In the third quarter of 2017, one in which the global economy was supposedly undergoing a unprecedented “coordinated growth spurt”, and in which central banks were preparing to unveil their QE tapering intentions, in the case of the ECB, or raising rates outright, at the Fed, what was really taking place was another central bank buying spree meant to boost confidence that things are now back to normal, using “money” freshly printed out of thin air, and spent to prop up risk assets around the world by recklessly buying stocks with no regard for price or cost.
Nowhere was this more obvious than in the latest, just released 13F from the massive hedge fund known as the “Swiss National Bank.” What it showed is that, just like in the prior quarter, and the quarter before that, and on, and on, the Swiss central bank had gone on another aggressive buying spree and following its record purchases in the first quarter, the central bank boosted its total holdings of US stocks to an all time high $87.8 billion, up 4.2% or $3.5 billion from the $84.3 billion at the end of the second first quarter.
Following a seemingly endless stream of ‘good news’ – Bitcoin futures, Amazon rumors, Fork dividends, multiple nations moving towards adoption – Bitcoin exploded this mornng to a new record high $7354… up 29% for the week.
Last December we joked that the Norwegian sovereign wealth fund had responded to sinking returns and withdrawals required to fund budget deficits by allocating another $130 billion in assets to what appeared to be an already massively overpriced equity bubble in return for an extra 40bps of “expected average annual real returns” The extra equity purchases pushed the fund’s total equity allocation to a staggering 70% of their $860 billion in assets under management.
Alas, with global equity bubbles becoming ever more bubblier with each passing day, the bet on equities has paid off ‘bigly’ for Norway so far this year and grew their $1 trillion in AUM by another 3.2%, or a mere $32 billion, in Q3 2017 alone.
As Bloomberg notes this morning, the staggering size of Norway’s wealth fund and their seemingly reckless allocation to equities, implies they now own roughly 1% of global stocks.
Norway’s sovereign wealth fund, which owns more than 1 percent of global stocks, is treating its $300 billion bond portfolio as a hedge for what it now essentially views as a stock fund.
“60 to 70 percent in equities — imagine it was 60 to 80 or 90 percent — the whole thing is that this fund is actually to a large extent now a public equity fund,” CEO Yngve Slyngstad told reporters in Oslo. “We don’t think about this as two separate asset classes that have their distinct dynamics, the real risk of the fund is in the equity market.”
The $1 trillion Government Pension Fund Global, which started out as a pure bond portfolio before adding stocks, returned 3.2 percent in the third quarter, or 192 billion kroner ($24 billion), the Oslo-based investor said on Friday. Equities drove returns gaining 4.3 percent, while bonds rose 0.8 percent and real estate investments grew 2.7 percent.
Foreign assets held by Japanese institutional and individual investors appear to have topped 1,000 trillion yen ($8.79 trillion) for the first time, according to Nikkei estimates. The amount has increased roughly 50% during the past five years and now is more than twice as much as the country’s gross domestic product.
There is, however, a downside to pouring so much money overseas — it makes Japan increasingly prone to the shifting global economic climate and other foreign risks.
Japan’s external assets held by corporations and individuals at the end of June, mainly through direct and securities investments, came to some 990 trillion yen, according to the Ministry of Finance. Separate data from the ministry shows Japanese investors’ foreign securities holdings have expanded 10 trillion yen or so since July. Taking into account the yen’s recent depreciation, it is highly likely that the country’s foreign asset holdings have smashed through the 1,000 trillion threshold by now.
The U.S. holds more external assets than any other country, $23 trillion worth, according to the International Monetary Fund. But in terms of growth, Japan is far-outpacing the U.S. and other leading economies. U.S. foreign asset growth came in at less than 10% over the five-year span. Foreign assets held by Germany and France shrank during the same period.
Securities seem to have accounted for nearly half of the 1,000 trillion yen that has escaped overseas. Japanese investors were holding 453 trillion yen worth at the end of June, up 100 trillion yen or so over the past three years.
While in recent days Bridgewater has been in the news not for its investing acumen (or lack thereof), or the outspoken, contrarian views of its founder Ray Dalio, but rather the recent spirited attack by Jim Grant who in not so many words hinted, if not explicitly stated, that there is something very rotten in the state of (Westport) Connecticut (a theatrically sponsored defense was inevitable), it is still the case that any major investing move the hedge fund… pardon the algo-driven investing hedge fund with no prime brokers and lots of ETFs, makes is sure to result in headlines, and today was no exception, because as Bloomberg reports, Bridgewater has amassed a “$713 million wager against Italian financial stocks, its biggest disclosed bearish bet in Europe.”
In addition to shorting five banks and one insurer, public filings disclose that the $160 billion hedge fund is also betting on a decline in the stock price of Milan-based Prysmian SpA, the world’s largest cable maker.
Bridgewater’s biggest short is against Intesa Sanpaolo, followed by UniCredit and insurer Assicurazioni Generali, all names very familiar to anyone who covered the endless European crisis from 2010 until the launch of QE by the ECB, and which were constantly on the verge of collapse.
We’ll preface this post by saying we have never heard of the Alternative Money Fund – which “Specializes in Returning Freedom and Value” – and very well may never hear of it again, however it is notable for two things: i) it is a “hedge fund” invested entirely in cryptocurrencies and ii) it has allegedly generated a 2,129% return YTD, making it the best performer in hedgeco’s ranking of asset managers YTD.
The “fund’s” own description is similar to what one would find in any traditional asset manager, with one exception of course: it does not invest in traditional securities at all, only cryptos:
30 or so names in the portfolio
discretionary, not systematic
technically driven bottom-up, primary.
fundamental research, secondary
performance not directly correlated to the price of bitcoin. Good addition for Bitcoin holders.
It also writes that it is “committed to provide exceptional returns through an actively managed portfolio of blockchain assets. With the emergence of Bitcoin, Altcoins and this exciting new technology has created a new asset class for investors.” The fund also notes that its “trading strategy does NOT use leverage or margin. Returns are reported monthly and capital accounts may be increased or redeemed each month.”
So far so good; when one reads further in, some “lingo” red flags start to emerge:
There’s something humbling about the fall of a hedge fund titan
Paul Tudor Jones was once the epitome of a hedge fund titan. He’s worth more than $3 billion and pioneered Macro trading, famously making $100 million on Black Monday.
He’s rode high through up and down markets over a generation but it looks like he’s lost his touch.
Bloomberg reports that his main fund is down 1.9% despite the bull market and clients pulled 15% of their assets from his fund in Q2. Assets in that funds are down to $3.6 billion, half of what they were a year ago. Total assets in all his funds have fallen to $8 billion, compared to $14 billion in June 2015.
In the process, he has cut fees and staff.
Could he have lost his touch? From 2008 through last year, his funds averaged a 4.7% return. That compares to 26% from 1987 through 2007.
Or is he just waiting to pounce? In April, he told clients it wasn’t quite time to short stocks but he has been warning about the dangers of low interest rates for years.
This week, the CFTC took a bold step forward in terms of granting institutional investors access to the bitcoin market, approving the creation of the first SEF or Swap Execution Facility. Previously, traders who wished to place bets in bitcoin derivatives markets were forced to operate in markets that were strictly OTC. But now the agency has issued a registration order to LedgerX, granting it status with the CFTC as a Swap Execution Facility, in the process approving bitcoin options trading.