Barry Rosenstein's Jana Partners Continues To Sell Convergys (CVG)

We have a trifecta of SEC filings to cover regarding Barry Rosenstein's hedge fund Jana Partners in this update. While they are three separate filings, they all relate to Jana's position in Convergys (CVG). So, let's dive right in as Jana Partners has filed 2 Form 4's and 1 amended 13D. The main thing to take away here is that they continue to sell shares of CVG. The first Form 4 shows them selling shares on August 3rd, 4th, and 5th at prices ranging from $10.21 to $10.45 per share. In total, they sold 1,989,295 shares in that filing. In an additional Form 4, we see that they sold another 236,095 shares on August 6th, with the bulk of the sale at $10.19 per share. Sandwiched in between the two Form 4 filings was an amended 13D that shows Jana holding a 6.6% ownership stake in Convergys. After all is said and done, they now are left with 8,118,418 shares of CVG. We covered Jana's initial 13D filing back in February and detailed the numerous times they've sold CVG shares as well.

Other notable activity out of Jana includes selling more Coleman Cable (CCIX). Lastly, we've also highlighted their activity in PRG-Schultz and Immucor. These moves all come after Jana saw redemption requests for around 30% of their assets, which can obviously present some problems. They have set aside illiquid positions and have been re-shuffling things for a few months now. Barry Rosenstein uses long/short and market neutral strategies and he has seen 20.9% annualized returns from 2001 to 2007 at his hedge fund. However, he sees Jana's future as an evolution of strategy to a more activist focus where he can institute change at companies through a focus on management. While we haven't covered Barry Rosenstein's firm yet in our hedge fund portfolio tracking series, we will be doing so shortly so be on the lookout. In that update, we will be going over the most recent changes to their entire portfolio of long US equities.

Taken from Google Finance, Convergys is "engaged in relationship management. It has three segments: Customer Management, which provides agent-assisted services, automated self-service and technology solutions; Information Management, which provides business support system and operational support system (BSS/OSS) solutions, and Human Resources (HR) Management, which provides global human resource business process outsourcing (HR BPO) solutions."

Sprott Asset Management: Beyond the Stimulus (Market Commentary)

Here's the latest commentary from Eric Sprott's hedge fund Sprott Asset Management. Their August market commentary is entitled 'Beyond the Stimulus.' As always, great insight from them and recommended reading. Last week we also posted up another piece of theirs entitled 'Gold: The Ultimate Triple-A Asset.'

And if you can't get enough Sprott, then also check out their July market update, their market commentary (highly recommended) and the list of their positions in UK markets. Email readers will need to come to the blog to view the embedded document below:

Sprott Comment August 2009


And you can try downloading the .pdf here.

Market Folly Interviewed By Newstex: 'Blogger In the Spotlight' Series

Just wanted to let everyone know that Newstex interviewed yours truly for their 'Blogger in the Spotlight' series and they just recently posted it up. The interview encompasses blogging topics rather than finance, but those of you interested in checking it out can see our interview here.

George Soros Portfolio Update (Soros Fund Management 13F Filing)

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is George Soros' hedge fund firm, Soros Fund Management. Soros is one of the gurus we track on the blog due to his excellent track record and insightful macro take on things. His current take on the crisis and financial markets is laid out in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. If you want to get a better sense as to how Soros formulates his investment theses, we highly recommend reading his first book, The Alchemy of Finance. This book is a staple in our recommended reading list and after you read it, you'll understand why.

Soros is well known for the outstanding returns generated with Jim Rogers at their now defunct Quantum Fund. (We've summed up Jim Rogers' portfolio and thoughts a few months back). Soros is a true global macro players and dabbles in currencies, equities, bonds, commodities, etc. So with that said, due note that the equity positions listed below are only a fraction of their portfolio overall. It has been an interesting time to be investing and trading as Soros noted in his thoughts on his portfolio from 2008. Last year, Soros Fund Management finished up 8% as he made money by betting correctly on the US Dollar and short term UK interest rates.

In our recent hedge fund coverage, we noted that Soros has likened credit default swaps to 'instruments of destruction,' which we thought was interesting. In terms of SEC filings, Soros' fund has filed 13G's on Exar, disclosing a new position and also on Extreme Networks (EXTR). The following were Soros Fund Management's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
The major additions: Petroleo Brasileiro (PBR-A), Autozone (AZO), Goldman Sachs (GS) Puts, Interoil (IOC), Monsanto (MON), Vale (VALE) Puts, BPZ Resources (BPZ), and Suncor (SU).

The rest of their new positions were less than 0.5% of their portfolio each: Verizon (VZ), Diodes (DIOD) Bonds, SPSS (SPSS) Bond, Sandridge Energy (SD), Exar (EXAR), Apache (APA) Calls, Pioneer Natural Resources (PXD), Lawson Software (LWSN) Bond, Blackboard (BBBB) Bond, Novagold (NG), CSX (CSX), Brigham Exploration (BEXP), Comcast (CMCSA), CA (CA), Constellation Energy (CEG), Focus Media (FMCN), Wabtec (WAB), Covanta (CVA) Calls, Ultrashort Financials (SKF), Berry Petroleum (BRY), Exco Resources (XCO), and Teradata (TDC) Calls.


Some Increased Positions (A few positions they already owned but added shares to)
Allied Nevada Gold (ANV): Increased by 4,242% (was previously 0.01% of their portfolio and is now boosted up to only 0.45% of their portfolio)
Covanta (CVA): Increased by 1,185.5% (was previously a 0.11% position for them and is now 1.89% of their portfolio)
AT&T (T): Increased by 691% (boosted from 0.05% of their portfolio up to 0.47% of their portfolio now)
Allegheny Energy (AYE): Increased by 259% (from 0.13% of their portfolio up to 0.55% of their portfolio)
Flextronics (FLEX) Bond: Increased by 141%
Plains Exploration (PXP): Increased by 81.8%
Tech Data (TECD) Bond: Increased by 77%
Hess (HES): Increased by 40%
RF Micro (RFMD) Bonds: Increased by 37.9%
LSI (LSI) Bonds: Increased by 19.4%


Some Reduced Positions (Some positions they sold some shares of)
Petroleo Brasileiro (PBR): Reduced by 68.9%
Potash (POT): Reduced by 65.2%
Macrovision (MVSN) Bonds: Reduced by 48.8%
Walgreen (WAG): Reduced by 22.7%


Removed Positions (Positions they sold out of completely)
Conoco Phillips (COP), Macys (M), Union Pacific (UNP), American Electric Power (AEP), Donnelley (RRD), Smucker (SJM), Kohls (KSS), Occidental Petroleum (OXY) Puts, iShares Mexico (EWW) Puts, and Arch Coal (ACI).

The rest of their sales were positions that were less than 0.25% of their portfolio each, including: Weyerhauser (WY), Coach (COH), Nabors (NBR), Public Service Enterprise (PEG), Crown Holdings (CCK), DPL (DPL), Emulex (ELX), PPL (PPL), Bluefly (BFLY), Frontier (FTO), Vishay (VSH), Northeast Utilities (NU), ICICI bank (IBN) Puts, Commercial Metals (CMC), Airgas (ARG), Formfactor (FORM), Vignette (VIGN), and Teradyne (TER).


