First Impressions

NextGen Market Training
By Doug Ashburn and Jim Kharouf – JLN

The long-standing tradition of bringing young students into the industry to learn all of the ins and outs of the business continued last Friday at Trading Technologies. TT hosted Campus Connect Algo Showcase, as students from four universities presented their trading ideas and algo trading systems to the audience.

Students from the University of Illinois, Loyola University, DePaul University and Illinois Institute of Technology (See more on IIT becoming Illinois Tech below), showed everything from how they coded a trading program to how they used TT’s Algo Design Lab to test out trading ideas. Some projects made money, some did not. But as many of the best traders have said time and again, you learn more from the trades that don’t work than from those that are successful.

As we are keen to remind people during our MarketsWiki Education events, bringing the next generation of participants into our markets is not the same structure, with summer runners on the floor, as it used to be. The old pipeline has been replaced by a new one involving technology, technology and more technology. But “setting the hook” is not as easy nowadays. It is programs like TT Campus Connect, led by Leo Murphy, that are bridging the gap.

What we saw (and what we learned from talking to the participants at a reception down in TT’s Tech Tap) is that, though all the tools are there, the students still need parts of the old pipeline in order to land that first job out of college. One answer, of course, is to get really good at writing code. There is an acute need for developers to help implement the trading strategies of the last generation. The other is simply understanding how to develop and execute a trading strategy using the tools that are available.

Opportunities are there; they are just harder to find, and the competition is fierce. We close with a look at one of those opportunities, from last summer’s MarketsWiki Education series.


Joseph Niciforo, HC Technologies – Profiles in Risk: Vision and Discipline

“If you don’t have disciplined risk management, you’re not going to be in the game.”

After earning a law degree in 1988, Joe Niciforo turned down a six-figure offer to join a big law firm, opting instead for a salary at 30 percent of that number, to work as a trader for the legendary Paul Tudor Jones II. He would eventually become a partner and managing director at Tudor Investment Corp, but his trading career almost got cut short once when he violated his own risk parameters and ended up taking a big loss. The next day, he received a phone call from Jones, who said, “If you ever lose more than $15,000 for me, we’ll always be friends; we’ll never do business.”

His latest venture with Tudor, LaunchPad Trading, seeks out and grooms young portfolio managers, who, hopefully, won’t make the same mistakes he did when he was a young, cocky trader.

Watch the video at »

Quote of the Day

“Many investors are looking to illiquid assets to insulate themselves from market volatility. The ripple effect from recent events is causing investors to actively manage risk.”

Mark McCombe, senior managing director and global head of BlackRock’s institutional client business in the story, “BlackRock Says Clients Are Shifting Away From Stocks”

Lead Stories

Deutsche Bank on the high-yield market
Matt Turner – Business Insider
The high-yield market needs to see a broad-based, solid rebound soon, or things are going to get a lot worse.
One measure of just how extreme panic among junk-bond investors has gotten is the difference between yields on high-yield bonds and comparable US Treasuries.

There’s really only one question on Wall Street right now
Matt Turner – Business Insider
Have markets got it right?
That is the question dominating the attention of executives on Wall Street and in corporate America right now.
Financial markets seem to be bracing for a global recession. One example of this in action is the bond market, which has “recessionary” fund flows, as investors shift their money out of high-yield funds and into government bonds.

Deutsche Bank to cut 2015 bonuses after record loss-sources
Deutsche Bank (DBKGn.DE) is sharply cutting 2015 bonuses as it expects a record loss for the year due to writedowns, litigation charges, restructuring costs and tough trading conditions, three people familiar with the matter said. While employees of Germany’s largest lender will only be notified about their individual bonuses in March, they have already been told that payout pots for individual divisions will shrink by at least 25 to 30 percent, they added. “For staff, 2015 will be very likely one of the worst years ever,” a Deutsche Bank manager, who declined to be named, said.

BlackRock Says Clients Are Shifting Away From Stocks
Katherine Chiglinsky and Lily Katz – Bloomberg
BlackRock Inc., the world’s largest asset manager, said investors are turning to more-illiquid holdings such as real estate and private credit as they seek to generate returns and combat market volatility.

