Soros Goes To 75% Cash As Fed No Longer Telegraphing Trades

Tyler Durden's picture

Earlier today we saw what happens to investment banks when the Fed no longer clearly telegraphs its intentions vis-a-vis which asset has to be frontran (see Goldman post earlier). It is not just banks. In the absence of the Fed semaphore, it turns out even such "legendary" hedge funds as Soros' $25 billion Quantum are about as clueless as everyone else. Bloomberg reports that "the fund is about 75 percent in cash as it waits for better opportunities, said the people, who asked not to be identified because the firm is private." The reason: "“I find the current situation much more baffling and much less predictable than I did at the time of the height of the financial crisis,” Soros, 80, said in April at a conference at Bretton Woods organized by his Institute for New Economic Thinking. “The markets are inherently unstable. There is no immediate collapse, nor no immediate solution." But, but... what about relative and fundamental value, pair, cap and M&A arb? What about long-term investment opportunities in the growth of the world? What about arbing the so-called business cycle? Are none of those strategies worthy of investment? Or has ubiquitous central planning made the only profitable trade simply frontrunning the Fed's beta wave with as much leverage as possible? What's that you say? Yes? Thank you, the defense of formerly fair and efficient markets rests.

From Bloomberg:

Louis Bacon’s Moore Capital, with $15 billion in assets, cut risk as its flagship Moore Global hedge fund dropped 6 percent this year through June 30, with all the declines coming in May and June, according to investors who asked not to be named because the New York-based fund is private. Spokesmen for Soros and Moore declined to comment.

Funds such as Moore’s and Soros’s, which chase macroeconomic trends by buying stocks, bonds, currencies and commodities, have been the worst performing hedge-fund strategy this year. They fell 2.25 percent through June 30, according to Chicago-based Hedge Fund Research Inc., as managers made losing bets that the euro would fall against the dollar and that the yield on U.S. Treasuries would rise. Some managers also got caught when prices for oil and other commodities dropped in May.

The biggest macroeconomic managers aren’t the only ones hesitant to make large wagers. The proportion of asset allocators, including hedge funds, with lower-than-average risk across their portfolios jumped to a net 26 percent in June from a net 15 percent in May, according to the survey by Charlotte, North Carolina-based Bank of America.

The aversion to risk is reflected in trading volumes. Trading in the 50 companies in Goldman Sachs Group Inc.’s index of stocks most commonly owned by hedge funds fell to 4.11 billion shares in June, the lowest monthly level since August 2008, according to data compiled by Bloomberg.

Here is Bloomberg coming as close as it ever will to bashing the same central planning that pays the bills for all the 130,000 or so Bloomberg terminal clients:

Part of the uncertainty stems from the fact that so much of what happens in global markets is dependent on government actions, which can distort prices and affect supplies.

“Most of our funds are in an uncomfortable position in that the fundamentals are bearish, but the governments are intervening,” said Harold Yoon, chief investment officer at Hong Kong-based SAIL Advisors Ltd., which invests in hedge funds on behalf of clients. “Instead, managers have focused on tactical trading; shorting when markets are getting bullish and then covering into panic-driven selling.”

Yes, we all lament the days when capitalism was not skewed, when risk/return was not distorted, and when the Fed's crony interests were not the only ones that were pursued. We also lament that absent a major revolution, these will never come back.