Top 15 Holdings by percentage of long portfolio *(see note below regarding calculations)

1. Petroleo Brasileiro (PBR): 9.58% of portfolio
2. Hess (HES): 6.56% of portfolio
3. LSI Corp (LSI) Bond: 5.85% of portfolio
4. Linear Technology (LLTC) Bond: 5.2% of portfolio
5. Petroleo Brasileiro (PBR-A): 4.68% of portfolio
6. RF Micro Devices (RFMD) Bond: 4.42% of portfolio
7. Potash (POT): 4.4% of portfolio
8. Plains Exploration (PXP): 4.25% of portfolio
9. Tech Data (TECD) Bond: 3.96% of portfolio
10. RF Micro (RFMD) Bond 2nd set: 3.7% of portfolio
11. Flextronics (FLEX) 1%10 Bond: 3.2% of portfolio
12. Covanta (CVA): 1.9% of portfolio
13. Autozone (AZO): 1.9% of portfolio
14. Audiocodes (AUDC) 2% 24 Bond: 1.6% of portfolio
15. Entergy (ETR): 1.6% of portfolio

Similar to Soros' Q1 2009 portfolio, their second quarter portfolio is heavily laden with convertible bonds. Seven out of their top 15 positions are in bonds, with LSI and Linear Technology their top picks in that regard. They boosed their Flextronics Bond position by 141%, their Tech Data Bond position by 77% and their LSI Bond position by around 20%. So, they were still liking those names over the course of the past quarter.

Turning to their equities moves, we see a few things worth pointing out. Notable sales include Soros completely dumping their shares of Conoco Phillips (COP). Additionally, they sold off a large portion of their Petroleo Brasileiro (PBR) shares for a second quarter in a row. Even after all their sales, their PBR stake is still their top holding. However, they did add to their A-shares position in Petroleo Brasileiro (PBR-A).

Soros also sold completely out of Macy's (M) and Union Pacific (UNP) which had previously been 1.94% and 1.08% positions for them respectively. Additionally, they reduced their Potash (POT) stake by 65% which we took note of because Soros Fund Management has typically been fond of the fertilizer play. They did boost their Hess (HES) position by 40% which was notable. The vast majority of other positions they added to were fairly small stakes last quarter and so their percentage increase is large on a quarter by quarter basis. However, these holdings are still only fractions of Soros' overall portfolio and not necessarily worth pointing out at this stage. The last major equity move we want to point out was their 1,185% boost in their Covanta (CVA) position. While it is only now a 1.89% portfolio position for them, CVA has been popping up in a few hedge fund portfolios that we've noticed so it might be worth keeping an eye on that one.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $4.19 billion this quarter compared to $4.5 billion last quarter, so a slight decrease. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management.

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital. Check back each day as we cover prominent hedge fund portfolios.

Hedge Fund Pequot Capital Update: Unwinding Portfolio

Even though Art Samberg's hedge fund Pequot Capital is shutting down, we are still covering their last slew of SEC filings. In his goodbye letter, Art Samberg revealed that their Matawin and Special Opportunities funds will become separate entities. So, we are just covering the last slowly dwindling days of Pequot as they wind everything down. Their most recent SEC filings include their 13F and an amended 13G.

Firstly, we start with the 13G they amended on Impax Laboratories (IPXL). Due to activity on July 31st, 2009, Pequot has completely sold out of this name and now shows ownership of 0 shares. Secondly, we turn to their 13F filing where their hedge fund still shows a number of US equity long positions. However, keep in mind that this filing shows their holdings as of June 30th, 2009. But, if you wish to discern which positions they are most likely to liquidate (if they haven't already), you can check out their full 13F filing with the SEC here. Notable large positions include Chipotle Mexican Grill (CMG-B), IMAX (IMAX), Impax Laboratories (IPXL), Jack in the Box (JACK), and McDonald's (MCD).

We've also detailed numerous other changes to Pequot's portfolio recently. We noted all the changes to various 13G filings they made in this post. Additionally, we noted their sales of Akorn (AKRX). On the blog we often tracked the commentary of Pequot's Chief Investment Strategist, Byron Wien. (Read his July letter here). Since Pequot is shutting down, Wien has moved to The Blackstone Group as Vice Chairman of Advisory Services. Prior to Pequot, Wien was Chief Investment Strategist at Morgan Stanley.

Other recent news out of Pequot indicates that they have been cited in 44 reports since 2005 from securities exchange 'watchdogs' who alert possible insider trading misconduct. The trades connected to wrongdoing by Pequot include Google (GOOG), Cox Communications, International Securities Holdings, and Premcor amongst many others. Many of the reported infractions come from companies that were subject to takeover bids. For instance, shares of Premcor were up 18% after it was announced they were being bought out by Valero (VLO). We'll continue to monitor the developments in this regard, but their source of downfall is pretty evident. Art Samberg himself has cited the negative cloud hanging over Pequot as a main reason for shutting down. They had a large image problem and that's tough to overcome on a Wall Street that is now more focused on regulation than ever.

Hedge Fund Elliott Management's Market Commentary (Investor Letter)

*Update: Letter removed per request of representatives from Elliott. Read on at the bottom of this entry if you want another way to view it.

Very in-depth and analytical commentary out of Elliott Management in their recent second quarter 2009 letter to investors. The hedge fund has penned a 24 page letter covering topics of risk management, the automotive industry, regulation, distressed assets, arbitrage opportunities and much, much more. We highly recommend taking the time to peruse through this lengthy and informative hedge fund investor letter.

Elliott Management was founded by Paul Singer back in 1977 and managers over $12 billion today. They typically focus on distressed investments and back in their first quarter letter mentioned that all the government spending and bailout activity could potentially make the economy worse. RSS & Email readers will need to come to the blog to view the embedded letter.


You can try to download the .pdf directly here if the link still works. Do note that the document is hosted by Scribd, not MarketFolly. If you really want to read the letter it is most likely floating around somewhere on Scribd's site.

Salida Capital Special Report: Chinese Metal Demand Poised To Correct?

Thanks to a reader in Toronto for the latest from hedge fund Salida Capital. This special report looks at Chinese metal demand going forward and their findings are interesting. RSS & Email readers will need to come to the blog to view the embedded document. Alternatively, you can try to download the .pdf here, assuming the link still works.

Enjoy the report:

Special Report - 2009-08-21 - China's Metal Demand

Bret Barakett's Tremblant Capital Group Files 13G On IMAX

In a 13G filed with the SEC, Bret Barakett's hedge fund Tremblant Capital Group has disclosed a 6.78% ownership stake in IMAX (IMAX). The 13G was filed due to activity on August 12th, 2009, and they now own 3,744,749 shares. In their most recent 13F filing which details positions as of June 30th, 2009 we see that Tremblant owned 1,499,343 shares of IMAX. In the time elapsed from July 'til now, Tremblant has purchased 2,245,406 more shares.

