Hedge Fund Tracking: Whitney Tilson's T2 Partners - 13F Filing 3rd Quarter 2008

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

Well, here we are again, right back in the swing of things. This is the 3rd Quarter 2008 edition of our ongoing hedge fund tracking series. We'll be bringing you the long side of the portfolios of numerous prominent hedge funds. Hedge funds we track here at MarketFolly.com include: Tudor Investment Corp, Maverick Capital, Greenlight Capital, Blue Ridge Capital, Moore Capital Management, Lone Pine Capital, and literally many, many more. We're aiming to cover 35 or so prominent funds this time around and we'll be releasing the 13f analysis here in the coming weeks on each individual fund.

First up in the 3rd quarter edition of our 2008 hedge fund tracking series is T2 Partners. T2, as of the current filing, is a $132 million value fund ran by Whitney Tilson. In addition to running his fund, Tilson is very active in the value investing community, releasing his Value Investor Insight newsletter and organizing the Value Investing Congress, which we covered a few weeks earlier. We also recently covered Tilson's latest thoughts on this volatile market here.

Tilson launched his investment career in 1999. Taken from his Tilson Funds website, "Mr. Tilson received an MBA with High Distinction from the Harvard Business School, where he was elected a Baker Scholar (top 5% of class), and graduated magna cum laude from Harvard College, with a bachelor’s degree in Government. Mr. Tilson writes a regular column on value investing for the Financial Times and Kiplinger's, has written for the Motley Fool and TheStreet.com, and teaches financial statement analysis and business valuation for the Dickie Group. He was one of five investors included in SmartMoney’s Power 30, and was named by Institutional Investor as one of 20 Rising Stars."

So, now that we've got a background on Tilson and T2, let's take a quick look at his portfolio highlights. Keep in mind that this is merely a brief summary of T2's top holdings. Due to the time sensitive nature of the 13F material, we wanted to get this information posted as soon as possible. The following were T2 Partners holdings as of September 30th, 2008 as filed with the SEC.

New Positions (Brand new positions that T2 initiated over the past quarter)
Contango Oil & Gas (MCF)
Goldman Sachs (GS)
Atlas Pipeline Partners (APL)
Anheuser Busch (BUD)
GHL Acquisition Corp (GHQ)
Chesapeake Energy (CHK)
Research in Motion (RIMM)
Annaly Capital Management (NLY)
Fannie Mae (FNM)
Chipotle (CMG-B)
Premier Exhibitions (PRXI)

Removed Positions (Positions T2 sold out of completely last quarter):
Birthday Chocolates (BDAY)
Jamba (JMBA)
American Italian Pasta (AITP)
Ebay (EBAY)
Whole Foods (WFMI)
ATP Oil & Gas (ATPG)
Hennessy Advisors (HNNA)
Clearpoint Business Resources (CPBR)
Starbucks (SBUX)
Kinross Gold (KGC)
Universal Stainless & Alloy Products (USAP)

Top 20 Holdings (based on % of portfolio):

1. Fairfax Financial (FFH) - 19% of portfolio
2. Resource America (REXI) - 7.8% of portfolio
3. Winn Dixie Stores (WINN) - 7.1% of portfolio
4. Berkshire Hathaway (BRK.B) - 6.9% of portfolio
5. Borders (BGP) - 6.3% of portfolio
6. Echostar (SATS) - 5.7% of portfolio
   
7. Delia's (DLIA) - 5.6% of portfolio
8. EMC Corp (EMC) - 4.7% of portfolio
9. Barnes & Noble (BKS) - 4.3% of portfolio
10. Contango Oil & Gas (MCF) - 3.9% of portfolio
11. Goldman Sachs (GS) - 3.1% of portfolio
12. Target (TGT) - 2.8% of portfolio
13. Sears Holding (SHLD) - 2.4% of portfolio
14. Weyco Group (WEYS) - 2.1% of portfolio
15. Winthrop Realty (FUR) - 1.7% of portfolio
16. Odyssey Re Holdings (ORH) - 1.7% of portfolio
17. Berkshire Hathaway (BRK.A) - 1.5% of portfolio
18. Greenlight Capital RE (GLRE) - 1.2% of portfolio
19. Ambassadors International (AMIE) - 1% of portfolio
20. Atlas Pipeline Partners (APL) - 0.8% of portfolio

Keep in mind that we have not detailed every tiny maneuver they have made with their portfolio. Some of the holdings they added some shares, others they sold. We are essentially capturing the major moves T2 has made over the past quarter with regards to their portfolio.

This is the first hedge fund we're covering in our 3rd quarter 2008 edition of our series of tracking 35+ prominent hedge funds. Stay tuned this week and next week as we detail the portfolio holdings of these funds. Overall, its been one of the worst years ever for hedge funds, as we noted in our recent October hedge fund performance update. So, the recent moves they've made in their portfolios become all the more interesting given the way the market has played out. Some funds we will be tracking to look forward to: David Einhorn's Greenlight Capital, Lee Ainslie's Maverick Capital, Paul Tudor Jones' Tudor Investment Corp, Louis Bacon's Moore Capital Management, and many, many more.

Lastly, make sure to check out T2 Partners' Whitney Tilson's latest thoughts on the market and check back with us at MarketFolly.com in the coming days to follow all the hedge fund portfolio holdings.

Recommended Investing Books: Fundamental Analysis & Valuation

We've been getting some requests from readers for some good books to read when it comes to investing. So we're posting up a list of recommendations for learning fundamental analysis and valuation. Without further ado:


The Intelligent Investor by Benjamin Graham. If you had to own one book about fundamental investing, this would most likely be it. Benjamin Graham was a legendary investor who helped pioneer the ways of value investing and taught Warren Buffett a lot of what he knows today.  It is definitely number one on the list. If you haven't read it, pick it up immediately.

Security Analysis by Benjamin Graham. This is the second of Graham's must-read books. The book features the value investing philosophies of Graham and Dodd and a foreword by Warren Buffett. If you're lacking in understanding how to perform fundamental analysis, then this is the book for you. After you've finished reading, you'll be able to tackle balance sheets like none other.  It's a must-read for anyone interested in the fundamental analysis related to investing.

Margin of Safety by Seth Klarman.  Written by one of the greatest investors of all time, this book is nearly impossible to find a physical copy of since it's no longer being produced.  Click the link above to see if there's one available.

You Can Be A Stock Market Genius by Joel Greenblatt.  The title is cheesy, but the book's contents are not.  It will teach you catalyst-based investing techniques that exploit market inefficiencies such as risk arbitrage, spin-offs, etc.

The Art of Short Selling by Kathryn Staley.  While the above books teach you how to invest (go long), this book teaches you how to hedge/go short, an important tactic used by most hedge funds.



That concludes the fundamentals list.  For you traders out there, we've also posted up a recommended reading list for technical analysis and charts as well.

Mortgage Resets

Sure, we may be working our way through sub-prime, but we have this oh-so-fun wave of option ARMs just waiting patiently in the mist to reset to higher rates.

(click to enlarge)

Hat tip to Barry Ritholtz for the graphic.

Hedge Fund Tracking Series: 3rd Quarter 2008 Edition

This post marks the first of a series I will be doing in the coming weeks that details what many prominent hedge funds have been up to in the last quarter.

Four times a year (once each quarter), hedge funds & asset managers with greater than $100 million AUM (assets under management) are required to report to the SEC their long holdings from the previous quarter. These filings do *not* show the funds' short positions and require them to disclose only their long holdings in equity markets. Additionally, they are required to file various puts or calls purchased in the options market. These filings do *not* cover commodities, currencies, or other markets. So, we just wanted to clarify that for people new to 13f filings. We 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 this quarter's 13F and the one prior, you can see exactly where these funds have been moving their money.

