1) Thread going into the FOMC print—as PMs we all like to talk about global macro, or individual stock picks. Long term, that’s what drives price action. Short term, none of that matters. All that matters is fund flows—redemptions, short covering, inflows, sector flows, etc…
2) Look at 2022, many large hedge funds are down 25%+. Year-end redemption notices start Nov 1. These guys have 3 months to turn it around or get redeemed. Everyone gets redemptions from time to time. Losing half your AUM bc you were long Ponzi is existential to your career…
3) Guys will fight like mad to make it back. This isn’t about performance for performance’s sake, this is about survival. You have to get to flat or your business goes poof. Down 25% and it’s poof anyway, so you take a shot. If you guess wrong and end down 40% you were dead anywa
4) Therefore, guys are forced to take shots on goal. Fix it by Nov 1, or lose the AUM. How do you fix it?? Certainly not in cash. You can bet big on the short side, maybe use options, but hard to put up big numbers that way. Instead, they’re forced to play long-sided…
5) Every datapoint shows that funds are massively underweight on long exposure. Huge cash positions, low gross, lower net exposure. These guys will all be forced to pivot long. Relative performance is cute when you’re down 5 and mkt is down 25. It means nothing when down 20 vs 25
6) The FOMC will do its thing, everyone will see a few hours/days of whipsaw action, but in the end, guys need exposure to save their careers. They are gonna have to buy it. Doesnt matter what Fed or economy or DXY or rates or GDP does. Guys have 3 months to stack basis points…
7) Think we get a sizable rally into the fall and sort it out from then. Guys just have to be long… As for me, I’m pretty damn long. Have highest exposure since the bottom in March 2020. Laid into GDP sensitive assets in late-June. Felt so confident that I’m on vacation…
8) It is amazing just how many dominant, near monopoly assets are 2-5x run-rate FCF. These are companies with 30%+ ROIC. Good Businesses haven’t been this cheap except Feb 2009 and March 2020. Difference is that those times were scary. Now isn’t scary. We may have a recession🤷♂️🤷♂️
9) Who cares about recession??You don’t buy amazing companies for the next quarter or 3. You buy them because of long-term compounding. When they give away great businesses this cheap, you simply stack them and ignore next Q. They will eventually be valued on stabilized numbers…
10) I have continually shat on compounders over the years It should tell you how cheap things are when roughly half of my book is compounders. I tend to think these all revalue soon. Ponzi was the last bubble, this cycle, guys need cash flow…
11) Anyway, we all like to talk about stuff that makes us look smart (macro/fx/single stocks/etc.) That’s fine and good. We don’t talk enough about who’s screwed and has 100 days to save his career. Cornered animals do crazy things…
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