First Impressions

Daily Racing Form, Options Exchange Edition
Sarah Rudolph, JLN
With the U.S. options exchanges numbering a baker’s dozen, it is not an easy task to keep straight all of the names of these entities, let alone the new initiatives, updates and other exchange happenings. Fortunately, once a year we gather them together in one room. This year, that room is in Miami at the iconic Fontainebleau Hotel.

The Options Industry Conference got underway on Wednesday with the exchanges updates panel, where representatives of each exchange tell attendees what’s new and what’s ahead for their exchanges.

Here are some of the highlights from that panel.

Read the full exchange rundown at

Quote of the Day

“A more worrying explanation is that bond markets no longer have the capacity to behave rationally, adding to the evidence of last autumn’s “flash crash” in US Treasury yields. Some investment bankers put this down to regulations that sap their ability to make a liquid market. Another explanation is that herd mentality becomes worse when yields are low — the upside is small, while the potential losses anything but. In such circumstances, the rush for the exits can be chaotic.”

Financials Times in the story, “The Volatile Bond Markets Are Trying To Tell Us Something But What?”

Lead Stories

This Is What Happens When Bill Gross Ignores Bill Gross
Miles Weiss – Bloomberg
Bill Gross should have listened to Bill Gross.
Just before the selloff in German government bonds, the manager of the Janus Global Unconstrained Bond Fund said the debt was the “short of a lifetime.” Yet instead of betting all-out against German bunds, Gross wagered they would trade in a narrow range for the time being, fund holdings posted on the website of Denver-based Janus Capital Group Inc. show.

Paulson, Bernanke: What’s said in Vegas stays in Vegas
Would you like to know whether sage investor and mammoth hedge fund manager John Paulson is bullish on stocks? Or how about what he sees as the most promising investment opportunities today? We’d love to tell you, but we’ve been sworn to secrecy. We’re also dying to share what former Federal Reserve Chairman Ben Bernanke had to say, but we weren’t even allowed in the room.

Would the Financial Crisis Have Happened If Women Ran Wall Street?
By Danny Vinik, New Republic
At the International Monetary Fund on Wednesday, Institute for New Economic Thinking hosted a conference on the health of the financial system in the aftermath of the Great Recession. The event brought together some of the most important people in finance—academic experts and financial regulators who are well-known throughout the industry. They had disparate views of regulatory policies implemented by governments during the past few years. Maybe the one thing they all shared in common: They were all women.

Remembering the Flash Crash From the NYSE Trading Floor
Watching the Dow Jones Industrial Average drop nearly 1000 points and rebound in minutes on May 6, 2010 was very unsettling for Kenny Polcari. Five years to the day of what became known as the “flash crash,” the trader said he and others on the New York Stock Exchange trading floor are still shaken by the fact that it happened, and even more so that it could happen again.

Prepare for ‘triple taper tantrum’ in 2016, says Morgan Stanley
Investors spooked by the “taper tantrum” of 2013, when global markets took fright at the U.S. Federal Reserve’s first hint that it might taper its monetary expansion policy, take note: 2016 could be the year of the “triple taper tantrum”.
That’s the prediction of analysts at Morgan Stanley, who argue that the Fed, European Central Bank and Bank of Japan might all taper their super-loose monetary policies next year if growth and inflation across the three regions pick up enough.

Hedge fund manager Loeb takes aim at ‘Oracle of Omaha’ Buffett
Hedge fund mogul Daniel Loeb on Wednesday took aim at the “Oracle of Omaha,” calling beloved billionaire Warren Buffett a hypocrite. “I love how he criticizes hedge funds yet he really had the first hedge fund. He criticizes activists but he was the first activist,” Loeb, who runs $17.5 billion hedge fund Third Point, said about Buffett who has been running conglomerate Berkshire Hathaway for 50 years.

Buffett Climbs From Derivative Hole That Swallowed Berkshire AAA
Noah Buhayar – Bloomberg
Warren Buffett’s derivatives wagers sapped earnings during the financial crisis at his Berkshire Hathaway Inc. and were part of the reason the company lost its triple-A credit rating. Things are looking rosier now.
Liabilities on the contracts shrunk to $3.5 billion on March 31 from about $15 billion six years earlier. Some of the derivatives are long-term bets that equities will rise, while others protect bondholders against losses if borrowers fail to meet their obligations.

The Volatile Bond Markets Are Trying To Tell Us Something But What?
There’s three entirely separate things that we could pull from the current volatility of the bond and other investment markets. Our problem is that they’re rather contradictory things and the public policy response to each of them should be different. And as ever in macroeconomics we’ve not really got enough information to know which is the correct answer: we’ve thus really not got much clue as to what we should be doing about it. And, as ever again, this is the basic problem with our trying to manage something as complex as the economy in the first place. We generally don’t have much data, what we do have is often contradictory and thus macroeconomics isn’t as firm a guide to policy as both some would like and some seem to think.