This comes after we recently learned that Bret's brother Timothy Barakett would be closing down his Atticus Capital hedge fund. Hopefully Bret isn't feeling the need to step away from 'the game' anytime soon. Look for us to cover Tremblant very soon in our hedge fund portfolio tracking series as well where we will update their long portfolio in its entirety for the second quarter of 2009. In the mean time though, we've covered the 13G they filed on Eclipsys (ECLP).

Bret Barakett founded Tremblant after running portfolios for Louis Bacon's famed macro hedge fund, Moore Capital Management. Tremblant runs $3 billion these days and their objective is, "to achieve superior risk adjusted returns for our investors through our focused and disciplined investment process."

Taken from Google Finance, IMAX "together with its wholly owned subsidiaries, is an entertainment technology company specializing in motion picture technologies and large-format film presentations. Its principal business is the design and manufacture of large-format digital and film-based theater systems, sale or lease of such systems, and the conversion of two-dimensional (2D) and three-dimensional (3D) Hollywood feature films for exhibition on such systems worldwide."

Stephen Mandel's Lone Pine Buys Large Cap Global Brands: 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up is Stephen Mandel's Lone Pine Capital. The term 'Lone Pine' comes from Mandel's days at Dartmouth College, where the school has a historical lone pine tree. Mandel's $7 billion hedge fund has returned over 25% annually since its inception in 1997, but had a rough year in 2008. He is well versed in the ways of finding undervalued companies and he typically likes to sniff out solid companies with good management that are trading below their intrinsic value. Before setting up Lone Pine, Mandel was one of Julian Robertson's top associates at Tiger Management. As such, Mandel is known as one of many 'Tiger Cubs,' or managers that have gone on to start their own funds after Tiger. In Alpha's 2009 hedge fund rankings list, Lone Pine was ranked 21st.


The following were Lone Pine's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
McDonalds (MCD), Hewlett Packard (HPQ), Nike (NKE), Smithfield Foods (SFD) - (we already knew about this addition back in June because we covered their 13G filing on SFD), Ecolab (ECL), Liberty Media (LMDIA), Melco Crown Entertainment (MPEL), Southwestern Energy (SWN), and Pactiv (PTV). The rest of their new additions are all less than 0.5% of their portfolio each: Fifth Third Bancorp (FITB), Grupo Aeroportuario (PAC), Grupo Aeroportuario (ASR), Mindray Medical (MR), Suntrust Banks (STI), Progressive (PGR), and Discovery Communications (DISCA).


Some Increased Positions (A few positions they already owned but added shares to)
Vistaprint (VPRT): Increased by 597%. This figure is already outdated though as Lone Pine has since boosted their VPRT stake again already.
Coca Cola (KO): Increased by 99.9%
Strayer Education (STRA): Increased by 63.3% (they filed a 13G on STRA back in March)
Deltek (PROJ): Increased by 61.6%


Some Reduced Positions (Some positions they sold some shares of)
SPDR Gold Trust (GLD) Calls: Reduced by 87%
Union Pacific (UNP): Reduced by 72.9%
Mastercard (MA): Reduced by 42.9%
MSC Industrial (MSM): Reduced by 40.7%
Precision Cast Parts (PCP): Reduced by 39.6%
America Movil (AMX): Reduced by 37.8%
Mead Johnson (MJN): Reduced by 28.6%
Urban Outfitters (URBN): Reduced by 28.5%
Visa (V): Reduced by 25.5%
JPMorgan Chase (JPM): Reduced by 19.6%
Google (GOOG): Reduced by 19.4%
Philip Morris Intl (PM): Reduced by 18.7%
Qualcomm (QCOM): Reduced by 15%


Removed Positions (Positions they sold out of completely)
Medco Health Solutions (MHS), Pepsico (PEP), Carnival (CCL), Apollo Group (APOL), Carnival (CCL), CTrip (CTRP), Las Vegas Sands (LVS), Dolby Labs (DLB), SLM (SLM), Activision Blizzard (ATVI), and Deckers (DECK).


Top 15 Holdings (by percentage of long portfolio *(see note below regarding calculations)

1. Qualcomm (QCOM): 9.75% of portfolio
2. Monsanto (MON): 7.89% of portfolio
3. McDonalds (MCD): 6.59% of portfolio
4. America Movil (AMX): 6.19% of portfolio
5. JPMorgan Chase (JPM): 5.8% of portfolio
6. Visa (V): 5.73% of portfolio
7. Philip Morris International (PM): 4.85% of portfolio
8. Hewlett Packard (HPQ): 4.44%% of portfolio
9. SPDR Gold Trust (GLD) Calls: 4.27% of portfolio
10. Strayer Education (STRA): 3.79% of portfolio
11. Coca Cola (KO): 3.67% of portfolio
12. Priceline (PCLN): 3.54% of portfolio
13. Fomento Economico (FMX): 3.16% of portfolio
14. Nike (NKE): 3.16% of portfolio
15. Coach (COH): 3.13% of portfolio

Lone Pine seems to like the large cap 'global brand' plays this quarter. We say this because they added brand new positions in Hewlett Packard (HPQ) and Nike (NKE). They also started a new position in McDonald's (MCD) which is intriguing because we also saw Bill Ackman's Pershing Square buy MCD as well and obviously they both see something compelling there. Lone Pine also doubled down on their stake in Coca Cola (KO), furthering the 'global brand' meme.

Their portfolio also exuded a fondness for replacing names in various industries. For instance, in the education arena, they sold out of Apollo Group (APOL) but boosted their holdings in Strayer Education (STRA). (Stephen Mandel recently recommended STRA at the Ira Sohn conference where numerous hedge fund managers presented investment ideas). In the area of gaming and casinos, Lone Pine sold out of Las Vegas Sands (LVS) but added a new stake in Melco Crown (MPEL). Then in terms of consumer goods, they sold out of Pepsico (PEP) and doubled their stake in Coca Cola (KO). So, it appears as if they've found greener pastures in each of those industries.

Lone Pine also did some significant selling across the portfolio as they significantly reduced their plays in SPDR Gold Trust (GLD) Calls, Union Pacific (UNP), and Mastercard (MA). They also sold shares of numerous other companies listed above in our 'reduced' column. The moral of the story is that Lone Pine was out trimming positions all over the place.

Lastly, while 13F filings do not cover international holdings, we have gone to the overseas regulatory bodies and have started tracking Lone Pine's UK positions as well for those interested.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $7.37 billion this quarter compared to $8.7 billion last quarter, so a noticeable drop in assets invested on the long side. Please keep in mind that when we state "percentage of portfolio" for calculations, we are referring to the percentage of assets reported on the 13F filing, not their total assets under management.

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, and Dan Loeb's Third Point LLC. Check back each day as we cover prominent hedge fund portfolios.

