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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Monday, December 16, 2013

Year End 2013


Two thousand and thirteen, coming quickly to a close, 
Events that have transpired, let us here expose.
Over Russia flew a meteor, over the Vatican white smoke,
Bombings up in Boston, the stateless Snowden bloke.
Poison gas in Syria, floods in India in June,
The governmental shutdown, in the Philippines typhoon.

A new tenant in the White House?  Alas we were not so lucky,
At least the current occupant, appears increasingly lame ducky.
Like in many a second term, scandals now abound,
The yes we can agenda, has now sadly run aground.
Worried about big brother? You might be right my love,
The NSA can hack anything, except
healthcare.gov.

Who left us this past year?  We wish them all Godspeed,
Farewell to Edward Koch, farewell now to Lou Reed.
Global statesmen left us too, men and women of high stature,
Goodbye Nelson Mandela, goodbye to Margaret Thatcher.
James Gandolfini we will miss you, and your softer side of crime,
Adios to Hugo Chavez, your revolution ran out of time.

In the markets year to date, we’ve had lots of steady action,
Your choice of asset class, has shaped your degree of satisfaction.
US equities won the race, all year they kept on sprinting,
Boosted by juicy steroids, also known as money printing.
Gold and bonds were laggards, causing their owners mental anguish, 
The Yen, Aussie, and Rupee, against the Dollar all did languish.

Among stocks there were big winners, that proved to be good picks,
The Facebook made a comeback, though not quite like Netflix.
Tesla hurt the shorts, cutting through them like a knife,
Other exhibits in that category, Green Mountain and Herbalife.
Losers have been scarce, in fact there are hardly any,
Blackberry and teen retail, and the flailing JC Penney.

And what about the macro, as we look out to fourteen?
Should we bet it all on bitcoin, to keep it in the green?
Across every class of asset, vol has disappeared like vapor,
The markets are complacent, worried not about the taper.
Remember you can’t go broke, with some profit taking,
Your smarts in this year’s rally, you should not be mistaking.

With those gains you can now harvest, let’s also do some giving,
There are still so very many, with a low standard of living.
Five years ago things were dismal, as the crisis was so dire,
Who imagined that so quickly, to new records we’d vault higher.
Be thankful this December, your health is just one reason,
Let’s think of those less fortunate, in this year’s holiday season.

Monday, December 2, 2013

November 2013 - Monthly Market Commentary

November saw wide dispersion in the performance of global risk assets, as developed market equities continued to rally, while most emerging market equities underperformed, the US dollar rallied, and commodity prices generally retreated.  A reasonably strong US jobs report led to continued anticipation of asset purchase tapering in the coming months by the Federal Reserve, which resulted in higher US interest rates for longer maturities.  Markets refocused on quantitative easing in Japan as the yen weakened and Japanese equity markets rose sharply.

Notable corporate deals announced in November included TRI Pointe Homes’ $2.7 billion agreement to merge with Weyerhaeuser’s home-building division, Shire’s $4.2 billion acquisition of ViroPharma, China National Petroleum’s $2.6 billion purchase of assets from Brazil’s Petrobras, Devon Energy’s $6 billion acquisition of GeoSouthern Energy’s shale assets, an $8.3 billion deal by Brazilian conglomerate Odebrecht and Singapore airport operator Changi Airport Group to operate Rio de Janeiro’s Galeao airport for 25 years, and CVS Caremark’s $2.1 billion purchase of Coram LLC from Apria Healthcare Group.

Most major developed market equity markets rose in November (see page 6), led by Japan (+5.9%), Germany (+4.1%), and the US S&P 500 (+3%).  US small caps outperformed with the Russell 2000 up 4% (see page 3); YTD the Russell 2000 has outperformed the S&P500 by 7% (36.1% vs 29.1%).  Healthcare (+4.7%) and Financials (+4.6%) were the best performing US sectors (see page 2), while Telecom (-2.6%) and Utilities (-1.9%) were the worst performing; YTD Telecom has been the worst performing sector (+11.8%), while Healthcare has been the best performing sector (+40.3%).  Large cap growth and large cap value performed in line in November with both +2.8% (see page 3).  Emerging Market equities were mixed (see page 7), with the biggest gains in Argentina (+20.5%), China (+4.9%), and Mexico (+3.6%) and the biggest declines in Indonesia (-6.8%), Thailand (-5.9%), and the Philippines (-4.6%).

In currencies, the USD Index rose 0.6% in November (see page 8).  Weakness was seen against the USD in the Japanese Yen (-4%), Australian Dollar (-3.7%), and Norwegian Krone (-3%), while strength was seen in the British Pound (+2%), Swiss Franc (+0.1%), and Euro (+0.1%).  The USD strengthened against most emerging market currencies with the exception of the Korean Won (+0.3%) and the Chinese Yuan (flat); the weakest emerging market currencies were the Brazilian Real (-4.2%), Indonesian Rupiah (-4.1%), Russian Ruble (-3.3%), and Thai Baht (-2.8%).

