First Impressions

Brand Equity
by Doug Ashburn, John Lothian News

After last week’s supposed near-miss on a U.S. debt default, the pundits and pontificators are out in full force with their “yeah…but” arguments about whether there has been damage to the U.S. Treasury “brand.”

I say “brand” because, quite frankly, that’s what it is. Just as Colgate is #1 recommended by dentists and nobody does it like (or doesn’t like) Sara Lee, buying a U.S. Treasury security entitles the bearer to the full faith and credit of the United States of America.

The U.S. did not default last week, but did the brand suffer?

Not just yet. I still believe the threat was an idle one, and that even the lunatic fringe politicians know how much worse off we would be if we were to lose our premier status. Besides, the U.S. is still the world’s reserve currency. We still provide a de facto guarantee of all the payments of the world’s goods and services. We patrol the seas to make sure said goods and services get from Point A to Point B.

But that is largely because it has not been in any nation’s interest to challenge that status quo. I would like to keep it that way. Come hell or high water, pay the bills.

Quote of the Day

“The C.E.O.’s, they look superhuman, but, in fact, very often they don’t know what’s going on, and they don’t understand because it is very, very complicated.”

Ignazio Angeloni head of the European Central Bank’s financial stability division in the NY Time’s piece: “The Man Who’ll Do Triage on Europe’s Banks.”

Lead Stories

China agrees renminbi accord with Singapore
Jeremy Grant in Singapore and Josh Noble in Hong Kong –
China is to further internationalise its currency by allowing Singapore-based investors to buy renminbi-denominated securities, paving the way for direct trading between the two country’s currencies.
**JK – London, now Singapore. Who’s next?

Foreigners Sold U.S. Assets as China Reduces Treasuries
Kasia Klimasinska – Bloomberg
Foreign investors were net sellers of U.S. long-term portfolio assets in August as China reduced its holdings of Treasuries to a six-month low.
The net long-term portfolio investment outflow was $8.9 billion after a revised $31 billion inflow in July, the Treasury Department said in a statement today in Washington.

The Man Who’ll Do Triage on Europe’s Banks
All Ignazio Angeloni has to do is figure out Europe’s banking system. Mr. Angeloni, 59, heads the European Central Bank’s financial stability division, giving him a lead role in a task about to begin: examining the books of the 130 or so largest banks in the 17 members of the European Union who use the euro. It will be financial triage aimed at determining which banks are sound and which are not.
**JK – Is an enema the same thing as triage?

Transparency poor amid FX SEF launch
Joti Mangat – Euromoney magazine
A lack of consistency in how new swap execution facilities (SEFs) report transaction volume data is making it hard for foreign exchange participants to conduct aggregate level analysis with respect to pricing and traded volumes, traders say.
**DA – The issue appears to be uniformity of data submission rather than transparency. Some SEFs are reporting apples; some report oranges.

Italy plans to offer guarantees on government bond derivatives
A new system of guarantees Italy is planning to introduce will make it cheaper for banks to negotiate derivative contracts with the Treasury over government bonds, potentially increasing their ability to buy Italian debt.
**DA – You mean it didn’t used to be guaranteed?

“Tapering is off the table”
Sam Jones – FT Alphaville
Fresh from having made $1bn impeccably timing the putative US recovery in the first half of this year (and Japan, natch), Andrew Law of Caxton Associates – one of the world’s most successful macro traders – has now turned bearish, and in quite a big way. Caxton, a hedge fund named after the printer (its now-retired founder Bruce Kovner is a billionaire bibliophile), believes the Fed will keep running its presses

Treasuries have turned anything but risk-free
John Plender –
The US debt ceiling imbroglio may not have resulted in sovereign default, but I suspect that the rise in US Treasury yields from early summer until the temporary resolution of the crisis last week may in due course be seen as reflecting the emergence of a risk premium.

Economic Theory, via YouTube and Cartoon
Forget Econ 101. Take a look at the lessons in Dalio 101. Ray Dalio, the 64-year-old founder of Bridgewater Associates, the largest hedge fund in the world with some $150 billion under management, has quietly begun teaching his investment secrets on YouTube.
***JM: I’m a big fan of simple explanations. This video goes at a very smooth pace and reduces a lot of noise and complexity into something simple.

