Authored by Peter Tchir via Brean Capital, I would NOT be selling volatility here. My title was dripping with sarcasm... Selling Volatility Is Very Crowded and Dangerous Now You know a trade is getting crowded when my parents start asking about it. You know just how one sided something is when people think that even Chuck Norris can’t make money buying vol. Last Week’s Spike in VIX has brought out nothing but sellers of volatility. I think selling VIX is very crowded and fraught with danger. SVXY Shares Outstanding SVXY a short VIX ETF is up to $1.3 billion in market cap. (it looks like it held about 30% of the open interest in the VIX September futures contract. XIV Shares Outstanding XIV, a short VIX ETN, has also seen inflows (though seems to be losing market share to SVXY) bringing its market cap to just under $1 billion. So we have extremely large inflows into the vol selling ETPs. UVXY Shares Outstanding UVXY a double long VIX ETF is down to $275 million in market cap. Shares outstanding dropped nearly 50% as profit taking (or smaller loss seeking) pulled money from the strategy. VXX Shares Outstanding VXX, an ETN, is still just above $1 billion in market cap. So we have large outflows in the long VIX ETPs. I think that the strategy of selling short term VIX futures is not only extremely popular, but that the recent spike in VIX encouraged a large number of investors that it was time to reload on the trade or enter into it for the first time – very crowded. Speculative positioning in VIX having never been shorter... Relying on ‘Bend Don’t Break” Is Dangerous As far as I can tell, investors have adopted a “bend don’t break” view on VIX. That is can go higher, but it will always ‘revert’ to the mean. So longer term, you get back the losses and the steep vix futures roll kicks in. VXX Shares Outstanding VXX is up 800% since it was launched in late 2010. SVXY, which was launched later is similar. VIX Short Term Futures Index The index that most of these funds track is down 99.8% or something since it peaked. It is down virtually every year. I believe that investors have now decided that selling VIX is the ultimate buy and hold strategy. Can VIX Break? Either this strategy “can’t lose” over time, or there is something wrong with the logic. Let’s start breaking down the logic The VIX Curve Is Not Particularly Steep Right Now The difference between the second VIX futures contract (UX2) and the first VIX futures contract (UX1) is only 0.45. That is well below the average historical difference – that means that the ‘roll effect’ is greatly diminished. Sellers of vol will need to wait longer to recover from losses, then if the curve is steep – but that still fits into the ‘bend don’t break’ meme, rather than breaking VIX. I want to highlight how inverted VIX becomes at times of stress. Every period of stress has involved a serious inversion. The financial crisis saw the most extreme rise in VIX (as per the futures index value) but also had extreme inversion. This is where I think I need to highlight a few things The VIX futures contract just rolled this week, so the bulk of the exposure in the index is to the front contract (above 90% I think). I think from a practical standpoint, and VIX ‘break’ will occur while the index is heavily skewed towards the front end – precisely because it shows a tendency to invert at times of stress (so if and when trying to time VIX breaks I would target periods where the contract is mostly in the front end) SVXY was short 90,000 UX1 contracts. The equivalent hedge for XIV is about 70,000 contracts (we do not know how CS hedges the exposure). That would make those two indices with 160,000 UX1 shorts out of open interest of less than 300,000 contracts – well over 50% of the open interest in UX1 can be explained by these two ETPs. These ETPs did NOT exist in 2008 – so I don’t see how you can rely on historical data back then. In the past, VIX was merely an observable calculation (a complex one at that). Now VIX is a tradable product in its own right – with daily rebalancing that tends to push it in the same direction that it moved throughout the day – plus all of the other technical that can occur when a product is traded – rather than just calculated. I personally don’t trust the data even in 2011 since these ETPs were in their infancy back then – not the 800 pound gorillas they have become. XIV terminates if the underlying index is down 80% in a day. Poof. Gone. It will pay cash at whatever residual value is left after unwind. If CS was simply hedging with the 70,000 futures contracts, that would cause immense demand for futures on what could only be described as a very nasty day (80% hasn’t happened – but these products didn’t exist). SVXY is not explicit on what it does on a large move day – I suspect, that is part of the reasons inflows into SVXY are so much larger than XIV. But, SVXY has margin agreements in place, and since it isn’t a charity, I would think that it shutters its doors at some level below down 100% (they can’t ask shareholders for more money, so the margin counterparties would shut down the trades. If the trades don’t exist, I’m not sure how the ETF can). So imagine that XIV knocks out, which triggers a VIX spike, which knocks out SVXY. It seems incredibly unlikely, but then again AIG was ‘AAA’ and ‘super senior’ was super safe. Housing prices, on a national basis, had never declined. Lots of ‘impossible’ things seem to happen once financial engineering drives them too far. What is really perverse, because I can’t think of a better word to describe it, is that for everyone who would be looking to sell vol when it hits 25 or some high number wouldn’t be able to – because the two easiest ways – buying these ETPs wouldn’t be an option. Yes, VIX can break. It is highly unlikely, but not impossible. What To Do? I would NOT be selling volatility here. My title was dripping with sarcasm. I like buying VIX calls here – even something that seems as unlikely as a 20 strike. Pure ‘lottery’ ticket type of trades. When I wrote this weekend that I thought VIX would hit 20 before 10, I was extremely nervous as VIX collapsed on Monday as North Korea backed down. My bad case, that I laid out in Sunday’s report – does, unfortunately, seem to be gaining traction – and I think selling VIX is very crowded and might disappoint those who entered the trade recently. There is plenty of room for some fund flows into the long VIX products like UVXY – which is the most dangerous in both directions as it rebalances daily – constantly adding flows to the directions it already moved. Keep an Eye on Risk Parity/Vol Targeting Strategies There might be nothing to it, but treasuries and stocks were both weak this morning. Once the Cohn headlines hit and were then retracted, stocks remained near the lows while treasuries quickly eased off on some of the gains (the long bond is lower on the day again). Realized Vol Is Increasing in Risk Parity Strategies This is one fund that I track and realized vol is nearing its highest for the year. I think that most sophisticated Risk Parity strategies had plenty of cushion in terms of vol and correlation before needing to sell assets – but as we remain at what now passes as elevated vol – we should keep an eye out for any signs of flows from these strategies – where weakness in both long dated sovereign debt and equities is the biggest risk (some commodity weakness wouldn’t help matters). I doubt we are seeing anything meaningful from Risk Parity but it is worth watching.
Authored by Lance Roberts via RealInvestmentAdvice.com, The general consensus is the rise in capital markets, despite global weakness, geopolitical risks and sluggish employment and wage growth, is clearly a sign of economic strength as witnessed by rising corporate profitability. Therefore, stocks are the only investment worth having. My arguments are much more pragmatic. First, it is worth noting that while the markets have risen to “all-time highs,” there was a massive amount of “time” lost in growing capital to meet retirement goals. This is crucially important to understand as was something I addressed in “Stocks – The Great Wealth Equalizer:” “By the time that most individuals achieve a point in life where incomes and savings rates are great enough to invest excess cash flows, they generally do not have 30 years left to reach their goal. This is why losing 5-7 years of time getting back to “even” is not a viable investment strategy. The chart below is the inflation-return of $1000 invested in 1995 with $100 added monthly. The blue line represents the impact of the investment using simple dollar-cost averaging. The red line represents a “lump sum” approach. The lump-sum approach utilizes a simple weekly moving average crossover as a signal to either dollar cost average into a portfolio OR moves to cash. The impact of NOT DESTROYING investment capital by buying into a declining market is significant.” “Importantly, I am not advocating “market timing” by any means. What I am suggesting is that if you are going to invest into the financial markets, arguably the single most complicated game on the planet, then you need to have some measure to protect your investment capital from significant losses. While the detrimental