Companies Most Likely To Declare Bankruptcy

In addition to the updated problem bank list we posted up the other day, we saw this and thought it would be worth flagging for those interested. Audit Integrity, an independent research firm, has highlighted the top 20 companies that they believe have the highest probability of filing for bankruptcy. They limited this specific list to publicly traded firms that have over $1 billion market capitalization. In no particular order:

• Advanced Micro Devices, Inc.
• Amkor Technology, Inc.
• AMR Corporation
• Apartment Investment and Management Co.
• CBS Corporation
• Continental Airlines, Inc.
• Federal-Mogul Corporation
• Hertz Global Holdings, Inc.
• Interpublic Group of Companies, Inc.
• Las Vegas Sands Corp.
• Liberty Media Corporation (Capital)
• Macy's, Inc.
• Mylan Inc.
• Oshkosh Corporation
• Redwood Trust, Inc.
• Rite Aid Corporation
• Sirius XM Radio Inc.
• Sprint Nextel Corporation
• Textron Inc.
• The Goodyear Tire & Rubber Company

They rate over 12,000 companies so as always take these with a grain of salt and obviously do the necessary due diligence on them. One particular company on the list is intriguing though: Textron (TXT). The private jet manufacturer has been on a volatile ride over the last year (to say the least) and our friends over at Zero Hedge have done some excellent sleuthing regarding various activities Textron has conducted with Goldman Sachs as of late.



Source: Reuters

Philippe Laffont's Coatue Management: Technology Trends Presentation

Philippe Laffont’s Coatue Management is a specialist hedge fund that focuses on the sectors of Technology, Media and Telecom. The fund was established in 1999 and Laffont typically keeps a low profile, rarely doing media interviews. However, we recently found a presentation that Laffont gave to MIT Alumni in May of this year that we thought readers would enjoy. While it is a few months old, the themes are still very much relevant as they examine at the technological landscape from a top-down perspective. If you are interested in long/short equity hedge funds, technology stock picks, or both, we highly recommend you take a look at Laffont’s whole presentation by downloading the .pdf from MIT here (make sure you download it before MIT takes it down).

In particular, we wanted to highlight slide 14 from the presentation. This slide (pictured below) highlights the trend cycles in the technology sector as we progress from mainframes to personal computing to networking to the internet. They highlight possible winners in the current environment to be Google (GOOG), Apple (AAPL), Research in Motion (RIMM), Qualcomm (QCOM), and Amazon (AMZN). This would be par for the course in hedge fund land as we have highlighted numerous times in the past that GOOG, AAPL, and QCOM are some of the most widely held stocks amongst hedge funds. Additionally, Goldman Sachs' hedge fund trend monitor report highlighted the fact that the remaining technology plays RIMM and AMZN are highly favored as well.

(click to enlarge)

We also wanted to highlight slide 18 that examines current trends in TMT. They see smartphones as an obvious trend going forward as customers prefer mobility, playing right into the hands of AAPL and RIMM. They see Nokia (NOK) as a possible loser here due to their lack of growth in the smartphone arena. Instead, NOK has typically been successful in selling run-of-the-mill mobile phones. Additionally, Coatue highlights the expansion of cloud computing and virtualization and notes Citrix (CTXS) and VMWare (VMW) as key winners.

(click to enlarge)

In terms of management style, Coatue follows a classic long/short equity strategy in which big directional bets are avoided. Typically, long/short hedge funds have 100% gross long exposure and 70% short, producing a net long exposure of 30%. Very loosely speaking, long/short funds tend to underperform the market in strong rallies (like the one we have seen since March) but outperform when markets fall. And, if they are successful at stock picking, they will outperform in flat markets and generate alpha regardless of circumstances.

Laffont is one of the so-called 'Tiger Cubs,' or managers who once worked for Julian Roberson at Tiger Management that have gone on to start their own funds. (We have covered the Tiger Cub family tree before for those of you unfamiliar). Robertson will be speaking at this year's Value Investing Congress and we highly recommend attending, as we have secured a discount to the event for our readers. Laffont’s investment principles were certainly influenced by his mentor. Following Robertson’s dictum that “The market never spoke to him,” Laffont does not follow market timing or macro economic forecasts to get him in and out of the market. Instead, he favors an approach based on in-depth proprietary research of individual companies and sectors. Laffont encourages his staff to identify and research long term investment trends. The diagram we posted above (slide 14) shows some of the very long term trends in computing. These are the types of trends they look to predict, ride, and capitalize on.

One of Laffont’s stockpicking mantras is “dare to be different”. In other words, he seeks to take the road less traveled by focusing on stocks besides the ones in the spotlight. Given that Coatue is a sector specific fund, Laffont believes that specialization is important for success and he urges his staff to stay passionate about technology. Coatue staff members were reportedly amongst the first to get their hands on an iPhone when it was launched.

A final investment principle that Laffont emphasizes is the importance of capping your losses. He does not spell out exactly how losses are capped at Coatue which is a shame because it would be interesting to find out more in this regard. For example, do they use stop losses or are they prepared to sit with a losing position for a long time if they still like the story - in the way perhaps that Julian Robertson would have in years gone by?

Given all of the technology trend talk above, we now want to turn to Coatue's portfolio. In expanding our coverage of hedge fund positions in UK markets, we have this update for you. Coatue have two disclosed long holdings in the UK market at present:

	symbol	date	No. shares	% of equity	Estimate of price paid
Moneysupermarket.com Group	mony	11/01/2008	18167261	3.7	na
		01/06/2009	45959122	9.1	115p

Taken from Google Finance, Moneysupermarket.com Group PLC operates a United Kingdom price comparison Website. The Company provides customers with a free online service enabling them to compare a range of products in the insurance, money, travel and home services markets, and to find the product most suited to their needs. The Company’s Website enables customers to compare products by price, product features and service. In addition to these comparison services, the Company helps and supports customers to research the product they wish to purchase. This includes news articles, guides, video blogs, Web chats, and the ability to ask the views either directly of its employees or other customers in the Company’s forums. The Company operates two principal Websites: moneysupermarket.com and travelsupermarket.com.

