Thomas Steyer's Farallon Capital Files 13D on Global Gold (GBGD)

Thomas Steyer's hedge fund firm Farallon Capital Management has filed an amended 13D on Global Gold (GBGD) and they now show an 11.3% ownership stake in the company. The filing was made due to activity on May 26th, 2009 and they own 4,466,456 shares. This is a decrease in the amount of shares they've previously owned and they attached numerous details of sales in their filing. They were selling in excess of 119,000 shares on May 26th and 27th, as well as June 2nd. They sold at the prices of $0.11 and $0.09, with the bulk of their sales coming at $0.11. While we haven't covered Farallon's entire portfolio in our hedge fund tracking series, we will note that they have much fewer positions than in the past.

And, this is obviously due to the fact that Farallon saw a big decrease in assets under management (AUM) for 2008. In fact, they narrowly escaped being on the top 10 asset losers list. Yet, despite losing so many assets, Farallon still managed to land themselves on the #10 spot in Alpha's 2009 hedge fund rankings, where they tied Jim Simons' Renaissance Technologies.

Steyer founded the firm in 1986 and still manages it today. He graduated from Summa Cum Laude from Yale University and received his MBA from Stanford's Graduate School of Business. Prior to founding Farallon, Steyer worked as an analyst in Morgan Stanley's Mergers & Acquisitions department and then as an associate in the risk arbitrage department of Goldman Sachs. Being so well versed in the area of risk arbitrage, Steyer employs similar strategies at Farallon. Farallon invests in both public and private debt, equities, private investments, and real estate. In terms of more recent activity, we had noted in early February that Farallon had sold out of numerous positions (via 13D and 13G filings). Additionally, Farallon updated their positions in Freightcar America (RAIL) and Capitalsource (CSE). Those movements of course reflect the decrease in assets under management.

Taken from Google Finance, Global Gold is "a development stage Company. The Company is engaged in exploration for, development, and mining of gold, silver and other minerals in Armenia, Canada and Chile. In Armenia, the Company's focus is primarily on the exploration, development and production of gold at the Tukhmanuk property in the North Central Armenian Belt."

(This is yet another post that was supposed to be published many days ago, but was lost in the shuffle of our site problems. Again, we apologize).

Nassim Taleb's Black Swan: Examining Returns

The following is an article by Janet Tavakoli printed with her permission. She has more than 20 years of experience in investment banking and financial products and is the President of Tavakoli Structured Finance. She previously served at the University of Chicago's Graduate School of Business and additionally is the author of Credit Derivatives & Synthetic Structures, as well as Structured Finance & Collateralized Debt Obligations, amongst other titles.

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In my follow-up commentary (below), I referred to a WSJ article that suggested the returns for 2003 and 2004 for Empirica Kurtosis, Taleb’s previous “black swan fund” (the last admin / wind-up meeting was Jan 2005) were positive in the low single digits after two years of negative returns in 2001 and 2002. If so, investors that stayed in from 2000 would have at best around a 5% return (a middling single digit annualized return). Those who “flocked” (according to Bloomberg) in after 9/11 would have lost substantial principal.

Taleb's Stranded Swan?

Before penning my previous commentary, I contacted Nassim Nicholas Taleb to check whether there were any inaccuracies in a Wall Street Journal article about the performance of his previous black swan fund, Empirica Kurtosis Ltd. The article said the fund had a 60% return in 2000 followed by "losses in 2001 and in 2002.” In 2003 and 2004 it had low single-digit gains, a period when hedge funds posted average returns of 20% and 9% respectively. The fund’s size was around $375 million when most of the assets were returned to investors.

In my query to Taleb, I also asked for confirmation that the fund experienced a voluntary wind-up…more on that later.

Taleb did not respond. Considered with his previous coy reply regarding GQ’s mythical $20 billion, I gave up hope of clarification. I enjoy debating philosophy, but debate is no substitute for size of actual gains.

I was particularly interested in Empirica Kurtosis’s reported anemic performance in 2001, because according to Taleb, the 911 terrorist attacks of 2001 were a “black swan” event.¹

How can a black swan fund do so poorly when the black swan finally appears?

Imagine a scenario: When the black swan appears, investors panic. The fund manager wants to cash in gains when volatility soars. Nervous investors want the manager to buy more “insurance,” when it is expensive and ill-considered. But investors should not be blamed for a black swan fund’s anemic performance any more than a pilot would blame nervous passengers for a bumpy plane ride. Management takes credit (and juicy fees) for the gains, so it should take responsibility for overall performance. This scenario may not be relevant for Empirica Kurtosis, but then, what is the explanation?

What about the voluntary wind-up I mentioned earlier?

Taleb’s web site stated EMPIRICA WAS NEVER CLOSED [emphasis in original].² That may be true if one is only referring to Empirica LLC, a risk management operation. But in my opinion, it is incomplete to assert this without mentioning the voluntary wind-up of Empirica Kurtosis Limited.

Taleb never responded to my query about the wind-up. The Bermuda-based trustee was more helpful and confirmed that Empirica Kurtosis Limited was indeed wound up in 2004/2005.

Winners’ Swan Dive

Big wins and big losses always occur after any market move. Winners are eager to claim they were smart—not lucky.

The big picture should be big enough to provide perspective. A black swan fund may have a good year followed by losses and mediocre returns. Empirica Kurtosis Limited may have become an example of a black swan fund with clipped wings.

(See also: “Taleb Kills $20 Billion Mythical Swan,” June 1, 2009)

¹ Excerpted Transcript May 8, 2007 – The Colbert Report (Stephen Colbert interviews Taleb)

Taleb: Take Google, September 911, the rise of the internet, Harry Potter…They were unexpected and no one saw them coming, and after they happened, oh yah, it was so explainable by historians, scholars and academics, but before they happened, they were so unexpected.

[Later]

Colbert: So you say…911 could not be predicted.

Taleb: It is very very hard to predict these events.

[Apparently Taleb never heard of the August 2001 presidential briefing: “Bin Laden Determined To Strike in U.S. based on a July 2001 intelligence report.]

Colbert: …I’m glad to hear that, because that means the 911 Commission was a waste of time. Because we shouldn’t have investigated why it happened, right?

Taleb: You need you need [sic] to investigate to see if it is predictable or not…

Colbert: But why? Why investigate something that can’t be predicted, because there is nothing to learn from it.

Taleb: No, after the fact, Okay, you have to look at…uh…first of all you can learn something from the event, it’s not like you can’t learn at all.

Colbert: Okay

Taleb: But 911, 911, what I’m saying is that its there is so many events like 911 that could have taken place, you see, so, its just to see if there’s responsibility, is there any vigilance or no vigilance. This is why we investigated 911.

