We shouldn't turn off the Fed's taps for another 2 to 3 years

 Turbulence on Wall Street will likely return when the Federal Reserve decides to hike interest rates, top U.S. economists said in a paper that warned the Fed's huge stimulus program could have harmful consequences.

The paper, released on Friday, focused on a financial market selloff in mid-2013 after Fed officials said they planned to trim monthly bond-buying.

The authors found mutual fund investors participated heavily in the selloff even though their market bets weren't made with a lot of borrowed money.

This is important because policymakers sometimes weigh the chances of a financial crash by looking at the size of leveraged bets, which can be prone to swift reversals. The research highlights a perhaps under-appreciated risk for the Fed's plans to wind down its easy-money stimulus.

Minneapolis Fed President Narayana Kocherlakota.

"Whenever the decision to tighten policy is made, then the instability seen in summer of 2013 is likely to reappear," wrote JPMorgan chief U.S. economist Michael Feroli, University of Chicago professor Anil Kashyap and two other well-respected economists.

Several Fed officials were present at the high-profile economics conference where the paper was presented, and two said the paper raised real concerns.

That said, the ideas highlighted by the paper already play into the Fed's current monitoring of financial risks, said Minneapolis Fed President Narayana Kocherlakota.

Kocherlakota, who is a voting member on the Fed's rate-setting policy committee this year, has argued forcefully for monetary stimulus and said the U.S. economy remains so weak that the Fed still has another "two to three years" to mull financial stability risks.

Big wigs in the Fed want to dust off Monterey Policy

The Federal Reserve's top regulator said on Tuesday that the U.S. central bank should not rule out using monetary policy to combat asset price bubbles that potentially threaten financial stability.

Weighing into a long-standing debate, Fed Governor Daniel Tarullo, the central bank's point person on financial supervision, said regulatory tools might not be enough on their own to prevent the formation of economically damaging bubbles.

Daniel Tarullo

"In reviewing the relationship between financial stability considerations and monetary policy ... monetary policy action cannot be taken off the table as a response to the build-up of broad and sustained systemic risk," Tarullo, who has a permanent vote on monetary policy but rarely talks publicly about it, told the National Association for Business Economics.

More than five years of near-zero Fed interest rates and trillions of dollars in asset purchases have raised concerns that the central bank may need to tighten policy before achieving its economic goal of preventing asset bubbles.

Tarullo said that while investors are taking on more risks in high-yield corporate bonds and leveraged loans, for example, there was no need to change monetary policy at the moment.

But he urged the Fed to establish a better framework to judge trade-offs between enhancing financial stability and reducing economic activity, before risks grew more urgent.

Incorporating such considerations into policy decisions does not require a new, formal mandate in addition to the Fed's congressionally-set goals of price stability and sustainable low unemployment, Tarullo added.

At a policy-setting meeting last month, "several" Fed officials suggested that financial-market risks, such as asset-price bubbles, should be an explicit consideration as they consider when to finally raise rates.

MORE WORK ON REGULATION

Five years after the collapse of Lehman Brothers, regulators need to do more to ensure the biggest U.S.-based banks are safe and taxpayers are protected from costly bailouts, Tarullo said.

"I don't think that we're at, or even really close to, the point at which we can say, 'Okay, now we can be pretty comfortable that along the spectrum of concerns we've come far enough that we're hitting about the right trade-off.'"

An unsustainable build-up of leverage in mortgage assets on Wall Street sparked the 2007-2009 financial crisis. A flurry of subsequent rule-making is meant to reinforce the financial system, but some worry that the Fed's unprecedented easy-money policies could fuel another damaging bubble.

"While ad hoc supervisory action aimed at specific lending or risks is surely a useful tool, it has its limitations," Tarullo said, citing the "strong inflows" in the corporate bonds and leveraged loans that raise "the possibility of large losses going forward."

He said the Fed is closely watching the risks posed by its easy monetary policies "particularly given the possibility that interest rates may remain historically low for some time even after" policymakers begin to raise them.

"Our monitoring does find some evidence of increased duration and credit risk, but the increases appear relatively moderate to date - particularly at the largest banks and life insurers," he said.

Based on published forecasts, the central bank plans to halt its bond-buying later this year and start to raise rates some time in 2015, as long as the economy continues to expand and unemployment continues to drift lower.

Reuters

Everyone knew about Libor

Newly-released minutes of the meeting of the Fed’s Open Market Committee confirm that the Fed knew about the Libor interest rate manipulation.

