Hedge Fund Tracking: Tremblant Capital's 13F (Bret Barakett)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here)

Now we're really starting to see the 13F filings trickle in. Next up, we have Tremblant Capital Group, managed by Bret Barakett. (If his last name sounds familiar, its because his brother, Timothy Barakett, manages fellow macro fund Atticus Capital, whom I also track). Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." Tremblant is a $4.1 billion hedge fund based in New York and is run by Bret Barakett, who is a former portfolio manager at Moore Capital Management (the hedge fund run by the great Louis Bacon, whom I also track). So, as you can see, despite having a great mind of his own, Barakett has worked with some of the best in the macro game. And, that's why he's worth following.

The following are Tremblant Capital's current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here are the changes they made to their portfolio:

New Positions: (in no particular order)
Virgin Media (VMED) 528,856 shares
Shenandoah Telecom (SHEN) 184,124 shares
Petrochina (PTR) 7,016 shares
Mastercard (MA) 137,205 shares
Exide Technologies (XIDE) 211,757 shares
Chipotle Mexican Grill (CMG) 963,509 shares
China Petroleum and Chemical (SNP) 9,419 shares
Bare Escentuals (BARE) 322,555 shares


Added to:
Centennial Communications Corp (CYCL). Increased their position by 301%
Hologic (HOLX). Increased their position by 250%
Gafisa (GFA). Increased their position by 120%
Union Pacific (UNP). Increased their position by 100%
American Pub Ed Inc (APEI). Increased their position by 76%
Time Warner (TWX). Increased their position by 74%
Focus Media Holdings (FMCN). Increased their position by 56.6%
Nuance Communications (NUAN). Increased their position by 54%
Visa (V). Increased their position by 40%
Green Mountain Coffee Roasters (GMCR). Increased their position by 40%
Anadigics (ANAD). Increased their position by 38%
Mckesson Corp (MCK). Increased their position by 24%
Cogent Communications (CCOI). Increased their position by 15%
Hughes Communications (HUGH). Increased their position by 14%
NYSE Euronext (NYX). Increased their position by 10%
Melco Pbl Entertainment (MPEL). Increased their position by 7%
Walmart (WMT). Increased their position by 5%
Heathextras (HLEX). Increased their position by 3%


Reduced Positions:
LCA Vision (LCAV). Reduced their position by 95%
Research in Motion (RIMM). Reduced their position by 35%
Apple (AAPL). Reduced their position by 29%
ThermoFisher Scientific (TMO). Reduced their position by 28%
Pharmaceutical Prod Dev (PPDI). Reduced their position by 22%
Inverness Med (IMA). Reduced their position by 21%
CVS Caremark (CVS). Reduced their position by 18%
RedHat (RHT). Reduced their position by 15%
Monster Worldwide (MNST). Reduced their position by 11%
Suntech Power (STP). Reduced their position by 11%
Corning (GLW). Reduced their position by 8%
Qualcomm (QCOM). Reduced their position by 6%
Ntelos Holdings (NTLS). Reduced their position by 1.7%
Commscope (CTV). Reduced their position by 1.5%
Paetec Holding (PAET). Reduced their position by 1%
Pharmanet Dev Group (PDGI). Reduced their position by 0.71%


Removed Positions (Positions Tremblant sold out of completely):
Allscripts Healthcare (MDRX)
America Movil (AMX)
Cenveo (CVO)
Cirrus Logic (CRUS)
Costco (COST)
Digital Realty Trust Inc (DLR)
Mercadolibre (MELI)
Priceline (PCLN)
UST Inc (UST)


Positions with no change:
Wyeth (WYE)
SXC Health Solutions (SXCI)
Navisite (NAVI)
Eclipsys Corp (ECLP)
CSX Corp (CSX)
Burlington Northern (BNI)
Advanced Med Optics (EYE)


Top 10 holdings by % of portfolio:
1. Qualcomm (QCOM)
2. Visa (V)
3. Apple (AAPL)
4. CVS Caremark (CVS)
5. RedHat (RHT)
6. Hologic (HOLX)
7. NYSE Euronext (NYX)
8. Corning (GLW)
9. Research in Motion (RIMM)
10. Baidu (BIDU)


------------------------------------------

Breakdown: Tremblant's portfolio is big on tech, and rightly so. From March until June (the period of time that passed between the filing of past & present 13F's), tech was on a rampage. So, for them to be taking some profits in those names seems natural. They cut back their AAPL and RIMM by about a third of a position, which classifies as healthy profit taking from a big move in my book. I wouldn't be surprised to see them adding back at cheaper prices what they sold. Noticeably absent from their tech portfolio is GOOG. They have BIDU instead, and a pretty large position at that (its their 10th largest holding). Hedge fund favorites AAPL, RIMM, & QCOM also make up a large part of Tremblant's portfolio overall. All 3 are top 10 portfolio holdings. What else is new?

Speaking of hedge fund favorites, we notice that MA and V make an appearance, with MA just being added this past quarter. They already had a large V stake and appear to be assembling a MA position to go along with it. Many funds seem to prefer MA to V, but not Tremblant. We'll see next quarter if their MA position catches up in size to the massive stake they have in Visa (their 2nd largest holding).

Interesting to see the Brothers Barakett (Bret at Tremblant and Timothy at Atticus) both in the house of pain with NYX. Tremblant added more this quarter and look to be averaging down again and again. I can't blame them though. NYX is a solid company that 'appears' cheap on valuation. But, in this market, nobody seems to care about that. The exchanges should be perfect plays to bet on a market with increased volatility. But, apparently they are not. Instead, they are downward spiraling deathtraps. One other commonality between the Brothers Barakett portfolios is their affection for the rails. UNP BNI and CSX all appear in Tremblants portfolio. UNP is their largest rail holding currently, as they doubled down on their stake this past quarter.

Overall, technology, communications & media, the rails, and medical plays seem to be the name of the game for Tremblant this time around.

Lastly, just wanted to note that they have abandoned America Movil (AMX). This name has been in a steady downtrend in recent months, and it looks like they gave up on the name. Last quarter and in the past in general, AMX was easily one of the most common holdings among the hedge funds I track. As the 13F's continue to come out, we'll have to see if others joined Tremblant in dumping their shares.

Tremblant Capitals' most interesting move(s)? Beefing up their general media & communications technology holdings. They added a variety of names such as CYCL, CCOI, FMCN, TWX, NUAN,VMED.

You can view Tremblant Capital's 13F as filed with the SEC here.

--

Check back in during the coming weeks as I analyze the portfolio changes to numerous big name hedge funds such as Lone Pine Capital (Steve Mandel), Moore Capital Management (Louis Bacon), Tudor Investment Corp (Paul Tudor Jones), Blue Ridge Capital (John Griffin), & many many more.

The Long and Winding Road (of Foreclosures)

Taken from Credit Suisse, we see just how long and winding the path of destruction really is. Adjustable Rate Mortgage Resets will be an ongoing source of pain for many Americans. Americans who signed up for ARM mortgages did so because of the low teaser interest rates they were receiving. And, eventually, these teaser rates revert back to much higher rates. Many Americans will not be able to afford their new mortgage rates sparking yet another round of foreclosures. This is not 'new' news by any means. But, it seems to me that some people have yet to truly grasp just how far from 'safety' we are. Keep in mind that even after these resets take place, it could take many months before the homeowners finally hit rock bottom and have to foreclose. ARM's will continue to reset in mass up until December 2011. Then factor in the many months afterwards that Americans will be defaulting on their new, higher mortgages. Sometimes I feel like I'm a "doom & gloom-er." But, then I take a step back and realize I'm just keeping it real(istic). Fun times ahead here in the United States of Foreclosure.

(click to enlarge)

Boone Pickens Hedge Fund (BP Capital) Has Rough July

From Reuters:

"The commodity half of oil tycoon T. Boone Pickens's BP Capital hedge fund lost 35 percent of its value in July, the New York Post said, citing sources."

Ouch. Sounds as if old T. Boone needs to spend a little bit less time campaigning for his PickensPlan, and a little more time running his hedge fund. (Okay, maybe that's a little harsh considering he is poised to make big $$$ should his 'Plan' materialize in any way shape or form). Nevertheless, it will be interesting to see what his 13F looks like when he files that here in the next few days. It sounds as if he was pretty stubborn with some natural gas and oil plays though, that's for sure. Considering that commodities took it on the chin in July, and given the fact that his fund is energy-centric, the losses make sense. But, you'd think that someone with as much experience in the energy markets as Boone would be a bit quicker to react/adapt to what was happening.

