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The Week Ahead: Fed minutes, U.S. inflation, and BOJ rates coming up
Capital Markets
<p>With Chinese trade data and Euro-area GDP out of the way, attention shifts to inflation once again as several nations – including Canada, Great Britain, and the U.S. – report their inflation rate figures throughout the week. However, all eyes will surely be on the Fed and the Bank of Japan on Thursday as the former releases its much-scrutinized FOMC minutes while the latter unveils its highly-awaited monetary policy decision. Analysts are expecting the BOJ to stand pat on rates, though some traders seem to be optimistic that it’ll bump up its QQE measures.</p> <p>Here’s what else you should look out for:</p> <p>Monday, November 16</p> <p>5:45 New Zealand retail sales (Q3,QoQ) – Forecast: 1.32% Previous: 0.1%</p> <p>7:50 Japan preliminary GDP (Q3, QoQ) – Forecast: -0.1% Previous: -0.3%</p> <p>12:00 Singapore imports (Oct) – Forecast: -28.2% Previous: -25.95%</p> <p>14:30 India WPI inflation (Oct, YoY) – Forecast: -4.0% Previous: -4.54%</p> <p>18:00 Eurozone inflation rate (Oct, MoM) – Forecast: 0.1% Previous: 0.2%</p> <p>18:15 ECB President Mario Draghi speaks</p> <p>Tuesday, November 17</p> <p>8:30 Reserve Bank of Australia minutes</p> <p>8:30 Singapore non-oil exports (Oct, MoM) – Previous: 2.8%</p> <p>16:30 Hong Kong unemployment (Oct) – Forecast: 3.3% Previous: 3.3%</p> <p>17:00 Indonesia interest rate decision – Forecast: 7.5% Previous: 7.5%</p> <p>17:30 U.K. inflation rate (Oct, YoY) – Forecast: -0.1% Previous: -0.1%</p> <p>18:00 Germany Zew Economic Sentiment Index (Nov) – Forecast: 4 Previous: 1.9</p> <p>21:30 U.S. core inflation rate (Oct, YoY) – Forecast: 1.9% Previous: 1.9%</p> <p>21:30 U.S.  inflation rate (Oct, YoY) – Forecast: 0.1% Previous: 0.0%</p> <p>Wednesday, November 18</p> <p>4:30 Federal Reserve Board of Governors member Daniel Tarullo speaks</p> <p>9:30 China house price index (Oct, YoY) – Forecast: -0.2% Previous: -0.9%</p> <p>21:30 U.S. housing starts (Oct, MoM) – Forecast: -2.1% Previous: 6.5%</p> <p>Thursday, November 19</p> <p>3:00 FOMC minutes</p> <p>5:00 Korea PPI (Oct, MoM) – Forecast: -0.4% Previous: -0.3%</p> <p>7:50 Japan exports (Oct, YoY) – Previous: 0.6%</p> <p>12:00 Bank of Japan interest rate decision – Forecast: 0.0% Previous: 0.0%</p> <p>17:30 U.K. retail sales (Oct, MoM) – Forecast: -0.41% Previous: 1.9%</p> <p>20:30 ECB monetary policy meeting accounts</p> <p>23:00 Philly Fed Manufacturing Index (Nov) – Forecast: 0.6% Previous: -4.5%</p> <p>Friday, November 20</p> <p>1:30 Federal Reserve Bank of Atlanta President and FOMC voting member Dennis Lockhart speaks</p> <p>5:45 Federal Reserve Vice Chairman and FOMC voting member Stanley Fischer speaks</p> <p>15:00 Germany PPI (Oct, MoM) – Forecast: -0.1% Previous: -0.4%</p> <p>16:00 ECB President Mario Draghi speaks</p> <p>18:15  Bundesbank President Jens Weidmann speaks</p> <p>21:30 Canada inflation rate (Oct, YoY) – Forecast: 1.0% Previous: 1.0%<br /> Photo: Stefan Fussan</p>
A new era begins, and not just for China
Capital Markets
<p>As we approach the end of 2016, we’re increasingly of the view that we’re nearing the end of one investment era and the beginning of another. We expect this global trend to be positive for China, but it might have a downside for some risk assets.</p> <p>There are signs, though only tentative, that the global investment and policy landscape in fourth-quarter 2015 could lead to a reversal of what, three years ago, were three key market-shaping events. Then, markets were in an expanding “balance sheet world,” in which central banks were pumping more liquidity into the global financial system to keep economies afloat.</p> <p>In September 2012, the US Federal Reserve launched its third round of quantitative easing (QE); in December of that year, Shinzo Abe became prime minister of Japan for the second time and, two months later, launched his Abenomics reforms in an attempt to boost the country’s growth and inflation.</p> <p>The central banks hoped that, by helping to lift asset prices, they would reignite the “animal spirits” in their economies. An important consequence of these actions was that financial markets—particularly risk assets—became disconnected from the macro environment, as liquidity drove valuations higher than economic fundamentals warranted.