First Impressions

Tomorrowland: The New Wave Of Technology Is Here
By Jim Kharouf, JLN

This is where Silicon Valley innovation meets LaSalle Street, Wall Street and the City.
The FIA’s move to debut its Innovation Hall at this year’s FIA Expo, highlighting startups in the fintech space, is another indication of just how far fintech has come over the past several years.
In the wake of Dodd-Frank, European regulations and other structural changes in the industry, many in the industry wondered if existing or new firms would be able to create new technology to address such challenges, as well as come up with new innovations that will propel the industry forward.

In some cases, it’s well on its way. In others, it’s here. The FIA Expo’s Innovation Hall includes 20 firms that are addressing key parts of our industry, from trading to data to trade reconciliation to regulation and compliance.

Take Chicago-based Neurensic, which is using artificial intelligence to help firms adapt to changing regulations, spoofing activity and predictable threats to the firm. In other words, it is using the latest technology not only to tell firms about a trader’s bad activity, but also to predict the likelihood that a trader will violate regulations. On top of that, Neurensic is layering its technology so that FCMs can give dynamic pricing to its customers – charging risky customers more and other good actors less, and enabling the testing of such business models. The technology is designed to address two problems: the ever changing and complex world of regulation, which often just leads to adding more technology and more people to monitor customers or traders, and the issue of profitability in the FCM space – a major issue in recent years as compliance costs have skyrocketed and volumes have stalled.

Using artificial intelligence, machine learning, deep learning and other computer science breakthroughs can bring about change and incredible opportunity.

“We want the industry to survive and to prosper,” Neurensic CEO David Widerhorn said. “To do that, we’re going to need an infusion of technology that takes advantage of some of these data science techniques. I know that banks hate change and everyone wants to use the same system they used 20 years ago. But if we continue to grow, the cost of maintaining that technology is going to be 20 times the cost of buying a new system.”

That’s just one of the firms that can be visited this week at Expo. There are many more new technologies that may fundamentally change the structure of this industry today or tomorrow.

Quote of the Day

“They are not raising them because Obama has asked them not to raise them.  In my opinion, he wants to get out of office, because we’re in a bubble — when those rates are raised, a lot of bad things are going to happen.”

Billionaire developer Donald Trump in the story, “Trump accuses Fed of keeping rates low to help Obama”

