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Showing posts from August, 2011

Did Bonds Just Peak?

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One of my favorite strategists, Jim Bianco of Bianco Research, was on Yahoo Breakout on Tuesday urging caution as he expects more losses to come:
A week ago the market was gripped with fear and talk of a "retest" of the August lows of 1100 filled the airwaves. Today, markets are surging and the bulls are giddily predicting a run to S&P 1250, 1300 and beyond.Building on last week's 4.7% gain, the S&P was recently up 2.83% to 1210 while the Dow was higher by 2.26%.Bucking the rising trend, Jim Bianco of Bianco Research says investors should take a "risk-off attitude."While most observers (and investors) focus on the equity market, Bianco is focused on the credit markets, which he notes "continue to worsen" and are "not confirming a bottom in stocks."Clearly, there's not nearly as much stress in credit markets today as in 2008, but Bianco sees similarities between the current environment and the summer of 2008, when the stock…

AAA: Pensions Turning to Alternatives

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Online PR Media reports, AAA: Pensions Portfolios Turning To Alternative Investments:
The results of a new poll indicating that more pension portfolios are investing in alternatives has been welcomed by Alternative Asset Analysis (AAA). The recent SEI Quick Poll shows that the percentage of executives from pension funds claiming to have investments in alternatives has increased to 78 per cent, from 51 per cent in 2008. This percentage rose to 53 per cent in 2009 and to 65 per cent last year.Anthony Johnson, an analysis partner for AAA, an alternative investment advocacy group, said, “These figures show an impressive increase in the past year, compared with the increases measured over the previous few years.“This seems to support our suggestions that more pension funds are moving toward alternatives this year as they offer a safer haven in light of current instability on the stock markets.”Chief Actuary at SEI’s Institutional Group, John Waite, said, "Alternative inves…

Hedge Funds Surviving the HFT Hurricanes?

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If you've been reading my blog religiously over the last few years, you probably noticed that even though I am pro hedge funds, there's a lot more smoke and mirrors in this industry than true alpha. I've warned all my readers not to get caught up in the hedge fund hype.

A while back, Bridgewater wrote a comment on how hedge funds are selling beta as alpha. I agree, most hedge funds are nothing more than huge asset gatherers, charging 2% management fee and a 20% performance fee but adding little to no alpha. It's all beta. Just look at Long/Short Equity, one of the more popular strategies, where most managers go long small cap stocks and short large caps. Why would a sophisticated institution pay 2 & 20 for something that they can synthetically manufacture internally? If it's a niche strategy worth paying fees for, fine, otherwise, forget it.

When I trade markets, I use my knowledge of hedge funds to understand violent moves to the upside or downside. For examp…

Honoring "Grandpa Jack"

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The Globe and Mail reports, Final tribute to Jack Layton celebrates his message of hope, optimism:
Jack Layton’s friends and supporters paid him fitting tribute Saturday afternoon. But again and again, his loved ones urged mourners to move on in his spirit, issuing a call to build real change out of his legacy. That was Mr. Layton’s wish, planned before he succumbed to cancer in the early hours of Monday morning. And it came through loud and clear from his wife, Olivia Chow, who was not among the service’s eulogists but appeared instead in a video tribute played during the ceremony (see video below). “Yeah I'm sad, we’re sad. But let us not look behind us, let us look forward,” Ms. Chow said in the video, while she watched from the front row. “I think that's a good way to celebrate his life.” As much as ever, crowds followed the late NDP leader’s message of hope and optimism, both figuratively and literally. Groups of mourners ran alongside the hearse carrying his …

Passing The Baton?

