semantics — his father told him to put the stock winnings into it.

Applied Semantics software quickly scanned thousands of Web pages for their meaning. By parsing content, it could tell businesses what kind of ads would work well on a particular page. It had 45 employees and was profitable when Google acquired it in 2003 for $102 million in cash and pre-I.P.O. stock.

While Mr. Elbaz would not say how much he made from the deal, his father’s $30,000 from the stock investments was eventually worth $18 million. “He certainly changed my retirement,” Nissim Elbaz says....MORE

"Did a Tax-Budget Battle Almost Kill the US in 1812?"

Bloomberg via at CNBC's NetNet:

The myth that the United States government is—or soon will be—desperately short of tax revenues got a new airing over the weekend, in the form of a history lesson from Simon Johnson and James Kwak.

Johnson and Kwak, writing in a Bloomberg Op-Ed, argue that the failure of the federal government to raise taxes before and during the War of 1812 left us economically and financially weak.

Both dominant political parties were opposed to raising taxes to pay for the war against Britain. In New England, which had strong pro-British affinities as well as most of the capital and industrial capacity of the nation, the leading Federalists opposed the war altogether. The Jeffersonian Democratic-Republicans, who favored the war, opposed raising taxes to fund the war.

“Treasury Secretary Albert Gallatin borrowed the money, but he wanted to raise taxes to cover the interest on the new debt. He worried that, otherwise, bond investors would be unwilling to lend large amounts of money to a young country. But the war hawks were ideologically and politically opposed to taxes — particularly the excise (internal trade) taxes that Gallatin favored,” Johnson and Kwak write.

Another difficulty with borrowing the money was that the Federalist-led New England banks did not want to finance the war by purchasing government bonds, either.

“What the British had, more than anything else, was money. By contrast, without a stable source of tax revenue, the U.S. struggled to attract lenders willing to bet on the country’s unproven armed forces,” Johnson and Kwak write.

And this is why the United States lost its independence to Great Britain and has been a colony ever since.

Oh. Wait. That’s not what happened at all.

What happened, in fact, is that the United States government encouraged what economist Murray Rothbard describes in his book “The Mystery of Banking” as “an enormous expansion in the number of banks and in bank notes and deposits to purchase the growing war debt.”

In 1811, there were just 117 banks in the United States. By 1815, the number had risen to 246. The aggregate of bank notes and deposits rose from $42.2 million in 1811 to $79 million four years later, an increase of 87.2 percent. This expansion occurred even while the amount of gold and silver backing the notes shrunk. ...MUCH MORE

Look For Pink Paper Readers in Grand Central Terminal

From Capital New York:

Anyone passing through Grand Central Terminal's golden-hued Vanderbilt Hall over the next couple of days will be subjected to a lavish display of high-tech media marketing: A series of interactive 3-D film projections brought to you by The Financial Times in collaboration with infographic journalist David McCandless.

The installation is on display through Thursday and covers three different themes—the global economy, how it is being transformed by mobile technology, and its recovery from the financial turmoil that has shaken up international markets in recent years. Visitors to the exhibit can interact with the films using a touch-sensitive floor mat.

"We're trying to reach the audience with a message that would be really striking and powerful and also quinessentially Financial Times," said Rob Grimshaw, managing director of the influential business broadsheet's website, FT.com, in a brief phone interview Tuesday afternoon....MORE

Here We Go: "US spot natgas prices drop for fourth time in 5 days"

Actually we've been heading this way for a while but now you can start to hear a moan coming from the longs.*
From Reuters:

 Expectations for big storage build Thursday pressure
prices
    * Milder late-week forecasts, record supplies also weigh
    * Hub discount relative to futures weakens slightly
    * Coming up: EIA oil inventory data, Reuters storage poll
Wednesday

    By Joe Silha
    NEW YORK, March 27 (Reuters) - U.S. spot natural gas prices traded lower on Tuesday for the fourth time in five sessions, pressured by expectations for an above average storage build on Thursday and milder Northeast and Midwest forecasts that should slow demand.

    Gas for Wednesday delivery at Henry Hub NG-W-HH, a key supply point in Louisiana, fell 7 cents to $2.09 per million British thermal units, with late-morning deals weakening to 13 cents under NYMEX from a 10-cent discount on Monday.