Please note that these 13F's should be treated as a lagging indicator simply because the 13F's that are being released currently (November 10th-20th 2008) show the funds' portfolio holdings as of September 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 and what their concentrated positions are.

We like to specifically follow value based (or growth-at-a-reasonable-price) hedge funds in the hope that they won't experience ridiculously high turnover and thus allow us to somewhat track their movements as they build up concentrated positions. Specifically, I follow the 'Tiger Cubs' (otherwise known as the proteges of former hedge fund 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 (Stephen Mandel)
- Maverick Capital (Lee Ainslie)
- Viking Global (Andreas Halvorsen)
- Tiger Global (Chase Coleman)
- Touradji Capital (Paul Touradji)
- Shumway Capital Partners (Chris Shumway)

Additionally, we also like to follow the Commodities Corporation "offspring" which have gone off to start their own funds and typically employ a global macro strategy.

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

We follow a core of value funds in depth and then we also follow a core of global macro funds in depth. Over the next few weeks, I will be going into detail as to what those specific funds were up to this past quarter. Additionally, we like to follow other "whales" well known for their investing prowess. These include:

- Warren Buffett (obviously)
- Carl Icahn (rabblerousing at its best)
- George Soros (Soros Fund Management LLC)

Next, there is an assortment of funds which employ various strategies and often run concentrated portfolios. We track these funds due to their solid returns over the years, as well as the spotlight that has been cast on a few of them in this turbulent market.

- 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)
- Paulson & Co (John Paulson)
- Jana Partners (Barry Rosenstein)
- Eton Park Capital (Eric Mindich)
- SAC Capital (Stevie Cohen)
- D.E. Shaw (David Shaw)
- Farallon Capital Management (Thomas Steyer)
- Citadel (Ken Griffin)
- Renaissance Technologies (Jim Simons)
- Galleon Group (Raj Rajaratnam)

A few deep value & activist funds:

- Third Point (Daniel Loeb)
- Pershing Square (Bill Ackman)
- Greenlight Capital (David Einhorn)
- Baupost Group (Seth Klarman)
- T2 Partners (Whitney Tilson)
- Tontine Associates (Jeffrey Gendell)

And, a few newer funds on the scene:

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

Over the coming week we'll touch on some of the important position moves these funds and whales have made (new positions, removed positions, etc). That list of funds brings our coverage to around 35 prominent hedge funds. If you would like to see a specific hedge fund covered here on MarketFolly.com, post up a comment in the comments section below. We're always looking to add more funds that readers would like to see, so please drop in your suggestions!

The hedge fund tracking series 3rd quarter 2008 edition starts in the next few days, so spread the word.

Linkfest: Some Good Reads

Portfolio.com: The End [of Wall Street] by Michael Lewis (author of Liar's Poker, which is a must-read for any market junkie)

Portfolio.com: The Hedge Fund Collapse by Jesse Eisinger

Fortune: Fears are Overblown (Hedge Funds won't ignite another sell-off) by Barton Biggs, manager of hedge fund Traxis Partners and author of Hedgehogging, a book I highly recommend

Quick Goldman Sachs Conviction Lists Update

Yesterday, we saw that Goldman Sachs made a few changes to their Conviction Lists. Notably, they added Wyeth (WYE) to the buy list, giving the stock a breakup value of $50 a share. They currently have a price target of $46 on the shares. Additionally, Autoliv (ALV) was removed from the conviction buy list. But, they still retain a normal 'buy' rating on the name. You can check out the rest of the recent updates to the GS conviction buy and sells lists here and here.

Taken from Google Finance, Wyeth (WYE) is "engaged in the discovery, development, manufacture, distribution and sale of a line of products in three primary businesses: Wyeth Pharmaceuticals (Pharmaceuticals), Wyeth Consumer Healthcare (Consumer Healthcare), and Fort Dodge Animal Health (Animal Health)."

Autoliv (ALV) is "a supplier of automotive safety systems with a range of product offerings, including modules and components for passenger and driver-side airbags, side-impact airbag protection systems, seatbelts, steering wheels, safety electronics, whiplash protection systems and child seats, as well as night vision systems and other active safety systems."

Prominent Hedge Fund Managers to Testify Before House Oversight Committee

From Paul Kedrosky's blog:

"There is some must-see bailout TV tomorrow. Hedge fund managers John Paulson, Jim Simons, George Soros, Phil Falcone, and Ken Griffin will all be testifying tomorrow (11/13/08) before the House Oversight Committee. I genuinely hope it doesn't turn into a blame game and shouting match, but I don't have a lot of confident that it won't. The most interesting thing will likely be whatever prepared material they submit, so watch for that early tomorrow.

Here is the full list of guests on the Henry Waxman Power Hour, which should be streamed from the House site, as well as over C-Span, starting at 8:30am EST.

* John Alfred Paulson, President, Paulson & Co., Inc.
* George Soros, Chairman, Soros Fund Management, LLC
* James Simons, President, Renaissance Technologies, LLC
* Philip A. Falcone, Senior Managing Partner, Harbinger Capital Partners
* Kenneth C. Griffin, Chief Executive Officer and President, Citadel Investment Group, LLC
* Professor Andrew Lo, Director, MIT Laboratory for Financial Engineering, Massachusetts Institute of Technology, Sloan School of Management
* Professor David Ruder, Northwestern University School of Law, Former Chairman, U.S. Securities and Exchange Commission
* Professor Joseph Bankman, Stanford University Law School
* Houman Shadab, Senior Research Fellow, Mercatus Center, George Mason University"

Thanks to Paul for flagging that for everyone. We've been covering a lot of the aforementioned prominent hedge fund managers here on the blog. We've covered Citadel's recent woes here, Paulson's activity here, Soros' latest interviews here and here, and Harbinger's Wachovia short here and rest of their portfolio here. Will be interesting to hear what some of these folks have to say. Make sure to tune in!

UPDATE*** Live stream HERE.

Tontine Associates to Close Two Hedge Funds

As I twittered out yesterday, Tontine Associates LLC, ran by Jeffrey Gendell, is said to be liquidating 2 of its hedge funds: Tontine Capital LP and Tontine Capital Partners LP. Taken from Bloomberg,

"Gendell gave no timetable for unwinding the funds, Tontine Capital Partners LP and Tontine Partners LP, during a conference call yesterday with clients, according to the people, who asked not to be named because the information is private. Options for raising cash include selling the funds' investments privately or pushing the companies in which they are the biggest shareholder to sell themselves. `The combination of falling commodity prices, massive anticipated hedge-fund redemptions and the seizing up of the credit markets cause an enormous dislocation in our portfolios,'' Gendell, 49, wrote in a letter to clients last month. The firm managed $7 billion at the end of 2007."

The good news, if you want to call it that, is that 2 of Tontine's funds will remain open: Tontine-25 and Tontine Financial. As we noted in our October hedge fund performance update, Tontine was -65.7% in October and now down an astonishing 76.8% for the year. You can view the long-side of their portfolio here, which lists many of the positions they'll have to liquidate. And, all of this news comes as they had just taken a 6.16% ownership stake in Myr Group (MYRG).

We also get word that they're exploring options for the possible liquidation of positions.

"For eight companies in which Tontine is the largest holder, the firm may try to sell its stake privately to another buyer, or push the company to put itself on the block, according to documents filed yesterday with the Securities and Exchange Commission. The eight companies are: Miscor Group Ltd (MIGL), Broadwind Energy (BWEN), Exide Technologies (XIDE), Neenah Enterprises Inc (NENA), Integrated Electrical Services Inc (IESC), Patrick Industries (PATK), Innospec Inc (IOSP), and Westmoreland Coal Co (WLB). Tontine may also transfer its shares in these companies to investors, the filings said."

