Friday, July 24, 2009

CHP Designation: $50 Discount Exclusively For Market Folly Readers

Hey everyone, we just wanted to make sure that all of our readers are taking advantage of the special discount we have arranged with the Hedge Fund Group (HFG) for the Certified Hedge Fund Professional program. All Market Folly readers can receive the exclusive $50 discount and all you have to do to is fill out your name and email at the bottom of the page to receive the discount. Our site specific form will show them that you are a MarketFolly reader and the discount will be automatically applied should you decide to register. The form below is not signing you up for the program, it is merely signing you up to receive more information about it. If you then go on to register, it will automatically apply the discount for you!

The CHP is similar to the CFA (Chartered Financial Analyst) or CAIA (Chartered Alternative Investment Analyst) but it is specific to hedge funds. The CHP is ideal for industry professionals trying to build their knowledge and credibility and is also a great tool for those of you wanting to break in to the industry. If you want to learn more about the CHP designation, then you can check out our interview with Richard Wilson, the founder of the program: Part 1 here, and Part 2 here. Additionally, there have already been numerous testimonials from the program and we wanted to just post up a few of them:

From Andy R. (Hedge Fund Manager) : "As a former Hedge Fund manager looking to launch a new fund in the next year, I was intrigued by the prospect of increasing my knowledge and understanding of a variety of platforms, strategies, and new regulations that are likely to come through the CHP. I believe that this designation is a long overdue way to separate the wheat from the chaff in an industry that, while currently in a down cycle, will remain as an integral component for financial planning and asset allocation in the future."

From Soumen Gopal (Hedge Fund Manager): "There are three reasons why I joined this hedge fund certification program. The first is the focus: this program is focused very deeply on the hedge fund industry, performance, and investment strategies. The second important point about this program is the speed of completion, as many other programs take much longer to complete. The last reason was the networking benefits. You can come out of this program and attend networking events and meet others in the industry and this is very helpful."

From Dominic Di Bernardo (Student): "I am taking this hedge fund certification program to expand my knowledge base of the hedge fund industry. I believe this designation will give me an edge over others trying to enter the industry. Lastly, I believe that I will be able to gain valuable contacts through the program, other designation candidates, and anyone else that stands behind the designation."

Enter your contact info below to learn more about the CHP designation & to receive the exclusive MarketFolly $50 discount:

(Email & RSS Readers: you have to come to the blog to enter your information)

Thoughts From Oaktree Capital's Howard Marks

Here's the latest memo, "So much that's false and nutty" from Oaktree Capital founder Howard Marks. Interesting reading as always. RSS & Email readers will need to come to the blog to view the embedded .pdf document. Additionally, you can download the .pdf directly by clicking here.

Howard Marks So Much Thats False and Nutty

Thursday, July 23, 2009

Seth Klarman's Baupost Group Sells Omnova (OMN) Position

Seth Klarman's hedge fund Baupost Group has recently filed an amended 13G with the SEC. Due to activity on June 30th, 2009, Baupost has now disclosed a 0% ownership stake in Omnova (OMN) with 0 shares. They have completely sold out of their position having previously owned 7.4% of the company with 3,242,800 shares as we noted when we covered their Omnova position in the past. Back then, they were selling down the position and its now clear that they continued to sell the name in the months of May and June. This isn't the only activity we've seen from Klarman recently, as he also has bet big on Capitalsource (CSE) and News Corp (NWS-A) as we detailed when we presented Baupost's portfolio.

Over the past 25 years, Baupost has seen an annual compound return of 20%. Such a pristine track record has landed Baupost in our custom Market Folly portfolio, where we have cloned a hedge fund portfolio with the Alphaclone software that is returning 27% annualized since mid-2002. Baupost's contributions to our portfolio are definitely a big reason for the solid numbers.

Klarman received his MBA from Harvard Business School and started working at Baupost at age 25. Klarman's hedge fund was recently ranked 13th in the 2009 hedge fund rankings (jumping way up from being ranked 49th in Alpha's 2008 rankings). Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity. And, as such, Baupost's cash has been gradually deployed, leaving them with around a fourth of assets left in cash. Additionally, Klarman has authored a now out of print but acclaimed book entitled, Margin of Safety.

Taken from Google Finance, Omnova is "a provider of emulsion polymers, specialty chemicals and decorative and functional surfaces for a variety of commercial, industrial and residential end uses. The Company’s products provide a range of functional and aesthetic benefits to products that people use daily. OMNOVA operates in two business segments: Performance Chemicals and Decorative Products."

For more on Klarman and Baupost, we've assembled a collection of excellent resources here:

- Klarman's question and answer session from the Graham & Dodd Breakfast Conference
- Seth Klarman's Endowment Management Seminar
- His interview with Harvard Business School
- His thoughts from Value Investor Insight

Technical Analysis On Gold: $980 Then Pullback?

