Month: January 2017

BullionStar has recently started a new series of posts highlighting charts relating to some of the most important gold markets, gold exchanges and gold trends around the world. The posts include charts of the Chinese Gold Market, the flow of gold from West to East via the London and Swiss gold markets, and the holdings of gold-backed Exchange Traded Funds (ETFs). This is the second post in the series. Please see the November 2016 chart post article for background about the charts chosen for this series.

All of the charts featured below originate from the excellent GOLD CHARTS R US website run by Nick Laird. For BullionStar's customizable gold and silver price charts, go to BullionStar Charts where, for example, you can measure a wide variety of financial assets in terms of gold and other precious metals.

Shanghai Gold Exchange (SGE) – Gold Withdrawals

Total physical gold withdrawals from the SGE in November 2016 reached a substantial 214.7 tonnes, over 40% higher than gold withdrawals from the Exchange during October. November was also the second highest monthly withdrawal total of the year, only surpassed by January's withdrawal numbers. Year-to-date to November, gold withdrawals from the SGE have reached 1,774 tonnes.

As a reminder, gold withdrawals from the Shanghai Gold Exchange are a suitable proxy for Chinese wholesale gold demand because all non-monetary gold imported into China has to be sold on the SGE, and most Chinese gold mining output as well as most Chinese scrap gold is also sold through the SGE as 'standard' gold.

November's strong Chinese gold demand occurred in an environment of falling international gold prices, which is to be expected since Chinese gold buyers generally buy at lower prices ('buy the dips'), and unlike Western buyers, the Chinese do not chase upward gold price momentum.

Shanghai Gold Exchange – Gold Withdrawals (tonnes), 2008 – end November 2016

Chinese and Indian Gold Demand

A suitable proxy of Chinese and Indian gold demand can be constructed by adding Shanghai Gold Exchange withdrawals to Indian gold imports. Gold import figures into India are an acceptable proxy for Indian gold demand since Indian domestic gold mining is virtually non-existent.

On a combined basis, CHINDIA gold demand for October 2016 totalled 225 tonnes, which incredibly, pushed the cumulative gold demand from these two major gold markets above the 20,000 tonne mark for the nine-year period 2008 – 2016. Note that this latest version of the CHINDIA chart is to the end of October 2016.

Chinese and Indian gold demand combined (tonnes), 2008 – end October 2016

Russian Gold Reserves

The Bank of Russia, Russia's central bank, is one of the most active buyers of gold on the planet, and has been pursuing a massive physical gold accumulation strategy since the early 2000s. In November 2016, the Bank of Russia added another 1 million ounces of gold (31.1 tonnes) to its gold reserve holdings. This follows a 40 tonne gold purchase by the Bank of Russia in October and makes November the second highest monthly addition of the year for the Russians.

With the October and November additions, the Bank of Russia is now well on target to realise its planned purchase of 200 tonnes of gold during 2016.

Russian central bank gold reserves, cumulative (tonnes), 2006 – end November 2016

Transparent Gold Holdings – ETFs and Others

This chart features a large group of products and vehicles, such as ETFs, which hold physical gold and which regularly report their gold holdings, thereby providing a window into the cumulative position and changes in such gold holdings on a week to week basis. As a group, these vehicles continued to see a net outflow of gold during December, with the outflow trend that began in early November continuing.

As of 23 December, these tracked transparent products held a combined 2583.9 tonnes of gold, which was 134 tonnes less than their aggregated total holdings of 2717.9 tonnes on 23 November 2016. In a similar manner to November, the gold outflows in December occurred in an environment of a falling US dollar gold price.

Weekly Transparent Gold Holdings, 2 year rolling period to 23 December 2016

Swiss Gold Imports and Gold Exports

November was a notable month for Swiss gold trade flows and it actually recorded the highest monthly gold trade flows of the year. The Swiss refining and financial sector imported 187 tonnes of gold and exported 188.8 tonnes during November. November gold imports were the second highest of the year, and only a few tonnes short of the 194 tonnes imported in February 2016. Switzerland's November gold exports were the highest monthly exports of the year.

Swiss Gold Imports / Exports, monthly data, 2 year rolling to November 2016

During November, the UK (London) re-emerged as the main provider of gold to Switzerland, with the Swiss importing 48 tonnes of gold from London. This is the highest monthly gold import flow from the UK to Switzerland since last January. The second largest source of gold flowing into Switzerland during November was Hong Kong which provided 35 tonnes, with the UAE (Dubai) a distant third providing 16 tonnes, and the US sending  just under 12 tonnes to the Swiss.

