tag:blogger.com,1999:blog-20554334088993050362024-02-07T13:44:02.320-05:00Hard Data for Financial ThoughtsJFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.comBlogger137125tag:blogger.com,1999:blog-2055433408899305036.post-26890731472226886932013-04-05T10:25:00.000-04:002013-04-05T10:25:22.169-04:00Wide gyrations yesterday and today in the JGB, Japan's 10-year rates. Rates volatility is supposedly lower when absolute levels are low, such as in the Cox Ingersoll Rand model...<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUk83-28-MyIHJFIJdVrTl3aJK2iBg4sqbip9535ENHpk5dLemOfTsBb4D_SH6GD_46Do-1YxZvwBCC_4Q9ts3dp-8qI1D74FKnFSRQ82qI-bhTmGC6RREH6LAPdCGCGkkL0HEPcGR1-HP/s1600/sg2013040537212.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="229" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjUk83-28-MyIHJFIJdVrTl3aJK2iBg4sqbip9535ENHpk5dLemOfTsBb4D_SH6GD_46Do-1YxZvwBCC_4Q9ts3dp-8qI1D74FKnFSRQ82qI-bhTmGC6RREH6LAPdCGCGkkL0HEPcGR1-HP/s320/sg2013040537212.gif" width="320" /></a></div>
Some CTA and macro hedge funds had an excellent day yesterday if they were long Japanese rates. But today will test their profit taking and stop losses rules; probably many will give back yesterday's profits.<br />
<br />JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-53858562766474300142010-06-28T19:23:00.004-04:002010-06-28T19:26:43.658-04:00Correlation Between S&P500 and 10-yr Tsy: An Ominous Sign?There is a new peak in the correlation between the S&P500 and the yield on the 10yr <span style="cursor: pointer; background: none repeat scroll 0% 0% transparent;" class="yshortcuts" id="lw_1277767338_0">Treasury</span>. The bottom graph in the screen shot below is that of rolling 120-day correlations. If we consider 60-day rolling, correlation would be even higher at 84%. It hasn't been as high since late 07 and all of 08. What are markets telling us?...<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZZspMhy-CHp_1ifBaarncqMyAo7xwNeGSZjos2wNkCudfSfcwVasSMt2RbM9awKfeJ2DvMbC2580_W1Xh5pP4rRO14hjEHvqYR3h-ZICqa7SOSuvT-9oQZvDJMkRjUu4hvsSmVQOAAypg/s1600/sg2010062838816.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZZspMhy-CHp_1ifBaarncqMyAo7xwNeGSZjos2wNkCudfSfcwVasSMt2RbM9awKfeJ2DvMbC2580_W1Xh5pP4rRO14hjEHvqYR3h-ZICqa7SOSuvT-9oQZvDJMkRjUu4hvsSmVQOAAypg/s320/sg2010062838816.gif" alt="" id="BLOGGER_PHOTO_ID_5487969741514916226" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-52839834174068548732010-06-28T18:23:00.006-04:002010-06-28T19:27:34.526-04:00Factor Analysis of Hedge Funds: The Case of Och-Ziff<p class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >Here’s a quick multi-factor analysis of Och-Ziff Overseas II, more precisely of its last 77 monthly NAVs (including May 2010). There are a few interesting take-aways:</span></span></p> <ul style="margin-top: 0in;" type="disc"><li class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >99% of OZ’s performance, per the Adjusted R-Squared, can be explained by this factor model, which is obviously almost perfect.</span></span></li><li class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >The factors explaining the performance in this model are the S&P 500, the MSCI World index, the Leveraged Loan index, and the Credit Suisse High Yield Bond index.</span></span></li><li class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >The sign of the terms for the S&P 500 and the Leveraged Loan index is negative (with high t-stats. Actually, the t-stats leave no doubt on the significance of the parameters, since they’re all, in absolute terms, above 6.) That is, a significant part of OZ’s returns comes from being SHORT the S&P500, or rather, more probably, by hedging HY bond and global equity positions with shorts/puts on the S&P500. </span></span></li><li class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >Whatever the best explanation for the negative S&P coefficient, this factor analysis indicates that OZ certainly is not a simple levered play on any of these markets.</span></span></li></ul>Note that we cannot draw conclusions from the magnitude of the coefficients since, in this analysis, the NAV of the fund has been normalized to 1 at inception.<br /><br /> SUMMARY OUTPUT<br /><br />Regression Statistics<br />Multiple R 0.994780933<br />R Square 0.989589104<br />Adjusted R Square 0.989018644<br />Standard Error 0.019640803<br />Observations 78<br /><br />ANOVA<br /> df SS MS F Significance F<br />Regression 4 2.676752148 0.669188037 1734.721144 1.61407E-71<br />Residual 73 0.028160565 0.000385761<br />Total 77 2.704912713<br /><br /> Coefficients Std Error t Stat P-value<br />Intercept 0.918831919 0.028415423 32.33567607 5.221E-45 <br />MSCI World 0.000880636 9.31751E-05 9.451410452 2.66496E-14 <br />Lev Loan index -0.007563448 0.00059902 -12.6263688 4.89766E-20 <br />CS HY Index 0.001589215 .2593E-05 37.31167533 2.72932E-49 <br />S&P 500 -0.000828656 0.000126406 -6.55550518 6.87152E-09JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-9583501273798456152010-06-28T17:54:00.002-04:002010-06-28T18:22:23.836-04:00M&A Feast for Hedge and Private Equity FundsHere's the ranking of the Top 30 pending M&A deals, ranked by deal size. It will be a hedge and private equity funds feast: not only are they often acquirers (Thomas H. Lee, Apollo, Icahn), but many of the target are among their portfolio companies: Talecris, for example, is owned by Cerberus.