First Impressions

Peter Borish, The Quad Group – Trading Traps: Too Many to Count

“You have to have the complete and utmost confidence in yourself if you’re going to trade and take risk. It doesn’t mean that you have to be right.”

What do subway cars, Derek Jeter, a movie theater and the Titanic have in common?

Peter Borish, chief strategist with Quad Group, has a way with analogies. It takes such comparisons to help explain trading, a “humanly uncharacteristic” action, according to Borish. It’s a fight with your gut and an exercise in taking all the lumps that come your way. Borish breaks down the struggle in this video.

Watch the video at »

Quote of the Day

“UBS made itself a ton of money at the expense of its clients, with these huge conflicts of interest. Whether it was a $50,000 account or a $50 million account, systematically UBS put clients into the same securities. I’ve never seen anything like it.”

Craig McCann, a principal at Securities Litigation & Consulting Group and former senior economist with the SEC, in the story, “How UBS Spread the Pain of Puerto Rico’s Debt Crisis to Clients”

Lead Stories

Signs point to deepening China distress
Henny Sender – Financial Times
China’s foreign exchange reserves fell alarmingly in August, anywhere from $94bn to as much as $150bn according to various calculations. That was just another in a series of dramatic data points that are leading to an increasing sense both within the Middle Kingdom and without that all is not well.
For a long time now many hedge funds have been short Macau, once the main beneficiary of both the Chinese propensity to gamble and the rise of China as a market for luxury goods. Then the anti-corruption campaign put a big chill on the junkets to the former Portuguese enclave, as it did on sales of everything from Rolex watches to shark fin soup and abalone in top restaurants.

LSE’s Sale of Russell Investments to Citic May Collapse
Cathy Kit Ching Chan, John Detrixhe and Jonathan Browning – Bloomberg
London Stock Exchange Group Plc’s plan to sell Russell Investments to China’s Citic Securities Co. is faltering and may soon collapse, people with knowledge of the matter said.

What If China’s Economy Is Even Bigger Than It Seems?
Alex Frangos – WSJ
Everyone thinks China’s economy isn’t what it seems.
Barclays economists, for instance, recently calculated that China’s reported gross domestic product started going off kilter in early 2014. That 7% GDP growth last quarter was more like 5.6%, Barclays says.

Wall Street Cracks Down on Free Sharing of Analysts’ Notes
Dakin Campbell – Bloomberg
Wall Street banks may have finally hit on a way to pinpoint the value of analysts and squeeze more money from their research: Stop making it so easy to share.
Bank of America Corp. has started embedding analysts’ reports into web pages, so it can more easily restrict access than with PDF files that are widely shared with people who aren’t paying clients, said Candace Browning, the firm’s head of research. It’s joining rivals Morgan Stanley and Citigroup Inc. in limiting access, and more plan to follow. The approach also makes it easier to track analysts’ readership and customize products for specific types of clients, according to bank executives and consultants.

Empty Floor at Goldman Puts Change on Display
Nathaniel Popper – NY Times
When Goldman Sachs moved into its new tower near the Hudson River in 2009, the sprawling trading desks on the fourth, fifth and sixth floors were some of the most active and lucrative in the world.
Now, nearly six years later, the glass-walled sixth floor — stretching much of a city block — has become something of a ghost town, all but empty save for a few still-occupied offices. Goldman’s trimmed-down trading operations are now consolidated on two floors instead of three.

Whistleblower on Credit Suisse dark pool says he’ll ask SEC for millions
Steve Goldstein – MarketWatch
With reports that Credit Suisse may pay tens of millions of dollars to settle allegations of wrongdoing in the operation of its dark pool, the man who tipped off the agency says he’s planning to ask for a “whistleblower” award.
Rich Gates, the founder of fund manager TFS Capital, said he’s planning to apply for a whistleblower reward after the agency announces its penalty against Credit Suisse.

Joris Luyendijk: ‘Bankers are the best paid victims. We should hug them, not be angry’
Rosamund Urwin – London Evening Standard
Joris Luyendijk went into the City believing that bankers were ‘financial terrorists’ but after a four-year investigation he emerged feeling sorry for them. He tells Rosamund Urwin what changed

Bank of America investors vote to keep Brian Moynihan in both top jobs
The Telegraph
Bank of America shareholders have voted to let chief executive Brian Moynihan keep his chairmanship, despite concerns about the dual role among major investors in the bank.

In China’s Struggling Stock Market, a Few Winners Emerge
Chao Deng – WSJ
Amid the carnage of the Chinese stock market, a handful of stocks have posted huge gains, and the reasons why say a lot about how the market operates.
One big winner emerged from the ashes of Shanghai Chaori Solar Energy Science & Technology Co., the company that holds the distinction of being the first to default on a Chinese domestic bond. After a restructuring, shares of the successor company, renamed GCL System Integration Technology Co. Ltd., have surged more than 900% since the resumption of trading on the Shenzhen Stock Exchange last month.

