“Bank of England policy makers Adam Posen and David Miles were defeated in their bid to raise stimulus by 75 billion pounds ($118 billion) as the majority argued such a move might provoke alarm on the economy.

Seven of the nine-member Monetary Policy Committee, including Governor Mervyn King, voted to raise the asset- purchase target by 50 billion pounds to 325 billion pounds, according to minutes of the Feb. 8-9 meeting published today in London. They argued a larger increase “risked sending a signal that the committee thought the economic situation was weaker than it was.”

“Recent data on the domestic and international economies had on balance been more positive than might have been anticipated towards the end of 2011, pointing to the possibility that growth might be stronger than expected in the near term,” the majority argued, according to the minutes.

The pound fell against the dollar after the report and was trading at $1.5717 at 10:31 a.m. in London, down 0.4 percent on the day. Gilts advanced, pushing the yield on the 10-year bond down 5 basis points to 2.17 percent.

Posen and Miles called for 75 billion pounds of additional quantitative easing because of “the considerable margin of spare capacity remaining in the economy and the extent of deleveraging still likely to be required,” the minutes showed. They saw a risk of a “prolonged period of depressed demand causing inflation to fall materially below” the central bank’s 2 percent target….”

Full article

For all those looking into small government as a survival option for America it makes sense to cut excess.

Full article

The question is why and for whom ?

A revealing article behind tax cuts for the wealthiest. 

A great piece examining the political inroads from The Gipper till now…

Fool me once…..

Finally we have some concrete agreements between Greece and the ECB….

(Reuters) – Hedge funds are cranking up their bets in equities and credit in 2012’s buoyant markets in the belief that the euro zone, U.S. and Chinese economies will fare better than many were fearing last year.

Many funds think the European Central Bank’s long-term refinancing operations (LTRO), which flooded markets with 489 billion euros ($644 billion) of cheap cash in December and provide more this month, are a turning point in propping up the region’s battered banks.

They are also betting that China, which is facing a fifth successive quarter of slowing economic growth, will experience a so-called ‘soft landing’, while the U.S., which saw its fastest growth in one-and-a-half years in the fourth quarter, is firmly on the recovery path.

The average hedge fund rose 2.6 percent in January but this was behind the S&P’s .SPX 4.5 percent gain, according to Hedge Fund Research, and some funds missed out on the rally after taking a cautious stance towards the end of a turbulent 2011.

Many managers are now hiking borrowing to make their favorite bets punchier, or shifting the balance between their long and shorts to help them profit from market gains.

“What we’re hearing from a number of managers is that the appetite for risk has risen,” said Frank Frecentese, global head of hedge fund investments at Citi Private Bank.

“Their view on Europe is that the possibility of an extreme left-tail event has lessened, the U.S. is doing moderately better than expected and the risk of China … heading for a hard landing has lessened.”

Read the rest here.

Pump up the volume…

“Japanese Finance Minister Jun Azumi said that his nation and China are committed to help resolve the European debt crisis through the International Monetary Fund once euro region members take further steps themselves.

“We shared the view that Europe needs to make more efforts to create a bigger firewall,” Azumi told reporters in Beijing yesterday after meeting Chinese Vice Premier Wang Qishan. “We also agreed to act together as the IMF will probably ask the U.S., Japan and China” to help boost its lending capacity.

The meetings deepened dialogue between Asia’s two largest economies after a visit by Prime Minister Yoshihiko Noda to Beijing in December, and contrast with periodic tensions between the two over maritime boundaries. The continued readiness of Japan and China to help offers Europeans an inducement as they close in on a 130 billion-euro ($170 billion) Greek bailout.

“Showing China and Japan are united to support the debt crisis is good news for European markets,” Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, said before the meeting. “It may still take some time for the two to decide specifics as Europe hasn’t reached agreement on a solution within the region.”

Full article

TOKYO (AP) — Japan posted a record high trade deficit in January after its nuclear crisis shut down nearly all the nation’s reactors for tougher checks, sending fuel imports surging. Exports were hurt by a strong yen and weak demand.

