First Impressions

Ethan Kahn, Principal, Wolverine Trading, LLC – Exploring ETF’s

“It’s a very competitive market out there. Constantly innovating and constantly adapting is what makes opportunities occur.”

Ethan Kahn, principal at Wolverine Trading, gives an explanation of ETF’s and shows why the product has become popular over the years. Kahn discusses the differences between ETF’s and mutual funds, breaking down how much lower the costs of ETF’s are and how there is more buying and selling flexibility compared to mutual funds. Finally, Kahn explains the importance of innovation and adapting in the financial industry, telling his audience that constantly changing with the industry is key to staying competitive.

Watch the video »

Quote of the Day

“The credit quality of the companies that issue in the loan market is not nearly as good as it used to be. Defaults have been higher in bank loans for three straight years, and we think that’s going to continue.”

Gershon Distenfeld, who manages more than $35 billion in high-yield strategies at AllianceBernstein in New York in Reuters’ article “Bond funds worldwide post biggest weekly outflows of 2014 -BofA.”

Lead Stories

Graduate Announces Largest-Ever Gift to University of Dayton
A 1977 University of Dayton graduate and his wife are pledging a $12.5 million gift — the largest single gift in the school’s history. The gift, from the George and Amanda Hanley Foundation, is intended to “establish the University as a national leader for innovation in sustainability education.”

***** This was a great day for the George and Amanda Hanley family. It is a combination of both of their passions into one incredible concrete expression of generosity towards the University of Dayton and its students. Congratulations to both.

Bond funds worldwide post biggest weekly outflows of 2014 -BofA
Sam Forgione – Reuters
Investors worldwide pulled a net $3.8 billion out of bond funds in the week ended Sept. 17 on rising fears of an early rate hike from the Federal Reserve, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

**JK – A lot of withdrawal stats here.

Bond Losses Wiped Out for Treasuries With Dollar Beating All
Liz Capo McCormick, Wes Goodman and Anchalee Worrachate – Bloomberg
The prospect of higher U.S. interest rates is proving to be a boon for the biggest owners of Treasuries outside of the Federal Reserve.
While the government bonds have fallen this month as the Fed boosted its forecast for how much rates will rise next year, the dollar climbed to its highest level since 2010 against a broad range of currencies. That’s transformed losses into gains for most foreign holders, who own $6 trillion of Treasuries. The U.S. currency has appreciated so much that Treasuries are the developed world’s best-performing sovereign debt this quarter for investors based in euros, pounds and yen.

U.S. court tosses Argentina, Citigroup appeal in bond case
A U.S. appeals court on Friday dismissed an appeal by Citigroup Inc (C.N) and Argentina of a judge’s order blocking the bank from processing payments on $8.4 billion in bonds issued under the country’s local laws following its 2002 default.

**JK – If you can follow this, you’re a genius.

Pimco leads charge into Chilean pension market
Madison Marriage – Financial Times
Pimco, Legg Mason and Vanguard are among a growing number of international fund houses to have returned in force to Chile, three years after the local regulator froze Irish-domiciled mutual funds out of its sizeable pension market.

**JK – An extra large St. Patrick’s Day celebration for Pimco and others next March.

European Bonds Rise as China, G-20 Warnings Curb Scope for Yield
Neal Armstrong and Lukanyo Mnyanda – Bloomberg
Most European government bonds advanced as speculation China will accept lower growth and warnings from the world’s biggest economies of rising financial risks boosted demand for fixed-income assets.

**JK – Interesting tidbit on investment in China here – with foreign investment dropping to a 4-year low.

Low demand for new ECB funds a negative for euro zone – Moody’s
The apparent lack of demand for the European Central Bank’s new wave of ultra-cheap loans is a “credit negative” for the bloc’s sovereigns and banks, rating agency Moody’s said on Monday.
The ECB handed out a well below-forecast 83 billion euros last week in the first of a string of injections it hopes will keep borrowing so cheap that it rekindles demand for credit from wary firms and consumers.

