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  Tuesday, 21 Apr 2015 | 1:30 PM ET

The VIX is getting crushed in a 'volatility trap'

Posted By: Jeff Cox

The U.S. stock market may be having a roller-coaster year, but you won't find many screaming investors riding the tracks.

A basic look at the 2015 S&P 500 chart shows a market that has seen a plethora of tops, bottoms and in-betweens in just 3 ½ months of trading, with a 6.3 percent difference between the index's intraday highs and lows. Point swings in the hundreds on the Dow industrials have been commonplace.

Yet investors aren't looking for protection—to the contrary, in fact.

The most commonly cited gauge of investor fear, the CBOE Volatility Index, has plunged a stunning 31 percent year to date. The index is used by options traders essentially as an insurance policy during troubled times.

Under normal conditions, a rising market would be met with a falling VIX and vice versa. This time around, an overall steady market has met with a VIX plunge.

"Something is wrong here," Nick Colas, chief market strategist at Convergex, wrote in a note to clients.

Colas spends a lot of time watching the implied volatility of various products, and is finding lately that the traditionally inverse relationship between price and "vol" instruments is breaking down.

"Now, apparently, we have a 'volatility trap': a situation where options players are deeply reluctant to pay too much for volatility protection, despite historically cheap pricing for downside hedging in listed options," he said. ( Tweet This )

While the Nasdaq tech index is up 5.9 percent year to date, the S&P 500 has risen a shade less than 2 percent and the Dow industrials collectively have gained just 0.8 percent. After successive years of above-trend gains, a market where the best opportunities are not in U.S. large caps, as represented by the major indexes, but rather mid and small caps as well as nondomestic equities in Europe, Asia and elsewhere, is something new.

VIX-related products in the exchange-traded fund space have suffered well out of proportion with the broader market's moves.

»Read more
  Monday, 20 Apr 2015 | 2:07 PM ET

Wall Street's mystery: Where's the growth?

Posted By: Jeff Cox

The reason why the U.S. economy is so susceptible to dollar strength and other obstacles may be that the post-financial crisis recovery isn't really what it's cracked up to be.

That's the emerging view from Wall Street consensus coupled with economic data that suggest the long-awaited V-shaped rebound has yet to take hold.

As the first-quarter weakness bleeds into the second quarter, corporate earnings are better than their much-downplayed expectations—when aren't they?—but still weak. The willingness of consumers to spend their gas savings remains shaky, and one broad measure of economic strength is wobbling toward a recessionary indication.

So after years of waiting for the U.S. to take the global economic lead, what happened?

"We believe ... the diagnosis that the US economy has healed from the 2008 trauma may be overstated or incorrect," Citigroup economist William Lee said in a note to clients. "This may explain why expectations have been disappointed following the recent flood of apparent downward surprises regarding the growth outlook." ( Tweet This )

Disappointment, indeed.

»Read more
  Friday, 17 Apr 2015 | 1:11 PM ET

Upstart investor raids three from big banks

Posted By: Lawrence Delevingne
Paul Germain
Getty Images
Paul Germain

A fast-growing asset management firm has landed three big hires from large banks in recent weeks.

Paul Germain, the global head of prime brokerage at Credit Suisse, Tomer Seifan, the head of institutional solutions in the New York office of BNP Paribas, and Guillaume Auvray, an executive specialized in systematic trading and derivatives at Morgan Stanley, are set to join New York-based Stone Ridge Asset Management, according to a person familiar with the situation.

The men's new roles were unclear, but the hires appear to be a coup for Stone Ridge, a New York-based manager of unusual mutual fund strategies for more than 100 institutional investors.

The firm was launched in late 2012 by Ross Stevens, a member of the investment committee at large hedge fund firm Magnetar Capital, with Deutsche Bank alum Erick Goralski and RBC Capital Markets veteran Robert Gutmann as co-founders. The firm starting investing in 2013 and has grown quickly to run $3.6 billion as of Dec. 31.

»Read more
  Monday, 20 Apr 2015 | 1:07 PM ET

There are now more hedge funds than ever

Posted By: Lawrence Delevingne
A trader works on the floor of the New York Stock Exchange.
Adam Jeffery | CNBC
A trader works on the floor of the New York Stock Exchange.

There are now more hedge funds than ever.

Investors have the choice of an estimated 10,149 hedge funds and funds of hedge funds as of March 31, according to new data from industry research firm HFR. That surpasses the previous high of 10,096 set in 2007 before the financial crisis. About 1,040 new funds launched in 2014, a net addition of 176 compared with ones that closed.

Total industry assets are $2.94 trillion, another all-time high, despite relatively muted single-digit returns from most hedge funds last year.

"Investors continue to turn to hedge funds, despite disappointing performance in 2014," said Eric Tedd, head of hedge fund research at Guggenheim Investment Advisors.

"They offer more attractive risk adjusted return potential than traditional asset classes," Tedd said in an email, noting relatively low bond yields and high stock valuations.

»Read more
  Sunday, 19 Apr 2015 | 11:00 AM ET

Five years on, Jeff Gundlach's DoubleLine thrives

Posted By: Lawrence Delevingne
Jeffrey Gundlach
Harriet Taylor | CNBC
Jeffrey Gundlach

Five years after launching his own investment firm, Jeff Gundlach is on top of the bond world.

Gundlach, famously fired by Trust Company of the West in December 2009, took dozens of employees with him and launched DoubleLine Capital that same month.

His flagship DoubleLine Total Return Bond Fund—launched in April 2010 amidst a nasty legal battle with TCW—has grown to manage $46 billion. The fund has posted stronger returns than every other U.S. intermediate bond fund since its inception.

