A hedge fund CEO warns the stock market is brewing a bubble similar to the time bomb that exploded in early 2018; The absence of fear is a little scary in itself

Nov 19, 2019

Lead Stories

‘They’re all going to lose all their money’: A hedge fund CEO warns the stock market is brewing a bubble similar to the time bomb that exploded in early 2018
Akin Oyedele – Business Insider
Two big forces dominate the stock market right now: a bullish uptrend that is creating successive all-time highs, and volatility that is nowhere to be seen.
The two trends tend to occur in tandem, as the Cboe Volatility Index, or VIX, tends to move opposite the S&P 500. The VIX closed at its lowest level in more than 13 months on Friday as the stock market hit yet another record high.
While these conditions seem optimal for stocks, the trades they are spurring in the options market are setting off alarm bells for experts who track these more obscure derivatives.

The absence of fear is a little scary in itself
Philip Stafford – Financial Times
The S&P 500 closed at a record high last Friday, just like it did in the six weeks before that. Despite a lot of political turmoil around the world, prices are drifting gently upwards, and a lot of people expect them to keep doing so.
The Vix volatility index — a measure of expected swings in the S&P over the next 30 days — has slumped to 12.78, not far off its lowest levels of the year, and well below its 30-year average of around 19.

Oil price rally squeezes bears, but bulls keep powder dry
John Kemp – Reuters
Hedge fund managers continued to scale back short positions in crude last week amid receding fears of a global recession and increasing signs of a slowdown in U.S. oil production growth next year.
Hedge funds and other money managers were net buyers of positions equivalent to 41 million barrels in the six major petroleum futures and options contracts in the week to Nov. 12

Column: Funds remain stubbornly bearish CBOT corn through slow U.S. harvest
Karen Braun – Reuters
Despite a historically slow U.S. corn harvest pace and the associated strong cash markets, speculators refuse to budge from pessimistic views on Chicago-traded corn, seemingly focused on projections for global supply to remain ample headed into next year.
In the week ended Nov. 12, hedge funds and other money managers extended their net short position in CBOT corn futures and options to 110,921 contracts from 104,846 a week earlier, based on data from the U.S. Commodity Futures Trading Commission.

Negative Interest Rates Are Turning Things Upside Down
John Coumarianos – Barron’s
Howard Marks’s new letter called “Mysterious” is out. In it, the director and co-chairman of Oaktree Capital contemplates the mysteries of negative interest rates in Europe and Japan, and flashes some humor—the latter being no small feat in a financial missive. Marks says his first brush with the concept of lending money for a nominal loss came in 2014 when making an investment in Spain. He describes the following conversation with his banker, Carlos, upon wiring funds for a closing.

Exchanges and Clearing

Euronext’s statement regarding recent press speculation
Euronext notes recent press speculation regarding a potential offer from Euronext for Bolsas y Mercados Españoles (“BME”). Euronext confirms that it is now in talks with the Board of Directors of BME, which may or may not lead to an offer being made. A further announcement will be made as and when appropriate.

Regulation & Enforcement

Hedge Funds, Private Equity, Venture Capital Need Full Disclosure
Barry Ritholtz – Bloomberg
The U.S. Securities and Exchange Commission is considering letting nonaccredited investors put money into closely held investment pools such as hedge funds, private equity and venture capital. This alone is reason to reconsider the issues of transparency and disclosure by these investment alternatives.
Unlike mutual funds or exchange-traded funds, these pools of investment capital don’t have to provide much in the way of transparency. True, they must register with the SEC if they are large enough, but beyond that they don’t have to disclose much of anything. They don’t have to disclose the amount of assets under management, list their biggest holdings or reveal investment returns. They don’t even have to disclose the identity of their senior managers.
The SEC should mandate public disclosure of the details mentioned above.

Regulators tell derivatives industry to find Libor consensus
Huw Jones – Reuters
Regulators have told the world’s derivatives market that it must find a common approach for dealing with a sudden death of Libor, the tarnished interest rate benchmark used for pricing contracts worth more than $300 trillion globally.

****JB: Well, more a zombie than totally dead (I do not think it will officially die for another two years).


Investment Firm Two Sigma Is Offering Its Trading Software for Sale
Avi Salzman – Barron’s
Top quantitative hedge funds rarely give outside investors a peek behind the curtain. But one firm known for its secretive process and strong returns is starting to open up—and expects to cash in.


ON THE MOVE: Dugan Joins NYSE Options Business
John D’Antona Jr. – Trader’s Magazine
Meaghan Dugan joined the New York Stock Exchange as Head of Product and Competitive Strategy for NYSE Options. Dugan was most recently Head of Derivatives Product Management for the U.S. options and global futures businesses for Bank of America Merrill Lynch. She was also previously a Vice President at Morgan Stanley in roles across Automated Options Market Making, as a Lead Market Maker/Specialist, and within the Electronic Trading team developing new product and Institutional order flow.


(Webinar) Theoretical Options Pricing
If you have a good grasp on the fundamental aspects of how options are priced, it may be time to take the next step. That’s where The Options Industry Council’s Nov. 20 webinar, Theoretical Options Pricing, comes in.

(Webinar) Volatility Analysis for Options Investors
Anyone who follows the markets knows that volatility is talked about a lot, whether it’s trending higher or lower. But why does volatility matter, and specifically, how does it affect options pricing? On Dec. 4, join The Options Industry Council and Dan Passarelli, Founder and CEO of Market Taker Mentoring, for a free webinar, Volatility Analysis for Options Investors, so that you can better understand what changes in volatility may mean for options.


Goldman Says Hedge Funds Stage Comeback as Long Bets Outperform
Joanna Ossinger – Bloomberg
Hedge funds are ending the year on a high note as their top picks outperform, according to Goldman Sachs Group Inc.
“Hedge fund favorites have rallied sharply so far” in the fourth quarter after struggling in the prior period, strategists including Ben Snider and David Kostin wrote in a note Monday.

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