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John Hussman: Pyschological whiplash
Asset Management
<p>Investors have experienced a great deal of whiplash in recent months. After a rapid but relatively contained retreat in August and September, the stock market has rebounded to within 2% of its May record high. Only weeks ago, investors were concerned about economic deterioration. As of Friday, strength in nonfarm payrolls has suddenly convinced investors that a December rate hike by the Fed is all but certain.<br /> From an economic standpoint, my impression is that this whiplash is largely psychological, and has very little to do with any underlying change in economic fundamentals. Instead, it reflects a tendency to respond to all economic data as if it is coincident (reflecting the current state of the economy) rather than carefully distinguishing leading data — primarily new orders and order backlogs, from coincident data — primarily income and production, from lagging data — employment figures, particularly payrolls and the unemployment rate, which are essentially the most lagging data series in economics.<br /> The overall signal we draw from the economic data continues to lean much more toward deterioration than to strength. Friday’s data was undoubtedly a blowout number, at 271,000 new jobs, but it’s important to recognize that payroll data is a lagging, not leading, measure of economic activity. Indeed, extremely high payroll figures often immediately preceded recessions prior to 1990, though we haven’t seen that in recent economic cycles. What’s true most generally is that economic data proceeds in a sequence that moves from financial indicators, to new orders, to production and income, and finally to employment. As I noted in February:<br /> “The combination of widening credit spreads, deteriorating market internals, plunging commodity prices, and collapsing yields on Treasury debt continues to be most consistent with an abrupt slowing in global economic activity. Generally speaking, joint market action like this provides the earliest signal of potential economic strains, followed by the new orders and production components of regional purchasing managers indices and Fed surveys, followed by real sales, followed by real production, followed by real income, followed by new claims for unemployment, and confirmed much later by payroll employment. Stronger conclusions, particularly about the U.S. economy, will require more evidence, but from a global perspective, these pressures are already quite evident.”<br /> An evaluation of this sequence may provide a somewhat more tempered view of economic conditions than Friday’s employment figure, taken by itself, might suggest.<br /> First, recognize that in the context of divergent market internals across a broad range of individual stocks, the kind of whipsaw stock market behavior we’ve seen in recent months has historically been more characteristic of market topping processes than not. One way to measure this whipsaw movement is to examine cumulative absolute weekly percentage changes in the market over the most recent 10-week period. Those familiar with nonlinear analysis will recognize this as a sort of “fractal ruler”; much like measuring the length of a coastline by adding up all of the edges, which capture the irregular shoreline better than simply drawing a straight line. When significant market whipsaws have occurred along with recent overvalued, overbought, overbullish conditions and flagging participation from the broad market, steep market losses have often followed. We observed the same thing in 1973, 1987, 2000 and 2007. Still, a clear improvement in market internals would defer our immediate concerns.<br /> Read more at Advisor Perspectives.</p> <p>Photo: Wally Gobetz</p>
How to avoid the pharmaceuticals fallout with these three ETFs
Asset Management
<p>Investors that closely follow the healthcare sector are most likely familiar with the carnage at Valeant Pharmaceuticals International Inc. (NYSE: VRX). Shares of the controversial pharmaceuticals maker have lost nearly two-thirds of their value over the past 90 days, plaguing some hedge funds and exchange traded funds along the way.</p> <p>On Monday, shares of Mallinckrodt PLC (NYSE: MNK) slid more than 17.4, a decline, triggered by a tweet from Citron Research that read, "At these prices $MNK has signif more downside than $VRX-- far worse offender of the reimb sys - more to follow. VRX can't live in a vacuum."</p> <p>Clearly, Citron expects more downside for Mallinckrodt, another pharmaceuticals favorite among the hedge fund ...</p> <p>Full story available on Benzinga.com<br /> Photo: e-Magine Art</p> <p>&nbsp;</p>
