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ARTICULOS DE ANALISIS DE NIVEL INTERNACIONAL

COMO QUE LA FED DE LOS EEUU: TENGAN QUE COMPRAR "STOCKS" 

Publicado: 2017-03-27

Por: Dennis Falvy  

TWO TRENDS THAT WILL FORCE THE FED TO START BUYING STOCKS

By ; Dollar Colapse Blog

While the Japanese and Swiss central banks have turned themselves into hedge funds by loading up on equities, the US Fed has stuck to supporting the stock market indirectly, by buying bonds. It’s worked, obviously, with all major US indexes at record highs. But it won’t work going forward, thanks to two gathering trends.

First, the main way bond buying supports equities is by lowering interest rates which, among other things, allows corporations to borrow cheaply and use the proceeds to buy back their own stock. Companies avoid paying dividends on the repurchased stock and the government gets capital gains tax revenue from a bull market. From a short-sighted Keynesian perspective, it’s a win-win.

Alas, this New Age public/private partnership on running out of steam. Interest rates have fallen about as far as they can fall and corporations have borrowed about as much as they can borrow. So the buyback binge is topping:

Share Buybacks Sink For Second Straight Year

(Forbes) – According to S&P Dow Jones Indices, companies of the S&P 500 index in the fourth quarter pulled back on their share repurchases by 7.2% from the fourth quarter 2015, although they accelerated 20.6% sequentially.

Companies spent $135.3 billion buying back their shares during the fourth quarter, compared to $112.2 billion from the third quarter and $145.9 billion in the fourth quarter 2015. For the full year, they spent $536.4 billion on buybacks, a decline from $546.4 billion in 2015 and $553.3 billion in 2014 – the first time the index saw two consecutive years of declines since the financial crisis era or 2008 and 2009.

A longer-term but potentially much bigger problem for equities can be found in the structure of US retirement savings accounts. At age 70, holders of IRAs are required to start cashing them out, and as the number of Boomer retirees soars the size of these required sales will rise commensurately. Here’s a snippet from a longer analysis by Economica’s Chirs Hamilton. The full article is here.

Required Minimum Distributions Spell Disaster (& Even Greater Intervention) As Sellers To Overwhelm Buyers

Simply put, investing for the long term had it’s time but that time is drawing to a close. The math is pretty easy…we’ll have too many sellers and too few buyers. Why? At age 70.5 years old, retirees are mandated by force of law to sell tax deferred assets accumulated over their lifetime and do so in a 15 year period. Conversely, buyers, incented by tax deferral (but not forced to buy by law), generally have a 35yr window of accumulation. Over the past 65 years (on a population basis), there were three new buyers for every new seller. Over the next 25 years (on a population basis), there will be three new sellers for every new buyer.

In the next downturn, corporations will stop buying — as they always do at bottoms — and retirees will be forced by both necessity and law to liquidate some of their nest eggs. Combined, these sales will put unacceptable downward pressure on stock prices, leading to the kinds of instability that over-leveraged systems can’t handle.

The Fed – and probably the ECB – will then join the BOJ and SNB in buying equities. Like QE and the other recent monetary experiments, this might be seen by mainstream economists as a good thing. But it’s not. For at least three reasons why it’s not, see We’re All Hedge Funds Now, Part 4: Central Banks Become World’s Biggest Stock Speculators for at least three reasons why it will make a bad situation infinitely worse.


THE BEGINNING OF THE END?

By: The Heisenberg

Summary

- The Trump administration's decision to abandon the bid to repeal and replace Obamacare capped off a week in which we got more evidence that the narrative driving markets has cracked.

- Does that mean this all falls apart completely on Monday?

- No. But it does mean the writing is on the Wall.

- Herein, find the data and the charts that back up that assessment.

I've been known to write a fun title (or five).

For instance, a couple of weeks ago I penned a piece called, "7 Signs Of The (Market) Apocalypse."

But this particular post isn't a doomsday prophecy. Rather, the idea is simply that over the past several days, we've gotten quite a bit of evidence to suggest that the narrative driving markets has cracked and that likely presages an unwind of some kind.

Does that mean the S&P (NYSEARCA:SPY) is going to promptly crater on Monday morning or that 10Y yields (NYSEARCA:TLT) are going to abruptly crash to post-crisis lows in a mad dash to safety that catalyzes massive short-covering in the 3-sigma Treasury short and drives a stake through the heart of the global reflation story?

No. That's not what it means. Or at least I hope not (reminder: Heisenberg is your friend - he wants you to make money contrary to popular belief).

What it means is that the honeymoon ended when the GOP bid to repeal and replace Obamacare failed.

Donald Trump's Friday afternoon move to cancel the vote on the new health care bill served as confirmation of what markets had already begun to price. Namely that the contentiousness of the health care debate presaged nothing good with regard to the timetable for tax reform and fiscal stimulus, two pillars of the reflation narrative that's propelled risk assets higher since early November.