Greece defies euro zone on pension, labor reform
Greece defied its international creditors on Thursday, refusing to cut pensions or ease layoffs to meet their demands, dimming prospects of progress next week toward securing desperately needed financial aid.
Despite efforts by European Commission President Jean-Claude Juncker to coax leftist Prime Minister Alexis Tsipras into moving on two key conditions for releasing EU/IMF bailout funds, the Greek government spokesman said lenders could not expect Athens to make all the concessions.

IMF Says China, Japan Weakness Threatens Asia-Pacific
Rising debts, a stronger dollar and weaker-than-expected performances from China and Japan pose increasing risks to the broader Asia-Pacific region, even as it looks likely to remain the world’s fastest-growing, the International Monetary Fund said.

Morgan Stanley Downgrades China for First Time in Over 7 Years
MoneyBeat – WSJ
Morgan Stanley told clients Thursday something it hadn’t said in over seven years: hold less Chinese shares. The U.S. bank downgraded the market for the first time since November 2007, and after holding an overweight position for the past six years.

Chi-X Said Exploring Sale Valuing Market at $400 Million
By Matthew Monks and Sam Mamudi, Bloomberg
Chi-X Global Holdings, a stock-market operator owned by Nomura Holdings Inc. and other banks, is exploring a sale that could fetch as much as $400 million,people with knowledge of the matter said. Nomura and its co-investors are working with Moelis & Co. to sell the operator of equity venues in Australia, Canada and Japan, said the people, who asked not to be identified because the matter is private.

Goldman Sachs must face $120 million suit over mortgage securities: court
New York’s top state court on Thursday revived a bond insurer’s $120 million lawsuit claiming Goldman Sachs Group Inc (GS.N) lied about a pool of securities backed by subprime mortgages during the period leading up the financial crisis.
The New York Court of Appeals in a 5-2 decision said the suit by ACA Financial Guaranty Corp ACAFG.UL should move forward because the insurer had raised issues about the role of billionaire John Paulson’s hedge fund in a collateralized debt obligation called Abacus.

Wells Fargo Increases Estimated Potential Loss to Litigation in Excess of Legal Reserves
Wells Fargo & Co. increased its estimate of the amount it may lose related to litigation in excess of legal reserves to as much as $1.2 billion as of March 31 from $1.1 billion three months earlier, according to a regulatory filing released by the bank on Wednesday.

SEC Wins With In-House Judges
Joel Shapiro faced an uphill battle when he fought the Securities and Exchange Commission in an Atlanta court last year. The investment-firm chief executive came before an SEC administrative law judge who has never fully cleared a defendant. In August, the judge found Mr. Shapiro had violated securities law, showing “reckless disregard” for his duty to investors.

Boutique Investment Bank Expands With Two Hires
Dealbook – NY Times
The boutique investment bank Dean Bradley Osborne plans to announce on Thursday that it has hired two veteran deal makers in the technology sector, as the three-year-old firm continues to expand.
As part of its hiring of the bankers, Mathew Hein and David DeRuff, as partners, the firm plans to rename itself DBO Partners.

Central Banks

ECB says 9 more banks to face stress tests in 2015
The European Central Bank said on Wednesday nine banks it monitors would face stress tests in 2015 in view of their increased systemic significance since its health check on large lenders last year.

E.C.B. Doubts Add to Uncertainties on Greek Debt Lifeline
NY Times
As Greece mounts an 11th-hour diplomatic offensive across Europe to secure financial aid that it desperately needs to avoid a default, patience with Athens is wearing thin at the European Central Bank.
That could pose big problems for Greece, since the central bank is the country’s biggest creditor and a necessary source of financial support for struggling Greek commercial banks.

So This Is How The Federal Reserve Is Going To Reverse QE; Slowly
Something that’s been puzzling me for some time has been how, or even whether, the Federal Reserve was going to reverse quantitative easing. And we seem now to be getting the news about how they are going to do it. The answer is slowly. Which seems fair enough really: I certainly didn’t expect them to dump $3 trillion of Treasuries on the markets one fine Monday morning as an alternative.

CNBC Exclusive: CNBC Excerpts: Federal Reserve Bank of Chicago President Charles Evans Speaks with CNBC’s Steve Liesman on “Squawk Box” Today
Following are excerpts from the unofficial transcript of a CNBC EXCLUSIVE interview with CNBC Senior Economics Reporter Steve Liesman and Federal Reserve Bank of Chicago President Charles Evans on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today.

The Great Disconnect – Central Bank Driven ‘Markets’ Have Nothing To Do With Economics
Seeking Alpha
The German bund yield is soaring like a rocket today. After touching on the truly lunatic rate of 5 bps only a few weeks back, it has just crossed the 60 bps marker. Needless to say, when a blue chip 10-year bond widely held on @95% repo leverage moves that far that fast- there is some heavy duty furniture breakage happening in fast money land.


