Tuesday, June 30, 2009

Louis Bacon's Moore Capital Management Bets On Energy: 13F Filing Q1 2009


This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

This week is 'global macro week' here at Market Folly and we'll be covering some of the equity positions of the major global macro strategy hedge funds. We want to start off this week with a slight disclaimer. Since global macro funds trade all different types of asset classes, they're not an ideal bunch to track or to clone a portfolio from. However, they are some of the smartest minds out there in terms of secular themes, trading, and market timing. As such, we monitor their movements in equities to get a sense as to what sectors they like, when they're moving out of long equity positions, and to see if we can see any secular themes they might be playing. So, this week is not so much about tracking as much as it is about taking a step back and observing the 'bigger picture.'


The following were Moore's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Wyeth (WYE), United Technologies (UTX), China Mobile (CHL), Metlife (MET), CMS Energy (CMS), Electronic Arts (ERTS) Calls, China Petroleum (SNP), Freeport McMoran (FCX), Emerson Electric (EMR), Monsanto (MON), Genentech (DNA) Puts, Caterpillar (CAT), EMC (EMC), Citrix (CTXS), Walmart (WMT), Activision Blizzard (ATVI), Northeast Utilities (NU), Netapp (NTAP), Riverbed (RVBD) Calls, Wyeth (WYE) Calls, Cummins (CMI), Owens Illinois (OI), Joy Global (JOYG), Schering Plough (SGP), & Hess (HES) Puts


Some Increased Positions (A few positions they already owned but added shares to)
Lorillard (LO): Increased by 606%
Petroleo Brasileiro (PBR-A): Increased by 196%
ACE (ACE): Increased by 178%
Select Sector Energy (XLE): Increased by 133%
Occidental Petroleum (OXY): Increased by 100%
Potash (POT): Increased by 92%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
PS Wilderhill (PBW): Reduced by 70%
Micron (MU): Reduced by 47% but their position is only 0.46% of their portfolio


Removed Positions (Positions they sold out of completely)
Transocean (RIG), Home Depot (HD), Lowes (LOW), State Street (STT), SPDR Homebuilders (XHB), Bristol Myers Squibb (BMY), Electronic Arts (ERTS), AMR (AMR), Continental Airliens (CAL), Philip Morris (PM), Whirlpool (WHR), Delta Airliens (DAL), US Steel (X), Exxon Mobil (XOM), Lennar (LEN), Toll Brothers (TOL), Altria (MO), Shaw Group (SGR), Hewlett Packard (HPQ), Foster Wheeler (FWLT), Stanley Works (SWK), First Solar (FSLR), & Procter & Gamble (PG) Puts.


Top 15 Holdings (by % of portfolio)
  1. Select Sector Energy (XLE) Calls: 18.9% of portfolio
  2. Select Sector Energy (XLE): 13.3% of portfolio
  3. Ace (ACE): 8.7% of portfolio
  4. Select Sector Energy (XLE) Puts: 8.1% of portfolio
  5. Max Capital (MXGL): 5.1% of portfolio
  6. Wyeth (WYE): 3.7% of portfolio
  7. Lorillard (LO): 2.77% of portfolio
  8. United Technologies (UTX): 2.5% of portfolio
  9. China Mobile (CHL): 1.8% of portfolio
  10. Metlife (MET): 1.7% of portfolio
  11. Powershares Water Resource (PHO): 1.5% of portfolio
  12. CMS Energy (CMS): 1.5% of portfolio
  13. Electronic Arts (ERTS) Calls: 1.5% of portfolio
  14. China Petroleum (SNP): 1.4% of portfolio
  15. Freeport McMoran (FCX): 1.3% of portfolio

Moore has placed a pretty hefty bet on the energy sector. While they have hedged some of the position with puts, they have a rather large long bias with 18.9% of the portfolio in XLE Calls and 13.3% of the portfolio in XLE shares for a long exposure of 32.2%. That is quite a large bet, even when taking the hedge into account. Then, when you further look at their portfolio, you also see numerous other energy and natural resource plays scattered throughout such as PBR-A, SNP, MON, POT, and more. It's also interesting to note that they too joined in on the WYE trade last quarter as they try to game the event-driven situation there.

As you can see from the massive amount of new positions they put on and the large amount of positions they completely sold out of, Moore (and most other global macro firms) move in and out of plays in bigger chunks than most other funds we follow. This is the perfect illustration as to why macro funds are not necessarily the best to track or clone portfolios from. At the same time, they can lend us hints as to certain macro themes they are seeing. And, in Moore's case, they have shown us a bias towards energy. This is intriguing because just yesterday Paul Tudor Jones was biased towards the financial sector, although they also had a decent sized position in energy via XLE as well.

Assets from the collective holdings reported to the SEC via 13F filing were $787 million this quarter compared to $821 million last quarter, so a slight decrease in long equity assets. Keep in mind also that Moore's equity exposure is just a sliver of their overall global macro portfolio. They are a multi-billion dollar firm and they do not even have $1 billion in long equities. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros), and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners, Philip Falcone's Harbinger Capital Partners, Ricky Sandler's Eminence Capital,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- Global macro firms such as: Paul Tudor Jones' Tudor Investment Corp,

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.


Four Ways to Protect Your Cash From Inflation

Since we're quite busy this week, we want to continue to post up some informative guest posts. Since we just looked at some of the highest yielding savings accounts and since there's been a lot of talk lately about large cash positions and inflation, we figured this would be an interesting piece to post up as it addresses both topics. The following is an article from Keith Fitz-Gerald, the Investment Director of Money Morning/The Money Map Report.

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Right now, there's more than $9.5 trillion in cash on the sidelines - or more than twice the amount of money currently invested in stock mutual funds, according to MoneyNet.inc and the U.S. Federal Reserve. Private equity firms alone are believed to hold as much as an additional $1.3 trillion.

1

While I've always doubted that the "money on the sidelines" argument is really all it's cracked up to be, one can hardly argue with a recently released report from Harris Private Bank of Chicago [part of the U.S. arm of the Bank of Montreal (NYSE: BMO) that notes that stocks have rallied for the next two years whenever money market assets have exceeded 25% of the capitalization of the Standard & Poor's 500 Index. According to the Los Angeles Times, that figure is now 43%, down from 58% after having peaked in December - and that's even after the 30%-plus run-up in the S&P 500 since March.