Colbert: ..Is Iraq a Black Swan? We couldn’t have ever foreseen it would go poorly, we would never have known that was not going to go well…

Taleb: No, wars, wars, yah, listen, wars since Napoleon…we learned that wars…wars are more and more unpredictable, more and more complex, the link between action and consequence becoming fuzzier, and I think that the war in Iraq was a mistake…we should have seen that it could have led to these dire consequences. [Only since Napoleon?]

Colbert: We should have but we didn’t, therefore we couldn’t.

[Later]

Colbert: It seems like you’re essentially saying the future is unpredictable.

Taleb: No, I’m saying, yes, my idea in the book is to show two things: number one that the future is rather unpredictable, it is dominated by Black Swans and these black swans are not predictable, and the second point that is quite central, is that we humans…all right?...try to concoct stories to convince ourselves that the future is more predictable than it actually is…[Like Taleb’s Napoleon story?]

Colbert: The future is essentially not predictable.

Taleb: Yes, it’s not.

Colbert: By that logic, doesn’t it mean that in the future you will be able to predict things, because you are predicting that you cannot predict things?

² The only mention of Empirica on Taleb’s web site was as follows: “Owned Empirica LLC a trading/hedging/protection operation (currently the business became the Black Swan Protection Protocol managed by the traders at Universa –I am an advisor). Note that EMPIRICA WAS NEVER CLOSED. Current Corporate Boards: a few hedge funds. A prophetic novel by Viken Berberian about Empiricus Kapital.” There was no mention of Empirica Kurtosis Limited (Emprica Kurtosis), a fund, or of its returns even though it seems it may have been part of this operation at one time. The fund’s returns are not mentioned in Taleb’s Wikipedia profile (as of this writing). The returns for Empirica Kurtosis Limited are mentioned in Mark Spitznagel’s Wikipedia profile, but in an incomplete way. Spitznagel was a partner with Taleb in this venture: “Empirica was reported to have made a 60% return in 2000 and lower (though unconfirmed) returns from 2001 to 2004.”

Thanks again to Janet for letting us post up her work. Check out her firm Tavakoli Structured Finance and her books Credit Derivatives & Synthetic Structures, as well as Structured Finance & Collateralized Debt Obligations,

Hedge Fund D.E. Shaw & Co Files 13G on Medicis Pharma (MRX)

In a 13G filed with the SEC yesterday after market close, David Shaw's hedge fund firm D.E. Shaw & Co has disclosed a 5.3% ownership stake in Medicis Pharma (MRX). The filing was made due to activity on June 10th, 2009 and they now own 3,136,350 shares.

D.E. Shaw & Co was founded in 1988 by David E. Shaw and manages around $33 billion as of December 1st 2008. They focus on intertwining technology and finance and are a hedge fund, private equity firm, and technology development shop all in one. They employ mainly quantitative strategies and do a lot of statistical arbitrage. 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 for this quarter yet, but keep an eye out as they'll be featured in our hedge fund portfolio tracking series soon. Back in January, we also noted D.E. Shaw had filed a 13D on Orient-Express Hotels (OEH), in an ongoing situation.

Taken from their website, D.E. Shaw invests “in a wide range of companies and financial instruments within both the major industrialized nations and a number of emerging markets. Its activities range from the deployment of investment strategies based on either mathematical models or human expertise to the acquisition of existing companies and the financing or development of new ones.”

Form 13G is filed with the SEC when a firm takes a 5% or greater stake in a company with passive intentions. A 13D, on the other hand, is when the investor has intentions or going activist to institute change. Taken from Google Finance, Medicis Pharma is "an independent specialty pharmaceutical company focused primarily on helping patients attain a healthy and youthful appearance and self-image through the development and marketing in the United States of products for the treatment of dermatological, aesthetic and podiatric conditions. It also markets products in Canada for the treatment of dermatological and aesthetic conditions."

S&P 500 Chart: Technical Analysis Video

After the nice dive we saw in the market yesterday, we thought it was relevant to post this up. Although a few days old, this video takes a look at the technicals on the S&P 500 in a broader sense and dives into which way we may be heading after an interesting first half of 2009. You can watch the S&P500 technical analysis video here.

And, if you've missed them, we've also posted up some solid technical analysis on gold, as well as crude oil.

Dan Loeb's Third Point Files Amended 13D on Maguire Properties (MPG)

Our apologies for just now posting this up, but our publishing system has been having issues. For some reason, this post never was published. In an amended 13D filed with the SEC, Dan Loeb's hedge fund Third Point LLC is now showing a 5.02% ownership stake in Maguire Properties (MPG). The filing was made due to activity on May 29th, 2009 and they now are showing ownership of 2,410,000 shares. This is down from their previous position as detailed March 31st, 2009 (as disclosed in their most recent 13F filing). This filing was made because Third Point has ceased to be an owner of more than 5% of the outstanding Common Stock on May 21st, 2009. (And yes, we realize up above it says 5.02%, which is obviously greater than 5%... but we're just copying straight from the SEC filing). And, an interesting fact: this filing has now been amended a total of 8 times... isn't paperwork fun?

As evidenced below, Third Point was selling MPG shares in various orders on April 13th, May 21-22, and May 26-29, in both of their funds and that is what triggered this filing.

(click to enlarge)

(click to enlarge)

Third Point is a $2 billion activist and value based hedge fund. Specifically, they deem themselves to be "event driven, value oriented investors." Loeb founded the firm back in 1995 with $3.3 million in seed capital and is still running the show these days. While Third Point is technically an activist fund, Loeb often has numerous passive investments as well. Loeb himself is quite well known for his searing and critical letters to management of various companies. Third Point has seen annual returns averaging over 15% since inception (including the crazy year that was 2008), a Sharpe Ratio of 0.9, and a correlation to the S&P500 of 0.4. As per their April investor update, we saw that they were net long healthcare and utilities, while being heavily net short consumer.

Their Offshore fund was up 7.4% for the month of May and was up 5.4% for the year at that time. We covered Third Point's performance and more in our May hedge fund performance numbers post. Additionally, you can see some of Third Point's market commentary in their Q1 2009 investor letter.

While Gold had previously been Third Point's top holding, we learned in that investor letter that they sold out of their position, as it appears they were merely seeking refuge from the market turmoil and uncertainty. For a current outlook on gold, check out this excellent technical analysis video here. While Loeb may have sold out, there are still a ton of other hedge funds still in the gold trade.

Taken from Google Finance, 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."

Hedge Fund Jana Partners Sells More Convergys (CVG): Form 4

Somehow all of our posts are not being published and we do apologize for this inconvenience. Hopefully we have remedied this matter and we are going through to make sure all of the content is now live. This particular update focuses on all things Jana Partners. Barry Rosenstein's hedge fund has been quite busy with numerous SEC filings. We'll start with the most recent and then work our way back.

