First Impressions

Bubble Talk: Jose Scheinkman and the CME Group-MSRI Innovation Award Seminar

On Monday morning, February 9, 2015, the CME Group-MSRI Prize in Innovative Quantitative Applications was awarded to Jose Scheinkman, economics professor at Columbia and Princeton Universities and one of the world’s leading experts on financial modeling. Since much of his recent work is centered on friction in the financial markets, Monday’s award ceremony was preceded by a seminar titled “Bubbles in the Markets: Why Do They Form, When Do They Burst?” At the conclusion of the ceremony, Prof. Scheinkman sat down with John Lothian News editor-at-large Doug Ashburn to discuss his most recent work.
Read the article and interview with Prof. Scheinkman »

FinTech Exchange 2015 – April 23, Chicago
Barchart, a leading provider of market data and information, announced FinTech Exchange 2015, a new event to highlight technology innovation in financial markets and trading. More than 20 financial technology providers will participate, presenting in rapid-fire rounds that focus on innovations in trading software, market data, exchange technology, analytics, cloud computing, high-speed networking and mobile. The FinTech Exchange 2015 will be held on Thursday, April 23 at 1 p.m. in the Feinberg Theatre at Venue SIX10 in Chicago.

***JL: Bravo to Barchart for their leadership in putting this together. They have asked me to moderate a panel discussion at the end of the day. Also, JLN will be providing coverage of the event and videoing many of the presentations.

Quote of the Day

Banks are less willing to take on risk, which means that we have to think about what we can we do to mitigate the liquidity risk their reduced balance sheet capacity introduces.

GLG Partners’ Jon Mawby, in the Bloomberg article “Bond Traders Vanishing as Liquidity Evaporates”

Lead Stories

Bond Traders Vanishing as Liquidity Evaporates
Bloomberg Business
Bond traders are vanishing as slumping fixed-income revenues deter the world’s biggest banks from making markets in Europe. The average number of dealers providing prices for European corporate bonds dropped to a low of 3.2 per trade last month, down from 8.8 in 2009, according to data compiled by Morgan Stanley. The three largest U.S. banks — JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. — posted their worst combined quarterly trading revenue since 2011 in the fourth quarter, led by a 23 percent drop in fixed-income, currencies and commodities.

Predicting the Next Wall Street Disaster
It could alert it to vulnerabilities and approaching calamities before a global crisis struck? While members of Congress squabble over a move in the House to erode provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a 64-year-old Wall Street veteran and MIT-trained economist named Richard Bookstaber is quietly working on an ambitious project that aims to do just that.

ECB’s Weidmann: No Immediate Need for Quantitative Easing
There was no urgent need for the European Central Bank to embark on a program of quantitative easing, since the current decline in inflation rates is temporary and it isn’t having a negative effect on the broader economy, ECB Governing Council member Jens Weidmann said in remarks Thursday.

Buyside Forced to Avoid Central Counterparty Regulatory Gridlock
Traders Magazine
As the regulatory turf war drags on, buyside firms and CCPs are losing patience with the OTC derivative market’s 18-month disagreement between U.S. and European regulators. They say it has hurt volume, and made markets riskier and more expensive.

Q&A: Rates and getting income in low-yield world
USA Today
Greg Davis is global head of Vanguard’s Fixed Income Group, which means that he oversees the Malvern, Pa.-fund behemoth’s $900 billion in bond funds. Davis spoke with John Waggoner of USA TODAY about bonds, interest rates and how to get income in a low-yield world.

Red packet blues for China’s Central Bank
Between dumpling feasts and firework shows in celebration of Lunar New Year, spare a thought for the headache all of this poses for the People’s Bank of China, which has to ensure there’s enough liquidity to fund the binge of travelling, shopping, drinking and gifting.

Central Banks

How many years do you have to get rich? A new study explains.
Life may begin at 40, according to any number of Hallmark cards, but by 45, your chances of ever landing a major raise are pretty much dead. At least, that’s one of the many takeaways from a recent paper by a group of Federal Reserve researchers in Minneapolis and New York, who used a massive trove of Social Security Administration data dating back to 1978 to analyze how men’s earnings evolve over time.

