First Impressions

Sandra Ro, CME Group – Financial Services Disruption: the Rise of Bitcoin and Blockchain

“There is this big debate as to whether bitcoin is a currency or a commodity. I would argue that it is its own category.”

Sandra Ro is a veteran in the world of bitcoin and blockchain, which simply means that she has been following the cryptocurrency and its underlying technology for over two years. In this MarketsWiki Education talk, Ro takes us through the nascent world of digital currencies, from the volatility of bitcoin, to the rise of blockchain technology and massive investments being made by venture capitalists, banks and other strategic investors. According to Ro, the next few decades are going to be exciting.

Watch the video »

Quote of the Day

“Your kids will not know what money is.”

Apple CEO Tim Cook, in the story, “Apple’s Tim Cook says cash will be dead for the next generation of kids”

Lead Stories

Boom times for US corporate bond sales
Eric Platt – Financial Times
These are boom times for US debt capital markets and the bankers that are ushering in a wave of corporate debt ahead of an expected policy tightening by the Federal Reserve next month.

Leveraged Finance Market Mired in Slump That Spans the Atlantic
Selcuk Gokoluk and Christine Idzelis – Bloomberg
A slump in the leveraged finance markets is being felt from Wall Street to the City of London.
The high-yield loan markets in the U.S. and Europe combined are on track for their slowest year since 2011, with about $439 billion of debt issued in 2015, according to data compiled by Bloomberg. That’s a 37 percent plunge from this time last year.

Icap-Tullett to dominate US swap trading
Luke Jeffs – Futures & Options World
Tullett Prebon’s acquisition of rival interdealer broker Icap’s global broking unit will see the new business become the dominant swap execution facility (Sef) in the US, handling two thirds of the interest swaps market.
According to September Sef market data by the Futures Industry Association (FIA), the combined business would have average daily trading of more than $230bn or 67% of all the interest rate swaps market traded on Sefs.

What Ukraine owes Russia: A short history of the world’s wackiest bond
The Economist
Ukraine has secured a deal with its creditors on $18 billion-worth of external debt. The creditors, represented by a number of big financial firms, agreed to a 20% write-off of the principal. One bond included in the discussions is $3 billion that Ukraine owes to Russia. For those who have not kept up with Ukraine’s debt negotiations, here is a quick refresher.

Why US unemployment is not done falling
Regis Barnichon – VOX, CEPR’s Policy Portal
Many commentators have noted that the US has ridden out its post-crisis malaise rather skilfully, not least when it comes to reducing unemployment. This column argues that the US unemployment rate – despite being impressive, all things considered – still has substantial room to fall because desire to work among the non-employed is close to a record low

Investors will pay if liquidity dries up
Dan McCrum – Financial Times
Liquidity is a term of negotiable affection because it will wear whatever accompanying financial jargon is desired and bend to many a usage. Central banks are often said to have flooded the system with it. Banks and companies need it to go about their business. Markets are defined by it, but not often in a precise way, more by a sense of whether it is usually there or not.

Exclusive: Morgan Stanley turns to stodgy bank accounts to boost profit
Olivia Oran – Reuters
Morgan Stanley, better known for underwriting bonds than for retail banking, plans to offer savings accounts and certificates of deposits next year to wring more profit from its wealth management clients, executives told Reuters.
The bank has offered checking accounts and credit cards for years, but it is launching more consumer banking products and giving brokers bonuses if clients use them.

Surge in Protectionist Measures Blamed for Sapping Trade
William Mauldin – WSJ
By now, almost everyone following economic news knows that global trade is swooning this year, buffeted by low commodity prices, an uncertain transition in China and a decelerating world economy.
But some of the biggest countries in the world are compounding the problem with a slew of protectionist measures, ranging from higher tariffs to government bailouts of exporters, according to a report published Thursday.

Deutsche Bank Reshuffles Top Ranks of Investment Bank
Giles Turner and Jenny Strasburg – WSJ
Deutsche Bank AG has put in place senior managers overseeing the lender’s global investment-banking and trading businesses, as a broad reshaping of its business advances.
The appointments, announced Thursday, are for businesses that are Deutsche Bank’s best-known around the world and crucial drivers of profits.

