Behind the Market Swoon: The Herdlike Behavior of Computerized Trading

Dec 26, 2018

First Read

Crypto: The Good the Bad and the Ugly…
Dave Weisberger, CEO – CoinRoutes

The price action of most crypto-assets over the past year and, in particular, the last quarter, has been downright ugly, and a great many ICOs launched earlier have been exposed as either frauds or very bad investments. The good, however, has come in the form of significant talent migrating into the space, with many worthwhile projects building critical infrastructure that will required for the market to grow and thrive. That is important, considering the potential for the asset class.

For the rest of the commentary, click HERE

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Hits & Takes
JLN Staff

Happy Boxing Day!~JJL

Above is a commentary by Dave Weisberger, CEO of Coinroutes and head of equities at Viable Markets. I asked Dave to respond to the many articles claiming the death of crypto and this special to JLN is his response.~JJL

The five billionth option contract traded this year was part of a sweep of Disney February 95 puts, according to Trade Alert’s Henry Schwartz. ~SD

Today’s top WSJ story about machines in markets has this data point: quant hedge funds “account for 28.7 percent of trading in the stock market, according to data from Tabb Group–a share that’s more than doubled since 2013.”~SD

Don’t miss last week’s edition of The Spread with Spencer Doar, sponsored by MIAX. Spencer counts down the top options stories of 2018.~JJL

This is your last week to pay for your 2018 JLN subscriptions. Invoices for 2019 subscriptions will be going out the first week of January.~JJL

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The Spread – Vol Strikes Back: Top Stories of 2018

JohnLothianNews.com

Did it feel like 2018 was a whirlwind? Did it just whiz by? If so, here’s a brief recap of the year’s big options stories.

Watch the video here »

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U.S. Regulators Tell Mnuchin Nothing Is Out of Ordinary in Markets
Benjamin Bain , Andrew Mayeda , and Margaret Talev – Bloomberg
Top regulators said to tell Mnuchin markets operating normally; Stocks drop to 20-month low as Washington turmoil weighs
Treasury Secretary Steven Mnuchin failed to assuage investors’ rising anxiety with a hastily called meeting of top financial regulators Monday as U.S. stocks plummeted to a 20-month low.
/bloom.bg/2EOMEmu

***** That is quite a statement. There is a lot out of the ordinary. Tariffs are out of the ordinary. Threatening to fire the Fed Chair is out of the ordinary. Threatening to fire the Treasury Secretary is out of the ordinary. Chaos must be ordinary now.~JJL

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Trump has weighed dismissing Mnuchin: Bloomberg
Emily Birnbaum – The Hill
President Trump has weighed dismissing Treasury Secretary Steven Mnuchin, a source familiar with the president’s thinking told Bloomberg News.
Another source told Bloomberg said that Mnuchin’s future at the helm of the Treasury Department depends on whether the market continues to drop.
bit.ly/2rXxF1z

****** Nothing says “Merry Christmas” like firing someone at the end of the year.~JJL

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FINRA Foundation Establishes Nation’s First-of-Its-Kind Grant Program to Help Public Libraries Aid Consumers Following Natural Disasters; Sixteen Libraries in Eight States Each Received $5,000 to Expand Personal Finance Collections and Educate Consumers About Financial Fraud
FINRA
This holiday season, the FINRA Foundation is giving back to local libraries to help them provide resources to communities impacted by some of the nation’s most devastating and deadly natural disasters this year.
bit.ly/2EJMBrM

***** Public libraries are the universal education platform of society.~JJL

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The Billion-Dollar Mystery Man and the Wildest Party Vegas Ever Saw; Armed with a seemingly bottomless supply of cash, an unassuming Malaysian named Jho Low staged the ultimate extravaganza
Tom Wright and Bradley Hope – WSJ
Around 6 p.m. on a warm, cloudless November night, Pras Michél, a former member of the ’90s hip-hop trio the Fugees, approached one of the Chairman Suites on the fifth floor of the Palazzo hotel. He knocked and the door opened, revealing a rotund man, dressed in a black tuxedo, who flashed a warm smile. The man, glowing slightly with perspiration, was known to his friends as Jho Low, and he spoke in the soft-voiced lilt common to Malaysians. “Here’s my boy,” Mr. Low said, embracing the rapper.
/on.wsj.com/2ELtayR

***** How many rich and famous people just wanted to look the other way and do no due diligence. Of course many were being paid to come to a party, so why raise a stink?~JJL

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Friday’s Top Three
Our top story to end the week before Christmas was Sarah Rudolph’s story in John Lothian News, Scott Gordon: In being acquired by Marex Spectron, RCG retains name, management, and gains global reach. Our number two story has been on this list more than once, the Chicago Sun-Times, As holidays approach, judge keeps ex-CBOT chief, 82, in jail over divorce fight. In number three was the surprising (possible) reversal reported by Crain’s Chicago Business CME may expand its board. Wait—what?

