Today is the kickoff of the Summer Intern Education Series in Chicago, part of our MarketsWiki Education World of Opportunities theme. We have over 200 interns signed up for today, so come early and get a seat. If you (or your interns or new employees) would like to attend but have not yet registered, click the handy link below for tomorrow’s session. The Friday session at TT, alas, is sold out.
Quote of the Day
“Generally, investment banks ask leaving employees to stay for at least three months without talking to former clients. There should be some discretion over the exact period, but given the public interest of a central banking job the gardening leave should be three to six months.”
Rosa Lastra, professor of international financial and monetary law at Queen Mary University in London in the story, “Central banks face tricky balancing act”
China Dethroned as World’s Most Liquid Stock Market After Curbs; The unprecedented boom in Chinese stock trading during the first half of 2015 has fizzled.
China has lost its title as the world’s most liquid stock market as trading halts and regulatory efforts to curb bearish transactions drive away investors.
Wall Street’s new chatrooms could thwart probes
New York Post
Forget about Sen. Elizabeth Warren. The worst scourge on Wall Street is overly chatty traders. Since 2010, the world’s 13 biggest banks have shelled out more than $74 billion to settle probes, ranging from interest-rate rigging to currency manipulation, where incriminating exchanges between traders provided key evidence, according to a Post analysis of data compiled by the CCP Research Foundation. The eye-popping figure is a big reason why Wall Street is backing a new cutting-edge communications system. Symphony promises to give its clients, including Goldman Sachs and JPMorgan Chase, greater control of their data — and save them “billions of dollars in fines,” according to a company pitch to clients.
UBS was warned of Puerto Rico loan practices, e-mails show
A UBS AG branch manager in Puerto Rico warned bank officials that brokers for the firm had urged customers to engage in improper loan practices, more than two years before the bank made a $5.2 million settlement over the matter with the island’s financial regulator, according to internal bank correspondence reviewed by Reuters.
The documents seen by Reuters reflect the branch manager’s allegations that UBS financial advisers encouraged investors to use their brokerage accounts as collateral to borrow money and buy larger quantities of poorly-performing closed-end bond funds packaged by UBS.
China’s Response to Stock Rout Exposes Regulatory Disarray
As China’s summer stock slide deepened, threatening a key plank of Beijing’s plan to overhaul the world’s No. 2 economy, the country’s premier pounded the table and demanded that regulators get their act together.
SEC Set to Approve CEO Pay-Gap Disclosure Rule
WASHINGTON—Regulators are set to approve a contentious new rule requiring companies to disclose the pay gap between rank-and-file employees and the chief executive, marking the culmination of years of debate and pressure on the Securities and Exchange Commission over a mandate from the 2010 Dodd-Frank law.
The Oil Crash Has Caused a $1.3 Trillion Wipeout
It’s the oil crash few saw coming, and few have been spared as it erased $1.3 trillion, the equivalent of Mexico’s annual GDP, in little more than a year.
Take billionaire Carl Icahn. When crude was at its peak in June 2014, the activist investor’s stake in Chesapeake Energy Corp. was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor’s 500 Index and Icahn has a paper loss of $1.3 billion. The S&P 500, by contrast, is up 6.9 percent in that time.
Pimco Gets Warning From SEC That Lawsuit Could Be Coming; SEC’s Wells Notice pertains to the Pimco Total Return ETF
By KIRSTEN GRIND And GREGORY ZUCKERMAN, WSJ
Bond giant Pacific Investment Management Co. said Monday that it could be sued by the country’s top securities regulator over how it valued assets in one of its most popular funds aimed at small investors.
Promontory suspended for indefinite period over StanChart work
Ben McLannahan in New York, WSJ
New York’s top financial regulator has issued a stinging rebuke to Promontory Financial Group, the influential consulting firm, ordering it to suspend business for an indefinite period for whitewashing a 2011 report on sanctions violations by Standard Chartered, the UK bank.
Crédit Agricole in ‘Advanced’ Talks on U.S. Sanctions Settlement
Dealbook – NY Times
Crédit Agricole, one of the biggest banks in France, said on Tuesday that its profit increased in the second quarter and that it was in “very advanced stage” talks to settle investigations into whether it processed payments for countries and individuals facing sanctions by the United States.
The bank, based in Paris, said its discussions with the Justice Department, the Manhattan district attorney’s office and other United States authorities were continuing and “are likely to lead to a global settlement in the autumn 2015.”
BofA, Barclays Win Narrowing of 27 Libor-Rigging Lawsuits
A U.S. judge threw out a raft of claims against banks accused by investors of manipulating the London interbank offered rate, or Libor, which they said led to losses on transactions tied to the benchmark.
