First Impressions

Bits & Pieces
By John J. Lothian

Just for the record, Patrick Lothian is my nephew, not my son. He is also our head of video production and a very talented video artist. Several people congratulated me on his wedding yesterday, assuming he was my son.

I received a very nice goodbye and stay in touch note from the classy and dapper Magnus Bocker, who is leaving SGX as CEO. I greatly appreciated his leadership at SGX and look forward to what comes next for him.

So far, our Chicago edition of MarketsWiki Education World of Opportunity Summer Intern Education Series has five speakers confirmed, including CME’s Phupinder Gill, RCG’s Scott Gordon, HC Technologies’s Joe Niciforo, industry consultant Mary McDonnell, Barchart’s Mark Haraburda and Tradovate’s Rick Tomsic

In New York, we have five of the ten slots filled. Our speakers include Chris White (formerly of Goldman Sachs), Chris Ferreri (formerly of ICAP, now founder of Eight Point Strategies), Peter Borish of Quad Advisors, Haim Bodek (managing principal of Decimus Capital Markets) and Boris Ilyevsky of ISE.

We will be sending out a special report with the sign-up information this week.

Quote of the Day

“Tsipras wasted his political capital in endless months of stalled talks where bluster and threats took center stage to the detriment of detailed planning.”

Eirini Karamouzi, a lecturer in contemporary history at Sheffield University in the story, ” Chaos or Kudos? Tsipras’s Tactics Leave Greeks a Costly Legacy”.

Lead Stories

The High Price of Safer Banks
Banks have long complained equity is expensive. They may be right. In theory, a better capitalized, and so less risky, bank should have a lower cost of equity. Investors would charge less for funding due to greater perceived safety.

China Market Feels Malaise of Good Economic News
China’s stock market is getting punished for the economy’s good behavior.
With a dire economic outlook slowly receding, investors are rightly growing nervous that the central bank’s largess could fade sooner rather than later. The Shanghai Composite, whose steep ascent has been fueled by easy cash and margin lending, at one point Tuesday was down more than 4%, widening its loss for the past week to 15%. It recovered to end 2% higher for the day.

Germany Creates Jobs While Greece Destroys Them
One measure—many would say the only measure of an economy—is how many people have gainful employment. (The Oxford English Dictionary has a first citation of gainful in 1561: “By this pretence they make most gainefull markets.”) It is a blunt statistic and a messy time series, but often the number of bodies employed can tell a lot about a nation.

Chaos or Kudos? Tsipras’s Tactics Leave Greeks a Costly Legacy
Greek Prime Minister Alexis Tsipras has shown himself to be anything but a predictable negotiator.
From suggesting tourists help catch tax-dodgers to e-mailing the wrong draft hours before Monday’s emergency summit, Tsipras and his government used tactics that have proved alien to the more orderly world of the euro region: adversarial, ideological and, on occasion, chaotic. At home, the strategy excited a hurt nation that saw the brinkmanship as bravery. In Brussels and Berlin, it infuriated potential allies.

Accounting watchdog probes KPMG over BNY Mellon compliance
Britain’s accounting watchdog has opened an investigation into how accounting firm KPMG [KPMG.UL] made sure that Bank of New York Mellon complied with rules on keeping customer money safe.
The Financial Reporting Council said on Tuesday the investigation would cover the conduct of KPMG auditors regarding BNY Mellon’s London branch.

Britain cuts Lloyds Banking Group stake to below 17 percent
Britain has cut its stake in Lloyds Banking Group (LLOY.L) to below 17 percent, the finance ministry said in a stock market disclosure on Tuesday, taking the total sum recovered by the taxpayer to 11.5 billion pounds ($18.2 billion).

U.S. Bancorp unit to pay $44.5 mln in Peregrine settlement -court filing
A unit of Minneapolis-based U.S. Bancorp has agreed to pay $44.5 million to settle a class action brought by former customers of brokerage Peregrine Financial Group, which failed in 2012 after its funds were siphoned off in a long-running fraud.

