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Tuesday, April 21, 2015

Treasury Auctions, FX Ponzi, BlackRock Fail, Dudley's Fed Speech, and the FFER

A summary of federal actions and announcements of importance to investors on 4/20/2015:

Yesterday the Federal Reserve approved the merger of Chemical Financial Corporation and Lake Michigan Financial Corporation. The approval allows Chemical Financial to acquire its subsidiaries including The Bank of Holland and The Bank of Northern Michigan. It also allows Chemical Financial and Lake Michigan Financial to establish and operate branches at the locations of the main offices and branches of The Bank of Holland and The Bank of Northern Michigan.  
The New York Federal Reserve published a paper entitled Intermediaries as Information Aggregators: An Application to U.S. Treasury Auction by Nina Boyarchenko, David O. Lucca, and Laura Veldkam. The paper looks at the benefits of financial intermediation -- risk diversification, liquidity, and borrower screen. These benefits do not apply to the auctions held by the U.S. Treasury. Still, most  investors purchase Treasuries through an intermediary rather than directly. It goes on to suggest that the reason investors continue to use intermediaries is for their ability to provide information -- to be information aggregators. This increases the risk to the Treasury which begs the question: Is there an optimal number of intermediaries the Treasury should be working with? 

The CFTC charged Florida resident Dorian A. Garcia in association with a Forex Ponzi Scheme. Garcia's companies, DG Wealth Management, Macroquantum Capital LLC, and UKUSA Currency Fund LP are being charged as well. Garcia is accused of steeling $2.5 million from invested funds by customers. The CFTC will seek "restitution, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and a permanent injunction against further violations of federal commodities laws, as charged."

The Securities and Exchange Commission (SEC) charged BlackRock Advisors, LLC (NYSE: BLK) with failing to disclose a conflict of interest. The company has agreed to pay a mere $12 million to settle the charges. Of course this is just a drop in the bucket for the New York based investment management firm. As the world's largest asset manager it manages over $4.6 trillion in assets. The order claims that Daniel J. Rice III was managing accounts at BlackRock when he founded Rice Energy (NYSE: RICE) based in Pittsburgh. Rice invested approximately $50 million in the company and then formed a joint venture with coal producer Alpha Natural Resources Inc. (NYSE:ANR), based in Abingdon, Va. Alpha Natural Resources soon became one of the largest holdings of BlackRock's Energy & Resources Portfolio, which also happens to be Rice's largest managed fund. The conflicts of interest here abound. 

In the post Credit Supply and the Housing Boom,
the fundamental factor behind that boom was an increase in the supply of mortgage credit, which was brought about by securitization and shadow banking, along with a surge in capital inflows from abroad....
an expansion in credit supply was the fundamental driver of the surge in household debt and that borrowing against the increased value of real estate accounts for a significant fraction of this build-up in debt.
This may not seem like much a revelation, but it's taken 7 years for the Fed to distance themselves in leadership and program enough to be able to scrutinize itself. This paper does a fine job of doing just that, but begs the question: why didn't the Fed figure it all out sooner. An article I wrote a few days ago entitled Is The FOMC Too Reliant On Macro-Economic Principles? looks into this question. 

William C. Dudley gave a speech entitled The U.S. Monetary Policy Outlook and its Global Implications. Dudley is President and Chief Executive Officer at the Fed. The speech was given at the Bloomberg Americas Monetary Summit in New York City. Look for an analysis of this speech coming soon from us.

The feds funds effective rate is up, running at .13% for 6 days now, up from a YTD average of .12%.  


Thursday, April 23, 2015

12 p.m., (9 a.m. PT)

Jina Choi, Director, San Francisco Regional Office, will be a panelist at the Securities Litigation and Enforcement 2015 Update.

Location: The City Club of San Francisco, 155 Sansome St., San Francisco

Contact: Lynn Glasser, 973-278-8830,

Friday, April 24, 2015

9:15 a.m.

Andrew Ceresney, Director, Division of Enforcement, will be a panelist at the Practising Law Institute’s Enforcement 2015: Perspectives from Government Agencies.

Location: PLI New York Center, 1177 Avenue of the Americas, New York

Ex-Im Bank’s Annual Conference - Don't forget about the Ex-Im Bank’s Annual Conference at the Omni Shoreham Hotel in Washington, DC from April 23-24 For more information please contact Capital Meeting Planning via email: or by phone: 703.536.4992