A 25 Basis-Point Polish Rate Cut? Too Puny. We’ll Take 50
Maciej Onoszko – Bloomberg
While Poland’s central bank rejected a 50 basis-point cut in interest rates three weeks ago, a surprise drop in industrial output is fueling speculation a reduction of that size could occur as soon as next month.
Forward-rate agreements, contracts used to speculate on borrowing costs, showed bets for 50 basis points of easing over three months on Sept. 19, data compiled by Bloomberg show. The extra yield investors demand to hold Poland’s two-year zloty notes over similar-maturity German securities fell to the least since 2007 last week.

Goldman Sachs Sukuk Seen as Too Risky for U.S. Imitators
Daria Solovieva and Dana El Baltaji – Bloomberg
U.S. banks will probably wait to see if issuing Shariah-compliant bonds is worth the trouble after it took Goldman Sachs Group Inc. three years to sell its debut sukuk.
Islamic finance in the U.S. is still underdeveloped, and misconceptions associated with it taint the industry, according to King & Spalding LLP, an adviser on Shariah transactions in the country for 35 years. HSBC Holdings Plc, the biggest underwriter of sukuk this year after Malaysia’s CIMB Group Holdings Bhd., says the need for tangible assets to structure deals, and the lack of legislation to address taxation issues, makes selling Islamic bonds a challenge.

Central Banks

New York Fed Takes Aim at Bank Culture – MoneyBeat
Ryan Tracy and Victoria McGrane – MoneyBeat – WSJ
Banking regulators have spent much of their post-crisis time focusing on Wall Street balance sheets. Now they’re taking aim at banks’ culture as well.

**JK – Banks should police themselves, but let’s face reality.

Draghi Effect Subsides as Pressure Builds on ECB Chief
Stefan Riecher and Alessandro Speciale – Bloomberg
Mario Draghi’s stimulus pledge didn’t convince investors for long. Exactly one month since the European Central Bank president told his global peers he was ready to act to avert deflation in the euro area, bets on consumer prices have collapsed.

Draghi Says Risks to Euro-Area Economy Clearly on the Downside
Stefan Riecher – Bloomberg
Economic activity in the euro area has slowed and there’s a risk of a further downturn, European Central Bank President Mario Draghi said.
“The risks surrounding the expected expansion are clearly on the downside,” Draghi said in his quarterly testimony to European lawmakers in Brussels today. “Recent indicators gave no indication that the sharp decline” in economic activity in the currency bloc has stopped, he said.

Fed’s Fisher Says Better to Raise Rates Sooner and Slowly
Jeff Kearns and Christopher Condon – Bloomberg
Federal Reserve Bank of Dallas President Richard Fisher said the U.S. central bank risks derailing the economic recovery if it delays its first interest-rate increase for too long and then is forced to raise quickly.

China Money Rate Drops Most in Three Weeks After PBOC Adds Funds
China’s benchmark money-market rate dropped the most in three weeks after the central bank added funds to the financial system last week.

IMF’s Lagarde Briefing on G-20, Global Economy, Bank Rules: Video
International Monetary Fund Managing Director Christine Lagarde speaks about the global economy, financial regulation and market risks at a news conference in Cairns, Australia, following a meeting of Group of 20 finance ministers and central bankers.

Central Banks Biggest Concern Should Be Market Stability
We closed out our bond short this week and are up 42% so far this year. The reason we closed out our bond short is that we are trying to make money and control risk as much as possible in a market that frankly speaking is off its rockers! Who knows what “Fair Market Value” is for any asset?
Markets are so influenced by Central Bank liquidity that wehave little confidence in what the actual ‘market prices’ are for many assets, we strategically take advantage of extreme mispricing’s relative to our models, i.e., the low hanging fruit, and get out of the market. I don`t want to hold anything these days!


Zloty to Forint Left at Draghi’s Mercy After Losses: Currencies
Krystof Chamonikolas – Bloomberg
Strategists divided on the outlook for eastern Europe’s currencies agree on one thing: Mario Draghi holds the key to their performance in the months ahead.

Deutsche Bank Says Currency Trader Dismissed on Misreporting
Candice Zachariahs – Bloomberg
A Deutsche Bank AG (DBK) currency trader was dismissed earlier this year after internal checks uncovered irregularities around how he recorded trades, the bank said.
Andy Donaldson was suspended in June and dismissed shortly after, Sydney-based Adrian Cox, a Deutsche Bank spokesman, confirmed by phone today. Donaldson didn’t immediately respond to voicemails left by Bloomberg News. He caused the bank as much as A$5 million ($4.5 million) in losses, the Australian Financial Review reported earlier today, without saying where it got its information. The sum involved wasn’t material to the bank and didn’t have an external impact, Cox said by e-mail.