Clearing houses reduce risk, they do not eliminate it
Gary Cohn, FT
They can be centres of risk, amplifying problems instead of alleviating them, writes Gary Cohn

Broker opinions vital to Libor setting, court hears
The daily ‘run-through’ emails distributed by interdealer brokers – which may have included deliberately skewed opinions – had significant influence on some banks’ Libor contributions, a London court heard today (June 23).
The jury in the trial of Tom Hayes, a former rate trader with UBS and Citi now facing eight charges of conspiracy to defraud, was shown examples of daily Libor contributions from Citi’s primary yen Libor submitter, Burak Celtik.

‘Pulp Fiction’ Star Keitel Sues E*Trade Over Ad Campaign
by Chris Dolmetsch, Bloomberg
Harvey Keitel may be E*Trade Financial Corp.’s third-favorite actor.
The star of “Pulp Fiction” and “Bad Lieutenant” claims the online brokerage reneged last year on a $1.5 million deal to feature him in a series of television commercials, offering him a kill fee of $150,000 instead.

The Loneliness of the Short-Seller
For some, they are the scourge of Wall Street. Yet short-sellers — investors who stake bets against stocks — are often the first to sound the alarm on a market’s froth or a company’s fraud.

Regulators plan to extend bank bonus clawback period to 10 years
Caroline Binham, Financial Regulation Correspondent, FT
Bonuses will be able to be clawed back for as long as a decade for the most senior management of banks under proposals published on Tuesday by UK regulators.

Moody’s proposes new CCP ratings
Capital City | IFRe
Moody’s has proposed a new global methodology that will allow clearing members and end-users to assess and compare the soundness of central counterparty clearing house risk management practices.
The ability to compare risk management practices across CCPs is becoming crucial for market participants following new regulations that force standardised over-the-counter derivatives to clear through central counterparties.

Central Banks

European Central Bank raises emergency funding to Greek banks
Financial Times
The European Central Bank on Tuesday raised the limit on the emergency liquidity assistance available to Greek banks to about EUR89bn as depositors continued to withdraw funds.
The move has become a daily operation as tension mounts amid negotiations to secure an eleventh-hour deal to unlock EUR7.2bn in bailout funds and prevent Greece defaulting on its debts at the end of the month.

Market watchdogs in tussle versus central banks
South China Morning Post
An uneasy truce between market watchdogs and central banks struck during the financial crisis is showing signs of strain as they look for ways to tackle potentially extreme volatility in bond markets when interest rates start to rise.
The watchdogs are worried central banks will try to impose bank-style rules such as capital requirements on market players like asset managers and specialist funds.

How to think about buying a house as the Federal Reserve thinks about hiking rates
Wall Street may be skeptical that the Federal Reserve will raise interest rates this year, but Main Street seems to be getting the message.
Data from online real estate company Redfin shows that requests for home tours have spiked more than 40 percent compared to a year ago. And they’re not just lookey-loos: Redfin also shows a 33 percent jump in signed offers from this time a year ago.


The U.S. Needs to Recognize China’s Currency Aspirations in the Latest IMF Review
There’s an important opportunity this year to rework the global currency system, and the U.S. must make sure it takes part in the related discussions.
Ousmène Mandeng, a senior fellow at the Reinventing Bretton Woods Committee, lays out this opportunity in a recent article in the Financial Times.

S&P assumes Greece to be in euro at year-end
Standard & Poor’s central forecast is that Greece will still be in the euro and the European Union at the end of 2015, although even a late deal to stave off default will not resolve its problems, chief rating officer Moritz Kraemer said on Tuesday.

Current account surpluses fortify emerging market currencies in North Asia
Emerging markets in North Asia such as South Korea and Taiwan will lean on their strong current account surpluses to counter any ill effect of a U.S. interest rate hike on their currencies, in contrast to their more exposed peers in Southeast Asia.
Higher U.S. rates could divert capital from emerging Asia, weighing on the region’s currencies. To help counter that, a country would need trade surpluses, which would contribute to current account gains and currency strength as seen in the case of South Korea and Taiwan. Current account surpluses also deter currency speculators, which descended on economies reeling in deficits in the 1997-98 Asian financial crisis.

