First Impressions

Bits & Pieces & Planes, Trains and Automobiles
By John J. Lothian

The John Lothian News team is in Philadelphia this morning, as thunderstorms in New York cancelled our flight and this was the best option to get near New York. We are headed up to the Big Apple this morning by rental car.

It was the heck of a day, expecting to leave Chicago near noon and finally leaving near 10 PM and arriving in Philly at 1 AM.

Our New York Summer Intern Education Series now has over 100 people signed up to attend, something we could have only dreamed about a week ago. This is about the same base number we had in Chicago that first year, and now we pack them in each year. Thanks again to all who helped get the word out and encourage people to attend. And thanks again to Global Premier sponsor CME Group.

Now, off to the road. Ninety-nine bottles of beer on the wall, ninety-nine bottles of beer. Take one down… Come on, guys, sing!

Quote of the Day

“I want to say something to my comrades. On Monday morning, at 9:30 a.m., it was the most difficult moment of my life. It was a decision which will be a burden for me for the rest of my life. I don’t know if we did the right thing. But I know we did something to which there was no alternative.”

Greek Finance Minister Euclid Tsakalotos in the story, “Greek Lawmakers Weigh Bailout as Tear Gas Fired in Athens”

Lead Stories

I.M.F.’s Insistence on Greek Debt Relief Adds to Complexity of Talks
James Kanter and Jack Ewing – NY Times
The International Monetary Fund’s declaration that it would not back a new bailout for Greece unless the pact substantially reduced the debt burden on Athens clouded the prospects on Wednesday for quick approval of an aid plan. The I.M.F. move also reopened a debate the European leaders thought they had settled during contentious negotiations last weekend.
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Greek Lawmakers Weigh Bailout as Tear Gas Fired in Athens
Nikos Chrysoloras, Eleni Chrepa and Matthew Campbell – Bloomberg
Greek police clashed with protesters in central Athens as lawmakers debated a new bailout of up to 86 billion euros ($94 billion) that will impose further austerity on a country already ravaged by recession.
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Banks in Europe to Face New Stress Tests in 2016
Chad Bray – NY Times
European banks are set to face another round of stress tests next year as regulators examine the ability of the region’s lenders to survive a financial crisis or severe economic downturn.
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IMF Tells Europe: You Will Lose 300 Billion EUR By Bailing Out Greece
Tim Worstall – Forbes
This isn’t quite how they say it of course, they don’t tell us all this truth in quite such stark terms. But that is indeed what this latest International Monetary Fund report on the Greek debt situation is really saying. That the accumulated losses of bailing out Greece will amount to some EUR300 billion over the years. A goodly part of this money is already lost and a significant portion of any further amount lent will similarly be lost. At which point perhaps the few adults left in the room would like to consider an alternative solution? Like, perhaps, what Greece should have done all along which is default, drachmatise and devalue. Yes, default would mean a crystalisation of the losses, something most European politicians are desperate to avoid, but it’s entirely possibly that the total losses over time would be rather lower than they are with the current plan.
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Dodd-Frank imposes $24B in regulatory costs, study finds
Tim Devaney – TheHill
The Dodd-Frank financial reform measures passed in the wake of the collapse on Wall Street continue to take a toll on the economy, according to a new study.
Five years after Dodd-Frank was passed, the business-friendly American Action Forum finds it has led to $24 billion in compliance costs and 61 million paperwork hours.
