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.

Carl Icahn in his own words

Icahn’s Big Year in investing and activism

By Jennifer Ablan and Matthew Goldstein

We held an hour-long discussion with Carl Icahn on Monday as part of our Reuters Global Investment Outlook Summit, going over everything from his spectacular year of performance to his thoughts on the excessive media coverage of activists like himself who push and prod corporate managers to return cash to investors. We also talked about the legacy he wants to leave.

There was much Icahn wouldn’t talk about on the advice of his lawyer, however. While he said he took a look at Microsoft, he won’t say why he decided not to join ValueAct’s Jeffrey Ubben’s activist campaign. He also stayed mum on any plans for his Las Vegas white elephant, the unfinished Fontainebleau Las Vegas resort, which he bought out of bankruptcy proceedings in 2010.

Never one to mince words, Icahn said he takes issue with Bill Ackman’s brand of activism which he believes borders on micromanaging by telling chief executive officers how to do their jobs. “I think Ackman is the opposite of what I believe in activism. You don’t go in and you don’t go tell the CEO how to run his company.”

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.

The sultans of swing

Although most investors have been pleased with the steadily rising U.S stock market over the past six months, funds that profit when markets are convulsing are licking their wounds.

With market stress at multi-year lows, volatility hedge funds returned just 1.16 percent in the first quarter, compared with 3.7 percent for the broader hedge fund group.

Some of the volatility specialists are doing better than others by capitalizing on major market moves in Japan, for example. And some are doing better simply because they are ‘short’ volatility funds – they tend to perform better when markets are calmer. But those funds are now few and far between.

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.

UF Weekend Reads

By Sam Forgione

This week’s Weekend Reads may drive you back to the big news of the week: The Debates.

Just as the candidates’ tone and tenor seemed to drive judgments as to who won and lost, some stories were written about sparring between politicians and bankers, billionaires on whether a bankrupt Mexican company should be let off the hook, the banks and the foreclosed-upon, and the more milder subject of volatility investing. In the case of the Foreign Policy and DealBook links, the attitudes of the parties involved seem more important than their logic. And a winner and a loser probably won’t come to you. At least here, unlike in the voting booths, you can stay undecided.

 

From Foreign Policy:

Mohamed El-Erian writes that politicians and bankers should stop putting each other down and start averting the next crisis.

UF’s Weekend Reads

Here is the latest edition of Weekend Reads courtesy of Sam Forgione. Enjoy.

 

From Barron’s:

The managers of hedge fund Cassiopeia are teaching a lesson or two on trading volatility.

From Bloomberg Businessweek:

Matthew Philips addresses regulatory efforts to catch up with the glitch mob known as high-frequency traders.

From CFO:

The committee that regulates auditing practices may lend an ear to to alternative suggestions to plan for companies to rotate auditors.

Hedge funds vs mutual funds

By Dunny P. Moonesawmy, Head of Fund Research for Lipper in western Europe, Middle East and Africa. The views expressed are his own.

Hedge funds took some heat from the credit crisis as liquidity and transparency became critical factors in investment decision-making. It’s fair to say hedge funds continued to deliver decent returns to investors, but how do they compare to mutual funds if we focus on performance and risk alone?

In 2008, the average return for mutual funds stood at a negative 22.91 percent. At the same time, hedge funds posted average returns of minus 8.37 percent. We might have expected a stronger rebound for mutual funds in 2009 and 2010 than for hedge funds, yet the data shows better average returns for hedge funds in both years. Positive returns in the sector stood at 22.36 percent and 18.08 percent respectively against 21.16 percent and 10.23 percent for mutual funds.

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