When it comes to hedge fund performance there are a lot of excuses deployed to justify the billions of dollars charged in fees every year for sub-par returns.
One is that the benchmark for comparison (we like a simple 60:40 mix of US stocks and bonds) is unfair, that “risk adjusted returns” would demonstrate hedge fund superiority. Another is that hedge funds aren’t supposed to outperform a bull market in stocks, but they proved their worth in the 2008 crisis.
Neither is true. Read more
Only 12 years to go till the “utopian society” drives up.
Worrying imagery aside, the comparisons between Narendra Modi and either Thatcher or Reagan stand up to at least some scrutiny. And, as we mentioned in a previous post, the intellectual ballast of India’s potential next leader may well be provided by two of India’s more ‘pro-growth’ sons — Jagdish Bhagwati and Arvind Panagariya. Read more
Narendra Modi as Reagan, Modi as Thatcher, Raghuram Rajan as a reluctant Volcker.
The comparisons are easy to make, even if Rajan, governor of India’s central bank, may rebel against them. The BJP leader Modi is making it his business to appeal to the aspirations of India’s emergent middle class and painting himself as somebody who can cut through the bureaucracy India is mired in.
Rajan, although literally having said “If you do a Volcker, you kill the supply side, and then you are in a bad situation,” appears to be doing a mini-one anyway (and good luck to him going the full-Volcker in an economy like India’s, even if he wanted to). Read more
Something’s afoot in the world of RMB.
The renminbi fell on Tuesday by the most in a single day since 2012, dropping 0.35 per cent against the dollar in the onshore market by midday in Shanghai, and 0.7 per cent since Wednesday, as the FT reported.
The market has put this down to an imminent change in China’s foreign exchange regime. The narrative is that the PBOC is preparing to widen the trading band ahead of flotation and is spooking the market intentionally, so that it realises that the RMB goes down as well as up, and that carry-trades are no free lunch.
Not everyone is as convinced. Read more
Live markets commentary from FT.com
América Móvil in Telekom Austria talks || Russia warns of Ukraine import ban || Blackberry to launch cheap smartphone || Ladbrokes profit collapse || Rolls Royce sea drone pitch || South China Sea tensions continue || European stocks pause for breath Read more
Acting as a custodian should require a high-bar, including appropriate security safeguards that are independently audited and tested on a regular basis, adequate balance sheets and reserves as commercial entities, transparent and accountable customer disclosures, and clear policies to not use customer assets for proprietary trading or for margin loans in leveraged trading.
Banks or Bitcoin operators? Click here to find out. Read more
From the introduction to a new IIF paper:
The already acute financial pressures appear to have intensified further in recent weeks, with bank deposits falling sharply, the government out of funding and foreign exchange reserves likely to have tanked to as low as $12 billion by late February. The political change in Kiev has increased odds that Ukraine would receive the urgent financial assistance needed soon enough to avert default. With the Russian bailout likely to be put on hold, this assistance should amount to at least $20 billion this year alone. However, this would require the prompt formation of a new government able to undertake the reforms needed to alleviate the acute macroeconomic imbalances and put the economy on sound footing.
Elsewhere on Tuesday,
- The collapse of Mt. Gox.
- The long and resisted decline of the Great British Pound.
- Scotland, independence, the pound, and the debt.
- @GSElevator… not in the Goldman elevator. Read more
Markets: Solid gains on Wall Street improved global sentiment and helped push Asian equities up to their best level in a month. Stocks in Greater China were mixed, a day after taking a big tumble on concerns that the mainland’s real estate boom could stall. But the bigger story in China was its currency. The onshore renminbi staged its biggest one-day drop in more than two years. (FT’s Global Markets Overview) Read more
FURTHER FURTHER READING
- IIF report on Ukraine. Read more
The Journal of Historical Research in Marketing, Volume 6, Issue 4 will not hit the shelves of your lending library until November, but Professor Bill Keep has helpfully posted his forthcoming article on the TCNJ School of Business website.
Essential reading for anyone interested in Herbalife, it is undersold by the title — Multilevel Marketing and Pyramid Schemes in the United States: An Historical Analysis. A bit of false modesty there, as it addresses head on the problems at the heart of a business model built around a narrow and potentially flawed idea of legality.
Note also that the paper’s co-author, Peter Vander Nat has been involved in all the recent prosecutions of pyramid schemes bought by the Federal Trade Commission, which has lauded him as “arguably the country’s preeminent expert on pyramids”. Read more
Live markets commentary from FT.com
Arrest warrant issued for toppled Yanukovich || HSBC misses cost efficiency and return on equity targets || Carphone Warehouse and Dixons discussing merger || Deutsche Bank to cut US unit’s assets by quarter to meet Fed rules || China property prices continue to rise || G20 aims to add $2tn to global economy || Netflix to pay Comcast for better speeds || Moody upgrades Spain’s debt rating || The future of BP’s flagship Rumaila oilfield in southern Iraq is in jeopardy || Markets
In our exploration so far of the very large put option contracts sold by Berkshire Hathaway, we have looked at the reasons to sell them (cheap float), the potential liabilities created and the mystery of Warren Buffett’s financial disclosure. Given what we thought we knew about the derivatives, it is strange that the accounting liability was not higher in the depths of the financial crisis.
