First Impressions

Clear Skies Ahead: Terry Duffy of CME Group Says Clearing Is Industry Driver

With the bulk of US financial reforms now in place, financial markets appear to be pulling out of their doldrums. Terry Duffy, executive chairman and president of CME Group, spoke with Jim Kharouf, editor-in-chief of John Lothian News, about his outlook for the exchange and the strong prospects for growth in the futures markets.

“The industry is really exciting right now,” Duffy said. “We’ve been going through some difficult years like all financial markets have. Now we’re getting some clarity around the rules especially here in the US and that’s very positive.”

Duffy said CME Group stands to gain from the migration of OTC trades onto exchange platforms with centralized clearing, especially in the wake of new rules and capital requirements for banks in Europe.

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Quote of the Day

“The Bank of Russia has moved to a free-floating ruble but this doesn’t mean it is distancing itself completely from influencing the ruble and that the exchange rate can become a target for financial speculation.”

Vladimir Putin in the story, “Putin Vows to Punish Speculators Pushing Down Ruble’s Value”.

Lead Stories

MarketAxess’ McVey is the man behind the $7.7 trillion bond revolution
Shawn Tully – Fortune
Rick McVey doesn’t think of himself as a radical. He has never put forth a grandiose vision for modernizing the $7.7 trillion U.S. fixed-income business, the largest source of capital on the planet for corporations. Rather, the 55-year-old, plainspoken Midwesterner views himself simply as a methodical problem solver. As such, he just keeps chipping away at one of the biggest barriers to change in financial markets: Wall Street’s long-standing resistance to electronic bond trading. “I always wanted to work on Wall Street,” says McVey. “But I never imagined the magnitude of what’s happening now—that I’d have a role in changing how Wall Street actually works.”

Five Biggest U.S. Banks Control Nearly Half Industry’s $15 Trillion In Assets
Steve Schaefer – Forbes
The wreckage of the financial crisis led to pages upon pages of financial reform aimed at ending the era of Too Big To Fail, but six years after the banking system blew up the five biggest firms control 44% of the $15.3 trillion in assets held by U.S. banks according to data compiled by SNL Financial. Those banks — JPMorgan Chase, Bank of America BAC, Wells Fargo WFC, Citigroup C and US Bancorp USB — collectively held $6.8 trillion in assets as of Sept. 30.

Greenspan Says He Would Pre-Empt Asset Bubbles Financed by Debt
Scott Hamilton – Bloomberg
Former Federal Reserve Chairman Alan Greenspan, who was blamed by some economists for overheating equity and housing prices in the 1990s and 2000s, said that were he in the job today, he would take pre-emptive action to tackle asset bubbles if they were financed by leverage.
Greenspan, who argued in office that it was better to clean up after an asset bubble had burst rather than artificially prick it, told delegates at a conference hosted by Citigroup Inc. in London today that he believed that argument is correct when a speculative boom isn’t financed by debt, mentioning the 1987 stock market crash as an example. If the overheating was caused by leverage, however, “then you’re going to have problems,” he said.

South Africa Moving Closer to Junk Before Review, Fitch Says
Paul Wallace – Bloomberg
South Africa’s worsening government finances are pushing the nation’s credit rating closer to junk, Fitch Ratings Ltd. said.
Fitch, which rates the country BBB with a negative outlook, is scheduled to release a review of its credit profile on Dec. 12. Moody’s Investors Service cut South Africa to Baa2, the second-lowest investment grade and a similar level to Fitch, on Nov. 6. Standard & Poor’s reduced it to BBB-, the last investment grade, in June.

ECB Preparing Broad Stimulus Plan, All Assets but Gold on the Table for Purchase
Jana Randow and Jeff Black – Bloomberg
The European Central Bank’s Governing Council expects to consider a package of broad-based asset purchases including sovereign debt next month, two euro-area central-bank officials familiar with the deliberations said.
While the proposal is envisaged to include various types of bonds, it won’t encompass equities, said the officials, who asked not to be identified because the discussions are private. They said no decision on implementing quantitative easing has been taken yet, and the composition of the program may be influenced by incoming data. An ECB spokesman declined to comment.

New York Regulator Poses Formidable Threat To Mortgage Servicers
John Wilen – Forbes
Benjamin Lawsky, a relatively unknown New York State regulator, has put the fast-growing non-bank mortgage servicing industry’s business model in jeopardy. Look no further than Ocwen Financial for proof of a servicing segment that remains marred in uncertainty.

