SAC's record $602m fine not the worst

Hedge fund giant SAC is unlikely to be displeased with having to cough up $602 million to settle charges of insider trading in Elan shares.


Hedge fund giant SAC is unlikely to be displeased with having to cough up $602 million to settle charges of insider trading in Elan shares.

Regulators had alleged that trading in Elan shares prior to the results of clinical drug trials in 2008 represented the “most lucrative insider-trading scheme ever charged”.

The $602 million fine is a record, but almost half – $276 million – relates to the disgorgement of illegal profits and avoided losses from the Elan trades. Additionally, such fines can sometimes qualify for tax deductions. SAC – which is headed by Steve Cohen, who is worth an estimated $8.8 billion – has admitted no wrongdoing.

As online tabloid DealBreaker headlined: “SAC Capital Thrilled To Be Paying Largest Fine Ever For Insider Trading.”

US markets are at all-time highs. Is the sixth-biggest bull market since 1929 driven by fundamentals or easy money?

Bulls note earnings growth – up 129 per cent since March 2009 – is almost identical to market gains. But Bespoke Investment Group notes one-third of market gains have come on days of policy announcements by the Federal Reserve. The S&P 500’s cyclically adjusted PE ratio (Cape), which averages earnings over a 10-year period, is discomfiting. It stands at 23, almost double its 2009 low of 12, and well above its 16.5 historical average. Bull markets that rely most on an expansion in PE ratios subsequently experience deeper bear markets than average. In fact, US markets are now so overheated that GMO, headed by investing guru Jeremy Grantham, estimates negative returns for large-cap stocks over the next seven years.

Merrill Lynch ’s latest monthly survey of global fund managers shows just how skittish investors can sometimes be.

Last November, a net 34 per cent were under-weight Japanese equities.

Now, following a 45 per cent rally, they’re most overweight Japanese stocks since 2007.

The number of dollar bulls has surged 30 per cent in one month, with a net 72 per cent now expecting a dollar rise over the next year – the highest reading in the survey’s history.

Last June, following market falls, managers’ cash levels hit their highest point since January 2009.

Today, a net 57 per cent are overweight equities, the highest number in more than two years.

However, risk appetite actually fell slightly, said Merrill.

Additionally, cash levels, having fallen for six consecutive months since June, have remained steady at 3.8 per cent in 2013 – still short of the 3.5 per cent level that triggers Merrill’s tactical sell signal.

Jack Schwager, author of the iconic Market Wizards books, is in myth-busting mode in his latest work, Market Sense and Nonsense.

Examining 55 investment “misconceptions”, he argues markets are difficult but not impossible to beat; “experts” are no better than a dart-throwing chimp; volatility does not equal risk, with low-volatility investments frequently high risk in nature; best-performing fund managers often go on to seriously underperform; unleveraged portfolios are potentially riskier than leveraged portfolios; and price moves often cause the news, not vice-versa.

Schwager is particularly strong on risk-return metrics, although many readers will drift off as he explores Sortino ratios and other arcane tools.

Actress Mila Kunis told CNBC she is rotating out of cash into stocks and “internet-based companies”.

With US markets at all-time highs, there’s been chatter that this might be a quirky contrarian sell signal.

In November 2007, model Gisele Bündchen famously asked to be paid in euros, having seen the euro appreciate from $0.88 to $1.45. The euro topped out within months, and today sits at $1.29.

More recently, US celebrity Kim Kardashian tweeted how high-flying Apple had become the most valuable company in history – just prior to a swift 37 per cent swoon.

One lesser-known actress, 16-year-old former Desperate Housewives star Rachel Fox, is promoting day trading at Trained by her mother, she made 338 day trades last year, returning 30 per cent. Beginner’s luck? Just maybe.