World GDP Vs. Oil Production

This chart is about as simplistic as it gets. Hat tip to Barry Ritholtz over at The Big Picture for posting up what he aptly calls "A Chart of the Decade." Many of the energy themes I've discussed here before stem from one very basic chart.

(click to enlarge)

Source: ITF Interim Report on Crude Oil

The U.S. Dollar Going Forward

Courtesy of the Federal Reserve Board we see an interesting chart depicting the decline of the US Dollar as well as its impact on the price of crude oil. Seeing the price of crude oil charted in other currencies really puts into perspective just how much the weak dollar has helped commodities. Sure, much of the commodity story has been fundamentally driven. But, the dollar has undoubtedly played a role in the rise of commodities.

The question I pose now is: Where is the Dollar heading longer term? Shorting the US Dollar became a crowded trade very quickly. And, with the right set of catalysts (as we've seen recently), the Dollar can indeed rally. But, is this rally really a turn-around, or rather just a counter-trend rally. The fed seems poised to raise rates in their coming meetings. The ECB seems concerned with growth rather than inflation currently. Both point to a bullish future for the Dollar. But, I still have to believe that this is merely a counter-trend rally within a longer term downtrend.

Much damage has been done to the dollar over the years. Just look at the chart, it speaks volumes. From 2002 until present, the dollar has really done nothing but decline in value. Sure, there are some rallies here and there. But, they are very short lived. It rallies up to the downward sloping trendline only to decline yet again. The only time where the dollar really held its own was during the years 2005 and 2006. During these years the dollar traded sideways for the most part. And, I think we are setting up for the Dollar to trade sideways for a longer period of time. While we cannot predict the future, we do know that the Fed can only do so much with their rate increases. What happens after they are done with their cycle? We'll obviously have to address this as the currency market continues to unfold. While I think the dollar can (and probably will) see a substantial rally in the coming months, I still believe it is just a reversion to the mean within the context of the broader picture. After the rally secedes, we could very well see a period of stagnation.

Hedge Fund Tracking: Tontine Partners (Jeffrey Gendell) 13F

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here)

Well, its time for us to get a little peak at what the big boys have been up to over the past few months. While most 13f's won't come out until later in the week, Jeffrey Gendell's 13F is already out so let's get right to it. If you're unfamiliar with Gendell and his Tontine Partners, then here's what you need to know. Founded 11 years ago, Tontine is a $10 billion fund ran by Jeffrey Gendell. He specializes in macro investing and takes very large, concentrated positions in companies he feels will benefit from those macro themes. Additionally, he will take on an activist role when necessary, to ensure shareholder returns. The fund has posted returns in excess of 100% in both 2003 and 2005.

So, let's get right down to it... what was Jeffrey Gendell up to this past quarter? The following is Tontine Partners' current holdings as of June 30th 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions: (in no particular order)
Altra Holdings (AIMC) 1,272,832 shares
American Elec Technologies (AETI) 14,899 shares
Argan (AGX) 161,033 shares
DST Sys (DST) 2,233,158 shares
Itron (ITRI) 704,758 shares
Ladish (LDSH) 877,751 shares
Peoples Community Bancorp (PCBI) 90,183
Tetra Tech (TTEK) 3,216,197 shares
Thermadyne Holdings (THMD) 1,152,168 shares
Thomas and Betts (TNB) 5,766,719 shares
YRC Worldwide (YRCW) 2,746,171 shares


Added to:
Chemtura Corp (CEM) increased position by 313%
Satcon Technology (SATC) increased position by 165%
JP MorganChase (JPM) increased position by 153%
LSB Industries (LXU) increased position by 113%
Goldman Sachs (GS) increased position by 109%
Emcor Group (EME) increased position by 70%
US Concrete (RMIX) increased position by 64%
Patrick Industries (PATK) increased position by 49%
Accuride Corp (ACW) increased position by 46%
Tierone Corp (TONE) increased position by 45%
Mastec (MTZ) increased position by 45%
Sterling Financial (STSA) increased position by 39%
Goodyear Tire (GT) increased position by 28%
Sun Micro (JAVA) increased position by 22%
Foster LB Co (FSTR) increased position by 22%
Maxwell Technologies (MXWL) increased position by 16%
KB Home (KBH) increased position by 15%
Beazer Homes (BZH) increased position by 13%
Gentek (GETI) increased position by 11%
Pulte Homes (PHM) increased position by 9%
Elmira Savings Bank (ESBK) increased position by 9%
MI Homes (MHO) increased position by 8%
Merrill Lynch 9MER) increased position by 7%
Brush Engineered Materials (BW) increased position by 6%
Twin Disc (TWIN) increased position by 6%
Synalloy (SYNL) increased position by 5%
Perini (PCR) increased position by 5%
Sun Bancorp (SNBC) increased position by 5%
Toll Bros (TOL) increased position by 3%
Polyone (POL) increased position by 2%
PAB Bankshares (PABK) increased position by 2%
US Airways Group (LCC) increased position by 1%
Tenneco (TEN) increased position by 0.66%
AZZ Inc (AZZ) increased position by 0.60%
QCR Holdings (QCRH) increased position by 0.11%
Preformed Line Products (PLPC) increased position by 0.03%


Reduced Positions:
National Penn (NPBC) reduced by 94%
Astoria Financial (AF) reduced by 90%
Beneficial Mut Bancorp (BNCL) reduced by 90%
Koppers Holdings (KOP) reduced by84%
New York Community Bancorp (NYB) reduced by 78%
Meritage Homes (MTH) reduced by 69%
Citizens Rep Bancorp (CRBC) reduced by 67%
BB and T (MSDXP) reduced by 66%
Community Bk Sys (CBU) reduced by 63%
Georgia Gulf (GGC) reduced by 60%
Firstfed Financial (FED) reduced by 59%
National City (NCC) reduced by 57%
Central Pac Finl Corp (CPF) reduced by 47%
Northwest Bancorp (NWSB) reduced by 45%
Susquehanna Bancshares (SUSQ) reduced by 45%
Powersecure Intl (POWR) reduced by 45%
Amcore (AMFI) reduced by 44%
Citigroup (C) reduced by 43%
Graftech (GTI) reduced by 42%
First Merchants (FRME) reduced by 42%
First St Bancorp (FSNM) reduced by 41%
US Steel (X) reduced by 37%
Ameriserv Financial (ASRV) reduced by 35%
Esmark (ESMK) reduced by 34%
DR Horton (DHI) reduced by 34%
Provident NY Bancorp (PBNY) reduced by 33%
1st Source (SRCE) reduced by 32%
US Lime and Minerals (USLM) reduced by 32%
Associated Banc Corp (ASBC) reduced by 32%
Meta Financial Group (CASH) reduced by 30%
Webster Financial Corp (WBS) reduced by 29%
Ryland Group (RYL) reduced by 29%
Laporte Bancorp (LPSB) reduced by 29%
KBR (KBR) reduced by 27%
Bank of America (BAC) reduced by 26%
TRC (TRR) reduced by 24%
Whitney Holding Corp (WTNY) reduced by 22%
Ameris Bancorp (ABCB) reduced by 22%
Columbus Mckinnon (CMCO) reduced by 21%
AK Steel (AKS) reduced by 18%
United Bankshares Inc (UBSI) reduced by 16%
M And T Bank Corp (MTB) reduced by 15%
Centex (CTX) reduced by 15%
Southern Mo Bancorp (SMBC) reduced by 15%
Downey Financial (DSL) reduced by 12%
Rurban Financial (RBNF) reduced by 12%
Independent Bk Corp Mich (IBCP) reduced by 12%
Colony Bankcorp (CBAN) reduced by 12%
Camco Financial (CAFI) reduced by 11%
North American Energy (NOA) reduced by 11%
Foster Wheeler (FWLT) reduced by 10%
Grupo TMM (TMM) reduced by 9%
URS Corp (URS) reduced by 8%
Champion Enterprises (CHB) reduced by 8%
Ohio Vy Banc Corp (OVBC) reduced by 7%
First Bancshares (FBMS) reduced by 7%
LNB Bancorp (LNBB) reduced by 7%
Metrocorp Bancshares (MCBI) reduced by 6%
Wesbanco (WSBC) reduced by 6%
MB Financial (MBFI) reduced by 5%
TF Financial (THRD) reduced by 5%
Monarch Community Bancorp (MCBF) reduced by 5%
Provident Financial (PROV) reduced by 4%
Shaw Group (SGR) reduced by 4%
Integra Bank Corp (IBNK) reduced by 4$
Oreleans Homebuilders (OHB) reduced by 3%
Tradegar (TG) reduced by 3%
Iberiabank (IBKC) reduced by 3%
Teche Holding (TSH) reduced by 3%
First Financial Svc Corp (FFKY) reduced by 2.5%
Independence Fed Savings Bank (IFSB) reduced by 2%
HMN Financial (HMNF) reduced by 2%
Centrue Financial (TRUE) reduced by 2%
Mid South Bancorp (MSL) reduced by 2%
1st Independence Financial (FIFG) reduced by 2%
Princeton National (PNBC) reduced by 1.5%
Fidelity Bancorp (FSBI) reduced by 1.5%
Lincoln Bancorp (LNCB) reduced by 1.5%
Ameriana Bancorp (ASBI) reduced by 1.4%
Timken (TKR) reduced by 1.2%
CFS Bancorp (CITZ) reduced by 1.11%
MFB Corp (MFBC) reduced by 0.88%
Park Bancorp (PFED) reduced by 0.82%
First Defiance Financial (FDEF) reduced by 0.79%
Central bancorp (CEBK) reduced by 0.72%
Mutualfirst Financial (MFSF) reduced by 0.72%
Hexcel (HXL) reduced by 0.55%
Hawthorn Bancshares (HWBK) reduced by 0.43%
Citizens First Bancorp (CTZN) reduced by 0.4%
River Valley Bancorp (RIVR) reduced by 0.3%
First Keystone Financial (FKFS) reduced by 0.2%
First Banctrust (FBTC) reduced by 0.2%
Northeast Bancorp (NBN) reduced by 0.2%
New Hampshire Thriftbancshares (NHTV) reduced by 0.16%
Community Cap Corp (CPBK) reduced by 0.14%
Parkvale Financial (PVSA) reduced by 0.1%
Capital Bank Corp (CBKN) reduced by 0.1%
Premier Financial Bancorp (PFBI) reduced by 0.1%
HF Financial (HFFC) reduced by 0.1%
Provident Community Bancshares (PCBS) reduced by 0.05%
Southern Community Financial (SCMF) reduced by 0.05%
PVF Capital (PVFC) reduced by 0.01%
LSB Corp (LSBX) reduced by 0.01%


