How A Pork Bellies Trader And Milton Friedman Created “The Greatest Trading Casino In World History”

“I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure.” Nixon’s estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth. In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 […] Read More

Dollar is Stretched, but will it Correct?

The US dollar had a good week, gaining against all the major currencies.  Strong economic data underpinned it, and what we suspect is a mistaken belief that the debate about an earlier rate hike by the Fed has truly intensified. Ironically, the strong data failed to instill any traction in US bond yields.  The 10-year yield was flat on the week, unable to sustain upticks above 2.40%. The 2-year yield rose about six bp, though still below 50 bp.  It is in the middle of the August range.  Moreover, despite the fears expressed by some hawks at the Fed about the risk to prices, few have noted the 8.5% decline in the CRB index over the past two months and the five-week slide in the price of West Texas crude oil. Broadly speaking, the dollar is stretched from a technical perspective.  Yet, the fundamentals, including the upcoming ECB meeting, […] Read More

Starting Monday, Billions In ETNs Are No Longer Marginable Collateral

When is marginable collateral not marginable collateral? When it is an ETN, or Exchange Trade Note: the cousin of the Exchange Traded Fund (ETF). The very mutated, and unabashedly evil cousin of the ETF that is. At least such is the view of US brokerage Interactive Brokers (and certainly not of the ECB where as is widely known blocks of feta cheese and olive oil are perfectly acceptable forms of collateral). First, what exactly is an ETN? Here is the IB definition: ETNs are not equity shares but rather a form of unsecured debt whereby the issuing institution promises to pay a return linked to a market index or other benchmark. As ETNs generally do not buy or hold assets like an Exchange Traded Fund (ETF), their returns are realized through holdings of derivative contracts such as options, futures and swaps. While ETNs trade on exchanges in a manner […] Read More