Hedge Fund Harbinger Dumps More Calpine (CPN)

Philip Falcone's hedge fund Harbinger Capital Partners has filed two form 4's and an amended 13D with the SEC recently to detail changes to their position in Calpine (CPN). Simply put, they've sold a lot of shares and below you'll find screenshots of the transactions taken directly from the SEC filings:

(click to enlarge)

Additionally:

(click to enlarge)

After all was said and done, it appears that Falcone's hedge fund still owns over 14 million shares of CPN. We also want to highlight the purpose of the transaction as identified on their amended 13D filing. According to the amendment, "On December 8, 2009 and December 9, 2009, Kelson Investments, S.ar.l., an indirect wholly owned subsidiary of the Master Fund and Special Fund ("Kelson Sarl"), sold 8.4 million and 882,248 shares, respectively. The proceeds of these sales will be used to pay off a loan made to Kelson Canada, Inc., an affiliate of Kelson Sarl and wholly owned subsidiary of the Master Fund and Special Fund. These shares were pledged as collateral for the Loan."

These sales come after Harbinger has recently sold Calpine shares (CPN), and executed an offering back in September. In terms of additional portfolio activity, Harbinger has been quite busy making SEC filings as of late and they recently adjusted two positions as well. Philip Falcone runs his $6 billion hedge fund with a focus both on distressed and equity plays and often takes concentrated positions in companies. For even more of their recent position adjustments, we previously penned a post detailing a portfolio update too.

Taken from Google Finance, Calpine is "an independent wholesale power generation company engaged in the ownership and operation of natural gas-fired and geothermal power plants in North America. The Company sells wholesale power, steam, capacity, renewable energy credits and ancillary services to its customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others. The Company’s portfolio comprises two types of power generation technologies: natural gas-fired combustion turbines (primarily combined-cycle) and renewable geothermal conventional steam turbines."

Baupost Group To Buy More Facet Biotech, Reject Biogen Idec's Tender Offer

Fresh off the presses, Seth Klarman's hedge fund Baupost Group will be purchasing additional shares in Facet Biotech Corporation (FACT). Facet has announced that they've agreed to amend their Rights Agreement to let the purchase go through. Baupost owned 3,506,875 shares as of December 16th, a 14% stake in the company. The new provisions will allow Baupost to increase their stake to 15-20% of the company.

However, there is a catch. Baupost must vote any shares in excess of a 15% stake in conjunction with the majority shareholders vote or with the recommendations of Facet's board. This becomes interesting because as many of you already know, Biogen Idec (BIIB) is trying to close its all cash tender offer of $17.50 per share for Facet. And the drama heightens when we see that Baupost has told Facet that they have no intentions of tendering their shares into Biogen's offer. Things are starting to get interesting as Facet currently trades around $16.45, well below Biogen's $17.50 offer price. With these recent developments, it looks like this process has been drawn out further. Head over to Tickerspy to view Baupost Group's portfolio to see what else they're investing in.

In terms of other recent activity, Klarman was recently selling more Syneron Medical (ELOS). Additionally, in November we saw in November they started a new stake in Enzon Pharmaceuticals. Klarman received his MBA from Harvard and then went on to work for Baupost at age 25. Nowadays, it's his show to run. Baupost is one of the select few funds we have included in our Market Folly custom portfolio that is seeing over 26% annualized returns by combining 3 hedge fund portfolios into a cohesive whole. (Head over to Alphaclone to see the hedge fund portfolio replication in action).

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."

For more resources on Klarman and Baupost Group, check out Klarman's interview from the annual Graham & Dodd breakfast, some additional thoughts from Seth Klarman, and another interview with Seth Klarman.

Hedge Fund Manager Jim Chanos Shorting Automakers

Jim Chanos, the noted short-seller and manager of hedge fund Kynikos Associates was recently interviewed and provided some insight as to what he is shorting. And, we see that he has taken aim at automakers as he is short the manufacturers and said he would not want to be long Ford or Fiat. While it seems he is talking about the equity here, we found this interesting as many hedge funds have been long the debt side of the automotive industry as bonds in GMAC, Ford Motor Credit Corp, and Ford had previously been scooped up by prominent hedge funds.

Interestingly enough, Chanos is also betting against China and is doing so by betting against copper, iron ore, and various other commodities used in China's expansion. Take note though, that he does not include gold in this list of commodities to short since people typically don't create buildings out of gold. He says that he is just now putting on these shorts and he may be early but he sees many opportunities there.

This recent insight comes after we also covered an in-depth interview with Chanos. If you're unfamiliar with him, Chanos graduated from Yale and is well known for his short selling prowess where he puts a large focus on identifying fundamental flaws in valuation due to underestimated or unearthed problems within a given company. He founded Kynikos which is Greek for "cynic" and is most known for uncovering the issues at Enron.

Here is the full video interview from CNBC (Email readers will need to come to the site to watch it):




Make sure to also check out a recent in-depth interview with the Kynikos manager, as well as Chanos' presentation on ten lessons from the financial crisis.

Marko Dimitrijevic's Everest Capital: Profile

A handful of readers have requested coverage of Everest Capital, a Miami and Singapore-based firm run by Marko Dimitrijevic. We will make an effort to post what we can find on the firm in the coming weeks. For starters, Everest was founded in 1990 and currently manages $1.9 billion, spread across five individual strategies. The firm is best-known for its devotion to studying global macro and emerging markets trends, and then applying a heavy dose of fundamental, bottom-up research to identify opportunities. Of note, the firm prefers to invest across multiple asset classes, diversifying across not only debt and equity securities, but also commodities and currencies.

Earlier this month, the firm released its latest white paper, “The End of Emerging Markets?” In essence, the paper highlights the rapidly leveling playing field between emerging and developed market economies. Pointing to recent improvements in liquidity, corporate governance, volatility, and overall size, the paper makes the case that investors too easily resort to age-old excuses to limit allocations to emerging markets. By making such assumptions, investors could be penalizing themselves, missing out as more and more emerging economies position themselves as legitimate global economic players.

