Billionaire Hedge Fund Chief Jones Sees U.S. Stocks Beating Globe for Rest of 2014 – Bloomberg 10-20-14

Salient to Investors:

Paul Tudor Jones at Tudor Investment Corp is believed to have said:

  • US stocks will outperform other equity markets for the rest of 2014.
  • The bubble in global credit will burst one day.
  • If we maintain the status quo on QE, we will end up like Greece with their level of debt within 15 years.
  • The dollar rally versus against every G-10 currency may have ended.
  • Is short the yen because the BoJ will continue to ease – the yen needs to decrease 15% for inflation to increase by 1 percent to 1.5 percent.

David Einhorn at Greenlight Capital is reported to have recommended buying renewable power companies, owns warrants on Greek banks, and is betting on declines in French sovereign debt.

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BlackRock Buys Korea Stocks as Valuations Lure Foreigners – Bloomberg 09-26-14

Salient to Investors:

Andrew Swan at BlackRock said:

  • Blackrock has an overweight position in Korea stocks as a lot of negativity is already priced in and the market is so cheap.
  • The South Korean equity market could be in the early stages of bottoming.
  • A recovery in domestic demand may help shrink Korea’s current-account surplus and curb the currency’s appreciation.

Oh Sung Sik at Franklin Templeton Investments said some active funds have upgraded the Korean equity market from underweight.

Daphne Roth at ABN Amro Private Banking said the won’s strength versus the yen poses a risk to Korean exporters, which have Japanese rivals, and sees few catalysts.

MSCI Korea index companies are valued about the same as their net assets, a 36 percent discount versus the regional index, and at the steepest discount versus the MSCI Asia ex-Japan Index since 2007.

Foreign investors purchased a net $4.95 billion of Korean shares this quarter, the most among 8 Asian markets and more than 3 times as big as went into Taiwan, and versus $4 billion into India and $1.6 billion into Thailand.

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Stocks Triumph 3rd Month in Best Run Since ’09 as Gold Sinks – Bloomberg 12-01-13

Salient to Investors:

Bill O’Neill at UBS Wealth Mgmt said the story is still the combination of easy money policies and expectations of growth into 2014 and that growth is on the horizon.

The Investment Companies Institute reports individual investors gave $30 billion to managers in 2013, the first net inflows into equity funds since 2006, and versus $400 billion outflows in the previous 4 years.

The average of 19 forecasts expects the S&P 500 to fall 4 percent in December to 1,733. December has been the second-best month for US equity returns in data from 1928, with an average return of 1.5 percent, versus the monthly mean of 0.6 percent.

The S&P 500 trades at 16.3 times projected earnings.

Michael O’Sullivan at Credit Suisse Private Banking & Wealth Mgmt said the economy looks much, much more healthy.

4 of 5 investors, traders and analysts expect the Fed to taper in March or later, with just 5 percent looking for a move this month.

Goldman Sachs expects gold at $1,110 and Brent at $105 in 12 months.

Barclays sees gluts in aluminum, copper, nickel and zinc this year or next, and says copper will average $6,500 in Q4 2014.

The US is meeting 86 percent of its own energy needs, the most since 1986, and the International Energy Agency predicts the US will overtake Russia and Saudi Arabia as the world’s largest oil producer by 2015.

The median economist expects the 10-yr Treasury yield to rise to 3.1 percent by mid-2014.

John Rutledge at Safanad expects many months in which the Fed is the dominant story, and said the tapering story worries investors as to whether the Fed is there to sop up Treasury issues.

The median economist expects the euro to weaken to $1.30 against the dollar by mid-2014, and the yen to weaken to 104.

Benoit Anne at Societe Generale sees no appetite to invest into emerging markets as fear of the Fed prevails and investors are reluctant to take on risk as year-end looms.

 Jim McDonald at Northern Trust said economic momentum and monetary policy momentum are better in the developed economies, while there is too much uncertainty in the emerging world as reflected in their stocks.

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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.

