Third Point's Loeb Joins Dalio On 'The Short Side': "Companies Are Going Down"

"This is not a time to be rewarded for long market exposure..."

Those are the warning words from yet another billionaire hedge fund manager as expectations of further market disruptions loom.

A day after the largest hedge fund in the world shifts to a net short equities position, as Ray Dalio's Bridgewater no longer "feels pretty stupid" about being out of US stocks; Dan Loeb's Third Point puts his money where his mouth is and dramatically increases his short bets.

Billionaire Loeb  wrote in his letter to investors last week :

Market shifts are inherently difficult to anticipate and when they happen, they do not ring a bell but they do blow a dog whistle, as we have said in the past. Our job is to listen carefully and to take decisive action when we suspect change is afoot. We believe that the increase in our short book and our reduced net and gross reflect what we are hearing.

And this morning, on an earnings conference call for Third Point Re., where he oversees investments, Loeb told investors:

"It's a good time to have more balance on the short side,"

...adding that he sees more opportunities to find companies that will "go down or materially underperform the rest of the portfolio."

As Bloomberg reports, the hedge fund manager said investors have become increasingly concerned about stock multiples, since after years of low interest rates, there’s finally an alternative to equities in the form of “relatively riskless” two-year treasuries.

 

And while hedgies have been waiting for a return of volatility to exploit price movements after several years of crazy-calm markets, Loeb’s response has been to add to his hedge fund’s equity short portfolio, he said on the call.

"We intend to further increase short exposure to fundamental single names and quantitative derived baskets in 2018 and rely less on market hedges to dampen volatility and reduce net exposure," he said.

So, like Dalio, Loeb is notably derisking his gross book overall and pushing his positioning to the short side (for stocks). Wonder what Warren Buffett thinks of that?

Finally, Loeb said his firm is watching to see if a recession, which it doesn’t think is near, might be closer that market believes - as he noted previously:

"as manufacturing indices (PMI’s) cool from elevated levels, there is a real question about just which inning of the late cycle we are in. While we don’t believe a recession is close, there is definitely a concern that it is getting closer.

Comments

Dewey Cheatum … jim942 Thu, 05/10/2018 - 11:53 Permalink

You are correct, the fed is so deep in the corner that it has created..that there is truly no way out for them.

They can never allow the 10 yr to stay much over 3% without crashing this flimsy ass equities market and 401's, pensions etc.

It's all Kabuki..just the latest noise to create trading spreads.

 

In reply to by jim942

I am a Man I a… Thu, 05/10/2018 - 11:55 Permalink

You can get 2.25 going out a year on treasuries, around 1.75 on tax free municipals AA and above.  That's where I am hanging and will continue to allocate capital until 2019 unless the market has a significant correction.  Boring af but so what.

Honest Sam Thu, 05/10/2018 - 12:12 Permalink

I don't think there is a billionaire ever created, who has made his fortune in the markets, that will tell me what he is going to do.

Why would he?

He only hurts himself by stating to the public his strategery.  

When a billionaire tells me he is doing or going to do something, has done something, long, short, or neutral, I remember the line by, "His Dudeness", from, "The Big Lebowski":

https://www.youtube.com/watch?v=92EChuYNV-M