First Impressions

Rick Tomsic, Tradovate – Building with Vision

“You don’t need 20 years in an industry to have vision. Some of the best ideas come from a unique vantage point. Your vantage point… it’s not jaded. You don’t know how futures technology may be used. You may look at it from a fresh alternative.”

The first step down an unknown path takes guts. But if you’ve calculated your risks, you have a chance for outsized rewards. For Rick Tomsic, CEO of Tradovate, that step meant leaving an established position in a managerial program for an eat what you can kill broker gig. A step further down the road and Tomsic occupied a 12 foot by 12 foot office in a house sporting a gigantic satellite on its roof, sweating buckets due to the large monitors while working his 10 phone lines. But it was what he needed to do to fulfill his eventual goal of building trading technology. In this video, Tomsic imparts the need to maintain your drive by both having fun and maintaining your vision.

Watch the video at »

Quote of the Day

“At the local level, I’m not sure bank employees see themselves as responsible for big initiatives, like enforcing the Bank Secrecy Act. They’re just sitting in a local branch serving the nice folks who come through the door.”

Cliff Johnson, chairman of the MacArthur Justice Center at the University of Mississippi School of Law, in the story, “Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards”

Lead Stories

‘Bond King’ William Gross Sues Pimco Over Dismissal
Nathaniel Popper – NY Times
The man known as the bond king, William H. Gross, is suing the company that he built into one of the largest asset managers in the world, providing his own colorful version of an ugly feud that led to his departure last year.

Why the Ride up for Interest Rates Could Be Much Bumpier Than the Road Down
Tomas Hirst – Bloomberg
Global interest rates have been in decline for the past 30 years, but a growing number of economists argue that this could soon be about to change.
As a recent presentation by Charles Bean, president of the Royal Economic Society, former deputy governor at the Bank of England, and professor at the London School of Economics, illustrated, the world real interest rate (or the “neutral rate”) has fallen from around 4 percent in the early 1990s to around zero today.

The global economy is in serious danger
Lawrence Summers – The Washington Post
As the world’s financial policymakers convene for their annual meeting Friday in Peru, the dangers facing the global economy are more severe than at any time since the Lehman Brothers bankruptcy in 2008. The problem of secular stagnation — the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies — is growing worse in the wake of problems in most big emerging markets, starting with China.
This raises the specter of a global vicious cycle in which slow growth in industrial countries hurts emerging markets, thereby slowing Western growth further. Industrialized economies that are barely running above stall speed can ill afford a negative global shock.

Redemption Risk of Bond Mutual Funds and Dealer Positioning (Part 5 of 6)
Tobias Adrian, Michael Fleming, Or Shachar, and Erik Vogt – Federal Reserve Bank of New York
Market participants have recently voiced concerns that bond markets seem to become illiquid precisely when they want to sell bonds. Some possible reasons for a decline in corporate bond market liquidity in times of stress include the increasing share of corporate bond ownership by mutual funds and the reduced share of corporate bond ownership by dealers. In this post, we examine the potential effects of outflows from bond mutual funds and the role of dealers’ positioning in corporate bonds.

My Plan to Prevent the Next Crash
Hillary Clinton – Bloomberg
Seven years after the financial crash, despite important new rules signed into law by President Barack Obama, there are risks in our financial system that could still cause another crisis. Banks have paid billions of dollars in fines, but few executives have been held personally accountable. “Too big to fail” is still too big a problem. Regulators don’t have all the tools and support they need to protect our economy. To prevent irresponsible behavior on Wall Street from ever again devastating Main Street, we need more accountability, tougher rules and stronger enforcement. I have a plan to build on the progress we’ve made under President Obama and do just that.