US Treasuries sold off in November except at the short end of the curve (see page 10).  10 year rates closed the month at 2.74%, up from 2.55% at October month end.  Investment grade and high yield US credit spreads tightened in November to YTD lows (see page 11).  European sovereign spreads also tightened in November, with Spain and Italy closing the month at the tightest levels since the European crisis in the summer of 2011 (see page 12).

In commodities, the GSCI index closed down 0.8% in November (see page 9), led by weakness in Precious Metals (-6%) and Industrial Metals (-4.5%); losses were also seen in Livestock (-0.9%), Agriculture (-0.9%) and Energy (-0.2%).  Within individual commodities, Natural Gas led gains (+8.8%), followed by Soybeans (+5.6%), Gasoline (+3.3%), and Heating Oil (+2.5%); Silver was the weakest performer (-8.6%), followed by Aluminum (-6.5%), Sugar (-6.4%), Gold (-5.6%), and Platinum (-5.5%).

Contact CurAlea Associates for a Daily Market Review.

Friday, November 1, 2013

October 2013 - Monthly Market Commentary

Global risk assets rallied in October following a short term resolution of the US government shutdown and a delay in the enforcement of the US debt ceiling.  While the last minute Congressional agreement provides funding for US federal government agencies only through January 15 and allows the US government to continue borrowing only until February 7, global markets advanced on the avoidance of a US debt default and credit rating downgrade.  Continued central bank accommodation, including the October 30 Federal Reserve decision to continue its monthly $85 billion bond purchases, also provided a boost to global risk assets.

Notable corporate mergers announced in October included American Realty’s $7 billion purchase of Cole Real Estate, McKesson Corp’s $5.4 billion acquisition of German pharmaceutical retailer Celesio, and Advance Auto Parts’ $2 billion purchase of competitor General Parts International.  Japanese conglomerate Softbank announced a $1.5 billion investment in Finnish mobile game developer Supercell and a $1.3 billion investment in mobile phone distributor Brightstar.

With the exception of Japan, which was flat on the month, all major developed market equity markets rose in October (see page 6), led for the second consecutive month by Spain (+8.8%) and followed by Germany (+5.3%) and Canada (+4.8%).  The S&P 500 rose 4.6%, while US small caps underperformed with the Russell 2000 up 2.5% (see page 3); YTD the Russell 2000 has outperformed the S&P500 by 5.6.% (30.9% vs 25.3%).  Telecom (+8.5%) and Consumer Staples (+6.4%) were the best performing US sectors (see page 2), while Financials (+3.3%) and Utilities (+3.8%) were the worst performing; YTD Utilities has been the worst performing sector (+14.3%), while Consumer Discretionary has been the best performing sector (+35.1%).  Large cap growth and large cap value performed in line in October with both +4.4% (see page 3).  Emerging Market equities also rallied (see page 7), led by India (+8.5%), Argentina (+7.9%), the Philippines (+7.1%), and Indonesia (+6.5%).   

In currencies, the USD Index was flat in October (see page 8).  Strength was seen against the USD in the Australian Dollar (+1.5%), Norwegian Krone (+1.2%), and Euro (+0.4%), while weakness was seen in the Canadian Dollar (-1.2%), British Pound (-0.9%), and Swedish Krona (-0.8%).  The USD weakened against most emerging market currencies with the exception of the Brazilian Real (-0.8%); the strongest emerging market currencies were the Malaysian Ringgit (+3%), Indonesian Rupiah (+2.2%), Korean Won (+1.4%), and Singapore Dollar (+1.2%).

US Treasuries rallied slightly in October except at the very short end of the curve (see page 10), more than recovering the debt ceiling induced selloff in the first half of the month.  10 year rates closed the month at 2.55%, down slightly from 2.61% at September month end and down from the recent 9/6 intraday high of 3.00%.  Investment grade and high yield US credit spreads tightened in October to levels near YTD lows (see page 11).  European sovereign spreads also tightened in October, with Spain and Italy closing the month at the tightest levels since July 2011 (see page 12).

In commodities, the GSCI index closed down 1.4% in October (see page 9), led by weakness in Agriculture (-2.5%) and Energy (-1.6%); gains were seen in Livestock (+1.1%), while Industrial Metals (+0.2%) and Precious Metals (-0.1%) were roughly flat.  Within individual commodities, Lean Hogs led gains (+2.9%), followed by Platinum (+2.6%), Brent Crude (+1.8%), and Palladiun (+1.3%); Cotton was the weakest performer (-11.5%), followed by Coffee (-7.3%), Crude Oil (-5.7%), Natural Gas (-3.5%), and Corn (-3%).  Gold was roughly flat on the month (-0.2%).

