(23.05.2008) У Citadel - один из наиболее мощных по интеллектуальной силе аналитических отделов среди всех инвестиционных фондов, а также есть «запасная» компьютерная система, расположенная где-то за пределами Чикаго.
…Два основных фонда, через которые Citadel торгует на биржах, называются Kensington Global и Wellington. Сейчас на Citadel приходится 2-3% дневного оборота торгов на Нью-Йоркской, Лондонской и Токийских биржах (около 70 млн. акций), почти 10% рынка казначейских облигаций и около 15% рынка опционов. На рынке опционов Citadel – единственный хедж-фонд, который может действительно серьезно на влиять на торги.
Фонд не ограничивает свою торговлю перечисленными инструментами, а зарабатывает буквально на всем, что продается и покупается: от фьючерсов на газ до валюты
Mueller’s Moves Signal Broad Scope (WSJ) Spain awaits next move by ousted Catalan leader from Belgium (Reuters) China, South Korea agree to mend ties after THAAD standoff (Reuters) For Manafort, Questionable Airbnb Sublets Became a Family Affair (BBG) U.S. business group worries Trump unprepared for commercial talks with China (Reuters) Google’s Dominance in Washington Faces a Reckoning (WSJ) Tech Giants Disclose Russian Activity on Eve of Congressional Appearance (WSJ) Collapse at North Korea nuclear test site 'leaves 200 dead' (Telegraph) Tech executives head to U.S. Congress under harsh spotlight (Reuters) Another China Company Defaults on Bond Payment as Borrowing Costs Jump (BBG) Google ditched autopilot driving feature after test user napped behind wheel (Reuters) Why Google and Amazon Aren’t in the Dow (BBG) Swiss prosecutors seek widening of secrecy law to bankers abroad (Reuters) Betting on the Next Fed Chair Often Goes Wrong (WSJ) Under Armour slashes 2017 forecast, revenue falls (Reuters) Is the ‘Death Tax’ Debate Finally Over? (BBG) Ex-Third Point Partner’s Bond Trades Focus of SEC Probe (BBG) Two Months After Harvey, Houston Continues to Count the Cost (WSJ) Goldman Agrees With Dalio’s Tale of Two Economies (BBG) Overnight Media Digest WSJ - For the second time in three years, Sprint Corp is preparing to leave T-Mobile US Inc at the altar after months of negotiations to bring together the two U.S. wireless providers. Directors at Sprint's parent company, SoftBank Group Corp, met in Tokyo last week and decided to suspend the merger efforts, according to people familiar with the matter. on.wsj.com/2yZRQip - Facebook Inc, Alphabet Inc's Google and Twitter Inc are set to divulge new details showing that the scope of Russian-backed manipulation on their platforms before and after the U.S. presidential election was far greater than previously disclosed, reaching an estimated 126 million people on Facebook alone, according to people familiar with the matter, prepared copies of their testimonies and a company statement. on.wsj.com/2yYwFNr - Netflix Inc plans to end the political drama "House of Cards" after the end of season 6, which is currently in production, a person familiar with the situation said. The decision was made before reports about alleged sexual misconduct by star Kevin Spacey, the person said. on.wsj.com/2yZ2rKr - ?Apple Inc, locked in an intensifying legal fight with Qualcomm Inc, is designing iPhones and iPads for next year that would jettison the chipmaker's components, according to people familiar with the matter. on.wsj.com/2z1UtQM - A federal judge on Monday blocked President Donald Trump from implementing a ban on transgender individuals from serving in the military, the latest high-profile White House initiative to run into problems in court. on.wsj.com/2yZBYMI - The Federal Bureau of Investigation is investigating a decision by Puerto Rico's power authority to award a $300 million contract to a tiny Montana energy firm to rebuild electrical infrastructure damaged in Hurricane Maria, according to people familiar with the matter. on.wsj.com/2yZROXC FT UK finance minister Philip Hammond will not break his fiscal rules to increase public spending in the autumn budget and fears investors, already worried by Brexit, will be spooked if he abandons the fiscal framework adopted only a year ago, the chancellor’s allies said. British petrochemicals company Ineos on Monday agreed to buy fashion brand Belstaff, best known for its waxed cotton motorcycle jackets, in the latest off-beat project by Ineos’s billionaire founder Jim Ratcliffe. Key details about reports outlining the economic impact of Britain leaving the EU on 58 industries will not be released by the Brexit ministry which said it needs to carry out policymaking in a “safe space”. NYT - Russian agents intending to sow discord among American citizens disseminated inflammatory posts that reached 126 million users on Facebook, published more than 131,000 messages on Twitter and uploaded over 1,000 videos to Google's YouTube service, according to copies of prepared remarks from the companies that were obtained by The New York Times. nyti.ms/2z56yXn - The day after Kevin Spacey apologized following an accusation that he made a sexual advance on a 14-year-old boy in the 1980s, Netflix Inc announced that the next season of his show "House of Cards" would be its last. nyti.ms/2z6qA3x - President Trump is expected to nominate Jerome Powell as the next chairman of the Federal Reserve, replacing Janet Yellen, whose term expires early next year, according to two people familiar with the plans. nyti.ms/2z5Ap1Q - The special counsel, Robert Mueller III, announced charges on Monday against three advisers to President Trump's campaign and laid out the most explicit evidence to date that his campaign was eager to coordinate with the Russian government to damage his rival, Hillary Clinton. nyti.ms/2z5UVzl - A federal judge on Monday temporarily blocked a White House policy barring military service by transgender troops, ruling that it was based on "disapproval of transgender people generally." nyti.ms/2z4Q29E Canada THE GLOBE AND MAIL Melbourne-based John Holland Group Pty Ltd has won tenders over the past year to participate in A$23 billion ($17.6 billion) worth of work on large public infrastructure projects, and expects to hire 100 people monthly over the next 15 months. tgam.ca/2xFxIRf Canada's brand-name pharmaceutical companies are pushing back against a plan to overhaul the country's drug-pricing regulator, saying they are keen to forge a compromise that would reduce prices, but not to a degree that could be "crippling" for the industry. tgam.ca/2xDl19b NATIONAL POST Cenovus Energy Inc picked former TransCanada Corp chief operating officer Alex Pourbaix to be its new president and chief executive officer, prioritizing expertise in dealing with external challenges over knowing the nuts and bolts of the business. bit.ly/2xDJOdA Beverage company Constellation Brands Inc is buying up to 20 percent of Canopy Growth Corp in a deal that lends legitimacy to Canada's fast-growing marijuana industry while potentially throwing open the door to additional investments in the sector by big international companies. bit.ly/2z0dEN9 Britain The Times - Stuart Gulliver, outgoing chief executive of HSBC Holdings Plc, and Lloyd Blankfein, chief executive of Goldman Sachs Group Inc, on Monday called for clarity over Britain's future relationship with the European Union, warning that jobs and investment depend on a prompt decision. bit.ly/2z0IbIe - Chancellor Philip Hammond said Monday that Steffan Ball, chief economist at Citadel, a $26 billion hedge fund based in Chicago, was his new economic adviser. bit.ly/2z0dliZ - Pearson Plc is understood to be nearing a sale of its English-language teaching business to Asian private equity funds Baring Private Equity Asia and Citic Capital Holdings for up to $400 million. bit.ly/2z1hFPa The Guardian - Nationwide Building Society has paved the way for an across-the-board increase in mortgage costs by announcing that a 0.25 pct interest rate rise would be passed on in full to its 600,000-plus variable-rate home loan customers. bit.ly/2yZtuVO - Hundreds of free-to-use cash machines are at risk of being closed down on high streets across the UK as a result of proposals being published this week to overhaul the 70,000-strong Link network. bit.ly/2z0nXOV The Telegraph - Chemicals giant Ineos has bought Belstaff, the British heritage fashion brand, in the latest off-centre move by its founder and chairman, billionaire Jim Ratcliffe, a month after he unveiled plans to start making cars. bit.ly/2z0ltA5 - Ten Lifestyle, the London-based concierge service is eyeing a listing on the junior Aim market in a bid to raise 40 million pounds and help it continue its domestic growth as well as increase its overseas footprint. bit.ly/2yZdmDO Sky News - Willie Walsh, the chief executive of British Airways' parent company IAG, has dismissed claims - including from Chancellor Philip Hammond - that flights could be grounded if Britain leaves the EU without a divorce deal. bit.ly/2z1MyD7 - A pack of hedge funds is closing in on a takeover of BrightHouse, Britain's biggest rent-to-own retailer, just days after it was slapped with a 15 million pound ($19.81 million)compensation bill by the City watchdog. bit.ly/2z1MyD7 The Independent - Walmart's British supermarket arm Asda announced that Chief Executive Sean Clarke will be stepping down at the end of the year, to be replaced by the company's current deputy Chief Executive and Chief Operating Officer Roger Burnley. ind.pn/2yZblY
YEAH, I’VE NOTICED THE HYPERMASCULINITY IN VIDEOGAME FANS: Grad student: Gaming culture privileges …
YEAH, I’VE NOTICED THE HYPERMASCULINITY IN VIDEOGAME FANS: Grad student: Gaming culture privileges ‘hypermasculine’ men. But he sounds kind of bigoted: “Jeremy Omori contends that the larger gamer community is littered with hypermasculine, heterosexual, cis male, and often white privilege, noting that a large gay-gaming group in Arizona is ‘very white.'” Well, “littered with” sounds […]
Анкара намерена полностью блокировать кантон Африн на севере провинции Алеппо, заявляют курды.
