First Impressions

Sponsor Update: RCG Steps Up, Cinnober Renews, as does Prime Analytics
By John J. Lothian

John Lothian News is pleased to announce that Rosenthal Collins Group has moved from a Friend Level sponsor to a Partner Level sponsor of MarketsWiki. Also, Cinnober has renewed their Partner Level sponsorship of MarketsWiki and become a Partner Level sponsor of MarketsReformWiki.

Our friends at Prime Analytics have also continued their support of MarketsWiki with a Friend Level sponsorship renewal.

We are pleased to have RCG join the ranks of our Partner Level sponsors. My personal roots with RCG go way back. One of their predecessor firms, Rosenthal, was the first firm I traded futures through. Also, RCG part-owner Leslie Rosenthal was a part owner of First American Discount and was instrumental in my getting hired there back in the 1980s.

Cinnober issued a flattering press release and said:

“John and his team have built a true go-to source of information for the financial industry,” says Fredrik Backlund, Head of Corporate Communications at Cinnober. “As a trustworthy information carrier, Lothian News connects markets and people all over the world. The evolution of the concept, now steadily incorporating more video content, also shows that our friends in Chicago are keenly aware of what the market wants to see.”

Cinnober’s long-term sponsorship at the Partner Level covers both MarketsWiki and the John Lothian Newsletter, as well as the newly started MarketsReformWiki.

Thank you to all our sponsors for their continued support! Contact me at for details about becoming a sponsor of John Lothian News and its products.

Quote of the Day

“The last asset I would want to buy is a 30-year government bond, but that’s a by-product of other policies which make sense. I don’t want a 10-day bond. There’s a good chance, who knows what the probability is, but that a 30-year bond, you know, with a 2 1/2 percent coupon, that bond could sell at 60 very easily sometime in the not too distant future. Who knows?”

Warren Buffett in the story, ” Buffett Says Tough for Fed to Lift Rates Given Strong Dollar”.

Lead Stories

The ECB Just Tightened The Screws On Greece
Lorcan Roche Kelly – Bloomberg
The European Central Bank has suspended the eligibility of Greek sovereign debt as collateral for its liquidity operations, starting from February 11th.
In a press release, the European Central Bank, who are having a governing council meeting today, explained their decision saying that it is currently impossible to assume a successful conclusion of the current Greek program. In other words, the ECB doesn’t see Greece complying with existing bailout rules.

The $755 Condom Is the Latest Indignity in Venezuela
Anatoly Kurmanaev and Andrew Rosati – Bloomberg
Venezuelans who already must line up for hours to buy chicken, sugar, medicines and other basic products in short supply now face a new indignity: Condoms are hard to find and nearly impossible to afford.
“The country is so messed up that now we have to wait in line even to have sex,” lamented Jonatan Montilla, a 31-year-old advertising company art director. “This is a new low.”

Warren Buffett’s Broker to Retire From Citigroup
By Christina Rexrode and Anupreeta Das, WSJ
When Warren Buffett got a cell phone, the first call he made was to his stockbroker at Citigroup Inc. That broker, John Freund, still remembers the conversation. According to him, it was around the mid ’90s the famously low-tech Mr. Buffett called to say he wanted to try out his new phone. “I thought he was calling to say, ‘where is the market going to open?’ or to rearrange an order,” Mr. Freund said. “And then you hear, ‘I’ll take an Egg McMuffin and a Coke to go.’ He was in a McDonald’s in the drive-thru lane.”

Greece May Run Out of Cash as Early as March
Ben Sills, Vassilis Karamanis and Nikolaos Chrysoloras – Bloomberg
As Greece’s creditors line up to oppose the country’s demand for a debt restructuring, Prime Minister Alexis Tsipras’s refusal to accept more bailout loans may result in a cash crunch as early as next month, two people familiar with the country’s financial position said.
Unless the 15 billion-euro ($17 billion) limit on short-term borrowing set by Greece’s troika of official creditors is raised, the government may run out of cash on Feb. 25, said one of the people, who asked not to be named because the figures are confidential. Three weeks ago, international officials reckoned Greece could hang on until mid-year.

