Tag Archives: United States Treasury security

Hedge Funds Even More Bearish on US Equities, But Still Buying

The percentage of hedge fund managers who are bullish to the US stock market have dropped to 25,6 in February, down from 46,2 in December last year, They belive – and are probably right – that the FED‘s QE2 have been the major force behind the upswing, and expects a severe downturn when Uncle Ben runs out of money, the latest research from TrimTabs/BarclayHedge show. However; they’re still loading up the boat…

“If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously.”

Vincent Deluard

Hedge Fund Managers Turn Bearish on US equities, according to the latest money flow survey from TrimTabs/BarclayHedge. Most managers attribute the recent rally in equities to the QE2, while many feel the rally will end when the quantitative easing stops. But the funny thing is; they’re still buying stocks in buckets and barrels. Why?

Hedge fund managers have turned bearish on US equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for February, released last week.

About 40% of the 89 hedge fund managers the firms surveyed in the past week are bearish on the S&P 500, up sharply from 26% in January, while only 26% are bullish, down from 37%.

“Bullish sentiment less bearish sentiment is negative for the first time since November,” says Sol Waksman, founder and President of BarclayHedge.

Adding: “Increased caution might owe in part to excellent recent performance. The Barclay Hedge Fund Index has posted a positive return for six straight months.”

About 37% of hedge fund managers are bearish on the 10-year Treasury note, while only 15% are bullish. Bullish and bearish sentiment on the U.S. dollar index are balanced at 31%.

Meanwhile, 18% of managers aim to increase leverage in the near term, while only 15% plan to lever down.

“Managers aim to lever up even though they are bearish on both bonds and stocks,” Vincent Deluard, Executive Vice President at TrimTabs notes.

“Why? They still have a large incentive to gamble with borrowed money because short rates round to nil. If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously.”

About 52% of hedge fund managers feel the rally owes primarily to QE2, while 35% cite the end of quantitative easing in June as the biggest threat to the rally.

TrimTabs points out that the level of the S&P 500 and the size of the FED’s balance sheet have exhibited a positive correlation of 88.4% since the start of QE1 in March 2009.

Meanwhile, managers are concerned about oil prices. About 24% believe oil is more likely to hit $150 per barrel than the S&P 500 is likely to ascend to 1,600.

“We’ll take the other side of that action,” Deluard says.

“We did see a similar surge to $150 from $100 in 2008, and tension in the Middle East is obviously higher now.  But oil spiking to $150 from here represents a move of nearly seven standard deviations, while the S&P 500 climbing to 1,600 represents a move of less than three standard deviations. The market participants who agree with us that concern about sharply higher oil prices is overdone might consider capitalizing by selling long-dated out-of-the-money call options on oil futures.”

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Tech Trouble at the Econotwist’s Blogs

I just have to apologize for not being able to post much lately. It’s all due to some – more or less – unexplainable technological issues that I’m working my ass off to solve. Hopefully, I’ll be up and running as usual in a couple of days.

In the meantime I provide essential information through my Twitters: http://www.twitter.com/fhxx AND http://www.twitter.com/theswapp

To quote a famous US senator; “I’ll be back!

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David Rosenberg: How To Play 2011

Chief economist Dave “Rosie” Rosenberg is one of Wall Streets favorite bearish analysts. Those of you who have followed the Econotwist’s activity for a while will know that I frequently publish his daily newsletter “Breakfast With Dave.” One of the most comprehensive day-to-day analysis available for free. In yesterdays edition Rosenberg gives advise on how to play the markets in 2011 – amongst other things. Well worth studying.

“In 2011, the “event risks” that we expect to generate the volatility and periodic spasms that create significant buying opportunities are even larger in number and more diverse.”

David Rosenberg

Lesson of 2010

“What I do at the start of every year is go back and remind myself that each individual year has its own particular story, in preparation for the 12-month period that lies ahead,” the Gluskin Sheff chief economist writes.

For example, 2007 taught everybody that it never hurts to take profits after the market doubles and that if something is too good to be true, as was the case with the housing and credit bubble, it probably is.

The lesson in 2008 focused on capital preservation strategies and the urgency of managing downside risks.

Then, in 2009 it was vital not to overstay a bearish stance in the face of massive fiscal and monetary stimulus, even if the economy was in a deep recession for half the year.

Last year’s lesson was on how to handle the many post-stimulus market swings that are inherent in a post-bubble credit collapse.

