Tag Archives: Markets

Here’s How George Soros’s Latest Predictions Have Played Out

Bloomberg, Jun 9, 2016

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* Billionaire’s first-quarter bet on gold miners among winners
* He’s been wary of China’s debt-fueled growth for several years

George Soros, the 85-year-old billionaire who broke the Bank of England in 1992, is becoming more involved in day-to-day trading at his family office, taking a series of big, bearish bets.

Soros is best known for netting $1 billion as a hedge fund manager decades ago when he and his then-chief strategist Stan Druckenmiller wagered that the U.K. would be forced to devalue the pound. His predictions haven’t always played out so well.

Anticipating weakness in various global markets, his Soros Fund Management cut its publicly disclosed U.S. stock holdings by 37 percent in the first quarter while buying shares of gold miners and an exchange-traded fund tracking the price of the precious metal.

Since then, the S&P 500 Index has returned 3.1 percent. Barrick Gold Corp., his largest new position disclosed in the quarter, fared better, jumping 44 percent.

Here’s a look at some recent calls by Soros, whose personal fortune is estimated at $24.7 billion, and some of the other trades made by his family office in the past few years:

China Uncertainty

Soros has been worrying about China since at least 2013, expressing increasing concern that the country’s leaders might not be able to manage an economic slowdown.

Earlier this year, he compared China’s economy to the U.S. in 2007-08, pointing to debt-fueled growth that’s produced uncertainty and instability in the country’s banking system.

“Most of the money that banks are supplying is needed to keep bad debts and
loss-making enterprises alive,” Soros said on April 20 at an Asia Society event in New York.

More defaults may be looming in the nation’s corporate bond market. Bloomberg Intelligence estimated in May that 15.6 trillion yuan ($2.4 trillion) of corporate borrowing can be classified as “at risk loans” — those where the borrower doesn’t have sufficient earnings to cover interest payments. That’s equal to 23 percent of the country’s gross domestic product in 2015.

China’s Hang Seng Index has returned 10 percent over the past three years, not great, but nothing like the 37 percent slump in U.S. stocks in 2008. The index is down 22 percent from a post-financial crisis peak in April 2015, when including dividends.

Europe Crisis

At a panel discussion on Sept. 24, 2011, Soros said the Greece-born European debt crunch was “more serious than the crisis of 2008.” Last year, he said the chances of Greece leaving the euro area were 50-50.

“You can keep on pushing it back indefinitely” by making interest payments without writing down debt, Soros said in a Bloomberg Television interview that aired March 24, 2015. “But in the meantime there will be no primary surplus because Greece is going down the drain.”

There are signs that nervousness about the euro area economy is ebbing as investors increasingly focus on China. Greece and its creditors in the currency bloc may be nearing an agreement to disburse a new tranche of bailout aid that would allow it to meet debt payments this summer and also pave the way for restoring access to the European Central Bank’s regular refinancing operations.

Since Soros’s 2011 comments, the Bloomberg European 500 Index has returned 82 percent. European sovereign debt has returned about 14 percent in dollar terms.

Argentina Bonds

Soros took a personal interest in Argentina — where he’s been invested for decades — and most recently wagered successfully on the country’s defaulted bonds. From time to time, he’d meet personally with former President Cristina Fernandez de Kirchner to discuss Argentina’s economic prospects. After a U.S. court blocked payments on the nation’s bonds, his Quantum Partners fund in 2014 joined an investor group that sued bond trustee Bank of New York Mellon Corp. in London for failing to distribute interest payments on securities, claiming the ruling shouldn’t apply to notes governed by laws outside of the U.S.

While the dispute was resolved after Fernandez left office last year, Soros has still been showing interest in the country. Representatives for his fund participated in Argentina’s bond roadshow in April, according to a document obtained by Bloomberg, after which the government sold a record $16.5 billion in securities in its return to the global debt market.

Argentine bonds have returned 57 percent on average since Soros’s bet was revealed with the lawsuit in August 2014.

Soros’s family office made almost $1 billion from November 2012 to February 2013 betting that the Japanese yen would tumble with the election of Prime Minster Shinzo Abe, who pressed the Bank of Japan to introduce additional stimulus measures. A couple of months later, the billionaire warned that moves to expand monetary easing could trigger “an avalanche” in the yen as citizens shift their money abroad.

