Three snapshots for Monday
China’s trade balance plunged $31.5 billion into the red in February as imports swamped exports. It followed reports on Friday that inflation cooled in February while retail sales and industrial output fell below forecast, all pointing to a gradual cooling.
Investors ploughed more money into hedge funds over the past month as performance has picked up after last year’s losses.
Final Q4 Italian GDP growth came in at -0.7%q/q. This chart showing GDP vs the Markit purchasing managers’ index shows the current recession may continue into this year.
Revisiting March lows
No, not in the way you think. Tuesday marked the one-year anniversary of world stocks hitting what appears to be their post-financial crisis low. The index was the MSCI all-country world index. The low was hit on March 9, 2009.
At the time, many investors reckoned their world was collapsing. Stocks had fallen close to 60 percent in a little more than 16 months. But the low proved to be the start of a remarkable rally that brought the index back up 80 percent until January this year.
All is not well on equity markets at the moment, given worries about European debt, the end of special central bank liquidity programmes and questions about the sustainability of the U.S. economic recovery. The MSCI index seems to be having a hard time staying in positive territory this year.
And there are also investors such as Crispin Odey of hedge fund Odey Asset Management who have started worrying about whether the market will regress to its lows. He recently told his clients in a note:
“Having hoped that March of last year might have proved to be the long term bottom for the developed markets, I am now much less sure.”
For now, though the lows remain a year past and the MSCI index is around 73 percent higher than it was then. Happy Anniversary.
The massive rally in the stock market seems to be a gigantic ‘hail Mary’ pass where investors pumping in their billions ‘believe’ one way or another that things will get better.
The market was very low, it seemed to have stopped the decline. Let us forget the economic of it all and just jump in. Which they did and with the suspicion the Govt was pumping in billions as well to help create the appearance of a resurgent market.
But analysts and investors failed to look at the condition of their patient. The standard recovery wasn’t and wont happen because their patient is still on life support and looking for organ donors.
Blind faith has trumped economic analysis and gives us a stock market as much 40% over valued. Do they really think the NASDAQ is worth boom time 2006 prices? And on its way back to the debt fueled super boom of 2007 when prices and optimism were at their highest? It is insanity.
WE still don’t even have positive employment growth! The stronger dollar puts a knife into export market that showed the slightest glimmer.
The US investor are like a bunch of penguins on an island of ice that is melting surrounded by Leopard seals. They will only know the danger when forced to face reality and the ice melted.
And there be no help on the horizon. China is beginning to wind back now, the UK has just discovered that it wont be having an export recovery and look forward to increasing debt and deficit; the EU is still struggling to achieve growth and control its sicker members.
The current market has no relationship with the real world. They threw their ‘hail Mary’ pass and hope somebody will catch it.
from Joseph Giannone:
Alpha Male: Goldman’s Carhart is back
More than a year after one of the hedge fund industry's best known managers departed Goldman Sachs, Mark Carhart re-emerged at a hedge fund conference and told Reuters the big news: he is coming back. You heard it here first.
Mark and his longtime partner, Raymond Iwanowski, retired last March and with research head Giorgio De Santis. More than 12 years of strong performance from Goldman's quant team had made Global Alpha the bank's flagship fund and one of the industry's largest at its early 2007 peak of $12 billion.
But a year before Wall Street imploded, computer driven funds had their own debacle. Global Alpha plunged in August 2007 as stock prices gyrated and interest rates jolted, prompting investors to pull out billions. That after the fund had lagged the average fund in 2006. And so Carhart "retired" at the age of 43.
Back in April this year, market wags speculated Carhart would land at buyout firm KKR to help build an asset management business. Instead, Carhart tells Reuters he intends to start his own firm and launch an "exotic beta" fund with an initial pool of $1 billion. Of course, fund-raising is tough these days, but Carhart, who is sporting longer hair and a easier smile, says he has been spending some rare time off touring the U.S.A. in his Airstream motor home with his family. If he can manage to keep two kids happy while logging thousands of miles, raising ten figures should be doable.
from Summit Notebook:
Tax evaders on the run
By Neil Chatterjee The U.S. has promised it will hunt down tax evaders. And it seems tax evaders are on the run. DBS bank, based in the growing offshore financial centre of Singapore, told Reuters it had been approached by U.S. citizens asking for its private banking services. But when told they would have to sign U.S. tax declaration forms, the potential clients disappeared. Swiss banks also approached DBS on the hope they could offload troublesome U.S. clients to a location that so far has not been reached by the strong arms of Washington or Brussels. DBS said no thanks. In fact many private banks and boutique advisors now seem to be avoiding U.S. clients. Will this spread to other nationalities, as governments invest in tax spies and tax havens invest in white paint? Is this the end of offshore private private banking?
Falling on deaf ears
The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.
