First Impressions

Mary McDonnell, Simon Compliance – How to Manage (and even Succeed) in the Current Regulatory Marketplace
MarketsWikiEducation.com

“It’s a lot harder to do something than to tell somebody else how to do something.”

Mary McDonnell got her start in the financial markets as a regulatory auditor for the Chicago Board of Trade, and though she has spent most of her career on the compliance and regulatory side, she did spend some time as a floor trader. She says this experience taught her to empathize with the traders she would be overseeing over the ensuing years. With that backdrop, she looks at the current regulatory environment and what it means in terms of opportunities, but also in terms of limits.

“If you understand what you cannot do, it leads you to what you can do – legally!”

Watch the video »

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FIA Expo: Acid washed options
Spencer Doar – JLN
The clear message from FIA Expo was that the options industry needs market makers and regulators are making it hard on market makers.

At the risk of sounding like “South Park’s” Mr. Mackey, that’s bad, m’kay?

Adding to the current quandary of market makers in the options space is the sheer number of markets that need making.

While kicking off the “Equity Options Exchange Leaders” panel, moderator Patrick Hickey, head of market structure at Optiver, discussed the bloated number of strikes that participants have to deal with when trading and choosing strategies. Hickey also displayed an illustrative graph of the ever waning attention span of Expo-ers as the conference progressed.

Read the rest of the commentary at JohnLothianNews.com

Quote of the Day

“That is a real threat to our business, because we are disproportionately full-service, high-value-added, person-to-person activity, which isn’t for everybody. There’s generations of tomorrow’s investors coming up today who may be more attracted to something less person-to-person and more technologically enabled.”

John Shrewsberry, Wells Fargo’s chief financial officer, in the story, “A Money-Managing Robot Is About to Join BofA’s Thundering Herd”

Lead Stories

The Devil’s in the Debt
Adair Turner – Bloomberg
The 2008 financial crash was a self-inflicted, avoidable economic catastrophe. It wasn’t the result of war or political turmoil, or the consequence of competition from emerging economies. It didn’t derive from underlying tensions over income distribution or from profligate government spending.
No, the origins of this crisis lay in the dealing rooms of London and New York banks and shadow banks — part of a global financial system whose enormous personal rewards had been justified by the supposed economic benefits of financial innovation and increased financial activity.
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The Securities and Exchange Commission: Pots and kettles
The Economist
Two of the five seats on the Securities and Exchange Commission (SEC), the main Wall Street regulator, are about to be filled. The process is a partisan one, with Barack Obama, a Democrat, picking one new commissioner and the Republican leadership of the Senate the other. That, naturally, is a recipe for discord at an already bruised agency. Its clout has diminished thanks to its poor oversight of investment banks before the financial crisis, to say nothing of its failure to spot the Ponzi scheme of one Bernard Madoff. Now new research suggests that the SEC is doing less well at its main job—policing firms that list shares or issue bonds, among other investments—than its own data suggest.
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A Money-Managing Robot Is About to Join BofA’s Thundering Herd
Hugh Son – Bloomberg
Bank of America Corp.’s “thundering herd” of Merrill Lynch financial advisers is about to be joined by a robot.
The firm has put dozens of employees to work on an automated investment prototype for Merrill Edge, which targets accounts under $250,000, according to two people with knowledge of the project. Bank of America intends to unveil the service next year, said the people, who asked not to be identified speaking about company plans.
bloom.bg/1RBk3Ox

Consumer credit rises more than expected in September
Myles Udland – Business Insider
The US consumer is rolling.
Consumer credit balances rose by $28.91 billion in September, or 10% at an annualized rate, more than expected.
Expectations were for the report to show consumer credit expanded by $18 billion in September after a $16.1 billion increase in August.
read.bi/1PfzzSk

Goldman Sachs to promote junior bankers faster in bid to keep talent
Olivia Oran – Reuters
Goldman Sachs Group Inc unveiled a series of changes designed to retain junior bankers, including promoting them more quickly and encouraging mobility within the firm.
The changes come as Goldman and other banks have taken steps over the last several years to prevent defections by junior employees, known as analysts and associates, given increased hiring competition from technology companies, hedge funds and private equity firms who may offer higher pay and better hours.
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This is the real unemployment rate
Ed Lazear – The Washington Post
The government announced Friday that October’s unemployment rate stood at 5 percent, lower than it has been for two-thirds of the time since 2000. Many economists view rates around this level as full employment.
Despite this, wages haven’t been growing. The general sense is that the labor market is far from tight, and economic growth is weak. For these reasons, the Federal Reserve has resisted raising interest rates (though it may begin doing so in December).
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US economy smashes expectations to add 271,000 jobs in October
Jana Kasperkevic – The Guardian
The US economy added 271,000 jobs in October, about 90,000 more than expected. The unemployment rate dropped to 5%.
The Federal Reserve is scheduled to meet in December to discuss raising interest rates for the first time since the 2008 recession. According to analysts, job gains of more than 150,000 on Friday would have been enough to keep a December rate hike on the table.
bit.ly/1PfriOi

