First Impressions

A Complicated Relationship
By John J. Lothian
Patrick Young is headed back to the Bürgenstock Conference of the Swiss Futures & Options Association for the first time in several years to host a rerun of the “Crossfire” panel he once popularized. He is bringing his well-known wit and blistering charm to this once legendary international forum of industry leaders.

Burgenstock has not aged so well in the years since Crossfire was a thing. It lost its beautiful venue atop a mountain overlooking Lake Lucerne and has bounced around Switzerland to alternative locations that lacked the unique qualities of the Bürgenstock site.

The new CEO of the SFOA, Daniel Day-Robinson, is trying to bring new life to the conference. He wants to go back to basics, where Bürgenstock started, focused on new products and new markets. With a nod to the past, and an eye on the future, Robinson brought the exiled Mr. Young back to help put a spark into the conference.

The question for some who know Mr. Young is whether he will add a spark, or burn down all of that around him. From his perch as publisher of Exchange Invest, a somewhat familiarly styled daily newsletter about exchanges, Mr. Young has insulted and/or torched some notable exchange leaders, including former NYSE Group CEO Duncan Niederauer. He has been on a scorched-earth campaign against Nasdaq’s futures efforts in London and notably piggish towards NLX CEO Charlotte Crosswell. Nasdaq must have thick skin, as it was announced yesterday that it was sponsoring Exchange Invest.

Read the rest of the commentary on John Lothian News

Quote of the Day

“[Prosecutors] use terms to find evidence of whether someone is trying to hide their activities because evidence of a cover-up is frequently more potent than the evidence of the alleged crime.”

Reed Brodsky, a partner at Gibson, Dunn & Crutcher LLP, in the story, “Don’t Use These Lame Acronyms If You Don’t Want to Get Nabbed by the Feds”

