Opening Bell: 04.04.14

Australia Model Curbs Speed as CEO Says U.S. Too Far Gone (Bloomberg)
In Australia, where high-frequency trading firms are half as pervasive as in the U.S., the head of the biggest stock exchange has a message for Americans who would rein them in: forget it. “The way the U.S. market structure has been set up creates serious problems,” Elmer Funke Kupper, the chief executive officer of Sydney-based ASX Ltd., told Bloomberg News on the sidelines of a conference March 24. Efforts to rectify that are “very late and unlikely to succeed,” he said. Advantages that are hard to replicate in the U.S. help Funke Kupper curb speed traders. Australia restricts alternative exchanges, solidifying ASX’s near-monopoly and reducing high-frequency arbitrage. By contrast, American trading is spread across more than 50 venues. ASX doesn’t offer payments to traders for orders, unlike in the U.S., where a system of fees and rebates known as maker-taker helps keep HFT in business.

U.S. Banks Expected to Post Weaker Earnings (WSJ)
Among the six largest U.S. banks and securities firms, J.P. Morgan, Citigroup Inc., Goldman Sachs Group Inc. and Bank of America Corp. are expected to post a smaller profit than in the same quarter a year earlier. Analysts predict Morgan Stanley’s earnings will be little changed. The five companies all have seen their estimates fall in the past six weeks.

Bitcoin’s Boosters Struggle to Shore Up Confidence (WSJ)
Jeremy Allaire, a longtime technology entrepreneur who is setting up a bitcoin service for consumers, compares the chaotic environment to the Internet’s earliest days. “The amateur-hour enthusiasts that started bitcoin companies in the first generation are being weeded out in a totally appropriate fashion and…replaced by legitimate companies that are working with the financial industry and government,” he says. “There is still more shaking out that needs to happen.” Mr. Murck says the Bitcoin Foundation is encouraging rules that would help prevent “more bad outcomes.” At a February meeting of state banking regulators, he said the bitcoin industry “is being held to a higher standard than other payment systems.” He added: “As far as I’m concerned, that’s fine.” He says he has never thought about quitting his job because he still believes in bitcoin and thinks the trade group is effective. Mr. Murck has two more reasons to help investigators and root for a rebound in the value of bitcoins. He is paid in bitcoins—and was a Mt. Gox customer when the exchange collapsed. He won’t say how many of his bitcoins are missing. “It isn’t an insignificant amount,” he says with a sigh.

China regulator to run stress tests on banks: paper (Reuters)
The China Banking Regulatory Commission (CBRC) has said it will conduct regional and national stress tests after banks saw a spike in bad loans last year, the Shanghai Securities News reported on Friday, reflecting growing creditworthiness concerns.

JPMorgan Folds London Whale Office Into Another Unit (Bloomberg)
The chief investment office will be folded into the New York-based bank’s Treasury unit, Chief Operating Officer Matt Zames said in an internal memo obtained yesterday by Bloomberg News. Craig Delany will lead the new group as global chief investment officer and treasurer, Zames said.

The Legacy of JPMorgan’s Blythe Masters (BusinessWeek)
As outlined in Gillian Tett’s book, Fool’s Gold, a group of math wizards that included Masters at JPMorgan in the mid-1990s set out to eliminate the risk of lending money by developing a new type of contract that banks could use to insure against the possibility that a loan wouldn’t be repaid. As Bloomberg Businessweek’s Paul M. Barrett put it in a review of Tett’s book, it worked like this: “Bank A, worried about a loan it has made, strikes a derivative deal to pay a fee to Bank B in exchange for Bank B’s promise to compensate Bank A if the loan sours. Bank A sheds some of the uncertainty related to its loan and feels emboldened to make fresh loans. Bank B assumes some of the risk but immediately enjoys the fee income.” These became known as “credit derivatives,” and they would soon be used to insure millions of low-quality mortgages, mixed into batches like cookie dough, divided into pieces, and sold to investors all around the world. When the real estate market crashed in 2007, so did all those derivatives, causing financial carnage too extensive to enumerate. Masters has spent the years since trying to distance herself from the damage her creation inadvertently caused. Is it her fault that her innovation was so badly misused and exploited by others?

Deputies break window to wake alleged drunk driver stopped at light (Wesh)
Deputies said they were forced to break a driver’s window when the man blacked out with a burrito in his hand at a traffic light early Monday morning in Volusia County. A witness first noticed 36-year-old Daniel Hernandez when he allegedly hit a curb and swerved in and out of his lane, according to the Volusia County Sheriff’s Office. The witness followed Hernandez, who allegedly stopped about 50 feet from the traffic light at Doyle Road and Courtland Boulevard and fell asleep, deputies said. Hernandez allegedly sat at the light holding a half-eaten Taco Bell burrito for at least 15 minutes before deputies arrived at the scene. After attempting to wake Hernandez by knocking on the window, officials were forced to break the window, but Hernandez kept sleeping. According to the arrest report, paramedics rubbed Hernandez for two to three minutes to wake him.

