Thursday links: hedge fund failures

Thursday links: hedge fund failures

Quote of the Day

“I don’t believe that the hedge fund industry will go away, but in order for the very best managers to shine again in a reliable fashion, it probably needs to shrink. The good news is that this process is already underway. The bad news is that it doesn’t look pretty or feel good while in progress.”

(Joshua Brown)

Chart of the Day

As heavy truck sales go, so goes the economy.


Central Bank of the Republic of China (Taiwan)

Central Bank of the Republic of China (Taiwan)

Central Bank of the Republic of China (Taiwan)

September 29, 2016

Monetary officials agreed to leave Taiwan’s discount rate unchanged at 1.375%, which is an accommodative stance according to a statement released today. The interest rate was cut by 12.5 basis points at each of the previous four quarterly policy reviews stretching back to September 2015. Monetary stances have remained easy at the central banks in most advanced economies. External uncertainties persist, and Taiwanese inflation is subdued at 0.6%. Domestic growth is considered “slow” but expected to be stronger in 2017 than this year. Officials are prepared to intervene in the currency market if necessary: ” if seasonal or irregular factors (such as massive inflows or outflows of short-term capital) lead to excess volatility and disorderly movements in the NT dollar exchange rate with adverse implications for economic and financial stability, the CBC will, in line with its legal duties, step in to maintain an orderly market.”

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Central Bank of the Republic of China, Taiwanese monetary policy


Both comments and pings are currently closed.

Bitcoin Struggling to Hold Critical $600 Level

Bitcoin Struggling to Hold Critical $600 Level

Bitcoin responded with resilience following the recent Bitfinex hack, finding strength around the $580 level. After a short period of churning, a run past $600 seemed to indicate that buying appetite was still high. Unfortunately for bulls, the run stalled out quickly, and bitcoin finds itself at a perilous junction. The $600 level is a critical hold for short-term advancement, any weakness that breaks that level indicates a return to the previous support levels of $540 to $550.

Short-term traders are encouraged to show restraint at the current price point of $608.  Previous RSI trading patterns, above 65 and below 35, are not currently reliable.  RSI breaches of 70 can still be confidently used to establish a short position, but these opportunities have been few and far between. An RSI over 70 has been reached twice in the past 12 hours, as shown on the TradingView chart below. Both breaches were followed immediately by a pullback.  A short position can be entered at an RSI of 70, and should then be exited at an RSI of 60.

Inversely, even fewer long opportunities are available. An RSI of 30 was broken only once, and the following bounce was incredibly fleeting.  Currently, short-term long trades should be viewed as very risky.



Should bitcoin break below $600, support at the $540 level should be strong enough for a significant bounce. It was here that support stiffened most recently when tested. A downward move should be viewed as a boon for long-term holders, who can look to pick up cheap coins.  Long-term outlook remains strong, as bitcoin continues to enjoy positive news and outlooks in 2016.  Price upgrades and the continued strength of the US stock market indicate there is significant buying power still available to bolster bitcoin price.

Day and swing trade opportunities are currently at a dangerous level of instability. Short-term traders should look to take the short opportunities available when an RSI glut over 70 occurs, but should otherwise avoid entering positions until a significant move in either direction occurs.

World Out Of Whack: The Day Donald Trump Flunked Econ 101

World Out Of Whack: The Day Donald Trump Flunked Econ 101

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all it’s glorious insanity.


While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week’s edition of the WOW we’re covering the yuan (and Donald Trump’s poor grasp of economics)

In the reality TV show US presidential debate aired live the other night Donald Trump had only just begun warming his vocal chords before delivering one of the most profoundly idiotic statements of the entire night. And this is saying something since there was (unsurprisingly) no shortage of nonsense to be heard.

“You look at what China is doing to our country in terms of making our product. They are devaluing their currency and there’s nobody in our government to fight them and we have a very good fight and we have a winning fight because they are using our country as a piggy bank to rebuild China and many other countries are doing the same thing. So we’re losing our good jobs, so many of them.”

Now, finding misleading, wrong, dead wrong, and plain bulls**t political statements is easier than picking up herpes from Bill Clinton. But what is more worrying than stupid politicians is the mainstream acceptance of this concept that China is devaluing the yuan.

Why, with the billions of dollars of personal wealth “the Don” couldn’t find someone to give him the facts is inexcusable. He’s not even in office yet and already I’d fire him, if it weren’t for the fact that the alternative is almost certainly worse. My friend Harris Kupperman is correct when he calls the contest “Crook vs Jerk”.