Chances of ‘unexpected recession’ rising: Jim Paulsen
Jeff Cox – CNBC
With few of the traditional indicators pointing to a recession, this could be just the time investors should start preparing for … a recession.
Under ordinary circumstances, factors such as liquidity, the yield curve, gross domestic product growth, and fiscal and monetary stimulus would be key indicators to suggest the direction in which the economy is heading.
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Chart of the day: Corporate bond issuance on Shanghai and Shenzhen markets set for a record
South China Morning Post
Corporate bond issuance on the Shanghai and Shenzhen markets is set for a record this year, handily beating the previous annual high point, according to data compiled by Dealogic. Listed firms in the cities have so far raised 312.8 billion yuan this year, the highest figure for any annual period, or nearly four times the amount raised through corporate debt issuance in the period last year. Also noteworthy is the pace of bond issuance by property-related companies. This sector has raised a record 150.4 billion yuan year to date, easily eclipsing the record 33.3 billion yuan set in 2009.
bit.ly/1PfqyZs

The Real Economic Recovery Is Finally Here
Rana Foroohar – TIME
Is a real recovery finally here? That’s what the latest U.S. employment data appears to be telling us. Not only did payrolls come in dramatically higher than expected, workers finally got a bit more money in their pockets – wage growth, which had been hovering a little above 2 %, kicked up to 2.5%—a 6 year high. That’s modest by historical standards, particularly at this stage of a recovery. But it’s a shift in the right direction for the continued strength of an economy made up of 70% consumer spending.
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Pimco Fallout Continues to Pressure Allianz; Bond-fund manager has weighed on the German company’s results for four consecutive quarters
Ulrike Dauer – WSJ
German insurer Allianz SE said Friday it was sticking with its full-year profit outlook despite continuing pressure on earnings from its Pacific Investment Management Co. business, known as Pimco.
on.wsj.com/1NgU8YO

Recapitalising Greek banks: The damage
The Economist
Banks have been at the centre of Greece’s economic and financial misfortunes this year, as the radical-left Syriza party won an election and then became embroiled in a bitter struggle with the country’s international creditors. Deposits drained out of them on fears that the country would leave the euro and revert to the drachma, inflicting huge losses on depositors. Banks’ woes multiplied when the European Central Bank (ECB) refused to provide them with further liquidity, forcing the government to close them for three weeks during the summer and to impose capital controls. In the end, Greece managed to secure a third bail-out and stay in the euro. But the injuries the banks had sustained along the way seemed ruinous.
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Austerity’s Grim Legacy
Paul Krugman – NY Times
When economic crisis struck in 2008, policy makers by and large did the right thing. The Federal Reserve and other central banks realized that supporting the financial system took priority over conventional notions of monetary prudence. The Obama administration and its counterparts realized that in a slumping economy budget deficits were helpful, not harmful. And the money-printing and borrowing worked: A repeat of the Great Depression, which seemed all too possible at the time, was avoided.
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Nonfarm Payrolls Is More Than Just a Number for Credit
Simon Ballard – Bloomberg
Friday’s U.S. non-farm payrolls report has the potential to move the tectonic plates of global interest rates, marking a turning point for the corporate credit cycle if it favors a December U.S. Federal Reserve liftoff, writes Bloomberg strategist Simon Ballard.
The post-global financial crisis era since 2008 has been characterized by unprecedented levels of central bank monetary policy accommodation and this has provided a funding boon for corporate treasurers and, at times, a source of great frustration to yield-hungry fixed income investors.
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Central Banks

Deflation Risks May Warrant Radical New Central-Bank Thinking, the IMF’s Chief Economist Says
Ian Talley – WSJ
The Bank of Japan and other central banks around the world may need to try radical new easy-money policies to stave off the rising specter of deflation and revive sickly economic prospects, the International Monetary Fund’s new chief economist warns.
on.wsj.com/1S2cyQD