effect of a bear market can be eventually be recovered, the time lost during that process can not. This is a point that is consistently missed by the ever bullish media parade chastising individuals for not having their money invested in the financial markets.” However, setting aside that point for the moment, how valid is the argument the rise of asset prices is related to economic strength. Since companies ultimately derive their revenue from consumers buying their goods, products, and services, it is logical that throughout history stock price appreciation, over the long-term, has roughly equated to economic growth. However, unlike economic growth, asset prices are psychologically driven which leads to “boom and busts” over time. Looking at the current economic backdrop as compared to asset prices we find a very large disconnect. Since Jan 1st of 2009, through the end of June, the stock market has risen by an astounding 130.51%. However, if we measure from the March 9, 2009 lows, the percentage gain explodes to more than 200%. With such a large gain in the financial markets we should see a commensurate indication of economic growth – right? The reality is that after 3-massive Federal Reserve driven “Quantitative Easing” programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which total more than $33 Trillion, the economy grew by just $2.64 Trillion, or a whopping 16.7% since the beginning of 2009. The ROI equates to $12.50 of interventions for every $1 of economic growth. Not a very good bargain. Furthermore, the Fed’s monetary programs have inflated the excess reserves of the major banks by roughly 332% during the same period of time. The increases in excess reserves, which the banks can borrow for effectively zero, have been funneled directly into risky assets in order to create returns. With the Fed threatening to withdraw the reinvestment from their massive balance sheet, one has to ask just how much risk to asset prices there currently is? Unfortunately, while Wall Street has benefited greatly from the Fed’s interventions, Main Street has not. Over the past few years, as asset prices surged higher, there has been very little translation into actual economic prosperity for a large majority of Americans. This is reflective of weak wage, economic and inflationary growth which has led to a surge in consumer debt to record levels. Of course, weak economic growth has led to employment growth that is primarily a function of population growth. As I addressed just recently: “The first is that the number of ‘real’ employees, while growing, is in lower income producing and temporary jobs, and the rate of job growth is substantially lower than the growth of the population.” While reported unemployment is hitting historically low levels, there is a swelling mass of uncounted individuals that have either given up looking for work or are working multiple part time jobs. This can be clearly seen in the chart below which is the working age population of those between the ages of 16 and 54 as a percentage of that same age group. (This analysis strips out the argument of retiring baby boomers, who ironically, aren’t retiring, not because they don’t want to, but because they can’t afford to.) These higher levels of under and unemployment have kept pressures on wages even as work hours have lengthened. The declines in real income are evident as the burgeoning “real” labor pool, and demand for higher wage work, is actually suppressing wages as companies opt for increasing productivity, continued outsourcing, and streamlining employment to protect corporate profit margins. However, as the cost of living is affected by the rising food, energy and health care prices without a compensatory increase in incomes – more families are forced to turn to assistance in order to survive. Without government largesse, many individuals would literally be living on the street. The chart above shows all the government “welfare” programs and current levels to date. The black line represents the sum of the underlying sub-components. While unemployment insurance has tapered off after its sharp rise post the financial crisis, social security, Medicaid, Veterans’ benefits and other social benefits have continued to rise. Importantly, for the average person, these social benefits are critical to their survival as they make up more than 22% of real disposable personal incomes. With 1/5 of incomes dependent on government transfers, it is not surprising that the economy continues to struggle as recycled tax dollars used for consumption purposes have virtually no impact on the overall economy. It is extremely hard to create stronger, organic, economic growth when the dependency on recycled tax-dollars to meet living requirements remains so high. But, Earnings Have Beaten Estimates? Corporate profits have surged since the end of the last recession which has been touted as a definitive reason for higher stock prices. While I cannot argue the logic behind this case, as earnings per share are an important driver of markets over time, it is important to understand that the increase in profitability has not come strong increases in revenue at the top of the income statement. The chart below shows the deviation between the widely touted OPERATING EARNINGS (earnings before all the “bad” stuff) versus REPORTED EARNINGS which is what all historical valuations are based on. I have also included revenue growth as well. This is a not a new anomaly, but has been a consistent “meme” since the end of the financial crisis. As the chart below shows while earnings per share have risen by over 260% since the beginning of 2009 – revenue growth has barely eclipsed 30%. As expected, since the economy is 70% driven by personal consumption, GDP growth and revenues have grown at roughly equivalent rates. While suppressed wage growth, layoffs, cost-cutting, productivity increases, accounting gimmickry and stock buybacks have been the primary factors in surging profitability, these actions have little effect on revenue growth. The bigger problem for investors is all of the gimmicks to win the “beat the estimate game” are finite in nature. Eventually, real rates of revenue growth will matter. However, since consumer incomes have been cannibalized by suppressed wages and interest rates – there is nowhere left to generate further sales gains from in excess of population growth. So, while the markets have surged to “all-time highs,” for the majority of Americans who have little, or no, vested interest in the financial markets their view is markedly different. While the Fed keeps promising with each passing year the economy will come roaring back to life, the reality has been that all the stimulus and financial support can’t put the broken financial transmission system back together again. Eventually, the current disconnect between the economy and the markets will merge. My bet is that such a convergence is not likely to be a pleasant one.
One quarter after virtually every hedge fund loaded up on one or more of the six most influential tech stocks in the U.S stock market, Facebook, Apple, Amazon, Netflix and Google - a handful of stocks roughly responsible for half the market's YTD gains - the love affair with FAANG continued, albeit far less passionately, with quite a few cases of "buyer's remorse" emerging. According to an analysis by Reuters, closely-watched U.S. hedge fund managers were generally bearish on FAANGs in Q2, with eight prominent investors in aggregate cutting or liquidating 18 stakes in the companies, according to the latest 13-F dump. Among those who had chilled on the tech space, were Coatue Management, Omega Advisors, Third Point, Tiger Global Management, Appaloosa Management, Paulson & Co, Soros Fund Management and Greenlight Capital, who in aggregate slashed 16 stakes, sold two stakes, increased six stakes, opened two new stakes, and maintained two positions in the so-called FAANG stocks in the three months ended June 30. Some examples: Dan Loeb's Third Point increased its stake in GOOGL by 120,000 class A shares to 575,000 and increased its position in Facebook by 500,000 class A shares to 3.5 million as of June 30. On the other hand, Leon Cooperman's Omega Advisors took a more bearish stance overall and cut its stake in Facebook by 26,700 class A shares to 236,200. It also cut its stake in Netflix by 12,700 shares to 65,000 shares and trimmed its stake in Amazon by 8,900 shares to 10,500 shares. Omega kept its stake in Alphabet of 158,835 class A shares unchanged. Soros Fund Management sold its entire stake in Alphabet of 1,300 class A shares, cut its stake in Facebook Inc by 161,373 class A shares to 476,713, sold its entire stake in Netflix of 131,966 shares, but took a new stake in Amazon of 7,500 shares. Chase Coleman's Tiger Global - a pioneer in tech investing - cut its stake in Amazon by 110,120 shares to 1.2 million shares and trimmed its stake in Netflix by 52,600 shares to 376,400. Philippe Laffont’s Coatue Management trimmed its stake in Netflix by 17,909 shares to 3 million shares and cut its stake in Apple by 46,060 shares to 2.9 million shares. David Einhorn’s Greenlight Capital also cut its Apple position by 42,400 shares to 3.9 mln shares. John Paulson