U.S. District Judge Naomi Reice Buchwald ruled Tuesday that some claims were filed too late while the court lacked jurisdiction over some of the defendants. She allowed local governments, hedge funds and other investors to pursue some claims based on fraud.
Glamour is out at Pimco as it begins to recover from Gross exit
BY JENNIFER ABLAN
Dan Ivascyn, who succeeded Bill Gross as Pimco’s new chief investment officer nearly a year ago, acknowledges that life at the firm is now “less glamorous.”
Citadel’s Ken Griffin Leaves 2008 Tumble Far Behind; Hedge-fund firm that nearly collapsed during the financial crisis is thriving again and expanding as aggressively as ever
By ROB COPELAND, WSJ
On hedge-fund titan Kenneth Griffin’s 46th birthday last October, his firm paid former president Bill Clinton $250,000 to speak to investors and employees at the New York restaurant Daniel.
Alibaba Names Former Goldman Sachs Executive as President
Dealbook – NY Times
To oversee international expansion, the Alibaba Group is turning to a former Goldman Sachs executive who has long worked with the Chinese Internet giant.
Alibaba on Tuesday named J. Michael Evans, who already serves on its board, as its president.
Treasuries Fall From 2-Month High as Lockhart Signals September
Treasuries fell from the highest levels since early June after Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank is almost ready to raise interest rates.
U.S. 10-year yields rose after earlier touching their 200-day moving average, a level some traders use to assess whether valuations are stretched. On Monday, a collapse in crude prices and weaker-than-forecast manufacturing data fueled speculation the Fed would hold off on raising interest rates as soon as its next meeting, in September.
Central banks face tricky balancing act
A controversy over potential conflicts of interest for a hedge fund economist appointed last week to set UK borrowing costs has brought into focus how central banks regulate their rate-setters.
In the case of Gertjan Vlieghe, questions were raised over whether his financial interests — including a continued payment from his former company — were compatible with his new role on the Bank of England’s Monetary Policy Committee. He has since said he will cut all ties with Brevan Howard, a macro hedge fund whose trading strategy is based on anticipating shifts in monetary policy.
Greece Sees Bailout Deal in Time to Meet $3.5 Billion Due to ECB
Greece’s government aims to reach agreement with creditors on a new bailout within the next two weeks, enabling it to make a 3.2 billion-euro ($3.5 billion) payment to the European Central Bank without further bridge financing.
Prime Minister Alexis Tsipras’s government plans to submit a bill to the Greek parliament by Aug. 14 approving the conditions attached to a loan facility from the European Stability Mechanism, according to a Greek government official. A vote would follow by Aug. 19, the day before the ECB payment falls due, the official said, asking not to be named as talks with creditors are private and ongoing.
Signs of Stability in Core Inflation Should Comfort Fed Officials – Real Time Economics
The bad news about U.S. inflation is it has run below the Federal Reserve’s 2% objective for 38 straight months. The good news is that it shows signs of having stabilized in the first half of 2015.
India’s Central Bank Leaves Main Rate Unchanged
The Reserve Bank of India left its main interest rate unchanged Tuesday, as contradictory data failed to provide a clear picture of the health of Asia’s third-largest economy.
RBI Gov. Raghuram Rajan said he is waiting for banks to pass on to customers the three interest-rate cuts the bank has made since the start of the year. He added that the inflation forecast for India has somewhat worsened.
The Devastation in Global Commodity Currencies Is Far From Over
A bounce in crude oil and other commodity prices Tuesday halted a plunge in currencies of countries linked to natural-resource exports. The respite will be short-lived, according to OppenheimerFunds Inc.
The Canadian, Australian and New Zealand dollars are off to the worst start to a year since the financial crisis. The nations are grappling with a 29 percent drop in raw-material prices amid swelling supplies and slowing demand in China that may wipe out as much as 14 percent of the Canadian dollar’s value in the next three years.
Bats Accelerates Foreign-Exchange Push With Free London Trading
by John Detrixhef, Bloomberg
Bats Global Markets Inc., the operator of Europe’s largest stock market, will offer free currency trading when it opens its London hub next month as part of an effort to muscle into the world’s biggest asset class.
Bitcoin deemed regular currency by Australian Senate Committee
Bitcoin and other digital currencies will be treated the same way as traditional currencies under expected proposals from the Australian government, reports suggest. A Senate inquiry is set to overturn a ruling from the Australian Taxation Office (ATO) from July 2014 that classified bitcoin as an “intangible asset” for Goods and Services Tax (GST) purposes, according to the Australian Financial Review, giving a much needed boost to local bitcoin businesses.
