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Investors Added $8.1B To Hedge Funds In May
July 12, 2011--Investors continued to pour money into hedge funds despite the industry's lackluster performance this year, according to a report Monday from industry trackers BarclayHedge and TrimTabs Investment Research. The hedge-fund industry took in $8.1 billion in May, marking the fifth straight month of inflows. Industry assets were flat at $1.79 trillion.
"The industry hauled in $75.0 billion in the first five months of 2011, which marks the heaviest such inflow since 2007," said BarclayHedge founder Sol Waksman. "Performance, however, has hardly been stellar. The Barclay Hedge Fund Index shows a year-to-date return of just 2.1% through May, and many managers are in the red for the year."
IMF Note on Global Economic Prospects and Policy Challenges
The Following executive summary is from a note by the Staff of the IMF prepared for the July 9–10, 2011 meeting of the Group of Twenty Deputies in Paris, France
July 14, 2011--Executive Summary
The multi-speed recovery continues.
Growth in the first quarter of 2011 was broadly in line with Staff expectations. Activity in most advanced economies has slowed in the second quarter, but the slowdown is expected to be temporary.
Overall, the outlook for global growth in 2011–12 remains broadly unchanged compared with the April 2011 World Economic Outlook, although with considerable differences among economies.
Growth is expected to remain sluggish in advanced economies faced with household, fiscal, and financial sector balance sheet problems, but strong in many emerging and developing economies.
Downside risks have risen.
Concern about debt sustainability and support for adjustment efforts in Europe’s periphery is leading to increased market worries about potential contagion. Risks from the lack of credible medium-term fiscal plans are also elevated in other advanced countries, notably the United States, in which a deadline for raising the debt ceiling looms large, and Japan.
By contrast, overheating pressures in many emerging and developing economies are intensifying, as exhibited by rising inflation and rapid credit growth.
Country Insurance Using Financial Instruments-IMF Working paper
July 14, 2011--Summary: The availability of financial instruments related to indices that track global financial conditions and risk appetite can potentially offer countries alternative options to insure against external shocks.
This paper shows that while these instruments can explain much of the in-sample variation in borrowing spreads, this fails to materialize in hedging strategies that work well out-of-sample during tranquil times. However, positions on instruments such as those tracking the US High Yield Spread, the VIX, and especially other emerging market CDS spreads can substantially offset adverse movements in own spreads during times of systemic crises. Moreover, high risk countries seem to gain more, as their underlying weaknesses makes them more vulnerable to external shocks. Overall, the limited value in tranquil times, coupled with political economy arguments and innovation costs could justify the limited interest for this type of hedging in practice
view IMF Working paper-Country Insurance Using Financial Instruments
A General Equilibrium Model of Sovereign Default and Business Cycles- IMF Working paper
July 14, 2011-Summary: Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-noc default costs. We propose instead a general equilibrium model of both sovereign default and business cycles.
In the model, some imported inputs require working capital financing; default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around default triggers an efficiency loss as these inputs are replaced by imperfect substitutes; and default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around deraults, countercyclical spreads, high debt ratios, and key business cycle moments.
view the IMF Working paper-A General Equilibrium Model of Sovereign Default and Business Cycles
Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?
July 14, 2011--Executive Summary
Global carbon budget
Research by the Potsdam Institute calculates that to reduce the chance of exceeding 2°C warming to 20%, the
global carbon budget for 2000-2050 is 886 GtCO2. Minus emissions from the first decade of this century, this
leaves a budget of 565 GtCO2 for the remaining 40 years to 2050.
Global warming potential of proven reserves
The total carbon potential of the Earth’s known fossil fuel reserves comes to 2795 GtCO2. 65% of this is from coal, with oil providing 22% and gas 13%. This means that governments and global markets are currently treating as assets, reserves equivalent to nearly 5 times the carbon budget for the next 40 years. The investment consequences of using only 20% of these reserves have not yet been assessed.
Global warming potential of listed reserves
The fossil fuel reserves held by the top 100 listed coal companies and the top 100 listed oil and gas companies represent potential emissions of 745 GtCO2. This exceeds the remaining carbon budget of 565 GtCO2 by 180 GtCO2.This means that using just the listed proportion of reserves in the next 40 years is enough to take us beyond 2°C of global warming.
view the report-Unburnable Carbon – Are the world’s financial markets carrying a carbon bubble?
