Unstructured Finance

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you’re the typical investor, it’s probably time to be a little bit more cautious.”

Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humbling year for his cohort, with some short only funds even closing up shop.

But he told Reuters that the market is primed for short-sellers like him and as a result has gone out to raise capital for his mission: “Markets mean-revert and performance mean-reverts and even alpha mean-reverts if at least my last 30 years are any indication. And the time to be doing this is when you feel like the village idiot and not an evil genius, to paraphrase my critics.”

Chanos’ bearish views are so well respected that the New York Federal Reserve has even included him as one of the money managers on its investment advisory counsel. By his own admission, Chanos said he tends to be the one most skeptical on the markets.

Money manager titans who can’t wait until 2014

The year can’t end fast enough for some of the world’s biggest investors.

Bill Gross, who many like to consider the King of Bonds, lost one of his prized titles last week when his PIMCO Total Return Fund was stripped of its status as the world’s largest mutual fund because of lagging performance and a swamp of investor redemptions.

The PIMCO Total Return Fund — somewhat of a benchmark for many bond fund managers — had outflows of $4.4 billion in October, marking the fund’s sixth straight month of investor withdrawals, and lowered its assets to $248 billion, according to Morningstar.

Ackman’s Penney-sized revenge?

It’s hard to say that Bill Ackman came out of the J.C. Penney debacle looking good. But in one regard the hedge fund manager did score a minor victory: he and his Pershing Square Capital Management sold their shares before the bloodbath began in the ailing retailer’s stock.

In hindsight, the $12.90 a share price that Pershing Square sold its 18 percent stake in Penney to Citigroup doesn’t look so bad compared to the $8.73 a share price the stock closed at on Tuesday. There was much made in the press about the $473 million loss Ackman’s fund was saddled with after the hedge fund manager’s push to remake Penney into an upscale retailer failed. The criticism was justified as even Ackman conceded he isn’t great at retail.

But Ackman’s quick late August exit from the stock after first blistering the company’s board for taking too long to find a permanent CEO doesn’t look as bad in retrospect. Forbes’ Nathan Vardi even went so far a few days ago to write that Ackman’s decision to bolt on Penney looks like a “brilliant” decision.

Ray Dalio’s all seeing reputation takes a hit

There are storm clouds on the horizon at Ray Dalio’s $150 billion Bridgewater Associates.

Yeah, excuse the weather imagery but it’s hard to resist given the sudden sharp reversal of fortunes with Bridgewater’s $70 billon All Weather portfolio. As Jenn Ablan and Katya Wachtel first reported, the portfolio that Dalio has long marketed to pension funds as an innovative investment strategy for navigating storm markets, isn’t doing so well in this stormy market.

The fund, as of last Friday, was down 6% for the month and down 8% for the year.

Natural (at) selection

The answer to the moderator’s question was a resounding: yes. The question, asked to several credit hedge fund managers during a conference on Thursday, was: did you make money last year? In fact, the managers from Pine River, BlueMountain, Cerberus and Brevan Howard made a lot. But 2013 is not going to be so easy, they said.

Hedge funds that specialize in credit, especially those who focus on mortgage-backed securities (MBS), blasted past their stock market competitors in 2012. One of those traders, Steve Kuhn, was on stage for the aforementioned credit panel at Absolute Return’s Spring Symposium. Kuhn, a portfolio manager for Pine River Capital Management, saw his fixed income fund rise 35 percent last year.

Kuhn doesn’t see a repeat of those monster returns in 2013. It’s all about security selection this year, he said and that that selection process is going to require a lot of work. It’s a view we reported in early March, and one that Scott Stelzer, a CMBS specialist for Cerberus Capital Management and David Warren, the CEO of DW Investment Management and CIO for a Brevan Howard credit fund also echoed at the conference in mid-town Manhattan.

Hedge funds stockpiled Citi, axed Apple in Q4

More research was published today showing that the honeymoon is over for American hedge fund managers and technology giant Apple. The iPhone maker was one of the top two most sold stocks by hedge funds in the fourth quarter, according to an analysis of regulatory filings by Bank of America. (The other stock was  Tyco International).