Lead Stories

China’s stock market support measures fall flat
Jing Yang and Xie Yu – South China Morning Post
Beijing’s relentless efforts to prop up the stock market have hardly moved the benchmark gauges as the problem lies in the economy rather than the markets.
“International investors are pricing in the risks embedded in China’s economy or deterioration, or a possible financial crisis. But the sell-off has been overdone,” said UBS economist Donna Kwok.
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Global economic growth: The IMF urges the Fed to delay a rate rise
The Economist
Just a week after turbulence hit financial markets in China, hitting investor confidence around the world, today the International Monetary Fund released a downbeat note about global economic growth. The IMF pointed to a slowdown in growth across both advanced as well as emerging economies in the first half of 2015, and warned that financial turmoil, slow productivity growth and falling commodity prices will dampen prospects for the rest of the year.
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Mario Draghi ready to prop up eurozone with more stimulus
Mehreen Khan – The Guardian
The euro fell sharply and stock markets rose after the European Central Bank boss said he was ready to provide more stimulus to prevent the eurozone’s faltering economy being hit by worries over China.
The ECB’s president, Mario Draghi, said the eurozone’s growth prospects had suffered in recent months and could worsen if the slowdown in China and turmoil in emerging markets took a turn for the worse.
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Jeremy Corbyn’s economic policies could be ‘highly damaging’, economists warn
Ben Martin – The Telegraph
The economic policies of Jeremy Corbyn, the front-runner to become the next Labour party leader, are likely to be “highly damaging” and his proposal for “People’s quantitative easing” would threaten “fiscal credibility”, a host of economists have warned.
The veteran left-wing MP is expected to triumph in next week’s Labour leadership contest and has proposed a number of economic measures, including giving the Bank of England powers to invest in housing, energy, transport and digital projects, reopening coal mines, and nationalising gas and electricity.
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Emerging Markets Are Still the Future
Michael Schuman – Bloomberg
Remember when emerging economies were supposed to save us all? After the 2008 financial crisis, the traditional engines of global growth—the U.S., Western Europe, and Japan—stumbled into recession. To the rescue came the once-poor developing world. China, India, Brazil, and other up-and-comers powered the global economy through the historic downturn. The meek were inheriting the earth.
Not completely, as it turns out.
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Cerberus Acquires $5.7 Billion of Mortgages Shunned by Banks
Heather Perlberg – Bloomberg
If you have a modified mortgage made around the time of the U.S. housing market’s peak, Cerberus Capital Management probably wants to buy it.
The investment firm has acquired residential loans with an unpaid balance of more than $5.7 billion as of the end of July, according to a marketing document obtained by Bloomberg. Most were mortgages issued from 2005 to 2007 and then modified. The company is seeking to increase the purchases, which are tied to homeowners who are less likely to default because they’ve been making regular payments for several years.
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Trader accused in $100 mln hacking scheme pleads not guilty in U.S.
Alice Popovici – Reuters
A man charged over his alleged role in a more than $100 million insider trading scheme that involved hacking into networks that distribute corporate news releases pleaded not guilty on Wednesday.
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Economics Has a Math Problem
Noah Smith – Bloomberg View
A lot of people complain about the math in economics. Economists tend to quietly dismiss such complaints as the sour-grapes protests of literary types who lack the talent or training to hack their way through systems of equations. But it isn’t just the mathematically illiterate who grouse. New York University economist Paul Romer — hardly a lightweight when it comes to equations — recently complained about how economists use math as a tool of rhetoric instead of a tool to understand the world.
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Traders Ride the ETF Roller Coaster
Dan Strumpf – WSJ
Some of the roughest volatility over the past several weeks has been reserved for individual investors who piled into risky bets on commodities prices.
Exchange-traded funds and notes that use leverage, or borrowed money, to amplify bets on oil, gold and natural-gas prices have surged in popularity, including among day traders and other mom-and-pop investors, even as many of the wagers lost money amid the rout in commodities.
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G20 tries to smooth China economic shockwaves
South China Morning Post
World finance ministers gather in Turkey this weekend confronted by slowing growth in China, tanking emerging economies and panicked stock markets.
And with looming interest rate increases in the United States adding to the uncertainty and concern, finance ministers and central bankers of the Group of 20 nations will be meeting in Ankara under dramatically changed circumstances than when they last huddled in April.
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Some Hedge Funds Prosper in Market Tumult
Alexandra Stevenson and Matthew Goldstein – NY Times
A market sell-off that ricocheted across the globe last month reversed the fortunes of many of Wall Street’s star investors. But it is not all doom and gloom in the $3 trillion hedge fund industry.
A number of hedge funds, both big and small, are recording double-digit gains this year and putting up the kind of performances that just might justify the industry’s famously hefty fees.
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Global Investment Banks May See Revenue Drop, JPMorgan Says
Stephen Morris – Bloomberg
Global investment banks may see revenue drop 19 percent in the third quarter, lowering earnings per shares across the industry, as a surge in volatility caused by turmoil in China recedes, according to analysts at JPMorgan Chase & Co.
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Oil bulls are subject to a hard fact, which is that US shale is a stubborn bear
Steve LeVine – Quartz
Oil prices continue to swing wildly, but they are subject to a hard fact—the incessant flow of US shale oil, which, according to a leading energy research firm, is likely to dip only slightly this year before rising again by next summer.
When you add in the breakneck production of OPEC crude, which will probably only increase over the next year as Iran returns to the market, you get very little chance that income pressure will ease on struggling oil companies and petro-states.
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Banks Are Perilously Exposed to China
Leonid Bershidsky – Bloomberg View
Until very recently, large exposure to China was seen as an advantage, a toehold in the market of the future. Now it’s seen as a risk, and some of the world’s most advanced companies seem to be on the losing side of a huge bet. The danger may be overstated in some cases and understated in others.
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China risks repeating the errors of Japan
Gillian Tett – Financial Times
Just over a decade ago I wrote a book about the rise and fall of 20th century Japanese finance. I later discovered that a pirated Chinese language copy had been produced.
Chinese regulators and bankers came to see me about the book and explained. “We want to understand what happened so we can be different,” the mantra went; Japan’s crazy 1980s bubble was being studied to show what policymakers should not do.
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Lloyds sued for unfair dismissal over Libor sacking
Andrew Trotman – The Telegraph
Lloyds Banking Group is being sued for unfair dismissal by a former employee who was sacked following the Libor-rigging scandal.
Andrew Reed, who was responsible for entering Lloyds’ yen Libor submissions, will take his case to a London employment tribunal on September 16.
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Flash Crash Trader Sarao Indicted by Grand Jury in Chicago
Tom Schoenberg – Bloomberg
The U.S. unsealed a federal grand jury indictment Thursday against the British day trader accused of contributing to the 2010 flash crash.
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Venezuela Picks On Colombia As Inflation Mounts
Dimitra DeFotis – Barron’s
As inflation in Venezuela skyrockets and Venezuela President Nicolas Maduro taps China for dollars, autocratic government tactics — like the closure of the border with Colombia to elicit patriotism — detract from domestic economic worries in the oil-starved economy and could backfire.
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Indonesian Leader Widodo Is Trying to Show He Means Business
Neil Chatterjee and Chris Brummitt – Bloomberg
Indonesian President Joko Widodo is adding urgency to his efforts to salvage his economic agenda.
The president, “upset” at the lack of change, brought former finance minister Rizal Ramli into his cabinet in a reshuffle last month to help take on political vested interests and cut through corrupt bureaucracies, Ramli said in an interview. Ramli’s first mission is to more than halve waiting times at the country’s main port in Jakarta within six weeks to speed up trade.
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Central Banks

