First Impressions

Former JLN Intern Places 4th in Trading Competition
Former JLN intern Evan Fabry and his teammates from the University of Illinois took first place in the BP Trading simulation this last weekend and 4th place overall. Evan’s teammates included Greg Pastorek and Ty Buenting. The teams that place ahead of them were from MIT, Dartmouth and Carnegie Mellon.

Quote of the Day

“The dichotomy between Europe and the U.S. is most interesting. If you ask where our strategy would be in a year’s time, we can easily have a forecast of the euro well below $1.”

Adrian Lee, chief investment officer at Adrian Lee & Partners in the story, ” The $9 Trillion Short That May Send the Dollar Even Higher”.

Lead Stories

US companies on course to return $1tn to shareholders in 2015
Shareholders in the biggest US companies stand to receive a record $1tn in cash this year, as blue chips’ concerns over the global economic outlook have diverted cash away from investment and is driving a boom in buybacks and dividends.

Bank Stocks Finally Worth Buying to Morgan Stanley Citing Yields
Morgan Stanley is telling clients to boost the proportion of bank shares they own for the first time since the 2008 financial crisis.
Since March, gains in financial companies have been more pronounced when Treasury yields rise and the group tends to advance with an appreciating dollar, according to Adam Parker, chief U.S. equity strategist at Morgan Stanley. After passing the Federal Reserve stress test last month, the industry is poised to see one of the biggest increases in shareholder return via buybacks, he said.

Unsafe and Unsound Banks
Editorial Board – NY Times
After the latest round of bank stress tests last month, the Federal Reserve announced that, by and large, the nation’s biggest banks would all be able to withstand another crisis without requiring bailouts.
This month, Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, released data that contradict the Fed’s conclusions.

Questioning the Seaworthiness of Bond Funds
NY Times
Investors have embraced bond mutual funds and exchange-traded funds as sound and solid places to keep their money. But that growing popularity rings alarm bells with some regulators, who worry that these same vehicles could become sources of instability in a future market crisis.
The Federal Reserve, in a February report on monetary conditions, suggests that individual investors may have gotten the misleading impression that mutual funds and E.T.F.s trade more readily than the bond markets themselves, and the consequences could be quite serious.

Incorrect date costs broker nearly $23M in liabilities
By John Aidan Byrne, NY Post
A trading regulator found discount brokerage Interactive Broker liable for posting an incorrect date and awarded a New Jersey man a record $2.4 million in damages.

Scared of the stock market? Maybe you’re just making excuses
By Chuck Jaffe
We’ve all heard the old saw that it takes money to make money. The bigger problem may be that a lot of people who are making money aren’t taking any of it and investing it.

Wall Street Banks’ Mutual Funds Can Lag on Returns
Facing challenges on all fronts, Wall Street banks are pinning some of their hopes on a relatively simple business opportunity: creating mutual funds for ordinary savers.

The $82bn listed-company tax gap
Steve Johnson and Madison Marriage, FT
Listed companies in developed markets are avoiding at least $82bn of tax a year by using tax havens and other minimisation strategies, according to detailed analysis of more than 1,000 businesses.

Financial Firms Move Closer to Central Clearing in Repo Market
Financial institutions in the almost $2 trillion a day market for borrowing and lending debt are close to unveiling centralized trade clearing systems to minimize risk in the essential wholesale funding mechanism.
The Federal Reserve has been pushing firms to decrease the risk that a large dealer default, such as the collapse of Lehman Brothers Holdings Inc., triggers broad dislocations in the repurchase-agreement market, where banks typically borrow cash for a short time from investors using securities as collateral. The movement of repo transactions to clearing houses, which pool capital, would help ensure losses at one firm don’t harm all trading partners.

Boat to support industry with MiFID II transparency solution
Complexity of Europe’s new trading transparency regime addressed by new offering
Boat Services Ltd, independent OTC trade reporting service provider, has announced that it will apply for approved publication arrangement (APA) authorization under MiFID II.

Citi, JPMorgan execs warn of clearing-member default breakdowns
US regulators should consider whether clearinghouses are prepared to manage the default of a large member bank during a crisis, Citigroup and JPMorgan Chase executives said.

Bank Regulators at the Gates: The Misguided Quest for Prudential Regulation of Asset Managers:
Remarks at the 2015 Virginia Law and Business Review Symposium, Speech by Commissioner Daniel M. Gallagher at University of Virginia School of Law, Charlottesville, VA

Hong Kong becomes world’s largest exchanges operator
Soaring share prices in China have bestowed a stunning market value of $44bn on Hong Kong’s equity and derivatives exchange, propelling the Asian bourse way beyond the worth of leading global rivals

BofA Refugees Said to Leave Tom Joyce’s Market-Making Startup
The market-making startup created by former Bank of America Corp. traders and ex-Knight Capital Group chief Tom Joyce lost its U.S. and Asia heads of trading, according to two people with knowledge of the situation.
Jonathan Wang, who ran New York-based Arxis Capital’s desk in the U.S., and Peter Yuen, his counterpart in Hong Kong, have departed, according to the people, who asked not to be identified because the moves are private. The firm began trading last month, one person said.

