First Impressions

Bits & Pieces – Literally
Jim Kharouf, Sarah Rudolph and Doug Ashburn, JLN

In John’s ongoing journey to rebuild himself one part at a time, he is having shoulder surgery today. That makes two knees, two or three vertebrae and now one shoulder. He may actually be on his way to becoming the $6 million man, in terms of medical costs but not performance.

All levity aside, this does mark the third time in three years that John will be under the knife. If that weren’t bad enough, last week the Lothian family received the news that John’s uncle, family patriarch, retired professor and former member of the Wisconsin State Assembly, Thomas Lothian, passed away. Please keep the Lothians in your thoughts this week.

In John’s absence, the JLN staff is putting the newsletter together. Because of the Memorial Day holiday, we will not be publishing the newsletters on Monday, May 25, and we will not be publishing JLN Financials on the Friday before Memorial Day.

Here’s to a swift recovery and a good week.

ORC Chicago Discussion – Consolidation in Derivatives
May 20, 2015 – 4 p.m. to 7 p.m.
The Library Bar, 190 S. LaSalle St, 40th Floor Chicago
Register: seminars@orc-group.com
Interested in how consolidation has impacted financial technology?
Please join us for an industry-critical conversation about how consolidation in the derivatives space has impacted technology. Experts will lead an interactive discussion looking at how firms are managing the integration of systems, lessons learned and how to maximize benefits for the end users.
Agenda:
4:00 pm – Opening remarks by Orc Group
4:15 pm – Panel discussion
5:00 pm – Networking reception with cocktails and appetizers
Speakers include:
Carl Gilmore, Co-Head of Futures, Wedbush Futures, Jonas Hansbo, Chief Strategy Officer, Orc Group, Lynn Martin, Chief Operating Officer, ICE Clear US, Nancy Stern, General Counsel, Allston Trading, Rick Tomsic, Chief Executive Officer, Tradovate

Moderated by: Jim Kharouf, Editor in Chief, John Lothian News

http://jlne.ws/1ELXLkH

Quote of the Day

Real money funds investment people just aren’t playing the gold market, central banks, the whole lot of them aren’t trading the gold market the way they used to.

David Govett, head of precious metals at trader Marex Spectron, in the FT article “Traders warn on gold liquidity”

Lead Stories

Traders warn on gold liquidity
Henry Sanderson- FT.com
A few years ago London’s precious metals traders would arrive at their desks to find the phones flashing. On the other end of the line were rival banks looking to buy and sell gold. Today, the trading floors are a lot quieter.
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Yale Gives Fed Chair Yellen Doctor of Social Science Degree
ABC News
Federal Reserve Chair Janet Yellen has been awarded her second Yale University degree, a doctor of social science. Yellen was honored Monday at the Ivy League school’s 314th commencement. She received a Ph.D. in economics from Yale in 1971.
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Deutsche Bank Jim Reid on recession
Business Insider
Wall Street has almost said it.
In a note to clients on Monday morning, Deutsche Bank’s Jim Reid comes within inches of saying the word “recession” to describe the US economy’s fate during the first half of the year.
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**JK – The sky is falling.

Economy Weak, But Recession Unlikely
Seeking Alpha
While there are several indicators pointing to near-term economic weakness, the overall economic scenario is not alarming.
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**JK – The sky is NOT falling.