</p> <p>At the same time, there was a countercurrent to these events. In November 2012, Xi Jinping became president of China and—as part of a suite of reforms aimed at rebalancing the country’s economy—launched a crackdown on corruption.</p> <p>As the US and Japan attempted to stimulate growth, Xi’s actions had a dampening effect, leading to a slowdown in infrastructure and other projects in China. This in turn effectively put an end to the global commodities boom and created economic headwinds for commodity-exporting countries.</p> <p>Policymakers Change Course</p> <p>As of November 2015, the authorities behind each of these three policy initiatives appear to be changing course. Having put an end to quantitative easing a year ago, the Fed—though weighing an improved US economy against global market volatility—is expected to raise short-term interest rates for the first time in nine years.</p> <p>The policy debate in Japan now revolves around whether or not the Bank of Japan (BoJ) should ease further, with the BoJ governor arguing against it on the grounds that the country is through the worst of its deflationary spiral. If he’s right, we believe Japan could signal a tapering in its QE program next year. This is an out-of-consensus view, as the market is still looking for an extension or top-up of the program.</p> <p>China’s 13th Five-Year Plan, an outline of which was announced after the October Communist Party plenum, focuses on reforms that will continue to push the economy up the value chain, making it more efficient and innovative, with the aim of reducing the risk of the country falling into the middle-income trap.</p> <p>The country, in other words, still seems to be moving in the opposite direction from that of the US and Japan in terms of policy. This time, however, it’s more pro-growth, while the US and Japan are contemplating moving to tighter policy settings.</p> <p>Macro Factors Back in Play</p> <p>Together, these trends point to a rebalancing in global markets in 2016. With the US poised to raise interest rates, Japan potentially tapering its QE and China experiencing a mild cyclical upswing, macroeconomic factors are likely to reassert themselves as key investment drivers, in our view.</p> <p>What does this mean for investors? It’s yet another reminder to avoid “crowded trades,” particularly those created by investor responses to central bank balance sheet building over the past few years, or the slowdown in China. It also suggests that the ability to move dynamically into and out of sectors, geographies and markets is even more important now. And active management—stock and security selection in particular—is especially critical.</p> <p>In our next blog, we’ll look more closely at the implications for China.</p> <p>(c) Alliance Bernstein</p> <p>https://
Pension funds lose $15 bil with investments in hedge funds: study
Asset Management
<p>&nbsp;</p> <p>&nbsp;</p> <p>According to Elizabeth Parisian and Saqib Bhatti of the Roosevelt Institute, the decision by pension funds to invest in hedge funds some years ago has had disastrous consequences, ultimately resulting in subpar returns for the pension funds and paying billions in undeserved fees to hedge fund managers.</p> <p>The new report from the Roosevelt Institute is titled “All That Glitters Is Not Gold”, and takes a closer look at whether hedge funds have provided U.S. pension funds better and less correlated returns as promised, and also tackling the question are hedge fund fees adequately disclosed and as high as many critics suggest.</p> <p>Methodology of the study<br /> Parisian and Bhatti analyzed 11 U.S. public pension funds investments in hedge funds. With publicly available data and data given by the pension funds, the authors undertook a  year-­by-­year comparison of hedge fund net returns and total fund net returns for each pension fund. The study also compared the hedge fund rates of return to fixed income net returns for each pension fund to figure out whether hedge funds actually came through on their promise of uncorrelated returns and if less expensive fixed income strategies actually offer better net returns.