Archive August 2019

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Week InReview: August 30, 2019

Talking rates in the Maine woods with economists over good wine
"Let’s get this out of the way upfront: There is no such entity as the 'Shadow Kansas City Federal Reserve Board.'
"This isn’t a 'The first rule of Fight Club' situation. No one denies that a gathering of money managers, bond traders, and economists has been taking place at Leen’s Lodge in Grand Lake Stream, Maine, for several decades. It’s just that most of the conversations are off the record or governed by the Chatham House Rule, which doesn’t allow identification of speakers without their permission. Many attendees have an affiliation with the Federal Reserve, as current or former employees, but aren’t authorized to speak on the Fed’s behalf.
"The long weekend in Maine takes place shortly before the Jackson Hole Economic Symposium, an event dating to 1982, held in Wyoming and hosted by the Kansas City Federal Reserve. Hence, the gathering became known in some circles as the 'Shadow Kansas City Federal Reserve Board' because of the Fed affiliation of many attendees, more than a few of whom head off to Jackson Hole right after the gathering."

Week InAdvance: August 26, 2019

Mon Aug 26 G7 day three in Biarritz. | Thu Aug 29 World Artificial Intelligence Conference in Shanghai. | Fri Aug 30 WEF hosts Global Shapers Annual Summit in Geneva.

Week InReview: August 23, 2019

Who’s afraid of the Big Bad Tech?

Fictionalized versions of big tech companies are being cast as the bad guys in a new crop of books, playing on fears about the pervasive reach of technology. Many of the tomes ask how much people are willing to give up in exchange for high-tech gadgets and algorithms that anticipate their every need.

In the books, fictionalized doppelgängers with names such as Cloud, TheShop or Beetle have grown so big that no government can regulate them. Several are in development for film and TV.

— The Wall Street Journal

Week InAdvance: August 19, 2019

Mon Aug 19 FINRA annual meeting. | Tue Aug 20 FDIC considers changes to Volcker Rule. | Wed Aug 21 FOMC minutes. | Thu Aug 22 Central bankers gather at Jackson Hole. | Sat Aug 24 G7 meets in Biarritz.

Week InReview: August 16, 2019

Will an obscure event trigger next crisis?

“The possibility of something triggering an event that moves us toward a crisis is way higher now than it’s been in a very long time,” said Glen Capelo, head of rates for Academy Securities in New York. “The rates market is telling you it’s going to happen, it just doesn’t know what it is yet: whether it’s Hong Kong, Brexit, European banks getting hammered, or the global economy. The system is in a more fragile state than I’ve seen in a long time and it will likely be an obscure, second-derivative event that creates the next crisis.”

Capelo said the unwinding of large positions or accounts being forced to take risk down could spark the next major volatility event. “

My guess is that the trigger will be something that’s not on the radar,” he said. “The next problem will be centered around liquidity.”

— Fragile US rates market braces for volatility from everywhere

Week InAdvance: August 12, 2019

Mon Aug 12 Perseids meteor shower. | Tue Aug 13 SEC small business panel. | Wed Aug 14 SEC government-business forum. | Thu Aug 15 Main Street investors roundtable in Chicago.

Week InReview: August 9, 2019

Was the Volcker Rule bad for bond market liquidity?

"With regard to intended effects, we find no statistical evidence that the Volcker rule reduced dealer risk-taking as measured by the standard deviation of covered dealers’ corporate bond trading returns. Rather, our analysis suggests that covered firms’ risk-taking has experienced an increase on short-term trades. Given the short time in inventory, some or most of these transactions could more easily qualify for the rule’s market making exemption. Longer-term trading activity of covered firms, which we would expect to face more scrutiny under the rule, shows no statistically significant change in risk-taking, although the coefficients are in the direction of lower risk.

"As for unintended consequences on corporate bond market liquidity, we find evidence that the rule has increased the markups Volcker-covered dealers charge their clients even on trades that we would anticipate would qualify for the rule’s market making exemption. Specifically, we find that Volcker-covered firms are charging 20-45 basis points higher markups when conducting short-term trades, i.e., roundtrip trades under 15 minutes and roundtrip trades within one day. These findings are highly significant, both statistically and economically. While we would expect these transactions to be exempt, Volcker-covered dealers still appear to be charging customers a premium for these trades after the Volcker rule's implementation."

— Office of Financial Research

Week InAdvance: August 5, 2019

New details on the SEC's plans for amending some company reporting requirements are expected to arrive in the coming days.

Week InReview: August 2, 2019

Asset bubbles to zombie companies: the dark side of rate cuts | US G-SIBs boost their stock buybacks after passing CCAR | CLO investors seek flexibility ahead of next downturn