First Impressions

Michael Gorham, professor and director, Illinois Institute of Technology – How to Regulate When You Don’t Really Understand the Industry
JohnLothianNews.com

“There’s a lot of problems out there; there’s global warming, there’s the whole Ukraine thing…and then there’s the issue of getting better regulators.”

Michael Gorham, professor and director of IIT Center for Financial Markets at the Illinois Institute of Technology, discusses the regulatory environment in the financial markets. Gorham explains problems regulators have in the industry today and why there are still many things in the industry that the regulators do not understand, such as the issue of Dodd-Frank. He also discusses disruptive and positive forces in today’s market structure, as well as the CFTC’s Technology Advisory Committee (TAC) and what key problems the TAC handles.

Watch the video »

Quote of the Day

“The bubble in ‘junk’ bonds appears to be deflating. The spread over Treasurys of BBB-rated, 7-10 year bonds is currently close to its average of the past quarter of a century – the same could not be said, at least until recently, for the spreads of bonds lower down the credit rung.”

John Higgins, an analyst at Capital Economics in the story, “Has the junk bond bubble deflated?”

Lead Stories

All the Markets Need Is $200 Billion a Quarter From the Central Bankers
Simon Kennedy – Bloomberg
The central-bank put lives on.
Policy makers deny its existence, yet investors still reckon that whenever stocks and other risk assets take a tumble, the authorities will be there with calming words or economic stimulus to ensure the losses are limited.
A put option gives investors the right to sell their asset at a set price so the theory goes that central banks will ultimately provide a floor for falling asset markets to ensure they don’t take economies down with them.
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Morgan Stanley Likes U.S. Treasurys Over German Bunds
Cynthia Lin – MoneyBeat – WSJ
U.S. Treasury prices are near their loftiest levels in more than a year, but Morgan Stanley MS +2.22% thinks there is still room for them to gain.
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Poland criticises eurozone banking union
Sam Fleming in London and Henry Foy in Warsaw – Financial Times
Poland’s central bank governor has criticised the eurozone’s new banking union, saying it would centralise powers to curb booms and busts that are better left to individual member states.
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Has the junk bond bubble deflated?
Leslie Shaffer – CNBC
After this month’s market gyrations sent high-yield bond prices sharply lower, some analysts believe the air has come out of the market.
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Ukraine Election Carries Peril for Dollar Bondholders
Krystof Chamonikolas, Marton Eder and Daryna Krasnolutska – Bloomberg
Ukraine government bond investors are preparing for next week’s parliamentary elections, which polls show will consolidate power with PresidentPetro Poroshenko, by sending yields to record highs.
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Prudential Holds Short-Term Greek Bonds Through Selloff
Eshe Nelson O- Bloomberg
Prudential Financial Inc. (PRU) held on to its Greek government bonds that are due in five years or less even as the nation’s securities last week dropped the most in a year.
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Central Banks

Fed talk, inequality, and the lawless border town between fiscal and monetary responsibilities
Cardiff Garcia – Financial Times
It’s hard to say which was more surprising — the passages in Janet Yellen’s inequality speech last week that appealed to American values, or the topics she chose to omit entirely.
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The world’s best market timers: the Federal Reserve
Howard Gold – MarketWatch
Things were looking grim last week, especially on Wednesday, when the Dow Jones Industrial Average was at one point down by 460.
The CBOE VIX indicator soared to the mid-20s for the first time in two years. Fear was palpable as investors had a classic panic attack.
But then, like the cavalry in those classic John Ford westerns, the Federal Reserve rode to the rescue.
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European Central Bank Considering Buying Corporate Bonds as an Option
Brian Blackstone – WSJ
The European Central Bank is considering purchasing corporate bonds as an option if it concludes that more aggressive measures are needed to pump additional money into the eurozone’s fragile economy and raise inflation from its superlow levels, according to people familiar with the matter.
Such a move doesn’t appear to be imminent as officials gauge the effects of stimulus measures already taken that included record-low interest rates, a new bank lending facility and programs to buy asset-backed securities and covered bonds. No specific plan has been discussed and there is no timetable for when it may be considered, one of the people said.
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A breakthrough plan to make central banking populist
Matt Miller – The Washington Post
If, like me, you’re a seeker of broadly shared prosperity, chances are you’ve been haunted by two nagging policy conundrums.
Conundrum No. 1: Why is fractional reserve banking the only way the central bank can create money in our system? In other words, instead of injecting money into the economy by indirectly goosing bank lending, why can’t the Fed just create money and give it to people directly?
Conundrum No. 2 starts with something we all know: Enormous wealth is being created in this era of globalization and rapid technological change (a good thing), but virtually all of it is ending up in the hands of a few affluent “winners” (a bad thing).
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ECB Said to Expand Covered Bond Purchases From Spain to Germany
Alastair Marsh and Stefan Riecher – Bloomberg
The European Central Bank bought Spanish covered bonds in a third day of asset purchases that has seen it acquire notes from Italy to Germany, according to people familiar with the matter.
The ECB is adding to French and Portuguese securities it bought this week, said the people, who asked not to be identified because they’re not authorized to talk about it. The central bank will reveal the amount of debt purchased on Oct. 27.
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BOE Officials Gloomier on Economy, Minutes Show
Jason Douglas and Jon Sindreu – WSJ
Bank of England officials grew gloomier about the U.K.’s economic prospects in October, citing increasing headwinds from overseas and a slowdown at home, according to minutes of this month’s policy meeting published Wednesday.
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Bank Of England: Minutes Of The Monetary Policy Committee Meeting Held On 7 And 8 October 2014
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Currencies

