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"Emerging Markets Are On The Verge Of Liquidation" Top Performing Hedge Fund Manager Warns; "QE4 Is Coming"
Until recently, John Burbank's Passport Capital was one of the top 15 performing hedge funds in 2015. Recent events have only led to an even higher YTD P&L making Burbank one of the top performing managers of 2015: the $2.1bn Passport Global fund was up 14.6% at the end of August and the concentrated "special opportunities" fund was up 30.6%. The reason: in recent months Passport placed numerous commodity and emerging market shorts: trades which have generated substantial returns even as the rest of the "hedge" fund peanut gallery blamed either Bridgewater, or - in the case of Bridgewater - blamed the Fed.
Burbank did not blame anyone, and instead shorted the one company we said in March of 2014 would be the best bet on China's collapse: Glencore. He has made a killing since, with both GLEN CDS soaring, and its stock price crashing 55% in 2015 alone to all time lows.
More apropos, having accurately foreseen the current events instead of just levering up on even more beta and praying the BTFDers return and bail out his underwater positions, Burbank's opinion actually matters as does his outlook on what happens next.
What he foresees is not pleasant.
In an interview with the FT, Burbank said years of QE had caused a misallocation of capital across the world, while the end of QE last year triggered a dollar rally with consequences that were only now beginning to be realized.
"The wrong people got the capital — emerging markets countries and corporates and a lot of cyclical companies like mining and energy, particularly shale companies — and this is now a major problem for the credit markets," he said.
Thank the Fed for that: it was so obvious that 7 years of ZIRP and QE would lead to epic capital misallocation we have been warning about it year after year, most explicitly in April 2012 when we previewed the surge in buybacks and M&A at the expense of capex spending and actual organic growth. Eventually, when enough capital flooded the entire world, even Saudi Arabia had no choice but to directly engage the US shale sector which, ironically, is the main reason why the US is on the verge of a recession.
Back to Burbank who warns that "the world economy is locked on a course towards an emerging markets crisis and a renewed slowdown in the US, regardless of the Federal Reserve holding off on a rise in rates last week." He adds "that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy."
So with commodity prices dead-cat bouncing in mid 2015 only to tumble anew, alongside the S&P which fell after the Fed decision, are emerging markets, whose MSCI EM index is up 9% since the Black Monday lows, out of the woods?
Not at all: according to Burbank investors are "not recognising the risks... and Passport was not pulling out of its bearish bets."
The dollar rally caused by “asynchronous QE” — the early end of money printing in the US relative to Japan and the eurozone — and the economic fallout from a slowing China guaranteed a financial crisis in emerging markets that would rebound on the US, he said.
Burbank's conclusion:
"All of that turmoil around the world will come back and slow down capex and hiring and consumer buying in the US, and that will make the Fed realise they should be easing and not hiking,” he said. "I think we are on the precipice of a liquidation in emerging markets, and this feels the way that the fourth quarter of 1997 felt."
But more QE will not only not fix anything, it will only make the EM bubble - currently in its pre-bursting phase - even bigger as it promptly crushes the dollar, which just shows how terrified everyone truly is of just biting the bullet and finally undoing years and decades of central bank-driven capital inefficiencies and the biggest global asset bubble in history. No wonder hedge funders around the globe, both the worthless and the successful ones, are desperate for more Fed generosity.
Of course, there is what the Fed "should" do, and what it will do. We completely agree that the Fed will ultimately unleash QE4 - we have said it since December 2013 when the Fed first announced the tapering of QE3.
The only question is with QE4 (and/or NIRP) inevitable, what is the right trade: if the Fed has indeed lost its credibility, more QE4 would be the final nail in the market's coffin, and lead to a collapse in the dollar and the commencement of helicopter money. To be sure, it may result in a brief spike in stocks, but just like last Thursday, that "briefness" lasted all of 60 minutes. Alternatively, the spike may last, just like in Venezuela - the Caracas stock market has been vertical for years now; sadly the problem is that courtesy of local hyperinflation, there is no economy in which to use the proceeds from selling stocks.