What's interesting is that many investors holding large cash positions view their money as an asset, when, ironically, it's really more of a liability at this stage of the game.
Some might take issue with that statement. After all, even we at Money Morning have counseled readers that cash - correctly deployed - can allow an investor to sidestep the worst stretches of a financial crisis, like the one from which we're currently attempting to extricate ourselves.

But when the markets are as beat up as they as they have been, history suggests there's probably more upside than downside - even if we haven't bottomed out yet.
And there's a broad body of research to support that contention - including our own newly created "LSV (LIBOR/Sentiment/Value) Index" (published as a part of The Money Map Report, the monthly investment newsletter that's affiliated with Money Morning).

There's also data sets widely published by others, such as Yale Economics Professor Robert J. Shiller. Shiller has found that when you look at 10-year periods of Price/Earnings (P/E) data dating all the way back to 1871, the markets tend to rise when the average P/E is low, as it is right now. Conversely, when the average Price/Earnings values are high - as they were in late 1999, and again in 2007 - a decline in stock prices is much more likely.

There are obviously no guarantees that history will repeat itself. But if it does, the same data implies we could see real returns of 10% a year or more "for years to come," as Shiller noted in a recent interview with Kiplinger's Personal Finance.

My own research seconds the general-market-increase theory, but I'm much more conservative in my expectations of returns and think that returns of 7% are more likely.

Perhaps what's more important right now is that inflation typically accompanies growth - and with a vengeance. And that means that investors who are sitting on cash "until the time is right" may have their hearts in the right place but are relying on the wrong protection strategy.

My recommendation is a four-part plan that can help lock in the expected returns you want, while also protecting your cash from the ravages of inflation. Let's take a close look at each of the four elements of this strategy:

  • First, protect your cash with Treasury Inflation Protected Securities (TIPs). Even though the trillions of dollars the Fed has injected into the system seem to be having some effect on the critically ill patient the U.S. central bank is trying to fix, we're likely to pay a terrible price in the future. Forget the hyperinflation scenario so many people are hyping at the moment. While that's certainly possible, it's not probable. However, what is likely is a dramatic realignment of the dollar and a general increase in worldwide living expenses.

If you're based in the United States and have mostly U.S. assets, you may want to consider something as simple as the iShares Barclays TIPS Bond Fund (TIP) to offset this risk. The TIP portfolio is chocked full of inflation-indexed securities, but it also offers a healthy 7.46% yield. If you've got international exposure, you may also want to consider the SPDR DB International Government Inflation Protected Bond ETF (WIP). It's a collection of internationally diversified government inflation indexed bonds that provides similar protection. Make sure you talk with your tax advisor about both, though. Depending on your tax situation, you may find that because of the tax liability on inflation-related accretion, these are generally best held in tax-exempt accounts.

  • Own some gold but don't go crazy. Despite widespread belief to the contrary, gold has never been statistically proven as an inflation hedge. But the yellow metal has proven to be a great crisis hedge because of the 10:1 relationship between gold prices and bond coupon rates - which obviously are directly related to inflation. Over time, the two move in such a way that having $1 for every $9 in bond principal can help immunize the value of your bond portfolio.

So to the extent that you own gold, do so not because you expect it to rise sharply, but because it will offset the inflationary damage to your bonds. A good place to start is the SPDR Gold Trust (NYSE: GLD) because it's tied directly to the underlying asset without the hassles or risks of direct personal storage associated with bullion.

  • Consider commodities. It's too early to tell if the so-called "green shoots" that everybody is so excited about are little more than weeds. Therefore, it makes sense to concentrate on picking up resource-based investments. History shows that these things are less susceptible to downturns, but more importantly, rise at rates that far exceed inflation when a recovery begins in earnest.

I prefer companies like Kinder Morgan Energy Partners LP (NYSE: KMP) that are less dependent on the underlying cost of energy than they are on actual growth in demand. That way, if energy prices don't take off immediately for reasons related to deflation or stagflation, those still will benefit from demand growth. It's a fine point, but one that merits attention for serious investors. KMP, incidentally, yields an appealing 8.68% at the moment.

  • Short the dollar to hedge your bets still further. Not only is the government going to borrow nearly four times more than it did last year, but when you add the complete federal fiscal obligations into the picture, our government owes nearly $14 trillion. This makes the dollar, as legendary investor Jim Rogers put it, "a terribly flawed currency" that could fail at any time.
To ensure you're at least partially protected, consider the PowerShares DB U.S. Dollar Index Bearish Fund (NYSE: UDN), which will rise as the dollar falls. It's essentially one big dollar short against the European euro, the Japanese yen, the British pound sterling and the Norwegian kroner, among other currencies.
In closing, there is one additional point to consider. You rarely get a second chance to do anything, especially when it comes to investing. So act now before the markets make it cost-prohibitive to protect yourself. When the economic recovery gets here, you'll be glad you did.


U.S. Savings Rate Rises: Temporary or Trend Reversal?

We wanted to post up this chart courtesy of Paul Kedrosky which illustrates a 'black swan of U.S. savings.' As you can see at the bottom, the savings rate in America has been paltry. At best, it has steadily declined over the last 20 years. However, the massive recession we've seen has made people hunker down and we're seeing a return to shoring up personal balance sheets. Americans have tightened their spending so much that we've now seen the "largest three-year increase in savings in modern U.S. history" with the rate recently hitting 6.9%. This is obviously a good sign and hopefully can point to Americans changing their ways in the future. In a timely piece (we're biased of course), we just last week examined the highest yielding savings accounts out there at the moment. After all, numerous readers had been asking what to do with their large, idle cash positions. We considered all the emails and comments to be our own little subset of the current American mindset; a random sampling if you will.

While there are signs of improvement in consumer/saver behavior, there is still a distinction between a temporary adjustment and a permanent shift. You'll recall that Americans are programmed to spend, spend, spend. We are a consumer nation and we consume; it's what we do. So, we'll have to see an overall change in psyche for this positive recent trend to continue. Otherwise, it will become just another upward blip in the context of an overall downward trend. Because, remember, we have a serious problem when it comes to consumer balance sheets. Millions of consumers have massive amounts of debt and we've touched on the topic of downgrading the American consumer's credit rating in the past. It will be a long and arduous process to repair the damage. But, raising cash levels certainly helps. The problem is getting consumers to keep their savings rate high now that it is improving.