Dennis Gartman Starts Hedge Fund: River Crescent Fund

Noted trader and author of The Gartman Letter, Dennis Gartman is now set to do something he has dreamed about for some time: start a hedge fund. Gartman started his hedge hedge fund, The River Crescent Fund on August 17th and is trying to raise $200 million over an elongated time period. While Gartman would not name names, he has said previously that some "well known hedge fund managers" have already invested.

His fund will essentially run based off the recommendations he has made daily in his Gartman Letter. It is currently long soybeans and short wheat in an agriculture trade. In currencies, he is short the euro but long gold. This is Gartman's forte as he is always hedging his bets and playing two sides of a trade. His hedge fund will trade equities, crude oil, metals, agricultural commodities and more. So, it seems as if he'll take a global macro approach to running the fund due to the multitude of asset classes he'll be trading. Back in June, we saw that Gartman sees both inflation and deflation and so it will be interesting to see how quickly he moves in and out of positions as he is not a daytrader and typically holds positions for numerous days or even weeks. Additionally, back in February he said he saw gold becoming the world's second reserve currency. His current long gold position certainly reflects this view.

While this most likely means we'll be seeing much less of Dennis Gartman in the media, we'll still keep an eye on his movements regardless. After all, he is 'old school' in his ways and that's why we follow him. He's given great advice in the past, telling people to watch the base metals for signs of economic recovery. Additionally, he's laid out his rules of trading here and we highly recommend reading them. You can certainly bet that he's implemented those as founding principles of his new hedge fund.

Philip Falcone's Harbinger Capital Partners Amends 13D on SkyTerra

In an amended 13D filed with the SEC due to activity on August 19th, 2009, Philip Falcone's hedge fund Harbinger Capital Partners has disclosed a 70.7% ownership stake in SkyTerra Communications (SKYT). Shares of SKYT are traded in OTC markets and Harbinger's ownership position is via numerous asset types and we thought it would be best to just post up verbatim what they filed. Courtesy of the SEC, tons of legal jargon for your perusal and enjoyment:

(click to enlarge)

If the image is still too small to read after enlarging then you can view the entire SEC filing here. We haven't covered Harbinger in our hedge fund portfolio tracking series yet but we will be soon, so make sure to check back. However, we have noted that they have been selling shares of Solutia (SOL) and Leap Wireless (LEAP). In fact, they have been dumping shares of SOL at a constant stream as of late. Additionally, we covered their new position in Morgans Hotel Group (MHGC).

Harbinger had a tough 2008 as they were ranked #1 in the top 10 asset losers, losing 60.8% of assets on a year over year basis as their Offshore fund finished -22.7% for 2008. Also, we got word that Falcone would be returning to his roots in terms of investing style and would be opening a new fund.

Taken from Google Finance, SkyTerra Communications "operates its business through its subsidiary, SkyTerra LP, which focuses to develop, build, and operate a next generation mobile satellite system. The Company has five subsidiaries: SkyTerra GP Inc., SkyTerra LP, SkyTerra (Canada) Inc., SkyTerra Holdings (Canada) Inc., and SkyTerra Finance Co. SkyTerra LP offers mobile satellite services using two nearly identical geostationary satellites that support the delivery of data, voice, fax, and dispatch radio services."

Quicken Discounts

Quick word from one of our sponsors: The folks over at Quicken have been nice enough to keep us updated with their latest promotions. So, just wanted to pass along to our readers that Quicken has $20 discounts on all their software (Premier, Deluxe, Home & Business, and Rental Property Manager) from now until the middle of September. Don't forget that you can also get free quicken online too. And now back to your regularly scheduled MarketFolly programming.

Free: Grant's Interest Rate Observer

If you haven't heard already, Grant's Interest Rate Observer has gone partially free. You can get their Summer Break 2009 Issue for free via .pdf here. It is 24 pages chalk full of great information. Definitely check it out as Grant's has great commentary. And hell, it's free.

Technical Analysis Weekly Watchlist: Trading Setup Charts

The OptionAddict is back with his latest weekly watchlist of trading setups found via some good 'ol technical analysis. The video is embedded below where he swings through some charts and patterns. RSS & Email readers come to the blog to watch the video. Enjoy:

Alphaclone Hedge Fund Portfolios Rebalancing This Evening

Wanted to let everyone know that today Alphaclone is rebalancing all of the hedge fund clone portfolios to reflect the newest 13F filings that are out. This rebalance also affects our Market Folly custom portfolio. So, to see what new positions the current iteration of our clone holds, make sure to check Alphaclone this evening once the rebalance has taken place.

Also, we have exciting news in that we have just created a new version of our Market Folly custom portfolio and we'll be announcing the changes shortly. We have decided to replace/add hedge funds into the mix as we have inserted funds that are tracked more accurately because they are more focused on equities. Additionally, we are focusing now on a blend of old and new. It will include older, proven managers with some slightly newer managers that we believe are poised to succeed.

In essence, we view our custom hedge fund clone portfolio as if we were running a fund of funds, just without the absurd extra layer of fees. We have used our background and knowledge on various hedge funds and their strategies to select managers who have a history of solid stockpicking and who we feel can outperform over the long-term. Additionally, our familiarity with the caveats surrounding 13F filings has allowed us to select funds that are an ideal match for replicating a portfolio via SEC filings.

Check out Alphaclone this evening to see the rebalanced portfolios and check back here as we will soon unveil the newest iteration of our Market Folly Custom Portfolio!

Gold: The Ultimate Triple-A Asset, Says Sprott Asset Management

Thanks to a reader in Toronto for more great commentary out of Sprott Asset Management regarding their favorite precious metal. This firm has long liked gold so they're obviously talking their book here. However, we always enjoy reading their insight. We also recently posted up their July market update, their market commentary (highly recommended) and detailed their positions in UK markets.

RSS & Email readers will need to come to the blog to view the embedded document regarding Gold:

Gold the Ultimate Triple-A Asset


Alternatively, you can try to download the .pdf here if it will work.

What We're Reading 8/21/09

Market valuation as a backdrop [Abnormal Returns]

Interview with Michael Santoli of Barron's [Wall St. Cheat Sheet]

5 midget banks I'm watching [The Reformed Broker] - We highlight this because some big hedge funds that have picked up shares last quarter.

Optimism at highest level since November 2003 [Pragmatic Capitalist] - Well, isn't that just reassuring.

Investors lose by chasing top performing hedge fund strategies [Business Week]

Investors are getting back into hedge funds [Morningstar]

Dan Loeb Buys Bank of America (BAC), Adds to Wyeth (WYE): 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

Next up in our series is Dan Loeb's event driven and value oriented hedge fund, Third Point LLC. Loeb started the firm in 1995 with $3.3 million in seed capital. Today, Third Point manages billions of dollars. Third Point has seen annual returns greater than 15% since inception all with a Sharpe Ratio of 0.9 and a correlation to the S&P 500 of 0.4. As of the end of June 2009, Third Point was up 7.2% for the year. Some of the changes to their portfolio below we have already covered when we wrote about Third Point's latest investor letter. In the letter, we learned that Loeb liked selective debt plays in the automotive sector. And, in the distressed arena in general, Loeb sees a lot of opportunities and feels like "a kid in a candy store." Third Point is a great fund to track for their insight and deep analytical research. To further your understanding about finance, markets, and investing, Dan Loeb has a great list of recommended books. For more on Loeb and Third Point, we'd highly recommend watching this video of a recent speech he gave. In his talk, Loeb details his background and walks us through how Third Point has handled the crisis.

