gallery STORM OF LINKS – Volatality, Hedge Funds & Cash

VOLATILITY

  • Bill Ackman says short-term money driving market volatility (reuters.com)

Ackman, head of the well-known hedge fund Pershing Square Capital Management, believes that the volatility recorded lately in the markets is mostly driven by short-termism while long-term economic fundamentals are being disregarded. Consider also contributions from additional factors (these include leveraged ETFs and High Frequency Trading, among other things).

However, no need to fall into despair, as the hedge fund manager also notes that this environment creates opportunities for those who are patient enough to exploit undervalued stocks, through a diligent stock picking.

Ackman also hopes for a true “stunner” in 2016: Michael Bloomberg, 3-time mayor of New York and founder of financial news and data company Bloomer, running for president … And winning!

So far this year, the performance of stock markets worldwide has been lackluster. From the Chinese slowdown, coupled with emerging markets, stubbornly under-performing, thereby also not leaving much room for optimistic prospects about other asset classes. Add to that the latest procrastination of the rate hike in the US due to “not expected” softening economic data.

At this point, we can ask ourselves what is the real driver of this situation? Is the China “normalization” the cause of concerns for developed countries? Well, Mohamed El-Erian, of Allianz, believes we are getting it wrong… it is the other way around: the lack over time of growth opportunities in the industrial world has affected the emerging world (which in turn, affects developed countries in a vicious loop).

Forget about the commonly believed threats such as low-inflation, lagging wage growth or potential dangers from the strong dollar. No, El-Erian suggests the Fed should instead worry about financial stability. This also means higher volatility going forward…

After the first 2 articles, Joshua Brown’s view on how to prepare for these agitated “animal spirits” (as he notes, S&P500 standard deviation levels are back at 2011 levels) is particularly useful. This entails that not only threats but also opportunities can arise from this situation.

In fact, as Joshua Brown points out, while it is practically impossible to predict the exact extent and length of a correction, there are ways through which investors can position themselves adequately. As opposed to the tradition tactical solutions found out there, this “just in case” approach would also consist in managing a tactical sleeve but aiming to “be reactive, rather than predictive”.

hedge funds

  • Hedge funds suffer worst month since October 2008 (ft.com)

The readers who somewhat manage their finances/portfolios, with exposures in stock markets, will know… this has been a tough month. Nonetheless, it is perhaps (sadly) reassuring that even the world’s most renowned Hedge Fund managers have been hit hard, suffering on average the worst month since October 2008: a loss of $78bn only in August.  [To put things in perspective here, note that October 2008 corresponds to the month following the collapse of Lehman Brothers].

All this is also perhaps an ugly reminder that today’s typical Hedge Funds have pivoted away from their original intended role of protecting investors from market volatility ….

“The only thing that seemed to work was cash. Of course that’s the one thing they [the hedge funds] don’t have”               ­- Paul Brain, former credit hedge fund manager

  • Goldman, Morgan Stanley win back hedge fund trading business (reuters.com)

Looks like its payback time! Goldmand Sachs and Morgan Stanley are consolidating their (now dominant) position as “prime brokerage” with about 37% of the market share.

In fact, due to ever stringing capital constraints and regulatory burdens (Basel III), European rivals (such as Deutsche Bank) are being forced to hand back some of the hedge fund clients in the trading business, that they were able to snatch from the US groups during the financial crisis by exploiting their attempt to scale down their businesses …

cash

  • Money for everything: “Despite many usurpers, cash is still king” (economist.com)

Cash: King or Enemy? Truth being told, in today’s world, our feelings towards Cash are mixed.

Now, while being accustomed to it, many are the advocates of a “Cashless World”. Be it for the savings generated by the elimination of printing and distribution costs (as mentioned by Peter Bofinger of the German Council of Economic Experts), or due to its problematic “anonymous” status as a store of value, or even in a move to allow negative interest rates (as proposed by the chief economist of the Bank pf England).

Yet, this article shows that, all things considered, Cash is still proving to be resilient….

Ben Carlson takes on a different perspective, as both Stocks & Bonds are down for the year, by looking at times when Cash actually outperformed both of these asset classes (dating back the analysis up to 1928). Well, turns out this tends to happen more frequently than many investors realize, with a little over 1 occurrence every decade.

Despite the peculiar low-rate environment, Ben Carlson takes distance from the belief of an upcoming “markets doomsday” but rather, uses common sense to see that a possible outperformance of Cash is something that can naturally emerge after years of solid gains.

market recap

tweets

Don’t forget to share your comments & thoughts about these topics, as well as your personal opinion on the current market environment.

Also, stay tuned for an upcoming interview in A PENNY FOR YOUR STOCKS with Karl M. Sjogren, a thought leader in the notion of performance-based capital structures and front runner of the equity crowdfunding concept, through a new model called “the Fairshare Model” (which is also the core idea covered in his forthcoming book).

Do not hesitate to share your comments & thoughts (see comment section below).

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Stay tuned dear Storm-Troopers !

(Yes, this is indeed the term we coined for our loyal readers… Oh and yes, we are Star Wars fans).

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