Archives for December 2011
Hedge Fund Bubble
You’re going to love this. Hedge funds had a terrible year. As of mid-December, the Dow Jones Credit Suisse Core Hedge Fund Index was off 8%. The index is an aggregate of funds using seven different hedging strategies: convertible arbitrage, emerging markets, event driven, fixed-income arbitrage, global macro, long/short equity, and managed futures. Hedge funds are paid using a formula known as “2 and 20”—2% on assets under management (AUM) per year and 20% of profits. If you have a $10-million portfolio and a hedge fund loses 8%, you’re actually out 9.84% or left with $9,016,000 (8% loss … [Read more...]
What We’re Reading 12-23-11
France wants tougher HFT regulation, Jeremy Grant and Philip Stafford, Financial Times The ugly side of ultra-cheap money, Bill Gross, Financial Times Wells Fargo Fined by Finra Selling Structured Notes to Aged, Matt Robinson and Zeke Faux, Bloomberg Nowhere to run, The Economist The Cellulosic Ethanol Debacle, The Wall Street Journal … [Read more...]
China’s Empty Cities
The 2012 Stock-Market Outlook
Barron’s released its 2012 stock-market outlook this weekend. In the issue, Barron’s surveyed 10 Wall Street strategists on the outlook for the U.S. stock market. Most of the strategists are the heads of equity departments at Wall Street’s biggest banks. What are the Street’s equity strategists forecasting for the S&P 500 next year? Solid gains, of course. Would you expect anything less from the heads of equities at Wall Street’s big banks? Wall Street earnings and bonuses are highly correlated with stock-market performance. It doesn’t pay to be a bear on Wall Street. If investors don’t … [Read more...]
Dividend Religion
Here’s a shocker: Sun Life, Canada’s third-biggest insurer, will stop U.S. sales of variable annuities and life insurance to individuals at year-end due to “unfavorable product economies.” In other words, you’re not the only one getting slammed by the Fed’s artificially low interest rates. But rest assured, for every annuity promise no longer being made by Sun Life, there are dozens more out there that will try to keep the dream alive. They’ve got bills to pay. And their stocks—life and health insurance companies—are one of the worst-performing sectors this year, off 25% YTD. Individual … [Read more...]
Balance Sheets Deteriorate: Economy to Suffer
The Federal Reserve released its quarterly flow of funds report last week. The Fed’s flow of funds report is one of the most valuable economic data sets kept by the government. It is a treasure trove of financial information on the household, corporate, and government sectors of the economy. The most recent report includes data through the third quarter of this year. I’ve included three charts on a couple of the more important data points in the report. All three have implications for the medium-term economic outlook. The first chart shows the percentage of equity that households have in … [Read more...]
Home Depot Founders: Housing & Economy
Bond Dilemma
You might as well throw darts at the financial pages. To Burton Malkiel, who authored the book A Random Walk Down Wall Street, picking stocks is about randomness. He believes that all knowable information is priced into stocks and bonds when you buy them. I’ve been reviewing my sixth edition of Random Walk from 1996, which has cover art showing a dart stuck into the financial pages. In Malkiel’s view, a rising tide lifts all ships. Yet he covers much more than that view over the book’s 522 pages. What isn’t helpful is that investors read his op-ed promoting his latest edition (the 10th, … [Read more...]
Annuities Are Challenged
The realities of annuities are being revealed to both buyers and sellers as interest rates in the United States creep along near 0%. Sellers are finding it harder to live up to promises of guaranteed return rates, and buyers are finding it harder to believe them. As the Wall Street Journal’s Hester Plumridge writes, on Wednesday, ING Group “booked a €1 billion ($1.34 billion) charge to cover higher-than-expected liabilities on U.S. variable annuities.” Insurance companies have made a fortune selling annuities to unwary investors looking for what were described as “guaranteed” returns. As a … [Read more...]