We postulated back in December of 2008 that the consumer savings rate would have to rise. It has. But, now what? We would now venture a guess that the vast majority of people are raising cash levels merely to stave off any uncertainty in the mean time. Then, once the 'good times' return again, they'll revert to their programmed ways. This is a reactionary move, rather than a proactive one. It is temporary. To truly get out of this mess and to solve one of the many enigmas of the crisis, consumers need to shore up balance sheets for good, not just 'for now.' How many Americans will truly change their ways? Unfortunately, that question will only be answered with time.

(click to enlarge)


Technical Analysis & Trading Ideas: Weekly Watchlist 6/29/09

The OptionAddict is back with his weekly watchlist of some trade setups. The video below takes a look at some technical analysis and highlights various patterns across the stock market. This is a great resource and an excellent place to build a watchlist for those of you wishing to make some swing trade plays. Here's the video, with our apologies for posting it up a day late:


Monday, June 29, 2009

Paul Tudor Jones' Hedge Fund Tudor Investment Corp: 13F Filing Q1 2009


This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

This week is 'global macro week' here at Market Folly and we'll be covering some of the equity positions of the major global macro strategy hedge funds. We want to start off this week with a slight disclaimer. Since global macro funds trade all different types of asset classes, they're not an ideal bunch to track or to clone a portfolio from. However, they are some of the smartest minds out there in terms of secular themes, trading, and market timing. As such, we monitor their movements in equities to get a sense as to what sectors they like, when they're moving out of long equity positions, and to see if we can see any secular themes they might be playing. So, this week is not so much about tracking as much as it is about taking a step back and observing the 'bigger picture.'

First up, we have legendary global macro trader Paul Tudor Jones. He comes from the group of "offspring" of the legendary Commodities Corporation. Tudor Jones emerged as a successful offspring along with fellow great macro traders Bruce Kovner (Caxton Associates) and Louis Bacon (Moore Capital Management). Taken from Wikipedia, the bio of PTJ is as follows: "In 1980 he founded Tudor Investment Corporation which is today a leading asset management firm headquartered in Greenwich, Connecticut. The Tudor Group, which consists of Tudor Investment Corporation and its affiliates, is involved in active trading, investing and research in the global equity, venture capital, debt, currency and commodity markets. One of Jones' earliest and major successes was predicting Black Monday in 1987, tripling his money during the event due to large short positions. Jones uses a global macro strategy when trading in some of his funds. This strategy can be seen in the 1987 PBS film "TRADER: The Documentary". The film shows Mr. Jones as a young man predicting the 1987 crash. Jones' firm currently manages$17.7 billion (as of June 1, 2007). Their investment capabilities are broad and diverse, including global macro trading, fundamental equity investing in the U.S. and Europe, emerging markets, venture capital, commodities, event driven strategies and technical trading systems." So, as you can see, PTJ is quite an accomplished gentleman, earning him the title of THE macro trader.

If you want to hear some insightful thoughts from Tudor Jones himself, head over to our post on Hedge Fund manager interviews or our post on quotes from PTJ. In terms of other activity we've covered, Tudor has been busy in the past. Previously, they filed numerous 13G's with the SEC, amending a bunch of their holdings. Additionally, we learned that they will be starting a new Momentum Fund. They still of course have their main flagship BVI Global fund that finished 2008 -4.5% as noted in our 2008 hedge fund performance numbers. Keep in mind that as of right now, Tudor has only a minuscule amount of their overall portfolio allocated to equities. They are a multi-billion dollar firm and only have equity exposure of a few hundred million, as detailed below.

The following were Tudor's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Select Sector Financial (XLF) Calls, iShares China (FXI), Select Sector Consumer Discretionary (XLY), Philip Morris International (PM)

The rest of their brand new positions are much smaller, as each are less than 0.5% of Tudor's portfolio: American Electric Power (AEP), Altria Group (MO), Health Care REIT (HCN), Waste Management (WMI), Omnicom (OMC), EOG Resources (EOG), Nasdaq (NDAQ), General Electric (GE), Sunoco (SUN), Alcoa (AA), Aflac (AFL), Analog Devices (ADI), NYSE Euronext (NYX), Reynolds American (RAI), Select Sector Consumer Staples (XLP), Ventas (VTR), Arch Coal (ACI), Aes (AES), Goldman Sachs (GS), Peabody Energy (BTU), International Game Technology (IGT), Consol Energy (CNX), Bunge (BG), Pfizer (PFE), Stericycle (SRCL), Supervalu (SVU)


Some Increased Positions (A few positions they already owned but added shares to)
Select Sector Financials (XLF): Increased by 643%
Select Sector Healthcare (XLV): Increased by 331%
Semiconductor Holdrs (SMH): Increased by 138%
Select Sector Energy (XLE): Increased by 20%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Kraft Foods (KFT): Reduced by 95%
Prudential (PRU): Reduced by 94%
Harris Corp (HRS): Reduced by 93%
Metlife (MET): Reduced by 92%
SLM Corp (SLM): Reduced by 82%
Devon Energy (DVN): Reduced by 62%
US Steel (X): Reduced by 60%


Removed Positions (Positions they sold out of completely)
Genentech (DNA), Wyeth (WYE), Monsanto (MON), Mako Surgical (MAKO), Berkshire Hathaway (BRK-A), Select Sector Technology (XLK), CIT Group (CIT), Mastercard (MA), Blackrock (BLK), Teva Pharma (TEVA), Wendys Arbys (WEN), Cigna (CI), Citigroup (C), Corning (GLW), Select Sector Industrial (XLI), Market Agribusiness ETF (MOO), Sandisk (SNDK), Agilent (A), Potash (POT). They also sold out of numerous other positions that were each less than 0.5% of their overall portfolio.


Top 15 Holdings (by % of portfolio)

  1. Select Sector Financials (XLF) Calls: 13.63% of portfolio
  2. Select Sector Financials (XLF): 11.25% of portfolio
  3. Semiconductor Holdrs (SMH): 10.3% of portfolio
  4. Progenics Pharmaceuticals (PGNX): 5% of portfolio
  5. Select Sector Healthcare (XLV): 4.6% of portfolio
  6. iShares China (FXI): 3.2% of portfolio
  7. Taleo Corp (TLEO): 2.76% of portfolio
  8. Select Sector Energy (XLE): 2.1% of portfolio
  9. Switch & Data (SDXC): 1.4% of portfolio
  10. Select Sector Consumer Discretionary (XLY): 0.87% of portfolio

Upon looking at Tudor's portfolio, many will obviously point to the fact that they have large long exposure to financials via XLF and XLF calls. And, this is worth highlighting as it is clear they've made a sector bet in that regard having increased their position there. However, we will point to the bigger picture and note that Tudor's long equity exposure is very minimal, at best. As such, we could interpret this as them seeing further downside risk in equities. Or, they could simply be pursuing opportunities in other markets. Assets from the collective holdings reported to the SEC via 13F filing were $290 million this quarter compared to $334 million last quarter, so we see a slight dip in long equity exposure on their part from quarter to quarter. However, the main thing to take away is that Tudor is a multi-billion dollar firm. They only have a couple hundred million in long equity exposure, which is not much in the bigger scheme of things. That is the main thing we've taken away from examining their portfolio.