Swiss Gold Imports, Month of November 2016

On the export side, Switzerland exported a sizeable 61.3 tonnes of gold to India during November as Indian demand improved on the back of the marriage season and jewellery industry restocking following the Diwali festival. Hong Kong received 44 tonnes from the Swiss, China was sent 30 tonnes, and remarkably France received over 10 tonnes of gold from Switzerland during November, nearly twice as much gold as was transported from Switzerland to the German market during the same period.

Swiss Gold Exports, Month of November 2016

After exporting gold to the UK (London) for most of 2016, the tide reversed In November and Switzerland again became a substantial importer of gold from London receiving 48 tonnes. Although Switzerland also exported 5 tonnes of gold to the UK in November, Swiss net gold imports minus gold exports were still a sizeable 43 tonnes.

This reversal of trend was signaled in the October UK-Swiss gold trade data, when Swiss gold imports from the UK reappeared, and Swiss gold exports to the UK began ebbing. As stated in BullionStar's November commentary about the October UK-Swiss gold flow data:

"Is the recent tide of UK imports from Switzerland about to turn back to UK exports to Switzerland? The October data may provide some clues, but additional month's data is required before know whether a new trend is being established."

Now that November's data is in, it adds to the confirmation that the reversal of gold flows has indeed been established, so we should expect see continued exports of gold from London (UK) to Switzerland in December's Swiss data, which is released on about 23rd of January. The continued outflow of gold from the large ETFs which store their gold in London, e.g. SPDR Gold Trust and iShares Gold Trust, also points to further flows of gold from London to Switzerland as bullion banks distribute 400 oz gold bars previously held within the ETFs.

Swiss Gold Import / Exports with UK, monthly data, 2012 – to November 2016  

COMEX – Vaulted gold in New York approved vaults

The amount of gold held in COMEX approved vaults for which warrants have been issued against COMEX gold futures contracts (Registered gold) totalled approximately 50 tonnes as of the end of December 2016. This was about 15 tonnes less than the 65 tonnes which was in the registered category at the end of November.

The amount of eligible gold stored in the reporting vaults in the form of gold kilobars and 100 oz gold bars – which is acceptable by the COMEX for delivery against its gold futures contracts but for which warrant have not been issued – stayed relatively flat at 269 tonnes compared to the previous month's figure of 264 tonnes.

See the recent BullionStar blog "COMEX and ICE Gold Vault Reports both Overstate Eligible Gold Inventory" for more detail on Eligible vs Registered gold reported by COMEX.

COMEX vaulted gold in New York (Registered and Eligible), 2002 – late December 2016

This article originally appeared on BullionStar's website under the title "Gold Market Charts – December 2016".

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In celebration of California’s new law legalizing recreational marijuana use, some Cali stoners decided to vandalize the state’s famed “HOLLYWOOD” sign overnight by changing it to read “HOLLYWeeD.”

Unfortunately, the LAPD noted that there is constant video surveillance of the sign so the vandal, who apparently pulled off this amazing feat solo, will almost certainly be caught.  Poor guy finally gets to avoid the pokey for tokin’ up but is going to end up in jail anyway.

#HOLLYWOODSIGN UPDATE: Crews working to remove black tarps after vandal alters landmark to read ‘#Hollyweed‘ https://t.co/cmkNgpA1D5 http://pic.twitter.com/bMuWRk6j8u

— ABC7 Eyewitness News (@ABC7) January 1, 2017

As ABC adds, the sign was vandalized about 3 a.m. by a male suspect who was recorded on surveillance video, said Lt. Guy Juneau of the Los Angeles Police Department’s Security Services Division.

Dressed in all black, the unidentified vandal scaled Mount Lee, made his way over a fence and then climbed onto each of the landmark’s “O” letters, the lieutenant said. He then draped those letters with black tarps so they each appeared as a lowercase “e.”

 

The suspect remained at large hours after the incident. If arrested, he would face a misdemeanor trespassing charge, according to the LAPD. The agency also notified the city’s Department of General Services, whose officers patrol Griffith Park and the area near the sign.

As TMZ pointed out, someone also pulled off the same stunt in 1976 but it ultimately took 40 years for their dreams to come true.

via http://ift.tt/2iEvn1t Tyler Durden

Last weekend, when commenting on China’s public demonstration of its one and only aircraft carrier, which China then proceeded to sail in close proximity to Taiwan to make a clear diplomatic “statement”, we noted something tangentially troubling: ” a quick look at the latest positioning of US aircraft carriers, amphibious ready groups, and other navies around the globe shows a gaping hole in the region of the East or South China Sea, and even in proximity to Japan, a place where the US navy traditionally has maintained at least one carrier group.  In fact, according to Stratfor, the only active carrier group is USS Dwight D. Eisenhower CSG, conducting naval operations in the U.S. 6th Fleet area of operations in support of U.S. national security interests in Europe.”

