First Impressions

Chris Hehmeyer, managing member, HTG Capital Partners – Why Cereal Might Be Cheaper On Mondays At 8 AM

“The technologies are changing so fast that you can always jump in to whatever’s next.”

Chris Hehmeyer, managing member at HTG Capital Partners, gives a brief history of the financial markets and discusses his journey from Tennessee to Chicago. Hehmeyer describes the setting of the fledgling Chicago Board of Trade and remembers when technology was really beginning to impact the financial industry. One memory was when Hehmeyer saw an Apple II computer create a spread chart for the first time. Prior, all data was written out and charts were drawn by hand, but Hehmeyer knew that the simple chart was the beginning of something revolutionary.
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Quote of the Day

“The culture in the large banks needed to be corrected. That is a good thing. The extent of this adjustment process has been a lot more drawn out than any of us anticipated, and that’s not been a good thing.”

Charles Peabody, a banking analyst at Portales Partners LLC in the story, ” Wall Street Firms Endure Lost Decade After Goldman Peak in 2007″.

Lead Stories

Buffett Reminds His Top Managers: Reputation Is Everything
MoneyBeat – WSJ
Warren Buffett’s “All-Stars” are getting their biennial reminder this month that they need to guard Berkshire Hathaway Inc.’s reputation – and plan for the future.Mr. Buffett, who’s run Berkshire for the past five decades, sends a memo every other year to the managers of each of Berkshire’s 80-plus subsidiaries that emphasizes those two points. The latest such memo, which varies little from the version Mr. Buffett shared with investors in Berkshire’s 2010 annual report, carries Friday’s date.

Wall Street Firms Endure Lost Decade After Goldman Peak in 2007
By Jing Cao , Bloomberg
Wall Street firms have failed to keep up with a stock market that’s boomed for more than five years, losing ground to industries including technology and health care. There were just 32 U.S. financial firms among the world’s largest 500 companies by market capitalization when trading closed yesterday in New York. That compares with 41 at the end of 2006, the last full year before the credit crisis. Some companies that remain on the list, like Citigroup Inc. and American International Group Inc. (AIG), have shrunk to a fraction of the size of tech giants like Apple Inc. (AAPL) and Google Inc. (GOOGL)

How a Memo Cost Big Banks $37 Billion; Justice Department Lawyer Jump-Started Probe That Led to Three Giant Settlements
By Andrew Grossman, Emily Glazer and Christina Rexrode – WSJ
Assistant U.S. Attorney Richard Elias was leafing through a pile of J.P. Morgan Chase & Co. documents while tending to his newborn son in 2012 when he found something that came back to haunt the three largest U.S. banks. In a memo, one J.P. Morgan employee warned her bosses they were putting bad loans into securities being created before the financial crisis hit.

Europe Bond Overhaul to Show Prices on $233 Billion of Debt
Alastair Marsh and Katie Linsell – Bloomberg
Bond traders will have to publicly disclose prices on at least 190 billion euros ($233 billion) of corporate securities under proposals from the European Securities & Markets Authority.
The requirements apply to notes which are actively traded, while prices will only have to be given on request when there’s no liquidity, ESMA said in a report. The plans are designed to provide equal access to real-time data and echo the Trade Reporting and Compliance Engine, or Trace, in the U.S., which acts as a window into the nation’s corporate bond market

Royal Bank to Pay $35 Million to End CFTC Wash-Trade Suit
By David Glovin, Bloomberg
Royal Bank of Canada will pay $35 million to settle a lawsuit brought by U.S. regulators over claims that it engaged in more than 1,000 illegal futures trades worth hundreds of millions of dollars to garner tax benefits tied to equities.

A Humbled Janus Capital is Betting on Bill Gross for Its Turnaround
By Mary Childs, Bloomberg
When Bill Gross quit bond giant Pacific Investment Management Co. three months ago, almost as stunning as his departure was his choice of employer: Janus Capital Group Inc., a struggling stock fund manager whose assets had shrunk by half from a peak 14 years earlier.

ICE’s Six Recommendations for Reforming Markets
by Lora Western, WSJ
Jeffrey Sprecher, the CEO of Intercontinental Exchange Inc. and owner of the New York Stock Exchange, is making a big push to bring more trading back onto exchanges. ICE has circulated a draft letter among big brokers and investment funds outlining how the markets could be reformed. The move is Mr. Sprecher’s most ambitious effort to remake the stock market since buying NYSE Euronext Inc. for $8.2 billion last year.