Yes, it's another glaring case of "revolving door" cronyism between Wall Street and the SEC: on Wednesday, the Securities and Exchange Commission announced it had hired Brett Redfearn, a JPMorgan banker, to head the agency's Division of Trading and Markets, arguably the most important group within the SEC, one which oversees U.S. stock markets and brokerages. Redfearn, who is currently head of market structure at JPM, would fill a slot that has been vacant since January when the previous head of Trading & Markets, Stephen Luparello left the SEC... and three months later joined Citadel as General Counsel, which as a reminder is one of the biggest HFT operators and retail orderflow frontrunners in the world, is responsible for one-fifth of all trading on the $26 trillion US stock market and lists Ben Bernanke as its advisor. The regulator's Division of Trading and Markets group plays a key role in dealing with some of the most pressing matters facing the agency, including overseeing the construction of a massive trade database being built to help U.S. regulators police the stock market and keep tabs on high frequency traders, as well as writing rules for exchanges and dark pools. To simplify: a JPMorgan guy is coming in to fill the most important regulatory position at the SEC, one that looks at market structure - and fairness - and which until recently was filled by a guy who now works at Citadel as its new general counsel. A revolving door, if there ever was one... To be sure, that this is another glaring example of regulatory capture, is painfully obvious. Only this time there may be a twist. While SEC Chairman Jay Clayton has signaled a willingness to change market-structure rules that some critics argue are antiquated, he’s provided few details on his approach. Clayton, a former deals lawyer whose career wasn’t focused on market-structure issues, has prioritized bolstering initial public offerings according to Bloomberg. As a result, Redfearn - the former head of market structure at America's biggest bank - will likely have significant sway at the agency because of his expertise. As Bloomberg reports, Redfearn has been at JPMorgan for more than nine years. Earlier this year he expanded his role, moving from running equity market structure strategy to overseeing global market structure for all asset classes. Where it gets interesting, is that in the past, Redfearn has advocated for a regulatory overhaul of markets, and in April, he said Regulation NMS - a landmark SEC rule approved in 2005 that accelerated a shift to electronic trading in the U.S. stock market, and which allowed the uncontrolled, explosive proliferation of HFT algos - is “overdue for reform.” This, as Bloomberg writes, may set up a clash with not only stock exchanges, who are among the most influential - and "generous" - voices in Washington around financial regulation, but also the just as powerful HFT lobby. Also notable - Redfearn has emerged as a critic of the increasingly costly fees that U.S. stock exchanges charge traders who want access to vital data on prices. Of course, those fees only make sense in a world in which some traders, those with millions to burn, with to receive trade data ahead of everyone else, whether by laser, microwave or fiber optic. Which would suggest that Redfearn's criticism is ultimately aimed at not only the current multi-tiered nature of the market, but at high frequency traders as well. “We have a fundamental tension in our system of self-regulation that needs to be addressed,” Redfearn said in April. The tension, he argued, comes from the fact that stock exchanges, once public utilities, have over time become publicly traded companies themselves. Which, ironically, is absolutely correct, and if the now former-JPM executive wishes to indeed engage with the practices he finds as unfair, that could well mean the end of the HFT dominance in capital markets. As for what JPM gets out of it, well that remains to be seen...
Having taken a four month hiatus from blogging, Citadel advisor and former Fed chair Ben Bernanke penned another article on his Brookings blog in which he discusses a familiar subject: that the Fed has run out of tools, a problematic reality which would be exposed by the next financial crisis, so in advance, Bernanke proposes an even more unorthodox monetary policy: price-level targeting. Pointing out the obvious, namely that as a result of the bursting of the last Fed-created bubble, the US economy remains mired in "low nominal interest rates, low inflation, and slow economic growth" which "pose challenges to central bankers", central banks may want to consider temporary price-level targeting, or PLT, as Bernanke is "no longer confident" that the Fed’s “current monetary toolbox would prove sufficient to address a sharp downturn." The problem, as the ex-Chairman explains, is that with estimates of long-run equilibrium level of real interest rate “quite low,” Bernanke writes that the next recession may occur when the Fed has “little room to cut short-term rates”; as "problems associated with the zero-lower bound (ZLB) on interest rates could be severe and enduring." What Bernanke concedes here, is that the current pace of rate hikes and balance sheet unwind are not nearly rapid enough to provide the monetary policy buffer that will be needed to address the next economic crisis, and as a result the Fed needs to resort to more aggressive "temporary" measures to boost inflation, bypassing the Fed's implicit 2% inflation target, and heating up the economy substantially. To short-circuit the effects of the zero-lower bound, and to "temporarily" (that word is critical to Benanke, who uses it no less than 24 times in his article) overheat the economy so the Fed can boost its recession-fighting ammunition, Bernanke "proposes an option for an alternative monetary framework" that he calls "a temporary price-level target—temporary, because it would apply only at times when short-term interest rates are at or very near zero." As noted, Bernanke says "temporary" over 20 times, which is ironic because after the Fed injected over $4 trillion in liquidity in the financial system, and 8 years later the Fed is not only still unable to hit its stated 2% inflation target on a consistent basis, but openly admits inflation is a "mystery", a better word would be "permanent." How does price-level targeting differ from conventional inflation-targeting? As Bernanke explains, the "the principal difference is the treatment of “bygones.” An inflation-targeter can “look through” a temporary change in the inflation rate so long as inflation returns to target after a time. By ignoring past misses of the target, an inflation targeter lets “bygones be bygones.” A price-level targeter, by contrast, commits to reversing temporary deviations of inflation from target, by following a temporary surge in inflation with a period of inflation below target; and an episode of low inflation with a period of inflation above target. Both inflation targeters and price-level targeters can be “flexible,” in that they can take output and employment considerations into account in determining the speed at which they return to the inflation or price-level target." That is a long-winded way of saying that price-level targeting is an even more brute force approach to pushing inflation higher, one which ignores transitory bursts in inflation, which in a world of record debt has the potential to unleash a financial disaster as its sends the price of global (record) debt tumbling, creating a risk waterfall across financial markets, and reverberate in the economy. In other words, the Fed would flood the system with so much liquidity that economic inflation spikes and only afterwards is reduced back to some baseline level. What happens in between, to Bernanke, is of secondary importance, although with many Wall Street strategists conceding that a burst of inflation is the critical catalyst to unleash a sharp market drop, one could also say that Bernanke is advocating a market crash, wiping away trillions in "welath effect" for the top 1%. Bernanke ignores such potential downsides, and instead focuses on the positive, saying that price-level targeting has two advantages over raising the inflation target: "The first is that price-level targeting is consistent with low average inflation (say, 2 percent) over time and thus with the price stability mandate. The second advantage is that price-level targeting has the desirable “lower for longer” or “make-up” feature of the theoretically optimal monetary policy." That said, the author concedes that PLT has drawbacks: For one, it would amount to a significant change in the Fed’s policy framework and reaction function, and it is hard to judge how difficult it would be to get the public and markets to understand the new approach. In particular, switching from the inflation concept to the price-level concept might require considerable education and explanation by policymakers. Another drawback is that the “bygones are not bygones” aspect of this approach is a two-edged sword. Under price-level targeting, the central bank cannot “look through” supply shocks that temporarily drive up inflation, but must commit to tightening to reverse the effects of the shock on the price level. Bernanke's punchline at least contains some truth, namely that PLT would be a "painful" process to all those who rely on nominal incomes to purchase goods and services, especially if said process ends up running away from the Fed's control and results in hyperinflation, to wit: "Given that such a process could be painful and have adverse effects on employment and output, the Fed’s commitment to this policy might not be fully credible." And in case his PLT idea is frowned upon - perhaps politicians don't want a revolution - Bernanke proposes another, just as "painful" idea, namely using inflation targeting "but to raise the target to, say, 3 or 4 percent. If credible, this change should lead