Removed Positions:
Positions Tontine Partners sold out of completely
American International Group (AIG)
Banctrust Financial Group (BTFG)
BCSB Bankcorp (BCSB)
BNC Corp (BNCC)
Capital Corp of the West (CCOW)
Capital One (COF)
Chart Inds Inc (GTLS)
City Hldg Co (CHCO)
Comerica (CMA)
Dime Community Bancshares (DCOM)
FNB Corp (FNBN)
First Niagara Financial (FNG)
Fox Chase Bancorp (FXCB)
Headwaters (HW)
Huntington Bancshares (HBAN)
Independent Bk Corp (INDB)
Instituform Technologies (INSU)
K Tron (KTII)
Mainsource Financial Group (MSFG)
MBIA (MBI)
Mercantile Bk Corp (MBWM)
Navigant Consulting (NCI)
Olin Corp (OLN)
Peoples Bancorp Auburn
Peoples Utd Financial (PBCTD)
PFF Bancorp (PFB)
Pinnacle Bankshares (PLE)
PNC Financial Services (PNC)
Powell Industries (POWL)
Quality Distr Inc (QLTY)
Sovereign Bancorp (SOV)
Standex International (SXI)
Superior Bancorp (SUPR)
Team Ag (TISI)
Tetra Technologies (TTI)
Wachovia (WB)
Washington Mutual (WM)
Willow Financial (WFBC)
Yadkin Finl Corp (YAVY)


Positions with no change:
Ada Es Inc (ADES)
Cleveland Cliffs (CLF) - 2 for 1 Stock Split (did not increase holding)
Advanced Energy Inds (AEIS)
Ameron (AMN)
AMR Corp (AAR)
Astec Industries (ASTE)
Badger Meter (BMI)
Baker Michael Corp (BKR)
CCF Holding Co (CCFH)
Ceco Environmental (CECE)
Channell (CHNL)
Comfort Sys (FIX)
Community Cent Bank Corp (CCBD)
Community Shores Bank Corp (CSHB)
Cooperative Bankshares (COOP)
Core Molding Technologies (CMT)
Dearborn Bancorp (DEAR)
Dycom (DY)
Ecology and Environment (EEI)
Enersys (ENS)
Englobal (ENG)
Esco Tecnologies (ESE)
Exide Technologies (XIDE)
Ferro Corp (FOE)
Fidelity Southern (LION)
First community Corp (FCC))
First Fed Northern Michigan Bancorp (FFNM)
First Franklin Corp (FFHS)
Furmanite Corp (FRM)
Gehl (GEHL)
Great Lakes Dredge and Dock (GLDD)
Greenbrier Cos (GBX)
Hardinge (HDNG)
Hawkins (HWKN)
Hopfed Bancorp (HFBC)
Horizon Bancorp (HBNC)
Innospec (IOSP)
Insteel (IIIN)
Internet Cap Group (ICGE)
Jacksonville Bancorp (JAXB)
Jefferson Bancshares (JFBI)
KMG Chemicals (KMGB)
Landmark Bancorp (LARK)
LCC Intl (LCCI)
Magnetek (MAG)
Material Sciences (MSC)
Matrix Service Co (MTRX)
MBT Financial (MBTF)
Meadow Vy Corp (MVCO)
Met Pro (MPR)
MFRI (MFRI)
Nacco (NC)
National Technical (NTSC)
North Central Bancshares (FFFD)
Ohio Legacy (OLCB)
Otter Tail (OTTR)
Peoples Bancorp of North Carolina (PEBK)
Perma Fix Environmental (PESI)
Pike Elec (PEC)
Portec Rail (PRPX)
Quanta Services (PWR)
Shiloh (SHLO)
Sifco (SIF)
Smith A O (AOS)
Supreme Industries (STS)
Tower Financial (TOFC)
Trinity Industries (TRN)
United Bancshares (UBOH)
Versar (VSR)
Wabash National (WNC)
Westmoreland Coal (WLB)


Top 10 holdings by % of portfolio:
1. X (Top Holding)
2. CLF
3. KBR
4. PWR
5. AKS
6. SPY
7. XIDE
8. SGR
9. TRN
10. FWLT

-----------------------------------------

Breakdown: Tontine Partners' 13F can be summed up in 3 words: Regional Bank Clusterf*ck. He has a ton of them, but they aren't very big positions relative to his whole portfolio. For the most part though, Gendell was selling all his financials, including the regionals. The only major financial plays he has left anyways are smaller positions. And, his only positions of major size in that sector are through calls. So, I'd have to think that he saved himself some serious money by exiting/reducing a number of those regional positions, as they could have really put him in the house of pain. It should be noted that he made large additions to the big banks such as JPM and GS.

The next major trend I noticed in his portfolio was that he is highly levered up with steel holdings. While he did do some position size reducing across a few of his steel names (X, AKS), one still has to wonder how he's faring right now given the recent selloff in steel? Whether he has sold anymore substantial positions is the real question. Because, if he hasn't, the recent drop in steel stocks has undoubtedly affected his portfolio in a negative way. Although he did reduce his position sizes.... he still has MASSIVE stakes in the steel names. After all, the top 2 holdings of his fund (and 3 out of the top 10 holdings) as of June 30th were steel stocks. So, he definitely profited handsomely from these steel names by nearly top-ticking the market, selling huge chunks before the peak in July. But, he's since given back much of these gains, assumming he still holds the steel names. This is actually a very unique situation where his 13F doesn't really help us. These holdings were as of June 30th and that was conveniently around the same time steel stocks started topping out. So, the real action in the steel names has been occuring outside of the time period the 13F covers (ie: the past month and a half). And, he is either taking a lot of pain from these massive steel holdings, or he has been partly responsible for the massive selloff in the steel names. We can only guess at this point. We'll have to wait until the next round of filings to find out what he's been up to, unfortunately. The timing overlap on this situation really prevents us from gaining much insight.