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Lead Stories

Behind the Market Swoon: The Herdlike Behavior of Computerized Trading; The majority of trades come from machines, models, or passive investing formulas that move in unison and blazingly fast
Gregory Zuckerman, Rachael Levy, Nick Timiraos and Gunjan Banerji – WSJ
Behind the broad, swift market slide of 2018 is an underlying new reality: Roughly 85% of all trading is on autopilot—controlled by machines, models, or passive investing formulas, creating an unprecedented trading herd that moves in unison and is blazingly fast.
/on.wsj.com/2ELr1TP

Whiff of Extinction Blows in Bull Market That Outlived Them All
Sarah Ponczek , Elena Popina , and Vildana Hajric – Bloomberg
Longest stock rally on record within a hairline of its end; Investors point to a disconnect between stocks and the economy
It’s been derided as a house of cards, a gift to the one-percent, an experiment in monetary policy taken way too far.
/bloom.bg/2EQXmJd

Wall Street Quietly Shelves Its Bitcoin Dreams; Goldman Sachs, Morgan Stanley and many more built it. But they didn’t come.
Alastair Marsh – Bloomberg
Limbo—that’s where to find Wall Street when it comes to cryptocurrencies. Squeamish from the start about pursuing profits in one of the darker corners of finance, established firms this year slowed their already halting efforts to make a business out of Bitcoin mania. While none has thrown in the towel, and some continue to develop a trading infrastructure, most flinched as the value of virtual coins collapsed.
/bloom.bg/2ENyS3a

Crypto Craze Drew Them In; Fraud, in Many Cases, Emptied Their Pockets; SEC and state regulators have brought more than 90 crypto cases over the past two years, but tracing funds is hard because of the elusive nature of the currency
Jean Eaglesham and Dave Michaels – WSJ
About a year ago, Charles and Claudia Wildes maxed out their credit cards and invested more than $40,000 in a hot new digital currency, just as the crypto mania peaked. Now, all that money is gone—a small part of the billions investors lost as cryptocurrencies plunged in recent months.
/on.wsj.com/2ELxxdi

$5.6 Trillion Asia Stock Loss Has Traders on Edge of Their Seats
Livia Yap – Bloomberg
With three days of Asia equity trading left for the year and low volumes across the board, traders don’t seem to be taking any chances.
/bloom.bg/2EOOgMH

Top Trump official calls bankers, will convene ‘Plunge Protection Team’
Jason Lange – Reuters
U.S. President Donald Trump’s Treasury secretary called top U.S. bankers on Sunday amid an ongoing rout on Wall Street and made plans to convene a group of officials known as the “Plunge Protection Team.”
/reut.rs/2ELvnKI

Treasury secretary startles Wall Street with unusual pre-Christmas calls to top bank CEOs
Damian Paletta, Josh Dawsey – Washington Post
Treasury Secretary Steven Mnuchin startled financial analysts, bankers and economists on Sunday by issuing an unusual statement declaring that the nation’s six largest banks had ample credit to extend to American businesses and households.
/wapo.st/2EO1RUD

Why Mnuchin’s reassurance about US banks left markets confused
Julia Horowitz, CNN Business
Treasury Secretary Steven Mnuchin left a lot of people scratching their heads. In trying to assure everyone that banks are healthy, he opened up a question most market observers weren’t asking, at least publicly.
/cnn.it/2EODne7

Trump Says He’s Confident in ‘Very Talented’ Mnuchin After Slide
Margaret Talev , Andrew Mayeda , Benjamin Bain , and Alyza Sebenius – Bloomberg
President complains again about Fed interest-rate increases; Mnuchin’s approach ‘smacks of desperation’: portfolio manager
President Donald Trump expressed confidence on Tuesday in Treasury Secretary Steven Mnuchin, who is struggling to contain his first real crisis but has failed to assuage investors unnerved by turmoil in Washington.
/bloom.bg/2EPWXGV

Trump Is Reportedly Considering Firing Mnuchin Over Stock Market Woes
Daniel Polti- Slate
Treasury Secretary Steven Mnuchin could become the latest White House official to get the boot. President Donald Trump has been souring on Mnuchin for some time now and the continued decline in the stock markets could be the final straw, reports Bloomberg. One source told Bloomberg that the president has considered firing Mnuchin while another said that whether he stays on or not will depend in large part on what happens to the markets.
bit.ly/2EQjovg

Trump Has Likely Done Lasting Damage to the Fed; The President is both setting in motion a crisis while undermining the institution that needs to respond to that crisis.
Tim Duy – Bloomberg
President Donald Trump’s Christmas Eve tweet reiterated that he considers Federal Reserve Chairman Jerome Powell a thorn in his side, one I think Trump believes he needs to pull even if Treasury Secretary Steven Mnuchin claims otherwise. We need to start thinking about what happens if Trump tries to fire Powell. Short version: It would likely be an absolute mess.
/bloom.bg/2ELu2na

Professor Has Some Questions About Your Index Funds; Lu Zhang of Ohio State University is skeptical about market-beating factors.
Nir Kaissar – Bloomberg
Lu Zhang, a finance professor at Ohio State University, has something to say about your hot new index funds, and it may not be flattering. Not long ago, the typical investment portfolio was a grab bag of stocks, bonds and actively managed mutual funds. Today, it is more likely an assortment of index funds. And not just any index funds. Indexes are no longer content to simply track the market. A growing number of them are attempting to replicate traditional styles of active management, also known as “factors.” I counted roughly 900 mutual funds and exchange-traded funds in the U.S. that track factor indexes, and that number is likely to grow.
/bloom.bg/2EMgFTI

Xavier Rolet, one of the brains behind London-Shanghai Stock Connect, joins hedge fund CQS; Rolet, former London Stock Exchange chief executive, to help company expand in Asia and China
Enoch Yiu – South China Morning Post
Xavier Rolet, former London Stock Exchange chief executive and one of the brains behind the London-Shanghai stock connect, which is expected to launch in early 2019, has been named as the chief executive of London-based hedge fund CQS.
bit.ly/2EKCp2q