ECB Leaves Rates On Hold as Investors Look to Draghi for QE Hint
Alessandro Speciale and Fergal O’Brien – Bloomberg
The European Central Bank left interest rates at record lows, shifting the focus to President Mario Draghi’s press conference for clues on whether he sees a need to step up stimulus.
The 25-member Governing Council kept the main refinancing rate at 0.05 percent at its meeting in Frankfurt on Thursday, as predicted by all 47 economists in a Bloomberg News survey. The deposit rate and the marginal lending rate stayed at minus 0.2 percent, and 0.3 percent, respectively.
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China poses threat to global growth, IMF warns
BBC
China’s slowdown appears to have bigger repercussions for other countries than had been expected, the IMF said.
The troubles in China have sent the prices of commodities such as oil and copper sliding.
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Don’t Trust Friday’s U.S. Jobs Report
Mark Gilbert – Bloomberg View
The world of finance is drooling to find out what happened to the U.S. jobs market last month, anticipating that the Federal Reserve’s September interest-rate decision hinges in large part on that one economic indicator. If the U.S. economy added a ton of jobs in August, the promised increase in borrowing costs will be seen as a done deal for this month. If employment falters, the soothsayers of finance will scribble that the Fed stays on hold for a while longer. Except it turns out that the August report is the least trustworthy of the monthly jobs figures.
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The Economist explains: The Fed’s plan to hike interest rates
The Economist
All across America there are nine-year-olds filing into fourth-grade classrooms who have yet to enjoy the thrill of a Federal-Reserve rate increase. The Fed, America’s central bank, last raised rates in June of 2006, by 25 basis points to 5.25%. It soon found itself reversing course, as a housing bust gave way to the Great Recession; since December of 2008, the Fed’s benchmark interest rate has been set at between 0.0% and 0.25%. Yet that may be about to change. A speech delivered on August 29th by Stanley Fischer (pictured), the vice-chairman of the Federal Reserve, gave no indication that the Fed had been deterred by recent market wobbles from its plan to raise rates this year, and perhaps at the next meeting, on September 16-17th. Why is the Fed about to raise interest rates?
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Those Inflation Targets Keep Getting Harder to Hit
Jeff Black, Christopher Condon, Peter Coy, Chikako Mogi and Shigeki Nozawa – Bloomberg
Central bankers are failing to meet their own standards for inflation. With growth and trade down in much of the world, inflation is lower than they want it to be across the biggest economies: the U.S., Europe, Japan, and China.
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Slashing Through the Rate Hike Jungle
Chris Versace and Lenore Hawkins – TheStreet
Lately, we’ve been seeing a lot of red, from the gut-wrenching market plunges to China dominating the headlines and getting the blame for much of the market turmoil lately. The mixed messages coming from the Fed certainly aren’t helping calm volatility either. The past few weeks have us both doing a head bob to the 1987 Guns N’ Roses 1987 classic, Welcome to the Jungle.
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Group Of Twenty IMF Note — G-20 Finance Ministers And Central Bank Governors Meeting
Press Release – Mondovisione
Global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies. In an environment of rising financial market volatility, declining commodity prices, weaker capital inflows, and depreciating emerging market currencies, downside risks to the outlook have risen, particularly for emerging markets and developing economies.
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Currencies

