First Impressions

New Art Just the Latest Amenity in the CBOT Building
John J. Lothian
Glenstar Properties, the owners of the the Art Deco Board of Trade Building, added some new eye-popping art to its second floor lobby that has turned heads and sparked questions. You can’t miss the collection of colorful prints as you exit the elevator lobby after leaving our offices on the 16th floor of the CBOT Building.
The framed posters featuring iconic 1960s and 70s images and others just jump out at you.

A long white wall on the second floor of the CBOT Building has been dressed up with some art prints bought by the CBOT Building manager, and evidently art aficionado, Mike Giese. He bought all the pictures, which happen to be Andy Warhol prints, on Some people think the building sprang for some original art, which is funny since these are popular pop art prints.

Even funnier was one CME Group trader who told a building manager, “Well, who knew the CME had the money to buy this kind of art,” having missed that the CME sold the building in 2012 for $151.5 million.

To read the rest of the article, and to see more photos, click HERE

Quote of the Day

“We’re still all trying to feel around in the dark as to what [negative rates] mean. And that means the chance of an accident is very high.”

Bianco Research president Jim Bianco in the story, “Jim Bianco thinks negative interest rates could cause an ‘accident’ in global markets”

Lead Stories

Banks raise prospect of court action over Fed dividend cuts
Ben McLannahan – Financial Times
One of America’s top banking lobby groups has raised the prospect of suing Congress over its decision last year to slash dividend payments made each year by the Federal Reserve to its member banks. The challenge comes four months after President Barack Obama signed into law a road-repair act that included a cut to the dividends paid on the stock in the Fed that member banks are required to hold. Under the law, effective January 1, the annual dividend paid to the bigger banks would drop from a fixed rate of 6 per cent to the lesser of 6 per cent or the most recent auction rate on the 10-year government bond.

****SD: WSJ’s take here

US banks whistling a happy tune on credit cards — for now
Financial Times
In an era of mobile payments and point-of-sale loan apps, the round-cornered credit card can seem like a throwback. Yet banks are still very keen on those little slivers of plastic with the magnetic stripe. During a generally bleak first-quarter earnings season for the big US banks, cards were a highlight. While executives lamented bad corporate loans to the oil patch and floundering investment banking units, for example, they brightened when talking about the US consumer — and about credit cards in particular.

****SD: Banks got 99 problems, but a credit card ain’t one.

RBS plunges to a £1bn loss on bailout-era costs
The Telegraph
Royal Bank of Scotland’s losses more than doubled to £968m for the first quarter of the year, as it shelled out fees of £1.2bn to the Government, clearing some of the debt from its bailout in 2008. Although bosses insisted the bank was making progress, analysts called its sustained losses and the latest delay to spinning off the Williams & Glyn bank “farcical”.

Eurozone economy finally recovers to pre-crisis levels
The Telegraph
The eurozone “defied pessimism” at the start of the year, as the currency bloc’s economic size finally reached a level it last hit in 2008. Euro area GDP rose at a surprisingly strong 0.6pc in the three months to March, according to Eurostat. The pace of growth was twice as strong as that witnessed in the final quarter of last year.

Credit Suisse’s Thiam Seeks to Reassure Shareholders at AGM
Chief Executive Officer Tidjane Thiam sought to convince shareholders that his strategy for turning around Credit Suisse Group AG will succeed while acknowledging the plan is still very much a work in progress.

****SD: Also, the WSJ’s Inside Credit Suisse, Finger-Pointing and Confusion Over $1 Billion Loss

As Russians Struggle to Pay Bills, Debt Collectors Mimic the Mob
NY Times
They have stripped and sexually abused a woman, severely burned a toddler by firebombing a house and broken a woman’s pinkie as a warning. Gang members, bandits, mobsters? Not exactly. These are debt collectors, a peculiarly Russian variety that is flourishing amid the country’s economic turmoil. As a punishing recession stretches into a second year, people struggling to make ends meet are resorting in growing numbers to borrowing at astronomical interest rates that many cannot possibly afford.

****SD: At a certain point, if you belong to an organization involved in ongoing strong-arm criminal activity, aren’t you no longer mimicking the mob, but in fact becoming a mob? A random interesting tidbit from the piece: “In March… Russians spent over half their income on food, beverages and cigarettes.”

Chinese loans to Africa: Credit limit
The Economist
Chinese loans to Africa generate frenetic commentary. Some say they prop up dictators; others, that they spur development. The figures quoted are often enormous. Visiting South Africa in December, for example, Xi Jinping, China’s president, pledged $60 billion in funding to Africa, mostly in the form of loans and export credits.