</p> <p>Hedge fund fees are not completely reported or fully accounted for, so Parisian and Bhatti used industry standard fee structures such as management and incentive fees then projected actual fees charged by hedge fund managers based on earlier statements of net return to investors. These figures are not exact because of lack of transparency with hedge fund fees, but are certainly close enough to come to a conclusion regarding the hedge fund investments by pension funds.<br /> Key findings regarding pension fund investments with hedge funds</p> <p>The results of this study show that hedge fund investments failed to deliver any significant benefits to the group of 11 pension funds studied. In specific:</p> <p> Hedge fund net return rates were less than the total fund returns for close to 75% of the total years reviewed, leading to an estimated $8 billion in lost investment revenue by the 11 pension funds. Moreover, hedge fund managers charged an estimated $7.1 billion in fees to the pension funds over the period reviewed. The data showed that on average, the pension funds were paying a staggering 57 cents in fees to hedge fund managers for every dollar of net return to the pension fund.<br /> Although hedge fund managers tout both uncorrelated returns and downside protection, it turned out that 10 of the 11 funds reviewed in the study saw significant correlation between hedge fund and total fund performance.</p> <p>Recommended next steps for pension funds<br /> Parisian and Bhatti suggest that every pension fund involved with hedge funds undertake a thorough asset allocation review to consider less expensive and more effective methods of diversification. The asset allocation review must include a full analysis of past performance of their hedge fund investments, as well as a wide-ranging comparison to lower-­fee alternatives.</p> <p>It is also important for pension funds to require full fee disclosures from hedge fund managers and consultants, including complete disclosure of historical investment management and incentive (carry or profit sharing) fees charged by hedge funds.</p> <p>Finally, the report highlights that pension funds should also work toward instituting legislative policies that mandate full fee disclosure by hedge funds.</p> <p>See full report at ValueWalk, here.<br /> Photo: Joe The Goat Farmer</p>
Video: Startups staking out a 'land grab' to claim users, customers internationally
Venture Capital
<p>Startups are making a "land grab" overseas for users and customers, says Shayne Veramallay, venture pipeline manager at DLA Piper. In this interview with NexChange, Veramallay says the pace of business is quickening and startups don't want to get left behind.</p>
What we’re reading: the secretive ‘scouts’ of Silicon Valley and Valeant’s fall from grace
Lifestyle
<p>From George Magnus’ views on China’s “economic transition” to a riveting tale of one man’s search for a Jeep Comanche, here are some great reads for you this weekend.</p> <p>Four points about how China’s ‘economic transition’ will shape and shake the world economy. George Magnus is probably one of the better China watchers currently in action, and here is his take on the nation’s push to become a consumer driven-economy, and all the problems it might bring. George Magnus</p> <p>Secretive, sprawling network of “scouts” spreads money through Silicon Valley. As investors scramble to get in earlier and earlier in the business process, lauded venture capital firms such as Sequoia have turned to startup entrepreneurs – dubbed “scouts” – to gain an edge against their competition. Wall Street Journal (paywall)</p> <p>Checkmate or stalemate? Valeant's fall from investing grace. As the media circus around Valeant surges to a fever pitch, 10-Q crunchers of all shapes and sizes seem to have been turning in their two centavos about it. Here’s another one, from Aswath Damodaran. Musings on Markets</p> <p>Nice guys finish in the middle of the pack. Did Ben Bernanke – once one of the most aggressive, forward-thinking zero bound policy thinkers – succumb to group think while at the Fed? His actions following a pivotal meeting in 2003 seem to denote so. The Money Illusion</p> <p>Comanche quest. This may be as old as the hills, but if this blow-by-blow of one man’s quest to buy a Jeep Comanche doesn’t make you laugh, I don’t know what will. Warning – colorful language may be prevalent. Don’t Even Reply<br /> Photo: Denis Messie</p>
