Friday, June 19, 2009

What We're Reading 6/19/09

Exchange traded funds: Know what you own, redux [AbnormalReturns]

Exclusive interview with Howard Lindzon [Wall Street Cheat Sheet]

Bankruptcy epitaphs 2009: Company tombstones RIP [The Reformed Broker]

Warren Buffett could use a little Bill Ackman in him [Dealbreaker]

In depth equity analysis of PDL Biopharma (PDLI) - a name many hedge funds hold [Harbor]

Tight spot for Fed, blind spot for investors [Andy Xie]

Credit Bailout: Issuers slashing card balances [NYT]

The popular boardgame RISK in a free multiplayer online version [Conquer Club]


Thursday, June 18, 2009

John Burbank's Passport Capital Adds Massive Gold Stake: 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.

Next up is John Burbank's Passport Capital. This is only the second time we've covered Passport's filings, so let's get to some quick background. Burbank founded the $2 billion San Francisco hedge fund in 2000 and they use macroeconomic and sector analysis to select their investments. After identifying macro themes, they drill down to find individual companies with rigorous fundamental research. Burbank has over a decade of experience in markets having previously worked as a consultant and as a director of research at ValueVest Management. His educational background includes an undergraduate degree from Duke University and an MBA from Stanford University. Passport has a very respectable track record of gaining 27% annually, but like many other funds, hit a rough patch in 2008. They've bounced back quickly in 2009 though as we've detailed below.

In terms of recent activity, we've covered Passport's agriculture fund update. Additionally, we saw that Passport had an absolutely monster month of May, as they were up 24% for the month and are now up 33% for the year in our May 2009 hedge fund performances post. This success was largely due to the rise in commodities, as Passport had heavy exposure both there and in commodity related equities.

The following were Passport'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):
Potash (POT), Ishares Russell 2000 (IWM) Puts, Apollo Group (APOL) Puts, Google (GOOG), Puts, Petroleo Brasileiro (PBR-A) Calls, Harley Davidson (HOG) Puts, Gilead Sciences (GILD), Genzyme (GENZ), Tyco (TYC) Calls, Bed Bath Beyond (BBBY) Puts, US Oil Fund (USO) Calls, Weatherford (WFT) Calls, Teva (TEVA), Infinera (INFN), Terex (TEX), Morgan Stanley (MS) Calls, Biomarin (BMRN), Broadcom (BRCM) Calls, Cisco (CSCO) Calls, MEMC (WFR) Calls, Becton Dickson and Co (BDX), Sequenom (SQNM), Vale (RIO) Calls, Thermo Fisher Scientific (TMO), General Electric (GE) Puts, Qualcomm (QCOM), Steel Dynamics (STLD) Calls, Dow Chemical (DOW) Calls, and Oil Services (OIH) Calls


Some Increased Positions (A few positions they already owned but added shares to)
SPDR Gold Trust (GLD): Increased by 6,717%
First Solar (FSLR): Increased by 195%
JDS Uniphase (JDSU): Increased by 128%
Logitech (LOGI): Increased by 122%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Transocean (RIG): Reduced by 82%
Baidu (BIDU): Reduced by 78%
Citrix (CTXS): Reduced by 59%
Priceline (PCLN): Increased by 55%
Google (GOOG): Reduced by 22%


Removed Positions (Positions they sold out of completely)
Qualcomm (QCOM) Calls, Akamai (AKAM), Terra Industries (TRA), VMWare (VMW), Riverbed (RVBD), Alpha Natural (ANR) Calls, Sun Micro (JAVA), Energy Conversion Devices (ENER), Petroleo Brasileiro (PBR-A), Walter (WLT) Calls, Southwestern Energy (SWN), United States Oil (USO), Schlumberger (SLB), Nvidia (NVDA), Excel Maritime (EXM), Nexen (NXY), Bioform (BFRM), and numerous other positions that were each less than 0.2% of their portfolio.


Top 15 Holdings (by % of portfolio)

  1. Mosaic (MOS): 13.5% of portfolio
  2. SPDR Gold Trust (GLD): 7.9% of portfolio
  3. Potash (POT): 6.83% of portfolio
  4. Ishares Russell 2000 (IWM) Puts: 5.4% of portfolio
  5. Apollo Group (APOL) Puts: 5% of portfolio
  6. Google (GOOG) Puts: 4.46% of portfolio
  7. JDS Uniphase (JDSU): 4% of portfolio
  8. Petroleo Brasileiro (PBR-A) Calls: 3.9% of portfolio
  9. Harley Davidson (HOG) Puts: 3.43% of portfolio
  10. Gilead Sciences (GILD): 3.3% of portfolio
  11. Genzyme (GENZ): 2.7% of portfolio
  12. Tyco (TYC) Calls: 2.5% of portfolio
  13. Bed Bath & Beyond (BBBY) Puts: 2.4% of portfolio
  14. United States Oil Fund (USO) Calls: 2.4% of portfolio
  15. Weatherford International (WFT) Calls: 2% of portfolio

By far and away their largest move last quarter was their addition to their gold position via GLD. They boosted it by 6,717% and moved it all the way up to their 2nd largest holding at 7.9% of their overall long portfolio. This is a big move and very notable as it adds yet another prominent hedge fund to the list of those in the gold trade. We now wonder if this is a contrarian signal that it may be time to get out of gold with all of the hedge funds having already rushed in. For the current chart outlook on gold, check out this great gold technical analysis video.

The second most interesting to note about Passport's holdings is their abundance of fertilizer via Mosaic and Potash, their #1 and #3 positions respectively. In total, over 20% of their long portfolio is allocated to fertilizer plays. And, after all, Passport does have an agriculture fund now that started trading in March. They are definitely big believers in the agriculture story long-term and share similar thoughts as legendary investor Jim Rogers, whose portfolio we just covered yesterday.

Thirdly, we also couldn't help but notice that a vast majority of Passport's top 15 holdings are all new positions they just initiated. As we'll touch on later, Passport was putting new money to work in their portfolio. This money went mainly into new holdings, save for a few previously already large positions. Regarding positions they sold out of completely, Passport did make some fairly major moves. In the last quarter, their Qualcomm (QCOM) Calls positions was 19% of their portfolio and they sold completely out of it, no longer holding those options. Additionally, they completely sold out of their Akamai (AKAM) which was previously over a 9% position for them.