So with faith in the Fed and fiat about to evaporate, we only wonder: is Burbank buying GLD... or actual gold.
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who the fuck is this guy?
another guy making billions using 'strategies' utilized by a room of PHD geniuses tapping violently into their trading terminals each day
The Fed already told us that their QE toy didn't work. They want new toys, I think its going to be banning cash and implementing significantly negative rates. Now with one of the most influential people in the world, that happens to be a policy setter for one of the worlds reserve currencies, suggesting the E Dollar, that may be the way they go.
Nirp is a non-starter.
Get your pitch forks ready.
Piss on'em
NIRP could force the TBTF banks to deploy their gifted QE fiat that has been setting in reserve collecting taxpayer subsidized vig.
Completely agree.
This guy is clueless, or else, doesn't know Americans.
It is already over; and I think even the Fed understands this. We're just waiting for the event to happen, but happen it will, I still think before the end of this year.
Think about it.
The Fed can't raise rates because international circumstances preclude it. Those international circumstances won't get better, and neither will we.
At the same time, I GUARANTEE that it also goes up the day they even attempt a QE4. That's out of the question; the decimated working class already hammered with debt, no income growth, income disparity, lousy jobs, and YEARS of listening to recovery bullshit that isn't so, while seeing a tiny handful live it up, won't EVER put up with more still.
Just won't happen.
And if any one seriously thinks that NIRP is even remotely possible in this country, you need a shrink badly.
First bank that charges a customer to make a deposit in a debit account will be sorry they ever got into the banking business, I assure you.
We are neither Greece, nor Cyprus.
Whom ever is mulling that one over better think again...
m
Agreed. NIRP will lead to bank runs as people finally realize that the world as we know it is done. We've been passive for too long.
Who keeps offering 100 blocks of QQQ for 999999.99 so that VWAP gets skewed on the upside?
Then I see a massive block of orders come through every single exchange simultaneously to the millisecond with an offer 20% out of the money?
Nothing to see here just the daily little guy beating..
Let them try. It won't work without capital controls on top of it. People will buy any and all goods that can be treated as a substitute currency.
thats as dumb as forcing everyone onto bitcoin, when not everyone has a computer or the savvy to securely use it.
helicopter money is easier, however less preferable to some oligarchs
Edollar- velocity of money will collapse
Helicopter money - velocity increases.
That simple
The E dollar can have a significant negative rate. Why exactly would you think money velocity would drop?
"Thank the Fed for that: it was so obvious that 7 years of ZIRP and QE would lead to epic capital misallocation we have been warning about it year after year, most explicitly in April 2012 when we previewed the surge in buybacks and M&A at the expense of capex spending and actual organic growth."
Non, no, no things will fall apart because we've reached "Peak Resources" TM. You used up all the finite resources. It's YOUR fault.
You were warned to recycle!!
NIRP ???????????????????
So that means the US will be making money on it's 18 trillion debt?
So the more it goes into debt the more it earns, so it just should borrow a trillion trillion trillion dollars and be able to fund it's entire budget off the interest alone ????????????????
Doesn't make sense.
Who the hell is going to pay the US for the privilege of lending them money ???????????????????
Ask the Germans
he isn't buying bullion gold......one guy like him buying in quantity and this ponzi show goes nuclear
Have you met our friends, the Chinese?
"who the fuck is this guy? "
You are gonna be hearing a lot of new names: just like you suddently heard of Paulson and Taleb and a bunch of others that timed revulsion and exhaustion well and made coin back in 2008/09...
Dotcom 2.0 is gonna shake out jsut like last time.
Momo is gonna get Muppetized.
Emerging market will submerge again.
Way too much easy money and serious misallocation of it.
Now that debt-cash goes poof and .GOV comes with the bailouts for the hustlers while you are told to pay up like the contract sez and eat shit.
Stand back, watch -and learn something...
Another Hedge Fudgepacker asking the Federal Reserve to keep his Ponzi operation doors open.
.
