First Impressions

Pat Fay

Small Cap Splash: Russell’s Pat Fay talks about CBOE’s latest volatility contract
The CBOE Volatility Index futures, or VIX, has been THE most successful futures contract in recent years. With the VIX posting record volumes this year, the exchange and Russell Indexes say now is the time to launch the Russell 2000 Volatility Index futures or RVX. John Lothian News sat down with Russell Investment’s Pat Fay to talk about RVX and its potential, especially versus other indexes like VIX and the European volatility index VSTOXX. Fay says the appetite for a small cap stock volatility futures is strong, especially among money managers looking to incorporate volatility hedges into their portfolios. “Clients are asking for volatility products,” Fay says. “Folks have taken the opportunity to educate themselves on it, develop strategies, it’s become very popular.”

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Quote of the Day

“It’s a game of musical chairs. You just want to make sure you can sit down.”

Carl Giannone of T3 Trading Group LLC on picking stocks in the story, “Junk Glistens Under ‘Bernankecare’ as Worst Stocks Win”.

Lead Stories

UK probes private accounts of foreign exchange traders
Daniel Schäfer and Vanessa Kortekaas in London and Alice Ross in Frankfurt –
The UK’s financial regulator is probing the use of private accounts by foreign exchange traders amid allegations they traded their own money ahead of clients orders, in a serious twist in the global probe into possible currency market manipulation.
***DA: Front running is one of the oldest tricks in the book, yet remains a pervasive, hard to detect tactic.

Regulators See Value in Bitcoin, and Investors Hasten to Agree
The virtual currency bitcoin took a big step toward the mainstream on Monday as federal authorities signaled their willingness to accept it as a legitimate payment alternative.
***DA: I think they are willing to accept it as a legitimate platform for abuse.

Obama’s First-Term Finance Team: Where Are They Now?
Timothy F. Geithner’s move to the private equity firm Warburg Pincus is a big shift by a finance official from the Obama administration’s first term to the private sector. But it’s an ever-lengthening list, as several appointed officials had already made the jump to private life well before Mr. Geithner, the 75th Treasury secretary, announced his new job.
***DA: Regulatory agencies are becoming a lucrative training ground, arguably more so than some investment banks.

Junk Glistens Under ‘Bernankecare’ as Worst Stocks Win
Nick Taborek & Mary Childs – Bloomberg
Carl Giannone says he’s given up hunting for quality stocks. Now he’s simply riding the wave of upward momentum in the U.S. market.
“It’s a game of musical chairs,” said Giannone, who manages a team of stock pickers at T3 Trading Group LLC in New York. “You just want to make sure you can sit down.”

Austrian Fear of Inflation is Misguided
Nicole Lundeen and Todd Buell – MoneyBeat – WSJ
Austrians, like their northern neighbors in Germany, are ever vigilant about the possibility of rising prices. According to one survey, it seems they have taken to heart the maxim of “know thy enemy.”
***DA: misguided fear of inflation has been driving asset markets for the last four years.

Analysis: Forced lending to China SMEs may risk more harm than good
Beijing’s strategy to reroute money away from state-owned giants towards smaller firms to help fuel the economic transformation behind its reform plans is less of a success than it may seem on the surface.
***DA: the “state-owned giants” hold a lot of de facto political power, even though a good number are bankrupt if not for state support.

China banks forced to delay bond issues
Paul J Davies in Hong Kong and Simon Rabinovitch in Shanghai –
China Development Bank and fellow state policy lender Agricultural Development Bank of China have had to delay or dramatically reduce Chinese bond issues as the impact of a tight onshore credit market begins to be felt.

Size of too-big-to-fail problem needs broad tracking -Fed’s Kocherlakota
A top U.S. central banker on Monday urged fellow regulators to use an array of measures to determine the size of the so-called too-big-to-fail problem, in which investors assume that large banks will receive a government bailout if they run into trouble.
***DA: The regulator that removes the punch bowl will have a hard time maintaining his or her value to Wall Street after a term in public service.

