First Impressions

Lee Hodgkinson, Euronext – Lessons from the 4-Minute Mile

“Everything is possible; nothing is easy.”

Roger Bannister, Clarence “Captain” Birdseye and Fedex founder Fred Smith all have one thing in common – they each proved that something previously declared “impossible” was not impossible, just really difficult. Whether it is the 4-minute mile, flash-frozen vegetables or getting a package delivered “absolutely, positively, anywhere overnight,” it can be done, says Euronext UK CEO Lee Hodgkinson in this MarketsWiki Education talk. He says that achieving the impossible requires focus, persistence and determination.

Nothing is impossible, says Hodgkinson, except running slowly while moving your arms really fast, and trying to eat three donuts in one minute without licking your lips. Not even Roger Bannister could achieve that feat.

Watch the video »

Quote of the Day

“It was absurd what expectations were expressed. I believe it was really a massive failing of market analysts. I don’t believe the ECB’s communications policy gave a false signal.”

European Central Bank policy maker Ewald Nowotny in the story, “ECB’s Nowotny Criticizes `Absurd’ Expectations for Stimulus”

Lead Stories

US companies turn to European debt markets
Gavin Jackson – Financial Times
US tyremaker Goodyear Dunlop sold a EUR250m eight-year euro-denominated bond on Wednesday — its first such deal in four years — as US companies raise record amounts in the eurozone. The sale was the latest example of a reverse Yankee — euro-denominated debt issued by US companies. US companies have been the biggest issuers of euro bonds by nationality this year. Last week Ball Corporation, an avionics and packaging company, issued euro and dollar bonds to fund its acquisition of Rexam, a UK drinks maker.

Appeals Ruling Is a Mixed Bag in Case Against Bond Trader
Aruna Viswanatha and Christopher M. Matthews – WSJ
A federal appeals court threw out parts of a criminal case against a former Jefferies Group LLC bond trader, dealing a setback to the Justice Department’s efforts to crack down on rogue behavior on Wall Street.
The decision, coming when politicians continue to demand more individuals be held responsible for financial crimes, shows the complexity authorities face in navigating that goal through the legal system. And it follows the reversal of several insider-trading convictions this year.

Dow-DuPont Merger: Better Living Through Layoffs
Dennis K. Berman – WSJ
To the eyeshades on Wall Street, a DuPont – Dow Chemical merger is a thing of utter sensibility. Cut costs. Rationalize. End two problems with one final $60 billion flourish. But there is a mournful edge to the whole idea. It’s as if these two companies—absolute bedrock of U.S. industrial might—have given up faith in themselves and their futures.

Tighter policy will mean lower bond yields
Steven Major – Financial Times
Time for something different?
Lower not higher. Our forecasts of 1.5 per cent and 0.2 per cent for 10-year Treasury and Bund yields, respectively, by the end of 2016 reflect a world fraught with risk and economies still struggling to recover, burdened by previous excesses.

Banks Will Struggle With Profitability in 2020, Survey Shows
Michael J Moore – Bloomberg
Global investment banks face five years of cost-cutting as tighter regulations limit profits and trading revenue fails to bounce back, according to a survey of analysts covering the industry.
The firms on average will earn a 9 percent return on equity in 2020, still short of their cost of equity, according to the survey of 147 analysts and portfolio managers conducted by Institutional Investor and Broadridge Financial Solutions Inc., which handles trade processing and investor communications for banks and other companies. Sixty-one percent of the respondents expect regulatory pressure to increase over the next five years and 9 percent predict a decline.

Morgan Stanley closing base metals trading: source
Pratima Desai – Reuters
U.S. investment bank Morgan Stanley will close its base metals trading desks globally as part of a plan to cut up to 25 percent of jobs in its fixed income and commodities division, a source at the company told Reuters on Tuesday.

Who’s the Bear Driving Up the Price of U.S. Stock Options? Banks
Joseph Ciolli – Bloomberg
For more than a year, dealers in the U.S. equity derivatives market have noted a widening gap in the price of certain options. If you want to buy a put to protect against losses in the Standard & Poor’s 500 Index, often you’ll pay twice as much as you would for a bullish call betting on gains.
New research suggests the divergence is a consequence of financial institutions hoarding insurance against declines in stocks.

