Frankfurt Winning Battle for Brexit Bankers; End of 47-Year Japan Rice Program; Smart beta funds pass $1tn

Dec 27, 2017

First Read

Hits & Takes
JLN Staff

Spencer Doar’s weekly JLN Options video feature, The Spread, continues to get better. This last week’s was a beut.~JJL

Holy smokes. Get this: “The Legends Room, the world’s only blockchain based nightclub, rings in 2018 with two incredible nights of crypto fun. On Saturday, December 30th, the Legends Room presents Samantha Ronson and Saint Clair. On Sunday December 31st, the club will feature Post Malone and 21 Savage together.” I do not like this, Sam-I-am. But hey, it’s Vegas, right?~SD

The JLN Team has cancelled their in the office meeting today, rescheduling for when temperatures are not below zero.~JJL

Like others, when I had an iPhone, I thought it slowed as it aged. Apple admitted it does indeed do that to its older models and now faces a slew of lawsuits about the practice. That reminded me of the saying, “Just because you’re paranoid, it doesn’t mean they’re not watching you.”~SD

Mark Twain Wit of the Day: “If you pick up a starving dog and make him prosperous, he will not bite you. This is the principal difference between a dog and a man.”~JJL


Ten years in, nobody has come up with a use for blockchain; What if, 10 years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?
Kai Stinchcombe – CNBC
Everyone says the blockchain, the technology underpinning cryptocurrencies such as bitcoin, is going to change everything. And yet, after years of tireless effort and billions of dollars invested, nobody has actually come up with a use for the blockchain ó besides currency speculation and illegal transactions.

***** Here is the start of a good end of the year argument.~JJL


Tuesday’s Top Three
Yesterday’s top story was a pertinent one given the watercooler conversation topic de jour – Who Regulates Bitcoin Trading? No U.S. Agency Has Jurisdiction. Second went to What’s the true value of bitcoin? A Morgan Stanley analyst says it may be zero. Third was a different take on that “value” story – What Is Bitcoin Good For?



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Lead Stories

Frankfurt Is the Big Winner in Battle for Brexit Bankers
Gavin Finch, Hayley Warren and Tim Coulter – Bloomberg
Frankfurt has emerged as the biggest winner in the fight for thousands of London-based jobs that will have to be relocated to new hubs inside the European Union after Brexit.

End of 47-Year Japan Rice Program Signals Ramen Wheat Boost
Aya Takada and Hiromi Horie – Bloomberg
Fukuoka expanding production of local variety of ramen wheat; Rice farmers may seek out other crops, tap into rising demand
The end of Japan’s four decades of rice-market control could be good news for noodle lovers.

Smart beta funds pass $1tn in assets; Milestone underscores the increasing popularity of hybrid investment strategy
Jennifer Thompson – FT
Smart beta funds have hit the $1tn of assets milestone, testifying to the increasing popularity of the investment strategy.

Many Comments Critical of ‘Fiduciary’ Rule Are Fake; Wall Street Journal analysis shows 40% of respondents didn’t write the posts that were attributed to them
James V. Grimaldi and Paul Overberg – WSJ
A significant number of fake comments appear among thousands criticizing a proposed federal rule meant to prevent conflicts of interest in retirement advice, according to a Wall Street Journal analysis.

China unveils digital ID card linked to Tencent’s WeChat; Programme will further enmesh 902m users into Tencent’s sprawling tech ecosystem
Gabriel Wildau in Shanghai – FT
One of China’s largest cities will allow residents to link their national identity cards to the ubiquitous mobile messaging and social-media app WeChat using facial recognition, further enmeshing Chinese consumers into Tencent’s technology ecosystem.

Big asset managers set to benefit from Mifid II legislation; Rules around payment for research could leave small firms at a competitive disadvantage
Hannah Murphy and Attracta Mooney – FT
Large asset managers are set to benefit from new European rules around payment for research at the expense of smaller rivals, experts say, creating an “uneven playing field” that could have far-reaching consequences for the industry.

50 Phrases to Run From
Reformed Broker
There’s a peculiar patois in which the financial charlatan speaks. Below, we collect some of the tropes and tricks of the unhinged market rhetorician.

