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Emerging markets: will they crash or not?
Hedge Funds
<p>Passport Capital’s John Burbank is by no means a lightweight. He cut his teeth working under Julian Robertson at Tiger, his fund always performs in the top percentile, and the man actually looks like he can tear you apart with his bare hands.</p> <p>He recently had an interview with the FT where he said “we are on the precipice of a liquidation in emerging markets,” alluding to the deteriorating fortunes of the region, and adding that “this feels the way that the fourth quarter of 1997 felt.”</p> <p>And he’s not the only one. Burbank here sits with the majority view that emerging markets are currently on track for an epic blow up. The Brazilian real has been shorted to a whisker off its all-time low, the Malaysian ringgit is currently hovering near its Asia Crisis levels (though oil did contribute to this), emerging market ETFs have seen nothing but outflows, and the asset classes’ bonds have been treated like plague-ridden, leperous, venom-spitting bears.</p> <p>His fellow fund manager Mark Dow however, would like to differ.</p> <p>While in no way an emerging market bull, Dow outlined a few months back five reasons why the current situation won't translate into an epic crash (or recessions and an accompanying contagion, for that matter), namely:</p> <p> Most EM’s now have flexible currencies and larger reserves – two things sorely lacking when their most harrowing crises occurred.<br /> No more Original Sin – Original Sin, the label used for the currency mismatch when a sovereign borrows in dollars but collects in local currency, has practically been eradicated.<br /> Deeper local markets – most EM’s now have enough asset managers, pensions, etc. to absorb any tourist selloffs.<br /> Short dollars – in issuing debt, EM’s are now essentially short the greenback, but sans the short dollar gamma positions they had during the previous crises, making things more manageable for them.<br /> We’ve already seen a lot of outflows</p> <p>While current price action is definitely against him, Dow’s argument is actually quite compelling. The Bank of International Settlements does say that EM corporates are hoarding dollars but still, it doesn’t really negate what he’s saying either.</p> <p>Something has the Fed spooked from raising rates though, and everyone seems to be pointing their fingers at the emerging markets. What do you think?</p> <p>Are you on Burbank’s side? Or Dow’s?<br /> Photo: Wiki</p>
What does the internet think of Bitcoin and blockchain?
FinTech
<p>The way the world understands digital money is changing. Related but distinct, Bitcoin and blockchain are two of the biggest buzzwords in fintech. Bitcoin, the crypto-currency,  is the easiest to understand and the most notorious. Blockchain, the technology behind bitcoin, on the other hand is a bit more arcane and a bit more difficult to grasp. So it’s no surprise that when you run both words through Google Trends - the analytics tool for tracking internet searches - you get this:</p> <p>&nbsp;</p> <p>But take a closer look at blockchain on its own and you will see something interesting:  </p> <p>While interest in Bitcoin seems to have peaked - or even started to decline - interest in blockchain has been soaring. Also, a look at the kind of search terms offers an interesting insight into sentiment.</p> <p>Bitcoin remains the top buzzword of the day, people are seeking to get a better understanding of blockchain. But looking at the kinds of questions people are asking, it seems as if blockchain will struggle to shake Bitcoin's reputation.</p>
Hao Capital hedge fund gains 97.8% YTD
Hedge Funds
<p>With all the steep losses and fund closures since Black Monday, the words “hedge fund” and “China” don’t exactly paint a pretty picture when you piece the two together. Hao Capital’s hedge fund however, seems to be a little different.</p> <p>According to Reuters, Hao Capital posted an amazing 97.8% return for the year – a stellar performance by any measure and made even better by the fact that most China-centric funds are currently nursing losses.</p> <p>Run by Zhang Hao, an electronics engineer and ex-Prime Capital Management analyst, the fund made most of its gains by betting on appliance companies such as Haier Electronics Group and Gree Electric Appliances as well as by taking big bets against solar energy stocks. Another secret to its success? Zhang's reluctance in joining the A-share herd:<br /> “In May, the fund manager told investors he sidestepped some of the frenzied buying in Chinese A shares because he was worried about the emotional nature of individual investors who made up more than three-quarters of that trading volume.</p> <p>‘From a cultural perspective, these investors are less prone to logical thinking, and prefer stories of a company to its market value calculation,’ the manager wrote.”<br /> It wasn’t all rainbows and butterflies though. Zhang apparently took a nasty hit last month when his longs fell over 17%, thankfully however his shorts gained 7.63% at the same time and trimmed his losses down to 9.5%.</p> <p>Despite that blip, his fund is currently up 132.5% since its August 2014 inception, and has more than tripled its AUM to $212 million in the process.<br /> Photo: Dorli Photography</p>
Is a quick recovery in store for energy and other commodities?
