MBA Mortgage Applications 5-29-13

MBA Mortgage Applications 5-29-13

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage Applications Fall 9%.

According to the MBA, total mortgage applications were down 9% from the previous week and are now down the last three consecutive weeks.  The refinance index was down 12%, the largest single weekly drop in refinance applications this year.  The “new” purchases index was up 3% and has been fairly steady (new and existing homes are selling well).  The share of applications to refinance a mortgage fell to 71% from 74% the prior week.  The refinance share of applications earlier in the year was approximately 90%.  The average rate on a conforming mortgage was 3.9% , the highest rate since May 2012.  I have cautiously been saying for months that the greatest re-fi wave in history was burning out and that most homeowners that could have done a re-fi had already done so.  Now it also looks like rates are headed up and that will deter homeowners to re-fi.  April was a capitulation event for mortgage IO’s, where many investors threw in the towel and prices of agency IO’s went close to 2008 levels.  We believe that both agency and non-agency IO’s are the best fixed income carry instrument available.  You can hedge your interest rate and volatility exposure and still have a double digit return as pre-pays slow down.  At 9 dollar prices these securities can more than double in the next 12-18 months, as well.  We are still watching closely, but believe this positively convex asset class will be a large outperformer as rates move up.  In our Liquid Real Estate Portfolio we will be close to 50% IO’s and 50% CMBS & RMBS where the pre-pays are our friend and the improving fundamentals in real estate will increase the prices of the bonds.  It may actually be a goldilocks scenario in the mortgage sector after a long period of volatility.  We hope so… Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The total number of mortgage applications filed in the U.S. last week fell 9% from the prior week as refinance applications fell for a third consecutive week and interest rates jumped to their highest level in a year, the Mortgage Bankers Association said Wednesday. The market composite index was down 8.8% on a seasonally adjusted basis for the week ended May 24 from the previous week, according to the weekly survey covering more than three-quarters of all U.S. residential-mortgage applications. The refinance index slipped 12%, the largest single week drop in refinance applications this year, from the prior week to hit its lowest level since December. On a seasonally-adjusted basis, the purchasing index increased 3% from the prior week. In the latest week, interest rates rose in response to stronger economic data and an increasing likelihood that the Federal Reserve will soon begin to taper asset purchases, said MBA's Vice President of Research and Economics Mike Fratantoni. Still low interest rates have attracted new buyers and persuaded many homeowners to refinance their mortgages, though tightened credit restrictions have deterred many borrowers from filing loan applications. The share of applications filed to refinance an existing mortgage fell to 71% from 74% a week earlier. Adjustable-rate mortgages, or ARMs, made up 5% of total activity. The average rate on 30-year fixed-rate mortgages with conforming loan balances increased to 3.9%, the highest rate since May 2012, from the prior week's 3.78%. Rates on similar mortgages with jumbo-loan balances rose to 4.07%, the highest level since August, from 3.93% in the prior week. The average rate on 30-year fixed-rate mortgages backed by the Federal Housing Administration also hit its highest level since August, rising to 3.62% from the prior week's 3.53%. The average rate for 15-year fixed-rate mortgages jumped to 3.1% from 2.96% a week earlier. The 5/1 ARM average rate was unchanged from a week earlier at 2.6%.

Betting on the Underdogs – Why Niche Hedge Fund Managers Make for Better Investments

The Tradex Group Weekly Blog

May 21, 2013

By Richard Travia, Director of Research

Betting on the Underdogs –

Why Niche Hedge Fund Managers Make for Better Investments

It’s been written about, empirically stated and statistically proven over and over again; smaller, niche hedge funds are the better way to go across the board.  They are often the hungrier managers who are more focused on producing better returns.  Combined with lower risk, better liquidity, more investor friendly terms and ultimately more control for investors, the decision to invest in smaller, niche hedge funds over the management fee collecting behemoths should be an easy one.

Yet read any of the latest headlines and metrics describing where the money flows to hedge funds go, and you’ll see the same thing – the vast majority still clamor for the largest 20% of hedge funds, leaving the other 80% scratching their heads.

