First Impressions

McGladrey: Tired of your mark to market election? IRS has good news.
John Lothian
Our friends at McGladrey shared the following commentary with JLN for publication

New Revenue Procedure makes it easy to revoke 475(f) elections

There are various reasons that traders find refuge in a mark to market election under IRC section 475(f). Some are looking to avoid disallowed losses caused by wash sales and straddles (offsetting positions), both of which can arise when trading frequently. Others find themselves with a losing year, and make the election to obtain ordinary treatment on losses, freeing them up for carryback to earlier years. In any case, circumstances change, and what was once a blessing can now be a curse. For those who’ve switched to buy and hold strategies, or gotten deep into 60/40-eligible commodities contracts, the mark-to-market election can rob the significant benefits of long-term capital gains.

Quote of the Day

“Asset managers are still giving a ‘free liquidity option’ to investors. Investors will have to eventually pay for this either upfront, or in terms of higher volatility.”

Alberto Gallo, head of European macro-credit research at Royal Bank of Scotland Group Plc. in the story, ” Newsflash for Bond ETF Buyers: Junk Traders Don’t Work for Free”.

Lead Stories

The Annotated Jamie Dimon: Notes on His Annual Letter
MoneyBeat – WSJ
J.P. Morgan Chase & Co. released Jamie Dimon’s annual letter to shareholders Wednesday. And while it might not have the following of Warren Buffett’s annual letter, it certainly provides an inside view of the banking industry from the CEO of the U.S.’s biggest bank by assets.
In this year’s edition, Mr. Dimon blamed legal and regulatory costs for weighing on the firm’s share price but said he expects the firm’s legal costs to “normalize” in 2016. He said the bank still faces legal uncertainty, highlighting continuing foreign-exchange settlement negotiations, but added that he thinks it will “diminish” over time.

NYC Pension Earns $40 Million Over 10 Years, Pays Fund Managers $2 Billion
The party is over.
At great political risk to his own ambitions (given the local campaign-funding base), New York City Comptroller Scott Stringer took a look at how much the city’s been paying to Wall Street (or Greenwich) to manage its money over the last decade and what they’ve gotten in return.
It doesn’t look good.

Tiny Bank Robey Warshaw Reaps Huge Payday From Shell-BG Takeover
Robey Warshaw LLP, a two-year-old investment bank with less than ten employees, is about to share a massive payday with two of Wall Street’s largest firms.
As an adviser to BG Group Plc on its sale to Royal Dutch Shell Plc, the London-based firm will split as much as $90 million in fees with Goldman Sachs Group Inc., according to estimates from Freeman & Co. Because of its size, Robey Warshaw may receive a smaller chunk of that amount.

Deutsche Bank: Every Investment Allocation Team in the World Needs to Have This Chart on Their Wall
Deutsche Bank Chief International Economist Torsten Sløk minces no words with his latest chart of the day. “In my view, every asset allocation team in the world should have this chart hanging on their wall,” he writes.
The chart shows that a year ago, markets expected both the ECB and the Fed to hike rates at the same time (in early 2016). But now the implied gap has never been wider.

Swiss, Mexican Bond Deals Represent Milestones for Debt; Switzerland is first with 10-year bond at negative yield as Mexico lines up 100-year euro bond
By EMESE BARTHA in Frankfurt, CHIARA ALBANESE in London and ANTHONY HARRUP in Mexico City, WSJ
Until Wednesday, no country had ever sold 10-year debt that gives investors a yield of below 0%. And no

Investment Banks Are Within Reach of Adequate Returns
Dealbook – NY Times
Investor redemption may be nearing for investment banks. Most lenders’ wholesale units have destroyed value for seven years. Some may have done so again in the first quarter of this year.
JPMorgan kicks off results season next week and its chief executive, Jamie Dimon, said in his annual letter to shareholders on Wednesday that returns could be attractive in the long run, if not the short term.

A Rich Day for Banks Advising on Big Merger Deals
Dealbook – NY Times
On one day alone, Goldman Sachs has helped shepherd roughly $100 billion worth of merger deals.
The investment bank was one of only three financial advisers on Royal Dutch Shell’s nearly $70 billion acquisition of the BG Group, and is leading Mylan’s $29 billion unsolicited takeover bid for the Irish drug maker Perrigo.