    The daily Hub average is below the March monthly index of $2.42 and well below the year-ago price of $4.35 and the $3.92 mean on about the same day in 2010....MORE

Last I saw on the front month futures was $2.20, down another 1.17%.
Although we aren't there yet the next step is producers throwing gas onto the cash market.

*"They were at once enveloped in a dense cloud of smoke and dust. Arms, heads, blankets, guns and knapsacks were thrown and tossed in to the clear air. ... A moan went up from the field, distinctly to be heard amid the storm of battle."

-Lt. Col. Franklin Sawyer, 8th Ohio
On the effects of the Yankee fire upon Pickett's Charge, July 3, 1863

"Barclays Gas ETN Plummets..." (GAZ)

Following up on Friday's "Psst, Wanna Know Another ETN Trading at a Premium To Indicative Value? (TVIX)".

You're welcome.

Here's Bloomberg:

A Barclays Plc (BARC) exchange-traded note that traded 134 percent above the value of the natural-gas index it’s tied to lost 42 percent of the premium in three days as investors exit funds that diverge from underlying assets.

The iPath Dow Jones-UBS Natural Gas Total Return Sub-Index ETN has plunged 29 percent since March 21 as its benchmark index decreased 7.1 percent, according to data compiled by Bloomberg. Barclays suspended issuance of new shares in August 2009, which may cause the notes “to trade at a premium or discount in relation to their indicative value,” the bank said in a statement at the time. The note fell 3.2 percent to $3.64 at 2:23 p.m. in New York.

The note, which was trading at the highest premium to its index among more than 1,000 U.S. exchange-traded products yesterday....MORE

Yeah, kinda caught our eye too.

"13F & Listed Hedge Funds ETFs On The Way"

Freude, schoener Goetterfunken
Tochter aus Elysium
Wir betreten feuertrunken
Himmlische, dein Heiligtum.

From World Beta:

Way back in the fall of 2008 we had two funds that were to going to launch as ETFs.  One was an endowment style global tactical ETF (ticker symbol IVY) and the other was a global listed hedge fund ETN.  We were partnering with Claymore (now Guggenheim) as the sub-advisor, as well as one of the world’s most famous financial brands that was moving into the ETF space.

Fast forward to the fall of ’08 and both filings got pulled due to the market gyrations.  This of course was both good and bad for my firm.  It was good since we would have recieved a pretty tiny index fee for designing the methodology, but it was bad since our strategies would have held up nicely since 2008.  (The story is actually much longer and interesting but not really something I want to publish on the blog.  So if you grab me over a beer sometime I’ll tell you the details.)

The global listed hedge fund ETN was going to invest in the listed hedge funds in Europe, and really the only structure that can do that without screwing the end investor due to PFIC taxes is the ETN.  The listed hedge funds trade like closed-end funds do here with discounts and premiums to NAV and we had a strategy to bias the index to the funds trading at the biggest discounts. I haven’t seen any content on listed hedge funds in the US (other than a chapter on them in our book), but the ETN structure should have died alongside Lehman, although oddly it is still around today.  I think investing in the foreign listed funds was really interesting five or so years ago, but with more and more active ETFs and alternative funds listing publicly, and the huge tax benefit to running active strategies in an ETF structure, they slowly became less and less interesting.

Anyways, it looks like Global X, which has been pretty creative and aggressive in launching funds, is going to do a global listed hedge fund ETF.  I doubt they can get around the PFIC rules but will update this post if I chat with the folks there anytime soon and they provide more clarity.  I’m pretty sure this is what killed the foreign listed private equity ETF a few years ago after I wrote about it a bunch on the blog....MORE

Facebook Asserts Trademark on Word ‘Book’ in New User Agreement

From Wired's Danger Room blog:

Facebook is trying to expand its trademark rights over the word “book” by adding the claim to a newly revised version of its “Statement of Rights and Responsibilities,” the agreement all users implicitly consent to by using or accessing Facebook.

You may recall that Facebook has launched multiple lawsuits against websites incorporating the word “book” into their names. Facebook, as far as we can tell, doesn’t have a registered trademark on “book.” But trademark rights can be asserted based on use of a term, even if the trademark isn’t registered, and adding the claim to Facebook’s user agreement could boost the company’s standing in future lawsuits filed against sites that use the word.