Source: CNBC's David Faber & Bloomberg

Rationale Behind Shorting Treasuries

For all intents and purposes, U.S. Treasuries are setting up to be a great short opportunity. Last week, I laid out a basic thesis for shorting treasuries. We may be early in this call, but present and future actions are sending us signals we simply cannot ignore. The presently increasing and future supply of treasuries is simply too large. As Martin Hutchinson over at Money Morning has highlighted,

"The U.S. Treasury Department announced Nov. 3 that it intended to borrow a record $550 billion in the fourth quarter. That represents a staggering $408 billion increase over Treasury's borrowing estimate from early August and includes $260 billion for the recapitalization of U.S. banks. Make no mistake about it: There will be enough U.S. Treasury bonds to choke on, as the government tries to finance this debt."

All signs point to this trend continuing. In the quarter prior, the government borrowed $530 billion. Now, with the recent news out that they will borrow an additional $550 billion, the question becomes, when does it end? The current flooding of the market with treasuries is reason enough to get short them. But, with the impending tsunami of future government borrowing still to hit, it just makes the bet that much sweeter. Hutchinson goes on to say that,

"Inevitably $800 billion to $900 billion of additional money flowing from domestic investors into Treasury bonds will do three things:

• It will drive up interest rates on Treasury bonds.
• It will tend to crowd out other financings, making finance difficult to obtain for medium-sized and smaller companies and more expensive even for the behemoths.
• And finally, it will increase inflation, as the Fed is forced to expand money supply to give investors enough money to buy all the Treasuries."

So, we can see that the consequences of their actions definitely plays right into our shorting thesis. The main point we're focused on here is the fact that interest rates on Treasury bonds will rise. When the yields increase, prices will drop, thus benefiting our short position. And, the case can easily be made that the longer dated treasuries will suffer the most. After all, do you want to loan the government money for 20 years at a paltry interest rate? We didn't think so.

Warren Buffett was even out mentioning the under-performance of cash equivalents in his latest comments. He wrote,

"Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts."

Now, although Warren was using that argument to make the case for buying equities in his piece, his point is that cash and cash equivalents will underperform and are thus not desireable. And, a basic principle of investing is to go long outperformers and short underperformers. Cash and cash equivalents (treasuries) are set to underperform and thus make a delicious short for you to sink your teeth into.

The actions of the government not only lay out the premise for shorting treasuries, but also the US Dollar. As inflationary pressures will weigh heavily on the Dollar in the future, eventually something has to give. The only problem here is that other forces are at work on the US dollar as the world continues to deleverage and hedge funds are forced to sell assets and continue to face redemptions. So, this play could ultimately take even longer to play out. But, we will address shorting the US Dollar in a separate post further devoted to that rationale.

The main thing to take away here is that the government has demonstrated that they have and will continue to borrow money by the hundreds of billions. As yields on treasuries rise, prices will drop, especially on longer-dated treasuries. Now, the question becomes how exactly do we play this? Not everyone has access to shorting the 10 year and 20 year treasuries outright, so I am here to offer some other alternatives. As I laid out in my first post on shorting treasuries, there are a few vehicles in the stock market that one can turn to, such as tickers PST and TBT.

PST is the ETF for UltraShort the 7-10 year treasury. An Ultrashort ETF seeks twice the daily inverse of the underlying security. So, buying PST gives you twice the inverse of the performance of the 7-10 year treasury (effectively a double-short). Additionally, TBT is the ETF for UltraShort the 20+ year treasury. This ETF seeks twice the inverse daily performance of the 20+ year treasury (also a double-short). So, those are two very easy ways for people to get short treasuries by buying those tickers in the stock market. Additionally, Hutchinson suggests the Rydex Inverse Government Long Bond Strategy (Juno) Fund, ticker RYJUX as another way to play it. That fund takes various short positions in treasury bond futures and thus will also rise as treasury prices decline.

* 1/12/09 Author's note: Please be advised that since publication, we have further researched the PST and TBT trading vehicles are are NO LONGER recommending them as proper vehicles for shorting longer-dated treasuries due to their poor correlation to their underlying indexes over time. Instead, we are recommending a straight short of TLT. Expect a follow-up post soon.

Cost of the Crisis

In our world of never-ending and awing statistics, the Bank of England is out claiming that paper losses from the global crisis are at a staggering

$2,800,000,000,000

And, for those of you counting zeros at home, that's $2.8 trillion. Displaying it with all the zeros certainly has a more powerful effect I feel. After hearing about billions and billions of write-downs, losses, and bailouts, the numbers don't really "feel" all that big anymore, when in reality they are. It seems I've become comfortably numb with 'billion,' almost as if its no big deal. When, of course, its a very big deal.

And, as the Guardian puts it,

"Think of it like this: it (the paper losses) could pay for 46 bail-outs of the kind the Treasury handed to the banks RBS, HBOS group and Lloyds TSB; or pay off the last quarter's public debt 45 times. It is more than three times the sum of UK annual public spending, and also equivalent to the wealth of 100 Oleg Deripaskas - before the credit crunch anyway. It's equal to 138m bottles of 1947 Petrus Pomerol, the bankers' favourite vintage; or, if it's your turn in the coffee round, 773bn lattes - nearly 13,000 each for every UK citizen."

Hedge Funds: October Performance Numbers

We have been anxiously awaiting the numbers from various hedge funds to see just how poorly (for the most part) many of them did in the abysmal month of October. If you'll recall, the indexes fell 10% or so in the month alone. Undoubtedly, the swift move caught a lot of people off-guard. Below, I've assembled a collection of performance numbers from various funds sourced from anonymous investors, hedge fund investor letters, and various media publications. If you missed it, you can check out our September hedge fund performance update to get a feel for how these funds were doing before the month of October struck. So, let's get right to it.

1. Maverick Capital's Maverick Fund was -6.34% for October and is now -26.47% ytd. Lee Ainslie's fund is off the beaten path this year, as they are accustomed to solid annual returns. You can see their most recent investor letter here, and their portfolio holdings here.
2. Viking Global's Global Equities III Fund was -1.10% for October and is -2.41% ytd. Their Global Equities LP is -3.92% for the year and was down 1.10% in October. Andreas Halvorsen and company seem to be faring alright this year, all things considered. You can view their month by month performance breakdown here.
3. Barry Rosenstein's Jana Partners had a rough month. Their Piranha fund was -19.2% for October and is now -21.7% for the year. Additionally, their Nirvana fund fell 13.2% in October and is down 21.9% ytd. As you can see, a big chunk of their losses came solely from the month of October. You can check out some recent Jana portfolio updates here and read about their recent rough patch here.
4. Steven Cohen's SAC Capital was -12% for October and now find themselves -18% year-to-date. Those performance numbers angered ole Stevie and he moved SAC to cash. Also, Cohen is said to be closing his CR Intrinsic fund, which is comprised of mainly his own personal money. [Dealbreaker]
5. Farallon Capital was -9% for October and -23% ytd.
6. Tontine Capital Partners was -65.7% in October and now down an astonishing 76.8% for the year. We recently detailed that they had revealed a 6.16% stake in Myr Group (MYRG). You can also find out where their pain was coming from by checking out Tontine's portfolio holdings.
7. Peter Thiel's macro fund Clarium Capital was -18% for October and now find themselves -2.8% for the year. The month of October was disappointing for them, as they basically gave up the solid gains they had posted from earlier in the year. This was in part due to their shift to equities right before the carnage hit in October. We posted about Clarium's recent performance here and detailed their portfolio holdings here.
8. Passport Capital's Global Strategy Fund was -38% for October and is now -44% for the year. We had previously written about Passport's performance here.
9. Ken Griffin's Citadel continues to feel the pain as their Wellington fund was -38% for October and sits -44% for the year. We recently detailed Citadel's pain here.
10. Bruce Kovner's Caxton Associates is faring decently this year. Their Global Investment fund was up 2.6% for October and sits up 7.25% year-to-date. They recently boosted their stake in Ferro (FOE). Here's the rest of Caxton's portfolio.
11. Daniel Loeb's Third Point was -10.3% for October and is -26.9% ytd. Our most recent coverage of Third Point's portfolio can be found here.
12. Paulson & Co's dominance continues. Their Advantage Plus fund is up 29.4% for the year after posting a +3.8% gain in October. Paulson & Co recently took a large stake in Cheniere Energy (LNG) and we previously saw them shorting UK banks.
13. Philip Falcone's Harbinger Capital was -5% for October and finds themselves down only 13% for the year. The fund has had a wild ride this year, being up 42% in June and now -13% for the year. This can partially be attributed to the fact that their portfolio was previously littered with natural resource equities that had been obliterated such as Cleveland Cliffs (CLF) and Freeport McMoran (FCX). Check out how Harbinger profited from shorting Wachovia (WB) and view the rest of their portfolio here.
14. David Einhorn's Greenlight Capital sees themselves -13% for October and now -26% for the year. We've covered Einhorn's portfolio activity here.
15. Shumway Capital Partners' Ocean Fund was up 0.85% in October but is still down 8.24% for the year. The fund is ran by Chris Shumway, one of the many 'Tiger Cubs' we cover here on the blog. 'Tiger Cubs,' if you're not familiar, are pupils of legendary Julian Robertson's Tiger Management hedge fund. Shumway recently detailed some investment ideas at a 'Tiger Cub' hedge fund panel.