In addition, Everest's CIO, Dimitrijevic, was featured in a November 2 interview in Barron's. In the piece, he touches upon many of the ideas outlined in Everest's latest white paper. Most notably, he presents a compelling case as to why he believes nominal GDP is a misleading measure of economic production. By using U.S. Dollars as a measuring stick, he feels that countries' economic outputs are being over- and underrepresented on the global scale, too-easily distorted by differences in exchange rates and income levels. As a solution, he proposes that GDP be measured according to purchasing power parity, whereby one dollar basically purchases the same bundle of goods and services in all countries. According to Everest's research, such a measurement would show that emerging market economies are responsible for a much larger share of global economic output; in fact, they produce a nearly-equal amount of global economic output as their developed market counterparts. For more on Everest Capital, visit their website.

This article was by Dave Reynolds from HedgeCo.net.

In the future, we're going to be building out quick profile/biography pieces on various hedge funds and their managers in order to provide reference points going forward. In the mean time, here are some of our past in-depth profiles:

- Julian Robertson & Tiger Management

- Lee Ainslie & Maverick Capital

- Bill Ackman & Pershing Square Capital Management

The Short Case For General Growth Properties (GGWPQ)

Over the course of this year we've shared various presentations on the potential bullish prospects for mall REIT General Growth Properties (GGWPQ) courtesy of Bill Ackman's hedge fund Pershing Square Capital Management. These have included a recent outlook on the mall REIT industry, an update on their holding via Pershing Square's investor letter, as well as their previous presentation on General Growth. As one of the largest shareholders, Pershing Square has been at the forefront leading the charge. Today, we want to flip the tables and present the short case for General Growth Properties, courtesy of Hovde Capital Advisors.

Hovde Capital Advisors LLC is an investment manager that runs various hedge funds. They employ a "sector-specific, deep-value, long/short strategy" and utilize a combination of both top-down and bottom-up in their approach. Back in March of this year we actually covered President and CEO Eric Hovde's thoughts on the market as he thought we were in a depression and that commercial real estate defaults would hit as high as 25%.

There are always two sides to a trade and this is the perfect example. Hovde Capital prudently points out that many investors have been using Pershing Square's original GGWPQ presentation as a means for valuing General Growth Properties... a presentation that is now well outdated. In their analysis below, they update and expand upon Pershing's original model in order to provide a more current look at the situation from a bottom-up level.

They first examine the macro environment just as Pershing Square did in their recent Mall REIT presentation. While Pershing's highlights potential improvement, Hovde takes the other side and highlights how we are by no means out of the woods yet, citing a drop in consumer spending, a decrease in available consumer credit, and non-bullish trends for mall REITs in particular. Focusing next specifically on General Growth, Hovde believes that that a 7.5% capitalization rate is a far too optimistic assumption given that recent comparables have been higher than 8%. Additionally, they highlight that GGWPQ's cashflow is now more than 20% below the levels in 2008. While the fact that General Growth is extremely leveraged is well known, Hovde points out that rival Simon Property Group (SPG) has debt to EBITDA of 6x while GGWPQ is "in excess of 16x and would still be in excess of 12x even if all of the unsecured debt was converted to equity."

Potentially the most alarming to the bulls though is Hovde's focus on net operating income (NOI) sensitivity. They write, "applying Q3 annualized NOI to the Pershing Square valuation analysis, the implied equity value per share of the company today is NEGATIVE $5.03 at an 8.5% cap rate and +$5.73 at a 7.5% cap rate." Needless to say, they are decidedly bearish on GGWPQ. Going forward, one of the focal points in this whole scenario will be cap rates. Hovde feels an 8% cap rate is unrealistic given the reality of the economic situation and they argue that a cap rate of 8.5% or higher would be more appropriate.

Hovde are short shares of GGWPQ and think that equity investors will instead be disappointed upon GGWPQ's reorganization. Embedded below is the short case for General Growth entitled "Fool's Gold" in its entirety:




You can download the .pdf here. So there you have it: "Fool's Gold," the bearish argument for General Growth Properties (GGWPQ). We thought it would be interesting to examine both sides of the trade as we'd previously examined the long case for GGWPQ and then today we shared the short case with you. We'll continue to watch this intriguing situation unfold as hedge funds wager on the impending outcome. As always, don't shoot the messenger.

Since circulation of this presentation, Todd over at ValuePlays.net has penned a rebuttal to Hovde's presentation. Ironically, Hovde claims many are using outdated numbers from Pershing's presentation and Todd points out that Hovde themselves are also using outdated numbers. Interesting stuff. Secondly, hedge fund manager Whitney Tilson of T2 Partners has also penned a rebuttal as it seems Hovde has been called out on their conclusions. The battle of bulls versus bears continues on...

Hedge Fund Farallon Capital Adds To Beacon Roofing Supply (BECN) Stake

In a 13G filed with the SEC, Thomas Steyer's hedge fund firm Farallon Capital has updated their holdings in Beacon Roofing Supply (BECN). Due to activity on December 3rd, Farallon now has a 5.6% ownership stake in with 2,525,422 shares. This is an increase as per their last 13F filing they owned 945,000 shares as of September 30th, 2009. Over the the last two and a half months, Farallon has added 1,580,422 shares, a 167% increase.

For more recent activity out of Farallon head to our post on their portfolio and internal firm adjustments. Thomas Steyer founded Farallon in 1986 and today it is a multi-billion dollar hedge fund that typically invests in equities, private investments, debt, and real estate. They are one of the 40+ prominent hedge funds we keep an eye on in our portfolio tracking series so head over there to see what other hedgies have been up to.