Lastly, there is also one other thing to note about their portfolio. Passport clearly has a propensity to play Puts on equities via the options market. Their fourth, fifth, sixth, and ninth largest positions are all put positions on various companies and indices. Clearly, they do not see the rally as a new beginning and are skeptical of the move some stocks have made. Their put position on Apollo Group is intriguing, seeing how numerous other hedge funds we cover (namely 'Tiger Cub' funds) have large stakes in APOL. Passport has taken the other side of this bet and they are not alone. At the recent Ira Sohn conference, hedge fund manager and short-seller extraordinaire Jim Chanos presented a case for shorting the for profit education companies like Strayer Education and Apollo. We'll have to see which set of funds wins out on this wager.

For additional Passport resources, we've published a list that they sent out to their investors, entitled 'Passport's Suggested Reading List.' The list encompasses some great financial articles worth any investor's time.

Assets from the collective holdings reported to the SEC via 13F filing were $779 million this quarter compared to $375 million last quarter, so Passport doubled their exposure on the long side and then some. But, this is just a fraction of the assets they had on the long side in the past. Two quarters ago, they had over $3 billion invested. While they have deleveraged and scaled back, it looks like they are starting to put some money back to work. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, Chase Coleman's Tiger Global, David Stemerman's Conatus Capital, Soros Fund Management (George Soros), and Jim Rogers.


Hugh Hendry Eclectica Fund Investor Letter

Here's the latest commentary from Hugh Hendry over at Eclectica Asset Management. Big hat tip to Zero Hedge for posting this great read up. RSS & Email readers will need to come to the blog to view the slide-deck.

Also, a tip for those of you wanting to print the document off rather than reading it in the .pdf displayer: don't print it directly from Scribd, the margins will be screwed up. Since numerous readers have had problems with this, we wanted to post up a quick remedy. Click on the Scribd logo so that it takes you to the document on Scribd's site. You will then have the option to download the .pdf. After you've downloaded it, just print it from your computer. Note that this tip works for all Scribd and Docstoc .pdf documents we upload here on Market Folly. This way, you can avoid print-outs with messed up margins!


Hedge Fund News Summary (Soros, Och Ziff, Taleb, & More)

We've found a bunch of various hedge fund tidbits that aren't long enough to merit their own article, so we decided to collectively assemble them into this melting pot of a post. Without further ado, we present some of the news that has surfaced out of hedge fund land over the recent days:

- George Soros has called credit default swaps "instruments of destruction" and thinks they should be banned. Shorting via credit default swaps allows limited risk and unlimited profit potential in a sense. Soros argues that those selling CDS receive limited profit potential and unlimited risk, yielding a clear imbalance. Soros said, "People buy a CDS not because they expect an eventual default but because they expect them to appreciate in response to the adverse developments." He cites AIG as a major loser in this regard as they were a large seller of CDS and were on the receiving end of the negative reward spectrum. Lastly, in a separate conversation, Soros has said that the market, "may have further to go because there is a lot of liquidity, a lot of investors are on the sidelines. If the market keeps on going up, more of them may decide to join in. You never know how far the rally goes." His old colleague at the Quantum Fund, Jim Rogers, agrees with him, as we noted when we recently covered Rogers' portfolio & thoughts. Speaking on the topic of China, Soros also thinks that they have benefited from being isolated from the world and they are in better shape than the international banking system. He thinks that China's influence will grow faster than most people think. We just yesterday covered Soros' hedge fund portfolio.

- Hedge Fund Och Ziff had almost 35% of their assets in cash as of the first quarter as they expect markets to fall again. Currently, they manage around $20 billion in hedge fund assets, so you do the math. They believe the economic recovery will be a long drawn out process and it will not just bounce back immediately. Their main fund lose 15.5% last year and is up 6.3% for 2009 as of the end of April.

- David Einhorn's Greenlight Capital noted in his May investor letter that he has returned to financial and REIT shorts after those sectors have rallied heartily. We also learned that he has put on an options bet wagering that interest rates will rise. (We also recently covered a somewhat similar play: Julian Robertson's steepener play). Additionally, Einhorn still retains a large gold position, which we noted when we covered Greenlight's portfolio.

- Nassim Taleb associated Universa Investments is starting a fund based on the thesis of hyperinflation. Universa has ties to Nassim Taleb, the author of the (in)famous book, The Black Swan, which talks about how extreme events can impact the markets. And, it is also a part of our recommended reading list series. Universa was up more than 100% in 2008 due to their bearish stance. They started with $300 million in 2007 and now run around $6 billion. The new fund will be run by Mark Spitznagel and wagers on rising interest rates, among other inflation based plays (such as commodities and options). While Taleb himself does not run the firm, he has significant investments with them and is often associated with them. In the past, we've covered Taleb's explanation of the Black Swan.

- Boaz Weinstein will be starting a new hedge fund, Saba Capital Management. They plan to start trading in August and have raised around $160 million since the end of April. Weinstein has made headlines for the fact that he lost more than $1 billion last year at Deutsche Bank trading bonds. The fund is named Saba after the Hebrew word for grandfather. It is also the name of the credit unit Weinstein started while at DB. His bad performance last year is his only losing year out of 11 years. He felt pain from misteps in Ford (F) bonds and various credit default swaps. His DB unit last year was down around 18% and managed around $10 billion. We'll have to see if he can get back to his past winning ways with his new venture.

- Hedge Fund Balyasny Asset Management was using leverage of 20 cents for every dollar they had in net assets for their stock funds. Their long/short split is roughly 50/50 these days as well. Dmitry Balyasny said, "Economic numbers, housing data, earnings, risk appetite and credit have all gotten less bad. The question is, for how long?" Their main fund was up 0.5% for 2008 and is up 2% thus far in 2009. They are leaning towards the belief that stocks will drop in the second half of the year. Balyasny goes on to say, "The situation is quite fluid and we have to respect the probability that the market is going to continue discounting bad news and embracing every slight improvement, causing shorts to eventually capitulate." We will be covering Balyasny in our hedge fund portfolio tracking series here soon, so stay tuned.

- A pair of ex-Touradji Capital portfolio managers have launched a new commodities fund. Instead of playing directly in commodities market as Touradji typically does, their new venture will make relative value based bets via the equity markets. This new fund sounds like an excellent candidate for our hedge fund series as it will allow us to track commodity and macro experts via equities positions, which are very easy to track courtesy of SEC filings. We haven't covered Touradji yet in our Q1 2009 portfolio tracking series, but we'll be getting to them very soon, so stay tuned.

