Tuesday, August 22, 2017

Canadian Pensions on Lagging US Infrastructure?

Matt Scuffham of Reuters reports, Top Canadian investor says U.S. behind in race for infrastructure capital:
The United States is lagging behind Canada in the race to attract capital for infrastructure projects despite launching a charm offensive to global investors and reaching out to officials north-of-the-border for advice, a top Canadian investor said.

Canada is setting up an infrastructure bank to facilitate private investment in projects such as new roads, bridges and tunnels but faces competition from the United States, where President Donald Trump is planning $1 trillion of infrastructure spending, funded mostly by the private sector.

Bjarne Graven Larsen, chief investment officer at Ontario Teachers' Pension Plan, said Canada has an advantage in already being home to a number of the world's biggest infrastructure investors and having an established track record in utilizing public and private funding to build infrastructure.

"I think Canada is actually better positioned than the U.S. because there's more institutions already, there's more history around how to do that in Canada compared to the U.S.," said Larsen, who helps manage assets worth C$175.6 billion ($138.3 billion) with the pension plan being one of the world's biggest infrastructure investors.

Larsen said he and other major Canadian investors recently met with officials, including U.S. Treasury Secretary Steven Mnuchin, at the White House to discuss U.S. infrastructure.

"They acknowledged that Canada is actually ahead of the U.S. in the planning here," Larsen said.

The infrastructure team in the White House was seeking advice from its Canadian counterparts as well as Canadian investors and considering whether they should copy some of the Canadian model, Larsen added in an interview.

Michael Sabia, chief executive of the Caisse de depot et placement du Quebec, Canada's second biggest public pension plan, said the United States should look to replicate Canada's model.

"Crowding in private investment from people like us to finance infrastructure makes a world of sense in Canada and it makes a world of sense in the United States," he told reporters after the fund reported second-quarter results on Friday.

Mark Machin, chief executive of the Canada Pension Plan Investment Board, Canada's biggest public pension plan, said he had attended the same meeting with U.S. officials as Larsen but felt the United States was some way off from having firm plans in place.

"I don’t think there's a lot of clarity yet on how the Trump plan is going to shape up," he said in an interview on Friday.

Trump has begun a "massive permit reform" as part of the U.S. infrastructure plan to speed up construction approval processes and Larsen agreed that the slow process had previously been a deterrent to international investment in U.S. infrastructure.

"In the U.S. the permitting process was sometimes difficult to figure out. You had to take a lot of different things into consideration," he said. "They actually changed that so there is now one federal permitting body in Washington that's sitting in the executive office next to the White House."

Efforts by the United States to woo foreign investment in infrastructure follow a similar charm offensive from Canadian Prime Minister Justin Trudeau who hosted international investors such as Norway's Norges, which runs one of the world's largest sovereign wealth funds, the Qatar Investment Authority and Singapore state investor Temasek in Toronto last November.

Canada's efforts are focused around the infrastructure bank, which plans to attract C$4 to C$5 for every C$1 of public funding for infrastructure projects.

"I think it's a very important initiative and we're very supportive of the infrastructure bank," said Larsen. "We see it as a vehicle that we can potentially invest in."
Matt Scuffham of Reuters contacted me several weeks ago and I thought he was conducting an exclusive interview with Ontario Teachers' CIO, Bjarne Graven Larsen, but I see here the focus is on US infrastructure and how Canada's large pensions can take part in investing in it.

There is no question that large US pension funds lag far behind their Canadian peers in terms of global infrastructure investments. Moreover, there is no question the US lags far behind Canada in terms of developing a cohesive infrastructure policy using a similar federal "infrastructure bank" that Canada created to help fund projects and be a conduit for large funds all over the world to invest in these infrastructure projects.

Even though the Canadian Infrastructure Bank is many months away from opening its doors, last month the Liberals gave a group of civil servants the power to help fast-track approval of projects for private funding well in advance.

In fact, Engineering News Record recently reported, Funding Contenders Emerge as Canada’s Infrastructure Bank Is Official:
The newly minted Canada Infrastructure Bank is fueling up for a fast start when it opens for business later this year, with officials in the Trudeau government already having vetted a potential first round of projects. An “interdepartmental project advisory group” met in recent weeks to discuss the rollout of the Parliament-approved, $27.5-billion bank and some initial projects the government’s new lending-investment arm might focus on, says Kate Monfette, spokeswoman for Amarjeet Sohi, federal infrastructure minister.

One project identified is Montreal’s ambitious light-rail system, which will receive a $1-billion federal commitment, Prime Minister Justin Trudeau said. The province of Quebec and Caisse de Dépôt, the giant pension fund heavily involved in financing and overseeing the $4.7-billion project known as Réseau Electrique Métropolitain, will be able to seek financing from the bank, Trudeau noted. At 76 kilometers, the Montreal line would be the world’s fourth-largest automated transit system, behind those in Vancouver, Singapore and Dubai.

Any money invested by the bank would free up already allocated federal funds for other infrastructure projects, federal officials have said. When announcing the investment, Trudeau said the Montreal line “is one of the most ambitious public transportation projects in our history.” A spokesman for CDPQ Infra Inc., the Caisse de Dépôt infrastructure unit, says it hopes to complete preliminary design in fall, with line operation set for the end of 2020.

