Hedge funds just suffered through their worst month in 8 years — here’s why their struggles could just be getting started

The stock market‘s so-called Red October was a tough time for investors of all shapes and sizes. And very few parties felt the pain like hedge funds, which turned in a rocky month for the ages.

A large universe tracked by Hedge Fund Research lost almost 3% in October, its worst month since May 2010, when the Eurozone debt crisis was the major issue facing markets.

In October, hedge funds had their worst month since 2010.
JPMorgan

But it was the turmoil that raged under the surface of that massive hedge fund universe last month that should have investors worried. While the market’s previous period of turbulence in February was largely driven by technical factors, a study from JPMorgan suggests Red October was far more based on fundamentals.

Stocks weren’t just punished by the price-insensitive machinations of quantitative strategies this time around. What occurred instead is a very real shift in sentiment that could continue to hamper hedge funds through 2019, the firm says.

This dynamic manifested intself in the $900 billion universe of equity long/short funds. When stocks underwent a major rotation — with proven leaders rolling over and laggards outperforming — it proved to be a toxic combination for these investors.

They wound up losing more than 4% in October, their worst month since January 2016, JPMorgan data show.

“Such underperformance was likely accompanied by significant de-risking,” a group of JPMorgan strategists led by Nikolaos Panigirtzoglou wrote in a client note.

Another group of hedge funds — one designed to recalibrate risk on the fly depending on market gyrations — also struggled in October. Known as risk-parity funds, they lost 5%, the most since June 2013, as stocks, bonds, and commodities sold off simultaneously, depriving them of safe havens. Under normal circumstances these asset classes aren’t so closely correlated.

In October, risk-parity funds had their worst month since 2013.
JPMorgan

Once again, it was a shift towards more risk-averse, defensive holdings that spurred these losses. And what makes it scary for the future is that these are the types of allocation decisions often made by humans, rather than their machine-led counterparts.

Perhaps most ominous of all are the questions this tough stretch of performance has raised for the future of hedge funds. JPMorgan estimates that the aging of the current market cycle, coupled with reluctance on behalf of investors to relive the October doldrums, will prompt them to pull money out.

The firm estimates that hedge funds will see “significant but modest” outflows of about $5-10 billion per quarter in 2019. At its worst, that would account for roughly $40 billion of capital removed.

While that may be a drop in the bucket relative to the size of the whole market, it’s a shift in the wrong direction for an industry that’s grown in largely unabated fashion in recent years as the bull market has pushed into its 10th year.

Even then, JPMorgan suggests that other headwinds will likely be necessary if the stock market as a whole is going to take a notable dive lower. Still, regardless of whether those forces transpire and drag equities down, October’s hedge-fund meltdown is a strong signal that the industry is vulnerable to a sentiment shift.

“There is no doubt that potential hedge fund redemptions represent a headwind for equity markets going forward,” said Panigirtzoglou. “Similar to 2016, we expect that fundamentally-driven, equity-focused Equity Long/Short and Event Driven hedge funds will bear the brunt of hedge fund redemptions over the coming quarters.”

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Watch Michael Douglas and Alan Arkin share hilarious Hollywood stories

If you’re going to spend three and a half minutes watching a video about acting, you could scarcely do better than this one.

Michael Douglas and Alan Arkin, stars of the new Chuck Lorre series The Kominsky Method, have gathered to talk about their remarkable, Oscar-winning careers in a new featurette for Netflix, which you can watch exclusively above. The pair covers everything from their humble beginnings to signing on to a new TV series together to whether they’ll ever retire.

Kominsky marks something of a departure for Lorre, best known for creating Two and a Half Men and The Big Bang Theory, in that it’s a single-camera comedy with heavily dramatic elements. It explores aging as it follows Sandy (Douglas), a past-his-prime actor working as a teacher; as the series begins, he spends his days with best friend and agent Norman (Arkin) and trying out a new romance with a student (played by Nancy Travis).

Comedy “isn’t something that comes natural to me,” Douglas admits in the featurette. He adds of working with Lorre:  “He plays it humble and all of that, but I don’t know, man. He’s got so many credits … and he makes them look so easy.”

As for Arkin, saying “yes” to Kominsky was a no-brainer. “”Everybody I knew said you’ve got to do this,” he reveals.