 Bloomberg reported earlier this month:

"Bank of England officials told currency traders it wasn't improper to share impending customer orders with counterparts at other firms, a practice at the heart of a widening probe into alleged market manipulation, according to a person who has seen notes turned over to regulators

Traders representing some of the world’s biggest banks told officials at the meeting that they shared information about aggregate orders before currency benchmarks were set, three people with knowledge of the discussion said. The officials said there wasn't a policy on such communications and that banks should make their own rules, according to the people."

 The Libor interest rate scandal was the biggest financial scandal in world history:

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

Even though RBS and a handful of other banks have been fined for interest rate manipulation, Libor is still being manipulated. No wonder … the fines are pocket change – the cost of doing business – for the big banks

It doesn't matter if you don't win.You still get $80,000

Oscar nominees left disappointed at next weekend's star-studded ceremony will be comforted by a lavish goodie bag, valued at close to $80,000 (€58,000).

Distinctive Assets, a Los Angeles-based marketing firm, has been offering "celebrity swag" for 15 years now to non-winners in the Best Actor, Best Actress, Supporting Actor, Supporting Actress and Best Director categories, according to a press release. 

The contents of said bag of treats, revealed by US magazines, include such delights as luxury vodka, fine art, aerial circus lessons and…pepper spray guns (scroll down to see list).

Plenty of pet care products are also thrown in to the mix, along with holiday packages to Hawaii, Las Vegas, Japan and the Canadian Rockies.

The LA-designed hampers also offer weight loss shakes, personal training sessions, hair restoration surgery and even a bizarre procedure that "rejuvenates and enhances the genital tissue of a woman".

Leonardo Dicaprio

 The  list in full

ARTAS Robotic Hair Transplant surgery

Walk Japan tour

Best of Vegas holiday package

Halo natural pet food (host Ellen DeGeneres is an ambassador and actors can donate the food to an animal charity of their choice)

Rocky Mountaineer train trip

Imanta Mexico holiday package

Dr Charles Runels' O-Shot procedure to enhance sexual response

Steamist home spa system

Koala Landing resort stay in Kauai

Epic pet health therapy

Gizara arts print

Huntley Drive fitness training sessions

Krystal Klear filtered water system

Max Martin shoes

Le Petit Cirque lessons

A house call from respected acupuncturist Heather Lounsbury

Amy Adams

Jan Lewis bracelet

Slow watch made in Switzerland

Acure skincare

Jitseu handbags

Narrative clip camera

Rouge organic maple syrup

Coolway Go Pro hairdryer

Mace pepper spray guns

Polar Loop activity tracker

M3K beauty products

Horse shampoo for humans

Chocolatines of flavours including 'chocolate-dipped bacon', 'chianti wine with olive' and 'champagne brut with bleu cheese bark'

Knit & Co cable knit mittens

Slimware portion control dinnerware

Betty Jane candies

Blossoms Blends tea

Hydroxycut weight loss products

Dosha herbal tea lollipops

Aviv 613 vodka

Cannonball wine

Bee Free Honee organic apple honey

Wrag Wrap sustainable gift wrap

Simon's Happy Pet shampoo

What the Facebook!-Facebook to buy WhatsApp for $19 Billion

Facebook Inc. agreed to buy messaging company WhatsApp for $19 billion in cash and stock, a blockbuster transaction that dwarfs the already sky-high prices that other startups have been able to recently command.


The 55-employee company, which acts as a kind of replacement for text messaging, has seen its use more than double in the past nine months to 450 million monthly users. That makes its service more popular than Twitter Inc., the widely used microblogging service which has about 240 million users and is currently valued at about $30 billion.

But who is the face behind the WhatsApp phenomena 

Jan Koum

 According to a profile by Forbes, Jan Koum, 38, was born and raised near Kiev, Ukraine during the Soviet era. He lived as an only child in a house that didn't have hot water. He moved to Mountain View, California as a teenager with his mother, and lived off food stamps for a time. He taught himself computer programming and earned a job as an infrastructure engineer at Yahoo in the late 1990s. After working at Yahoo for several years he decided to launch a messaging app through which people could send text messages via the Internet instead of through cellular SMS texting. Brian Acton, a friend of Koum’s at Yahoo, rallied the first seed funding for the new company was named a co-founder.

