How One Hedge Fund Made $3 Billion Betting On Trump

In the past year, there has been a lot of debate whether Trump's tax plan will make the poor poorer and the rich richer. Well, we now have one glaring example of the latter, and to a degree never seen before, if in a different format than most envisioned: according to Bloomberg, Jeffrey Talpins’s Element Capital Management made more than $3 billion in the last five months, mostly as a result of a trade that President Donald Trump’s tax bill would pass successfully, driving stocks and yields on U.S. Treasuries higher.

Jeffrey Talpins

Talpins - whom we first profiled back in 2015 when he quietly emerged as a massive buyer of Treasurys - put on the "Trump trade" one year ago when investors still had doubts that a tax bill, or frankly anything proposed  by Trump, would succeed. The manager's vision - which was 100% correct - was that Trump and fellow Republicans, having failed to pass major legislation, including an overhaul of Obamacare, would unite to push through a large tax cut for individuals and corporations.

That's exactly what happened, and it's not over yet: the hedge fund macro manager still thinks the trade has some room to run.

“We expect the U.S. equity market to fully recover the peak to trough decline and hit new highs over the next few months,” he said in a mid-February letter to investors seen by Bloomberg. “As the market gradually recovers its February losses, we also expect that volatility will subside commensurately.’’

Talpins first made his tax call in an April 2017 letter to investors, saying a lack of cohesiveness within the Republican Party and the dim prospect of legislative support from Democrats would drive Republicans to “take the path of least resistance” in the form of a large tax cut for companies and lower marginal rates for individuals.

A month later, he told them he had increased his exposure to stocks on the view that a tax package, deregulation, an accommodative Federal Reserve and healthy earnings “all support equity prices moving higher.”  In the May letter, he also said that he expects the Fed will raise rates by 25 basis points a quarter this year, and continue to remove accommodation, which has so far been accurate.

Oh, and he was also spot on in predicting that back then that there was a high chance for a 10% correction in the next 12 months that would hit commodity trading advisers and volatility targeting funds hardest, though the market would then recover within a few months.

As stocks climbed for 2017, and yields on Treasuries jumped at the very end of 2017, Talpins’s correct view was rewarded. So was his bank account.

As a result, while most of his peers have languished and scratched their heads how to generate alpha, Elements figured it out: have trust in Trump... and be rewarded. This year its fund has already climbed 11.5%, following a 9% return in the last quarter of 2017 fueling the multibillion-dollar gain. The tax call was the latest correct call for the $13.5 billion Element, which was launched in 2005 after Talpins' stints at Goldman and Citigroup. Incidentally, less than 3 years ago, Elements had less than half in AUM, or roughly $6 billion.

Unfamiliar with Talpins? Here is some detail from our 2015 profile of Element, and the formerly unknown hedge fund manager:

"Mr. Talpins is an intense and reserved trader formerly at Citigroup Inc. and Goldman Sachs Group Inc. He is known for a tenacious style that can grate on rivals and once tested the patience of former Federal Reserve Chairman Ben Bernanke."

According to the NYT, in 2005, Trader Monthly named Mr. Talpins one of the top 30 traders under 30, when he was still an employee of Vega Asset management. "Youth is not wasted on this crop, any of whom could be a billionaire by 40,” the magazine said. “Or, then again, they could be belly up and bust."

Back in 2010 the FT profiled Element Capital, then at just $1.5 billion, saying that fixed-income relative value trading, "the hedge fund strategy pioneered – and made notorious – by Long Term Capital Management is returning to prominence amid one of its most successful years yet." It added that "fixed-income relative value trading – shunned by investors after the collapse of LTCM in 1998 – has been one of the industry’s few outperformers this year, thanks to massive pricing anomalies caused by fiscal stimulus packages and unconventional central bank monetary policies around the world."

In any case, Talpins also posted double-digit returns in 2015 and 2016, while other macro traders including Ray Dalio, Paul Tudor Jones and Louis Bacon lost money or made only a few percent. His fund has posted annualized returns of 21% since inception.

* * *

Now for the not so good news: Talpins warns that he isn’t a long-term bull.

In his latest letter, Talpins said that the increased volatility in February was initially caused by pension funds rebalancing their portfolios at the end of January by selling about $50 billion worth of stocks. That pushed stocks lower and caused CTAs, volatility targeting funds and short volatility products to dump an additional $200 billion in stocks. The firm, known for its heavy use of options in its wagers, used baskets of single-name equities as well as call options on the S&P 500 to make the bets. As a hedge, it shorted stock indexes outside the U.S.

He also warned that the S&P 500 is about 3% below its January peak, and once stocks surpass that point, rising interest rates, stretched valuations and a maturing economic cycle will start weighing on the market later in the year.

In other words, enjoy the next 3-4 months: that's about as good as it will get.

