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When an easy Fed doesn't help stocks (and when it does)
Asset Management
<p>Last week, the Federal Reserve chose to do nothing to move short-term interest rates away from zero after nearly 6 years of extraordinary policy distortion. As detailed below, the inaction of the Fed, and the failure of the stock market to advance in response, follows the script that I detailed in February. Policy makers at the Fed actually appear to believe – contrary to historical evidence and contrary even to the recent experience of numerous countries around the world – that activist monetary policy has meaningful and reliable effects on subsequent economic activity. It’s lamentable that otherwise thoughtful policy makers, much less journalists who cover these actions, show no interest in how weak these correlations are in actual data, and seem incapable of operating even the most basic scatterplot. Despite the spew of projectile money creation around the world, the global economy is again deteriorating. The main defense of the Fed’s inaction seems to be that years of zero interest rate policy have been hopelessly ineffective, so continued zero interest rate policy is necessary.<br /> As we’ve demonstrated previously, there’s no statistical evidence in the historical record to suggest that activist monetary policy has any relationship to actual subsequent economic activity (see The Beauty of Truth and the Beast of Dogma). Historically, monetary policy variables themselves can be largely predicted by previous changes in output, employment and inflation. That “systematic” component of monetary policy does have a weak correlation with subsequent economic changes. It’s unclear whether that’s purely incidental, or whether those systematic changes in monetary variables (such as short-term interest rates) are actually necessary for the weak effects that follow. I should be careful to note that monetary policy also seems to weakly influence confidence expressed in certain survey-based questionnaires. But that correlation emphatically does not translate into changes in actual output, income, or employment. Put simply, massive activist deviations from systematic monetary policy rules provide no observable economic benefit, but instead create fertile ground for speculative bubbles and crashes.<br /> Despite its wild grandiosity, Fed intervention was not what ended the global financial crisis. Recall that the global financial crisis ended – and in hindsight ended precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned FAS 157 “mark-to-market” accounting, in response to Congressional pressure from the House Committee on Financial Services on March 12, 2009. That change immediately removed the threat of widespread insolvency by making insolvency opaque. This might not have meant much if regulators had continued to insist on mark-to-market when evaluating bank solvency. But with regulators willing to go along, the global financial crisis ended with the stroke of a pen.<br /> Those who hail the March 2009 replacement of mark-to-market with mark-to-unicorn as a “necessary” response miss the point (though Iceland has actually done quite well relative to the rest of the world, despite initial disruption, by insisting on massive bank restructuring rather than playing extend-and-pretend). The point is that Fed intervention did not end the </p>
Forum Global Opportunities up 107% YTD on big short yuan bet
Hedge Funds
<p>China’s losses have been one hedge fund’s gain – big time.</p> <p>Forum Global Opportunities Fund, the global macro hedge fund run by Ray Bakhramov, jumped 60.21% in the month of August. It is now up 106.71% year-to-date, putting it on track to post its first year in the green since 2011, according to a letter to investors reviewed by ValueWalk.</p> <p>The increase was driven by a 38.2% gain in the fund’s forex investments. The firm has a long-standing bet against China’s yuan, which the country devalued last month. It also won on short bets against the Taiwanese and Singapore dollars as well as the S&amp;P 500, DAX and Nikkei indices.</p> <p>&nbsp;</p> <p>The firm has operated in recent years under the belief that high levels of intervention from central banks has created severe distortions within financial markets, suppressing volatility and posing a flight risk to assets. It has held that at some point, the markets would enter a normalization phase in which distortions would correct – essentially, what happened in August. And Forum doesn’t think the ride is over yet.<br /> Forum Global Opportunities on yuan bet<br /> “Given our high conviction that certain asset prices had become massively inflated as investors piled into risk assets, volatility was suppressed to record lows, and underlying macroeconomic fundamentals continued to deteriorate, we heavily weighted our portfolio with long volatility, highly convex structures that would perform well as we moved into a normalization period that we believed would be characterized by sharp and abrupt adjustments,” the firm wrote in its August note to investors. “While our portfolio has been able to capture these recent market moves as evidenced by our recent performance, we believe the recent spate of volatility is merely the first adjustment in a longer normalization period for global markets. We expect to see continued heightened volatility in the current market cycle, punctuated by discrete waves of adjustment as these distortions correct.”