No, The Stock Market Isn’t Rigged Against You
Nicholas Ward – SeekingAlpha
Every now and then I hear people talking about the stock market as if it is some vile Wall Street casino that is totally rigged against the Main Street, mom & pop, retail type investor. This sort of narrative is oftentimes driven by “alternative facts” and sleazy advertisements proclaiming doom, gloom, and capital ruin. I hate hearing these types of messages; it’s my opinion that this cynical outlook on the U.S. stock market couldn’t be further from the truth.

‘Mini-grid’ household energy sharing begins to take off; Network of 20,000 German homes selling to each other shows new distribution model
Patrick McGee – FT
Energy companies are facing an uncomfortable truth: one day not all households will require their services. Some people have been generating their own energy, instead of tapping into a national power grid, for decades.

European banks warn of multibillion-dollar hit from Trump tax reform; Barclays expects to take £1bn charge that could damp hopes of a big dividend rise
Martin Arnold – FT
Several of Europe’s biggest banks are warning their investors to expect a multibillion- dollar hit from US president Donald Trump’s tax reform, which will reduce their ability to deduct past losses against future tax bills.

Leon Black’s Tax-Overhaul Dilemma Could Alter Wall Street Model
Simone Foxman and David Carey – Bloomberg
New legislation offers traded partnerships options for change; Question whether becoming a corporation is worthwhile taxwise
Leon Black recently posed a question whose answer will determine how profitable the new U.S. tax regime could make Wall Street firms like his Apollo Global Management LLC.

Cold Snap Makes New England the World’s Priciest Gas Market
Naureen S Malik – Bloomberg
Heating fuel use jumps 31% as Chicago faces sub-zero readings; Northeast prices more than triple, hitting early 2015 levels
Nothing like a cold spell to boost the nation’s natural gas demand, and cost.

All That New Shale Oil May Not Be Enough as Big Discoveries Drop
Robert Tuttle – Bloomberg
Cheaper wells boosted output but made big projects too risky; After price drop, companies focus on expansion, not new fields
Three years after causing an oil-price crash, the shale boom may not be enough to meet rising global demand because the industry has cut back so sharply on higher-risk mega-projects.

Former FDIC Chair: Why we shouldn’t ban bitcoin
Yahoo Finance
The nearly 2000% run up in bitcoin’s (BTC-USD) price over the past year, followed by its recent precipitous drop, is stirring the usual calls to regulatory arms.

Exchanges, OTC and Clearing

Shanghai and Shenzhen stock exchanges continue to chip away at Hong Kong’s IPO attractiveness
South China Morning Post
With Shanghai and Shenzhen adopting speedier listing processes and a strong IPO pipeline, the two mainland bourses are set to extend their dominance next year

TSE IR MOVIE SQUARE brings you video clips on listed companies introducing their businesses and messages from top executives. The channel is run under TSE’s official YouTube account.

Blockchain sparks big investment in Delaware stock exchange
Delaware Online
The global intrigue into the software that underpins bitcoin has fueled the digital currency’s recent meteoric rise. It also has prompted a Chinese financial company to buy a 27 percent stake in the Delaware Board of Trade – the New Castle County-funded, startup stock exchange. While the dollar amount of the purchase went undisclosed, Beijing-based Seven Stars Cloud Group said the transaction makes it the largest shareholder of the Board of Trade, also known as DBOT.

Trading on South Africa’s stock market delayed due to technical problems
Reuters Staff
The start of trading on the Johannesburg Stock Exchange was delayed due to technical issues, the exchange operator JSE Ltd. said on Wednesday.


Brussels moves to boost Europe’s fintech sector; Pan-EU licences part of efforts to fight US and Asian dominance of growing industry
Jim Brunsden in Brussels – FT
Brussels will propose pan-EU licences to help some fintech companies operate across the bloc, as it fights US and Asian dominance of the burgeoning industry.

Blockchain pumping new life into old-school tech firms like IBM
Olga Kharif – Bloomberg via Economic Times
Blockchain is getting bigger at Big Blue. Demand for the technology, best known for supporting bitcoin, is growing so much that it will be one of the largest users of capacity next year at about 60 data centers that International Business Machines (IBM) rents out to other companies around the globe. IBM was one of the first big companies to see blockchain’s promise, contributing code to an open-source effort and encouraging startups to try the technol ..