In what it must hope will be seen as a carefully considered and constructed response to the European Commission’s hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association — the voice for private equity in Europe — calls for the threshold for reporting on its companies’ activities to be lifted to 1 billion euros assets under management from 500 million.
It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.
EVCA also wants a grandfathering clause introduced so firms existing funds that use no leverage and have no redemption rights (the vast majority of all unlisted private equity funds) would be exempt from the directive. It argues that failing to do this could result in termination of these funds “with disastrous consequences for the industry and its portfolio companies”.
The big question is who in Europe is listening?
Having already gained a surprise concession in the published draft, which lifted the reporting threshold to 500 million euros from an expected level of 250 million euros, private equity may be seen as pushing its luck by asking for further leeway.
While the Socialists lost ground to the Conservative right in the recent European Parliament elections, it would be a mistake to think that the left wing coalition leader Poul Nyrup Rasmussen will be any less strident in his call for stringent legislation on private equity and hedge funds alike. The right wing Governments in France and Germany have been just as loud in their demands for legislating of the industries.
Permabears are coming out of hibernation
After a 40-percent gain, the rally in world stocks might be losing momentum.
For permabears who live on doom and gloom to make money this is just a blip which is going to end in tears.
David Tice, a 20-year veteran short seller who manages Federated Investors’ $1 billion short fund, says we are in for a secular bear market which is going to last for 10 years.
“I’ve never more been convinced than anything in my life that this is a suckers rally,” Tice says.
He says short funds — which borrow stocks to sell to buy at a lower price — are negatively correlated to stocks and risky assets, allowing investors to diversify their portfolio.
“An individual really has three legs to his financial stool — pay check/bonus, stocks, real estate. In 2008 all these legs to his financial stool declined,” he says.
“A short fund is negatively correlated. Therefore in a bad economic environment, when people run the risk of all three of those legs declining and are lucky enough to have a pot of liquidity, they should consider putting that to work to a negatively correlated vehicle like a short fund.”
More than a nice-to-have, buy-side considers its actions
More than a “nice to have,” investor sentiment is running heavily on the side of environment, social and governance (ESG) factors, according to the latest Thomson Reuters Perception Snapshot.
Feedback from 25 global buy-side investors found that 84 percent evaluate ESG criteria to some degree when making an investment decision.
The remaining 16 percent say ESG issues are not considered until a company’s ability to generate high returns is hindered by these factors.
Some of the selected comments:
“ESG only plays a role to the extent that it is an overhang on the stock. There is no moral component to investing. We are value neutral when it comes to our investment decisions, but we are not value neutral in our lives. We have a fiduciary duty to our clients, to the people who give us money to manage to maximize returns, which means that we can not be limited by our own personal morality. If I see a cigarette company that looks interesting I may invest in it even though I might not like it personally.” – U.S. Hedge Fund Investor
“I am convinced that companies that follow the philosophy of social and economic responsibility are performing better in the long-term than those that do not.” – European Core Growth Investor
The report dovetails with Tuesday’s push by U.S. President Barack Obama to push for tougher industrial standards aimed at lowering greenhouse gas emissions.
Obama ordered the U.S. auto industry, where the hand of government is firmly in control (GM and Chrysler, but not Ford) to make more fuel-efficient cars to cut emissions and increase gas mileage.
from Funds Hub:
Watch Pi Capital CEO David Giampaolo give his investment outlook
Giampaolo was speaking today at the London leg of the Reuters Hedge Fund and Private Equity Summit.
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from Funds Hub:
Watch hedge fund manager Colin McLean give his market outlook
McLean was speaking today at London leg of the Reuters Hedge Fund and Private Equity Summit.
from Funds Hub:
Great expectations
It was the outcome most commentators were expecting.
Even Roger Lawson of the UK Shareholders' Association, which represented 150,000 small investors, admitted it was "not totally unexpected".
But the defeat for hedge funds RAB Capital and SRM Global and other former shareholders claiming damages for the loss of their holdings in Northern Rock when it was nationalised last year is nevertheless a hard blow to bear.
The former shareholders may appeal, but a valuation of the equity at zero or close to zero is now looking entirely possible.
As if that wasn't painful enough, Liberal Democrats economic spokesman Vince Cable, according to the BBC, said today that SRM and RAB "deserve to lose their shirts" and that "we should not reward such cynical and reckless speculation".
Like many investors trying to catch the proverbial falling knife and pick up stocks on the cheap after the onset of the credit crisis, the Northern Rock situation turned out far worse than RAB or SRM expected.
At some point there will come a time when assets -- be they equities, bonds, property or anything else -- will present historic buying opportunities. But as many hedge funds have found out, being early can be far more painful than missing out on some of those tempting bargains.
I wonder if the UK government will end up in control of even more of the banking system before this is all over?