While many funds have found it difficult out there, others have gained footing. Obviously, in such a market environment, one would expect bearish funds to do well. And, that's exactly the case with $7 billion short-seller Jim Chanos. His Kynikos long-short fund is up 11% through the year. His Ursus short only fund is up 53% through October. And, he's done even better than his numbers last year, in which he returned 30%. And, in a comment with the NY Post, Chanos refused to name names, but revealed that, "We are short all of the satellite and most of the cable companies in the US."

Additionally, others have found a way to profit off the gloom and doom. Drury Capital is up 60% for the year with the help of their proprietary computer models. Conquest Capital, a $611 million macro fund ran by Marc H. Malek, is up 44% year-to-date. The scary part about his fund? Even with his stellar performance, he is still seeing redemption requests. That just goes to show that everyone simply needs cash. And, when in times of duress, sell your winners.

This has easily been the worst year for hedge funds in quite some time, thanks to yet another horrible month in October. As evidenced above, even some of the historically brightest managers in the game are stumbling. Such struggles will lead to even more investor redemptions and continued deleveraging. For more information and background on some of the prominent hedge funds mentioned above, head over to my posts on hedge fund manager interviews and Alpha's hedge fund rankings.

Make sure to check back with us here at MarketFolly.com as the new 13F filings start to pour in this week and next week. We'll examine these latest SEC filings that reveal the updated portfolio holdings of the hedge funds mentioned above.



Sources: Anonymous investors, hedge fund investor letters, (2), NY Post, NY Times, & Bloomberg

Eric Bolling: Still Patient

Overall, Eric Bolling has been patient lately, and that's been the right play. Protecting capital in this volatile environment is essential and you've got to pick your spots. Here's his latest commentary from his column,

"While doing due diligence scouring stocks, investments, bonds, etc. for the big thing, I have added some positions to my portfolio. I re-entered the SPDR Gold Trust (GLD) trade and U.S. Oil Fund (USO) trade. I am buying these exchange-traded funds and will add to them if the prices of gold and oil start to firm.

My thinking is that after the dust settles and the world realizes that the Democrats in the U.S. Congress, Senate, and White House will spend substantially more than promised during their campaigns, we will reflate. The beneficiaries of reflation are gold and oil as well as other physical commodities. I am steering clear of equities that produce the oil and mine the gold because I am concerned about the tax treatment they may be burdened with in a new era of Washington tax-and-spend politics.

Right now is a time of capital preservation. There will be a time to invest more aggressively, but not yet, in my humble opinion."

I agree with his call on oil as well, which I noted here in my last post of Bolling's commentary. We both may be (and most likely are) early, but I think its setting up as a great position to slowly accumulate over time. Buy some oil here at $60, buy some if it dips to $50, and heaven forbid if it drops all the way down to $40, I'm loading up. I'll have a more detailed post on oil coming here in the next few days, so keep an eye out for that.

You can view the article in its entirety here.

Lee Ainslie's Maverick Capital Sells Entire Under Armour (UA) Stake - 13G Filing

In a 13G filing made with the SEC after the close today, hedge fund Maverick Capital has sold off their entire position in Under Armour (UA).  Maverick Capital is a $10 billion hedge fund ran by the notoriously great stock picker Lee Ainslie.  The filing shows that the transactions were completed as of October 31st, 2008.  Previously, Maverick owned 3,629,460 shares, around a 10% stake in the company, as was detailed in their last 13F filing.

Maverick's performance this year has definitely been sub-par by their standards.  Their Maverick Fund was -6.34% for October and is now -26.47% year-to-date.  You can check out their most recent investor letter here and learn more about Maverick and their portfolio holdings here.  Their updated portfolio will soon be available with the release of the next 13F filing with the SEC here in the next week or two.  So, make sure you keep an eye out at MarketFolly.com for that.  It will be interesting to see what else Maverick has been busy doing besides dumping all of their UA.

Taken from Google Finance, Under Armour (UA) is "engaged in the design, development, marketing and distribution of branded performance products for men, women and youth. The Company designs and sells an offering of apparel and accessories that utilize a variety of synthetic microfiber fabrications. Its active wear and sports apparel, footwear and accessories are designed to wick perspiration away from the skin, help regulate body temperature, enhance comfort and mobility and improve performance regardless of weather condition."

Activision (ATVI): A Bright Light in the Dark Consumer World?

I am long a specialty retail play. I had to slap myself out of the stupor for owning one in an environment I have dubbed as a consumer recession. What am I long? Well, how about some Activision Blizzard (ATVI). I was fortunate/unfortunate enough (we'll know later) to get filled on some of my orders in the $10.xx region and I had a few more orders down in the $9.xx that did not get filled.

So, why am I long a retail name, much less a specialty retail name. Well, first and foremost, it is mainly as a hedge to some of my other retail shorts. So, let's make that abundantly clear. I am bearish on the consumer and the economy. But, such bearishness must be given protection to any rampant rallies that might occur and I've selected ATVI, as they are currently dominating competitors such as Electronic Arts (ERTS) and THQ (THQI).

Secondly, I would propose that video games are by no means recession resistant, but they are less affected by a recession than other types of specialty retail. Why? Gamers are hardcore. Many are addicts. A game costs a measly $40-60 bucks and gives you hours upon hours of entertainment. And, ATVI has some of the best titles out there right now, including the Guitar Hero franchise, Call of Duty (4th installment out for the holidays), World of Warcraft (new expansion pack out for the holidays), among many others. They offer relatively cheap products and this benefits them in an environment where the consumer is struggling. When that new game hits, most people gotta have it, especially if its an installment in an already proven franchise such as the games mentioned above.

Thirdly, in addition to the strong products set to hit for the holiday season, ATVI has some very highly anticipated games in the pipeline for the future as well. If anyone is a fan of Blizzard's games (now a part of Activision Blizzard), then you already know what I'm talking about: Diablo 3 and Starcraft 2. These are highly proven franchises and are long awaited sequels (especially Starcraft 2). The entire nation of Korea will probably pick up a copy of SC2, I'm not even kidding. The game's prequel, Starcraft, was that big of a hit over there. So, future revenue streams are well in place.

