First Impressions

Bits & Pieces
By John J. Lothian

We have added our final speaker to the lineup in Chicago for our MarketsWiki Education World of Opportunity Summer Intern Education Series. Ed Haravon of Spot Trading will join our esteemed list of speakers.

We are getting ready for the final preparations for our trip to New York and our events at the NYSE for the series. We are very appreciative of all the help from the staff of the NYSE to make this possible.

We have seen a nice inflow of sign ups for New York in the last day or so, but there is still plenty of room. See details for signing up for New York or Chicago at www.marketswikieducation.com

There is a great buzz about the Summer Intern Education series and we are grateful for all our friends, sponsors and colleagues who have forwarded information about it, shared it on social media and recommended it to their colleagues and friends. You are a terrific group of people and we are very thankful for your help. Keep it up, there is still room left in New York and Chicago.

Many people joke that I am the bionic man now that I have two new knees, a fused back and a new shoulder. Add a third crown to my set of teeth. I bit into some trail mix and found some of the trails, which chipped a tooth. It is always fun at the dentist.

Quote of the Day

“The same loss of confidence in the omnipotence of the Chinese authorities will surely ultimately swirl westward. The Fed and the ECB have created similarly grotesque stock market bubbles in an effort to shore up their anemic economic expansions.”

Societe Generale’s Albert Edwards in the story, “Albert Edwards says China will end global equity Ponzi scheme”

