The Daily Alpha: Real Talk on Hedge Fund Reputations, David Einhorn, Al Gore, and Mall REITS

Apr 25 2017 | 6:25pm ET

April 25, 2017 

Today, we discuss an interview with Simon Lane, Venezuela’s Coming Civil War, David Einhorn’s Tax Warning, Al Gore’s Latest Plan to Spend Your Money, and Why Hedge Fund Managers Are Taking Aim at Mall REITS.

Quotes of the Day

“Hedge funds are not the favored children of the investment community.”

The reputation of the hedge fund industry continues to face deep challenges.

Weak returns, high fees, and many funds shutting down.

Despite the images, the industry is still healthy says Simon Lorne, vice chairman and chief legal officer of Millennium Management LLC.

Reuters offers a great interview Tuesday with Lorne.

Topics include Trump, Brexit and the television show “Billions.”

Keep in mind that Modern Trader’s next issue again tackles the state of the hedge fund industry. It will be available in May ahead of the annual SALT Conference.

And as things fell apartNobody paid much attention.”

~ Talking Heads, (Nothing But) Flowers

David Keene at the Washington Times explains recent developments in Venezuela.

The “Bolivarian Revolution” that started under Hugo Chavez and continued with the failed leadership of Nicolas Maduro has destroyed Venezuela’s economy and its democratic institutions. The nation probably won’t recover for decades barring a miracle.

Now, Keene explains that the country is heading toward civil war. While Maduro has blamed capitalism for his socialist failings, at least 70% of his people blame his policies.

That’s why he’s arming up to one million loyalists and attacking churches and synagogues.

It’s an ugly situation, and we’re not hearing enough about it.  

"The bulls explain that traditional valuation metrics no longer apply to certain stocks. Perhaps as the prospects for tax reform have dimmed, the market has regained enthusiasm for profitless companies that aren’t at risk of paying taxes."

David Einhorn’s Greenlight Capital sent a note to investors last week in which they warned that without tax reform, a bubble could be forming.

Bloomberg writes, “Einhorn has warned previously of inflated equity prices caused by central bank easing but the firm said earlier this year that tax reforms pushed by President Donald Trump could be a boon for economic growth and favorably affect some positions. The latest letter revived the more cynical outlook.”

Here’s more on Einhorn’s outlook and a few of his firm’s recent transactions.

“Investment in renewables and other low-carbon technologies some $6 trillion higher ($300 billion per year); while the largest required increases – of almost $9 trillion ($450 billion per year) – will be in more efficient energy saving equipment and buildings.”

Al Gore has a new plan.

  1. Spend $15 trillion in other peoples’ money to combat global warming.
  2. ?
  3. Profit

“Back in the lead-up to the financial crisis we found that the share prices of REITS and their tenants were very closely related. Recently we have seen tenants share price weaken again, but REITS remain relatively strong.”

Horseman Capital’s Russell Clark recently wrote that there was an increasing disconnect between the shares prices of U.S. mall REITS and growing concerns about brick-and-mortar retailers.

Several hedge funds are now betting against the real estate investments tied to the biggest malls in the country.

“It hinges on one fairly simple idea — that the broadly held belief that “A” malls are different to other malls is a fallacy,” Miles Anderson writes in the Financial Times. “The hedge funds believe that, when reality dawns that many of the largest tenants of prime malls are also experiencing difficulties, their shares will experience a violent downward re-rating.” 

Tuesday’s Reading List 

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Garrett Baldwin is the voice of the The Daily Alpha, the features editor for Modern Trader magazine, and the author of The Man with The Big Red Balloon.


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