Last week in the markets was all about what was happening below the calm surface waters, which saw the DJIA post a tiny increase and the S&P dip just a fraction. If one was going off merely by the two main indices, one would certainly have missed the drubbing that tech and specifically biotech stocks suffered. However, nowhere was it worse than in the "hedge fund hotel" basket of names most near and dear to the hearts of hedge funds, and respectively those most hated, one which Goldman defines as the long Very Important Positions <GSTHHVIP> vs. short Very Important Shorts <GSTHVISP>. It was here that P&Ls saw one of the worst weekly losses for hedge fund positions since 2001.
Howard Marks once wrote that being a "contrarian" is a lonely profession. However, as investors, it is the downside that is far more damaging to our financial health than potentially missing out on a short term opportunity. Opportunities come and go, but replacing lost capital is a difficult and time consuming proposition. So, the question that we will "ponder" this weekend is whether the current consolidation is another in a long series of "buy the dip" opportunities, or does "something wicked this way come?" Here are some "words of caution" worth considering in trying to answer that question.
The Central Bank of Iraq said it bought 36 tons of gold this month to help stabilise the Iraqi dinar against foreign currencies, according to a statement from the bank that was emailed this morning. It is very large in tonnage terms and Iraq’s purchases this month alone surpasses the entire demand of many large industrial nations in all of 2013. It surpasses the entire demand of large countries such as France, Taiwan, South Korea, Malaysia, Singapore, Italy, Japan, the UK, Brazil and Mexico. Indeed, it is just below the entire gold demand of voracious Hong Kong for all of 2013 according to GFMS data (see chart). Iraq had 27 tonnes of gold reserves at the end of 2013 according to the IMF data and thus Iraq has more than doubled their reserves with their allocations to gold this month. Gold remains less than 5% of their overall foreign exchange reserves showing that there is the possibility of further diversification into gold in the coming months. The governor of the Iraqi Central Bank, Abdel Basset Turki, told a news conference that, "the bank bought 36 tonnes of gold to boost reserves and this move is to strengthen the financial capacity of the country and increase the elements of security and insurance reserves of the Central Bank of Iraq." He added that "the central bank seeks through the purchase of large quantities of gold to stabilize the Iraqi dinar against foreign currencies.” Iraq quadrupled its gold holdings to 31.07 tonnes over the course of three months between August and October 2012, data from the International Monetary Fund shows.
The whole story about how private equity firms and hedge funds have steamrolled into the residential home market to become this decade’s slumlords is a story we covered long before mainstream media even knew it was happening. We first identified the trend in January of last year in one of my most popular posts of 2013: America Meet Your New Slumlord: Wall Street. Since then, we've done my best to cover the various twists and turns in this fascinating and disturbing saga. With all that in mind, let’s now take a look at the latest article from Bloomberg, which points out that Blackstone’s home purchases have plunged 70% from their peak last year. Perhaps they overestimated the rental cash flow potential of indebted youth living in their parents’ basements?
Stellar 10 Year Auction Stops 1.4 bps Through, Highest Bid To Cover, Lowest Dealer Award In One YearSubmitted by Tyler Durden on 03/12/2014 13:15 -0400
Moments ago the Treasury sold $21 billion in benchmark OTRs in the form of a 9-year-11-month reopening of Cusip B66, in a whopper of an auction that saw the high yield of 2.729% price 1.4 bps through the 2.743% When Issued. But more than just blistering demand at the pricing, all the internals were solid across the board: the Bid to Cover of 2.92x was well above the 2.54x from February, and the 2.68x TTM average. In fact, this was the highest BTC since March of last year. And in keeping with one year anniversary records, the Dealer Award was a paltry 29.1% which also was the lowest in a year. Indirects were 43.4%, down from 49.7% in February, which means that Direct soared, and sure enough they did, from 16.2% to 27.5%. Overall a stellar auction, and one confirming that the smart money continues to prefer allocation to fixed income, instead of believing the latest "growth stories" explaining away the second coming of the dot com bubble in Bernanke's centrally-planned farce of a market.
The "smart money" indicator is at its most extreme degree of selling since November, 2010.
Earlier today we were surprised when none other than uber central-planning skeptic, not to mention bond fund manager, Bill Gross threw in the towel and in his latest letter advocated the purchase of risk assets - and Bill Gross is the last person needing reminding that in a day and age when the 10 Year yields just barely over 2.5%, this means not bonds but stocks. The surprise, however, promptly disappeared when we realized that PIMCO is merely the latest entrant in the scramble for yield game following, with a substantial delay to all of its other "alternative" asset management peers, right into ground zero: European toxic debt.
You hear that old saw that "the market is not the economy," a lot these days, and for good reason. As ConvergEx's Nick Colas notes, the S&P 500 breaks to record highs - but U.S. labor markets remain sluggish; investor portfolios do well - but over 47 million Americans (more than 15% of the population) are still in U.S. food stamp program – the same as August 2012. The important question now is: "Is the market TOO different from the economy?"
The technicals break with the news!
A national average sounds an alarm: investors that drove up the housing market are bailing out
This is a headwind we shouldn't ignore.
Step aside long-time hedge fund hotel darlings Apple and AIG, and make room for...
Crisis was averted. Or was it just put off for another day?
In essence, you need to be selling strength.
Nearly six years after the financial crisis and its massive bailout, it looks like business as usual by the bankers in RBS and in the City of London and Wall Street ... The smart money is either continuing to accumulate physical or transporting already purchased bullion from storage in the U.S., Canada, Europe and other western countries to storage in Asia.