Tags: cash | stocks | taper | Intel

Baupost's Klarman: Sitting on Cash, Waiting for a Stock Market Decline

Tuesday, 26 Nov 2013 02:02 PM

By John Morgan

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Of the $30 billion that hedge fund The Baupost Group has under management, a whopping $14 billion of it is parked in cash because there is nowhere in the stock market that looks appealing at the moment, according to Seth Klarman, founder of the firm.

At a recent investment conference, Klarman said he simply does not see “a lot of compelling investment opportunities currently. The ones we find, we pull the trigger on and purchase,” Jeffrey Saut, Raymond James' chief investment strategist, said in his weekly commentary.

Outside of the stock market, Baupost is also playing a limited game.

“We think inflation is likely and view gold at these levels as the best hedge against a worst-case environment. However, we only have a couple of percent of assets positioned in gold. We own some commercial real estate in Japan and a few equities, as well as some investments in Russia,” Saut said Klarman stated.

However, Saut provided a laundry list of investment negatives, including the fact that the number of new 52-week highs on the New York Stock Exchange has fallen over the past three weeks; the number of NYSE stocks above their 50-day moving average is declining; the S&P 500 may be at the top end of its technical trading range; interest rates are rising; and housing is stalling.

“Hopefully, we can still get some kind of pullback into early December, setting up the fabled ‘Santa Claus’ rally,” he wrote.

Saut said if there is a meaningful pullback in stock prices in coming weeks, he would get more bullish. Under that scenario, he would recommend Amerisource Bergen, CBS, Delta, Federal Express, McKesson, Lincoln National, Bard and Old Republic, all of which have outperform ratings from Raymond James’ fundamental analysts.

At global investment banking firm Jefferies, strategists are warning a stock market correction could easily unfold soon, and they do not expect 2014 to be a smooth year for investors, 24/7 Wall Street reported.

“They (Jefferies’ analysts) also do not see a market crash,” 24/7 Wall Street said. “They foresee a slow and maybe difficult grind to 1,950 on the S&P 500. They caution that a large corrective sell-off may be included. Especially if the Federal Reserve starts to taper the quantitative easing bond purchases.”

Some of Jefferies' “top theme sector stock picks “ for 2014 are Analog Devices, Intel, Regions Financial, Owens Corning, Ingersoll-Rand, Scorpio Tankers, GrafTech International and Graphic Packaging Holding Co.

“High-flying momentum stocks and sectors are conspicuously absent from the Jefferies target sector themes for 2014,” 24/7 Wall Street reported.

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