Capital Markets
<p> <br />  <br /> Is A Quick Recovery In Store For Energy And Other Commodities? by Columbia Threadneedle Investments</p> <p> Supply is outpacing demand growth for most commodities, putting prices under pressure.<br /> Despite the boost from lower petroleum prices, global economic growth should continue to be the primary driver for oil demand over the next few years.<br /> Longer term, the incentive to add new oil supplies to meet demand growth and offset natural production declines will likely require prices considerably higher than current levels.</p> <p>Overview<br /> In the wake of the August swoon, investors have sorted through the rubble, looking for opportunities that might have emerged. Energy and natural resource shares were particularly hard hit, and the question thus being asked is whether fundamentals justify the declines and whether now is a good time to buy. Answering these questions generally starts with a discussion of supply and demand. For most commodities, production capacity was developed throughout the commodities super-cycle that began roughly a decade ago, much of which has come online just in the last few years. Technology and innovation, which have driven the shale revolution domestically, for example, have also expanded and changed the nature of supply growth. Meanwhile, the anticipated demand from China’s continued growth that was to absorb this supply has also fallen short of most expectations. The result is that supply is outpacing demand growth for most commodities with prices thus under pressure.<br /> Oil<br /> Imbalances within the oil markets largely stem from an abundance of supply, which up until very recently has failed to show any signs of moderating, despite the dramatic decline in oil prices over the past 12 months. The combination of a slower response from U.S. shale producers and increased output by OPEC has resulted in global production rising 3.1% YTD versus last year. Over the same period, oil demand continues to grow at a healthy pace (1.9% YTD) as lower petroleum product prices have led to increased consumption in many countries, including the U.S. In fact, a recent report by the IEA predicted demand growth for 2015 at 1.8% is on track to post its highest year-over-year growth in five years. The largest risk on the demand side remains a slowing of global economic growth, particularly in China and other developing markets. Despite the boost from lower petroleum prices, global economic growth should continue to be the primary driver for oil demand over the next few years.</p> <p>Given the capital intensive nature and long lead times associated with bringing new conventional supply on stream, oil markets rarely stay in perfect equilibrium, and instead overshoot in both directions, as we saw before and after the global financial crisis. During the current downturn, the hope had been that U.S. shale producers would provide a smoother and faster self-balancing mechanism, taking on the role traditionally held by the OPEC cartel, which has now chosen to increase production in a quest for market share. Earlier this year, U.S. production growth failed to show signs of slowing as producers slashed capital budgets and the U.S. oil rig count proceed to decline by 60% peak to trough. More recently, data by the EIA suggests that U.S. production has already started to roll over on a month-to-mo</p>
London displaces New York as top global financial centre
Capital Markets
<p>The British capital has swooped into first place in a new ranking of global financial centres, reclaiming the top spot from New York, reports FinBuzz.</p> <p>The general election in May 2015 helped boost London ahead of New York in the rankings, according to a new September 2015 report by Z/Yen Group, a London-based commercial think tank which has been publishing the Global Financial Centres Index (GCFI) since March 2007 on a bi-annual basis.</p> <p>London climbed 12 points in the ratings to lead New York by eight points. The survey is based on a scale of 1,000 points and a ‘leader’ is only named if there is a 20-point gap between rankings.</p> <p>The City’s most recent score out of 1,000 points is 796, with New York in second place with 788 points, followed by Hong Kong at 755, and Singapore with 750 points.</p> <p>“London and New York are often as much complementary as competitive,” the study says.</p> <p>None of China’s mainland cities broke into the top 20 in the most recent report. China’s biggest city by population, Shanghai was ranked 21, and Shenzhen, which is just north of Hong Kong, came in 23rd place. Doha, Qatar’s largest city, placed 22nd. The study is sponsored by Qatar Financial Centre (QFC).</p> <p>The main goal of the GFCI index is to rank the major global financial centres by their competitiveness. The survey is published every six months, and it rates a total of 82 financial centres using instrumental factors as well as an online questionnaire.</p> <p>This story first appeared in FinBuzz.<br /> Photo: Julian Mason</p>
