Archive - Aug 2009

HedgeFund.Net has compiled Q2 asset flow trends in the hedge fund industry. Surprisingly, in Q2 the bulk of the increase in AUM (a 5.9% increase to $1.8 trillion) was primarily performance driven rater than coming from investor flows. The trend of outgoing investor flows seems to have moderated but as of June was still negative. It is possible that at the market's peak in July, investors finally starting allocating capital to select performing strategies, just as the market was peaking. And as anyone within earshot of a hedge fund in 2008 will attest, money flows out much faster than in. If the same investors are bitten again once the melt up has no more room to grow, it should get quite interesting.

Same short different day. Cross asset alpha is back to SPARC acceptable levels.

Damien Hoffman could not have picked a better person for his Wall St. Cheat Sheet Best Reporter Award for Outstanding Journalism: Matt Taibbi. Matt, who effuses just the right amount of gonzo, deadpan, fact, fiction and paranoia, embodies perfectly the qualities of what a real reporter of our Kafkaesque reality should exemplify and strive to - namely, through the grotesque (yet grounded in reality) to bring attention to the small details that the establishment has long sought to keep deep in the shade, in perpetuation of a status quo that has persistently and increasingly benefited just a small minority.

Micro block reversion algos enjoying the lack of any human emotion now that yesterday's festivities are long forgotten. In the meantime the "deflation is bad for stocks" switch has been set to Ignore, and "Liquidity Providers" are giddily providing liquidity, much needed by the 5 SPARCs trading with each other.

Geithner points out record Wall Street payouts and profits. Ergo, economic recovery imminent.

In an article titled "The dumb money is buying equities" dated August 17, 2009, City Wire's Charlie Parker writes:

Please understand me, if you are a buyer of equities at the moment then I am not calling you stupid.

I am just saying that you are acting with the stupid. In fact, it is not really me that is saying this, but Pimco.

The mammoth US fixed income operation, which is most famous for bringing investor Bill Gross to the world, also offers a prolific blogging service from its fund managers. The service, called 'Zero hedge', comes with the rather unnerving catchphrase 'On a long enough timescale the survival rate for everyone drops to zero'. Anyway.

Financial commentators are obsessively debating whether the recent rise in the Chinese stock market means there’s a bubble — and if so, when it’s going to burst. My take? Who cares! What happens to the broader Chinese economy is what we should really be watching. It will have a far-reaching impact on the rest of the world — much more far-reaching than a decline in stocks.

Our activist friends over at Judicial Watch are just getting started. Recently, they filed a lawsuit against the US Treasury to "obtain records related to evaluation procedures used by the government to determine which financial institutions received funds from TARP. The focus of the inquiry is a potentially iniquitous $12 million cash injection provided to Boston-based OneUnited Bank, at the urging of Barney Frank.

Arthur Levitt, former chairman of the SEC, writes an Op-Ed in the WSJ on HFT, titled "Don't set speed limits on trading" providing the usual justification for the phenomenon, claiming it "contributes significantly to market liquidity, a critical measure of market health and something all investors value." What ensues is a less than objective defense, with no disclosure of his existing substantial conflicts of interest.

When last week we said "look for loans to trade as wide as US CDS, with bonds squeezed to nano bps over zero" we thought we were kidding. We were wrong. Last week the across the board tightening continued, with the loan universe positioned exactly at 400 bps, an 11 bps tightening from the prior week, while bond tightened by 28bps to 733 bps. Yet while there were the rubber band movements tighter across several high beta bond names such as Select Medical and Aeroflex which screamed much tighter and took the index in, for the first time a more substantial widening was also notived, that of FDC bonds going wider by 150bps.

• PPI down 0.9%, Core down 0.1%, more than forecast - Byron Wien: "most certainly last month of deflation" (Bloomberg)
• July housing starts of 581,000 down 1.0% versus June 587,000 (Bloomberg)
• CIT second-quarter loss narrows, posts reserves for bad loans (Bloomberg)
• UK inflation is presumably high as booze, video game and DVD prices rise, a sure sign "recession eases" (Bloomberg)
• Democrats urge Obama to keep government-run health-care option (Bloomberg)

• Accident at Russian hydroelectric plant kills at least 12 workers, up to 64 missing.
• Asian stock markets mostly lower Tuesday, metals and energy stocks weaker.
• China shares rebound after sharp slump, but investors uneasy about earnings.
• Economy is still not out of the woods: Germany's Central Bank.
• Fed, Treasury extended the TALF into next year.
• German investor confidence rose sharply in Aug. per closely watched ZEW survey.

We closed at OpEx max pain. If SPY moves sideways right into Friday 4pm, the market will prove to be a vicious sadist, to which masochistic traders return day after day, begging for more. Of course, one assumes the Chinese bubble doesn't implode first.

In order to attempt filling a recent vacuum in public TIC data aggregation and analysis, Zero Hedge is starting a monthly TIC report, highlighting the notable disclosures by the Treasury International Capital System.

Today, the CFTC announced that it is seeking public comments on whether the Carbon Financial Instrument listed for trading by the Chicago Climate Exchange performs a significant price discovery function. As the CFTC has lately faced substantial public scrutiny over the potential abuse of its marketplace, it is prudent to carefully evaluate the impact of yet another market that may be abused by several key players.