Chart Of The Day

Last year the stock market was flat, but tons of hedge fund managers got creamed, as many traditional strategies totally failed.

And the reason those strategies failed is that the correlation between various asset classes had risen to all-time highs, and when everything is moving the exact same way, it doesn't matter how good you are at selecting stocks, or deciding between asset classes. It's very frustrating.

Yesterday's Chart Of The Day looked at the big drop in correlations so far in 2012, but this chart from Nomura (via @dutch_book) is even more remarkable.

We've instantly gone from one of the highest-ever correlation environments to one of the lowest.

This signals a big break in the level of market panic, and it also means the market could theoretically present lots of big, fat juicy pitches for investors to swing at (they still have to hit the ball, of course).

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One of the big issues with investing in 2011 was elevated correlations across risky financial assets.  In other words, asset classes like stocks, corporate bonds, and commodities were moving up and down, hand-in-hand.

Correlations were particularly high within the stock markets.

High correlations make it incredibly difficult for investors and portfolio managers to diversify away risks.

However, after hitting historic highs in 2011, correlations within the stock market have plummeted to historic lows.  This is according to new research published by Oppenheimer's Chief Investment Strategist Brian Belski.  From a note to clients this mornng:

From our perspective, portfolio tracking error for most money managers has been relatively low over the past several years and understandably so since high stock correlations (Chart 1) virtually eliminated the reward for having more aggressive portfolio positions. However, 2012 has been an entirely different story as correlations have fallen dramatically with current levels near their lowest levels in over the past 25 years. This is particularly interesting considering January’s strong market performance, which implies that while some stocks had very strong gains, others had very weak gains—a sharp divergence from performance patterns exhibited toward the end of 2011.

So, what does this mean?

Belski notes that stock picking has become important again.  In other words, active management strategies –as opposed to passive strategies (ie indexing)–will offer additional value.  From Belski's note:

Since we believe that current stock correlation trends are likely to persist throughout the year, it is important for investors to place additional emphasis on active investment strategies, in our view. In fact, we continue to believe that those investors that focus on proper stock selection will be the ones to ultimately be rewarded.

Belski reviewed the performance of various active management benchmarks since 1990 and noted that most strategies outperform passive strategies during periods of low correlation.

SEE ALSO: The Best And Worst Stock Pickers On Wall Street >

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• CHART OF THE DAY: Hedge Fund Managers Should Be Thrilled To Death Over This
• At The Last Moment Greece Seems To Have Canceled Its Own Deadline For Austerity Negotiations
• European Stocks, US Futures Fall As Greek Debt Negotiations Stall

Madonna will perform at halftime of today's Super Bowl, continuing a trend of aging musical performers in recent Super Bowls. While performers in their 50s used to be rare, it is now the norm.

From 1992-2003, a span of 12 seasons, the average age* of the Super Bowl halftime act was 38 years old. But in the Super Bowl following the 2003 season, the infamous "wardrobe malfunction" occurred in which Justin Timberlake exposed the breast of Janet Jackson.

In the eight Super Bowls since, including Madonna who is 53, the average age of the halftime musical performers has been 55 years old.

* Age is based on the average age of all performers. In cases where a band a distinct lead singer (e.g. Bruce Springsteen and the E Street Band) only the age of that member was used.

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• SPORTS CHART OF THE DAY: Has 'Spygate' Impacted The Patriots' Success?
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• The TRUTH About Spending Thousands Of Dollars To Go To The Super Bowl

The New England Patriots are favored by three points in Super Bowl 46, but it seems as though all of the so-called experts are picking the New York Giants.

One way to get a sense of which team has played better football this season, and which team has been better leading up to the Super Bowl, we can look at point differentials. That is, what is the difference between the points these teams are scoring and how many points their defenses are giving up.

Below is a week-by-week look at the cumulative point differentials for both Super Bowl contestants. Clearly, the Patriots have been the better team this season (the Giants were actually outscored during the regular season). But since week 15, both teams have been nearly identical...

All data via Pro-Football-Reference.com

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See Also:

• SPORTS CHART OF THE DAY: Has 'Spygate' Impacted The Patriots' Success?
• The Packers Are The Early Favorites To Win Next Year's Super Bowl
• Did The Giants Purposely Take A Penalty For Having 12 Players On The Field?

Facebook revenues are decelerating. That is the reason why we don't think the company is actually worth $100 billion. It's more like $75 billion, and that's if you're optimistic.

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• CHART OF THE DAY: Facebook's IPO Could Make Zuckerberg One Of America's Ten Wealthiest
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In a new note, Spyros Andreopoulos at Morgan Stanley takes a big picture look at central bank balance sheets, and what he calls the "coming of age" of QE.

