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The Recent Liquidation Avalanche As Explained By Dan Loeb, And Why He Is Back To Shorting Stocks Again
From Dan Loeb's latest letter to investors:
Before October, both market corrections and rallies back had been quick and dramatic this year. We feared that there had been a paradigm shift until the last few days, but it now seems the market may be continuing this established pattern. Pinpointing the cause of the initial sharp market movement downward is conjecture at best. Daniel Kahneman, the Nobel Laureate Economist and expert in heuristics, has written extensively about the dangers of our tendency to attribute causation to associated events. Keeping his research in mind, we caveat our explanations for October’s correction and volatility.
In early October, a confluence of events transpired in relatively short order, including weaker economic data, political uncertainty, a potential global plague, and bureaucratic meddling, which caused fear to spike, sentiment to decline, and investors to de-leverage. The month got off to an especially rocky start for hedge funds when a court dismissed a claim in connection with the Fannie Mae/Freddie Mac GSE complex. Many investors were oversized in this trade and their forced selling kicked off the “de-risking” cycle. Next, oil prices declined sharply and many funds who had large positions in E&P companies suffered enormous losses. Then last week, AbbVie halted its announced inversion transaction with Shire, inflicting great pain on the arbitrage community. Opaquely blaming mysterious “meetings with the Treasury Department”, AbbVie walked away from an entirely lawful deal that it had touted as enormously accretive and strategic as recently as two weeks ago, incurring a substantial $1.6 billion break-up fee. A rational conclusion is that instead of a legislative solution that might require comprehensive tax reform, this Administration has decided to unilaterally curb inversions using whatever means are available. Needless to say, this regulatory uncertainty (along with prior detours from the rule of law) will be a wet blanket on top of investors until transparency and a level playing field are restored to the markets.
Amidst this unwind, our analysis showed us that while some fear was warranted, some was exaggerated, and so we took steps to mitigate volatility and simultaneously take advantage of the market mayhem. Over the past week, after initially reducing our exposures, we realigned our portfolio by lifting hedges, taking on new positions, and re-establishing investments in companies we had previously exited at much higher prices.
Going forward, we expect that the US will remain the best place to invest, credit opportunities will stay slim, and large cap opportunities with a constructivist angle will become more promising. Although consensus has shifted to lower growth, slower inflation, modest rates, and continued monetary expansion, we think the markets will resume an overall upward trajectory in the US through year-end.
Amidst this volatility and performance dispersion, we struggle with our instinct that it is a good time to short stocks with the reality of the past few years of short-selling carnage. We were intrigued by investment legend Julian Robertson’s recent comments that, “we had a field day before anyone knew anything about shorting. It was almost a license to steal. Nowadays it’s a license to get hosed.” There is no doubt that the complexities around single name short selling have increased massively following 2008 – partly as a function of government regulation and intervention, partly due to negative rebates being the norm – but we have slowly been getting back in to the shallow end of the pool.
Full letter:
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That you Gartman?
Dan Loeb versus the printer.....in a Thunderdome death match.
Thanks Dan for your opinion.
Another skimmer. Sheesh.
pods
This idiot is going to the ruined if he follows his own advice.
Yup. I'd like to see the "other Letter" to this True Friends: fellow skimmer-men.
IOW: "Do as I DO, not as I SAY." Nudge, nudge, ;-) ;-)
Good luck with that. Old Yeller will have her way with you too, then she'll bake you some cookies to make you feel all better.
Step right up..... and get fleeced!
good points, but in the end you are just another pro gambler that is missing life...
wouldn't want to be you and all you aspire for, bunch of fake bullshit to be "somebody" special in the investment world... haha looser...
MBA mortgage application index out this morning
+11.6% week over week ... bullz rejoice
uh, not so fast
PURCHASE mortgage apps declined 4.8%
REFINANCE mortgage apps grew 23.3%
purchase apps sucked despite -
"The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.10 percent, the lowest level since May 2013, from 4.20 percent, with points increasing to 0.21 from 0.17 "
another reason why rates can never go up. Trillions in low yield mortgages.... pay a saver 3%, and have mortgage paper at between 3 and 4 no way.
When I tell my friends I will only buy a property, all cash payment, for about 30K, they laugh at me... for now.
i'm with you
higher rates will do 2 things ... blow up the collateral for $trillion in mbs (underwater homes) ... dry up the refinance market (banks make a lot of fee hay on refinances) ... might as well shut down lending operations if interest rates rise very high
"will be a wet blanket on top of investors until transparency and a level playing field are restored to the markets", well, there you go.
Dear Dan,please don't feed the FED !!!
“we had a field day before anyone knew anything about shorting. It was almost a license to steal. Nowadays it’s a license to get hosed.”
words never so true
last go round (before liquidity onslaught) my first short was december 2007 (ultimately start of recession) ... added to them thru spring of 2008 ... it was quite painful as i was still underwater in september 2008 ... got the payoff in the october blow up ...
i'll never short again (don't want to be at the mercy of Bullard et al)... just wait on the sidelines and pick thru the rubble when market finally blows
shorting the market......ahhh more kindling to set a fire
Oh pleeease. Yes, go short when fundamentals no longer matter. When all that matters is the next big Fed announcement, and when the Fed has all but “guaranteed” the markets. Go short when massive stock buybacks with cheap Fed $$ are all the rage, and when companies are laying off workers to help the bottom line. He is right and still completely wrong, UNTIL the day arrives that the sheeple lose faith in the Fed. When bad news just means more intervention, bears get gored time and again. Why sell when the Fed will fix everything? He is going to fight QE4,5 and 6? If he knows the day the money printing party ends, then he is one smart guy.
"When I tell my friends I will only buy a property, all cash payment, for about 30K, they laugh at me... for now."
As they should. You're fucking insane to carry 30k in cash.
The recent volatility will one day be laid at the feet of one simple fact, and forget all about all the other B.S. like this piece, about "liquidation".
OPTIONS EXPIRY day, which, with new weeklies, is more true than ever.
The galactic amount of manipulation in so many segments of the stock and other markets will not be believed. Only the tip of this massive iceberg is visible.
that is why rates are not allowed to rise.
I'm still stuck with the fundemental belief that the Fed must eventually lead the dollar to the hyper inflationary water. May be later rather than sooner but I think I'll just wait over on the side lines.
Needless to say, this regulatory "uncertainty" (along with prior "detours from the rule of law") will be a wet blanket on top of investors until "transparency and a level playing field" are restored to the markets.
uncertainty / detours from the rule of law / transparency - all mean: being in the room with 4 other guys and Hank Paulson when he poses hypothetical alternative Fed actions (all former GS).... for transparency at the end of the day - TRANSPARENCY - IS DEFINED AS ....inclusive for those who are anointed for deliverance of subjective truth.
the RULES are ...there are no fuckin rules....mothafucka!
get with the fucking program - ask Hank Greenberg - what happens when they want your cake? even you Loeb are subject to the same Rules!