Secondly, Coatue has also disclosed another stake:

Telecity Group Plc	TCY	27/12/2007	6014538	3	na
		15/01/2008	8485557	4.3	276p

Taken from Google Finance, TeleCity Group Plc is a pan-European provider of network independent data centers offering a range of scalable data centre services, and value added services, which include security, storage, messaging, disaster recovery, monitoring, application, and database management services. It has 20 data centers, which act as a content and connectivity hub, facilitating the storage, sharing and distribution of data, content and media.

Overall, very interesting information and a great glimpse into how a prominent hedge fund frames and researches their strategy. In the past, we've covered Coatue's E*Trade (ETFC) stake in US markets as well. We'll be covering Coatue more in-depth going forward so be on the lookout for more updates on this fund. And on the topic of various UK positions that hedge funds hold, we've already covered Moore Capital Management's positions, Lone Pine Capital's UK holdings (and their recent movements as well), Sprott Asset Management's defensive UK portfolio, as well as Citadel's positions.

Last, but certainly not least, make sure to visit our hedge fund portfolio tracking series for following all the footsteps the big funds make in US equities.

Recent Interview With Hedge Fund Manager Jim Chanos

CNBC recently had noted short seller and hedge fund manager Jim Chanos of Kynikos Associates on as a guest host. In his interview (video embedded below), he speaks on the subjects of executive pay, mark to market accounting, transparency, and other interesting topics in today's economy. Also, Chanos mentions the debut of a new website he has helped release, HedgeFundFacts.org. It is a hedge fund advocacy site with a focus on dispelling myths related to hedge funds and short selling. This site is certainly a step in the right direction in terms of removing the 'villainous' title hedge funds are often labeled with.

It's been a while since we covered Chanos on the blog so it's good to have something to post up. Interestingly enough, in the interview he also mentions that he (along with others) met with director Oliver Stone regarding the upcoming film, Wall Street 2. Chanos and others urged Stone to take the focus away from hedge funds and to put it more on the banking system in general. For more on Chanos, you can check out some of his past investment ideas as presented at the Ira Sohn Investment Conference.

RSS & Email readers come to the blog to view the embedded video:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Morningstar Discount

Just wanted to pass along this discount for those of you interested. We just got word from their team that Morningstar has $20 off a one year subscription to their Premium membership. So, if you're a financial advisor or asset manager who uses those resources, here's a quick way to save some money. Or, if you're a retail investor looking for research resources, this is a great tool. You can also get a free 14 day trial if you want to check things out beforehand as well. Definitely worth a spin since it's free.


Don't forget to also check out the list of discounts on financial publications we've compiled. We've covered all the major financial news sources and some of the highlights include:

• 75% off the WSJ
• 40% discount on Barron's
• 60% off Investors Business Daily

Gotta love the discounts when newspapers are struggling.

Hedge Fund D.E. Shaw & Co Boosts Priceline.com (PCLN) Stake

We've got two portfolio adjustments to cover regarding the holdings of quant focused D.E. Shaw & Co. Firstly, in a 13G filed with the SEC, David E. Shaw's hedge fund firm has disclosed a 5.1% ownership stake in Priceline.com (PCLN). They now own 2,096,755 shares and the filing was made due to activity on August 31st, 2009. They have boosted their stake in this name because as of June 30th, 2009 (their 13F filing), they owned 336,302 shares of common stock as well as 411,100 shares represented by Calls in options markets. Additionally, they also owned 202,000 shares worth of Puts on PCLN. So, in the last 3 months, they've certainly boosted their holdings and have acquired a sizable stake. This is interesting to see mainly because numerous other prominent hedge funds we track have entered large positions in Priceline.

Secondly, we see that D.E. Shaw & Co has filed a 13G on Spectrum Brands (SPEB) as well. The hedge fund now shows a 14% ownership stake with 4,201,138 shares. In addition to the 13G, they also filed a Form 4 to show that their current share tally was achieved by selling 25,000 shares at $23 per share and selling 40,000 shares at $22.40 per share, with both transactions taking place on the 3rd of September. While they sold a few shares, they still obviously have a large stake left. Shares of SPEB trade on the OTC Bulletin Board.

In terms of other recent notable activity, we saw back in June that D.E. Shaw filed a 13G on Medicis Pharma (MRX). While we haven't seen their performance figures the past few months, we did note that their Oculus fund was up 2.8% for the year as of the end of June. Their Composite fund was up 12.5% over the same timeframe. While D.E. Shaw & Co is a hedge fund, it is also a private equity firm and technology development shop all in one. Founded in 1988 by David E. Shaw, they manage over $33 billion and recently announced they would be opening an office in Dubai. Please note that they employ mainly quantitative and statistical arbitrage strategies. As such, tracking and cloning their portfolio is not necessarily recommended since we can't necessarily follow the rhyme or reason behind their portfolio maneuvers.

Shaw oversees strategic maneuvers at the firm, but no longer is active in the day to day operations. He received his Ph.D. from Stanford University. Some notable former employees include Jeff Bezos (before founding Amazon.com) and Lawrence Summers, who left the firm to serve on President Obama’s economic team. In Alpha's hedge fund rankings, D.E. Shaw was ranked 6th in the world. We haven't covered their portfolio in its entirety yet, but stay tuned to our hedge fund portfolio tracking series for updates.

Taken from Google Finance, Priceline.com is "a global online travel company that offers its customers a range of travel services, including hotel rooms, car rentals, airline tickets, vacation packages, cruises and destination services. Internationally, the Company offer its customers hotel room reservations in over 75 countries and 27 languages."

Taken from their company website, Spectrum Brands includes brands such as 8 in 1, Cutter, Jungle Labs, Rayovac, Remington, Schultz, and more.

