Stocks are pointing higher after Tuesday’s blockbuster session that pretty much declared the Fed’s rate-hike campaign over, sending bond prices soaring. Not everyone is at ease though, with both Citadel founder Ken Griffin and JPMorgan CEO Jamie Dimon cautioning that investors may be getting ahead of themselves.
Indeed, they face a major blind spot, says the founder of hedge fund Praetorian Capital, Harris “Kuppy” Kupperman: “The [U.S.] government is about to go bankrupt. They should be looking at what happened in Zimbabwe and plan appropriately.”
Speaking to MarketWatch the Monday before CPI data, he said the clamor for bonds or Treasury bills right now makes no sense to him. “I wouldn’t lend these guys money for a beer overnight,” he says.
But then the mandate for his $260 million flagship fund is to find investments “undergoing some sort of dynamic change” flying under the radar. Up 748% since its 2019 inception, the fund had triple digit returns in 2020 and 2021, and has gained 18% so far this year — but he says the last six quarters have been hard for many of his investment themes.
“Things are going much better than I had expected in the businesses themselves, unfortunately the share prices just haven’t kept up with the…fundamental realities of the business,” Kupperman said. “I think there’s a catch-up phase that’s overdue.”
The manager rightly called a tech selloff in 2022 — he isn’t interested in the Magnificent Seven tech names as he says they’re too expensive — but his prediction for oil prices to reach $200 this year has not panned out.
Read: The Magnificent Seven add more than $200 billion to their market caps
Energy, though, is part of one theme he’s not about to abandon. The hedge fund’s two biggest positions are oil-field services companies Valaris
up around 4% and 64%, respectively.
Read: This hot sector is producing returns like Nvidia’s — and it’s got nothing to do with AI
He notes some “spectacular” earnings recently from Valaris, which the fund started buying in the low $20s — it currently trades at $70 per share.
Valaris is currently earning just over $200,000 a day on drilling charter rates — the daily cost to rent out their equipment — but rival Diamond Offshore
just signed a charter contract worth over $500,000 a day, he notes. Valaris has also been signing new contracts in the $400,000s for several months, which means substantial cash flow going forward, he said.
“Given its order book, charter rates and how much cash flow it can produce, Valaris should be trading at $100 [per share].”
He says the fundamentals are also there for prices of uranium — a theme he’s well known for — to shoot higher. “It reminds me of back in 2003 when I played it and it went from $12 to $130,” he says of the commodity currently.
Read: Why uranium prices have climbed to their highest in over a decade
Kupperman sees demand driven by many factors — Japan reactors getting turned back on, and more being built across China, India and Indonesia — and limited supply. “And so the price of uranium this year has increased from roughly $50 to $75 … 50%, which is good, but it’s still below the cost needed to build a new mine.”
“Almost every week, we learn about a new positive development in the nuclear sector,” he said. “I think the world’s coming around to nuclear as the least bad energy option out there,” said the manager.
But the price will probably have to go “dramatically higher,” to encourage more mine building, and sees 2025 as the peak year for uranium deficits. They see 2024 demand at 210 million pounds globally versus supply forecasts of 160 million pounds globally.
Kupperman invests in Sprott Physical Uranium Trust
and U.K.-based uranium investment group Yellow Cake
but avoids junior miners that he thinks are “speculative and risky.
He’s also sticking to a bet on St. Joe
one of Florida’s biggest landowners with some of the state’s best land. “Florida has the most net migration of a state right now, people are really desperately leaving all the terrible places in the northeast that are crime ridden, [with] bad weather and high taxes and they want to go somewhere nice,” he says.
The 87-year old company’s shares are up 34% so far this year. St. Joe is “increasing the value of the 170,000 acres of land it owns as more people move to Florida, and are also developing commercial real estate and “doing surprisingly well.”
“I think this stock trades at about 20% of replacement cost and we’re value investors and we buy things very cheaply and it has massive tailwinds,” said Kupperman.
His fund targets up to 12 themes, but has about five themes at any given time that take up 50% to 75% of the portfolio. Right now he’s buying shares of a new company that’s still under wraps.
In his October letter to investors, he described it as a company that has “historically produced elevated returns on capital” though has seen share prices fall due to a likely weak third quarter.
Post data and after Tuesday’s 1.9% surge for the S&P 500
are higher, led by tech
with 10 and 2-year Treasury yields
up 5 basis points.
October retail sales fell 0.1%, the first drop in seven months, but also less of a decline than was expected, while producer prices fell 0.5%, against forecasts for a 0.1% rise. The New York Fed’s Empire State manufacturing gauge jumped 13.7 points in November to 9.1, the highest level since April — it was expected to fall.
Business inventories are coming at 10 a.m., and at the same time, the Fed Vice Chair for Supervision Michael Barr will testify to a House panel. Richmond Fed President Tom Barkin will speak at 3:30 p.m.
crushed earnings estimates, and the stock is up 14%. TJX
is not faring as well, with shares slipping after the cut-price retailer guides for weaker fourth-quarter earnings. China e-commerce giant JD.com
reported upbeat results and shares are climbing.
Tech names Palo Alto Networks
report after the close.
The Republican-run House of Representatives passed a temporary spending bill to avert a partial government shutdown ahead of Friday’s deadline. The bill now heads to the Democratic-controlled Senate.
Quarterly filings by big investors could put some stocks in focus. Warren Buffett’s Berkshire Hathaway
exited General Motors
and picked up shares in Sirius XM
and Atlanta Braves
Soros Fund Management sold off Nvidia
and bought Arm
David Tepper’s Appaloosa Management hedge fund boosted its Amazon
stake and dumped Apple, while Michael Burry of ‘Big Short’ fame made bearish bets against the iShares Semiconductor ETF
and Booking Holdings
Israeli troops in search of Hamas militants have raided Gaza’s largest hospital where hundreds of patients, including newborns, are stranded.
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Companies that have mentioned El Niño or other weather disruptions have underperformed the S&P 500 by up to 28 percentage points year to date, a team of Morgan Stanley analysts led by Edward Stanley has found, as they offer up the following chart:
“The [World Meteorological Organization] reports that El Niño has a 90% likelihood of continuing through the Northern Hemisphere winter, pushing global average temperatures higher. As these weather events become stronger, we think this theme will continue to drive diverging equity performance in the coming 3-6 months,” said Stanley and his colleagues.
These were the top-searched tickers on MarketWatch as of 6 a.m.:
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