European Central Bank throws Greece a lifeline before crunch eurozone talks
The Guardian
Extension of emergency lending facility to Greek finance sector lifts euro and gives PM Alexis Tsipras stronger hand before leaders’ summit in Brussels

Central banks take extreme action to stave off deflation
Central banks are resorting to ever more radical means to prevent deflation strengthening its grip over European economies, with the Swedish Riksbank on Thursday becoming the first to set a negative main policy interest rate.

Sweden adopts negative rates, bond purchases to fight deflation threat
By Simon Johnson and Daniel Dickson, Reuters
Sweden shocked markets on Thursday by introducing negative interest rates, launching bond purchases and saying it could take further steps to battle falling prices.

Bank of England says UK inflation could fall below zero
By Chris Giles, FT
Inflation is more likely than not to fall below zero shortly, Bank of England said on Thursday, but Mark Carney, governor, insisted there was no threat of persistent deflation in the UK.

Bank of England Governor hints interest rate rise could come sooner than expected
The Independent
Bank of England Governor Mark Carney suggested an interest rate rise could come sooner than financial markets expect, in an announcement that sent the pound higher against the dollar. The inflation report predicted its Consumer Prices Index (CPI) benchmark slipping to zero this year, against the backdrop of a dramatic 50 per cent-plus plunge in oil prices since last summer, falling food prices and a round of cuts to gas and electricity bills from suppliers.

Bank of Mexico Held Interest Rates Steady Ahead of Budget Cuts
The Bank of Mexico’s five board members voted unanimously last month to keep interest rates unchanged, a day before the government unveiled a series of budget cuts to address the drop in oil prices and expectations of more difficult financing conditions ahead. The central bank, led by Agustin Carstens, left the overnight lending rate target at 3% for a fifth consecutive meeting Jan. 29.

People’s Bank of China Will Not Ease Prudent Monetary Policy
The People’s Bank of China (PBOC) announced on Tuesday that it would not halt its prudent monetary policy. Rather, the country’s central bank would strike a balance between too tight and too loose of a policy, as revealed by its fourth-quarter monetary policy report.

Bank of Japan seen as wary of stimulus
Bloomberg, via The Salt Lake Tribune
Bank of Japan policymakers view further monetary easing to shore up inflation as a counterproductive step for now, amid concern it could trigger declines in the yen that damage confidence, people familiar with the talks said.

Can monetary policy save Brazil?
Brazil’s central bank won’t be able to save the country with monetary policy, economists warned, after downgrading their 2015 growth outlook to zero as stagflation drags the once vibrant economy.


Swedish krona tumbles as Riksbank cuts interest rate to below zero
The Swedish krona fell to its lowest level against the U.S. dollar in nearly six years Thursday, after Sweden’s central bank moved its benchmark interest rate into negative territory. The unprecedented rate cut was triggered by fears that rising uncertainty abroad could lead to deflation in Sweden, officials at the Riksbank said.

Emerging-Market Currencies Rout Not Over for Traders
Bloomberg Business
Traders are getting that sinking feeling again about developing-nation currencies. A basket of 20 of the currencies has tumbled 3.3 percent this year through Wednesday to the lowest since Bloomberg began tracking the data in 1999. The losses have left emerging-market options traders bracing for more: They’re now paying the most in almost 17 months to protect against further declines.

CFTC Reviews Retail Forex-Trading Rules Following FXCM Debacle; CFTC Chairman Timothy Massad Testifies on Capitol Hill
By Andrew Ackerman, WSJ
The Commodity Futures Trading Commission is considering ways to boost its oversight of foreign-exchange dealers catering to mom-and-pop retail investors in light of a trading debacle that nearly collapsed broker FXCM Inc. last month, the agency’s chairman said Wednesday.

Central Banks Now Open 24/7 Fighting Currency Wars and Deflation
Bloomberg Business
Central banks are now open all hours. Just as they worked weekends through the financial crisis, policy makers are again signaling they can strike at any time for the good of their economies.

One big fear with a strong dollar: a stock market bubble
The concerns that have kept U.S. stocks in check since the start of the year haven’t dissipated. But that hasn’t stopped the S&P 500 from marching to within shouting distance of an all-time high.

