Behind the Interest Rate Reduction Expectations: Hedge FundsHigh Return on Every Heart Gambling

category:Finance
 Behind the Interest Rate Reduction Expectations: Hedge FundsHigh Return on Every Heart Gambling


But the risk of a U.S. recession will only be late, but never absent. He told reporters on 21st century economic reports. Overnight, during a record high in U.S. stocks, he found that many actively managed funds have cut their U.S. stock positions.

Art Cashin, UBSs managing director, warned that the risk of a recession in the United States is steadily rising. In his view, financial markets should not be overly excited about the S& P 500s record high, as the New York Federal Reserve and other U.S. financial regulators measure the economic recession, mainly by the spread between three-month and 10-year Treasury bond yields, which now implies that the U.S. will fall into recession in the next 12 months. Ability exceeded 30%.

There is no denying that the Feds expectation of interest rate cuts will be positive for U.S. stocks, but the positive effect may not last long. Once the market realizes that the Fed is forced to cut interest rates, it is based on the fact that the risk of U.S. recession may be higher than market expectations, the optimism of the U.S. stock market will change 180 degrees. Frank Holmes, an analyst at U.S. Global Investors, told 21st Century Economic Reporters that U.S. stocks, which are constantly innovating, are in a fierce game of who will take the last order.

Quantitative Strategies Funds Chasing up U.S. Stocks

On July 7, Andrew Sheets, Morgan Stanleys chief cross-asset strategist, released a new report suggesting that investors downgrade the global stock market rating from neutral to undervalued. To prove its judgment right, Morgan Stanley has lowered the proportion of investments in U.S. and emerging market stocks to its lowest level since 2014 because they believe that the recession is bringing global average stock market returns to their lowest levels in the past six years.

Earlier, David Kostin, chief U.S. equity strategist at Goldman Sachs, issued a report that uncertainties in trade frictions between China and the United States, the U.S. recession and poor earnings prospects of U.S. listed companies would prevent U.S. stocks from rising further, because this years U.S. stock rise is not driven by improvements in corporate fundamentals, but through valuation, such as The valuation of U.S. stocks is close to fair valuation today.

At present, the rational analysis of investment banks has also been defeated by the rapid increase in market risk preference caused by the expected increase of interest rate cut by the Federal Reserve. Frank Holmes, an analyst at U.S. Global Investors, told reporters that after Powell hinted that interest rates would be cut overnight, risk appetite in the entire Wall Street financial market rose sharply. In addition to a record rise in U.S. stocks, high-risk assets such as crude oil also benefited more than 3 percent.

The biggest characteristic of quantitative investment strategy funds is that it does not consider the fundamentals of the U.S. economic recession, focusing on capturing the investment opportunities of U.S. stocks brought about by changes in the Federal Reserves monetary policy through historical experience and technical analysis.

At present, it is difficult to assess how much the influx of quantified investment funds can actually push up U.S. stocks. He pointed out that this mainly depends on the willingness of large hedge funds and managers to increase the proportion of funds in quantitative investment strategies.

At present, most of the quantitative investment funds mainly use stock funds to catch up with American stocks, because everyone is worried that once the stock of the United States pulls back at any time after a new high and falls below an important point, it may trigger the collective profit-taking of the quantitative investment funds and eventually lead to the situation of tree collapse and fragmentation. He told reporters.

In his view, this makes it necessary for a large number of multi-strategy hedge funds to make new choices: to follow the advice of large investment banks to reduce their holdings of U.S. stocks or hedge their positions against U.S. stocks; or to seek wealth and wealth in the face of the risk of a U.S. recession, to risk a return of U.S. stocks at any time, and to use quantitative investment strategies to increase their positions. U.S. stocks earned high short-term returns.

Reporters have learned that most active managed hedge funds are more inclined to follow the advice of large investment banks.

Overnight, during the US stock markets record high, we reduced our US stock position by about 4 percentage points. A U.S. actively managed hedge fund trader told reporters that if U.S. stocks continue to rise, they will continue to reduce their holdings until they reach the minimum position standard stipulated in the terms of the fund.

The reason for this is that his Hedge Fund believes that the expected increase in Fed interest rate cuts will not have a lasting effect on U.S. stocks. Soon the financial market will realize that the risk of U.S. recession may be much higher than market expectations behind the Feds interest rate cuts.

However, under the lure of the profit-making effect of the rise of U.S. stocks, there are not many active managed hedge funds that choose to hold U.S. stocks on the high side or on the low side.

Many peers will choose a more sophisticated risk hedging approach. The Wall Street hedge fund manager pointed out to reporters. For example, they either buy short-selling options on U.S. stock futures or put VIX call options on short-selling index to bet on a sharp pullback in U.S. stocks.