<br /> <table style="border-collapse: collapse; width: 626pt;" width="834" border="0" cellpadding="0" cellspacing="0"><col style="width: 179pt;" width="238"> <col style="width: 140pt;" width="187"> <col style="width: 48pt;" width="64"> <col style="width: 26pt;" width="35"> <col style="width: 65pt;" width="87"> <col style="width: 43pt;" width="57"> <col style="width: 70pt;" width="93"> <col style="width: 55pt;" width="73"> <tbody><tr style="height: 38.25pt;" height="51"> <td class="xl65" style="height: 38.25pt; width: 179pt;" width="238" height="51">Target</td> <td class="xl65" style="border-left: medium none; width: 140pt;" width="187">Acquirer</td> <td class="xl65" style="border-left: medium none; width: 48pt;" width="64">Deal Size (M)</td> <td class="xl65" style="border-left: medium none; width: 26pt;" width="35"> </td> <td class="xl70" style="border-left: medium none; width: 65pt;" width="87">Announced Premium in %</td> <td class="xl67" style="border-left: medium none; width: 43pt;" width="57">Payment Type</td> <td class="xl67" style="border-left: medium none; width: 70pt;" width="93">Current Premium in %</td> <td class="xl67" style="border-left: medium none; width: 55pt;" width="73">Expected Completion Date</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">XTO ENERGY INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">EXXON MOBIL CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">41366.82</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">25.94</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.05</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">06/28/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">QWEST COMMUNICATIONS INTL</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">CENTURYLINK INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">22161.55</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">12.49</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">6.84</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">06/30/11</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">SMITH INTERNATIONAL INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">SCHLUMBERGER LTD</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">12342.48</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">42.18</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">2.22</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">ALCON INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">NOVARTIS AG-REG</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">10567.14</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">-5.99</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">-9.31</td> <td class="xl68" style="border-top: medium none; border-left: medium none;"> </td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">ALLEGHENY ENERGY INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">FIRSTENERGY CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">9216.11</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">36.15</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">14.17</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">04/30/11</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">MILLIPORE CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">MERCK KGAA</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">6805.77</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">42.48</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.38</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">AIRGAS INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">AIR PRODUCTS & CHEMICALS INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">6641.21</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">27.13</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">-3.83</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">08/13/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">SYBASE INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">SAP AG</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">5322.65</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">47.75</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.73</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">07/01/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">TALECRIS BIOTHERAPEUTICS</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">GRIFOLS SA</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">3890.94</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">53.45</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">C&S</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">22.9</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">MARINER ENERGY INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">APACHE CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">3801.5</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">60.85</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">C&S</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">4.38</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">09/30/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">CONTINENTAL AIRLINES-CLASS B</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">UAL CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">3185.64</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">1.61</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">-0.19</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">PSYCHIATRIC SOLUTIONS INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">UNIVERSAL HEALTH SERVICES-B</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">3114.41</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">6.1</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">3.04</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">INTERACTIVE DATA CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">Multiple</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">2996.24</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">1.81</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">1.62</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">09/30/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">BUCKEYE GP HOLDINGS LP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">BUCKEYE PARTNERS LP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">2720.89</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">30.42</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">6.96</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">EV3 INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">COVIDIEN PLC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">2489.97</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">19.71</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.67</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">07/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">MIRANT CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">RRI ENERGY INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">2273.7</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">-1.01</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">1.52</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">CASEY'S GENERAL STORES INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">ALIMENTATION COUCHE-TARD -B</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1862.09</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">16.34</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">1.15</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">07/09/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">CYBERSOURCE CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">VISA INC-CLASS A SHARES</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1796.58</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">40.38</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">2.08</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">GERDAU AMERISTEEL CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">GERDAU SA-PREF</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1607.07</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">47.5</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.58</td> <td class="xl68" style="border-top: medium none; border-left: medium none;"> </td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">ARENA RESOURCES INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">SANDRIDGE ENERGY INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1563.56</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">25.82</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">C&S</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">1.74</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">09/30/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">DYNCORP INTERNATIONAL INC-A</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">Private (Cerberus)</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1472.82</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">50.21</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.98</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">ECLIPSYS CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">ALLSCRIPTS-MISYS HEALTHCARE</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1242.63</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">20.05</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Stk</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">7.33</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">RCN CORP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">Private</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1192.29</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">38.33</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">1.08</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">12/31/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">AMERICAN ITALIAN PASTA CO-A</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">RALCORP HOLDINGS INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1171.62</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">36.22</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.36</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">07/22/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">GLG PARTNERS INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">MAN GROUP PLC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1130.59</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">42.09</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">3.69</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">09/30/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">INVENTIV HEALTH INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">THOMAS H. LEE PARTNERS LP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1091.03</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">9.85</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">2.04</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">09/30/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">STANLEY INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">CGI GROUP INC - CL A</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1054.64</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">20.07</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.54</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">07/09/10</td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">CKE RESTAURANTS INC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">APOLLO