Soros made most of his money in 'short' positions

Summary: 

1. Soros makes most of his money through 'short positions'. Soros initially made $1 billion shorting pound in 1995, then 5 years later shorting Thai Bhat, and then shorting Japanese Yen in 2012-13. This confirms my observation that in trading there are more 'significant one-off' opportunities in short positions.

2. But these short opportunities come only at specific times. You cannot be ahead of time. 

3. Soros made most of his money in 'currencies' 

4. Soros lost $1 bn as a result of stock rally post Donald Trump's election (So, he was short the market/stocks leading to the US election). This shows even with so much experience as Soros, it is still possible to lose money. Yet, a loss of $1 billion is a meagre 3% of his networth of about $30 billion

5. Soros is now 86 years old. So, Soros made his big bet on pound in 1991 when i.e. when he was 61 years old. Investing is an experienced man's game!

***

Also, see the WSJ article below, Santley Drukenmiller made the opposite bet and made money post Trump election. 

Note the timing of Stanley Drukenmiller. He square off his bearish positions on the night of elections. 

- He squared off his long-gold bet on the night of elections. Shows, how effective he was in squaring off his position. As immediately after trump's election, gold prices fell by about 15% or so. (Shows, how even the best and brightest play till the last moment. He should have squared off a little earlier. Yet, the very fact he squared off the position shows that he's only looking at the broad picture and not the $1, $2, $5 or $10 or $50 dollars. He squared off based on the broad trend. Even when he purchased he purchased at about $1050 per ounnce. I don't think he waited for $1000 round number. Shows how the big guys play in the market. They are looking at broad trends, not the prices till the last decimals.)

- He went short on bonds (on all global bonds) post or just before trump's elections. Shows another very good macro move. Again, he's concentrating the broad picture. Not the nitty gritty. 


http://www.wsj.com/articles/billionaire-george-soros-lost-nearly-1-billion-in-weeks-after-trump-election-1484227167

***

Regulator Accidentally Posts Soros’s Short Positions

by Ellen Proper and Colin McClelland

January 26, 2017, 12:48 PM GMT+5:30 January 26, 2017, 6:42 PM GMT+5:30

Bets against stocks were revealed briefly on AFM’s website

‘Human error’ blamed for publication of positions back to 2012

George Soros

Some of hedge fund billionaire George Soros’s short positions dating back to 2012 were published on the Dutch financial market regulator’s website this week due to “human error,” according to the regulator AFM.

The short positions, bets on a stock declining, were “between 0.2 percent and 0.5 percent,” of shares outstanding in the companies shorted, AFM spokesman Ward Snijders said by phone on Thursday. The Dutch regulator publishes shorts of 0.5 percent or higher on its website on a daily basis. The smaller amounts were posted by mistake, he said.

The Financial Times earlier reported that some of the positions, including bets against Dutch banks, including ING Groep NV, appeared briefly on the website on Tuesday evening. ING declined to comment on Thursday.

Soros, whose fortune is estimated at $25.2 billion by the Bloomberg Billionaires Index, is in the same league as Warren Buffett when it comes to investors copying their trades as they try to ride the coattails of the super successful. Short positions, which are typically closely guarded, in Deutsche Bank AG jumped when it was revealed in June that Soros had bet that the stock would fall after the U.K. voted to leave the European Union. The German bank fell 14 percent on the first day after the ballot.

Trump Loss

The Dutch regulator’s spokesman couldn’t disclose whether there has been contact with Soros following Tuesday’s error. A spokesman for Soros didn’t respond to an e-mail seeking comment.

The 86-year-old investor lost about $1 billion by betting against the market after the election of U.S. President Donald Trump, according to the Wall Street Journal this month. The hiring of a chief investment officer may reduce Soros’s role, the paper reported.

Soros has managed as much as $30 billion as founder and chairman at New York-based Soros Fund Management LLC. Currency bets on the pound in 1992, the Thai baht five years later and the yen in 2012-13 helped Soros attain a fortune ranked 26th globally by Bloomberg. He’s donated $8 billion to charities since founding the pro-democracy Open Society Foundations in 1979.

Regulators have pushed for more transparency around short positions. The European Union imposed rules in 2012 on short bets against some securities in the political bloc to reduce the risk of destabilizing sovereign-debt markets. The U.K.’s Financial Services Authority introduced a regulation in June 2008 requiring disclosure of short positions of more than 0.25 percent for companies that are selling new shares in rights offerings.