Live in New York’s most exclusive building – for $10 million less
Lifestyle
Always wanted to live like a financial master of the universe? Well, now’s your chance. According to the Real Deal, an apartment in 740 Park Avenue – considered by some to be the ne plus ultra of New York apartment buildings – is now available with a third off its original asking price: “Elizabeth, daughter of real estate bigwig Harry
Video: Howard Marks on the different approaches to the business of investing
Hedge Funds
<p>Howard Marks on the different approaches to the business of investing</p> <p>This story originally appeared in ValueWalk.<br /> Photo: kellywritershouse</p>
Julius Baer’s fledging collection of Swiss contemporary art
Lifestyle
<p>With over 5,000 pieces of art in its collection, the Julius Baer Art Collection has become a desirable destination for emerging Swiss artists. Fostering young talent is a mission the bank proudly accomplishes. Its objective, then and now, is to buy and display contemporary Swiss art with the purpose of supporting artists who, at the time of a first purchase, are not yet firmly established, but clearly have a great deal of potential, writes FinBuzz.</p> <p>For Hans J. Baer (1927-2011) art was not something to be shut away but something to be appreciated daily, allowing it to become integral to the culture and environment of the company. Much of the bank’s artwork is off-limits to the public, but can be seen on the walls of the Zurich, Switzerland headquarters or in one of the other offices spread across five continents and in over 25 countries and more than 50 locations. Sometimes the Julius Baer art team runs special tours, exhibitions and events, and lends its pieces to museums.</p> <p>As one would expect, the artworks are excellent conversation starters when clients come in, adding some flavor of Swiss heritage to everything the bank does.</p> <p>“Our clients are very interested in art. I believe that after guiding a client through the collection that they will connect very differently with the company thereafter,” said Barbara Staubli, Julius Baer’s art collection curator. Staubli joined Julius Baer in 2011, after working at the world-renowned Hauser &amp; Wirth gallery. Before that she studied art history at the University of Zurich.</p> <p>In order to be put on the watch list by the Julius Baer Art Committee, an artist must either have been born in Switzerland or live in the country. The bank is on the lookout for art at public exhibitions in art galleries and museums, and the young talent is purchased by the bank.</p> <p>The Julius Baer Art Committee believes that this kind of support is what an emerging artist needs the most as he or she creates confidence to move forward, and of course, it helps with the cash-flow too. The bank then follows the artist through their career and forges closer ties with them. Today, the bank boasts the works of Roman Signer, Pipilotti Rist, Ugo Rondinone, Dieter Roth, John M. Armleder, and Lutz &amp; Guggisberg.</p> <p>If the bank is strict about an artist having close connections with Switzerland, it is much more open about the form of art itself. The collection contains paintings, drawings, photography, installations, video art, and objects created with new technology. In 1995, the committee purchased its first audio and video installation ‘Edna’ by Pipilotti Rist, which is part of a series of videos titled ‘Yoghurt on Skin-Velvet on TV’, today considered one of the collection’s gems.</p> <p>Collecting art has a very long tradition at Julius Baer and dates back to the 1930s. In 1981 Hans J. Baer decided that the collection strategy should be precise and reflect the values of the bank itself. This is when the underlying theme – quintessentially Swiss art through the eyes of contemporary artists – was established. It was also when the Art Committee was formed. Unlike other banks, this particular Art Committee includes actual employees who get to see the artworks on an everyday basis. The committee also includes relationship managers, a head of strategy research, and, interestingly, no one from senior management. “It’s very important,” said Ms. Staubli, “as it reflects that art is something for all employees and a vital part of our corporate culture.”</p> <p>El Frauenfelder, Zurich Airport, 1979</p> <p>Studer &amp; van den Berg, Schlitten no.8, 1960/1962</p> <p>Beat Zoderer, Reels.Pipes.Spools-object, 1955<br /> This story first appeared in FinBuzz</p> <p>Photo: FinBuzz</p>
