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Startups are in a bubble: Just look who's investing now -- mutual funds, hedge funds, and the hoi polloi
Venture Capital
<p>Mark Suster over at Upfront Ventures has recently released his 2016 view on the startup market. He answers the question on everyone's lips these days: Are we in a bubble? YES! But venture capitalists can't take full credit for this trend, he says:<br /> If “the market” is driving up prices beyond intrinsic value the main new entrants to the market that have taken a less rational view of historical prices are a series of “non VCs” including corporate investors, hedge funds, mutual funds and crowdsourcing. Note that I’m not absolving my industry, venture capital, from bad behavior. I’m merely pointing out that price drivers are more strongly correlated with outsiders. On the chart below, 78% of the rounds of 80 $1bn+ companies were led by non VCs.</p> <p>&nbsp;</p> <p>The numbers are astonishing: Suster says in the past 18 months, the number of companies worth more than $1 billion zoomed from 30 to 80.  "Either we’ve discovered magical beans and elixir or perhaps we’ve gotten ahead of ourselves on valuation."<br /> Chart: CB Insights</p>
Not all inventory corrections happen in recessions
Capital Markets
<p>As we had suspected in our latest quarterly conference call, economic growth in the 3Q was feeling worse than it was due to a reduction in inventories. Final sales of domestic product remained pretty strong as it contributed 3% to real GDP. Change in private inventories pulled down real GDP by -1.4%. Inventories dragged down real GDP by the most since in any quarter since 4Q2012.</p> <p>Overall, change in real private inventories declined from $133 billion SAAR in the 2Q to $56.8 billion in the 3Q. While recessions always have an inventory correction component, an reduction in inventories alone doesn’t mean a recession is imminent. As the chart below shows, it is when the change in private inventories breaks below zero that it becomes likely a recession is upon the US economy.</p> <p>© GaveKal Capital</p> <p>This column originally appeared on Advisor Perspectives.</p>
Wear your payment on your sleeve, literally
FinTech
<p>Swiping will soon be a thing of the past.</p> <p>MasterCard and fashion designer Adam Selman teamed up for the latest in wearables- clothes that hold mobile payment devices. A dress, gloves, jewelry, or sunglasses can all be embedded with discrete minichips, reports The New York Times. The idea, debuted at the Money 20/20 conference on Monday, links to the Bluetooth app in a phone to contain credit card information. Just wave the chip-holding accessory for payment and go.</p> <p>"We wanted to use things that were already a part of life," says Sherri Haymond, group head of digital channels for MasterCard. "Fashion and jewelry are a big part of that."</p> <p>But how great is it that consumers can pay with almost anything? Credit cards have already broken the tangible connection between spending and cash, and merely using sunglasses or a coat sleeve could take that disassociation a step further. We may need to think this one through.<br /> Photo: LWYang</p>
Video: ETF specialist Ed Rosenberg addresses what the ETF market needs — and doesn’t need
Asset Management
<p>This past summer the market for ETFs -- exchange traded funds -- saw astonishing volatility. Investors aren't used to this in ETFs. Is more regulation needed? Ed Rosenberg, head of ETF Capital Markets and Analytics at Northern Trust, says more regulation won't help. Instead investors need to understand how these products were designed to behave. For better or worse, ETFs did just what they were supposed to do when the markets cracked late last August.</p>
Bill Ackman calls in ex-prosecutor to explain why it doesn't matter if Valeant broke the law
Hedge Funds
Unless you are a drug dealer or a securities lawyer, the odds are quite good that you have never heard of Jenna Dabbs. Jenna Dabbs is what I would call a bit player in the second best drama unfolding in the world of business (Theranos may be even better, but for very different reasons): The unraveling of Valeant Pharmaceuticals and
The Week Ahead: Central bankers speak to the markets, data show level of consumer demand
Capital Markets