EU watchdog sets out tougher rules for planned bank tests
Europe’s top banking regulator has set out tougher rules for its forthcoming tests on the finances of top lenders, potentially paving the way for further multi-billion euro fundraising measures by banks deemed shaky.

Interview: Gary Gensler explains how financial reform is going
Mike Konczal – Washington Post
Health care wasn’t the only area where the federal government launched an exchange this month designed to fix a broken system.
**JK – Really nice recap of where the CFTC and rulemaking is.

Central Banks

BOJ Upgrades View of All Regions
The Bank of Japan raised its assessment of all of the country’s nine regions, in a sign that the economic recovery being driven by the policies of Prime Minister Shinzo Abe is spreading throughout the nation.

Fed Got in Trouble With Transparency, Ferguson Says
Zachary Tracer – Bloomberg
Roger W. Ferguson, a former U.S. Federal Reserve vice chairman, said the Fed’s push for transparency amid quantitative easing tripped up the central bank this year.

Carney Brings In McKinsey for Bank of England Strategy Rethink
Scott Hamilton – Bloomberg
Bank of England Governor Mark Carney hired McKinsey & Co. and Deloitte LLP to review the central bank’s resources and identify cost savings after it took on expanded responsibilities.


With Psy and currency swaps, South Korea grabs global influence
From rapper Psy to overseas financial aid, an economically and culturally confident South Korea appears to be taking on bigger neighbours Japan and China for the hearts and minds of the rest of Asia and beyond.
**DA: Looks like their priorities are in order. Pop culture first, then promote financial stability.

Companies step up FX hedging after big moves in EM, dollar
After months of volatility in emerging market currencies and deep uncertainty over the outlook for the dollar, bruised companies have stepped up hedging of their foreign exchange exposure.

Rough ride in store for EM currencies
Mark Haefele –
Recent pressure on emerging market currencies has rightfully made headlines. But the broader issue for emerging markets is that such episodes could easily reoccur, or even get worse, over the next few years. This is because, over the past decade, these economies have increasingly pinned their economic hopes to foreign capital flows.

Indexes and Index Products

ETFs Churning Record Cash as $47 Billion Flows to Market
Whitney Kisling & Nick Taborek – Bloomberg
Money has been flowing in and out of financial markets more rapidly than ever before this year, a bullish signal as the threat of a U.S. government default fades.

ETF palette set to remain fragmented
Sarah Krouse – Financial News
Europe’s fragmented exchange-traded fund landscape is shifting with the number of exchanges on which ETFs are listed set to expand with the arrival of Bats Chi-X Europe’s new pan-European platform next month.

Four new UBS ETFs launched on Xetra – ETFs provide access for the first time to the UK and Canadian equity markets with currency hedging

FinEx launches gold ETF on Irish and Moscow exchanges
ETF Strategy
FinEx has announced the launch of the FinEx Physically Held Gold ETF (FXGD), the first fully regulated gold exchange-traded fund in the European Union.


Dubai gold bourse benefitting from Indian import rules
Though the Indian government’s many measures to discourage gold imports seems to have clamped the door shut on top exporter Dubai, where trade activity has slid 60% over the last two months, Dubai’s premier commodities exchange appears to be moving from strength to strength as it takes advantage of the volatility in the precious metals market as well as movements in the Indian rupee.

Gold rush in Unnao – Gold rush in Unnao: Story behind the excavation
The Economic Times
A gold rush was triggered by seer Shoban Sarkar’s claim that the said Raja had appeared to him in a dream and told him that 1,000 tonnes of gold lay buried in the ruins of the Raja Rao Ram Bux Singh fort.

Not much of festival season in India as gold runs dry
In India’s biggest bullion market, Mumbai’s Zaveri Bazaar, gold dealers are busy — not filling orders for customers, but busy avoiding phone calls because they don’t have any gold to sell.


BofA Said to Face Three More Probes of Mortgage-Bond Sales
Keri Geiger & Hugh Son – Bloomberg
Bank of America Corp., sued by U.S. attorneys in August over an $850 million mortgage bond, faces three more Justice Department civil probes over mortgage-backed securities, according to two people with direct knowledge of the situation.

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