First Impressions


Chicago MarketsWiki World of Opportunity Summer Intern Series On Track
The MarketsWiki World of Opportunity Summer Intern Education Series in Chicago is coming along nicely with sponsors joining us, interns and newer employees signing up and an expanded speaker list.

We are pleased to announce BATS, CBOE, CME Group, the Stuart School of Business at the Illinois Institute of Technology, and Spot Trading have agreed to be sponsors of our MarketsWiki World of Opportunity Summer Intern Education Series in Chicago.

We are also pleased to announce we have over 80 interns and new employees signed up for the Chicago series so far, with more coming in every day.

Our venue is Stuart School of Business’ auditorium over at 565 West Adams. The auditorium holds 326 people, so we have plenty of room for this year’s participants.

We have added several new speakers to the lineup. From Trading Technologies, we now have Stefani Sandow, who has an extensive background in internet architecture and web-user experience and was a key player in the development of TT’s new Nextrader platform.

We have also added Tom Cashman, a 50-year member of the Chicago Board of Trade and longtime soybean pit broker and trader. Tom also helped get me into the industry back in 1978. He was the focus of a John Lothian Profiles video in 2012

Pat Kenny of CQG, who I labeled “The Most Interesting Man in the World,” will also be a speaker. Matt Rees, a client experience executive with RJ O’Brien has also agreed to speak.

Others recently added include Mead Welles, a hedge fund executive who started the charity “A Leg to Stand On,” Chris Edmonds of ICE, Matthew Scharpf of Eurex and Ethan Kahn of Wolverine.

We still have a couple more speakers to confirm, including a representative to be named from BATS.

If you have interns or newer employees, sign them up. You will not want them to miss this opportunity to hear from industry leaders and key players.

~John J. Lothian

Quote of the Day

“It definitely feels like investors are getting overexuberant, and you can stay in overexuberant conditions for a while. But when it turns it will turn quickly and it will turn very ugly.”

Fred H. Senft Jr., director of fixed income and equity research for Key Private Bank in Cleveland in the story, “Complacency Breeds $2 Trillion of Junk as Buyers Seek Fertilizer”.

Lead Stories

James Gorman on the Future of Finance: Big Banks Will Get Bigger; But the Morgan Stanley CEO Also Expects Most Bank Branches to Disappear—and Cash to Become a Museum Piece
James Gorman, Morgan Stanley, WSJ
The threshold question: Will banks continue to exist? The answer is yes, because society will still need the two essential functions they provide: mobilisation of capital from providers to users, and facilitation of payments for goods and services.

***DA: A fantastic read, but it seems to me that Mr. Gorman is simply following the trend. And all traders know that the trend is your friend only ‘til the end of the trend.

Winners (Potentially) in a Goldman Succession
Goldman Sachs’ next CEO after Lloyd Blankfein may be determined in part by the timing of Mr. Blankfein’s next move. Here are five of the people potentially in the race for the top spot (in alphabetical order).

***DA: Pardon me for not caring as I do not have a dog in that hunt, so long as they lean toward Paulsonesque rather than Corzinesque.

Luxembourg paper busts myth of money ‘parked’ with central banks
A working paper, published by the Central Bank of Luxembourg, seeks to bust the myth that an increase in “money parked with the Eurosystem” reflects a “stagnation, if not a reduction” in the provision of credit to the real economy.
In The Eurosystem, the banking sector and the money market, Paul Mercier finds “no immediate link” between the size of the European Central Bank’s balance sheet and the credit activity of the European banks.

***DA: No, but there is an indirect link – sovereign debt from the periphery.

Pimco Dissidents Challenge Bill Gross in ‘Happy Kingdom’
Mary Childs – Bloomberg
In the weeks leading up to Pacific Investment Management Co.’s annual forum in May that sets the firm’s long-term investment outlook, Bill Gross was facing internal dissent.
At investment committee meetings in April and May, four of his six newly appointed deputy investment chiefs questioned whether their boss, manager of the world’s biggest bond fund and an investing legend, was too pessimistic about the economy.

Complacency Breeds $2 Trillion of Junk as Buyers Seek Fertilizer
Bob Ivry – BloombergBusinessweek
Halfway through a sixth year of near-zero interest rates by the Federal Reserve and unprecedented central-bank stimulus from Brussels to Tokyo, almost any borrower is able to raise debt with few questions asked even as the World Bank cuts its outlook for global economic growth.

***DA: My nose has a hard time differentiating between junk and fertilizer.

Treasury Strips Reach 14-Year High as Volatility Drops
Cordell Eddings – Bloomberg
The outstanding amount of zero-coupon U.S. Treasury notes and bonds jumped to the highest level in more than 14 years as low yields and weak market volatility spurred demand from pension funds and insurance companies looking to match assets with liabilities.
Zero-coupon debt, or strips, short for separate trading of registered interest and principal securities, is created by Wall Street firms that split bonds into their face amount and individual coupon payments. The amount climbed to $214 billion in June, the most since October 1999, according to Treasury Department data released yesterday. The 2.3 percent jump was the biggest gain since February 2013.

At Goldman, Board Samples New Guard; Firm Uses Private Dinner Meetings to Help Assess Next Generation of Leaders
By Justin Baer, WSJ
Goldman Sachs Group Inc. has stepped up its efforts to groom a new generation of leaders, as it broadens the list of executives who could eventually run the Wall Street firm.

