First Impressions

Change is in the Air at John Lothian News
John Lothian News (“JLN”) is pleased to announce the launch of an eponymous comprehensive news website, The new site will combine content from all previous JLN news sites and into a single dynamic multimedia news portal, displaying all JLN original content, newsletters, commentaries, stories, videos and interviews.

JLN is also pleased to announce the launch of JLN Financials, a new newsletter that will replace JLN Interest Rates, JLN FX and parts of JLN Metals. JLN Financials coverage will include interest rates, FX, indices and gold.

Additionally, John Lothian News is pleased to announce the promotion of Sarah Rudolph to the position of managing editor. Also, Doug Ashburn will take on the title of vice president of John Lothian News in addition to his role as editor-at-large.

The site was designed by Ryan Lothian, the chief marketing officer of John J. Lothian & Company, Inc. The new site replaces our old sites,,,,,,, and

Each of the JLN newsletters will have its own landing page in the new site, with its current unique domain pointing to a unique subject related page. Additionally, we are adding unique subject related landing pages for Technology/HFT and Regulation.

The new site will highlight the breadth of original content produced by the John Lothian News team, some of which will continue to be incorporated into MarketsWiki and MarketsReformWiki.

Quote of the Day

“Defaults are at historic lows, so there’s just less need for CDS from the point of hedging. A lot of the key single-name CDS business uses have gone away or become less relevant.”

Michael Hampden-Turner at Citigroup in the FT’s Credit default swaps run out of road.


Lead Stories

Currency Probe Looks at Former RBS Trader
David Enrich, Jenny Strasburg and Katie Martin –
A U.K. investigation into potential manipulation of currency markets is looking at a former trader at Royal Bank of Scotland Group PLC who participated in electronic chat sessions with traders at other banks, according to people familiar with the investigation.
**JK – Who would’ve thought this kind of chat room could land so many guys in so much trouble?

Credit default swaps run out of road
Tracy Alloway and Michael Mackenzie in New York –
Just two decades since their creation, CDS swaps have come under pressure from regulators, as well as a broader evolution in the behaviour of banks and investors. The amount of such swaps outstanding has shrivelled to less than half of what it once was, fuelling speculation that the market for single-name CDS is on its deathbed.
**JK – Are CDS on their way down, or out?

Fed Gets Bigger in Markets as QE Prompts New Tools
Caroline Salas Gage & Liz Capo McCormick – Bloomberg
The Federal Reserve is getting more involved in debt markets as it tries to compensate for the impact of its almost $4 trillion balance sheet on short-term interest rates.
**JK – Come on in to our new “fixed-rate, full-allotment overnight reverse repo facility!”

Fama’s Nobel Work Shows Active Managers Fated to Lose
Charles Stein – Bloomberg
The work that earned Eugene Fama the Nobel Prize in economics provided the intellectual foundation for index-tracking funds, which have upended stock picking as investors abandon active money managers.
**JK – This does not go over well with the hedge fund, mutual fund, managed futures guys.

A Prize for Some Cool-Headed Thinking on Volatile Markets
David Cottle – MoneyBeat – WSJ
U.S. economists Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller have won the prize this year for their “empirical analysis of asset prices.”

Premise taps into hunger for real-time data
Richard Waters in San Francisco –
The rise in US food prices accelerated in September and has continued into October, according to a detailed study of retail prices – though the US federal government shutdown has robbed financial markets of any official measures of the state of the economy. These unofficial inflation figures, from a US start-up called Premise, highlight the growing use of massive data collection and analysis – known as “big data” – to supplement and in some cases replace official economic statistics.
**JK – I have a taste for gyros sometimes but not real-time data.

Taking the Bus on Road to Default
Francesco Guerrera – MoneyBeat – WSJ
You know things are getting bad when Wall Street chiefs have to take the bus. That is what happened a couple of weeks ago when Lloyd Blankfein, James Dimon and other top bankers boarded a coach for a short trip to the White House. Their mission: to warn the president about the government shutdown and ensuing politicking over the budget. One participant told me of how his feelings changed on the two rides: mildly optimistic en route to 1600 Pennsylvania Ave., incredibly worried on the way back.
**JK – Some members of Congress are too close to the buttons – any buttons.

Austerity is European Sovereign Debt Investor’s Best Friend
Alexander Fleiss – Wall Street & Technology
In a victory speech, Angela Merkel made clear she is standing up for European sovereign debt holders around the world by not offering financial relief to cash-strapped neighbors.
**JK – Another reminder that Germany is not in a giving mood.

The intrinsic (intractable?) bank bid for sovereign debt
Joseph Cotterill | FT Alphaville
There are a few ways to greet the news that eurozone banks are more exposed to their sovereigns than ever. One’s to note that this just means more human shields to deal with (somehow) in a restructuring… Another’s to argue that this is the euro’s fragmentation quietly winning out in the longer term, over actions by the ECB. After all, who isn’t holding these bonds in place of the domestic banks.
**JK – Nice in-depth analysis of EU sovereign debt and private debt.