Jack Lew: We’re going to hold China accountable on currency
Matthew J. Belvedere and Steve Liesman – CNBC
Treasury Secretary Jack Lew, in an exclusive interview with CNBC, diplomatically but firmly criticized China’s handling of its currency devaluation. He also said the recent trading turmoil isn’t a major concern at this point, but “I keep my eye on the market.”
Regarding China, whose devaluation last month helped set off the plunge in world markets, Lew said: “They have to understand, and I make this point to them quite clearly, that there’s an economic and a political reality to things like exchange rates.” His comments follow those of other officials who have been critical of the way China went about devaluing its currency.
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Pound Bulls Suffer Setback as Prospect of U.K. Rate Boost Fades
Anooja Debnath – Bloomberg
Speculators anticipating a stronger pound should prepare for a long wait.
Sterling suffered the sharpest turnaround of any developed-world currency over the past month, tumbling against its Group-of-10 peers and posting its longest stretch of declines versus the dollar in almost a year. Options prices signal further losses versus the greenback and increasing pessimism against the euro.
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Mario Draghi’s stimulus sleight of hand sends euro plummeting
Mehreen Khan – The Telegraph
European Central Bank president Mario Draghi delivered a shot to the arm of panicked investors, promising to use the full force of the ECB’s policy tools to stimulate the eurozone and opening the door for more quantitative easing before the end of the year.
In the first major central bank action following last month’s global stock market turmoil, a dovish Mr Draghi said at the ECB’s latest governing council meeting that it was ready to expand its unprecedented EUR1 trillion bond-buying blitz “if necessary”.
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Rupee Volatility Drops to 3-Week Low on Stability Expectations
Kartik Goyal – Bloomberg
A gauge of expected swings in India’s rupee dropped to a three-week low on speculation the central bank will maintain a stable exchange rate.
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Indexes & Index Products

BNY Mellon pricing snafu highlights bank’s fragmented technology
Tim McLaughlin and Svea Herbst-Bayliss – Reuters
BNY Mellon Corp’s recent high-profile computer glitch has highlighted how reliant the bank is on a patchwork of in-house and third-party technology platforms despite a pledge by Chief Executive Gerald Hassell to simplify things.
The U.S. bank roiled about 5 percent of the U.S. fund industry last month when one of the accounting systems it relies on to generate prices for mutual funds and exchange-traded funds collapsed. The problems lasted a week and affected about $404 billion in assets.
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Should Trump Have Indexed?
Matt Levine – Bloomberg View
Max Abelson’s Bloomberg Businessweek story about Donald Trump’s business career is as delightful as you’d expect, suffused as it is with the essence of Trump.
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Real Estate and Financial Services Select Sector Indices Launched by S&P Dow Jones Indices
MarketWatch
As Real Estate gains traction as a distinct category for investors, S&P Dow Jones Indices (S&P DJI) has announced the launch of the Real Estate Select Sector and Financial Services Select Sector indices. These two indices broaden S&P DJI’s well-regarded family of Select Sector Indices from nine to eleven.
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FTSE UK Index Series Quarterly Review September 2015
The changes announced today are part of the impartial quarterly reviews endorsed by the independent FTSE Europe, Middle East and Africa (EMEA) Regional Advisory Committee. The rules-driven reviews ensure the indexes continue to portray an accurate reflection of the market they represent, and form an essential component to the management of the indexes. The FTSE 250 Index will see the following changes (in alphabetical order), in addition to the amendments described above.
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Is Your Global Equities ETF Adding China Exposure?
Patricia Oey – Morningstar
Index providers MSCI and FTSE Russell are considering adding China A-Shares to their respective global equity indexes – what effect will this have on your ETF?
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NCDEX awaits FMC merger with Sebi to launch weather ETFs
Business Standard
Aiming to help hedge risks against adverse weather conditions, the National Commodity and Derivatives Exchange (NCDEX) will shortly be launching a set of exchange- traded weather insurance products. As NCDEX is currently being regulated by the Forward Markets Commission (FMC) whose norms don’t allow any such product, it is waiting for the merger of the commodities regulator with the Securities and Exchange Board of India (Sebi) to be completed by September end, before it formally unveils the product.
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Russell Investments suffers senior exits
Mark Cobley – Financial News
Russell Investments has lost two senior heads of its business in Europe – including its institutional investment services head – amid ongoing uncertainty over the future ownership of the consulting and fiduciary management group.
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Gold