In a Form 4 filed with the SEC, hedge fund Jana Partners has disclosed sales of shares of Convergys (CVG) on June 11th and 12th, 2009. They sold at prices of $9.53, $9.52, and $9.25, with the bulk of their sale coming at $9.25. In total, they sold 233,967 shares and now own 10,362,185 shares. They had also filed a prior Form 4 which detailed other sales of CVG shares on May 28th & 29th, as well as June 1st, 2009. The number referenced above is the most current share count. Jana owns 10,362,185 shares of CVG currently after all the sales have been tallied. Such a massive amount of sales also triggered their filing of an amended 13D on June 1st as well. It appears as if Barry Rosenstein's firm is eager to reduce their position size here.

In terms of other recent activity, we also recently noted Jana's 13G filing on Immucor (BLUD). So, after all this time, Jana appears to be alive and well and buying stocks. This all comes after Barry Rosenstein's hedge fund had a rough 2008 and apparently received redemption requests for a significant amount of their capital (20-30%). They were forced to set aside illiquid positions in an attempt to meet all the requests. But, it appears as if they have survived. We'll be checking in on the rest of their portfolio in our hedge fund portfolio tracking series after skipping them last go-round due to the uncertainty swirling around the fund.

In the past, we had covered some of Jana's other SEC filings. Jana was founded in 2001 by Barry Rosenstein and typically employs activist, market neutral, and long/short equity strategies in public equity markets. Rosenstein received his BS from Lehigh University and his MBA from the Wharton School of Business at the University of Pennsylvania. Jana has returned 20.9% each year annualized from 2001 til 2007. Rosenstein sees Jana's future in a strategy that uses management adjustments to force change at companies, which in turn can send shares higher. And, hopefully that strategy changes things for the better, as 2008 was a rough year for them.

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

Glenrock Global Partners Update May 2009

Just wanted to quickly post up Glenrock's latest investor update. RSS & Email readers will need to come to the blog to view the slide-deck.

Philip Falcone's Harbinger Capital Partners Reveals Zapata (ZAP) Stake: 13D Filing

In a 13D filing with the SEC, Harbinger Capital Partners has revealed a new position in Zapata Corporation (ZAP) due to activity on June 17th, 2009. This is a brand new position for them and they now show a 51.3% ownership stake with 9,888,684 shares. As defined in the 13D, Harbinger has "acquired beneficial ownership as a result of receiving certain proxies to vote the Shares. Until the Closing (as defined in Item 6), the Funds will not acquire a pecuniary interest in any of the Shares."

Then, once we went down to examine Items 4 and 6 of the filing, we saw that none other than the Glazer Family was also involved in the transaction. The Glazer Family owns professional sports franchises such as the Tampa Bay Buccaneers of the NFL and Manchester United FC of the English Premier League. The filing itself is quite lengthy and those interested in every detail of the situation can read the 13D here.

Harbinger has been quite busy over the past year as they have been re-tooling their portfolio and fighting off a massive decline in assets. They were ranked #1 in the top 10 asset losers, losing 60.8% on a year over year basis. As we've been covering on the blog, Harbinger has been decreasing their Cliffs Natural Resources (CLF) position, selling off some of their Calpine (CPN), and is seeing bidders for their NYT stake, among many other portfolio moves.

Harbinger's Offshore fund finished -22.7% for 2008. They were up 0.95% for January 2009, 4.64% for February, and +0.74% for March, leaving them at +4.06% year to date as of then. And, we also got word that Falcone would be returning to his roots in terms of investing style and would be opening a new fund. For more background on Falcone and Harbinger, head here.

Stay tuned as we'll be covering Harbinger's entire portfolio in our hedge fund portfolio tracking series soon.

Taken from Google Finance,

Zapata "owns 98% of Zap.Com Corporation, a public shell company. The Company is focused on acquisition opportunities in the United States and also outside of the United States. Zap.Com does not have any existing business operations as of December 31, 2008. It is searching for assets or businesses that it can acquire, so that it can become an operating company and may also consider developing a new business. During 2008, the Company did not generate any operating revenues."

Stephen Mandel's Lone Pine Capital Files 13G on Smithfield Foods (SFD)

In a 13G filing made with the SEC due to activity on June 9th, 2009, Lone Pine Capital has disclosed a 7.7% ownership stake in Smithfield Foods (SFD). This is a brand new position for Stephen Mandel's hedge fund as they now own 11,116,850 shares. They previously did not show a position in SFD when we looked at their entire portfolio, so they have just recently entered the position over the past 2 months or so. In terms of other big bets Lone Pine has made recently, we saw that Mandel likes Strayer Education. He presented this choice at the 2009 Ira Sohn Conference where numerous hedge fund managers each presented an investment idea.

His $7 Billion fund has returned over 25% annually since its inception in 1997, but had a rough year in 2008. The term 'lone pine' comes from Mandel's days at Dartmouth College, where the school has a historical lone pine tree. He is well versed in the ways of finding undervalued companies and he typically likes to sniff out solid companies with good management that are trading below their intrinsic value. In Alpha's 2009 hedge fund rankings list, Lone Pine was ranked 21st.

Taken from Google Finance,

Smithfield foods is "a hog producer, and pork processor. The Company conducts its business through five segments: Pork, International, Hog Production (HP), Other and Corporate, each of which comprises a number of subsidiaries. The Pork segment produces a variety of fresh pork and packaged meats products in the United States and markets them nationwide and to a number of foreign markets, including China, Japan, Mexico, Russia and Canada."

Timothy Barakett's Atticus Capital Files 13G on Sotheby's (BID)

Timothy Barakett's hedge fund Atticus Capital has filed a 13G on Sotheby's (BID) disclosing a 5.4% ownership stake in the company. The filing was made due to activity on June 11th, 2009 and they now own 3,584,110 shares. This is a brand new position for Atticus, as they previously did not hold it when we examined their portfolio in its entirety.

It definitely looks as if Atticus is starting to move back into equity positions and put money to work. We recently also covered their 13G filing on Transatlantic Holdings (TRH). On the surface, these type of filings just represent portfolio holdings. But, below the surface, it could very well mean much more for Atticus. We say this because Atticus' portfolio over the last 3 quarters has been all over the place. They had a lot of assets tied up in stocks, then they moved the bulk of their portfolio to cash, and then they moved a chunk of money into mainly options positions. Then, this past quarter, we noticed that they only held 5 long positions.