Taken from Google Finance, Beacon Roofing Supply is "a distributor of residential and non-residential roofing materials in the United States and Canada. The Company also distributes other complementary building materials, including siding, windows, specialty lumber products and waterproofing systems for residential and nonresidential building exteriors. As of September 30, 2009, Beacon Roofing Supply, Inc. operated 172 branches in 37 states and three Canadian provinces, carrying up to 10,000 stock keeping unit (SKUs) and serving more than 40,000 customers."

Jeff Saut's Investment Strategy: Weekly Commentary from Raymond James

Last week Raymond James' chief investment strategist Jeff Saut was out saying that there was more market upside. Two weeks ago, he was commenting on how a weak dollar trend could fuel further gains in equities. This week, his investment strategy shifts to a missive about the economy in general.

He focuses on the fact that while the economy still has work to do, it is positive that both labor and capital are moving "from dying industries like the building of McMansions, and gas guzzlers, to growth industries like biotech, infrastructure, environmental, green, clean energy, etc." This replacement sequence helps the economy to recover and start fresh. He also highlights a mutual fund out solely targeting investments in a new 'energy revolution' that will take place over the next 15-20 years. It seems that his main point is that this process will take time, but the long-term horizon looks promising as America (and the world) look to re-invent.

Turning back to stock market specifics, Saut highlights the 1085 level on the S&P 500 that has been tested (and held) four separate times. He notes that this successful technical victory combined with 'performance anxiety' by money managers heading into year-end will make the market head above the 1115 level.

Jeff Saut's weekly investment strategy 'By Popular Demand' is available in its entirety below:




You can also download the .pdf here. Make sure to also check out Saut's commentary from last week where he talked about the reasons to expect more market upside as well as his prior commentary about how a weak dollar will fuel further gains in equities. He definitely feels the market will end the year higher.

Sprott Launching Physical Gold Trust

It was only a matter of time. Sprott Asset Management has jumped in the recent gold fund pool by filing a preliminary prospectus in the US. While hedge fund Paulson & Co's new gold fund is aimed at betting on gold related investments, Sprott's offering is a little different. Eric Sprott's firm is aiming to launch a $575 million gold bullion fund that will store physical gold and offer investors easy exposure to the metal. This could easily serve as a competitor to the SPDR Gold Trust (GLD) that is currently a popular way for investors to get exposure to the precious metal. This really should come as no surprise given that Sprott had previously penned a piece entitled Gold: The Ultimate Triple-A Asset. Not to mention, their portfolio is littered with metals and mining plays.

If their new product is approved, it will be traded on the New York Stock Exchange (NYSE) under the ticker PHYS and on the Toronto Stock Exchange (TSX) under the ticker PHY. The initial public offering price is to be set at $10 per unit. Sprott's physical gold trust is expected to hold 97% of assets in physical gold bullion in London Good Delivery bar form and will not invest in certificates or other instruments. This fund's goal is to be a play purely on physical gold. Their gold will be stored at the Royal Canadian Mint and unitholders will be able to redeem their units for physical gold bullion on a monthly basis if they so desire. Additionally, as of right now they will not make regular cash distributions to the unitholders.

In summary, it looks like $4.4 billion Sprott Asset Management has entered into the gold fund game as a direct competitor to the SPDR Gold Trust (GLD). While Sprott is targeting a $575 million fund launch, they will have a long way to go to catch up to exchange traded fund GLD as it currently sports a market cap of $40.5 billion. We'll have to see if their offering takes off as Sprott is a relatively household name in the asset management business. For more thoughts from Sprott on the topic of gold, check out their special report on the precious metal.

Despite pulling back sharply over recent days, gold has seen an investment surge over the past year. Check out this video on gold to see logical pullback areas, price targets for gold's move, as well as where to place your stops. Do the launches of John Paulson's gold fund and now Sprott's Physical Gold Trust mark a top in the gold market? We'll have to wait and see.

Hedge Fund Eton Park Expands Its UK Holdings

Eric Mindich’s hedge fund Eton Park Capital has recently extended its holdings in the UK market. When we last checked in on their US equities activity, we saw that they had established a large Verisk Analytics position (VRSK) upon its IPO. We now see that they've been active in UK markets and wanted to update their recent maneuvers. Before proceeding you may want to check out our primer on tracking UK positions. Additionally, you can view other hedge funds' UK positions here.

Eton Park was amongst the first hedge funds to build a stake in Cadbury ahead of the announcement by Kraft that it was interested in buying the company. See also our coverage of Paulson & Co's stake in Cadbury.

	symbol	date	shares	%
Cadbury	CBY	24/09/2009	28570576	2.09
		10/12/2009	38815867	2.83

Under Rule 8.3 of the UK Takeover Code, if a fund holds 1% or more of the stock of the offeror or the offeree in a takeover, all dealings (including derivatives) must be disclosed on the day following the date of the transaction. This requirement then continues throughout the offer period. A disclosure table giving details of the companies involved in takeovers in the UK is available on the Takeover Panel's website. Eton Park’s position in Cadbury is made up of 0.37% ordinary shares and 2.43% derivatives (probably equity swaps if we were to venture a guess).

Burford Capital

BUR

21/10/2009

7920000

9.9

Eton Park has also recently taken a stake in the new issue Burford Capital. Burford is involved in the legal sector and aims to create and manage a diversified portfolio of commercial dispute financing investments with the aim of providing shareholders with attractive levels of dividends and capital growth. In the short term, the Company intends to focus on commercial disputes in the United States and on international arbitration matters.

