First Impressions

Readers of JLN Financials who also receive the John Lothian Newsletter have already heard about our new market education initiatives, specifically the intern series we hosted last summer. We are now rolling out the video from those events. Today we published a two-part video talk by futures industry ambassador Leo Melamed. Please watch part one below.

Leo Melamed’s History of Chicago Markets (Part 1)
Leo Melamed, Chairman Emeritus at CME Group, gives a detailed history of Chicago’s financial industry. In Part One of his presentation, Melamed highlights his meeting with former Chicago Mayor Richard J. Daley. While discussing plans to construct a building for the International Monetary Market (IMM), Melamed told the former mayor that he would move the “financial center of gravity” out of New York at least 10 feet. Melamed also spoke about the opportunities the financial industry had to offer and how the industry embraces competition.

Watch the video »

Leo Melamed’s History of Chicago Markets (Part 2)
Leo Melamed, Chairman Emeritus at CME Group, gives a detailed history of Chicago’s financial industry. In Part Two of his presentation, Melamed discusses his meeting with Nobel Prize-Winning Economist Milton Friedman and his proposal to introduce foreign exchange futures to the markets.

Watch the video »

Read John Lothian’s commentary about Melamed and the video series >> http://jlne.ws/1bRMzWC

Quote of the Day

“The pre-crisis leveraging of the UK did not generate classic signs of overheating. Instead it generated a financial crisis.”

Martin Wolf, in the FT column “Hair of the dog risks a bigger hangover for Britain.”

Lead Stories

Hair of the dog risks a bigger hangover for Britain
Martin Wolf – FT.com
Does the UK have a sensible strategy for recovery? Just recall: the last time it tried the credit-expansion route to growth, it ended up in a huge financial crisis. Why should it rationally expect a different outcome this time?
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***DA: I can only think of two options going forward – austerity and leverage. One is painful today, the other pushes off the pain to a later date.

As the Fed Backs Out, Fundamentals Take Over
Joshua M Brown | The Reformed Broker
Nick Colas of ConvergEx Group has some interesting thoughts on how Fundamentals will replace the Fed and force market participants to think more micro and less macro in 2014.
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***DA: Stock Wars, Episode II: Return of the Alpha Generator

The Treasury power play
John McDermott – Financial Times
In a lecture last year, Sir Nicholas Macpherson, HM Treasury permanent secretary and perhaps the most powerful old Etonian in Britain, explained the “Origins of Treasury control“. Sir Nicholas said that Treasury’s power has three sources: conflict, links to Parliament and being able to outwit the rest of officialdom. All three were in evidence this morning, as George Osborne cited his top official’s advice and told Scots they can have independence or the pound – but not both. It was a power play so old school that it might have been codenamed project Darien.
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How Scotland really lost sterling union
Joseph Cotterill | FT Alphaville
This post is just to flesh out a point in this great piece by John McDermott — so read that first. But we think it’s an important point. An alternative title for this post: What’s under your gilt? After all, it is the debt that has enabled Her Majesty’s government to turn so breezily confident that currency union with an independent Scotland “is not going to happen”, fully seven months before an independence referendum.
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***DA: The British Empire does not often get to flex its muscles these days but, as with MiFID and EMIR, it has turf to protect.

U.S. high-yield muni bond funds lead inflows
Reuters
High-yield U.S. municipal bond funds attracted new cash for a fifth straight week even as major U.S. credit rating agencies downgraded Puerto Rico to junk status, data released on Thursday showed.
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How the Economy Would’ve Looked in Normal Weather
Steven Russolillo – MoneyBeat – WSJ
Much discussion has taken place recently about the dreadful weather and its impact on economic data.
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***JM: Next up, how the economy would have looked without a financial crisis in 2008…

Central Banks

Bank of England to lay off up to 100 staff, and other recent job news
Alexander Campbell, Gillian Carr, Jessica Meek, Mark Sands, Charlotte Sterland – Risk.net
The Bank of England will lay off up to 100 people as part of an effort to make operations at the central bank cheaper and more efficient, following a review by management consultancy Deloitte.
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***DA: I hear the Bank of Scotland may be hiring soon for its currency rollout.

RBI pressures banks to trade bond futures
Business Standard
Determined to turn its third attempt at launching bond futures into a success, the Reserve Bank of India (RBI) is pressuring state-owned banks to trade the derivatives that provide hedges against the country’s volatile interest rates, banking sources told Reuters.
jlne.ws/1eVtsAQ

Yellen’s Shot at the Title
David Reilly – MoneyBeat – WSJ
Titles matter. So it’s no wonder there had been discussion of whether Janet Yellen, who earlier this month became the first-ever female head of the Federal Reserve, would go by chairman or chairwoman.
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***DA: Robert’s Rules says “chairman” is gender neutral and should be used. My AP Stylebook says to never use “chair” or chairperson” unless the bylaws specifically name the position as such.