Balancing risks and opportunities in the multi-speed world
Asset Management
<p>SUMMARY</p> <p> At the Cyclical Forum in September, PIMCO investment professionals from around the world gathered in Newport Beach to discuss and debate the state of the global economy and markets and identify the trends that we believe will have important investment implications over the next 12 months.<br /> While our baseline view for global economic prospects over the near term remains broadly unchanged since our previous Cyclical Forum in March, we see significant and in some cases widening divergences among the world’s major economies. Also, we see the balance of risks to the global economy tilted somewhat to the downside, in part because of diminishing returns of unconventional monetary policy and also the market volatility stemming from developments in China.<br /> Our cyclical outlook has key implications for investors. In broad terms, we see global fixed income markets as anchored by our New Neutral secular framework for interest rates. Our cyclical views inform portfolio strategies across regions and asset classes.</p> <p>The past several months have investors and policymakers reassessing global economic prospects amid elevated concerns over emerging market growth models and policy effectiveness. In the midst of these global uncertainties, PIMCO investment professionals gathered recently for our September Cyclical Forum.At our previous Cyclical Forum in March 2015, we concluded (as detailed in our post-forum essay) that the global economy was “Riding a Wave of Accommodation – Carefully.” Since then, while the “wave” of global monetary accommodation has if anything expanded in scale and in scope – and may well deepen further over our cyclical horizon – to date it has been insufficient to stave off a decline in commodity and equity prices or to discourage renewed fears of disinflation amid concerns that China will not be able to navigate the New Normal trajectory for growth and global financial integration they have set for themselves.Although the turbulence in global markets that followed the bursting of the Chinese equity bubble in June and the fallout from the devaluation of the Chinese yuan in August was the major financial event that has occurred since our March forum, our goal at the September forum – as at every forum – was to look ahead from initial conditions so as to formulate a baseline view for the global economy as well as to identify and assess the balance of risks to that baseline view. Our forum discussions benefited enormously from the active participation of and valuable contributions from PIMCO senior advisors Ben Bernanke, Mike Spence and Gene Sperling. Drawing on superb presentations from our Americas, European, and Asia-Pacific portfolio committees, as well as from our emerging market (EM) team, and following a very robust and wide-ranging internal discussion, we coalesced on a baseline view thatglobal economic prospects over the next 12 months remain broadly unchanged from where we saw them in March and are consistent with global GDP growth in the range of 2.5% to 3% and global inflation of 2% to 2.5%.</p> <p>While this is our baseline cyclical view, the averages it represents mask significant and in some cases widening divergences among the world’s major economies. As we shall discuss further below, our baseline view for GDP growth in the U.S., eurozone, U.K. and Japan over the next year is actually consistent with a modest increasein the pace of growth for this group of countries versus the past year. On the other side of the ledger, we concluded that prospects for growth in China are clearly deteriorating, though we note the market consensus view is converging toward PIMCO’s more bearish forec</p>
Daily Scan: Japanese shares freefall; Brazilian real hits record low
Capital Markets
<p>Updated throughout the day</p> <p>September 24</p> <p>Good evening everyone. While all hell was breaking loose in Hong Kong and Japan, Chinese shares traded in an oddly calm band today with the SHCOMP eventually finishing up 0.86% and the SZCOMP climbing 1.21%. Here’s what went on with the rest:</p> <p> Nikkei 225: -2.76%<br /> Topix: -2.42%<br /> Hang Seng Index: -0.97%<br /> Hang Seng China Enterprises Index: -1.05%</p> <p>Meanwhile in the currency market, EM currencies were still crazy weak against the greenback with the Brazilian real finally hitting an all-time low of 4.1795 to the dollar. Also of note was the rapid depreciation of the Norwegian Krone, though that’s because the Norges bank surprised the world with a 25 bps rate cut. Here’s what else you need to know:</p> <p>Russia to hold drills in the Med. The Russian defense ministry says a guided missile cruiser will take part in drills in the eastern Mediterranean — near the Syrian coast. Russia recently ferried weapons and troops to an airport near the Syrian coastal city of Latakia. Washington Post</p> <p>Scores killed in Mecca stampede. At least 150 people taking part in the Hajj pilgrimage have been killed in a stampede near the Islamic holy city of Mecca, officials in Saudi Arabia say. BBC</p> <p>Boeing to open assembly plant in China.  