First Impressions

Blair Hull – Getting the Edge: Blackjack and the S&P 500

“What you need to be is persistent and disciplined in your strategy.”

Blair Hull, founder and managing partner at Ketchum Trading, compares the similarities of playing Blackjack with trading the S&P 500. Hull is not only an experienced Blackjack player, but also has about 40 years of experience in the financial industry. He says that both Blackjack and trading can be approached using a similar strategy. Hull continues his explanation with diagrams and numbers to be aware of during the Blackjack and trading process and even correlates the deck of cards with amounts of dollars made per trade.
Watch the video »

Quote of the Day

The very low inflation and subdued growth environment is accompanied by some froth in financial asset markets resulting from ‘search for yield

ECB Vice President Vitor Constancio, as quoted in the Reuters story “ECB warns of market froth, insufficient grip on shadow banks”

Lead Stories

The Day the Shouting Stopped; The energy, the surging life force of the trading pits has given way to the silent precision of electronic trading.
By Leo Melamed, WSJ
An era came to an end last week when the directors of the CME Group voted to close most of its futures trading pits in Chicago and New York. Futures markets have revolutionized global markets and initiated the modern era of finance. But “open outcry”—where traders and brokers gather on a trading floor and compete for transactions through hand signals and loud shouts of the quantity and price at which they are willing to buy or sell—had to give way to the silent precision of electronic trading. While the decision was inevitable, I still mourn.

***** For the record, Chicago exchange members never stop shouting.

What a Central Bank Can, and Can’t, Do About Government Debt –
Real Time Economics – WSJ
In the 1920s, Britain embarked on a determined drive to work off the debt accumulated during the First World War through a programm of severe austerity. As the International Monetary Fund pointed out in a 2012 report, Britain failed; by the early 1930s, its debt was higher as a share of GDP than it was at the start of the 1920s.

Emergency loan for Greece, extreme central banking and the elixir of life
The European Central Bank extended another EUR5bn in emergency loans to banks in Greece after fears that a spate of withdrawals could leave the lenders short of funding. Meanwhile Greek prime minister Alexis Tsipras argued for a new bailout agreement with fewer austerity demands at an EU summit in Brussels but Angela Merkel kept to her government’s hardline stance on Greece’s options for a fiscal rescue.

U.S. Treasurys Carry Weight of the World; Yields Ride a Roller Coaster, and There Could Be More Dips Ahead
By Richard Barley, WSJ
Bond markets are the heavyweight bruisers of the financial world: big, powerful and packing a hefty economic punch. But they are also surprisingly nimble and throw unexpected jabs.

New Rules on Bank Capital, Swaps Clearing Set to Clash
A new rule requiring banks to hold extra capital against all the assets on their books may have the unintended effect of undermining a central plank of the 2010 Dodd-Frank law aimed at boosting the safety of the multitrillion-dollar swaps market, a top regulator warned Thursday.

The $9 Trillion Question: Can the World Weather a Fed Rate Rise?
When Group of 20 finance ministers this week urged the Federal Reserve to “minimize negative spillovers” from potential interest-rate increases, they omitted a key figure: $9 trillion. That’s the amount owed in dollars by non-bank borrowers outside the U.S., up 50 percent since the financial crisis, according to the Bank for International Settlements. Should the Fed raise interest rates as anticipated this year for the first time since 2006, higher borrowing costs for companies and governments, along with a stronger greenback, may add risks to an already-weak global recovery.

These EM bonds are vulnerable to king dollar’s reign
Expectations that the Federal Reserve will hike interest rates later this year have powered a rally in the U.S. dollar, and with further gains likely, analyst warn that some dollar-denominated emerging market (EM) debt is vulnerable.

Central Banks

ECB warns of market froth, insufficient grip on shadow banks
ECB Vice President Vitor Constancio warned on Friday that ultra- low global interest rates had caused “froth” in some asset prices, and that more powers were needed to control the fast-growing, non-traditional or “shadow” banking sector.