Lead Stories

Greece debt crisis — Greek MPs to debate controversial reforms plan
BBC
Greek MPs are to debate new proposals sent to the country’s creditors with the aim of getting a third bailout and averting a possible exit from the euro.
The plans contain controversial elements, including pension reforms and tax rises, that were rejected at a referendum called by PM Alexis Tsipras.
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When Wall Street offers free money, watch out
Allan Sloan and Cezary Podkul – Washington Post
If there were ever a time not to bet the moon on the stock and bond markets, it’s now, with U.S. stocks at near-record highs and interest rates on quality bonds at near-record lows. But Wall Street is urging state and local governments to do just that — and they’re listening.
Despite the risks, governments are lining up to issue billions of dollars in new debt to replenish their depleted pension funds and, as a bonus, take some pressure off strapped budgets. In some cases, the borrowing makes their balance sheets look vastly better. Bankers, who make fat fees for raising the money, are encouraging this borrow-and-bet trend. Their sales pitch is that borrowing at today’s low interest rates all but guarantees a profit for the governments because they can invest the proceeds in their pension funds and for decades earn returns higher than the 5 percent or so in interest that they will pay on the bonds.
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Albert Edwards says China will end global equity Ponzi scheme
Akin Oyedele – Business Insider
Societe Generale’s Albert Edwards thinks there’s much more at stake with what’s happening to Chinese stocks.
In a note to clients Friday, Edward writes that apart from the stock market, what could also suffer is the reputation of Chinese authorities, who are taking drastic steps in what’s meant to be a free market.
Edwards notes, via Templeton Investment’s Mark Mobius, that what the government is doing would end up inspiring fear, not confidence, in the market, because it shows desperation.
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Greek minister sees ESM solution for central bank bonds
Reuters
Greece will be able to transfer bonds currently held by the European Central Bank to the European Stability Mechanism, its finance minister told parliament on Friday, as the government races to seal a bailout deal.
Transferring the bonds from the ECB to the ESM, a long-standing demand by the government of Prime Minister Alexis Tsipras, would allow Athens to avoid paying the central bank almost 7 billion euros from maturing bonds due over the next few weeks.
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From Hot to Not: Property Bonds Suffer on U.S. Supply Concerns
Matt Scully – Bloomberg
One of the bond market’s hottest trades from last year is losing its luster.
Commercial mortgage-backed securities returned next to nothing in the first half of the year after handing investors a whopping 11.4 percent in 2014 that beat everything from junk bonds to Treasuries, according to JPMorgan Chase & Co. data. They fell 1.84 percent in June, underperforming corporate securities and government debt, according to a Barclays Plc index.
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Greek banks need 14 bln euros in capital even with a deal – source
George Georgiopoulos and Stephen Grey – Reuters
Greece’s banks will need an estimated 10 to 14 billion euros of fresh capital to keep them afloat and more time before they reopen even if a deal is reached with European creditors on Sunday, a senior Greek banker told Reuters on Friday.
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China Market Moves Spurred by Concerns Over Broader Damage
Bloomberg
As China’s stock market plunged in recent weeks, Communist Party leaders moved quickly to intervene. What were they so afraid of?
Government moves included a halt in initial-public offerings, setting up a stock-buying fund of $19.3 billion and a ban on state-owned companies selling shares of listed units. Even the Public Security Ministry got involved: it’s now probing cases of what it called “malicious” short selling.
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China stock funds see record $13 bln inflows in week to July 8 – BofA
Sam Forgione – Reuters
Chinese equity funds worldwide posted record $13 billion inflows in the week which ended Wednesday, possibly reflecting Chinese government support measures, data from a Bank of America Merrill Lynch Global Research report showed on Friday.
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Investors Seek Refuge in Japan’s Stability Amid Greek, Chinese Woes
Kathleen Chu – Bloomberg
Van Biema Value Partners LLC, a New York-based fund of hedge funds with $600 million, is looking to increase allocations to Japan because it’s a haven from the Greek crisis and China’s share-market rout.
Japan “is not without its own set of problems, but relative to the rest of the world, it is an island of sanity,” said founder Michael van Biema, a former Columbia Business School professor.
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BlackRock Says ETFs Help Improve Bond Market Liquidity
Mary Childs – Bloomberg
BlackRock Inc., the world’s biggest provider of exchange-traded funds, said bond market liquidity won’t return to levels seen before the 2008 financial crisis, and it’s time to move from complaining about poor trading volumes to creating solutions.
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Allstate Ramps Up Bond Trading as Wall Street Retreats, CEO Says
Sonali Basak and Selina Y Wang – Bloomberg
Allstate Corp. Chief Executive Officer Tom Wilson has increased bond trading to boost returns as Wall Street scales back from making markets.
“We’re a big player in the fixed-income market, we have capacity to hold stuff, we don’t have high liquidity needs,” Wilson said in an interview at Bloomberg’s New York headquarters Thursday. “Rather than assume that everything we buy has to stay in the warehouse at the same time, let’s assume that we can buy it and sell it.”
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French President: Greece Proposals Are Serious, Credible
William Horobin – Dow Jones Business Wire
Greece’s economic overhaul proposals are “credible” and enable talks to keep the country in the eurozone to restart, French President François Hollande said Friday.
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Janus fund, overseen by Bill Gross, posts $39.1 mln outflow in June
Jennifer Ablan – Reuters
The Janus Global Unconstrained Bond Fund, overseen by Bill Gross, posted cash withdrawals of $39.1 million in June, the second consecutive month of outflows for the portfolio, Morningstar data showed on Friday.
Total assets in the fund, which is up 0.29 percent so far this year, were $1.45 billion at the end of June, Morningstar added.
The Janus Global Unconstrained Bond Fund is trailing 64 percent of its peer category so far this year. In May, the fund posted net outflows of $11.7 million and had assets under management of $1.5 billion at the end of the month.
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Hayes Says UBS Had ‘Instruction Manual’ for Rigging Rates
David Enrich – Dow Jones Business Wire
Tom Hayes, the alleged mastermind of a global interest-rate-rigging conspiracy, said that he decided to fight charges against him after discovering in 2013 that his former employer, UBS AG, had what he called an “instruction manual” for manipulating rates.
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Central Banks

