First Impressions

Apologies for the late delivery of the newsletter today. Technical difficulties got in the way. I will restrain myself from a rant on my opinions of our ISP.


Laugh For Kim Taylor
Tina Hasenpusch, CME

If you know Kim, you obviously know her laugh is unbelievably infectious, and that she loves nothing more than a good laugh. So to keep up her good spirits as she battles cancer and inspired by the ‘ice bucket challenge’ – (instead of dumping ice water on one’s head), we are asking people to video themselves imitating Kim’s laugh and nominate others to do the same or donate to colorectal cancer research.

The website was launched yesterday. Check out
You can upload your own laughter-videos directly from your smartphone or desktop via

A growing body of research supports the theory that laughter may have therapeutic value. Therefore the more laughter, the better. Help this challenge go viral to keep Kim laughing.
Our goal is to have new laughs for Kim every day.
Tina, on behalf of the ‘Laugh for Kim’ team

***** The Laugh for Kim Team is capturing these laughs and storing them much in the same way screams were captured and stored in the movie Monsters, Inc.

Quote of the Day

“The trend for surprise is not suggestive of ‘normal’ conditions but a function of some central banks finding their policy tool boxes lacking, and therefore using surprise as a way of getting more bang for their buck when faced with an extreme risk — in this case deflation.”

Jane Foley, G10 currency strategist at Rabobank in the story, “Central banks choose Pythonesque approach as new tool”.

Lead Stories

Gundlach Weighs 100-Times Levered Bet Against German Bonds
DoubleLine Capital’s Jeffrey Gundlach said he’s considering making an amplified bet against German bonds to join a growing group of top money managers wagering against the debt after some yields turned negative.
“Let’s say you leverage up the German two-year 100 times, that’s a 20 percent return,” Gundlach said in a Bloomberg Television interview with Erik Schatzker on Tuesday at the Milken Institute Global Conference in Beverly Hills, California, referring to the potential short.

Europe Unseats U.S. as Best Place to Invest in Bloomberg Poll
Europe gets the nod as the best place to invest for the first time since at least 2009 in a Bloomberg survey of financial professionals, unseating the U.S.
Thirty-five percent of those surveyed in the Bloomberg Markets Global Poll said the euro zone would be among the one or two markets offering investors the best opportunities over the next 12 months.

The Trader as Scapegoat
NY Times
A BRITISH trader, Navinder Singh Sarao, is facing extradition to the United States. Federal prosecutors accuse him of having significantly contributed to the “flash crash” of May 6, 2010, in which major American stock markets plunged dramatically in a matter of minutes. Prosecutors also say that he manipulated prices on the Chicago Mercantile Exchange for years by “spoofing,” or placing orders that he intended to cancel before they were filled.
In fact, this is a common activity in equities markets today. The prosecution of Mr. Sarao is arbitrary, and his contribution to the flash crash was negligible.

Why the Cost of Hedging European Banks Stocks Has Soared
by Sofia Horta E Costa, Bloomberg
Anyone wondering why it costs so much to protect against losses in European bank stocks in the options market saw the reason on Monday.

Negative Rates Halt Payments in European Asset-Backed Securities
Alastair Marsh, Bloomberg
Bonds backed by loans to Spanish small businesses became the first securities to stop making interest payments last week after benchmark rates turned negative, according to JPMorgan Chase & Co.

Negative Rates Are Turning This Corner of the Credit Market Crazy
Tracy Alloway – Bloomberg
Negative interest rates are an odd fish in the world of finance given that they basically wreak havoc on a central tenet of investing; that investors will be compensated in some way for, you know, investing in things.
Bloomberg’s Alastair Marsh reports today on POPYM 2007-2 A3G, a 2007 securitization deal that bundled together loans made to small businesses in Spain. Trustees for the bonds appear to be halting coupon payments to the debt’s investors after a benchmark interest rate to which the deal is tied turned negative in recent days.

Goldman sees $1 trillion lift in 2015 via U.S. stock buybacks, dividends
Investors will rake in more than $1 trillion in 2015 as U.S. companies increase stock buybacks and boost dividends, Goldman Sachs Group Inc said, with benefits coming soon as many S&P 500 companies exit a blackout period for repurchases next week.
The firm forecasts an 18 percent jump in buybacks and 7 percent climb in dividends for the year.

ICE Relaunches Credit Swap Futures; Intercontinental Exchange has redesigned its swap futures two years after their debut flopped
Proponents of futures contracts that mimic swaps are pushing the hybrid instruments, despite traders’ slower-than-expected acceptance, in a bet that a regulatory overhaul of complex financial instruments will boost the appeal of the “swap futures.”