There’s Venture-Capital Life Beyond Silicon Valley; Revolution’s Rise of the Rest Seed Fund aims to find markets overlooked by VCs.
Barry Ritholtz – Bloomberg
Three-quarters of all venture-funded startups are in or near Silicon Valley, New York City or Boston. That leaves plenty of opportunities in the rest of the country. That’s where David Hall, this week’s guest on Masters in Business, comes in.
/bloom.bg/2EKBBuq

Japanese Brokerage Cuts CEO, Chairman Pay Over Insider Trading Scandal
Russell Ward – Bloomberg
It’s a familiar story: a Japanese company is embroiled in scandal, then executives take pay cuts in a bid to make everything right. SMBC Nikko Securities Inc. is the latest firm to do just that. Chief Executive Officer Yoshihiko Shimizu and Chairman Tetsuya Kubo are forgoing 20 percent of their salaries for two months after a former employee was arrested on suspicion of insider trading.
/bloom.bg/2ELNTTf

Brokers Fight to Keep Their Pay Perks; SEC proposal looks to balance brokerage model with concerns over hidden incentives
Gabriel T. Rubin – WSJ
Brokers won their fight against the controversial fiduciary rule. Now, a battle is brewing over a new proposal by securities regulators that would require them to cut back on sales incentives tied to customer advice.
/on.wsj.com/2EMtYnd

Exchanges, OTC and Clearing

Euronext closes in on control of Norwegian stock exchange; Group seeks to extend buying spree with bid for Oslo Bors that values operator at EUR625m
Philip Stafford – FT
Euronext is poised to further consolidate Europe’s fragmented stock exchange industry, closing in on control of Oslo Bors with a deal that values Norway’s biggest markets operator at EUR625m.
/on.ft.com/2ENcuqO

Euronext press release regarding Oslo Børs
Euronext
Euronext, the leading pan-European exchange, has approached the Board of Directors of Oslo Børs VPS Holding ASA (“Oslo Børs VPS”) to seek its support for a EUR625m[1] cash tender offer for all the outstanding shares of Oslo Børs VPS, the Norwegian Stock Exchange and national CSD operator, headquartered in Oslo.
bit.ly/2EJQTzo

Deutsche Börse: Court stops proceedings
Deutsche Börse
The Frankfurt am Main Regional Court has today issued a fine decision against Deutsche Börse AG as a by-product after the preliminary proceedings against its former CEO, Carsten Kengeter, have been closed. The relevant decision provides for fines against Deutsche Börse AG of EUR 5 million and EUR 5.5 million for an alleged breach of the insider trading ban in December 2015 and an alleged failure to ad hoc disclosure in January 2016 ,
bit.ly/2EQsnwu

OCC AA+/Stable Rating Reaffirmed By S&P
OCC
OCC, the world’s largest equity derivatives clearing organization, today commented on the reaffirmation of its AA+/Stable rating by Standard & Poor’s (S&P), which was published on Thursday, December 20.
bit.ly/2Crs89A

OCC Clears More Than 5 Billion Options Contracts in 2018
OCC
OCC, the world’s largest equity derivatives clearing organization, today said its total cleared options contract volume on behalf of the U.S. equity options and futures industry has exceeded 5 billion for the year, a new record. OCC has cleared 5.01 billion options contracts year-to-date, surpassing the previous record of 4.56 billion cleared options contracts, set in 2011. The new industry volume record will be finalized at year-end, since 6 business days remain in 2018.
bit.ly/2Cunl7D

Moscow Exchange trading schedule for 2019 public holidays
MOEX
Moscow Exchange announces its trading schedule for New Year and other public holidays in 2019.
bit.ly/2EQTkR5

Moscow Exchange: Risk Parameters Change On Securities Market
Mondovisione
CCP NCC is including the following bonds in the list of assets that can be accepted as collateral starting from December 26, 2018:
bit.ly/2ELtSfv

NADEX fines trader $750 and revokes exchange membership over origin of $100,000 deposit
NADEX
NADEX, one of North America’s two licensed binary options exchanges, had serious concerns over the origin of funds used by a trader, hence an investigation was carried out.
bit.ly/2EJM6xU

SGX to report 2Q FY2019 results on 24 January
SGX
Singapore Exchange (SGX) is reporting its second-quarter (2Q) results for Financial Year 2019 (FY2019) after the market closes on 24 January 2019.
bit.ly/2ELQHQh

Fintech

Money Matters – Is Fairness The New USP For Fintech Entrepreneurs?
Trevor Clawson – Forbes
175 years have passed since the publication of Charles Dickens’ A Christmas Carol, and in many respects the inequalities of the festive season haven’t changed that much. There are those for whom the celebration of Christmas is an unambiguous and affordable pleasure. Equally there are those who struggle to cope with the expectation to eat, drink and be merry while also buying presents for friends, family and secret Santa co-workers.
bit.ly/2EKuKk

An Early Player in Artificial Intelligence for Stocks Gets Funding
Bill Alpert – Barron’s
With artificial intelligences talking back to us at home and taking the wheel of our cars, Wall Street was quick to look for an investing edge from smart machines. Among the first public forays in AI stock analysis were the stock sentiment ratings issued by the Aiera system, the brainchild of Ken Sena, who covered internet stocks at Wells Fargo .
bit.ly/2ENxMo4

