First Impressions

MarketsWiki Education Is More Than Paying It Forward
John Lothian – JLN

Pay it forward. Do something nice for someone because some other person did something nice for you. In the case of MarketsWiki Education, you can pass on your passion for the markets and the underlying industry by sending your interns, your newer employees, or your son or daughter to the event series

You can help change someone’s life for the better, I promise you. That is the kind of response we have had from some attendees. This response has prompted us to expand the program’s reach even farther from its Chicago roots. We will be in Chicago for the fourth straight year, and New York and London again this year, but also Frankfurt and Paris.

The speakers we have lined up are all giving their time freely, not for us, but for the young people to whom they will be speaking. The speakers are paying it forward.

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Quote of the Day

“The typical scenario is not that the bank has this plan for world domination being cooked up by the chairman and CEO. It’s some midlevel employee trying to keep his job or his bonus, and as result the bank gets into trouble.”

Adam Pritchard, a law professor at the University of Michigan, in the story, “Wall Street Crime: 7 Years, 156 Cases and Few Convictions”

Lead Stories

Wall Street Waits for Yellen Before Taking Off for a Long Weekend
The Friday before Memorial Day weekend is typically dead on Wall Street. The bond market shuts early and trading in stocks slows to a trickle as everyone hightails it out of town. Not this year. At 1:15 p.m. New York time, just 45 minutes before the world’s biggest bond market is set to go dark for three days, Federal Reserve Chair Janet Yellen is due to speak at an event in Massachusetts that may turn into a crucial moment for investors handicapping the path of interest rates.

****SD: I want to light the grill already.

G-7 Leaders Differ on Risks to Global Growth
Leaders of the Group of Seven leading industrialized nations talked about ways to stoke the global economy, but appeared to disagree on the risks to growth and exactly how to respond. U.S. President Barack Obama said G-7 leaders spent significant time during their meetings Thursday discussing the global economy and the “need to continue to accelerate growth.”

****SD: Some other not surprising G7 news: Barack Obama says Donald Trump is ‘rattling’ world leaders

Swift Hack Probe Expands to Up to a Dozen Banks Beyond Bangladesh
Investigators are examining possible computer breaches at as many as 12 banks linked to Swift’s global payments network that have irregularities similar to those in the theft of $81 million from the Bangladesh central bank, according to a person familiar with the probe.

****SD: From Reuters, In Ecuador cyber heist, thieves moved $9 million to 23 Hong Kong firms, and from the WSJ, Hackers Stole From Bangladesh Commercial Bank Three Years Ago

Citigroup’s Humpty Dumpty Libor Submissions
“When I use a word,” Humpty Dumpty once scornfully told a young visitor to Wonderland named Alice, “it means just what I choose it to mean — neither more nor less.” Humpty Dumpty would have been a terrific Libor manager. Yesterday Citigroup agreed to pay $425 million to settle probes into the manipulation of Libor and something called ISDAFIX, which is a swaps benchmark. A lot of the evidence of manipulation comes from chat room conversations between Libor submitters who seem to operate on the principle Libor is just what they chose it to be—neither more nor less.

****SD: I thought they were going with the “Humpty Dumpty had a great fall” angle.

Swaps End-Users Still Reluctant to Trade on SEFs
TABB Forum
Notional volume traded in IRD has been on the rise since late 2015 within the US, but off-SEF trading still represents a majority of this volume, and the percentage captured by Swap Execution Facilities has been dropping consistently for months. Meanwhile, the CDX market continues to drop off, as notional traded volume has nearly halved as of May.

Banks and Brexit: Wait and hope
The Economist
Opinion polls suggest that Brexit won’t happen. Ladbrokes, a bookmaker, is offering 4-to-1 against. But pollsters and bookies have been wrong before: what if on June 23rd Britain chooses to quit the European Union? The world’s biggest banks, for which London is a second home if not their first, have plenty of other worries: profits are thin, regulators nagging, investors impatient. The referendum is an extra headache they could do without. Banks must nevertheless be braced for turmoil should the odds be upset. And if Britain votes to leave, they will face an awkward decision: should they shift business away from Europe’s financial capital?

Europe’s Pointless ‘Breakthrough’ on Greece
The leader of Europe’s finance ministers called Wednesday’s agreement on Greek debt a “major breakthrough.” In a way, it was. The latest twist in this perpetual negotiation has raised the art of dithering to impressive new heights.

