We read a Bloomberg article today that dissected the poor performance of Goldman’s trade recommendations to their clients: "Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who followed the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday." We thought it was appropriate to dig up a previous guest post in our Commodity Intelligence series dealing with the moral hazards of flow trading.
Q. With gold and gold stocks on a tear, does Casey Research still recommend holding 1/3 of a portfolio in cash?
A. The answer depends, of course, on what country you are currently sitting in. Were I sitting in the eurozone, I would have already moved much of my safe-harbor cash into the “resource” currencies such as Canada and Norway… i.e., countries that are rich in the natural resources that the world needs and will always need.
If my derrière were resting in a seat planted on U.S. soil, as it is, and I didn’t plan on doing any significant overseas spending, then I would feel relatively comfortable – for the time being, with a larger than usual allocation to the dollar. But I would have been diversifying into the resource currencies as well.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 19/05/10
A few days we notified readers about Goldman's conference call with the Koolaidy title of "Why the world is better than you think" that sought to soothe the frayed nerves of investors. Now that we are a few hundred DJIA points lower, Goldman's permabullish Jim O'Neill has shared the presentation that goes with the call. So in case you need a little pick-me-up in these days when China is rolling over, Europe is bailing itself out, carry traders are carted out head first, the US is generating record delinquencies, and the HFT marauders may soon be out of a job, here is Goldman with "Why the world i better than you think."
As I have suggested a few days ago, there are not that many reasons to want to own German Bunds yielding 2.75%. The Euro currency is dropping faster than Britney Spears' career, the yield is not exactly attractive, and the Bundesbank is one of the central banks that has been diluting its balance sheet in last week's sovereign bonds buying in Europe. Overall Bunds are not exactly a winner for long term investors it seems at these levels. Then you have the confidence inspired by a market you cannot short... 60% of the time banning short selling works all the time. Except that it never works. Yesterday's actions by Germany only highlight one thing: no one in Europe has a clue as to what do. Again we think the options are simple: dissolution of the Euro or currency debasement. But we can surely expect a lot of shenanigans before either conclusion materializes as politicians are trying to save the European dream. - Nic Lenoir
ICI has reported the most recent fund flow data, and it's a doozy. In the week following the flash crash, domestic equity funds saw a whopping $8.6 billion in outflows. As a result, the YTD outflow is over $9 billion, so in essence after almost going back to breakeven before May 6, equity funds are now once again solidly in the red, even as Primary Dealers and HFTs continue to play "hot potato market" with each other. In addition to the carnage in domestic equities, all other mutual funds saw an outflow in the prior week, including foreign equities ($3.7) billion, Hybrid ($0.7) billion, and total bond funds ($1.0) billion, for the first total net outflow across all products in over a year.We will bring you AMG/Lipper fund data once we get it, although we do not expect any notable discrepancies.
Don't take our word for today's most substantial green shoot yet. Here is Goldman's Jan Hatzius discussing how one in ten US mortgages is now late on payments and one in twenty is in foreclosure.
From the FT, and yes, you can't make this up. First we find out the biggest speculators in Greek CDS was Greek Post Bank, and now we discover that Greece itself made shorting of its cash bonds almost a requirement via a change in settlement from T+3 to T+10. Unreal.
In summary don't expect asset sales until 2099: "A majority preferred beginning asset sales some time after the first increase in the Federal Open Market Committee’s (FOMC) target for short-term interest rates."
In an exclusive for Oilprice.com, the Wayne Madsen Report (WMR) has learned from Federal Emergency Management Agency (FEMA) and U.S. Army Corps of Engineers sources that U.S. Navy submarines deployed to the Gulf of Mexico and Atlantic Ocean off the Florida coast have detected what amounts to a frozen oil blob from the oil geyser at the destroyed Deep Horizon off-shore oil rig south of Louisiana. The Navy submarines have trained video cameras on the moving blob, which remains frozen at depths of between 3,000 to 4,000 feet. Because the oil blob is heavier than water, it remains frozen at current depths.
The April update for Pimco's Total Return Fund is out. The credit fund, which is now a quarter of a trillion juggernaut, clocking in at $224.5 billion, or $5 billion more than March, and 50% more than the $150 billion last April, has rotated aggressively out of non-US developed holdings (i.e. Bund and other exposure), and put the money back into the US. Total European holdings declined from $40 billion, or 18% of holdings, to $29 billion, or just 13%. At the same time, US holdings increased from 33% to 36%, or a $8 billion increase to $81 billion.Not too surprisingly, mortgage holdings are a scant 16% of holdings, compared to 86% in February of 2009. Is Pimco's European experiment over? Yet another bad sign for Bunds, which Pimco did a whirlwind tour pitching in early 2010 after it had established a position.
Hedge Funds Are Now All Momentum High Frequency Traders - UBS: "Hedge Fund Selling Hits 18 Month High"Submitted by Tyler Durden on 05/19/2010 - 13:14
How quickly it all changes. Last month hedge funds were buying at the highest rate since October 2007. This month we see hedge fund selling at its fastest rate since January 2009. Also this month, investors were net sellers of cyclicals. During the market sell-off the underperformance of cyclicals was muted (below) and unusual things occurred. Net selling of Telecoms was more extreme than Mining (albeit just). Investors bought Food & Beverage at the fastest pace since August 2008, but also picked up more Consumer Discretionary (partly due to
Autos and currency). Has country risk replaced sector risk? - UBS
In today's note by David Rosenberg, the economist quotes a reader letter which provides a unique perspective on how hyperinflation arises: it is not so much a monetary supply/demand phenomenon, as it is one of faith in a currency, any currency. With the world stuck with the USD as a reserve currency, the question is how much more monetization and QE (and make no mistake, the Fed will be forced to do more of both of these activities) needs to occur before people give up on the greenback. And for all those who question what could possibly take the place of the dollar as the world reserve currency, we would like to point out that any country that has a massive stockpile of resources, an even more massive producing class (as opposed to consuming), a clean sovereign balance sheet, and a society hell-bent on being far more capitalist than the US, would likely make a great target. One specific country in Asia comes to mind. However, this will not occur before the next global economic collapse as century-old habits are difficult things to break. Once the economic reset button is pushed half way once again, and the US-China vassal linkage is broken, look for fund flows to redirect promptly across the Pacific.
Yesterday we pointed out how insolvent South Chicago bank ShoreBank was rescued in the last minute by a consortium of banks led by Goldman Sachs, after early unwillingness to provide rescue funding to the bank was overcome once the President allegedly got involved. Today we learn from Fox Biz' Charlie Gasparino that congressional republicans, led by Spencer Bachus, are calling for an investigation into what could turn out to be another crooked scam to bail out an administration darling, because GM and Chrysler were not enough, even as over 70 banks have failed year to date, which however do not have the privilege of being in the president's very good graces.