Adam Hewison over at MarketClub just put another free technical analysis video on gold that touches on possible cyclical patterns in gold on a monthly basis. He thinks gold will head higher until $980 or so where we'll see some resistance. In the diagram he points out a somewhat of a rounded stair-stepping pattern where gold will rally and then pullback, and then rally higher. So, while gold may be headed slightly higher, it will indeed face some resistance once it hits that $980 level and Adam thinks that could hit here soon in August. You can watch the video here.

While Adam has looked at the spot price of gold on his charts, retail traders/investors can play it via SPDR Gold Trust (GLD) or Comex Gold (IAU). We keep covering gold on the blog simply because we've seen quite a confluence of smart minds in the gold trade as numerous hedge fund managers are invested in the precious metal. While many of them use GLD as their vehicle (namely John Paulson), David Einhorn's Greenlight Capital recently switched to storing physical gold due to it being cheaper to store than the expense ratios they were paying with GLD. It will be interesting to see if other managers switch to physical gold as well. For people who don't have that option, we'd recommend playing GLD as it is the most liquid option in the markets. For more on technical analysis and charts, make sure to hit up our recommended reading list: technical analysis edition.

Sprott Asset Management Market Commentary: July 2009

Thanks to a reader in Toronto for sending over the latest from the Sprott camp as they seek to emphasize that markets are 'surviving' on investor sentiment rather than cold hard facts. We like how they chose to end their letter: "Keep it simple, stupid - investing is and has always been about the real economy, and this market is ignoring the hard data. You can invest in sentiment if you want to, but as we have said before, we prefer to invest in real things." The phrase 'real things' obviously has multiple meanings here. First, they mean using the real, raw economic and earnings data as a guideline. But, at the same time, one can't help but note that they most likely want 'real' to mean 'real assets'... as in commodities, and specifically, precious metals. And, even more specifically, gold. Sprott has a big weighting in precious metals as we have previously noticed when we covered their portfolio. Obviously they are skeptical of the market being able to hold itself up on 'hope' and 'green shoots' (and rightly so). Additionally, you can download Sprott's June performance data .pdf here.

Enjoy their commentary below in embeddable .pdf form. RSS & Email readers will have to come to the blog to view it.

Sprott July 2009

Wednesday, July 22, 2009

Bill Ackman's Pershing Square Investor Letter Portfolio Update

Today we're covering the latest investor letter from Bill Ackman's hedge fund Pershing Square Capital Management. We like to detail the thoughts expressed in such letters as they often give us an insider glimpse into their portfolios and the manager's mind; something we cannot necessarily get with 13F filings. Just yesterday, we covered the latest from David Einhorn's Greenlight Capital and we found some intriguing tidbits of information and we're sure Ackman has some interesting updates as well. If you're unfamiliar with Ackman & Pershing Square, then make sure to check out the profile/biography we did very recently. Let's see what ole Ackman has been up to, shall we?

Target (TGT)

Firstly (and rightly so), Ackman focuses on their Target (TGT) position. After all, they have an entire hedge fund dedicated to a position in it and have been pushing for change for some time now. While he lost the proxy vote, Ackman still says they have succeeded in other ways as they have got the company thinking about a transaction involving their credit card segment somewhat along the lines of what Pershing originally proposed. An interesting fact is that they spent seventeen cents per each Target share they owned on the proxy contest. Though one could argue that is negligible when you consider that Target was up $14 within the timeframe of the proxy fight. In the end, Ackman "continue(s) to believe that Target stock offers an attractive potential reward for the risk of ownership at current prices, particularly in light of the motivational impact on the company of the recent proxy contest." Well, we shall see. Ackman did go on to say that he sees Target remaining a longer term holding for the funds.

Borders Group (BGP)

Secondly, Ackman focuses on their Borders (BGP) position. Ackman was happy to report that year-to-date, Borders has appreciated 985% due to the management change amongst other things (ex-Pershing Square member Mick McGuire is now chairman). Ackman did concede that sales continued to decline, but he points out that they "appear to have stabilized at a lower level than last year." Currently, Pershing has an economic interest of 40% of the shares outstanding (including total return swaps, warrants, and common stock). Pershing "received 14.7 million warrants originally struck at $7.00 per share in connection with a $42.5 million loan we made to the company in March of 2008 and our commitment to purchase Borders' foreign subsidiaries in certain circumstances. Our commitment to purchase these subsidiaries could only be exercised at a price we believed to be materially below the fair value of these foreign subsidiaries and was subject to a no-material-adverse-change condition." Ackman still believes that despite a harsh economy and risks to Borders in general (digital book sales, etc) that there is still room for discount bookstores in the US. He actually sees bookstores morphing in business model as time goes on to adapt to the changing environment. In the end, the average price of their position is $6.98 per share.

