First Impressions

On Voluntary Subscriptions
By John Needham, Needham Consulting
I am a believer that folks should use whatever free resources available to them, both professionally and personally. Facebook, Twitter, LinkedIn, and Instagram are examples of services that are free for ordinary users/consumers, and I use all of them, for personal or professional purposes. (Sometimes I use one or more of them for both.) My usage for each of these services is based on their cost to me – nothing! If one or more of these services started to charge for the servies, then I’d make a value judgement on what the overall worth was, to me, and either pay or jettison the service, as my values dictated.

***JL: A re-run from a year ago, but a goody. Reader John Needham expounds on the value of the John Lothian Newsletter and John Lothian News team and why you should pay for this newsletter.

Quote of the Day

“It’s a unique situation. We try to avoid buying or holding negative-yielding assets. This is something new and something we have to get used to.”

Oliver Eichmann, the Frankfurt-based co-head of fixed income at Deutsche Asset in the story, ” Owners of Negative-Yield Sovereign Debt Say They’re No Fools”.

Lead Stories

Speed Trading Heavyweight Allston Pulls Out of Stock Market
Sam Mamudi and Matthew Leising – Bloomberg
High-frequency trading firm Allston Trading LLC has stopped operating in the U.S. stock market.
Allston, founded more than a decade ago by futures traders Bob Jordan, Elrick Williams and John Harada, exited the business after deciding to focus on more profitable trading in derivatives markets, according to Dave Lundy, a spokesman for the Chicago-based company.

Italy’s Bonds Rise as BlackRock, Goldman Say Don’t Fear Greece
Lucy Meakin and David Goodman – Bloomberg
Italy’s 30-year bonds rose, pushing yields down to a record, as the European Central Bank’s newly announced bond-buying plan shielded the securities from contagion after anti-austerity party Syriza won elections in Greece.

Be afraid, the Chinese are spending less
Reuters Video
After years of big spending the Chinese are thinking twice about opening their wallets, which could send ripples throughout the world economy.

China Bull Market Masks Momentum Breakdown as Volumes Wane
Just below the surface of China’s world-beating equity rally, signs of trouble are emerging.
While the Shanghai Composite Index touched a five-year high on Friday after a 63 percent gain during the past year, other gauges of investor enthusiasm are tumbling. Turnover sank 47 percent from its peak in December through last week, while new equity account openings fell 50 percent and purchases using borrowed money dropped 38 percent. The number of stocks reaching new 52-week highs has declined 75 percent in the past six weeks.

Human investment managers risk obsolescence
Miles Johnson, Hedge Fund Correspondent, FT
Human investment managers are at risk of being rendered obsolete by rapid advances in algorithmic trading technology, according to the brains behind one of the world’s leading computer-driven hedge funds.

Owners of Negative-Yield Sovereign Debt Say They’re No Fools
Lukanyo Mnyanda and David Goodman – Bloomberg
Mike Amey never thought he’d buy bonds from countries like Germany and Switzerland when losses were all but guaranteed.

How CME is looking to buy its way into foreign markets
By Lynne Marek
Chicago-based CME Group, which operates the biggest futures exchange in the world, already dominates a mature U.S. market. On Jan. 30, it hopes to win Electronic trading has made it easier for CME to stretch outside the U.S., but it still faces established European competitors, including Atlanta-based ICE,

Investors Warned on Complacency Over Greece
By Josie Cox, WSJ
No one’s admitting surprise at the outcome of the Greek election and the market reaction has so far been muted too. But is it too early to switch out of risk-off mode, turn the page and move on?

Central Banks

Federal Reserve Sketches Road To Faster US Payments
Tom Groenfeldt – Forbes
The Federal Reserve has released a long-awaited report and recommendations for the US payments system: Strategies for Improving the U.S. Payment System. Looking at ways to move payments to near real-time, a change from the ACH system which can take several days, the reports offers suggestions for speeding up the network, improving security, and working with financial institutions.

Fed Seen Raising Rates Midyear Even With Low Inflation: Economy
Craig Torres and Catarina Saraiva – Bloomberg
Federal Reserve officials will look past low inflation and stay focused on raising interest rates around mid-year as they meet this week, according to a narrow majority of economists surveyed by Bloomberg News.
Some 45 percent of 53 economists in the survey said the central bank will raise the benchmark lending rate in June. Six percent said July, while 30 percent said the Fed will wait until September for the first increase since 2006. Fed officials last month said they expect to raise the rate this year.

Markets Get Bumpier as Fed Withdraws Safety Net
By E.S. Browning, WSJ
Markets are slowly weaning themselves from their over-reliance on the Federal Reserve. To many money managers, this is excellent news because it means the economy and financial markets are becoming more normal after the 2008 financial crisis, when markets seized up and the Dow Jones Industrial Average fell 54%.

