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JPMorgan’s Kolanovic: Another Flash Crash Possible
Hedge Funds
<p>The derivatives research team at JPMorgan that forecast the August market sell off based on algorithmic positioning and then, again based on a reversion of systematic positioning, predicted on September 24 the subsequent market rally in October, has yet another interesting market call.</p> <p>Kolanovic<br /> Kolanovic: CTA signals could change based on relatively small market moves as “risk of another technically driven flash crash” is upon us<br /> “Near term the market is likely more resilient to the risk of another technically driven flash crash,” the November 5 report predicted, citing technical flows from option hedges, volatility targeting, managed futures CTA and Risk Parity funds.</p> <p>“We believe that these strategies (from option hedges, volatility targeting, managed futures CTA and Risk Parity funds) largely re-levered to pre August crash levels,” which was “a significant driver of the S&amp;P 500 performance in October” and is now posing downside risk today, a November 5 research report from JPMorgan’s celebrated derivatives research team of Marko Kolanovic and Bram Kaplan says.</p> <p>“Given the tight trading range over the past year, CTA signals have risk of changing on relatively small market moves (i.e. there is elevated ‘CTA gamma’). On the other hand, given the lack of a large put option gamma imbalance, and perhaps some residual buying from VT funds, near term the market is likely more resilient to the risk of another technically driven flash crash.”</p> <p>Kolanovic<br /> Volatility targeting and risk parity strategies have re-loaded</p> <p>Considering the sharp decline in realized volatility, the report notes strategies that target constant volatility were required to re-lever their portfolios. While volatility targeting strategies may be buying on the way up, the report forecast that “realized volatility is unlikely to drift much lower (e.g. to the summer lows), so any residual buying from (volatility targeting) strategies may not be sufficient to push the market much higher.”</p> <p>The report noted that nearly $300 billion is trading in volatility targeting, targeting a range from 8 to 9 percent. Risk parity strategies are significantly larger, with $500 billion used to influence markets, but the strategies can vary significantly. “Risk Parity strategies employed by Hedge Funds may be substantially different from those employed by e.g. Pension funds (using risk parity in house as a longer term asset allocation method).” To account for this challenge JPMorgan uses different models for hedge funds, accounting for nearly $150 billion in risk parity assets, and pension funds, which account for nearly $350 billion. These funds de-levered in August and September, but re-levered in October to finish at their pre-crash equity allocations.</p> <p>In other words, the gun is cocked and ready to fire.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Artondra Hall </p>
Cartier losing its sparkle as watch sales, Asia sag
<p>Richemont, the parent company of jewelry maker Cartier, found itself adorned in some less-than-fine figures this week, reporting weaker than expected sales in China. The company further said it expected the market to remain "challenging" for the rest of the year. The stock sank 6% Friday.</p> <p>The firm is not alone, reports This is Money. Luxury conglomerates LVMH and Kering have also struggled in Hong Kong and China, thanks to stock market volatility and China's anti-bribery crackdown. </p> <p>Also weighing on Richemont: The head of its Cartier division, Stanislas de Quercize, has left for personal reasons. He will remain on the group board.<br /> Photo: Steve Jurvetson<br /> &nbsp;</p>
Weekend Scan: China, Taiwan leaders begin historic talks; Asian confidence sags
<p>It was a good week for markets in China and Japan if not elsewhere. Mainland shares regained momentum this week, crossing into a bull market, and Japanese shares hit two-month highs as the country saw its biggest privatization in decades with Japan Post's triple-barrell listing.</p> <p>But markets in other parts of Asia were unable to replicate the upward climb enjoyed in October. Instead, November's first week saw investors focus on country specific news, while the strengthened prospect of a U.S. interest rate hike in December further battered confidence in emerging markets.</p> <p>Now U.S. jobs data has beaten forcasts, sending the dollar soaring, a Federal Reserve rate hike is looking more likely than ever. Meanwhile, the Japan Post IPO euphoria has already started wearing off in Japan. We can expect a rougher start all round come Monday.</p> <p>Here is what else you need to know:</p> <p>China and Taiwan's leaders meet for the first time... and they shook hands! China's President Xi Jinping and Taiwan's President Ma Ying-jeou began their historic meeting on Saturday, shaking hands as they met. It's the first cross-Taiwan Strait summit since a civil war divided the two sides in 1949. Nikkei</p> <p>Myanmar goes to the polls for historic election. The country is entering the final stretch of campaigning before Sunday’s parliamentary elections. It's only the third credible democratic elections since Myanmar gained independence from Britain in 1948. The New York Times<br /> U.S. jobs data raises prospects of rate rise. Expectations of a rise in U.S. interest rates in December have soared following a stronger-than-expected jobs report. The U.S. economy added 271,000 jobs in October, far exceeding the 185,000 jobs that economists had forecast.