Uncertainty leads to hesitation in economic decisions by consumers and businesses. This inturn leads to more uncertainty and becomes a feedback loop

PRINT

ECONOMICS

ROBERT J. SHILLER

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of 
Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

JUL 21, 2016

The Global Economy’s Hesitation Blues

NEW HAVEN – Economic slowdowns can often be characterized as periods of hesitation. Consumers hesitate to buy a new house or car, thinking that the old house or car will do just fine for a while longer. Managers hesitate to expand their workforce, buy a new office building, or build a new factory, waiting for news that will make them stop worrying about committing to new ideas. Viewed from this perspective, how worried should we be about the effects of hesitation today?

Hesitation is often like procrastination. One may have vague doubts and feel a need to mull things over; meanwhile, other issues intrude on thought and no decision is taken. Ask people why they procrastinate, and you probably won’t get a crisp answer.

So how does such behavior become sufficiently widespread to bring about an economic slump? In fact, the reasons for postponing activities that would stimulate the economy may be difficult to discern.

One thinks first of feedback from others who are hesitating. Income effects and crowd psychology may amplify individual vacillation. But there must have been some initial factor that started the feedback cycle – some underlying source of hesitation.

Loss of economic “confidence” is one possible cause. Published confidence indices, available since the 1950s, are based on polls that ask consumers or businesspeople about their perceptions of business activity and expectations of future income and employment.

“Uncertainty” about economic policy is another possible source of hesitation. If businesspeople don’t know what regulations, taxes, or worse, nationalizations, will be coming, they may dither. The idea is an old one, expressed during the Great Depression of the 1930s; but it was not measured well, at least until recently.

In a 2015 working paper, the economists Scott R. Baker, Nicholas Bloom, and Steven J. Davis constructed Economic Policy Uncertainty (EPU) indices for a dozen countries using digital news archives. The indices (covering Canada, China, France, Germany, India, Italy, Japan, Russia, South Korea, Spain, the United Kingdom, and the United States) were created by counting the number of newspaper articles in each country and each month that had the trifecta of terms “economy” (E), policy” (P) and “uncertainty” (U).

The index each month was the total number of articles with those three words, divided by the total number of articles in the targeted newspapers each month. Native speakers in each country were consulted on the appropriate translations of the three words. The indices spanned decades, and in two countries, the US and the UK, went all the way back to 1900. The US index correlates with implied equity-price volatility in the options markets (VIX).

They found that their EPU index foreshadows economic contractions in the 12 countries, and that for the two countries with long-term indices, the EPU values were high during the Great Depression. But do contractions cause uncertainty, they ask, or does uncertainty cause contractions? Given that we know that people are highly reactive to each other, the causality most likely runs both ways, in a feedback loop.

The deeper and more interesting question concerns what initiates this uncertainty. To answer it requires impressionistic characterizations of the extant stories and ideas that might influence public thinking – or avoidance of thinking – about the economy.

As for the Great Depression, one wonders if the high degree of EPU was linked to social trends after the excesses of the 1920s, fueling fear of Communism and, in the United States, of the New Deal. One wonders if fear of fascist regimes, and of a coming war, prolonged the depression after Hitler came to power in 1933. The attention devoted to Johannes Steele’s 1934 book The Second World War, which predicted that eponymous event, indicates that fear of war must have been talked about enough to underpin some hesitation. To people who lived through World War I, the thought of a sequel must have seemed nightmarish.

Of course, whether the Great Depression was really prolonged by these stories or ideas cannot be proved. How do we know which stories were affecting people’s thinking? On the other hand, we can be fairly certain that some of these stories really do affect perceived economic uncertainty.

Psychologists have shown that people display an “affect heuristic,” or a tendency to tag memories with emotions and to let those emotions affect decision-making, even when the decision is unrelated to what caused the emotions. A mismatch of emotions can cause executive dysfunction, a failure to act, hesitation.

Some kinds of stories circulating today – related to growing nationalism or fear of challenges by immigrants to traditional cultural values – might underpin greater hesitation. The Brexit vote in the United Kingdom last month has been viewed worldwide with extraordinary alarm as a signal of political instability. The rising incidence of terrorism has added a vivid emotional edge to such developments.

Will these fears fuel enough economic hesitation to bring on another worldwide recession? Any answer at this time would be impressionistic and imprecise. Given the importance of the consequences, however, we should not shrink from considering how such fears are affecting economic decision-making.

http://prosyn.org/aolW6zj

© 1995-2017 Project Syndicate

When looking at asset prices, one usually looks at nominal returns, which is illusory; one needs to instead look at real returns

PRINT

ECONOMICS

ROBERT J. SHILLER

Robert J. Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of
Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

JAN 18, 2017

The Illusions Driving Up US Asset Prices

NEW HAVEN – Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict.

