U.S. could run out of money by mid-February, Geithner says | German plan for HFT regulation faces industry concerns | SEC rejects Nasdaq plan for order type
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15 January 2013
CFA Institute: Financial NewsBrief
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Bernanke says U.S. economy still needs stimulus to recover
Federal Reserve Chairman Ben Bernanke said the central bank must stick with stimulus policies to help the U.S. economy get back on its feet. The job market has yet to show substantive signs of improvement, he said at the University of Michigan's Gerald R. Ford School of Public Policy. "We are still in a relatively fragile recovery," Bernanke said. Market News International (14 Jan.), MarketWatch (14 Jan.), Crain's Detroit Business (14 Jan.)
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U.S. could run out of money by mid-February, Geithner says
"Extraordinary measures" used by the U.S. government to pay bills while waiting to have the debt limit raised will work only until sometime between mid-February and early March, Treasury Secretary Timothy Geithner said in a letter to House Speaker John Boehner. "Congress should act as early as possible to extend normal borrowing authority in order to avoid the risk of default and any interruption in payments," Geithner wrote. Bloomberg (14 Jan.)
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German plan for HFT regulation faces industry concerns
Germany's proposal to unilaterally restrict high-frequency traders is drawing criticism from traders and exchange groups. They want regulation to be more in line with the EU's stance. Financial Times (tiered subscription model) (14 Jan.)
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SEC rejects Nasdaq plan for order type
The Securities and Exchange Commission, for the first time, denied Nasdaq OMX Group's request for an order type allowing it to offer algorithms that are generally provided to clients by brokers. The SEC noted that Nasdaq, unlike brokers, would have regulatory immunity from technical errors. Bloomberg (15 Jan.), Reuters (14 Jan.), Financial Times (tiered subscription model) (14 Jan.)
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Dell reportedly is in talks to go private
After losing nearly a third of its market value last year, computer-maker Dell is discussing a buyout with private-equity firms, two people familiar with the matter said. TPG Capital and Silver Lake are involved in the talks, and major banks have been asked about financing the deal. Bloomberg (14 Jan.), Austin American-Statesman (Texas) (free registration) (14 Jan.)
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UPS abandons $6.9B bid for TNT to avoid antitrust fight
UPS said it is giving up an effort to buy TNT Express for $6.9 billion after European antitrust regulators hinted that they would block the deal. UPS was looking to increase its presence in emerging markets and Europe. The New York Times (tiered subscription model)/Deal Book blog (14 Jan.), The Commercial Appeal (Memphis, Tenn.) (free registration) (15 Jan.)
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Reader Survey
If the U.S. fails to resolve its debt-ceiling crisis and defaults on its debt, how do you expect world financial markets will react? 
VoteMarkets likely will recognize this as more of a political dispute and largely ignore it
VoteThere will be a short-term sell-off, but, once resolved, markets will rebound
VoteLong-term borrowing costs will increase, and the U.S. will lose its "reserve currency" status
Market Activity
Asian-Pacific markets are mixed; Japan hits 32-month high
Japan's Nikkei 225 rose in early trading to 10,952.31, its highest level since April 30, 2010, but fell back later in the day. It closed up 0.7% on Tuesday. Other Asian-Pacific markets were mixed. China's Shanghai Composite rose 0.6%. Hong Kong's Hang Seng Index edged down 0.1%. South Korea's Kospi dropped 1.2%. Australia's S&P/ASX 200 fell just under 0.1%. India's Sensex was up 0.4% at midafternoon. The Wall Street Journal (tiered subscription model) (15 Jan.), The Economic Times (India) (26 Feb.)
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Bond sale indicates European high-yield revival
Luxembourg's Ardagh Group is raising $1.45 billion from the sale of high-yield notes to fund its acquisition of the U.S. glass-bottle unit of Cie. de Saint-Gobain. It is the biggest high-yield bond by a European issuer in two years. Bank of America Merrill Lynch's Euro High-Yield Constrained Index shows that yields on European high-yield bonds have fallen from 12% a year ago, to 5.27%. Bloomberg (14 Jan.)