Meanwhile, Washington Gov. Jay Inslee (D) had talks in May with Trudeau to gain bank funding for a long-gestating high-speed-rail line that would connect northwestern U.S. cities and Vancouver, British Columbia, spokespersons for the governor confirm. They said a $350,000 project feasibility study awarded to CH2M is set for release at year-end They did not provide a proposed project cost, but the line, which media have estimated at $30 billion, also is seen as a boost for a proposed technology corridor. Trains would run at speeds of at least 400 km per hour between Vancouver and Portland, Ore., with Washington stops in Bellingham, Everett, Seattle, SeaTac, Tacoma and Olympia. The state and Microsoft Corp. are funding the study. “We have heard from some Canadian counterparts that the Canada Infrastructure Bank is a possible option, and we’re open to analyzing it.” said one spokesperson.

Legislators green-lighted the bank in June, despite opposition party criticism that questioned whether the new financing arm would end up shielding investors at the expense of taxpayers if projects fail to meet financial expectations. But before the bank can start financing projects, it needs to have its executive team in place, says Jim Leech, former chief of one of Canada’s largest public pension funds who was named earlier this year as a bank special adviser. “We have to get the board and CEO hired … before any project can be brought forward for consideration,” Leech told ENR in an email, although it is not clear if he is a contender.
I'm quite certain Jim Leech, the former CEO of Ontario Teachers', has been busy interviewing candidates for the CEO position and for board positions. Obviously, these decisions are not just done by Jim but he has a big say as the government tasked him to oversee the creation of this federal infrastructure bank.

The key here, and Jim Leech knows this all too well, is to get the governance right so that investors feel comfortable their best interests are being taken seriously and there won't be any undue or unwanted government interference beyond setting the foundations and funding the first tranche of these infrastructure projects.

People reading this might wonder why do Canada's large pensions and other large global investors need the federal government to invest in domestic infrastructure projects? Apart from providing significant funds, the answer is red tape, regulations and the need to "fast-track" projects which can only happen if the federal government is part of it.

Infrastructure projects are complex and they take a long time to come to fruition. You can't build these projects in a year or even three years, many of them take a lot longer and the setup is equally long (fesasability studies, environmental studies, working with various groups to address concerns, and on and on before you get to the actual construction phase).

Lastly, the Canadian Press recently reported, Trump’s $1T infrastructure boast could push up construction costs in Canada:
The Trump administration’s fledgling promise to spend $1 trillion on repairing American roads and bridges may have some unintended ripple effects in Canada.

Newly released documents show that top civil servants in Ottawa worried earlier this year that Donald Trump’s ambitious infrastructure program that he talked about on the campaign trail could end up driving up the construction costs in Canada.

Trump has long talked about a massive infrastructure spending program to prod his country’s economy, but the yet-to-be-released program has taken a back seat in a legislative agenda focused on an ongoing fight over health care, the country’s debt levels and tax reform.

The longer it takes to approve a plan, the longer it may put off what a group of deputy ministers worried in February would be an upward pressure on construction prices.

“The U.S. infrastructure plan, coupled with the Investing in Canada Plan, may drive up costs for materials and services in the medium term, thereby increasing the total costs of infrastructure projects in Canada,” read the minutes from the meeting inside the building that houses the Prime Minister’s Office.

The Canadian Press obtained a copy of the document under the Access to Information Act.

The concern was listed as an issue that could affect relations with provinces and territories that were banking on federal financial help to replace and build new roads, bridges, water and transit systems.

Higher costs would mean that planned federal investments in infrastructure wouldn’t be able to buy as much new infrastructure as the Liberals hope, and potentially dampen any economic spin offs.

The Liberals have banked on their infrastructure program to drive economic growth and job creation. The plan calls for $81.2 billion in spending over the next decade, not including some $90 billion in existing legacy funds the Liberals also want to spend.

Most of the spending on the Liberal infrastructure program doesn’t happen until after 2021.

Infrastructure spending was one of Trump’s key talking points on the campaign trail, which he billed as a way to stimulate the American economy and create millions of good-paying jobs and long-term economic growth _ language not all that dissimilar from what Justin Trudeau used in promoting his infrastructure plan to Canadians during the 2015 federal election.

Trump has also envisioned having the private sector help pay for his promise, which in reality is envisioned as $200 billion in federal funds to leverage $800 billion in private sector money; again, an idea the Liberals have captured in their soon-to-be launched infrastructure bank.

The White House is reportedly set to give congressional lawmakers the outline of the infrastructure proposal this fall, although it’s unclear if Trump can get a bill passed before the end of the calendar year with divisions within the Republican ranks and opposition from Democrats.

Meanwhile, the Liberals are trying to finalize funding agreements with provinces on their long-term infrastructure program to start moving money for long-term, large scale projects and get their new financing agency up and running by the end of the year.

Why the two programs could drive up costs is chalked up to supply and demand economics.

Industry officials point out that companies can increase the cost of their services if the market is flooded with open contracts. Materials suppliers could also boost rates as demand for their products increases.

A spokesman for Infrastructure Minister Amarjeet Sohi said the roll-out of the infrastructure program over a 12-year timeline should mitigate any concerns about prices rising too fast.

“This will provide jurisdictions and asset managers with greater flexibility to prioritize and phase-in projects to best consider various factors, including the relative availability of particular goods and services, as market conditions evolve over time,” Brook Simpson said.

“In addition, as these investments will be made over a long period, we can expect that the increase in demand for economic sectors contributing to infrastructure will lead to increase in supply, which could mitigate pressures on costs.”
It remains to be seen how successful the Trump administration will be in terms of tax cuts and its ambitious $1 trillion infrastructure program.

As I have stated on my blog, it's too little, too late, the US economy is slowing and these policies, if passed, won't make a difference in the near term.

One thing that is clear to me, Trump's team needs the expertise of Canada's large pensions when it comes to infrastructure. I have no doubt about this, none whatsoever. If they work closely together, they will make a huge difference but it will take time.

