Category Archives: Opinion

Volcker Rule Ushers in Era of Increased Oversight of Trades

According to Bloomberg,

Wall Street faces more intensive government scrutiny of trading after U.S. regulators issued what they billed as a strict Volcker rule today, imposing new curbs designed to prevent financial blowups while leaving many details to be worked out later.

The Federal Reserve, Federal Deposit Insurance Corp. and three other agencies formally adopted the proprietary trading ban. The rule has been contested by JPMorgan Chase & Co., Goldman Sachs Group Inc. and their industry allies for more than three years.

Wall Street’s lobbying efforts paid off in easing some provisions of the rule. Regulators granted a broader exemption for banks’ market-making desks, on the condition that traders aren’t paid in a way that rewards proprietary trading. The regulation also exempts some securities tied to foreign sovereign debt.

At the same time, regulators said the final version imposed stricter restrictions on hedging, providing banks less leeway for classifying bets as broad hedges for other risks. To pursue a hedge, banks would need to provide detailed and updated information for review by on-site bank supervisors.

Limiting Risks

 

“This provision of the Dodd-Frank Act has the important objective of limiting excessive risk-taking by depository institutions and their affiliates,” Fed Chairman Ben S. Bernanke said in a statement. “The ultimate effectiveness of the rule will depend importantly on supervisors, who will need to find the appropriate balance while providing feedback to the board on how the rule works in practice.”

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Warren Hits Banks, Expands Base to Solidify Senate Power

According to Bloomberg,

Elizabeth Warren, in her first year as a U.S. senator, has captured headlines by pressuring such industry titans as Goldman Sachs Chairman Lloyd C. Blankfein for transparency, including a Dec. 4 call for Wall Street banks to disclose their contributions to policy groups that provide financial analysis to Congress.

With less fanfare, she’s forging alliances with Republican Senate colleagues, expanding her political network in Massachusetts, and tapping her backers to help Democrats running for re-election in other states.

It’s a strategy that sounds a lot like one adopted by another woman who entered the chamber with a national profile that made her a lightning-rod for praise and derision as she was dogged by questions about her presidential aspirations.

“I think she’s followed a path not unlike that of Hillary Clinton, which is learn how to be a senator,” said Ross Baker, a political science professor at Rutgers University in New Brunswick, New Jersey.

“Clearly, she has decided not to be a liberal Ted Cruz, to learn the ropes, particularly in the area that she cares most about, which is financial services,” Baker said, contrasting Warren with the Texas Republican freshman senator whose push to defund the 2010 health-care law helped lead to the partial government shutdown in October.

Future Contests

Warren, 64, is building relationships that could be helpful in future races, nationally or statewide. While she has said she won’t run for president in 2016 and signed a letter encouraging Clinton to do so, she’s also seizing on speculation about her future to advance her causes.

Asked by reporters on Dec. 4 if the presidential speculation hurts or helps her consumer-oriented legislative proposals, she said: “I’m glad to see any possible energy put behind those fights.”

Related: Elizabeth Warren Versus the Think Tanks

After rising to prominence as a critic of the housing and financial industries during the 2008 financial collapse, Warren became the architect for the Obama administration of the Consumer Financial Protection Bureau, created by the 2010 Wall Street Reform and Consumer Protection Act. After she failed to secure the top job at the bureau, Warren won her Senate seat by challenging Republican incumbent Scott Brown in 2012.

At her first appearance as a member of the Senate banking committee in February, she asserted that Wall Street firms had become “too big for trial” and, at a March hearing, she criticized regulators because no one went to jail after HSBC Holding Plc operations in the U.S. admitted to enabling Mexican and Caribbean drug cartels to launder billions of dollars.

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Health Law’s Birth-Control Rule Gets Supreme Court Review

According to Bloomberg,

The U.S. Supreme Court will take up a challenge to part of President Barack Obama’s health-care law by companies claiming a religious exemption to the requirement that they provide birth-control coverage for employees.

The justices said today they will hear two cases involving family-run businesses whose owners say they view some forms of contraception as immoral.

Prayer at the U.S. Supreme Court (Bloomberg)

Prayer at the U.S. Supreme Court (Bloomberg)

The dispute threatens to carve a hole in the 2010 health-care law already beset by problems on multiple fronts as its major provisions take effect. The clash will be the court’s first look at Obama’s biggest legislative accomplishment, the Patient Protection and Affordable Care Act, since a majority upheld the core of the law in 2012. The court will rule by July.

Both sides urged the justices to resolve the religious-exemption question, which the administration said was of “exceptional importance.” The issue has divided lower courts and sparked dozens of lawsuits by for-profit companies.

“Few issues are more important than the extent to which the government must recognize and accommodate the religious exercise of those it regulates,” argued one of the companies, Hobby Lobby Stores Inc., a craft-store chain whose owners say they run the company in accordance with the Bible.

The second case involves Conestoga Wood Specialties Corp., a woodworking business owned by a Mennonite family.

The court will consider whether companies can assert the same religious-freedom rights as people. A variation of that question drove an ideological wedge through the court three years ago in the Citizens United case, which centered on corporate speech. The court cleared the way for corporations and unions to spend unlimited sums on political campaigns.

