| | | | | | | | March 07, 2016 | | | | | First Impressions | | | (Editor's Note: Carl Gilmore is guest editing the John Lothian Newsletter this week. In case you missed his column in that newsletter this morning, here it is below.)
2016 and Counting...
Carl Gilmore, President, Integritas Financial Consulting
Good morning John Lothian Newsletter readers! It is good to be back as the guest editor for the week, and I want to thank my friends at JLN for the opportunity. For those of you who don't know me, let me take a moment and introduce myself. My name is Carl Gilmore and I am the president of Integritas Financial Consulting. I've spent the last 26 years working for futures commission merchants and broker-dealers in operational, risk management, compliance, legal, client-facing and executive roles. Along the way I think I've done just about every job there is to do in an FCM. I'm also an attorney (please don't hold that against me!!).
For a quarter of a century I've had a front row seat to many of the developments, problems and initiatives our industry has faced. I've watched us when we are at our best and I've watched us when we are at our worst. Nonetheless, throughout it all I've considered myself a fortunate person to be able to work in this business, and the ingenuity, creativity and hard work of everyone that I've met along the way is what makes me optimistic that the futures industry will not only survive, but thrive!
I started Integritas in 2015 to help futures industry participants navigate regulatory complexity. Since the onset of the financial crisis risk management, compliance, operations and regulatory disciplines have collided, in sometimes unintended ways. Fortunately (or unfortunately - depending on your point of view) I sit at the intersection of all of those disciplines by virtue of the history described above. If you want to learn about Integritas, take a moment and visit our website at www.integritas-financial.com
There are lots of things happening in our business these days. Some things are positive and some things...well, not so much. Over the course of this week I hope to share with all of you my views and where I think we might be headed, because as an unknown philosopher once said - "We all need to take great interest in the future because we will spend the rest of our life there." On to the stories!
| | | | | | Quote of the day: | | | | | | “ | "When you tell the average person what's going on here, it makes them so mad they can't see straight. They turn to someone like Trump who confirms to them that the whole system is corrupt."
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| ” | Whitney Tilson, a hedge fund manager and member of the Patriotic Millionaires, a group that is part of a coalition that wants to close the carried interest tax loophole, in the story, "New York Legislators Plan to Introduce Measure on Carried Interest Tax"
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| | | | Lead Stories | | |
New York Legislators Plan to Introduce Measure on Carried Interest Tax
NY Times
A coalition of progressive groups is starting a state-level campaign to close the so-called carried interest loophole, which allows fund managers to pay a substantially reduced federal tax rate on much of their income.
Two New York State assemblymen plan to introduce a bill on Monday that would raise taxes on state residents who benefit from the lower rate, to precisely offset the tax savings they receive at the federal level.
nyti.ms/1YozKw2
Royal Bank of Scotland Loses Finra Arbitration Over Firing
Dealbook - NY Times
When a Wall Street executive is fired, it is usually done quietly.
But a recent arbitration award has now shed a light on a termination that has caused an embarrassment for the bank.
The Royal Bank of Scotland's United States securities division botched the firing of a former executive so badly that a Financial Industry Regulatory Authority arbitration panel ordered the bank to pay him $2.05 million in compensatory damages. The panel, in the decision last month, also ordered the bank to retract his termination and expunge his regulatory record of defamatory comments.
nyti.ms/1YoDNZr
Investors Wary of China Find Haven in Booming Southeast Markets
Bloomberg
With volatility rocking markets in China and Japan this year, equity investors are finding refuge in Asia's brightest spots: Indonesia and Thailand.
Southeast Asia is providing a haven as the region's economies accelerate. Indonesia and Thailand are the biggest gainers this year among Asian equities, a turnaround from 2015 when the two benchmark indexes tumbled more than 12 percent amid a plunging baht and rupiah. The region and its currencies have been calmer amid expectations the Federal Reserve will delay further interest rate hikes, says Alan Richardson at Samsung Asset Management Ltd.
bloom.bg/1YoFQMY
The $5 Trillion Quandary as Negative-Yielding Japanese Debt Doubles
Bloomberg
The amount of Japanese government bonds in the market offering negative yields has doubled this year to more than 600 trillion yen ($5.3 trillion) and that's a major headache for the finance industry.
bloom.bg/1YoGmum
Finance theory creates a distorted image of the investment world
FT.com
Finance theory seemed to work well enough in stable macroeconomic environments, but is now misleading asset allocators into false complacency. The things we name risk free  an abuse of the English language  are now some of the riskiest. Investing in assets perceived as risky may constitute the best hedge available for the worst scenarios.
on.ft.com/1Tlzxug
Wall Street Bonuses Fell in 2015
Dealbook - NY Times
Wall Street bonuses are down for the second straight year, and recent market volatility and cutbacks suggest that 2016 is shaping up to be a difficult year, according to the New York State comptroller.