Lastly, I want to plug Toronto's Caledon Partners which recently merged with CBRE to create CBRE Caledon Partners. Many small, medium-sized and even large pensions don't know how to properly invest in infrastructure and private equity and David Rogers and his team can help them as they worked at large pensions like OMERS and Ontario Teachers and they really know their stuff. If you're looking for a great partner to help you with your private market investments, contact them here.

Below, the markets are watching Republican support in Congress for Trump's economic agenda on tax cuts, deregulation and infrastructure spending, says Jim Swanson, chief investment strategist, MFS Investment Management.

Monday, August 21, 2017

Japan's GPIF Warns on Passive Investing?

James Mackintosh of the Wall Street Journal reports, World’s Biggest Pension Fund Wants to Stop Index Trackers Eating the Economy:
If investors continue to pile their money into passive index-tracking, at some point markets will stop doing their job of allocating resources efficiently in the economy. Perhaps they already have.

The threat is big enough that the world’s largest pension fund is preparing to put more of its money with active managers—who charge more and on average underperform—in an attempt to keep markets functioning properly.

Hiromichi Mizuno, chief investment officer of Japan’s $1.4 trillion Government Pension Investment Fund, worries that market efficiency will be damaged by the rise of passive funds, which rely on trading by active investors to set the price of stocks. Since the signals from market prices are vital to determining the movement of capital around the economy, less efficient signals would hurt growth and lead stock indexes to rise by less than they otherwise would.

“We are long term and a universal owner so we need to make sure that the market will continue to be efficient,” he said.

The problem crops up again and again in finance. It makes sense to be a free rider on someone else’s work, but once everyone realizes that, there is no one left to do the work. In markets, the work is identifying which companies will do best, which harnesses greed to deliver the social goal of divvying up resources for their best use. Unfortunately, the work isn’t just hard, it is zero-sum: for every investor who beats the market by $1, someone must underperform by $1. Why bother when it is easier and cheaper to buy an index? (click on image)

Turning to Indexes / Index trackers as percentage of U.S. domestic mutual fundsSource: Investment Company Institute

Those who dislike markets may respond that markets often fail to allocate capital to the right parts of the economy because of bubbles and busts, and they have a point. But even worse is to not even try; as AB Bernstein analyst Inigo Fraser-Jenkins memorably put it a year ago, “passive investing is worse than Marxism.”

For now there is little sign that the U.S. is suffering much, if at all, from the rapid rise in index funds. Jack Bogle, who as founder of index-fund manager Vanguard did more than anyone else to boost indexing, points out that there has been no breakdown in the link between the stock prices of S&P 500 companies—where indexing is much more popular—and the rest of the market. If indexing were truly affecting prices, there should be a greater impact on those with more index-fund ownership, and so a change in their relationship with less-indexed stocks.

“So far it looks like the market system’s working pretty well,” Mr. Bogle said from his holiday home in the Adirondacks. “When [passive] gets to 50% I might want to think about it a little more but I just don’t see that the problem is even on the horizon.” (click on image)

In the U.S., that is true, with credit rating agency Moody’s Investors Service calculating that 29% of assets under management in the U.S. are now passive. But the share is rising rapidly: Moody’s reckons that index funds will take a majority of the market by 2024.

Japan is further advanced in the move to passive investing, in part thanks to the Bank of Japan, which owns Y14.9 trillion ($135 billion) of exchange-traded funds tracking Japanese indexes and has bought another $4.3 billion worth already this month.

Mr. Mizuno thinks GPIF—known as “the whale” for its size—will be emulated by others in Japan. He’s also putting more effort into choosing the best active managers, beefing up the selection team in the hope that the higher cost of active management will be offset by their beating the market, something impossible for all active managers taken as a group.

But it will take time to make a difference. GPIF’s Japanese equities are now 91% passive, counting money in so-called smart-beta funds that follow rules such as value or momentum trading.

So far, big investors elsewhere are showing little concern about the damage passive investment might one day do to the market economy. They’re probably right to think that they can free-ride on active managers for several years yet. But no one knows at what point markets will be impaired, or even how we will be able to tell.

Elroy Dimson, a finance professor at London Business School, said that in previous decades academics also fretted about the growth of passive management and postulated critical levels beyond which it would impair the market. Yet we’ve zoomed passed them, without any obvious signs of trouble. “It’s plucking numbers out of the air” to put a figure on it, he said.

The uncertainty in itself is a reason for caution. Perhaps the market economy could work well even if only a few hundred active investors were involved in setting prices, but I suspect not. The point of tapping the wisdom of crowds is that it needs a crowd, and the smaller the crowd is, the less effective it is likely to be.

It is time other big investors starting thinking like GPIF, because if the rise of passive does undermine economic growth, it will do a lot more damage to their portfolios than a bit of active underperformance.
I've already discussed the $3 now $4 trillion dollar shift in investing. Jack Bogle isn't as well known as investment titans like Warren Buffett and George Soros and other top fund managers I track every quarter, nor has he amassed their wealth. But there's no arguing he's the most important person in the investment world by making passive investing accessible to everyone and demonstrating the advantages of low-cost exchange-traded funds (ETFs).

There is a simple question that every investor needs to ask: why invest in mutual fund A or B, or worse still, hedge fund C and D or private equity fund E and F, if they can get the same or higher return over a long period at a fraction of the cost simply by investing in the S&P 500 ETF (SPY) or even a basket of ETFs that are rebalanced every year or following a simple rule?

