First Impressions

Brand New: LME’s Jones Says Exchange Is Set For Growth, 2 Ways

London Metal Exchange had quite a year in 2014.

From its integration into the Hong Kong Exchanges & Clearing, launching its own clearinghouse, and addressing the metals warehousing problems, LME has the pieces in place for expansion. Garry Jones, CEO of the LME spoke with John Lothian News about the exchange’s focus on China and the potential for new products in the coming months.

LME launched its own clearing house last September and has brought its technology in-house, under the HKFE. All of that has added staff to LME, tripling its payroll over the past three years, as well as a new building set to open later in the year.

“There’s two main themes for the LME,” he said. “Our business, given that 40 percent of the world’s metals production and consumption is in China, we’re focused on that as well.”
Watch the video »

Quote of the Day

“Many of these technology companies have bubble-type valuations as speculators take advantage of popular concepts to ramp up shares. Only a very small group, say 5 percent or 10 percent, will make it to become larger companies.”

Haitong’s Chen, a strategist in Shanghai in the story, “This is nuts. When’s the crash?”

Lead Stories

Dimon Says Once-in-3-Billion-Year Treasury Move a ‘Warning Shot’
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said volatility in U.S. Treasuries, which are supposed to be among the most stable securities, is a “warning shot across the bow” to investors.
Dimon cited Oct. 15 when Treasury yields fluctuated by about 40 basis points, or 0.4 percentage point, in what he called an “unprecedented move” in a letter Wednesday to his New York-based bank’s investors.

This is nuts. When’s the crash?
Financial Times
Yes, dot-com comparisons are flung about all too easily. But it’s quite hard to argue with the fairness of this one from Bloomberg:

America’s Endless War Over Money
NY Times
The “Audit the Fed” debate is the latest manifestation of a conflict as old as the nation, between those who argue that a strong central bank improves economic stability, and those who see an overbearing government engaged in harmful meddling.

How China Wants to Overhaul its $16 Trillion Corporate Monster
How do you dismantle a $16 trillion government behemoth that controls everything from nuclear power plants to tourism kiosks?
That’s the task facing Chinese President Xi Jinping as part of the biggest shake-up of state-run companies since the late 1990s, when millions lost their jobs as unprofitable units were sold or shuttered and bigger companies listed their best parts on the stock market.

JPMorgan Algorithm Knows You’re a Rogue Employee Before You Do
by Hugh Son, Bloomberg
Wall Street traders are already threatened by computers that can do their jobs faster and cheaper. Now the humans of finance have something else to worry about: Algorithms that make sure they behave.

Royal Dutch Shell to Buy BG Group for $70 Billion
Royal Dutch Shell agreed to buy smaller rival BG Group for 47 billion pounds ($70 billion) in the first major energy industry merger in more than a decade, closing the gap on market leader U.S. Exxon Mobil after a plunge in prices.

HK-Shanghai stock trading link activity surges
Josh Noble in Hong Kong, FT
A huge jump in equities purchases by Chinese investors has produced record trading volumes in Hong Kong, a signal that the prolonged stock rally on the mainland is finally spilling over into global markets.

A Rich Day for Banks Advising on Big Merger Deals
Dealbook – NY Times
On one day alone, Goldman Sachs has helped shepherd roughly $100 billion worth of merger deals.

The investment bank was one of only three financial advisers on Royal Dutch Shell’s nearly $70 billion acquisition of the BG Group, and is leading Mylan’s $29 billion unsolicited takeover bid for the Irish drug maker Perrigo.

Royal Dutch Shell to Buy BG Group for Nearly $70 Billion
Dealbook – NY Times
Royal Dutch Shell said on Wednesday that it had agreed to buy the BG Group for nearly $70 billion, creating a formidable global player in the fast-growing business of producing and selling liquefied natural gas.
BG, which was once part of British Gas, is particularly attractive to Shell because it is a major player in liquefied natural gas, whose use is growing fast despite a recent slump in prices.

