It was a typical workday morning at Wanjia Asset Management Co. in Shanghai's downtown financial district, but the firm's star bond trader Zou Yu was not at his desk. … Zou, 31, had mysteriously failed to report for his job as head of Wanjia's fixed-income department. And his whereabouts remained unknown until five days later when the firm, on April 16, announced that the police had taken Zou into custody for alleged, unspecified financial crimes. … Zou thus joined a growing list of allegedly unsavory bond traders, securities brokers, bankers and fund managers nabbed by authorities this year in their effort to stop illegal deal-making on the nation's interbank bond market.

Worries grow about an ill-thought-out new European tax … WHEN the European Commission first mooted a financial-transactions tax (FTT) in 2011, the reaction was subdued. No longer. As plans for an FTT covering 11 European nations—including Germany, France, Italy and Spain, but not Britain—have advanced, opponents have grown more worried. Rather more unusually, supporters of the tax also seem to be more nervous. … In February the commission published a proposal that would allow the 11 countries to press ahead with an FTT without all the other European Union members. It hopes that by the start of 2014 they will begin to charge levies of 0.1% on equity and debt transactions and 0.01% on derivatives.

Fixations are a symptom of Asperger’s, along with social problems, elevated stress, and a propensity for numbers over words. The kids in Winchester bullied him for it. Hayes remained a peripheral figure in college, at the University of Nottingham. While his fellow students took their summer holidays, he paid for school by cleaning pots and lugging kitchen supplies for £2.70 an hour. ... Seeking better money, Hayes won an internship at UBS in London. After graduating, in 2001, he joined Royal Bank of Scotland as a trainee on the interest rate derivatives desk. For 20 minutes a day, as a reward for making the tea and collecting dry cleaning, he was allowed to ask the traders anything he wanted. It was an epiphany. ... On the rare occasions he joined other bankers on their nights out, he stuck to hot chocolate. They called him “Tommy Chocolate” and blurted out Rain Man quotes like “Qantas never crashed” as Hayes walked the trading floor. He was bad at banter, given to taking quips and digs at face value. The superhero duvet was a particular point of derision. The bedding was perfectly adequate, Hayes thought; he didn’t see the point in buying another one. ... Not everyone in finance was a jerk. Hayes made a few friends, and he found that his machine-gun approach to messaging and trading made him a favorite among brokers, who didn’t care where a trader had gone to school as long as he brought them deals. ... His M.O. was to trade constantly, picking up snippets of information, racking up commissions as a market maker, and building a persona as a high-volume, high-stakes risk-taker. ... Libor was a component in securities ranging from U.S. student loans and credit cards to Kazakh gas futures, but it was determined each day by just a handful of distracted, guesstimating individuals.

It has always baffled me how the financial industry in general, and financial newspapers in particular, appear to be hell-bent on forecasting this or that in early January. I actually find it outright laughable when someone projects the FTSE100 to be at 7,000 by Christmas time, or for the U.S. 10-year T-bond to hit 2.5% by midsummer. How on earth do they know? The generally poor predictive record proves they don’t, I suppose. On the other hand, that is perhaps what the majority of investors want. If you belong to that majority, there is no need to read any further. You will be wasting your time. ... If you see any forecasts from me (and you do), you will note that (i) they are very long term in nature, and (ii) they are based on structural trends, not tactical (cyclical) trends. Why is that? Partly because I think short-term forecasting is a sucker’s game, and partly because I know for certain that the structural trends that we have identified will happen. It is only a question of when, but more about that later. ... You can hardly open a newspaper these days without some commentator looking to buy fame by attempting to predict the next crisis but, as I just pointed out, the last one isn’t over yet. Therefore a far more relevant question is: What is likely to be the next leg of the GFC? ... I think three topics are particularly likely to steal the limelight in 2016:
- All sanctions against Russia to be lifted and trade relationships to be normalised.
- The EM crisis widens as commodity prices continue to fall.
- The credit market is spoiling the party again.

