Category Archives: Hedge Funds

Goldman Sachs’s David Kostin on Why 2015 Could be Better than We Think

According to CNBC, Goldman Sachs already appears to be having second thoughts on its tepid forecast for 2015.

The firm’s clients believe Goldman is overestimating how much interest rates will rise in the years ahead, strategist David Kostin said in his weekly report that summarized recent meetings with market pros.

Kostin has projected the Federal Reserve‘s target funds rate to hit 3.9 percent by the end of 2018. Fund managers, though, believe slow global growth and low inflation will keep the U.S. central bank in only modest hiking mode, translating to just a 2 percent funds rate in that span.

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Jobless Reports Fuel Fed Bets, U.S. Stocks Drop After GDP Jobless Reports Fuel Fed Bets

According to Bloomberg,

(Corrects Dollar General stock price in 17th paragraph.)

U.S. stock-index futures fell, signaling equities will extend a four-day slide, after data showing faster-than-forecast economic growth fueled speculation the Federal Reserve will curb stimulus spending.

Aeropostale Inc. lost 3.8 percent as the retailer’s fourth-quarter loss forecast was wider than estimated. Apple Inc. rose 1.4 percent as China Mobile Ltd. moved closer to offering its 759 million subscribers iPhones. General Growth Properties Inc. added 4.5 percent as Standard & Poor’s said it will add the mall owner to its benchmark index this month.

S&P 500 Index (SPX) futures expiring this month fell 0.3 percent to 1,787.20 at 9:12 a.m. in New York. Dow Jones Industrial Average contracts lost 39 points, or 0.3 percent, to 15,847 today.

“The numbers today pave the way for the Fed” to cut stimulus, Matthew Kaufler, a portfolio manager at Federated Investors Inc. in Rochester, New York, said by phone. His firm oversees $363.8 billion. “There’s angst in the short run, but I think it’s only positive in the long run that the Fed begin to taper and extricate itself from being the ultimate market maker.”

The S&P 500 has surged 26 percent this year, challenging 2003 for the biggest annual gain in the last 15 years, as the Fed refrained from reducing its monthly bond purchases and corporate earnings surpassed estimates.

Stimulus Bets

The central bank has said it will start slowing the pace of stimulus if the economy improves in line with its forecasts. Policy makers, who next meet Dec. 17-18, will probably wait until the March 18-19 Federal Open Market Committee session before reducing monthly bond purchases to $70 billion from $85 billion, according to the median estimate in Bloomberg’s latest survey of economists conducted on Nov. 8.

The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. Consumer spending slowed. Gross domestic product climbed at a 3.6 percent annualized rate, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012.

Separate data showed applications for U.S. employment benefits unexpectedly fell last week to the lowest level in more than two months. Jobless claims decreased 23,000 to 298,000 in the week ended Nov. 30, the Labor Department said.

Data tomorrow may show the unemployment rate fell to 7.2 percent, matching the lowest level since 2008.

Fed Bank of Atlanta President Dennis Lockhart, a backer of record stimulus, said today the central bank when considering tapering should announce a total limit on purchases or a timetable for dialing down the program.

‘Transition Process’

“If and when the FOMC arrives at a decision to wind down asset purchases, it’s my view that it will be helpful to the transition process to provide as much certainty as possible about how this will be done,” Lockhart said in a speech in Florida.

The S&P 500 has retreated 0.8 percent in the past four sessions, dropping to a two-week low after closing at a record on Nov. 27. The index fluctuated yesterday before closing lower by 0.1 percent, as optimism that lawmakers in Washington were close to a budget deal offset better-than-forecast jobs data that fueled stimulus-tapering concerns.

The gauge’s rally this year has pushed valuations higher, with the equity benchmark trading for about 16.1 times its constituents’ projected earnings, up 23 percent from the beginning of 2013 when it traded at 13.1 times projected profit.

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Hedge Funds See Repeat of Yen Slide That Paid Soros, Currencies

According to Bloomberg,

Hedge funds are betting on another run of yen weakness, a trade that made money earlier this year for billionaire George Soros, putting them in opposition to economists who see Japan’s currency little changed into 2014.

Futures traders pushed net shorts, or wagers the yen will fall versus the dollar, to the highest since July 2007, according to the Commodity Futures Trading Commission. That contrasts with the median estimate of more than 50 analysts surveyed by Bloomberg, which puts the currency at 102 per dollar at the end of the first quarter of 2014, from 101.47 today.

Japan has resorted to an unprecedented $70 billion of monthly bond purchases since April to depreciate its currency, boost growth and combat deflation. The yen has plunged 15 percent this year, on pace for the biggest drop since 1979.

“Everybody likes dollar-yen higher,” Brad Bechtel, the managing director at Faros Trading LLC in Stamford, Connecticut, said in a Nov. 22 interview. “And everyone has it on.”

