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Big Names Bailing

The list of heavy hitters who are saying bad things about this world and its 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.

 

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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 stockholding 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.
 

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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.
 

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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 that these 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.

If these and the several other big names now saying scary things (see Bill Gross’s supernova comments) are right, the short stocks/long gold trade is finally about to pay off.

11 thoughts on "Big Names Bailing"

  1. I’ve been a realtor for a long time. (28 years). Last time around the housing bubble was driven by subprime (ultra easy borrowing programs) thanks to Congressional EZ loan legislation. It was a sick, and dangerous joke. Just for the hell of it I took out a liar loan 2004. (No documentation required!!!) The only document I needed to show was my driver’s license to have my signature notarized at closing. That’s an absolute fact. But then, interest rates were more ‘normal’.
    Today housing is driven by “an affordable monthly payment”. With interest rates as low they can go, (approximately 4% for a conventional loan – whether a 3% down, 5% down, or larger down payment) or about 3.5% for a ‘government loan. Now see home prices around the nation HIGHER in many parts of the nation than the level attained just before the last sing bust. So consider this: If mortgage rates ‘normalize’ and rise to just 6%, realize that the increase is a 50% increase from today’s rate. That increase is more than enough to disqualify millions of potential buyers who would be willing to buy that $300,000 home. Higher rates will knock the feet out of the current housing market. Consequently, I’ve decided to sell my home and collect the equity that I’ve accumulated. Why risk equity in this market? Why risk getting trapped in an upside down mortgage?

  2. Eventually the financial markets will have a significant correction or worse but I have no idea when. What makes it so hard to predict is that the markets have been irrational for years now so any arguments used to predict imminent bearishness (or bullishness) are literally irrelevant.

  3. I hope you and your readers do not lose all faith when the dollar rises and gold falls one last time. Gold will finally rise as hoped when the majority loose faith in govt, and based on the sheeple that still believe Hillary and the Republican establishment, we still have a little more time. The coming collapse into 2017, and govt’s desperate response to save their lifestyle, should about do it.

    If BREXIT somehow overcomes the vote rigging, the dollar could be off to the raises soon. If the fraudulent establishment counts the votes, and Britain commits suicide, then the dollar could temporarily decline, until investors realize that nothing has changed for the doomed euro.

    Dont forget, the world is not just the US. With the rest of the world collapsing, where else is capital going to go?

  4. How can markets ever crash so long as Central Banksters continue to have endless digital dollars at their disposal?

    One thing never discussed is that the CB’s can only control rates until confidence is lost. Then the market will set those rates. For those getting into housing ‘on the cheap’ now, how much will the price of that abode have to fall to make up for the eventual rising rates one day? Or will people just sit tight for 15-30yrs?

    Oh what a mess these clowns have made, and they double down over and over again. Unfortunately it’s hapless consumers an ‘investors’ who pay the price.

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