This industry-wide ditching of Apple came as AIG  replaced the iPhone maker as hedge fund land’s most loved top-10 stock holding in Q4. It was the first time Apple had been knocked out of pole position in three years. For a list of some of the big names that ditched Apple, see this story by Aaron Pressman.

Meanwhile, BofA analysts found that the top two stocks purchased by hedge funds in the three months to December were  Facebook and Citigroup. The AIG and Citi buys were part of a larger move into financials by hedge funds in the fourth quarter, the BofA Hedge Fund Monitor report showed, and away from technology companies.

Ray Dalio went into this year even more bullish than we thought

By Matthew Goldstein

Hedge fund titan Ray Dalio is really bullish on stocks and all things risky–at least he was in early January.

A few weeks ago, our competitors at Bloomberg and The Wall Street Journal did a good job reporting on Dalio’s macro market thesis for 2013 when they got a transcript of an investor call (Bloomberg) and a sneak peak at Bridgewater Associates’ year-end report to investors (WSJ). But after taking my own recent look at Bridgewater’s year-end investor note–book is probably a better description for the 300-page plus bound treatise–you realize that bullish just doesn’t describe Bridgewater’s stance going in 2013.

Here’s a sampler of some of Bridgewater’s comments to investors:

“Cash in the developed world is a terrible asset.” “We would be short cash of all the major developed currencies” And this: “Bonds will be a lousy investment but cash will be worse.”

from MacroScope:

SEC has power to ban high-frequency trading, congressman says

Not everyone agrees that using high-speed machines to trade stocks in less time than it takes the average person to blink is a bad thing, but the people who do might be heartened by the letter a congressman sent the U.S. Securities and Exchange Commission on Friday.

Rep. Edward Markey, a Massachusetts Democrat who has waged a decades-long struggle against computerized trading sent the SEC a hint: The power to curb high-frequency trading has been within its grasp all along.

In his letter, Markey described a law he co-sponsored in 1989 to increase the agency’s power to regulate computerized trading, a precursor to HFT that employed computer programs to make trading decisions without the participation of conscious humans. The law lets the SEC “limit practices which result in extraordinary levels of volatility,” according to Markey’s citation.

Outrage isn’t asleep it’s just gone underground

By Matthew Goldstein and Jennifer Ablan

Where is the outrage? A year ago, the Occupy Wall Street movement was just getting started, with mass demonstrations across the nation against corporate malfeasance and greed.

But now it’s been crickets and we don’t mean the game. There’s been no marching on Wall Street nor on the steps of Capitol Hill since the latest revelations of bad behavior in the financial sector. The populist uproar has been rather sedate in the face of the deepening scandal that big banks rigged Libor–a benchmark lending rate; JPMorgan Chase’s mounting losses from disastrous credit bets and a possible cover-up attempt; and the disappearance of customer funds from Iowa futures broker PFGBest, discovered after its founder tried to commit suicide and left a note outlining a 20-year fraud.

But the lack of populist rage doesn’t mean there’s a lack of concern about these and other scandals. We think that’s a misreading of the temperature of the American people. And if Wall Street thinks the average person doesn’t care about the nearly $6 billion trading loss at JPMorgan Chase, or the alleged Libor manipulation scandal , then the street is badly misjudging things.

It’s Baaaack…The madness of Wall Street

By Jennifer Ablan and Matthew Goldstein

It is small wonder mom-and-pop investors are showing no love for U.S. stocks for a fourth consecutive year.

Not only has the U.S. economic recovery remained fragile, but the so-called “headline risk” is dominating investor psyche again.

On Monday,  the Dow Jones Industrials Average extended its “June Swoon” ending flattish after being down for most of the day, after Reuters reported that finance ministers and central bank governors of the Group of Seven (G7) industrialized nations will hold a conference call on Tuesday morning amid increased concern about the European debt crisis.

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