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Markets set to tumble post-Paris attacks
Capital Markets
<p>Bourses around the world are set to open as usual on Monday, though a short term hit in equities is likely to happen, the Guardian reports.</p> <p>The attack is unlikely to dent the global economy though, as Shane Oliver, chief economist of Australia’s AMP Capital, told the British rag:<br /> “History will tell us that if the economic impact is limited – and I think it will be – that markets will quickly recover and go on to focus on other things.”<br /> SMBC Nikko Securities’ Hidenori Suezawa meanwhile, noting tourism’s large contribution to the French economy, had this to say:<br /> “Given that France has a big tourism industry there may be some damage to the economy if this leads to a fall in visitors to France, or in tourism in general after the crash of a Russian plane…I do not expect this impact to go so far as to affect the Fed’s monetary policy though at this point.”<br /> Still, how Europe handles this should have massive consequences. Germany, Spain, and Italy for instance are wrangling serious political issues at the moment, and the attacks could put a damper to Merkel’s, Rajoy’s, Renzi’s attempts to maintain their grip. France meanwhile -- as the FT's Gideon Rachman points out -- will be holding its regional elections next month, and far-right parties such as The National Front could easily use the tragedy to gain power.</p> <p>In any case, expect a massive rush to safety right out of the gate on Monday. U.S. Treasuries – along with the dollar – will surely be putting on some points on the board, while Eurodollars – which surged post 9/11 – might put on a show as well.<br /> Photo: Sandro Schroeder</p>
Financial lingo, according to Jason Zweig
Lifestyle
<p>Jason Zweig – in his new book “The Devil's Financial Dictionary” – took on the Brobdingnagian task of defining Wall Street jargon for the masses and apparently, the noted author did a mighty, mighty fine job at it.</p> <p>Here are five terms plucked from his book, via Business Insider:<br /> Proprietary algorithms (n.) Mathematical formulas ostensibly used to manage money that instead etherize the minds of prospective and current clients. The formulas often resemble something like this:</p> <p>[([e*R2]/∑i=n0)2] * P/b = e(R)</p> <p>When such algorithms are algebraically reduced, they result in the simpler equation:</p> <p>A * f = p</p> <p>where A represents the assets of the firm's clients, f equals the fees they pay, and p is the gross profitability of the money management firm (although not its clients.) The other terms in the original algorithms are extraneous, although attempting to solve them does give the firm's employees something to do all day while they watch the fees piling up.</p> <p>Research (n.) The art of making financial guesswork seem like a science — at a cost to investors of approximately 1% of their total assets annually.</p> <p>"Fundamental research" consists of pretending to study the underlying forces of supply and demand that should determine the long-term futility profitability of an asset while, instead, spending most of your time fixating on short-term fluctuations in market price. "Technical research" consists of looking at squiggly lines all day long.</p> <p>Thrift (n.) The obsolete practice of spending less money than you earn; once believed to be a virtue, now regarded as a disturbing form of deviant behavior.</p> <p>Regulator (n.) A bureaucrat who attempts to stop rampaging elephants by bradishing feather-dusters at them. Also, a future employee of a bank, hedge fund, brokerage, investment-management firm, or financial lobbying organization.</p> <p>Irrational (adj.) A word you use to describe any investor other than yourself.<br /> Photo: Ghozt Tramp</p>
Weekend Scan: 129 dead, 352 wounded in ISIS-backed attacks; Three French nationals arrested
Capital Markets