Brazilian Currency Leads Declines as Rout Seen Gaining Momentum
The real led losses among regional currencies and slid to a 12-year low after the rout gained momentum on concern Brazil will lose its investment grade rating and amid evidence of a widening political corruption scandal.
“While a lot of the bad news is already priced in, there is much more to go,” Christian Lawrence, a foreign-exchange strategist at Rabobank Nederland, said in a phone interview from New York.
Indexes & Index Products
Calvert Unveils Responsible Index Funds
Bethesda, Md.-based Calvert Investments, a broker-dealer and RIA focusing on responsible investing, has launched a suite of responsible indexes and related index funds that will track them.
MSCI may still reclassify Greece if capital curbs persist
Index provider MSCI said it continued to monitoring capital controls at Athens’ stock exchange and may still launch a consultation to reclassify the country from ’emerging’ to ‘standalone’ status if significant restrictions continued. Greece’s stock market .ATG reopened on Monday after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone, but ended the day with heavy losses.
Ex-S&P exec may proceed with case against SEC, U.S. judge rules
BY NATE RAYMOND
Aug 3 The U.S. Securities and Exchange Commission on Monday lost a bid to dismiss a constitutional challenge to its ability to pursue claims against a former Standard & Poor’s executive before one of its own in-house administrative judges rather than in federal court.
Indexology – S&P Dow Jones Indices
“There are 3 kinds of lies: lies, damned lies, and statistics.”- Mark Twain
Earlier this week, The Wall Street Journal pointed out that a mere six stocks (Amazon, Google, Apple, Facebook, Gilead, and Disney) had accounted for more than 100% of the S&P 500’s year-to-date gains. This degree of concentration (reminding some of the peak of the 1990s’ technology bubble) is said to raise “concerns about the health of the market’s advance.” While the article’s arithmetic was correct, its concerns may be misplaced.
A challenge for SA index trackers
There is no doubt that the biggest story in the global fund management industry over the last ten years has been the rise of index trackers. At the end of last year 40% of all equity investments held by institutional investors in the US was in passive products. Analysis from Morningstar shows that last year passive US equity funds saw $166.6 billion of inflows, while active US equity funds saw outflows of $98.4 billion. Across all long-term asset categories in the country, $420.1 billion went into passive strategies while active funds had inflows of only $44.3 billion.
JP Morgan updates methodology for EM indexes
JP Morgan & Co updated its methodology for its emerging markets indexes, a move that will boost the weightings of China, Brazil and Russia in its key corporate EM broad diversified index, the firm said Monday.
Gold Is Your Trade if You Believe in Buying Fear
Investors are in a deep panic about gold.
A key measure in the options market shows that bearish puts are trading at a sharp premium to bullish calls. In other words, options traders are betting heavily that the price of gold will continue to fall.
How much gold should you have in your portfolio?
Since the peak in early September, 2011, the dollar price of gold has plunged more than 40 per cent. Given the human tendency to expect the future to look like the recent past, sentiment seems to have become relentlessly bearish.
Hedge funds have gone net short gold for the first time since data began being collected in 2006.
For the sake of argument, suppose you agree with this “smart money”. (Maybe you were persuaded by this or this.) What should you do?
Weak Australian dollar help miners shrug off gold price slide
Spot gold’s tumble to a half-decade low may have injected fear into the hearts of many gold miners but not in Australia, where the lower local dollar is cushioning the impact of the fall.
Gold miners turning to derivatives to lock in revenue
The lower gold price is creating future risk among gold mining companies unsure of whether the price could fall further. That has them exploring new ways to lock in revenue, including the prospect of derivatives as hedging vehicles.
According to data from Societe Generale and Thomson Reuters GFMS, options structures comprised 46 percent of the global hedge book by the end of the first quarter, compared to only 16 percent during the first quarter of 2014 and 11 percent in Q1 2013.
Gold: Are We Starting to Approach the Bottom?
I am not a big fan of gold. Never was. Gold has no intrinsic value. People just like to wear it on their wrist or around their necks — and what they’re willing to pay to be able to do that basically determines its value.
Since peaking in 2011 on false hyperinflation fears, gold has been crushed. It has been a really poor investment and that’s been true historically, as well. Even when gold hit $1900, on an inflation-adjusted basis it still wasn’t above the prior high point that it hit in its last bull market back in 1980.
Stocks have far outperformed gold. You want a good inflation hedge? Buy common stocks, not gold.