Contact CurAlea Associates for a Daily Market Review.

Tuesday, October 1, 2013

September 2013 - Monthly Market Commentary

September brought renewed risk appetite to global markets despite the lack of progress in avoiding an October US government shutdown and debt default.  Markets were boosted by a pull back in US treasury yields, which accelerated following the surprise mid-month decision by the Federal Reserve not to taper its pace of asset purchases.  Stronger export and manufacturing data from China also provided support, particularly for emerging market and other risk currencies.
 
Announced corporate deal activity was strong in September, most notably in the TMT sectors, with Verizon’s $130 billion purchase of Vodafone’s stake in Verizon Wireless, Microsoft’s $7 billion purchase of Nokia’s mobile handset business, and American Tower’s $5 billion purchase of Global Towers; other notable deals included Koch Industries’ $7 billion acquisition of Molex and the $6 billion acquisition of Neiman Marcus by Ares Management and the Canada Pension Plan Investment Board.

All major developed market equity markets rose in September, led by Spain (+11.4%), Japan (+8.4%), Hong Kong & Germany (+5.9%), and France (+5.4%).  The S&P 500 rose 3.1%, while US small caps continued to outperform with the Russell 2000 up 6.4%; YTD the Russell 2000 has outperformed the S&P500 by 6.9% (27.7% vs 20.8%).  Sector dispersion was significant across US sectors; Telecom was the worst performing sector (-0.5%) while Industrials was the best performing sector (+5.7%); YTD Telecom has been the worst performing sector (+5.7%), while Consumer Discretionary has been the best performing sector (+29.1%).  Large cap growth outperformed large cap value by 2% in September.  Emerging Market equities rallied sharply, led by Argentina (+12.7%), Russia (+7.8%), Thailand (+6.9%), and Brazil & China (+5.3%).
  
In currencies, the USD Index fell 2.3% in September, with losses against all major developed market currencies except the Yen.  Strength was led by the New Zealand Dollar (+7.4%), Australian Dollar (+4.7%), and British Pound (+4.4%).  The dollar was also weaker against most emerging market currencies with the exception of the Indonesian Rupiah (-2%); the strongest emerging market currencies were the Brazilian Real (+7.4%), Indian Rupee (+6.6%), Korean Won (+3.2%), Thai Baht (+3.0%), and Russian Ruble (+2.9%).

US Treasuries rallied in September most notably in the belly of the yield curve.  10 year rates closed the month at 2.61%, down from 2.78% at August month end and down from the 9/6 intraday high of 3.00%. Investment grade and high yield US credit spreads tightened in the first half of September, but widened in second half of the month to close roughly flat on the month.  European sovereign spreads tightened with the exception of Italy.

In commodities, the GSCI index closed down 3.4% in September, led by weakness in Precious Metals (-5.3%), Energy (-4.5%), and Agriculture (-1.0%); gains were seen in Industrial Metals (+1.5%) and Livestock (+1.9%).  Within individual commodities, Sugar led gains (+7.8%), followed by Cotton (+4.5%), Wheat (+3.7%), Feeder Cattle (+3.4%) and Copper (+2.7%); Gasoline was the weakest performer (-8.7%), followed by Corn (-8.4%), Platinum & Silver (-7.7%), Soybeans (-5.5%), Heating Oil (-5.3%), and Gold (-4.9%).

Contact CurAlea Associates for a Daily Market Review

Thursday, September 26, 2013

Hedge Fund Man

Hedge Fund Man - by Peter Ort

He's a PM and a trader
He's got a signal turning green
He's a restless young risk taker
Wants to run the big money
He's got no problem with his high fees
And his lockup is secure
He's cleaning up his network
To keep his sources pure

Learning to lower the beta of the Old World Man
Learning to make the alpha like a New World Man

He's bought some concentrated stakes
And learned when to sell and apply the brakes
He's old enough to know what options to write
But young enough to confuse it
He's noble enough not to take in too much cash
But weak enough not to refuse it
He's a Hedge Fund Man...

He’s got activism fever
Spin off your factories and farms
He's a fighter and no stranger
To the sell side and their charms
He's got market timing power
With quant models on patrol
He's got to watch the advance/decline line
And keep his risk control

Trying to double the pay of the Old World Man
Buying a Swiss chalet like a New World Man

He's forgotten the drawdown of yesterday
He knows a high water mark is here today
He's noble enough to see his risk is not right
But weak enough not to defuse it
He's wise enough to raise a yard
But fool enough to lose it
He's a Hedge Fund Man...

