Saturday, November 21, 2009

Think Twice: Harnessing the Power of Countertuition by Michael J. Mauboussin (Book Review)

Our book review series continues and today we'll be reviewing Think Twice: Harnessing the Power of Countertuition by Michael J. Mauboussin. You may be familiar with Mauboussin as he is the Chief Investment Strategist at Legg Mason Capital Management and he has also been an adjunct professor of finance at Columbia Business School. Needless to say, he's had a storied career in finance and is a credible author on the subject. However, this book is not specifically about financial markets, but rather the process of decision making. We enjoyed his work because it offers a refreshing look at a topic applicable to all of life. Don't get us wrong though, the content still definitely applies to financial markets as well.

Think Twice takes a focused look at how you can recognize and in-turn help to avoid common mental mistakes. Mauboussin outlines topics such as the misunderstanding of cause and effect linkages, how people don't consider enough alternative possibilities in making a decision, and how often people rely too much on experts. We found the over-reliance on experts bit intriguing seeing as that's what we do on an everyday basis here on the site. After all, Market Folly serves to track the 'smart money' a.k.a. hedge fund experts. Needless to say, this section definitely gave us reason to reflect. If you think about it though, it's true. People do tend to seek out experts because they perceive that expert to have more knowledge than them on a given subject and then often blindly trust their expertise. We just found that whole notion fascinating because it's true.

Mauboussin's book flows nicely and is a shorter read at just over 140 pages. Due to its brevity compared to most books, we actually cruised through it twice. Some of the main takeaways from the book are to examine as much data as possible as well as to use common sense and logic. (Insert 'well, duh!' here). Another main focus of the book is on pattern recognition. While it does not specifically cite this, we figured one can easily apply this to technical analysis and analyzing financial markets in general. People seek to identify patterns even when sometimes there are none.

In the end, Think Twice helps refine your decision making in all walks of life. However, there are definitely strong tie-ins to how investors think and make decisions regarding their investments. We read through it with the topic of finance in our head, seeking as many tie-ins as possible. After all, it only seemed natural. (One interesting focus was on that of crowdsourcing and the 'herd mentality,' two traits certainly found in financial markets). This book is a little bit different than the typical work we review and it was a welcome change. The topic of behavioral finance and decision making on a broader level is definitely one worth looking into seeing how it plays a prominent role in everyday life, and in particular, investing. While the book does flow nicely, be warned that it does use some complex language and you'll probably end up looking up one or two terms like we did. (So much for our college degree). Think Twice is ripe with examples of the decision making process and truly opens your eyes to something that occurs everyday seemingly effortlessly and subconsciously. One thing's for certain after reading: we're conscious about it now and hopefully can use countertuition for the better.

Definitely check out Think Twice: Harnessing the Power of Countertuition by Michael Mauboussin if you're intrigued with the topic of decision making as it applies to financial markets and life in general.


Make sure to also check out some of our other recent book reviews as we're starting to build a series of them.

- Riches Among The Ruins by Robert P. Smith
- The Greatest Trade Ever by Gregory Zuckerman
- The Murder of Lehman Brothers by Joseph Tibman
- Street Fighters: The Last 72 Hours of Bear Stearns by Kate Kelly
- The Ivy Portfolio: How To Invest Like the Top Endowments by Mebane Faber

Don't forget you can find other insightful books on our recommended reading lists as well.

Friday, November 20, 2009

Hedge Fund Lone Pine Reduces UK Exposure

On Wednesday we took a look at Lone Pine’s holdings in the US and today we are going to follow that up with an update on their UK positions. We last looked at Lone Pine’s UK holdings back in August. Since then, most of the action has been in one direction: Stephen Mandel’s Lone Pine has been selling out of UK companies. There are no new positions and only one increased position to report.

Of course we don’t know why Mandel has been reluctant to make new acquisitions in the UK. However, it is worth remembering that the UK was one of the countries hardest hit by the banking crisis and one of the slowest to recover from recession despite the fact that the Bank of England has been among the most aggressive ‘quantitative easers’. The fact that a savvy hedge fund manager like Mandel is reducing his exposure perhaps does not bode well for UK PLC generally.

The tables below start with the date of the disclosure on the left (in UK format), the amount of shares owned in the middle, and the ownership percentage stake on the right.

Increased positions:

Intertek Group Plc ITRK 23/07/2008 9920265 6.29

01/08/2008 12040798 7.63

04/08/2008 12613798 8

12/08/2008 14282572 9.05

17/10/2008 15879234 10.06

27/10/2008 18388766 11.65

20/11/2008 19138766 12.13

01/06/2009 18995931 11.99

Intertek (LSE: ITRK) provides testing, inspection and safety services to a range of companies involved in consumer goods, building, telecoms, autos, oil, chemicals, pharmaceuticals, mining and agriculture. It also provides trade services to public standards bodies and governments.

Closed Positions: Lone Pine reduced their holdings below 3 percent of outstanding equity in the following companies.

- Autonomy (AU)

- Michael Page (MPI)

Once a hedge fund’s position falls below 3 percent of equity it no longer has to disclose holdings in the UK. One could assume that given their pattern of selling that they have closed the positions entirely, but there's no sure way for us to verify that right now.

Decreased Positions:

Rightmove RMV 25/03/2008 11429616 9.72

21/08/2009 1004087 8.5

24/08/2009 9051477 7.7

25/08/2009 7443038 6.3

26/08/2009 6893038 5.9

11/09/2009 5861376 4.99

Ashmore Group Plc ASHM
14/01/2009 43710160 6.21

15/09/2009 35252236 5.01

15/10/2009 33062737 4.7

Unchanged Positions:

Ishaan Real Estate ISH 01/07/2008 48532342 23.45

04/09/2008 56632342 27.35

28/04/2009 56632342 39.08

Lone Pine’s percentage position in Ishaan increased in April 09 due to a share buy-back program undertaken by company (not from an additional share purchase).

