SINGING CANARIES & THE CASSANDRAS

WHO PREVIOUSLY WARNED

Last year in our monthly MATA report we discussed the number of Cassandras that were warning about a market correction. Throughout 2016 we tracked the increasing number and then last year with the listing being so long we simply highlighted the fact that George Soros has come out of retirement because of the shorting opportunities he saw and Carl Icahn in an unprecedented fashion was claiming to be 150% short the market.

WHO IS WARNING NOW?

So who is left to now warn about a market correction? I found the list of late comers to be interesting. Here are five who have recently thrown in the towel:

  1. PHILIP PARKER, CHAIRMAN & CIO - ALTAIR ASSET MANAGEMENT - SYDNEY, AUSTRALIA,
  2. SETH KLARMAN, CEO & PORTFOLIO MANAGER - BAUPOST GROUP  - BOSTON,
  3. BILL BLAIN, STRATEGIST  - MINT PARTNERS - LONDON, UK,
  4. DAVID STOCKMAN - FORMER OMB DIRECTOR UNDER PRESIDENT RONALD REAGAN - FORMER US CONGRESSMAN,
  5. PAUL SINGER, - FOUNDER & CEO - ELLIOTT MANAGEMENT CORP -  NY, NY,
  6. DAVID KRANZLER, MANAGING MEMBER, GOLDEN RETURNS CAPITAL - DENVER, CO

I thought it interesting why.

WHAT THEY ARE WARING ABOUT

Mr Parker (pictured), through his lawyers, mounted a strident defence of his decision to liquidate his share funds.PHILIP PARKER, CHAIRMAN & CIO - ALTAIR ASSET MANAGEMENT - SYDNEY, AUSTRALIA

LIQUIDATING FUND

  • Parker says he has “never been more certain of anything in my life”.
  • In fact, he is so sure that the investments that his hedge fund is managing are going to crash that a decision was made to liquidate the fund “and return ‘hundreds of millions’ of dollars to its clients”…
  • Parker cites an impending property "calamity" and the "overvalued and dangerous time in this cycle"!
  • "Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client's assets is what all fund managers should be put before their own interests'.

Image result for Seth KlarmanSETH KLARMAN, CEO & PORTFOLIO MANAGER - BAUPOST GROUP  - BOSTON

UNDERESTIMATING RISK & INSUFFICIENT "MARGIN OF SAFETY"

  • Klarman oversees one of the US’s largest hedge fund firms, with some $30 billion under management. He has a huge following on Wall Street — investors named his book, “Margin of Safety,” their favorite investment book in a recent SumZero survey.
  • Klarman believes that U.S. investors are greatly underestimating the amount of risk in the market right now…
  • “When share prices are low, as they were in the fall of 2008 into early 2009, actual risk is usually quite muted while perception of risk is very high,” Klarman wrote. “By contrast, when securities prices are high, as they are today, the perception of risk is muted, but the risks to investors are quite elevated.”

Image result for bill blain mint partnersBILL BLAIN, STRATEGIST  - MINT PARTNERS - LONDON, UK

MASSIVE CONSUMER SENTIMENT SHIFT COMING

  • Bill Blain is a strategist at Mint Partners, and he is actually specifically pointing to October 12th as the date when things will start to get “horribly interesting”
  • But…. Catch a falling knife, why don’t you… I shall spend the summer wondering just how long the Stock Market games continue. When, not if.
  • At the moment, my prediction is October 12th. Around that day its going to get horribly interesting.. Why that particular day?
  • Gut feel and knowing how the Bowl of Petunias felt in Hitchhikers. (“Not again.”),
  • There are just too many contradictory currents out there.
    • The unsustainability of burgeoning consumer debt,
    • unfeasible tight credit spreads,
    • the sandcastle foundations of student loans, autos, housing and the CLO market,
    • China, Trump, politics..
    • worries about what follows Brazil in the EM market, and whatever,
    • The risks of a massive consumer sentiment dump..

DImage result for DAVID STOCKMANAVID STOCKMAN - FORMER OMB DIRECTOR UNDER PRESIDENT RONALD REAGAN - FORMER US CONGRESSMAN

"INSANE VALUATIONS"

  • David Stockman has also been warning about what may happen this fall.  According to Stockman, this current stock market bubble “is the greatest sucker’s rally we have ever seen”
  • The market is insanely valued right now.  They were trying to tag, the robo machines and day traders, they were trying to tag 2,400 on the S&P 500.  They ended up at 2,399, I think, but the point is that represents about 25 times trailing earnings for 2016.  We are at a point in the so-called recovery that has already lasted 96 months.  It’s almost the longest one in history.
  • "What the market is saying is we have reached the point of full employment forever.  There will never be another recession or any kind of economic surprise or upset or dislocation.  The market is pricing itself for perfection for all of eternity "
  • This is crazy. . . . I think the market could easily drop to 1,600 or 1,300.  It could drop by 40% or even more once the fantasy ends. When the government shows its true colors, that it’s headed for a fiscal bloodbath when this crazy notion that there is going to be some Trump fiscal stimulus is put to rest once and for all.  I mean it’s not going to happen.
  • They can’t pass a tax cut that big without a budget resolution that incorporated $10 trillion or $15 trillion in debt over the next decade.
  • It’s just not going to pass Congress. . . . I think this is the greatest sucker’s rally we have ever seen.