Ether Leads the Rally as Cryptocurrencies Extend Their December Rebound
Vildana Hajric – Bloomberg
Christmas has come early to beleaguered investors in cryptocurrencies such as Ether, which rallied as much as 46 percent as digital assets continue their December rebound.
/bloom.bg/2EQkS8O

smartTrade announces strong growth in 2018 sustained by product innovation and addition of new clients globally
Business Wire
smartTrade Technologies, a multi-asset electronic trading pioneer, concludes 2018 with strong growth sustained by new product launches as well as the addition of new buy and sell-side clients in Asia, Europe and the Americas.
bit.ly/2ENfBza

How Huawei Took Over the World; The company’s technology touches virtually every corner of the globe, yet it has long faced scrutiny in the U.S.
Dan Strumpf, MinJung Kim and Yifan Wang – WSJ
Founded in 1987 by former army engineer Ren Zhengfei, Huawei Technologies Co. is a Chinese colossus. The world’s largest supplier of telecom equipment and the No. 2 maker of mobile phones, its technology touches virtually every corner of the globe, and its massive R&D budget has made it a leader in 5G technology. Yet it has long faced scrutiny. Here’s how it found success.
/on.wsj.com/2EO0uVT

Brazilian Retail Chain Adds Crypto as a Payment Option
Arnab Shome – FinanceMagnates
A Brazilian supermarket chain called Oásis Supermercados has added cryptocurrency as a payment option. The Rio de Janeiro-based supermarket is one of the major retail chains in the country. It averages around $6.5 million in annual turnover and employs 90 staffs. The supermarket has trained all its 20 cash register employees to accept payment in cryptocurrencies.
bit.ly/2GDwYoE

Cryptocurrencies

A Cryptocurrency Carol: The Ghost Of Bitcoins’ Present
Jefferson Nunn – Forbes
This story builds upon Charles Dickens “A Christmas Carol” and provides a modern take on the tale. This part continues from A Cryptocurrency Carol: Part One and A Cryptocurrency Carol: Bitcoins’ Ghost and a Cryptocurrency Carol: The Ghost of Bitcoins’ Past.
bit.ly/2EPZOQ9

Mark Zuckerberg Uses Blockchain For His Own Ends; Crypto-evangelists hoped digital currencies would challenge Big Tech’s control of personal data. But Facebook has other plans for the technology.
Lionel Laurent – Bloomberg
The idea that a company as powerful and autocratic as Facebook Inc. would ever dive into crypto-currencies has always seemed a bit like the Death Star deciding to throw a staff Christmas party.
/bloom.bg/2EQlco2

Wall Street Quietly Shelves Its Bitcoin Dreams
Alastair Marsh – Bloomberg
Limbo—that’s where to find Wall Street when it comes to cryptocurrencies. Squeamish from the start about pursuing profits in one of the darker corners of finance, established firms this year slowed their already halting efforts to make a business out of Bitcoin mania. While none has thrown in the towel, and some continue to develop a trading infrastructure, most flinched as the value of virtual coins collapsed. You’ve reached your free article limit. Subscribe now to get unlimited access.
/bloom.bg/2ENyS3a

A Christmas Cryptocurrency Weekly Update
David Thomas – FX Street
What a difference a week makes. Seven days ago things didn’t appear that they could really get much worse for the crypto markets as we crawled towards the end of 2018 looking forward to putting it behind us. Traditional markets dictate that a 20% drop in price would constitute a bear market and so given 80+ percentage drops in Bitcoin and Ethereum, it was hard to get any more bearish.
bit.ly/2GGNrIC

China’s Bitmain Technology and Huobi plan layoffs as cryptocurrency crunch begins to bite
Zheping Huang – South China Morning Post
Two of the world’s biggest cryptocurrency companies have confirmed lay-off plans amid an industry crunch that has seen US$170 billion wiped off bitcoin’s market value this year.
bit.ly/2Q4fQYk

It’s Time for Local Governments to Break Blockchain’s Regulatory Gridlock
Won Hee-ryong – Coindesk
Although there are issues with blockchain that need to be solved, there is a growing consensus about the technology’s great potential. Blockchain is a disruptive technology that is not limited to any particular field, and it has a wide range of applications including finance, logistics, medicine and intellectual property rights.
bit.ly/2AqJpyD

A VC Thinks Bitcoin Passed A Major Milestone This Year
Billy Bambrough – Forbes
Bitcoin has had a difficult few weeks, topping off a terrible year that’s seen it lose around 80% of its value since its all-time high 12 months ago. While many are worried that bitcoin—as well as many other major cryptocurrencies such as Ripple’s XRP and ethereum—could now be dead in the water, others are confident this is just another blip in the long bitcoin saga.
bit.ly/2rQGDOm

— Stories from Alternative Crypto Sources —

Cryptocurrency Market Update: Christmas Selloff Has Slowed
NewsBTC
bit.ly/2Lzkgpt

Year in Review: 2018’s Top Cryptocurrency Stories
Bitcoin.com News
bit.ly/2EKrvK1

South Korea’s Blockchain Body Wants 6th Largest City Turned into Crypto Hub
CCN
bit.ly/2Riybpp

What Happens After This Cryptocurrency Recession?
Toshi Times
bit.ly/2Q3j3Yh

Wall Street is Backing Out of Crypto
CCN
bit.ly/2LzkMDV

Politics

Trump’s relationship with Whitaker imperils the rule of law
Josh Campbell – CNN
For those of us who viewed President Trump’s decision to appoint Matthew Whitaker as acting attorney general with great skepticism, our greatest fears are now manifest.
/cnn.it/2EMI3AY