For their thoughts on working in Hollywood as a whole, watch the video above. The Kominsky Method premiered this past weekend at the AFI Festival, and will be available to stream Nov. 16 on Netflix.

Related content:

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Afghanistan: Suicide bomber targets protesters in Kabul

At least three people have been killed and eight wounded after a suicide bomber hit a protest site in the Afghan capital, Kabul, according to local media reports.

Tolo News, a Kabul-based news website, reported the blast happened on Monday close to Pashtunistan Square, where hundreds of people had been protesting over insecurity in the country.

Nasrat Rahimi, the deputy spokesman for the interior ministry, said, “The suicide attacker on foot wanted to target protesters, but he was stopped at a security checkpoint some 200 metres from the site.”

“There have been casualties and I can say most of them are security forces.”

Videos posted on social media appeared to show bodies lying on the ground moments after the bombing.

The explosion came as Taliban fighters killed scores of security forces in the western province of Farah and the eastern province Ghazni overnight on Monday.

Earlier, at least 37 local policemen were killed in Farah and 20 members of the Afghan security force were killed in Ghazni’s Jaghuri district on Sunday.

Taliban spokesman Zabihullah Mujahid claimed responsibility for the Ghazni attack and said in a text message that the armed group had captured Malistan district.

Fighting in the area has been ongoing since Wednesday, fanning fears that the violence could be rooted in ethnic or sectarian differences.

Taliban fighters have ramped up attacks on Afghan security forces and government facilities in recent months, leaving troops thinly stretched throughout the country.

A US watchdog agency said last week that the Afghan government was struggling to regain control of districts lost to the Taliban while casualties among security forces had reached record levels.

The government had control or influence over 65 percent of the population but only 55.5 percent of Afghanistan’s 407 districts, the Special Inspector General for Afghanistan Reconstruction (SIGAR) said in a report.

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These 2 charts reveal a growing problem for Apple in China — searches for the new iPhones ‘fell of a cliff’ in October

Much of Apple’s rise to become a $1 trillion company was driven by intense demand in China: the middle kingdom has an exploding middle class, and the iPhone became a status symbol for the good life, driving high levels of demand for the premium product.

Now analysts are increasingly suggesting that demand in China may be slowing for good.

The latest data point is a new report from Longbow Research, which says its checks with Apple’s part suppliers have indicated that there have been severe cuts to iPhone XR and XS Max orders — 20% to 30% — although they’re partially offset by order increases for older models.

The Longbow report corroborates a Nikkei report from last week that said Foxconn has cut the number of production lines of the iPhone XR from 60 to 45 and a Citi report that downgraded chip stocks based on disappointing “iPhone XR unit sales.”

Goldman Sachs analysts last month wrote that consumer demand for iPhones in China seemed to be “rapidly slowing.”

There are often reports that Apple has slashed orders after an iPhone launch. Sometimes these reports end up as red herrings: Apple has tons of suppliers, including multiple vendors for each part, and it can move around its orders for a variety of reasons.

But there’s another sign weighing on Longbow’s analysts: The fact that search trends in China show declining sustained consumer interest in new iPhones.

“Another point of concern is Baidu iPhone searches fell off a cliff for October, indicating potential risk of faltering China demand,” the analysts write, despite slightly increased search traffic for new iPhone models on Baidu in September.

Here are the charts:

Longbow Research

Longbow Research

Last month, Citi performed the same exercise with Google search results, which is the dominant search engine in the United States. Its analysts concluded that “customers are getting less excited for each new generation of iPhone,” pointing to less innovation on an annual basis.

Citi

Last month, Apple gave a lukewarm forecast for its all-important holiday quarter, and said that it would stop disclosing unit sales for iPhones, iPads, and Macs, sending the stock into a funk. Analysts on Apple’s quarterly earnings call pressed CEO Tim Cook on whether the reduced disclosures meant that Apple expected iPhone unit sales to decrease.

“Our installed base is growing at double digit, and that’s probably a much more significant metric for us from an ecosystem point of view and the customer loyalty, et cetera,” Cook said.

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Santiago Solari: Real Madrid set to appoint Argentine as permanent manager

Solari played for Real Madrid as a midfielder

Real Madrid are set to appoint Santiago Solari as the club’s permanent manager.

