Note that while this Bloomberg story discusses that some major hedge funds are skeptical of the theory that the recovery is on, for the most part, it is silent on how they are implementing that view. Recall that even if a trader does make a correct fundamental call, investing successfully on it is another matter. Soros notoriously got many of the basics around the credit crisis correct, including recognizing the oil price spike as largely a bubble, but nevertheless was reported to have wrong-footed the trades.
From Bloomberg:
[Paul Tudor] Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities….
Clarium watches the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions, Harrington said. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent.
The housing data isn’t as rosy as some see it, Harrington said. As existing U.S. home sales rose 7.2 percent in July from the previous month, distressed deals including foreclosures accounted for 31 percent of transactions, according to the National Association of Realtors, a Chicago-based trade group.
A report by the Mortgage Bankers Association, based in Washington, showed the share of home loans with one or more payments overdue rose to a seasonally adjusted 9.24 percent in the second quarter, an all-time high…
High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said….
Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.
“Some critical initiatives have been cut short,” Tudor said. “As a result, toxic assets remain on balance sheets and credit growth is likely to be subdued for a long period.”
Some firms, including Brevan Howard Asset Management LLP, see the recession at its end while dismissing the likelihood of robust growth.
Brevan Howard, Europe’s largest hedge-fund manager with $24 billion in assets, told clients the U.S. could stumble when stimulus spending fades after the current quarter.
“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”
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Both a successful releveraging and a failure of economic recovery are good for long-dated Treasuries(c.f. Greenspan’s Conundrum, various crises). It’s not at all a sexy place to wait, and it won’t be a homer, but it’s a perfectly good single, and in an environment with very low real interest rates, a single is a pretty damn good hit.
I think Horseman is playing this one right, and I encourage their investors are patient enough to be rewarded in due time.
I suppose long dollar vs. Euro, Pound, Aussie, long duration (I do not know what would do well relatively, but Treasury yields would drop, but would Bunds drop more?), short copper and oil, short gold (good fundamentals still, but people are too bullish on it, and for the wrong reasons), shorting stocks is difficult though, but I do like the fact that many short sellers are out.
I wonder if a 1994 scenario would happen when all macro hedge funds made the incorrect bets (most of them in 1994 were long on bonds, but that was also a consensus trade then and it wasn’t only pursued by macro funds)
The sovereign wealth funds are looking to invest in sdr-denominated financial instruments, equities and bonds:
http://www.globalpensions.com/global-pensions/news/1529700/swf-invest-sdr-denominated-equities-bonds
“This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”
Replace “ST stimulus” with “allowing members of the financial oligarchy to keep their jobs” and the BSD from Clarium might just have it right.
I don’t know how long the current suckers market will run. My own guess is it will tank sometime between now and the end of the year. I find it surprising that it should be thought surprising that market players should look past the atmospherics and actually base their strategies on the fundamentals. I suppose this is a function of how deeply engrained the casino mentality is in financial markets.
Beware the lure of fundamentals when it comes to timing market turns, specially with a reckless Fed head like Helicopter Ben. These drunken bouts usually last much longer than you’d think possible in the presence of free money and moral hazard. Bet against the Fed at your own peril, or rather, bet with a large enough window to avoid timing uncertainty.
I went to a ski-jump once – maybe in Stowe, Vermont? – after I got out the service – but anyway, what I remember is this: Most people are at the bottom of the mountain…
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