The rise of robo advice is a direct extension of this question. "Sophisticated" Millennials have figured it all out. No more worrying about mutual funds, just plug in your risk tolerance here and get a tailored portfolio of low-cost ETFs which are rebalanced every year on an annual or more frequent basis or following some simple rules based on momentum or returns. They can even track everything on their cell phone in between posting silly pics on Instagram and Facebook.

Unfortunately, this electronically-lobotomized generation which is rewriting the rules on what a pathetic obsession with vanity is all about, is in for a rude awakening as are many other investors who think passive investing and robo-advisers are the key to long-term investment success.

There's no doubt that ETFs are driving the market higher, along with central banks expanding their balance sheets to a collective $15 trillion and companies emitting bonds to buy back shares like there's no tomorrow, artificially manipulating earnings per share, ensuring their senior managers get compensated very well. This is all part of profits without honor.

The problem with passive investing -- and this is what I want all of you to take away -- is just like anything else, the more money that goes in there, the worse the prospective returns.

In other words, the growing popularity of passive investing will ensure its future demise. The same thing with other investments, including hedge funds and private equity. As institutional investors shove trillions in these strategies, they will only ensure lower future returns.

The great American economist, Paul Samuelson, once touted passive investing but also warned that when it becomes very popular and everyone is doing it, it won't work as well.

Even Jack Bogle acknowledged recently that this circle of passive investing could turn vicious eventually and cause downright tragic events in the stock market:
“If everybody indexed, the only word you could use is chaos, catastrophe,” Bogle told Yahoo Finance at the Berkshire Hathaway annual meeting last month (in May). “The markets would fail,” he added.

Bogle noted that trading would dry up if the stock market comprised only indexers and there were no active investors setting prices on individual issues. Everyone would just buy or sell the market.
Mr. Bogle isn't stupid, far from it. He understands the pros and cons of passive investing better than anyone else and why passive investing requires active investors as there is a mutual symbiosis. He also realizes that past a certain threshold, passive investing will run into big trouble, and when the beta bubble bursts, it will spell big trouble for passive AND active investors (less so for active managers but the big beta tsunami will also impact their returns).

Bogle has also warned that smart beta may be over-promising and that the stock market will return 4% annually, which won't be enough to help many chronically underfunded US public and private plans.

I personally believe we are close to a rude passive investing awakening which is why in my last comment looking at what top funds bought and sold during the second quarter, I unequivocally recommended investors reduce their stock market exposure and increase their holdings to boring old US long bonds (TLT):
I'm willing to bet anyone reading this comment that over the next year, US long bonds will significantly outperform hedge funds on a risk-adjusted basis.

"Yeah but that's not sexy. Hedge funds and other alternative investments offer higher returns than bonds over a long period and we get to travel to New York, London, and other cool places to meet these managers who wine and dine us at nice restaurants and take good care of us, making us feel very important."

I hear you, my dear pension fund managers, been there, done that. All I can say is what the late great George Carlin repeated many times: "It's all bullshit and it's bad for you."

"Leo, is that your hyperthyroid talking or is that really you?". I assure you it's really me, I'm treating my hyperthyroid with two little Tapazole pills every morning and should be fine in one month (the endocrinologist told me I have Grave's disease and likely had it for a long time, but it's treatable).

Folks, I know, bonds aren't sexy. The Maestro and others think there's a bubble in bonds, but they don't understand the inflation deflation mystery. They think Trump will save us with tax cuts and big spending on infrastructure, and rates will rise to new highs. Keep dreaming, I warned you a long time ago, nobody trumps the bond market, especially not Trump.

In fact, I'm on record stating the 10-year Treasury note yield is headed below 1% and might touch 0.5% or head even lower if a global deflationary crisis develops.

When that happens, you won't care what Tepper and Soros bought or sold in the stock market. Soros will come out ahead of the hedge fund pack once again, not based on his stock selection skills, but on his great bearish macro calls.
All this to say while I agree with Hiromichi Mizuno, chief investment officer of Japan’s $1.4 trillion Government Pension Investment Fund, that market efficiency will be damaged by the rise of passive funds, but I also believe when the giant beta bubble bursts, it will roil passive and active investors alike and only US long bonds (TLT) will act as the ultimate diversifier, saving your portfolio from being obliterated.

And as I've stated many times, what really worries me isnt when the tech bubble bursts, it's when will deflation come to America, and clobber all risk assets across public and private markets for decades to come.

Now, I realize GPIF is a pension whale and just like CPPIB and other large pension funds, it can't just sell everything and hide in US Treasurys the way I have done recently. I want no part in this market and it's not because I can't invest, trade, and take intelligent risks, I just think it's not worth the energy and stress and truly feel US long bonds (TLT) offer the best risk-adjusted returns going forward.

Right now, I prefer to sit back and let the market come to me, not chase opportunities that might or might not pan out in individual stocks.

Japan's GPIF and CPPIB are long-term investors and they need to think more carefully about how they will construct their respective portfolios across public and private markets to ride through the coming pension storm.

In this regard, CPPIB is well ahead of GPIF but it's a lot smaller too. GPIF will have a very hard time finding solid active managers across public and private markets as the mystery of inflation-deflation unfolds.

Still, GPIF is moving as fast as possible to diversify into private markets. It recently announced it's plowing into real estate, asking asset managers around the world to submit proposals to run portions of the fund's real estate investment portfolio.

But make no mistake, GPIF's assets recently hit a record ¥144.9tn on the back on passive investments and the fund has massive beta exposure, far more than its large peers around the world. This is why the focus right now is on active managers in public and private markets.