Fourthly, even in a weak consumer environment, ATVI was still able to deliver solid earnings and stick to their forecast. And, they even announced plans to buy-back $1 billion of stock. After all, they have $3 billion in cash. Some takeaways from the quarter,

"For the September quarter, Activision Blizzard had two of the top-10 titles in dollars on all console platforms in the U.S., according to The NPD Group. For the September quarter, Activision Blizzard had two of the top-five PC titles worldwide -- Blizzard Entertainment's World of Warcraft: Battle Chest(R) and Call of Duty 4: Modern Warfare, according to Charttrack, Gfk and The NPD Group."

And, some data from the recent quarter courtesy of Barron's Tech Trader Daily,

"For the quarter, the video game company posted non-GAAP revenue of $770 million, well ahead of the company’s previous forecast of $620 million. ATVI posted non-GAAP EPS of 7 cents a share, better than the company’s forecast of 4 cents. For Q4, the company sees non-GAAP revenue of $2.2 billion, with profits of 29 cents a share."

So, as you can see, the company is holding up fine so far in this environment. Yes, the consumer should theoretically weaken as we move forward, but ATVI has solid titles, is selling cheaper items, and is selling to a consumer who is not likely to give up their products, despite the recession. If you want any evidence that ATVI has a comparative advantage in titles, then simply compare ATVI's most recent quarter to rival THQ's quarter. Yea, that wasn't pretty.

Lastly, I want to highlight that $10 billion hedge fund Caxton Associates ran by Bruce Kovner was out adding ATVI as a new position in their portfolio last quarter. And, not only did they just 'add it,' they really loaded up. They brought it up all the way to their 3rd largest portfolio holding. I wrote about Caxton's purchase earlier, where I detailed their portfolio holdings. Caxton is one of the many hedge funds I track on Marketfolly.com.

ATVI is best of breed in the gaming space and I am happy to be long the name as a hedge to my other specialty retail shorts. (See my post on the deteriorating consumer environment for short ideas). But, more importantly, the company definitely has a bright near-term future with all the anxiously awaited titles they have lined up.

I would be remiss if I did not end this piece with a 'proceed with caution' label. Specialty retail is easily going to be the hardest hit in the retail space. This is simply going to be a case of "who loses the least." If you do not want to take on the risk involved with this name, I would highly suggest checking out cheap retail plays on the "trading down" of the consumer to cheaper alternatives. These names include the masters of the cheap domain: Walmart (WMT) and McDonalds (MCD). And, you can read my thoughts about MCD's dominance here. Apart from those, playing retail names from the long side will be a very uphill battle.

Bear Stearns Risk Officer Joins Fed

I'll come out and say the obvious: This has got to be one of the stupidest things I've seen in a while. If you haven't already heard, Michael Alix, former chief risk officer at Bear Stearns, was just hired by the Federal Reserve. First of all, the words 'risk officer' and Bear Stearns should not even be put in the same sentence. Taken from Today's Financial News,

"In one of the latest what-were-you-thinking moves, the Federal Reserve just announced it has hired Michael Alix as a bank regulation advisor. Who the heck is Michael Alix, you ask? He is the former chief risk officer at Bear Sterns, a company that thought risk-management was an oxymoron. Essentially, he is the guy that allowed Bear Sterns to get so over-leveraged, it collapsed under its own weight. Now, he is an advisor for the Federal Reserve. At the very least, he can tell us what not to do. Frankly, I believe the Fed’s hiring of one of the executives at the center of today’s market fiasco proves that the “good-old boy” system remains alive and well in Washington. It is a disgrace."

Astonishing.

Leveraged ETFs

I find it highly ironic that in a time where the markets are looking to de-leverage and crank down the ridiculous amounts of risk, that soon ETFs will be coming to market that offer 3x the leverage. Currently, we're limited to ETFs with 2x the leverage such as the SSO for Ultra Long the S&P, and SDS for Ultra Short the S&P. Those things already see ridiculous intraday swings, so I can only imagine what 3x the leverage will look like. The 3x funds could make great trading vehicles, but could be very risky for investors; especially the ones who don't understand the risks or how exactly leveraged ETFs work. I highly recommend you read The Case Against Leveraged ETFs, a very good article which highlights some common misunderstandings surrounding these leveraged ETF's performance. They often are not simply 2x the performance on a yearly basis.

Courtesy of AlphaTrends, here is the graphic depicting the new funds coming to market.

(click to enlarge)

Some Financial Freebies & Deals

Since we're going into the weekend, just thought I'd post up various freebies and deals I've come across over the past week or two that are finance/market related. Economy sucks right now, so some of these should be beneficial.

• Free Quicken Online - yep, entirely free. (They used to charge $35/yr). Worth checking out for all you savvy personal finance people out there. I wrote about this deal a week or two ago and just wanted to make sure everyone took advantage of it, I know I did.
  
• Free Stock Trades - If you want 10 free trades a month, even for retirement accounts, then check out Zecco. Its great for building core positions over the long-term. If you think about it, 10 trades a month at other brokers would normally cost you $40-70 per month in commissions, so you just saved that money. They recently had no commissions for the entire month of October, which I wrote about here.
  
• Get $100 bonus at ForexClub. Those of you who trade forex or are interested in getting into it, this is a pretty good deal. Just deposit $100 or more into a FXClub account and they give you $100; easy stuff.

Lastly, a few readers have been emailing me wondering what I've been doing with short-term cash in this environment. The crazy market volatility means I've reduced position sizes in the market and have much more cash on hand than I normally would. I've just parked some of that cash safely into FDIC insured online savings accounts. The yields aren't what they used to be (thank you Ben Bernanke), but you can still get some decent rates to park your cash safely in this environment and earn some interest. I've got accounts at both of these places:

• Earn 2.75% APY with ING Direct Online Savings Account. These guys have been around the online savings game for a long time. I've had an account with them forever it seems. Easy interface, no fees, no minimums, and FDIC insurance at ING Direct.
• 3.00% APY with HSBC Direct Online Savings. This is the other online savings account I've got. Slightly higher rate, but I personally like ING's setup a little bit better. The interest difference between the two doesn't add up to a whole lot anyways. But, HSBC Direct is definitely worth a look as they have no fees, no minimums, and FDIC insurance as well.
  

Peter Schiff's Latest Comments

Last week, Peter Schiff, president of Euro Pacific Capital, sat down on CNBC to discuss how he thinks Obama taking office will not necessarily help the crisis. Schiff has notoriously predicted much of what we've already seen in the markets and economy thus far. And, he thinks the dollar gets obliterated as we move forward (as do I).

S&P500 Crash Comparison

Calculated Risk has a great chart up of the comparison of various crashes over the years. And, obviously, the current crisis is easily the most direct and brutal of the four. Undoubtedly, this crash has accelerated due in part to the forced selling and hedge fund redemptions/withdrawals/liquidations.

(click to enlarge)

Clarium Capital, Jana Partners, and Passport Capital Performance Update

Well, the numbers just keep rolling in. In a never ending battle with the market, hedge funds continued to slump in the month of October. Firstly, we'll discuss Clarium Capital, the $5.2 billion fund ran by Peter Thiel. We've covered Thiel and his macro fund extensively on the blog before. Thiel had a rough August. But, we noted that Clarium was faring pretty well as of the beginning of October; that is, until they shifted to equities.

The month of October meant pain yet again for Clarium. Year-to-date, the fund is now -3%. They lost nearly 18% in October mainly due to losses in bonds and undoubtedly the equity exposure they added. They had bet that yields would widen, but instead, they contracted. In their most recent investor letter, Clarium was borrowing $3.90 for every $1 in equity they had as of the week of October 24th. Yet, a week later, they increased their leverage and borrowed $4.40 for every $1. After being up 27% for the year a few months prior, they now have come full circle like the rest of the market and are now down for the year. You can check out Clarium's portfolio holdings here and if want more info on Peter Thiel then head here.