As it turned out, the Eisenhower carrier group was on its way back to dock in Norfolk, VA, which means that for the next several weeks, not only will there be no U.S. Navy aircraft carrier in the Middle East or the South China Sea, but as Fox News reports, “there will be no American aircraft carriers deployed at sea anywhere else in the world, despite a host of worldwide threats facing the United States.”

The absence of a deployed U.S. Navy aircraft carrier, long seen as a symbol of American power projection, is noteworthy. According to Fox, it is believed to be the first time since World War II that at least one U.S. aircraft carrier has not been deployed.

As it further reports, the carrier USS Dwight D. Eisenhower and her strike group returned to Norfolk, Va., Friday following a seven-month deployment. The Ike launched hundreds of airstrikes against ISIS in Iraq and Syria from both the Mediterranean Sea and the Persian Gulf. Two destroyers in the carrier’s strike group also saw combat. The USS Nitze and USS Mason were attacked in the Red Sea when allegedly Iranian-backed Houthi forces in Yemen launched cruise missiles, which were intercepted by the Mason. A retaliatory strike by the Nitze destroyed the radar installations in Yemen in October, even though in the meantime speculation emerged that the attack may have been coordinated by Saudi interests in an attempt to stage another “false flag” attack on US military assets.

The latest summary of US naval forces around the globe as of the last week of December is shown in the map below courtesy of Stratfor. As of this moment, the Eisenhower has crossed the Atlantic and is back at Norfolk base.

The Eisenhower’s replacement carrier, the USS George H.W. Bush, was delayed by more than six months in the shipyards and will not be able to replace the Ike well into 2017, according to Navy officials.

While there is no U.S. aircraft carrier in the Middle East right now, there is a large deck U.S. Navy amphibious assault ship, the LHD-8 Makin Island, with thousands of Marines on board as well as helicopters and some jets to respond to a crisis, according to officials.

Still, before it becomes the topic of a twitter rant by the President-elect and his opponents, the Navy told Fox News the U.S. military has other jets available to make up for the aircraft carrier gap in the Middle East and elsewhere in the world. The Navy can also “surge” a carrier now in port to deploy if necessary.

“We are not going to discuss the timing of operational movements of carrier strike groups into and out of the U.S. Central Command area of responsibility,” said Capt. Terry Shannon, a U.S. Naval Forces Central Command spokesman, in a statement to Fox News. Centcom is tasked with control over all U.S. forces in the Middle East and Afghanistan.

It’s not the first time there was a carrier gap in the Middle East. Last fall, the U.S. Navy relied on a French aircraft carrier to fill the void when the USS Theodore Roosevelt returned home. At the time it was the first gap in carrier coverage in the Middle East since 2007.

Other factors contribute to the U.S. Navy not having an aircraft carrier deployed anywhere in the world right now. From 2011 to 2013, the Navy maintained two carriers in the Persian Gulf on the orders of Centcom’s then-commander, Gen. James Mattis, who is now President-elect Donald Trump’s pick for defense secretary, which likely means that the current carrier gap is temporary until Mattis takes his post after the Trump inauguration.

The congressionally mandated budget cuts known as sequestration have also been felt on the waterfront since 2011. After billions of dollars were cut from the Navy’s budget, ships such as the George H.W. Bush were forced to prolong their time in the shipyards, which had a ripple effect down the line. If the Bush had left the shipyard on time, she would have relieved the Ike in the Gulf or the Mediterranean, officials tell Fox News.

Fox News reproted that it recently flew out to the USS George H.W. Bush 40 miles off the coast of North Carolina to see the crew’s final tuneup. With jets landing every 60 seconds, the flight deck crew worked on getting the time between “traps” (landings) down to 40 seconds. Aboard the ship, 18- to 22-year-old men and women work 14 hour days on the flight deck, with little rest — all this before deploying and potentially dropping live rounds on ISIS.

“This is the military equivalent of spring training, because once we complete this at the end of December, then we’ll be going forward and it’ll be real forces that we’ll be going flying with and against,” said Rear Adm. Kenneth Whitesell, commander, Carrier Strike 2, interviewed on his perch above the four-acre flight deck known as “Vulture’s Row.”

In addition to fighting ISIS, the ship’s commanding officer says his crew will be ready to deal with a resurgent Russia or China if necessary.

“While we don’t have any emergent or pending conflicts with them, certainly, it is fair to say that we have divergent interests in many cases. and so we need to be prepared to understand how we will react to that if necessary,” said Capt. Will Pennington.  The Bush recently made history when on Aug. 8, 2014, a pair of F-18s from the carrier launched the first airstrikes against ISIS in northern Iraq. Now, two and a half years later, the ship is headed back to the fight against the Islamic State terror group.