Image result for Paul Singer's Elliott ManagementPAUL SINGER, - FOUNDER & CEO - ELLIOTT MANAGEMENT CORP -  NY, NY,

FAILED PRO-GROWTH TRUMP AGENDA & US RECESSION

  • Singer has apparently has unloaded $5 billion worth of stock, which is 15% of his funds management,
  • He writes in his Q1 letter to investors, the legendary hedge fund manager thinks "that it is a good time to build a significant amount of dry powder,"
  • The reason for that is if, or rather when, Trump's pro-growth agenda fails to be implemented, "all hell will break loose" and that a recession looms as the artificial crutches propping up risk assets are pulled out
  • "Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like...), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.
  • Singer warns that "there are actually forces in place that could point to a relatively near-term recession in the absence of solid new pro-growth policies." And with rates already at ultralow levels, the Federal Reserve won’t be able to provide a sufficient QE cushion, as it did during the great financial crisis. Which is why absent a procyclical push, the US economy may have no choice but to contract. Which is ironic because Singer, a prominent Republican donor, originally staunchly opposed Mr Trump as its candidate, before meeting the President at the White House in February where Trump claimed "he's given us his total support".
  • The manager of $32.6 billion in AUM once again points to his favorite nemesis, the Federal Reserve, and says that "we live in a time when extraordinary worldwide monetary policies have created bubble after bubble." Warning that QE has done nothing to address the fundamental issues of the economy, Singer said that rising sovereign and private debt loads will come back to haunt the markets and policy makers.
  • Expounding on a popular theme from his previous letters, Singer said that not only has the mess from the great financial crisis not been cleaned up, but all the wrong measures have been used to address the problem.
  • “Since the GFC, we have believed that the extreme monetary policy (ZIRP, NIRP, and QE) prevalent throughout the developed world was unsustainable and risky." He explains - as he has done every other quarter since 2008 - that the solution to a crisis resulting from financial engineering isn’t more financial engineering, but addressing the real issues that caused the problem to begin with. That has not beed one, and instead "the solution to overindebtedness should not have been the creation of more debt, and the problem of inadequate growth should not have been solved by money-printing and ZIRP/NIRP.”
  • Singer also blames failed policies for the current breakdown between heightened geopolitical risk and record low volatility:  "On the face of it, year after year of the unusual and risky policy mix has not caused the collapse of any major currencies or significant inflation (other than in asset prices)," resulting in a world that has been put to sleep by pervasive complacency. "This seeming lack of empirical proof of the lurking danger has lulled most investors into thinking that the elevated prices of stocks and bonds, and the historical fall in price volatility in financial asset markets, is somehow a permanent condition."

DAVID KRANZLER, MANAGING MEMBER, GOLDEN RETURNS CAPITAL - DENVER, CO

BITCOIN & TESLA SIGN OF A LATE STAGE MARKET TOP

  • David Kranzler seems quite certain “that the stock market bubble is getting ready to pop”
  • Anyone happen to notice that several market commentators have argued that Bitcoin is a bubble but the same stock “experts” look the other way as the U.S. stock market becomes more overvalued by the day vs. the deteriorating underlying fundamentals? Bitcoin going “parabolic” triggers alarm bells but it’s okay if the stock price of Amazon.com Inc (NASDAQ:AMZN) is hurtling toward parity with the price of one ounce of gold. Tesla (NASDAQ:TSLA) burns a billion per year in cash. It sold 76,000 cars last year vs. 10 million worldwide for General Motors (NYSE:GM). Yet Tesla’s market cap is $51.7 billion vs. $48.8 billion for GM.
  • This insanity is the surest sign that the stock market bubble is getting ready to pop.
  • If you read between the lines of the the comments from certain Wall Street analysts, the only justification for current valuations is “Central Bank liquidity” and “Fed support of asset values.”
  • This is the most dangerous stage of a market top because it draws in retail “mom & pop” investors who can’t stop themselves from missing out on the next “sure thing.”
  • There will be millions of people who are permanently damaged financially when the Fed loses control of this market.

Or

ASHER EDELMAN - LEGENDARY INVESTOR

ONLY A QUESTION OF WHEN - NOT IF!

As legendary “vulture” investor Asher Edelman stated on CNBC,

“I don’t want to be in the market because I don’t know when the plug is going to be pulled.”