“Unregistered marks are quite common in the US,” University of Minnesota Law Professor William McGeveran told Ars. “Rights arise from use, not registration (though registration does give you some other advantages). That’s how Facebook can try to claim ‘book.’” If you see a ™ next to a name, that indicates an unregistered, claimed trademark, whereas an R in a circle signifies a registered one, McGeveran notes....MORE

HT: I think it was Marginal Revolution but don't recall the post so we'll give them the whole "link-of-love" thing.

ObamaCare in the Supreme Court: Hanging Out at the SCOTUS Blog

Five years ago, during Mass. v. EPA I realized that if you could have only one Supreme court blog this would be it.
From SCOTUSblog:

Editor's Note :
Lyle's recap of the individual mandate argument is here.

Breaking News :

• Audio of the individual mandate argument is here.
• The transcript of the argument is here.

Argument recap: It is Kennedy’s call

By Lyle Denniston on Mar 27, 2012 at 12:20 pm

Analysis

If Justice Anthony M. Kennedy can locate a limiting principle in the federal government’s defense of the new individual health insurance mandate, or can think of one on his own, the mandate may well survive.  If he does, he may take Chief Justice John G. Roberts, Jr., and a majority along with him.  But if he does not, the mandate is gone.  That is where Tuesday’s argument wound up — with Kennedy, after first displaying a very deep skepticism, leaving the impression that he might yet be the mandate’s savior.

If the vote had been taken after Solicitor General Donald B. Verrilli, Jr., stepped back from the lectern after the first 56 minutes, and the audience stood up for a mid-argument stretch, the chances were that the most significant feature of the Affordable Care Act would have perished in Kennedy’s concern that it just might alter the fundamental relationship between the American people and their government.   But after two arguments by lawyers for the challengers — forceful and creative though they were — at least doubt had set in. and expecting the demise of the mandate seemed decidedly premature....MUCH MORE

Rabobank Raises Average Soybean Price Call by 10%

Rabobank has a pretty solid ag research team.
From Agrimoney:

Need to ration demand to lift soybean price to $14

Rabobank became the second group in two days to forecast a return by soybeans to $14-a-bushel even as prices retreated in Chicago, sapped by the long-awaited arrival of a wave of profit-taking.

The bank, which forecast the oilseeds rally would hand further gains to palm oil too, hiked by $1.40 to $14.00 a bushel its forecast for the average price of Chicago's near-term soybean contract in the April-to-June period.

Forecasts for soybean prices later in the year were also raised.

The upgrades reflected a further slice to estimates for the South American soybean harvest, which the bank pegged at 115.5m tonnes, down 13% year on year and 4.9m tonnes below its February forecast.

In the southern Brazilian states of Parana and Santa Catarina, particularly badly effect by drought, the harvest was seen collapsing by 30% to 20m tonnes.

'Higher soybean prices are needed'

"Fundamentals suggest higher soybean prices are needed in order to ration demand, as the outlook for South American production continues to deteriorate," Rabobank said.

"This smaller supply outlook… has not yet been met with sufficient demand rationing. Crush margins have improved and Chinese import demand remains strong."

On Monday, Morgan Stanley said that margins by crushers in China, the top soybean importing country, had "turned positive, boding well for US exports". Crushers had since August run at losses which approached $500 a tonne late in 2011.

Also on Monday, Thomas Mielke, the head of influential analysis group Oil World, forecast soybean prices would "reach $14 quite soon and probably rally towards $14-$15 or above sometime in the next four-to-eight weeks, depending on South American harvest progress and harvest result"....MORE

"How to Think About Corporate Personhood" Parts I and II

A bit of formerly esoteric law/history thrust into the limelight by the Citizens United decision and bound to become more important going forward.
Rutgers History Prof. James Livingstone writing for the History News Network:

How to Think About Corporate Personhood Pt. 1

In Zuccotti Park on October 5, 2011, I saw a young woman holding a scrawled cardboard sign that read: “I’ll believe corporations are persons when Texas executes one.”

It made me literally laugh out loud, so I took a picture of it. Six weeks later, November 17, on the night of the second big Occupy march to and from Foley Square, you could see those words everywhere you looked, now neatly stenciled and mass produced, a sign of the times.