Whether it was raising cash levels due to a cautious stance on the market or possibly continued worries regarding investor redemptions after their poor performance in 2008, Atticus has definitely been trying to steady their ship. Either way, its pure speculation on our part. All we know is that they moved a lot of assets out of the markets. But, 13G filings like these indicate to us that they are starting to put money to work again in the markets, which is a good sign for them. After all, last year Atticus was ranked 2nd on the top 10 asset losers list. For more background on Atticus and a look at their portfolio, head over to our Atticus article here.

Taken from Google Finance,

Sotheby's is "an auctioneer of fine art, antiques and decorative art, jewelry and collectibles. The Company’s operations are organized into three business segments: Auction, Finance and Dealer. In addition to auctioneering, the Company’s Auction segment is engaged in a number of related activities, including the brokering of private purchases and sales of fine art, jewelry and collectibles. The Company also operates as a dealer in works of art through its Dealer segment, conducts art-related financing activities through its Finance segment and is engaged, to a lesser extent, in licensing activities."

Hedge Fund Pequot Capital Sells Vast Majority of Akorn (AKRX) Position

Given the fact that we already know Art Samberg's hedge fund Pequot Capital is winding down, we hesitated to even post this. But, we figured we'd quickly write it up anyways because Pequot will still have $1 billion or so invested within their Special Opportunities fund and their Matawin fund, both of which will continue to exist under their current managers. So, while a lot of Pequot's positions will undoubtedly be liquidated, some will still remain.

In an amended 13G filing with the SEC, Pequot Capital Management has disclosed a 1.5% ownership stake in Akorn (AKRX). This was due to activity on May 31st, 2009 and they hold 1,315,285 shares. This is a massive decrease in their stake in Akorn, as they previously held over 15 million shares in their last 13F filing which disclosed holdings as of March 31st, 2009. So, they have done some substantial selling in this name over the past 3 months. As we covered recently, Pequot is shutting down because of the negative effect an ongoing investigation has had on the firm.

Taken from Google Finance,

Akorn is "engaged in manufacturing and marketing diagnostic and therapeutic pharmaceuticals in specialty areas, such as ophthalmology, rheumatology, anesthesia and antidotes, among others. In addition, the Company markets and distributes vaccines purchased from outside sources. Its customers include physicians, optometrists, hospitals, wholesalers, group purchasing organizations and other pharmaceutical companies."

What We're Reading 6/19/09

Exchange traded funds: Know what you own, redux [AbnormalReturns]

Exclusive interview with Howard Lindzon [Wall Street Cheat Sheet]

Bankruptcy epitaphs 2009: Company tombstones RIP [The Reformed Broker]

Warren Buffett could use a little Bill Ackman in him [Dealbreaker]

In depth equity analysis of PDL Biopharma (PDLI) - a name many hedge funds hold [Harbor]

Tight spot for Fed, blind spot for investors [Andy Xie]

Credit Bailout: Issuers slashing card balances [NYT]

The popular boardgame RISK in a free multiplayer online version [Conquer Club]

John Burbank's Passport Capital Adds Massive Gold Stake: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is John Burbank's Passport Capital. This is only the second time we've covered Passport's filings, so let's get to some quick background. Burbank founded the $2 billion San Francisco hedge fund in 2000 and they use macroeconomic and sector analysis to select their investments. After identifying macro themes, they drill down to find individual companies with rigorous fundamental research. Burbank has over a decade of experience in markets having previously worked as a consultant and as a director of research at ValueVest Management. His educational background includes an undergraduate degree from Duke University and an MBA from Stanford University. Passport has a very respectable track record of gaining 27% annually, but like many other funds, hit a rough patch in 2008. They've bounced back quickly in 2009 though as we've detailed below.

In terms of recent activity, we've covered Passport's agriculture fund update. Additionally, we saw that Passport had an absolutely monster month of May, as they were up 24% for the month and are now up 33% for the year in our May 2009 hedge fund performances post. This success was largely due to the rise in commodities, as Passport had heavy exposure both there and in commodity related equities.

The following were Passport's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Potash (POT), Ishares Russell 2000 (IWM) Puts, Apollo Group (APOL) Puts, Google (GOOG), Puts, Petroleo Brasileiro (PBR-A) Calls, Harley Davidson (HOG) Puts, Gilead Sciences (GILD), Genzyme (GENZ), Tyco (TYC) Calls, Bed Bath Beyond (BBBY) Puts, US Oil Fund (USO) Calls, Weatherford (WFT) Calls, Teva (TEVA), Infinera (INFN), Terex (TEX), Morgan Stanley (MS) Calls, Biomarin (BMRN), Broadcom (BRCM) Calls, Cisco (CSCO) Calls, MEMC (WFR) Calls, Becton Dickson and Co (BDX), Sequenom (SQNM), Vale (RIO) Calls, Thermo Fisher Scientific (TMO), General Electric (GE) Puts, Qualcomm (QCOM), Steel Dynamics (STLD) Calls, Dow Chemical (DOW) Calls, and Oil Services (OIH) Calls


Some Increased Positions (A few positions they already owned but added shares to)
SPDR Gold Trust (GLD): Increased by 6,717%
First Solar (FSLR): Increased by 195%
JDS Uniphase (JDSU): Increased by 128%
Logitech (LOGI): Increased by 122%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Transocean (RIG): Reduced by 82%
Baidu (BIDU): Reduced by 78%
Citrix (CTXS): Reduced by 59%
Priceline (PCLN): Increased by 55%
Google (GOOG): Reduced by 22%


Removed Positions (Positions they sold out of completely)
Qualcomm (QCOM) Calls, Akamai (AKAM), Terra Industries (TRA), VMWare (VMW), Riverbed (RVBD), Alpha Natural (ANR) Calls, Sun Micro (JAVA), Energy Conversion Devices (ENER), Petroleo Brasileiro (PBR-A), Walter (WLT) Calls, Southwestern Energy (SWN), United States Oil (USO), Schlumberger (SLB), Nvidia (NVDA), Excel Maritime (EXM), Nexen (NXY), Bioform (BFRM), and numerous other positions that were each less than 0.2% of their portfolio.