That ends our update of Lone Pine’s UK positions. As always, we will be continuing our tracking series where we look at the positions that prominent hedge fund managers hold in UK markets. If you've missed some of our previous posts covering UK markets, make sure you check out the holdings of Harbinger Capital Partners, Ken Griffin’s Citadel , Louis Bacon's Moore Capital Management and Paul Tudor Jones’s Tudor Investment Corp .

If you're unfamiliar with our new series tracking UK positions, check out
our preface here. We have also covered the potential for hedge fund activism in the UK investment trust sector. In addition, we have reported on London based hedge fund managers GLC Ltd and Lansdowne Partners.

Lone Pine Didn't Sell Vistaprint (VPRT) After All: Amended 13F Filing

Just a few days ago, we started our 13F analysis series where we detail the position changes of prominent hedge funds. We covered the portfolio of Stephen Mandel's Lone Pine Capital and noticed that their newly acquired stake in VPRT was now gone. We found it a bit curious but nevertheless moved on with our hedge fund portfolio tracking.

Fast forward to today and we see that Lone Pine has just amended their 13F filing with a supplement. The only position listed on the amended filing? Yep, you guessed it: Vistaprint (VPRT). It seems they made an error in reporting their initial 13F and forgot to include this position. As it turns out, they did indeed own 2,499,729 shares of VPRT as of September 30th, 2009.

Here is a screenshot of the amended 13F filing from the SEC:

(click to enlarge)

We just wanted to update everyone of the change and will go back now and amend our own 13F piece on Lone Pine to reflect the position as such. You can check out the rest of Lone Pine's portfolio here. Additionally, we've already tracked a few other prominent hedge fund portfolios such as: Dan Loeb's Third Point, Seth Klarman's Baupost Group, and Bill Ackman's Pershing Square.

Taken from Google Finance, Vistaprint (VPRT) is "an online provider of coordinated portfolios of marketing products and services to small businesses globally. The Company offers a range of products and services ranging from printed business cards, brochures and post cards to apparel, invitations and announcements, holiday cards, calendars, creative design services, copywriting services, direct mail services, promotional gifts, signage, Website design and hosting services, and e-mail marketing services."

PIMCO's Bill Gross: Investment Outlook December 2009

Entitled 'Anything but 0.01%,' here's the latest market commentary from bond vigilante Bill Gross of PIMCO. His December 2009 missive focuses on where to put your money in an environment where re-risking seems to be back in vogue as cash on the sidelines attempts to find positive returns to make up for potential losses a year ago. He seems to draw attention to the fact that the risk of bubbles is also on the rise.

As we posted on Twitter a while back, "PIMCO's Total Return fund essentially IS the bond market now, $186 billion AUM in Bill Gross' fund now; insane." So, at the very least, it's worth noting his thoughts and what he's up to. And we pointed out somewhat recently that Gross is betting on deflation by buying long-term treasuries. We've also covered some of his past commentary as well for those who might have missed it.

Below is PIMCO's market commentary from Bill Gross for the month of December 2009:


I'm not so much concerned
about the return on my money
as the return of my money.
- Will Rogers, 1933

Toothpicked, straw-hatted Will Rogers was a journalists’ dream, combining common sense with a sense of humor that could trump any newsman of his day, an era that was characterized more by its hopeless and helpless ennui, than its promise for a better tomorrow. During the Great Depression, just breaking even by stuffing your money in a mattress was considered to be a triumph of conservative investment. Likewise, during the past 18 months there have been similar “Will Rogers” moments. Perhaps remarkably, during the week surrounding the Lehman crisis in September of 2008, yours truly frantically called my wife Sue to empty our two local bank accounts into apparently safer Treasury bills. I was not the only PIMCO professional to do so. Preserving principal as opposed to making it grow was the priority of the day – digging a foxhole instead of charging enemy lines seemed paramount.

My how things have changed! With the global financial system apparently stabilized, returns “on” your money are back in vogue, and conservative investors who perhaps appropriately donned a Will Rogers mask nary a fortmonth ago are suddenly waking up to the opportunity cost of 0% cash versus appreciated assets at renewed double-digit annual rates. That 0% yield is not a joke. Almost all money market accounts – totaling over $4 trillion dollars, shown in Chart 1 – yield close to nothing, so close to nothing that I mistakenly did a double take when reviewing my monthly portfolio statement. “Yield on cash,” read the buried line on page 15 of the report, “.01%.”

Well now, I say to myself, this is very interesting from a number of different angles. If I was hoping to double my money, it would take approximately 6,932 years to get there at that rate! Somehow, that wouldn’t satisfy even Will Rogers, who might be choking on his toothpick or at least eating his straw hat in amazement. Secondly, being a savvy professional investor and all, I knew that money market funds actually earned 20 basis points or so on my money, but in this case were allocating a paltry one basis point to me. The words of the Beatles’ “Taxman” immediately popped into mind: “That’s one for you, nineteen for me – TAXMAN!” Ah yes, but in this case it was the Fed and Wall Street that were passing the collection plate. Whether it was really “God’s work,” as Goldman’s Lloyd Blankfein asserted, I wasn’t quite sure. If there was a “temple” in the vicinity I was thinking that God should be driving the moneychangers out as opposed to inviting them in for a pep talk.

Ah, but this is not a vindictive diatribe, although to me, money changers resemble Mammon more than archangels, and they all make too much money, including PIMCO. My point is to recognize, and to hope that you recognize, that an effective zero percent interest rate, as a price for hiding in a foxhole, is prohibitive. Like the American doughboys near France’s future Maginot line in WWI – slumping day after day in a muddy, rat-infested pit – when the battalion commander finally blew his whistle to charge the enemy lines, it probably was accompanied by some sense of relief; anything, anything but this! Anything but .01%!