Lead Stories

Goldman – Government Spending Is About to Boost the U.S. Economy for the First Time Since 2010
Luke Kawa – Bloomberg
U.S. President Barack Obama praised the budget plan that raises the debt ceiling and maps out the government’s outlays through 2017 as “a good piece of business.”
Economists at Goldman Sachs concur that this agreement will indeed be good for the American economy in the short-term, notwithstanding the added benefit of removing uncertainty and the potential loss of faith in the creditworthiness of the U.S.
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The eurozone’s fiscally lax nations are at it again
Tony Barber – Financial Times
It is Groundhog Day in the eurozone. Some governments are displaying the same artful disregard for budget rules that marked their behaviour in the euro’s first 10 years. The question is whether this fiscal mischief is dangerous. Does it make the eurozone vulnerable to another near-death experience?
Seen from Germany, fiscal recklessness was the original sin of eurozone governments and the root cause of Europe’s post-2008 debt crisis. It follows that budgetary rectitude is the remedy. Hence the EU’s 2012 fiscal compact, with its stipulation that budgets should be, except under specific circumstances, balanced or in surplus.
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Europe’s Biggest Banks Are Cutting 30,000 Jobs
Ambereen Choudhury, Gavin Finch and Nicholas Comfort – Bloomberg
Standard Chartered Plc became the third European bank in less than two weeks to announce sweeping job cuts, bringing the total planned reductions to more than 30,000, or almost one in seven positions.
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Basel Committee to Stop Banks Gaming Risk Models
Archie van Riemsdijk – WSJ
The Basel Committee on Banking Supervision will publish proposals to constrain internal risk modeling by banks by the end of the year, its chairman Stefan Ingves said on Monday.
The move signals that international regulators remain intent on taking away the leeway that was given to large banks before the financial crisis to assess their own capital buffer needs.
Taking his audience in Madrid back to the turn of the century, Mr. Ingves said that the use of internal models for assessing credit risk was a defining feature of the previous regulatory framework, known as Basel II.
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Banks face fresh pressure on physical commodities
Barney Jopson and Gregory Meyer – Financial Times
US banks that handle physical commodities will be forced to hold large new capital cushions under bold Federal Reserve plans to hedge against costly disasters such as tanker spills or gas pipeline explosions.
The Fed wants to use capital charges to discourage banks from risky activities involving hazardous materials that could threaten their survival in the event of a catastrophe, according to people briefed on the matter.
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Wall Street worried about conglomerates
Linette Lopez – Business Insider
A new narrative about today’s stock market is starting to take hold on Wall Street.
It’s a throwback to a time when many Wall Street titans had never even dreamed of investing — the 1960s conglomerate boom.
Here’s how the story goes: Today’s merger mania, which investors say looks a lot like what happened in the ’60s, has been fueled by low interest rates and a “bigger is better” philosophy among CEOs.
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JPMorgan, BofA, Citigroup Among Big U.S. Banks S&P May Cut
Noah Buhayar, Hugh Son and Michael J Moore – Bloomberg
JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. are among eight large U.S. banks that may have credit grades cut by Standard & Poor’s on the prospect that the U.S. government is less likely to provide aid in a crisis.
The companies — along with Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, Bank of New York Mellon Corp. and State Street Corp. — had senior unsecured and nondeferrable subordinated debt ratings placed on negative credit watch, S&P said Monday in a statement. S&P said it expects to resolve the credit reviews by early December.
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Are Economists Driven by Ideology or Evidence?
Mark Thoma – The Fiscal Times
Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?
This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. But what about academic economists who are supposed to be searching for the truth no matter the political implications? Can we detect the same degree of bias in their research and policy positions?
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MORGAN STANLEY CEO: One thing we can do that no robot can
Jonathan Marino – Business Insider
Morgan Stanley CEO James Gorman thinks that the robo-advisers crashing the wealth management industry and setting their sights on his clients are, well, a bunch of tools.
“There are tools, and there are value-added activities,” he told host Andrew Ross Sorkin at the DealBook conference in New York Tuesday.
He views Morgan Stanley as the latter. And, as for robo-advisers like Wealthfront or Betterment, he thinks they fall short of the services big banks provide.
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Here’s How Much QE Helped Wall Street Steamroll Main Street
Simon Kennedy – Bloomberg
Wall Street is counting its winnings from seven years of easy money.
In a report sent to clients on Sunday, Bank of America Corp. strategists totted up the results of 606 global interest-rate cuts since the collapse of Lehman Brothers Holdings Inc. and the $12.4 trillion of central bank asset purchases following the rescue of Bear Stearns Cos.
The results represent a clear victory for Wall Street over Main Street, according to the team of Michael Hartnett, BofA’s chief investment strategist.
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FCA sounds alarm at rising credit card debt
Emma Dunkley – Financial Times
The City watchdog has sounded the alarm about millions of people falling into problematic levels of credit card debt, sending a warning to lenders over affordability checks.
The Financial Conduct Authority said competition in the credit card market is “working well” for customers but it is concerned about the number of people just above default level and the lack of incentives for providers to respond.
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Greek Banks May Need Only $1.3 Billion of New Private Capital
Tom Beardsworth – Bloomberg
Greece’s four biggest banks may need as little as 1.2 billion euros ($1.3 billion) of new private funds to meet their expected contributions toward filling a capital shortfall, if they succeed in raising 3.2 billion euros through debt swaps.
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For every job created, companies spent $296K on buybacks
William Watts – MarketWatch
Think the aggressive monetary stimulus put in place since the financial crisis has benefited Wall Street over Main Street?
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Credit Suisse CEO Resisted Pressure to `Destroy’ Investment Bank
Richard Partington and Ambereen Choudhury – Bloomberg
Credit Suisse Group AG Chief Executive Officer Tidjane Thiam said he “resisted calls to destroy the investment bank” as Switzerland’s second-largest lender seeks to focus on wealth management.
It’s “important for us to be strong in the investment bank,” Thiam, 53, said at a conference in London Tuesday, without elaborating on who added pressure regarding the securities unit. The business needs to perform “particularly in equities, because that’s where we can reap in emerging markets,” he said, adding he had been “very harsh” during an assessment of the group.
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Don’t `Put It in Writing,’ Hayes Told Colleague at Citigroup
Liam Vaughan – Bloomberg
Tom Hayes schooled brokers and traders on how to downplay requests to manipulate Libor as scrutiny of the benchmark rate intensified in 2010 after he joined Citigroup Inc., according to e-mails and messages at a trial in London.
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Central Banks