General Growth Properties (GGWPQ)

Thirdly, Ackman turns his focus to General Growth Properties (GGWPQ) where he sees the company emerging from bankruptcy because their assets are greater than their liabilities. In the end, he thinks that the equity will still have value as well. Pershing owns around a 25% economic interest in General Growth through stock and cash-settled total return swaps. He points out that the company has strong cash flows but just has a refinancing problem due to the inoperability of real estate capital markets. Pershing Square owns both debt and equity and they purchased it knowing full well that GGWPQ would have to go through bankruptcy. On the negative side, Ackman did fail to become the DIP financier (debtor-in-possession) of the company. However, he has since joined the board of directors and as such is restricted somewhat in the ability to trade their position. They fully realize the risks associated with the investment (although they think they will make plenty of money off of it) and they have hedged the position through "certain short equity and CDS invesments in other companies."

Positions They Sold

They sold out of Wendys Arbys (WEN), Visa (V), Dr Pepper Snapple (DPS) and cited valuation and more attractive opportunities as their reasoning. Due to the economic environment, they have become increasingly concerned with the valuations they are willing to pay for certain companies. They also have reduced the CDS (credit default swap) portion of their portfolio as well, selling investment grade CDS (which they are calling a hedge) as risk started to dwindle away.

CDS Positions

While they sold out of some CDS, they "continue to hold substantial single-name CDS positions in the holding company debts of financial institutions which we believe have a reasonable likelihood of requiring large amounts of additional equity capital." Ackman goes on to cite that these CDS offer the potential of large profits and have low carrying costs, which make it an attractive opportunity, as well as a hedge.

Short Positions

Pershing typically does not short individual equities, as they prefer to use CDS and other instruments that offer greater reward. However, they have currently taken on two shorts (to coincide with GGP and Target) where they "believe correlated short equity opportunities exist which offer less upside stock price potential and have downside potential which is highly correlated with our corresponding long investments." Ackman cites this as a response to the inability to predict the true length and severity of the recession we are currently in.

New Positions

They also started 2 new longs in "large capitalization U.S.-based businesses with dominant global franchises which generate growing free cash flows" and Ackman does not see them going activist on these two holdings. Right now, one of the holdings is only 3% of their fund (as it has appreciated in price, not allowing them to establish their full position size). The other position is around 7% of their portfolio and they are looking to take it to an even higher percentage of the overall portfolio.

In terms of recent performance, Pershing was up 1.4% for the month of June and is up 11.3% year to date as of that timeframe all as noted in our June 2009 hedge fund performance update. In terms of number of positions that are each greater than 0.5% of the portfolio, Pershing has 9 longs and 3 shorts. The vast majority of their longs are Large Cap names, while the same can be said for their shorts. Keep in mind that Pershing also has long CDS exposure (credit default swaps) to the tune of around $900 million. You can view Pershing Square's portfolio here.

Overall, interesting insight from Bill. As you can see, he runs a pretty concentrated portfolio and likes to focus on his "best ideas" so he can devote time to those positions that desire activist change (namely: Target & General Growth). Since Pershing only has a few short equity positions, it would have been interesting to gain more insight regarding those, but let's be honest... short positions are more often than not a hedge fund's prized possession and won't slip out easily. However, inquisitive minds can take the hints provide and make an educated guess as to what they are shorting. As always, we'll continue to track Ackman & Pershing's movements and will post updates as we see them. We've covered Bill Ackman plenty on the blog and you can check out our profile on him here, Pershing Square's portfolio here, as well as his presentation on General Growth Properties (GGWPQ) here. Stay tuned as we continue to sift through some of the recent batch of hedge fund investor letters!

Dan Loeb's Third Point Sells More Maguire Properties (MPG)

Dan Loeb's hedge fund firm Third Point LLC has filed yet another amended 13D with the SEC. This time around, Loeb was continuing to sell shares of Maguire Properties (MPG) as they now show a 3.75% ownership stake in the company with 1,800,000 shares. The filing was made due to activity on July 8th, 2009. Previously, when Loeb filed the first amended 13D, he owned 5.02% of the company with 2,410,000 shares. Clearly though, Third Point has been reducing their position. To see what other positions Third Point owns, you can check out their portfolio here.

For the month of June, Loeb's Offshore fund was up 1.8% and is now up 7.2% year to date. Their Partners LP was up 1% for June and is up 5.6% ytd. Their Partners Qualified fund was up 1.4% for June and is up 5.6% for the year. Lastly, their Third Point Ultra fund was up 1.8% for June and is up 8.4% for 2009. We also see some other metrics updated as their Sharpe Ratio since inception is 1.2 while their correlation to the S&P500 since inception is 0.4. Breaking down their exposure by sector, we see that Third Point was net long financials and healthcare. Their largest short position was on the consumer. However, they had an equally large long position leaving them almost net neutral on the consumer. So, we don't see a whole lot of short exposure reflected. You can see Third Point's entire performance breakdown in our June 2009 hedge fund performance numbers post.