unimaginatively named hedge fund took a new stake of 12,300 shares in Apple. On the bullish side, most "balls to the wall" was David Tepper, whose Appaloosa Management increased its stake in Apple by 325,000 shares to 625,000, raised its Alphabet position by 110,000 shares to 585,000 - the fund's second largest position at roughly $531MM as of Q2 - and boosted its Facebook holdings by almost 450k shares to 2.356 million shares. However, Appaloosa's most bullish bet was a massive, 3.6 million new share position in Alibaba, equal to over $520MM as of June 30. As a reminder, in Q2 all of the FAANG stocks rose in the second quarter, with Alphabet surging the most, by 9.7% and Apple the least at just 0.3%. Judging by the move in the third quarter, in which all of the FAANG stocks have continued their ascent, with Netflix gaining the most at 14.5% and Alphabet the least at 1%, some of those who sold were likely dragged right back in. Below, courtesy of Bloomberg, is a breakdown of some key moves by marquee hedge funds during the second quarter: ADAGE CAPITAL Top new buys: BCR, EMR, CBS, LMT, NDSN, DXC, KGC, GDDY Top exits: OGE, JCI, EQT, MPC, SQM, RF, TMUS, LII, RBC, AGR Boosted stakes in HON, DOV, DHR, ABX, SPR, COF, CMCSA, GOOG, AERI, NOC Cut stakes in DE, DIS, CC, GD, ITW, TIF, BKH, JAZZ, AAPL, FOXA APPALOOSA MANAGEMENT Top new buys: BABA, DG, SYK, ETE, LB, WFC, CX Top exits: RF, PFE, MYL, TEVA, SYMC, CHTR, MT, UAL, GLBL, X Boosted stakes in MU, GOOG, WDC, FB, AAPL, URI, TMO, UNH, DAL Cut stakes in LUV, GM, AGN, KMI, WPZ, HCA, NUE, BSX, MHK, PNC BAUPOST GROUP Top new buys: CAR, SRUN, SRC Top exits: INVA, MCK, SYT, ABC Boosted stakes in SYF, AR, ESRX, QRVO, CAH, PRTK, FWP Cut stakes in CACC, LNG BERKSHIRE HATHAWAY Top new buys: SYF, STOR Top exits: GE Boosted stakes in BK, GM, AAPL Cut stakes in IBM, WFC, WBC, SIRI, UAL, AAL, DAL BLUE HARBOR Top new buys: INCR, AXTA, COMM, CLNS Top exits: AKAM Boosted stakes in OTEX, ADNT, SPY, FFIV, RDC Cut stakes in BWXT, AVT, AGCO, XLNX, LAZ, IWM BRIDGEWATER ASSOCIATES Top new buys: GLD, CHK Top exits: DIS, CVS, SPLS, MU, CTL, AET, X, DISH, JCP, WMT Boosted stakes in HYG, RL, NFX, SWN Cut stakes in ENDP, CLF, IPG, UPS, PBR, COP, BP, KORS, CVX, XOM COATUE MANAGEMENT Top new buys: SHOP, NOW, CRM, CGNX, ON Top exits: JPM, ZAYO, ILMN Boosted stakes in BABA, TWLO, ALGT, NTRI, CMCM Cut stakes in BAC, EBAY, DIS, APPL, NTNX CORVEX MANAGEMENT Top new buys: CTL, TWX, JBLU, FDX, SBNY, BTU, CFCO Top exits: YUM, YUMC, BLL, CRM, PX, CL, HUM, ETFC, JACK, PRXL Boosted stakes in EGN, SIG, GOOGL, BAC Cut stakes in BIO, MDCO, PAH, RF, FB, NOMD DUQUESNE FAMILY OFFICE Top new buys: BABA, MRK, NOW, YUMC, DAL, V, MA, SBAC, CCI Top exits: LYB, ABX, BAC, AA, AEM, PXD, COG, LNG, SYMC, TMUS Boosted stakes in FB, GOOGL, MSFT, AMZN, CMCSA, PCLN, JD, CTRP, PYPL, EA Cut stakes in PTC ELLIOTT MANAGEMENT Top new buys: NXPI, BTU, NORD, GIMO, WYN, ATHN, FMSA, ARCC Boosted stakes in ECA, MPC, AA, RYAAY, EGN, ACAD, GPI, SAH, ABG, NRG Cut stakes in LOGM, CJ FIDELITY MANAGEMENT Top new buys: EEX, YEXT, FPH, ATUS, NCSM Top exits: GCO, VR, SYT, NYRT, FCN Boosted stakes in PYPL, BABA, GOOGL, UNH, FB Cut stakes in APC, AAPL, CMG, TJX, NXPI GREENLIGHT CAPITAL Top new buys: HPE, TGNA, ADNT, TPX, CARS, NYRT Top exits: TWX, SYT, CI, IAC, ALR, TPH, FMC Boosted stakes in PRGO, MYL, DDS, MU, DSW Cut stakes in CC, PVH, FRED, QHC, AAPL, MON HIGHFIELDS CAPITAL MANAGEMENT Top new buys: HDS, FOXA, GS, KO, NVDA, DLTR, MCD, FE Top exits: CVS, SYT, MPC, IAC, KMI, YPF, BTE Boosted stakes in TWX, TEVA, TV, FDX, MON, WBA, VER, TGT, HCA Cut stakes in AMT, CCE, GOOG, TSLA, GOOGL, APO, VOD, ICE, NAK, HLT ICAHN ASSOCIATES Boosted stakes in IEP, FCX Cut stakes in PYPL, AIG, XRX JANA PARTNERS Top new buys: EQT, ZBH, P, FDC, MOH, CDK, PF, SFM Top exits: WLTW, AET, ADS, SHPG, BMY, WBMD, ACAD, SNAP, BMRN, GWPH Boosted stakes in WFM, HPE, HDS, NUVA, ZAYO, DERM Cut stakes in UHS, DOW, CAG, SHW, CRM, HAWK, TIF, LBRDK, CTSH, LADR LANSDOWNE PARTNERS Top new buys: PYPL, WDC, FSLR, HCC, VXX, CAFD, BTU, SWK, ENIC Top exits: WFC, SNAP, GE, NFLX, TGP, TGS, ALGN, TSLA, SPWR Boosted stakes in TSM, DAL, BAC, JPM, LB, C, HAS, CNQ, JCI, BABA Cut stakes in DIS, CMCSA, FB, NKE, IR, ETN, UTX, ADNT, HON, SYY LONE PINE CAPITAL Top new buys: MSFT, ORLY, MA, ICE, TRU, NOW, UNH, ATUS, AAP, CRM Top exits: NKE, EA, V, PCLN, DLTR, RICE, COMM, SHPG, ALGN, ECA Boosted stakes in BABA, Q, EXPE, CMCSA, FLT, FB, ANET, SNAP, TMUS, TV Cut stakes in CHTR, SYMC, CSX, ALB, ADBE, EQIX, ULTA, ATVI, STZ LONG POND CAPITAL Top new buys: DHI, SLG, VER, RF, BXP, HLT, LSI, ATH, FOR Top exits: ESS, GGP, REG, LEN, TPH, CZR, INXN, UDR, QCP, BK Boosted stakes in AIV, PGRE, SRC, WFC, RPAI, CLGX, TCO Cut stakes in EQR, MSG, LOW, FCE/A, MAC, LQ MARCATO CAPITAL Top new buys: NTCT, CFCO, RYAM Top exits: SIG, FC Boosted stakes in DECK, TEX, RCII, LQ, BWLD Cut stakes in AVT, BID, GT, ERI, TPHS, IAC MAVERICK CAPITAL Top new buys: TAP, DOW, MGM, QCOM, FIS, CHTR, V, ATUS, MIK Top exits: NWL, KHC, SBAC, FLT, MYL, CMCSA, NVDA, HSY, MELI, FFIV Boosted stakes in DLTR, EVHC, IPXL, WYNN, LVS, UHS, FB, SHPG, MCD, WTW Cut stakes in ADBE, PFE, COMM, AET, CI, USFD, VMC, WCN, ORLY, ANDV MELVIN CAPITAL Top new buys: GOOGL, WYN, QSR, YUM, FLT, TTWO, PANW, EDU, MHK Top exits: AAP, FOXA, FDX, DLTR, CALM, NTES, SKX, MAS, HDS, DFRG Boosted stakes in BABA, STZ, AMZN, V, ADBE, WYNN, KMX, LOW, AOBC, LAUR Cut stakes in MCD, FB, SHW, DE, COO, BURL, THO, RLGY, SUM, CASY MOORE CAPITAL Top new buys: MON, WMT, CDEV, AMT, SRUN, PVH, YNDX, QTS, SBAC Top exits: GS, MS, EXPE, CTRP, PCAR, SNAP, MCD, DLTR, CMG, WLK Boosted stakes in GOOGL, JD, UTX, MLCO, CRM, BURL, IT, VMC, CCL Cut stakes in MSFT, BAC, AAPL, ATH, HD, XLF, AER, BKD, PLYA, SYF OMEGA ADVISORS Top new buys: MXL, OCN, CVA, LB, TRN, ADSK, AAL, ETE, NCLH Top exits: WBA, TPH, WPZ, HUM, P, FL, IBKC, CLF, FGL, AA Boosted stakes in MSFT, SBGI, VVV, NBR, ZNGA, PVH, GIMO, FRAC, WPX, SYF Cut stakes in HRG, ASPS, ARRS, HES, LOW, BERY, AMZN, AIG, NRZ PERSHING SQUARE Top new buys: ADP Top exits: APD Boosted stakes in HHC Cut stakes in MDLZ POINT72 ASSET MANAGEMENT Top new buys: JNJ, IGT, PAGP, WMT, LMT, DHR, LLL, CAH, BKD, MSG Top exits: BDX, BCR, JCI, MEOH, CTSH, APA, COST, ESRX, FTI, GPC Boosted stakes in BIIB, GOOGL, CMCSA, TTWO, GOOG, EA, V, AMZN, OLN Cut stakes in FB, AAP, MCD, DIS, TWX, EOG, CLR, PK, ANDV, MYL POINTSTATE CAPITAL Top new buys: C, MGM, CCI, SBAC, BTU, DAL, ADBE, BA, TSRO, REGN Top exits: ECA, VIAB, FANG, PNC, PE, HON, CRM, URI, ALKS, OLN Boosted stakes in BABA, COG, AMZN, CMCSA, BAC, BMA, ETN, RICE, WMB, AGRO Cut stakes in DOW, LYB, WFC, STZ, TMUS, CSX, EA, CFG, VRTX, BIIB RENAISSANCE TECHNOLOGIES Top new buys: PFE, MCK, ADSK, AIG, WDAY, T, WFC, KHC, AXP, NKE Top exits: PCLN, TSLA, TEVA, AMD, CVS, MYL, REGN, TAP, ESRX, INFO Boosted stakes in BMY, DPZ, NVDA, EA, CL, LLY, GSK, GILD, SBUX, AMGN Cut stakes in CMCSA, FB, AET, MRK, PX, UNH, SHW, SIRI, INTC, NFLX RUANE CUNNIFF & GOLDFARB Top new buys: SPSC, APPF Top exits: PRGO, CHTR, AMG, MCD, NVO, GHC, CVS, MSFT, ACGL, JNJ Boosted stakes in OMC, PCLN, FCAU, GOOGL, V, CACC, WAT, GOOG, KMX Cut stakes in FAST, BIDU, ORLY, BRK/B, BRK/A, TJX, WUBA, PRI, CMG, COF SANDELL ASSET Top new buys: ALR, GNCMA, WFM, BCR, TWX, BABA, TIVO, PCRX, BKS Top exits: BOBE, WGL, CIT, VIAV Boosted stakes in MGI, NXPI, BRCD, LVLT SOROS FUND MANAGEMENT Top new buys: EQT, ATUS, GIS, K, PAGP, BCR, TRGP, CARS, NEP Top exits: AGRO, HPE, SYMC, CJ, SUPV, COP, GS, NFLX, VMW, CTXS Boosted stakes in VIAV, MMYT, KHC, EPC, BABA, NOMD, TWX, ATGE, TIVO, ALLT Cut stakes in LRCX, WMB, TMUS, CRC, FB, SBAC, TTWO, LBRDK, SNAP STARBOARD VALUE Top new buys: FCE/A, WBMD, ILG, SRC, PHG Top exits: TRCO, CL, MYCC, PNK Boosted stakes in HPE, FTNT, AAP Cut stakes in NSP, BCO, CTSH, BAX, ABCO, QTM TEMASEK Top new buys: NFX, GRA, AVGO, KREF, NETS, CELG, AMGN, BIIB, MON Top exits: SNAP Boosted stakes in RDS/B, REGN, ALXN, UNVR Cut stakes in GILD, ATH, AMRS, TMO, PTLA TIGER GLOBAL Top new buys: NETS, ATUS, JCP, OKTA, CLDR Top exits: NTES, MELI, ELF Boosted stakes in MSFT, TDG, APO, FLT, CMCSA, AWI Cut stakes in CHTR, FCAU, DPZ, GOOG, GOOGL, FB, QSR, NFLX, ONDK, AMZN THIRD POINT Top new buys: BLK, BABA, NXPI, VMC, ALXN, FMC, BMA, EQT Top exits: JPM, CRM, QCOM, ZAYO, RICE, CE, PXD, AA, NOMD, SNAP Boosted stakes in GOOGL, FB, BAC, ANTM, PE, RSPP, TWX, DHR, DOW, HPE Cut stakes in CHTR, SHW, HUM, MHK, STZ, HON, GD, BAX TRIAN FUND Boosted stakes in BK, PNR, PG, SYY, GE Cut stakes in MDLZ, WEN TUDOR INVESTMENT Top new buys: FB, TRCO, FICO, CACQ, DISH, PCLN, GOOG, DXC Top exits: SYT, BIVV, THS, BOBE, MBLY, CFG, CTAS, KEY, CB, MMC Boosted stakes in GOOGL, AMZN, SPY, BCR, LVLT, AKRX, IAC, SEE, UNP Cut stakes in DVA, ZBH, TSS, UNH, PCRX, FIS, BABA, NDAQ, EW, RTN VALUEACT Top new buys: KKR Boosted stakes in STX, AFI Cut stakes in MSFT, CBG, WLTW, BIVV, NTCT VIKING GLOBAL Top new buys: WFC, APC, AFL, BABA, TDG, MOH, RJF, FLT, NSC, LOW Top exits: GOOG, SCHW, JPM, ICE, BIIB, DIS, UTX, CNC, GPOR, WDC Boosted stakes in V, CRM, PH, JAZZ, LYB, NUVA, AVXS, XRAY, CALA, HDB Cut stakes in FB, DOW, WBA, JD, NFLX, GOOGL, MSFT, DE, AMZN, ECA Source: BBG