The U.S. Budget Is in the Perfect Sweet Spot, But That’s About to Change
Lawmakers in Washington may not even realize how lucky they are, at least when it comes to public finances.
An accelerating economy is pushing up tax revenue from individuals and corporations. Even better, rock-bottom interest rates are helping keep the cost of federal borrowing in check. Receipts for the first half of fiscal year 2015 increased 7 percent from a year ago, according to a Congressional Budget Office estimate released Wednesday. And for the full fiscal year, the deficit will probably be 2.7 percent of gross domestic product, compared with 2.8 percent the previous year and a whopping 9.8 percent in 2009.

Once-hot bond market droops as rate cut seen delayed
India’s bond investors are sharply paring expectations on how soon the central bank will cut interest rates again, now anticipating a more drawn-out process that could dull the momentum in a market that had surged from last year.
Traders now warn that a sell-off in bonds – under way since prices hit their highs early this year – could accelerate after the Reserve Bank of India held rates on Tuesday and issued a statement that was seen as being cautious on inflation.

Active managers have no excuse for poor performance
John Authers, FT
As I have told readers of this column many times, active equity managers are having a horrible time. That is in part because the whole game of trying to beat the market is inherently difficult and expensive — which is why passive index-tracking has grown in popularity.

EMIR clearing rules for swaps set for further delay
According to industry experts central clearing for swaps will not be forced on the market for another 12 months. The requirement for a clearing of standardized swaps is part of the European Market Infrastructure Regulation (EMIR) and is meant to reduce systemic risk in derivatives markets.
Due to continuing differences between the EC and ESMA have raised expectations that the first phase of clearing under EMIR might not begin before March or April 2016. (Subscription only)

Switzerland First With 10-Year Bond at Negative Yield
Switzerland Wednesday became the first country ever to issue 10-year debt that gives investors a yield under 0%.
Several European countries inside and outside the eurozone have sold government debt with up to five years of maturity at negative yields, which means investors effectively pay for the privilege of buying it. But no other country has previously stretched this out as long as 10 years.

Large Banks Don’t Know All Their Derivatives Risk
The leading consultant on contractual derivatives risk management reveals that bank’s “are just starting to get their heads around the problem”
Posted By: Mark Melin
As the International Swaps and Derivatives Association (ISDA) promotes regulatory consistency and centralized trading rules for generally unregulated derivatives, consistent with increased pressure from the White House to manage risk acknowledged to threaten the world economy, new information regarding bank derivatives risk is revealed outlining the depth of the problem.

Going Long in Treasurys Wins
During the first quarter, a price rally in riskiest U.S. government bonds continued, baffling many.

Bank of America Names New Investment Banking Heads
Dealbook – NY Times
Bank of America has shifted the leadership of its global investment bank, naming Karim Assef and Diego De Giorgi as its co-heads, according to an internal memorandum sent on Wednesday.
Mr. Assef, who is based in New York, and Mr. De Giorgi, based in London, will continue to report to Christian Meissner, the firm’s head of global corporate and investment banking, the memo said.

The Fiscal Future I: The Hyperbolic Case for Bigger Government
NY Times
Brad DeLong has posted a draft statement on fiscal policy for the IMF conference on “rethinking macroeconomics” — and I’m shocked, in a good way. As regular readers may have noticed, Brad and I share many views, so I expected something along lines I have also been thinking. Instead, however, Brad has come up with what I believe are seriously new ideas — enough so that I want to do two posts, following different lines of thought he suggests.

The Fiscal Future II: Not Enough Debt?
NY Times
Continuing my meditation on Brad DeLong’s meditation on the fiscal future. Brad doesn’t just argue that governments should be bigger in the future; he also argues that governments have historically not had enough debt, and should have more.

Central Banks

Fed Policy Makers Seem Cool to Rate Increase in June
NY Times
The Federal Reserve is increasingly unlikely to start raising its benchmark interest rate in June, judging by the recent comments of Fed officials.
Officials expressed doubts about a June liftoff during the March meeting of the Fed’s policy-making committee, according to an account the Fed published Wednesday. And those doubts have since been reinforced by a disappointing estimate of March job growth and the continued sluggishness of inflation.

Fed looked past weakness to press ahead on rate hike plan
U.S. Federal Reserve officials acknowledged risks from overseas and a weak start to the year at their March meeting but remained confident enough in the strength of the recovery to continue laying the groundwork for an interest rate hike later this year, according to minutes from the meeting released on Wednesday.
The meeting concluded with the Fed opening the door to a June rate hike, and the minutes said that “several participants” went on record saying they expected upcoming economic data would warrant an initial rate increase that month.