Bouvier is an opportunist. Pitch him and he will decide if he is in or out. “It is always a question of what I will earn on the deal,” he said. ... “When you buy, it is always to sell,” he said. “You always have the buyer before you have the seller.” ... He got the certificate a few days later and called Rappo. He asked her to set up a proper meeting with the Rybolovlevs at their house in Cologny. This time, Bouvier told me, he offered them his services more generally. He could protect them during their adventures in the art market, he promised. And he could also find them art. ... He was aware that the proposal was audacious. Major buyers typically build collections through several dealers and auction houses, knowing that they will be charged the maximum the market can bear. To protect their interests, many also employ an art adviser or consultant, who works for them and is paid a retainer or a commission—in the region of five per cent—on the works that they acquire. Very rarely are all these roles performed by one person. ... Rybolovlev assumed that the two-per-cent fee was Bouvier’s commission. He was impressed by Natural Le Coultre’s premises in the freeport, which put Bouvier in contact with the owners of expensive art works. “He had insider information,” Rybolovlev said. “He knew the collectors without intermediaries. He knew what was where.” ... “For me, I will be clear,” he told me. “If I buy for two and I can sell for eleven, I will sell for eleven.” ... A freeport offers few tax advantages and scarcely any security features that a standard bonded warehouse cannot provide. But Bouvier’s development in Singapore carried within it two ideas. The first is that freeports will become hubs in the sixty-billion-dollar international art market, destinations in themselves—places for scholars, restorers, insurers, art-finance specialists, consultants, and dealers. The second idea is that the ultra-rich don’t want just another warehouse. ... One rival, who visited the Singapore Freeport and saw the Arad in the atrium, told me, “If a client of mine walked into my office and saw a five-million-dollar sculpture, he would assume I was charging him too much.” Others couldn’t work out where Bouvier was getting the money.

CargoMetrics, a start-up investment firm, is not your typical money manager or hedge fund. It was originally set up to supply information on cargo shipping to commodities traders, among others. Now it links satellite signals, historical shipping data and proprietary analytics for its own trading in commodities, currencies and equity index futures. ... There was an air of excitement in the office that day because the signals were continuing to show a slowdown in shipping that had earlier triggered the firm's automated trading system to short West Texas Intermediate (WTI) oil futures. Two days later the U.S. Department of Energy's official report came out, confirming the firm's hunch, and the oil futures market reacted accordingly. ... in this era of globalization 50,000 ships carry 90 percent of the $18.5 trillion in annual world trade. ... "My vision is to map historically and in real time what's really going on in economic supply and demand across the planet" ... building a "learning machine" that will be able to automatically profit from spotting and publicly traded security that is mispriced, using what he refers to as systematic fundamental macro strategies. ... CargoMetrics was one of the first maritime data analytics companies to seize the potential of the global Automatic Identification System. Ships transmit AIS signals via very high frequency (VHF) radio to receiver devices on other ships or land.

Since 1960, tens of millions of people have migrated toward the Pacific, settling in Las Vegas and Tempe and Boulder. Denver has tripled in size. Phoenix, having added some 3.6 million people, has more than quintupled. Today, one in eight Americans depends on water from the Colorado River system, and about 15 percent of the nation’s crops are grown with it. ... the demands on the river were never sustainable. In 1922, the seven states in the Colorado River watershed signed a compact dividing its water. With little historical data, they calculated the river’s capacity after a decade of unusually wet conditions. ... Since the current drought began, in 2000, that shortfall has averaged 25 percent. Instead of adjusting their allotments, states have drawn down the nation’s largest reservoirs, which are quickly draining. Even this winter’s El Niño weather pattern won’t bring enough rain to restore the region’s supply ... To determine who gets water and who doesn’t, states rely on a system that originated more than 150 years ago—when water was plentiful and people were scarce. ... “prior appropriation,” which promised rights to use a share of water based on who got there first. ... Prior appropriation became the foundation of western water law, and it established order in the West. Today, though, state water laws are largely to blame for the crippling shortages. Because water rights were divvied up at a time when few cities existed west of the Mississippi, some 80 percent of the region’s water goes to farmers, leaving insufficient supplies for growing cities and industries. And farmers must put all their water to “beneficial use” or risk losing their allotment—a rule that was originally intended to prevent hoarding but that today can encourage waste. Many farmers have not adopted modern technology that can cut water use by up to 50 percent, in part because they need to protect their water rights. ... Allowing people to buy and sell water rights is a more expedient way to redistribute the West’s water, he argues. Waste would be discouraged, water would shift to where it’s needed most, and farmers would be compensated. ... The West would have plenty of water if people used it more wisely: Most of the region’s supply goes to growing low-value, water-intensive crops such as hay and alfalfa—in many cases in the desert.

