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Passport Capital’s John Burbank Sees a Recession; Increased Hedges
Posted by: GuruFocus (IP Logged)
Date: April 26, 2012 02:16PM

Passport Capital’s John Burbank just wrote a letter to investors. He is extremely bearish, and sees a recession for 2012 or early 2013. Burbank has gone from virtually nothing 10 years ago to managing a multi-billion dollar fund. His fund gained 23% annualized since 2000.

These are some excerpts from his letter:

1. Liquidity from Central Bank around the world has fixed nothing definitively except prices.
2. Deflation is the ongoing, great risk in the work despite extraordinary central bank policies.
3. While the surplus of global labor and domestic housing presents no near-term US inflation risks, oil is rapidly rising to defeat the print-press strategy for overleveraged sovereigns and increase deflationary concerns.
4. Price is a @#$%&; the equity market is confused about true economic growth in the developed world-we believe it will be much lower than forecast and that Central Banks are reaching the limits of their influence on economic growth.
5. We see a recession in 2012 or early 2013 for the US which will be difficult to avoid as Europe contracts and China moderates to 7-8% targeted growth.
6. The average decline of equities in recessions is -40%, but even half that would be highly damaging to most investors (as well as President Obama) and would put us back to October 2011 lows.
7. The low volumes and narrow liquidity that helped equity markets rally will make them fall easily, in our view, with real selling pressure.

As a result of our evolving views, we made a number of changes in the Passport Global portfolio during the second half of 2011 which we described in detail in our Q4 letter. First we substantially reduced portfolio illiquidity.

1. Taking advantage of the equity market rally over the past several months to sell into strength…
2. We increased shorts and hedges.
3. We added to physical gold and established a long position in Brent crude.
4. Finally, in the fixed income markets we initiated an investment in mortgage backed securities.

Passport - A Letter From John Burbank - March 2012





Guru Discussed: John Burbank: Current Portfolio, Stock Picks
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