Friday, April 17, 2009

Market Folly's Custom Hedge Fund Portfolio Created With Alphaclone

Today, we are proud to unveil our own Market Folly hedge fund portfolio. With Alphaclone (which by the way is currently 50% off) we have created our own "fund of funds" and have cloned a unique portfolio of equities. Two weeks ago, we introduced you to the ultimate hedge fund portfolio machine otherwise known as Alphaclone. In our introductory post, we told you about how it can clone the portfolios of individual hedge funds, which demonstrate some great market outperformance. Last week, we examined how you can combine multiple hedge funds into one cohesive "fund of funds" portfolio. In particular, we looked at the Tiger Cub clone, a portfolio consisting of all the various funds that have sprouted up since Tiger Management's dissolution. And, the performance metrics on that clone spoke for themselves: the Tiger Cub clone has beaten the S&P 500 by 15.5% annualized since 2000. What's awesome is that since the portfolio holdings are laid out for you and rebalanced each quarter, you can invest your own money based off these clones and pocket these gains. We're not even joking when we say that we use Alphaclone every. single. day.

The best part of Alphaclone is the extensive amount of customization available. This week, we want to further elaborate on that by creating our very own fund. You can create a fund of funds with as many or as few hedge funds as you like. For instance, the Tiger Cub clone we looked at last week contained 21 funds. Our Market Folly clone, on the other hand, only contains 3 funds. We have literally spent almost a month now testing out all sorts of portfolio combinations and strategies. We've mixed value funds with global macro funds, concentrated portfolios with activists, etc. You name it, we've tried it out. We went through the list of the hedge fund portfolios we typically cover here at Market Folly and mixed and matched them all over the place. Additionally, we also ran various strategies such as: top holdings, best ideas, and most popular holdings. Over the course of the month, we've literally created THOUSANDS of unique portfolios that are based off multiple hedge funds. But, we finally cloned the portfolio we were looking for.

The Market Folly Portfolio

Today, we are finally ready to unveil our Market Folly clone created with Alphaclone. And, as we mentioned earlier, we have only included 3 funds in the clone. Why, might you ask? Well, after running thousands of clones, we've found a great deal of performance in simplicity. We kept it simple and stuck to hedge funds that we know can outperform. The 3 hedge funds we selected are: Baupost Group, Eton Park Capital, and Shumway Capital Partners.

Here's the rationale behind our clone: We wanted to combine unique styles and managers while still keeping things from getting too complex. We found that if you added too many funds, it hurt performance. So, we simply took the best funds in three different categories: value, concentrated portfolio, and Tiger Cub. Then, we consulted the list of funds we track here on Market Folly and started to mix and match.

(click to enlarge)


- Our value fund is Seth Klarman's Baupost Group. If you're familiar with this fund, then you already know why we've selected it. They have unprecedented performance and define the essence of value investing.

- Our concentrated portfolio is Eric Mindich's Eton Park Capital. We wanted to pick a fund that ran a pretty concentrated portfolio because we've found that these types of funds can usually outperform due to their conviction in their picks. If they have high conviction in a portfolio holding, you can bet they've done extensive research on it and are confident. And, after comparing numerous concentrated-style hedge funds, we found that Eton Park kept putting up the best numbers.

- Lastly, our Tiger Cub portfolio is Shumway Capital Partners (Chris Shumway). Some will argue that selecting a Tiger Cub to be in the portfolio is basically like selecting another value fund. And, that's a completely valid point. But, we also want to point out that many Tiger Cubs often exhibit high conviction in their picks, and that was a characteristic we were looking for. So, we've essentially picked a fund that combines value with a concentrated portfolio. Plus, as you've seen above with the performance numbers the Tiger Cub clone kicks out, it's pretty self explanatory. The Tiger Cubs outperform and Shumway is a unique blend of value and high conviction.

The Strategy

Now to the good stuff. After creating our portfolio in Alphaclone, we started to mess around with strategy. As we've mentioned in our previous posts, you can chose numerous strategies with Alphaclone. You can choose the top 1, 2, 3, or 5 holdings from each hedge fund and combine them into one portfolio. Or, you can also take each fund's best ideas (the top 1, 2, 3, or 5 from each). Lastly, you can also take the most popular holdings (the positions most commonly held among the funds in your custom clone). The portfolio then runs equal weighted and rebalances each quarter. You also have the option to run the portfolio as long only, or you can hedge the portfolio with a 25%, 50%, 75%, or 100% hedge. To our surprise, we actually found two successful strategies. Below, we'll cover a 'top holding' strategy. Then, next week, we'll look at our 'best ideas' strategy.

The Market Folly Portfolio: 'Top Holding' Strategy Performance

Firstly, we'll focus on the Market Folly custom clone that runs the 5 top holdings from each of our 3 hedge funds all equal weighted, with a 50% portfolio hedge. The rules associated with this clone strategy are:
1. Buys the largest holding(s) for each manager(s) as determined by the market value of the holdings at the end of the quarter.
2. Sells when the holding is no longer ranked as being a top holding for that portfolio.


