The Big Picture

Mutual Assistance Between Federal Reserve Banks: 1913-1960
Big Banks Want Power to Declare Cyber War
10 Tuesday PM Reads
Media Appearance: Bloomberg TV Trish Regan (3:00 – 4:00 pm)
How Expensive Are Stocks? (Not Terribly)
iPhone 6—not the iWatch—is Apple’s biggest launch this year
10 Tuesday AM Reads
Coming July 12: Masters in Business on Bloomberg Radio
Corporate America = UnAmerican
From Netscape to Alibaba

Mutual Assistance Between Federal Reserve Banks: 1913-1960

Posted: 09 Jul 2014 02:00 AM PDT

Big Banks Want Power to Declare Cyber War

Posted: 08 Jul 2014 10:30 PM PDT

Merger of Big Banks and National Security Power … What Could Possibly Go Wrong?

Bloomberg reports:

Wall Street's biggest trade group has proposed a government-industry cyber war council to stave off terrorist attacks that could trigger financial panic by temporarily wiping out account balances, according to an internal document.

The proposal by the Securities Industry and Financial Markets Association, known as Sifma, calls for a committee of executives and deputy-level representatives from at least eight U.S. agencies including the Treasury Department, the National Security Agency and the Department of Homeland Security, all led by a senior White House official.

The trade association also reveals in the document that Sifma has retained former NSA director Keith Alexander to "facilitate" the joint effort with the government. Alexander, in turn, has brought in Michael Chertoff, the former U.S. Secretary of Homeland Security, and his firm, Chertoff Group.

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Caitlin Hayden, spokeswoman for the White House National Security Council, declined to comment.

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[Just-retired NSA Boss General Keith] Alexander had been pitching Sifma and other bank trade associations to purchase his services through his new consulting firm, IronNet Cybersecurity Inc., for as much as $1 million per month, according to two people briefed on the talks.

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Representative Alan Grayson, a Florida Democrat, said today he was concerned that industry members in such a joint group could improperly get involved in pre-emptive strikes against a person or state planning an assault on the U.S.

"This could in effect make the banks part of what would begin to look like a war council," Grayson said in an e-mail. "Congress needs to keep an eye on what something like this could mean."

Congressman Grayson tweets:

Ex-NSA chief Keith Alexander wants to form a joint WH-bank war council. So now Wall Street gets to declare war?

There is cause for concern, given the following context:

Fascism is the merger of state and corporate power (and see this). The big banks and government have already largely merged

Big banks are literally criminal enterprises

The big banks and government joined together to violently crush peaceful protests against inequality and bank bailouts

Bankers love war, because they make out like bandits … while the economy and the American people lose

Cyber war as fought by the U.S. government is offensive as well as defensive (and see this)

Cyber war may lead to a shooting war. For example, Scientific American notes:

Department of Defense announcements that they intend to view cyber attacks as "acts of war" suggest a military force nearly itching to flex its muscle in response to a serious computer network–based disruption, if only as a means of deterrence.

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Concerns about overreaction and the use of military force in response to digital intrusions often lead to discussions about the difficulty surrounding definitive attribution of these types of attack. If you want to retaliate, how do you know whom to hit? In our exercise intelligence pointed to Russia, but the evidence wasn't clear-cut.

The NSA spying program is unambiguously being used for industrial espionage, by spying on large foreign corporations, and the biggest financial payments systems such as VISA and Swift. Indeed, in a slide leaked by Edward Snowden, "economic" was one of the main justifications for spying

Top financial experts say that the NSA and other intelligence agencies are using the information to profit from this inside information

The Wall Street Journal reported that the NSA spies on Americans' credit card transactions. Many other agencies are doing the same. In fact, virtually all U.S. intelligence agencies – including the CIA and NSA – are going to spy on Americans' finances. The IRS will also be spying on Americans' shopping records, travel, social interactions, health records and files from other government investigators

The NSA may be changing the amount in people's financial accounts and manipulating financial systems with its offensive cyber capabilities

10 Tuesday PM Reads

Posted: 08 Jul 2014 01:30 PM PDT

My afternoon train reads:

• Rail Traffic Is Growing Like Crazy (Business Insider) but see People are quitting their jobs less often. And why that’s a bad thing. (Real Time Economics)
• Asia — The Tigers are Ready to Roar (Brandt)
• IEX pricing aims to drain ‘dark pools’ (WSJ)
• End to China’s property boom has barely begun (FT)
• Allan Sloan is angry about the flight of corporations (Marketplace) see also Positively un-American tax dodges (Fortune)
• Risk Parity Losing to Risk Factors, Study Finds (AI-CIO)
• U.S. Home Prices to Rise 6 Percent Nationally in Coming Year (World Property Channel)
• How A Lucky Run In Vegas Saved FedEx (Priceonomics)
• Sex-Abuse Victims to Pope: Stop Begging for Forgiveness and Just Stop the Abuse (Daily Beast)
• 19 Maps That Will Blow Your Mind and Change the Way You See the World (Flowing Data)

What are you reading?

S&P 500 Earnings Inflation-Adjusted

Source: Chart of the Day

Media Appearance: Bloomberg TV Trish Regan (3:00 – 4:00 pm)

Posted: 08 Jul 2014 12:00 PM PDT

I will be guest hosting with the lovely Trish Regan at Bloomberg TV from 3:00 pm to 4:00 pm on Street Smart.

We will talk Bull market rallies, corrections, the Fed and valuation.

Should be lots of fun — Check it out at their live streamer on TV.

How Expensive Are Stocks? (Not Terribly)

Posted: 08 Jul 2014 11:15 AM PDT

cick for bigger chart

Source: JP Morgan

It has become commonly accepted that stocks are very expensive, overbought and perhaps even in a bubble.