Third Point is a $2 billion activist and value based hedge fund. Specifically, they deem themselves to be "event driven, value oriented investors." Loeb founded the firm back in 1995 with $3.3 million in seed capital and is still running the show these days. While Third Point is technically an activist fund, Loeb often has numerous passive investments as well. Loeb himself is quite well known for his searing and critical letters to management of various companies. Third Point has seen annual returns averaging over 15% since inception (including the crazy year that was 2008), a Sharpe Ratio of 0.9, and a correlation to the S&P500 of 0.4.

Taken from Google Finance, Maguire Properties is "a self-administered and self-managed real estate investment trust (REIT). The Company is the owner and operator of Class A office properties in the Los Angeles Central Business District (LACBD) and is primarily focused on owning and operating office properties in the high-barrier-to-entry Southern California market."

Tuesday, July 21, 2009

David Einhorn's Greenlight Capital Stores Physical Gold: Portfolio Update & Investor Letter

We love tracking David Einhorn because straight up, he's a smart guy. Besides dominating hedge fund land, Einhorn also dabbles in poker and the picture to the right is of him at the World Series of Poker, where he has in the past donated his winnings to charity. We love reading his investor letters at Greenlight Capital because they often give so much insight and transparency as to some of the movements they are making with their portfolios. And, in his second quarter investor letter, Einhorn reveals a few major new developments at his hedge fund.

While Einhorn is typically a value/event-driven investor, we instead want to turn the focus to his macro plays. First and foremost, the activity most people will talk about is the fact that Greenlight has shifted their gold position from the gold trust exchange traded fund GLD to physical gold, citing cheaper fees for storage than expense ratios for the fund they were previously invested in. This is an intriguing move and we'd imagine other funds will eventually follow suit. After all, literally a ton of hedge funds are invested in GLD. And, most notably, John Paulson's hedge fund Paulson & Co has billions of dollars tied up in a GLD position. It will be interesting to see if other funds shift toward storing physical gold ala Einhorn. And for those of you wondering where gold is headed, check out the video we posted up yesterday regarding gold's current trading range.

Secondly, we also want to touch on Greenlight's Japanese Yen position. In a previous investor letter, Einhorn went long the Japanese Yen for various reasons. However, this time around, he has closed the long Yen position. Now they have moved to purchasing options contracts on higher Japanese interest rates in the coming years. Thirdly, they have also purchased another set of options contracts. Einhorn and company picked up puts on the S&P500, citing a decline in volatility as an attractive entry point for some protection should uncertainty rise again. So, while Greenlight undoubtedly has made interesting moves with their equity positions, we instead wanted to focus on their "macro hedges" as they like to call them, as they paint a bigger picture.

However, their equity positions are obviously still worth focusing on so we'll detail some of the changes we've seen within their portfolio. When we looked at Einhorn's portfolio most recently, we saw their large positions in gold and URS. Since the 13F filings we track do not include foreign holdings, we rely on investor letters to gain insight as to what stocks they like in foreign markets. This time around, we note that Einhorn's largest long positions are:

- Arkema
- Criteria Caixa
- Ford Motor Company debt
- gold
- Pfizer

So, gold is still pretty high up the portfolio ladder along with Criteria Caixa and Ford debt. This update though also brings attention to their positions in Arkema and Pfizer, which had previously not been 'top dog' holdings for them. They added some new positions as well, and they specifically mentioned picking up shares of Aspen Insurance Holdings (AHL). Overall, their portfolios were 78% long and 55% short (based solely on equities and fixed income exposure and excluding their macro plays referenced earlier). But, what is intriguing is that they say they have "almost no net long exposure to equities" due to their "bottom-up inability to find many good opportunities, our willingness to sell fully priced positions into the recent rally and our top-down view that the recent rally has now priced in a solid economic recovery which may or may not materialize." Well, that's encouraging, isn't it? No good opportunities out there... time for a market pullback.

They also listed numerous positions that they closed out over the past quarter. They sold out of the following longs: Adesa term loan, Charter Communications term loan, ConWay, Commscope, Discover Financial, Dow Chemical, Hess, Jones Apparel (we covered their initial activity on that one here), Linamar, Rohm & Haas, Target, Texas Competitive Electric term loan, Westshore Terminal Income Fund, and the Japanese Yen.

They also closed out the following short positions: AutoZone, Exxon, and State Street Financial. So, its good to get a nice look at some of the companies they had been short. At the recent Ira Sohn investment conference, Einhorn also presented the case for shorting Moody's and various ratings agencies. Make sure to check out that article because numerous hedge fund managers in addition to Einhorn presented investment ideas at the conference which we've detailed.

In terms of performance, we see that Greenlight is doing pretty well this year overall. Their Capital LP fund was up 16.3% for the 2nd quarter of '09 and is up 21.5% year to date. Their Capital Qualified LP was up 14.7% for the second quarter and is now up 19.7% for the year. Lastly, their Capital Offshore fund was up 11.9% for the second quarter of 2009 and is now up 17.3% year-to-date all as noted in our June 2009 hedge fund performance numbers post. For more on Einhorn and Greenlight, you can see some of their past SEC filings here and also here.