<p> </p> <p>«Ma copine y était. Je devais me fiancer. Je ne sais pas si je la reverrai» #ParisAttacks #Bataclan<br /> A photo posted by Je SUIS Paris ! ???? (@jesuisparis_) on Nov 14, 2015 at 4:15am PST<br /> &nbsp;</p> <p>&nbsp;</p> <p>The world is in a state of shock this weekend following a series of coordinated terrorist attacks in Paris that left 129 dead and 352 wounded. (New York Times, paywall) France says the Islamic State, known as ISIS, is behind the devastation which unfolded around 9:20 p.m. in Paris at the soccer stadium, a trendy neighborhood in the east, and Bataclan, where young people gathered for a concert. In videos and news reports across the Internet, eyewitnesses described young jihadist methodically and calmly killing people as they dined, strolled, and listened to music. They shouted "Allu Hu Akhbar" and declared this was vengeance for French participation in bombings to stamp out ISIS in Syria. The terrorists either committed suicide or were killed by French police. One was reported to be carrying a Syrian passport and had entered France from Greece. France closed its borders and New York City is in a high state of alert. Follow events on Twitter Moments or this Reddit thread.</p> <p>Here’s what else you need to know:</p> <p>Two Syrian “refugees” may have been among the terrorists. This – if confirmed – will definitely not bode well for the current Syrian refugee crisis. New York Post</p> <p>Three French nationals arrested in connection to the attacks. The arrests were made at near the Belgian border, where the three apparently lived. One of the dead terrorists, was also identified as a French national from the Paris suburb of Courcouronnes. Guardian</p> <p>French President Francois Hollande declares three days of mourning.  Leaders from U.S. President Barack Obama to China's President Xi Jinping offered tough words and condolences. France is still recovering from attacks in January on a Jewish supermarket and the offices of Charlie Hebdo, the satirical newspaper.</p> <p>Democratic debate focuses on terrorism, Wall Street. After observing a moment of silence for the victims of Friday’s attack, Hillary Rodham Clinton – who was prepared to show the world that she was the strongest presidential hopeful in light of the Paris atrocities – found herself grilled on her connections to Wall Street as well as her hand in the Iraq war instead. The New York Times</p> <p>Paris attacks heighten pressure on G20 meeting. The Syrian crisis may have been high on the group’s agenda, but the recent Paris siege has surely changed things for the upcoming G20 meeting in Turkey. “We’re going to do whatever it takes to work with the French people and with nations around the world to bring these terrorists to justice, and to go after any terrorist networks that go after our people,” Obama was quoted saying following the attacks. PBS</p> <p>IMF’s Lagarde backs yuan inclusion to SDR. IMF staff has issued a report recommending the yuan’s inclusion to the special drawing rights (SDR) basket, and Christine Lagarde – the fund’s managing director – saw that it was good: “I support the staff’s findings. The decision, of course, on whether the RMB should be included in the SDR basket rests with the IMF’s Executive Board. I will chair a meeting of the Board to consider the issue on November 30.” IMF</p> <p>Markets succumb to Friday the 13th bad luck. The FTSE 100 – weighed heavy by Rolls Royce and G4S shares – sank 0.98% to a six-week low while the S&amp;P 500 – hit by a massive selloff in retail stocks – tanked 1.12%. A nasty combo of weak earnings and disappointing retail sales apparently sparked the deluge. Commodities meanwhile continued their declines, with WTI crude falling 2.47% to 40.72 a barrel, while Brent crude dropped 1.41% to 43.44. Palladium and coffee however fared much worse, with the former diving 3.93% as the latter plummeted 3.17%.</p> <p>U.S. retail sales miss estimates. An unexpectedly weak October report from the Commerce Department showed that sales rose only 0.1% in October, short of the expected 0.3% incr
The Week Ahead: Fed minutes, U.S. inflation, and BOJ rates coming up
Capital Markets
