“Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality. And just as in past cycles, the manager who doesn’t subscribe to the new rules, who goes against the grain of convention is viewed as out of touch or left behind.
Since the beginning of our fund’s drawdown in early 2012, a Bloomberg index of the “Worst Balance Sheet” companies of the S&P500 has returned to-date over +30% on an annualized basis. An MSCI index of the “Most-Shorted” companies of the Russell 3000—a proxy for the visibility of bad valuations, bad managements, and bad fundamentals—has also returned over +30% annualized. These perversions are even more pronounced within EMs, exacerbated by record fund outflows in the first half of 2014, exceeding even those of the 2008 crisis.
This dash for trash puts to shame even the speculative excesses of the dot.com era. This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization.”
Andrew Cunagin, Rinehart Capital Partners LLC founder
“The Federal Reserve and the other public regulators are culpable for the carnival atmosphere in the US markets, in addition to the visceral and cynical pandering to greed which is the hallmark of the present day political class. At some point, someone must have the courage to stand, even if it is against the tide, for the rule of law.
These officials have taken the duties of their office and sworn to it, and thereby own the stewardship. They have systematically set the boundaries for the vital price discovery process of public markets, the protection of wealth, and of economic governance in order to favor a powerful few at the expense of their own obligations.
They cynically attempt to hide their malfeasance with a feigned ignorance and obfuscation. They pride themselves on their ability to deceive, to use words as a weapon against those that they are obliged to protect. They excuse their behavior by saying, ‘we did not know’ or ‘you did not do enough to stop us.’ By their example they sow the seeds of disorder and destruction.”
Jesse