Bank of England says Britain set for deflation for the first time since 1960
The Independent
Britain is heading for consumer prices deflation for the first time in more than five decades, the Bank of England said yesterday. The inflation rate as measured by the consumer prices index (CPI) slumped to just 0.5 per cent in December on the back of collapsing global oil prices. The Bank said its Monetary Policy Committee (MPC) “now judges it more likely than not that headline CPI inflation will turn negative at some point in the spring and will remain subdued for much of the rest of the year”.

Investors must keep on second guessing the Fed
Henny Sender, FT
The easy money offered by central banks is not without dangers, writes Henny Sender

Why the Fed Needs ‘Extended Patience’
Clive Crook – Bloomberg View
John Williams, president of the Federal Reserve Bank of San Francisco, gave a good interview to the Financial Times this week. Williams is seen as a moderate on monetary policy, a centrist on the dove-hawk spectrum. He thinks the economy is now close to full employment and the time for raising interest rates is getting “closer and closer.”

Does the Federal Reserve Need to Be Audited?
We are writing today in response to email exchanges with notable friends and fishing colleagues who are engaged in a discussion of legislation that calls for an audit of the Federal Reserve (Fed). That is now a serious conversation taking place in Washington DC. We have a view regarding this call to “audit the Fed.” Some of my fishing buddies will not like it and do not agree.

***DA: In Soviet Russia, CENTRAL BANK audit YOU.

Yes, Yellen Can Have It All as She Gets Ready to Raise Rates
Bloomberg Business
As the job market gains steam, Federal Reserve Chair Janet Yellen faces a massive challenge to adjust her monetary levers just right: She wants to keep the recovery going without stoking a bubble or spurring inflation. It’s a delicate balance that has bedeviled many central bank chiefs in the past.

Japan core inflation seen cooling, but BOJ to sit tight for now: poll
The Fiscal Times
Inflation in Japan is forecast to slow further in coming quarters pressured by the collapse in crude oil prices, but the Bank of Japan is set to sit tight for now as it assesses the broad impact of the oil slump on consumption and prices.


Banks’ Ability to Delay Currency Trades May Not Be Fair
by Greg Farrell, Bloomberg
New York banking regulator Benjamin Lawsky said his agency’s probe of electronic currency trading focuses in part on a practice known as “last look,” a programming feature designed to let banks delay execution of orders to avoid getting burned on price swings.

Citigroup to Boost FX-Trading Fees 25% for Some Customers
Bloomberg Business
Citigroup is raising prices for clearing and settling currency trades, according to four people with knowledge of the move, who asked not to be identified to preserve their relationship with the New York-based firm. For at least some clients, the price climbed by roughly 25 percent, one of the people said.

Concern in Denmark as Its Currency’s Peg to the Euro Is Strained
To better understand the wave of negative interest rates among European central banks, consider the krone. The krone — or crown, as it is known in English — is more than simply Denmark’s currency. For more than three decades, the government’s efforts to control the crown’s value have effectively defined the Danish economy.

China bank loans surge in January: central bank
The China Post
China’s bank lending more than doubled to 1.47 trillion yuan (US$235 billion) in January from December, the central bank said Friday, with analysts citing seasonal factors and monetary easing. In December, domestic banks extended new loans of 697.3 billion yuan, previous figures showed.

Scoring on Bets the Yen Will Fall Gets Harder
Betting against the yen isn’t the layup it once was. One of Wall Street’s most popular and lucrative trades in recent years has gone flat in 2015, the victim of its own success and renewed concerns that Japanese officials may not see through a radical overhaul of monetary and economic policy.

BOJ no longer in driver seat for yen moves
Speculation over additional stimulus from the Bank of Japan (BOJ) can jolt the dollar-yen but is no longer the main driver, analysts say, as focus shifts towards the U.S. economy and monetary policy.

Indexes & Index Products

European Equities Strong Yet Defensive-Oriented Year-to-Date as Global Political Dramas Unfold: Russell Indexes
Market Wired
The Russell Developed Europe Index is up 8.4% year-to-date as of 9 February, despite notable global headline risk across Europe, Russia and the Ukraine. And, while the overall index performance has been strong year-to-date, defensive-oriented stocks have outperformed dynamic-oriented stocks within the Russell Developed Europe Index, indicating continued caution on the part of European investors. The Russell Developed Europe Defensive Index has outperformed the Russell Developed Europe Dynamic Index by 2.3% year-to-date as of 9 February.

