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AB’s Peter Kraus says ETFs are a big problem
Asset Management
<p>AllianceBernstein CEO Peter Kraus is not a big fan of ETFs. In fact, he’s not much on the whole idea ofpassive investing. Given who he works for and where he comes from that’s not too surprising, as AB sells mutual fun products and Kraus spent 22 years at Goldman Sachs. But his views are still worth a look regardless of his bias.</p> <p>“Let me bring it down to reality,” Kraus commented in a recent sales meeting with a large group of financial advisers. “You guys woke up one morning in August and the Dow was down 1,090 points. And on that day a $40 billion E.T.F. traded at a 30 percent discount. That should never happen, and if your client traded on that day, you will never get that back. Never. These funds may have low fees but they are not safe, and your clients need to understand that.”</p> <p>Concerns about the impact of ETFs on the financial industry<br /> Kraus went on to note: “If you absorb too much liquidity, there is just not enough grease to make the wheel work. We have seen much higher volatility and much faster price reactions over the past few years, and the main reason is this shift from active to passive investing.”<br /> The ETF industry has grown rapidly over the last five years as active management has underperformed, with around $3 trillion under management today. As ETFs have become an investor mania, worries that too much hot money has been lured into hard-to-trade areas of financial market and into risky strategies are surfacing.</p> <p>Recent critics include Stanley Fischer, vice chairman at the Fed, and well-known investors like Carl Icahn, Howard Marks and others. Nearly all of the critics point to the same worrisome scenario: what if heavy selling hits these funds, and investors are unable to get their money back as promised?<br /> The ETF critics argue that a rush of money into funds that offer instant liquidity favors players with a short-term, trader’s outlook as opposed to the patient, longer-term investor’s perspective.<br /> Moreover, the volatility seen in markets over the summer and early fall has heightened these fears. The critics argue that the promise of instant liquidity in illiquid areas — such as emerging-market bonds, leveraged loans and credit-default swaps — is a recipe for disaster. They also highlight the 2X and 3X leverage many ETFs offer as another significant risk.<br /> Only time will tell.<br /> This article was originally published by ValueWalk. <br /> Photo: Janne Räkköläinen<br />  </p>
People moves: UBS names Asia co-heads; Deutsche Bank appoints Asia CEO
Capital Markets
<p>UBS names Beniwal, Chee as co-heads of Asia. Saurabh Beniwal and Joseph Chee will co-lead the firm’s investment banking division in Asia. They will report to Matthew Hanning, who was made head of investment banking in Asia Pacific in May last year. The reshuffle follows the departure of David Chin after 21 years at the bank. Finance Asia </p> <p>Brevan Howard hires Morgan Stanley’s Asia head of fixed income research and credit strategy. Vikor Hjort has joined as a strategist in Hong Kong after more than 15 years working for Morgan Stanley. EFC. </p> <p>Haitong Bank names Christian Thun-Hohenstein to lead its UK investment banking office. This is Haitong’s latest senior hire as it continues to build-up of its investment banking capabilities in London. Financial News</p> <p>Deutsche Bank AG makes Gunit Chadha CEO of Asia Pacific. The former India head has been chosen as Asia Pacific CEO as the bank closes operations in 10 countries and cuts 15,000 full and part time jobs across the globe. Economic Times<br /> Photo: e3Learning<br /> &nbsp;</p> <p>&nbsp;</p>
People moves: Aberdeen adds two in Asia; Ex-GPIF exec starts at Japan Post Bank
Asset Management