****SD: From now on I’m keeping “professional ditherer” in my Rolodex of minor insults.

Goldman Sachs just figured out something important about millennials
Business Insider
Goldman Sachs has discovered something important about its employees: they want more feedback on how they’re doing. The firm is overhauling the way it gives feedback following an internal survey that highlighted that desire.

Central Banks

The Fed’s Amazing Self-Fulfilling Forecast
Narayana Kocherlakota – Bloomberg
The Federal Reserve’s track record of economic forecasting is a lot better than many observers recognize. It might also offer some insight into the central bank’s approach to managing the recovery.

The risks of central banks’ radical treatments
Financial Times
Have we reached the limits of monetary policy? No. The central banks’ medicine cabinet is still full. Yet using the old treatments more aggressively or using altogether new treatments creates political, financial and economic risks. Worse, such action cannot solve some of the bigger difficulties the high-income economies confront. In an ideal world, therefore, monetary policy, should not remain “the only game in town”, as the title of a book by the economist and investment manager Mohamed El-Erian suggests it now is. Unfortunately, we do not live in an ideal world. In the real world, central banks must remain our doctors of choice.

Carney Says Bank of England Is Closely Monitoring Buy-to-Let
Bank of England officials are scrutinizing risks stemming from property-market investment, Governor Mark Carney said, in a further sign the growth of buy-to-let has caught the central bank’s attention. The Financial Policy Committee “will continue to monitor closely recent developments” and “potential threats to financial stability from buy-to-let mortgage lending,” Carney wrote in a letter to Chancellor of the Exchequer George Osborne, dated May 26. He also noted Osborne’s “intention to bring forward secondary legislation” that will give the FPC greater powers to intervene in the market, the letter showed.

China to keep policy slightly loose – paper
The People’s Bank of China will keep policy slightly loose to support the economy, which still faces downward pressure, the China Business News said on Thursday, citing a central bank report.

When is the ideal time for Fed rate hike?
In an environment where any outside shock — either yuan devaluation or Brexit — can spill over into the U.S. economy, either directly or via financial markets, the Federal Reserve has limited windows of opportunity to raise rates. Monetary policy mistakes are usually associated with the Fed being behind the curve — when the central bank is blindsided by an overheating economy and rampant inflation, forcing it to tighten faster. But some analysts believe that the Fed made a mistake by missing an opportunity to begin normalizing rates when it had a chance a few years ago.

U.S. rates may rise ‘fairly soon,’ Brexit a concern: Fed’s Powell
The U.S. Federal Reserve on Thursday continued to lay the groundwork for an interest rate increase in the next two months, with a senior policymaker saying the economy will likely be ready for such a move “fairly soon.”

Regulatory News

At Swinging Wall Street Parties, the Feds Are Now on the Prowl
Bloomberg via Traders News
The drinks were flowing in Miami Beach that evening when Wall Street’s top cop crashed the party. As dealmakers crowded around the sleek circular bar at the Fontainebleau hotel in Miami last September, folks from the Securities and Exchange Commission were mingling, looking for their next big case. Awkward, yes — but not uncommon these days. Like a skunk at a garden party, the SEC has been moving in on the fun-loving Wall Street conference circuit in hopes of getting a better handle on who’s up to no good in the world of finance. Officials scour attendee lists to spot the biggest players in advance and, properly wearing name tags, schmooze over drinks. Of course, they don’t accept any — that’s a no-no under SEC policy.

Wall Street Crime: 7 Years, 156 Cases and Few Convictions
Gary Heinz is little known on Wall Street, but he belongs to a select club. In 2013, the former UBS Group AG employee was sent to prison on charges of rigging bids tied to the municipal-bond market. Now, he sits at a halfway house in San Antonio, awaiting his release in July. It rarely happens that way. The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged.

Global watchdog says shadow-banking supervision too patchy
Regulators have yet to get a firm handle on the world’s $35 trillion shadow banking sector with supervision and data gathering still too patchy for spotting risks properly, the global Financial Stability Board said on Wednesday.


Don’t lie, don’t cheat, don’t start rumors, says new FX code
The first global code of conduct for currency trading has banned dealers from lying and starting false rumors as part of new guidelines aimed at rebuilding trust in a foreign exchange market plagued by scandals and accusations of manipulation.

Disney ditches the dollar
USA Today
Mickey Mouse is getting out of the currency business. Walt Disney (DIS) this month announced it would no longer publish and sell its own currency: The Disney dollar. The move ends the life of the global entertainment giant’s paper form of payment – and has set up a frenzy on eBay (EBAY) for collectors hoping to grab the colorful currency before it becomes even more scarce.

