Dan Loeb is Aboard the Trump Trade, Says Pro-Business Administration is ‘Paradigm Shift’

Last year, Dan Loeb said the hedge fund industry had entered the ‘killing fields’ and were primed for culling — after many made wrong directional bets. This year, after seeing the Trump trade work its magic, his tune has changed dramatically.

Source: Bloomberg

“I’m not sure that — given the increase in S&P earnings that we expect due to changes in policy as well as tax reform — that it’s as overvalued as people think,” Loeb said Friday in a conference call discussing results at Third Point Reinsurance Ltd., the Bermuda-based company where he oversees investments. “We’re seeing plenty of good valuation situations.”

“The complexity is obscuring the earnings power of the company or companies that are going through a financial or operational restructuring,” he said. “We’re not really fazed by that.”

“What gives me confidence about the future is I just think we’ve had a paradigm shift with the new administration in terms of having a backdrop that is supportive of business and pro-growth,” he said. “There will also be an increase — we’re already seeing it — in corporate activity, which is something where we typically thrive.”

Listen to the full TPRE call here.

In his latest investment letter, Loeb said the Presidential election was the ‘most important paradigm shift since the financial crisis.’

“Starting the morning after the election, we took immediate steps to reorganize the portfolio around investments that we believe will benefit from Trump’s stated policy objectives.”

“In the immediate term, we believe we will see an acceleration of economic growth at home. Electing a President who is seen as pro?business (ignoring his protectionist views on global trade) has awakened animal spirits,”

“Trump’s election has accelerated the end of QE. The baton is now passing from the Fed to the Treasury, which will provide fiscal stimulus via comprehensive tax reform and infrastructure spending. We expect a significant reduction of corporate and individual taxes, the elimination of the interest rate deduction, and the removal of the deductibility of state and local income taxes from federal returns. To stimulate investment, we see an immediate deduction for capital spending and a dramatic pullback in government bureaucracy, red tape, and regulation.”

He sounds like a fan.

Third Point’s top holdings, as of the end of 2016, were BAX, DOW, HUM and STZ.