Fed Rate Hikes May Have Already Cost Trump $5 Million a Year
Shahien Nasiripour – Bloomberg
Took out $340 million in variable-rate loans from 2012 to 2015; Trump’s net worth dropped about 7 percent over two years
President Donald Trump has repeatedly attacked Federal Reserve Chairman Jerome Powell’s interest-rate increases as a drag on U.S. economic growth. They’re also cutting into his own fortune.
/bloom.bg/2EKZOkg

Trump knows he can’t fire Fed chair Jerome Powell, Mulvaney says; Mulvaney said Trump recognizes he “does not have the ability” to fire Powell.
Image: Jerome Powell
Allan Smith – NBC
White House budget chief and incoming acting chief of staff Mick Mulvaney said Sunday that President Donald Trump knows he can’t fire Federal Reserve Chairman Jerome Powell, who the president has excoriated in recent months for raising interest rates.
/nbcnews.to/2EKZhig

Trump Rips Fed as Economy’s Only Problem; No Powell Mention
Andrew Mayeda and Mike Dorning – Bloomberg
‘They don’t have a feel for the Market,’ president tweets; U.S. stocks extend decline following Trump comment on Monday
President Donald Trump renewed his attacks on the Federal Reserve, commenting publicly on the central bank for the first time following last week’s interest-rate hike and reports he has discussed firing Chairman Jerome Powell.
/bloom.bg/2ENgt6U

Trump Is a ‘Terrible CEO’ and his ‘Decomposing’ Presidency is Running America ‘Into the Ground,’ Republican CNN Host Says
Jason Lemon – Newsweek
Conservative CNN Host S.E. Cupp has blasted President Donald Trump, pointing out that he’d be considered a failure as a CEO and arguing that his “presidency is decomposing before our very eyes.”
bit.ly/2EJOmVU

Trump losing support of America’s millionaires — even Republicans — poll finds
Mike Murphy – MarketWatch
Millionaires were among the biggest beneficiaries of President Donald Trump’s tax overhaul, but they’re not necessarily fans of the president.
/on.mktw.net/2ENjkwE

US markets: Mnuchin to convene crisis team amid White House chaos; Treasury secretary talks to bank CEOs and calls together working group created after 1987 market crash
The Guardian
The US Treasury secretary has sought to calm market jitters about White House dysfunction and the government’s partial shutdown, calling the heads of the nation’s six largest banks and gathering the “plunge protection team” that formed after the crash of 1987.
bit.ly/2EJO954

Trump Rings in the New Year in the Worst Possible Way; One week sums up a failing presidency.
Michael R. Bloomberg – Bloomberg
There are many reasons to be optimistic about 2019. The increasingly isolated man in the Oval Office is not one of them. With the first two years of Donald Trump’s presidency drawing to a close, the past week all too perfectly exemplified its destructive effect on competent government in Washington — and it should give all Americans, in all parties, cause for concern.
/bloom.bg/2ENsj0M

Trump’s Chaos Engine Finds a New, Higher Gear; The Mattis resignation and the shutdown suggest things will only get wilder.
Mark Gongloff – Bloomberg
This newsletter, channeling Bloomberg Opinion’s prescient writers, has been warning you for a while now that the chaos engine of President Donald Trump’s White House will just keep heating up. Yesterday proved the wisdom of those warnings – which remain in effect.
/bloom.bg/2EOKFyy

Trump Sees Winning Hand as Critics See Presidency Spiraling Down
Shannon Pettypiece and Jennifer Jacobs – Bloomberg
Revving supporters with border wall fight and ‘America First’; Possibility of firing Fed chief adds to sense of disarray
Donald Trump is coming off one of his roughest weeks as president, at least in his critics’ eyes — instigating a government shutdown fight, provoking his defense chief’s resignation, abruptly pulling U.S. troops from two global hot spots, and even thinking about firing the head of the U.S. central bank.
/bloom.bg/2EKVOAg

Wall Street Reacts to Trump and Mnuchin’s ‘Unforced Errors’
Lananh Nguyen and Sonali Basak – Bloomberg
Trump keeps up Fed attacks amid government-shutdown worries; Mnuchin’s contacts with bank CEOs backfire by stoking unease
The White House is starting the week with unforced errors. That’s the assessment of some Wall Street watchers who are concerned that the latest political turmoil could eventually hurt the U.S. economy. From President Donald Trump’s criticism of the Federal Reserve, to Treasury Secretary Steven Mnuchin’s round of phone calls to major bank leaders, checking that they have enough liquidity, the past few days of political headlines have been unnerving.
/bloom.bg/2EOK3sK

Now It’s Up to Congress; James Mattis did his best. But the onus of dealing with Trump rests with the body invested with it by the Constitution.
James Fallows – The Atlantic
Donald trump is intellectually, emotionally, and ethically unsuited for positions of public responsibility. The Atlantic argued this in an editorial published just before the 2016 presidential election, and I tried to document it in more than 150 installments through the election year.
bit.ly/2EJLdp4

A potential Trump impeachment is a ‘huge risk’ for 2019, expert says; Investors and businesses are bracing for 2019 risks such as interest rate hikes from the Federal Reserve and an escalation in U.S.-China trade tensions.
Yen Nee Lee – CNBC
Investors and businesses may have overlooked one big risk that could come out of Washington next year: The possible impeachment of U.S. President Donald Trump.
/cnb.cx/2EOJWwX