Daily Scan: Asia caps the day mixed; European shares climb
Capital Markets
<p>Updated throughout the day</p> <p>November 10</p> <p>After a long and valiant fight to remain deep in the green, the Shanghai Composite finally succumbed to all the bad news reported by the nation and finished the day down 0.18%. Hong Kong’s Hang Seng Index meanwhile slumped a massive 1.43%, while over in Japan, bargain hunters and a weak yen led the Nikkei Average to gain a surprise 0.15%. As for the rest:</p> <p> Hang Seng China Enterprises Index: -1.82%<br /> Shenzhen Composite: +0.82%<br /> Straits Times Index: -0.42%</p> <p>Elsewhere in the world, European bourses are brushing off China’s weak inflation data to notch up some pretty decent gains. At pixel time, the U.K.’s FTSE 100 is up 0.27%, while Germany’s DAX 30 and France’s CAC 40 are up 0.39% and 0.44%, respectively. U.S. stock index futures meanwhile are narrowly higher with S&amp;P 500 contracts climbing 0.05%, DJIA futures nudging 0.06%, and Nasdaq contracts advancing 0.02%.</p> <p>Here’s what else you need to know:</p> <p>Cameron warns EU over U.K. terms. Prime Minister David Cameron has said that Britain will question its commitment to the European Union if his demands for changes to the U.K.’s membership are rebuffed. Wall Street Journal (paywall)</p> <p>China inflation figures miss estimates. Chinese consumer inflation climbed just 1.3% in October, slower than September’s 1.6% reading and lower than a Wall Street Journal survey of a 1.4% gain. Producer prices meanwhile slumped for the 44th-straight month. Wall Street Journal (paywall)</p> <p>Japan’s current account surplus shrinks. The land of the rising sun’s current account, a gauge of trade and financial flows, came in at just Y1.468 trillion ($11.9 billion) in September, 11% less than October’s showing. The figure was much less than the Y2.15 trillion reading analysts had expected. Financial Times (paywall)</p> <p>SCMP changes editor-in-chief amid staff exodus. In a move one employee called “staggering,” the South China Morning Post announced that it will be replacing Wang Xiangwei, the English-language paper’s editor-in-chief the past four years, with Tammy Tam beginning January 2016. The switch comes in the middle of a massive staff exodus which includes several award-winning journalists. HKFP</p> <p>Ericsson and Cisco form a $1 billion alliance. The Swedish mobile maker and U.S. teleco have formed a business and technology partnership that should generate additional revenues of $1 billion by 2016. The deal should strengthen the pair against China’s Huawei and Finland’s Nokia. Reuters</p> <p>Myanmar’s NLD confident of victory. Myanmar’s opposition National League for Democracy says it expects to win about 70% of seats. Party leader Aung San Suu Kyi said: “I think you all have the idea of the results.” BBC</p> <p>Israel’s Netanyahu still committed to a two-state solution. U.S. President Barack Obama and Israeli PM Benjamin Netanyahu said on Monday that they have not given up on the Middle East peace process despite the poor prospects of reaching a lasting agreement. Financial Times (paywall)</p> <p>Russia accused of state-sponsored doping at Olympics. The World Anti Doping Agency has accused Russia of operating a huge state doping programme that sabotaged the London 2012 Olympics, adding the country should be banned from athletics. Guardian</p> <p>Volkswagen gives $500 to car owners. The car manufacturer is handing over the money to VW car owners affected by the emissions cheating scandal, but owners say it’s too little too late. The $500 will come in the form of a gift card that can be used anywhere. Owners will also get a $500 card to be spent at VW or Audi dealerships, and free 24-hour roadside assistance for the next three years. CNN</p> <p>Brevan Howard cuts 50 support staff. The European hedge fund has laid off 50 people globally in back and middle office positions. The firm suffered its first annual loss in 2014, and the fund was down 0.7% in September. Reuters</p> <p>Wall Street bonuses likely to fall for the first time since 2011. A report by Johnson Associates predicts debt traders w
Would you take your paycheck in bitcoin?
