First Impressions

Special Report: A Bitcoin for Your Thoughts
What is it? And if you can determine that, how should it be regulated, taxed, or even traded? Is this the next asset class? Some may find potential there, while others still find it a joke or worse. Our special report features a column from JLN publisher John Lothian about his thoughts on Bitcoin, a short primer on the aspects of Bitcoin, as well as some of the best articles we have found in recent weeks. This Special Report is designed to inform and perhaps, raise the debate and dialog further.

**JK – Rarely has there been a topic in the offices of John Lothian News that has raised debate, argument and conversation the way that Bitcoin has. What was once thought of as an internet-generated joke is now a topic covered by every mainstream media outlet around the world.

Quote of the Day

In a world where real growth is hard to come by, we have to make do with volatility, and I believe there will be a lot more of that in European asset prices next year.

FT columnist John Dizard in the article “Risk of a European break-up has not magically disappeared”

Lead Stories

CME in Final Stage of BOE Talks on Europe Exchange, CEO Says
Nandini Sukumar & Chanyaporn Chanjaroen – Bloomberg
CME Group Inc. is in the final stages of talks with the Bank of England to start a new European exchange and is confident it will be allowed to offer currency futures, according to its chief executive.

**JK – There is a running loop at the FCA of “Time is on my side” by the Rolling Stones.

Risk of a European break-up has not magically disappeared
John Dizard –
Friends of mine in the American markets wonder why I spend so much time analysing and writing about Europe, especially as there has not been a really interesting euro area crisis in the past year.

**DA: Europe is either in a crisis, or it is busy sowing the seeds for the next crisis. Right now they are in seed-sowing mode.

Banks Poised to Reduce Rate-Swap Trading as Revenue Seen Reduced
Matthew Leising – Bloomberg
Dealer revenue from negotiating interest-rate swap transactions is poised to plunge about 45 percent as new rules boost trading costs, pressures that may prompt banks to participate less in the $633 trillion over-the-counter derivatives market, Tabb Group LLC estimates.

The road to liberalisation is paved with certificates of deposit
David Keohane | FT Alphaville
Starting today we get what is basically the first formal step to a fully fledged market based deposit rate system from China (honourable mention of course to those more informal weapons of mass ponzi). It’s been coming and the move doesn’t affect corporates or individuals, but in the context of the Shibor spike, deposit pressure and the post-plenum reform blush it’s very worth noting.

***DA: Baby steps.

Trading Led by Funds as Collusion Probes Roil Market: Currencies
David Goodman – Bloomberg
Fund managers and electronic traders for the first time account for more than half the $5.3 trillion-a-day currency market as regulators investigate at least 11 dealers for alleged collusion on benchmark rates.

***DA: Is the article implying that dealers won’t trade if they can’t mark the settlement?

Sweden, Ahead of the Times
Trade Talk – Trading Technologies
Somewhat unique among monarchies, instead of a family motto upon accession to the throne, the sovereign of Sweden will adopt a personal motto. This often serves as a national motto as well, and is printed on their 1 krona coins. Upon taking the throne in 1973, the current Swedish monarch, King Carl XVI Gustaf, adopted the motto “For Sweden—with the times.” This motto reflected his desire for both himself and his country to constantly evolve to adapt to the modern world. When it comes to navigating the recent eurozone crisis, though, in many ways Sweden, along with the other Nordic countries, was ahead of its time.

***DA: The current motto was chosen over such nominees as “Sweden – Dang, it’s cold up here!” and “we don’t put holes in our cheese; that’s Switzerland!”

Of markets and mayhem
Lauren Silva Laughlin; graphics Nicolas Rapp – Fortune
Once upon a time, an ordinary investor — call him Joe — would take some of his retirement savings and put it into a giant brand-name mutual fund that advertised in the Sunday paper. The fund would take that money and buy shares in brand-name American companies — “large caps,” the jargon went. Joe would then dutifully put some of his nest egg in a bond fund — and, maybe, on a flier, invest a small chunk in a tech fund that held pieces of the top 100 names on the Nasdaq. (It was 1999 — everybody was doing it.)

***DA: The point of the story is that, amid the mayhem, investors are faring just fine. To paraphrase Kenny Rogers, don’t count your money when you’re sittin’ at the table.

Slower China inflation reduces worries of tighter policy
China’s annual consumer inflation unexpectedly slowed in November, easing market fears of any imminent policy tightening as authorities meet this week to outline their policy and reform priorities for 2014.

When China’s trading partners are flirting with outright deflation, how was November’s lower inflation number “unexpected?”

Central Banks

Jobs Report Is Last Puzzle Piece For Fed to Taper in December
Michael J. Casey – MoneyBeat – WSJ
The ducks are finally in a row. The U.S. labor market is hardly going gangbusters — not when compared with past periods of U.S. economic growth. But the 203,000 jobs added in Wednesday’s employment report was sufficiently strong to suggest that hiring momentum has improved from the summer. That, along with a string of other data showing continued improvement in both the U.S. and global economies, should give the Federal Reserve’s Open Market Committee cover to start reducing its monthly asset purchases at its Dec. 17-18 meeting.

***JM: I hear in the distance, “Yes, but why sabotage a fledgling recovery that’s finally taking hold?”

Why Federal Reserve Support Is Really a Bailout
Stephen J. Lubben – Dealbook
It has become something of an article of faith in the financial world that government support like discount-window liquidity does not count as a bailout. Namely, the argument is that if a financial institution needs to borrow some money on a short-term basis from the government, but the institution is otherwise solvent, that the lending is not a bailout.
But is that right?