As Market Rout Continues, Trump Stands Firm on Fed, Border Wall; President criticizes central bank’s rate increases, extends stalemate over border-wall funding; aides consider meeting with Powell
Peter Nicholas, Michael Wursthorn and Paul Kiernan – WSJ
President Trump criticized Federal Reserve interest-rate increases and said on Tuesday a partial U.S. government shutdown wouldn’t end until Congress funded a wall along the border with Mexico, holding firm on his policy stances against the backdrop of a global economic slowdown and an extended world-wide stock plunge.
/on.wsj.com/2EMdefM

Trump’s frustration with Mnuchin rising after failed attempt to calm markets, source says
Jim Acosta, Donna Borak and Eli Watkins, CNN
President Donald Trump’s frustration with Treasury Secretary Steven Mnuchin is ratcheting up further after markets suffered their worst Christmas Eve drop ever despite Mnuchin’s attempts to calm Wall Street, according to a source close to the White House.
/cnn.it/2EN6VZx

Regulation

A.G. Underwood Announces $68 Million Multistate Settlement With UBS AG (“UBS”) For Artificially Manipulating Interest Rates
New York State Attorney General
Attorney General Barbara D. Underwood today announced a $68 million, 40-state settlement, with UBS for fraudulent conduct involving the manipulation of LIBOR (the London Interbank Offered Rate). LIBOR is a benchmark interest rate that affects financial instruments worth trillions of dollars and has a far-reaching impact on global markets and consumers.
/on.ny.gov/2Cuow77

OCC: Capital and Liquidity Requirements: Notice of Proposed Rulemaking
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) are issuing a notice of proposed rulemaking that would establish a revised framework for determining requirements under the regulatory capital rule, the liquidity coverage ratio (LCR) rule, and the proposed net stable funding ratio (NSFR) rule for large U.S. banking organizations based on their risk profile.
/goo.gl/eth5M7

SEC Charges Two Robo-Advisers With False Disclosures
SEC
The Securities and Exchange Commission today instituted settled proceedings against two robo-advisers for making false statements about investment products and publishing misleading advertising. The proceedings are the SEC’s first enforcement actions against robo-advisers, which provide automated, software-based portfolio management services.
bit.ly/2Ctm4Oc

CFTC Obtains $2.1 Million Judgment Against Iowa Commodity Trader for Fraudulent Scheme
CFTC
The Commodity Futures Trading Commission (CFTC) announced today that on November 26, an Order and Judgment by Default (Order) was entered against Lon Olen Friedrichsen (Friedrichsen) of Alton, Iowa in connection with a fraudulent scheme to illegally trade NYMEX West Texas Intermediate Light Sweet Crude Oil futures contracts on behalf of customers.
/goo.gl/4pcKGg

Federal Court Orders Forex Trading Firm and Its Principal to Pay More Than $1.6 million for Fraudulent Forex Pool Scheme
CFTC
The Commodity Futures Trading Commission (CFTC) announced today that on December 7, a federal court ordered New York firm Wright Time Capital Group LLC (d/b/a Global FX Club) (WTCG) to pay more than $1.48 million in civil monetary penalties and restitution in connection with an enforcement action brought by the CFTC charging the defendants with fraudulent solicitation and misappropriation involving a forex pool.
/goo.gl/QqrDVy

CFTC Orders Commodity Trading Firm and Principal to Pay a $315,000 Civil Monetary Penalty for “Cherry-Picking” Scheme
CFTC
The Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Jonathan Hansen (Hansen) of Dana Point, California, and his Newport Beach, California, based company, Newport Private Capital LLC, (NPC), for engaging in a fraudulent post-execution allocation scheme, sometimes referred to as “cherry-picking”. The Order also finds that NPC and Hansen failed to keep required records. During the period of the fraudulent activity, NPC was registered as a Commodity Pool Operator and Commodity Trading Advisor, and Hansen was registered as an Associated Person and listed as Principal of NPC.
/goo.gl/zSyocV

SEC Charges Audit Firm and Suspends Accountants for Deficient Audits
SEC
The Securities and Exchange Commission today filed settled charges against national audit firm Crowe LLP, two of its partners, and two partners of a now-defunct audit firm for their significant failures in audits of Corporate Resource Services Inc., which went bankrupt in 2015 after the discovery of approximately $100 million in unpaid federal payroll tax liabilities.
bit.ly/2Ctr3hu

Thailand Appoints First Female Capital Market Regulator Chief
Anuchit Nguyen – Bloomberg
Thailand named Ruenvadee Suwanmongkol as secretary general of the Securities & Exchange Commission, appointing a woman to run the market regulator for the first time.
/bloom.bg/2EKp2PL

Introduction of business rules slow sharply under Trump; Administration is also making progress in eliminating existing regulations
Kiran Stacey – FT
US president Donald Trump has overseen a sharp slowdown in the pace of new business regulations in his first two years in office, according to an analysis by the Financial Times using government figures.
/on.ft.com/2EJQa18

Investing and Trading

Investors warned to prepare for more market turbulence; Franklin Templeton’s fixed income chief cites entrenched interest rate risk
Robin Wigglesworth – FT
Investors should steel themselves for more ” Red October”-style market tantrums in 2019, as tighter US monetary policy once again hits bond prices and further undercuts support for financial markets, according to Franklin Templeton’s fixed income chief.
/on.ft.com/2EMhkEG

Banks Sharply Lower Oil-Price Forecasts; Brent crude is now expected to average just over $69 a barrel next year, according to a Wall Street Journal poll
Christopher Alessi – WSJ
Banks in December significantly lowered their forecasts for oil prices in 2019, as crude markets remained under firm pressure amid worries over weakening demand and signs of a burgeoning global supply glut.
/on.wsj.com/2ENcaIH

