First Impressions

Bits & Pieces
By John J. Lothian
On Monday the Trading Tech 300 program will come to the Chicago Board of Trade Building as Glenstar Properties puts on three merit badge classes for Boy Scouts from around the Chicagoland area.

The classes sold out quickly once listed on the Pathway to Adventure Council website ( Several boys from my troop are signed up as they wanted to take a merit badge class in the building that was Wayne Towers in Batman Begins. It was also in The Dark Knight as itself. That is just too cool.

Glenstar is offering merit badge classes in Engineering, Electricity and Search and Rescue. One of the ideas behind the Trading Tech 300 program is to put the teaching of the merit badge materials in the context of a business where those skills are being used every day. Glenstar really stepped up for this program with these offerings.

Two other current offerings for Trading Tech 300 are the CBOE offering First Aid and Finger Printing and the National Futures Association also offering Fingerprinting.

These are early days in Trading Tech 300 program, but I could not be happier with the response from firms and scouts to the program. Advantage Futures kicked off the program in July with the Chess and Public Speaking merit badges and the feedback was great.

It is not a coincidence that I am focused on helping young people get exposed to and learn about our industry and the companies in it. Whether it is Trading Tech 300, the Summer Intern Education Program or this newsletter and our social media outreach, I am trying to reach, inform, inspire and educate a new generation of industry professionals, traders, and other market players and participants.

Before I leave this industry, I want to leave it better than I found it. And it was unbelievably great when I started. I believe our best days are ahead of us, but it will take the next generation to get us there. Part of that next generation might just be a bunch of eager Boy Scouts wanting to learn and advance in ranks. Thank you to all who are participating in Trading Tech 300 and making this investment in our future.

Quote of the Day

“The best way to regulate is to line the banks up occasionally and shoot one of them.”

An anonymous former regulator in the story, “One regulator to rule them all”

Lead Stories

Eurozone’s Economic Growth Falls Short, Even as Greeks Shopped
Jack Ewing – NY Times
Eurozone economic growth disappointed on Friday, but don’t blame Greece.
Despite all the political haggling and hand-wringing over Greece’s debt problems, the country’s economic growth in the second quarter was unexpectedly brisk. The country grew more than twice as fast as the eurozone as a whole.

U.S. Credit Traders Send Warning Signal to Rest of World Markets
Lisa Abramowicz – Bloomberg
Credit traders have an uncanny knack for sounding alarm bells well before stocks realize there’s a problem. This time may be no different.
Investors yanked $1.1 billion from U.S. investment-grade bond funds last week, the biggest withdrawal since 2013, according to data compiled by Wells Fargo & Co. Dollar-denominated company bonds of all ratings have lost 2.3 percent since the end of January, even as the Standard & Poor’s 500 index gained 5.7 percent.

HSBC, Barclays Among Banks in $2 Billion Currency Accord
Bob Van Voris – Bloomberg
HSBC Holdings Plc, Barclays Plc and three other banks agreed to settle U.S. investor lawsuits tied to the currency-rigging scandal, bringing the total so far to more than $2 billion across nine firms.
Goldman Sachs Group Inc., BNP Paribas SA and Royal Bank of Scotland Group Plc also agreed to settle class actions claiming the banks conspired to manipulate the $5.3 trillion-a-day foreign-exchange market, said Christopher Burke, whose firm is one of two lead counsel for U.S. investors.

Long bonds rebound as China stirs deflationary fears
Elaine Moore and Robin Wigglesworth – Financial Times
As the dust settles from this week’s dramatic shift in China’s currency policy, investors are left asking whether the shockwaves created by the surprise devaluation will hasten a retrenchment in global inflation expectations.
Market reaction to the People’s Bank of China’s decision to allow the renminbi to weaken was immediate and severe. Fears that a weaker renminbi would curb China’s appetite for imported goods hit the price of commodities and prompted the selling of many global equity markets and haven buying of government bonds.