to a corresponding increase in the average level of nominal interest rates, which in turn would give the Fed more space to cut rates in a downturn. This approach has the advantage of being straightforward, relatively easy to communicate and explain; and it would allow the Fed to stay within its established, inflation-targeting framework." Quite easy to explain indeed, and here's one attempt "we will inject so much liquidity, not only will we blow the biggest asset bubble ever, but it will make your head spin how fast prices soar." But it's ok, it will be "temporary." Finally, while there is much more in Bernanke's proposal which was inspired by the "insightful theoretical work of Paul Krugman, Michael Woodford and Gauti Eggertsson", even Bernanke admits there will be problems, or rather one major one: the peasantry - for some "unknown" reason - is not a fan of runaway inflation: One obvious problem is that a permanent increase in inflation would be highly unpopular with the public. The unpopularity of inflation may be due to reasons that economists find unpersuasive, such as the tendency of people to focus on inflation’s effects on the prices of things they buy but not on the things they sell, including their own labor. But there are also real (if hard to quantify) problems associated with higher inflation, such as the greater difficulty of long-term economic planning or of interpreting price signals in markets. In any case, it’s not a coincidence that the promotion of price stability is a key part of the mandate of the Fed and most other central banks. A higher inflation target would therefore invite a political backlash, perhaps even a legal challenge. Ah yes, nothing quite like a former Fed reserve chairman confused by why surging inflation is "highly unpopular with the public", which is unable to grasp that only through soaring prices of goods and services will wages rise... well, maybe: because as the whole broken Phillips Curve fiaso has shown 8 years into this recovery with 4.2% unemployment and virtually no real wage growth, perhaps the reason why the "public" is not too crazy about 4% inflation is that while prices surge, wages seems to have flatlined. In short, Bernanke is alleging that inflation is unpopular because we, simple peasants, only focus on rising prices while ignoring wage growth. To which the only possible retort is that the "public" would be more than happy to focus on higher wages... if these were permitted for anyone but the top 1%. Full Bernanke article here
Jim Grant, author of Grant's Interest Rate Observer, first hinted last week that not all is well when it comes to the world's biggest hedge fund, Ray Dalio's $160 billion Bridgewater (of which one half is the world's biggest risk-parity juggernaut). Speaking to Bloomberg last week, Grant said he was "bearish" on Bridgewater because founder Dalio has become "less focused on investing, while the firm lacks transparency and has produced lackluster returns." Grant slammed Dalio's transition from investor to marketer, and in a five-page critique of the world’s largest hedge fund, said Dalio has been preoccupied with his new book, sitting for media interviews and sending Tweets. “Such activities have one thing in common: They are not investing,” Grant writes in the Oct. 6 issue of his newsletter. “Yet here he is, laying it all out to the world again, Tweeting, promoting his book, attacking the press -- necessarily doing less of his day job than he would otherwise do.” Grant continued his scathing critique, accusing Bridgewater of "lately performed no better than the typical hedge fund.” Grant is right: since the start of 2012, Bridgewater’s Pure Alpha II Fund has posted an annualized return of 2.5% vs its historic average of 12%, and is down 2.8% this year through July. The underperformance may be explainable: after all the polymath billionaire has been busy opining in recent months on subjects from the rise of populism to his affinity for China, "which are distraction from making money" Grant said. But if Grant had limited himself to merely Dalio's stylistic drift, it would be one thing: to be sure, the fund's billionaire founder may simply have lost a desire to manage money and has instead discovered a flair for writing books and being in the public spotlight. However, Grant - or rather his colleague Evan Lorenz - went deeper, and as he writes in the latest Grants letter, he raises several troubling points, which go not to the hedge fund's recent underprofmrance - which can be perfectly innocuous - but implicitly accuse the world's biggest hedge fund of borderline illegal activities and, gasp, fraud. Some of the more troubling points brought up by Lorenz are the following: Bridgewater has directly lent money to its auditor, KPMG, to which KPMH's response is that “these lending relationships . . . do not and will not impair KMPG’s ability to exercise objective and impartial judgment in connection with financial statement audits of the Bridgewater Funds.” Bridgewater has 91 ex-employees working at its custodian bank, Bank of New York. Only two of Bridgewater's 33 funds have a relationship with Prime Brokers. In these two funds, Bridgewater Equity Fund, LLC and Bridgewater Event Risk Fund I, Ltd., 99% of the investors are Bridgewater employees. Opaque ownership concerns: "Two entities—Bridgewater Associates Intermediate Holdings, L.P. and Bridgewater Associates Holdings, Inc.—are each noted as holding 75% or more of Bridgewater." Why the massive, and expensive, ETF holdings: "The June 30 13-F report shows U.S. equity holdings of $10.9 billion. The top-16 holdings, worth $9.5 billion, or 87% of the reported total, come wrapped in ETFs, including the Vanguard FTSE Emerging Markets ETF, the SPDR S&P500 ETF Trust and the iShares MSCI Emerging Markets ETF. Beyond the fact that Bridgewater reports holding few U.S. equities, you wonder why such a sophisticated shop would stoop to such a retail stratagem. Surely the Bridgewater brain trust could replicate the ETFs at a fraction of the cost that the Street charges." And perhaps most troubling, is the SEC in cahoots with Bridgewater? "Lorenz asked the SEC how Bridgewater’s answers comply with the requirement to “[p]rovide your fee schedule.” Via email, the agency replied, “Decline comment, thanks.” And so on. There is much more in the full Grant's note, which readers can read by subscribing at Grant's website, but here are some of the key questions posed: That phenomenal track record: Dalio has done his best work in the shadows. In a 1982 Wall Street Week interview, he predicted not the great bull market but a new calamity (the erroneous call nearly bankrupted Bridgewater). In a 1992 Barron’s article, he wrote that the country was in a depression and that it would be hard-pressed to escape from it. From 1996 through Aug. 30, 2017 the Wasatch-Hoisington U.S. Treasury Fund has returned a compound 7.9% net of fees. Over the same span, according to a Sept. 8 article in The New York Times, All Weather returned an identical 7.9% net of fees. Dalio's sudden infatuation with the public spotlight... Principles is the first of a projected two-volume work on the theory and practice of radical transparency and abrasive truth-telling. The second installment will provoke more controversy and another time-out from the author’s day job. There will be reviews to stew over, angry emails to compose, interviews to be conducted. Since Dalio took to Twitter on April 24, he has tweeted 97 times. He has written 24 blog entries, amounting to a grand total of 22,112 words, on LinkedIn (Harrison Waddill of this staff has counted them). Beyond the April TED talk, Dalio is on the interview circuit. He has addressed reporters at Business Insider, Bloomberg, CIO Magazine, The New York Times and ValueWalk, among others. In January he attended the annual World Economic Forum in Davos, Switzerland. In that pleasant alpine setting, the billionaire worried about the rise of populism. ... even as Bridgewater is covered in secrecy: The New York Times, recently at work on a story about Bridgewater, submitted a request under the Public Information Act of Texas for details that Bridgewater would rather not have disclosed. The CFO of Bridgewater, Nella Domenici, registered the firm’s objections in a June 5 affidavit: “These documents contain information that constitutes private, valuable and commercially sensitive trade secrets that, if disclosed, would substantially harm Bridgewater’s ability to compete in the marketplace.” And what data, exactly, did Domenici worry about divulging? The list includes “fee structure,” “litigation exposure,” “related party information” and “debt structure, including sensitive, non-public information pertaining to our existing financing,” among other items. Why the world’s largest and most successful hedge fund, headed by the world’s 54th richest person, has a “debt structure” at all is a good question. The watchful Paul J. Isaac, CEO and founder of Arbiter Partners Capital Management, read the affidavit and emailed his reactions: “Remarkable and a bit inexplicable. Bridgewater presumably raises a great deal of money from public bodies. There is an implicit assumption here that ‘sunlight’ rules that apply to a host of public relationships should not apply to Bridgewater.” On its bizarre investment style: There are further enigmas. The June 30 13-F report shows U.S. equity holdings of $10.9 billion. The top-16 holdings, worth $9.5 billion, or 87% of the reported total, come wrapped in ETFs, including the Vanguard FTSE Emerging Markets ETF, the SPDR S&P500 ETF Trust and the iShares MSCI Emerging Markets ETF. Beyond the fact that Bridgewater reports holding few U.S. equities, you wonder why such a sophisticated shop would stoop to such a retail stratagem. Surely the Bridgewater brain trust could replicate the ETFs at a fraction of the cost that the Street charges. The potential conflict of interest involving Bridgewater's auditor: The “related party