***DA: Aaah! Which fork do I use?

Japan Investors Sell German Bunds, Buy Record Amount French Debt
Candice Zachariahs and Masaki Kondo – Bloomberg
Japanese dumped German sovereign debt for a fifth straight month, poised for the biggest net annual sales on record, as they bought the higher-yielding notes of France, the U.S. and Australia.
Investors sold 1.05 trillion yen ($10.3 billion) of bunds in May, taking sales this year to 4.5 trillion yen, according to data from Japan’s finance ministry and central bank. They boosted holdings of French sovereign bonds by 1.86 trillion yen, a record in the data back to 2005, and added 731.6 billion yen of U.S. Treasuries and 129.2 billion of Australian securities.

Playing Catch Up: Banks & Brokerages Battle for the Self-Directed Investor
by Chris Psaltos, WallStreet & Technology
Investors want easy-to-use interfaces, customized views, and dynamic content. Moving this kind of data to the front-end is a big ask for legacy back-office databases.

Big, bad bank fines are here to stay
By John Plender, FT
This is a dangerous game, especially for European banks. The cheery 3.6 per cent rise in BNP Paribas’s share price on the news of its near-$9bn fine for systematic, large-scale violations of US economic sanctions laws seems counter-intuitive, given that the US authorities appear to regard the global banking system as a treasure trove ripe for looting.

***DA: Back door redistribution of wealth?

Banks Face Added Capital Requirements; Basel Committee May Reduce Lenders’ Latitude on Weighing Risk
By Viktoria Dendrinou And David Enrich
Global banking regulators are considering new measures that would make it harder for banks to understate the riskiness of their assets, including potentially ending the long-standing treatment of all government bonds as automatically risk-free, according to people familiar with the discussions.

Central Banks

Central banks ending era of clear promises, return to ‘artful’ policy
Jonathan Spicer and Leika Kihara – Reuters
The world’s major central banks are returning to a more opaque and artful approach to policymaking, ending a crisis-era experiment with explicit promises that they found risked their credibility and did not substitute for action.
From Washington to London to Tokyo, the global shift from transparency to flexibility underscores the challenges central bankers face as they test the limits of what monetary policy can achieve.

Scottish Bagpipes Risk Drowning Out Carney Rate Guidance
By Scott Hamilton, Bloomberg
Mark Carney has got markets dancing to the tune of his forward guidance on interest rates. He could soon be drowned out by the sound of bagpipes.

***DA: Danny Boy or Amazing Grace?

ECB Summons Bankers for Catch-Up as Stress Test Looms
By Jeff Black, Shane Strowmatt and Sonia Sirletti, Bloomberg
Europe’s lenders are running out of time to get their books in order before the European Central Bank passes judgment on them.


ICAP’s Co-Head of EBS Market Leaves Broker; Nichola Hunter Departs Currencies-Trading Platform
By Jenny Strasburg, WSJ
The co-head of ICAP IAP.LN -2.14% PLC’s flagship electronic currencies-trading platform has left the London-based firm, just over a year after she was promoted to the position, according to people familiar with the move.

Euro’s Reserve Appeal Fades as ECB Prompts Decline
Candice Zachariahs and Ye Xie – Bloomberg
The European Central Bank’s unprecedented stimulus measures are starting to dim the euro’s allure among the keepers of foreign-exchange reserves.
After climbing for three straight quarters, the currency’s share of central-bank reserves identified by the International Monetary Fund was unchanged at 24.5 percent from January through March, down from a record 28 percent in 2009. The euro was less attractive than a year earlier for 62 percent of central banks that took part in a private survey by Central Banking Publications released on June 23.

QE Should Only Be Emergency Tool, ECB Board Member Says
Stefan Riecher – Bloomberg
European Central Bank Executive Board member Sabine Lautenschlaeger said policy makers should only consider radical programs such as quantitative easing if the euro area is on the verge of deflation.
“While such measures are in general part of the toolkit, the prerequisites for such a monetary-policy measure must be particularly high as the side effects are especially significant,” Lautenschlaeger said in Hamburg yesterday. “Only in a real emergency situation, for example in the case of imminent deflation, could in my view such an instrument be considered. Those risks are neither visible, nor do we expect them.”

***DA: We have been in a state of perpetual emergency.

Indexes & Index Products

S&P Dow Jones goes equal weight on commodity index
by Richard Jory,
S&PDJI moves DJ-UBS commodity index to equal weighting; Nasdaq partners with ETRE Financial for Reit indexes; Six launches new sustainability index; Stoxx licenses minimum variance to Japan’s Resona Bank


Gold bulls deeply suspicious of hedging
Neil Hume – Financial Times
To hedge, or not to hedge?
It’s a question the gold industry has grappled with for decades and goes right to the heart of the question about why investors buy gold shares – to gain exposure to a rising gold price or invest in the exploration and development skills of miners.

Gold Shines Again as Hedge Funds Boost Wagers on Advance
Marvin G. Perez – Bloomberg
Gold is precious again.
After investors sent bullion tumbling in 2013 by the most in three decades and kept dumping the metal earlier this year, demand is now up and prices are defying bearish forecasts. Money managers increased net-long positions for a fourth straight week through July 1 and holdings in exchange-traded products are climbing at the fastest pace since 2012.

Banks could lose monopoly on gold fix
James Titcomb – The Telegraph
Banks could lose sole responsibility for setting the gold price benchmark under new rules proposed by the industry.
Other parties such as miners and refiners may enter the London gold fix, which has been controlled by banks for almost a century but has come under scrutiny following allegations that the system is open to manipulation.

John C. Van Eck, Investor in Gold, Non-U.S. Stocks, Dies at 98
By Laurence Arnold, Bloomberg
John C. van Eck Jr., who offered Americans early avenues to invest in non-U.S. stocks and in gold, has died. He was 98. He died on July 1 at his home in Palm Beach, Florida, his company, New York-based Van Eck Global, said yesterday in a statement.

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