Archive for the ‘The Offering’ Category
Tuesday, March 5th, 2013
Our weekly newsletter is out, and no, this isn’t the start to a trite “inside baseball” financial joke. Don’t get us wrong â€“ we love a laugh â€“ but bad investing habits are no laughing matter. We’ve found that some investors become their own worst enemy, as reliance on familiar investing tropes mutates into a tunnel vision that handicaps their portfolio. No, this is no joke. This has to do with different types of investors and how they become interested in different managed futures programs.
What kind of investor are you? Do you chase returns? Look for bargains? Do you buy the hype of a brand new manager? Or stick with the “brand names” of the industry? Are you a sucker for low correlations?
It’s not that these metrics are unimportant. The problem comes when one metric is given all the power, and that’s the kind of investing we discourage. However, as the saying goes, talk is cheap, so we decided to put our money where our mouth was, and put some numbers to these different types of investors to show just how well â€“ or poorly â€“ they do relative to the average CTA. Click through to see what we found and why, sometimes, the results surprised even us.
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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.
Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and â€“ at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
Copyright Â© 2013 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.
Friday, August 13th, 2010
Regular readers of this column are likely aware of my limitless knowledge of music and movie facts, and perhaps may even appreciate my ability to, now and again, turn a phrase or mangle a metaphor. Lord knows I can pontificateâ€”in a few short months “blogging” I have managed to fashion a soap box large enough to store Jay Leno’s classic car collection. How did I become so sanctimonious over the past year? It’s probably a reflexive manifestation of pent up guilt from bubble years spent putting traders on pedestals under a shameful “see it, make it, spend it” rubric, admittedly to try to make a little coin myself. So sure, I can cover the financial markets, riff on the news, lob a grenade, but I know jack shit about the markets and it’s time I admit that.
If I was given the next year and 100K to trade I’d be broke by Halloween, trick or treating in a homemade Shrek costume just to stockpile enough mini-Milky Ways to get me through the winter.
Speaking of rock-bottom scenario planning, we’re coming up on two years since the SHIT HIT THE FAN and with so much negativity in the air nowadays I figured it might be useful to do some comparing and contrasting so as to get a handle on whether we’re in for another economic dung storm come the fall. For some insights that are more useful to readers and less a showcase of my creative talents, I’m turning it over to two market watchers who know of what they speak.
I’ve asked them both to compare recent market trends to the economic environment that persisted roughly two years ago. First up are the quick observations of Keith McCullough, with whom I wrote a book, “Diary of a Hedge Fund Manager.” McCullough lives and breathes global macro research as the founder of Hedgeye, and his daily emails are read by hundreds of money managers.
Asked for a take on then versus now, McCullough wrote to me:
1. Summer 2008: After getting blasted in June/July/August, the U.S. Dollar started shooting up (just like it has lately).
2. Summer 2008: Gold wasn’t better bid on market down days like it was widely expected to be (like Aug. 11)
3. Summer 2008: Copper prices were putting in their cycle highs (like they have again in the last 3 weeks)
Other noticeable trends from two summers ago: PE deals started moving to max rumor versus actual LBO takeouts; U.S. Bond yields were confirming what US Currency was for all of Q2 â€“ bearish prospective growth; the VIX was low in July then started freaking people out in August; S&P 500 breadth was bad; volume came on down days; and the Hedgeye intermediate term TREND line signaled crash.
Next, here are some observations from Jonathan Greenberg, creator of OCE Interactive’s Market Topographer technology.
Observations: May 2010 to Present vs. May 2008 to Financial collapse.
In some ways, the set up was similar starting in May 2008 going into the Financial crisis vs. where we are today.
1. First, it appears that the similarities began to unwind before mid-August, although that was the culmination. So should look back farther as I have below.
2. From May 1, 2008 through July 14, 2008, S&P500 was down 13%. From May 1, 2010 through July 2, 2010, S&P500 was down 15%.
3. From July 14, 2008 through mid August 2008, S&P500 was up 6%. From July 2, 2010 through August 11, 2010, S&P500 was up 7%.
4. Resumed drop (meltdown) in later August 2008. Market correction starting mid-August 2010.
5. The adjusted forward market P/E stripped of systematic differentiations across stocks was similar as of May 2008 vs. May 2010.
6. Market had been increasing penalty for stocks with financial leverage from Feb 2007 (before Summer 2007 Money Market Crisis really was in full force) but penalty was at a much more suppressed level than it was in the Spring of 2010 as the penalty for leverage never fully mean reverted after the 2008 financial crisis. But by May 2008, the penalty for financial leverage relative to the market was similar as it was in May 2010. Then the penalty in 2008 started to steeply rise. We are seeing an increase in the penalty today although not quite yet as steep as in 2008.