Remember, Alphaclone gives you all the historical performance metrics, your clone's current holdings, as well as which holdings were recently rebalanced from the last quarter. Here's what the performance looks like with the green being our portfolio and the blue as the S&P500:

(click to enlarge)


Simply put, this portfolio has performed quite well. Out of the eight years tracked, this Market Folly clone has outperformed in six of those years. And, year to date for 2009, this portfolio is up 15.7% when compared to the S&P500 -4.9%. You'll also notice that in the bear markets of 2002 and 2008, this portfolio also beat their benchmarks handsomely. With Alpha of 15.4, Beta of 0.7, and Index correlation at 0.8, we've found some solid alpha. Over a 3 year time frame, this portfolio has a total return of 28%, while the S&P500 has a total return of -29.3%. And, our portfolio has done so with less volatility, a higher Sharpe ratio, and less drawdown.

Here's the best part: Since August 2002, our Market Folly 'Top Holdings' portfolio has seen Alpha of 15.5 and a total return of 194.5% versus the S&P500 return of only 6.6% ... now that's outperformance!

The Market Folly Portfolio: Holdings

So, where does this great outperformance come from? Well, here's what the current portfolio looks like as broken down by Alphaclone. These are the holdings that have yielded the outperformance year to date in 2009 as mentioned above:

(click to enlarge)


Keep in mind that these positions are rebalanced each quarter and Alphaclone does everything for you by showing you which holdings to sell out of and which to buy (all under the 'Recent Trades' tab). And, you can see the holdings for each previous quarter as well. Also recall that our portfolio runs a 50% S&P500 hedge at all times as well. It's really easy to run a portfolio with your own money based off these outperforming clones.

Now that you've seen the Market Folly custom hedge fund portfolio, what do you think? Pretty impressive, right? What's crazy is that we literally came up with tons of outperforming portfolios that we could have shown you. This one simply generated some of the best numbers while holding true to our 'keeping it simple' mantra. Remember, this is just the first strategy of our Market Folly custom portfolio. We covered the 'Top Holding' strategy this time around, and next week be on the look out for our post when we implement the 'Best Ideas' strategy in our Market Folly custom hedge fund portfolio.

Alphaclone

Now you know why we use Alphaclone on a daily basis. As you can see, it is highly customizable and gives you great backtesting, tons of performance metrics, and a current portfolio that rebalances automatically each quarter. Don't forget that Alphaclone currently has a 50% discount, so get it while it lasts. We have only illustrated a tiny amount of the capabilities, so check it out and explore it for yourself. And, if you've missed our other posts on this ultimate hedge fund portfolio tool, check out our introduction and also the Tiger Cub clone. Stay tuned next week for the other strategy in our custom Market Folly portfolio!

*Update: Here's part 2 of our custom clone.

*Please note that all our Market Folly portfolios have a filter set at the very beginning of the Alphaclone custom portfolio process where we exclude positions with a market cap greater than $50 billion. We still allow all sectors and all other market caps. If you wish to replicate our portfolio with Alphaclone, just make sure when you create your custom fund group that you 'uncheck' the "greater than $50 billion market cap" box at the beginning, so that those positions are excluded from the portfolio. We did this because we found that slightly better performance could be achieved when enabling this filter.


Recommended Financial Sites/Blogs: StockTradingToGo.com

We're going to start a new series here on Market Folly where we recommend some other great financial sites & blogs out there so our readers can see what we're actively reading on a daily basis. Today, we want to recommend Blain's site, StockTradingToGo.com. He is very passionate about investing, runs the site full time and has additional writers as well, including a hedge fund manager. They have over 100 stock education articles, which can be very helpful to those just getting started out or those who have unanswered questions. Blain's site has well over 3,500 subscribers that tune in to his trading content and educational material on a daily basis.

Here are some of their recent articles that we have enjoyed:

1. EPIC Insights Weekly, Issue 24 (Part of a unique weekly series written by a hedge fund manager)
2. 5 Big Reasons to Doubt Bear Market Rallies
3. Entering an Order to Buy or Sell Options (part of their educational series)
4. 25 Essential Bear Market Stock Tips for Investors
5. 17 Great Examples of Simplified Stock Chart Analysis


Those are some great pieces to get you started, so make sure you definitely check out StockTradingToGo and subscribe to their feed if you like what you see.


Hedge Fund Dilbert/Dogbert Comic

Gotta love it when hedge funds start popping up frequently in comics (Dilbert/Dogbert):

(click to enlarge)


What We're Reading (4/17/09)

How Bill Ackman's Pershing Square is getting a great deal in regards to their GGP position [DistressedDebtInvesting]

Five banks that don't suck [The Big Money from Slate]

Congratulations to AllAboutAlpha (Acquired by CAIA) [AllAboutAlpha]

For all the CNBC fans: Why Dylan Ratigan left CNBC [Clusterstock]

Visa introduces Credit Card on a phone [NYTimes Blog]


Thursday, April 16, 2009

Timothy Barakett's Atticus Capital Files Form 4 on Legend International (LGDI)

Hedge fund Atticus Capital ran by Timothy Barakett has filed a Form 4 with the SEC and has disclosed some small sales in their Legend International Holdings (LGDI) position. Our apologies for not posting this sooner, as the filing was made on March 31st, 2009 due to sales made by Atticus on March 27th. They sold 50,000 shares at $0.6105 and another 65,700 shares at $0.6069. After the sales, their holding in LGDI sits at 30,654,300 shares remaining.

Atticus Capital, the hedge fund ran by Timothy Barakett saw their combined funds up 45% in 2005. In 2006, they gained over 30%. Yet, in a complete reversal of fortunes, Atticus survived a nightmarish year last year, having been down more than 30% at one point. With a fresh year in tow, they were eager to set out on the right foot for 2009. However, their pain somewhat continued. Their European fund was -0.8% for February and sits -10% for 2009 as of that time, as noted in our series of January & February hedge fund performance numbers (March numbers here). 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.