information” schedule of the Bridgewater ADV form records the fact that Bridgewater lends money to its auditor, KMPG, LLC. Or, more precisely, Bridgewater owners with a greater- than-10% ownership stake in the Dalio firm are creditors to KMPG. Long legal sentences parse this curious relationship, for it would seem to fly in the face of the SEC’s Rule 2-01(c) (1)(ii)(A) of Regulation S-X, known as the Loan Rule. This rule prohibits an auditor from borrowing from an auditing client. Or that’s what it appears to say. Investigation and ponderation lead Bridgewater and KMPG to conclude that the Loan Rule does not apply to them in this instance. (Fidelity Management & Research Co. got itself a non-action letter from the SEC for a very similar harmless and inconsequential lender-creditor relationship, the document explains.) Leaving no stone unturned, KMPG likewise consulted its conscience. The verdict here, too, was favorable, because “these lending relationships . . . do not and will not impair KMPG’s ability to exercise objective and impartial judgment in connection with financial statement audits of the Bridgewater Funds.” It’s as if Dalio & Co. had never lent the auditor a dime (just how much money was lent and at what rate of interest go unmentioned). The potential conflict of interest involving Bridgewater's custodian: “After reading that footnote,” Lorenz observes, “an investor may take a measure of solace from the fact that the custodian of many Bridgewater funds is Bank of New York Mellon Corp., the world’s largest custodian bank. An investor may take less comfort from the fact that many of the BoNY employees working on the Bridgewater account are, in fact, former Bridgewater employees. In December 2011, Bridgewater signed a deal with Alexander Hamilton’s old bank: Bridgewater fired 91 back-office employees; BoNY hired these 91 practitioners of radical transparency to work Bridgewater’s books in an outsourcing contract.” The complete lack of (non-fonclicted) prime brokers: “As you scroll through the 206 pages of part one to Bridgewater’s filing, you might notice other oddities,” Lorenz goes on. “Only two of the 33 funds have relationships with prime brokers: Bridgewater Equity Fund, LLC and Bridgewater Event Risk Fund I, Ltd., in which 99% of the investors are Bridgewater employees.” Prime brokers perform a variety of helpful hedge-fund services. They act as a central clearing house through which to settle trades (useful for reducing collateral requirements by netting positions). They lend securities to allow a client to sell short. They furnish margin debt. The brokers earn various fees, including those generated by rehypothecating margined portfolios. Longonly funds or unleveraged funds have little need for such accommodation, but Bridgewater’s funds hardly match those descriptors. Pure Alpha strategies go long and short and All Weather famously leverages its bond portfolios. The potential conflict of interest involving the company's fee structure and the SEC: Registered investment advisors are under the annual obligation to file Form ADV with the U.S. Securities and Exchange Commission. On this document are recorded management fees, among other facts and figures. The SEC’s instructions for the fee section of the report are plain and simple: “Describe how you are compensated for your advisory services. Provide your fee schedule. Disclose whether the fees are negotiable.” Renaissance Technologies, LLC, no more welcoming to prying eyes than Bridgewater, complies with that directive. So does risk-parity competitor AQR Capital Management. They note the performance and management fees (or range of fees) charged for each strategy managed as a percentage of net profits and assets under management. Dalio & Co. opts for a qualitative approach, as if the SEC were suggesting a course of action rather than, say, requiring it: “Bridgewater offers fee arrangements which vary by strategy and may involve management fees (generally a percentage of assets), performance fees (generally a percentage of profits) or some combination of the two. For new client relationships, Bridgewater’s standard minimum fee is expected to be $500,000 for its All Weather strategy, $4,000,000 for its Pure Alpha and Pure Alpha Major Markets strategies, and $2,700,000 for Optimal Portfolio.” No percentage of assets or profits is vouchsafed. Lorenz asked the SEC how Bridgewater’s answers comply with the requirement to “[p]rovide your fee schedule.” Via email, the agency replied, “Decline comment, thanks.” The odd complaints against the company's home-grown technology: To credit the thrust of numerous comments from employees on the review website GlassDoor.com, Dalio would be better advised to worry about the fall of technology—his own. There’s a wide range of opinions on Bridgewater, of course. Some bristle under the unique culture. Others love it. One constant complaint is the poor quality of the company’s IT. Thus, from a March 19, 2017 posting: “If you are an engineer or technologist, working here will be negative value added to your learning process. Like taking a step into a parallel dimension where open source never existed and Excel and badly designed home grown software are the solution to all problems.” Which brings us to Grant's ominous conclusion: "Many are the mysteries and contradictions of the world’s largest hedge fund. We will go out on a limb: Bridgewater is not for the ages." To which one can counter: will Bridgewater be one for the Harry Markopoloses, and if so, when will Dalio's own day of reckoning come? There is much, much more in the full note, to read it please go to Grant's website.
The Erbil citadel, in the capital of Iraq’s Kurdish region, is one of the oldest continuously occupied human settlements on earth.
The dollar rally paused on Friday and looked poised to finish its best weekly gain of the year with a whimper, when in a repeat of the Thursday session the, Bloomberg dollar index first rose more than 0.1% during Asia hours before slumping around the European open as month and quarter-end flows came into play again. U.S. stock-index futures were little changed as investors awaited data on personal spending, which however is likely to be distorted by Hurricanes Harvey and Irma, while both European and Asian shares were in the green. European equities drifted higher, headed for the best month this year, while stocks in Asia also followed the S&P 500 higher earlier. Treasuries were steady after a selloff that saw yields jump 18 basis points this week, the most since Donald Trump’s U.S. election victory in November. Emerging-market assets rallied, with stocks rising and most currencies strengthening against the greenback. After an initial bout of euphoria over Trump’s tax plan - which still needs approval from Congress although it currently lacks detail, leaving investors guessing which parts of the package will be prioritized by the administration - the renewed "Trump trade" paused as profits were taken on some of the recent reflation trades. Though with the chances of higher U.S. interest rates by the end of the year now at about 65%, they have driven equities higher and taken money out of gold, which was on track for its worst month this year, suggesting that the Fed has once again failed to send a tightening message to markets. “Trump’s fiscal package continues to drive markets,” said Societe Generale analyst Guy Stear. “U.S. bond yields have climbed both as a direct response to tax cut fears and as the market’s wider risk appetite returned.” He said the sharp rise in 10-year Treasury yields, which hit a two-month high of 2.36% on Thursday, was driving the dollar higher. The euro swung between gains and losses around a pivotal level as supportive month- and quarter-end flows were countered by choppy trading. European data underscored the region’s economic recovery with German unemployment fallling to a record low in September, bolstering the ECB case to tighten and reduce asset purchases in coming months. The EUR traded within 0.2 percent of the psychologically significant $1.1800 level in London trading. Though the euro is headed for its first monthly drop since February, it is still up for a third quarter, a performance not seen in more than three years. As such, the EUR/USD reversed its drop and rose 0.1% to 1.1801. European exporters were helped in the early session by the dip in the Euro, and nudged the pan-European STOXX 600 index up to a two-month high, while Europe's miners were green across the board in reflex to Chinese action. This morning in Asia, markets are trading broadly higher. Note the Chinese markets will be closed for a week from next Monday given their Golden week holidays. Asian shares regained some poise after several days of declines, with the MSCI index of Asia-Pacific shares ex Japan bounding 0.4%, but still down 1.7% for the week so far. For the quarter, it looked set to gain 4.7%. Chinese H shares capped their biggest monthly loss this year, despite edging higher Friday ahead of national holidays. The Hang Seng China Enterprises Index closes up 0.3% for monthly loss of 3.4%, the worst since December. The Hang Seng Index rose 0.5%; posts first monthly decline this year, down 1.5%; for 3Q, the gauge climbs 7% and it remains Asia’s best performing major index this year. The MSCI China Index rallied 0.5% oon Friday, posting its ninth monthly gain and +0.3% in September. The ASX 200 (+0.2%) and Nikkei 225 (-0.03%) were both initially subdued as energy weighed on Australia after crude prices fell over 1%, while Japanese sentiment was dampened from the prior day’s currency strength and as participants digested a deluge of mixed data releases. However, markets recovered alongside a jubilant China where Hang Seng (+0.5%) and Shanghai Comp. (+0.3%) were underpinned on retailer optimism ahead of the National Day holiday and as financials benefitted after the banking regulator confirmed it is studying plans to further open up the industry As a result, Euro