Bank of England Governor gets his forward guidance on interest rates wrong
Ben Chu – The Independent
In July Mark Carney gave a speech beneath the vaulted ceiling of Lincoln Cathedral in which the Bank of England Governor said that, in his view, the decision about whether the Bank should start lifting interest rates from their historic lows of 0.5 per cent would probably “come into sharper relief around the turn of this year”.
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The perils of keeping interest rates so low
Andrew Sentance – The Telegraph
This week’s Inflation Report press conference saw the Bank of England shifting its position on interest rate rises again. Over the summer, Mark Carney stated that the decision to raise rates would be actively considered by the Monetary Policy Committee (MPC) “around the turn of the year”. It now appears that the “turn of the year” which the Governor is considering is the end of 2016, not 2015. Once again, the decision to raise interest rates is receding into the distance.
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Skeptical ECB Governors Widen Rift on Need for December Move
Jeff Black and Boris Cerni – Bloomberg
Two European Central Bank Governing Council members said they see no need as yet to ease monetary policy further in December, despite continued signals from the ECB’s leadership that such a decision remains an option.
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Ben Bernanke Brookings post on Fed communications: There are three reasons you should listen to everything every Fed member says
Business Insider
Wednesday was something of a trifecta for Fed watchers: Chair Yellen, Board Vice-Chair Stanley Fischer, and Federal Reserve Bank of New York president Bill Dudley (who is also the vice chair of the Federal Open Market Committee) all made public appearances.
Moreover, the comments by all three members of the Fed’s leadership explicitly or implicitly supported the idea that a December rate increase by the FOMC is a distinct possibility. (The possibility of a rate increase is even more distinct with this morning’s strong job market report.)
The relative unanimity of views expressed on Wednesday was unusual. As many as nineteen Fed officials—the seven Board members (when all seats are filled) and twelve Reserve Bank presidents—comment regularly on the economy and monetary policy, and their messages can vary widely.
read.bi/1Pfz9LV

Gross Says 100% Certain of December Rate Hike as Jobs Surge
Charles Stein – Bloomberg
Bill Gross said there is a “100 percent chance” the Federal Reserve will raise interest rates in December after jobs surged.
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Currencies

Beijing skittish, but market hot for Renminbi’s bid to join IMF’s SDR basket
Jing Yang – South China Morning Post
While some of the world’s biggest banks and fund managers believe the renminbi is almost a shoe in to get into the International Monetary Fund’s elite currency basket this year, Beijing doesn’t seem to feel that inclusion is in the bag.
In the detailed 13th five-year plan released this week after the ruling Communist Party plenum, a brief line caught the attention of Raymond Yeung, senior economist at ANZ.
bit.ly/1PfqBVp

Brexit vote would trigger a run on the pound, warns Bank of America
Mehreen Khan – The Telegraph
A British exit from the European Union would trigger a run on the pound and send investors rushing for the exit, according to a stark warning from a leading investment bank.
bit.ly/1Pfsy49

The yuan and the SDR: Feeling special
The Economist
The summer of 1969 is remembered for many things: the moon landing, Woodstock and the start of American troop withdrawals from Vietnam. The International Monetary Fund’s creation of the Special Drawing Right (SDR) does not rank high on this list. An artificial accounting unit, the SDR resides on the margins of the global financial system. But over the next few weeks, China will haul it into the spotlight.
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Dollar hits seven-month high on jobs data; oil slumps
Herbert Lash – Reuters
The dollar jumped to a seven-month high, pushing oil prices lower, and short-term U.S. bond yields rose to their highest level in five years on Friday after strong U.S. jobs data bolstered expectations that the Federal Reserve will raise interest rates in December.
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Support for Euro Rises in EU-19
Sofia News Agency
Support for the euro has increased among citizens of the euro area in 2015, reaching an all-time high, according to the latest Eurobarometer survey of the European Commission.
An overall 61% of respondents have confirmed that they see the European single currency as good for their own country, compared to 57% last year, the Commission said on its website.
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Did Chinese Traders Flocking to MMM Ponzi Cause Bitcoin Bubble?
Leon Pick – Finance Magnates
Bitcoin (BTC/USD) on Wednesday had its strangest trading day in 2015, perhaps in years, when it swung by 20% in either direction in a matter of hours.
Wednesday was unique from the half dozen or so flash crashes we’ve seen over the past two years. This was a rare occasion when the drama happened on the upside, and where so much of it transpired over a 24 hour period.
bit.ly/1LVyFGQ