Oh, and for those who can't wait to have Talpins manage their money, get in line: the fund has been closed to new investments since last year, when it pulled in $2 billion of fresh capital in two weeks.

Comments

Voluntary Exchange Zero Point Wed, 03/14/2018 - 06:17 Permalink

A brief recent historical review of the human species attempt to become a stable galactic species:

Ancient Jericho-

City-Wall technology used by free people to fend off the takers, thieves, and parasites. As evidenced by the total lack of governmental buildings of any kind in the ruins, these people enjoyed stateless freedom for maybe a thousand years until the authoritarians devised means of breaching their defenses. The people of Jericho could not spread their discovery effectively enough and widely enough to spark revolutions because humans lacked cheap mass-communication on a large scale, innovations and discoveries were often controlled and hoarded by religious-political authoritarians who could prevent the diffusion of this knowledge, and so the Jericho people's example of truth could not spread enough to unseat authoritarianism. Their example was too small, and could not spread.

Pre-Catholic Ireland-

Stateless free people succeed in growing a culture that encompassed a greater area - an entire large island. This system endures for hundreds of years, until finally succumbing first to an ideological invasion by Catholicism that  undermined the resilience of a pure stateless ideology with the false concepts of "godly" authoritarianism. This particular false "godly" authoritarianism had  been developed by mass murderer emperor Constantine in the 4th century after the Nicene creed and Council of Nicaea. This council outlawed the stateless philosophy as explained by Yeshua (Jesus), which was practiced by his followers, the Ebionites and  Gnostic. 

The authority of ruler-ship resides in each person equally. Luke 17:21: " Neither shall they say, Lo here! or, lo there! for, behold, the kingdom of God is within you." In the 4th century Constantine, murdered or exiled those who practiced this way of life, tried to corrupt all writings that supported this system, and invented a counterfeit system that today is called "Christianity". Transforming the example of the prophet/Messiah Yeshua into the idolatry of worshiping a man-god called "Jesus Christ" and thus surrendering individual sovereignty up to the the earthly successor to this man-god authoritarian.

So the early Irish, being thus ideologically weakened, eventually were conquered by the stronger English tyranny: The English ships technology and their English "godly" king were able to culturally then physically enslaved the Irish. But it took the English hundreds of years and great cost to do this!

The pre-Catholic Irish had no written language. If they had, they might have recorded and articulated their stateless system experience so that it could have had a chance to spread elsewhere. Some of it was recorded after the Catholics introduced a primitive written language for the Irish. But this written system evolved in such a way that the original pre-authoritarian truths became mostly hidden from history until modern day scholarship and archeology are beginning to reveal it.

And thus when the age of the printing press arrived there was no articulated example of how a stateless society could be devised.

 

And this brings us to recent history and the attempt for freedom by the people of the American Revolution:

Those who had rediscovered the wisdom of Individual self-rule, as Yeshua had earlier showed, used the idea of "natural law" and "natural rights". "We hold these truths to be self evident, that all Men (people) are created equal". They were known as Deists. They correctly rejected the authoritarianism of "Christianity". Those laws that control nature  also apply to Humans who are a part of nature. For humans to survive as a civilized species they must overcome the tendency towards predation and tribalism, or they will continue to destroy each other until they succeed in destroying themselves. Unfortunately there were not enough Deists and too many who believed in the fraud of "godly" man-god authority (the idea of authoritarian rulership).

And with no understanding of formulating a viable stateless society from history the American's freedom was quickly subverted by the authoritarians in the US Constitution article 1, Section8: "Congress shall have power to lay and collect taxes".  Thus the seeds of destruction of the truth of self-rule and natural law/rights by yet again empowering criminals. 

This brings us to the present time. The lie of "godly" man-god authority, has been subverted by the lie of "most fit", Darwinist  man-"god" authority. Natural law being as it is, this still results in predation and tribal wars leading to ultimate destruction for Humanity.

Those today who understand the truth of natural law/rights have had the benefit of the Dead Sea Scrolls discovery, the Nag Hammadi library, ancient Irish Scholarship, ancient Jericho archaeology, as well as other precious pieces of information here or there. On a species level the "most fit" are those who on a species level practice Voluntary Exchange.

Because of the present state of technological discovery we stand at a great opportunity as well as a great peril for our species. The survival of Humanity now depends on the rejection of the predation and tribalism that comes from all forms of authoritarianism. 

For the first time in know human history it is possible for a great idea to diffuse and quickly spread to all mankind, immune from total suppression by authoritarians. If Humanity will now reject authoritarianism and choose to live by Voluntary Exchange we may be able to survive and enter the Galactic Community. But I am very pessimistic that this will happen. Even now those who are deceived by "godly" man-god "authority" are about to enter a grave struggle with those who are deceived by the lie of "most fit" "superman" (god) "authority". 

