Thursday, July 24, 2008

The Hardest Thing to Quantify

This is nearly an impossible question, but I've always wondered: Just how much of the rise in commodity prices is dollar weakness related? Speculation induced? Supply/Demand related? etc

And no, I'm not talking about just oil here. I'm talking about the whole gamut. Although people can make an educated guess, that's really all they can do. There is no way to know just how much affect each component has on pricing.

The reason I pose such an important question is because I am looking ahead at what will be the Fed's rate increase cycle. We all know it will come at some point in time. But, when it does, how do commodities react? How much do they fall? Do they fall at all? I think then and only then do we really see how much of an impact the weak Dollar has had on prices.

I, for one, think the rise in commodities is a combination of all of the above. But, we can't quantify how much of the rise is attributed to each factor. If the weak dollar did indeed play a significant role in commodities' rise, then you would in fact expect a major commodities sell-off once the Fed raises rates. But, what if commodities for whatever reason aren't sold off? Then what? That's exactly my point. Now is the time that we need to be testing our investment hypotheses and developing a game plan for the coming months. Numerous of my investment plays are centered on or affected by commodities prices. In the coming weeks, I will be developing a portfolio gameplan for 3 different scenarios. I need to breakdown my portfolio and figure out which plays are based on Dollar weakness, which plays are based on supply/demand fundamentals, and which plays are based on speculation/hedge fund swarming.

Just something to think about...

Wednesday, July 23, 2008

Two New Hedge Funds to Keep an Eye On

Saw some interesting news in Bloomberg last week regarding new funds being launched by former employees of some impressive firms. First, we have Conatus capital (ex-Lone Pine) and then there is Highliner Investment Group (ex-Citadel).

Taken from Bloomberg,

"The biggest stand-alone startup was Greenwich, Connecticut- based Conatus Capital Management LP, which raised $2.3 billion. The firm was started earlier this year by David Stemerman, 39, formerly of Stephen Mandel's Lone Pine Capital LLC. Highliner Investment Group LP in Chicago raised $1.5 billion. Highliner was founded by Anand Parekh, 35, who was previously global stock head for Ken Griffin's Citadel Investment Group LLC."

It will be interesting to see what direction these funds take and how similar their portfolios are to their previous employers. I'll keep everyone updated come the next round of hedge fund 13f's.

Tuesday, July 22, 2008

Hedge Fund Performance Updates

This past weekend I received some information regarding the performance of some very notable hedge funds year to date. Note that these performance figures are year to date as of June.

- Harbinger Capital up 42.8%
- Renaissance Technologies (Futures fund) up 7.75%
- Paulson & Co (Advantage fund) up 20.58%
- Daniel Loeb's Third Point fund up 2.49%

- Carl Icahn's fund down -9.44%
- Steven Cohen's SAC Capital (Multistrat fund) up 1.92%
- Bristol LP up 28.14%

I'll post up some more numbers as I receive them, but so far this is all I've got. I'll definitely be adding Harbinger Capital to my hedge fund 13f tracking series. (I can already tell you they are up so much this year due to their massive bets against the housing market and their smart decision to short the sh*t out of Bear Stearns).

In about a month or so, the next round of quarterly 13f's will be released and I will be expanding my coverage. I've received numerous questions asking if I was going to continue coverage on more hedge funds from the last set of 13fs but I figured I would just wait a few weeks until the next round are out since we are already so close; that way I can get a fresh start. I'm really going to buckle down on this next round of 13f's and cover a ton more hedge funds than last go-round. I will provide in depth coverage for some of the major funds, but other funds will merely be highlighted with top holdings and major changes. For the most part, I'll try to do detailed analyses. But, for some funds, its simply not worth it. SAC Capital for instance, due to their short-term trading segment, often holds in excess of 300 positions. Needless to say, going line by line on a 13f comparing quarter to quarter can get quite tedious. My focus in summarizing these reports is to find tangible investment theses that these funds are employing. Therefore, I mainly focus on value, activist, or macro oriented funds, rather than trading or quant funds.

Look for my hedge fund tracking series in the coming weeks. For those of you who didn't see my coverage of various hedge fund portfolios last quarter, check out my post here.

Monday, July 21, 2008

Short Sellers Ahoy

Taken from the Option Addict's wonderful post on Bank Short Ideas, I present to you this oh so wonderful chart of the 'oh-sh*t-we-might-be-screwed' financial institution otherwise known as Lehman Brothers (LEH). Pay particular attention to the decreasing volume on this 'rally' in LEH. Then look back to last month's 'rally' in LEH and pay attention to the exact same volume pattern. Hmm, I wonder what's next?! Short sellers ahoy.

Feature on Harbinger Capital's Philip Falcone

I want to give thanks to reader Alex for tipping me to this specific piece on Harbinger Capital's manager, Philip Falcone. I most likely would have never even seen this piece because its from a local Minnesota paper. Harbinger Capital is a successful activist hedge fund notable for making a ton of money by shorting the housing market. Additionally, they heavily shorted Bear Stearns before its subsequent meltdown. And, year to date, their fund is up 42.8% as of June.

The article covers Falcone's background and talks about Harbinger's activist ways. And, speaking of activism, our boy at Harbinger is up to no good once again, just recently opposing Cleveland Cliffs (CLF) takeover bid for Alpha Natural Resources (ANR). (Harbinger owns 18.4% of CLF and is opposed to the merger, as noted here).

At any rate, check it out because its an interesting profile for those curious about how Harbinger/Falcone operate. You can find the Minneapolis / St. Paul Star Tribune piece on Falcone here.

Quote of the Week 7/21/08

This week's quote was actually recently featured on Howard Lindzon's blog and I really liked it. Said by Robert W. Sarnoff,

"Finance is the art of passing money from hand to hand until it finally disappears."

Let's stay focused this week so we don't end up passing money to others.