A Lame Defense of Active Management
An advertisement from Fidelity that appeared in the Jan. 26 issue of The New Yorker caught my attention. It stated: “Since its inception in 1989, the Fidelity Low-Priced Stock Fund (FLPSX), managed by Joel Tillinghast, has outperformed its Russell 2000 (^RUT) benchmark by 4.66 percent on an average annualized basis. What can other investors learn from the fund’s performance? That active management can be a powerful strategy over the long run.”

Smart Beta Funds: Are They Really Smarter Or Just Hype?
Smart beta funds are the new black. Just one question: What does “smart beta” mean? Trying to round up all the strategies that fall under the smart beta umbrella is a little bit like trying to herd cats. They’re all over the place, each with different notions on where to go and how to get there.

Russell Investments’ Transition Management service receives “Industry Innovation Award,” expands team to meet increasing client demand
Web Wire
Global asset manager Russell Investments recently earned its fourth consecutive CIO Magazine Industry Innovation Award. Specifically, Russell was recognized in the asset servicing category for its continued commitment to, and success in, transition management (TM) in 2014

MSCI rejig may result in up to $250 million inflows
The Economic Times
The tweaking of the MSCI quarterly index — a widely tracked emerging market equity index — on Wednesday night may result in net inflow of $180-250 million to Indian stocks from foreign funds.

UAE’s weight in MSCI EM index increased marginally
Dubai: Morgan Stanley Capital International Inc (MSCI) increased its weight of UAE in the emerging market index marginally, Arqaam Capital said in a note.

Rising Oil Lifts All (Commodity) Boats
MoneyBeat – WSJ
In the commodity markets, a rising price of oil lifts all boats. The 24 commodities in the S&P GSCI index aren’t directly correlated with oil prices, as each raw material moves on its own supply-and-demand dynamics. But new data from S&P Dow Jones Indices show that when U.S. oil prices are up, it’s hard for other commodities to be down – and vice versa.

Platts China Steel Sentiment Index Plunged in February
The outlook for China’s steel market for the next 30 days is down on the back of weaker expectations for new domestic and export orders ahead of the long Chinese New Year holiday, according to the latest Platts China Steel Sentiment Index (Platts CSSI), which reflects market participants’ expectations.

Markit in talks over index units
By Sarah Krouse, Financial News
Markit chief executive Lance Uggla is bullish on acquisition prospects for his firm in 2015 after a relatively quiet last year, with a particular eye on index operations that large banks are looking to shed.


Indian gold prices swing to premium
Gold prices in top consumer India swung to a premium to the global benchmark this week, compared with discounts late last month, as jewellery demand picked up, dealers said. Indian gold prices were at a premium of $2-$3 an ounce over the international benchmark and are expected to remain in the same range in the short term, according to trade sources.

$15,000 Gold And The Madness Of Murray Rothbard
Academic economists of every variety, along with high-fashion architects, are now generally regarded as deluded nincompoops — correctly, I would say, in both cases. Alas, this pathetic condition has also extended in the past to gold standard advocates, who, although their hearts are in the right place, have had a bad habit of spouting total nonsense.

Gold Is Back! At Least for Valentine’s Day Romance
Bloomberg Business
Investors may have fallen out of love with gold, but romantics bolstered by a better economy are pushing U.S. jewelry sales for Valentine’s Day to the highest in at least five years. After getting a raise in December, Robert Halabi now feels so confident that he’s planning to buy jewelry for two women to celebrate the holiday.

When it comes to gold, let’s get physical
The Australian
The Reserve Bank interest rate cut this month highlighted yet again why investors should have gold in their portfolios. The bank’s decision, similar to other central banks across the world in easing policy in recent weeks, clearly demonstrated that the era of easy money will continue for a long time.

Bitcoin Strikes For The Gold Standard
When people say someone is as “rich as Croesus,” they’re talking of to a time (B.C. time) when gold was first starting to be used as a currency. A time when Croesus of Mermnadae, the last King of Lydia, had accumulated an ungodly amount of gold that was made from Lydian merchants.

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