Hedge fund bears at year high as US default fears loom

NEW YORK: Hedge funds, whose bearish bets on stockshave held their returns to half the Standard & Poor's 500 Index in 2013, pushed short sales close to the highest level of the year just as the US budget impasse spurred a doubling in volatility. Rising bets against equities sent a gauge of manager bullishness compiled by ISI Group within 0.2 point of its lowest reading in 2013 last week.

Short sales have backfired as the S&P 500, up 19% this year, posts one of its broadest rallies on record. The embrace of bearish trades has squeezed returns for professionals and is one reason stocks have repeatedly rallied in 2013 amid slowing economic and profit growth, according to Cambiar Investors and Pension Partners. Rather than falling, shares that investors have shorted the most are up 38% since January, a consequence of forced buying during rallies by speculators who borrowed and sold them, data compiled by Goldman Sachs Group Inc. show.

Economists clash on theory, but will still share the Nobel Prize

WASHINGTON: The economist Robert J Shiller in 2005 described the rapid rise of housing prices as a bubble and warned that prices could fall by 40 percent.
Five years later, with home prices well on the way to fulfilling Shiller's prediction, the economist Eugene F Fama said he still did not believe there had been a bubble.
"I don't even know what a bubble means," said Fama, the author of the theory that asset prices perfectly reflect all available information. "These words have become popular. I don't think they have any meaning."
The two men, leading proponents of opposing views about the rationality of financial markets - a dispute with important implications for investment strategy, financial regulation and economic policy - were joined in unlikely union Monday as winners of the Nobel Memorial Prize in Economic Science.
Fama's seminal theory of rational, efficient markets inspired the rise of index funds and contributed to the decline of financial regulation. Shiller, perhaps his most influential critic, carefully assembled evidence of irrational, inefficient behavior and gained a measure of fame by predicting the fall of stock prices in 2000 as well as the housing crash that began in 2006.

The glory of financial markets

The year that has gone by has been one of the best for the Indian financial markets. The equity markets, of course, have hogged the limelight, growing 13% from the May 17 crash.

On Friday last, the BSE sensex closed at 6602.69 and the NSE at 2080.5 points, their lifetime highs. Going forward, some of the major positives that should see the equity markets thrive are the end of the textile quota regime, reforms in the banking sector, introduction of product patent laws in the pharmaceuticals sector, and government's thrust on infrastructure development in the country.

At the beginning of 2004, inflation was at around 5.57%; currently, it's at 6.5%. On the face of it the difference between these two figures is not large.

However, during the course of the year, the rise and fall of inflation, week after week, was keenly watched and factored into by the financial markets. With interest rates continuing to rule low, the rise in inflation was a matter of concern for the government.

India, Russia for early implementation of IMF quota reform

MOSCOW: India and Russia today pitched for implementation of the International Monetary Fund (IMF) quota reforms latest by January to give more representation to the emerging economies in the multilateral institution.

"Russia and India stressed the necessity to create a more representative and legitimate international financial architecture.

"They agreed that the primary task in this connection was to complete the Fifteenth General Review of IMF Quotas not later than in January 2014," said a joint statement issued after a summit meeting between President Vladimir Putinand Prime Minister Manmohan Singh.

India has been maintaining that quota reforms are imperative to ensure IMF's credibility, legitimacy and effectiveness.

New RTGS system to improve financial market efficiency: Raghuram Rajan

MUMBAI: RBI Governor today said the new real time gross settlement (RTGS) system for fund transfers will improve the efficiency of the country's financial markets.

"With its advanced liquidity and queue management features, the new RTGS system is expected to significantly improve the efficiency of financial markets," Rajan said while inaugurating the ISO 20022-compliant system.

The RTGS system is used to settle interbank fund transfers by banks and their customers and is critical in facilitating orderly settlement of payment obligations. With its implementation, new regulations will replace the operating guidelines and regulations of 2004.

Rajan said the payment system has to be efficient and ahead of the financial markets to be able to take care of future developments.

Foreclosure Is a Kind of Debt Collection - Here's How It Works

Foreclosure is designed to allow for possession (or repossession) of property that was used to secure a debt that was subsequently unpaid. Most people simply think of foreclosure as "getting kicked out of your house," and in many situations that is an appropriate understanding. In reality foreclosure addresses ownership rights rather than possession, however. It involves the termination of at least one person's rights of ownership in favor of another person, and this can, but does not always, lead to eviction.

We don't think of it very often, but one of the great inventions of English law was the division of property into different property "interests" or rights that could co-exist in the same property. The state "owns" physical property in one way, the landowner in another, and the tenant also has certain ownership rights, for example. If the landowner is married, both spouses will have rights in the property, and it is possible to divide the rights up in many other ways, too. Another form of coexisting rights is the way the same property could be owned by you, but subject to a mortgage and also various sorts of liens.

The dragon kings of Didier Sornette and the skill of predicting financial bubble bursts

Chances are you have never heard of Didier Sornette. Chances are that the next time you hear of him, you will be significantly poorer — unless you listen to what he says now.

Sornette is the professor of entrepreneurial risks at theSwiss Federal Institute of Technology (ETH Zurich). His research focuses of the prediction of crisis and extreme events in complex systems. His work covers earthquake physics, dynamics of success on social networks and complex system approach to medicine. However, the part that attracts market attention is what he does at the Financial Crisis Observatory, which is to test the hypothesis that financial "bubbles" can be diagnosed in real time and their termination predicted probabilistically.

In other words, he attempts to find when the next big fall in the financial markets can occur.

The term "bubble" refers to a situation where excessive future expectations lead to rise in prices. Sornette identifies speculative bubbles as arising from a confluence of two factors — factors that drive initial demand — say, new technology or perception of reduced market risk. This is followed by "amplification mechanisms", where a large increase in asset price is followed by higher demand as investors think that further increases in price will follow. This "super-exponential" acceleration in prices due to a positive feedback (or "pro-cyclicality") leads to formation and then maturation of a bubble in finite time.