<p>Aberdeen makes two new Asia Pacific executive hires. Daniel Choong – CEO at Nomura Islamic Asset Management –  has joined Aberdeen as head of distribution for its Islamic business in Malaysia. His brief will be to develop a team, products and sales to both institutional and retail distributors in the country. He reports to Country Head Gerald Ambrose.</p> <p>Darrel Chang has been made head of institutional sales in Taiwan, also a new role. The appointment reflects the growing importance to Aberdeen of institutions – sales efforts having been focussed so far on retail mutual funds. Chang, who previously worked at Schroders, joins a senior management team under Michelle Maa, acting country head. Asia Asset </p> <p>ShawKwei &amp; Partners appoints Brian Lau as executive director. Lau will be based in the Asian private equity firm’s Hong Kong office. He was formerly a partner at boutique investment bank and advisory firm Prometheus, where he specialised in cross-border advisory and investment collaboration.ShawKwei (pdf) </p> <p>Former GPIF exec Shimizu joins Japan Post Bank to help lead investments. Recently listed Japan Post Bank has hired Tokihiko Shimizu as general manager of its CIO office. The top-ranking welfare ministry bureaucrat helped spearhead a drive to diversify the $1.2 trillion Government Pension Investment Fund's (GPIF) portfolio during his 7-1/2-year tenure at the fund. The move, which was first rumoured in September, was made public on Shimizu’s LinkedIn page last week. <br /> Photo: Official GDC<br /> &nbsp;</p>
Bitcoin dismissed as 'kind of cute'
<p>A couple of financial heavyweights don't think much of bitcoin. J.P. Morgan CEO Jamie Dimon told delegates at Wednesday's Fortune Global Forum that: "It's just not going to happen. You are wasting your time," reports The Daily Telegraph.</p> <p>"There will be no real-time, non-controlled currency in the world. There is no government that is going to put up with it for long. It's kind of cute now, a lot of senators and congressmen will say, 'I support Silicon Valley innovation', but there will be no currency that gets around government controls."</p> <p>Sharing the platform, Christine Lagarde, managing director of the IMF, was equally scathing.</p> <p>"Pause for a second. As long as those new technologies are going to abuse and take advantage of the yield for anonymity, I think the banking industry has quite a few good days ahead of it; as long as it takes ownership of those issues of capital and culture in order to restore trust, without which no trade, no transaction, no business can take place," she said.</p> <p>It's hard to know whether their scorn is a genuine expression of contempt or hides a deeper feeling of panic.<br /> Photo: BTC Keychain</p>
Breaking gender barriers in startups
Venture Capital
In the Fortune list of 80 start-ups worth $1 billion or more (dubbed unicorns) published last January, only four had female CEOs. But, perhaps barriers in the tech world are being broken down. "The success of prominent female leaders such as Facebook‘s Sheryl Sandberg and Yahoo‘s Marissa Mayer are bringing more attention to women in the tech sphere...An accomplished number of female
JPMorgan’s Kolanovic: Another flash crash possible
Capital Markets
<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: 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.<br /> 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 story first appeared in ValueWalk.<br /> Photo: Dave B</p>
The marginal productivity of Chinese debt has gone from bad to much worse – not good for the rabal
Capital Markets
<p>Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth. Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world. As it stands now, each new unit of debt is buying less than .5 units of marginal growth, and that, again, is taking for granted the accuracy of the GDP stats (chart 1). In reality the ratio is probably much lower than the current reading of .47.</p> <p>Is this sustainable? Of course not. As we have been saying for several years now, Chinese growth is going much lower as the economy rebalances from being an investment led model to a consumption led model. One of the signs we’re looking for to indicate that the transition is taking place is actually a slowing of new loan growth and improvement in the indicator in chart 1. We’ve got exactly the opposite so far, which is an indication of the Chinese pushing on the debt string even more to fuel growth rather than accepting slower growth still, but a rebalanced economy. This, in a perverse way, probably increases the risk of the dreaded hard landing as the chances of a credit “event” rise even further.</p> <p>This story first appeared in Advisor Perspectives<br /> Photo: fredsharples</p>
Daily Scan: Asian markets diverge; Japan hits two-month high
Capital Markets