Barclays: We’re About to Enter a New Stock Market Regime
Julie Verhage – Bloomberg
We might be just one month away from the first interest rate increase by the Federal Reserve in nearly a decade, the prospect of which should be sending investors scuttling to figure out how best to prepare their portfolios.
According to Barclays, the turn of the U.S. interest rate cycle will likely produce a new regime for the stock market. A team of analysts led by Ian Scott in London found that past tightening cycles have tended to produce outperformance in value stocks, or those that are underpriced relative to their peers and fundamentals.

China Credit Growth Falls as Tepid Economy Dents Loan Demand
China’s broadest measure of new credit slumped to the lowest in 15 months in October, adding to evidence six central bank interest-rate cuts in a year have yet to spur a sustained pick up in borrowing.

An index of financial secrecy highlights American hypocrisy
The Economist
The world is becoming less welcoming to tax dodgers. That is the conclusion of the latest Financial Secrecy Index, published every two years by the Tax Justice Network (TJN), an NGO. It looks at various measures of financial transparency and information-sharing in more than 90 countries, then weights them according to the level of financial services each country provides to non-residents. Most countries’ scores have fallen since 2013, indicating greater transparency. Among the biggest improvers are the Cayman Islands, once a notorious tax haven, and Luxembourg, which tax campaigners used to call Europe’s “death star” of financial secrecy.

Goldman to Bond Traders: You’re Underestimating U.S. Inflation
Alexandra Scaggs – Bloomberg
Bond traders’ inflation expectations are way too low, say analysts at Goldman Sachs Group Inc.

Puerto Rico Is Running Out of Options
Ezra Fieser, Michelle Kaske, Kasia Klimasinska and Jim Rowley – Bloomberg
Puerto Rico doesn’t look as if it’s on the verge of economic disaster. Tourists are still flocking to its beach resorts. Malls, anchored by department stores like Macy’s and JCPenney, are full of shoppers. At rush hour, roads are clogged with late-model luxury SUVs. But after years of borrowing to prop up the island’s stagnant economy, the government faces $720 million in debt payments in the next two months, and it may run out of cash as early as December.

What Britain forgets: Why running a budget deficit can reduce the national debt
The Economist
Yesterday, at an event hosted by the Resolution Foundation, a think-tank, the organisation’s chief economist, Matt Whittaker, said something that made a few people sit up. He remarked that it would be simultaneously possible to run a budget deficit (ie, where government spending exceeds taxation) and reduce the burden of government debt at the same time. Now, to British ears this sounds impossible. Running a budget surplus, as the chancellor of the exchequer, George Osborne, is desperate to do (on the wisdom of that, see here) is often elided with paying down the national debt, which currently stands at around 80% of GDP (bailed-out banks notwithstanding).

UK’s Cameron complains about austerity cuts which he ordered
Yahoo Finance
British Prime Minister David Cameron faced claims of hypocrisy Thursday after he wrote to his local council complaining about cuts to services prompted by his own government’s austerity savings.
Cameron voiced disappointment that libraries, museums and day care centres for elderly people were being cut in Oxfordshire, the county west of London which includes his parliamentary seat of Witney.

Central Banks

Glut of Fedspeak, IMF Warning Inject Rate Hike Uncertainty
Amey Stone – Barron’s
It’s hard to parse the many thousands of words spoken by Federal Reserve officials on Thursday alone. Fed Chair Janet Yellen, Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Richmond Fed President Jeffrey Lacker were just a few of the Fed members speaking Thursday.

Fed should wait with liftoff to see firm inflation signs: IMF note
The U.S. Federal Reserve should wait to see firm signs of rising inflation as well as a stronger labor market before hiking benchmark interest rates, an International Monetary Fund paper said on Thursday.

Janet Yellen Says It Is Critical to Assess How Monetary Policy Works in Post-Crisis World
Ben Leubsdorf – WSJ
It is vital for central-bank officials to assess how monetary policy is implemented and transmitted to the broader economy in the wake of the global financial crisis, Federal Reserve Chairwoman Janet Yellen said Thursday.
“At the peak of the crisis and during its immediate aftermath, unconventional monetary policy measures were designed and implemented by the Federal Reserve and other central banks around the world,” Ms. Yellen said in welcoming remarks at a research conference hosted by the Fed. “The post-crisis period has offered policy makers an opportunity to assess a range of novel policy and operational issues associated with the conduct of monetary policy and the effectiveness of different policy options.”