7. Market began increasing reward for stocks with stable long term EPS starting in May 2008 (peaked in November 2008). Market started at a lower premium this spring, but was at a similar level as May 2008 by May 2010. Continuing to rise today as it was in 2008. Unclear whether it will gain the same momentum that it did in 2008.
8. Market began to increasingly penalize stocks with a less clear investment story beginning in Summer 2007 (e.g., time of Money Market crisis) although the starting point was a below average penalty. By May 2008, penalty was around the 20 year average. Then started steep increase throughout summer of 2008 leading into the financial crisis. Penalty for stocks with less clear investment story then hit a low again in September 2009 and began increasing slowly. Similar to 2008, it hit average penalty in April 2010. Has been rising relatively steeply since (with short term reversal for a couple weeks in July). Could draw parallel given recent increases. Set up seems to parallel 2008
A couple of critical differences between the Summer of 2008 and Summer 2010.
1. Market was systematically differentiating companies more by long term growth prospects (gauged by sensitivity to Wall Street consensus long term growth rate median) back in Summer 2008 than today when the differentiation has been at a 20 year low already. So the market isn’t paying as much for growth today than it was back then (e.g., market never fully bought into robust growth across the board today).
2. Earnings levels are projected at considerably lower levels than they were back in 2008 so although earnings can still tumble if we double dip, there is less room for them to drop. Remember also that management and Wall Street analysts have been more conservative this time around in giving projections given uncertainty.
Well, I know I feel a lot better. No one in their right mind is reading this right nowâ€”summertime and the living is easy, as it should be. I have a hankering for a cold one right this second, Friday the 13th, 5:30 p.m.
Incidentally, I’m wrapping up my HedgeWorld blog gig, taking a full-time job in September with Institutional Investor helping to create a global online network for pension fund executives. I’ve enjoyed writing, and might still have a couple more columns in me before I hang up my HedgeWorld hat for good, or for a while anyway.
It’s been real. I invite readers to let me know what’s on their minds, and to stay in touch. Anyone can email me about anything at email@example.com; I’m always good for a random riff.
Monday, August 9th, 2010
With the crude oil leak in the Gulf seemingly under control and Lindsey Lohan out of the slammer, much of the news lately has been focused on the sputtering economic recovery. This sprawling, amorphous issueâ€”and not BP, nor gay marriage, nor the First Lady’s extravagant Spaincationâ€”will most determine the outcome of the upcoming midterm elections, and the fate of the Obama presidency.
Persistent joblessness can’t be plugged with concrete; there’s no easy solution. True understanding of the phenomenon requires an appreciation for free markets and some open, lateral thinking, a willingness to look at the issue from all sides.
If there’s a blanket statement to be hurled into the fray it is this: Companies will hire when it makes sense for them to do so, and not one second sooner.
Alcoa, and corporations in general, were taken to task recently by New York Times columnist Bob Herbert. His thesis: corporations used the recession as an excuse to lean out, putting profits over people.
“â€¦ worker productivity has increased dramatically, but the workers themselves have seen no gains from their increased production. It has all gone to corporate profits. This is unprecedented in the postwar years, and it is wrong.
“Having taken everything for themselves, the corporations are so awash in cash they don’t know what to do with it all. Citing a recent article from Bloomberg BusinessWeek, Professor Sum noted that in July cash at the nation’s nonfinancial corporations stood at $1.84 trillion, a 27 percent increase over early 2007. Moody’s has pointed out that as a percent of total company assets, cash has reached a level not seen in the past half-century.
“Executives are delighted with this ill-gotten bonanza. Charles D. McLane Jr. is the chief financial officer of Alcoa, which recently experienced a turnaround in profits and a 22 percent increase in revenue â€¦ Mr. McLane assured investors that his company was in no hurry to bring back 37,000 workers who were let go since 2008. The plan is to minimize rehires wherever possible, he said, adding, ‘We’re not only holding head-count levels, but are also driving restructuring this quarter that will result in further reductions.’”
As much as this assessment rings valid, and as much as it must burn the asses of anyone laid off by Alcoa, or anyone with any empathy for the plight of the American worker, consider, briefly, the simple retort from an Alcoa V.P. for corporate affairs Nicholas Ashooh, whose letter was published Sunday, a few days after the original column ran.
“I take issue with Bob Herbert’s characterization of Alcoa as putting profits over people. When the global recession hit, aluminum prices crashed 57 percent and demand fell through the floor, forcing Alcoa to curtail some operations and to sell others. Those actions, while difficult, stabilized the company and preserved thousands of jobs, both within Alcoa and in the operations we sold.
“Today Alcoa is carefully adjusting employment levelsâ€”up and downâ€”commensurate with today’s economic realities. Maximizing efficiency under all economic conditions not only promotes profitability, but is also the best way to protect the jobs of our remaining 60,000 employees.