The 1.48 trillion yen ($18.7 billion) deficit reported Monday highlights Japan’s increased dependence on imported fuel after the March 11 earthquake and tsunami sent the Fukushima Dai-ichi nuclear plant into multiple meltdowns.

As public worries grew, nearly all the 54 nuclear reactors in Japan were stopped for inspections. The government wants to restart at least some of the reactors, after checking for better tsunami and quake protection.

Resource-poor Japan imports almost all its oil. Until the Fukushima disaster, the country had trumpeted nuclear technology as a safe and cheap answer to its energy needs.

Now, Japan is importing more natural gas and oil as utilities boost non-nuclear power generation. Imports of natural gas in January vaulted 74 percent from a year earlier and imports of petroleum jumped nearly 13 percent.

Increased energy imports contributed to Japan last year recording its first annual trade deficit since 1980. Analysts have said Japan may return to a trade surplus in 2013.

There was bad news for Japan’s manufacturing powerhouses, with a strong yen and sluggish global economy contributing to slowing exports.

Exports declined 9.3 percent in January from a year earlier, particularly in computer chips and electronic parts. Imports in January grew 9.8 percent.

BEIJING (AP) — Ms. Zhang, a schoolteacher in the central city of Anyang, lent $43,000 last year to entrepreneurs who couldn’t get loans from state banks. Now as growth cools and Beijing cracks down on informal credit, Zhang and thousands of other small lenders are unpaid and angry.

Underground lending by ordinary Chinese like Zhang flourished over the past decade, providing trillions of yuan (hundreds of billions of dollars) needed by private companies that create China’s new jobs and wealth.

Its popularity reflects public desperation for an alternative to China’s banks, which pay low deposit rates that fail to keep up with inflation and channel savings to government companies.

But the high cost of underground credit — interest rates of 70 percent a year or higher — and a slump in global demand caused a wave of business failures last year, prompting owners in cities such as Wenzhou in the southeast to flee.

The shockwave is now hitting the Chinese savers who put up money for those loans. Protests erupted in Anyang and other areas as lenders demanded officials get back their money.

“We have no other investment options and bank interest rates are too low,” said Zhang, who asked not to be identified further. Hopes of getting back the 270,000 yuan ($43,000) she lent are pinned on the courts so long as the government is willing to let a case proceed.

Rising defaults threaten to aggravate social tensions as the Communist Party tries to enforce calm ahead of a once-a-decade handover of power to a younger generation of leaders due late this year. The public already is fuming over inflation, corruption, product safety scandals and pollution.

Leaders including Premier Wen Jiabao, the top economic official, have repeatedly promised more credit for small companies. But most loans still go to state enterprises that have close ties with banks and form the power base of officials. Experts say there have been slight improvements but the situation hasn’t changed fundamentally.

“It always has been hard for small Chinese companies to borrow money from banks,” said Guo Tianyong, director of the Banking Research Center at Beijing’s Central University of Finance and Economics. He said the situation has worsened in the past year.

Entrepreneurs were struggling with slumping global demand when Beijing clamped down on a credit boom to cool its overheated economy. State banks cut the small amount of private sector lending they were doing while continuing support to state industry. Private companies failed and the survivors cut payrolls.

Only 19 percent of bank lending last year went to small businesses, while total loans fell 6 percent from 2010 to 7.5 trillion yuan ($1.2 trillion), according to the official Xinhua News Agency.

Read the full report here.

If I told you that there is an easy-to-exploit market anomaly that has enabled investors to consistently and substantially outperform the market with less risk for more than four decades, your first instinct might be to roll your eyes. After all, the unending quest to improve returns while lowering risk has yielded countless methods with initial promise that
subsequently collapse under further scrutiny.

Not so fast. What if I could show that this market anomaly is well-documented in the academic literature – that it is not just some esoteric theory? And that now some newly created ETFs provide a convenient way for advisors to access this strategy?

You might listen a little closer.

Read the rest here.

It is often very difficult to determine how geopolitical events will play out in markets.  However, there are some cases where a structural change will have a very logical influence on a market and a substantial impact on investment strategies and outcomes.