Who’s Afraid of the Rising Dollar? Not the Thriving U.S. Economy
Bloomberg Business
Don’t believe everything you hear about the corrosive effect a more expensive dollar has on corporate America. U.S. businesses and the world’s largest economy can handle the greenback’s strength just fine.

Indexes & Index Products

MSCI says 49 companies are eligible for its global indexes
Index provider MSCI Inc said on Wednesday it has determined that 49 foreign-listed companies traded outside their home countries will be eligible for inclusion in its Global Investable Market Indexes. The move would allow so-called “orphan companies” such as Chinese online retailer Alibaba (BABA.N) and China’s online search engine Baidu Inc (BIDU.O) to be eligible for potential inclusion in both MSCI Global Indexes and MSCI Country Indexes.

McGraw Hill Financial Reports 4th Quarter And Full-Year 2014 Results
McGraw Hill Financial, Inc. (NYSE: MHFI) today reported fourth quarter and full-year 2014 results. The Company reported fourth quarter 2014 revenue of $1.29 billion, an increase of 7% compared to the same period last year. Largely reflecting the impact of recent legal settlements, fourth quarter net income and diluted earnings per share from continuing operations were losses of $(1,009) million and $(3.71), respectively.

S&P Dow Jones Indices Launches Global Dividend Stability Low Volatility Smart Beta Index
S&P Dow Jones Indices, announced the launch of the S&P Global 1200 Dividend Stability Low Volatility Index (the Index). The Index has been designed to measure the performance of stocks that achieve a balance between dividend yield, dividend growth and volatility.

State Street Launches Stock Buyback ETF
Share buybacks and dividends have been among the primary contributors to the stock market Bull Run. In fact, share buybacks in the third quarter amounted to $143.4 billion – the fourth highest quarter for spending on buybacks by S&P 500 companies since 2005.

Betting with Buffett: Seven Lean Years Later
Enterprising Investor
Just as stock picks sometimes head in the wrong direction upon purchase and call into question whether a thesis is early or wrong, so too has hedge fund underperformance over the last seven years raised the question of whether hedge funds are bent or broken. Standing seven years into a 10-year wager with Warren Buffett, we sure look wrong.

MSCI index cuts down local stocks’ weighting
The China Post
The finance industry remains upbeat over Taiwan’s stock market’s outlook, despite MSCI’s recent cut of the local stocks’ weighting in the MSCI Emerging Markets Index and the MSCI All Country Asia ex Japan Index.

SPDR Gold Trust (ETF), iShares Silver Trust (ETF): Gold Bear Market About To End In 2015?
Gold had a strong start of the year but somehow stalled in the last two weeks. Even with a lot of uncertainties in the world, it seems that the need for a safe haven is “contained” in a similar way central bankers tell the world that the economic situation is “contained.” All jokes aside, it remains remarkable that the yellow metal is not stronger at this point.


Metals exec: 25% of physical gold buyers are crazy
A lot of people who buy bits of physical gold aren’t looking to make a bracelet or ring. They buy gold because they believe disaster is imminent. These investors are convinced gold will spike to $10,000 an ounce (it’s currently around $1,225) when the U.S. government implodes, said Peter Hug, an executive at metals retailer Kitco.

WGC: Gold Market Finds Balance In 2014
The best way to describe the gold market in 2014 was it was a year of stabilization, according to the latest research from the World Gold Council (WGC). Looking back at the year, the WGC said that gold demand ended the year on a strong note with total demand for the fourth quarter growing to 987.5 tonnes, an increase of 6% compared to the same quarter in 2013.

Gold demand hits five-year low as jewellery, coin, bar sales slip – WGC
Gold demand hit a five-year low last year as buying of jewellery, coins and bars failed to keep pace with 2013’s elevated levels, particularly in major consumer China, the World Gold Council said on Thursday.

Global Demand for Gold Down in 2014
Global demand for gold fell last year as buying plunged in two important markets, China and India, the World Gold Council said Thursday. Total demand in 2014 weighed in at 3,924 tons compared with 4,088 tons the previous year. However, gold demand growth rose into the end of the year—fourth-quarter demand was 988 tons, up 6% from the same period the year before.

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