Saturday, November 1, 2008

Weekend Reading

De-leveraging - Fairy Tale Endings

GLG Chief Emmanuel Roman Warns of Thousands of Hedge Funds on Brink of Failure

Friday, October 31, 2008

Death of the American Consumer

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Great image from the NY Post

Alternative Energy & Energy Independence: Obama Versus McCain

I'm going to keep this plain and simple. The upcoming Presidential election will undoubtedly focus on the economy. However, I also believe people will be focused on alternative energy. So, cut and dry, let's look at McCain's and Obama's separate plans in this regard. (Hat tip to the Green Skeptic for assembling all of this information).

Obama's alternative energy plans (as per his website):

  • Provide short-term relief to American families facing pain at the pump
  • Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future.
  • Within 10 years save more oil than we currently import from the Middle East and Venezuela combined.
  • Put 1 million Plug-In Hybrid cars -- cars that can get up to 150 miles per gallon -- on the road by 2015, cars that we will work to make sure are built here in America.
  • Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025.
  • Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.

And now, McCain's plans:
  • Expanding domestic oil exploration;
  • Promoting and expanding the use of domestic supplies of natural gas;
  • Changing how we power our transportation sector;
  • Becoming a leader in a "New International Green Economy";
  • Committing US$2B annually to advancing clean coal technologies;
  • Constructing 45 new nuclear power plants by 2030 with ultimate goal of 100;
  • Creating a permanent Tax Credit equal to 10 percent of wages spent on R&D;
  • Proposing a Cap-and-Trade system that sets limits on Greenhouse Gas Emissions while encouraging development of low-cost compliance options;
  • Greening The Federal Government A Priority Of His Administration.
  • Move The United States Toward Electricity Grid And Metering Improvements To Save Energy.
  • Addressing Speculative Pricing Of Oil , but not imposing a windfall profits tax.

So, while we obviously have to wait until November to find out the outcome of the election, it doesn't mean we can't start positioning our portfolios to benefit over the coming years. While I realize there are technicalities, politics, and logistics behind each plan, let's just look at things from a broad-based prospective for now. It's very clear that alternative energy could be one of the better investments you could make in the coming years. But, which type of energy will be brought to scale? My guess is that a combination of types will be used, so its best to spread your bets around.

Teeka Tiwari has written two pieces about which stocks they think will benefit the most should either gentlemen take office. If McCain is elected, they expect the following stocks to outperform: Cameron (CAM), Transocean (RIG), Diamond Offshore Drilling (DO), Halliburton (HAL), Cameco (CCJ) and nuclear ETF Market Vectors Nuclear Energy (NLR).

In an Obama victory, Tiwari likes the following names: Icon (ICLR), Accenture (ACN), Energy Conversion Devices (ENER), LDK Solar (LDK), and General Electric (GE).

I agree with Teeka on some of their selections, but not all of them. I am mainly using this post as a platform to establish each candidate's position as a reference point for my future series of posts on alternative energy investing. While all these names could potentially benefit if the respective candidate takes office, I still think the best bet is to position yourself across multiple alternative energy types. Because, undoubtedly, the world will shift to new means of creating energy and I highly doubt there will be a "global standard." Individual nations will determine what is best for them, and numerous types of alt-energy could be positioned to benefit.
Also, I think its very worthwhile to play the current energy landscape, because (among other reasons) it will take a long time to bring alternative energy to scale. To read about how to play energy in the intermediate term, check my post out here.

So, which stocks do you think are most poised to benefit in either a McCain or Obama victory? Post up your thoughts!

Sources: The Green Skeptic, Tycoon Report, iStockAnalyst (Teeka Tiwari)

Thursday, October 30, 2008

Tontine Partners Discloses 6.16% Stake in Myr Group (MYRG) - 13G Filing

In a 13G filed with the SEC last week, hedge fund Tontine Partners has disclosed their 6.16% stake in Myr Group (MYRG). This is a new position for them, as they previously did not show a stake in it as of June 30th in their most recent 13F filing. Jeffrey Gendell's Tontine Partners were -59.30% in September and are now -66.7% for the year. You can check out more hedge fund performance numbers that we've accumulated here. And, you can view the detailed list of Tontine Partners' portfolio holdings here.