Currency Wars Evolve With Goal of Avoiding Deflation
David Goodman, Lucy Meakin and Ye Xie – Bloomberg
Currency wars are back, though this time the goal is to steal inflation, not growth.
Brazil Finance Minister Guido Mantega popularized the term “currency war” in 2010 to describe policies employed at the time by major central banks to boost the competitiveness of their economies through weaker currencies. Now, many see lower exchange rates as a way to avoid crippling deflation.
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SNB Ready to Take Further Measures If Needed, Zurbruegg Says
Catherine Bosley – Bloomberg
The Swiss National Bank is prepared to take measures to supplement its cap on the franc, Governing Board Member Fritz Zurbruegg said.
“There’s no discussion, we will with utmost determination make sure that the minimum exchange rate is not questioned, either with unlimited purchases of foreign currency, and if necessary we will take further measures immediately ,” he said in a speech in Geneva late yesterday. “We have a franc that is highly valued.”
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SGX posts solid debut in renminbi futures
Philip Stafford – Financial Times
As debuts go, the launch of Chinese renminbi futures trading on SGX, the Singapore Exchange, on Tuesday was solid.
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BitBeat: Bitcoin’s ‘Chief Scientist’ Does an AMA; BitLicense Comments Flood In
MoneyBeat – WSJ
Gavin Andresen doesn’t know if Satoshi Nakamoto’s ever coming back, and while he is not yet ready to give up his long-held stance that bitcoin is an experiment, the day is coming soon. Those were just a few of the things to come out of his “AMA” (Ask Me Anything) session Tuesday on the popular website Reddit.
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Offshore Yuan Rises to Seven-Month High After GDP Tops Estimates
Lilian Karunungan – Bloomberg
The yuan traded in Hong Kong rose to the strongest level in seven months after the nation posted forecast-beating economic growth for the third quarter.
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Gold

Gold sending wacky signals
Patti Domm – CNBC
Gold may have seen its lows of the year this month, but the path forward is murkier given the strange correlations it has had recently with the rising U.S. dollar and bonds.
Gold futures for December were trading above $1,250 per ounce Tuesday. Gold hit a low of $1,182 per troy ounce, in its first break below $1,200 since December.
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Gold miners’ outstanding forward sales jump 61 pct in Q2 -report
Reuters
The volume of gold sold forward by mining companies jumped 61 percent in the second quarter after Russia’s Polyus Gold added a major new hedge position, an industry report showed on Wednesday.
In their quarterly Global Hedge Book Analysis, released on Wednesday, Societe Generale and GFMS analysts at Thomson Reuters said they are predicting net hedging for the year of 40 tonnes, the most since 1999.
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China’s Shandong Zhaojin Hunting for Global Gold Assets
Chuin-Wei Yap – WSJ
China—Shandong Zhaojin Group Co., one of China’s largest gold producers, is in talks to acquire gold-mining assets in North America and Australia, Chairman Lu Dongshang said Wednesday.
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