First Impressions

MarketsWiki Hits the 75 Million Page View Mark
By JLN Staff

Over the Super Bowl Weekend, enough people tuned into MarketsWiki to spring it over the 75 million page view mark. Since it launched in January of 2008, MarketsWiki has continue to grow a global audience and seen increased traffic to the site.

We have had 2.1 million pageviews in 2016 already and saw about 16 million pageviews in 2015.

In the last year or so we have launched a new website for John Lothian News,, which has helped increase traffic to MarketsWiki while displaying all of the content produced by John Lothian News. Also, since John Lothian took over producing the newsletter from Jon Matte, our Twitter production has increased substantially. The Twitter handle of @johnlothian has been ranked highly on the Streeteye Twitter Leaderboard for many months and currently sits at the number 1 ranking.

Additionally, John Lothian News video work has increased our exposure in YouTube, which is the number 2 search engine by some measures.

Meanwhile, MarketsReformWiki continues to attract traffic and now has 11.2 million page views since it launched in May of 2011.

Quote of the Day

“Volatility in the fourth quarter impacted the earnings of most major banks, especially those in Europe, and clients may ask you about how the market-wide volatility is impacting Deutsche Bank. You can tell them that Deutsche Bank remains absolutely rock-solid, given our strong capital and risk position.”

John Cryan, Co-CEO of Deutsche Bank, in the story, “A message from John Cryan to Deutsche Bank employees”

Lead Stories

Is the European banking industry facing its own Lehman Brothers moment?
Ben Wright – The Telegraph
A bad year for European banks just got a whole lot worse. The Euro Stoxx 600 Index of leading bank shares has lost nearly a fifth of its value in the past 30 days after a spectacular sell-off on Monday. Few have been spared. The share price of Barclays, BNP Paribas and Unicredit all slid around 5pc, those of Deutsche Bank fell 10pc, and the value of Greece’s three largest banks all slumped nearly 30pc – from not very much to even less.
After the markets closed on Monday, Deutsche Bank took the unusual step of saying it had enough money to pay the coupons on some of its debt that are due in April. The German lender was essentially trying to convince the market that it isn’t facing a liquidity squeeze.

****SD: For more on banking’s issues, see everywhere. For real though, check out Bloomberg Gadfly’s The Tumult of Bank Debt and Hedge Funds Make a Back-up Plan, the NYT’s Nervousness About Global Banking Giants Intensifies and the FT’s Investors flock to CDS amid fear over banks’ bonds. And there’s a raft of Deutsche Bank stories a bit farther down.

Basel Risk Framework Could Reduce Liquidity
Basel’s finalised framework for the assessment of market risk could lead to global banks dropping activities which become too expensive, and reduce market liquidity, and may also be implemented differently in different jurisdictions.
The Basel Committee on Banking Supervision published its finalised framework for assessment of market risk, a major part of the Fundamental Review of the Trading Book, on 14 January 2016 following a lengthy consultation. National regulators must implement the new rules by 2019.

Global Bond Rally Near `Panic’ Level With Japan Yield Below Zero
Liz McCormick and Eshe Nelson – Bloomberg
Worldwide gains in sovereign bonds sent Japan’s benchmark 10-year yield below zero for the first time and have guided U.S. Treasuries to the best start to a year since 1988 as investors seeking the safest assets gorge on government debt.

****SD: Click here for Bloomberg’s chart of the world’s negative-yielding bond pile topping $7 trillion

Banks See Market Liquidity Sapped by EU’s Failed-Trade Fix
John Glover – Bloomberg
Banks, investors and even some finance ministries have renewed their attacks on a European Union law intended to prevent the failure of cross-border securities transactions, arguing that it will drive up costs and hurt liquidity.

London whale boss fined nearly £800,000 by UK watchdog
Caroline Binham – Financial Times
The UK financial regulator has fined the boss of the so-called London Whale at JPMorgan Chase nearly £800,000 over the $6bn mismarking episode, but Achilles Macris is continuing to press another part of his legal battle against the watchdog.
Mr Macris oversaw Bruno Iksil, the trader at the heart of the scandal that cost the US bank $1bn in penalties, including a £138m fine by the Financial Conduct Authority.

****SD: Also see How Six Brokers Walked Free After Unraveling of U.K. Libor Case

Deutsche mulls multibillion bond buyback
James Shotter, Patrick Jenkins and Gavin Jackson – Financial Times
Deutsche Bank is considering buying back several billion euros of its debt, as Germany’s biggest bank steps up efforts to shore up the tumbling value of its securities against the backdrop of a broader rout of financial stocks.