Meanwhile, in my big survey class at Rutgers, “Development of the U.S. to 1865,” I was lecturing about the making of the U.S. Constitution, and more particularly the anguished mind of the founder, James Madison, who kept asking how to reconcile—or rather, how to codify the tension between—the rights of persons and the rights of property because he knew that republics, both ancient and modern, inevitably became oligarchies when they chose to sacrifice the rights of persons to the rights of property. I was quoting from a letter Madison wrote to Thomas Jefferson in October of 1788 when one of my students raised his hand and asked, “But weren’t you saying last time that the law makes corporations persons, what’s the deal there?”
Soon after my old friend Mike Fennell, a contractor in Charlotte, North Carolina, told me that one of his employees was so worried about what he’d heard on the radio—the Supreme Court says corporations are persons whose campaign money is a kind of speech to be protected by the First Amendment!—that he had to write his congressman.

We’re all worried about it. Herewith, then, a short course—some CliffsNotes—on how to think about corporate personhood. Full disclosure before the fact: you’re not going to like what I’m about to tell you because I’ll be suggesting that “original intent” is a useful device in adjudicating the divergent claims of all parties.

Citizens United v. Federal Election Commission 558 U.S. 1 (2010) is not a repudiation of stare decisis. In fact, it’s a very conservative argument that overturns Austin v. Michigan Chamber of Commerce 494 U.S. 652 (1990), and a part of its more recent progeny, McConnell v. Federal Election Commission 540 U.S. 93 (2003), by demonstrating that Austin was a “significant departure from ancient First Amendment principles” and claiming that the Bipartisan Campaign Reform Act of 2002, Section 441 b, which bans “electioneering communication” by corporations, is at least inconsistent with the First Amendment as long as the identity of the speaker cannot determine whether speech must be protected. It relies on and restores what the majority understands to be the balance of precedent, particularly but not only First National Bank of Boston v. Bellotti 435 U.S. 765 (1978) [see CU, 26-31, esp. the long line of precedent cited at 26-27]. There’s not much that is new here, in other words, except a disturbing clarification of what corporate personhood implies....MUCH MORE

How to Think About Corporate Personhood Pt. II

Last time out I ended on a skeptical note—I had begun to doubt my own deployment of James Madison’s formative distinction between the rights of persons and the rights of property. I concluded that the Santa Clara decision of 1886 conflated these “two cardinal objects of Government,” as Madison called them, and thus had adjourned the debate he had designed to trouble congressional decision-making—the debate he thought would prolong the process of majority formation and prevent the propertied oligarchies that had destroyed the ancient republics by ignoring the rights of persons. After Santa Clara, I suggested, the rights of persons and the rights of property couldn’t be distinguished because the Supreme Court had designated corporations persons whose property was protected by the substantive due process of the 14th Amendment. 

And yet, and yet. The notion—the very idea—of a person was enlarged and enriched in the age of the giant corporations, the twentieth century, and this is not mere coincidence: the contemplation of corporate or collective identities, whether as business firms or trade unions, enabled the concept of a “social self,” an artificial yet real and durable personality constructed through association with others. The pragmatists and feminists of the early twentieth century led the way. They kept claiming that individuality was an achievement, not a given—it was more cumulative effect than prior cause of particular situations and actions....MUCH MORE 

"Bill Gross on Risk Seeking Return and Safe Carry"

I'll do a little advertising for Edward* Harrison.
From Credit Writedowns:

Bill Gross is out with his monthly commentary. Because his points are central to the discussion of policy and markets right now, I am going to write this weekly newsletter commentary outside the paywall.
Below are the key points as summarized at the outset of Gross’ column:

• How do we deliver in this New Normal world that levers much more slowly in total and can delever sharply in select sectors and countries?
• When interest rates cannot be dramatically lowered further or risk spreads significantly compressed, the momentum begins to shift, not necessarily suddenly, but gradually – yields moving mildly higher and spreads stabilizing or moving slightly wider.
• In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form.
• We favor high quality, shorter duration and inflation-protected bonds; dividend paying stocks with a preference for developing over developed markets; and inflation-sensitive, supply-constrained commodity products.

What Gross is referring to here is what I call "risk seeking return". It is a direct consequence of the Fed moving out the curve and attempting to artificially suppress interest rates in order to reflate the economy through asset price inflation. Gross puts it this way:

The best way to visualize successful delivering is to recognize that investors are locked up in a financially repressive environment that reduces future returns for all financial assets. Breaking out of that “jail” is what I call the Great Escape, and what I hope to explain in the next few pages.

