The Big Picture

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• Currency Markets Are Rigged
• League of Denial
• What We Can Learn From These Motivational Quotes
• The Obamacare Portfolio
• 10 Weekend Reads
• Federal Reserve Tools for Managing Rates and Reserves

Currency Markets Are Rigged Posted: 12 Oct 2013 10:30 PM PDT U.S. Justice Department Opens Criminal Probe Into Currency Market Manipulation Currency markets are massively rigged. Bloomberg reports today: The U.S. Justice Department has opened a criminal investigation of possible manipulation of the $5.3 trillion-a-day foreign exchange market, a person familiar with the matter said. The Federal Bureau of Investigation, which is also looking into alleged rigging of interest rates associated with the London interbank offered rate, or Libor, is in the early stages of its currency market probe, said the person, who asked not to be identified because the inquiry is confidential. *** Swiss regulators last week said they were "coordinating closely with authorities in other countries as multiple banks around the world are potentially implicated." The U.S. investigation comes as the U.K. Financial Conduct Authority said in June it was reviewing potential manipulation of exchange rates. *** Earlier this week, European Union antitrust regulators said they were examining the possible manipulation of currency rates by the financial industry, while Switzerland's Financial Market Supervisory Authority, or Finma, and the nation's competition commission said they were probing similar potential wrongdoing. The U.S. Commodity Futures Trading Commission has also been reviewing possible currency market rigging, said a separate person with knowledge of the matter. *** RBS, Deutsche Bank and Citigroup are among firms reviewing e-mails, instant messages and phone records of their foreign-exchange employees for evidence of potential manipulation, according to three people with knowledge of those probes. (Don't get too excited.  The Justice Department has announced it will go easy on big banks, and always settles prosecutions for pennies on the dollar … a form of stealth bailout.  It is also arguably one of the main causes of the double dip in housing.  Indeed, the government doesn't even force the banks to admit any guilt as part of their settlements.) It's not just currency markets. As shown below, big banks have manipulated virtually every market – both in the financial sector and the real economy – and broken virtually every law on the books. Interest Rates Are Manipulated Interest rates are rigged: The big banks have conspired for years to rig interest rates … upon which $800 trillion in assets are pegged This was the largest insider trading scandal ever … and the largest financial scam in world history Local governments got ripped off bigtime by the Libor manipulation Libor is still being manipulated Derivatives Are Manipulated The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market. Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed: through gamed self-reporting. Oil Prices Are Manipulated Oil prices are manipulated as well. Gold and Silver Are Manipulated The Guardian and Telegraph report that gold and silver prices are "fixed" in the same way as interest rates and derivatives – in daily conference calls by the powers-that-be. Energy Markets Are Manipulated The Federal Energy Regulatory Commission says that JP Morgan has massively manipulated energy markets in California and the Midwest, obtaining tens of millions of dollars in overpayments from grid operators between September 2010 and June 2011. Commodities Are Manipulated The big banks and government agencies have been conspiring to manipulate commodities prices for decades. The big banks are taking over important aspects of the physical economy, including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity. And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year. Everything Can Be Manipulated through High-Frequency Trading Traders with high-tech computers can manipulate stocks, bonds, options, currencies and commodities. And see this. Manipulating Numerous Markets In Myriad Ways The big banks and other giants manipulate numerous markets in myriad ways, for example: Engaging in mafia-style big-rigging fraud against local governments. See this, this and this Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here Charging "storage fees" to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this) Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car Cheating homeowners by gaming laws meant to protect people from unfair foreclosure Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this Engaging in unlawful "frontrunning" to manipulate markets. See this, this, this, this, this and this Engaging in unlawful "Wash Trades" to manipulate asset prices. See this, this and this Otherwise manipulating markets. And see this Participating in various Ponzi schemes. See this, this and this Charging veterans unlawful mortgage fees Cooking their books (and see this) Bribing and bullying ratings agencies to inflate ratings on their risky investments The Big Picture The big picture is simple: The big banks manipulate every market they touch Too much interconnectedness leads to financial instability The government has given the banks huge subsidies … which they are using for speculation and other things which don't help the economy. In other words, propping up the big banks by throwing money at them doesn't help the economy Top economists, financial experts and bankers say that the big banks are too large … and their very size is threatening the economy. They say we need to break up the big banks to stabilize the economy The big banks own the D.C. politicians … so Congress and the White House won't do anything unless the people force change

League of Denial Posted: 12 Oct 2013 03:00 PM PDT • Frontline's landmark 'League of Denial' (Columbia Journalism Review)

What We Can Learn From These Motivational Quotes Posted: 12 Oct 2013 01:00 PM PDT 11 Powerful and Motivational Quotes & what we can Learn from them from Nicole Elmore by Nicole Elmore on May 10, 2013 This presentation was created by Nicole Elmore, Business Consultant & Marketing Strategist

