The "Most Bearish Hedge Fund" Capitulates: "We Are Beginning To Close Parts Of Our Short Book"

Tyler Durden's picture

One month ago we reported that having successfully avoided a calamity for most of 2016 despite being massively net short, somewhere to the tune of around -90%, at times rising as high as -105%, Horseman Globa, finally had a bad month. In fact, losing -12.80% in November the hedge fund which we previously dubbed "the world's most bearish hedge fund" due to its staggering net bearish bias, had just suffered its worst month in history as "the short book, the bond book and the forex book lost money."

And, with just one month left in the year, we wondered if Horseman, which was down over 16% in the first 11 months, would also have it worst year ever, outpacing the -24.7% return in 2009.  We now have the answer, and it's no... but just barely. After a 7.81% drop in December, Horseman Global has closed the books on 2016 with a 24.03% net loss, its second worst in history.

So what happened? Instead of paraphrasing, here is the answer straight from the horse's mouth.

* * *

Horseman Capital December Letter by Russel Clark, CIO


Your fund lost 7.81% net this month to end the year down 24.03% net.


So how did a year that started so well end so badly? Since the Trump election, we have lost money in currency, bonds, and the short book. But in total over the year, we have made money in bonds and currencies. The real losing trade for 2016 has been short equities.


The losses in the short book came during two periods. The first was in February and March of this year. The bear market in commodities and emerging market had a huge reversal, and they have continued to rally all year. The fund held on to these shorts for a while, but in March decided that the dollar was in a weakening bias, and closed emerging market and commodity shorts, and in fact reversed Brazilian short positions to go long. The flip side of this was to move the fund to European and Japanese short positions, and to be long Euro and yen.


This strategy worked well into Brexit, but with the Trump election, the previously well performing short book in Europe and Japan as well as airlines reversed. Unusually, a strong dollar has also been accompanied by higher commodity prices and bond proxies have held up despite the selloff in bonds.


Shorting has been hard this year. I would say that most of my shorts have been down 30% at some point this year, but the majority have finished the year much higher. A good proxy for this would be the Dow Jones Transport Index. This was down 16% for the year in January. From the lows, it has rallied as much as 48%, to close the year up 20%.


One of the reasons that I run the fund the way that I do is that I do believe that a Chinese financial or currency crisis (probably both at the same time) seems inevitable. The implications of this to me have been that commodities would do badly, deflation would become prevalent, and exporters to China would suffer. Given the unreliability of Chinese data, I feel it right to be bearish on China as long as its banks continue to trade sideways to down, as they have done since 2011.


For many years, I have been able to play into market trends that would also do well in a China crisis. But suddenly, with the election of Trump, the broader market trends are all the opposite of how you want to be positioned in a China crisis. Higher commodity prices, higher US yields, and cyclicals over staples. One answer would be to go to cash and wait it out. The problem with this is that, if you believe that a Chinese crisis is inevitable then what would be the signals to begin to put on a China crisis trade? The answer would be capital flight from China, rising Chinese yuan deposit rates in HK (as this is a commercial rate, not set by the PBOC), and increasing market talk of capital controls. Unfortunately, these are all happening today.


I prefer using non-equity market indicators in deciding whether to close a short or not. And most of the non-equity indicators I look at tell me to be net short. However, I do not like to short a sector, market or stock where the 200 day moving average has begun to trend higher. Most of my shorts were well behaved prior to the Trump election, but with the move in the markets, that is no longer true.   


So despite what I think, we are beginning to close parts of our short book. We have largely exited airline related shorts. We have also closed staple shorts, as they were largely there to protect against a fall in yields, which they did to a degree. We have also closed many developed financial shorts to make some space for Chinese financial shorts. We have also reduced the bond position and moved much of in to German bunds. The majority of the bund position is in 5 year bunds, the buy case I made a few months ago.


2016 has been a chastising year. The sharp move higher in yen, and the flattening of the yield curve in the US led me think we were in a period of stagnation in the US. Spreads on auto lending and emerging markets while slightly elevated, were nowhere near levels I would have associated with a buy signal, while a continuing RMB devaluation was in the backdrop. That a Trump election has caused a strong dollar, higher yields, strong equities and strong commodities caught me by surprise. Market trends now seem higher despite what looks like a dangerous background to me. Your fund will be reducing its gross, but still long bonds and short equities.

* * *

On the other hand, despite some short covering, it appears that Clark still has a ways to go.

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Soul Glow's picture

Oh good, everyone's on the same side of the boat now.