And with that, we conclude our quick wrap up of some various hedge fund news tidbits.


Cantillon Closing: William von Mueffling's Hedge Fund Converting to Long Only


William von Mueffling's Cantillon Capital Management will be closing down the hedge fund portion of their business. They will wind down their positions except for $1 billion worth of long positions as they revert to a long-only shop. We've not covered Cantillon in our portfolio tracking series before, but von Mueffling is quite a prominent name in the industry. His firm had $10 billion assets at their peak and more recently had around $3.5 billion assets under management. He founded the firm in 2003 after leaving Lazard, where he helped build up their hedge fund business. Like many of the long/short equity hedge funds we track, Cantillon is a stock picking firm.

However, their picking has clearly not been at its best recently. While von Mueffling outperformed other hedge fund managers on a relative basis in 2008, his results were still poor on an absolute return basis. For 2009 they are reportedly down 7-8% through May. Yet, despite his recent hiccup in performance, he certainly carries with him a solid background and performance record. As such, we may consider tracking his long only investments from here on out, as this could potentially be an ideal type of hedge fund to track via 13F filing. We could then create a portfolio based on their holdings with Alphaclone and not have to pay any management fees. After all, we like straight up stock pickers and we won't have to worry about the short side of the portfolio.

As for the rationale behind closing up the hedge fund portion of the firm, von Mueffling had this to offer in the letter to investors, "Firstly, in recent weeks, we have found ourselves covering a large number of shorts in the Cantillon World and Cantillon Europe hedge funds (the "Funds"). This is likely to continue and therefore the Funds' portfolios in the future are not likely to exhibit the characteristics that we have always targeted for the Funds. Secondly, we want to focus on our long-only strategy which we launched in 2005. Today, the stocks that we own in this strategy have the best characteristics that we have seen in a decade." They expect the liquidation to take three months and will do so in an orderly fashion, while leaving the option for investors to transfer their investments into the Global Equity funds.

William von Mueffling is intriguing as a manager because NY Magazine had previously labeled him a 'whippersnapper' in the hedge fund industry as a legend in the making. He was in good company on that list, as out of the funds we cover, Chase Coleman of Tiger Global, Peter Thiel of Clarium Capital, and Eric Mindich of Eton Park Capital were all also on the list. Also included were John Arnold of Centaurus Energy and David Ganek of Level Global.

Cantillon now joins an ever-growing list of hedge funds to shut down amid the crisis. So far, we've already seen Jeffrey Gendell's Tontine Associates close 2 funds, Art Samburg's Pequot Capital shut down, James Pallotta's Raptor Capital close for re-evaluation, while Satellite Capital Management and Okumus Capital have closed too. As time goes on, we're sure more closings will undoubtedly emerge from the woodwork. We've postulated all along that the hedge fund industry will weed out the weak in a Darwinian process, where only the strong few will survive the crisis. And with that, we'll conclude this piece with a list of further 2008 closures.


Wednesday, June 17, 2009

George Soros Fund Management Favors Bonds: 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.

Next up is Soros Fund Management ran by George Soros. Soros (who photographs extremely well by the way) is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. (We just covered Jim Rogers' portfolio today too). Now, he has carried his investment style over to 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. So, keep in mind that these equity positions only represent a portion of the fund's overall holdings. They are not required to disclose holdings outside of equities, notes, and stock options. 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% as noted in our hedge fund year end performances post. 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.

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. Soros sees a vast consolidation in the hedge fund space in the near future, as we noted when we recently checked in on Quantum Fund ex-partners Jim Rogers & George Soros. 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.

Over the past few months, Soros has been busy with various SEC filings that we've covered. We covered his new position in Plains Exporation (PXP) and his 13G filing on Mercury Computer (MRCY). We like to track Soros since he has a solid track record and a great macro sense. We'll see what he has in his portfolio this time around.

The following were Soros Fund Management'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):
Entergy (ETR), Plains Exploration (PXP), Walgreens (WAG), American Electric (AEP), Smucker (SJM), Kohls (KSS), Occidental Petroleum (OXY) Puts, Novell (NOVL) Bond, iShares Mexico (EWW) Puts, Weyerhaeuser (WY), Coach (COH), and numerous other very small positions (each less than 0.1% of their portfolio)


Some Increased Positions (A few positions they already owned but added shares to)
Macys (M): Increased by 1,624%
Lowes (LOW): Increased by 387%
Walmart (WMT): Increased by 287%
Heinz (HNZ): Increased by 282%
Home Depot (HD): Increased by 280%
RF Micro (RFMD) Bond: Increased by 193%
MCDATA (inactive) Notes: Increased by 82%
Lattice Semiconductor (LSCC): Increased by 29%
Conoco Phillips (COP): Increased by 20.8%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Best Buy (BBY): Reduced by 80%
Arch Coal (ACI): Reduced by 70%
Desarrolladora Homex (HXM): Reduced by 54%
Union Pacific (UNP): Reduced by 31%
Petroleo Brasileiro (PBR): Reduced by 14%


Removed Positions (Positions they sold out of completely)
Merrill Lynch (MER), Mercury Computer (MRCY) Bond, Digital River (DRIV) Bond, Omnicom (OMC) Bond, Redhat (RHT) Bond, Schlumberger (SLB), Consol Energy (CNX), Cymer (CYMI), Jetblue (JBLU), Petroleo Brasileiro (PBR) Calls, Skyworks Solutions (SWKS) Bond, Amdocs (DOX) Bond, and numerous other positions that were barely 0.1% of their overall portfolio


Top 15 Holdings (by % of portfolio)

  1. Petroleo Brasileiro (PBR): 21.3% of portfolio
  2. Potash (POT): 10.2% of portfolio
  3. Linear Technology (LLTC) Bond: 4.5% of portfolio
  4. LSI (LSI) Bond: 4.5% of portfolio
  5. Hess (HES): 4.4% of portfolio
  6. RF Micro (RFMD) Bond: 3.8% of portfolio
  7. MCDATA (inactive) Note: 3.6% of portfolio
  8. Conoco Phillips (COP): 3.6% of portfolio
  9. Macrovision (MVSN) Note: 2.6% of portfolio
  10. RF Micro (RFMD) Bond: 2.3% of portfolio
  11. Lowes (LOW): 2.2% of portfolio
  12. Walmart (WMT): 2.1% of portfolio
  13. Home Depot (HD): 2.1% of portfolio
  14. Tech Data (TECD) Bond: 2% of portfolio
  15. Macys (M): 1.9% of portfolio

The very first thing you will notice about Soros' portfolio is his large stake in Petroleo Brasileiro (PBR). He has had this position for a while and continues to hold it (but has sold a few shares). However, the main thing we want to focus on here is Soros' propensity to play bonds versus equity. If you look at his top 15 holdings above, 7 of those positions are bonds or notes. This is very high compared to most other hedge funds we track and we found it interesting. Part of this is due to the fact that we typically track long/short equity funds and Soros could be classified as more of a global macro player. As such, maybe there is something to be gleaned from his positioning here.