Taken from Google Finance,

Legend International Holdings Inc is an "exploration stage company. The Company is engaged in mineral exploration and development activities. Legend primarily focuses in the development of its phosphate interests in the Georgina Basin in Queensland. The Legend landholdings, prospective for phosphate, diamonds and base metals, cover 40,525 acres in Queensland, Australia, and 4.7 million acres in the Northern Territory, Australia."


Trader Dennis Gartman Says Watch Base Metals (Copper) As Leading Economic Indicators

We just wanted to post up a quick update in regards to Dennis Gartman's latest ideas and positions. Dennis Gartman says he has survived this mess because he is a hedger. We track him on the blog because he is long something, and short something against it (or vice versa). We run our portfolio in a similar manner and believe that if you're going to try to run a hedge fund-esque portfolio, you truly need to be hedged. So many funds these days have employed leverage and have ran such concentrated portfolios with 'all-in' bets that they have deviated from the original defintion of a hedge fund. We hope to highlight what a hedge fund should be in the true sense of the word. (Like Steinhardt, we like to keep it old school). Gartman is a noted trader and publishes the Gartman Letter. To get a better idea as to his style, view his rules of trading as well.

Back in March, we noted that Gartman was long cheap retail and short malls. He has recently been out listing his preferred positions for spring time. Over various media appearances we have noticed a few recurring messages. Gartman wants to be long: copper & Alcoa (AA). Gartman wants to be short: the Japanese Yen (forex or FXY).

In terms of copper, Gartman uses this base metal as an economic leading indicator. We've written in the past that Gartman likes to use the Baltic Dry Index and the Transports as signs we are recovering economically. When these indexes start to shoot higher, it is most likely a positive sign. (And, the Baltic Dry Index had shot up, only to recently taper off). Not to mention, the transports have seen some bullish action the past few days with a steady uptrend and now some consolidation into an ascending triangle. This pattern typically likes to breakout to the upside. But, as always, be nimble and play a break of the trend in either direction. Our man Stewie posted up this chart last night:

(click to enlarge)


He treats copper in this same regard and thinks that a rise in base metals signals to him that economic growth could be making a comeback. Gartman notes that after a long period of decline, Copper has been increasing. As an indicator, he likes to think of Copper as a Master's degree in Economics. He also goes on to say that you can monitor all base metals as a collective whole for the PhD in Economics. Gartman prefers these commodity indicators to raw economic data, citing that these metals moved downwards long before the data signaled weakness in the global economy. This makes perfect sense, as these metals are used for the construction of physical objects that are often used in infrastructure and other global growth sectors. The metals are definitely leading indicators, while often raw data (such as unemployment figures) are lagging indicators. As you can see below, Copper has definitely been moving much higher the past two months:

(click to enlarge)


Turning his focus to the Japanese Yen, Gartman has focused on being specifically long the Canadian Dollar (forex or FXC), the Australian Dollar (forex or FXA) and short the Japanese Yen (forex or FXY). He is in these positions under the notion that commodity prices will get stronger and he wants to own the currencies that will benefit from this (due to commodity exports). He dislikes the Yen because of Japan's large status as a commodity importer. Interestingly enough, Gartman has also stated in the recent past that he sees Gold becoming the world's second reserve currency. Time will tell if drastic change such as this is necessary.


Investor Psychology Illustrated

We've posted this image up on the blog a long, long while ago, but we thought it would be quite relevant to post it up again. Without further ado, the rollercoaster that is Investor Psychology:

(click to enlarge)

Note that we aren't making a prediction as to where exactly we are in this cycle, since this graphic has limitations in terms of illustrating specific market circumstances. But, we've seen people argue that we are on the 'ascending' portion of this chart before. Only time will tell.


Wednesday, April 15, 2009

Philip Falcone's Harbinger Capital Partners Sells More Cliffs Natural Resources (CLF) - Amended 13D Filing

Harbinger Capital Partners has filed numerous amended 13D's on Cliffs Natural Resources (CLF) over the past few months, as we've noted they are selling down some of their position to bring the percentage allocation in line with their portfolio's goals. We're here to update the most recent filing which details activity on April 9th, 2009. The hedge fund ran by Philip Falcone has now disclosed a 7.29% ownership stake in CLF with 8,273,276 shares owned on aggregate by all their reporting parties. So, they have been selling some more shares, as they had previously disclosed owning 9,163,764 shares in their 13F filing. Again, make note that Harbinger themselves have come out and said they are selling due to portfolio metrics they need to bring back in line (percentage weightings) and continue to pursue CLF as an investment.

So, we'll monitor these amended filings and keep everyone up to date on the latest developments. You can also view the rest of Harbinger's portfolio holdings. Harbinger's activist stake in CLF has been an up and down soap opera, to say the least. Originally, Cliffs was to buy/merge with Alpha Natural Resources (ANR) and Harbinger tried to oppose this move, as they had other plans for Cliffs. At one point, Harbinger owned nearly 15% of CLF.

Harbinger Capital Partners is a $13 Billion firm ran by Philip Falcone. Harbinger was started in 2000 with seed capital from Harbert Management ($25 million). And, just recently, we've learned that Falcone is buying out Harbert to be the owner of the firm. Falcone made a name for himself in 2007 when he started shorting subprime mortgages and returned 117%. He focuses on intensive credit research, on bankruptcies and proxy fights, and was previously involved with high yield debt trading. Lately, he's been focused on equities it seems, but Harbinger's new fund will redirect his focus back to his roots.

