Some of the recent speculation about where rates are going seems to have gotten at least a bit overdone.» Read More
Past performance in fact does seem to provide a good indicator of future results, just not in the way you might think.
Anyone who's ever even contemplated investing has seen the familiar disclaimer warning against picking a manager or strategy simply on track record.
A study from S&P Dow Jones Indices shows just how important heeding that advice is, finding that positive past results come close to assuring negative future results.
Specifically, of the equity mutual funds in the top quartile performance-wise—measured against their benchmark indexes—in March 2013, just 5.28 percent were still there in March 2015. The news was worse for large caps, of which just 3.95 percent managed to stay at the top.
Over three years ended in March 2015, just 16.3 percent of funds in the top half managed to stay there. The trend paints a grim picture:
The small group of hedge funds betting on a Greek recovery remain invested, still hoping that assets like government bonds and bank stocks will rally once a political solution is reached on the nation's financial obligations.
"[There's] no change on the expectation of a deal," Diego Ferro, co-chief investment officer of $1 billion global investor Greylock Capital Management, said in an email. "This problem has been political from the beginning, the amount of money involved is not that big. So you would expect some bickering to last until it is signed."
Greylock owns government bonds and bank stocks.
The first thing to know about the Greece story is that it's not really about Greece.
Not, at least, in the big financial picture, where the country's measly $242 billion economy is only a shade larger than Connecticut's, and where its debt, the equivalent of $360 billion, would be a rounding error of the nearly $18 trillion in U.S. obligations.
Why Greece and its likely debt default and possible exit from the euro zone matters is as a symbol—of how far the global community will go towards rescuing Greece from its debts, and ultimately, perhaps, for whether similarly debt-laden weak sisters in the euro zone should simply leave the union, go back to their original currencies, and inflate their way out of trouble.
For U.S. investors, then, the dollars and cents aren't particularly compelling, but the longer-term ramifications could be more meaningful.
"You always want to think about any volatility that could be created by a default," Quincy Krosby, market strategist at Prudential Financial, said in an interview. "It's one thing to say it's 'contained,' but investors heard that subprime was contained, too."
Indeed, the contagion risks, like those posed by the subprime mortgage meltdown in the previous decade, are at the heart of the Greek melodrama.
Mark Spitznagel, the libertarian hedge fund manager, has a new part-time job: senior economic advisor to Rand Paul's campaign for president.
Spitznagel is the founder and chief investment officer of Universa Investments, a fund that specializes in protecting investors against sharp market drops, sometimes referred to as Black Swan events. The firm manages about $6 billion in assets, a sizable figure for the hedge fund industry.
"I am very grateful to have Mark Spitznagel serve as senior economic advisor to my campaign," Paul, now a U.S. senator from Kentucky, said in a statement.
"As I travel across the country, the top concern of the American people is our failing economy. I believe we can revitalize our economy by encouraging opportunity and entrepreneurship with lower taxes, a balanced budget, less Federal Reserve interventionism, and limited government spending," the candidate said.
"I look forward to working alongside Mark to solve our nation's economic problem and to restore the American Dream," he added.
Paul, one of the leading contenders for the Republican party nomination, was elected in the Tea Party wave of 2010. Much like his iconic father Ron Paul, Paul has become a libertarian standard-bearer.
As it ponders when to raise interest rates for the first time in nine years, the Federal Reserve already may have missed its best chance.
Previous rate-hiking cycles haven't crushed stock market rallies because they happened as corporate profits were increasing, according to an analysis by Jim Paulsen, the widely followed chief market strategist at Wells Capital Management.
Now that earnings are flat-lining, the market, which at the end of the day is propelled by profits, may not take so kindly to the end of historically easy monetary policy.
Julian Robertson and his Tiger Management are famous for producing a slew of highly successful hedge fund managers. More recently though, the famed investment family has been in the news for firms shutting down, including Cascabel Management earlier this week and at least six others over the last three years.
While that number may appear high, a closer examination of the varied reasons for each fund shutting down—including Tiger Consumer Management for personal reasons, TigerShark Management for performance and Tiger Asia Management for legal issues—and broader context of other successful seeds suggest that the Tiger bloodline remains strong despite some stumbles.
