And the Winners- Mr Dalio and Renaissance
You might want to check out Dalio’s Secret Rules after reading the below. Dalio and Renaissance are the Winners this year. Link to Dalio’s Rules.
From FinAlternatives; Amidst August’s hedge fund carnage, some managers were able to produce some impressive returns. Perhaps not surprisingly, some that did are among the biggest and most successful in the industry.
This year, almost no hedge fund has been more successful than Bridgewater Associates. The $122 billion firm’s flagship Pure Alpha II fund is up 25.3% this year,Bloomberg News reports.
“Making money is a zero-sum game, so to be successful you have to be willing to stand apart from the crowd,” Bridgewater founder Ray Dalio told Bloomberg. “And you have to be right.”
Few have been righter than Dalio this year. But one of those few sits just across the Long Island Sound from Bridgewater’s Westport, Conn., headquarters. Renaissance Technologies’ Institutional Equities Fund is up 25.56% this year, edging Pure Alpha thanks in part to a 5.4% August return. RenTech’s Institutional Futures Fund did even better last month, rising 5.89%, according toDealbreaker.com, but it is only up 7.56% on the year.
MKP Capital Management’s flagship Opportunity Fund is another of August’s standouts, returning 3.51% last month. The $1.5 billion global macro vehicle is up 8.31% through the first eight months of the year, MarketWatch reports.
Tudor Investment Corp. was no slouch in August, either. Its Momentum Fund rose 2.59% on the month and its Tensor Fund 0.85%, according to Dealbreaker. For the year, however, it has been less lucky. Momentum is up just 3.32% in 2011, while Tensor is down 5.28%.
OPEC meeting Overshadowed by Saudi Arabia
Remember when the World did care about Oil, Opec and Saudi Arabia? Well it is time for an OPEC meeting on Sep 9th. Some insight by Stratfor on OPEC and Saudi Arabia.
On Sept. 9, OPEC will be holding one of its regular summits to decide what to do about their oil output quotas – raise them, lower them or keep them the same. The decision will be made with an eye towards Libya. When Libya descended into civil war a few months ago, it took about 1.8 million barrels per day of high-quality low-sulfur crude offline. There are many among the OPEC talks who are concerned what will happen in the aftermath of the fall of the Gadhafi government. If the replacement government, whatever that happens to look like, is able to bring oil back online quickly, oil prices could go into a tailspin, they fear.
STRATFOR does not see Libya’s oil coming back on anywhere near that sort of timeframe, and after all we’re only talking about 1.8 million barrels per day of output here — less than 2% of global production. But for countries who are wanting to keep prices as high as possible, that could still be just enough. After all, it took Gadhafi 25 years to grow oil output to the 1.8 million point they were at earlier this year.
No matter how bad Libya’s recovery is, it’s probably going to be faster than that, and even by starkly conservative estimates, getting 3 million barrels per day out of the country by say 2020 is entirely possible, even likely.
Volatility Arbitrage (still exist)
From OnlyVix,
While doing some analytics last week I realized that there is a pure (not statistical) arbitrage situation in VXX options. By the time I noticed it was too small of an edge to try to trade manually so I did not do anything, and since this is something that is very unlikely to happen again I’ll disclose all the details that came up in my analysis. All data obtained fromNanex(nXCore) – a very high quality datafeed. This feed has all messages from exchanges, although to create the charts below I took 1 second snapshots.
When VXX split in Nov 2010 OCC decided to leave the “old” unadjusted strikes, so one can trade both after-split VXX and before-split VXX which has quarter of its value. On August 30th some options were trading out of line with the others, I guess because some market-maker did not properly adjust volatility skews that day. Because options are so far OTM early exercise is not a consideration, and the mispricing is a pure arbitrage.
For example (pre-split) VXX 21 Jan 2012 Call should trade at 1/4 value of VXX 84 Jan 2012 Call, and they do most of the time. The first chart plots bid of VXX 21 Jan 2012 Call times 4, versus ask of VXX 84 Jan 2012 Call. Around lunchtime bid exceeded ask, and traders had an opportunity to capture as much as 12 cents by selling four 21-strike contacts and buying one 84-strike contract. Using conservative estimates of costs for institutional trader this would give 0.12-5*0.01=0.07 profit on 5*0.25 haircut (margin), or 5.6%. Given that at that time there was 143 trading days until expiration, this translates into 5.6 %* (143/365) = 14.3% annualized of riskless profit. The volume on the quotes was sufficient run the spread at least 25 times (0.07 * 100 * 25 = $175) by the most conservative estimate. Chart from OnlyVix.
Momo Rally as Athens Plunges 4.6%
Don’t forget Greece. Part of the reason Eurozone has it’s “small” problems. Athens index down 4,6% today, while we continue the no volume melt up in the developed World.
