Economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.
On the day in which the government reported modestly stronger than expected retail sales for the month of May, signalling a return to strength for spending and the US consumer - the driving force behind 70% of US GDP - a far more ominous statistic was revealed by credit card company Synchrony Financial, which earlier today announced in a regulatory filing that it expects write-off rates to climb 20 to 30 basis points over the next 12 months, and will increase reserves for soured loans beginning this quarter.
Hedge funds attracted a net $44 billion in assets globally last year, the smallest amount since 2012. As these increasingly desperate funds try to change that in 2016, one enormous target has been identified in Australia.
"Instead of looking for manager’s and investment opportunities to beat the market, investors are opting to be the market and are likely creating the most crowded trade in history. Stagnant monetary policy fosters a groupthink outlook. The Fed Put prompts the same positioning. Computerized programs trade correlations and relationships established during an extended period of abnormal policy. Active managers continue to retrench as the market diverges from the fundamentals, but the blind buyers continue to participate - it does not matter if the market is 10x, 15x, or 20x earnings, they buy for one reason, it is the market."
When Tom Bentley tried to pull his money from a mutual fund troubled by its large stake in Valeant Pharmaceuticals International Inc., he instead received shares in a Springfield, Mo. auto-parts retailer. Sequoia Fund Inc. sent the retired computer hardware engineer about 5% of his money in cash and the rest was stock in one company–O’Reilly Automotive Inc. Mr. Bentley said he sold the shares as soon as they appeared in his account on April 7, but they had already dropped in value. "It has been pretty horrendous," Mr. Bentley said.
The result of the recent mega short squeeze in oil, has been a significant revulsion to shorting oil directly or indirectly, either by way of the underlying commodity or energy stocks, many of which have soared in tandem. And yet the shorts remain, and continue to press their bets on the troubled energy sector. However, instead of directly shorting crude and various first-derivative oil and gas companies, short sellers - burned by the recent squeeze - have changed their strategy and shifted their sights to secondary exposure, namely those regional banks that do business with the industry.
The "smart money" have been net sellers of US stocks for the ninth consecutive week. Investors are positioning for a market reversal based on leveraged positions in volatility funds. Oil bulls never jumped on board the latest rally. The CS Fear Barometer remains elevated
Main Street is vulnerable to leveraged trading algorithms and Brazilian bonds because it’s not just exotica that is overleveraged. Risk-off, in short, is no longer just a temporary swing of the pendulum, guaranteed to reverse in a year or two. As amazing as this sounds, we’ve borrowed so much money that as hedge funds go, so goes the world.
Ever since it started making complicated bets against some leveraged ETFs, Miller’s Catalyst Macro Strategies Funds has since grown from $500,000 in assets at the start of the year to about $170 million. It achieved a more than 50 percent return this year, placing it far ahead of its competitors.
Important pillars of the bull case evaporated throughout 2015. Global price pressures weakened, the global Credit backdrop deteriorated and the global economy decelerated. The huge bets on central bank policies left markets at high risk for abrupt reversals and trade unwinds – 2015 The Year of the Erratic Crowded Trade. Indeed, a global bear market commenced yet most remain bullish. Serious and objective analysts would view this ominously.
We believe the Credit Cycle has turned and with it will come some massive unexpected shocks. One of these will be the fall out in the Bond Market, centered around the dramatic growth explosion in Bond ETFs coupled with the post financial crisis regulatory changes that effectively removed banks from making markets in corporate bonds. It is a ‘Witch’s Brew’ with a flattening yield curve bringing it to a boil.
In a move that will surely raise even more eyebrows if not launch a shockwave across Palo Alto just yet, Fidelity Investments said in its monthly holdings report that it has slashed the valuations of even more unicorns, starting with the biggest one of all, Uber, when it lowered the value of its stake in the company's Series D shares by 7.5% from Oct. 30-Nov. 30, while adding more pain to Dropbox investors when it lowered its value of the cloud service company by another -2.2%.
And so Wall Street has set its sights on the next junk bond fund casualty, a name which is well-known to most equity market participants: none other than Waddell and Reed (WDR), the fund which rose to infamy in the aftermath of the May 2010 Flash Crash, after it was initially blamed by the SEC as the culprit behind the Dow's 1000 point crash...