Taken from Google Finance, MYR Group (MYRG) "is a specialty contractor serving the electrical infrastructure market in the United States. The Company is a national contractor, servicing the transmission and distribution (T&D) sector of the United States electric utility industry. It also provides commercial and industrial electrical contracting services in the western United States. Its T&D customers include more than 125 electric utilities, cooperatives and municipalities nationwide. Its range of services includes design, engineering, procurement, construction, upgrade, maintenance and repair services with a particular focus on construction, maintenance and repair throughout the continental United States."

Eddie Lampert Lost $30 Million an Hour

According to the NY Post's calculations, Eddie Lampert (ESL Investments) has lost $30 million an hour from his top 9 holdings since September 19th (26 trading days). Some of these top holdings include Sears (SHLD), Autozone (AZO), Autonation (AN), and Citigroup (C). The Post writes,

"Lampert's Greenwich, Conn.-based ESL Investments saw its holdings in the eight companies fall by an average of $193 million each trading day - which translates into $30 million an hour for each of the 6 1/2-hour trading days.

The investor lost about $587 million on Auto Nation, $480 million on AutoZone, $174.7 million on Home Depot and $162.4 million on Citigroup. The group of nine companies fell 39.4 percent over the 26 trading days - compared with a 26.4 percent drop for the Dow Jones industrial average."

Value is dead in this environment.

Source: NY Post

Wednesday, October 29, 2008

Tudor Investment Corp Discloses 1.2% Stake in Jamba Inc (JMBA) - 13G Filing

In a recent filing with the SEC, hedge fund Tudor Investment Corp has disclosed they own a 1.2% stake in Jamba Inc (JMBA). They now own only 625,000 shares. Their stake has been drastically reduced from the 8,522,951 shares they previously owned back on June 30th as per their most recent 13F filing. This is the second filing in recent weeks that has shown Tudor selling off large chunks of stakes they owned in companies. Just last week they were reducing their position in Plains Exploration (PXP). Tudor Investment Corp is a global macro set of hedge funds ran by Paul Tudor Jones. You can view all of Tudor's portfolio holdings here. And, if you want to hear some thoughts from Paul Tudor Jones himself, check out some of his interviews here and here. Lastly, you can read about the performance of one of Tudor's funds here and the performance numbers of many other hedge funds in our latest performance update.

Taken from Google Finance, Jamba Inc (JMBA) "serves as a holding company for its wholly owned subsidiary, Jamba Juice Company (collectively, Jamba or the Company), which owns and franchises Jamba Juice stores. The Company is engaged in retailing blended-to-order fruit smoothies, squeezed-to-order juices blended beverages and healthy snacks using the Jamba brand."

Jana Partners Hits Rough Patch

Hedge Fund Jana Partners has seen some rough times recently, just like everyone else. Their $4 billion flagship fund has fallen 14.7% year-to-date as of September 30th. And, if they can't turn things around in the next few months, Jana is on track for its first yearly loss ever. That scenario looks highly likely, given that Hedge Funds as a whole are headed for their worst year since 1990. Jana has "survived" thus far by not employing leverage and positioning their portfolios in a defensive manner. However, they were not able to fend off the massive drop in the price of crude oil, which slammed Jana's energy positions, which happen to be some of their top holdings. Additionally, Jana owns a 9/1% stake in MF Global (MF) which has caused them pain, as shares have dropped 90%. In a letter to shareholders, Jana said that, "This stock has been an utter disaster so far and is headed for the Jana hall of shame."

Jana's Piranha fund is down 3.1% year to date. This fund targets companies with market caps of $2 billion or less. Additionally, Jana's Nirvana fund is down 8.9% year to date. This fund focuses on Jana's best investment ideas and returned 17% since it was started in April of 2007.