This is the Amazon Marketplace, where anybody can sell just about anything right alongside Amazon's own wares. Unlike eBay, where each vendor maintains a separate listings page, Amazon tidily groups its Marketplace sellers by item, hiding away the inferior offers, to showcase the best deals up front. (In seller parlance, landing the number-one spot is called "getting the buy box.") What looks so clean on your screen obscures the messy and massive jungle of the Marketplace: There are now more than two million sellers on Amazon. While the Seattle-based giant still sells the most popular items on the site itself, Marketplace sellers now ship nearly half of the products--about two billion items each year, all told--and those sales are growing twice as fast as Amazon's, according to the consultancy ChannelAdvisor. The Marketplace started in 2000 selling used books. In 2016, it's a retail phenomenon as significant as any in the past 50 years--together these sellers ring up what ChannelAdvisor estimates to be $132 billion in sales each year. That's more than Walmart sold in 1997. Yet we know so little about who they are. ... Pharmapacks, notched $31.5 million in revenue in 2014, which made its three-year growth rate 3,035 percent, good enough to earn it the 115th spot on the Inc. 500. By the end of 2015, its annual revenue was $70 million. Vagenas proudly told me the company was on track to do $140 million to $160 million in revenue in 2016, the vast majority coming from those platforms (and around 40 percent from Amazon). ... Inventory often stays in their warehouse only for a few hours before going right back out the door. The business is less like traditional merchandising than it is like a commodities trader from a bygone era, buying and selling well-known goods and turning a profit on each transaction.

Xu had consistently produced returns that were truly unbelievable: His worst-performing fund had grown by nearly 800 percent in five years. He had also survived countless corruption investigations, market falls, purges and other scares. Yet even as his legend grew, Xu remained intensely secretive. ... That equilibrium seemed certain to crumble on June 12, when the Chinese stock market began a free-fall. In the span of three weeks, the market lost a third of its value. ... Unlike in the United States, where institutional investors dominate the market, China’s 200 million mom-and-pop investors make roughly 85 percent of all trades. ... “All these small individual investors are called ‘chives’ in the market,” says Hong Yan, a finance professor at the Shanghai Advanced Institute of Finance. “They get cut over and over again, but they come back every time, like little weeds.” ... By the late 1990s, he became the unofficial captain of a group popularly known as the Ningbo Death Squad. The squad made its reputation by manipulating cheap, relatively unknown stocks, which in the Chinese market are not allowed to rise or fall more than 10 percent in a single trading day. To game the system, the squad devised a strategy: Out of nowhere, it would place a gigantic order for a chosen stock. Other traders, seeing the sudden upward movement in price, would flood in, pushing the stock toward its daily 10-percent limit. Once the stock hit the limit on the first day, the momentum became self-perpetuating. Eager traders rushed to buy the stock as soon as the market opened the next day, propelling it toward the 10-percent limit once again. The movement generated its own publicity and easy profits. After a few days, the squad would sell out, and the stock would tumble back to a lower price as other traders followed. ... “Xu Xiang is always trading,” a longtime friend said. “If he’s not trading, he’s thinking about trading.” ... Nearly every one of the experts I spoke with repeated some version of the same rumor: that Xu was less a financial genius than a puppet of even larger powers. Most often, this explanation was deployed in response to a question that had been troubling observers of the Chinese financial world for months: Why hadn’t Xu stopped earlier? Rumors of his illegal methods were an open secret, and he had already built the most successful hedge fund in China, reaping billions of dollars in personal wealth in the process. Why keep going and risk a reckoning?