Inflation vs Deflation?
Chart of the Day by DShort. No explanations….
If you’re looking for bubbles, don’t look at gold coins-Dr Constantin Gurdgiev
From Gold Core,
Dr. Dr Constantin Gurdgiev, Head of Research with St Columbanus AG, member of the investment committee of GoldCore and the adjunct lecturer in finance in Trinity College, Dublin,
Of all asset classes in today’s markets, gold is unique. And for a number of reasons.*
Firstly it acts as a long-term hedge and a short-term flight to safety instrument against virtually all other asset classes.** Secondly, it supports a wide range of instruments, including physical delivery (bullions, coins and jewellery), gold-linked legal tender, gold-based savings accounts, plain vanilla and synthetic ETFs, derivatives and producers-linked equities and funds. All of these are subject to diverse behavioural drivers of demand. Thirdly, gold is psychologically and analytically divisive, with media coverage oscillating between those who see gold as either a long-term risk management tool, or a speculative “bubble”.
In the latter context, it is interesting to look closer at the less-publicized instrument — gold coins, traditionally held by retail investors as portable units to store wealth. Due to this, plus demand from collectors, gold coins are less liquid and represent more of a pure ‘store of value’ than a speculative instrument.
Classical bubbles arise when speculative motives (bets on continued accelerating price appreciation) exceed fundamentals-driven motives for holding gold. In later stages of the “bubble”, we should, therefore, expect demand for gold coins to fall compared to the demand for financially instrumented gold.
The U.S. Mint data on sales of gold coins suggests that we are not in the last days of the “bubble”. But there are warning signs to watch into the future.
August sales by the U.S. Mint were up a whooping 170 per cent year on year in terms of total number of coins sold, while the weight of coins sold is up 194 per cent. On the surface, this gives some support to the theory of gold becoming overbought by retail investors. However, monthly comparatives reflect a huge degree of volatility in U.S. Mint sales and August results comfortably fit within statistical normals for the crisis period since January, 2008. August results also fall within the historical mean (1987 through Monday).
DAX coming off
Just a quick reminder to all those buying equities, selling vol and selling gold. DAX is trading at yesterday’s open levels. EURO trading below 1,4 firmly. Trichet sounds very nervous. Eurozone is not feeling well. Now we need a downgrade of Italy and the panic will spread.
Stumbling towards solvency-or the Weimar event horizon?
What about the inflation/deflation, gold and printing? Guest Post by World Complex;
In our last installment, I concluded that the value of money appears to be destroyed faster than it is being created. I may not have made myself clear as to why this is such an alarming development.
Clearly, the creation of more money should reduce its unit value. But our normal expectation would be that if we double the amount of currency in circulation, then its unit value is reduced by half. But what happens if it falls more rapidly?
The 1923 hyperinflation in Germany is dissected in this article by Dr. H. Sennholz. According to Dr. Sennholz:
The reasoning that led these parties to inflate the national currency at such astronomical rates is not only interesting for economic historians, but also very revealing of the rationale for monetary destruction. The doctrines and theories that led to the German monetary destruction have since then caused destruction in many other countries. In fact, they may be at work right now all over the western world. In our judgment, four erroneous doctrines or theories guided the German monetary authorities in those baleful years.
Volatility Puke
On that Vol Puke we mentioned yesterday, here is some color from one of the Big Banks. Remember though, “never buy vol when you have to, only buy when you can” (Taleb).
Yesterday index implied vols finished sharply down led by the European indices. Volumes were strong. It is worth noticing the jumbo trade on a Eurostoxx50 call, strike 3300 (153% of the spot), maturity Dec-13, traded for more than EUR5.3bn!! This trade was crossed after the close.
The Eurostoxx50 dividend futures increased all across the curve by +1.8pt on average but remain extremely low.
Single stocks vols were down by -2.4pts to 42% on average mainly driven by Financials. Activity was weak on single stocks options showing that the focus is on the macro side.
Today in Asia, activity is low with clients looking to sell short term volatility.
…and don’t forget Greece, the only red (-2,85%) in today’s pathetic no volume action.
Implied Vol Skew Charts suggest Equities to fall
Guest post by Macro Story,
Skew VS SPX
Very interesting price action in the skew versus SPX on Wednesday. The skew trended lower while the SPX trended higher causing the prior divergence to grow even larger. This certainly brings into question the validity of the recent equity rally and implies a high probability of a decent market selloff in the coming days.
Skew Vix Divergence VS SPX
Although less reliable from a day to day indicator of price action the move lower in the divergence certainly does not confirm the recent rally in equities. To be fair the divergence has lagged at times. Still it does appear to be breaking lower and needs to be given some merit.
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