Dan Loeb Sees Yellen In 'Hotel California,' Is Short More Stocks Than He Is Long

Dan Loeb's Third Point released a letter to investors on October 30 with a mostly bearish tone and outlook. The billionaire fund manager cited several ongoing trends that contributed to a poor third quarter performance and outlook: 1) A weakening China, where the question is no longer whether but how severe the country's slowdown will be. 2) Janet Yellen may have "inadvertently checked herself and the Fed into the Hotel California" and it is "increasingly difficult" to see how the Fed could justify raising rates in 2015 given recent employment "weakness" and "softness" in manufacturing figures. 3) Republican presidential hopefuls consists of "some inexperienced, unserious candidates" while Democratic contenders are mostly "economically unfriendly." 4) The Middle East remains "in shambles" and is spilling over into Europe with "potentially far-reaching consequences" for both regions. 5) Investor sentiment suggests that there is "no longer a monetary safety net." "While many of these issues were already on investors' radars, this particular combination of concerns caused S&P multiples to de-rate sharply in Q3 and, despite the recent rally, most companies are trading lower than where they started the year," Loeb stated in his letter. Loeb's Third Point Offshore Fund Ltd. lost 8.9 percent in the third quarter and is lower by 4.5 percent year-to-date. The fund's performance lags the S&P 500 index that lost 6.4 percent in the most recent quarter and is lower by 5.3 percent year-to-date.

Loeb continued that he remains "optimistic" over his U.S.-centric portfolio of "event-driven" names and structured credit. The fund manager added that he reduced the fund's net exposure by nearly a third through sales and new shorts while maintaining "significant" positions in the "highest conviction, event-rich names." Loeb also suggested that while he does not see indications of a looming US recession, the environment for short selling is "attractive" and his fund now holds more single short names than long positions.

Loeb discussed his 9.9 percent stake in

which was acquired in the third quarter. Loeb stated that Baxter is at an "inflection point" for two reasons: 1) the company recently spun off its biosciences business, Baxalta, and 2) the company's new CEO Jose Almeida, can "re-invigorate" the post-spin company and navigate it towards industry-leading operational performances. Almeida has a "strong" track record of creating shareholder value, according to Loeb who cited his tenure as CEO at Covidien. Under Almeida's leadership, shares of Covidien rose 140 percent from July 2011 to January 2015 at a time when the S&P 500 index gained 54 percent. Loeb also said that Almeida's international experience, cost conscious mentality, and strategic vision will be "instrumental" in Baxter's "revival" and the company is "one of the most promising" positions in the fund's portfolio.