Learning to lower the beta of the Old World Man
Learning to make the alpha like a New World Man
He's a Hedge Fund Man...
He's a Hedge Fund Man...
New World Man – by RUSH

He's a rebel and a runner
He's a signal turning green
He's a restless young romantic
Wants to run the big machine
He's got a problem with his poisons
But you know he'll find a cure
He's cleaning up his systems
To keep his nature pure

Learning to match the beat of the Old World Man
Learning to catch the heat of the Third World Man

He's got to make his own mistakes
And learn to mend the mess he makes
He's old enough to know what's right
But young enough not to choose it
He's noble enough to win the world
But weak enough to lose it
He's a New World Man...

He's a radio receiver
Tuned to factories and farms
He's a writer and a ranger
And a young boy bearing arms
He's got a problem with his power
With weapons on patrol
He's got to walk a fine line
And keep his self-control

Trying to save the day for the Old World Man
Trying to pave the way for the Third World Man

He's not concerned with yesterday
He knows constant change is here today
He's noble enough to know what's right
But weak enough not to choose it
He's wise enough to win the world
But fool enough to lose it
He's a New World Man...

Learning to match the beat of the Old World Man
Learning to catch the heat of the Third World Man
He's a New World Man...
He's a New World Man...

CurAlea Clips - September 26, 2013

  • 6% YTD outperformance of US small cap stocks (Russell 2000 +27.6%) vs large cap stocks (Russell 1000 +21.4%)
  • 22% YTD outperformance of top performing S&P sector (Consumer Discretionary +28.5%) vs worst performing S&P sector (Telecom +6.4%)
  • Contact CurAlea Associates for a Daily Market Review
 

Tuesday, September 3, 2013

August 2013 - Monthly Commentary



August 2013 Monthly Commentary - Please contact CurAlea Associates for a Daily Market Review.
August was a month of heightened risk aversion within the context of the relative calm that has pervaded most global asset markets in 2013.  The combination of geopolitical tensions in Egypt and Syria, ongoing concerns over the tapering of the Federal Reserve’s asset purchases, the continued rise in US treasury interest rates, and the looming dual deadlines of a September US government shutdown and October debt default impacted global asset markets. 
Almost all major developed market equity markets fell in August, led by a 3% fall in the S&P 500.  There was fairly large dispersion across US sectors, with the worst performing sectors down 5% (Financials and Utilities) and the best performing sector flat on the month (Materials).  The trend of large cap value outperforming growth since early 2012 reversed sharply in August.  While Emerging Market equities were roughly flat in local terms and down 1.7% in USD, there was very wide dispersion here as well with the biggest losses in Indonesia (-10%), Philippines (-9.4%), and Thailand (-8.7%) and the biggest gains in Argentina (+12.3%), Korea (+2.6%) and China (+2.4%).   
In currencies, the USD Index was up 0.8% in August, with gains against all major developed market currencies except the British Pound, which strengthened by 2% versus the USD.  The dollar was also stronger against most emerging market currencies with the exception of the Korean Won, Taiwan Dollar, and Chinese Yuan; the weakest emerging market currencies were the Indian Rupee (-9.1% and consistently hitting new record lows versus the USD during August), Indonesian Rupiah (-9%), Turkish Lira (-5.1%), and Mexican Peso (-4.9%).
US Treasuries moved lower again in August, with continued yield curve steepening.  10 year rates closed the month at 2.78%, up from 2.58% at July month end, but down from the 8/21 intra month high of 2.89%.  Investment grade and high yield US credit spreads widened in August, while European sovereign spreads were largely unchanged with the exception of Portugal, which widened.
In commodities, the GSCI index closed up 3.4% in August, led by strength in Precious Metals (+7.9%), Energy (+4%), Livestock (+2.2%), Industrial Metals (+1.8%), and Agriculture (+0.4%).  Within individual commodities, Silver led gains (+19.5%), followed by Soybeans (+12.5%), Platinum (+6.8%), Gold (+6.3%) and Brent Crude (+5.8%); Coffee was the weakest performer (-4%), followed by Sugar (-3.7%), Wheat (-3.5%), Cotton (-2%), and Corn (-1.2%).

Friday, August 23, 2013

Risk Parity

An analysis of risk parity strategies in a rising interest rate environment given the historical tendency of risk parity strategies to have large bond positions.  Concludes that critics of risk parity strategies understate the diversifying benefits of commodities, the responsiveness of risk parity strategies to changes in asset volatility, and the dynamic incorporation of changing correlations in many risk parity implementations.

http://www.salientpartners.com/static/pdfs/RP%20Rates%20White%20Paper%20-%20FINAL.pdf

Thursday, August 22, 2013