“What Japan is doing is actually quite dangerous because they’re doing it after 25 years of just simply accumulating deficits and not getting the economy going,” Soros said in an April 5, 2013, interview with CNBC. Central bank officials may not be able to stop the currency’s fall, he said.

The yen continued to fall in the wake of Soros’s comments.

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Singer Says Gold Rally Just Beginning as Goldman Sees Losses

Bloomberg, May 11, 2016

Paul Singer

Paul Singer

* Elliott hedge fund manager cites global currency `debasing’
Goldman sees losses for bullion even after raising outlook

Billionaire hedge fund manager Paul Singer said that gold’s best quarter in 30 years is probably just the beginning of a rebound as global investors — including Stan Druckenmiller — weigh the ramifications of unprecedented monetary easing on inflation.

“It makes a great deal of sense to own gold. Other investors may be finally starting to agree,” Singer wrote in an April 28 letter to clients. “Investors have increasingly started processing the fact that the world’s central bankers are completely focused on debasing their currencies.”

Gold for immediate delivery rallied 16 percent in the first three months of the year, the biggest quarterly surge since 1986, as the Federal Reserve refrained from tightening and central banks in Europe and Japan pressed on with negative interest rates. Druckenmiller, the billionaire investor with one of the best long-term records in money management, said last week gold is his largest currency allocation and the bull market in stocks was exhausted.

‘Very Powerful’

If investors’ confidence in central bankers’ “judgment continues to weaken, the effect on gold could be very powerful,” Singer wrote in the letter. “We believe the March quarter’s price action could represent something closer to the beginning of such a move than to the end.”

Spot gold has rallied 20 percent this year, trading at $1,272.59 an ounce at 6:02 a.m. in New York, as investors poured funds into bullion-backed exchange-traded products. The commodity, which dropped for the past three years, remains more than 30 percent below its September 2011 high.

Singer’s outlook contrasts with the view from Goldman Sachs Group Inc. While the New York-based bank revised its bullion forecasts higher in a May 10 note, its commodity team including Jeffrey Currie still expects weaker gold prices over the next 12 months.

Goldman’s new forecasts put bullion at $1,200 an ounce in three months, $1,180 in six and $1,150 in a year, up from $1,100, $1,050 and $1,000, according to the report. There’s limited room for further gains as the Fed will probably tighten in September, and may move in July, Goldman said.

BNP’s View

Like Singer — who in 2013 predicted the metal may be “rediscovered” by investors needing to own something “real” — other backers of gold this year have highlighted concern central bank policy makers may be losing their credibility. Gold may advance to as much as $1,400 over the next 12 months, BNP Paribas SA said in April, citing rising investor concern about the efficacy of central banks’ policies to sustain growth.

Singer, whose firm Elliott Management Corp. oversees about $28 billion, got a measure of vindication for his longstanding call as gold rallied last quarter amid speculation that the Fed will be slow to tighten monetary policy as global risks persist and lending rates in the euro area and Japan fell below zero.

Elliott Management’s main fund, Elliott Associates, was up 2.7 percent in the first quarter, according to the investor letter.

In addition to expressing his gold view through options, Singer is backing a new venture focused on royalties, streaming, and other forms of investments in the mining industry that will be led by Shaun Usmar of Barrick Gold Corp. Usmar stepped down from his post as chief financial officer of the world’s largest bullion producer last month.

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The Hedge Fund Manager Betting Soros Is Wrong About China

Bloomberg, Apr 26, 2016

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* Impala hedge fund manager says economy `already had the crash’
* Fund, with $2.2 billion, said to post 2% gain in first quarter

Bob Bishop, who once ran investments for billionaire George Soros, is betting his former boss is wrong about China. The world’s second-biggest economy has had its hard landing and is on its way up, according to Bishop.

Rising infrastructure spending, steel production and demand for metal and heavy-duty trucks are signs of improvement for the nation’s industrial and manufacturing sectors, said Bishop, a former chief investment officer at Soros Fund Management who runs $2.2 billion hedge fund Impala Asset Management. Soros said last week that China resembles the U.S. in 2007-08, when credit markets froze and triggered a global recession, and that its banking system is increasingly unstable.

“China already had the crash,” Bishop said in an April 18 interview. “It bottomed at the end of 2015. It’s going to feel like a much better economy in China over the next two years than people seem to think it will be.”