We find it fitting to end our post with the exact same quote that Greenlight ended their letter with from William Arthur Ward: "The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails."

Stay tuned because tomorrow we'll cover Bill Ackman and Pershing Square's latest movements as per their most recent investor letter. And last but certainly not least, here is Greenlight's letter in its entirety for your enjoyment. Firstly, in downloadble .pdf form (click here to download) and secondly in the form of pictures (.jpg) as a back-up thanks to Todd Sullivan.

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Chase Coleman's Tiger Global Sells More Longtop Financial Technologies (LFT)

In an amended 13D filing with the SEC, Chase Coleman's hedge fund Tiger Global is now showing a 14.2% ownership stake in Longtop Financial Technologies (LFT) with 7,293,499 shares. The filing was made due to activity on July 1st, 2009 and signals that they were selling even more shares. Previously, we covered Tiger's LFT sales back in late June. Back then, they had sold down to 7,456,294 shares. And, this time around, with 7,293,499 shares on hand, it's evident that they were still trimming down their position. We'll continue to monitor this development and see if anything else major materializes. In the mean time, you can also check out Tiger's entire portfolio here.

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

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

Taken from Google Finance, Longtop Financial Technologies "together with its subsidiaries, provides a range of software solutions and services to the financial institutions in the People’s Republic of China (PRC), including the development, licensing and support of software solutions, the provision of maintenance, support, and other services, and system integration services related to the procurement and sale of third party hardware and software."

Why Gold Prices Will Rise

Just yesterday, we posted up a technical analysis video that looked at what trading range gold is currently trading in. With so many hedge funds in the gold trade, it's always a topic worth monitoring. Below is a guest author piece entitled, "With Inflation on the Horizon, Gold Prices are Ready to Rally."

By Jason Simpkins

Managing Editor

Money Morning

With the global economy on the mend, could gold be gearing up for another record-setting run? It sure looks that way. After peaking north of the $1,000 per ounce price level last year, gold hit a stumbling block when deflationary fears in the world's largest economy sucked the air out of commodities prices and sent hoards of investors stampeding into the safe-haven of U.S. Treasuries, and helped spawn a rebound in the U.S. dollar. Since that time, the global economic outlook - especially beyond U.S. borders - has improved, and gold prices have stabilized. The next step - many gold bulls say - is for the yellow metal to make a run for new highs.

Whipsaw Trading Patterns

Gold started 2009 at about $870 an ounce - down substantially from early 2008 when prices hit a record-high $1033.90, but significantly higher than the $712.30 an ounce it was trading at in mid-November. Then, when talk of inflation resurfaced in February, and later in April, prices surged well over $900 an ounce, again testing the $1,000 level. Gold prices hit $983 in early June - a 38% jump from their November low. Gold prices have since lost some of that momentum, dropping back down to $940 an ounce, but many analysts believe this is where gold will find support before eventually shooting back to $1,000 - and possibly even higher - by the end of the year. There are many reasons to believe that gold is poised for such a strong showing: Supply of newly mined gold is dwindling, fresh discoveries of deposits are on the wane, and demand has remained strong. But the biggest reason analysts believe gold will rebound to its 2008 apex is that the medium and long-term outlook for dollar is rapidly darkening.

Government Support for Gold

With the U.S. Federal Reserve pursuing a policy of quantitative easing and a federal budget deficit that's spiraling out of control, the dollar is extremely vulnerable. The Federal Reserve has lowered its benchmark Federal Funds rate to a range 0%-0.25% and has said it will remain there for "an extended period." The Fed has also injected more than $2 trillion into the financial system, expanding credit through increased loans to banks to provide liquidity. It's also created the Commercial Paper Funding Facility - which holds $109.2 billion in short-term IOUs issued by corporations - and the Term Asset-Backed Securities Loan Facility (TALF) - which has lent $25 billion to investors to buy securities tied to auto and other consumer and business loans. And the central bank itself has pledged to buy $1.75 trillion in mortgage-backed securities, Treasury notes, and federal housing agency bonds. "In the last year alone, the U.S. Federal Reserve has actually doubled the U.S. monetary base," said Money Morning Contributing Editor Peter Krauth. "That can only lead to serious inflation, perhapseven hyperinflation. This will cause the value of the U.S. dollar - which has been eroding since 2001 - to decline at an even-more-frenetic pace." In addition to the Fed's action, the United States' spiraling debt poses a significant threat to the dollar's value, as well. Federal debt will reach $12 trillion by this fall and exceed $13 trillion by September 2010, according to the Congressional Budget Office (CBO). The CBO projects the U.S. budget shortfall will reach at least $1.85 trillion - equivalent to 13% of the nation's gross domestic product (GDP), a level not seen since World War II - in fiscal 2009. And if the economy doesn't rebound soon, that number will very likely top $2 trillion by the end of September. The CBO anticipates the deficit will shrink to about $1.4 trillion in fiscal 2010 and $1 trillion in fiscal 2011, if the economy continues to stagnate, there is a good chance that those budget shortfalls will be even greater than the fiscal 2009 deficit. Some of U.S. President Barack Obama's advisors have already acknowledged that the administration underestimated the rapid rise in unemployment and that a second stimulus may be in the cards. Laura Tyson, former chair of the U.S. President's Council of Economic Advisers during the Clinton administration and current advisor to President Obama, said July 6 that the $787 billion stimulus passed in February was "a bit too small" and that more may be required. But if another stimulus is needed, how exactly does Washington plan on financing it? While the government has continued to find buyers for its Treasuries, the question being asked by analysts is at what point will investors start to balk at continuing to finance the American expenditures. China - the largest holder of U.S. debt - is already losing its appetite for U.S. Treasuries. In fact, the world's fastest growing economy has already admitted to stocking up on gold to hedge against the dwindling value of its dollar holdings.