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Europe Gaining Confidence Among Investors in Global Poll – Bloomberg 09-11-13

Salient to Investors:

A Bloomberg poll of investors, analysts and traders showed:

  • 40% see the euro-area economy as improving, more than 4 times the number in May
  • 40% see the world economy as strengthening, the most since January 2011.
  • 52% expect stocks to produce the best return over the next year versus 16% for real estate, 4% for bonds. 48% expect bonds to perform the worst.
  • 19% are bearish on gold, with 44% expecting it to fall in 6 months.
  • 26% see political gridlock over fiscal policy as the greatest risk to the global economy, followed by a weakening Chinese economy. 17% see Europe as the greatest risk to the global economy, versus 33% 4 months ago.
  • 34% said the EU offers one of the best investment opportunities, up from 18% in May, while 18% said the EU offers the worst prospects, down from 45% in May.
  • 53% said the Euro Stoxx 50 Index will be higher in 6 months.
  • 75% said Spain and Italy will avoid bankruptcy.
  • Almost 33% said Greece will avoid bankruptcy, with 54% saying its position in the euro area will be weaker after Germany’s elections this month.
  • 12% plan to buy euros and 9% intend to buy more euro-area government debt.
  • 64% said the US economy is improving.
  • Just over 50% said Europe’s markets are a best bet for the coming year, and 58% expect the S&P 500 to rise into early 2014.
  • 59% said Japan’s economy is improving. 58% expect the Nikkei 225 Stock Average to sustain its rise this year, but only 26% see Japan as a top investment opportunity in the next 12 months.
  • 52% plan to increase their exposure to equities over the next 6 months versus 63% in January, a third are looking to real estate, and 37% like the U.S. dollar. Over 50% are reducing their investments in US Treasury bonds and 38% are fleeing corporate bonds.
  • 15% plan to increase their gold reserves versus 30% a year ago. 25% are reducing their exposure to commodities.
  • 27% are buying emerging-market equities, 27% are selling them. 6% plan to increase their yen exposure, and 3% like Japanese government bonds.
  • 41% are optimistic on Obama’s policies toward the investment climate, while 50% regard him favorably, both the lowest levels in a year.
  • 65% like Angela Merkel’s policies. 50% like David Cameron’s policies. 70% like Abe’s policies. 47% like Xi Jinping’s policies. 13% like Francois Hollande’s policies.

Peter Kinsella at Commerzbank said the structural issues facing the euro and monetary union are being addressed, and the acid test is whether they will lead to job growth.

Andreas Domke at Allianz Global Investors Europe said a surprising broad recovery seems to be under way.

Marie Owens Thomsen Credit Agricole Private Banking said global risk is the lowest in the post-crisis period as investors see little risk of a systemic threat, so there is ample scope for risky assets to climb.

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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.


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Ex-Soros Adviser Fujimaki Sees JGB Bust From Tax Delay, Fed – Bloomberg 08-02-13

Salient to Investors:

Takeshi Fujimaki said:

  • A delay in increasing the sales tax and reduction of Fed stimulus could cause Japan’s government bond bubble to burst.
  • Japan will not be able to avoid default and hyper-inflation with the tax increase, but that is no excuse not to go ahead with it.
  • Japan’s fiscal health is not ringing alarm bells in the market as the BOJ’s enormous amount of bond buying keeps yields low, and no matter how much fiscal spending, the pain won’t be felt, so the debt continues to balloon to the point of no return.
  • Postponing the sales tax would be a huge mistake and would be a clear signal for a government bond sell-off, or buying of puts. It could be a trigger for hedge funds which have been waiting for a collapse to start moving.
  • The risk of default is shifting from the private sector to the public as the BOJ splurges on JGBs. If we continue down this path the credibility of the BOJ will be lost and the yen will plunge.
  • We need a weaker yen to stoke inflation, because on fundamentals the yen should be around 180 to 200 per dollar, but because it has been around 80, we have had 20 years of deflation.

J. Kyle Bass at Hayman Advisors has predicted a Japanese fiscal collapse since 2010 and said in May that if JGB investors begin to believe that Abenomics will be successful, they will ‘rationally’ sell JGBs to buy foreign bonds or equities.

The IMF said Japan’s public debt may rise to 245 percent of GDP in 2013.

The BOJ is set to absorb half of the government bonds planned for sale this fiscal year, while domestic investors are looking overseas for higher yielding assets.

In Q2, Sumitomo Mitsui Financial almost halved its JGB holdings in Q2, Mitsubishi UFJ Financial cut holdings by 17 percent,  and Mizuho Financial cut by 20 percent.

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The $7 Trillion Problem That Could Sink Asia – Bloomberg 08-01-13

Salient to Investors:

William Pesek writes:

Asia sits on almost $7 trillion in currency reserves, much of it in dollars as its central banks engaged in a kind of financial arms race after a 1997 crisis. Asia now has more weapons against market unrest than it knows what to do with and is essentially America’s banker, with China and Japan having the most at stake.