Exclusive: Credit Suisse, Julius Baer eye bids for BTG Pactual’s Swiss unit – sources
Pamela Barbaglia and Guillermo Parra-Bernal – Reuters
Credit Suisse (CSGN.VX) and Julius Baer (BAER.VX) are among a handful of banks vying to buy the Swiss private-banking arm of embattled Brazilian investment bank Grupo BTG Pactual SA (BBTG11.SA) in a cut-price deal, sources with direct knowledge of the talks told Reuters on Wednesday. Zurich-based Credit Suisse is exploring an offer that would value BSI at less than 1 billion Swiss francs ($1.01 billion), one of the sources said, speaking on condition of anonymity.

Alistair Darling joins Morgan Stanley
Morgan Stanley has said former Chancellor Alistair Darling will join the bank’s board of directors.
Mr Darling, who served as the Chancellor of the Exchequer from 2007 to 2010, will take up the role in January.
His move follows former Prime Minister Gordon Brown’s appointment to an advisory panel at the global investment firm Pimco.

When Can Bond Traders Lie to Their Customers?
Matt Levine – Bloomberg
Jesse Litvak is a former Jefferies bond trader who lied to his customers. Specifically, he traded residential mortgage-backed securities, and he would tell buyers of those securities inventive little stories about the prices he had paid for them. So for instance, a customer came to him and asked to buy some bonds, he described for the customer “a fictional back-and-forth between himself and an unnamed, non-existent third-party seller,” and he ended by telling the customer that he’d paid $53.00 for the bonds. Then he charged the customer $53.25. The customer thought that Litvak had worked hard on his behalf and gotten paid a quarter for his efforts. But really Litvak had owned the bonds all along — he’d bought them days earlier for $51.25 — and made an undisclosed profit of $2.00.

Smart money is get out of real estate
John Mauldin – Business Insider
Real estate investing is all about timing, and Sam Zell knows this better than anyone.
He sold his real estate firm, Equity Office, to Blackstone Group for $39 billion near the peak of the market. This was back in February 2007—only months before real estate credit markets started to spiral out of control.

Well-bid German debt auction shows markets getting over ECB disappointment
Marius Zaharia – Reuters
Germany’s last bond auction of 2015 drew strong demand on Wednesday, in a sign that financial markets have got over their disappointment with the ECB’s latest monetary policy easing package and are already eyeing its next moves.

Oil Poses Debt Risk, But Saudis Need Dollar Peg, Fitch Says
Dimitra DeFotis – Barron’s
Lower oil prices are the big contributing factor in emerging market sovereign debt downgrades in 2015, and several remain vulnerable to more pain, Fitch Ratings said in a report Tuesday.

For the Curious But Uncommitted, a Blockchain in a Box
Penny Crosman – American Banker
Banks’ growing curiosity about so-called blockchain technology has spawned a new category of technology: blockchain as a service.
Every major bank either has a blockchain application in process or hopes to have one soon. Generally speaking, they don’t want to use the original bitcoin blockchain (the public ledger of all bitcoin transactions), just technology based on the concept — in other words, a shared ledger that can be used to track things like asset sales, payments, loans, and contracts. Such ledgers are seen as a way to make finance more resilient (since distributed systems have no single point of failure), efficient (since they remove duplication of effort), and transparent (since they are auditable in real time).

The Role of Technology in Financial Markets Regulation
Matthew Kulkin and Jason Weinstein – Bloomberg BNA
In response to the ”Great Recession,” the financial crisis of 2008 that resulted in millions of unemployed Americans and trillions of dollars in lost wealth, 1 Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (”Dodd-Frank Act”). The Dodd-Frank Act changed the regulatory system charged with regulating the financial systems viewed as responsible for the crisis.

Bank of America expects lower fixed-income trading revenue
Christina Rexrode – MarketWatch
Bank of America Corp. said Wednesday it expects fixed-income trading revenue to decline from the previous quarter.