Central Banks

The Bank of Japan: When easing gets hard
The Economist
Haruhiko Kuroda added another instance to his record of wrong-footing financial markets this week. Confronted with a rising yen and tumbling inflation, the thinking went, the central-bank governor had little choice but to shore up the credibility of the Bank of Japan (BoJ) with even looser monetary policy. But in the end the BoJ kept its stance unchanged. Markets reacted swiftly after the decision on April 28th: the yen jumped and the Nikkei 225 stockmarket index slumped.

****SD: From the FT, Explaining the BoJ’s reticence

Era of Central Banks Propping up Stock Market Has Come to an End
The Street
“There will be a day of reckoning,” billionaire investor Carl Icahn told CNBC Thursday, adding that he is “extremely cautious” on the U.S. stock market. When the Federal Reserve decided to leave rates unchanged Wednesday, the S&P 500 didn’t respond. The market index has been in some sort of eerie holding pattern for the past week, with a high of just under 2,100 and a low of 2,077.

Dallas Fed cautions on fresh oil bubble as glut keeps building
The Telegraph
The US Federal Reserve has warned that the world is awash with excess oil and starting to run out of places to store the glut, with no sustained recovery in sight for the oil industry until 2017 at the earliest.

Chief executive of ERAFP warns against low interest rates
Financial Times
The chief executive of France’s largest public pension fund has warned that the European Central Bank’s decision to keep interest rates low has put many big retirement schemes in jeopardy. Philippe Desfossés, chief executive of ERAFP, France’s EUR24bn pension scheme for civil servants, says “many pension funds in Europe will implode over the next two to three years” if the central bank’s low interest rate policy continues.

Jim Bianco thinks negative interest rates could cause an ‘accident’ in global markets
Business Insider
Jim Bianco is ill at ease with the state of global financial markets. In an interview with Swiss business publication Finanz und Wirtschaft, Bianco said negative interest rates have brought us into a world that simply makes no sense. Bianco — who runs Bianco Research out of Chicago — said, “We’re still all trying to feel around in the dark as to what [negative rates] mean. And that means the chance of an accident is very high.”

****SD: Given that this is a Business Insider story, check out CNN’s Here’s what Business Insider employees just said about why people are leaving

Fed has no exit plans
Business Insider
There was little surprise in the Fed’s decision not to hike rates at the conclusion of its two-day meeting this week. Surveys of economists had suggested that there was zero chance of the central bank tightening again after the disastrous global market correction in January resulting from the decision to hike on December 16. But the Fed did tweak its message on Wednesday – – it dropped the reference to “global conditions” that were supposed to have stopped a rate hike so far this year. The bottom line was: no rate hike this week, June rate hike is a live possibility, and global conditions are not so worrisome as they were just a month ago.

Asian central banks tinker with policy transmission to rev up growth
Central banks in Asia’s emerging markets are introducing new policy tools to get lenders to cut borrowing costs and move credit more quickly through their slowing economies. Analysts say the recent moves by countries like India, Indonesia and the Philippines will help short-term market rates more closely reflect changes in benchmark policy rates, although desired results may not come as fast as some would like.

Russian central bank holds key rate at 11%
Russia’s central bank held interest rates steady at 11 percent on Friday, in line with expectations, although it signaled that if inflation kept on falling it would cut soon.

Money from Heaven?
Koichi Hamada – Project Syndicate
The world economy is struggling. The single currency is fettering, not freeing, the eurozone; Japan is smarting from the slowdown of America’s normalization of monetary policy; and emerging markets worldwide are suffering the consequences of China’s economic mismanagement. But adverse global conditions, however troubling, should not lead central bankers to neglect the risks of untested policies – above all the “helicopter drops” that many are now proposing.

S.Korea says it will keep policy easy to support economy, structural overhaul
South Korea’s central bank plans to keep monetary policy accommodative for a while, it said in a biannual report on Friday, as the economy grows “very gradually” and inflationary pressures remain low.

Swiss National Bank’s Jordan says still room for policy manoeuvres
The Swiss National Bank has further room to manoeuvre in its monetary policy and will not shy away from using unconventional measures if that is in the country’s interests, its chairman said on Friday.