But, from this past quarter, we can take away the fact that Gendell definitely had strong conviction in steel and infrastructure names. After all, practically all of his top 10 holdings are concentrated in those 2 sectors. One other top 10 holding I wanted to touch on though is his #4 holding, Quanta Services (PWR). This chart has been breaking out and I have seen this name popping up more and more around financial sites. Plus, it fits right into his whole infrastructure theme. So, it doesn't surprise me at all to see that Gendell has already been in this name for quite some time. After all, he's a pretty smart guy. (Keep in mind: although some of these top holdings are indeed large stakes, some/many have experienced price appreciation, boosting their % share of the portfolio even more.)

Tontine Partners' most interesting move(s)? Whatever he has done in the past month and a half that we can't see. No joke. Since such a massive allocation of his portfolio was dedicated to steel stocks, his fund's performance has no doubt been affected by whatever decisions he has made recently. If he has been one of the many selling steel names, then he is in great shape. If not, then he's screwed. Us plebeians will have to wait until the next round of 13F's to find out Gendell's steel fate.

13F Source: SEC

--

Check back in during the coming weeks as I analyze the portfolio changes to numerous big name hedge funds such as Lone Pine Capital (Steve Mandel), Moore Capital Management (Louis Bacon), Tudor Investment Corp (Paul Tudor Jones), Blue Ridge Capital (John Griffin), & many many more.

About That Time Again: Hedge Fund Activity (13F's)

(Just FYI: This post marks the first of a series I will be doing in the coming weeks that details what the "smart money" has been up to lately.)

Four times a year, hedge funds & asset managers with > $100 million AUM (assets under management) are required to report to the SEC their holdings from the previous quarter. I check these 13F filings quarterly just to get a sense as to where these funds are putting their money sector wise. If you just sit down and do some simple number crunching between last quarter's 13F and this quarter's 13F, you can see exactly where these funds have been moving their money.

Please note, these 13F's should be treated as a lagging indicator simply because the 13F's that were just released August 10-15th 2008 show the funds' holdings as of June 30th 2008. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to.

I like to specifically follow value based hedge funds in the hope that they won't experience ridiculously high turnover and thus allowing me to track their movements. Specifically, I follow the Tiger Cubs (otherwise known as the proteges of former Tiger Management legend Julian Robertson). Many of these former proteges/right hand men have started their own funds and here are the ones I've been following:

- Blue Ridge Capital (John Griffin)
- Lone Pine Capital (Steve Mandel)
- Maverick Capital (Lee Ainslie)
- Viking Global (Andreas Halvorsen)
- Tiger Global (Chase Coleman)
- Touradji Capital (Paul Touradji)

Additionally, I also like to follow the Commodities Corporation "offspring" which typically employ a global macro strategy.

- Tudor Investment Corp (Paul Tudor Jones)
- Moore Capital (Louis Bacon)
- Caxton Associates (Bruce Kovner)

So, I follow a core of value funds in depth and then I also follow a core of global macro funds in depth. Over the next week, I will be going into detail as to what those specific funds were up to this past quarter. Additionally, I like to follow other "whales" and funds that are not necessarily value based, but are still top performers on Wall Street. I won't be going into detail on some of these names, but I will provide some very useful links that give a broad overview of what some of these whales have been buying/selling. Because, after all, you've got to at least keep tabs on what these guys are doing:

- Warren Buffett (obviously)
- Carl Icahn (rabblerousing at its best)
- RBS Partners (Eddie Lampert)

Then, of course, there are some just straight up beastly funds which you have to keep an eye on due to their awesome returns over the years:

- Atticus Capital (Timothy Barakett)
- Tremblant Capital (Bret Barakett)
- Clarium Capital (Peter Thiel)
- Pequot Capital Management (Art Samberg)
- Harbinger Capital (Philip Falcone)
- BP Capital (Boone Pickens)
- Greenlight Capital (David Einhorn)
- Paulson & Co (John Paulson)
- Jana Partners (Barry Rosenstein)

A few deep value & activist funds:

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Okumus Capital (Ahmet Okumus)
- T2 Partners (Whitney Tilson)
- Tontine Partners (Jeffrey Gendell)

And, a few new funds on the scene:

- Conatus Capital (David Stemerman, ex-Lone Pine)
- Highliner Investment Group (Anand Parekh, ex-Citadel)

So, over the coming week I'll touch on some important position moves some of these funds/whales have made (new positions, removed positions, etc). And, specifically, I'll be looking in depth at some of my favorite funds on a quarter by quarter comparison.

A Tease From Blue Ridge Capital and Lone Pine Capital

Get ready for a barrage of information as the various 13G, 13D, and most importantly 13F's are filed with the SEC by the various hedge funds in the coming days. Right now, we're just getting a little tease from Blue Ridge Capital (John Griffin) and Lone Pine Capital (Stephen Mandel Jr.), before they release their 13F's later in the week.

- Blue Ridge Capital, in a 13G filed yesterday, disclosed they now have a 6.7% stake in Echostar (SATS). As I first wrote about here, Blue Ridge started a new position in SATS in their previous 13F with 1,906,000 shares. And, this past quarter, they were definitely busy adding to that position, as they report they now hold 2,830,000 shares of SATS, which signals a 48.4% increase in the size of their position since last quarter.

- Lone Pine Capital, in a 13G filed yesterday, disclosed they now have a 7.8% stake in Hansen Natural (HANS). In their previous 13F filing, Lone Pine did NOT show a position in HANS. So, this is a brand new position that they've literally just assembled in the previous quarter.

Investment Scenarios: Inflation vs Deflation

I've said all along that you need to be thinking ahead and preparing your portfolio for various potential economic and market scenarios. And, I've roughly broken down these scenarios into two environments: inflationary & deflationary. So, after much reading, pondering, and hypothesizing, I've come up with my broad gameplan for each scenario.

Inflationary Environment
In an inflationary scenario, the following positions should be poised to benefit:

- Long Gold: As a speculator's instrument, many argue that gold is an inflation hedge. Long also other precious metals and commodities in general.

- Long Oil: In a truly inflationary environment, oil is supply inelastic; any increase or decrease in price would not result in a corresponding increase or decrease in supply.

- Short Leverage: A common theme regardless of environment, really. Leveraged companies, companies who provide leverage, companies with leveraged consumers.... short them all. A deleveraging environment is ahead of us.

- Long Technology: Regardless of environment, technology will evolve and there will be demand for such advancements.

- Short Fixed Income: Weak domestic currency/monetary system means it will underperform and thus should be shorted.

- Long Emerging Markets: A weak domestic currency/monetary system implies higher returns can be found abroad in countries experiencing vast growth.

- Avoid staying in cash: Inflation means your currency is worth less every day. Fight it by not staying in it if at all possible.

Deflationary Environment
Many people are becoming increasingly concerned that deflation is in our future. And, this concern is duly warranted considering that deflation typically rears its ugly head after periods of prolonged globalization and global growth. Such growth leads to increased investment, a massive increase in production, and thus excess capacity all around the world. Such excess capacity then brings forth lower prices. In deflation, companies suffer while the consumer is the real winner. In a deflationary scenario, the following positions should be poised to benefit:

- Short Equities: In deflation, traditional investments should suffer simply because the underlying companies will see lower margins and losses. And, more often than not, certain companies will become insolvent.

- Short Housing: Rent rather than own. As prices collapse, stand back and let the landlords watch the values of their properties plummet.

- Long Fixed Income: Mainly sought after as a safe haven (much like gold in an inflationary environment). While by no means a 'top pick' for investing during deflation, it is an option for those who do not have access to short selling (the preferred position). Although fixed income yields should decline due to fed easing (to combat deflation), the underlying should theoretically depreciate much less than equities (which you do not want to be long). Seek better quality bonds.

- Short Leverage: Regardless of environment, deleveraging should be a big theme playing out in the future. Short any companies that have anything to do with leverage. In deflation, leverage begins to unwind and as such currency plays can be found. A massive leveraged carry trade in the Yen has taken place over the years and as such would be unwound in deflation, thus benefiting the Yen.

- Short Emerging Markets: The global boom that once fueled these nations quickly turns sour for them. Global excess means prices come down and companies suffer.

- Long Technology: Regardless of environment, technology will advance and will be in demand.

- Avoid debt and raise cash

- Long Gold: In extreme conditions (in any direction), gold can make sense. In deflation, it can make sense when acting as currency.

