Hedge Funds Trail Stocks by the Widest Margin Since 2005 – Bloomberg 12-05-13

Salient to Investors:

Hedge funds returned 7.1 percent in 2013 through November versus the 29.1 percent return of the S&P 500 Index, with reinvested dividends, and are headed for their worst annual performance relative to US stocks since at least 2005 and underperforming for the fifth year in a row. Hedge funds have underperformed the S&P 500 by 97 percent since the end of 2008.

Hedge funds charge fees of 2 percent of assets and 20 percent of profits versus average 1.3 percent expense ratios for actively managed US stock mutual funds, according to Morningstar, and whose managers averaged gains of 31 percent this year through November.

Hedge Fund Research said hedge funds had their worst showing relative to the S&P in 1998, when the HFRI Fund Weighted Composite Index trailed by 26 percent. HFR said hedge funds attracted $53.2 billion in the first 9 months of the year, versus $34.4 billion for all of 2012.

Hedge funds last beat US stocks in 2008, when they lost a record 19 percent and the S&P 500 declined 37 percent. They outperformed by the most when they returned 31 percent in 1993 versus a 10 percent increase for the S&P.

Nick Markola at Fieldpoint Private said it has been difficult for hedge funds on the short side as funds were defensively positioned.

Stan Druckenmiller said hedge fund results were a tragedy and questioned why investors pay hedge-fund fees for annual gains closer to 8 percent. Druckenmiller said he and other veteran managers including Michael Steinhardt, Julian Robertson, Paul Tudor Jones and George Soros were expected to make 20 percent a year in any market, more if the market fell more than 20 percent – you won’t make money talking about risk-adjusted return and diversification, you have to identify the big opportunities and go for them.

Eric Siegel at Citigroup said comparisons with stocks are unfair because hedge funds have different goals and not all hedge-fund clients are looking for super-high returns but high-quality returns that have lower levels of risk over a 3 to 5-yr investment cycle. Plus they can trade in all markets from corporate bonds to the yen to corn.

Francis Frecentese at Lyxor Asset Mgmt cites a gradual erosion of out-performance as competition in hedge funds heated up along with a changing investor base, which does not want volatile returns.

Read the full article at http://www.bloomberg.com/news/2013-12-06/hedge-funds-trail-stocks-by-the-widest-margin-since-2005.html

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Hedge Funds See Repeat of Yen Slide That Paid Soros: Currencies – Bloomberg 11-26-13

Salient to Investors:

Hedge funds et al pushed wagers that bet the yen will fall versus the dollar to the highest since July 2007, versus the median of over 50 analysts who see the yen as flat through Q1, 2014.

Brad Bechtel at Faros Trading said everybody likes dollar-yen higher.

Stan Druckenmiller at Duquesne Capital Mgmt said in September that his firm was short some yen and long some Japanese stocks.

Alan Ruskin at Deutsche Bank said investors should be wary of following the herd, and the more it looks like a sure thing, the less it is a sure thing. Ruskin said external accounts have deteriorated and there is a broader hollowing out of Japanese industry that relates to large foreign-direct investment outflows – previously the bulwark of yen strength is all of a sudden much less constructive.

When hedge funds et al were last this bearish on the yen, in July 2007, it strengthened 3.8 percent, and went on to gain 23 percent the following year, the most since 1987.

Read the full article at  http://www.bloomberg.com/news/2013-11-26/hedge-funds-see-repeat-of-yen-slide-that-paid-soros-currencies.html

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Druckenmiller Says Fed Exit Would Be Big Deal for Markets – Bloomberg 09-11-13

Salient to Investors:

Stanley Druckenmiller said:

  • If the Fed were to end QE it would be a big deal for the financial markets, as indicated by the sell-off in bonds and emerging markets in the past few months on the mere hint that the Fed might taper.
  • Fed purchases have subsidized all asset prices, so completely stopping them would mean the market will fall.
  • He has very small investment positions, including long some Japanese equities and short the yen.
  • It is naive to say the next Fed chairman won’t matter because it is a really important appointment.

Jeffrey Gundlach at DoubleLine Total Return Bond Fund said the Fed is making a big mistake by moving ahead with its exit plan without pegging it more closely to market conditions.

Economists expect the Fed to taper Treasury purchases by $10 billion this month.

Read the full article at  http://www.bloomberg.com/news/2013-09-11/stan-druckenmiller-says-fed-exit-would-be-big-deal-for-markets.html

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Market Makers Stanley Druckenmiller – Bloomberg TV 09-11-13

Salient to Investors:

Stanley Druckenmiller said:

The poverty rate for seniors over the last 35 years has dropped from 35% to 9%, while their wealth has dramatically increased

The numbers of seniors is about to explode and there is no way we can pay for what we have promised them.

