Saturday, October 11, 2008

Wall Street Bull Has Blue Balls

Gothamist had a reader send in some pics of someone who spray painted the balls blue on the Wall Street Bull. They said its gone now but they managed to snap a few picks before it was cleaned up. I figured it would be good to add some humor in here considering how brutal everything's been lately.

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Nouriel Roubini Halloween Costume

This Halloween, I will be going as Nouriel Roubini. Why? Because the man is the harbinger of doom! Ok, I'm not really going as him. BUT, if you wanted to, inca kola has made the process very easy for you. Just enlarge, print it off, and go!

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Friday, October 10, 2008

Warren Buffett Interview

If you've missed it, here's Warren Buffett's most recent hour-long interview with Charlie Rose:

And, if you can't use audio at work or whatnot, here is the transcript of the interview.

Charts/Technical Analysis

Here's a few relevant charts to gaze deeply into instead of watching the sea of red that is known as the market.

Firstly, compliments of Sovereign Society, we get a nice line in the sand on the Swiss Franc (FXF) if you want to trade it. They argue that "with the Eurozone breaking down in a big way... it seems as though it (Swiss Franc) might garner some money flow from the (Euro)zone and Central Europe."

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Secondly, Kevin points out that markets often test significant areas of support and resistance over time. Therefore, it doesn't look good for the market in the near-term.

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Thirdly, Goldman Sachs (courtesy of Clusterstock) is showing us that history often repeats itself and we could be seeing great opportunity for long-term investors. I definitely do not disagree with that, although I'm not sure this is the *exact* bottom or anything.

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Jana Partners Files 13G and Shows 5.7% Stake in Hayes Lemmerz (HAYZ)

In a 13G filing made with the SEC on Wednesday October 8th, hedge fund Jana Partners disclosed that they have a 5.7% stake in Hayes Lemmerz (HAYZ). They now own 5,793,070 shares of HAYZ. This is an increase from their 4,509,248 shares disclosed in the previous filing which had disclosed positions as of June 30, 2008. Managed by Barry Rosenstein, Jana was founded in 2001 and typically employs activist, market neutral, and long/short equity strategies in public equity markets. Rosenstein received his BS from Lehigh University and his MBA from the Wharton School of Business at the University of Pennsylvania. Alpha magazine ranks Jana #79 in their hedge fund rankings. Jana Partners was -9% for the month of September, and find themselves -14.7% for the year, as I noted in my hedge fund performance update.

Taken from Google Finance, Hayes Lammerz is "a producer of aluminum and steel wheels for passenger cars and light trucks and of steel wheels for commercial trucks and trailers. It also supplies automotive powertrain components."

Thursday, October 9, 2008

Dow Jones

Dow Jones Industrial Average Performance

  • 5 days: -18.16%
  • 1 month: -23.61%
  • 6 months: -31.52%
  • Year-to-date: -35.32%

Straight up carnage.

And, as Agoracom notes, Gold absolutely spiked in the last hour today. People who are scared flock to gold during market extremes. Fear is here for sure.

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And how about the volatility index (VIX)? Ridiculously high at 64. The highest we've seen in I don't even know how long. But, as we've seen, the VIX could still certainly go higher and the markets lower. But, I'm going to say that this looks like a place to start positions on the long side. Make sure you're always hedged and you're not trading large positions; keep it small. This is starting to get ridiculous. I fully anticipate the deleveraging and hedge fund redemptions/liquidations to continue. But, as we all know, there's no way to pick the exact bottom. I will happily pick up some of their belongings at fire-sale prices and will continue to reserve ample dry powder should more opportunities arise.

Caxton Associates Boosts Stake in Ferro (FOE)

In a recent 13G filing made with the SEC, Bruce Kovner's Caxton Associates revealed their 5.2% ownership stake in Ferro (FOE). As of the date of the filing, they owned 2,276,526 shares. Previously, in their most recent 13F filing, they only owned 245,944 shares. So, as you can see, Caxton has significantly upped their stake in the company. You can view Caxton's most recent portfolio holdings here.

