First Impressions

Bits & Pieces
By John J. Lothian

Jim Kharouf and RJ Roxas have done a terrific job of taking the FinTech Exchange Chicago 2015 video we shot, combining the event’s lightning round of speakers in a new format for John Lothian News.

Jim had discovered the Sway multimedia tool from Microsoft and used this to tell the story of this sold out Chicago fintech event organized by Barchart.com. You can see the presentation below. I suggest you click on the link to see the whole layout and design on Sway.com to get the full effect.

I love Jim’s drive to innovate and find new ways to tell stories better. Having all these videos, text and graphics in one presentation is very effective.

Meanwhile, I voted yes for the changes to the NFA Articles of Incorporation and urge other NFA member firms to do likewise.

We would like to welcome PDQ ATS as a new sponsor of JLN Financials. PDQ (a double entendre that stands for Procedure Derived Quotes) is an equity trading venue that offers a unique execution technique, a pause for a few milliseconds while liquidity aggregates. Kind of like a broker shouting “what’s here now?” but with today’s execution speed.

My Chicago singer songwriter nephew Andrew Lothian is looking to mix, master and print his debut LP paid for with a kickstarter-like campaign. Here are the details about the album and his fundraising campaign. If you are a Chicagoan, you may have heard Andrew play at a downtown Potbelly’s.

This weekend Jim Kharouf, Doug Ashburn, Colin Ashburn and I are off to London for IDX next week. We will be editing JLN from there, with help from Jeff Bergstrom, Sarah Rudolph and Spencer Doar working from Chicago.

Quote of the Day

“This is sheer panic in the market from the standpoint of what’s been happening in Europe. Most of Wall Street is guarded here as far as taking on new positions.”

Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets in New York, from the story, “Draghi Says Volatility Here to Stay as Global Bond Rout Deepens”

Lead Stories

Draghi Says Volatility Here to Stay as Global Bond Rout Deepens
By David Goodman and Eshe Nelson – Bloomberg
With an insouciant turn of phrase, Mario Draghi whipped up a frenzy of selling in government bonds that left German securities on track for their worst two-day slump in the history of the euro era.
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Fed Officials Should Pay the Bond Market Less Mind, Jeremy Stein Says
By Pedro Nicolaci da Costa – WSJ
Federal Reserve policy may have underreacted to strong economic activity over the years because officials were too afraid to spook U.S. government bondholders, Harvard University economist and former Fed governor Jeremy Stein writes in a new paper.
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Gross’s Next Short Is China’s Stock Index – But Not Yet
By Mary Childs – Bloomberg
Bill Gross, who in April said a bet against German bunds is the “short of a lifetime,” said the next new opportunity is wagering against Chinese stocks.
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World Economy Improving at Sluggish Pace, O.E.C.D. Reports
By David Jolly – NY Times
The world economy continues to heal at a disappointingly slow pace, the Organization for Economic Cooperation and Development said on Wednesday, but it predicted that growth should return to a healthier rate close to its long-term goal by the end of 2016.
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BofA Explains How the Bond Rout Could Turn Into a Bloodbath
By Lisa Abramowicz – Bloomberg
The good news is investors are finally shaking off fears of economic stagnation worldwide. The bad news is this is brutal for credit markets.
Prices on U.S. investment-grade bonds have fallen 1.1 percent in the first two days of June, a pace so fast it’s reminiscent of the notes’ 5 percent selloff in two months in 2013 when speculation emerged that the Federal Reserve was poised to scale back its bond buying. Bank of America Corp. strategists see the pain deepening from here.
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Fed’s Evans: Firms Need a Strong Risk Culture
By David Harrison – WSJ
Financial institutions should develop aggressive internal risk controls, Federal Reserve Bank of Chicago President Charles Evans said Wednesday.
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ICAP Said to Consider Circuit Breakers for Treasury Bond Trading
By John Detrixhe and Liz McCormick – Bloomberg
ICAP Plc, which runs one of the world’s biggest electronic Treasury trading platforms, is considering circuit breakers as a safeguard against extreme volatility, according to a person familiar with the matter.
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Treasurer Joe Hockey castigates critics as ‘clowns’ as GDP surges
By Peter Martin – The Sydney Morning Herald
A maturing of the mining boom and a surge in home building have pushed Australia’s economic growth rate to one of the fastest in the developed world, impelling treasurer Joe Hockey to castigate as “clowns” those who had been talking of dark clouds and recession.
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Central Banks

