A few thoughts on why the Banks are not lending. By Golem XIV.
Governments, so they tell us, want the banks to lend into the real economy to get people working, earning, buying and paying both their taxes and their debts. Problem is, I do not think the financial industry shares this desire. They say they do. They say they are doing their bit. But they are not. The abject failure of the UK’s 2011 ‘Project Merlin’ is a good example. Project Merlin was the voluntary agreement between UK banks and government to set and meet targets for lending to small and medium businesses. The big five UK banks all agreed to lend. The data showed, however, that they all lent less in every quarter. I talked to the CEO of a UK bank which specializes in raising capital for medium sized businesses and he told me there was less and less funding around. He said the big banks and the big funds simply didn’t want to know. They had other plans.
With the European markets having put on a stealth performance, the summer has been rather sweaty for the shorts. From Bloomberg.
Bulls say professional investors buying back shares that were borrowed and sold short are fueling a rally led by European Central Bank President Mario Draghi’s pledge to defend the euro. The Euro Stoxx 50 is up more than 12 percent in three weeks, twice the gain of the MSCI All-Country World Index (MXWD), even as the euro-area economy is forecast to slide into recession. Bears point to a drop in earnings estimates after profit fell about 10 percent last quarter as a sign stocks in Europe may fall.
“Macro hedge funds missed collectively the policy news of June, and with the prospect of central bank interventions they are now capitulating,” Nikolaos Panigirtzoglou, head of globalasset allocation at JPMorgan in London, said in an Aug. 7 phone interview. JPMorgan has $2.3 trillion under management. “For positions to unwind, a trigger is needed. And the trigger was all this policy news.”
Investors are once again forced into going long the market. With both Bernanke and the HFT distorting the market, hedge funds are now going all in long. With every fund manager now front running the QE, this market is starting to show some peculiar signs. Maybe after all, we have found the perfect trade, where the economy slumps, Fed does the QE, funds front run the Fed, more QE and so on? Welcome to everybody (soon) long market. If unsure what to buy, just load up on Apple. By Bloomberg,
Hedge funds trailing the Standard & Poor’s 500 (SPX) Index for the last five months are giving up on bearish bets and buying stocks at the fastest rate in two years.
A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 48.6 last week from 42 at the end of November 2011, the biggest increase since April 2010, according to data compiled by the International Strategy & Investment Group. The Bloomberg aggregate hedge fund index gained 1.4 percent last month, lagging behind the Standard & Poor’s 500 Index by 2.65 percentage points.
On the long hedge funds, the Fed and the market. From Biderman.
To summarize my recent New York City trip, almost all of the hedge fund types I visited with in New York are both long stocks for the short term and really scared for the long term. Why? They are long stocks mostly because buybacks have been fueling gains and now stock prices have climbed to less than 10% below the all time highs.
On the other hand they are really scared because global equity markets are now dependent not only on central bank manipulation but that investors continue to believe in miracles. For it will indeed take a miracle for the markets to survive the mess the central bank manipulators have created. Video below.
The “confusing” AIJ situation is still developing. Don’t forget doing that due diligence when investing. From Bloomberg Business week.
The suspension of AIJ Investment Advisors Co.’s operations amid concerns hedge funds it manages had lost pension money may undermine plans by Japan’s retirement funds to boost returns to meet demand in an aging society.
The Financial Services Agency on Feb. 24 ordered the Tokyo- based firm with 183.2 billion yen ($2.3 billion) of client money to stop business for a month as the regulator investigates “possible losses” at AIJ’s hedge funds. The FSA also will undertake a nationwide probe of 263 asset managers.
“If the funds actually suffered losses, this could potentially have a massive impact on pension plans that actually invested with them,” said Taro Ogai, who oversees consulting for pension fund investments at Towers Watson in Tokyo. “Pensions already face difficulties. At a time when they are trying to boost returns and cut risks, investing in hedge funds may become difficult for them.”
(Full article here).
It has been a great start for the longs this year. All markets are up, but the volume is continuing to drift lower. The GS Hedge Fund monitor this week showed that hedge funds are hitting new lows when it comes to turnover. Guest post by D Short;
The S&P 500 closed yesterday at a new year-to-date high, up 8.32% in the first 44 days of trading versus 5.59% over the same timeframe in 2011, which was also an excellent start to the year (one that finished flat).
According to the data I downloaded from myStockcharts.com subscription, the cumulative volume so far this year is 102.6 Billion versus 122.6 Billion in the first 34 days of 2011. That is a -16.3% decline.
Some quick charts before Europe closes. With margin calls and hedge fund momos selling today, market rebounded, and the set up for a big rally could be here. While people sold off stuff in a “slow” Algo Panic, we might just have hit the bottom, at least short term. Despite us being bearish, today’s nice reversal has shaken out weak hands, attracted new “Europe is going bust shorts”. Time for the new shorts to feel the pain on the upside. Some European reversal charts below. Stoxx, MIB, IBEX.