Last year the biggest permabull within the hedge fund community was David "20x P/E" Tepper. Now that real (i.e., GAAP) forward P/Es briefly touched 21x a few days ago, a new bull had to step up or else Tepper would start sounding like a broken record. That someone is Third Point's Dan Loeb, who not surprisingly looks at a chart of what is set to be record global central bank intervention...
... and observes that "accommodative monetary policy in Europe, Japan, and China has encouraged investors to adopt QE pattern recognition and plow capital into markets where central banks have opened pocketbooks." In other words, more of the same, and with central bank intervention set to hit an all time high just when the recovery is supposed to be raging, who can blame him.
He is correct, if only for now, although recent tremors in the Bund market hunt that increasingly more bond investors are willing to fight if not the Fed, then certainly the ECB. Ironically, if they win, it will be the beginning of the end for central planning.
And just to hedge his optimism everywhere (he notes that "We now have nearly 10% of assets invested in Japan"), the Third Point head also is betting big on the US. Said otherwise, going big or going home.
Here's why Loeb, for the second year in a row, refuses to "sell in May and go away"
We remain constructive on the US for three reasons: 1) economic data should improve in the next few quarters; 2) the Fed does not seem to be in any rush to move early and a June rate hike seems unlikely; and 3) while investors are focused solely on the first rate raise, we think the overall path higher will be gradual, in contrast to previous rate shifts. These factors should create an environment where growth improves and monetary policy stays flexible, which is generally good for equities (higher multiples notwithstanding). We may follow last year’s playbook and ignore the old adage to “sell in May and go away.”
Said simply, Loeb is simply betting that like every other year since 2009, the complete failure of monetary policy to boost the economy (and with Q1 now set to print negative following today's abysmal construction spending data, and Q2 sub 1% if the Atlanta Fed is correct again, the US may already be in a recession) will not prevent it from making hedge fund managers even richer, and stocks will continue rising as global central banks continue to believe incorrectly that stock market records will finally trickle down.
For all his other super bullish views, including his new stakes in Yum Brands, Devon Energy and his 10% stake in Kurodanomics, read the full letter below.