At the same time though, there are some interesting holdings in their portfolio. Besides their interesting financials position, Tudor also has a larger stake in semiconductors and health care, as both are within their top 5 positions. While they added heavily to their financial exposure, they added quite heavily to their semiconductor position too (via SMH) and some people may overlook that. Overall, it's easy to see which sectors Tudor might like more than others on the long equity side of things due to the creations known as sector exchange traded funds (ETFs). Tudor seems to like them to gain exposure to a certain sector and that makes sense given their global trading nature. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros), and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners, Philip Falcone's Harbinger Capital Partners, Ricky Sandler's Eminence Capital,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.


George Soros Files 13G on Extreme Networks (EXTR)


In a 13G filed with the SEC, George Soros' hedge fund Soros Fund Management has disclosed a 5.72% ownership stake in Extreme Networks (EXTR). The filing was made due to activity on June 16th, 2009 and they now own 5,079,766 shares. They have significantly increased their position since when we looked at Soros' entire portfolio. In their last 13F filing which details positions as of March 31st, 2009, Soros Fund Management owned 766,666 shares of EXTR. Since then, they have added an additional 4,313,100 shares and have obviously significantly boosted their stake.

Soros is good to track because of his excellent macro sense and formidable track record as an investor. His thoughts on the current financial landscape are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. If you want to get a better sense as to how Soros formulates his investment theses, we highly recommend reading his first book, The Alchemy of Finance. This book is a staple in our recommended reading list and after you read it, you'll understand why

Soros is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. (We just covered Jim Rogers' portfolio recently too). Nowadays, he employs his investment style at his own firm. Whether it be equities, bonds, currencies, debt, or commodities, Soros is more of a global macro player, seeking investments in whatever market they can gain an edge.

2008 was an interesting time to be investing, to say the least. Soros detailed his thoughts about his portfolio from 2008 and it makes for a good read. His fund finished 2008 up 8%. His success in 2008 came from making correct bets on the US dollar and betting that short term interest rates in the UK would decline. Interestingly enough, Soros was down for much of the year, until he fought his way back with overtrading. We just recently looked at his portfolio and noted that Soros likes bonds at this stage. For some of Soros' other activity, check out the SEC filings that we've covered including: his new position in Plains Exporation (PXP) and his 13G filing on Mercury Computer (MRCY).

Taken from Google Finance, Extreme Networks is "a provider of network infrastructure equipment for corporate, government, education and healthcare enterprises and metropolitan telecommunications service providers. The Company designs and sells secure network infrastructure equipment and offer related services to enterprises and service providers worldwide."


Commodity Inflation Versus Asset Deflation (Guest Post)

This is a Guest Post from Phil at Phil's Stock World

California lost more than Michael Jackson recently. They also lost their credit rating as Fitch dropped them to A-minus and even that rating was immediately placed on negative credit watch. California faces a $24 billion-plus budget deficit for the fiscal year that begins Wednesday, rapidly declining sales tax revenues and an impotent legislature that can’t agree on solutions. Faced with the prospect of running out of cash, State Controller John Chiang said Wednesday the state will begin to issue IOUs for all general fund payments other than those categories protected by the state constitution, federal law and court decisions.

California has always been a trend-setting state and we have to wonder how far behind them the rest of the country is. According the the Congressional Budget Office, the US’s projected debt is now growing so quickly that is will exceed the size of the economy in 2023, that is 7 years earlier than the projections of the last report just 18 months ago. The culprit is not the huge sum of stimulus spending that President Obama and Congress have injected into the economy this year, the budget office said. Instead, rising health care costs and an aging population together continue to push government spending upward at an unsustainable pace, only faster than the budget office last estimated.

US DebtDebt soars because of unrelenting growth in federal spending on health care programs and a rise in Social Security spending” as a share of the economy, the report said. Up to 90 percent of the increase is due to Medicare and Medicaid spending rather than Social Security, it added. Senator Kent Conrad, a Democrat from North Dakota who is chairman of the Senate Budget Committee, released a statement saying that the budget office report “reinforces the importance of not only paying for health reform, but ensuring that it significantly bends the cost curve on health care beyond the next ten years. We simply must get these health costs under control.”

Gee, we can’t afford health care, we can’t afford rising energy costs but people are buying stocks as if both industries have nowhere to go but up, despite lower demand and rising unemployment. I guess we can keep borrowing and borrowing and borrowing and borrowing to pay the ever-increasing prices projected by commodity futures and biotech multiples but one would think there’s a theoretical limit…

There’s a major disconnect going on between the markets and reality - perhaps it is end of quarter window dressing by financials and funds so desperate for a good quarter they will do anything to maintain the market for another 7 days . Just this morning the Nikkei was up 84 points despite the Dollar falling back below 96 Yen. That wasn’t even the bad news for Japan though: Inside the country, consumer prices fell at a record pace in May adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession. Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

Defaltionary Spiral Profits fall, then wages come down, then consumers stop shopping,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “And because people aren’t shopping, companies lower prices. That’s the process that we’re starting to see. It isn’t easy to break out of.” Some 47 percent of 775 Japanese retailers surveyed by the Nikkei newspaper plan to lower prices in the year ending March 2010 to spur sales, up from 9 percent a year earlier. “With demand deteriorating, companies are finding it more difficult to sell goods and services and are turning to discounting,” said Azusa Kato, an economist at BNP Paribas in Tokyo.

I hope I didn’t give you the impression that THAT was Japan’s biggest problem though. Oh no, they’ve got much bigger fish to fry (or eat raw, as the case may be). While their CPI does the moon-walk, the London Times points out this morning:

Anaemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned. A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay.

