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Treasury Warns Asset Manager "Herding" Threatens US Financial System
Just two weeks ago we explained how when there is only one driving factor for market performance and "too-many coat-tail clinging asset managers chasing too few real alpha opportunities" then problems can arise. Critically, we showed the correlation between the S&P 500 and hedge fund returns has never been higher and is approaching 1. So it is refreshing that the Treasury Department agrees in a recent report that this "herding into popular assets" by asset managers could pose a threat to the US financial system.
Money managers could pose threats to the U.S. financial system when reaching for higher returns, herding into popular asset classes... and can contribute to asset price increases and magnify volatility during sudden shocks, a report by the Treasury said today.
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“A certain combination of fund- and firm-level activities within a large, complex firm, or engagement by a significant number of asset managers in riskier activities, could pose, amplify or transmit a threat to the financial system,” the Treasury’s Office of Financial Research said in the report.
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“The council will review the study closely as it considers potential next steps relating to asset management activities and firms,”
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Exchange-traded funds “may transmit or amplify financial shocks originating elsewhere” by pooling assets into illiquid investments.
“Herding into more illiquid investments may have a greater potential to create adverse market impacts if financial shocks trigger a reversal of the herding behavior,” the OFR said.
Well given the charts below... we'd say the systemic threat has never been higher...
Hedge fund managers have become high cost version of their index-tracking ETF brethren...
And performance advantages have dwindled...
as Stan Druckenmiller previously noted:
On why Hedge Fund managers are less successful:
“There are too many, there were eight to ten back then. Somehow, 9000 people are pricing their product off of eight to ten people historic performance. I noticed a lot of the smart early investors and hedge fund clients were leaving, but they were more than replaced by state pension funds, sovereign wealth funds and so far they have been perfectly happy to get returns that our early investors would have never tolerated.”
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But the sheep need to be herded, otherwise they would run wild.
actually it's not herding it's called flocking (normally spelled with a "u")
Treasury Department of Border Collies.
Socialists have a knack for herding.
Treasury: "I can't understand it -- why do ALL the pigs crowd around the trough? Why can't some pigs wander around in the mud and not get anything to eat -- that would make this shit sty look a lot better in the PR photographs."
if only there were some reasonable alternative to hedge funds and indexes and etf's and zero-interest saving accounts and stocks and bonds and bubbly real estate
but there just isn't
even the slam-dunk jobs of working in the EEOC or EPA or HHS are proving to be risky
maybe a bigger, wider safety net
and/or more opportunities in the financial sector
did I leave out any other possibility?
Nothing but wild lone wolves in the gold market, and Eric Sprott, the nimble silver surfer, ripping it up, out in front of Galactus-Bernanakus the planet eater.
Central planner is always perpetual surprise.
While they can't pay themselves $M bonuses, these central planners have learned to benchmark their salaries against the Street ... nice work, and secure, if you can get it. I wonder how much they paid for the study that gave them this insight.
Herding is so well, Biblical. It's "nudging" now.
you left out the closing part that's supposed to go:
hugs,
Cass
Less herding than it is a "buffalo jump".
Lemmings
How about a "Gaggle?"
The greatest herder is the federal reserve. Mother fucking money stuffers.
sheep comes from roman word SHEEPLE...haha
THE BS on the govt shut downs continue. As said before they melt this thing down, for a nice xmas rally, so they get their bonuses to hump their mistress in the hamptons soon. LOL.
the bonds looking like a bullish flag here on daily => http://bit.ly/170Xmdq
Tna at 3:30.... No brainer
Naw, what threatens the US Financial SystemTM is Truth*.
*Sound money, free and open markets, transparency.
http://www.youtube.com/watch?v=0Xvt_zw-rcE
First off, as someone in this racket...fuck you treasury office, you bunch of scumbags. I mean give me a break. They crush PM's, then slam bond holders. They spent the summer bashing grandma and her dividend paying stocks. We know the banks pay shit...and yet after they literally force people into the market at gunpoint, they start with this bullshit.
Yeah, but on the bright side... Nevermind. Isn't one.
On the bright side if they do actually herd us all in and then go for the big asset grab you really could count on seeing Bernanke's head on a stick while crowds of people wipe their ass with Jamie Dimon's face
Not to be glass half empty guy, but there's militarized police, FEMA camps, NSA, TSA, drones, and no doubt a dozen other things we don't even know about for that.
All those things could not help a rich asian dude in a range rover at 2pm on a sunday in broad daylight with a thousand camera's flashing while he scrambled for his life. Maybe they are not really that effective, but we just get beaten over the head with them to make us scared.
Yeah, another example of how all of those things are not in any way, shape or form designed or intended to protect us. But point taken and I appreciate your optimism.
It's so rare (my optimism) I could see how I may have caught you off guard with it.
Next thing you know you'll be suggesting a toga party!