Risky Moves in the Game of Life Insurance
Dealbook – NY Times
In July 2013, the smart money was saying the company that runs the Caesars and Harrah’s casinos would go bankrupt, when a big investor, Apollo Global Management, offered a lifeline: It was willing to pump millions of dollars into the parent of the struggling casino company.
And where would Apollo get the money?

JPMorgan Names Senior Executives for Europe
Dealbook – NY Times
JPMorgan Chase is shaking up its European business.
Emilio Saracho, who has been the deputy chief executive for the investment bank’s Europe, Middle East and Africa business, will become a vice chairman, reporting to Daniel Pinto, the head of the investment bank, and Mary Erdoes, head of asset management, according to an internal memo sent by the bank.

Central Banks

Three Dates That Will Ease Your Mind About U.S. Inflation
Michelle Jamrisko – Bloomberg
The Era of Dangerously Lowflation, and the stagnant-wages storyline that’s gone with it, finally may be coming to an end.
So forecasts Omair Sharif, a rates sales strategist at Societe Generale in New York, who sees inflation data perking up and keeping June on the table for the Federal Reserve’s first increase in the benchmark interest rate since 2006.

Why the ECB and Germany Are Causing Each Other Headaches
MoneyBeat – WSJ
For the European Central Bank, Germany is proving to be something of a headache.
The ECB’s EUR60 billion ($63.6 billion) monthly asset purchase program is heavily weighted towards German sovereign debt, because Germany is the eurozone’s biggest economy. In March, for example, the ECB bought EUR11.1 billion of German government bonds.
But Germany’s economy is in fact doing rather well. And its government wants to cut its debt.

ECB: Ensuring an adequate loss-absorbing capacity of central counterparties
Special invited lecture by Benoît Cœuré, Member of the Executive Board of the ECB,
at the Federal Reserve Bank of Chicago 2015 Symposium on Central Clearing,
Chicago, 10 April 2015

Is the Fed brewing the next crisis?
Fears of lower-than-expected corporate earnings at a time when liquidity-driven equity market valuations are the highest in a decade are raising questions about the wisdom of the U.S. Federal Reserve’s (Fed) near-zero interest rate policies.
Apart from the usual and transitory trading anxieties, the questions of excesses, asset mispricing and imbalances that can be created by a quasi-free money over an unprecedentedly long period (i.e., since 2008) are perfectly valid and understandable.

Have Central Banks Learned to Distinguish ‘Good’ From ‘Bad’ Deflation?
MoneyBeat – WSJ
Have central banks overestimated the threat of deflation, launching a wave of fresh stimulus to counter a danger that really wasn’t that clear and present?
Inflation rates in developed economies have been falling for roughly three years, but took a decisive lurch downward towards the end of 2014 as oil prices collapsed. In Europe, consumer prices started to fall relative to their year-earlier level, and edged closer to that point in a number of other economies.

Why central banks should embrace negative interest rates — and get rid of currency
During the heart of the Great Recession in 2009, a traditional policy rule used as a informal guide by the Federal Reserve suggested that interest rates should be set below negative 5%.
But economists had long said that interest rates couldn’t go below zero.

Why You Shouldn’t Fight the Central Banks
The traditional market refrain — Don’t fight the Fed — requires an update: Don’t fight the central banks.
As the second quarter gets underway, aggressive and, most likely, divergent central bank monetary policies look set to dominate fixed income markets in 2015. So far this year, more than 20 central banks have eased their monetary policies and nearly $2 trillion of government debt across the globe is trading at negative yields. U.S. Treasury rates have fallen even as the Federal Reserve appears poised to raise policy rates sometime this year.

This Central Bank Doesn’t Set Interest Rates
When Singapore’s central bank announces its monetary policy decision, it talks about currency bands, widths, slopes and centers. Other central banks use more straightforward language that says they are cutting or raising interest rates.
How does it work?


The $9 Trillion Short That May Send the Dollar Even Higher
Bloomberg Business
Investors speculating the dollar rally is fizzling out may be overlooking trillions of reasons why it will keep on going. There’s pent-up demand for the U.S. currency that will underpin years of appreciation because the world is “structurally short” the dollar, according to investor and former International Monetary Fund economist Stephen Jen.

Hedge funds’ bets on strengthening dollar pay off
Miles Johnson in London and Stephen Foley in New York, FT
Hedge funds have enjoyed their best quarter relative to US equities in four years as big bets on the rise in the US dollar paid off for some of the world’s best known managers, helping the industry break years of mediocre returns.

Greenback’s Strength Endures As Investors Bet On A Fed Rate Hike
The U.S. dollar continues its domination over a basket of currencies as investors increasingly bet on the Federal Reserve to raise interest rates over the summer. Those same expectations are also weighing on the price of gold. The yellow metal slipped on Monday morning against the buck and understandably so: gold pays no interest. It’s only natural to see investors steer clear of gold with Fed interest rate hike expectations on the rise.