Facebook’s CEO Mark  Zuckerberg has been eyeing WhatsApp for a long time and first began courting Koum early in 2012. The two had a series of discussions in the ensuing years, over dinners and walks and hikes. Zuckerberg officially popped the question on Feb. 9, telling Koum,

 “If we joined together, that would help us really connect the rest of the world.” 

Koum considered for a few days, then visited Zuckerberg’s home on Valentine’s Day to accept the deal. The two reportedly hashed out the terms of the buyout over chocolate-covered strawberries.

:In a conference call with analysts, Koum would not disclose any planned features for WhatsApp. He only offered that the company hopes to make messaging faster and more stable this year. But he did emphasize that, for now, the company is focusing on growth instead of monetization. With Zuckerberg himself saying that advertising isn't appropriate for messaging services, WhatsApp will likely continue is $0.99-per-year subscription fee as its main revenue source. But given massive amount of money Facebook just doled out, the app’s new parent company no doubt has greater long-term aspirations for it as a revenue generator.

 Forbes estimates that Koum owns about 45 percent of WhatsApp, which would net him $6.8 billion in the deal. That figure dwarfs the amount the founders of Twitter received during the company’s IPO in November.

Besides making its founders billionaires, the deal marks an enormous windfall for Sequoia Capital, the only venture firm that backed WhatsApp. Sequoia invested about $60 million for a stake valued at up to $3 billion in the deal, according to a person familiar with the matter.

The deal price also easily outranks any acquisition of startups in recent years, including Facebook's purchase of photo-sharing app Instagram for more than $1 billion in 2012, and, a year earlier, Microsoft Corp.'s $8.5 billion buy of video-calling company Skype.

Columbia Business School professor Moshe Cohen joins the News Hub and explains how Facebook's plan to purchase WhatsApp will help the social-media giant where Twitter has tripped up: ramping up its user growth.

Beyond revenue, the deal could help shelter the social network against the shifting tastes of teen users, some of whom have grown cool to it, and bolster its position internationally. WhatsApp is particularly popular outside of the U.S.

The transaction comes in the wake of Facebook's failed attempt to purchase another messaging service popular with younger users, Snapchat, for roughly $3 billion last year.

WhatsApp has long been seen as a takeover target for Internet giants. Google Inc. had reached out to buy the company several years ago, two people familiar with the situation said, while two other people said deal talks between the two companies also took place recently. A Google spokesman declined to comment.

The growth of WhatsApp

Facebook had fewer than 150 million users after its fourth year, one third that of WhatsApp in the same time period.

Equally enticing is the percentage of WhatsApp users who log onto the service at least once a day. That figure sits at 70%, even higher than Facebook's 61%.

WhatsApp processes 50 billion messages a day, Mr. Goetz wrote, yet has only 32 engineers and doesn't employ any marketing or public-relations people.

WhatsApp built its business on the idea of offering instant messaging without the fees that carriers often charge. The app lets uses send text, pictures and video to anyone with the software, free. Unlike Apple Inc.'s iMessage, it works on all the major mobile operating systems.

The company goes out of its way to remain private, offering little in the way of information to government agencies trying to track people. Once delivered, messages are deleted from the company's servers. Privacy was particularly important to Mr. Koum, who grew up in a communist country with a secret police.

"Jan's childhood made him appreciate communication that was not bugged or taped," Mr. Goetz wrote. "When he arrived in the U.S. as a 16-year-old immigrant living on food stamps, he had the extra incentive of wanting to stay in touch with his family in Russia and the Ukraine."

Interest rates,Gold and Cuts-It's all happening at the Fed

Federal Reserve officials started to debate raising interest rates in January, with some arguing they might need to move sooner than expected, minutes of the meeting revealed on Wednesday.

The Fed has kept interest rates at close to zero since the end of the financial crisis in 2008

. According to minutes of the 28-29 January meeting, released after the customary three-week lag: “A few participants raised the possibility that it might be appropriate to increase the federal funds rate relatively soon.”

The officials were concerned about inflation but others argued inflation was too low.

Any rise is unlikely in the short term. Most Fed officials continued to believe it would not be appropriate to raise short-term rates until 2015 or later, according to economic projections officials submitted at their December meeting. They also argued that standard policy tools did not apply, as the US economy continues to feel the impact of the recession.

The Fed had previously suggested any rise in interest rates would be linked to the unemployment rate falling below 6.5%.