I will be in Orlando in the near future. If you are in that area, and want to grab a beer, let me know. Am happy to figure something out, fwiw.
Would love it. I'm about 2 hours from there and some things would have to line up, but hope to make it work.
Okay, was thinking you were closer for some reason. I will check in soon about it. Let me hammer out my plans.
Was it the Clearwater(ish) area you were in? I was thinking Orlando but now i'm remembering it may be Clearwater.
Yep -- Clearwater. Let me know when you hammer out the plans. Weather is getting nice here.
TOGA! TOGA!
Yeah!
Don't get me started on that incident, Fonz. It was absolutely chilling. I've watched it several times already and I consider it a training video- what happens to you if you aren't willing to go all the way to defend yourself and your family.
When danger is seconds away the authorities are minutes away.
the local news has been spinning it lately. The guy who braked and got bumped is now a victim. The driver frantically fled when everyone else was rationally trying to work things out. They leave out the part where the guy sprinted up and tried to tear him out of his vehicle. Range Rover guy will get his balls sued off by the "victims"
The next day a guy ran up and down the upper west side with a pair of scissors stabbing and slashing 6 people over the course of many blocks. Cops....nowhere to be found.
The Range Rover guy is going to be fine. It's just grist for the media mill right now. Most of those idiotic lawsuits get found out for what they are and quickly dismissed once the glare of the cameras fades.
As for Edward Scissorhands.... just stay out of New York City. All major cities are nothing but roach motels. Last place on Earth I would want to find myself in times of trouble (or anytime, really, unless I'm going whoring one night).
I lived in NYC in the era of General Dinkins ... the place now is practically Epcot Center (Disneyworld for adults) compared to back then.
Yeah, but-----
FUCK FEAR--------------------AND THE POL IT RODE IN ON!
That's the spirit!!!
No they won't. If the crash it, they will give the Bernank a false flag for cover.
if they crash it there will be blame flying all over the place. Too many heads, too few sticks.
Hey, what's all this laying around stuff? Was it over when the Germans bombed Pearl Harbor? The bright side is that the JPM/Comex/LBME/fiat pole-smokers are almost out of phyzz! And there's no way to print that! Right?
They've been "almost out of phyzz" for months now. Has it all come crashing down yet?
"If I'm not back with your gold in 10 minutes..... just wait longer" Paraphrasing Ace Ventura.
yeah the "almost out of phyz" story has certainly fizzled out.
Ye of little faith....
faith I have. Faith in king world news...not so much...
How 'bout Harvey Organ?
Ron Paul is really the only one out there not selling something.
Lew Rockwell. Tom Woods. Walter Block. The list is endless, that is a very large circle of friends.
Sorry, Fonz...they're all selling something, even RP.
Yeah exactly. The disclaimers they issue are just for plausible deniability when it blows up, maintaining zero accountability. Doublespeaking shitheads.
Tend your flock, Fonz. Tend your flock. Some of my day, most days, is making sure people don't connect their brain directly to their tummy. When their tummy feels weird, their brain starts making bad decisions.
I guess I'm lucky, in a certain respect- I don't give any of my clients trading authority on their own accounts.
I keep fielding calls from people who can't wait to get in on the twitter ipo. Same as it ever was I guess.
Same thing here when FacePlant went IPO. I talked everyone out of it except for one client. I advised waiting a few weeks but they NEEDED to be in on the IPO. I asked them why. Turns out, they just wanted to brag to their friends they were in from the beginning. That's a valid reason, at least emotionally. So I bought them a whopping $2000 of that worthless crap in the open market the afternoon of the IPO (no IPO allocation was available for such a small amount, obviously) and got it within pennies of the IPO price. They were thrilled.
I bring it up with them every time we have a review meeting as an example of why volatility can be a cruel mistress. A teachable moment, as it were.
Its G.O.D.s work Fonz.
Group Of Dicks
Edit: Suck it o' ye who downvoteth Fonz.
Buy bonds patriots.
Do NOT hedge with any instrument including gold.
Only terrorists hedge against insanity.
- Department of The Treasury
imbeciles
The herd is headed for the final roundup.
OT but I wanted people here to see this short letter before I shut down my puter for the evening:
National Park Officials closed down the educational Claude Moore Colonial Farm near the CIA in McLean, Va., even though the federal government doesn't fund or staff the park popular with children and schools. Just because the privately-operated park is on Park Service land, making the federal government simply its landlord, the agency decided to close it.
A Claude Moore Colonial Farm official said that the privately-funded staff is on the job Wednesday, but barred from letting anybody visit the historically accurate buildings or animals. Anna Eberly, the managing director, sent out an email decrying the decision and rude National Park Service staff handling the closure.