U.K. Disinflation No Risk as Swap Gap Widens to Record
Anchalee Worrachate – Bloomberg
The widest gap between U.K. and euro-region price expectations in almost 10 years suggests investors are betting Britain will avoid the inflation slump that led the European Central Bank to cut interest rates.

Central Banks

Argentina Replaces Economy Minister, Central Bank President
Camila Russo – Bloomberg
Argentine President Cristina Fernandez de Kirchner changed her Economy Minister and Central Bank President today on her first day back to work following head surgery on Oct. 8.

Under Rajan, RBI pushes to develop money markets
Business Standard
The era of easy money for Indian banks may be coming to an end. Unlimited access to cheap overnight funding from the Reserve Bank of India (RBI) was tightened mid-year as part of measures to support a plunging rupee, and now the central bank is keen to use the restrictions to help it deepen money markets.

[Ireland] Central Bank’s chief economist leaving for role with the IMF
THE Central Bank’s chief economist Lars Frisell is leaving to take up a job with the International Monetary Fund (IMF).

PBOC Will ‘Basically’ End Normal Yuan Intervention: Zhou
China’s central bank will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading limit, Governor Zhou Xiaochuan said, without giving a timeframe.

Malaysia central bank opens office in Beijing – Central Banking
Malaysia’s central bank opened its first representative office in Beijing on November 15, a “reflection of the growing importance of China in the global economy and the international financial system”, governor Zeti Akhtar Aziz said in a speech marking the event.


Bank FX revenues set to drop further in 2013
Peter Garnham – Euromoney magazine
G10 bank FX revenues, which fell 22% in 2012, were forecast to drop by an additional 7% to $7 billion for the full-year 2013.

Despite Confusion, Bitcoin A ‘Major Emerging Issue,’ Sen. Carper Says
Paul Vigna – MoneyBeat – WSJ
The following is the prepared opening statement of Sen. Tom Carper (D-Del.), chairman of the Senate Homeland Security and Governmental Affairs Committee, at today’s “Beyond Silk Road” hearing on virtual currencies:

As tapering fears ease, rupee rises most in seven weeks
Business Standard
The rupee strengthened on Monday, owing to dollar flows into equity markets by foreign institutional investors (FIIs). It recorded the highest single-day gain in about seven weeks.

Indexes and Index Products

BATS Chi-X Europe launches European listings business
Elliott Holley – Banking Technology
BATS Chi-X Europe has begun its pan-European listings business with the start of trading in two exchange-traded funds. The firm’s strategy is to focus on ETFs, where it believes it has found an opportunity to cut costs.

STOXX Launches EURO STOXX 50 Futures Roll Index
STOXX Limited, a leading provider of innovative, tradable and global index concepts, today introduced the EURO STOXX 50 Futures Roll Index. The new index measures the return of a hypothetical, rolling portfolio invested into a series of EURO STOXX 50 futures contracts.

Choosing an index fund when the indexes are sky-high
John Wasik – Reuters
When stocks are on a roll – as they have been thus far this year – you want to go big or go home.
Quite naturally, most investors want to take advantage of the market’s healthy gains this year.


Gold No Slam-Dunk Sell in China as Aunties Buy Bullion
Bloomberg News
Yang Cuiyan, a 41-year-old housekeeper from Anhui province, is one reason China is poised to topple India as the world’s top consumer of gold even as investors desert the metal. Standing outside Beijing’s busiest jewelry store, wearing a thick coat against the autumn chill, she clasps a gold necklace that cost her 10,000 yuan ($1,640), or five months’ wages.

After getting crushed, this sector could be golden
It’s been a terrible year for gold miners, with the Market Vectors Gold Miners ETF (ticker symbol GDX) getting demolished to the tune of nearly 50 percent while the S&P 500 has sailed 26 percent higher. But precisely because the gold miners have become so universally hated, some investment advisers and chart readers suggest that it’s time to dig in.
***JM: I think as much as folks love saying this stuff, I enjoy pointing out, “That’s what you said right before the market fell apart, too.”

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