Fed’s Plan to Taper Stimulus Effort Is Not Expected Until Next Year
Federal Reserve officials are in no hurry to retreat from their bond-buying campaign to stimulate the economy and are likely to postpone any cuts to the program until next year, according to public statements by Fed officials and interviews with some of them.

Fed’s Evans: Open to December taper, but prefers to wait
A top Federal Reserve official, who has been one of the most ardent supporters of the U.S. central bank’s bond-buying stimulus program, said he was open to curtailing the purchases this month, although he would prefer to wait.

ECB’s Lack of Policy Cheer
Andrew Peaple – MoneyBeat – WSJ
European Central Bank President Mario Draghi was in a festive mood on Thursday, at least for a central banker. He wished assembled journalists a Merry Christmas and Happy New Year at the outset of the ECB’s latest monthly press conference.

The Fed’s Rearview Mirror
David Reilly – MoneyBeat – WSJ
Actually, hindsight isn’t always 20:20. On Friday, the Federal Reserve launched the History Web Gateway, which it described as an online resource illustrating key events in the central bank’s 100-year history. Of course, readers have to keep in mind this is history as seen by the Fed. So while there is discussion of the financial crisis and its aftermath, there isn’t one of the period from 2000-07 and the Fed’s role in helping inflate the credit and housing bubbles forming at that time.

Irish Economy and Banks Vulnerable to High Debts, Central Bank Says
Eamon Quinn –
Ireland’s economy is showing signs of recovery but remains vulnerable to high levels of household and business debt, the central bank said Friday, in a report designed to identify the potential risks the country faces as it prepares to exit its international bailout.


Currency Talk: Emerging-Market Currencies Could See a Rough 2014
MoneyBeat – WSJ
Emerging-market currencies may not get much of a reprieve from investor jitters next year, said Peter Lannigan of CRT Capital Group LLC, a brokerage that works with institutional investors.

Fraud in Bitcoin, Unchecked
IN BITCOIN, FRAUD IS QUICKER THAN THE LAW | Pump-and-dump schemes are shut down in the financial markets all the time. But such frauds involving digital money like Bitcoin have gone unchecked, Nathaniel Popper reports in DealBook.

Bitcoin fuelling rise in cyberattack ransom demands
Hannah Kuchler in San Francisco –
Bitcoin has fuelled a surge in the number of cyberattacks where computers and personal data are held hostage in return for ransoms paid in the almost-anonymous virtual currency.

China’s yuan rises to a record after fix, exports data
China’s yuan barreled to a new record high against the U.S. dollar on Monday after the central bank fixed the daily midpoint at its highest level since a 2005 revaluation and following strong exports data over the weekend.

Indexes & Index Products

Mutual funds look to gain ETF foothold
Arash Massoudi and Tracy Alloway in New York –
“To know your enemy, you must become your enemy” is an oft-quoted dictum for military and corporate strategists. Mutual funds providers trying to grab a slice of the fast-expanding market for exchange-traded products are taking the tactic to heart.

Has George Osborne Just Reinvigorated ETFs in the U.K?
Sarah Krouse and Joe McGrath – MoneyBeat – WSJ
There are 480 exchange-traded funds domiciled in Luxembourg. There are 424 in Ireland and 278 in France. Even Hungary and Romania each have one. The U.K.? Zero.

Taking the leap onto fund platforms
Peter Davy – Financial News
The UK’s Retail Distribution Review, which bans the payment of commission to financial advisers, is changing the way exchange-traded funds are sold, with fund platforms benefiting the most. But there is still a long way to go, as many European fund supermarkets are not ready to trade in ETFs, unlike their US counterparts.

Deutsche Bank swaps ETFs to physical
Mike Foster – Financial News
Deutsche Bank is switching 18 of its most popular exchange-traded funds from swap-based to physical structures, in response to client demand.

Spain’s IBEX – “The World’s Most Overvalued Benchmark”
Paul Murphy | FT Alphaville
Interesting little exercise from Andrew Wilkinson at Miller Tabak & Co. Having seemingly generated a lot of client interest with some earlier research looking at valuations of key US indices, he’s now extended the methodology to bourses around the world.

Data Vet Raw Departs FTSE
Faye Kilburn – WatersTechnology
Tony Raw has left his role as managing director of index provider FTSE International, Inside Market Data has learned.


Gold Gains From Five-Month Low as Investors Weigh Fed, Demand
Nicholas Larkin – Bloomberg
Gold rose from a five-month low in New York as investors weighed the outlook for reduced U.S. stimulus as early as next week against speculation physical demand may increase at lower prices.

John Paulson’s Hedge Funds Report Gains in November
Rob Copeland – MoneyBeat – WSJ
John Paulson‘s hedge funds posted November performance gains that, for one of the funds, marked its best month in three years, according to an investor update. The $2.4 billion Paulson Recovery Ltd. fund, established in 2008 to take advantage of the U.S. economic recovery, had its strongest month since December 2010, returning 9.9% in November, the firm wrote in a monthly update.

***JM: Noted: “Performance for the much smaller Paulson PFR Gold fund, which was down 63% for the year through the end of October, wasn’t listed in the November report.”

Bearish bets show loss of faith in bullion
Jamie Chisholm –
This could be just the news that the gold bugs wanted to hear. More and more traders have lost faith in bullion. The latest data from the Commodity Futures Trading Commission, as noted by Bloomberg, show that in the week to December 3, speculative investors were at their least bullish since 2007.

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