iftttwall

“In some stocks,” Starwood Capital’s Barry Sternlicht warns, “we are seeing irrational exuberance with silly valuations.” The outspoken asset manager warns that the signs are coming from the credit markets of “silly debt deals” with no covenants – which is helping equities melt-up but is a sign of a bubble. Perhaps his answer to what the Fed will do and when is the most succinct (and likely accurate) summation of the current idiocy, “very little and never,” as the anchor grinningly suggests how great higher stock prices are for ‘investors’ before Sternlicht exclaims that may be true for the minority who hold stocks, “enjoy it is an investor,” he suggests, “but don’t love it as an American.” Sternlicht goes on to address the dysfunctional political class and the Fed’s enabling of that to continue as well as where the real estate bubbles are in the US.

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ARMrvV3G1g8/story01.htm Tyler Durden

“In some stocks,” Starwood Capital’s Barry Sternlicht warns, “we are seeing irrational exuberance with silly valuations.” The outspoken asset manager warns that the signs are coming from the credit markets of “silly debt deals” with no covenants – which is helping equities melt-up but is a sign of a bubble. Perhaps his answer to what the Fed will do and when is the most succinct (and likely accurate) summation of the current idiocy, “very little and never,” as the anchor grinningly suggests how great higher stock prices are for ‘investors’ before Sternlicht exclaims that may be true for the minority who hold stocks, “enjoy it is an investor,” he suggests, “but don’t love it as an American.” Sternlicht goes on to address the dysfunctional political class and the Fed’s enabling of that to continue as well as where the real estate bubbles are in the US.

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ARMrvV3G1g8/story01.htm Tyler Durden

The President will deliver statement explaining, we assume, why Harry Reid’s “nuclear option” vote is good for all American citizens…

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-NMDLaIMFOY/story01.htm Tyler Durden

The President will deliver statement explaining, we assume, why Harry Reid’s “nuclear option” vote is good for all American citizens…

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/-NMDLaIMFOY/story01.htm Tyler Durden

For all purists still stuck in a world in which humans are the most efficient allocators of capital, and where, under Ben Bernanke’s centrally-planned New Normal, shorting stocks has become blasphemy, the following table showing the monthly return of quant giant RenTec’s chief equity fund open to the outside world, the Renaissance Institutional Equities Fund (RIEF B), whose AUM has ballooned to $8.7 billion in the past few years, will come as a shock. Because the quant strategy-driven fund, which does not look at fundamentals but purely at technical relationships and quant arbs, just posted its best month in history in October returning 8.65% nearly doubling the 4.60% return of the broader market.

But the truly stunning aspect of RenTec’s October performance is that it was not driven by a highly levered beta position (2x leverage on the S&P would do it easily) which is how virtually everyone else does it (a strategy that works great as long as the market is going higher), but instead thanks to that nearly forgotten aspect of a “hedge” fund’s exposure – shorts.

From RenTec:

Where did RIEF’s alpha come from? The answer is that it came from the short portfolio. In fact, we made so much alpha in the short portfolio that we made positive profits from our short positions despite the S&P 500’s 4.6% return in October. Drilling down further, we note that almost half of RIEF’s alpha was made in the Barra Biotechnology and Drugs industries. Within those industries, RIEF is short in many of the smaller and (presumably) more speculative names. Those issues fared particularly poorly in October as the two industries combined had a cap-weighted return of 2.8% but a flat-weighted return of -4.3%. Since RIEF is long overall in Biotechnology and Drugs, but made its alpha in the short portfolio, the fund’s gains are a result of stock selection rather than sector or industry selection.

 

The good news: alpha generation still works. The bad news: one has to be a math genius or a robot to figure out how to do it. For everyone else – especially those 90% of hedge funds underperforming the S&P for the fifth year in a row – the Pied Piper of Marriner Eccles has an unbeatable deal on all time high beta-chasing margin debt.

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The following five themes (and three bonus ones) are what UBS Andrew Cates believes will be of the greatest importance for global economic and capital markets outcomes for the next five years. There is little to surprise here but the aggregation of these factors and the increasingly binary outcomes of each of them suggest there may be a little more uncertainty about the future than most people sheepishly admit…

 

Via UBS,

We highlight five themes we expect will be dominant for global economic and capital market outcomes over the next five years. For the curious, we also mention a few themes that didn’t quite make the cut, but are nevertheless worthy of consideration.