Lohnro	LONR	10/12/2008	40000000	5.24
		09/12/2009	70000000	7.3

Eton Park has also increased its stake in African holding company, Lohnro. Taken from Google finance - Lonrho plc is a pan-African company with a portfolio of investments in infrastructure, transportation, support services and hotels. The Company's infrastructure portfolio of investments include Luba Freeport Limited (Luba) 63% holding and KwikBuild Corporation Limited (KwikBuild) 61.97% holding. Its transportation portfolio includes Lonrho Aviation (BVI) Limited (Lonrho Aviation) 100% holding. Its agriculture sector include Lonrho Agribusiness (BVI) Limited (Lonrho Agriculture) 100% holding. Lonrho's hotel portfolio include Hotel Cardoso SARL 59.04% holding plus management contract and Grand Karavia SARL (Karavia) 50% holding plus management contract and its support services include Sociedade Comercial Bytes & Pieces Limitada (Bytes & Pieces), Lonrho Springs BVI Limited (Lonrho Springs), LonZim Plc (LonZim) and Norse Air Limited.

Daisy Group	DAY	20/07/2009	12375000	4.84
		10/09/2009	16250000	6.37
		28/09/2009	18575000	7.27
		10/12/2009	24840000	9.57

Eton Park’s Daisy Group investment is made up of 4.8% ordinary shares and 4.8% equity swaps. Tosca Fund run by Tiger Cub Martin Hughes also holds an 11.28% stake in Daisy Group. Daisy Group PLC, is a newly combined business of Daisy Communications, Freedom4 PLC and Vialtus Solutions. It is a provider of integrated voice and data services to the small-medium business market. Customers have access to a combined product set including access, hosting, voice, managed services and mobile telephony from a single customer service and billing platform. The group operates from its business centres in London and Lancashire.

If you're unfamiliar with Eton Park then here's what you need to know. Eric Mindich started his hedge fund back in 2004 with $3 billion under management with a $5 million minimum investment. Nowadays, Eton Park manages over $6 billion. Their investment strategy centers around Mindich's time at Goldman Sachs where he focused on merger arbitrage. He was quite successful and became the youngest partner in Goldman Sachs' history at the age of 27. In addition to merger arbitrage, Eton Park focuses on long/short equity strategies and even invests up to 30% of their portfolio into private investments. Eton Park's solid track record has landed them in our Market Folly custom portfolio. We created this equity portfolio with Alphaclone and it is seeing over 25% annualized returns since 2000.

That wraps up this update on Eric Mindich's hedge fund Eton Park Capital and their recent UK portfolio additions. For more on Eton Park, check out some more of their portfolio. Lastly, head over to our posts on UK positions to see what other hedge funds are investing in as well.

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Marty Whitman & Third Avenue's Investor Letter (Q4 2009)

Embedded below is Marty Whitman and Third Avenue's Q4 2009 investor letter and market commentary for your perusal:




You can also download the .pdf here. Additionally, you can read Marty Whitman's Q2 letter here, as well as some more of Third Avenue's previous commentary here.

Warren Buffett Sells Moody's (MCO) Shares Again

In a Form 4 filed with the SEC, legendary investor Warren Buffett and his Berkshire Hathaway disclosed that they have sold more shares of Moody's (MCO). On December 7th they sold 2,004,946 shares at a price of $25.0381 per share. The next day they sold an additional 704,346 shares at a price of $24.8074. In total, they sold 2,709292 shares and they are now left owning 35,357,393 shares. As we mentioned before, Buffett previously sold Moody's shares in late October, and in months prior as well. (Head over to TickerSpy to see Warren Buffett's portfolio).

So while Buffett and Berkshire have been selling shares multiple times over the past few months, keep in mind that they still own a sizable chunk of the company. It's going to be interesting to watch if Buffett continues to sell completely out or if he is merely trimming his position down to avoid possible risks associated with this name. David Einhorn's hedge fund Greenlight Capital has been publicly short Moody's (MCO) and McGraw Hill (MHP) and you can see his short thesis in his presentation on the curse of the Triple-A. It's certainly a situation worth watching.

To learn to invest like one of the greatest ever, check out Warren Buffett's recommended reading list. For words of wisdom, check out our top 25 Warren Buffett quotes. And lastly, for more insight from Mr. Buffett on this economy, investing, and life then check out his recent talk at Columbia Business School with Bill Gates.

Taken from Google Finance, Moody's is "a provider of credit ratings and related research, data and analytical tools, quantitative credit risk measures, risk scoring software, and credit portfolio management solutions and securities pricing software and valuation models. The Company operates in two segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA)."

Tiger Management's Julian Robertson Interview With Charlie Rose From 1998

This is an excellent video from over a decade ago (feels funny to say that... time flies). Today we present you with Charlie Rose's interview of hedge fund legend Julian Robertson of Tiger Management from back in 1998.

Embedded below is the video, so RSS & Email readers come to the blog to view it:




It's kind of funny to look back on his thoughts. We've essentially taken a time machine to a different market environment following Robertson's ascension as one of the most widely regarded hedge fund managers with his Tiger Management (profile & background here). It's even more intriguing when you compare his thoughts from the video above to a Bloomberg interview Robertson did this past October, over a decade later. Robertson's legacy has obviously lived on with the spawning of Tiger Cub hedge funds that emulate Robertson's success and build their own legend.

Nowadays, Julian seeds various hedge funds and has been investing for himself. We've highlighted Robertson's portfolio and in particular his bet on rising interest rates that he has recently tweaked to doing so via constant maturity swaps (CMS). Whether it be the past or present, two things remain the same: Julian Robertson's sharp investing prowess and that good ole southern twang.

What We're Reading ~ 12/11/09

We want to remind everyone that if you want great market related links each day, Abnormal Returns is the best source for that and it's one of our daily reads.

