Among George Soros and Ray Dalio hedge fund managers-both have a negative outlook on US economy John Burbank also shares the same view. Founder of Passport Capital LLC, a $3.8 billion hedge fund, said he expects a U.S. economic recession this year or in early 2013, according to a letter to investors.
Passport is “very bearish” and anticipates “a major retrenchment in risk assets,” Burbank said in the March 27 letter, a copy of which was obtained by Bloomberg News. The San Francisco-based firm increased its short positions, or bets that security prices will fall, added to gold holdings and bought Brent oil starting in the second half of last year, he said.
“We see a recession in 2012 or early 2013 for the U.S. which will be difficult to avoid as Europe contracts and China moderates to 7 percent to 8 percent targeted growth,” Burbank said in the letter. “The equity market is confused about true economic growth in the developed world — we believe it will be much lower than forecast.”
Passport last month fired 14 employees following losses in 2011. The fund slumped 18 percent last year, compared with an average loss of 5.8 percent for all hedge funds, according to data compiled by Bloomberg. Passport, which has gained 3.7 percent this year through February, expected redemptions of $560 million or less on March 31, Burbank said in the letter.
The firm has reduced its illiquid investments and commodities equities, while increasing its holdings of Saudi Arabian stocks and mortgage-backed securities, according to the letter.
“Saudi equities constitute the best single asymmetric equity market we can find and as a result continue to be the single largest equity allocation in Passport Global,” Burbank said in the letter.
Saudi Arabian stocks will probably comprise a “mid-teens” percentage of the portfolio through 2012, Burbank said. The firm hired Jeffrey W. Kong, formerly of Structured Portfolio Management LLC, last April to oversee its investment strategy for mortgage-backed securities and related fixed-income assets.
Passport, is a multi-strategy hedge fund, was founded by Burbank in 2000. It invests in agriculture, basic materials, energy, financial services, health care, capital markets and the Internet, among other things, according to the firm’s website.
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Quotes by Burbank
“Price is a liar.”
“Now, the American government is so mis-regulated and had mis-managed its own finances that you have to look at the country as an emerging market. Essentially, you shouldn’t buy a security in an unstable market if you don’t understand how it may change. That is what I think we are going to be dealing with for the next 5 or 10 years.”
“Cash is most valuable when others don’t have it.”
“When someone loses money they want to sell something. When they are making money they want to put more money in.”
“I believe in persistent resource scarcity, meaning that this is the way it’s going to be for a long time. Let’s just say the next 10 years. We’re the biggest [investor] because we started focusing on the Middle East in ’06-’07 after having spent a lot of time on the billion-plus economy of China, a billion-plus economy of India, and then I thought I better start paying attention to a billion Muslims in the world.”
[At age 30], “I borrowed $50,000 worth of credit cards in 1994 and started trading in the market, really as a test to see if I enjoyed doing it and if I wanted to pursue this…This was really a hypothesis for me. Maybe I was interested in it, maybe I would do this, investing, instead of business.”
“I think ultimately, physical gold is the story. It is a scarcity story. The more the U.S. dithers and the more the Fed is willing to print money, as opposed to dealing with inflation properly, the more this trend will happen.”
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