The yen fell to as low as 101.92 per dollar yesterday, the weakest level since May, when it slid to a 4 1/2-year low of 103.74. While it gained for the first time in four days today, its decline this year makes it the worst performer after South Africa’s rand among 16 major currencies tracked by Bloomberg.

Soros Profits

Japanese Yen and U.S. Dollar (Bloomberg)

Japanese Yen and U.S. Dollar (Bloomberg)

Soros, 83, made almost $1 billion from November 2012 to February 2013 on bets the yen would tumble, according to a person close to the billionaire’s family office. Michael Vachon, a spokesman for Soros Fund Management LLC, declined to comment.

Soros’s former chief strategist, Stan Druckenmiller, who made $10 billion with Soros in 1992 from a wager that the Bank of England would be forced to devalue the pound, has also been selling the yen. Druckenmiller, the founder of Duquesne Capital Management LLC, said in a Bloomberg interview in September that his firm is “short some yen,” while being “long some Japanese” stocks.

Fortress Macro Fund, which is run by Michael Novogratz and Adam Levinson, made money trading the yen last year when the currency fell 13 percent. Fortress Macro Funds oversee $3.8 billion. Spokesman Gordon Runte couldn’t be reached for comment.

Signs that the Federal Reserve may reduce its $85 billion a month of bond purchases, which pump money into the economy and debase the dollar, are also driving the yen’s plunge versus the U.S. currency. Minutes of the U.S. central bank’s Oct. 29-30 policy meeting showed that Fed officials expected to reduce their stimulus program “in coming months” as the economy improves.

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Gensler Rushes to Lock in Swap Rules as Wall Street Pushes Back

According to Bloomberg,

Gary Gensler has only weeks left as chief of the Commodity Futures Trading Commission. His message for Wall Street: I am not leaving quietly.

As the clock ticks down, Gensler has issued more than a dozen advisory opinions directed at reining in the largest financial firms and swap traders without votes by his fellow commissioners. He’s also insisting on tightening the Volcker rule ban on proprietary trading by banks, making last-minute demands that could derail a regulation that must be approved by five U.S. agencies.

Banks reeling from his final push have consulted with lawyers about whether to take the CFTC to court, according to four people briefed on the matter.

Gensler, 56, has fought a five-year battle with the industry over how to draw up a safer and more open marketplace for derivatives, the products that helped push the world economy to the precipice in 2008. Gensler is trying to cement his legacy, said Fred Hatfield, a former Democratic commissioner at the agency.

Gensler is “trying to do an awful lot in a very short amount of time,” said Hatfield, who now works at Patomak Global Partners LLC, a regulatory consulting firm in Washington. “He’s leaving as little to chance as could be possible.”

President Barack Obama has nominated Timothy Massad, 57, a Treasury Department official, to succeed Gensler, whose term has expired and must leave by the end of the year.

Chess Match

The activity in recent weeks has set up the equivalent of a high-stakes chess match between Gensler and the financial industry, which was holding off negotiating on some rules until he left, according to two people involved in the discussions. They and the others interviewed for this story spoke on condition of anonymity because their meetings were private.

The agencies that must sign off on Volcker also have been dealing with Gensler’s last-minute bargaining tactics. All five regulatory agencies don’t have to issue the rule simultaneously, and in light of Gensler’s questions some have discussed whether to press ahead and publish the rule without waiting for the CFTC to act, the Wall Street Journal reported yesterday, citing sources familiar with the process.

A former Goldman Sachs Group Inc. partner, Gensler is well-schooled in the ways of Wall Street and has emerged as one of its main adversaries in Washington. In implementing the derivatives rules mandated by the 2010 Dodd-Frank Act, he often takes an issue to the brink before striking a deal that is more amenable to the industry than what he first proposed.

 

 

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Paulson Said to Inform Clients He Won’t Add More to Gold

According to Bloomberg,

Billionaire John Paulson, the best-known gold bull since he started wagering on bullion more than three years ago, is backing away from his bet.

Paulson told clients at his firm’s annual meeting Nov. 20 that he personally wouldn’t invest more money in his gold fund because it’s not clear when inflation will accelerate, according to a person familiar with the matter. The hedge-fund manager, who has been betting that bullion would rally as a hedge against inflation and as recently as last year told clients that gold was his best long-term bet, has lost 63 percent year-to-date in the PFR Gold Fund, said the person, who was briefed on the returns and asked not to be identified because the information is private.

Paulson, 57, started his foray into gold in early 2009, betting that bullion would rise as governments printed money to revive their economies following the 2008 financial crisis. Gold-related securities helped drive losses for the firm in 2012 as mining company stocks fell. Paulson & Co.’s main strategies have gained this year on bets in mergers, defaulted securities, convertible bonds and telecommunications, energy, insurance and asset-management companies.