“It is ironic that Mr. Herbert’s accusation came two days after Alcoa announced the recall of 159 laid-off employees at our Davenport, Iowa, facility.”
The phrase that caught my attention was “maximizing efficiency under all economic conditions.” I thought about it, cynically, from the corporation’s perspective, as a hedge fund manager might, as a human being, and I came to no conclusion other than Ashooh has a point, and that is capitalism is brutal.
Put another way, companies, at the mercy of shareholders, will always try to figure out how to do more with less overhead. It’s not part of an evil plot to torment people. It’s business.
Overworked employees, in more favorable job markets, are free to tell the boss to take this job and shove it, but in times like these, employers have the upper hand, until they don’t. I’m not saying we should applaud or relish this reality, but we all have to accept it. I sympathize with Alcoa even though as I write this I still think Herbert made some good points at the aluminum giant’s expense.
Harley-Davidson has been in the news lately because the “hog” manufacturer is threatening to leave Milwaukee where it has a corporate headquarters and sizable manufacturing presence. Here’s a source of livelihoods and a source of civic pride. What a blow to a town that already endured being the setting for Laverne & Shirley and Jeffrey Dahmer.
Harley actually maintains its biggest manufacturing plant in York, Pa. That plant has already been stung by layoffs. But what would we have Harley do? Motorcycle sales are down, and have been for three years as baby boomers put their inner wild child into an economically induced coma.
Yet Harley remains profitable â€“ precisely because they have cut their work force. Harley’s CEO Keith Wandell made cost-cutting his thing when he came on board in spring 2009. What some call heartless others would call a willingness to make difficult choices.
Harley conceivably could cut 1,000 more jobs, or motor to some other cheaper job market and transition more of its remaining work force to seasonal hours, producing motorcycles more efficiently for spring and summer demand trends.
Who wins in this scenario? HOG shareholders doâ€”at the expense of union machinists. Doesn’t that royally suck for those workers? Yeah, it does.
Who are HOG’s shareholders? They are Fidelity, Vanguard, T. Rowe Price, and other large mutual fund managers. These funds, in turn, invest on behalf of millions of retirement savers who presumably would be pissed off if their fund managers bought shares in companies that performed poorly because of bloated, inflexible cost structures. We’ve seen the enemy. He is all of us.
Capitalism is a nasty bitch, and she has us all by the sack.
I suppose that’s why we don’t even think of leaving her.
Thursday, August 5th, 2010
During the double zero heyday, some hedge fund managers secretly wanted “rich list” compilers such as myself to tout their astounding take home pay. However, many a humble bank trader would protest any such estimations with the vehemence of George Brett being denied a home run on an excessive pine tar rule violation circa 1983.
I recall with some degree of clarity a Bear Stearns mortgage trader explaining to me in 2005 that if I published his estimated earnings his clients would be upset and wonder what in the name of Cayne he was pulling at their expense, if not a fast one.
No bank busted my chops over this issue more vigorously than Goldman Sachs. When I dared to estimate compensation levels for its highest paid traders the bank’s media spokespeople, lawyers, top executives and outside forces (the chilling midnight call from Howard Rubenstein) leaned on me, hard.
Despite all this intimidation and blowback, I knew and understood exactly where they were coming from. Or thought I did. (Ah but I was so much older then, I’m younger than that now.)
Recently, Goldman told federal inquisitors that it doesn’t break out its derivatives trading revenue and thus can’t tell them how much it made from creating and transacting the mortgage-linked instruments such as the ones that many have blamed for the financial crisis. “We don’t have a derivatives business,” Goldman’s CFO David Viniar said earlier this summer. “It’s integrated in the rest of our business.”
On Thursday, reports surfaced suggesting that Goldman might carve off its Principal Strategies businessâ€”its notoriously profitable proprietary trading armâ€”into a fund to be buttressed with outside capital, according to Bloomberg, citing a person with direct knowledge of the plan.
This is the pure prop group that Goldman CEO Lloyd Blankfein has long insisted accounts for, at best, a mere 10 percent of revenues.
Some critics of the firm have scoffed at the idea that Goldman only makes a relative smidgen from trading its own book, but Blankfein would know, so we’ll take him at his word. Of course, Goldman could simply break out what principal strategies kicks in, line iteming it in the firm’s quarterly earnings releases. But they don’t.
Drill down into the segmentation disclosed in GS public filings and there’s a Trading and Principal Investments bucket, which is not to be confused with principal strategies, the division said to be earmarked for spin off.
Drill down further into the Trading and Principal Investments bucket, and there’s the Fixed Income, Commodities and Currency (FICC) bucket. But as far as getting to the heart of all that monumental moneymaking, that’s where the public’s ability to delve deeply ends and the dense ambiguity begins.