With that as the backdrop, consider that according to EPFR Global data, U.S. equity funds saw net outflows of $8.9B, last week, the largest in 38 weeks or, in context, the most since the Brexit referendum. As BofAML wrote on Friday citing the same data, "outflows from U.S. value funds were the largest in 66 weeks [while] outflows from U.S. small caps were the largest in 24 weeks."

That marks something of a reversal of fortune considering the fact that retail inflows have been variously cited as the proximate cause for YTD gains in stocks.

Speaking of retail inflows and the impact on the S&P, consider the following out Friday from RBC's Charlie McElligott:

The Quant-Insight PCA macro factor model shows that the long-term (250d) model for SPX pricing shows that 'shares outstanding' increases in SPY ETF have been the second largest factor sensitivity for SPX, i.e. the shift from active to passive from both institutions and retail flows has been a massively important price support for SPX.

This relationship 'peaked' in the "post- US election through Jan '17" period… and has since collapsed precipitously, down to 'zero' in fact. Thus, increases in SPY shares outstanding are showing no impact on SPX short-term prices.

The takeaway seems to be this: not only are retail flows reversing, they don't matter anymore anyway.  

Now, consider another sign that the reflation story has cracked. In CFTC data through Tuesday, the 10Y Treasury short was trimmed aggressively to its least short since November while the eurodollar short hit a new record:


Deutsche Bank, CFTC, my additions) 

So that suggests 10Y shorts trimmed their positions following the collapse in yields that accompanied the "dovish" Fed hike while eurodollar shorts rose above 3 million contracts (more here).

I don't know about you, but to me that doesn't seem to suggest folks have very much confidence in the idea of a steeper curve.

Relatedly, the latest Lipper data shows investors yanked the most money from bank sector funds in more than year over the last week, as the Fed's "dovish" hike exacerbated fears that popular Trump trades may have run their course.

Meanwhile, have a look at the following chart which shows how the equity of companies with the highest tax rates have performed versus the broad market since the election:

 "Investors have reduced expectations for the timing and size of tax reform," Goldman wrote on Friday afternoon, adding that "after outperforming the S&P 500 by 520 bp post-election, our basket of stocks with the highest effective tax rates has given back all of its post-election gains in the last three months."  

Now that the GOP has failed to push through health care reform, can you imagine what that chart is going to look like in a couple of weeks? Remember, repealing and replacing the ACA was billed as a prerequisite for moving ahead with tax reform.

Again, none of this means that everything is going to suddenly come unglued on Monday.

But what it does mean is that the writing is on the Wall.

ETON PARK TO SHUT DOWN AS $3 TRILLION HEDGE FUND INDUSTRY FACES TURMOIL

By : Matthew Goldstein

Eric Mindich said disappointing results in 2016 were a factor in his decision to return capital to investors. Credit Christian Hartmann/Reuters

Eric Mindich is the latest big-name hedge fund manager to throw in the towel — another sign of turmoil in the $3 trillion hedge fund industry.

Mr. Mindich, a 49-year-old former Goldman Sachs executive, sent a letter to investors on Thursday saying he was closing down his Eton Park Capital Management hedge fund, which manages about $7 billion.

The hedge fund, based in Manhattan, will begin the process of returning capital to investors and anticipates returning about 40 percent of its outside money by the end of April, according to a copy of the letter that was reviewed by The New York Times.

The decision by Mr. Mindich to close the firm, which was founded in 2004, comes after a tough year in 2016, when Eton Park’s returns were down about 10 percent. This year the hedge fund’s performance has so far been flat.

The firm sent out the letter after notifying employees earlier Thursday of the decision to close.

Eton Park is the first big hedge fund to close this year. Last year, there were a number of notable hedge fund closings, including Perry Capital, which Richard C. Perry shut after years of poor performance.

Over all, 2016 was one of the worst years for hedge fund closures since the financial crisis, with hundreds of smaller funds shutting down because of poor performance, investor redemptions and increasing complaints about high fees.

In his letter, Mr. Mindich attributed the decision to close to “a combination of industry headwinds, a difficult market environment and, importantly, our own disappointing 2016 results.”

He added, “As responsible stewards of your capital, we have been unwilling to compromise on the business model and investment program in which you invested or the way in which we have pursued it.”

Mr. Mindich first made his name as a fast-rising star on Wall Street, heading up Goldman’s arbitrage desk at the age of 25. In 1994, at just 27, he became Goldman’s youngest partner ever and was a leader of the firm’s equities arbitrage business.

He was seen as something of a Wall Street wunderkind when he started Eton Park, and for many years, the firm posted solid returns, investing heavily in stocks, bonds and derivatives.

One of the hedge fund’s best years came in 2013 when it returned 22 percent. In 2008, one of the worst years for hedge funds, Eton Park lost 10 percent, but that was far better than most other firms fared.

Eton Park had offices in London and Hong Kong as well. But a week ago, the firm quietly closed its London office, a sign of the trouble to come.


Escrito por

dennis falvy

Economista de la Universidad Católica con un master en administración en la Universidad de Harvard; periodista en economía .


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