Why Fed Officials Think the Job Market Can Run Even Hotter
Unemployment at an almost seven-year low is nothing to sneeze at. Still, Federal Reserve officials think the labor market can do even better.
Minutes from the March Fed meeting released Wednesday had a couple of revelations that showed policy makers are willing to see just how many people can be pulled back into an improving labor market.

Fed Officials Divided Over June Liftoff, FOMC Minutes Show
Federal Reserve policy makers last month were split over whether they would raise interest rates in June, a debate that occurred before recent disappointing payroll figures, minutes of their most recent policy meeting showed.
“Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting,” according to minutes of the March 17-18 Federal Open Market Committee session released Wednesday in Washington.

European Central Bank’s $1.2 trillion stimulus program is off to a running start
Business Insider
The European Central Bank’s 1.1 trillion euro ($1.2 trillion) stimulus program is off to a running start.
The central bank said Tuesday it has met its monthly goal of purchasing 60 billion euros in government and private-sector bonds, the first stage of an effort that is to last into next year.

Russia’s Central Bank Governor Is Way Smarter Than Ours
Market Oracle
It wouldn’t be a first, but it would certainly be a – bigger – shock. That is to say, the Bank of England hijacked the head of Canada’s central bank some time ago, but, while unexpected enough, that would pale in comparison to the US hiring the present Governor of the Russian central bank, Elvira Sakhipzadovna Nabiullina. It would still seem to be a mighty fine idea, though.
Not that I think it will happen, not to worry if you think Yellen is just what it takes at the Fed. But Nabiullina is both razor sharp and fiercely independent. Yellen is obviously neither; she’s a cog in a machine that huffs and puffs and pumps and dumps to make sure her overlords in the blissful world of US finance make ever more profit no matter how bad things get in American society.


Currency wars: is the US the new victim?
Financial Times
What goes around comes around.
In September 2010, Guido Mantega, then Brazil’s finance minister, popularised the term “currency wars”. He claimed governments around the world — led by the US — were engaging in competitive devaluations of their currencies . Brazil and other emerging markets, which were doing better at the time, suffered overvalued currencies as a result.

Piketty Says EU Politics Risks Driving Greece Out of Euro
Thomas Piketty, the French economist whose 2013 book on wealth inequality became an international bestseller, said he sees a risk of politicians in the European Union forcing Greece out of the euro area.
“The attitude of a number of people in Brussels and Berlin looks like: push Greece out,” Piketty said in an interview with Bloomberg Television in Paris.

Should You Invest In A Currency-Hedged International Equity ETF?
Seeking Alpha
In the United States, most international equity funds do not hedge their foreign currency exposure. This long exposure to foreign currencies contributed to the performance of these funds in the past decade, as the U.S. dollar weakened against major currencies. More recently, currency movements have reversed, starting with a sharp decline of the yen over the past three years, and the more recent gradual decline of the euro versus the U.S. dollar. This trend is now weighing on the returns of currency-unhedged international equity funds.

An Algorithm to Make Online Currency as Trustworthy as Cash
Through bitcoin and other digital currencies, so many activists, entrepreneurs, and opportunists are chasing the dream. They envision a world where we can trade money as easily as we trade data, where anyone can send and receive currency from any machine on earth, where our financial system is controlled not by big banks or big government but by the people.

Indexes & Index Products

European commercial real estate funds on top, MSCI study shows
European commercial real estate funds outperformed their US counterparts last year, according to MSCI.
The firm’s IPD Global Property Fund Index recorded strong growth in both the UK and Continental Europe.
MSCI said net returns of 13.7% from pan-European funds last year were well ahead of their US counterparts, which recorded 11.7%.
UK funds were the best performer in IPD’s index, with returns of 15.9%.

