First Impressions

CFTC Tackles the What Ifs of Blockchain
Sarah Rudolph and Jeff Bergstrom, JLN

On Tuesday the CFTC’s Technology Advisory Committee (TAC) met to discuss a few issues including “Blockchain and the Potential Application of Distributed Ledger Technology to the Derivatives Markets.” A mouthful to be sure, but a timely discussion.

As the first time the TAC has held a public panel on blockchain, the quick take-away was summed up by commissioner Christopher Giancarlo who said it is difficult to know where this will all lead but regulators should not stand in the way of a potentially important technology.

To read the rest of the piece, go here:

***DA: Click to read statements from commissioners Bowen, Giancarlo and Chairman Massad


John Lothian News/MarketsWiki Survey 2016 – Three More Days!
Friday, February 26 is the final day to participate in our 2016 reader survey. Help us help you by giving us three minutes of your time and sharing your thoughts. It is also a fun and quirky survey featuring the witticisms of Jim and Doug. The final kicker? You could win an Apple Watch. Click HERE before it’s too late.

Quote of the Day

“It’s a very, very scary year. You have a U.S. election where Trump is continuing to defy expectations and people in Europe have no idea what that would bring.”

Guy Hands, the founder of private equity firm Terra Firma Capital Partners, in the story, “President Trump? Traders Aren’t Sure How to Prep for That”

Lead Stories

European Banks Face Test They Can’t Fail
Max Colchester – WSJ
The European Banking Authority on Wednesday outlined a continentwide bank health check that can’t be failed, doesn’t include any lenders from Portugal and won’t take into account negative interest rates. The EBA said the “stress test”, which will look at balance sheets over three years, will be conducted on 51 lenders across the European Union to ensure they can ride out a major economic shock.

The $400 Billion Money-Fund Exodus With Banks in Its Crosshairs
Liz McCormick and Cordell Eddings – Bloomberg
Banks and other companies that have seen borrowing costs rise in the past year are about to feel more pressure in a $1 trillion market for short-term IOUs. Investors are poised to pull as much as $400 billion from U.S. money-market funds that buy such debt, known as commercial paper, JPMorgan Chase & Co. predicts. The looming exodus, a consequence of steps to make money markets safer after the financial crisis, is set to accelerate before October. That’s when Securities and Exchange Commission rules take effect mandating that so-called institutional prime funds, among the main buyers of commercial paper, report prices that fluctuate. Traditionally, those funds have stuck to $1 per share.

Large Banks Are Moving Out Of European Repo Markets
Jon Sindreu – WSJ
Big European banks are increasingly moving out of the repo market, vacating a role that helps keep cash and bonds circulating through the financial system.
Repos, or repurchase agreements, are short-term loans secured by bonds and other assets. Essential to the market are the large banks that act as middle men in repo transactions.

President Trump? Traders Have No Answers on How to Prep for That
Anna-Louise Jackson – Bloomberg
If markets hate uncertainty, this year’s U.S. presidential elections have the potential to provoke full-blown contempt.
As if it weren’t hard enough to trade as growth stagnates and commodities plunge, investors are starting to complain that they lack a blueprint to navigate contests in which Donald Trump has emerged as a surprisingly strong frontrunner for the Republican nomination and Bernie Sanders, an avowed socialist, poses an ongoing threat to Democratic rival Hillary Clinton.

U.S. fund investors pull money from international bonds for 30th straight week -ICI
Investors shied away from the riskiest U.S.-based stock and bond funds during the latest week and added money to safer categories even as fears of an economic pullback began to abate. Investors continued to sour on the riskiest debt, punishing U.S.-based global bond funds with their 30th consecutive week of outflows.