zone stocks hit their highest in three months, on track for a quarterly gain after falling back in the second quarter. That helped push world stocks up 0.14% , with MSCI’s all-country world index, which tracks shares in 46 countries, gaining for 11 consecutive months - its longest winning run since 2004. Meanwhile, GBP saw some added volatility amid the aforementioned month-end flow, alongside comments from BoE’s Carney with the Governor noting that the committee has seen a downtick in productivity due to Brexit uncertainty. GBP/USD slumped as low as -0.5% to 1.3353 first after BOE’s Carney said he is thinking about "taking foot off the accelerator", it then jumped back above 1.3400 as he reiterated that rates may rise in coming months, in a limited and gradual pace, only to drop once again following weak eco data showing the current account deficit ballooning to GBP 23bln, while GDP for the second quarter was revised down to 1.5 percent from a previous estimate of 1.7 percent as service sector output fell -0.2%. Swedish krona slid as Stefan Ingves appointed to a third term as Riksbank governor. Over the weekend, investors will be keeping a close eye on the Spanish region of Catalonia, where separatist groups urged supporters to defy efforts to block an independence referendum on Sunday. "At the moment, there is no significant market impact from the tensions, but if the Catalan police and the Spanish police are standing there in front of the polling stations and discussing whether to block the station or not, this will be an issue,” said DZ Bank strategist Sebastian Fellechner. In euro zone bond markets, lower-than-expected German inflation data released on Thursday led many to speculate that the corresponding figure for the bloc as a whole, due on Friday, would also disappoint. Germany’s 10-year yield declined two basis points to 0.46 percent. Britain’s 10-year yield declined two basis points to 1.33 percent, the largest drop in almost three weeks. The yield on 10-year Treasuries climbed less than one basis point to 2.31 percent. In commodities, it's been a quiet morning in commodities with WTI and Brent crude showing a slight pullback from some of the losses seen late yesterday. WTI looking to make a retest back to USD 52, after rejecting the break above the 1 week high. Precious metals have been led by risk flow, as month end unwinds are evident, with a bid seen through the European morning following the bearish September. Gold consolidates back in summer levels, back within pre- August 25th highs. Gold, under pressure due to the stronger dollar, was set for its biggest monthly fall of the year. The metal was last all but flat at $1,287 an ounce. Market Snapshot Dow, E-Mini S&P 500 and E- Mini Nasdaq 100 futures little changed S&P 500 +0.1% to a fresh record-high at 2,510.06 on Thursday VIX Index increases 0.7%, ending 3-day decline... for now Gold spot up 0.1% to $1,288.70 U.S. Dollar Index up 0.02% to 93.11 WTI crude down 0.1% to $51.53, Brent unchanged at $57.41 STOXX Europe 600 up 0.02% to 386.42 MSCI Asia up 0.4% to 161.21 MSCI Asia ex Japan up 0.6% to 529.56 Nikkei down 0.03% to 20,356.28 Topix down 0.08% to 1,674.75 Hang Seng Index up 0.5% to 27,554.30 Shanghai Composite up 0.3% to 3,348.94 Sensex up 0.7% to 31,508.30 Australia S&P/ASX 200 up 0.2% to 5,681.61 Kospi up 0.9% to 2,394.47 German 10Y yield fell 2.5 bps to 0.454% Euro up 0.1% to $1.1799 Brent Futures up 0.4% to $57.61/bbl Italian 10Y yield fell 2.9 bps to 1.829% Spanish 10Y yield fell 1.6 bps to 1.61% Bulletin Headline Summary from RanSquawk GBP sees some pressure as UK GDP misses European Equities marginally higher on the final trading session of the quarter Looking ahead, highlights include US PCE, Personal Spending, Chicago PMI and a slew of Central Bank Speakers Top Overnight News U.S. regulators are planning to release American International Group Inc. from the special government oversight ordered for the insurer after its central role in the 2008 financial crisis Deutsche Bank had its long-term credit grade cut one level by Fitch Ratings late Thursday, which said the lender will take longer to revive growth under a turnaround plan unveiled in March Ken Griffin’s Citadel LLC is returning capital to some of the clients in one of its multi-strategy hedge funds as it seeks to tighten up its investor base Iron ore is down 20 percent in September, putting it on course for the first back-to-back quarterly loss since 2015, and there’s rising concern that the final three months of the year may bring further declines London house prices posted their first annual decline since the financial crisis U.K. 2Q GDP rises 0.3% q/q in line with previous estimate Euro-zone September inflation comes in at 1.5%, below consensus of 1.6%. Core CPI also below consensus at 1.1% Uber CEO Will Meet With London Regulators Over License Ban U.S. equity funds see outflows of $7.6b in week to Sept. 27, largest in 14 weeks, BofAML strategists write in note, citing EPFR Global data “If the economy continues on this track it’s been on -- and all indications are that it is -- then in the relatively near term, you could expect interest rates to increase,” BOE Governor Mark Carney says in an interview on BBC Radio 4 Chinese Premier Li Keqiang is set to keep his seat on the Politburo Standing Committee at an upcoming meeting of the party congress next month, South China Morning Post reports German unemployment slid to record low in September in a sign that Europe’s largest economy will continue to expand on the back of domestic spending while August unadjusted retail sales expanded 2.8% y/y vs est. +3.2% Asia equity markets were positive on what was a range-bound day heading into quarter-end and after a similar close on Wall St, where the S&P 500 eked another fresh record. ASX 200 (+0.2%) and Nikkei 225 (-0.03%) were both initially subdued as energy weighed on Australia after crude prices fell over 1%, while Japanese sentiment was dampened from the prior day’s currency strength and as participants digested a deluge of mixed data releases. However, markets then recovered alongside a jubilant China where Hang Seng (+0.5%) and Shanghai Comp. (+0.3%) were underpinned on retailer optimism ahead of the National Day holiday and as financials benefitted after the banking regulator confirmed it is studying plans to further open up the industry. 10yr JGBs were modestly higher on mild short covering and with the BoJ present in the market for JPY 710bln of JGBs ranging from the belly to the super-long end. BoJ Summary of Opinions for September 20th-21st meeting stated Japan's economy is expanding moderately and the best way to achieve the price goal is to patiently maintain current easy policy. There was also an opinion that the BoJ needs to ease policy further to support demand due to expected impact from scheduled sales tax hike. Japanese National CPI (Aug) Y/Y 0.7% vs. Exp. 0.6% (Prev. 0.4%); Core CPI Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.5%). Japanese Industrial Production (Aug P) M/M 2.1% vs. Exp. 1.8% (Prev. -0.8%); Y/Y 5.4% vs. Exp. 5.2% (Prev. 4.7%) Japanese Retail Sales (Aug) M/M -1.7% vs. Exp. -0.5% (Prev. 1.1%); Y/Y 1.7% vs. Exp. 2.5% (Prev. 1.8%) PBoC refrained from open markets operations today. PBoC set CNY mid-point at 6.6369 (Prev. 6.6285) Chinese Premier Li is said to remain in position for another term, according to Hong Kong press reports. Top Asia News China Uber-Rich Prompt Haitong to Build Hong Kong Private Bank BOJ Keeps October Bond Purchase Ranges Unchanged From September S&P Estimates China’s Debt Will Expand 77% by 2021 Cryptocurrency Exchanges Get Nod to Operate in First for Japan After Panda Bond, Philippines to Explore Dim Sum in Funding Push European equities are looking for a strong finish this week with EU bourses modestly higher following the outperformance in material names. In terms of stock specific movers, Volkswagen shares fell amid reports that the company will suffer negative special items of around EUR 2.5bln. Alongside equities, EGBs have been bid this morning which is most likely down to technical factors such as month and quarter end adjustments, as well as some short covering ahead of the weekend. Germany curve showing a flattening bias this morning with outperformance in the long-end. Top European News Euro-Area Inflation Fails to Improve as ECB Prepares for QE Talk Deutsche Bank Rating Cut by Fitch as Cryan Turnaround Stalls London House Prices Decline for First Time in Eight Years U.K. Consumers Display Resilience as Saving Ratio Climbs May Pledges Britain Will Defend EU From Russian Aggression Germany Sept. SA Unemployment Change -23K M/m; Est. -5K M/m In currencies, the EUR is slightly firmer this morning, above 1.18 (1.2bln worth of expires at 1.18-1.1815) with cross related buying in EUR/GBP supporting the currency. This comes amid usual month-end demand, consequently taking EUR/GBP back to 0.8800. However, the undertone for EUR remains weak, following Merkel’s wobble in the German Elections, while yesterday’s inflation readings from Germany had also been relatively subdued. The USDJPY nursed some of the prior day’s declines, which was slightly aided by the release of the BoJ’s Summary of Opinions from the September meeting which suggested to patiently maintain current easy policy and that further policy easing may be needed to support demand on the impact from the scheduled sales tax hike. However, price action was contained as participants also digested a slew of mixed Japanese data in which Core CPI printed its firmest YTD of 0.7% but was in-line with estimates and still a distance from the 2% target, while Industrial Production surged and Retail Sales disappointed. Cable saw some volatility amid the aforementioned month-end flow, alongside comments from BoE’s Carney with the Governor noting that the committee has seen a downtick in productivity due to Brexit uncertainty. Carney also reiterated that the majority of members may see a need to raise rates if the