Recently, approximately $20 billion a week has been exiting those payless, seemingly godless funds in search of a higher-yielding Nirvana. Yet, as Will Rogers knew, and Lehman Brothers demonstrated to another generation, the pain of the foxhole can immediately transition to the dodging of real bullets on the investment battlefield. Moving out on the risk asset spectrum has worked wonders since March of this year, but it comes with the risk of principal loss – failing to receive the return of your money. When viewed from 30,000 feet, there is even a systemic risk that new asset bubbles are in the formative stages – perhaps because of the .01%. Gold at $1,130 an ounce, global equity markets up 60-70% from their 2009 lows, a cascading dollar now 15% lower against a basket of global currencies just 12 months ago, oil at 80 bucks, mortgage rates at 4% thanks to a $1 trillion dollar credit card from the Fed; the list goes on. The legitimate question of the day is, “Is a 0% funds rate creating the next financial bubble, and if so, will the Fed and other central banks raise rates proactively – even in the face of double-digit unemployment?” As Chicago Fed President Charles Evans said in a recent speech, “This notion is often described as an imperative to ‘lean against a bubble,’ meaning that a central bank should act to lower asset prices that by historical standards seem unusually high.”

Yet even if the Fed and others are becoming sensitized to the dangers of up as opposed to exclusively down asset prices, it would seem that now is not the time to be affirming their bipolarity. Asset price rebounds (aside from the historic highs in gold) have followed even more dramatic slumps. A 60% rise in the stock market does not compensate for a 60% decline. Strangely enough, investors are still out 36% of their money once this down elevator/up elevator example plays out. And the simple analysis is that the private sector has still not taken the baton from government policymakers: There has been no public/private sector handoff. Bank lending is still contracting in the U.S. and weak in most other G-10 countries. Unemployment is still rising and approaching historic (ex-Depression) cyclical peaks.

Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something. We will need another 12 months of 4-5% nominal GDP growth before Bernanke and company dare lift their heads out of the 0% foxhole – mini-bubbles or not. Instead, the heavy lifting or the charging of enemy lines in the case of this metaphor will likely be done by other central banks – already in Australia and Norway. In addition, and importantly, China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland. With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside – higher Treasury yields, and lower stock prices – which the Fed must surely be leery of before making any upward move, of its own, and before moving on, let me state the obvious, but often forgotten bold-face fact: The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until. To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements. The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds.

OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? Damned if you do, damned if you don’t. Do you buy the investment grade bond market with its average yield of 3.75% (less than 3% after upfront fees and annual expenses at most run-of-the-mill bond funds)? Do you buy high yield bonds at 8% and assume the risk of default bullets whizzing at you? Or 2% yielding stocks that have already appreciated 65% from the recent bottom, which according to some estimates are now well above their long-term PE average on a cyclically adjusted basis? Two suggestions. First, as emphasized in prior Investment Outlooks, the New Normal is likely to be a significantly lower-returning world. Diminished growth, deleveraging, and increased government involvement will temper profits and their eventual distribution to investors in the form of dividends and interest. As banks, auto companies and other corporate models become more regulated and therefore more like utilities and less like Boardwalk and Park Place, they will return less.

Which brings up the second point. If companies are going to move toward a utility model, why suffer the transformational revaluation risk of equities with such a low 2% dividend return? Granted, Warren Buffet went all-in with the Burlington Northern, but in doing so he admitted it was a 100-year bet with a modest potential return. Still, Warren had to do something with his money; the .01% was eating a hole in his pocket too. Let me tell you what I’m doing. I don’t have the long-term investment objectives of Berkshire Hathaway, so I’m sort of closer to an average investor in that regard. If that’s the case, I figure, why not just buy utilities if that’s what the future American capitalistic model is likely to resemble. Pricewise, they’re only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%! In a low growth environment, it seems to me that a company’s stock should yield more than its less risky debt, and many utilities provide just that opportunity. Utilities and even quasi-utility telecommunication companies now yield between 5 and 6%, whereas their 10- and 30-year bond yield less and at a higher tax rate to you the investor.

So come on you frustrated Will Rogers lookalikes. Join the wimp who pulled his money out of the bank just 14 months ago. Look at your monthly statement, zero in on that .01% yield and say to yourself, “I’m as mad as hell, and I’m just not going to take this anymore!” You can’t buy the Burlington Northern – Warren Buffett has scooped that up – and most other choices offer tempting returns, but potential bullets as well. Buy some utilities. It may not be as much fun as running a railroad, but at least you’ll know who to call if the lights go out.

William H. Gross
Managing Director"

You can also download the commentary in .pdf form here.

What We're Reading ~ 11/20/09

Exclusive interview with Jim Rogers [Wall St. Cheat Sheet]

Common elements of success in trading [The Kirk Report]

Tsunami unfolding in commercial real estate [Clusterstock]

Is gold the next bubble? [The Economist]

Eight investing lessons from The Greatest Trade Ever [Wall Street Journal]

The hard fall of hedge funders [NY Magazine]

Joe Cada, youngest World Series of Poker winner hopes to transition to stock market [Bloomberg/Youtube]

Series of George Soros lectures []

Thursday, November 19, 2009

Hedge Fund Harbinger Capital Sells New York Times Shares (NYT)

Philip Falcone's hedge fund firm Harbinger Capital Partners recently filed an amended 13D and a Form 4 with the SEC, updating their stake in The New York Times Co (NYT). Due to activity on November 17th, 2009 they are now showing a 14.64% ownership stake in NYT. They now hold 21,038,434 shares and this is a decrease from their previous position. On November 17th they sold 2,500,000 shares at a price of $9.00 per share, bringing them to their share total to the amount listed above.

This is not the first time that Harbinger has decreased their stake, as we previously covered them selling shares of NYT before. We have also taken a step back and wondered whether or not newspapers are a dying industry? They certainly have some business model problems to address in the near future. It would seem that yet again, Harbinger has sold shares at a loss. They initially acquired their stake between $15-20 per share almost two years ago when they invested over $500 million. Their 14.64% ownership stake is down from their previous high of around 20% ownership of the company. We'll have to see if they continue to sell going forward, as in the past they had sought suitors for their NYT stake. We also note that Mexican billionaire Carlos Slim has a hefty position in NYT as well, so there are definitely some prominent players in NYT.