--

Whether in an inflationary or deflationary environment, portfolios can be poised to outperform. While the theme of deleveraging seems all but inevitable, the exact scenario(s) that will unfold are hard to predict. But, the possible outcomes stand roughly divided by the two scenarios outlined above. And, both environments offer unique investment opportunities poised to outperform. (See here for an additional set of stipulations regarding each type of environment).

Quote of the Week (8/11/08)

This week I'll throw a bit of a contrarian quote out there.

"When most people share the same sentiment, that is usually when trends change."

The rally we've slowly been mounting has been putting in higher lows as it approaches overhead resistance at the moving averages. I personally still feel this is just a minor rally within a broader bear market. For a trade, it makes sense to be long here if the counter-trend rally can breakout above the moving averages. But, then again, the overhead resistance we're about to run into could very well be the catalyst to send us right back down. I'll wait for a confirmation in either direction before I initiate new shorts or longs. This market is trading very tightly on technicals, that's for sure.

Potash (POT) Sitting on Long Term Trendline

I've been seeing a lot of people concerned about the action in the agriculture sector, namely fertilizer stocks. Just wanted to post up that while yes there is some concerning action in those stocks, the long term trendline is still in tact. And, that's all I'm concerned about. We all know these companies are still firing on all cylinders, as evidenced by the blowout quarters they just reported. The market, though, likes to sell off anything remotely commodity related; that's just how it is. As Lawrence so effectively points out: until the long term uptrend is broken, these stocks are still manageable.

(click to enlarge)

We are currently right around the long term trendline. You can buy around $168/169 and then stop out around $165 if you want a tight stop or $159 if you want a less conservative stop. These fertilizer names are on the verge of a major technical breakdown. And, although we love their story fundamentally.... you've got to adhere to the price action we're seeing.

Quotes From Hedge Fund Manager Paul Tudor Jones

Paul Tudor Jones is one of the most successful global macro fund managers out there. He manages in excess of $17 billion at his hedge fund, Tudor Investment Corp. Although these quotes are older (taken from around 2000), they are very generalized and still serve as great advice for any investor/trader.

"I'd say that my investment philosophy is that I don't take a lot of risk, I look for opportunities with tremendously skewed reward-risk opportunities. Don't ever let them get into your pocket - that means there's no reason to leverage substantially. There's no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities."

--

"And then at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control."

--

Q: Let's play a word association game. I'll say a word and you say whatever comes to mind.

Q: Technical analysis

Paul Tudor Jones: Made well over half the money that I've made in my lifetime.

Q: Fundamental Analysis

Paul Tudor Jones: Made the rest.

--

Source:
http://chinese-school.netfirms.com/Paul-Tudor-Jones-interview.html

Rough July for Macro Funds

Oh, how the fruits of success can come back and force-feed you some humble pie. Many macro strategy hedge funds savored their gains during the first half of the year as their large bets on long energy, short financials paid them off handsomely. July, on the other hand, was a different story. As oil retreated and numerous financials rallied, macro funds took it on the chin.

Peter Thiel's Clarium Capital was -6.8% for the month of July (hat tip JimPunkRockford). But, fanboys will be quick to point out that his fund is still up over 45% year to date.

Philip Falcone's Harbinger Capital was -16% for July (via BusinessWeek) as their large concentrated bets on energy and commodities (specifically Cleveland Cliffs - CLF) blew up in their face. But, once again, fanboys will be quick to point out that they are still up over 23% year to date.

This all when the S&P500 is roughly -14% over the exact same time frame. But, its all relative, right?

A Tale of Two Tiger Cubs

And this is exactly why I love tracking 'offspring' of investing legends like Julian Robertson. Although both Andreas Halvorsen of Viking Global and Stephen Mandel Jr. of Lone Pine Capital both learned the tricks of the trade under Robertson in their time at Tiger Management, both have taken what they've learned and added their own spice to the value oriented, yet growth at a reasonable price (G.A.R.P.) tolerable investment style.

Although Viking Global and Lone Pine come from the same school of thought, their returns are polar opposite year to date. So far, Viking's Global Equities III Fund is up 8.45% year to date. While, on the other hand, Lone Pine's Lone Cedar Fund is -5.38% year to date. Oh how the slightest tweaks in philosophy make a difference. While both are still outperforming the S&P on a relative basis, Lone Pine being down for the year is slightly surprising given the amazing run they had last year, netting 44% in 2007. Has Mandel's momentum run out? Its still much too early to tell.

Many 'Tiger Cub' funds often have similar positions in their portfolio, which is understandable given their similar general investment philosophies. What sets them apart from each other though, are the positions they take that are dissimilar from their former Tiger Management peers. And, in a few weeks when the next round of SEC 13F filings are released, we'll be able to see just where Viking differed from Lone Pine in their approach.

--

Courtesy of the NY Post, we see just how some big hedge funds are faring year to date. As mentioned in previous posts, Harbinger Capital is tearing it up, as is John Paulson again (he tore it up last year as well due to his bets against the subprime mess). Some notable surprises on the list are Jeffrey Gendell's Tontine Associates poor performance, -17% year to date. It should be noted though, that he is more or less a value player, and we all know value is dead in 2008 (ha!). Also notable is Bret Barakett's Tremblant Capital -8.96% year to date. Bret is the brother of Timothy Barakett (manager of Atticus Capital), whom I track on the blog. I'll take a closer look at both of their 13f's this next go-round to see how similar/dissimilar the brothers are in their investment philosophies.

(click to enlarge)

Macro Takeaways

Courtesy of Commodity News and Mining Stocks, Salida Capital (a multistrat hedge fund that has seen compounded annual returns in excess of 50%) is out with some very simple macro bullet points that effectively summarize what we're witnessing.

1. The housing crisis in the US is deflationary
2. It will be met with unparalleled monetary and fiscal stimulus
3. The end result will be another round of reflation
4. This will eventually lead to an even more inflationary environment
5. Supply constraints on most commodities will keep long-term prices higher than consensus estimates
6. Hard assets will eventually get a re-rating as their earnings power relative to the overall market is recognized and as investors buy them as an inflation hedge.
- Courtesy Salida Capital Commentary For July 2008

Crude Oil

Contrahour has a very simple chart up showing the technical weakness crude is exhibiting. The chart implies that a re-test of the $100 is imminent. Notice how on the most recent test of $120 that oil is not springing off support as it should. Instead, it is lingering about, suggesting it wants to trade even lower. In early June, when hitting the same support level, buyers rushed in and crude soared right back up where it came from. That is not the case this time around. This should theoretically be bullish for the market as a whole. But, we all know how the market loves to surprise us.

(click to enlarge)

I.O.U.S.A. Movie Trailer

Hat tip to Howard Lindzon who twittered this movie trailer about the U.S. deficit. I love the Ron Paul cameo in there as well, that guy speaks the truth.



Interesting timing though as it releases in a few weeks.

Harbinger Capital At It Again

Well, looks like Falcone and his Harbinger Capital is at it again. While this technically occurred last week while I was gone, I still want to highlight it. Harbinger has been building up a 6.6% stake in Sunoco (SUN). They make mixed petroleum products and petrochemicals so I have to wager this is a play on oil prices coming down. They filed this as a 13G which was curious, because it means this was a 'passive' stake rather than their normal 13D 'activist' stake. I can only imagine they will eventually flip the activist switch on and turn to their normal rabblerousing days. In their last 13F filing (last quarter) they did not show a position in SUN at all, so this is fairly recent. Just wanted to point this out for all who might be interested because after all, Harbinger is killing it this year, up more than 40% YTD.

Source: StreetInsider.com

The Perfect Storm

Taken from Epoch, I just wanted to highlight this great slideshow about the perfect US Economic storm we are seeing currently. This is the largest I could get the text, so on some slides you will want to right click on the slideshow and select 'zoom in' to be able to read everything. Enjoy.

The Perfect Us Economic Storm

view presentation

Two New Hedge Funds to Keep an Eye On

Saw some interesting news in Bloomberg last week regarding new funds being launched by former employees of some impressive firms. First, we have Conatus capital (ex-Lone Pine) and then there is Highliner Investment Group (ex-Citadel).

Taken from Bloomberg,

"The biggest stand-alone startup was Greenwich, Connecticut- based Conatus Capital Management LP, which raised $2.3 billion. The firm was started earlier this year by David Stemerman, 39, formerly of Stephen Mandel's Lone Pine Capital LLC. Highliner Investment Group LP in Chicago raised $1.5 billion. Highliner was founded by Anand Parekh, 35, who was previously global stock head for Ken Griffin's Citadel Investment Group LLC."