Harvard, Goldman Sachs, Venture Capital…Fugitive
Anupreeta Das and Jean Eaglesham – WSJ
A boyish 43 years old, Iftikar Ahmed ticked every box of the immigrant success story, going from Harvard Business School to Goldman Sachs Group Inc. and then landing as a partner at one of the oldest venture-capital firms in the country. He and his wife owned a mansion in Greenwich, Conn., and two apartments on Park Avenue in Manhattan, and gave large sums to local and Indian charities.
Yet before Mr. Ahmed fled the U.S. in May, he allegedly stole $65 million through a series of frauds that prosecutors and regulators said became increasingly brazen over the years and that exploited the trust-based culture of the venture-capital firm, Oak Investment Partners. Regulators said Mr. Ahmed began to commit fraud within months of joining Oak in 2004.

Is the US slowdown for real?
Gavyn Davies – Financial Times
In the aftermath of the supposedly “weak” US employment data published last week, investors seem to have shifted their assessment of the likelihood of the US Federal Reserve tightening interest rates by December — and also of the extent of tightening in the next two years.

China’s bond market bubble may be unsustainable
Jing Yang – South China Morning Post
The equity rout has been a boon to China’s bond market. As fears linger over stocks, yield-hungry capital has headed into bonds, building a bubble that analysts say cannot be sustained. China’s prodigious bond market, the third-largest in the world after US and Japan, has been aided by several factors and started to take off this year.

Morgan Stanley Bond Team Faces the Question: Can Fed Avoid QE4?
Wes Goodman and Daniel Kruger – Bloomberg
A year that started with almost everyone calling for the Federal Reserve to raise interest rates is drawing to a close with one of the world’s largest bond dealers saying there’s increasing chatter about the need for additional stimulus.

The Mirage of Structural Reform by Dani Rodrik
Dani Rodrik – Project Syndicate
Every economic program imposed on Greece by its creditors since the financial crisis struck in 2009 has been held together by a central conceit: that structural reforms, conceived boldly and implemented without slippage, would bring about rapid economic recovery. The European Commission, the European Central Bank, and the International Monetary Fund anticipated that fiscal austerity would be costly to incomes and employment – though they significantly underestimated just how costly. But they argued that long-delayed (and much-needed) pro-market reforms would result in a compensatory boost to the Greek economy.

China is selling off U.S. Treasury debt. Should you be worried?
Jordan Weissmann – Slate
Fearmongering politicians and writers love to wave around the idea that China’s government could one day wage war on the American economy by simply selling off its massive stockpile of U.S. Treasury debt. Sometimes, their message is a little more nebulous than that—the famous Chinese professor ad from the 2010 midterm elections merely hinted that we’d end up being enslaved to Beijing thanks to our borrowing habits while eliding over the details of exactly how that might come to pass. But the basic notion that China has financial power over the U.S. simply because it’s one of our top lenders is both oft-repeated and irritatingly sticky: Last month, the Pew Research Center reported that 89 percent of Americans thought “the large amount of American debt held by China” was either a somewhat or very serious problem.

These Are the Juiciest Nuggets From Bill Gross’s Lawsuit Against Pimco
Tracy Alloway – Bloomberg
Bill Gross is suing Pimco and its parent company Allianz for “hundreds of millions of dollars,” Bloomberg reports on Thursday. The complaint alleges Gross was wrongfully pushed out as the bond giant’s chief investment officer by a “cabal” of executives seeking a bigger slice of the bonus pool, but there’s plenty of other meat to chew on in the full complaint.

Deutsche Bank Looming Bonus Hit Seen Sparking Senior Departures
Ambereen Choudhury – Bloomberg
Deutsche Bank AG co-Chief Executive Officer John Cryan indicated that an unexpected third-quarter loss of about 6.2 billion euros ($7 billion) will probably hurt bonuses, in a further blow to the shrinking securities unit as the lender weighs thousands of job cuts.

Credit Suisse prepares substantial capital raising
Patrick Jenkins and Ralph Atkins – Financial Times
Tidjane Thiam, Credit Suisse’s new chief executive, is preparing to launch a substantial capital raising when he unveils his strategic plan for the bank in two weeks’ time, according to people briefed on the plan.

Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards
Neil Weinberg – Bloomberg
The U.S. requires banks to know their customers. Looks like several big ones, including Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co., may have missed getting acquainted with Daniel Fernandes Rojo Filho.

FIA Releases SEF Tracker Report for August
This issue shows average daily volume through August 2015 for interest rate, credit default and foreign exchange products traded on swap execution facilities. In the latest month, trading volume averaged $371.77 billion per day, down from $396.18 billion in July but up from $284.56 billion in August 2014. On a year-over-year basis, most of the increase came in the interest rate sector; trading of foreign exchange products was roughly the same and credit trading was lower in August than a year ago. This issue also contains an updated spreadsheet with weekly data on the total notional volume traded on SEFs.

For Goldman, Success in Social Impact Bond That Aids Schoolchildren
Nathaniel Popper – NY Times
Financial results at Goldman Sachs are going to look a little bit better this quarter because of the educational success of 100 or so kindergarten pupils in Utah.
The students were part of a relatively new financial experiment in which Goldman put up money to pay preschool costs for students who had been expected to need special education services.
When the students were tested this year — after a year in preschool — and found not to need extra help, the State of Utah paid Goldman most of the money it would have spent on special education for the children.
The payment represented the first time a so-called social impact bond paid off for investors in the United States.

Central Banks

Quantitative frightening
The Economist
A defining feature of the world economy over the past 15 years was the unprecedented accumulation of foreign-exchange reserves. Central banks, led by those in China and the oil-producing states, built up enormous hoards of other countries’ currencies. Global reserves swelled from $1.8 trillion in 2000 to $12 trillion by mid-2014. That proved to be a high point. Since then reserves have dropped by at least $500 billion. China, whose reserves peaked at around $4 trillion, has burnt through a chunk of its holdings to prop up the yuan, as capital that had once gushed in started to leak out. Other emerging markets, notably Russia and Saudi Arabia, have also called on their rainy-day stashes.

Minutes Show Fed Leaders Delayed Rate Hike Over Global Risks
Christopher Condon – Bloomberg
Federal Reserve officials put off an interest-rate increase in September because of growing risks to their outlook for economic growth and inflation, mainly from China, even as they continued to say they were on track to raise the target later this year.

FRB: Summary of Economic Projections
Federal Reserve
Minutes of the Federal Open Market Committee

Account of the monetary policy meeting
European Central Bank
Account of the monetary policy meeting

IMF boss: build stronger buffers against volatile markets
Phillip Inman – The Guardian
The boss of the International Monetary Fund has urged global policymakers to build stronger buffers against volatile financial markets in a “rapidly changing and uncertain world”.

Former IMF chief economist backs ‘people’s QE’
Lisa Barrington – Reuters
“People’s QE” could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the International Monetary Fund, said on Wednesday.

Interest rates left unchanged amid fears emerging market slowdown could hit UK
Peter Spence – The Telegraph
Weakness in emerging market economies could dampen growth in the UK, the Bank of England warned as it announced its decision to keep its interest rates on hold.


China’s Currency Fix Turns Into More Volatility Everywhere Else
Lucy Meakin and Liz McCormick – Bloomberg
China’s record draw on its foreign-exchange reserves is proving to be a catalyst for exaggerated price swings in currency markets around the world.
The People’s Bank of China slashed its holdings by the most ever last quarter to prop up the yuan after its shock devaluation in August. It’s burned through close to half a trillion dollars since the middle of last year, equivalent to twice the size of Greece’s economy and draining a key source of liquidity from world markets.

Trans-Pacific Currency Deal Puts Yellen’s Fed in the Spotlight
Kasia Klimasinska – Bloomberg
As part of the Trans-Pacific Partnership deal, emerging markets want to know what Federal Reserve Chair Janet Yellen is thinking.
As a sidebar to the largest trade pact in two decades, the U.S. and 11 other Pacific Rim countries agreed not to manipulate foreign-exchange rates and to consult on monetary policies.

