Institutional Investors

Tyler Durden's picture

Frontrunning: February 15





  • G20 struggles over forex, at odds over debts (Reuters)
  • Alwaleed Sells Airbus A380 to Invest in Middle East Firms (BBG)
  • GOP Stalls Vote on Pick for Pentagon (WSJ)
  • ECB officials rebuff currency targeting as G20 meets (Reuters)
  • Not good for the reflation effort: Muto leads as Japan PM close to choosing nominee for Bank of Japan chief (Reuters)
  • M&A Surges as Confidence Spurs Deals in Computers to Consumer (BBG)
  • JPMorgan’s head of equity prop trading Gulati to launch own fund (FT)
  • Tiffany & Co. sues Costco over engagement rings labeled ‘Tiffany' (WaPo)
  • JPMorgan Said to Fire Traders, Realign Pay Amid Slump (BBG)
  • Broker draws Tullett into Libor scandal  (FT)
  • Airbus drops Lithium-Ion batteries for A350 (Reuters)
 
Tyler Durden's picture

Remember 1994





Big round numbers always encourage reflection.  Turning 40 or 50, for example, or making (or losing) a million dollars.  Or a billion.  And so it is with “Dow 14,000.”  ConvergEx's Nick Colas has three critical observations as we traverse this particular “Big round number.”  First, it is clear that equity prices (and volatility, for that matter) are much more a direct tool of central bank policy than in prior economic cycles.  Second, the rally off the bottom in March 2009 has left the investing world with very few money managers who can legitimately claim the title of “Smart money.” Lastly, you have to consider the way forward.  The roadmap from Dow 6600 (March 2009) to Dow 14,000 was – in retrospect – clearly marked by signs labeled “Follow the central bank yellow brick road.”  Good enough signage to get us here, clearly.  But, as Nick notes, fundamentals – corporate earnings, interest rates, and economic growth – those are the metrics which will have to guide us as central banks inevitably reduce their liquidity programs. As he considers the way forward for U.S. stocks, he reflects on Spring 1994 - U.S. stock investors thought they had it all figured out as they exited 1993, just as they do now...

 
Tyler Durden's picture

Where The Consensus Is... Wrong





The equity markets, despite a verey modest drop so far today, continue to hang in despite slowing profits growth. David Rosenberg notes that while many tout the +6% YoY earnings growth, once adjusted for special factors, the growth rate in earnings is a meager 40bps! So, he notes, it appears not to be about earnings but about what investors are willing to pay for the earnings stream and lays out four reasons for the market's 'comfort'. However, while Mr. Market is catching on to the Fed's overt attempt to reflate the economy by reflating asset values, he warns, we have seen in the past how these cycles turn out - and whether you are a trend-follower or contrarian, take note of the overwhelming consensus across almost every asset class right now. Dow Theory advocates have been doing high-fives all year long as the S&P Industrials and Dow Transports make new highs, reinforcing the notion (mirage is more like it) of economic escape velocity, but Rosenberg has more than a few (EIGHT)  'anomalies' that show things are actually stagnating (or contracting) and don't pass his smell test.

 
Tyler Durden's picture

Subprime ABS Securitizations Are Back As Absolute Worst Of The Credit Bubble Returns





Back in 2007, at the peak of the credit and housing bubble, Wall Street knew very well the securitization (and every other) party was ending, which is why the internal names used for most of the Collateralized Debt Obligations - securitized products designed to provide a last dash trace of yield in a market in which all the upside had already been taken out - sold to less sophisticated, primarily European, investors were as follows: "Subprime Meltdown," "Hitman," "Nuclear Holocaust," "Mike Tyson's Punchout," and, naturally, "Shitbag." Yet even in the last days of the bubble, Wall Street had a certain integrity - it sold securitized products collateralized by houses, which as S&P, and certainly Moody's, will attest were expected to never drop in price again. But one thing that was hardly ever sold even in the peak days of the 2007 credit bubble were securitizations based on personal-loans, the reason being even back then everyone's memory was still fresh with the recollection that it was precisely personal-loan securitization that was at the core of the previous, and in some ways worse, credit bubble - that of the late 1990s, which resulted with the bankruptcy of Conseco Finance. Well, in a few short days, those stalwarts of suicidal financial innovation Fortress and AIG, are about to unleash on the market (or at least those who invest other people's money in the absolutely worst possible trash to preserve their Wall Street careers while chasing a few basis points of yield) the second coming of the very worst of the last two credit bubbles.

