| | | | | | | | March 17, 2016 | | | | | First Impressions | | | Boca Bits & Pieces
JLN Staff
Happy St. Patrick's Day, or as it is called during the FIA Boca conference, Happy Pat Kenny CQG Green Shirt Day. Pat Kenny, the most interesting man in the world who is not being sent to Mars, has a tradition of giving out green logoed shirts to key industry CEO's during the FIA Florida conference. The tradition dates back to Kenny's days with PATS.
It is often said that St. Patrick's Day is amateur day for drinking. If the conference has been any indication, many amateurs have been getting some pretty good practice. Thank you to SGX for holding a nice "reception" last night. The Tiger beer is still clouding my head this morning.
Carl Gilmore continues to add gravitas to Integritas Financial Consulting, as he has announced today that Chris Hehmeyer of HTG Capital Partners has signed on as chairman of his advisory board. Hehmeyer just stepped down as chairman of the National Futures Association board, so he has a lot more time on his hands.
Is the Exchange Leaders Panel Still the Exchange Leaders Panel?
As the big exchanges continue to diversify holdings and spread revenues well beyond the traditional, Walt Lukken's question at yesterday's exchange leader seemed rather appropriate. Driving the point home, Andreas Preuss of Deutsche Boerse said the company is moving into less than 50% revenue generated by trading and clearing, and the industry is fast embracing fundamentally disruptive technology improvements. In the near future, he said, tech companies will rule, and the way the business looks today "may soon be a fond memory." The industry should look to what other companies outside the financial markets have done in the forefront of technology, and must also focus on making the cycle from invention to production shorter.
Jeff Sprecher, however, said that exchanges are still the ecosystem and they evolve their technology to accommodate their exchange customers. "The exchange is the touchpoint that drives these other value services," he said. And the exchange companies are providing a one stop shop for customers.
Phupinder Gill of CME Group said exchanges' core mission has transformed now that they have a financial obligation to shareholders. But he said that offerings such as data are complementary to the core exchange business.
Now on to other bits and pieces from Boca Wednesday.
Continuing a major theme from yesterday's newsletter, options are a driving driving growth in exchange volume, and the industry is taking note. In a blog post yesterday, Trading Technologies announced it is ready to roll out options functionality on its new platform. CME Group's Derek Sammann says options on futures are the fastest growing product at the CME Group these days. While overall volume at the exchange is up 17% year on year, options trading is up 27%. The trend has been going on for the last 5 years or so but has accelerated in the past two or three years.
In addition, electronic trading of options has jumped, with 45% of options trading electronically.
Interestingly, while historically commodity lows have tended to push volumes in options lower, the reverse trend is now taking place - even though commodities across the board are at historic lows, traders are flocking to options, because while typically hedgers would be more concerned with hedging upside risk rather than downside risk in commodities, they are now more concerned with hedging the downside, Sammann said.
| | | | | | Quote of the day: | | | | | | “ | "It is probably going to be the worst quarter in history for a number of the fixed income-oriented hedge funds. A few are already known but there are some that were wiped out and just wound down."
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| ” | Dan Fuss, vice chairman of Loomis Sayles & Co., in the story "Bond Hedge Funds See `Worst Quarter in History,' Loomis Says"
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| | | | Lead Stories | | |
EU rejects Mifid II trading reforms
Philip Stafford - Financial Times
Calls by banks and asset managers for a swift finalisation of Europe's controversial trading reforms were dashed after policymakers rejected regulator proposals on commodity position limits and transparency rules in bond markets. The European Commission, the EU's executive arm, has asked the European Securities and Markets Authority to rewrite three technical standards governing trading on commodities, exemptions for companies providing ancillary market services and displaying prices in fixed income markets.
goo.gl/CI1j9c
****SD: Must need a really big drawing board.
Global Government Debt Is Actually Triple What We Thought, Thanks to Pensions
Timothy W. Martin - WSJ
Government debt in 20 industrialized countries stands at $44 trillion. But it's actually a lot more than that, according to a new report. After factoring in public pension and other retirement liabilities, the debt levels nearly triple to a staggering $122 trillion. That's the math according to a new report from Citigroup Inc report called, "The Coming Pensions Crisis," which analyzed government pension liabilities from 20 countries that are members of the Organisation for Economic Co-operation and Development.
