YTD Performance

Equities suffered their largest single-day drop in 4 months as for once Apple was unable to single-handedly hold up the index letting it drop closer to its credit-oriented risk. A monster day for NYSE and ES (S&P 500 e-mini futures) volume saw Financials and Discretionary sectors underperforming and the Energy sector joining Utilities in the red for the year. The S&P closed at its lows as it broke its 50DMA for the first time since DEC11 as AAPL dropped 1.25% for the day (and -2.5% from the highs) but most notably equities and Treasuries are back in sync from early March as 10Y closed under 2% for the first time in a month. Gold and Silver surged around the European close, on little news, as we suspect safe-haven buying and an unwind of the gold-hedged bank-stress-test rally - with another relatively unusual divergence between Gold and stocks on the day. VIX broke above 21% closing just below it back near one-month peaks as the term structure bear-flattened (but notbaly pushing ahead of its credit-equity implied fair value). JPY strengthened all day (and AUD weakened) as carry trades were unwound in FX markets leaving the USD marginally higher on the day (and EUR marginally lower despite the turmoil in European markets). Oil fell back below $101.50 but it was Copper that has suffered the most - down almost 4% since Last Thursday. Credit markets were weak with HY marginally underperforming IG (beta adjusted) but still implying further weakness in equities as HYG closed just shy of its 200DMA.

Despite a grumpy open in the major cash equity indices - which opened pretty much in line with where S&P futures had closed on Friday morning - equity indices provided some BTFD reassurance for any and everyone who wanted to get on TV today. In sad reality, a lot of this equity index performance was due to Apple's 2% rally off pre-open lows, as it made new highs and vol continued to push higher. Financials, Industrials, and Materials all underperformed on the day (and Utes outperformed but still lost 0.5%). The majors were hurt most once again but remain notably expensive still to their credit-market perspective. On an admittedly quiet volume day (with Europe closed), the credit market (especially HYG) underperformed equity's resilience open to close but an after-hours reality check dragged ES down to VWAP once again on notably above average trade size and volume for the day. VIX managed top almost reach 19%, leaked back under 18 before pushing back up to near its highs of the day by the close - breaking back above its 50DMA (as the Dow broke below its 50DMA but the S&P remains above). Treasuries shrugged off the equity resilience and stayed in very narrow range near their low yields as stocks diverged once again (until after hours). FX markets were very quiet with JPY crosses getting some action as EUR and AUD managed to drag the USD down a little. Commodities were mixed off Thursday's close with Copper the major loser and Gold outperforming. Oil managed a decent intraday recovery today most notably back over $102. The weakness after-hours in ES (the S&P 500 e-mini future) is worrisome as its lost the support of AAPL and its options. At the cash market close, ES peaked for the day at 1382.75 and has since drifted back all the way to 1374.25 - just shy of the day's lows.

Pop quiz: What is the common theme among the following "best of breed" 2 and 20 (at least) hedge funds, whose YTD performance is presented below?

Silver remains the best performer YTD and the Long Bond the worst performer but what is most notable is the quiet serenity of the equity rally continued through March as Commodities, Precious Metals, Treasuries, and Corporate Bonds all lost notable ground post LTRO2. Is equity keeping the dream alive as the liquidity spigot has slowed to a drop (for now)? AAPL had it largest 2-day drop for almost 4 months into quarter-end - ending under $600 - and the broad S&P 500 pulled away once again from credit yesterday and today as IG, HY, and HYG close practically unchanged from last Friday's low but the ES up 15-20pts. Of the S&P sectors, Energy was the only one to fall appreciably post LTRO2 with Utilities the only sector in the red YTD -2.6% as Financials +21.5% and Tech +18.5% dominate.