How The Blockchain Is Redefining Trust
Dmitrii Guzhanin – Wired
Around the time when bitcoin and blockchains were starting to catch the attention of the mainstream investment world, a New York-based start?up called Digital Asset Holdings (DAH) was launched. Blythe Masters was at its helm. The Wall Street veteran is knowledgeable about a common problem many banks face: Getting incompatible financial databases to talk to each other. It’s costly, complex, and takes time. While it might seem that traders work at Red Bull speed in lightning-paced environments, the technology used to execute trades is remarkably old- Fashioned and slow.

This May Be Bitcoin’s Moment of Truth; The market is at a crucial juncture in the waning days of 2017.
Mohamed A. El-Erian – Bloomberg
Bitcoin has had a terrific year overall, thanks to a small but dedicated set of believers in the disruptive power of cryptocurrencies who have also enabled many other individual investors to participate in the eye-popping phenomenon. Yet after bitcoin’s value fell by more than a third in just a few days last week, and as exchanges struggle to cope with all the investor activity, the market finds itself at an important juncture — perhaps even a defining one. Either this sharp price correction will act as a catalyst for expanding what, until now, has been quite limited institutional involvement in this market — or it will become a stage in the deflation of a remarkable and historic asset bubble.


Putin Tries to Lure $1 Trillion Home as Sanctions Fear Grows
Henry Meyer – Bloomberg
U.S. penalties getting worse, Russian leader warns lawmakers; New effort to lure funds home includes waiving 13% income tax
Bloomberg’s Henry Meyer reports on Russia’s concerns about further U.S. sanctions.
President Vladimir Putin is using the threat of additional U.S. sanctions to encourage wealthy Russians to repatriate some of their overseas assets, which exceed $1 trillion by one estimate.

World’s Wealthiest Became $1 Trillion Richer in 2017
Tom Metcalf and Jack Witzig – Bloomberg
Richest fortunes rise 23 percent this year to top $5 trillion; Bloomberg Billionaires Index uncovered 67 billionaires in 2017
The richest people on earth became $1 trillion richer in 2017, more than four times last year’s gain, as stock markets shrugged off economic, social and political divisions to reach record highs.


FINRA fines Raymond James $2M for flawed e-mail monitoring system
Jaclyn Jaeger – ComplianceWeek
The Financial Industry Regulatory Authority has fined Raymond James Financial Services $2 million for failing to maintain reasonably designed supervisory systems and procedures for reviewing e-mail communications. In addition, Raymond James has agreed to conduct a risk-based retrospective review to detect potential violations evidenced in past e-mails.

Investing and Trading

Energy Investors: Behold the Miracle of the Tax Law
Jason Zweig – WSJ
What a difference a rate makes. With the signing of the new tax bill into law, the value of some funds investing in energy stocks will go haywire, shooting up by 10% or more. More than 70 mutual, closed-end and exchange-traded funds, with a combined total of $54 billion in assets, specialize in master limited partnerships that handle oil and natural gas. Many of these MLP funds have long been riddled with tax complexities, turning every dollar of MLP income into 65 cents for their investors. As the tax law shifts, those complexities are changing too ó and could take inattentive investors by surprise.

Yield-Starved Investors Giving In to the Demands of Bond Sellers; Demand for leveraged loans is allowing private-equity firms to water down legal safeguards for investors
Christopher Whittall – WSJ
Hellman & Friedman LLC and other investors sought last month to borrow money in the bond market to finance a takeover. The U.S. private-equity firm offered a yield of about 3%, but few of the protections once considered routine.

Biggest market trades that lit up 2017; Cobalt’s rise, Enigma trade, Portuguese bonds, bitcoin, Snap and shorting the dollar
FT Reporters
Investors have enjoyed a banner year, with the FTSE All World index up nearly 20 per cent, but several specific trades generated far more spectacular returns. Here, FT market reporters highlight some of the eye-popping trades that lit up 2017.