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For U.S. banks, depositors could spoil joy of higher interest rates
David Henry – Reuters
Rising U.S. interest rates may not boost bank profits by as much as many executives and investors hope, JPMorgan Chase & Co (JPM.N) Chief Executive Jamie Dimon said on Tuesday.
Investors expecting the Federal Reserve to lift rates this year have purchased U.S. bank shares, helping them perform much better than the overall U.S. stock market. Rising rates allow banks to charge higher rates on their loans, which can boost their income.
But higher rates can also increase a bank’s costs, in particular, the interest that they have to pay depositors.
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Gundlach Does Junk Bond Risk Dance Seeing No Rate Rise in 2015
Simone Foxman and Joshua Fineman – Bloomberg
Bond manager Jeffrey Gundlach said he doesn’t see the Federal Reserve raising interest rates in 2015 even as Fed Chair Janet Yellen reiterated the central bank remains on course for such a move.
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What Greece can learn from Africa about the effects of bitter austerity and debilitating debt
Ian Scoones – Quartz
Some have asked what can Africa learn from Greece. I argue that Greece (and others) can learn a lot from the African experience.
Debt is on the rise again not just in Greece, but across the world. A decline in commodity prices with a strengthening of the US dollar makes debt unsustainable in many economies. These developments have led to rising proportions of government revenues being spent on debt servicing and debt accounting for higher and higher proportions of total GDP.
The extremes of Greece, whose debt had risen to some 178% of GDP—probably more now as its economy has crashed—are rare, but the signs are ominous.
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A Billion Dollars Just Went Into Junk ETFs. It May Leave Soon.
Lisa Abramowicz – Bloomberg
Investors have a love-hate relationship with junk bonds these days.
After generally fleeing riskier debt since May, they’re now pouring cash in at a record pace — at least judging by the biggest exchange-traded funds. Both BlackRock Inc. and State Street Corp.’s junk-bond ETFs, which oversee a combined $24.9 billion, received their largest daily inflows this week on record, according to data compiled by Bloomberg.
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Banking: Playing the long game in Russia
Euromoney Magazine
Banks are prepared to sit through a couple of lean years in emerging Europe’s largest market, given that it will bounce back eventually. They might not want to get too optimistic though.
It would be natural to assume that debt bankers covering Russia would by now be sunk in gloom. Their main market has been dormant for more than a year. Deal flow is nonexistent. The EU has just extended its sanctions for another six months, and the US is reportedly looking to step up its sanctions.
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China’s Debt-to-GDP Ratio Just Climbed to a Record High
Ye Xie and Belinda Cao – Bloomberg
While China’s economic expansion beat analysts’ forecasts in the second quarter, the country’s debt levels increased at an even faster pace.
Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008, data compiled by Bloomberg show.
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Ukraine Gears Up for Debt Talks as Default Deadline Looms
William Mauldin and Laura Mills – WSJ
Ukrainian Finance Minister Natalie Jaresko will meet with the country’s bondholders on Wednesday in a down-to-the-wire effort to reach a restructuring deal before a possible default.
With its economy battered by a conflict with Russia-backed separatists in the east, Ukraine is inching closer to a July 24 deadline for $120 million in coupon payments. While both Kiev and its creditors say they hold out hope for a deal, neither side has budged in months of bitter talks.
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Central Banks

