First Impressions

Ray Cahnman’s Top Summer Reads and Must Sees
Jim Kharouf, JLN
Transmaket Group Chairman Ray Cahnman says his firm’s interns and staff are encouraged to read, watch and learn.
Here is his essential summer reading and must-see list of movies and videos. Some of it is core financial reading and viewing but others are more general. The last on the list, “This CEO is out for Blood” could easily be the first and best read of all, an inspiring story about Theranos, a company started by a 19-year-old Stanford University student and her professor, which may well change the face of healthcare in the U.S. and beyond…
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Quote of the Day

“The systemic euro crisis is over. While the euro zone still has issues, it now has a well-oiled machine to deal with them. The vicious contagion risks, which were the hallmark of the euro crisis, can be kept at bay.”

Holger Schmieding, chief economist at Berenberg Bank in London in the story, “ What Crisis? EU Rules on Banks Lauded as Right After All”.

Lead Stories

Argentina loses bid to oust debt dispute mediator
AP
A U.S. judge on Monday turned back an effort by Argentina’s government to remove the court-appointed mediator in the dispute with creditors that triggered a default by the country last week.
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**JK – Always blame the referee.

Goldman Sees End to Narrowing Spreads in Europe Periphery
Lucy Meakin – Bloomberg
As a rally in the euro-area’s higher-yielding government bonds shows signs of cooling, Goldman Sachs Group Inc. joined investors saying the narrowing of yield spreads to German bunds is over.
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Another Stellar Month For SGX Bond Market
Press Release
SGX bond market continued to perform strongly with 51 new bonds listed and S$21.1 billion raised in July 2014. This brings the total number of bonds listed year to date to 310 with total proceeds of S$133.4 billion, a 23% increase compared to 252 bonds listed and 16% increase compared to S$114.7 billion raised in same period last year.
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What Crisis? EU Rules on Banks Lauded as Right After All
Rebecca Christie and Nicholas Comfort – Bloomberg
Portugal’s rescue of Banco Espirito Santo SA may have eased some doubts about Europe’s banking industry by showing investors how the European Union’s thinking has evolved on handling failing lenders.
The decision shielding some creditors spurred a rally in bank stocks and Portuguese assets yesterday as it demonstrated authorities were able to shutter a bank without sparking a fresh bout of market tensions that have roiled Europe since 2009.
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**JK – This is considered progress in Europe.

Peer-to-peer FX catches on
Farah Khalique – Euromoney Magazine
The foreign-exchange benchmark scandal looks set to be a boon for burgeoning peer-to-peer (P2P) currency-exchange platforms, as they capitalize on the demand for transparent and innovative solutions.
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**JK – Also worth watching our interview with Don Davis on peer-to-peer investments.

The Rube Goldberg Machine
Joshua M Brown – The Reformed Broker
Where did this sudden spate of volatility come from? Journalists are pointing to Argentina and traders are citing various negative divergences, but I don’t believe that either of those explanations are legitimate, at least not in terms of the origin. Today I’ll explain the machinations of how the markets are moving now in terms of asset allocation, which quite frankly, is this era’s definitive driving force
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**JK – The argument for faster growth and more volatility to come.

Amazingly, Robert Reich Has Just Had A Good Economic Idea
Tim Worstall, Contributor – Forbes
This is rather a stop the presses moment. We need some film of the young newspaper boys shouting “Extra, Extra, Read all about it!” in the street: for Robert Reich has managed to come up with a sensible economic idea.
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**JK – A global corporate tax story.

Bond Liquidity Falls 70% in Europe as Sales Soar: Credit Markets
John Glover – Bloomberg
Bond dealers made money manager Gary Kirk’s job much more difficult when he tried to sell debt securities at the end of the first half. After they gave him “excuse after excuse” he gave up.
“It was way more difficult than it should have been,” according to TwentyFour Asset Management LLP’s Kirk, who said banks offered prices well below what he expected or said they no longer did business in the notes. “Extracting a bid out of anyone was very, very difficult.”
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Abenomics is working for Japanese women
Matthew C Klein – Financial Times
Japanese Prime Minister Shinzo Abe has said that his country’s women are its “most underutilized resource”. They are much less likely to have full-time jobs than their male counterparts, which helps explain why the average Japanese woman earns 30 per cent less than the average Japanese man.
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Defaulted Dollar Bonds Safer Than Local Debt: Argentina Credit
Camila Russo and Katia Porzecanski – Bloomberg
Even in default, Argentina’s dollar-denominated bonds are proving to be a safer bet than the peso debt that the nation continues to honor.
While Argentina missed a deadline to pay $539 million in interest on its overseas bonds last week, its local-currency notes are getting hit harder on concern the default will weaken the peso as foreigners pull money out of the country and investment dries up. The losses have pushed yields on its peso bonds due 2033 to near the highest since February and 1.1 percentage point above its dollar debt. As recently as June 20, investors demanded a premium to own the overseas securities.
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Argentina v holdouts: plus ça change
Elaine Moore and Miles Johnson – Financial Times
Argentina’s creditors have gone to extraordinary lengths over the years in their attempts to extract payment from the South American country, from detaining a 103-metre-long sailing ship to repossessing the Argentine president’s jet. Now their threats have been realised.
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**JK – Not my boat, anything but the boat!