Greek Lawmakers Back Rescue Package After All-Night Session
Marcus Bensasson and Paul Tugwell – Bloomberg
Greek legislators approved a bailout package that may unlock as much as 86 billion euros ($96 billion) and help the nation avoid a default next week when it has to make a payment to the European Central Bank.
After an all-night debate in Athens, Prime Minister Alexis Tsipras had to rely on opposition votes to secure parliament’s backing on Friday morning for a deal that includes sweeping economic reforms and budget cuts mandated by Greece’s creditor institutions. Tsipras will request a confidence vote later this month after he suffered multiple defections from his Syriza-led coalition, according to a government official who asked not to be named in line with policy.

The junk bond market ‘is having a coronary’: David Rosenberg
Jeff Cox – CNBC
High-yield bonds, specifically, often are seen as an effective proxy for movements in the equity market. If that’s the case, trends in junk are pointing to a rocky road ahead. Average yields for low-rated companies have jumped to 7.3 percent and spreads between such debt and comparable duration Treasurys have widened dramatically, according to David Rosenberg, chief economist and strategist at Gluskin Sheff.

Is Jeremy Corbyn’s policy of ‘quantitative easing for people’ feasible?
Larry Elliott – The Guardian
Jeremy Corbyn, the frontrunner in the Labour leadership election, has proposed “people’s QE” to fund extra infrastructure spending, build homes and invest in green industries.
The policy of “quantitative easing for people” has been attacked by fellow candidate Yvette Cooper, who said it would lead to higher inflation and a weaker pound.

Deutsche Bank finds a hot spot in African bond markets
Tim Burke – Financial News
The number of Sub-Saharan African sovereigns in the international bond markets has almost tripled since 2007, with newcomers including Zambia, Ethiopia and Kenya raising money in the past three years alone. Among the banks helping to bring issuers to market is a surprising name – Deutsche Bank.

Goldman to pay $272 mln to settle mortgage lawsuit
Jonathan Stempel – Reuters
Goldman Sachs Group Inc will pay $272 million to settle a lawsuit that claimed the Wall Street bank defrauded investors about the safety of about $6 billion of residential mortgage-backed securities they bought in 2007 and 2008.

In Good Times or Bad, Brazil Banks Profit
Dan Horch – NY Times
Political parties whose symbol is a red star tend to be unfavorable for bankers, but Brazil’s ruling party has been a lucrative exception.

High cost of Dodd-Frank is harming US banks and citizens
John Alan James – TheHill
With the passage of Dodd-Frank in 2010, members of Congress further increased federal oversight of corporations. Inclusion of the Consumer Financial Protection Act as part of Dodd-Frank had little to do with preventing failures of financial institutions deemed too big to fail. The establishment of the Consumer Financial Protection Bureau has provided vast new opportunities for federal regulatory agencies to expand their reach far beyond normal banking operations. In less than five years, the Bureau, operating without Congressional oversight, has imposed fines at a rate never previously matched by a new regulatory agency.

Making ITG’s Secret Dark-Pool Trading Desk Even Murkier
Matt Levine – Bloomberg View
On Wednesday I wrote about the Securities and Exchange Commission’s action against ITG for hiding a secret prop trading desk, called “Project Omega,” in its dark pool. Project Omega used customer order information to trade ahead of customers and capture a risk-free profit.

‘Ghost bank’ spooks Chinese savers
Lucy Hornby – FT
China is known for knock-offs of all kinds, from clothes and food to toys, DVDs and counterfeit banknotes. A fake flagship Apple store and a home-made branch of Ikea have made international headlines.

Europe’s Low Yields Are Here to Stay as Inflation Outlook Turns
Eshe Nelson – Bloomberg
The outlook for euro-area inflation is souring and that suggests record-low yields on the region’s government bonds aren’t going away anytime soon.
Forget the debate over when the Federal Reserve will raise interest rates, disregard how soon after that the Bank of England will move, yields in the euro area are likely to remain subdued as the region fends off disinflationary pressures.

China says it will stabilise stock market ‘for number of years’
China’s market regulator said it would continue to stabilise the stock market for “a number of years”.
It said the role of the state-backed China Securities Finance Corp to stabilise the market would not change.
However, it added that it would allow market forces to play a bigger role in setting stock prices.

Indonesia’s Widodo takes swipe at egos blocking economic progress
Hidayat Setiaji and Gayatri Suroyo – Reuters
Indonesian President Joko Widodo on Friday called on bureaucrats and politicians to set aside their egos and work together to revive an economy whose growth has slumped since he took office last October.