Boeing will open a plant in China in partnership with state-owned Commercial Aircraft Corporation of China.The factory will focus on painting and assembling twin-engine 737 aircraft manufactured in the US. BBC</p> <p>Japan PMI falls. The Nikkei “flash” manufacturing PMI slowed to 50.9 this month from a 51.7 reading in August, largely thanks to China’s current downturn. The number was also below expectations.</p> <p>Yuan fixed at month-long low. There may be “no basis” for a continuous depreciation of the renminbi, but the PBOC sure seems to want it to go that way. Well, this week at least. The People’s Bank of China fixed the yuan at Rmb6.3791 today, just 0.03% weaker than yesterday’s fix but low enough to hit this month’s low. It has also fallen 0.29% in the past four sessions. Hmmm. Financial Times (paywall)</p> <p>Mexican drug cartels set their sights on Asia. Despite the severe drug penalties in the region, soaring cocaine prices in Hong Kong, Japan, and Australia have lead Mexican drug cartels – including “El Chapo’s” Sinaloa and the notorious Jalisco – to set their sights on the Asia-Pacific markets. Financial Times (paywall)</p> <p>ECB ready to boost bond-buying program. ECB President Mario Draghi says the bank is ready if inflation weakens any more than expected. The bond buying is scheduled through September 2016, but could last longer if needed. Wall Street Journal (paywall)<br /> Volkswagen CEO steps down. Martin Winterkorn is leaving the firm in the wake of the Volkswagen emissions scandal. Winterkorn says he isn’t “aware of any wrongdoing on [his] part,” but that the company needs a fresh start. A successor has not been named. </p>
Jim Chanos says China is starting to look like the next Japan
Hedge Funds
<p>It looks like China is going to be able to avoid the dreaded "hard landing", but according to Jim Chanos, that is not necessarily a good thing. Hedge fund short king Chanos says that China's ongoing economic slowdown is starting to look more and more like the pattern we saw with Japan, a major boom in the 1980s followed by more than a decade of economic stagnation.</p> <p>As part of a panel discussion earlier this week, Chanos said that it seems China may be on a path very much like the one that led to Japan’s lost decade in the 1990s as the debt level grew more twice as fast as its economy.</p> <p>“We have an economy addicted to credit,” Chanos, founder of hedge fund Kynikos Associates, noted while participating in a panel discussion on China in New York Tuesday. While the country doesn’t appear to be facing an “imminent collapse,” it is on a trajectory similar to the one Japan was on before its asset-price collapse in 1991 “but on steroids,” he noted.<br /> He went on to point out that Chinese annual loan growth has slowed down to around 15% from over 30% in 2009, but even a 15% loan growth rate is more than double the growth in the gross domestic product. Total household and corporate debt was up to a worrisome 207% of GDP in June of this year, up from 125% at the end of 2008 when China began borrowing.</p> <p>For comparison purposes, Japan’s total debt mushroomed to 176% of GDP in 1990, when it was a mere 127% a decade earlier in 1980. Japan has seen weak economic growth for more than 20 years now despite various efforts by the government to get the economy jumpstarted.</p> <p>China, reported a 6.64% increase in GDP last month, a bit below the government’s target of 7 percent this year. Economists note that the Middle Kingdom has been growing at the slowest pace since 1990. Jim Chanos says that growth in nominal GDP is down to a mere 5% in China today, a huge decline from 15% in 2010, with the economy clearly deflating.</p> <p>“It takes time to sort out” the debt overhang, Chanos commented. The short king hedge fund manager has been saying February 2010 that the China’s real estate market will melt down, and that "China is Dubai times a thousand" and on a “treadmill to hell” because it currently depends almost solely on real estate for economic growth.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Mark Johnson </p>
Daily Scan: Stocks bounce; Pope takes on climate change in DC
Capital Markets