Countless studies throughout the last few years have provided concrete data showing funds with lower assets under management (AUM) have outperformed their larger peers.  One of the most highly regarded studies on this topic comes from hedge fund research firm PerTrac, which noted that among 7,157 hedge funds, funds with less than $100 million in AUM generated 360 basis points of annualized performance over those with over $500 million in the last 15 years – a significant spread.  

What’s more, the findings showed that offerings operating for less than two years outperformed those with more than four-year track records by 526 basis points during the same 15-year window.  If there was a way to more accurately strip out survivorship bias, these spreads would likely be even wider.  When (not if) interest rates rise, the underperformance by the hedge fund behemoths will become even more pronounced, highlighting a potentially less liquid, highly correlated, beta driven hedge fund is the investor’s alternative of choice over an alpha-producing, uncorrelated nimble hedge fund.

In addition to their greater likelihood of performing better than larger hedge funds, smaller, niche hedge funds are generally more accommodating to investor demands, especially when it comes to negotiating fees and lockup provisions.  Tradex and its principals have consistently invested in high quality hedge funds early in their life cycles over the last decade and expect to continue to do so because of the obvious advantages. 

Ernst & Young's highly-regarded "Global Hedge Fund and Investor Survey 2012", published late last year, provided supportive data suggesting that investors who expected to increase their allocation to emerging hedge funds, in addition to the prospects of better return profiles, also are more likely to have the upper hand when it comes to negotiating the terms of their investments.

Of the allocators who participated in the study, who on average deploy 5-6% of their assets to small and/or emerging hedge funds, the findings revealed that 27% of those that boosted their allocations to these managers did so because they offered better terms.

Between their abilities to outperform, posing less potential risk and being more readily able to accommodate investor demands for attractive fees and lockup provisions, smaller, niche and more nimble managers should be the investment of choice for hedge fund allocators.

So why are investors still knocking on the doors of the largest hedge funds that they can’t in many cases get in to?  While allocation size likely has much to do it (i.e. becoming the largest investor overnight), much of it has to do with herd mentality and the job security of the allocator.

We think that this has a chance to change, particularly with the JOBS Act paving the way for hedge funds to market and solicit their wares.  Before then, investors would be well served straying from the pack and looking at smaller and more nimble niche hedge fund managers.

Richard Travia serves as Director of Research of Tradex Global Advisors.  He is a Partner and co-founder of the firm, and he focuses on hedge fund manager due diligence and selection while also overseeing the R&D for Tradex’s systematic hedge fund identification models.  Headquartered in Greenwich, CT, and managed by partners Michael Beattie and Richard Travia, Tradex Global Advisors was launched in 2004 and today manages a single hedge fund and several fund of hedge fund portfolios.  Learn more about Tradex at http://www.thetradexgroup.com or follow Tradex on LinkedIn and Twitter. 

MBA Mortgage Applications 5-15-13

MBA Mortgage Applications 5-15-13

TRADEX GLOBAL INTERNAL COMMENTARY

US Mortgage Applications declined 7.3% last week. 

The MBA reported a 7.3% decline for the week ended May 10th from the previous week.  The survey covers more than three-quarters of all residential mortgage applications.  The refinance index (what we focus on) was down 8%, while the new purchasing index was down 4%.  The percent share of applications to refinance an existing mortgage was flat at 76% from the week earlier.  The average rate on a 30-year conforming mortgage was higher at 3.67%, from the previous week of 3.59%.  In the last few weeks we have seen elevated CPR’s (prepayments) and many holders of IO securities threw in the towel.  This selling has given the “smart and seasoned” veterans a rare chance to buy IO’s at levels not seen since 2008.  We stand by our prediction that the level of re-fi’s  will stay elevated in the short term, but that the securities already have that baked into the price.  We are not going to try to catch the falling knife, but in time we will increase our allocation to IO’s in our Liquid Real Estate Portfolio.  As a reminder, in 2008 we increased IO’s and made approximately 190% in the aftermath.  Of course we will monitor Washington to see if anything is going to change in the HARP programs, but still believe that the homeowners that could have refinanced have already done so and that prepayment rates are probably cresting, both of which are a major positives for us.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for home mortgages fell last week for the first time in more than a month as interest rates jumped, sapping demand for refinancing, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 7.3 percent in the week ended May 10. The index of refinancing applications tumbled 8.1 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, lost 4.1 percent. The refinance share of total mortgage activity held steady at 76 percent of applications. Fixed 30-year mortgage rates rose to the highest level since the beginning of April, up 8 basis points to average 3.67 percent. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

