Paul Tudor Jones Letter: Inflation Is About to Appear ‘With a Vengeance’

Per his latest letter, Paul Tudor Jones expects a return of inflation and perhaps a bear market caused by rising interest rates.

Bloomberg: Inflation Is About to Appear ‘With a Vengeance,’ Paul Tudor Jones Says

Paul Tudor Jones ““Cry ‘Havoc!’, and let slip the dogs of war”

Per Bloomberg:

“We are replaying an age-old storyline of financial bubbles that has been played many times before,” Jones, founder of Tudor Investment Corp., wrote in a Feb. 2 letter to clients. “This market’s current temperament feels so much like either Japan in 1989 or the U.S. in 1999. And the events that have transpired so far this January make me feel more convinced than ever of this repeating history.”

Jones, in the 10-page letter seen by Bloomberg, hinted at a parallel between Powell and former Bank of Japan Governor Yasushi Mieno, who took to the helm in December 1989 amid a boom driven by speculative investment in land and stocks. Within a week, he began raising interest rates.

Mieno “was ultimately blamed for pricking a bubble over which he had no control,” Jones said. “While the messenger always gets the blame, the real fault lies at the feet of the policymakers of the late 1980s who allowed systemic imbalances to build up in the Japanese stock and real estate markets.”

From ValueWalk, Paul Tudor Jones on his career:

Being first a commodities and then macro trader in the late 70s and early 80s was simply an incredible time to ply the craft. The opportunity set was so large as the marker was coming due for the previous misjudgments of errant central banking. Markets routinely doubled and then gave back the entire move within a space of a few years if not months! Bull markets turned into bear markets seemingly overnight in one asset class after another. My only regret was that one of the unintended consequences of coming of age in those volatile times was learning to never want to own anything for the long run. Classic investing had a negative sign associated with it. Bear markets were very rewarding since fear is a stronger emotion than hope and something can be torn down in fractions of the time it takes to build—whether that be a house, a reputation, or a bull market. Sometimes I almost wish I was a child of a different era as the ensuing 36-year bull market in equities was not something for which I was prepared or trained.




Victor Niederhoffer: Lessons of Making and Losing a Fortune (Masters in Business Podcast)


Legendary trader and speculator was recently interviewed by Barry Ritholtz on the Bloomberg Masters in Business Podcast.

You can find the full podcast interview here:
Victor Niederhoffer: Lessons of Making and Losing a Fortune (Masters in Business Podcast)


For more on Victor Niederhoffer, refer to this 2007 profile in the New Yorker:
The Blow-Up Arist (New Yorker Profile)

There are also some bits and pieces of a nineties documentary on Youtube. Niederhoffer was interviewed after he the Asian financial crisis blow-up.
Video: Victor Niederhoffer after he lost everything in the 1997 Asian Crisis

Jeffrey Gundlach: The Man Behind the Millions (Buffalo News profile)

The Buffalo News published a long profile of DoubleLine founder Jeffrey Gundlach. The article delves into Gundlach's youth and his passion for art.

His philosphy:

“I don’t spread things thin,” Gundlach told the News in September, after his Albright-Knox donation was announced. “I focus deeply. I do that with my work, with my company. I want to make a difference to the things that I apply myself to and not just, as T.S. Eliot said, mete out my life in teaspoons.”

His rapid ascent once he entered the financial world:

Within six months, Gundlach, at 26, was managing Chrysler’s pension fund. Over a 24-year career at TCW, he built the firm’s bond business into a national powerhouse.

And his passion for modern art:

Gundlach is a long-suffering Bills fan, but his interest in football is dwarfed by his passion for art. And although he grew up visiting the Albright-Knox, Gundlach didn’t gain an appreciation for modern and contemporary art until a 2002 trip to the Tate Gallery in London, where he came across a man sketching a Mondrian painting.