Bitcoin Extortion – A Looming Crisis for the Financial Sector
Jay-R Gatdula – Finance Magnates
Bitcoin has been making waves in terms of usage – unfortunately, not in a direction that most supporters of its adoption would generally recommend. There is a growing concern that the unique traits of the cryptocurrency make it highly susceptible to extortion, and there is no denying that the finance and banking sectors are viable targets. The attacks have begun, starting with reported cases of Hong Kong and Australian websites suffering unforeseen cyber-attacks fairly recently.

Best Forecasters of World’s Worst Currency See More Brazil Pain
Paula Sambo and Filipe Pacheco – Bloomberg
Brazil’s real is the worst-performing major currency this year. Ask the top-ranked forecasters and they’ll say it’s set for more losses.

Secret printing presses making Isis currency seized by Turkish police
Caroline Mortimer – The Independent
Turkish authorities have seized an illegal mint making currency for Isis.
Pressing equipment and dozens of newly minted coins were seized by police in the southeastern city of Gaziantep near the border with Syria during a raid on Wednesday morning.

Indexes & Index Products

London Stock Exchange sells Russell Investments for $1.2bn
John Ficenec – The Telegraph
The London Stock Exchange Group is to sell the asset management arm of the Frank Russell investment firm it bought last year.

Market rules behind Aug ETF trading issues -BlackRock
Trevor Hunnicutt – Reuters
U.S. stock exchange rules designed to protect investors from market routs backfired on Aug. 24, exacerbating a selloff in exchange traded funds, BlackRock Inc said in a report published Wednesday.

Supporters hope for addition of mainland company shares to MSCI index
Tanzeel Akhtar – WSJ
Investor concerns over China’s economy reached a fever pitch this summer as China’s stock market flailed. Despite the selloff, some proponents of China exchange-traded funds are steadfast.

Value ETFs May Get Their Day In The Sun
Given all the talk about market volatility this year, it might be surprising for some investors to learn that the momentum factor has outpaced the value factor. For example, the Russell 1000 Value Index is being soundly thumped by the S&P 500 and the Russell 1000 Growth Index.

Santiago Exchange And S&P Dow Jones Indices Launch First Chilean Sustainability Index; Agree To Explore Broader Indexing Agreement
Bolsa de Santiago (“Santiago Exchange”) and S&P Dow Jones Indices (“S&P DJI”) announced today the launch of the first sustainability index in Chile. The Dow Jones Sustainability Chile Index is the first of its kind in Chile using the Dow Jones Sustainability Indices’ methodology and the first to use the Santiago Exchange’s blue chip IPSA Index (Indice de Precios Selectivo de Acciones) as the underlying universe.


Peru’s Illegal Gold Mining Camps Up in Flames
Kenneth Hughes – Bloomberg
The Peruvian government has stepped up raids on illegal gold mines in this remote area of the Amazon, in Puerto Maldonado. Police explosives experts are authorized to destroy the mining equipment after confirmation from Peru’s Mines Ministry that the site is indeed illegal. Impounding the equipment isn’t an option, as most of the sites are deep in the jungle and the legal process is lengthy and costly.

Mining stocks surge as end of commodity rout called
Frik Els –
Investors returned to the metals and mining sector in a big way on Wednesday after an analyst report called a bottom in the commodities rout.


Goldman Sachs Earnings Are Moving to Twitter
Justin Baer – WSJ
Goldman Sachs Group Inc. is going wire-less.
The Wall Street firm plans to disseminate its quarterly earnings statement next week through its website and Twitter feed, eschewing the independent business wires that for decades have been the preferred medium for sending out corporate news releases.

Carlyle and Banque Pictet sketch out big returns from art market
Henny Sender – Financial Times
Carlyle and Banque Pictet are creating a venture to provide financing to the art market as private equity groups reach into fresh corners of the financial world in their quest to generate high returns.

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