Bob Farrell's ten rules for investing [Business Insisder]

Wall Street is looking at the wrong 60 years [Absolute Return + Alpha]

John Markman's predictions/thoughts on investing in 2010 [MSN Money]

"Robert Rodriguez ignores most rules of the mutual fund industry, an approach that's helped him beat all rival managers over the past 25 years." [Bloomberg]

Top 10 buys and sells from their 'ultimate stock pickers' portfolio [Morningstar]

A granular look into a $6 billion REIT - is it headed for danger? [zero hedge]

Return of the hedge fund [Investment News]

Gold isn't the best hedge against inflation [Bloomberg]

Career advice from John Paulson [eFinancialCareers]

New Stream Capital denies problems [HF Implode]

S&P 500: Key Levels To Watch (Technical Analysis)

Adam over at MarketClub is back with a fresh look at the S&P 500 to decide whether or not the market is about to collapse or take off higher. You can check out his technical analysis video on the S&P 500 here. He pulls up a chart of the S&P and uses the fibonacci retracement tool to connect levels from 2008 to the lows in March of this year. Upon doing so, he notices that the 50% retracement level, often an important retracement, lands right where the market is currently and is serving as resistance for the S&P 500. Click the chart below to watch the video:



He also points out that there's been a divergence in the MACD for a long time as it has headed progressively lower while the market has headed higher. This divergence has been building over time and can be telling. He then zooms in to recent action and notes that the market has been rangebound lately and has been trading sideways. The 1,110 level has been serving as resistance for the market while 1,083 has been serving as support in the range. So, if it falls below that level, it could mean the market is going lower. And conversely, if the market breaks out above 1,110 then look for prices to head much higher. He says these are important because the market has become very technically-driven. Check out the video for Adam's full technical analysis of the S&P 500.

Hedge Fund Exposure Levels: Still Very Long Equities

Bank of America Merrill Lynch is out with some recent data on hedge fund portfolio positioning as of the first week of December. Per their hedge fund monitor report, we see that hedge funds were still very much long equities as they have overweighted that asset class as well as energy and precious metals. We also learn that they were covering shorts in 10-Year Treasuries and the US dollar index. Those two short positions have been widespread in hedge fund land for some time now as hedgies bet on inflation via rising rates and a weak dollar. While in the past we've covered specifics like what ten stocks are most popular amongst hedge funds, we're taking a step back today to highlight the broader picture.

Overall Exposure Levels

Long/Short Equity Hedge Funds: While most L/S funds typically have had 30-40% net long exposure historically, December kicked off with hedge funds net long by around ~45%. This comes after long/short funds had hit a multi-year high level of 50% net long in mid November. Some recent action by these funds suggest that their inflationary expectations are declining and they have been shifting from value and high quality names into small cap names.

(click to enlarge)

Market Neutral Hedge Funds: They note that market neutral funds have stuck to their name and have gone back to 'neutral,' having spiked in weeks prior. Overall, they are largely neutral on equities and have negative inflationary expectations.

Global Macro Hedge Funds: Additionally, global macro hedge funds have been in a 'crowded long' of the S&P 500 and have also been in an even more crowded long of emerging markets. Bank of America Merrill Lynch's readings on net long emerging market positions are at the highest they have been since August 2008. They also apparently have been selling 10-Year Treasuries and have been modestly covering shorts on the US dollar (a crowded trade).


Commodities

We also now want to turn to commodity exposure levels as they have taken center stage again with Gold's parabolic rise.

Gold: Their research indicates that in the first week of December, large speculators were selling gold. However, this is still very much a crowded trade to the longside. They note that gold completed what they call a 'head and shoulders continuation pattern that projects up to $1300-1350.' So, interesting to see their price targets on the precious metal as those levels fall largely in line with technical analysis price targets on gold that we've seen. Also, we've recently covered the latest offering from hedge fund icon John Paulson. Those interested in gold should read his rationale in our in-depth post on his new gold fund.

Silver: They are noting that large speculators were buying silver somewhat at the beginning of December and that it is stuck in a trend channel. Their target upside is in the $20 area and they see support in the $14-15 range. The long-term upside target on silver is an old high of $50.

Copper: Well, Dr. Copper was holding steady as large speculators pretty much left their net long position unchanged. They note that copper has an upside potential to $350 while they are identifying support in two areas: $290 as well as $260.

Platinum: Large speculators mildly increased their bets on this metal in the first week of December. After falling off last year due to weak automotive demand, the metal has bounced back and has support at $1250 and resistance at $1500 according to Bank of America Merrill Lynch's research.

Crude Oil: In this commodity, large speculators held their steady net long positions as of the first week of December, having been selling at the end of November. They note that crude has been trading in a sideways range of around $65-75 since July and a breakout above this area would obviously prove to be bullish. They end their note saying that the "crowded long position remains a contrarian negative." We also recently highlighted a technical analysis video on crude oil that identified a potential pattern in this commodity as well.

Natural Gas: This commodity has been on a deathspiral for some time and it looks set to continue. As of the first week in December, large speculators were holding their deep net short position. Bank of America Merrill Lynch has commented on current action, saying it "appears to be in a broad base-building process."


Fixed Income

Moving lastly to fixed income, we thought it would be prudent to check in on hedge fund positioning as it relates to US Treasuries. As we've detailed on Market Folly before, there have been tons of prominent hedge fund managers involved on the short side of this trade. Many prominent hedge funds and market gurus have previously warned of inflation and have shorted long-term US treasuries. One of the original hedgies Michael Steinhardt himself has called treasuries foolish. Legendary investor and ex-Quantum fund manager Jim Rogers shares this sentiment and dislikes treasuries. Hedge fund legend Julian Robertson is betting on higher interest rates and is doing so via constant maturity swaps (CMS).

There are also managers playing the other side of the trade as bond vigilante Bill Gross of PIMCO is betting on deflation and has been buying treasuries. What's interesting here is that technically, both sides of the trade can win. One side of the trade could profit from short-term ebbs and flows, while the other side of the trade could win out in the long-run. It will arguably take years for the final verdict to play out, but that doesn't mean money can't be made in the mean time.