Updated Problem Bank List

We wanted to take a moment and post up some updated data regarding the 'problem bank list' since we saw late last week that yet another major bank (Corus Bank) has failed. The FDIC releases this data monthly with a delay and Calculated Risk (a great Economics blog by the way) with the help of a reader did a great job of aggregating the spreadsheet of information. This data was posted up on September 4th, so hopefully timelag isn't too bad since the information is already released on a delayed basis much like the SEC filings we track in our hedge fund portfolio tracking series.

Below is the table of problem banks and make sure you scroll (both horizontally and vertically) as the list is pretty comprehensive. RSS & Email readers come to the blog to view the table:





Under the 'Class' column, note that N stands for national chartered commercial bank, SM stands for state charter Fed member commercial bank, NM stands for charter Fed nonmember commercial bank, SA stands for state or federal charter savings association, and SB stands for state charter savings bank.

Very interesting stuff to examine as always. Lastly, since we're on the topic of bank collapses, we just went back and read a piece on Washington Mutual's failure and thought it would be interesting reading for those of you who haven't seen it. If you're all gloom and doom now that you've seen yet again the poor state our financial system is in, we can do you one better. Nevermind bank failures, hedge fund manager Kyle Bass of Hayman Advisors has previously predicted sovereign defaults. Now wouldn't that be just dandy? So, we'll end with a toast: here's to many more anticipated bank failures.

Short Interest At Lowest Levels In Over 2 Years

Thanks to the fine folks over at Bespoke as always for flagging this data. We now see that short interest in the S&P 1500 is at the lowest levels since February 2007, sitting currently at 6.6%. Take it for what it's worth:

(click to enlarge)

Hedge Fund Moore Capital Management's UK Positions

Moore Capital Management’s London Listed Holdings

Thanks to a reader's help, we're now cruising along nicely in our hedge fund portfolio tracking series: UK holdings edition. We've already covered Lone Pine Capital's UK positions, Lone Pine's recent movements, Sprott Asset Management's defensive UK portfolio, as well as Citadel's positions. Today we’re going to take a look at the UK holdings of legendary macro investor, Louis Bacon. In particular, we will focus on those investments that Bacon has made through the London Stock Exchange (LSE) and London’s Alternative Investment Market (AIM). Before proceeding, we recommend checking out our informational preface on tracking a hedge fund's UK positions. And now, onto the good stuff:

Bacon lives in London and in a recent interview with Absolute Return and Alpha he said that living in London gave him a broader perspective on a variety of countries. He also noted that the London time zone allows him to be well prepared for the US trading day. Bacon’s flagship investment vehicle is the Moore Macro Fund but he also operates the more regionally focused and smaller, Moore Europe Capital Management. In April of last year, Bacon hired talented portfolio manager Greg Coffey to become Chief Investment Officer of Moore Europe. Coffey had previously worked at London based hedge fund GLG, and brought a team of 12 with him to Moore. Reports at the time speculated that whilst at GLG Coffey had been responsible for 60% of GLG’s performance.

As well as his outstanding returns, Bacon is renowned for his risk management. He has animal-like instinct for sensing turns in the market and an itchy trigger-finger that sometimes leads him to trade in and out and around positions, even when they are moving in the predicted direction. While others might see a mountain top in the distance, Bacon notices the valley en route to getting there. Other traders and managers might ride out that valley while waiting for the mountain top. Not Bacon. Instead, he'll trade in and out of positions in order to make money in the short-term while navigating toward the long-term thesis.

Now, let's dive right into Moore's UK regulatory disclosures. There are a couple of interesting patterns in Moore’s UK holdings that we want to touch on. Firstly, six out of seven of their positions are in investment funds or insurance companies where investment and actuarial acumen determine success to a large extent (Helphire Group Plc is the only exception). Moore’s approach here seems to be to try pick out talented managers in specific niches with good track records at the right price.

Secondly, we also noted that five of the seven holdings are registered and incorporated in off-shore locations such as Jersey, Guernsey, Isle of Man and Bermuda. Of course, these locations convey lighter tax and regulation than the UK mainland. What is more difficult to determine is whether these advantages are priced into the stock price. The large number of off-shore holdings in Moore’s portfolio possibly suggests that they don’t think so.

As we mentioned earlier, Louis Bacon is well known for trading. Yet, there is little sign of the famous itchy finger in the filings below. At first sight, Moore Capital appears to have built up their UK positions steadily and in turn sold them in similar fashion. Turnover has been low and their investment style looks to be surprisingly conservative (at least with regards to these positions). As always, keep in mind this is only one tiny piece of their overall portfolio and they are a true global macro hedge fund. In regards to these specific positions though, we wonder if it is possible that Moore have been using CFDs and other derivatives to trade around and hedge the equity positions? When going through Moore’s filings, we only found one CFD position and that was in Helphire Group Plc in early June 2009. Helphire Plc, however, is the only UK mainland incorporated company and is therefore covered by the new rules on CFD disclosure that came into action on June 1 2009. (See our article on the implications of the CFD rule change for hedge fund disclosure in the UK). One of the weaknesses in these new rules is that they only apply to UK mainland companies and not those registered off-shore. So, we have no idea whether Moore have been using CFDs in six out of seven of their holdings. Their holdings are listed below:

Camper and Nicholsons Marina Investments Ltd	date	No. shares	% of issued stock	Estimate of price
(AIM: CMI)	29/01/2007	3500000	7	na
	02/11/2007	3200000	6.4	67p
	22/12/2008	3150000	5.81	22p

Camper & Nicholsons Marina Investments Limited (CNMI) is a closed-ended investment company. It is an off shore fund that is registered and incorporated in Guernsey. CNMI listed on AIM in January 2007 and raised money for the acquisition, development and operation of an international portfolio of marinas and related real estate in the Mediterranean, the Caribbean and the United States. CNMI regards the marina market as highly fragmented, undervalued and ripe for consolidation.