economy stays on track. A slew of data this morning further pressured GBP with the current account deficit ballooning to GBP 23bln, while service sector output fell -0.2% In commodities, a quiet morning in commodities with WTI and Brent crude showing a slight pullback from some of the losses seen late yesterday. WTI looking to make a retest back to USD 52, after rejecting the break above the 1 week high. Precious metals have been led by risk flow, as month end unwinds are evident, with a bid seen through the European morning following the bearish September. Gold consolidates back in summer levels, back within pre- August 25th highs. Looking at the day ahead, there is PCE core for August, personal income and spending, the Chicago PMI as well as the University of Michigan consumer sentiment index. Onto other events, there is the BOJ’s summary of opinions for its September meeting. In the UK, IMF’s Lagarde and BOE’s Broadbent will speak at the BOE conference (Mr Draghi has cancelled his talk due to a relative’s sickness). Over in the US, the Fed’s Harker will speak at a Fintech event. US Event Calendar 8:30am: Personal Income, est. 0.2%, prior 0.4%; Personal Spending, est. 0.1%, prior 0.3% 8:30am: Real Personal Spending, est. -0.1%, prior 0.2% 8:30am: PCE Deflator MoM, est. 0.3%, prior 0.1%; PCE Deflator YoY, est. 1.5%, prior 1.4% 8:30am: PCE Core MoM, est. 0.2%, prior 0.1%; PCE Core YoY, est. 1.4%, prior 1.4% 9:45am: Chicago Purchasing Manager, est. 58.7, prior 58.9 10am: U. of Mich. Sentiment, est. 95.3, prior 95.3; Current Conditions, prior 113.9; Expectations, prior 83.4; 1 Yr Inflation, prior 2.7%; 5-10 Yr Inflation, prior 2.6% 11am: Fed’s Harker Speaks at Fintech Event on Consumers and Banking DB's Jim Reid concludes the overnight wrap Welcome to the last day of September and the quarter. There’s always a slight randomness to month and quarter end trading as investors adjust portfolios! The penultimate day of the month initially saw the sudden global bond rout continue after the more optimistic take on tax reform continued before a slight miss on German inflation seems to reverse the decline. 10 year Bund and Treasuries yields saw an intra-day peak of 0.516% and 2.357% respectively, before closing +1.1bp and -0.2bp at 0.475% and 2.309% (+0.7bp this morning in Asia). The yield lows this month were 0.302% and 2.04%. Yesterday, both the German and Spanish CPI readings missed slightly. In Germany, the September CPI was a touch below market expectations at 0% mom (vs. 0.1%), leaving annual growth at 1.8% yoy (vs. 1.9%). Similarly, Spain’s CPI also missed at 0.6% mom (vs. 0.8% expected) and 1.9% yoy (vs. 2.0%). Looking ahead, we have CPI for the Eurozone, France, Italy and Poland today, along with the US August PCE Core, all of which could help dictate how bonds will end for the month. This morning, the August core Japanese national CPI (ex-fresh food) was in line at 0.7% yoy while IP beat expectations at 2.1% mom (vs. 1.8%). The DB house view on 10 years bonds is for YE yields of 2.75% (USTs) and 0.65% (Bunds) but as DB's Francis Yared suggested yesterday the scale of the move over the last 36 hours has been a surprise as he believes the tax plan is just an opening bid and likely to be pared down. So a long way to go although at least we've moved away from pricing no probability of a tax plan passing. One event that has slipped a bit under the radar is the independence referendum in Catalonia on Sunday. It's been deemed illegal and therefore it’s all a bit confusing as to what will happen on Sunday, whether it will indeed go ahead and what happens next. Remember 3 years ago a non-binding ballot saw 80% support independence albeit on a 30% turnout. Continuing on the theme of breaking away, the EU’s Brexit negotiator Barnier noted yesterday that “we are not yet there in terms of achieving sufficient progress” and signalled that it could take weeks or months before the talks can move onto a trade deal, as one of the sticking points remains that UK has not outlined what it thinks the country owes to the EU. Conversely, he did show some optimism, noting the UK PM’s Florence speech “has created a new dynamic in our negotiations, and we have felt this”. The next round of talks will begin from October 9th, two weeks before the EU Summit. This morning in Asia, markets are trading broadly higher.The Kospi (+0.56%), Hang Seng (+0.21%) and Chinese bourses are up c0.5% as we type, while the Nikkei is down -0.29%. Note the Chinese markets will be closed for a week from next Monday given their Golden week holidays. Back onto Mr Trump’s tax plans which still lacks many details especially on where it’s funding will come from. Treasury Secretary Mnuchin said the plans will actually “cut” the US deficit by US$1trn, as the plans “will not only pay for itself, but it will pay down debt” by generating additional revenue. Conversely, the Committee for a Responsible Federal Budget said the plans could add US $2trn to the deficit over the next 10 years. Notably, a Bloomberg survey suggests 21 out of 26 economists expect the tax plans to increase the budget deficit. Elsewhere, White House’s economic advisor Gary Cohn said the tax plans was aimed at helping the middle class, but he could not guarantee that everyone in that tax bracket would get a cut. Staying in the US, the Fed’s Esther George reiterated the US economy is in a “reasonably good shape” and that recent storms will hit 3Q growth, but is likely to be offset as rebuilding efforts gets underway. On rates, she said a gradual monetary tightening “will benefit the long run sustainable growth and financial stability in the US”. Quickly recapping yesterday’s market performance now. US equities strengthened further, with the S&P up 0.12% to a fresh all-time high, while the Dow rose 0.18% and Nasdaq was flat following larger gains the day before. Within the S&P, most sectors advanced slightly, with only the industrials (-0.09%) and consumer discretionary sector marginally down. Elsewhere, the small caps index (Russell 2000) rose a further 0.27%, likely building on the optimism from Trump’s tax plans. Over in Europe, the Stoxx 600 gained (+0.19%) for the six consecutive day, while the DAX (+0.37%) and FTSE (+0.13%) also increased slightly. Turning to currencies, the US dollar index dipped 0.30%, but Sterling gained 0.41%, partly helped by BoE Chief Economist Andy Haldane’s comment that policy tightening should be considered good news for UK. In commodities, WTI oil fell 1.11% as investors consider whether rising output from US shale assets will offset OPEC’s efforts for production cuts. Elsewhere, precious metals were slightly higher yesterday (Gold +0.35%; Silver +0.67%), while other base metals are also trading (Copper +1.90%; Zinc +1.07%) higher this morning. Away from the markets and onto Japan. A former ally of PM Abe has just formed a new party on Wednesday with reasonable traction as per the polls. Tokyo’s first female governor Yuriko Koike has formally launched her Party of Hope, seeking a “tolerant, conservative reform party”. According to a survey by Mainichi newspaper, it found 18% of respondents would vote for Hope vs. 29% for Abe’s party. We will watch and see whether PM Abe’s opportunistic choice for a snap election on the 22 October will eventually pay off. Finally, our European equity strategist Sebastian Raedler has published “European equity strategy – Market overview” and in it expects European equities to end the year close to current levels, with his models pointing to temporary upside to around 400 for the Stoxx 600 (around 4% above current levels). Yet, with Euro area PMIs at 56.3, consistent with 3%+ Euro area GDP growth, significantly above our economists’ growth forecast of 2.0% for 2018, he sees scope for PMI momentum (the six-month change in PMIs and a key driver of equity market momentum) to turn meaningfully negative in Q1 next year, leading to renewed downside for the market. Before we take a look at today’s calendar, we wrap up the other data releases from yesterday. In the US, the final reading of 2Q GDP was slightly higher at 3.1% qoq (vs. 3.0% expected), mainly due to a positive revision in inventories. The 2Q core PCE (0.9% qoq) and personal consumption (3.3%) were both unchanged. More up to date economic readings showed the August wholesale inventories was ahead of expectations at 1% (vs. 0.4% expected) and the advance goods trade balance deficit was not as wide as anticipated (-$62.9bn vs. -$65.1bn). Elsewhere, the Kansas City Fed manufacturing activity index was above expectations at 17 (vs. 15 expected) – the second highest reading over the past six years. Finally, the continuing claims (1,934k vs. 1,993k expected) and initial jobless claims (272k vs. 270k expected) were broadly in line. For the Eurozone, numerous September confidence indicators beat expectations. The economic sentiment index rose 1pt to a fresh 10-year high (113 vs. 112 expected), while both the business climate (1.34 vs. 1.12 expected) and industrial confidence (6.6 vs. 5.2 expected) also beat. The consumer confidence was in line at -1.2. Elsewhere, Germany’s GfK consumer confidence was slightly lower than expected at 10.8 (vs. 11) while Spain’s retail sales rose 1.6% yoy in August (vs. 1.2% yoy previous). Looking at the day ahead, we have the Eurozone CPI (1.2% yoy expected for core) along with CPI & PPI for France and Italy. In Germany, there is unemployment change for September. In the UK, there is the final reading of 2Q GDP along with mortgage approvals and money supply M4 stats. Over in the US, there is PCE core for August, personal income and spending, the Chicago PMI as well as the University of Michigan consumer sentiment index. Onto other events, there is the BOJ’s summary of opinions for its September meeting. In the UK, IMF’s Lagarde and BOE’s Broadbent will speak at the BOE conference (Mr Draghi has cancelled his talk due to a relative’s sickness). Over in the US, the Fed’s Harker will speak at a Fintech event.
