Tag: news

For the past couple of months, we’ve frequently shared our views that Europe’s MiFID II regulations, which force investment banks to charge for equity research instead of “giving it away” in return for trading commissions, could be a wake up call for 1,000’s of highly paid research analysts who were about to have their true ‘value add’ subjected to a market bidding test.  Here are just a couple of examples:

• Deutsche Bank Forced To Slash Fixed-Income Research Price By Half On Lackluster Demand
• New European Regulations Set To Crush Equity Research Budgets By $300 Million
• Macquarie Identifies The Winners And Losers Of MiFID II
• Sticker Shock: Small Hedge Funds Seen Ditching I-Banking Research Under MiFID

Now, per a note from Reuters, it seems that a growing number of equity research analysts are finally waking up to the fact that hedge funds don’t really have a burning desire to drop $400,000 per year on reports drafted by a 23-year-old recent college grad that do little more than summarize free SEC filings.  Who could have known?

Having covered financial stocks at big and small banks for more than two decades, David Hilder was accustomed to the ebb and flow of Wall Street job cuts and hiring sprees.

 

But he threw in the towel as an analyst last year after deciding customers simply will not pay what it costs to produce research in the years ahead, especially after a regulation called MiFID II upended the pricing model.

 

“It certainly seemed that the difficulty of being paid for research was going to increase, not decrease,” said Hilder, who is now trying to reinvent himself as an investment banker.

 

Many share Hilder’s grim outlook. Reuters spoke to dozens of current and former analysts who moved to independent research shops or investment firms, joined companies in industries they covered, or have launched new careers or are considering doing so, after nearly a decade of cost-cutting that is likely to accelerate under MiFID.

Not surprisingly, a study from Frost Consulting recently found that major global investment banks have slashed their equity research budgets by more than half, from a peak of $8.2 billion in 2008 to $3.4 billion in 2017.  And, as we noted back in the summer, McKinsey & Co. thinks the pain is just getting started and that banks will have no choice but to fire a ton of equity research analysts who write a bunch of stuff that no one ever reads…which seems like a reasonable guess.

Europe’s impending ban on free research will cost hundreds of analysts their jobs with banks set to cut about $1.2 billion of investment on the area, according to a report by McKinsey & Co.

 

The consultancy estimates the $4 billion that the top-10 sell-side banks currently spend on research annually is likely to fall by 30 percent as clients become pickier about what they pay for, McKinsey Partner Roger Rudisuli said in an interview. Investment banks’ cash equity research headcount has fallen 12 percent to 3,900 since 2011 compared with as much as 40 percent in sales and trading, leaving the area facing “big cuts” to catch up, he said.

 

“Two to three global banking players will preserve their status in the new era, winning the execution arms race and dominating trading in equities around the globe,” McKinsey said in a report Wednesday, which Rudisuli helped write. “Over the coming five years, banks will need to make hard choices and play to their strengths. Not only will the top ranks be thinned out, there will be shakeouts in regional markets.”

Meanwhile, in light of the MiFID II writing on the wall, Evercore ISI analyst Glenn Schorr admits that his research has become a bit morbid of late…

Evercore ISI analyst Glenn Schorr recently titled a research note “Writing My Obituary,” with a follow-up called “Stay of (my) Execution.”

 

“For the last few years, it’s been all about morgue humor like ‘flat is the new up’ and ‘no bonus, but at least you get to keep your job,’” said one former analyst who recently left a large bank but would not be quoted by name to avoid upsetting former or future employers.

 

“Contrast that with Silicon Valley,” he continued. “It’s not even the money; it’s the optimism that I envy. Those guys are building a brighter future and this just feels like death.”

 

Sean McGowan spent 25 years covering consumer stocks at small and mid-size brokers before losing his job early last year amid broad cost-cutting.

 

“The more I started to do research on the impact of MiFID and what was likely to happen to the industry, the more I realized that going back to that world would be like swimming upstream,” said McGowan. “A lot of the jobs on the sell-side are going to disappear and inevitably some of the more enjoyable parts will be peeled back. I don’t want to haggle someone about the price of a phone call.”

Of course, the inevitable result of these changes is that the world’s hedge funds will have employ their “buy the fucking dip” strategies without the support of 50 research analysts…maybe just 20 instead.