Caxton Associates is ran by Bruce Kovner. Kovner's bio is as follows: "Kovner's first trade was for $3,000, borrowed against his MasterCard, in soybean futures contracts. Realizing growth to $40,000, he then watched the contract drop to $23,000 before selling. He later claimed that this first, nerve-racking trade taught him the importance of risk management. In his eventual role as a trader under the legendary Michael Marcus at Commodities Corporation (now part of Goldman Sachs), he purportedly made millions and gained widespread respect as an objective and sober trader. This ultimately led to the establishment of his current company, Caxton Associates, in 1983, which today manages over $10 billion in capital and has been closed to new investors since 1992." (Wikipedia)

Year-to-date, Caxton Associates was up 5% as of mid September, as I wrote in my hedge fund year-to-date performance update. And, I've recently updated with a comprehensive post detailing how many affluent hedge funds' performance suffered in September.

Taken from Google Finance, Ferro (FOE) is "a producer of specialty materials and chemicals that are sold to a range of manufacturers who, in turn, make products for end-use markets. In approximately 50 manufacturing sites around the world, the Company produces products, such as Inorganic specialty products, which include glazes, frits, enamels, pigments, dinnerware decorations and other performance materials."

Links, Charts, Data, and a Quote

Mark Cuban is going long, if that means anything at all to you.

EarningsBreakout posts up Mastercard (MA) consumer spending data. And, as expected, the numbers are down.

Contrarian Profits thinks the only safe oil investment is tanker ships. (I have slightly different thoughts and will have a post about oil plays coming later on).

Energy analyst Gregor Macdonald points out that the Energy Sector Bullish Percent Index is at its lowest reading in 10 years:

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Steve Puri says the charts say buy:

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and appropriately, I leave you with a quote from Warren Buffett:

"Be greedy when others are fearful and fearful when others are greedy."

Wednesday, October 8, 2008

Current Credit Crisis Vs. Nordic Crisis Vs. Great Depression

Contrahour has a post up detailing the events of the Nordic Banking Crisis in 1992. Why is this relevant? Because its eerily similar to what we're currently seeing in America.

Taken from Contrahour,

"In 1985, the government deregulated banks which caused a competitive frenzy for new loan growth. The increase in credit availability created a real estate bubble as more individuals began speculating in real estate. At the tail end of the five-year real estate bubble during which asset values increased by over 100%, banks became giddy with rising profits and loosened lending practices. The economy boomed to the point where unemployment dropped to 1.4% in 1989.

But then, in 1990, banks suddenly found themselves in dire straights as the bubble burst and asset prices began falling. Three of the six major national banks were undercapitalized in 1991 because of the falling asset values backing the loans. Several banks experienced "runs" on their deposits. In the Fall of 1991, Gota Bank, one of Sweden's major banks declared bankruptcy.

As a response, the government of Sweden created a government-owned institution, a "bad" bank, if you will, to liquidate the troubled mortgages and loans from two of the six national banks. This bank, named Securum Bank, gave the government time to work out the troubled loans without being at the behest of the stock and credit markets. In addition, the governemnt guaranteed that it would inject capital into any other bank the fell below the nine percent regulatory capital requirement. In essenece the government became both a buyer and investor of last resort.

The "bad" bank worked out the troubled loans through asset sales, IPOs and restructurings. The plan was a success. While it could not avert a recession, the liquidity injections prevented the credit crunch from reaching more of the private sector. Securum, the "bad" bank, was closed in 1997, just five years after the crisis reached its peak. While the "bad" bank was capitalized with 65 billion kronas of government money to buy loans, it ended up not needing any additional capital and turned out to break even in the five years of operation."

And then compare all that to America in the 1930's:

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Source: Contrahour

Leverage Ratio of Financial Institutions

I wanted to post up this image (courtesy of Paul Kedrosky), because it illustrates the amount of leverage employed at various financial institutions. Numerous institutions on this list have high leverage. And, the scary part is that many of them have increased leverage from 2007 to 2008.

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Then, take the info above and compare it to a list from my previous post on financial institutions regarding writedowns, losses, and capital raised. Although the data is very generalized and does not offer specifics into each institution's situation, it still provides us with a list of some banks that would make very good shorts assumming the short selling ban on financials is not in place. After all, a mix of high leverage, large writedowns, and low capital raised can be quite deadly.

