Opening Bell: 12.19.17

UBS has some 'splaining to do in Puerto Rico; hedge funders may get a nasty surprise come bonus season; money markets are going haywire; the returns on everything; Bob Dylan's Christmas lights; and more.
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Broken bonds: The role Wall Street played in wiping out Puerto Ricans' savings (CNBC)
A CNBC investigation found that UBS was not forthcoming about the extent of the risks of those bond funds from both its clients and brokers, even as the values of the funds plummeted. By the end of 2012, more than $10 billion in assets were invested in UBS' bond funds. That represented about 10 percent of the island's gross domestic product at the time. Today, those investments have been nearly wiped out.

Hedge Fund Managers Expect a 39% Bonus Bump (BBG)
Hedge funds climbed about 6 percent through the end of November, compared with a 2.8 percent rise for the full year of 2016, according to indexes tracked by Hedge Fund Research. “With assets not substantially increasing and with fees continuing to be under pressure, it may be wishful thinking that the bonus pools would have swelled so considerably,” Anthony Keizner, partner at Odyssey, said in an email.

Money Markets Are Going Haywire, Blame the Government (WSJ)
The sudden swings in the money markets and the spillovers into government debt show that banks aren’t responding in the way the regulators want. Instead of being less complex, better capitalized and smaller all year, banks are being managed to the targets set in the rules for December 31. That isn’t good for the financial system in the run-up to New Year, but it is utterly predictable for anyone who has ever looked at how humans respond to numerical goals.

An analyst downgraded Apple stock because of 'historical patterns' (BI)
"The shares fell 41% after the iPhone 5 launch and 27% after the iPhone 6. The shares obviously recovered, though only after approximately 20 months in each case," the note reads. "We argue this cycle is not different; we do not expect the services business or tax reform to be sufficient to flout the historical pattern."

CalPERS adopts new asset allocation increasing equity exposure to 50% (P&I)
CalPERS' investment committee approved a new asset allocation plan on Monday that is fairly similar to the current allocation, with the equity allocation rising to 50% from 46%...Real assets, which includes real estate, will keep its 13% allocation, while private equity remains at 8%. CalPERS' liquid portfolio, made up of cash and other short-term instruments, will fall to 1% from 4%.

A Bitcoin Hedge Fund’s Return: 25,004 Percent (That Wasn’t a Typo) (NYT)
Mr. Morehead said there is a chance that the value of a Bitcoin could plummet to zero, given how early and undeveloped the technology still is. He said he tells investors to put only around 1 percent of their net worth in virtual currencies. But he thinks that 1 percent could do very well. “There are a lot of famous people who have said Bitcoin is a joke,” he said on Monday. “They might be right. But if they are wrong and it goes up 25 times, they are missing out on a huge trade.”

Why you can’t cash out pt 1: Why Bitcoin’s “price” is largely fictional (David Gerard)
The singular “price” of Bitcoin doesn’t exist — it’s a made-up number. It’s not a number you could expect to exchange a bitcoin for — it’s an average of the last sale price on a bunch of exchanges. (CoinDesk’s index uses Coinbase, Bitstamp, itBit and Bitfinex. Followers of crypto will have just exclaimed “what!” at that last one.) If you look at the spread between exchanges — the different prices for one interchangeable bitcoin — you’ll see spreads of hundreds of dollars, and in volatile moments it can be in the thousands. RELATED: CEO of cryptocurrency play up 1,000% in 2 days to $3.1 billion: 'This market cap is not justified'

The rate of return on everything [except cryptos] (Marginal Revolution)
Risky assets such as equities and residential real estate average about 7% gains per year in real terms. Housing outperformed equity before WWII, vice versa after WWII. In any case it is a puzzle that housing returns are less volatile but about at the same level as equity returns over a broader time span. But equity and housing gains have a relatively low covariance. Buy both!

A Critical Analysis of Bob Dylan's 2017 Xmas Lights (Vice)
Nine years ago I noticed that Bob Dylan, who has a residence in my neighborhood of Malibu, California, had begun to decorate the hedge outside his vast estate with a single string of Christmas lights. Immediately I was taken by his decidedly casual approach to seasonal decorating. The display was made all the more distinct by the fact that the dominant style of decorating in the rest of the neighborhood could be characterized as “four Star restaurant courtyard.” The more I stared at his work, the more it spoke to me. “I was put here by someone who didn’t want to waste time doing this,” is what it seemed to say.

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