nyti.ms/1YoDvl8
Bankers jostle to be junior as UK accountability rules kick in
Reuters
New rules to hold bosses responsible for wrongdoing at British banks is deterring some bankers from taking on senior management roles and even prompting big-hitters to play down their own importance, say legal and compliance experts. Public anger that so few senior bankers were punished after taxpayers bailed out the industry in the financial crisis, or for scandals such as Libor and currency-market rigging, has led to the rules which make it easier to hold them to account.
reut.rs/1TlzGOv
U.S. watchdog to probe Fed's lax oversight of Wall Street
Reuters
A U.S. watchdog agency is preparing to investigate whether the Federal Reserve and other regulators are too soft on the banks they are meant to police, after a written request from Democratic lawmakers that marks the latest sign of distrust between Congress and the central bank.
reut.rs/1RuAjiJ
Bank Bondholders Helped Fuel Tumble in Share Prices, BIS Says
Bloomberg Business
A slump in financial shares was partly driven by bondholders hedging the riskiest type of banking debt, according to the Bank for International Settlements. "Movements in the prices of bank securities have been exacerbated by market dynamics," BIS said in a report published Sunday. Fixed-income investors may have shorted bank stocks to offset potential losses from contingent-convertible, or CoCo, notes, said the Basel, Switzerland-based coordinator of the world's biggest central banks.
bloom.bg/1TlC0Vz
A world stumped by stubbornly low inflation
Lawrence Summers in FT.com
Today's risks of embedded low inflation tilting towards deflation and of secular stagnation in output growth are at least as serious as the inflation problem of the 1970s. They too will require shifts in policy paradigms if they are to be resolved. In all likelihood the important elements will be a combination of fiscal expansion drawing on the opportunity created by super low rates and, in extremis, further experimentation with unconventional monetary policies.
on.ft.com/21VmQYH
Prisoner's Dilemma reveals bond fund risks
FT.com
The road to Hell is paved with well-intentioned risk management initiatives. Burgeoning bond funds are seen as amplifying risks of a market rout. Fund managers such as BlackRock in the US and Aberdeen Asset Management in the UK have set up extra credit lines as shock absorbers. But British regulators are now worried these could exacerbate a crisis rather than avert it.
on.ft.com/1TlCZFm
Unicorn Slaughter Continues: Mutual Funds Lower Startups' Valuations
Fortune
Once considered one of the most promising investments on Wall Street, the legendary title of unicornÂstartups with a valuation of $1 billion or moreÂis becoming a name that ring alarm bells among investors.
for.tn/1Rwh9ZD
Negative Interest Rates Are Working Just Fine So Far: BIS
Bloomberg Business
Negative interest-rate policies currently in use by central banks around the world have worked through their respective systems in much the same way as positive rates, though it's not known how far below zero that would continue to be the case, the Bank for International Settlements said.
bloom.bg/1TlAzqj
BofA Bond, Stock Trading Revenue Said to Decline This Year
Bloomberg Business
The second-largest U.S. lender's revenue from fixed-income trading, which includes credit, currencies and commodities, dropped about 10 percent from a year earlier, the people said, asking not to be identified discussing the firm's performance. The bank has collected 11 percent to 12 percent less from equity trading this quarter than last year, one of the people said.
bloom.bg/1TlByXk
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| Central Banks | Fed officials set battle lines on rate hikes ahead of March meet
Reuters
After a long wait for inflation to accelerate, U.S. Federal Reserve officials face a complex and possibly divisive debate over whether recent evidence of rising prices is strong enough to move ahead with planned rate hikes.
reut.rs/1YoFqq4
Draghi Aims ECB's Killer Blow in 11th Round Versus Deflation
Bloomberg
Mario Draghi is about to attempt his 11th round in the European Central Bank's epic fight against the threat of deflation.
The ECB president and his colleagues have unleashed significant stimulus to reignite price growth in the euro zone at 10 of the 47 monetary-policy meetings since he took the helm, only to see the region slapped as recently as last week with a negative inflation rate. For this week's decision, economists in a Bloomberg survey are nearly unanimous in predicting action, and the good news for Draghi is that most say it'll be enough.
bloom.bg/1RxdH0Q
Even Central Banks Are Unsure About Negative Interest Rates
Forbes
A coalition of central banks is raising questions about the efficacy of negative interest rates, following the decision by policymakers to push interest rates below zero in Europe and Japan.