Trading Emissions Plc	23/01/2009	41410948	15.31	na
(AIM: TRE)	03/06/2009	35148218	13.78	95p
	04/06/2009	36388718	14.26	97p
	15/06/2009	38415718	15.1	102p

Trading Emissions PLC is an investment fund that invests in tradable environmental instruments. It is an off shore fund and was registered in the Isle of Man in 2005. Moore has been a long-term holder of TRE stock. They purchased 20,000,000 shares in the company in 2005, probably on issue. The Company is managed to be long only in environmental commodities with a view that these commodities will appreciate in value. The core of the portfolio is a long position in carbon assets. The Company is also involved in aggregation, monetization, and collateralization in the carbon market. This is interesting because in an interesting piece on Goldman Sachs, writer Matt Taibbi hypothesized that Goldman's next big 'bubble' was the carbon market. Moore could very well agree with this given their investment. The company’s fund manager is EEA Fund Management Limited an investment advisory firm based in the City of London. EEA is also advisor to Climate Exchange PLC, another investment company listed on AIM.

Omega Insurance Holdings Ltd	22/01/2009	11635362	7.87	na
(AIM: OIH)	14/04/2009	9544963	3.97	139p
	17/06/2009	10445875	4.33	128p
	21/08/2009	9398416	3.86	134p

Omega Insurance Holdings is an insurance underwriting company. It is listed on the AIM market and is registered and incorporated off shore in Bermuda. The majority of the Omega Group’s premium income is derived from its business operations in the United States. The companies in the Group focus predominantly on short-tail property insurance and reinsurance which they provide to small to medium-sized insurance companies. The company is most active in property insurance but it is also involved in motor insurance and professional indemnity insurance.

Juridica Inv Ltd (AIM: JIL)

11/03/2009

3719999

4.65

na

Juridica Investments Limited is an investment company registered off shore in Guernsey which seeks to invest in a new asset class: litigation funding. It trades on AIM and was listed in late 2007. Juridica provides third-party litigation funding to law firms seeking capital for expensive litigation cases. Juridica aim to back those claims that statistically are likely to be won.

Helphire Group Plc	01/06/2009	15874400	4.79	na
(LSE: HHR)	17/06/2009	16561123	5	na
	26/08/2009	16293953	4.92	na

Helphire Group plc is a United Kingdom-based company that provides assistance to vehicle owners who have been involved in road accidents. The Company's main revenue is derived from replacement vehicle hire and the financing of vehicle repairs arising from insurance claims. The Company employs 2,600 people across six sites and operates a national branch network of 30 depots. It has a fleet of over 17,000 vehicles.

Max Property Group Plc (AIM: MAX)

17/06/2009

10000000

4.55

100p

Max Property was admitted to the AIM in May 2009. It is likely that Moore purchased shares at the initial public offering @ 100p. Max Property Group Plc is an off shore, closed-end real estate investment company incorporated in Jersey. The company has an experienced board and is externally managed by Prestbury Investments. The company is aiming to exploit the current cyclical weakness in the UK real estate market through investment and active management with a view to realizing cash returns for shareholders over an investment cycle of approximately seven and half years. Hedge fund Och-Ziff owns 15.9% of Max’s shares.

Chaucer Holdings Plc	13/02/2009	4999990	1.44	na
(FTSE: CHU)	27/02/2009	20671722	3.77	43
	09/03/2009	25019347	4.56	38
	11/03/2009	27119347	4.95	40
	07/04/2009	28990072	5.29	39
	09/04/2009	29333460	5.35	40
	28/04/2009	29133460	5.32	42
	05/05/2009	28633460	5.22	41
	21/07/2009	25631976	4.68	43.7
	26/08/2009	25786746	4.7	45
	01/09/2009	26036746	4.75	45.4
	08/09/2009	21095740	3.85	49

Chaucer is a specialist insurance and reinsurance underwriter. Their Lloyd’s Syndicates 1084 and 1176 provide the main focus of the business. Chaucer Syndicate 1084 accepts risks across international aviation, marine, energy, property and specialist lines markets and the UK motor market. Nuclear Syndicate 1176 is one of the leading insurers of nuclear risk.

That concludes the coverage of Louis Bacon's Moore Capital Management, for now at least. As always, we'll continue to provide updates as they filter in through various regulatory filings. If you're interested in positions other prominent hedge funds hold in UK markets, check out our articles on Lone Pine Capital's UK holdings, Lone Pine's recent movements, Sprott Asset Management's defensive UK portfolio, as well as Citadel's positions. While we haven't yet covered Moore's US holdings in our portfolio tracking series, we have covered their previous positions in the past for those interested.

Tracking A Hedge Fund's UK Positions

Before we continue to look at the positions prominent hedge funds hold in UK markets, we thought it would be prudent to post up an informational piece regarding the nature of the UK regulatory system as it applies to hedge fund disclosure. Firstly, there is no UK equivalent to the SEC’s 13F filing in which funds have to file their holdings on a quarterly basis here in the United States. In the UK, hedge funds do not have to file on a periodic basis at all. Instead, large shareholders are only required to flag long holdings that are greater than 3% of a company’s issued equity. This means that small hedge funds often do not register on the filing radar at all unless they invest in very small companies. Large funds on the other hand often leave a footprint and we can track their activities with ease (particularly when they are buying small and medium sized companies). Their investments in large cap companies, however, often go (legally) unreported and unnoticed because they do not trigger the 3% threshold. This is most similar to an SEC 13G filing (or 13D filing sans the activism) in the United States whereby a fund has to disclose after they have acquired a 5% or greater ownership stake in a company. We routinely cover 13G filings here at Market Folly and these UK filings can be regarded as their regulatory version of a 13G.

In the UK, once a fund crosses above 3% of a company’s equity in issue it has to report any further changes at 1% increments (regardless of whether it is a purchase or a sale). For example, if a fund moves from 3 to 4% of equity in issue or from 4 to 5, they must report. They must also report sales, for example, from 7 down to 6% until it gets below the 3% threshold where one final filing is required to acknowledge that the fund no longer has a concentrated ownership stake.