Getting to grips with blockchain
Peter Lee – Euromoney Magazine
Banks have suddenly cottoned on to the power of the blockchain technology beneath Bitcoin. Inside their own treasuries and innovation labs, and increasingly in collaboration, banks are testing uses for rebranded distributed ledgers to replace their costly, proprietary systems. Enthusiasts see banks creating a new fabric for payments transfer and financial markets, an internet of money. Doubters sense it’s all hype. Big challenges remain, but markets from private equity and syndicated loans to corporate bonds and derivatives may go on private blockchains within months.
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New joint project will boost S’pore’s yuan-hub status
Chong Koh Ping – Straits Times
Singapore’s fast-growing yuan links with China will only deepen and further boost the country’s role as a leading offshore centre for dealing in the currency, said Industrial and Commercial Bank of China (ICBC).
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Indexes & Index Products

U.S. crude overtakes Brent in S&P commodity index rebalance
Reuters
A widely watched commodity index is returning the U.S. crude benchmark to the top of its weightings table, just a year after allowing Europe’s Brent oil benchmark to dominate, the firm managing the index said on Thursday. The elevation of the U.S. West Texas Intermediate (WTI) crude benchmark within the 24-commodity S&P GSCI index comes amid higher liquidity for the contract, index manager S&P Dow Jones Indices said.
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Which Stocks Will Gain From MSCI’s Semi-Annual Review?
Shuli Ren – Barron’s
MSCI’s semi-annual review is a big deal. Over $9.5 trillion in assets follow the MSCI indexes and over $1.8 trillion are passive funds. So the stocks that are added or deleted can see big price swings. MSCI will announce the result of its semi-annual review in a week, on Thursday November 12. The changes will be made effective at close on Friday, November 30. So how do we front-run this?
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S&P DJI releases Canadian climate change indices
ETF Strategy
As the Paris 2015 Climate Conference approaches, the interest in investment strategies based around carbon-aware exchange-traded funds and indices has been on the rise. The latest Canadian index series from S&P Dow Jones Indices (S&P DJI), a leading financial market index provider, further evidences this shift in investor demand.
bit.ly/1HfXBd8

Invesco PowerShares Adds Two Low Beta Equal Weight Strategies to Smart Beta Lineup
CNN Money
Invesco PowerShares Capital Management, LLC, a leading global provider of exchange-traded funds (ETFs), announced the launch of two new ETFs; the PowerShares Russell 1000 Low Beta Equal Weight Portfolio (USLB) and PowerShares FTSE International Low Beta Equal Weight Portfolio (IDLB).
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It’s Official: The Baltic Dry Index Has Crashed To Its Lowest November Level In History
Zero Hedge
2015 has been an ‘odd’ year. Typically this time of year sees demand picking up amid holiday inventory stacking and measures of global trade such as The Baltic Dry Index rise from mid-summer to Thanksgiving. This year, it has not.
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Gold

Gold Plunges Most in a Year This Week on `Darn Strong’ Jobs Data
Joe Deaux – Bloomberg
A “pretty darn strong” U.S. employment report is pretty darn bad for gold.
Bullion headed for the biggest weekly drop in a year after payrolls surged and wage growth accelerated in October, boosting the case for the Federal Reserve to raise interest rates. Higher rates cut the appeal of the metal because it doesn’t pay interest or give returns like assets such as bonds or equities.
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Overstock has $10 million of gold and silver stored at an off-site facility to pay employees in case there’s a financial crisis
Myles Udland – Business Insider
Overstock is ready for a real crisis. A report in the Financial Times on Thursday highlighted the online retailer’s roughly $10 million of gold and silver — that is, physical gold and silver — it owns in case there’s another crisis and the company needs to make payroll.
read.bi/1MMLs1Z

Miscellaneous

The Economist’s anti-ad blocker was hacked, exposing users to malware
Ashley Rodriguez – Quartz
The Economist’s anti-ad blocking analytics service was hacked on Halloween and it may have exposed readers to malware.
The service — called PageFair, which allows publishers to measure the extent of ad blocking on their sites — was hacked on Oct. 31, the Economist announced in an online notice yesterday (Nov. 5). Users who visited the economist.com from the night of Oct. 31 to the early hours of Nov. 1, may have downloaded malware disguised as an Adobe update onto their computers.
bit.ly/1Pfp2qj

Kipper Williams on interest rates (Cartoon)
The Guardian
Bank of England decides to keep interest rates at 0.5% until well into 2016
bit.ly/1PfrcGB

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