Alternative Thinking on Japanese Nationalization, Hedge Fund Origins and Trump’s Campaign Cash

August 23, 2016 10:05 AM

We’ve just completed the latest issue of Modern Trader, including new insight on the future of Twitter, where we’ll find tomorrow’s top traders, and – some insight on behavioral economics and fantasy football. Be sure to check out our latest offer for Modern Trader today.

Now, let’s get to the head-turning quotes in the hedge fund and alternative asset industry.

“He got the idea while researching a markets article for Fortune magazine.”

Business Insider tells the tale of Alfred Winslow, widely credited with starting the first “hedged fund.” [Ben Graham has also received credit in the past as well].

Winslow's idea to go long with leverage and short stocks that he thought would decline was a novel investing idea at the time. But the results came quick.

“Spokespeople for the Trump campaign did not immediately respond to an e-mailed request for comment.”

CNBC reports that predictions that Donald Trump would receive a lot of donations from hedge funds never truly materialized. Here’s a breakdown of who in the industry is giving money to Presidential candidates Hillary Clinton and Donald Trump.

Hint: Hillary Clinton is well liked by hedge funds.


“The machine was right after all.’’

Machine 1, Yoshinori Nomura 0.

This is an interesting tale for the future of trading.

Though Nomura expected a market rally as the United Kingdom counted “Brexit” votes, his self-learning program bet against the Japanese markets. The end result: a 3.4% gain and one of the best days of the year.

Check it out.

“Many alternative strategies have time-varying, albeit significant, embedded exposure to cheaply accessible market beta.”

Investment & Pensions Europe offers insight from a new report about how investors should choose alternative investments.

The argument goes like this: Why buy alternatives when the stock market has increased by 200% since March 2009. Of course, that’s the nadir of the financial crisis and the height of the global trade collapse that month.

The other issue, according to ValueBridge Advisors, roughly 93% of all gains since 2009 have been fueled by the policies of the Federal Reserve. With the world awash in cheap money, record stimulus, and negative interest rates, it’s hard to anticipate that central banks are going to stop influencing the equities market.

The case for alternatives is found in the desire to reduce exposure to what may happen when the music stops.

"If it seems strange that the BOJ is hamstringing the price discovery mechanism of the Japanese stock market by partially nationalizing it, it is all the stranger that it chooses to do so by substantially skewing its buying towards such a distorting index. The arbitrary decisions of the Nikkei committee get to choose the destination of trillions of yen of BOJ – and hence government - money."


Finally, a fantastic argument from Nicholas Smith at CLSA.

A report by Smith was just released called "BOJ nationalizing the stock market.” Yes, he went there with the word “nationalization.” And he’s got the data to prove it after the central bank announced plans to double its its ETF purchases over the next two years. Bloomberg explains that the BOJ would be the largest shareholder of 55 companies by the end of next year.

This is the second argument we’ve seen in as many days that highlight the challenges – oh to hell with it – the real dangers we find at the intersection of monetary policy and Wall Street.

James Grant -- editor of the investment newsletter “Grant’s Interest Rate Observer”  -- warned about sovereign debt and some unusual activity happening at the Swiss National Bank.

“They create Swiss francs from the thin alpine air where the Swiss money grows. Then they buy Euros and translate them into Dollars. So far nobody’s raised a sweat. All this is done with a tab of a computer key. And then the SNB calls its friendly broker – I guess UBS – and buys the ears off of the US stock exchange. All of it with money that didn’t exist. That too, is something a little bit new.”

Meanwhile, the European Central Bank is actually just handing cash directly to companies through private placements.

We’re deep into the rabbit hole of monetary policy. Is IPE sure that alternative investments are a bad idea?

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