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"If It Bleeds, We Can Kill It" - Top Performing Hedge Fund Manager Compares China To The Predator
It is no accident that over the years, and especially in the past few months, we have been profiling what in our opinion is one of the few, truly worthy hedge funds, Horseman Global, which despite (or maybe due to) being net short stocks since the start of 2012 (and long bonds), has outperformed 99% of its peers and has generated tremendous returns during its lifetime.
Just last month, in "Short For Three And A Half Years And Outperforming 98% Of Traders: This Hedge Fund Did It", we explained how in July the fund generated a 7% return, just as all the beta-levered, momentum-monkey, hedge fund hotel residents were losing steam.
One month later, and following a ghastly August in which virtually everyone lost money, the $2.5 billion Horseman was up a whopping 9.4%, and is now up 17.7% for the year.
And no, you can't allocate the funds you redeemed from Ackman to Horseman at this moment: "Due to a high level of interest in the fund, we are again soft closing the fund. Any investment into the fund will need approval."
But it was not easy, as the following story from Russel Clark, Horseman's CIO, recounts in the fund's monthly letter.
Being bearish on China for the last few years has reminded me of the 1987 action classic "Predator". In the film, a special ops force are ordered on a mission to an unnamed South American jungle.
However, while trying to complete their mission they are slowly hunted down by an alien creature. At each stage, they think they have managed to trap it, but it continually defies anything any of them have seen before. It moves and lives in the trees! It can turn itself invisible! It has infra-red and heat vision! It has a shoulder mounted laser rifle! Needless to say most if not all of the members of the team succumb to its abilities....
For bears, much like the alien in Predator, the Chinese government has continually used special abilities that were previously unknown. The first surprise came in 2008/9 when China embarked on an immense stimulus program, where decade's worth of infrastructure investment was fast tracked to counteract the global slowdown, a punishing period for anyone short at the time.
Eventually, the infrastructure boom came to an end, and there seemed to be an excess of housing in the market. Many funds were bearish on Chinese property developers in 2011, only to see the government promote housing investment. Many property stocks, went on to rally 300% or more. Your fund had been short property names, but having been caught on the wrong end of policy before, managed to avoid getting caught in this attack on bearishness.
Then in 2014, with the real exchange rate of the Renminbi surging as both Japan and Europe devalued their currencies via Quantitative Easing, it seemed that China was running out of options. If they cut interest rates to promote growth, then they would have to devalue. And yet, somehow the government was able to manufacture a stock market boom. This meant that capital that would usually leave China as interest rates were cut stayed in China to participate in the stock market.
Bearish investors in China had been picked off relentlessly and seemingly effortlessly by the government and the central bank. But then just as suddenly, the stock market started to sell off and the pressure on the currency began to build. This led to the small devaluation we saw in the Renminbi in August.
The People's Bank of China ('PBOC') has fallen into a classic emerging market trap in my view. There was some pressure on the exchange rate, but they were unwilling to raise rates to defend the currency, so chose to devalue. However, as they wished to promote stability they devalued by a relatively small amount, in the hope that this will reduce capital outflows.
In this they are completely wrong. The small devaluation will do nothing for the export sector, but creates huge amount of fear in the investing public, that has previously assumed the exchange rate was "safe". Contrary to reducing pressure, the small devaluation will actually increase the capital outflow, and the pressure on the exchange rate. If the PBOC had really wanted to reduce capital outflow, it would have needed to move the exchange rate much more significantly.
In my experience, in the mind of the international investment community, small devaluations tend to encourage even more capital outflow, which in turn leads to even larger devaluations. Or to borrow a line from Predator, "If it bleeds, we can kill it".
In the movie, the Predator dies.
As for the punchline, Clark goes out in style: "Your fund remains long bonds and short equities."
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China is really caught between a "rock and hard place" with respect to their interest rates.
Look at the size and terms of these S/T reverse repo operations. The PBoC is obviously trying to hold liquidity together without further destabilizing rates internally, through dropping RRR and/or lending rates again.
Reducing liquidity requirements for banks further (RRR) scares the shit out of investors = outflows accelerate.
Reducing rates means less premium on risk= outflows accelerate.
Time for an Anderson Cooper 2 hour special; "Social isolations of the LGBT QiGong community amongst extreme exchange rate volatility.", co-hosted with Brian "I was there when Jesus was born and have the pics on my iWatch to prove it" Williams
Knuks, has Brian Williams turned into Roger Ailes "unofficial" poster boy for Fox News attacks on Trump, or what?
next week you're liable to see is Charles Krauthammer being thrown down a flight of stairs by Trumps "head of security". ;-)
Brian Williams and Anderson Cooper
having sex on the front steps of the
PBOC.