At one point during 2008, they were up as much as 42%. But, their fortunes turned as their Offshore fund finished -22.7% for the year as noted in our 2008 hedge fund performances list. One position that treated them nicely was their short of Wachovia (WB), which we detailed here. Back in September, in a letter to investors, Falcone had assured investors that Harbinger was adequately positioned to stave off any further volatility the markets may bring their way, noting that the firm had reduced exposure to some of their higher volatility holdings (both on the long and short side).

In Harbinger's latest letter to investors, they noted that they had covered their shorts on metal producers and financials and also got out of some credit default swaps. While they have been winding down equity positions, they are sticking with their major stakes in Calpine (CPN) and the New York Times (NYT). Falcone also mentioned that they had added trade claims on an energy company and credit default swaps on various consumer plays (retailers, products, & services). Harbinger was +0.74% for March and sits at +4.06% year to date for 2009, as noted in our hedge fund March performance post. Lastly, Philip Falcone was recently unveiled as a part of Forbes' billionaire list.

Taken from Google Finance,

Cliffs Natural Resources (formerly known as Cleveland Cliffs) is "an international mining and natural resources company. The Company is a producer of iron ore pellets in North America, a supplier of direct-shipping lump and fines iron ore out of Australia, and a producer of metallurgical coal. Cliffs is organized according to product category and geographic location: North American Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal and Latin American Iron Ore."


Don Coxe Question & Answer Session

Recently, Donald Coxe sat down with The Globe and Mail's new section 'Globe Investor' and answered reader submitted questions. Since we've covered some of Coxe's thoughts in the past, we thought it would be prudent to let readers become more acquainted with him.

If you're unfamiliar with Coxe, he is the former global strategist for BMO Financial Group and writes a monthly journal entitled 'Basic Points.' (We recently posted up his March 2009 Basic Points). He likes to invest in stories that are "on Page Sixteen of publications" rather than the front-page story, under the assumption that the story in question could very well become the front-page story, allowing you to ride the wave. Coxe is an agricultural bull and has additionally focused a lot on commodities. In fact, Coxe shares a lot of views with noted investor Jim Rogers (whose portfolio we've also covered on the blog here).

Coxe brought up some interesting insight in his Q&A session:

"Question: Why will printing more money be inflationary in a deflationary environment? In the past year the world has lost an immense amount of wealth, tens of trillions of dollars. If governments print money, to start replacing that which has been lost, why is this inflationary to the currency printed? If there is an enormous hole in the ground, and governments are just starting to fill it up again, why will money lost its value?

Don Coxe: Inflation is primarily a transactional issue, although it usually eventually translates into asset pricing of assets deemed to be hedges against inflation. In the 70s, there was a deep recession, accompanied by high inflation because of excess monetary expansion at a time of soaring food and fuel prices. It could happen again.


Question: With reference to his famous quote “never invest in a page 1 story, invest in a page 16 story” why did he go against his own counsel with an IPO largely based on food/fertilizer stocks in May, 2008 – AT THE TOP OF THE MANIA – when food riot stories were plastered all over page 1?

Don Coxe: Good question. It took us some months to get the prospectus cleared so the timing was clearly suboptimal. That said, because we kept large amounts of cash and only deployed it over 8 months, we’ve got a portfolio that should perform well over the time horizon we chose: five years.


Question: We are getting very diverse opinions lately on the direction of gold, I’m starting to wonder if the opinions are based people’s own self interest. On one hand we hear that gold prices are going down because gold, being a safe haven, as the markets improve investors are pulling their money out of gold and driving down the price. Also as the US markets improve the US dollar will rise and drive down the price of gold even further. On the other hand we hear that because the US government has embarked on a plan of quantitive easing this will eventually result in inflation, devaluing the dollar and rising the price of gold. We hear gold future prices anywhere from $700 to $2000. Can you give us your opinion.

Don Coxe: Gold is buffeted by the economic and demographic deflations on the one hand, rising financial risk and humungous monetary expansions on the other. We see it gradually taking a large role in global monetary policies---which implies significantly higher prices. Its haven aspects show up in day-to-day trading: gold tends to climb when broad stock indices are weakening.


Question: Bond Markets are anticipating severe recessionary conditions. What areas would seem to offer the best opportunities at present?

Don Coxe: Bond markets are sharply divergent from equity markets in recent weeks. Such disjunctions in the past have more often than not validated the bondbuyers’ views. If that isn’t the case this time, it will probably be because of stagflationary conditions.


Question: Today copper inventories at the LME went up 2300 tons, while the price of copper went up .07 cents. How can copper continue to go up in the face of a global recession?. Is this short covering, or real demand for copper from China or elsewhere??

Don Coxe: I am skeptical of copper’s surge at a time that other non-food commodities—notably oil—are so weak. It wasn’t that long ago that Japanese traders tried to corner copper—with disastrous results. That said, China’s stimulus package seems to be working, which means there’s real demand out there. I like the food commodities better.


Question: What is your view on silver bullion vis-a-vis gold bullion? Thanks

Don Coxe: I haven’t been a real bull on silver since we cashed out my son’s hoard of silver coins at the peak of the silver mania. It’s not truly a monetary metal, and it tarnishes, which means it isn’t a pure precious metal—and its main industrial use was photography, which has been rendered obsolete by technology. Gold is the pure play, but it will doubtless drag silver along. I like simple concepts."


