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Dan joined FT Alphaville in September 2013, after stints on Lex and as the FT’s Investment Correspondent in New York where he wrote about hedge funds, asset management and markets.

Before that Dan worked briefly at the Investors Chronicle, and has at one point or another carried furniture, sold kids books on doorsteps, and painted but not really decorated.

He also spent four years loitering in Citigroup’s equity research department where he picked up a few ideas about the value of luck, timing and a catchy pitch.

Dan likes interesting charts, short sellers and descriptive triplets. He wants to know more about Europe’s banks, thinks the bond markets are going to be a lot of fun, and finds the whole idea of active fund management mildly amusing.

Send him ideas or even call him up, he’ll write about almost anything (except gold).


Contact Dan McCrum

Bonds for the long run

If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?

Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.

Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more

Tesco’s lost decade – AV vs Lex

Some experimental video. This Alphaville blogger joined Lex’s Joseph Cotterill on the set of mastermind in the FT studio to debate exactly what is up with Tesco.

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Spot the difference, Tesco edition

Here is the Tesco share price, which you might notice is getting into lost decade territory.

Here meanwhile are Wednesday’s results: Read more

The (early) Lunch Wrap

Ukraine tensions rise || Tesco profits drop, but shares bounce after long decline || Starbucks moves offices to London in reputation rebuilding exercise || Burberry sales jump, but currency to hit profits || European stocks rise Read more

When will the primary party end?

Actually, the way Creditsights frames the question about credit issuance is “can it continue?” which points to their answer: probably, even if not at peak levels.

Speaking of which, if you have an investment grade credit rating, you must have been enjoying the party.

USD fixed-rate investment grade corporate issuance totaled $265 bn in the first quarter, which was a $75 bn increase over 4Q13 numbers and $30 bn greater than the amount seen in the first quarter of 2013. The 1Q14 tally only trails two prior periods: the $285 bn in 1Q09, when issuance was boosted by the TLGP program, and the $278 bn seen in 1Q12.

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Buffett derivatives, just ignore the volatility

There’s an old Russian proverb, popularised by Ronald Reagan, which comes up among due diligence types: trust, but verify.

It seems appropriate to keep it in mind when thinking about Berkshire Hathaway, which is a sprawling insurance company and conglomerate indulged by the market largely on the understanding that its charismatic, cunning and greedy-in-a-good-way leader will do the right thing.

Hence our interest in a series of very large derivative contracts written by Warren Buffett between 2004 and 2008, which reveal a willingness to at least work creatively within the confines of fair accounting disclosure. Read more

The (early) Lunch Wrap

Ukraine government may be open to referendum || Peugeot sets out recovery plan || Temasek targets middle class growth || London house prices go a bit more mental || Relativity Media takes on Disney for Maker Studios || Stocks down Read more

Rotate, reflate, reflect, placate

Tech is down, Treasuries are up, stocks are flattish: whatever happened to asset rotation, great or otherwise?

For an answer, we turn to the flows as interpreted by Nikolaos Panigirtzoglou and team at JP Morgan, who have found that the bond selling of late last year has reversed:

non-bank investors appear to be responsible for most of this year’s bond rally of which retail investors were one. Neither speculative investors, who appeared to have increased their US rate shorts by $110bn duration-weighted YTD, nor banks who, driven by FX managers, sold USTs this year, appear to have caused this year’s bond rally.

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Of things and thingamies, connected [Update]

Yes, the Nasdaq has fallen out of bed and is rolling towards the window, off 7 per cent from its March high. Crash or correction, watch this space.