Fossil-fuel reserves should not be posted on stock exchanges as zero risk If we are to stay below 2C global warming, we cannot afford to burn more than 20% of listed coal, oil and gas reserves
July 14, 2011--Oil, gas and coal companies have been rushing to list shares on stock exchanges in recent years, using investment prospectuses that never mention climate change meaningfully.
These companies, like those already listed, are permitted by regulators to post their reserves as assets assuming zero risk that governments will do what they say they are going to do about carbon emissions, which is to cut them, potentially to the bone.
Yet many governments have emission-reductions targets, and some even have policies. For example, last week the Australian government announced a carbon tax aiming to cut fossil-fuel use and boost renewables. This week the British government unveiled electricity market reform plans targeting fossil fuels, mindful of legally binding targets for carbon emissions reductions of 80% by 2050.
Preliminary acceptance rate of the exchange offer made by Alpha Beta Netherlands Holding N.V. to the shareholders of Deutsche Börse AG exceeds the minimum acceptance threshold
July 14, 2011-- Based on the declarations of acceptance booked and/or submitted so far by custodian banks for the offer from Alpha Beta Netherlands Holding N.V. to shareholders of Deutsche Börse AG in connection with the planned combination of Deutsche Börse with NYSE Euronext the minimum acceptance threshold of 75 percent has been exceeded (completion conditions pursuant to section 14.1 (a) of the offer document published on 4 May 2011). The preliminary acceptance rate currently stands at above 80 percent.
The preliminary acceptance rate can either rise further or fall depending on instructions that were submitted on time but have not yet been recorded (which may also include exercised withdrawal rights).
The final number of Deutsche Börse shares tendered under the offer during the acceptance period will be published pursuant to section 23 para. 1 sentence 1 no. 2 of the German Securities Acquisition and Takeover Act (WpÜG) as soon as confirmation of the final outcome has been obtained.
Derivatives Rules to Help Swaps Market Grow $40.7 Trillion, Citigroup Says
July 13, 2011--The market for interest-rate and credit-default swaps will grow more than 10 percent to $435 trillion by 2013 as oversight of over-the-counter derivatives improves price transparency and cuts trading risk, according to Citigroup Inc. (C)
Banks, hedge funds and other investors are bracing for sweeping changes to the private derivatives market, including increased capital requirements and most trades being processed by clearinghouses, which require margin payments. The Dodd-Frank Act, passed in the U.S. last year, and rules being created now by the European Parliament will regulate swaps for the first time in their 30-year history.
NYSE Euronext/Deutsche Boerse: Exchange Offer Accepted By 60.16% Of Deutsche Boerse Shares
July 13, 2011--German exchange operator Deutsche Boerse AG (DB1.XE) Wednesday said 60.16% of its shares had been tendered by Wednesday afternoon as part of the proposed merger with rival exchange operator NYSE Euronext (NYX), according to the German Electronic Federal Gazette.
This figure is a significant increase from 34.55% late Tuesday.
Investors in Deutsche Boerse have until 2200 GMT Wednesday to tender shares in favor of the plan, but a formal announcement may come two days later, after votes sent by slower, traditional mail by some of the investors' custodian banks have been tabulated.
July Oil Market Report assesses impact of IEA stock release
Market appetite for the oil made available so far has been greater than during the collective action in 2005 following Hurricane Katrina
July 13, 2011--This month provides a first detailed look at Oil Market Report projections for 2012, while also incorporating consolidated annual 2009/2010 oil data for non-OECD and OECD countries, respectively.
With higher underlying non-OECD demand (but persistent weakness in the OECD), and a string of 2011 supply-side outages, over and above the one in Libya, the market ledger this month looks slightly tighter than a month ago.
Our balances for first-half 2011 show demand continuing to run ahead of supply, if a little less rapidly than in 2H10. Of course, upward price momentum has also come from the absence of 1.5 mb/d of light/sweet Libyan crude. The ‘call on OPEC crude and stock change’ is now 31.3 mb/d for 3Q11 (a significant, if as-yet unquantifiable, portion of this will come from the IEA’s Libya collective action). The ‘call’ then fluctuates between 29.8-31.4 mb/d through end-2012. Major producers have recognised that demand for their oil is rising, with the seasonal uptick in 3Q11 refinery runs, and more generally as economic growth and short-term fuel substitution keep global and emerging market demand growth robust. We welcome rising OPEC volumes seen in June (30.03 mb/d output), but the market needs still more oil for 3Q.