The list of heavy hitters who are saying bad things about this world andits
financial markets -- while acting aggressively on their pessimism -- is growing
to alarming proportions. A few examples:
Stan
Druckenmiller: The bull market is exhausted; move to gold
(MineWeb) - Legendary investor Stan Druckenmiller, founder of Duquesne Capital
Management LLC, told the Sohn Investment Conference in New York last week
that he is bullish on gold and bearish on the stock market. Gold, he told
the conference, "is our largest currency allocation."
Druckenmiller recommended that investors sell their equity holdings. "The
bull market is exhausting itself," he told the conference. A major factor
has been the Federal Reserve's easy money policy, which has resulted in "reckless" corporate
behavior.
Growing corporate debt is increasingly used for financial engineering, rather
than in R&D that could lead to productivity improvements, Druckenmiller
said. According to him, from 2012 to 2015, use of debt for U.S. nonfinancial
firms for stock buybacks and M&A increased from $1.25 trillion to $2
trillion, while debt for R&D and office equipment grew from $1.55 trillion
to only $1.8 trillion.
"The corporate sector today is stuck in a vicious cycle of earnings management,
questionable allocation of capital, low productivity, declining margins and
growing indebtedness," Druckenmiller added.
The slowing Chinese economy as another reason to sell equities, according
to Druckenmiller. He believes that stimulus measures by China have "aggravated
the overcapacity in the economy." While he had hope two years ago that the
Chinese were willing to accept the tradeoff of a slowdown to gain reform,
the Chinese "have opted for another investment-focused fiscal stimulus, which
may buy them some time but will exacerbate their problem. They do not need
more debt and more houses."
Instead, Druckenmiller has made a move to gold. "It has traded for 5,000
years and for the first time has a positive carry in many parts of the globe
as bankers are now experimenting with the absurd notion of negative interest
rates," he said. "Some regard it as a metal, we regard it as a currency,
and it remains our largest currency allocation," he added. Among his investments
are holdings in the SPDR Gold Trust.
A
Bearish George Soros Is Trading Again
(Fox Business) - Worried about the outlook for the global economy and concerned
that large market shifts may be at hand, the billionaire hedge-fund founder
and philanthropist recently directed a series of big, bearish investments,
according to people close to the matter.
Soros Fund Management LLC, which manages $30 billion for Mr. Soros and his
family, sold stocks and bought gold and shares of gold miners, anticipating
weakness in various markets. Investors view gold as a haven during times of
turmoil.
Mr. Soros's recent hands-on approach reflects a gloomier outlook than many.
His worldview darkened over the past six months as economic and political
issues in China, Europe and elsewhere have become more intractable. While
the U.S. stock market has inched back toward records after troubles early
this year and Chinese markets have stabilized, Mr. Soros said he remains
skeptical of the Chinese economy, which is slowing.
The fallout from any unwinding of Chinese investments likely will have global
implications, Mr. Soros said.
"China continues to suffer from capital flight and has been depleting its
foreign currency reserves while other Asian countries have been accumulating
foreign currency," Mr. Soros said in an email. "China is facing internal
conflict within its political leadership, and over the coming year this will
complicate its ability to deal with financial issues."
Mr. Soros also argues that there remains a good chance the European Union
will collapse under the weight of the migration crisis, continuing challenges
in Greece and a potential exit by the United Kingdom from the EU.
"If Britain leaves, it could unleash a general exodus, and the disintegration
of the European Union will become practically unavoidable, " he said. Still,
Mr. Soros said recent strength in the British pound is a sign that a vote
to exit the EU is less likely.
Mr. Soros's bearish firm bought over 19 million shares of Barrick Gold Corp.
in the first quarter, according to securities filings, making it the firm's
largest stock holding at the end of the quarter. That position has gained
more than $90 million since the end of the first quarter. Soros Fund Management
also bought a million shares of miner Silver Wheaton Corp. in the first quarter,
a position that has increased 28% so far in the second quarter.
The last time Mr. Soros became closely involved in his firm's trading: 2007,
when he became worried about housing and placed bearish wagers over two years
that netted more than $1 billion of gains.
If
the Markets Crash Then Carl Icahn Could Win Big
(Barrons) - If financial markets crash, one of the biggest beneficiaries
could be billionaire investor Carl Icahn.
An investment fund run by the 80-year-old Icahn had a net short position
of 149% at the end of the first quarter. Icahn is considerably more bearish
than he was at the end of 2015, when the fund's net short position was 25%.
A year ago, the fund had a net long position of 4%. It's rare to see a fund
outside a dedicated short fund with such a large bearish stance.
Asked about the big bearish stance, Icahn Enterprises CEO Keith Cozza said
on the conference call that "Carl has been very vocal in recent weeks in
the media" about his negative views. "We're much more concerned about the
market going down 20% than we are it going up 20%. And so the significant
weighting to the short side reflects that." Icahn was not on the call.
The
Sam Zell Indicator - Time to Get Out of Real Estate?
(Value Walk) - Talk about exquisite timing.
Even today, a decade after the fact, the leveraged buyout of Equity Office
Properties Trust remains one of the largest of all time: $36 billion for
nearly 600 office buildings in New York, Washington D.C. and dozens of the
nation's largest cities.
But in late 2006, some wondered if the billionaire who sold the REIT was
being a little rash. After all, the real estate boom was in full swing, and
the S&P 500 was primed to hit new all-time highs. "Is he cashing out
too early?" asked a Bloomberg headline when the deal was announced.
We all know the answer, of course.
Billionaire Sam Zell deftly sidestepped the coming real estate carnage.
Then, with prices at generational lows a few years later, Zell bought hundreds
of apartment complexes at dirt-cheap prices.
And today? Well, that's the ominous part...
Once again, Zell is selling his real estate holdings. Last fall, he unloaded
a quarter of his portfolio, buildings totaling about 23,000 rental apartments,
to Starwood Capital Group for more than $5 billion.
Zell next sold off apartment buildings in South Florida and Denver, with
complexes in Phoenix, Boston and other metro areas expected to be sold before
the year is out.
"No one has ever accused me of not being a realist," Zell told CNBC's talking
heads recently.
Of course for every seller there has to be a buyer, so to the extent thatthese
guys are bearish, an equal amount of optimistic capital disagrees with their
assessment. Still, between Soros, Druckenmiller, Icahn and Zell there's about
a thousand years of successful, audacious experience, so at a minimum their
sudden bearishness should be a comfort to smaller players who have reached the
same conclusion.
The fact that they see gold as the antidote to crashing financial markets is
also reassuring for long-suffering gold bugs.