Submitted by Rajan Dhall from fxdaily.co.uk We got some encouraging signs from the latest US payrolls report on Friday, with the earnings component edging up to 0.3% on the month, to lift the year on year rate to 2.5%. Even so, this is one month's set of data, and is unlikely to convince USD bears that the rate path espoused by the Fed is still firmly 'on track', and in the wake of the numbers, the odds of another 25bp hike by end of year remain close to 50/50. It does however mean that the one way traffic can ease off a little, so whatever your thoughts on the economy further down the line, we can expect to see a little more ebb and flow in the price action for the majors, with the USD index surviving a test on the key support levels into 92.00. On the data releases next week, we get a little more on the jobs market as Monday offers up the CB employment trends index, along with Fed Labour Market conditions. JOLTS on Tuesday is also one to watch out for, but non farm productivity on Wednesday could add a little more insight on wage growth if this improves. Fed chair Yellen (amongst others) often cites the tight correlation between productivity and wages, so we have been keeping an eye on this on. Even so, the algos are more likely to react to the top tier numbers, and on Friday, the Jul inflation stats, with consensus looking for the headline year on year rate to pick up a few notches from the 1.6% print for Jun. The core rate is expected to hold 1.7%. Underlining the turnaround in the greenback was the sharp reversal in EUR/USD, failing to reclaim the 1.1900 level and eventually getting dragged back under 1.1800 to test the low 1.1700's late Friday. At these levels, buyers stepped in ahead of the 1.1710-15 'breakout point' which suggests to some that we are about to establish a new trading range. This may be a little premature and simplistic, and we would not rule out a deeper retracement - as we expect to see elsewhere to varying degrees - but we can assume 1.2000 will be a tough ask at this stage unless we get fresh European data to turn the tide again. EU wide, we get the latest Sentix Investor Confidence Index for Aug. Judging by the rampage seen in EUR/CHF, one would expect this to remain strong given the dormant cash sitting in safe, fee paying accounts looks to be flowing (in part) into Europe, with a number of asset classes offering value at depressed levels. The cross rate looks a little spent above the 1.1500 mark, but as yet, we see little reason for a marked turnaround as sentiment on Europe holds strong. More specifically, German and Italian trade and industrial production figure stand out next week, especially with the impressive rise seen in industrial orders noted out of Italy. If we do get a stronger correction in the EUR, key levels initially stand out at circa 1.1500 in EUR/USD, and 1.1250-1.1300 for EUR/CHF. Both levels leave more than enough room to maintain the uptrend, but after last week's numbers, the spot rate looks a little more vulnerable under the circumstances. Against this, EUR/GBP has finally made a push through the resistance 0.9000 mark, but this was all down to the BoE announcements last week. There was a strong inclination that the MPC may have been erring on the side of preparing the market for a hike inside H2 of this year, but the vote split returned on 6-2 for unchanged with the outgoing (gone) Kirsten Forbes, and Andy Haldane remained on the cautious side despite some of his comments alluding to a switch over to Messrs McCafferty and Saunders who continue to advocate a move now. Whilst the current UK data is resilient in the face of what lies ahead, governor Carney expressed the ongoing concern over the potential impact of the 'negotiated terms' for leaving the EU - something which in itself seems to have attracted lesser attention despite both sides citing little or no progress in the talks so far. One thing is for sure, and that is with so much uncertainty in the air, pushing GBP any higher from current levels is not going to be easy. Longer term valuation levels argue buying on the downside nearer 1.2500, caution dictates selling at the higher extremes. For Cable, we assume a 'range shift' from 1.2000-1.3000 to 1.2500-1.3500, and going into the BoE call on Wednesday, sellers were clearly in evidence south of 1.3300. We would not have expected any hawkish bias to have led to led to any material rate hike pricing further down the line, though since the meeting, deputy governor Broadbent believes the market is understating rate hikes, but this looks to be based on the 2-3 year forecast horizon and with a high degree of risk variables to factor in. EUR/GBP resistance higher up now lies in the 0.9200-0.9250 area, but we expect a slow grind up to these levels unless Brexit headlines - so far quiet- start hitting the wires again. Data next week focus on the manufacturing and construction sectors, as we get the output stats for Jun on Thursday as well as the trade balance - currently an improved £11.86mln deficit. Sticking to the continent, and Thursday, we also get the latest Norwegian inflation stats followed by industrial production in Sweden. Swedish data has been very strong of late - indeed year on year industrial production as of May stood at 8.0%, with orders up at 7.6%, and after the strong 4.0% rise in GDP reported last week, more of the same is expected. Still no outright differentiation to note however, as firmer Oil prices support the NOK and keep NOK/SEK tight in the mid 1.0200's for now. Oil prices have also proved supportive for the CAD at these levels, but clearly the interest cycle is now driving sentiment, with the BoC 25bp hike followed up by expectations of more to come based in central bank rhetoric backing up the data. Headwinds that lie ahead include the impact of the rise in implied rates on the housing market, with recent entrants likely to be stretched given the prices they have had to pay. Early signs that in some areas prices are heading lower - or moderating at least - and this alone could prompt the BoC to take a slightly softer line after such a sharp change in sentiment. It also won't be long before the NAFTA talks are thrust into the headlines, and while the net effect of the tri-party accord has been beneficial to the US and Canada in equal measure over the years, the unnerving factor may impact sentiment at various points in the negotiations. Mexico is naturally more concerned. For now, we look to have a base set ahead of 1.2400, with the upturn pushing into the upper 1.2600's. The Canadian jobs release was also a healthy one, and continuing the positive theme set out in preceding reports, but we also saw the trade deficit widen out by considerably more than expected, and along with the spot overstretch seen in the tight time frame achieved, the correction here may well have the legs for 1.2750-1.2800, but it will be a choppy ride from here. Nb, Canada off on Monday; Civic day. Onto the traditional risk currencies and pairings, JPY exchange rates have been relatively well contained amid the geopolitical concerns which dominate. We will see how USD/JPY and the rest of the pack respond to the sanctions imposed on North Korea, but on recent evidence, we expect very little if at all. USD/JPY in particular has been very orderly of late, and we hit strong demand into 110.00 last week while 112.00 higher up looks to be the first major resistance point if the usual risk-on mood in FX picks up again. EUR/JPY looks heavy on moves through 131.00 at present, and AUD/JPY and NZD/JPY have both backed off better levels in recent weeks, but we should get as much, if not more price action in AUD/USD and NZD/USD in the week ahead. On the economic front, plenty of second tier data out of Japan including machinery orders, but none of this really matters with respect to currency and rates, where the inflation rate is way off target and underpins the current BoJ policy stance for some time to come. In China, trade data in the middle of the week will be of greater interest rather than inflation, while we also get levels on FX reserves at the start of the week. NZ is where we have the only central bank action to look to, and the market will be looking out for notes on whether the RBNZ are duly concerned over USD exchange rate levels. Against the AUD, we remain at historically higher levels as we struggle to push back above 1.0700, but having pierced 0.7500 vs the USD, we should least get the cautionary warnings on the negative impact on growth should we push higher still. We have since dipped (very) briefly under 0.7400, so expect the rhetoric to be calm and advisory for now, as was the tone adopted by the RBA in their statement last week. The RBNZ are also set to keep rates unchanged, especially in the wake of the weaker than expected jobs data for Q2. AUD continues to hold comfortably above its respective breakout point at 0.7850 or so, but we did see the USD side of the equation testing 0.7900, and there are clear comparisons here (in price action) to that of EUR/USD into 1.1710-15 as noted above. On the Australian data schedule, the AIG construction index offers some early input in Q3 growth, with lending data out on Tuesday. RBA assistant governor Kent speaks on Tuesday, governor Lowe on Thursday.
American International Group Inc.'s (AIG) second-quarter results benefit from favorable performance by its consumer business, cost control efforts and share buyback.
