On Friday, hedge fund manager Daniel Loeb, manager of the $3.3 billion Third Point Partners, sent his second quarter letter to his partners. The letter, which criticizes heavy handed government policy for stifling economic recovery, is causing a stir and has been circulating widely among the moneyed elite, according to Andrew Ross Sorkin (“Why Wall St. Is Deserting Obama”, Andrew Ross Sorkin, The New York Times, August 31, B1).
Loeb’s entire letter is online but here are some choice excerpts:
On the tipping point for the correction in financial markets since April:
It is apparent to us that the turning point in both investor and consumer confidence came on April 16th, with the filing of the government’s suit against Goldman Sachs overs its mortgage CDO activities.
On the recent Credit Card law:
A well-intentioned government program gone awry is the new CARD Act that restricts banks from repricing interest rates on borrowers who fail to meet their revolving credit obligations. The effect of this legal prohibition has been to force the banks to raise the interest rate paid by all borrowers, to compensate for losses they are now being forced to take on delinquent borrowers.
On how government policy is effecting the management of his fund:
We have given a great deal of thought about the impact that public policy has on individual companies, industries, and the economy generally. It was this decision framework that led us to shed our investments in large cap US banks in January due to concerns over increasing regulatory headwinds (in advance of the announcement of the Volcker Rule). We have also sold other regulated industries and eliminated our position in Wellpoint, an HMO that is a statistically cheap stock owned by several hedge funds, but which we saw as being overly exposed to unpredictable government regulation.
On the other hand, our perspective on the government’s increased willingness to use regulatory muscle enhanced our short positions in the for-profit education space.