Whereas at first, central banks use their balance sheets surgically -- e.g. unthawing specific markets -- it's not the dominant strategy for the Fed, the Bank of Japan, the Bank of England, and the ECB to expand their balance sheets broadly at any sign of trouble or deflation.

It's now to the point where there collective balance sheets are nearing 36% of GDP.

Andreopoulos writes:

Normative considerations aside, what will actually happen? Central bank balance sheets are likely to remain bloated for a long period of time – indeed, the balance sheet expansions might even end up being quasi-permanent.

First, even if all goes smoothly and the recovery proceeds slowly but surely, it will probably take central banks many years to exit, even if you discount the fiscal dominance argument. Asset sales would have to proceed with the utmost caution – indeed, risk-aversion implies that central banks would rather err on the side of caution and sell too little, too late – just one of the reasons why we are worried about inflation in the long term. Second, if (i) the recovery remains bumpy, with more growth scares; and/or (ii) we revert to recession at some point over the next few years, it seems almost certain that balance sheets will be deployed again. So, in the near-to-medium term, the only way for balance sheets seems to be up. Finally, because of the possibility of economic shocks, the unwind of balance sheets might even take the shape of ‘two steps forward, one step back’. That is, unless we are wrong in the above and balance sheets can indeed be reduced rapidly, a balance sheet reduction that’s on the way could be interrupted by a large deflationary shock, which necessitates renewed expansion, and so on.

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• CHART OF THE DAY: Actually, There Was Some Awesome Jobs News Today
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Today is national signing day in college football. And for many of these kids, their decision will at least partly be based on which school offers them the best shot at someday playing in the NFL.

Meanwhile, the players in this year's Super Bowl once had to make their own decisions on where to attend college. And surprisingly, no school produced more of this year's Super Bowl rosters than Boston College (6). LSU and Florida are next on the list with five each.

Here are all the schools with at least three players in the Super Bowl (data via ESPN.com)...

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See Also:

• The Packers Are The Early Favorites To Win Next Year's Super Bowl
• Did The Giants Purposely Take A Penalty For Having 12 Players On The Field?
• SPORTS CHART OF THE DAY: Has 'Spygate' Impacted The Patriots' Success?

Information about Facebook's 2011 revenues and operating profits leaked last week, just ahead of this week's expected IPO filing.

If CNBC's reporting is accurate, the numbers are disappointing for a company that's supposed to be valued at $75 billion to $100 billion when its shares start trading.

Revenues came in at $3.8 billion, less than an expected $4+ billion. Operating profits were $1.5 billion, less than an expected $2 billion.

Facebook's results look particularly disappointing in comparison to Google's first seven years of business. We've drawn out that comparison below. 

The comparison is actually worse than it looks. Remember, Google was born at time when Internet usage, and online ad spending, wasn't even half of what it is today. 

The fact is, Facebook is a huge consumer hit – 850 million people us the site each month – but it's ad products are not, really. 

Google's ad products are business magic. Consumers see ads for products that they literally want to see. 

So far, Facebook hasn't found that kind of magic. Investors looking at Facebook's S1 filing this week will have to wonder if it ever will.

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See Also:

• CHART OF THE DAY: Facebook's IPO Could Make Zuckerberg One Of America's Ten Wealthiest
• CHART OF THE DAY: Here's Facebook's Next Big Business
• Mark Zuckerberg's Dentist Dad May Be Worth ~ $60,000,000

Maybe Robert Shiller—who just told us that there's no housing rebound on the horizon—is right.

His own housing index, the Case-Shiller Home Price Index, came out this morning, and it will dash the hopes of people who think we're on the cusp of a rebound.

After a little blip upwards, prices resumed their downward slide in November.

Depressing.

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See Also:

• CHART OF THE DAY: Actually, There Was Some Awesome Jobs News Today
• CHART OF THE DAY: The Age Of Permanent QE
• CHART OF THE DAY: When Obama Runs For Re-Election, This Is The Chart He Will Use

With his win in the semifinals of the Australian Open, Rafael Nadal continued his domination over Roger Federer, improving his career mark to 8-2 against Federer in the Grand Slams. But by losing to Novak Djokovic in the finals, Nadal's grand slam pace falls even further behind Federer, who has won 16 in his career.

Djokovic has now won the four of the last five Gran Slam events, including the last three in a row. As a result, Nadal has just one Grand Slam win since 2010 and is now three titles behind Federer at the same age*.

Here is a year-by-year look at how this generation's three greatest players compare by age...

* Age is based on age of player on July 1st of that year.

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• SPORTS CHART OF THE DAY: How The Patriots Blew A Super Bowl Win
• SPORTS CHART OF THE DAY: Super Bowl Halftime Acts Have Gotten Old Since 'The Wardrobe Malfunction'
• Former Tennis Star Anna Kournikova Just Sold This Beautiful Miami Beach Villa For $7.4 Million