The additional filings made at 1% increments are interesting because the funds have to provide the trading date on which the threshold was crossed. This date can then be used to make a rough estimate of the price the fund was willing to pay for a company. Arguably, purchase price information is particularly useful if the fund being tracked is well known for excelling at fundamentally driven or deep value research. It is perhaps less meaningful if the fund follows momentum driven investment strategies such as those used by many Commodity Trading Advisers as these funds often move in and out of positions with much more alacrity and disregard for valuation.

Finally, just like in the United States, we can only provide information on a fund's long positions in UK markets. Short positions do not have to be disclosed except if they are in financial companies or companies involved in rights issues. We will cover the UK disclosure rules on shorts and disclose some hedge fund short positions in a later article, so stay tuned.

Hopefully this gives everyone unfamiliar with the subject a brief background on how regulatory disclosures work in the UK. Now that we've presented this preface, look for more articles relating to various positions hedge funds hold in UK markets going forward. We've already covered Lone Pine Capital's UK holdings, Lone Pine's recent movements, Sprott Asset Management's defensive UK portfolio, as well as Citadel's positions. Then later this morning we’re also going to take a look at the UK holdings of legendary macro investor, Louis Bacon. And, as always, we'll continue to track the US holdings of prominent hedge funds in our portfolio tracking series, so check back daily.

David Einhorn: Short McGraw Hill (MHP) & Moody's (MCO) - The Curse of the Triple A

While David Einhorn's short position in Moody's (MCO) is by no means new information, we did recently learn that his hedge fund Greenlight Capital is now also short McGraw Hill (MHP), the parent company of fellow ratings agency Standard & Poor's. He initiated the position after a U.S. judge refused to dismiss a case against the ratings agencies. Those agencies were seeking refuge from such litigation under the notion that their opinions on ratings are protected by free-speech rights. This U.S. District Judge's refusal to throw out the case could be a landmark ruling, Einhorn says. While this could potentially be a chink in the armor, it is also prudent to point out that 10 of the 11 claims were dismissed; a fact that Moody's representatives have been quick to point out.

Einhorn presented his short position in Moody's back at the Ira Sohn Conference where numerous hedge fund managers shared investment ideas. While we can't track their short positions via SEC filings, we have covered Greenlight's long portfolio here. Greenlight was up 16.3% for the second quarter and year to date for 2009 is up 21.5%. For more of Einhorn's tirades shorting companies, we highly recommend reading his book Fooling Some of the People All of the Time: A Long Short Story. In it, you'll learn how Greenlight constructs and researches investment theses. Not to mention, it's just an interesting read and story in general.

Instead of summarizing Einhorn's thoughts regarding why he is short the ratings agencies, we figured we'd just let him tell you himself. Embedded below is his presentation from the Ira Sohn investment conference entitled 'The Curse of the Triple A.' You can download download the .pdf here or read on below:



David Einhorn's Ira Sohn Presentation -



So, while he presented that argument back in late May of this year, he appeared on television a few days ago to further elaborate on his argument. Below is the video where he presents his case to CNBC anchors:






And lastly, for posterity's sake, we would also like to highlight Einhorn's thoughts on credit from back in 2007 at the Annual Graham & Dodd Breakfast. You can download the .pdf here or read the embedded document below:



Einhorn On Credit -



Certainly interesting thoughts and reading all around. In addition to Greenlight Capital's short position, we found additional transactions in shares of MCO by another market guru to be intriguing as well. Berkshire Hathaway's Warren Buffett owns a large stake in Moody's (MCO) but has sold shares in 2 recent transactions. Most recently, Buffett sold 794,388 shares in the first two days of September. Initially back in July the Oracle of Omaha reduced his stake in MCO by 17%. While we are paying attention to these sales, you also have to consider that Berkshire Hathaway still owns over 39 million shares of MCO, which translates to a 16.64% ownership stake.

Buffett has owned Moody's shares for 9 years now after first receiving them in the spin-off of Dun & Bradstreet back in 2000. There are a few reasons Buffett could be selling though. On one hand, he could be reducing his ownership stake because it had been increasing as Moody's bought back shares. And, maybe the stake was getting too large for comfort. On the other hand, Buffett could be losing some interest in this oligopoly of an industry. While he was quoted as saying he still likes the business, he doesn't think it will be doing the volume it used to, especially in capital markets. The fact that his sales come amidst this court ruling and Einhorn's PR blitz is all the more intriguing, whether it is coincidence or not.

As an aside to the Triple-A debate, we also wanted to mention that fellow hedge fund Sprott Asset Management recently had some research out that deemed gold 'The Ultimate Triple-A Asset'. Their assertion becomes all the more interesting when you note that gold climbed above psychological and technical resistance of $1000 recently. (Check out this technical analysis video on gold for further insight as to upside price targets). Not to mention, Mr. Einhorn and Greenlight own the precious metal and have actually begun storing physical gold. They found it was cheaper to store the gold than to pay the expense ratio associated with exchange traded fund GLD, which they previously held. This part obviously doesn't relate to Moody's or Standard & Poor's, but we thought it made for an interesting aside given the debate as to the relevancy of 'Triple-A.'

Overall, very intriguing stuff all around. We'll end simply by asking one question: Do you remember the last time Einhorn was out openly criticizing a company and disclosing he was short? Yeah, that company was Lehman Brothers. That one certainly turned out well for him.