ECB Sparks Fight for Bagehot’s Legacy as Greek Crisis Tests Role
Jeff Black – Bloomberg
If only present-day central bankers could ask Walter Bagehot what to do about Greece.
The 19th century English economist formulated the golden rule of central banking, that in a financial panic the monetary authority should lend “quickly, freely, readily, at a high rate, to all that bring good securities.” Yet in the current crisis, the European Central Bank has struggled to make that dictum count.
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Wall St expects Fed to phase out portfolio reinvestments – survey
Jonathan Spicer – Reuters
Most Wall Street banks expect the U.S. Federal Reserve to only slowly stop topping up its portfolio of assets next year, as opposed to halting reinvestments all at once, according to a survey done by the New York Fed.
It was the first time that the survey, done as U.S. central bankers prepared for their June 16-17 policy-setting meeting and published on Thursday, included the question about shrinking the Fed’s $4.5 trillion balance sheet.
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Yellen: Fed Remains on Track to Raise Rates in 2015
Jon Hilsenrath – Dow Jones Business Wire
Federal Reserve Chairwoman Janet Yellen reaffirmed the central bank’s plan to start raising short-term U.S. interest rates later this year and pointed to tentative signs that wages are on the rise as slack gets reduced in the labor market.
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The Federal Reserve Cannot Produce More Growth
John M. Mason – Seeking Alpha
The Federal Reserve is in a very awkward place right now, and I don’t mean just in terms of whether or not it should raise short-term interest rates, now or later this year.
The Federal Reserve is in an awkward position because there is very little it can do at this time to get the economy moving faster.
It has kept short-term interest rates at very low levels for an historical amount of time.
Through three rounds of quantitative easing, it has ended up with the banking system in a position of $2.5 trillion in excess reserves.
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Fed doesn’t have ‘smoking gun’ to raise rates: David Rosenberg
Amanda Diaz – CNBC
The Federal Reserve will likely not raise rates later this year, a top economist told CNBC. And if the commodities market is any indication, it could be a long time before the central bank acts.
“I was always in the view that the Fed was going to be extraordinarily patient, and I still think they will be, but they don’t have the smoking gun on runaway growth,” David Rosenberg, chief economist for Gluskin Sheff said Thursday on CNBC’s “Futures Now.”
According to Rosenberg, a once noted bear who recently turned bullish, the real tell on when the Fed might hike rates will come in the form of rising commodity prices, not a traditional measure like wage inflation.
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BOJ can wait to gauge China fallout before easing: Abe adviser Hamada
Kaori Kaneko and Sumio Ito – Reuters
The Bank of Japan does not need to ease policy now despite stubbornly low inflation and headwinds from Greece and China, but instead can wait to see how the plunge in Shanghai shares affects the Japanese economy, a key economic adviser to Prime Minister Shinzo Abe said on Friday.
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Currencies

Struggling commodity currencies unlikely to see much respite
Anirban Nag – Reuters
Falling prices for crude oil and Chinese stocks drove higher-yielding, commodity-linked currencies to multi-year lows this week – good news for their central banks aiming to boost exports but bad for investors seeking alternatives to a struggling euro.
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Euro Climbs Most in Two Years Versus Yen on Greece’s Bailout Bid
Andrea Wong and Lucy Meakin – Bloomberg
The euro advanced, climbing the most against the yen in more than two years, after Greece proposed a package of spending cuts and tax increases aimed at securing a bailout and avoiding being pushed out of the currency union.
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New Chicago Bitcoin Center sees future in digital currency
Amina Elahi – Chicago Tribune
The future of digital currency is evolving, and a new bitcoin-focused incubator launched Friday at 1871 to support startups dedicated to influencing it.
The Chicago Bitcoin Center will work with companies focused on the development of blockchain technologies, which provide a secure and trusted network for transmitting and transferring bitcoin and other forms of value, founder and CEO Matthew Roszak said. Roszak is also founding partner at Chicago-based Tally Capital, a venture capital firm focused on investing in block chain technology and in bitcoin.
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UBS reinstates suspended currency trader
Financial Times
Swiss bank UBS has reinstated one of the US traders it suspended as part of the investigation into alleged misbehaviour in the global currencies markets.
Michael Agaisse was suspended in early 2014. He returned to his post trading major currencies at the bank in Stamford, Connecticut, two weeks ago. Reached by phone, Mr Agaisse declined to comment. A spokesperson for UBS also declined to comment.
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The Dangers of Digital Currencies
Daniyal Rehman – The Market Mogul
The launch of Bitcoin in 2009 represented the ideology of digital currencies. A common feature of digital currencies is that banks do not supply them, which is the opposite end of the spectrum to traditional currencies. The generation of digital currencies, especially bitcoins, depends on cryptocurrency. Cryptocurrency includes encryption methods to act as a medium of exchange for digital currencies, without the need of a bank. This can bring certain benefits, but also severe risks to holders of digital currencies and to the entire financial system of an economy. This article uncovers as to why digital currencies are becoming popular but moreover the potential dangers that could arise from this new form of currency.
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Currency-Hedged ETFs Better Be On Your Radar If Investing Globally
Jennifer Ryan Woods – Forbes
When WisdomTree added a currency-hedging strategy to one of its Japanese equity ETFs several years ago, it wasn’t met with much fanfare.
“People weren’t interested in Japan at the time…it had been in deflation for 10 years,” Christopher Gannatti, associate director of research at WisdomTree said at a recent ETF.com Global Macro Conference.
A lot has changed since then.
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Asia’s Top Currency Forecaster Picks 2015 Winners on Trade Data
Lilian Karunungan – Bloomberg
For Asia’s top currency forecaster, it’s the trade flows that count.
ABN Amro Bank NV, which led Bloomberg’s emerging-Asia rankings in each of the last four quarters, says Taiwan and South Korea’s current-account surpluses will make their currencies the most resilient in the region this year as the prospect of higher U.S. interest rates lures away investment. The second- and third-placed banks see the Taiwan dollar and won as among the worst performers, arguing that the surpluses are more to do with weak imports than robust foreign sales.
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Indonesia’s Request for Fed Dollar Swap Said to Be Rejected
Neil Chatterjee and Herdaru Purnomo – Bloomberg
Indonesia, seeking to bolster its defenses against potential financial-market turmoil, found one possible aid cut off when the Federal Reserve denied a request for a currency swap line, according to an official with knowledge of the matter.
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Indexes & Index Products

