Billionaire hedge-fund manager Dan Loeb said easy-money policies by central banks in the U.S., Asia and Europe are providing protection for equity investors in the near-term, even as stock prices surge.
Loeb, the founder of New York-based Third Point LLC, highlighted the European Central Bank’s decision Nov. 7 to cut its benchmark interest rate to a record low, along with programs in place by other central banks around the globe. ECB President Mario Draghi has pledged to hold down borrowing costs to combat pressure from weakening prices.
“Given monetary policy here, the actions taken by Draghi last week in Europe, and what’s going on in the U.K., Japan, and even China, we sort of have a global put to equities,” Loeb said today on a conference call discussing results at Third Point Reinsurance Ltd., a Bermuda-based company that invests its portfolio with his hedge fund.
The Federal Reserve and other central banks have supported financial markets with monetary policy to spur growth. Investors have likened interest-rate cuts to the insurance against losses offered by owning a put option, because they’ve had the effect of boosting stock prices as they make other investment options less attractive.
The Standard & Poor’s 500 Index has advanced 24 percent (SPX:US) since Dec. 31 and is on pace for its fifth straight year of positive returns. The Stoxx Europe 600 Index has gained 15 percent, while Japan’s Topix index has rallied 40 percent.
“We’re in a mode where economies around the world, developed economies, are trying to inflate, and that’s usually a good thing for equities,” Loeb said.
Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein and Laurence D. Fink, the CEO of BlackRock Inc. (BLK:US), said today that the benefits from stimulus efforts aren’t permanent. Fink, speaking at the annual meeting of the Securities Industry and Financial Markets Association in New York, called on the Fed to begin tapering is monthly purchase of bonds.
Central-bank activity “in the near term is very, very supportive, although in the long term, it creates problems,” Blankfein said at an investor conference in New York.
Third Point Re’s profit in the quarter ended Sept. 30 climbed 18 percent to $46.6 million from a year earlier as underwriting losses narrowed and investment income increased, according to a statement today. The reinsurer slipped 0.1 percent to $15.10 at 4 p.m. in New York. The stock has gained 21 percent since an initial public offering in August.
CEO John Berger said on the call that Third Point Re could post an underwriting profit as soon as the second half of next year if current reinsurance pricing trends continue. He said there are opportunities to shoulder risks for companies selling residential policies, workers’ compensation coverage and mortgage insurance.
Private mortgage insurers MGIC Investment Corp. (MTG:US) and Radian Group Inc. have surged this year as investors bet the companies will expand their share of the market as the U.S. government scales back its involvement and home prices rebound. Both firms raised capital this year to replenish funds drained during the housing slump.
Loeb also said the real estate market provides opportunities. The investor has been adding subprime mezzanine bonds after selling most of those holdings during a rally in the first quarter, he said on the call. Such securities involve the riskier tranches of pools of loans to borrowers with lower credit scores.
The money manager focuses on event-driven investing, buying and selling stocks or bonds of companies going through changes like spinoffs or mergers. He has pushed Yahoo! Inc. and Sony Corp. to shift strategies with the goal of driving up share prices.
He declined to say on the conference call whether he planned to reduce bets on rising stocks in the remainder of the year. While some of his investments reached target prices earlier in 2013, he said he continues to add other holdings that he expects to climb more.
“It’s always difficult to predict what our positions will do over a six-week period,” Loeb said. “I wish my crystal ball were more accurate.”
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