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Full disclosure: At the time of publication, MarketFolly was short HBC via puts
Leverage Image Source: Paul Kedrosky

Tuesday, October 7, 2008

Signals Popping Off the Charts

Just a quick excerpt from Quantifiable Edges,

"What needs to be kept in mind is that the price action over the last week has been more severe than at any time other than 1987 and then back to the 1930’s. In other words, while extreme readings in breadth, volatility, price, and volume indicators of this magnitude have almost always led to short-term upside over the periods tested, the current situation is far beyond most everything tested. Measures need to be taken to control risk. Tight stops are a possibility, but difficult to implement with such extreme volatility. I’m controlling risk by scaling in with reduced position size."

Eric Bolling's Latest Thoughts

Eric has just written a new brief piece over at Here's some excerpts from it,

"There will be a trade, a time when things sort themselves out, but be wary of recommendations in a really ugly market. This is as ugly as they get -- be warned. Stay nimble, stay in cash.

Cut Losses; Pare Down

My portfolio has been trimmed down dramatically. I took as much risk off the table as possible. Three weeks ago, I thought mid-cap stocks might be bottoming, so I started to buy SPDR Mid Cap 400 (MDY), the ETF that tracks mid-cap stocks.

As the financial crisis evolved and Washington began spinning, I took a fast loss and am better off for doing so.

I also cut losses on Energy Select SPDR (XLE). I closed out most of my energy exposure and remain very light there. I still have, although limited, exposure to homebuilders and financial's. The portfolio is pared down to about 5% equities.

At time of publication, Bolling was long XHB, XLF, T-Bills, and NJ State Education Bonds, although holdings can change at any time."

Chart Candy

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Some chart candy from the Financial Times. Especially take note of household debt rising nearly as much as financial sector debt as a % of GDP (as seen in the graph on the top left).

Source: FT

Monday, October 6, 2008

More Hedge Fund Performance Numbers

The NY Post has a graphic up which reveals a few more performance numbers for various hedge funds. Among them are Jim Simons' Renaissance Technologies. His Medallion Fund continues to dominate, up 49% as of the end of September. Peter Thiel's Clarium Capital is up 27.8% year-to-date thanks to winning bets in currencies and debt. Also, as we noted here, Clarium has recently shifted into equities. Tudor Investment Corp's Tensor Fund is also doing quite well, up 21.3% on the year. This fund is a recent quantitative addition to Paul Tudor Jones' arsenal.

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You can check out many more hedge fund performance numbers that I've listed here.

Source: NYPost

Philip Falcone's Harbinger Capital Profits on Wachovia (WB) Short

Excerpts taken from a NY Post article,

"Philip Falcone, of New York-based Harbinger Capital, rang up the incredible profit by shorting a whopping 117 million Wachovia shares at $30 back in May after his top analyst and investment chief pointed out problems with the Charlotte, N.C.-based bank's mega-billion dollar Option ARM loan portfolio.

The mortgages were defaulting at a fast rate which could make them worth only pennies on the dollar by year's end, the analyst's research revealed, according to sources at Harbinger. In addition, Wachovia would be socked with sky-high capital costs related to $40 billion of debt maturing in the fourth quarter, the sources added.


The super-profitable trade will remind some of Falcone's move earlier this year in the iron-ore sector - he made a huge profit when Cleveland Cliffs stock doubled on huge demand for the mineral.

Falcone has proven time and again that he can spot opportunity before the market sees it and gets in when the value, or lack of it, isn't yet priced into the stock.

In an interview with the Wall Street Journal last week about the health of his fund Falcone noted: "While we've taken our risk down, our portfolio is still well positioned to profit in the months ahead."

How well positioned it was is now known. The profitable trade will help offset what has been a tough quarter for Harbinger.

When the ban on short sales of hundreds of financial stocks took effect Sept. 18 it was a game changer for Falcone, who had successfully been betting on more then one troubled bank stock falling - Harbinger Capital fell 5.5 percent that day, possibly the firm's biggest one-day drop ever.

"It was ugly, but we survived," Falcone said in a text message that day to The Post."

We recently detailed Harbinger Capital's portfolio holdings from their most recent 13F filing. Although the information is interesting, do consider that the 13F is a lagging indicator and as noted in the interview, Harbinger has made adjustments to their portfolio since.

You can read the entire NY Post article here.

Sunday, October 5, 2008

Hedge Fund Investor Letters

Courtesy of Dealbreaker, we've seen some of the most recent letters hedge funds have sent to their investors. Follow the links below to each fund's letter (in .pdf format). They are all very interesting reads and I highly recommend checking them out.

TPG Axon

Tontine Partners


Greenlight Capital