With the Dollar Diving, China Turns to Gold

China bought less than a sixth of the Treasuries issued by the U.S. government in the 12 months through March. That stands in stark contrast to the Treasury market of two years ago, when China's demand for U.S. securities actually exceeded the United States' own borrowing needs. Additionally, when China has purchased Treasuries, it has done so by swapping them with other U.S. assets, rather than exchanging foreign currencies or commodities. China has increased purchases of short-term Treasury notes - those that mature in a year or less - while at the same time unwinding its position in Treasuries with longer maturities. "They are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher," JPMorgan & Co. analyst Frank Gong told The Associated Press. "Inside China, there has been a lot of debate about whether they should continue to buy Treasuries." As Money Morning reported in June, Treasury Secretary Timothy F. Geithner traveled to China to reassure the nation about the value of its holdings. But not everyone was convinced. "I worry about details," said Yu Yongding, a former central bank adviser who interviewed Geithner for the China Daily newspaper. "We will be watching you very carefully." Prior to Geithner's visit, Yu told Bloomberg News that he was hopeful for details on the U.S. plan to support the dollar. He also warned that despite its sizeable commitment to U.S. debt, China has other options. "I wish to tell the U.S. government: 'Don't be complacent and think there isn't any alternative for China to buy your bills and bonds,'" said Yu. "The euro is an alternative. And there are lots of raw materials we can still buy." One such raw material is gold. China recently announced recently that it has increased its holdings of gold by about 450 metric tons in the past six years. "Gold is shifting back from a sovereign reserve asset central banks were inclined to underplay to one of growing, strategic interest," said Trevor Keeley, global head of sovereign client services at the Anglo-Swiss bank UBS AG. "This shift is logical; gold remains the world's primary financial asset that is no one's liability." And China's not the only one loading up on the yellow metal. Whether it's through exchange traded funds (ETFs), or acquiring actual gold bullion, investor demand for gold continues to soar. Individuals' bullion purchases almost doubled last year to 862 metric tons, The Wall Street Journal reported. And while gold buying by investors has fallen from its 2008 peak, the volume still remains historically high. The 130 metric tons of gold purchased in the first quarter of 2009 is 50% higher than this decade's average quarterly volume. Of course, bullion isn't the most practical way to get in on gold's pending surge.

How to Stock Up on Gold

One way to stock up is to buy gold outright, either in bars, or though the gold-linked, exchange-traded fund (ETF) SPDR Gold Shares. Today, SPDR itself holds more than 1,000 ounces of gold, and has a market capitalization of $33 billion. The fund's price fluctuates in concert with the price of gold, which adds a small mount of risk. On the other hand, however, buying this ETF is more convenient than buying gold bars directly, because the fund dispenses with the accompanying storage problems that comes with actually owning physical gold. Buying stakes in gold miners is an excellent way to hedge against the enormous inflationary pressures filtering through the U.S. economy. In this case, the Market Vectors Gold Miners ETF GDX - composed chiefly of major gold miners - offers both company and geographic diversification, while including substantial leverage to the price of gold. Market Vectors is based on the AMEX Gold BUGS Index (HUI), which represents a portfolio of 15 major gold mining companies that do not hedge their gold production beyond a year and a half.

Monday, July 20, 2009

Hedge Fund Jana Partners Files 13D on PRG-Schultz (PRGX) & 13G on Immucor (BLUD)

In a 13D filing made with the SEC recently, Barry Rosenstein's hedge fund Jana Partners disclosed a 10.5% ownership stake in PRG-Schultz (PRGX) due to activity on July 13th, 2009. They now own 2,311.669 shares. This is not a new position for them, as they owned the same amount of shares back on March 31st, 2009 as disclosed in their most recent 13F filing. Instead of filing ot denote a change in their share total, they are filing to reserve their right to go activist. Quoted from the SEC filing, "The Reporting Person initially acquired the Shares for investment in the ordinary course of business because it believed the Shares were undervalued and represented an attractive investment opportunity. However, in light of the continued underperformance of the Shares, the Reporting Person recently conducted a review of the Issuer's performance and strategic position, and has determined that the Issuer should puruse all avenues to increasing shareholder value including a review of strategic alternatives. The Reporting Person is filing this Schedule 13D to reserve its right to take steps to bring about changes to increase shareholder value, which may include changes in the board composition, strategy and future plans of the Issuer...". As such, Jana has reserved their right to go activist as is typically the case with a 13D filing. Again, this is not a new position and they still have the same amount of shares as reported from their 13F filing.