Top 15 Holdings (by % of portfolio)

1. Mosaic (MOS): 13.5% of portfolio
2. SPDR Gold Trust (GLD): 7.9% of portfolio
3. Potash (POT): 6.83% of portfolio
4. Ishares Russell 2000 (IWM) Puts: 5.4% of portfolio
5. Apollo Group (APOL) Puts: 5% of portfolio
6. Google (GOOG) Puts: 4.46% of portfolio
7. JDS Uniphase (JDSU): 4% of portfolio
8. Petroleo Brasileiro (PBR-A) Calls: 3.9% of portfolio
9. Harley Davidson (HOG) Puts: 3.43% of portfolio
10. Gilead Sciences (GILD): 3.3% of portfolio
11. Genzyme (GENZ): 2.7% of portfolio
12. Tyco (TYC) Calls: 2.5% of portfolio
13. Bed Bath & Beyond (BBBY) Puts: 2.4% of portfolio
14. United States Oil Fund (USO) Calls: 2.4% of portfolio
15. Weatherford International (WFT) Calls: 2% of portfolio

By far and away their largest move last quarter was their addition to their gold position via GLD. They boosted it by 6,717% and moved it all the way up to their 2nd largest holding at 7.9% of their overall long portfolio. This is a big move and very notable as it adds yet another prominent hedge fund to the list of those in the gold trade. We now wonder if this is a contrarian signal that it may be time to get out of gold with all of the hedge funds having already rushed in. For the current chart outlook on gold, check out this great gold technical analysis video.

The second most interesting to note about Passport's holdings is their abundance of fertilizer via Mosaic and Potash, their #1 and #3 positions respectively. In total, over 20% of their long portfolio is allocated to fertilizer plays. And, after all, Passport does have an agriculture fund now that started trading in March. They are definitely big believers in the agriculture story long-term and share similar thoughts as legendary investor Jim Rogers, whose portfolio we just covered yesterday.

Thirdly, we also couldn't help but notice that a vast majority of Passport's top 15 holdings are all new positions they just initiated. As we'll touch on later, Passport was putting new money to work in their portfolio. This money went mainly into new holdings, save for a few previously already large positions. Regarding positions they sold out of completely, Passport did make some fairly major moves. In the last quarter, their Qualcomm (QCOM) Calls positions was 19% of their portfolio and they sold completely out of it, no longer holding those options. Additionally, they completely sold out of their Akamai (AKAM) which was previously over a 9% position for them.

Lastly, there is also one other thing to note about their portfolio. Passport clearly has a propensity to play Puts on equities via the options market. Their fourth, fifth, sixth, and ninth largest positions are all put positions on various companies and indices. Clearly, they do not see the rally as a new beginning and are skeptical of the move some stocks have made. Their put position on Apollo Group is intriguing, seeing how numerous other hedge funds we cover (namely 'Tiger Cub' funds) have large stakes in APOL. Passport has taken the other side of this bet and they are not alone. At the recent Ira Sohn conference, hedge fund manager and short-seller extraordinaire Jim Chanos presented a case for shorting the for profit education companies like Strayer Education and Apollo. We'll have to see which set of funds wins out on this wager.

For additional Passport resources, we've published a list that they sent out to their investors, entitled 'Passport's Suggested Reading List.' The list encompasses some great financial articles worth any investor's time.

Assets from the collective holdings reported to the SEC via 13F filing were $779 million this quarter compared to $375 million last quarter, so Passport doubled their exposure on the long side and then some. But, this is just a fraction of the assets they had on the long side in the past. Two quarters ago, they had over $3 billion invested. While they have deleveraged and scaled back, it looks like they are starting to put some money back to work. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, Chase Coleman's Tiger Global, David Stemerman's Conatus Capital, Soros Fund Management (George Soros), and Jim Rogers.

Hugh Hendry Eclectica Fund Investor Letter

Here's the latest commentary from Hugh Hendry over at Eclectica Asset Management. Big hat tip to Zero Hedge for posting this great read up. RSS & Email readers will need to come to the blog to view the slide-deck.

Also, a tip for those of you wanting to print the document off rather than reading it in the .pdf displayer: don't print it directly from Scribd, the margins will be screwed up. Since numerous readers have had problems with this, we wanted to post up a quick remedy. Click on the Scribd logo so that it takes you to the document on Scribd's site. You will then have the option to download the .pdf. After you've downloaded it, just print it from your computer. Note that this tip works for all Scribd and Docstoc .pdf documents we upload here on Market Folly. This way, you can avoid print-outs with messed up margins!

Hedge Fund News Summary (Soros, Och Ziff, Taleb, & More)

We've found a bunch of various hedge fund tidbits that aren't long enough to merit their own article, so we decided to collectively assemble them into this melting pot of a post. Without further ado, we present some of the news that has surfaced out of hedge fund land over the recent days:

- George Soros has called credit default swaps "instruments of destruction" and thinks they should be banned. Shorting via credit default swaps allows limited risk and unlimited profit potential in a sense. Soros argues that those selling CDS receive limited profit potential and unlimited risk, yielding a clear imbalance. Soros said, "People buy a CDS not because they expect an eventual default but because they expect them to appreciate in response to the adverse developments." He cites AIG as a major loser in this regard as they were a large seller of CDS and were on the receiving end of the negative reward spectrum. Lastly, in a separate conversation, Soros has said that the market, "may have further to go because there is a lot of liquidity, a lot of investors are on the sidelines. If the market keeps on going up, more of them may decide to join in. You never know how far the rally goes." His old colleague at the Quantum Fund, Jim Rogers, agrees with him, as we noted when we recently covered Rogers' portfolio & thoughts. Speaking on the topic of China, Soros also thinks that they have benefited from being isolated from the world and they are in better shape than the international banking system. He thinks that China's influence will grow faster than most people think. We just yesterday covered Soros' hedge fund portfolio.

- Hedge Fund Och Ziff had almost 35% of their assets in cash as of the first quarter as they expect markets to fall again. Currently, they manage around $20 billion in hedge fund assets, so you do the math. They believe the economic recovery will be a long drawn out process and it will not just bounce back immediately. Their main fund lose 15.5% last year and is up 6.3% for 2009 as of the end of April.

- David Einhorn's Greenlight Capital noted in his May investor letter that he has returned to financial and REIT shorts after those sectors have rallied heartily. We also learned that he has put on an options bet wagering that interest rates will rise. (We also recently covered a somewhat similar play: Julian Robertson's steepener play). Additionally, Einhorn still retains a large gold position, which we noted when we covered Greenlight's portfolio.

- Nassim Taleb associated Universa Investments is starting a fund based on the thesis of hyperinflation. Universa has ties to Nassim Taleb, the author of the (in)famous book, The Black Swan, which talks about how extreme events can impact the markets. And, it is also a part of our recommended reading list series. Universa was up more than 100% in 2008 due to their bearish stance. They started with $300 million in 2007 and now run around $6 billion. The new fund will be run by Mark Spitznagel and wagers on rising interest rates, among other inflation based plays (such as commodities and options). While Taleb himself does not run the firm, he has significant investments with them and is often associated with them. In the past, we've covered Taleb's explanation of the Black Swan.