Next, turning to Jana Partners, we see that things haven't gotten much easier for them. Just last week, we wrote about how Jana had hit a rough patch. And, it seems that the pain continued through October. Jana's Piranha fund was -19.2% for the month of October and is now -21.7% for the year. This past month really turned things upside-down for that fund. Their Nirvana fund was -13.2% for the month of October and finds itself -21.9% for the year. Lastly, the Jana Partners fund had a much better October than their other funds, being down 6.6%, but its still down 20.4% for the year. Recently, we noted that Jana had taken a 13.52% stake in Convergys (CVG) and a 5.7% stake in Hayes Lemmerz (HAYZ).

Lastly, according to their most recent investor letter, $3 billion Passport Management LLC lost an astounding 38% for the month of October due to commodity stocks and now finds themselves down 44% for the year. The fund was started in 2000 and has a very respectable track record of gaining 27% annually.

You can check out the most recent batch of hedge fund investor letters here and some prior ones here. For more hedge fund performance numbers, check out our last hedge fund performance update.

T2 Partners Whitney Tilson's Take on the Markets

Whitney Tilson is manager of value hedge fund T2 Partners and he recently sat down with Aaron Task over at TechTicker to discuss his take on the current market. His thoughts are broken up into 3 parts.

Part 1: Blue Chips

Part 2: Cheaper Blue Chips

Part 3: 'Aggressive' Bets

Also, Tilson provided commentary for a FT article. In the article, it mentions that "Funds managed by Mr Tilson own Berkshire Hathaway, McDonald’s, Wal-Mart, Coca-Cola, Amex, Target, Crosstex Energy, Atlas Pipeline Partners, Leucadia National, Wendy’s and EchoStar Corporation."

And, if you've missed it, we've been detailing the activity of various other value players in the hedge fund space. Pershing Square's Bill Ackman recently spoke at the Value Investing Congress, ESL Investment's Eddie Lampert has lost a lot of money, Tiger Management founder Julian Robertson has been buying recently, and Warren Buffett has been selling puts on Burlington Northern (BNI).

James Altucher Likes Agriculture, Infrastructure for Obama Presidency

James Altucher, managing partner of Formula Capital recently sat down with Aaron Task over at Tech Ticker to discuss stocks poised to benefit from an Obama Presidency, now that we know he will for sure be in office. Altucher mentions he likes agriculture and infrastructure and seems them both as very cheap. Specifically, he likes Mosaic (MOS) and KBR (KBR). Also, he mentioned to check out closed end municipal bond funds, seeing how he anticipates Obama to raise taxes on dividends. Lastly, Altucher was not all that bullish on alternative energy, claiming, "The second there is an alt energy bill, oil will fall to $40 -- then we don't need it anymore." You can check out his thoughts here.

Investor Letters

Here are some more recent hedge fund investor letters. Do note that these are all .pdf files.

Maverick Capital (Lee Ainslie) - Portfolio holdings detailed here.

Colony Capital

Oaktree Capital Management

Hayman Advisors LP (Kyle Bass)

Balyasny Asset Management LP

Baupost Group (Seth Klarman)

Perry Capital

And, taken from Bloomberg, we're seeing that a few hedge funds that have typically been closed have since re-opened those funds to add capital,

"Steven Cohen, David Einhorn, Paul Singer, and Alan Howard are doing what most hedge-fund managers can't these days -- raising money from investors.

Singer's Elliott Management Corp. added $3 billion in the third quarter and Howard's Brevan Howard Asset Management LLP garnered new cash as they posted investment gains in a year when the average fund has lost 20 percent, people with knowledge of matter said. Cohen's SAC Capital Advisors LLC and Einhorn's Greenlight Capital Inc. have allowed investors into funds that had been closed since 2005, with Einhorn seeking several hundred million dollars this month."

Both SAC and Greenlight have suffered losses this year, as we detailed in our hedge fund performance update.

Treasuries

Gregor Macdonald has a great post up detailing an issue I've been mulling over myself: the flooding of the market with supply of treasuries. He writes,

"My view is that because current events in equity and credit markets are so dramatic, the market has not yet paid attention to the coming boundary, of debt-ology. However, I expect participants to direct their thinking this way quickly, once the intensity of the crisis lessens. I see two areas, where markets will inevitably focus.

First, The FED could be getting close to more unconventional measures, like direct buying of long-dated Treasuries to bring long-rates down. Second, the quantity of new Treasury issuance, both in train and intended, is so gargantuan that it’s not clear how the world would be able to actually take up the supply. There may be structural limitations. Simply put, it’s not clear there’s enough available capital in the world to increase the US debt position further. After all, we have already been sucking up the world’s savings for most of this decade. It strikes me the only method to ensure this new supply is taken up would be that other central banks would eventually have to monetize the USA, in the same way the USA is monetizing its own banking system. So future Treasury issuance may depend either on our own central bank to monetize it, or for foreign central banks to do the same. When either happens, I’m of the opinion it’s Game Over."

You can check out the rest of his post on the subject here. I mainy posted this up as food for thought and for a way to possibly play this impending situation. Over on Twitter, many of us finance/market junkies have been discussing tickers PST and TBT. PST is the etf for Ultra Short the 7-10 year treasury, and TBT is the etf for Ultra Short the 20+ year treasury. A few months ago, these vehicles didn't even exist. And, as of 2 weeks ago, I am long TBT. The consensus was that longer term maturity paper was a better short. Monitoring technical analysis on this name doesn't necessarily make a whole lot of sense given what it is, but I have noticed that the etf itself has seen support around $56/57 and resistance around $65, as noted in the chart below. Either way, I think this is a great longer-term play based on what we've seen lately in the supply of treasuries.

(click to enlarge)

I've posted regarding Gregor's writings before and would definitely suggest everyone check his blog out for some great insight into energy and other topics.

Credit Card Squeeze

I wanted to post up an excerpt from a piece in Fortune a while back which discussed the next Credit Crunch. In it, Geoff Colvin hints at what could be a difficult time for credit card companies. Some of this information sets up a broad backstory as to why one might short the likes of Capital One (COF), American Express (AXP), Discover Financial (DFS), or even banks like Citigroup (C) who have large credit card businesses.

Here's an excerpt from the article,

"Last year, just as the subprime crisis happened, credit card debt took off. The home-equity ATM had been shut down, so people turned to the last source of easy money they had left, the most expensive debt on the menu, credit card borrowing.

Since credit card debt has been growing much faster than the economy - more than 8% in last year's third and fourth quarters and over 7% in May (the most recent month reported)- people are apparently using it as a substitute for income. Thus, for the past year or so we have still maintained the standard-of-living illusion.

But a big crunch is coming - and here's why. Credit card debt, like mortgage debt, gets bundled, securitized, and sold off by banks. Citigroup (C), one of America's largest credit card lenders, just reported that it lost $176 million in the second quarter through securitizing such debt. That happens when the buyers of those securities observe rising delinquency rates and rising interest rates, and decide the debt is worth less than Citi thought. More generally, the amount of credit card debt that is securitized nationwide has plunged by more than half in the past five months because it's getting riskier. That means credit card issuers will be charging customers higher interest rates, and since the banks can't offload as much of the debt as before, they'll have less money to lend to cardholders.

The squeeze has already started, which is why Congress is in the process of passing the Credit Cardholders' Bill of Rights, which would prevent issuers from changing rates and terms without warning, among many other provisions. But bottom line, the credit card money window is going to start closing - and soon.

