First Impressions

Home Run: Don Davis Talks About Peer-to-Peer Investments
JohnLothianNews.com
The US financial crisis has wreaked havoc for the past several years on the mortgage lending business, not to mention many homeowners and debtors. It also has created opportunities for innovative firms that are looking for new ways to help homeowners and make a nice return at the same time. Don Davis, president of Novus Investments sat down with Jim Kharouf, editor-in-chief of John Lothian News, to talk about how his firm is profiting from the ongoing fallout from the mortgage crisis and the rise of peer-to-peer lending, at the Emerging Manager Forum in Miami in December.

Watch the video »

Quote of the Day

“Rates guys were among the worst-hit last year. It was a very tough year in terms of keeping up with the markets and generating revenue.”

Michael Karp, chief executive officer of recruitment firm Options Group Inc., in the story, “BofA Said to Cut Bonuses for Rates Traders at Least 15%”.

Lead Stories

Narrowing Treasury spreads indicate fading growth expectations
Jamie Chisholm – FT.com
Traders have already had some big market moving US data this week. The surprisingly weak manufacturing ISM roiled stocks and boosted bonds on Monday. But there’s a lot more to come in what could prove a pivotal period for establishing medium-term investor sentiment.
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***DA: Nothing says recession quite like a flat yield curve.

Is America Turning Japanese?
J. Bradford DeLong – Project Syndicate
Back in the late 1980’s, Japan seemingly could do no wrong in economists’ eyes. They saw a clear edge in Japan’s competitiveness relative to the North Atlantic across a broad range of high-tech precision and mass-production industries manufacturing tradable goods.
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***DA: I really think so.

BofA Said to Cut Bonuses for Rates Traders at Least 15%
Hugh Son – Bloomberg
Bank of America Corp., the second-largest U.S. lender, cut the bonus pool for interest-rate traders by 15 percent to 20 percent as revenue fell, said two people with direct knowledge of the matter.
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***DA: They typically get paid a chunk of it in stock, which is up 40 percent over the past 12 months.

UBS CEO Says Emerging-Markets Selloff Overdone as Investors Exit
Manus Cranny and Michael Patterson – Bloomberg
The selloff in emerging-market assets that sent the benchmark equity index to the lowest valuation since the 2008 financial crisis may have gone too far, according to UBS AG Chief Executive Officer Sergio Ermotti.
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***DA: Perhaps the previous rally is what was overdone.

Momentum shifted, Japan watch
Dan McCrum | FT Alphaville
Big declines for the Japanese benchmarks, with the Nikkei 225 rapidly approaching 14,000 from the wrong direction to leave it and the broader Topix firmly in correction territory. There are reasons aplenty.
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***DA: Speakin of overdone rallies.

A eurozone bond need not be a freeloaders’ charter
Peter Bofinger – FT.com
After four months of very low inflation, the spectre of deflation is haunting the eurozone. It appears especially frightening because interest rates are already close to zero and cannot go much lower.
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Chart o’ the Day: The Only EM Venn Diagram You Need
The Reformed Broker
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***DA: Sums it up nicely.

Hedge Fund Chief Makes a Lonely Bet Against Portugal’s Debt
NYTimes.com
David Salanic cuts a lonely figure among the Manhattan power brokers eating breakfast at the Loews Regency Hotel restaurant on Park Avenue. Sure, he runs a hedge fund, but with $50 million, his fund may represent a year of commissions for some of the heavy hitters in the room.
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***DA: Quick! Get this man some Kool-aid!

Why the Eurozone output gap could be a chasm
Izabella Kaminska | FT Alphaville
A few years ago Capital Economics made a strong case that the UK output gap — or how much slack there is in the economy — was being grossly underestimated by one and all. Their note prompted a spirited debate about the importance of output gaps in ascertaining correct monetary and fiscal policy. Well, a similar case is now being made for the Eurozone by David Mackie and team at JP Morgan.
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***DA: An individual economy may be able to export its way out of an output gap. But if all economies need to do it concurrently, it becomes a fool’s errand.

