The Daily Alpha: Alternative Thinking on Hedge Fund Assets, Climate Change, and Why Trump Will Win

The Daily Alpha: Alternative Thinking on Hedge Fund Assets, Climate Change, and Why Trump Will Win

Garrett Baldwin

May 27, 2016

“A world in which banks don’t lend, young people cannot find jobs, overcapacity is not the cause for prices to fall, is not a world which can long survive.”

I’m starting to find the blog posts of Julia La Roche at Yahoo Finance more interesting and fantastically random in the world of finance. One would think that the writing would be more prominently featured on the home page, but then again – Yahoo Finance is a click bait salad.

The quote above comes from hedge fund manager Crispin Odey, who shares an interesting thesis with the world: An economic recession would “ironically” boost employment among young Americans. Odey calls for higher rates as a way to boost bank lending and spur business spending.

Yahoo got a hold of Odey’s April performance report with the full transcript.

As La Roche explains, it’s not really going well for Odey’s fund this year. His European Long/Short equity fund is off a little more than 27% through the second week of May.

That doesn’t mean that anyone should dismiss his argument on lending.

“Trump is a businessman, while Mitt Romney was a businessman too, yet I predict victory for the former while the latter obviously lost miserably.”

Anis Shivani offers a terrific counter to the Hillary Clinton landslide argument that I have been hearing for the better part of two months.

This is a fantastic argument.

I won’t side on whether it’s right or wrong, and I’m certainly not endorsing either candidate at any point.

But I appreciate intellectual thought about a race that will lack any for the next five months.

"With the number of managers exceeding $1 billion in assets under management increasing, the $1 billion club continues to control a substantial proportion of the hedge fund industry's assets."

That’s Amy Bensted at Preqin. The hedge fund research firm offers some interesting insight into the flow of capital inside the industry.

The number of hedge funds with more than $1 billion in assets under management hit 659.

Here’s the top 10 hedge funds by assets and date of reporting.

  1. Bridgewater Associates, $146.3 billion (2.29.2106)
  2. AQR Capital Management, $74.0 billion (9.30.2015)
  3. Man Group, $53.1 billion (3.21.2016)
  4. Och-Ziff Capital Management, $42.0 billion (4.1.2016)
  5. Standard Life Investments, $38.4 billion (12.31. 2015)
  6. Winton Capital Management Ltd., $34.5 billion (3.31.2016)
  7. Millennium Management, $33.0 billion (3.1.2016)
  8. Renaissance Technologies, $32.3 billion (3.31.2016)
  9. BlackRock Alternative Investors, $31.0 billion (12.31.2015)
  10. Two Sigma Investments, $31.0 billion (12.31.2015)

(SOURCE: Preqin Hedge Fund Online)

“The San Francisco Giants (4.5%) and the Tampa Bay Rays (3.3%) just missed the cut and are the only other teams with at least a 2% chance.”

That’s conclusion from a recent report by Baseball Prospectus on the current probability of teams to win the World Series this year.

Or as I like to call it: Damn you, math.

The Baltimore Orioles have just a 1% chance of winning the World Series. I would have taken that before the season and before this four game losing streak.

So what is surprising from this report?

The New York Yankees have been abandoned. A 0.9% chance.

The most likely team to win the World Series? In the American League... it's the Cleveland Indians, coached by none other than Michael Jordan’s former minor league manager Terry Francona. Odds: 11.5%.

No surprise, overall – the Cubs are the heavy favorite. The odds of the Cubs just making the playoffs already sit at a pretty staggering 98.2%.

Where is the value bet? The St. Louis Cardinals at 0.9%. If they get to the wild card, they’re the most dangerous team in the playoffs every single year.

"This is an issue that has become more of a mainstream issue, a business issue really, as opposed to just an advocacy issue."

I’ve been asked for comment on the recent decision by Exxon shareholders to approve their own power to appoint outside individuals to the board of directors. Some see this as an opportunity to appoint a Climate Activist or Climate Scientist to the board in the future.

I assure you that I will have something to say on this, as it is again a horribly complex political and economic battle in which alarmists only bring loud shrieks, cherry-picked talking points, and a contempt for the scientific method. It is part of a much larger debate that I have on the environmental movement, its rampant hypocrisy, and its lack of economic prowess.

Although I don’t support him, I’m pleased to see that the idea of a Trump presidency is terrifying the pathetic accord reached in Paris that would lead to a repeat of the failed aid programs of yesteryear. Even though the Keystone Pipeline doesn’t matter to the U.S. economy, the mere prospect of its return to politics forces a broader debate about humanity, its climate, and the true scientific rigor that is required to understand this issue.

Now, if anyone thinks that shutting down or fining Exxon as part of a larger effort to eliminate the international order of energy trade without a plan to address the social, political, and economic consequences of that action – they are delusional, and they are acting more on political dogma than rational analysis.

  • Yes, there is a correlation between temperature data and input of carbon into the atmosphere.
  • There is also a very strong correlation between per-capita cheese consumption and the number of people who die each year by getting tangled up in their bed sheets.

Forgive me for demanding more scientific expectations than what I can do at home with Microsoft Excel. I expect non-stop scientific exploration of every single plausible outcome, regardless of whether it goes against the consensus expectation. Forget Galileo. We're still a mere few decades from the destruction of John Yudkin's career for daring to go against the consensus on the human diet, only to now be seen as a prophet in the community. It appears that not enough people have  read Thomas Kuhn's The Structure of Scientific Revolutions, which 50 years later remains one of the most important books explaining our present condition.

I am not a climate change denier. I side with Christopher Hitchens’ argument that we should act for now on the assumption that we have some role in climate alteration – and that we should rigorously study it through repetition each and every day, provide complete data transparency, and act with science in mind.

But I can’t standby and watch people argue that we should redistribute our economic wealth and sacrifice Western values by providing money and technology to despots and failed socialist leaders who cannot be trusted. If anything, we should be using our technology – and the key word here is “OUR” – as in Western made – to demand structural reforms, economic liberalization, and favorable trade conditions.

That’s not too much to ask if we’re the ones keeping the lights on.


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