Wednesday, 23 July 2014
Last updated 7 hours ago
Oct 14 2013 | 1:57pm ET
Five years after abandoning the "stressful, nerve-wracking" business of shorting stocks, William Fleckenstein is preparing his return.
The hedge fund manager and founder of Seattle-based Fleckenstein Capital said he plans to relaunch his short-only hedge fund, predicting that the Federal Reserve's impending taper of its $85 billion per month bond-buying program will bring the fun back to shorting.
"For four years and counting, there was no reason to think about shorting," Fleckenstein told TheStreet.com. "I survived from 2000 to 2009, even when the market was going up, because I made what the Fed was doing a key variable." But, he said, once that changed, it was "impossible to make money on the short side. I knew the Fed and the other central bankers would print a tremendous amount of money and it would be impossible to be short until the time the bond market takes away the printing presses—I mean forces them to stop."
Given the yield on 10-year Treasuries, Fleckenstein says that time is now: He'll launch his RTM 2.0 fund early next year. (RTM stands for "revert to the mean.")
"I could be off by a year, I don't know. I may have to sit in cash for a year," he said. "I know the bond market will have to stop the Fed. Money printing was the problem and more of it won't fix anything. But you can't win that argument as a short until such time that the bond market stops it."
Fleckenstein will work with Wes Golby on the new fund, which will bet only on liquid stocks with a focus on technology companies, which Fleckenstein said are "prone to excess valuation."
"Most are bad businesses," he added.
Short-selling hedge funds have been battered in recent years by rising stocks. When Fleckenstein shut the fund, he said that shorting stocks had become "generally not very much fun."
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…