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  Monday, 22 Sep 2014 | 7:00 AM ET

The market's next Fed fear: The exit strategy

Posted By: Jeff Cox
Federal Reserve Board Chair, Janet Yellen.
Getty Images
Federal Reserve Board Chair, Janet Yellen.

In another month, investors won't have Federal Reserve money stimulus to juice up the market. In return, they do have one thing they might rather not see: An exit door.

Even if the U.S. central bank didn't exactly start flashing the lights to indicate that the easy-money party is over, it at the very least indicated that it won't go on forever. The monthly bond-buying programquantitative easing—almost certainly will end in October, and the Fed last week gave a rough outline for how its zero interest rate policy will unwind in the years ahead.

Prior to the Fed Open Market Committee meeting, market participants had trained their gazes at two phrases within the statement: "Considerable time," in reference to how long it would take from the end of QE to the first rate increases, and "significant underutilization of labor resources" regarding the job situation.

Both phrases stayed in the statement, easing consternation on Wall Street, which worried that the removal of either would be a hawkish policy stance.

»Read more
  Sunday, 21 Sep 2014 | 9:00 AM ET

In finances, what you do know can hurt you: Study

Posted By: Carleton English

When it comes to personal finance, knowledge alone doesn't appear to equal financial health.

Financial literacy has been a hot topic since the Great Recession as many people realized the disconnect between the financial products they use and their understanding of them. There is a growing industry in the U.S. geared toward teaching young people about their finances, but there's a question of whether education is enough.

»Read more
  Sunday, 21 Sep 2014 | 12:00 AM ET

Will more pensions dump hedge funds?

Posted By: Gretchen Morgenson
The California Public Employees' Retirement System building in Sacramento, Calif.
Getty Images
The California Public Employees' Retirement System building in Sacramento, Calif.

Are public pension funds over their crush on hedge funds?

Looking for better returns, public pension funds in recent years have been socking away money in those lightly regulated vehicles. Some pension overseers have criticized this trend, but they have been few in number and have often been drowned out by hedge fund proponents. Those overseers' arguments, however, are sound: Hedge funds, with their high fees, secrecy and recent underperformance, are inappropriate investments for most funds charged with providing retirement and other benefits to former workers.

Last week, those critics received a big boost when the California Public Employees' Retirement System, or Calpers, said it would divest itself of its entire $4 billion portfolio of hedge funds over the next year.

Citing high costs and complexity associated with its holdings in 24 hedge funds and six so-called funds of funds, Calpers said the investments were ''no longer warranted.'' Hedge funds typically charge 2 percent of the assets they manage and an additional 20 percent of any profits they generate. Investors in funds-of-funds pay even more: 3 percent and 30 percent.

In its announcement, Calpers said nothing about the performance of the hedge fund investments, but it was probably dismal. As the stock market has roared to new highs, most hedge fund managers have been unable to keep up. According to Preqin Ltd., a research firm, hedge funds have vastly underperformed the Standard & Poor's 500-stock index over the last one, three and five years. Other indexes show them lagging on a 10-year basis, too. Fund-of-funds performance is even worse.

With $300 billion in assets under management, Calpers's $4 billion investment in hedge funds is relatively small. But as the nation's largest pension fund, it is closely watched by its peers.

Read MoreCalpers to exit hedge funds entirely

Frederick E. Rowe Jr., vice chairman of the Employees Retirement System of Texas and general partner at Greenbrier Partners, a money management firm in Dallas, said he hoped Calpers's move would be a game-changer for pensions. ''This is a really critical period in the investment world where pension funds have a chance to demonstrate a little responsibility,'' he said. ''We should be paying less and getting more for our retirees. Calpers is teeing it up for everybody.''

But the question remains whether other public pension funds, whose managers have committed far more of their portfolios to hedge funds, will follow Calpers's lead. After all, many of these funds follow the advice of consultants who are paid more for advising pensions when hedge funds are involved.

Among the problems posed by hedge funds, pension experts say, are exorbitant fees and illiquidity. (Many hedge funds have one-year lockups, limiting investors' ability to get out.) Moreover, they are about as transparent as mud.

»Read more
  Friday, 19 Sep 2014 | 11:10 AM ET

Next up after Alibaba: Biggest bank IPO ever

Posted By: Jeff Cox
A Citizens Financial Group bank branch in Boston.
Kelvin Ma | Bloomberg | Getty Images
A Citizens Financial Group bank branch in Boston.

Investors will get a little time to catch their breath after Friday's record-breaking Alibaba trading debut, but not too long.

On the heels of what is the largest initial public offering on record, Wall Street will be asked to digest what could be the largest bank or thrift IPO ever—the expected $3.36 billion offering from Citizens Financial Group.

»Read more
  Friday, 19 Sep 2014 | 11:48 AM ET

For big banks, September to remember in trading

Posted By: Mary Thompson
Adam Jeffery | CNBC

What is historically the worst month for the stock market may turn out to be the third quarter's best month for traders, and that could be good news for the nation's big banks.

"September makes it or breaks it," analyst Jeff Harte of Sandler O'Neill said, referring to the month's impact on the third-quarter trading results for the likes of Goldman Sachs and Citigroup.