- Boaz Weinstein will be starting a new hedge fund, Saba Capital Management. They plan to start trading in August and have raised around $160 million since the end of April. Weinstein has made headlines for the fact that he lost more than $1 billion last year at Deutsche Bank trading bonds. The fund is named Saba after the Hebrew word for grandfather. It is also the name of the credit unit Weinstein started while at DB. His bad performance last year is his only losing year out of 11 years. He felt pain from misteps in Ford (F) bonds and various credit default swaps. His DB unit last year was down around 18% and managed around $10 billion. We'll have to see if he can get back to his past winning ways with his new venture.

- Hedge Fund Balyasny Asset Management was using leverage of 20 cents for every dollar they had in net assets for their stock funds. Their long/short split is roughly 50/50 these days as well. Dmitry Balyasny said, "Economic numbers, housing data, earnings, risk appetite and credit have all gotten less bad. The question is, for how long?" Their main fund was up 0.5% for 2008 and is up 2% thus far in 2009. They are leaning towards the belief that stocks will drop in the second half of the year. Balyasny goes on to say, "The situation is quite fluid and we have to respect the probability that the market is going to continue discounting bad news and embracing every slight improvement, causing shorts to eventually capitulate." We will be covering Balyasny in our hedge fund portfolio tracking series here soon, so stay tuned.

- A pair of ex-Touradji Capital portfolio managers have launched a new commodities fund. Instead of playing directly in commodities market as Touradji typically does, their new venture will make relative value based bets via the equity markets. This new fund sounds like an excellent candidate for our hedge fund series as it will allow us to track commodity and macro experts via equities positions, which are very easy to track courtesy of SEC filings. We haven't covered Touradji yet in our Q1 2009 portfolio tracking series, but we'll be getting to them very soon, so stay tuned.

And with that, we conclude our quick wrap up of some various hedge fund news tidbits.

Cantillon Closing: William von Mueffling's Hedge Fund Converting to Long Only

William von Mueffling's Cantillon Capital Management will be closing down the hedge fund portion of their business. They will wind down their positions except for $1 billion worth of long positions as they revert to a long-only shop. We've not covered Cantillon in our portfolio tracking series before, but von Mueffling is quite a prominent name in the industry. His firm had $10 billion assets at their peak and more recently had around $3.5 billion assets under management. He founded the firm in 2003 after leaving Lazard, where he helped build up their hedge fund business. Like many of the long/short equity hedge funds we track, Cantillon is a stock picking firm.

However, their picking has clearly not been at its best recently. While von Mueffling outperformed other hedge fund managers on a relative basis in 2008, his results were still poor on an absolute return basis. For 2009 they are reportedly down 7-8% through May. Yet, despite his recent hiccup in performance, he certainly carries with him a solid background and performance record. As such, we may consider tracking his long only investments from here on out, as this could potentially be an ideal type of hedge fund to track via 13F filing. We could then create a portfolio based on their holdings with Alphaclone and not have to pay any management fees. After all, we like straight up stock pickers and we won't have to worry about the short side of the portfolio.

As for the rationale behind closing up the hedge fund portion of the firm, von Mueffling had this to offer in the letter to investors, "Firstly, in recent weeks, we have found ourselves covering a large number of shorts in the Cantillon World and Cantillon Europe hedge funds (the "Funds"). This is likely to continue and therefore the Funds' portfolios in the future are not likely to exhibit the characteristics that we have always targeted for the Funds. Secondly, we want to focus on our long-only strategy which we launched in 2005. Today, the stocks that we own in this strategy have the best characteristics that we have seen in a decade." They expect the liquidation to take three months and will do so in an orderly fashion, while leaving the option for investors to transfer their investments into the Global Equity funds.

William von Mueffling is intriguing as a manager because NY Magazine had previously labeled him a 'whippersnapper' in the hedge fund industry as a legend in the making. He was in good company on that list, as out of the funds we cover, Chase Coleman of Tiger Global, Peter Thiel of Clarium Capital, and Eric Mindich of Eton Park Capital were all also on the list. Also included were John Arnold of Centaurus Energy and David Ganek of Level Global.

Cantillon now joins an ever-growing list of hedge funds to shut down amid the crisis. So far, we've already seen Jeffrey Gendell's Tontine Associates close 2 funds, Art Samburg's Pequot Capital shut down, James Pallotta's Raptor Capital close for re-evaluation, while Satellite Capital Management and Okumus Capital have closed too. As time goes on, we're sure more closings will undoubtedly emerge from the woodwork. We've postulated all along that the hedge fund industry will weed out the weak in a Darwinian process, where only the strong few will survive the crisis. And with that, we'll conclude this piece with a list of further 2008 closures.

George Soros Fund Management Favors Bonds: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

Next up is Soros Fund Management ran by George Soros. Soros (who photographs extremely well by the way) is famous for his stellar returns with partner Jim Rogers when they ran their Quantum fund. (We just covered Jim Rogers' portfolio today too). Now, he has carried his investment style over to his own firm. Whether it be equities, bonds, currencies, debt, or commodities, Soros is more of a global macro player, seeking investments in whatever market they can gain an edge. So, keep in mind that these equity positions only represent a portion of the fund's overall holdings. They are not required to disclose holdings outside of equities, notes, and stock options. 2008 was an interesting time to be investing, to say the least. Soros detailed his thoughts about his portfolio from 2008 and it makes for a good read. His fund finished 2008 up 8% as noted in our hedge fund year end performances post. His success in 2008 came from making correct bets on the US dollar and betting that short term interest rates in the UK would decline. Interestingly enough, Soros was down for much of the year, until he fought his way back with overtrading.

Soros is good to track because of his excellent macro sense and formidable track record as an investor. His thoughts on the current financial landscape are detailed in his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. Soros sees a vast consolidation in the hedge fund space in the near future, as we noted when we recently checked in on Quantum Fund ex-partners Jim Rogers & George Soros. If you want to get a better sense as to how Soros formulates his investment theses, we highly recommend reading his first book, The Alchemy of Finance. This book is a staple in our recommended reading list and after you read it, you'll understand why.

Over the past few months, Soros has been busy with various SEC filings that we've covered. We covered his new position in Plains Exporation (PXP) and his 13G filing on Mercury Computer (MRCY). We like to track Soros since he has a solid track record and a great macro sense. We'll see what he has in his portfolio this time around.

The following were Soros Fund Management's long equity, note, and options holdings as of March 31st, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.