****SD: For more of what ails DB, check out the NYT’s Deutsche Bank’s Hybrid Bonds Are in a Death Spiral, Bloomberg’s German Finance Minister Schaeuble Has ‘No Concerns’ Over Deutsche Bank and the FT’s The CoCo that popped

A message from John Cryan to Deutsche Bank employees
Deutsche Bank
When I first became your colleague and Co-CEO seven months ago, I promised to increase communication from the Management Board to you. I made clear that when we had something to communicate, I wanted you to hear about it first from us. That is why I am writing to you today.

Goldman Sachs Abandons Five of Six ‘Top Trade’ Calls for 2016
Rachel Evans and Andrea Wong – Bloomberg
Goldman Sachs to clients: whoops. Just six weeks into 2016, the New York-based bank has abandoned five of six recommended top trades for the year.
The dollar versus a basket of euro and yen; yields on Italian bonds versus their German counterparts; U.S. inflation expectations: Goldman Sachs Group Inc. was wrong on all that and more.

****SD: Whoopsie.

CFTC to Repropose Rules on Swap Dealer Capital
Bloomberg BNA
Commodity Futures Trading Commission staff is working to repropose rules to address capital requirements for swap dealers and major swap participants, Chairman Timothy Massad said today in Washington.
In a speech at a Treasury Department conference, Massad said that the commission is coordinating with the Securities and Exchange Commission and prudential banking regulators to harmonize the proposals with the other regulators. A rule was proposed in 2011 but was never adopted.

‘Risk parity’ strategy shows strain
Robin Wigglesworth – Financial Times
Last year was a terrible one for “risk parity”, once one of the hottest strategies in the investment world, as losses mounted and some analysts blamed it for exacerbating market turbulence. So far 2016 has offered little respite.
At its core, the risk parity strategy is about balance. Rather than spread investments according to old-fashioned rules of thumb — such as 60 per cent in equities and 40 per cent in bonds — risk parity funds invest equally in asset classes according to their mathematical volatility, so each contributes equally

TRLPC: Markit acquires systems integration software from JPM for loan market
Kristen Haunss – Reuters
Markit, the financial data company, has acquired systems integration software from JP Morgan that will help to connect different loan processing programs and reduce the time it takes to close the sale of a syndicated loan.
Regulators have criticized lengthy settlement times in the US$870bn loan market, concerned that the average 19.3 days it currently takes to close a loan trade may pose a problem for mutual funds if a large number of investors ask for their money back during a downturn.

Central Banks

Central bankers peer into uncharted waters
Financial Times
The boost to Japanese stocks and to global equities — and the weakening of the yen — that followed the Bank of Japan’s surprise move to negative interest rates last month is swiftly unravelling. On Tuesday, Japanese share prices dived and the yen rose again, as the “risk-off” trade drove money back into safe assets and currencies.
In this context, it is more important than ever that the Bank of Japan should signal its determination to use all available tools to raise growth and inflation. It was unfortunate that there was dissent at the BoJ’s policy board meeting on January 29 at which the decision to go negative was carried by five votes to four. Dissenters expressed concern that competition among central banks to push rates below zero would ensue.

From ZIRP to NIRP: What’s the Fed’s next move?
Negative interest rates in the U.S. may seem like a far-fetched idea, but the Federal Reserve is telling banks to prepare, just in case. For the first time ever, the governing agency and U.S. central bank is requiring banks to include, in a round of stress tests commencing this year, to prepare for the possibility of negatively yielding Treasury rates. The scenario is purely hypothetical and not a forecast, according to a Jan. 28 Fed news release .

5 Things to Watch in Janet Yellen’s Congressional Testimony
Ben Leubsdorf – WSJ
Federal Reserve Chairwoman Janet Yellen heads to Capitol Hill on Wednesday and Thursday for two days of congressional testimony, her first public appearance since her press conference in December following the central bank’s hotly debated interest-rate increase. A lot has changed since then: The Fed is confronting fresh uncertainty about the economic outlook amid global financial market tumult, and many investors assume further rate increases are on hold for now. Ms. Yellen’s remarks will be parsed for fresh guidance on the Fed’s plans. She goes before the House Financial Services Committee Wednesday at 10 a.m. EST, but her testimony and the Fed’s monetary policy report are scheduled to be released at 8:30 a.m. EST. She appears before the Senate Banking Committee Thursday morning. Here are five things to watch.

8 ways to improve the Fed’s accountability
Bloomberg via the Chicago Tribune
This week, Congress will exercise one of its most important responsibilities: Holding the Federal Reserve accountable for its management of the economy by questioning Fed Chair Janet Yellen. It’s a process that could be a lot more useful, both for the central bank and for the public.

Japan’s negative rate policy may have far-reaching consequences not foreseen by BOJ
Neal Kimberley – South China Morning Post
The Bank of Japan’s (BOJ) January 29 decision to adopt a monetary policy of “quantitative and qualitative easing with a negative interest rate” (QQENIR) will have domestic, regional and global consequences but not necessarily the kind Japan’s policymakers might have in mind. But what is clear is that the BOJ both intends, in its own words, “to maintain momentum toward achieving the price stability target of 2 per cent,” and that it also stands ready to go further if appropriate.