As you can see, Coxe continues to be a long-term (5 years) bull on commodities and on agriculture in particular. We've only highlighted a few of the questions from the session, so make sure you check out the entire transcript at Globe Investor.


Tuesday, April 14, 2009

Attention: Having Content Feed Problems (RSS & Email)

***Update: Things appear to be working and back to normal. We'll still be monitoring it though and please let us know if you encounter any problems.

(If you receive this message in your RSS or Email feed, then ignore it because your receipt of it will obviously mean that the problems have been fixed).

Hey everyone, just wanted to let you know that Market Folly is experiencing some feedburner related problems that are affecting our RSS feeds & daily Email feeds. Our posts are not automatically being delivered to you for some reason and we are working diligently to get this issue resolved. In the mean time, hopefully you'll realize something's wrong haha and come to the blog to view the posts. We apologize for this problem that we unfortunately have no control over (problem is on feedburner's end).

If there are any feedburner experts out there, please leave a comment below or click the contact page, as we would welcome any suggestions!


Bret Barakett's Tremblant Capital Files 13G on Eclipsys (ECLP)

In a new 13G filed with the SEC after the close yesterday, Bret Barakett's hedge fund Tremblant Capital has added massively to their position and has disclosed a 6.01% ownership stake in Eclipsys (ECLP) with an aggregate amount of shares beneficially owned listed as 3,376,969. The filing was made due to activity on April 1st, 2009. In their 13F filing which lists their holdings from December 31st, 2008, Tremblant only owned 1,031,382 shares of common stock and 666,400 by way of call options. So, they have definitely ratcheted up their position in this name by a large degree. You can view the rest of Tremblant's holdings here.

If you're unfamiliar with this hedge fund, Tremblant is a $3 billion hedge fund based in New York and is run by Bret Barakett, a former portfolio manager at Moore Capital Management (the hedge fund run by the great Louis Bacon, whom we also track). If the last name Barakett sounds familiar, it's because his brother, Timothy Barakett, manages fellow hedge fund Atticus Capital, whose portfolio we recently covered. Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." Barakett has worked with some of the best in the macro game and obviously is quite knowledgeable himself. But, as we noted back in September, Tremblant had a rough year. In terms of additional recent activity, they've filed a 13G on Chipotle, where they have been adding to their large position.

Taken from Google Finance,

Eclipsys is a "provider of advanced integrated clinical, revenue cycle and performance management software, and professional services that help healthcare organizations improve clinical, financial, and operational outcomes. It has developed and licensed software and content that is designed for use in connection with many of the key clinical, financial and operational functions that healthcare organizations require. It also provides professional services related to its software."


The Deception & Reality of Earnings Season: Q1 2009 (Goldman Sachs, Wells Fargo, et al)

Before presenting Goldman Sachs' earnings release below, I want to touch on something we'll be witnessing in the coming weeks. Yesterday on twitter, I was joking that Goldman Sachs does everything with an implicitly silent "biiiatch!" at the end of every statement/action/filing/etc. (Definition/use of of "biiiatch" here). The headlines yesterday were "Blowout Earnings" and "Goldman Secondary Offering" and yadda yadda. Those headlines obviously didn't contain Goldman's sweet new tagline. So, just imagine a bunch of old bankers coming out and saying "Goldman Sachs biiiatch!" ... "Blowout Earnings biiiatch!" ... "Secondary offering at insane prices biiiatch!" It's cool though, we let it slide because after all, they're Goldman Sachs (GS) and they do what they want. This implicitly silent tagline let's them puff out their chest and show just how much better they are than everyone else.

But all joking aside, this earnings season will be littered with absolute dominance and absolute disaster.
And, by dominance, we of course mean beating estimates by way of government help/intervention, accounting tricks, and other fun loopholes. *Cough* Wells Fargo (WFC) *Cough*. If you missed their tomfoolery, Wells Fargo basically came out and announced earnings that seem outright impossible given that they were getting their ass handed to them just a few quarters ago. This anomaly was made possible by various accounting sidesteps referenced in the article linked above. Yet, there seems to be no mention of the fact that they might need billions of dollars. Curiously enough, KBW comes out yesterday and claims that Wells Fargo (WFC) might need up to $50 billion in order to cover loan losses and pay back the government.

Wow, but they just came out and killed their numbers... why would they ever need that much money?!? /End sarcasm.

We bring this point up because in a normal world, earnings season is a field of land mines. Yet, given the circumstances specific to this past quarter, the field of mines has now quadrupled in size. So, you are now more likely than ever to step on a mine. There are two categories of companies reporting this earnings go-round: Firstly, there are those with accounting sidesteps and government ties due to help/intervention. Secondly, there are those without any of that... i.e. the rest of the companies reporting. The harsh reality is that both categories are equally as scary for different reasons.

Companies who "beat" estimates and "profit" all of a sudden will do so because of abnormalities unique to their reporting situation. Many of the financials will appear to "dominate" their numbers, when in reality they have only masked them by putting pretty flowers around them. So, this datapoint becomes essentially useless in gauging just how far along (or far behind) we are in this mess. Should we buy them now because they're doing "just great" with an asterisk next to their name? Should we sell them because they've rallied so much already? The reactions will be interesting to gauge. But, thus far, most companies in this category have been bid up. The problem with earnings season is you have just as much of a shot at hitting a land mine that instead of showering you with dollar bills, rips your face off.