New fund designed for world of negative rates
Dan McCrum – Financial Times
Alberto Gallo, former macro credit strategist for Royal Bank of Scotland, has left the bank to join Algebris, with the aim of expanding the $3bn asset manager’s focus beyond financial institutions by launching a fund designed for a world of negative interest rates. The move to capitalise on the problems faced by insurers and pension funds confronted by very low or negative yielding bonds highlights both the scale of the challenge and the poor performance of many existing hedge fund structures.

BlackRock $85 Billion Manager Says Stock Pickers’ Time Has Come
Anna Kitanaka – Bloomberg
Dan Chamby, who manages $85 billion for BlackRock Inc., says central banks’ loss of power over markets means old-style stock investors can get back to what they do best.
Chamby is buying again after having 21 percent of holdings in cash at the end of last year. He says the turmoil in share markets is natural as traders numbed by years of stimulus relearn how to price risk, and instead of agonizing about monetary policy makers’ next steps, he’s poring over economic data and looking for bargains. He’s going against many investors, and colleagues within BlackRock, with bets that oil will rebound.

Ripple: Distributed Ledger Tech Can Save Banks 42% on Payments
Daniel Palmer – CoinDesk
Ripple has projected that banks that use the Ripple network and its native cryptographic token XRP for cross-border payments can save up to 42% when compared against today’s options.

Deutsche Börse lines up swoop for LSE
Philip Stafford, Arash Massoudi and Caroline Binham – Financial Times
Deutsche Börse is in advanced talks to take over the London Stock Exchange Group, in a megadeal that would create a European champion presiding over many of the world’s leading financial markets.

Breaking up big banks a no-go: Pimco
Financial Times
Breaking up the big US banks has been on the lips of many left-leaning politicians, and most recently, Neel Kashkari, the new president of the Minneapolis Federal Reserve Bank, has chipped in on the debate. Bond investor Pimco thinks it’s a bad idea.

The Junk Debt Funds Threatening to Create an $88 Billion Logjam
Fion Li and Michelle Davis – Bloomberg Business
With debt markets showing the first signs of life in weeks, Wall Street banks are trying to break a logjam that could leave them with big losses on $88 billion of risky corporate loans. They won’t get much help from one of their most reliable buyers.

JPMorgan brushes off rivals’ fixed-income woes
Ben McLannahan – Financial Times
JPMorgan Chase has vowed to keep investing in its market-leading businesses trading fixed income, currencies and commodities, defying some of the doomsday scenarios outlined by competitors.

Central Banks

Free Lunch: Central bankers’ feigned impotence
Martin Sandbu – Financial Times
In Tuesday’s Free Lunch we criticised those who think the rich world’s sluggish economies have little room for growing faster, and that the main policy challenge is to keep them from slowing further. Another part of that fatalism is the belief that policymakers have run out of instruments to boost economic activity. That sense of impotence applies particularly to monetary policy, which is why many of its proponents call for greater stimulus from government budgets instead. There is nothing wrong with that conclusion — there has never been a better time for public investment spending — but the argument is entirely unsound. There is a lot more central banks can do.

IMF urges UK to ease austerity should economy slow further
Phillip Inman – The Guardian
The International Monetary Fund has urged the UK to ease back on austerity should the economy slow further, as it warned finance ministers at the G20 summit in Shanghai to boost public spending on infrastructure to fuel global growth.

Fed’s Fischer says market turmoil may pass with little economic impact
It is still unclear whether the recent downturn in global financial markets will have any substantial impact on the U.S. economy, Federal Reserve Vice Chairman Stanley Fischer said on Tuesday, suggesting the episode may still pass without much effect on the Fed’s plans.

Fed’s George Urges FOMC to Keep March on the Table for Rate Hike
Steve Matthews – Bloomberg
Federal Reserve policy makers should be prepared to consider raising interest rates in March despite recent financial market volatility, said Kansas City Fed President Esther George, whose outlook for solid growth this year remains intact.

Fed’s Kaplan: may need to pause rate hikes for ‘extended period’
The Federal Reserve may need to keep U.S. interest rates unchanged for an “extended period” to give inflation time to rise back to the central bank’s 2-percent target, a top Fed official said on Tuesday.