FRB: Beige Book – June 3, 2015
www.federalreserve.gov
Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded during the reporting period from early April to late May. Activity in the Richmond, Chicago, Minneapolis, and San Francisco Districts was characterized as growing at a moderate pace, while the New York, Philadelphia, and St. Louis Districts cited modest growth. Contacts in the Boston District reported mixed conditions, and the Cleveland and Kansas City Districts indicated a slight pace of expansion. Compared to the previous report, the pace of growth slowed slightly in the Dallas District but held steady in the Atlanta District. Outlooks among respondents were generally optimistic, with growth expected to continue at a modest to moderate pace in several districts.
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China’s Renminbi and Lagging U.S. Economy Put Federal Reserve in Tough Spot
By John Mason – TheStreet
Officials at the Federal Reserve are between a rock and a hard place. The culprit? The strong United States dollar.
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ECB sees growth faltering as it presses on with QE
By John O’Donnell and Balazs Koranyi – Reuters
Europe has lost some growth momentum and bond market volatility is here to stay, the European Central Bank said on Wednesday, pledging to see through its money printing scheme until its job of lifting the economy is done.
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The Federal Reserve’s premature extraculation problem keeps getting worse
By Ryan Cooper – The Week
Federal Reserve Chair Janet Yellen, like Ben Bernanke before her and all central bankers generally, projects an aura of unflappable seriousness. Listening to her speak on economic issues, one gets the feeling that were she to witness the second coming of Christ, her first thought would be the likely effect on inflation and employment.
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PBOC Opens China’s Interbank Repo Operations to Banks Abroad
Bloomberg
China opened its interbank repurchase operations to qualified yuan clearing and settlement banks abroad, a step to facilitate cross-border investment flows.
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House bill would limit Fed’s emergency powers
By Peter Schroeder – TheHill
A pair of House lawmakers have joined the bipartisan push to place more limits on how the Federal Reserve can react during a financial crisis.
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The Fed did a clumsy job fighting inequality in the Great Recession. Here’s how it can do better.
By Jeff Spross – The Week
One of the longstanding accusations against quantitative easing — the “unconventional monetary policy” the Federal Reserve cooked up to combat the 2008 crisis — is that it inflates inequality.
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Expected Timing For The First Fed Rate Hike
By John M. Bland – Nasdaq
I am of the school of thought that the Fed would like to hike interest rates as soon as possible. There seems to be a fear at he Board that excessive monetary ease has gone on for too long and there could be adverse consequences down the road if they do not get policy back into a more normal posture.
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Mpls. Federal Reserve head: U.S. economy has untapped potential
By Matt Sepic – Minnesota Public Radio News
The slow rise in consumer prices shows the U.S. economy is not growing as quickly as it could, said Minneapolis Federal Reserve Bank President Narayana Kocherlakota.
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Brazil set to raise interest rates again despite recession fears
By Alonso Soto – Reuters
Brazil is poised to raise interest rates by 50 basis points on Wednesday for the fifth straight time, maintaining its tight money campaign to battle inflation despite fears it could worsen an expected economic recession.
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Currencies