Finance chiefs urge action on bubble fear
FT.com
A group of leading financial executives have urged authorities around the world to bolster their crisis-busting arsenals amid fears that ultra-low interest rates have increased the risks of financial instability. The heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement backing the use of macroprudential tools, but warn that rules, if too narrowly applied, could push risks into the more thinly regulated realm of shadow banks.
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The ECB Just Shot Back at Germans Who Say Low Rates Are Robbing Savers
Bloomberg Business
Some Germans have complained a lot in the past year about the European Central Bank’s low interest-rate policy, arguing that it is robbing savers of the fruits of their frugality. Now the ECB is hitting back. The beleaguered savers’ argument goes more or less along these lines: The ECB’s monetary policy has depressed the return on funds saved by the euro area’s northern citizens, all the while showering the economies of the periphery with cash.
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SNB’s Zurbruegg Sees No Sign of 1930s Deflationary Spiral
Bloomberg Business
Swiss National Bank Governing Board Member Fritz Zurbruegg doesn’t foresee Switzerland suffering from a broad-based and self-perpetuating fall in consumer prices, according to a newspaper interview. “Currently we see no signs of a deflationary development as was experienced in the 1930s, that means negative price development across all goods and with a self-reinforcing downwards spiral,” he said in an interview with the Berner Zeitung published on Monday.
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Winners and losers in bond fund fallout
FT.com
Preparing for an era of rising interest rates involves more than reducing exposure to fixed income or limiting the duration of a bond portfolio to insulate against falling prices. From the relative values of fixed income-like dividend stocks, to the manifold effects that higher borrowing costs will have on mortgage real estate investment trusts (Reits), there will be plenty to think about for equity investors, too — and one issue will be their exposure to asset management company stocks.
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Central Banks

Finance chiefs urge action on bubble fear
FT.com
A group of leading financial executives have urged authorities around the world to bolster their crisis-busting arsenals amid fears that ultra-low interest rates have increased the risks of financial instability. The heads of companies including HSBC, UBS and BlackRock will on Monday release a joint statement backing the use of macroprudential tools, but warn that rules, if too narrowly applied, could push risks into the more thinly regulated realm of shadow banks.
jlne.ws/1GjUO0h

Raising Definition of Price Stability ‘Misguided’, Says ECB’s Mersch
WSJ
The European Central Bank can’t change the fundamental goal of its monetary policy, even in times that call for extraordinary measures, said European Central Bank Executive Board member Yves Mersch in remarks published Monday.
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Increasing the transparency of the ECB could do more harm than good
Sebastian Diessner, London School of Economics
Earlier this year, the European Central Bank agreed to release minutes of its governing council meetings in response to criticism over the lack of transparency in its decision-making. Sebastian Diessner writes that while there are good reasons to support the ECB becoming more transparent, lessons should also be learned from the experiences of other central banks. He notes that too much transparency can inhibit discussions and thereby lead to less effective monetary policy overall.
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Ready for the World Stage? As China Opens Up, Its Central Bank Remains a Mystery
Bloomberg Business
In its quarterly report, the People’s Bank of China questioned the merits of transparency, saying too much openness could lead to “pressure from various sides.” Such a stance and its unscheduled policy moves come as Governor Zhou Xiaochuan and Premier Li Keqiang loosen barriers to money flows and seek to establish the yuan as an international currency. For global investors, greater access to the world’s No. 2 economy is poised to come with more exposure to a monetary policy regime that’s ever-more unpredictable, raising the question: Is the PBOC ready for prime time?
jlne.ws/1eaHEYr

Rouble strength poses challenge for Russia’s central bank
FT.com
The rouble rose to its highest level against the dollar in nearly six months on higher oil prices, negating attempts by Russia’s central bank to stem currency strength.
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Currencies

Dollar sell-off takes a pause, Kiwi hit hardest
Reuters
The U.S. dollar made broad-based gains on Monday, recovering some ground after several weeks of selling that brought the greenback to more attractive levels. The euro, which rose nearly 9 percent in value against the U.S. dollar in the course of a month, pulled back close to one percent, its worst daily performance since mid-April.
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Ready for the World Stage? As China Opens Up, Its Central Bank Remains a Mystery – Bloomberg Business
In its quarterly report, the People’s Bank of China questioned the merits of transparency, saying too much openness could lead to “pressure from various sides.” Such a stance and its unscheduled policy moves come as Governor Zhou Xiaochuan and Premier Li Keqiang loosen barriers to money flows and seek to establish the yuan as an international currency. For global investors, greater access to the world’s No. 2 economy is poised to come with more exposure to a monetary policy regime that’s ever-more unpredictable, raising the question: Is the PBOC ready for prime time?
jlne.ws/1eaHEYr