Some New Positions (Brand new positions that they initiated in the last quarter):
Entergy (ETR), Plains Exploration (PXP), Walgreens (WAG), American Electric (AEP), Smucker (SJM), Kohls (KSS), Occidental Petroleum (OXY) Puts, Novell (NOVL) Bond, iShares Mexico (EWW) Puts, Weyerhaeuser (WY), Coach (COH), and numerous other very small positions (each less than 0.1% of their portfolio)


Some Increased Positions (A few positions they already owned but added shares to)
Macys (M): Increased by 1,624%
Lowes (LOW): Increased by 387%
Walmart (WMT): Increased by 287%
Heinz (HNZ): Increased by 282%
Home Depot (HD): Increased by 280%
RF Micro (RFMD) Bond: Increased by 193%
MCDATA (inactive) Notes: Increased by 82%
Lattice Semiconductor (LSCC): Increased by 29%
Conoco Phillips (COP): Increased by 20.8%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Best Buy (BBY): Reduced by 80%
Arch Coal (ACI): Reduced by 70%
Desarrolladora Homex (HXM): Reduced by 54%
Union Pacific (UNP): Reduced by 31%
Petroleo Brasileiro (PBR): Reduced by 14%


Removed Positions (Positions they sold out of completely)
Merrill Lynch (MER), Mercury Computer (MRCY) Bond, Digital River (DRIV) Bond, Omnicom (OMC) Bond, Redhat (RHT) Bond, Schlumberger (SLB), Consol Energy (CNX), Cymer (CYMI), Jetblue (JBLU), Petroleo Brasileiro (PBR) Calls, Skyworks Solutions (SWKS) Bond, Amdocs (DOX) Bond, and numerous other positions that were barely 0.1% of their overall portfolio


Top 15 Holdings (by % of portfolio)

1. Petroleo Brasileiro (PBR): 21.3% of portfolio
2. Potash (POT): 10.2% of portfolio
3. Linear Technology (LLTC) Bond: 4.5% of portfolio
4. LSI (LSI) Bond: 4.5% of portfolio
5. Hess (HES): 4.4% of portfolio
6. RF Micro (RFMD) Bond: 3.8% of portfolio
7. MCDATA (inactive) Note: 3.6% of portfolio
8. Conoco Phillips (COP): 3.6% of portfolio
9. Macrovision (MVSN) Note: 2.6% of portfolio
10. RF Micro (RFMD) Bond: 2.3% of portfolio
11. Lowes (LOW): 2.2% of portfolio
12. Walmart (WMT): 2.1% of portfolio
13. Home Depot (HD): 2.1% of portfolio
14. Tech Data (TECD) Bond: 2% of portfolio
15. Macys (M): 1.9% of portfolio

The very first thing you will notice about Soros' portfolio is his large stake in Petroleo Brasileiro (PBR). He has had this position for a while and continues to hold it (but has sold a few shares). However, the main thing we want to focus on here is Soros' propensity to play bonds versus equity. If you look at his top 15 holdings above, 7 of those positions are bonds or notes. This is very high compared to most other hedge funds we track and we found it interesting. Part of this is due to the fact that we typically track long/short equity funds and Soros could be classified as more of a global macro player. As such, maybe there is something to be gleaned from his positioning here.

This is not to say that he has avoided equities though. Because, he obviously holds numerous equities as well. But, such a high concentration of bond positions in the top of his portfolio cannot be overlooked. In terms of his equity plays, PBR, Potash (POT), and Hess (HES) are by far his biggest positions in this regard. It definitely appears as if he is playing the commodity/emerging markets/'recovery' plays here. And, such positioning has obviously paid off so far this year.

Some of the major additions he made were to the shares of Home Depot (HD), Walmart (WMT), Macys (M), and Lowes (LOW). This definitely wreaks of the 'recovery' theme and we'll continue to track his movements in this regard. Some notable selling activity in his portfolio was the 80% trimming he did on his Best Buy (BBY) shares. Previously, BBY had been in excess of a 5% position for him, but it now sits at just over 1.5%.

Assets from the collective holdings reported to the SEC via 13F filing were $4.5 billion this quarter compared to $4.6 billion last quarter, so very little change. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. Check back each day as we cover new fund portfolios. We've already covered Andreas Halvorsen's Viking Global, John Paulson's hedge fund Paulson & Co, Stephen Mandel's Lone Pine Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, and David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Timothy Barakett's Atticus Capital, Lee Ainslie's Maverick Capital, Raj Rajaratnam's Galleon Group, Shumway Capital Partners (Chris Shumway), Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, Whitney Tison's T2 Partners, Chase Coleman's Tiger Global, and David Stemerman's Conatus Capital.

Jim Rogers Portfolio & Thoughts: A Recent Summary

It's been a while since we last covered Jim Rogers in full, so we figured now would be a good time to assemble a collective update. In the past, we've extensively covered Jim Rogers' portfolio so make sure you check that out to get a good background. Today must be Quantum Fund day at Market Folly, as we have covered George Soros' hedge fund portfolio today as well. To get more insight from Rogers then check out his two books: Hot Commodities and then also A Bull in China.

Rogers has opinions on a vast array of topics so we'll just dive right in and try to present the updates as orderly as possible. Firstly, we want to start with the topic of the crisis in general. Obviously, Rogers thinks the United States and the UK are in bad shape and will be for some time. He likens the current situation to that of the 1930s. He says, "In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end. They are making many of the same mistakes now. What's different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time." While the current crisis is unique in its own right, it does have shades of the 1930s written all over it. As such, Rogers focuses on inflation a lot and we'll get to that below.

Agriculture

Rogers still likes agriculture and thinks it will be one of the best investments in our lifetime. He says so under the premise that the world is growing and so are the number of mouths to feed. The economic emergence of countries that previously did not enjoy protein heavy diets have also spurred this trend on. Add into the equation the fact that supply is not necessarily growing to match demand, and you could have a real imbalance in the future. As such, Rogers likes agriculture and specifically farmland. In the past, we've covered which farmland investments he has made and have elaborated on his thoughts. His main active investments are in Agcapita Farmland Investment Partnerships (in Canada) and Agrifirma Brazil. His bullishness on agriculture comes down to a simple supply and demand equation imbalance. Food inventories are at multi-decade lows and this is without a ton of major droughts or weather problems. Not to mention, there is a shortage of actual farmers (and not to mention farmland) and Rogers says this can be attributed to the fact that it has been a horrible business for the past 30 years. To see more of his thoughts on this topic, see our post about Rogers' extreme bullishness on agriculture.

Currencies, Commodities, and Bonds (Inflation Theme)

On the topic of currencies, Rogers has varying opinions as each currency is its own equation. Recently, he has been out saying that he owns the Chinese renminbi and he likes to add to his position every chance he gets (as he cites the difficulty to buy and sell the currency due to it being blocked). While he still has some US dollars due to being a citizen, he has sold nearly all of his holdings in the currency and sees serious problems developing. Overall though, he sees a currency crisis looming due to the amount of money governments around the world are printing. He sees the US dollar as a flawed currency and thinks it could be the source of the currency crisis. He explains saying, "I would suspect that somewhere along the line, someone's going to say, 'I'm going to start selling mine (dollars) before everybody else does.' That's when you have a currency crisis."