Bond-Fund Manager Stewart Cowley Can’t Stand Bonds
Tommy Stubbington and Neelabh Chaturvedi –
Stewart Cowley manages $1.5 billion in the Old Mutual Global Strategic Bond Fund. One place he generally avoids investing that money: bonds. Mr. Cowley doesn’t hold conventional U.S. Treasury bonds. He doesn’t hold traditional U.K. gilts. He doesn’t hold Japanese government bonds.
***JM: This seems sort of like being allergic to your own beard.

Goldman Sachs: The Growing Income Divide in Four Charts
Steven Russolillo – MoneyBeat – WSJ
How the rich and poor view the economy has diverged to some of the widest levels in years, data from Goldman Sachs Group Inc.’s latest consumer survey show.
**JK – Income divide keeps growing.

Central Banks

Swedish Central Bank Guidance Foils Economists
Johan Carlstrom – Businessweek
The Riksbank has topped transparency studies for almost a decade. Now, Scandinavia’s biggest bank is faulting policy makers for confusing markets. Nordea Bank AB (NDA) is asking Sweden’s central bank, the world’s oldest, to scale back its commentary to help economists decipher its policy signals.

China Intervened Aggressively in Currency Markets in Latest Quarter
Beijing has intervened aggressively in currency trading lately to blunt a rise in the yuan’s value, data indicates—a signal, analysts said, of continued caution in liberalizing its foreign-exchange policy.

China underlines reform push with record yuan despite weak exports
China’s central bank appears to have underlined its commitment to currency reform by allowing the yuan to set record highs against the dollar despite signs of unexpected weakness in exports.


Osborne positions London as renminbi hub
Lucy Hornby in Beijing –
UK Chancellor George Osborne on Tuesday moved to cement London’s position as a global trading hub for the Chinese currency, announcing new investment quotas, foreign exchange trading and relaxed requirements for Chinese banks doing business in the city.

Osborne Wins Yuan Deal Giving Boost to London Over Frankfurt
Bloomberg News – Bloomberg
China and the U.K. will introduce direct trading between the yuan and the British pound, helping London steal a march on Frankfurt and Paris to become Europe’s hub for the Chinese currency.

The curious case of rising Chinese reserves
Izabella Kaminska | FT Alphaville
Chinese inflows are back. Wei Yao at SocGen notes on Tuesday that China’s FX reserves added $163bn in the third quarter, the biggest quarterly increase since the second quarter of 2011. As she notes, however, the source of those inflows is not necessarily down to the usual suspects (our emphasis):

Vigour of Brazilian real’s revival may be waning
Jamie Chisholm –
The Brazilian real has rallied with other emerging market currencies ever since the Federal Reserve surprised investors by not starting to taper its stimulus in the autumn. The real’s recent strength – up 11 per cent since hitting a near five-year low versus the dollar in August – is also the result of monetary tightening. launches FXBeat with Jamie Coleman and Gerry Davies, the Forex information website, is extremely excited and proud to announce the launch of FXBeat, a news and commentary feed conducted by Jamie Coleman and Gerry Davies, the analysts behind Forex Live and FXBriefs. By adding this service to its already powerful arsenal of resources, strengthens its position as the website of reference in the Foreign Exchange Market.

Currencies funds feel strain of US deadlock
Delphine Strauss –
Currencies traders do not know which way to turn. This was meant to be the year the dollar would come roaring back against other major currencies, as the US recovery picked up steam and the Federal Reserve began scaling back its vast stimulus programme.
***JM: Sounds like last year. And the year before that. And…

Indexes and Index Products

ETF sector to continue rapid growth
Jason Spits | Money Management
The exchange traded product (ETP) sector is set to continue growing by 40 to 60 per cent in the next three years as financial planners increase their ‘light touch’ use of exchange traded funds (ETF), with non-aligned planners being the front-runners in the use of the ETFs blended with other managed funds.

Are ETPs Launching Just to Close?
Michael Martin |
So far this year, there have been 99 new exchange traded products launched, but about half that amount (53) have closed. The numbers indicate that the origination of new ETPs may in fact be creating too many ETFs in the marketplace and therefore a heightened risk of closures.


Volatile gold hits fresh three-month low
Ajay Makan in London –
Gold fell to a three-month low on Tuesday, losing more than $10 an ounce in just a minute of trading shortly before 10am in London.

Sage dreams of gold to save economy, government starts digging
The government is digging for treasure after a civic-minded Hindu village sage dreamt that 1,000 tonnes of gold was buried under a ruined palace, and wrote to tell the central bank about it.

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