Can Hong Kong Stocks Keep Defying Gravity?
Hong Kong stocks have been on the up and up…and then up some more.
It’s been a great few days for bulls as the Hang Seng Index has marched relentlessly higher, with a roughly 3% gain by late Thursday afternoon bringing the benchmark’s advance since the start of the month to more than 8%. Turnover has reached record levels as traders have stampeded into the red-hot market, with momentum driving the Hang Seng through 25,000 points, 26,000 points and then 27,000 points in quick succession.

Jamie Dimon warns next crisis could see ‘more volatile’ markets
Tom Braithwaite in New York, FT
Jamie Dimon, chief executive of JPMorgan Chase, said the next financial crisis should see “more volatile” markets and a “rapid decline in valuations” because regulators have hamstrung the banks.

Goldman Says a Fed Delay on Rate Hikes Will Hurt Bank Profits
Lower rates for longer are good news for the broad stock market. But the same may not be true for bank shares.

A giant pool of volatile Chinese investment is surging into Hong Kong’s stock market
After pushing Chinese technology stocks into ominous bubble territory, mainland Chinese investors have now turned to Hong Kong. H shares, as Hong Kong stocks are known, have soared this week, with the benchmark Hang Seng Index up 3.8% by midday Thursday, its highest level in seven years. Trading volume hit a record HK$252.4 billion ($32 billion) on Wednesday.

Sidewalk Touts Trade Tips On Shanghai’s Booming Bull Market
On weekend afternoons, large crowds descend on a pair of street corners across from People’s Square in downtown Shanghai to trade stock tips. Shen Yuxi has set up a homemade desk with two laptops, a big flat screen and offers insights like this:
“When a Communist Party chairman takes office, I buy stock in companies from his hometown,” Shen tells a crowd of about 20 people that spills out over the sidewalk.

Euro zone gives Greece six-day deadline to revise reforms: paper
Euro zone deputy finance ministers gave Athens a six working day deadline to come up with revised reform proposals to enable a deal to be reached at a Eurogroup meeting on April 24 to unlock bailout aid, Greek newspaper Kathimerini reported on Thursday.
The two sides met in Brussels on Wednesday to bridge differences over a reform package that Greece’s creditors have demanded before they release urgently needed bailout funds.

Varoufakis: These are the Three Critical Elements of a Good Deal for Greece
In an interview with Bloomberg TV earlier today, Greek Finance Minister Yanis Varoufakis said he is confident that an agreement will be reached later this month.
He identified three pre-conditions for such a deal.

Euronext trading glitch rolls into Thursday
Futures & Options World
European exchange has revived two of the three problematic trading gateways
Euronext said it was still experiencing a technical problem on Thursday as one of its trading servers was still down after the European exchange managed to revive two of the three client gateways that crashed late on Tuesday.

Bold-Faced Wall Street Names Back Loan Data Startup PeerIQ
MoneyBeat – WSJ
Who are your peers in peer-to-peer lending? John Mack, Vikram Pandit, and Arthur Levitt, to name a few.
PeerIQ, a startup firm that is aims to be the go-to data provider for the growing peer-to-peer lending industry, has raised $6 million in funding from investors—including veteran Wall Street executives, venture capital firm Uprising, and boutique advisor Broadhaven—according to its chief executive.

JPMorgan CEO defends bank size and breadth of product offerings
Jamie Dimon, chief executive officer of JPMorgan Chase & Co, the biggest U.S.-based bank, defended the size and business model of his company, which has been criticized as being too big and complicated.

Newsflash for Bond ETF Buyers: Junk Traders Don’t Work for Free
There usually isn’t free lunch in markets.
This may be a painful lesson learned by the hordes who’ve funneled into debt mutual funds and exchange-traded funds since the 2008 financial crisis to get cheap, quick access to less-traded, higher-yielding securities.
It’s easy to buy shares in the funds, which trade daily on exchanges. Investors can do it online, with a click of a mouse.

‘Stay tuned’ for more Swiss bank deals over tax evasion: U.S. official
More Swiss banks that helped wealthy Americans evade taxes will soon strike agreements with the Department of Justice to avoid prosecution, an official overseeing the U.S. government program told Reuters.