Municipal Rush to Borrow May Repeat: Chart of the Day
David Wilson – Bloomberg
The biggest calendar of proposed municipal-bond offerings in more than five years may be more than a one-time event, according to John Mousseau, Cumberland Advisors Inc.’s director of fixed income.

Central Banks

Fed Simulations Call for Rate Hikes Soon
Jon Hilsenrath – WSJ
The optimal path for short-term U.S. interest rates might be to start raising them soon and end the process quickly, according to research conducted by senior Federal Reserve economists.

Falling Oil Prices Create a Central Banking Conundrum
Neil Irwin – NY Times
When is good economic news a reason to worry?
When you’re a central banker fighting a slump toward deflation, or broadly falling prices, in a time that oil prices are plummeting. And that is the situation that Mario Draghi, the president of the European Central Bank, faced as he announced the results of the bank’s latest policy meeting on Thursday. How he wrestles with that problem will help determine the outlook for Europe’s flailing economy.

Carney Takes U.K. Burden With Low Rate to Defy Restraints
Jennifer Ryan and Scott Hamilton – Bloomberg
Chancellor of the Exchequer George Osborne is sticking to his plan to leave the heavy lifting on Britain’s economy to Mark Carney.
Osborne’s pledge to continue tackling the budget deficit means the onus remains on the Bank of England governor and his colleagues to drive economic growth. Tight government purse strings, along with the shackles of a struggling euro area, spurred the Monetary Policy Committee to keep the key interest rate at a record-low 0.5 percent today.

Draghi Says ECB Will Reassess Stimulus Measures Next Year
Stefan Riecher and Simon Kennedy – Bloomberg
Mario Draghi dragged the European Central Bank toward more monetary stimulus with a pledge to assess the need early next year, disappointing some investors seeking faster action.
Even as he unveiled “substantially” lower forecasts for euro-area inflation and economic growth, the ECB president said officials will wait to evaluate whether they’re doing enough to revive the weakest consumer-price growth in five years. They are already intensifying preparations for further measures, including studying the merits of buying government debt.

Really, Federal Reserve? Half of Pennsylvanians Ate Out on Thanksgiving? – Real Time Economics
Josh Zumbrun – WSJ
For millions of Americans, Thanksgiving is a celebration where families gather at home to celebrate and give thanks. But not in Pennsylvania, according to a Federal Reserve report, where more than half of families may have opted to eat their pumpkin pie and turkey at restaurants.


Putin Vows to Punish Speculators Pushing Down Ruble’s Value
Henry Meyer, Ilya Arkhipov and Olga Tanas – Bloomberg
President Vladimir Putin vowed to punish speculators attacking the ruble with “harsh” measures in a defiant speech that reached into Russian history to defend his annexation of Crimea and compared his international opponents with Adolf Hitler.
“The authorities know who these speculators are and the instruments we can use to influence them,” Putin said today in his annual address to parliament regarding efforts to defend the country’s currency, which is trading near a record low. “The time has come to use these instruments.”

***JB: In Soviet Russia currency speculate you! (Hat tip to Yakov Smirnoff.)

Ruble Slides as Traders Press Russia to Act to Defend Currency
Ksenia Galouchko and Vladimir Kuznetsov – Bloomberg
The ruble slid as traders tested the willingness of Russian authorities to defend the currency and shore up an economy headed for recession.
The ruble retreated 2.2 percent to 54.3885 per dollar at 7:06 p.m. in Moscow. It earlier advanced as much as 2.3 percent after the Bank of Russia reduced the rate it charges lenders for dollars to ease a cash crunch exacerbated by U.S. and European sanctions. Russian stocks fell and wagers for interest-rate increases rose to a six-year high as Brent crude traded below $70 a barrel after losing 27 percent this quarter.

Euro climbs against dollar as Draghi disappoints investors
Joseph Adinolfi – MarketWatch
The euro gained against the U.S. dollar Thursday after European Central Bank President Mario Draghi defied investors’ hopes by not committing the central bank to a sovereign-bond-buying program.
Instead, Draghi said the ECB would wait until 2015 to consider whether the central bank should begin buying European sovereign debt.

Yen Reaches 120 Versus Dollar First Time Since July 2007
Andrea Wong and Kevin Buckland – Bloomberg
The yen touched 120 per dollar for the first time since July 2007, as policy makers’ decisions to expand monetary stimulus and delay a consumption tax increase highlight the risks the economy is deteriorating.
The yen has plunged 9 percent since the Bank of Japan on Oct. 31 increased the annual target for expanding the monetary base to 80 trillion yen ($667 billion), and Prime Minister Shinzo Abe delayed a second bump to the sales levy by 18 months, after the first in April sent the economy into recession. Abe is forecast to score a second landslide victory in a Dec. 14 election.