The Self-Defeating, ‘Grand Delusion’ of Monetary Policy
Paul Vigna – WSJ
Signs persist that the global economy isn’t well. In China, the official manufacturing PMI remained at 49.8, under the 50-line that delineates expansion and contraction. In the U.S., the ISM’s October manufacturing survey fell to 50.1, its lowest rate in two years.
Both reports are just the latest in what has largely been a string of disappointing data. Six years after the market bottomed, the data also highlights the struggles the world’s central banks have had lighting a fire under the global economy. The Fed alone has pumped more than $3.5 trillion into the economy since the financial crisis. Yet economic growth has continually fallen short of expectations.
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Monetary policy and Asia’s people-shaped hole: James Saft
James Saft – Reuters
For years in the U.S. an argument has been made that the Federal Reserve has unsuccessfully tried to fill a fiscal stimulus-shaped hole with monetary policy.
In Asia, notably in China and Japan, the deficit monetary policy is trying and failing to bridge is demographic: a people-shaped hole.
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BOE Fireworks Possible as Fed Outlook May Spark More Votes for Rate Rises
Deborah Hyde – Bloomberg
The Bank of England will publish new forecasts in Thursday’s Inflation Report and will also publish minutes of the latest rate-setting meeting on the same day, providing important insight on when U.K. interest rates may rise. This month’s is particularly significant as Carney has repeatedly said the timing of any increase will come into greater focus near the end of this year.
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Will manufacturing delay the Fed’s rate hike past December?
DeWayne Reeves – Inside Futures
The ISM Manufacturing Index for October was 50.1 while the previous reading was 50.2. Anything over 50 represents expansion, but the ISM is barely above the level. Productivity in the US has been down somewhat with exception to the Motor Vehicle Sales which comes out tomorrow. Usually, the Fed may look at the productivity as a measure of the economic health, but there has been so many other factors to consider such as the global growth and in the case of global contraction, the effect on the US economy.
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The transmission of the ECB’s recent non-standard monetary policy measures
ECB
This article evaluates the transmission through bank intermediation, bank lending
and money of the ECB’s non-standard measures announced since June
2014, namely the credit easing package, focusing on the targeted longer-term refinancing
operations (TLTROs), and the expanded asset purchase programme (APP), focusing
on the public sector purchase programme (PSPP).
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Monetary policy in Japan: The Bank of Japan keeps printing money at speed
The Economist
Inaction may at first glance seem more timid than pulling out the monetary bazooka—but it took nerve for Haruhiko Kuroda to hold fire at the Bank of Japan’s monetary-policy meeting on October 30th. The central bank’s policy board, which Mr Kuroda effectively controls, voted 8-1 to maintain the existing programme of quantitative easing (QE, or printing money to buy bonds) at its current level of ¥80 trillion ($660 billion) a year. Given that Japan is officially back in mild deflation for the first time since 2013, when the BoJ began QE, it was a bold decision not to act. The BoJ’s mandate, after all, is to produce sustained inflation of 2%.
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Trump accuses Fed of keeping rates low to help Obama
Jonathan Allen – Reuters
Republican White House contender Donald Trump on Tuesday accused the U.S. Federal Reserve of keeping interest rates low at the request of Democratic President Barack Obama.
Trump, speaking at a news conference, also called Fed Chair Janet Yellen “highly political.”
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Draghi Passes ECB Halfway Mark Still Missing Inflation Goal
Alessandro Speciale – Bloomberg
Mario Draghi is halfway through his job and, by the strictest measure of his success, still far from his goal.
The European Central Bank president spent the first four years of his eight-year term battling to keep the euro area intact and winning over opponents to quantitative easing. In the second half of his tenure — if he’s lucky — he might actually meet his legal mandate of price stability.
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St. Louis Fed Official: Maybe We Shouldn’t Count the Long-Term Unemployed as “Slack”
Luke Kawa – Bloomberg
There might be much less slack in the labor market than Janet Yellen thinks.
That’s the prognosis offered by Stephen Williamson, vice president of the St. Louis Federal Reserve.
In a recent note, the economist examined different metrics that paint varying pictures of the U.S. labor market’s strength.
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Gross Says Fed Should ‘Switch’, Not ‘Twist,’ to Revive Economy
John Gittelsohn – Bloomberg
Bill Gross says the Federal Reserve should sell longer-term Treasuries and buy shorter-term notes to remedy the economy.
Longer-term debt usually carries higher interest rates than short-term loans, but the difference has flattened as central bankers keep rates low to stimulate growth. The Federal Reserve in 2012 initiated “Operation Twist,” purchasing 10-year Treasuries as a tool to revive U.S. growth and reduce the unemployment rate, a move that Gross asserts failed to build a strong economic foundation.
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Currencies

