First Impressions

Christian Nentwich, Duco – Selling Change to Giants

“Many technology companies never make it over the first hurdle. They get so fixated on their technological achievement that they never find a business problem to solve.”

The financial marketplace is in the midst of a technology-led revolution, as innovation and digital advances replace slow and inefficient systems and procedures with newer, faster, simpler and often more scalable ones. Christian Nentwich, founder of tech startup Duco, is a member of this new breed of market disruptors. But as he has learned, there are many, many facets that must come together between an idea, its implementation and, more importantly, monetization of that idea. He shares the lessons he learned along the way, many of which were learned “the hard way.”

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Quote of the Day

“If I am right, the S&P would fall to 550 (points), a 75 percent decline from the recent 2,100 peak. That obviously will be a catastrophe for the economy via the wealth effect and all the Fed’s QE hard work will turn (to) dust.”

Albert Edwards, analyst at Societe Generale, in the CNBC story “S&P will plunge 75% on China deflation: SocGen bear”

S&P will plunge 75% on China deflation: SocGen bear
A falling Chinese yuan will unleash a wave of global deflation that will send the U.S. into its next recession and pull the S&P 500 back down to 550 points, according to a strategist at Societe Generale.

***DA: Every office needs a permabear to trot out on days like today. SocGen has Albert Edwards. John Lothian & Co. has me.

Lead Stories

Bigger, Beerier Bonds Are the New Front in Bond Market Liquidity
Tracy Alloway – Bloomberg
“Mega” is but one superlative that could be used to describe the corporate bond market in 2015.
As CreditSights pointed out in a note published late on Tuesday, record sales of corporate bonds in 2015 were largely fueled by dozens of mega-deals. Some 47 deals worth over $5 billion or more came to market, up from the 28 sold in 2014.

Europe’s Weakening Inflation Outlook Spurs Calls for ECB Action
Bloomberg Business
Analysts at Mizuho International Plc and Royal Bank of Scotland Group Plc stepped up calls for more monetary stimulus as an indicator of the euro zone’s inflation outlook derived from forwards languished near a three-month low.

***DA: If at first you don’t succeed, buy buy again.

Paul, Sanders Join Forces Against Federal Reserve
Emily Cadei – Newsweek
Senators Bernie Sanders and Rand Paul are on opposing sides in the presidential race, but the two candidates lined up together Tuesday on a bill to open the Federal Reserve to more scrutiny. The controversial proposal to “audit the Fed,” as the Paul bill was called, didn’t get the votes to move forward in the Senate. But it showcased a marquee issue that both candidates are emphasizing as they pitch themselves to primary voters.

China to set up unit to coordinate economic and financial policy
China has set up a new cabinet office to coordinate financial and economic policy, a tacit admission that its ad hoc and disjointed policymaking is failing.
China’s market regulator and central bank have come under intense criticism for their fumbled handling of this year’s meltdown on the stock market that reverberated around the globe. Government agencies further incensed investors globally by sending conflicting signals over management of the renminbi.

Wall Street Frets Fed Proposal Will Become $550 Billion Headache
Cordell Eddings and Fion Li – Bloomberg
A Federal Reserve proposal to make the banking system safer may end up forcing the biggest U.S. banks, including JPMorgan Chase & Co. and Citigroup Inc. to raise as much as $550 billion more in the bond market by 2019, analysts and Wall Street lobbyists warn.
That estimate from research firm CreditSights Inc. would be equal to more than four times the amount of bonds the Fed forecasted in October that the financial companies would have to sell to meet the requirements.

Six Ex-Barclays, Deutsche Bank Traders to Stand Trial in 2017
Suzi Ring – Bloomberg
Six defendants accused of conspiring to manipulate a key interest-rate benchmark while working at Deutsche Bank AG and Barclays Plc will stand trial in September 2017 in a London court.

Central Banks

Global monetary policy map
Akin Oyedele – Business Insider
The pros at Deutsche Bank just released a handy map of monetary policy around the world in their “House View” for 2016.
The market anticipates two interest-rate hikes from the Federal Reserve this year, fewer than the Fed’s telegraphed plans for four.

The Necessity of Global Central Bank Divergence
Bloomberg Business
London School of Economics Professor Paul De Grauwe explains why the global economy makes central bank divergence a necessity and the need for governments to step in with fiscal policy. He speaks on “Bloomberg Surveillance.