The aim of negative interest rates, whereby commercial banks are charged to keep their money parked with the central bank, is that they'll be incentivized to do more lending at lower rates. In turn, that will spur economic growth.
onforb.es/1RxdFGo
BoE set to review market risk managers
Financial Times
The Bank of England is set to review operations of the market risk managers at the heart of the bid for the London Stock Exchange Group, as average daily trading payments held at the utilities topped £80bn last year.
on.ft.com/1ROIZ65
Faith in central banks' healing powers faltering: BIS
Reuters
Financial markets' shaky start to the year shows they are losing faith in the "healing powers" of central banks, the Bank for International Settlements (BIS) said on Sunday while voicing concerns over sub-zero interest rates and emerging economies. The Swiss-based organization, which fosters cooperation between central banks in the pursuit of monetary and financial stability, said that recent worries over China's economy, oil and commodity prices and some European banks had come as fundamental shifts take place in the global economy.
reut.rs/1TlyRFl
Fed's Yellen says counterparty credit plan will reduce systemic risks
Neil Roland, MLex
US Federal Reserve Chairman Janet Yellen said a new proposal to limit the credit exposure of the largest US banks to each other and other counterparties will set a "bright line" that will help reduce risks. "We are determined to do as much as we can to reduce or eliminate the threat that trouble at one big bank will bring down other big banks," she said Friday.
goo.gl/sHnOgZm
GRAPHIC-One year of ECB quantitative easing
Reuters
A year into the European Central Bank's money printing programme, Mario Draghi and his colleagues have spent more than 700 billion euros, and yet the results are far from what they would have hoped. Having spent the equivalent of 1.3 million euros a minute or 2,000 euros ($2,200) for every man, woman and child in the 19-country euro zone, inflation barely registers, economic growth remains sluggish, and stock markets are down 13 percent.
reut.rs/21VqmlE
Japan central bank to cut next fiscal year's growth, price estimates
Reuters
The Bank of Japan (BOJ) is expected to cut next fiscal year's economic and price forecasts at a quarterly review in April, sources say, reflecting growing gloom in the bank after its most recent stimulus measures fell on stony ground.
reut.rs/1YoFar3
| | | | Currencies | Emerging market currencies show signs of life
Financial Times
Stumbling for the last few months through a pitch-black forest, looking for a way out, foreign exchange investors may finally have found a flicker of light to follow. It is a barely discernible flame and it leads them to emerging markets.
on.ft.com/1YoGJFo
Low oil prices put strains on Gulf currency pegs
The Daily Star
WEAK oil prices pose a threat to Gulf Arab states' currency pegs against the dollar, but the energy-rich region is unlikely to abandon the policy yet, analysts say.
Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates all keep the values of their currencies fixed against the greenback, while Kuwait has a link to a basket of currencies including the dollar.
goo.gl/cA5tB9
| | | | Indexes & Index Products | China A-shares set for MSCI index breakthrough
Euromoney magazine
China took a big step towards opening its domestic markets to international capital in February in a move that might win the A-share Chinese stock market membership of key MSCI benchmark indices.
goo.gl/zVAjuv
How the U.S. Government Launched the $3 Trillion ETF Industry
Bloomberg Markets
The 840-page report from the U.S. Securities and Exchange Commission contained an unexpected present.
It arrived on Nathan Most's desk at the American Stock Exchange in February 1988. Four months earlier, on Oct. 19, Wall Street had collectively gasped as the Dow Jones industrial average plummeted 508 points, or 22 percent. Black Monday, as the rout became known, remains the biggest one-day crash in history, and this 5-pound white paper, titled The October 1987 Market Break, was the SEC's postmortem on the event.
bloom.bg/21VseuH
China indexing dreams could finally come true
Pensions & Investments
Reforms announced by Chinese regulators last month have put the country's stock and bond markets on the threshold of gaining entry to global benchmark indexes. The quest of Shanghai- and Shenzhen-listed A shares to win inclusion in benchmarks, such as MSCI's emerging markets stock index, has been a drawn-out affair. By contrast, the People's Bank of China's announcement on Feb. 24 of quota-free access to China's interbank bond market for all but the most speculative foreign investor segments was sudden. It could prove to be the more significant development for foreign institutional investors, some market players contend.
goo.gl/AxxYgg
| | | | Gold | Why 2016's gold rush is already running out of steam
MarketWatch
Gold has been hailed as the "new black" in 2016. But after the precious metal's best start to a year since 1980, signs are emerging that a newfound love for base metals could overrun the gold rush, says Citigroup.
on.mktw.net/1RxdLOh
From Gold to Glencore, Bears Take Beating in Commodity Rebound
Bloomberg
>From oil to iron ore and Glencore Plc to Vale SA, being a commodity bear is pretty terrible right now.
Iron ore is the latest commodity to join the rally, soaring the most ever on Monday after Chinese policy makers signaled their willingness to buttress economic growth. Iron ore's 19 percent jump follows copper's move back above $5,000 a ton on Friday, while oil has hit a two-month high. Gold is at the highest in a year and platinum has crashed back above $1,000 an ounce.
bloom.bg/1YoGcmJ
BlackRock's Gold ETF Could Face Fines After Suspension
Fortune
It ran afoul of SEC rules.
BlackRock Inc's iShares Gold Trust IAU 0.49% may face penalties and other costs after the U.S.-listed fund sold $296 million in shares of the exchange traded fund earlier this year without properly registering them, the company said in a filing on Monday with the U.S. Securities and Exchange Commission.
goo.gl/SEPBgW
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