While hardly as spectacular as Hugh Hendry's supernova flameout, or the far more boring, slow motion conversion of the assorted other famous and less famous bears, a legendary hedge fund titan has decided he too has no use for excess capital in this broken market. No surprise then that Institutional Investors' Alpha reports that Baupost's Seth Klarman is returning $4 billion in capital to investors for only the second time in its history due to "a lack of investment opportunities." And watching how the epic farce that Bernanke's wealth effect known as the Stalingrad & Poorski trades in the last 30 minutes of every day nobody can blame him. And no, Klarman is not returning cash due to some hidden underperformance: "Baupost’s many partnerships were up 13 percent, on average, through the September quarter. Its annualized return since inception is in the high teens." This happens to push it in the top decile of all hedge funds in 2013.
These men are masters of the capital markets. They are voting with their feet and pulling their capital out of them.
Seth Klarman's Baupost Group will be returning money to investors at year-end. As II Alpha reports, though the amount has yet to be determined, this would be only the second time the hedge fund has returned money in the firm's 31-year history. With the world of asset managers, as we recently noted, increasingly become herd-like beta-chasers, it seems Klarman - just as he noted earlier in the year - will return capital unless investment opportunities dramatically increased - and that hasn't happened.
Today, to much fanfare, the FT and other media blast that "Japan posts highest inflation rate since 2008" using this as evidence that Abenomics is once again working (i.e., that the Nikkei 225 has resumed its upward nominal path). Unfortunately, as usually happens, there is a problem here: this is simply not true.
US equities closed the week at new all-time highs - and yay-verily the world of long-only asset-gethering talking heads celebrated this as in some way confirming their long-held 'belief' that the US is the cleanest dirty shirt and where-else are you going to invest (you dummy!!). Of course, reality is far different - as Seth Klarman noted, if it's all so great then why did Bernanke need to stick-save us again this week? The bottom-line from the top-down is that the US is in fact the 2nd worst performing macro-economy of the year of the majors (2nd only to China) compared to expectations. What the following charts indicate though, is an interesting divergence between macro-reality and market-perception that is evident among the nations of the world that print money to save themselves... and those that are not (yet)...
While we are told that history doesn't repeat, it seems Baupost's Seth Klarman is oddly prophetic in his rhyming reality vision of the markets from over 20 years ago. This brief 'warning' from one of the most independent-thinking asset managers of our time (and least sheep-like) sum it up perfectly: "Caution has not been a profitable investment tactic for a long time now. I strongly believe it is about to make a comeback."
Klarman Clarity: "If The Government [Still] Can't Allow Failure Then We Are Indeed Close To Collapse"Submitted by Tyler Durden on 07/11/2013 09:06 -0500
If the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing.
- Seth Klarman, Baupost
It may come as a surprise to some that the total level of commercial bank loans outstanding as of the most recent week, May 22, was "only" $7.303 trillion. We say only because this number is $20 billion less than the total commercial loans outstanding as of the weeks following the Lehman failure, just before the most epic deleveraging episode in recent US history began. It is also just $600 billion higher than the cyclical lows of $6.7 trillion (net of the February 2010 readjustment of the commercial loan terminology). So does this mean that deposits in the US financial system have been unchanged in the past nearly 5 years? Not at all. As the chart below shows, while commercial loans have flatlined, deposits, which previously used to track loans on a dollar for dollar basis, took off, and are now at $9.4 trillion (as per the latest H.8), or $2.2 trillion more than the $7.2 trillion when commercial banks loan hits a record in October 2008, just after Lehman filed. What's more notable, is that as of the latest week, the excess of deposits over loans just hit an all time record of $2.079 trillion
It is only logical that when one of the smarter people in finance warns that he "sees bubbles everywhere" that he should be roundly ignored by those who have no choice but to dance. Because Bernanke and company are still playing the music with the volume on Max, and if not for POMO there is always FOMO. However, if there is any doubt why this "rally is the most hated ever", here are some insights from the Bond King from an interview with Bloomberg TV earlier today: "We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions. It doesn't mean something like 2008 but the potential end of the bull markets everywhere. Not just in the bond market but in the stock market as well and a developing one in the house market as well."
Seth Klarman Expains When "Investing Is At Its Hardest" And Why He Is Not Joining The Momentum TradeSubmitted by Tyler Durden on 05/05/2013 08:35 -0500
If you thought that Baupost's Seth Klarman would be the next to join twitter, #timestamp his minute-holding trades, ignore the money-losing ones, trumpet his winners, always make money, scream at all those who don't agree with his "strategy", and otherwise become what is known these days as a (momentum) investor, we have some bad news: it's not happening. Here's why.
Elliott's Singer On Bernanke Destroying "The Value Of Money" And "Uprooting The Basic Stability Of Society"Submitted by Tyler Durden on 05/03/2013 18:26 -0500
"We believe that the global central bankers, led by the Fed as “thought leader,” have no idea how much pain the world’s economy may endure when they begin the still-undetermined and never-before attempted process of ending this gigantic experimental policy. If they follow the paths of the worst central banks in history, they will adopt the “tiger by the tail” approach (keep printing even as inflation accelerates) and ultimately destroy the value of money and savings while uprooting the basic stability of their societies.... At some stage, central banks inevitably realize, regardless of whether they admit the catastrophic nature of their own failings, that the cessation of money-printing will cause an instant depression. Even though at that point the cessation of money-printing may be the only action capable of saving society, that becomes a secondary consideration compared to the desire to avoid immediate pain and blame."
Seth Klarman: "If The Economy Is So Fragile That Government Can't Allow Failure Then We Are Indeed Close To Collapse"Submitted by Tyler Durden on 05/03/2013 14:43 -0500
Following today's flashback to the most euphoric and irrationally exuberant days of market peaks (and bubbles) gone by, driven entirely by the now constant central-planner dilution of current and future wealth, these selected excerpts from Seth Klarman's latest letter to investors is just the cold water of common sense everyone needs:"The average citizen knows that a society's wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing. They also know that the only reason paper money, backed not by anything tangible but only a promise, has any value at all is because it is scarce. With all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question. And when you tell the populace that we can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future, they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the policymakers—does either."
Is the U.S. economy about to experience a major downturn? Unfortunately, there are a whole bunch of signs that economic activity in the United States is really slowing down right now. In many ways, what we are going through right now feels very similar to 2008 before the crash happened. Back then the warning signs of economic trouble were very obvious, but our politicians and the mainstream media insisted that everything was just fine, and the stock market was very much detached from reality. When the stock market did finally catch up with reality, it happened very, very rapidly. Sadly, most people do not appear to have learned any lessons from the crisis of 2008. Americans continue to rack up staggering amounts of debt, and Wall Street is more reckless than ever. As a society, we seem to have concluded that 2008 was just a temporary malfunction rather than an indication that our entire system was fundamentally flawed. In the end, we will pay a great price for our overconfidence and our recklessness.
One can spend all day watching financial media channels stuffed full of self-promoting index-hugging asset-managers and be left with the belief that all is well and that the market does indeed represent our reality... Or, as UBS' Art Cashin notes today (confirming what we first published a month ago - here, here, and here), there is more (well less) to today's global economy and markets than meets the eye or rests in the headlines. His excellent diatribe today reiterates our previous comments of investing icons such as Baupost's Seth Klarman and Oaktree's Howard Marks that "(The) underpinnings of our economy and financial system are so precarious that the un-abating risks of collapse dwarf all other factors."
Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.