<p>Updated throughout the day</p> <p>November 6</p> <p>Asian markets finished the week divided with Chinese and Japanese bourses staying firmly in the green as the rest of the region sunk. The Nikkei 225 hit a two-month high closing up 0.78%, gaining 1% for the week.  The Wall Street Journal reports that Japanese companies logged a combined 16.6% year-on-year rise in net profit for the six-month period ended September.</p> <p>In China, the markets officially touched bull market territory this week, rising 20% from their lows. The Shenzhen and Shanghai Composite indices finished up on Friday 2.82% and 1.91%, respectively, clocking in gains of 6.8% and 6.1% for the week. Other Asian markets have struggled. Australia's &amp;P/ASX 200 index eked out a 0.4% gain but was dragged down by its banking sector which dipped 1.2% this week thanks to mixed earnings coming out of the four largest banks.</p> <p>Here is what else you need to know:</p> <p>Will they embrace? Will they shake hands? Saturday, Chinese President Xi Jinping and Taiwanese President Ma Ying-jeou meet in Singapore -- the first meeting between the heads of state since 1949. Taiwanese voters remain wary of Ma getting too cozy with the mainland so he's not getting a boost in the polls. Asia watchers will take note of how the leaders address one another (no "Mr. President") and other signs of the power balance. The Economist (paywall)</p> <p>Kuroda sees China, emerging markets as top risk. Slowdowns emerging economies pose the "most important" risk to the Japanese economy, Bank of Japan Governor Haruhiko Kuroda said at a conference in Tokyo on Friday. He also said he does not envision a "hard-landing scenario" in China. Nikkei</p> <p>AstraZeneca agrees to buy ZS pharma for $2.7b. The move will bolster the U.K. firm's product portfolio as it prepares for the loss of patent protection on its best-selling drug. The group said it would pay $90 per share for the California company in an all-cash transaction. Financial Times. (paywall)</p> <p>TPP deal fine print released to the public. The long-awaited text of the landmark Trans-Pacific Partnership (TPP), one of the world's most extensive trade agreements, bringing together 12 Pacific rim countries, including the U.S. and Japan, has been released to the public for the first time.  BBC</p> <p>Vietnam agrees to U.S. terms on labor rights in TPP deal. The Communist government in Vietnam has agreed to American terms to grant potentially far-reaching labor rights to the country’s workers, including the freedom to unionize and to strike. New York Times (paywall)</p> <p>Hong Kong to end "forced shopping" for mainland tourists. The territory's tourism industry watchdog is to roll out reinforced measures to stop group tours that offer cheap Hong Kong trips to mainland visitors and then recoup their costs by forcing the visitors to shop. SCMP (paywal)</p> <p>Aung San Suu Kyi goads Myanmar’s military.  Myanmar’s veteran opposition leader, has risked a collision with the country’s powerful military by declaring that she would be “above the president” if her party wins Sunday’s historic election. Suu Kyi, who is constitutionally barred from the top job, threw down the challenge as she raised fears of ballot fraud in a poll. Financial Times (paywall)</p> <p>Tokyo districts recognise same-sex partnerships in Japan. Two Tokyo districts issued Japan’s certificates on Thursday, a major step forward for gay couples in a nation where being openly gay remains largely taboo. SCMP (paywall)</p> <p>U.S defense chief wades into South China Sea row. Ash Carter has visited an aircraft carrier in the South China Sea's contested waters in what is seen as a signal to China. He called his visit to the U.S.S. Theodore Roosevelt "a symbol" of America's stabilizing presence in the region. BBC.</p> <p>Former Rabobank traders found guilty of fraud in Libor scandal. Anthony Allen, former global head of liquidity and finance, was found guilty on 19 counts of conspiracy and wire fraud. Anthony Conti, a former trader, was guilty of nine counts of conspiracy and
Daily Scan: Valeant shares hit new low; Wells Fargo to pay $81.6M in settlement
Capital Markets