“That doesn’t mean that three months or six months from now, that will be the priority for our country. So we have to be ready to execute anywhere, anytime, any mission,” said Capt. James McCall, commander of Air Wing 8, in charge of all of the aircraft on board.

via http://ift.tt/2iVv9Xh Tyler Durden

2017 is off to a good start if you are holding Bitcoin as volumes continue to surge through Chinese Bitcoin exchanges amid fears of increased crackdowns on foreign exchange transfers in the new year. In the last 24 hours, BTC China has seen prices spike above 7,100 yuan (well over $1000 at the onshore rate exchange) as Bitstamp reports prices over $990.

Bitcoin in China topped 7,100 this morning – and with USDCNY at 6.945, that is over $1000…

 

Though it is not quite there in dollars…

So we now know, Bitcoin $1000 arrived before Dow 20,000.

Bitcoin in China approaches record highs…

 

As we noted recently, according to Bloomberg sources, Chinese officials are considering policies including restricting domestic bitcoin exchanges from moving the cryptocurrency to platforms outside the nation and imposing quotas on the amount of bitcoins that can be sent abroad. Further indicating that Chinese regulators were "just a little behind the curve", they allegedly noticed only recently that some investors bought bitcoins on local exchanges and sold them offshore, evading rules on foreign exchange and cross-border fund flows, the report further reveals.

A quick look at the uncanny correlation between the decline in the Yuan and the rise in the bitcoin, confirms that the digital currency has indeed been largely used to evade capital controls.

And it appears Bitcoin implies a notable devaluation of the yuan is looming.

As a reminder, back in 2013, the government classified bitcoin as a commodity and not currency, placing it outside the purview of the foreign-exchange regulator, the people said.  That does not mean, however, that China is powerless at limiting bitcoin's upside.

Several Chinese government bodies including the People’s Bank of China and the financial regulators said in a joint notice that year that bitcoin functioned like a digital commodity without the legal status of a currency. The central bank said in January it is studying the prospects of issuing its own digital currency and aims to roll out a product as soon as possible.

While China dominates bitcoin mining and trading, the government has shown caution over its spread in the nation. In 2013, the PBOC barred financial institutions from handling bitcoin transactions.

 

via http://ift.tt/2iE58Z4 Tyler Durden

Submitted by Kelly Wright via The Foundation for Economic Education,

Every year the number of regulations, dictates, rules, decrees, guidelines, statutes, laws, and bylaws in the United States grows by leaps and bounds. Just look at the growth in the number of final rules contained in the Federal Register:

Government Overreach

Now it seems we can’t go a week without hearing a new story about someone being punished, with fines or even jail time, for activities that would be encouraged in a free society. I’ve taken the liberty (pun intended) of compiling some of the more egregious examples of this trend for your reading pleasure (or displeasure).

1. Single mom faces possible jail time for selling $12 worth of ceviche to an undercover police officer.

Mariza Ruelas had her day in court in early November. Her crime? She sold a $12 plate of ceviche, an authentic Mexican dish, to an undercover cop on Facebook.

I know what you’re thinking: Why are police setting up stings to catch people selling food to willing customers over Facebook? Don’t they have actual crimes to investigate — like ones with actual victims? I wish I knew the answers to those questions.

2. Federal prosecutors threaten Aaron Swartz with a life-crushing sentence for downloading academic articles.

On January 11^th 2013, Aaron Swartz ended his own life, concluding one of the biggest miscarriages of justice in contemporary history.

In the months leading up to his suicide, Swartz had been embroiled in a legal battle with the federal government after prosecutors charged Swartz under the draconian Computer Fraud and Abuse Act. His crime? Downloading thousands of academic articles from the JSTOR database.

The CFAA is a particularly cruel piece of legislation, as it carries severe mandatory minimum sentencing requirements, resulting in Swartz facing up to 35 years in prison for a nonviolent crime.

Many legal observers at the time pointed out that had Swartz robbed a bank, aided al-Qaeda, or produced child pornography he would have faced a more lenient sentence.

Swartz’s story was detailed in great depth in the documentary The Internet’s Own Boy. The documentary was released under the Creative Commons — a nonprofit initiative Aaron Swartz himself was an early architect of — so you can watch it for free on YouTube.

3. Government claims ownership of all water, jails Oregon man for 30 days for collecting rainwater on his own property.

Way back in 2012 the libertarian blogosphere was abuzz over an egregious case of local government tyranny out of Oregon. Gary Harrington was sentenced to spend 30 days in jail for the crime of collecting rainwater using three reservoirs (that’s newspeak for “ponds”) on his property.

