What We're Reading ~ Analytical Links 7/10/13

On saving investors from themselves [WSJ]

Smart and stupid arguments for active management [Reformed Broker]

Incorporating right-brain thinking into your investment process [Investing 501]

How gold lost its luster [The Big Picture]

A dozen things I've learned about the psychology of investing [25iq]

Steel: an inferno of unprofitability [The Economist]

On dealing with a rising interest rate environment [WSJ]

30-year mortgage rates surge to highest level in 2 years [Zillow]

The Dow Jones Index between 1789 and today [Go Infront]

MJN, ABT, NSRGY: China investigates foreign makers of baby formula [WSJ]

DVA: dialysis pay would drop $970 million under CMS proposed rule [BNA]

DIS: An interview with head of ESPN John Skipper [HollywoodReporter]

Talk of mergers stirs cable TV's big players [NYTimes]

Labor market spider chart [Federal Reserve Bank of Atlanta]

The best investment advice you'll never get [San Francisco Magazine]

Merchant banks make a comeback [WSJ]

The scam Wall Street learned from the mafia [Rolling Stone]

A report on Corrections Corp of America (CXW) [Scribd]

Introducing the Winklevoss Bitcoin trust [FT Alphaville]

Goldman Sachs Very Important Short Positions For Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor and we've already posted up Goldman's VIP list of most important stocks to top funds.  Now we're posting a new addition to their research: the very important short position list.

This tracks short exposure of hedge funds as an equal-weighted basket that "consists of 50 S&P 500 constituents with the highest total dollar value of short interest outstanding."  It can be accessed on Bloomberg via < GSTHVISP >.

Goldman emphasizes that this list is not based on 13F holdings (because hedge funds are not required to disclose shorts).  They also note that it's not a basket of stocks most held short.


Goldman Sachs Very Important Short Positions For Hedge Funds

Stock, value of short interest (in $ billions)

1. Johnson & Johnson (JNJ): $2.9
2. Exxon Mobil (XOM): 2.8
3. Intel (INTC): 2.6
4. International Business Machines (IBM): 2.4
5. Amazon.com (AMZN): 2.4
6. AT&T (T): 2.3
7. Chevron (CVX): 2.1
8. Verizon (VZ): 1.8
9. Duke Energy (DUK): 1.7
10. Walt Disney (DIS): 1.5
11. Abbott Laboratories (ABT): 1.4
12. Coca Cola (KO): 1.4
13. General Electric (GE): 1.4
14. Walmart Stores (WMT): 1.3
15. Caterpillar (CAT): 1.2
16. ConocoPhillips (COP): 1.2
17. Walgreen (WAG): 1.2
18. Time Warner (TWX): 1.1
19. Lockheed Martin (LMT): 1.1
20. Home Depot (HD): 1.1
21. Dell (DELL): 1.1
22. Bristol Myers Squibb (BMY): 1.1
23. Oracle (ORCL): 1.1
24. Schlumberger (SLB): 1.0
25. United Parcel Service (UPS): 1.0


Of the above. David Einhorn recently made comments about Amazon.com (AMZN) at the Ira Sohn conference.  While he seemed to be skeptical of the company during his talk, he did not say he was short.  He highlighted that the company has destroyed other businesses, taking market share, but criticized their weak profit growth.

Jim Chanos is short Dell (DELL) and he points to the decline of personal computing in favor of tablets and other mobile devices.  He's been correct in that regard as Dell recently reported declines in those segments in their latest earnings release.  But of course the bull case points to Dell's other business lines as they shift toward the enterprise. 