Draghi Has Two Weeks to Map ECB Plan That Won’t Let You Down
Mario Draghi has two weeks left to decide how to ramp up stimulus in a way that doesn’t upset either his colleagues or investors.
When European Central Bank policy makers meet in Frankfurt from March 9-10, they’ll consider whether negative interest rates and 60 billion euros ($67 billion) a month of debt purchases is enough to revive consumer prices. With another rate cut priced in by markets, the biggest question mark hangs over how to customize quantitative easing.


Pound Sinks Below $1.39 as Traders Brace for More Volatility
Eshe Nelson – Bloomberg
The pound sank below $1.39 for the first time since March 2009, while a gauge of anxiety in currency markets showed traders are preparing for even more extreme moves.

Is Ethereum a Bubble or is it Being Pumped – What Does the Data Say?
Avi Mizrahi – Finance Magnates
In the past few months Ethereum has exhibited an amazing and explosive growth like no other cryptocurrency. Naturally, such a rally invites criticism from traders, proponents and competitors alike, and indeed Ethereum has been accused of being a pump and dump scheme.

China’s Currency Turbulence: Evidence China Lacks A Committed Economic Direction?
The Diplomat
Last November, in a bid to internationalize its currency, China’s yuan was successfully admitted to the International Monetary Fund’s Special Drawing Rights (SDR) basket of reserve currencies, joining the Euro, the U.S. dollar, Japanese yen and British sterling in the cohort of elite currencies. The yuan’s ascension is an economic milestone for China and a political victory for the world’s second largest economy.

The Eurodollar Decay
Seeking Alpha
Standard Chartered (OTCPK:SCBFF) reported a massive yearly loss for 2015 – the bank’s first in almost thirty years. The results were so bad that the company has publicly stated it might even “claw back” bonuses from about 140 executives. If the firm is truly interested in assigning blame, however, it might first look to Ben Bernanke and Janet Yellen (as primary representatives of the international central banking cabal of economists). Perhaps more so than any other bank, save Morgan Stanley (NYSE:MS), Standard Chartered was the epitome of following the global recovery story; literally placing the institution’s money where Yellen declared.

‘Brexit’ Lifts UK Currency Hedged ETFs
For the past few years, as the dollar strengthened against a host of falling currencies across the globe, the use and creation of currency-hedged ETFs listed in the U.S. has flourished. Advisors and investors have come to understand the need to protect international exposure with these tools.

Indexes & Index Products

BlackRock’s Lord of the ETFs: ‘No point having 50% of a stagnant industry’
Andrew Pearce – Financial News
When Rachel Lord quit Citigroup to head up BlackRock’s exchange-traded fund division, a former colleague at the US bank joked she was off to sell brown toilet paper.

Low-Beta Funds for Safety Amid Fears of Downturn – February 24, 2016
In spite of registering this year’s best gains last week, the benchmarks remained deep in the red due to volatility in oil prices along with weakness in global and domestic growth. The Dow, the S&P 500 and the Nasdaq are down 5.7%, 6% and 10.1% in the year-to-date frame.

S&P 500 Earnings: Far Worse Than Advertised
Justin Lahart – WSJ
There’s a big difference between companies’ advertised performance in 2015 and how they actually did. How big? With most calendar-year results now in, FactSet estimates companies in the S&P 500 earned 0.4% more per share in 2015 than the year before. That marks the weakest growth since 2009.

Daily ETF Watch: New PutWrite Fund Debuts
Heather Bell –
WisdomTree rolled out an ETF today that uses an options strategy. To track its benchmark, the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW) sells cash-secured put options on the S&P 500 index and invests the premium received in return in a portfolio of Treasury bills, the prospectus said.

