But as has been well reported, FICC flow profits are beginning to wane.
So it is with some interest we note the following charts from Morgan Stanley’s European Banking team: Read more
John Gapper has an excellent column on Thursday about art auctions, focusing on the degree to which they are fixed or obfuscated by insiders and long-standing established practices.
As he notes, the auction market is a duopoly geared towards protecting and serving vested interests through a system of guaranteed bids and sales incentives, which to some degree obscure public price discovery.
Herein lies the similarity with modern market structure more generally. By providing the means to disguise the hands of “informed” players, the duopoly of Sotheby’s and Christie’s behaves like a dark pool system within a wider market which has no public alternative to cross check prices against. Read more
They are billed as a quick and easy way for investors to gain access to higher-yielding assets while still providing some protection if interest rates start to rise. They are ETFs which track portfolios of (floating-rate) bank loans.
And they are on fire. Read more
Interesting. Blackrock has issued an open letter in the spirit of investor
reeducation about its products, no doubt in response to the terrible reporting that’s been going on about its err… recent NAV discounts.
You can read the full open letter (complete with lots of bolding emphasis by Blackrock just to make sure you get the point) but a critical extract we think is the following (Blackrock’s emphasis). Read more
‘Twas not a good day for anyone in the market on Thursday.
It was a particularly bad day for the listed ETF/fund providers:
Anyone who bought gold in 2008 is probably more than tempted to cash in their profits right about now.
Reflecting the scale of the change in sentiment — and confirming that there was indeed something of a choke level for gold at around the $1,908 mark — is the following chart from Macro Risk Advisors which neatly sums up the degree to which investors have been liquidating gold ETF positions. Read more
It’s come to our attention that the precious metals investing community has been rendered a little “worried” by a sudden and sizable accumulation of inventory in the iShares physical Trust, the SLV for short. (H/T Kid Dynamite)
According to ZeroHedge, 572 tonnes were added to the trust in just one day. And while that does not represent a record for the fund, it is “the biggest one day addition of physical silver to SLV in ordinary course operations”. Or so, at least, ZeroHedge says (though we haven’t double checked the numbers ourselves at this point). Read more
The following is a transcript of Kweku Adoboli’s last recorded phone call at UBS with members of the bank’s back office accounting team.
Not only does it reveal that Adoboli may have used Blackrock and SocGen as faux counterparties for hiding losses but that the “back-office genius” seemingly had difficulty grasping the difference between an asset and a liability (at least in public). Scrutiny of the bank’s unsettled trades, meanwhile, seems to be what prompted his eventual confession. Read more
No clouds in my storms
Let it rain, I hydroplane into fame
Comin’ down like the Dow Jones
When the clouds come, we gone
We fly higher than weather Read more
At a time when traditional dealers are being squeezed by growing regulatory burdens — think Basel, TRACE and the Volcker rule — the incentive to hold market inventory is diminishing.
Not only is it expensive and risky to manage bonds, equities or commodities, there’s the fact that the old models push the boundaries of what’s acceptable in terms of principal risk and proprietary trading. Read more
We wrote about Kenya’s M-pesa mobile money model on Wednesday, which we think is a really innovative and encouraging development in the world of money supply.
The point we were trying to make at the time is that there are some interesting parallels between Safaricom’s role in the M-pesa e-money market and the role of central banks in conventional money markets. Read more
In our previous post, we made the point that if the old goldbug accusation that central banks and bullion banks were suppressing the gold price by selling or lending gold into the market is true, then in the current cash-for-gold universe — which features negative gold lease rates — the opposite must apply.
That is, the very same entities may now, if anything, be supporting prices in the market. Read more
From “The LTROs have saved Europe and US jobs are coming back!” to “Never mind, we might be even closer to econo-tastrophe than we were last year” in just five months — via Credit Suisse Trading Strategy:
Successful or not, Facebook’s IPO has taught us one very important thing over the last two days.
The blogosphere/Twittersphere knows extremely little about greenshoe IPO mechanics. And yet, because who shouts loudest makes the most waves…the idea that Morgan Stanley had “lost face” on the IPO due to its commitment to take on shares at $38 “at a burden” to itself managed to linger around far too long for comfort. Read more
FT Alphaville’s resident credit expert Lisa Pollack is on the case regarding JP Morgan’s “egregious” loss announced on Thursday.
If one article sums up how ETFs have come to change the market structure of the equity universe, it’s this one from Paul Amery at Index Universe on Thursday.
As he recounts, the thing that really worries regulators is the role ETFs play in the shadow banking world today. To what degree do their security deposits fund banks, and what sorts of maturity transformation is going on behind the scenes? Also, to what degree do ETF providers fulfil a credit intermediation role by transferring capital and liquidity from savers to borrowers, even when most ETF investors are unaware of the fact that their “deposits” may not be fully capitalised at all times? Read more
Last week a rather interesting thing happened in the world of volatility ETNs. The VelocityShares 2x short-term Vix futures ETN, backed by Credit Suisse and known as TVIX, announced that after a brief period of suspended issuance it would reopen the note to issuance orders from market makers.
It had previously closed issuance on February 21 citing “internal limits” at Credit Suisse. Read more
Hot on the heels of Goldmanite Greg Smith’s admission that clients are perhaps the least of some banks’ concerns…
The technical committee of the International Organization of Securities Commissions (IOSCO) has taken a stab at sorting through the conflicts of interest to be found within one of our favourite market sectors: exchange traded funds (ETFs). Read more
US banks are pushing for their activities around exchange-traded funds to be exempt under the so-called Volcker rule, highlighting the importance of the funds as a tool for the big financial institutions that create and sell them, the FT reports. Banks often act as “authorised participants” for exchange-traded funds, setting up and managing shares in the more than $1tn worth of ETFs in existence in the US. But those activities could fall foul of the proposed Volcker rule, which aims to ban speculative trading at US banks. According to some interpretations, ETFs are not included in the special Volcker carve-out that allows banks to “make markets” on behalf of their clients. “Market makers in exchange-traded funds enter into a number of transactions, such as creating and redeeming ETF shares,” the Securities Industry and Financial Markets Association, which represents big banks and investors, said in its submission to US regulators on the Volcker rule.