Here is the latest hedge fund positioning on 30-Year Treasuries, 10-Year Treasuries, as well as 2-Year Treasuries:

(click to enlarge)

That wraps up Bank of America Merrill Lynch's coverage of hedge fund exposure levels as of the first week of December. While it's good to see overall hedge fund exposure levels, those of you wanting more specific positions can head to our post on the top ten stocks owned by hedge funds. It's interesting to see how hedge funds are positioned heading into the close of the year and we're sure they'll be adjusting once the new year starts as well. To see how hedge funds might position themselves for next year, check out ten investment themes for 2010.

Seth Klarman's Baupost Group Sells More Syneron Medical (ELOS)

In an amended 13G just filed with the SEC, Seth Klarman's hedge fund Baupost Group has disclosed a 5.45% ownership stake in Syneron Medical (ELOS). The filing was made due to activity on November 30th, 2009 and they now hold 1,500,000 shares. This is a decrease from their prior holdings. As we detailed when we covered Baupost's portfolio, they've been selling shares of Syneron for a while now (even prior to September 30th). Back then, they owned 2,096,235 shares which means they have sold 596,235 shares (a 28% decrease) in the past two and a half months.

In terms of other recent activity out of hedge fund Baupost, we saw in November that they had started a new stake in Enzon Pharmaceuticals. For more on Baupost's portfolio, head to our post on Seth Klarman's holdings to see what else they are investing in.

We track Baupost Group for their 20% annual compounded return, long-term focus, and thorough investing methodology focused on value investing principles. They are one of the few hedge funds we have included in our Market Folly custom portfolio that is seeing 25.5% annualized returns. (Head over to Alphaclone to see the hedge fund portfolio replication in action). And if you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his hard to find book, Margin of Safety. In it, he lays out the premise for risk averse value investing.

For more resources of Klarman and Baupost, check out the following:

- Klarman's interview from the annual Graham & Dodd breakfast
- Thoughts from Seth Klarman
- And another interview with Seth Klarman

Taken from Google Finance, Syneron Medical "develops and markets medical products based on its various technologies including its Electro-Optical Synergy (ELOS) technology, which uses the synergy between electrical energy, including radiofrequency (RF) energy, and optical energy. The Company’s products focus on an array of non-invasive medical procedures."

Balyasny Asset Management Filed 13G On Maguire Properties (MPG)

Dmitry Balyasny's hedge fund firm Balyasny Asset Management has filed a 13G with the SEC on Maguire Properties (MPG). In the filing, we see that Balyasny has disclosed a 5.35% ownership stake in the company. This was due to activity on November 3rd and they now hold 2,564,650 shares. This is an increase because as per Balyasny's 13F filing which detailed holdings as of September 30th, they owned 898,172 shares.

This is interesting because fellow hedge fund Dan Loeb's Third Point LLC had owned shares of MPG in the past. However, when we covered their portfolio holdings, we saw they had completely sold out of Maguire. (And, we had noted their selling back in July as well). As the saying goes, there's always two sides to a trade. Balyasny was buying shares of MPG and Dan Loeb was selling.

Our post today really marks the first time we've looked at portfolio movements over at Balyasny. For those of you who may be unfamiliar, Balyasny Asset Management (BAM) was founded by Dmitry Balyasny in 2001 and has over 100 employees with the main office in Chicago and other offices in Greenwich, Hong Kong, London, Mumbai, and New York. Their investment process involves fundamental research by sector as well as dynamic capital allocation. They place a heavy weighting on experience and organize their teams so that they can concentrate on any given idea. They like to "focus on misunderstood situations and companies/sectors undergoing turbulent change from different perspectives." Through their research process they seek to identify unique ideas with attractive risk return. We'll hopefully be covering them more frequently from here on out and will add them to our hedge fund portfolio tracking series.

Taken from Google reader, Maguire Properties is "a self-administered and self-managed real estate investment trust (REIT). The Company is the owner and operator of Class A office properties in the Los Angeles Central Business District (LACBD) and is primarily focused on owning and operating office properties in the high-barrier-to-entry Southern California market."

Philip Falcone's Harbinger Capital Sells More Calpine (CPN)

Philip Falcone's hedge fund firm Harbinger Capital Partners has recently filed two separate Form 4's with the SEC on Calpine (CPN). In the filings, we see that Harbinger has sold a total of 647,221 shares. On December 7th, they sold 85,600 shares at a price of $11.03. On December 2nd, they sold 336,000 shares at a price of $11.24. The next day on December 3rd, they sold 65,269 shares at a price of $11.19. Lastly, on December 4th, they sold 160,352 shares at $11.02. After all was said and done, Harbinger still owns 39,135,915 shares of CPN direct and 17,856,266 shares on an indirect basis. This comes after Harbinger executed their Calpine offering back in late September. Overall though, their stake in CPN is way down over the past few months as they previously had owned almost 70 million shares.

This news comes after Harbinger recently adjusted two positions as well and Harbinger has been one of the busier hedge funds in terms of SEC filings this year. Philip Falcone runs his $6 billion hedge fund with a focus both on distressed and equity plays and often takes concentrated positions in companies. For more of their recent activity, we put up a post detailing a portfolio update too.

Taken from Google Finance, Calpine is "an independent wholesale power generation company engaged in the ownership and operation of natural gas-fired and geothermal power plants in North America. The Company sells wholesale power, steam, capacity, renewable energy credits and ancillary services to its customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others. The Company’s portfolio comprises two types of power generation technologies: natural gas-fired combustion turbines (primarily combined-cycle) and renewable geothermal conventional steam turbines."

Bill Ackman's Pershing Square: Mall REIT Presentation

Today we have the recent ICSC Mall REIT presentation from Bill Ackman's hedge fund Pershing Square Capital Management. The slideshow is entitled 'If You Wait For The Robins, Spring Will Be Over' and it addresses the macro environment as it pertains to real estate investment trusts, and in particular, mall operators. If you're unfamiliar with Ackman and Pershing, check out our profile/background post on them.