Oregon law states that all water is a public resource, to be owned communally by the collective population of Oregon, and as such any attempts to obtain or store water must first begin with applying for the proper permits to do so. Yes, really.

One of the reservoirs on his property had been there for 37 years, Harrington said. To add insult to injury, Harrington’s applications for permits were initially approved by the state’s Water Resource Department, but were rescinded after a state court reversed their decision.

As a result of this 1920s-era law, Harrington was ordered to turn himself in to the county jail to serve his 30-day sentence.

4. Maryland church ordered to evict homeless people from its property or pay a $12,000 fine.

No good deed goes unpunished in the Land of the Free.No good deed goes unpunished in the Land of the Free^TM. In late 2016, Reverend Katie Grover was met with a $12,000 citation attached to the door of the Patapsco United Methodist Church in Dundalk, Maryland. The alleged crime was allowing several homeless people to sleep on the church’s property in violation of the county regulation prohibiting “non-permitted rooming and boarding.”

The church wasn’t even letting the homeless sleep indoors, rather they were just allowing a few homeless people to sleep on some of the benches located in the church’s yard.

5. San Antonio chef fined $2,000 for feeding homeless people.

In early 2015, the chef and founder of the not-for-profit food truck Chow Train, Joan Cheever, was cited by police officers for the outrageous crime of serving hot meals to the city’s homeless population.

The citation, which she received for transporting the food in a different vehicle than her licensed food truck, carries with it a fine totaling $2,000.

As is par for the course in these sorts of cases, there isn’t an observable wronged party. The only apparent “crime” here is the violation, unwitting or otherwise, of an arbitrary government dictate. In this case in particular, no one called the police requesting assistance. Cheever was doing what she had done for more than 10 years, except this time her charity stepped outside of the parameters set forth by an unelected bureaucrat at the city’s health department.

Parting Words

These cases brought to light a troubling trend unfolding in the US that couldn’t be summarized better than by the indispensable words of Ayn Rand, writing in Atlas Shrugged,

When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed.

Hopefully the tendency to criminalize mundane activities or even charitable giving itself can be arrested before anyone else finds themselves on the business end of the growing regulatory state.

via http://ift.tt/2hHjlHS Tyler Durden

The German police are learning from their past mistakes: one year after last year’s notorious New Year’s Eve mass attacks by migrants on German women in the city of Cologne, security forces in the city said they screened hundreds of North Africans at the main railway station on the last day of 2016 to prevent a repeat of last year’s events.

“Hundreds of Nafris [North Africans] screened at main railway station,” Cologne police tweeted.

#PolizeiNRW #Silvester2016 #SicherInKöln: Hundreds of Nafris screened at main railway station. Details follow. https://t.co/VYMQuT6B7u http://pic.twitter.com/LWrtAXAouq

— Polizei NRW K (@polizei_nrw_k) December 31, 2016

A separate tweet explained what was “Happening now in #Cologne central station: police blocking exits, taking groups of people for documents checks.“

Happening now in #Cologne central station: police blocking exits, taking groups of people for documents checks. http://pic.twitter.com/cdcoc3sPKR

— Dana Regev (@Dana_Regev) December 31, 2016

As Reuters earlier reported, the German police announced that they planned to step up security across the country, which included installing new video surveillance cameras around Cologne’s station square. Surprisingly, Germany’s stepped up security did not translate into a better preparedness in Turkey, where overnight at least 39 people were killed when a gunman opened fire inside a popular crowded Nightclub in Istanbul.

Demonstrating Germany’s preparedness for any eventuality, around 1,800 officers were deployed on New Year’s Eve this year, compared to only 140 in 2015.

The result was a relatively uneventful new year celebration: two sexual assaults were reportedly committed in Cologne this New Year’s Eve, with 29 people taken into custody, Kolner Stadt Anzeiger media outlet reported, citing a media statement from police which also noted that the personal information of about 1,700 people had been collected. Compare this to last year, when groups of men sexually assaulted and robbed as many as 600 women in the German city. The attackers were said to be mostly of North African and Arab appearance. 

Police spokesman Dirk Weber told Deutsche Welle that additional measures had been taken this year, including placing “at least 20 concrete blocks in key points such as bridges and gathering spots” and using heavy vehicles “to block some junctions, mainly to prevent similar attacks to the one that took place in Berlin earlier this month.”

Germany remains on a heightened state of alert after a truck plowed into a Christmas market in central Berlin two weeks ago, killing 12 people and injuring 56. The key suspect, Tunisian national Anis Amri, had recorded a video pledging allegiance to the Islamic State (IS, formerly ISIS/ISIL) terrorist group, which took responsibility for the attack.