The following were Third Point's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. The last time we covered their portfolio, we saw that they liked 'blank check' acquisition type companies, so let's see what they like this time around. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Bank of America (BAC), CF Industries (CF), Yahoo (YHOO), Sun Micro (JAVA), Allergan (AGN), Molson Coors (TAP), Hewlett Packard (HPQ), Apple (AAPL), Liberty Media (LMDIA), Lions Gate (LGF), Transatlantic Holdings (TRH), Anadarko Petroleum (APC), Qwest (Q), American International Group Preferred (AIG-PA), PepsiAmericas (PAS), Oracle (ORCL), and Pepsi Bottling Group (PBG).


Some Increased Positions (A few positions they already owned but added shares to)
Legg Mason (LMI): Increased posiiton by 1,380% (However, even with the big boost, the position is only 1% of their portfolio now)
Wyeth (WYE): Increased position by 17.8%


Some Reduced Positions (Some positions they sold some shares of)
Guaranty Financial (GFG): Reduced by 46%
Maguire Properties (MPG): Reduced by 17% (This figure is already out of date as we've already covered their recent additional sales of MPG).
PHH Corp (PHH): Reduced by 8.4%


Removed Positions (Positions they sold out of completely)
Victory Acquisition (VRY), Triplecrown Acquisition (TCW), Sapphire Industrials (FYR), Global Brands (GQN), Core Mark (CORE), Global Consumer (GMC), Amedisys (AMED), Hicks Acquisition (TOH), SPDR Gold Trust (GLD), Life Partners (LPHI), Lifetime Fitness (LTM)


Top 15 Holdings by percentage of long portfolio *(see note below regarding specifics)

1. Wyeth (WYE): 15.86% of portfolio
2. Bank of America (BAC): 9.74% of portfolio
3. PHH Corp (PHH): 9.04% of portfolio
4. CF Industries (CF): 7% of portfolio
5. Liberty Acquisition Holdings (LIA): 6.95% of portfolio
6. Yahoo (YHOO): 5.2% of portfolio
7. Sun Microsystems (JAVA): 4.35% of portfolio
8. Trian Acquisition (TUX): 2.92% of portfolio
9. Pfizer (PFE): 2.72% of portfolio
10. Allergan (AGN): 2.64% of portfolio
11. Molson Coors (TAP): 2.58% of portfolio
12. Hewlett Packard (HPQ): 2.57% of portfolio
13. Schering Plough 6% (SGP-B): 2.51% of portfolio
14. Depomed (DEPO): 2.45% of portfolio
15. Apple (AAPL): 2.37% of portfolio

More than anything, Third Point was out making purchases as they bought new positions in Bank of America (BAC), CF Industries (CF), Yahoo (YHOO), and Sun Microsystems (JAVA) and brought them all up to top 10 positions in their long US equity portfolio. They also boosted their pre-existing Wyeth (WYE) stake by over 17%. Keep in mind that with WYE they are playing the risk arbitrage here and they put on the trade at an over 20% spread. His entrance into CF Industries intrigued us as well, as we have previously seen numerous hedge funds involved in various agricultural plays.

Loeb also has jumped in the Bank of America (BAC) play with a brand new position just like fellow hedge fund manager John Paulson did as well. In fact, a large amount of hedge funds we cover entered the BAC trade but we'll have more on that in the coming days. Loeb already told us about the BAC play in his latest investor letter. In it, he tells us that he built up a position in preferred shares at 57 cents on the dollar and then swapped them for common stock worth $10 a share. He says they have continued to build their BAC position as they see normalized earnings power of ~$3/share.

When we last covered their portfolio, we noticed their propensity to invest in 'blank check' shell acquisition type companies. This time around, they've sold out of a lot of them but still hold Liberty Acquisition and Trian Acquisition.

That about wraps up Loeb's portfolio. Make sure you definitely check out Dan Loeb's recommended investing books, as these picks come straight from the hedge fund manager himself. Again, we also want to reiterate that tracking managers through 13F's is great and all, but you really need to examine every resource you can. While Loeb's 13F reveals his equity plays, you have to turn to his investor letter to hear about their plays in automotive industry debt and distressed mortgages, not to mention their foreign holdings.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $901 million this quarter compared to $516 million last quarter, so definitely a sizable increase in assets invested long in US equities. Please keep in mind that when we state "% of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Third Point manages billions of dollars and the percentages are in reality more watered down in their actual hedge fund portfolio. For instance, the positions above were divided by the $901 million reported in the 13F. If you were to calculate percentage weightings in the actual hedge fund portfolio, they would obviously be different since you would divide position sizes by their total assets under management (in the billions).

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, and Seth Klarman's Baupost Group. Check back each day as we cover prominent hedge fund portfolios.

Ken Griffin's Citadel Selling E*Trade (ETFC) Shares

Ken Griffin's Citadel Investment Group had recently announced that they would be selling up to 66.6% of their equity position in E*Trade Financial (ETFC). They will sell 120 million shares out of their current 166 million share position and it will be conducted through a stock trading plan registered with the SEC. Once Citadel is done selling in October (they won't sell below the price of $1.20 a share), they will be left with a 4% ownership stake. So far, the have already sold around 14 million shares. What is also interesting is that this move comes right after hedge fund Coatue Management disclosed a 5% ownership stake in ETFC. Citadel also holds debt of ETFC and plans to continue to hold that since Ken Griffin is now on E*Trade's board. You can read Citadel's press release in full here.

Additionally, we learn that Citadel had potentially struck a deal with E*Trade where Ken Griffin's shop would route 97.5% of Nasdaq stock and options trades customers place on E*Trade through Citadel's market-making setup. In the current incarnation, Citadel receives 40% of those orders. The proposed new deal would be exclusive for 6 years and Citadel would pay $100 million up front. HOWEVER, the deal is subject to E*Trade's regulator, the Office of Thrift Supervision (OTS). And, since these developments were first released, the OTS has just "suspended consideration of the application." So, we'll have to wait it out to see how the rest of this unfolds. Undoubtedly, concerns regarding high frequency trading (HFT) come to mind here and OTS wants to examine this deal more closely. We'll keep everyone posted regarding the developments.

Seth Klarman's Baupost Group Loves Capitalsource (CSE): 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

The third fund in our series is Seth Klarman's Baupost Group. Klarman started working for them at age 25 after receiving his Harvard MBA and now runs the show. This solid value focused firm has seen an annual compounded return of 20% and their long-term timeframe and focus on equities makes them ideal for tracking and cloning. In fact, they are one of the few funds selected to be included in our MarketFolly custom portfolio that is seeing 25.8% annualized returns. Baupost as a hedge fund was recently ranked 13th overall in Alpha's 2009 hedge fund rankings. We highly recommend reading up on Klarman and his investment methodology. He has detailed his investment process in a now out of print book, Margin of Safety where he provides a "how-to" on risk-averse value investing.