Who Won Heard on the Street’s Stock-Picking Contest? No One, Really; In annual event, both columnists and readers beat the S&P 500—but failed to profit
Spencer Jakab – WSJ
Heard on the Street columnists work at The Wall Street Journal, not on Wall Street, the industry we often write about. Once a year, though, we try our hand at the stock-picking game. For the first time, we also gave our readers the opportunity to play fund manager, and many put us to shame. As for our 12 columnists’ 22 stock picks, the results were the sort of thing that wins mild applause in the finance industry and jeers anywhere else.
/on.wsj.com/2ENba7p

Stocks Hit 20-Month Low as D.C. Turmoil Weighs: Markets Wrap
Jeremy Herron and Vildana Hajric – Bloomberg
Trump team attempts to assure markets over Powell, liquidity; Many exchanges are shut or will close early on Christmas Eve
U.S. stocks fell to the lowest since April 2017 as the turmoil in Washington rattled financial markets anew, pushing the S&P 500 to the brink of a bear market. Crude sank below $45 a barrel and the dollar tumbled.
/bloom.bg/2EPYSeB

Stock-Market Volatility Can Be Good for the Economy; Cheap, abundant capital doesn’t create good ideas. Scarce, expensive capital helps weed out bad ones.
Amar Bhidé – WSJ
Financial savants were quick to lambaste Federal Reserve Chairman Jerome Powell last week for failing to reassure markets that the Fed would ease off on increasing interest rates next year. Some pundits also denounced Mr. Powell’s “disastrous” performance at the press conference following the rate hike. One awarded him an F for diffident delivery and confused “messaging.”
/on.wsj.com/2EKjnct

US stock market meltdown a departure from economic reality; In 2019, we can only trust that the fundamentals prevail and provide a foundation for more stable, confidence-building economic leadership that confounds pessimistic expectations
SCMP Editorial
The New York Stock Exchange went into the Christmas break in its biggest market retreat in a decade, down about 20 per cent in three months. If it recovers some ground after reopening, that will be welcome but it remains to be seen when the volatility will end. This raises the question: what is there not to like in a domestic economy enjoying a low in unemployment, strong consumer sentiment after buoyant Christmas shopping sales and robust business expansion going by surveys of business supply managers?
bit.ly/2EOBC0v

Overconfidence at the Fed; Stocks are down more than 8% since last week’s monetary move.
The Editorial Board – WSJ
Public officials who try to calm nervous financial markets with soothing words rarely succeed, as Steve Mnuchin learned Monday. The Treasury Secretary tweeted Sunday that America’s six largest banks told him in telephone calls that they had “ample liquidity” for lending and operations, and stocks promptly fell nearly another 3% on Monday.
/on.wsj.com/2ELripP

Institutions

Tim Leissner: Goldman Sachs banker at the heart of 1MDB scandal; The once rising star now poses one of the greatest threats to the bank in its history after pleading guilty to fraud
David Crow, Laura Noonan – FT
When Goldman Sachs partners — past and present — met to celebrate its 150th birthday this month, the mood was subdued. The crowd of 370 included famous Goldman alumni such as US Treasury secretary Hank Paulson, one-time New Jersey governor Jon Corzine and the ex-Trump adviser Gary Cohn, all of whom turned out to mark the end of Lloyd Blankfein’s 12 years as chief executive of the bank.
/on.ft.com/2EOPtnA

China’s bet on a venerable Irish stockbroker; Sale of Goodbody to Zhongze has been a long process but other Dublin firms are also on the move
Arthur Beesley – FT
It is 8,500 kms from Beijing to the tiny rural town of Killorglin near Ireland’s rugged south-western coast. But it is here that one of China’s first forays into European stockbroking is set to begin with the takeover of Goodbody.
/on.ft.com/2EOEBGf

BlackRock Saw Record Monthly Flows to Its U.S. ETFs in November
Charles Stein – Bloomberg
Emerging market stocks, short-term bonds got biggest take; Investors flocked to passive, bailed on active in the month
BlackRock Inc.’s U.S. exchange-traded fund business attracted more than $25 billion in November, a record monthly haul for the company.
/bloom.bg/2ELuNMZ

A Hedge Fund Makes Billions Off Americans’ Underwater Mortgages; Fir Tree bet that homeowners would keep paying loans, even against their interest
Ryan Dezember – WSJ
Fortunes were made on Wall Street betting against sketchy mortgages before the housing bust a decade ago. In its aftermath, one firm has made billions taking the other side of that trade, scooping up battered home loans in a wager that plenty of Americans would keep paying them.
/on.wsj.com/2EKjkxj

Regions

London’s Streets No Longer Paved With Gold as Miners Struggle
Thomas Biesheuvel – Bloomberg
Randgold’s acquisition will deprive city of star gold producer; Fund managers in London starved of liquid gold stocks
Reports that AngloGold Ashanti Ltd. is considering a London listing provide some festive cheer to a city that’s lost its way as a home for gold miners.
/bloom.bg/2EKurX8

Deripaska’s Hard Times Help Oligarch Weather Trump Sanctions; Embattled metals tycoon has been damaged by his battle with Washington, but his key businesses remain in tact
Yuliya Fedorinova – Bloomberg
Oleg Deripaska’s rise from a small Soviet village on Russia’s southern steppe to billionaire commodities tycoon was rarely free from conflict.
/bloom.bg/2EOM9bJ