Separately, confirming that Europe’s migrant problems are not going anywhere in 2017, Reuters reported that around 1,100 sub-Saharan African migrants tried to cross into Spain’s North African enclave of Ceuta from Morocco on Sunday by storming a border fence, though most were eventually turned back, the Spanish government said.

Dozens of migrants made it to the top of the 6 meter barbed wire fence in the early hours of Sunday before being lifted down by cranes, footage from local TV station Faro TV showed. Only two people were allowed into Ceuta to be taken to hospital while the rest were returned to Morocco, the Spanish government said in a statement.

Five Spanish police and 50 from Morocco were injured, the government added, after migrants used rocks and metal bars to try and break through gates to access the fence and clashed with authorities.

In early December more than 400 sub-Saharan African migrants managed to force their way over the Ceuta border fence.

Spain’s two enclaves in Morocco, Ceuta and Melilla, are often used as entry points into Europe for African migrants, who either climb over their border fences or try to swim along the coast.

Spain has drawn criticism from human rights groups for allowing some migrants to be immediately turned back to Morocco in such incidents. They argue that skipping the lengthier deportation procedures deprives people of the opportunity to claim asylum.

However, Libya has become a more common departure point for African migrants, most of whom come from sub-Saharan countries and attempt the crossing to Italy by boat. 2016 was the deadliest year ever for migrants in the Mediterranean, with almost 5,000 deaths, according to the International Organization for Migration.

While there is little indication the refugee tide into Europe is subsiding, there is a glimmer of hope that with the proxy war in Syria hopefully on its last legs, that the biggest source of refugees out of the Middle East will have less of an impetus to make the long, dangerous trek to Europe in the coming year.

via http://ift.tt/2isgDDo Tyler Durden

2016 was a bad year for hedge funds, pension funds, and university endowments.  In fact, the last several years have been horrible.  But until now, there haven’t been many alternatives.  Hedge Funds became popular for investors who wanted to achieve more than the 4% or 6% offered by traditional managed investments like mutual funds.  Although their history evolved from the idea of ‘hedging’ the market (hedge funds could sell AND buy, can you imagine?) this quickly evolved into an asset class where managers employed strategies based on mathematics in order to achieve above than average and above than expected returns.  And some private funds such as Renaissance do very well year in and year out – continued to this day.  But the majority suffer from strategy fatigue, and failure to bring in a new generation of ‘quants’ that can do anything more than copy, paste, and cold call.  If we skip all the Soros bashing about how he manipulates politics (which, on the surface, is not a bad investing strategy if you have the money to do it, and to control both sides – this is a Rothschild invention not a Soros invention) – the Soros family of funds outperformed their peers by a significant multiple.  These funds were trading the markets, unlike what some may want us to believe.  Some of their policies to ‘influence’ foreign markets (historically, from the 80s) may have been seen as unethical – and it may be.  But the returns have always been spectacular.  We’ll see soon if Robert can continue the family legacy of great returns – it looks like – yes he can!  

But the few examples of extraordinary funds with consistent returns like Renaissance, they’re an anomaly.  The industry in general has suffered from poor returns, which when combined with the standard 2/20 fee model – can be disastrous for investors’ confidence.  Bloomberg ran a story recently with verbage such as “The year Big Money ditched Hedge Funds:

“There has been a massive blowback from public pension funds and private endowments,’’ said Craig Effron, who co-founded his Scoggin Capital Management nearly 30 years ago. An investor told him recently that many chief investment officers are so fed up that they would prefer to entrust their cash to a trader who charged no management fee, over one who did, even if they expected the latter to make them more money.

Public retirement plans from Kentucky to New York, New Jersey and Rhode Island have decided to pull money from hedge funds. So did a state university in Maryland and other endowments. MetLife Inc. and other insurers followed suit. Money-losing firms were forced to reduce their fees. Client withdrawals ($53 billion in the last four quarters) drove some managers out of business, including veteran Richard Perry, who until recently had managed one of the longest-standing and better-performing firms.

It’s not surprising that investors – especially institutional investors, are abandoning such strategies.  As they say in trading, ‘you’re only as good as your last trade.’  According to Barclay Hedge Fund Data, 2016 is a little better than 2015, but not much:

4.89% is a good return, but it’s not much better than you can acheive with traditional mutual funds or tax free munis.  Certainly it’s not a compelling reason to drain your IRA from the markets and invest with hedge funds.  But, this is just an average, there are strategies out there that overperform this index, such as this one.

In the Pension Fund world, Calpers which is a head above its peers, hemorrhaged more than $30 Billion in losses due to poor strategy management:

The California Public Employee Retirement System (CalPERS) is about to report the world’s largest public employee pension suffered an actuarial investment loss of $30.8 billion last year.