Bitcoin at Major Support, Now What?
Joshua M Brown – Reformed Broker
When you value a stock, you have many levers you can pull to come up with an answer for “fair value” – whether it’s price-to-book-value or a PE ratio or some sort of discounting of future cash flows. When you value a commodity, you have actual real-world supply-vs-demand dynamics on your side – Will we consume more or less natural gas this year? Are there enough acres of corn planted to meet expectations from food producers? With something like gold and silver, it’s harder. Because outside of jewelry demand there isn’t much actual use for these metals (we don’t do gold teeth or use silver in photography anymore). With Bitcoin, none of these things apply.

BitBeat: More Pain For Bitcoin Prices; Are Chinese Miners To Blame?
Michael J. Casey and Paul Vigna – MoneyBeat – WSJ
Bitcoin is getting hammered, marking the culmination of a rather gloomy summer in the market for the digital currency. After a 7.35% fall on Thursday, it is now down another 6% since that overnight close and has traded Friday at its lowest level since April, according to Coindesk’s Bitcoin Price Index.

Forex reserves near 3-mth low
Business Standard
The foreign exchange reserves of the Reserve Bank of India (RBI) have fallen to near a three-month low for the week ending September 12, show data released on Friday. During the week ending September 12, the reserves fell by $1.62 billion to $315.70 billion, the data show.

Indexes & Index Products

Passive fund rankings under scrutiny
Emma Dunkley – Financial Times
The City watchdog is eyeing fund rankings after receiving complaints that index trackers are being excluded from performance tables.

Experts sound warning on Chinese ETFs as funds close to new money
Anna Fedorova – Investment Week
Investors have been warned against buying into Chinese tracker funds in the near term as growing interest prompts some groups to close products to new investment.

Bats to launch trade reporting service for ETFs
Philip Stafford – Financial Times
Bats Chi-X Europe, the stock exchange, is to begin a trade reporting service for exchange traded funds (ETFs) in a bid to bring more order and transparency to the fragmented market.

ISE ETF Ventures’ Kris Monaco to Participate in “Partnering with an ETF Consultant” Panel at ETF Boot Camp
Kris Monaco, Head of ISE ETF Ventures, will participate in the “Partnering with an ETF Consultant” panel at the inaugural ETF Boot Camp. Insight will be provided on the various strategies emerging managers entering the exchange traded fund (ETF) industry can use to bring their idea to market.

FTSE drops Argentina from frontier index, demotes Morocco | News by Country
Index provider FTSE has cut Argentina from its frontier equity index, citing the country’s stringent capital controls, while relegating Morocco from emerging to frontier markets, the company said on Monday.

MSCI Launches Low Carbon Target Indexes – Focus on Funds
Socially responsible investing, as we’ve noted before, runs the gamut, from funds that seek to support women and the LGBT community, and more recently, the environment—see last week’s news about Fossil Free Indexes.


Royal Mint launches online dealing account … in gold
Miles Brignall – The Guardian
The Royal Mint is encouraging the public to become gold investors with the launch of an online bullion trading service that lets people buy and sell gold coins and store them in the Mint’s vaults, guarded 24 hours a day by the Ministry of Defence.
From today, the Mint’s vault service will allow anyone to trade gold and silver coins via its website. The Mint is hoping to cash in on interest in investing in gold by making it as easy as putting money in a savings account. The World Gold Council has suggested there is a potential £4bn latent demand for gold investment within the UK.

Technical Trading: Gold Bears Won’t Give Up On Test Of December Low
Kitco News (via Forbes)
Be nimble and alert. Gold has fallen within striking distance of a major bearish target.
Since the July price peak, the bears have been in control of the gold market. The market has been steadily trading lower in a downtrend pattern, with lower lows and lower highs. Strength has been limited and short-lived.

Gold Bulls Extend 2014 Exit as Slump Erases $6.7 Billion
Debarati Roy – Bloomberg
Hedge funds extended this year’s longest exit from bullish gold bets as slumping prices and investor outflows since June erased $7.16 billion from the value of exchange-traded funds backed by the metal.

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