Follow Market Folly on Twitter and StockTwits

Just wanted to take a second and let everyone know that we here at Market Folly have been posting over at Twitter and StockTwits for some time now and if you aren't already, you should definitely follow our posts there. Why? Because we post up our portfolio activity there, as well as unique market insight that is not featured here on the blog. (Cliff's Notes on how to follow us listed at the bottom of this post).


What is Twitter?

Twitter is a service for friends, family, and co-workers to communicate and stay connected through the exchange of quick, frequent answers to one simple question: What are you doing?

It is essentially a mini-blog where you post messages that are 140 characters in length. Think of it as blogging meets texting meets facebook status updates meets instant messenger. You can post up your thoughts, converse with people, and "follow" each others posts by clicking the follow button on their page. Here is Market Folly's Twitter page: Follow Us! (And, if you haven't noticed, our Twitter updates are posted on the right-side column of the blog as well). In order to follow us, all you have to do is sign-up for Twitter for free. And, there's also another reason to sign-up for Twitter.

What is StockTwits?

StockTwits is an application linked to Twitter specifically geared for those interested in trading, investing, and markets. (Check out the WSJ press coverage & the 'how to' guide). Basically, a huge community has sprouted up on Twitter that talks about all things financial markets. Stocktwits is where this happens. Included in this community are well known traders/investors like Doug Kass, Eric Bolling, James Altucher, Paul Kedrosky, Howard Lindzon, and many more. There's also a large amount of prominent financial bloggers on there as well. Simply put, its an awesome community full of knowledgeable and helpful people.

In order to participate, just sign up for Twitter and make sure you "follow" @StockTwits and @marketfolly. Fill in your bio and add a picture so we can get an idea of who you are or how you trade/invest. After you've signed up, go to StockTwits and log in with your information. Poke around and take it all in so you can see how everything works. There's some great tutorials on their site and blog. Then, when you're ready, start to interact and contribute.

There's two ways to participate in the market talk. First, if you're talking about an individual company/ticker, just preface the ticker with a '$' sign. For instance, AAPL becomes $AAPL. This ensures your message is picked up by the community. If you just have general market commentary without a specific ticker, add a '$$' to the very beginning or the very end of your message. For instance: $$ The banking system is insolvent. Or: The market is doomed $$. Note that if you mention a ticker prefaced by the '$' in your post, you don't need to use the $$. You can also talk about futures and forex, and that info is covered on the StockTwits blog.

The easiest way to learn is to observe for a little bit and then to jump right in, as people will help you along the way. If you're confused, you can read some of the articles we've linked to below which help to explain everything.

In the end, there's really only 3 steps:

1. Sign up for Twitter
2. Follow @marketfolly & @StockTwits
3. Log in at StockTwits and poke around to learn.

We'll be posting a follow-up with some more specifics on how you can really utilize Twitter and StockTwits. If you have any questions at all, feel free to email us (marketfolly at gmail dot com) and we'll help you get started out. Now, hurry up and find out what you've been missing out on!

Helpful articles:
- StockTwits 'How to' Guide
- Wall Street Journal article on StockTwits
- MSN Money / Twitter's New Status: Investing Tool
- Macro talk on StockTwits

S&P Dividend Aristocrats

Barron's video on the S&P Dividend Aristocrats (RSS & Email readers may need to come to the blog to view):

What We're Reading (2/27/09)

Tell Congress to Block the Trader Tax (Widespread Petition)

Smart Profits on the Smart Grid (GetReallist)

A look at General Growth Properties (GGP): 8-K Filing (Value Plays)

Icahn among the bulls entering Lions Gate (Barrons)

Bubble in TBT (Accrued Interest)

Stressing the system and the TARP repayment race (zero hedge)

When Consumers Cut Back - A Lesson from Japan (NYT)

Charlie Munger Speech

Berkshire Hathaway's Charlie Munger gave a speech at UCSB and here is the text:

Munger UCSBspeech

Publish at Scribd or explore others: Presentations Other Politics-Humor

[Hat tip to ValuePlays for finding it]

Timothy Barakett's Atticus Capital Hedge Fund 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up, we have Atticus Capital, the hedge fund ran by Timothy Barakett. In 2005, Atticus' funds were up a combined 45%. And, they finished well over 30% for 2006. Barakett founded the firm at age 29 in 1995 and focuses on taking large, concentrated positions in companies. One of Atticus' most famous investments was Phelps Dodge, a miner which was bought out by Freeport McMoran (FCX). At one point, Atticus owned more than 9% of Phelps. Barakett received both his BA in Economics and his MBA from Harvard. Its very evident that Barakett employs macro based investment theses. Once he has decided on what the trend is, he will find the best company within that trend and he will place a big bet. And, when needed, he will step in and take an activist role, ensuring the company is performing to his liking. A fun fact about Barakett is that he was a Harvard hockey teammates with Philip Falcone of Harbinger Capital Partners, whom we also cover.

You may have heard about Atticus over the past year simply because their performance has not been up to par, to put it politely. In a September hedge fund performance update, we noted that Atticus European was -42.5% for 2008 back in September while Atticus Global was -27.2% over the same timeframe. And, consequently, Atticus was a victim of liquidation rumors, which were quickly denied. We previously analyzed Atticus' holdings back in June and noticed that they had significant natural resource and mining positions at the time.

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
Google (GOOG)
Peabody (BTU)
Mastercard (MA) Puts
CME Group (CME) Calls
Wells Fargo (WFC)
Google (GOOG) Puts
CME Group (CME) Puts
CME Group (CME)
Mastercard (MA)
USG (USG)
Monsanto (MON)
Burlington Northern (BNI)
Baidu (BIDU)
Visa (V)
Google (GOOG) Calls
Intercontinental Exchange (ICE)
Norfolk Southern (NSC)
Boeing (BA)
Mastercard (MA) Calls
NYSE Euronext (NYX) Puts
Boeing (BA) Puts
NYSE Euronext (NYX) Calls
CSX (CSX)
Ebay (EBAY)
Valero (VLO)
Potash (POT)
Emerging markets index (EEM)
Vale (RIO)
Boeing (VA) Calls


Some Increased Positions (A few positions they already owned but added shares to)
Union Pacific (UNP)
Freeport McMoran (FCX)


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Emisphere (EMIS)


Removed Positions (Positions they sold out of completely)
Financial ETF (XLF) Puts
Synvista (SYI)
Crown Castle (CCI)
Russell 2000 (IWM) Puts
Gold Fields (GFI)
Newmont Mining (NEM)
Occidental Petroleum (OXY)
Western Union (WU)
Telekomunikasi Indonesia (TLK)
KT Corp (KTC)
China Telecom (CHA)
Grupo Aeroportuario Pacifico (PAC)
Grupo Aeroportuario Sureste (ASR)
Sony (SNE)
Petrochina (PTR)


Top 20 Holdings (by % of portfolio)