Pointing to Park Service claims that parks have to be closed because the agency can’t afford staff during the government closure, Eberly wrote: “What utter crap. We have operated the Farm successfully for 32 years after the NPS cut the Farm from its budget in 1980 and are fully staffed and prepared to open today. But there are barricades at the Pavilions and entrance to the Farm. And if you were to park on the grass and visit on your own, you run the risk of being arrested. Of course, that will cost the NPS staff salaries to police the Farm against intruders while leaving it open will cost them nothing.”
She added: “In all the years I have worked with the National Park Service, first as a volunteer for six years in Richmond where I grew up, then as an NPS employee at the for eight very long years and now enjoyably as managing director for the last 32 years — I have never worked with a more arrogant, arbitrary and vindictive group representing the NPS. I deeply apologize that we have to disappoint you today by being closed but know that we are working while the National Park Service is not — as usual.”
http://washingtonexaminer.com/shutdown-overreach-more-guards-at-wwii-memorial-than-benghazi-park-service-closes-park-it-doesnt-run/article/2536710
Nothing funnier than the Walker Brigade kicking in the barricades to get to the WWII memorial. Really funny (sad, actually) how they can find "essential personnel" to take on the guys who stormed Omaha Beach and Iwo Jima nearly 70 years ago ... should be glad the old guys were disarmed.
Interesting that this comes from treasury when we have the Bernank pushing everybody into the same asset class. When I see this combined with Zero's earlier comment that "Wallstreet should be concerned" It tells me that...it's time to be concerned.
Definitely a coordinated change in tone. Of course this could also be another head fake to fleece what's left of the few shorts who still have any money left, but this one does feel different.
That may be, but I wonder this time. There is a lot of shit going down and both parties are pointing their fingers at the tea party. Say what you will about the tea party, but they are a convenient scapegoat to blame everything on if it crashes and burns.
Yep. Establishment politicians are plainly concerned about the Tea Party so it stands to reason they will be blamed for whatever bad shit TPTB have in mind for us. And it does seem like they are now telegraphing that some bad shit is around the corner.
It's funny right Doc, the last market commentary that came from zero was a nice little "now is a pretty good time to buy stocks" comment from him about 4 years ago. We know how that worked out. So today was sort of the opposite of that. Makes me wonder.
That's the first thought that crossed my mind when he said that. He conveniently called the bottom. Is he calling the top too? My suspicion is that Blankfein and Dimon have a pretty good clue after today.
Quoth the Treasury:
Umm… yeah. "A certain combination of activities" could lead to anything, from ice-cream consumption to financial meltdown. "Engagement by a significant number of asset managers" is equally meaningless: if enough people do the same thing, they'll all be in the same boat, just as large masses always have been. The fact that asset managers control a big chunk of cash doesn't seem highly relevant, since there have always been institutional investors and deep pockets chasing more money on the markets. I read this as, "Bad things could happen if bad things happen, and there is a lot of money in the markets, to which either good or bad things might happen." In other words, the Treasury wasted ink.
The correlation of hedge fund returns to index returns is a natural function of targeting optimal profits: regardless of what the hedgers are investing in, optimality is rarely far from the index, because humans are bad at outguessing the market, something that was discovered forty years ago or more.
It would have been helpful of Treasury to be a bit more specific. Just come out and say, "All the fuckers bought AAPL, and we're terrified that they'll all sell simultaneously and drive down the indices that depend on AAPL, however small an impact that would have on the rest of the market."
Something more Edgar Allan Poe:
Can my dollars value store?
Quoth the Treasury, "Nevermore."
What are we saying here........when everyone realizes they've bought fucking garbarge there will be no buyers left when the sell?
But Maria and Bob---I call them by the first name because they're just like family---tell me there's all that money on the sidelines. HF guys will all sell to them if need be. Plus, whenever I look at some Nobel Economist's theories, they always start out by saying, "assume infinite liquidity". I think that almost worked for Myron Scholes and Dave Modest at LTCM.
Actually, what you are seeing is the quintessential Nuclear Trade. Everyone knows that if the market turns south, nobody gets out alive, so being conservative, or short, or independent in thinking has no reward. In Endgame Theory, it's a Hobson's Choice. Be long. That's it.
agreed. There is no going back. There will never be a major correction again. We will ride this as far as possible, and will all make pretend it's legit.
chindit, may I call you that, as I feel like we are family, given your relative truth of the matter. Last one out the door gets stuck with the bill ;-)
More propaganda. The herder blames the herded in the hope of evading blame when the inevitable slaughter occurs. Heil Treasury!
This pretence of the Treasury separated from the Fed is wearing very thin. The pimp and the prostitute both profit, although the latter is most enslaved. Getting rid of mark to model and allowing markets to set rates instead of the Fed would resolve this misallocation of resources very quickly...too quickly for the manipulators who fear a short rope and a long drop when their manipulations end. They need that to happen on someone else's watch, as Blankfein alluded to today.
