market folly

Hedge Fund Lone Pine Reduces UK Exposure

marketfolly@gmail.com (Market Folly) — Fri, 20 Nov 2009 18:01:00 +0000

On Wednesday we took a look at Lone Pine’s holdings in the US and today we are going to follow that up with an update on their UK positions. We last looked at Lone Pine’s UK holdings back in August. Since then, most of the action has been in one direction: Stephen Mandel’s Lone Pine has been selling out of UK companies. There are no new positions and only one increased position to report.

Of course we don’t know why Mandel has been reluctant to make new acquisitions in the UK. However, it is worth remembering that the UK was one of the countries hardest hit by the banking crisis and one of the slowest to recover from recession despite the fact that the Bank of England has been among the most aggressive ‘quantitative easers’. The fact that a savvy hedge fund manager like Mandel is reducing his exposure perhaps does not bode well for UK PLC generally.

The tables below start with the date of the disclosure on the left (in UK format), the amount of shares owned in the middle, and the ownership percentage stake on the right.

Increased positions:

Intertek Group Plc	ITRK	23/07/2008	9920265	6.29
		01/08/2008	12040798	7.63
		04/08/2008	12613798	8
		12/08/2008	14282572	9.05
		17/10/2008	15879234	10.06
		27/10/2008	18388766	11.65
		20/11/2008	19138766	12.13
		01/06/2009	18995931	11.99

Intertek (LSE: ITRK) provides testing, inspection and safety services to a range of companies involved in consumer goods, building, telecoms, autos, oil, chemicals, pharmaceuticals, mining and agriculture. It also provides trade services to public standards bodies and governments.

Closed Positions: Lone Pine reduced their holdings below 3 percent of outstanding equity in the following companies.

- Autonomy (AU)

- Michael Page (MPI)

Once a hedge fund’s position falls below 3 percent of equity it no longer has to disclose holdings in the UK. One could assume that given their pattern of selling that they have closed the positions entirely, but there's no sure way for us to verify that right now.

Decreased Positions:

Rightmove	RMV	25/03/2008	11429616	9.72
		21/08/2009	1004087	8.5
		24/08/2009	9051477	7.7
		25/08/2009	7443038	6.3
		26/08/2009	6893038	5.9
		11/09/2009	5861376	4.99

Ashmore Group Plc	ASHM	14/01/2009	43710160	6.21
		15/09/2009	35252236	5.01
		15/10/2009	33062737	4.7

Unchanged Positions:

Ishaan Real Estate	ISH	01/07/2008	48532342	23.45
		04/09/2008	56632342	27.35
		28/04/2009	56632342	39.08

Lone Pine’s percentage position in Ishaan increased in April 09 due to a share buy-back program undertaken by company (not from an additional share purchase).

That ends our update of Lone Pine’s UK positions. As always, we will be continuing our tracking series where we look at the positions that prominent hedge fund managers hold in UK markets. If you've missed some of our previous posts covering UK markets, make sure you check out the holdings of Harbinger Capital Partners, Ken Griffin’s Citadel , Louis Bacon's Moore Capital Management and Paul Tudor Jones’s Tudor Investment Corp .

If you're unfamiliar with our new series tracking UK positions, check out our preface here. We have also covered the potential for hedge fund activism in the UK investment trust sector. In addition, we have reported on London based hedge fund managers GLC Ltd and Lansdowne Partners.

Lone Pine Didn't Sell Vistaprint (VPRT) After All: Amended 13F Filing

marketfolly@gmail.com (Market Folly) — Fri, 20 Nov 2009 17:41:00 +0000

Just a few days ago, we started our 13F analysis series where we detail the position changes of prominent hedge funds. We covered the portfolio of Stephen Mandel's Lone Pine Capital and noticed that their newly acquired stake in VPRT was now gone. We found it a bit curious but nevertheless moved on with our hedge fund portfolio tracking.