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‘Great Satan’ meets ‘Axis of Evil’ and strikes a deal

(Reuters) – Saturday night had turned into Sunday morning and four days of talks over Iran’s nuclear program had already gone so far over schedule that the Geneva Intercontinental Hotel had been given over to another event.

A black tie charity ball was finishing up and singers with an after party band at a bar above the lobby were crooning out the words to a Johnny Cash song – “I fell into a burning ring of fire” – while weary diplomats in nearby conference rooms were trying to polish off the last touches of an accord. Negotiators emerged complaining that the hotel lobby smelled like beer.

At around 2:00 a.m., U.S. Secretary of State John Kerry and counterparts from Britain, China, France, Germany and Russia were brought to a conference room to approve a final text of the agreement which would provide limited relief of sanctions on Iran in return for curbs to its nuclear program.

At the last minute, with the ministers already gathered in the room, an Iranian official called seeking changes. Negotiators for the global powers refused. Finally the ministers were given the all clear. The deal, a decade in the making, would be done at last.

Now that the interim deal is signed, talks are far from over as the parties work towards a final accord that would lay to rest all doubts about Iran’s nuclear program.

“Now the really hard part begins,” Kerry told reporters. “We know this.”

THAW

(L-R) Germany's Foreign Minister Guido Westerwelle, British Foreign Secretary William Hague, Chinese Foreign Minister Wang Yi, U.S. Secretary of State John Kerry, French Foreign Minister Laurent Fabius, Russia's Foreign Minister Sergei Lavrov, EU foreign policy chief Catherine Ashton and Iranian Foreign Minister Mohammad Javad Zarif gather at the United Nations Palais in Geneva November 24, 2013. REUTERS/Carolyn Kaster/Pool

The deal, which represents the most important thaw between the United States and Iran in more than three decades since Iranian revolutionaries held 52 American hostages in the U.S. embassy in Tehran, very nearly did not happen.

There was still ample ground to cover on the final day, when U.S. Secretary of State John Kerry arrived, joining foreign ministers from Britain, China, France, Germany and Russia.

Officials from several of the countries were doubtful that a deal would be reached. Resentful-sounding European diplomats said their foreign minister bosses had not wanted to come unless a final text was on the table, but had felt obliged to come anyway when Russia’s Sergei Lavrov showed up on Friday.

When the foreign ministers arrived, some junior diplomats and journalists were evicted from their hotel rooms to clear space for the VIPs.

After his trans-Atlantic flight on Saturday morning, Kerry met his Iranian opposite number Mohammad Zarif, with European Union foreign policy chief Catherine Ashton, who has led negotiations on behalf of the powers.

According to a senior U.S. State Department official, Kerry told Zarif there could be no more delay. President Barack Obama’s administration would call for even tighter sanctions on Iran unless a deal was reached now. Congress members were demanding new sanctions and the White House would join them.

Kerry made the case that “there would be no way to hold back new sanctions to give room for (a) new round and we would lead the charge for more sanctions if we did not come to agreement,” the State Department official said.

By Saturday evening, the final language was personally approved by Obama in Washington. In a sign of how big a risk the Obama administration was taking, the main U.S. ally in the Middle East, Israel, decried what it called an “historic mistake”, easing sanctions without dismantling Iran’s nuclear program.

But Obama said the deal put limits down on Iran’s nuclear program that would make it harder for Tehran to build a weapon and easier for the world to find out if it tried.

“Simply put, they cut off Iran’s most likely paths to a bomb,” Obama said in a late-night appearance at the White House after the deal was reached.

Obama was not the only one taking a risk. Iran’s new president, the relative moderate Hassan Rouhani, was elected in June and inaugurated in August promising to ease the crippling sanctions. But Iran has invested billions of dollars in a nuclear program, which its clerical and military establishment believes is a cornerstone of national pride.

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Microsoft: Initial Xbox One Sales Exceed 1 Million

According to Bloomberg,

Sony Corp. (6758) said on Nov. 17 that it sold more than 1 million PlayStation 4 consoles in North America in the first day of release, topping initial sales for the predecessor PlayStation 3 in 2006. The PS4 goes on sale Nov. 29 in 30 countries in Europe and Latin America, followed by Japan on Feb. 22.

Microsoft Says Xbox One Sales Top 1 Million in Less Than a Day (Bloomberg)

Microsoft Says Xbox One Sales Top 1 Million in Less Than a Day (Bloomberg)

The two companies are competing for the attention of gamers and trying to revive a console market that shrank 32 percent to $13.3 billion from 2008 to 2012, according to market researcher NPD Group. Both are offering machines with upgraded graphics and more entertainment tie-ins. The Xbox One sells for $499, while the PlayStation 4 is offered for $399.

Microsoft, which has been pitching the Xbox One’s motion-sensing Kinect camera as a controller for all forms of living room entertainment, has focused its message on applications and exclusive content, including the games “Ryse: Son of Rome” and “Dead Rising 3,” and an upcoming live-action TV show from Steven Spielberg.