Philip Falcone runs his $6 billion hedge fund Harbinger Capital Partners with a focus both on equity plays and distressed plays and often takes concentrated positions in companies. For more of their recent activity, we recently penned a post detailing a portfolio update on Falcone's hedge fund and also covered the execution of their Calpine offering (CPN) as well.

Taken from Google Finance, The New York Times Company is a "diversified media company, including newspapers, Internet businesses, a radio station, investments in paper mills and other investments. The Company is organized in two segments: News Media Group and the About Group. Additionally, the Company owns equity interests in a Canadian newsprint company, a supercalendered paper manufacturing partnership in Maine, and Metro Boston LLC, which publishes a free daily newspaper in the greater Boston area."

Technical Analysis: S&P 500, Dow, Nasdaq & Gold

Marketclub just pumped out a bunch of technical analysis videos on the major indices as well as everyone's most watched precious metal. If you want to see how the charts are shaping up, Adam walks through the technical patterns in each video. He takes a step back and gives a broad overview as to what he's seeing in the markets and looks at formations, fibonacci retracements, MACD, and other indicators. Here's the videos:

- Technical analysis on the S&P 500

- Checking out the Nasdaq & Dow charts

- Gold has been on a rampage, check out the latest chart

Great overview in each of the vids. Enjoy and let us know what you're seeing on a technical level too.

Dan Loeb's Third Point Starts New Stakes In Popular (BPOP), TransDigm (TDG), & Health Net (HNT)

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is Dan Loeb's Third Point LLC. Third Point is a multi-billion dollar hedge fund that has seen annual returns greater than 15% since inception. Manager Dan Loeb focuses on event driven and value oriented investments and recently said he feels "like a kid in a candy store" due to all the distressed opportunities. In his past letter to investors, Loeb noted that he liked selective automotive debt plays. As noted in our hedge fund performance numbers post, Third Point was up 6.4% for August and 5.1% for September and were up 27.8% year-to-date at that time. For more market insight, definitely check out Dan Loeb's recommended reading list. Loeb started the fund back in 1995 with around $3.3 million in seed capital and today manages a multi-billion dollar portfolio. For some of his market insight and general thoughts on the industry, check out this video of a speech he gave.

Keep in mind that the positions listed below were Third Point's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Listed by their largest new stake first, and descending down
Popular (BPOP)
Transdigm (TDG)
Healthnet (HNT)
Wellpoint (WLP)
Cablevision (CVC)
American Water Works (AWK)
CareFusion (CFN)
First American (FAF)
Synaptics (SYNA)
Dana Holding (DAN)
Coinstar (CSTR)
Capitalsource (CSE)
Barclays (BCS)
Alkermes (ALKS)
Blockbuster (BBI)
Blockbuster B shares (BBI.B)
Loral Space & Communication (LORL)

Some Increased Positions (Positions they already owned but added shares to)
Schering Plough (SGP): Increased by 300% - inactive now due to buyout
Molson Coors (TAP): Increased by 45.5%
Pfizer (PFE): Increased by 40.7%
Pepsi Bottling Group (PBG): Increased by 33.3%
PepsiAmericas (PAS): Increased by 25%
Wyeth (WYE): Increased by 24% - inactive now due to buyout

Some Reduced Positions (Some positions they sold shares in)
Bank of America (BAC): Reduced by 54.9%
Phoenix Companies (PNX): Reduced by 7.3%

Flat Positions (Stakes with no change in amount of shares owned since Q2)
Ligand Pharma (LGND), Oracle (ORCL), Biofuel Energy (BIOF), Trian Acquisition (TUX), Greenlight Capital Re (GLRE), Lions Gate Entertainment (LGF), Liberty Acquisition (LIA), Liberty Media (LMDIA), Allergan (AGN), Hewlett Packard (HPQ), Anadarko Petroleum (APC), Apple (AAPL), PHH (PHH), Depomed (DEPO), and Nabi Biopharma (NABI).

Removed Positions (Positions they sold out of completely)
Yahoo (YHOO)
Sun Microsystems (JAVA)
Transatlantic Holdings (TRH)
Quest Communications (Q)
Legg Mason (LMI)
Maguire Properties (MPG) - we had covered them selling back in July
Guaranty Financial (GFGFQ)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. Wyeth (WYE): 15.2% (inactive, bought out by Pfizer)
  2. PHH (PHH): 7.1%
  3. CF Industries (CF): 5.5%
  4. Liberty Acquisition (LIA): 5.2%
  5. Bank of America (BAC): 4%
  6. Popular (BPOP): 4%
  7. Transdigm (TDG): 3.9%
  8. HealthNet (HNT): 3.7%
  9. Molson Coors (TAP): 3.1%
  10. Pfizer (PFE): 3%
  11. Wellpoint (WLP): 3%
  12. Cablevision (CVC): 2.8%
  13. Depomed (DEPO): 2.3%
  14. Allergan (AGN): 2.2%
  15. Hewlett Packard (HPQ): 2.2%

Overall, the vast majority of changes in Dan Loeb's portfolio were via either buying completely new stakes, or selling out of holdings entirely. There were only a few partial adjustments to the portfolio. In terms of brand new stakes, their positions in Popular (BPOP), Transdigm (TDG), and Healthnet (HNT) were all pretty large as they landed in the top 10 of Third Point's long US equity portfolio. It's also worth highlighting that their new stakes in Wellpoint (WLP) and Cablevision (CVC) were not far behind in terms of size either.

Notable positions that they sold completely out of include Yahoo (YHOO) and Sun Microsystems (JAVA). Those positions had previously been their 6th and 7th largest US equity holdings when we covered Loeb's portfolio in Q2 of this year. One position they still hold onto but did sell some of was their large stake in Bank of America (BAC). They just started that position last quarter and in one of his past investor letters, Loeb mentioned BAC could see ~$3 per share in normalized earnings power. It is interesting though that he has already sold more than half of his position.