Forget the Fed, Sell Euro Buy Yen Is Answer to Divergence Trade
Liz McCormick and Andrea Wong – Bloomberg
The policy-divergence trade is back — just not the one currency markets have been waiting for.
The euro-dollar trade that dominated foreign-exchange markets last year and for the first part of 2015 is looking exhausted, with the prospect of the Federal Reserve raising interest rates already reflected in the greenback’s value. The best way to profit from differences in central banks’ monetary policies is to sell euros and buy yen, according to Nomura Holdings Inc. and Societe Generale SA.
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China’s Money Exodus
Bloomberg
The ranks of China’s wealthy continue to surge. As their economy shows signs of weakness at home, they’re sending money overseas at unprecedented levels to seek safer investments — often in violation of currency controls meant to keep money inside China.
This flood of cash is being felt around the world, driving up real estate prices in Sydney, New York, Hong Kong and Vancouver. The Chinese spent almost $30 billion on U.S. homes in the year ending last March, making them the biggest foreign buyers of real estate. Their average purchase price: about $832,000. Same trend in Sydney, where Chinese investors snap up a quarter of new homes and are forecast to double their spending by the end of the decade. In Vancouver, the Chinese have helped real estate prices double in the past 10 years. In Hong Kong, housing prices are up 60 percent since 2010.
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China promises to make currency yuan freely traded by 2020
Economic Times
China’s ruling Communist Party says it plans to make the country’s tightly controlled currency, the yuan, freely traded by 2020.
The announcement Tuesday came as the party released more details of decisions at a meeting last week on its latest five-year development plan.
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Barcelona plans its own currency to profit from tourism boom
Ian Mount – Fortune
Barcelona creating its own money to leverage a tourism-driven economic boom and channel profits back to local small businesses.
People don’t like it when they’re asked to accept a new currency. It sounds too much like they’ll be stuck with a kind of Monopoly money, like the Patacones that were issued in Argentina when the economy collapsed in 2001.
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Credit Suisse’s Rich Clients Sell Euros for High-Yielding Assets
Netty Idayu Ismail – Bloomberg
Credit Suisse Group AG’s wealthy clients are seeking to exploit differences in global borrowing costs by using euros to buy the currencies of China, India and Mexico, according to the private bank’s strategist.
The Chinese yuan traded offshore, the Indian rupee and Mexico’s peso offer “reasonable” yields with minimal volatility, said Koon How Heng, senior foreign-exchange strategist at Credit Suisse’s private banking and wealth management unit in Singapore.
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Currency Wars Become Much Nastier During Recession Times
Commodity Trade Mantra
In describing the dynamics of currency wars, I consistently use metaphors such as a tug of war or seesaw. This is to indicate that currency wars are never a one-way bet. Exchange rates go back and forth repeatedly.
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Could Bitcoin Become Major Reserve Currency?
Sky News
The value of digital currency Bitcoin has soared 70% – and analysts think it could become one of the world’s major reserve currencies within 15 years.
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Money Flooding Out of Canada at Fastest Pace in Developed World
Ari Altstedter – Bloomberg
Money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.
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Indexes & Index Products