GLOBAL MANAGEMENT LLC</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1009.5</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">5.91</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">0.32</td> <td class="xl68" style="border-top: medium none; border-left: medium none;"> </td> </tr> <tr style="height: 12.75pt;" height="17"> <td class="xl66" style="height: 12.75pt; border-top: medium none;" height="17">LIONS GATE ENTERTAINMENT COR</td> <td class="xl66" style="border-top: medium none; border-left: medium none;">ICAHN ENTERPRISES LP</td> <td class="xl66" style="border-top: medium none; border-left: medium none;" align="right">1001.42</td> <td class="xl66" style="border-top: medium none; border-left: medium none;"> </td> <td class="xl71" style="border-top: medium none; border-left: medium none;">32.6</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">Cash</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">-0.92</td> <td class="xl68" style="border-top: medium none; border-left: medium none;">06/30/10</td> </tr> </tbody></table>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-67241185489940774722010-06-15T19:15:00.002-04:002010-06-15T19:21:05.299-04:00Deep Discounts on Secondary Market for Hedge Fund InvestmentsHedgeBay tracks the average haircuts applied to investments in hedge funds resold on the secondary markets. It just reported its latest numbers, and the result is ugly. Whereas positions transacted at a roughly 15% discount last year, the haircut is now about 28%, on average:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjK3guSpGTarmRU423TH3tJ08Xtn4D_n1cklcH6ph06_edRgD92zJ3DMi71VWzLBoLB0fFSRUj1zCrtTyJHR3gtd7Jw8tuEkzoFKZ-NEP_juos9U6wUAFJudIxat8NA9aadu2s83057DwG/s1600/Hedgebay+avg+price.GIF"><img style="cursor: pointer; width: 320px; height: 200px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgjK3guSpGTarmRU423TH3tJ08Xtn4D_n1cklcH6ph06_edRgD92zJ3DMi71VWzLBoLB0fFSRUj1zCrtTyJHR3gtd7Jw8tuEkzoFKZ-NEP_juos9U6wUAFJudIxat8NA9aadu2s83057DwG/s320/Hedgebay+avg+price.GIF" alt="" id="BLOGGER_PHOTO_ID_5483143222841382722" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-46963286765549625652010-06-15T19:10:00.003-04:002010-06-15T19:14:30.679-04:00Benchmarking Volatility Strategies<span style=";font-family:Arial;font-size:10;" >The Standard & Poor Volatility Arbitrage index is a interesting benchmark for the different vol arb hedge funds out there. The index measures the performance of a variance swap strategy that consists of receiving the implied variance of the S&P 500 and paying the realized variance of the S&P 500. The rationale behind this strategy is that implied vols tend to exceed realized vol, and it’s been almost always the case for the S&P500:</span> <div class="MsoNormal" style="margin: 0in 0in 0pt;"><span style=";font-family:Arial;font-size:10;" ></span> </div> <div class="MsoNormal" style="margin: 0in 0in 0pt;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRO0tOIBSnc6V944ObsNJu9U9br7DCEGiphIh90qNtDVjDDVCr7wIfjiu_8-5d8oSwv4Aj52YH7fz3tT5edtyXgOJVykpPCKHsRpY21bHzdsmGARt4PJ7SjCDOWfygMhlmdgwWl7kL4APa/s1600/impl+vs+histo.GIF"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRO0tOIBSnc6V944ObsNJu9U9br7DCEGiphIh90qNtDVjDDVCr7wIfjiu_8-5d8oSwv4Aj52YH7fz3tT5edtyXgOJVykpPCKHsRpY21bHzdsmGARt4PJ7SjCDOWfygMhlmdgwWl7kL4APa/s320/impl+vs+histo.GIF" alt="" id="BLOGGER_PHOTO_ID_5483142451975027362" border="0" /></a><span style=";font-family:Arial;font-size:10;" ><br /><br />Despite the sudden spike in realized volatility, the S&P Vol Arb index still outperforms the equity market (S&P500) since inception in 1990. The graph below plots the total return version of the Vol Arb index (SPARBVN, in amber) calculated on a total return (funded) basis, versus the total return on the S&P 500 (with dividend reinvestment) shown in white. Indeed, the Vol Arb index shows that a rule-based variance swap strategy, despite the drop in the Fall of 08, is still far ahead of the return on the S&P500. Moreover, its volatility is clearly much lower.</span></div> <div class="MsoNormal" style="margin: 0in 0in 0pt;"><span style=";font-family:Arial;font-size:10;" ></span> </div> <div class="MsoNormal" style="margin: 0in 0in 0pt;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikuCu4FYxoNJZTa5-9C5RswmzYZzMoZKXMFK9bPoJ2WloqgP_-ZZakZEmyvRM_rel34xU7s6SzVnJ-5wTP_COlHqJw8Sm3aux65vWNYMr55UXFVotDNytho6TBvP1FY9naU9H-9D5Pri-_/s1600/New+Image.GIF"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikuCu4FYxoNJZTa5-9C5RswmzYZzMoZKXMFK9bPoJ2WloqgP_-ZZakZEmyvRM_rel34xU7s6SzVnJ-5wTP_COlHqJw8Sm3aux65vWNYMr55UXFVotDNytho6TBvP1FY9naU9H-9D5Pri-_/s320/New+Image.GIF" alt="" id="BLOGGER_PHOTO_ID_5483142641886462866" border="0" /></a><br /><br /></div>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-33858589735733404732010-06-14T18:26:00.005-04:002010-06-14T22:25:24.949-04:00Owl Creek Overseas Correlation With Equity Markets<span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >The Owl Creek Overseas hedge fund is often presented as uncorrelated to equity markets -- but this is a myth.</span></span> <p class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >On the surface, it looks true: correlation with the S&P500 index, since inception, is 11%, and the linear regression doesn’t even have good explanatory power (t-stat is weak, only 1):</span></span></p><p class="MsoNormal"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPJ6SCxXaJtAiVERPDZG4H-FNzqiYLesTb0BFJcxQMAupY7Zobn3pgyNWszWPO40WkNPmhlqlneKn89oBW4iB38Dl9rmpy2VvJQ1dw-N_BzWuU5YhiAoV93gVmAFzhbHyLNZUpGLfrWfpL/s1600/owl+creek+since+inception.