Here is how a (now very sad) institutional investor was positioned during this year’s rally in bonds, commodities and equities according to Michael Hartnett’s latest Thundering Word at BofAML:
Very simply portfolios were positioned, in an extreme way, for Higher Growth-Higher Yields-Higher Dollar, and that backdrop is yet to transpire (Portfolios were also positioned for sub-7% China GDP and that also didn’t happen). Investors long Small Cap, Tech & Banks and short Gold, Government Bonds and Emerging Markets have been hammered.
More to the point, says Hartnett, those reeling institutional investors have been rushing into cash as their performances suffered. That was helped in no small part by the rally in Treasuries: Read more
This vision of 2014 caught our eye — from Nomura’s annual outlook (out Monday)… Read more
Fresh from having made $1bn impeccably timing the putative US recovery in the first half of this year (and Japan, natch), Andrew Law of Caxton Associates – one of the world’s most successful macro traders – has now turned bearish, and in quite a big way.
Caxton, a hedge fund named after the printer (its now-retired founder Bruce Kovner is a billionaire bibliophile), believes the Fed will keep running its presses:
We have been expecting the US economy to reach escape velocity led by housing and corporate capital expenditure… but for whatever reason that just hasn’t happened…tapering is off the table for the foreseeable future.
Caxton is long across the US yield curve (the debt debacle has been a good buying opportunity, if nothing else). Mr Law has spoken extensively with us about his view on the global economy and the state of the hedge fund industry. Tree-based publishing issues mean those thoughts came in truncated form. Below are some extended excerpts from him. Read more
Taken together, the policy vol crunch and regret factor must be putting the remaining bears in a paroxysm of remorseful fear.
He’s very quotable, Nomura’s Kevin Gaynor. Read more
Israel’s central bank had just cut interest rates at pixel time on Monday, easing by 25bps to a 2.25 per cent policy rate.
Why’s this one so important, we hear you ask. Read more
A familiar theme in this year’s Barclays Equity Gilt Study (57th edition, just out)…
Hedge fund managers have lost 4.37 per cent on average in the year to the end of November, en route to their worst performance since 2008, according to Hedge Fund Research data, reports the FT. Big-name funds including Paulson & Co and Highbridge have been unable to recoup double-digit losses incurred in recent months. But other big macro bets have succeeded. Brevan Howard is up almost 13 per cent this year, having wagered that Treasury yields would fall, while Marshall Wace’s Global Opportunities fund, also macro-focused, is up 29 per cent so far in 2011.
In which around 800 global investors polled by the Economist Intelligence Unit and BNY Mellon believe that deflation is as likely as a recovery in US housing — plus, other tail risk reflections in this chart here (click to enlarge):
Nope, no US recession just yet, say Credit Suisse’s Andrew Garthwaite and his global strategy team:
That chart (click to enlarge) and more in Hugh Hendry’s April letter to investors, H/T Tail Chaser. There’s a very interesting assault on Asian commodity giant Olam too, for Glencore watchers…
Goldman Sachs plans to wind down its eight-person Global Macro Proprietary Trading arm to comply with new US rules restricting banks’ proprietary trading, reports the FT. Last year’s landmark financial-services reform legislation prompted Goldman, Morgan Stanley and their peers to close down many desks even before regulators settled on precise rules. Global Macro, housed within Goldman’s FX business, traded stocks, currencies and other fixed-income securities on the bank’s behalf. Most of the desk’s eight traders are expected to leave the bank. Goldman last year closed its Principal Strategies unit, a far larger prop desk. Bloomberg adds that Global Macro reported results through the bank’s fixed income trading division which last year generated 35% of total revenue.
Out now — 144 pages of the Barclays Equity Gilt Study 2011 (56th edition).
The long-term investment themes from this year’s tome… Read more
Investment bank strategists headed to this week’s Davos World Economic Forum are betting on emerging markets restoring the world economy to a generation-long period of high growth — the ‘super-cycle’, Bloomberg says, that will send US Treasury yields flying and favour hard commodities. It’s perhaps a telling fixation. What is striking about Davos is that a veneer of micro-level optimism goes hand in hand with a gnawing insecurity about the macro picture, the FT’s Gillian Tett writes. This is partly because CEOs are uneasily aware that hostility towards elites is rising. And while much of this has been focused on bankers, continued high levels of unemployment have prompted wider concerns about a bigger backlash in the west.
After one of their most disappointing years, hedge fund managers are hoping for a better 2011 with less macroeconomic volatility and more corporate events to bet on, such as takeovers, the FT reports. Many investors anticipate event-driven funds will see a surge in inflows in 2011 as performance picks up. Equities and global macro funds are drawing a veil on a disappointing 2010, by contrast. As of the end of November, the average hedge fund had returned just over 7 per cent for the year, according to Hedge Fund Research – underperforming leading stock market indices over the same period. Equity long/short managers averaged returns of 6.7 per cent, while global macro strategies averaged just 4.5 per cent.
This is ironic, Brazil.
That’s a Nomura chart showing the Brazilian government as the biggest ‘loser’ of the currency war. You know the war we’re talking about: Brazil was the first and loudest to declare it in 2010. Oops. Read more
Unbalanced, and thus blisteringly honest.