Sarao extradition hearing looms on Friday
Alice Attwood – Futures & Options World
The ‘Hound of Hounslow’ trader accused of market manipulation leading to the 2010 ‘Flash Crash’ will be back in court on Friday for his extradition hearing, after last month finally being granted bail.
Navinder Singh Sarao will on Friday have his extradition hearing at Westminster Magistrates Court which could see him sent to the US for prosecution.

Burned by Oil Trade, Debt Investors Think Twice This Time Around
Jodi Xu Klein – Bloomberg
When banks began to scale back financing for energy companies earlier this year amid the slump in oil prices, some of Wall Street’s savviest asset managers sought to capitalize by lending at high rates.
That didn’t work out so well, as crude continued to plunge and lenders were stuck with losing positions. Now, banks are again contemplating credit cuts. But this time hedge funds and private-equity firms are showing more reluctance to step in.

Are BHCs Mimicking the Fed’s Stress Test Results?
Angela Deng, Beverly Hirtle and Anna Kovner – Liberty Street Economics
In March, the Federal Reserve and thirty-one large bank holding companies (BHCs) disclosed their annual Dodd-Frank Act stress test (DFAST) results. This is the third year in which both the BHCs and the Fed have published their projections. In a previous post, we looked at whether the Fed’s and the BHCs’ stress test results are converging in the aggregate and found mixed results. In this post, we look at stress test projections made by individual BHCs. If the Fed’s projections are very different from a BHC’s in one year, do the BHC projections change in the following year to close this gap? Or are year-to-year changes in BHC stress test projections driven more by changes in underlying risk factors? Evidence of BHCs mimicking the Fed would be problematic if it meant that the BHCs are not really independently modelling their own risks. Convergence poses a potential risk to the financial system, since a financial system with monoculture in risk measurement models could be less stable than one in which firms use diverse models that collectively might be more likely to identify emerging risks.

How UBS Spread the Pain of Puerto Rico’s Debt Crisis to Clients
David Evans – Bloomberg
UBS had a good thing going in Puerto Rico. The Swiss bank served as an adviser to the commonwealth’s Employees Retirement System, led the underwriting of a $2.9 billion bond issue for the pension agency in 2008, and then stuffed half of those bonds into a family of closed-end mutual funds it sold exclusively to customers on the island. It collected fees at every step.

Goldman Sachs boss Lloyd Blankfein has ‘curable’ lymphoma
Goldman Sachs chief executive Lloyd Blankfein has announced that he has lymphoma.
In a message on the company’s website, Mr Blankfein said: “Fortunately, my form of lymphoma is highly curable and my doctors’ and my own expectation is that I will be cured.”

SEC settles with two ex-Fannie Mae executives, but not ex-CEO
The U.S. Securities and Exchange Commission has reached a settlement with two former Fannie Mae executives in one of its biggest lawsuits tied to the financial crisis, and the two men agreed as part of the deal to cooperate with the SEC in its case against former Chief Executive Daniel Mudd.

Central Banks

Central banks have made the rich richer
Paul Marshall – Financial Times
Labour’s new shadow chancellor has got at least one thing right. Amid the brickbats thrown at John McDonnell, there is a nagging failure to acknowledge the validity of one part of his critique of the money-creation programmes of the four leading central banks. Quantitative easing , as this policy is known, has bailed out bonus-happy banks and made the rich richer.

Pimco: Fed ‘may find it impossible’ to escape lower bound of rates
Jennifer Ablan – Reuters
Bond fund giant Pacific Investment Management Co said on Tuesday the pace of Federal Reserve interest-rate increases is likely to be even more gradual than the firm expected in March and that the U.S. central bank may find it impossible to escape the effective lower bound of policy rates.

The Fed Blinked, and That Wasn’t a Good Thing
Bob Lang – CBOE Options Hub
We can all take heart that the Fed is still supporting the global markets. But if the message of the market is any indication, then this may be the wrong approach. I suspect this was a contentious meeting, the committee struggling with a pivot to tighter policy. Simply put, the current funds rate near zero has been in place for more than six years, and while the recovery is not anything hoped for, extremely generous policy has passed its time. The market remains confused by policy that seems to have the Fed boxed in.

Why the independence of central banks is overrated
Ryan Cooper – The Week
The independence of central banks has long been one of the bedrock principles of orthodox economics. If you let grubby politicians get their hands on the monetary policy levers, then they’ll quickly turn any developed country into Zimbabwe. This is because they will always be trying to stoke the economy and reduce unemployment to win the next election — and will be too reluctant to create the recession necessary to strangle inflation.

