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Bill Gross calls out Michael Novogratz
Asset Management
<p>With the closure of Michael Novogratz’s Fortress Macro Fund splattered all over the news, Bill Gross, the former bond king and renowned ruminator of all things doo-dooey, had some pretty interesting things to say on his twitter feed:</p> <p>Gross: Story of The Day - Deep out of the money hedge funds shut down if 20% of profits out of reach. Start over later with clean slate!<br /> — Janus Capital (@JanusCapital) October 13, 2015</p> <p>Interestingly, here’s how PIMCO’s Total Return Bond Fund did prior to his jump to Janus.</p> <p>Pot, meet kettle.</p> <p>To be completely fair though Total Return’s performance really wasn’t the disaster people were making it out be, although it definitely was a far, far cry from its former glory.</p> <p>Still, with all the Mills and Boonery following his departure from PIMCO, his new fund's constant outflows, and the lack of uncomfortable, personal musings in his monthly outlook, somebody should really go check on him. These antics of his are starting to get a little out of hand.<br /> Photo: Janus</p>
Daily Scan: Stocks tumble as deflationary pressures rock Asia
Capital Markets
<p>Updated throughout the day</p> <p>October 14</p> <p>Good evening everyone. Asian equities extended their declines today as inflation figures from China, Japan, and India all added to worries that deflation is on the horizon. The Hang Seng Index ended the day down 0.71%, while the Shanghai Composite and the Nikkei 225 finished the session down 0.91% and 1.89% respectively. As for the rest, here’s how they fared:</p> <p> Hang Seng China Enterprises Index: -0.99%<br /> Shenzhen Composite: -1.20%<br /> Straits Times Index: -0.37%</p> <p>Over in Europe, things aren’t looking too hot either. The FTSE 100 – at pixel time down 0.65% – seems to be on the way to its third straight decline, while the DAX and CAC – saying goodbye to what was a decent start to the month – are currently down 0.79% and 0.67% respectively.</p> <p>Here’s what else you need to know:</p> <p>U.K. unemployment falls to seven-year low. Guess it wasn’t all bad news in fair Brittania. The U.K.’s Office of National Statistics has just reported that the region’s unemployment rate has fallen to 5.4% – a level unseen since the March quarter of ’08, while the employment rate – the proportion of people aged from 16 to 64 who were in work – climbed to 73.6%, its highest since recording began in 1971. Inflation was pegged at -0.1% yesterday though, take note of that, Janet. Office of National Statistics</p> <p>Japanese producer prices fall to a near six-year low. Japan’s producer price index fell 3.9% from a year ago in September, punching in its sixth-straight month of price deflation and posting its worst decline since November 2009. That 2% inflation rate target set by the BOJ looks even further away now. MarketWatch</p> <p>China CPI misses estimates. The consumer price index in the world’s second largest economy came in at just 1.6% for September, well below August’s 2% reading and less than the 1.8% analysts were expecting. The producer price index meanwhile fell 5.9% from the year before, in-line with estimates. Barron’s</p> <p>Singapore weakens the SGD. Despite seeing its economy – widely expected to contract – narrowly escape recession, the Monetary Authority of Singapore decided to ease its monetary policy today by weakening the dollar “slightly.” While its GDP figures were better than expected – its June quarter data was also revised higher from -4% to -2.5% – on a year-on-year basis, growth has been measly 1.4% – its weakest showing since 2009. Monetary Authority of Singapore / Ministry of Trade and Industry (pdf)</p> <p>PBOC clips yuan’s eight-day winning streak. The yuan lost most of its hard-earned gains today as the People’s Bank of China fixed its mid-point price down 0.3% to 6.3408 to the dollar. Offshore yuan was trading as high as 6.3487 against the greenback. SCMP (paywall)</p> <p>Vehicle sales climb for first time in six</p>
Daily Scan: Stocks slip; Intel and JP Morgan report earnings
Capital Markets
