Daily Analysis 12 October 2022 (10-Minute Read)

A magnificent Wednesday to you. 


In brief (TL:DR)


• U.S. stocks were mixed on Tuesday with the Dow Jones Industrial Average (+0.12) up slightly, while the S&P 500 (-0.65%) and the Nasdaq Composite (-1.10%) down.

• Asian stocks steadied as investors put aside concerns about the worsening global outlook.

• Benchmark U.S. 10-year Treasury yields was little changed at 3.95% (yields rise when bond prices fall).

• The dollar was little changed.

• Oil rose slightly with November 2022 contracts for WTI Crude Oil (Nymex) (+0.40%) at US$89.71.

• Gold was lower with December 2022 contracts for Gold (Comex) (-0.55%) at US$1,676.80.

• Bitcoin (+0.29%) was at US$19,145.


In today's issue...


1. Stockpickers Aren’t Picking Winners Anymore

2. Buckle Up as the Dollar Could Get Even Stronger

3. Grayscale Sues U.S. SEC on Failed Bitcoin ETF Bid


Market Overview


Stocks steadied as investors put aside concerns about the worsening global outlook, while UK bonds tumbled and the pound rose amid UK policy confusion.


Meanwhile, Treasury yields and the dollar were little changed as traders await a key US inflation measure due Thursday that’s set to return to a four-decade high, underscoring broad and elevated price pressures that are pushing the Federal Reserve toward yet another large interest-rate hike next month.


Chip stocks were set to recoup some of this week’s losses stemming from fresh curbs on China’s access to US semiconductor technology.


Asian markets were mixed on Wednesday with Tokyo's Nikkei 225 (-0.02%) and Hong Kong's Hang Seng Index (-0.78%) down, while Sydney’s ASX 200 (+0.02%) and Seoul's Kospi Index (+0.47%) were up slightly.



1. Stockpickers Aren’t Picking Winners Anymore

According to data compiled by Bloomberg, long-short equity hedge funds are down 15% this year with Chase Coleman’s Tiger Global in the worst shape among large players, losing almost 52%.

Investors took out a total of US$25 billion from long-short equity funds through August, the most for any hedge fund style this year, according to fund data tracker EVestment.

The value proposition is elegant in its simplicity, instead of just making one-way bets on equities, a long-short strategy presumably provides investors with the best of both worlds, especially when markets turn south.

But this year, the traditional strategy of mixing long and short equity bets hasn’t provided the bear market buffer that investors may have hoped for.

According to data compiled by Bloomberg, long-short equity hedge funds are down 15% this year with Chase Coleman’s Tiger Global in the worst shape among large players, losing almost 52%.

More than half of long-short managers reporting performance numbers to Bloomberg as of September 22 lost 10% or more this year, and 80% of them are down despite years of stellar returns.

Discouraged investors are pulling billions of dollars from long-short equity funds as global equities have lost around a quarter of their value in dollar terms this year alone, against a backdrop of central bank tightening.

Investors took out a total of US$25 billion from long-short equity funds through August, the most for any hedge fund style this year, according to fund data tracker EVestment.

While long-short funds still dominate the US$4 trillion hedge fund industry, with about US$683 billion in assets, they’re close to being overtaken by so-called multi-strategy funds, which invest across multiple asset classes and are often run by teams of less famous, but more replaceable managers.

The favorite stocks of hedge funds are down about 31% this year, and the ones they’re shorting have unfortunately only declined 20% meaning that long-short strategies are losing more on the stocks they thought would go up than they’re making back on the ones they thought would go down.

About 140 new long-short equity hedge funds have started this year and Preqin data shows that while this may seem like growth, it compares with an average of more than 550 annually in the previous 10 years.

Some analysts say that a reset in the industry may be coming, leaving only the strongest players standing.

Long-short equity strategies have struggled against a backdrop of unprecedented monetary policy tightening and interest rate hikes, with early winners in tech shedding far more than other companies that are obvious short targets.

Volatility in commodity prices and the risks of a global recession have also meant that there are no obvious winners or losers which long-short strategies rely heavily on.



2. Buckle Up as the Dollar Could Get Even Stronger 

 

  • Although rising interest rates will soon start to hurt the U.S. economy, a four-month advance in the dollar is showing few signs of slowing. 

  • And dollar strength helps the U.S. more so than any other country as commodities are denominated in the dollar, which helps to limit the impact of imported inflation. 

 

Hawkish U.S. Federal Reserve policy, U.S. economic resilience and haven demand, have all conspired to send the dollar to multi-decade highs against the likes of the yen while pushing the Indian rupee, offshore yuan and pound to record lows. 

 

The greenback is rising for a sixth straight day to head for another record high after U.S. Treasury Secretary Janet Yellen said the currency’s strength is the “logical outcome” of different global monetary policy stances, which some are interpreting as a “green light” to allow for further greenback appreciation. 

 

Although rising interest rates will soon start to hurt the U.S. economy, a four-month advance in the dollar is showing few signs of slowing. 

 

The impact of the stronger dollar is being felt across the globe as developing nations struggle with a heavy dollar debt load and pricier imports. 