PBOC Raises Yuan Fixing to 14-Month High as Asia Currencies Drop
China’s central bank raised the yuan’s daily reference rate to the strongest level in 14 months, bolstering support for the currency as signs the global economy is losing momentum sap demand for emerging-market assets.
The People’s Bank of China boosted the fixing by 0.07 percent to 6.1113 per dollar, surpassing a previous high of 6.1137 that was set in December. The yuan fell 0.1 percent in Shanghai, less than the 0.48 percent decline in the Bloomberg-JPMorgan Asia Dollar Index, and closed at 6.2069.

BitBeat: ItBit Open Shop In U.S. As a Trust Company, Raises $25 Million
MoneyBeat – WSJ
ItBit, a New York-based digital-currency exchange, opened its doors on Thursday to U.S. customers as a trust company. The 18-month old startup announced that it has received a trust company charter from the New York State Department of Financial Services that will allow it to operate in all 50 states as a fully regulated financial-services entity.
That was only one of the things the company announced. ItBit also closed on a $25 million funding round, bringing its total capital raising to $32 million, and named several notable people to its board of directors, including former FDIC chairman Sheila Bair and former U.S. Senator Bill Bradley.

Can Bitcoin Kill Central Banks?
Bitcoin is a digital currency that, in the words of its sponsors, “uses peer-to-peer technology to operate with no central authority or banks.” By its very definition Bitcoin seems well positioned to kill off central banks. Could it? Would it? Should it? Like just about everything else involving finance, the topic of central banks and their potential replacements is complex with valid arguments for and against.

Swiss central bank’s forex reserves fall in April
The value of Switzerland’s foreign-currency reserves dropped by half a billion Swiss francs in April, data showed Thursday, largely because of the weakness of the dollar, said analysts.

Indexes & Index Products

Bond Funds: Why Bill Gross, and Active Managers, Beat Indexing
Three score and 10 is a number that sits better with some than others. As the Psalmist reminds us, that is the number of years we are allotted, unless we are strong and we get 80 years. But, he adds, even the best of those years are filled with struggle and sorrow, and they pass quickly and we fly away.
Not all septuagenarians view life like that. If you can believe it, guitar virtuoso Eric Clapton marked his 70th birthday a couple of days ago, doing what he does best, performing to a packed Madison Square Garden audience. According to Rolling Stone’s review, Clapton told the crowd, “Thank you very much for helping celebrate the wonderful gift with these wonderful friends.”

Emerging-Markets Bond Funds: A Look Under the Hood
Improving country fundamentals, strong long-term performance, higher yields, and diversification benefits have made the emerging-markets bond Morningstar Category one of the fastest-growing categories that Morningstar tracks. Popular as the category has become, investors often don’t fully grasp key differences among emerging-markets bond funds. Indeed, such funds tend to follow one of four investment approaches–hard currency (U.S.-dollar denominated), local currency (local-currency denominated), corporate, or some combination of the three.

The 40th anniversary of the launch of the first index fund passed recently, and we noted with irony that the leading proponent of indexing, Vanguard’s founder John Bogle, seized the opportunity to chastise an industry that took indexing to a marketing extreme. “My idea in creating that original index fund was the essence of simplicity: Buy the stocks representing the lion’s share of the U.S. stock market, weigh them by their market capitalizations, (and) hold them forever,” Bogle wrote in March.

New OMX Stockholm Benchmark Portfolio Selected – The New Portfolio Of The OMX Stockholm Benchmark Index Will Become Effective On June 1, 2015
OMXSB includes some of the largest and most traded stocks on Nasdaq Stockholm and the portfolio is represented by companies in all ten industries. Included stocks are screened to ensure liquidity and the weight of the stocks is based on the free float adjusted market value, which means that only the part of the share capital that is considered available for trading is included in the index.

Merk Gold ETF (OUNZ) Wins Award at the Annual Global ETF Awards
Merk Gold Trust
Merk Gold Trust (NYSE: OUNZ), the deliverable gold ETF, was awarded Most Innovative ETF Hybrid Product of the Year, Americas, at the 11th Annual Global ETF Awards in New York. The Annual Global ETF Awards are given by the; each award is nominated and voted on, by leading industry experts within the ETF industry.


Central Banks: The Biggest Reason to Remain Bullish on Gold
Over the long term, I am watching how central banks are reacting in order to assess the gold market. I believe they will be a major force driving the yellow metal prices higher.
Central Banks with Gold Aren’t Selling
You see, those who have the yellow metal stored in their reserves aren’t selling it.

Gold-Mining Unions Circle as South African Wage Round Looms
South Africa’s biggest mining unions are seeing who will blink first as pay talks with the nation’s gold producers become the latest battleground for membership.
Both the National Union of Mineworkers, which represents 55 percent of about 100,000 gold industry employees, and its fast-growing rival, the Association of Mineworkers and Construction Union, are overdue in presenting their demands to companies including AngloGold Ashanti Ltd. and Sibanye Gold Ltd.

How secret gold mines are tearing the Ivory Coast apart
New York Post
Nestled among the cocoa plantations of western Ivory Coast is a gold mine that does not feature on any official maps. It is not run by an industrial mining company, nor does it pay taxes to the central government.

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