El Vaquero's picture

When are these fuckers going to learn?  If you have specific information on a specific company that says short, OK, then short it.  Otherwise, this is a manipulated market and you don't go broad on the shorts until you have specific information that something systemic is about to break, like Citi or BofA is about to take a giant shit and go under.  

Croesus's picture

Greed's the killer...fear keeps you cautious.

Creative_Destruct's picture

These guys are probably the contrarian bellweather. Get ready for the short side to make a truckload.

Lizardking's picture

Bingo! One more flush to the upside and the Bull will go into hiding for a bit. I agree with his reasoning for the next fall, it's about to happen.

Lorca's Novena's picture

Short anything main stream media related, mcdonalds, and netflix. I frikkin hate netflix.

Bam_Man's picture

"We f***ked up. You paid us 2% to lose 24% for you, in a year when index funds and ETF's returned double-digits. So Sorry."

coast's picture

disarray...not of sound mind, have no clue....allow me to share a few thoughts anyway..please

1. ron puals latest is intersting and showed much, I do understand the same ol same ol calling it a shadow government and not who the people really are but its a start.

2. at least thru this trump thing, the media is exposed, the CIA is exposed, etc. 

3. I am screwed in the head because I dont know if trump is just another tactic of those in control, to let him do this because they can control it overall..I read something lately where the elite let things like this happen, to keep it from really exploding..

4. I angst over brexit and trump because sometimes I think those in power could have stoped both, then I wonder why they didnt..

5. no down votes please, because I have no clue, I am just asking questions and shairing thoughts...

6. Today, i viewed greg hunter and he had a guest charles nenner, and found links to zerohedge...seems he has been a regular..Not going into detail now about Charles, but ZH has articles of charles back in 2010....Its really interesting to look back on people and waht they said and predicted....

7..I dont think I have ever been so confused

8. just want next friday over with.

9. i like u guys

wacky47's picture

How suckers pay these idiots a 2% annual fee (plus a big % of occasional profits) to hypergamble their money into huge losses is beyond me. P. T. Barnum was right.

Van G's picture

So many of these firms are losing big-time due to empty speculation.

Former analysts from Goldman Sachs have new group from about 30 years ago.
Been nailing markets.

Van G's picture

From their FB page




Markets remain predictable and profitable.


Many people claim, ahhh, the markets are rigged.


Well, that may be the case. We at ShepWave are not going to say there is not some manipulation gong on. However, to think that the markets are not predictable is just ignoring the evidence ShepWave has presented in its past analysis.


Below are some charts including a chart of gold from when we gave a buy signal in late December; and that was after being short gold for several weeks. Also there is a chart of the QQQ (NDX) from when we gave a buy signal on December 2nd after being short. 




Read today's ShepWave Updates at for more market direction in the future.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Van G Jan 15, 2017 5:28 PM

The mom’s basement dwelling, failed trader, now spammer, registered the following spam accounts to promote their scam. Please don't give him the satisfaction of seeing his site hit counter go up from ZH clicks. He's not very bright, but eventually he’ll go away if his spam scam doesn't bring income from ZH. The spam accounts are: AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, Irvingm, jasony, John Beau, KC Spike, MadhyaBharatx, MexInvest, MikeM54, Mon T, P Christmas Carole, Penny Trader, Pinky and the Brain, PUNE,  RoBERTAZ, RonnieM, Sonya B59, Stan Your Man, StevieTexie, Van G, Virginia Wooolf, wisetrader224, and xantippa

konputa's picture

For how many years now have these guys been short China? 3, 4, maybe 5 years? At some point they will be right but there is something to be said for timing.

King Tut's picture
King Tut (not verified) konputa Jan 15, 2017 6:27 PM

Kevin Hendry videotaped himself roaming China's ghost cities 9 years ago claiming it was the end of the road for China.

johnberesfordtiptonjr's picture

Can you say "contrary indicator?" 

Jackagain's picture

I may short the market late Thursday in case the elite have something up their sleeve for Friday. I'll sell it off late Friday.

homiegot's picture

Damn. I'm up about 35% this year. I didn't have to do shit.

jm's picture

This is child's play compared to how Kyle Bass destroyed client funds with the "Japan Opportunities Fund".

Skiprrrdog's picture

Man... that picture of the guy riding the bulls horns on his nuts makes me feel the same way every time I see a picture of Bill Clintons wife...

luna_man's picture



I'm AMAZED!...Timing is everything!  You accept losses to this point and now, decide to "buy back"??


Here, let me send you a copy of my play(shorting)book.

hedgiex's picture

24% loss is the result of too committed on a theme that needs to play out. Get used to 30% or more gains/losses particularly in the illiquid spaces. China's LONG landing is a great theme that need stamina to ride.