Fast forward to today and we see that Lone Pine has just amended their 13F filing with a supplement. The only position listed on the amended filing? Yep, you guessed it: Vistaprint (VPRT). It seems they made an error in reporting their initial 13F and forgot to include this position. As it turns out, they did indeed own 2,499,729 shares of VPRT as of September 30th, 2009.

Here is a screenshot of the amended 13F filing from the SEC:

(click to enlarge)

We just wanted to update everyone of the change and will go back now and amend our own 13F piece on Lone Pine to reflect the position as such. You can check out the rest of Lone Pine's portfolio here. Additionally, we've already tracked a few other prominent hedge fund portfolios such as: Dan Loeb's Third Point, Seth Klarman's Baupost Group, and Bill Ackman's Pershing Square.

Taken from Google Finance, Vistaprint (VPRT) is "an online provider of coordinated portfolios of marketing products and services to small businesses globally. The Company offers a range of products and services ranging from printed business cards, brochures and post cards to apparel, invitations and announcements, holiday cards, calendars, creative design services, copywriting services, direct mail services, promotional gifts, signage, Website design and hosting services, and e-mail marketing services."

PIMCO's Bill Gross: Investment Outlook December 2009

marketfolly@gmail.com (Market Folly) — Fri, 20 Nov 2009 13:55:00 +0000

Entitled 'Anything but 0.01%,' here's the latest market commentary from bond vigilante Bill Gross of PIMCO. His December 2009 missive focuses on where to put your money in an environment where re-risking seems to be back in vogue as cash on the sidelines attempts to find positive returns to make up for potential losses a year ago. He seems to draw attention to the fact that the risk of bubbles is also on the rise.

As we posted on Twitter a while back, "PIMCO's Total Return fund essentially IS the bond market now, $186 billion AUM in Bill Gross' fund now; insane." So, at the very least, it's worth noting his thoughts and what he's up to. And we pointed out somewhat recently that Gross is betting on deflation by buying long-term treasuries. We've also covered some of his past commentary as well for those who might have missed it.

Below is PIMCO's market commentary from Bill Gross for the month of December 2009:

"

I'm not so much concerned
about the return on my money
as the return of my money.
- Will Rogers, 1933

Toothpicked, straw-hatted Will Rogers was a journalists’ dream, combining common sense with a sense of humor that could trump any newsman of his day, an era that was characterized more by its hopeless and helpless ennui, than its promise for a better tomorrow. During the Great Depression, just breaking even by stuffing your money in a mattress was considered to be a triumph of conservative investment. Likewise, during the past 18 months there have been similar “Will Rogers” moments. Perhaps remarkably, during the week surrounding the Lehman crisis in September of 2008, yours truly frantically called my wife Sue to empty our two local bank accounts into apparently safer Treasury bills. I was not the only PIMCO professional to do so. Preserving principal as opposed to making it grow was the priority of the day – digging a foxhole instead of charging enemy lines seemed paramount.

My how things have changed! With the global financial system apparently stabilized, returns “on” your money are back in vogue, and conservative investors who perhaps appropriately donned a Will Rogers mask nary a fortmonth ago are suddenly waking up to the opportunity cost of 0% cash versus appreciated assets at renewed double-digit annual rates. That 0% yield is not a joke. Almost all money market accounts – totaling over $4 trillion dollars, shown in Chart 1 – yield close to nothing, so close to nothing that I mistakenly did a double take when reviewing my monthly portfolio statement. “Yield on cash,” read the buried line on page 15 of the report, “.01%.”

Well now, I say to myself, this is very interesting from a number of different angles. If I was hoping to double my money, it would take approximately 6,932 years to get there at that rate! Somehow, that wouldn’t satisfy even Will Rogers, who might be choking on his toothpick or at least eating his straw hat in amazement. Secondly, being a savvy professional investor and all, I knew that money market funds actually earned 20 basis points or so on my money, but in this case were allocating a paltry one basis point to me. The words of the Beatles’ “Taxman” immediately popped into mind: “That’s one for you, nineteen for me – TAXMAN!” Ah yes, but in this case it was the Fed and Wall Street that were passing the collection plate. Whether it was really “God’s work,” as Goldman’s Lloyd Blankfein asserted, I wasn’t quite sure. If there was a “temple” in the vicinity I was thinking that God should be driving the moneychangers out as opposed to inviting them in for a pep talk.

