Robert Citrone, who runs the Tiger Cub firm Discovery Capital Management, has been determined to take advantage of the slide in oil prices. He hasn’t let holidays get in the way. On Thanksgiving Day, while many Americans were racing from their family feasts to the malls and stores, spending billions of dollars on TVs, toys and other items, Citrone and his team spent at least part of the day in their South Norwalk, Connecticut, office awaiting a decision from OPEC on whether the once-powerful cartel would cut oil production in an attempt to stem the decline in price of crude oil.
OPEC didn’t cut production. As a result, the price of oil plummeted on turkey day, while the value of the U.S. dollar went up.
“I and my team were in the office yesterday, and were able to further capitalize on the price action,” Citrone reported to clients in his weekly e-mail note dated the following day, Friday, November 28. “We sold some energy stocks and bought U.S. dollars against the currency of several major energy exporters.”
Not exactly what you would call stocking stuffers.
In the same message Citrone also told clients, “The resulting move down in energy prices is historic, and has wide-ranging implications for markets across equities, currencies, and interest rates.”
Citrone can use all the edge he can get. After ranking No. 13 on the 2014 Rich List, which reflects earnings from the previous year, he has been struggling of late. His funds — Discovery Global Opportunity Fund and Discovery Global Macro Fund — have been in the red for most of the year and were down in the high teens as recently as October.
However, Discovery Global Opportunity Fund cut its loss for the year to 3.6 percent by December 5, according to a report from HSBC. It is currently down 4.63 percent, according to an investor. Discovery Global Macro Fund was down 8.47 percent through December 12, according to HSBC.
Meanwhile, as many pundits try to predict how far the price of oil will fall, Citrone and his team are gearing up for the next phase in the oil price collapse.
In his investor e-mail of December 12, Citrone tells clients the markets are worried in general about the fallout from the recent plummet in oil prices. However, he adds “they are not focused on the huge stimulative effect this will have on global growth.” He asserts that once prices stabilize, markets will reward the winners — individual companies as well as countries — which will benefit from dramatically lower energy prices in general.
Citrone does not name specific companies or countries he thinks will be the winners from the oil price decline.
After the strong November payroll numbers were disclosed on December 5, Citrone told clients the data “continued to confirm the constructive view on income and job growth in the U.S.” that he has been maintaining. As a result, he says he still has that “positive outlook” on the dollar and U.S. equities, and a “cautious view” on interest rates.
This is consistent with the themes Citrone highlighted in another client missive, his 18-page third-quarter investor letter. In the letter he predicted that four overriding themes will dominate the investment world heading into 2015.
One of them is a strong dollar versus the G10 currencies — Citrone singled out the euro and yen — and “select” emerging-markets currencies, although he did not specify which ones.
Citrone also is looking for stronger equity markets through the end of the year and what he describes as “reasonably solid performance” next year.
Meanwhile, Citrone is anticipating that the volatility that has come into the markets since the Federal Reserve concluded its easing program will continue. He sees this condition as much more normal than the steadily rising stock market that resulted from QE. He is also anticipating a continued reduction in correlations from one country to the next and among individual stocks.
At the beginning of the fourth quarter, Citrone was also bullish on Japanese stocks. However, he expressed concern about Europe, telling clients, “Growth remains anemic, unemployment is high, and inflation is significantly below the [European Central Bank’s]2 percent target.” He added that uncertainty over ECB policy “could lead to increasing volatility” in European markets. “The European situation poses the largest risk to financial markets,” Citrone warned in the report.
In emerging markets, Citrone was clearly mixed. He said China offered attractive long and short positions. He explained that its economy is slowing down, thanks to a slowdown in consumption and investment.
However, Citrone is very bullish on India, calling it a multiyear theme, thanks to recent election results. Stressing the benefits down the road from recent structural reforms, Citrone tells clients that the country’s long-term prospects are bright. And the worldwide decline in oil prices is an added big plus for India, he says.
As for other formerly high-flying emerging countries, Citrone is cautious on Brazil, following October’s presidential election. “Long-term, the macroeconomic backdrop is negative,” he stated in the report. “The country remains uncompetitive. The economy is weak, inflation is high, investment is low, and the fiscal deficit is worse than expected.”
However, Citrone is downright bearish on Russia over the medium and long term. He is also bearish on South Africa over the medium and long term.
In any case, with two weeks or so remaining in the year, it is still possible at least one of Discovery’s funds could finish in the black, although the clock — er, calendar — may run out on it.
The big question now is: Will Citrone and his staff be working Christmas Day?