On the way we have explored option pricing and the so-called greeks, as well as the revelation that Mr Buffet appears to have sold Lehman Brothers a rainbow, helped along by a series of smart contributions in the comments.
Indeed, those comments have inspired Professor Pablo Triana, Professor at ESADE business School, to return with another piece looking at the strange role of Berkshire’s own credit quality when it comes to valuing the derivatives, which may be the missing link in this valuation puzzle. Read more
That shows 94 per cent of analyst from Bloomberg’s monthly survey expecting more QE from the BoJ, be it this quarter or not. There’s “priced in” and then there’s maybe over-priced in… Read more
Elsewhere on Monday,
- Global GDP growth after the G20 summit.
- Blame your great-great-great-grandparents.
- The myth of German austerity. Read more
Markets: Asian markets started the week on the back foot, with investors concerned that Chinese banks have curtailed lending to the country’s real estate sector. (FT’s Global Markets Overview) Read more
From a passage at the beginning of the December 2008 meeting transcript, where Ben Bernanke explains the difference between Japanese quantitative easing and the Fed’s combination of funding facilities, backstops and QE1 (which included agency debt and agency MBS):
In some respects our policies are similar to the quantitative easing of the Japanese, but I would argue that, when you look at it more carefully, what we’re doing is fundamentally different from the Japanese approach. Let me talk about that a bit. Read more
High-speed traders may no longer be able to count on Warren Buffett’s Business Wire for direct feeds to market-moving information. But that doesn’t mean the problem of trades taking place with after-market press releases but before the US market is officially closed has been solved.
Take the case of Acacia Research Corp, which trades as ACTG. According to Nanex, the market data company, a batch of suspicious trades began to take place 127 milliseconds after 4pm on Thursday. Those trades are highlighted in yellow here. Click to enlarge. Read more
Given the release of the 2008 FOMC transcripts, the St Louis Fed has shrewdly tweeted a speech from last year by its president, James Bullard, arguing that the real-time economic data in 2008 was badly trailing events.
The FOMC transcripts show that Bullard, as late as September 2008, was as worried about high inflation as about the possibility of a deep and protracted downturn. Read more
The Fed’s December transcript reveals some interesting foresight by Philadelphia Fed president Charles Plosser in discussions about how the Fed should communicate its regime shift (i.e. that it was moving away from targeting the Fed Funds rate towards using base money, balance sheet and other quantitative measures as its primary tools).
In the transcript, Plosser refers to the fact that near-zero rates and unconventional policy will eventually have to be overturned, and that this could be a tricky challenge for the Fed when the time comes. Nevertheless, he also notes that when it comes to the Fed’s balance sheet, the introduction of interest on excess reserves (a.k.a a floor system) means the Fed can in theory continue to control rates without shrinking its balance sheet at all for some time. Read more
Janet Yellen was less worried than some of her FOMC colleagues in September 2008 that high inflation would remain a problem, and she was also more bearish on the economic outlook:
My contacts also report that their businesses are still raising prices in response to past increases in commodity and import prices that boosted their costs. I expect as a consequence that core inflation will remain uncomfortably high for a while longer, but the marked decline in commodity prices since June reinforces my conviction that there is light at the end of this inflation tunnel. … Read more
Further insights into the Fed’s financial-crisis priorities by way of the December 2008 FOMC meeting transcript, released this Friday. This time we refer to their discussion about the possible unintended side-effects of zero-lower bound policy and in particular the spike in Treasury fails that was occurring at the time.
It’s worth reminding that at the time, only a few market commenters really understood the implications and severity of a spike in Treasury fails to deliver/receive. Read more
The Fed’s 2008 transcripts offer an impressive insight into the state of the repo markets in 2008, not least the shortage of safe US assets, which it turns out was a key area of concern in Fed gatherings.
We’ll have more on some of the other repo elements, but in the meantime — given that we’ve raised the idea that China might be inclined to repo its UST stock with the Fed if it needs short-term dollar liquidity (or is possibly doing so already) — it’s worth noting the following exchange from the October 2008 transcript in which the committee wondered about the nature of collateral they should accept for emergency dollar swap lines with foreign central banks.
Rather than collateralising with their own currency the idea was raised that they should pledge their UST stock instead. Voila, an open precedent for sovereign-level repo arrangements with the Fed so as to ease the shortage of safe asset problem in the West whilst at the same time flooding dollar liquidity to foreign markets. Read more
Finally. FINALLY. They’re here, and we’ll be back later with excerpts and analysis.
Live markets commentary from FT.com
Ukraine compromise claimed by Yanukovitch || OECD warns of sluggish growth without reform || UK tax receipts weak || Italy to test bond investor appetite || Gucci sales growth worst in four years || Stock markets buoyant Read more
Interruption not inflection, says BoAML’s Michael Hartnett, who sees the beginning not the end of the fun.