Central Banks

Less Than Zero: Living With Negative Interest Rates
Tommy Stubbington – WSJ
Once, it was a good thing to have money in the bank.
Now, Danish companies pay taxes early to rid themselves of cash. At one small Swiss bank, customer deposits will shrink by an eighth of a percent a year.
But it isn’t all bad. Some Danes with floating-rate mortgages are discovering that their banks are paying them every month to borrow, instead of charging interest on their home loans

This was one of Obama’s biggest economic mistakes
Matt O’Brien – Washington Post
It was an easy mistake to make, but once he did, Republicans tried to stop President Obama from unmaking it.
That was leaving spots on the Federal Reserve open instead of filling them with people who thought that, even in the current crisis, it could and should do more to help the economy. Now, that might not sound like that big a blunder, but it has probably hurt the recovery by making monetary policy a bit tighter than it otherwise might have been, even to this day. Indeed, the Fed looks all but certain to start raising rates later this month when it might not if there were a few more “doves” on the committee.

Market reaction to US rate rise troubles Bank of England
Jill Treanor – The Guardian
The Bank of England is on alert for the reaction in financial markets to an anticipated rise in US interest rates for the first time since the financial crisis.

ECB’s Nowotny Criticizes `Absurd’ Expectations for Stimulus
Boris Groendahl – Bloomberg
European Central Bank policy maker Ewald Nowotny said the financial community misjudged the state of the euro-area economy and thus had unrealistic expectations for more stimulus last week.

Russia Unlikely to Cut Interest Rates as Inflation Remains Stubbornly High
Andrey Ostroukh – WSJ
The Bank of Russia is likely to refrain from cutting interest rates on Friday as a weaker ruble together with tensions with Turkey could have boosted already stubbornly high inflation.
A few weeks ago Russia’s central bank had been widely expected to cut interest rates in December to revive the contracting economy with cheaper lending. Now, chances of a rate cut are fading as a pace of consumer prices growth and inflationary expectations are on the rise.

One of the Real Problems With QE
Howard Simons – TheStreet
With all of this week’s hand wringing, knuckle cracking and other actions with various and sundry appendages, it’s easy to forget about last week’s gift to the markets from the European Central Bank. Its move to lower deposit rates to only -30 basis points instead of the expected -40 led to some big gains in the euro, large losses in European stocks and bonds and, par for the course, large hedge fund losses. Those sharp moves masked one of the real problems associated with quantitative easing, one that has manifested itself for several years in Japan as well. In homage to Margaret Thatcher’s observation that the problem with socialism is sooner or later you run out of other people’s money, in QE you sooner or later run out of sovereign debt.

Poloz Says Canada Quite Far From Extraordinary Stimulus
Greg Quinn – Bloomberg
Bank of Canada Governor Stephen Poloz said the nation’s economy remains “quite far” from needing unconventional policies such as quantitative easing to spur growth, with a weaker Canadian dollar and recent rate cuts accelerating the recovery.
Two interest rate cuts this year that have brought the benchmark rate to 0.5 percent helped keep the economy out of a recession following a drop in crude oil prices, Poloz said in an interview Tuesday with Bloomberg TV Canada’s Pamela Ritchie. A weaker Canadian dollar is also helping, he said in the interview.

The central banker Kenyans trust with their cash
Edmund Blair and Duncan Miriri – Reuters
Kenya’s central bank governor has yet to complete six months in the job but he has done what few of his country’s officials ever achieve: he has made people feel their money is safe in his hands. This is less because of Patrick Njoroge’s success in stabilising the plummeting shilling and more to do with his shunning the fleet of luxury cars and the plush villa that come with the post, the kind of perks widely seen as motivating most public servants.

Argentine cenbank chief quits after being pressured by Macri
Jorge Otaola – Reuters
Argentine central bank chief Alejandro Vanoli resigned on Wednesday, a bank spokesman told Reuters, ending uncertainty over the direction monetary policy will take a day before the country’s next president assumes office.


Why I’m getting more skeptical of claims that Bitcoin’s creator has been unmasked
Timothy Lee – Vox
One of the biggest mysteries in the technology world is who invented Bitcoin, the cryptocurrency (and payment network) that’s now worth billions of dollars and could — according to supporters, at least — revolutionize the financial industry. Until now, the technology’s creator was known only as Satoshi Nakamoto, an online pseudonym whose offline persona was a tightly guarded secret.
Many people have tried and failed to unmask Bitcoin’s inventor. One list compiled this summer counted 10 people or organizations that might be the real Satoshi Nakamoto, ranging from cryptographer Nick Szabo to the National Security Agency. The most notorious case came last year, when Newsweek reported that Nakamoto was an elderly Japanese model train enthusiast living in California — only to have its reporting decisively debunked.
On Tuesday, independent reporting by Wired and Gizmodo both pointed to a new candidate: an Australian technologist named Craig Steven Wright. Wright fits the basic Nakamoto profile — he’s a brilliant and secretive technologist — and leaked documents appear to provide overwhelming evidence that Wright is Nakamoto’s real-life alter ego.