A dirty dozen decisions deferred
Dan McCrum – Financial Times
Forward guidance under Ben Bernanke and then Janet Yellen has been… changeable, notes David Kelly, chief strategist for JP Morgan Asset Management, who shares a reminder of the shifting timescale.

Osborne Says Exit From U.K.’s Loose Monetary Policy Is Coming
Svenja O’Donnell – Bloomberg
Chancellor of the Exchequer George Osborne said the U.K.’s exit from loose monetary policy “is going to come” and Bank of England Governor Mark Carney has indicated that borrowing costs are set to rise.

Charting the Markets: Fed Uncertainty Sours Mood of Global Investors
Mark Barton – Bloomberg
Confusion reigns. Less than five days after the Federal Reserve kept interest rates unchanged, a total of four U.S. central bank officials have paved the way for a hike this year. Traders still aren’t convinced. According to Fed fund futures the probability of a rate increase in 2015 is less than 50 percent. Thursday’s lecture by Fed Chair Janet Yellen in Amherst, Massachusetts, has taken on extra significance as investors seek more clues on the possible timing of a change in monetary policy. Asian stocks excluding Japan, which is closed for a second day, were little changed after the biggest loss in three weeks. The Shanghai Composite Index rose for a third day, the longest stretch of gains in over a month, as President Xi Jinping visits the U.S.


Volatility Sets In for Currencies as Fed Leaves Traders Hanging
Rachel Evans – Bloomberg
Foreign-exchange volatility, already the highest in four years, looks set for an extended stay after the Federal Reserve rattled markets last week by not raising interest rates.
With the central bank leaving the question of when it will move hanging over markets, its focus on economic data and international circumstances means every report will stir more volatility, according to Morgan Stanley. Fed Chair Janet Yellen says she’s monitoring risks from China, while policy makers in Europe and Japan weigh further stimulus as the Fed looks to raise U.S. rates for the first time since 2006.

Australia’s major banks pull plug on bitcoin companies
Australia’s major banks are closing accounts of bitcoin companies, forcing at least 13 digital currency providers out of business in response to tougher rules on money laundering and terrorism finance, an industry body spokesman said on Tuesday.

Euro Traders Signal Weakness to Come as ECB May Add to Stimulus
Rachel Evans and Lukanyo Mnyanda – Bloomberg
Traders are betting the euro’s slide to a two-week low is just the beginning.
Options prices show investors are paying the most in two months to protect against further losses by the shared currency after European Central Bank Executive Board member Peter Praet said officials would “certainly do what’s necessary” if its inflation targets were in jeopardy.

Bank of America just filed a patent that would let you send money using bitcoin
Ian Kar – Quartz
Banks are exploring a variety of uses for bitcoin and digital currency, but one area in particular appears to be piquing their interest: transferring funds between countries.
The latest evidence of that interest comes from Bank of America, which recently filed a patent for technology that would allow it to use the cryptocurrency for that purpose.

Turkey, Hungary: Refuge In Bonds, Currencies & Rates? – Emerging Markets Daily
Dimitra DeFotis – Barron’s
HSBC says U.S. dollar optimism is excessive in its latest currency missive, and suggests ways to play unchanged benchmark interest rate announcements today in Turkey and Hungary.

Gulf countries will stick to currency dollar pegs, Fitch says
Gulf countries’ currency pegs to the dollar are under pressure from low oil prices and a stronger dollar but there is no chance of them being abolished, ratings agency Fitch said on Tuesday.
Oil exporters in the region including Saudi Arabia and the UAE have shackled their currencies to the dollar in longstanding arrangements that made sense when commodity prices were high and the dollar was weak.

1MDB Objects to Malaysian Central Bank Chief’s Rebuke on Ringgit
Shamim Adam and Pooi Koon Chong – Bloomberg
1Malaysia Development Bhd. said it shouldn’t be held responsible for the ringgit’s weakness, objecting to comments by central bank Governor Zeti Akhtar Aziz.
The resolution to issues surrounding the debt-ridden state investment company will help bolster the currency, along with the timing of the Federal Reserve’s interest-rate increase, a recovery in commodity prices and stabilization in China’s economy, Zeti said in Kuala Lumpur Monday. 1MDB said it’s “disappointed” Zeti appears to have singled it out.

Indexes & Index Products

CME Group and China Securities Index Co. Ltd Sign Agreement to Develop Commodity Indexes
Press Release – CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, and China Securities Index Co. Ltd, today announced that they have signed an index development and product licensing agreement.

Goldman Has Come Up With (Yet) Another New Name for ‘Smart Beta’
Eric Balchunas – Bloomberg
Goldman Sachs’s first exchange-traded fund is also the latest attempt to kill the term “smart beta.”

