First Impressions

One Man Team
Jim Kharouf – John Lothian News

News of Mohamed El-Erian’s announced departure from PIMCO yesterday sent shockwaves through that organization and was a surprise to many in the markets. The question it brings for PIMCO’s co-founder Bill Gross is: Can PIMCO thrive without him?

The answer will come soon enough. It’s not been a particularly great period for PIMCO, which saw investors pull $41 billion from the PIMCO Total Return fund last year, according to Bloomberg’s story today. Gross pointed out that recent years have not been kind to bond funds.

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Quote of the Day

“He’s a classically trained economist, I’m sort of a seat-of-the-pants-economist. All of that in combination was just a sound match. If there was a disagreement at all, it was his decision to leave.”

Bill Gross of Pimco regarding Mohamed El-Erian in the story, “Gross Told El-Erian ‘Hell No’ Seeking to Stop Departure”.

Lead Stories

The mountain without Mohamed
Dan McCrum | FT Alphaville
So Mr El-Erian will (co-)head Pimco no more, in a move that appears to have surprised most people inside and outside of the Newport Beach based bond behemoth. What follows is informed speculation, without input from a man who has been kind enough to use us as one outlet for his prolific output of commentary. But to us it looks like he has paid the price for Pimco’s recent investment record, and that says a great deal about the situation in which Pimco now finds itself.

Gross Told El-Erian ‘Hell No’ Seeking to Stop Departure
Sree Vidya Bhaktavatsalam and Alexis Leondis – Bloomberg
When Mohamed El-Erian first told Bill Gross several weeks ago that he wanted to leave to “recharge the batteries,” the co-founder of Pacific Investment Management Co. was “shocked” and “discouraged.”

The Pimco Stars Waiting in the Wings
Liz Moyer – The Wall Street Journal
A management shuffle Tuesday at Pacific Investment Management Co. didn’t include some of the asset-management giant’s biggest stars.

Financial Reform Remains a Work in Progress
Of all the arguments put forward by big banks and their allies in recent years against financial reform, the line that surfaced last week was arguably the most strange. Wall Street has been reformed, according to this view: There was a great battle, and we (the big banks) lost. There is, consequently, nothing more to do.

UBS at Davos: ‘Maybe the world’s not so austere’
FT Alphaville
According to a white paper released by UBS for this week’s World Economic Forum in Davos, one of the surprising factors ‘reshaping the world’ – the Davos theme this year – is an aggregate absence of austerity among governments globally.

Hard-to-Sell Junk Debt Lures Oaktree to JPMorgan: Credit Markets
Lisa Abramowicz – Bloomberg
Bond investors are losing their aversion to difficult-to-trade corporate debt that handed them some of the biggest losses in the credit crisis.
The extra yield note buyers demand to own older, smaller junk bonds that trade infrequently has shrunk to an average 0.25 percentage point this month from more than 1 percentage point a year ago, according to Barclays Plc data.

Japan Bonds Rise After 20-Year Debt Auction Draws Record Demand
Masaki Kondo and Yumi Ikeda – Bloomberg
Japan’s bonds rose after the nation’s auction of 20-year debt attracted record demand and a private report showed manufacturing shrank in China.

Macro Horizons: China vs. Euro-Zone PMIs Show How Tables Have Turned
MoneyBeat – WSJ
European purchasing managers indexes are up, China’s down. That bifurcation captures the shifting engines of growth in the global economy, as the second-biggest national economy’s investment and construction machines runs out of oomph while the U.S. and euro zone show the best signs yet of having put their crises behind them.

European repo is on the decline
Izabella Kaminska | FT Alphaville
According to the latest bi-annual European repo survey by ICMA, released on Wednesday, the market for repo in Europe shrunk to €5.5tn in December 2013 from €6tn in June 2013 — a sharp decline by any means.

China abandons its pursuit of growth at all costs
David Pilling –
If Hu Jintao was a growth junkie, Xi Jinping wants to put China’s economy on a methadone programme. Under Mr Hu, the former president, Beijing was addicted to economic expansion. Mr Xi, who took over the presidency in March last year, has served notice that enough is enough.

Iceland Traps Hedge Funds in Refusal to Discuss Bank Claims
Omar R. Valdimarsson – Bloomberg
More than five years after its biggest banks defaulted on $85 billion, Iceland’s government is refusing to speak to the hedge funds and other creditors that are still trying to get their claims paid out.

Third time lucky for India interest rate futures market
Justin Lee –
The relaunch of the exchange-traded interest rate futures market in India will be successful the third time around as regulators have listened to market feedback and approved a cash-settled product linked to a single bond underlying, say market participants.

Zambia faces 8.5% yield for Eurobond – analyst
Kanika Saigal – Euromoney magazine
Zambian policymakers are poised to tap the international market for a second time, but they cannot expect similar terms set in the 2012 issue.