Hope you enjoyed this comment. Once again, these are my views and I don't claim to have a monopoly of wisdom on pensions and investments. My number one job is to make you THINK outside the proverbial box. I thank all of you who support my blog and to those of you who haven't, please donate and/ or subscribe via PayPal on the top right-hand side (view web version on your cell phone).

Below, as ETFs blow past hedge funds, hedge-fund billionaire Paul Singer has had enough, stating the move to passive investing is "destructive to the growth-creating and consensus-building prospects of free market capitalism."

If you ask me, hedge funds have been devouring capitalism for quite some time so it's nice to see them get a taste of their own medicine. Of course, in his epic letter, Singer raises excellent points but I'm tired of hedge fund billionaires who amassed a fortune by squeezing public pensions funds on fees telling us what's wrong with capitalism.

What's wrong is the rise of inequality to a point where the uber-wealthy have effectively hijacked the US political and economic system and the public responds by voting a demagogue like Trump into office.

I highly recommend all these hedge fund billionaires listen to Noam Chomsky and more importantly, read Michael Walzer's classic book, Spheres of Justice, which remains one of the best books I've ever read in defence of distributive justice and pluralism.

Thursday, August 17, 2017

Top Funds' Activity in Q2 2017

David Randall of Reuters reports, Billionaire hedge-fund manager Tepper adds contrarian energy stocks:
Hedge-fund manager David Tepper, known for taking positions in out-of-favor companies in his Appaloosa Management hedge fund, added stakes in embattled Wells Fargo Co and several energy companies in the second quarter as the price of oil fell, according to quarterly filings released Monday.

Among the six new energy companies Tepper added to his fund were Antero Resources Corp, Southwestern Energy Co, and Chesapeake Energy Corp.

Shares of each company are down by 20 percent or more year-to-date as part of a broad sell-off in energy companies. The price of oil hit a 9-month low in June due to concerns about a glut of supply. Overall, energy companies in the S&P 500 are down 12.7 percent for the year through Friday, compared with a 9.3 percent gain in the broad index.

Tepper, who manages roughly $17 billion overall, bought approximately 681,000 shares of Wells Fargo during the quarter. Shares of the company are down 4 percent for the year as the company faces the ramifications of a scandal over unauthorized account openings and lawsuits that charged it modified borrower's mortgages without their authorization.

Overall, shares of financial stocks in the S&P 500 gained 6.9 percent for the year through Friday.

In addition to energy and financial companies, Tepper took a roughly 3.7 million-share stake in Chinese online retailer Alibaba Group Holdings Ltd, making it the third-largest holding in the fund. Dan Loeb's Third Point once again has a stake in Alibaba, having bought 4.5 million shares during the second quarter. Shares of the company are up 76 percent year-to-date after the company raised its revenue forecast in June.

Other new additions to the fund included down-market retailer Dollar General Corp, mall-based retailer L Brands Inc, and travel bookings site Expedia Inc, filings show.

Among technology stocks, Tepper added approximately 449,000 shares of Facebook Inc, increasing his stake in the company by 23 percent, and sold all of his shares of Snap Inc. Shares of the social media company have slid 14 percent since its $3.4 billion initial public offering in March on increased investor concerns that the company may never turn a profit.
It's time for our quarterly sneak peek into the portfolios of "money manager gods" but before I begin looking into what top funds bought and sold during the second quarter, let me once again state my top three macro conviction calls going forward:
  1. Long US long bonds (TLT) as I see the US economy slowing and global deflation spreading to the United States. 
  2. Long the USD (UUP) as I see the global economy following the US economy and slowing. Even if the Fed pauses its rate hikes, the USD will gain as global economies start slowing. If a crisis hits, it's bullish for the greenback and yen.
  3. Short oil (OIL), energy (XLE) and metals and mining (XME) shares as well as commodity currencies. Why in the world would you be long energy and commodities with global deflation looming around the corner? That's just plain nuts.
Given my views on global deflation coming to America, I'm also short emerging markets bonds (EMB), currencies and stocks (EEM) and short financials (XLF) and other cyclical stocks, including industrials (XLI), retail (XRT) and transportation (IYT) shares.

And even though I worry about deflation, I'm also weary of utilities (XLU), REITs (IYR) and even consumer staples (XLP) as I find a lot of these dividend "safe places to hide" are way overvalued and can get clobbered if markets melt down. People don't realize that dividends don't protect you from a market meltdown.

As far as biotech (XBI and IBB) and technology (XLK), the two sectors I liked most right before Trump got elected, I believe these high beta, high flyers are cruising for a major bruising and they will get clobbered when markets head south. This will impact healthcare (XLV) as there are a lot of biotech shares that drove that ETF up.

What about gold (GLD), the sector Ray Dalio recently recommended on LinkedIn to hedge against geopolitical and other risks? Even though there may be a tradable rally, I'm not touching gold given my bullish views on the greenback and I firmly believe that only US long bonds (TLT) will protect your portfolio from the ravages of global deflation.

Importantly, I see huge deflationary risks in the world which is why I truly believe US long bonds (TLT) offer investors the best risk-adjusted returns over the next year or longer and will prove to be the ultimate diversifier, protecting your portfolio from being obliterated as deflation roils all risk assets.

When I tell you that all my money and the money of my loved ones is in US long bonds (TLT), I mean it and the bad news is this isn't the market to be diversified among many ETFs or even to pick stocks, you risk getting killed either way because I foresee both active and passive strategies getting whacked hard over the next six months to a year (active less than passive).

I had to begin this comment with my macro views because every time I post a comment on what top funds bought and sold last quarter, people get all excited and ask me "What did Soros buy? What about Tepper, Griffin et al.?