What China, Peru And Your Portfolio Have In Common
Lauren Gensler – Forbes
Right now, south of the equator, Peru is engaged in a big showdown — it’s fighting tooth and nail to keep its place in an influential stock index. This comes on the heels of a recent decision that keeps a whole swath of the Chinese market out of this very same index.
The countries may be wildly different and located at opposite ends of the world, but they are both chasing your investment dollars.

Vanguard Unveils Two International Dividend Index Funds
Chris Dieterich – Barron’s
Vanguard Group took the first step toward launching a pair of international dividend index funds before the end of 2015.

Goldman Sachs’ First ‘Smart Beta’ ETF Goes Live
Chris Dieterich – Barron’s
Goldman Sachs’ (GS) asset-management unit rolled out its first exchange-traded fund on Monday.

S&P Capital IQ launches Enhanced SME Scorecard to Measure Credit Risk for Women-led SMEs in Emerging Markets
With an eye on helping to close the lending gap for small, women-owned businesses in emerging markets, S&P Capital IQ, a leader in financial data, research and analytics, today announced the launch of an SME (Small and Medium Enterprises) Scorecard, designed to provide a consistent and transparent lending framework for financial institutions that removes biases, specifically gender, and thus helps to level the playing field for women-owned small businesses.

Debate Over China A-Shares Reignites
Tim McLaughlin and Jessica Toonkel –
Just as China shows that its domestic stock market can be something of a one-way street—investors can put money in, but not take money out—the biggest mutual fund company, Vanguard Group, is moving ahead with plans to expose more mom-and-pop investors to the country’s heavily restricted exchanges.

IISL to rebrand its indices; CNX Nifty to be renamed Nifty 50
Economic Times
India Index Services & Products Limited (IISL), an NSE group company, has decided to rebrand its flagship ‘CNX Nifty’ index as ‘Nifty 50’ besides renaming all its other existing indices, from November 9.


Simple Collections of Gold Nanoparticles Can Develop Computational Abilities
Jamie Condliffe – Gizmodo
We’re used to thinking of silicon as being the go-to material in computer architecture. But now a team of scientists has shown that a random assembly of cold nanoparticles can evolve to perform computational tasks too.

Colombia: From Coca Cultivation to Gold Mining and Back
James Bargent – InSight Crime
It was one of the few successful drug crop substitutions in Colombia’s history — albeit one led by armed groups and an underground economy. But now, the migration from coca cultivation to illegal gold mining in the north of the country has been thrown into reverse, and regions where cocaine production was in decline are witnessing a coca revival.

12 Stunning Visualizations of Gold Shows Its Rarity
Jeff Desjardins – GoldSeek
For the companies exploring for gold, a deposit that has more than one gram of gold for every tonne of earth is an exciting prospect. In fact, in our 2013 report summarizing the world’s gold deposits, we found that the average grade of gold deposits in the world is around that amount: about 1.01 g/t.

‘Golden’ silver nanoparticle looks and behaves like gold
Lisa Zyga –
In an act of “nano-alchemy,” scientists have synthesized a silver (Ag) nanocluster that is virtually identical to a gold (Au) nanocluster. On the outside, the silver nanocluster has a golden yellow color, and on the inside, its chemical structure and properties also closely mimic those of its gold counterpart. The work shows that it may be possible to create silver nanoparticles that look and behave like gold despite underlying differences between the two elements, and could lead to creating similar analogues between other pairs of elements.


Axel Springer Close to Buying Business Insider for $560 Million
Peter Kafka – Re/code
German publishing giant Axel Springer is closing in on buying Business Insider, in a deal that would value the Web publisher at around $560 million.
Sources familiar with the two companies think a transaction could close within weeks.

‘The Big Short’ Trailer Hits!
Joshua M. Brown – The Reformed Broker
Holy cow, this cast! Christian Bale, Steve Carell, Ryan Gosling and Brad Pitt!
The book was great, the movie looks like it’ll be amazing. December 11th in theaters.

UPDATE 2-Chicago mayor pushes massive tax hike over crippling cuts
Karen Pierog and Karl Plume – Reuters
Chicago Mayor Rahm Emanuel on Tuesday laid out a stark choice for the cash-strapped city as he proposed a 2016 budget aimed at resolving a financial crisis linked to unfunded pensions — either slash vital public safety and other services, or enact the biggest-ever property tax increase.

Exclusive: Super Bowls and fine wines – Document describes world of Dow CEO
Joshua Schneyer and Brian Grow – Reuters
Running a Fortune 500 company is a high-pressure occupation. But as documents from Dow Chemical Co suggest, the CEO job can offer some luxuries as well.
Dow’s Andrew Liveris has had the company arrange Super Bowl getaways and other trips for himself, family and friends. According to an internal report, Liveris went on to instruct an aide, in January 2010, not to inform a group of Dow customers invited to that year’s Super Bowl that he too would be there.

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