FinTech
<p>The idea of getting paid in a cryptocurrency as volatile as Bitcoin would probably put most people off, but the idea is gaining traction. We already have services like Bitwage – a Bitcoin-based payroll platform for international payments – now Europe is getting in on the act.</p> <p>The Coin Telegraph reports that Bitcoin service Cashila has just released it's own Euro-to-Bitcoin payroll system that allows European employees to request their wage in bitcoin through simple bank payment, regardless of whether the employer runs a Bitcoin scheme or not. </p> <p>For a platform like Cashila, the hope is that the payroll system will fuel wider adoption of Bitcoin and therefore add value to the broader ecosystem of bitcoin services, including their own flagship product. Assuming of course that a sufficient number of employees are bold enough to quite literally stake their livelihood on a cryptocurrency.<br /> Photo: BTC Keychain</p>
Gaw Capital Partners to launch fifth Asian real estate fund
Asset Management
<p>Hong Kong-based Gaw Capital Partners, known for such hits as acquiring the InterContinental Hong Kong Hotel and developing Vietnam’s tallest skyscraper, is apparently hitting the fundraising circuit for its fifth and largest real estate fund.</p> <p>Mingtiandi reports that the family-run firm plans to raise $1.5 billion for the Gaw Capital Gateway Fund V, a fund, unlike its China-centric predecessors, which will carry a pan-Asian mandate and just $750 million set for mainland Chinese properties.</p> <p>The move apparently comes after regional REPE firms dimmed their outlook on mainland real estate:<br /> “Gaw’s decision to move beyond its traditional base in Hong Kong and mainland China to look for opportunities may reflect the challenges that fund managers are currently facing raising funds for acquisitions in China after a flurry of sour economic news from the mainland.</p> <p>In 2014 Gaw invested a reported $200 million to acquire an office tower in Seoul, South Korea, and that same year purchased the Hyatt Regency in Osaka for a reported $30 million.”<br /> Gaw, according to its website, has raised over $5.2 billion since its inception and now commands over $10.6 billion in capital.<br /> Photo: InterContinental Hong Kong</p>
Saudi Arabia plans bond binge
Capital Markets
<p>The protracted slump in oil prices is forcing Saudi Arabia to turn to international investors. The decision follows issuance of domestic bonds in the summer to fund a rapidly deteriorating budget deficit, as the price of crude more than halved to $50 a barrel in less than a year .</p> <p>"Saudi officials say the kingdom could increase debt levels to as much as 50% of gross domestic product within five years, up from a forecasted 6.7% this year and 17.3% in 2016," reports the Financial Times. (paywall)</p> <p>"While banks have yet to receive any mandates, some lenders have already sent unsolicited proposals to guide the kingdom in approaching international markets," it adds.</p> <p>Saudi's foreign reserves have plunged from last year’s high of $737 billion to a three-year low of $647 billion in September, as its attempts to put rival oil producers out of business by over-producing in a falling market failed dismally.</p> <p>Now it intends to be a big issuer of international bonds just when yields are set to rise.<br /> Photo: Al Jazeera English</p>
Hedge funds are dumping gold at a record pace
Hedge Funds
<p>With the Fed practically trapped into producing a December rate hike; investors around the globe are starting to flee precious metals at a rapid pace – and hedge funds seem to be among the biggest sellers, writes FINalternatives:<br /> “Hedge fund managers sold gold contracts during the week ended November 4 by the most since Bank of America Merrill Lynch began tracking their movements in 2006, according to the last edition of the bank’s Hedge Fund Monitor.”<br /> Long positions in gold have apparently been sold off, while holdings in silver and palladium have been largely slashed. Short positions on copper meanwhile have been added to, a move that has not done well for the already-battered copper ETFs.</p> <p>Still though, the report does add that gold may still bounce back, but with one hulking caveat:<br /> “Gold may rally tactically, but remains vulnerable on sizable longs by large speculators, wrote BofAML.”<br /> I wonder how Peter Schiff feels about all this.<br /> Photo: Giorgio Monteforti</p>
PIMCO says former bond king Gross needs better screenwriter
Asset Management