Ah, but this is not a vindictive diatribe, although to me, money changers resemble Mammon more than archangels, and they all make too much money, including PIMCO. My point is to recognize, and to hope that you recognize, that an effective zero percent interest rate, as a price for hiding in a foxhole, is prohibitive. Like the American doughboys near France’s future Maginot line in WWI – slumping day after day in a muddy, rat-infested pit – when the battalion commander finally blew his whistle to charge the enemy lines, it probably was accompanied by some sense of relief; anything, anything but this! Anything but .01%!

Recently, approximately $20 billion a week has been exiting those payless, seemingly godless funds in search of a higher-yielding Nirvana. Yet, as Will Rogers knew, and Lehman Brothers demonstrated to another generation, the pain of the foxhole can immediately transition to the dodging of real bullets on the investment battlefield. Moving out on the risk asset spectrum has worked wonders since March of this year, but it comes with the risk of principal loss – failing to receive the return of your money. When viewed from 30,000 feet, there is even a systemic risk that new asset bubbles are in the formative stages – perhaps because of the .01%. Gold at $1,130 an ounce, global equity markets up 60-70% from their 2009 lows, a cascading dollar now 15% lower against a basket of global currencies just 12 months ago, oil at 80 bucks, mortgage rates at 4% thanks to a $1 trillion dollar credit card from the Fed; the list goes on. The legitimate question of the day is, “Is a 0% funds rate creating the next financial bubble, and if so, will the Fed and other central banks raise rates proactively – even in the face of double-digit unemployment?” As Chicago Fed President Charles Evans said in a recent speech, “This notion is often described as an imperative to ‘lean against a bubble,’ meaning that a central bank should act to lower asset prices that by historical standards seem unusually high.”

Yet even if the Fed and others are becoming sensitized to the dangers of up as opposed to exclusively down asset prices, it would seem that now is not the time to be affirming their bipolarity. Asset price rebounds (aside from the historic highs in gold) have followed even more dramatic slumps. A 60% rise in the stock market does not compensate for a 60% decline. Strangely enough, investors are still out 36% of their money once this down elevator/up elevator example plays out. And the simple analysis is that the private sector has still not taken the baton from government policymakers: There has been no public/private sector handoff. Bank lending is still contracting in the U.S. and weak in most other G-10 countries. Unemployment is still rising and approaching historic (ex-Depression) cyclical peaks.

Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something. We will need another 12 months of 4-5% nominal GDP growth before Bernanke and company dare lift their heads out of the 0% foxhole – mini-bubbles or not. Instead, the heavy lifting or the charging of enemy lines in the case of this metaphor will likely be done by other central banks – already in Australia and Norway. In addition, and importantly, China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland. With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside – higher Treasury yields, and lower stock prices – which the Fed must surely be leery of before making any upward move, of its own, and before moving on, let me state the obvious, but often forgotten bold-face fact: The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until. To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements. The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds.

OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? Damned if you do, damned if you don’t. Do you buy the investment grade bond market with its average yield of 3.75% (less than 3% after upfront fees and annual expenses at most run-of-the-mill bond funds)? Do you buy high yield bonds at 8% and assume the risk of default bullets whizzing at you? Or 2% yielding stocks that have already appreciated 65% from the recent bottom, which according to some estimates are now well above their long-term PE average on a cyclically adjusted basis? Two suggestions. First, as emphasized in prior Investment Outlooks, the New Normal is likely to be a significantly lower-returning world. Diminished growth, deleveraging, and increased government involvement will temper profits and their eventual distribution to investors in the form of dividends and interest. As banks, auto companies and other corporate models become more regulated and therefore more like utilities and less like Boardwalk and Park Place, they will return less.