Over half a century (the company will celebrate its 50th anniversary in August) Vitol has never suffered an annual loss. Profits surged from just $22.9 million in 1995 to a record $2.28 billion in 2009, according to documents reviewed by Bloomberg. At its peak, Vitol’s return on equity, a measure of profitability compared with the money that partners have invested, was a geyserlike 56 percent. Even Wall Street pales in comparison; Goldman Sachs’s best ROE since going public in 1999 is 31 percent. ... Vitol, which trades about 6.5 percent of the world’s oil, fights in a tough arena. It competes with other independents such as Glencore, Trafigura Group, Mercuria Energy Group, Gunvor Group, and Castleton Commodities International. It also grapples for market share against Big Oil’s in-house trading arms, including those of BP, Royal Dutch Shell, Total, and, increasingly, state-owned Chinese oil companies. ... As for the future, Vitol faces a daunting fact: The best days of oil trading are almost undoubtedly in the rearview mirror. Margins are shrinking as the market becomes ever more transparent and competitors emerge fighting for the same barrels. Even as Vitol sinks more capital into assets such as refineries and terminals, returns are falling. Last year’s ROE was 16 percent—for Vitol, a less-than-stellar number. ... In August 1966, two Dutchmen, Henk Viëtor and Jacques Detiger, invested 10,000 Dutch guilders (about $2,800 at the time) to start a Rotterdam company with the aim of buying and selling refined petroleum products by barge up and down the Rhine. They crunched Viëtor and “oil” to get Vitol. The money was a loan from Vietor’s father and the pair agreed to pay an annual interest rate of 8 percent. ... The modern Vitol began to take shape in 1990, when Detiger and seven other partners sold the company for $100 million to $200 million (the actual figure wasn’t disclosed) to a group of about 40 employees, including Taylor.

What made the case fascinating—what had the entire London financial scene watching and waiting for the precedent it might set—was that the defendants’ version of events wasn’t so different from that of the prosecution. Parvizi and the others acknowledged joining up to trade. They acknowledged disguising their activities with encrypted devices and burner phones. But, they maintained, they’d never knowingly traded on information that was, legally speaking, “insider.” The men said their investments, even those that were incredibly well-timed, stayed on the legal side of the line between privileged information and well-informed rumor. ... The trial ran for four months, and at times Courtroom 3 became a circus. Anderson suffered a heart scare after two days on the stand, repeatedly delaying the proceedings. A reality-TV star sat in the audience. Harrison, making the most of the judge’s direction that the men could come and go as they pleased, barely showed up. Parvizi maintained his cool, even when his character was being savaged. During cross-examination, the lead prosecutor observed that lying appeared to come easily to him. Matter-of-factly, Parvizi replied, “Of course.”

The fund almost never loses money. Its biggest drawdown in one five-year period was half a percent. ... Few firms are the subject of so much fascination, rumor, or speculation. Everyone has heard of Renaissance; almost no one knows what goes on inside. ... For outsiders, the mystery of mysteries is how Medallion has managed to pump out annualized returns of almost 80 percent a year, before fees. ... Competitors have identified some likely reasons for the fund’s success, though. Renaissance’s computers are some of the world’s most powerful, for one. Its employees have more—and better—data. They’ve found more signals on which to base their predictions and have better models for allocating capital. They also pay close attention to the cost of trades and to how their own trading moves the markets. ... At their core, such models usually fall into one of two camps, trend-following or mean-reversion. ... “You need to build a system that is layered and layered,” Simons said in a 2000 interview with Institutional Investor, explaining some of the philosophy behind the firm and the Medallion model. “And with each new idea, you have to determine: Is this really new, or is this somehow embedded in what we’ve done already?”

When she took it for validation to a used video game store in Charlotte, the young man behind the counter rustled open the plastic bag and beheld the game -- pristine in its cardboard box covered by much of the original cellophane -- coughing the words "Oh my god." He offered her all the money in the register for it. She turned him down. ... Before Stadium Events for the Nintendo Entertainment System came into their lives, Jennifer and her now-husband, Jeff, were scraping by. They lived in a double-wide trailer with a mouse problem and a buckling floor, so close to the Carolina Speedway that the sounds of engines from the dirt track kept them awake at night. ... It is seductive because of its rarity but also a testament to the darker side of a hobby reaching new heights of popularity. ... It isn't a good game. It's a boring game. Released in 1987 by the Japanese company Bandai, Stadium Events was made for a piece of peripheral hardware called the Family Fun Fitness mat. ... Nintendo of America president Minoru Arakawa thought the technology could be huge, so the company purchased the mat and relaunched it as the Power Pad. Stadium Events was then rebranded as World Class Track Meet ... what happened to the Stadium Events that had already been made? Nintendo and Bandai have declined to shed any light on the matter, leaving collectors to speculate.