Baupost has been pretty active prior to the 13F with other SEC filings and we've been right there to cover them all. Most recently, they sold completely out of PDL Biopharma (PDLI). They also sold out of their Omnova (OMN) position. Back in May, we also saw that Baupost went activist on Breitburn Energy Partners (BBEP) with a 13D filing. The shares are also reflected below in the 13F filing.

We've covered Baupost in-depth on the blog and have assembled quite a list of resources including:

- Klarman's interview from the annual Graham & Dodd breakfast

- Recent thoughts from Seth Klarman

- An interview with Seth Klarman

Definitely check those out if you are interested in reading more about Baupost and their activity. Unfortunately though, they are currently closed to new investors.

The following were Baupost's long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
n/a


Some Increased Positions (A few positions they already owned but added shares to)
Alliance One (AOI): Increased by 43%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Domtar (UFS): Reduced by 4% (Thanks to a reader for pointing out that UFS underwent a 1/12 reverse split and after that transaction they only sold some of their shares).
News Corp (NWS): Reduced by 92%
PDL Biopharma (PDLI): Reduced by 18% (Note this information is already dated, Baupost sold completely out of their position recently)
Horizon Lines (HRZ): Reduced by 18.6%
News Corp (NWS-A): Reduced by 10%


Removed Positions (Positions they sold out of completely)
Exterran (EXH)
Linn Energy (LINE)
Omnova Solutions (OMN) - we covered their sales of OMN a few weeks ago
All the rest of their sales were positions that were less than 0.2% of their portfolio each: Acergy (ACGY), GHL Acquisition (GHQ), Prepaid Legal (PPD), Borders Group (BGP), Columbus Acquisition (BUS-WS), Media & Entertainment Holdings (TVH-WS), MBF Healthcare (MBH-WS)


Top 15 Holdings (by % of portfolio)

1. News Corporation (NWSA): 17.8% of portfolio
2. Capitalsource (CSE): 11.55% of portfolio
3. Capitalsource (CSE) Bonds: 10.71% of portfolio
4. Theravance (THRX): 10.5% of portfolio
5. Liberty Media (LMDIA): 8.95% of portfolio
6. PDL Biopharma (PDLI): 7.94% of portfolio as reported on the 13F. However, they recently filed an amended 13G and sold completely out of PDLI.
7. Breitburn Energy Partners (BBEP): 5.18% of portfolio
8. Domtar (UFS): 4.25% of portfolio
9. Facet Biotech (FACT): 3.23% of portfolio - note that Baupost filed an amended 13D in late April and has gone activist with their investment
   
10. Capitalsource (CSE) Bonds (2nd set): 2.7% of portfolio
11. Alliance One (AOI): 2.66% of portfolio
12. Viasat (VSAT): 2.5% of portfolio
13. Theravance (THRX) Bonds: 2.4% of portfolio
14. iStar Financial (SFI-F) Preferred F Bond: 2.04% of portfolio
15. Syneron Medical (ELOS): 1.77% of portfolio

Since the 13F reports positions Baupost held as of June 30th, 2009, PDL Biopharma is included in the filing. However, in a more up-to-date filing, we see that Baupost has sold completely out of PDLI. This just goes to show that you have to track all the documents filed by a hedge fund, not just the 13F.

Capitalsource remains a massive position for Klarman as he holds common stock and 2 sets of bond positions. In total, his Capitalsource position represents 24.96% of his portfolio. This brings us to another caveat: when we say 'portfolio' when discussing 13F filings, we merely mean the amount of assets reported directly on the 13F filing. Since 13F's do not include short positions, cash, or holdings in other markets, a given hedge fund's actual assets under management are almost always larger than what is defined on the 13F. So, take these percentage weightings with a slight grain of salt as they are based on a percentage of overall long US equity, options, and note exposure. In reality, the portfolio weightings are a little bit more watered down than what our calculations show if you were to base it off total assets under management. So, just keep that in mind.

Klarman's Baupost has notoriously had a lot of cash on the sidelines as they wait to deploy it when they see compelling opportunities. And, throughout the crisis they've begun to put cash to work and we've seen some of that activity unfold. The only real addition this time around was Baupost's purchase of some more Alliance One (AOI) shares. The vast majority of Baupost's portfolio remained flat and this is exactly why we track them. They are focused value players that assemble positions with the aim of holding them longer term. This makes their portfolio easier to track and is why we have included them in our custom MarketFolly portfolio that is seeing 28.5% annualized returns. Their low turnover means easier and more accurate cloning.

One move we saw that was interesting was their sale of most of their News Corp 'B' shares (NWS). While they still sold 10% of their 'A' shares (NWSA) position, they definitely dumped a lot more of their NWS holding. We just thought that was intriguing and worth noting.

Lastly, we also want to touch on a move that is not reflected in the 13F filing but happened very recently. In late July it was revealed that Baupost has provided financing to CIT Group (CIT) along with numerous other hedge funds and firms. Supposedly, the loan is backed by $30 billion worth of assets. You can read the specifics of the deal in our hedge fund news update.

Assets from the collective holdings reported to the SEC via 13F filing were $1.2 billion this quarter compared to $1.1 billion last quarter, so just a slight uptick. This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management and David Einhorn's Greenlight Capital. Check back each day as we cover prominent hedge fund portfolios.

Hedge Funds: Best & Worst Performers Of 2009

Came across interesting lists of the best and worst performing hedge funds thus far in 2009 over on Dealscape and thought we would post some of them up. Firstly, let's touch on where hedge funds overall stand this year. After a tepid June for the markets, July ramped up with a 7.56% gain in the S&P 500. Turning to hedge fund strategies, we see the following performance figures for the month of July:

Convertible Arbitrage: +6.56% (now up 36.6% for the year)
Distressed Securities: +3.39%
CTA Global: -0.19%
Emerging Market: +4.39% (now up 25.8% over the past 5 months)
Equity Market Neutral: +0.27%
Event Driven: +3.39%
Long/Short Equity: +2.85%
Fund of Funds: +1.51%

Now that the recent month's metrics are out of the way, let's turn our focus to the best and worst performing funds out there in hedge fund land. Here are some of the worst performing hedge funds of 2009:

Horseman Global : -21.92%
Ursa Offshore: -17.42%
Man AHL Diversified: -12.64%
Cantillon World (Class A): -10.87% (we covered the fact that Cantillon is closing down/turning into a long only shop)
Renaissance Technologies' RIEF LP B: -10.01% (Jim Simons & Rentec's underperformance has been well documented nicely by Dealbreaker here. Also, for those of you looking for insight from the notoriously private manager, check out this lengthy interview here).
Winton Evolution Fund: -9.52%


And here are some of the best performing hedge funds of 2009:

Turnberry Capital: 92.31% (Thanks to a reader for pointing out that Turnberry recently announced they would be shutting down due to heavy redemption requests and have already sold off 70% of their credit derivative portfolio).
Henderson European ABS Return: 78.94%
Palamino Fund (Class B): 66.9%
Pentwater Event Fund (Class A): 59.64%
Pharo Master Fund: 50.60%
Redwood Capital: 45.16%


Make sure to check out the full list of the best performing funds here and the worst performing funds here courtesy of Dealscape.

