Over the past couple of weeks, market participants have looked on with a mixture of amusement and pity (those things aren’t always mutually exclusive) as Bill Ackman threw in the towel on one of the most infamous shorts in recent market history and David Einhorn stoically detailed his own trials and tribulations.
It’s a crazy world out there to be sure. Pyramid schemes can persist in perpetuity, especially when they have powerful friends (ahem … Carl). The bubbliest of the bubble stocks can get even bubblier when investors eschew the fundamentals in favor of grandiose narratives and when passive strategies help create what Howard Marks has variously described as a “perpetual motion machine” that drives the winners inexorably higher at the expense of price discovery and efficient markets.
But not all of the industry “titans” have had a rough go of it. Dan Loeb, for instance, has done just fine, goddammit.
Given that and given the above-mentioned stumbles of people who used to be his “peers” but might not quite fit that description anymore, we thought it was worth taking a minute to go back and review the Third Point Re call that was mentioned in passing by a couple of folks earlier on Thursday.
Here’s Loeb on credit:
Credit exposure remains modest in an environment with tight spreads and many participants chasing the same opportunities. We continue to monitor the impact of a rising rate regime and will adjust exposures accordingly. Corporate, structured and sovereign credit debt returned 3.2%, 1.4% and 60 basis points respectively for the quarter.
Our portfolio remains concentrated in equities and balanced across sectors with a focus on U.S. investment opportunities. We will continue to monitor economic data closely and adjust our portfolio exposures to changing market conditions.
And here’s the exchange that was cited in the media earlier on Thursday:
Morgan Stanley’s Kai Pan: Thank you and good morning. First a few questions for Dan. Dan, in your letter in January, you identified that inflation as a key issue you closely watch. Since then, the market has experienced a period of heightened volatility. Do you think that will continue? And how do you position the portfolio?
Dan Loeb: Hi, yes, I think obviously, inflation goes hand-in-hand with interest rates and that’s been — and that’s obviously been something that we, along with everyone else has been focused on.
I think we also need to just look at growth expectations. And I’m not saying that growth is a problem, but it’s definitely an issue that we’re looking at and I think getting past sort of the concerns about interest rates and inflation. I think, that there may be more pressing issues going to be whether the rosy assumptions that everybody has about earnings growth this year and next year will be met, I’m not saying there won’t be met, but it’s definitely something given some of the recent economic data, which tends to be noisy, we need to keep an eye on.
As far as positioning the portfolio, we’ve been in process of reducing both gross and net to be more nimble in what we think will be more of our range bound market this year.
Still one with a lot of great opportunities, but probably won’t have the same tailwinds that we had last year in terms of low volatility and steady up and to the right market that ended up over 20% for the year.