Additionally, Jana has also filed an amended 13G on their position in Immucor (BLUD). As per the filing, they own a 5.4% ownership stake in BLUD with 3,787,668 shares. This is down slightly from when they first filed a 13G on Immucor back in June. Back then, they had 3,865,413 shares and so they have already sold some shares off in the month or so that has already elapsed as the filing was made due to activity on July 9th, 2009.

We've also noted some of Barry Rosenstein's other recent activity as his fund has made numerous filings. Most recently, they have been selling shares of Coleman Cable (CCIX), as well as selling shares of Convergys (CVG). All of the portfolio shifting comes after a rough year in 2008 for Jana where they supposedly saw redemption requests for almost 30% of the fund's capital. In an attempt to meet such requests, they had to set aside illiquid positions and really shuffle things around. Jana was founded in 2001 by Barry Rosenstein and typically employs activist, market neutral, and long/short equity strategies in public equity markets. Rosenstein received his BS from Lehigh University and his MBA from the Wharton School of Business at the University of Pennsylvania. Jana has returned 20.9% each year annualized from 2001 til 2007. Rosenstein sees Jana's future in a strategy that uses management adjustments to force change at companies, which in turn can send shares higher. And, hopefully that strategy changes things for the better, as 2008 was a rough year for them. As their recent 13D filing suggests, it looks like they're going to be going activist more often these days.

Taken from Google Finance,

PRG-Schultz is "a worldwide provider of recovery audit services principally to large businesses and government agencies having numerous payment transactions. These businesses and agencies include, retailers such as discount, department, specialty, grocery and drug stores, and wholesalers who sell to these retailers."

Immucor "develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks in a number of tests performed to detect and identify certain properties of the cell and serum components of human blood prior to blood transfusion."

Gold Technical Analysis Video: Trading Range

This time around the guys at MarketClub have put up a video on the spot Gold price. They take a look at what the current technical analysis is telling them and point out Gold's current trading range. We keep covering Gold on the blog because there are literally a ton of hedge funds invested in gold right now. It is one of the highest confluences of 'smart money' we have seen in one play in some time. As such, we wanted to post up the technical analysis video on gold, so check it out.

Boone Pickens Seeks Investors For Hedge Funds

Well, here we go again. After his energy fund lost 98% and his equities fund lost 64% in 2008, Boone Pickens is back for more. Yep, he is raising money for new iterations of essentially the same hedge funds that his hedge fund BP Capital previously ran. Well, we don't even really need to say "essentially" because they literally are the same funds just with a "II" at the end of the name, signaling their second incarnation.

His Energy fund will trade futures and his Equities fund will trade energy related equities and some futures as well. His "II" Energy Fund started trading back in February and is already up a whopping 79%. It's funny how they are undoubtedly using that as marketing material and you can't blame them. However, investors should be aware that the exact same types of funds were obliterated last year. So, a 79% gain this year is not much when you consider how much they were down the year prior. According to fund documents, Pickens will aim to hold investments between 3 months and two years. If you're curious as to what his firm owns, we've covered Pickens' hedge fund portfolio recently here.

As our friend TraderMark over at so poignantly asked, is Boone turning into the next John Meriwether? For those unaware, Pickens had an absolutely brutal last year as his funds lost money, he personally lost money, and every bet he made seemed to go against him. John Meriwether, on the other hand, blew up Long Term Capital Management back in the day and we just recently got word that he is closing yet another hedge fund down. We like to call it the hedge fund boom-bust cycle. Manager starts hedge fund, goes boom to the top of the charts, then goes bust. They then re-group, raise more money, and then start over again. Rinse and repeat. And, repeat again. You get the picture.

So, we like to poke fun at both the fund managers themselves for their propensity to 'blow up' and come right back from the dead with a new fund offering. At the same time, we like to poke even more fun at the investors who continually come back for more. Such is life in hedge fund land. Speaking of 'pokes, we know one institution who will be watching him carefully: The Cowboys of Oklahoma State University. Boone's alma mater certainly loves all of his donations as he has helped revamp the athletics program there. But, after last year, you know they'll be eagerly watching.

It will be interesting to follow Boone's funds now that he's been personally hurt by them so much. You know he certainly doesn't want to blow up again. Additionally, in our recent hedge fund news summary, we also saw that Boone was scaling back his wind energy projects too. So, tough times all around for ole T. Boone. In the end, he will live and die by his funds, as he is their largest investor, at 20%. And for that, we cannot criticize him. We love to see managers with a lot of 'skin in the game.'

