Recovering from the 2011 shock is proving difficult for hedge funds
Guest post by Sober Look.
Some may find this a bit surprising. The magnitude of losses experienced by hedge funds on average during the height of the Eurozone crisis in 2011 was as large as the losses the industry witnessed during the financial crisis in 2008.
What have the economists ever done for us?
BOE’s Haldande on economists and the blame game with regards to the financial crisis. From Voxeu.
There is a long list of culprits when it comes to assigning blame for the financial crisis. At least in this instance, failure has just as many parents as success. But among the guilty parties, economists played a special role in contributing to the problem. We are duty bound to be part of the solution (see Coyle 2012). Our role in the crisis was, in a nutshell, the result of succumbing to an intellectual virus which took hold of the body financial from the 1990s onwards.
One strain of this virus is an old one. Cycles in money and bank credit are familiar from centuries past. And yet, for perhaps a generation, the symptoms of this old virus were left untreated. That neglect allowed the infection to spread from the financial system to the real economy, with near-fatal consequences for both.
The Tragedy of the European Union and How to Resolve It
From the Master himself, on the Eurocrisis and the new phase we just entered. George Soros must read.
In a fast-moving situation, significant changes have occurred since this article went to press. On August 1, as I write below, Bundesbank President Jens Weidmann objected to the assertion by Mario Draghi, the president of the European Central Bank, that the ECB will “do whatever it takes to preserve the euro as a stable currency.” Weidmann emphasized the statutory limitation on the powers of the ECB. Since this article was published, however, it has become clear that Chancellor Merkel has sided with Draghi, leaving Weidmann isolated on the board of the ECB.
European Crisis Explained
We have had many questions over the past days with regards to the European Crisis. Our favorite video (still) explaining the European Crisis.
A breakdown of the European debt situation, starting with Greece and consuming the entire continent. Presented last year, but definitely wort a review in these “confusing” times. Courtesy Omid Malekan.
The disaster of young people in Spain
The Trader has been covering the Spanish economy over the past year. At this stage many investors know about the imploding Spanish economy, soaring yields etc. Unfortunately, there are other problems Spain faces as a consequence of the economic situation. These are long term problems, that require delicate handling. On the unintended consequences, via El Pais.
The slow drain is not so slow anymore: between January and June, 40,625 Spaniards left the country, a 44.2 percent rise from the same period last year, according to population estimates released by the National Statistics Institute (INE). Another 228,890 foreigners left at the same time.
“We have become a land of emigration, after being a land of immigration. More people leave than enter the country because we are unable to retain them,” explains Antonio Izquierdo, a professor of sociology at A Coruña University. “If a country’s wealth lies in its population, then we are losing wealth.”
One of the people that Spain has lost is Clara San Millán, a 27-year-old architect from Salamanca who moved to Denmark last February. For the first time, in the town of Aarhus, she has found a “real job.”
Roubini Says 2013 `Storm’ May Surpass 2008 Crisis
Nouriel Roubini discusses “greedy” bankers, the euro-zone crisis and risks facing the global economy in 2013.
Video below.
The Crises of Summer
With the Europeans enjoying their long summer vacations, let’s recall Europe’s bloody crisis summers. Via Project Syndicate.
Summer crises are a familiar feature of European history – and of financial history. Indeed, the twentieth century was shaped by three summer crises, whose seriousness was heightened in each case by the absence of major policymakers, who were on vacation.
In two years, Europeans will commemorate the centennial of the assassination of Archduke Franz Ferdinand on June 28, 1914, and the subsequent “July crisis” that triggered World War I that August. On July 13, 1931, the German banking system collapsed, ensuring that what was previously an American economic downturn became the worldwide Great Depression. On August 15, 1971, President Richard M. Nixon ended the United States’ commitment to a fixed gold price, leading to a decade of global currency instability.
Each of these crises involved a highly technical issue, but also a much broader set of political problems. And, in each case, the intertwining of the technical and the political produced disaster.
Full article here.
Did Spanish officials help create the crisis?
The Trader has covered the subject of the Great Spanish Denial over the past year. With the crisis and austerity hitting the Iberian Peninsula, we can’t but wonder what the “Elite” has been doing while the SPanish economy has totally imploded? More from NYT.
As Spain edged closer to a real estate and banking crisis that led to its recent bank bailout, Spanish financial leaders in influential positions mostly played down concerns that something might go terribly wrongFrom left, José Viñals of the International Monetary Fund; Jaime Caruana, chief executive of the Bank for International Settlements; and Rodrigo Rato, until last month the head of Bankia.
The optimism of Spanish central bankers who went on to top jobs at the International Monetary Fundechoes the attitudes of officials in the United States who misjudged the force of a housing collapse several years ago that crippled banks and the economy. And it underscores the complications that can arise when government officials take watchdog roles at international agencies that pass judgment on the policies they once directed.
A Brief Primer on the European Crisis
Some reflections on the Greek elections and the market going forward after this “long” weekend, as we await Benny to take on the show tomorrow. Don’t be surprised when they start hitting metals tomorrow, as this has been the trend lately. By Hussman of Hussman Funds.
With Greek elections resulting in a fairly benign outcome that promises to hold the euro together in the near-term, the market may enjoy some amount of relief. The extent and duration of that relief will be informative. Based on broader factors, we don’t expect that relief to survive very long, but we are willing to respond more constructively if our own return/risk measures become more favorable.
Our estimate of the prospective return/risk tradeoff in the stock market remains in the most negative 0.5% of historical instances. That said – and this is important – if market internals improve meaningfully over the next few weeks (measured across individual stocks, industries, sectors and security types), our estimate of the market’s prospective return/risk profile would improve, despite what we view as rich valuations and a new recession. Very roughly speaking, this would require a solid rebound in market internals over a period of 2 or 3 weeks. That sort of outcome might accompany a Fed easing or other event, but our focus is on the measurable condition of market internals, not on Fed policy or other news per se. A positive shift in our measures of market action would likely be enough to ease back from our tightly hedged investment stance to a slightly constructive position. For now, we don’t have the evidence to take anything but a very defensive stance, but we’ll take changes in the evidence as they arrive.
It’s fair to say that we don’t foresee any development that would encourage us to remove a major portion of our hedges at present, and my personal expectation is that conditions are likely to deteriorate sharply rather than improve, but as always, I want shareholders to know where my attention is focused. Our measures of market action – and any meaningful improvement over the next few weeks – will be important in determining the whether we maintain a tightly defensive stance or shift to a slightly constructive one.
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