<p>With Chinese trade data and Euro-area GDP out of the way, attention shifts to inflation once again as several nations – including Canada, Great Britain, and the U.S. – report their inflation rate figures throughout the week. However, all eyes will surely be on the Fed and the Bank of Japan on Thursday as the former releases its much-scrutinized FOMC minutes while the latter unveils its highly-awaited monetary policy decision. Analysts are expecting the BOJ to stand pat on rates, though some traders seem to be optimistic that it’ll bump up its QQE measures.</p> <p>Here’s what else you should look out for:</p> <p>Monday, November 16</p> <p>5:45 New Zealand retail sales (Q3,QoQ) – Forecast: 1.32% Previous: 0.1%</p> <p>7:50 Japan preliminary GDP (Q3, QoQ) – Forecast: -0.1% Previous: -0.3%</p> <p>12:00 Singapore imports (Oct) – Forecast: -28.2% Previous: -25.95%</p> <p>14:30 India WPI inflation (Oct, YoY) – Forecast: -4.0% Previous: -4.54%</p> <p>18:00 Eurozone inflation rate (Oct, MoM) – Forecast: 0.1% Previous: 0.2%</p> <p>18:15 ECB President Mario Draghi speaks</p> <p>Tuesday, November 17</p> <p>8:30 Reserve Bank of Australia minutes</p> <p>8:30 Singapore non-oil exports (Oct, MoM) – Previous: 2.8%</p> <p>16:30 Hong Kong unemployment (Oct) – Forecast: 3.3% Previous: 3.3%</p> <p>17:00 Indonesia interest rate decision – Forecast: 7.5% Previous: 7.5%</p> <p>17:30 U.K. inflation rate (Oct, YoY) – Forecast: -0.1% Previous: -0.1%</p> <p>18:00 Germany Zew Economic Sentiment Index (Nov) – Forecast: 4 Previous: 1.9</p> <p>21:30 U.S. core inflation rate (Oct, YoY) – Forecast: 1.9% Previous: 1.9%</p> <p>21:30 U.S.  inflation rate (Oct, YoY) – Forecast: 0.1% Previous: 0.0%</p> <p>Wednesday, November 18</p> <p>4:30 Federal Reserve Board of Governors member Daniel Tarullo speaks</p> <p>9:30 China house price index (Oct, YoY) – Forecast: -0.2% Previous: -0.9%</p> <p>21:30 U.S. housing starts (Oct, MoM) – Forecast: -2.1% Previous: 6.5%</p> <p>Thursday, November 19</p> <p>3:00 FOMC minutes</p> <p>5:00 Korea PPI (Oct, MoM) – Forecast: -0.4% Previous: -0.3%</p> <p>7:50 Japan exports (Oct, YoY) – Previous: 0.6%</p> <p>12:00 Bank of Japan interest rate decision – Forecast: 0.0% Previous: 0.0%</p> <p>17:30 U.K. retail sales (Oct, MoM) – Forecast: -0.41% Previous: 1.9%</p> <p>20:30 ECB monetary policy meeting accounts</p> <p>23:00 Philly Fed Manufacturing Index (Nov) – Forecast: 0.6% Previous: -4.5%</p> <p>Friday, November 20</p> <p>1:30 Federal Reserve Bank of Atlanta President and FOMC voting member Dennis Lockhart speaks</p> <p>5:45 Federal Reserve Vice Chairman and FOMC voting member Stanley Fischer speaks</p> <p>15:00 Germany PPI (Oct, MoM) – Forecast: -0.1% Previous: -0.4%</p> <p>16:00 ECB President Mario Draghi speaks</p> <p>18:15  Bundesbank President Jens Weidmann speaks</p> <p>21:30 Canada inflation rate (Oct, YoY) – Forecast: 1.0% Previous: 1.0%<br /> Photo: Stefan Fussan</p>
A new era begins, and not just for China
Capital Markets
<p>As we approach the end of 2016, we’re increasingly of the view that we’re nearing the end of one investment era and the beginning of another. We expect this global trend to be positive for China, but it might have a downside for some risk assets.</p> <p>There are signs, though only tentative, that the global investment and policy landscape in fourth-quarter 2015 could lead to a reversal of what, three years ago, were three key market-shaping events. Then, markets were in an expanding “balance sheet world,” in which central banks were pumping more liquidity into the global financial system to keep economies afloat.</p> <p>In September 2012, the US Federal Reserve launched its third round of quantitative easing (QE); in December of that year, Shinzo Abe became prime minister of Japan for the second time and, two months later, launched his Abenomics reforms in an attempt to boost the country’s growth and inflation.</p> <p>The central banks hoped that, by helping to lift asset prices, they would reignite the “animal spirits” in their economies. An important consequence of these actions was that financial markets—particularly risk assets—became disconnected from the macro environment, as liquidity drove valuations higher than economic fundamentals warranted.</p> <p>At the same time, there was a countercurrent to these events. In November 2012, Xi Jinping became president of China and—as part of a suite of reforms aimed at rebalancing the country’s economy—launched a crackdown on corruption.</p> <p>As the US and Japan attempted to stimulate growth, Xi’s actions had a dampening effect, leading to a slowdown in infrastructure and other projects in China. This in turn effectively put an end to the global commodities boom and created economic headwinds for commodity-exporting countries.