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Authored by James Howard Kunstler via Kunstler.com,

If only abortion were retroactive, we could suitably deal with monsters like Senator Al Franken (D – MN), who apparently ventured to apply a breast adjustment to a female colleague asleep on the military airplane winging them home from USO duty in Afghanistan. This was back in the day when Senator Franken was a professional entertainer, a clown to be precise, but his career shift to politics has rendered all his prior clowning anathema.

Will he slink out of the senate in disgrace with (ahem) his tail between his legs? Or will he bunker in and wait until the mega-storm of sexual accusation roars on to strand some bigger, flashier fish on the shoals of ignominy?

Perhaps we’ll soon learn that Warren Buffet repeatedly shagged his notoriously over-taxed secretary in the Berkshire Hathaway janitor’s closet.

Or that Mike Pence once bought a diet Dr. Pepper for a woman who was not his wife!

Seems to me this storm could roar and roil on until ninety-plus percent of the men in America are exposed as sex monsters and expelled from every workplace in the land. And then America can feel good about itself again. At least until the bond market blows up, or Kim Jung Fatboy sends a rocket over Rancho Cuckamonga.

But in the meantime, this scourging of male wickedness raises some interesting questions about human dynamics vis-a-vis workplace dynamics.

I (for one, apparently) find it amusing that people are shocked to learn that sexual favors are swapped for career advancement in show business, where sheer narcissism buys more than Bitcoin. The remedy, I suppose, will be to put an end to show business – except its doing a pretty good job of accomplishing that itself, especially the art-form formerly known as the movies. But what about the gazillion other less-glamorous business activities out there: the actuarial suites, the dental offices, the WalMart middle management departments?

I would begin with the recognition that human sexuality is a pretty potent and mischievous component of basic biology. In, say, the much maligned “cis” world of gender relations, people in the workplace surely feel a fairly constant cognitive tug of awareness that they are in the presence of the opposite sex. If nothing else, there is the pheromone thing: the involuntary wafting about of hormonal chemicals that signal sexual possibility, though not necessarily opportunity. It may be considered primitive and inconvenient, but it’s there anyway.

That being so, one obvious question is: what happened to manners, the once-conventional device for managing impulse control.

Narcissism does explain a lot, since that mental state prompts the treatment of other people as mere objects of utility rather than persons on a transect of mutual respect. But in the new sexual harassment workplace regime, a mere polite inquiry of romantic interest might provoke punishment, so that even an unmarried true gentleman asking a female co-worker out for a drink after work might be construed as a firing offense.

Offendedness has gone viral in America these days.

The rewards are a pretty sure thing for the offendee, ranging from simple brownie points to the offendedness powerball lottery of a $32 million payoff for getting seriously roughed up by a wealthy mug such as Bill O’Reilly. My guess is that the suppression of even gentlemanly approaches to women only pushes things to that darker and harsher edge of the gradient of male behavior, where the latent chimpanzee lurks.

It’s inconceivable to me that we are going to eliminate sexual mischief on-the-job as long as men and women are mixed together in work that can be done by anybody. The situation would be less toxic if genuine misbehavior was reported to bosses or to the police directly, instead of waiting twenty years to call up MSNBC, and if asking for a date, or proffering a compliment, were not treated as vile and inexcusable.

Of course, once all the predators are cleaned out of the corporate C-suites, we’ll still be stuck with a spectacularly trashy contemporary culture, saturated with inducements for all kinds of theoretically decent people to behave badly. Mainly what’s being accomplished in the current hysteria is reinforcement of the idea that the weaker sex is just that, but with a raging denial that they require some kind of protection.

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This seemed particularly timely…

Ohio gubernatorial candidate: "I was sexually intimate with approximately 50 very attractive females" https://t.co/BpdhZTqYTN http://pic.twitter.com/qVY3zOdXmB

— Washington Examiner (@dcexaminer) November 17, 2017

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Over the past several months, as we followed HSBC’s currency scandal involving trader Mark Johnson who netted his firm $8 million in illicit profits by front-running a $3.5 billion client order, we frequently noted that Johnson was nothing more than a convenient scapegoat for a global financial industry that is rife with similar front-running scams that go unnoticed.

That said, to our complete ‘shock’ the NY Post today highlights another front-running scam allegedly perpetrated by Wall Street’s finest at the expense of their clients.  According to new documents published in a class action lawsuit filed by a number pension funds and wealthy individual investors, some of Wall Street’s largest primary dealers in the U.S. Treasury market habitually, and illegally, shared client orders via online chat rooms to order to game Treasury auctions.

