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Sunday, November 11

11th Nov - Weekender: Markets


Positive economic surprise index running high in US, while earnings are rolling over badly and threat scenarios abound. Everyone complaining about the high risk appetite, record-low yields, record-high issuance of high-yield debt (junk bonds). To me this all sounds like the bad news have become almost fully priced in - the SPX has not much room left below - soon some positive news will make risk markets jump back up again. ECB statement? Merkel coming out? Or most likely, that Greece is 'solved', and the US politicians are eager to avoid the fiscal cliff as they learned their lesson from the debt ceiling debacle. I'll update my chart views on the next Weekender-post.

Previously on MoreLiver’s:

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REGULATION & BANKING
How much are the new short-selling disclosures missing?alphaville / FT
European regulators succeeded earlier this year in forcing short-sellers to publicly reveal more of their activities. The disclosures, which cover all European stocks, became mandatory from November 1.

Regulators Postpone Some Basel RulesDealBook / NYT
Global regulators said Friday they are postponing a significant part of the financial regulatory overhaul after banks said they wouldn't be ready for the new rules.

Why are we bailing out the banks? – Part Four – What happens now?Golem XIV

A good paper on shadow banking, finallySober Look
An easy to follow, comprehensive, well researched, and unbiased paper from FRBNY

Are Algos Phasing Out Humans on Credit Desks?Advanced Trading
As Dodd-Frank impacts the cost structure of derivatives trading, dealers are slashing million dollar salaries in favor of building cheaper algorithms.

ECONOMICS
Goldman's world GDP projection for 2050Sober Look

Soup Kitchens Caused the Great DepressionKrugman / NYT

Being rude about austeritymainly macro

How not to criticize Japannoahpinion

Regulation concern increases the most in the latest ECB corporate surveySober Look

MARKETS
Are Markets And Macro Repeating 2008?ZH
The Most Important Chart To Consider For The WeekendZH
while some have seen positive moves by US-specific macro data surprises, the rest of the core international economies are doing decidedly badly - and US equities remain ignorant (for now).

Markets Can’t Catch a BidThe Big Picture
If markets are going to bounce, it better be here. As the charts (after the jump) show, the Russell 2000, S&P500, Nasdaq 100, and Dow Jones Industrials have all broken their June 2012 uptrend, and are at or below their 200 day moving averages. If you are a bull, here is where you buy ‘em. If you are a bear, you wait for a drop, and on a rally attempt back to the 200 day, you short them — the wait for the attempt to regain the 200 day to fail.

Post-Election MarketsDavid Kotok / The Big Picture
We expect this low-rate environment to translate into very aggressively rising stock prices in the next few years. We expect high-grade bond interest rates to remain low and perhaps go lower. The bond buyer index of high-grade GO tax-free bonds hit a new low yield today. We expect real estate to commence and accelerate a recovery.

Is Micro Weakness Smelling A Macro Collapse?ZH
Goldman Sachs: It seems that the bottom-up message from S&P 500 companies and the analysts that cover them is simply more negative than the macro data would suggest.

On The Idiocy Of Sell Side 'Research' LemmingsZH
Their 'normal' pattern is extrapolate trends, they knee-jerk react at turning points - when it is already too late.

Friday Macro UpdateSaxo Bank
Steen Jakobsen: We will have a volatile end to the year with people looking to take profit for tax reasons in the US, combined with, at best, a compromise on the fiscal cliff likely to be a drag on growth by 1.5% of GDP (could mean about -150 S&P500 points). The manipulation will continue for the rest of 2012, but if we are right about the "saturation point" above then we are in for a quick turnaround once the realization is made, which will mean we’ll have to look to be nimble in resetting our portfolio for the upside rather than downside.

FOREX Woot! RoRo is fadingalphaville / FT
There are more currency pairs uncorrelated to equities right now than at any time for five years. In fact, he says, correlations have started to break down to the extent that a majority of G10 currency pairs were uncorrelated with equity returns over the last three months. Another false dawn or an actual end to the dominant RoRo paradigm?

CREDIT High yield debt issuance in 2012 hits an all-time recordSober Look
One of the reasons for this optimism has to do with new issue market pushing out the leveraged finance maturity wall, as companies refinance into longer maturities…trend of potentially loosening lending standards (such as toggle notes or dividend deals) in the leveraged finance markets will be important to watch going forward.

The Punchline (Nov 8)scribd
Long, and, a-hem, different look at the markets.

PORTFOLIO / QUANT
The “All-Weather” Portfolio DerivationCSS Analytics

Mind Games: Finance Pros Keep Trying To Get Inside Warren Buffett's HeadWSJ
The folks at AQR Capital Management LLC, a firm that runs 16 mutual funds, recently published a paper saying they had created a systematic process that picks stocks like Warren Buffett.

Make 24bps a week trading skewness?Turnkey Analyst
“A trading strategy that buys stocks in the lowest realized skewness decile and sells stocks in the highest realized skewness decile generates an average weekly return of 24 basis points with a t-statistic of 3:65.”

Dividing Value into “Priced” and “Mispriced”Turnkey Analyst
Book-to-market (BE/ME) ratios explain variation in expected returns because they correlate with recent changes in the market value of equity. Although the remaining variation in BE/ME ratios captures comovement among stocks, it does not predict returns. Therefore, the HML factor consists of a priced and unpriced component,

Multi-Asset Market Regimesquantivity
An astute reader suggested reproducing the results from a recent article on regime analysis by Kritzman et al., Regime Shifts: Implications for Dynamic Strategies

Forecasting through the Rear-View Mirror: Data Revisions and Bond Return PredictabilityFED
Real-time macroeconomic data reflect the information available to market participants, whereas final data—containing revisions and released with a delay—overstate the information set available to them. We document that the in-sample and out-of-sample Treasury return predictability is significantly diminished when real-time as opposed to revised macroeconomic data are used. In fact, much of the predictive information in macroeconomic time series is due to the data revision and publication lag components.

How Hard Is It to Make Money?The Tail Chaser
People care a lot more than they should about how their money managers look on paper (what they say their investment process is, what their resumes are, how wealthy they already are) than they care about their managers' returns against simple benchmarks.

OTHER
For John Maynard Keynes, Economic Theory Was a SidelineView / BB
He was, above all, a practitioner and student of high finance. Investment and finance were his vocation, and political economics was his avocation.

Book Bits | 11.10.12The Capital Spectator

This Is Why Bridgewater Manages $138 BillionZH
16.1% annualized return with 10.9% standard deviation since 1991

Exploring Uncharted Territories of the Hedge Fund Industry: Empirical Characteristics of Mega Hedge Fund FirmsSSRN
We document similarities among mega firms that report performance to commercial databases compared to those that do not. We show that the largest divergences between the performance reporting and non-reporting can be traced to differential exposure to credit markets. Thus the performance of hard-to-observe mega firms can be inferred from observable data.


Most excellent quick reads from HistorySquared:
Carry Trade and Crash Risk; Inflation and Equities; Asian Current Account Surplus Falling – HistorySquared

Black Market and Currency Trading; Volatile Equity Markets; Corrupt Leaders and Power; Germany and the Euro – HistorySquared

Housing Bubbles, Interest Rates, the Taylor Rule, and Central Bank Folly – HistorySquared

Gambling for Resurrection; Volatile Equity Returns; Advanced Economies not Immune From Currency Crises – HistorySquared

Turtle’s Egg; Stability Creates Instability; President Hu Warns Party Could Collapse, China Bulls Oblivious – HistorySquared

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