4/10/12…to hedge or not to hedge

Bloomberg Top Stories:


*European Stocks Decline as Stoxx 600 Drops to Two-Month Low After U.S. Jobs Report

*Spain’s Planned $13 Billion Budget Cuts Fail to Prevent Bond Yields Rising – Paul Ryan?

*Top Forecasters See Euro Weakness Returning as Spain Misses Budget Target

*French Business Confidence Stagnates as Factory Output Declines – sacre bleu!

*JPMorgan Trader Iksil Seen Spurring Regulators to Dissect Trading Strategy – meanwhile, boss,  Jamie Dimon, continues to try to castrate Dodd-Frank and the Volker Rule…pity!  

*Profit Growth Stalling in U.S. as Slowdowns in Europe,China Hurt Recovery – already were!!!

*GM Sees Newest Models Staging Rebound From 90-Year Low in U.S. Share

*Wind Power Seen Surging as Custom Barges Reduce Installation Costs

*Russia Urges Syria to Accelerate Troop Pullout Under Annan Cease-Fire Plan

*Terror Suspects Including Abu Hamza Can Face U.S. Trail, Rights Court Says


The following, except TB’s commentary is from Friday’s for those who didn’t see it.



Monday’s volume dropped to 3.15M shares from 3.3B shares from 3.8B shares on NYSE listed stocks – so much for pent-up demand! NYSE stocks executed on the Big Board inched up to724M from 715M (lowest since March 20) and still below the falling 12 month average (975M), by about 250M shares. Since 2/29 there has only been two ‘average’ days, including 3/16’s high for 2012, and the average has been just 833M shares, that used to be a light day. Since 11/1 there have been just eight 1B share days…only three in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 98 of the last 107 sessions have been less than the 12 month average! Advance/Declines were very negative for a THIRD session: -4x! vs -1.4x vs -4x! vs -1.9x vs +3x on NYSE and -2.4x vs -1.1x vs -5x! vs -2.4x vs +2.4x on Nasdaq. Breadth was even worse: -8x!!! vs -2x vs -6x! vs -2.7x vs +3.9x on NYSE and -5.2x! vs -1.2x vs -8x!!! vs -2.5x vs +2.2x on Nasdaq. New 52 week highs were more than halved from a weak 124 to 53, high was 420 on 3/26, while new lows climbed to 144 vs 101. The ratio has turned negative again by -2x vs +1.2x vs -1x. The S&P VIX surged after two minor increases; this after being steady for five sessions – rare –rising to 18.81 vs 16.70 vs 16.44, highest since March 7! Also, 3/16’s intraday low of 13.66 was lowest since 6/20/07’s 12.75. Going down?.


Here are the results of the last five sessions: Dow -1% vs -0.1% vs -1%! vs -0.5% vs +0.4%; Transports -1.7%! vs +0.2% vs -0.4% vs -0.2% vs +1.0%; Dow Utilities -0.6% vs -0.5% vs  flat vs flat vs +0.5%; S&P 500 -1.1% vs -0.1% vs -1%! vs -0.4% vs +0.8%; Nasdaq Composite -1.1% vs +0.4%? vs -1.5%!! vs -0.2% vs +0.9%; Nasdaq 100 -0.8% vs +0.6% (thank you AAPL!) vs -1.4%!! vs -0.1% vs +1.1%; Russell 2000 -1.8%!!! vs -0.3% vs -1.7%!!! vs -0.7% vs +1.2%; NYSE Financials -1.4%! vs -0.3% vs -1.6%!!! vs -1% vs +1%. NYSE Financial Leaders: BAC -3.3%! vs +0.3% vs -3.1%!!! vs -2%! vs +1.2% vs +0.4% vs -2.3% vs +1% vs -3.3%!; GE -1.5%! vs -1.3%!vs -1.1%! vs -0.3% vs -0.3% vs +0.6% vs -0.3%; F -2% vs -0.3% vs -1.1%! vs +0.2% vs +1.2%! vs +0.2% vs +1.5%. Citi -2.4%! vs -0.7% vs -3.7%!!! Since peaking at $38.40 on 3/19, it has fallen by 11.5% to $33.97!!! If financials are falling…what does that say for stocks?