Nasdaq 100 futures jumped 0.8% after Apple surged to record highs following a strong beat and optimistic projections ahead of the launch of the company's new batch of iPhones. Eminis are little changed, up 0.1% to 2,475, trailing Asian markets, while European stocks and crude oil fall. Apple surged 6% after-hours to a new record highm taking its market capitalization above $830 billion. That should help carry the Dow through the 22,000 mark when the market opens. Among Asia's Apple suppliers, LG Innnotek jumped 10 percent and SK Hynix, the world's second-biggest memory chip maker, rose 3.8 percent. Murata Manufacturing firmed 4.9 percent and Taiyo Yuden 4.4 percent, helping the Nikkei up 0.47 percent. "It is all about Apple," said Naeem Aslam chief market analyst at Think Markets. "The firm comfortably topped its forecast and produced stellar numbers for its revenue and profit." Oil came under pressure again as higher than expected US inventories and reports of rising OPEC output helped drive prices below back below $48/bbl (WTI crude). In FX markets, the USD dollar gave up some gains late in the session with DXY edging down by 0.1% and the euro rising to $1.1827. Treasury yields are 0.5-2bps higher across the curve with the 10y at 2.273%. The MSCI tech index for Asia climbed 0.9 percent to ground not trod since early 2000, bringing its gains for the year to a heady 40 percent. Asian markets rose, supported by tech shares after Apple's surprising beat guidance boost as well as stronger Chinese manufacturing PMIs (the Caixin/Markit survey of private Chinese manufacturing rose to 51.1 in July, its highest level in four months). Japan's Nikkei gained after the strong Apple sales outlook helped boost tech shares; Korea's Kospi and the Hang Seng were also firmer while the ASX 200 slipped on commodities pullback. The NZ kiwi dropped sharply after New Zealand’s employment unexpectedly fell. Australian government bonds trimmed early gains after monthly building approvals surged; WTI crude futures drift lower toward $48.50; Dalian iron ore January futures 1.6% weaker In Europe, the Stoxx Europe 600 Index declined 0.2%, the U.K.’s FTSE 100 Index decreased 0.3 % while Germany’s DAX Index dropped 0.1%. Mining and oil shares weighed on Europe’s benchmark equity index as crude fell for a second day and most industrial metals traded lower. Meanwhile, following its best month since March 2016 the Euro's gains continued, reached a new two-and-a-half-year high against the ailing dollar, and leading to a stop-loss triggered spike around 4:30am ET, which sent the EURUSD as high as 1.1870, pressuring the Eurostoxx 600 lower, as traders ktrimmed long-dollar positions ahead of U.S. payrolls data on Friday. Rio Tinto Plc led the decline among basic resources shares after first-half profit missed estimates. Banks dropped after Standard Chartered Plc said it can’t resume dividends amid an uncertain recovery, while Societe Generale SA slumped as litigation costs increased. Oil extended a retreat from its brief rise above $50 a barrel as U.S. crude stockpiles expanded, while copper dropped a second day. "The ECB is going to be the central bank to watch for the rest of the year," said JP Morgan Asset Management global market strategist Alex Dryden. "We think they are going to take 9-12 months to get out of the market but that is a big question ... it could even be six months," he added. With the dollar index near a two-year low, the options market shows that traders are gearing up for more euro strength with demand growing for calls, according to Bloomberg. The currency’s strength has pushed European earnings revisions into negative territory, according to Credit Suisse Group AG. The pound retains bullish trading ahead of the Bank of England policy decision on Thursday, rising as high as 1.3240. European government bonds slipped before Germany’s sale of 10-year bunds, which priced at an average yield of 0.49%, down from 0.59% previously (Bid to cover 1.52, retention of 19.5%). The key overnight FX move included a tumble in the New Zealand dollar, which fell more than half a percent after second-quarter employment unexpectedly declined. Most emerging Asian currencies fell initially as the dollar recovered after capping a fifth straight month of declines in July. The MSCI EM Asia Index of shares is up for a third day, with bonds in the region mostly higher. However, as the night progressed, dollar gains fizzled and the Bloomberg Dollar Index was down less than 0.1% after bing up 0.1% earlier, following Tuesday’s 0.2% advance, which came after a sharp 2.6% slide in July. China’s money-market squeeze returned, with sovereign bonds beginning to feel the heat as the central bank keeps liquidity on a tight leash, without adding any net new reverse repo liquidity for another day, and concerns grow about a wall of fund maturities this month. 10-year bond yield little changed at 3.64%, hovering near the highest level in 8 weeks as PBOC refrains from boosting liquidity for third day. Onshore, offshore yuan both drop; Shanghai Composite Index down 0.2%. In a statement on its microblog, SAFE said it didn’t target specific companies as in a media report that it checked their collaterals for loans overseas. Expect data on MBA mortgage applications later, along with earnings reports from Tesla, MetLife and Time Warner among others. Market Snapshot Dow futures +53 Dow cash closed +72.80 to 21,963.92 S&P 500 futures +3.5, up 0.1% to 2,474.75 S&P 500 cash closed +0.24% to 2,476.35 10Y UST yield +2bps to 2.273% STOXX Europe 600 down 0.2% to 379.33 MSCI Asia Pacific down 0.02% to 161.30 MSAPJ up 0.05% to 531.62 Nikkei up 0.5% to 20,080.04 Topix up 0.4% to 1,634.38 Hang Seng Index up 0.2% to 27,607.38 Shanghai Composite down 0.2% to 3,285.06 Sensex down 0.08% to 32,549.91 Australia S&P/ASX 200 down 0.5% to 5,744.20 Kospi up 0.2% to 2,427.63 German 10Y yield rose 0.4 bps to 0.495% Euro up 0.5% to 1.1866 per US$ Italian 10Y yield fell 7.4 bps to 1.727% Spanish 10Y yield rose 3.9 bps to 1.477% Brent Futures down 0.5% to $51.53/bbl old spot down 0.1% to $1,267.36 U.S. Dollar Index down 0.3% to 92.80 Top Overnight News from BBG Apple Results Push Global Tech Higher; White House Considers China Trade Action; Oil Slips on Surprise Jump in Stockpiles Apple Inc. gave a revenue forecast that highlighted resilient demand for the iPhone ahead of the launch of its new models and the growing significance of the company’s supporting businesses Deutsche Bank AG envisions shifting almost half its U.K. positions to the European continent over coming years as the lender’s Brexit plans take shape Auto sales fell the most since August 2010, a year after the federal government’s “Cash for Clunkers” program to stimulate demand came to an end Central banks around the globe are stocking up on Treasuries again, giving bond traders one more reason to wager on a steeper U.S. yield curve in the months ahead Clients said to have pulled 15% of their assets from Paul Tudor Jones main fund in 2Q Trump’s Russia Ties Get No Scrutiny as House Panel Eyes Clinton Trump’s CEO Brain Trust Comes Up Short on Big Ideas for Policies Democrats Say They Had ‘Bizarre’ Meeting With Trump’s Ex-Im Pick Wal-Mart Puts New Scrutiny on Suppliers With Chemicals Project Apple FY4Q Rev. View Midpoint Tops Est; Gross Margin View Trails Fleetcor Raised $3.975b of Pro-Rata Loans Alongside $350m TLB Global Smartphone Sales Rise 5.5% as Xiaomi Re-Joins Top Five Teck Says BC Hydro Exercised Right on Interest in Waneta Dam Methode to Buy All Pacific Insight Shares for About C$144m Cash CVS Sees Removing 17 Products From Standard Control Formulary Match Group Names Mandy Ginsberg to Succeed Greg Blatt as CEO Amazon Cloud Users Told Not to Bypass China Internet Rules: WSJ Asian stocks traded mostly higher taking the impetus from Wall Street's gains where the DJIA homed in on the 22,000 level and NASDAQ futures surged after-market following Apple's (+5% after-market) strong Q3 earnings. This supported the Apple supply chain and resulted to outperformance of the TAIEX (+0.7%), while Nikkei 225 (+0.6%) was underpinned by a weaker currency. Conversely, losses in the commodities complex and financials weighed on ASX200 (-0.4%), while Shanghai Comp (+0.1%) was indecisive and traded choppy due to a lack of drivers and a reduced liquidity operation by the PBoC. Finally, 10Y JGBs were relatively flat amid the positive risk tone in Japan with only mild gains seen following a respectable Rinban announcement in which the BoJ are in the market for over JPY ltln JGBs ranging from ly to 10Y maturities. The Kiwi tumbled after ugly jobs data: New Zealand Employment Change (Q2) Q/Q -0.2% vs. Exp. 0.7% (Prey. 1.2%) New Zealand Employment Change (Q2) Y/Y 3.1% vs. Exp. 4.1% (Prey. 5.7%) New Zealand Unemployment Rate (Q2) 4.8% vs. Exp. 4.8% (Prey. 4.9%) Top Asian News GIC Is Said to Invest $100 Million in Japan Activist Fund Misaki China Billionaire Triples Wealth and Shorts See a Fat Target Hongqiao to Shut and Replace More Than 2 Mln Tons Alu Capacity Sleepy Japan Stocks Set for Rude Awakening, Strategists Say Noble Group May Challenge Yancoal Equity Raising for Rio Deal BNP Paribas Is Said to Expand Japan Operations With 30 Hires European bourses traded with modest losses with energy and material names underperforming, the latter weighed by Rio Tinto post their soft earnings report. Apple suppliers performing well this morning with the likes of Dialog Semiconductors trading with modest gains after Apple profits rose ahead of analyst estimates. Standard Chartered and SocGen lower this morning following soft financial results. EGB yields ticking higher this morning, while firmer Eurozone PPI figures have also led to the upside. Notable outperformance observed in the German 5Y with the yield falling 0.2bps. Top European News Deutsche Bank Brexit Base Case Said to See 4,000 Jobs Move