It is very tempting to look back at the past year and conclude that it was a great year for the markets because the S&P 500 rallied 13% point-to-point, but that is about as relevant as the fact that by the end of August, the S&P 500 was off 14% from the nearby peak and the TSX was down 6%. But the year 2010 was most noteworthy for intense financial market volatility — there were no fewer than six mini-bull markets and six mini-bear markets (up or down at least 6%) in what was truly a roller coaster of a year.

And we head into 2011 much the same as 2010 — with plenty of optimism and growth priced into the U.S. equity market and facing a year chock full of “event risks” that will likely produce some very nice trading opportunities.

We must be very well prepared to take advantage of volatility this year. Last year, we concentrated on mitigating downside risks and preserving capital at the expense of capitalizing on all the mood swings that took place.

In 2010, the concerns were over Greece, health care, the end of QE1, and the mid-term elections.

In 2011, the “event risks” that we expect to generate the volatility and periodic spasms that create significant buying opportunities are even larger in number and more diverse.

These range from Ireland, Portugal and Spain, to the U.S. debt ceiling file, to the US state and local government turmoil, to another down-leg in US home prices, to surging food and energy prices, and to heightened inflation pressure.

The threat of policy tightening in the emerging markets (especially China) continues, and with the end of QE2 in June, Fed Chairman Ben Bernanke will again have a tough choice to make between unwinding the bloated balance sheet or reinforcing speculative behaviour in risky assets by embarking on QE3.

In this light, we fully anticipate another roller coaster ride in the markets this year, and we intend to be more pro-active at the intermittent lows with a continued eye towards limiting downside risks to our portfolios.

The heightened volatility means extra reliance on our hedge funds, to mitigate the market volatility by focusing primarily on “relative value” trades.

This means essentially going long on undervalued high quality assets and going short on overvalued, lower quality assets.

While we are still cautious on the overall equity market, we do see a silver lining in the energy sector and in large-cap and mid-cap companies that have lagged the upturn this cycle and are relatively inexpensive.

Here, we focus on large cash-flow generators with strong balance sheets that pay out a reliable dividend stream. So despite our concerns over complacency among US equity investors, there are still needles in the haystack — in oil, in large-cap tech and the defensive dividend paying stocks within health care and consumer staples.

The recent backup in bond yields sets up potential decent returns in fixed income markets, as the hiccup we saw this time last year provided. Corporate balance sheets are in terrific shape on both sides of the border and we see market interest rates trading in a tight range through most of 2011; therefore, credit strategies are going to be an area of focus. The secular bull market in commodities is one reason, though not the only one, why we also remain long term positive on the outlook for Canada relative to the United States, especially with regard to the Canadian dollar.

I think it pays to focus on three interesting market developments here. First, the Canadian dollar towards the end of last year re-attained par against the US dollar and I recall that when we saw this unfold in 2007 and 2008 the oil price was on its way to $145 a barrel, not $90, and this tells you that this latest leg-up in the Canadian dollar is more than just a commodity story.

Second, look at the bond market and you will see that the yield on a 2-year Canada bond trades at a 100 basis points premium relative to U.S. Treasuries, which tells you something about the relative strength of the Canadian economy.
Furthermore, the 30-year Canada bond trades at a 90 basis points discount to long US Treasuries, which is unprecedented. This is a huge anomaly but one that carries a very important message because the further you go out the yield curve the more the market tells you about its view of long-term fiscal and inflation risks, and again, this is being transmitted into growing global confidence in the Canadian dollar relative to the US dollar.

Finally, keep in mind that the Canadian dollar didn’t just rally 5½% against the U.S. dollar last year but also rallied 5½% against the basket of non-U.S. dollars, which is added confirmation that this is as much about a strong Canadian dollar story as it is a weak US dollar story.

Here’s a copy of the full analysis.


Related by the Econotwist’s:

External reports:

Danske Markets. Research Inflation Scare. 02082011.

DnB NOR Markets. Weekly Update Scandinavia. 07022011.

Markit Economic Research. Economic Overview –growth spurt brings inflation worries. January 2011.

Markit Economic Research. European Union. January 2011.

TrimTabs: Hedge Fund Flow Report January 2011. Topical Study.

IMF: World Economic Outlook Update. January 25. 2011.

Fitch. US securities 2011 Outlook

ChangeValue.com: “Where Are Markets Heading To?” January 2011.



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