goo.gl/8XkFaw
The blockchain in finance: Hype springs eternal
The Economist
Normally, it is Simon Taylor's job to persuade sceptical colleagues at Barclays that rapid technological change will disrupt the bank's business. So it comes as something of a surprise to have to dampen the excitement about the blockchain. "It's quite silly. I get ten invitations to speak at a conference every day," he says. "The technology will have real impact, but it will take time."
goo.gl/xjOW49
****SD: Pulling out all the stops with the titles today.
The Cayne Scrutiny
Michael P Regan - Bloomberg Gadfly
Few reputations were dragged through the mud of the financial crisis more than that of Bear Stearns head Jimmy Cayne, whose love of playing bridge and golf while his firm was collapsing was as well documented as his love of smoking weed and $150 cigars. Could it be possible that his reputation has even further to sink? Why, believe it or not, the answer seems to be yes. The National Archives recently released "approximately 250 cubic feet of paper records and 13 terabytes of electronic records" from the Financial Crisis Inquiry Commission in a treasure trove for historians and journalists looking to fill in gaps in our understanding of Wall Street's near-death experience. What better place to start than with Cayne?
goo.gl/svaSQ2
JPMorgan rattles traders with LME aluminium stockpile
Henry Sanderson, Neil Hume and David Sheppard - Financial Times
JPMorgan Chase is holding more than half of the aluminium on the London Metal Exchange, a multibillion-dollar position that has rattled rival traders and raised questions in London's tight-knit metal market about its influence on prices. The bank's $2bn-plus physical stockpile of aluminium, which could cover 40 years of Coca-Cola's current UK drinks can output, has been blamed by many traders for pushing up the price of near-term contracts that are about to expire, even though the industry is in its seventh year of a major supply glut.
goo.gl/bo60s6
Bond Hedge Funds See `Worst Quarter in History,' Loomis Says
Finbarr Flynn and Kevin Buckland - Bloomberg
It is going to be a really, really bad quarter for some U.S. hedge funds that invest in fixed-income securities, and waning market liquidity has a lot to do with it, according to Dan Fuss, vice chairman of Loomis Sayles & Co.
goo.gl/IG0m6d
Proposal at JPMorgan and Citigroup Raises Prospect of Split-Up
Nathaniel Popper and Michael Corkery - New York Times
An advocate for stricter Wall Street regulations is asking shareholders of JPMorgan Chase and Citigroup to vote to consider breaking up the banks. The proposal, by Bartlett Naylor, the financial policy advocate at the activist organization Public Citizen, is expected to appear in the annual proxy filings of both banks and will then be put up for a vote among all investors who own shares in the banks.
goo.gl/dznAtQ
***SD: AKA not very likely to happen.
Societe Generale Said to Weigh London Headquarters Sale
Bloomberg
Societe Generale SA is considering selling its London headquarters this year after the bank agreed to lease new offices in the Canary Wharf financial district, according to three people familiar with the matter.
goo.gl/C5NEeJ
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| Central Banks | Money for less than nothing
The Economist
Amid the volley of tricks Mario Draghi, the president of the European Central Bank (ECB), deployed earlier this month to revive the sluggish euro-zone economy, "targeted longer-term refinancing operations", or TLTROs, received little attention. For one thing, the ECB has been trying TLTROs (extending cheap credit to banks that boost lending to businesses) since 2014. Moreover, next to ever-more-negative interest rates and ever-bigger bond purchases, TLTROs seemed mundane. But if you look at the fine print, the ECB is offering to pay banks to lend.
goo.gl/m1Pu7V
Did Yellen Just Slay The Bear Market?