David Einhorn's Greenlight Capital Loads Up On S&P500 Puts (13F Filing)

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

The second hedge fund in our series is David Einhorn's Greenlight Capital. This $6 billion hedge fund has a value investing bent with a focus on spin-offs. For whatever reason, Einhorn seems to always appear in the media for his short positions. He of course had a well documented short position in Lehman Brothers back before it collapsed. More recently, he also was caught in the Volkswagen short squeeze that blindsided numerous hedge funds as he detailed in one of his investor letters. Einhorn has also detailed the saga between his fund and Allied Capital, another company he shorted, in his book Fooling Some of the People All of the Time: A Long Short Story. This book is great because it gives you an inside perspective as to how Greenlight constructs and researches their investment theses and we highly recommend it. Greenlight approaches things by identifying mispricings in the markets and going from there. They have seen solid annual returns of over 20% and are a great fund to track. While the information below will track Einhorn's US equity, note, and bond positions, we also highly recommend reading their latest investor letter as it gives you further insight into Greenlight's portfolio.

The following were their long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
SPDR S&P500 (SPY) Puts
Cardinal Health (CAH)
General Electric (GE) Puts
Transatlantic Holdings (TRH)
ATP Oil & Gas (ATPG) - position is less than 0.45% of their overall portfolio
Endurance Specialty Holdings (ENH) - position is less than 0.30% of their overall portfolio
US Natural Gas Fund (UNG) - position is less than 0.02% of their overall portfolio


Some Increased Positions (A few positions they already owned but added shares to)
Everest Re (RE): Increased position by 598%
IPC Holdings (IPCR): Increased position by 132%
Pfizer (PFE): Increased position by 102%
Wyeth (WYE): Increased position by 100%
Aspen Insurance (AHL): Increased position by 74%


Some Reduced Positions (Some positions they sold some shares of)
MEMC Electronics (WFR): Reduced by 50%
EMC (EMC): Reduced by 44%
Echostar Corporation (SATS): Reduced by 37%
Helix Energy (HLX): Reduced by 34%
Harman International (HAR): Reduced by 31%
URS (URS): Reduced by 28%


Removed Positions (Positions they sold out of completely)
SPDR Gold Trust (GLD)* (there is a big asterisk next to this one, so read our summary below to find out why). Target (TGT), Hess (HES), Commscope (CTV), Dow Chemical (DOW), Conway (CNW), Rohm & Haas (ROH), Discover Financial (DFS), Jones Apparel (JNY), Western Digital (WDC), American Eagle Outfitters (AEO), Patriot Coal (PCX), Cadence Design (CDNS), Williams Sonoma (WSM), JA Solar (JASO), Focus Media (FMCN), Carpenter (CRS), Corning (GLW), Supervalu (SVU), Sunstone Hotel (SHO), Bradywine Realty Trust (BDN)


Top 15 Holdings (by % of portfolio)

1. SPDR S&P500 (SPY) Puts: 24.25% of portfolio
2. Pfizer (PFE): 6.32% of portfolio
3. URS (URS): 5.56% of portfolio
4. Teradata (TDC): 5.11% of portfolio
5. Wyeth (WYE): 4.56% of portfolio
6. Cardinal Health (CAH): 4.27% of portfolio
7. Market Vectors Gold Miners (GDX): 4.25% of portfolio
8. Allegheny Energy (AYE): 3.75% of portfolio
9. EMC (EMC): 3.34% of portfolio
10. Einstein Noah (BAGL): 3.27% of portfolio
11. Aspen Insurance (AHL): 3.25% of portfolio
12. Health Management Associates (HMA): 2.49% of portfolio
13. McDermott (MDR): 2.33% of portfolio
14. MEMC Electronic (WFR): 2.29% of portfolio
15. IPC Holdings (IPCR): 1.77% of portfolio

We've got a lot of technicalities to cover here so let's dive right in. Firstly, Einhorn did not get out of gold. Last go-round, we saw Greenlight had amassed a large gold position via the SPDR Gold Trust (GLD). Although GLD no longer is being reported on his 13F filing (they sold out of it), they still own a large gold position. They have started storing physical gold due to cost savings as noted when we looked at Greenlight's recent investor letter. This is the perfect example of why you can't blindly follow SEC filings. You've got to know a manager's rationale and access every resource of theirs you can. And, Market Folly's goal is to bridge that gap with our hedge fund tracking. Through tracking him, we know that Einhorn has been decisively skeptical. If he was so skeptical, then why would he sell out of his gold position on the 13F? The answer: he didn't sell out of it at all, he merely switched investment vehicles. Those following 13F's blindly would not know that. For instance, if we were just 'piggybacking' Einhorn into his gold play last quarter, we would have sold out just now because we no longer see his gold position appear on the 13F. When in reality, he still holds a very large gold position.

Another thing worth noting here is that Einhorn holds numerous securities in international markets. As such, his 'top holding' listed on the 13F filing will not be his top holding in his hedge fund's overall portfolio. Since 13F filings only require institutions to disclose holdings in US markets, we are shielded from viewing the rest of the portfolio. However, by reading Einhorn's letter, you can see what his top holdings are in international markets (and the overall portfolio). So, that's more of a caveat with this summary than anything.

Turning to his 13F activity, we can easily see the main headline here: they loaded up on S&P put options as a brand new position. In his investor letter, we learned that a drop in volatility decreased prices in options markets and it made sense for Greenlight to purchase them given the price. This move further illustrates Greenlight's bearish stance on the economy and at the very least provides some downside protection.

We also want to point out the fact that in reality the puts position is not 25% of their portfolio. That figure was derived by taking the stated value of the puts on the 13F and dividing it by the stated value of their total assets reported on the 13F. The total assets reported was $2.8 billion and that total represents their long US equity, options, and note positions. This does not include their short positions, cash, or holdings in other markets. Their firm in reality manages $5-6 billion and so the percentage of portfolio dedicated to S&P puts is realistically lower. Additionally, the value of the put options on the 13F filing represents the notional amount of the shares underlying his puts. Hopefully that clarifies some.

Additionally, we make note of Greenlight's new position in Cardinal Health that they brought all the way up to their 6th largest holding. Notable sales include selling up to 50% of both their MEMC Electronics and EMC positions. This is slightly interesting since we see that fellow hedge fund manager Bill Ackman has a large EMC position. Einhorn sold completely out of his Target position too (another position Ackman has a large stake in). Wonder if Einhorn has beef with Ackman since he is selling out of all those positions. (We're only joking).