Now, THERE'S a scene that Faux News would drool over
having a scoop on the rest of the MSM.
Bleeds for Five Days and Doesn't Die.
Anderson Cooper - the see eye aye's top g*y agent should do a 2 hour special with Tim Cook on their g*yness.
Sad - Gloria Vanderbilt's other son (Anderson's brother) should have survived and Anderson should have been nail gunned in a bath house.
At least their gene pool will end there hopefully.
"Reducing liquidity requirements for banks further (RRR) scares the shit out of investors = outflows accelerate."
"Reducing rates means less premium on risk= outflows accelerate."
i think you're on to some tangents here. the political landscape is what scares internal investors who is known to keep stashes out of reach. their recent year mass prosecution had been a major catalyst due to change of hands at the helm.
reducing rates effect is minimal considering foreign investments have been under control only broadened in the past year or two yet still under great scrutiny. thus the outflow isnt in majority foreign capital.
What does Whoopi Goldberg have to do with this.
agree that the devaluation would have needed to be much much greater to have any effect on demand. i still can't figure out wtf they are trying to accomplish over there.
It's not the lack of exchange rate policy affecting demand, it's that the rest of the world is slowing dramatically which has out sever downward pressure on Chinese exports, regardless exchange rates.
We have to keep our senses about us and not fall into the trap of assuming that any problems have been caused by China.
China is the canary in the coal mine.
The rest of the world badly needs a straw man upon whom to lay their own problems, their very own economic failures of monetary and fiscal policy which manifest in slowing demand for Chinese goods and services, and in turn, raw materials (commodities) to make the stuff nobody is buying right now.
China is the global patsy.
And if they want to devalue, then just let it rip. They've nothing to lose by doing so. Things can't get appreciably worse.
China sits down at a poker table with
US
Russia
Germany
They play a few hands.
China is down a few,
well, more than a few chips.
China says
"Well, who's the patsy here, anyway?
US looks at Russia,
Russia looks at Germany,
All three look at each other,
and then all three look at China through half-closed eyes.
Russia says,
"Well, if you don't know by now . . . . ."
The Communist mistake was to build products to cheap and to well.. not enough has broken down and the warehouses are full of their products. Live and learn, as cheaper product should be cheaper for a reason.
If the world doeasn't start buying, they will change their manufacturing 'American style' and make war products, then we will have to start worrying.
Allright I'm gonna get this outta my system right now. GET TO THE CHOPPA!!!!!!
Ben Bernanke's Helicopter Money!
We're all gonna die. [/Billy]
https://www.youtube.com/watch?v=SvDC3TQ2lLM
Nice! It never hurts to include a predator analogy. "El Diablo cazador de hombres. Only in the hottest years this happens. And this year, it grows hot!"
https://www.youtube.com/watch?v=wgzxSr6l9Y4
Yeah, but it's a dry heat !
The Clash - Rock the Casbah
http://www.youtube.com/watch?v=bJ9r8LMU9bQ (3:39)
In the movie, the dying Predator hastens the end, committing suicide by nuke because it is the only chance to destroy the creature (Arnold) that has bested it.
I believe the ChiComs will have a rewrite of the ending
Plenty of meat for a series though.
In the movie an evil interspecies predator camouflages itself and prowls among men undetected.... you only get to see it exposed seconds before you die.
But Arnold outruns the nuke. Because - well, it's real & stuff...
One of those small portable nukes?
The kind that could take down buildings when aviation fuel (kerosene) could not melt iron and steel?
That's called thermite or "cutter charges". It's commonly used in controlled demolition along with other explosives, it melts steel into molten metal in key locations and that metal can stay molten for a long time. It is also used to "weld" railroad tracks.
Strange for a self-proclaimed anti-establishment blog, ZH has been consistenly following the memo on all and everything China.
China is going to launch a RMB denominated oil futures contract soon. Even Reuters has a story on it. Do u hear a beep in ZH?
China may have lured and shorted its own market (from the peak, not thereafter) to entrap foreign capital. Do u hear any analysis from ZH?
Perhaps there is some truth behind the ownership rumor?
You had me at "Predator".
Me too, the last one was pretty good too.
https://www.youtube.com/watch?v=cK3aJIB1-EM
Is it just me or does the Predator bear a striking resemblance to Jack Ma?
Predatory sales Banksters would say something just like that.
Competitive instincts and sociopaths is not a good mixture.
All stupid jewish Psy-ops...you forgot to mention, Hoseman Global is owned by the Jewish cabal.
Why hide between layers of mathematical formules, profit and loss, markets, economy when one could just clear it all with a single word JEW.
STOP THE PSY_OP of some people are smarter than the others con. When its all owned by a single tribe.
No Jews in China. Nobody can change their name from Cohn to Kerry or Kong and pass for a native.