China’s regulators told to promote transparency, reduce complexity
Reuters – Economic Times
A global financial watchdog has warned China’s regulators to work together more closely, clearly define their roles, and promote transparency to improve risk management in the financial system.

One regulator to rule them all
The Economist
The new masters of the financial universe are neither bank bosses nor hedge-fund titans. They are the regulators whose job it is to make finance safer. Daniel Tarullo, Andrew Bailey and Danièle Nouy, senior regulators in America, Britain and the euro zone respectively, may not have the salaries, egos or profiles of Wall Street superstars, but the decisions they and people like them make are shaping the industry.

Taiwan’s Bond Yield and Currency Slide Most Since 2011 This Week
Justina Lee and Miaojung Lin – Bloomberg
Taiwan’s bonds rose this week, pushing the 10-year yield down the most in four years, and the local dollar fell as the central bank eased monetary policy to spur growth.
The authority relaxed mortgage controls and lowered the rates it pays on overnight and 14-day debt to loosen cash supply, after preliminary data released last month showed growth slowed to the least since 2012 in the second quarter. Taiwan will review its benchmark rate, which it has kept unchanged for 16 quarters, in September.

Central Banks

Free Lunch: Dancers in the dark
Martin Sandbu – Financial Times
What you don’t know can hurt you.
It has become very, very hard to be a monetary policymaker. As the world holds its breath in preparation for the Federal Reserve’s first rate rise, it could give a thought to the poor souls on the Federal Open Market Committee who have to make the call. (Also, the world should probably care less about when the Fed lifts the rate off the floor: Alan Blinder argues that the importance of the timing has been greatly oversold.)

Playing Poker With The Fed On Timing Of Rate Increases
Basil Williams – Forbes
Federal Reserve governors have stated on many occasions that the central bank’s decision on when it will raise interest rates will be data dependent. Thus far the data have supported no movement, and that is exactly what the Fed has done. A muted inflation backdrop has given the Fed the ability to move slowly.
The tepid pace of wage growth plays into Fed Chair Janet Yellen’s stated view that the U.S. employment situation remains challenging, and that more accommodation is needed to create additional growth to boost both the labor participation rate as well as median household income.

ECB’s Coeuré Says Possible U.S. Rate Rise Would Be Good for Global Economies
Todd Buell – WSJ
A possible rate rise by the Federal Reserve would signal that the U.S. economy is doing well and this would be good for both the global and eurozone economies, said Benoît Coeuré, an executive board member of the European Central Bank, in German newspaper Börsen-Zeitung.

China Now Has Unprecedented Influence on Federal Reserve and U.S. Monetary Policy
John Mason – TheStreet
ill the Federal Reserve begin to raise short-term interest rates in September given the devaluation of the Chinese yuan? What about October?
It seems less likely today that rates will go up in the early fall than this time last week — and not just because of the economy or the latest labor reports. This time, it’s because of China and the yuan.

Chile Keeps Most Expansive Monetary Policy in the Americas
Philip Sanders – Bloomberg
Chile’s central bank left its benchmark interest rate unchanged for a 10th month, maintaining the most expansive monetary policy in the Americas even as the peso slumps and inflation accelerates.
The policy committee, led by bank President Rodrigo Vergara, kept the key rate at 3 percent Thursday, following eight reductions in the year through October. The decision was forecast by all 26 analysts surveyed by Bloomberg.


The world has a bigger problem than China’s currency devaluation
Ana Swanson – Washington Post
The value of the Chinese currency dropped by 4.4 percent this week, the biggest devaluation in decades. The move spooked global markets and sparked an angry reaction on Capitol Hill, with politicians on both the left and right accusing China of returning to its old currency-manipulating ways in order to boost its flagging exports and economy.
The Chinese devaluation effectively makes China’s exports cheaper, and it has put pressure on the U.S. dollar to rise. The threat to the U.S. is that a stronger dollar could dampen American exports and potentially disrupt a nascent economic recovery.
But the challenge that China’s devaluation poses to the American economy is just one part of a much bigger global problem. And that problem is weak economies — some long-running like in Europe and Japan, others more recent like in China and Brazil — that are pushing governments to take new steps to speed up growth.