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiPJ6SCxXaJtAiVERPDZG4H-FNzqiYLesTb0BFJcxQMAupY7Zobn3pgyNWszWPO40WkNPmhlqlneKn89oBW4iB38Dl9rmpy2VvJQ1dw-N_BzWuU5YhiAoV93gVmAFzhbHyLNZUpGLfrWfpL/s320/owl+creek+since+inception.gif" alt="" id="BLOGGER_PHOTO_ID_5482760966370298530" border="0" /></a></p> <p class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" >But it you look closely at the above graph, you’ll notice two areas clustered around two diagonals, one in the top left corner and the other around one of the main diagonals. The graph below makes that more clear:<br /></span></span></p> <p class="MsoNormal"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiStrBLa7gYTUba7rVVTimYQY-Uaequo30YvytQy0sZIbgFUFNQ8LJscrr76ysdEBOSIwh8VBd87b6V1HBTDEa1d6P5x5WYJF3nz7AvsGfkneSijc-n2mhIHoMWmLIDQ7_yjgtGYaAVm3hyphenhyphen/s1600/owl+creek+two+periods.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiStrBLa7gYTUba7rVVTimYQY-Uaequo30YvytQy0sZIbgFUFNQ8LJscrr76ysdEBOSIwh8VBd87b6V1HBTDEa1d6P5x5WYJF3nz7AvsGfkneSijc-n2mhIHoMWmLIDQ7_yjgtGYaAVm3hyphenhyphen/s320/owl+creek+two+periods.gif" alt="" id="BLOGGER_PHOTO_ID_5482761421171372946" border="0" /></a></p> <p class="MsoNormal"><span style=";font-family:Arial;font-size:100%;" ><span style=";font-family:Arial;font-size:10pt;" >In fact, correlation with the S&P500 has been atrociously high over two distinct periods: from inception to end of December 2007, when correlation was 97%; and from the end of October 08 to present, when correlation has been 92%. Only 10 months of returns are spread out in a random/uncorrelated fashion between the two periods. This shift in correlation regime, to use technical words, created the “Z-shaped” plot of the first graph, which of course fools linear regression and entails an artificially low correlation for the whole period.</span></span></p> <p class="MsoNormal"><span style=";font-family:Arial;font-size:85%;" ><span style=";font-family:Arial;font-size:10pt;" > </span></span></p>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-91240947298624530212010-05-04T21:26:00.000-04:002010-05-04T21:27:03.123-04:00(No more posts until CFA is over)JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-15591851348067041892010-03-18T00:05:00.001-04:002010-03-18T00:07:54.834-04:00Largest U.S. Hedge Funds, by AssetsBofA/ML published a report today, ranking U.S HFs by AUM as of Jan 1, 2010, in billion dollars. Some of their data are clearly wrong (e.g. Paulson). As shown in the table, some numbers differ significantly from those reported in the March issue of Absolute Return + Alpha, such as Soros, which has $27bn under management according to the magazine.<br /><br />Name AUM according to BAML AUM according to AR+A<br />Bridgewater 43.6 43.6<br />Paulson & Co. 15 (incorrect!) 32 (definitely correct)<br />King Street 18.5 19<br />D.E. Shaw & Co. 16.1 23<br />Och-Ziff 14.4 23<br />Baupost Not mentioned 21.8<br />Angelo Gordon Not mentioned 20.8<br />Farallon Not mentioned 20.7<br />SAC Capital Advisors 14 12<br />Highbridge 12.4 17.9<br />Citadel Investment Group 10.7 12<br />Renaissance 9.2 15<br />Tudor 9.2 10<br />TPG-Axon Capital 8.3 9.6<br />Soros Fund Management 8.3 27<br />Viking Global Investors 7.6 11.8JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-42857890115681203732010-03-17T21:30:00.004-04:002010-03-17T21:38:59.319-04:00<span style=";font-family:Arial;font-size:100%;color:navy;" ><span style="font-size:10pt;"><span style="font-size:100%;"><span style="font-family: georgia; color: rgb(51, 51, 51);">This graph of front-month futures contracts nicely shows the cyclical behavior of this commodity: because production is constant throughout the year but consumption in North American peaks in winter, and because storage costs are significant for natural gas, the forward curve slops upward when stocks are being accumulated, which is in the fall. Once the colder months are passed, the forward curve slops downward.</span><br /></span></span></span><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7pZchwPMqnzStDndz01FqmX45xWoVl1Slt6sKCo6g2pf3_yWQ4108X5oX0IWJV3gFJajxrd975rBYSDZ5cHf-NlkvTcGS9IsjR_4NhyphenhyphenPrJSEMxNnv-GASei5PdiKE9HkNp2vCrxyOzRtx/s1600-h/NatGas.jpg"><img style="cursor: pointer; width: 320px; height: 240px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7pZchwPMqnzStDndz01FqmX45xWoVl1Slt6sKCo6g2pf3_yWQ4108X5oX0IWJV3gFJajxrd975rBYSDZ5cHf-NlkvTcGS9IsjR_4NhyphenhyphenPrJSEMxNnv-GASei5PdiKE9HkNp2vCrxyOzRtx/s320/NatGas.jpg" alt="" id="BLOGGER_PHOTO_ID_5449781274115384690" border="0" /></a><br /><br /><br /><br /><img src="file:///C:/Users/JFC/AppData/Local/Temp/moz-screenshot.png" alt="" /><img src="file:///C:/Users/JFC/AppData/Local/Temp/moz-screenshot-1.png" alt="" />JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-77596670476357999972010-03-17T21:25:00.001-04:002010-03-17T21:27:13.531-04:00Ultra Futures ContractForgot to say that the new 30-year "Ultra" futures contract is made possible by the recent surge in issuance of 30-year bonds by the Treasury...JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-30483381809935269742010-03-02T22:10:00.004-05:002010-03-02T22:21:45.235-05:00A New T-Bond Futures Contract: the UltraThe T-Bond futures contract we all know has a large range of deliverable securities: all U.S. bonds with remaining terms to maturity of 15 years or more. This made the choice of the CTD (Cheapest To Deliver) quite large and the embedded option quite valuable.<br /><br />A new contract was launched by the CME Group, the Chicago exchange. The so-called Ultra T-Bond futures takes as deliverable bonds with at least 25 years of remaining term to maturity. This opens the door to quite a few trades and asset-liability management ideas, some of them being detailed on the CME web site: <a href="http://www.cmegroup.com/ultra">www.cmegroup.com/ultra</a>.