<p>Updated throughout the day</p> <p>November 5</p> <p>Initial jobless claims posted their biggest rise in eight months, but still stay below the 300,000 turning point. Initial claims for the week ending October 31 were 276,000 jobless claims, a 16,000 increase from the previous week. Stocks were relatively unmoved with the news. The Dow dropped just 4.2 points to 17863. The S&amp;P 500 was down 0.1% and the Nasdaq lost 0.3%. Ralph Lauren's earnings were surprisingly strong, and the stock got a 15% boost. Whole Foods' shares dropped 2.1% on news that its sales growth slowed.</p> <p>Here is what else you need to know:</p> <p>Valeant shares hit new low. The pharmaceutical company's shares dropped 20% Thursday, to its lowest level since 2013. The stock has gone from $263.70 on August 5 to $80 Thursday. The latest drop follows activist investor Bill Ackman's comments that Valeant CEO Michael Pearson may need to leave the firm. Reuters</p> <p>Wells Fargo to pay $81.6 million settlement. The bank must pay thousands of bankrupt homeowners it didn't notify that their mortgage payments were increasing. A 2011 bankruptcy law requires banks to notify homeowners of mortgage payment changes. Wall Street Journal (paywall)</p> <p>Disney shares fall 1% after earnings call. The media company's revenue rose 9.1% to $13.51 billion, but fell just shy of the projected $13.57 billion. ESPN continues to grow, with its revenue rising 12%. ESPN accounts for 43% of the total Disney revenue. Net income for Disney rose to $1.61 billion, or 95 cents a share, from $1.5 billion or 86 cents a share. Reuters</p> <p>Goodbye Redskins? Adidas will offer free design resources and assistance with costs to U.S. high schools that get rid of their Native American mascots. Approximately 2,000 U.S. schools have Native American mascots. In the last two years, 12 schools have dropped the mascots and 20 are considering it. BBC</p> <p>Target to close 13 stores by January 31. The retail chain has 1,799 stores in the U.S., and will offer "eligible" employees the option to transfer to another store. The store closures are mostly across the Midwest. CNN</p> <p>Speaker Paul Ryan wins first big battle. The new House leader was able to pass a multiyear highway and transit bill that will also revive the Export-Import Bank. The bill authorizes $340 billion for highway and transit programs over the next six years. Politico</p> <p>Former Rabobank traders found guilty of fraud. Anthony Allen, former global head of liquidity and finance, was found guilty on 19 counts of conspiracy and wire fraud. Anthony Conti, a former trader, was guilty of nine counts of conspiracy and wire fraud. The trial of the British men by the U.S. is part of a greater look at Libor manipulation.  Reuters</p> <p>U.S. said to believe bomb brought down Russian flight over Sinai. The British government has already cancelled flights from Sharm el-Sheikh, a popular resort where 20,000 Britons are estimated to vacationing. An unnamed source in the U.S. government says "there are strong suspicions" a bomb was on the ill-fated flight. An ISIS group has claimed responsibility, but Western sources don't find the claim credible. New York Post</p> <p>The Bank of England stands pat on interest rates, lowers inflation outlook. Markets weren't expecting the 8-1 vote on rates to be so decisive. WBP Online</p> <p>At Sotheby's $377 million sale is reason to worry. The auction house had expected the first of four primo art lots from the estate of A. Alfred Taubman to fetch at least $500 million. The actual proceeds, with fees, were just $2 million above the low end of estimates. New York Times (paywall)</p> <p>&nbsp;<br /> You won’t believe this:<br /> Is it hot in here, or is it just Canada? New York Magazine is encouraging the imaginations of Americans go wild about the new Canadian Prime Minister Justin Trudeau. The magazine designed a paper doll PM, complete with a strategically placed maple leaf, and an assortment of outfits. NY Mag</p> <p>Ask for diamonds in your root canal. Not only will your teeth sparkle with some
Jack Nash's home sells for $27M
<p>Hedge funder Jack Nash's Hamptons home has finally sold, seven years after his death.</p> <p>The 1904 Water Mill mansion belonged to the Odyssey Partners co-founder for more than 30 years, until his death in 2008, reports Business Insider. Nash's wife Helen put the house on the market for $38.5 million, but was unable to sell it. The house, which sits on Mecox Bay, sold for a 30% reduction at $27 million.</p> <p>The Nash family compound includes a 8,000-square-foot house with six bedrooms and eight bathrooms. The property includes a heated pool, a tennis court, and a four-bedroom guesthouse.<br /> Photo: Diana Parkhouse<br /> &nbsp;</p>