"Yes, a few people have left the business, but it's no trend. People have been predicting the downfall of Tiger for years. That's a bad bet to make," said Bill Richards, a former senior hedge fund relationship manager at UBS who has worked with Robertson and the Tiger family of funds since 1983.
As the U.S. finance system just keeps getting bigger, so does the amount to which taxpayers, in an extreme case, would be exposed should things go haywire again.
The total portion of financial system liabilities that "are subject to explicit or implicit protection from loss by the federal government" has grown to a record 60 percent, according to the latest calculations from the Richmond Federal Reserve's "Bailout Barometer."
Total price tag for those guaranteed liabilities: $25.9 trillion.
That's a post-crisis high for a system that regulators and legislators have sought desperately to downsize. To no avail, though: The 2009 estimate put the total liabilities, including guaranteed and nonguaranteed, at $42.33 trillion; the latest assessment, updated in March, is $43.15 trillion, a 2 percent gain. The total guaranteed level rose from $24.92 trillion, a 3.9 percent gain.
The liabilities come from banking and savings firms; credit unions, government-sponsored enterprises including Fannie Mae and Freddie Mac, private pension funds and other financial firms.
In trying to steer the economy of 2015, the Federal Reserve is fighting the foreboding spirit of 1937.
Wall Street strategists, in fact, are worried that the U.S. central bank is so cautious over not making the mistakes of a long-ago ancestor that it may miss a solid opportunity to normalize monetary policy after seven years of decidedly abnormal times.
"Many policymakers and market observers assert that the risk of the Fed raising rates too early exceeds that of moving too late. This is the specter of 1937, when the Fed raised rates prematurely and exacerbated the Great Depression," Michael Arone, managing director and chief investment strategist at State Street Global Advisors, said in an analysis for clients titled "Why the Federal Reserve Needs to Bury the Ghost of 1937."
"Most investors assume the prevailing lower-for-longer consensus is bullish for both equities and bonds," he added. However, Arone said his "view is that a tardy Fed has a good chance of proving bearish for bonds and, longer term, for equities as well."
The Fed's Open Market Committee gathers this week at a meeting that only a few months ago was expected to include the first rate increase in nine years. However, slower-than-expected economic growth has taken some of the urgency off the expected tightening.
Now, traders at the Chicago Mercantile Exchange aren't pricing in a hike until December. While Arone said he doesn't think the Fed should move now, he believes the risks of waiting too long outweigh those of tightening too soon.
"Risks in this environment are growing, not shrinking," he said. "The longer the Fed stays on this path, the more aggressively it may have to tighten and the crueler the asset price adjustment will be when it finally comes."
What's causing much of the consternation is fear that, like 1937, a desire to avoid bubbles and normalize rates will come too soon and plunge the economy back into a slump. The Fed took its short-term rates target down to zero amid the financial crisis and the Great Recession, and has been there since late 2008.
However, that recession officially ended in 2009, yet the central bank has not moved on policy. In addition to zero rates, it has boosted up its balance sheet to $4.5 trillion in a liquidity program whose effect has been to pump up the stock market by 220 percent.
Plans by Coatue Management to spend $70 million on research this year has so far yielded three themes for long-term investing in technology.
Philippe Laffont's hedge fund firm wrote in a letter to clients of its long-only fund—it does not short, or bet against, stocks—that it sees opportunities in three major areas:
The so-called smart money is pulling back from market risk, with fund managers taking down exposure to stocks, increasing cash holdings and buying protection against a sharp selloff.
It's hardly panic though. Managers of hedge funds, mutual funds and other large investors are still fundamentally optimistic despite the recent increase in caution. Most expect Greece to stay in the euro zone and expectations for global growth remain near their highs, according to a new Bank of America Merrill Lynch survey.
"Money for nothing" interest rate policies have failed, the bond guru said in a broadside against global central banks.
Bank of Ireland, which was bailed out during the country's debt crisis, reported soaring profits for the first half of 2015 as bad debts were reduced.
Lloyds Banking Group reported a 15 percent jump in pre-tax profit for the first half of 2015 to £4.4 billion ($6.9 billion) on Friday.