There do not appear to be enough of us who understand natural law, natural rights, and the lessons of history to win the day and emancipate Humanity! It looks like we will blow ourselves up (again?) Please help spread this message of sanity in an insane world while we still can!

In reply to by Zero Point

D503 Zero Point Wed, 03/14/2018 - 07:47 Permalink

The man speaks of natural law, yet no mention of Locke or it's definition. 

It's just the ability to impose one's will on the environment (that which is external to himself) until another's will, or a collective will, is necessarily strong enough to oppose it. 

None of this peace and harmony shit has anything to do with natural law. Natural law holds when a giant man tears apart a frail one for looking at him funny. 

In reply to by Zero Point

Voluntary Exchange D503 Wed, 03/14/2018 - 08:16 Permalink

Sorry D503 let me clarify below. You might be confusing Darwinism for actual laws of human interaction that were deduced thousands of years ago. Natural law is just another way of saying that if certain things are done, certain consequences will happen. With the law of gravity you can make predictions. With the laws that come into play in Human exchanges - called Catallactics, you can make definite conclusion about voluntary exchanges and involuntary exchanges. The voluntary one will tend towards mutual benefit. The involuntary ones will tend toward predation, human suffering, and conflict.

Some examples of "involuntary exchanges": theft, fraud, physical aggression, taxation, conscription, war, mandated use of fiat money, one group or party claiming authority over another group or party.  These laws of human interaction, even though they apply to humans (actually all sentient-self aware beings subject to "scarcity" - not just humans) remain natural laws because they are consistent and predictable.  Humans being a part of nature means these true observations about the nature of human interaction qualify as actual "laws" - "natural laws". Not something people made up by those who wish to rule others by force or trickery (man-made "laws"), but consistent observations acting in that part of a kingdom of nature known as human interactions.

All it means to say that there is a "natural law" is that certain consequences will derive from certain choices. Because most people prefer life and well-being to suffering and death we tend to describe the pro-life choices as the proper choice with regard to "natural law", or "natural rights" for short.  Your life is yours, and isn't own by others. A natural right.  What you create from what is yours remains yours and not someone else's. What you do while not harming others, if it brings you happiness - a natural right.  Thus: life, liberty, property, seeking "happiness" - all natural rights. Just a simple way of saying: do this and be happy and live, or don't do this and suffer and die.

You may not like these facts of nature but that does not change them one bit. They are laws that exists where ever there are self-aware beings that interact to overcome the challenge of scarcity in nature. If they can cooperate, the strengths of each will be of service to others who also have something to offer in voluntary exchange. Those who have nothing to offer and seek to take through fraud or force remain the problem of everyone else who seeks to live through cooperation. The worst thing that one can do is give wealth and power to those who choose predation as a way of life (taxation and "government").

In reply to by D503

Voluntary Exchange D503 Wed, 03/14/2018 - 08:28 Permalink

Yes natural law certainly is in play if the giant tears apart a weaker victim. But it is a particular choice that we describe as contrary to "natural rights". If his victim could have given him something valuable to his own well-being instead of the giant destroying him, you cannot deny the giant has forfeited this possibility by his destructive choice. And obviously the victim has lost his ability to supply something of value to the giant through voluntarily exchange. But we describe this event as a violation of "natural rights" because of the destruction of victim well-being that ensues from such an interaction of nature. And from the standpoint of promoting life and survival, it is in the interests of all other people denied the benefit of mutual exchanges with the victim because of the "crime" of the giant. Even the giant himself might have unknowingly harmed his own well-being by the act. "Natural rights": pro life, happiness promoting. Violation of "natural rights" anti-life, promoting suffering and destruction of at least one non-consenting party.

To those who understand that sentient beings can derive mutual benefit through mutual voluntary exchange - "might makes right" only in the context of defense against aggression, or as a last resort where restitution is being enforced against a criminal to recover rightful ownership from the the adverse possession of the criminal.

In reply to by D503

Lumberjack Zero Point Wed, 03/14/2018 - 08:58 Permalink

Still waitin for Brit Bob dressed as an indian (elizabeth warren) to to show up in boston harbor to throw the nat gas off the Russian tanker anchored there!

https://www.google.com/amp/s/www.wsj.com/amp/articles/why-is-russian-gas-in-boston-harbor-1520897637

I would like to extend my sincerest gratitude to President Putin for keeping me warm during the last 3 noreasters!!!!

Lj

In reply to by Zero Point

Richard640 Wed, 03/14/2018 - 09:14 Permalink

WHAT? WHERE ARE THE ANTI-JOO REMARKS BY THE VERMIN THAT INFEST THIS SITE?

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C'MON, GUYS DID U MISS THIS ONE....YA FILTH...YA SPAWN...?

JibjeResearch Wed, 03/14/2018 - 11:52 Permalink

Regardless of how Trump is, smart people always make money.  It's the lousy Americans losers who do the complaining...

Bwhahahha hahahahhaha... baitchezz....