Regulatory News

Regulators could transform the lending industry by 2017
Business Insider
The lending market in the U.S. could soon change significantly. The Consumer Fianncial Protection Bureau (CFPB) is likely about to propose regulations on U.S. marketplace lenders, such as Lending Club and OnDeck, as soon as late 2017, reports the Wall Street Journal.

Goldman, Morgan Stanley Seek to Plug Holes After Split Verdict on ‘Living Wills’
Ryan Tracy and Justin Baer – WSJ
When U.S. regulators this month announced their verdicts on eight big banks’ “livings wills”—blueprints showing how the institutions would fail without needing a bailout—officials promised more clarity in a process the industry has criticized as opaque.

The Toxic Billion Dollar Goldman Bond Deal that the SEC Disregarded
The SEC inexplicably backed off on an investigation into a disastrous Goldman mortgage bond deal. In early 2012, the Securities and Exchange Commission had Goldman Sachs, and perhaps the rest of Wall Street, in its sights.

Sir John Vickers slams Bank of England for laxity over banks’ safety
The Independent
Sir John Vickers, the architect of the Government’s post-financial crisis banking reforms, has dramatically escalated his battle with the Bank of England over the future safety of the UK’s big banks.

Markit and ISDA Seek to Settle EU Antitrust Probe on CDS
Markit Group Ltd. and the International Swaps & Derivatives Association offered to settle a European Union antitrust investigation into their role in the credit-default swaps industry with pledges to change licensing arrangements.


Yuan Fixings Get More Extreme as Dollar Volatility Grows: Chart
Increased volatility in the dollar against other major exchange rates is prompting China’s central bank to make more extreme changes in the yuan’s fixing.

Hong Kong’s de facto central bank warns fund outflows will come ‘sooner or later’
South China Morning Post
Fund outflow from the Hong Kong dollar will come “sooner or later” so that the currency may again touch the weak side of the trading band under the Hong Kong dollar peg to the US dollar, warns the head of the city’s de facto central bank. Norman Chan, chief executive of the Hong Kong Monetary Authority, said this could happen during “turbulent times” amid expected continuation of global macroeconomic uncertainty and fragile financial market sentiment.

Brexit: What Will it Mean for Currency?
Brexit creates uncertainty on all fronts: while the terms and conditions to be set on future trade agreements are unknown, it is likely that being outside the block, the UK will have less leverage to negotiate favourable trade terms in the future. At a bilateral trade level, trade agreements both with the EU and outside the EU may become more costly.

Argentina Looks to Lift Final Currency Controls in Coming Months
Argentina will aim to lift the remaining restrictions on currency trading in coming months and will only intervene in the market when moves are “unjustified,” central bank President Federico Sturzenegger said.

I’m a Native American activist, and my white ancestor painted Andrew Jackson on the $20 bill
I was shocked when I found out that my ancestor Thomas Sully, a 19th-century artist in Philadelphia, painted the portrait that has graced the American $20 bill since 1928. I had known Sully had painted Andrew Jackson—he painted many famous people at the time, from Thomas Jefferson to a young Queen Victoria—but something about this particular portrait, and its claim to fame, felt different. As my dad, a proud Dakota man likes to say, “He should have shot him, not painted him.”


Goldman Sachs Calls Bonds Expensive as Morgan Stanley Is Bullish
Goldman Sachs Group Inc. called Treasuries overpriced and said the Federal Reserve is poised to raise interest rates, clashing with Morgan Stanley’s forecast for a rally.

Happy anniversary to the Bund tantrum
Financial Times
Happy Bund tantrum anniversary, everyone. A year ago, German bonds began a sell-off — a sickening one for those owning the debt — that drove the 10-year Bund yield from 0.16 per cent to almost 1 per cent in the space of six weeks.

China Bonds Need Pain to Gain
What happens when there are $1 trillion-worth of securities in a market but trading volume is negligible? Nothing… until people decide they want to sell. That’s the situation in China, where the fixed-income market has grown to be the world’s second largest yet where bonds hardly ever change hands.

****SD: Also see Pimco Favors Top-of-Pyramid Bonds as China Lets Zombies Default

For Japanese Government Bonds, Negative Rates Mean Positive Volatility
Three months after the Bank of Japan cut interest rates into negative territory, volatility in the Japanese government bond markets has spiked to the highest levels in at least 15 years. That’s bad news for the pension funds and insurers who buy this debt as safe, steady investments. It could also suggest that liquidity is falling in this massive market.