From Tulips to Tech to Housing – Why the Musical Chairs Game in the High-Yield Bond Market Will End Badly

The Tradex Group – White Paper Series

May 13, 2013

By Richard Travia, Director of Research

From Tulips to Tech to Housing –

Why the Musical Chairs Game in the High-Yield Bond Market Will End Badly

Bubbles beget bursts…It’s a simple fact of investing that has proven true time and again, from the Dutch tulip mania in the 1800’s to the US dot-com burst in 2000 to the US housing market frenzy and crash to the most recent plunge in the price of gold.

For close to four years though, the investing world, ourselves included, has been waiting for what many perceive as the ultimate bubble to burst; the bond market bubble, which has been inflated to a size never before seen, thanks to record low interest rates and unprecedented amounts of stimulus that have pushed yields to historical lows – and pushed investors to funnel billions into risky corporate debt securities.

Indeed, with very little money to be made on government bond yields, investors for the better part of the past two years have increasingly been shuffling their way down the food chain into higher-yielding notes and riskier debt instruments that offer more attractive coupons, higher overall returns, but a tremendous amount of principal risk.  The results have been nothing short of spectacular:  with the total returns of high-yield offerings having matched those of the S&P 500, but with much lower price volatility.

High-yield performance relative to the benchmark Treasury index is mostly dictated by two rather obvious factors:  monetary policy and the underlying health of the corporate sector.  High-yield bonds tend to outperform the Treasury market when the Federal Reserve is easing and when credit quality is improving.  Conversely, the combination of tighter money and deteriorating corporate health are common factors in every major bear market since the inception of the high-yield market.

At this stage of the game, speculative-grade securities appear to be nearing an extreme.  According to economic research firm Bank Credit Analyst, the average price of a bond in the high-yield index is well above par, at $105.92.  “It will be difficult for prices to rise much further given that roughly 70% of public market high-yield bonds include some type of call option to the benefit of the issuer,” BCA notes.  “Thus, total return investors who have become accustomed to equity-like returns from high-yield bonds are liable to be disappointed buying at these prices.”

In other words, there are no more seats to be added to the game of musical chairs being played out in the debt markets.

There is a possibility that high-yield securities as a whole have further to run though.  Monetary authorities have vowed to maintain an aggressive policy stance in support of economic recovery, which will continue to support corporate cash flows, keep default rates from rising and perpetuate the ongoing credit-agnostic search for income in a yield-starved investment climate.

The Fed, in particular, has made clear that it will continue with its bond-buying program, leaving its hand off the turntable needle by artificially suppressing the Treasury yield curve and keeping a firm grip on supply.  This means investors will continue their unabated hunt for higher-yielding assets, increasingly allocating to more-risky types of debt instruments based on their assessment that the music isn’t ever going to stop.

By BCA’s assessment, high-yield spreads could well continue to grind tighter on a multi-year investment horizon, perhaps eventually approaching the previous lows achieved in 2005-2007.

For us, it’s not as much about the timing as the ugly, damaging, bubble-busting maelstrom that will hit when the Fed does finally yank up the record player needle.  The scramble for chairs will be ugly.  Not only will the mad dash to unload anything debt related be massive, but the additional consequences of rising corporate default rates will exacerbate the panic as investors rush to find a chair in game where they will all have been taken away.  In the meantime, there are hundreds of vulnerable companies that are highly levered and cannot afford a secular, cyclical or idiosyncratic bump in the road. 

From a longer-term perspective, the expected returns for the S&P 500 should be around 6-6.5%, with 4-4.5% nominal GDP growth and 2% dividend yields.  The expected total returns for high yields stands at around 8.8%, according to BCA.  Even taking into consideration corporate default risk, expected returns in high yield still exceed common shares.