Fed’s Janet Yellen, House Spar Over Rates and Accountability
Jon Hilsenrath and Ben Leubsdorf – WSJ
Federal Reserve Chairwoman Janet Yellen said the U.S. central bank was on a path to raise short-term U.S. interest rates this year as the domestic economy continues to improve even against a backdrop of global threats.
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Time to withdraw ’emergency’ U.S. accommodation: Fed’s Mester
Jonathan Spicer – Reuters
The Federal Reserve can start to withdraw its “emergency” policy accommodation now that the labor market is largely healed, and given the U.S. economy will likely dodge fallout from Greece’s debt crisis, a top Fed official said on Wednesday.
In a speech, Cleveland Fed President Loretta Mester bolstered the argument that she and other hawkish U.S. central bankers have been making to finally begin lifting interest rates from near zero.
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Congressman offers to name rule after Janet Yellen
Corey Stern – Business Insider
Forget the Taylor Rule, maybe the Fed will start following the Yellen Rule.
Federal Reserve Chair Janet Yellen was on Capitol Hill on Wednesday to deliver her semiannual monetary report before the House Financial Services Committee.
And some members of congress again pressed the Fed to follow rules.
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Exclusive: ECB pressures German bank HSH to cut bad loans in half – sources
Andreas Kroner – Reuters
The European Central Bank (ECB) is pressing German lender HSH Nordbank to cut in half its bad-loan ratio, as the supervisor steps up reform pressure on weak banks, two sources familiar with the matter told Reuters.
The pressure signals how serious the euro zone’s newest and biggest banking supervisor is in restoring health to the region’s banks, which lag far behind U.S. rivals in recovering from the crisis.
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Monetary policy: Hawkish tones
The Economist
When David Miles joined the Bank of England’s Monetary Policy Committee in August 2009, interest rates were at a record low of 0.5%. They have not budged since. Not once during his tenure, which comes to an end on August 31st, has Mr Miles voted for a change in rates. In his time he has been called a “dove”, and even an “arch-dove”. But in his final speech as a member of the Monetary Policy Committee (MPC) on July 14th, he shrugged off this label, suggesting that rates should rise gradually, but soon.
His speech came on the same day that Mark Carney, the bank’s governor, also suggested that the time for a rate rise is “moving closer”. The governor’s comments caused sterling to jump 0.7% against the dollar.
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Where Can You Still Withdraw EUR100,000 From a Greek Bank?
Giles Turner – WSJ
The answer lies in the shadow of the U.K.’s central bank.
Almost three weeks since banks in Athens closed its doors, and with Greek politicians set to vote Wednesday on the potential bailout, the future of the country’s banks remains uncertain.
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Currencies

Interdealer brokers: IDBs bet on RMB boom
Rob Hartley – Euromoney Magazine
Interdealer brokers are set to be big beneficiaries of the rapid growth and development of the renminbi, say market players.
The internationalization of the Chinese currency has created opportunities for new business across the financial services industry, and IDBs are looking to ride the wave of RMB progression.
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Morgan Stanley Sees Nothing to Like in Latin American Currencies
Sebastian Boyd – Bloomberg
Latin American currencies will extend their slump compared with the rest of emerging markets as growth undershoots already muted expectations, according to Morgan Stanley.
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Considerations When Choosing Between Unhedged, Currency-Hedged ETFs
Tom Lydon – ETF Trends
Investors who want overseas exposure can adapt to changes in the forex with unhedged or currency-hedged exchange traded fund options, but for long-term investors may be better served through sticking to one trade.
“There are valid reasons to invest in either currency-hedged or unhedged foreign-stock funds,” writes Karen Wallace for Morningstar. “The danger comes in trying to predict periods of relative strength for the U.S. dollar, and buying and selling hedged and unhedged funds in response.”
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Loonie to Kiwi Tumble as Canada Rate Cut Heralds Stimulus Wave
Rachel Evans – Bloomberg
Commodity currencies slumped amid speculation an interest-rate cut from the Bank of Canada may augur more monetary stimulus by resource-producing nations.
The Canadian dollar fell to its lowest since 2009 as policy makers lowered borrowing costs to stimulate an economy struggling with the declining price of oil, its major export. The New Zealand and Australian currencies also tumbled to multi-year lows.
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Forex Broker FX World Under Investigation by City of London Police
Chiara Albanese – WSJ
The City of London police are conducting a fraud investigation into currencies-trading firm FX World, according to a person familiar with the matter.
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Investors want ETFs that strip out FX volatility
Rachel Evans – Independent.ie
The world’s biggest money managers are staking a claim in the surging market for stock and bond-linked exchange traded funds (ETFs) that strip out currency risk.
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Indexes & Index Products