The Spanish Football Association says it has received Solari’s contract from the La Liga club, although no there has not yet been an announcement from Real.

Solari took over on 29 October on an interim basis after the sacking of former Spain manager Julen Lopetgui.

The 42-year-old has since led Real to four wins in four games – the best start of any manager in the club’s history.

Real had to give Solari – or someone else – the job as Spanish rules prevent an interim coach from staying in charge for longer than 14 days.

Solari’s wins in his spell in charge have been against Melilla in the Copa del Rey, Viktoria Plzen in the Champions League, and Real Valladolid and Celta Vigo in La Liga.

In those games, Real have scored 15 goals and conceded two goals.

The club were ninth when he assumed control and they are now sixth, four points adrift of leaders Barcelona.

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Referee’s jaw broken after attack in Irish amateur league

Referee Daniel Sweeney is recovering in hospital after the attack

A referee is recovering in hospital from a broken jaw and other serious injuries after an “appalling” attack by players following a match.

Daniel Sweeney was assaulted after an amateur game in the Republic of Ireland’s Combined Counties League.

Police are investigating the incident – allegedly involving three Mullingar Town players and a fan – which followed the club’s match at Horseleap.

League chairman Sean Montgomery told the BBC he would push for life bans.

“I haven’t come across anything like this before and the league is taking it very seriously. Daniel is a very good referee,” he said.

“I’m told it was a good game of football and Mullingar won 3-1, which is the strange thing about it all.”

Mullingar Town have declined to comment.

It is understood the incident happened in a car park by the ground at Horseleap, County Offaly.

The league is affiliated to the Leinster Senior League, which is one level below the top-tier League of Ireland’s two divisions.

Montgomery said it was only the second time during his three years in charge – after a minor previous incident – that a referee in the league had been targeted.

But the Irish Soccer Referees Society (ISRS) said the safety of officials across the country was a growing area of concern.

“We are shocked and appalled in equal measure with the vicious assault on one of our members after this game on Sunday,” said ISRS president Paul O’Brien.

“He’s had his jaw broken on both sides, another break higher up and has a broken bone below the eye, plus stitches in his nose.

“We wholeheartedly condemn any violence in our beautiful game. We believe there is no place for violence, intimidation or abuse of any official.

‘Referees should be given protection’

O’Brien said “assaults and abuse are on the increase” and called for action to tackle the problem.

“There is a chronic shortage of referees in the country. Anyone interested in refereeing would be turned off completely on viewing the image of our assaulted member,” he added.

“Without referees there is no game. We, as referees, should be viewed as a resource and in turn we should be given the protection and respect we deserve.”

Police officers from the Gardai’s Tullamore station were called to Horseleap’s ground shortly before 13:00 GMT on Sunday.

“It’s understood a match referee, a male in his 50s, was physically injured when a disturbance broke out,” said a spokesperson.

“The injured man was taken to Tullamore Hospital by ambulance for treatment. His injures are not thought to be life threatening. No arrests have been made to date and enquiries are ongoing.”

Anyone with information is asked to contact Tullamore Garda Station on 00 353 57 932 7600.

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The Real Housewives of Atlanta recap: Porsha doesn’t need answers, she just needs diamonds

Last season, between Porsha, Cynthia, and Shereé, half of the Real Housewives of Atlanta were very into their houses — need I remind you of the mid-level mini mall complete with a massage parlor and a sad, empty bar in Chateau Shereé? — while not technically being…wives.

But in season 10, these women are going broke for matrimony, especially Porsha. Shereé had her invisible jailbird boyfriend last season, and Cynthia pretended to date that guy who perhaps had a whole other girlfriend, but Porsha was truly, truly single for the first time in a long time. And while I support any woman’s decision to be an independent radio host/hair product entrepreneur who don’t need no man (just the constant assistance of her sister even when she’s 14 months pregnant), I do love watching a currently coupled-up Porsha wiggle all over the place, acting like a cocker spaniel puppy in love.