Mt. Gox Creditors Seek Trillions Where There Are Only Millions
NY Times
$2,411,412,137,427. That figure — $2.4 trillion for those with an untrained eye for very large numbers — is in the same ballpark as the annual economic output of France. It is also exactly the amount that people around the world claim they lost when Mt. Gox, the Tokyo-based virtual currency exchange, collapsed into bankruptcy in 2014, after huge, unexplained losses of the volatile digital currency Bitcoin.

Libya’s parallel central bank issues banknotes printed in Russia
RT Business
The Central Bank of Libya (CBL) of the unrecognized eastern government has printed four billion dinars worth of banknotes. The new notes of 20 and 50 dinar denominations were printed in Russia and will be put into circulation on June 1, reports The Libya Observer citing the eastern central bank.

Yen intervention will stay in toolbox, says Masatsugu Asakawa
Financial Times
In most countries there are two people whose every utterance can make markets plunge or soar. First is the central bank governor, whose power over monetary policy sets interest rates across the economy. Second is the finance minister, with power of the purse and ability to raise taxes or launch a fiscal stimulus.

The Real Threat to Currency Traders
Today’s the day when regulators give the financial world a glimpse of how they reckon traders in the $5.3 trillion-a-day foreign-exchange market should behave. The code of conduct, or rather voluntary guide, is welcome after the $9 billion in fines and settlements linked to market rigging. Yet banks aren’t likely to wait until 2017 — when the full handbook is released — to decide their future in this business.

Saudi Arabia Said to Probe Bank Currency Products on Peg Bet
Banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter.


Gross Trying to Short Credit to Reverse Decades of Instinct
ill Gross, who built a career and a $1.9 billion personal fortune as a bond investor, is trying to overcome his reluctance to bet against corporate debt, a position that he said runs contrary to his instincts and training. Gross, who manages the $1.3 billion Janus Global Unconstrained Bond Fund, said he expects corporate-bond prices to fall in part because they’ve risen so fast since mid-February but also because he believes a day of reckoning will come when central banks will no longer be able to prop up assets and investors will withdraw from markets.

Growing Chinese corporate bond defaults improve market transparency but could scare investors
Increased defaults in China’s corporate bond market – generally held to be positive because it improves transparency – could actually send investors running for the hills, analysts have warned.

Investors Piling Into ‘Cheap’ Bonds Could Get A Painful Lesson
Figuring out the bond market is a pain. It is considerably larger, more complicated, and less transparent than the stock market. And nowadays, with global bond yields at historic lows, financial advisors and individual investors are struggling with how to choose their bond investments wisely. Especially for those in or near retirement, who hold more-conservative portfolios, it’s a daunting challenge.

Long-term bond investors are world’s ‘highest octane risk takers’
With interest rates near zero or in negative territory around much of the world, it is no surprise that governments and other issuers are taking advantage by issuing bonds at ever longer maturities.

Qatar Stuns Mideast Debt Market With Record $9 Billion Bond
Qatar’s unprecedented $9 billion Eurobond sale has pressed the re-set button for the Gulf region’s debt market. The country sold $9 billion of bonds in three maturities on Wednesday, almost double the amount expected by analysts. The issue helped push 2016 offerings from the Middle East and North Africa, which includes Saudi Arabia and the United Arab Emirates, to $29.3 billion, already a record for the first half of a year, according to data compiled by Bloomberg.

Indexes & Index Products

The Maddening Hedge Fund Crowd
lot has been written and said about the problem of hedge funds crowding into the same stocks, often with, uh, interesting results. But have you ever wondered what exchange-traded funds the 2-and-20 set likes to crowd into? Whoa, Nelly, it’s even more, uh, interesting. Before we start, it’s important to note that the publicly available data on ETF ownership isn’t complete because it’s based only on large institutional investors required to report holdings. In short, it’s a blurry look because it indicates the popularity of these products among hedge funds compared with other institutional investors required to report holdings, but not all investors.

Oil-price reporting: Striking it rich
The Economist
Two lines of business have stood out of late for their inability to make money: journalism and oil. So when it emerged on May 23rd that Argus Media, a British firm that reports global commodities prices, is to be sold to an American investment firm for $1.4 billion, it aroused a variety of emotions. One was surprise. “Data about oil markets now seem to be worth more than oil itself,” exclaimed one executive of a commodities exchange. Another, in the words of an employee at S&P Global Platts, Argus’s main rival, was “jealousy”. The sale has turned some of Argus’s 750 scribblers, a quarter of whom are said to own shares or options, into millionaires.