Policy makers in China talked up growth and added stimulus this year to re-energize the economy. In March, the purchasing managers index ticked above 50, signaling expanding factory activity for the first time since June. A recovering China, which is a key importer of steel, copper, iron ore and other metals, bodes well for commodity prices. The price of iron ore rose more than 50 percent this year as of Monday and copper was up almost 6 percent.

If copper reaches $3.25 a pound, which Bishop expects will occur in 2017, Freeport-McMoRan Inc., the largest publicly traded copper miner, could see its earnings triple and stock price jump by $3 to $4 a share, he said. The stock closed Monday at $11.35 in New York. Impala initiated a “modest” investment in the stock in the past month and a half, according to Bishop. It also took a position in miner First Quantum Minerals Ltd.

Commodity Stocks

The firm has boosted its investments in commodity stocks to about 20 percent of the Impala Fund from 4 percent at the start of this year, Bishop said.

“What people often miss on commodity stocks is that their earnings leverage and stock sensitivity to price movements in the underlying commodity is very high, more so than any other sectors in the market,” Bishop said.

The Standard & Poor’s Global Natural Resources Net Total Return Index has rebounded almost 40 percent since Jan. 20, its low point this year, after a slide that began in mid-2014 as China’s economic growth slowed.

Bishop, who worked at Soros between 2002 and 2003, started New Canaan, Connecticut-based Impala in 2004. Its main equity fund, which manages about $1.5 billion, gained 7.7 percent in March, bringing returns for the year to 2 percent, according to a person familiar with the matter.

Bishop declined to comment on performance or on Soros’s views.

Warning Sign

China’s March credit-growth figures should be viewed as a warning sign, Soros said at an Asia Society event in New York on April 20. The broadest measure of new credit in the nation was 2.34 trillion yuan ($360 billion) last month, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey.

Soros, a former hedge fund manager who built a $24 billion fortune, in January called a hard landing in China “practically unavoidable.” Soros returned outside capital in 2011 and his firm now manages his own wealth. Hedge fund managers including Crispin Odey at London-based Odey Asset Management and Kyle Bass at Hayman Capital Management in Dallas have been wagering on a slowdown in China. Bass is said to be starting a fund to focus on China-related investments.

Bishop isn’t the only U.S. hedge fund manager who’s bullish on China. In March, Jordi Visser, head of investments at $1.4 billion Weiss Multi-Strategy Advisors, said China’s Shenzhen Composite Index will beat most global peers by the end of this year.

Bishop spent at least a decade focusing on commodities and other cyclical stocks at hedge funds Maverick Capital, Kingdon Capital and Julian Robertson’s Tiger Management.

Impala said in a March 31 investor memo obtained by Bloomberg that energy prices have bottomed, and that improving U.S. demographic and consumer trends, loosening mortgage availability and tight supply are creating an environment in which the homebuilding cycle will accelerate.

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Draghi Seen Putting ECB Stimulus Back on Agenda After Summer

Bloomberg, Apr 18, 2016

draghi_deflation

* Analysts say ECB could add asset purchases or cut rates again
* Helicopter money not seen as realistic option any time soon

Draghi Seen Putting ECB Stimulus Back on Agenda After Summer – Bloomberg

No sooner will Mario Draghi return from his summer vacation than he’ll be looking to boost euro-area stimulus yet again, economists predict.

Despite unprecedented measures by the European Central Bank president so far, Bloomberg’s survey of 47 analysts who cover the institution showed more than 60 percent think he isn’t yet done. The most likely date for fresh action was put as the Sept. 8 policy meeting, though some predicted it could happen as early as June. No new stimulus is expected when officials meet this Thursday.

Without a radical change to economic policy in the 19-nation currency bloc, Europe’s feeble recovery risks remaining insufficient to deliver inflation in line with the ECB’s definition of price stability —  a rate below but close to two percent. That’s what’s driving expectations Draghi will have to act again, even after he last month cut interest rates to record lows, expanded quantitative easing by a third and announced free long-term loans for banks.

“Economic growth and therewith wage growth in the euro area will remain weak for the foreseeable future,” said Fabian Fritzsche, an economist at Collineo Asset Management GmbH in Dortmund, Germany. “It is hard to image such a situation with inflation at or above the target.”