<p>Updated throughout the day</p> <p>October 13</p> <p>Good evening. U.S. stocks dipped lower as Intel and JPMorgan report their earnings. The Dow fell 0.3%, the S&amp;P 500 dipped 0.7%, and the Nasdaq lost 0.9%. Oil fell slightly, finishing below $47/barrel. Johnson &amp; Johnson reported mixed results as sales on its hepatitis C medicine disappointed and the strong dollar hurt profits.</p> <p>&nbsp;</p> <p>Here’s what else you need to know:</p> <p>Mark your calendar: The first democratic debate kicks off Tuesday at 8:30 p.m. ET. It's Hillary vs. Bernie and those other guys. Broadcast live on CNN.</p> <p>JP Morgan shares fall. JP Morgan Chase kicked off Wall Street's earnings reports slightly below expectations. The bank reported earnings of $1.32 per share and $23.54 billion in revenue, a 6% fall from last year's net revenue. Analysts had expected $1.37 per share on $23.69 billion in revenue. CNBC</p> <p>Intel reports earnings. The California-based tech company reported 64 cents per share on revenue of $14.47 billion, beating expectations. Analysts had been predicted at 59 cents per share on $14.22 billion in revenue. Shares for the company jumped up 1.8%. CNBC</p> <p>&nbsp;</p> <p>CIA psychologists sued. A federal lawsuit was filed on behalf of three men imprisoned and allegedly tortured by the CIA. The two psychologists designed and helped oversee the CIA's interrogation programs. CNN</p> <p>J&amp;J better than expected but not good enough. The company posted 3Q net income of $1.20/share; revenue shrank to $17.1 billion, slightly below $17.41 predicted. The company announced a $10 billion stock buyback and lifted the profit outlook. The stock slipped 21 cents to $95.78. ABC News</p> <p>No phone for you! JPMorgan says it will stop paying for employee Blackberrys (and other devices) in a cost-cutting move. The bank expects to save tens of million of dollars. JPMorgan reports earnings after the close Tuesday. Wall Street Journal (paywall)</p> <p>Exports fall 3.7% and imports collapse in China trade data. China’s trade surplus widened to $60.34 billion from $60.24 billion in August, a massive jump from the $46.79 billion narrowing expected by analysts. The surplus was largely fueled by a 17.7% dive in imports, indicating that China’s shift to a consumer economy isn’t going as planned. And exports slowed Business Insider</p> <p>EM currencies slammed. The post China import bloodbath seemed claimed the Malaysian ringgit and the Indonesian rupiah; both tanked at least 1% against the dollar, while the Philippine peso and the Indian rupee lost at least 0.5%. The aussie meanwhile, right after clocking in a 9-day recovery, plunged nearly 0.9% to AU$0.7296 versus the greenback.</p> <p>Goldman calls EM turmoil 'third wave' of financial crisis. Collapsing commodity prices and the threat of higher rates in the U.S. are hitting emerging markets countries hard. The first wave of the crisis was spurred by the disintegration of the housing market in the U.S.</p>
Video: Twitter laying off 8% of workforce and guess where the internal memo ends up
Lifestyle, 4:01
<p>The letter from newly crowned CEO Jack Dorsey appeared on Twitter, naturally.</p> <p>jack dorsey’s letter to employees. pic.twitter.com/ZUHUtZsdek<br /> — ಠ_ಠ (@MikeIsaac) October 13, 2015<br /> This sentence in the letter evoked quite a bit of derision:</p> <p>"This isn't easy. But it is right. The world needs a strong Twitter, and this is another step to get there." -- @Jack</p> <p>— ಠ_ಠ (@MikeIsaac) October 13, 2015</p> <p>On Reddit, a laid off engineer discovered his email no longer worked. What now, he asked? The comments got closed down after they hit 552.<br /> Video: CNBC<br /> Photo: JD Lasica</p>
Chinese asset manager stabbed by angry investor
Lifestyle, 4:01
<p>&nbsp;</p> <p>If you thought being taken hostage from angry employees was the worst thing that could happen to you, welcome to China!</p> <p>Stresses are clearly building as defaults mount in the financial system in China. In one sign of the times, the CEO of Global Wealth Investment (Beijing), a major China-based asset management firm, was stabbed during a meeting on Sunday. Although it was a life-threatening injury, CEO Wang Jie is expected to recover from the assault, according to financial news outlet Caixin.</p> <p>The attacker had apparently invested Rmb300,000 ($47,300) in a wealth management product that failed and led to substantial losses.</p> <p>According to knowledgeable sources, the stabbing of the Chinese asset manager was related to the collapse of Hebei Financing Investment Guarantee Group, a large Chinese government-backed guarantor. Global Wealth and other financial groups packaged and sold a variety investment products backed by loans guaranteed by defunct Hebei Financing.<br /> More on stabbing of Chinese asset manager<br /> Earlier this summer, a group of 11 non-bank lenders wrote a letter to Communist party officials in Hebei province saying there could be “unnecessary social influence” if the government did not quickly bail out Hebei Financing and make it possible for the guarantor to honor its obligations.</p> <p>CEO Wang also wrote his own letter to Hebei officials, pointing out that Hebei Financing had not paid off on guarantees on loan defaults by five companies worth Rmb227m, and that this had impacted 660 investors in Global Wealth products. According to the Caixin report, the amount owed to Global Wealth by the guarantor is now more than Rmb620m.