Domestic Fund Formation It is a simple process to enter the hedge fund industry; practically anyone with $15k to $20k can start a hedge fund and forming a hedge fund gets easier every year.
Offshore Fund Formation An offshore hedge fund is simply a structure used by hedge fund managers as a way to attract offshore investors (non-U.S. citizens) or U.S. tax-exempt investors such as pension and endowment funds.
Thursday Watch
Evening Headlines 
Bloomberg: 
  • Yuan Turns Worst Emerging Carry Trade as PBOC Stokes Volatility. The yuan has gone from being the most attractive carry trade bet in emerging markets to the worst in the space of two months as central bank efforts to weaken the currency cause volatility to surge. The yuan’s Sharpe ratio, which measures returns adjusted for price swings, turned negative this year as three-month implied volatility in the currency rose in February by the most since May, when the Federal Reserve signaled plans to cut stimulus. The exchange rate tumbled the most since 2010 on Feb. 25 amid speculation the People’s Bank of China was intervening to deter one-way bets on currency gains.
  • Mersch Says Renminbi May Challenge Dollar’s Reserve Role. China’s renminbi might one day challenge the role of the U.S. dollar as the world’s leading reserve currency, European Central Bank Executive Board member Yves Mersch said. “Having become an important trading and payment currency, the renminbi is now taking the first steps toward establishing itself as an international investment currency,” Mersch said in a speech at Luxembourg’s Renminbi Forum yesterday. “Due to the size of China’s economy and its importance in global trade and, potentially, finance, the renminbi might ultimately come to challenge the U.S. dollar” as a leading reserve currency.
  • Hong Kong Editor in Press Freedom Row Critical After Attack. The former chief editor of a Hong Kong newspaper, whose removal from his post led to protests over press freedom in the city, was critically injured after being slashed with a knife by assailants on a motorbike today. The attack on Kevin Lau, chief operating officer at a unit of Media Chinese International Ltd. (685) and former chief editor at Ming Pao Daily News, happened days after at least 1,600 demonstrators held a march to express concerns that media freedom is being eroded. 
  • Most Chinese Stocks Fall, Led by Energy, Material Companies. Most Chinese stocks fell, led by energy and material companies. The Shanghai Composite Index (SHCOMP) slipped 0.2 percent to 2,037.66 at 9:37 a.m. local time. The CSI 300 Index (SHSZ300) lost 0.1 percent. The Hang Seng China Enterprises Index (HSCEI) declined 0.4 percent.
  • Aussie Drops With Sydney Stocks; Gold Slides With Corn. The Australian (GACGB10) dollar weakened against major peers and shares in Sydney dropped after private investment fell the most since 2009. Gold held a decline from a 17-week high on speculation the Federal Reserve will continue stimulus cuts while emerging-market currencies declined. 
  • Copper Drops to 12-Week Low on Signs China’s Growth Is Slowing. Copper slipped to the lowest price in more than two months amid concern that China’s growth is slowing and as stockpiles rose in the biggest user. The contract for delivery in three months retreated as much as 0.5 percent to $6,994 a metric ton on the London Metal Exchange, the lowest level since Dec. 4 and traded at $7,012.25 by 12:21 p.m. in Tokyo. Futures are down 0.8 percent in February, poised for a second monthly decline.
  • Goldman’s(GS) Gmelich Likens Junk Loans to One-Way Freight Train. Investors who have been pouring money into funds that purchase leveraged loans need to be wary of a reversal in demand, according to Justin Gmelich, the head of credit trading at Goldman Sachs Group Inc. “It’s been a bit of a one-way freight train,” Gmelich said in a question and answer session, posted on the company’s website yesterday. “I would just caution those that are involved in the loan space to be mindful of the fact that they’ve been beneficiaries of inflows for 88 straight weeks and the tide can turn.” The floating-rate debt, which offers a shield for investors from rising rates, has seen unprecedented demand with the funds that purchase the debt receiving deposits every single week since the summer of 2012. That enabled speculative-grade companies to raise $676 billion last year of bank debt, with more than 80 percent of that used to escape maturing debt deadlines, according to data compiled by Bloomberg. 
  • Vale Posts Record $6.45 Billion Loss After Brazil Tax Accord. Vale SA (VALE5), the world’s largest iron-ore producer, posted a record quarterly loss after settling a decade-long tax dispute with Brazil. Vale’s fourth-quarter net loss widened to $6.45 billion, or $1.25 a share, from a net loss of $2.62 billion, or 51 cents, a year earlier, the Rio de Janeiro-based company said today in a regulatory filing. Earnings before interest, taxes, depreciation and amortization, or adjusted Ebitda, rose to $6.64 billion, beating a $5.9 billion average estimate by 17 analysts compiled by Bloomberg.
Wall Street Journal:
  • Bradley A. Smith: Connecting the Dots in the IRS Scandal. The ‘smoking gun’ in the targeting of conservative groups has been hiding in plain sight. The mainstream press has justified its lack of coverage over the Internal Revenue Service targeting of conservative groups because there’s been no “smoking gun” tying President Obama to the scandal. This betrays a remarkable, if not willful, failure to understand abuse of power. The political pressure on the IRS to delay or deny tax-exempt status for conservative groups has been obvious to anyone who cares to open his eyes. It did not come from a direct order from the White House, but it didn’t have to.