1. Google (GOOG) Calls: 10.17% of portfolio
2. Mastercard (MA) Calls: 6.9% of portfolio
3. Potash (POT): 6.3% of portfolio
4. Microsoft (MSFT) Calls: 5.9% of portfolio
5. Microsoft (MSFT): 5.25% of portfolio
6. Boeing (BA) Calls: 4.34% of portfolio
7. NYSE Euronext (NYX): 3.94% of portfolio
8. Baidu (BIDU): 3.5% of portfolio
9. Google (GOOG) Puts: 3.13% of portfolio
10. Intercontinental Exchange (ICE): 2.87% of portfolio
11. CME Group (CME): 2.79% of portfolio
12. CSX (CSX) Calls: 2.7% of portfolio
13. Vale (RIO) Calls: 2.7% of portfolio
14. Union Pacific (UNP): 2.27% of portfolio
15. Oracle (ORCL) Calls: 2.25% of portfolio
16. Emerging Markets Index (EEM): 2.23% of portfolio
17. Boeing (BA) Puts: 2.17% of portfolio
18. Mastercard (MA): 2.1% of portfolio
19. CME Group (CME) Calls: 2.1% of portfolio
20. CME Group (CME) Puts: 2.1% of portfolio

Atticus returned to many of their 'normal' portfolio holdings this past quarter having sold off a lot of equities amidst the liquidation rumors. Basically, they previously owned a bunch of the names you see in their top 20 holdings. They sold them. Then they bought a lot of them back. Isn't market volatility fun? Assets from the collective long US equity, options, and note holdings were $1.9 billion this quarter, back up from the $500 million they had last time around (which again highlights the massive deleveraging they saw during their little scare). So, things appear to be slowly stabilizing for them. This is just one of many funds in our Q4 2008 hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered Paulson & Co (John Paulson), Carl Icahn, Warren Buffett, Stephen Mandel's Lone Pine Capital, George Soros, Bill Ackman's Pershing Square, and Andreas Halvorsen's Viking Global. Look for our updates as we cover a new fund each day.

New Hedge Funds: James Pallotta (Raptor Capital) & Christopher Pia (Pia Capital)

James Pallotta, formerly of Tudor Investment Corp, and Christopher Pia, formerly of Moore Capital Management have finally set out to launch their own funds. And, understandably, the market for raising capital has tempered their ambitious launches a bit. They are both launching, but with undoubtedly less capital than they probably anticipated.

Pallotta was in charge of the Raptor fund while at Tudor, where he placed global macro style bets on equities. We covered it when he announced he was starting his own fund and here we are again with his new fund spin-off/launch: Raptor Capital Management. We'll be tracking him from now on considering he was the one running the equities we tracked at Tudor. Raptor (while at Tudor) has seen 14% annual returns since 1993. The recent turmoil marks the longest losing record of Pallotta's career.

Pia, on the other hand, will not be trading equities, but rather currencies, commodities, bonds, and stock indexes in the true global macro style. Pia Capital Management will seek to hold 20-40 positions between 3 weeks to 3 months. So, unfortunately, we won't be tracking him since he won't be doing equities. Pia also has an outstanding track record, locking in 17% annual returns while at Moore Capital, having never had a down year.

Next, turning to Citadel, we see that Misha Malyshev has left with 2 members of his team. Malyshev was in charge of the high frequency trading unit at Citadel. And, while Citadel's main funds floundered last year, Malyshev was up around 40% last year. Its unlikely Malyshev will start a new fund in the next 18 months or so, due to restrictions in his contract.

Short Seller Jim Chanos (Kynikos Associates) Interview

Here's noted short seller Jim Chanos' latest interview where he talks investment opportunities in the current market on the PBS Nightly Business Report, citing his distaste for the Healthcare and Defense sectors: Video

We've chronicled some of his previous interviews as well.

Technical Analysis Using Multiple Timeframes By Brian Shannon

In our recent post, Recommended Reading List: Technical Analysis Edition, we omitted one book from the list because it deserves its own post:

Technical Analysis Using Multiple Timeframes by Brian Shannon: This is one of the best books on charts and trading out there. It comes from the highly successful trader and well known blogger Brian Shannon of Alphatrends.net. Highly recommended. The description: "The trend is your friend, but which one? Opposing trends can be found on various timeframes in the same stock, at the same time creating confusion and worse, unnecessary losses. Understanding market structure and trend alignment allows you to put emotions aside and focus on the right stocks at the right time. Techniques covered in this book are appropriate for anyone (from daytraders to investors) who is looking to improve accuracy in their buying and selling."


Check out his book and read the reviews from other readers. This one goes to the top on our list of good technical analysis reads because its for both investors and traders... anyone looking to add technical analysis to their arsenal of tools.

Andreas Halvorsen's Viking Global 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Andreas Halvorsen is one of the many 'Tiger Cub' fund managers we cover here on the blog. 'Tiger Cubs' are the progeny of legendary investor and hedge fund manager Julian Robertson of Tiger Management. Many of the critical members of Tiger started their own funds, and Halvorsen is no different. We've already covered one other 'Tiger Cub' portfolios in our hedge fund tracking series: Stephen Mandel's Lone Pine Capital. Although both Andreas Halvorsen of Viking Global and Stephen Mandel Jr. of Lone Pine Capital both learned the tricks of the trade under Robertson in their time at Tiger Management, both have taken what they've learned and added their own spice to the value oriented, yet growth at a reasonable price (G.A.R.P.) tolerable investment style. Viking employs a fundamental strategy, using a bottom-up process to pick stocks. Viking Global's Equities III fund was +1% for December and finished the year -1.14% as we noted in our hedge fund 2008 performance numbers. You can view their month by month performance breakdown here.

Halvorsen attended Williams College and received his MBA from Stanford, while his work history includes stays at Morgan Stanley and Tiger. In Alpha's latest hedge fund rankings, Viking was ranked #70 in the world. You can view Viking's most recent year end investor letter, as well as their Q3 2008 investor letter here in .pdf format.

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
Alcon (ACL)
Axis Capital Holdings (AXS)
Bank of America (BAC)
BCE (BCE)
Illumina (ILMN)
ITT Education (ESI)
JP Morgan Chase (JPM)
Mastercard (MA)
McKesson (MCK)
ModusLink (MLNK)
NRG Energy (NRG)
Renaissance Re (RNR)
Sherwin Williams (SHW)
Vulcan Materials (VMC)


Some Increased Positions (A few positions they already owned but added shares to)
Priceline (PCLN): Increased position by 28.6%
Verisign (VRSN): Increased position by 18.4%
Invesco (IVZ): Increased position by 2.6%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
First Horizon (FHN): Reduced position by 32%
Kroger (KR): Reduced position by 30%
Aon (AOC): Reduced position by 25.5%
Qualcomm (QCOM): Reduced position by 22%
Apollo Group (APOL): Reduced position by 21.9%
Davita (DVA): Reduced position by 10.6%
St Jude (STJ): Reduced position by 7.9%