UK traders should have to pass exam to trade, bank group says
Thousands of bond, currency and commodities traders in London should have to pass an exam and obtain a new qualification to trade as part of attempts to raise standards, Britain’s bank lobby group said.

Focus turns to Moody’s after S&P agrees $1.4bn settlement on subprime ratings
Irish Times
US authorities are stepping up their probe into whether Moody’s inflated ratings on mortgage derivatives to win business in the lead-up to the financial crisis following a record settlement with its rival Standard & Poor’s.

Central Banks

Buffett Says Tough for Fed to Lift Rates Given Strong Dollar
Noah Buhayar and Daniel Kruger – Bloomberg
Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said it would be “very tough” for the Federal Reserve to lift interest rates this year because of the stronger U.S. dollar.
“That would exacerbate the problem,” Buffett said in an interview on the Fox Business network. “I don’t think it’ll be very feasible to do.”

It’s almost as if central banks are intentionally inflating their housing bubbles
Matthew Phillips – Quartz
If you’re scanning the world for potential housing bubbles, look down under.
Australia’s residential real estate market has been on fire for years. And the Reserve Bank of Australia’s decision to cut interest rates to record lows will only stoke the flames, with already-low mortgage rates expected to fall even further.

China’s Central Bank Goes With the Flow
Aaron Back – WSJ
It’s official: the People’s Bank of China is in easing mode.
While that brings it in line with many central banks around the world, it is less clear what is driving its new posture. The most likely answer is capital outflows, more than slowing growth.


U.K.’s Half-Hearted Currency Probe
By Mark Gilbert, Bloomberg
It’s bad enough that the Bank of England’s chief currency trader ignored clear evidence of market manipulation in the foreign-exchange market for six long years. What’s truly appalling is that the subsequent probe into the abuse seems to have been done on the cheap, making a mockery of the inquiry and belittling the damage done to the world by yet another financial scandal.

‘Currency war’ to be ‘lose-lose’ game: Strategist
Jeff Cox, CNBC
With each fresh headline of a central bank cutting interest rates comes rising concerns over the global race to the bottom.
As the U.S. contemplates coming off policies that suppressed the dollar’s value, its counterparts are heading in the other direction. The most recent move came from Australia, which cut its key interest rate by a quarter percentage point Tuesday, setting off the latest wave in the beggar-thy-neighbor monetary wave.

The Currency Wars Look Real, and the Prospects Could Be Grim
Christopher Whittall, The Wall Street Journal
How do you know you’re in a currency war?
Central banks will be cutting rates like it’s going out of fashion, for a start. Stephen Cohen, chief investment strategist for BlackRock international fixed income, noted that 15 central banks have already cut rates this year. And there could be more to come with the People’s Bank of China and the Bank of Japan expected to ease policy further.
The kind of currency volatility that creates “is something we expect to continue,” said Mr. Cohen.

Ralph Lauren Falls After Currency Woes Weigh on Its Forecast
by Lindsey Rupp, Bloomberg
Ralph Lauren Corp., the upscale apparel company known for Polo and other brands, fell the most since it began trading more than 17 years ago after third-quarter earnings trailed analysts’ estimates and the company cut its sales forecast.
Net income dropped 9.3 percent to $215 million, or $2.41 a share, from about $237 million, or $2.57, a year earlier, the New York-based company said Wednesday in a statement. The average of analysts’ estimates compiled by Bloomberg was $2.50. The company said revenue may gain about 4 percent this year, down from a previous projection of as much as 7 percent.

