January 13, 2020
I’m looking through hedge fund returns today. And as you might expect, with a big year for stocks in 2019, hedge funds also had a very good year (though most, and on average, well underperformed the S&P 500).
It was a big bounceback year for many of the high profile investors that have had a tough time in recent years. At the same time, it was a year where some other high profile investors called it quits — returning investor money, to focus on simply managing their own money, or just closing the doors and walking away from the business.
This reminds me of the departure of one of the best oil traders in the world back in the summer of 2017, after losing 30% on the year on his bullish oil bets. Andy Hall capitulated – he quit.
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Markets always seem to find the pain point for speculators. And the painful position for oil, at that time, had been the long side. And markets tend to squeeze those positions out just before finally moving. George Soros is a good example in his Thai baht trade back in the 90s. He tried to force the central bank in Thailand to abandon the currency peg and was ultimately forced out of his position (from the cost of carrying the position) just before they de-pegged/devalued the currency. Hall had a similar fate with oil. Have the hedge fund closures of the past year similarly capitulated at just the wrong time? Maybe. The post-Great Recession decade has proven to be unlike any other trading environment seen by some of these long-tenured hedge fund managers — distorted by government and central bank intervention. Now we enter a year, finally, where the path has been paved for markets to be less dictated by macro factors (trade disputes, central bank policy changes …) and moreso by the fundamental drivers of the economy and corporate profits. And it’s a year where things are lined up for a resuscitation of inflation (a missing puzzle piece, over the past decade, for those that have made their living solving the global market puzzle). |