You'll note the vast increase in their Schering Plough stake, but keep in mind that the security is now inactive as it was bought out by Merck earlier on. So, it appears that Loeb and company were playing the arbitrage of that buyout. In another arbitrage play, Third Point boosted their holdings in Wyeth (WYE) as they were set to be bought by Pfizer (PFE). And speaking of Pfizer, Third Point also increased their stake there and it is notable seeing how David Einhorn of hedge fund Greenlight Capital is also very fond of PFE.

Overall though, not terribly too much to report on in terms of portfolio changes as they continue to play their event driven game. Keep in mind that Third Point also operates in the distressed arenas and we cannot see those portfolio holdings as the SEC only requires hedge funds to file on their equity, options, and note positions in US markets. We have already covered the fact that Loeb was seeing tons of opportunities in the distressed space a few months back. So, just realize that these equities are not representative of their entire portfolio. In terms of other recent activity of out Loeb's fund, they filed a 13G on Energy Partners (EPL) not too long ago which we also detailed.

Assets from the collective holdings reported to the SEC via 13F filing were $1.2 billion this quarter compared to $901 million last quarter, so an increase of around $299 million or so invested on the long side in US equities and notes. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group, Bill Ackman's Pershing Square, and Stephen Mandel's Lone Pine Capital. Check back daily as we'll be posting up a new hedge fund's portfolio each morning.

Wednesday, November 18, 2009

Market Wizards: Advice From 15 Top Hedge Fund Managers & Traders

For some excellent advice from 15 of the top hedge fund managers and traders in the game, check out Jack Schwager's talk in this Market Wizards video. It is a free video from INO TV where Schwager talks for an hour about all the advice he has compiled from these famous hedgies. Schwager is the author of the famous Market Wizards series of books that details advice from some of the top hedge fund managers and traders in the history of the game. He has written an invaluable resource and that is why Market Wizards is one of the staples on our recommended reading list.

Investors he has interviewed in the past include:

  • Paul Tudor Jones (legendary trader & founder of hedge fund Tudor Investment Corp)
  • Michael Steinhardt (founder of the modern day hedge fund via his old Steinhardt Partners)
  • Bruce Kovner (runs the global macro hedge fund giant Caxton Associaties)
  • Ed Seykota
  • Michael Marcus
  • Richard Dennis
  • & many more

Check out Schwager's talk where he shares the advice he learned from the Market Wizards here. You have to fill out your information to see the free video and we wouldn't post about it unless it was worth your time. We're sure you'll enjoy hearing from Jack Schwager as he talks about what the investing legends shared with him. Don't forget to also check out Schwager's book too as it contains a wealth of information about these hedgies and how they got to where they are. It's definitely one of our favorite resources.

Stephen Mandel's Lone Pine Capital Buys a Basket Full of Apple (AAPL)

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

The third hedge fund we're covering is Stephen Mandel's Lone Pine Capital. The hedge fund, named after a historical lone pine tree at Mandel's alma mater Dartmouth College, has an assets under management (AUM) base well in excess of $8 billion. Mandel's fund had returned 25% annually from inception in 1997 up until the crisis. 2008 was a bad year for them and definitely put a chink in their armor, so now they're looking to get back to winning ways. We track Mandel due to his excellent stockpicking skills as he runs a long/short equity fund that is easy to track. They seek out companies trading below intrinsic value and they also like to see good management teams.

We've already covered some of Lone Pine's recent activity when we noted that they had started a new position in MSCI (MXB) and also a new stake in Green Mountain Coffee Roasters (GMCR). While we're covering their holdings in US equities in the following post, we've also covered their UK positions as well.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter, starting with the largest new position first and working down):
Apple (AAPL)
Green Mountain Coffee Roasters (GMCR)
Cemex (CX)
Walgreen (WAG)
FLIR Systems (FLIR)
Schein Henry (HSCI)
Walter Industries (WLT)
Goodrich (GR)
Citrix (CTXS)
Huntington Bancshares (HBAN)
Popular (BPOP)
Estee Lauder (EL)
Dr Pepper Snapple (DPS)
Etrade Financial (ETFS)

Some Increased Positions (Positions they already owned but added shares to)
Discovery Communications (DISCA): Increased by a massive 24,581% (they held relatively few shares in the quarter prior)
Sears Holdings (SHLD) Puts: Increased by 207%
Southwestern Energy (SWN): Increased by 197.6%
Mindray Medical (MR): Increased by 96.6% (but still a relatively small portion of their portfolio)
Vistaprint (VPRT): Increased by 40%
JPMorgan Chase (JPM): Increased by 30.4%
Liberty Media (LMDIA): Increased by 28.9%
Hewlett Packard (HPQ): Increased by 16.4%
Pactiv (PTV): Increased by 9.4%
Monsanto (MON): Increased by 7.2%

Some Reduced Positions (Some positions they sold shares in)
Philip Morris International (PM): Reduced by 86.5%
Fomento Economico (FMX): Reduced by 86.5%
Coach (COH): Reduced by 62%
America Movil (AMX): Reduced by 57.4%
Deltek (PROJ): Reduced by 43.8%
Coca Cola (KO): Reduced by 38%
Vivendi (VIV): Reduced by 35%
Smithfield Foods (SFD): Reduced by 26.6%
Qualcomm (QCOM): Reduced by 26.2%
McDonald's (MCD): Reduced by 24.7%
Priceline (PCLN): Reduced by 20.9%

Removed Positions (Positions they sold out of completely)
Nike (NKE)
Google (GOOG)
Ecolab (ECL)
Urban Outfitters (URBN)
Union Pacific (UNP)
XTO Energy (XTO)
MSC Industrial (MSM)
Sandridge Energy (SD)
Mead Johnson (MJN)
Fifth Third Bancorp (FITB)
Suntrust Banks (STI)
Progressive (PGR)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. JPMorgan Chase (JPM): 8.91%
  2. Monsanto (MON): 8.07%
  3. Apple (AAPL): 7.12%
  4. Qualcomm (QCOM): 6.55%
  5. Hewlett Packard (HPQ): 5.78%
  6. McDonalds (MCD): 4.51%
  7. SPDR Gold Trust (GLD) Calls: 4.24%
  8. Priceline (PCLN): 3.81%
  9. Visa (V): 3.79%
  10. Green Mountain Coffee Roasters (GMCR): 3.49%
  11. Strayer Education (STRA): 3.47%
  12. Mastercard (MA): 3.00%
  13. America Movil (AMX): 2.73%
  14. Southwestern Energy (SWN): 2.68%
  15. Coca Cola (KO): 2.31%

The most noticeable thing about Lone Pine's portfolio is the gigantic stake in Apple (AAPL) they started. As of their last 13F filing (Q2), they did not hold a stake. So, in that three month period, they accumulated over 3 million shares and brought it up to their third largest holding in US equities. The second notable new position was the one they initiated in Green Mountain Coffee Roasters (GMCR), but we had already covered that as per their 13G filing on the name. JPM was their largest holding as of Q3 as they boosted their position in it by 30%.