Gold Traders Won’t Come Out to Play as U.S. Jobs Report Looms
Millie Munshi – Bloomberg
Gold traders are waiting on the sidelines before Friday’s U.S. jobs report that will shed light on how well the economy is holding up amid global equity turbulence.
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A Gold Trade Investors Can’t Refuse—Even if They Want To
Helen Thomas – WSJ
Someone seems to think markets are approaching a nadir for gold miners. Not that it is likely to do minority investors in Polyus Gold International much good.
Russian billionaire Said Kerimov said late Wednesday he was considering making an offer for the shares in London-listed Polyus that he doesn’t already own. At the suggested price of $2.97 a share, investors would get a measly 3% premium, over the average share price of the past month.
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Polish Army to Start Nazi Gold Train `Reconnaissance’ by Friday
Marek Strzelecki – Bloomberg
Poland’s military will soon start “reconnaissance work” in the forested foothills of the Sudety mountains, where treasure hunters believe an armored Nazi train carrying gold and loot has been buried for 70 years.
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Miscellaneous

‘Bonkers’ and 140 Other Words Never to Say to Market Reporters
Michael P Regan – Bloomberg
The comedian George Carlin darn near made a whole career out of a routine about seven words you’re not allowed to say on television.
The seven words were … aww, shoot, we better not repeat them here due to the young and impressionable souls out there who are confessed readers of this column. (Finish your homework, Master Shrey.) You, of course, are free to go watch the routine on YouTube, presuming you are not currently on live television. (Ask mum’s permission first, Master Shrey.)
It turns out that if you’re talking to the financial press, there are a bunch of other words you probably should never use, according to the work of some Swiss academics. Unless, that is, you’re long volatility, then maybe you want to sprinkle these words liberally into your talking points. Hey, if that’s your thing … judge not lest you be judged, and all that jazz.
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This Was to Be the Year of Bigger Wage Gains. It’s Not.
Neil Irwin – NY Times
The unemployment rate is low by any historical standard at 5.3 percent. Businesses are complaining of worker shortages in industries including health care, construction and trucking. Household-name companies like Walmart and McDonald’s have announced increases to their pay for low-wage workers.
Add those together, and it would seem to point to 2015 as being the year American workers start seeing substantially larger paychecks. The only problem: There is no real evidence in the economic data that this is happening.
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Parade’s end: The real purpose of a rare military display was to show who is in charge
The Economist
After weeks of market mayhem, it must have made a nice change for Xi Jinping, China’s president, to be reviewing ranks of smartly-dressed people who move in perfect synchronicity and do exactly what he tells them. Vast military parades may have gone out of fashion elsewhere, but Asian countries still like to strut their stuff. After displays of hardware and prowess in India, Pakistan, Russia and Taiwan this year, China held the most vainglorious march-past yet under clear blue skies (especially seeded for the purpose) in Tiananmen Square on September 3rd.
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From Here on Out El Nino’s Weather Impact Is Only Going to Grow
Brian K Sullivan – Bloomberg
How the weather plays out in the next six months will have a lot to say about the California drought, snow in the Northeast and even the price of natural gas.
A strong El Nino in the equatorial Pacific will make itself noticed in weather patterns across the globe. Tuesday’s update from the Australian Bureau of Meteorology said it’s the strongest El Nino since 1997-98, which was the biggest in records going back to 1950.
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Don’t Use These Lame Acronyms If You Don’t Want to Get Nabbed by the Feds
Keri Geiger Sam Mamudi – Bloomberg
Criminals always slip up. They leave behind fingerprints. Hair. A cigarette butt.
A telltale acronym.
TYOP (tell you on phone), TOL (talk offline) and LDL (let’s discuss live) are red flags for prosecutors combing through the e-mail transcripts of Wall Street traders suspected of illegal activity. No need for a crime lab. A simple search — Control-F on the computer keyboard — has become one of investigators’ favorite weapons to uncover possible lawbreaking, according to defense attorneys and current and former prosecutors who agreed to speak on condition of anonymity.
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The hidden economic lessons of the evil eye
Matt Phillips – Quartz
In Brazil, it’s olho grande. Italians call it il malocchio. Hungarians refer to gonosz szem. Deochi in Romania. In urdu, it’s known as nazar lagna. In Arabic, ayn al-hasud literally means ‘eye of envy.”
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