Global equity markets all open again! Europe has been closed for two days and is now playing catch up. : FTSE -0.9% vs closed two days vs +0.4% vs -1.1% vs -0.2%; CAC40 -1.6% vs closed two days vs +0.2% vs -0.5% vs -1.2% vs -0.6%; DAX -1.1% vs closed two days vs -0.1% vs -1.7%! vs -0.2%; Nikkei -0.1% vs -0.81% vs -0.5% vs -2.3%!!! vs -0.6%; Hang Seng -1.2% vs closed vs -1% vs closed vs +1.3%; Korean KOSPI -0.1% vs -1.6% vs flat vs +0.5% vs -1.5%; Indian Sensex +0.1% vs -1.5% vs closed two days vs -0.6%. U.S. stocks futures slightly better: DOW +23 vs -121; SPX +2.10 vs -15.20; NDQ +10 vs -28.25!!! Bonds dead in the water after FOUR straight up sessions and gapping up Thursday. 10’s still closing in on 2% while 30‘s have a ways to go! 10 yr 2.05% unched. RECORD low 9/23 of 1.6855%; 30 yr 3.20 -5/16; Long TIP 0.82% vs 0.80% vs 0.92%. It was 0.57% at high. The 5 yr TIP yields MINUS 1.25% vs -1.27%; 10 yr -.21% unched. Bills 0.06% 1 month; 0.08% 3 months, 6 months 0.14%. Reverse Repo 0.29% vs 0.31%. 3 mo. Libor 0.47%, and 0.73%; steady.

Gold closed below $1700 for a 20th straight session, but gaining $14 making the hit $143 since 2/28, closing $1643.90 +$13.80. 2/28’s $1792.70 intraday high was not seen since 11/16! It has been above $1600 since Jan. 31, but remains below major support!!! The record high is $1923.70, a buying climax on 9/6. Res is $1693, the 200 day and $1698, the 40 day, then $1707, the 50 day, clustered so watch closely! Took out $1632, the 1/13/12 low! It is now $1647.90 +$4.00. Crude fell giving up most of Thursday’s rise on an ‘inside day’, closing at $102.46 -.85. Thursday’s low of $101.08 was worst since 2/16/12! It remains well below the range of $105-110 which had held since 2/21!!! RES still at the 50 day (103.90), the 40 day (105.31), and major support at $95.58, the 200 day, all still rising. Crude weaker again overnight and now $102.13 -.33. $101.08, the April 4 low is minor support – yesterday’s low $100.81!!! – lowest since 2/15/12!.


They tried to rally stocks yesterday…they being the high frequency or flash traders, not retail as volume remains very weak. Worst performer was the Russell 2000 (-1.8%) followed by Dow Transports (-1.7%), while in a rare event both the S&P 500 and Nasdaq Composite fell by 1.1%, followed closely by the Dow. It was truly a down day, even Dow Utilities fell 0.6%. The Nasdaq 100 was -0.8% but had AAPL not added 2.2 index points it to would have been off 1.1% (of 13 up stocks, Apple was only real gainer).


The rise in the Nasdaq 100 was by about 1.5:1 and half of the gain was due to Apple. Look at how AAPL has traded lately (in index points): +2.2 vs +8 vs -4.3 vs +9.1 vs +5.6 vs -8.9 (Qtr end) vs -6.6 vs +2.5 – day it hit record high ($621.45, replaced yesterday with $639.84!


The VIX is telling us the complacency days are over…and watch out for the earnings reports…S&P earnings have been falling since Q4 2010…except Apple of course! As one observer put it: if Apple hiccups the market is in serious trouble.


