Whoever Is Behind World Markets Really, It's not Hedge Funds

Stockolio · Apr 5, 2019

https://www.bloomberg.com/news/arti...d-the-stock-market-rally-it-s-not-hedge-funds

Hedge funds have stubbornly refused to embrace stocks even as global equities added $10 trillion in value over the last three months. At the end of March, their net exposure as measured by the ratio of bullish bets to bearish ones stood near the lowest level in more than a year, client data compiled by JPMorgan’s prime brokerage unit showed.

And they say CB's don't buy Indexes...

dozu888 · Apr 5, 2019

Maybe 20 years ago hedge funds had some smart people? I don’t know. But nowadays seems they are just the bottom of the barrel

By the way. Another evidence that the next equity push will be huge.

smallfil · Apr 5, 2019

It is not the retail investors and retail traders moving the markets! Not the retail traders taking the hundreds of millions out of the losing traders! Even if we pool all our monies, that will be a drop in the market. Not all those who manage hedge funds know what they are doing. Remember Long Term Capital? There are others out there. Timothy Sykes used to run a $10 million hedge fund, most of the capital owned by one friend, the rest of it his own monies! He lost a good chunk of those monies! And why do you assume they are not making monies? Did they show you their trades? We are just in April 5, 2019, there are like 9 months remaining in the year including, April. Lots of opportunities to make monies!

comagnum · Apr 5, 2019

The big banks are the whales in the global stock & currency markets.

SPY - https://www.nasdaq.com/symbol/spy/institutional-holdings

RedDuke · Apr 5, 2019

dozu888 said:
Maybe 20 years ago hedge funds had some smart people? I don’t know. But nowadays seems they are just the bottom of the barrel

By the way. Another evidence that the next equity push will be huge.

The question is where ? Can it brake all time high, sure. Then it is anyone’s
Guess

dozu888 · Apr 5, 2019

RedDuke said:
The question is where ? Can it brake all time high, sure. Then it is anyone’s
Guess

I am looking for forward yields to equalize at 4-5%. Which means we are undervalued by 20-50% easy.

If interest rate will be 3% forever then we should be at 5000 with today’s earnings.

Anyone’s guess. But will be huge.

Woodrow97 · Apr 5, 2019

Neither smart money nor retail are buying. $87 Billion was funneled out of long only funds and ETFs in the first quarter. Like some of the other posters said, no individual investors are available to pull out so much capital in such short period of time.

The real buying comes from S&P 500 company buybacks, which totaled $227 Billion in Q1. Do the math, the net flow is positive.

Caveat emptor, companies ALWAYS, ALWAYS, buyback their shares at the top.
(Large cash balance, revenue & EPS slowing (-3% this year) M&A multiples too expensive, need to buyback inflated shares to boost profit)

Now we know who the real dumb money is....

dozu888 · Apr 6, 2019

Woodrow97 said:
Neither smart money nor retail are buying. $87 Billion was funneled out of long only funds and ETFs in the first quarter. Like some of the other posters said, no individual investors are available to pull out so much capital in such short period of time.

The real buying comes from S&P 500 company buybacks, which totaled $227 Billion in Q1. Do the math, the net flow is positive.

Caveat emptor, companies ALWAYS, ALWAYS, buyback their shares at the top.
(Large cash balance, revenue & EPS slowing (-3% this year) M&A multiples too expensive, need to buyback inflated shares to boost profit)

Now we know who the real dumb money is....

Dude the ALWAYS part is questionable. They’ve been buying back for so many years already. Haven’t seen the top yet.

Buy backs in recent years are also replacing dividends due to the tax advantage.

I showed the forexIG data. Retail gave up chips during the oct-mar shakedown and currently is at 3:1 short long.

The rally train has been cleansed and ready for the next push. The price action is too clear. We may screw around here for a few days then a big rally is likely into the earnings.

sle · Apr 6, 2019

Woodrow97 said:
$87 Billion was funneled out of long only funds and ETFs in the first quarter.
The real buying comes from S&P 500 company buybacks, which totaled $227 Billion in Q1. Do the math, the net flow is positive.

Here is a simple toy model, assuming square root for market impact:
total flows = 227 - 87 = 140
daily flows = 140/60 (60 days in first quarter) = 2.33
total market adv ~= 250 billion //aggressive assumption here - higher ADV -> lower impact
approximate daily vol = 1%
total impact = 60 * 1% * sqrt(2.33 / 250) = 5.8%

So might does explain some of it, but not all. My thinking that a lot of programmatic players like risk parity went along for the ride, but I have no evidence.

Woodrow97 said:
Caveat emptor, companies ALWAYS, ALWAYS, buyback their shares at the top.
(Large cash balance, revenue & EPS slowing (-3% this year) M&A multiples too expensive, need to buyback inflated shares to boost profit)

Well, considering the total value of the buybacks over the last decade and where the market is, that statement is definitely not true. It also does not jive well with how the buybacks work these days - a lot of buybacks are structured as ASRs so they tend to buy more and quicker when the stock is down.

Woodrow97 · Apr 6, 2019

sle said:
Here is a simple toy model, assuming square root for market impact:
total flows = 227 - 87 = 140
daily flows = 140/60 (60 days in first quarter) = 2.33
total market adv ~= 250 billion //aggressive assumption here - higher ADV -> lower impact
approximate daily vol = 1%
total impact = 60 * 1% * sqrt(2.33 / 250) = 5.8%

So might does explain some of it, but not all. My thinking that a lot of programmatic players like risk parity went along for the ride, but I have no evidence.

Well, considering the total value of the buybacks over the last decade and where the market is, that statement is definitely not true. It also does not jive well with how the buybacks work these days - a lot of buybacks are structured as ASRs so they tend to buy more and quicker when the stock is down.

Thanks for the analysis. Buybacks are definitely a large part of the story, and I should elaborate more, companies ALWAYS buys back the most of their stock at the highest valuation levels. The amount of bids at recession lows (when shares are cheapest), are far less than what they are at the top, for the aforementioned reasons.