<p>Former bond king Bill Gross needs a better screenwriter, says the investment giant Gross founded. On Monday PIMCO asked a California state judge to dismiss a lawsuit filed by Gross, saying reads more like a movie script than a strong legal argument.<br /> PIMCO: Gross legal document reads more like a screenplay than a court pleading<br /> Calling Gross’s lawsuit against the firm he once headed “a sad postscript to what had been a storied career at PIMCO,” lawyers for PIMCO wrote in their rebuttal filed Monday in California Superior Court in Orange County. PIMCO, headquartered in Newport Beach, said the complaint reads “more like a screenplay than a court pleading” in that it “uses irrelevant and false personal attacks on Mr. Gross’s former colleagues in an apparent effort to distract attention from the fundamental failings” of the legal complaint.</p> <p>In its rebuttal, PIMCO made the case sound more like a divorce trial with a despondent lover, claiming Gross was engaging in “reputational warfare.” Like any good divorce, it’s time to turn the page, forget about the past and stop blaming others regarding financial problems. “Pimco has moved forward since Mr. Gross’s resignation,” PIMCO’s rebuttal said. “It is time for him to do the same, instead of treating this court as a forum to engage in the kind of reputational warfare embodied in his legally groundless complaint.”</p> <p>PIMCO said the Gross lawsuit “is only the latest step in Mr. Gross’s effort to resurrect a personal reputation damaged by his own unacceptable behavior.”  During his final year at PIMCO, Gross engaged in some rather unusual behavior, which the PIMCO lawsuit didn’t forget:</p> <p>During his final year with PIMCO, Mr. Gross engaged in a pattern of conduct that was incompatible with the values and standards that PIMCO expected of those entrusted with its leadership. When Mr. Gross finally came to understand that PIMCO would not exempt him from these standards, he abruptly resigned from the firm without notice or transition— disregarding the potential impact on the individual and institutional clients whose assets he was responsible for managing.<br /> Bill Gross had a messy divorce from the love of his life: PIMCO<br /> As reported in ValueWalk, the October legal complaint attacked PIMCO and its management head on. “Driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of Pacific Investment Management Company LLC (“PIMCO”) managing directors plotted to drive founder Bill Gross out of PIMCO in order to take, without compensation, Gross’s percentage ownership in the profitability of PIMCO,” the legal complaint reads in its first paragraph, not holding back. “Their improper, dishonest, and unethical behavior must now be exposed.”</p> <p>In his initial charges Gross said his one-time anointed successor Mohamad El-Erian didn’t want to be held accountable for performance on risky investments. El-Erian had engaged in a risky hedge fund approach while Gross wanted to stick to his bond market strategy. After El-Erian’s “abrupt departure,” the lawsuit charged that PIMCO management conspired to rid the firm of Gross so they could be done with his high percentage of profits he took for himself.</p> <p>PIMCO essentially says in court documents that the charges made against the firm are irrelevant and more dramatic than substantiative. Lawyers from Gross note that PIMCO did not directly dispute any of the charges in their rebuttal, saying they “are confident in our case moving forward. Notably, Pimco’s papers do not dispute the substance of Mr. Gross’s allegations in any material way.”</p> <p>Gross currently managed nearly $1.4 billion in the Janus Global Unconstrained Bond Fund, which recently witnessed a high profile redemption in the wake of his lawsuit. This is but a shadow of his former glory when at his peak Gross was managing nearly $293 billion at the PIMCO Total Return Fund and had a reputation for consistent industry outperformance. With a record of unde
Danny Yong donates S$5 million to the National Gallery Singapore
Lifestyle
<p>Looks like American hedgies aren’t the only ones eager to be patrons of the art world. According to the Straits Times, Singapore's Danny Yong has been doing his share for the arts as well:<br /> “The National Gallery Singapore has received a $5 million donation from hedge fund manager Danny Yong, its largest individual cash donation to date.</p> <p>The gallery announced this yesterday, ahead of its opening on Nov 24. The amount will help to fund the art acquisitions for the national collection.”<br /> The 43-year old Yong is chief investment officer of Dymon Asia, one of Asia’s largest – and most successful – global macro funds, and interestingly, he isn’t that big on art collecting:<br /> “He said he is ‘not big into collecting art’ but has enjoyed viewing art in a museum since he was a young boy. He added: ‘I’m constantly amazed at how artists can translate their imagination into visual form so magically. I think art is great for stimulating our creativity.’”<br /> Either way, the National Gallery was “deeply grateful” for his donation and has dedicated Forest Fire, a painting by Indonesian artist Raden Saleh, to the Yong Hon Kong Foundation in recognition of his gift.<br /> Photo: GokuPhoto</p>