Here's the rest of Goldman's Very Important Short Positions List:

26. Amgen (AMGN): 1.0
27. AvalonBay (AVB): 1.0
28. Chipotle Mexican Grill (CMG): 1.0
29. Boston Properties (BXP): 1.0
30. Union Pacific (UNP): 0.9
31. Simon Property Group (SPG): 0.9
32. Procter & Gamble (PG): 0.9
33. Cerner (CERN): 0.9
34. Host Hotels & Resorts (HST): 0.8
35. Kohl's (KSS): 0.8
36. Waste Management (WM): 0.8
37. CenturyLink (CTL): 0.8
38. Carnival (CCL): 0.8
39. Philip Morris (PM): 0.8
40. American Express (AXP): 0.8
41. DuPont (DD): 0.8
42. McDonalds (MCD): 0.8
43. MetLife (MET): 0.8
44. Fastenal (FAST): 0.8
45. Merck (MRK): 0.7
46. Comcast (CMCSA): 0.7
47. Sysco (SYY): 0.7
48. Freeport McMoran (FCX): 0.7
49. Alcoa (AA): 0.7
50. Staples (SPLS): 0.7


Be sure to also check out Goldman Sachs VIP list of most important stocks to hedge funds for Q1 2012.

Strategist Jeff Saut Cautious, But Likes Certain Dividend Stocks

It's been a while since we've checked in on what market strategist Jeff Saut has had to say. Given the drastic run up in equities this year, Saut is cautious. Yet while he's cautious, he doesn't want to bet on the downside.

This is because he thinks there's a likelihood the market could just as well see a sideways consolidation. In general, Saut has long believed it's imprudent to be bearish because a turn in the economy would translate into profits exploding, inventory rebuilding, and a capital expenditure cycle, topped off with a reduction in unemployment.

Lack of Down Days in the Market

Saut is most intrigued by the fact that the market has been able to jump over a ton of hurdles (a 21% rise in the price of gas being one of them).

He writes, "the SPX has now gone 35 trading sessions in 2012 without suffering a 1% down day. There have been 12 other years since 1928 where the SPX has traded higher for 30 sessions, or more, without a 1% down day. In all but one of those occurrences the SPX was higher at year's end with a median gain of more than 15%."

Dividend Stocks Saut Likes

So while he does think this bodes well for the market, he is still a bit cautious in the near-term as the market's recent rise has felt "unnatural" to him. As such, he has recommended the following conservative dividend stocks: Abbott Labs (ABT), Aflac (AFL), Chevron (CVX), McDonald's (MCD), Norfolk Southern (NSC), and Huntington Bancshares (HBAN).

Embedded below is Jeff Saut's recent commentary:



You can download a .pdf copy here.

For more recent market commentary, yesterday we posted up Eric Sprott's February commentary on why 2012 is the year of the Central Bank, as well as Passport Capital's John Burbank saying this is a stockpicker's market.

Strategist Saut Thinks Trading Bottom Is Near

Jeff Saut is out with his latest investment strategy comments, emphatically titled, "Ouch." This of course refers to the precipitous decline in markets as of late. He writes, that, "My risk management discipline forced me to raise more cash again on Friday, even though I believe the stock market is in the process of making a significant 'low.' "

We've covered Saut's risk management principles before and while those principles caused him to raise cash levels last week, he's confident that markets are now oversold.

He cites the great folks at Bespoke who said that "61.4% of the SPX's stocks are oversold. The current oversold level is only the 27th time since 1990 that more than 60% of stocks in the index have been [this] oversold."

At this point, Saut believes you should 'keep your head screwed-on straight' and start compiling your buy list. In addition to some of Saut's favorite stocks, he recently added Abbott Labs (ABT), Copa Holdings (CPA), Digital Realty Trust (DLR) and Norfolk Southern (NSC) as solid candidates.

Embedded below is Jeff Saut's latest market commentary where he talks about an impending trading bottom in stocks drawing near:



You can download a .pdf copy here.

Market Strategist Jeff Saut Thinks March 2009 Lows Will Hold

The Chief Investment Strategist at Raymond James is out with his latest market commentary and there are a few bold assertions in it. Jeff Saut is of the belief that the market will be in a very wide trading range akin to the period between 1966-1982; a period where swings of more than 20% occurred 13 times with an end result of hardly any progress. He also bluntly calls for the March 2009 lows to hold. In a past commentary, he also advocated buying on weakness. But if you think about it, he's not exactly taking a huge leap of faith here considering that the S&P is currently around 1,082 and the March lows are way down around 666 on the S&P. Even if those levels were to hold, that's still over a 38% drop to get there.