This is not to say that he has avoided equities though. Because, he obviously holds numerous equities as well. But, such a high concentration of bond positions in the top of his portfolio cannot be overlooked. In terms of his equity plays, PBR, Potash (POT), and Hess (HES) are by far his biggest positions in this regard. It definitely appears as if he is playing the commodity/emerging markets/'recovery' plays here. And, such positioning has obviously paid off so far this year.

Some of the major additions he made were to the shares of Home Depot (HD), Walmart (WMT), Macys (M), and Lowes (LOW). This definitely wreaks of the 'recovery' theme and we'll continue to track his movements in this regard. Some notable selling activity in his portfolio was the 80% trimming he did on his Best Buy (BBY) shares. Previously, BBY had been in excess of a 5% position for him, but it now sits at just over 1.5%.

Assets from the collective holdings reported to the SEC via 13F filing were $4.5 billion this quarter compared to $4.6 billion last quarter, so very little change. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, Chase Coleman's Tiger Global, and David Stemerman's Conatus Capital.


Jim Rogers Portfolio & Thoughts: A Recent Summary


It's been a while since we last covered Jim Rogers in full, so we figured now would be a good time to assemble a collective update. In the past, we've extensively covered Jim Rogers' portfolio so make sure you check that out to get a good background. Today must be Quantum Fund day at Market Folly, as we have covered George Soros' hedge fund portfolio today as well. To get more insight from Rogers then check out his two books: Hot Commodities and then also A Bull in China.

Rogers has opinions on a vast array of topics so we'll just dive right in and try to present the updates as orderly as possible. Firstly, we want to start with the topic of the crisis in general. Obviously, Rogers thinks the United States and the UK are in bad shape and will be for some time. He likens the current situation to that of the 1930s. He says, "In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end. They are making many of the same mistakes now. What's different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time." While the current crisis is unique in its own right, it does have shades of the 1930s written all over it. As such, Rogers focuses on inflation a lot and we'll get to that below.

Agriculture

Rogers still likes agriculture and thinks it will be one of the best investments in our lifetime. He says so under the premise that the world is growing and so are the number of mouths to feed. The economic emergence of countries that previously did not enjoy protein heavy diets have also spurred this trend on. Add into the equation the fact that supply is not necessarily growing to match demand, and you could have a real imbalance in the future. As such, Rogers likes agriculture and specifically farmland. In the past, we've covered which farmland investments he has made and have elaborated on his thoughts. His main active investments are in Agcapita Farmland Investment Partnerships (in Canada) and Agrifirma Brazil. His bullishness on agriculture comes down to a simple supply and demand equation imbalance. Food inventories are at multi-decade lows and this is without a ton of major droughts or weather problems. Not to mention, there is a shortage of actual farmers (and not to mention farmland) and Rogers says this can be attributed to the fact that it has been a horrible business for the past 30 years. To see more of his thoughts on this topic, see our post about Rogers' extreme bullishness on agriculture.

Currencies, Commodities, and Bonds (Inflation Theme)

On the topic of currencies, Rogers has varying opinions as each currency is its own equation. Recently, he has been out saying that he owns the Chinese renminbi and he likes to add to his position every chance he gets (as he cites the difficulty to buy and sell the currency due to it being blocked). While he still has some US dollars due to being a citizen, he has sold nearly all of his holdings in the currency and sees serious problems developing. Overall though, he sees a currency crisis looming due to the amount of money governments around the world are printing. He sees the US dollar as a flawed currency and thinks it could be the source of the currency crisis. He explains saying, "I would suspect that somewhere along the line, someone's going to say, 'I'm going to start selling mine (dollars) before everybody else does.' That's when you have a currency crisis."

While he has focused largely on the US dollar, he has often remarked that the British Pound could have major issues as well. We found it intriguing that Rogers has repeatedly focused on the possible currency crisis scenario in his appearances. He has gone as far as to say that sovereign defaults are not out of the question. And, he would not be alone in that regard. Kyle Bass, manager of hedge fund Hayman Capital agrees and predicts sovereign defaults will be the next crisis. Bass is well known for predicting the housing crisis and profiting handsomely (along with John Paulson as well). To back up claims for possible sovereign defaults, Rogers highlights the UK in 1918 as it transformed from world power to a nation wrought with default in 1970. Additionally, he talks about how Iceland has already defaulted too. He thinks we could possibly see more defaults between now and 2011. You can view some of Rogers' past thoughts on currencies here.

Commenting on the government's actions, Rogers says, "It's a mistake what they are doing. It's giving short-term pleasure, but there's long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road." Clearly, Rogers likens the current scenario to placing a bandaid on a gunshot wound victim and calling everything 'good.' Short-term solutions do not solve long-term issues. He cites this with evidence of the bond market already beginning to taper off and he thinks this will continue as the government sells a ridiculously large amount of bonds. This can be boiled down to one simplistic notion: when governments print a lot of money, you get serious inflation. At least, that's how Rogers sees it.

As such, Rogers does have one recommendation to benefit from this possible impending phenomenon: buy commodities. As fiat money depreciates in value and inflation rises, assets (and namely commodities) appreciate in value. He thinks that commodities could lead the global economy out of this mess and even if that doesn't happen, they will still appreciate due to inflation. In terms of specific commodities, Rogers likes cotton, sugar, as well as silver. For more of Rogers' thoughts on commodities, check out this post.