Today there is news that in his recent budget proposal Obama outlines taxing dividends for top bracket earners as ordinary income up to 40% from the current 15%.  How will this impact the investment landscape?

Read the rest here.

Jason Zweig

Index funds are often hailed for their low fees, solid performance and transparency.

Could they also be destabilizing the markets—and undermining the very diversification they have long promised?

Recently, leading investing experts—including Rodney Sullivan, editor of the Financial Analysts Journal, consultant James Xiong of Morningstar Investment Management and Jeffrey Wurgler, a finance professor at New York University—have been warning that index funds could destabilize the financial markets.

Unlike conventional funds run by highly paid stock-pickers who seek to buy the best securities and avoid the worst, index funds—including most exchange-traded funds, or ETFs—effectively buy and hold all the securities in a market benchmark such as the Standard & Poor’s 500-stock index.

According to James Bianco of Bianco Research, 2011 was a particularly rotten year for stock pickers: Only 17% of more than 4,000 funds that invest in large U.S. stocks beat their benchmark. In most years, fewer than half do.

Considering that index funds charge annual fees about one-10th of those levied by actively managed funds, it isn’t any wonder indexing has become a money magnet. A decade ago, 278 index mutual funds and 119 exchange-traded funds held $347 billion, or about 16% of all assets in U.S. stock funds. Today, according to Morningstar, 336 index funds and 1,148 ETFs hold $1.24 trillion, or fully one-third of all the money in U.S. stock funds.

That worries some analysts. “Markets work best when people think and act independently, not all together,” Mr. Sullivan says. When investors add money to an index fund, it generally will buy every security in the market that it tracks—hundreds, sometimes thousands at a time, regardless of price. When investors pull money out, the index fund has to sell across the board.

“These index-trading behaviors,” Mr. Sullivan says, “could interact with some unexpected event to cause significant and outsize consequences.” (Disclosure: Mr. Sullivan and I coedited a book about the value investor Benjamin Graham that was published in 2010.)

Analyzing how closely the returns of U.S. stocks moved up or down together, Mr. Sullivan found that this correlation has roughly quadrupled since the mid-1990s—coinciding with the rise of index-fund trading.

Read the rest here.

We shall see what happens Monday; ’cause you know this story is getting to be like a reoccurring dream…. 

Another perspective on the future of equities, bonds, & cash….

When I look at this chart i can’t help but think there will be a huge W pattern rebound, but that really depends on central banks and politics….

By Jessica Toonkel, Carrick Mollenkamp and Cezary Podkul

(Reuters) – U.S. securities regulators have widened their inquiry into the trillion-dollar market for exchange-traded funds, according to a person familiar with the matter.

Prompted by a delay in a big trade at a popular ETF, the U.S. Securities and Exchange Commission is taking a closer look at a possible connection between high-frequency traders and hedge funds jumping in and out of ETFs, and instances where ETF trades fail to settle on time, this person said.

The SEC’s inquiry is part of a wider probe that began last year and focused on complex ETFs that allow investors to magnify returns or bet against stock indexes.

U.S. and UK regulators are concerned that so-called settlement fails – when trades are not completed on time – could contribute to volatility and systemic risk in financial markets.

The probe’s main focus is on illiquid ETFs, but regulators are now also examining popular ETFs and failed trades, according to the person.

An SEC spokesman confirmed that the agency is looking into failed trades and ETFs, but declined to elaborate.

The SEC’s inquiry comes amid greater scrutiny of the ETF industry, which has surged in popularity since the early 1990s. It is still unclear how settlement delays might affect retail investors in ETFs.

ETFs are baskets of securities that, like mutual funds, give investors exposure to a pool of assets. But unlike mutual funds, they trade throughout the day. Early ETFs were created to mirror benchmarks such as the Standard & Poor’s 500 index. ETF assets have doubled since 2007 to about $1.3 trillion, according to Deutsche Bank AG. Some of the most popular ETFs are those that use derivatives to give investors exposure to commodities, high-yield bonds or ETFs that own other ETFs.

Read the rest here.