Yuan Deepening Ruble Rout Is No Bad Thing for Newest Russia Bond
Vladimir Kuznetsov – Bloomberg
As China’s devaluation fueled the ruble’s plunge this week, one corner of Russia’s bond market has been rallying: securities that protect investors against inflation.
The price of so-called linkers, which pay an interest rate based on inflation, climbed to the highest level since the government’s debut sale a month ago.

China’s Renminbi Devaluation May Initiate New Phase in Global Currency War
Peter Eavis – NY Times
For years, China looked like the principled noncombatant. As other countries, seeking to secure an economic advantage, let the value of their currencies slide on international markets, China held firm on the value of its money.
But this week, China jumped into the fray. In a surprise decision on Tuesday, the country’s authorities began sharply devaluing its currency, the renminbi. While the plunge paused on Friday, the renminbi was still down 4.4 percent against the dollar this week, a huge drop for China.

China’s currency reform struggles for credibility
Two days after the People’s Bank of China surprised the world by letting the renminbi slide, investors and policymakers are still puzzling over whether it was a benign move towards a market-driven exchange rate or a competitive devaluation.

Indexes & Index Products

Currency-hedged ETFs soften blow of dollar’s rise
Leslie Josephs and James Ramage – WSJ
Investors are pouring billions of dollars into a fashionable corner of one of the fastest-growing areas on Wall Street: exchange-traded funds that aim to protect investors against the return-crimping impact of a rising dollar.

MSCI Equity Indexes August 2015 Index Review
Business Wire
MSCI Inc., a leading provider of research-based indexes and analytics, announced today the results of the August 2015 Quarterly Index Review for the MSCI Equity Indexes. All changes will be implemented as of the close of August 31, 2015

MSCI rejig: Glenmark, Indiabulls Housing climb upto 10%, JSPL falls 9%
The Economic Times
Stocks of Glenmark Pharma and Indiabulls Housing Finance climbed up to 10 per cent, while those of Jindal Steel plummeted 9 per cent in trade on Friday after the latest rejig by MSCI in its indices.


Why Now Is A Great Time To Buy Gold
Henry To – Forbes
After being bearish on gold prices during 2013 and 2014, I became mildly bullish on the precious metal in February of this year. With gold at $1,200 an ounce, I wrote an article discussing three reasons why I believed gold prices would bottom in 2015, and thus why I believe gold was an attractive long-term investment.
With gold’s recent decline to below $1,100 an ounce, I believe today is one of the best times to own gold. My three reasons for buying gold that I discussed in February have remained valid. I now want to reiterate and refresh my three reasons for owning gold at today’s prices.

Biggest South African Gold Unions Say Wage Talks ‘Collapse’
Paul Burkhardt – Bloomberg
The two biggest unions at South African gold-mining companies said wage negotiations have broken down, bringing the industry closer to a strike.
“The talks have collapsed in the sense that the Chamber of Mines has gone back to the original offer,” David Sipunzi, secretary general of the National Union of Mineworkers, the largest labor group at gold mines, told reporters in Johannesburg on Thursday. “If the attitude remains the same, we cannot rule out a strike.”

Gold is Crashing! No, Wait, its Booming! So What’s Really Going on With Gold?
Taylor Tepper – Money
Gold is a little strange as far as commodities go.
You don’t run your car on gold. It doesn’t heat your home, and you can’t eat it. It doesn’t generate profits or pay dividends. Nevertheless, whenever investors feel skittish about a particular aspect of the global economy, demand for the stuff increases.


Trump’s Economic Muddle
Steven Rattner – NY Times
Donald Trump’s economic views may not have garnered as much attention as his misogynistic statements, but they are equally unpalatable, evincing a lack of understanding of basic economics that is startling for a billionaire businessman.

Architects crowdfund to build £1.85 billion replica of Minas Tirith in England
Kat Brown – The Telegraph
A group of architects has launched a crowdfunding campaign in the hopes of raising almost £2 billion in order to build a lifesize replica of Lord of the Rings city Minas Tirith in the south of England.
If they manage to raise the sum within the 60 day limit, Tolkien fans will then have the chance to live or work in the creation, whose original version was laid siege to by the full forces of Mordor in The Return of the King.

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