Gold and Silver

While we could technically lump his gold and silver commentary in the commodity section, we felt it deserved its own section due to his views on the precious metals. Overall, Rogers likes gold and has no plans to sell his. In fact, he could be adding to his position should the right circumstances pop up. He says, "The fact is that the IMF is trying to get permission from everybody to sell gold. I don't know if it will succeed or not. But if and when the IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to $700. The IMF has a lot of gold to sell. If it does, I hope I'm brave enough and smart enough to buy more." So, he likes gold. However, he likes silver even more right now due to it being cheaper on a historical basis since everyone has been piling into gold and driving up the price. Reverting to the topic of currencies quickly, we know that Rogers also thinks the debate on a new international reserve currency is a legitimate one. He thinks change is coming in this regard and he is not alone in those thoughts. Noted trader Dennis Gartman sees gold becoming the next reserve currency.

Short Positions

Rogers says it is rare for him not to have many short positions and so this definitely classifies as a 'rare' time for him. Derived from his stance on currencies, he hardly has any short positions at the moment due to the amount of paper money governments are throwing at the crisis. He thinks that a currency crisis is imminent and that investors should avoid shorting the market. Rogers says, "I'm afraid they're printing so much money that stocks could go to 20,000 or 30,000. Of course it would be in worthless money, but it could happen and you could lose a lot of money being short." As such, Rogers is not fighting the current trend and will pick his battles. (Do note that Rogers tends to exaggerate things to make a point and we highly doubt he realistically sees the market hitting those numbers). He thinks the extended rally is nothing more than a bear market rally which could be further fueled in the near-term due to a weakening dollar and the Fed utilizing the 'printing presses' and printing more money.

China, India & Sri Lanka

While Rogers is bullish on agriculture and commodities in general, he is also bullish on select sectors in emerging markets too. Specifically, he has focused on water treatment. He notes China and India's water problems and he has bought water companies in China. He did not cite specific names, but we do know that Heckmann (HEK) has had a large presence regarding water in China, even if it is not right along the lines of what Rogers is referring to. He says that the Chinese are aware of their problem and are spending "hundreds of billions" to solve their agricultural problem. So, his bets on water treatment and agriculture are tied together.

When pitting the emerging market nations against one another, Rogers favors China over India. He does so because of the reforms and change that India requires to fully compete. While he likes the commitments coming out of India lately, he needs to see action rather than just pledges for it to become the next real big investment opportunity. Specifically regarding India though, he did say that he likes the prospects of tourism in that nation. While Rogers likes China, he has not added to that position since picking up shares back in October and November of last year. Instead, he is directing money toward commodities.

Turning specifically to Sri Lanka, we find out that Rogers really likes this nation as an investment because it looks as if the 30-year war is coming to a close. He cites numerous other examples of war-torn countries that have emerged successful after troubled times. Rogers highlights that there is significant opportunity at hand, and all it takes is hard work. He likes Sri Lanka as an investment more so than India, Pakistan, or Bangladesh.

Conclusion

As you can see, Rogers is very opinionated on a large set of topics and likes to think in macro themes. After all, this is where his successful background comes into play. He made a fortune running the Quantum Fund with George Soros using similar strategies. While the fund is now defunct, both are still active investors and are good to track for their macro methodology. Make sure you check out our past update on Rogers' portfolio to get a better idea as to what other positions he holds. Also, we examined George Soros' hedge fund portfolio this morning as well, so make sure you see what macro themes he likes these days.

To conclude, Rogers thinks that the stock market will eventually hit new lows this year or next year after the bear market eventually subsides. He thinks that our problems remain largely unsolved and we have a whole lot of work to do in order to emerge from this mess. He thinks that the UK is potentially worse off than the US (because the US has agriculture to fall back on), but that the overall picture is still bleak either way. He thinks that moving to London in 1807 was brilliant, that moving to New York in 1907 was brilliant, and that moving to Asia in 2007 would be the next brilliant move. He clearly sees a shift of power to the east as the emerging markets (and particularly China) start to bloom. He sees Mandarin as the most important language in the world going forward and has already begun teaching his daughters.

Speaking on the global economy's future, Rogers draws from the past by saying, "Throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of the power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, 'Let's go to where all of the debtors are'? It just doesn't happen that way."


If you want to follow Rogers, then bet on inflation, agriculture, commodities, China, and bet against the US and the UK. For more on what he deems to be the best investment opportunities out there, check out Rogers' two books: Hot Commodities and then A Bull in China. We'll leave everyone with one last bit of advice from Rogers: become a farmer.

If you enjoyed this post, then get our updates for free via RSS reader or for free via email. We cover investment gurus and hedge fund portfolios on a daily basis.


Sources: Numerous media appearances, interviews, and conferences.


Gold Technical Analysis Follow-Up Video

Last week we posted up a great video examining some technical analysis on Gold. The guys at MarketClub were checking out the charts again and they've now just posted a follow-up video on how Gold's chart is shaping up currently. Definitely check that out as they've provided some insightful analysis in the past.

Also, if you missed it, we posted their other recent technical analysis video on crude oil. Enjoy.


Tuesday, June 16, 2009

David Stemerman's Conatus Capital Likes Education 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.

Next up is David Stemerman's Conatus Capital. This is only the second time we've covered Conatus and is a new addition to the group of funds we cover. They filed their first 13F ever in our last tracking series and so we finally get to see what they've been up to comparatively speaking. David Stemerman left Stephen Mandel's Lone Pine Capital to run his own fund, as we noted here. The result is Conatus Capital which raised $2.3 billion and started trading last year. Numerous other prominent funds have seen managers leave to start their own funds and we're also monitoring those as well.

While 13F filings do not show cash or short positions, they do show the long positions. Conatus' filing shows them owning only a little over $1.1 billion worth of long equity which is much greater than the $621 million they showed invested in longs last quarter. Now that we actually have two 13F filings to compare, we can show what they've been up to with their portfolio. Conatus is an interesting story to follow because, as we all know, Stemerman's old employer, Lone Pine Capital, is a prominent 'Tiger Cub' hedge fund. And now many years later, Lone Pine is seeing its own progeny spin off their own funds and Conatus is the first to be labeled as such. We won't be calling them a 'Lone Pine Cub' or a 'Tiger GrandCub' though, that's for sure (because let's face it, that's just plain weird). Interestingly enough, another ex-Lone Piner, Matt Iorio has launched his own fund as well, White Elm Capital with $250 million and the aim of fewer investors and controlled growth. We haven't started tracking them yet, but we'll consider doing so in the future. (Readers let us know if you're familiar with them and would like the coverage started immediately). But for now, let's get back to Conatus and see what they've got going on.

