First Impressions

Big Picture: Sandor Says Look Beyond US For Air And Water Markets
JohnLothianNews.com

Richard Sandor is one of the pioneers in financial derivatives and the environmental markets world as founder of the Chicago Climate Exchange. Now with his second book, Sustainable Investing And Environmental Markets, Sandor says this asset class has come a long way over the past 12 years but has a long way to go from here.

“I think we’ve made enormous progress,” he says. “You wouldn’t necessarily believe it was true because of the lack of federal action in the the United States. But I think that would be naive. In fact, you have proposals pending by the EPA that suggest there may be cap-and-trade.”
Watch the video »

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Standing Tall
Jim Kharouf – JLN

The non-profit group A Leg To Stand On held an event at Trading Technologies in Chicago last night, at its uber-cool Tech Tap space. What’s better than a bar at work with bands of industry professionals that will play for the ALTSO event this fall in New York and Chicago? The event raised over $2,000 and industry favorites such as Ray McKenzie, Matt Scharpf, Chuck Mackie and Jim McNulty also played short sets.

There are many worthy charities our industry supports and this is one of them. Providing prosthetic limbs and corrective surgeries for kids in developing countries truly is changing lives. We hope to see you at the Rocktoberfest events in New York on October 15th and Chicago October 22nd.

Also, in case you missed it, please send in a laugh to Kim Taylor at www.laughforkim.com.

Quote of the Day

“It’s generous of the WSJ writers to note, as they do, that ‘economic forecasting isn’t easy.’ They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent.”

Ben Bernanke in the story, “This Is What Happens When Federal Reserve Chairmen Stop Being Polite and Start Getting Real”.

Lead Stories

Gundlach’s Bet-Against-German-Debt Plan Has One Very Big Problem
Bloomberg
So it turns out that Jeffrey Gundlach was really thinking out loud when he said he was looking to short negative-yielding German debt.
Yes, it’s true he’d really like to. But, as he would subsequently acknowledge, it’s a very difficult trade to execute in today’s European markets.
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Bond Traders’ Crazy Solution for Nonexistent Problem
By Mark Gilbert, Bloomberg
Lots of smart people are worrying about the next bond market meltdown. Government regulation and intervention, you see, have sapped what is known as liquidity; because the big banks have to keep more cash on their balance sheets, they’re less willing/able (take your pick) to commit capital to trading. That could make it harder, so the nervous argument goes, for investors to sell when they need to. And that, in turn, could massively amplify price swings.
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What to Do When a Large Financial Failure Starts With a Bank
Dealbook – NY Times
An important feature of the Dodd-Frank regulatory overhaul is Title II’s orderly liquidation authority. It is this authority that is supposed to put an end to bailouts by providing regulators with a “third way” that avoids either Lehman Brothers’ unplanned bankruptcy or American International Group’s unplanned bailout.
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The Philosophy of Warren E. Buffett
Dealbook – NY Times
Warren E. Buffett taught two generations of people to become value investors. It’s time to expand that knowledge.
Value investing is a philosophy as much as a technique. At bottom is a core belief in the simple idea that price is what you pay and value is what you get. For investing, the insight entails the possibility, through independent study and reflection, of allocating capital to ideas offering value greater than price.
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Wall Street’s Latest Craze Meets Small Short in New Derivatives
by Tracy Alloway, Matt Scully, Bloomberg
It began with a seemingly wacky idea to reinvent banking as we know it. But no one is scoffing at peer-to-peer lending anymore — least of all, Wall Street.
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Global bank regulators call for more risk controls around algo trading
Reuters