What he goes on to describe is the great secular leveraging. Gross remarks that, depending on your ideological world view, you could date this leveraging:

from the beginning of fractional reserve and central banking in the early 20th century, the debasement of gold in the 1930s, or the initiation of Bretton Woods and the coordinated dollar and gold standard that followed for nearly three decades after WWII, the trend towards financial leverage has been ever upward. The abandonment of gold and embracement of dollar based credit by Nixon in the early 1970s was certainly a leveraging landmark as was the deregulation of Glass-Steagall by a Democratic Clinton administration in the late 1990s, and elsewhere globally. And almost always, the private sector was more than willing to play the game, inventing new forms of credit, loosely known as derivatives, which avoided the concept of conservative reserve banking altogether. Although there were accidents along the way such as the S&L crisis, Continental Bank, LTCM, Mexico, Asia in the late 1990s, the Dot-coms, and ultimately global subprime ownership, financial institutions and market participants learned that policymakers would support the system, and most individual participants, by extending credit, lowering interest rates, expanding deficits, and deregulating in order to keep economies ticking. Importantly, this combined fiscal and monetary leverage produced outsized returns that exceeded the ability of real economies to create wealth.

I tend to date it from the end of Bretton Woods and the beginning of the nonconvertible, floating exchange rate fiat currency system. See "The Age of the Fiat Currency: A 38-year experiment in inflation" from April 2009. ...MORE

*Many years ago I was introduced to a cat named Calico King Æthelred the Unready and reading up on the good if unprepared King saw that he was the half-brother of King Eadweard which lead to an excursion into Saxon and Old English were we find that Ead is real property which at the time pretty much was the source and display of wealth and that Weard was keeper or guardian so Mr. Harrison's name apparently translates into Guardian of Wealth which is good enough for me.

"Damit ist Eine Katastrophe Vorprogrammiert"*.Is Ausralia's GrainCorp Looking for Another Malting Barley Acquisition

*It's a recipe for disaster.

This is one business that doesn't need much more consolidation/pricing power.

We follow the barley/malt market on a sporadic schedule, the thinking is you don't want a bunch of angry beer drinkers, see Bürgerbräu Keller, 1923, for example.

From Australia's Stock & Land:

One more conquest for GrainCorp?

GRAINCORP'S strategic $46 million purchase of four malt houses in Germany last October leaves the company with just one key region into which it is likely to spread its footprint.

While he is not suggesting the company is on the hunt to acquire more plants just yet, GrainCorp Malt chief executive officer Steve Haydon said South America was a major barley production region and a growing beer marketplace.
 

Argentina, in particular, was a significant malt barley producer and other big maltsters, notably Cargill, were active in the region.
 

"Looking at the long term picture it's the one area where we don't have our malt business represented with a processing operation," Mr Haydon said.
 

The strategic risk management advantages which GrainCorp's 1.4 million tonne malt business enjoys because of its global footprint have become obvious since last year's purchase of Schill Malz.
 

Apart from neatly complementing GrainCorp's newly opened grain marketing office in Hamburg, Schill gave the malting division direct access to the world's biggest malt barley crop in mainland Europe....MORE

"FDR's `Dictatorship Plan': Echoes"

From Bloomberg's Echoes column:

In February 1937, Franklin D. Roosevelt was beginning his fifth year as U.S. president. His first term had been grueling, as the administration improvised a response to the country's unprecedented "national emergency."

He had been assailed by critics for trampling on rights and creating an unmanageable sprawl of new federal agencies. But now, three months after an election that he took as vindication, the president's mood lightened. He told friends that he had earned some political capital, and he was going to spend it.

In January, Roosevelt had stunned Washington by announcing a sweeping plan to reorganize the executive branch. He wanted to create two new departments for social welfare and public works; merge all the existing independent regulatory agencies into the executive departments; weaken the General Accounting Office; abolish the Civil Service Commission; give himself the power to move bureaus among departments; and expand the White House staff.

This was a carefully calculated play for enhanced executive power. A team of specialists had worked for months on the scheme, huddled in a suite a few blocks from the White House. They were warned to say nothing about their work before the election. The plan hinged on the claim that the framers of the Constitution wanted "a single responsible Chief Executive" running the federal bureaucracy. For years, Roosevelt's supporters complained, presidential authority had been "nibbled away" by Congress.