Emerging currencies set to drop further when Fed hikes: Reuters poll
By Vuyani Ndaba and Silvio Cascione – Reuters
Emerging market currencies will weaken further when the U.S. Federal Reserve hikes interest rates for the first time in almost a decade, although for now investors appear relatively calm about the prospect, a Reuters poll found.
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Currency hedge funds continue to disappoint
By Solomon Teague – Euromoney Magazine
It has been a chastising few years for currency hedge funds. Several high-profile currency managers have closed down due to poor performance while many that have survived have struggled with redemptions. But some hedge fund allocators are predicting an imminent return to form for FX strategies.
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Bounce in WTI Crude fails to boost Commodity linked currencies
Hellenic Shipping News Worldwide
There’s generally a correlation in the currency markets where any bounce in the price of WTI inspires similar momentum in those currencies linked to commodity prices. However, this hasn’t been the case on this occasion with this probably linked to rising suspicions that the OPEC meeting later this week will leave oil production levels unchanged.
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EM currencies: are options the way forward?
By Paul Golden – Euromoney Magazine
Recent currency movements have highlighted the limitations of the forward as a hedging option for emerging market (EM) currencies.
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Indexes & Index Products

FTSE Russell And Johannesburg Stock Exchange Announce ESG Partnership
Press Release – Mondovisione
FTSE Russell, the global index provider, has announced it is working with Johannesburg Stock Exchange (“JSE”), Africa’s largest exchange, to develop a new environmental, social and governance (ESG) index series.
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MSCI to Announce 2015 Market Classification Review
Business Wire – MarketWatch
MSCI Inc., a leading provider of research-based indexes and analytics, will be releasing the results of its Annual Market Classification Review on June 9, 2015. The announcement will be posted shortly after 5:00 pm Eastern Daylight Time/11:00 pm Central European Summer Time (CEST) at https://www.msci.com/market-classification.
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Vanguard adds Chinese equities to its emerging markets ETF
By Clare O’Hara – The Globe and Mail
Vanguard Investments Canada Inc. is looking to expand into the Asian market with the addition of onshore Chinese equities in its ETF offering. Onshore Chinese equities, also known as China A-shares, are China-based companies that trade on Chinese stock exchanges, such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
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Trackers warily eye MSCI’s A-share result
By John Authers – Financial Times
It is not quite like waiting for white smoke over the Vatican but, for anyone investing in emerging markets, it comes close. Next Tuesday, we will find out the results of the latest reshuffle of the MSCI Emerging Markets index and so will know whether Chinese A-shares have been added.
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Who’s in charge of your investments – Captain Kirk or Mr. Spock?
By Philip Murphy – Indexology: S&P Dow Jones Indices
I have a confession – earning the market return minus expenses does not feel very enticing. Reasonably well-run index funds will do just that, and probably land within the 2nd or 3rd performance quartile year in and year out. But is that the best I can do? Where’s the satisfaction? My inner Captain Kirk wants an investment that will crush the market. On the other hand, my inner Spock guides me to observe empirical data and apply logic. And Mr. Spock is telling me that if I want to compound returns effectively over time, which is the only way I know of to grow wealth, indexing is my friend. Here’s why.
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Gold

How Big Are the Social and Economic Global Impacts of Gold Mining?
By Jon C. Ogg – 24/7 Wall St.
Gold has been the luster of kings, merchants and commoners for many centuries. One key consideration in the latter part of the 20th century, the beginning of the 21st century and into the centuries ahead is that gold mining is not quite what it used to be. Much of the world’s gold comes from stripping massive amounts of earth rather than just from digging for gold veins in underground mines, and much of this takes place in nations that many people in the world have either never heard of nor can locate easily on a map.
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Will the gold for cash scheme pay off?
By Rajesh M Bhayani – Business Standard News
India sits on a gold mine -literally. The government reckons that Indian households hoard as much as 22,000 tonnes of gold, an estimate that the World Gold Council concurs with. But how useful is all this gold when its monetary utility lies frozen? The government, therefore, has proposed a gold monetisation scheme that will mobilise the idle gold for release into the economic ecosystem.
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Gold Stash in Broker s Basement? Bought With Client s Money, FBI Says
By Ann Marsh – Financial Planning
A former Securities America broker put $1.3 million of an elderly client’s money into gold and silver bullion that he kept in his basement as a purported investment. But, in reality, it was an elaborate fraud, investigators allege.
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