Risk off. On one of the highest volume days in months (for equity cash and futures), ES (the S&P e-mini futures contract) fell over 20pts from high to low following Bernanke's lack of expansionary comment. Right at the close we accelerated very fast losing around 6pts almost instantly as the market had a very jittery feel. The major financials were off 2.5-3% from the 10amET Bernanke speech release (and XLF was down 1.4% from that peak) but it was the precious metals that shocked. Gold had it largest percentage drop (over 5%) since early December 2008 (around $100) and Silver plunged over 7% at its worst, managing to come back a little to close down around 6%. Oil did not follow the Central-Plan (to talk down the print-fest) as WTI pushed back up to $107 and Brent over $123 as the USD rallied aggressively - now up over 0.5% on the week. Treasuries early dislike for the removal of the punchbowl was quickly dismissed as equities sold off this afternoon and we drifted back 1-2bps from high yields of the day (though still higher yields close to close). As we noted two days ago on Twitter, the market seems only capable of reacting to addition or removal of central bank liquidity and what was perhaps odd today was the delayed reaction - one of incredulity maybe at the gall of these printers to stop/pause.

Too bad not every hedge fund can be long Apple (even if as Goldman points out, they sure are trying - "One out of five hedge funds has AAPL among its ten largest long positions" - a truly stunning observation and one which means that if Apple, which is priced to absolute perfection, has even one hiccup, we would see an absolutely epic bloodbath in the market). Because if 2011 was a horrible year for hedge funds which closed the year well below, or -10%, their respective benchmark - the S&P (unch for the year), the last thing hedge fund LPs can afford is another year in which they pay 2 and 20 to generate a return lower than the S&P. Yet to their horror, this is precisely what is happening. According to Goldman's latest Hedge Fund Tracker, "The typical hedge fund generated a 2012 YTD return of 3% through February 10th compared with 7% gains for both the S&P 500 and the average large-cap core mutual fund." Yes, there are outliers, but far and wide this means that even more redemptions are about to hit the hedge funds space, where jittery investors will no longer show any restraint before sending in that redemption letter. It gets worse: "The 60-fund Dow Jones Credit Suisse Blue Chip Hedge Fund IndexSM has returned 3% YTD, in line with our sample average.... The distribution of YTD performance indicates that 50% of hedge funds have  generated returns between -2% and +2%." And the absolute kicker: "Only 10% have returned more than 7%, outperforming the S&P 500." Another way of saying that is that 90% of hedge funds are generating negative alpha! If that is not the signed, sealed and delivered notice of death of the hedge fund industry courtesy of not ubiquitous central planning, we don't know what is.

The mainstream media seem willing to sound the all-clear and bring us back from Defcon-3 on the back of what can generously be described by realists willing to look at the actual data as a 'murky' NFP print. The market's reaction seems modestly QE-off (with rates up decently) but the only modest drop in Gold appears to fit with a lack of conviction in the data (especially given the EUR sell-off on Papademos chatter). It seems, as Bloomberg reports, Kyle Bass is right to take the longer-view when he notes today "I'm against selling any of the gold" in UTIMCO's portfolio, pointing out the mounting risks from government deficits in US and Europe, "as every day goes by, I see deflation in the things you own and inflation in the things you need." Summing up the reality of our global situation, one of Bass's colleagues adds "This is a grand experiment and they typically never end well."

Remember back in long distant memories (from a month ago) when all the chatter was for the US to decouple from Europe as the former (US) macro data was positive and a 'muddle-through' consensus relative to the European debacle took hold. Since 12/14, European markets have significantly outperformed US markets (both broadly speaking and even more massively in financials - which is impressive given the strength in US financials). Furthermore, we saw a decoupling of correlation (de-correlating) between EUR and risk as a weaker EUR was positive for risk as USD strength showed that the world was not coming to an end (and Europe was 'contained'). Well things are changing - dramatically. EUR and risk were anti-correlated for the first two weeks of the year and since then have re-correlated. The last few days have seen EUR weakness (Greek PSI and Portugal fears) coincident with risk weakness (ES and AUD lower for instance as US macro data disappoints and a dreary Fed outlook with no imminent QE). Given the high expectations of LTRO's savior status, European financials have been the big winners (+20% from 12/14 and +15% YTD in USD terms) compared to a meager +12% and +8.8% YTD for US financials - with most of the outperformance looking like an overshoot from angst at the start of the year in Europe (which disappeared 1/9). With EUR and risk re-correlating (and derisking very recently), perhaps it is time to reposition the decoupling trade (short EU financials vs long US financials) though derisking seems more advisable overall with such binary risk-drivers as Greek PSI failure, Portuguese restructuring (yields have crashed higher), and the Feb LTRO pending (which perhaps explains the steepness of vol curves everywhere).