The fund, which has shrunk to $370 million — with most of that John Paulson’s own money — from $1 billion at the end of 2012, fell 1.2 percent in October, the person said. The hedge-fund firm will maintain the fund’s positions in gold stocks and let options related to bullion expire, Paulson said at the meeting in Paulson & Co.’s New York office, according to the person.

Hedge-fund Manager John Paulson (Bloomberg)

Hedge-fund Manager John Paulson (Bloomberg)

Armel Leslie, a spokesman for $19 billion Paulson & Co. with WalekPeppercomm, declined to comment on the meeting and fund returns.

Bullion’s Slump

Gold is heading for its first annual drop in 13 years as some investors lost faith in the metal as a store of value, fueled by concern that expected reductions in $85 billion of monthly bond buying by the U.S. Federal Reserve will ease the risk of accelerating inflation. Billionaires George Soros and Daniel Loeb sold their entire positions in the SPDR Gold Trust exchange-traded fund in the second quarter, according to regulatory filings. Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities fell 12 percent this year.

Bullion has slumped 26 percent this year to $1,246.30 an ounce at 3:21 p.m. in London and reached $1,236.88 yesterday, the lowest since July 9.

Hedge funds and other money managers have cut their net-long positions in gold to 55,456 futures and options as of Nov. 12, according to the latest data from the U.S. Commodity Futures Trading Commission. The holdings are down 48 percent this year.

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Goldman Sachs’ Cohen Sees Value in Record-High Stocks

According to Bloomberg,

Value remains in the U.S. stock market even after the Standard & Poor’s 500 Index (SPX) surged 25 percent this year to a record, according to Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc.

Price-earnings ratios are lower now than the last time stocks were near these levels, Cohen said in a Bloomberg Radio interview with Tom Keene today. Janet Yellen is one of the finest policy analysts in the U.S. and deserves to be confirmed as the next chairman of the Federal Reserve, said Cohen. She forecasts the S&P 500 will reach 1,900 by the end of 2014, a 6.6 percent gain from today’s close.

New York Stock Exchange (Bloomberg)

New York Stock Exchange (Bloomberg)

“Companies right now are increasingly enthusiastic about the dynamism in the economy,” said Cohen. “There’s value in the market right now. The U.S. economy will likely grow faster next year.”

The S&P 500 today gained 0.8 percent to a record 1,782 in New York, surpassing a previous high set on Oct. 29 and heading for the steepest annual rally in a decade. Cohen’s forecast for the gauge to reach 1,900 by the end of 2014 matches the median estimate in a Bloomberg news survey of strategists this month.

Gains in stocks have come as the Fed maintained its unprecedented stimulus. Yellen, nominated to be the next Fed chairman, said today that the economy and labor market are performing “far short of their potential” and must improve before the central bank can begin reducing its $85 billion in monthly asset purchases. The remarks are from testimony prepared for Yellen’s nomination hearing tomorrow before the Senate Banking Committee.

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How could Private-equity Firm Coller Capital manage Intellectual Property?

Source: New York Real Estate Journal

Source: New York Real Estate Journal

According to Bloomberg, Coller Capital, the private-equity firm founded by British financier Jeremy Coller, is in talks with multiple bidders to join in an offer for BlackBerry Ltd. (BBRY), a person familiar with the discussions said.

Coller will put up some financing as part of the bids, said the person, who asked not be identified because the talks are private. The firm, which buys and sells intellectual property, is seeking to acquire about 10 percent of BlackBerry’s patents if it makes a deal, the person said.

The patents of interest to Coller cover technologies ranging from push notifications to messaging, according to the person. BlackBerry’s intellectual property accounts for as much as 20 percent of the company’s total value, the person said.

BlackBerry, which announced in August that it was entertaining bids, has drawn a number of interested parties, though little in the way of concrete offers. Fairfax Financial Holdings Ltd. (FFH), BlackBerry’s largest investor, signed a tentative agreement to acquire the smartphone maker for $4.7 billion last month — without naming its buyout partners or showing that it has lined up financing. Cerberus Capital Management LP is looking at BlackBerry’s books, whileLenovo Group Ltd. (992) has also expressed interest in a BlackBerry deal, according to people familiar with the matter.

Coller, which has offices in London, New York and Hong Kong, is working with multiple parties to ensure that it’s part of a successful deal, the person with knowledge of the talks said. In addition to offering upfront financing, Coller may also share royalties from licensing the patents with the winning bidder, the person said.

BlackBerry co-founders Mike Lazaridis and Douglas Fregin, who walked away from management positions in the company in recent years, are also contemplating a bid. They said on Oct. 10 that they’re working with Goldman Sachs Group Inc. (GS) to explore the idea.

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