Tag Archives: Funds

Chaos in Financial Markets are “Potentially Dangerous for Humanity”

You don’t say! What I find most surprising, however, is that there actually ISCentre for the Study of Capital Market Dysfunctionality: It was founded in 2007 by British Paul Woolley, after working several years as a stock broker, and as economist and adviser at the International Monetary Fund (IMF). Guess he knows what he’s talking about. In an interview with Spiegel Online, Britain’s new found financial guru, Dr Paul Woolley says the market stress in not only dangerous for those who work there, but also for everyone else. And he has some investment advise.

“Stop paying performance fees to managers who increase the worth of funds because it encourages gambling.” 

Paul Woolley

“The developments in recent weeks have made it quite clear that the markets don’t function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn’t reaching equilibrium — it’s falling into chaos,” Dr. Paul Woolley says.

 

Here are some more highlights from the Spiegel interview:

“The finance sector can – and is – growing until it overwhelms the economy. In good years the US finance industry cashes in on more than 40 percent of all corporate profits.” 

“Most fund managers follow only the newest trends and strengthen them by doing so. In the short term that leads to success, but in the long term it leads to a crash. “

“The finance industry is characterized by many innovations. Because the customers hardly understand their innovative products, banks make amazing returns. “

“The big investors are in a position to force their service providers, the banks, fund managers and bankers into better behavior. “

” Big investors should also insist that trading take place on a public market. “

Paul Woolley’s career has spanned the private sector, academia and policy-orientated institutions.

After several years of practical experience in a firm of stockbrokers, latterly as a partner in his firm, he studied Economics at the University of York (UK) receiving BA (1970) and D Phil (1976).

He held the Esmée Fairbairn Lectureship in Finance at York 1970-76, also serving as Specialist Advisor to the House of Lords Committee on the EEC 1975-6.

He then moved to the International Monetary Fund 1976-83, initially as an Economist and later as Advisor and then head of the Division responsible to the Fund’s borrowing and investment activities.

Returning to the UK, he was for four years a Partner and Director on the main board of merchant bank, Baring Brothers and its various subsidiaries.

In 1987 he co-founded, and was Managing Director of, GMO Woolley, the London affiliate of GMO, the Boston-based fund management firm. He was a Partner and served on the main GMO board (1998 – 2003).

He retired as Chairman of GMO Europe in 2006.

He returned to academic life in 2007, funding the Paul Woolley Centre for the Study of Capital Market Dysfunctionality at the London School of Economics.

He is now also Chairman of the Advisory Board for the Centre and a full-time member of the research team.

Similar centres have been set up at the University of Toulouse and at UTS in Sydney.

Mr. Woolley is an Honorary Professor of the University of York, Senior Fellow at LSE and an Adjunct Professor at UTS.

Read the full interview with Dr. Woolley at Spiegel ONLINE.

2 Comments

Filed under International Econnomic Politics, Laws and Regulations, National Economic Politics, Philosophy

US Hedge Funds Raising Bets On Recovery, Ditching Gold

US hedge fund managers are still keeping the champagne on the cooler as they’re now raising bets on the US economic recovery, the latest flow report by TrimTabs/BarclayHedge show. About 23% aim to increase leverage in the coming weeks, the largest share since May, while only 12% plan to lever down. The survey also reveal that the fund managers see precious metal as the most overbought asset class, and are turning to bonds and US dollar.

“Hedge fund managers are bearish on Treasuries and worried about public deficits, while mom and pop poured a gargantuan $641 billion into bond funds between January 2009 and October 2010.  These are just a few of the reasons why we believe bonds are in the beginning stage of a secular bear market.”

Vincent Deluard


The sophisticated investors are using all kinds of measures to pinpoint the next directions of the markets. Like the statistics for search word on Google.  According to Executive Vice President Vincent Deluard at TrimTabs, has searches for “economic depression” plummeted in the past 18 months, while searches for “double-dip recession” have virtually disappeared since August 2010 and searches for “green shoots’” spiked in January.

Hedge fund managers are upbeat on US equities but less bullish than a month ago, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for January 2011, released yesterday.

About 37% of the 91 hedge fund managers the firms surveyed are bullish on the S&P 500, down from 46% in January, while 26% are bearish, up from 19%.

“Less upbeat forecasts are somewhat surprising in that hedge fund managers performed exceptionally well in the final four months of 2010,” says Sol Waksman, founder and President of BarclayHedge in a statement. “Nevertheless, the January bullish reading is the second-highest since the inception of our survey in May 2010, while the bearish reading is the second-lowest.  Hedge fund managers still have plenty of skin in the game,” he adds.

Hedge fund managers remain downbeat on the 10-year Treasury note, although they are less bearish than a month ago, while they shifted to neutral from bullish on the US dollar index.

