Day after day, the status-quo hugging, momentum-chasing talking heads that infest the world of investing will pile their clients' money into 'what is working' with little regard for 'value', risk (as defined by Howard Marks), or business uncertainty. Precious metals are sliding so 'sell' anything related to the precious metals industry. Biotech and software are surging so buy it all with both hands and feet... However, as the following two charts from Harvard Business Review suggest that strategy is in fact the absolute 'riskiest' approach to managing money as they break down the most (and least) uncertain industries in America.
- Quid pro quo Clarice: Iran seeks give and take on Islamic State militants, nuclear program (Reuters)
- Alibaba’s Banks Said to Boost IPO Size to Record $25 Billion (BBG)
- European Stocks Fall Amid China Concern as Tesco Slides (BBG)
- Tesco Suspends Executives, Probes Error That Triggers New Profit Warning (WSJ)
- Kurds say they have halted Islamic State advance on Syrian town (Reuters)
- Because luck and managing money is genetic: Financial Elite's Offspring Start Their Own Hedge Funds (WSJ)
- Islamic State Onslaught Spurs Mass Exodus of Syrian Kurds (BBG)
- Rockefellers, Heirs to an Oil Fortune, Will Divest Charity From Fossil Fuels (NYT)
Once Central Banks get out of markets, and I know some critics think that once they get in they are here to stay, healthy volatility and actual price discovery should come back to asset classes.
A bunch of folks in Hedge Fund Land have this idea that they can force a bit of a squeeze in the bond markets....
Fundamentally oriented investors tend to think that quants, like blondes, have all the fun. As ConvergEx's Nick Colas notes - it all looks like easy money - scalping trades with lightning fast computers, front running news with preferential access to press releases, or managing leveraged portfolios with thousands of small but profitable positions – but quants face their own significant challenges. Finding common rule sets that work in a wide array of stocks is not easy, and markets adapt quickly to close opportunities that seem historically profitable - the number of potential signals is seemingly endless; and regulators are now aware of quantitative investing and, in some cases, don't like what they see. Here are 10 reasons why why "it's not easy being a quant."
The market correction that begin in January appears to be subsiding, at least for the moment, as Yellen's recent testimony gave markets the promise of the continuation of Bernanke's legacy. With the markets back into rally mode, for the moment, this week's "Things To Ponder" focuses on some of the bigger issues concerning the effectiveness of QE, investing and "77 reasons you suck at managing money."
- Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
- Budget fight leaves Boehner 'damaged' but still standing (Reuters)
- Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) - just like Bernanke
- Republicans press U.S. officials over Obamacare snags (Reuters)
- Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
- More brilliant: Fed could taper as early as December (FT)
- Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
- Ford's Mulally won't dismiss Boeing, Microsoft speculation (Reuters)
- China reverses first-half slowdown (FT)
- NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)
While we found it modestly comedic (and certainly ironic) that CNBC's crack team celebrated the recovery from the initial knee-jerk drop in stocks after the FOMC by top-ticking that suspension of reality; we suspect the following post-mortem from Goldman on the minutes is what confirmed concerns across the street... "Minutes from the July 30-31 FOMC meeting were generally consistent with our view that tapering of asset purchases is likely to occur at the September meeting, coincident with an enhancement of the forward guidance."
- Record unemployment, low inflation underline Europe's pain (Reuters)
- The ponzi gets bigger and bigger: Spanish banks up sovereign bond holdings by more than 10% (FT)
- California Lawmakers Turn Down Moratorium on Fracking (BBG)
- China’s Growing Ranks of Elderly Beset by Depression, Study Says (BBG)
- Tokyo Prepares for a Once-in-200-Year Flood to Top Sandy (BBG)
- Morgan Stanley Cutting Correlation Unit Added $50 Billion (BBG)
- IMF warns over yen weakness (FT)
- Rising radioactive spills leave Fukushima fishermen floundering (Reuters)
- India records slowest growth in a decade (FT)
Capitalism may have bested communism a few decades ago, but exactly how our economic system allocates society’s scarce resources is now undergoing its first serious transformation since the NYSE’s founding fathers met under the buttonwood tree in 1792. Technology, complexity and speed have already transformed how stocks trade; but As ConvergEx's Nick Colas notes, the real question now is what role these forces will play in long-term capital formation and allocation. Rookie mistakes like the Twitter hack flash crash might be easy to deride, but make no mistake, Colas reminds us: the changes that started with high frequency and algorithmic trading are just the first step to an entirely different process of determining stock prices. The only serious challenge this metamorphosis will likely face is a notable crash of the still-developing system and resultant regulation back to more strictly human-based processes.
Turning your growth trade into a value trade is the quintessential sign of a losing trader on Wall Street.
From Whitney Tilson: "After a strong 12-year run, 2011 and 2012 were lost years. I feel very badly about this and apologize to you. But I know you don’t want an apology – you want performance! To that end, I’ve reflected on the mistakes I’ve made, learned from them, and taken significant steps to maximize our chances of success going forward: I’m now the sole portfolio manager and have dramatically simplified, focused, and de-risked the fund. I’m confident that my strategy is sound, I will execute it well going forward, and we will all profit."
"what you realize is that the lessons of ’08 will actually result in a much quicker process, a process that I would describe as a “black hole” if and when there is the next financial crisis.... Nobody in America has actually seen, or most people probably can’t even contemplate, what an actual loss of confidence may look like. What I’m trying to struggle with as a money manager, who really seriously doesn’t like to lose money, is how to protect our capital and how to think about the next crisis."
For some time now we have been warning about the danger to portfolios given the deteriorating fundamental, economic and technical backdrop in the markets. Our warnings, for the most part, have been ignored as individuals continue to chase stocks in hopes that "this time will be different", and somehow, stocks will continue to ramp higher even though all three support legs are weakening. Currently, it is the imminent arrival of the next round of Quantitative Easing (QE) that keeps "hope" elevated but further Central Bank intervention is unlikely in the near term leaving the markets at risk of a further correction. The technical and fundamental setup is currently a negatively trending market. It is very likely that, in the current environment, we will retest the May lows, if not ultimately set new lows, in August. Those lows will likely coincide with further weakness in the economy which should be the perfect setup for the Fed to launch a third round of Quantitative Easing.
This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied - The SequelSubmitted by Tyler Durden on 07/19/2012 19:05 -0400
Two years ago, in January 2010, Zero Hedge wrote "This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied" which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to "suspend redemptions to allow for the orderly liquidation of fund assets." In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don't believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing "The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds". Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners - who never can accurately predict a rational response - is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?