Fred Goodwin, “Mr Macro” strategist at Nomura, unplugged: Read more
What does this chart mean to you?
Hedge funds specialising in macro strategies are clawing their way back from a difficult summer, with many reporting significant returns over the past few weeks, the FT reports. The $14bn Moore Capital fund, one of the world’s best known so-called global macro hedge funds, has fully recovered its losses having been down 7 per cent this year. The firm’s flagship macro fund is now up 2.75 per cent for the year, modest compared to the industry average of 4.8 per cent, but representing a significant turnaround. Bridgewater Associates’ big bearish bets on the US economy have meanwhile scored it a 38 per cent return at its macro fund, the WSJ adds.
Now for some upside to ‘the crisis upon us.’
Here’s a bold vision of the post-G20 international order, courtesy of Morgan Stanley’s inflationista-inclined analysts — meet the QE-20. Read more
It’s not just the trade balance, the NYT’s Economix notes – economic imbalances between the US and China extend to capital subsidies to different industries and beyond, making the problem a thorny one. At the same time, Chinese premier Wen Jiabao’s recent argument that renminbi appreciation would threaten the margins of China’s exporters is unconvincing, FT beyondbrics argues, suggesting that an increase in the currency’s value against the dollar would do little harm at least. In the longer term, China’s threat to the US isn’t that its goods are too cheap, but that Chinese companies are moving up the value chain towards throwing off their US rivals, says Fareed Zakaria in Time. This stand-off feels like it has gone on forever, the FT reports – and there is unlikely to be a rapid conclusion.
Don’t expect the IMF’s latest world economic outlook to make for cheery reading. The world economy is forecast to grow 4.8 per cent in 2010, but growth will fall towards 4.2 per cent, according to the report with the Fund’s chief economist warning of an unbalanced recovery as the West struggles under its debt burden. However, it’s not all bad news. The outlook was bullish across all commodities, specifically highlighting copper and tin — which obligingly rose to two-year and record highs on Wednesday, the FT reports. Even so, the United States’ role as an economic engine is sputtering, the IMF says. The estimate for US growth was revised down by 0.7 percentage points this year and a similar amount in 2011, the FT also notes.
The world’s leading countries should agree a new currency pact to help rebalance the global economy, the Institute of International Finance has urged, pointing to much stronger capital flows into emerging markets in 2010, the FT reports. The IIF’s managing director Charles Dallara, who once helped co-ordinate the Plaza Accord that solved the 1980s yen crisis, warned that the world faced a return to protectionism. But China — the likely target of any new Plaza Accord — would be desperate to avoid the economic fate that befell Japan, the FT’s Martin Wolf warns. When such elephants fight, bystanders are likely to be trampled, he adds. In the meantime — currency controls are rising in emerging markets from South Korea to Brazil, reports Bloomberg.
Another chapter in the correlation saga. Stock pickers are giving up, the WSJ reports — with only 24 per cent of mutual funds focused on growth companies now beating growth indices this year, compared to 50 per cent on average between 1995 and 2007. Hence the rise of macro-oriented mutual funds and macro hedge funds to take advantage of way in which macro events now move stocks together in tandem. But those funds have their own problems — as it remains hugely difficult to predict and time macro events. Of course, they’re not the only funds seeing disappointing returns, with a new study revealing that a majority of private equity investors received market returns at best from 1980 to 2005, the WSJ adds.
Looks like Société Générale’s economics team has some new members:
How best to summarise this long, depressing outlook on the global economy by Nouriel Roubini and Ian Bremmer? We’ll give it a shot.
First, no matter who you are, you are too optimistic: Read more
Hedge fund managers are facing growing pressure to deliver stronger performance in the last four months of the year, following another month of mixed results in August, according to the FT. The average hedge fund returned 0.17 per cent in August, according to preliminary month-end numbers from Hedge Fund Research. By contrast, the average fund was up 1.29 per cent this year until the end of July. Big-name fund managers have struggled to gain traction in particular, with global macro dividing winners from losers. Brevan Howard’s macro trading was flat through August, but Autonomy Capital’s macro fund returned 0.71 per cent.
The September stock surge entered its fourth consecutive session in Asian and European markets on Monday, with mostly improving economic data over the past few days encouraging a shift into plays on global growth, says the FT. Even though US markets are taking a break for Labor Day, the S&P 500 has already rallied 5.3 per cent so far in September, versus a 4.8 per cent fall in August. Investors are playing catch-up with Friday’s jobs report, according to Reuters — but the IMF’s chief economist is still warning of weak growth in the US and Europe.
The ag bull strategy has been fertilised, the M&A is pumped up on nitrogen, the grand game of playing emerging-world food demand is back on.
Watch out for the whiffs of ammonia around the balance sheets though. Read more
It’s bullishness, but not as we know it.
Here’s the Nomura take on investing in a world beset by a slowing US recovery: Read more
So, you’ve heard it before, but this time, it’s official – at least, by most key measures. China has now overtaken Japan as the world’s second-largest economy, just seven months after becoming the world’s third-largest economy in January.
As the FT reports on Monday: Read more