MarketWatch.com:
CNBC:
Zero Hedge:
  • Russia Responds To US Warning: Expands Military Presence Globally. Shortly after the US warned Russia over its “provocative actions” with regard Ukraine… RiaNovosti reports defense minister Sergei Shoigu saying Russia plans “to expand permanent military presence outside its borders by placing military bases in a number of foreign countries,” including Vietnam, Cuba, Venezuela, Nicaragua, the Seychelles, and Singapore. “The talks are under way, and we are close to signing the relevant documents,” Shoigu told reporters in Moscow.
Business Insider:
Reuters:
  • Brazil central bank raises interest rate to 10.75 pct. Brazil’s central bank raised its benchmark interest rate on Wednesday to 10.75 percent from 10.50 percent, slowing the pace of monetary tightening to avoid hurting an economy that is flirting with recession. Thirty-four of 47 economists polled by Reuters last week expected the bank to raise its benchmark Selic lending rate by 25 basis points to 10.75 percent. The rest expected another 50-bps increase.
  • Transocean(RIG) profit slides on lower rig demand. Transocean Ltd, owner of the world’s largest offshore drilling fleet, said on Wednesday that fourth-quarter profit fell 49 percent from a year ago, hurt by lower rig utilization. The company’s net profit attributable to controlling interest fell to $233 million, or 64 cents per share, from $456 million, or $1.26 per share, a year earlier.
  • Turkish Prime Minister targeted in second audio tape. A second audio recording, presented as the voice of Turkish Prime Minister Tayyip Erdogan asking his son not to accept an amount of money on offer in a business deal but to hold out for more, was published on YouTube by an anonymous poster using a pseudonym on Wednesday. Erdogan said a similar post on the video-sharing site on Monday, allegedly of him telling his son Bilal to dispose of large sums of cash as a graft investigation erupted, was faked by his political enemies.
  • East and West face off over Ukraine’s Crimea. Waving the Russian flag and chanting “Russia! Russia!”, protesters in Crimea have become the last major bastion of resistance to Ukraine’s new rulers. President Viktor Yanukovich’s overthrow on Saturday has been accepted across the vast country, even in his power base in the Russian-speaking regions of eastern Ukraine. But Crimea, a Black Sea peninsula attached to the rest of Ukraine by just a narrow strip of land, is alone so far in challenging the new order.
Shanghai Securities News:
  • China Economy May See More Volatility in 2014. China’s economy in 2014 is very likely to see more quarterly or even monthly volatility because of the occurrence of new economic and financial factors, such as Internet financing and shadow banking, citing Lu Lei, head of Guangdong University of Finance, as saying. Central banks need to avoid “too quickly” changing direction in monetary policy and should us micro-tools to make economy more stable, Lu said.
Evening Recommendations
 Morgan Stanley:
  • Rated (MS) Overweight, target $76.
  • Rated (WNC) Underweight, target $12.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 137.0 +1.0 basis point.
  • Asia Pacific Sovereign CDS Index 103.0 -.25 basis point.
  • FTSE-100 futures -.22%.
  • S&P 500 futures +.23%.
  • NASDAQ 100 futures  +.36%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (SFY)/.12
  • (ZEUS)/.14
  • (VRX)/2.06
  • (RDC)/.41
  • (CECO)/-.44
  • (CQB)/-.30
  • (KSS)/1.54
  • (SHLD)/-1.82
  • (ZLC)/1.04
  • (HLT)/.16
  • (BBY)/1.0
  • (ROST)/1.01
  • (GPS)/.65
  • (MTZ)/.51
  • (JOE)/-.01
  • (TUMI)/.29
  • (AIRM)/.32
  • (SLXP)/.93
  • (MNST)/.46
  • (CRM)/.06
  • (SFM)/.06
  • (OVTI)/.35 
  • (DECK)/3.79
  • (WEN)/.10
  • (DYN)/-.23
  • (CHS)/.15
Economic Releases
8:30 am EST
  • Durable Goods Orders for January are estimated to fall -1.7% versus a -4.3% decline in December.
  • Durables Ex Transports for January are estimated to fall -.3% versus a -1.6% decline in December.
  • Cap Goods Orders Non-Defense Ex Air for January are estimated to fall -.2% versus a -1.3% decline in December.
  • Initial Jobless Claims are estimated to fall to 335K versus 336K the prior week.
  • Continuing Claims are estimated to rise to 2985K versus 2981K prior.
11:00 am EST
  • The Kansas City Fed Manufacturing Activity Index for February is estimated to fall to 2.0 versus 5.0 in January.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed’s Yellen speaking, Fed’s Lockhart speaking, $29B 7Y T-Note auction, Japan CPI/Manufacturing PMI, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Stifel Industrials Conference, (STT) analyst forum, (HBI) investor day, (BJRI) analyst day and the (CR) analyst conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by consumer and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

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