Venezuela allows cenbank to hold reserves in new currencies, diamonds
Eyanir Chinea and Brian Ellsworth – Reuters
A reform to Venezuela’s central bank law will allow the country to hold international reserves in a broader range of currencies than before as well as in diamonds and precious metals.
Reserves can include currency “that is used for accounting and payment of commitments assumed by the Republic,” according to the Official Gazette circulating on Thursday.

Russian Exporter Currency Plan May Signal Capital Controls
Ksenia Galouchko, Evgenia Pismennaya and Vladimir Kuznetsov – Bloomberg
Russia is urging exporters such as OAO Rosneft to convert more of their foreign revenue into rubles, a move that Sputnik Asset Management and Bank of America Corp. say is tantamount to capital controls.
The government is appealing to state-controlled exporters to help limit the ruble’s tumble, Finance Minister Anton Siluanov told reporters in Moscow today. His comments came after President Vladimir Putin, who said last month he has no plans to limit the flow of capital, asked the government and central bank to work together to defend the currency, promising “harsh” measures against speculators.

IRS Approach To Taxation of Bitcoin
The IRS approach to the taxation of crypto currencies like Bitcoin may turn into an accounting nightmare for all but the most casual of users.
Virtual currencies, such as Bitcoin, are becoming useful tools in the digital age. In essence, a virtual currency is a currency that exists only in cyberspace and is not backed by any government. The value often fluctuates by the hour and there is no coin or certificate to touch.

Indexes & Index Products

Looking Forward: A Glance Into 2015’s ETF Landscape
Dunan Rolph – Forbes
Barring a dramatic December downturn, the major US indices are on pace for another year of double digit growth. 2014 has had its shares of growing pains, including a gloomy Q1 where the economy slightly contracted and a precipitous drop during late September and early October. Despite these downturns, 2014 will mark the 6th year of the current bull market.

Why Is One Russian Stock index Up and the Other Down?
Howard Amos – The Moscow Times
Russia’s two major stock indexes have diverged sharply in recent weeks, split further apart by a weak ruble and risk aversion among foreign investors than they had ever been since they were set up in the 1990s.
The dollar-denominated RTS Index hit five-year lows this week, approaching levels last reached when Russia was engulfed by the global financial crisis. At the same time, the MICEX Index has risen steadily, climbing Wednesday above 1,600 points for the first time since March 2012.


Gold Slides as European Central Bank Snubs Bullion Purcha
Debarati Roy – Bloomberg
Gold futures dropped after the European Central Bank said it wouldn’t consider adding to bullion purchases.
The ECB discussed buying all assets except the metal as it plans to reassess stimulus next quarter, President Mario Draghi said today. The comments come after Executive Board member Yves Mersch said last month that the bank could “theoretically” buy bullion.

Gold pares losses as ECB statement sparks euro rebound
Gold pared losses on Thursday as the euro rebounded against the dollar after European Central Bank chief Mario Draghi said the bank would reevaluate the case for more stimulus next year, but remained under pressure ahead of key U.S. data on Friday.
Strength in the U.S. currency makes dollar-denominated gold more expensive for holders of other currencies.

China Said to Consider Scaling Back Restrictions on Gold Imports
China’s central bank circulated a draft plan to ease restrictions on gold imports, said people with knowledge of the matter, in a move that may lead to lower prices in the world’s biggest market for bullion.
The People’s Bank of China drafted a plan that will open up gold imports to qualified miners as well as all the banks that are members of the Shanghai Gold Exchange, according to the people, who asked not to be identified because the proposal hasn’t been made public. China Gold Coin Inc., a maker of commemorative gold and silver coins, could also qualify to import bullion, they said.

What It Really Costs To Mine Gold: The Alamos Gold Third Quarter Edition
Seeking Alpha
In our previous complete Q2FY14 cost analysis, we went over a number of the industry’s all-in costs to mine an ounce of gold in 2013 and discussed one of the most important metrics to analyze the gold industry, the actual cost of mining an ounce of gold. In that analysis, we used the 2013 financials to calculate the combined results of publicly traded gold companies and come up with a true all-in industry average cost of production to mine each ounce of gold.

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