Draghi Plays Chess in Economy Class After Journey to QE
Jana Randow, Alessandro Speciale and Simon Kennedy – Bloomberg
One of the final passengers to board an Alitalia flight from Frankfurt to Rome last Thursday evening had a heavy day behind him.
Taking a window seat, he removed his jacket, unflipped an Ipad and began a game of chess — something he’d been doing in one form or another for most of the past year. Mario Draghi, hours after pushing through the biggest decision in Europe’s monetary history with a trillion-euro pledge to fight economic decline, was flying home in economy class.

Kuroda Remarks Open Possibilities for Shift in BOJ Stimulus
Toru Fujioka – Bloomberg
Governor Haruhiko Kuroda says the Bank of Japan may need to get creative in any further monetary stimulus. Among options analysts highlight: regional-government bonds, a type of security that could aid public support.
Kuroda, speaking in an interview with Bloomberg Television Friday in Davos, Switzerland, said “there are many options and I don’t think it’s constructive to say this or that could be done.” He reiterated that if inflation expectations are “seriously” affected by disinflation, policy can be changed.

Chile’s central bank issues new bank liquidity rules
Chile’s central bank on Monday introduced bank liquidity-management rules that would incorporate lessons learned from the 2008 international financial crisis and follow guidelines laid out by the Basel Committee on Banking Supervision.
Though Chilean banks emerged from the global financial crisis relatively unscathed, the central bank wants to remain ahead of the curve and safeguard the stability of the local market.


Quants Win Back Investors as Swiss Franc Fuels Volatility Gains
By Lindsay Fortado and Saijel Kishan, Bloomberg
Hedge funds using computer algorithms to trade on market trends started 2015 with some of the industry’s highest returns as volatility in currencies, commodities and bonds surged. They’re also starting to win back investors.

China Switches to Supporting Yuan as Outflows Mount: Currencies
Justina Lee – Bloomberg
Managing the yuan is turning into a different game for China’s policy makers these days.
After more than a decade of curbing the currency’s gains to help turn the nation into a manufacturing colossus, there are signs the People’s Bank of China is now propping up the yuan to stem an exodus of capital that’s threatening the economy.

Bitcoin and the Digital-Currency Revolution; For all bitcoin’s growing pains, it represents the future of money and global finance.
By Michael J. Casey and Paul Vigna
About a half-billion dollars worth of it vanished from an online exchange in Tokyo. A prosecutor in Manhattan arrested the 24-year-old vice chairman of its most prominent trading body on drug-related charges of money laundering. Its founder’s identity remains a mystery, and last year, it shed two-thirds of its value, losing an additional 44% in just the first two weeks of January. In his year-end letter to investors, Warren Buffett’s advice about it was emphatic: “Stay away.”

Winklevoss Twins Say Unregulated Market Hurting Bitcoin
Sabrina Willmer – Bloomberg
Tyler and Cameron Winklevoss, who claimed Mark Zuckerberg stole their idea for a social-networking website to start Facebook Inc., said the lack of a regulated market for bitcoin in North America is causing volatility in the virtual currency.

Indexes & Index Products

S&P Dow Jones Planning ‘Aggressive’ Expansion of Bond Indexes
Matt Robinson – Bloomberg
S&P Dow Jones Indices LLC is planning an “aggressive” expansion of its fixed-income index business, saying it’s tapping into demand for benchmarks not controlled by bond dealers.
A new group of indexes will cover more than 20,000 individual securities with the goal of issuing thousands of maturity- and sector-based benchmarks, according to a company statement. The measures will track passive investment strategies and actively managed benchmarks. S&P Dow Jones Indices, which licenses the Standard & Poor’s 500 Index, announced multiple new benchmarks Monday, including the S&P U.S. Aggregate Bond Index, which tracks the performance of investment-grade U.S. debt.

A few tips about Treasury inflation protected securities
By John Prestbo, MarketWatch
Some investment analysts are recommending U.S. Treasury Inflation-Protected Securities (TIPS). If you agree, the best way to go about it is with index-based ETFs.

PwC: Exchange traded fund assets will double to $5tn by 2020
Chris Newlands, FT
Exchange traded fund assets will double to $5tn by 2020, according to a detailed study by PwC, far outstripping the asset growth of traditional fund managers, which have come under increasing pressure to prove their worth.


CME Starts Gold Futures in Hong Kong in Price-Benchmark Race
By Glenys Sim, Bloomberg
CME Group Inc. (CME) started physically delivered kilobar gold futures in Hong Kong as it joins other exchanges vying to establish new price benchmarks in the top user region.

Precious Metals Coveted Once More as Draghi Acts: Commodities
By Luzi Ann Javier, Bloomberg
Investors’ desire for precious metals is deepening after Mario Draghi’s $1.3 trillion pledge drove gold to a five-month high and silver to the brink of a bull market.

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