Seeking Alpha
The first quarter of 2016 has been a wild ride so far. Big investment banks were heard yelling "fire" in a crowded market with reports titled "Sell Everything" as they saw 2008 unfolding all over again due to the twin implosions of crude oil and junk bonds. "Brace for another 20% free-fall from S&P 1900," was the call. And they weren't the first, nor will they be the last screaming "The bear market is coming!"
goo.gl/01xtll
The Yellen Fed risks Faustian pact with inflation
Ambrose Evans-Pritchard - The Telegraph
Interest rates in the United States have fallen to minus 2pc in real terms and are dropping into deeper negative territory with each passing month. This is a remarkable state of affairs. It is clear that the US Federal Reserve is now trapped. The FOMC dares not tighten despite core inflation reaching 2.3pc because it is so worried about tantrums in financial markets and about that other Sword of Damocles - some $11 trillion of offshore debt denominated in dollars, up from $2 trillion in 2000.
goo.gl/A5tQLA
Draghi tells EU leaders he can't fix the economy on his own
Reuters
European Central Bank President Mario Draghi warned European leaders on Thursday that monetary policy alone would not be enough to jump-start the economy and that governments needed to do their job by pushing through structural reforms. "I made clear that even though monetary policy has been really the only policy driving the recovery in the last few years, it cannot address some basic structural weaknesses of the euro zone economy," Draghi told reporters.
goo.gl/bWgyYD
****SD: The frustration is showing.
Hitting the Limits of Monetary Policy
Michael Heise - Wall Street Journal
Last week, the European Central Bank announced its latest round of interest-rate cuts and a further expansion of its already sizable asset-purchase program, known as quantitative easing. This came barely three months after the ECB already had extended QE and cut its deposit rate in December, an indication that such tactics are having a diminishing effect on the economy. ECB President Mario Draghi has signaled that we've perhaps reached the limits of what monetary policy can do to help the European Union reach its target of 2% inflation.
goo.gl/JHQOiz
Bond Market Destruction and QE: Here's Why Norway Won't Go There
Saleha Mohsin - Bloomberg
Destruction. That's what awaits Norway's tiny government bond market if its central bank decides to use quantitative easing to stimulate the oil-reliant economy, according to DNB, the nation's biggest bank. No wonder then that its central bank governor, Oeystein Olsen, said he and his colleagues are not considering snapping up government bonds to add stimulus as it fights to avoid a recession. Instead, Olsen on Thursday for the first time publicly conceded the bank could very well have to lower rates below zero.
goo.gl/QO4RMV
****SD: Another ZIRP set for NIRP...
Bank of England warns Brexit uncertainty poses risk to UK economic growth
Peter Spence - The Telegraph
The Bank of England has warned that a vote on the UK's membership of the European Union poses risks to economic growth, in a move that sees the central bank become increasingly active in the political debate. Members of the Bank's Monetary Policy Committee - which vote on interest rates - said that concerns about a possible Brexit had weighed on the pound, and may "also delay some spending decisions and depress growth of aggregate demand in the near term".
goo.gl/PGlcSL
Why the Fed should allow wages to rise
Mark Thoma - CBS News
On Wednesday, the Federal Reserve's Open Market Committee announced its decision to leave its target interest rate unchanged. I believe that was a wise decision. However, it said labor market conditions will be a key part of its decisions about future rate increases.
goo.gl/KA1Lxp
Redistributed ledger
The Economist
Russia's central bank has set up a working group. The People's Bank of China (PBOC) is keen. Inspired by bitcoin and its blockchain technology, the world's central bankers are contemplating digital currencies of their own. Like bitcoin, these would be built around a database listing who owns what. Unlike bitcoin's, though, these "distributed ledgers" would not be maintained collectively by some of their users. Instead, they would be tightly controlled by the issuers of the currency.
goo.gl/N4F9y3
Talk Is Cheap for Bank of Russia Still Leery of Rate Cuts
Olga Tanas - Bloomberg
Talking the talk of monetary easing doesn't mean the Bank of Russia is ready for an about-face on interest rates. While economists from Royal Bank of Scotland Plc and Nomura International Plc say the central bank's rhetoric will turn dovish this week, they differ over the timing of rate cuts after a halt since July. In less dispute, though, is that the benchmark will remain at 11 percent for a fifth meeting on Friday. Only seven of 42 analysts surveyed by Bloomberg predict a 50 basis-point decrease, with the rest seeing no change.