Sounds a bit familiar:
"In the latter part of the 20th century, the layout and design of most U.S. slaughterhouses was influenced by the work of Dr. Temple Grandin.[4] She suggested that reducing the stress of animals being led to slaughter may help slaughterhouse operators improve efficiency and profit.[5] In particular she applied an understanding of animal psychology to design pens and corrals which funnel a herd of animals arriving at a slaughterhouse into a single file ready for slaughter. Her corrals employ long sweeping curves[6][7][8] so that each animal is prevented from seeing what lies ahead and just concentrates on the hind quarters of the animal in front of it. This design – along with the design elements of solid sides, solid crowd gate, and reduced noise at the end point – work together to encourage animals forward in the chute and to not reverse direction."
Keep the herd moving in the right direction; no sharp angles on the lead in chutes; make sure the killing box cannot be seen by cows back in the line.
...step this way to the shower... worked for the human cattle in another place, another time. I suspect there will be a lot of claims in the future by current bureaucrats: we were only following orders.
“There are too many, there were eight to ten back then. Somehow, 9000 people are pricing their product off of eight to ten people historic performance."
True to form, and in other words, a self-fulfilling prophecy of unchecked greed and nobody minding the store.
All you analysts, and all you pundits -- stop right there.
Best article I have read here in a long time.
This is the herd bullshit that gives you $200 Tesla stock and the mass hype of Twitter.
Twitter files to go public and now there are hashtags in every commercial. They weren't there a month ago, but now every advertisement has to have a #something.
I wonder what the correlation is there? A group of interconnected directors all colluding to push a single stock for their own profit? Yep that's it.
So instead or remembering the brand, you're supposed to remember the hashtag and log in to Twitter to enter the hashtag to see what other people are saying about it.
That is supposed to be a successful advertising strategy?
Go further. What happens to an economy in which the vast majority of "investments" consist not of perspicacious and patient infusions of carefully-placed capital into competitive, job- and goods-producing companies but yield-providing paper debts and other "assets" piggy-backed on still others, all determinants of some index fund or other and all highly-leveraged?
Not only is the pool of real, unencumbered money-good capital at the bottom of this ultra-leveraged, re-rehypothecated pyramidal house of cards VERY small indeed, but the production of actual GOODS is nearly non-existent too...
Can't end well. Bring it on.
Why not just bounce the Chinese government fire drill back to US Treasury Jacob J.ew Lew?
The Paulson TBTF is going up in smoke like Tesla. DO YOU REALLY THINK THE SHEEP CAN COUNT?
It’s likely all true. In fact, we already knew it. Which begs the question, why is The Treasury Department even wasting taxpayer dollars to study this? Are they investing in the markets? Are they concerned this behavior may have an impact on their ability to sell bonds, even though the Fed already buys anything and every Treasury instrument that nobody else wants? Are they trying to be observant and help guide the small investor? Or, are they just doing a study because the Fed, SEC, and Senate Banking committee did one and therefore they should probably do one too? Fuck if I know. Fuck if they know either.
I was perplexed too, because I got caught up in trying to understand the gov-speak (see my comment above) rather than who was doing the speaking. Then I saw this in the original Bloomberg story:
That seems to be what this is really about: should hedge funds be regulated by the Federal Reserve. The Fed. Not the SEC. The Treasury is asking whether the Fed rather than the federal government should supervise large equity holders. The ICI (=the funds' lobbyist) rejects the idea.
Treasury: All seats on the Bernanke Gravy Train are reserved.
You wouldn't say ....
I think that herding the Sheeple to the slaughter doesn't bother them as much as a financial crisis that will lose them the ability to herd the Sheeple
ding, ding, ding! + debt ceiling figure.
10 Cities That May Not Make It Back From the Crash
http://finance.yahoo.com/news/10-cities-that-may-not-make-it-back-from-t...
uh, oh.
Oh, like when 90% of the nasdaq is comprised of AAPL?
Idiocracy is here. They are complaining about something that they themselves (via the fed) forced to happen.
Bernanke = Sheep Dog1
Good. Let Wall Street crash. Other countries manage their stock exchanges better. Let Wall Street go and let the people who work there find other jobs by conducting their job search in a Republican politician's office.
the greatest Weapon of mass destruction ever invented : The gigantic financialista market of WS/City/Euro/Nippon fiat print and levitate collusion; now hurtling to fool's paradise.
What an illusion has Pax Americana made of its favorite toys : WS hegemony; Oil and $ supremacy, the sun never sets on Big Apple! Our way of life non negotiable.
I wonder if Jefferson is turning in his grave; and Washington singing "only the brave!"
Where is the light at the end of the tunnel?
Then stop herding people, assholes.
Did Lew send that note to Ben Bernanke and Yellen? No. F U Lew.
Shouldn't it be called muppeting?