Draghi reiterated in Washington last week that it is  “crucial” the very low inflation environment does not become entrenched in second-round effects on wage and price-setting. The inflation rate was zero last month, and economists see it climbing only slowly to average 1.7 percent in 2018.

His concerns appear to be weighing on economists’ optimism. In the survey before the ECB’s March 10 meeting, most respondents said the rate cuts and QE boost they expected then, and which Draghi delivered, would be enough to get the job done.

In the latest survey, two-thirds of the economists who predicted fresh action, and who provided a time frame, said new stimulus will come within the next five months. All but one said the ECB will extend QE past the current end-date of March 2017,  and 36 percent said it’ll cut the deposit rate further below the present level of minus 0.4 percent. About a quarter said Draghi will expand monthly bond purchases above 80 billion euros ($90 billion) a month.

Economists saw little scope for much more in rate cuts though. Most agreed with the Governing Council’s view that the effective lower bound for the deposit rate will soon be reached. The analysts put that limit at minus 0.5 percent and 62 percent said if the ECB does reduce the rate again, the central bank will introduce an exemption system to mitigate the impact on the banking system. The benchmark rate, now at zero, can’t be cut any lower, the survey showed.

The ECB’s new plan to start buying non-bank corporate bonds as part of QE is expected to be fairly limited in size, at around 7.5 billion euros per month, according to the survey. That program is scheduled to start late this quarter. Only 11 percent of economists see equities as a potential next target.

As for even more extreme forms of stimulus, don’t bet on it for a while. Economists don’t expect that direct injections of cash into government coffers or the public’s pockets is a realistic policy option any time soon. Ninety-three percent said the ECB isn’t going to engage in what’s now being discussed under the term  “helicopter money.”

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Top Currency Trader Says Too Soon to Buy Dollars

Bloomberg, Apr 4, 2016

usdollar_stack

* Stronger jobs data last week made little impact on Fed outlook
* Yellen Fed focusing more on world growth than U.S.: Citigroup

Top Currency Trader Says Too Soon to Buy Dollars Despite Data – Bloomberg

Citigroup Inc., the world’s biggest currency trader, says it’s “too soon” to buy the U.S. dollar after it slumped to a nine-month low and economic data came in stronger than forecast.

A gauge of the dollar was little changed Monday after dropping 1.6 percent last week even after Labor Department data showed U.S. employers added more workers than projected in March and wages strengthened. Federal Reserve Chair Janet Yellen and fellow policy makers are changing how they decide on rates, putting more weight on global financial conditions, even as U.S. data improve, said Todd Elmer, a Singapore-based foreign-exchange strategist at Citigroup.

“The dollar is on a tenuous footing despite the fact that the data have been coming out stronger,” Elmer told Bloomberg News. “Until the market starts to seriously consider the prospect of a June hike from the Fed, the dollar weakness is going to be the trend.”

Traders pushed back expectations for the next Fed increase after Yellen in a March 29 speech cited slowing Chinese growth and the outlook for commodities prices as risks. It’s appropriate to “proceed cautiously” in raising rates, she said. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, fell on March 31 to the lowest level since end-June. A Citigroup surprise gauge for U.S. data hit a four-month high March 18.

“Certainly the divergence trade, where the U.S. economy is leading and the Fed is tightening, could come back later this year,” Elmer said. “But for the time being, we just aren’t getting validation from the Fed in line with the pick up that we’ve seen in data.”

Yields Sought

The dollar will likely weaken against the currencies of commodity producers and developing nations as investors seek high-yielding assets, Elmer said.

The greenback declined 4.9 percent versus the Australian dollar in the first quarter, its biggest drop since the final three months of 2011. Against its New Zealand counterpart, the U.S. currency weakened 1.1 percent, adding to a 6.3 percent drop in the fourth quarter. An index of emerging-market currencies advanced 4 percent in the three months ended March 31, its biggest quarterly gain since 2012.

Hedge funds and money managers cut net bullish positions on the dollar to the lowest level since 2014, according to data from the Commodity Futures Trading Commission. Bets that the dollar would rise outnumbered bearish positions by 66,441 contracts for the week ended March 29, down from 87,902 a week earlier.

“Until we see a shift and the market starts to price in risks for more Fed tightening, the dollar is going to be on the back foot,” Citigroup’s Elmer said.

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