Removed Positions (Positions they sold out of completely)
Idearc (IDAR)
Monster Worldwide (MWW)
RH Donnelley (RHDC)
Associated Bancorp (ASBC)
Federated Mogul (FDML)
Och Ziff (OZM)
Arkansas Best (ABFS)
Fair Isaac (FIC)
Sina (SINA)
Alexander & Baldwin (AXB)
Jefferies (JEF)
Susquehanna (SUSQ)
Glacier Bancorp (GBCI)
Charles River Labs (CRL)
Whitney Holdings (WTNY)
The Stanley Works (SWK)
National Financial Partners (NFP)
Avalonbay Communities (AVB)
Transocean (RIG)
Herbalife (HLF)
National City (NCC)
Thor (THO)
Humana (HUM)
Expedia (EXPE)
Franklin Resources (BEN)
Autodesk (ADSK)
Coach (COH)
Blackrock (BLK)
Harley Davidson (HOG)
Beckman Coulter (BEC)
Keycorp (KEY)
Alliance Data (ADS)
Quest Diagnostic (DGX)
Mettler Toledo (MTD)
Visa (V)
Tidewater (TDW)
Ace (ACE)


Top 20 Holdings (by % of portfolio)

1. Apollo Group (APOL): 18.58% of portfolio
2. BCE (BCE): 11.21% of portfolio
3. Invesco (IVZ): 7.68% of portfolio
4. ITT Educational (ESI): 6.45% of portfolio
5. Bank of America (BAC): 6.32% of portfolio
6. Qualcomm (QCOM): 5.95% of portfolio
7. Davita (DVA): 5.76% of portfolio
8. Priceline (PCLN): 4.9% of portfolio
9. NRG Energy (NRG): 4.53% of portfolio
10. Mastercard (MA): 3.94% of portfolio
11. MSCI (MXB): 3.38% of portfolio
12. JP Morgan Chase (JPM): 2.9% of portfolio
13. Verisign (VRSN): 2.63% of portfolio
14. First Horizon (FHN): 2.15% of portfolio
15. McKesson (MCK): 2.1% of portfolio
16. Sherwin Williams (SHW): 2.1% of portfolio
17. Illumina (ILMN): 1.7% of portfolio
18. Aon (AOC): 1.63% of portfolio
19. Kroger (KR): 1.57% of portfolio
20. Macrovision (MVSN): 1.4% of portfolio

Viking changed up their portfolio a substantial amount over the last quarter. Take the bottom half of their portfolio from the previous filing, and chop it off. That's essentially what happened if you examine their filings quarter to quarter. And, they came in and replaced that void with a whole new slew of companies. Interesting to see them also basically swap out of Visa in favor of Mastercard. Assets from the collective long US equity, options, and note holdings were $3.5 billion last quarter and were again around $3.5 billion this quarter. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered Paulson & Co (John Paulson), Carl Icahn, Warren Buffett, Stephen Mandel's Lone Pine Capital, George Soros, and Bill Ackman's Pershing Square. Look for our continual updates each day over the next few weeks.

Simple Mohamed El-Erian Portfolio

Great post by Roger Nusbaum highlighting how simple it is to create an 'El-Erian' styled portfolio using simply exchange traded funds (ETFs). If you're unfamiliar with Mohamed El-Erian, he is the CEO of the largest bond manager in the world, PIMCO. And, he's a pretty smart guy. You should definitely check out his book When Markets Collide by Mohamed El-Erian. It discusses the current fundamental changes going on in the global economy and financial markets/systems. This book also recently won the Business Book of the Year for 2008. In the book, he touches on a new type of portfolio and this is what Roger has sought to re-create in simple form.

The breakdown of the portfolio is as such:

• 15% Domestic Equities: 10% PBP (S&P BuyWrite), 5% IJR (S&P Small Cap)
  
• 15% Foreign Developed Equities: 10% DOL (Intl Large Cap), 5% GWX (S&P Intl Small Cap)
• 12% Emerging Markets Equities: 12% ADRE (Emerging Market index fund)
• Private Equity: Traditionally, this would garner a % by El-Erian, but it is very hard for a retail investor to replicate such an investment.
  
• 9% Domestic Bonds: 6% SHY (1-3 yr treasury), 3% AGZ (agency fund)
  
• 15% Foreign Bonds: 15% IGOV (S&P Intl treasury)
  
• 5% Real Estate: Also hard to replicate, but you can use REITs if you wish. DRW (Real estate ETF)
  
• 11% Commodities: 6% GLD (Gold trust), 5% DBA (Agriculture)
  
• 5% TIPS: TIP (TIPS fund)
  
• 5% Infrastructure: IGF (Global infrastructure fund)
  
• 8% Special Opportunities: Roger suggests a myriad of options for this category. GXG (Colombia ETF), VXX (VIX futures), PHO (Water).
  

Great overall write-up from him with easy implementation of ETFs into El-Erian's new model portfolio. In terms of expanding upon his suggestions, here's our take: On the commodities front, we would try to add some SLV (Silver) or other types of commodities into the mix. In special opportunities, there are literally a myriad of ETFs that could fall into this category. We might suggest something exotic like a Carbon Trading fund (ASO or GSN) or possibly some currency exposure through FXA, FXC, FXF, etc. Other than that, all the other ETFs are pretty self explanatory as to what they track. Check out Roger's article.

Bill Ackman's Pershing Square Capital 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up we have Pershing Square Capital Management. Bill Ackman runs Pershing Square Capital, a well known value/activist based hedge fund that started in 2003 after Gotham Partners broke up. The past few years, he has had notable short positions in the bond insurers such as MBIA (MBI) and Ambac (ABK). But, he has recently closed those shorts. Recently, he also detailed his plans for Target to spin-off its real-estate to unlock value. His Pershing Square IV fund, which invests solely in Target (TGT), has seen abysmal performance, as Ackman apologized for in their recent letter. We'll have to see if this proposal picks up any steam, but so far it hasn't. A great quote from Ackman has arisen from all the Target hoopla. He states, “The investment business is about being confident enough to know that you’re right and everyone else is wrong. Yet you have to be humble enough that you recognize when you’ve made a mistake. Earlier in my career, I think I had the confidence part pretty solid. But the humbleness part I had to learn.’’ We track Ackman on the blog extensively and have a lot of resources on him and his fund. Pershing has been busy lately, filing a 13D on General Growth Properties (GGP) and a 13G on Barnes & Noble (BKS). Furthermore, you can view Pershing Square's Q3 2008 investor letter here. Besides their recent 13D/G filings, let's look at what they've been up to with the rest of their portfolio.

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
General Growth Properties (GGP)
Alexanders (ALX)


Some Increased Positions (A few positions they already owned but added shares to)
EMC Corp (EMC)
Target (TGT)


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Dr. Pepper Snapple Group (DPS): Reduced position by 51%
Wendy's (WEN): Reduced position by 15%
Sears Holdings Corp (SHLD): Reduced position by 39.5%


Removed Positions (Positions they sold out of completely)
Wachovia (WB)
Longs Drug Stores (LDG)
Barnes & Noble (BKS)
American International Group (AIG)
Mastercard (MA)


Top Holdings (by % of portfolio)

1. Target (TGT): 37.91% of portfolio
2. EMC (EMC): 25.19% of portfolio
3. Wendys (WEN): 9.54% of portfolio
4. Dr Pepper Snapple (DPS): 7.22% of portfolio
5. General Growth Properties (GGP): 1.06% of portfolio
6. Sears (SHLD): 0.48% of portfolio
7. Borders Group (BGP): 0.17% of portfolio
8. Greenlight Capital Re (GLRE): 0.13% of portfolio
9. Alexanders (ALX): 0.09% of portfolio

Assets from the collective long US equity, options, and note holdings above were $2.4 billion this quarter. As you can tell, Ackman is running quite a slim, concentrated portfolio on the long side of things. His massive (and well documented) stake in Target continues to hurt him and the Pershing Square IV fund. While there has been much made over Ackman's foray into shares of GGP, you can also now see that he has added Alexanders into his portfolio, but at in small size relative to his portfolio as a whole. For more thoughts from Ackman, check out his insightful interview with Charlie Rose or his recent speech at the Value Investing Congress. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered Paulson & Co (John Paulson), Carl Icahn, Warren Buffett, Stephen Mandel's Lone Pine Capital, and George Soros. Look for our updates as we cover a different fund every single day.

