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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 11, 2018

Year End 2018

Two thousand and eighteen, come and gone so fast,
Turn the page in a few weeks, put it firmly in the past.
The days are growing shorter, the nights are getting colder,
As fall turns into winter, another year we all are older.
Put your politics aside, for a moment let’s be civil,
If you watch CNN or Fox, forget about all that drivel.
To this year’s beginning, let’s re-wind back the clock,
We’ll look at it holistically, not on a basis that’s ad hoc.

News there was aplenty, stories of people very brave,
A Thai soccer team and coach, rescued from a flooded cave.
Winter in PyeongChang, we saw the Olympic flame ignited,
And the South and North Koreans, marching with one flag united.
A Windsor Castle wedding, how those British royals sparkle,
The Duke and Duchess of Sussex, Prince Harry and Meghan Markle.
At his confirmation hearings, Kavanaugh faced some strong objections,
The Dems took back the House, in November’s midterm elections.

Farewell to Steven Hawking, Godspeed to John McCain,
Respect to Aretha Franklin, good eats to Anthony Bourdain.
The rich and famous lifestyles, did show us Robin Leach,
The evangelist Billy Graham, he sure knew how to preach.
George and Barbara Bush, a classy couple he and she,
A fond goodbye to Burt Reynolds, so long now to Stan Lee.
The most gruesome death this year, Khashoggi we do remember,
For whom a hit squad was dispatched, to murder and dismember.

A fourth term coronation for Putin, Xi’s now emperor for life,
Genocide in Burma, in Syria endless strife.
A June summit down in Singapore, Trump and Kim Jong-Un,
Raising hopes for a de-nuking, assuming you trust that pudgy goon.
A duck boat disaster in July, California fires in a recurring cycle,
Tragedies in Florida, the Parkland shooting and Hurricane Michael.
A former Russian spy in England, poisoned but still alive,
Great progress down in Saudi, where the women now can drive.

A caravan of migrants, heading northward towards the border,
So Trump dispatched the troops, vowing to keep the law and order.
China’s modifying the genes of babies, opening Pandora’s box,
In Boston they’re still cheering, the triumph of their Red Sox.
The Eagles flew and flew, and seized a rare victory dance,
At the World Cup in Russia, the trophy went to France.
The Warriors won in four, beating Cleveland in a hurry,
Even mighty LeBron was no match, for Durant and Curry.

Mueller’s investigation moves apace, slowly tightening the noose,
Seems he’s angling for bigger fish, and unwilling to call a truce.
White House turnover continues, it’s stormy near the throne,
Hope Hicks resigned in Feb, followed in March by Gary Cohn.
Rex Tillerson was fired, these shifts seem almost daily,
McCabe and McMaster, and don’t forget about Nikki Haley.
We’re told it’s no big deal, please don’t get the wrong impressions,
John Kelly’s out as well, following in the footsteps of Jeff Sessions.

This year in the markets, to almost nowhere could you flee,
It mattered not if you were in, fixed income, gold, or equity.
Two issues were to blame, which caused all this bloodshed,
One was the Chinese tariffs, the other was the Fed.
Two stocks were worth a trillion, the Amazon and the Apple,
For redemption from that greed, we’re now praying in the chapel.
Many charts are off the peak, so much it makes you holler,
The only things that have gone up, are volatility and the dollar.

So what awaits us all next year, in this uncertain future,
How to stop this sudden bleeding, and give our wounds a suture?
Perhaps reset your expectations, to a lower notch than outright brash,
It’s not time for crazy leverage, you’re not a fool to hold some cash.
The QE is unwinding, there’s no prior roadmap for this journey,
Before it’s over rest assured, some will be rolled out on a gurney.
Prepare to take more off the table, if risk assets make another rally,
You’ll be glad you did before, this pullback makes its grand finale.

But enough with gloom and doom, in this annual search for clarity,
Let’s count our many blessings, in this season of hope and charity.
If your tower’s Trump or made of ivory, let’s stop the nasty tweets,
And work to bridge our differences, and share some holiday treats.
Though we disagree quite often, consensus we must reach,
Whether you’re in the camp of one more term, or the one of let’s impeach.
Let’s take a year end break, from trade wars and yield curve kinks.
Look up now from your smartphone, and enjoy some New Year’s drinks.