Add products like a stock-focused mutual fund, mortgage-backed security-heavy hedge fund strategies, and a fixed income exchange-traded fund, and overall assets have rocketed to $73 billion as of March 31.

"Thanks to the investor and advisor communities, and the hard work by our risk management and investment teams, DoubleLine has enjoyed extraordinary growth over the last 5 years," Loren Fleckenstein, an analyst at the Los Angeles-based firm, told CNBC.com.

»Read more
  Thursday, 16 Apr 2015 | 2:11 PM ET

This is why the Fed might not raise rates in 2015

Posted By: Jeff Cox

Amid a slowing economy and wobbly financial markets, investors have tamped down their expectations for when the Federal Reserve will start hiking interest rates.

They may have further to go.

Despite some recent saber rattling from Fed officials, the potential for 2015 to pass by without monetary policy tightening becomes greater when looking inside some of the metrics the central bank policymakers use when formulating their decisions.

Take the unemployment rate.

Much debate has occurred over the years regarding what is the "real" rate of unemployment—whether it's the headline rate the Bureau of Labor Statistics trumpets each month when it releases the nonfarm payrolls report, or if it is a number buried far deeper in the report that provides a broader picture.

»Read more
  Wednesday, 15 Apr 2015 | 1:38 PM ET

Hedge funder quits to seek 'more' in life

Posted By: Lawrence Delevingne
Forrest Xiao
Source: Forrest Xiao
Forrest Xiao

Like some who work in finance, Forrest Xiao wasn't fulfilled despite making a lot of money.

But unlike many frustrated employees, the 25-year-old New York-area hedge fund employee decided to make a big change: He quit.

"I've become more and more obsessed with making money, in part because I've used it as a measure of myself," Xiao wrote in a farewell email to AQR Capital Management colleagues in March, as first reported by hedge fund news site Absolute Return. "I worry that I've lost the sense of purpose that I once felt, the desire to help the world in some meaningful way."

»Read more
  Wednesday, 15 Apr 2015 | 2:33 PM ET

5 biggest banks now own almost half the industry

Posted By: Jeff Cox

Too-big-to-fail banks, instead of getting smaller, are pretty much taking over the financial universe.

The largest five banks in the U.S. now control nearly 45 percent of the industry's total assets, according to an analysis from SNL Financial that comes amid an earnings season that has been generally positive for the largest institutions. (Tweet this)

In total, the five institutions—JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and U.S. Bancorp—had just under $7 trillion in total assets as of the end of 2014. That's good for 44.61 percent of the industry total. It also leaves the other 55.4 percent of the assets to be divided up among 6,504 other institutions. Banks had total assets of just over $15 trillion at year's end, a number that has grown to about $15.3 trillion in 2015, according to the Federal Reserve.

»Read more
  Wednesday, 15 Apr 2015 | 2:59 PM ET

What diamond prices are signaling about inflation

Posted By: Reem Nasr
Diamonds
Mark Evans | Getty Images

The world of diamonds might become more interesting beyond the scope of engagements and weddings.

Diamond prices have tumbled almost 15 percent over the past 12 months and that has Nicholas Colas, chief market strategist at Convergex, eyeing a larger trend. (Tweet this)

Read More100-carat classic emerald-cut diamond heads to auction

"The reason all this intrigues me is not as a prospective shopper, but rather because the price of 'Commodity' diamonds is a very good case study in macroeconomic deflationary pressures," Colas said in a report for clients.

The decline in diamond prices can be attributed to several factors, he said, including reduced consumer demand from China, India and Japan. But companies that turn raw stones into polished gems are also facing financial pressure as banks are less willing to lend. Slower demand, tighter capital requirements and too little inflation "is causing a slow-motion inventory shrink and pushing prices lower," Colas said.

»Read more
  Tuesday, 14 Apr 2015 | 2:31 PM ET

Bye-bye USA: Investors putting money elsewhere

Posted By: Jeff Cox

Much of the U.S. stock market's meteoric rise over the past six years has been predicated on an acronym that Wall Street refers to as TINA—There Is No Alternative.

The subtext is that with the U.S. moving faster than much of its counterparts around the globe, and with its central bank in extreme, unprecedented easing mode, there simply was no place else to grow money except on American shores.

No more.

2015 has seen the light start to dim on the U.S. bull market and shine more brightly in some unlikely corners of the world, like Russia, Israel and Japan. European stocks have staked their claim as new world leaders, and China and Japan equities have ripped higher as well.

Investors have taken notice in a big way, giving TINA some competition by spreading their money around the world.

Funds that focus on global equities have taken in $81.5 billion this year, a pace that, if continued, would break a record for four-month inflows in the category, according to data research firm TrimTabs. Thanks to a record $7.8 billion in European funds, March inflows are at $34.8 billion, also a single-month record, with April already showing a $14.8 billion inflow total. (The totals include mutual and exchange-traded products.)

"U.S. investors continue to follow the printing presses into European and Japanese equities," TrimTabs CEO David Santschi said in a statement that referenced central bank largess in those regions. "A record that has been held for nine years is almost sure to fall."

Flows, as they most often do, have followed performance.

The S&P 500 U.S. large-cap index has been a global laggard, registering just a 1.8 percent gain so far this year. U.S. small-caps have performed much better, with the Russell 2000 registering a 5.1 percent gain, but even that move is well behind many other global indexes.

The Russian stock market, for instance, is up 28.4 percent, the Europe STOX 600 has gained 20.2 percent and France's CAC-40 has surged 22.1 percent. Other indexes have followed suit:

»Read more

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