For the three months ending June 30, 2010, Goldman produced $8.8 billion in net revenues. Around three-fourths, or $6.6 billion, of that $8.8 billion came from Trading and Principal Investments. Of that $6.6 billion, $4.4 billion was produced by the FICC bucket.
Half of Goldman’s revenues come from FICC, which, from a curious public’s standpoint, could just as well stand for “Forget It, Confidentially Cordoned.”
Veteran analysts who cover Goldman have told me that they can’t get the bank to break out CDS from CDO from pure prop; it’s all lumped into TPI and FICC, which, ironically, is an anagram for FCIC, also known as the Financial Crisis Inquiry Commission.
Spinning off its principal strategies group is genius in that it will appear as if Goldman is heeding the so-called Volcker rule banning hedge-fund style trading.
If Goldman really wanted to act in good faith it would tell the FCIC a little more about the activities within FICC, as opposed to engaging in masterful syntax and clever obfuscation.
I’ll set an example: I’ve made most of my income this year, around $30,000 through June 30, writing blogs and articles for Reuters HedgeWorld, the Buffalo News, Institutional Investor and ABCNews.com. I could tell you more about what I make, breaking it out per article, per day, down to the penny, if you care to know, and I don’t even trade publicly (but if I did, I would be on Pink Sheets under the symbol GDFLY.PK).
If Goldman wants to rake money in hand over fist that’s awesome, and there’s no necessary reason to mockingly label them a vampire squid. But they shouldn’t be able to get away with telling the federal government they don’t know how much they made from derivatives. Just seems arrogant.
If prop trading is only a small piece of how they make their money, well, where does the rest come from?
Monday, August 2nd, 2010
It seems impossible that the coming Wall Street sequel will contain even a single memorable line, but who knows, the younger generation might latch on to every crumb of dialogue just like the way a generation of brokers and traders did back in the late 80s.
“Greed is good” became the line from the original Wall Street everyone and their brother remembers and can recite, although fewer people remember the complete line, “The point is, ladies and gentleman, that greed, for lack of a better word, is good.”
Most traders and financial professionals of a certain age prefer the lesser known gems. There’s pretty much a “Wall Street” line for all occasion. “Blue Horseshoe loves Anacott Steel” is among the more overused to the point of being an industry clichĂ©, yet it serves a utilitarian purpose, and there is always the alternative, lesser used version used by Budd Fox when he turns the tables on his mentor (”Blue Horseshoe loves Bluestar Airlines”). (more…)
Thursday, July 29th, 2010
The rise of the Electronic Communication Network (ECN) and Alternative Trading System (ATS) radically changed equities markets and exchanges in the 1990s, although many people interchanged the abbreviations to the point where often times what was technically an ATS got labeled as an ECN, and sometimes vice versa.
Financial reform has now given birth to a new three-letter entity, the SEF, which stands for Swap Execution Facilities and which could radically alter the derivatives market not to mention challenge exchanges. And just like an ATS probably didn’t necessarily appreciate being categorized as an ECN, those who see themselves as SEFs already are feeling misunderstood.
During the debate leading up to financial reform many a wise pundit pointed to the provision in the legislation that would bring dangerous derivatives out of the shadows and on to exchanges where the lights of transparency shine brightest, supposedly.
But it’s important to note that reform requires most swaps to trade either on an exchange or on an SEF. Not only should SEFs not be overlooked, they should be viewed as a key part of the equation as the swaps markets digest this brave new world. (more…)
Tuesday, July 27th, 2010
Publishers Clearing House began on Long Island as a way to sell bulk magazine subscriptions through the mail. Today, it’s a direct marketing web site peddling all sorts of items to people who presumably are hoping for a shot at a sweepstakes grand prize.
While it won’t be coming in the form of an oversized cardboard check for $50,000, a potential windfall has been laid at the door of U.K.-based LCH.Clearnet courtesy of the financial reform law signed last week by President Obama.
When it comes to over-the-counter derivatives, a clearing house exists not to bundle magazine subscription pitches or to sucker people into thinking they have a chance at an encounter with a prize patrol, but to give investors, whether the portfolio manager at a hedge fund or the head of a pension fund, some backup protection in the event they enter into a swap trade and their broker goes belly up. It’s a straightforward strength-in-numbers premise. Members of the clearing house kick in some cash that sits in escrow to be tapped in the event one of them gets clobbered by some unforeseen blowup event or daisy chain type failure of another counterparty. With the passage of Dodd-Frank, OTC derivatives now have to be cleared centrally. This is, in and of itself, central to reformers’ ostensible goal of averting another destabilizing financial crisis. (more…)
Wednesday, July 21st, 2010
From: Sherlock Holmes
Re: The Financial Crisis
CC: President Obama
The financial crisis highlights the need to improve oversight of leverage at financial institutions and across the system.
To: Sherlock Holmes
From: Anyone who has been Paying Attention to the Financial Industry These Past Few Years
Re: Your Memo