But it’s the amount of money flowing into ever-risker types of junk that commands the most attention.  As of March 2013, yields on a record 38% of the $1.1 trillion of notes sold by the neediest US borrowers were trading below the 10-year average rate for investment-grade debentures last month, according to data compiled by Barclays Plc.

So how to play a game that everyone knows is going to end, and end badly?  At the moment, sentiment appears to be turning against both high grade and speculative grade US corporate bonds.  Short interest on junk bond ETFs has reached new cyclical highs and negative stories appear in the financial press on almost a daily basis.  The prop desks and dealers are no longer there to provide liquidity, as increased regulation has all but eliminated these traders. 

Yet the music is still playing.

The bottom line is that in their quest for yield, investors are getting less and less compensation for taking on more and more risk.  Investment memories can be very short.  And as the high yield party rocks on, and as the volume of the music screeches louder, the bubble continues to grow as does its weakness.

Even if the Fed can orchestrate a way to rein in its stimulus efforts that doesn’t prompt a panic, an unexpected announcement by Fed Chairman Ben Bernanke, the European Central Bank or even the Bank of Japan could be the pin to prick the bubble.  And it will be a massive bubble.

Richard Travia serves as Director of Research of Tradex Global Advisors.  He is a Partner and co-founder of the firm, and he focuses on hedge fund manager due diligence and selection while also overseeing the R&D for Tradex’s systematic hedge fund identification models.  Headquartered in Greenwich, CT, and managed by partners Michael Beattie and Richard Travia, Tradex Global Advisors was launched in 2004 and today manages a single hedge fund and several fund of hedge fund portfolios.  Learn more about Tradex at http://www.thetradexgroup.com or follow Tradex on LinkedIn and Twitter. 

MBA Mortgage Applications 5-8-13

MBA Mortgage Applications 5-8-13

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage Applications were up 7% last week, according to the MBA.  The market composite index that captures both refinancing and new originations were up 7% from the prior week.  The refinance index was up 8% from the prior week.  The percent of mortgage refinancings to the total number of applications was up 1% to 76%.  The HARP program accounted for 30% of the refinance applications; that is down from 34% the prior week.  The average conforming loan interest rate was 3.59%, down one basis point from the prior week.  The possible story here is that even with very low rates, the amount of mortgage borrowers going through the HARP program was down 4%.  We believe that regardless of the level of rates, most borrowers who could have done a refinancing have already done so.  Yes prepayments are still elevated and CPR’s are still very fast, but we also believe April may have been a turning point for IO holders as many investors threw in the towel and dumped IO’s.  The prices of some IO’s are almost as low as in 2008 and PO bonds at 98 are probably telling us this is the top.  The collateral that has been immune (low loan balances) finally also took a hit in April and now those IO’s are at interesting levels.  We have been saying that pre-pays will be elevated through the first half of 2013 and we are not changing this opinion.  We can now also say that the market has priced these IO’s as if rates will never tick up and every mortgage will refinance.  We disagree with that view.  As a reminder, an investor that bought IO’s at the end of 2008 made almost 2x on their money.  We are patiently waiting, but see the opportunity clearly on the horizon and expect it to positively impact our Portfolios.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The total number of mortgage applications filed in the U.S. last week rose 7% from the previous week as several interest rates increased, the Mortgage Bankers Association said Wednesday. The market composite index was 7% higher on a seasonally adjusted basis for the week ended May 3 from the previous week, according to the MBA's weekly survey, which covers more than three-quarters of all U.S. residential-mortgage applications. The refinance index climbed 8%. On a seasonally adjusted basis, the purchasing index jumped 2% from a week ago to the highest level since May 2010. Low interest rates have attracted new buyers and persuaded many homeowners to refinance their mortgages. However, tightened credit restrictions still bar many borrowers from filing loan applications. The share of applications filed to refinance an existing mortgage rose to 76% from 75% in the prior week. Adjustable-rate mortgages, or ARMs, was unchanged from a week earlier at 4% of total activity. The Home Affordable Refinance Program share of refinance applications fell to 30% from 34% a week earlier. The average rate on 30-year fixed-rate mortgages with conforming loan balances declined to 3.59%, the lowest rate since December, from 3.6% in the prior week. Rates on similar mortgages with jumbo-loan balances decreased to 3.79% from the previous week's 3.8%. The average rate on 30-year fixed-rate mortgages backed by the Federal Housing Administration was up at 3.35% from the earlier week's 3.34%. The average rate for 15-year fixed-rate mortgages shrank to 2.81%, the lowest rate in the history of the survey, from 2.84% a week earlier. The 5/1 ARM average rate, meanwhile, declined to 2.53%, also the lowest rate in the history of the survey, from 2.55% a week earlier.