QE never stopped, it is just done covertly in a myriad of fraudulent ways
Exactly, Fed is manipulating markets every day, so isn't QE4 already underway??
MSNBC really, really hopes Ben Carson drops out of presidential racehttp://tinyurl.com/o5oox4o
more QE4 would be the final nail in the market's coffin, and lead to a collapse in the dollar and the commencement of helicopter money.
Yes
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
hairball is a Mises "believer"
Barry Soetoro wants to legalize 8.8 million illegals to vote commie democrat for the 2016 POTUS election.
http://www.nytimes.com/2015/09/18/us/white-house-campaign-legal-immigran...
http://www.usdebtclock.org/
IT IS ONLY A MATTER OF TIME, BEFORE A COMPLETE COLLASPE, OR A FORGIVENESS OF ALL DEBT.
115 TRILLION OF U.S. DEBT INCLUDING THE U.S. UNFUNDED LIABILITIES, NOT INCLUDING ALL OF THE DEBT THAT THE FOOL IN THE W.H. PLANS TO REWARD EVERY ILLEGAL ENEMY ON THE PLANET THAT HE CAN SHOVE INTO HAPPY TOWN USA, TO TURN THE COUNTRY INTO A COMMUNIST HELL HOLE RAN BY BLM, MS13, AND THE REST OF NON WORKING CRIMINAL SCUM ON EARTH.
Shhhh, hold it down your gonna wake the baby.
The Spice must flow.
I know most of us have been waiting for this for some number of years. It looks like that moment is finally going to happen soon. Once credibility of the currency starts to go, then off to the races of hyperinflation and the loss of confidence in most western governments.
Meh, nothing that a whole lot of war can't fix.
Well make it a rac e war and we can have fun with it.
That's why this is all being coordinated among various Central Banks. The entire purpose of QE has to be to neutralize the bond vigilantez by taking the bonds away from them and putting them on the CB balance sheets. Defacto control of the bond market, plus having a printing press means the Ponzi is perpetual. Of course this means destroying the currency, but when everyone is destroying their currency, it just serves to again neutralize the bond vigilantez. This is a lock step race to the bottom, and if anyone gets out of line, they get "persuaded" to get back in line. Just see Cyprus and Greece as examples, or Russia, or China, or any of the BRICS. This redistribution of wealth from the masses to the elites will continue until someone big in the club decides not to play anymore... probably out of fear that their masses will revolt. Then the others will "whack" them (war) to try to get them back in line. That's when you will know this is reaching the end game... when sociopaths start feeding on each other, watch out, because it will not end well for anyone.
Someone tell him that BLICS are doing QE non stop... BLICS is a Jim Willie creation!
I think Jim Willie is right. How can the Fed soak up hundreds of billions of treasuries per month without "printing" new cash?
It's good to remember that the fed isn't in the market to make a profit.
That doesn't mean the banks linked don't do but the fed itself doesn't because it can copy it's losses to the US collateral who will work it off in the form of taxes.
And the people who are running the fed can very well be massively short the market and get even more filthy rich followed by a QE when they go long.
Well Duh!
I dont think they ever stopped QE3...this is all rhetoric. They will keep printing money until they cant, and who knows when that will be.
yeah who knows..
I thought it would have been when Japan started running a trade deficit and monetizing 100% of its debt. But nope... The magic just keeps on coming
Students of history will point out that it took 400 years for the Roman Empire to collapse, even after they reached the point we are at right now.
Now, having said that, it is my belief that things happen faster now, primarily because of the speed at which information flows. Even so, we might still be discussing events that may not occur for another 50 or 100 years.
Looking at Japan and other examples, I find myself more and more in the camp of no single, titillating event, but just a slow, steady grind, mostly down, but sometimes up, until ... what? No one is left? No one cares? A whimper, not a bang?
The centre didn't hold,infighting on very large scale,capital moved from Rome,Constantinople,Split even to Spain.the u.s.a.may split,the old dollar replaced all over by NEW dollars in different STATES with different exchange rates.
Yes, but what would have happened with oil production if the shale companies didn't get the loans? Big picture, Mr. Burbank, big picture.