Want another concern? Over the past two weeks insider selling has beaten buying by 6:1. These are corporate execs…do you think you are smarter than they are? TB doesn’t!


. . .   – – –  . . .  (SOS)   . . .   – – –  . . .  (SOS)   . . .   – – –  . . .  (SOS)   . . .   – – –  . . .  (SOS)

…hedge funds that is. TB has been wanting to work this in since last week. Hedge fund performance is dismal but fees are strong…way to go, right…especially for the operators of the funds who thanks to the beneficent GOP stand no chance of losing their 15% ‘carried interest’ benefit…this is disgusting and there is no justification for it under the IRS Code which they supposedly plan to change if elected! Ha! Fool me once…


According to an unbiased and unimpeachable source, Institutional Investor magazine:


Julie Creswell of the New York Times sums up pretty succinctly why so many institutional investors are rethinking the way they do business: “…while their fees have soared, their returns have not.” She points to the case of the Pennsylvania State Employees’ Retirement System, which has paid “…$1.35 billion in management fees in the last five years and reported a five-year annualized return of 3.6 percent.” Value for money? No. It seems to me, fees are out of control. This is a world where a man can lose ten billion dollars over the past decade, net, and still get to be a billionaire himself. I wish I were joking. But I’m not.

As Institutional Investor pointed out in its story on AR’s Rich List, published last week, hedge fund managers became, and remained, billionaires “during the hardest period to make money on Wall Street in several generations — from 2001 through 2011 — when the Dow Industrials rose a total of just 13 percent, the Nasdaq Composite climbed a mere 7 percent and the Standard & Poor’s 500 lost nearly 5 percent.” And, “in three of the 11 years, the average hedge fund lost money.”

Forbes agrees, describing the 36 people who’ve become Billionaires from the hedge fund industry:

“The past year was an interesting one for this elite group. For starters, 2011 was officially the second worst year in the history of the industry, thanks to largely unforeseen levels of volatility in the commodity, equity and European debt markets that interrupted the international economic recovery. As a result, the average hedge fund was down approximately 5% last year. However, challenging markets didn’t stop the top three highest-earning hedge fund managers of 2011 from taking home billion-dollar paychecks.”

Fees. Are. Out. Of. Control.

You: ‘Nobody’s forcing pensions or sovereigns to buy these services. This is a free market.’

Me: ‘Bullocks. The politicians tell pensions to earn unrealistic returns and then give them no choice, due to insufficient resourcing, but to look to Wall Street for help. In other words, the only reason finance professionals get to charge the fees they charge is because the people that preside over institutional investors generally have no clue that if they paid their staff one tenth of what they’re paying Wall Street, they could replicate upwards of 80 percent of what they’re paying Wall Street to do.

You: ‘Stop being so naïve. Public pension funds could never hire the sort of talent that resides on Wall Street.’

Me: ‘Bullocks. Many funds already do; Ontario Teachers has been doing it for three decades with an IRR of 10 percent! And if public pensions started paying anywhere near market wages, I’d wager they’d get the talent they require too.’

Me Again: ‘To the Masters of the Universe, Here’s the truth: You make seven, eight, and, yes, nine figure salaries not because you’re so much smarter than everybody else on the planet. You make that much because the people who sponsor your clients (the institutional investors) don’t realize that a lot of what you do isn’t that hard.’

You: ‘Lies!’

Me: ‘Do you like apples? You do? Well, a friend of mine who runs a large public pension fund is saving, right now, over 100 million dollars per year by in-sourcing all fixed income strategies (while still meeting benchmarks). How? The in-house portfolios are managed at ~2 bps, while the external portfolio was being farmed out at 40bps. Boom. $100 million. How do ya like them apples?

TB will stop here and let you mull the above. But his answer is: avoid hedge funds! Especially when a recent report showed that hedge funds as a group have had a net zero return since their inception. Of course  there are many different strategies, but…


Have a great day…it’s a great life if you don’t weaken (TB’s mentor used to say that!)




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