First Impressions

Ben Van Vliet, IIT – HFT: The Need for More Than Speed

“Change is a proxy for opportunity in the financial markets.”

Technology has significantly changed the state of the financial industry. Several years ago, the financial industry was more about groups of individual traders – it thrived on whether or not those traders had a competitive edge in the markets. In today’s world, the financial industry centers around organizations creating better trading systems to gain a competitive edge.

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Quote of the Day

“It’s the sum of the financial crisis, tighter regulation, higher capitalization requirements for banks and maybe even the threat of a financial transaction tax that has drained liquidity. I actually don’t care why this happened, I just need to deal with it.”

Carsten Stendevad, chief executive officer of ATP, in Bloomberg’s story “Liquidity Trap Pushes Biggest Fund in Denmark Into Shorter Debt.”

Lead Stories

Brevan Howard Cuts Risk After Losses, Returns to Roots
Laurence Fletcher – WSJ
Brevan Howard Asset Management LLP’s flagship $26.5 billion hedge fund has more than halved its risk levels this year and moved back toward interest rate trading, the specialty of its founders, during a testing 2014.

**JK – And interesting view on interest rates. Could we be in for more movement there…finally?

Investors Pour $680 Million Into U.S. Junk Bonds in Latest Reporting Week
Katy Burne – WSJ
Investors poured $680 million into funds dedicated to low-rated corporate debt in the week ended on Wednesday, according to fund tracker Lipper, snapping four weeks of declines that included the previous week’s record $7.1 billion weekly outflow. Observers pointed to a change in sentiment in early August for so-called junk bonds, as institutional buyers stepped in hunting for bargains.

**JK – One’s man’s junk is another’s bargain.

Banks Mull Bailing on Libor in Loans as ICE Adds Licensing Fees
Jody Shenn and Matthew Leising – Bloomberg
Some banks may stop using Libor as a benchmark for interest rates on loans because of new licensing fees being charged by Intercontinental Exchange Inc., which this year took over administering the measure, according to the American Bankers Association.
ICE introduced licensing agreements on July 1 for referencing the benchmark used to create more than $300 trillion of securities, loans and derivatives, including a usage license that ranges from $8,000 to $40,000 a year. Previously, Libor was free except for companies wanting to redistribute the rates, which paid an annual fee to the British Bankers’ Association.

U.S. Investment Outflow Hits Record as China Cuts Holdings
Kasia Klimasinska – Bloomberg
The U.S. posted a record cross-border investment outflow in June as China and Japan reduced their holdings of Treasuries and private investors abroad sold bonds and notes.
The total net outflow of long-term U.S. securities and short-term funds such as bank transfers was $153.5 billion, after an inflow of $33.1 billion the previous month, the Treasury Department said in a report today. The June figure, and $40.8 billion in net selling of Treasury bonds and notes by private investors in June, were the largest on record, the Treasury said.

Argentina dubs holdouts an international mafia as deal hopes fade
Hugh Bronstein and Davide Scigliuzzo – Reuters
Argentina branded the hedge funds suing the country over their debt holdings an “international mafia” on Thursday after talks to bring a swift end to its latest default collapsed and sent Argentine bond prices tumbling.

**JK – Well, they do wear nice Italian suits. After that, the comparison breaks down.

Canary Wharf bond investors hit by error
Matt Turner – Financial News
Investors in a pre-crisis Canary Wharf Group securitisation received an unwelcome surprise last month – an error in documentation meant the bonds would be paying out less than previously advertised.

Contra Piketty Sweden Is More Unequal Than Britain
Tim Worstall, Contributor – Forbes
Whether one place is more or less unequal, has a greater level of inequality, does depend rather on what it is that you’re measuring. Income inequality is always less than wealth inequality in any given place, this is true. But that doesn’t mean that one place with lower income inequality will necessarily have lower wealth inequality.

Central Banks

Why Central Banks Worry About Ukraine
Mohamed A. El-Erian – Bloomberg
Investors seem hopeful that Russia and the West can step back from their standoff over Ukraine. There are still plenty of reasons, though, for central bankers to be concerned.
Markets around the world rallied this week, helped by indications of reduced tensions in Ukraine. Russia withdrew troops from the border. Ukrainian government forces reasserted more control over parts of the country’s east, pushing back separatists. The West stood firmly united, having agreed to intensify sanctions on Russia in a coordinated fashion and showing no loss of resolve in the face of countersanctions.