Could a Bitcoin exchange be a commodity broker?
Scott Bowling – Weil Gotshal & Manges LLP logo
This is the fourth post in our Bitcoin Bankruptcy series on the Weil Bankruptcy Blog. We began by summarizing broadly how Bitcoin works. Then we examined whether a hypothetical U.S.-based bitcoin exchange would be eligible for chapter 11 relief. (The answer depends on how its business operates.) We also concluded that our hypothetical exchange likely would not constitute a stockbroker under the Bankruptcy Code. So unless it is either a commodity broker or a bank that does not operate a multilateral clearing organization, it is probably eligible to be a chapter 11 debtor. Today we consider whether a bitcoin exchange could be a commodity broker.

Democratising finance: vision for bitcoin is beginning to fade
Izabella Kaminska, FT
Cryptocurrencies stormed into the public consciousness in November 2013 when the price of just one bitcoin broke through the $1,200 level.

Strong dollar revives old currency angst
Shawn Donnan, The Financial Times
When Jack Lew, the US Treasury secretary, sits down on Thursday to brief the august members of the Senate finance committee on the president’s 2016 budget and plans for tax reform he will be bracing himself for a barrage of questions on at least one other subject.
A strong dollar now hitting corporate profits and US exports and an accumulating number of moves by central banks around the world to weaken their own currencies has revived an old angst on Capitol Hill and yielded new battle lines for Congress and its currency warriors.

Indexes & Index Products

Traditional Equal Weighting May Not Be As Diversified As You Think
Seeking Alpha
The core belief that we have held at PowerShares since we were founded back in 2002, and continue to hold today, is that funds tracking market-capitalization-weighted indexes may not represent the optimal investment strategy. Why? If one believes (as we do) that markets aren’t perfectly efficient and security mispricing can and does exist, market-capitalization-weighted indices will, by definition, have overweighted those securities that through time proved to be overvalued and similarly will have underweighted those securities that proved to be undervalued – thus creating a relative drag on investment performance. Of course the quest for active managers is to accurately identify which camp each security falls into at a given point in time (overvalued versus undervalued) and position portfolios to capitalize on the reversion to the mean.


Gold, Dollar Buck Trend to Shine Together
By Biman Mukherji, The Wall Street Journal
HONG KONG—Gold’s run-up so far this year has put it among the best-performing assets globally. But it is fear, not glitter, that is behind the yellow metal’s appeal for investors.
As market jitters persist, thanks mainly to renewed economic uncertainty in the eurozone following the recent Greek elections, gold’s traditional role as a store of value in times of turbulence, rather than physical demand for the metal, has been more prominent.

World’s Biggest Trove of Gold Built by Ancient ‘Secret Agents’
by Tia Ghose, Staff Writer
The source of Earth’s biggest trove of gold may have been found: One scientist now points to a trio of agents working in concert: volcanic activity, ancient microbes and an oxygen-depleted atmosphere
The new theory may explain why there’s a string of gold beds in the Witwatersrand basin, near Johannesburg, South Africa, that collectively make up 40 percent of all of the gold that has ever been, or ever will be, dug out of the ground, said study author Christoph Heinrich, a geologist at the ETH Zurich in Switzerland.

BMO gold product takes aim at big ETF market, new investors
Bank of Montreal has launched a new way for investors to buy physical gold, offering greater security than private storage while going head to head with the $60 billion exchange-traded fund industry.
The launch comes at a critical time for bullion, with investors in recent weeks making a tentative return to the market after a prolonged exodus as the oil rout and euro zone instability reignite gold’s appeal as a safe-haven investment.

Crashing Ruble Means Russia Has Cheapest Costs for Gold
The ruble is crashing. Oil is at a five-year low, and economic sanctions have slammed the brakes on the economy. It’s a good time to mine gold in Russia.
With gold typically priced in dollars, and labor and other expenses paid in rubles, Russian mining companies led by Polyus Gold International Ltd. are gaining from the weak currency. It doesn’t hurt that the price of gold has climbed about 7 percent this year as slowing world economies spur demand for the metal.

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