Monday, December 3, 2018

November 2018 - Monthly Market Commentary

November was a mixed month for global risk assets. Developed and emerging market equities mostly rebounded, credit spreads widened, the USD was little changed, the oil complex sold off sharply, natural gas spiked higher, and the US interest rate curve flattened. The Federal Reserve kept rates unchanged at its November meeting; minutes from the meeting pointed to a rate increase in December, but greater uncertainty about the future pace of quarterly rate hikes. Comments by Chairman Powell late in the month regarding rates being “just below” neutral sparked a sharp rally in risk assets. The US job report showed that 250,000 non-farm jobs were added in October (the 97th consecutive month of job creation), the unemployment rate held at 3.7% (a 49 year low), the labor force participation rate increased to 62.9%, and average hourly earnings rose 3.1% from a year earlier.

Notable corporate transactions announced in November included the $3.2 billion acquisition of Finisar by II-VI, the $8 billion purchase of Qualtrics by SAP, the $5.5 billion acquisition of Athenahealth by Veritas Capital and Evergreen Coast Capital, the $1.4 billion purchase of Cylance by BlackBerry, the $4.2 billion acquisition of BTG by Boston Scientific, the $700 million sale of GameStop’s mobile unit to Prime Communications, the $1 billion purchase of ITG by Virtu Financial, the $1.2 billion acquisition of Kraft’s Canadian natural cheese business by Parmalat, the $7.4 billion purchase of Arris by CommScope, the $594 million acquisition of Bojangles by Durational Capital and The Jordan Company, the $1.9 billion purchase of ConvergeOne by CVC, ResMed’s $750 million purchase of MatrixCare, Vista Equity’s $1.9 billion acquisition of Apptio, Sazerac’s $550 million purchase of 19 alcohol brands from Diageo, Pan American Silver’s $1 billion acquisition of Tahoe Resources, the $1.2 billion purchase of Spectrum Brands’ auto care business by Energizer, the $3.2 billion purchase of DJO Global by Colfax, Cimarex’s $1.6 billion acquisition of Resolute Energy, Johnson Controls’ sale of its power solutions business to Brookfield, Newell Brand’s $2.5 billion sale of Pure Fishing to Sycamore Partners and Jostens to Platinum Equity, the $950 million sale of Veracode to Thoma Bravo, the $655 million acquisition of Sonneborn by HollyFrontier, and the $875 million purchase of PlanGrid by Autodesk.

Developed market equities rose in November (see page 8), with the biggest gains in Hong Kong (+7.2%), the US (S&P 500, +2%), and Spain (+1.9%), and the largest losses in Australia (-2.3%), Germany (-2%), and France (-1.7%). US large caps outperformed small caps, with the Russell 1000 up 2% and the Russell 2000 up 1.6% (see page 3). Healthcare (+7.1%), Real Estate (+5.6%), and Materials (+4%) were the best performing sectors in November; IT (-1.9%), Energy (-1.6%), and Communication Services (-0.7%) were the worst performing sectors (see page 2). Large cap value (+3%) outperformed large cap growth (+1.1%) in November (see page 3). Emerging market equities were mostly higher in November (see page 9), with the largest gains in China (+7.2%), Argentina (+5.6%), and Indonesia (+5.6%), and the largest losses in Mexico (-4.4%), Taiwan (-1.2%), and Thailand (-1.1%).

In currencies, the USD Index was little changes (+0.1%) in November (see page 10). The New Zealand Dollar (+5.4%), Australian Dollar (+3.3%), and Swiss Franc (+1%) had the largest gain against the USD, while the Norwegian Krone (-1.9%), Canadian Dollar (-1%), and Japanese Yen (-0.5%) had the largest losses. Emerging market currencies were mixed against the USD, with the largest gains in the Turkish Lira (+7.1%), South African Rand (+6.5%), and Indian Rupee (+6.1%), and the largest losses in the Brazilian Real (-3.7%), Russian Ruble (-1.8%), and Mexican Peso (-0.3%).

The US interest rate curve flattened in November (see page 12). 10 year rates closed the month at 2.99%, down from 3.14% at October month end. US investment grade and high yield spreads widened in November (see page 13).

In commodities, the GSCI index was down 11.3% in November (see page 11), with losses in Energy (-17.9%), and gains in Industrial Metals (+2%), Livestock (+1.5%), Agriculture (+0.7%) and Precious Metals (+0.4%). Within individual commodities, Natural Gas (+41.1%), Palladium (+7.8%), and Lean Hogs (+6.7%) saw the biggest gains, while Crude Oil (-22.1%), Brent Crude (-20.9%), and Gasoline (-19.3%) saw the biggest losses. Gold was up 0.6% for the month.

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