For many Democrats on Capitol Hill, though, it was the foulest medicine that Roosevelt had ever asked them to swallow. And three weeks later, on Feb. 6, it got worse. Roosevelt asked Congress to approve a bill prepared in "deepest secrecy" by Justice Department lawyers. It would allow Roosevelt to expand the Supreme Court from nine to 15 justices, if the sitting ones refused to resign at age 70. This was a direct assault on an aging court that had repeatedly stymied New Deal polices during Roosevelt's first term.

Louis Brownlow, the University of Chicago-based adviser who spearheaded the reorganization plan, feared that it would provoke the "dictatorship school of critics." He was right. Opponents of the president, led by Frank Gannett’s National Committee to Uphold Constitutional Government and the Rev. Charles Coughlin, the radio priest, organized a broad campaign against the proposals. They called it a plan for "one-man rule" and "authoritarian government." Virginia Senator Harry F. Byrd was one of many Democrats aghast at the president's attack on the constitutional order. Editorialists across the country railed against Roosevelt's "Dictatorship Plan."...MORE

Also at Echoes:
The Match King's Empire Collapses: Echoes

Equity derivatives senior salesman: 'You can't bully a hedge fund'

Lower level but prima facie honest if a bit whiny.
As much as anything I wanted to bookmark the writer, Luyendijk.
From The Guardian's Banking blog:

Joris Luyendijk hears from an equity derivatives salesman about negotiating the relationship between client and trader

In the continuing series here about the equity derivatives corner of finance, today a senior salesman at a major bank. He is in his early 30s and, this being a relatively small field, that is all that can be said about him.

"You've got two types of people in investment banks, essentially. You have got those for whom their job is their identity. If their career does not go well or they threaten to lose their jobs, they face an acute crisis of confidence.


"Then there are the people for whom this is simply a job. It pays well, comes with huge demands, and, well, over all for them the balance tips in favour of staying in their job. But they will feel conflicted, constantly watching over their shoulder; is this new guy who came in from UBS really helpful or actually trying to steal my client? It's a competitive atmosphere. If you've done a particularly profitable trade, that will be mentioned in the morning meeting.


"It's a delicate balance for sales guys like me. Some clients are really nice, some are horrible. Same with traders. You get into petty situations where a trader may decide he hates a particular client and will not quote a good price. Or they will be deliberately slow, making you look bad to the client.

"There's also another side, when a trader may say, hey, I like that client, let's take him out for a drink and get to know him better, so we can do more business with him.


"Over all, it's very tiring to be a salesman, absolutely. You get absolutely fed up with people's attitudes, clients and traders. Add to that your boss. He can be a sociopath, or a money-obsessed person, or a genuinely nice guy. You have no control over that, but he has control over you as he will be the one to put your name on the list when there's a new round of redundancies. What if he pressures you to do something you feel is not to the advantage of the client?...MORE

Coal: "Is Peabody Energy Poised for a Contrarian Backlash?" (BTU)

The stock is down another 1.25% at $30.02.
From Schaeffer's Investment Research:

In the latest installment of Monday Morning Outlook Senior Quantitative Analyst Rocky White detailed a few indicators that we here at Schaeffer's Investment Research keep in mind when quantifying sentiment toward a particular stock and/or index. Similar to semiconductor stock Cree (CREE), Rocky tapped Peabody Energy Corporation (BTU - 29.97) as a potential short play for the contrarian speculator.

Technically speaking, BTU has had a rough time on the charts, lopping off more than 8.8% in 2012, and pulling back about 58.4% over the past 52 weeks. In fact, the stock has lagged the broader S&P 500 Index (SPX) by 21.3% during the past two months. BTU is currently off more than 0.7%, faltering below the $35 level, as well as its 10-week and 20-week moving averages -- which have guided the shares lower since mid-April 2011.

 

Despite this poor price action, it appears that relatively few traders are wagering on BTU to prolong its slide. Short interest decreased roughly 13% over the past month. These bearish bets now account for just 3% of the equity's float, pointing to a rather meager supply of sideline cash.