Study Analyzes Performance of CBOE S&P 500 (SPX) Options-Selling Indexes
The Chicago Board Options Exchange today announced the release of a new study that examines six benchmark indexes that write Standard & Poor’s 500 Index (SPX) options, comparing their performances with those of traditional stock, bond and commodity indexes. The options-selling indexes generally had returns that were similar to those of the S&P 500 Index, but with lower volatility and lower maximum drawdowns.

STOXX Changes Composition Of Benchmark Indices – Results Of The First Regular Quarterly Review To Be Effective Mar. 21, 2016
STOXX Limited, a leading provider of innovative, tradable and global index concepts, today announced the new composition of STOXX Benchmarks and their sub and sector indices, among them the STOXX Europe 600 Index, STOXX North America 600 Index and STOXX Asia/Pacific 600 Index.

ETF flows prompt bounceback for gold
Financial Times
Gold rebounded as money flowed back into exchange traded funds but analysts cautioned that the gains might be limited without physical demand from India and China. The precious metal has been one of the best-performing commodities this year, rising 15 per cent thanks to flows into gold-backed exchange traded funds.


UK ‘Brexit’ Crisis: Gold Prices Spiking Fastest Since 2011 English Riots
Viewed through what’s happening with the price of gold, the Brexit referendum, coming this June, looks like a real crisis for the UK already.
With opinion polls split over leaving or staying in the European Union (Britain + “exit” = “Brexit”), gold priced in British Pounds Sterling has now risen 20% from New Year’s Eve, the fastest seven-week rise since the peak of the financial crisis in summer 2011.

Is Gold Still a Good Investment Today?
Huffington Post
In the last few months, China’s economy has been faltering, and it has been having an effect on world financial markets. Due to this recent development, gold prices have shot up compared to what it used to be before.
During the period of the introduction of the Gold Reserve Act back in 1934, the price of gold was set to be $35 an ounce. That is a record increase of more than 300% between then and now.

Daily chart: The gold price shines bright again
The Economist
The price of gold has surged 15% so far in 2016, the best start to the year in over three-and-a-half decades. Some of the rise can be attributed to fundamentals, including cuts in production, increased demand from India and China, and low, or even negative interest rates which make gold more appealing as a store of value. But market psychology is likely the biggest factor contributing to gold’s rally. Investors have historically viewed gold as a “safe haven” in times of turmoil . This year, as markets tumbled in January and the first half of February, investors have piled into gold.

A 10 Million Ounce Call Option On Gold – Sandspring Resources Ltd (OTCMKTS:SSPXF)
Seeking Alpha
Denver, Colorado-based mining entrepreneurs John Adams and Rich Munson left the uranium and coal businesses for gold in the late 1990s. By 1999, they had set their sights on Guyana, where they met with prospectors and local landowners in Georgetown, the capital, to discuss potential projects. “We rented a conference room and listened to all the landowners who came in.”


RBC Eclipses Goldman as North America’s 5th-Biggest Bank
Royal Bank of Canada has passed Goldman Sachs Group Inc. to become North America’s fifth-largest bank by assets.

PayPal Research On Millennials’ Shopping Habits
A few short years ago, the average customer’s view of the retail world was an exceedingly local one, where he or she was really only aware of what was in the immediate market. However, now that the consumer experience has ballooned from a provincial perspective to a near-global one, have consumers managed to keep pace with the bewildering breadth of options now available to them? According to PayPal’s most recent research, millennial consumers at least are more than keeping up with what modern retail throws at them.

Here’s What Buffett Wouldn’t Do, and Maybe You Shouldn’t Either
Noah Buhayar and Lily Katz – Bloomberg
For anyone wondering, “What would Warren Buffett do?” the 85-year-old billionaire has given plenty of advice in his public remarks and in annual letters to Berkshire Hathaway Inc. shareholders. It doesn’t matter whether you’re a home buyer considering a mortgage, or an executive weighing a takeover; he’s got something for just about anyone looking to live a more rational, financially successful life.

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