High profile hedge fund manager Peter Thiel is speaking out after reports emerged that his firm was floundering as the markets ripped higher. Thiel, a master of understanding secular trends believes the rally is built on quicksand – a stance he not alone in taking. Thiel told the WSJ yesterday that the rally was not real:
“The recovery is not real,” he says. “Deep structural problems haven’t been solved and it’s unclear how we will create jobs and get the economy growing again — that’s long been my thesis and it still is.”
Of course, this sounds all too familiar to regular readers. Thiel is dead right about the long-term problems that the U.S. is confronted with. Unfortunately for Mr. Thiel’s investors he has had a difficult time trading around these themes. Thiel’s fund Clarium was up 50% as of the middle of last year, but finished the year with slight losses. Even his deep pessimism couldn’t protect him from the collapse in Q3 as his commodity heavy fund got pummeled. The fund is now sitting on a 40% peak to trough (?) draw-down – a massive and potentially life threatening draw-down for such a large and respected fund.
But Mr. Thiel has unwavering faith in his positions which include a re-emergence of the fear trade:
“The government has helped stabilize the banking system, but I’m not sure we have a path toward sustainable growth,” partly because consumers are dealing with debt and other issues, even as an energy crisis looms, he says. “It always feels unpatriotic to be negative. But too few people are focused on the real problems.”
As we often hear, the market can remain irrational longer than you can remain solvent. Investors would be crazy to bet against Thiel in the long-run, but that doesn’t mean there isn’t more near-term pain for the ultra negative investors….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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