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There are just a few links and summaries this week. Sorry for the short list. More promised next week. I spent additional time with students last week (it was finals week), and traveling to see Mom this weekend. Happy Mother's Day! It's summertime, and the living is easy ......
Commodities
Are Commodity Funds a Long-Term Bet?
Daisy Maxey - WSJ
* Discussion of commodity-focused mutual funds, and whether the above-average gains for these funds can continue. In general, yes. Returns have been high, but demand remains strong for raw materials, which makes it likely these funds will continue to do well in the long-term, even if there are short-term corrections.
Commodities: Bubble or Not?
David Enke - SeekingAlpha.com
* Sorry for the blatant self-promotion, but if you enjoyed my recent commodity bubble discussion post (here and at seekingalpha.com), or did not enjoy it and/or felt I was way off-base, then you might want to check out the comments at the seekingalpha site. It has generated a lot of additional discussion, some of which is worth reading - pro and con.
Derivatives
Credit-Default Swaps: Weapons of Mass Speculation
Jonathan R. Laing - Barron's
* Barron's discusses the Credit Default Swap (CDS) market. A short primer on what a CDS is, followed more extensively about how they are being used for speculation. The article includes the typical mention of how hedge funds are making a killing, but then talks more about how regulators and on-air personalities may have contributed to the movement of CDS prices every time they discuss whether the monolines would be downgraded. Again, not a detailed article on the CDS market in general, and the purpose it serves, but interesting in how it is being used to profit from rumors and speculation, as with other markets.
Hedge Funds
GLG star's exit could cost $4bn
James Quinn - Telegraph UK
* Another article about what happens to investors that try to leave a hedge fund once the fund manager departs. Redemptions fees get increased or waived, based on your loyalty.
Private Equity
Wharton Private Equity Review: Harnessing the Winds of Change
Wharton - University of Pennsylvania
* The spring review discusses changes in the private equity arena. In particular, there is discussion of how since the credit markets have shut down, it is more difficult to obtain the lifeblood of private equity - cheap money. As such, PE funds are looking for other opportunities. Many are finding that they are needing to hook-up with strategic buyers and corporations, or consider going back to a previous mainstay - distressed investing. Some funds are also considering more international opportunities, some of which may be driven by changes in the tax code, or anticipated changes in the tax code. There is also a nice round-table discussion of the challenges with starting a new private equity firm.
Quantitative Finance and Financial Engineering
A Trader's Perspective on 130/30 Funds
Christopher Holt - SeekingAlpha.com
* Interesting article of 130/30 investment funds from the perspective of a trader. What is the conclusion? Despite the academic discussion of the pros and cons and general rationale for the strategy, a 130/30 strategy is nothing more than a simple short-selling strategy. In fact, there is nothing magical about the 130/30 fund. The amount of short-selling and subsequent leverage could be quiet different, given different circumstances. The article goes on to give some general 1X0/X0 mechanics as a starting point for those interested in developing their own long-short strategy, as well as what is and is not practical - such as whether the short funds can be properly and fully redeployed.
Trading
Boom in 'Dark Pool' Trading Networks Is Causing Headaches on Wall Street
Scott Patterson and Aaron Lucchetti - WSJ
* Article on the "dark pools of liquidity" that are multiplying by the second. The dark pools are simply secretive electronic trading networks that match buyers and sellers anonymously, allowing them to distribute big blocks without displaying their intentions, or moving price. The problem is that there are probably too many, and they are getting more notice. Nonetheless, hedge funds and others that need to move big blocks are using then extensively. Of interest is how securities firms and their clients are expected to increase their use to about 20% of their stock orders by 2010. This is certainly worth considering for those considering technical analysis. A further problem is that users of the dark pools obviously know about extreme buying and selling pressure that is about to affect the stock, in a sense having quasi-insider information. Depending on the size, they can shop around to get the best bid or ask. Of course, this has gotten the SEC's attention. The traditional exchanges and OTCs, on the other hand, such as NYSE and Nasdaq, are looking to get a piece of the action.
Please note
that charts and commentary provided by the moderator are for educational
purposes only. Any trades placed upon reliance on the moderator’s
charts or information is taken at your own risk for your own account.
Past performance is no guarantee of future results. While there is great
potential for reward trading stocks, futures and options, there is also
substantial risk of loss and you must decide your own suitability to trade.
Future trading results can never be guaranteed. This is not an offer to
buy or sell stock, futures, options or commodity interests.
Most trading
systems are based on historical formulas which have worked in the past.
However, what has happened before may or may not happen again. You can
lose all your money trading stocks, futures, and options and you must
decide your own suitability as to whether or not to trade. Only trade
with true risk capital you can afford to lose. Only trade markets you
can properly afford to trade. Properly funded trading accounts typically
perform better than those that are not. Never risk more than 2-3% of your
account on any one trade. Always define your risk before entering a trade
and place a stop to limit your risk.
There are
no guarantees or certainties in trading. Trading involves hard work, risk,
discipline and the ability to follow rules and trade through any tough
periods during a system’s draw downs. If you are looking for a guarantee,
trading is probably not for you. Most people lose money trading. One of
the reasons is that they lack discipline and are unable to be consistent.
A system can help you become consistent. Ironically, worrying about the
monetary aspect of trading can contribute to and cause a trader to make
trading errors. Therefore, it is important to only trade with true risk
capital.