Which brings up the second point. If companies are going to move toward a utility model, why suffer the transformational revaluation risk of equities with such a low 2% dividend return? Granted, Warren Buffet went all-in with the Burlington Northern, but in doing so he admitted it was a 100-year bet with a modest potential return. Still, Warren had to do something with his money; the .01% was eating a hole in his pocket too. Let me tell you what I’m doing. I don’t have the long-term investment objectives of Berkshire Hathaway, so I’m sort of closer to an average investor in that regard. If that’s the case, I figure, why not just buy utilities if that’s what the future American capitalistic model is likely to resemble. Pricewise, they’re only halfway between their 2007 peaks and 2008 lows – 25% off the top, 25% from the bottom. Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5-6% not .01%! In a low growth environment, it seems to me that a company’s stock should yield more than its less risky debt, and many utilities provide just that opportunity. Utilities and even quasi-utility telecommunication companies now yield between 5 and 6%, whereas their 10- and 30-year bond yield less and at a higher tax rate to you the investor.

So come on you frustrated Will Rogers lookalikes. Join the wimp who pulled his money out of the bank just 14 months ago. Look at your monthly statement, zero in on that .01% yield and say to yourself, “I’m as mad as hell, and I’m just not going to take this anymore!” You can’t buy the Burlington Northern – Warren Buffett has scooped that up – and most other choices offer tempting returns, but potential bullets as well. Buy some utilities. It may not be as much fun as running a railroad, but at least you’ll know who to call if the lights go out.

William H. Gross
Managing Director"

You can also download the commentary in .pdf form here.

What We're Reading ~ 11/20/09

marketfolly@gmail.com (Market Folly) — Fri, 20 Nov 2009 13:50:00 +0000

Exclusive interview with Jim Rogers [Wall St. Cheat Sheet]

Common elements of success in trading [The Kirk Report]

Tsunami unfolding in commercial real estate [Clusterstock]

Is gold the next bubble? [The Economist]

Eight investing lessons from The Greatest Trade Ever [Wall Street Journal]

The hard fall of hedge funders [NY Magazine]

Joe Cada, youngest World Series of Poker winner hopes to transition to stock market [Bloomberg/Youtube]

Series of George Soros lectures [FT.com]

Hedge Fund Harbinger Capital Sells New York Times Shares (NYT)

marketfolly@gmail.com (Market Folly) — Fri, 20 Nov 2009 00:11:00 +0000

Philip Falcone's hedge fund firm Harbinger Capital Partners recently filed an amended 13D and a Form 4 with the SEC, updating their stake in The New York Times Co (NYT). Due to activity on November 17th, 2009 they are now showing a 14.64% ownership stake in NYT. They now hold 21,038,434 shares and this is a decrease from their previous position. On November 17th they sold 2,500,000 shares at a price of $9.00 per share, bringing them to their share total to the amount listed above.

This is not the first time that Harbinger has decreased their stake, as we previously covered them selling shares of NYT before. We have also taken a step back and wondered whether or not newspapers are a dying industry? They certainly have some business model problems to address in the near future. It would seem that yet again, Harbinger has sold shares at a loss. They initially acquired their stake between $15-20 per share almost two years ago when they invested over $500 million. Their 14.64% ownership stake is down from their previous high of around 20% ownership of the company. We'll have to see if they continue to sell going forward, as in the past they had sought suitors for their NYT stake. We also note that Mexican billionaire Carlos Slim has a hefty position in NYT as well, so there are definitely some prominent players in NYT.

Philip Falcone runs his $6 billion hedge fund Harbinger Capital Partners with a focus both on equity plays and distressed plays and often takes concentrated positions in companies. For more of their recent activity, we recently penned a post detailing a portfolio update on Falcone's hedge fund and also covered the execution of their Calpine offering (CPN) as well.

Taken from Google Finance, The New York Times Company is a "diversified media company, including newspapers, Internet businesses, a radio station, investments in paper mills and other investments. The Company is organized in two segments: News Media Group and the About Group. Additionally, the Company owns equity interests in a Canadian newsprint company, a supercalendered paper manufacturing partnership in Maine, and Metro Boston LLC, which publishes a free daily newspaper in the greater Boston area."