Listen to me carefully, it doesn't matter what these top funds bought and sold last quarter, I stick by my macro views one hundred percent and that's why I am recommending US long bonds (TLT). If I had Tepper's fund in my hedge fund portfolio, I'd be grilling him on his contrarian energy bets and even his love affair with tech stocks.

"But Leo, that's David Tepper you're talking about! You can't question him, Ray Dalio and other elite hedge fund managers, they have more money than you'll amass in one million lifetimes and everyone listens to them, not you."

That's true but that's also the problem, people glorifying uber-wealthy hedge fund managers, paying them extraordinary fees when all they should be doing is raising their exposure to boring old US long bonds (TLT) and pay NO fees.

I'm willing to bet anyone reading this comment that over the next year, US long bonds will significantly outperform hedge funds on a risk-adjusted basis.

"Yeah but that's not sexy. Hedge funds and other alternative investments offer higher returns than bonds over a long period and we get to travel to New York, London, and other cool places to meet these managers who wine and dine us at nice restaurants and take good care of us, making us feel very important."

I hear you, my dear pension fund managers, been there, done that. All I can say is what the late great George Carlin repeated many times: "It's all bullshit and it's bad for you."

"Leo, is that your hyperthyroid talking or is that really you?". I assure you it's really me, I'm treating my hyperthyroid with two little Tapazole pills every morning and should be fine in one month (the endocrinologist told me I have Grave's disease and likely had it for a long time, but it's treatable).

Folks, I know, bonds aren't sexy. The Maestro and others think there's a bubble in bonds, but they don't understand the inflation deflation mystery. They think Trump will save us with tax cuts and big spending on infrastructure, and rates will rise to new highs. Keep dreaming, I warned you a long time ago, nobody trumps the bond market, especially not Trump.

In fact, I'm on record stating the 10-year Treasury note yield is headed below 1% and might touch 0.5% or head even lower if a global deflationary crisis develops.

When that happens, you won't care what Tepper and Soros bought or sold in the stock market. Soros will come out ahead of the hedge fund pack once again, not based on his stock selection skills, but on his great bearish macro calls.

That's why Soros is the undisputed king of hedge funds, because he understands the macro environment better than anyone else.

On that note, let me share some other articles covering what top funds bought and sold in Q2:
And on and on it goes, you can literally spend days reading about what hedge funds bought and sold last quarter. Like I said, it's all noise, these markets are headed lower, and will clobber passive and active managers alike.

All I can tell you is analyzing and trading markets and stocks is a passion of mine. I regularly look at the YTD performance of stocks, the 12-month leaders, the 52-week highs and 52-week lows. I also like to track the most shorted stocks and highest yielding stocks in various exchanges and I have a list of stocks I track in over 100 industries/ themes to see what is moving in real time.

When I tell you these aren't the markets you want to be playing in, I know exactly what I'm talking about because I'm watching these markets closely every day and my deflationary macro call looms large and is weighing on on all risk assets, not just stocks.

These ARE NOT the markets you want to be making any bullish or contrarian bets on. Trust me when I tell you global deflation will obliterate all risk assets and the only refuge will be in US long bonds (TLT).

On that cheery note, have fun looking at the second quarter activity of top funds I listed below (just click on links and then click on the fourth column head, % chg, to see where they descreased and increased their holdings).

Top multi-strategy and event driven hedge funds

As the name implies, these hedge funds invest across a wide variety of hedge fund strategies like L/S Equity, L/S credit, global macro, convertible arbitrage, risk arbitrage, volatility arbitrage, merger arbitrage, distressed debt and statistical pair trading.

Unlike fund of hedge funds, the fees are lower because there is a single manager managing the portfolio, allocating across various alpha strategies as opportunities arise. Below are links to the holdings of some top multi-strategy hedge funds I track closely:

1) Citadel Advisors

2) Balyasny Asset Management

3) Farallon Capital Management

4) Peak6 Investments

5) Kingdon Capital Management

6) Millennium Management

7) Eton Park Capital Management

8) HBK Investments

9) Highbridge Capital Management

10) Highland Capital Management

11) Pentwater Capital Management

12) Och-Ziff Capital Management

13) Pine River Capital Capital Management

14) Carlson Capital Management

15) Magnetar Capital

16) Mount Kellett Capital Management 

17) Whitebox Advisors

18) QVT Financial 

19) Paloma Partners

20) Weiss Multi-Strategy Advisors

21) York Capital Management

Top Global Macro Hedge Funds and Family Offices

These hedge funds gained notoriety because of George Soros, arguably the best and most famous hedge fund manager. Global macros typically invest across fixed income, currency, commodity and equity markets.

George Soros, Carl Icahn, Stanley Druckenmiller, Julian Robertson and now Steve Cohen have converted their hedge funds into family offices to manage their own money and basically only answer to themselves (that is my definition of true investment success).

1) Soros Fund Management

2) Icahn Associates

3) Duquesne Family Office (Stanley Druckenmiller)

4) Bridgewater Associates

5) Pointstate Capital Partners 

6) Caxton Associates (Bruce Kovner)

7) Tudor Investment Corporation

8) Tiger Management (Julian Robertson)

9) Moore Capital Management

10) Point72 Asset Management (Steve Cohen)

11) Bill and Melinda Gates Foundation Trust (Michael Larson, the man behind Gates)

12) Joho Capital (Robert Karr, a super succesful Tiger Cub who shut his fund in 2014)

Top Market Neutral, Quant and CTA Hedge Funds

These funds use sophisticated mathematical algorithms to make their returns, typically using high-frequency models so they churn their portfolios often. A few of them have outstanding long-term track records and many believe quants are taking over the world. They typically only hire PhDs in mathematics, physics and computer science to develop their algorithms. Market neutral funds will engage in pair trading to remove market beta.