In the United States, two illusions have been important recently in financial markets. One is the carefully nurtured perception that President-elect Donald Trump is a business genius who can apply his deal-making skills to make America great again. The other is a naturally occurring illusion: the proximity of Dow 20,000. The Dow Jones Industrial Average has been above 19,000 since November, and countless news stories have focused on its flirtation with the 20,000 barrier – which might be crossed by the time this commentary is published. Whatever happens, Dow 20,000 will still have a psychological impact on markets.

Trump has never been clear and consistent about what he will do as president. Tax cuts are clearly on his agenda, and the stimulus could lead to higher asset prices. Lower corporate taxes are naturally supposed to lead to higher share prices, while cuts in personal income tax might lead to higher home prices (though possibly offset by other changes in the tax system).

But it is not just Trump’s proposed tax changes that plausibly affect market psychology. The US has never had a president like him. Not only is he an actor, like Ronald Reagan; he is also a motivational writer and speaker, a brand name in real estate, and a tough deal maker. If he ever reveals his financial information, or if his family is able to use his influence as president to improve its bottom line, he might even prove to be successful in business.

The closest we can come to Trump among former US presidents might be Calvin Coolidge, an extremely pro-business tax cutter. “The chief business of the American people is business,” Coolidge famously declared, while his treasury secretary, Andrew Mellon – one of America’s wealthiest men – advocated tax cuts for the rich, which would “trickle down” in benefits to the less fortunate.

The US economy during the Coolidge administration was very successful, but the boom ended badly in 1929, just after Coolidge stepped down, with the stock-market crash and the beginning of the Great Depression. During the 1930s, the 1920s were looked upon wistfully, but also as a time of fakery and cheating.

Of course, history is never destiny, and Coolidge is only one observation – hardly a solid basis for a forecast. Moreover, unlike Trump, both Coolidge and Mellon were levelheaded and temperate in their manner.

But add to the Trump effect all the attention paid to Dow 20,000, and we have the makings of a powerful illusion. On November 10, 2016, two days after Donald J. Trump was elected, the Dow Jones average hit a new record high – and has since set 16 more daily records, all trumpeted by news media.

That sounds like important news for Trump. In fact, the Dow had already hit nine record highs before the election, when Hillary Clinton was projected to win. In nominal terms, the Dow is up 70% from its peak in January 2000. On November 29, 2016, it was announced that the S&P/CoreLogic/Case-Shiller National Home Price Index (which I co-founded with my esteemed former colleague Karl E. Case, who died last July) reached a record high the previous September. The previous record was set more than ten years earlier, in July 2006.

But these numbers are illusory. The US has a national policy of overall inflation. The US Federal Reserve has set an inflation “objective” of 2% in terms of the personal consumption expenditure deflator. This means that all prices should tend to go up by about 2% per year, or 22% per decade.

The Dow is up only 19% in real (inflation-adjusted) terms since 2000. A 19% increase in 17 years is underwhelming, and the national home price index that Case and I created is still 16% below its 2006 peak in real terms. But hardly anyone focuses on these inflation-corrected numbers.

The Fed, like the world’s other central banks, is steadily debasing the currency, in order to create inflation. A Google Ngrams search of books shows that use of the term “inflation-targeting” began growing exponentially in the early 1990s, when the target was typically far below actual inflation. The idea that we actually want moderate positive inflation – “price stability,” not zero inflation – appears to have started to take shape in policy circles around the time of the 1990-1991 recession. Lawrence Summers argued that the public has an “irrational” resistance to the declining nominal wages that some would have to suffer in a zero-inflation regime.

Many people appear not to understand that inflation is a change in the units of measurement. Unfortunately, although the 2% inflation target is largely a feel-good policy, people tend to draw too much inspiration from it. Irving Fisher called this fixation on nominal price growth the “money illusion” in an eponymous 1928 book.

That doesn’t mean that we set new speculative-market records every day. Stock-price movements tend to approximate what economists call “random walks,” with prices reflecting small daily shocks that are about equally likely to be positive or negative. And random walks tend to go through long periods when they are well below their previous peak; the chance of setting a record soon is negligible, given how far prices would have to rise. But once they do reach a new record high, prices are far more likely to set additional records – probably not on consecutive days, but within a short interval.