Indexes & Index Products

House overwhelmingly approves bill to expand distribution of ETF research
Investment News
The House of Representatives overwhelmingly approved a bill this week that would allow wider distribution of research reports about exchange-traded funds. In a 411-6 vote Thursday, the House passed a measure that allows broker-dealers to provide ETF research to clients without the information being considered an unregistered offering.

MSCI Peru ruling threatens to unbalance Frontier index
Financial Times
An impending ruling on whether Peru should be demoted from MSCI’s influential Emerging Markets equity index to its lower tier Frontier benchmark might seem an esoteric matter of little wider import. But, as so often in a world where most money is either managed passively or by active managers who hew closely to their benchmarks, even a seemingly small index reshuffle matters.

FTSE Russell: New Suite Of US ETF Reference And Analytics Data Available From XTF
Press Release
FTSE Russell today announced the availability of a new suite of reference and analytics data to help investors research and evaluate the US exchange traded funds (ETF) market. Acquired by the London Stock Exchange Group (LSEG) in December 2015, the XTF business is operated by LSEG’s Information Services Division, which includes FTSE Russell, a global leader in indexes. The XTF products provide comprehensive and objective ETF coverage delivered through data feeds and customized web solutions that are enhanced by LSEG’s technology infrastructure to provide institutional strength security and performance to customers.

Preferences of Preferred Stock
Indexology, S&P Dow Jones Indices
Preferred stock is a hybrid security that has characteristics of both stocks and bonds. In the capital structure, preferred shares are subordinate to bank loans and senior corporate bonds, but they are senior to common stock. If a company had to file for bankruptcy and the assets of the company were liquidated, preferred shareholders would get paid after bond holders and before common stock holders. This leads to higher recovery rates than common stock, while at the same time offering much lower default rates compared to high-yield bonds.

ETF Flows Show Investors Are Riding the Stock Market Rebound
ETF Trends
After a tumultuous start to the year, exchange traded fund investors have been easing back into the riskier segments of the market, focusing on income generation and some more defensive strategies that may keep the edge off their stock plays.

BitcoinAverage: The Evolution of an Index
“There was no funding involved, it was created initially … as a hobby. I wanted to provide it to the community to do my part for bitcoin,” said Shaun Gilchrist, founder and CEO at BitcoinAverage, whose Global Bitcoin Price Index (GBX) was the first of its kind in the industry and is still the most widely used price source for the cryptocurrency.

Cantor Fitzgerald hires Jefferies ETF specialist Zubin Ramdarshan to run European business
Financial News
Cantor Fitzgerald has made a key hire to oversee its European exchange-traded funds unit, naming the former leader of the business at Jefferies as its regional head.


Gold bugs and the deflation dilemma
The Globe and Mail
Gold just enjoyed one of its strongest quarters in a generation, and some people are getting very, very excited. The World Gold Council, an association of gold producers, is urging investors to double up on – you guessed it – gold. The council’s rationale is simple: Yields on many European bonds have sunk below zero, and savers are looking for other places to stash their money. Gold is an obvious alternative, and the price is likely to climb as a result.

Temples, Trusts Deposit 1,512 Kg Gold Under Gold Monetisation Scheme
Huffington Post
Banks have collected about 1,500 kg of gold from temples and trusts under the Gold Monetisation Scheme (GMS) since its launch last November. Under the GMS, 2015 approximately 1,512 kg of gold has so far been deposited by temples or trusts, Minister of State for Finance Jayant Sinha said in a written reply to Lok Sabha today.

CME Group fines, bars two UAE futures traders over ‘spoofing’
Two futures traders in the United Arab Emirates banned from U.S. commodity markets last month for the disruptive practice known as “spoofing” faced additional penalties from CME Group Inc on Thursday. The Chicago-based futures exchange operator fined traders Nasim Salim $100,000 and Heet Khara $90,000, and permanently barred both from its markets for placing orders in gold and silver futures contracts last year that they intended to cancel before execution.


Unmasking the Men Behind Zero Hedge, Wall Street’s Renegade Blog
Colin Lokey, also known as “Tyler Durden,” is breaking the first rule of Fight Club: You do not talk about Fight Club. He’s also breaking the second rule of Fight Club. (See the first rule.) After more than a year writing for the financial website Zero Hedge under the nom de doom of the cult classic’s anarchic hero, Lokey’s going public. In doing so, he’s answering a question that has bedeviled Wall Street since the site sprang up seven years ago: Just who is Tyler Durden, anyway?

****SD: The drama unfolds further in Zero Hedge’s rebuttal

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