It will be interesting to see what direction these funds take and how similar their portfolios are to their previous employers. I'll keep everyone updated come the next round of hedge fund 13f's.

Hedge Fund Performance Updates

This past weekend I received some information regarding the performance of some very notable hedge funds year to date. Note that these performance figures are year to date as of June.

- Harbinger Capital up 42.8%
- Renaissance Technologies (Futures fund) up 7.75%
- Paulson & Co (Advantage fund) up 20.58%
- Daniel Loeb's Third Point fund up 2.49%
- Carl Icahn's fund down -9.44%
- Steven Cohen's SAC Capital (Multistrat fund) up 1.92%
- Bristol LP up 28.14%

I'll post up some more numbers as I receive them, but so far this is all I've got. I'll definitely be adding Harbinger Capital to my hedge fund 13f tracking series. (I can already tell you they are up so much this year due to their massive bets against the housing market and their smart decision to short the sh*t out of Bear Stearns).

In about a month or so, the next round of quarterly 13f's will be released and I will be expanding my coverage. I've received numerous questions asking if I was going to continue coverage on more hedge funds from the last set of 13fs but I figured I would just wait a few weeks until the next round are out since we are already so close; that way I can get a fresh start. I'm really going to buckle down on this next round of 13f's and cover a ton more hedge funds than last go-round. I will provide in depth coverage for some of the major funds, but other funds will merely be highlighted with top holdings and major changes. For the most part, I'll try to do detailed analyses. But, for some funds, its simply not worth it. SAC Capital for instance, due to their short-term trading segment, often holds in excess of 300 positions. Needless to say, going line by line on a 13f comparing quarter to quarter can get quite tedious. My focus in summarizing these reports is to find tangible investment theses that these funds are employing. Therefore, I mainly focus on value, activist, or macro oriented funds, rather than trading or quant funds.

Look for my hedge fund tracking series in the coming weeks. For those of you who didn't see my coverage of various hedge fund portfolios last quarter, check out my post here.

Short Sellers Ahoy

Taken from the Option Addict's wonderful post on Bank Short Ideas, I present to you this oh so wonderful chart of the 'oh-sh*t-we-might-be-screwed' financial institution otherwise known as Lehman Brothers (LEH). Pay particular attention to the decreasing volume on this 'rally' in LEH. Then look back to last month's 'rally' in LEH and pay attention to the exact same volume pattern. Hmm, I wonder what's next?! Short sellers ahoy.

Feature on Harbinger Capital's Philip Falcone

I want to give thanks to reader Alex for tipping me to this specific piece on Harbinger Capital's manager, Philip Falcone. I most likely would have never even seen this piece because its from a local Minnesota paper. Harbinger Capital is a successful activist hedge fund notable for making a ton of money by shorting the housing market. Additionally, they heavily shorted Bear Stearns before its subsequent meltdown. And, year to date, their fund is up 42.8% as of June.

The article covers Falcone's background and talks about Harbinger's activist ways. And, speaking of activism, our boy at Harbinger is up to no good once again, just recently opposing Cleveland Cliffs (CLF) takeover bid for Alpha Natural Resources (ANR). (Harbinger owns 18.4% of CLF and is opposed to the merger, as noted here).

At any rate, check it out because its an interesting profile for those curious about how Harbinger/Falcone operate. You can find the Minneapolis / St. Paul Star Tribune piece on Falcone here.

Quote of the Week 7/21/08

This week's quote was actually recently featured on Howard Lindzon's blog and I really liked it. Said by Robert W. Sarnoff,

"Finance is the art of passing money from hand to hand until it finally disappears."

Let's stay focused this week so we don't end up passing money to others.

Fertilizer

UBS is either still behind the times or they have finally started creating earnings models that are at least somewhat accurate. Only reason I point this out is because they have raised price targets on Potash (POT) and Agrium (AGU) yet again. Just last month, UBS raised its price target on Potash from $250 to $285. Then, today (not even a month later), they are out raising their price target on Potash from $285 to $320.

Additionally, a month ago UBS raised the target on Agrium (AGU). They raised its price target on the stock from $95 to $118. And, not even a month later, they are out boosting price targets today on the name again, this time from $118 to $130.

So, in 2 months time, UBS has raised POT's price target from $250 to $320 and AGU's price target from $95 to $130.

Clearly, some people (analysts, ahem) have been underestimating the true pricing power the fertilizer names have. Very limited supply + very strong demand = fertilizer company pricing power. Its really a simple concept, yet analysts and investment firms are just now latching on to the true potential these producers have. The prices simply keep going up because there is huge demand for it worldwide. Not to mention, an already limited supply becomes that more valuable because new supply cannot be brought to market for years (2012-2015) due to how long it takes to bring a new potash mine online.

Combine all of the above with the fact that these fertilizer companies are now selling potash to Asian buyers at a spot price of $1000 per tonne and you've got a huge recipe for success. Even with a slumping American economy and an overall bear market, there are bright spots to be found. Use any weakness in these names to add (or establish) your position.

This is the definition of secular growth.

Keep an Eye Out For S&P 1275

Should be the first real test of this 'rally' (if we can even get up that high). I will be looking to re-enter short positions at that level and then subsequently will stop out if we continue to march higher. 1275 was past support and is now future resistance.

(click to enlarge)

Long Volatility

Target: $34. Goal: pure panic. Unless we get a major market rally that can drop the VIX out of its channel, we are still on the (slow but steady) road to continued volatility.

Long Illumina (ILMN)

Yesterday on twitter, I "tweeted" that I was most likely going to get long Illumina (ILMN), and that's exactly what I did. If you haven't noticed, there's been a big rotation into healthcare/biotech/biosci companies as of late. I already have exposure to this somewhat through Gilead (GILD), Biiogen (BIIB), and Thermo Fisher (TMO). But, the positions are smaller relative to my overall portfolio. So, I wanted to increase my exposure there while still maintaining diversification in the various health/bio sectors. In this market, you play what's working. Taken from Google Finance,

"Illumina, Inc. develops, manufactures and markets integrated systems for the analysis of genetic variation and biological function. Using its technologies, the Company provides a line of products and services that serve the sequencing, genotyping and gene expression markets. The Company’s customers include genomic research centers, pharmaceutical companies, academic institutions, clinical research organizations and biotechnology companies. Its tools provide researchers with the capability to perform genetic tests needed to extract medical information from advances in genomics and proteomics."

Straight up, ILMN scares me. I'm not kidding. Its valuation is ridiculous and borderline insane. It has a trailing PE of nearly 160 and a forward PE of 41. But, this name continues to cruise higher and has had me interested for a while. So, we finally got a pullback to support and I pulled the trigger. I am keeping a very tight stop on this name for fear that it could have its head chopped off at any minute due to its sky high valuation.

(click to enlarge)

As you can see from the chart above, ILMN has pulled back from $90 to around $82 or so in an orderly fashion. That 82 level has served as a nice little area of support recently so I figured to start my buying here. The main level of support I'm concerned with though is below that at $80. As you can see, ILMN bumped up against 80 from April til early June as that area was extreme resistance. Now that ILMN has blown past that resistance, I am ultimately looking for the re-test of this area as it now should be support. At that level I will add handsomely to my position. The $80 level is also key simply because it is also right below the 50 day moving average and serves as my stop loss. If it cannot hold this big area of support, it is going lower and I want out fast. Again, the valuation scares me and it could come crashing down with no explanation. I want in this name for fundamental reasons (not valuation though!) because the company is really progressing and gaining a lot of attention/support. But, in this increasingly volatile market, you've got to really make sure you're focusing on risk management. Managing your risk/reward is half the game in this whacky market. The chart has presented me with a clear exit plan and I'm comfortable getting into this name because the price action is pretty crisp and I've got a clear gameplan to manage my risk.

So, I'm in with my initial position at $83.xx and a big order around $80 and a very tight stop below that at $79. This is not a trade, it is an investment. It simply looks like a trade due to the very tight stop I have on it due to lofty valuations and a volatile market. People who are just buying and holding in this market are most likely getting slaughtered. You've got to adapt and maneuver around positions to ensure you're at the very least preserving capital, if not growing it.

Long ILMN.