Hindsight is Everything: Why RIAs and BDs Need to Step Up to the Hedge Fund Plate Now

The Tradex Group Weekly Blog

May 6, 2013

By Richard Travia, Director of Research

Hindsight is Everything: 

Why RIAs and BDs Need to Step Up to the Hedge Fund Plate Now

“I think there is a world market for maybe five computers” – IBM Chairman Thomas Watson, 1943

Computers and mobile phones – the world as we know it today would not exist without them.  Yet it wasn’t that long ago that both of these ubiquitous yet essential devices were not available to the vast majority.  Price and availability kept the vast majority away.

That’s the way it has been with hedge funds…Available only to a small percentage of the investing public with a high barrier to entry, allowing only a small segment with access.

No more will this be the rule.  As an increasing number of high-net-worth individuals (HNWIs) and family offices are becoming more educated on alternative investments, hence demanding more from their financial advisors, registered investment advisors (RIAs) and broker dealers (BDs).  The onus of ensuring they get up to speed on picking the best offerings in this space is shifting to the advisors.  If these advisors don’t act quickly, they may risk losing their long-time loyal clients.

Many prominent wealth advisor platforms have already stepped up to the plate to make an initial foray into alternative investments, perhaps the most popular option being alternative strategies mutual funds, characterized as offerings in which mutual funds appoint hedge fund managers who act as sub-advisors to run strategies via separately managed accounts (SMAs).

Generally the strategies selected are more liquid in nature, with the majority being long/short offerings, along with global macro, managed futures and Commodity Trading Advisors (CTAs).  Often times, these so-called 40 Act portfolios onboard a collection of sub-advisors implementing a coterie of investment strategies under the premise that such diverse portfolios will mitigate risk.

Other times, they favor a sector-specific approach such as a CTA-focused alternative mutual fund where all underlying sub-advisors operate that specific strategy.  And finally, in less cases, although becoming more popular, 40 Act managers deem picking only one, or at most, two sub-advisors with a liquid multi-strategy investment strategy.

It is likely too early to tell whether 40-Act mutual fund strategies will accomplish the goal of diversifying investor portfolios while providing uncorrelated and absolute return streams.  In many cases, RIAs and BDs are experienced enough to intelligently determine whether a more traditional fund of hedge funds manager can better and more efficiently serve their clients’ needs.

A highly-regarded report from McKinsey & Company titled “The Mainstreaming of Alternative Investments: Fueling the Next Wave of Growth in Asset Management,” confirms the trend that alternatives have rapidly been moving into the mainstream US retail market as individuals confronted with volatile financial markets and retirement savings gaps have been expanding their investment repertoire, hoping hedge fund strategies would salvage their portfolios.

Many investment firms across the US who both historically and more recently manage alternative strategies mutual fund offerings have been major beneficiaries of this growing interest from wealth managers.  Already as a result of client demand, retail alternative assets, and alternative-like strategies such as commodities, long-short products and market-neutral strategies have grown by 21% annually since 2005 and now stand at $700 billion, or appropriately 6% of total US long-term 40 Act retail assets.  With the pending implementation of the JOBS Act and the rescission of the General Solicitation Rule, we expect to see increasingly strong demand in experienced hedge fund allocators. 

If more wealth managers don’t move to provide their HNWI clients access to alternative investments, they might risk losing their long-time loyal customers who will seek other financial advisors to gain access to such strategies.

“There is no reason for any individual to have a computer in their home,” Ken Olson, President of Digital Equipment Corporation, said in 1977.

Hindsight is everything.

