First Impressions

Rick Tomsic, Tradovate – Building with Vision

“You don’t need 20 years in an industry to have vision. Some of the best ideas come from a unique vantage point. Your vantage point… it’s not jaded. You don’t know how futures technology may be used. You may look at it from a fresh alternative.”

The first step down an unknown path takes guts. But if you’ve calculated your risks, you have a chance for outsized rewards. For Rick Tomsic, CEO of Tradovate, that step meant leaving an established position in a managerial program for an eat what you can kill broker gig. A step further down the road and Tomsic occupied a 12 foot by 12 foot office in a house sporting a gigantic satellite on its roof, sweating buckets due to the large monitors while working his 10 phone lines. But it was what he needed to do to fulfill his eventual goal of building trading technology. In this video, Tomsic imparts the need to maintain your drive by both having fun and maintaining your vision.

Watch the video at »

Quote of the Day

“What we’re having is a magnificent dead-cat bounce. The underlying problems have not gone away in any way, shape or form. We had maybe gone too bearish too quickly before, but now we’re getting too bullish too fast.”

Michael Every, head of financial-markets research at Rabobank Group, in the story, “Buyer Beware as Nobody Trusts the Rally in Emerging Currencies”

Lead Stories

Reason for low rates is real, monetary and financial
Martin Wolf – Financial Times
Why are interest rates so low? What are the chances that they will soon rise? These questions matter not just to central bankers and financiers but also to business people, savers and the wider population.

A U.S. Recession Just Got a Little More Likely
A Catarina Saraiva – Bloomberg
A delayed Federal Reserve rate hike, turmoil in global equity markets… and now increased expectations for a downturn in the U.S.

Demotion on Wall Street: Bond Traders Take a Back Seat
Max Colchester and Peter Rudegeair – WSJ
Wall Street’s trading business is going through a profound change—and bonds are on the wrong side of it.
When big banks start reporting earnings next week, they will likely show the equities traders catching up with their higher profile peers.

Margin Debt in Freefall Is Another Reason to Worry About S&P 500
Oliver Renick – Bloomberg
Most people get concerned about margin debt when it’s shooting up. To Doug Ramsey, the problem now is that it’s falling too fast.
The chief investment officer of Leuthold Weeden Capital Management LLC, whose pessimistic predictions came true in August’s selloff, says the tally of New York Stock Exchange brokerage loans flashed a bearish sign when it slid more than 6 percent in July and August. The retreat took margin debt below a seven-month moving average that suggests demand for stocks is dropping at a rate that should give investors pause.

The Hidden Debt Burden of Emerging Markets
Carmen Reinhart – Project Syndicate
As central bankers and finance ministers from around the globe gather for the International Monetary Fund’s annual meetings here in Peru, the emerging world is rife with symptoms of increasing economic vulnerability. Gone are the days when IMF meetings were monopolized by the problems of the advanced economies struggling to recover from the 2008 financial crisis. Now, the discussion has shifted back toward emerging economies, which face the risk of financial crises of their own.

If You Thought China’s Equity Bubble Was Scary, Check Out Bonds
Lianting Tu – Bloomberg
As a rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.

Faith in an Unregulated Free Market? Don’t Fall for It
Robert J. Shiller – NY Times
Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone.

U.S. Chases Swiss Bank Secrets to Singapore and Israel
Dave Voreacos and Giles Broom – Bloomberg
At a rate of one or two a week, Swiss banks are doing what was once unthinkable: revealing to the world how they helped wealthy Americans cheat on their taxes.

Bond Funds Have Been Borrowing to Boost Returns
Tracy Alloway – Bloomberg
For more than two decade, Bill Gross did the seemingly impossible, according to Bill Gross.
“From the 1980s through the 2000s, Mr Gross achieved returns at or near double digits, which are typically only seen in the far riskier equities markets,” says Gross’s blockbuster complaint against Pimco.
The erstwhile Bond King is taking aim at his former Pimco colleagues, arguing that a “cabal” of executives conspired to oust him as they sought to pursue riskier investment strategies and grab a bigger slice of the asset manager’s bonus pool. They are accused of mounting a push into dicey investments, while Gross himself pursued his basic “bonds and burgers” approach.
Yet drawing out equity-like returns from fixed-income investments is a feat that often relies on its very own special type of risk; it typically involves amplifying returns through the use of leverage, either by deploying derivatives or borrowing money.

China’s Monetary-Policy Choice by Zhang Jun
Zhang Jun – Project Syndicate
China’s economy has followed a remarkable course in recent years: from record-breaking powerhouse to major global risk, at least in the eyes of some. Indeed, with GDP growth this year almost certain not to reach the authorities’ 7% target, the world is now watching closely for signs of crisis and a much sharper slowdown. How did China get here, and can it put its economic growth back on track?

Standard Chartered to axe 1,000 senior manager jobs
Martin Arnold – Financial Times
Standard Chartered’s new chief executive has told staff he plans to cut a quarter of its most senior management positions in a drastic drive to cut costs at the emerging market lender.
Bill Winters’ plan to cut 1,000 of StanChart’s 4,000 top managers underlines the scale of the overhaul being drawn up to turn round the bank’s deteriorating performance.