</p> <p>Policymakers Change Course</p> <p>As of November 2015, the authorities behind each of these three policy initiatives appear to be changing course. Having put an end to quantitative easing a year ago, the Fed—though weighing an improved US economy against global market volatility—is expected to raise short-term interest rates for the first time in nine years.</p> <p>The policy debate in Japan now revolves around whether or not the Bank of Japan (BoJ) should ease further, with the BoJ governor arguing against it on the grounds that the country is through the worst of its deflationary spiral. If he’s right, we believe Japan could signal a tapering in its QE program next year. This is an out-of-consensus view, as the market is still looking for an extension or top-up of the program.</p> <p>China’s 13th Five-Year Plan, an outline of which was announced after the October Communist Party plenum, focuses on reforms that will continue to push the economy up the value chain, making it more efficient and innovative, with the aim of reducing the risk of the country falling into the middle-income trap.</p> <p>The country, in other words, still seems to be moving in the opposite direction from that of the US and Japan in terms of policy. This time, however, it’s more pro-growth, while the US and Japan are contemplating moving to tighter policy settings.</p> <p>Macro Factors Back in Play</p> <p>Together, these trends point to a rebalancing in global markets in 2016. With the US poised to raise interest rates, Japan potentially tapering its QE and China experiencing a mild cyclical upswing, macroeconomic factors are likely to reassert themselves as key investment drivers, in our view.</p> <p>What does this mean for investors? It’s yet another reminder to avoid “crowded trades,” particularly those created by investor responses to central bank balance sheet building over the past few years, or the slowdown in China. It also suggests that the ability to move dynamically into and out of sectors, geographies and markets is even more important now. And active management—stock and security selection in particular—is especially critical.</p> <p>In our next blog, we’ll look more closely at the implications for China.</p> <p>(c) Alliance Bernstein</p> <p>https://
Pension funds lose $15 bil with investments in hedge funds: study
Asset Management
<p>&nbsp;</p> <p>&nbsp;</p> <p>According to Elizabeth Parisian and Saqib Bhatti of the Roosevelt Institute, the decision by pension funds to invest in hedge funds some years ago has had disastrous consequences, ultimately resulting in subpar returns for the pension funds and paying billions in undeserved fees to hedge fund managers.</p> <p>The new report from the Roosevelt Institute is titled “All That Glitters Is Not Gold”, and takes a closer look at whether hedge funds have provided U.S. pension funds better and less correlated returns as promised, and also tackling the question are hedge fund fees adequately disclosed and as high as many critics suggest.</p> <p>Methodology of the study<br /> Parisian and Bhatti analyzed 11 U.S. public pension funds investments in hedge funds. With publicly available data and data given by the pension funds, the authors undertook a  year-­by-­year comparison of hedge fund net returns and total fund net returns for each pension fund. The study also compared the hedge fund rates of return to fixed income net returns for each pension fund to figure out whether hedge funds actually came through on their promise of uncorrelated returns and if less expensive fixed income strategies actually offer better net returns.</p> <p>Hedge fund fees are not completely reported or fully accounted for, so Parisian and Bhatti used industry standard fee structures such as management and incentive fees then projected actual fees charged by hedge fund managers based on earlier statements of net return to investors. These figures are not exact because of lack of transparency with hedge fund fees, but are certainly close enough to come to a conclusion regarding the hedge fund investments by pension funds.