Banks need to put in place more stringent standards around algorithmic trading to help reduce risks to the financial system as trading becomes more electronic and increasingly complex, a group made up of global regulators said on Thursday. Most trading firms are highly automated and use pre-programmed instructions, known as algorithmic trading strategies, to make lightning-fast decisions on which securities to buy and sell, with little human intervention. Banks regularly use algorithmic trading strategies and have high-frequency trading firms as clients.
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Big Banks Use Loophole to Avoid Ban
WSJ
Big banks are using a little-known loophole to avoid triggering a Securities and Exchange Commission ban on selling certain lucrative products to clients in the wake of enforcement actions. Deutsche Bank AG last week was able to avoid the threat of a ban on selling stakes in hedge funds by tucking specific language into an $800 million agreement it reached with a different regulator—the Commodity Futures Trading Commission—to resolve an interest-rate-rigging probe.
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Two Major Asset Managers Discuss How Bond Investors Should Deal With Duration; Big investors ponder ‘duration’ plays
by Tracy Alloway, Bloomberg
Duration: d(y)o?or’aSH(?)n/ Noun — The time in which something continues. Also, the sensitivity of a bond’s price to changes in its yield.
It’s no secret that bond investors seeking discernible returns have had a hard time of late. With yields on a large swath of government debt hovering near zero – or even less – the temptation is to move into ever riskier securities to generate some (any!) sort of return. Investing in bonds with a longer-duration can also help boost returns, since investors are typically compensated for bearing the extra risk of long-term inflation or eventual interest rate rises, both of which would tend to erode the yield generated by the investments.
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Bond Distortions Heighten Allure of Europe’s Hybrid Debt Markets
by Katie Linsell, Bloomberg
The appeal of risky debt is deepening in Europe, even as credit quality slides and compensation shrinks.
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SEC Asleep At The Switch Overseeing Finra, Charges Congressional Watchdog
TED KNUTSON, Financial Advisor
The Securities and Exchange Commission is asleep at the switch overseeing the Financial Industry Regulatory Authority, said the investigative arm of Congress, the General Accountability Office, on Thursday.
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Greek Default for Dummies: Your Questions Answered on Creditors
Bloomberg Business
Greece has to come up with about 4 billion euros ($4.5 billion) by the end of May for debt payments. Then there’s the 1.5 billion-euro monthly tab for salaries and pensions. As Prime Minister Alexis Tsipras’s government in Athens haggles over the details of its reforms and leans on its banks to keep buying Treasury bills, the question inevitably looms: what happens if the cash runs out?
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Ratings agencies say no default if Greece misses ECB, IMF payments
Reuters
Most top credit rating agencies say they would not cut Greece’s rating to default if it misses a payment to the International Monetary Fund or European Central Bank, a stance that could keep vital ECB funding flowing into the financial system.
Greece owes nearly 1 billion euros to the IMF in May and almost 7 billion euros to the ECB over July and August and there are concerns that the government, stuck in funding talks with official lenders, will miss the payments.
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ICE Benchmark Administration Publishes Feedback Statement on LIBOR Evolution Position Paper
MarketWatch
Intercontinental Exchange, the leading global network of exchanges and clearing houses, has published a feedback statement on the responses received to the ICE Benchmark Administration (IBA) position paper on the evolution and enhancement of ICE LIBOR.
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UBS equity trading chief heads to Jefferies
By Matt Turner and Tim Cave, Financial News
The European head of cash equity trading at UBS has left and is set to join a number of former colleagues at Jefferies, in the latest of several changes at the top of banks’ equities businesses in Europe in recent months.
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Central Banks