With the S&P 500 cash index closing 2011 down for the year (admittedly down 0.003181% is just 0.003181%, but it is also down),having traveled a remarkable 3240 total points from close-to-close over the course of the year, we look across asset classes and notable markets as we reflect on an increasingly intervention-driven and gap-heavy uber-correlated global investing framework. UK Gilts, 10Y Treasuries, Gold, and Oil outperformed (rebased to USD terms) while Greek bonds, Copper, Emerging Market stocks, and Asia Ex-Japan stocks underperformed. The Dollar closed almost 1% higher on the year, the EUR down 2.6% versus the USD as the CRB Commodity Index closed -6.67% for the year. Japanese stocks and bonds had a tough year. US investment grade bonds outperformed high yield bonds. There is much to discuss and we open the thread for any and all discussions...

Maybe, but not in the way everyone seems to think.  Haven't we already decoupled? Sure, but maybe we will just finally catch up to the rest of the world.  The US stock market has outperformed the world this year.  It seems just as easy that we decouple by other markets outperforming - especially since most people talk about the opposite occurring. We have decoupled, so I would be worried about re-coupling, or that we decouple in a bad way.  The "decoupling" theory seems very priced in global stock markets so be careful using this as a reason to get too bullish.

Presenting complete hedge fund performance for the month of November and Year to Date. By the looks of things, this will be a year which will not only remain in infamy for hedge fund performance (now that we are just 15 trading days away from the end), but one where about a third of hedge fund will almost certainly be redeemed into extinction.

As we have been claiming for months now, Italian banks will have no choice but to raise capital to prevent their undercapitalized status from stirring the insolvent bank vigilantes and making them into the next MF, or Lehman, or pick your favorite bankrupt bank metaphor. Today we get confirmation of this, after Reuters reported that Italy's UniCredit will proceed with a €4 to €7 billion capital raise. So far so good. Where it gets somewhat entertaining is the disclosure of who it is that will be "advising" UniCredit on its capital raise. Per Reuters, "Mediobanca and Bank of America-Merrill Lynch are advising Italy's UniCredit on a capital increase seen in a range of between 4 billion and 7 billion euros, although no formal mandate has been given yet to form a consortium for the operation, sources close to the matter said on Thursday. The sources said a decision on the size of the capital hike depended on a series of factors, including whether UniCredit would be allowed to calculate convertible notes worth some 3 billion euros as core capital." Did they just say Mediobanca and Bank of America advising another bank on... a capital raise? Uh, pardon our ignorance, but shouldn't Mediobanca and Bank of America be focusing on their own capitalization first before advising someone else? Does this mean that Bernie Madoff has somehow magically made his way to the Treasury Borrowing Advisory Committee and is now advising Tim Geithner on how to raise debt? Or that Jon Corzine is running for US Attorney General? Frankly, nothing would surprise us any more... Presenting the YTD performance of all three banks.

HSBC has just released their latest weekly hedge fund return compilation report. There is no sugarcoating this: it is a complete bloodbath. It is no surprise why hedge funds are desperate to pull off any sort of month end rally. Without it we fear the hedge fund space, which at last check was approaching $2 trillion in AUM, will collapse by 25% after the new year when the full carnage of the redemption requests is made public. And while we know that Paulson is a, well, liquidator is such a harsh word, but if the word fits (unless of course he makes whole all of his more "senior" investors with his personal cash, something which has been vaguely rumored), we certainly had no idea just how pervasive the decimation within the hedge funds ranks was until we saw the mid-September results. We really, really hope the collusive short squeeze-cum-month end rally works out for the hedge fund community, becuase it really will be "or else."

The pension system for California's teachers has $56 billion less than it needs to cover the benefits promised to its 852,000 members and their families, the fund reported Thursday, as big investment losses in 2008 continue to reverberate...

Last week, when commenting on cotton's torrid YTD performance, we noted "A retest of the $2 psychological price barrier is now guaranteed and is on next week's docket." This despite the ICE's 25% hike in initial and maintenance margins. Sure enough, as expected, cotton has just passed the $2 price (an all time record obviously). Since our initial observation on cotton's bubbly performance back in September, cotton has now surged by over 100%. But fear not: surely this is a demand phenomenon, as revolutionaries across the world realize they have to be well-dressed for all those cameras...