</p> <p>Forum makes the argument that the current normalization process will be “significantly larger and longer” than previous cycles. It points to the acceleration of causal factors behind adjustments – slowing emerging market growth, commodity-led deflationary pressures and diverging global monetary policies – and uses China as an example:<br /> In China, intervention to slow the yuan’s depreciation has tightened financial conditions and accelerated capital outflows requiring further intervention. Cutting policy rates to offset financial tightening only increases fund flows to state-owned enterprises in over-supplied sectors, deepening deflationary pressures and pushing real rates higher. Across commodities, aggressive monetary easing has lowered cost curves via easy credit and local currency depreciation, boosting supply growth and negatively impacting pricing.</p> <p>Forum Global Opportunities on a changing market<br /> The fund also says market structure has transformed, with emerging markets nearly doubling their share of global GDP from 1997 to 2013, and that algorithmic and hedge fund trading “have changed market funding and behavior by linking multiple market segments into single trading strategies and amplifying ‘herding’ effects and liquidity-driven market imbalances during computer stampedes.”</p> <p>Founded in 2001, Forum is one of the leading investmen</p>
21 Inc's bitcoin computer seeks to redefine the internet
<p>Cryptocurrency startup 21 Inc. unveiled its latest project, a bitcoin computer that went on sale Monday and will ship in November. The computer, which sells for $400, is able to mine a constant stream of bitcoins and allows users to buy and sell "anything to anyone." The computer is the first of its kind, and though 21 Inc. says it represents a unique opportunity for bitcoin enthusiasts, the firm is hoping that the machine will pave the way for more of its kind and eventually rework the way people use the Internet.<br /> Adding Bitcoin ...<br /> Full story available on<br /> Photo: Antana</p>
Highlights from the FinTech O2O keynote speech
<p>More than 200 people gathered in Hong Kong for the inaugural Fintech Initiative meet-up at Cyberport. Chris Dark, President International of the fintech juggernaut C2FO, gave the keynote speech. The initiative aims to nurture the fintech ecosystem in Hong Kong and was co-sponosred by NexChange, publisherof this app, and Cyberport.</p> <p>Highlights:</p> <p>Chris Dark ,Pres Int'l, C2FO: "You have to take risks - the real disrupters are the risktakers" #fintech #fintechO2O<br /> — NexChange (@NexChanger) September 22, 2015</p> <p>"Rule number 1 for #startups is to focus" -Chris Dark from @C2FO #fintechO2O @NexChanger @cyberport_hk — W Hub (@WHubhk) September 22, 2015</p> <p>"Do things 10 times better than everyone, otherwise, go home" - Chris Dark, CEO of @C2FO at #FinTechO2O</p> <p>— (@NestIdeas) September 22, 2015</p> <p>Chris Dark, Pres Int'l, C2FO: "Banking is not going away, they are not the enemy, and you can work with them" #Fintech #FintechO2Oup — NexChange (@NexChanger) September 22, 2015</p>
Fintech expected to pull in big bucks even as stock market collapses
<p>The stock market may be in a sad, dark place right now, but fintech is riding high.</p> <p>In the week ending August 20, 25 fintech companies raised $1.63 billion, reports Finovate. Lending company Sofi was the biggest winner, bringing in a whopping $1 billion and edging toward a $4 billion valuation. Avant and Dianrong were runners up, raising $340 million and $220 million respectively. And fintech doesn't want to slow down any time soon.</p> <p>"Fintech is such a big market, and it's still so early in terms of some of these companies gaining traction, there's still room to grow," says Matthew Wong, research and data analytics at venture capital database CB Insights. Startups in general don't seem to be slowing down, and fintech is one of the hottest areas right now. Lending companies like Sofi, payments, and personal wealth management are all popular, says Wong. And investors especially love technology that appeals to millennials, such as easy apps. Funding is expected to continue to be strong for the rest of the year. Andreessen Horowitz's recent hire of a young, startup-founding partner is a prime example of where venture capitalists are looking in the future.</p> <p>Mobile payment provider Square moving to IPO will be a good lightening rod for the industry, and one that everyone will be watching, says Wong. If the IPO isn't well received, it may show that valuations for fintech are too high.</p> <p>Fintech firms are taking on the big banks and each other, but there's limited direct competition that is seen in other industries. Fintech firms typically carve out a niche, focusing on wealth management for instance, and not trying to be a giant bank. And the banks aren't stupid. Goldman Sachs has jumped fully into investing in fintech, particularly data driven companies like Motif Investing. Other banks, including JPMorgan, are close behind, looking at fintech opportunities to enhance their own businesses and show them what competition is coming. "We are seeing more banks invest now in these companies and trying to see what this technology is looking like," says Wong.<br /> Photo: Joe Ross</p>
Culture: An essential ingredient in success. Just ask any startup. Or Amazon