But, in a bid to remember why everyone is so excited about tech, a reminder of the potential for the internet of things. First, some Cisco numbers delivered via Citi:

Soon there will be more than 6 devices leaking information connected for every man, woman and child on the planet.
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“It’s not all love and kisses and cheesecake dessert”

Bloomberg Businessweek has the latest big interview with the king of Pimco. Click for the low down on special-K served Mercedes-style, the big man’s seven screens, and expansion as a dairy-based process:

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The (early) Lunch Wrap

Greek bond sale a success || Hong Kong and Shanghai unveil cross trading plan || China trade data weak || US banks attempt to preempt GAO report on TBTF funding advantage || Bankia sells Iberdrola stake || Markets mixed Read more

Shorting rates for fun and profit

So, dear sceptic, you think that interest rates will go higher. Prices for debt will fall, meaning a wonderful opportunity to bet on what must occur. Easy.

Except it turns out that trading a bear market in bonds is hard. By way of example, BofA Merrill Lynch offer up the last rate tightening cycle that began on June 30, 2004. Imagine you decided to go short exactly a year beforehand.

During that period, 10y Treasury yields rose 117 basis points. However, once adjusted for negative carry and roll-down, an investor would have made only about 70bp, assuming a short position in 10y Treasuries was established on June 30, 2003 and held it for the next year.

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That was nuts. Is this the crash?

Tech stocks have become a little bit more modestly priced.

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Borrowing time

Returning to that theme of sticky risk, the search for yield and returns and what happens when the Federal Reserve et al point towards the exit, here are some charts of the divergence between fundamentals and markets courtesy of Matt King at Citi.

The point, as ever, is that while the Fed is handing out donuts then you want to grab your share. But everyone has been eating free food for a long time now, and there are a lot of fat and happy credit investors to fit through the door when the donuts run out… Read more

The (early) Lunch Wrap

Turkey plans euro bond sale || UK industry expands || Sri Lankan borrowing cost at record low || Takeda $6bn fine || Spain considers strategic oil investment || Discounters take UK share || European court strikes down snooping law || Markets: stocks little changed Read more

Pre-zombie update

First quarter performance results for surviving hedge funds are out. A volatile performance, says index compiler HFR.

For the first quarter, the HFRI [Fund Weighted Composite] gained +1.1 percent, with a strong February gain offsetting declines in both January and March.

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The (early) Lunch Wrap

Holcim and Lafarge outline cement merger deal || BlackRock positions potential successors to Fink || Dropbox and Square raise new credit facilities || Nigeria almost doubles GDP in recalculation || Former adviser attacks European Commission over austerity || Markets Read more

M&A is back (ish)

Can it be a merger Monday if the big deal leaked on Friday?

Either way, the second quarter deal making was already off to a fast start before the cement makers got involved, according to Goldman Sachs, and Europe is finally starting to join in the fun.

A week into 2Q, M&A announcements continued at a brisk pace (+21%y/y) while completions also saw gradual improvement (+7% y/y). While the year to date strength in M&A has been primarily driven by the US (+21% y/y), we have seen notable improvement in selected pockets of EU deal flow. Specifically, EU buyers’ appetite have seen sizable growth (+38% y/y), though more in favor of cross-border purchases (2x vs. 2013TD) relative to domestic consolidation (+27% y/y).

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The age of asset management

Andrew Haldane has declared the age of asset management upon us, but we suspect champagne corks will not be popping at BlackRock et al.

The title for the speech by the executive director for Financial Stability at the Bank of England appended a crucial question mark, and it turns out that the central bankers are only just starting to get heads around an entirely different set of too-big-to-fail problems to those of the banks. (Click for the full speech).

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If only we had known

Correlation, causation, or Rorschach test we’re not sure, but the latest from BoA ML strategist Michael Harnett leads with a quite remarkable chart.

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Earnings needed [Update]

About that European bull market. Enthusiasm is there, but the earnings not so much yet.

With little support from earnings, European equities continue to be re-rated in P/E and price/book terms. From 10x in late 2011 to 17x now, European equities trade above both post-1980 and post-1990 average P/Es.

