Institutional Investors

It's been a roller coaster year for China's legions of semi-literate day traders who have seen the heights of feast and the depths of famine with Chinese equities over the past 12 months. Now, in the wake of more volatility, many Chinese retail investors are throwing in the towel. 

Derivatives like credit default swaps turned a mere bubble in the US housing market into a global financial catastrophe... 

If you are an institutional investor and you bought Novo Banco bonds, you just had a bad morning...

“If you’re pushing for lower management fees to save minimal basis points on a fund where you are unhappy with performance, as a fiduciary, you have to decide whether you want to keep that fund at all.”

"Prosper is the market leader in peer-to-peer lending-a popular alternative to traditional loans and investing options. Prosper allows people to invest in each other in a way that is financially and socially rewarding. We cut out the middleman to connect people who need money with those who have money to invest...so everyone prospers!"

"While funding continued to be available, such a large negative basis indicates potential market dislocations. And this may call into question how smoothly US dollar funding conditions will adjust in the event of an increase in US onshore interest rates. Similar pricing anomalies have also emerged in interest rate swap markets recently, raising related concerns."

"Deteriorating market breadth and herding into an ever-narrower number of stocks is classic market top behavior. Currently, there are many other warning signs that are also being ignored. The merger mania, the stock buyback frenzy, the year-over-year declines in corporate sales and falling earnings for the entire S&P 500 index, the plunges this year in the high-yield and leveraged loan markets, the topping and rolling over of the massive (record) level of stock margin debt... and I could go on."

The lack of fear in risky assets is another way of saying that risk premia have been low, or as we also like to put it, that complacency has been high. Not fully appreciative of this inherent risk, it seems many investors have refrained from rebalancing their portfolios, and bought the dips instead. We believe the Fed’s efforts to engineer an exit from its ultra-low monetary policy should get risk premia to rise once again, that if fear should come back to the market, volatility should rise, creating headwinds to ‘risky’ assets, including equities. That said, this isn’t an overnight process, as the ‘buy the dip’ mentality has taken years to be established. Conversely, it may take months, if not years, for investors to shift focus to capital preservation, i.e. to sell into rallies instead.

While the storm clouds continue to build above Trafigura, we now know the fate of Galena and why its CEO Letchford departed the company in a hurry last week: according to a follow up from Bloomberg, Trafigura has decided to close the flagship Galena Metals Fund, the latest hedge fund victim of the rout in raw materials markets from oil to copper.

Is Apple going to produce more electric vehicles ten years from now than BMW?

CEOs, Wall Street are furiously making hay while the storm moves in.

• Dollar at three-month high as payrolls paralysis sets in (Reuters)
• 5 Things to Watch in the October Jobs Report (WSJ)
• China to Lift Ban on IPOs (WSJ)
• ArcelorMittal Is Latest Victim of China's Steel-Export Glut (BBG)
• 'Hope to see you again': China warship to U.S. destroyer after South China Sea patrol (Reuters)
• Giants Tighten Grip on Internet Economy (WSJ)
• Questions Surround Valeant CEO Pearson (WSJ)

Remember Skopos Financial, the US subprime auto lender run by Santander Consumer veterans? Well, in a testament to just how desperate America is to perpetuate the US auto market "renaissance," the company just sold $154 millon worth of paper to investors partially backed by loans to borrowers with no credit score.

Butler believes that since the end of the Bretton Woods monetary system, there is a strong case for having higher allocations to physical gold. He warns of the risk inherent in gold ETFs due to the levels of legal indemnifications.

Already, the big banks (the ones with the closest ties to the Federal Reserve) have begun turning away deposits OR charging them.