<br /> President Obama rejects Keystone XL Pipeline. After a more than seven-year battle, environmentalists won out against oil companies, as Obama officially rejected the pipeline from Canada. "The pipeline would not make a meaningful long-term contribution to our economy," Obama said. Reuters</p> <p>Russia halts flights to Egypt amid widened probe into Sinai crash.  Reversing its earlier position, the Kremlin on Friday announced that it would suspend flights to Egypt in a growing consensus with Western officials that a bomb may have caused a Russian passenger jet to crash over Egypt’s Sinai Peninsula last weekend. The Washington Post</p> <p>Brazilian village destroyed in minutes by dam deluge. Residents of the Brazilian village of Bento Rodrigues had about 25 minutes to escape when a dam holding waste water from the nearby Samarco mine in Minas Gerais state broke, sending torrents rushing down into the valley. Reuters</p> <p>Anonymous outs KKK sympathizers. A list of alleged Ku Klux Klan members was released earlier in the week, but the list turned out to be fake. The hacking group released more data about KKK sympathizers, calling it a "form of resistance" against racial violence. The Thursday list has social media profiles of people in KKK-related Facebook and Google+ groups. BBC<br /> You won’t believe this:<br /> Gangnam Style statue built in Seoul. The metal sculpture will be placed in the district made famous by the song. The statue shows two fists overlapped in the style of the song's "horse-riding" dance move. BBC</p> <p>Transgender tree could be the oldest in world. Botanists are arguing over whether the perhaps-5,000-year-old Fortingall Yew, which stands in  a churchyard in Perthshire, Scotland, is Europe’s oldest tree. But it is now certainly Europe’s oldest transsexual. Yew couldn't make it up. Economist</p> <p>Cry your eyes out. U.K. retailer John Lewis has released its annual holiday commercial, this year featuring a lonely old man on the moon. As with every other year, have a box of tissues ready for this tear jerker.</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: Jennifer</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p>
Warhol head piece goes up on e-auction. Minimum opening bid: $750,000
Lifestyle
<p>Paying over a million bucks for a hat made of ten-dollar bills may not look like you have a head for money. But in the case of this 1972 Andy Warhol, it could be a savvy investment.</p> <p>Warhol made the unconventional headwear using a wide-brimmed, black, straw Halston hat. He wove $10 bills to the hit, and presented it as a gift for his doctor friend Robert Giller in the 1970s. It is being put under the hammer by NYE&amp;Co through LiveAuctioneers.com on November 11. Minimum bid: $750,000. The online auction group expects the piece to go for $800,000 to $1.2 million.</p> <p>The hat features in a photo, worn by Giller, in the 1979 book Andy Warhol’s Experiences. An edition of the book given to Giller by Warhol, and signed "to the doc, Love, Andy" with a doodle, is also included in the auction. Both were kept by Giller’s widow after he died in car wreck in 1996.</p> <p>Photo: LiveAuctioneers.com</p> <p>&nbsp;</p> <p>&nbsp;</p>
7 ways the global economy is going to change, according to Nouriel Roubini
<p>Sometimes referred to as Dr. Doom because of his accurate prediction that the U.S. housing market would collapse, Roubini gave a lecture on Saturday and FinBuzz presents his top seven economic ideas from the event, Finbuzz reports.</p> <p>Aging population and the end of the ‘golden era’</p> <p>Until 2013, markets were growing robustly. Now the golden era of growth is over. Economic slowdown worldwide has several causes: both governments and corporations have entered a deleveraging stage, saving more, and spending and investing less. The aging populations in both in Europe and Asia are changing the consumption model on an individual level, and people are saving more, too. Although corporations have enough cash, most of them are not inclined to invest money into new projects the way they have done before, as the level of political, economic, and geopolitical uncertainty has dramatically risen.</p> <p>China: expect a “bumpy landing” but no crash<br /> All eyes are on China. Further development of the world economy largely depends on how China’s economy, the second largest economy in the world, will slow down, and whether it will have a smooth or hard landing. A hard landing would mean a massive collapse in commodity prices and a sharp devaluation of China and other emerging markets’ economies. Due to substantial dollar debt, the amount of debt in local currencies will increase, which will lead to the global recession. The risk of the hard landing, is however, relatively low, according to Roubini. He calls what is likely to happen with China a “bumpy landing” – a 6.5% growth slowdown this year and between 5 and 6 percent potential growth next year, rather than complete collapse.