Mario Draghi hints at expanding QE to boost recovery
Claire Jones – Financial Times
Mario Draghi has dropped another hint that the European Central Bank is readying more measures to boost the eurozone’s recovery, saying there were signs a major measure of inflation would take longer to return to policymakers’ target.

May 1994 – What Happened When the Fed Last Diverged With Europe
Simon Kennedy – Bloomberg
It’s been more than 21 years since the Federal Reserve last raised interest rates the same month as its main counterpart in Europe eased monetary policy.
May 1994 was the month. Nelson Mandela was being sworn in as South Africa’s first black president and the tunnel linking the U.K. and France was opening for the first time. Beverly Hills Cop 3 was released in cinemas and the Crash Test Dummies were singing “Mmm Mmm Mmm.”

What Would Milton Friedman Say about Fed Policy Under Bernanke?
David Beckworth and William Ruger – Cato Institute
Four years after his death, Milton Friedman’s thoughts on monetary policy remain as relevant today as they were 30 years ago. Even Fed Chairman “Helicopter Ben” Bernanke (whose nickname comes from Friedman’s famous “helicopter drop” idea for overcoming deflation) has referenced the Chicago don as an inspiration for his actions.

Economists Overwhelmingly Expect Fed to Raise Interest Rates in December
Ben Leubsdorf – WSJ
There is near-unanimous agreement among private forecasters surveyed that the Federal Reserve will begin raising short-term interest rates next month after holding them near zero for seven years.

Why Jeffrey Lacker Is Worried About Inflation
Binyamin Appelbaum – NY Times
Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, was the only member of the Fed’s policy-making committee who voted to raise interest rates in September, and again in October. Mr. Lacker has long expressed skepticism about the benefits of the Fed’s stimulus campaign, and he has been concerned that inflation will begin to rise more quickly as the economy gains strength.

The U.S. Economic Outlook and Monetary Policy
New York Fed
Full text of William Dudley’s remarks.


Forex bulls seek green light for euro carry trade
Paul McClean and Roger Blitz – Financial Times
Decisions, decisions. After wondering for months what US Federal Reserve chair Janet Yellen would do about rates, the market now seems confident she will move from words to actions and raise them next month, following that superstrong payrolls data last Friday.
But what about Mario Draghi? Does the European Central Bank president follow through with his heavy hint from last month that he would ease monetary policy further?

Emerging Currencies Weaken as Fed Comments Stoke Rate Concern
Lyubov Pronina – Bloomberg
Emerging-market currencies weakened against the dollar and stock volatility hovered near the highest level since March 2012 as Federal Reserve officials signaled in speeches that a December increase in U.S. interest rates is likely, a move that would damp demand for riskier assets.

Diverging central bank policy to drive forex moves – ECB’s Weidmann
Diverging paths of monetary policy in the euro zone and the United States will likely drive exchange rate fluctuations, ECB governing council member Jens Weidmann said on Thursday.

Apple’s Tim Cook says cash will be dead for the next generation of kids
Ashley Rodriguez – Quartz
Apple CEO Tim Cook is making another bold prediction about money. Back in January, he forecasted that 2015 would be the year of Apple Pay (a claim that hasn’t come to fruition, but is looking less and less absurd.) And now, he’s telling university students that their future children will be totally unfamiliar with the concept of cash.

News Makes For Great Forex Trading At Night
The Federal Statistics Office for Switzerland will release its Producer Price Index on Friday at 3:15 a.m. ET. No one wants to trade in the middle of the night; however, you could put your trade on at 11:00 p.m. ET on Thursday, using Nadex Spreads. Spreads have a floor or bottom and a ceiling or top of a range that is tradeable in a market. You cannot win or lose past the floor or ceiling of a trade depending on where you entered and which direction you trade the spread. This allows for a limited risk that is known upfront before you place the trade.

Bitcoin bounces back, boosted by Wall Street and China
Dean Starkman – LA Times
Long off the public radar, digital payment network bitcoin has been gaining momentum this fall, bolstering the views of some advocates that bitcoins will be a mainstream currency worldwide in the not-too-distant future.

