Hedge Funds’ Bets on Fannie and Freddie Cause Pain [WSJ]
Investors including John Paulson, Anchorage Capital Group, Discovery Capital Management LLC, Blackstone Credit, Perry Capital, Bill Ackman’s Pershing Square Capital Management LP and PointState Capital LP have been involved in the trade. Many funds are now expected to have lost money on the investment…. The trade seemed likely to pay off four years ago, when Treasury Secretary Steven Mnuchin stated his goal was to move the companies out of government control. But as the months passed, the likelihood declined significantly. Last week, Mr. Mnuchin said it wasn’t happening on his watch….
“We’re back to square one in terms of getting them out of conservatorship,” said David Barrosse of Washington, D.C.-based policy-analysis firm Capstone LLC, which counts hedge funds as its clients. “Investors are severely disappointed that more wasn’t done before the end of the Trump administration.”

Baupost’s Seth Klarman compares investors to ‘frogs in boiling water’ [FT]
“With so much stimulus being deployed, trying to figure out if the economy is in recession is like trying to assess if you had a fever after you just took a large dose of aspirin,” he wrote. “But as with frogs in water that is slowly being heated to a boil, investors are being conditioned not to recognise the danger….”
The Fed’s policies and programmes “have directly contributed to exceptionally benign market conditions where nearly everything is bid up while downside volatility is truncated”, he added. “The market’s usual role in price discovery has effectively been suspended.”

Bridgewater’s CEO on Inequality, Uncertainty, and Polarization [Bloomberg]
You could imagine a Japan-like recession/depression for the next 20 years or a 1970s stagflation [low growth with high inflation], and those very divergent outcomes have implications for how different assets perform…. The steps needed to get our country on the right path are clear. It’s not about politics, it’s more about leadership.

Third SPAC ETF Launch Taps Into Blank-Check Company Boom [WSJ]
The hedge fund Morgan Creek Capital Management and the financial-technology company Exos Financial plan to launch the SPAC ETF on Tuesday, the companies said. The new Morgan Creek-Exos SPAC Originated ETF will trade under the ticker SPXZ and consist of a mix of firms that recently went public by merging with a SPAC plus shell companies that are still seeking startups to take public…. The new ETF will be the third focused on the sector created in the past few months, joining the Defiance Next Gen SPAC Derived ETF and the SPAC and New Issue ETF, run by Tuttle Tactical Management.

Biden Is Expected to Tap Michael Barr as Comptroller of the Currency [WSJ]
[Michael] Barr, who would serve as comptroller of the currency, was assistant treasury secretary for financial institutions during the Obama administration. In that role, he helped craft the 2010 Dodd-Frank Act, a sweeping overhaul of financial regulation that followed the 2008-09 financial crisis…. “We need to undo the damage caused by the last four years of policy,” he said last June. “Rebuilding a strong Consumer Financial Protection Bureau and building resilience in the financial system with stronger capital and liquidity regulations, for example.”

Starboard Seeks to Take Control of Corteva Board, Oust CEO [WSJ]
Starboard, led by CEO Jeff Smith, has privately nominated eight directors to Corteva’s 12-person board, the people said. Starboard is aiming to oust Corteva Chief Executive Jim Collins over what the activist says is mediocre performance. It has an unnamed replacement in mind…. Starboard has been in on-and-off talks with the company since the fall and nominated board members before the deadline to do so in late December, the people familiar with the matter said. Efforts to head off a proxy fight at the annual meeting in the spring have so far been unsuccessful.

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