Zeal for Blackstone home rental bond fades
Tracy Alloway, Anjli Raval and Arash Massoudi in New York – FT.com
Blackstone Group hired the go-to New York public relations company Sard Verbinnen when it launched its house rental business, Invitation Homes, in early 2012.
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Repacks revisited: Asia investors turn to structured credit
Viren Vaghela – Risk.net
As Asian investors continue the hunt for yield, dealers report an uptick in the credit repack business as regulation, funding and yield targets collide
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***DA: What movie have I been watching? All I see is a hunt for safety.

Central Banks

Janet Yellen Sworn In as Fed Chief
WSJ.com
Janet Yellen was sworn in Monday as Federal Reserve chairwoman, becoming the first woman to run the central bank in its 100-year history. The small ceremony marked the final step in what so far has been a smooth leadership transition at the Fed.
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Draghi Said to Seek German Support on Bond Sterilization
Jana Randow – Bloomberg
European Central Bank President Mario Draghi would only consider ending the sterilization of crisis-era bond purchases if he’s openly backed by the Bundesbank, according to two euro-area central bank officials familiar with the debate.
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Bernanke’s Number Is Up
David Reilly – MoneyBeat – WSJ
Buh-bye, Ben. Friday marked the last day of Ben Bernanke’s eight years as chairman of the Federal Reserve. This spanned the tail end of a boom, a bust that threatened to rival the Great Depression and a weak recovery.
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Bernanke Starts New Role as Yellen Takes Fed Helm
NYTimes.com
For the last eight years, on most weekdays and many weekends, Ben S. Bernanke was driven to work as chairman of the Federal Reserve. On Monday, he drove himself to a new job as an economic studies fellow at the Brookings Institution, a research group about a mile north of his old office.
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Currencies

Ten Banks in FX Trading Probe Have Handed Evidence to FCA
Ben Moshinsky – Bloomberg
Ten banks turned over evidence to the U.K. Financial Conduct Authority as part of an investigation into the manipulation of foreign-exchange benchmarks, its chief executive officer told lawmakers.
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Dad Can’t Buy Daughter Shoes as Argentine Currency Falls
Raymond Colitt and Camila Russo – Bloomberg
Jorge Contrera checked a pair of soiled shoes from top to bottom, tried to buff them with his shirt sleeve, then paid 40 pesos ($5) for his 8-year-old daughter’s present. Before Argentina’s devaluation last month, he planned to surprise her with a new pair.
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Ukraine currency peg defence under threat
Delphine Strauss – FT.com
Ukraine’s central bank may be giving up its defence of the country’s currency peg in order to conserve foreign exchange reserves depleted by debt repayments.
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FX volumes on EBS platform rise in January from slow Dec -ICAP
Reuters
Average foreign exchange spot volumes traded on the EBS platform rose by 23 percent in January from the previous month, parent company ICAP said on Tuesday.
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Indexes & Index Products

BlackRock launches new currency-hedged ETFs
Reuters
BlackRock Inc’s iShares, the largest U.S. provider of exchange-traded funds, is launching a new set of currency-hedged ETFs on Tuesday as it looks to target investors interested in international equity exposure but concerned about potential losses from a rising U.S. dollar.
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‘Closet index’ funds charge high fees but lag indexes
Reuters
Investors are paying hefty fees for mutual funds that bill themselves as actively managed but in large part are mimicking a benchmark stock index.
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ERI Scientific Beta Announces Availability Of Full Transparency For All Of Its “Smart Beta” Indices
ERI Scientific Beta has announced that all 2,958 smart beta indices available on the www.scientificbeta.com platform are now available with full transparency.
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Gold

Comex Gold Gets Safety Bid As Stocks Tumble After Weak PMI Report
Kitco News (via Forbes)
U.S. gold futures rose sharply Monday as the equity market and dollar sagged after a weak manufacturing survey from the Institute for Supply Management.
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South Africa mining under the spotlight
Andrew England and Javier Blas in Cape Town – FT.com
South Africa will this week try to draw a line under two years of tension with its mining companies, as the government and industry near resolution of most of their differences over new regulations, while the struggling platinum sector battles to defuse a fresh round of strikes.
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