How To Get a Job At a Hedge Fund / 'Tiger Cub' Family Tree

We've got a quick guest post from Hunter at Distressed Debt Investing that we're sure many readers will be interested in, entitled: How to Get a Job at a Hedge Fund. Here it is:

As Jay can attest to, one of the more rewarding experiences of financial blogging is the ability to answer readers' questions ranging from: "Do you like XYZ stock?" to "Do you think business school is for me?" to "What do you think about this hedge fund manager?" and beyond. One question that I personally get, more often than not, is "How do I get a hedge fund job?" This is not an easy question to answer in a few short paragraph email. So, I decided to create a new blog, focused solely on the process (from A to Z...i.e. resume building to salary negotiations) of getting a hedge fund job. Not lacking in originality...I decided to entitle the blog "How to Get a Hedge Fund Job" In the coming weeks, I am going to lay out for readers, in the most practical way possible, my thoughts on the best way to lay out your resume, to get the interviews, what kind of questions you will get asked in the interview, etc. In tribute to Jay, and all the hard work he has done following Julian Robertson's Tiger Cubs, I worked with a few friends to lay out, to the best of our knowledge, the list of Julian Robertson's Tiger Cubs (Fund Name and Principal). I hope you enjoy. If you have any questions, comments, or thoughts, please shoot me an email: Hunter [at] distressed-debt-investing [dot] com.

Tiger Management – Julian Robertson

  • Blue Ridge Capital – John Griffin
    • Bridger Management – Roberto Mignone
      • Valinor Management – David Gallo
  • Maverick Capital – Lee Ainslie
    • Highside Capital Management – Lee Hobson
    • Impala Asset Management – Robert Bishop
  • Viking Global Investors – Andreas Halvorsen
    • Tiger Eye Capital – Benjamin Gambill
    • Hoplite Capital – John Lykouretzos
  • Touradji Capital – Paul Touradji > Gentry Beach and Rob Vollero
  • Lone Pine Capital – Stephen Mandel
    • White Elm Capital – Matthew Iorio
    • Conatus Capital – David Stemerman
  • Shumway Capital Partners (Chris Shumway)
    • Suranya Capital Partners – Anu Murgai
    • JAT Capital – John Thaler
  • Toscafund – Martin Hughes
  • Ospraie Management - Dwight Anderson
  • Second Curve Capital – Tom Brown
  • Coatue Capital Management – Philippe Laffont
  • Ridgefield Capital Management – Robert Ellis
  • Discovery Capital Management – Rob Citrone
  • Longhorn Capital Partners – Kris Kristynik
  • Healthcor – Arthur B Cohen
  • Pantera Capital Management – Dan Morehead
  • Bowman Capital Management – Lawrence Bowman
  • Millgate Capital – James Lyle
  • Intrepid Capital Management – Steve Shapiro
  • Argonaut Capital Management – David Gerstenhaber
  • Elmwood Advisors – Quinn Riordan
  • Deerfield Capital – Arnold Snider
  • Duff Capital Advisors – Philip Duff
    • North Sound Capital (Rolled into Duff Capital) – Tom McAuley
  • Joho Capital – Robert Karr
  • Roundrock Capital Management – Peter Vig
  • Speedwell – Fuyuki Fujiwara
  • Williamson McAree Investment Partners – Ed McAree & Robert Williamson
  • Asian Century Quest – Brian Kelly
  • Sun Valley Gold – Peter Palmedo

Tiger Management v 2.0

  • Tiger Global – Chase Coleman
  • Tiger Asia – Bill Hwang
    • Kylin Management – Ted Kang
  • Tiger Shark Management – Tom Facciola & Michael Sears
  • Tiger Consumer – Patrick McCormack
  • Tiger Veda – Manish Chopra
  • Torrey Pines Capital Management – Robert Jafek
  • Fox Point Capital Management –Charles Anderson
  • Axial Capital Management – Eliav Assouline
  • Miura Global Management – Pasco Alfaro
  • WRA Investment – William Araskog
  • Hound Partners – Jonathan Auerbach
  • Goshen Investments – Christopher Burns
  • Apos Capital Management – Alok Agrawal
  • Centurion Global – Michael Popow
  • DLH Capital Management – Rodrigo Andrade
  • Eastern Advisors – Scott Booth
  • Emerging Sovreign Group – J Kevin Kenny Jr
  • Firemark Advisors – Michael Morrissey
  • Kelusa Capital - ???
  • Lanexa Global Management – Ian Murray
  • Maple Leaf Partners - ???
  • Pelagic Capital – McAndrew Rudisill
  • Venesprie Capital Management – Quincy Fennebresque

Thanks again to Hunter for the write-up and be on the lookout for some great content on his new site for those of you interested in breaking into the industry!