First Impressions

Alternative Lifestyle: What’s up for alternative investments in ‘14?
Jim Kharouf – John Lothian Newsletter

A new report reflecting the views of institutional investors in private equity funds, hedge funds, real estate and infrastructure says that their impression of alternative investments is “particularly positive” over the next 12 months.

The report, Preqin Investor Outlook: Alternative Assets H1 2014 (PDF), said that investors across all asset classes are planning to put the same or more capital into alternative assets. That’s good news for private equity and hedge funds, which are looking to raise more investment capital.

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Quote of the Day

“For too long, financial watchdogs were asleep on the job and American taxpayers paid the price. There is not nearly enough transparency and accountability in their oversight of Wall Street.”

Senator Sherrod Brown, a member of the Senate Banking Committee, as quoted in the Bloomberg story “Fed Lifts Veil Slowly on Bank Oversight in Era of Transparency.”

Lead Stories

Fed Lifts Veil Slowly on Bank Oversight in Era of Transparency
Craig Torres – Bloomberg
The Federal Reserve this month will take a step toward revealing more about its oversight of the financial system, an area where the central bank has yet to match the strides it has taken toward transparency in monetary policy.

***DA: I love sausage, and I have no interest in knowing how it is made because I am concerned I would no longer want to eat it.

Euro-Zone Sovereigns Tilt Issuance Toward Shorter Maturity
MoneyBeat – WSJ
Euro-zone sovereigns will mostly tilt their government bond issuance toward shorter-dated paper next week, reversing the recent concentration of the region’s debt sales in the ultra-long segment.

***DA: Riding the yield curve is great until there is a squeeze on the front end.

Fed Searches for a New Method of Offering Guidance
The Federal Reserve is struggling to redefine the central element of its economic stimulus campaign, its plans for short-term interest rates.

***DA: How do we guide the market toward higher rates if there is a market-clearing panic at the very thought of higher rates?

Why the Bank Leverage Ratio Is Important
In speaking about the leverage ratio, an extremely important bank capital requirement, Thomas Hoenig,vice chairman of the Federal Deposit Insurance Corporation, said: “I think we’ve got the details worked out. Now it’s just getting the schedule.”

***DA: Schedule it for when JP Morgan has another couple trillion in cash to cover its off-balance sheet portfolio. In other words, the 12th of never.

SEC investigating Goldman, Citi on bonds: WSJ
The Securities and Exchange Commission has launched a probe into how Wall Street banks, including Goldman Sachs Group Inc and Citigroup Inc, allocate and trade corporate bonds, the Wall Street Journal reported on Friday.

***DA: Ugh! No more scandals, please, in which the rich, powerful and connected get a better deal than the rest of us.

London Defers to Newport Beach over Mystery Pimco Tweet
Phillipa Leighton-Jones – MoneyBeat – WSJ
Pimco’s London press office weren’t commenting this morning over the origin of a tweet, purportedly sent by co-founder Bill Gross, outlining some wonky thinking on China’s economic policy.

***JM: Bill, at this point I think your best way out is just to tweet, “Ha ha, this is why you shouldn’t tweet while drunk, boys and girls.” True or not, doesn’t matter.

Government Bonds Advance as Ukraine Crisis Boosts Bid for Safety
Susanne Walker and Daniel Kruger – Bloomberg
Government bonds rose around the world after Russia seized control of Ukraine’s Black Sea region of Crimea, spurring demand for haven assets.

Central Banks

Yellen Tames Bond Traders With Volatility to Pre-Taper Level
Liz Capo McCormick and John Detrixhe – Bloomberg
When it comes to monetary policy, Federal Reserve Chair Janet Yellen is doing all she can to ensure there’s little difference between herself and Ben S. Bernanke. The bond market is taking notice.

The ECB’s French Headache
MoneyBeat – WSJ
When it was Greece, or Ireland, or Portugal, the European Central Bank could always comfort itself with the thought that these countries’ economic problems could be contained.

***DA: There’s the French Headache, and then there’s the French Mistake:

ECB Rate-Cut Momentum Seen Ebbing as Decision Day Looms
Angeline Benoit and Kristian Siedenburg – Bloomberg
Euro-region economic reports in the past month turned out reassuring enough to convince most economists that Mario Draghi doesn’t need to cut interest rates this week.

Fed may need to let inflation run hot to meet goals: Evans | Reuters
The Federal Reserve should be willing to let inflation temporarily run above its target level so as to more quickly bring the economy back to health, a top Fed official said on Friday, even as a second policymaker signaled the very idea left him cold.

Speech By Federal Reserve Governor Jeremy C. Stein At The 2014 U.S. Monetary Policy Forum, New York, New York, February 28, 2014, Comments On “Market Tantrums And Monetary Policy”


Russia Raises Main Rate as Ukraine Crisis Threatens Economy
Vladimir Kuznetsov – Bloomberg
Russia raised its main interest rate the most since 1998 to shore up the currency as concerns that President Vladimir Putin will invade Ukraine sent the ruble tumbling and sparked the biggest stock selloff in five years.

***DA: Selling off globally. This does not appear to be good for anyone.

Keeping forex in the family
Joel Clark – Financial News
It is often touted as the world’s most liquid asset class. In the last official survey of the foreign exchange market, $5.3 trillion was reported to change hands every day, up from $4 trillion in 2010. But scratch below the surface and the story is different.