Citi strategist Jonathan Stubbs finds that it’s not just the average, value stocks no longer offer great value either. So, look for places where corporate earnings are actually, y’know, growing. Read more

The (early) Lunch Wrap

Credit Suisse restates again || Euro area services expanding || Ryanair traffic record || Google split shares to start trading || Just Eat prices at top of range || Kingfisher to buy Mr Bricolage || Weir CEO to vote against Scotish Independence || Markets calm ahead of ECB decison Read more

Who saw that coming?

So, havens were what worked in the first quarter, led by a niche precious metal.

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Killing a chart, but not the margin question

The pseudonymous Jesse Livermore returns to his mission of demolishing favourite bear arguments, hollow reasoning he thinks has served too long as an excuse to avoid investing.

The latest forray is on the subject of US margins, which for the last decade appear to have been much higher than during the half century that preceded it. Inevitable reversion to the mean, means corporate profitability must (one day) fall, say the pessimists. Read more

A right Royal listing, charted

The UK’s National Audit Office has delivered its opinion on the privatisation of that other British institution, Royal Mail. (Click for the full doc)

The short version of which can be summed up in one share price chart: Read more

Mini-miners for sale?

Wanted: mid-scale mining company with potential to renovate and extend. Desperate and/or motivated sellers preferred.

Mick Davis, who can reasonably claim to be one of the true operators in mining after he and the Xstrata team built a company that rode the Chinese demand commodity super-cycle all the way up to the final deal with Glencore, is back. Read more

The (early) Lunch Wrap

Eurozone inflation at five year low || UK and Switzerland investigate benchmarks || X2 secures $2.5bn in funds || Greece approves structural reform package || Libya sues Soc Gen || ING to resume dividend in 2015 || North and South Korea exchange artillery over water || Markets: Positive sentiment at quarter end Read more

A defense of occasional slow disclosure

Some lawmakers are calling on the SEC to look at the disclosure rules for activist hedge funds, according to the Wall Street Journal, which has decided to stir the pot after it made the shock discovery that investors talk to each other.

That discovery was in this piece, which is strange for a couple of reasons we’ll explain below, but was notable also for this endearing image:

There also is a kind of buddy system among activist investors, some say. Many high-profile investors who know each other don’t want either to get blindsided by another’s investing—or to blindside others.

And seeing as there didn’t appear to be much space to include some of the more well worn arguments for the current system, we’ll throw those in as well. Read more

Commonwealth Reitaliation

Fans of shareholder activism that we are, it is not true that activists have at all times covered themselves with glory. Case in point ADT, a popular short since Keith Meister of Corvex bowed out last last year.

That campaign is one to file under activists helping themselves, not all shareholders, which is a tricky label for an agitator to carry. Indeed, our attention is drawn to the proxy materials from the latest company to come under urgings for improvement by Corvex: Commonwealth Reit.

We missed the letter when it came out, but as nominations for the board closed this week, let’s revisit something that didn’t get much attention earlier this month: Read more

Designed in California, taxed in never never land

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Hello TerraD and ViewFTH

I agree. The point has never been that hedge funds are all bad, or that no-one should invest in them. There are plenty of smart hedge fund managers doing interesting things and responding to rational incentives (who wouldn't charge 18 per cent and 1.6 per cent fees if they could?).

Rather it is that hedge funds are inappropriate investments for large institutional investors such as pension funds due to the problems of size and selection. Replacing the stock selection problem with the manager selection problem doesn't solve it.

I keep hoping to hear a defence of hedge funds by pension funds happy with what they have achieved (rather than what they hope to achieve), and please flag it up if it is out there.



Comment on: Pre-zombie update

Hello @Stillerton

Apologies, that could have been explained a little more. HFR data is for the global hedge fund industry, they have about 8,000 hedge funds reporting, which is a good chunk but not all of the industry. For that you need to combine the 5 main databases, which is the sort of thing academics do occasionally (see the first post in this series).

The majority of assets, I think, are still controlled by US based hedge funds.