<br /><br />BTW, the code for this new contract is "WN" like "US" is the code for the classic T-Bond futures and "TY" for 10-year contracts. For example, WNH0 refers to the March 2010 Ultra futures contract.JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-63130908459443556682010-02-23T21:07:00.002-05:002010-02-23T21:10:13.365-05:00China and India Piling Up on Gold -- So What?China and India piling up on gold? Sure; their reserves increased 76% and 56%, respectively, YoY, as can be seen below. Yet, their reserves are smalls relative to the rest of the world -- Venezuela had as much gold as India until last year!<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNvlYktBoyy0hhH5GiQFJo13JstNEwz9YeXGsPxPaFDKC3iUsMpjnOU4cprbtnA4_TD3-m0kazDjDS0xQYODwXQnQ8swKiWIxm32WUV8zqo741QE6iGqXijG2u9eHbAlPCS4SVntIPrOMG/s1600-h/sg2010022252415.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgNvlYktBoyy0hhH5GiQFJo13JstNEwz9YeXGsPxPaFDKC3iUsMpjnOU4cprbtnA4_TD3-m0kazDjDS0xQYODwXQnQ8swKiWIxm32WUV8zqo741QE6iGqXijG2u9eHbAlPCS4SVntIPrOMG/s320/sg2010022252415.gif" alt="" id="BLOGGER_PHOTO_ID_5441625846904508738" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-50737821803183044632010-02-23T21:00:00.002-05:002010-02-23T21:04:58.453-05:00Railroad Freight<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_iN6v5k493pygk0bSPlnqiuuivyZMcQj_pWCcifvyJIgPvyTO7Jx224TpRGdwPy2CefPLNOqc24KjCUhDArpBzPbSlW8iZu6ChQRoHxMEW5BD9kp3Q86LJWm13KzytCK0snTjQGEtSLXi/s1600-h/sg2010022253903.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_iN6v5k493pygk0bSPlnqiuuivyZMcQj_pWCcifvyJIgPvyTO7Jx224TpRGdwPy2CefPLNOqc24KjCUhDArpBzPbSlW8iZu6ChQRoHxMEW5BD9kp3Q86LJWm13KzytCK0snTjQGEtSLXi/s320/sg2010022253903.gif" alt="" id="BLOGGER_PHOTO_ID_5441624210045487874" border="0" /></a><br />A good macro-economic indicator: railroad freight carloads. Notice how flat the trend was, with very regular but very short end-of-year drops. The drop since end of 08 is a clear indicator of the recession -- perhaps a leading one?JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-7750323230688676972010-01-25T21:39:00.004-05:002010-01-25T21:55:38.764-05:00Best Performing Hedge Fund Strategies This Past DecadeBased on the HFR indices, here are the top hedge fund strategies over the past decade. We can note that converts have had bad years but were top performers on exit of recessions (2002, and 2009). Distressed investing shows a similar pattern (#3 in 01 and 03 and #1 in 2004, then #4 in 2009). Emerging markets have been consistently good performers these past few years, except in 08. Systematic strategies have done very well in the second half of the decade, even in 2007 despite August of that year; of course, last year is an exception due mostly to trend followers.<br /><br />(click on chart to enlarge. Source: dataforthoughts)<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJYQd7F2bZOqzaGn_Vw_dBP9FxsUnEx98GFkaqMAEqj7sEuVtT_Genb3_VSSLQhidYvahJGQmsCxJIlFMa6lxuvWtlpvyUX5p9EjhacLcqDSUKhWzsU5BcCUrDH-YJpHeDioZfE6IhyphenhyphenJD_/s1600-h/Slide1.jpg"><img style="cursor: pointer; width: 320px; height: 240px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJYQd7F2bZOqzaGn_Vw_dBP9FxsUnEx98GFkaqMAEqj7sEuVtT_Genb3_VSSLQhidYvahJGQmsCxJIlFMa6lxuvWtlpvyUX5p9EjhacLcqDSUKhWzsU5BcCUrDH-YJpHeDioZfE6IhyphenhyphenJD_/s320/Slide1.jpg" alt="" id="BLOGGER_PHOTO_ID_5430875007687471538" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-71443566036346831752010-01-25T21:28:00.002-05:002010-01-25T21:32:39.003-05:00Palladium and Copper RetracedPalladium and copper came back in line with their linear historical relationship. The palladium contract was at $462 on 1/20, as indicated in the white panel, and as of Friday had lost about $20, while the copper futures had barely budged.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj8YVq-bciBLFh8MAaSpyWPY0embr_iUtY-ly8a2P2d_-YC7B-f5-4x1Kh-Ysa2QxOWRJ9WzfmR70Ah-FVvd6knrlXlJf__JBdB6zPVLjmknhQixR0qfn3fQ3Va8u2rwUVcUGpsDL1B9RO/s1600-h/sg2010012242011.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj8YVq-bciBLFh8MAaSpyWPY0embr_iUtY-ly8a2P2d_-YC7B-f5-4x1Kh-Ysa2QxOWRJ9WzfmR70Ah-FVvd6knrlXlJf__JBdB6zPVLjmknhQixR0qfn3fQ3Va8u2rwUVcUGpsDL1B9RO/s320/sg2010012242011.gif" alt="" id="BLOGGER_PHOTO_ID_5430870176441101666" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-14372822194960183862010-01-25T21:26:00.003-05:002010-01-25T21:28:45.895-05:00Butterfly Retraced FridayHere's the same butterfly as of early afternoon Friday. The reason the downside peak we had seen on a previous post does not show up is simply that this chart shows only market-close levels.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisASd1AmwWMQGYBvoje-H6BFyOkre5hIt3V27HJDshLCOki1_mg8qjFM1Dzkb6Lk-9hAKOfYEHJbrhYZ9R7FgzBSKBRADM-ud9QcJ6-GOobiYM6LNKF8tsVA8gXyhjB3-2F5PzEQEsMu_E/s1600-h/sg2010012248768.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEisASd1AmwWMQGYBvoje-H6BFyOkre5hIt3V27HJDshLCOki1_mg8qjFM1Dzkb6Lk-9hAKOfYEHJbrhYZ9R7FgzBSKBRADM-ud9QcJ6-GOobiYM6LNKF8tsVA8gXyhjB3-2F5PzEQEsMu_E/s320/sg2010012248768.gif" alt="" id="BLOGGER_PHOTO_ID_5430869788820024466" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-4680923512968289422010-01-21T07:06:00.001-05:002010-01-21T07:08:28.136-05:00Butterfly on 1-Month Options on Mid-Term Swaps<span widget="" cmd="msgaction_ext:subjectSearch" class="cgSelectable" style="cursor: pointer;" title="View all emails with this subject">The 50:50 fly on 1-month options on 1-, 2- and 5-year swaps is current 2.7 standard deviations from its 1-year average.