 
Tyler Durden's picture

Eric Holder Holds One Half Of US Rating Agencies Accountable For Financial Crisis





We urge readers to do a word search for "Moody's" in the official department of justice release below. Here are the highlights:

DOJ COMPLAINT ALLEGES S&P LIED ABOUT ITS OBJECTIVITY - when it downgraded the US?
HOLDER SAYS S&P'S ACTIONS CAUSED `BILLIONS' IN LOSSES - did Moody's actions, profiled previously here, which happens to be a major holding of one Warren Buffett, cause billions in profits?
HOLDER SAYS `NO CONNECTION' BETWEEN S&P SUIT, U.S. DOWNGRADE - just brilliant

Pure pathetic political posturing, because it was the rating agencies, whose complicity and conflicts of interest everyone knew about, who were responsible for the financial crisis. Not Alan Greenspan, not Ben Bernanke, and certainly not Wall Street which made tens of billions in profits selling CDOs to idiots in Europe and Asia. Of course, the US consumer who had a gun held against their head when they were buying McMansions with no money down and no future cash flow is not even mentioned.

 
Tyler Durden's picture

Guest Post: Stocks, Money Flows, And Inflation





This week's Barron's cover looks like a pretty strong warning sign for stocks (not only the cover, but also what's inside). However, there may be an even more stunning capitulation datum out there, in this case a survey that we have frequently mentioned in the past, the NAAIM survey of fund managers. This survey has reached an all time high in net bullishness last week, with managers on average 104% long. The nonsense people will talk – people who really should know better -  is sometimes truly breathtaking. Recently a number of strategists from large institutions, i.e., people who get paid big bucks for coming up with this stuff, have assured us that “equities are underowned”, that “money will flow from bonds to equities”, and that “money sitting on the sidelines” will be drawn into the market. These fallacies are destroyed below. And finally, while, theoretically, the “inflation” backdrop is a kind of sweet spot for stock, even to those who insist that stocks will protect one against the ravages of sharply rising prices of goods and services, As Kyle Bass recently explained, the devaluation of money in the wider sense was even more pronounced than the increase in stock prices. Stocks did not protect anyone in the sense of fully preserving one's purchasing power. The only things that actually preserved purchasing power were gold, foreign exchange and assorted hard assets for which a liquid market exists.

 
Tyler Durden's picture

Second Consecutive Week Of Outflows From US Equities





It is funny what one finds when one actually looks at the data behind the headlines, such as in this case the trumpeted amazing return of investors to the US stock market. Because what one does find is that after that one blistering week after the new year, in which wealthy individuals dumped cash they had put aside (for lack of knowledge of what the dividend tax would be in 2013), we now have, for the second week in a row, seen a material outflow from US equity funds as tracked by Lipper, bringing the total two week outflow from the domestic equity sector to some $5.8 billion. Oh, and the great non-rotation out bonds continues with some $8.5 billion pumped into taxable bond funds and $2.3 billion into municipal bonds in the past two weeks.

 
Tyler Durden's picture

"Return = Cash + Beta + Alpha": An Inside Look At The World's Biggest And Most Successful "Beta" Hedge Fund





Some time ago when we looked at the the performance of the world's largest and best returning hedge fund, Ray Dalio's Bridgewater, it had some $138 billion in assets. This number subsequently rose by $4 billion to $142 billion a week ago, however one thing remained the same: on a dollar for dollar basis, it is still the best performing and largest hedge fund of the past 20 years, and one which also has a remarkably low standard deviation of returns to boast. This is known to most people. What is less known, however, is that the two funds that comprise the entity known as "Bridgewater" serve two distinct purposes: while the Pure Alpha fund is, as its name implies, a chaser of alpha, or the 'tactical', active return component of an investment, the All Weather fund has a simple "beta isolate and capture" premise, and seeks to generate a modestly better return than the market using a mixture of equity and bonds investments and leverage. Ironically, as we foretold back in 2009, in the age of ZIRP, virtually every "actively managed" hedge fund would soon become not more than a massively levered beta chaser however charging an "alpha" fund's 2 and 20 fee structure. At least Ray Dalio is honest about where the return comes from without hiding behind meaningless concepts and lugubrious econospeak drollery. Courtesy of "The All Weather Story: How Bridgewater created the All Weather investment strategy, the foundation of the "risk parity" movement" everyone else can learn that answer too.

 
Marc To Market's picture

Chinese Officials Hint at Easier Access to Mainland Markets





The Chairman of China Securities Regulatory Commission (similar to the US SEC) said that China can increase by 10-fold the size of the two main channels by which foreign investors buy mainland financial assets. It can, Guo Shuqing said, increase quotas under the Qualified Foreign Institutional Investors and the Renminbi Qualified Foreign Institutional Investors. The latter would make it easier for the yuan in Hong Kong (CNH) to be used to purchase Chinese securities. This hint helped lift China shares by over 3%, their largest gain in a month. The Shanghai Composite's 3% rise brings the gain to 19% off the multi-year low near 1949 (the year of China's Revolution) in early December.

