GIVING NEW MEANING TO “HERDING INVESTORS”
We all know the Federal Reserve is trying to herd investors into equities as they keep asset values “higher than they otherwise would be”, but how’s this for herding investors? One well known hedge fund manager has altered his entire strategy because of the Fed’s persistent actions (via the WSJ):
“A former hedge-fund manager who made a fortune shorting stocks has switched to the long side, and is raking in money in the process.
William von Mueffling surprised clients and competitors last June by announcing he would close his hedge funds and return $3.5 billion to investors. His firm, Cantillon Capital Management of New York, kept managing $1 billion in long-only assets, typically considered the unsexy piece of the business.
Now, the 42-year-old stock picker controls more money than he did before he closed his hedge funds. Cantillon has raised billions of dollars from pension funds in the U.S. and abroad, and from sovereign-wealth investors, according to clients and other people familiar with the matter.”
Von Mueffling couldn’t justify running the short end of the book as the Fed was priming the pump:
“After years of “long-short” investing, Mr. von Mueffling and his analysts and traders no longer short, or bet against, stocks at all. Instead, like a typical stock mutual fund, they stick to buying company shares they expect will rise. Mr. von Mueffling said the strategy is “the right long-term decision.”
“I’m not saying there aren’t overvalued stocks out there,” he said in an interview. “There are, but trying to short them when the government is printing money is a very, very challenging game,” he said, referring to, among other things, Federal Reserve programs to buy government bonds, which the Fed is widely expected to announce this week.”
That gives new meaning to “herding investors”. I think sellers play an important role in the price discovery process. After all, when the fundamentals of an asset are consistently in disequilibrium with its current valuation it makes the system that much more unstable. Selling, and thus lower prices, can actually make the system more stable in the long-term. This is just one more sign that nothing has really changed since the Greenspan Fed ended. And that was a Fed run by a man who admitted that his model was flawed….
What is the exit plan from his long only strategy?
“Golf only”. After he gets his appropriate govt bailout of course.
Gives a new meaning to capitalism. It was bad enough when the Fed was just setting the interest rate. But a command system controling asset valuation? Hayek must be rolling over in his grave.
The Fed is now the lender of first and last resort.
Haha, Good one Bryan.
always wonderful to hear after-the-fact. this is one reason why the perpetual machine of phony capitalism is allowed to survive….because it is fed by greed and ignorance.
Shorting has been dropping lately because you never know when the Fed is going to jump in to trigger a short squeeze or some other rigging of the markets. But this destroys any notion of a true or real market place, and how much value is there really to indicies propped up by manipulation and excess fiat currency?
I can’t wait to see this guy crash and burn. It’s that kind of stuff that reeks of a top. I think we might find our way to the 1220 area everyone is looking at, but there is nothing to push us higher – especially if a big Republican win puts the brakes on Obama’s tilt-a-whirl spending.
Can someone explain to a non-economist why all this FED action “to keep asset prices higher than they otherwise would be” will not cause significant future inflation?
Or is it that everyone knows there is inflation down the road – the question being how much and when?