Merger Arbitrage (Human) vs Algo Hedge Fund Returns: The two charts below show the ends of the spectrum. The first chart shows the “algo and bot” driven hedge funds are doing poorly relative to the S&P 500 (blue). The second chart shows arguably a human-based activity, merger arbitrage. Of the more than 30 categories HFR tracks, this is the best performing category over the last three years, beating the global bond market (orange) and the MSCI world index (light green), but lagging the S&P 500 (blue).
Apple, Disney and Berkshire Hathaway are regarded as three most highly thought of stocks to hold for the long-term. The charts below show a ratio of the stock price to the S&P 500 on a total return basis. All three have peaked years ago against the S&P 500 and collectively have been in-line to under-performing the S&P 500 for many years. Is this yet another reason to give up on stock picking and buy a passive index fund?
Heavy Long Positioning In EM Currencies Finally Losing Ground To Developed Currencies?
ChinaIncreased Its US Treasury Holdings To $1.09 trillion in March.
Selling volatility through leveraged ETFshas fallen out of favor this month. The past 20 days have seen $218 million flow out of short volatility ETFs and $241 million flow into leveraged long volatility ETFs.
The short volatility trade has performed well even as ETF flows turned against the short volatility trade. Leveraged short volatility ETFs are +33% since mid-April. Leveraged long volatility ETFs are -22% over that same period.
Long And Short Crude ETF Assets And Flows.
Long Energy ETF flows continue to increase …
… As cumulative flows in long crude oil ETFs have dipped since February 2016.
A Look at Credit Spreads.
Gas Prices Remain Stable.
Interest Rates: In past weeks we looked at the long and short ends of the yield curve. This week we highlight Moody’s Aaa yields since 1913. Also of note on these charts are the recessions shown in gray.
President’s Approval Comparision: The black line on the bottom is of this interactive chat is Trump’s approval rating. While he has the worst approval rating for the first 115 days, he has been trending sideways since the week after he took office. So, nothing has changed. Is this about to change?
MarketWatch –Bitcoin carries digital-currency market capitalization past $30 billion
The combined market capitalization of all cryptocurrencies late Monday surpassed $30 billion for the first time, according to digital currency tracking website Coin Market Cap. That means the size of the nascent digital currency market is now worth more than twice the value of Twitter Inc and is equal to nearly half the market capitalization of Netflix Inc.
S&P Global Platts – US shale oil rebound shakes OPEC
Even with oil prices hovering around the $50/b mark, the US rig count has increased rapidly while E&P companies continue to record substantial reductions in well drilling costs. The increase in new well oil production per rig demonstrates the extraordinary gains the shale drillers have made. In April 2014, new well oil production per rig on the Bakken was recorded at 492 barrels and on the Eagle Ford at 463 barrels. In April this year, the figures are 1,067 barrels and 1,448 barrels, respectively. Moreover, US E&P companies remain confident they can continue to eke further efficiencies out of their seemingly ever-evolving factory-mode production processes.
ETF.COM (April 24 2017) – Energy ETFs A Bargain If Citi’s $60 Oil Call Is Right
The cartel meets on May 25 to discuss whether to extend the temporary production curbs put in place at the start of the year. Those curbs―a six-month output reduction of 1.2 million barrels per day from OPEC countries and 558,000 barrels per day from a group of non-OPEC countries―were aimed at reducing the enormous glut of inventories that had accumulated during the oil bust of the last couple of years. Key OPEC sources recently suggested that the cuts are likely to be extended. Kuwait’s oil minister, who expects the supply agreement to be renewed for another six months, said that he is satisfied with the compliance from OPEC and non-OPEC countries.
Mainstay Investments – High-Yield Default Rates Drop
High-yield default rates are moving lower, according to Moody’s. A growing economy, a recovery in profits, and oil prices well above winter 2016 levels have supported a spread environment, somewhat reminiscent of the growing economies of the mid-1990s and mid-2000s, although spreads were tighter then. Moody’s trailing 12-month global speculative-grade default rate fell to 3.8% in March, down from its recent peak, and is projected to average 2.5% in the fourth quarter by the research and ratings firm. The trailing 12-month U.S. speculative-grade default rate fell to 4.7% in March and is projected to average 3.1%.
CNBC – The industry that opposed Trump the most has performed best in his first 100 days
Despite loud opposition from tech firms to many of Trump’s policies, investors have hoisted many tech stocks to all-time highs since the election. Shares of Amazon, Apple, Facebook, Microsoft and Alphabet have hit one all-time high after another in 2017. The Nasdaq 100 has hit higher levels than ever, and the IPO market hit a seven-quarter high in terms of capital raised, according to Renaissance Capital.
The Financial Times – Nasdaq Composite breaches 6,000 for the first time Fang stocks — Facebook, Amazon, Netflix and Google — lead the charge
The Nasdaq Composite breached the 6,000 level for the first time on Tuesday and extended its double -digit gain for the year as investors focus on owning companies with strong growth prospects. The tech-heavy benchmark climbed as much as 0.7 per cent to 6,022 early in the day after closing at a record high in the previous session. Renewed appetite for technology stocks and a rally in the so-called Fang stocks — Facebook, Amazon, Netflix and Google — has spurred a near 12 per cent gain for the Nasdaq in 2017, well ahead of the S&P 500’s rise of 6.5 per cent. Within the main S&P 500 sectors, technology has gained nearly 14 per cent in 2017, well ahead of other big industry groups. Tech has prospered as investors have sought fast-growing companies against the backdrop of questions over the outlook for the US economy and whether the Trump administration can push fiscal stimulus measures through Congress.
ETF Trends – Oil ETFs Drubbed, But Some Argue for Upside
For example, USO, one of the most heavily traded commodities exchange traded products of any stripe, slid more than 5%, but some market observers believe oil’s most recent plunge is not justified by poor fundamentals. In fact, Goldman Sachs opines that oil fundamentals are actually decent. “Goldman is reiterating its confidence in oil at a time when investors are fretting over whether U.S. production, which has climbed to the highest since August 2015, will undermine curbs by the Organization of Petroleum Exporting Countries and its allies,” reports Serene Cheong for Bloomberg. “After posting three straight weekly gains on expectations OPEC will extend its supply cuts, crude is now set for a drop this week following a decline of more than 3.5 percent on Wednesday.” Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices. Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term.