Perhaps readers could send this article to him to educate him along with the other articles we’ve written on the topic. If I had anything near as many followers on Twitter as he does I could charge them all 1 cent and still buy him a better hairpiece than he has. More importantly, we’d put an end to this nonsense that the Chinese government is currently trying to devalue the yuan.

Yes, China has been manipulating the yuan but by propping it up, NOT by devaluing it. The market itself has been devaluing the yuan and the PBOC has been trying desperately to contain the devaluation. They have in effect been doing the exact opposite of what Mr. Trump suggests they’re doing.

We can see these capital flows by looking at the FX reserves, which the PBOC has been draining faster than a fat kid drains a thick-shake.

Up until August of this year the PBOC has been blowing through roughly $100bn per month in an attempt to stem these capital outflows.

I have to wonder what Trump and other ignorants will be saying when the yuan really devalues – due to market forces and not the PBOC actively devaluing the currency.

Albert Edwards, a Societe Generale economist, points out the following:

“At $3.2bn the market remains content that massive firepower remains to support the renminbi. It does not. Our economists estimate that when FX reserves reach $2.8 trillion — which should only take a few more months at this rate — FX reserves will fall below the IMF’s recommended lower bound. If that occurs in the next few months, expect to see a tidal wave of speculative selling, forcing the PBoC to throw in the towel and let the market decide the level of the renminbi exchange rate.”

China Foreign Exchange Reserves

And SocGen’s China economist Wei Yao points out:

“If China’s reserves fell to $2.8tn, they would reach the lower end of the recommended range and could start to undermine confidence in the PBoC’s ability to resist currency depreciation and manage future balance of payments shocks.”

When it comes to understanding China’s credit bubble, the currency escape valve, and the relationships between all the moving parts, nobody has done a more thorough job than Worth Wray and Mark Hart of Corriente Advisors.

Focusing on FX reserves in isolation is somewhat meaningless. Worth and Mark are looking at foreign exchange reserves relative to M2, a broad gauge for domestic money supply. The problem, as Worth highlights, is that M2 has been growing faster than FX reserves and now in fact exceeds FX reserves.

Put another way, this means that the capital in the economy is growing faster than FX reserves. Realise that capital in the economy is also capital which is available to exit China and this measure (M2) now exceeds the FX reserves required to counteract those capital outflows. As Worth quite correctly points out:

 “There’s a difference between having enough reserves to meet normal balance-of-payments needs and adequate reserves to defend resident-driven capital flight in a panic. My point is that the buffers continue to fall and Beijing can’t keep following this policy course forever.”

Mr. Trump’s campaign website says the yuan is “undervalued by anywhere from 15% to 40%”.

I would contend that the yuan is overvalued by anywhere from 15% to 40%.

The fact is, China is running out of money and will be forced to float the yuan. And when they do Mr. Trump will have difficulty in explaining how a freely traded currency is some 15% – 40% cheaper than it is today.


Clearly Trump doesn’t understand global capital flows and perhaps he shouldn’t. Provided he has people around him who can provide him with the correct information this needn’t be a problem but if that’s the case then perhaps he should refrain from opining on subjects he clearly knows nothing about.

Better to keep quiet

This brings up an important question.

When events with global implications take place… events such as a floating of the yuan and the subsequent devaluation that inevitably comes with it…

Know anyone that might enjoy this? Please share this with them.

Investing and protecting our capital in a world which is enjoying the most severe distortions of any period in mans recorded history means that a different approach is required. And traditional portfolio management fails miserably to accomplish this.

And so our goal here is simple: protecting the majority of our wealth from the inevitable consequences of absurdity, while finding the most asymmetric investment opportunities for our capital. Ironically, such opportunities are a result of the actions which have landed the world in such trouble to begin with.

– Chris

“Why should China be forced to suffer deflationary effects of defending its currency when everyone else isn’t?” — Mark Hart, Corriente Advisors

Like what you’ve read?

If so, join over 7,500 investors just like you who receive our weekly thought-provoking investment publication and exclusive special reports.

Your information is kept strictly confidential.

WSJ City: Big Bets on Sterling, Job Cuts at Wolseley, How Insurers Are Getting Creative

WSJ City: Big Bets on Sterling, Job Cuts at Wolseley, How Insurers Are Getting Creative

Good morning from London. Here’s essential reading for the City today from WSJ City. 

For updates throughout the day, you can download WSJ City for iPhone here or Android here  You’ll need to open this email on your mobile device to do this. And you can sign up to receive this briefing direct to your inbox here. 