5 myths about currency manipulation and exchange rates
Most observers overestimate the importance of currency policy. This month, the International Monetary Fund (IMF) may name China’s yuan as one of its reserve currencies. Also this month, Congress could vote on whether to give Trade Promotion Authority (TPA) to President Obama. Then another vote looms on the Trans-Pacific Partnership (TPP).
In these instances and others, currency manipulation will be treated as vital despite the fact that it is not particularly important to the United States. Dispelling myths about exchange rates makes this clearer.

A Reserve Currency Fast-Track for the Yuan
The discussion about including the renminbi in the SDR is not new. People’s Bank of China (PBoC) Governor Zhou Xiaochuan first raised the question on the SDR components when he suggested in March 2010, at a G20 meeting in London, to replace the US dollar by the SDR as the world’s reserve currency. The talk has gained momentum recently, as the International Monetary Fund (IMF) is going to review the components of the SDR basket in November this year. At a press conference on 12 March during the National People’s Congress this year, PBoC Deputy Governor Yi Gang revived the idea of including the renminbi in the IMF’s SDR basket.

Indexes & Index Products

Family of Global Sovereign Inflation-Linked Bond Indices Launched by S&P Dow Jones Indices
As investors grow increasingly concerned about inflationary issues across developed and emerging markets, S&P Dow Jones Indices (S&P DJI) today announced the launch of a new family of Global Inflation-Linked Sovereign Indices to effectively measure inflation-linked country debt within these classifications. The launch of the S&P Global Sovereign Inflation-Linked Bond Indices is part of S&P DJI’s global initiative to expand its fixed income index offerings globally across more bond types.

Exchange traded funds make strongest ever start to a year
Chris Flood, FT
The exchange traded funds industry made its strongest ever start to a year with net inflows of just under $96bn in the first three months of 2015, a first quarter record.

Often Overlooked – Systematic Rebalancing Key to Smart Beta
ETF Trends
While the incessant buzz around smart beta index strategies continues unabated, much of the discussion seems to center on either the terminology or the different weighting methodologies – fundamentals, dividends, equal-weighting and more. But what’s not often talked about is the importance of a simple, objective, rules-based rebalancing discipline.

Three Ways to Beat a Benchmark
The bull market rumbled past its sixth birthday in March. Despite that marathon climb, fund managers are still finding underappreciated stocks. The stewards of three of the top-performing funds of the first quarter grabbed gains in the health care sector and Japan.

US sharemarket rally unsupported by company earnings
Australian Financial Review
When companies themselves are the biggest buyers of shares on the S&P 500 and the amount of cash returned to investors through buybacks and dividends reaches almost $US2 trillion ($AUD2.6 trillion) in two years, it’s not unreasonable to start thinking the whole strategy is getting out of hand.

Introducing the S&P Dow Jones Indices Versus Active (SPIVA) Latin America Scorecard
S&P Dow Jones Indices
S&P Dow Jones Indices is proud to expand the SPIVA Scorecard report to the Latin America region. The SPIVA methodology is designed to provide an accurate and objective apples-to-apples comparison of active funds’ performance versus their appropriate style benchmark indices. The SPIVA Latin America Scorecard covers the Brazilian, Chilean, and Mexican markets. A summary of the year-end 2014 results in the three markets follows.


Canada’s Alamos Gold, AuRico merger may spark rival bids
Canadian gold miners Alamos Gold Inc and AuRico Gold Inc unveiled a $1.5 billion merger plan on Monday, setting the stage for possible competing offers as miners scout for assets amid slowing growth and weaker gold prices.
The combined mid-sized producer, with operations in Canada and Mexico, will have 2015 output of 375,000 to 425,000 ounces of gold.

There is no pressure to repatriate gold
Turkey’s central bank is under no pressure to repatriate its gold reserves from the US Federal Reserve or the Bank of England, its executive director of markets said.
The country currently holds a portion of its 510.3 tonnes of reserves in the vaults of both the Fed and the BoE, Erkan Kilimci of the Central Bank of the Republic of Turkey (CBRT) told delegates at the Dubai Precious Metals Conference here.

Iran, secret gold, mystery trade boost Turkey
The Salt Lake Tribune
Turkey’s trade balance, one of the few points for solace in this year’s worst performing bond market, might not be improving as much as the data appears to show.
Despite having no significant gold deposits, exports of the precious metal made up 70 percent of the narrowing in the current account gap, according to government data published Friday.

Gold Income Funds Can Have You Investing Like Warren Buffett
Warren Buffett thinks every investor should own a little bit of gold.
Yet, while on CNBC recently for an hour-long segment, the legendary investor also said that he prefers “investments” versus “speculative trades.” That is, he prefers to hold investments that earn money and generate income rather than ones that are hoped to go up in value. Obviously that means Buffett prefers equities of companies that generate income for shareholders; commodities, like gold, of course do not generate income.

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