HSBC Facing Criminal Investigation in French Tax Case
Dealbook – NY Times
The British bank HSBC said on Thursday that it had been placed under formal criminal investigation by French magistrates examining whether its Swiss private bank assisted wealthy clients to avoid taxes.

Central Banks

Greece Wins More ECB Emergency Cash as Deal Seen Near Reach
Greece secured an increase in emergency funding available to its banks as Finance Minister Yanis Varoufakis said he’s confident of reaching an aid agreement with European partners this month.
The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance provided by the Bank of Greece by 1.2 billion euros ($1.3 billion) to 73.2 billion euros in a telephone conference on Thursday, said two people familiar with the discussion. That was more than the 700 million-euro increase granted last week. An ECB spokesman declined to comment.

New minutes show Federal Reserve sticking to a gradual approach on rates
The Washington Post
Members of the Federal Reserve’s Open Market Committee were divided at the mid-March meeting over whether to raise interest rates in June or to wait a bit longer, but they remained united in their expectation that they would raise rates gradually.

Lagarde Warns of ‘Bumpy Ride’ as Fed Prepares for Rate Rise
IMF Managing Director Christine Lagarde says the world could be in for a “bumpy ride” when the Federal Reserve starts raising interest rates, with overpriced markets and emerging economies likely to take the biggest hits.
While risks to the global economy have decreased over the last six months, threats to the world’s financial system have actually risen, Lagarde said on Thursday ahead of next week’s spring meetings of the International Monetary Fund and World Bank in Washington.

Fed to Temporarily Lift Cap on Reverse-Repo Program When Liftoff Arrives – Real Time Economics
Federal Reserve officials in March decided to expand the boundaries of a program they intend to use to control short-term interest rates once they start raising them, likely later this year.
The overnight reverse repurchase agreement program is one of several tools the U.S. central bank will use to raise rates that have been pinned near zero since December 2008. Rather than cap the total activity at $300 billion per day, as previously planned, officials decided they might allow a higher limit, at least in early stages of rate increases, according to minutes of the March 17-18 Fed meeting, released Wednesday.

China’s central bank makes cash injection – Xinhua
China’s central bank announced on Thursday to inject funds into the market through a reverse repurchase agreement (repo) to meet cash demand.

Bank of Korea Holds Benchmark Rate Amid Weak Inflation, Growth
South Korea’s central bank held its key interest rate at an all-time low to monitor the impact of three cuts since August as inflation slowed and exports fell.
The Bank of Korea kept the seven-day repurchase rate unchanged at 1.75 percent, as forecast by all 16 economists surveyed by Bloomberg. The BOK is expected to keep it at that level until at least the end of March 2016, according to a separate survey.

Grand Central: Big Question for Fed Is Not When, But How To Raise Rates
Minutes released by the Federal Reserve of its March policy meeting were a reminder that the central bank could face real operational challenges when it decides to start raising short-term interest rates.


Hong Kong Defends Currency Peg as Stocks Jump to 7-Year High
Hong Kong’s de facto central bank stepped in for the first time since August 2014 to prevent the city’s currency from rising against the U.S. dollar as a surge in stocks drove up demand.

Jefferies to Sell Bache Futures Unit, Buy Forex Ops
The investment bank unit of Leucadia National Corp. said on Thursday that it agreed to sell its Bache commodities and financial derivatives unit to Société Générale SA. It separately agreed to purchase Faros Trading LLC, a foreign-exchange brokerage that was majority-owned by FXCM Inc. Financial terms of the deals weren’t disclosed.

Carry-Trade Currencies Rally as Fed Weighs Rate-Rise Timing
Currency investors lamenting the dollar’s recent wobble are taking comfort in the revival of one of their most popular strategies: the carry trade.
Using the U.S. currency to purchase higher-yielding assets from Australia and New Zealand to Brazil and Mexico is again bearing fruit, after such trades hemorrhaged cash last quarter, data compiled by Bloomberg show. A gauge of the greenback has fallen from a decade-high reached March 13 amid debate on the timing of U.S. interest-rate increases.

CEE currencies to retreat in next six months as Fed hikes near: poll
Central European currencies are expected to mostly retreat in the next six months as the U.S. Federal Reserve moves closer to lifting interest rates, a Reuters poll showed on Thursday.
Some of the region’s central banks are also likely to act to stop or reverse a strengthening of their currencies in order to boost inflation from levels around zero, and help economic growth.