Wall Street banks secretly shared client information in online chat rooms in order to rig auctions for the $14 trillion US Treasurys market, according to an explosive lawsuit filed in Manhattan federal court on Wednesday.

 

The move wrongly fattened the banks’ profits and picked profits from clients, the suit claims.

 

The new accusations, leveled by several pension funds and wealthy individual investors, are contained in an expanded class-action suit originally filed in July 2015 — and include an unusual twist: Some of the evidence came from confidential informants and one of the banks sued in the earlier action.

 

That bank is now cooperating with the plaintiffs in the massive civil action, and is providing an in-depth look into how Wall Street allegedly conspired to rig Treasury bond trades.

As our readers are undoubtedly aware, typically, the Treasury holds an auction, then banks submit their bids for US debt based on how much they think those bonds are worth. The Treasury then doles out the bonds proportionately to the bidders at the same price. The bank that asked for the best price gets the most bonds.

Traders at the Wall Street banks shared the prices that their clients had sought to buy the bonds, giving each of the banks in the alleged cartel a clearer picture of what they thought the market was, and a better chance at getting a bigger share of the bonds to sell, according to the complaint.

So, which banks would participate in such a scheme?  Surely none of the marquee names on wall street, right?

The amended suit tightens its focus on a select number of banks, naming Goldman Sachs, Morgan Stanley, the Royal Bank of Scotland, BNP Paribas, and UBS, among others, as the firms behind the rigging, which they allege occurred from Jan. 1, 2007, to mid-2015.

 

The funds continue to allege the banks mined their own customers’ bids for Treasury bonds to get a bigger share of the auction, and sell the bonds for more profit.

 

Probes on the auction practices are being conducted by the Justice Department, the Securities and Exchange Commission and other federal, state and overseas regulators, sources said. No regulator has accused any bank of wrongdoing.

Of course, we’re sure this is all just another big misunderstanding by a DOJ that is just trying to “criminalize behavior that is normal.“

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Authored by Charles Hugh Smith via OfTwoMinds blog,

In other words, we'll be left with officially generated and sanctioned fake news and "approved" dissent.

We've all heard that the problem with the web is fake news, i.e. unsubstantiated or erroneous content that's designed to mislead or sow confusion.

The problem isn't just fake news–it's the homogenization of the web, that is, the elimination or marginalization of independent voices of skepticism and dissent.

There are four drivers of this homogenization:

1. The suppression of dissent under the guise of ridding the web of propaganda and fake news–in other words, dissent is labeled fake news as a cover for silencing critics and skeptics.

2. The sharp decline of advertising revenues flowing to web publishers, both major outlets and small independent publishers like Of Two Minds.

3. The majority of advert revenues now flow into the coffers of the quasi-monopolies Facebook and Google.

4. Publishers are increasingly dependent on these quasi-monopolies for readers and visibility: any publisher who runs afoul of Facebook and Google and is sent to Digital Siberia effectively vanishes.

The reason why publishers' advert incomes are plummeting are four-fold:

1. Most of the advert revenues in the digital market are being skimmed by Facebook and Google, as the chart below illustrates.

2. Ad blockers have become ubiquitous.

3. Few people click on the display ads that are the standard in desktop web publishing; in other words, these ads simply don't work very well, and much of the revenue being generated is click-fraud, i.e. bots not real people clicking on adverts because they're interested in the product/service. As a result, advertisers are pulling away from these type of ads as they search for advert models that aren't so vulnerable to click-fraud.

4. The web is increasingly shifting to mobile, which has fewer advert spots due to the small size of the display. In addition, major third-party advert services such as Google Adsense place restrictions on the number and size of ads being displayed on publishers' sites.

The systemic erosion of advert revenues for everyone other than FB and Google is evident everywhere: for example, BuzzFeed Set to Miss Revenue Target, Signaling Turbulence in Media Prospects for a 2018 initial public offering by the high-profile publisher now appear remote.

Digital publisher BuzzFeed is on track to miss its revenue target this year by a significant amount, the latest sign that troubles in the online-ad business are making it tough for new-media upstarts to live up to lofty expectations.

As a result of these two dynamics–the censorship of dissenting views under the excuse of limiting fake news, and the erosion of advert income–independent publishers are losing ground. While those posting on Facebook and other social media sites have little expectation of monetizing their content, many web publishers made enough income off adverts or affiliated income (from YouTube channels, for example) to justify the enormous time and effort they expended keeping their channel/site going.