A net 8% of managers aim to increase leverage in the coming weeks, down from 11% last month.

Meanwhile, a host of other sentiment gauges reveals that investors of all stripes are especially bullish on domestic stocks.

“Even Google search trends underscore the expectation of higher stock prices and stronger economic growth,” Vincent Deluard, executive vice president at TrimTabs, notes.

“Searches for “economic depression” plummeted in the past 18 months.  Also, searches for “double-dip recession” have virtually disappeared since August 2010, when the FED announced QE2, while searches for “green shoots” have spiked in January.”

The share of managers that cites large public deficits in the US as the biggest risk to global economic growth  – 33% – is identical to the share that cites sovereign debt problems in Europe.

Also, 41% of managers do not know what to expect from the Fed in the wake of QE2, but 67% expect bond prices to fall after it ends in June.

“Policymakers have proven wildly successful at keeping market participants guessing about what they will do after QE2 ends,” Deluard says.  “But we feel another round of QE is unlikely to alter the bond landscape.  Yields across the curve stand between 30 and 100 basis points north of the 2010 lows despite heavy Fed Treasury purchases.  Hedge fund managers are bearish on Treasuries and worried about public deficits, while mom and pop poured a gargantuan $641 billion into bond funds between January 2009 and October 2010.  These are just a few of the reasons why we believe bonds are in the beginning stage of a secular bear market.”

This is the main findings in the first hedge fund survey of the year:

1. Hedge fund managers have turned very upbeat on U.S. equities. About 46% of the 92 managers we • surveyed in December are bullish on the S&P 500, while only 19% are bearish. These readings are the highest and lowest (respectively) since the inception of our survey in May.

2. A host of other sentiment gauges – the Merrill Lynch Bank of America survey of institutional investors, • the AAII survey of retail investors, the Investors Intelligence survey of investment advisors, and the VIX – show that investors of all stripes have turned extremely optimistic on domestic stocks.

3. Forecasts for the 10-year Treasury yield and the U.S. dollar index reflect the expectation of a strong • economic recovery. About 54% of hedge fund managers are bearish on the 10-year note, while only 14% are bullish. These readings are the highest and lowest (respectively) since May. Meanwhile, about 39% of managers are bullish on the greenback, while only 13% are bearish. These readings are also the highest and lowest since May.

4. Hedge fund managers reveal that they plan to bet aggressively on the economic recovery. About 23% • aim to increase leverage in the coming weeks, the largest share since May, while only 12% plan to lever down.

5. Managers expect Treasury yields to keep increasing. Only 11% think yields will not continue to rise, • and 42% expect them to increase the most at the long end of the curve. About half (46%) of managers attribute higher yields to expectations of higher inflation and stronger economic growth. Only 4% cite the debt implications of the Bush tax cuts.

6. Hedge fund managers cite precious metals (32%) as the most overbought asset. Emerging markets • equities and Treasuries (23% for each) are tied for second. We are a little surprised to see precious metals top the list because inflation expectations are still high and mutual fund flows suggest bonds and REITs are much more overbought than metals.

Signs of Complacency?

Multiple sentiment gauges show that investors of all stripes have turned extremely optimistic, the report says.

A net 16% of the 302 institutional investors surveyed by Bank of America Merrill Lynch in December are overweight U.S. equities.

In addition, 44% believe global growth will prove stronger in 2011, up from 35% in November and 15% in October. Investors Intelligence reports that 56.8% of advisors are bullish, the highest level since the market top in October 2007 and nearly triple the 20.5% who are bearish.

The American Association of Individual Investors reports that “mom and pop” are bullish to the tune of 50.2%, nearly double the bearish figure of 27.1%. Meanwhile, the VIX tumbled to 16.11 on December 17, the lowest level since April.

Let me just remind you of Bob Farrell’s famous 10 rules of investing, rule number nine; “when all analysts agree, the opposite is going to happen.”

 

Anyway – the hedge fund Managers reveal they plan to bet aggressively on the economic recovery.

About 23% aim to increase leverage in the coming weeks, the largest share since the inception of our survey in May, while only 12% plan to lever down.

However, the most interesting finding in the January hedge fund survey is perhaps the fact  that most managers see precious metals, like gold, as the most overbought asset class at the moment.

(And here’s a copy of the report.)

Blogger Templates

Related by the Econotwist’s:

92 Comments

Filed under International Econnomic Politics, National Economic Politics, Technology

Will Supervising Hedge Funds Put An End To Systemic Risk?

To put an end to systemic risks is the ambitious aim of Europe’s new laws to supervise hedge funds, the EU Parliament’s own TV channel reports.

But the new regulations, which will come into force in 2012, already have their detractors, the EU informator reports:

Vodpod videos no longer available.

2 Comments

Filed under International Econnomic Politics, National Economic Politics, Technology