The impending meltdown, which the Tokyo Foundation believes could affect some hundreds of thousands of households, will be focused initially on the country’s industrial heartlands, where corporate bankruptcy rates are rising. The residential zones around Toyota’s home territory of Nagoya could become ghost towns, Kazuo Ishikawa, the think-tank’s senior research fellow, said.

The alarming prediction comes amid clear signs of upheaval in the micro economies of Japanese households. With Toyota, Panasonic and other groups expected to finish the current financial year in the red, the system of company bonuses has been shaken. The Japan Business Federation calculates that June bonuses will suffer an almost 20 per cent cut across the board, and a dip from which there appears little immediate prospect of recovery. Because those twice-yearly bonuses amount, on average, to about a quarter of the annual salary package of mortgage-payers, the effect is likely to be severe. Mr Ishikawa said: “The next six months are going to see a sharp increase in housing refugees. People are first going to try to defer payments, but then they will default and be forced to abandon their homes and head somewhere cheaper.”

I keep telling people but the market does not listen to me: Commodity hyperinflation is causing DEFLATION in the price of everything else, especially when necessities like fuel are allowed to run out of control. This is sucking money out of the rest of the economy and causes a deflationary cycle that ends up snapping back and bursting the commodity bubble anyway. IT JUST HAPPENED LAST YEAR - WHY DOES NO ONE THINK IT WILL HAPPEN AGAIN?

There, I feel better now… This is really serious stuff though and it’s why I called a top for Members at 8,450 in yesterday’s live chat session. This is really just getting silly and we take our profits and run at this point, especially with the holiday weekend looming shortly where it all may hit the fan very hard. That is the World’s second largest economy and China’s second biggest customer and the World’s favorite low-interest lender (0.1%) sitting on what may be an economic implosion and WHERE IS THE FEAR? The VIX fell to 26.36 yesterday, back to pre Lehman levels as if nothing can possibly go wrong with the global economy. Well it’s a great time to by VIX leaps, that’s for sure!

Look, I do not like being negative. You do not like to hear negative things - this is human nature, we like to be happy. But this is seriously dangerous stuff people! If nothing happens then fine but please do not get all bullish as if nothing will. A major bank or a medium-sized country could default tomorrow and who knows who they owe money to who would also default and so on and so on. Very sadly, we’re going to have to do a weekend post on catastrophe protection because the VIX isn’t the only thing back to pre-Lehman levels. So is the level of economic idiocy….

Personal income was out today and "economists" (the ones we trust to tell us how the economy is doing) were off by 600% in their estimates. Personal income was up 1.4% due to massive inflows of stimulus but what’s disturbing here is how wildly far off the "experts" can be. This is their job, they are supposed to have a clue! While boosing incomes for a month by 1.4% may sound great, what we really have is an indication that you can’t stimulate a dead cat as Personal Spending was up just 0.3% and the PCE came in at our own deflationary 0.1%. US consumers look pretty much like the cow in the above cartoon and if they stop giving milk, the whole World economy begins to starve.

The media can do their sunshine and lollipops dance all day long and I guess that’s one of the reasons I start turning negative - just trying to balance out the nonsense. I am optimistic that, long-term, we can work our way out of this crisis but we need to do it through hard work, not make-believe games that everything got magically better with no pain at all and, until the market begins to embrace that reality, I will continue to watch the sky for signs of cracks, just in case….

- Phil

----------

Thanks to Phil for the excellent write-up. If you enjoyed the piece above, you can sign-up to receive Phil's free updates here (just select the free option). This is a topic we've examined before here at MarketFolly before when we noted that Dennis Gartman sees both inflation and deflation. It certainly will be interesting to monitor going forward.


Chase Coleman's Tiger Global Sells Some Longtop Financial Technologies (LFT): 13D Filing


Chase Coleman's hedge fund Tiger Global just recently amended their 13D filing on Longtop Financial Technologies (LFT). A 13D filing signifies an activist investment in a company and must be filed when a firm or investor acquires 5% or more of a company's shares. Tiger made this amendment due to activity on June 16th, 2009 and they are now showing a 14.6% ownership stake in Longtop Financial Technologies (LFT) with 7,456,294 shares.

This is down from their previously disclosed 8,951,065 shares in their last 13F filing. So, since March 31st, 2009, Tiger has sold 1,494,771 shares of LFT. They were selling the shares on June 9th, 10th, and 15th-19th. Their sale prices ranged from $26.53 to $29.56. Taken directly from the 13D filing, "The Reporting Persons have filed a Form 144 with the Securities and Exchange Commission indicating their reasonable intention to dispose of shares of the issuer, and the issuer has filed a resale Registration Statement covering possible sales by the Reporting Persons of their shares of the Issuer in registered transactions". As such, Tiger has been reducing their position. We also covered Tiger's entire portfolio here.

Chase Coleman is yet another 'Tiger Cub,' or manager who learned their trade under the watch of Julian Robertson while at Tiger Management. We track Coleman's Tiger Global due to their strong historical performance and proven fundamental research methodology. In fact, Tiger Global is one of the hedge funds that comprises the Tiger Cub Portfolio created with Alphaclone where you can replicate their positions and enjoy 15.5% annualized returns since 2000. The numbers say it all and Tiger Global's contribution to such a portfolio is one of the many reasons we track them.

We recently ran a profile of Julian (Chase's mentor) and talked about one of his big investment bets as well. Chase attended Williams College and his focus in the markets has always been on smaller cap names and on technology. Although, he has since expanded his horizons with time. An interesting fact about Coleman is that he is a descendant of Peter Stuyvesant, the man who built the wall that gave Wall Street its name. He was clearly born for Wall Street. In 2007, Tiger Global returned 70%, and from 2001-2007, Coleman bolstered an average return of 47%. In terms of recent performance, we saw that Tiger was -12.9% for April and were -8.1% for the year at that time. Their poor performance has been due to pain from their financial and REIT short positions, which they discussed in their quarterly letter.

Taken from Google Finance, Longtop Financial Technologies is "a software developer and information technology (IT) services provider targeting the financial services industry in China. The Company develops and delivers a range of software solutions with a focus on meeting the IT needs of financial institutions in China. Longtop Cayman offers select software solutions in the categories, such as channel-related solutions, business-related solutions, management-related solutions and other value-added solutions, covering categories of IT requirements for financial institutions in China."