</span><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrtuGdrhdUPYiTlPZX_XAu6OpOh3LqFom3uNSpd9fcTwdEnOI81JKixNDV8siu-4haU76WDJYm3xwYllm41JJJnCX6JlLyUakOmMXmMnFpKpmR7C2YvyWiHUspNXdputfd1_5jUDdHrbsP/s1600-h/sg2010012036327.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrtuGdrhdUPYiTlPZX_XAu6OpOh3LqFom3uNSpd9fcTwdEnOI81JKixNDV8siu-4haU76WDJYm3xwYllm41JJJnCX6JlLyUakOmMXmMnFpKpmR7C2YvyWiHUspNXdputfd1_5jUDdHrbsP/s320/sg2010012036327.gif" alt="" id="BLOGGER_PHOTO_ID_5429163376428289010" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-29986364697891280752010-01-21T07:04:00.000-05:002010-01-21T07:06:23.575-05:00Palladium and Copper<span widget="" cmd="msgaction_ext:subjectSearch" class="cgSelectable" style="cursor: pointer;" title="View all emails with this subject">March contracts on palladium and copper at 0.8 std devs from their regression line.<br /><br /></span><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDmQ0nbXVwVGpndUedJ-O4PHy4w4ZWnSxIQyT8tMDsfQ8z9Fyaxkjzz-wDf7aepnPg09RBKz-cYHKZNBSLTvhsN3bNUNUl5kNcwvHViXC5Eb7AB8CjIOFZIIIB-2Re-JKKzCpbylqK5C9I/s1600-h/sg2010012036198.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhDmQ0nbXVwVGpndUedJ-O4PHy4w4ZWnSxIQyT8tMDsfQ8z9Fyaxkjzz-wDf7aepnPg09RBKz-cYHKZNBSLTvhsN3bNUNUl5kNcwvHViXC5Eb7AB8CjIOFZIIIB-2Re-JKKzCpbylqK5C9I/s320/sg2010012036198.gif" alt="" id="BLOGGER_PHOTO_ID_5429162913688002578" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-5798375791123950402010-01-07T23:03:00.002-05:002010-01-07T23:13:32.523-05:00Follow-Up on RYL v. KBHSince my post of the pair trade long KBH/short RYL, KBH jumped 14.4% from $13.80 to $15.80 while RYL increased 6.8% from $20.50 to $21.90. With a hedge ratio of 0.88, the gain is $2*0.88 - $1.4 = $0.36 per share shorted.JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-37390423410922261582010-01-07T18:46:00.010-05:002010-01-07T22:55:23.102-05:00The Lost Decade of Equities - What About Hedge Funds?The quick study that follows looks at the past decade (from 1/1/00 to 12/31/09), and compares the total returns of a balanced portfolio of classic asset classes with that of a basket of hedge funds. (I used the HFR Weighted Composite Index as a proxy for a well diversified basket of HFs.)<br /><br />The "classic" portfolio I picked consists of:<br /><ul><li>US Large Cap (Total return on the S&P500), with a weight of 30%</li><li>Global Equities (S&P Broad Market Global TR Index), 20%</li><li>U.S. Corporate bonds (JPM U.S. Aggregate Bond TR Index), 20%</li><li>U.S. Government Bonds (Merrill Lynch 10-year U.S. Treasury Futures TR), 20%</li><li>Commodities (Merrill Lynch Commodity Index TR), 10%</li></ul>The table below shows the values, normalized to begin the decade at 100, of the different asset classes (indices), together with that of the HF index and that of the classic portfolio described above.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh75Zg9bBDs0S8IGQ6upCZnE9hcTx-ESW-Ty8nmEjnhqt8PFatVybtBMZYPeMSgc5pBZOloUao-OkO21OKFNg_L1YWDJ5KcFNC0EfI-HuJMXbIVfGW7ddKEJTuH5_hE2JEaujEwIbwqni05/s1600-h/Asset+Classes+Decade.png"><img style="cursor: pointer; width: 320px; height: 202px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh75Zg9bBDs0S8IGQ6upCZnE9hcTx-ESW-Ty8nmEjnhqt8PFatVybtBMZYPeMSgc5pBZOloUao-OkO21OKFNg_L1YWDJ5KcFNC0EfI-HuJMXbIVfGW7ddKEJTuH5_hE2JEaujEwIbwqni05/s320/Asset+Classes+Decade.png" alt="" id="BLOGGER_PHOTO_ID_5424150060583498434" border="0" /></a><br /><br />On a non-risk-adjusted basis, the basket of HFs does just a bit better than the classic portfolio. We also note that commodities had a phenomenal run, and that equities of all sorts indeed had a lost decade. Now, if we adjust for risk, we can see that the HF index does considerably better. In the graphs below, we add to the classic portfolio a varying dose of the HF index: 0% corresponds to the pure classic portfolio, and 100% is the HF index alone.<br /><br />The first graph plots annualized returns against standard deviation of monthly returns:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgc5_fIfb7kk7-zRqDlSegSsrfUNIK4p9SDLBkTax_fA0USebCLDssIhp_cPRNil1WU_ZoxPbat3JQKCZ2fBwaZLE9r_INtvlcVUFuUd556nXlRh60yFSFTikOhEroTIFUA8Lh0dn9rbE1o/s1600-h/first.png"><img style="cursor: pointer; width: 320px; height: 182px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgc5_fIfb7kk7-zRqDlSegSsrfUNIK4p9SDLBkTax_fA0USebCLDssIhp_cPRNil1WU_ZoxPbat3JQKCZ2fBwaZLE9r_INtvlcVUFuUd556nXlRh60yFSFTikOhEroTIFUA8Lh0dn9rbE1o/s320/first.png" alt="" id="BLOGGER_PHOTO_ID_5424151538194413394" border="0" /></a><br /><br />Surprisingly, the HF index beats the portfolio by about 1 p.p., on average, each year, for a much lower volatility. If we look at Maximum Draw Down as another measure of risk, we get the same result:<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijE50ge3DXOwAMj-ZqMJP7c9UmaHnNKmJKbnkHqXVWaQI1cWpz-PftvyLx0_atQKZcLSdsSpysTSf66w-5RoyTqS9E5qxXrv7iSCVDFwBgGre7SJiGbwh3eum60J9aGkmmebY6tA0LjyG7/s1600-h/maxDD.png"><img style="cursor: pointer; width: 320px; height: 210px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijE50ge3DXOwAMj-ZqMJP7c9UmaHnNKmJKbnkHqXVWaQI1cWpz-PftvyLx0_atQKZcLSdsSpysTSf66w-5RoyTqS9E5qxXrv7iSCVDFwBgGre7SJiGbwh3eum60J9aGkmmebY6tA0LjyG7/s320/maxDD.png" alt="" id="BLOGGER_PHOTO_ID_5424211148798083810" border="0" /></a><br /><br />In conclusion, despite the turmoil of 2008 and 2009, institutional investors will probably (and should) maintain a healthy allocation to hedge funds.JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-48256704212029602232010-01-07T18:39:00.006-05:002010-01-07T22:41:05.604-05:00An Indirect Impact of the Housing Burst on the Economy: Through Workforce ImmobilityI keep