1) Alyeska Investment Group

2) Renaissance Technologies

3) DE Shaw & Co.

4) Two Sigma Investments

5) Numeric Investors

6) Analytic Investors

7) Winton Capital Management

8) Graham Capital Management

9) SABA Capital Management

10) Quantitative Investment Management

11) Oxford Asset Management

12) PDT Partners

13) Princeton Alpha Management

Top Deep Value,
Activist, Event Driven and Distressed Debt Funds

These are among the top long-only funds that everyone tracks. They include funds run by legendary investors like Warren Buffet, Seth Klarman, Ron Baron and Ken Fisher. Activist investors like to make investments in companies where management lacks the proper incentives to maximize shareholder value. They differ from traditional L/S hedge funds by having a more concentrated portfolio. Distressed debt funds typically invest in debt of a company but sometimes take equity positions.

1) Abrams Capital Management (the one-man wealth machine)

2) Berkshire Hathaway

3) Baron Partners Fund (click here to view other Baron funds)

4) BHR Capital

5) Fisher Asset Management

6) Baupost Group

7) Fairfax Financial Holdings

8) Fairholme Capital

9) Trian Fund Management

10) Gotham Asset Management

11) Fir Tree Partners

12) Elliott Associates

13) Jana Partners

14) Gabelli Funds

15) Highfields Capital Management 

16) Eminence Capital

17) Pershing Square Capital Management

18) New Mountain Vantage  Advisers

19) Atlantic Investment Management

20) Scout Capital Management

21) Third Point

22) Marcato Capital Management

23) Glenview Capital Management

24) Apollo Management

25) Avenue Capital

26) Armistice Capital

27) Blue Harbor Group

28) Brigade Capital Management

29) Caspian Capital

30) Kerrisdale Advisers

31) Knighthead Capital Management

32) Relational Investors

33) Roystone Capital Management

34) Scopia Capital Management

35) Schneider Capital Management

36) ValueAct Capital

37) Vulcan Value Partners

38) Okumus Fund Management

39) Eagle Capital Management

40) Sasco Capital

41) Lyrical Asset Management

42) Gabelli Funds

43) Brave Warrior Advisors

44) Matrix Asset Advisors

45) Jet Capital

46) Conatus Capital Management

47) Starboard Value

48) Pzena Investment Management

Top Long/Short Hedge Funds

These hedge funds go long shares they think will rise in value and short those they think will fall. Along with global macro funds, they command the bulk of hedge fund assets. There are many L/S funds but here is a small sample of some well-known funds.

1) Adage Capital Management

2) Appaloosa LP

3) Greenlight Capital

4) Maverick Capital

5) Pointstate Capital Partners 

6) Marathon Asset Management

7) JAT Capital Management

8) Coatue Management

9) Omega Advisors (Leon Cooperman)

10) Artis Capital Management

11) Fox Point Capital Management

12) Jabre Capital Partners

13) Lone Pine Capital

14) Paulson & Co.

15) Bronson Point Management

16) Hoplite Capital Management

17) LSV Asset Management

18) Hussman Strategic Advisors

19) Cantillon Capital Management

20) Brookside Capital Management

21) Blue Ridge Capital

22) Iridian Asset Management

23) Clough Capital Partners

24) GLG Partners LP

25) Cadence Capital Management

26) Karsh Capital Management

27) New Mountain Vantage

28) Andor Capital Management (it shut down again, for now)

29) Silver Point Capital

30) Steadfast Capital Management

31) Brookside Capital Management

32) PAR Capital Capital Management

33) Gilder, Gagnon, Howe & Co

34) Brahman Capital

35) Bridger Management 

36) Kensico Capital Management

37) Kynikos Associates

38) Soroban Capital Partners

39) Passport Capital

40) Pennant Capital Management

41) Mason Capital Management

42) Tide Point Capital Management

43) Sirios Capital Management 

44) Hayman Capital Management

45) Highside Capital Management

46) Tremblant Capital Group

47) Decade Capital Management

48) T. Boone Pickens BP Capital 

49) Bloom Tree Partners

50) Cadian Capital Management

51) Matrix Capital Management

52) Senvest Partners

53) Falcon Edge Capital Management

54) Park West Asset Management

55) Melvin Capital Partners

56) Owl Creek Asset Management

57) Portolan Capital Management

58) Proxima Capital Management

59) Tiger Global Management

60) Tourbillon Capital Partners

61) Impala Asset Management

62) Valinor Management

63) Viking Global Investors

64) Marshall Wace

65) Light Street Capital Management

66) Honeycomb Asset Management

67) Whale Rock Capital

70) Suvretta Capital Management

71) York Capital Management

72) Zweig-Dimenna Associates

Top Sector and Specialized Funds

I like tracking activity funds that specialize in real estate, biotech, healthcare, retail and other sectors like mid, small and micro caps. Here are some funds worth tracking closely.