Savings glut and financial imbalances
Antonio Fatas on the Global Economy
Martin Wolf in today’s Financial Times discusses the reasons for low interest rates and suggests some interesting scenarios for the years ahead. I agree with most of what he says but I have doubts about the role that he assigns to central banks.

Bad loans spiral in India’s ‘broken’ banking system
Victor Mallet and James Crabtree – Financial Times
Asking for a solution to the problems of the state banks that dominate India’s financial system is akin to a lost tourist asking the way in the proverbial joke. The answer is: “I wouldn’t start from here.”
The Indian economy is growing at a respectable rate of more than 7 per cent a year, faster than any other large emerging market. But the state-controlled banks lent so much in previous years to infrastructure and steel companies for unprofitable road projects, power stations and factories that they have been left in aggregate with an alarming level of bad and doubtful loans.

Deutsche Bank Said in Talks to Sell $250 Billion Swaps Book
Michelle Davis and Hugh Son – Bloomberg
Deutsche Bank AG is selling a credit-default-swaps trading portfolio of more than $250 billion, with JPMorgan Chase & Co. among several banks in talks, according to two people with knowledge of the matter.

Banks must embrace fintech-fuelled payments revolution
Banks must embrace fintech companies or risk being left behind as the payments landscape undergoes a radical technological overhaul, according to a new report from BNY Mellon.

Greece needs debt relief, significant extension of maturities: IMF
Greece cannot deal with its public debt through reforms alone and needs a significant extension of grace periods and longer maturities from its European creditors, the head of the International Monetary Fund’s European department said.

Lawrence Summers: The Global Economy Is in Serious Danger
FJ McGuire – Newsmax
Former Treasury Secretary Larry Summers, now a Harvard professor, warns that “the dangers facing the global economy are more severe than at any time since the bankruptcy of Lehman Brothers in 2008.”

Euro zone aims to cap Greek debt servicing at 15 percent of GDP
Jan Strupczewski – Reuters
Euro-zone governments, Greece’s biggest creditors, agree that debt relief for Athens should be accomplished by capping its debt servicing costs at 15 percent of gross domestic annually, the chairman of the euro zone finance ministers, Jeroen Dijsselbloem, said on Thursday.

Puerto Rico May Be Unable to Avoid Bond Defaults, Adviser Says
Michelle Kaske – Bloomberg
Puerto Rico, at risk of running out of cash as soon as November, may be unable to pay investors as it looks to restructure $73 billion of debt, said Steven Rhodes, the former U.S. bankruptcy judge who is advising the island’s government.

Foreign banks to stick out Russia crisis for lucrative margins
Alexander Winning – Reuters
Russia’s economic crisis may be pushing foreign banks to trim their exposure, but the country’s capacity to generate hefty earnings means it is likely to be a priority market for many in future years.

The Liquidity Mirage (Part 6 of 6)
New York Fed: Liberty Street Economics
Market efficiency is often pointed to as a main benefit of automated and high-frequency trading (HFT) in U.S. Treasury markets. Fresh information arriving in the market place is reflected in prices almost instantaneously, ensuring that market makers can maintain tight spreads and that consistent pricing of closely related assets generally prevails. While the positive developments in market functioning due to HFT have been widely acknowledged, we argue that the (price) efficiency gain comes at the cost of making the real-time assessment of market liquidity across multiple venues more difficult. This situation, which we term the liquidity mirage, arises because market participants respond not only to news about fundamentals but also market activity itself. This can lead to order placement and execution in one market affecting liquidity provision across related markets almost instantly. The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market.

Central Banks

The Courage to Act in 2008
David Beckworth – Macro and Other Market Musings
The main point of Bernanke’s book is that absent the Fed’s interventions over the past seven years the U.S. economy would have undergone another Great Depression. Thanks to him and his colleagues at the Fed the world is a much better place.
There has already been some push back on this Bernanke triumphalism. George Selgin, for example, notes that the recovery under Bernanke’s watch was anemic. Inflation consistently undershot the Fed’s target and the real recovery was weak. We may not have experienced another Great Depression, but we sure did get a long slump. Ryan Avent makes a similar point by observing that Bernanke had a chance in late 2011 to do something bold by endorsing a NGDP target, an action that could have jolted the economy from its doldrums. But alas, Bernanke failed to muster up the courage to have what Christina Romer called his “Volker Moment”.

ECB’s Lautenschlaeger Says `Really Premature’ to Discuss More QE
Jeff Black – Bloomberg
The European Central Bank should take more time to assess the risks to its inflation outlook before policy makers discuss whether to expand stimulus, ECB Executive Board member Sabine Lautenschlaeger said.

Fed’s Lockhart still sees 2015 rate hike despite recent red flags
Jonathan Spicer – Reuters
A U.S. interest rate hike is still probably coming in October or December despite some conflicting economic signals, a top Federal Reserve official said on Friday, reinforcing the central bank’s message over the last few weeks.

