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Dan Loeb Now A Bear? "We Have More Single Short Names Than Long Positions In Our Book Today"
In recent months we have seen one after another hedge fund mogul and asset manager turn decidedly bearish: first it was Carl Icahn warning that the market will crash when central bank credibility finally runs out, then David Tepper suggested two months ago that a proper multiple for this market is 16x instead of the current 19x, and then most recently, Sam Zell bet the peak of the housing bubble has arrived when a week ago he dumped 23,000 apartment units to Starwood, in a deal that was a carbon copy of what he did just before the 2007 bubble burst.
Then over the weekend, we found that Dan Loeb is the latest who, after getting hit by the market and losing 8.9% in Q3 and 4.5% YTD according to this October 30 letter, has decided the central bank liquidity-driven rally may have overstayed its welcome and not only derisked by one third but added so materially to the short side that his short bets now outnumber his long ones.
First, some top level perspective from Loeb on the two biggest variables for the global economy: China and the Fed.
- A weakening China, where the new question is not whether but how severe the slowdown of the world’s foremost growth machine will be. In August, we saw for the first time the limits of the Chinese government’s ability to manipulate the economy as animal spirits triumphed over central planning. While the situation has stabilized somewhat since, the downside scenario for China seems more intimidating than ever before;
- Janet Yellen may have inadvertently checked herself and the Fed into the Hotel California. It is increasingly difficult to see how the Fed can justify raising rates in 2015, particularly considering recent employment weakness in the U.S. (an unwelcome surprise) and similar softness in manufacturing figures. Unlike the concerns that weighed on the Committee earlier in the year – that a rate hike might damage the fragile environment outside of the U.S. – recent data undermining consensus U.S. growth assumptions requires different analysis. If the U.S. consumer is weaker than had previously been believed, the Fed needs to be careful not to push the world into a recession. Ms. Yellen cannot afford to get this wrong;
So in addition to the previously reported new holdings by Third Point in Baxter and Japan's Seven & i, how is Loeb's booked positioned at this moment:
Despite a difficult quarter for our portfolio, we are optimistic about what we own: a mostly U.S.-centric, concentrated portfolio of event-driven names and structured credit. We understand the macro and market challenges to the overall investment environment. We do not see indicators of a looming U.S. recession and so, while volatility is likely here to stay and multiples may be capped, we are seeing some compelling value opportunities in stocks. The environment for short selling is also attractive and we have more single short names than long positions in our book today. We have reduced our net exposure by nearly a third through sales and new shorts over the past few months while maintaining significant positions in our highest conviction, event-rich names. The conviction to keep and add to our core healthcare names during the selloff enabled us to re-establish ourselves on positive footing this month.
So "more single name shorts than longs." Why?
Investors feel there is no longer a monetary safety net, as a tidal shift in fund flows from central banks has removed the “Fed put”, creating headwinds instead of tailwinds.
That may be but not quite yet: consider the recent barrage of "all in" central bank easing, which has seen the PBoC cut, the ECB preview QE2, Sweden add to QE, and the BoJ promising to add easing "if necessary" in just the past two weeks, and even the Fed is now mostly expected to do nothing until well into 2016. Ironically, it will be the ongoing squeeze of the shorts - both Loeb's and everyone else's - that is the primary driver of the historic meltup in the S&P over the past month, which got its green light with the terrible September jobs report.
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I know how this ends. Market rallies, the shorts are forced to cover, squeezing us to new ATH's and then the top will be in.
I call shenanigans. More short names than long names, but still 95% long by buying the index.
Was thinking the same thing. Single name shorts are rifle-shot bets. Whether that corrsponds to the position of his overall portfolio is a different question entirely.
As long as you don't try shorting any magic stocks like Apple you can pretend to play the market.....
Enjoy the pain train Dan Loeb. And also, fuck you.
Wow, Loeb will be thrown under the bus just as badly as Gartman. Unless this announcement is a ploy in his game theory and typical HF disinformation.
Good luck going against Goldman(The FED, CFTC, SEC), BOJ, JP Morgan, etc
All these exceedingly smart people turning bearish, hmm.... what to do..., what to do? I know..., BTFD.
icahn, tepper, zell, loeb...
Who are 4 people who have never been in my Church?
But the market keeps going up.
How's that working out?
Options work as a brake in the stockmarket.
When you short stocks, calls are sold and stocks are reserved. And if there is to much shorting, volume drops because of the reservations.
They can tip the scale by selling naked shorts but if the market does rise even in scenario 2, you'll see people jumping from rooftops and the shortsueeze becomes epic like the VW shortsqueeze in 2008. And selling naked shorts would be obvious right now so when it would be done, people would buy that stock like crazy triggering a epic spike.
Same thing for calls but the other waynarround.
So options stabelize the market en prevent heavy volume spikes.
And now, there's to many shorts. They could sell naked shorts but with a lower volume that is goddamn risky as hell and you need to be a moron to do so now.
So: the market needs to rise, half the shorts need to cover and then a crash becomes possible.
Isn't this the same member who recently got knocked off his high-horse after slinging self-righteous hash at Goyim Buffet - or was it somebody else...?
Why should And Bloe (anagram)) impart his investment wisdom thusly to the great unwashed? I smell bullshit.
Maybe "da jooz" are trying to confuse us?