"Emerging Markets Are On The Verge Of Liquidation" Top Performing Hedge Fund Manager Warns; "QE4 Is Coming"

Tyler Durden's picture

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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Chad_the_short_seller's picture
Chad_the_short_seller (not verified) Sep 21, 2015 6:03 PM

who the fuck is this guy?

thegazzman's picture

another guy making billions using 'strategies' utilized by a room of PHD geniuses tapping violently into their trading terminals each day

Captain Debtcrash's picture
Captain Debtcrash (not verified) thegazzman Sep 21, 2015 7:19 PM

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. 

ArkansasAngie's picture

Nirp is a non-starter.


Get your pitch forks ready.


Piss on'em

Fahque Imuhnutjahb's picture

NIRP could force the TBTF banks to deploy their gifted QE fiat that has been setting in reserve collecting taxpayer subsidized vig.

Md4's picture

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...


Huh Reeeally's picture

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.

cnmcdee's picture

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..

ZeroPoint's picture

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.

Squid-puppets a-go-go's picture

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

Captain Debtcrash's picture
Captain Debtcrash (not verified) Squid-puppets a-go-go Sep 21, 2015 7:52 PM

The E dollar can have a significant negative rate. Why exactly would you think money velocity would drop?

Advoc8tr's picture

not everyone has a computer or the savvy to securely use it.

MalteseFalcon's picture

"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!!

BringOnTheAsteroid's picture

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 ???????????????????

kliguy38's picture

he isn't buying bullion gold......one guy like him buying in quantity and this ponzi show goes nuclear

Tortfeasor's picture

Have you met our friends, the Chinese?

ThroxxOfVron's picture

"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...

Atomizer's picture

Another Hedge Fudgepacker asking the Federal Reserve to keep his Ponzi operation doors open.

Perimetr's picture

QE never stopped, it is just done covertly in a myriad of fraudulent ways

Bloppy's picture

Exactly, Fed is manipulating markets every day, so isn't QE4 already underway??




MSNBC really, really hopes Ben Carson drops out of presidential race


SWRichmond's picture

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.


hairball48's picture

“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"

JD59's picture

Barry Soetoro wants to legalize 8.8 million illegals to vote commie democrat for the 2016 POTUS election.





JD59's picture




Fahque Imuhnutjahb's picture

Shhhh, hold it down your gonna wake the baby.

SgtShaftoe's picture

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. 

NotApplicable's picture

Meh, nothing that a whole lot of war can't fix.

SDShack's picture

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.

Kavklov's picture

Someone tell him that BLICS are doing QE non stop... BLICS is a Jim Willie creation!

explosivo's picture

I think Jim Willie is right. How can the Fed soak up hundreds of billions of treasuries per month without "printing" new cash?

Sudden Debt's picture

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.


coast's picture

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.

Spitzer's picture

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

MisterMousePotato's picture

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?

Ancientkarma's picture

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.

Hohum's picture

Yes, but what would have happened with oil production if the shale companies didn't get the loans?  Big picture, Mr. Burbank, big picture.

q99x2's picture

BTFD, I don't know when but QE4 more financial repression is on the way. Arrest Lloyd Blankfein.

Spitzer's picture

You mean the US's CREDITORS are on the verge of liquidation ? That is not a good proposition for US debt.

Max Cynical's picture

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"



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%"


Winston Churchill's picture

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.

Freddie's picture

From the article

Shkreli began his Wall Street career as a 17-year-old intern for CNBC’s Jim Cramer,

Phat Stax's picture

He is an unevolved individual.  Karma's a bitch.

buzzsaw99's picture

the fed will buy brics shit from the squid and then it will shit brics. lulz lulz lulz

booboo's picture

Duh, a debt based monetary system needs an every increasing supply. QE fourevah. Who woulda thunk

Temerity Trader's picture

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.

buzzsaw99's picture

Let me be clear, there is no Fed equity market put.

William C. Dudley, NY Fed