Pimco’s Kiesel Optimistic U.S. Growth Will Support Credit
Matt Robinson – Bloomberg
Mark Kiesel, chief investment officer of global credit at Pacific Investment Management Co., says fixed-income securities globally look attractive on a stronger U.S. economy, accommodative central bank policies and lower oil prices.
Within credit markets, U.S., European and Asian investment-grade bonds offer opportunities in 2015 as do riskier assets including high-yield debt, bank loans, emerging market credit and municipal bonds, Kiesel wrote in a report published today on Newport Beach, California-based Pimco’s website.

Europe’s Dark Pools, Record Antitrust Fines, Banking: Compliance
By Carla Main , Bloomberg
Traders accustomed to operating in Europe’s dark pools, where buy and sell orders are hidden, say a transparency drive by regulators may deprive them of the secrecy they need to shield their trades from competitors.

U.S. Treasury Criticizes Europe’s Plan to Fix Tainted Benchmarks
By Silla Brush and Jim Brunsden, Bloomberg
A European proposal to regulate financial benchmarks that have been tainted by manipulation allegations is running into criticism from the U.S. Treasury Department.

Central Banks

How the Federal Reserve Saved the ‘Santa Claus Rally’
Richard Suttmeier – The Street
The “Santa Claus Rally” still faces the headwinds of a blizzard: slow global economic growth, weak crude oil prices and the strong dollar. But after a pullback of 5% to 6% for the major equity averages by Wednesday, the Federal Reserve’s Open Market Committee came to the rescue.
Because of these cross-currents, the major equity averages have had huge jolts of volatility so far in December.

FOREX-Dollar inches higher on diverging central bank policies
Sam Forgione – Reuters
The U.S. dollar rose against major currencies for a third straight session on Friday on diverging monetary policy between the Federal Reserve and other major central banks.
The euro hovered near a 28-month low against the greenback, while the dollar touched a more than one-week high against the yen in a continuation of dollar strength on the back of the Fed’s hints at tighter monetary policy on Wednesday and looser policies in Europe, Japan and Switzerland.

Markets will win game of chicken with Fed
Henny Sender, FT
At the FT’s Frontier Markets conference in New York, in mid-December, only a handful of participants subscribed to the view that the markets will smoothly absorb the Federal Reserve’s decision to raise interest rates when the time comes.

Fed’s Lacker Supports FOMC ‘Patient’ Statement on Rates
Steve Matthews – Bloomberg
Federal Reserve Bank of Richmond President Jeffrey Lacker, an ardent internal critic of the central bank’s loose monetary policy, said he backs a Fed statement this week that it would be patient on raising interest rates.
“I support the characterization that we can be patient at this point,” he told reporters today after taking part in a panel discussion in Charlotte, North Carolina. “That characterization could change from meeting to meeting for me.”

Williams Sees June as Time to Start Weighing Higher Fed Rate
Christopher Condon – Bloomberg
Federal Reserve Bank of San Francisco President John Williams said next June will be the right time to consider when to start raising interest rates, even as inflation is likely to stay below the central bank’s goal.
“June 2015 seems like a reasonable starting point for thinking about when liftoff could happen,” Williams, who votes on policy next year, said today in an interview on Bloomberg Radio with Kathleen Hays and Vonnie Quinn. “It would depend on where the U.S. economy is relative to our goals.”


Justice Department Probes Currency Exchange Site That Vanished With Cash
By David Evans and Willem Marx, Bloomberg
The U.S. Department of Justice has begun a criminal investigation into the foreign exchange trading website, which vanished last May 1 with as much as $1 billion from investors around the world.

HKMA Probe Uncovers Failed Attempts at Currency Manipulation
By Fion Li, Bloomberg
The Hong Kong Monetary Authority said its year-long investigation into the city’s currency market uncovered attempts to manipulate exchange rates, though there was no collusion between banks.

