A recent survey of asset managers, institutions, and high net worth investors at the Global Alternative Management Fund of Funds conference found that 36 percent of those questioned felt that technical analysis-based trading strategies are likely to outperform in 2009 and 2010 (see Reuters article). This tends to mimic a prevalent view in the market that investing based on fundamentals will be difficult going forward. Changing regulations, compressed multiples, and unknown forward earnings are making fundamental investing suspect and difficult at best. Double digit percent moves on very little or no material changes in fundamentals are also causing investors to now pay more attention to volume, price action, patterns, and support / resistance lines in an effort to predict the size and reversals of potential stock moves. Given that technical analysis can often be a self-fulfilling prophesy, the added attention to technical indicators and patterns may actually make it more likely for such signals to be realized, at least in the short-term. As with many technical indicators, there does not always need to be a theoretical mathematical justification, but simply a heuristic and common sense expectation of what each indicator implies and is likely to predict. In the short-term, such a belief may be all the market has and needs. Hedge funds will no doubt exploit this momentum going forward.
There is an interesting post at the Bespoke Investment Group blog. Apparently, the entire TARP application is only six pages long, with the first four pages describing eligibility and confidentiality. The actual application is just two pages. Of the two main pages, page one is just for your name and contact information. Page two does ask for some details on financial information, but not much - basically how much do you have, and how much do you need. I wish my home loan was that easy. Then again, maybe that was part of the problem - some home loans were that easy. Certainly not encouraging. Will there eventually be a TARP for the TARP?
Initial results show that the Credit Suisse / Tremont Hedge Fund Index was down 5 percent in October (see MarketWatch article) - final numbers will be released on November 17th. Not surprising, fixed income arbitrage suffered some of the worst monthly losses, losing 17.75 percent. Emerging markets were close behind with 15.36 percent in losses. Fixed income managers have suffered as a result of loses in mortgage-backed securities and corporate bonds, each of which have fallen in price due to a combination of decreasing credit quality, forced selling, and decreased liquidity. Managed futures and short bias funds are both up for the month, and year-to-date. Convertible arbitrage is down the most year-to-date, losing 19.45 percent (which while bad is still better than the broader market losses).
A recent WSJ article reports how Harvard's president is telling campus administrators, faculty, and students that the university will need to consider budget cuts and other steps because of hits to university investments caused by the global economic crisis. It was only a few months ago that reporters and bloggers (myself included - see previous post) were discussing how Harvard was reducing its weighting in domestic equities and was investing more in alternative investments, including private equity and hedge funds. Other funds were even beginning to mimic the asset allocation of the Harvard endowment (see previous post). While specific areas and loss amounts were not mentioned, one would have to believe that hedge fund losses are having a negative impact on the Harvard endowment. In what may be typical for most universities, but somewhat shocking for Harvard, President Faust is quoted as saying: "we need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraints." You never want to hear the words "unprecedented" and "losses" in the same sentence. Moody's is even projecting a 30 percent decrease in the value of the endowment. Pretty amazing given how just this summer Harvard was being cast as a model for the use of alternative investments for achieving a global diversified endowment. In the end, the Harvard endowment will probably still fare better than most, but the recent news shows that even the benchmark for university endowments may need to patch a few cracks in the ivory tower.