There will also be companies out there who have not had as much government intervention and are lacking in the ability to mask their true faces. Those companies will miss earnings, will lower guidance, and will warn about impending doom. They will paint pictures of reality as they drop 30% in a single day. So, as you can see, we have some polar outcomes here. The companies who have been at the center of a lot of the crisis (financials, etc) are benefiting from their ability to sweep things under the carpet by way of the government or accounting changes. The companies that are not so fortunate, however, will not have such luck when it comes to reporting their earnings. So, while the tide (read: herd) rolls in directions that make absolute zero sense, you have to respect them. Because, if you don't, you'll be mauled. (Case in point: Financials spiking 20-30% off crazy earnings announcements). The problem with all this is that we're still left wondering, "What's changed?"

We're simply here to kick off what we have already deemed the Q1 '09 Earnings Season Clusterf*ck. You will most likely be deceived, tricked, and possibly even lied to. But, it's cool, because everyone is all of a sudden profitable out of NOWHERE. We just want to tell our readers not to place too much weight or emphasis on this earnings season simply because if the earnings already reported are any indication, this past quarter took place in Candyland, not recessionary America. So, keep on your toes and don't put on any big positions before these releases... you'll have better luck at blackjack or baccarat. As a matter of fact, Vegas & Atlantic City desperately need your money right now. So, go there and kill two birds with one stone: get better odds and help save the American past-time known as gambling.

The point of all this is merely a precautionary tale. Earnings of Q1 will be polar... to say the least. Just keep that all in mind as you are hit with a progressive barrage of earnings. In the end, it will be pretty clear who is being realistic and who is toying around in Candyland, accomplishing not much of anything. We're trying to take steps of progress forward. Unfortunately, we're most likely stepping sidways or even backwards.

To those destitute yet admirable companies that will tell it like it is (only to see your stock plummet instantaneously): we salute you. No, seriously. We are being 100% honest when we say thank you for providing some transparency to the macro environment and thank you for keeping it real. It has to get worse before it can get better.

And, on that final note: Let the games begin... Hiyo!


*Disclaimer I: Due to the recent Goldman Sachs legal tirade against a blogger, we are inserting this disclaimer to say that we have no affiliation with Goldman Sachs whatsoever. All 'taglines' in this article are fictional, are created solely by us, and are by no means a representation of Goldman's official slogan, mission, values, etc, etc, etc, etc. Everything in this post (well, mostly everything) is a satire and witty in nature. Please take this into account as you digest this delectably delicious derision.

*Disclaimer II (herein referred to as 'Disclaimer of the Disclaimer'): Please also note that while the aforementioned Disclaimer I is serious in nature, this aptly named Disclaimer of the Disclaimer is in and of itself a mockery of the Goldman Sachs proceedings referenced above as the 'legal tirade.' Those responsible for the sackings have been... well, sacked.

Market Folly biiiatch!

And now to the afore-promised and obligatory relevant content: Goldman Sachs' Q1 2009 Earnings Release:



Goldman Sachs Q1 2009 Earnings - Free Legal Forms


Philip Falcone's Harbinger Capital Partners 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 Harbinger Capital, a $13 Billion firm ran by Philip Falcone. Harbinger was started in 2000 with seed capital from Harbert Management ($25 million). And, just recently, we've learned that Falcone is buying out Harbert to be the owner of the firm. Falcone made a name for himself in 2007 when he started shorting subprime mortgages and returned 117%. He focuses on intensive credit research, on bankruptcies and proxy fights, and was previously involved with high yield debt trading. Lately, he's been focused on equities it seems, but Harbinger's new fund will redirect his focus back to his roots.

At one point during 2008, they were up as much as 42%. But, their fortunes turned as their Offshore fund finished -22.7% for the year as noted in our 2008 hedge fund performances list. One position that treated them nicely was their short of Wachovia (WB), which we detailed here. Back in September, in a letter to investors, Falcone had assured investors that Harbinger was adequately positioned to stave off any further volatility the markets may bring their way, noting that the firm had reduced exposure to some of their higher volatility holdings (both on the long and short side).

In Harbinger's latest letter to investors, they noted that they had covered their shorts on metal producers and financials and also got out of some credit default swaps. While they have been winding down equity positions, they are sticking with their major stakes in Calpine (CPN) and the New York Times (NYT). Falcone also mentioned that they had added trade claims on an energy company and credit default swaps on various consumer plays (retailers, products, & services). They have also been selling off some Cliffs Resources (CLF), essentially to ensure that their portfolio balance is where they want it to be. Harbinger was +0.74% for March and sits at +4.06% year to date for 2009, as noted in our hedge fund March performance post. Lastly, Philip Falcone was recently unveiled as a part of Forbes' billionaire list.