So, how has the market strategist positioned his portfolio? Saut remains ardent in his stance that buying high quality dividend paying stocks is the way to go. Numerous market participants agree. Jeremy Grantham favors high quality and hedge fund T2 Partners is bullish on undervalued large-caps, just to name a few.

Additionally, Saut notes that, "The earnings yield (E/P) on the S&P 500 is currently 6.6%, which is the highest in 15 years, while the spread beween the earnings yield and the 30-year Treasury Bond is the widest in 30 years." As such, he feels that risk adjusted stock selection is the key to portfolio success currently and he tosses out some stocks for your consideration.

The companies on his list have the following attributes: a market cap greater than $5 billion, a return on equity greater than 15%, a dividend yield greater than 2%, a debt-to-assets ratio of less than 35%, and a price-to-earnings ratio of less than 15. Here are the stocks that made the cut:

Exxon Mobil (XOM)
Walmart (WMT)
Johnson & Johnson (JNJ)
Intel (INTC)
Abbott Labs (ABT)
Aflac (AFL)
Chubb (CB)
Diamond Offshore (DO)
Darden (DRI)

Lastly, turning to the inflation versus deflation debate, Saut highlights that except for the 1930s, deflation has been a bad bet. In fact, Saut isn't buying into the current hype surrounding deflation and has actually planted himself in the inflationary camp. He feels that the economic recovery will surely be slow, but a double-dip won't come to fruition. Following this recovery, he believes inflation is the likely scenario given the government's policy of trying to stimulate an economic response. And since Saut has declared himself a staunch inflationista, be sure to check out the best investments for inflation. And if you disagree, conversely head to the best investments during deflation.

Embedded below is Jeff Saut's latest investment strategy from Raymond James:



You can download a .pdf copy here.

For more from the market strategist, you can check out Jeff Saut's businessman's risk portfolio as well as his assertion that it's time to re-balance portfolios.

Ricky Sandler's Hedge Fund Eminence Capital Boosts Bet On Financials: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund 13F filings.)

Next up is Ricky Sandler's hedge fund Eminence Capital. Prior to Eminence, Sandler started his career as a research analyst for Mark Asset Management and then went on to start Fusion Partners at the age of 25 with Wayne Cooperman. As their investment styles started to differ, Sandler went on to start his new hedge fund. Sandler employs a 'quality value' approach to running his portfolio, spending equal time on both the long and short sides of his portfolio. In the past, he has said they employ gross leverage and are typically around 120% long and 70% short. Sandler attended the University of Wisconsin and holds a CFA designation. You can find a more in-depth look at Sandler and his investment process at the bottom of the article.

The positions listed below were Eminence's long equity, note, and options holdings as of December 31st, 2009 as filed with the SEC. All holdings are common stock unless otherwise denoted.


Brand New Positions
Becton Dickinson (BDX)
Accenture (ACN)
Carnival (CCL)
Baxter (BAX)
Northrop Grumman (NOC)
Fidelity National Information (FIS)
Henry Schein (HSIC)
Burger King (BKC)
Autodesk (ADSK)
Burlington Northern Santa Fe (BNI)
Talecris (TLCR)
Raytheon (RTN)
Walgreen (WAG)
Chipotle (CMG)


Increased Positions
Hasbro (HAS): Increased position by 1,342%
Goldman Sachs (GS): Increased by 349%
Lowes (LOW): Increased by 161.3%
Equifax (EFX): Increased by 107.4%
US Bancorp (USB): Increased by 105.6%
Qualcomm (QCOM): Increased by 98.5%
JPMorgan Chase (JPM): Increased by 96.9%
Thermo Fisher Scientific (TMO): Increased by 59.2%
Lockheed Martin (LMT): Increased by 57.4%
Ebay (EBAY): Increased by 38.7%
Abbott Laboratories (ABT): Increased by 29%
Walmart (WMT): Increased by 27.9%
Fiserv (FISV): Increased by 26.3%
Mastercard (MA): Increased by 19.4%
Apple (AAPL): Increased by 16.8%


