First Impressions

Options Industry Perspectives: Exchange Leaders Trade Viewpoints at OIC 2015
Sarah Rudolph – John Lothian News

At the Options Industry Conference this year, the exchange leaders panel directly followed a presentation by Andy Nybo, the head of derivatives at The Tabb Group, which offered a rather bleak look at the options industry. Total volume year-to-date was down 8.7 percent compared to a year earlier, bid-ask spreads have been getting wider, and options exchanges are finding it difficult to compete in a field of 12-going on-14 players.

Given that “dark cloud” the industry appears to be under, moderator John Lothian asked the panel what the industry could do to turn it around.

Exchange leaders agreed that the lack of liquidity was a big problem and that, as the ISE’s Boris Ilyevsky said, a major cause was that the current market structure does not incentivize active, liquid quoting.

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Quote of the Day

“Watch out: this rally may not last. The risks for a reversal in recent commodity price trends are growing. There is a huge disconnect between the price action in physical markets where differentials are signalling over-supply and the futures markets where all looks rosy.”

Analysts at Barclays in the story, “Big banks flag dangers of financial bubble in oil and commodities”.

Lead Stories

Senate Democrats Block Progress on Obama’s Trade Authority
NY Times
Senate Democrats handed President Obama a stinging rebuke on Tuesday, blocking consideration of legislation granting their own president accelerated power to complete a major trade accord with Asia.
The Senate voted 52-45 on a procedural motion to begin debating the bill to give the president “trade promotion authority,” eight votes short of the 60 needed to proceed. Republicans and pro-trade Democrats said they would try to negotiate a trade package that could clear that threshold.

Bond Market Meltdown Deconstructed: Five Charts That Explain Why
More than $450 billion has been wiped out across global bond markets in the past few weeks and, for many people, there doesn’t seem to be any particular reason why.
Sovereign-bonds yields had fallen so far that in order for them to make sense, investors would have needed to see persistent deflation and European recessions. For a while, that seemed like a real possibility, as oil went from more than $100 a barrel to less than $50 and many forecasters were predicting $30. Well, that didn’t happen, and oil started to rise at the same time as evidence of incipient inflation and economic growth in Europe.

Bill Gross: The Amount of Money I’ll Give Away ‘Is Staggering, Even to Me’
by Mary Childs, Bloomberg
Count Bill Gross among the world’s biggest philanthropists.
The bond investor has already given away as much as $700 million and eventually will donate his remaining $2 billion fortune, a figure that’s “staggering, even to me,” Gross said in an interview on Bloomberg Television.

How many active mutual funds have beaten the S&P 500 in 8 consecutive years?
How many active mutual funds have beaten the S&P 500 in each of the last 8 consecutive years?
Here’s Chuck Jaffe at Marketwatch, who is jeopardizing a lot of ad dollars for the parent company by saying this:

Billionaire Paulson Said to Score Hedge Fund Wins in April
by Kelly Bit, Bloomberg
Billionaire John Paulson’s hedge funds gained in April after successful wagers on energy, mergers and Greek banks.

‘There is (Still) No Country Like Switzerland,’ Says HSBC’s Swiss Chief
MoneyBeat – WSJ
HSBC Holdings PLC’s man in Switzerland sounds pretty upbeat these days, despite the bank’s recent media scandal and mounting regulation.
Franco Morra, the CEO of HSBC’s Swiss bank, said during a public event in Zurich on Tuesday that he thinks the deterioration of Swiss bank secrecy is “an opportunity to catch future growth.”

Small investors focus of trading shake-up
Philip Stafford in London and Nicole Bullock in New York, FT
Five years of adverse headlines about dark pools, flash crashes and high-frequency trading has hardly encouraged retail investors jumping on board the long-running US equity bull market.

Big banks flag dangers of financial bubble in oil and commodities; Barclays warns that the latest commodity boomlet has charged ahead of economic reality across the world: ‘Watch out: this rally may not last’
By Ambrose Evans-Pritchard, The Telegraph
The big global banks have begun to warn clients that the blistering rally in oil and industrial commodities in recent weeks has run far ahead of economic reality, raising the risk of a fresh slump in prices over the summer.

Judge’s Ruling Against 2 Banks Finds Misconduct in ’08 Crash
Dealbook – NY Times
Many on Wall Street have long argued that the banks did not generally break the law when they packaged shoddy mortgages and sold them to investors in the lead-up to the financial crisis of 2008.
But on Monday, in the starkest of terms, a federal judge dealt a strong blow to that version of history. She ruled that two banks misled Fannie Mae and Freddie Mac in selling them mortgage bonds that contained numerous errors and misrepresentations.

Rare US bank launch targets ‘It’s a Wonderful Life’ values
Ben McLannahan, FT
It was when Bill Greiner was denied a $2m loan to buy a building that he knew big banking was broken. This was May 2008, not long before the Lehman crisis, so it was understandable that his bank manager might have demurred a little.

Germany Allows Greece A Referendum; Not That It Will Help At All
Various people in the German government have said that perhaps it might be a good idea for there to be a referendum in Greece upon how to solve the current debt crisis. Perhaps the population, rather than Syriza, might like to pronounce upon the various red lines. Would they prefer to stay in the euro even if it meant paying off all of the debt over time, that sort of thing. There’s three points to make about this.

FT Partners’ Research: Innovations in Capital Markets
Financial Technology Partners LP
This 83-page intelligence report focuses on open source communication networks, unstructured data analytics and intelligent search. It includes a look at industry trends, innovator landscape, selected transactions, and a deeper dive into a number of firms on the cutting edge.