Wu believes Opendoor can buy and sell homes, in quantity, by employing the type of data analysis that has powered so many Silicon Valley companies and by targeting the broad middle of the market. It deals in single-family homes built after 1960, priced between $125,000 and $500,000. It has no interest in distressed properties, which require too much work, or in luxury properties, which are harder to value. ... Of course, buying up houses to make a market is capital-intensive, and the risks are great. Opendoor has raised $110 million in equity from Khosla Ventures, GGV Capital and Access Industries, among others, most recently at a valuation of $580 million earlier this year. And it has also raised more than $400 million in debt to buy the homes. To succeed, it has to price the homes it buys accurately, without seeing them, and it has to sell them quickly to minimize the costs of carrying them. ... Opendoor is a big, bold play in a market with $1.4 trillion in annual transaction volume that’s been largely undisturbed for decades. ... the model has yet to be tested by a recession or a market crash, which can catch even the smartest players by surprise. Wu says he modeled the business through the 2008 subprime crisis to understand the risk.

1.   Still brooding about his loss of the popular vote, Donald Trump vows to win over those who oppose him by 2020.  ...
2.   The combination of tax cuts on corporations and individuals, more constructive trade agreements, dismantling regulation of financial and energy companies, and infrastructure tax incentives pushes the 2017 real growth rate above 3% for the U.S. economy.  Productivity improves for the first time since 2014.
3.   The Standard & Poor’s 500 operating earnings are $130 in 2017 and the index rises to 2500 as investors become convinced the U.S. economy is back on a long-term growth path.  ...
4.   Macro investors make a killing on currency fluctuations.  ...
5.   Increased economic growth, inflation moving toward 3%, and renewed demand for capital push interest rates higher across the board.  The 10-year U.S. Treasury yield approaches 4%.
6.   Populism spreads over Europe affecting the elections in France and Germany.  ...
7.   Reducing regulations in the energy industry leads to a surge in production in the United States. Iran and Iraq also step up their output.  ...
8.   Donald Trump realizes he has been all wrong about China.  Its currency is overvalued, not undervalued, and depreciates to eight to the dollar.  Its economy flourishes on consumer spending on goods produced at home and greater exports.  Trump avoids punitive tariffs to prevent a trade war and develops a more cooperative relationship with the world’s second largest economy.
9.   Benefiting from stronger growth in China and the United States, real growth in Japan exceeds 2% for the first time in decades and its stock market leads other developed countries in appreciation for the year.
10. The Middle East cools down.  ...

Investors are shifting their investment allocations from active to passive management. This trend has accelerated in recent years. The investors who are shifting from active to passive are less informed than those who stay. This is equivalent to the weak players leaving the poker table. Since the winners need losers, this can make the market even more efficient, and hence less attractive, for those who remain. If you can’t identify the patsy, or weak player, it’s probably you. ... Passive management has lower costs than active management and hence delivers higher returns per dollar invested than active management does in the aggregate. However, passive management introduces the possibility of market distortions, including crowding and illiquidity. Exchange-traded funds, in particular, are worth watching closely because of their explosive growth and high trading volume. ... Four drivers have led to the development of the mutual fund industry and, more recently, to the shift toward passive investing. These include regulation, the market environment, technology, and the balance between informed and uninformed investors.

For more than a decade, Wiseguy was the biggest name in ticket scalping. The company fundamentally broke Ticketmaster, using one of the first ever automated "ticket bots" to buy and flip millions of tickets between 1999 and Lowson's eventual arrest on wire fraud charges in 2010. ... The scourge of ticket bots and the immorality of the shady ticket scalpers using them is conventional wisdom that's so ingrained in the public consciousness and so politically safe that a law to ban ticket bots passed both houses of Congress unanimously late last year, in part thanks to a high-profile public relations campaign spearheaded by Hamilton creator Lin-Manuel Miranda. ... But no one actually involved in the ticket scalping industry thinks that banning bots will do much to slow down the secondary market. ... Between 2001 and 2010, the company bought and resold roughly 1.5 million tickets, amassing more than $25 million in profits overall