Asia currency markets unfazed by renminbi drop
Josh Noble in Hong Kong –
While China may still have the capacity to shake global sentiment, it seems unable to ruffle Asia’s currency markets. Even as the renminbi has been suffering its most rapid sell-off in years, its neighbours have so far shown themselves to be largely immune.

Britain to scrap VAT on Bitcoin trades
Jane Wild, Daniel Thomas and Vanessa Houlder –
Britain’s tax authority is planning to ditch value added tax on Bitcoin trading, only days after the collapse of Mt Gox, one of the virtual currency’s leading exchanges, losing almost $500m of customer deposits.

Bitcoin Derivatives Sprout as Regulators Play Catch-Up
Carter Dougherty and Silla Brush – Bloomberg
The bankruptcy of a major Bitcoin exchange in Japan not only focused attention on the digital currency’s risks, it also rattled a still-newer market that regulators are just starting to monitor: Bitcoin derivatives.

Tradition Revamps Forward Swaps Data; Preps ParFX Data Offering, HFT Neutralizer
Faye Kilburn – WatersTechnology
Interdealer broker Tradition has launched a new data service that combines executable price data from Trad-X—the interest-rate swap trading platform run by Tradition in partnership with 12 investment banks that covers 250 of the most liquid interest-rate swap price points in US dollars, euros and pounds sterling—with forward curve analysis to provide US dollar option traders with real-time forward swap rates underlying the vanilla swaptions market.

Bitsleuths Start Hunt for Mt. Gox’s Missing Bitcoin
Neelabh Chaturvedi – MoneyBeat – WSJ
As any caper-film fan can attest, the cops use marked bills to sniff out criminals. Cyber sleuths are trying similar tactics to figure out what happened to Mt. Gox’s missing bitcoins.

Fortress Investment Group Bought $20 Million of Bitcoin in 2013
Paul Vigna – MoneyBeat – WSJ
Fortress Investment Group appears to be the first big private-equity firm to have made a large-scale purchase of Bitcoin, the digital currency that’s currently in the middle of a maelstrom.

BitBeat: It’s Time to Build a Better Bitcoin
MoneyBeat – WSJ
As you can see from the photo above, Mt. Gox has gone big-time, which is what tends to happen when you collapse and somehow manage to lose nearly half a billion of your customers’ monies. Unfortunately, it hit the Great White Way for all the wrong reasons. It’s another ignominious moment for bitcoin, yes, but it may not be the end of bitcoin, as so many seem to think.

Indexes & Index Products

How the Major Indexes Performed in February
Matt Thalman – Motley Fool
Heading into February, the major indexes were down for 2014, investor sentiment was low, and the pundits warned of a further pullback. After a remarkable 2013, the Dow Jones Industrial Average had already lost more than 5% for the year, while the S&P 500 was off by 3.55% and the Nasdaq was down 1.74%.

ETFs Are Getting Risky
Bloomberg View
Former Federal Reserve Chairman Paul Volcker once remarked that modern finance hasn’t done anyone except finance professionals much good. The automated teller machine is pretty useful, he said, but that’s about it. To which a lot of investors might reply: What about exchange-traded funds?

Borsa Italiana: “Best European Exchange For Listing ETFs”
Borsa Italiana is awarded ‘Best European Exchange for ETF Listings by etfexpress


Ukraine Crisis Propels Gold
Arpan Mukherjee – MoneyBeat – WSJ
Rising tensions between Ukraine and Russia have triggered a rush in Asia for that oldest safe-haven asset, gold.

***DA: Up over $30 an ounce as of this writing.

Gold Producers Seen Rebounding on Chinese Demand, Cost Cutting
David Stringer – Bloomberg
Gold producers that lost almost half their market value are tempting back investors from Julius Baer Group Ltd. (BAER) to Invesco Ltd. who are getting set for a rebound as Chinese demand for the metal soars.

Gold Market Should Look Past Weather-Related Weakness — Natixis
Kitco News (via Forbes)
There is still room for the price of gold to move higher in the near-term; however, the head analyst at Natixis said that investors should be careful at these levels and not read too much in the weather-related economic uncertainty.

India tightens checks to curb gold smuggling
Siddesh Mayenkar – Reuters
India has started to make physical checks of gold stocks held by wholesalers to ensure inventories match the amount imported by banks and state-run traders, an industry association said, as the country steps up efforts to halt smuggling.


Bitcoin Is as Good as Gold. That’s Bad.
Richard S. Grossman – Slate
The collapse of the Mt. Gox currency exchange has called into question the future of bitcoin, the digital currency and peer-to-peer payment system that arrived on the world financial stage in 2009. Bitcoin bears argue that the failure highlights the currency’s inherent weakness and explains why it will soon disappear. Bulls argue that despite the failure, bitcoin will rebound and eventually secure its rightful place as the world’s sole currency, sweeping aside the dollar, euro, yen, and other major currencies.

***JB: I do not think Bitcoin (or any cryptocurrency) will ever replace national currencies and amount to a de facto gold standard (if nothing else governments will see that it never happens one way or another). That said there is likely a place for cryptocurrencies in the future so some flavor or other is likely to be with us from now on.

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