Dennis Gartman Says Gold Becoming World's Second Reserve Currency

In his most recent Bloomberg interview, trader, economist, and author of the Gartman Letter, Dennis Gartman has claimed that Gold is becoming the world's second reserve currency behind that of only the US Dollar. He cites that all major currencies are so weak and so people are moving away from paper money and into gold. And, with gold hovering around $1000, things could get interesting. Dennis says the 'trend is up and will likely continue to be up.' Basically, he likes to buy dips here and ride the trend. He had talked gold in a previous interview as well.

He currently says to sell the yen due to the stifled economy and weakness of their administration. There are simply too many problems in Japan and the charts point to that in the Yen. He also likes to watch the EUR/JPY cross as an indicator of markets. When that currency pair has headed south over the past year, the markets trend the same way.

If you're unfamiliar with Gartman, then we suggest you check out his rules of trading so you can get an idea as to his style. We've also covered Gartman's thoughts on the Baltic Dry Index.

Here's the full video interview at Bloomberg.

Don Coxe's Latest Thoughts: Bullish on Agriculture & Food

Investment Strategist Don Coxe is recently out with his thoughts about the markets. His insight can be summed up as such:

Bullish on: Agriculture, China, India, & Inflation (i.e. he expects it)

Next great investment: Food

Basically, he harps on the 'emerging markets' adage, but notes that China and India's standard of living is rising. And, his theory is that once they taste such a lifestyle, they won't want to return to old ways and the culture will shift to consuming more food. Overall, increasing population and increased ways of living require more food, healthier food, etc. (Hence, his bullishness towards food and agriculture). If you agree with Coxe, you can use the ETF: DBA (agriculture) to play the inflationary commodity and food thesis longer-term.

And, in terms of agriculture specifically, Potash (POT) is a solid play due to its dominant market share on the nutrient. Even as demand for the nutrient has decreased (slowed global growth), prices haven't fallen off a cliff like oil. So, when demand does kick back up, these producers should have some form of pricing power once they work off supply build up. We've seen numerous hedge funds pick up POT lately, including George Soros. Check out our in-depth look at Potash for more analysis and info.

Keep in mind though, that such plays could take a long while to unfold. If you conclude that inflation is in the future, then Coxe's thoughts could be right on the money. For what it's worth, Jim Rogers and George Soros are both bullish on agriculture as well. Our stop was triggered on our Potash position way back at $160 as per our post, and we have yet to revisit the name which now trades around $80, or 6x earnings. While the story is still attractive fundamentally long-term, signs of improving technicals (chart) would be needed. Or, perhaps some return of global economic activity and a hint of inflation would do. Regardless, the funds have been buying recently, as noted in our hedge fund portfolio tracking series.

We'd agree with Coxe in that inflationary pressures are set to show up at some point. And as such, we advocated shorting long-dated treasuries (see our rationale). The question is, when does inflation hit? One could be waiting for a while. And, there is the slight possibility that it could also just never show up (stranger things have happened). Obviously, if such inflation does occur, it will show up in commodities first and Coxe makes a good point there. In short, Coxe seems to agree with Rogers and Soros on a number of issues and it will be interesting to see things play out.

You can read Coxe's thoughts here.

George Soros Hedge Fund Soros Fund Management 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up is Soros Fund Management ran by George Soros. Soros is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. Now, he has carried his investment style over to his own firm, Soros Fund Management. 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. Recently, Soros detailed his thoughts about his portfolio from 2008 and it makes for a good read. His fund finished '08 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. 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 their long equity, note, and options holdings as of December 31st, 2008 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):
Merrill Lynch (MER)
Mylan (MYL)
Homex (HXM)
R.R. Donnelly & Sons (RRD)
Harmonic (HLIT)
Kinross Gold (KGC)
Streettracks Gold ETF (GLD)
Genworth Financial (GNW)
EMC (EMC)
Solera (SLH)
CBL & Associates (CBL)
Discovery Communications (DISCK)
Discovery Communications (DISCA)
Yahoo (YHOO)
Amdocs (DOX)
Texas Instruments (TXN)
JB Hunt (JBHT)
Symantec (SYMC)
Cirrus Logic (CRUS)
Covidien (COV)
...among others

Some Increased Positions (A few positions they already owned but added shares to; major moves listed)
Petroleo Brasileiro (PBR)
Potash (POT)
Best Buy (BBY)
Hess (HES)
Conoco Philips (COP)
Union Pacific (UNP)
Arch Coal (ACI)
Schlumberger (SLB)
Lorillard (LO)
Teradata (TDC)
Google (GOOG)
Consol Energy (CNX)
Lattice Semiconductor (LSCC)
...among others


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed, just the major moves)
Walmart (WMT)
Wind River (WIND)
JetBlue (JBLU)
...among others


Removed Positions (Positions they sold out of completely)
Research in Motion (RIMM), ishares Dow Real Estate (IYR), Powershares QQQ (QQQQ), Auxilium Pharmaceuticals (AUXL), Whiting Petroleum (WLL), Suncor (SU), Chesapeake Energy (CHK), International Rectifier (IRF), Buffalo Wild Wings (BWLD), Anheuser Busch (BUD), Frontline (FRO), Bank of America (BAC), Collective Brands (PSS), Companhia Siderugica (SID), Centennial Communications (CYCL), Entergy (ETR), Suntrust Banks (STI), Nasdaq (NDAQ), General Growth Properties (GGP), Kimco Realty (KIM), Bank of New York Mellon (BK), CSG Systems (CSGS), Tekelec (TKLC), GATX (GMT), Carmax (KMX), Echostar (SATS), Extreme Networks (EXTR), Amazon (AMZN), Radisys (RSYS), Medivation (MDVN), ITT Corporation (ITT), Micron Technology (MU), Alcatel (ALU)


Top 20 Holdings (by % of portfolio)