***DA: FTP shared this with JLN readers at the urging of our friends at Green Key Technologies, one of the featured firms. You will recognize other firms as well, such as CME Direct Messenger

Central Banks

Top Senate panel looks to tighten oversight of Federal Reserve
The Federal Reserve is once again in lawmakers’ cross-hairs, with the latest salvo coming from the influential head of the Senate Banking Committee.

The Federal Reserve Asset Bubble Machine
Janet Yellen’s comment last week at the International Monetary Fund headquarters in Washington, D.C., that stock prices are “quite high” hardly captures the frothiness in U.S. financial markets. The Federal Reserve chair’s admission also stopped short of acknowledging the role of free money in inflating the price of stocks—as well as the price of bonds, houses and every other financial asset.

Global central bank rate cuts, 2015
There’s been a lot of talk in recent months about the Federal Reserve’s plan to tighten monetary policy by raising rates later this year. This would be a significant sign that the economy has finally moved away from the financial crisis.
But don’t be fooled into thinking there’s some global shift toward tighter monetary policy. In reality, there there are far more central banks cutting rates than hiking rates around the world. This, as policymakers do what they can to stimulate growth and stoke inflation in their local economies.

FDIC Chief Martin Gruenberg: Big Bank Failure Won’t Imperil System; If major financial firm runs into trouble, it will be allowed to fail
Nearly seven years after the financial crisis, Federal Deposit Insurance Corp. Chairman Martin Gruenberg said U.S. regulators can safely guide a major financial firm to failure without taxpayer bailouts or catastrophic consequences for the financial system.

Fed mulled supporting triparty repo market in a U.S. default: source
The Federal Reserve investigated how it could keep a massive short term lending market from freezing up if America defaulted on its debt, according to a person familiar with planning that was done by the New York Fed.

Fed’s Williams in ‘Wait and See Mode’ on Interest-Rate Increases
Federal Reserve Bank of San Francisco President John Williams said the U.S. central bank could decide to begin raising interest rates at any policy meeting, and that he is in “wait and see mode” headed into the next gathering in June.


Yield-Hungry Investors Are Re-fueling the Currencies Trading Market
Foreign-exchange managers are back in vogue.
Millennium Global Investments has received $1.7 billion this year for funds that manage currency exposure to boost returns, after attracting no new cash in the same period of 2014. Adrian Lee & Partners, another specialist in the so-called overlay strategies, has grown its funds by 50 percent in the past year to $6 billion.

Currency manipulation and the Trans-Pacific Partnership, explained
One of the most common objections to the Trans-Pacific Partnership, the trade deal the Obama administration is hoping to complete in the next few months, is its lack of rules against currency manipulation.
Critics such as Sen. Rob Portman (R-OH) and Sen. Chuck Schumer (D-NY) charge that for more than a decade, Japan and China have been stockpiling dollars in an effort to artificially reduce the value of their currencies. That allegedly gives them an unfair advantage in international markets. These members of Congress want to add rules to the TPP (which doesn’t include China but includes Japan and could set a precedent for future trade deals) to stop countries from depressing the value of their currencies.

Asian Currencies Hit by Bond Market Turmoil
Currencies in emerging Asia hit their weakest in months after days of grinding lower, as bond markets reverse gains and fresh signs of sluggish growth in the global economy appear.

BP Trader Said to Be Put on Leave Amid ‘Cartel’ Currency Probe
by Liam Vaughan, Bloomberg
A senior currency trader at BP Plc has been placed on leave after conversations emerged linking employees at the oil giant to an online chat room used by the world’s biggest banks to rig the foreign-exchange market.

Bitcoin May Never Make It to Wall Street, But Its Tech Will
James Angel compares bitcoin to MySpace, the social network that paved the way for far more influential services like Facebook and Twitter. Today’s bitcoin digital currency, says Angel, a professor of finance at Georgetown University, is too flawed to replace existing currencies. But the basic ideas underpinning the technology, he believes, can significantly change how the financial world operates. This is already starting to happen.

Indexes & Index Products

Hard to find U.S. small-cap bargains after years of strong gains
The Globe and Mail
At a time when every asset class seems expensive, the U.S. small-cap space is attracting special warnings. “Since 2009, it’s been a really good run for small-cap performance,” said Steven DeSanctis, head of small-cap strategy at BofA Merrill Lynch Global Research. “Just about every stock has been picked over, and so there are just not a lot of bargains out there.

ETFs Tracking MSCI Indexes see Assets Swell to $418 Billion
ETF Trends
MSCI (NYSE: MSCI) continues bolstering its status as one of the premier providers of indexes for use by exchange traded providers as combined assets under management for ETFs benchmarking to MSCI indexes jumped 12% to a record $418 billion in the first quarter.


The Case for Gold — Just in Case! | Terry Savage
No one is talking much about gold these days, since gold is typically viewed as a hedge against inflation, and there’s very little inflation around. Even worse, if the Fed raises rates, gold becomes less attractive as an investment. The price of gold has been fluctuating wildly around $1200 an ounce, not gaining a distinct direction.

Dark History of Gold Begins With Smashed Stars : Discovery News
No element is simultaneously as trivial to our survival but as vital to human history as gold. Fortunes have been made. Armies have been raised. Empires have been built. Not bad considering that all of the gold ever mined — all 165,000 metric tons of it — if melted down would fill just three and a half Olympic swimming pools.??

The Gold Standard Versus Fiat Currency
It is not uncommon to hear the terms gold standard and fiat money referred to in discussions of economic history. But what do these terms actually mean? In this article, we will begin by addressing the meaning of these terms at a broad and conceptual level. We will then examine how the gold standard was gradually replaced by the fiat system we have today.

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