Sterling’s been on a volatile ride, and speculators are taking increasingly large bets.

In a world where decent yield is a rarity, insurance companies are getting creative. But not all.

City Talk: Job cuts at Wolseley; L&G retirement unit to double sales; Thomas Cook sees good demand.

Hector Sants, the ex-CEO of the FSA, says the regulatory model for investment banks needs to evolve.

You might be forgiven for thinking it, but the UK’s supermarket war is likely to be far from over.

CBOE’s deal to buy Bats Global Markets is an unlikely combination. Here’s why the deal happened.

Swift said three breaches took place this summer. The interbank message carrier is issuing security patches.

Central bankers are hoping to stoke growth by purchasing corporate bonds. Is the policy effective?

Clinton and Trump clashed on national security, race and the economy during the first debate.

The CEO of UBS’s investment bank says the need for bank restructurings is becoming ‘more obvious.’

Walt Disney is considering a bid for Twitter after emerged as a possible suitor.


Mario Draghi issued a fresh plea to eurozone governments to help out the ECB by enacting growth-boosting overhauls, underlining how central banks are moving closer to the limits of what their stimulus policies can achieve. WSJ

Monarch Airlines, which is trying to raise funds, faces closure this week unless it can urgently renew its operating licence. The Times (£)

Britain’s economy could overtake other European countries following Brexit, according to one of Germany’s most prominent businessmen. The Times (£)

BMW is on a collision course with its UK workers over plans to close its final salary pension scheme to new contributions. The Telegraph

London has retained its position at the top of a ranking of global financial centres, but there are signs that its position is under threat amid Brexit. FT (£)

Lufthansa pulled a €500 million debt sale on Monday, in an unusual move that signals limits to the European Central Bank asset-buying programme. WSJ


Stock markets across Europe were expected to rebound from significant losses on Tuesday, with some investors pointing to the performance of US Democratic candidate Hillary Clinton in the first presidential debate.

In Asia, Japan’s Nikkei Stock Average was recently up 0.3%, having traded 1.6% lower before the televised head-to-head with Republican nominee Donald Trump.

FTSE 100 futures, as well as futures in other major European bourses, jumped after the debate. The safe-haven Japanese yen, which investors tend to snap up in times of uncertainty, fell 0.5%. Gold lost ground too.

The pound and the euro were recently little changed against the dollar.

“It looks like a lot of Trump-sensitive assets have seen a bit of reversal since the debate…but it’s still early days and we don’t [know] how the debate played in the battleground electorates,” said IG’s Angus Nicholson.

Oil prices lost steam after Iran played down expectations for a production deal, calling the Algiers meeting on Wednesday “consultative.” Brent was hovering around $47 a barrel, having gained more than 3% in New York on Monday.

Stocks to Watch: Wolseley FY16 pretax profit £727 million, demand across markets remains mixed; Mediclinic 1H17 trading in line, backs full-year guidance; United Utilities sees 1H revenue slightly below 1H last year; Legal & General retirement unit on track to double new business sales in 2016; QinetiQ Group names Rolls-Royce’s  David Smith as CFO.


The CBI issues its monthly survey of business conditions in the retail, wholesale and the motor trades.

Short Note on Presidential Polls

Short Note on Presidential Polls

Short Note on Presidential Polls

September 26, 2016

The first debate between Hillary Clinton, the Democratic Party nominee, and Donald Trump, the Republican Party standard-bearer, takes place tonight. Presidential opinion polls now show a race that’s too close to call both nationally and in the key states that are likely to determine the outcome. Momentum is clearly behind Trump’s sail, however, since the contest in early August pointed to a landslide Clinton victory.  There’s a sense of deja vu in this turn of events. In 2008 and this year, Clinton began quests for the party nomination as the prohibitive favorite only to be outflanked by Obama and the passion underdog from Sanders’ upstart challenge this time. Trump, on the other hand, has made a habit of outperforming the early handicappers.

It goes with out saying that the winner six weeks from tomorrow matters enormously in financial markets. Clinton and Trump could not represent a greater difference from the standpoint of style, substance, and predictability. Whatever one wants regarding likely policies under the two choices, the criteria of predictability alone points to a better initial market response if Clinton wins. Although he has hidden much from the public, Trump has made no secret that he views unpredictability as a virtue in deal-making and organizational management. Markets can deal with almost any news if such is known transparently in advance and considered reliable. What markets do not process well is uncertainty. It will take some time getting used to Trump’s style, and markets lack the patience to wait.  As the the polls have narrowed, it’s not surprising that financial markets have looked brittle of late, but perhaps polls are less accurate than generally realized.