As advert income has dwindled, there are only two other revenue models available to publishers: a subscription service or Patreon, i.e. the direct financial support of users/readers/viewers. Major publishers are struggling to build a subscription base large enough to fund their operations, a task made more difficult by the expectation that all content is free or should be free.

Patreon has been a boon for thousands of independent writers, journalists, cartoonists, filmmakers and other creators of content. The Patreon model (as I understand it, and yes I have a Patreon campaign) is not based on content that's behind a paywall available to subscribers only, but on providing incentives in the form of content or other rewards to those who choose to contribute.

The Patreon model only works if enough users/readers/viewers step up to support content creators they value. I think the success of Patreon suggests that many people are willing to support the content creators they value. But like all voluntary revenue models, there's the free-rider issue: people who may have the income to pay a bit for content choose not to, and in essence free-ride on those few who do contribute/pay for content.

Some people have advanced the model of micropayments as the solution to the problem of compensating content creators fairly. While this model has some obvious benefits–pennies charged for access to content might add up to a living for content creators if their audience was large enough–it would still be a voluntary system, and thus it would have the same free-rider issue as every other voluntary payment-for-content idea.

Posting "free" content on social media ends up driving advert revenues to the social media and search monopolies, leaving nothing for the content creators. There is only so much serious content that can be created for free.

If what we're left with is "free" content (i.e. the creator gets no income for creating and posting content), Facebook, Google and click-bait link farms of sensationalist headlines, we'll end up with a thoroughly homogenized web of "approved content" underwritten by lobbyists, the entertainment industry and elitist foundations/think tanks, and little in the way of real dissent or diversity of independent analysis.

In other words, we'll be left with officially generated and sanctioned fake news and "approved" dissent: unemployment is at record lows, inflation is near zero, the "recovery" is alive and well, Russia is the enemy and any suggestion to the contrary is propaganda that must be eradicated as fake news, etc.

Simply put, the web is becoming Orwellian. There's plenty of approved "diversity of opinion," but dissent is being sidelined to the fringes as a risk to the perfection of managed content.

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Seemingly echoing Casbalanca's "I am shocked there is gambling going on here," young female intern Nadia Moukaideche was 'shocked' enough to seek counseling after discovering "disgusting, childish, misogynist" behavior at French investment bank Credit Agricole.

Moukaideche, who was born in 1991, had worked at two investment banks in Paris, where she said she had no problems with any colleagues, but as Bloomberg reports, she found the male-dominated working atmosphere at the French bank's London office was so "offensive and degrading" that it drove her to seek counseling over the "misogynist" behavior of colleagues, according to her employment tribunal claim (in which she is suing the bank for sexual discrimination).

The intern said her manager encouraged “a variety of disgusting and childish behaviors such as animal noises, burps, passing of wind and ball games,” according to her witness statement for the tribunal.

 

The misogyny of her boss, Hemal Mistry, “was flagrant” as he fostered behavior that “somehow became normal,” she said.

 

Colleagues had “open conversations about drugs and prostitutes” and they “were sometimes showing each other pictures of it amongst other pornographic images right at the desk.”

 

“The environment is simply unbearable for any woman,” Moukaideche said.

Moukaideche said she became stressed by harassment and was forced to take time off work and seek professional help. She turned to the bank’s human-resources team, and said they handled the process poorly and "insinuated that maybe I could not distinguish simple jokes from offensive misogynistic talks."

Interestingly, the bank’s HR head in London said in a witness statement that "such behavior is not tolerated by the bank," but added that:

"since Nadia bought her claim I have seen emails that she sent to friends in other departments," that would have constituted gross misconduct…

 

The messages "make it very hard to believe that Nadia was genuinely offended by the inappropriate behavior that was identified."

Mistry, the bank’s credit middle-office global office co-ordinator, said the trading floor was a loud place to work but "everyone in the workplace is an adult and if there is something that someone is taking offense to there are plenty of channels you can go through."

"Jokes were made about women but they didn’t objectify women, we also joked about sport," he said in court.

Finally, we note that Moukaideche is now working as a project manager at Natixis in Paris… but did spend over 2 years 'suffering' through the London office of Credit Agricole's "animal noises"…

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Gold continues to shine in the post-Saudi-coup world….

 

And the precious metal just broke above its 50-day moving average, after bouncing off its 200-day on Tuesday.

 

This is gold's best day in 3 months…

 

Gold is gaining as the dollar index slumps to near 1-month lows…

 

Of course, it's USDJPY that really matters (and it just broke below 112.00)

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