Why Some Billionaires Are Turning Bearish
Real estate mogul Sam Zell has never been shy about expressing his opinions, and his tone on equities is sounding increasingly bearish.
During a recent CNBC interview, Zell noted, “I don't remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter (the market's) thinking.”
He also lamented how difficult it is to call a market top. “If you're wrong on when, that's a problem. You've got to tiptoe and find the right balance.”
Zell is not alone in this thinking.
While George Soros hasn't made public comments to this effect, the billionaire's family office has increased the number of S&P 500 ETF (ETF: SPY) puts it holds to $2.2 billion -- equivalent to 17 percent of the fund's assets under management. A portion of these holdings are likely a hedge for other positions.
Still, it's a curious move. MarketWatch reports the position is now 605 percent larger than it was a quarter earlier.
Carl Icahn, meanwhile, has never been known to be a directional investor, instead preferring to stimulate his investments upward through leveraged financial engineering. Interestingly, he too appears to be changing his tone.
In a July CNBC interview (reported by Zero Hedge), Icahn said he is “very nervous” about U.S. equity markets.
Perhaps the greatest directional investor of all time, Stanley Druckenmiller, has been bearish for some time.
Druckenmiller ominously warned, in another CNBC interview, that he is afraid short-term fears are distracting from bigger issues.
"I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy," he told the outlet.
Similar to Zell, Druckenmiller won't predict exactly when stocks will dive lower.
David Tepper and Howard Marks
David Tepper and Howard Marks, lastly, are two of the most respected voices in the credit markets, and both are speaking words of caution about bonds.
Tepper, who founded the $20 billion hedge fund Appaloosa Management, said the ECB's unexpected interest rate cut signaled “the beginning of the end of the bond market rally,” in an interview with Bloomberg. "We are done,” he added.
Marks, on the other hand, not only sounds bearish, but is also raising money to back it up.
In his quarterly letter, he noted that investor behavior “has entered the zone of imprudence.” He doesn't think asset prices have reached bubble territory, “but when undemanding capital markets and a low level of risk aversion combine to encourage risky practices, something usually goes wrong eventually.”
Marks's Oaktree Capital, which historically invests in distressed credit, is actively raising money for a new $10 billion fund.
However, the firm plans to only invest $3 billion immediately and save the remaining $7 billion to deploy when more distressed opportunities arise.
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