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Dan Loeb: 'Carnage' In The S&P, Third Point Is Doing Alright

Dan Loeb: 'Carnage' In The S&P, Third Point Is Doing Alright
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Investment adviser Dan Loeb issued a seemingly apocalyptic outlook for the market in a fourth-quarter investor letter February 12. Loeb offered a global survey of the market's woes, from collapsing indices and "value" stocks, volatility in European financial systems to the focus on inequality in the U.S. presidential election.

Loeb claimed Third Point had acted in the past year to shield itself from changes in the market and global monetary system.

Justification For Thesis

Loeb cited significant declines in market indices, such as double-digit declines in the S&P, NASDAQ and Shanghai indices as just one aspect of a grim market outlook for the year. "Indices' drastic declines actually fail to capture the true carnage," he wrote. He warned that some hits to S&P companies might represent "permanent value destruction."

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Loeb also railed against a "new world order" of global monetary policy and Fed policy that "appears incoherent." However, he made the distinction that current market trends indicate a "Wall Street recession," not a "Main Street recession," writing, "It is unclear at what point a falling stock market begins to impact consumer wealth such that American buyers retrench."

Loeb argued that Third Point had made moves to protect its portfolio against market trends, increasing its single-name equity short holdings to $4.5 billion and "significantly" dialing back net and gross exposures. Loeb says this strategy helped Third Point keep a 7.7-point loss in the past 100 days compared to 12.7 and 16.7 percent drops in the S&P and NASDAQ.

In the fourth quarter of 2015, Third Point's returns came in at under half the S&P's, but the company's annualized returns since its founding in 1996 have more than doubled that index.

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