So far, there have been several encouraging signs suggesting September's activity across different product lines has been stronger than expected. After the typical August lull, and following what some industry watchers describe as a moderate July, September could provide a positive catalyst for the banks' third-quarter trading results.

"Oil, rates and foreign exchange picked up in September from August," said Barclays analyst Jason Goldberg, who also noted debt and equity issuance has been pretty good, and that should have a positive impact on trading.

Still, questions remain about whether it will be enough to offset a very slow August.

»Read more
  Friday, 19 Sep 2014 | 9:18 AM ET

Nobel winner Fama: Active management 'never' good

Posted By: Lawrence Delevingne

Eugene Fama, the University of Chicago investing researcher who won the Nobel Prize in economics last year, once again warned investors against the lure of active management.

"The question is when is active management good? The answer is never," Fama said to laughs Thursday at the Morningstar ETF Conference in Chicago.

"If active managers win, it has to be at the expense of other active managers. And when you add them all up, the returns of active managers have to be literally zero, before costs. Then after costs, it's a big negative sign," Fama added.

»Read more
  Thursday, 18 Sep 2014 | 1:46 PM ET

Economy weak due to 'stupid' policies: JPM's Kelly

Posted By: Lawrence Delevingne
David Kelly
JP Morgan
David Kelly

A top Wall Street market observer thinks the government is hurting the economic recovery by unfairly constraining banks and continuing bad policies.

David Kelly, chief global strategist at JPMorgan Funds, used housing as a prime example in a speech Thursday.

"The reason housing is still weak in the United States is because of the combined efforts of the federal government and Federal Reserve to help," Kelly said at the Morningstar ETF Conference in Chicago. "The federal government ... is on a witch hunt after the large banks because they decided to assign to the large banks all the blame for what happened in 2008."

Read MoreIt's time to be 'very selective': BlackRock pro

The result, Kelly said, was an unnecessarily weak lending environment.

»Read more
  Wednesday, 17 Sep 2014 | 2:12 PM ET

CalPERS hedge exit may be the first of many

Posted By: Kate Kelly
Don Bayley | E+ | Getty Images

The $300 billion California Public Employees' Retirement System's move this week to divest itself of $4 billion in hedge fund holdings is galvanizing a debate among many other pension managers.

"It's a discussion that's going on everywhere in our industry right now, given the high fees and what's going on with hedge funds," Steve Yoakum, executive director of the $40 billion Missouri teachers retirement funds, said in a telephone interview with CNBC on Tuesday.

CalPERS, which according to an annual tally by Pensions & Investments is the second-largest pension fund in the country, has long been a trendsetter.

The California retirees fund, which invests in private equity, fixed income, and stocks, among other things, was one of the first big retirement funds to put money into commodities in 2007, for example, and ushered in an influx of other pension-fund investments in the asset class—only to pull back on those investments after a number of years where the fund failed to make money.

»Read more
  Wednesday, 17 Sep 2014 | 11:30 AM ET

Here's the first 'correction' call...for 2015

Posted By: Jeff Cox
Adam Jeffery | CNBC

Credit Suisse has entered Wall Street's correction derby, but in a way different from its peers.

In a somewhat peculiar good news-bad news scenario, the firm's bad news is that a correction—of sorts—is coming for the stock market. The good news is that it won't happen until 2015, and probably later in the year. It's the first correction call for next year.

A note the firm's strategy team sent out Wednesday morning outlines a scenario that overall is fairly bullish—the year-end forecast for 2014 is now 2,050 for the S&P 500, up slightly from 2,020, and the 2015 target is 2,100.

However, that 2015 level is expected to close off from a high of 2,200 that the market will hit in midyear.

»Read more
  Tuesday, 16 Sep 2014 | 1:56 PM ET

The Fed's muddied message causing market mess

Posted By: Jeff Cox
Vehicles pass the Marriner S. Eccles Federal Reserve building in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images
Vehicles pass the Marriner S. Eccles Federal Reserve building in Washington, D.C.

Maybe this is what happens when a central bank becomes too transparent.

After years of nearly complete clarity regarding policy, the Federal Reserve suddenly has investors and economists scrambling to decipher whether just a few words will be removed or changed in a statement Wednesday that likely will run about 850 words in total.

Should those words—"a considerable time," in particular—go away, most market participants believe that will signal a hike in interest rates sooner than the market had expected. Should they stay, conversely, that will mean the U.S. central bank will stay on a path of near-zero short-term rates well into the future, and maybe even beyond current market expectations.

Consequently, Fed Chair Janet Yellen has fashioned quite a tightrope to walk when the Open Market Committee delivers its post-meeting statement, and when she follows with an afternoon news conference.

»Read more

About NetNet

  • NetNet is where you'll find the low-down and the high jinks of Wall Street. It's the place for insider stories, trader gossip, and tales of the foibles of the moneyed crowd and the culture of finance.Wall Street news and commentary served fresh all day long.

 

  • Jeff Cox is finance editor for CNBC.com.

  • Lawrence Develingne

    Lawrence Delevingne is the ‘Big Money’ enterprise reporter for CNBC.com and NetNet.

  • Stephanie Landsman is one of the producers of "Fast Money."

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