Standard Chartered First Half Adjusted Operating Income $7.2 Bln U.K. July Construction PMI 51.9 vs 54.8 in June; Est. 54 Glencore Asks Australia to Focus on Economy Before Climate Deal Brexit Angst Is So 2016 as These Indicators Show: Markets Live UniCredit, Mediobanca, Generali to Cut Crossholdings: Repubblica Thyssenkrupp Said to Consider Break-Up as Plan B to Tata In currencies, NZD underperformed last night post the release of soft jobs figures which took NZD back towards 0.74. Consequently, the jobs data alongside the relatively tepid Fonterra GDT auction reinforces the RBNZ's current neutral stance on interest rates, in the wake of the data, AUD/NZD broke back above 1.07. CAD noticeably weaker this morning, largely on the back of softer crude prices following last night's surprise API build. The recent bearish trend looks to have broken down with USDCAD now hovering around last week's high of 1.2577 and looking to make a move above 1.26. JPY weaker across the board, USD/JPY eying 111.00 to the upside after offers just above 110.50 failed to cap strength. EURJPY holding 131.00 for now as gains have been led by rise in EUR/USD which tripped through 118.00. GBP relatively choppy this morning following a sizeable miss on the Construction PMI reading (51.9 vs. Exp. 54.5), GBPUSD ticking off some 20 pips before trading back to pre-announced levels In commodities, WTI crude futures were drilled below USD 49/bbl following a surprise build in API inventories and a survey which suggested OPEC supply rose in July. Elsewhere, gold (-0.3%) retreated from near 8-week highs amid profit taking and with the safe-haven also dampened by the increased risk appetite, while copper prices were also lower alongside the broad-based weakness across the commodities complex. WTI and Brent crude futures tracking lower following last night's API report. Iron ore futures also saw a slight pullback from its recent advances, declining over 1% in Asian trade. Taking a look now at the day ahead, we will get the ADP employment number for July due (190k expected; 158k previous). At present the three month trailing average of ADP private employment gains (179k) is tracking close to that of BLS private payrolls (180k). So our US economist believes it would take a material miss relative to expectations for us to change our payroll forecast. Major US companies due to report earnings include: American International Group (AIG), Metlife, Mondelez International and Time Warner. US Event Calendar 7am: MBA Mortgage Applications, prior 0.4% 8:15am: ADP Employment Change, est. 190,000, prior 158,000 11am: Fed’s Mester Speaks to Community Banking Conference 3:30pm: Fed’s Williams Speaks in Las Vegas on Monetary Policy DB's Jim Reid concludes the overnight wrap Many in the market continue to talk about it being a carry trade until at least Jackson Hole in 3 and a half weeks’ time. The chatter on the US debt ceiling that we've discussed before also continues in the background with some saying the Trump administration will struggle to build a consensus around the smooth raising of it as we approach it around October time. The thing that worries investors most from an immediate event risk point of view is an escalation of tensions between the US and North Korea. Could we wake up one morning to find the US has used force in some way in the peninsula? Clearly its impossible to predict but that doesn't prevent some from using it to handicap their view. We also have the Fed and the ECB likely to stop reinvestment and announce a fresh taper in September and October respectively. So plenty to think about after the holidays are over but for now most investors are riding carry trades. In the days leading up Jackson Hole it'll be interesting to see if that changes but markets probably have two weeks before it comes into view enough to focus on. Ahead of the likely August lull, government bond yields fell across all regions and maturities yesterday, with the German Bunds down to the lowest level since early July (2Y: -2bp; 10Y: -5bps). For other sovereigns, the Italian BTPs (2Y: -3bps; 10Y: -8bps) fell the most, followed by the OATs (2Y: -6bps; 10Y: -6bps) and Gilts (2Y: -1bps; 10Y: -2bps). The bund yield started higher in the morning, but fell ~5bp in the afternoon to 0.49%. The change was similar to intraday falls in the UST 10Y, partly driven by the mixed US macro data and lower auto sales by US car markers (sales at GM -15% yoy). To be fair, as we type, UST 10Y yields have bounced back from the lows and is now ~1.5bp higher this morning. In commodities, WTI oil fell 2 %, marking the first decline after 6 consecutive days of gain. The softness was partly associated with an industry report (American Petroleum Institute) showing rising US inventories and a Reuters survey indicating higher OPEC production in July, led by a further recovery in supply from Libya. Iron ore softened 0.2%, after a 7% rise the day before on positive Chinese steel PMI data. Elsewhere, precious metals were slightly lower (Gold -0.1%; Silver -0.2%) and industrial metals also softened (Copper -0.4%; Aluminium -0.1%). Onto equities, US bourses continue to edge ahead, following supportive results. The S&P and the Nasdaq were both up 0.2%. The Dow was up 0.3% to another record close – the fifth record high and closer to the 22,000 mark. Within the S&P, modest gains in the financials (+0.8%) and IT sector (+0.5%) were partly offset by losses in health care and industrials. After the bell, Apple was up ~4% on a solid quarterly result and upgraded revenue forecast. European markets also strengthened, aided by the lower Euro and sound results from BP and Rolls-Royce. The Stoxx 600 was up 0.6%, with most sectors increasing on the day. Utilities and the energy sector was up 1%, while health care was the only sector down (-0.2%). The DAX was up 1.1%, with similar increases across the region: FTSE 100 (+0.7%), CAC (+0.7%) and Italian FTSE MIB (+0.6%). Turning to currency, the US dollar index gained 0.2% on the back of mixed but slightly supportive data. The Euro/USD and Sterling/USD both softened marginally, falling 0.3% and 0.1% respectively. Turning to Tuesday's data, the key focus was on the Markit PMI and ISM data out of Europe and the US respectively. Before we take a detailed look at these numbers, we quickly recap some of the other economic data releases out yesterday. Away from the PMIs in Europe we saw the advance Q2 GDP estimate for the Eurozone that came in line with expectations at +2.1% YoY (+0.6% mom), up from +1.9% YoY in Q1. After factoring this in and the clear lift in momentum seen in other indicators, our European team now expects full year growth in 2017 to be 2.2% up (vs. 1.9% previous) and 2018 growth to be 2.0% (vs. 1.6% previous). Meanwhile over in the US personal income growth was flat in June (vs. +0.4% expected) while personal spending also slowed in line with expectations at +0.1% mom (+0.2% previous). Real personal spending was however flat on the month against expectations of an increase of +0.1%. Turning to the manufacturing PMI data now. In Europe we saw manufacturing PMIs for Germany (58.1 vs. 58.3 flash), France (54.9 vs. 55.4 flash) and the Eurozone (56.6 vs. 56.8 flash) all revised slightly lower. Elsewhere we also got the first look at the Spanish PMI (54.0 vs. 54.5 expected) that disappointed while Italy (55.1 vs. 55.0 expected) and the UK (55.1 vs. 54.5 expected) beat expectations. The UK number had fallen for the last three months and the rise was on the back of the strongest rise in export orders since April 2010. Has the devaluation finally had an impact? Across the pond the ISM reading dipped to 56.3 (vs. 56.4 expected; 57.8 previous), but was largely in line with expectations. The production index fell to 60.6 (vs. 62.4 previous) while new orders slipped to 60.4 (vs. 63.5 previous). New export orders also fell to 57.5 (vs. 59.5 expected). One interesting dynamic to take note of is the prices paid index that climbed significantly more than expected to 62.0 (vs. 55.8 expected; 55.0 previous). Of the 18 manufacturing industries surveyed, 14 reported an increase in the prices paid for raw materials in July. While part of the climb could be attributed to the fact that the index was quite low in June (lowest level since November 2016), the US dollar weakness in July likely played an important role in driving up raw material costs for US manufacturers. Away from the markets, the WSJ reported that US senate democratic leader Schumer wrote to President Trump and urged him to put all Chinese M&A activity in the US on hold until China takes more aggressive actions to address the evolving North Korean situation. This morning, Asian markets have followed the lead from US, with the Nikkei (+0.4%), the Kospi (+0.2%) and Hang Seng (+0.3%) all higher but with Chinese bourses broadly flat. Taking a look now at the day ahead, today’s calendar appears to be fairly quiet. In Europe the Eurozone PPI for June (-0.1% mom expected; -0.4% previous) is the only data of note, while the US has the ADP employment number for July due (190k expected; 158k previous). At present the three month trailing average of ADP private employment gains (179k) is tracking close to that of BLS private payrolls (180k). So our US economist believes it would take a material miss relative to expectations for us to change our payroll forecast. Major US companies due to report earnings include: American International Group (AIG), Metlife, Mondelez International and Time Warner.
Core business growth, higher premiums and an improving rate environment might benefit the insurers' Q2 results. However, volatile underwriting due to catastrophe losses can weigh on upside.
American International Group, Inc.'s (AIG) second-quarter earnings may gain from cost-reduction initiatives and capital return program. Weakness in the Commercial segment may partially offset.