<p>"Nearly every person I worked with, I saw cry at their desk." -- Bob Olson, former Amazon employee who worked in books marketing</p> <p>The New York Times<br /> Anyone who has ever worked in an office knows this for sure: culture matters. Over the weekend, The New York Times published a major expose on the culture at Amazon, depicting a workplace pushing employees to achieve unreasonable goals. The piece garnered 4,264 comments (and counting). As is the way of the digital world, the story has spawned a mini-publishing ecosystem. Amazon employee Nick Ciubotariu published a post on LinkedIn dismissing the Times story as half-truths and nonsense. That in turn prompted an assessment by Inc.: Who is right? Nick or the Times writers?</p> <p>And then what should happen to land in my inbox this afternoon? "The 3 Ways Culture Enables Startups To Scale," by Tomasz Tunguz, a partner at venture capital firm Redpoint (which has funded one of my favorite fintech companies, Expensify). To someone betting their money on a new venture, culture is not just a point of philosophical debate. It is a guiding light, a window into the likelihood of success.</p> <p>Tunguz explains that culture influences who a company is more likely to hire and daily decisions as well as the direction of a business. Tunguz writes:<br /> Contrast Google’s notion “Fast is better than slow” with Apple’s “Don’t ship until it’s perfect.” Neither philosophy is superior to the other, but they will attract different types of people. One encourages risks, while the other champions craftmanship. Google’s culture works for the web, where code pushes are immediate. Apple’s fosters better results in hardware where small mistakes can cost tens or hundreds of millions of dollars. Each philosophy works to maximize the advantages of the company given their constraints.<br /> Can you summarize your culture in one sentence? Do you know its strengths and weaknesses? At NexChange collaboration is a key tenet of our workplace. Let us know in the comments the philosophy drives your business.<br /> Photo: Dennis Skley</p>
Goldman Sachs is recruiting with Snapchat
Lifestyle, 4:01
<p>Goldman Sachs is looking to scoop up the next generation of talent by getting down with the kids and taking its recruitment drive onto Snapchat, the popular social network for millennials.</p> <p>Reuters reports that Goldman will uses Snapchat - a popular social app for temporary pics and nude selfies -  to fire out a series of ads within its Campus Story function, a curated platform for college-related content.</p> <p>The ads - which do not contain any nudity - makes a call out for  a "Campus Environmental Leader", a "Youth Sports Coach", or a "Crowd Funding Champion," and provides a link to</p> <p> Apparently, Goldman is reacting to early signs that graduates are becoming less interested in pursuing a career in finance. </p> <p>This isn’t the first attempt by the investment banking giant to a appeal to young demographic. In a bid to shake off its all work, no play image, Goldman recently told its summer interns to make sure they leave the offices between midnight and 7am during the week, because, y’know dude, YOLO.<br /> Photo: AdamPrzezdziek</p>
Hong Kong hosts closed-door hedge fund fight club
Lifestyle, 4:01
<p>Bankers and traders in Hong Kong competed in the Hedge Fund Fight Nite, an annual event where financial professionals switch office attire for boxing gloves and raise $100,000 for charity, reports FinBuzz.</p> <p>Despite averaging 60+ hour work weeks, 16 boxers (14 men and two women), trained 3-4 times a week for the last five months at the JAB mixed martial arts studio to prepare for the big night, which took place at the Hong Kong Observation Wheel on September 10.</p> <p>EY, BNY Mellon, LexisNexis, and several other professionals from hedge fund and asset management firms wrapped their fists in tape, tied up their boxing gloves and threw punches until they defeated their opponents, all in the name of charity.</p> <p>The black-tie dinner event was filled with spectators seated at tables eager to see familiar financial faces in the boxing ring. A live charity auction was held, and over $100,000 (HK$1 million) was raised for Beam International Foundation, Operation Breakthrough and the Sovereign Art Foundation.</p> <p>In its eighth year, the event continues to attract experienced boxers as well as complete novices working in the Hong Kong financial scene.</p> <p>Though the event was by no measure a typical charity ball, it offered guests an exciting and unique night out, and after the 6 rounds of fighting, the boxers were able to mingle and relax.</p> <p>Participant list:</p> <p>Danny Scinto – Foreign Exchange Trader at BFAM Partners<br /> Megan Schmalzried – Senior Consultant at EY<br /> Ryan Lawson – Associate Director at Sovereign Trust (Hong Kong) Limited<br /> Franc Liu – Analyst at Cathay Conning Asset Management<br /> Alex Oxford LexisNexis Risk Solutions<br /> Will Jeffries – Vice President at BNY Mellon<br /> Stephen Friel – Marketing Director at Asia Frontier Capital Limited<br /> Andries Blom – Senior Trader at Eclipse Options<br /> Stuart Denton – Chief Operating Officer at VoidBridge Limited<br /> Tanya Menzel- Director Training &amp; Development at Jigsaw</p> <p>This story first appeared in FizzBuzz.<br /> Photo: melissa jonas</p>
Do you understand the difference between online banking and digital banking?
