Richest Bullish on U.S. as Family Offices Open Outposts - Bloomberg

Richest Bullish on U.S. as Family Offices Open Outposts - Bloomberg

Treasury Liquidity Squeeze Seen as Dealer Shut Off Machine - Bloomberg

Treasury Liquidity Squeeze Seen as Dealer Shut Off Machine - Bloomberg



...The $12.3 trillion market is also the world’s biggest for government bonds, exceeding the size of the next two nations combined and making it the haven of choice for investors seeking safety. During the credit crisis in 2008, Treasuries soared 14 percent, while both investment-grade debt and junk bonds sank.

JPMorgan & Chase Co., a primary dealer, estimates the amount of U.S. debt available to trade at one time without moving prices has plunged 48 percent to $150 million since April. The measure is based on the average size of the best three bids and offers that go through the New York-based bank’s trading desks on a weekly basis.

That, in turn, may undermine the U.S. government’s cost to borrow if investors begin to doubt whether they will still be able to buy and sell Treasuries on a moment’s notice.

Widening Gap

Another consequence of a lack of liquidity and rising volatility was the widening of the bid-ask spread, or the difference in prices or yields between buyers and sellers.

The gap on 10-year notes reached 0.26 basis point versus an average 0.19 point this year and compares with 0.17 point over the past 15 years, according to data compiled by Bloomberg. One basis point equals 0.01 percentage point.

“You’re widening your spreads out and you invoke more of a premium in this situation,” Sean Murphy, a trader at Societe Generale SA, said by telephone from New York. Murphy, who has been trading Treasuries since 1986, said liquidity constraints on Oct. 15 were similar to what happened after Lehman failed in 2008 and Long-Term Capital Management collapsed in 1998.

Diminishing market depth and a surge in volatility were both on display on Oct. 15.

Gripped by concerns over another recession in Europe, slowing economic growth in China and the spread of the Ebola outbreak, demand for haven assets soared. Buying also picked up as bearish traders pushed back their wagers for how soon the Fed would raise interest rates in the face of a global slowdown.

‘Thin Line’

Dealers contended with the onslaught by offering fewer bonds at a given price and demanding wider spreads, which curbed liquidity and made trading more costly.

“There’s a thin line to keeping the customer happy while also giving a level that you can at least get out of without taking a big loss right away,” Jason Rogan, managing director of U.S. government trading at Guggenheim Securities LLC, a New York-based institutional brokerage, said Oct. 22. Rogan’s firm also turned off its automatic pricing on Oct. 15 because “the market was moving too fast for our prices to keep up.”

Those decisions helped to produce swings rarely seen in Treasuries as trading soared to a record. Yields on the 10-year note tumbled 0.34 percentage point to a low of 1.86 percent that day, with most of that drop occurring in a 10-minute span from 9:30 a.m. in New York, before ending the day at 2.14 percent.

No Immunity

Adjusted for current yield levels, which are close to historical lows, the magnitude of the intraday decline that day has been exceeded only once in the past half-century, according to data compiled by Bloomberg.

U.S. Gains From Good Deflation as Europe Faces the Bad and Ugly - Bloomberg

U.S. Gains From Good Deflation as Europe Faces the Bad and Ugly - Bloomberg



Falling prices and wages make it harder for borrowers to pay off their debts. Only the U.S. and Germany among major economies have reduced total public and private debt as a share of gross domestic product since 2007, according to data compiled by the McKinsey Global Institute.

Rousseff Says Ready for Great Changes After Tight Brazil Victory - Bloomberg

Rousseff Says Ready for Great Changes After Tight Brazil Victory - Bloomberg



Business confidence as measured by the National Industry Confederation is at its lowest level in more than a decade. Investment in 2013 amounted to 18 percent of gross domestic product, the lowest of all nations in the so-called BRICS group and less than half China’s rate, according to theWorld Bank. It hit 16.5 percent of GDP in the second quarter, the least in 7 1/2 years.

Love Your Country, Reform Its Tax Code - Bloomberg View

Love Your Country, Reform Its Tax Code - Bloomberg View



Unemployment is still high, and for every net job created under President Obama, almost three people have dropped out of the labor force completely, leaving us with the lowest labor participation rate since the Carter administration.

Thoughts from the Frontline - Sea Change - btbirkett@gmail.com - Gmail

Thoughts from the Frontline - Sea Change - btbirkett@gmail.com - Gmail

But a strong dollar is not just a problem for US exporters. It is particularly a problem for countries that are financed by the dollar carry trade. Multiple trillions of dollars have left the US courtesy of quantitative easing and have ended up financing all manner of trades and investments around the world. As long as the dollar is neutral or falling, that’s a good thing for dollar carry-trade investors.