Managed by Barry Rosenstein, Jana was founded in 2001 and typically employs activist, market neutral, and long/short equity strategies in public equity markets. Rosenstein received his BS from Lehigh University and his MBA from the Wharton School of Business at the University of Pennsylvania. Jana has returned 20.9% each year annualized from 2001 til 2007. Rosenstein sees Jana's future in a strategy that uses management adjustments to strike changes in companies, which in turn can send shares higher. Alpha magazine ranks Jana #79 in their hedge fund rankings. Jana Partners was -9% for the month of September, and find themselves -14.7% for the year, as I noted in my hedge fund performance update.

Taken from Bloomberg,

"Activism Jana-style is disciplined value investing -- with attitude. The firm relies on deep-diving research by its more than 20 analysts to pick companies whose stock is undervalued. Jana Master devotes as much as 15 percent of its portfolio to activist investing.

Rosenstein says Jana is always on the lookout for a catalyst -- say, a possible merger -- that will lift a beaten-down stock. When he buys, he looks for what Benjamin Graham, the father of value investing, called a margin of safety -- that is, a fat discount to an investment's fair market value.

Rosenstein says the market crash didn't affect his method of finding fair value: by looking at fundamentals and discounting future cash flows. He accumulates his stakes in target companies over time, so buying shares in those companies got cheaper in September. Finding a catalyst to drive up the price, he says, is just as important as ever."

Also, as we've detailed here on Market Folly, Jana Partners recently disclosed a 13.52% stake in Convergys (CVG) and also disclosed a 5.7% stake in Hayes Lemmerz (HAYZ).

Source: Bloomberg

Tuesday, October 28, 2008

Boone Pickens' BP Capital Investors Withdraw Money

In what seems like an endless cycle of hedge fund withdrawals and redemptions, it should come as no surprise that investors in Boone Pickens' BP Capital hedge funds are seeking their money back. Let the redemption bloodbath begin. And, it seems as if BP Capital is partly responsible for the massive sell-off in energy equities.

We first got word of Boone's poor performance towards the end of September, when we noted that his equities fund was -30% through august, and his commodities fund was -84% through the same period. In his recent appearance on "60 Minutes," Boone noted that he and his firm had lost around $2 billion since the peak in June. And, in a recent WSJ article, they note that nearly 50% of investors are withdrawing their money from the fund, which has seen losses of nearly 60% now. They also note that Boone moved nearly everything into cash a few weeks ago, to protect from further downside risk.

So, its clear that Boone was one (of I'm sure many) hedge funds who were selling off entire positions over the past few weeks. As we detailed in our most recent look at BP's portfolio holdings, Boone runs an energy-centric equities fund. So, some of his holdings such as Transocean (RIG), Suncor (SU), Occidental Petroleum (OXY), Schlumberger (SLB), Halliburton (HAL), Chesapeake (CHK), and many more listed here have undoubtedly seen selling over the past few weeks due to Boone moving to cash. Obviously Boone wasn't solely responsible for the drop-off, but it looks like he was definitely one of the culprits. We won't know for sure which, if any, of his positions he is still holding until the next 13F filing is released in the coming weeks. But, it sounds as if he has hardly any positions right now as he prepares to meet investor redemptions/withdrawals.

The cycle of hedge fund redemptions/withdrawals undoubtedly will provide ample opportunities, which I recently detailed here. But, they will require patience and discipline to scale into the names as there is absolutely no way to gauge when the carnage will pass. Energy equities are by far some of the biggest casualties of the sell-off and are thus some of the most attractive for longer term investors. And, for once, I actually agree with the analyst community, who point out attractive opportunities in the energy sector. But, then again, those opportunities could get even more attractive as we undoubtedly face strong waves of continued forced selling.