Microsoft rose 0.5 percent to $37.57 yesterday in New York and has gained 41 percent this year. Sony’s American depositary receipts fell 1.9 percent to $18.30.

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Global Warming Fight Advances With First Steps on Treaty

According to Bloomberg,

Diplomats from almost 190 nations endorsed a set of measures on global warming, laying the groundwork for a treaty to be adopted in 2015 that would limit pollution by all nations for the first time.

Polar Bear and Cubs in Manitoba, Canada (Bloomberg)

Polar Bear and Cubs in Manitoba, Canada (Bloomberg)

The delegates at a United Nations conference called on those who are ready to make pledges on emissions by the first quarter of 2015. They authorized work on a “loss and damage” mechanism that would help the poorest cope with the impact of climate change, took in $100 million in aid pledges to fund adaptation programs and agreed on a forest-protection deal.

The meeting sidestepped the most thorny issues in the debate, namely how to divide up responsibility for emissions cuts and how richer nations will meet their promise to channel $100 billion a year by 2020 in aid for climate projects. Those concerns may stymie work toward a broader accord in two years.

“There are some very difficult political issues that will need to be addressed over the next two years if we are going to have a successful outcome,” said Alden Meyer, an observer of the talks for two decades at the Union of Concerned Scientists, said at the meeting yesterday in Warsaw, Poland. “We’re just at the beginning of a long and potentially difficult journey.”

This year’s meeting of the UN Framework Convention on Climate Change was never designed to produce a breakthrough. Instead, it was meant to work out the technical groundwork necessary for the 2015 deal, which will be negotiated in Paris after an interim meeting in Lima, Peru.

Pollution Level

Record carbon emissions have lifted the Earth’s temperature about 0.8 degrees Celsius since the industrial revolution, and the planet is on a path to exceed the UN-endorsed maximum of 2 degrees Celsius (3.6 degrees Fahrenheit) of warming by 2100. As a result, sea levels are rising, oceans are acidifying and glaciers and sea ice are melting. Scientists predict more freak weather, droughts and stronger storms.

Humans have already emitted more than half the greenhouse gases compatible with a 2-degree increase, UN scientists said Sept. 27. The implication of that is many fossil-fuel reserves need to remain unburned if the temperature goal is to be met.

“The coal lobby cast a shadow over the negotiations,” said Jennifer Morgan, director of the climate and energy program, at the World Resources Institute. “It’s increasingly clear that unabated coal use is inconsistent with the goal of staying within 2 degrees.”

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Gold Analysts Most Bearish Since June on Fed Taper: Commodities

According to Bloomberg,

Gold analysts are the most bearish since June as the Federal Reserve signaled it may ease stimulus “in coming months” as the economy expands, cooling demand for an investment haven.

Nineteen analysts surveyed by Bloomberg News expect prices to drop next week, nine are bullish and three neutral, the largest proportion of bears since June 21. Gold fell to a four-month low and the dollar strengthened after Fed minutes released Nov. 20 showed U.S. policy makers expected enough improvement in labor markets to warrant slower debt purchases.

The metal is heading for its first annual drop in 13 years as some investors lost faith in gold as a store of value, fueled by concern that reductions in $85 billion of monthly Fed bond buying will ease the risk of accelerating inflation. U.S. unemployment-benefit applications fell to the lowest in two months and October retail sales jumped the most since July, the government said this week. Standard Bank Group Ltd. advised selling gold on rallies amid weaker physical demand in Asia.

“For safe-haven assets, there’s no point because the economy is recovering,” said Andrey Kryuchenkov, a commodity strategist in London at VTB Capital, a unit of Russia’s second-largest lender. “The dollar should remain strong, and that’s what should cap any upside in gold anyway. Consumer demand is slowing down. It will recover, but not at the moment.”

Gold’s Decline

Gold Ingot (Bloomberg)

Gold Ingot (Bloomberg)

Bullion slumped 26 percent this year to $1,244.64 an ounce in London, reaching $1,236.88 yesterday, the lowest since July 9. The Standard & Poor’s GSCI gauge of 24 commodities dropped 3.8 percent since the end of December, while the MSCI All-Country World Index of equities gained 17 percent. The Bloomberg U.S. Treasury Bond Index lost 2.6 percent.

Investors sold 768.9 metric tons from gold-backed exchange-traded products this year through Nov. 20, erasing $67.1 billion from the value of the funds and pushing holdings to the lowest since April 2010, data compiled by Bloomberg show. This year’s sales almost match total purchases in the previous three years.

Billionaire hedge-fund manager John Paulson, the largest holder in the SPDR Gold Trust, the world’s biggest ETP, told clients Nov. 20 that he wouldn’t personally invest more money in his gold fund because it isn’t clear when inflation will accelerate, according to a person familiar with the matter.

Paulson has lost 63 percent this year in the PFR Gold Fund, said the person, who was briefed on the returns and asked not to be identified because the information is private. The fund, which has shrunk to $370 million, with most of that John Paulson’s own money, fell 1.2 percent in October, the person said.

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