Mild Desert Winds Spell Good News for Cocoa Crop in Top Producer
Baudelaire Mieu and Olivier Monnier – Bloomberg
Ivory Coast cocoa regulator increased its main-crop forecast; Rains are likely to result in good harvest in January
A record crop in biggest producer Ivory Coast helped push the cocoa market into a surplus in the 2016-17 season. Prices tumbled and are headed for a second annual decline.

BlackRock Sees Canada Bonds Beating U.S. Again on Poloz Caution
Maciej Onoszko – Bloomberg
TD takes the opposite view, predicting underperformance; Relative pace of rate hikes is key question for 2018
Canadian government debt is poised to beat U.S. Treasuries again in 2018 as the Bank of Canada will probably trail the Federal Reserve in raising rates, according to BlackRock Inc.


Top Israeli broker backs bitcoin options trading
Ron Stein –
IBI Brokerage CEO Julien Assous takes issue with ISA chief Shmuel Hauser and believes cryptocurrency trading is an opportunity for the TASE.

HNA is long-term investor in Deutsche Bank, HNA representative says
Reuters Staff
HNA Group is a long-term investor in Deutsche Bank (DBKGn.DE), the Chinese conglomerate’s representative on the bank’s board told a German newspaper.

Barclays Takes $1.3 Billion One-Time Charge From U.S. Tax Bill
Stefania Spezzati – Bloomberg
Lender says measures positive in future for U.S. earnings; Barclays says ultimate impact of changes still under review
Barclays Plc will take a charge of about 1 billion pounds ($1.3 billion) this year as a result of the recent U.S. corporate tax overhaul driven by President Donald Trump.


China sets new rules on overseas investment for its biggest deal makers
South China Morning Post
Revised system that comes into force in March aims to stimulate foreign deals while closing the door on ‘irrational’ capital outflows

China opens antitrust probe into gas suppliers as shortage drives up prices amid winter’s cold snap; Seventeen companies under investigation since December 20
South China Morning Post
China’s top economic planner is investigating whether natural gas companies, including a unit of PetroChina, violated antitrust laws amid surging prices of the fuel this winter.

High profile Saudis released after graft probe; Businessmen and ex-government employees reach financial settlements with authorities
Simeon Kerr in Dubai and Ahmed Al Omran in Riyadh – FT
Several high-profile Saudi businessmen and former government employees rounded up in a corruption crackdown have secured their freedom after reaching financial settlements with the authorities.

China’s ancient strategies create a new challenge to the west; Beijing’s authoritarian system shows it is able to nurture world-class industries
James Kynge – FT
The US decision to label China a “strategic competitor” confirms what could no longer be concealed: the world’s two most powerful countries are locked in a fervent rivalry. The question now is how damaging the tussle may become both for the two adversaries and the rest of the world.


Port of Rotterdam reveals scale of Brexit challenge; UK will no longer be able to rely on giant Dutch facilities when it leaves EU
Michael Acton in Rotterdam – FT
At the port of Rotterdam, the biggest in the EU, the sheer scale of the bloc’s trade with the rest of the world ó and the infrastructure needed to handle it ó is there for all to see. But the cranes, gantries and port equipment also illustrate the challenge for the UK when it breaks with the bloc in 2019.

Philip Hammond urged to publish Treasury’s Brexit impact studies; Labour MPs write to chancellor saying public have right to see documents examining range of outcomes of Brexit
Anushka Asthana – The Guardian
Philip Hammond has come under pressure to publish another set of hidden documents relating to how a series of possible Brexit outcomes, including no deal, will impact on the economy.

How will the UK’s tech sector fare outside the EU? Brexit Means … Podcast
The Guardian
We’re looking at Britain’s booming, youthful tech sector. Many in the industry are worried that Brexit will make it harder to reach EU customers; harder to find and employ the necessary talent; harder to attract investment from abroad, including from the European Investment Bank and European Investment Fund; and harder to convince international companies to operate in the UK at scale

Let 2018 be the year the liberal counter-revolution against Brexit and Trump is routed once and for all
Tim Stanley – Telegraph
If 2016 was the year of revolutions, 2017 was the year of trying to make them work. In Europe, the British got down to negotiating Brexit. In the United States, the Trump administration got down to governing. But in both countries, the liberal order that these rebellions were meant to overturn remains stubbornly in place. Far too little has changed. The populist revolution must move into its next stage.

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