Indexes & Index Products

Deutsche Börse launches new ShortDAX and LevDAX indices
Deutsche Börse
Deutsche Börse today expanded its DAXplus strategy index offering with the launch of four new ShortDAX and LevDAX indices. The ShortDAX x9 and x10 indices and LevDAX x9 and x10 indices meet the needs of sophisticated market participants, based on different evaluations of market conditions, who are seeking access to leveraged investments in the DAX when prices rise or fall.

Nasdaq to calculate, market Keefe Bruyette & Woods indexes
BY RICK BAERT, Pensions & Investments
Keefe Bruyette & Woods’ index family will be calculated and marketed by Nasdaq OMX Group through a partnership announced Wednesday.

iShares MSCI Switzerland Index Fund Sees Large Decrease in Short Interest (EWL)
iShares MSCI Switzerland Index Fund (NYSE:EWL) was the target of a large decline in short interest in March. As of March 13th, there was short interest totalling 356,203 shares, a decline of 55.1% from the February 27th total of 793,670 shares, Analyst Ratings Net reports. Based on an average trading volume of 595,445 shares, the days-to-cover ratio is presently 0.6 days.

Active vs passive investing: which wins?
Money Management
Most Australian funds in all categories except small-cap equity funds failed to outdo their respective index benchmarks in 2014, bringing the active versus passive investing debate back into the fore.

KBW, Nasdaq Partner on Financial Services Indexes
ETF Trends
Nasdaq OMX (NasdaqGS: NDAQ) bolstered its indexing footprint today by unveiling a partnership with Keefe Bruyette & Woods (KBW). KBW, a unit of Stifel Financial (NYSE: SF), specializes in financial services indexes, some of which are used as benchmarks for exchange traded funds.

A Tale Of 2 Benchmarks: Factors
Seeking Alpha
This is the third in a series of blog posts relating to the in-depth analysis of performance differential between the S&P SmallCap 600 and the Russell 2000.
As we noted in the previous post, the reconstitution effect seen in the Russell 2000 doesn’t fully explain the differences in returns between the S&P SmallCap 600 and Russell 2000. Our analysis turns to factor testing, first using the Fama-French three-factor model, which includes the Market, Size and Value factors (see table below).


Where Are Gold And Silver Heading Next?
Gold and silver rebounded off their lows in the past few weeks thanks to the U.S. dollar’s pullback, dovish sentiment regarding Fed policy, oil’s bounce, and geopolitical turmoil. In the past week, however, precious metals have softened as the dollar bounced. Where are they headed next? Let’s take a look at some charts.

Indian farmers trim gold purchases, threatening rebound in global prices
Gold demand in the world’s biggest consumer India risks falling for a second straight year in 2015, as millions of Indian farmers hit by erratic weather and falling commodity prices trim gold purchases.
Nearly two-thirds of India’s gold demand comes from rural areas where jewellery is a traditional store of wealth for millions who have no access to the formal banking system.

Gold prices bottomed out in local currencies, may fall further in dollar terms: survey
Business Standard News
Gold prices could fall further in the US, but, for other countries, in terms of their local currencies, gold has bottomed out, shows the GFMS Gold Survey 2015.
The survey, released on Thursday, says, “There are signs that confidence is starting to return, however, as the physical market adjusts and takes comfort from the price stabilisation since November 2014.” Most investors have discounted gradual increase in US interest rates. However, the survey sees demand improving and so prices, which could average to $1,170 in 2015 and $1,250 in the following year, the survey says.

Gold traders see rise in price after three months of decline
The gold price sentiment index for this month improved slightly by 4.4 points to 49.9 from the previous month, following three straight months of decline, according to the Gold Research Centre.

Mexican gold mines beset by robberies, kidnappings
For the third time this year, gold miners in Mexico have come under attack, highlighting the perils of mining in the country.
McEwen Mining Inc. became the latest victim, when armed robbers looted about $8.4-million (U.S.) worth of gold this week from the Canadian miner’s refinery in the Mexican state of Sinaloa.


Would You Rock Warren Buffett Sneakers?
Among Berkshire Hathaway’s many brands is the running shoe company Brooks. CNNMoney got a peak of their new commemorative Warren Buffett themed kicks, to be rolled out next month for the annual shareholder meeting in Omaha:

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