Indicator of the Week: The SPX’s Quarterly Win Streak is Over — Now What?
Rocky White – Schaeffer’s Research
When June ended a couple weeks ago, so did the fourth-longest quarterly win streak for the S&P 500 Index (SPX), dating all the way back to 1928. Before the second quarter of this year, the last negative quarter for the SPX was the fourth quarter of 2012. So, there were nine straight positive quarters before the last quarter ended down less than 1% to end the streak. I wondered if those long win streaks indicated an overbought market, and if the first negative quarter tended to snowball into large further losses.
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Nasdaq Lists The Global X SuperDividend Alternatives ETF
Press Release
Nasdaq announced that Global X Funds will list a new exchange-traded fund (ETF), the Global X SuperDividend Alternatives ETF (Symbol: ALTY), which will begin trading on The Nasdaq Stock Market Tuesday, July 14, 2015.
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Leveraged ETFs don’t pack as much punch these days
Chris Dieterich – Barron’s
Leveraged exchange-traded funds are throwing around less weight as major stock benchmarks see milder zigs and zags.
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FTSE Russell Introduces New US Quality Dividend Index
Press Release – Mondovisione
Leading global index provider FTSE Russell today announced the launch of the FTSE US Qual / Vol / Yiel Factor Index. The Index represents an expansion of the FTSE Global Factor Index Series and reflects specific factor characteristics – quality, low volatility and yield – for U.S. large- and mid-cap companies.
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Barclays partners with ‘Dr Doom’ for global stock indexes
Chris Dieterich – Barron’s
UK banking giant Barclays teaming up with Nouriel Roubini on factor-based stock indexes.
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Gold

The tax implications of owning gold
Bill Bischoff – MarketWatch
As an investor, you may be worried about stock market risk, and who can blame you?
Unfortunately, the safest fixed-income investments — like CDs, Treasurys, and money-market funds–are paying near-zero interest rates despite the possibility of significant future inflation. Not good. In this environment, the idea of investing some taxable money in gold and other precious metal assets could be appealing. But read this to make sure you understand the tax angles.
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Reversal of Fortune for Gold & Silver Funds?
Gourab Das – Zacks
Gold started off 2015 with a bang as it became even more of a safe haven as a result of an increase in currency volatility, uncertainty over Greece’s future in the euro zone and expected quantitative easing in Europe. However, the gains fizzled out as gold prices again dropped on strong U.S jobs. Following which, gold prices fell to new six-week lows as equities recovered on hopes that Greece would work out a deal with its creditors.
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Biggest South African Gold Union Keeps 80% Pay-Increase Demand
Paul Burkhardt – Bloomberg
South Africa’s biggest gold-industry union said its demand that entry-level pay be raised by at least 80 percent remains unchanged after producers modified some terms of their offer.
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Irishman held in India on alleged bid to bring in EUR350,000 of gold
Rahul Bedi – Irish Times
An Irish national was arrested at Kochi international airport in southern India late on Tuesday night for allegedly trying to smuggle 10kg of gold into the country.
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Lawmaker Asserts Gold Depository Will Kill Federal Reserve
Christopher Hooks – The Texas Observer
Many Texans are not nuts, and don’t have much interaction with the state’s many honorable nuts in day-to-day life. So when the words “Jade Helm” became a buzzword in Texas back in May thanks in part to Gov. Greg Abbott, a lot of people were shocked. It was a moment in which people who don’t pay much attention to politics noticed that there was something a little sickly about the state’s political culture.
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Miscellaneous

U.S. and International Businesses Eye an Iranian ‘Gold Mine’ After Nuclear Deal
Vivienne Walt – Time
Even before the crowds on Tehran’s streets staggered home on Tuesday night from partying to celebrate the nuclear deal, Iranians and Americans were both assessing the mammoth new potential for business in the country, once U.S. and European Union sanctions that have been in place for decades are dismantled. Iran has around $150 billion frozen in international banks, which when sanctions are lifted will begin filtering into the domestic and international economy.
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World’s safest banks
Barbara Tasch and Amanda Macias – Business Insider
Despite all of the headlines about a banking crisis in Greece, Europe is home to the world’s safest commercial banks, according to a report by Global Finance Magazine.
The study compares 500 of the world’s largest banks and their “long-term foreign currency ratings” issued by Fitch, S&P, and Moody’s as of August 2014.
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