First Impressions

Chicago losing its Global Financial Center Mojo
Jim Kharouf – John Lothian News

The latest Global Financial Centres Index has been released with the headline-grabbing ranking that puts New York in the top spot for the first time ahead of London.

But even the rather obscure London-based research group Z/Yen Group says the separation between New York and London is “statistically insignificant” in the GFCI and that other centers are closing the gap substantially among the top cities.

What is also significant, however, is that Chicago, once one of the world’s top 10 financial centers according to the group has been in a steady decline. In the past two years of the bi-annual survey, Chicago’s ranking has been plummeting.

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Quote of the Day

“The tapering comments had a huge impact on markets. We saw significant market moves tied to the back-up in rates, especially in emerging markets, where liquidity completely disappeared. I think a lot of managers have taken note of that. If the liquidity isn’t there, you could see stair-step moves in fixed-income markets as rates rise.”

Arvin Soh, a portfolio manager in the fund of hedge funds division at GAM in the story, “Hedge funds wary of betting on rates”.

Lead Stories

New York Strips London of Mantle as World’s Top Financial Center
John Glover – Bloomberg
New York replaced London as the world’s leading financial center for the first time, after the City was rocked by a series of scandals and questions over the U.K.’s place in the European Union.

***JK: Here is the full report: Chicago, our hometown, now ranks 15th, down from 14th last year and eighth in 2012. Is something wrong with Chicago as a financial center? It now ranks behind powerhouses such as Boston, San Francisco and Toronto, and a shade above Montreal, Vancouver and Shenzhen.

Senate Draft Bill Seeks to Wind Down Fannie Mae in Five Years
Cheyenne Hopkins and Clea Benson – Bloomberg
Bipartisan Senate legislation would wind down Fannie Mae (FNMA) and Freddie Mac in five years and in the interim would maintain the current arrangement in which the mortgage financiers pay all of their profits to the Treasury.

***DA: So Fannie survived the Dodd-Frank battle but ultimately lost the war.

Goldman Sachs Sees Quality Flight as Costs Jump Most in 6 Months
Rachel Evans – Bloomberg
Goldman Sachs Group Inc. (GS) says investors should favor debt from better quality companies, after yield premiums jumped the most in almost six months last week.
“The headlines from China and emerging markets have caused volatility in the Asia credit market,” analysts led by Hong Kong-based Kenneth Ho wrote in a March 15 note. “We think investors should look at stronger quality corporates.”

***DA: So long as the names dubbed “quality” today are not looked at as risky tomorrow. That is what happened last time.

Bond funds worldwide attract $3.5 bln inflow – BofA
Fund investors worldwide poured $3.5 billion into bond funds in the week ended March 12, reversing the prior week’s $1.8 billion in outflows, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

Inflation Seen as ETF Flows Converge With Investor Choices
Cordell Eddings and Daniel Kruger – Bloomberg
The Federal Reserve’s attempt to lift inflation to a level that would reflect a healthier U.S. economy is starting to take hold in the bond market.
For the first time in 19 months, investors are stepping up their buying of exchange-traded funds that hold Treasuries tied to cost-of-living increases, data compiled by Bloomberg show.

***DA: Inflation, as with beauty, is in the eye of the beholder.

Hedge funds wary of betting on rates
Kris Devasabai –
Despite widespread consensus on the direction of interest rates in the US and UK, many hedge funds are wary of making bets, partly because they expect dealer constraints to exaggerate volatility when the first hikes arrive.

***DA: Hedge funds are afraid of price action? That’s a new one.

Green bonds are set for bumper year
Nick Kostov – Financial News
With demand for “green” bonds growing rapidly, market participants are expecting a bumper year for the environmentally friendly form of finance – but warn that standards should be transparent and credible.

***DA: As Gordon Gekko said in Wall Street: Money Never Sleeps (apparently a movie nobody liked but me), “Clean technology. That’s smart. It’s the next bubble.”

Big banks put forex bonuses on hold
Daniel Schäfer and Caroline Binham in London –
Barclays, Citigroup and Royal Bank of Scotland have frozen bonuses across swaths of their foreign exchange trading teams pending internal investigations into possible manipulation of key currency benchmarks.

***DA: The bonus pool has been renamed the “legal defense fund.”

‘Bitcoin creator’ Dorian Satoshi Nakamoto denies links to currency
Ben McLannahan in Tokyo –
The California man identified by Newsweek as “Satoshi Nakamoto”, the semi-mythical founder of Bitcoin, has issued an “unconditional” denial of the magazine’s story, saying the first time he had heard of the virtual currency was last month when a reporter began quizzing members of his family.

Central Banks

New Neutral Looms for Yellen-Carney When Stimulus Removed
Emma Charlton – Bloomberg
Call it the “new neutral.”
When Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney begin lifting interest rates from record lows, investors are betting the benchmarks stay below historic averages.

***DA: Remember, a taper is not a hike.

Fed nominee Fischer: policy decisions are best made early
Stanley Fischer, U.S. President Barack Obama’s pick for the No. 2 job at the Federal Reserve, said on Friday that decades of crisis-fighting have taught him the importance of making policy decisions quickly, even before all relevant data is in hand.

***DA: As Branch Rickey said, “I’d rather trade a player a year too early than a year too late.”

Federal Reserve Officials Weighing How to Retool Rate Guidance
Federal Reserve officials are discussing ways to revise their guidance about the likely future path of interest rates, but it takes some detective work to pin down how they might do it.

Morning MoneyBeat: Janet Yellen to the Rescue?
MoneyBeat – WSJ
When Janet Yellen speaks, markets listen. With stocks sliding and geopolitical tensions flaring, the bulls hope her recent sway over U.S. stocks continues.