<br /> Key findings regarding pension fund investments with hedge funds</p> <p>The results of this study show that hedge fund investments failed to deliver any significant benefits to the group of 11 pension funds studied. In specific:</p> <p> Hedge fund net return rates were less than the total fund returns for close to 75% of the total years reviewed, leading to an estimated $8 billion in lost investment revenue by the 11 pension funds. Moreover, hedge fund managers charged an estimated $7.1 billion in fees to the pension funds over the period reviewed. The data showed that on average, the pension funds were paying a staggering 57 cents in fees to hedge fund managers for every dollar of net return to the pension fund.<br /> Although hedge fund managers tout both uncorrelated returns and downside protection, it turned out that 10 of the 11 funds reviewed in the study saw significant correlation between hedge fund and total fund performance.</p> <p>Recommended next steps for pension funds<br /> Parisian and Bhatti suggest that every pension fund involved with hedge funds undertake a thorough asset allocation review to consider less expensive and more effective methods of diversification. The asset allocation review must include a full analysis of past performance of their hedge fund investments, as well as a wide-ranging comparison to lower-­fee alternatives.</p> <p>It is also important for pension funds to require full fee disclosures from hedge fund managers and consultants, including complete disclosure of historical investment management and incentive (carry or profit sharing) fees charged by hedge funds.</p> <p>Finally, the report highlights that pension funds should also work toward instituting legislative policies that mandate full fee disclosure by hedge funds.</p> <p>See full report at ValueWalk, here.<br /> Photo: Joe The Goat Farmer</p>
Video: Startups staking out a 'land grab' to claim users, customers internationally
Venture Capital
<p>Startups are making a "land grab" overseas for users and customers, says Shayne Veramallay, venture pipeline manager at DLA Piper. In this interview with NexChange, Veramallay says the pace of business is quickening and startups don't want to get left behind.</p>
What we’re reading: the secretive ‘scouts’ of Silicon Valley and Valeant’s fall from grace
Lifestyle
<p>From George Magnus’ views on China’s “economic transition” to a riveting tale of one man’s search for a Jeep Comanche, here are some great reads for you this weekend.</p> <p>Four points about how China’s ‘economic transition’ will shape and shake the world economy. George Magnus is probably one of the better China watchers currently in action, and here is his take on the nation’s push to become a consumer driven-economy, and all the problems it might bring. George Magnus</p> <p>Secretive, sprawling network of “scouts” spreads money through Silicon Valley. As investors scramble to get in earlier and earlier in the business process, lauded venture capital firms such as Sequoia have turned to startup entrepreneurs – dubbed “scouts” – to gain an edge against their competition. Wall Street Journal (paywall)</p> <p>Checkmate or stalemate? Valeant's fall from investing grace. As the media circus around Valeant surges to a fever pitch, 10-Q crunchers of all shapes and sizes seem to have been turning in their two centavos about it. Here’s another one, from Aswath Damodaran. Musings on Markets</p> <p>Nice guys finish in the middle of the pack. Did Ben Bernanke – once one of the most aggressive, forward-thinking zero bound policy thinkers – succumb to group think while at the Fed? His actions following a pivotal meeting in 2003 seem to denote so. The Money Illusion</p> <p>Comanche quest. This may be as old as the hills, but if this blow-by-blow of one man’s quest to buy a Jeep Comanche doesn’t make you laugh, I don’t know what will. Warning – colorful language may be prevalent. Don’t Even Reply<br /> Photo: Denis Messie</p>
Live in New York’s most exclusive building – for $10 million less
Lifestyle
Always wanted to live like a financial master of the universe? Well, now’s your chance. According to the Real Deal, an apartment in 740 Park Avenue – considered by some to be the ne plus ultra of New York apartment buildings – is now available with a third off its original asking price: “Elizabeth, daughter of real estate bigwig Harry