First Impressions

Kim Taylor

What’s in a name? CME’s Kim Taylor Says Extra Cost
Clearinghouses are now considered systemically important to financial markets. But with that designation are new regulations and capital requirements. John Lothian News sat down with Kim Taylor of CME Clearing to talk about how a new requirement will raise costs for market participants. Commodity Futures Trading Commission (CFTC) regulation 39-33, passed on November 15, is a capital requirement that is set to be implemented by the end of the year. It calls for US-based clearinghouses to be designated as qualified central counterparties (QCCPs), which ultimately would give them more favorable capital requirements under Basel III but tough capital US guidelines.

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Quote of the Day

“Washington has a public policy goal of reducing the role that the government plays in the housing-finance market, and at the same time we now have a series of settlements where no investors were at the table and where money toward the settlements may come from investors’ pockets. It discourages the allocation of private capital to mortgage credit.”

Barbara Novick, vice chairman of BlackRock in the story, “BlackRock Says JPMorgan Deal Undermining U.S. Market: Mortgages”.

Lead Stories

Money funds at risk of big drop in assets
Christopher Thompson in London and Stephen Foley in New York –
Global money market funds are projected to lose around a third of their assets under management next year as the combined forces of record low interest rates and new regulations batter the multi-trillion dollar industry.
***DA: I pulled all my money out of money markets as soon as the interest rate fell to zero. Why take the risk of breaking the buck if you get no bang for the buck?

Izabella Kaminska | FT Alphaville
US 10-year Tips are feeling the full brunt of taper-talk. First there was an abrupt sell-off on Wednesday in the 30 year sector, with break-even rates moving lower across the whole Tips spectrum after the US consumer price index fell for the first time in six months. Then there was a swift recovery with strong auction demand on Thursday following the Philly Fed.
***DA: Cliche-a-geddon. Oh, well. At least she didn’t call it “Tipsnado.”

BlackRock Says JPMorgan Deal Undermining U.S. Market: Mortgages
Jody Shenn – Bloomberg
JPMorgan Chase & Co.’s (JPM) record $13 billion deal to end mortgage bond probes has terms that undermine U.S. efforts to reduce taxpayer support of the market, according to BlackRock Inc., the world’s biggest money manager.

Senators Push for Higher Leverage Ratio
Ryan Tracy  – MoneyBeat – WSJ
A bipartisan group of U.S. Senators is urging regulators to impose further constraints on large banks, saying a proposal that went beyond international standards still would not do enough to mitigate risks to the U.S. financial system.
***DA: Uh, I think they meant to say “lower” leverage ratio.

Draghi Makes Case For Low ECB Rates
Todd Buell and Ulrike Dauer –
European Central Bank President Mario Draghi reinforced his message to a German audience Friday that the central bank’s low interest rates help savers by supporting the economy, countering concerns that low rates depress savers’ returns.

‘Volcker Rule’ faces new hiccups
Bernie Becker – The Hill
Gary Gensler, the chairman of the Commodity Futures Trading Commission, and Kara Stein, a new Democrat at the Securities and Exchange Commission, both essentially believe the rule currently is not strong enough, according to The Wall Street Journal.
***JB: So Lew is optimistic it will be done by year end and Gensler isn’t.  Wonder who is right?

CFTC unveils new weekly swaps report
The U.S. Commodity Futures Trading Commission (CFTC) unveiled its new weekly swaps report on Wednesday, as part of a series of mandates to reign in the multitrillion-dollar derivatives market.

Central Banks

Fed officials signal next policy battle: rate guidance
As the Federal Reserve nears a decision to pare its bond-buying program, top policymakers on Thursday turned to a new monetary policy battlefront: a growing debate over how the Fed should signal the timing of eventual interest rate hikes.
***DA: How about they tell the big banks first, let them get their positions squared away, then tell the rest of us.

Turmoil at the Federal Reserve Bank of Minneapolis
Annie Baxter – Minnesota Public Radio
The words “war,” “fracas” and “mess” probably don’t show up too often in the same sentence with “Minneapolis Fed.” But that’s how the scene at the regional bank is getting played in the blogosphere lately.


CCPs face $161 billion liquidity shortfall to clear FX options, GFXD finds
Joel Clark – Risk Magazine
Results of an industry study reveal the scale of the liquidity burden that would fall on CCPs clearing physically delivered forex options – but a net settlement mechanism could reduce the number by 73%
***DA: Sounds like the residual interest argument we have been having in the FCM world all year.

Trapped by Fed Policy, Australia Ponders Precedent-Setting Currency Intervention
Michael J. Casey – MoneyBeat – WSJ
In the years after then-Treasurer Paul Keating floated the Australian dollar in 1983, the idea that the “Aussie” is not to be touched became an article of faith for successive Australian policymakers. The government, they insisted, had no business trying to set the exchange rate.

Goldman defends currency trading performance
Tom Braithwaite in New York –
Goldman Sachs “did not suffer a loss in our currencies business” in the third quarter, the bank said on Thursday, seeking to reassure investors after reports that it had racked up more than $1bn in trading losses.

Turks bet on a falling lira by hoarding foreign currency
Delphine Strauss in London and Daniel Dombey in Istanbul –
Turks are fiercely hoarding foreign currency. The reason? Their own remains weak and could get weaker.

BSE to commence currency derivatives segment in early December 2013
Mumbai: The Bombay Stock Exchange (BSE) on Thursday said it proposes to commence trading in currency derivatives in early December.
Futures trading will commence on the dollar-rupee, euro-rupee, pound-rupee and yen-rupee pairs. Options trading will commence on dollar-rupee contract.

Indexes and Index Products

Volatility indexes are poor hedge against tail risks, say managers
Yakob Peterseil –
Active strategies are more effective hedges than passive strategies when it comes to guarding against tail-risk events, said a panel of portfolio managers at the Inside Indexing Europe conference on Tuesday

Fool’s Gold: Why Most Back-Tested Fund Performance Histories Are Bunk
Samuel Lee – Morningstar (via Seeking Alpha)
As they are often used, back-tests are merely a legal way of fabricating a statistically bogus history of outperformance and implicitly taking credit for it. I don’t think I’m being too cynical. Most back-tested strategies I’ve seen are problematic.


Paulson Said to Inform Clients He Won’t Add More to Gold
Kelly Bit & Debarati Roy – Bloomberg
Billionaire John Paulson, the best-known gold bull since he started wagering on bullion more than three years ago, is backing away from his bet.

Morning MoneyBeat: Gold’s Glitter Is Gone
Steven Russolillo – MoneyBeat – WSJ
It’s time to crown gold this year’s biggest loser. Gold for December delivery, the most actively traded contract, slumped Thursday to $1,243.60 a troy ounce, a four-month low, and spot gold was trading lower in Europe this morning. The yellow metal is down 26% this year, on pace for its biggest loss since 1981, when it fell 33%.

Gold price slides to four-month lows
Neil Hume in London –
Gold dropped to its lowest level since July amid expectations the US Federal Reserve would move to scale back its gold-friendly stimulus programme.

NCDEX to introduce gold contracts with option to hedge more
Business Line
The National Commodity and Derivatives Exchange(NCDEX) has sought the approval of commodity market regulator Forward Market Commission for newly-designed gold contract.

China to start gold swaps trading on Nov. 25
China, set to overtake India this year as the world’s top gold consumer, will start gold swaps trading on the interbank market next week, giving more hedging tools for banks dealing in bullion.

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