#1 Right-sizing monetary policy

Cleary, a major challenge facing central banks at some point in the next five years will be restoring ‘normality’ to monetary policy. The first task, in all probability, will be right-sizing bloated central bank balance sheets (followed by a normalisation of policy rates). The challenges for the central bankers—and market participants—are both unprecedented and enormous. How will central banks manage that process? Can they manage it? What will be the implications for real economic activity, capital flows and asset prices? Those are all topics we’ll explore in this theme.

#2 Right-sizing fiscal policy

As if monetary policy weren’t enough, fiscal policy in many economies—advanced and emerging—requires right-sizing as well. For some, the focus is on deficit reduction. For others, it is debt stabilisation. And for still others, it is meeting demographic challenges to government spending and tax revenues. For some, it is all of the above.

#3 Age of plutocracy

In many advanced economies returns on capital—physical and human—have soared. Income and consumption distribution have become more skewed. Yet, populist backlashes against unequal outcomes are relative tepid. Indeed, business seems to be getting its way politically—witness the reality of more corporate tax cuts than hikes in recent years or the new-found will to press ahead with globalisation via free-trade deals spanning (much of) the Pacific and the Atlantic. How long can an era of plutocracy last? What challenges lie ahead?

#4 A world not re-balanced

Although current account imbalances have shrunk since the outbreak of the financial crisis, much of the decline is due to recession and subpar recovery. Sources of domestic demand are few and largely concentrated in the US. Emerging economies, once the poster children for domestic-led growth and re-balancing, are now facing debt hangovers. Emerging economies, along with Europe and Japan, are returning to a greater reliance on net exports as their chief drivers of growth. The consequence is a return to a world of imbalanced growth. What are the implications for the world economy and asset pricing?

#5 Technological innovation

New technologies applied to energy extraction, information systems and manufacturing hold great promise for lifting potential growth around the world. How big might the impact be on real output? Who are the likely winners and losers of the next technological revolution? What are the implications forinvestment returns?

Finally, we felt it important to consider key themes that didn’t quite make the cut into our top-five. That doesn’t mean they won’t occasionally capture the attention of investors and policy makers. But in our opinion they aren’t likely to be as durably important as the five we’ve listed above. Here are some of those candidates:

Eurozone risk

Just because Eurozone sovereign risk premiums have declined does not mean all is permanently solved. The European monetary union remains incomplete and hence fundamentally flawed. Moreover, the prospects for a more robust re-design of the Eurozone—which would include a banking union with single resolution authority and mutualised deposit insurance, plus enhanced labour mobility or fiscal transfers—remain bleak. So, too, do the prospects for re-employing the millions left jobless in Europe’s periphery, chief among them young people. Against that backdrop, ‘exit’ or ‘breakup’, but also political stress, will form a spectre hanging over the single currency project for considerably longer.

Japan rising? Or Japan setting?

‘Abenomics’ is not hype. It’s decisive. If Japan can restore inflation, achieve a reasonable rate of GDP growth, raise potential output, and rein in its explosive debt dynamics, it and the world economy will be vastly better off. Investors would have much to cheer. But if ‘Abenomics’ fails, Japan will probably return to its deflationary malaise of recent years and could be potentially on an irreversible course to default via hyper-inflation. A great deal is at stake. How will it turn out?

Emerging reforming? Or emerging deforming?

As we have noted in a series of reports over the past two years, productivity growth is slowing rapidly in emerging economies. Equally, relative returns on capital are slumping. And debt trajectories are unsustainable in many emerging economies, including China. A common prescription is required to get emerging back on track: Reform. To be sure, the required reforms differ considerably from country to country, but the overarching question is whether emerging politics and policy can deliver. We’re sceptical, not because the challenges aren’t recognized (witness the reform language of China’s 3rd Plenary session or of Mexico’s reformminded president). Rather, reformers are up against vested interests, such as the banks and state-owned enterprises in China, nationalism in Mexico, or business, labour and legal opposition in India. Absent a crisis, reform is politically very difficult and, for now, most of the emerging complex is not sufficiently in crisis mode to embark on reform.

 

 

[ZH: So apart from all that… why not BTFATH?!!]

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