First Impressions

Bits & Pieces
by John J. Lothian

The Most Interesting Man in the World is now the Mayor elect of the Village of Fontana, Wisconsin. Congratulations to CQG executive Pat Kenny on winning a “highly” contested election. He was the only candidate, but lots of people dreamed of running against him. Pat Kenny does not run for office often, but when he does…

We had the whole JLN team in the office yesterday for the first time since the FIA Boca Raton conference. It was nice to see everyone. It won’t last, though.

We will be hitting the conference circuit in full force these next few weeks. Next week, Doug will be in Montreal for the ISDA annual meeting. The following week, Jim will be in New York for the CTA Expo. Sarah and I head to Miami for the OIC conference May 6-8. And IDX is just around the corner.

Have you signed up for the FinTech Exchange 2015 event yet? If not, you should do so. It already is a much talked about event.

Remember that May 15 is FFK Day. Did you know that London City workers spend, on average, GBP 10.59 a day on coffee, lunch and miscellany? Futures for Kids (FFK) suggests that, on May 15, bring a sack lunch, make your own coffee, and take the ten-and-a-half quid (about $16) and donate to the organization. Of course, there is no need to wait until next month to click the link and donate..

Quote of the Day

“I feel more like it was in ’04 when every bone in my body said this is a bad risk/reward, but I can’t figure out how it’s going to end. I just know it’s going to end badly, and a year and a half later we figure out it was housing and subprime. I feel the same way now.”

Stanley Druckenmiller, former Chairman and President of Duquesne Capital in the story, “Yes, Worry About the Stock Market”.

Lead Stories

BlackRock’s Chief, Laurence Fink, Urges Other C.E.O.s to Stop Being So Nice to Investors
NY Times
On Tuesday morning, the chief executives of 500 of the nation’s largest companies will receive a letter in the mail that will most likely surprise them.
The sender of the letter is Laurence D. Fink, chief executive of BlackRock, the largest asset manager in the world. Mr. Fink oversees more than $4 trillion — that’s trillion with a “t” — of investments, making him perhaps the world’s most important shareholder.

Size doesn’t matter for equity commissions
By Sarah Krouse, Financial News
Institutional investors are getting a worse deal on the equity trading commissions they pay than previously thought, according to a new study by consultancy Greenwich Associates into an area that is of growing importance to European regulators.

Goldman Has Some Tips for Hedge Funds That Can’t Short Straight
Short selling stocks in the U.S. is sort of like playing the theremin — it’s not exactly a lost art form, but neither is it a very profitable one for many people these days.
A six-year bull market that has tripled the value of the stock market has taken its toll on hedge funds that bet shares will fall. Apart from an occasional master stroke from the likes of Carson Block or Whitney Tilson, the whole practice in general has been somewhat of an exercise in frustration.

Swelling Distressed Bond Market Crashes U.S. Company Debt Party
The Federal Reserve may be putting off raising interest rates from near zero, but the days of cheap money for everyone in credit markets have already come and gone.
The amount of outstanding distressed bonds — those that investors consider most likely to default — has more than doubled in the past year to $121 billion, according to Bank of America Merrill Lynch index data. Prices on the debt have tumbled 2.6 percent in 2015, the biggest decline for the period since the 2008 credit crisis.

Yes, Worry About the Stock Market
Stanley Druckenmiller, the man who broke the Bank of England and made $1 billion in 1992 by selling the British pound with his colleague George Soros, is worried about today’s economy. For Druckenmiller, it feels like 2004, just before the financial crisis, just before the global economy slid into recession. “There is nothing more deflationary than creating a phony asset bubble, having a bunch of investors plow into it and then having it pop,” the investor told the Lost Tree Club in Florida on Jan. 18.

Shenzhen’s Overshadowed Stocks Surge
Housed in a skyscraper with a 160-foot-tall statue of a bull’s head out front is the world’s best-performing stock market this year, a $3 trillion exchange that is little known outside China.
Shares on the Shenzhen Stock Exchange, one of the largest globally, have surged 55% this year, boosted by droves of small-scale investors furiously trading China’s hottest young companies. These businesses are seen as China’s future, especially compared to the debt-laden state-owned giants that trade in the larger Shanghai market, where stocks are up 27%.

Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers
Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers.
At least one Spanish bank, Bankinter SA, the country’s seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.

Block-Hunting Algorithm May Portend European Dark Pools’ Future
John Detrixhe, Bloomberg
European policy makers want to make dark pools revert to their original purpose as places for trading blocks of stocks, rather than venues that break orders into tiny slivers. Algorithms may help turn that goal into reality.