JPMorgan Chase & Co.’s latest quarterly chart book (you can download it here) takes issue with those conventions.

As you can see from the chart above, U.S. equity prices closely match their long-term average price-to-earnings ratio of 15.5. That's precisely at fair value if you are comparing it to the Standard & Poor’s 500 Index earnings-per-share average of analyst estimates for the next 12 months. Continues here

iPhone 6—not the iWatch—is Apple’s biggest launch this year

Posted: 08 Jul 2014 09:30 AM PDT

Source: Quartz

10 Tuesday AM Reads

Posted: 08 Jul 2014 06:30 AM PDT

My early morning reads (continues here):

• Seeker, Doer, Giver, Ponderer: Jim Simons of Renaissance Technologies (NYT)
• GMO versus Blackrock: Divergent Views of Global Markets (Advisor Perspectives) see also Buybacks tend to peak when bull markets do (WSJ)
• Looking for short seller abuse (and not finding any) (FT Alphaville)
• Tim Cook’s recasting of Apple is in full bloom (WSJ) see also Video: This is the sapphire crystal display from the iPhone 6 (Tech Block)

continues here

Coming July 12: Masters in Business on Bloomberg Radio

Posted: 08 Jul 2014 04:30 AM PDT

Over the past few weeks, I have been dropping hints about a new project I am working on with the folks at Bloomberg. Now that we have an official launch date, I can reveal the details to you.

I have over the years, lamented about the state of media (see e.g., this, this and this). Rather than merely whine continuously about the state of the financial press, I wanted to do something about it.

Last summer, I floated the following idea: Why not turn the usual Wall Street interviews upside down? Speak to the key people who are the source of the ideas that shape markets, drive portfolio management, influence the economy, and make the modern world of business and finance what it is today. My elevator pitch to the powers that be at Bloomberg was “Mark Maron’s WTF meets Charlie Rose, for finance.”

Instead of focusing on the next 15 minutes, discover instead how they became who they were. Get to their philosophy, worldview, favorite books, mentors, etc.

Oh, and no stock picks and no predictions.

Instead, I want to focus on how the modern masters in business and finance got that way: Who and what were their influences? Who were their mentors? How did they get started, what odd or funny things shaped their careers? What helped to form their philosophies? How has the business of finance changed over their careers?

A deep dive into the most fascinating characters in finance.

Here is an interesting thing about Bloomberg LP: For a large and very successful organization, they are surprisingly entrepreneurial. Make a decent proposal, and they are happy to give you enough rope to hang yourself with.

Which so far, we have.

The show — which has the title Masters in Business – is half radio, half podcast. It is a weekly one-on-one interview, broadcast (repeatedly) each weekend. The first half of it is an hour of radio (about 32 minutes of record time in 4 segments). But the second half has no time restrictions at all. I didn’t want anyone to feel rushed or pressured to give a pithy answer, or time pressured. After the live-to-tape for broadcast radio is done, we just keep going. Let the recording just run, and see what happens.

This led to some amazing and surprising results. Doubleline’s Jeff Gundlach tells wonderful stories in great details about his early days as a bond manager that are fabulous. Jim Chanos, Kynikos fund manager and wonderful raconteur, regaled us for hours with all great stuff. Former SEC Chair Arthur Levitt, Jr. is sharper at 83 then most of us ever were on our best day — and may just well be the finest Human Being I have ever met in my life. Rob Arnott is full of smart insights,James O’Shaugnessy’s career path is amazing, as is Jeff Saut’s and Michael Mauboussin’s. Sheila Bair is an utter delight.

That’s the sort of folks who have already done the show. My goal is to speak to the 100+ most influential and important minds in finance over the next two years.

The result will be an hour broadcast on Bloomberg Radio — 1130 AM in NYC and on Sirius XM nationally. It will be downloadable on Apple iTunes and on the Bloomberg Radio App. You can also stream it from Bloomberg.com, SoundCloud, the Bloomberg terminal, as well as here on this blog.

The interviews I did last year with Ned Davis and Felix Zulauf were the inspiration for the show. Only these are live and in person, which creates a very different interaction.

Our first 10 shows are now recorded and scheduled, and should broadcast as follows:

Masters in Business
1. Jeff Gundlach, Doubleline (July 12)
2. Rob Arnott, Research Affiliates (July 19)
3. Arthur Levitt, SEC Chairman (July 26)
4. Michael Mauboussin, Credit Suisse, Columbia U (August 2)
5. Jack Brennan, Vanguard Chairman & CEO (August 9)
6. Jim Chanos, Kynikos (August 16)
7. Sheila Bair, FDIC Chairman (August 23)
8. James O’Shaugnessy, OSAM (August 30)
9. David Rosenberg, Merrill Lynch, GS, (September 6)
10. Larry Swedroe, Buckingham Asset Management (September 13)

As you can see, its a killer line up. We have recorded 20 interviews so far, with the first one set to broadcast this weekend.

Getting the nuances and timing of radio has been a learning process for me. It was much harder than I imagined, and I sucked much worse than I would have guessed at first. But eventually, you kind of figure out the timing, and it starts to come together.

I improve a little each week as the show progresses. But my own suckitude matters little, as the guests were so awesome. It is simply killer stuff. I promise you the shows we recorded are great stuff.

My bold forecast: This will become MUST LISTEN radio for anyone in the industry, as well as any serious investor.

Check out the show. You will not be disappointed.

Corporate America = UnAmerican

Posted: 08 Jul 2014 03:15 AM PDT

Today’s must read comes to us from Fortune, where editor at large Allan Sloane rails against “Positively un-American tax dodges.” Its your must read for today.