In terms of positions they already owned, we see that Greenlight doubled down on their Pfizer (PFE) and Wyeth (WYE) stakes. They boosted their Everest Re (RE) stake substantially, but it still is only 1.58% of their overall portfolio now.

Assets from the collective holdings reported to the SEC via 13F filing were $2.8 billion this quarter compared to $2.4 billion last quarter, so a slight increase. US equity exposure. This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management. Check back each day as we cover prominent hedge fund portfolios.

Credit Card Delinquencies & Charge Offs Hit All-Time High

This is a story that has been brewing for a while and we've tried to cover it when we're not tracking hedge fund portfolios. So far in 2009, the data surrounding credit card charge offs and mortgage delinquencies has not been pretty... at all. Just now after the close of the second quarter, we see that both metrics have hit the highest rates since the Federal Reserve began tracking them.

Credit card delinquencies (payments more than 30 days late) rose to 6.7% up from 6.68%. Charge-offs (listed as 'uncollectable' by the banks) rose to 9.55%, up from 7.64%. The scary thing here is that this trend is accelerating (as illustrated by the graph below, courtesy of CreditCards.com).

(click to enlarge)

An acceleration in charge-offs and delinquencies obviously means bad things for financial institutions and the economy in general. Much like the impending (and already current) problems in commercial real estate, we've likened credit card charge-offs as a 'second wave' in this economic crisis. The first tidal wave came through and washed out a whole lot in the economy. As people begin to lose work and fall behind on their massive debt repayments, they drown. This creates a second wave of writedowns for financial institutions and another set of problems for an economy trying desperately to recover. The initial tidal wave hits and knocks America down. Then, when America starts to get enough strength to stand up, they will be washed away again with a whole new slew of problems.

This is due to the delayed effect the first wave had on the consumer. After people are laid off, they scramble to find new jobs and dwindle what little savings they have left. (Remember, America's savings rate has not been the best and we've concluded that it needs to rise in order to help get out of this mess). And, the fact that the unemployment rate keeps rising is not helping things either. Once their savings is gone, they rely on credit cards as a flotation device. And, this scenario is only the people who don't already have credit card debt. Those already suffering under this burden begin to bear an even heavier load until they simply can't make payments at all. This effectual lag has slowly but steadily been building for months and the latest charge-off and delinquency data has begun to spike. In fact, we started posting about rising delinquencies back in August of 2008 when we saw delinquency rates starting to near 5%. We then touched on the impending credit card squeeze back in November as well, as we began to look at things in-depth. Nowadays, charge-offs are nearing 7% and in the span of one year we've seen a surge in credit card delinquencies of almost 2%. This just begins to show the lagging effect this phenomenon will have.

So, this is nothing new. Charge-offs and delinquencies are accelerating and even the CEO of JPMorgan Jamie Dimon himself says that consumer loans and credit cards will be a house of pain for financial institutions. Well, he should know since his firm is in the eye of the rising storm. As such, we penned a piece announcing our downgrade of the American consumer's credit rating where we examined the potential impact of credit line reductions.

The main thing to take away here is that credit card charge-offs and delinquencies are getting pretty bad and have the potential to go to 'worse.' The lagging effect of these charge-offs and delinquencies cannot be overstated as these problems slowly fester. Too many consumers have been struggling and now find themselves caught in the undertow; the wave has been building for some time now. The only questions now are how big will it get and when will it crash down?

Pershing Square: New Positions In McDonalds (MCD) & Automatic Data Processing (ADP) ~ 13F Filing

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

The first hedge fund in our 2nd quarter 13F series is Bill Ackman's Pershing Square Capital Management. Bill is a well known value and activist player who founded Pershing after his previous firm Gotham Partners broke up. Most recently, he has been well known for his foray into shares of Target (TGT) in an attempt to unlock value and spur change at the company. While he is committed to the company long-term, he just recently trimmed his Target position (as per an amended 13D filing with the SEC). We follow Ackman & Pershing because they run a highly concentrated portfolio that is ideal for portfolio tracking purposes. For more information, check out our in-depth profile on Ackman and Pershing Square.

In our first quarter 2009 update regarding Pershing Square, we noted in their 13F filing that they had amassed a large position in EMC (EMC). Let's see what they were up to this time around. The following were their long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Automatic Data Processing (ADP)
McDonalds (MCD)


Some Increased Positions (positions they already owned but added shares to)
EMC (EMC): Increased position by by 0.1%


Some Reduced Positions
Target (TGT): On this position, the 13F has different data, but we are ignoring that because Pershing recently filed an amended 13D which updates their TGT stake as of a much more recent date. In the filing, we see that they have reduced their overall exposure from 7.8% ownership in the company to 4.4% ownership. You can read about the specifics of the transactions in our post on Target.


Removed Positions (Positions they sold out of completely)
Alexanders (ALX)
Apartment Investment & Management (AIV)
Visa (V)
Wendys Arbys (WEN)
Yum Brands (YUM)


Flat Positions (Positions with no change since the last filing)
Greenlight Capital Re (GLRE)
Borders Group (BGP): Average price of their position is $6.98 per share (as detailed in Pershing's investor letter)


Entire Portfolio (by % of portfolio)

1. Target (TGT): 43.28% of portfolio - calculated only using their common shares position (to help reflect the fact that they've sold out of a lot of their options positions just recently).
2. EMC (EMC): 33.89% of portfolio
3. Automatic Data Processing (ADP): 11.34% of portfolio
4. McDonald's (MCD): 6.08% of portfolio
5. Borders Group (BGP): 1.72% of portfolio
6. Greenlight Capital Re (GLRE): 0.19% of portfolio
   

Okay, so before everyone freaks out: Ackman did not sell General Growth Properties (GGWPQ). It is simply not listed because the SEC has deemed GGWPQ to no longer be a reportable security (thanks KP for the link) for 13F filings. We would guess that this is possibly due to the fact that they are no longer listed on the exchange (GGWPQ is traded in OTC markets now). The main thing to take away from this though is the fact that we will still see Ackman's moves in GGWPQ through Form 4 filings since he is now on the board of directors. So, all of you GGWPQ bandwagoneers can still sleep at night. Ackman touched on his position in General Growth in one of his recent investor letters. Additionally, you can view Pershing Square's GGWPQ presentation from the Ira Sohn investment conference (where numerous hedge fund managers presented investment ideas).

The other major moves in Ackman's portfolio can be summarized as such: He added McDonald's and Automatic Data Processing as brand new positions. At the same time, he sold completely out of a number of positions, including: Alexanders, Apartment Investment & Management, Visa, Wendys Arby's, and Yum Brands (many of which he had just picked up a few quarters ago). It looks as if Ackman is making a straight swap in fast food land, favoring McDonald's over his previous holdings. That really sums it up, as Pershing runs a pretty concentrated portfolio. For more on them, make sure to check out our profile on Ackman and Pershing Square.

Assets from the collective holdings reported to the SEC via 13F filing were $2.2 billion this quarter compared to $1.9 billion last quarter, so a slight tick up. This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. Check back each day as we cover prominent hedge funds.