****SD: There has been a flurry of activity around this Craig Steven Wright fellow, including the initial WIRED report and the subsequent, as yet unrelated to Bitcoin raid of his home.

Central Bankers Explore Response to Bitcoin: Their Own Digital Cash
Ryan Tracy – WSJ
Amid the rising popularity of bitcoin and other private digital currency technologies, central bankers around the world are studying the possibility of issuing virtual money backed by the government itself. The transformation could cut costs across the payment system and give authorities more control over their money supply—but it may also raise security and privacy concerns.

A Strong Dollar Hurts China More Than the U.S.
Rich Miller and Enda Curran – Bloomberg
The biggest loser from a stronger dollar may be China, not the U.S. And that’s why some economists predict the Asian nation will loosen its currency’s link to the greenback and allow the yuan to depreciate.

China Sets Yuan at Four-Year Low in ‘Stress Test’
Anjani Trivedi and Lingling Wei – WSJ
China guided the yuan to its weakest level in more than four years as the country deals with currency outflows and a slowing economy while trying to loosen its grip on the exchange rate.
The central bank is testing how far it can let market forces go in determining the yuan’s value without setting off a sharp selloff and incurring wrath from trading partners, according to people familiar with the matter.
“It’s a stress test of sorts,” one of the people said. “What the central bank is trying to avoid is the kind of panic selling that resulted from the August devaluation.”

Wilting dollar lifts euro to high for the month
Michael Hunter and Jennifer Thompson – Financial Times
The dollar has taken a sudden leg lower after its long rally left it looking exposed, helping the euro reach its strongest level of the month against the world’s reserve currency.
The euro is up 0.8 per cent at $1.0978, while the yen is also 0.8 per cent stronger at Y121.92 to the dollar. The pound is up 0.8 per cent at $1.5130. The move came a week before the Federal Reserve’s monetary policy meeting, at which it is widely expected to lift interest rates off crisis-era record lows.

Could The Yen Claim The Forex Leader’s Jersey?
Dmitry Demidenko – Seeking Alpha
The Japanese yen, one of the three best-performing G10 currencies, could become the leading favorite for 2016 and beyond. According to the bulls, diverging Federal Reserve and BOE monetary policy cannot keep pushing up USD/JPY prices forever.

Got top 10 FX ideas for 2016? SocGen trumps everyone with their top 16!
Wow, awesome work from French bank Société Générale, neatly putting out their top 16 trade ideas for 2016.

Indexes & Index Products

It’s back: A bad S&P 500 data point last seen at dot-com bust
Tim Mullaney – CNBC
The S&P 500 has a big performance issue that should be a focus for investors: Too much of the index return is coming from too few of its stocks. The 10 most valuable companies in the market are up roughly 21.4 percent as a group this year, versus a loss of 2.6 percent for the rest of the stock market. That 24 percentage-point spread between the biggest stocks and the index as a whole is the widest since 1999, heading into the dot-com bust.

JPMorgan: The Fed Could Trigger a ‘Massive Stop Loss Order’ in the S&P 500 if Liftoff Goes Awry
Luke Kawa – Bloomberg
Analysts at JPMorgan Chase say the Federal Reserve has 670 billion reasons to deliver a “dovish hike” if it elects next week to raise interest rates for the first time in nine and a half years.

The S&P 500 is your best weapon against rising rates next year
In a week that has so far wiped more than 1% off the S&P and Dow, here’s some food for thought from Barry Ritholtz. The Big Picture blogger asks what investors should expect after a flat year for U.S. markets. He says the bears take the view that a flat year is a sign that the nearly seven-year-old bull market is “old and tired,” and ready for a big pullback.