Central Banks

Zhou Risks Turmoil With Easing of China Rate Controls
China central bank Governor Zhou Xiaochuan faces an obstacle in his efforts to tame financial market volatility: his own plans to free up interest rates.

Ukraine Hryvnia Defense Crumbles Amid Mayhem: East Europe Credit
Andras Gergely – Bloomberg
As anti-government protests rage on the streets of Kiev, the Ukrainian central bank’s resolve to defend its currency appears to be weakening.

**JB: The political turmoil in Ukraine is looking to get worse before it gets better. At this point difficult to say which side (if any) will prevail).

Turkish central bank intervenes to prop up sliding lira
Delphine Strauss in London –
Turkey’s central bank intervened directly in foreign exchange markets on Thursday for the first time since 2012, selling dollars after the lira sank to fresh lows.

Turkey’s Interest Rates 101: Dissecting Mr. Basci’s Benchmarks
Yeliz Candemir and Emre Peker – The Wall Street Journal
Turkey’s central bank loves a policy rate. So much that over the past three years it has gone from using one benchmark to a blurry handful.
The challenge of understanding Governor Erdem Basci’s many interest rates is hard even for the seasoned Turkey economist. For the uninitiated, it’s a nightmare.

Brazil Says Current Pace of Key Rate Increases Remains Adequate
Matthew Malinowski and Arnaldo Galvao – Bloomberg
Policy makers led by bank President Alexandre Tombini voted unanimously on Jan. 15 to raise the benchmark Selic rate to 10.5 percent from 10 percent, marking the sixth straight 50 basis-point increase. The central bank’s monetary policy will remain especially vigilant as consumer prices rise slightly more than anticipated, officials said in the minutes of their Jan. 14-15 meeting.

BoJ’s Kuroda shrugs off need for more easing
Business Standard
The governor of the Bank of Japan on Wednesday dismissed the need for additional monetary easing as prices are headed toward its inflation target and as overseas economies recover, damping expectations for more stimulus to offset the impact of a sales tax rise in April.

Money markets sound alarm for ECB
Ralph Atkins in London –
Sudden rises in very short-term market interest rates – the cost of borrowing overnight, for instance – usually spell trouble. Soaring Chinese interbank borrowing costs at the end of last year highlighted the central bank’s difficulties in curbing the most egregious financing practices of the country’s banks.


Yuan climbs to world’s 8th most-used payment currency: SWIFT
The Economic Times
Yuan has become one of the world’s 10 most-used currencies for payments, overtaking the Singapore dollar and Hong Kong dollar, global transaction services organisation SWIFT said on Thursday.

Argentina restricts online shopping as foreign reserves drop
BBC News
Argentina has introduced new restrictions on online shopping as part of efforts to stop foreign currency reserves from falling any further.

U.K. Exchange to Allow Trading in Ven
Neelabh Chaturvedi – MoneyBeat – WSJ
The growing interest in digital currencies already has tax authorities in the U.K. interested. Now a British regulated exchange will allow members to trade Ven, a digital currency that is based on a basket of currencies and commodities.

Bitcoin a Fool’s Gold Standard
I cannot judge whether Bitcoin represents a technological breakthrough, but I am confident that the pseudocurrency’s popularity shows widespread economic amnesia. If Bitcoin ever became a real currency, it would suffer from the crippling problems of the gold standard.

Turkey’s lira weakens to record low of 2.2905 against dollar
The Economic Times
Turkey’s lira touched a fresh record low of 2.2905 against the dollar on Thursday morning on continued investor worries after the central bank left interest rates on hold this week, raising questions about its readiness to defend the ailing currency.

Bitcoin Centre NYC Launches Open Source ATM Software
A New York City institution for promoting bitcoin has released proprietary hardware and software that enables developers to create and operate inexpensive bitcoin automatic teller machines.

Indexes & Index Products

Euronext announces 2013 performance of indices and yearly recap
Euronext N.V., a wholly owned subsidiary of IntercontinentalExchange Group, today announced the 2013 performance of its benchmark indices and annual recap. Highlights include 56 new proprietary indices launched, a significant increase in the number of outstanding Exchange Traded Products (ETPs) linked to Euronext indices and the best performance of Euronext’ Blue Chips indices since 2009.


Pakistan Imposes 30-day Ban on Gold Imports to Curb Smuggling
Arpan Mukherjee – MoneyBeat – WSJ
Pakistan has imposed a temporary ban on gold imports to curb a sharp rise in smuggling, which threatens to put pressure on local foreign exchange companies.


Obama Recovery Fails to Resonate as Americans Left Behind
David J. Lynch – Bloomberg
Just as the world’s largest economy is finally getting better, the public’s opinion of President Barack Obama’s handling of it is getting worse.
The U.S. economy wrapped up its best six-month performance since the recession ended, according to estimates by economists at Goldman Sachs Group Inc. (GS) and Morgan Stanley. And the jobless rate is below 7 percent for the first time since 2008.

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