$1 Trillion Could Move To Index Funds If Advisor Rule Passes, Morningstar Says
Financial Advisor Magazine
A rule proposed by the U.S. Department of Labor that would set new standards for financial advisors serving retirement accounts could send $1 trillion in new assets to passive investment products, analysts at Morningstar Inc said Friday.
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Peru bourse says to avoid MSCI downgrade to ‘frontier’ index
Reuters
Peru’s stock exchange is optimistic it will avoid a downgrade by index provider MSCI Inc next year as at least two listed companies boost trading volume and start qualifying as “emerging market” securities, the bourse said on Monday.
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S&P Dow Jones Indices And MSCI Announce Further Revisions To The Global Industry Classification Standard (GICS) Structure In 2016
PRNewswire
S&P Dow Jones Indices, a leading provider of financial market indices, and MSCI Inc., a leading provider of investment decision support tools worldwide, announced today that as a result of their annual review of the Global Industry Classification Standard (GICS®) structure, a new sub-industry is being created and two sub-industries are being combined. The addition to the GICS structure is a sub-industry for Financial Exchanges & Data, carved out from the Specialized Finance sub-industry. The other change to the structure involves the combination of the Catalog Retail and Internet Retail sub-industries.
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MSCI to add overseas Chinese stocks this month
Asia Times
Index giant MSCI is planning to add some overseas-listed Chinese shares to its emerging markets indexes this month, which should lead to billions of dollars pouring into these stocks from mutual funds and other investment companies.
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S&P Dow Jones Indices Market Attributes: U.S. Sector Dashboard
Press Release
Sectoral performance was strong, as all 10 sectors of the S&P 500 ended October in the black. Bucking the recent trend, both the Energy and Materials sectors performed well across all capitalization ranges.
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Saudi PMI Falls to Record as Oil Weighs on Private Sector Growth
Vivian Nereim – Bloomberg
A measure of growth in Saudi Arabia’s non-oil private industries dropped to the lowest level in six years in October as the slump in oil prices slowed the biggest Arab economy’s momentum.
The Emirates NBD Purchasing Managers’ Index fell to 55.7 from 56.5 in September, the lowest level since the survey began, driven by weaker expansion in new business. The same measure for the United Arab Emirates fell to 54 from 56 in September, the lowest since April 2013, the Dubai-based bank said on Tuesday. Readings above 50 signal expansion, while those below indicate contraction.
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Gold

You shouldn’t own any gold now: Portfolio strategist
Stephanie Yang – CNBC
Gold is having trouble holding onto gains.
The commodity kicked off November by falling to a one-month low on Monday, trading around $1,134. And according to one strategist, there’s no real reason to own gold given the current market environment.
Andrew Burkly, head of portfolio strategy at Oppenheimer, said gold could be useful as a short-term currency hedge or a long-term inflation hedge. However, given the strength in the dollar and low inflation, neither trade would be applicable, Burkly said.
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Gold, silver longs cull gathers as US jobs print looms
Ole Hansen – TradingFloor
Gold and silver continue to be negatively impacted by renewed worries that the Federal Reserve will start raising interest rates in December.
The hawkish statement last week following the latest Federal Open Market Committee meeting wrong footed investors who since September had been adding longs and cutting short positions. Economic data releases during the next six weeks will be crucial and raised volatility can be expected.
After touching $1,183/oz last Wednesday, gold reversed sharply lower following the change in tone from the FOMC. A five-day losing streak has taken the yellow metal through several layers of support.
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Miscellaneous

Data Mining Reveals the Extent of China’s Ghost Cities
MIT Technology Review
In recent years, China has undergone a period of urban growth that is unprecedented in human history. The number of square kilometers devoted to urban living grew from 8,800 in 1984 to 41,000 in 2010. And that was just the start. China used more concrete between 2011 and 2013 than the U.S. used in the entire 20th century.
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UBS, German Soccer Body Targeted in Expanding FIFA Probe
Hugo Miller and Karin Matussek – Bloomberg
The crisis at soccer’s global governing body continues to spread as authorities in Germany and Switzerland target banks and national sport associations for financial transactions linked to FIFA.
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