The following were their long equity, note, and options holdings as of December 31st, 2008 as filed with the SEC in Harbinger's Master Fund filing. 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):
Consol Energy (CNX)
Electronic Arts (ERTS)
Williams Sonoma (WSM)
ICO Global (ICOG)


Some Increased Positions (A few positions they already owned but added shares to)
New York Times (NYT): Increased by 68%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Mirant (MIR): Reduced by 96%
Southern Union (SUG): Reduced by 96%
General Moly (GMO): Reduced by 95%
Ultrashort Financials (SKF): Reduced by 92%
Spectrum Brands (SPC): Reduced by 87.5%
RTI International (RTI): Reduced by 85%
Media General (MEG): Reduced by 67%
Medivation (MDVN): Reduced by 64%
United States Oil Fund (USO) Puts: Reduced by 61%
Constellation Energy (CEG): Reduced by 40%
Cablevision (CVC): Reduced by 14%


Removed Positions (Positions they sold out of completely)
Owens Corning (OC)
Ultrashort S&P500 (SDS)
Nicor (GAS)
Ultrashort Dow 30 (DXD)
Sunoco (SUN)
Bank of Montreal (BMO)
Cablevision (CVC) Calls
Northwest Airlines (inactive)
Green Builders (GBH)


Top 15 Holdings (by % of portfolio)

  1. Calpine (CPN): 23% of portfolio
  2. Cliffs Resources (CLF): 10.5% of portfolio
  3. Consol Energy (CNX): 9.85% of portfolio
  4. Cablevision (CVC): 9.6% of portfolio
  5. New York Times (NYT): 9.1% of portfolio
  6. Leap Wireless (LEAP): 8% of portfolio
  7. Navistar (NAV): 6.5% of portfolio
  8. Atlas Air (AAWW): 6% of portfolio
  9. Solutia (SOA): 4.2% of portfolio
  10. Electronic Arts (ERTS): 3.32% of portfolio
  11. Constellation Energy (CEG): 2.1% of portfolio
  12. United States Oil Fund (USO) Puts: 1.6% of portfolio
  13. Hughes Communications (HUGH): 0.9% of portfolio
  14. Medivation (MDVN): 0.8% of portfolio
  15. Ultrashort Financials (SKF): 0.6% of portfolio


Yet again we see another fund with some massive deleveraging and equity exposure reduction. Harbinger runs a somewhat concentrated portfolio in that a large percentage of their equities exposure is in the top 8 or 9 positions, with Calpine far and away the largest holding. Their Puts on USO worked out well as oil prices declined steeply (remember, these positions were as of Dec. 31st, before oil started to rebound). We also want to make sure to highlight that you've got to monitor their Cliffs Resources (CLF) position almost on its own, since they have such a large stake in it but have been actively selling. In the past, they have sold some shares because they were bringing their portfolio percentage allocations back in line. So, this 13F is not necessarily up to date with the most recent changes to this position. And, as a matter of fact, they just filed yet another amended 13D on CLF yesterday which we'll be covering in a separate post. We also want to note that since this 13F filing, they've also made numerous other SEC filings with regards to both current and (now) old positions. Assets from the collective long US equity, options, and note holdings were $4.8 billion last quarter and were $2.2 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:


We cover a new hedge fund each day and you can see the complete list of hedge fund portfolios here.


Monday, April 13, 2009

Last Chance For Free TurboTax: Taxes Due Wednesday!

Just wanted to give everyone one last (and I'm sure dreadful) reminder that taxes are due Wednesday this week (the 15th), so take advantage of the Free TurboTax offer. Don't forget to also make contributions to your IRA/Roth IRA as well.

And, to end on a sarcastic note, make sure you also file to be a bank holding company so you can be bailed out!


John Burbank's Passport Capital 13F Filing: Q42008

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 John Burbank's Passport Capital. This is the first 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. Somewhat recently, we've published a list that Passport sent out to their investors, entitled 'Passport's Suggested Reading List.' The list encompasses some great financial articles worth any investor's 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):
Akamai (AKAM)
Terra Industries (TRA)
VMWare (VMW)
JDS Uniphase (JDSU)
Baidu (BIDU)
Riverbed (RVBD)
Logitech (LOGI)
First Solar (FSLR)
Priceline (PCLN)
Citrix (CTXS)
Sunpower (SPWRB)
---
The rest of their 'new additions' below are tiny pieces of their portfolio. They started new positions in these names, but they are all less than 1% of their overall portfolio. So, keep that in mind:

Pride International (PDE)
Energy Conversion Devices (ENER)
Southwestern Energy (SWN)
United States Oil Fund (USO)
Schlumberger (SLB)
Nvidia (NVDA)
Excel Maritime (EXM)
Nexen (NXY)
Diana Shipping (DSX)
Ultrashort MSCI EAFE (EFU)
Ultrashort S&P500 (SDS)


Some Increased Positions (A few positions they already owned but added shares to)
Petrohawk Energy (HK): Increased by 161%
Petroleo Brasileiro (PBR-A): Increased by 116%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
International Tower Hill Mines (THM): Reduced position by 99.9%
Ultrashort Financials (SKF): Reduced position by 99%
Ultrashort Midcap400 (MZZ): Reduced position by 96%
Ultrashort Russell 2000 (TWM): Reduced position by 96%
Ultrashort Basic Materials (SMN): Reduced position by 96%
Ultrashort Emerging Markets (EEV): Reduced position by 94%
Ultrashort Real Estate (SRS): Reduced position by 94%
Ultrashort Oil & Gas (DUG): Reduced position by 94%
Ultrashort China (FXP): Reduced position by 91%
Sun Micro (JAVA): Reduced position by 74%
Bioform Medical (BFRM): Reduced position by 71%
Mosaic (MOS): Reduced position by 20%
Google (GOOG): Reduced position by 15%