goo.gl/cfJull
Bank of England governor subject of $6.5m text scam
Rob Davies - The Guardian
Anyone who has opened a text purporting to be from Bank of England governor Mark Carney about $6.5m they never knew they had should hold off before popping the champagne corks. In what appears to be one of the more ambitious attempts at online fraud, Twitter user @JasonZubris has been getting messages purporting to be from the man in charge of the UK's monetary policy.
goo.gl/K9bL0k
****SD: Let's hope no one fell for this one.
| | | | Currencies | How China Is Taxing Global Markets
William Pesek - Barron's
Having wrecked its stock market, China is now turning its sights on killing currency trading. That at least is how the foreign-exchange world views Beijing drafting rules for a "Tobin tax" on transactions. And it's missing the point. Sure, President Xi Jinping would shoot his financial system in the foot by pulling a Shanghai on the yuan. Yes, it could actually boost volatility, not reduce it, and complicate the central bank's job. It makes assessing the fair value of assets harder. And certainly, the International Monetary Fund won't be happy to see the No. 2 economy backsliding - and trolling the IMF - so publicly.
goo.gl/p07MOF
Rupee: Bolstered by Indian Growth Prospects
Bluford Putnam - CME Group
Exchange rates, among other things, might reflect the relative fundamentals of the economies included in the currency pair, as well as the potential substitution effects from adjacent currencies. In the case of the Indian rupee (INR) and the U.S. dollar (USD), the long-term drivers related to divergent demographic patterns - the youth of India and the aging of the United States - could not be more striking or important. And while the demographic divide frames the primary challenges, the substitution effects of how India fares relative to other emerging market economies can also play a very large role in determining the INR/USD exchange rate - in the short-term and long-term.
goo.gl/Af26Uj
Dollar in broad retreat after Fed shift
Roger Blitz - Financial Times
The dollar sounded the retreat on all fronts after the Federal Reserve dialled back expectations for rate rises this year, boosting emerging market currencies and dragging the euro and yen higher. The Fed's shift in 2016 rate expectations from four quarter-point interest rate rises to two immediately prompted a significant dollar sell-off in the Wednesday US session, a trend that continued into Thursday.
goo.gl/E52xKo
Yen Gains Limited as Momentum Dwarfs Year-End Flows: Analysis
Vassilis Karamanis - Bloomberg
Options traders don't expect any Japanese yen repatriation flows in the run-up to Japan's financial year-end to halt recent dollar gains versus the yen, a sign the currency pair may have reached a medium-term bottom at 110.99, Bloomberg strategist Vassilis Karamanis writes.
goo.gl/CWMR8B
What will Egypt's flexible exchange rate look like?
Lin Noueihed - Reuters
Egypt's decision to make the exchange rate more flexible will return the central bank to the managed float in use before the 2011 uprising sent foreign investors and tourists packing, economists and bankers said. Egypt devalued the pound by 13 percent on Monday and said it would move to a more flexible exchange rate system, without giving details.
goo.gl/cRqXQE
Origins of currencies: from jagged edges to flowers
Oxford Dictionaries Blog
The dollar is one of the most common currencies in the world used by the US, Australia, Canada, Fiji, New Zealand, and Singapore to name a few. The origin of the dollar, also the Slovenian tolar, is from a coin called the Joachimsthaler, shortened to Thaler (or daler in early Flemish or Low German), named after the valley in which the silver it was made from was mined, the Joachimsthal, literally 'Joachim's valley'. The term began to be used in other languages, especially Dutch, and was later applied to the most widely used coin in the American colonies. In 1792, it was adopted as the name of the US monetary unit.