Protesters disrupt hedge fund conference in midtown Manhattan
Roughly 400 hedge fund managers, investors, lawyers and journalists got something that was not on the lunchtime menu at an industry conference on Monday when roughly two dozen protesters interrupted the meal, shouting out prominent names of attendees and demanding better wages at fast-food restaurants.

JPMorgan Chase Profit Rises 12% on Strong Trading
Dealbook – NY Times
JPMorgan Chase delivered stronger-than-expected first-quarter results on Tuesday, thanks to a rebound in some of the big businesses that had been lagging and fueling criticism of the company.

5 Things to Watch in Bank of America’s Earnings Report
Bank of America Corp. is set to report first-quarter earnings before the market opens Wednesday. Here’s what you should watch:

Ackman Says Student Loans Are the Biggest Risk in the Credit Market
by Kelly Bit, Bloomberg
Bill Ackman says the biggest risk in the credit market is student loans.
“If you think about the trillion dollars of student loans we have outstanding, there’s no way students are going to pay it back,” Ackman, who runs $20 billion Pershing Square Capital Management, said today at 13D Monitor’s Active-Passive Investor Summit in New York.

Regulators warn over-the-counter derivatives are out of control
EU and US industry and regulatory figures have warned that the number and nature of repositories listing over-the-counter (OTC) derivatives trades is threatening to blind regulators to market risk.

New Basel Head Sets Worthy Priorities
Mayra Rodriguez Valladares, American Banker
The quality of an organization’s leader and the tone he sets are the most important predictors of whether the organization will reach its objectives. By these measures, the Basel Committee on Banking Supervision is in good hands with recently appointed secretary general William Coen. I have gained invaluable insights into his abilities and experience over several interviews and by observing the pace at which the committee has been releasing important guidelines and finessing existing ones since he took over.

Ex-Governor Will Lead New Fund at Bain Capital
By MICHAEL J. de la MERCED, NY Times
The former governor of Massachusetts, Deval Patrick, has joined the private equity firm Bain Capital as a partner to focus on socially oriented investments, a person briefed on the matter said on Monday.

Investors pile into eurozone inflation bonds
Joel Lewin, FT
Investors are pouring money into exchange traded funds tracking inflation-linked eurozone bonds at the quickest pace in five years, highlighting a dramatic shift in inflation expectations driven by the launch of quantitative easing.

Citigroup Shuffles Top Ranks; Forese is named sole president, Bird to oversee global consumer bank
Citigroup Inc.’s chief executive shuffled top management across three continents Monday, appointing a clear No. 2 and naming a rising star to head the bank’s consumer unit.

J.P. Morgan Makes Senior Promotions in Europe
J.P. Morgan has handed Viswas Raghavan, its head of banking in Europe, the Middle East and Africa, the additional role of deputy chief executive of corporate and investment banking in the region. It follows strong performance in 2014 when growth in revenues in the unit EMEA beat all other regions.

Central Banks

Fed official warns ‘flash crash’ could be repeated
Robin Wigglesworth in New York, FT
A senior Federal Reserve official has warned that last autumn’s “flash crash” in US Treasuries could happen again due to the changing nature of the US government debt market, and urged banks, investors and exchanges to adopt a revised set of guidelines in response to the turmoil.

ECB Stimulus Lifts Lending to Companies
The European Central Bank’s ample stimulus measures are boosting lending to companies, a report Tuesday from the ECB signaled, suggesting the bank’s recently launched EUR1 trillion ($1.06 trillion) asset-purchase program is already bearing fruit.

Will Mario Draghi Leave the ECB Without Ever Raising Rates?
Here’s one way of measuring how troubled Europe’s economy is: Investors are betting Mario Draghi will complete his eight-year term as head of the European Central Bank in 2019 without ever raising interest rates.
Money-market derivatives indicate the ECB won’t increase its key rate from 0.05 percent until December 2019 — two months after Draghi’s tenure is scheduled to end, according to Deutsche Bank AG economist Torsten Slok.

Instead of an audit, maybe the Federal Reserve needs a stress test
Every year, the Federal Reserve takes it upon itself to conduct stress tests of the nation’s biggest banks, measuring them for how well they would hold up under the weight of another crisis the likes of which engulfed the financial system in 2008 and 2009.
The results purport to give a clear picture of the financial system’s health.


Money Market Abandons Logic in Denmark After Currency Sinks
by Frances Schwartzkopff
The Danish krone is close to its weakest in 14 years and money-market traders are predicting the central bank will need to raise rates in 2015 to defend its euro peg.