****SD: Also see Bloomberg’s chart of Kuroda’s actions driving the 10-year yield below zero

Bear market for banks poses fresh Fed challenge
John Authers – Financial Times
Out of nowhere, bank stocks in the US and western Europe are in a bear market. Credit default swaps — instruments many had hoped never to hear mentioned again — are back on the agenda, as they show a greater risk of default for Deutsche Bank than at any time during the 2008-09 financial crisis.

Global central banks are running ‘out of ammo’
Patrick Gillespie – CNN Money
Central banks are pulling out all the stops to turn around the global economy.
They’re pumping money into their economies, creating negative interest rates and buying billions of dollars in bonds. Yet experts are worried some of these strategies will not be enough to turn around the slump in the world.

Esma, ECB move to secure Europe-wide pacts
Alice Attwood – Futures & Options World
European Securities and Markets Authority (Esma) and the European Central Bank (ECB) have agreed a template for the exchange of information between themselves and Europe’s individual national regulators and central banks as part of their preparations for the implementation of Mifid II. Esma and the ECB inked a memorandum of understanding (MoU) to allow the exchange of information between themselves and between themselves and national authorities as the central bank continues to increase its supervisory mandate over the region.


China’s Exchange-Rate Trap
Barry Eichengreen – Project Syndicate
For months now, China’s exchange-rate policy has been roiling global financial markets. More precisely, confusion about that policy has been roiling the markets. Chinese officials have done a poor job communicating their intentions, encouraging the belief that they don’t know what they’re doing. But criticizing Chinese policy is easier than offering constructive advice. The fact is that China’s government no longer has any good options. No question, the country would be better off with a more flexible exchange rate that eliminated one-way bets for speculators and acted as an economic shock absorber. But the literature on “exit strategies” – on how to replace a currency peg with a more flexible exchange rate – makes clear that the moment when China could have navigated this transition smoothly has now passed.

When Investors Mention Euro Systemic Risk, Traders Turn to Franc
Manisha Jha – Bloomberg
The Swiss franc rose against all of its 16 major peers as volatility increased in Europe’s corporate bond market and costs rose for protecting against default among banks and insurers.
The franc’s surge against the euro added to a gain last week that was the biggest since mid-December. Before the rally that began three days ago, the franc had depreciated 2.4 percent against the single currency, even as stock markets globally tumbled.

Pound Seen Tumbling Whether U.K. Stays in EU or Seeks `Brexit’
Lukanyo Mnyanda and Manisha Jha – Bloomberg
The biggest pound bear expects the currency to lose 17 percent this year. And that’s if Britain remains part of the European Union.
Svenska Handelsbanken AB isn’t exactly an outlier, either. The next three most pessimistic forecasters in Bloomberg’s sterling survey predict declines of at least 8 percent to levels last seen in 1985, and all of their estimates are based on an assumption citizens will vote to remain in the EU in the forthcoming referendum.

****SD: In other Brexit news, Britain’s Global Banking Hub Is Mostly Leery of an E.U. Exit

Dollar hits four-month low as investors flee to safe havens
The dollar tumbled to a nearly four-month low on Tuesday as growing fears of a global slowdown pushed investors to safe-haven currencies like the Japanese yen and Swiss franc.

Indexes & Index Products

New SEC Rule Proposals Aimed at ETFs May Chase Investors Into ETNs
Eric Balchunas – Bloomberg
New proposals from the U.S. securities watchdog aimed at reducing risks in exchange-traded funds (ETFs) may end up being the best thing that ever happened to rival exchange-traded notes (ETNs).
ETFs holding some $225 billion worth of assets are likely to violate the new rules suggested by the Securities and Exchange Commission (SEC), and could ironically spark a mass migration of investors into riskier products.

More Wall Street Strategists Are Cutting Their S&P 500 Estimates
Joseph Ciolli, Oliver Renick and Lu Wang – Bloomberg
Amid the normal consensus of bullish calls for stocks in 2016, evidence is mounting that Wall Street strategists are losing their resolve as everything from China to oil and interest rates roil markets.

China rule change clears path to equity index inclusion
Steve Johnson – Financial Times
China may not be everyone’s dream investment destination at the moment, but Beijing may possibly have found a way to pretty much force a phalanx of foreign investors to pour money into the country. The State Administration of Foreign Exchange last week unveiled the partial liberalisation of its Qualified Foreign Institutional Investor programme, the prime conduit used by overseas fund managers, pension funds and sovereign wealth funds to access the Shanghai and Shenzhen equity markets.