Compilation of resources on David Einhorn & Greenlight Capital:

- David Einhorn's Book: Fooling Some of the People All of the Time: A Long Short Story

- Einhorn's Ira Sohn investment conference presentation on Triple-A/Moody's (.pdf)

- Greenlight Capital's recent portfolio update

- Greenlight's Q2 2009 hedge fund investor letter

- Einhorn on credit, from back in 2007: .pdf here

Stock Market Resources: Bank Loan Performance, Value Screener, & Trend Plotting

This week, we've also stumbled upon some useful tools for investors/traders. We wanted to share these great finds but make sure they didn't get lost in our weekly linkfest. Without further ado:

Great site for analyzing bank loan performance of financial institutions [wlm lab]

Interesting Valuecruncher app [Valuecruncher]

Google finance domestic trends for plotting unique economic insight [Google Finance]

Seth Klarman Sells Facet Biotech (FACT) Shares & His Entire Horizon Lines (HRZ) Position

Seth Klarman's hedge fund Baupost Group has sold shares of Facet Biotech (FACT) as detailed in recent SEC filings: a Form 4 and an amended 13D. On September 4th, 2009 Klarman sold 867,532 shares with the bulk of those orders going through at prices of $15.434 and $15.393. The amended 13D now shows Baupost Group (and related entities) owning a 14.2% stake in FACT with 3,506,875 shares remaining. FACT of course was recently subject to a buyout bid from Biogen Idec (BIIB) whereby they would acquire all FACT shares for $14.50 a share in cash. Shares of FACT were trading around $8.79 before the bid and they now trade at around $15.95, currently at a premium to BIIB's offer. On Tuesday, the Facet Biotech Board of Directors came out and deemed Biogen's offer "inadequate." Then on Wednesday, Biogen reiterated their proposal to acquire all the shares at $14.50. Shares of FACT are up 66% year to date. We'll continue to watch these developments with interest as this all comes long after we've covered all the movements relating to Baupost's stake in FACT.

Secondly, Baupost Group filed an amended 13G on Horizon Lines (HRZ) where they disclosed they no longer hold a position. They have completely sold out of the 2,962,029 shares they previously owned as last reported on June 30th. So, they've liquidated this stake sometime over the past 3 months. Shares of HRZ are up over 93% for the year. While shares may be up big this year, this is a losing position overall for Baupost. SEC filings show them building a position of 5 million shares over time between prices of $10-33 per share. They sold some shares between $9-13, but the rest of their sale comes now at a share price of just over $6. This definitely goes down as one of Baupost's misses and shows that even the greatest of investors make mistakes and are indeed human. For all other portfolio changes, you can view Baupost Group's portfolio here.

We track Klarman & Baupost for their 20% annual compounded return and solid investing methodologies. They are one of the select few funds we have included in our Market Folly custom portfolio that is seeing over 20% annualized returns. Head over to Alphaclone to see what positions our portfolio is currently invested in. If you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his (extremely rare) book, Margin of Safety where he provides a "how-to" on risk averse value investing.

Lastly, in terms of other investment activity, Baupost Group sold PDL Biopharma (PDLI) and also sold out of their Omnova (OMN) position.

Taken from Google Finance, Facet Biotech is "a biotechnology company. The Company is engaged in identifying and developing oncology therapeutics. It has four antibodies in the clinic for oncology and immunologic disease indications, of which two are in phase II and two in phase I. The Company has several investigational compounds in various stages of development for the treatment of cancer and immunologic diseases, three of which it is developing with collaboration partners: two with Biogen Idec and one with BMS. The spin-off of Facet Biotech from PDL was effected on December 18, 2008."

Horizon Lines is "a container shipping and integrated logistics company. The Company's subsidiaries include Horizon Lines, LLC (Horizon Lines), Horizon Logistics Holdings, LLC (Horizon Logistics) and Horizon Lines of Puerto Rico, Inc. (HLPR). The Company owns or leases 21 vessels, 16 of which are qualified Jones Act vessels, and approximately 20,800 cargo containers.The Company ships a spectrum of consumer and industrial items ranging from foodstuffs (refrigerated and non-refrigerated) to household goods and auto parts to building materials and various materials used in manufacturing."

Bret Barakett's Tremblant Capital Bullish on Research in Motion (RIMM), Bearish on Nokia (NOK): 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 Bret Barakett's Tremblant Capital Group. Barakett, a former portfolio manager for Louis Bacon's Moore Capital, now runs his own hedge fund in New York and manages over $3 billion. Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." Barakett's name will ring a bell for some as he is the brother of Timothy Barakett of Atticus Capital. We just got word recently that Atticus would be shutting down its main fund as Timothy steps away from the hedge fund game. Hopefully Bret doesn't get that same itch.

In terms of recent activity, we've noted that Tremblant has filed a 13G on IMAX. Additionally, we've called attention to their position in Eclipsys (ECLP). The following were Tremblant'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.


New Positions (Brand new stakes that they initiated in the last quarter, listed from largest to smallest):
Nokia (NOK) Puts, Sina (SINA) Puts, Broadcom (BRCM) Puts, Integra (IART), Sohu (SOHU) Puts, Ford (F) Calls, Intel (INTC) Puts, Omnicare (OCR), Amazon (AMZN) Puts, Sony (SNE) Puts, Netflix (NFLX) Puts, AU Optronics (AUO) Puts, Hologic (HOLX) Puts, CBS (CBS) Puts, Imax (IMAX), Symantec (SYMC), & Weingarten Realty (WRI).

The rest of their new positions are less than 0.25% of their 13F each and aren't significant this time around, but we've listed them for those curious: Liberty Media Interactive (LINTA), Wynn (WYNN) Calls, CBS (CBS) Calls, AU Optronics (AUO) Calls, Caribou Coffee (CBOU), Lamar Advertising (LAMR) Calls, Benihana (BNHNA), Benihana (BNHN) - both shares, Sequenom (SQNM), and Commscope (CTV).