Removed Positions (Positions they sold out of completely)
United States Oil Fund (USO) Puts
SPDR S&P500 (SPY) Puts
Sequenom (SQNM)
Elan (ELN) Puts
Qualcomm (QCOM)
Amgen (AMGN) Calls
American Eagle (AEO) Puts
US Bancorp (USB) Puts
Dick Sporting Goods (DKS) Puts
FBR Capital Markets (FBCM)
Noble Energy (NBL) Calls
Transocean (RIG) Calls
Vale Preferred Shares (RIO-P) Calls
Market Vectors Gold Miners (GDX)
Suntrust Banks (STI) Puts
Market Vectors Gold Miners (GDX) Calls
Barrick Gold (ABX)
JPMorgan Chase (JPM) Puts
Harley Davidson (HOG) Puts
Petroleo Brasileiro (PBR-A) Calls
Mosaic (MOS) Calls
Apple (AAPL) Puts
Ishares S&P100 (OEF) Puts
Amazon (AMZN) Puts
Bank of America (BAC) Puts
Ishares S&P100 (OEF) Calls
Monsanto (MON) Calls
Potash (POT) Calls
SPDR Gold Trust (GLD) Calls


Top 15 Holdings (by % of portfolio)

  1. Mosaic (MOS): 23% of portfolio
  2. Qualcomm (QCOM) Calls: 19% of portfolio
  3. Transocean (RIG): 14% of portfolio
  4. Akamai (AKAM): 9.2% of portfolio
  5. Terra Industries (TRA): 5.1% of portfolio
  6. VMWare (VMW): 4.5% of portfolio
  7. JDS Uniphase (JDSU): 4% of portfolio
  8. Baidu (BIDU): 2.6% of portfolio
  9. Riverbed (RVBD): 2.2% of portfolio
  10. Ziprealty (ZIPR): 1.8% of portfolio
  11. Logitech (LOGI): 1.5% of portfolio
  12. First Solar (FSLR): 1.4% of portfolio
  13. Google (GOOG): 1.2% of portfolio
  14. Priceline (PCLN): 1.2% of portfolio
  15. Citrix Systems (CTXS): 1% of portfolio


Overall, the name of the game for Passport was selling. Some of their bigges moves included selling out of their Gold (GLD) Calls and their Potash (POT) Calls. In the third quarter, those positions were big for Passport at 15.7% and 12.4% of their portfolio, respectively. Most of the positions Passport sold out of completely in Q4 were options related. Those sales could have been due to expiration dates, but they could have also just been plain selling. It is also interesting to see their vast use of various Ultrashort ETFs as a means to place bets on various sectors. Ultrashort ETFs have seen a lot of negativite sentiment lately due to the fact that they are horrible as investments, but great as quick trading vehicles (because of their index correlation problems over time). However, in Passport's defense, each of those positions was only 0.05% of their overall portfolio, which is extremely minimal exposure. Like many other hedge funds we've covered, Passport was also deleveraging and reducing equity exposure in the 4th quarter of 2008. Assets from the collective long US equity, options, and note holdings were $4.3 billion last quarter and were $375 million 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:


We cover a new hedge fund each day and you can see the complete list of hedge fund portfolios here.


Jim Rogers Newsweek Interview

Jim Rogers, noted investor and founder of the highly successful yet now defunct Quantum Fund (with George Soros) recently conducted an interview with Newsweek and we wanted to highlight the interesting bits. For the most part, Rogers has been saying the same thing on mainstream media appearances over the past few months. He appears on TV so often that he keeps having to repeat himself. But, at least he's not like Jim Cramer and doesn't throw out a million ideas just for the sake of new content.

So, while Rogers might not always have new points, it's interesting to hear him elaborate in more detail on some of the investment themes he has divulged thus far. We've covered many of his major stances on the blog before, most notably publishing a summary of Rogers' recent portfolio. Some of his main bullish theses include agriculture and commodities. Focusing in particular on agriculture, Rogers has become so bullish that he has gone to the extreme of investing in physical farmland. He touches on some of these theses again in his interview, where he talks about commodities:

"What’s the fundamental case for commodities right now?
Supply is declining. There’s been 35 years of low investment in production capacity. The last lead smelter in the U.S. was built in 1969! There’s been no major oilfield discovery in 40 years. Oil is in decline. According to the International Energy Agency, oil reserves are declining significantly. At this rate, in 20 years, there will be no oil left. The only people to make money in the next 20 years will make it in commodities. It’s the only asset class where the fundamentals are improving. I mean, look at Citigroup, look at GM. Those fundamentals are not improving.

Do you see commodities as an inflation hedge?
Absolutely. This is only time in history where you’ve got every central bank in the world printing money at the same time. Consumer prices are going to go way up. The public is already getting out of paper money, which is why you’re seeing gold go up.

Does the future growth of China factor into your bullishness?
China is tiny in comparison to the U.S. economy. Anyone who thinks that the commodities story is driven by China needs to do more homework. In the 1970s, everyone was in recession, and you still had declining supply [in oil] and higher prices. Asia wasn’t even in the game then. China was run by Mao. But now, of course, there are those 3 billion people in Asia who are in the game. It’s just another factor.

Are we going to see another food-price spike sometime soon?
Definitely. I think you should move back to Indiana and marry a farmer. There are times in history when the money lenders have been in charge, and we just came through one of those periods. But it wasn’t always that way. Wall Street was a backwater in the ’40s, ’50s, ’60s and ’70s, and it will be again. Farmers are going to be the ones driving Lamborghinis, and the traders are going to have to learn to drive tractors.

How about you? Are you upping your own commodities positions right now?
As a matter of fact, I am. I never sold anything to begin with. And I’m not planning to, either."



You can read about the rest of Rogers' current investment themes in detail in our recent summary. And, as always, you can check out the interview in its entirety at Newsweek.