Does it Have to Be Active OR Passive? Why Not the Best of Both Worlds?
Indexology: S&P Dow Jones Indices
The debate on active versus passive investing is endless, and there are strong arguments on both sides. The active side argues on the advantages of alpha, star fund managers’ year-over-year record performances, better market timing, and better stock picking backed by thorough research.

Will History Repeat Itself in Feb. 2016?
Indexology: S&P Dow Jones Indices
The year 2016 appears to have gotten off to a similar start to the beginning of 2015. The S&P 500 Bond Index has returned 0.92% as of Feb. 8, 2016, while in 2015 the index was up 1.57% as of Feb. 8, 2015. Maybe the month of February will end up being more similar than investors might want. The yield-to-worst of the S&P 500 Bond Index ended February 2015 13 bps wider than where it began the month. The same might be true this year, as the yield of the index, at 3.55% as of Feb. 8, 2016, is almost even to January’s 3.56% so the question is whether yields widen out from here as they did last year.

****SD: Also from Indexology, Dividend and Low Volatility-Investments

Whatever The Baltic Dry Index Says, Global Trade Is Not Collapsing
The Baltic Dry Index is now down to 293, near 50% down on a year ago and almost 40% down just so far this year. This does not though, despite a remarkable amount of panicking over it, mean that global trade has fallen off a cliff. It does not even mean that global trade has contracted at all. The important point here being, as it is about any other price in the economy, that the price is determined by the interplay of supply and demand, not just demand alone.

Checking In On JP Morgan’s ETFs
It has been roughly a year and a half since J.P. Morgan first entered the ETF market with the launch of the JPMorgan Diversified Return Global Equity (JPGE | C-73). The huge bank, known largely for its footprint in the actively managed mutual fund space, has since rolled out a few more ETFs, and is now getting ready to debut its first active exchange-traded fund.


LBMA Said to Invite LME, ICE to Propose Gold Trading Platform
Eddie Van Der Walt – Bloomberg
The London Metal Exchange and Intercontinental Exchange Inc. are among companies that have been invited by the London Bullion Market Association to submit proposals to develop a precious-metals trading platform in the city, according to two people familiar with the matter.

Technician says fan pattern in gold price shows big breakout is coming
The gold price has been wallowing around $1,050 to $1,180 since June 2013, sending plenty of confusing signals as it built a very broad consolidation base.
Now, the rally in gold has the potential to develop into a breakout from the consolidation base and become a new uptrend. But the strength and sustainability of the gold rally is still not unclear.


Obama Reaches for Relevance With $4.1 Trillion 2017 Budget
President Barack Obama sent his final budget request to Congress, a $4.1 trillion proposal for fiscal 2017 that represents his aspirations for curbing climate change, bolstering education and technology while also setting a marker in the political campaign to succeed him.

Shots fired and bricks thrown: Hong Kong tense after Mong Kok mob violence on first day of Lunar New Year
Stuart Lau, Chris Lau and Christy Leung – South China Morning Post
Hong Kong was in shock yesterday and remained on edge after overnight rioting on Monday in the streets of Mong Kok prompted police to fire shots in the air, left scores injured, and led to the arrests of 61 people.
Hundreds of people were involved in the anarchy that turned parts of Nathan Road, Shandong Street, Argyle Street and Nelson Street, into burning war zones as rampaging protesters fought pitched battles with outnumbered police and damaged public property on a scale of “organised” violence not seen even during the height of the 2014 Occupy Central campaign.

New Hampshire primary: Why is America so angry with its politicians?
The Telegraph
The American people have had enough and are turning on their government. Here we analyse exactly why the public are rallying against the establishment – from political, social and economic reasons to the rise of hardliners such as Donald Trump and Bernie Sanders

Economists keep saying we should put a price on nature. Now they’ve finally done it
Chelsea Harvey – Washington Post
Putting a price on nature may seem like an impossible task, but economists believe that finding a way to calculate the value of natural resources is crucial when it comes to deciding whether our use of a resource is sustainable. Natural resources are capital assets, economists have argued, in the same way that land, buildings and stocks are considered assets — and spending money to protect these resources should be viewed as an investment in the future rather than just another cost.

San Francisco real estate looking like it did before dot-com crash in 2000
Daniel Goldstein – MarketWatch
Surging rents, skyrocketing real-estate prices and a booming tech sector. Sounds like San Francisco in 2016, right? It also describes the city just before the tech bust of 2000, according to a recent report.
John Burns Real Estate Consulting of Irvine, Calif., and Pacific Union, a San Francisco real-estate brokerage, say that based on the appreciation (and apparent correlation) of venture-capital deals and rent prices, the Bay Area’s rapid property-value and rental-cost appreciation today is looking more like a repeat of the dot-com bust of 2000.

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