In the US, the combination of Trump and a succession of new asset-price records – call it Trump-squared – has been sustaining the illusion underpinning current market optimism. For those who are not too stressed from having taken extreme positions in the markets, it will be interesting (if not profitable) to observe how the illusion morphs into a new perception – one that implies very different levels for speculative markets.

https://www.project-syndicate.org/columnist/robert-j--shiller

http://prosyn.org/XyPzAV3

© 1995-2017 Project Syndicate

Causes of failure of American Apparel - high debt for rapid expansion of store, high wages in LA, California/US

American Apparel

Product: Manufacturer of apparel, fashion industry trailblazer, manufactured in the US
Key attributes: Colorful basics, provocative marketing

At its peak:
No. of stores: 230 worldwide
Sales: US$600mn

At the time of closure:
No. of stores: 110 in the US
Employees: 2,400

Causes of failure

1. Rapid expansion - American Apparel rapidly expanded stores

2. High debt - it had taken high debt for rapid expansion

3. Changing customer tastes - people preferred the new fast-fashion brands H&M, Zara, Forever21. Customers also were cutting down clothing purchases in favor gadgets.

4. Boardroom battles - led to litigation and a merry-go-round of directors and top executives that distracted American Apparel from turning around the business.

5. High cost of manufacturing - The high cost of manufacturing in Los Angeles also contributed, analysts said, noting that California’s minimum wage will climb to $15 an hour in 2021.

6. Industry changes: “The global retail industry has faced strong headwinds across the board, and American Apparel has been no exception to this rule,” the company said Monday in a statement.



Other comments:

L.A. has always been a design mecca for apparel … but increasingly, they are having to offshore their operations. That’s the brave new world we are finding ourselves in in 2017.

Workers plight:

Francesca Cortes, a seamstress who works on the overnight shift, said she was told to come into work Monday for a possible shift change. Instead of a new schedule, she got her final paycheck and a termination letter.

“Everything is over,” said Cortes, 48, who has worked seven years at American Apparel. “We didn’t even get severance, like the workers who were laid off before got.”

Amada Cervantes, 66, has been sewing in downtown L.A. for a decade. In the last few years, her pay has dropped to about $350 a week from $500 as workers’  hours have been cut.

“I’m worried because I am on my own,” Cervantes said. “I’m hoping unemployment will help until I find another job.”

Some workers will find employment with other Los Angeles garment and textile makers.

Broncs Inc., a Compton textile manufacturer, bought American Apparel’s Garden Grove knitting and dyeing facility and will keep about 200 employees.

Zack Hurley, chief executive of Indie Source, said he plans to hire at least a few dozen American Apparel workers for his contract manufacturing facility in downtown Los Angeles.

http://www.latimes.com/business/la-fi-american-apparel-layoffs-20170116-story.html

Importance of brands

Narrow focus helps in FMCG, consumer business - Wipro consumer experience

Wipro Consumer grew from Rs. 300 crores in 2002-03 to Rs. 6,000 crores in 2015-16

(13 years, 20 times sales growth)

Strategy - Narrow Focus

1. Product Focus - Wipro focuses on personal care and home care segments

While in a country like India where lot of new players are disrupting, like Patanjali launching products across categories, a narrow focus is considered a viable strategy.

For an FMCG company to focus on all categories is tough, because then you have to maintain those many SKUs, so many products coming out and managing all that becomes difficult. You are up against strong players in every category. So, trying to focus on one or two categories and trying to become strong in those categories in a better way of branding.

2. Geographic Focus - Wipro focuses on narrow geographies
Example - West and South in India

In China, Wipro consumer made an acquisition which focuses on Guangdong, a province in China with a GDP of $1 trillion
Lessons for doing business in China: One of the reasons why many companies going to China don't have good experience is because they are all over the place. We focused on one geography and it helped us.

Strategy - Market Leadership 

Wipro consumer tries to compete in select areas where it can achieve market leadership or top 3 positions

Examples:
Santoor dominates in West and South India
The Chinese acquisition is the 3rd largest player in Guangdong in personal wash, roll-on and liquid detergent segments.
Indonesia - No. 1 in fragrances, No. 2 in female personal hygiene
Vietnam - No. 2 in shower wash

Strategy - Acquisitions 

Wipro consumer made 10 acquisitions in the last 13 years.

Example - Santoor, glucovita, Yardley, Chandrika, UNZA, Chinese acquisition being the latest

If any of the above acquisitions have not worked then we would not have been so aggressive on acquisitions. Company focuses on organic growth too. It doesn't do acquisitions for the sake of acquisitions.