Richard Travia serves as Director of Research of Tradex Global Advisors.  He is a Partner and co-founder of the firm, and he focuses on hedge fund manager due diligence and selection while also overseeing the R&D for Tradex’s systematic hedge fund identification models.  Headquartered in Greenwich, CT, and managed by partners Michael Beattie and Richard Travia, Tradex Global Advisors was launched in 2004 and today manages a single hedge fund and several fund of hedge fund portfolios.  Learn more about Tradex at http://www.thetradexgroup.com or follow Tradex on LinkedIn and Twitter. 

Tradex Global Announces the Launch of The Short-Biased High Yield Portfolio

April 23, 2013

Greenwich, CT - Tradex Global Advisors announces the launch of its Short-Biased High Yield Portfolio.  The Fund is expected to launch on June 1^st.  Tradex has engaged Michael Bartlett of Hedge Advisors Limited to introduce and solicit clients for the Short-Biased High Yield Portfolio and other Tradex Global products primarily in Europe.  

The Tradex Global Short-Biased High Yield Portfolio is an actively managed short-biased credit fund that provides an asymmetric return profile.  It is expected to capitalize on the current distorted credit market conditions.  The high yield market is over $1+ trillion, with prices at historic highs and yields at historic lows; in-line with the 2006 credit market peak.  The Fund will primarily be short longer-dated, unsecured/subordinated fixed rate bonds.  Longs will be used to offset some of the negative carry, and will be focused on shorter-dated, secured, floating-rate bank debt and secured bonds.  Tradex Global was an early participant in this strategy in 2007-2008 and was extraordinarily successful.  The current indiscriminate demand for yield and the demise of prop desks and dealers, who previously lent support to the market, are two major differences between now and 2007-2008 when Tradex was last short high yield.  

Tradex Global Advisors has had a relationship with Michael Bartlett of Hedge Advisors for many years. Bartlett said, "We are very excited about the opportunity to work with Tradex after all these years.  Our goal has always been to introduce institutional and high net worth investors to high quality, relevant hedge fund products.  With the high yield market where it is today, and Tradex's track record of success in the space, we felt it was a perfect time to formalize an agreement to represent the firm and The Short-Biased High Yield Portfolio."

Michael Beattie, Chief Investment Officer of Tradex Global Advisors, said, "The government has forced investors into risky high yield credits due to artificially low interest rates.  The investors are not being compensated for the risk they are taking, and this will not end well.  Many lower-quality high yield companies have had access to cheap money and have issued a tremendous amount of debt, but are extremely vulnerable to cyclical, secular or idiosyncratic negative events.  In many cases, a slight change in forward guidance could make honoring interest payments difficult.  We are focusing on 150 of the bottom-tier issuers and will be heavily short those companies.  This is not a macro call, and Tradex is focusing on vulnerable bonds that can lose between 30 and 100 points, with some companies’ high yield bonds seeing zero recovery.” 

Offering Materials for US and non-US clients are available.  Interested European clients should contact Michael Bartlett at mbartlett@hedgeadvisors.net or +44 (0) 208-426-1300.  Clients outside of Europe should contact Richard Travia at richard@thetradexgroup.com or 203-863-1537.  The team is available to have conference calls and meetings to discuss in detail the Fund ahead of the June 1^st launch.  