The best indicator you’ve never heard of (CNBC)
Closely watched hedge fund manager Jim Chanos says he has the best barometer for gauging where 1 percenters are putting their money, given the Federal Reserve’s easy money policies that have been fueling their portfolios to record highs. During an interview Thursday on CNBC’s “Squawk Box,” he pointed to the stock chart of Sotheby’s. “That’s what people are buying,” Chanos said. The chart shows that shares of Sotheby’s have peaked before every major financial bubble since 1987, starting with the leveraged-buyout spree that fueled the stock market before the Black Monday crash that year. The stock “double peaked” in the past few years, since rising exponentially following the 2008 financial crisis. Chanos attributed Sotheby’s run-up to the Fed’s super-low interest rates and aggressive asset purchases, attempts to kick-start a sluggish economic recovery reeling from the subprime mortgage bubble. The contemporary art market has gone “bonkers” under the Fed’s easy money policies, Chanos said. Many credit those policies for creating a “wealth effect” that has increased the prices of all asset classes, stocks and art included.

Living Like the Ancestors (WSJ)
As the sun begins to set, Lynne Denton heads to the living room of her Pawling, N.Y., home to light the candles in the chandelier. It is one of two rooms in her house where electricity isn’t used. Ms. Denton says it cost about $1 million to restore her house, built in 1747, to bring it as close as possible to its original state. “Our friends thought we were absolutely crazy. But it was out of respect for our past, our history,” says Ms. Denton, a former antiques dealer, who owns the home with her husband, Kevin, a lawyer. “My goal was to make it museum quality.” Restoring old homes is new again. The practice—which took off in the 1970s and spawned a number of specialty magazines and retro products—was hard hit by the economic downturn. Because they require specialized labor and materials, historic restorations typically cost more than traditional renovations. Buyers view old houses as more costly to maintain, making them a tough sell in a down market. But restoration activity has picked up again in the past few years. “There’s a buzz about it again now,” says Christian Winkley of Oxford Builders, based in Hartford, Conn. His firm did only a handful of historic home restorations in 2008 and none at all in 2009 and in 2010; it completed eight this past year.

China regulator to run stress tests on banks: paper (Reuters)
The China Banking Regulatory Commission (CBRC) has said it will conduct regional and national stress tests after banks saw a spike in bad loans last year, the Shanghai Securities News reported on Friday, reflecting growing creditworthiness concerns.

Coats: ‘I’m at the wrong hearing’ (WaPo)
Sen. Dan Coats (R-Ind.) was prepped for an appropriations hearing on the defense budget when he took his turn Wednesday afternoon, flipping papers on his lap, reading from them and commending the witness for his department’s prompt response to a letter Coats had sent about a military accounting office in his home state. It was all fairly innocuous except for one problem: Coats was in the completely wrong hearing complimenting the wrong witness. After he’d finished a lengthy opening to his question, a staffer slipped Coats a piece of paper. Coats read it to himself, looked up, and said, “I just got a note saying I’m at the wrong hearing.” “Well, that would explain why I didn’t know anything about this letter,” said David Cohen, undersecretary of treasury for terrorism and financial intelligence. Coats, who served in the Senate from 1989 to 1999, was U.S. ambassador to Germany and then returned to the Senate in 2011. He said that had never happened to him before. He saw familiar faces, he said, and thought he was in the right place. (Coats is on the Appropriations committee, but showed up at the wrong subcommittee.) “I’ll go try to find out where I’m supposed to be,” Coats said.

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Comments (8)

  1. Posted by Shaz's beard | April 4, 2014 at 7:34 AM

    "According to the arrest report, paramedics rubbed Hernandez for two to three minutes to wake him. "

    I'm listening…

    -J Gundlach

  2. Posted by Gators | April 4, 2014 at 9:39 AM

    Take the moneyline on Fla.

  3. Posted by Turnip Truck | April 4, 2014 at 10:14 AM

    All this could have been avoided if Hernandez had just gone to Penn Station instead.

  4. Posted by Guest | April 4, 2014 at 10:19 AM

    ALL THE CHANOSCLOPS

  5. Posted by Host w/ most | April 4, 2014 at 10:30 AM

    Jon, this weekend I would like to have you and Haley Joel Osment over for some red wine tasting. As the night progresses, I'll have Mr. Osment remove his clothes and begin to shower you with piss. Rsvp appreciated but not required.

  6. Posted by Moby Wand | April 4, 2014 at 10:44 AM

    With Yimyam and Clickclack dancing slowly in the corner?

  7. Posted by Guest | April 4, 2014 at 11:10 AM

    Go back to Yahoo, cletus.

  8. Posted by Carman | April 22, 2014 at 1:48 AM

    No doubt Australia in both big in their economy with respect to the USA but the development is going on and more and more people attracting towards Australia that is the reason the stock markets of Australia is better because it have a big potential in it. And when anyone comes here
    in Australia they always get the largest benefit of their financing.