1) Armistice Capital

2) Baker Brothers Advisors

3) Palo Alto Investors

4) Broadfin Capital

5) Healthcor Management

6) Orbimed Advisors

7) Deerfield Management

8) BB Biotech AG

9) Ghost Tree Capital

10) Sectoral Asset Management

11) Oracle Investment Management

12) Perceptive Advisors

13) Consonance Capital Management

14) Camber Capital Management

15) Redmile Group

16) RTW Investments

17) Bridger Capital Management

18) Boxer Capital

19) Bridgeway Capital Management

20) Cohen & Steers

21) Cardinal Capital Management

22) Munder Capital Management

23) Diamondhill Capital Management 

24) Cortina Asset Management

25) Geneva Capital Management

26) Criterion Capital Management

27) Daruma Capital Management

28) 12 West Capital Management

29) RA Capital Management

30) Sarissa Capital Management

31) SIO Capital Management

32) Senzar Asset Management

33) Southeastern Asset Management

34) Sphera Funds

35) Tang Capital Management

36) Thomson Horstmann & Bryant

37) Venbio Select Advisors

38) Ecor1 Capital

39) Opaleye Management

40) NEA Management Company

Mutual Funds and Asset Managers

Mutual funds and large asset managers are not hedge funds but their sheer size makes them important players. Some asset managers have excellent track records. Below, are a few funds investors track closely.

1) Fidelity

2) Blackrock Fund Advisors

3) Wellington Management

4) AQR Capital Management

5) Sands Capital Management

6) Brookfield Asset Management

7) Dodge & Cox

8) Eaton Vance Management

9) Grantham, Mayo, Van Otterloo & Co.

10) Geode Capital Management

11) Goldman Sachs Group

12) JP Morgan Chase & Co.

13) Morgan Stanley

14) Manulife Asset Management

15) RCM Capital Management

16) UBS Asset Management

17) Barclays Global Investor

18) Epoch Investment Partners

19) Thornburg Investment Management

20) Legg Mason (Bill Miller)

21) Kornitzer Capital Management

22) Batterymarch Financial Management

23) Tocqueville Asset Management

24) Neuberger Berman

25) Winslow Capital Management

26) Herndon Capital Management

27) Artisan Partners

28) Great West Life Insurance Management

29) Lazard Asset Management 

30) Janus Capital Management

31) Franklin Resources

32) Capital Research Global Investors

33) T. Rowe Price

34) First Eagle Investment Management

35) Frontier Capital Management

36) Akre Capital Management

37) Brandywine Global

38) Brown Capital Management

Canadian Asset Managers

Here are a few Canadian funds I track closely:

1) Addenda Capital

2) Letko, Brosseau and Associates

3) Fiera Capital Corporation

4) West Face Capital

5) Hexavest

6) 1832 Asset Management

7) Jarislowsky, Fraser

8) Connor, Clark & Lunn Investment Management

9) TD Asset Management

10) CIBC Asset Management

11) Beutel, Goodman & Co

12) Greystone Managed Investments

13) Mackenzie Financial Corporation

14) Great West Life Assurance Co

15) Guardian Capital

16) Scotia Capital

17) AGF Investments

18) Montrusco Bolton

19) Venator Capital Management

Pension Funds, Endowment Funds, and Sovereign Wealth Funds

Last but not least, I the track activity of some pension funds, endowment and sovereign wealth funds. I like to focus on funds that invest in top hedge funds and have internal alpha managers. Below, a sample of pension and endowment funds I track closely:

1) Alberta Investment Management Corporation (AIMco)

2) Ontario Teachers' Pension Plan

3) Canada Pension Plan Investment Board

4) Caisse de dépôt et placement du Québec

5) OMERS Administration Corp.

6) British Columbia Investment Management Corporation (bcIMC)

7) Public Sector Pension Investment Board (PSP Investments)

8) PGGM Investments

9) APG All Pensions Group

10) California Public Employees Retirement System (CalPERS)

11) California State Teachers Retirement System (CalSTRS)

12) New York State Common Fund

13) New York State Teachers Retirement System

14) State Board of Administration of Florida Retirement System

15) State of Wisconsin Investment Board

16) State of New Jersey Common Pension Fund

17) Public Employees Retirement System of Ohio

18) STRS Ohio

19) Teacher Retirement System of Texas

20) Virginia Retirement Systems

21) TIAA CREF investment Management

22) Harvard Management Co.

23) Norges Bank

24) Nordea Investment Management

25) Korea Investment Corp.

26) Singapore Temasek Holdings 

27) Yale Endowment Fund

Below, CNBC's Leslie Picker digs deeper into what the quarterly SEC filings by big-name investors say about the sectors they're buying and selling. Glad to see Ray Dalio increased his stake in US long bonds (TLT) in Q2.

And CNBC's traders discuss how David Tepper of Appaloosa Management, one the most respected and legendary investors in the hedge fund business, is betting big on technology (geez, what a pathetic shmooze fest this was, almost made me heave).

Third, on a more serious note, if there was any doubt about what kind of person went to protest in Charlottesville, Virginia, over the weekend, Vice News’s documentary should put those questions to rest. Watch this disturbing documentary and share it with others (warning: not easy to watch and highly offensive but it exposes the hatred, bigotry, and anti-Semitism right in our backyard).

Lastly, Larry Summers, former Treasury secretary, gives his thought about the role of executives on President Trump's advisory councils. Summers doesn't mince his words and that's why I respect him.

Update: My comment was written prior to the terrorist attack in Barcelona which was behind Thursday's selloff. These senseless acts of terrorism only add to my fears, as do geopolitics in North Korea and elsewhere, but that's not what I'm basing my macro calls on. My macro calls are based on a slowdown in the US economy, followed by a global slowdown which will export deflation to the United States. In this deflationary environment, only US nominal long bonds (TLT) will save your portfolio from being ravaged.  

The message here is clear, forget what hedge fund gurus are buying and selling. Now isn't the time to play with stocks, now is the time to be very defensive and load up on US long bonds (TLT), hunkering down as global deflation obliterates all risk assets, not just stocks.