BTFD, I don't know when but QE4 more financial repression is on the way. Arrest Lloyd Blankfein.
You mean the US's CREDITORS are on the verge of liquidation ? That is not a good proposition for US debt.
OT: Anyone else following this story? The 32 yo former hedge fund CEO Martin Shkreli is a real piece of work.
"Drug Goes From $13.50 a Tablet to $750, Overnight"
http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-...
Here a good background article about this guy...
"Meet the millionaire finance bro under attack for raising a cancer drug’s price by 5,000%"
http://fusion.net/story/200779/martin-shkreli-cancer-drug-finance-bro/
The unacceptable face of capitalism.
Dejavu all over again.That was Slater Walker back in the 1970's, today its this little toad.
Smug pos on tv earlier.Needs to be taken on a one way trip down a dark alley.
From the article
Shkreli began his Wall Street career as a 17-year-old intern for CNBC’s Jim Cramer,
He is an unevolved individual. Karma's a bitch.
the fed will buy brics shit from the squid and then it will shit brics. lulz lulz lulz
Duh, a debt based monetary system needs an every increasing supply. QE fourevah. Who woulda thunk
Today was the first day a Fed member openly admitted targeting stocks. We all knew it was happening, but today Bullard came right out and said he watches Cramer and CNBC and the Fed works to push markets higher. Then he added, the Fed is running out of ammo.
Amazing how talk has shifted away from tiny hikes, to more QE may be needed. They know the economy is slowing to a craw and housing is tanking again. Once more here comes the walk-aways and then the bank bailouts. Silicon Valley is in the largest uber mega-bubble in all of history. Property values there are so far away from reality, their return to normal will devestate the whole country. When the Fed was able to push stocks higher, the lemmings gladly went out and bought BMWs, Lexuses and Teslas, just as the bankers had hoped. The mountains of debt meant nothing, we were going to "grow" our way out of it.
Look at empty retail space; overbuilt even more thanks to the Fed. It will be cut in half before this is over, and the banks will demand those bailouts. The bankers say they had no other good options so had to use 'delay and pray'. They are proud of their "successes"...fools and their money. The party is clearly over, all downhill from here. But bears will still get pounded by Fed happy talk all the way down...guaranteed.
Let me be clear, there is no Fed equity market put.
William C. Dudley, NY Fed
Let me be clear that negative interest rates was not something that we considered very seriously at all today. Janet Yellen
But she didn't rule out negative rates categorically, did she?
So how's my PM's looking in a negative rate world?
Still stackin'
hairball
Whats the next collapse date after the shemitah???
I am not really sure what is wrong with giving money to companies that produce a return on the capital that they have been given ... unlike companies such as Facebook, LinkedIn, Twitter (even Google) and the rest of the propped up government data (snooping) collection and data selling companies.
Existing on advertising dollars does not add value to the world. There is nothing wrong with these companies existing, but they are just low level utilities and not value adding ...
You are showing your age
Let's put it this way. Where do you think NBC, CBS, ABC and all others come from Advertising dollars are huge. FB, LinkedIn and others are taking those dollars
Tyler quit posting this shit. Who the fuck is this guy? QE 4 will never happen. The FED is dumb , but not that dumb. This market is full of crap, but please stop your MSNBC. FOX dramatizattions.
wow "your" an idiot
"The FED is dumb , but not that dumb. "
oh! its dumbness is mesured by infinity
sit down
grab some popcorn
and see yourself
you're an idiot... get it right
He's right. The Fed is playing both sides or hasn't anyone noticed.
Isn't the NYFED trading desk pumping orders through Citadel kind of a QE? How about the CME giving discounts to CB's who buy equity futures kind of a QE? How's about CB's fondness for certain heavily weighted (Indexed) US companies a kind of QE? The daily VIX manipulations?
Emerging Markets is just a Wall St acronym for people we havn't stolen from yet.
Peter Schiff has been saying QE4 is coming. He's right again.
Then there will be the 12 little piggies at the Fed threatening to raise rates and will never do it.