<p>(Note: all times HKT)</p> <p>The new month starts with a week of speeches. The most important is U.S. Fed chair Janet Yellen's, who appears before the House Financial Services Committee on Wednesday, though Vice Chair Stanley Fisher, Atlanta President Dennis Lockhart, St. Louis President James Bullard and Board member Lael Brainard will all have their say later. ECB boss Mario Draghi speaks earlier on Wednesday, the following day Bank of England head Mark Carney will explain his decision on U.K. interest rates and Bank of Japan governor Haruhiko Kuroda will deliver his state of the nation speech on Friday.</p> <p>Important economic data in the world's leading economies will indicate the level of production taking place, the number of jobs being created and the strength of consumer demand. In a quiet week for China releases, the markets are likely to focus on the U.S. employment numbers on Thursday and Friday as well as the European Producer Price Index on Wednesday and retail sales on Thursday.</p> <p>Here is a list of the most important official data releases this week:</p> <p>Monday, Nov 1</p> <p>09:45  China Caixin Manufacturing PMI (Sep) -- Forecast: 47.5; Previous: 47.2</p> <p>15:30  Australia RBA Commodity Index SDR (Oct, YoY) -- Previous: - 21.3%</p> <p>17:00  Europe Markit Manufacturing PMI (Oct) -- Forecast: 52; Previous: 52</p> <p>21:30  US ISM Manufacturing PMI (Oct) -- Forecast: 50; Previous: 52</p> <p>Tuesday, Nov 2</p> <p>24h      Japan Culture Day -- markets closed</p> <p>11:30   Australia RBA Interest Rate decision -- Forecast: 2% (unchanged)</p> <p>23:00  US Factory Orders (Sep, MoM) -- Forecast: -0.8%; Previous: -1.7%</p> <p>Wednesday, Nov 3 </p> <p>03:00  ECB President Draghi's Speech</p> <p>09:45  China Caixin Services PMI (Oct) -- Previous: 50.5</p> <p>17:00   European Markit PMI Composite (Oct) -- Forecast: 54; Previous: 54</p> <p>11:30   European Producer Price Index (Sep, YoY) -- Forecast: -3.3%; Previous: -2.6%</p> <p>21:30   US Trade Balance (Sep)  -- Forecast: -43.2bn; Previous: 48.33bn</p> <p>22:45  US Markit PMI Composite (Oct) -- Previous: 54.5</p> <p>23:00  US Fed's Yellen Speech</p> <p>Thursday, Nov 4</p> <p>06:00  US Fed's Fisher Speech</p> <p>17:30  UK Bank of England Quarterly Inflation Report</p> <p>18:00  European Retail Sales (Sep, YoY) -- Forecast: 0.2%; Previous: 0.0%</p> <p>19:00  UK Bank of England Interest Rate Decision -- Forecast: unchanged (0.5%)</p> <p>20:45  Bank of England Governor Carney Speech</p> <p>21:30  US Initial Jobless Claims -- Forecast: 264k; Previous: 260k</p> <p>21:30  US Nonfarm Productivity -- Forecast: 0.1%; Previous: 3.3%</p> <p>Friday, Nov 5</p> <p>01:30  US Fed's Lockhart Speech</p> <p>11:00  Bank of Japan Governor Kurodo Speech</p> <p>15:45  European Trade Balance (Sep) -- Forecast: -€3.1bn; Previous: -€2.98bn</p> <p>15:45  European Budget (Sep) -- Previous: -€89.65bn</p> <p>17:30  UK Manufacturing Production (Sep, YoY) -- Forecast: -0.9%; Previous: -0.8%</p> <p>17:30  UK Trade Balance (Sep) -- Previous: -£3.268bn</p> <p>21:00 US Fed's Bullard Speech</p> <p>21:30  US Nonfarm Payrolls (Oct) -- Forecast: 180k; Previous: 142k</p> <p>21:30  US Unemployment Rate (Oct) -- Forecast: 5.1%; Previous: 5.1%</p> <p>Sat, Nov 6</p> <p>04:15  US Fed's Brainard Speech</p> <p>07:30  Australia RBA Monetary Policy Statement<br /> Photo: Day Donaldson</p>
Video: Russian plane crashes in Egyptian desert killing 224; Russia denies claims ISIS downed flight
Lifestyle, 4:01
<p>A flight carrying 224 people, mostly Russians, crashed in Sharm el-sheikh, in the Egyptian Sinai Desert. Investigators said passengers were still strapped in their seats and cell phones were ringing, NBC reports. ISIS has claimed responsibility, but Russian officials deny the assertion.<br /> Photo: NASA</p>
What we're reading: finding that work-life balance
Lifestyle, 4:01
<p>Challenges for foreign firms in China, new philanthropy models, je ne regrette rien says Blatter,  controlling tech and brilliant Kiwis. Here are some good reads for the weekend.</p> <p>How multinationals can thrive in China. A slowing economy and tougher local competition means that multinationals operating in China must learn from mistakes, be sensitive to government goals and improve productivity. The Economist</p> <p>Silicon Valley’s philanthropy credo. Billionaire tech entrepreneurs reckon poverty and inequality are engineering problems that can be resolved through their brain power not wealth redistribution. International New York Times</p> <p>Lunch with Sepp Blatter. The suspended president of FIFA defends his long tenure in football’s top job as he faces extradition to the US on corruption allegations. It’s almost possible to feel sorry for him. Financial Times</p> <p>Striking a work-life balance. Communications technology has brought enormous benefits to both individuals and societies, but it is also intrusive and demanding. Workaholics Anonymous can help you cope with those late-night emails from your boss. The Guardian</p> <p>All Blacks beat the Wallabies in an epic rugby final. There’s worldwide media coverage of this pulsating World Cup Rugby final, but start here for match reports, analysis, lists and reactions. The greatest New Zealand side ever? Daily Telegraph<br /> Photo: mohit_k</p>
Hedge funds and the active management crisis
Hedge Funds
