There’s A Kind of Rush to Rally, All We Like Sheep

Should I feel gleeful with this headline ? That their fat bonuses will not be as much as last year’s ? Or be green in envy because it will still be a quadrillion miles away from me.

Hedge Funds Trail Stocks by the Widest Margin Since 2005 : Bloomberg

It would seem that they got too smart for their own good versus good old fashion buy and hold strategies.

Which only means the people who got rich this year are the…… shareholders. And the richest shareholders are the ….. company owners and of course, those hedge funds and venture capitalists that own companies.

The outstanding performers in hedge fund space, however, the alternative investment strategy funds with 1 company shoring up the rest, returning up to 581%.

Bond holders have it worse, getting away with not much this year except for the investors who had bought heavily into the distressed debt of Spain and the likes.

My deduction on why hedge funds underperformed is that they read too much into the news that nobody reads about these days and that the banks and central banks will never mention. Banks are not going to talk about Robert Shiller, the Nobel prize for economics winner this year, nor will they mention Satyajit Das, the author of many of my fixed income textbooks, or John Mauldin who just published Code Red, a book on the potential tipping point the global economy is in.

Banks will tell us happy things, to keep us investing and central banks are the cheer leaders, telling us not to worry about their national debt and they got our backs. And regular fund managers will all tell us that our money is safe so we will stick to their funds.

Just on Friday, for instance, we had a “good” US unemployment number and its is screaming in most headlines around the world. The call immediately is for another leg up in the stock markets and for strength in the emerging markets.

2 opinions were missed out in most of stuff I am reading. First, we have the most accurate Fed watcher in the world, John Hilsenrath’s dissection of the numbers in the WSJ. He noted a glaring flaw in the data, that “The jobless rate is down largely because people are leaving the labor market, removing themselves from the ranks of those who are counted as unemployed because they’ve stopped looking. The labor force participation rate fell between September and November fell from 63.2% to 63.0% –more evidence of a “hysteresis” problem of long-term unemployed workers fleeing the job market.”

And thus, his conclusion is that the Fed will probably wait till unemployment hits 6.5% before raising interest rates. Is that the reason for the stock market rally ?

Second, we have Eugene Fama, the other Nobel prize for economics winner this year. He has been cited as the antithesis to Robert Shiller’s work in that his view that markets are  efficient whilst Shiller’s thesis cannot be more contradicting.

In his interview with Reuters on Friday, he commented, “There may come a point where the financial markets say none of their debt is credible anymore and they can’t finance themselves” and went on to say “The jobs recovery has been awful. The only reason the unemployment rate is 7 percent, which is high by historical standards in the U.S., is that people gave up looking for jobs.”

His call is for a dangerous risk of a recession in 2014.–sector.html

Like Zerohedge pointed out, “US Labor Force Declines By 25,000 In Past Year Despite 2.4 Million Rise In Employable Americans”

And this is the reason why the US House Democrats need to have the unemployment insurance extended for another year as part of their budget negotiations which is good news for stock markets because these people will be spending and not saving the money ?

The strangest price actions I have seen on Friday were all dismissed out of most banks. The US treasuries sold off and rallied back strongly, stock markets rallied too, both despite Taper odds for Dec raised to 40% by Citibank. And the US dollar, strengthened and weakened almost immediately against the EUR, AUD and everything else except for USDJPY. And Gold managed to sell off seconds before the number and rally back to take out stops both ways in an amazing move mainly because no authorities are investigating into gold price manipulation.


My mailbox is chock-a-block full of happy optimistic emails this weekend. Calls for 2014 to be bright and beautiful with small mentions of the unhappy news like China to revise growth down to 7% and scant notice of the Taper. Instead, the focus is on more happy news of the US budget impasse and a potential resolution. The rest of the headlines are about Obama and his love for Mandela.

And doomsayers all whimpering that their idea of the stock bubble is that it is not fully inflated yet. Yes. Reading their comments between July/August and now says the last bears are dead.

Thus, we all like sheep will rush to rally tomorrow to make the richest people in the world even richer than they are today. Because the new Masters of the Universe are no longer the hedge funds, but the FOMC in 10 days time.