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The Economist Free Exchange blog laments,Passing the baton (HT: Frank):
In his Jackson Hole speech a year ago, Ben Bernanke wanted to leave no doubt that the Federal Reserve could and would act more aggressively to boost America’s flagging economy. This year he wanted to leave no doubt that the politicians could and should do more.The most highly anticipated central banker’s speech in months gave no hint of bold new initiatives from the Fed. He repeated the mantra that the “Fed has a range of tools that could be used to provide additional monetary stimulus”, but there was no discussion of them and not a whiff of imminent QE3, a third round of bond buying. Mr Bernanke promised that the Fed’s policy-setting committee would have a “fuller discussion” of other tools it could use at its September meeting, which has been extended a day. But he chose to use this speech to give Washington a lecture on fiscal policy, arguing that while America urgently needed a credible plan to red…

AIMCo vs. CPPIB: Diverging Views on PE?

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Wellington Financial posted an interesting comment on their site, AIMCo’s take on PE marks stark contrast to CPPIB:

Diverging views – that’s what makes a market!Thanks to the good folks at AltAssets, we have some new insight into what AIMCo CEO Leo de Bever sees in the world of private equity buyout these days. AIMCo manages $70B of assets for various Alberta-based public pension plans. You’ll notice that his take on the PE situation is markedly different than what we’re seeing at CPP Investment Board. Not that there’s anything wrong with that, but if you are a member of both plans, you could be forgiven for wondering why you appear to be on both sides of the trade, so to speak.Here are some relevant highlights of the interview:What is the current appetite for private equity investment amongst your clients?Our clients bought into the asset class during the 2005-2008 period at too high a price and a very high external fee structure, a side effect of a limited internal manage…

Is Bank of America "Rotted to the Core"?

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Yahoo Daily Ticker reports, Henry Blodget vs. Bank of America: “Rotted to the Core”:
A major controversy has erupted in the blogosphere over the value of Bank of America's balance sheet, and whether the bank will be forced to raise capital in the near future.At the center of the debate is my colleague Henry Blodget, who touched off a maelstrom Tuesday with a blog that concluded Bank of America might need to raise up to $200 billion in capital."The trouble is that the market doesn't believe Bank of America's assets are worth anything close to what Bank of America says they are worth," Henry writes, citing the following items other observers think should or will be subtracted from the bank's $222 billion of book value:$15-$20 billion in Increased mortgage-litigation reserves.Zero Hedge thinks BOFA is understating the liability for mortgage litigation costs by this amount. See explanation here.Some percentage of $80 billion of "second mortgages."Y…

Will Baby Boomers Sink the Stock Market?

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Michael S. Derby of the WSJ asks, Will Baby Boomers Sink the Stock Market? (HT: Frank):
The next quarter century or so could be a tough one for the stock market, researchers at the Federal Reserve Bank of San Francisco warn.In a paper released by the institution Monday, two of its staffers said the retirement of the Baby Boom generation stands to strip away from equities a key source of support.The ongoing wave of retirees won’t crater the market, but they may well be “a factor holding down equity valuations over the next two decades,” Zheng Liu and Mark Spiegel write.As they see it, what the Baby Boomers have given to the market is something like what they will be taking away.“U.S. equity values have been closely related to demographic trends in the past half century” across several key metrics, the economists write.“In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values,” Liu and Spiegel write…

What's the Point of More QE?

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Yahoo Daily Ticker had an interesting interview with Edward Dempsey, CIO of Pension Partners, asking what's the point of more QE?:
This week's financial and economic calendar culminates Friday with Federal Reserve Chairman Ben Bernanke's policy speech at the Fed's annual summer getaway in Jackson Hole, Wy.Will he or won't he announce another round of quantitative easing? That's the big issue facing financial markets.It was at this same conference last August that Bernanke cued in the markets about the second round of quantitative easing, which resulted in the Fed buying $600 billion of Treasury bonds between November 2010 and June of this year. In the first round of QE between Dec. 2008 and March 2010 - the Fed bought $1.7 trillion of debt, mostly mortgage securities.I'm sure the Feds have "QE3 through 30 queued up and ready," says Edward Dempsey chief investment officer at Pension Partners. "However, I don't know how effective it…