Despite the expert guidance of one Ben Bernanke, the world's once most levered hedge fund, Citadel, is reportedly returning money to some global hedge-fund clients. Bloomberg reports that Ken Griffin’s Citadel LLC is forcing out some of the clients in one of its multistrategy hedge funds as it seeks to tighten up its investor base, according to people with knowledge of the matter. The timing is intersting as Citadel’s move comes amid a revival of interest in hedge funds. Hedge funds raised $13.4 billion in August, the second-largest monthly amount in two years, boosting net inflows for the year to $39 billion, according to data provider eVestment. This marks a turnaround from 2016, when investors pulled $112 billion amid mediocre performance. Bloomberg reports that some of the investors, particularly funds-of-funds, will receive all their money back from the Citadel Kensington Global Strategies Fund by the end of the year, the people said, asking not to be identified because the information is private. Others will get back a portion of their investment, one of the people said. In an obvious attempt to quell any anxiety, a spokesperson reassured this is standard operating procedure, as hedge funds sometimes return part of their capital because managing too much money can hurt performance. “We have routinely made profit distributions, in whole or in part, across a number of our funds over the past 20 years,” Zia Ahmed, a spokesman for Citadel, which oversees $27 billion, said by email. Notably performance has not been dreadful. Citadel’s main Wellington and Kensington funds gained 9.2 percent this year through August. Its Global Equities Fund was up 6.8 percent. Still, we don't feel too bad for Mr. Griffin after hauling in $600 million last year...
Brian Sack may be rolling in the green these days thanks to his current employer, quant behemoth D.E. Shaw, but before Sack was trading the market, he was the market (which also explains his rather seamless transition to the private sector), in his capacity as head of the New York Fed's Markets Group, also known as the "Plunge Protection Team", and also managed the FederalReserve's System Open Market Account, i.e. he ran the daily POMO which was the basis of QE1 through QE3. While Sack was replaced as head of the infamous Markets group in Jun 2012, replaced by the current head, academic Simon Potter, it was Sack whose daily interventions in the bond market and periodic "communications" with a certain group inside Citadel, set the groundwork for the biggest, and most artificial market rally in history. It to think it only cost the Federal Reserve $4.5 trillion to preserve the illusion of the "Wealth effect"... Anyway, the reason we bring up this "blast from the past" name, is because in its latest Top of Mind periodical, (p)reviewing the Fed's balance sheet unwind, Goldman's Allison Nathan has conducted an extensive interview with none other than the man who made price discovery, efficient markets, and basically capitalism, a thing of the past. So what does Brian have to say? Well, a lot of thing (see below), but the punchline is his answer when asked if the Fed will buy other assets besides bonds, i.e., stocks, ETFs and the like: Q. Would it make sense for the Fed to purchase a broader range of assets in the event of a future downturn, as Fed Chair Janet Yellen suggested in a speech last year? Purchases of Treasuries and agency-backed securities—the primary assets that Congress has so far authorized the Fed to buy—have the advantage of allowing the Fed to affect the market price of interest rate risk without taking on any credit risk. Purchasing a wider set of assets—as do some other central banks—might enable the Fed to have a larger effect on financial conditions and promote faster recoveries. But it would also involve putting more taxpayer money at risk and having an imprint on a wider set of risk premiums in the market. So there is a tradeoff involved that Congress would ultimately have to consider. Translation: the Fed is ready to start buying everything at the flip of a switch. It just needs Congressional approval Here is Goldman's entire interview with the former Markets group head. * * * Brian Sack is Director of Global Economics at the D. E. Shaw group. Prior to joining the D. E. Shaw group in 2013, he was an Executive Vice President at the Federal Reserve Bank of New York (FRBNY), where he served as head of the FRBNY's Markets Group and managed the Federal Reserve's System Open Market Account portfolio from 2009 to 2012. Below, he reflects on the experience with the Fed’s asset purchase programs and argues that the Fed should maintain a relatively large balance sheet and be willing to deploy it as a policy tool during future downturns. Allison Nathan: You were involved in both establishing quantitative easing (QE) as a policy concept and implementing it after the financial crisis. Looking back, how important was QE to the economic recovery? Brian Sack: QE proved to be a critical policy tool. Without it, the economic recovery would have been slower, and there would have been a greater risk of the economy getting stuck in a deflationary trap. Given that the Fed's traditional policy instrument, the federal funds rate, was constrained by the zero bound, it was very important for the Fed to convey that it still had an instrument that it would actively use to pursue its economic objectives. I think that message had very meaningful effects on expectations for the economy and on financial conditions in a way that ultimately supported the recovery. Allison Nathan: Can we really call QE a success, given that inflation remains below the Fed’s target? Brian Sack: It’s true that inflation has been disappointing. That being said, the low level of inflation today, if anything, highlights how important it was for the Fed to have been responsive with this policy instrument. If the Fed had sat on its hands and allowed a much more sluggish recovery, I think the problem of low inflation would have been more severe. Allison Nathan: Through what channel did QE impact the economy most? Brian Sack: In my view, QE worked primarily through the portfolio balance channel. By reducing the amount of duration risk that would have otherwise been in the market, QE pushed down the term premium for longer-term securities, thereby reducing those interest rates. As investors sought to substitute into other securities, there were positive knock-on effects to broader financial conditions. There may have also been some effect through the signals that QE provided about the path of the federal funds rate, but my intuition is that it was less important than the portfolio balance channel, especially considering that the Fed was separately providing explicit guidance on its policy rate over much of this period. Allison Nathan: In retrospect, is there anything that the Fed should have done differently? Brian Sack: The Fed could have perhaps defined its policy reaction function for the balance sheet more clearly. Over the earlier QE programs, the Fed’s purchases moved in very large, discrete steps. In retrospect, it might have been better to move in more moderate steps with more frequent adjustments to economic conditions, as that could have helped markets and the public better understand how the Fed intended to set this policy instrument. When market participants are able to understand and anticipate central bank actions, monetary policy tends to be more effective. The Fed ended up moving in that direction during QE3, but it arguably could have done so sooner. That said, I would note that the Fed was launching a new policy instrument and that this innovation was taking place under challenging circumstances. So, in my view, debating whether the exact implementation of the tool was optimal is much less important than the Fed’s overall decision to actively use the tool. Allison Nathan: What will it mean for the economy and for markets to put balance sheet expansion into reverse? Are you concerned that normalization could prove disruptive? Brian Sack: We should expect the portfolio balance effects that I discussed earlier to reverse, which means that the term premium should face some upward pressure. However, there are several reasons to think that the adjustment will not be sizable or disruptive. First, QE effects tend to occur when expectations shift, not when the actual portfolio flows happen. In this case, the Fed has already communicated the plan for shrinking its balance sheet, so a decent share of the impact should be behind us. Second, the decline in asset holdings is set to take place in a gradual and predictable manner, so the Fed has successfully made this adjustment relatively “boring.” And third, even once the Fed shrinks the balance sheet, the market will know that QE is an ongoing, viable tool. The prospect that the balance sheet is likely to increase again if needed could act to hold down the term premium today. Finally, I'd note that many fundamental factors are also holding down the term premium, including low inflation expectations and the beneficial correlation that Treasury securities have with risky assets. If these factors were to shift in a manner that amplified upward pressure on the term premium, the market outcome could be more disruptive. But that would involve a fairly meaningful shift—such as sharply higher inflation expectations—which seems unlikely at the moment. Allison Nathan: Could there be any unintended spillovers from the interaction between Fed normalization and the ECB’s eventual tapering of asset purchases? Brian Sack: I do think there are important spillovers across global markets and that the global policy environment has helped keep longer-term US interest rates low. If other central banks adjust their balance sheets in the same direction, the increase in supply and the associated effect on the term premium could end up being larger than expected. That doesn't mean we'll necessarily have an abrupt or disruptive market outcome; it just means that whatever supply effect we were anticipating would be turned up to some degree. Of course, at this point, the ECB is only considering stopping the expansion of its asset holdings, not shrinking them, and the market is already anticipating these policy shifts. So I don’t see a great risk of a disruptive outcome in the short run. Allison Nathan: You are in favor of the Fed maintaining a fairly large balance sheet in the longer run. What advantages do you see to that approach? Brian Sack: I published a proposal in 2014 with Joe Gagnon saying that the Fed should operate a floor system with a meaningful role for the reverse repo facility, while maintaining a large balance sheet. The idea was that this framework would keep overnight market interest rates near the interest rate that the Fed pays to financial institutions. We argued that such a system would give the Fed effective control of interest rates and would be operationally simpler than the prior framework. It would also make the financial system more robust by helping satiate the private sector’s substantial demand for short-term, risk-free assets. To date, our experience with the floor system has been very positive, reflecting all of these advantages. I expect the Fed to decide to maintain this type of system in the longer run, and hence I doubt its balance sheet will ever fall below $3tn in