Comical!
Bottom line,
Fed can't raise rates and all they have is QE on or QE off. Ever larger amounts of QE as well.
Read one of Krugman's propaganda pieces the other day. I realized that his bullshit level can be directly measured by the number of times he writes 'the evidence'.
The Fed's plunge protection team have been buying stocks en mass via a ghost account at Goldman Sachs to prevent a stock market collapse.. That's why Janet Yellen is terrified of an audit. The Fed is wayyyy outside its mandate.
The Fed's "dual mandate " as they love to call it is near full employment and stable prices. Yet in the next breath they state that they set their policies to obtain 2% inflation.
So Yellen, which is it?
Stable prices or increasing prices?
Tell you what. I wouldn;t want to be these morons in the next few years. They'll be watching their backs like hawks.
Evidence please! This site was originally full of people who actually knew shit instead of just posting their random thoughts.
I wonder if stocks will go up much with QE 4... or just minimally? holding rates didn't seem to boost... Goldman is just holding out for QE4ever
Who wouldn't want QE
Imagine if you go to a Casino and make a really stupid bet and loose. It's a good feeling knowing the concierge will come over and give you back the money you lost and you get to spin again. The Casino doesn't care where the money comes from as long as you still play, a Casino without people to place bets, is just a parking lot.
Prices go up anytime you debauch the currency. The only people who ever realize gains from this nonsense are the broker/dealers.
Bring on QE4, 5, and six. A bullet will go thru the window of the Federal Reserve. Its bound to happen. This is not economic federal reserve recovery, blatant theft in daylight progress.
Bring on QE4, 5, and six. A bullet will go thru the window of the Federal Reserve. Its bound to happen. This is not economic federal reserve recovery, blatant theft in daylight progress.
time to blow off cache. I fucking hate using windows. Blackberry is so much better. Sorry about the two double posts.
If you're investing in emerging markets with the premise that their products will be exported to countries that have consumers that will purchase them, then such consumers actually have to have the means with which to purchase them for your investments to generate returns.
The math here isn't terribly complicated. The Fed took interest from American savers and gave it to investors who put it in emerging markets to chase higher returns. But those returns never manifest because of either political or social risk in those shitholes, or because most consumers in developed markets simply don't have any extra money to consume.
If you were making luxuries, then you probably did ok. But if you were trying to build up large industries to make a bunch of things for mass consumption, then you are getting soaked, because most Americans are now poor. When all the consumers are poor, all your investments to produce things for consumption will fail.
The solution here isn't terribly complicated. Helicopter money drop. Raid hedge funds. 90% top marginal tax rate. Put Glass-Steagall back in place.
Or we could continue the self-harm and demand more austerity and neoliberal reforms/neocon warmongering and see how close to the stone-age we can return ourselves to before someone in power has a moment of clarity.
the Caracas stock market has been vertical for years now; sadly the problem is that courtesy of local hyperinflation, there is no economy in which to use the proceeds from selling stocks.
Not quite so. There is no value to the cash proceeds from selling stocks. In Weimar, the stock market was vertical up for years and the value of money was vertical down. So you'd make a wheelbarrow of money on your stocks and trundle it out of 'Change to buy a loaf of bread.
Markets do not exist in their own right; they are supposed to represent the value of the underlying companies and the state of the economy.
Companies provide real products and services into that economy.
Companies take raw materials and make them into products.
Cheap oil = collapsing global economy
Low commidity prices = lack of demand for raw materials from which real things are made
QE and low interest rates may have kept markets up, but the real economy is collapsing.
Maintaining the penthouse suite while the foundations are crumbling.
Central Banks policies just aren’t working, there is no point in more QE.
For reality to overwhelm the system when QE is in full swing would be their worst nightmare and show them to be the fools that they are.
Our benevolent, A.I., HFT machine overlords aren't going to like us not playing along with NIRP.
Jim Willie right? That would be a first.
Those of you who think the dollar is going to crash crack me up. Have you even looked at the other currencies and their govt liabilities?