FTSE Russell unveils new smart beta indices offering core US equity exposure
John Maher – ETF Strategy
FTSE Russell, a global index provider, has launched a series of multi-factor smart beta indices which track a core allocation to US equities with a range of factor tilts designed to capture improved risk-adjusted returns. The rules-based design as these indices makes them an ideal candidate as the basis for index-tracking products such as exchange-traded funds.

Record Selling Plunges Junk Bond ETFs To Multi-Year Lows
Chris Dieterich – Barron’s
The fast-money is ditching junk bond exchange-traded funds this week as worries about defaults in the oil patch mix with uncertainties about a hike to short-term interest rates.

First Trade In German Wind Index Futures Executed On Nasdaq Commodities
Press Release
Nasdaq Commodities is pleased to announce that the first trade in the German Wind Index Futures was executed on launch day between EDF Trading Ltd and Energi Danmark A/S.

GMEX IRS Constant Maturity Index Wins Best Innovation By An Exchange For Regulatory Reform FOW International Awards
Press Release
GMEX Exchange, a wholly owned subsidiary of GMEX Group is pleased to announce that the GMEX Interest Rate Swap Constant Maturity Index (“IRS CMI”) has been awarded Best Innovation by an Exchange for Regulatory Reform at 2015 Annual Futures and Options World (“FOW”) International awards.


Mining Company Debt Is Fool’s Gold
Lisa Abramowicz – Bloomberg
If it sounds too good to be true, well, you know the rest.
Credit investors are facing an offer that on its surface sounds pretty amazing: Bonds of metals or mining companies are promising tons and tons of yield, in some cases more than 100 percent in just one year. There’s a problem of course. Buyers may end up just losing their money altogether.

China boosts gold reserves for 5th straight month
Asia Times
Taking advantage of the low price of gold, in November China boosted its gold holdings for the fifth consecutive month, the fastest growth rate since June, the central bank reported Tuesday.

The New York Times’ Leaden Analysis Of Gold
Steve Forbes – Forbes
The New York Times recently ran an article trashing the idea of a return to a gold standard. A growing number of Republicans, including presidential hopeful Senator Ted Cruz, advocate fixing the value of the dollar to gold.
If the purpose of the Times story was to discredit such a possibility before it gained any more momentum, it failed. The piece is actually useful in that it encapsulates some of the egregious myths, misunderstandings and just plain ignorance of what a gold standard is all about.

Shree Siddhivinayak temple plans to deposit 160 kg of gold under Modi govt’s monetisation scheme
Economic Times
One of the most popular temples in India may soon make the first substantial contribution to Prime Minister Narendra Modi’s plan to recycle tonnes of idle bullion to reduce imports and the country’s current account deficit.

Congressional Committee: Investigation Of Gold King Mine Spill Limited
A U.S. Interior Department investigation glossed over the federal government’s negligence in a massive toxic wastewater spill from an inactive gold mine that fouled rivers in three states, Republicans in Congress said as they pushed for a more detailed explanation of the accident.


Pharma’s Bad Boy Exec Paid $2 Million for Wu-Tang Clan’s New Record
Devin Leonard and Annmarie Hordern – Bloomberg
It was one of the greatest sales pitches the music industry has ever heard. In March 2014, Robert Diggs, better known as RZA, the producer and de facto leader of the Wu-Tang Clan, the iconic rap group, announced that the Clan would create only one copy of its next album, Once Upon a Time in Shaolin, and sell it to the highest bidder. “We’re about to put out a piece of art like nobody else has done in the history of music,” RZA told Forbes. “We’re making a single-sale collector’s item. This is like someone having the scepter of an Egyptian king.”

The Choice: Why Angela Merkel Is TIME’s Person of the Year 2015
Nancy Gibbs – TIME
Europe’s most powerful leader is a refugee from a time and place where her power would have been unimaginable. The German Democratic Republic, where Angela Merkel grew up, was neither democratic nor a republic; it was an Orwellian horror show, where the Iron Curtain found literal expression in the form of the Berlin Wall. The shy daughter of a Lutheran minister, Merkel slipped into politics as a divorced Protestant in a largely Catholic party, a woman in a frat house, an Ossi in the newly unified Germany of the 1990s where easterners were still aliens. No other major Western leader grew up in a stockade, which gave Merkel a rare perspective on the lure of freedom and the risks people will take to taste it.

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