</p> <p>On Silicon Valley<br /> There is a lot of technological and scientific innovation in different fields of global economy, however, it is concentrated in some spots like Silicon Valley. At the moment, it does not lead to productivity growth, which is the key to the growth of global economy.</p> <p>Are robots taking over our jobs?<br /> Technological innovation is increasingly capital intensive, skill-biased and saves on labor. The demand for labor is going to shrink further, partly because of robotic substitution and structural changes as well. That will surely bring changes to the labor force structure and hence economy structure.</p> <p>The central banks are broken<br /> Government policies are not optimal. The instruments of monetary policy do not seem to satisfy the current needs. Fiscal policy instruments are not used to their full potential. There is a huge need for structural reforms worldwide, however, both in democracies and in “less democratic countries” implementation of structural reforms is hard because of the election cycles and the inability of politicians to act in the long-term.</p> <p>The hyped-up Grexit<br /> Greek Exit. A lot of worries were concentrated around Greece this year. This is particularly interesting given that Greece is responsible only for 2 percent of European GDP. The solution of the Greek problem has more of a symbolic meaning for the whole Eurozone. The Grexit would mean the beginning of the end of the Eurozone, politically.</p> <p>Commodity super cycle<br /> The commodity super cycle is over not only spurred by the economic slowdown in China, but also due to supply issues such as innovative shell gas, oil technologies, and a significant amount of reserves in Latin America and Africa. Demand for raw materials is obviously low at the moment.</p> <p>A professor at New York University’s Stern School of Business, Roubini is also the chairman of Roubini Global Economics, a private macroeconomic research firm in New York.</p> <p>This story first appeared in FinBuzz<br /> Photo: FinBuzz</p>
Q&A: Ex-Mt.Gox exec Thomas Glucksmann-Smith shares the perils of the fintech frontier
FinTech
For every success on a new frontier there is also a horror story. For many Bitcoin users that horror was Mt. Gox, the Japanese Bitcoin exchange that went from handling 70% of all bitcoin transactions in early 2013 to losing $473 million of the cryptocurrency a year later. Thomas Glucksmann-Smith had a front row seat on the collapse. He joined the
Daily Scan: Stocks end Friday unmoved; Berkshire Hathaway slays profits
Updated throughout the day November 6 Stocks were fairly stagnant Friday. The Dow added 0.3%. The S&amp;P 500 barely fell, and the Nasdaq added 0.4%. The jobs report crushed expectations: Nonfarm payrolls grew by 271,000 in October vs the consensus expectation for 190,000. The unemployment rate edged down to 5.0% from 5.1% -- near the Federal Reserve's full employment of 4.9%. No plans
Elite startup club names top UK tech companies
Silicon Roundabout doesn't sound quite as sexy as Silicon Valley, but it's looking to compete with the California tech space. Silicon Valley Comes to the U.K. (SVC2UK) has chosen 58 new startups they think have potential to hit revenue of 100 million pounds in the next three to five years, writes Business Insider. The 58 companies added to the "Scale Up
Maybe it's not so hip to be Square
Square announced Friday that it will price its upcoming IPO at $11 to $13 a share, making a valuation of about $4.2 billion. Square was most recently valued at $6 billion, so where's the beef? Square is erring on the side of caution as it has watched other tech companies fall short with their own IPOs, reports Wired. At the
Aberdeen CEO stands strong as firm shakes
<p>Aberdeen Asset Management co-founder Martin Gilbert withstood a 97% fall in share price 13 years ago amid scandal. Now Gilbert is on shaky ground again as Aberdeen gets pummeled by emerging market performance and outflows. Rumors are swirling that Gilbert is looking to sell his Scottish firm, but Aberdeen denies the claims and the fact that the company could be in trouble, reports the Financial Times.<br /> Mr. Gilbert’s opinion on this is clear: “Everyone is talking about Aberdeen like we are in some sort of crisis. Of course we’re not, we’re a business with £300bn of assets under management and more than £550m in net cash.”<br /> Aberdeen has made more than 40 acquisitions, including the massive purchase of the Scottish Widows Investment Partnership in 2014, in attempts to expand the business. But the firm has undeniably been bleeding assets for the last two years. Gilbert is putting up a strong front, and has certainly survived turmoil in the past, but is it time for him to step aside? With SWIP and other businesses now under Aberdeen, the firm could start to turn away from the emerging markets that are dragging it down. Perhaps it's time for Gilbert to let someone else take the reins during this transition.<br /> Photo: Aberdeen</p>