First Impressions

Accountability: How S&P lost all respect for itself
By Jim Kharouf

There are a thousand lawyer jokes for this one. Standard & Poor’s, in an Australian court yesterday, argued that its ratings should not be taken so seriously.

Still in the wake of the global financial meltdown, there has been little accountability and even less humility from the financial sector about the roles they played and damage they inflicted. S&P, which basically tacked on AAA ratings on lousy products and collected huge fees for it, is now is arguing that those ratings really don’t mean much at all.

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Quote of the Day

“The entry of a bank into resolution should not in itself be an event of default which allows counterparties to start accelerating contracts and triggering cross-defaults. You would get what you saw in Lehmans — huge amounts of uncertainty and an uncontrolled cascade of closeouts and cross defaults in the market.”

Andrew Gracie, executive director of the BOE’s special resolution unit in the story, “Derivatives Priorities in Bankrutpcy: A Hobson’s Choice?”

Lead Stories

Bond Market in China May See First Local Default
NYTimes.com
Zhou Xiaochuan, the longtime head of China’s central bank, has tended not to mince his words when it comes to the potential dangers in his country’s immature market for corporate debt.
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**JK – Interesting factoid: China’s corporate bond market went from RMB 500 billion in 2005, to RMB 8.5 trillion ($1.4 trillion) today.

Japan Said to Be Ready to Impose Bitcoin Rules
HIROKO TABUCHI – NYTimes.com
Japan is drawing up a plan to regulate Bitcoins, officials said Wednesday, including clauses the Nikkei business daily said would tax Bitcoin transactions and ban banks and securities firms from handling the digital currency.
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S&P ratings “like car reviews”
LEO SHANAHAN | The Australian
STANDARD & Poor’s has compared its credit ratings to Top Gear car reviews and weather reports that should be used only as a guide as it defends a post-global financial crisis lawsuit being watched around the world. In its appeal against a ruling that found S&P liable for tens of millions of dollars after it gave its coveted AAA rating to toxic financial products, lawyers for the agency told the Federal Court in Sydney yesterday “triple A does not mean anything hanging out there as a concept”.
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***JB: It is not like a car review which is largely subjective. It is more akin to a crash test review. People rely on the crash test data and are not expected to go out and perform their own crash tests.

Russian bond deals on ice as banks assess investor mood
Reuters
Russian companies are putting plans for bond deals on hold while banks assess the impact on investor demand of a slump in financial markets following Russia’s military intervention in Ukraine.
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Quest to trigger inflation has failed
Satyajit Das – FT.com
The spectre of disinflation or deflation now haunts financial markets. Authorities have relied on expansionary fiscal policy, low rates and quantitative easing to create growth and inflation to manage the high levels of debt and related problems in the aftermath of 2007/08.
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Latin America: Argentina recalibrates
Jason Mitchell – Euromoney magazine
Peso and exchange reserves have taken a tumble, interest rates have spiked and the money supply has tripled, yet analysts remain confident the economy is fundamentally sound. Can president Kirchner get full control, or will she leave it to the next government?
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Derivatives Priorities in Bankrutpcy: A Hobson’s Choice?
Streetwise Professor
And now for something completely different . . . finance. The Bank of England wants to put a stay on derivatives contracts entered into by an insolvent bank, thereby negating some of the priorities in bankruptcy accorded to derivatives counterparties:
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Bonds see burst of CoC clauses to soothe wary investors
Reuters
Six of the eight investment-grade corporate bonds that priced Tuesday included change-of-control (CoC) language, as wary investors demand more protection after some recent close calls.
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BOE Suspends Staff Member in Forex Probe
WSJ.com
The Bank of England said Wednesday that it has suspended a member of staff in relation to an investigation into whether its officials “were informed of manipulation in the foreign exchange market or the sharing of confidential client information.” The central bank didn’t name the suspended staff member.
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One-day switch goes mainstream
Edward Russell-Walling – Financial News
While liability management exercises, which typically swap one form of debt for another, make sense for sovereigns with improving credit, many are put off by the extended timetable and its associated risk. There is a solution, however, which is set to grow in popularity.
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Falcons in the gyre, or something. A second coming and how Pimco works
Dan McCrum | FT Alphaville
Given that a certain Secretariat of the world’s biggest bond fund has attracted some attention of late, lets give the newest investment outlook from Pimco’s Bill Gross the once over.
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Central Banks

Top official frets Fed will wait too long to tighten
Reuters
A hawkish Federal Reserve official said on Tuesday he questions whether his fellow policymakers will have the “courage” and “will” to raise interest rates when the time is right.
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Bank of Canada Keeps Neutral View on 1% Rate
Greg Quinn – Bloomberg
Bank of Canada Governor Stephen Poloz kept his main interest rate unchanged and reiterated the next move depends on the progress of economic data after early signs of faster growth and inflation.
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RBA’s Stevens makes things unduly clear on rates position
The Australian
RESERVE Bank governor Glenn Stevens is in terrible danger of breaking the golden rule of central bankers.
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What Does the ECB’s ‘Sterilization’ Program Do?
Brian Blackstone – MoneyBeat – WSJ
When the European Central Bank next meets, this Thursday, all eyes will be on president Mario Draghi’s catalog of policy tools. Expectations run the gamut from no change in rates and liquidity measures to cuts in both the main lending rate and deposit rate (the latter is currently zero).
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Bernanke enjoys ‘fruits of free market’ with first post-Fed speech
Reuters
Ben Bernanke earned more in 40 minutes on Tuesday than he made all of last year as head of the U.S. Federal Reserve.
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Currencies