Mark Carney challenges view that interest rates will stay put
Chris Giles – Financial Times
Mark Carney, the Bank of England governor, highlighted the strength of the domestic British economy on Thursday, indicating that he still thought the conditions were right to consider raising interest rates around the end of this year.

Lacker Says Fed Taking Risks With Economy at Full Employment
Craig Torres – Bloomberg
Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. is already at full employment and the central bank may risk overheating the economy as it attempts to drive additional job gains.

Bank of America: Here’s the Precise Moment When We Should Have Known QE Went Wrong
Julie Verhage – Bloomberg
“There’s no such thing as a free lunch” is an oft-quoted maxim in economics, and it seems like a maxim that could easily be applied to the Federal Reserve’s bond-buying program known as quantitative easing.
In a new note titled “The real cost of QE,” Bank of America’s FX strategist Athanasios Vamvakidis takes a critical look at the U.S. central bank’s particular brand of unconventional monetary policy, and its changing relationship with financial markets.


Fed Doesn’t Care About Dollar? Minutes Show Greenback Fixation
Lananh Nguyen – Bloomberg
The Federal Reserve says it leaves the dollar policy to the Treasury. Yet the latest minutes show Chair Janet Yellen and her colleagues can’t stop talking about the currency’s strength.

Asia’s currencies post a mighty bounceback
Leslie Shaffer – CNBC
Asia’s markets are bouncing back from a selloff that sent some regional currencies to their lowest level since the Asian Financial Crisis in the late 1990s.

Israeli Forex Traders Being Targeted By Hacker Gangs Extorting Money
Eytan Avriel – Haaretz
A large number of online foreign-currency trading firms and others in similar businesses operating in Israel have been hit in recent weeks by cyberattacks and extortion attempts, TheMarker has learned.

Emerging-market currencies just had their best week of the year
Joseph Adinolfi – MarketWatch
Emerging-market currencies are having a spectacular week.
Currencies across the developing world have recorded huge gains against the dollar since last Friday, when the weaker-than-expected September jobs report kicked off a rally in the space.

Buyer Beware as Nobody Trusts the Rally in Emerging Currencies
Jennifer Surane and Andrea Wong – Bloomberg
This month’s advance in emerging-market currencies is turning into the rally no one seems to like.

Indexes & Index Products

What next for the LSE after Russell Investments sale?
Tim Cave and James Rundle – Financial News
Having reached an agreement to sell Russell Investments, the asset management arm of the Frank Russell Company that it acquired in December 2014, the London Stock Exchange Group can expect to turn its full attention to future priorities when the deal closes sometime in the first half of 2016.

Rosy outlook for smart beta ETFs, but investors require more education, reveals FTSE
John Maher – ETF Strategy
FTSE Russell, a leading global index provider, has released the results of a survey of US-based investment advisors highlighting current perceptions and adoption levels of smart beta strategies in the community.

One of Wall Street’s Most Popular Post-Crisis Trades May Be Coming to an End
Luke Kawa – Bloomberg
Seven years of ultralow interest rates from the Federal Reserve have encouraged investors to pile into a risky but profitable trade. Long the domain of hedge funds, selling volatility has became a popular strategy for new types of investors seeking to boost their returns in an era of low interest rates.

Why the S&P 500 Utilities Sector Shined in Q3
Todd Rosenbluth – S&P Dow Jones Indices
While the S&P 500 Utilities index has been one of the weakest in the S&P 500 index in 2015, in the third quarter it was a bright spot. As global economic concerns increased, we think investors found the domestic focused, stable dividend, and earnings provided by the sector appealing. While the Federal Reserve’s possible increase in the Fed funds rate could have an adverse effect, the 10-year Treasury yield has fallen back to approximately 2.0%. The average dividend for the S&P 500 utilities sector constituent was 3.9%.

How Drew Miyawaki Plans to Grow the Chicago Index Trading Desk of LGIMA
Phil Albinus – Traders News
Things are happening inside Legal & General Investment Management America (LGIMA) — and, as head of global equity trading, Drew Miyawaki is at the center of the action. When Legal & General Investment Management (LGIM), the U.K. fund service firm known as one of the largest index fund manager in the world and the parent company of LGIMA, offered to transfer Miyawaki to Chicago, it had a clear mission in mind. LGIM-with a reported $714 billion in index funds under management-wanted to grow its wholly-owned subsidiary LGIMA, which was founded in 2006.


The Chinese Gold Market: Lost In Translation
Koos Jansen – Seeking Alpha
There are a few analyses making rounds on the internet about gold owned by the People’s Bank Of China (PBOC). I’m always interested in these analyses, as I like to be aware of all knowledge available on this subject, but I rarely agree with them.

India’s gold imports tank
Frik Els –
Gold demand in India usually picks up in the run-up to the domestic festival and wedding season next month but after an exceptional August, the country’s September imports fell by more than half.

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