Stop Losses

I want to point out 3 charts that I've monitored/been monitoring. Each chart points out a separate staple of technical analysis. Yet, at the same time, they all illustrate the use of a stop loss and how you can identify where to place your stop on your holdings.

1.) Support/Resistance. These are areas on the chart that you can visibly see a stock either having trouble breaking through at, or finding support at. These are visual representations of the price action in the underlying stock. In this specific example, I want to focus on how you can use support/resistance to your advantage in terms of either placing stop losses or price targets. In this case, US Bank (USB) was considered to be a conservative bank. But, since they are still a bank, they are still a good house in a bad neighborhood. The dividend is nice and all, but the chart gave me a clear signal after it could not find support at a level of past support. I thus placed my stoploss right below this area of support. So, if the support failed to hold, I knew the stock would be headed lower and I would need to get out. And, that's exactly how it played out. On the chart, you can see a strong area of past support around $28. So, I placed my stop below that and got stopped out accordingly once it broke down past support. This stop loss saved me from the ensuing 25% drop USB experienced. This is the perfect example as to why you should have a stoploss on all your holdings. (Oh, and for those curious, I was only in USB to begin with because I was employing a buy-write strategy. They have a solid dividend, so I was pocketing the dividend (5%+) and then writing covered calls on the name every month to pocket more money since the stock essentially traded sideways for a long time).

(click to enlarge)

2. Trendline. Mastercard (MA) is sitting on a longer term support line right now. Once again, the quote of the week has been "The trend is your friend." Once the trend ends, get the hell out. So, take all the lows of the trend and connect the dots making your trend line. If the stock breaks below the trendline, it is most likely going lower and you need to get out. Place your stop loss accordingly. So, for instance, in MA, I would be buying this dip as it is on longer term support from the trendline. Secondly, it has filled the gap (but that's a whole nother topic). Then, place your stop just below the trend line. If it breaks, its going lower. For the graph below, focus on the green trendline I've drawn in.

(click to enlarge)

3. Head and Shoulders Pattern. This pattern pops up all over charts all the time. And, if you can spot it, you can benefit from it as this pattern is typically bearish. For this example, I want to focus on Suncor (SU). I'm actually very bullish on this name for the long term. But, for now, I'm using the technical analysis to my advantage. I've spotted a head and shoulders in this name and it could potentially trade much lower (especially if oil prices continue their decline). I've highlighted the two shoulders and the head with green circles. As you can see, the head is the peak of the formation and the shoulders are on either side, at the same price level. Then, the bottom of the formation is accompanied by a 'neckline' where the two shoulders form their bases. For SU, this neckline is at $55 and is the make of break point. This level represents support as the stock has previously bounced twice at that level. So, if it breaks the level to the downside, the stock could trade much lower. Now, for all intensive purposes, this stock could just continue to trade higher and not complete the H+S pattern. But, the point is that once you identify the neckline, you've identified your stop loss. For SU, you'd place a stop loss below $55 and call it good. You can get short anywhere below that level. Or, if SU holds that level, then you can get long. For now, the pattern is an *anticipatory* head and shoulders. It hasn't actually completed the pattern so I am technically jumping the gun here. If it trades down to $55 and then breaks the neckline, then it will be complete. Again, for all I know, this name could continue to march higher. But, its just something good to consider when managing your holdings. Also note that this chart makes uses of support/resistance as well (the neckline).

(click to enlarge)

Odds & Ends

I've got a couple random/unrelated topics to cover so I just decided to mash them all up into one post.

1. Capitulation. Everyone and their dog is looking for it, and frankly, that makes me think we won't get it for some time. If everyone is waiting for everyone else to panic and sell, then who is actually going to be selling? It used to be that not many people paid attention to the Volatility Index (aka the VIX), but as the year has gone by, you see more and more people referencing it. It now appears that literally everyone is watching it. And, apparently there is a disconnect between the VIX and this market tumble (more on that later). At any rate, the VIX did spike on this morning's sour open. It spiked to 31 but then quickly retreated back down, laying down a nasty inverted hammer on the chart. We'll see how the rest of the day/week plays out.

(click to enlarge)

2. Mosaic (MOS) has sold its nitrogen business (Saskferco) to Yara International for $1.6 Billion (courtesy of Bloomberg here). I suggested in one of my previous posts that MOS was essentially 'top-ticking' or selling the top in the nitrogen trade, as they wanted to focus more on potash and phosphate. Although the stock is down on the news, this is a very buyable dip, as it will further their bottom line down the road. Nitrogen, although a strong part of their business, is not seeing the ideal pricing power conditions as their potash segment is. Again, my thesis on these fertilizer plays all along has been to play them due to their potash exposure; nitrogen and phosphate were only added bonuses. The potash segment has very limited supply and strong demand worldwide. And, add in the fact that new supply cannot be brought to market for years, and you've got the ideal combination for $$$.

3. Google (GOOG). On the chart, many of you know that this thing has a nasty gap to fill all the way down around $480. Yesterday, GOOG broke down past $520 and gave me the signal to short. However, they do have earnings coming up and that could obviously be a catalyst in either direction. So, for the mean time, instead of straight up shorting GOOG, I've put an option strangle to work. (If you're unfamiliar with a strangle, it's essentially an options position that makes money only if the underlying stock makes a big move in either direction. You can read more about it via Investopedia here). I was going to play a straddle on this name, but GOOG options are ridiculously expensive and so even playing a strangle (typically cheaper since you're using out of the money options) is still expensive. So, yesterday, I entered into the strangle of GOOG 480 Puts and 560 Calls. Obviously, with GOOG trading down again today, the put side of the trade is making money, while the call side is not. If GOOG continues to trend downward, I may just take profits before earnings altogether. But, we'll just have to see how that plays out. I had drawn up this chart last week and intended to post it as a short, but I completely forgot. This first chart is the GOOG chart I drew last week. The second chart will show where GOOG sits currently. Since marking on that first chart, GOOG has fallen from $560 to $505, a pretty strong move to the downside. Here's the chart I drew a little while back.

(click to enlarge)

And, here's what GOOG looks like now.

(click to enlarge)

So, as you can see, GOOG has fallen pretty hard and could very well continue down and fill the gap at $480, as that is our final goal. Keep in mind though that earnings are coming up and could provide a massive catalyst for this stock to swing violently in either direction. That's why instead of just shorting it, that I have put on the strangle, to hedge myself.

4. The trend (is still) your friend. Seeing as how that phrase was the Quote of the Week for this week, I found it very appropriate to post yet another great up-trending chart in this shitty market. Central European Distribution Company (CEDC) came up while I was researching new plays in Central Europe/Eastern Europe/Russia. Taken from Google Finance:

"Central European Distribution Corporation (CEDC) is an integrated spirit beverages business. The Company produces vodka at two distilleries in Poland and is a distributor of alcoholic beverages. The Company is also an importer of spirits, wine and beer in Poland. Its products are also exported out of Poland. CEDC offers a portfolio of alcoholic beverages with over 700 brands."

I'll be doing more research on this name, but you simply cannot ignore a great chart. Pull up any time frame: 1 month, 3 month, 6 months, 1 year.... they all look the same:

(click to enlarge)

That wraps up the odds & ends for now.

Quote of the Week 7/14/08

The Quote of the Week this time around is an oldie but goodie. Simply put,

"The trend is your friend."

Until the trend breaks, ride it. Once it breaks, get the hell out. And, Kevin's Market Blog has a great chart which illustrates exactly that point. What chart might it be? Oh that's right... crude oil.

(click to enlarge)

Qualcomm (QCOM) and Jacobs Engineering (JEC) Added to Goldman Sachs Conviction Buy List

Today I'm seeing interesting news that both Qualcomm (QCOM) and Jacobs Engineering (JEC) have been added to Goldman's Conviction Buy List. Now, typically I don't pay particularly close attention to analyst upgrades/downgrades and the like. I'll check out their price target and see if they're saying anything new or completey outlandish that separates them from the crowd. But, one list I do like to pay attention to is the Goldman Sachs Conviction Buy List. This list carries weight for me simply because Goldman are one of the few firms truly surviving in this credit crisis. And, they are doing so by doing extremely well in their trading group. So, checking out their "A-list" for buys is a smart move simply because they have been killing it in the equities markets.

Reason I point out these two specific names (JEC + QCOM) is because I'm actively interested in these names. Qualcomm being added is a positive sign for me as I've recently added to my position on the touch of the 50 day moving average. They are one of my biggest tech holdings and will continue to be in the future. They are a big player in the mobile buildout space and also have a large hedge fund presence.