1. Petroleo Brasileiro (PBR): 19.53% of portfolio
2. Potash (POT): 9.4% of portfolio
3. Merrill Lynch (MER): 5.84% of portfolio
4. Best Buy (BBY): 5.79% of portfolio
5. Hess (HES): 4.74% of portfolio
6. Conoco Phillips (COP): 3.84% of portfolio
7. Union Pacific (UNP): 1.77% of portfolio
8. Arch Coal (ACI): 1.7% of portfolio
9. Schlumberger (SLB): 1.56% of portfolio
10. RR Donnelly (RRD): 1.48% of portfolio
11. Homex (HXM): 1.37% of portfolio
12. Consol Energy (CNX): 0.75% of portfolio
13. Map Pharmaceuticals (MAPP): 0.62% of portfolio
14. Walmart (WMT): 0.57% of portfolio
15. Hologic (HOLX): 0.57% of portfolio
16. Heinz (HNZ): 0.53% of portfolio
17. JetBlue Airways (JBLU): 0.52% of portfolio
18. Home Depot (HD): 0.52% of portfolio
19. Lowes (LOW): 0.51% of portfolio
20. Citi Trends (CTRN): 0.29% of portfolio

The major moves in Soros' portfolio come from energy and agriculture. He added large to his PBR and POT positions, among many other global growth type names. He definitely seems to think all these energy related names are attractive. He sold out of a lot of his Walmart (WMT) and all of his Research in Motion (RIMM). He also added heavily to his position in Best Buy (BBY). He also started a new, large position in Merrill Lynch (MER). Assets from the collective long US equity, options, and note holdings listed above were $4.6 billion. If you want to hear some more insightful thoughts from George Soros himself, head over to our post on Hedge Fund manager interviews or check out his recent interview with Fareed Zakaria to discuss the current crisis. This is just one of many funds in our hedge fund portfolio tracking series in which we're tracking 35+ prominent funds. We've already covered Paulson & Co (John Paulson), Carl Icahn, Warren Buffett, and Stephen Mandel's Lone Pine Capital. Look for our updates each day over the next few weeks.

Hedge Fund Citadel Letter to Investors Re: Redemptions

Here's Citadel's latest letters explaining the new details regarding their redemption 'policy' if you will:

Publish at Scribd or explore others: Finance & Investing Business & Legal citadel investment g

We've covered Citadel's redemptions ordeal before, and it appears they're shifting their stance. Also, here's Citadel's January performance.

(RSS & Email readers may need to come to the blog to see the file)

Rick Santelli CNBC Rant

If you've missed it, Rick Santelli of CNBC recently had a rant about capitalism which has been seen as a rallying cry. He's even talked about arranging a 'Chicago Tea Party' for capitalism. Santelli is one of the few/only brightspots on that channel.

The rant:



(RSS & Email readers might have to come to the blog to view the video)

TARP Illustrated

The TARP illustrated in all its effective glory. [hat tip to Naked Shorts]

Technical Analysis & Charts Books: Recommended Reading List

For the next installment in our series of recommended reading lists, today we're highlighting the best books for traders.  This list touches on the best books on technical analysis, charts, trader interviews, and methodologies.  Without further ado:



Technical Analysis of Financial Markets by John J. Murphy: Covers technical tools, indicators, and how to use them.

Market Wizards by Jack Schwager.  This book details interviews with top traders & hedge fund managers. It covers topics such as discipline, risk management, consistency, and capital preservation among others.

Encyclopedia of Chart Patterns by Thomas Bulkowski: This is simply one of the most complete books on chart patterns out there.

Getting Started in Technical Analysis by Jack Schwager: This book is by one of the most respected in the field. Schwager covers trends, patterns, price activity and more.

Chart Your Way to Profits by Tim Knight: Successful trader details watchlists, chart styles, indicators, and analysis methods.

Reminiscences of a Stock Operator by Edwin Lefevre.   This is a must-read for any trader. This story depicts the trials and tribulations of Jesse Livermore and takes you inside the mind of a trader to provide you with tons of insight, wisdom, and anecdotes. This book spawned legendary advice such as "the trend is your friend" and "let your winners run and cut your losses quickly."



For those of you who are investors, we've also posted up a recommended reading list for fundamental analysis & valuation so definitely check that out.

Washington Mutual's Failure

Very interesting piece on the rise and fall of Washington Mutual flagged to our attention by Barry Ritholtz. The Jacksonville Business Journal writes,

"But already by 2001 — long before the housing bubble stretched dangerously, before most Americans had heard the term “subprime loan” — Killinger (WaMu Chief Executive) had created the fractures that would cause Washington Mutual to collapse in the largest bank failure in U.S. history. The cracks, according to executives who were there at the time, would spread over the next 10 years, eventually rendering the 119-year-old bank that Killinger painstakingly built into the nation’s largest thrift too weak to withstand the greatest economic downturn of his career. “By the time you got to the last couple of years, pretty much the destiny of the company had been locked in,” said one former executive. Killinger declined repeated requests to be interviewed.

...

But, without exception, former and current executives interviewed for this article pointed to Killinger’s changes in the late 1990s as one of the chief causes of the company’s eventual downfall. One of the main reasons is that it gave much more power to the company’s mortgage division and the executives who ran it over the next 10 years, executives said. Under the new structure, the mortgage unit operated more on its own, and its independence grew when Killinger gave it its own IT and human resources departments, executives said. “The mortgage unit was responsible for its own bottom line,” said Lannoye. “The checks and balances were gone.” Ultimately, the changes paved the way for the mortgage unit to transform into a “culture of unmitigated greed,” according to a former executive team member, a view echoed by many former WaMu executives.

...

At the same time as he made the management shift in 1999, Killinger made an acquisition that seemed unremarkable. But Long Beach Financial was different. The California lender was a leader in a growing area of subprime mortgages, which were gaining popularity because banks could charge higher interest rates to those with poor credit, and reap more profit. Long Beach Financial was WaMu’s entry into the market. The highly profitable business made $752 million worth of loans in the first quarter of 1999 alone. Its 12,500 loan brokers were spread across all 50 states.

...

It marked the start of WaMu’s fateful foray into subprime loans, and its rapid, unchecked advance into risky mortgage lending — ultimately the chief cause of its collapse. Killinger had found a new growth strategy. After Long Beach, WaMu quickly snapped up three more mortgage banks. At the time, even many WaMu executives thought it was a good move. Home prices were rising, interest rates were low and banks earned sizable fees for originating loans. What’s more, the risk of default could be off-loaded by packaging the mortgages and reselling them to investors as securities.

...

Now the cracks at WaMu started to spread. The company began losing money on hedging — efforts to protect against movements in interest rates, a problem that was partially attributed to a failure to integrate a key mortgage system, according to executives who were present at the time. The bank also began losing money on home loans. Its profit, which had marched dramatically higher, plateaued at about $3.8 billion in 2003. Davis, who had led the home loan group since the late 1990s, left abruptly that year, executives said. The mortgage business, according to one executive, “became the Achilles’ heel of the bank.” The following year, the trouble deepened. Earnings tumbled by 25 percent, or more than $1 billion, the largest decline in annual earnings for at least a decade. More worrying, provisions for bad loans leapt fivefold, to $209 million. WaMu cut 13,450 jobs, closed 100 mortgage offices and closed 53 commercial banking operations.

...

In the desperate last months, Killinger was described as blindly optimistic and oblivious by those who worked with him. He had not in his career seen a market or a bubble like the one now engulfing Washington Mutual."

Read the entire piece.