Those of you who have been reading Market Folly for a while know that Bill Ackman bought into equity and unsecured debt of General Growth Properties (GGWPQ) back when the equity was trading below $0.40 per share. Today, shares are up above $10.70 per share and the unsecured debt is trading near par. Needless to say, he has already won big time on this play. But, he's not done yet. Ackman recently detailed more in-depth thoughts about GGWPQ in his investor letter. Given that GGWPQ is emerging from bankruptcy, he believes that GGWPQ can either emerge as a standalone company and that the equity will still be valuable (even if the unsecured converts over) or it can serve as a prime takeover target. If you've been paying attention recently, you already know that Brookfield Asset Management (BAM) and Simon Property Group (SPG) have been buying GGWPQ's debt so things are getting interesting on a possible takeover or some other strategy.

Ackman has already presented his case specifically for GGWPQ in a previous presentation, so now Pershing Square has shifted to a more top-down look at the US economy, the US consumer, and REIT mall operators. Embedded below is Pershing Square's entire 68-slide presentation from the latest ICSC event. RSS & Email readers will have to come to the blog to view their presentation.



You can download the .pdf here. While the above presentation details an overview of the industry, make sure to check out Ackman's original presentation on GGWPQ as well for more detailed specifics. Pershing certainly has painted a bullish picture for mall REIT operators. Their conclusions are that mall REITs and their tenants have not only survived, but have been resilient in a time of trouble. In order for REITs to outperform going forward, Pershing argues that you don't need to see consumer spending at 2007 levels either. They believe that the closure of underperforming stores is a long-term benefit for these operators as it weeds out the weak (our words, not theirs). Lastly, their bullishness can also be attributed to the fact that tenant cash flows (and as such their balance sheets) are much improved over a year ago and that many retailers have substantial growth plans.

For more resources on Bill Ackman's hedge fund Pershing Square, check out their latest investor letter where they talk in-depth about GGWPQ and their other positions. Additionally, we've also covered Pershing Square's portfolio recently as well. Lastly, you can also check out previous presentations from Bill Ackman's hedge fund as they presented the case for a long of Corrections Corp of America (CXW), as well as their case for a short of Realty Income (O).

Analysts' Best Stock Picks For 2010

*Update: This post has been removed per the request of representatives from Raymond James. Our apologies for any inconvenience. In the mean time, we highly recommend checking out the top ten investment themes for 2010 as well as the most popular stocks owned by hedge funds.

If you wanted more research out of Raymond James, we've also detailed their chief investment strategist Jeff Saut's weekly market commentary. You can check out his stock market commentary from this week, as well as his previous market commentary where he feels a weak dollar will drive further market upside.

Value Investing Congress 40% Discount: Save $1,750

If you missed the Value Investing Congress in October, here's your chance to attend the next one and at a substantial discount. The Value Investing Congress will be taking place for the second time this year where you can receive great investment ideas from some of the best investors out there.

When: May 4th & 5th, 2010

Where: Pasadena, California at The Langham, Huntington Hotel & Spa

Discount: We are proud to present that Market Folly readers save $1,750 off the regular price! Click here to receive your 40% discount to the Value Investing Congress. Use discount code: P10MF2 and hurry because this offer expires on December 15th!

If you're unfamiliar with the VIC, it is the premier conference to hear presentations and investment ideas from prominent money managers. In the past, speakers have included notable hedge fund managers such as Julian Robertson, David Einhorn, Bill Ackman, Eric Sprott and many more. To see the fantastic turnout and amazing speakers from the October event, check out the slideshow here. Over 40% of the seats to the May event have already been reserved, so act quickly. The $1,750 discount for Market Folly readers expires on December 15th, so you have one week to receive the biggest discount to the VIC. The closer we get to the event, the less discount you will receive. So, it's definitely in your best interest to register early and take advantage of the big savings! Give yourself an early holiday present or have your firm foot the bill. Use discount code: P10MF2.

... Read more about the VIC in May & register at a 40% discount!

Ten Investment Themes For 2010

From Bank of America Merrill Lynch comes investment strategy in the form of '10 themes for 2010.' Keep in mind that these represent their opinion so take everything with a grain of salt. They feel that next year will be "a genuine watershed" in that it will reveal whether or not this 'recovery' is real or whether the fundamentally drawn out weakness typically associated with bear markets will rear its ugly head. Their Research Investment Committee thinks that the printing of money through quantitative easing and record budget deficits will help the country on the road to recovery but think inflation will remain low throughout 2010, thus providing a bullish environment for stocks and commodities. As with many other market pundits, they feel emerging market demand will fuel commodities (especially gold). On the contrary, they dislike government bonds. The 'top 10' theme seems to be prevalent out of Bank of America Merrill Lynch lately as we also recently covered the top ten stocks owned by hedge funds.

Here is Bank of America Merrill Lynch's Ten Themes For 2010:

1. Government balance sheet risk
2. Rising taxation
3. Alternative yield strategies
4. Financial sector rehabilitation
5. Corporate cash flow beneficiaries
6. Rising global growth
7. The emerging market consumer
8. Commodity price inflation
9. The return of active management
10. Alternative energy
    

So, an interesting set of themes with some arguably already taking place as we head into the end of this year. Let's now take a closer look at each individual theme to examine their rationale, possible investment ideas, and assets to avoid. Here we go:


Theme #1) Government balance sheet risk: For this theme, they cite IMF data that "total public debt as a % of GDP will exceed 100% in advanced economies in 2010." They think that 10 year Treasury yields will be above 4% by the end of 2010.

Investment ideas for this theme: Materials equities and emerging market stocks. Also, intermediate term investment grade corporate bonds.

They think you should avoid long duration US Treasuries. Many prominent investors and market gurus have advocated avoiding treasuries in one form or another, including hedge fund legend Julian Robertson whose inflationary wager we've covered before.


#2) Rising taxation: They again cite the US budget deficit here as well as health care reform and a second stimulus package as the rationale for higher income taxes on both the state and local level in 2010.

