Positive economic surprise index running high in US, while earnings are rolling over badly and threat scenarios abound. Everyone complaining about the high risk appetite, record-low yields, record-high issuance of high-yield debt (junk bonds). To me this all sounds like the bad news have become almost fully priced in - the SPX has not much room left below - soon some positive news will make risk markets jump back up again. ECB statement? Merkel coming out? Or most likely, that Greece is 'solved', and the US politicians are eager to avoid the fiscal cliff as they learned their lesson from the debt ceiling debacle. I'll update my chart views on the next Weekender-post.
Previously on MoreLiver’s:
REGULATION & BANKING
How much are the new short-selling disclosures
missing? – alphaville
/ FT
European
regulators succeeded earlier this year in forcing short-sellers to publicly
reveal more of their activities. The disclosures, which cover all European
stocks, became mandatory from November 1.
Global
regulators said Friday they are postponing a significant part of the financial
regulatory overhaul after banks said they wouldn't be ready for the new rules.
Why are we bailing out the banks? – Part Four –
What happens now? –
Golem
XIV
A good paper on
shadow banking, finally – Sober
Look
An easy to follow, comprehensive, well researched, and
unbiased paper from FRBNY
Are Algos Phasing Out Humans on Credit Desks? – Advanced
Trading
As
Dodd-Frank impacts the cost structure of derivatives trading, dealers are
slashing million dollar salaries in favor of building cheaper algorithms.
ECONOMICS
Soup Kitchens Caused
the Great Depression – Krugman
/ NYT
Being rude about austerity – mainly
macro
Regulation concern increases the most in the
latest ECB corporate survey – Sober
Look
MARKETS
Are Markets And Macro Repeating 2008? – ZH
The Most Important Chart To Consider For The
Weekend – ZH
while some
have seen positive moves by US-specific macro data surprises, the rest of the
core international economies are doing decidedly badly - and US equities remain
ignorant (for now).
Markets Can’t Catch a Bid – The Big
Picture
If markets
are going to bounce, it better be here. As the charts (after the jump) show,
the Russell 2000, S&P500, Nasdaq 100, and Dow Jones Industrials have all
broken their June 2012 uptrend, and are at or below their 200 day moving
averages. If you are a bull, here is where you buy ‘em. If you are a bear, you
wait for a drop, and on a rally attempt back to the 200 day, you short them —
the wait for the attempt to regain the 200 day to fail.
Post-Election Markets – David Kotok
/ The Big Picture
We expect
this low-rate environment to translate into very aggressively rising stock
prices in the next few years. We expect high-grade bond interest rates to
remain low and perhaps go lower. The bond buyer index of high-grade GO tax-free
bonds hit a new low yield today. We expect real estate to commence and
accelerate a recovery.
Is Micro Weakness Smelling A Macro Collapse? – ZH
Goldman
Sachs: It seems that the bottom-up message from S&P 500 companies and the
analysts that cover them is simply more negative than the macro data would
suggest.
On The Idiocy Of Sell Side 'Research' Lemmings – ZH
Their
'normal' pattern is extrapolate trends, they knee-jerk react at turning points
- when it is already too late.
Friday Macro Update – Saxo
Bank
Steen
Jakobsen: We will have a volatile end to the year with people looking to take
profit for tax reasons in the US, combined with, at best, a
compromise on the fiscal cliff likely to be a drag on growth by 1.5% of GDP (could mean about -150 S&P500
points). The manipulation will continue for the rest of 2012, but if we are
right about the "saturation point" above then we are in for a quick
turnaround once the realization is made, which will mean we’ll have to look to
be nimble in resetting our portfolio for the upside rather than downside.
FOREX Woot! RoRo is fading – alphaville
/ FT
There are
more currency pairs uncorrelated to equities right now than at any time for
five years. In fact, he says, correlations have started to break down to the
extent that a majority of G10 currency pairs were uncorrelated with equity
returns over the last three months. Another false dawn or an actual end to the
dominant RoRo paradigm?
CREDIT High yield debt issuance in 2012 hits an
all-time record – Sober
Look
One of the
reasons for this optimism has to do with new issue market pushing out the
leveraged finance maturity wall, as companies refinance into longer maturities…trend
of potentially loosening lending standards (such as toggle notes or dividend
deals) in the leveraged finance markets will be important to watch going
forward.
The Punchline (Nov 8) – scribd
Long, and, a-hem, different
look at the markets.
PORTFOLIO / QUANT
The “All-Weather”
Portfolio Derivation – CSS
Analytics
Mind Games: Finance
Pros Keep Trying To Get Inside Warren Buffett's Head – WSJ
The folks at AQR Capital Management LLC, a firm that
runs 16 mutual funds, recently published a paper saying they had created a
systematic process that picks stocks like Warren Buffett.
Make 24bps a week
trading skewness? – Turnkey
Analyst
“A trading strategy that buys
stocks in the lowest realized skewness decile and sells stocks in the highest
realized skewness decile generates an average weekly return of 24 basis points
with a t-statistic of 3:65.”
Dividing Value into “Priced” and “Mispriced” – Turnkey
Analyst
Book-to-market
(BE/ME) ratios explain variation in expected returns because they correlate
with recent changes in the market value of equity. Although the remaining
variation in BE/ME ratios captures comovement among stocks, it does not predict
returns. Therefore, the HML factor consists of a priced and unpriced component,
An astute
reader suggested reproducing the results from a recent article on regime
analysis by Kritzman et al., Regime Shifts: Implications for Dynamic Strategies
Forecasting through the Rear-View Mirror: Data
Revisions and Bond Return Predictability – FED
Real-time
macroeconomic data reflect the information available to market participants,
whereas final data—containing revisions and released with a delay—overstate the
information set available to them. We document that the in-sample and
out-of-sample Treasury return predictability is significantly diminished when
real-time as opposed to revised macroeconomic data are used. In fact, much of
the predictive information in macroeconomic time series is due to the data
revision and publication lag components.
How Hard Is It to Make Money? – The
Tail Chaser
People care
a lot more than they should about how their money managers look on paper (what
they say their investment process is, what their resumes are, how wealthy they
already are) than they care about their managers' returns against simple
benchmarks.
OTHER
For John Maynard
Keynes, Economic Theory Was a Sideline – View
/ BB
He was, above all, a practitioner and student of high
finance. Investment and finance were his vocation, and political economics was
his avocation.
Book Bits | 11.10.12 – The
Capital Spectator
16.1%
annualized return with 10.9% standard deviation since 1991
Exploring Uncharted
Territories of the Hedge Fund Industry: Empirical Characteristics of Mega Hedge
Fund Firms – SSRN
We document similarities among mega firms that report
performance to commercial databases compared to those that do not. We show that
the largest divergences between the performance reporting and non-reporting can
be traced to differential exposure to credit markets. Thus the performance of
hard-to-observe mega firms can be inferred from observable data.
Most excellent quick reads from HistorySquared:
Carry Trade
and Crash Risk; Inflation and Equities; Asian Current Account Surplus Falling –
HistorySquared
Black
Market and Currency Trading; Volatile Equity Markets; Corrupt Leaders and
Power; Germany and the Euro – HistorySquared
Housing
Bubbles, Interest Rates, the Taylor Rule, and Central Bank Folly – HistorySquared
Gambling
for Resurrection; Volatile Equity Returns; Advanced Economies not Immune From
Currency Crises – HistorySquared
Turtle’s
Egg; Stability Creates Instability; President Hu Warns Party Could Collapse,
China Bulls Oblivious – HistorySquared