Technical Analysis: S&P 500, Dow, Nasdaq & Gold

marketfolly@gmail.com (Market Folly) — Thu, 19 Nov 2009 19:25:00 +0000

Marketclub just pumped out a bunch of technical analysis videos on the major indices as well as everyone's most watched precious metal. If you want to see how the charts are shaping up, Adam walks through the technical patterns in each video. He takes a step back and gives a broad overview as to what he's seeing in the markets and looks at formations, fibonacci retracements, MACD, and other indicators. Here's the videos:

- Technical analysis on the S&P 500

- Checking out the Nasdaq & Dow charts

- Gold has been on a rampage, check out the latest chart

Great overview in each of the vids. Enjoy and let us know what you're seeing on a technical level too.

Dan Loeb's Third Point Starts New Stakes In Popular (BPOP), TransDigm (TDG), & Health Net (HNT)

marketfolly@gmail.com (Market Folly) — Thu, 19 Nov 2009 19:22:00 +0000

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Next up in our series is Dan Loeb's Third Point LLC. Third Point is a multi-billion dollar hedge fund that has seen annual returns greater than 15% since inception. Manager Dan Loeb focuses on event driven and value oriented investments and recently said he feels "like a kid in a candy store" due to all the distressed opportunities. In his past letter to investors, Loeb noted that he liked selective automotive debt plays. As noted in our hedge fund performance numbers post, Third Point was up 6.4% for August and 5.1% for September and were up 27.8% year-to-date at that time. For more market insight, definitely check out Dan Loeb's recommended reading list. Loeb started the fund back in 1995 with around $3.3 million in seed capital and today manages a multi-billion dollar portfolio. For some of his market insight and general thoughts on the industry, check out this video of a speech he gave.

Keep in mind that the positions listed below were Third Point's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Listed by their largest new stake first, and descending down
Popular (BPOP)
Transdigm (TDG)
Healthnet (HNT)
Wellpoint (WLP)
Cablevision (CVC)
American Water Works (AWK)
CareFusion (CFN)
First American (FAF)
Synaptics (SYNA)
Dana Holding (DAN)
Coinstar (CSTR)
Capitalsource (CSE)
Barclays (BCS)
Alkermes (ALKS)
Blockbuster (BBI)
Blockbuster B shares (BBI.B)
Loral Space & Communication (LORL)

Some Increased Positions (Positions they already owned but added shares to)
Schering Plough (SGP): Increased by 300% - inactive now due to buyout
Molson Coors (TAP): Increased by 45.5%
Pfizer (PFE): Increased by 40.7%
Pepsi Bottling Group (PBG): Increased by 33.3%
PepsiAmericas (PAS): Increased by 25%
Wyeth (WYE): Increased by 24% - inactive now due to buyout

Some Reduced Positions (Some positions they sold shares in)
Bank of America (BAC): Reduced by 54.9%
Phoenix Companies (PNX): Reduced by 7.3%

Flat Positions (Stakes with no change in amount of shares owned since Q2)
Ligand Pharma (LGND), Oracle (ORCL), Biofuel Energy (BIOF), Trian Acquisition (TUX), Greenlight Capital Re (GLRE), Lions Gate Entertainment (LGF), Liberty Acquisition (LIA), Liberty Media (LMDIA), Allergan (AGN), Hewlett Packard (HPQ), Anadarko Petroleum (APC), Apple (AAPL), PHH (PHH), Depomed (DEPO), and Nabi Biopharma (NABI).