New MiFID draft sheds light on HFT
European regulators have conditionally settled on a final definition of high frequency trading, increasing momentum for tighter regulation of the controversial market. The definition, contained in unpublished draft MiFID II text seen by IFR, describes high frequency trading as “the submission on average of at least 4 messages per second with respect to all instruments traded on a trading venue or at least 2 messages per second with respect to any single instrument traded on a trading venue”.

EU Bank-Failure Law to Align With Global Crisis Fix: Hill
Bloomberg Business
The European Union will seek to square its rules on handling failing banks with too-big-to-fail measures under development by global regulators, as the bloc’s banks warn that inconsistencies would harm their ability to compete.

Top bankers call for culture change for financial planning
The Australian
Three of Australia’s most senior banking figures are calling for a change of culture to fix the scandal-ridden financial planning industry.

Wealth firms step up ‘full service’ offerings as client demand grows
Anna Fedorova, Investment Week
Pensions reforms, underserved areas of the market, and economies of scale are driving more investment managers to broaden the type of wealth management service they offer clients.

Uncertainty Over Impact of a Default by Greece
Dealbook – NY Times
When it comes to assessing the consequences of a messy Greek default on global markets, two views have vied for supremacy in the minds of investors.
First, there was the chaos theory of imploding European banks and a spreading bond market panic. Then, after aggressive action from the European Central Bank, a calamity in Greece — be it a default or an exit from the euro — came to be seen as manageable. Investors, hungry for yield, in turn piled into European stocks and bonds.

Head of R.B.S. Spinoff, Williams & Glyn, to Step Down
Dealbook – NY Times
The Royal Bank of Scotland said on Tuesday that John Maltby would step down as chief executive of Williams & Glyn, the unit it plans to spin off by the end of next year.
Mr. Maltby, the former head of commercial banking at the Lloyds Banking Group, will leave to serve as an adviser to a consortium of investors who participated in a 2013 bond offering to help finance the spinoff.

Deutsche Bank said to hire Ed Reardon from JPMorgan -Bloomberg
Germany’s largest bank, Deutsche Bank AG, will name Ed Reardon from JPMorgan Chase & Co to head its U.S. commercial-mortgage bond research, a Bloomberg report said.

Central Banks

Fed Decision Day Guide: From Cooling Economy to Forward Guidance
Here’s what to look for when the Federal Open Market Committee releases its policy statement at 2 p.m. Wednesday in Washington. Officials won’t provide updated economic projections, and Chair Janet Yellen isn’t scheduled to hold a press conference.
— Economic outlook: Investors will scrutinize changes to the description of the economy for hints on the likely timing of liftoff after policy makers all but ruled out an interest-rate increase at this meeting.

2% Inflation Rate Target Is Questioned as Fed Policy Panel Prepares to Meet
NY Times
The cardinal rule of central banking, in the United States and in most other industrial nations, is that annual inflation should run around 2 percent.
But as the Federal Reserve prepares to start raising its benchmark interest rate later this year to keep future inflation from exceeding that pace, it is facing persistent questions about the wisdom of the rule and the possible benefits of significantly increasing its target.

Central banks choose Pythonesque approach as new tool
Financial Times
As Michael Palin pointed out in Monty Python’s Spanish Inquisition sketch, “our chief weapon is surprise”.
That sentiment could just as easily be applied to central banks, as they struggle to stimulate their economies and rouse inflation.

The Federal Reserve versus the Commerce Department
New York Post
Tomorrow is going to be an exciting day because the Commerce Department will announce just how lousy it thinks the US economy performed during the first three months of 2015.
Why is that exciting? Because a lot of well-paid somebodies are going to be very wrong on their predictions.

ECB: Lifting potential growth in the euro area
In a speech held at the World Currency Conference in Berlin, Peter Praet, Member of the Executive Board of the ECB, said that over the last two years the ECB has taken a series of monetary policy measures to ensure that its price stability mandate is met. In his remarks he looked back on those measures and the effects they have had, but did so in a broader context – that is, by looking at overall growth trends within the euro area and how monetary policy fits within them.

ECB Dominates Greece Saga as Dijsselbloem Rejects Tsipras Charge
The Greek-rescue drama descended into verbal volleys as Prime Minister Alexis Tsipras’s government awaited the latest critical liquidity review of the country’s lenders by the European Central Bank.
Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-area counterparts, on Tuesday rebuffed Tsipras’s accusation that he had reneged on his pledge to Greece of access to ECB financing in return for an extension of the country’s bailout agreement.