Indexes & Index Products

Assets Accumulating in Illiquid ETFs, and Trading Off-Exchange
Michael Baradas – Bloomberg Tradebook
As the US-listed ETF universe continues to accumulate assets, one noticeable trend is the growth in assets of less liquid ETFs. Further, more of these ETFs are trading off-exchange, the less-liquid the ETF.

Low Volatility and Equal Weight: Two Popular Smart Beta Approaches Among Advisors; FTSE Russell Survey
According to the first FTSE Russell U.S. retail financial advisor survey, smart beta index adoption by financial advisors is prevalent and broad-based. This survey — Smart Beta: 2015 survey findings from U.S. financial advisors — confirms an increased interest in, and adoption of, multiple smart beta indexes among retail financial advisors.

U.S.-listed Chinese shares fall ahead of MSCI inclusion
Tariro Mzezewa – Reuters
Chinese stocks that trade on U.S.-listed exchanges were mostly lower on Wednesday, even as investors expect indexer MSCI to add some well-known company stocks to its emerging market indexes.

Active Versus Passive Through Municipal Bonds
Todd Rosenbluth – Indexology: S&P Dow Jones Indices
Municipal bond mutual funds gathered USD 2.8 billion in the four-week period ending Oct. 28, 2015, according to the Investment Company Institute, while muni bond ETFs added USD 593 million of inflows in October, according to SSGA. Despite this low number, at the recent S&P Dow Jones Indices Municipal and Global Bond Forum, various panelists highlighted the relative benefits of municipal bond ETFs.

Smart beta gaining favour with financial advisors, finds FTSE Russell
ETF Strategy
TSE Russell, a global index provider, has released the results of a survey of US financial advisors. The survey identifies increasing adoption of smart beta strategies within client portfolios.


Gold Sags to Five-Year Low as ETPs Drop to Smallest Since 2009
Ranjeetha Pakiam – Bloomberg
Gold futures fell to the lowest in more than five years as investors sold bullion-backed funds amid expectations for a U.S. interest-rate increase in December.

Gold price on Fed rollercoaster ride
Henry Sanderson – Financial Times
Gold dropped to its lowest in five years on Thursday in volatile trading before rebounding sharply, as the market eyes a rate rise by the Federal Reserve.

Barrick to Sell Mines to Kinross, Waterton for $720 Million
Danielle Bochove – Bloomberg
Barrick Gold Corp. agreed to sell assets in Nevada to Kinross Gold Corp. and private equity firm Waterton Global Resource Management for $720 million, as the biggest bullion producer cuts debt after prices fell.

What Republicans Get Wrong About the Gold Standard
Greg Ip – WSJ
No country in the world today operates on the gold standard. That might change if some Republican presidential candidates have their way.

Holy crap, the Nazi gold train is back!
Through the dire month of September, stretching into the cold, unfeeling month of October, and even into the desperate, futile oblivion of November, there was no news about Nazi gold. Perhaps the Nazi gold search never had a chance. Perhaps Nazi gold was dead.


Keep Calm and Carry Buckets, Britain’s Parliament Is Leaking
Jenny Gross – WSJ
British lawmaker Ben Bradshaw was working in his office when he discovered a major parliamentary leak. But this didn’t involve confidential memos or embarrassing emails.
A suspicious liquid was gushing through his ceiling, soaking correspondence from his constituents and office equipment. Alarmed, he ushered staff members out of the room and alerted maintenance staff, who rushed to the scene to seal off the flow. The office was shut for several days of repairs.

****SD: In related news, PM Trudeau won’t be moving into Canada’s official residence (which he grew up in) because it needs extensive repairs and has a cat problem (courtesy of the Harpers).

Crickhowell: Welsh town moves ‘offshore’ to avoid tax on local business
The Independent
When independent traders in a small Welsh town discovered the loopholes used by multinational giants to avoid paying UK tax, they didn’t just get mad.
Now local businesses in Crickhowell are turning the tables on the likes of Google and Starbucks by employing the same accountancy practices used by the world’s biggest companies, to move their entire town “offshore”.

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