What We're Reading

Playing chicken with the Fed (Reuters)

Doug Kass: Fear and Loathing (TheStreet)

Never forget the power of networking - James Altucher (FT)

Aladdin Capital launches debtor-in-possession fund (hedgemedia)

The case for TIPS (NY Fed)

Is Clear Channel edging towards Chp. 11? (zero hedge)

Profile on Perry Partners (CNN Money)

Stephen Mandel's Lone Pine Capital 13F Filing: Q4 2008

This is the 4th Quarter 2008 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings preface.

Next up we have Lone Pine Capital, managed by Stephen Mandel Jr. His $7 Billion fund has returned over 25% annually since its inception in 1997. But obviously, last year was rough on them and many others, as noted in our list of 2008 year end hedge fund performance numbers. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds. So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Mandel is well versed in the ways of finding undervalued companies and his funds typically like to sniff out solid companies with good management that are trading below their intrinsic value. Before checking out this 13F, we recommend looking over their last portfolio update so you can put things in perspective.

The following were their long equity, note, and options holdings as of December 31st, 2008 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):
Activison (ATVI)
Abercrombie & Fitch (ANF)
Carnival (CCL) paired certificate
Coach (COH)
Fomento Economico (FMX)
Google (GOOG)
JP Morgan Chase (JPM)
Las Vegas Sands (LVS)
Monsanto (MON)
SPDR Gold Trust (GLD) Calls
Charles Schwab (SCHW)
Union Pacific (UNP)


Some Increased Positions (A few positions they already owned but added shares to)
Sears Holdings (SHLD) Puts: Increased position by 11,172%
Bunge (BG) Puts: Increased position by 9,900%
Mastercard (MA): Increased position by 197%
Visa (V): Increased position by 81%
Precision Cast Parts (PCP): Increased position by 45%
America Movil (AMX): Increased position by 33.3%
Teradata (TDC): Increased position by 15.9%
Qualcomm (QCOM): Increased position by 12.5%
Dolby Labs (DLB): Increased position by 9.8%
Lorillard (LO): Increased position by 6.1%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
XTO Energy (XTO): Decreased position by 66.7%
Sandridge Energy (SD): Decreased position by 52%


Removed Positions (Positions they sold out of completely)
Crown Castle (CCI)
Dicks Sporting Goods (DKS)
Eagle Materials (EGLE)
Fastenal (FAST)
First Horizon (FHN)
Hansen Natural (HANS)
National City (NCC)
SAIC (SAI)
Weatherford (WFT)


Top 20 Holdings (by % of portfolio)

1. America Movil (AMX): 12.13% of portfolio
2. Qualcomm (QCOM): 11.84% of portfolio
3. Visa (V): 7.21% of portfolio
4. Mastercard (MA): 6.81% of portfolio
5. JP Morgan Chase (JPM): 6.34% of portfolio
6. Union Pacific (UNP): 5.37% of portfolio
7. Monsanto (MON): 4.85% of portfolio
8. Priceline (PCLN): 4.33% of portfolio
9. Google (GOOG): 4.23% of portfolio
10. Precision Cast Parts (PCP): 3.53% of portfolio
11. Lorillard (LO): 3.34% of portfolio
12. Carnivall (CCL) paired certificate: 3.14% of portfolio
13. MSC Industrial (MSM): 2.96% of portfolio
14. Activision (ATVI): 2.85% of portfolio
15. Dolby Labs (DLB): 2.6% of portfolio
16. SPDR Gold Trust (GLD) Calls: 2.48% of portfolio
17. Teradata (TDC): 2.42% of portfolio
18. XTO Energy (XTO): 2.29% of portfolio
19. Coach (COH): 2.09% of portfolio
20. Sears (SHLD) Puts: 2.01% of portfolio

Its interesting to note that while Lone Pine was selling National City (NCC), John Paulson's firm was adding it last quarter. Additionally, Lone Pine's removal of HANS from their portfolio is intriguing seeing as the shares have run up a lot recently and we had seen a large hedge fund presence in this name. If we were to guess, we'd say they deemed it 'too rich' for the time being, as they had ridden shares from the 20's up to the 30's. They added heavily to their various put positions, but they are still a small position relative to their total portfolio. They started new positions in names like GOOG, COH, ATVI, and UNP and brought them in as large positions in the portfolio. Assets from their long US equity, options, and note holdings were $5.2 billion last quarter and were $6.1 billion this quarter. These assets do not reflect collective firm holdings, but rather the sum of the holdings filed with the SEC. They obviously have short and cash positions as well (which aren't required in the filings). This is just one of many funds in our hedge fund portfolio tracking series where we're tracking 35+ funds and have already covered Paulson & Co (John Paulson), Carl Icahn, and Warren Buffett. We'll be covering a different fund each day so stay tuned.

Coverage Ratio Scan: Companies With Debt That Can Survive the Recession

Wanted to pass along this interesting scan I saw on Seeking Alpha. Basically, it takes the cash flow to debt coverage ratio to show a company's ability to cover total debt with operational cash flow. Thus, the higher the ratio is, the more likely a company can carry its total debt.

They scanned for companies with a ratio of 0.75 or more and cross-referenced it with the S&P500 for a final result of 23 stocks. In no particular order:

1. Aflac (AFL)
2. Bard (BCR)
3. CF Industries (CF)
4. Coach (COH)
5. Gap (GPS)
6. Jacobs Engineering (JEC)
7. Altria Group (MO)
8. Occidental Petroleum (OXY)
9. Robert Half (RHI)
10. Southwestern Energy (SWN)
11. Stryker (SYK)
12. Titanium Metals Corp (TIE)
13. MEMC Electronic (WFR)
14. Exxon Mobil (XOM)
15. Adobe (ADBE)
16. Amazon (AMZN)
17. Apollo Group (APOL)
18. Autodesk (ADSK)
19. Citrix Systems (CTXS)
20. Juniper Networks (JNPR)
21. Microsoft (MSFT)
22. Qualcomm (QCOM)
23. Yahoo (YHOO)
    

A lot of companies on the list are very cash-rich. Companies with large cash stock piles and no debt, like Apple (AAPL), do not make the list because they have no debt to service. So, you could run an additional scan for companies with high cash levels and no significant debt in order to find some more gems. OXY is interesting because we have seen a ton of hedge fund buying in that name over the past few quarters. It is easily one of the most popular oil names among hedge funds. QCOM is another hedge fund favorite and is easily one of the most widely held stocks. Additionally, we know that Carl Icahn and many others have been rabblerousing in YHOO. Lastly, we see that WFR makes the list. David Einhorn has recently been buying this one as he thinks it is cheap (and they have a ton of cash too). The underlying theme here is to find companies that have an abundance of cash in an environment where cash and liquidity is king. And conversely, you could even put on a pairs trade by shorting companies that will have problems servicing their debt due to overleverage or lack of capital. Long deleveraging, short leverage.