If you are a Chinese businessman and you can borrow dollars (which you certainly can) and you believe that your government is going to make the yuan stronger over time, you will be able to pay back cheaper dollars and make the difference on the carry (the difference between what US bonds pay and returns that can be earned in China). But what happens if the yuan begins to fall? That trade unwinds swiftly and negatively. And it unwinds at a time that is particularly inconvenient for China. Flood the market with too much money, and inflation becomes a problem. (The Chinese are in a different phase of the monetary cycle than the US is, so the problems are not the same.)

It is not just China. Those dollars have filtered into every nook and cranny of the world; and now, if those trades are unwound, investors and most specifically hedge funds are going to have to buy dollars to unwind their trades. That will force the dollar ever higher against various currencies; and while any one currency is not significant enough to create a structural difference that can impact global trade, together they will have a significant effect.

EDF’s $27 Billion of Nuclear Bonds Seen as Template: U.K. Credit - Bloomberg

EDF’s $27 Billion of Nuclear Bonds Seen as Template: U.K. Credit - Bloomberg



EDF, along with Areva SA and two Chinese nuclear companies, agreed a year ago to construct the plant after the U.K. government offered to buy electricity at a price that’s almost double today’s market rate under a 35-year contract.

Italy on Sale to Chinese Investors as Recession Bites - Bloomberg

Italy on Sale to Chinese Investors as Recession Bites - Bloomberg

We want to sell, taxes are too high; we work eight hours a day for the state and one hour for us.”

Caffe Orefici is among the 18,000 advertisements from businesses and individuals that have been published since February last year on Vendereaicinesi.it -- sell to the Chinese -- a website that helps Italians, stricken by the third recession in six years, attract bids for properties, products and services from Chinese suitors.

Found: Bill Gross's Farewell Letter to Pimco - Bloomberg View

Found: Bill Gross's Farewell Letter to Pimco - Bloomberg View

I can add colours to the chameleon,

Change shapes with Proteus for advantages,

And set the murderous Machiavel to school.

-- Henry VI, Part III

Dear Friends, Colleagues and Co-workers,

For the past 43 years, Pacific Investment Management Co. has been my home, as well as my pride and joy. With great sadness, I must bid her adieu, not because I want to leave, but because I must. It is the natural order of things for all seasons to change; for the next generation must be given its chance. A new epoch is upon us. Ashes to ashes . . . .

All those reasons -- plus truth be told, an imminent palace coup -- meant it was time for me to go.

Before I depart, however, I offer you this final Investment Outlook, my last IO for you to consider. No cats, no "Man in the Mirror," just a few thoughts for you to reflect upon as the next era -- a newer new normal -- begins.

I co-founded PIMCO in 1971, starting with a mere $12 million in assets. Who could have imagined what the company would become during the ensuing 43 years? After four decades as founder, fund manager and mostly as CIO, I guided this firm to managing more than $1.97 trillion in client assets. When I sold the 70 percent stake not held by Pacific Life Insurance Co. to Allianz SE in 2000, the company had a value of $4.7 billion.

Not too shabby a track record. I daresay I must have gotten one or two things right during that period.

Not that you would know it by the recent press coverage, nor by the whispers in the hallways of Pimco. The immense wealth I helped to create for my colleagues, partners and clients over all that time meant nothing, once Machiavelli’s stratagems were put into play.

There is a standard sequence of events for all insurrections, and this one was no different. It included the favored tactics: A public character assassination, the quiet intimations that I had lost it (erratic behavior, dark glasses at a presentation, an elegy to my cat Bob). Add to that a break with a trusted associate, which implied something nefarious about that behavior (How did Mohamed manage to resign from Pimco, yet stay employed at Allianz? I couldn't pull that one off).

These hints and allegations were easy to make, especially given my natural eccentricities. But I put this question to you: Was I so different from any other California billionaire? The TM and yoga, the occasional head stand, a well-deserved bark at a wayward underling -- these and all manner of behavior that no one ever thought about before suddenly took on all sorts of dark implications once the coup was under way. Never underestimate the impact of a whisper campaign.

On ne voit bien qu'avec le cœur. L'essentiel est invisible pour les yeux. Translation: "One sees clearly only with the heart. What is essential is invisible to the eye."