Jacobs Engineering (JEC) operates in the world of global infrastructure and has interested me for a while. I've been in and out of Foster Wheeler (FWLT), Fluor (FLR), and McDermott (MDR) for my exposure to this sector. Currently, I only hold FLR and am cautiously stalking other names to add to my infrastructure basket. Most of these companies have true global exposure and massive contract backlogs, which is reassuring. I'm still in the midst of my infrastructure research, but I'm most likely going to be adding FWLT (again) in addition to my FLR position. However, JEC keeps popping up on my radar, so I'll definitely be researching it more.

Infineon (IFX) to Benefit from 3G iPhone Sales

Let me preface this by saying I have absolutely no idea how much this will affect Infineon's (IFX) bottom line, but I would imagine it would have a solid impact. Everyone is expecting the 3G iPhone to be a big hit worldwide, which obviously benefits Apple (AAPL). But, there might be some other ways to play it if you're interested. With a little bit of digging today, I was able to find someone who had already disassembled the 3g iPhone (in New Zealand no less... since it's already out there). The people over at ifixit have literally taken apart the entire new iPhone to find all its components. Now, while there are still a few unidentified pieces in there, they have managed to identify the vast majority of components. And, I immediately noticed something: the 3g iPhone has numerous Infineon components. Again, let me reiterate that I am not sure exactly how much this will impact Infineon's bottom line, but it is obviously a positive for them.

The Infineon components can be found on the iPhone's logic board. As of right now, the team at ifixit have identified 3 chips as Infineon chips. And, there are rumors that 2 additional unidentified as of yet chips are from Infineon as well. They write that the identified Infineon chips include:

- "The largest chip in the top left corner is an Infineon 337S3394 WEDGE baseband."

- "Small chip to the right of the NOR: Infineon BGA736 (Tri-Band HSDPA LNA)"

- "The chip in the top middle is SMP 3i 6820, Infineon SM-Power3i. From Infineon: the part is 'optimized to support modem and data card applications based upon X-GOLD208 and X-GOLD 608, with features ranging from EDGE up to 3G and HSDPA.' "

Then, the 2 unidentified chips are believed to be the following Infineon components:

- "SP836175 G0822 337S3394 (rumored to be an Infineon baseband)"

- "338S03532Z 60814 (rumored to be an Infineon RF transceiver)"

(click to enlarge)

So, there are for sure 3 Infineon chips in the 3g iPhone, and possibly as many as 5. Obviously this should boost Infineon's revenue (and their stock as well). And, I noticed something interesting today. Infineon stock (IFX) saw very heavy buying on weakness today. I've talked about buying on weakness before and basically its a metric tracked by the Wall Street Journal which shows stocks that are down for the day but have seen the largest inflow of cash. IFX was #3 on that list today. Hmmmm, I wonder why? /End sarcasm. Not to mention, the stock is up around 2% after hours. I really don't think this news is mainstream yet. And, I really think that the buying today was by those people really paying close attention to the fact that the iPhone is technically released 'early' in the eastern half of the world and has already been disassembled. Seen below is a screenshot of the top half of today's buying on weakness list. You can check out the Wall Street Journal daily updated Buying on Weakness list here.

(click to enlarge)

The iPhone does not come out in the USA until tomorrow (the 11th), but the phone has already been released in the eastern half of the world. And, the guys down in New Zealand wasted no time disassembling the iPhone to find out what's inside. Clearly some people have noticed what I have: Infineon parts are all over the iPhone. You would think that IFX trades higher once this information hits the mainstream. Beforehand, the 3g iPhone components were a mystery. You could make logical guesses, but there was no way of knowing for sure. But, now that the information is public, there are a few stocks poised to benefit. And, Infineon (IFX) clearly leads the pack.

If I buy this name at all it will simply be for a trade and nothing more. I don't consider this news to be mainstream yet, but you never know. This information could already by completely priced into the stock. Although their component presence in the iPhone is obviously bullish for the company, they still operate in the very competitive chip space, where I don't necessarily want to invest. So, the fact that they have numerous chips in the iPhone is alone not enough reason for me to invest in this name. For now, its simply a trading vehicle.

You can check out ifixit's entire iPhone disassembly here.

Hedge Fund Manager Interviews

Alpha is out with their Hedge Fund Hall of Fame. In it, they have listed the first 14 inductees who have had substantial impact on the creation and rise of the hedge fund industry. The inductees include pioneers from all backgrounds and investment styles. Taken from Alpha,

"The first 14 inductees have all had an outsize impact on the hedge fund industry, enjoyed spectacular long-term success and displayed tremendous originality, starting with Alfred Winslow Jones, the inventor of the modern hedge fund. James Simons is on a 20-year roll of 40 percent returns. Bruce Kovner made commodities trading a hot pursuit. George Soros’ larger-than-life adventures put hedge funds on the map, and Kenneth Griffin intends to ensure they stay there. Michael Steinhardt and Steven Cohen brought credibility to short-term trading. Paul Tudor Jones II is the macro trader writ large, Seth Klarman is the premier value sleuth, Leon Levy and Jack Nash pioneered the modern multistrategy fund, and Louis Bacon is the risk manager’s risk manager. Where they blazed trails, others followed — not least the “cubs” sent skittering into the investment world by Tiger Management Corp.’s Julian Robertson Jr. Some of the most influential figures aren’t managers at all, like Yale University’s David Swensen, who made the road less traveled acceptable."

Here are the links to all the individual interviews (Or, in the case of Levy and A.W. Jones, interviews with their families and former colleagues). I highly recommend reading all of them, as they all bring different perspectives to the table. If anything, I recommend at least reading them for the background they give on each legendary investor. These are names that I will frequently reference on the blog and this is a quick way to get to know legendary investors/fund managers whom you might have been unfamiliar with before.

In particular, I enjoyed reading Bruce Kovner's, Julian Robertson's, Louis Bacon's, and Paul Tudor Jones' simply because I have been following them for a long time and would like to believe that my hybrid investment style combines aspects from each of their individual styles. Here are some excerpts from their interviews.

Louis Bacon, Founder of $20 billion Moore Capital Management, talks about globalization:

What’s the most pressing issue facing the world?

"A Malthusian population explosion intersecting with globalization. We have encouraged all 7 billion of the world’s inhabitants to live like Westerners, and now that they have taken the bait, we are realizing it is impossible on this small Earth. The first big hit has been to the environment; the next, which we are witnessing, is to energy prices, and it is leading to food shortages and eventually more famines. Governments are only starting to address the problem, and the planet’s most inventive and powerful economy, America’s, is leading only from the rear, if at all, given our present administration."

Paul Tudor Jones, founder of Tudor Investment Corp, who has never suffered a losing year, talks about why you also have to focus on the tape/technicals:

What’s so special about macro hedge fund managers?

"I love trading macro. If trading is like chess, then macro is like three-dimensional chess. It is just hard to find a great macro trader. When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form. The inability to read a tape and spot trends is also why so many in the relative-value space who rely solely on fundamentals have been annihilated in the past decade. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape and proud of it."

Here are the links to all the interviews in their entirety; click on each name to see their interview.

Bruce Kovner, James Simons, Julian Robertson, George Soros, Michael Steinhardt, Kenneth Griffin, Seth Klarman, David Swensen, Steven Cohen, Leon Levy, Jack Nash, Louis Bacon, Alfred Winslow Jones, Paul Tudor Jones

Enjoy.

Re: Natural Gas

Just browsing through some reading yesterday and I stumbled upon 2 articles in the Wall Street Journal that had some pretty powerful quotes about natural gas. I intend to do a larger post on natgas in the near future, so for now I'll leave you with some quotes.

Taken from the following article is this quote:

"But one thing seems certain at least—the U.S. is going to need more, not less, natural gas in coming decades, and the rest of the world is, too. That’s bound to make fresh U.S. gas finds all the more attractive."

That quote then linked me to this next article where I found comments regarding world demand for natural gas:

"Prices in the U.S. have risen 93% since late August as power-hungry nations like South Korea and Japan compete in a global natural-gas market that scarcely existed a half-decade ago. Still, U.S. prices are as low as half the level of some overseas markets, suggesting they have much further to rise."

Powerful stuff to say the least. And, it continues to play right into my theses all along: 1. demand for electricity is rising and will continue to rise, and 2. natgas will become a larger component of the energy supply picture.