“It’s like I’m hit by a thunderbolt,” Gundlach said in September of the painting that changed his life. “All of a sudden, at that moment, all I cared about was more modern art.”

Almost immediately, Gundlach began collecting 20th century pieces. Every room of his house – from the living room where a Calder mobile spins in front of a $28 million Warhol portrait of Marilyn Monroe to a hallway where a Diebenkorn landscape dialogues with a transcendent Mondrian – feels like a conversation across art history.


Full article here:
Jeffrey Gundlach: The Man Behind the Millions (Buffalo News profile)




Lessons from a Trading Great: Stanley Druckenmiller

Check out this Macro Ops post on legendary trader Stanley Druckenmiller. It quotes from Jack Schwager’s book "The New Market Wizards".

Watch the Fed:

Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.

Bet big when the time is right:

The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig.

The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully.

Full blog post here: Lessons from a Trading Great: Stanley Druckenmiller



Sam Zell on Global Growth: “Where’s the Demand?”

Sam Zell recently spoke at the CFA Institute's 62nd Annual Financial Analysts Seminar. 

He stated:

“I’m a student of demand and when demand is there, I look at the cost of fulfillment.”

Sam isn't upbeat about US commercial real estate:

“Last year, I was saying that the CRE industry was relatively benign and supply and demand was in balance,” he said. “In the last 18 months, however, there has been an enormous increase in supply.”

Both multifamily residential and office space in the US are seeing strong supply growth while occupancy rates are on the decline. “We are behind the rest of the world in terms of adapting to shrinking office space.”  

Zell is more focused on opportunities in emerging markets.

Full blog post here:

Sam Zell on Global Growth: “Where’s the Demand?”

Sequoia Fund: An epic winning streak on Wall Street — then one ugly loss

Head over to the Washington Post for an in-depth article on the Sequoia Fund and it's expensive mistake in Valean stock.

A big miscalculation on one stock, Valeant Pharmaceuticals International, has cost the Sequoia Fund billions of dollars and compromised its reputation for market-beating performance earned over decades.

To get a sense of how sterling Sequoia's reputation was: 

Sequoia grew to maturity under the glow of Buffett, the folk-hero money mind whose stewardship of Berkshire Hathaway prompted a national following based on the virtues of common-sense investing and avoiding mistakes.

Regarding Valeant (VRX):

How, with all its deep research and money minds, did Sequoia get this so wrong?
The decision to invest and stick with Valeant “was not about one person,” Poppe said.
There is no good answer.

“It almost begins to feel like a Greek tragedy,” McDevitt said. “Goldfarb had been revered in the industry, and rightfully so. For years, he would get it right, even when people said it was wrong. If you are successful when the market says you are wrong, it can create a sense of hubris. It can leave you overconfident in your own opinions and can set you up for a big fall. And that is what happened.”

Full article here:

An epic winning streak on Wall Street — then one ugly loss





Cliff Asness Remembers 2007: The August of our Discontent

Ten years after the start of the financial crisis in 2007, Cliff Asness remembers the so-called "quant quake" of August 2007. 

The quant quake: "that one week period in August 2007 when quantitative equity strategies like factor investing and statistical arbitrage suffered very large losses and then, in the next few weeks, made an almost full recovery."

Cliff discusses some of the factors that can lead to this kind of short-term underperformance of quant strategies. He also compares the situation of 2007 to today's market environment.

A few select comments by Cliff below:

So the next question is what can trigger sharp selling of a popular well-known strategy even if it's not very over-priced?

But we can identify a few of those things that can start the fire. For example, it could be something like a banking crisis, an abrupt regulatory change, or a loss of ability to maintain short positions. It could be triggered by poor performance if it's severe and abrupt enough to cause people to drastically reduce their desire to take risk in those strategies. It could particularly happen if there are large and sudden redemptions facilitated by investment terms linked to poor short term performance...

Many factor portfolios are still essentially traditional, long-only and implemented without leverage, designed to beat a benchmark by overweighting the stocks preferred by the factor or factors in question. The most famous version here is often called "smart beta"...