Doug Kass Market Indicators: Signs Needed for Market Recovery

Doug Kass' recent piece, 'Fear and Loathing on Wall Street,' highlights some excellent points. In it, he creates a list of things the markets need to see to begin their return to normality:

"

• Bank balance sheets must be recapitalized. We await a bank rescue package in the week ahead.
• Bank lending must be restored. Bank lending standards remain tight. For now, we are in a liquidity trap.
• Financial stocks' performance must improve. We are not yet there. Financials' performance is still drek.
• Commodity prices must rise as confirmation of worldwide economic growth. There has been some recent evidence of higher commodities, but it's still inconclusive.
• Credit spreads and credit availability must improve. While credit spreads are improving, the yield curve is rising and interest rates have rebounded, the transmission of credit remains poor. Time will tell whether monetary and fiscal policies will serve to unclog credit.
• We need evidence of a bottom in the economy, housing markets and housing prices. The economy's downturn continues apace. Months of inventory of unsold homes are declining and so are mortgage rates, but home prices have yet to stabilize despite an improvement in affordability indices.
• We also need evidence of more favorable reactions to disappointing earnings and weak guidance. We are not yet there, but this will tell us a lot about the state of the stock market's discounting process.
• Emerging markets must improve. China's economy (PMI and retail sales) and the performance of its year-to-date stock market have turned decidedly more constructive.
• Market volatility must decline. The world's stock markets remain more volatile than a Mexican jumping bean.
• Hedge fund and mutual fund redemptions must ease. While I am comfortable in writing that most of the forced redemptions have likely passed, we will find out more over the next few months. Regardless, the disintermediation and disarray of hedge funds and fund of funds have a ways to go.
• A marginal buyer must emerge. Pension funds seem to be the likely marginal buyer as they reallocate out of fixed income into equities, but we have not yet seen the emergence of this trend."

Read the entire piece.

Comparing Job Losses During Recessions

(click to enlarge)

(From Time)


And expanded:

(click to enlarge)

And condensed:

(click to enlarge)

(From Big Picture)


See also our post on comparing historical unemployment rates during recessions.

How Much Money the US Government Has Printed

Print that money, inflation ahoy.



[hat tip to Sun's Financial]

Warren Buffett Berkshire Hathaway Portfolio Update: 13F Filing Q4 2008

Warren Buffett, the legendary investor and oracle from Omaha, has filed Berkshire Hathaway's 13F and we get a glimpse as to what he's been up to in these tumultuous markets. The man needs no introduction, but if you want to learn more about him: read his biography, its very insightful. The man is known for his buy and hold strategy and he has amassed some large stakes in great brands and great companies. This crisis has presented numerous opportunities in his eyes, as he has started buying American. He most recently bought bonds in Tiffany's and Harley Davidson. Earlier on, he got involved with Goldman Sachs and General Electric with large multi-billion dollar preferred purchases. Do you notice a theme yet? He sees opportunity in America. He sees opportunity in American brands and American companies. Heck, he had even mentioned possibly buying back Berkshire stock, which is the Warren Buffett brand in and of itself. But, enough about all his recent purchases that everyone already knows about. Let's get to the info revealed in the 13F.

To be honest, the changes to his portfolio were kind of lackluster. After all the Buffett activity we've seen lately, there's nothing massive to report. But, there have been some changes indeed. A while ago, we had mentioned that Buffett was selling puts on Burlington Northern. He was clearly drawing a line in the sand as to where he wanted to add to his already large position in BNI. And, that strategy worked out as he was assigned more BNI shares to add to his large pile.

The second (and arguably biggest) change to his portfolio would be the large position he picked up in Nalco (NLC). This is a brand new position for him and he has over 8.7 million shares. Nalco does a lot of water treatment among other things, so its interesting to see him step into this arena. We've been reading a lot recently about the impending clean water problems worldwide, and its safe to say that Buffett has as well.

The third most noticeable change would be in regards to his Johnson & Johnson (JNJ) position. He sold over half his position in this name from over 60 million shares down to around 28 million shares. If we were to wager a guess, we'd say that Buffett did so in a "selling when its the hardest to" kind of move. The right plays are usually the hardest to make. And, if you think about it, selling a consumer staples name in the heart of the recession is probably a tough play. But, it could very well be the right play, as more names could be attractive once we emerge from these difficult times. Who knows though, as that's just pure speculation on our part. For all we know, Buffett could simply be trading his 'safe' portfolio plays for a solid income stream of 10-15% interest, which he has garnered in some of his most recent deals. And, who wouldn't take that? Those were some sweet terms, so that would also make perfect sense. Additionally, he sold some of his Procter & Gamble (PG), another well known consumer staples name.

Buffett is the third name we've covered in our fourth quarter 2008 hedge fund portfolio tracking series. We're tracking a ton of prominent names and we invite you to check out what John Paulson and Carl Icahn were up to recently, as we've already covered their movements. Look for 35+ more hedge funds in our daily coverage.

Bottom line in all things Buffett: He started a new position in Nalco (NLC), and he picked up some more Burlington Northern (BNI), & NRG Energy (NRG) among others. He sold some Johnson & Johnson (JNJ), Procter & Gamble (PG), US Bancorp (USB), & Wells Fargo (WFC), among others.

What Would Benjamin Graham Buy Today?

What would Benjamin Graham buy today? Well, nothing really.

We thought it would be interesting to try and figure out what Benjamin Graham himself would be buying in the current environment. But, we quickly realized that there's not much that comes close to meeting his standards. If you're unfamiliar with Benjamin Graham (shame on you), then all you need to know is that he was a legendary investor who helped pioneer the ways of value investing. And, he taught Warren Buffett a lot of what he uses today. To become more familiar with Graham's investing methods, we highly suggest checking out The Intelligent Investor by Benjamin Graham. If you had to own one book about fundamental investing, this would most likely be it. Additionally, Security Analysis by Benjamin Graham is another excellent resource. This is the second of Graham's must-read books. The book features the value investing philosophies of Graham and Dodd and a foreword by Warren Buffett. After you've finished reading, you'll be able to tackle balance sheets like none other.

Very few stocks would pass Graham's original stringent requirements in the current environment. And, that in and of itself surprised us. (Guess everything isn't quite as 'cheap' as many thought). But, to be fair, Graham's criteria are very strict. So, we made some changes to establish these value inspired criteria. We set up some scans using a combination of:

• P/E Ratio less than 10 for strict scans, and less than 15 for more lenient scans.
  
• Book Value > 0.01 (Price to book ratio of 1.2 or less for strict scans, and 2 or less for more lenient)
  
• Current Ratio > 1.5
• Return on equity > 15%
• EPS growth > 3% (5 years)
• Dividend growth over 5 years
• Low debt/equity ratio
• Insider ownership

We fiddled with the criteria on numerous scans to generate more ideas. In no particular order, we came up with:

1. Ameron International (AMN)
2. American Eagle Outfitters (AEO)
   
3. Checkpoint Systems (CKP)
   
4. Rowan Companies (RDC)
5. Kennametal (KMT)
   
6. Reliance Steel (RS)
7. Forest Laboratories (FRX)

Keep in mind that all of these companies are on the lists for different reasons. Some met the majority of the criteria, but others made the list due to the fact that they kept appearing on multiple broader or more lenient scans. Again, maybe things aren't as "cheap" as people have argued. A possible problem could be the fact that Graham emphasizes the P/E ratio, and we're in an environment where the 'E' part of the equation (earnings) keep falling. We've posted before about how earnings estimates were too high and that they need to come down.