So now what? It's hard to see where consumers can turn next. Home prices seem highly unlikely to start rising again soon. Stocks? You never know, but the Great Bull Market looks like a once-in-a-lifetime event. Homes and stocks are households' biggest asset classes by far. There isn't much else to borrow against.

It may be that the standard-of-living bubble finally has to deflate. Sustainable increases in living standards have to be earned, not borrowed, and that means performing ever higher value work that can't be outsourced. We haven't been meeting that challenge very well; doing so will probably require much more and better education for millions of Americans, which takes time and money."

I agree with the overall theme of this article and truly believe that the strapped consumer is going to be facing larger headwinds than anyone anticipates (which I partly touched on here). Credit card debt is piling up for the average American, and many are having a very hard time paying it off. This simple concept was illustrated in a nice graph I posted earlier, showing how delinquencies are rising. Capital One (COF) is the perfect example of a company being impacted by this. It has been piling up each quarter and their most recent earnings/conference call gave us a further glimpse, as noted by Forbes' Melinda Peer, who writes

"Credit card and banking company Capital One (COF) said its net charge-off rate, or measure of soured loans, for its U.S. card business jumped to 6.34% in September, from 5.96% in August. Internationally, charge-offs rose to a rate of 5.87%, from 5.31%, in the same period.

Delinquencies, considered signs of troubled accounts, were also on the rise in the U.S. and abroad during September. Domestically the McLean, Va.-based company's 30-day delinquency rate inched up to 4.20%, from 4.07%, in August, and internationally the rate inched up to 5.24%, from 5.15%."

Calculated Risk also took the liberty of transcribing key comments from the conference call, which you can read here. Basically, the company is taking positive steps to reduce credit lines and try to limit their risk. But, they still won't be able to completely protect themselves from the impending tsunami.

Additionally, this WSJ article seems to imply that credit card companies and banks are going to face historic headwinds in the credit card arena. Overall, I truly believe this is going to be an over-arching theme that stems from the current crisis as things continue to bleed over to main street. The ultimate question becomes, how much of this is already priced into banking and credit card equities, if at all?


Full disclosure: At the time of publication, MarketFolly was short COF
Source: Fortune

Eric Bolling's Latest Commentary

Eric Bolling is out with another piece and he writes,

"Looking back on two years with similar profiles -- 1987 and 1929 -- we get a glimpse of what we might expect for the rest of the year and further. Both prior years, the market (Dow) was higher from the October crash lows by year-end. In 1987, the market came back 39% by year-end; in 1929 the Dow managed a 25% recovery from the lows seen during the October free fall. So sitting with a 19% gain from the October lows leaves room for upside going into the last two months of the year.

I have added some small positions to my very thin portfolio. I have added the U.S. Oil Fund (USO) and El Paso (EP). My feeling is that if we get this stabilization in the equities markets, oil's recent implosion will subside and crude might actually trade back up. Natural gas is El Paso's business, and a bump up in the gas price will help this battered stock.

My portfolio holds small positions in the SPDR Financials (XLF) and SPDR Homebuilders (XHB) and will for the upcoming quarter or so.

Lastly, I own PowerShares QQQ Trust (QQQQ) and SPDR Trust (SPY) in a very-short-term portfolio. These may be sold quickly if I believe the Senate, House and White House will all go to Democratic wins."

Overall, Bolling is putting an emphasis on being nimble and being able to get liquid. A lot of his picks are shorter-term and are being used as trading vehicles to benefit from the price action. Keep in mind that he is a trader and he acts switfly. I do agree with his selection of USO (which is essentially an ETF that buys front month crude oil contracts and is a direct proxy for playing the price of oil). However, I picked up DBO instead last week, which plays contracts of oil almost a year out, rather than front month. The reason I have done so is because the oil curve is currently in contango where the front-month is trading very cheap and the entire curve going further into the future is priced much higher. Therefore, whenever USO "rolls over" to the new contract each month, you're essentially getting crushed. While it is definitely nice to have ETFs to essentially trade crude oil in the stock market without having to go to a commodities exchange, you've got to be aware of the differences/limitations of USO or DBO. Keep an eye out over the next week or so, as I've got a piece coming out that will talk about oil more in-depth.


You can check out the entirety of his post on TheStreet.com here.

Goldman Sachs Conviction Lists Update

A few more changes were made to the Goldman Sachs Conviction Buy list early this week. Firstly, Arcelor Mittal (MT) was added to the Conviction Buy List. Schlumberger (SLB) was also added to the buy list with a new price target of $59. Schlumberger, as we've detailed here on Market Folly, has a heavy concentration of hedge fund ownership, including the likes of Boone Pickens' BP Capital, Stephen Mandel's Lone Pine Capital, and many more funds.

Additionally, Humana (HUM) was removed from the buy list, but the firm still maintains a regular 'buy' rating on the stock. Transocean (RIG) was also removed from the Conviction Buy list, having been added to the list just recently back in September.

Boeing (BA) was added to the Conviction Sell List. Lastly, HealthNet (HNT) was removed from the Conviction Sell list.

If you've missed them, we've detailed previous changes that were made to Goldman's coveted lists on October 27th here, as well as the changes from October 20th here.

Checking in on Jim Rogers & George Soros

In keeping up with all the various hedge fund managers and 'whales,' I would be remiss if I did not include Jim Rogers and George Soros, co-founders of the legendary Quantum Fund. In a recent Canadian Business article, Jim Rogers sat down to share his thoughts.

"In fact, so convinced is Rogers of the commodities story that he has been buying agricultural products while selling U.S. dollars through this period. “The U.S. dollar is the most flawed currency in the world right now. I plan to sell all my U.S. dollar holdings on this boost. It’s losing its status as the reserve currency of the world,” said Rogers at a press conference before the dinner. “We owe the world $13 trillion and every 15 months we add another $1 trillion.

According to this theory, the drop off in commodity prices is just what the Chinese economy, already suffering from inflation, needs right now. The drop in prices will give the Chinese economy some breathing room. And if the country can avoid a major meltdown, the slack in western demand might be just the thing to allow China to increase its own consumption bubble. Not only that, but as China reduces its reliance on foreign exports we might see the country focus on more internal consumption, and that will see it pull in even more resources.

Let’s not overlook the fact that as prices drop, all kinds of new projects to bring more commodities online are being delayed. That means even less new supply online and ready to go once the world economies get back on the growth track. That is, the current price declines are piling fuel up for a new commodities boom, which sits just one recovery out says Rogers."

Additionally, Rogers recently appeared on Bloomberg to discuss his theses.




George Soros, on the other hand, sees a vast contraction in the hedge fund industry. He is not alone in this regard, as we also pointed out previously in our post 'Hedge Fund Redemptions: Let the Bloodbath Begin.' If the recent hedge fund performance numbers are any indication of the true pain felt in the broader industry, then Soros should be right on the money with this call as redemptions continue. Soros recently said,

" 'The hedge fund industry is going to move through a shakeout,' Soros said in a speech at the Massachusetts Institute of Technology in Cambridge, Massachusetts. 'In my estimation (the industry) will be reduced in size by anywhere between half and two thirds.' "

You can view the entirety of Soros' thoughts at MIT by clicking here (windows media file). Additionally, it should be noted that Soros definitely agrees with Rogers when it comes to agriculture. As we noted back in August, Soros had been picking up a lot of Potash (POT). And, we also recently posted Soros' in-depth interview with Fareed Zakaria.

Overall, these investing legends seem to harp on one major point: the commodities bull is not over, it is just beginning.


Sources: Canadian Business, MIT

Few More Hedge Fund Performance Numbers

Got a few updates as to just how bad October was to some of our beloved hedge funds courtesy of Dealbreaker. Firstly, Blackrock's All-Cap energy hedge fund saw some rough waters last month.