The following were Conatus' 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):
Range Resources (RRC), JPMorgan Chase (JPM), Apple (AAPL), Petrohawk Energy (HK), Activision (ATVI), Goldman Sachs (GS), Southwestern Energy (SWN), Teradata (TDC), & Crown Castle (CCI)


Some Increased Positions (A few positions they already owned but added shares to)
Cognizant Tech (CTSH): Increased by 132%
Discovery Communications (DISCA): Increased by 117%
Strayer Education (STRA): Increased by 106%
Apollo Group (APOL): Increased by 70%
Express Scripts (ESRX): Increased by 66%
Visa (V): Increased by 56%
Medco Health (MHS): Increased by 42%
American Tower (AMT): Increased by 38%
Bed Bath & Beyond (BBBY): Increased by 38%
Qualcomm (QCOM): Increased by 34%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Discovery Communications (DISCK): Reduced by 70%
Covidien (COV): Reduced by 49%
SBA Communications (SBAC): Reduced by 37%


Removed Positions (Positions they sold out of completely)
Dicks Sporting Goods (DKS)


Top 15 Holdings (by % of portfolio)

  1. Apollo Group (APOL): 6.38% of portfolio
  2. Visa (V): 5.55% of portfolio
  3. Range Resources (RRC): 5.35% of portfolio
  4. JPMorgan Chase (JPM): 5.2% of portfolio
  5. Medco Health (MHS): 5% of portfolio
  6. Cognizant Tech (CTSH): 4.9% of portfolio
  7. People United Financial (PBCT): 4.87% of portfolio
  8. Walmart (WMT): 4.75% of portfolio
  9. Apple (AAPL): 4.7% of portfolio
  10. American Tower (AMT): 4.5% of portfolio
  11. Cisco Systems (CSCO): 3.9% of portfolio
  12. Qualcomm (QCOM): 3.9% of portfolio
  13. Petrohawk (HK): 3.8% of portfolio
  14. Baxter (BAX): 3.33% of portfolio
  15. Express Scripts (ESRX): 3.3% of portfolio

Like his old firm Lone Pine, Stemerman likes the education companies such as Apollo Group and Strayer Education. Stephen Mandel of Lone Pine presented a detailed case for STRA at the Ira Sohn Conference just recently. Fellow 'Tiger Cub' Viking Global also likes Apollo Group a lot as evidenced by their portfolio. And, of course, this wouldn't be a Tiger Cub-esque portfolio without the mandatory holding of Visa (V). While Conatus' portfolio definitely highlights their background and roots, they still have qualities of their own and have unique positions in the likes of Range Resources, People United Financial, Petrohawk, and more. Stemerman definitely has his own twist on the fundamental long/short strategy he was a part of for so long at Lone Pine. It's interesting also to note that they were adding to Discovery Communications via DISCA but were selling their DISCK shares of the company.

Overall, Conatus was out adding to a lot of their names as they essentially doubled their portfolio assets invested on the long side on a quarter to quarter basis. It looks like their fund is fully up and running now as they have around $1.1 billion invested on the long side and launched with over $2 billion, which theoretically leaves half their assets available for cash or short positions, since Conatus employs a fundamental long/short strategy. (You can view Conatus' inaugural 13F filing here). This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, and Chase Coleman's Tiger Global.


Morningstar Newsletters: Free 30 Day Trials

Wanted to give our readers a heads up that Morningstar is now offering a brand new collection of various newsletters all with free 30 day trials on different topics including:

Different investment styles:

And analysis on the various retirement fund choices, dependent on where your 401k assets are kept:
All the separate links above take you to the specific newsletter where you can get the 30 day free trial on each of them. These are great resources, especially for those of you with assets/401k's at the specific funds, as they can help you analyze your choices. Head on over there to check out each of the free offerings while you can since we don't know how long this promotion lasts. While you're there, make sure to utilize their great portfolio x-ray tool too.


Dennis Gartman Sees Both Inflation & Deflation


It's been a while since we last covered Dennis Gartman so we wanted to catch up with some of his latest commentary and post up what he's seeing in the markets. If you're unfamiliar with Gartman, he is a noted trader, a hedger, and author of The Gartman Letter. He always likes to run a balanced book and this is why we keep track of him. To get a better view as to his style, check out his excellent rules of trading. This time around, Gartman is out saying that he sees both inflation and deflation. Confused? Don't be.

He explains that due to the weak US dollar complex, commodity prices are going up, indicating inflation in assets. He specifically cites the action in grains, crude oil, and copper. In fact, in the past, Gartman has even said he could see gold being the world's reserve currency. So, while those assets are signaling inflation, he cites deflation in employment and labor prices. Additionally, he points out that housing prices are in a deflationary spiral and he says that, "homes are not going to go up for a long time." Curiously enough, Gartman thinks that the impact on the consumer will be negligible. We're not exactly sure how his rationale behind that works out though.

Gartman likes to play pairs trades as we all know and he notes that it's a bit harder to play the deflation side of this trade. For the inflationary portion, he says he can simply buy copper futures or Freeport Mcmoran (FCX) or Southern Copper (PCU), etc. But, on the deflationary side of things, Gartman has trouble going long bonds to place that bet. In the past, we've laid out scenarios for investing in both inflation and deflation, a resource readers can use to place their own wagers. This debate will surely wage on for a few more quarters (or even years), as the United States' fate slowly begins to play out.

In terms of economic recovery and world strength, Gartman thinks that the United States and Europe are the only two that will still truly be in the house of pain. He sees economic recovery beginning to occur in the emerging market nations such as China and Brazil, while other countries are beginning to benefit such as Australia. However, he thinks the US and Europe will be up a creek for a while longer. You can put on this pairs trade by simply going long Australia, Brazil, Canada, or any other number of world markets, while simply shorting the US markets or those of Germany, France, and Japan. Simply put, Gartman likes being long the 'new world' commodity exporters and short the 'old world' commodity importers.

We've highlighted some of Gartman's major activity in the past here on the blog as well. Back in April, Gartman had said to watch base metals as a leading indicator. And, copper exploded to the upside for numerous reasons. This call was in addition to his tendency to use the transports and baltic dry index as other solid economic indicators. After all, the economy can't truly recover unless we see it 'going through the motions' and transporting the goods that make the world tick. The month prior in March, Gartman was long 'cheap' retail and short the malls.