Philip Falcone's Harbinger Capital Partners Sells a Ton of Solutia (SOA): SEC Filings


Today we've got two SEC filings to cover regarding Harbinger Capital Partners' stake in Solutia (SOA). But, both filings were essentially made for the same reason (just at different times). Firstly, Philip Falcone's hedge fund Harbinger Capital Partners filed an amended 13D on their SOA position back on June 18th to reflect the selling they've done. At that time, they had a 14.1% stake in the company with 16,813,411 shares. But, more recently, they've also filed an SEC Form 4 which shows that Philip Falcone's hedge fund sold even more shares of Solutia on June 24th, 2009. In total, they sold 7,260,109 shares at a price of $4.80 and now only have 7,114,291 shares left in their remaining position. As you can see, Harbinger has sold nearly half of their SOA shares in the time that has elapsed from their amended 13D filing up until this recent Form 4 that was just filed. The moral of the story: Harbinger is selling SOA shares in a big way. In addition to selling SOA, we've noted that Harbinger also started a new position in Zapata (ZAP). We also recently covered Harbinger's entire portfolio here.

Harbinger has been quite busy over the past year as they have been re-tooling their portfolio and fighting off a massive decline in assets. They were ranked #1 in the top 10 asset losers, losing 60.8% on a year over year basis. As we've been covering on the blog, Harbinger has been decreasing their Cliffs Natural Resources (CLF) position, selling off some of their Calpine (CPN), and is seeing bidders for their NYT stake, among many other portfolio moves.

Harbinger's Offshore fund finished -22.7% for 2008. They were up 0.95% for January 2009, 4.64% for February, and +0.74% for March, leaving them at +4.06% year to date as of then. And, we also got word that Falcone would be returning to his roots in terms of investing style and would be opening a new fund.

Taken from Google Finance, Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States. The Company’s segments are Saflex, CPFilms and Technical Specialties."


Friday, June 26, 2009

Highest Yielding Savings Accounts: Options For Cash Positions

Every once in a while, we like to dive into the lesser talked about topics of personal finance and we like to examine what the average saver/spender is seeing in terms of options. After all, it can affect many of their decisions going forward. Over the past month or so, we've gotten a lot inquiries about where to put 'cash' since there is still uncertainty out there. Right now, there are a few institutions that are providing meager yields compared to what they used to be. And, obviously that is due to the fact that the Federal Reserve is at 0%. However, you do still have better options than placing your money in a money market fund where you'll earn a paltry 0.40%. We've decided to check out what is out there and present some alternative ideas to at least get something out of all that cash on the sidelines.

All Rates Effective 06/29/2009

Ally Bank: 1.75% Savings Account, 2.00% 1 year CD

By far the highest yielding savings account we've found right now is that of Ally Bank. Their savings accounts are paying out 1.75% APY and their CDs are at 2.00% APY for a 1 year CD. They are FDIC insured, are part of the GMAC parent entity, and the Ally name is an effort to rebrand the business going forward. This could be a cause of concern for some, but we'd also highlight that as long as your account is FDIC insured, you're protected (which Ally is). So, make sure you stay within the FDIC imits ($250,000) and you're good to go. Their savings account and CD yields are the highest out there at the moment (and as far as we can tell have no fees or minimums). So, if you think the Fed won't be juicing up rates over the next 12 months, you can lock in at a 2.00% CD with no monthly fees and daily compounded interest.


WT Direct: 1.76% Savings Account

Upon researching all the options, WT Direct seems to be well known among various personal finance bloggers out there. The yield on their savings account is 1.76%, slightly lower than that of Ally. However, you need to deposit $10,000 or more to get that APY. WT Direct is FDIC insured and is part of Wilmington Trust, who has been around 105 years. This might offer a little more stability for those concerned about Ally's ole GMAC relationship.



HSBC Direct: 1.55% Savings Account
ING Direct: 1.5% Savings, up to 1.63% Checking

Two of the most well-known savings accounts that personal finance savants have sworn by in the past are ING Direct and HSBC Direct (both institutions are FDIC insured.). While they may be 'big time' and mainstream options, their yields have certainly fallen by the wayside. HSBC Direct is yielding 1.55% on their savings while ING Direct is yielding up to 1.63% on their checking accounts (with $100,000 or more deposit) and 1.5% on their savings. The thing with ING is you essentially have to put a lot of money into the account to get a good rate. If you're putting less than $50,000 in, don't bother with them as you'll earn a paltry 0.24%. All of the other institutions mentioned above have no minimums to get the good rate (with WT Direct being the exception at a $10,000 requirement). Another negative regarding ING is you cannot link it to your brokerage account (hat tip to a reader for that info). I guess the HSBC and ING choices would be sacrificing yield for 'peace of mind' as they are bigger institutions? Doesn't seem worth the tradeoff to us, but maybe it is for some.

FNBO Direct: 1.5% Savings Account

Another lesser known option is FNBO Direct. After digging through the personal finance blogosphere, we've found that this bank was also recommended for cash placement. Their savings account is yielding 1.5% currently, so below that of both Ally and WT. FNBO is an affiliate of First National of Nebraska and they are also FDIC insured.


After doing some research, all of the above seem to be some of the most popular savings accounts in personal finance blogger circles. Those of you with overweight cash positions can look at either money market accounts, online savings accounts, or CDs and that's really it if you want to stay within the 'cash' classification. In the end, everything is a bit weak in terms of yield. But, we can thank the Fed for that. If you want to take on a little more risk for much bigger yields, we'd suggest checking out investment grade corporate bonds, high yield bonds, or a combination. That's obviously a topic for another discussion, but it could be worth looking into.

Any other major options we missed? Where does everyone have their cash at these days? Let us know so we can monitor rates going forward. For more info on rates and all that good stuff, bankrate is a good resource for monitoring.


(Database of FDIC Insured banks available here).


Treasuries At Resistance (TLT Chart): Will the Trend Hold?

Kevin has recently brought a great chart to our attention. He pulls up the TLT which is essentially the 20 year treasury in exchange traded fund form. While some could argue technical analysis on this vehicle is a moot point, we still think there are some interesting observations at it has held numerous trendlines in the past.

This time around, Kevin has targeted $95 as the line in the sand for TLT. And, we completely agree with that. If you look at past trends for treasuries/bonds, you'll see that they typically put in a seasonal low around May or June. We are obviously right in the midst of that. What makes this interesting is that TLT is currently bumping up against its downward trendline (the red line), possibly set to breakout to the upside. This scenario would yet again solidify the seasonal aspects bonds have exhibited in the past. This might seem like mumbo-jumbo to some people, but it's still interesting to at least highlight.