Strategy - High Growth geographies, High Growth Categories 

Country focus - Indonesia, Vietnam, China, - sizable populations and developing economies

Growth Categories - Focus on personal care and household care
For example, we looked at liquid detergent category in China for the acquisition in China, because powder detergent is well penetrated while liquid detergent is still growing and is fairly small.

Similarly, we looked at fabric conditioner in India but not in Indonesia where is a well penetrated.


Source: Business Standard, jan 12, 2017

Even large companies in mature markets have PE of 15 or higher

1. Even large companies in mature markets have PE of 15 or higher e.g. PE of 19 in the case of Linde before it's merger announcement (perhaps, usually this PE is supported by high dividend yield in mature markets).

2. Lesson for emerging and frontier markets - one take PE of 15 a low valuation.

3. Usually, pre-M&A, big firms have lower PE compared to industry index.

4. Post big M&As also, the PE remains lower relative to the industry PE.

5. However, during M&A the target company's PE could be higher.

https://www.bloomberg.com/gadfly/articles/2017-01-12/praxair-shareholders-asked-to-take-leap-of-faith-in-linde-merger

Hardware industry has always been plagued by price declines

PC market sales have fallen from $240 billion to $180 billion in 5 years (2011 to 2015)

https://www.bloomberg.com/gadfly/articles/2017-01-12/pc-makers-need-a-reality-check

Meat processing industry employs twice the number employed by motor vehicle manufacturing industry

Pay of meat processing industry workers is $15 per hour

Pay of motor vehicle manufacturing workers is $30 per hour

https://www.bloomberg.com/view/articles/2017-01-06/low-pay-jobs-boom-in-the-slaughterhouse

Excellent Article on Airline Industry - 1% of world GDP

http://www.iata.org/pressroom/pr/Pages/2016-12-08-01.aspx

Chinese investors invest mostly in bank deposits and property, even at $11 trillion size economy

So, realestate has a long way to go in India. People don't understand stocks.

http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/what-might-happen-in-china-in-2016?cid=other-eml-ttn-mip-mck-oth-1701

Investors rely on patterns for investing / trading

Economic apocalypse brought Mnuchin (ex-Goldman Sachs partner and Treasury Secretary) back to banking. In the summer of 2008 he was in his office in New York when he saw a TV news shot of customers lined up outside a branch of IndyMac, a California bank, trying to pull out their money. Recalling the lessons of the savings and loan crisis, he told a colleague: “This bank is going to end up failing, and we need to figure out how to buy it. … I’ve seen this game before.” 

The bank collapsed on July 11, followed that autumn by the near destruction of the entire financial system. At one of the murkiest moments of the crisis, Mnuchin gathered some billionaire allies, including Soros and hedge fund manager John Paulson, and assembled a $1.6 billion bid to buy IndyMac. Mnuchin got an agreement that guaranteed the Federal Deposit Insurance Corp. would absorb almost all the loan losses after a certain threshold. He renamed the bank OneWest. Within a year, it was profitable. In October 2011 about 100 protesters marched on his Los Angeles mansion, angry about foreclosures. “Steve Mnuchin,” one sign read, “Stop taking our homes.” He and his partners sold the bank in August 2015 for $3.4 billion.

Richard LeFrak, a billionaire developer who’s friendly with Mnuchin and has known Trump for about half a century, says he isn’t sure if the two even have the same ideology. But he sees a through line in Mnuchin’s journey from Wall Street to Hollywood to bank ownership to politics. “He’s a guy that can recognize an opportunity and adapt to it,” he says. “He’s able to switch into different things.”

https://www.bloomberg.com/politics/articles/2016-08-31/steven-mnuchin-businessweek

Steve Cohen listed his New York apartment for $115 million. No takers. So, he dropped the price to $67mn

Summary: High end real estate could be bargained a lot. Even a 50% discount or more.

Trophy apartments sit empty. Steve Cohen’s 9,000 square-foot duplex on the 51st and 52nd floors of One Beacon Court features a double-height, glass-walled living room and back-up generators to ensure a 24-7 trader is never without computers. Cohen now runs his own family office after his SAC Capital Advisors pleaded guilty in 2013 to securities fraud and paid a $1.8 billion fine. That same year he put the palace in the sky on the market for $115 million. No takers. This year, he dropped the price to $67.5 million.

https://www.bloomberg.com/news/articles/2016-12-29/hedge-fund-agonistes-not-even-donald-trump-can-ease-the-pain

China has most expensive real estate in the world relative to income and extremely low turnover.

Withdrawing credit for real estate could pop up the bubble.

https://www.bloomberg.com/view/articles/2016-12-29/a-china-watcher-s-guide-to-2017