He definitely is a swift trader and likes to cut his losses short and let his winners run. We track him because he runs a truly hedged book and often has cutting market insight. We'll continue to monitor him and post up his moves when we can find time to pry ourselves away from our hedge fund portfolio tracking series.


Doug Kass Model Portfolio Update

Doug Kass over at TheStreet.com just updated his model portfolio and we wanted to post up some of his notable changes. Firstly, here's his breakdown as compared to the S&P500. His recommended weightings vary from the S&P and he provides rationale for his adjustments.

(click to enlarge)


The most noticeable differences are in the Technology and Health Care sectors. Kass thinks business spending will stay low and that government intervention threatens pricing, respectively. Kass' also keeps 29% in cash which is a smart move, as you can deploy it should opportunities arise and use it as a buffer should trouble continue. His 15% exposure to credit is interesting as well, as he deems it 'opportunistic.'

He also included a list of stocks to be used in the portfolio and we just wanted to highlight his major moves. In the financial sector, he is dropping Visa (V) from his list, and that's probably a wise move. As we've noted in our hedge fund portfolio tracking series, a TON of hedge funds own V. And, when you start to see everyone and their dog holding a stock, it's usually time to get out (or at least take profits).

Kass likes some regional banks such as SunTrust (STI), PNC (PNC), Regions Financial (RF), among other plays. In technology, he thinks the typical titans are now overvalued and instead likes Microsoft (MSFT), Dell (DELL), and Qualcomm (QCOM). Numerous hedge funds agree with him in this regard, as we've seen many funds holding large MSFT and QCOM stakes. As a matter of fact, many hedge funds also owned the titans like RIMM and AAPL too, which Kass says to avoid. But, of course, the hedge funds could have possibly already sold out by now. Lastly, in terms of credit plays, Kass likes bank debt, high yield debt, and select bank loans.

It's been a little while since we last covered Kass, as we've been inundated with the hedge fund filings. But, since Kass is a hedge fund manager himself (and noted short seller), we still like to keep track of him. In the past, we've covered his signs needed for a market recovery. Make sure to check out his model portfolio update over at TheStreet in its entirety here.


Monday, June 15, 2009

Hedge Fund Returns: 2008 & 2009

Nice graphic posted up courtesy of the NY Post as they highlight how some prominent hedge fund managers have fared over 2008 and thus far in 2009.

(click to enlarge)


Paul Tudor Jones is the standout here as his global macro firm only was down 4.5% amidst last year's chaos and he is now up 12.5% this year; impressive stuff. We've covered many other hedge fund performance numbers in our May 2009 update.


Chase Coleman's Tiger Global Enters the Gold Trade: 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.

Next up is Chase Coleman's Tiger Global. 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 follow them.

We recently ran a profile of Julian (Chase's mentor) and talked about one of his big investment bets as well. We've additionally covered many of the 'Tiger Cub' funds' portfolios including Stephen Mandel's Lone Pine Capital, Andreas Halvorsen's Viking Global, Lee Ainslie's Maverick Capital, among many others. And, late last year, many of these managers gathered at a 'Tiger Cub' hedge fund manager panel, where they laid out investment theses for the future.

Chase Coleman 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 other activity, we posted about Tiger's amended 13D filing on Longtop Financial Technologies (LFT). In terms of recent performance, we saw that Tiger was -12.9% for April and were -8.1% for the year at that time as noted in our April hedge fund numbers. Their poor performance has been due to pain from their financial and REIT short positions, which they discussed in their quarterly letter.

The following were Tiger'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):
SPDR Gold Trust (GLD), Select Sector Energy (XLE), Priceline (PCLN), Powershares QQQ (QQQQ), Teradata (TDC), Semiconductor etf (SMH), Cisco Systems (CSCO), Paychex (PAYX), New Oriental Education (EDU), Electronic Arts (ERTS), Crown Holdings (CCK), Gymboree (GYMB), Cognizant Technology (CTSH), Monsanto (MON), Nike (NKE), & National Financial (NFP) Bond


Some Increased Positions (A few positions they already owned but added shares to)
Google (GOOG): Increased by 127%
Apple (AAPL): Increased by 100%
iShares Russell 2000 (IWM): Increased by 75%
Altria Group (MO): Increased by 38%
CSX (CSX): Increased by 25%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Microsoft (MSFT): Reduced by 69%
Qualcomm (QCOM): Reduced by 63%
Johnson & Johnson (JNJ): Reduced by 36%
Diamonds (DIA): Reduced by 27%
SPDR S&P500 (SPY): Reduced by 25%
Mastercard (MA): Reduced by 24%


Removed Positions (Positions they sold out of completely)
Walmart (WMT), LDK Solar (LDK), JA Solar (JASO), WNS (WNS), Yingli Green Energy (YGE), ETrade Financial (ETFC), & Ultrashort Real Estate (SRS)


Top 15 Holdings (by % of portfolio)

  1. Mastercard (MA): 7.85% of portfolio
  2. Longtop Financial (LFT): 7.58% of portfolio
  3. Lorillard (LO): 7.43% of portfolio
  4. SPDR S&P500 (SPY): 7.4% of portfolio
  5. SPDR Gold Trust (GLD): 7% of portfolio
  6. Visa (V): 6.17% of portfolio
  7. Select Sector Energy ETF (XLE): 5.1% of portfolio
  8. Priceline (PCLN): 4.36% of portfolio
  9. Google (GOOG): 3.7% of portfolio
  10. Microsoft (MSFT): 3.2% of portfolio
  11. Mercadolibre (MELI): 3.2% of portfolio
  12. Apple (AAPL): 2.64% of portfolio
  13. Transdigm (TDG): 2.36% of portfolio
  14. Qualcomm (QCOM): 2.3% of portfolio
  15. Discovery Communications (DISCK): 2.29% of portfolio

Similar to almost all the other 'Tiger Cub' portfolios, Tiger Global holds large stakes in both Mastercard (MA) and Visa (V). We keep harping on this theme, but it's only because so many funds hold these names. They have a practical duopoly on the payment processing business and as the world evolves from paying with cash to paying with plastic, they stand to benefit. They bear no credit risk and are simply the 'middle men' in each transaction, pocketing a fee everytime someone buys something. So, while many could argue a massive recession is not the best time to own something related to consumer spending, all of the Tiger Cubs see real value in these franchises as a growing trend going forward.

