Daily Roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Stanley Druckenmiller is a living finance legend, and if he’s not the best trader-slash-hedge fund manager alive then he’s only preceded by his former mentor George Soros.
In a Tuesday webinar address to the Economic Club of New York, the manager provided a dire perspective on stock markets,
“The risk-reward for equity is maybe as bad as I’ve seen it in my career", [he said] … 'The consensus out there seems to be: ‘Don’t worry, the Fed has your back,’’ said Druckenmiller on Tuesday during a webcast held by The Economic Club of New York. ‘There’s only one problem with that: our analysis says it’s not true.’ While traders think there is ‘massive’ liquidity and that the stimulus programs are big enough to solve the problems facing the U.S., the economic effects of the coronavirus are likely to be long lasting and will lead to a slew of bankruptcies, he said. ‘I pray I’m wrong on this, but I just think that the V-out is a fantasy,’ the legendary hedge fund manager said, referring to a V-shaped recovery … On a relative basis, he’s as bullish on long-short strategies as he’s been in 10 years. ‘That’s partly because I’m worried about everything else,’he said.”
It's important to note here that one of the keys to Mr. Druckenmiller’s remarkable historical performance is the ability to change his mind quickly based on market action.
“Druckenmiller Says Risk-Reward in Stocks Is Worst He’s Seen” – Bloomberg
“ Global economic outlook still worsening, says IMF” – Financial Times (paywall)
I’ve known domestic fund manager Kim Shannon, founder of Sionna Asset Management, for longer than I’m comfortable admitting.
In a recent update, Ms. Shannon urged value investors to hold the fort,
“Value outperforms growth more frequently (shown when the line is above 0%). However, in strongly rising speculative bullish phases, growth outperformance exceeds value (when line is below 0%) and growth performance dominates at the end of a cycle peak. It’s interesting to note that despite the lengthy underperformance of value through the 1930s, it dramatically recovered and enjoyed a subsequent lengthy period of outperformance. Today, value is more undervalued relative to growth (on a total annualized return basis) compared to any other time period since 1936, cheaper even than 1940 or 2000.”
“@SBarlow_ROB Sionna's Kim Shannon: "value is more undervalued relative to growth (on a total annualized return basis) compared to any other time period since 1936, cheaper even than 1940 or 2000.” – (research excerpt, chart) Twitter
See also: “Value Investing is Immortal” – Brown, Reformed Broker
I share the FT’s concerns about the collateralized loan obligations,
“'CLOs and the loans underpinning them are ground zero in terms of the vulnerability of this crisis,' says Matthew Mish, a credit analyst at UBS … The U.S. market — by far the biggest — has expanded from $327bn in 2007 to $691bn at the end of 2019, according to data from JPMorgan, rising in lockstep with the underlying leveraged loan market which has doubled from $554bn to nearly $1.2tn, according to data from S&P Global … ‘CLOs haven’t caused this recession but they will make it worse,’ says Megan Greene, a senior fellow at Harvard Kennedy School. ‘We are on course for a massive debt cycle.’”
“CLOs: ground zero for the next stage of the financial crisis?”- Financial Times (paywall)
Diversion: “@SBarlow_ROB Our weird behavior during the pandemic is screwing with AI models” – M.I.T. Technology Review
Tweet of the Day: I found this graphic covering oncology drug research remarkable and encouraging,
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