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>September 23</p> <p>Good afternoon. U.S. stocks had an up and down day Wednesday. The Dow closed with a 0.3% loss, slightly better than the 0.66% dip it took around noon. The Nasdaq lost 0.1% and the S&amp;P 500 fell 0.2%. Oil dropped more than 3%, closing below $45/barrel. News that manufacturing activity in China has collapsed to a six-and-a-half year low has added fuel to concerns that the Asian giant's economic growth is shuddering to a crawl. The heavy sell-off seen yesterday in anticipation of this result and meant a lot the initial damage has been done. But buckle up because fears of a global slowdown are going nowhere.</p> <p>Here is what else you need to know:<br /> Pope kicks off U.S. visit in D.C. The pope has a packed schedule, chatting with the president and Congress about climate change before heading up the East Coast. Wall Street should be thrilled. When three previous popes have made four addresses to the U.N., as Pope Francis will do Friday, the Dow has gained an average of 1.23%. When Pope Benedict XVI visited in April 2008, the Dow gained 1.8% the day he spoke to the U.N. New York Post<br /> Mike Huckabee says President Obama "pretends to be" a Christian. GOP presidential candidate Huckabee says he's more concerned about the "authenticity" of a politician's faith and how it "plays out in their politics" than what they say they are. Huckabee was also critical of Obama not being welcoming enough to Pope Francis during his U.S. visit. CNN<br /> Serial may look at military disappearance in next season. The podcast became popular for its in depth reporting on the murder case of Adnan Syed. This time, Serial is looking at Sgt. Bow Bergdahl's disappearance from his base in Afghanistan in 2009, and subsequent captivity by a Taliban ally. BuzzFeed<br /> ECB ready to boost bond-buying program. ECB President Mario Draghi says the bank is ready if inflation weakens any more than expected. The bond buying is scheduled through September 2016, but could last longer if needed. Wall Street Journal<br /> Volkswagen CEO steps down. Martin Winterkorn is leaving the firm in the wake of the Volkswagen emissions scandal. Winterkorn says he isn't "aware of any wrongdoing on [his] part," but that the company needs a fresh start. A successor has not been named. Talking Points Memo<br /> Died: Baseball great Yogi Berra. Berra, a Hall of Famer and arguably one of the best catchers of all time, passed away Tuesday evening at age 90. Berra, who spent most of his career with the Yankees, was known for his Yogi-isms and larger than life personality. As he once said, it ain't over til it's over. USA Today<br /> Spending bill on track, but shutdown threat persists. The Senate took the first steps Tuesda</p>
Twitter rips on ex-hedgie over drug price surge
Lifestyle, 4:01
<p>Martin Shkreli may be the most hated man in America this month. The CEO of Turing Pharmaceuticals and former hedge funder, Shkreli raised the price of cancer and AIDS drug Daraprim by more than 5,000%. The world reacted with the anger maybe only Bernie Madoff can relate to.</p> <p>There is a reason for Twitter shaming - example #MartinShkreli pic.twitter.com/gRvCbxcpGB<br /> — cheryl (@ehcsztin) September 22, 2015</p> <p>I hear @MartinShkreli is using all that money to fund research on how to get AIDS airborne. — Kumail Nanjiani (@kumailn) September 22, 2015</p> <p>Shkreli, frankly, doesn't give a damn. He openly admits that the pills cost him less than a dollar to manufacture. But the $13.50 a tablet price wasn't enough. He wanted $750 per tablet. </p> <p>I've purchased the rights to the world's orange supply. Oranges are now $10,000 each. Also, turns out you need them to live. #martinshkreli<br /> — Andrew Hibbard (@andrewhibbard) September 22, 2015<br /> Shkreli, whose tweets are protected, has responded to the haters with witty quips like "uh f u." "Protect ya goddamn neck." And "lots of paradoxes in life," reports Fusion.  </p> <p>After raising AIDS drug price from $13.50 to $750/tablet, Martin Shkreli announces he and his dog, Max, will steal XMas from Whoville. — Mark Campbell (@MrWordsWorth) September 21, 2015</p> <p>I have dealt with sociopaths in my life. Like @MartinShkreli, theyre good a putting on a mask of charm while engaged in self-centered evil.<br /> — Kurt Eichenwald (@kurteichenwald) September 21, 2015</p> <p>Martin Shkreli is the most punchable man in America. If you see him, please punch him. Thank you. https://t.co/gUxFmbpt8o — Craig Schaefer (@craig_schaefer) September 21, 2015</p> <p>After the outcry, Shkreli has finally decided to lower the price to something "more affordable." But, he also said the price will be at a level that “is able to allow the company to make a profit, but a very small profit, and we think these changes will be welcomed," reports Forbes. We're guessing he'll still be making a hefty profit in there.</p>