CalPERS manages the defined pension plan investments and record keeping for 3,007 California state and local government entities. The pension plan is also responsible for paying the pension benefits to 611,078 retirees and will eventually be responsible for paying retirement benefits to another 868,713 active and 335,908 inactive government workers.

Despite Governor Jerry Brown last summer demanding CalPERS immediately “lower its investment risk and volatility of returns” by reducing its “assumed” annual investment return from 7.5 percent to 6.5 percent, the CalPERS board voted 7- 3 on November 15, 2015 only to slowly reduce the investment return expectation over the next decade.

Practically, the slow death of the hedge fund industry is merely a milestone in its evolution.  Just like robotic strategies are now replacing traditional managers with a suit and tie, the structure of investments is evolving, too.  Hedge Funds aren’t going to go away anytime soon, but how they are structured, how the fees are charged, and the strategies that they use, will rapidly change in 2017.  For example, some strategies such as managed accounts have a fee structure that charges only a percentage of profit, called ‘performance fee’ – with no other fees.  See one example the Magic FX strategy, for QEP/ECP US investors only – which charges a 30% performance fee from the profit.  In this model, if the strategy doesn’t perform for investors, there is no fee.  This type of pay for performance model has been around for years, but will become more useful in a climate of diminishing returns and investors angry at paying fees for getting no results or even losing money.  It really is crazy, why investors should pay managers millions of dollars for losing money – it just shows how programmed investors are by traditional media, as we explain in Splitting Pennies the book.

Bloomberg also notes that, while assets have only trickled out – this may be a sign of a larger trend:

While clients have only pulled a net 2 percent of assets so far, Tony James, the president at Blackstone Group, the largest investor in hedge funds, predicted in May that the industry would shrink by roughly a quarter over the next year. Hedge fund closures (782 in the first nine months) are on track to be the most since 2008, and startups (576) the fewest.

Any manager still standing applauds a smaller industry. Less money under management means fewer crowded trades and more chances to find the elusive alpha. Interest rates on the rise in the U.S., while still near zero or negative in the rest of the world, should also help. The Trump presidency, which promises less regulation, more infrastructure spending and the potential return of prop trading by banks, could also be a boon.

Where will the assets go?  The alternative investment industry is large – institutional funds, pension funds, hedge funds, are but a small part.  According to Barclay Hedge, there are 342 Billion in Managed Futures:

And, although the change from Q2 to Q3 of 2016 is a small percentage of @ $9 Billion, it is a positive figure, and shows that managed futures is one place funds are flowing into.  CTAs, CPOs, and other types of managed investments that have a track record should all benefit from the poor performance of traditional managers, especially those which don’t charge a management fee.  But in any scenario, investors only started to loathe the management fees when performance suffered.  When performance is good – who doesn’t mind paying for it?

And finally – it may shed light on the still standing FX manager industry.  While these hedge funds have suffered volatile returns, losses, and fee congestion – some FX managers have continued to perform year in and year out with the use of complex algorithms, that work in FX but not in other markets.  Now may be the time for institutional investors to take another look at such algorithmic FX strategies.

To get an education about the benefits of FX investing, checkout Fortress Capital Trading Academy.

Here’s a list of books to add to your bookshelf to get started:

read some of these books and articles:

Wall Street and the Bolshevik Revolution.  

Armand Hammer: The Untold Story

A People’s History of the United States

Clinton Cash: The Untold Story of How and Why Foreign Governments and Businesses Helped Make Bill and Hillary Rich

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To Russia with hate.

While Putin took the “high road” and refused to retaliate tit-for-tat to last week’s decision by the Obama administration to impose sanctions on the Kremlin, for dozens of Russian diplomats stationed in the US the first day of the new year meant taking what is likely a last, one way flight out of the US in direction Moscow, simply because it was Russia’s duty to be the scapegoat for Hillary Clinton’s loss in the presidential elections after Vladimir Putin himself, according to the narrative, “hacked the US elections.”

Flight of Russian diplomats expelled from US now on its way to Moscow. https://t.co/XquoQRvRip #RSD88 http://pic.twitter.com/4C5GrE3BC6

— Flightradar24 (@flightradar24) January 1, 2017

The path of the official Il 96-300 flight can be tracked in real-time courtesy of FlightRadar.

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During a brief, informal exchange with reporters on New Year’s Eve at his Mar-a-Lago estate in Palm Beach, Donald Trump questioned the official version of the “Russians hacking the election”, saying it was possible “somebody else” compromised the Democratic campaign’s servers, adding that he will reveal some previously undisclosed facts in the coming days by hinting that “I also know things that other people don’t know, we they cannot be sure of the situation.”