 The US is a country of special interests, where seniors vote consistently and young people don’t.

Most seniors don’t know they are getting so much more. I estimate 85% of seniors would be uncomfortable with the generational theft if they knew the numbers and the debt they will be leaving their children and grandchildren.

Nicholas Eberstadt research shows we are a nation of takers. Federal government entitlement transfers as a percent of federal budget outlays  is at all time high of over 72% versus 28% in 1960 – almost all of the money went to the elderly, coming from children, education, infrastructure and not productive investments.

This is the first generation where 30-year olds are worse off than their parents were at their age. The FRB survey of consumer finances shows the change in average net worth by age group from 1983 to 2010:

    • Ages 20-28: +5%
    • Ages 29-37: -21%
    • Ages 38-46: +26%
    • Ages 47-55: +76%
    • Ages 56-64: +120%
    • Ages 65-73: +79%
    • Ages 74 and over: +149%

I made most of my money in the bond and currency markets by forecasting economic trends and seeing problems happening. I took great advantage of catastrophes in financial markets as I was good at looking round corners and prediction them.

I am politically independent. I drank the Obama hope and Kool-Aide in 2008, but in hindsight, he needed more experience and I thought he would be more Clinton-like and move to center but he hasn’t.

The Can Kicks Back study shows the net lifetime benefits of the unborn is minus $420,600 and of those aged 65 is plus $327,400. Is is unfair that a current senior will get $700,000 more than a future senior.

It totally matters who the next Fed chairman is because it is a really important appointment and should have been made by now instead of becoming a circus. Both Summers and Yellen already have a platform to discuss economic policy and don’t need to be Fed chairman to do so.

Pete Peterson is focused more on the debt catastrophe that is about to happen, whereas I am focused more on generational theft.

I am waiting for the next big shock and currently have the smallest position in equities after having a big position earlier in 2013. I am patient and then go crazy but am not seeing anything now. I feel lost so won’t play until I don’t feel lost. I am long some Japanese equities but my position there was bigger earlier in the year. I am short some yen.

The market is topping, but then I have predicted 7 of the last 3 bear markets – I started in 1976 I tend to have a bearish bias. I am waiting to see who is the new Fed chairman.

Dislike the quarterly performance and risk-adjusted return philosophy that has invaded hedge fund management. Other than 15 managers, I cannot imagine why anybody would pay 2%+20%. When I started there were just 8 to 10 hedge fund managers and we were expected to make 20% even in down markets. The are too many hedge funds now to be successful – 9,000 funds are pricing their product on the back of the performance of the 8 to 10 managers back then.

I do invest in hedge funds and being in the business for 35 years am able to judge the fund’s investment philosophy. Hedge funds are neither good or bad. Hedge funds advertising their portfolio positions is bad.

The Fed said it was targeting asset prices and it has mostly manipulated stock prices. But as long as the Fed prints money we are not close to a bear market which is why tapering is very important. Removing QE over 9 months is a big deal because QE subsidized all asset classes and its removal would send the markets down. The mere hint in June by the Fed that it would taper in three months and then only if the economy was stronger caused havoc and risk around the world, so anyone believing markets won’t drop when it actually happens are silly.

It takes hundreds of millions of dollars to take a stock up but the minute you have phony buying stop it can go down on no volume immediately.

If you make currency bets and you don’t have the fundamentals with you then you may win for a little while but you will end up losing. You can make money in bonds if you can correctly predict economic changes.

I have been really wrong on the bond market for last 3 or 4 months. I had been waiting for bond prices to decline  for 2 years and completely missed it when they despite the economy softening.

People say the fiscal debt is fixable but is not the case because the numbers do not include demographics. In 1947, the fertility rate was over 3 and now it is 2, and for the next 20 years there will be 11,000 new seniors every day. We will have 2.5 workers for every senior and is not counted on the government balance sheet.

The Can Kicks Back data shows total debt on the books at 12 or 16 trillion (depending on whether the Fed or the Treasury actually owns it) but when you present value what we have promised seniors and future tax revenues, the debt is $200 trillion – and that should be on the balance sheet.

Even Paul Ryan said let’s exempt those 55 and over despite that cohort already having got a huge piece of the pie.

