Gaming The Goldilocks?

Let's start with "gaming", i.e., the game theory, according to Jeff Saut of Raymond James on Monday:

Nevertheless, we think the upside should continue to be driven by “game theory,” which suggests that the under-invested institutional portfolio managers have to buy stocks into year-end driven by their under-performance, their subsequent “bonus risk,” and ultimately their “job risk.” Verily, many of the portfolio managers we know remain under extreme pressure to commit their outsized cash positions in an attempt to “catch up” to their benchmarks between now and year-end ...

State Street Global Markets, the investment research and trading arm of State Street Corporation, yesterday released the results of the State Street Investor Confidence Index^® for November 2009. Among others it reported:

Global Investor Confidence fell by 7.6 points to 100.8 from October’s level of 108.4. The most pronounced decline was evident among Asian investors, where confidence fell 4.1 points from 95.3 to 91.2. In other regions, confidence was somewhat more upbeat. The risk appetite of North American investors was largely unchanged, ticking up 1.1 points from 101.1 to 102.2. European investors struck a somewhat more optimistic note, and their confidence rose 3.7 points from 101.8 to 105.5. A reading of 100 in the Index represents a neutral level where institutions are neither allocating towards nor away from risky assets.

Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. It is not a survey, but rather fact-based. The index is based on a financial theory that assigns precise meaning to changes in investor risk appetite. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

“Across all regions, institutional investors are largely treading water; neither increasing nor reducing their aggregate holdings of risky assets,” commented Froot. “However, the aggregate figures mask some country- and region-specific views...

Click on chart to enlarge, courtesy of State Street.


Fed's FOMC Minutes yesterday almost promised the continuation of the sweet Goldilocks fairy tale.

The real institutional money so far seems rather neutral for games. Send the clowns in to play the game? Why those Goldilocks and charts by Japanese candlestick watchers remind me too of 2007?