(click to enlarge)


Currently, TLT is facing double resistance: from the downward trendline and also from the previous low established back in early May (the green horizontal line). So, watch this current area as a pivot point for the next big move in treasuries/bonds. If resistance holds, you can get short. If it breaks resistance, then get long for a trade. Either way, this vehicle often represents the inverse of the equity markets. So, a breakout in treasuries (people flocking to 'safety') would obviously be bad news for equities.

We saw this phenomenon in a big way back in October/November of last year. While it is unlikely we'd see that violent of a decrease in equities (and subsequent rise in TLT share price) again, the fact that numerous people have been calling for more downside is a cause for concern. This suspicion could possibly be confirmed if treasuries breakout to the upside. At the very least, it's an interesting indicator to monitor.

For additional thoughts regarding treasuries, make sure to check out hedge fund legend Julian Robertson's steepener swap play. That bet has sparked a lot of conversation in the debate as to which direction treasury yield curves are headed. Julian argues that they are headed 'steeper', while many others argue 'flatter' in a reversion to the mean trade. And, this is obviously very relevant because if TLT breaks out to the upside as hypothesized above, that would indicate the yield on the 20 year Treasury falling. (Remember, bonds have an inverse relationship between price and yield). Those betting on inflation and yields rising (by shorting TLT) have certainly had their way since the start of 2009; yields have risen and TLT has plummeted. Now it's time to see if the trend holds or not.


What We're Reading 6/26/09

7 habits of highly suspicious funds [Rick Bookstaber]

Snapshot of the Goldman Sachs Conviction List [Zero Hedge]

Revisiting the debate over Yale's investing guru, David Swensen [BusinessWeek]

Inflation - the real threat to sustained recovery (by Alan Greenspan) [Financial Times - subscription needed to view]


Thursday, June 25, 2009

Ricky Sandler's Eminence Capital Likes Tech & Science Plays: 13F Filing Q1 2009


This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.


(image courtesy of Value Investor Insight)

Next up, we have Eminence Capital. Eminence is a New York hedge fund ran by Ricky Sandler. As of this last quarter's filing, they held $4 billion in long US equity exposure. Sandler attended the University of Wisconsin and holds a CFA designation. Prior to Eminence, Sandler started his career as a research analyst for Mark Asset Management and then went on to start Fusion Partners at the age of 25 with Wayne Cooperman. As their investment styles started to differ, Sandler went on to start Eminence. Sandler employs a 'quality value' approach to running his portfolio, spending equal time on both the long and short sides of his portfolio. In the past, he has said they employ gross leverage and are typically around 120% long and 70% short. The last major performance update we gave on them was in March of this year where they were -0.4% for the month and up 5.23% for the year as of that time. At the end of this article we've attached a Value Investor Insight feature on Ricky Sandler from the past.

The following were Eminence's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Thermo Fisher Scientific (TMO)
Visa (V)
SPDR S&P 500 (SPY)


Some Increased Positions (A few positions they already owned but added shares to)
Apple (AAPL): Increased by 71%
Walmart (WMT): Increased by 71%
Lowes (LOW): Increased by 38%
Nike (NKE): Increased by 27%
Lockheed Martin (LMT): Increased by 25%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Oracle (ORCL): Reduced by 59%
International Game Technology (IGT): Reduced by 55%
Bed Bath & Beyond (BBBY): Reduced by 49%
Qualcomm (QCOM): Reduced by 26%
SAIC (SAI): Reduced by 24%
Quest Diagnostics (DGX): Reduced by 23%


Removed Positions (Positions they sold out of completely)
Microsoft (MSFT)
Applied Materials (AMAT)
Genentech (DNA)
Grupo Televisa (TV)
Agilent Technologies (A)
Gaylord Entertainment (GET)


Top 15 Holdings (by % of portfolio)
  1. Oracle (ORCL): 8.23% of portfolio
  2. Abbott Labs (ABT): 6.63% of portfolio
  3. Cognizant Tech (CTSH): 6.2% of portfolio
  4. Lockheed Martin (LMT): 5.95% of portfolio
  5. Fiserv (FISV): 5.9% of portfolio
  6. SPDR S&P500 (SPY): 5.25% of portfolio
  7. Qualcomm (QCOM): 5% of portfolio
  8. Google (GOOG): 4.6% of portfolio
  9. Zebra Technologies (ZBRA): 4.5% of portfolio
  10. Cisco Systems (CSCO): 4.45% of portfolio
  11. Quest Diagnostics (DGX): 4.3% of portfolio
  12. Ross Stores (ROST): 4.28% of portfolio
  13. Laboratory Corp (LH): 4% of portfolio
  14. Apple (AAPL): 3.9% of portfolio
  15. Thermo Fisher Scientific (TMO): 3.7% of portfolio

A few observations about their portfolio: Their largest position (Oracle) is still their #1 holding, even after they sold 58% of the position on a quarter to quarter basis. That just gives you an idea of exactly how big of a position this was for them. We'll have to wait until next quarter to see if they were merely trimming their position size or making a greater move in the context of things. They also hold Abbott Labs as their 2nd largest position which is interesting seeing how shares of the company declined steadily from February until April (new 52 week lows). It appears to be showing some signs of stabilization now and maybe they see value in this name.

In terms of 'typical' holdings that we usually see in hedge fund portfolios, Eminence fits the bill. They hold Qualcomm (QCOM), Apple (AAPL - a position they noticeably added to), Thermo Fisher (TMO), and Visa (V). Those names are some of the most widely held amongst numerous hedge funds we track here in our portfolio tracking series.

What also struck us as interesting is Eminence's propensity to own laboratory testing companies, as they own the two main players in the space: Quest and Laboratory Corp. Combine this with their aforementioned pharma play Abbott Labs and lab supplier Thermo Fisher and we could possibly see a sector bet here.

And, as mentioned in the beginning of the piece, here is a Value Investor Insight feature on Ricky Sandler from an issue in the 2006 that gives nice background and is an interesting read:




Assets from the collective holdings reported to the SEC via 13F filing were $1.5 billion this quarter compared to $1.85 billion last quarter, so there was a slight decrease. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros), and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners, Philip Falcone's Harbinger Capital Partners,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.