China’s central bank may ease credit after weak bond sales
South China Morning Post
China’s central bank may have to ease credit further, after several provincial governments met cold responses to bond sales and amid rising pressure to spur infrastructure investment.
But analysts said the People’s Bank of China (PBOC) did not need to pursue quantitative easing (QE) as had the United States during the global financial crisis.


Hopes of Fed rates caution spur emerging-market currencies
Anxiety among emerging markets that a prospective rise in the US Federal Reserve’s lending rates – a mood that affected markets over the weekend and earlier this week – could be delayed, led to buoyancy in the affected currencies. A gauge-tracking mechanism of 20 developing countries indicated that their currencies had risen 0.6 percent in recent weeks, with the rupee at its highest since April 6 and the SA rand headed for higher levels. Peter Wilhelm

Asia shares pause, dollar pressured before Fed
Business Insider
Asian share markets paused near seven-year peaks on Wednesday while investors exited crowded positions in the U.S. dollar as the Federal Reserve wraps up a two-day policy meeting.
The broad retreat in the U.S. currency came as a string of soft data seemed to push back the day when the Fed might start lifting rates, and defied a jump in Treasury yields.

Indexes & Index Products

Sluggish GDP Growth
David Blitzer – S&P Dow Jones Indices
First quarter U.S. GDP will be reported on Wednesday morning April 29th; the consensus is for only one percent real growth. The last few years have been marked by poor GDP growth. The chart compares actual GDP to potential GDP and shows that six years after the Great Recession GDP remains well below its potential. In the 22 quarters since when the recession ended in June 2009, GDP growth touched 5% only once; since 1980 GDP growth was 5% or higher in 16% of quarterly reports. Growth is sluggish.

Tech’s long way back
Dallas Morning News
The Nasdaq Composite Index needed 31 months to plunge 78 percent after the Internet bubble burst in 2000. Climbing out of the hole took more than 12 years. Led by a 132-fold increase in Apple Inc. and a 13-fold jump in Google Inc., stocks in the gauge last week cleared the record 5,048 threshold that taunted investors for 15 years as a symbol of dot-com excess. The Nasdaq has advanced more than 350 percent since bottoming in October 2002 after the slump erased about $6 trillion from American equity prices.


The Chinese Are Going for Gold
China’s gold consumption showed signs of recovering in the first three months this year after plunging in 2014, as relatively low bullion prices attract Asian interest, especially in gold jewelry.
Demand in the first quarter rose 1.1% compared with a year earlier to 326.68 metric tons, China Gold Association president Song Xin said Tuesday.

Soft Chinese buying helps knock physical gold demand 9 pct in Q1 -GFMS
Weak demand for jewellery, coins and bars in the key Chinese market helped drive a 9 percent fall in global physical gold buying in the first quarter, an industry report showed on Tuesday.
GFMS analysts at Thomson Reuters said in a quarterly report that Chinese jewellery consumption fell 12 percent in the first three months of the year, while investment in coins and bars dropped just over 10 percent to 56 tonnes.

Barrick Gold chair says 75% of investors voted against executive compensation plan – Business
The chair of Barrick Gold says he has heard investor concerns about executive compensation at the gold miner “loud and clear,” and vows change.
John Thornton told attendees of the company’s annual general meeting in Toronto on Monday that as much as three-quarters of investors voted in favour of a non-binding motion to change the way the company compensates its executives.


Elon Musk’s Ex-Wife on What It Takes to Be a Mogul
Dealbook – NY Times
For advice on how to be a mogul, take it from someone who has been married to one.
A user of Quora, a user-generated question-and-answer website, recently posed the question: “How can I be as great as Bill Gates, Steve Jobs, Elon Musk, Richard Branson?”
An unlikely individual responded, quietly offering some telling insights that have created a bit of a stir among the mogul-cognoscenti and beyond.
The individual is Mr. Musk’s former wife, Justine Musk, who was married to the Tesla and Space X chief from 2000 to 2008.

The Fine Line Between Smart and Illegal
Dealbook – NY Times
Prosecuting fraud begins with identifying a lie that leads the victim to lose something of value. The criminal charges announced last week against Navinder Singh Sarao for “spoofing” orders for futures contracts raises the question whether they are enough to constitute fraud, the key to the government’s effort to extradite him from Britain.

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