Deutsche Bank, UBS Lead Foreign-Exchange Trading, Greenwich Says
Andrea Wong – Bloomberg
Deutsche Bank AG (DB) and UBS AG grabbed the biggest share of global currencies trading last year as the top four dealers tightened their grip on the $5.3 trillion-a-day market, Greenwich Associates said.
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Daily FX volumes on EBS dip in Feb after strong start to 2014\
Reuters
Average foreign exchange spot volumes traded on the EBS platform fell 5 percent in February from January, parent company ICAP said on Wednesday.
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Decline of yuan-way bets triggers financial stability fears
Simon Watkins – Euromoney magazine
The longstanding one-way bet on USDCNY has been in disarray, but worse might be to come, as China looks to its FX regime to cope with credit issues, and likely defaults this year, threatening volatility in the structured-product market.
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BOE Suspends Employee as Notes Show Currency Concerns From 2006
Scott Hamilton, Gavin Finch and Liam Vaughan – Bloomberg
The Bank of England suspended a staff member and published records showing concerns about risks of benchmark currency-rate manipulation were raised in meetings as early as July 2006.
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Bitcoin bank Flexcoin shuts down after theft
Reuters
Bitcoin bank Flexcoin said on Tuesday it was closing down after it lost bitcoins worth about $600,000 to a hacker attack.
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The Most Dangerous Man In Bitcoin Isn’t A Criminal
Max Chafkin – Fast Company
U.S. Attorney Preet Bharara has busted Wall Street insiders and dark web drug dealers. Now he’s setting out to do what Marc Andreessen, the Winklevoss Twins, and cryptocurrency nuts can’t: clean up bitcoin.
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What’s the Matter With Bitcoin Exchanges?
Bryan Yurcan – Wall Street & Technology
When Mt. Gox filed for bankruptcy in a Tokyo court Friday, it marked the culmination of a swift downfall for one of the world’s largest Bitcoin exchanges. It’s was only one year ago that Mt. Gox accounted for nearly 70 percent of the virtual currency’s transactions globally, according to reports.
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Indexes & Index Products

Actively Managed or Index Funds? Why Not Both?
Michael A. Pollock – WSJ.com
Some investors swear by actively managed mutual funds. Others are just as single-minded about only owning funds that simply follow an index. But does it have to be an either/or decision?
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Euronext launches PEA PME family of indices
Euronext, a wholly owned subsidiary of IntercontinentalExchange Group, welcomes publication of the implementing decree introducing PEA PME savings accounts in France, and today announced the launch of its new CAC PME index.
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New Japan Index Prompts Chase for Higher Equity Returns
WSJ.com
Some of Japan’s cash-rich firms are starting to take action to gain prominence on a new stock-market index that highlights the 400 companies offering the highest investment returns.
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Gold

London gold-fix banks accused of manipulation in US lawsuit: report
Reuters
Barclays, Deutsche Bank and three other banks have been accused in a lawsuit of manipulating the London gold fix, a benchmark used throughout the $20 trillion market for the metal, Bloomberg reported.
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Deutsche Bank Hires Consultancy to Review Gold Fix Role
WSJ.com
Deutsche Bank AG has brought in outside consultants to examine its part in the London gold “fix,” a key benchmark for the metal that is under scrutiny from regulators amid a broader probe into possible price-rigging in several major financial markets.
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Barrick CEO not looking to hedge gold
Reuters
Canada’s Barrick Gold Corp , the world’s biggest gold miner, is not looking to hedge the price of the precious metal because it expects a sharp increase in coming years, Chief Executive Jamie Sokalsky said on Tuesday.
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Gold Drops as Ukraine Tensions Ease
WSJ.com
Gold prices dropped on Tuesday, as easing fears over the situation in Ukraine drained trader interest in haven assets in favor of riskier bets such as stocks.
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India’s gold industry to strike in protest over crackdown
Avantika Chilkoti in Mumbai – FT.com
India’s gold industry is planning a one-day strike next week in protest over government efforts to control smuggling, as moves to curb imports fuel illicit trade in the world’s second-largest market for gold.
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Gold-plated
Risk.net
While the shine was taken off gold last year following a steep drop, State Street Global Advisors explains why the economic backdrop, strong retail demand and investment benefits all point to a healthy long-term outlook for the yellow metal
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Could century-old theft explain mystery of gold coins?
Dana Ford and Ed Payne – CNN
Chief Clerk Walter Dimmick was convicted of stealing six bags of gold coins — worth $30,000 — from the U.S. Mint in San Francisco in 1901.
More than 100 years later, a California couple unearthed a secret stash of coins, with a combined face value of about $27,000. Most were minted in San Francisco.
Coincidence?
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