Huge reserve holdings are not a financial strength but a trap that is complicating economic policy making. China has leverage but it is limited. Another US debt-limit tussle would fuel market volatility, strengthen the yuan as the dollar plunges, and result in the loss of tens of billions of dollars in China’s portfolio of U.S. Treasuries.

Leland Miller at China Beige Book Intl said China does not like it, but understands it has no option but to accept the hand it is given.

The yen would surge on another US downgrade – in 2011, a flight-to-quality trade drove huge amounts of capital to Japan.

The more Asia adds to its holdings of US debt, the harder they become to unload. Markets would quake at even the slightest whiff that China or Japan was selling large blocks of their trillion-dollar holdings, so central banks just keep adding to them.

The world has never before seen a greater misallocation of vast resources. When central banks buy dollars, they need to sell local currency, increasing its availability and boosting the money supply and inflation. So they sell bonds to mop up excess money.

At the very least, Asia should stop adding to its dollar holdings and consider ways to bring more of those funds home.

It is in the US’s best interest to keep more of its debt onshore, Japan-style, by attracting greater purchases from cash-rich U.S. companies, thereby making the US less vulnerable to capital flights in the future.

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Gary Shilling position update 2013 – Gary Shilling blog 07-15-13

Salient to Investors:

Gary Shilling writes:

  • The fog remains thick, so reducing long positions in Treasury bonds and Japanese stocks and cut yen shorts, euro shorts and dollar long positions.
  • Maintaining long positions in US defensive stocks like utilities and health care.
  • Increased short position in junk bonds and initiated shorts in emerging market stocks and bonds.

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Did Bernanke Signal Return of Risk-Off Market? – Bloomberg 06-27-13

Salient to Investors:

A. Gary Shilling at A. Gary Shilling & Co. writes:

Short stocks and commodities, go long the dollar and Treasuries – if stocks continue to decline, the safety of Treasuries and investment-grade bonds will outweigh concerns about the end of QE.

World economies are growing slowly at best and hold no interest for equity investors, whose entire focus has been on QE.

Investors are facing two shocks: the end of QE and a hard landing in China.

China’s growth is slowed by huge excess capacity and declining numbers of labor force entrants. Official growth data are vastly overstated. and is closer to the 5 percent to 6 percent hard-landing level. China’s total domestic credit from banks et al was 207 percent of GDP in 2012 versus 145 percent in 2008, with much of the increase coming from shadow banking. Short-term interest rates rose to 25 percent last week.

Ultralow interest rates have pushed investors into the highest-yielding assets they could find, regardless of risk, including junk bonds, leveraged loans that finance private-equity buyouts, developing country bonds, investor-owned single-family rentals, and high-dividend stocks such as utilities and consumer staples.

Investors are dumping emerging-market assets and junk bonds. High dividend stocks which outperformed in Q1 underperformed in the recent sell-off. Pension funds have moved into private equity, developing-country stocks and bonds, hedge funds and even commodities.

The average closed-end bond fund has fallen 10.7 percent in the past month versus a 3.4 percent decline in open-end bond funds.

Developed country stocks have much further to drop. The sluggish US economic recovery has produced minimal sales volume growth and no increased pricing power as inflation rates fell to zero, resulting in companies cutting costs, pushing corporate profits’ share of national income to an all-time high.

Robert Shiller’s cyclically adjusted P/E indicates the S&P 500 is 30 percent above its long-term trend.

Slower Chinese growth in manufacturing undermines the rationale for the commodity bubble of the early 2000s. Higher interest rates are eliminating the incentive to store crude oil for sale in the futures market at higher prices.

Gold buyers who thought QE would promote instant hyperinflation are finding instead inflation rates dropping to zero and higher interest carrying costs.

The dollar should continue to gain as a haven, especially as protection from the euro. The strong dollar makes many commodities more expensive for businesses that operate in weakening currencies.

The yen will continue to drop against the dollar as Abe tries to turn deflation into 2 percent annual inflation and force the BoJ to double its purchases of securities.

Commodity currencies such as the Australian dollar, the Brazilian real and the Russian ruble remain vulnerable as exports and prices continue to fall.

Currency devaluations in Japan and elsewhere will be matched by competitive devaluations worldwide. No country wins in competitive devaluations as foreign trade is disrupted. In the end, most will end up devaluing against the US dollar.

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