 Last month unemployment dipped to 6.6%, but problems remain in the jobs market. The percentage of people no longer seeking work is at 30-year highs.

 Long-term and youth unemployment are also high, as are the jobless rates for African Americans and hispanics.

The news came as the Fed appeared to largely shrug off disappointing monthly jobs reports from the Labor Department;  A report published after the Fed meeting showed continued weakness in January, with the US adding just 113,000 jobs for the month, well below recent monthly gains.

Still turning off the taps

December’s disappointing jobs figures did not deter the Fed’s decision to cut back on its quantitative easing (QE) economic stimulus programme. QE is currently pumping $65bn a month into the bond markets, in an attempt to keep down interest rates and encourage investment. The rate was cut by $10bn after January’s meeting.This has caused gold to drop by 1% this Wednesday.

"What the Fed is saying is the economy is strong enough for it to continue pulling back its bond purchases, and the equities may continue to rally, so there is not as much a need forprecious metals as a safe haven," said Tom Power a senior commodity broker RJO Futures.

American Property buying slows as Fed turn off the taps

Fewer Americans signed contracts in December to buy previously occupied homes, suggesting a slowdown in real estate according to the The National Association of Realtor(USA)

 Pending home sales fell to the lowest point since October 2011. 

The NAR's  seasonally adjusted pending home sales index dropped 8.7 percent last month to 92.4. 

That's the seventh straight monthly decline for the index, which previews upcoming sales.

 Rising mortgage rates and price increases crimped sales in recent months.

 Cold weather in December also stalled home purchases.

 Sales of previously occupied homes totaled 5.1 million in 2013

That's the highest in 7 years, but it's still below the 5.5 million that is consistent with a healthy housing market. 

The average interest rate on a 30-year mortgage dropped to 4.32 percent this week from 4.39 percent the previous week. Rates surged about 1.25 percentage points from May through September, peaking at 4.6 percent. 

That increase occurred after Federal Reserve Chairman Ben Bernanke indicated that the Fed would start to slow its bond-buying program before the end of the year. The Fed has reduced its monthly bond purchases from $85 billion to $65 billion in its last two policy meetings. The program is intended to push down longer-term interest rates and encourage more borrowing, spending and hiring.

Fed's taps are still going off but interest rates remain near zero

Janet Yellen incoming Chairperson of the Federal Reserve

Top Fed officials believe their decision last month to reduce the pace of the U.S. central bank’s bond-buying stimulus was well received by financial markets. That, in turn, allows them to make another $10 billion cut to the bank’s monthly bond purchases at the January 28-29 meeting without needing to adjust their promise to keep interest rates low in the future.

As the promise stands, the Fed has said it expects to keep rates near zero until well past the time unemployment falls below 6.5 percent, especially if inflation remains low. Joblessness dropped faster than expected last year and hit 6.7 percent in December, down from 7.0 percent the previous month.

Had the drop in unemployment sparked a sell off in bonds, the Fed might have reinforced its commitment to stimulus by tampering with its low-rates promise. But investors appear to have interpreted the data as a one-off event that would not prompt a quicker-than-expected policy tightening.

Dollar rises as Fed turns off the taps,but lukewarm reaction from Wall Street

The dollar rose after economic data kept alive expectations that the Federal Reserve will continue to cut back its stimulus.

The Federal Reserve 

 However  on Wall Street, Intel and General Electric were among the biggest decliners. Shares of Intel Corp lost 4.7 percent to $25.29, weighing on all three major U.S. indexes after its fourth-quarter earnings missed expectations by a penny and the company gave a lukewarm forecast for revenue for the current quarter.

 General Electric Co lost 2.8 percent to $26.44. The conglomerate posted a slightly better-than-expected rise in quarterly revenue, propelled by its oil pumps and jet engines businesses, but its full-year profit margins were disappointing. 

The Federal Reserve's January Beige Book is out.

The survey, covering the end of November and December, showed hiring in most areas was "muted", backing Labour Department data that showed a slowdown in job creation last month

Nine Districts indicated the local economy was expanding at a moderate pace; among these, the Atlanta and Chicago 

Real estate markets generally continued to improve, according to District reports. Although a few Districts indicated home sales or residential construction in some areas had slowed or declined in recent months, most cited increased residential sales activity and construction as well as rising home prices.

Read the full report at http://www.federalreserve.gov/monetarypolicy/beigebook/files/Beigebook_20140115.pdf

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