Deutsche Says China Volatility Not Enough To Preclude MSCI Inclusion
Robert Guy – Barron’s
Beijing’s massive intervention in China’s stock markets has rightly raised questions about the country’s progress on market reforms. The heavy hand of government has also left many investors scratching their heads about whether Beijing’s actions have imperiled the chances of getting the mainland’s A shares included in the closely watched MSCI Emerging Markets Index.
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Beijing’s Stock-Plunge Response Dims Index Hopes
Carolyn Cui – WSJ
Hopes that Chinese shares would soon be included in major global indexes turbocharged their sharp run-up this year. Since one major index provider decided last month to keep them out, the Shanghai market has lost nearly a quarter of its value. Beijing’s frantic response to the bust dims those index hopes, investors say.
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An Index Provider’s Perspective on the Growing Australian ETF Market
Shaun Wurzbach – Indexology: S&P Dow Jones Indices
The Exchange Traded Fund (ETF) landscape in Australia continues to grow and mature in assets under management (AUM) and in number of ETF products offered. As of June 2015, the Australian ETF Market was reported to be at A$18.1 Billion in AUM and 107 ETFs traded on the ASX. As an index provider with deep roots in the Australian market, S&P Dow Jones Indices takes interest in this, because Exchange Traded Funds which are index-trackers are the delivery vehicles of index effectiveness and index-based innovations.
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Gold

China Opening Gold Link to H.K. as It Seeks Price Influence
Bloomberg
China’s opening more of its gold market to Hong Kong investors, the latest step in its campaign to influence the price of bullion globally and expand use of the renminbi beyond its borders.
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Manipulation Researcher Finds ‘Very Sharp Movements’ in Silver Prices
Daniela Cambone – TheStreet
She once suggested there was collusive behavior in the gold market. Now economist and professor Rosa Abrantes-Metz is shifting her focus to silver.
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Platinum ETF Closes at Record Low
Chris Dieterich – Barron’s
The market’s largest exchange-traded fund that owns platinum closed at a fresh record lows.
The $524 million ETFS Physical Platinum Shares ETF (PPLT), in retreat for most of the past year, dropped 0.7% to $99, its lowest closing price since debuting in 2009.
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Miscellaneous

Pope Francis: Unfettered capitalism is “the dung of the devil”
Hanna Kozlowska – Quartz
Pope Francis is not known for mincing his words, but he truly unleashed his wrath against capitalism last night during an address to grassroots organizers in Bolivia, as part of his South American tour:
“Human beings and nature must not be at the service of money. Let us say no to an economy of exclusion and inequality, where money rules, rather than service. That economy kills. That economy excludes. That economy destroys Mother Earth.”
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Check out the suggestive signature of Greece’s new finance minister
Svati Kirsten Narula – Quartz
Euclid Tsakalotos, Greece’s new finance minister, was in the global spotlight this week as the man “in charge of saving the euro,” as he tries to negotiate with his country’s creditors. This morning, however, attention turned away from Tsakalotos’s economic policies and toward his handwriting.
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