For new positions, Tiger started a stake in SPDR Gold Trust (GLD) and brought it up to their 5th largest holding. This is yet another hedge fund who we've seen establishing a large stake in gold. And, this is intriguing to us seeing how Chase's mentor Julian Robertson does not like gold as a play on inflation. However, Chase seems to have his own thoughts regarding the precious metal. And, numerous other prominent and smart men agree with him. David Einhorn, Eric Mindich, John Paulson and many other fund managers have large gold positions via GLD. When you see a confluence of this many smart minds in the metal, you have to pause and wonder.

Tiger Global also holds once favorite name Lorillard (LO). We say 'once favorite' because many other Tiger Cubs have begun to sell out of the name, and only a few fund managers still have a prominent position left in it. But, Coleman's fund definitely is still a believer in the name. Coleman started a pretty hefty new stake in Priceline as he brought it up to his 8th largest holding. The only major name they completely sold out of was Walmart (WMT). In the quarter prior, it was over a 5% position for them. But now, they no longer own it.

Assets from the collective holdings reported to the SEC via 13F filing were $2.5billion this quarter compared to $2.2 billion last quarter, so we've seen a slight uptick in positions invested on the long side. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, and Whitney Tison's T2 Partners.


Crude Oil Technical Analysis Video

The guys at MarketClub are back with another great video and this time they're talking about crude oil, which has had a heck of a year so far. They take a look at the chart using technical analysis and talk about the current trend and where it is headed next. So, check out their excellent video on crude oil.

Also, if you missed them, they've done some great analysis on the best inflation indicator and then separately on gold as well. These guys give great technical analysis commentary and we highly recommend checking the videos out.


John Paulson Buys Distressed Debt; Carl Icahn Buys Tropicana Casino

We recently learned of two major hedge fund transactions that we thought were worth highlighting here on the blog. Firstly, John Paulson is at it yet again. The prominent hedge fund manager has been in the media a lot recently given all the portfolio moves he has made. His latest move includes purchasing distressed mortgage securities.


Paulson & Co

This isn't necessarily new news from the Paulson camp, as he had mentioned before that he had been covering some of his mortgage related short positions and was getting constructive on the sector. He thinks that there is now possibly some value in the type of assets he was previously short. The major distinction though is that he was short sub-prime securitizations previously, but now is getting long jumbo and prime securitizations, which are typically of better quality. So, it appears he is getting constructive on a sector that he made so much money on the short side the last few years.

Sandra Lee, senior vice president at Paulson & Co said that, "We've been adding pretty steadily to our long distressed positions." Additionally, she said that they are buying debt of various financial institutions that received government help. This news comes after the fact that we saw Paulson start a real estate recovery fund. Additionally, Paulson gave his investor stamp of approval and bought $100 million worth of CB Richard Ellis shares. With his latest batch of moves, it seems that while Paulson is cautious on the economy near term, he definitely is starting to see some value in the real estate sector. His diversification within the asset types related to housing is very notable and we'll continue to track his movements. To see what else Paulson holds, you can check out the rest of Paulson & Co's portfolio here.


Carl Icahn

Meanwhile, notorious rabblerouser and activist campaigner Carl Icahn sees value in another sector: gaming. His Icahn Group has purchased the Tropicana Resort in Atlantic City for nearly 80% off. They landed the property by making their $200 million debt-swap offer which was accepted by a bankruptcy court judge. This marks the end of a long timeline as the casino/hotel has been on the market for a year and a half.

So far, Icahn doesn't have any plans for the casino so we'll have to see what he has in store. Along with Icahn in the purchase are partners in the creditor group Black Diamond Capital Management and Schultze Asset Management. Their discounted purchase has made them the proud owners of a $1.4 billion mortgage on the casino resort. However, Icahn is familiar with scooping up discounted casinos in bankruptcy courts, as he had previously bought the Sands in 2000 for $65 million which he later sold for $270 million. We'll see if he has the same golden touch this time around. Icahn isn't alone in spotting value in casinos, as we've seen a few other hedge funds here and there start to pick up debt and shares of various casinos. While we haven't had a whole lot to cover in terms of Icahn's recent portfolio activity, we have in the past noted his large Biogen Idec (BIIB) position.

Both Icahn and Paulson are interesting investors to follow, given their prowess in different areas. Icahn is notable due to his activist investing style where he seeks change at public companies. On the other hand, Paulson is well-known for his ability to spot trends and his familiarity with the housing sector, after profiting handsomely from the crisis the past few years. For recent performance, Paulson & Co's flagship fund is up 8.75% for the year, while Carl Icahn's fund is faring slightly better, up 7.3% for May and up 16% for 2009 as noted in our May hedge fund performance numbers post.


Passport Capital's Agriculture Fund Update

Here's an update from John Burbank's Passport Capital. Their agriculture fund is a newer fund that started trading in March of this year and is faring quite decently thus far. We thought it was an interesting addition to their lineup given the bullishness on agriculture we've seen from many fund managers and market strategists recently. We recently covered Passport in our May hedge fund performance numbers post.

Here's the agriculture fund update that RSS/Email readers may need to come to the blog to view:


Largest Bankruptcies in History, Illustrated

Great graphic up courtesy of Good magazine where they post up the largest bankruptcies in history. They use sinking ships to illustrate their point, with Lehman Brothers by far being the largest ship of the bunch:

(click to enlarge)

Here are some of the breakdowns of the largest US bankruptcies, courtesy of CNN Money:

  1. Lehman Brothers Holdings on 9/15/08 with $691 Billion in Assets.
  2. Washing Mutual on 9/26/08 with $327.9 Billion in Assets.
  3. WorldCom on 7/21/02 with $103.9 Billion in Assets.
  4. General Motors on 6/1/09 with $91 Billion in Assets.
  5. Enron on 12/02/01 with $65.5 Billion in Assets.
  6. Conseco on 12/17/02 with $61 Billion in Assets.
  7. Chrysler on 4/30/09 with $39 Billion in Assets.
  8. Thornburg Mortgage on 5/1/09 with $36.5 Billion in Assets.
  9. Pacific Gas and Electric Co. 4/6/01 with $36 Billion in Assets.
  10. Texaco on 4/12/87 with $34.9 Billion in Assets.


Well, at least we all have some nice stories for the grandkids. Oh, wait, nevermind. We won't even be able to afford kids, much less grandkids. After all, the government spent tons of money (courtesy of our future) that was kindly used to keep afloat numerous other ships that are not pictured above. We didn't know US dollars could be used as a flotation device...