Reduced Positions
Cognizant Technology (CTSH): Reduced position by 61.8%
Cisco Systems (CSCO): Reduced by 28%
Google (GOOG): Reduced by 24.6%


Removed Positions (Sold out completely):
Monsanto (MON)
Cintas (CTAS)
Abercrombie & Fitch (ANF)
Morgan Stanley (MS)


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

1. Oracle (ORCL): 5.63%
2. Abbott Laboratories (ABT): 4.92%
3. Apple (AAPL): 4.24%
4. Lockheed Martin (LMT): 4.21%
5. Thermo Fisher Scientific (TMO): 3.46%
6. Walmart (WMT): 3.33%
7. US Bancorp (USB): 3.15%
8. Fiserv (FISV): 3.15%
9. JPMorgan Chase (JPM): 3.11%
10. Goldman Sachs (GS): 2.95%
11. Equifax (EFX): 2.74%
12. Becton Dickinson (BDX): 2.72%
13. Qualcomm (QCOM): 2.71%
14. ccenture (ACN): 2.70%
15. Carnival (CCL): 2.61%
    

Ricky Sandler's hedge fund increased their long US equity exposure in dramatic fashion in the fourth quarter as assets reported via 13F filing were $5.2 billion, way up from the previous $3.1 billion. And obviously you can see that with all the increased and new positions listed above. Some of their more notable additions were massive increases in their positions in financials via US Bancorp, JPMorgan Chase, and Goldman Sachs. Just earlier this morning we saw that hedge fund Valinor Management added heavily to their GS stake, and Sandler's Eminence has as well.

In addition to financials, Eminence added to Hasbro, Qualcomm, Thermo Fisher Scientific, and Lockheed Martin. While their portfolio shows hints of the most popular hedge fund holdings with AAPL, WMT, & QCOM, they also have some interesting picks mixed in as well. We haven't seen many funds with positions in Equifax, Oracle or Lockheed Martin, but Sandler's hedge fund owns all three.

They also added a bevy of stocks as brand new positions and their new stakes in BDX, ACN, CCL and BAX are all pretty sizable as well, all in the top ten holdings. In terms of positions they sold completely out of, we see yet another hedge fund has dumped Monsanto. Overall, Eminence increased financials and healthcare exposure and reduced technology exposure.

Data used for this article comes from Alphaclone, our source for backtesting strategies and sorting through all the hedge fund portfolio maneuvers with ease. Assets reported on the 13F filing were $5.2 billion this quarter compared to $3.1 billion last quarter, a whopping 66% increase. Remember that these filings are not representative of the hedge fund's entire base of AUM.

For more on Ricky Sandler and Eminence's investing style, we've attached this old copy of Value Investor Insight:




We'll be tracking 40+ prominent funds in our fourth quarter 2009 hedge fund portfolio tracking series. We've already covered Seth Klarman's Baupost Group, Mohnish Pabrai's Investment Fund, Carl Icahn's hedge fund Icahn Partners, David Einhorn's Greenlight Capital, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, David Tepper's Appaloosa Management, Warren Buffett's portfolio, John Paulson's hedge fund Paulson & Co, Lee Ainslie's Maverick Capital, Dan Loeb's Third Point, Eddie Lampert's RBS Partners, David Ott's Viking Global, and Chris Shumway's hedge fund Shumway Capital Partners, Chase Coleman's Tiger Global, Philip Falcone's Harbinger Capital Partners, Roberto Mignone's Bridger Management, Thomas Steyer's Farallon Capital, John Burbank's Passport Capital, Brett Barakett's Tremblant Capital, George Soros' hedge fund Soros Fund Management, and Philippe Laffont's Coatue Management Charles Anderson's Fox Point Capital, Bill Ackman's Pershing Square Capital Management, Jonathan Auerbach's Hound Partners, Lee Hobson's Highside Capital, David Stemerman's Conatus Capital, Matt Iorio's White Elm Capital, and David Gallo's Valinor Management. Check back daily for our new updates.