How Russia’s central bank is clamping down on the financial sector
Rob Hartley – Risk.net
The head of the Russian central bank has been clamping down on the country’s sprawling banking industry – and more regulatory action is likely in future.
jlne.ws/1eVtuZD

Currencies

FX Probe: Bad Cop, Bad Cop
Chiara Albanese and Geoffrey T. Smith – MoneyBeat – WSJ
It feels like every regulator on the planet is digging into the guts of the currencies market, investigating possible wrongdoing. In the U.K., the heart of this global business, lawmakers appear keen to make sure local regulators keep up the pressure.
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***DA: Isn’t it a regulator’s job to understand and monitor the inner workings of the entities it regulates?

Silk Road 2 Hacked: Entire Bitcoin Wallet Drained, $2.7 Million Stolen
Ryan W. Neal – IBT
Using the same transaction malleability bug in bitcoin’s protocol that led to bitcoin exchanges like Mt. Gox and BitStamp shutting down withdrawals, hackers cleaned out the bitcoin wallet belonging to Silk Road 2, an underground Internet black market that launched in October after the FBI shut down the original Silk Road.
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***DA: BTC traded down to $300 on Mt. Gox this morning. That is 80 percent off the highs. But still an order of magnitude above its value a year ago.

Bitcoin regulation challenges and complexities
Jessica Meek – Risk.net
Regulators face cross-jurisdictional challenges in regulating Bitcoin and other virtual currencies
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BitBeat: The Five Men at the Middle of the Storm
Michael J. Casey – MoneyBeat – WSJ
Amid the giant hacking attack launched against bitcoin exchanges, it has been a busy week for Gavin Andresen, the Bitcoin Foundation’s chief scientist, and the four other members of bitcoin’s core software development team. This tiny, partially volunteer gang is working furiously to identify and fix the problems that facilitated the attacks that forced exchanges such as Mt. Gox, Bitstamp and BTC-e to halt withdrawals this week.
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The rise and fall of Bitcoin mining
Aaron Sankin – The Kernel
Earlier this month, fans of Bitcoin—the world’s most popular digital currency—were caught in a whirl of panic as one group threatened to corner the market for new bitcoins. GHash.io, a Ukraine-based collective of Bitcoin miners, recorded a massive spike in its computing power. Almost overnight, an organisation that didn’t exist as recently as last summer, suddenly controlled 42 percent of all the world’s ability to create bitcoins.
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***DA: He that liveth by the cybersword.

Indexes & Index Products

Stock funds worldwide attract $11.5 bln after record outflow -BofA
Reuters
Fund investors worldwide committed $11.5 billion to stock funds in the week ended Wednesday on reassurance from Federal Reserve chair Janet Yellen that the U.S. economy was on a better track, data from a Bank of America Merrill Lynch Global Research report showed on Friday
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How many funds do you need in your portfolio?
The Globe and Mail
Investors, how many funds do you need in your portfolio? There are more mutual funds than stocks available in Canada. A simple search on the Globe Investor Fund Filter yields 18,327 choices, if you include the various share classes many funds have.
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JPM reopens blockbuster Asian equity fund
CityWire
JP Morgan has reopened the Luxembourg-domiciled version of its ASEAN equity fund with assets having fallen nearly $400 million since it was soft-closed in April 2013
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Gold

Major Gold Miners Slash Reserves, Announce Write-Downs
WSJ.com
A host of the world’s largest gold miners slashed the size of their reserves and announced further asset write-downs, highlighting the extent of the damage that last year’s 28% drop in the price of gold has inflicted on the sector.
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A dust-up develops over Dennis Gartman’s new currency-linked gold ETFs
MarketWatch
This week’s launch of four exchange-traded funds that offer gold exposure in different currency terms drew some bad reviews. Now AdvisorShares, the company behind the ETFs, is hitting back. It argues on its website Thursday that one negative take on the products is inaccurate and “promotes a misunderstanding of the actual strategy” behind them.
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Energy Tops Precious Metals Invesments After Gold Rout
Bloomberg
The value of assets held by energy investors at year-end topped precious metals for the first time since 2009 as gold’s worst performance in three decades spurred a flight from exchange-traded products backed by bullion.
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Credit Suisse’s Kendall: Gold May Drop to $1,000 This Year
Money News
Gold rose to a three-month high this week in reaction to Federal Reserve Chair Janet Yellen’s confirmation that the central bank will maintain its accommodative stance and signs of weakening economic growth. But Tom Kendall, head of precious metals research for Credit Suisse, doesn’t see the rally lasting. Stronger U.S. economic growth will knock gold down, he tells CNBC.
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***DA: That is a quite the minority opinion, today anyway.

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