5 Fragile Emerging Currencies As Treasury Yields Rise – Emerging Markets Daily
In its spring outlook for emerging markets, Morgan Stanley contends that challenges will be significant in a world where risk is moving from deflation to reflation.
Here are three key points from James Lord, a global emerging market strategist at Morgan Stanley:

Indexes & Index Products

Nasdaq Record-Watch Is Back On
The Nasdaq Composite has been rising on Monday morning, lately up about 16 points, or 0.3%, at 5012. The move has taken the index back over the 5000 mark for the first time since two brief forays in March and has put the all-time record back on the radar.

Family of Global Sovereign Inflation-Linked Bond Indices Launched by S&P Dow Jones Indices
As investors grow increasingly concerned about inflationary issues across developed and emerging markets, S&P Dow Jones Indices (S&P DJI) today announced the launch of a new family of Global Inflation-Linked Sovereign Indices to effectively measure inflation-linked country debt within these classifications. The launch of the S&P Global Sovereign Inflation-Linked Bond Indices is part of S&P DJI’s global initiative to expand its fixed income index offerings globally across more bond types.

Is it possible for fund managers to beat the stock market?
The Irish Times
Nearly anyone with money in the stock market since 2009 has benefited from the great bull market run. But compared with the overall market, most actively managed stock mutual funds haven’t performed very well or very consistently.

Often Overlooked: Systematic Rebalancing Key To Smart Beta
John Fererer, Invesco, in Seeking Alpha
The systematic rebalancing of smart beta indexes eliminates emotion from the allocation process

iShares MSCI China A UCITS ETF launched on Xetra; ETF offers access to Chinese A-shares
Deutsche Boerse
A new iShares ETF from BlackRock’s product offering has been tradable in Deutsche Börse’s XTF segment on Xetra since Tuesday.

A Tale of Two Benchmarks: Benchmark Selection
S&P Dow Jones Indices
This is the fourth post in a series of blog posts relating to the in-depth analysis of performance differential between the S&P SmallCap 600 and the Russell 2000.
The difference in returns between the two indices highlights the fact that investors should be aware that index construction differences can have a meaningful impact on returns.


After Gold Heist, Canadian Mining CEO Says Company Had Good Relations With Mexican Cartels
Last Tuesday McEwen Mining Inc. (NYSE:MUX) reported that a commando unit of eight masked heavily-armed robbers walked away with an estimated 900 kilograms of gold-bearing concentrate containing approximately 7,000 ounces of gold, worth $8.5 million at current prices, from its El Gallo mine in the Northern Mexican state of Sinaloa. McEwen Mining said that the crime is being “vigorously investigated” by the Mexican authorities.

Why Nothing’s Changed for Gold Investors
Christos Doulis, mining analyst with PI Financial, hopes for the best but plans for reality. The bear market in precious metals is well into its fourth year and could persist into 2016. In this interview with The Gold Report, Doulis says he remains hopeful that this is the year things take a positive turn, but in case we see more of the same, he recommends a few low-cost producers with saintly management teams that keep delivering on promises.

Separating The Precious Metals Saints From The Sinners – (RIOM), Tahoe Resources, Inc. (NYSE:TAHO)
The Gold Report: In September 2014, you told us that investors needed to own bulletproof, low-cost producers that can survive lower gold prices. What is your investment thesis for this point in the bear market?
Christos Doulis: Unfortunately, not much has changed. We certainly do not appear to be in a bull market for gold. All of us would like to see higher prices. They may come at some point in the future but no one knows when that will be. So in the short and medium term, I would continue to recommend owning the lower-cost producers in order to protect oneself from the chances of insolvency.

Is your bullion in the bank?
Resource Investor
The highly-organised Easter weekend safety deposit boxes raid at a facility in Hatton Garden, London, demonstrates once again that holding tangible assets outside of the fragile banking system is a risky exercise, if the manner in which those assets are stored is not thoroughly secure and fully insured.
While many of those who stored valuables in the boxes were jewellers, reports are emerging of how some of the victims had their entire life savings, including cash and bullion, in boxes which they believed to be secure. Many had no insurance partly because they could not afford the extra cost and partly because they were convinced their property was secure in the Hatton Garden facility.


Broker Lost at Sea? No, Just Dodging FINRA Complaint
BY MARGARIDA CORREIA, Bank Investment Consultant
A broker’s desperate plan to escape legal issues by faking his disappearance at sea collapsed on Sunday when authorities finally tracked him down.

One Company’s New Minimum Wage: $70,000 a Year
NY Times
The idea began percolating, said Dan Price, the founder of Gravity Payments, after he read an article on happiness. It showed that, for people who earn less than about $70,000, extra money makes a big difference in their lives.
His idea bubbled into reality on Monday afternoon, when Mr. Price surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of even the lowest-paid clerk, customer service representative and salesman to a minimum of $70,000.

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