While he has focused largely on the US dollar, he has often remarked that the British Pound could have major issues as well. We found it intriguing that Rogers has repeatedly focused on the possible currency crisis scenario in his appearances. He has gone as far as to say that sovereign defaults are not out of the question. And, he would not be alone in that regard. Kyle Bass, manager of hedge fund Hayman Capital agrees and predicts sovereign defaults will be the next crisis. Bass is well known for predicting the housing crisis and profiting handsomely (along with John Paulson as well). To back up claims for possible sovereign defaults, Rogers highlights the UK in 1918 as it transformed from world power to a nation wrought with default in 1970. Additionally, he talks about how Iceland has already defaulted too. He thinks we could possibly see more defaults between now and 2011. You can view some of Rogers' past thoughts on currencies here.

Commenting on the government's actions, Rogers says, "It's a mistake what they are doing. It's giving short-term pleasure, but there's long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road." Clearly, Rogers likens the current scenario to placing a bandaid on a gunshot wound victim and calling everything 'good.' Short-term solutions do not solve long-term issues. He cites this with evidence of the bond market already beginning to taper off and he thinks this will continue as the government sells a ridiculously large amount of bonds. This can be boiled down to one simplistic notion: when governments print a lot of money, you get serious inflation. At least, that's how Rogers sees it.

As such, Rogers does have one recommendation to benefit from this possible impending phenomenon: buy commodities. As fiat money depreciates in value and inflation rises, assets (and namely commodities) appreciate in value. He thinks that commodities could lead the global economy out of this mess and even if that doesn't happen, they will still appreciate due to inflation. In terms of specific commodities, Rogers likes cotton, sugar, as well as silver. For more of Rogers' thoughts on commodities, check out this post.

Gold and Silver

While we could technically lump his gold and silver commentary in the commodity section, we felt it deserved its own section due to his views on the precious metals. Overall, Rogers likes gold and has no plans to sell his. In fact, he could be adding to his position should the right circumstances pop up. He says, "The fact is that the IMF is trying to get permission from everybody to sell gold. I don't know if it will succeed or not. But if and when the IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to $700. The IMF has a lot of gold to sell. If it does, I hope I'm brave enough and smart enough to buy more." So, he likes gold. However, he likes silver even more right now due to it being cheaper on a historical basis since everyone has been piling into gold and driving up the price. Reverting to the topic of currencies quickly, we know that Rogers also thinks the debate on a new international reserve currency is a legitimate one. He thinks change is coming in this regard and he is not alone in those thoughts. Noted trader Dennis Gartman sees gold becoming the next reserve currency.

Short Positions

Rogers says it is rare for him not to have many short positions and so this definitely classifies as a 'rare' time for him. Derived from his stance on currencies, he hardly has any short positions at the moment due to the amount of paper money governments are throwing at the crisis. He thinks that a currency crisis is imminent and that investors should avoid shorting the market. Rogers says, "I'm afraid they're printing so much money that stocks could go to 20,000 or 30,000. Of course it would be in worthless money, but it could happen and you could lose a lot of money being short." As such, Rogers is not fighting the current trend and will pick his battles. (Do note that Rogers tends to exaggerate things to make a point and we highly doubt he realistically sees the market hitting those numbers). He thinks the extended rally is nothing more than a bear market rally which could be further fueled in the near-term due to a weakening dollar and the Fed utilizing the 'printing presses' and printing more money.

China, India & Sri Lanka

While Rogers is bullish on agriculture and commodities in general, he is also bullish on select sectors in emerging markets too. Specifically, he has focused on water treatment. He notes China and India's water problems and he has bought water companies in China. He did not cite specific names, but we do know that Heckmann (HEK) has had a large presence regarding water in China, even if it is not right along the lines of what Rogers is referring to. He says that the Chinese are aware of their problem and are spending "hundreds of billions" to solve their agricultural problem. So, his bets on water treatment and agriculture are tied together.

When pitting the emerging market nations against one another, Rogers favors China over India. He does so because of the reforms and change that India requires to fully compete. While he likes the commitments coming out of India lately, he needs to see action rather than just pledges for it to become the next real big investment opportunity. Specifically regarding India though, he did say that he likes the prospects of tourism in that nation. While Rogers likes China, he has not added to that position since picking up shares back in October and November of last year. Instead, he is directing money toward commodities.

Turning specifically to Sri Lanka, we find out that Rogers really likes this nation as an investment because it looks as if the 30-year war is coming to a close. He cites numerous other examples of war-torn countries that have emerged successful after troubled times. Rogers highlights that there is significant opportunity at hand, and all it takes is hard work. He likes Sri Lanka as an investment more so than India, Pakistan, or Bangladesh.

Conclusion

As you can see, Rogers is very opinionated on a large set of topics and likes to think in macro themes. After all, this is where his successful background comes into play. He made a fortune running the Quantum Fund with George Soros using similar strategies. While the fund is now defunct, both are still active investors and are good to track for their macro methodology. Make sure you check out our past update on Rogers' portfolio to get a better idea as to what other positions he holds. Also, we examined George Soros' hedge fund portfolio this morning as well, so make sure you see what macro themes he likes these days.

To conclude, Rogers thinks that the stock market will eventually hit new lows this year or next year after the bear market eventually subsides. He thinks that our problems remain largely unsolved and we have a whole lot of work to do in order to emerge from this mess. He thinks that the UK is potentially worse off than the US (because the US has agriculture to fall back on), but that the overall picture is still bleak either way. He thinks that moving to London in 1807 was brilliant, that moving to New York in 1907 was brilliant, and that moving to Asia in 2007 would be the next brilliant move. He clearly sees a shift of power to the east as the emerging markets (and particularly China) start to bloom. He sees Mandarin as the most important language in the world going forward and has already begun teaching his daughters.

Speaking on the global economy's future, Rogers draws from the past by saying, "Throughout history, the center of the world has shifted to where the capital is, where the assets are. You don't see any period in history where things are shifting to the debtors, and America's the largest debtor nation in the history of the world. Unless something's different this time, unless the world's changed very very dramatically, the center of the influence, the center of the power, the center of the earth, the center of the globe, is going to be shifting towards Asia, because that's where all the money is. Have you ever heard of anybody saying, 'Let's go to where all of the debtors are'? It just doesn't happen that way."


If you want to follow Rogers, then bet on inflation, agriculture, commodities, China, and bet against the US and the UK. For more on what he deems to be the best investment opportunities out there, check out Rogers' two books: Hot Commodities and then A Bull in China. We'll leave everyone with one last bit of advice from Rogers: become a farmer.

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Sources: Numerous media appearances, interviews, and conferences.