MBA Mortgage Applications 5-1-13

MBA Mortgage Applications 5-1-13

TRADEX GLOBAL INTERNAL COMMENTARY

The Mortgage Bankers Association’s seasonally adjusted index of mortgage applications rose 1.8% in the week ending April 26th.  The index of refinancing was up 2.8% and the refinance share of total application activity stayed at 75%.  New purchase requests were down 1.4% from the previous week.  Fixed 30-year conforming rates were down 5 basis points to 3.60%, which was the catalyst for a slight uptick in refinance activity.  I sound like a broken record, but we still believe the greatest refinance wave in history is burning out.  We believe that those that could re-fi have, and those not interested for a variety of reasons will not be enticed to refinance for 5 or 10 basis points.  The collateral in IO’s that is performing well is non-agency mortgages that have no HARP option to bail them out.  Also, low balance agency bonds, where there is no incentive to refi at any interest rate are performing relatively well.  We do have to at least think of force majeure, where Obama convinces Congress to pass a law that gives every mortgage holder a free pass and forgives the debt or reduces the interest rate to 2%.  This sounds nice, but likely would never be reality.  We will monitor the situation closely and are glad we run a hedged portfolio that is also diversified with bonds that actually do very well with faster than expected prepayment rates.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages rose last week, fueled by demand for refinancings as interest rates dropped, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1.8 percent in the week ended April 26. The MBA's seasonally adjusted index of refinancing applications climbed 2.8 percent. But the gauge of loan requests for home purchases, a leading indicator of home sales, slipped 1.4 percent. The refinance share of total mortgage activity was unchanged at 75 percent of applications. Fixed 30-year mortgage rates averaged 3.60 percent, down 5 basis points from 3.65 percent. It was the lowest level for rates since late last year. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

Tradex Global Advisory Services, LLC

investorrelations@thetradexgroup.com 

203-863-1500

@Tradex_Global

ADP Employment 5-1-13

ADP Employment 5-1-13

TRADEX GLOBAL INTERNAL COMMENTARY

Hiring at private businesses remained sluggish!  According to ADP, private payrolls rose just 119k last month.  The estimate was 155k and March was revised down to 131k.  The TV pundits will spin this and talk about the volatility of jobs numbers and seasonality (blah, blah, blah…).  In the real economy (Main Street), the one thing the  Fed cannot manipulate is jobs.  They really matter and these numbers flat-out stink after 5 years of recovery.  Small businesses, the engine for growth in the US, are not hiring.  The economy needs 250k to 300k jobs in order to really recover.  So far we are far off that number.  That being said the S&P is at an all-time high and HY bonds trade at historic high prices (and low yields); probably a good time for our short high yield product launch.  The government can inflate financial assets, but cannot put people to work.  Maybe just starting to send blank checks to the unemployed is a better way to spend the trillions they have stolen from the future generation.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Hiring at private businesses remained sluggish last month, as job growth continues to slow in the beginning of the year.  Employers added just 119,000 workers last month, according to payroll giant ADP. The figure is considerably below economists’ forecasts. They’d expected closer to 155,000. March’s gains were revised lower (by 27,000) to 131,000.  Stock futures dropped further this morning after this morning’s news. Dow Jones industrial average futures declined 5 points to 14,839.8. S&P 500 and Nasdaq composite futures were flat.  There’s an important trend immediately apparent from the ADP data. Small businesses are hurting. Once the engine for employment growth, small business hiring is falling. Consider these figures: In January, small businesses added 115,000 jobs in January as large ones lost 2,000. In April, small businesses added 50,000 as large ones grew by 43,000. Observers chalk the decline in small-business strength to a number of factors, from increased Obamacare expenses to higher taxes this year.  Parsing these numbers leaves an uncomfortable conclusion. The U.S. economy continues to limp along at a truly plodding pace, and the one-time source of greatest growth (small businesses) is being sapped. Economists say the economy needs to be adding closer to 250,000 to 300,000 jobs a month for the country to recover at a normal rate. Surely economists will spend today slashing predictions for Friday’s government employment, probably down to just 100,000 jobs from an earlier prediction of 150,000.  One thing it certainly should do is prevent increased chatter of an end to the Federal Reserve’s easy money policies. The Fed says its massive bond buying will end eventually, but it’s hard to picture policymakers doing it at a time of continued substantial weakness in the economy.  In corporate news today, Merck shares lost 4.9% to $44.75 in pre-market trading. The Dow component cuts its 2013 profit forecast and offered disappointing quarterly sales.  Chesapeake Energy gained 5.3% to $20.58 as the natural gas giant swung to a quarterly profit. Time Warner retreated 2.2% to $58.49 after its profit beat Wall Street expectations from stronger results in its networks and studios.  Apple rose 0.5% to $442.78 following a blockbuster bond offering by the world’s most valuable company. The $17 billion offering was the largest corporate-bond deal in history.  Facebook gained 1.3% as investors eyed the social media company’s results which will come after today’s Closing Bell.