Don’t Forget Spain ETFs
ETF Trends
Thanks to the European Central Bank’s accommodative monetary policy and the subsequently stumbling euro, European equity exchange traded funds have received ample adulation and attention this year.
Investors put $71 billion into non-U.S. developed equities in the first three months of the year, making it the strongest first quarter on record. Currency hedged ETFs saw inflows of $26.8 billion in Q1 as investors looked to hedge their international equity exposure due to a stronger dollar,” according to BlackRock, parent company of iShares, the world’s largest ETF issuer. [ETFs see big March Inflows]

S&P 500 Low Volatility Rate Response Index Launched By S&P Dow Jones Indices
S&P Dow Jones Indices (“S&P DJI”), one of the world’s leading providers of financial market indices, announced today the launch of the S&P 500® Low Volatility Rate Response Index. The Index has been licensed to Invesco Powershares for ETF development.
The S&P 500 Low Volatility Rate Response Index is designed to measure the performance of the top 100 companies of the S&P 500 that have exhibited low volatility and are less sensitive to changes in interest rates. The launch of this index further broadens S&P DJI’s smart beta index offering and incorporates an event driven factor into the widely followed S&P 500 Low Volatility Index.

A Tale of Two Benchmarks: Factors
S&P Dow Jones Indices
This is the third in a series of blog posts relating to the in depth analysis of performance differential between the S&P SmallCap 600 and the Russell 2000.


Pro-Gold Governments and Central Banks
Many gold bugs argue that governments and central banks are generally biased against gold. In some cases, like I described in my previous post, they are right. Certain countries, with India as the most notable example, have adopted hostile gold policies.
In this post, I will however show that the tide has turned with many central banks not only accumulating gold but understanding the importance gold. Many central bankers are well aware of the fragility of our current monetary system based on fractional reserves. Some have even been preparing decades for the demise of the fiat currency system and place an important role on gold in recapitalizing the system when it inevitably crashes in its current form.

Mali’s gold exports down 21 pct in 2014 on drop in artisanal mining
BAMAKO, April 8
(Reuters) – Gold exports from Mali, Africa’s third largest producer, fell by 21 percent last year to 53.2 tonnes, down from 67.4 tonnes in 2013 due mainly to a sharp drop in artisanal mining, according to government statistics.
Industrial mining exports slipped only slightly to 45.8 tonnes from 47 tonnes in 2013, the figures from Mali’s National Statistics Institute showed.

Newmont Mining says will build new Nevada gold mine
(Reuters) – Newmont Mining Corp will go ahead with building the first phase of its Long Canyon gold mine in Nevada, the company, the biggest U.S.-based gold miner said on Wednesday.
The first phase, which consists of an open pit mine and heap leach operation, is expected to produce between 100,000 ounces and 150,000 ounces of gold a year over eight years. First commercial production is expected in the first half of 2017.

The Government Wants Your Gold
Gold Smuggling or Voluntary Trade?
By Geoffrey Pike, Wealth Daily
It was reported by The Economic Times that poor Afghans are being lured into smuggling gold into India. The latest story involved an Afghan who was arrested after arriving from Dubai. He was carrying eight gold bars weighing 8 kg.
There have been many other stories similar to this one involving people who are caught – usually at an airport – trying to smuggle gold into India.

Zooming In On The Chinese Gold Lease Market
By Koos Jansen, Goldseek
The primary reasons mainstream gold analysts (and the media) don’t use Shanghai Gold Exchange (SGE) withdrawals as an indicator for Chinese wholesale gold demand, are – after a few others have been tested – Chinese Commodity Financing Deals (CCFD). Regarding gold these financing operations can be be conducted through round-tripping or gold leasing. Because of the structure of the Chinese gold market round-tripping gold flows are completely separated from the SGE system – the Chinese domestic gold market, and thus withdrawals from the SGE. There is no need to further investigate round tripping for our understanding of the Chinese domestic gold market.

South African Union Pushes Out Gold, Coal Wage Talks to May
by Paul Burkhardt, Bloomberg
The labor union representing the most gold-industry employees in South Africa, the world’s sixth-largest producer of the metal, will hold off submitting wage demands until the end of April.
The National Union of Mineworkers is concluding “internal consultations,” Livhuwani Mammburu, a spokesman for the union, said by phone Wednesday. “We expect the opening negotiation round to start towards the last week of May.”


Dollar’s buying power plummets in first day of “official” WoW gold trading
Ars Technica
Just over a day after Blizzard introduced the first official method for converting dollars into World of Warcraft gold, the amount of in-game currency you can get for real-world cash has already plummeted 27 percent from the initial position set by Blizzard.

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