Some Of The Notable Bears Have Become Notable Bulls
12/09 03:52 PM
NEW YORK (Dow Jones)--Some prominent bears are turning into bulls.
A choice few mutual-fund and hedge-fund managers who correctly predicted torment for financial stocks and mortgage-related securities apparently think we're close to a bottom, and those managers are starting to reverse course.
It's not just talk, either. These managers are putting up money on their bullish bets, and lots of it.
John Paulson, who made more money than any other hedge-fund manager last year by betting against subprime mortgages, launched in October a fund called the Paulson Recovery Fund, which will buy financial company stocks. Not only is he looking at stocks, but he's started to buy for his funds the subprime-backed debt that he bet against in the first place. Paulson runs more than $36 billion.
Ken Heebner now has 40% of his $4.3 billionCGM Focus Fund (CGMFX:$28.18,00$0.99,003.64%) tied up in financial stocks, according to his most recent filings. This is a mutual fund manager who dumped most of his financial stocks in 2007, and even shorted some of the more well-known blowups, including Countrywide Financial Corp. and IndyMac Bancorp Inc. (IDMCQ:$0.0430,$0.0040,10.26%) His fund gained 80% last year, and while he's been just as bad as most other managers this year - down more than 50% - Heebner recently told The Wall Street Journal he thinks deposits and lending will be highly profitable for banks next year.
This year, the only thing that's been highly profitable for money managers has been short selling. The average short-biased hedge fund in the Hennessee Index was up 27.34% this year through November, and up almost 16% from September through October alone. Some short-sellers are acting like the experienced blackjack player on a nine-hand winning streak: Take your chips and go play something else for a while. Chances are, you aren't beating the dealer a tenth time.
Bill Fleckenstein, who writes the Daily Rap blog and runs the short-only hedge fund Fleckenstein Capital, said he's shutting the fund down even though he expects a little more downside. Calling the practice "stressful, nerve-wracking and generally not very much fun," he said one of his reasons for shorting was the "bubble" he thought Alan Greenspan's policies created. His next fund will not be a hedge fund, and will be more balanced, although it will still use short-selling.
If you ran a hedge fund and decided to be bearish for 2008 by shorting the S&P 500, you'd be up almost 40% this year. The likelihood of that happening again in 2009 is, well, not likely. Plus, Treasury Secretary Henry Paulson's Troubled Asset Relief Program has injected new money into ailing financial institutions, and another relief package isn't out of the question. And the managers who have made money betting against the market are the last ones you'd expect to stay in too long.
John Paulson himself was a bit early on his anti-subprime mortgage bets, but he stuck with them. He realized it's nearly impossible to catch every single ounce of downside in a bear market. Now, he's a buyer, even though trouble could still loom.
Paulson, Heebner, Fleckenstein and other market veterans realize that it's just as hard to catch every ounce of upside in a bull market.
-By Joseph Checkler, Dow Jones Newswires; 201-938-4297; joseph.checkler@ dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http:// www.djnewsplus.com/al?rnd=%2BMcNpk7BTRKDnX6TXbKO2A%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
12-09-081552ET
Copyright (c) 2008 Dow Jones & Company, Inc.