<p>Fidor Bank is at the cutting edge of digital, social banking. Frank Schwab, CEO of Fidor TecS, offers these insights into the key differences between online banking and true digital finance. What do you think are the key differences?</p> <p>Some thoughts on Traditional (Online) Banking versus Digital Banking. - More to come soon …<br /> — Frank Schwab (@FrankJSchwab) August 26, 2015<br /> Photo: ©</p>
Daily Scan: A-shares retrace gains; H-shares take a beating
Capital Markets
<p>Updated throughout the day</p> <p>September 22</p> <p>Good evening everyone. After getting bruised and battered post Fed, Asian equities were mostly in recovery mode today with the Shanghai Composite climbing 0.92%, the ASX spiking 0.74%, and the Hang Seng Index bouncing 0.18%. Here’s how the rest are doing:</p> <p> SZCOMP: +0.71%<br /> Hang Seng Index: +0.18%<br /> Hang Seng China Enterprises Index: -0.65%<br /> TAIEX: +0.71%<br /> Straits Times Index: -0.48%</p> <p>Things were a lot more interesting over in the currency markets as the U.S. dollar bounced against most of its emerging market currency pairs but seemingly lost ground against some of the commodity currencies. Among the hardest hit were the Brazilian real which lost over 1%, the Taiwan dollar which lost 0.8%, and the Korean won which lost 0.38%. Here's what else you need to know:</p> <p>South Korea to probe VW, Audi diesel car emissions. The scandal engulfing Volkswagen AG,  which has admitted cheating diesel vehicle emissions tests in the US, has spread east. South Korea said it would investigate three of the maker's diesel models. Reuters<br /> Gunmen kidnap tourists and local woman in Philippines. Two Canadians, a Norwegian and a local woman have been kidnapped from a tourist resort in the south. An army spokesman said they were taken by gunmen late on Monday from the Holiday Oceanview resort on Samal Island. BBC<br /> Russia to deploy 2,000 in Syria air base mission’s ‘first phase’. The military staff will be sent to a new air base near the Syrian port city of Latakia, signalling the scale of Moscow’s involvement in the war-torn country. The deployment “forms the first phase of the mission there”, according to an adviser on Syria policy in Moscow. Financial Times (paywall)<br /> Dollar gains on rate hike hopes. The dollar advanced against the euro and other leading currencies on Monday on comments from US central bankers who continue to eye a 2015 interest rate increase. There are two remaining Fed policy meetings scheduled this year, in late October and mid-December. Channel News Asia<br /> China protests by Fanya Metal Exchange investors. Hundreds of Chinese mineral investors have protested in Beijing, alleging they have been defrauded. They claim to have lost money after investing in the Fanya Metal Exchange in the city of Kunming. Hundreds of thousands of people have invested billions in products offered by the exchange as the values of rare metals rose in recent years. BBC<br /> Malaysia PM in US corruption probe. A federal grand jury is looking in allegations of corruption involving the Malaysian prime minister, Najib Razak, and people close to him. The embattled politician is already facing mounting political turmoil and a parade of inquiries at home and abroad into a sovereign wealth fund that he oversees. New York Times</p> <p>'Putin's banker' files $10 billion claim against Russia. Sergei Pugachev, a tycoon once dubbed "Putin's banker" because of his influence in the Kremlin, has filed a</p>