The Obamacare Portfolio Posted: 12 Oct 2013 06:30 AM PDT On Investing: The Obamacare portfolio By Barry Ritholtz, October 6, 10:11 AM       Investors are best off when they leave their party affiliation and partisan views behind. I've said it before: "Washington, I'm here to tell you, politics and investing don't mix. Your politics are killing you in the markets." Keeping your emotions — those primitive, thoughtless impulses — out of your portfolio has been a consistent theme of mine. Lately, that theme has reasserted itself over the issue of the Affordable Care Act, also known as Obamacare. Regardless of your views of this legislation, if you want to be a successful investor, you must find a way to approach the process objectively. I don't care if you are Sen. Ted Cruz and that in your day job you believe that the law is a job killer, the bane of the economy or the worst legislation the country has produced. When it comes to managing your portfolio, you need a cool objective approach. I'll give you three reasons: macro, psychology and opportunity costs. We start with macro, or the strategy of investing based on political and economic trends across countries. Making specific investments from a 30,000-foot view is exceedingly difficult. There are myriad moving parts, all of which interact with the economy and corporate profits in a complex and unpredictable way. Elements can change suddenly. Politics are fluid, alliances constantly shifting and public opinion malleable. The political macro analysis often turns out to be less of a true investing idea and more of wishful thinking. Former International Monetary Fund economist Mark Dow has pointed out that even the best hedge fund managers using the macro approach have done poorly. We call this the curse of the macro tourists, in which formerly talented fund managers ignore valuation and earnings data to build an investment thesis around big macro themes. There are simply too many unknowns and, to be blunt, way too much cognitive bias for this strategy to succeed these days. Indeed, emotional investing is rarely successful. Anyone with an intense emotional interest ignores data and facts that disagree with their views. The brain's tendency to more easily forget that which we disagree with also works to fool these folks. Cognitive bias is a source of systematic errors to investors of all political persuasions – and it leads to under-performance. Advice for Ted Cruz Regardless of Cruz's fiery oratory or partisan affiliation, after a long day of standing on his feet (21 hours!), when he sits down to review his portfolio, he should put his politics aside for the sake of objectivity. If you want to be smart investors you should consider all aspects of how the insurance mandate of law will affect different sectors of the economy (including the companies within those sectors). This is simply an objective approach. When the health-care law was passed, my team did just that: We sat down to discuss exactly what impact it might have. Not the politics or the electoral implications, but what result this was likely to have in the real world. We came to several conclusions: • The nation was going to create up to 50 million new health-care consumers; • Demand for medical services and equipment was likely to rise; • Innovative pharmaceuticals, procedures and techniques would also see increased demand; • Hospitals would no longer be on the hook for free emergency room services, as they have for almost 3 decades. What's that you say? Hospitals are mandated to give away free services? Yes. In response to some earlier bad behavior from hospitals called "patient dumping," a mandate for unfunded medical care was created and signed into law by President Ronald Reagan in 1986. The Emergency Medical Treatment and Active Labor Act (EMTALA) said, "Hospitals provide care to anyone needing emergency healthcare treatment regardless of citizenship, legal status or ability to pay." That's right, Reagan created a universal coverage mandate, forced the private sector to pay for it, thereby creating the world's most expensive, least efficient health-are program. Hospitals hated it, the poor and indigent took advantage of it, and prices were jacked up in response to it. Eventually, the costs spread to everyone else. Given that history, it is no surprise that hospitals were quietly pleased with Obamacare. After the Supreme Court ruled on the legality of the new rules in June 2012, hospital stocks rallied. It should come as no surprise: They get to remove a huge cost that they had no ability to control. They also get a massive number of new paying customers. And they now have some control over who their patients will be. So we considered all of these issues objectively. Once we put aside our emotions, the investments were obvious. If I could have sat with Cruz three years ago, here is what I would have suggested that he do with his portfolio: • Overweight the health-care sector. I always prefer using exchange-traded funds, or ETFs, to individual stocks, and in this case, the Health Care SPDR (ETF) was a good choice: It is filled with pharmaceuticals, insurers and hospitals; • Investors who prefer individual stocks should consider either the large pharmaceutical companies or medical-device makers. Larger firms such as Merck or Sanofi should be on your radar; Johnson & Johnson has sells into the consumer market, makes pharmaceutical and medical devices, and yields almost 3 percent; • For more aggressive investors, the SPDR S&P Biotech (XBI) owns the largest biotech, genomic and therapeutic companies. Regardless of your viewpoint, the broad Healthcare Index has done well since the March 2009 lows — and has done nothing but go up since the Supreme Court's ruling on Obamacare. The politics of Obamacare are complex, confusing and partisan. The investing theses — and results — have been anything but. ~~~ Ritholtz is chief investment officer of Ritholtz Wealth Management. He is the author of "Bailout Nation" and runs a finance blog, the Big Picture. Follow him on Twitter at @Ritholtz.

10 Weekend Reads Posted: 12 Oct 2013 04:00 AM PDT My longer form, Saturday morning, weekend reads: • How Investors Lose 89 Percent of Gains from Futures Funds (Bloomberg) • The Secrets of Bezos: How Amazon Became the Everything Store (Businessweek) • Revisiting "Moneyball" with Paul DePodesta (Nautilus) • All Is Fair in Love and Twitter (NYT Mag) • Design Quality and Customer Delight as Sustainable Advantages (Daring Fireball) • In Conversation with Supreme Court Justice Antonin Scalia (New York Magazine) • Nest Gives the Lowly Smoke Detector a Brain — And a Voice (Wired) • How do we gain insights (Seeking Wisdom) • An exclusive excerpt from the book the NFL doesn’t want you to read (Sports Illustrated) • Crisis by Design: A Federal Budget Crisis Months in the Planning (NYT) see also Is U.S. Political Bubble About to Burst? (Bloomberg View) What are you doing this weekend?   PC Shipments versus PC + Tablet Shipments Click to enlarge Source: ASYMCO

Federal Reserve Tools for Managing Rates and Reserves Posted: 12 Oct 2013 02:00 AM PDT

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