Glass Half Full Risks

Chidem Kurdas

Systemic risks have receded, even with the mini-crisis in Cyprus

Converts Cheered in Dichotomy

Chidem Kurdas

Weak economic recovery; strong financial markets. This dichotomy

Will Funds Return to Europe?

Chidem Kurdas

In a way it’s a chicken-and-egg story. Fund managers

Oil Cool, Precious Metals Hot

Chidem Kurdas

Barclays forecasts high but stable-to-slightly-lower oil prices in the next quarter, assuming the Iran nuclear stand-off does not get worse. The reversal of the rising price trend could mean losses

My Kingdom for a Hedge!

Chidem Kurdas

Today people sold stocks and piled into US Treasuries, driving 10-year yields to another low. Everybody is trying to protect themselves.  Funds are hedging their portfolios but to put up defense against a crash is very costly now. There is no good-value, low-risk place to hide. Risky assets, on the other hand, are cheap.

Buying Treasuries looks like the one thing not to do.

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Gold May Pan Out, Silver Doubtful

Chidem Kurdas

There probably was a mini bubble in silver, by far the highest returning commodity of the past year. A bubble has been suspected in gold, too.  George Soros’s funds reduced gold exposure—as we at HedgeFundSmarts were the first to report, back in March.  But many hedge funds continue to hold precious metals companies or ETFs.

Larry Kantor, managing director and head of research at Barclays Capital, makes a key point about these markets. There is so much sentiment involved in precious metals that prices can’t be understood in terms of supply and demand, he says. Recently the price of gold went up apparently because of the metal’s role as safe haven  amid  Middle Eastern political turmoil and the European debt crisis.

Gold will struggle to go higher, according to Francisco Blanch, head of global commodities at Bank of America Merrill Lynch Global Research.

Individual Commodities Diverge Widely

Chidem Kurdas

Barclays Capital finds that investors are increasingly moving to differentiated commodity strategies, away from the broad-based index exposures that many previously favored. The outlook is greater diversity between markets, says Kevin Norrish of Barclays Capital.

No-Double-Dip Conventional Wisdom

Chidem Kurdas

In the past week I’ve encountered a number of forecasts – some from hedge funds and one from the research team at Barclays Capital – of higher-than expected economic growth in the next two quarters. Modest but sustained growth is the most likely immediate scenario, is what you hear all around. But unforeseen events are always, well, unforeseen. They are what the accepted wisdom of the day misses.

Hedge funds’ gold purchases in the past year are evidence of

Carry Trade and Tech: Barclays, BofA

Chidem Kurdas

Analysts parsing market prospects have come up with different investment ideas. You see this among both banks and hedge funds. Barclays Capital’s outlook for the third quarter highlights divergences between countries.

Barclays head of research Larry Kantor notes that there may be more of a carry trade in the next few months. He says markets will bounce back near term but the easy money has been made in the first year of economic recovery and now it’s more difficult.

The people at Bank of America Merrill Lynch Global Research are more optimistic about US stocks. David Bianco, head of US equity strategy, says technology stocks offer low-hanging fruit with little risk, while financial shares promise strong returns. He sees foreign markets as the growth engine, with export-oriented companies doing well.

Bullish Barclays Suggests Volatility as Hedge

Chidem Kurdas

After successfully predicting “green shoots” a year ago, the analysts at Barclays Capital retain a positive outlook over the next quarter. Their likely scenario is moderate tightening by central banks in developed economies, where there is a lot of slack and no reason to tamp down growth, with little danger of a double-dip.

They recommend that investors maintain significant exposure to stocks and credit but balance this with a short position on US Treasuries and a long position in volatility both in equities and bonds. Volatility,  down to near-normal levels from the crisis spike, is an effective hedge because another spike could tamp down on markets.

Admittedly, Barclays has an interest in encouraging investors to buy volatility. It is the provider of exchange-traded notes linked to the VIX Index, which are an easy way to invest in vol. Hedge funds have taken to trading these instruments— see below. Larry Kantor, head of research at Barclays, says there are many ways to play volatility.