Dollar Rises to 5-Year High on Fed Rate Outlook; Yen Declines
Lananh Nguyen – Bloomberg
The dollar advanced to a five-year high against a basket of currencies with the Federal Reserve suggesting this week that policy makers may raise interest rates next year as the U.S. economy accelerates.
The greenback is headed for gains against all except one of its 31 major counterparts this year, a feat it hasn’t accomplished since 1997. San Francisco Fed President John Williams said June will be the right time to consider when to increase borrowing costs. The yen fell to a more than one-week low against the greenback after the Bank of Japan maintained unprecedented monetary stimulus. The euro slid for a third day and a gauge of Asian currencies fell.

Canadian Dollar Approaches Weakest in 5 Years as Inflation Slows
Ari Altstedter – Bloomberg
Canada’s dollar approached a five-year low after a report showed inflation slowed more than forecast in November, adding to speculation slumping crude-oil prices will damp economic growth and keep interest rates low for longer.
The currency fell for a fourth week as crude, the nation’s biggest export, traded at almost the lowest since 2009. Canadian two-year government bonds’ yield advantage over U.S. peers shrank to the least since 2010 as traders priced in a rate increase by the Federal Reserve in the first half of 2015 and began to push chances for Bank of Canada rate action into 2016.

Indexes & Index Products

China Investors Look to Index Reshuffle to Fuel Next Rally
Gregor Stuart Hunter – WSJ
As China’s stock markets rocket higher, the next breakthrough being closely watched is whether Chinese shares will be included in global equity indexes that influence trillions of dollars of fund flows.
MSCI Inc. and FTSE Inc. will decide in the first half of next year whether to include China in their global benchmarks, potentially fueling the next leg of a rally as mutual funds and exchange-traded funds would need to buy Chinese stocks to rebalance their portfolios and track the index. A rally in Chinese shares this year has already made them the world’s top-performing major index, mostly driven by domestic investors.

OTC Markets creates ‘investor-friendly’ securities indexes
IR Magazine
OTC Markets Group has launched a series of indexes to measure the performance of ‘investor-friendly’ and transparent companies in the US and internationally.
The new OTCQX Composite Index, OTCQX US Index and OTCQX International Index select companies based on criteria including ‘high’ financial standards, English language disclosure in the US and sponsorship by a professional third-party adviser, OTC Markets Group says in a press release. International companies included must be listed on a qualified exchange. The indexes are meant to complement the company’s existing OTCM ADR Index and OTCQX30 Index.

MSCI Launches New Asia and China Equity Analytics Models
Press Release via Businesswire
MSCI Inc. (NYSE:MSCI), a leading provider of investment decision support tools worldwide, today announced two next generation Barra risk models aimed at helping firms who invest in China and greater-Asia markets better understand risk and performance.
The new Barra Asia Pacific Equity and Barra China International Equity models, which cover pan-Asian and China markets, respectively, have been significantly enhanced to include Systematic Equity Strategies (SES), marking a new era for advancing the standard for measuring and managing risk.


A surprising explanation for why gold isn’t rallying
Talking Numbers – Yahoo Finance
Gold bugs simply can’t catch a break.
Despite a full-blown currency crisis in Russia and increasingly volatile markets in the U.S., the price of gold has barely budged.
The yellow metal has been about flat in the last 30 days and remains close to the $1,200 per ounce level. If it closed there, gold would be looking at a slight loss on the year, which would be its first back-to-back yearly loss since 1997.

Big Lesson For Gold Investors In Russia’s Currency Crash
Russia has been the world’s biggest buyer of gold this year, taking its national holdings into the top five worldwide, but Russia’s huge central-bank gold demand has done nothing to stop its currency and economy crashing, an awkward truth for hard-money fans in the West who think central-bank buying always signals strength and vigor.

Where Gold Prices Could Go in 2015
Though not as dramatic as 2013’s implosion, barring a miracle within the next couple of weeks, 2014 will be marked as another bearish year for gold.
Sure, gold prices got off to a great start in early January, but by April the world’s most-loved commodity began to tumble again.

FINRA Issues Precious Metals Investor Alert
The Financial Industry Regulatory Authority (FINRA) issued a new Investor Alert called Physical Precious Metals: Tips to Avoid Tarnishing Your Portfolio. FINRA’s new Alert warns investors of the risks involved with investing in physical precious metals such as silver, gold, palladium or platinum. Enforcement actions by the Commodity Futures Trading Commission (CFTC) and court decisions paint an ugly picture of sellers who charge high commissions and fees but ultimately fail to purchase or deliver the physical assets as promised.

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