FX Week Ahead, by Shant Movsesian and Rajan Dhall MSTA of fxdaily.co.uk Is the SNB at it again? EURO-phoria takes off as longer term investors get the nod. Having focused on the USD in recent weeks, and how the market has rounded on the greenback 'en masse', we can finally look to some exchange rate moves outside of the major spot rates. Sharp losses in the CHF have shown that the big money is taking note of the recovery in the Euro zone, and that investment prospects look good as the smaller member states are gaining traction alongside the power house that is Germany. Last week, IFO economists said they saw little which could derail the domestic economy, including the strengthening EUR, which has traded to a little shy of 1.1800 in the past week, but more significantly, taking out the 1.1711/12 (long term range highs in the process. This led to the 'follow through' which saw EUR/CHF shooting up to levels close to 1.1400, having spent a year long slumber inside a 1.0600-1.1000 range. More data out next week is expected to confirm the above, headlined by EU wide Q2 GDP on the Tuesday, with updated manufacturing PMIs due out for all the leading states, as well as unemployment data. Focus on Germany will be shared out a little to Spain and Italy, also seeing marked improvement in economic activity. Spanish jobs have increased significantly, and in Italy, industrial orders have taken off, so no surprise for widespread calls for the ECB to rein in their APP, but once again, market forces are threatening to choke off some of this recovery. As such, there is growing sentiment that once the ECB do signal policy change in Autumn, there will be a sense of disappointment - naturally linked to the rampant gains in the EUR seen already. German 10yr hit levels shy of 0.65% a few weeks back, but the moderation of some 10bps or so looks to have been a short lived affair as Bunds took a sharp hit as the regional inflation data out of Germany saw healthy pick up. On Monday we will see whether CPI is rising across the region as a whole, but consensus is looking for 1.3% in the headline, 1.1% in the core. These levels remain a major concern for the ECB at the present time, but the market has been aggressively calling president Draghi's hand. The Fed are similarly wary of tepid inflation rates - below 2.0% - but despite comparatively higher levels, the USD selling spree continues in certain quarters. There are further signs that this is nearing a pause - or correction - for now, but we still see traders pouncing on any opportunity to offload, with Friday's mix of data case in point. On Thursday, the large contribution from Boeing's large order books saw Jun durable goods rising 6.5% on the month, and this was backed up in the ex air and defence numbers, which although soft in Jun, were revised higher in May to offset this. Cue the upwards revisions to Friday's Q2 GDP, but the 2.6% rise was pretty much on consensus. Fingers were pointed at the soft advance PCE prices however, and along with a lower than expected employment cost index, it was business as usual with the USD index was hit back towards the weekly lows - though these held. EUR/USD as mentioned above could not get back into the upper 1.1700's again, but we saw USD/JPY pulled back into the mid 110.00's. USD/CAD stole the show however, as the 0.6% GDP read for May blew the consensus 0.2% forecasts away, but I am still a little bemused as to why these weren't upgraded after some of the component readings for that month - notably wholesale sales at a much better than expected 0.9%. Fresh from turning back off the low 1.2400's, the retracement into the mid-upper 1.2500's lasted less than 24 hours, and we were swiftly back near the lows again, but as above, excessive strength was curbed into the weekend. It is hard to argue that a 10% appreciation (1.3800 to 1.2400 give or take) in 10 weeks is not excessive. Looking into next week, we have more on the US PCE as the Jun data is released on Tuesday. Markets will have a chance to calm a little with Monday's schedule showing only pending home sales, but the following day we also have the ISM manufacturing PMIs for Jul, along with the personal income and spending stats which accompany one of the Fed's favoured metrics (core PCE). The familiar main event at the start of the month is Friday's payrolls report, where once again the market is looking for average earnings to edge up to 0.3% from the flat-line 0.2% seen of late, while headline jobs growth is expected to come in around 175-180k vs 187k posted in Jun. Again we expect some moderation in the USD ahead of this, but there is plenty before this, including ADPs, which will make it another bumpy ride, though any pullbacks vs JPY will be limited ahead of 112.00, and likely pre 1.1600 vs the EUR. The Canadian jobs report is also due at the end of the week, with little reason to believe the data will not signal continued improvement in the economy. However, just as we are seeing in the EUR, the speed of the CAD recovery could be disruptive, and we have had some unsubstantiated reports that the government is a little concerned over the BoC's rate path trajectory. The recent 25bp hike as it stands has come in the face of a housing market on the turn. Oil prices are also nearing some key levels, so there are mounting reasons for some consolidation here at the very least. Notable levels seen just below here into the mid 1.2300's while a 1.2575 breach up top should signal a deeper correction, possibly to 1.2700 or so initially. A big week for GBP as Thursday's MPC meeting will show any further change in sentiment over the bias (on timing more than anything else). Rising inflation rates have clearly been exchange rate led, but with the economic prospects still very much in the balance, a reversal in last year's 25bp cut is not the clear cut answer. We still feel the BoE misjudged the pre-emptive move last summer, so there is an element of having backed themselves into an unnecessary corner. Tentative signs that CPI is softening already, with the latest data showing the yearly rate backing off 2.9% and saving the statutory letter to the Chancellor. Will this be enough to keep the rate hawks at bay? 5-3 was the vote split at last month's meeting, and we may need some retraction here if Cable is to give up some of the bid tone which sees us pushing further into the mid 1.3100's. 1.3170-90 the next area to watch here. This is also being helped by the strong defence in EUR/GBP ahead of 0.9000. This proved a strong sticking point in November last year, but sellers will be getting a little nervous as pullbacks are finding strong buying interest below 0.8900. Even though the robust nature of the UK at present is proving supportive against an ailing USD, Brexit uncertainty and the positive mood in Europe should see EUR/GBP dips well contained for now. Worrying were the comments from chief EU negotiator Barnier that he had no clear idea on UK policy on a number of issues, so the focus on hard or soft Brexit could start to fade as traders focus on the overall capabilities of the government as it stands in getting the UK the 'best deal' at the negotiating table. Services PMIs are due out on the morning of BoE announcement day, and preceded by manufacturing on Tuesday and construction on Wednesday. It is also a busy one for Australia, as the RBA meet to deliver their latest assessment on the economy. The last meeting was a little more cautious than some had expected, though the minutes were taken in a more positive light. AUD was going through a purple patch as were all the 'risk' currencies, but having pierced the 0.8000 mark, references to the exchange rate and how it may unbalance economic growth will be under scrutiny, as will inflation falling back under 2.0% - marginally so, and still comparatively firmer than elsewhere. Against this we have seen a strong rise in commodities - Copper rising to $2.90 - but despite scepticism, this will contribute to positive factors as will the healthier jobs market. Even so, the market has erred towards a more hawkish stance, so the risks here lie to the downside. AUD may well take another dip lower, but against the USD, the breakout area at 0.7850-35 will provide the first point of support. Higher up, pre 0.8200 is the upper end of the medium term target range, and we do note rule out a push towards these levels, but it will be a slow grind at best. Plenty of data alongside RBA meeting, with housing and private credit, the AIG manufacturing index, trade and retail sales all due for consideration. The RBNZ do not meet up until the week after, but late Tuesday we get the latest employment report, while ahead of this we get the results of the latest Fonterra dairy auctions. In the meantime, NZD is following the rest of the pack, but looks slightly better supported given another dip back in AUD/NZD. We still expect to see losses limited below the 1.0500 mark, with only a major fallout in broader risk sentiment prompting greater volatility here. NZD/USD is still looking to probe higher, but above the 0.7500 mark, the central bank may choose to impart some well chosen words to temper further strengthening. Renewed optimism in China's economy has prompted the pick up in commodity prices led by metals, giving the added impetus to AUD and the rest of the Pacific Rim yielders, and we will get more evidence of this (or not) from the official and Caixin manufacturing PMIs on Monday and Tuesday respectively. The JPY carry trade is bolstered as a result, but there looks to be some hesitancy across the board, with the USD/JPY rate naturally pressured in the current climate. Economic activity in Japan is also rising, though at a gradual pace, but enough to prompt upgrades to growth forecasts. The BoJ will maintain their 'whatever it takes' mantra with inflation still way off target, so alongside industrial production forecasts, we also look to the monetary base figures on Wednesday. 110.50-30 support looks set to be tested again but low volatility reinforces this base to a degree, with the high correlation to the VIX underpinning the resilient appetite for risk - irrespective of your views further down the line. Strong growth numbers out of Sweden on Friday, which prompted another SEK surge against the USD, but this proved short lived initially before the greenback was hammered again late on. NOK/SEK also took a tumble from above 1.0300 to a little shy of 1.0200, then also recouped, so SEK buyers need to be selective here, and as we started out in the preview, CHF looks to be the obvious choice for now. Oil prices are bolstering the NOK as much as the Norges bank stance, though we should see the Riksbank starting to abandon their uber cautious tone in light of the latest data, so we see 1.0350-60 capping the cross rate for now. PMIs the only standout readings to watch for next week.
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WASHINGTON (Reuters) - Two prominent U.S. Democratic senators are raising questions about President Donald Trump's special adviser, Carl Icahn, asking in a letter on Thursday if the activist investor is attempting to persuade the government to lift its "too big to fail" tag from insurer American International Group.