Juwan Lee connects finance professionals globally with new app NexChange
Lifestyle
<p>Juwan Lee, a former hedge fund manager turned entrepreneur is taking the finance world by storm and has created NexChange, a social network exclusively for financial service professionals globally, writes Finbuzz.</p> <p>Lee is Korean-American and studied and worked in the US, and now lives in Hong Kong. He is no stranger to the world, living in seven different countries and working in financial markets for nearly thirty years. Lee was Head of Long-Short Equity on the Global Proprietary Trading desk in Asia Pacific at JP Morgan before moving within the bank to the asset management division. Before that, he was CIO at Continuity Capital and Osprey Capital Management. He’s managed portfolios for SAC Capital Advisors and was a Senior Portfolio Manager at Rothschild Asset Management during the Asian currency crisis in 1997.</p> <p>He explains that as a money manager, he took for granted the ease in connecting as people were compelled to reach out to him. It wasn’t until he left that he realized he took it for granted, that it’s not normally so easy to talk to others in the financial world. Lee saw a gap and created NexChange, which is 50 percent for business and 50 percent social.</p> <p>“Currently there are many niche networks in insurance, real estate, and such but they are too small and can never be large social networks. The overall finance market, banking, asset management, private equity, makes for a massive market globally. The addressable market range is 50-75 million people if you include people in corporations and all types of financial services,” Lee estimated.</p> <p>When asked if he found the transition from banking to creating a start up easy, Lee said no.</p> <p>“With a start up the pace is much quicker – rather than theorize you must go out and make changes much faster in terms of execution and feedback. The pros and cons of running your own business are that you have to wear so many hats. This makes the dynamics more inspiring but also more challenging. You have to put in more hours and have very little work-life balance. The window of opportunity is small to take the lead so there is no way to avoid the urgency and time imbalance. In the infrequent moments that I get down time, I like to go to the beach with my family. It could be anywhere as long as the beach is beautiful. But the rest of the time I am flying a lot, working a lot and drinking a whole lot of green tea,” Lee laughed.</p> <p>When Lee is asked if he looks up to any recent entrepreneurs in technology, Lee says he’s more inspired by the icons from the time when Silicon Valley was first being created. Lee was one of the first investors in Yahoo, Google, and Netscape during the mid-nineties tech boom. He says the changes in technology were greater back then than now. Lee is currently reading a book by Ben Horowitz, an American businessman who wrote, “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers ”</p> <p>Lee also admires Andy Grove, the co-founder of Intel, famous his mantra, “Only the paranoid survive.” Lee finds it admirable how Grove propelled Intel to where it is today.</p> <p>“Trading has changed a lot and it’s more difficult than it used to be. My advice to investors is to do a lot of fundamental work on stock and get to know it in the short term. Focus on risk management and have very strict guidelines on your exit positions. Everyone can access information so you need to be thorough in your research information,” Lee said.</p> <p>Lee is excited with what is next for NexChange.</p> <p>“We plan expansion into China in 2016, further expansion into other major US cities like Chicago, San Francisco, and other markets like Germany. Basically, we want to be in all the major cities around the world. We are currently looking for additional financing. We have already raised $2.5 million since inception and are potentially doing another financing round early to mid next year. We are not finished with this round yet which will finish in the next couple of months,” Lee explained.</p> <p>NexChange has thirty em