Paulson & Co Discloses 14.6% Stake in Cheniere Energy (LNG) - 13D Filing

In a filing made with the SEC yesterday, hedge fund Paulson & Co has disclosed they now own a 14.6% stake in Cheniere Energy (LNG). They now own 7,400,000 shares. This is an increase from their previous 13F filing at the end of June, when they held 4,700,000 shares. Paulson & Co is famous for making a fortune by betting against sub-prime when this whole mess began to unfold. And, it appears as if Paulson is still up to his fortune-making ways. One of his funds has generated a 589% return, which could easily be up there amongst the largest returns by a single hedge fund in a year. Paulson's Advantage Plus fund has returned 19.44% year-to-date as of the end of August. This is the same fund that gained 158% the year prior and has grown to almost $9 billion. You can view more of their (and other hedge fund's) numbers in our most recent hedge fund performance update. Also, we recently saw that Paulson & Co was shorting UK banks.

Taken from Google Finance, Cheniere Energy (LNG) "through its subsidiaries, is engaged primarily in the business of developing and constructing, and then owning and operating, a network of three onshore liquefied natural gas (LNG) receiving terminals and natural gas pipelines. The Company is developing a business to market LNG and natural gas primarily through its wholly owned subsidiary, Cheniere Marketing, Inc. (Cheniere Marketing). To a limited extent, Cheniere is also engaged in oil and natural gas exploration and development activities in the Gulf of Mexico. The Company has four business segments: LNG receiving terminal business, natural gas pipeline business, LNG and natural gas marketing business, and oil and gas exploration and development business."

Monday, October 27, 2008

Charts Galore

Okay, since things have been pretty choppy in the markets lately, I figured we should point out a few charts. Firstly, Steve Puri, as always, has an intriguing chart up of the markets which shows a descending triangle and very bearish implications. We should rally off a test of the recent lows, but the assumption would be that the ensuing rally would fail and make lower highs, setting us up for a big drop. This of course will have to be monitored on a daily basis, but overall the pattern truly is taking shape. You can play a directional breakout of the pattern to either direction should we get one.

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Secondly, Kevin has posted up a chart showing the unbelievable strength in the Japanese Yen (FXY). I have been long the yen for the past few weeks now and it has really exploded as of late. As deleveraging continues, I expect the yen to continue higher as it has recently broken out to multi-year highs. I will be taking profits at each major gap down in the markets, as the yen is trading inversely to the markets currently.

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Lastly, Blain over at Stock Trading To Go has 12 bearish continuation patterns laid out for us in the charts. Here are my three favorites: LDK really has broken down, hitting new all time lows and the pattern as you can see is a sharp descending triangle almost.

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ANR has a channel between $30 and $45, and you can play a breakout in either direction (my guess would obviously be to the downside).

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JRCC has a very similar setup (as do many of the coal names) in that you can play the channel pattern here of $15 to $23. Short on closes below $15 and get long on breakouts above $23.

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Check out the other 9 bearish continuation patterns in FSLR, GOOG, BIDU, MOS, AAPL, YHOO, MEE, NYX, and DRYS that he has laid out here.

Goldman Sachs Conviction Buy & Sell Updates

Late last week, Goldman Sachs made some changes to their coveted Conviction Buy and Sell lists. They were very active in the steel sector, adding Steel Dynamics (STLD) to the conviction buy list and then putting US Steel (X) on their conviction sell list. Lastly, Goldman also removed Alcatel Lucent (ALU) from the conviction buy list, but still rates the company as a normal 'buy.'

Goldman has been very busy the last few weeks adding and subtracting names from their lists as the volatility picks up and the market landscape changes. We have detailed more of Goldman's moves here and more additions to their conviction buy list here.

D.E. Shaw & Co

Just got forwarded an interesting video from hedge fund D.E. Shaw & Co that talks about the firm and who they are looking for in terms of hiring. Whether you are in the job market or not, it's an interesting video to watch, as you can learn what separates them from others in the industry.

D.E. Shaw Video

Sunday, October 26, 2008

Ag Stocks Dropping Further?

That's what our buddy UpsideTrader thinks. He recently posted up two charts of Potash (POT) and Monsanto (MON). On POT, he predicts that it will fill the gap all the way down to $40 or so. And, on MON, he has drawn a line in the sand at around $68 and says to get short if the stock breaks down below that level on significant volume.

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