The Federal Reserve watches and waits
Financial Times
When confronted by uncertainty that is likely to be resolved in the near future, the best course is often to watch and wait. This week the Federal Reserve’s Open Market Committee did just that when it acknowledged some probably temporary disturbances in the economy but gave no hostages to fortune about the path of interest rates.
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Tying Fed to policy rule could lead to worse outcomes: Williams
Reuters
Requiring the Federal Reserve to operate according to a monetary policy rule could generate worse economic outcomes than using a goal-based mandate like an inflation target, a top Federal Reserve official said on Friday.
“Particularly in situations of economic stress or crisis, operational mandates have proven to be ineffective and have often been abandoned,” San Francisco Fed President John Williams said in remarks prepared for delivery at Chapman University.
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Bernanke Stops Being Polite, Starts Getting Real
NYMag
Now that he is no longer the chairman of the Federal Reserve and is now a blogger, Ben Bernanke is free to point out certain obvious truths he couldn’t say previously, such as the fact that The Wall Street Journal editorial page is run by crazy people. Bernanke is not quite putting it in those terms, alas, but his blogging career is young.
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Currencies

The Dollar Joins the Currency Wars by Nouriel Roubini
www.project-syndicate.org
In a world of weak domestic demand in many advanced economies and emerging markets, policymakers have been tempted to boost economic growth and employment by going for export led-growth. This requires a weak currency and conventional and unconventional monetary policies to bring about the required depreciation.
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Bitcoin Comes Out of the Shadows and Into Wall Street’s Sights
Dealbook – NY Times
At the end of a panel discussion at the Inside Bitcoins conference in New York this week – billed as the largest such event in the world – a supporter of the cryptocurrency pointed to one of the three lawyers discussing Bitcoin’s struggle for mainstream acceptance.
“You all say you want Bitcoin to just work,” he said. “But the only way that will happen is if regulators are completely out of the way.”
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MIT’s First Digital Currency Director Talks Taking Bitcoin Mainstream
www.coindesk.com
“If you would have explained Uber or Lyft five years ago, you would have had to explain it as digital hitchhiking, because that’s what it is.”
That analogy, according to newly appointed MIT Digital Currency Initiative director Brian Forde, illustrates where bitcoin and the blockchain are today – struggling for a more colloquial definition that may only come when the technology delivers a consumer experience that communicates its societal value.
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Anticipation vs. Confirmation for Today’s Forex Trader
www.investopedia.com
From the time they place that first trade to the time they’ve accumulated decades of experience under their belts, many traders ask, what is the right balance between placing trades based on anticipation versus trades based on confirmation? My suggestion: tackle this question head-on.
The most successful traders I have met are usually great planners and great anticipators. They align structure, support and resistance levels, indicators, patterns, probabilities (the list goes on), in order to place trades that yield positive results.
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Where To Find Profits Amid Global Currency Chaos
www.nasdaq.com
I make a ton of currency swaps in my line of work. It goes with the territory. But lately it’s been a harrowing experience.
Many currencies around the world have been a mess for the last few months. The value of the British pound, for example, has dropped 13% against the dollar since July 2014.
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Indexes & Index Products

Why U.S. stocks are near highs even as fund investors flee
MarketWatch
Thanks to stubborn fund managers and record corporate buybacks, U.S. stocks remain near all-time highs even as money continues to trickle out of U.S. shares and into international equities.
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3 reasons investors still buy actively-managed funds
MarketWatch
As has been widely reported in the financial media, 2014 was one of the worst years in recent memory for active managers.
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Gold

CME Group suspends two gold futures traders for allegedly spoofing
Reuters
CME Group Inc on Thursday suspended two traders from its markets for allegedly colluding to enter orders repeatedly with no intention of trading, a strategy that has been fingered as a key contributor to the 2010 Wall Street flash crash.
Heet Khara and Nasim Salim, both traders of CME Group’s gold and silver futures contracts on its Comex exchange in New York, are prohibited from trading for 60 days, according to a disciplinary notice released by the futures exchange.
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Gold Loses Luster as Investors Ponder U.S. Rate Rise
WSJ
Gold prices fell Friday to their lowest level in six weeks, as traders readjusted their expectations on how soon the Federal Reserve might raise U.S. interest rates.
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Gold equities may be better bet than physical metal: Russell
Reuters
While the price of gold has meandered in a narrow range this year, gold equities have improved somewhat and an analysis of relative performance suggests they may have further to rally.
Spot gold ended Thursday’s trade at $1,183.85 an ounce, largely unchanged from $1,183.55 at the end of 2014, as the precious metal battles the competing influences of a firmer dollar and concerns over a Greek exit from the euro zone.
However, major gold miners have shown some improvement, with the S&P TSX Global Gold Index gaining 14 percent so far this year.
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The final word on Gordon Brown’s gold sell-off
www.mirror.co.uk
Gordon Brown sold more than half of Britain’s precious gold bullion at the bottom of the market just before the price of gold started a decade of almost uninterrupted growth.
Or so the Tory attack line goes.
It’s a favourite of Conservative Party press officers, the Prime Minister and clueless commentators everywhere.
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Gold prices: Buried
The Economist
UNCERTAINTY is supposed to lift the gold price. But neither upheaval in the Middle East, nor the travails of the euro zone, nor startlingly loose monetary policy in the rich world is brightening the spirits of those who swear by bullion. After a big rally during the financial crisis, the price has sagged to about $1,200 an ounce, a third below its peak in 2011. Little seems likely to turn it round. “We’ve seen everything gold bugs could hope for: endless money printing, 0% interest rates (both short-term and long-term adjusted for inflation), rising debt and debt ratios in the public and private sectors…So where’s the damn hyperinflation?” asks Harry Dent, a newsletter publisher, in a recent blog post.
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Miscellaneous

Ex-Goldman Sachs Programmer Found Guilty in Split Verdict
Dealbook – NY Times
For the second time in five years, Sergey Aleynikov was convicted on charges of stealing confidential computer trading code from his former employer, Goldman Sachs. The first time it took a federal jury just hours to convict; this time it came after more than a week of deliberation and an accusation of “food poisoning” and avocado tampering in a state court jury room.
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Central banks and fancy paper: This is where your money really comes from
Financial Post
What is money and how did it get to be a way of trading and storing value is the question and the quest of Christine Desan in Making Money: Coin, Currency, and the Coming of Capitalism. The usual explanation is that governments set a value on coin and bills and then everybody agrees to use them. That story is naïve, lightweight and wrong, as Ms. Desan demonstrates in her 478 page doorstopper. Amazingly, given the weighty scholarship, the book is a great read, a page turner for economics mavens and maybe an epiphany for those who have not considered where their money comes from.
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