Killing flies…swatting bankers….

Killing flies…swatting bankers….
On the same day that the sitting US President committed an act of murder on live-TV (OK, he only swatted a fly, and still looked cool - but he did kill it and gleefully declare, “I got the sucker”) a series of regulatory reforms were announced in a nice way of admitting that “we got it all wrong”. In a damning verdict of the so-called “Community Re-Investment Programme” initiated by Bill Clinton’s administration in 1999 – and which went on to almost force the likes of Fannie Mae and Freddie Mac to extend the American dream to a whole bunch of low-income and non-traditional borrowers, President Obama stood in front of the cameras once more and announced a number of sweeping and meaningful changes to attempt to fix the clearly decrepit, on-life-support, capitalist system.
The move to allow the Federal Reserve enough power to regulate all firms that pose a threat to financial stability (hence bringing into the fold the once untouchable hedge funds and private equity players) has not been universally greeted with joy, but still makes for a decent attempt to return the US financial system to the days before the breaking of the Glass-Steagall Act (which many now see as the carrot provided to the banks in return for the stick to increase lending).
Already, the many powerful managers and movers-and-shakers of the financial world are picking through the proposed regulation overhaul, in what will surely be their attempt to enforce as many loop-holes and get-out-of-jail-free cards as possible. The political will that existed when the world faced the uncertainty of a total system breakdown has now somewhat subsided, along with the brief-return to valuing more highly those that “make-things” more than those that “manipulate-things”, resulting in a slightly less likely euphoria for any sweeping reform that is desperately required.

Markets…
Despite the World Bank raising China’s growth forecast to 7.2% from 6.5%, the Asian markets continued their paced sell-off today – with the majors all falling around 2% (except the blip in China’s CSI, +1%) as the reality of a lack of fundamental flooring maintained its drag-hold on the positive sentiment that had existed-for-all-too-short-a-time.
Europe has not fared much better in recent trading sessions, again coming off around 0.5% as most fund managers continue to re-position their holdings for the summer lull. US Futures are currently trading quite flat (DJIA +11pts, S&P +1.3pts), currencies are holding steady after some gains by the US$ in the last few days, and Oil and Gold both move a little higher this morning.
In the absence of any market-moving data over the next few weeks, nor any forecasted improvement in the more influential indicators being watched, a period of high volatility and low-volume will dominate markets throughout the summer. For those not planning on taking some time-off and lying by the pool with a good book (preferably not about the financial crisis) the opportunity to use the increase in vol over the next few weeks as the markets shift between expected valuations may provide some decent entry points for what might be another shot at the bear-market rally towards the end-of-the-year.
Alternatively of course, you could just lie back by the pool and read the next instalment of Grisham/Carre/Cornwell.

Iran – no longer chess, more like battle-chequers
Without wanting to go into too much analysis today - longer piece tomorrow - and as we are likely about to witness another crunch day with confronting rallies taking part once more, the momentum that has been achieved throughout the response from the weekend’s election “selection” has caught a large percentage of the international community by (seemingly positive) surprise.
The images and reports that have filtered through the various systems of technology that do not answer to outdated modes of censorship and blanketing have articulated an almost horrific crackdown on those within Iran that are bravely daring to speak out for their rights. The game of chess that outplayed the ruling clerics has metamorphosed into an all-out game of battle-chequers – the unknown conclusions possible now only over-shadowed by hope that a limited amount of blood will be spilled in the process.

Dirty Rats…
To relax the tone somewhat, was intrigued by a great little scientific-story about rats understanding the benefits/pitfalls of gambling in the news today. According to researchers, rats are capable of quickly adapting to an “optimal strategy” (a little like those black-jack players that stick to a fixed-betting pattern) when faced with risk/reward decision – i.e. gambling for treats. The researchers were impressed with the rats’ ability to recognise what made a good “bet” and what resulted in the equivalent of a loss. Most interestingly, the rats became “addicted” to the gambling after the first few experiments, so much so in some cases that they were unable to return to their normal decision patterns without being injected with dopamine – which relaxed their serotonin levels and essentially made them more risk-averse.
Rather than announce a whole raft of regulatory reforms and attempt to rid the US financial system of the desire to take-risk by burying managers in bureaucracy, simply close and ban every coffee-chain-shop and other stimulant distributor within a radius of the major financial centres, ensuring reduced levels of serotonin secretion the rats - sorry, I meant traders/bankers - are so adept at.