In terms of positions they already held but increased, they definitely boosted their Discovery Communications (DISCA) stake in a big way. This is mainly because they held so few shares in Q2, but it's still worth highlighting. We also want to point out they ramped up their stake in Sears (SHLD) puts by over 200%, as it appears they are bearish on the name.

Their most notable sale was in shares of their longtime favorite America Movil (AMX). As we've detailed in the past, numerous of the 'Tiger Cub' hedge funds had been invested in AMX but suddenly started to sell it off. That is, all except Lone Pine, who was adding to their position in quarters prior. Now this quarter marks the first time in a while we have seen them sell shares of AMX in a big way, cutting 57% of their position. It had previously been their fourth largest long position in US equities and we'll have to keep an eye on this to see what they do with it in the future.

Also worth pointing out is that Lone Pine's portfolio is littered with a bevy of other sales. They sliced their stakes in Philip Morris International (PM) and Fomento Economico (FMX) both by over 85% and they also cut Coach (COH) by over 60%.

*Update: Lone Pine just filed an amended 13F with the SEC and actually disclosed that they still did own 2,499,729 shares of Vistaprint (VPRT) on September 30th, 2009. You can read our full update on the situation here. Originally, VPRT did not appear on their 13F so it looked as if they had sold out of the position entirely just months after boosting their stake back in August. But, in the end, it appears that they did not sell out of VPRT after all. What's interesting to note about this company specifically though, is that VPRT receives around 40% of their net from referral fees that they earn from forwarding customers' credit card information to third parties. The Senate commerce committee recently had a hearing on these practices following a 6 month investigation. So, VPRT's revenue stream could possibly be in jeopardy, but we'll have to wait and see how that plays out. In the end, Lone Pine did still own shares of the company as of September 30th, 2009 and actually increased their position by 40% on a quarter over quarter basis.

Lastly, given all the buzz about gold, it's also worth noting that they still retain their gold position via calls on SPDR Gold Trust (GLD); the position was unchanged and represents a decent chunk of their portfolio.

Assets from the collective holdings reported to the SEC via 13F filing were $8 billion this quarter compared to $7.37 billion last quarter, so a slightly noticeable tick to the upside. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group and Bill Ackman's Pershing Square, and this is just the beginning of the hedge fund portfolio updates, so check back daily.

Millennium Partners: Israel Englander's Keynote Speech From the Absolute Return Symposium

A while back we mentioned on the blog that there would be quite a cast of hedge fund characters at the Absolute Return + Alpha Hedge Fund Symposium. That event recently took place in the beginning of November and we'll have a full post covering the event shortly. But in the mean time, we wanted to present the keynote address given by Millennium Partners' Israel Englander.

Englander addressed the issue of transparency and 'friendly' relations between hedge funds and investors. Due to the crisis, investors have (rightfully) demanded more information and more rights. The credit crisis certainly highlighted some of the flaws in the industry and Englander also points out that the manager's interests need to be aligned with that of the investor.

We highly recommend checking out this hedge fund great's take on the current industry. Courtesy of Dealbook, embedded below is the transcript of his keynote address (RSS & Email readers come to the blog to view it):

Unfortunately, Dealbook blocked downloading privileges so you'll have to make-do with the Scribd embedded document. We recommend selecting 'full screen' so it's easier to read. Stay tuned as we'll pen a separate post detailing the event where we'll cover insight from other prominent hedgies.

Tuesday, November 17, 2009

Bill Ackman's Pershing Square Boosts McDonald's Stake (MCD)

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Yesterday we kicked off our coverage with the most requested hedge fund by readers: Seth Klarman's Baupost Group. Today, we're continuing our coverage with another highly requested fund: Bill Ackman's Pershing Square Capital Management. Ackman is a well known value oriented and activist hedge fund manager who often takes large stakes in companies. For a more in-depth look at Bill Ackman, head to our profile of Pershing Square here.

Ackman's fund is good to track via SEC filings because he runs a very concentrated equities portfolio and typically holds the names for a longer timeframe. This way, the timelag associated with SEC filings is not detrimental to our coverage. Not to mention, Ackman typically takes larger stakes in companies which often require 13G or 13D forms to be filed so we are always on top of his portfolio maneuvers. And, our coverage of his portfolio via his latest 13F highlights just why it is prudent to monitor all SEC filings by any given manager.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Corrections Corp of America (CXW) - See Ackman's presentation on this play

Some Increased Positions (Positions they already owned but added shares to)
McDonald's (MCD): Increased by 243.6%
Target (TGT): Increased by 4.6%

Flat Positions (No change since Q2)
Greenlight Capital Re (GLRE)
Borders (BGP)

Some Reduced Positions (Some positions they sold shares in)
Automatic Data Processing (ADP): Reduced by 15.7%

Removed Positions (Positions they sold out of completely)

Pershing's Entire Portfolio (by percentage of assets reported on 13F filing)

  1. Target (TGT): 38.80%
  2. EMC (EMC): 31.95%
  3. McDonalds (MCD): 15.04%
  4. Automatic Data Processing (ADP): 7.68%
  5. Corrections Corp of America (CXW): 5.32%
  6. Borders Group (BGP): 1.05%
  7. Greenlight Capital Re (GLRE): 0.15%

As we mentioned earlier, Pershing Square runs a very concentrated portfolio. Target makes up the bulk of their holdings but keep in mind that much of that is due to their Pershing Square IV hedge fund that holds Target as its only position. The only new addition to Pershing Square's portfolio is that of Corrections Corp of America (CXW). We had already detailed his thesis behind this investment from his presentation at the Value Investing Congress. The other notable change to their portfolio was the boost in their MCD position and Ackman detailed some of his thoughts on this investment in his Q2 investor letter.