Some Increased Positions (A few positions they already owned but added shares to)
Visa (V) Calls: Increased by 405.7%
Equinix (EQIX): Increased by 303%
Research in Motion (RIMM) Calls: Increased by 120.4%
Redhat (RHT) Calls: Increased by 88.5%
Eclipsys (ECLP): Increased by 75.9%
Procter & Gamble (PG): Increased by 64.8%
Hologic (HOLX): Increased by 62.2%
Hologic (HOLX) Calls: Increased by 59.8%
Charles Schwab (SCHW): Increased by 54.2%
Mastercard (MA): Increased by 48.2%
Molson Coors (TAP): Increased by 42.6%


Some Reduced Positions (Some positions they sold some shares of)
Chipotle Mexican Grill (CMG-B): Reduced by 40.6%
Baidu (BIDU): Reduced by 39.4%
Green Mountain Coffee Roasters (GMCR): Reduced by 33.7%
Apple (AAPL): Reduced by 33.2%
Research in Motion (RIMM): Reduced by 32.1%
Inverness Medical (IMA): Reduced by 27.6%
Qualcomm (QCOM): Reduced by 25.9%
Redhat (RHT): Reduced by 24.2%


Removed Positions (Positions they sold out of completely, listed from their previously largest position to smallest)
Monsanto (MON), McKesson (MCK) Calls, J Crew (JCG), Thermo Fisher Scientific (TMO), Pharmaceutical Product Development (PPDI), Omnicare (OCR) Calls, Green Mountain Coffee Roasters (GMCR) Puts, Sohu (SOHU) Calls, Sina (SINA) Calls, Fred (FRED) Calls, Redhat (RHT) Puts, CSX (CSX), Covance (CVD), Bankrate (RATE) Puts, Factset (FDS) Calls, & Cheesecake Factory (CAKE) Calls.

The rest of the positions they dumped were previously less than 0.25% of the assets on the 13F each: Amazon (AMZN) Calls, Netflix (NFLX) Calls, Quality Systems (QSII) Calls, American Superconductor (AMSC) Calls, Pacific Sunwear (PSUN), and Ntelos (NTLS).


Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

1. Research in Motion (RIMM) Calls: 8.78%
2. Procter & Gamble (PG): 5.35%
3. Nokia (NOK) Puts: 3.6%
4. Visa (V): 3.46%
5. Apple (AAPL) Calls: 3.42%
6. Research in Motion (RIMM): 3.4%
7. Hologic (HOLX): 3.1%
8. Apple (AAPL): 2.76%
9. Mastercard (MA): 2.68%
10. Baidu (BIDU): 2.5%
11. Red Hat (RHT) Calls: .25%
12. Google (GOOG): 2.4%
13. Qualcomm (QCOM): 2.36%
14. Melco Crown (MPEL): 2.3%
15. Walmart (WMT): 2.26%
    

Tremblant's portfolio is littered with a lot of typical 'hedge fund plays.' Apple, Visa, Qualcomm, Google, Mastercard, and Research in Motion are some of the most widely held stocks amongst hedge funds as noted in Goldman Sachs' hedge fund report. In that report, Goldman examined the top holdings across hedge fund land and Tremblant's portfolio is very emblematic of the industry.

In terms of portfolio shifts, we saw them buy a lot of new holdings via common stock and options positions, as listed in the rows above. In total, their assets invested on the long side as reported by 13F increased by over $900 million. Their most notable new position was that of Nokia (NOK) puts, which they brought all they way up to their third largest holding. While they already previously held shares of Visa (V), they boosted their current stake by over 400% and that should be duly noted. They also own the other half of true payment processing duopoly, Mastercard (MA), which they also boosted their existing position in by an additional 40%. These two positions are favorites of hedge funds far and wide as practically all the funds we track hold some amount of MA & V.

Tremblant also added to their position in Eclipsys (ECLP) which we covered on the blog before when they filed a 13G. This is the benefit of tracking all SEC filings rather than just the 13F as we already knew about their addition to ECLP back in April. Lastly, Tremblant also added to their existing position in Research in Motion (RIMM) common stock. They also own a ton of calls on RIMM and a few puts as well, most likely to hedge their long bias in the name.

In terms of notable sales, Bret Barakett's hedge fund sold 40% of one of their former prized holdings, Chipotle Mexican Grill (CMG-B). They had previously been adding to this position in February. This time around though, they were selling. Additionally, we saw Tremblant sell a third of their Green Mountain Coffee Roasters (GMCR) position. You can bet they've profited handsomely on this play as shares of GMCR are up 127% year-to-date, with a 3:2 stock split taking place back in June. On a quarter over quarter basis, GMCR was up 118%. There's definitely nothing wrong with locking in some solid profits. We've also noted very recently that Stephen Mandel's Lone Pine Capital has filed a 13G and disclosed a stake in GMCR as well. This is an interesting story because on one hand GMCR has some solid hedge fund ownership. Yet, on the other hand, it has historically had a large short interest and there was a short squeeze in the name earlier in the year.

Before ending, we wanted to bring up a slight caveat with Tremblant's portfolio. As always, 13F filings should be treated as a lagging indicator since they are essentially portfolio snapshots. However, you need to take them with even more grains of salt if the portfolios are laced with options positions. Since we cannot see strike prices or expiration dates, we can't truly gauge their position. Additionally, there's no way for us to see if they have sold options against their positions either. So, focusing on Tremblant's portfolio specifically, it's hard to see the true directional bet they've placed on some holdings. They own Apple (AAPL) common stock, but they also own puts, as well as calls on the name. So, this is just a warning to be cautious when evaluating their holdings that also have options attached to create their net position in a given name. We instead like to focus on the pure equity plays as they are much easier to accurately track. We addressed this issue previously with Eric Mindich's hedge fund Eton Park, who holds even more options positions than Tremblant.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $2.7 billion this quarter compared to $1.8 billion last quarter, so a substantial increase in long US equity exposure via common stock and options. 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, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F.

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, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, Boone Pickens' BP Capital Management, and Ken Griffin's Citadel Investment Group. Check back each day as we cover prominent hedge fund portfolios.

Lawrence McDonald's Book on the Fall of Lehman Brothers: A Colossal Failure of Common Sense

Lawrence McDonald, a former Vice President at Lehman Brothers has written an insightful insider account of the collapse that rocked Wall Street. Quickly climbing the ranks of the NY Times Bestseller list, his book is entitled, A Colossal Failure of Common Sense: The Insider Story of the Collapse of Lehman Brothers. In the book, he gives you tons of details regarding the fall and pegs the demise on decisions from chief executive and chairman Richard (Dick) Fuld. Essentially, Lehman was a large hedge fund employing 40:1 leverage and at one point had 35% of its net tangible assets in three huge real estate ventures. Needless to say, that's a recipe for disaster. The book goes on to provide juicy details that you can really sink your teeth into and is the perfect read for those who want the true insider account so that you can feel like you were there when it all went down.