<br /> Keep in mind that high-yielding wealth management products have become extremely popular in China over the last few years as investors were looking for investment options besides real estate, the volatile stock market and bank deposits on which interest rates are capped. Analysts note that these products are frequently used to raise funds for higher-risk borrowers who can’t get bank loans or issue bonds.<br /> Part of the problem is that the great demand for high-yield products and minimal regulation of the sector has led to a good bit of fraud, which has led to widespread protests by investors in China who have been fleeced.<br /> Of note, Global Wealth is not accused of any crimes, however, phone calls and emails to the firm were not answered on Tuesday. Furthermore, the company’s office in Beijing was closed with a note on the door saying a “criminal incident” had occurred on Sunday.</p> <p>This article was originally published by Value Walk. <br /> Photo: David Dennis</p>
How to use leveraged ETFs to beat the Fed
Asset Management
<p>Ten-year Treasury yields have declined 4.1 percent over the past month as market participants have continued adjusting to the Federal Reserve not raising interest rates following its September meeting.</p> <p>Perhaps that explains why inflows to fixed income exchange traded funds have been so strong this month. Heading into Monday, three of October's top four asset-gathering ETFswere bond funds while just one bond fund was found among the month's 10 worst ETFs for outflows.</p> <p>When it comes to how traders are viewing what that decision will be, Fed funds futures recently indicated that fewer than a third of fixed income traders are wagering the Fed will boost borrowing costs. However, there also is not a dearth of market observers that believe it is foregone conclusion the U.S. central bank will pass on raising rates.</p> <p>Read more at Benzinga. <br /> Photo: Brookings Institute </p>
Don’t tell my mother I’m in finance– she thinks I work in a brothel
Asset Management
<p>October 12, 2015<br /> London, England</p> <p>[Editor’s note: This letter was written by Tim Price, London-based wealth manager and editor of Price Value International.]</p> <p>Those whom the gods wish to destroy they first pay too much.</p> <p>How else to account for the astonishing $200 million lawsuit filed last week by billionaire bond investor Bill Gross against his former employers, Pimco?</p> <p>Like so many legal actions, this is one case where you wish both sides could lose.</p> <p>Then we had the comparably remarkable public defenestration of Daniel Godfrey, head of the UK fund management trade body the Investment Association, apparently for campaigning for greater transparency on fund fees and charges.</p> <p>It’s as if the Investment Association were an offshoot of the Volkswagen management board. (Please don’t tell my mother I work in fund management– she thinks I’m a piano player in a brothel.)</p> <p>In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards.</p> <p>In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to “First, do no harm”, in modern fund management, iatrogenic illnesses hold sway.</p> <p>An iatrogenic illness is one that is caused by the physician himself. Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It’s called parasite.</p> <p>There is a solution to all this insanity.</p> <p>The chief investment officer of the Yale Endowment, David Swensen, has written an excellent book entitled ‘Unconventional Success’.</p> <p>The title is an allusion to Keynes’ famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns.</p> <p>Swensen pulls few punches.</p> <p>The fund management industry involves the “interaction between sophisticated, profit-seeking providers of financial services [Keynes would have called them rentiers] and naïve, return-seeking consumers of investment products.</p> <p>“The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors.”</p> <p>The nature of ownership is crucial. To Swensen, the more mouths standing between you and your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.</p> <p>In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques, or private partnerships, over larger, publicly listed full service investment operations – especially subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their share of your pie.</p> <p>The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be.</p> <p>This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association’s Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations disasters in history.</p> <p>Before buying any fund, a</p>
Regulations are killing Chinese quant funds
Hedge Funds