Third Avenue Investor Letter (Marty Whitman)

Below is Marty Whitman's Q2 2009 letter for Third Avenue Funds investors. RSS & Email readers may need to come to the blog to view the material. If you're having trouble printing the document (margin errors), then open it up in Scribd, download it, and print the .pdf from your desktop. Hat tip to our friends over at ValuePlays for posting it up!

Unrelated note: Thank you to readers: anonymous, anonymous, and Taboo69 for your donations. We sincerely appreciate your generosity! (Taboo69 - your email inbox is full, clean it out so we can send you an email!)
If you would like to support MarketFolly, you can donate here.


Hedge-like Strategy Mutual Funds (Again)

This really is starting to get ridiculous. Yesterday, we got word out of money manager Van Eck Global that they would be launching a Multi-Manager Alternatives Fund under the symbol VMAAX. It is an open ended fund and, wait for it, they are pursuing "hedge-like strategies." This is yet another offering for retail investors of the globe aiming to pursue strategies normally reserved for the high net worth crowd. Yet, despite their so-called hedge-like strategies, rest assured... this mutual fund will still adhere to the "same SEC regulations that apply to all similarly situated open-end mutual funds" Van Eck says.

For plenty of reading on the topic, check out our past post on QAI: a hedge fund ETF, on WisdomTree's hedge fund ETFs, or on mutual funds using hedge fund strategies. Overall, we don't see the point of these vehicles as they cannot truly replicate the investment process. Additionally, we've found that these ETFs and funds end up just investing in other ETFs in a fund-of-funds type of structure. And lastly, we'll have to truly reserve judgment until they can prove that they can even match the returns that they are targeting over time. Right now, they essentially have no track record. Money managers keep rolling these out as if they're all the rage. We really don't have anymore to say on the subject besides reporting this super-new and super-never-done-before development. That was sarcasm, by the way.

Yawn. Wake us up when all the offerings in this regard die down.


(click to enlarge)


Goldman Sachs: Manipulation Kings of the Market?

*Update: Unfortunately, the document has been removed. However, a reader has pointed us to this link which has the full text of the article if you're interested.

Interesting read by Matt Taibbi in Rolling Stone regarding the postulation that Goldman Sachs has been behind every major market manipulation to date. Don't take the fact that it's from Rolling Stone too lightly either. It confused us as well at first, but after reading the piece and going back and reading some of Taibbi's other work, it made more sense as to why our friends over at Zero Hedge posted it up initially. Here is the slide-deck of the article which RSS/Email readers will need to come to the blog to view. Let us know if you're having problems printing the document from Scribd with margin errors, as we can recommend a fix.


Wednesday, June 24, 2009

Philip Falcone's Harbinger Capital Partners Portfolio: 13F Filing Q1 2009


This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Harbinger Capital Partners is a $6 billion firm ran by Philip Falcone. Harbinger was started in 2000 with seed capital from Harbert Management ($25 million). We've learned that Falcone is buying out Harbert to be the owner of the firm. Falcone made a name for himself in 2007 when he started shorting subprime mortgages and returned 117%. He focuses on intensive credit research, on bankruptcies and proxy fights, and was previously involved with high yield debt trading. Lately, he's been focused on equities it seems, but Harbinger's new fund will redirect his focus back to his roots.

Harbinger has been quite busy over the past year as they have been re-tooling their portfolio and fighting off a massive decline in assets. They were ranked #1 in the top 10 asset losers, losing 60.8% of assets on a year over year basis. As we've been covering on the blog, Harbinger has been decreasing their Cliffs Natural Resources (CLF) position, selling off some of their Calpine (CPN), and is seeing bidders for their NYT stake, among many other portfolio moves.

Harbinger's Offshore fund finished -22.7% for 2008. They were up 0.95% for January 2009, 4.64% for February, and +0.74% for March, leaving them at +4.06% year to date as of then. Most recently, we noted that Harbinger has revealed a new position in Zapata (ZAP).

The following were Harbinger's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
The only new position of size is McDermott (MDR). The following new positions are all each less than 0.13% of Harbinger's portfolio, thus representing tiny positions: MDC Partners (MDCA), Weatherford (WFT), and Direxion 3x bear (FAZ)


Some Increased Positions (A few positions they already owned but added shares to)
No notable activity in this category


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Consol Energy (CNX): Reduced by 56%
Hughes Communications (HUGH): Reduced by 56%
ICO Global (ICOG): Reduced by 52%
Cliffs Resources (CLF): Reduced by 20%


Removed Positions (Positions they sold out of completely)
Cablevision (CVC), Navistar (NAC), Electronic Arts (ERTS), US Oil Fund (USO) Puts, Ultrashort financials (SKF), Williams Sonoma (WSM), Seracare Life Sciences (SRLS), Augusta Resource (AZC), Spectrum Brands (SPC).


Top 10 Holdings (by % of portfolio)

  1. Calpine (CPN): 34.24% of portfolio
  2. Leap Wireless (LEAP): 16.24% of portfolio
  3. Cliffs Resources (CLF): 9.2% of portfolio
  4. New York Times (NYT): 8.8% of portfolio
  5. Atlas Air (AAWW): 8.7% of portfolio
  6. McDermott (MDR): 7.3% of portfolio
  7. Consol Energy (CNX): 6.1% of portfolio
  8. Solutia (SOA): 2.7% of portfolio
  9. Constellation Energy (CEG): 2.4% of portfolio
  10. Terrestar (TSTR): 1% of portfolio

Obviously, the main story here is how Harbinger has a whopping 34% of their portfolio in one position, Calpine (CPN). However, there are some caveats here. Firstly, the filing details positions as of 3/31/09. Since then, there have been developments where Harbinger will be selling some of their shares. We've covered the entire CPN situation in detail here.

Other notable holdings round out his top 5 positions with Leap Wireless, Cliffs Resources, New York Times, and Atlas Air. Cliffs Resources is interesting because Harbinger has been involved with them for a while now as they led a campaign against the previously proposed merger with Alpha Natural Resources. Their involvement in the situation was all over the financial news and they still hold the position today. On their New York Times position, they face numerous headwinds, including both macro/secular trends and an ownership family. We've touched on some of the problems in the newspaper industry before, but we have also noted how Harbinger also has another prominent investor in NYT, Mexican billionaire Carlos Slim. In the future, we hope to take a closer look at the NYT in particular to really break down the situation there.

Assets from the collective holdings reported to the SEC via 13F filing were $1.4 billion this quarter compared to $2.3 billion last quarter. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros) and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.