Dallas Fed’s Kaplan Says Market Swings May Not Reflect Economy
Federal Reserve Bank of Dallas President Robert Kaplan said that while policy makers are watching stock-market swings, the moves may not reflect the underlying economy and officials shouldn’t overreact.

***DA: That was true on the way up as well.

ECB Policymakers Worried Banks Are Moving into Risky Areas
WSJ Pro Central Banking (Subscription Required)
Executive board member Sabine Lautenschläger says supervisors are examining the consequences of low interest rates for European lenders

Swiss Central Bank Ready To Curb Franc Gains
The Swiss franc remains “considerably overvalued,” with Switzerland’s central bank willing to intervene in currency markets if necessary, a top Swiss central bank official said Wednesday. Despite the franc’s strength Swiss companies remain highly competitive due to investments in research and development and a highly-skilled workforce, said Swiss National Bank Vice Chairman Fritz Zurbrügg.

Era of stagnation will make ECB cut inflation target, UBS says
A grim outlook for growth in Europe over coming decades could lead the European Central Bank to lower its target for inflation as early as next year, economists from the Swiss financial group UBS said on Wednesday. In a report on the economic and institutional outlook for Europe until 2050, UBS’s chief investment office also calculated the European Union would need to admit 1.8 million immigrants to match the workforce expansion that has helped the U.S. economy grow over the past decade.

***DA: Now that’s optimism – an ECB report looking out to 2050. Does anyone see the ECB still existing in 2050? 2030? 2020?

Goldman Sachs Sees Governments Coming to ECB Rescue on Stimulus
Bloomberg Business
Mario Draghi may soon find that when it comes to supporting the euro area, the European Central Bank is no longer acting alone. As the ECB president goes all-in on monetary easing to nurture growth and inflation in the 19-nation currency bloc, governments are now heeding his call for more stimulative fiscal policies, according to Goldman Sachs Group Inc. Francesco Garzarelli, London-based co-head of fixed-income strategy at the bank, predicts the measures will boost gross domestic product by 0.4 percentage point this year.

***DA: Another ace up his sleeve.

European Central Bank waiver for Greek debt depends on bailout compliance: Mario Draghi
The Economic Times
Greece needs to show a strong commitment to its bailout programme before the European Central Bank can start buying Greek debt as part of its asset purchase programme, Mario Draghi, the bank’s president, said in a letter on Wednesday.

***DA: Or else what, exactly?


Another Big Year Looms for the U.S. Dollar
Bigger gains may be down the road for the dollar, already one of the world’s strongest currencies so far this year, some analysts believe. Since Jan. 1, the bulk of the dollar’s performance has come against the smaller representatives of the G-10 currencies, such as the British pound, Canadian dollar and Australian dollar, as well as a bevy of emerging market names, a Deutsche Bank ranking shows.

From chaos to calm: one year on from Swiss ‘Frankenschock’
Joshua Franklin and Anirban Nag – Reuters
A year on from “Frankenschock”, when Switzerland’s central bank sent global foreign exchange markets into a frenzy by abruptly ending its cap on the Swiss franc, the currency is one of the most stable in the world.
Sharply negative Swiss interest rates – three month rates are around minus 0.75 percent – and subtle market interventions by the Swiss National Bank have stabilized the franc at around 1.08 per euro.

Dollar Rises as Brent Crude Dips Below $30
The dollar rose against the currencies of commodity-producing countries and pared gains against the yen as prices for Brent crude dropped below $30 a barrel for the first time in more than a decade. In New York afternoon trading, the buck turned higher against the Canadian dollar, Australian dollar and Mexican peso. At the same time, it shed its gains against the yen, a currency that usually attracts buying during periods of market uncertainty.

The perils of China’s currency devaluation
The Guardian
The recent decline in China’s currency, the renminbi, which has fuelled turmoil in Chinese stock markets and drove the government to suspend trading twice last week, highlights a major challenge facing the country: how to balance its domestic and international economic obligations. The approach the authorities take will have a major impact on the wellbeing of the global economy.

Weak Japanese fundamentals likely to put downward pressure on yen
The Japanese yen began 2016 on a high note, as it strengthened against the U.S. dollar on elevated global financial market uncertainties and consequential safe-haven flows. However, inadequate structural reform, enormous public sector indebtedness, hostile monetary easing, and unattractive interest rate differentials relative to other major economies are likely to put JPY back on its prior depreciating trend.

