If you were one of the thousands of people who shelled out big bucks to hear some of the smartest members of the hedge fund set speak at two high-profile conferences back in May, it would not have been surprising if afterward you shed a major portion of your equity holdings.
After all, as we pointed out at the time, both confabs were distinguished by the pervasive doom and gloom communicated by the blue-chip speakers.
Could this mean they missed out on the subsequent market rally, which accelerated following the November elections, putting the equity markets on target for a surprising double-digit gain and sending the bond market into a major tailspin? In some cases we’ll find out when their year-end results become available.
Of course, when they spoke in May, none of these people specified their time horizons for their recommendations or their bearishness, which helps get them off the hook. Still, it is interesting to recall who was the most bearish at the time.
At the Sohn Investment Conference, held in New York in early May, most presenters steered clear of touting equities, preferring to talk up obscure corners of the investment world. Zachary Schreiber, one of the founders of New York–based PointState Capital, devoted his presentation to an ominous outlook for Saudi Arabia and its debt. He recommended that investors short the Saudi currency, the riyal, and offset the trade with long positions in the U.S. dollar, the Mexican peso, and the Russian ruble.
Short-selling specialist James Chanos of New York’s Kynikos Associates focused on two countries heavily dependent on China to sell their commodities — Nigeria and South Africa — and detailed why the two countries are experiencing financial, monetary, and social troubles. Chanos then used this discussion to lead into his case for shorting MTN Group, a South Africa–based mobile telecommunications company, which, he said, got 62 percent of its revenue from South Africa and Nigeria. Since then the stock has been roughly flat.
Bond guru Jeffrey Gundlach of Los Angeles–based DoubleLine Capital recommended selling the utility index and going long mortgage real-estate investment trusts. He pointed out that the former had surged in price, while the latter had fallen. Since then the utility ETFs have been essentially flat, while REITs have risen.
At the eighth annual SALT Conference, held at the Bellagio Hotel in Las Vegas the following week, there was no market or sector that was talked up as being “way undervalued” or about to pop. There was little endorsement of the hot internet and tech stocks.
Rather, as we reported at the time, attendees were more likely to hear about relatively staid companies such as the Sherwin-Williams Co. — the paint company — rather than the sexy hedge fund stuff that draws headlines and instantly triggers sharp run-ups in stock prices.
However, the biggest bear at either conference was Stanley Druckenmiller, who shut down his wildly successful Duquesne Capital Management in 2010.
At the Sohn gathering the former trigger man for George Soros and longtime critic of the Federal Reserve Board’s easing policy stressed that the country badly needs “entitlement” and tax reform.
Druckenmiller concluded his remarks by declaring: “The conference wants a specific recommendation from me. I guess ‘Get out of the stock market’ isn’t clear enough.” He added that gold “remains our largest currency allocation.”
If Druckenmiller stayed with this trade, he would have missed out on the stock market’s double-digit gain this year and suffered big losses on his gold bet. However, although he was a big supporter of John Kasich for president, right after the election he publicly became a big bull. Appearing on CNBC, Druckenmiller declared: “This economy is so overregulated and people are just drowning in red tape that the removal of that, and I’m expecting serious tax reform, cuts to the corporate tax rate. . . . So I’m quite, quite optimistic on the economy.”
The lesson here: Being able to shift a big, macro sentiment virtually overnight helps to explain why Druckenmiller never suffered a down year — and shows how some hedge fund managers deserve their huge fees.