Daily Scan: Stocks plummet into the red; Shootings shake Paris
Capital Markets
<p>Updated throughout the day</p> <p>November 13</p> <p>Stocks fell hard Friday, ending the week in the red. The Dow was down 1.16%, the S&amp;P 500 fell 1.12%, and the Nasdaq lost 1.54%. Retail merchants collapsed in the U.S. on a combination of weak earnings and an unexpectedly weak October report from the Commerce Department that showed sales rose only 0.1% in October, short of the expected 0.3% increase. Some of the nation's biggest retailers hit 52-week lows, including Macy's, down 4.2% (after falling more than 14% earlier in the week); Nordstrom's, off 15%; JCPenney, down 15.4%; and Fossil, which immolated, falling 36.5%. Car makers also fell if more modestly on the retail sales news. Oil fell 3%, closing near $40/barrel.</p> <p>Saturday night you can catch the Democratic debate on CBS.</p> <p>Here’s what else you need to know:</p> <p>Several killed in Paris shootings. Several people were killed and at least seven injured in a shooting outside a restaurant in central Paris Friday evening. There were also a series of explosions at the Stade de France. BBC, CNN</p> <p>Cargill to cut jobs. The commodities trader is restructuring, closing two offices and laying off employees. Reuters </p> <p>Will Hamlet on the Potomac continue? To raise rates or not to raise rates, that we thought was a settled question. But not only did retail sales disappoint Friday, so did U.S. producer prices dropping for the second straight month by 0.4% in October. Economists had predicted a 0.2% rise.  Earlier in the day, Cleveland Fed President Loretta Mester said the economy looked good-to-go for a federal funds hike -- if the news continued to be good. If.</p> <p>J.C. Penney's stock falls after earnings. The retail store reported better than expected quarterly net sales, but the company's stocks fell, reflecting the low October retail sales. The company reported a net loss of $137 million, or 45 cents a share. Analysts estimated a loss of 55 cents a share. Net sales were up 4.8% to $2.9 billion, slightly better than the expected $2.88 billion. Penney's shares fell 15.4% Friday. Reuters</p> <p>DraftKings sues New York over shutdown. New York Attorney General Eric Schneiderman closed the DraftKings and FanDuel websites Tuesday from accepting bets in New York, call the businesses illegal gambling. DraftKings filed a lawsuit to overturn the order. Reuters</p> <p>Syngenta said to reject $42 billion takeover bid from China. The offer is the biggest ever by a state-owned enterprise for a European company. Earlier this year, Monsanto had offered to buy Syngenta, the world's biggest agrichemicals company, for $47 billion. Reuters</p> <p>U.S. has “Jihadi John” in its cross-hairs. American forces have carried out an air strike targeting the British Islamic State militant known as “Jihadi John,” the Pentagon has said. The extremist was seen in videos of the beheadings of Western hostages. BBC</p> <p>At least 41 dead in pair of suicide bombings in Beirut. ISIS took responsibility for the terrorist attack in a busy shopping area of a Shia neighborhood, also known to be a Hezbollah stronghold. More than 200 people were wounded. BBC</p> <p>Suu Kyi's NLD wins Mayanmar election by landslide.  Myanmar's opposition National League for Democracy has won a landslide election victory, officials say, with more than 80% of contested seats now declared. BBC</p> <p>&nbsp;</p> <p>You won't believe this…</p> <p>Ugh. Airbnb is full of love. The most common three-word phrase for hosts? "Love to travel."  The most common three words to describe a rental?  It's in "the heart of." We'd add "Adore making extra $$$$." Vox<br /> Photo: Steve Jurvetson</p>