Polls have never been omniscient. The Literary Digest in 1936 infamously ran a poll that predicted Landon in a landslide win over Roosevelt. Dewey was picked to beat Truman in 1948. Four years ago, Romney’s pollsters confidently told him to expect victory against Obama. At this stage of that campaign, Obama had led Romney by just two percentage points in polls, and the race had seemed to tighten. As it is, Obama won by only four percentage points of the popular vote, but that had translated to a comfortable 332 to 206 margin in the electoral college math.

The polling method of phoning a sample of households to ascertain how elections will turn out is now deeply flawed. America landed a man on the moon nearly 50 years ago. The New York City bomber in the Chelsea district earlier this month was caught in about 36 hours. Hand-held electronic devices with encyclopedic knowledge are now prevalent. But law enforcement is completely powerless to shut down the proliferation of phone calls received that are solicitations or con-game misrepresentations altogether. These indeed can appear at times to encompass 95% of all calls received. As a consequence, a mounting share of people simply will not answer an incoming phone call unless through caller I.D. it is from a person who is known and to whom one is inclined to speak.

The phone answering habits of households are now so distorted that it is not possible to construct a sample of opinion polls that is not polluted beyond any resemblance to a statistically significant representation of the general voting population. That being said, even if investors are skeptical about the accuracy of polls showing a dead heat between Clinton and Trump now but momentum moving toward Trump, they are being prudently rational to be hedging against a Clinton win. Campaigning is not a well-honed skill of hers. While lacking past political experience, running for office is all about marketing a product, and that is Trump’s best skill. U.S. voters from both parties are hankering for change, and that too favors a challenger over an incumbent. Finally, in the past 64 years, a party has held onto the White House for longer than eight years, which is the Democrats’ current span, just once.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: accuracy of political polling


Both comments and pings are currently closed.

10yr Treasury Notes Calling Fed’s Bluff

10yr Treasury Notes Calling Fed’s Bluff

The interaction among the 10-Year Treasury Note’s market participants provides a great example of how the commercial traders’ actions, as categorized in the weekly Commitments of Traders report, can be predictive of future market movement. More importantly, this information can provide keen insight ahead of major market news events like the September FOMC meeting.

First, a brief lesson in the trading methodology employed by the commercial traders. The commercial traders are lumped into a single entity whose behavior is based on executing interest rate hedges as a necessary course of their business. Their hedging is based on two key factors. One, their macro outlook on the market in question. This includes their general expectation of trending or range-based pricing along with their assessment of any pending market news. Secondly, their actions are based on their collective, “fair value” of the market with these variables priced in. This makes them mean reversion traders within the context of their collective macro outlook.

Now, let’s apply these assumptions to the included chart. Trends are based on the accumulation and distribution of positions among the market’s largest participants. The commercial traders’ total position is about three times the size of the large speculators.’ The accumulation and distribution points in the chart below indicate the actions being taken by the commercial traders. We use the MACD indicator to track the momentum of their buying and selling. Notice that commercial buying provided the support necessary through spring to push the market higher late this summer. Their actions correctly predicted both the June and July FOMC meetings. It’s important to remember that these are the brightest, largest and most well-connected traders in the markets. Also, notice that they correctly predicted the outcome of the two main market events this summer., they’ve been able to reduce their net position size at the new higher prices while the speculators were forced to cover at a loss.


They’ve used this as a period of distribution. They’ve been able to reduce their net position size at the new higher prices while the speculators were forced to cover at a loss. Also, notice that the large speculators had reversed their position and were the most bullish trading group heading into early August. Finally, as expected, many large speculators were stopped out of the long side as the market fell through the support that had built up around 130^16. Their net position declined by more than 140k contracts since August 1st. This is a classic trap playing out in real-time as the commercial traders appear to have been waiting anxiously below this level to begin repurchasing 10-year Treasury Note futures in anticipation of higher prices and lower yields. Their buying is exceptionally noteworthy given that the September FOMC meeting is three weeks away.

Commercial traders appear to be building a new long position ahead of the September FOMC meeting.
Commercial traders appear to be building a new long position ahead of the September FOMC meeting.

The commercial traders have done a wonderful job of forecasting the interest rate markets in 2016, including correctly forecasting the market direction of the last two FOMC meetings. We believe their streak will continue as their information is better than ours. Fortunately, they leave a big enough wake for us to follow safely along behind.



This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors’ Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Commodity & Derivative Advisors believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.