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The ABCs Of A Crash: No Alpha, All Beta, & Consensus Contagion

The ABCs Of A Crash: No Alpha, All Beta, & Consensus Contagion

Tyler Durden on 06/21/2014 19:33 -0400

The vicious circle of central-bank inspired low volatility begetting increasing fragility (instead of 2004-2007’s virtuous circle)is nowhere more clear that in the collapse of alpha generation opportunities and the implicit capitulation of every hedge fund, retail investor, and Goldman muppet to be all-in on stocks. Removing collateral, gating bond funds, and constant warnings that they bonds (not stocks) may be frothy has done nothing but herd an ever more brainwashed investing public into an ever more concentrated ownership of stocks. This, as Citi’s Matt King explains, has distorted markets to no longer follow fundamentals (no matter what you are pitched on TV or by your broker).

Risk ‘not taken’ emerges one way or another

If alpha is all but impossible…

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Then funds will take beta instead…

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Funds have not been this balls deep long beta in stocks since the top in 2007

 

Evan though markets are entirely disconnected from fundamentals…

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And furthermore, while macro data has moderated, surprise have not – leaving (as we explained in great detail here) the fall in market vol outsripping the moderation in uncertainty dramatically…

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But Consensus trades have started to crack…

 

The bottom line – there is no Alpha, everyone is all-in Beta, and consensus is now so one-sided that Contagion is inevitable if any event occurs to rattle market’s faith in the omnipotent ones (like a gold spike).

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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