BitBeat: Bitcoin’s Block-Size Debate Gets Stress Tested
MoneyBeat – WSJ
The fight over bitcoin’s block size is getting testy. Literally. For months now, a raging debate has been roiling the bitcoin industry over whether or not to increase the maximum size of a transaction block of data. The current maximum is 1 megabyte. Gavin Andresen, who heads up bitcoin’s core developer team, has suggested increasing that to 20 megabytes, so as to facilitate the increased traffic the system is processing as bitcoin grows.

Indexes & Index Products

New Indexes Attempt to Predict Countries’ Readiness for Change
Hockey star Wayne Gretzky once said, “I skate to where the puck is going to be, not where it has been.” That is great advice for hockey players and economy-watchers alike. Yet most economic data are backward-looking. Numbers on gross domestic product and employment point to where the economic puck has been, not where it’s headed.

An Analysis Of A Long MSCI U.K./Short S&P 500 ETF Pairs Trade
Seeking Alpha
In a previous article written on May 22, I argued that a significant pairs trading opportunity exists through taking a long position on the FTSE 100 and a short position on the S&P 500. The purpose of this article is to both review the performance of this strategy in light of developments in June, and further discuss the strategy in the context of specific ETF performance.

What Are the Russell Stock Indexes?
Resource Investing News
Investors often look to various indexes in order to track market trends and decide which companies are worth investing in. While some are very well known, such as the Dow Jones Industrial Average (INDEXDJX:.DJI) and the S&P/TSX Composite (INDEXTSI:OSPTX), others, like the Russell Investments Group indexes, aren’t on everyone’s radar.

Nasdaq Lists Two New ProShares ETFs
Today Nasdaq announced that ProShares will list two new exchange-traded funds (ETFs), UltraPro Nasdaq Biotechnology ETF (Symbol: UBIO) and UltraPro Short Nasdaq Biotechnology ETF (Symbol: ZBIO), which will both begin trading today, June 23, 2015. Both funds track the Nasdaq Biotechnology Index.

Calvert Expands Responsible Indexes; Launches New Funds
Press Release
Calvert Investments, Inc., a global leader in Responsible Investing, announced today a major new initiative that the firm describes as the next step in the evolution of responsible investing. The firm is building upon its global Responsible Investing research expertise and has launched a suite of Responsible Indexes and related lower cost Index Funds that will track them.


Indians Buy Gold as Chinese Shift to Stocks
The rapid run-up in Chinese shares this year is dimming the allure of another popular investment: gold. Luckily for fans of the metal, demand is looking healthy in India, the other big retail market in Asia.
The divergence between gold’s two biggest consumers is unusual.

Green shoots emerge in withered gold mining sector
The global gold mining industry is showing signs of life as merger activity picks up and industry veterans set up new companies and hunt for projects, taking advantage of weak prices to lay the groundwork for a rebound.
Almost four years after the price of gold began tumbling, cash-starved and debt-ridden miners are selling, merging or closing shop, pushing the value of completed gold mining mergers and acquisitions in the first five months of this year to $3 billion, twice what it was in the same period in 2014, according to Thomson Reuters GFMS, a metals research consultancy.

Where Next for Gold?
Playwright George Bernard Shaw once quipped that “you have a natural choice between the stability of gold and the honesty and intelligence of the members of government.”
While Shaw was clearly being ironic it appears global markets have chosen the latter by dumping gold in the belief the “troika” are close to striking a deal – again – to avert a Greek default and its exit from the European Union. The outbreak of renewed faith in Greece and its place in the European Union has sent the precious metal into reverse after it poked its head above $1,200 an ounce last week, with gold fetching around $1,183 an ounce on Tuesday afternoon.

Gold and Health Care Stocks Get Clean Bill Of Health
Even though the Federal Reserve announced last week that it would wait a little longer to raise rates, spooked investors fled to gold bullion, helping to drive prices above $1,200 an ounce. It was the greatest single-session surge by percentage in nearly a month and a half for the yellow metal, widely seen as a safe-haven investment.

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