The New Oil Traders: Moms and Millennials
When Erika Cajic woke before dawn one morning in early May and read that wildfires were breaking out in an oil-producing region of Alberta, she sat down on the family room couch with a cup of hot chocolate and her laptop and bought shares of an investment linked to crude. The 45-year-old full-time parent of two in Mississauga, Ontario, like many investors, reasoned that the production outages would drive up the price of oil. By buying the VelocityShares 3x Long Crude Oil exchange-traded note, she tripled down on her hunch, as the product uses derivatives that aim to rise and fall at triple the daily change in oil.

Markit to double staff in index team
Financial News
Markit is planning to double the size of its team managing financial indices this year, as the data group looks to capitalise on moves by banks to outsource the administration of their in-house index products.

Secrets of the Dow Jones Industrials
The Dow Jones Industrial Average turns 120 years old this month, on May 26. For 20 of those years it was my privilege to be “keeper of the Dow” — the staff person who watched over the globally famous index to make sure it kept on ticking. Not that I alone made the decisions about putting companies in or taking them out, but I had a vote. And sometimes I called the huddle to take such actions. Along the way, I learned some interesting things that many others don’t know about this icon of the investment world. Here are my top 10.

This mutual fund giant could give the ETF business a run for your money
Fidelity Investments made its reputation in the world of traditional mutual funds by being a little bit smarter than the other guys. Now it’s trying to do the same thing in the exchange-traded fund space, where its biggest advantage may be its reputation and a strategically late entry to the market. Whether Fidelity can shake up the ETF world remains to be seen but after filing last week to launch six new ETFs, it’s clear that the retirement-plan power is flexing its muscles and the exchange-traded fund business is likely to change, again, as a result.

Keep Calm And Add More Carry
Financial Advisor Magazine
Twenty years ago investing was much easier. Between 1995 and 1999 the S&P 500 staged a remarkable streak of five straight years in which total return exceeded 20 percent. But that period was followed by a prolonged period of subpar returns. Is history repeating itself? Few would confuse the last seven years with the late 1990s, but equities, particularly U.S. stocks, have once again been producing outsized returns. Even including 2015’s flat performance, between 2009 and 2015 the average price return on the S&P 500 was nearly 13 percent. This is unlikely to hold over the next seven years.


Top 10 Countries With The Largest Gold Reserves
Beginning in 2010, central banks around the world turned from being net sellers of gold to net buyers of gold. Last year they collectively added 483 tonnes—the second largest annual total since the end of the gold standard—with Russia and China accounting for most of the activity. The second half of 2015 saw the most robust purchasing on record, according to the World Gold Council (WGC).

Gold Miners After the Melt-Up
Gold: It’s the shiny talisman that helps paranoiacs sleep at night. The whole idea of investing is gold is to keep you calm when things look dicey. And with some $9 trillion of sovereign bonds sporting negative yields and scenarios including a Chinese economic crash or a Russia-NATO clash popping up in headlines with disquieting regularity, gold should be doing well.

A 107pc return in six months: Gold funds storm 2016 performance tables
The Telegraph
Specialist gold funds have clocked up incredible gains since the start of the year, with some doubling investors’ money. The rally, thanks to a 20pc rise in the gold price, puts them among the best performers of the 3,500 or so collective investments available to British investors.

As Fed Reaches for Trigger, UBS Says Gold Set to ‘Roll Over’
Gold’s at risk of taking a tumble as a resurgent dollar erodes demand with the Federal Reserve opting for not one, but two rate increases before the year-end, according to UBS Group AG’s wealth-management unit, which forecasts that bullion may drop back to $1,150 an ounce.

Egypt Digs Deep for Gold in Desert Where Pharaohs Only Scratched
Miners in Egypt are digging deep at what will be the country’s second gold mine, excavating in a desert where the pharaohs tried without much success to unearth the precious metal 5,000 years ago.


Peter Thiel, Tech Billionaire, Reveals Secret War With Gawker
NY Times
A billionaire Silicon Valley entrepreneur was outed as being gay by a media organization. His friends suffered at the hands of the same gossip site. Nearly a decade later, the entrepreneur secretly financed a lawsuit to try to put the media company out of business. That is the back story to a legal case that had already grabbed headlines: The wrestler Hulk Hogan sued Gawker Media for invasion of privacy after it published a sex tape, and a Florida jury recently awarded the wrestler, whose real name is Terry Gene Bollea, $140 million.

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