 
Tyler Durden's picture

Postponement, Draghi, And Accounting





The world has done everything humanly possible to put off any tough financial decisions and that is especially true in Europe and in America. The leaders on both Continents just cannot take the heat and so everything possible has been pushed forward in the hopes that economies will improve and that growth will cure the ills brought on by the lack of any real leadership. The centerpiece of the success of lower yields in all of the countries in Europe rests squarely upon Draghi’s “Save the World” plan where the ECB will backstop everything. A careful examination of the numbers and the possibilities limit what can be done in 2013 and the countries in question are Greece, Portugal, Cyprus, Spain and Italy. The other side of the coin here is social unrest that I believe will surface in the spring so that the present general belief that things have improved in Europe is nothing more than a hope which is fashioned by political design. The debt to GDP ratios for each nation in Europe are nothing more than gimmickry. The central banks, phony accounting and a promise by the ECB may well have saved 2012 from an implosion but 2013 brings a new set of circumstances that are far less appealing than last year. Stay safe!

 
Tyler Durden's picture

Mark J. Grant: It's Me Baby, With Your Wake-Up Call





One of the best bond traders on Wall Street said this recently:  “Get ready for The Great Bond Shortage in North America.  If it has a cusip and it is rated, it is going higher/tighter.” The compression in bond spreads since the Fed started all of their “made-up/newly printed money for free” antics is the root of all of this and we do not expect a change anytime soon. There are various estimations for the 2013 net new issue supply in all sectors of Fixed Income but I peg it around $400 billion.  Around $800 billion will be paid to bond holders during the year in coupon payments and, if reinvested, will cause a supply deficit of about $400 billion for the year.  Exacerbating all of this is the Fed, who will buy around $500 billion in MBS this year and perhaps the same amount in Treasuries which could take $1 trillion out of the market all by itself. Consequently we face a lack of bonds denominated somewhere between $900 billion and $1.4 trillion, depending upon the Fed, which will increase the rolling train of compression, lower interest rates further in all likelihood and cause great angst for investors who will find very little of value left in the Fixed Income markets. Safety; yes but yield; no. Inflation and Deflation, it should be noted, only work in operative systems; but it is not Inflation or Deflation that are going to matter in the short run, though it will later; it will be the lack of bonds of any sort to purchase and a stock market that may be dangerously out of sync with the fundamentals opening the possibility of a crash. If so much money is printed and so little regard is placed upon fundamental economic principles then the Real Estate crash of several years ago will look like child’s play by comparison. “Systemic Breakdown” would be the functioning words.

 
Tyler Durden's picture

Newly Public Ruckus Blames IPO Bomb On, Wait For It, Hurricane Sandy





If the entire world goes full retard, is any individual instance of full retardedness unique? This is what today's IPO bomb, Ruckus, which despite (or probably due to) much praise and lauding from CNBC's Bob Pisani, bombed 20% on its first day of trading, is hoping for. The company which picked the wrong time and wrong place to go public and thus, to realize first hand that the US stock market has for years not been a market in any normal sense of the word, but merely a HFT-manipulated policy vehicle for the central planners, decided to pull ye olde scapegoating trick, and blamed it on, cerebral hemorrhage spoiler alert, Hurricane Sandy.

 
Tyler Durden's picture

Frontrunning: October 24





  • China May Forgo Easing as Economy Rebounds, Survey Shows (Bloomberg)... or as food and house inflation has never gone away
  • China Edges Out U.S. as Top Foreign-Investment Draw Amid World Decline (WSJ)
  • Fed to keep buying bonds despite firmer U.S. growth (Reuters)
  • Bernanke Seen Attacking Jobless Rate With QE Until His Term Ends (Bloomberg)
  • Mortgage applications plunge 12%, down for third week in a row (Dow Jones)
  • Exchanges Retreat on Trading Tools - Fund Managers, Regulators Say Certain Orders Are Risky, Aid High-Speed Firms (WSJ)
  • Europe Bank Chief to Defend Bond-Buying Plan (WSJ)
  • Japan, China Envoys Met Last Week for Talks on Island Feud (Bloomberg)
  • Goldman’s Pill Says ‘Guerrilla’ ECB to Impose Losses on Skeptics (BBG)
  • Chance rise of an Obama defeat (FT)
  • King Says BOE Is Ready to Add to QE If U.K. Recovery Fades (Bloomberg)
  • Rajoy Sees Case for Slowing Spain’s Austerity as Economy Shrinks (BusinessWeek)
  • Hong Kong Intervenes to Defend Peg as Upper Limit Tested (Bloomberg)
 
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