I must point out that these idiosyncrasies have been on display for decades, and were never looked on askance. At least, not while the alpha was piling up and the assets under management were rolling in.

But alas, that chapter has come to an end; it is now time to look forward. The future of Pimco is now in your hands, a dozen or so managing directors. You represent the future of the firm. You are the new BSDs, and to you I put the following questions:

• Some Pimco funds are generating what I call “perceived” alpha. This seems to be nothing more than “leverage-enhanced” beta. Discuss.

• I cautioned against the wholesale expansion into equities, as fixed income was the asset class upon which the firm made its bones, built its reputation and acquired almost all of its AUM.

How is that equity thing going? And whatever happened to thatKashkari kid? Seemed like a nice fellow.

• Many of you seemed to resent my annual compensation (Mohamed's too). I suspect you believed that a few hundred million dollars would be better placed in your collective hands.

Query: Is splitting up the big dogs’ comp among yourselves worth the fallout of a smaller asset base in the years to come? Is that in the best interests of the firm?

• Speaking of assets: Who among you is going to be the firm’s rainmaker? Which of you can raise a trillion dollars? How about a $100 billion? How will you compensate the people who raise that money? Best of luck managing the resentment for whatever compensation system you arrange.

• Many of you are in your 30s, 40s and 50s. How long do you plan to work here, and how much are you willing to sacrifice? I was married to this place, and gave it my all.

What are you prepared to give?

• Now that you have your new-found authority, what are your plans for it?

As for me, I am off to my newer new normal. There will always be a special place in my heart for Pimco. I wish all of you all of the luck in the world, as I leave you in charge of her. She’s your baby now. Try not to screw it up too badly.

William H. Gross

Managing Director, Retired

The growing wedge between a skilled elite and ordinary workers (from the Economist Magazine)

From a recent issue of the Economist Magazine

http://www.economist.com/news/leaders/21621800-digital-revolution-bringing-sweeping-change-labour-markets-both-rich-and-poor?fsrc=nlw|hig|3-10-2014|54045b8f975910b105704a75|EU

Nonetheless, the growing wedge between a skilled elite and ordinary workers is worrying. ...Governments across the globe therefore have a huge interest in helping remove the obstacles that keep workers from wealth.

The answer is not regulation or a larger state. High minimum wages will simply accelerate the replacement of workers by machines. Punitive tax rates will deter entrepreneurship and scare off the skilled on whom prosperity in the digital era depends. The best thing governments can do is to raise the productivity and employability of less-skilled workers. That means getting rid of daft rules that discourage hiring, like protections which make it difficult to sack poor performers. It means better housing policy and more investment in transport, to help people work in productive cities such as London and Mumbai. It means revamping education. Not every worker can or should complete an advanced degree, but too many people in poor countries still cannot read and too many in rich ones fail to complete secondary school. In future, education should not be just for the young: adults will need lifetime learning if they are to keep up with technological change.

Yet although governments can mitigate the problem, they cannot solve it. As technology progresses and disrupts more jobs, more workers will be employable only at lower wages. The modest earnings of the generation that technology leaves behind will need to be topped up with tax credits or wage subsidies. That need not mean imposing higher tax rates on the affluent, but it does mean closing the loopholes and cutting the giveaways from which they benefit.

In the 19th century, it took the best part of 100 years for governments to make the investment in education that enabled workers to benefit from the industrial revolution. The digital revolution demands a similarly bold, but swifter, response.

Energy Czar Leads Effort to Ease Russia's Gas Grip - WSJ

Energy Czar Leads Effort to Ease Russia's Gas Grip - WSJ



Lithuania, which heavily depends on Gazprom for gas, is about to open its first LNG terminal on the Baltic coast to process gas from non-Russian sources. The government said the terminal, dubbed "Independence," played an important role in negotiating lower prices with Gazprom. Other countries are following suit: A Polish terminal is scheduled to open next year.

A Secret of Uber's Success: Struggling Workers - Bloomberg View

A Secret of Uber's Success: Struggling Workers - Bloomberg View

ETF Providers Keep Trying to Build a Better Dividend Fund | Institutional Investor

ETF Providers Keep Trying to Build a Better Dividend Fund | Institutional Investor

Inflation Panic Will Kill the Recovery - Bloomberg View

Inflation Panic Will Kill the Recovery - Bloomberg View

Lender Charging 390% Uses Data to Screen Out Deadbeats - Bloomberg

Lender Charging 390% Uses Data to Screen Out Deadbeats - Bloomberg