"The ESTIMATED monthly and year-to-date (YTD) returns for The All-Cap Energy Hedge Fund as of 31 October 2008 were:

October 2008: -34.75%* net

YTD 2008: -54.0%* net"

But, they emphasize that these are based on 'estimated prices.'

Next up, we've also got some assorted fund numbers. As of Friday's close:

"Greenlight Capital Offshore, Ltd:
MTD: -9.70%
YTD: -22.77%

Maverick Fund, Ltd:
MTD: -6.34%
YTD: -26.47%

Viking Global Equities LP
More specific breakdown:

Viking Global Equities III, Ltd. 2008:

Jan: -3.00
Feb: 3.40
Mar: -0.60
Apr: 3.90
May: 4.00
Jun: -0.20
Jul: 0.80
Aug: 0.50
Sep: -9.40
Oct: -1.10

YTD: -2.41

Viking Global Equities, LP

2008:

Jan: -3.00
Feb: 3.40
Mar: -0.60
Apr: 3.80
May: 0.60
Jun: -0.20
Jul: 0.80
Aug: 0.50
Sep: -7.70
Oct: -1.10

YTD: -3.92"

And, lastly, we see that Goldman Sachs Investment Partners, their $6 billion new fund this year has lost $989 million as of September, according to the FT. They are down 15.5% ytd as of September. The fund is ran by Raanan Agus and Kenneth Eberts, who formerly ran proprietary trading desks for Goldman. As per the FT,

"More than half of GS Investment Partners’ losses in the third quarter was from its investments in commodities, basic materials, metals, mining, energy and agriculture. But like many multi-strategy funds diversified across equity, credit markets and convertible bonds, GS Investment Partners was hit hard by losses on convertible bonds – debt instruments that can convert into equity. It said returns from the convertible asset class had been 'abysmal.' "

Additionally, the article mentions that Ken Griffin's Citadel Kensington fund is now down 37% year to date as of October 27th. We recently wrote about the pain Citadel was experiencing here. You can check out a whole slew of other hedge fund performance numbers from our most recent major hedge fund performance update.

Updates on Bill Ackman's Pershing Square

Bill Ackman and Pershing Square Capital certainly have been busy lately. If you're unfamiliar with them, Bill Ackman runs Pershing Square Capital, a value/activist based hedge fund. The fund started in 2003 after Gotham Partners broke up. The past few years, he has had notable short positions in the bond insurers such as MBIA (MBI) and Ambac (ABK). Some of his activist positions include Target (TGT) and Borders (BGP). Recently, he detailed his plans for Target to spin-off its real-estate to unlock value. We'll see if this proposal picks up any steam. We recently noted Pershing Square's portfolio performance, which was included in our latest hedge fund performance update. Also, we wrote about Mr. Ackman's recent speech at the Value Investing Congress.

Recently, in an amended 13F filing with the SEC for the quarter that ended June 30th 2008, Ackman's Pershing Square has disclosed a 39.9 million shares position in EMC Corp (EMC). As of the time of the filing, Ackman had $586 million worth of EMC. Additionally, Ackman recently filed an amended 13D with the SEC for Long's Drug Stores (LDG), disclosing an 8.8% ownership stake. As per the filing, they now own 3,137,659 shares. And, Lastly, Ackman filed a 13G on Wendys/Arby's Group (WEN) back on October 10th, disclosing an 11.91% stake in the company. As per the filing, they own 55,619,748 shares.

Stocks Around Multi Year Support

Blain over at StockTradingToGo has again assembled a nice arsenal of charts that could be very beneficial to some investors. While I know not everyone agrees with/uses technical analysis, I think its a great tool that should be added to any investor's toolbox to help them making investing/trading decisions. Still need convincing? Numerous prominent and successful hedge fund managers use technicals religiously to help gauge price action, especially Paul Tudor Jones of Tudor Investment Corp.

Last week, I posted up some charts showing bearish continuation patterns, courtesy of Blain. This time around, he's got some great charts up showing stocks that are hovering around multi-year support levels. A few of those stocks are:

Fuel Systems Solutions (FSYS)

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Mastercard (MA)

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Research in Motion (RIMM)

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So, if you're a trader, you could play these levels for short-term bounces, placing stops just below the multi-year support levels (or short on a break below the support). If you're an investor, you could look to place orders around these levels to help accumulate shares at levels that historically have been important to the stock. Blain's got a few more charts of stocks that fit this criteria here.

Visa (V) Consumer Spending Trends

Earnings Breakout has some important highlights/takeaways from the most recent Visa (V) earnings report/conference call.

"-Debit is now 53% of payments
-All disputes with major competitors now resolved
-Further slowdown in U.S. (10%) and cross-border volumes. Debit low-to-mid double digits. Credit got weaker through September
-Additional moderation from September to October. U.S. credit volume +1-2% in September turned NEGATIVE first few weeks of October. Debit still low double-digits
-Seeing shift to non-discretionary purchases. More credit worthy are driving purchases
-53% of debit spend is non-discretionary. >40% overall. Last recession it was 30%"

Those last 2 bullet points re-affirm the fact that the consumer will be in a pinch for a while to come and consumer recessions can be brutal. That will of course drive down consumer spending and thus corporate profits, which in turn reduces earnings estimates. But, that's a no-brainer given that earnings estimates are too high to begin with. The trends that Visa is seeing are of course a result of a rising unemployment rate and sluggish housing market, among other things.

I like to use Visa (V) and Mastercard (MA) as gauges on the economy simply because they are purely payment processors. They process both debit and credit spending as more and more people are using less cash and more plastic to pay for their purchases. They essentially are our eye on the consumer. So, when the aggregators like MA and V notice big spending trends, you better pay attention. And, although the consumer recession is upon us and will likely worsen, I still like MA and V as much longer-term plays. Like I said, they are purely payment processors and the world is shifting away from cash. Legendary investor and former Tiger Management hedge fund manager Julian Robertson agrees and recently bought both MA and V. This investment will almost have to be treated as a value play given the fact that they will face near-term headwinds with the credit crunch and a consumer slowdown. But, long-term, I think these are solid businesses to own, and I detailed why here.

Check out the rest of the Visa (V) earnings/conference call summary at Earnings Breakout.

Pershing Square's Bill Ackman at Value Investing Congress

Todd Sullivan over at Value Plays has posted up an excellent audio clip of the Q&A session Bill Ackman held during the Value Investing Congress that took place a few weeks ago. Well worth your time to listen.

Carlos Slim Shows Stake in Bronco Drilling (BRNC) - 13G Filing

In a 13G filed with the SEC recently, Mexican businessman Carlos Slim has disclosed a 7.64% ownership stake in Bronco Drilling (BRNC). He now owns 2,200,000 shares of the company.

Carlos Slim is a well-known Mexican businessman who amassed his wealth through telecom. He is known for his association with America Movil (AMX), Telcel, and Telefonos de Mexico (TMX) and was the second richest man in the world as of 2008.

Taken from Google Finance, Bronco Drilling "provides contract land drilling and workover services to oil and natural gas exploration and production companies. As of February 29, 2008, the Company owned a fleet of 56 land drilling rigs, of which 45 were marketed and 11 were held in inventory. Bronco also owned a fleet of 59 workover rigs, of which 49 were operating and 10 were in the process of being manufactured. The Company also owned a fleet of 70 trucks used to transport its rigs."

Carlos joins the ranks of many other investors that have taken advantage of the market volatility to increase/establish stakes in companies. Other recent action includes hedge fund Jana Partners taking a stake in Convergys (CVG), Blue Ridge Capital increasing their stake in Millipore (MIL), and Tremblant Capital establishing a stake in Advanced Medical Optics (EYE), among others.