Oh, certainly, Porsha’s five-month (allegedly) leap to being 100 percent sold on marrying a man is ill-advised. This man is lying about something, and she’s either being willfully ignorant about it, or just her regular brand of accidentally ignorant. But after being fired, getting re-hired, causing a number of physical altercations, throwing around false drugging allegations, and being cast out by most of the main cast in season 11, dating Dennis somehow seems to have turned Porsha into RHOA’s leading peach.

Probably because she’s the only one doing anything interesting. NeNe’s current life is, of course, compelling, but it’s difficult to watch the Leakes come to terms with the reality of Gregg’s cancer. Compare that to the easy, breezy, lover-girl status of watching Porsha try to convince her boyfriend that it’s completely normal that she uses his toothbrush every day, or the reveal that he left their Miami hotel room for four hours in the middle of the night and came back drunk. That leads to their first ever argument, which Porsha continues to categorize as being just about a toothbrush.

When we first check in with Porsha and Dennis they’ve just arrived in Miami for her birthday weekend, and the RHOA editors are trying to make us think Dennis is about to propose even though his knee isn’t even flinching in a downward direction and he’s holding a box the size of a Walkman. To Porsha’s dismay, Dennis is only gifting her with a Rolex, and later, a diamond Cartier cross necklace.

But the real gift is to us: watching these two weirdos sit 100 feet across from each other at the dinner table like a Victorian-era arranged royal marriage. Well, I should rephrase: Porsha is a weirdo. Dennis is just sort of…silent? He speaks only at a whisper and shares very little personal information, including last week when he said he knew Kandi. When Porsha asked how they knew each other, he said he didn’t know. The man is suspect for sure, but he does like to give diamonds, and Porsha sure does like to receive them.

Porsha tells Dennis that NeNe keeps asking her questions about him that she’s never even asked herself, like where he went to school or if he’s been married before. PORSHA. Do you remember that time you married a manipulative, secretive creep by mistake? Maybe asks some questions before you use an elaborate package delivery clipboard scheme to trick this question mark of a man into signing a marriage license.

Alas, I am speaking into a void here, and Porsha simply has to Porsha. “I ain’t ask none of this shit!” Porsha says. “I just been enjoying my good man. There’s probably some other bitch been asking all these questions and she probably somewhere by herself.” Ah yes, as that old saying goes: the opposite of loneliness is obliviousness.

The night ends, as far as we know, with Porsha talking Dennis out of going to the club by flinging her bountiful form across the bed instead. In the morning, while getting ready for the day ahead, Porsha asks Dennis to go get her “a toothbrush and an underarm shaver.” All of my friends have been really into taking that New York Times dialect quiz recently, and I feel as though “what do you call the tool you shave with” could be a question, except for the small fact that everyone in the English-speaking world calls it a razor, save Porsha, who calls it an “underarm shaver.” Anyway, Dennis delivers in the underarm shaver front, but the toothbrush is too soft to appropriately clean her “big ass teeth.”

Dennis doesn’t express any discernible vocal objection to Porsha’s resulting aggressive campaign to use his toothbrush, but he also doesn’t give up the location of its coveted hard bristles. “I use it every day at home!” Porsha cries. She doesn’t understand why she can’t use it now, and I don’t understand what the hell is happening. Because all of a sudden when Porsha can’t find the toothbrush, she looks at Dennis much less playfully and says, “You wanna argue? Cool. We gonna argue about something real … So, where was you last night?”

I know every relationship is different, but ignoring the fact that your boyfriend disappeared in the middle of the night for most of the morning, only to have it explode out of you because he wouldn’t let you use his very personal hygiene item is…new to me! Dennis’ telling response to the question regarding his 2 a.m. whereabouts: “Huh?

He soon elaborates that his homeboy is staying at the same hotel so, “We came back here and we was kickin’ it.” Porsha asks if he was just downstairs, why did he stay out for hours and come back to the room drunk? Dennis says he wasn’t drunk and he was only gone an hour, but Porsha says she knows from her text messages that he left at 1:30 a.m. and she checked to see if he was okay at 4:30 a.m. Excuse me, that’s 4:30 a.m. and your boyfriend isn’t home, and he’s not giving you any answers, and you don’t even know what college he went to or if he’s one of those adults who’s super into Disney World or if he votes?!

(Recap continued on next page…)

NeNe, Kandi, Cynthia, Phaedra, Kenya, and Claudia keep the ATL just peachy.

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