Thoughts From Joe - October 18, 2013October 18, 2013 Posted by: Joe Morgan, CFA
Top EightWashington agreed on a deal to extend the debt limit through February 7thand reopen the government through January 15th. The actual debt ceiling was not increased, it was simply suspended meaning there will be no uncertainty around the deadline for future negotiations. The stock market ended the week at an all time high counting on continued meddling by the Fed through QE at least until the debt ceiling issue is put to bed. Just a month ago, the Fed was seriously discussing a reduction in stimulus, but our elected officials have now backed them into the corner of providing more artificial juice. The difficulty of managing out of such stimulus is increasing each month.
Europe is considering making clear the extent of bank losses in the region. The European Central Bank will take a closer look at the banking industry next year and consensus expectations foresee huge losses by banks in the region. So, the strategy last year was for the ECB to promise to "do everything it takes" to keep the currency union together and now that markets have calmed, the true extent of the damage will be revealed. Dithering about loss acceptance is never good for the long-run health of economies. For reference, see Japan 1990s, U.S. 2000s, Enron, etc.
JP Morgan admits wrongdoing and agrees to pay $100 million to the CFTC. This is the latest of settlements associated with the "London Whale" trades and brings the total settlements on this single issue to more than $1 billion. Losses from the trades directly totaled $6.2 billion. What does it say if the total fines eventually outstrip the actual losses from trading? Also, as we went to press it was announced JPM has settled with the FHFA for an additional $4 billion.
A group of global regulators said investors are taking on more risk in search of return as a result of central bank activity. The International Organization of Securities Commissions (IOSCO) reported that low yields are driving investors into collateralized instruments with higher promised returns - just the types of instruments blamed for starting the liquidity crisis in 2007. Further, IOSCO stated investors could be "decimated" when rates return to normal...Read More