Failed Talks Raise Specter of Biggest Default in Puerto Rico Crisis
Dealbook – NY Times
Negotiations to restructure roughly $9 billion of the debt of Puerto Rico’s power company collapsed late Friday, raising the prospect of the biggest default yet in Puerto Rico’s deepening debt crisis.

The Case for the World Economy’s Defense Is Made as Stocks Swoon
Simon Kennedy – Bloomberg
Economists make astrologers look good, John Kenneth Galbraith once said. In the 1960s, Paul Samuelson congratulated stock investors on predicting nine of the last five recessions.
Academics can once again sharpen the snark as markets’ January swoon belies consensus growth forecasts. Most of the elites who offered their view at the World Economic Forum annual meeting in Davos, Switzerland, last week weren’t too downbeat.

U.S. Stocks, Once Among World’s Priciest, Now Cheapest
Phil Kuntz – Bloomberg
Stocks in the Standard & Poor’s 500 Index have become some of the developed world’s cheapest, even though their collective price-earnings ratio hasn’t changed much from when they were among the most expensive five years ago.

Short-seller Carson Block launches hedge fund
Short-seller Carson Block, founder of research firm Muddy Waters LLC who exposed accounting problems and wrongdoing at a slew of Chinese companies, has launched a hedge fund investment firm, a filing with the U.S. Securities and Exchange Commission showed.

Why Tyco’s Deal Won’t Set Off Alarms
Charley Grant – WSJ
Large mergers are naturally risky undertakings, but Johnson Controls and Tyco International ‘s tie-up certainly is no reason to hit the panic button.
Johnson announced on Monday that it is merging with the fire-protection and security leader and relocating the combined company’s legal domicile to Ireland. The terms offer a 13% premium of the 30-day average share price for Tyco investors, who will own about 44% of the combined company.

How Bad Is Retail? Look at the Bonds
Matt Jarzemsky – WSJ
Bonds of major retailers that went through leveraged buyouts have fallen to distressed levels, a signal that their private-equity owners are running out of options.

Trans-Pacific Trade Pact Would Lift U.S. Incomes, but Not Jobs Overall, Study Says
NY Times
A far-reaching trade pact binding a dozen Pacific Rim nations would increase incomes, exports and growth in the United States but is unlikely to add to overall employment, according to an independent analysis released Monday.

Central Banks

Draghi Says ECB Credibility at Stake in Hitting Inflation Goal
Alessandro Speciale and Jana Randow – Bloomberg
Mario Draghi said the European Central Bank must fulfill its inflation mandate in order to maintain its credibility.
“Meeting our objective is about credibility,” the ECB president said in a speech near Frankfurt on Monday. “If a central bank sets an objective, it can’t just move the goalposts when it misses it.”

Why the Fed Is the Root of Much Market Turmoil
Greg Ip – WSJ
Not long ago, this week’s Federal Reserve meeting looked like a nonevent. Having begun to raise rates from near zero in December, the central bank was in January expected to stand pat while signaling more increases later on.
Now, after several bone-jarring weeks to start 2016, many investors hope the Fed is having second thoughts about raising rates three or four more times this year.

Here’s What the Fed’s ‘Workhorse’ Recession Model Is Telling Us About the U.S. Economy
Global equities have started 2016 by falling within points of a bear market, and a number of market participants are now asking whether this is just a blip on the way higher or the start of something worse—such as the onset of an economic downturn in the U.S.

Fed says policy meeting to go forward as scheduled despite snow
The U.S. Federal Reserve said on Monday its policy meeting set for Tuesday and Wednesday would go forward as scheduled despite an ongoing cleanup in Washington after a major snowstorm.

Bank of Japan’s Kuroda says Japan inflation expectations ‘somewhat weak’
Martinne Geller – Reuters
Bank of Japan Governor Haruhiko Kuroda said on Saturday he would scrutinize various factors, including the effect of global market turbulence on Japan’s inflation expectations, in deciding whether additional monetary easing was necessary.