Leverage can, and often is, used to make such a market-neutral factor portfolio matter in the investor's overall portfolio. Thus, leverage is quite useful, but it also can be a new danger.

For instance, it seems obvious that the higher the fraction of factor investors that use leverage, and the more leverage they use, the bigger the chance of another August 2007.

On this front we take some comfort in noting that in 2017 versus 2007 it appears that far more of the factor world pursues these strategies without leverage...

You can find his full post here:

The August of our Discontent: Once More Unto the Breach? (2017)

And his 2007 "quant quake" recap here:

The August of Our Discontent (2007)





Without A Boss Bill Miller Is Betting On Amazon, Bitcoin And Bob Dylan

Forbes article from July on long-time value investor Bill Miller.

Truth is, Miller has never cared much about labels or current fashions. Beginning in 1991, his Legg Mason Capital Management Value Trust beat the S&P 500 for 15 years in a row partly because he defined "value" his own way...

As investors chased returns, Value Trust's assets grew to more than $70 billion, and Miller became the most famous active fund manager since Peter Lynch stepped away from the Fidelity Magellan fund in 1990...

Yet heading into the 2007-08 financial crisis, Miller owned everything that would soon turn toxic: subprime mortgage lender Countrywide, now-defunct Lehman Brothers and Bear Stearns, bond insurers, home builders and even AIG...


Full article:

Without A Boss Bill Miller Is Betting On Amazon, Bitcoin And Bob Dylan


Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

Crescat Capital 2Q 2017 Investor Letter

Crescat Capital just published its second quarter 2017 investor letter. The entire letter is a tour de force of the Chinese credit and housing bubble and its shadow banking system (WMPs).


You can find the full letter here:

Crescat Capital 2Q 2017 Investor Letter

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

Crescat on the global credit bubbles:

Crescat Capital letter on the Chinese housing bubble... about to roll over?

Highfields Capital Warns About Quants, Complacency

In its latest letter $13 billion hedge fund Highfields Capital Management warned about the growing influence of quant funds and market complacency. 

We can't prove this, but we are convinced that 'quant' funds, which have attracted hundreds of billions of dollars in the last few years and a significant portion of which use leverage, and whose models and various strategies are largely based on price action and correlations extracted from the reasonably recent past when volatility has been low (largely of their own making), have contributed mightily to the illusion that market risk is low.

Business Insider article on the Highfields Capital letter:

Highfields Capital Warns About Quants, Complacency



Ruane, Cunniff & Goldfarb (Sequoia Fund) 2017 Investor Day Transcript

The Sequoia Fund (SEQUX) is one of the most storied and reputable stock picking mutual funds. The fund and its manager (Ruane, Cunniff & Goldfarb) had a sterling reputation until the recent Valeant Pharmaceuticals debacle.

You can find the full transcript of the 2017 investor day here:

Ruane, Cunniff & Goldfarb (Sequoia Fund) 2017 Investor Day Transcript

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

The fund's current top holdings (BRKA, MA, GOOGL, TJX, XRAY, KMX, CSU, RRC/LN):

On the firm's strategy to seek high quality companies:


On portfolio holding O'Reilly and competition by Amazon in the auto parts market:

On portfolio holding Credit Acceptance Corp and the subprime auto loan market:

Howard Marks Memo: There They Go Again … Again

Howard Marks, co-founder and co-chairman of distressed investing heavyweight Oaktree Capital, published his latest memo this week.

Marks advises caution in the current market environment. He is concerned about valuations, sentiment and excesses in some market segments. These are his key points on equity valuations, complacency, FANG stocks, credit spreads and yields and the private equity and technology investing environments:

He also calls out the enormous SoftBank Vision Fund ($93 billion) which is levered through 7% preferred stock. 

