DAN LOEB: Be Prepared To Buckle Your Seatbelt
So far this year, Third Point's Off Shore Fund is up 3.3%. The S&P is up 1.8%.
It's actually a solid quarter considering that it's been a brutal year for hedge funds. To put that in perspective, the average fund is up only 1.23%, according to research from Preqin.
Loeb writes that mortgages is what helped Third Point's portfolio in the first quarter.
Loeb also admits that this year has been challenging.
"Looking back, perhaps our optimism at the beggining of the year was misplaced."
He goes on to warn that come this fall we should be prepared to "buckle our seatbelts" if the Fed's tapering ends. Loeb sees more volatility because of this.
From the letter:
Despite its challenging start, it appears as we begin May that the U.S. economy is beginning to accelerate from the low levels of Q1. As a result, perhaps 2014 will be the year where one should not "Sell in May and go away". Nevertheless, it is important to keep in mind that by this Fall, we will have had negative real interest rates in the U.S. for a longer consecutive period than at any other time - even after the Great Depression. As tapering ends, most likely in October, and the discussion shifts to an impending first rate hike (probably around the time when unemployment is approaching 6% and inflation is ticking higher), we will have to buckle our seatbelts for an inevitably more volatile environment.
Also, similar to David Einhorn's investor letter from last week, Loeb writes that "certain sectors were clearly exhibiting bubblelicious valuations." Einhorn, who runs Greenlight Capital, wrote that we are witnessing our second tech bubble in 15 years.