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Spanish bond rally obscures troublesome debt
Although Spanish borrowing costs have declined, the nation still faces a weak economy and high debt. The International Monetary Fund projects that debt will total 97% of gross domestic product this year. In 2012, Spain's budget deficit likely topped 9% for the fourth year running, economists say. Bloomberg (15 Jan.)
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by Momtchil Pojarliev, CFA, and Richard M. Levich
Research Foundation Publications (December 2012)

The authors of this book examine the rationale for investing in currency. They highlight several features of currency returns that make currency an attractive asset class for institutional investors.
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Economics
More Americans use retirement savings to pay bills
U.S. workers increasingly are paying for expenses by withdrawing money from their retirement savings accounts. More than 1 in 4 workers draw funds from 401(k) plans and similar funds to pay mortgages, credit card bills and other personal expenses, and more than one-third of these workers are in their 40s. The Washington Post (tiered subscription model) (14 Jan.)
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Wal-Mart plans to hire all veterans who want work
Wal-Mart Stores plans to offer employment to every veteran seeking work under a program that is expected to hire 100,000 people over five years. William Simon, president and CEO of Wal-Mart U.S., is scheduled to announce the program in a speech to the National Retail Federation. The New York Times (tiered subscription model) (14 Jan.)
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Analysis: U.S. should eliminate debt ceiling
The U.S. debt ceiling has outlived usefulness, and Congress should abolish it, according to The Economist. "Congress already has the final say over the budget," the magazine notes. "And Republicans looking for leverage have alternatives." The Economist (tiered subscription model) (12 Jan.)
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"Orphaned" 401(k)s offer advisers opportunity
"Orphaned" 401(k) plans, left behind when professionals change jobs, are a huge opportunity for financial advisers to increase assets under management, according to a study by AlixPartners. About 27% of mass-affluent investors have $100,000 to $500,000 in dormant 401(k) accounts, the study found. AdvisorOne (11 Jan.)
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The Gold Standard: A Fifty-Year History of the CFA Charter
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Geopolitical/Regulatory
Regulators scrutinize JPMorgan over "London whale" losses
U.S. and U.K. regulators are expected to levy action against JPMorgan Chase regarding its "London whale" trades, sources say. The U.K. Financial Services Authority is "continuing to conduct a formal enforcement investigation into the trading losses," according to the regulator. Meanwhile, the Federal Reserve and the U.S. Office of the Comptroller of the Currency are criticizing JPMorgan for risk-management failure related to the credit-derivatives losses. Bloomberg (14 Jan.), Financial Times (tiered subscription model) (14 Jan.), The Wall Street Journal (tiered subscription model) (14 Jan.)
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SEC is set to ease restrictions on investment advertising
The Securities and Exchange Commission is drafting rules that would let companies use advertising and other forms of mass marketing to attract investors. Supporters and critics disagree on whether relaxing regulation of investment promotion would benefit legitimate startups or help scammers swindle investors. The Washington Post (tiered subscription model) (14 Jan.)
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RBS' Libor penalty could exceed $800M
Royal Bank of Scotland's fine for alleged manipulation of the London Interbank Offered Rate could top $800 million, sources say. That would be significantly larger than Barclays' penalty, though still well behind UBS' $1.5 billion fine. Bloomberg (15 Jan.)
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Asian regulators want larger international role
At the Asian Financial Forum, regulators emphasized a need for Asian countries to be an equal to the U.S. and the EU, whose voices dominate the global regulation conversation. Ranjit Ajit Singh, chairman of the Securities Commission of Malaysia, suggested more formal intraregion dialogue to develop a collective stance to take to the international community. Risk.net (subscription required) (14 Jan.)
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Financial Products
Southeastern debuts open-end fund with global focus
Southeastern Asset Management has introduced a global open-end mutual fund that guarantees that at least 40% of holdings will involve companies outside the U.S. Longleaf Global is a concentrated fund that holds securities of 15 to 25 companies. Morningstar (10 Jan.), Bloomberg (14 Jan.)
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