Russia Dirty Float Outed by Traders as Central Bank Sells Rubles
Bloomberg Business
For all Russia’s talk of a free-floating exchange rate, central bank actions are telling traders it’s still being managed. While the Bank of Russia said its purchases of dollars last week were aimed at replenishing foreign-currency reserves, Goldman Sachs Group Inc. and Morgan Stanley see curtailing the world’s biggest currency rally as the real motive.
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India Central Bank Downplays Odds of Early Rupee Convertibility
Bloomberg Business
An Indian central bank official downplayed the chance of early progress in making the rupee fully convertible as China seeks a bigger international role for its currency. While there’s “no escape” from moving toward making the rupee fully tradable against other currencies, India still needs to do more to control government spending and inflation before it’s ready, according to a speech by G. Padmanabhan, a Reserve Bank of India executive director. It was posted on the central bank’s website on Monday.
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Number One Currency Manipulator
WSJ
Sen. Rob Portman has a curious way of looking at changes in exchange rates (Letters, May 13). If they result indirectly from monetary policy shifts by central banks, including our own Federal Reserve, they are legitimate. If they result from the direct intervention in the foreign-exchange market by foreign central banks, they are currency manipulation. Somehow, the U.S. Treasury is supposed to know the difference.
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Indexes & Index Products

IndexIQ Announces May 2015 M&A Deal Holdings in IQ Merger Arbitrage ETF
MarketWatch
IndexIQ, a leading developer of index-based alternative investment solutions, today announced the mergers and acquisitions deals to which investors can gain exposure in the IQ Merger Arbitrage ETF. MNA was the industry’s first exchange-traded fund (ETF) to give investors exposure to global corporate M&A activity, which is rapidly increasing.
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New ETFs Aim to Better Track Commodity Prices
Barron’s
AccuShares’ new lineup of ETFs attempts to minimize the costs and tracking error incurred by most commodity ETFs. But it adds a whole different layer of complexity and cost instead.
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Human Stock Pickers Gain Against Indexes
WSJ
For now at least, human stock pickers are making a comeback against the overall market and rivals who just aim to clone its performance.
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Nobel Winner’s Math Is Showing S&P 500 Unhinged From Reality
Bloomberg Business
If you sold every share of every company in the U.S. and used the money to buy up all the factories, machines and inventory, you’d have some cash left over. That, in a nutshell, is the math behind a bear case on equities that says prices have outrun reality.
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Offering Choices – The S&P BSE AllCap
S&P Dow Jones Indices
The importance of choice is gaining ground in all areas of life. I really resonated to the latest advertisement from Amazon, “Hindustani Dil Kahta Hai, Aur Dikhao, Aur Dikhao!” (“The Indian heart says, Show me more, show me more!”). I would agree that choice is not only important in our day-to-day lives; it also holds true while making investment decisions. A well-classified universe helps in avoiding confusion, as there are innumerable options to choose from and to use for setting goals or requirements. Good and clear categorization helps simplify the process.
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Gold

Central Banks Increase Demand for Gold
Wealth Daily
Gold has actually been one of the flattest and least volatile investments over the last couple of years. It has been bumping around the $1,200 per ounce price level, just recently getting above $1,220. While it hasn’t been an exciting investment, or a very profitable one, over the last couple of years, it has actually held up reasonably well considering the strength of the U.S. dollar.
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Finding Some Shine In This Gold Bear Market
Frank Holmes – Forbes
Two factors drive gold: the Love Trade and the Fear Trade.
In 1997 and 1998, the bottom of the emerging market meltdown took place. Four years later, we saw China and Asia starting to take off and GDP per capita rise. This is an important factor in this whole run-up that I would characterize as the Love Trade.
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Coming Bond Market Mayhem Positive For Gold And Silver
Live Trading News
Both the Federal Reserve’s and foreign central banks’ appetite for US Treasury debt have apparently been sated, (for now anyway) as seen below. The Federal Reserve alone has increased its reserves of US Treasury debt by 850% since 2008. Its three binges of quantitative easing are clearly visible (red plot). Foreign-central banks too have been gluttons consuming massive quantities of US Treasuries up until their demand peaked in November 2012. They then upchucked some $421 billion dollars of them in a single week.
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Economist on Gold – A Dissection
Smarter Analyst
In early May, the Economist has published an editorial on gold, ominously entitled “Buried”. We wanted to comment on it earlier already, but never seemed to get around to it. It is still worth doing so for a number of reasons.
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