Meanwhile, there is an overwhelming preference for calls in the options arena. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 4.59 calls for every put. This ratio arrives in the 90th percentile of its annual range, signaling that traders on these exchanges have purchased bullish bets over bearish at an accelerated clip during the past couple of weeks....MORE

The Volatility of Volatility is Not as Volatile as the Volatility (VIX;VVIX)

We first looked at the VVIX^SM  Index in "Behold! Fear Squared! CBOE Launches VIX of VIX Index! (VVIX)" wherein we saw the bizarrely titled CBOE White Paper: "DOUBLE THE FUN WITH CBOE's VVIX^SM Index" I read the paper and made inquiries of some pretty sharp people and have not figured out how to use the VVIX^SM .

I do know that I'm going to get very cranky if the CBOE wants me to use the Service Mark supercript each time I type the symbol.

I also know that today the VIX is up 5.19% while the VVIX trails at up 3.65% which tells me I'm missing something in my analysis of the mood of the mood of the market.

No word yet on when the exchange plans to trade derivatives on this derivative of derivatives.

European Banks Will be Having The Biggest Fire Sale in History

This article is a bit flippant and has a whiff of tout about it but the core message is worth considering.
From The Daily Reckoning:

It's going to be the biggest fire sale in history - and it begins in 2012.

Europe's banking sector holds 2½ times as many assets as the U.S. banking sector. It's huge. And it's in big trouble. Europe's banking sector needs cash - mountains of cash.

As a result, it will have to sell more than $1.8 trillion of assets, which will likely take a decade to work through. For perspective, it sold only $97 billion from 2003-10.

"The list of asset sales is the longest I've seen in 10 years," says Richard Thompson, a partner at PricewaterhouseCoopers in London. Knowing how these things work, the final tally could well be double that. The world has never seen anything this big before.
Where will the cash come from?

This is our opportunity. There is no better, more-reliable way to make money than to buy something from someone who has to sell. Bankers are the best people in the world to buy from. Believe me, I know.
I was a vice president of corporate banking for 10 years before I started writing newsletters in 2004. I would get at least three or four requests every year from some investor group asking if we had any assets we were looking to unload. Why? Because they know banks are stupid sellers.

I once had a big real estate deal go bad on me. But I knew I was covered by good collateral twice over. You'd never know it based on the pressure I got to get rid of the thing once the borrower stopped paying and the bank took the asset.

I knew, given a little time, I could sell the property and make a bundle for the bank. But the folks at the top didn't want to hear it. They wanted that bad loan gone. They wanted to wipe it off the books fast.
So I sold it quickly, basically at fire-sale prices. It was still the most-profitable loan the bank made that year, because I got a price a good 35% above the loan amount. But the group I sold it to - which could've been more patient in marketing the property - flipped it again and made an easy 50% above that. The bank left a lot of money on the table and knew it - and didn't care.

But institutionally, banks can't really hold bad debts for long. As soon as they report a big bad debt on a quarterly financial statement, some annoying things happen. It means they have to put aside more capital for this particular loan, which they hate to do, as it lowers profitability and requires a lot of paperwork.
It can raise the attention of regulators, which banks hate. It can raise shareholder suspicions about lending practices, which banks hate. So the usual way to deal with bad debts is to clear 'em out as fast as possible. (Unless you're swamped with bad debts in a full-blown crisis, in which case you try to bleed them out and buy time to earn your way out, and/or patch them up as best you can to keep up appearances while you pray for a miracle - or a bailout.)

With the EU banking sector loaded with trillions of stuff it must sell, the mouths of knowing investors drool with money lust. These are deals the big boys do. Prem Watsa, the brain behind Fairfax Financial and dubbed by some as "the Warren Buffett of Canada," gets to do these deals. Wilbur Ross, the billionaire investor famous for investing in distressed assets, gets to do these deals. Warren Buffett gets to do these kinds of deals.

