Wall Street's Best Minds
Byron Wien: 2 Speed Bumps Slowing the Bull Market
A reduction in worker productivity and central bank liquidity works against equities, writes the Blackstone strategist.
By Byron Wien
2 SPEED BUMPS SLOWING THE BULL MARKET / BARRON´S MAGAZINE
Europe’s Investment Banks Suffer American Envy
Across the board, most European banks’ revenues are falling further behind
By Paul J. Davies
Life isn’t getting any easier for Europe’s investment banks.
A string of results on Friday showed they are falling further behind U.S. rivals in the key business of trading bonds and currencies, although some are doing better in equities. Low volatility at home and a lack of scale in the more active and profitable U.S. market are taking their toll.
In investment banking, advising on deals and capital raising, Europeans are performing worse, too, with only UBS getting close to the revenue gains reported by the U.S. banks.
The trouble for the Europeans is that the more money U.S. banks make in their domestic market, the more firepower they will have to deploy on winning business elsewhere. As banks like Morgan Stanley and Citigroup return to strength, the White House’s deregulatory agenda for banks might give this extra impetus.
Credit Suisse stood out as having a particularly rough second quarter, mainly due to a much worse performance in both equity and bond trading in Asia, a market on which it is pinning its turnaround story.
Low volatility in currencies and weak activity among clients in interest-rate related trading hurt all banks. Only Deutsche Bank , which reported Thursday, did marginally better than the U.S. average, although the German bank fell down on its equities business, which saw the biggest revenue fall among its peers.
One bright spot for several banks was the business of funding equities trades for hedge funds, which makes Deutsche’s major loss of ground there look doubly painful. BNP Paribas appeared to benefit most from Deutsche’s woes with its equities revenue up 24% from the second quarter of 2016 in dollar terms, although it said strong equity derivatives results were also a big part of that.
BNP’s revenue gains were far ahead of the pack. Barclays and UBS both managed to do a little better than the U.S. average of a 1% increase. Barclays’ equity revenue was up 4% in dollar terms and UBS’s up 3%.
There is a further threat to European banks in the form of planned changes to global capital rules that could increase equity requirements. This has become somewhat less of a concern since rule makers announced banks are likely to have up to 10 years to meet updated rules.
Meanwhile, European banks’ best hope is that U.S. regulators don’t loosen the leash on American banks too much. Otherwise, the Europeans will have little chance of recovering their lost ground.
HOW TO PROFIT WITH VIX AT 1993 LEVELS / BARRON´S MAGAZINE
How to Profit With VIX at 1993 Levels
Given the CBOE Volatility Index’s recent drop to 8.84, this VIX call trade looks too good to pass up.
By Steven M. Sears
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The intraday low sparked a shock-and-awe moment as a generation of investors had never seen the fear gauge at such an extraordinarily low level. The reaction among many traders was to buy relatively inexpensive upside VIX calls before everyone else got the same idea.
While there is always a brisk market in VIX $20 strike calls, interest in the trade is peaking as VIX ebbs ever lower. VIX was recently around 9.30. For investors in a fully invested portfolio this is tantamount to buying cheap insurance trades that pay off if VIX rises above 20. The fear gauge’s long-term average is around 19.
What could cause VIX to rally? A sharp drop in the stock market. What could cause stocks to drop? Your guess is as good as mine, but these are the cold facts about VIX calls.
The September $20 VIX call is trading around 43 cents. The October $20 VIX call is trading around 70 cents. The calls are relatively inexpensive and the expirations capture two of the most volatile months in the stock market.
“Previously, the Standard & Poor’s 500 Index did respond with a short-lived correction, but that has not been the case on this lowest and most severe probe below 10 by VIX,” McMillan, president of McMillan Analysis Corp., wrote in a premarket note to his clients.
In the past, we’ve cautioned investors against trading VIX.
Many people think they are trading the fear gauge that everyone quotes when they are buying VIX calls. They don’t realize VIX options track VIX futures and that they cannot really trade the fear gauge.
But frankly, upside VIX call trades seem too attractive these days to pass up. Timing is a big difficulty, though. Who knows when, or if ever, stocks will snap lower and VIX will pop higher?
While much is always made about big VIX trades, it is critical to understand that the vast majority of the flows are related to investors hedging stocks, high-yield investments, and even structured products. We’ve done our best to talk some sense to nonsense, but a cottage industry now exists that twists VIX trades into doomsday predictions for the stock market.
About a week ago, for example, Bank of America Merrill Lynch executed a huge VIX trade. The bank bought 260,000 VIX October $15 calls, and sold about the same number of VIX October $12 calls, and then sold about 500,000 VIX October $25 calls. The trade generated a credit of $5 million. The bank crossed about 80% of the trade — that means taking the other side — and the VIX crowd handled the rest. The trade was portrayed in some media reports as someone making a massive bet VIX would soon surge. The reality is less dramatic.
“A hedge for sure,” said someone with close knowledge of the trade. “I suspect versus long stock or a structured product. It’s too big a trade to be a speculation.”
Because the VIX market is tough for most investors to analyze and track, our standard recommendation for investors who ask about trading volatility is to advise them to sell puts and buy shares of CBOE. The exchange-operator CBOE Holdings (ticker: CBOE) owns the VIX complex and thus makes money off the growing fascination that now surrounds the fear gauge.
THE AXIS OF THE SANCTIONED / KNOWLEDGE@WHARTON
The Axis of the Sanctioned
By Jacob L. Shapiro
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Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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