Equity hedge funds are perpetual laggards because they have significantly trailed equity markets for the last five years - for instance between January 2010 and July last year less than 15 per cent of hedge funds which specialise in stocks were ahead of the market, and I'd be very surprised if that number has changed for the better since.

The up and down stock market is the S&P this year: total return was Jan -3.5 per cent, Feb plus 4.6 per cent, March down 0.8 per cent.

Hope that helps


Comment on: Pre-zombie update

Hello @nburdett
That's a Goldman Chart.

Comment on: M&A is back (ish)

Hi Gabriela, its worldwide, but Europe and the US make up 70 per cent of the deals, North Asia another 14 per cent.

Comment on: M&A is back (ish)

Great comments, thanks, and I'll take a look at Hussman's piece @scepticalscot

Comment on: Killing a chart, but not the margin question


Hmmm. Among other things, the auditors did agree a $117m settlement in relation to their work on Sino Forest.

Comment on: A defense of occasional slow disclosure

Hello @Hossein Kazemi

Thanks for your thoughts. I think that would be fair if the constant death of funds were the only problem. However this is in addition to other flaws with attempts to fulfill the promises on which hedge funds are sold.

- Persistence: this only exists for very small funds, so how do you choose?

- Average hedge fund performance is poor when measured against simple diversified portfolios. Every fund added to a portfolio of hedge funds takes the portfolio closer to that average, unless you have some better than average skill in selection (see the point above). If pension funds have admitted there is no benefit in paying for stock selection, over the long term, why do they believe in the possibility of manager selection?

- Actual performance received by investors in hedge funds has been worse than the average, as judged by academic studies and the slow death of the fund of fund industry.

- Big funds do die/have massive drawdowns, and they often do so at peak assets. The dollar losses wipe out many years worth of returns in one go. In 2008 (when hedge funds did not ourperform, as is often claimed) the losses wiped out the previous decade of investor profits on which fees had already been paid.

- The problem of due diligence to try and avoid funds that die adds significant costs not captured in net performance fees.

- And finally, that two-thirds of the hedge funds represented in the common indices are dead raises a very pertinent question that typical returns may be even worse than the average, and suggests no basis for a repeat of the decent pre-2005 performance when the industry was much smaller.

Hope that helps, we're still dying to hear from pension funds about how they have overcome the above.


Comment on: Zombie hordes thrive, await further hedge fund corpses

@Sagesse - interesting, thanks.

@Pseud -Typo, fixed. The Quota fund, which was part of the Quantum family. 39 per cent annualised 1992 to 2001, according to this source at least.

Comment on: AO honour roll update

@JKKR - good point on the on exchange percentage, I missed that. Will fix.

@iSeeyourpint - you want the paper referenced in the first post in this series

Revisiting some stylised facts about hedge funds - there is persistence, but only in sub $10m hedge funds.

Comment on: Zombie hordes thrive, await further hedge fund corpses

Hello, great comments.

Francine, I take your point, and in some ways its similar to the "quiet period" - the time before earnings when a company refuses to discuss anything in public - in that it is a cultural rather than legal phenomenon (excuse). Perhaps it should have been "may" have a duty to keep taxes down.

@robinr22 Well said. Implicit in the idea that the rich should pay more is that you accept the principle that taxes are fair and should be paid. Berkshire very clearly has a tax liability - there is no way of getting around that this is a simple capital gain. A question for Mr Buffett might be if he sees any difference between this and the reclassification of income to capital gains undertaken by private equity professionals for that particular perk of the tax code.

@jcobrien, @bystander60
According to a piece by the that also came out on Friday, the tax rate could actually be slightly more than 35 per cent, although we are still in the $400m ball park.

"Applying a 38 percent tax rate (federal plus state and local taxes) would bring Berkshire to about $400 million in tax liability, Willens said. The swap orchestrated between Berkshire and Graham Holdings, however, is likely to reduce Berkshire's tax liability to $0."



Comment on: Buffett gets the better of everyone, version 4,762