The challenge of normalizing policy will be to undo bad habits that have developed in how monetary policy is explained and understood. ... To re-establish a shared understanding, we will need to reassess both the imperatives that justified the extraordinary actions and the imperatives about monetary policy that were claimed. This will require candidly acknowledging the uncertainty associated with the transmission mechanism and the challenge of decision-making in conditions of uncertainty. ... It appears to me that the Fed and other central banks have avoided being candid about the uncertainty in order to maintain their credibility. I think this is backwards. Central banks cannot and will not regain their credibility unless they are candid about the uncertainty and how they confront that uncertainty.

Many in the art world are worried about bubbles. The market, they say, is becoming too fast, and too short term. They have reason to fret. The price swings for these artists – rises and falls of 500% or more in less than two years – make this market more volatile than even the most turbulent financial ones. Mini-crashes are becoming more common. They risk doing both financial and creative damage to the art world – financial, because it could put off serious, long-term investors; creative, because artists burn out before they really get started. ... The blame for this is directed at a new breed of art dealer, known as “flippers”. In contrast to a traditional dealer, who may stay with an artist for a lifetime and keeps tight control over who buys his work, flippers buy low and sell high to anybody who will buy. They treat art as though it were a financial instrument. ... His plan is based on his second big influence, the notion of “creative destruction” set out in Joseph Schumpeter’s book “Capitalism, Socialism and Democracy”. ... Simchowitz dislikes the art-world hierarchy, which he thinks excludes people from buying art; he would like to dislodge it and make art easier to see and buy.

Financial markets accommodate both prudent insurers and reckless gamblers. They provide investors with an opportunity to diversify their portfolios, and allow gamblers to bet on future movements in interest rates. The coexistence of the two can allow speculators to make profits by stabilising prices—buying when markets are fearful, and selling when they are greedy. But when the gambling motive overwhelms the insurance motive, speculation becomes destabilising and then risk, far from being minimised by careful management, becomes concentrated in the hands of those who understand least what they are doing. And when regulators perceive insurance when they should see wagering, their actions magnify a crisis rather than minimise it. Such destabilising speculation, mischaracterised by regulatory authorities as prudent risk assessment, is what caused the global financial crisis of 2008. ... The coexistence of insurance and gambling goes back to the earliest days of markets in risk, and the interaction of the two has been central to financial history. But it was four developments in the second half of the 17th century that combined to frame the way we think about risk, and the institutions we have for dealing with it, through to the present day.

Betting that oil prices were about to crash was an audacious wager, one made all the more remarkable by the individuals behind the deal—civil servants with unassuming titles such as “director general of fiscal planning.” In the lucrative oil business, a profession known for its generous compensation, these government employees were probably the worst-paid stiffs around. Yet the men from Hacienda—so called still, even though women are sometimes in the room—proved prescient in predicting a crash. ... In December 2009 the four investment banks involved in the deal wired the proceeds of the wager back to Mexico. Official records tracking the money that landed in Account No. 420127 at state-owned Nacional Financiera bank show the tidy sum ­Mexico made: $5,084,873,500. ... Despite its size, impact, and huge fees, the deal is one that few people, even in the energy industry or on Wall Street, know much about. Painstakingly, the world’s 12th-largest oil producer and its bankers have cloaked the program in secrecy to prevent others—namely trading houses and hedge funds—from front-running Mexico’s orders.

In this interview, Fink relives the decisive moments that shaped his company, sets a limit on his tenure as CEO, explains the reasoning—and risks—in his succession strategy, and shares his plans for a life after BlackRock. ... When you talk about revolutions, it’s always with the benefit of hindsight. When you’re in the moment, you’re working toward an objective. Even back in the infancy of the mortgage business and asset-based finance, it was very clear we were changing finance, but I don’t think we were very clear on where this was going to go and how far this was going to get. When we bought BGI [Barclays Global Investors], iShares had $385 billion in assets; today iShares has $1.3 trillion. If you’d asked me if I had expected that when I acquired BGI in 2009, I would have said no. But if you’d asked if I’d known ETFs would change the investment management business, yes.