Darling of Davos, Lagarde has second IMF term sewn up
Paul Taylor – Reuters
The darling of the Davos political and financial elite, Christine Lagarde has a second term at the helm of the International Monetary Fund sewn up just days after nominations opened, despite facing possible trial in France.
The former French finance minister, regularly listed among the world’s 10 most powerful women, used the annual World Economic Forum meeting in the Swiss Alps – an echo chamber for her policy prescriptions – to announce her candidacy and secure instant support from global movers and shakers.


IMF’s Lagarde says markets need clarity on China currency
Paul Taylor and Noah Barkin – Reuters
Financial markets need more clarity on how Chinese authorities are managing their currency, particularly the relationship of the yuan to the U.S. dollar, IMF Managing Director Christine Lagarde said on Saturday.
Sharp swings in the yuan have contributed, along with a dramatic fall in the price of oil, to global market volatility since the beginning of 2016.

China Can’t Paper Over Yuan-Policy Contradictions
Aaron Back – WSJ
The People’s Bank of China is trying to ease monetary policy without causing further depreciation pressure on the yuan. So long as China is even somewhat open to international capital flows, this is like trying to take a shower without getting wet.

EU says to monitor, not regulate ‘hyped’ virtual currencies
The European Union will monitor rather than regulate “hyped” virtual currencies for now, because too little is known to justify new rules beyond reining in specific risks like money-laundering, the body’s executive said on Monday.
The world’s 600 virtual currencies are tiny, with bitcoin alone accounting for 90 percent of the $7 billion sector, compared with daily turnover of about $5 trillion on global foreign exchange markets.

Indexes & Index Products

Legg Mason gets a foothold in campaign to re-engineer ETFs
Legg Mason Inc said on Friday it bought a stake in a company re-engineering exchange-traded funds in the hope of improving the performance of the popular investment products.

Emerging Market ETFs Lose More Than $1 Billion Led by China Flow
Bloomberg Business
Investors pulled more than $1 billion out of U.S. exchange-traded funds that invest in emerging-markets as a third week of outflows left the ETFs down $3.9 billion this month. Redemptions from emerging-market ETFs that invest across developing nations as well as those that target specific countries totaled $1.17 billion in the week ended Jan. 22, according to data compiled by Bloomberg.

Index breakouts of real estate securities called good news for investors
Pensions & Investments
The decision by two major stock index providers to break out real estate securities into a separate sector could, in the long term, benefit investors by dampening real estate stock volatility and pushing up valuations. Real estate now is lumped in with financial companies such as banks and insurance companies in the Global Industry Classification Standard, which forms the basis of S&P Dow Jones Indices and MSCI Inc. stock indexes.

S&P launches long-term sustainability index
Financial Standard
S&P Dow Jones Indices has launched the S&P Long-Term Value Creation (LTVC) Global Index, aimed at tracking companies with the potential to create “long-term value”. Developed jointly with the Canada Pension Plan Investment Board, the LTVC index measures sustainability criteria and projected investment outcomes over a long-term horizon.

Rieger Report: Factors impacting bond liquidity
S&P Dow Jones Indices
Issuer name recognition and entity size seem to be factors in bond liquidity and as a result may be important considerations in index design. Tracking the trade activity of corporate bonds issued by the ‘blue chip’ companies of the S&P 500 Index indicates liquidity is improved for these bonds over other bond issues. Of course, when making decisions about depth of liquidity there are some important elements of the markets to consider


Gold miners are ‘the best trade in the world’: Strategist
As stocks have plunged around the world, some investors are running to one somewhat maligned safety play.
Gold jumped 1 percent on Monday, upping its year-to-date gains to more than 4 percent. By comparison, major U.S. stock indexes have fallen 8 percent this year.


Paul Krugman Reviews ‘The Rise and Fall of American Growth’ by Robert J. Gordon
NY Times
Back in the 1960s there was a briefly popular wave of “futurism,” of books and articles attempting to predict the changes ahead. One of the best-known, and certainly the most detailed, of these works was Herman Kahn and Anthony J. Wiener’s “The Year 2000” (1967), which offered, among other things, a systematic list of technological innovations Kahn and Wiener considered “very likely in the last third of the 20th century.”

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