<p>Regulations are killing Chinese quant funds</p> <p>Hoping to shine post-Black Monday, mainland quant funds find out that they have nothing have dark days ahead of them.</p> <p>In an effort to curb “excessive speculation” post market rout, the China Financial Futures Exchange clamped on a series of regulations back in August, including raising margin requirements on stock index futures from 30% to 40%, and restricting the opening of positions from 600 contracts to just 10 per product a day, defining anything over that as “irregular.”</p> <p>Well, according to the SCMP, that didn’t work so well for the nation’s burgeoning hedge fund industry – especially for its futures-oriented quants.<br /> “We thought a bear market would help us stand out, and actually we did, but things were turned upside down by the new regulations on stock index futures trading.”<br /> Faced with higher expenses and limited ways in which to seek alpha – or even hedge, for that matter – hundreds of mainland quant funds have been forced to close up shop this year, while some of those still in operation have simply shifted to survival mode.</p> <p>Further complicating matters is the fact that these guys are typically smaller operations, making it difficult for them to branch into different asset classes as their bread and butter dries up, as Reorient chief Brett McGonegal related to the SCMP:<br /> “If you have only three employees in your firm, how can you manage to achieve a well-rounded asset class allocation and develop effective risk management platforms?”<br /> With regulators desperately clinging to whatever shred of credibility they have left, there just seems to be no way for the industry to get back to its feet.</p> <p>After every hardship comes ease though, so whoever’s cutting his teeth in this twilight of the quants is sure to be a monster. Let’s see who does.<br /> Photo credit: JERRYANG</p>
Blockchain startups seeking a home can face a regulatory 'Catch 22'
FinTech
<p>Startups dealing in bitcoin and blockchain can find themselves between a rock and a hard place when looking for the right jurisdiction in which to base their business.</p> <p>During a panel discussion on regulation at the "Smart Contract for Smart Cities" conference in Hong Kong's Cyberport Tuesday, industry experts explained that entrepreneurs seeking a base had to strike a difficult balance between finding an environment that is conducive to business versus one that affords clients better protection. Pamela Morgan, the CEO of consulting and cryptographic key management firm Third Key Solutions said:</p> <p>"There is a tension right now between the ease of setting up in a place that is less regulated and the fact that consumers prefer an environment that has better regulations -- it's a Catch 22. Business are currently looking to set up in places like the Isle of Man,  but as a consumer you may want the protection of U.S. or European laws, and the clarity they offer."</p> <p>Richard Levin, a partner with law firm Bryan Cave, said the best approach was to prioritize those markets that offer the best opportunities, even if that means dealing with more regulatory hurdles.</p> <p>"You have to look at the size of the market and think 'where am I  going to make most money and get highest valuation for my company?' Sometimes biting the bullet and dealing with a cumbersome regulatory environment is something you have to do to reach your potential."<br /> Photo: NexChange</p>
China Huarong faces tough IPO competition
Asset Management
<p>China’s biggest player in the distressed-asset space might need some de-stressing on the road to its long-awaited Hong Kong IPO.</p> <p>The Nikkei Asian Review reports that China Huarong’s upcoming $2.5 billion offering might not be the blockbuster it was cracked up to be, largely thanks to a slew of behemoths IPOs scheduled around the same time:<br /> “Alvin Cheung Chi-wan, associate director at Prudential Brokerage, expressed doubt that investors can digest a multibillion Huarong IPO. He said that there would be competition for investors' money as there is a swollen pipeline of big IPOs due to come in October, including that of Chinese International Capital Corp, an investment bank looking to raise about $1 billion.”<br /> Aside from the CICC, China Re – the region’s largest reinsurer – is also set to sell 5.77 billion of its shares this month.</p> <p>Further complicating matters for Huarong is its valuation. Analysts currently peg the asset manager’s shares at around 1.2 times book value, a decent estimate whichever way you look at it, save for the fact that Cinda – its closest rival – currently trades below book value.</p> <p>And that’s not all, state-owned enterprises apparently aren’t allowed to sell below book, giving its advisers – Goldman, CICC, HSBC, just to name a few – with very few options left to fulfill their duties.</p> <p>Still, it isn’t all bad news. Being a state-owned enterprise still brings the cache of being backed by Beijing, not to mention a rep that these shares are off-limits to short-term speculation. And that alone should help it attract more than a few investors.<br /> Photo: See-ming Lee</p>