 

Watch the video at  http://www.bloomberg.com/news/2013-09-11/stan-druckenmiller-says-fed-exit-would-be-big-deal-for-markets.html

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Interview with Jim Rogers – Fusion Marketplace 06-13-13

Salient to Investors:

Jim Rogers said:

  • When investing, don’t follow the crowd
  • Most government numbers are made up. China has problems with housing and inflation as the US did in the 19th century when it was growing rapidly. Every country that grows rapidly has problems. The US had recessions and 13 depressions in the 19th century but still became  the greatest nation in the 20th century.
  • China is trying to slow, which is the right thing to do as their goal is long-term sustainable growth.  Any big risks will only come from water problems, which I expect them to solve. Buy companies that work to fix water problems.
  • The Chinese stock market is close to a Buy.
  • China’s housing bubble is worse due to their blocked currency, which creates imbalances, like in housing, as people need to invest somewhere.  China will continue to open up their currency.
  • We are in a global bond bubble, which can go on and on. Bernanke believes you can expand the Fed balance sheet infinitely and suffer no ill effects. Since reducing demand for a commodity reduces its price, so bond prices will drop, and interest rates rise.  France tried money printing in the 1950’s and the Italians in the 1960s.
  • At some point markets won’t take central bank policies anymore, and interest rates will rise regardless of how much bond buying they do. Short junk bonds as the marginal stuff goes first.
  • Gold has risen for 12 years in a row – what asset goes up 12 years in a row? – so technically it may need to fall further, but fundamentally it will be a Buy. Holds gold and will add more if it keeps dropping.
  • The US shale revolution is over-hyped. The fundamentals of natural gas are not as good as the hype: the number of ground rigs has fallen 75% over the last 2 years, the wells are very short-lived, and it takes enormous money to maintain them. Companies have lowered estimates of their reserves. Investors will be disappointed with the idea that supply is so big that oil will collapse.
  • Interested in buying natural gas because any commodity that has that big a collapse should be considered.
  • Agriculture is a great long-term story. We have been consuming more than we have been producing over the last 10 years, so inventories are close to historic lows. Agriculture has been a terrible business for many years and we are running out of farmers – average age is 58 in the US, 66 in Japan. Young people are not entering agriculture and everything cannot be automated. Most of Asia is not productive: Mao ruined China’s agriculture and India have absurd regulations and restrict the size of farms. The suicide rate of Indian farmers has risen dramatically over the last few years.
  • Cotton is doing well because farmers planted less last year.
  • Abe will ruin Japan and says he will ruin the currency. Japan has huge debt levels, horrible demographics, barriers to foreigners, a declining population,
  • The Euro will look very different within a number of years as devaluing is a temporary solution – Europe has been trying it for decades without success. Only real structural change will improve their economies.
  • The ECB can only buy sovereign debt for a while because eventually the currency collapses and the markets won’t take it anymore – they have more money than the central banks.
  • China is in better shape than the other countries. It is the largest creditor nation, people save a lot, and is building its internal economy. They should have already started reducing their exposure to Treasuries.
  • The US is the largest debtor nation in the history of the world, yet only half of the population pay taxes.  All the debt is in the West while all the credit is in the East.
  • Singapore is doing well and will be the fastest growing money center in the next 10 years. Income taxes are low, incentives to save are high, savings rates are high, and they work hard to attract capital and labor. The current backlash from immigration has happened to all countries at some point in history. Singapore is becoming the new Switzerland, helped by problems with offshore havens like Switzerland and Cyprus.

Stanley Druckenmiller is warning about a rise in US rates, due to uncontrollable entitlements.

Read the full article at  http://www.fusionmarketsite.com/?p=10562

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What Billionaires Say And Do About The Stock Market Rally – Bloomberg 03-08-13

Salient to Investors:

Larry Trefz  writes:

The rally will continue until sentiment turns for the worse, then expect a correction of over 10%.

Warren Buffett sees says stocks are good value and cheaper than other forms of investment, while the dumbest investment is long-term government bonds.

Stan Druckenmiller sees a crisis coming that is potentially much worse than 2008, due to $211 trillion of unfunded liabilities resulting from ballooning Social Security, Medicare and Medicaid programs as current seniors steal from future seniors.

David Tepper at Appaloosa Mgmt is bullish for 2013 because there is nothing to be bearish about, and the US is on the verge of an explosion of greatness.

Leon Cooperman sees the same excitement as when Apple was at $700 and Facebook was at $38, though equities are the best house in the financial asset neighborhood. Cooperman says buying US government bonds today is basically walking in front of a steamroller and picking up a dime.

John Paulson is bullish on the US economy and stock market, and says the best investment for an individual is a house. Paulson is bullish on US energy, whose growth could translate to gains for related industries, like chemicals and petrochemicals, but is less bullish on credit, where long-term returns will be far smaller than in stocks.

Read the full article at http://seekingalpha.com/article/1259141-what-billionaires-say-and-do-about-the-stock-market-rally?source=email_macro_view&ifp=0

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