goo.gl/gU9q3a
People love the 'Hamilton' musical so much, the US Treasury wants to keep him on the $10 bill
Tech Insider
Talk about life imitating art. In the seven months since Lin-Manuel Miranda's play "Hamilton" hit Broadway last August, the biographical, hip-hop-infused romp has become such a phenomenon that the US Treasury now says it will reconsider taking the founding father off the $10 bill. The debate about removing Hamilton's mug from the ten started last summer, two months before Miranda's play ever reached the Richard Rodgers Theatre.
goo.gl/51DHCq
| | | | Indexes & Index Products | Does Market Volatility Favor Active Management? Evidence From the 2015 Year-End 2015 SPIVA U.S. Scorecard
Indexology
Twice a year, S&P Dow Jones Indices releases the SPIVA U.S. Scorecard. The scorecard measures the performance of actively managed equity and fixed income funds across various categories. Since the initiation of the report in 2002, the results have consistently shown that managers across most categories overwhelmingly underperform on a relative basis against their corresponding benchmarks over a medium- to long-term investment horizon.
goo.gl/txS3Z8
Disagreement with a legend
Greenspring
Jack Bogle may have contributed more to the investment management industry than any other human in history. Mr. Bogle is the founder of Vanguard, the largest mutual fund company in the world, and innovator who came up with the idea of the shareholders owning the funds they invest in. Because of this structure (no shareholders who are demanding profits), they are able to keep their fees exceptionally low, which is one of the reason we use them for our clients. They are also the fund company that popularized index funds, espousing the idea that owning the entire market passively is a much better bet than trying to pick winning stocks. Low fees, broad diversification...what's not to like?
goo.gl/0FiZEH
Smart-Beta Investors Chase Performance at Their Peril
Institutional Investor
Smart beta is the Swiss Army knife of the investment world. Smart-beta products reorganize indexes in a variety of ways to tilt portfolios in multiple directions, trying to exploit volatility or capture value or ride momentum. But new research suggests that many of these vehicles may simply be dressed-up performance chasers. To succeed with smart beta, investors should focus more on what a product is actually doing and less on the popularity of a specific factor.
goo.gl/HCfDPb
HSBC GAM cuts fees on six ETFs as price war continues
Investment Week
HSBC Global Asset Management has significantly reduced management fees on six exchange-traded funds, marking the latest move in the tracker price war, Investment Week can reveal.
goo.gl/6f3pIB
| | | | Gold | Decoding gold's signal to stocks
CNBC
It's been a shiny, glittering, bright start to the year for gold. Throw in all the usual adjectives because the precious metal is on track for one of its best starts to a year since 1980. And if history is any guide, gold's big quarter could be a bullish signal for stocks.
goo.gl/rqOhnQ
This chart says dollar might not be stronger than gold much longer
MarketWatch
The U.S. dollar has been much stronger than gold for nearly five years, but may be coming to an end in the wake of a "death cross"Âan indicator that many technical analysts believe is an omen of a bear marketÂon the chart that tracks the dollar/gold ratio, according to one technician.
goo.gl/ijEfOo
Here's Why Surging Gold Miner Stocks May Still Be Bargains
Bloomberg
Gold-mining companies that are seeing their shares surge the most in decades are still cheap, based on historic measures of their reserves.
goo.gl/WLTMQZ
Gold jewellery imports from ASEAN to face 12.5% countervailing duty
Economic Times
After steel and metals, the government has moved to protect the local gold jewellery-making industry from imports that threaten the jobs in the sector.
goo.gl/bzJvak
| | | | Miscellaneous | 42 Wall Streeters and CEOs pledged $10,000 each to compete in this March Madness bracket  check out their picks
Business Insider
Some of the biggest names on Wall Street are competing in Bloomberg's March Madness bracket challenge this year, including Michael Bloomberg himself and Bloomberg TV's Stephanie Ruhle, who spearheaded the competition. There are 42 participants, with each pledging $10,000 to play. The jackpot goes to the winner's charity of choice.
goo.gl/Qs1ydt
****SD: I'd recommend checking out Bloomberg's tracking graphics of the contest's progress.
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