 

Although many central banks from Japan to Chile have stepped in to try shield their currencies, initial efforts have yielded limited results against the onslaught of relentlessly rising greenback. 

 

While Yellen said a “market determined value of the dollar is in America’s interest”, some strategists are of the view the rally in the dollar has yet to run its course as global recession fears and geopolitical risks fuel demand for the ultimate haven asset.

 

And dollar strength helps the U.S. more so than any other country as commodities are denominated in the dollar, which helps to limit the impact of imported inflation.



3. Grayscale Sues U.S. SEC on Failed Bitcoin ETF Bid  

 

  • Grayscale allege the SEC acted arbitrarily in rebuffing its bid to convert its US$12 billion spot Bitcoin trust into an exchange-traded fund. 

  • The shift to an ETF would help them to close the fund’s near-record discount to net asset value as the ETF structure has a creation and redemption process that helps to keep a fund’s price in line with its underlying holdings.

 

Grayscale, one of the world’s largest crypto asset managers, has sued the U.S. Securities and Exchange Commission after the regulator denied the company’s application to convert its Grayscale Bitcoin Trust, the world’s largest Bitcoin fund, into an ETF.

 

Grayscale allege the SEC acted arbitrarily in rebuffing its bid to convert its US$12 billion spot Bitcoin trust into an exchange-traded fund, criticizing the rejection as “capricious” and “discriminatory” because the SEC has allowed futures-based Bitcoin ETFs exposed to similar concerns. 

 

The Grayscale fund was started in 2013 as (at the time) the only institutional means to gain Bitcoin exposure and the company filed its plan to change the structure in October last year to an ETF. 

 

The shift to an ETF would help them to close the fund’s near-record discount to net asset value as the ETF structure has a creation and redemption process that helps to keep a fund’s price in line with its underlying holdings.

 

A global wave of monetary-policy tightening to tackle high inflation has sucked liquidity from financial markets and hurt demand for speculative investments including Bitcoin. 

 

Bitcoin, the largest cryptocurrency by market cap, has sunk about US$50,000 from a peak of nearly US$69,000 hit last November. 

The information contained in this email communication and any attachments is for information purposes only, and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws. It does not constitute a recommendation or take into account the particular allocation objectives, financial conditions, or needs of specific individuals. The price and value of the digital assets and any digital asset allocations referred to in this email communication and the value of such digital asset may fluctuate, and allocators may realize losses on these digital assets, whether digital or financial including a loss of principal digital asset allocations. 

 

Past performance is not indicative nor does it guarantee future performance. We do not provide any investment, tax, accounting, or legal advice to our clients, and you are advised to consult with your tax, accounting, or legal advisers regarding any potential allocation of digital assets. The information and any opinions contained in this email communication have been obtained from sources that we consider reliable, but we do not represent such information and opinions as accurate or complete, and thus such information should not be relied upon as such. 

 

No registration statement has been filed with the United States Securities and Exchange Commission, any U.S. State Securities Authority or the Monetary Authority of Singapore. This email and/or its attachments may contain certain "forward‐looking statements", which reflect current views with respect to, among other things, future events and the performance of a digital asset allocation with the Novum Alpha Pte. Ltd. ("the Company"). Readers can identify these forward‐ looking statements by the use of forward‐looking words such as "outlook", "believes", "expects", "potential", "aim", "continues", "may", "will", "are becoming", "should", "could", "seeks", "approximately", "predicts", "intends", "plans", "estimates", "assumed", "anticipates", "positioned", "targeted" or the negative version of those words or other comparable words. 

 

In particular, this includes forward‐looking statements regarding, growth of the blockchain industry, digital assets and companies, the venture capital and crowdfunding market, as well as the potential returns of any digital asset allocation with the Company. Any forward‐looking statements contained in this email and/or its attachments are based, in part, upon historical performance and on current plans, estimates and expectations. The inclusion of forward‐looking information, should not be regarded as a representation by the Company or any other person that the future plans, estimates or expectations contemplated will be achieved. Such forward‐looking statements are subject to various risks, uncertainties and assumptions relating to the operations, results, condition, business prospects, growth strategy and liquidity of the Company, including those risks described in a separate set of documents. If one or more of these or other risks or uncertainties materialize, or if the underlying assumptions of the Company prove to be incorrect, actual results may vary materially from those indicated in this email and/or its attachments. 

 

Accordingly, you should not place undue reliance on any forward‐looking statements. All performance and risk targets contained herein are subject to change without notice.  There can be no assurance that the Company will achieve any targets or that there will be any return on a digital asset allocation with the Company.  Historical returns are not predictive of future results. The Company is intended to be a specialist digital asset allocation and trading vehicle in the early stage technology sector and digital assets. Allocation of digital assets in early stage technology carry significantly greater risks and may be considered high risk and volatile. There is a risk of total loss of all digital assets allocated with the Company – please refer to a separate set of documents for a details of risks. 

 

By accepting this communication you represent, warrant and undertake that: (i) you have read and agree to comply with the contents of this notice, and (ii) you will treat and safeguard this communication as strictly private and confidential and agree not to reproduce, redistribute or pass on this communication, directly or indirectly, to any other person or publish this communication, in whole or in part, for any purpose.