China imports zero U.S. soybeans in November for first time since trade war started; China has leaned on Brazilian imports to replace soybeans from the U.S.
Image: China soybean import
Reuters
China’s soybean imports from the United States plunged to zero in November, marking the first time since the trade war between the world’s two largest economies started that China, the world’s largest soybean buyer, has imported no U.S. supplies.
/nbcnews.to/2ENteOM

China’s Ant Financial in talks to buy WorldFirst for $700m; Acquisition of payments group would be Alibaba affiliate’s first big move into UK
Oliver Ralph, Don Weinland – FT
Alibaba affiliate Ant Financial is in talks to buy WorldFirst, the UK-based international payments group, for about $700m.
/on.ft.com/2EJs7Q9

China Cracks Open Door for U.S. Natural Gas Imports as Wintry Cold Hits
Naureen S Malik – Bloomberg
As America’s export capacity rises, two tankers deliver LNG; Trade spat kept Asia giant from U.S. gas imports in October
China last month imported two tankers of U.S. liquefied natural gas, nudging open a doorway that had been closed shut for a month at a time when America is rapidly expanding its ability to export the heating fuel.
/bloom.bg/2EKqZvE

China drafts law to ban forced tech transfer from foreign partners; New rules would prevent local authorities from acquiring IP through joint ventures
Gabriel Wildau – FT
China plans to ban local governments from forcing foreign companies to transfer proprietary technology to their Chinese partners, to address a complaint at the heart of the US-China trade and technology dispute.
/on.ft.com/2ENZu4b

How China Built a Steel Behemoth and Convulsed World Trade; Driven by global demand and supported by government subsidies, China’s steel exports have become a flashpoint for trade tensions with the U.S.
Chuin-Wei Yap – WSJ
China was leaving behind decades of deep poverty when Vice Premier Deng Xiaoping flew to Japan in 1978 to seal a historic peace treaty between the two nations. Mr. Deng’s trip featured a lower-key, but equally important visit—to a state-of-the-art plant owned by Nippon Steel Corp.
/on.wsj.com/2EMDiHC

U.S. Farmers Fear Lucrative Japanese Exports Will Wither; Two new trade pacts will soon cut Japanese tariffs and ease quotas on products sold by some of American agriculture’s biggest competitors
Jacob M. Schlesinger – WSJ
After seeing exports to China tumble, U.S. farmers and ranchers are now bracing for more losses in their next-biggest Asian market: Japan.
/on.wsj.com/2EQgOp4

Bank of China Plans Perpetual Bond Sale in Capital Push
Bloomberg News
Lender aims to issue as much as 40 billion yuan of the debt; Authorities studying ways to support banks’ capital raising
Bank of China plans to sell as much as 40 billion yuan ($5.8 billion) of perpetual bonds in what could be the nation’s first ever issuance of such debt by a lender.
/bloom.bg/2EOHSW3

Brexit

RBS seeks German banking licence as Brexit deadline nears; Bank wants to maintain access to European markets
Nicholas Megaw – FT
Royal Bank of Scotland has applied for a German banking licence to ensure it maintains access to European markets after Brexit, as uncertainty over the terms of the UK’s exit creates additional burdens even for domestically-focused financial firms.
/on.ft.com/2EMFDlS

What Betting Markets Have to Say About Brexit; Having failed miserably to predict the results of the 2016 referendum, the U.K.’s famous betting houses are trying again
Avantika Chilkoti – WSJ
The difficulty of discerning what will happen with Brexit has some asking whether betting shops, rather than financial markets, will provide better clues for the future.
/on.wsj.com/2ENwzgw

Brexit tops risk concerns as worries over cyber risk and regulatory impact fall; Survey from the DTCC finds that half of respondents believe Brexit will pose a threat to the broader economy, as concerns about cyber risk and regulation ease.
Jon Watkins – The Trade
A new systemic risk survey from the DTCC has shown that almost half of respondents believe Brexit will pose a risk to the broader economy, though concerns about cyber risk and regulatory impact are lessening.
bit.ly/2LcRF9o

German industry views Brexit, Trump as biggest risks to economy
Reuters
Germany’s leading industry groups said on Wednesday that Britain’s departure from the European Union and trade disputes triggered by U.S. President Donald Trump’s ‘America First’ policies were posing the biggest risks to growth and prosperity.
/reut.rs/2EKpPQO

Miscellaneous

Books That Challenge the Consensus on Capitalism; Ideas once dismissed as the ravings of the loony left are breaking into the mainstream of economic and intellectual debate.
Pankaj Mishra – Bloomberg
We live in an age of political earthquakes: That much, at least, seemed clear from newspaper headlines nearly every day of 2018. But intellectual tectonic plates were also shifting throughout the year, with ideas once dismissed as the ravings of the loony left breaking into the mainstream.
/bloom.bg/2ENxxta

How the stock market performed under every president for the past 100 years
Samuel Stebbins – USA Today
The U.S. economy is subject to complex, interconnected forces too innumerable for any one person to account for or anticipate. Still, when it comes to the health of the economy, the buck often stops at the president’s desk.
bit.ly/2EOBKNx

Timothy C. May, Early Advocate of Internet Privacy, Dies at 66
Nathaniel Popper – The New York Times
Timothy C. May, a physicist, polemicist and cantankerous advocate of internet privacy who helped start a movement aimed at protecting the privacy of individuals online, died on Dec. 13 at his home in Corralitos, Calif. He was 66.
/nyti.ms/2RmWvXm

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