hearing that the low mobility of people between European countries is a challenge to the Euro zone. Now it looks like the U.S. may be suffering from the same issue, due to the extremely poor liquidity of residential real estate. <br /><br />In a Bloomberg article today: "The ability to relocate for employment, which helped the U.S. recover quickly after previous deep recessions, is the latest victim of the housing bust. About 12.5 percent of Americans moved in the year ended March 2009, the second-lowest ever, estimates Brookings Institution demographer William Frey, after a 60-year record low of 11.9 percent the previous year." <br /><br />The impact on the economy is not just theoretical. In the same article: "The stagnant workforce may raise the long-term trend rate for unemployment by 1 percentage point and lower economic growth 0.3 percent a year through 2012, said Michael Feroli, an economist in New York for JPMorgan Chase & Co. It has already contributed to keeping the jobless rate as much as 1.5 percentage points higher than would have been suggested by the depth of the recession, Peter Orszag, director of the U.S. Office of Management and Budget, estimated in July."JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-14444622419759735562009-12-31T00:22:00.005-05:002009-12-31T00:36:00.647-05:00The Fed Wants To Absorb Excess Reserves -- Quick<span style="font-size:100%;">The Fed proposed today to sell term deposits, a few weeks after setting up three-party reverse repos. Both are meant </span><span style="font-size:100%;">to absorb the banks' excess reserves</span><span style="font-size:100%;"><span style="font-size:100%;"> after the largest monetary expansion in U.S. history. That expansion could cause high inflation, which the Fed typically fights by increasing interest rates. But would that work this time?...<br /><br />Banks hold so much cash that they would still be able to lend to each other at very low rates even if the Fed started to increase its discount rate. To pump so much cash out of the banking system, the Fed seems to realize it has few means, so it began experimenting with the tri-partite reverse repos -- in addition to more traditional tools like the sale of Treasuries, MBS, and now, deposits. <br /><br />In my view, the Fed acts like admitting their main inflation-fighting weapon (rates increase) would be ineffective if it had to be used today, and that they're running out of time and out of tools to fix that weapon (i.e., to absorb excess reserves).</span><br /></span>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-48453906490341261692009-12-26T22:31:00.006-05:002009-12-27T10:18:49.294-05:00KB Home and RylandThe equities of KB Home and Ryland are strongly correlated. Still, market close on Dec 22 was an outlier.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEge-ABPwRbEE2OBxvRB8s0yOi-M5P8WLImRoMBzIjHjI70aO4EDl9gy5t6tJi_mVfj_z3l88sWG5ykGWHS1DC1mLaathczmFp4yBOrJ9FO6pfV-waL3-RaVWwmNqahveiKEHoeJ0noMcAtK/s1600-h/sg2009122442904.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEge-ABPwRbEE2OBxvRB8s0yOi-M5P8WLImRoMBzIjHjI70aO4EDl9gy5t6tJi_mVfj_z3l88sWG5ykGWHS1DC1mLaathczmFp4yBOrJ9FO6pfV-waL3-RaVWwmNqahveiKEHoeJ0noMcAtK/s320/sg2009122442904.gif" alt="" id="BLOGGER_PHOTO_ID_5419753937110985826" border="0" /></a><br /><br />When overlapping the two plots, we see that indeed Ryland suddenly became rich relative to its comp KBH. It was an opportunity to short RYL and go long KBH, with the hedge ratio given by the slope of the regression line above.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2By9rEIjEd_l5wUJW3yfzsnaMqkeddwNYp6j0eV9FEGR1H_Ggh8JD_iIsxzq39bzK0GtqKGvdBErIRYxYqm2ZLof2pAB47eDU87ytu2GuVOrHISzgFEMgjD-UsqAF8jLvLBlgOS8LThj4/s1600-h/sg2009122442854.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2By9rEIjEd_l5wUJW3yfzsnaMqkeddwNYp6j0eV9FEGR1H_Ggh8JD_iIsxzq39bzK0GtqKGvdBErIRYxYqm2ZLof2pAB47eDU87ytu2GuVOrHISzgFEMgjD-UsqAF8jLvLBlgOS8LThj4/s320/sg2009122442854.gif" alt="" id="BLOGGER_PHOTO_ID_5419754049166971026" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0tag:blogger.com,1999:blog-2055433408899305036.post-44883388666459067412009-12-22T17:30:00.002-05:002009-12-22T17:34:50.529-05:00Pershing Square and Hovde Fight Over GGPTwo hedge funds, Pershing Square and Hovde, have been arguing over the value of GGP. Ackman claimed today that the GGP (new ticker GGWPQ) are "undervalued against its peers." Comparing the share price with that of Simon Prosperties and Boston Properties do not support his claim, however.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0LiqLdJnoYdL2bkxzAVlLBneu9Gd1CboSj0L89exhdISOcIhKQYk4Mrx0VgeS1NUZfukSVs5m1wmU0vN0L44vgJrmwT5PDIoJ2Ff6tJ7gT77O532PTLhef2B-7nqIfNXCK12gtfp1O8Ya/s1600-h/sg2009122244282.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0LiqLdJnoYdL2bkxzAVlLBneu9Gd1CboSj0L89exhdISOcIhKQYk4Mrx0VgeS1NUZfukSVs5m1wmU0vN0L44vgJrmwT5PDIoJ2Ff6tJ7gT77O532PTLhef2B-7nqIfNXCK12gtfp1O8Ya/s320/sg2009122244282.gif" alt="" id="BLOGGER_PHOTO_ID_5418191846246241250" border="0" /></a><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOEy6z9ICfjVPqi0WbInbpXlY7e1EysBQBuXXs1jJt9hJuvnxKol_n9suFA7ig9f4w3lJpfHVaRSRxtteWd2_H7f6sX3SMjzmmAR647ptaqGYMxvj8bAkvtS8fET2Hid7Kk4B-ZzJtrUfQ/s1600-h/sg2009122244691.gif"><img style="cursor: pointer; width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjOEy6z9ICfjVPqi0WbInbpXlY7e1EysBQBuXXs1jJt9hJuvnxKol_n9suFA7ig9f4w3lJpfHVaRSRxtteWd2_H7f6sX3SMjzmmAR647ptaqGYMxvj8bAkvtS8fET2Hid7Kk4B-ZzJtrUfQ/s320/sg2009122244691.gif" alt="" id="BLOGGER_PHOTO_ID_5418191695830244018" border="0" /></a>JFChttp://www.blogger.com/profile/01258112779683390089noreply@blogger.com0