Investment ideas: They like general obligation municipal bonds and muni bond ETFs as well as closed end funds. (Specifically: NUV, MYD, NPI, and NPM).

Avoid: Private purpose muni bond issues.


#3) Alternative yield strategies: Next, Bank of America Merrill Lynch's focus turns to the possibility of higher taxes chasing people out of typical dividend plays and they see tax deferred strategies benefiting here.

Investment ideas: Tax advantaged strategies and also large cap plays such as KMP, EPD, PAA, and ETP.

Avoid: Stocks with rising yields due to their decreasing stock price. Be wary of high yield 'traps.'


#4) Financial sector rehabilitation: Fourthly, we see that they think financials will benefit from low rates here in the US with steep yield curves elsewhere in the world. They also believe that the normalized earnings power of many financials has been underestimated.

Investment ideas: Mega cap financials in global markets (particularly in Brazil, China, and Europe).

Avoid: Regional financials and small cap plays. We've seen this trade many times before as many hedge funds have been long money center banks and short regional banks. Whitney Tilson's T2 Partners has been short Regions Financial (RF) as a perfect example. Not to mention, Bank of America (BAC) was one of the most widely owned stocks amongst hedge funds we track in our portfolio tracking series.


#5) Corporate cash flow beneficiaries: BofA Merrill thinks that large cash piles will be deployed in the form of M&A, dividends, and capital spending.

Ideas: Companies that will benefit from capital spending, including temporary staffing companies and the industrial sector. They also like small caps in the sectors of health care and technology.

Avoid: Auto and airline industry equities. Also be wary of corporate bonds of lower-rated issuers.


#6) Rising global growth: For this theme they cite global policy stimulus as well as higher capex obviously and feel the growth will be led by emerging markets.

Investment ideas: Exchange traded funds (ETFs) with exposure to both US and European cyclical plays (large cap industrials and materials). They also suggest mega cap multinational companies.

Avoid: They say to avoid domestic industries/sectors such as telecom, healthcare, as well as consumer discretionary.


#7) The emerging market consumer: This potential theme can be attributed to higher savings rates in other countries as well as the revaluation of the RMB in China which they claim will make the Chinese "5% richer."

Ideas: Asian banks, mega-cap multinational plays as well as emerging market forex versus the US dollar.

Avoid: Discretionary stocks in developed markets.


#8) Commodity price inflation: While we have already seen strong signs of this occurring, they feel the theme plays into 2010 due to emerging market demand strength as well as supply constraints. As far as gold is concerned, they argue that diversification in reserve currency by other central banks (particularly in emerging markets) should yield higher gold prices. Gold has been a hot topic as of late with its notable price ascension. Famous hedge fund manager John Paulson is now banking on inflation and betting against the US dollar via his new gold fund which we examined in-depth.

Investment ideas: Exchange traded funds (ETFs) with exposure to gold or global energy stocks; High quality diversified miners, commodity exporters.

Avoid: Automakers, airlines, and consumer durables.


#9) The return of active management: They feel a decrease in market volatility will see "greater differentiation in asset price performance."

Ideas: Actively managed funds and high quality stocks.

Avoid: Benchmark weightings.


#10) Alternative energy: Apparently this theme will be back with a vengeance after falling out of the spotlight when oil prices crashed down from record highs. Bank of America Merrill Lynch believes that this is a long-term secular theme and that emerging market trends will help fuel this growth. Obviously, higher oil prices will drive further investment into alternatives as well.

Investment ideas: Exchange traded funds (ETFs) that give you exposure to the vast spectrum of alternatives (wind, solar, nuclear, etc).

Avoid: Utilities and 'old energy' equities.


So there you have it, quite an interesting list of potential themes. We'll have to see if the vast majority of them play out, because we've already seen signs of a few of them. For more 'top 10' lists worth checking out, head over to our post on the top ten stocks owned by hedge funds.

More Market Upside Says Jeff Saut Of Raymond James

"Buy on the cannons and sell on the trumpets." Jeffrey Saut, chief investment strategist at Raymond James focuses on this phrase in his latest weekly market commentary. He notes that investors were buying the first week of March this year and the ensuing rally has proceeded until the present. He then goes on to highlight a possible outlier event in the recent employment report. Last week the market gapped higher but then gave back gains. Market weakness is obviously evident in situations where a market rises substantially in the morning, only to leak out those gains over the course of the day.

Saut was trying to evaluate as to whether or not this represented a one-day reversal event and whether it meant more weakness was set to come. After all, he points to how certain economic indicators have shown strength one month, only to show weakness again the next. So, it seems the cycle plays on. This was interesting seeing how his commentary from last week focused on how dollar weakness will fuel stocks higher. It seems as if he is looking for reasons to challenge his previous conclusions. And, in a market and economic environment where things are constantly changing, it makes sense to re-examine theses and to constantly evaluate the other side of the argument.

Saut ends his note by laying out some interesting datapoints. He writes, "Since November 16th the S&P 500 (SPX/1105.98) has had a difficult time attempting to rally above the 1115 level. Interestingly, that level represents a 50% recovery of the SPX’s price decline from October 2007 (1554) into its March 2009 low (676). It also approximates the downtrend line formed by connecting the S&P’s October 2007 peak with the peak that occurred in May 2008." And while the majority of his commentary this week focuses on whether or not we should expect more weakness, he actually falls back on his conclusions from the past two weeks that the market upside will continue into year-end as managers are still underinvested compared to their typical 70-75% net long levels.

Embedded below is the weekly investment strategy from Jeff Saut at Raymond James in its entirety. Email readers come to the blog to view the document:




You can download the .pdf here. While Saut continues to examine the market on a weekly basis, it appears as if he's searching for reasons for the market not to rally. However, as per his notes last week, he still arrives at the conclusion that we'll end the year higher. For more thoughts from Saut, you can check out his commentary from last week as well.