The book's premise really is self-explanatory so pick it up for all the intriguing details. To give us more color, here's an interview Lawrence McDonald (the author of the book & now a managing director at hedge fund Pangea Capital) did with our pal over on Twitter, Misstrade.

(RSS & Email readers come to the blog to view the video interview):




Interesting stuff certainly. Of course make sure you check out Lawrence's excellent book, A Colossal Failure of Common Sense: The Insider Story of the Collapse of Lehman Brothers. If you want to get behind closed doors, then this is the book for you.

Hedge Fund Clarium Capital's August Commentary: Save Now, Invest Later

Here's the latest from Peter Thiel's hedge fund Clarium Capital. Their August commentary is titled 'Save Now Invest Later' and makes for some interesting reading (as does typically all of Clarium's commentary). Through the end of June, Clarium was down 6% for 2009 as noted in a recent piece, 'macro hedge funds bet against recovery.' As of the end of August, Clarium is now -8.3% for the year. That article further goes on to divulge that Clarium is positioned for a bear market by betting on the US dollar, hypothesizing the currency will strengthen due to leveraged investors selling equities to pay down debt they used to finance the equity trades they were in. Additionally, they are keeping a steady eye on the unemployment rate among other indicators. Clarium was down another 4.5% in August and is now -8.3% for the year. The poor performance even reportedly had a normally calm Peter Thiel yelling at Managing Director Jack Selby. For the year of 2008, Clarium was also down 4.5%. Someone once told us it's almost as if they think that the fancier the idea, the bigger the potential profit. Somewhere along the line at Clarium there seems to be a disconnect between the idea and turning it into a successful trading strategy.

While Clarium continues to have interesting research, they still have yet to translate those ideas into solid performance. All the same, we'll gladly read their commentary as it's always prudent to evaluate all sides of an argument regarding the economy and markets, whether you agree or disagree with them. And as an avid lifelong supporter of Manchester United Football Club, we were caught a bit offguard (yet delighted) to see Clarium start off their letter with a quote from the great George Best.

RSS & Email readers will need to come to the blog to view the letter or you can try downloading the .pdf here:

Clarium Save Now Invest Later


We also recommend checking out their past commentary, as well as their piece, 'Macro Framework For Equity Valuation.' Lastly, you can also check out some brief thoughts from Peter Thiel from the Ira Sohn investment conference.

Value Investing Congress: Discount for Market Folly Readers!

Today we are ecstatic to announce that readers of Market Folly can receive an exclusive discount to the Value Investing Congress in New York City on October 19th & 20th, 2009 at the Marriott Marquis in Times Square. If you want to hear from some of the best hedge fund managers in the game, then this is the conference to attend. Not to mention, it's a fabulous networking event and place to acquire wisdom to profit in this irrational market. Speakers at the two day event include many of the prominent players we track here on the site on a daily basis. Speaking at the VIC will be: Julian Robertson of Tiger Management, David Einhorn of Greenlight Capital, Bill Ackman of Pershing Square, Eric Sprott of Sprott Asset Management, Whitney Tilson of T2 Partners and many more listed below.

Click here to receive the over 30% discount to Value Investing Congress.

You must use discount code: N09MF1 to receive the full discount. Hurry and register because this discount expires on September 15th, 2009! You've got exactly one week to get signed up with these savings. If you work for a firm, get approval to go and have your company foot the bill since this is one of the premier conferences out there. If you're an individual, we can truly say that the cost of admission is worth every penny. How often do you get to hear presentations and investment ideas from some of the most prominent hedge fund managers out there? Here's your chance. Lastly, it's also an excellent opportunity for networking.

The regular price of the two day event is $4,295. However, Market Folly readers pay only $2,795. That's over a 30% discount and savings of $1,500! Additionally, for those interested there is also a package that gets you admission to the two day event, plus an advanced seminar on Value Investing on October 18th (the day before the main event). This package is regularly priced at $6,495 but Market Folly readers can register for $4,395, a savings of $2,100! Click here to go to the registration page for more specific information about the event(s). If you're from out of town, the Congress has also negotiated lower room rates at the Marriott for attendees.

If you're unfamiliar with the Value Investing Congress, then here's what you need to know: At the event, you will learn from some of the most successful money managers in the business as they share where they're finding value in these tumultuous markets and present their best, actionable investment ideas. Think about that for a second. One good investment idea could more than pay your cost of admission to this event and net you some great returns. Not to mention, the wisdom gained from listening to these great investors can be priceless.

Here is the list of confirmed speakers:

- Julian Robertson, Tiger Management
- Bill Ackman, Pershing Square
- David Einhorn, Greenlight Capital
- Alexander Roepers, Atlantic Investment Management
- Eric Sprott, Sprott Asset Management
- Patrick Degorce, Theleme Partners
- Sean Dobson, Amherst Securities
- Lloyd Khaner, Khaner Capital
- David Nierenberg, The D3 Family Funds
- William C. Waller & Jason A. Stock, M3 Funds
- Zeke Ashton, Centaur Capital Partners
- Kian Ghazi, Hawkshaw Capital Management
- Whitney Tilson & Glenn Tongue, T2 Partners


It's going to be an awesome and insightful event, to say the least. Make sure you get our exclusive Market Folly discount for the Value Investing Congress here. Remember that you MUST use the discount code N09MF1 to receive the full discount!

We'll be able to offer readers a discount in some form all the way until October 4th, but do note that the discount decreases with each week that passes. So, this week (an over 30% discount) is the largest you'll be able to receive, so act fast. Please let us know if you have any questions or problems when trying to register with the discount code.