One such investor is a guy named Bill McMorrow. You've probably never heard his name before. But his current joint venture fund has returned 42% annually since it began in 1999 by buying up distressed property from banks....MORE

TVIX Last Word (for today)

Ha!
FT Alphaville's Izabella Kaminska (she of our earlier link, "A Virtuoso Discusssion of the Recent Action in the VelocityShares Daily 2x VIX Short-Term ETN (TVIX)") was on CNBC this afternoon, talking with Herb Greenberg about the 'Disaster du Jour'. Here's the rush transcript:

Disaster du Jour: TVIX

Fri 23 Mar 12 | 02:51 PM ET

The following transcript has not been checked for accuracy.

together for your future. ♪♪ ♪♪ yesterday herb told us about trouble with tvex. the value was cut in half. yesterday it plunged 29% or something. it's raised a lot of questions. indeed. a big part of that latest leg of that decline is down about 50% over the past few days. as i was started to talk about this as yesterday's disaster dejour. tvix is a traded note, not fund, but note. that trades on not the conviction which measures the implied volatility but the fures. confused? well, those derivatives of derivatives are not meant for ma and pa. and very sophisticated investors have learned the hard way in recent days it may be t risky for them. but you cannot say that you were not warned. here's what they display in their prospectus. the long-term value of your etn is 0. if you hold it as a long-term investment, it's likely that you will lose large or a portion of your investment. makes you wonder why does the s.e.c. approve these. i asked them and their bottom line is it is not their job to weigh the merits of an investment. so what's the bottom line for the exchanges, the exchange products and the investor and should be doing about it? isabella, great to have you on the set with us for today. what do you feel their role ought to be in this? i don't see why in this case they shouldn't move as well and there are things going on as well. there are disruptions and people upset. these things -- we don't know what is happening behind the scenes. isabella, how do you prevent to herb's point people from getting burned? is there a way to firewall that? or perhaps it's not even allowed. well, i think the professional investors would get upset if you told them, well, you can't trade this because retail investors might not understand it. but -- so that wouldn't be fair on them. again, we nd to protect the retail investor. perhaps there should be a firewall. when i talk about these in the past, i've talked about, is the tail wagging the dog? the pros tell me that is not the case. exactly and when you look at what has been going on in the vix futures, not to get but it's not performing how you might expect it to perform. there's definitely a anomalies and volatility trade is telling me that, you know, they can't predict these things. so if the guys that trade volatility for a living cannot predict the way that tvix is moving, that tells me that the product is fundamentally flawed? yeah. i think that's a very good point. it's a mystery to them as much as to us. is it flawed or just too complicated and perhaps if the prospect tus was clear and had the clear risks involved, would that be a better way of doing it? i think it's a question of complexity. and, yes, i think it would definitely help if the prospect tus was clearer. the risk factors are huge. no one is going to read a risk factor section of an etf or an etn. i can tell you that. and they are probably writing it in a way that the first two sentences, your eyes glaze over. i have spent a lot of time reading these prospectuses and i came away with it on its own and was stumped. so that's how you spend your saturday nights? thank you, isabella, for joining us today. we're bringing you a whole different kind of sparkle. check out this bad boy. it's being called the world's first all diamond ring. it's no band. it's just all diamond. this 150 carat jeweller is going to set you back a cool $68 million. coming up next, the ultimate

URL:http://video.cnbc.com/gallery/?video=3000080207

This transcript is generated by automated closed captioning, has not been edited, and may not be entirely accurate.

Here's a clickable link., no embed yet available.
She's a lot younger than I would have thought.

Bummer Dude: Memo Says MF Global’s Corzine Ordered Funds Moved to JPMorgan

Jon, man up and do the "Non, je ne regrette rien" thing.
[sing Edith Piaf tunes? -ed]

From Bloomberg:

Jon S. Corzine, MF Global Holding Ltd. (MFGLQ)’s chief executive officer, gave “direct instructions” to transfer $200 million from a customer fund account to meet an overdraft in one of the brokerage’s JPMorgan Chase & Co. (JPM) accounts in London, according to an e-mail sent by a firm executive.

Edith O’Brien, a treasurer for the firm, said in an e-mail sent the afternoon of Oct. 28, three days before the company collapsed, that the transfer of the funds was “Per JC’s direct instructions,” according to a copy of a memo drafted by congressional investigators and obtained by Bloomberg News...MORE

Good idea!

Je Ne Regrette Rien

No, nothing of nothing
No! I don't feel sorry about anything
Not the good things people have done to me
Not the bad things, it's all the same to me.

No, nothing of nothing
No! I don't feel sorry about anything
It's paid for, removed, forgotten,
I'm happy of the past

Non ! Je ne regrette rien
Ni le mal, tout ça m'est bien égal !

If it means his freedom, Corzine will sing or if not there's always the French Foreign Legion.

Here's another chanteuse:

http://lyricstranslate.com

http://lyricstranslate.com