Back in March 2015, Howard Marks was among the first to sound the alarm on the encroaching danger posed by both ETFs in particular, and passive investing in general, when he memorably asked (rhetorically, for now), "what would happen, for example, if a large number of holders decided to sell a high yield bond ETF all at once?" and answered his own question: "in theory, the ETF can always be sold. Buyers may be scarce, but there should be some price at which one will materialize. Of course, the price that buyer will pay might represent a discount from the NAV of the underlying bonds. In that case, a bank should be willing to buy the creation units at that discount from NAV and short the underlying bonds at the prices used to calculate the NAV, earning an arbitrage profit and causing the gap to close. But then we’re back to wondering about whether there will be a buyer for the bonds the bank wants to short, and at what price. Thus we can’t get away from depending on the liquidity of the underlying high yield bonds. The ETF can’t be more liquid than the underlying, and we know the underlying can become highly illiquid." Not to make a too fine a point of it, Marks underscored just how profound the role of liquidity can be at a time when everyone needs it, and none is available: In September 2008, AIG experienced serious liquidity issues (despite its $1 trillion balance sheet) when it couldn’t post $20-25 billion of liquid collateral related to credit default swap contracts written by one of its subsidiaries. The U.S. government stepped in as a result, lending support that eventually reached $182.3 billion, massively diluting AIG shareholders in the process. When you can’t meet a margin call because you have insufficient liquidity, that’s profound. In the ensuing two years, while the ETF market has only gotten more "liquid" (at least in a time when liquidity wasn't actually needed), the underlying bond market has seen bid/ask spreads widen as liquidity in single-name securities has shrunk. This has not been a purely credit-linked concern, as increasingly more ETF-linked "events" have emerged in other asset classes, including the most liquid one: equities. Fast forward to today, when the Oaktree co-chairman, in his latest memo titled "There They Go Again... Again" has not only shared his broader thoughts on markets and the current investing environment, as follows... The uncertainties are unusual in terms of number, scale and insolubility in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology. In the vast majority of asset classes, prospective returns are just about the lowest they’ve ever been. Asset prices are high across the board. Almost nothing can be bought below its intrinsic value, and there are few bargains.In general the best we can do is look for things that are less over-priced than others. Pro-risk behavior is commonplace, as the majority of investors embrace increased risk as the route to the returns they want or need. ... which however he doesn't go so far as describing it as a "bubble", but - among others - discusses his latest views on what many believe is the biggest risk to market structure and overall risk stability: ETFs and Passive Investing. And here, once again, Marks sounds the alarm on not only on ETFs, but the exponentially growing passive investor sector, which is soaking up hundreds of billions in capital from active managers, in the process creating perhaps what may be the biggest bubble ever, one which - ironically - takes place with no fundamental analysis whatsoever. The key quotes: Given the generally lagging performance of active managers over the last dozen or so years, as well as the creation of ETFs, or exchange-traded funds, which make transacting simpler, the shift from active to passive investing has accelerated. Today it’s a powerful movement that has expanded to cover 37% of equity fund assets. In the last ten years, $1.4 trillion has flowed into index mutual funds and ETFs (and $1.2 trillion out of actively managed mutual funds). * * * As a product of the last several years, ETFs’ promise of liquidity has yet to be tested in a major bear market, particularly in less-liquid fields like high yield bonds. * * * ... as ETFs attract capital, they have to buy large amounts of these stocks, further fueling their rise. Thus, in the current up-cycle, over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles, which don’t have the option to refrain from buying a stock just because its overpriced... Is Apple a safe stock or a stock that has performed well of late? Is anyone thinking about the difference? * * * ... what should we think about the willingness of investors to turn over their capital to a process in which neither individual holdings nor portfolio construction is the subject of thoughtful analysis and decision-making, and in which buying takes place regardless of price? * * * Like the tech stocks in 2000, this seeming perpetual motion machine is unlikely to work forever. If funds ever flow out of equities and thus ETFs, what has been disproportionately bought will have to be disproportionately sold. It’s not clear where index funds and ETFs will find buyers for their over-weighted, highly appreciated holdings if they have to sell in a crunch. * * * Finally, the systemic risks to the stock market have to be considered. Bregman calls “the index universe a big, crowded momentum trade.” A handful of stocks – the FAANGs and a few more – are responsible for a rising percentage of the S&P’s gains, meaning the stock market’s health may be overstated. * * * More in the full excerpt below (source): Passive Investing/ETFs Fifty years ago, shortly after arriving at the University of Chicago for graduate school, I was taught that thanks to market efficiency, (a) assets are priced to provide fair risk-adjusted returns and (b) no one can consistently find the exceptions. In other words, “you can’t beat the market.” Our professors even advanced the idea of buying a little bit of each stock as a can’t-fail, low-cost way to outperform the stock-pickers. John Bogle put that suggestion into practice. Having founded Vanguard a year earlier, he launched the First Index Investment Trust in 1975, the first index fund to reach commercial scale. As a vehicle designed to emulate the S&P 500, it was later renamed the Vanguard 500 Index Fund. The concept of indexation, or passive investing, grew gradually over the next four decades, until it accounted for 20% of equity mutual fund assets in 2014. Given the generally lagging performance of active managers over the last dozen or so years, as well as the creation of ETFs, or exchange-traded funds, which make transacting simpler, the shift from active to passive investing has accelerated. Today it’s a powerful movement that has expanded to cover 37% of equity fund assets. In the last ten years, $1.4 trillion has flowed into index mutual funds and ETFs (and $1.2 trillion out of actively managed mutual funds). Like all investment fashions, passive investing is being warmly embraced for its positives: Passive portfolios have outperformed active investing over the last decade or so. With passive investing you’re guaranteed not to underperform the index. Finally, the much lower fees and expenses on passive vehicles are certain to constitute a permanent advantage relative to active management. Does that mean passive investing, index funds and ETFs are a no-lose proposition? Certainly not: While passive investors protect against the risk of underperforming, they also surrender the possibility of outperforming. The recent underperformance on the part of active investors may well prove to be cyclical rather than permanent. As a product of the last several years, ETFs’ promise of liquidity has yet to be tested in a major bear market, particularly in less-liquid fields like high yield bonds. Here are a few more things worth thinking about: Remember, the wisdom of passive investing stems from the belief that the efforts of active investors cause assets to be fairly priced – that’s why there are no bargains to find. But what happens when the majority of equity investment comes to be managed passively? Then prices will be freer to diverge from “fair,” and bargains (and over-pricings) should become more commonplace. This won’t assure success for active managers, but certainly it will satisfy a necessary condition for their efforts to be effective. One of my clients, the chief investment officer of a pension fund, told me the treasurer had proposed dumping all active managers and putting the whole fund into index funds and ETFs. My response was simple: ask him how much of the fund he’s comfortable having in assets no one is analyzing. As Steven Bregman of Horizon Kinetics puts it, “basket-based mechanistic investing” is blindly moving trillions of dollars. ETFs don’t have fundamental analysts, and because they don’t question valuations, they don’t contribute to price discovery. Not only is the number of active managers’ analysts likely to decline if more money is shifted to passive investing, but people should also wonder about who’s setting the rules that govern passive funds’ portfolio construction. The low fees and expenses that make passive investments attractive mean their organizers have to emphasize scale. To earn higher fees than index funds and achieve profitable scale, ETF sponsors have been turning to “smarter,” not-exactly-passive vehicles. Thus ETFs have been organized to meet (or create) demand for funds in specialized areas such as various stock categories (value or growth), stock characteristics (low volatility or high quality), types of companies, or geographies. There are passive ETFs for people who want growth, value, high quality, low volatility and momentum. Going to the extreme, investors now can choose from funds that invest passively in companies that have gender-diverse senior management, practice “biblically responsible investing,” or focus on medical marijuana, solutions to obesity, serving millennials, and whiskey and spirits. But what does “passive” mean when a vehicle’s focus is so narrowly defined? Each deviation from the broad indices introduces definitional issues and non-passive, discretionary decisions. Passive funds that emphasize stocks reflecting specific factors are called “smart-beta funds,” but who can say the people setting their selection rules are any smarter than the active managers who are so disrespected these days? Bregman calls this “semantic investing,” meaning stocks are chosen on the basis of labels, not quantitative analysis. There are no absolute standards for which stocks represent many of the characteristics listed above. Importantly, organizers wanting their “smart” products to reach commercial scale are likely to rely heavily on the largest-capitalization, most-liquid stocks. For example, having Apple in your ETF allows it to get really big. Thus Apple is included today in ETFs emphasizing tech, growth, value, momentum, large-caps, high quality, low volatility, dividends, and leverage. Here’s what Barron’s had to say earlier this month: With cap-weighted indexes, index buyers have no discretion but to load up on stocks that are already overweight (and often pricey) and neglect those already underweight. That’s the opposite of buy low, sell high. The large positions occupied by the top recent performers – with their swollen market caps – mean that as ETFs attract capital, they have to buy large amounts of these stocks, further fueling their rise. Thus, in the current up-cycle, over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles, which don’t have the option to refrain from buying a stock just because its overpriced. Like the tech stocks in 2000, this seeming perpetual motion machine is unlikely to work forever. If funds ever flow out of equities and thus ETFs, what has been disproportionately bought will have to be disproportionately sold. It’s not clear where index funds and ETFs will find buyers for their over-weighted, highly appreciated holdings if they have to sell in a crunch. In this way, appreciation that was driven by passive buying is likely to eventually turn out to be rotational, not perpetual. * * * Finally, the systemic risks to the stock market have to be considered. Bregman calls “the index universe a big, crowded momentum trade.” A handful of stocks – the FAANGs and a few more – are responsible for a rising percentage of the S&P’s gains, meaning the stock market’s health may be overstated. All the above factors raise questions about the likely effectiveness of passive vehicles – and especially smart-beta ETFs. Is Apple a safe stock or a stock that has performed well of late? Is anyone thinking about the difference? Are investors who invest in a number of passive vehicles described in different ways likely to achieve the diversification, liquidity and safety they expect? And what should we think about the willingness of investors to turn over their capital to a process in which neither individual holdings nor portfolio construction is the subject of thoughtful analysis and decision-making, and in which buying takes place regardless of price?