While SEC filings do not require funds to disclose short positions, we do know that one of Ackman's shorts is real estate play Realty Income (O). Previously, we posted up Pershing's presentation on O which laid out why he thinks it will have to cut its dividend, sending its retail investor base fleeing.

The fact that we know one of Ackman's shorts in addition to almost all of his longs has made readers wonder why investors are willing to pay management and performance fees for his hedge fund when the majority of his positions are readily disclosed. The counterpoint to that question would be the fact that you don't know *all* of his shorts, nor can you put on his positions that are institutional in nature. Typical investors usually don't have access to credit default swaps (CDS), a tool Ackman likes to use for putting on his short plays. And, in addition to his equity plays, Ackman also has various positions in the debt markets (General Growth Properties being a prime example). So, while you can create a semi-Pershing portfolio simply through their equity plays, you can't entirely replicate their portfolio solely through SEC filings.

Those of you avidly tracking the General Growth Properties (GGWPQ) situation will note that it is not present in this 13F filing. This is *not* because he has sold out. Pershing still holds GGWPQ debt and equity. It is simply not listed because the SEC has deemed GGWPQ to no longer be a reportable security for 13F filings. This is most likely due to the fact that they are no longer listed on the exchange (GGWPQ is traded in OTC markets). The main thing to take away from this is the fact that we will still see Ackman's moves in GGWPQ through Form 4 filings since he is now on the board of directors. For more info on their position, Ackman's Q2 investor letter briefly touches on GGWPQ here.

Post-13F, Pershing Square has also recently revealed a position in Landry's Restaurants (LNY) but due to the complex nature of that situation we will be penning a separate post on the details shortly.

Assets from the collective holdings reported to the SEC via 13F filing were $3.1 billion this quarter compared to $2.26 billion last quarter, a notable increase in assets invested in long equities. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio since their actual AUM is a figure much larger than what is reported on a 13F.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group so check back daily as we'll be posting up a new hedge fund each day.

Warren Buffett & Bill Gates Speak at Columbia Business School

Recently, legendary investor Warren Buffett and Microsoft founder Bill Gates sat down with CNBC's Becky Quick for a town hall type event at Columbia Business School on November 12th, 2009. We wanted to make sure everyone had a chance to see/read about the event so here it is.

Embedded below is the video of them on CNBC, RSS & Email readers come to the blog to view it:

Or, if you prefer, you can also read the full transcript (warning: it's very lengthy). Embedded below is the transcript of the event (RSS & Email readers come to the blog to read)

You can also download the .pdf of the transcript here. Definitely worth a read/listen so make sure you check it out!

Source: video and transcript from CNBC

Raymond James' Jeff Saut: Beginning of a New Secular Bull Market?

Raymond James' chief investment strategist Jeffrey Saut is back with his latest weekly market commentary. This week's piece, entitled " 'Tis the season?" focuses on how we have entered the best six months for equity markets historically. The months of November through April have typically performed better than the months of May through October. Saut also highlights this intriguing statistic, noting that "over the past 12 years the DJIA has always shown a profit between November 11th and December 5th." Always is quite a strong word when it comes to equity markets, that's for certain.

Saut's investment strategy this week also focuses on whether or not this is possibly a beginning of a new secular bull market or a "bull market within the confines of the trading range we have been in for the last nine years?" It's a tough question to answer and he admittedly can't answer it either. In fact, he says that nobody can answer that question right now. His team has been cautious after the March lows on a few occasions where they felt the market was overextended. They (like many others) were wrong and have tried to adjust accordingly and play the tape ala what famed trader and hedge fund manager Paul Tudor Jones would recommend. In the end, Saut and his team feel the market indices "will trade higher into the first quarter of 2010."

Embedded below is his latest investment strategy letter (RSS & Email readers come to the blog to read it):

You can also download the .pdf here.

We've covered Saut's commentary each week so make sure you also check out some of his notable previous thoughts where he talks about how numerous fund managers wished they would have bought at DOW 8000... ah yes, hindsight. Also, Saut has examined Dow Theory sell signals in the past and he has also put out this insightful piece on what a 'permanent' investment might be. We'll continue to cover his thoughts on a weekly basis.

Monday, November 16, 2009

Seth Klarman's Baupost Group Sells Capitalsource Shares (CSE)

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

We're baaaack. We're kicking off our Q3 2009 portfolio tracking with the hedge fund that was most requested by readers: Seth Klarman's Baupost Group. This should come as no surprise given Baupost's amazing 20% annual compounded return. While Warren Buffett is often singled out as the greatest investor out there, one other man could very well be mentioned in the same sentence. We're talking of course about Seth Klarman. If you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his very hard to find book, Margin of Safety where he provides a "how-to" on risk averse value investing.

Klarman received his MBA from Harvard and then went on to work for Baupost at age 25. Nowadays, it's his show to run. Baupost is one of the select few funds we have included in our Market Folly custom portfolio that is seeing over 26% annualized returns by combining 3 hedge fund portfolios into a cohesive whole. (Head over to Alphaclone to see the hedge fund portfolio replication in action as our portfolio is about to be re-balanced with new holdings).