Is The World Financial System Safer Now? – Speech By Jon Cunliffe, Deputy Governor, Financial Stability, Bank Of England


China’s Currency Is No Longer a One-Way Bet
One of the surest bets on China is starting to look a bit shaky.

***DA: Strange what happens when a market is allowed to find its own equilibrium.

China’s Central Bank Allows Its Currency More Volatility
In the latest sign that China is loosening its tight grip over the economy, the government said on Saturday that the value of its currency would now be allowed to fluctuate more widely against the United States dollar.

In doubling yuan trading band, China aggravates foreign investor concerns
The Chinese central bank’s decision to relax its grip on the yuan has been welcomed as a sign of financial liberalization, but it is aggravating concerns among foreign executives and investors about their exposure to China in the near term.

Freer renminbi will need more than wider corridor
Simon Rabinovitch in Shanghai –
When China doubled the renminbi’s trading band on Saturday, the country’s central bank proclaimed that it was a move to let market forces determine the value of the long-controlled currency.

Bitcoin Foundation’s New Washington Liaison Hints At Bipartisan Pitch
Michael J. Casey – MoneyBeat – WSJ
Jim Harper, who was hired this week to help the Bitcoin Foundation lobby Washington on bitcoin’s behalf, shared some insights Friday into how he would approach that task at a time when the digital currency’s reputation is being challenged and as new regulations are being drafted.

Buffett: ‘Stay Away’ From Bitcoin
Paul Vigna – MoneyBeat – WSJ
Uncle Warren is not warming up to bitcoin. Mr. Buffett, who earlier this month said he wouldn’t own bitcoin because he doesn’t consider it a store of value or reliable means of exchange, again dismissed bitcoin Friday.

Fortress-Linked Pantera Said to Invest in Top Bitcoin Exchange
Carter Dougherty – Bloomberg
Pantera Capital Management LP, the hedge fund that manages money for Fortress Investment Group LLC (FIG) executives, invested about $10 million in Bitstamp Ltd. months before the startup emerged as the world’s dominant dollar-Bitcoin exchange, according to three people briefed on the deal.

Indexes & Index Products

Empire State manufacturing index rises less than expected in March (via NASDAQ)
The New York Federal Reserve’s index of manufacturing conditions improved at a lower rate than expected in March, official data showed on Monday.
In a report, the Federal Reserve Bank of New York said that its general business conditions index increased to 5.61 this month from a reading of 4.48 in February. Analysts had expected the index to rise to 6.0 in March.

EDHEC-Risk Institute Survey Documents Unmet Institutional Investor Requirements For Transparency Of Indices
Between August and November 2013, EDHEC-Risk Institute surveyed 109 institutional investors from across Europe, including Europe’s largest pension and reserve funds, insurance and provident institutions and their asset management subsidiaries, to document their expectations and requirements with respect to index transparency and take stock of their perceptions of, and the extent of their support for, the main directions of the ongoing regulatory debate on indexing and financial benchmarks.

Calls for managers to open up their smart beta indices
Mike Foster – Financial News
Europe’s Edhec-Risk academic institute is stepping up a campaign to force asset managers to disclose the stocks they use in “smart beta” indices – potentially disclosing the “secret sauce” they use in attempts to outperform conventional benchmarks.

Is ‘Smart Beta’ an Improvement Over Standard Indexing?
The Wall Street Journal
Investors have been rushing to sink cash into a new option that’s intended to deliver a souped-up version of traditional index tracking.
Are they making the right move?
The traditional indexing approach is to buy all of the securities in a market or market segment and to weight those holdings based on market capitalization.

***DA: Good question. I read the article and am no closer to an answer, except that some of these strategies may be good at racking up fees.

Quarterly Changes to the NASDAQ Golden Dragon China Index
Press Release (NASDAQ)
The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) today announced the results of the quarterly re-ranking of the NASDAQ Golden Dragon China Index (Nasdaq:HXC), which will become effective prior to market open on Monday, March 24, 2014.


Gold pricing scrutiny widens
Neil Hume and Xan Rice –
The global regulatory scrutiny of benchmarks is shifting from interest rates and foreign exchange to commodities. In particular, the focus on bullion looks set to intensify following Friday’s admission by UBS in its 2013 annual report: that a review of its foreign exchange operations has been widened to include its precious metals business.

UBS Discloses It Is Reviewing Its Precious Metals Business
The Swiss bank UBS said on Friday that it was conducting an internal review of its precious metals business amid expanding regulatory investigations into potential manipulation of interest rates and the price of commodities and currencies.

Bruised gold miners start hedging output, in a limited way
Increasing numbers of gold miners, battered by last year’s drop in bullion prices, are selling planned output forward to help shore up their finances for stormy times, but these hedges are only for the short term.

Gold hits 6-month high on Ukraine worries; up for week
Gold rose to a six-month high on Friday as investors turned to bullion as a safe-haven from East-West tensions before a vote planned for Sunday on whether Ukraine’s Crimea region should join Russia.

Gold takes a breather as investors choose stocks
Barbara Kollmeyer and Shawn Langlois – MarketWatch
Gold futures struggled for traction on Monday after Crimea, as expected, voted overwhelmingly for secession from Ukraine. Investors renewed their risk-on appetite in a wait to see how sanctions could play out for Russia.

Has gold regained its safe-haven appeal?
Matt Clinch – CNBC
The price of spot gold extended its seemingly unstoppable run to $1,400 last week but Michael Widmer, a metals strategist at Bank of America Merrill Lynch, believes that persistent headwinds could soon end this move higher.
“There’s a few things in the market that make us believe it is not a sustained rally from here onwards,” he told CNBC Monday.

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