Central Banks

Kuroda Mistake Shown Up by Draghi, Ex-Soros Adviser Says
Mariko Ishikawa and Kazumi Miura – Bloomberg
Takeshi Fujimaki, a former adviser to billionaire investor George Soros, says Bank of Japan Governor Haruhiko Kuroda might learn a lesson from his European counterpart’s “bold” introduction of negative interest rates.
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Lacker Says Markets May Be Surprised by Pace of Rate Rise
Craig Torres – Bloomberg
Investors may be underestimating the pace at which the Federal Reserve will raise interest rates over the next two years, said Jeffrey Lacker, president of the Federal Reserve Bank of Richmond.
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BOE Underestimating Slack in U.K. Economy, Blanchflower Says
Emma Charlton – Bloomberg
The Bank of England is underestimating the amount of spare capacity in the economy, and weak wage growth should allow it to maintain stimulus, according to former official David Blanchflower.
Policy makers are making “arbitrary downward adjustments to labor market slack” which are “inappropriate,” Blanchflower and David Bell, a professor of economics at the University of Stirling, wrote in a paper published by the National Institute of Economic and Social Research today. The central bank, which estimates slack is between 1 percent and 1.5 percent of output, will release new forecasts on Aug. 13.
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Hong Kong Defends Peg as Sanctions Fuel Russian Cash Flows
Kyoungwha Kim, Vladimir Kuznetsov and Ksenia Galouchko – Bloomberg
Hong Kong’s monetary authority intervened in the foreign-exchange market to curb gains in the local currency as sanctions over Ukraine stoked speculation of an influx of Russian cash.
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Orphaned Inflation Hurting Debt as Erdogan Girds for Vote
Selcan Hacaoglu – Bloomberg
Turkish inflation isn’t going the way central bank Governor Erdem Basci said it would, and investors in lira bonds are paying the price.
Consumer prices jumped 9.32 percent in July from a year earlier, more than any economist forecast in a Bloomberg survey, sending yields on two-year notes up 58 basis points in the biggest increase among major emerging markets yesterday. With inflation moving away from Basci’s 7.6 percent 2014 forecast and his 5 percent target for next year, analysts are questioning whether the central bank can curb prices amid government pressure to keep reducing borrowing costs.
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Currencies

That Snoring Noise? Must Be The FX Traders
Katie Martin – MoneyBeat – WSJ
Something strange is going on in foreign exchange. The market is incredibly quiet. OK, it’s August, typically a quiet time of year for any market, but by any sensible measure, key currencies are in a deep sleep and have been for months, as we wrote back in May.
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Ringgit Is Best Carry Bet Amid Rate-Rise Outlook: Asean Credit
Lilian Karunungan and Elffie Chew – Bloomberg
The odds that Malaysia’s central bank will increase borrowing costs at least once more this year are providing Asia’s best carry-trade returns in the ringgit.
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Indexes & Index Products

U.S. ETF Inflows of $23 Billion at Risk as VIX Rises 34%
Callie Bost and Joseph Ciolli – Bloomberg
The five-year rally that has almost tripled the value of the Standard & Poor’s 500 Index keeps pulling in investors even as signs of strain spread.
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China to launch series of volatility indexes by year-end
Xiao Wang – Risk.net
Volatility benchmarks set to be launched following the start of equity options in China later in 2014, with participants giving mixed views on the benchmarks’ potential to succeed
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Gold

Gold Industry Takeovers Climb to Highest in Three Years
David Stringer – Bloomberg
There’s no sign of a let up in gold industry takeovers as a surge in acquisitions by producers, led by Agnico Eagle Mines Ltd. (AEM) and Yamana Gold Inc. (YRI), has pushed deals to a three-year high.
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Miscellaneous

Bitcoin-Like Money Is Ecuador’s Latest Dollar-Saving Plan
Nathan Gill – Bloomberg
After mortgaging most of Ecuador’s oil and gold to finance spending, President Rafael Correa is planning to create virtual money to pay the nation’s bills.
Congress last month approved legislation to start a digital currency for use alongside the U.S. dollar, the official tender in Ecuador. Once signed into law, the country will begin using the as-yet-unnamed currency as soon as October. A monetary authority will be established to regulate the money, which will be backed by “liquid assets.”
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