Keep in mind that the positions listed below were Baupost's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single minor portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Enzon Pharmaceuticals (ENZN)

Some Increased Positions (Positions they already owned but added shares to)
Viasat (VSAT): Increased position by 148%

Some Reduced Positions (Some positions they sold shares in)
Capitalsource (CSE): Reduced position by 41%
Syneron (ELOS): Reduced position by 32%
Facet Biotech (FACT): Reduced position by 20%
Audiovox (VOXX): Reduced position by 6%

Flat Positions (Holdings with no change in position size)
Alliance One (AOI), Breitburn Energy (BBEP), various Capitalsource notes, Domtar (UFS), Ituran Location and Control (ITRN), Liberty Media (LMDIA), Multimedia Games (MGAM), News Corp (NWS-A), Theravance Notes, Theravance (THRX), and RHI Entertainment (RHIE).

Removed Positions (Positions they sold out of completely)
GHL Acquisition
iStar Financial (SFI)
Horizon Lines (HRZ)
KBL Healthcare (inactive)
News Corp (NWS)
PDL Biopharma (PDLI)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. News Corp (NWS-A): 21.68%
  2. Capitalsource (CSE - including positions in common stock and various notes): 19.53%
  3. Theravance (THRX - including positions in common stock and notes): 12.34%
  4. Liberty Media (LMDIA): 9.68%
  5. Breitburn Energy Partners (BBEP): 7.12%
  6. Viasat (VSAT): 5.97%
  7. Facet Biotech (FACT): 4.47%
  8. Domtar (UFS): 2.97%
  9. Alliance One (AOI): 2.91%
  10. Syneron (ELOS): 1.76%
  11. Ituran Location and Control (ITRN): 1.31%
  12. Enzon Pharmaceutical (ENZN): 1.26%
  13. RHI Entertainment (RHIE): 1.13%
  14. Multimedia Games (MGAM): 0.98%
  15. Audiovox (VOXX): 0.90%

Many of Baupost's moves detailed in their 13F filing we've already covered here on Market Folly. This just goes to show why it's prudent to track the full spectrum of SEC filings. We already knew that Baupost had sold out of Horizon Lines (HRZ) and had been selling shares of Facet Biotech (FACT). Not to mention, we already covered the fact that Baupost sold out of PDL Biopharma (PDLI). The only new addition to Baupost's portfolio was Enzon Pharmaceuticals, and we had already disclosed this addition earlier on the blog as well.

So, there's really not a whole lot of new information revealed in their 13F filing apart from two changes. The first major change we see was that Klarman sold 41% of his common stock in Capitalsource (CSE). We saw Thomas Steyer's hedge fund Farallon Capital also sell some CSE common as well recently. While Baupost trimmed their stake there, the rest of their position in Capitalsource via various notes remained unchanged. Secondly, we also saw that Baupost sold completely out of their News Corp B shares position (NWS). This is interesting because they retained their full position in the A shares (NWS-A) but dumped the B shares. Maybe they saw something in regards to valuation or arbitrage there, who knows. One thing is clear though: they prefer NWSA over NWS. Keep in mind though that the bulk of their holdings in News Corp has always been through the A shares and that their B shares position was much smaller. Also, in terms of positions Baupost already held but added to, Viasat (VSAT) fits the bill. They've been adding to this name very recently as they just filed a 13G on VSAT.

Assets from the collective holdings reported to the SEC via 13F filing were $1.35 billion this quarter compared to $1.26 billion last quarter, so a slight uptick. Observant readers will note that Baupost in reality has an assets under management (AUM) base of around $20 billion, so there's quite a gap here. Firstly, keep in mind that Baupost typically keeps a lot of cash on hand. Secondly, Klarman has been out recently saying that equities are not as attractive as previously so it doesn't sound like he'll be too active there. Thirdly, he also mentioned that he is starting to like illiquid investments here and so that could also count for some of the assets. And lastly, remember that 13F's do not include short positions, holdings in other markets (foreign markets, futures, etc) or cash. So, all of the above combined helps to bridge the gap between 13F reported assets and their actual AUM.

Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

We'll continue to monitor Baupost's 13G and 13D filings as that seems to be where the bulk of their action comes in. For more resources of Klarman and Baupost, check out the following:

- Klarman's interview from the annual Graham & Dodd breakfast
- Recent thoughts from Seth Klarman
- An interview with Seth Klarman
This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. Baupost is the first fund we've covered but check back in each day as we'll be cranking out updates daily, identifying what the top hedge funds are investing in.

Eclectica Fund: Hugh Hendry's November Commentary

Today we've got Hugh Hendry's latest market commentary through his Eclectica Fund November investor letter. We often feel it's pertinent to examine both sides of the argument in any given situation. Not to mention, there are always 'two sides to a trade.' One of the main arguments engulfing financial markets has been the inflation versus deflation debate. Hugh Hendry has been our resident deflationist as we've covered his thoughts numerous times. While many of you may not agree with his thoughts, it's at the very least worth the time to weight the other side of the argument, as Hugh seems to be a contrarian in many of his plays. Not to mention, he is in good company with his deflationary stance as PIMCO's bond king Bill Gross has bet on deflation as well.

Hugh was recently out in the media saying that the market was 'all one trade' and was too crowded for his taste, as we detailed in our hedge fund news update. In his November commentary, Hendry again focuses on the latest market action as a 'rally in inflationary assets.' He notes that it is essentially all one trade: long emerging markets, long commodities, short the US dollar, etc. In the end, they are all tied to inflation. His letter then goes on to focus on why this rally could be a fake and we recommend reading his thoughts in their entirety below.

This is interesting mainly because so many hedge funds we track have been putting on curve cap plays and have been betting on inflation through various instruments. Many funds have even gone long copious amounts of gold, as they seek to hedge themselves from the printing presses of governments that are devaluing fiat currency. As such, Hugh's stance is a departure from the norm we've seen from many hedge fund managers here on the blog.

Embedded below is Hugh Hendry's Eclectica Fund November Commentary. RSS & Email readers come to the blog to view it:

Also, you can download the .pdf here.

For more from Hugh Hendry's Eclectica Fund, definitely check out his past market commentary here, as well as here. As always, we'll cover Hendry's thoughts as he continues to divulge them. Because after all, it's always prudent to examine both sides of the argument. And for those of you continuing to examine this debate, check out this post examining commodity inflation versus asset deflation.