We're not currently advocating a position in any of these names and do not currently hold any. We merely wanted some names to poke around. For what it's worth, Ameron (AMN) was the most frequent return in all the different scans we did. Just thought we'd toss out ideas for people to investigate. After all, value investor Warren Buffett has said that its time to start buying American.

Also worth noting is the list that Jim Grant's Interest Rate Observer came out with back in December. Their Graham list included names such as Tiffany's (TIF), Radio Shack (RSH), Pfizer (PFE), Cooper Industries Inc (CBE), Nucor Corp (NUE), Cintas Corp (CTAS), Archer Daniels Midland (ADM), & Molex (MOLX). So, research away.

I think the main point here is that Graham's criteria are so strict that it really would take a depression for ideas to pop up on the legitimate Graham scans. Instead, we've opted for a hybrid value scan combining criteria from Graham, Buffett, and Dodd to create a slightly more lenient scan to generate ideas to keep an eye on. If you find any names that can pass Graham's strict tests, do let us know. Otherwise, I guess we'll just have to wait for a depression.

Companies Possibly Bound for Bankruptcy

Yahoo Finance recently had an interesting piece in which they named 15 companies that 'might not survive 2009.' The list has both private and public companies, but since we focus on equities here on the blog, we'll stick to the public ones. Here are some of our favorites/ones we think could possibly be likely (in no particular order):

"Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster's viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market conditions are better.

Landry's Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should have enough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company's debt and the prospect of a cash-flow crunch. (Note: they were able to sell $295 million in senior secured notes recently though).

Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald has received several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But with casino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirting bankruptcy. (Note: Since publication, this one has already begun to play out).

Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling off properties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody's expects cash flow to be negative in 2009, and if consumers aren't spending during the peak summer season, that could imperil the company's ability to pay debts coming due later this year and in 2010."


Check out the rest of the list.

York Capital Management Letter to Investors

Here's York Capital's letter to investors (RSS & Email readers you may have to come to the blog to read it):

Publish at Scribd or explore others: Business & Legal york capital managem

Carl Icahn Portfolio Update: 13F Filing Q4 2008

While we don't normally cover Carl Icahn's movements in-depth on the blog (maybe we should?), we do generally like to keep tabs on him and cover all of his major moves. If you're unfamiliar with Icahn, he is a hedge fund manager, but more well-known as a 'corporate raider' and 'rabblerouser' for his activist ways. He takes on such a role trying to incite change within companies to unlock shareholder value. And, last year, he even started a blog to discuss numerous topics.

With the most recent 13F filings out disclosing his holdings as of December 31st, 2008, we see some noticeable changes.

Some companies he sold out of completely: Advanced Micro Devices (AMD), Lear Corp (LEA), JC Penney (JCP), Temple Inland (TIN), and Time Warner (TWX), among others.

Some companies where he added to his position: Williams (WMB), & Yahoo (YHOO), among others.

Some companies where he sold off part of his position: Anadarko Petroleum (APC), Motorola (MOT), among others.

He has a massive position in Biogen Idec (BIIB) and the theory here is that they could be bought out by another company in biotech/biopharma land. His other large holding in this sector is Amylin Pharmaceuticals (AMLN).

Yahoo (YHOO), Biogen (BIIB), and Motorola (MOT) were his top 3 holdings respectively at the time of filing. Keep in mind we're in the midst of our hedge fund portfolio tracking series to keep an eye on some of the big money. We've already covered hedge fund Paulson & Co and will be covering a different fund each day.

Harvard Endowment Cuts Holdings

If you missed it, Harvard has reduced its holdings and I thought it was worth highlighting, since so many people are interested in what the Ivy endowments are up to,

"Harvard University's endowment, the largest in higher education, cut by two-thirds its direct holdings of publicly traded stocks and funds during the market plunge in last year's fourth quarter.

As of Dec. 31, Harvard Management Co., which oversees the endowment, held about 70 stocks and publicly traded funds that were valued at $571 million, according to a filing with the Securities and Exchange Commission. Three months before, the endowment held about 200 stocks and other vehicles valued at just under $2.9 billion."

Link: WSJ

Ray Dalio's Take on the Markets (Bridgewater Associates)

Ray Dalio of Bridgewater Associates recently sat down with Barron's and gave his take on numerous subjects. Here is his take on various asset classes/investment ideas:

"Are you a fan of gold?

Yes.

Have you always been?

No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio.

What about bonds? The conventional wisdom has it that bonds are the most overbought and most dangerous asset class right now.

Everything is timing. You print a lot of money, and then you have currency devaluation. The currency devaluation happens before bonds fall. Not much in the way of inflation is produced, because what you are doing actually is negating deflation. So, the first wave of currency depreciation will be very much like England in 1992, with its currency realignment, or the United States during the Great Depression, when they printed money and devalued the dollar a lot. Gold went up a whole lot and the bond market had a hiccup, and then long-term rates continued to decline because people still needed safety and liquidity. While the dollar is bad, it doesn't mean necessarily that the bond market is bad.

I can easily imagine at some point I'm going to hate bonds and want to be short bonds, but, for now, a portfolio that is a mixture of Treasury bonds and gold is going to be a very good portfolio, because I imagine gold could go up a whole lot and Treasury bonds won't go down a whole lot, at first.

Ideally, creditor countries that don't have dollar-debt problems are the place you want to be, like Japan. The Japanese economy will do horribly, too, but they don't have the problems that we have -- and they have surpluses. They can pull in their assets from abroad, which will support their currency, because they will want to become defensive. Other currencies will decline in relationship to the yen and in relationship to gold.

And China?

Now we have the delicate China question. That is a complicated, touchy question.

The reasons for China to hold dollar-denominated assets no longer exist, for the most part. However, the desire to have a weaker currency is everybody's desire in terms of stimulus. China recognizes that the exchange-rate peg is not as important as it was before, because the idea was to make its goods competitive in the world. Ultimately, they are going to have to go to a domestic-based economy. But they own too much in the way of dollar-denominated assets to get out, and it isn't clear exactly where they would go if they did get out. But they don't have to buy more. They are not going to continue to want to double down.

From the U.S. point of view, we want a devaluation. A devaluation gets your pricing in line. When there is a deflationary environment, you want your currency to go down. When you have a lot of foreign debt denominated in your currency, you want to create relief by having your currency go down. All major currency devaluations have triggered stock-market rallies throughout the world; one of the best ways to trigger a stock-market rally is to devalue your currency.

But there is a basic structural problem with China. Its per capita income is less than 10% of ours. We have to get our prices in line, and we are not going to do it by cutting our incomes to a level of Chinese incomes.

And they are not going to do it by having their per capita incomes coming in line with our per capita incomes. But they have to come closer together. The Chinese currency and assets are too cheap in dollar terms, so a devaluation of the dollar in relation to China's currency is likely, and will be an important step to our reflation and will make investments in China attractive.

You mentioned, too, that inflation is not as big a worry for you as it is for some. Could you elaborate?

A wave of currency devaluations and strong gold will serve to negate deflationary pressures, bringing inflation to a low, positive number rather than producing unacceptably high inflation -- and that will last for as far as I can see out, roughly about two years.

Given this outlook, what is your view on stocks?

Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century."

Make sure to read the rest of the interview at Barron's.