Asked what that information included, the Republican President-elect said, “You will find out on Tuesday or Wednesday.” He did not elaborate.

Trump also reiterated his belief that others might be responsible for the cyberattacks: “I know a lot about hacking. And hacking is a very hard thing to prove. So it could be somebody else. And I also know things that other people don’t know, and so they cannot be sure of the situation.”

“I think it’s unfair if we don’t know. It could be somebody else,” Reuters cited Trump as telling the media.

He also added that computers are a risky form of communication. “It’s very important, if you have something really important, write it out and have it delivered by courier, the old fashioned way because I’ll tell you what, no computer is safe,” Mr. Trump added. “I don’t care what they say, no computer is safe. I have a boy who’s 10 years old, he can do anything with a computer. You want something to really go without detection, write it out and have it sent by courier.”

Trump was responding to questions about his position on the alleged Moscow-backed “hacking” of the Democratic National Committee that resulted in the emergence of leaks unfavorable to Hillary Clinton. While he has consistently shrugged off the accusations, which also claimed he was backed by Russia against Clinton, Trump on Thursday reacted to the new sanctions against Russia and the release of a report by the FBI and the DHS with a promise to attend intelligence briefings to be updated on the matter. Russia at first vowed to retaliate, but on Friday, President Vladimir Putin said his government wouldn’t expel U.S. diplomats in reprisal. That, in turn, prompted Trump to post on his Twitter account: “Great move on delay (by V. Putin). I always knew he was very smart!”

The President-elect said he wanted to press U.S. intelligence agencies to make sure they are correct in asserting that Russia was behind a cyberattack aimed at disrupting the 2016 presidential race, asserting that the US intelligence community has been wrong before. He made reference to a government assessment before the U.S. invasion of Iraq in 2003 that the country’s former leader, Saddam Hussein, possessed weapons of mass destruction.

“And if you look at the weapons of mass destruction, that was a disaster and they were wrong,” Mr. Trump said, according to the press pool report. “And so I want them to be sure. I think it’s unfair if they don’t know.”

As we reported last week, the latest joint report by the FBI and the DHS did not reveal any actual evidence of the Russian government being behind the alleged hacks, merely noting code that is present in countless forms of malware, some of which originate in the Ukraine, and also came with a disclaimer, saying the DHS “does not provide any warranties of any kind regarding any information contained within.”

* * *

On a separate matter, Trump was also asked about the possibility of meeting with Taiwan’s president if she visits the US after his January 20 inauguration. 

“We’ll see,” Trump said about meeting Tsai Ing-wen, without elaborating, leading the US media to conclude he was leaving a door open to such a possibility. Taiwan’s president will be in transit in Houston on Jan. 7 and again will be in transit in San Francisco on Jan. 13. Trump, citing protocol, said he would not meet with any foreign leaders while President Barack Obama is still in office.

Trump’s openness to meet with Ing-wen will likely lead to further tensions with China. Overnight, China’s president Xi Jinping said in his New Year’s address that China will never allow anyone to “make a great fuss” about its territorial sovereignty and maritime rights.

“We adhere to peaceful development, and resolutely safeguard our territorial sovereignty and maritime rights and interests,” Xi said, in comments carried by state media late on Saturday. “Chinese people will never allow anyone to get away with making a great fuss about it,” he said, without elaborating.

Trump was also asked about Obama’s plan to visit Capitol Hill next week and talk to Democrats about preserving his signature domestic initiative, the Affordable Care Act. Congressional Republicans are planning to repeal the legislation. Cited by the WSJ, Trump said that health-care-premium increases underscore that the system created under the Obama administration “doesn’t work.”

He cited former President Bill Clinton’s comment at a campaign stop in October that premium increases were creating hardships for millions of hardworking families, even as uninsured people were getting coverage, calling Obamacare the “craziest thing in the world.”

Trump said: “Bill Clinton said it; maybe he shouldn’t have said it on the campaign when he said it. It’s unaffordable, it doesn’t work and it’s been crazy.”

* * *

Trump tried to end the year on a positive note despite questions about the future of U.S.-Russia relations because of escalating tensions between Obama and Russian President Vladimir Putin, as well as Trump’s promise to crack down on China’s trade practices, which he says unfairly target American workers.

“Hopefully we’re going to have great relationships with many countries and that includes Russia and that includes China,” Trump said.

But he criticized U.S. Secretary of State John Kerry for earlier this week offering a stark assessment of Israel’s policies in the Middle East, which he said could threaten the possibility of establishing a Palestinian state co-existing with Israel. Trump called Kerry’s speech “very unfair.”

As he wrapped up the four-minute chat with reporters, Trump also was asked what his 2017 new year’s resolution was.

“Make America great again,” he said.

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