Ex-Barclays Forex `Cartel’ Trader Ashton Loses Identity Case
Suzi Ring – Bloomberg
Former Barclays Plc currency trader Chris Ashton lost a complaint over whether he had been improperly identified in settlements related to the foreign-exchange scandal, handing the U.K. financial regulator its first win in a series of disputes over the issue.

Brace for Asian currency wars: Pimco
Taylee Lewis – Investor Daily
In a new report, Policy Support Amid Sluggish Growth: Asia’s Economies in Transition, Pimco said investors will need to monitor the mix of tools used by policymakers across the region.
Pimco executive vice president and report author, Adam Bowe, said investors will need to answer three key questions going forward: What combination of tools will policymakers use? How successfully will they kick-start and growth and inflation? And how will financial markets react?

Indexes & Index Products

Where Can Smart Beta Take You? Our FA Forum Is Coming to an Internet Near You
Shaun Wurzbach – Indexology: S&P Dow Jones Indices
I am excited about our Miami Financial Advisor Forum, “Where Can Smart Beta Take You?” This educational event will occur at the Epic Hotel in Miami on Feb. 24, 2016. For the first time, we will livestream this financial advisor forum. We hope that by broadening access to this event, more of you will find it possible to partake.
As our title suggests, this FA Forum is geared toward smart beta or factor-based investing. We divided our smart beta education and thought leadership into three areas of interest: The Practitioners, the Gurus, and the Strategist.

BlackRock to SEC: Drop ETFs From New Fund Liquidity Safeguards
David Michaels – Bloomberg
BlackRock Inc., the world’s largest provider of exchange-traded funds, is urging U.S. regulators to exclude the products from potential rules that could crimp investment returns.
A proposal issued by the Securities and Exchange Commission in September would require mutual funds and ETFs to hold more assets that can be easily sold during market routs. The SEC’s plan addresses concerns that investors could be harmed if they try to flee funds that hold a lot of high-yield bonds and other riskier debt. That’s what triggered the collapse of the $788.5 million Third Avenue Focused Credit Fund last month.

The Sources of Volatility and the Challenge for Active Management
Indexology – S&P Dow Jones Indices
If we needed a reminder of the continuing volatility of the world’s financial markets, the first weeks of 2016 obliged us by providing one. What’s often overlooked, especially when volatility spikes, is that there are two distinct sources of volatility. Understanding them can not only enhance our appreciation of market dynamics, but also provides some important insights for portfolio managers.

Contrarian play? Why emerging markets are still a good bet
Emerging markets had a rough time in 2015 and haven’t had a good start to 2016. Over one year, the benchmark MSCI Emerging Market Index has fallen by around 23 percent.

A New ETF For Low Volatility Fans
SPDR Russell 1000 Low Volatility Focus ETF is the latest member of the low volatility ETF fraternity that is not excessively exposed to utilities stocks, an important point to consider at a time when many market observers expect the Federal Reserve to boost interest rates multiple times this year.


China, Russia lead central banks gold buying spree
China and Russia added more gold to its reserves in November, leading the latest global central banks buying spree that saw them adding 55 tonnes of the yellow metal to their coffers, up almost 90% from the prior month. According to the latest World Gold Council’s gold reserve data, released Wednesday, China and Russia were once again the biggest buyers, with 21 tonnes and 22 tonnes added to their respective reserves.

Jeff Gundlach: Gold prices will spike 30%
CNN Money
Gold will shoot up to $1,400 an ounce, according to Jeff Gundlach, the CEO of big bond house DoubleLine Capital. That would be a gain of about 30% from gold’s current price of $1,090. Gundlach thinks gold recently hit a bottom. It’s been rallying since the beginning of the year as investors look for safe havens in the stock market sell-off.

***DA: There’s still time to get in at these low LOW prices.

Year 2016: Analysts continue to remain bearish on gold
The Express Tribune
Brace yourself for another year of uncertainty if you are one of those investors who remain hopelessly in love with gold: the price of the precious metal is nowhere near a rebound in 2016.

***DA: Differing opinions are what make markets.


Conor McGregor could end up with his face on the Irish Euro coin
FOX Sports
UFC featherweight champion Conor McGregor loves to make money and if a petition passes Irish legislature, he could literally become part of his home country’s monetary system with a coin bearing his likeness being put into circulation.

***DA: Does that mean Floyd Mayweather will replace Hamilton on the $10 bill?

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