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

Tuesday, December 13, 2016

Year End 2016

Twenty and sixteen, over in a flash,
Remembered it will be, for the Trump and Clinton clash.
To follow up Obama, on the presidential throne,
Hillary or the Donald, a poorer choice we've never known.
The one a scheming liberal, always above the law,
The other an inflated ego, looking at himself with awe.
She had more votes by millions, and allegedly more knowledge,
With deplorables in his corner, he took the electoral college.

This year we had some horrors, all of them causing fright,
Such as the Zika virus, spread by a mosquito bite.
Bombings in Brussels, Belgium, a crazed driver in Nice, France,
Fanatics bent on killing, innocent victims of circumstance.
In Oakland a warehouse fire, where 36 did die,
In Orlando a nightclub shooting, that leaves you asking why?
In Aleppo death and carnage, by Assad a true barbarian,
If you don’t know where that is, don’t ask a libertarian.

In sports we had nice action, led by a guy named Manning,
Who then retired at the top, leaving Newton also ran-ning.
Always much excitement, in the world of college ball,
Villanova at the buzzer, leaving Carolina feeling small.
LeBron brought it home in Cleveland, after going down three to one,
Despite a Warrior record season, 88 games they won.
In Chicago they're still celebrating, the kids, the wives, and hubbies,
After a century long hiatus, the victory of their Cubbies.

Again we lost some great ones, some women and some men,
Mrs. Brady Florence Henderson, the astronaut John Glenn.
Gene Wilder and David Bowie, the word genius they evince,
The doves are all still crying, at the sudden loss of Prince.
Muhammad Ali was the greatest, in a fight no one was calmer,
He mixed lemonade and tea, the golf king Arnold Palmer.
Fidel Castro was a menace, a commie tyrant like no other,
In Cuba they’re still suffering, in the shackles of the brother.

In the markets things were choppy, until the election gave direction,
Many hedge funds lost real money, buying useless put protection.
In long/short returns were tough, being down or flat the norm,
As the small caps and the value, did strongly outperform.
Passive flows keep rising, bringing higher correlation,
From bonds to stocks some say, we’re in a generational rotation.
Uncertain is the future, try as we might to see it squinting,
The Fed too knows not what’s coming, or the harms of money printing.

Populism’s all the rage, as people 'round the world revolt,
The status quo's being upended, at the speed of Phelps and Bolt.
Paul Revere said the Brits were coming, from the EU now they're leaving,
For the European experiment, it may be time to start the grieving.
The Bushes and the Clintons, their time it has now passed,
America wants change, in its political crew and cast.
And what about Chris Christie, who drove his career off of a bridge,
He’s somewhere back in Jersey, seeking solace in his fridge.

So the election is now over, though the tweets are just beginning,
He says he'll make us great again, and that we’ll all get used to winning.
Don't lose much sleep for Hillary, she won't suffer from starvation,
She's saved up quite a nest egg, in that dirty Bill & Hill Foundation.
After eight years of his lectures, we won't much Obama miss,
As we head into a world, of pure Republican bliss.
In this year's holiday season, please don't be a Scrooge,
Let's pray for one another, and for this Trump thing to be huge.

Thursday, December 1, 2016

November 2016 - Monthly Market Commentary

November was a mixed month for global risk assets.  Developed market equities were mixed, emerging market equities were mostly lower with wide dispersion across geographies, the USD strengthened, US interest rates rose across the curve, commodities were mixed, and corporate credit spreads tightened.  Markets in November were dominated by the US election and the surprise Trump victory.  After a brief selloff in equity futures on the night of the election, US equity markets rallied sharply and made several new highs during the month.  Prior to the election, the Federal Reserve left rates unchanged, but indicated that a rate hike was more likely at their December meeting due to a recent pick up in core inflation.  The Bank of England surprised markets by lowering expectations for a further rate cut, as the impact of Brexit on the British economy appears to be smaller than initially feared.  Meanwhile in Japan and in reaction to rising interest rates following the US election, the Bank of Japan offered to buy an unlimited amount of Japanese government bonds to keep rates from rising too much.  The US job report showed that 161,000 jobs were added in October, the unemployment rate fell to 4.9%, and the labor force participation rate ticked down to 62.8%; average hourly earnings for private sector workers rose 2.8%, the highest annual rate since June 2009. 
Notable corporate transactions announced in November included the $5.5 billion acquisition of Brocade Communication Systems by Broadcom, the $500 million purchase of Blue Nile by Bain Capital and Bow Street, Blackstone’s $3.7 billion acquisition of OfficeFirst Immobilien, the sale of Harman to Samsung Electronics for $8 billion, the $4.5 billion acquisition of Mentor Graphics by Siemens, Tesoro’s $4.1 billion purchase of Western Refining, the $2.3 billion purchase of LifeLock by Symantec, and Ctrip’s $1.7 billion acquisition of Skyscanner .
Developed market equity markets were mixed in November (see page 8), with the largest gains in Japan (+5.8%), the S&P 500 (+3.6%), and Australia (+3.4%); the worst performing were Spain (-5.4%), the UK (-2%), and Hong Kong (-1.6%).  US small caps strongly outperformed large caps, with the Russell 2000 up 11.2% and the Russell 1000 up 3.9% (see page 3).  Financials (+13.9%), Industrials (+8.8%), and Energy (+8.4%) were the best performing sectors in November, while Utilities (-5.4%), Consumer Staples (-4.3%), and Real Estate (-3.1%) were the worst performing (see page 2).  Large cap growth (+2.2%) underperformed large cap value (+5.7%) in November (see page 3).  Emerging Market equities were mostly lower in November (see page 9), with the biggest gains in Russia (+6.5%) and Thailand (+0.4%); Indonesia (-9.1%), Argentina (-9%), and the Philippines (-8.7%) were the worst performing. 
In currencies, the USD Index was up 3.1% in November (see page 10).  The weakest developed market currencies against the USD were the Japanese Yen (-8.4%), Euro (-3.6%), and Norwegian Krone (-3.1%), while gains were seen in the British Pound (+2.2%).  Emerging market currencies were lower against the USD, with the biggest losses in the Turkish Lira (-10%), Mexican Peso (-8.3%), and Malaysian Ringgit (-6%).
The US Treasury yield curve shifted higher as rates rose across the curve in November (see page 12).  10 year rates closed the month at 2.38%, up from 1.83% at October month end.  Investment grade and high yield credit spreads tightened in November (see page 13).
In commodities, the GSCI index was up 2.5% in November (see page 11), with gains in Industrial Metals (+10.4%), Livestock (+5.7%), and Energy (+3.9%), and losses in Precious Metals (-8%) and Agriculture (-4.2%).  Within individual commodities, Palladium (+24.8%), Copper (+20%), and Feeder Cattle (+10.8%) saw the biggest gains, while Cocoa (-11.9%), Coffee (-10.2%), and Sugar (-8.1%) saw the biggest losses.  Gold was down 8% in November.

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