Marks cautioned investors before:
in 2000, when he wrote:
in 2005, with: There They Go Again
in 2007, when he published: The Race to the Bottom
and most recently in 2011, with: How Quickly They Forget

Marks clearly likes to err on the side of caution (and made a career investing in distressed, rather than growth investments) and has historically been early to turn cautious on the markets.

You can read the full memo here:

Howard Marks Memo: There They Go Again … Again

This is how he describes today's investing environment:

Trian's Activist Campaign at Procter & Gamble (PG)

Famous activist Nelson Peltz is dialing up the pressure on Procter & Gamble (P&G, ticker PG). Trian laments P&G's weak shareholder returns, deteriorating market position, and cost structure. It has nominated Trian founder Nelson Peltz to P&G's board.

Trian's letter to the P&G Board of Directors:

Trian Partners Letter to Procter & Gamble Board


The full Trian Partners P&G slide deck:

Trian Partners Procter & Gamble Slide Deck


And the activist campaign website with all info:

Trian Partners Procter & Gamble Activist Campaign Website

Procter & Gamble's weak shareholder returns:

Procter & Gamble's weak organic growth when compared to its peers:

Invest Like the Best: Lessons Learned After Almost a Year

Patrick O’Shaughnessy's Invest Like the Best podcast is one of the most popular investing podcasts. Patrick recently reflected of his first year running the podcast and his dinner with Warren Buffett.

Invest Like the Best: Lessons Learned After Almost a Year


Ted also happens to be friends with the best investor of all time—something I didn’t know when I first met him. Fast forward to this past week. Ted, Brent Beshore and I flew to Omaha to have dinner with Warren Buffett—street value of almost $3 million dollars, my dad reminded me. I’ll get back to Warren in a second, but first a key observation here: not in a million years would I have thought a podcast would turn into a three-hour private dinner with Warren Buffett. If I had had the temerity to set that as a goal, it would have probably been impossible. If I’d been angling to get a private dinner with him, it most likely would never have happened—because everyone hates that guy. I think that because I am never angling for anything, the outcomes are far more interesting and improbable than if I was trying to achieve some specific goal. 

Jim Chanos: U.S. Economy is Worse Than You Think

Head over to the Institute for New Economic Thinking for a conversation with Jim Chanos (Kynikos Associates) on the state of the US economy.

Jim Chanos: U.S. Economy is Worse Than You Think

Some nuggets:

We’re seeing weak consumer spending numbers in both auto and housing, which are big drivers of the economy. With unemployment so low and the expansion where it is, these figures should be better than they are.

People have bought their cars and remodeled their houses and done a lot of things that one does in an economic recovery. I think incremental spending is going to be harder and harder to come by as time goes on.

Americans are getting unexpectedly higher copay and deductible expenses. They’re shouldering more and more of the health care obligation themselves, and that’s something a lot of families haven’t budgeted for. 

Winter is coming for the U.S. health care industry. [...] Just as the shale revolution has changed the energy business, I think the advent of the consumer paying more out of pocket is changing the politics of U.S. health care. 

The big 3 drivers are still housing, autos, and health care. They disproportionately count for a huge amount of activity. What we see is that housing has stalled, autos have turned down, and health care is possibly about to turn down. Retail is also turning down. Nike is laying off 2 percent of its workforce. I can’t remember the last time Nike said it was laying off people.

WSJ Conversation with Paul Singer about Activism

Terrific interview with Paul Singer of Elliott Management on his activist shareholder strategy. This was a conversation with the Wall Street Journal's Gerard Baker.

WSJ Conversation with Paul Singer about Activism

Why Bruce Berkowitz Still Likes Stocks Others Hate

Bloomberg has a 44 minute interview with Bruce Berkowitz, famous value investor and founder and Chief Investment Officer of Fairholme Capital. 

Given his underperformance in the past years, and the underperformance of value in general, a very important conversation.

Why Bruce Berkowitz Still Likes Stocks Others Hate


Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!