assets. Allison Nathan: Some market observers take the opposite view, arguing that the Fed should shrink its balance sheet to pre-crisis levels based on concerns that the floor system leaves the Fed with too large a footprint on the markets, or that having a large balance sheet could compromise the Fed’s independence, among other arguments. Is there merit to any of these concerns? Brian Sack: I generally disagree with these views. I think the footprint argument is exaggerated, since the balance sheet simply transforms one type of government asset—a long-term Treasury security—into another type of government asset— bank reserves or reverse repos. Many of the other arguments in favor of a smaller balance sheet seem to be driven by nostalgia for the way things used to be or by concerns about political pressure from having a larger balance sheet. To me, it would be a shame to allow any of those considerations to stand in the way of arriving at the most effective, efficient, and robust operating framework for the Fed. Allison Nathan: You mentioned that the balance sheet— once considered an unconventional policy option—should now be considered a viable tool...? Brian Sack: Yes. The Fed initially proceeded with asset purchases in a very careful manner, which made sense given that we were in uncharted territory. But I think we’ve learned that many of the potential costs associated with QE ended up being more benign than initially feared by some observers. What’s more, the Fed has now demonstrated control over the policy rate even with a large balance sheet. Based on that experience, I think that the Fed should be more comfortable using the balance sheet when it is unable to achieve adequate policy accommodation by lowering the federal funds rate. In my view, there is a strong chance that the Fed will have to turn to asset purchases again when the next substantial economic downturn occurs, considering that the neutral level of the federal funds rate has fallen notably. Allison Nathan: Would it make sense for the Fed to purchase a broader range of assets in the event of a future downturn, as Fed Chair Janet Yellen suggested in a speech last year? Brian Sack: Purchases of Treasuries and agency-backed securities—the primary assets that Congress has so far authorized the Fed to buy—have the advantage of allowing the Fed to affect the market price of interest rate risk without taking on any credit risk. Purchasing a wider set of assets—as do some other central banks—might enable the Fed to have a larger effect on financial conditions and promote faster recoveries. But it would also involve putting more taxpayer money at risk and having an imprint on a wider set of risk premiums in the market. So there is a tradeoff involved that Congress would ultimately have to consider. Allison Nathan: Economists like Larry Summers have argued that Fed purchases of long-term government debt would have been more effective at holding down the term premium if the Treasury had not increased the maturity of its debt issuance at the same time. Should there be more communication or coordination between the Fed and the Treasury? Or would that damage Fed independence? Brian Sack: Debt management decisions can affect financial conditions in the same way as QE; they both change the supply of duration in the market. And decisions by debt managers can at times work at cross-purposes to QE decisions by the central bank. We at the Fed were certainly aware of that throughout the post-crisis period. However, I don't see a need for policy coordination in most circumstances. The Treasury makes debt management decisions with a set of goals that differ from those of the Fed; and the Fed can take those decisions as given and set an appropriate path of QE around them. However, there is clearly a need for communication. For example, the market effects of Fed balance sheet runoff will depend on what maturities the Treasury intends to issue to replace those holdings. And the Treasury needs to have a sense of the Fed's runoff plan as it decides how to fund the government. So certainly that type of communication should take place, and I have a hard time believing that those communications somehow impair the independence of the Fed, given that the Fed's mandate is clear. Allison Nathan: What has been the most important lesson from the Fed’s experience with QE? Is it applicable to other central banks still conducting asset purchases? Brian Sack: We learned that asset purchases have clear benefits and limited costs. I think a key lesson for all central banks is that if they see QE as a viable policy instrument, it's important to communicate that it will be used when the circumstances call for it. That will allow markets to price central bank actions further in advance and with greater accuracy, which would only make the policy more effective.
The woes for hedge funds continued in the second quarter, and nowhere more so than among the macro fund community, which posted its worst first half since 2013, losing 0.7% , and according to Hedge Fund Research have returned just 1% annually in the past five years, in an investing world which no longer makes much sense courtesy of central bank intervention. Most impacted by this revulsion against the active investing community has been none other than Paul Tudor Jones, whose investors are increasingly deserting him according to Bloomberg, which reports today that clients yanked 15% of their assets from his main BVI fund in the second quarter, leaving AUM at just $3.6 billion, roughly half from a year ago. Jones, whose BVI Global Fund is down 1.9% through July 21, has been taking aggressive steps to revive his firm, including reducing fees and headcount. As revenue at Tudor declined, Jones last month sold the firm’s 43-acre Greenwich, Connecticut, headquarters’ property. Tudor then said it plans to move to a location in lower Fairfield County that’s more convenient to New York City, where the firm has offices. It is probably also cheaper. One year ago, Jones also dismissed 15% of his employees. He has told clients he will manage a larger chunk of their money and has encouraged his portfolio managers to take more risk. Jones has also leaned on quantitative tools to help with trading, including introducing technology that replicates the bets of his best managers. Finally, Tudor has this year reduced its management fee to between 1.75% and 2.25% while taking a 20% cut in profits, after decades of being one of the most expensive hedge funds. The firm had once charged management fees as high as 4% for some clients, and a performance fee of as much as 27% for others, Bloomberg reports. Alas, so far these "aggressive steps" have failed to yield results. Jones, 62, and his peers including Brevan Howard's Alan Howard and, of course, John Paulson, are experiencing a "punishing shift": The old guard who shot to fame in the 1980s and 1990s are foundering, while a younger set of managers are making money, hiring and attracting new investments. The veterans are finding it’s no easy feat to replicate stand-out profits of yesteryear, when markets were more opaque and less efficient. One can debate whether markets were less efficient then compared to now, but one thing is certain: icons such as PTJ have failed to find their groove in a world where central banks have injected $15 trillion in liquidity. Aside from BVI Global, Tudor also manages a fund tied to the performance of multiple teams of managers, an event-driven portfolio, and individual accounts. In total, the firm now has just under $8 billion in assets, compared with $14 billion in June 2015 according to Bloomberg. Meanwhile, Tudor employees have also defected along with clients. Global rates money manager Adam Grunfeld quit in May after nine years and is set to join Element Capital, the macro fund run by 42-year-old Jeff Talpins. Zorin Finkelsen and Dudley Hoskin left to join Balyasny Asset Management. Other departures have included risk-management chief Joanna Welsh, who departed for Ken Griffin’s hedge fund Citadel last year. Separately, money manager Dan Pelletier took a sabbatical to design quantitative tools for trading, people with knowledge of the firm said. Pelletier, who had worked at Tudor for nine years, couldn’t be reached for comment. Jones' recent troubles are a humiliating fall from grace for the once-storied investor, whose main BVI Global Fund produced average annual gains of about 26% from 1987 through 2007. However, since 2008 his annual average return has slid to about 4.7% with results turning increasingly more negative in recent years. In his biggest losing bet - so far - Jones banked on macro making a comeback. Last year he said central bank policies, which have suppressed volatility and encouraged more government debt, will backfire and macro strategies will profit when the debt bubble bursts. So far that hasn’t materialized.
Марк Вартанян работал над развитием и распространением вредоносной программы с августа 2012 года по июнь 2014 года.
Гражданина РФ Марка Вартаняна приговорили американским судом к пяти годам лишения свободы за мошенничество и разработку компьютерного вируса, сообщает ТАСС со ссылкой на Associated Press.
Федеральный суд в американском штате Джорджия (США) приговорил гражданина России Марка Вартаняна к пяти годам лишения свободы за разработку и распространение вируса Citadel. Об этом сообщает газета Star Tribune.С помощью вредоносной программы можно было похитить банковскую информацию и денежные средства. Прокуратура передает, что вирус Citadel заразил 11 млн компьютеров по всему миру и нанес ущерб на сумму более $500 млн.Марк Вартанян был задержан в сентябре 2015 года в Норвегии, в декабре 2016 года его экстрадировали в США. 14 марта 2017 года хакер предстал перед судом и через неделю после этого признал вину.Подробнее — в материале «Ъ FM» «Хозяин "Цитадели"».
Гражданин России Марк Вартанян приговорен судом в американской Атланте к пяти годам лишения свободы за хакерские атаки с помощью разработанного им самим вируса и за мошенничество, сообщают СМИ. Ему засчитали два года в тюрьме Норвегии, поэтому срок сокращен до трех лет, передает «Интерфакс» со ссылкой на Associated Press. В марте Вартанян согласился признать вину в обмен на более мягкое наказание. Его программа Citadel Trojan позволяла получать банковские данные пользователей. Распространял он ее во время проживания на Украине и в Норвегии с 2012 по 2014 годы. Ущерб от вируса оценили в 500 млн долларов. В декабре 2016 года Вартанян был экстрадирован из Норвегии в США.
Гражданин России Марк Вартанян, экстрадированный в декабре 2016 года из Норвегии в США, приговорён к пяти годам тюрьмы за кибермошенничество. Как сообщает портал "Утро.ру", молодой человек признал свою вину. Отмечается, что Вартаняну зачтётся время, уже проведённое им в тюрьме. Его обвинили в разработке, совершенствовании и распространении вредоносной программы Citadel ("Цитадель"), которой было заражено около 11 миллионов компьютеров по всему миру.
Марк Вартанян обвинялся в разработке и торговле "программы Citadel, предназначенной для инфицирования компьютерных систем и хищения реквизитов учетных записей финансовых счетов"
В четверг открылась очередная ежегодная встреча членов Бильдербергского клуба. Среди 133 гостей, собравшихся на этой неделе в австрийском городке Тельфс-Бюхен, 21 политик. В их числе – министр финансов Великобритании Джордж Осборн...