<p>Active management and hedge funds have suffered what amounts to a mini-meltdown in recent years as ambitious client expectations have collided with complex market conditions and slow, tectonic shifts in the finance landscape. James Bianco, CFA, president of Bianco Research, recently argued at this year’s 60th CFA Institute Financial Analysts Seminar in Chicago that a changing interrelationship between the stock and bond market alongside a plague of high correlations was responsible for recent weak performance of hedge funds and active managers.</p> <p>“In short, hedge fund performance as a group has been a complete disaster over the past five years,” Bianco said. “So, to earn the standard 2% and 20%, and outperform the index, managers have to be extraordinary. The problem is that there are probably only about 500 extraordinary managers in the world, but there are 11,000 hedge funds.” Active managers have also fared badly. “Over the past 10 years, 76% of active managers underperformed,” said Bianco, “It has been a struggle for most investors to understand how these relationships have changed.” Passive investment is increasingly the default response to such investor confusion.<br /> Performance – No Excuses<br /> While this year has been an embarrassing one for many hedge funds, longer term data suggests most hedge fund indexes perform better than stock and bond indexes and have lower volatility, according to one paper, “European Hedge Funds Industry: An Overview,” summarized in CFA Digest. The European hedge fund industry often outperforms in various strategies and rivals that in the United States, thereby giving investors access to global talents and strategic locations.</p> <p>Writing in the Journal of Index Investing, Benjamin McMillan of Van Eck Global, in another paper summarized in the latest CFA Digest, asks the question: When does active management add value? McMillan says that, contrary to what other authors claim, actively managed long-short equity hedge funds (currently the largest industry strategy) actually tend to earn negative alpha during periods of market instability. Furthermore, much of the outperformance many equity managers often claim is alpha can be explained as factors, according to Eugene Fama, Kenneth French, and fellow researchers. This seems to leave any remaining alpha attributable to some combination of momentum, fund cash management, and luck rather than any easily attributable skill. Tough times indeed for active managers and their marketers.</p> <p>More and more absolute return funds are seeing their exposures cloned when drivers of performance can be isolated and replicated. A Comprehensive Guide to Exchange-Traded Funds (ETFs) by Joanne M. Hill, Dave Nadig, and Matt Hougan identified 29 ETF-based absolute return clones and suggested that many hedge funds “lend themselves to factor-based approaches that can be offered within the ETF structure for competitive fees.” That said, the guide also points out that strateg</p>
Knowing the difference between 'fintech' and 'techfin'
FinTech
<p>When we say the word fintech, are we all really talking about the same thing? A portmanteau of “finance” and “technology”, fintech has become a trendy buzzword for the finance industry, but can all financial technology really be described as fintech? Some say no.</p> <p>The issue comes down to disruption. There is a difference between a company that offers a technology solution to established financial institutions and a startup that is uses technology to find entirely new ways of handling money. James McKeogh — a partner at KPMG who is leading the firm's fintech initiative in China — say this is the difference between techfin and fintech. At the first Cyberport NexChange Fintech O-2-O Meetup in September he told NexChange:<br /> "We are seeing an awful lot of techfin in Asia at the moment where existing financial capability is being optimized through technology, but I'm really keen on the area where we are seeing new products some out."<br /> Not everyone uses the terms fintech and techfin, but similar distinctions have been made. Earlier this year FSClub blogger Chris Skinner noted the difference between traditional fintech and emergent fintech. Like techfin, the first group includes 'facilitators’, larger incumbent technology firms  supporting the financial services sector, while the second group are the ‘disruptors’ with small innovative firms disintermediating incumbent financial services.</p> <p>Often these traditional — techfin — players will offer partial stack solutions: taking new technologies and then selling or licensing them to big banks. Most of the real disruptors however are the full stack startups offering the end-to-end solutions that cut out existing players. We have seen this in other sectors such as with Uber and taxis, Netflix and cable, or AirBnB and hotels. This, some argue, is real fintech, and banks are terrified of it.<br /> Photo: Caleb Roenigk<br /> &nbsp;</p> <p>&nbsp;</p> <p>&nbsp;</p>