A Japanese lesson for bond buyers
James Mackintosh – Financial Times
What does it take to persuade the European Central Bank to start quantitative easing? The judgment of investors yesterday was that neither a stagnating economy nor a tongue-lashing from French government ministers will be enough.

**JK – Could the EU being turning into Japan? One similarity.

Central banks need significant discretion to make swap lines work, says ECB
Central Banking
Central banks need significant levels of discretion over the pricing, scale and maturity of standing liquidity swap lines agreed with their counterparts around the world to avoid moral hazard and improve operational efficiency, according to an article published in the European Central Bank’s (ECB) August 2014 Monthly Bulletin.
So-called cross-currency swap facilities became popular at the height of the global financial crisis to ensure that major banks around the world had access to short-term foreign currency funding prevent, particularly European banks to US dollars, at a time when their usual funding sources had dried up. The Federal Reserve notably agreed to provide dollars on a time-limited basis to a raft of developed economy central banks in 2007.


Ex-manager at indicted money exchange pleads guilty to U.S. charges
Joseph Ax – Reuters
A former manager at indicted digital currency exchange Liberty Reserve pleaded guilty on Thursday in New York to federal charges of conspiracy and operating an unlicensed money transmitting business.

Spiderwoman Brings Hope to Winklevoss Twins’ Bitcoin ETF
Christopher Condon – Bloomberg
Tyler and Cameron Winklevoss are fighting for approval from regulators for their proposed bitcoin exchange-traded fund. They stand a chance because Spiderwoman is on the case.

**JK – And who better to have on your side than Moriarty.

BitBeat: Bitcoin Price Suffers Margin Pains; Dish’s Bitcoin Option Goes Live
MoneyBeat – WSJ
Bitcoin’s price sure has taken a battering these past two days, and after our cursory attempt to get to the bottom of it Wednesday, more details have come to light about what’s behind the digital currency worst week since the spring.

For Merchants, Bitcoin Shows More Pop Than Potential
SYDNEY EMBER – Dealbook – NY Times
Jason Hand had more money in his Bitcoin wallet than in his savings account. So when he wanted a white linen suit for a vacation trip to Panama, he turned to, a discount retailer that accepted the virtual currency.


Global Gold Demand Down 16%
Ese Erheriene – WSJ
Global demand for gold slumped in the second quarter as Chinese and Indian buying returned to more stable levels following a record-breaking quarter a year earlier, the World Gold Council said Thursday.

Billionaire Paulson Keeps Stake in Biggest Gold ETF
Debarati Roy – Bloomberg
Billionaire hedge fund manager John Paulson stuck with his holding in the biggest exchange-traded product backed by gold as prices rose on demand for a haven.

**JK – If nothing else, the man is consistent and persistent.

Gold’s Excess Factor
Liam Denning – MoneyBeat – WSJ
The very idea of gold–with its multiple, and sometimes emotional, investment rationales–trading on “fundamentals” is a bit suspect. But the World Gold Council’s second-quarter report, released Thursday, shows why even geopolitical turmoil hasn’t propelled prices above where they were a year ago.

To prosper, gold needs China and India more than fear: Russell
Clyde Russell – Reuters
Gold bulls are the financial market equivalent of the apocalypse-fearing survivalists portrayed in the popular television show “Doomsday Preppers”. Perhaps a kinder way of looking at gold investment is to say it makes sense as long as real interest rates remain negative, as is currently the case in much of the Western world.

China’s fourth gold ETF raises about $50 mln
A. Ananthalakshmi – Reuters
Bosera Funds has raised $50 million for China’s fourth gold backed exchange-traded fund that it aims to launch soon, at a time when investment demand for the precious metal has been sluggish in the world’s biggest bullion consumer.

Silver market reboots century-old price benchmark
Clara Denina and Jan Harvey – Reuters
The silver market enters a new electronic era in benchmarking on Friday after a regulatory drive for more transparency in price setting brought the 117-year-old silver ‘fix’ to an end. The final conference call took place on Thursday between banker-dealers in the London silver market in the old process of fixing the benchmark silver price.


Liquidity Trap Pushes Biggest Fund in Denmark Into Shorter Debt
Peter Levring – Bloomberg
Denmark’s biggest pension fund, ATP, says a perfect storm of forces including tighter regulation led it to abandon its reliance on the longest-dated bonds.

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