Removed Positions (Positions they sold out of completely)
Yahoo (YHOO)
Sun Microsystems (JAVA)
Transatlantic Holdings (TRH)
Quest Communications (Q)
Legg Mason (LMI)
Maguire Properties (MPG) - we had covered them selling back in July
Guaranty Financial (GFGFQ)

Top 15 Holdings by percentage of assets reported on 13F filing

Wyeth (WYE): 15.2% (inactive, bought out by Pfizer)
PHH (PHH): 7.1%
CF Industries (CF): 5.5%
Liberty Acquisition (LIA): 5.2%
Bank of America (BAC): 4%
Popular (BPOP): 4%
Transdigm (TDG): 3.9%
HealthNet (HNT): 3.7%
Molson Coors (TAP): 3.1%
Pfizer (PFE): 3%
Wellpoint (WLP): 3%
Cablevision (CVC): 2.8%
Depomed (DEPO): 2.3%
Allergan (AGN): 2.2%
Hewlett Packard (HPQ): 2.2%

Overall, the vast majority of changes in Dan Loeb's portfolio were via either buying completely new stakes, or selling out of holdings entirely. There were only a few partial adjustments to the portfolio. In terms of brand new stakes, their positions in Popular (BPOP), Transdigm (TDG), and Healthnet (HNT) were all pretty large as they landed in the top 10 of Third Point's long US equity portfolio. It's also worth highlighting that their new stakes in Wellpoint (WLP) and Cablevision (CVC) were not far behind in terms of size either.

Notable positions that they sold completely out of include Yahoo (YHOO) and Sun Microsystems (JAVA). Those positions had previously been their 6th and 7th largest US equity holdings when we covered Loeb's portfolio in Q2 of this year. One position they still hold onto but did sell some of was their large stake in Bank of America (BAC). They just started that position last quarter and in one of his past investor letters, Loeb mentioned BAC could see ~$3 per share in normalized earnings power. It is interesting though that he has already sold more than half of his position.

You'll note the vast increase in their Schering Plough stake, but keep in mind that the security is now inactive as it was bought out by Merck earlier on. So, it appears that Loeb and company were playing the arbitrage of that buyout. In another arbitrage play, Third Point boosted their holdings in Wyeth (WYE) as they were set to be bought by Pfizer (PFE). And speaking of Pfizer, Third Point also increased their stake there and it is notable seeing how David Einhorn of hedge fund Greenlight Capital is also very fond of PFE.

Overall though, not terribly too much to report on in terms of portfolio changes as they continue to play their event driven game. Keep in mind that Third Point also operates in the distressed arenas and we cannot see those portfolio holdings as the SEC only requires hedge funds to file on their equity, options, and note positions in US markets. We have already covered the fact that Loeb was seeing tons of opportunities in the distressed space a few months back. So, just realize that these equities are not representative of their entire portfolio. In terms of other recent activity of out Loeb's fund, they filed a 13G on Energy Partners (EPL) not too long ago which we also detailed.

Assets from the collective holdings reported to the SEC via 13F filing were $1.2 billion this quarter compared to $901 million last quarter, so an increase of around $299 million or so invested on the long side in US equities and notes. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series . We've already covered Seth Klarman's Baupost Group, Bill Ackman's Pershing Square, and Stephen Mandel's Lone Pine Capital. Check back daily as we'll be posting up a new hedge fund's portfolio each morning.

Market Wizards: Advice From 15 Top Hedge Fund Managers & Traders

marketfolly@gmail.com (Market Folly) — Wed, 18 Nov 2009 18:50:00 +0000

For some excellent advice from 15 of the top hedge fund managers and traders in the game, check out Jack Schwager's talk in this Market Wizards video. It is a free video from INO TV where Schwager talks for an hour about all the advice he has compiled from these famous hedgies. Schwager is the author of the famous Market Wizards series of books that details advice from some of the top hedge fund managers and traders in the history of the game. He has written an invaluable resource and that is why Market Wizards is one of the staples on our recommended reading list.

Investors he has interviewed in the past include:

Paul Tudor Jones (legendary trader & founder of hedge fund Tudor Investment Corp)
Michael Steinhardt (founder of the modern day hedge fund via his old Steinhardt Partners)
Bruce Kovner (runs the global macro hedge fund giant Caxton Associaties)
Ed Seykota
Michael Marcus
Richard Dennis
& many more

Check out Schwager's talk where he shares the advice he learned from the Market Wizards here. You have to fill out your information to see the free video and we wouldn't post about it unless it was worth your time. We're sure you'll enjoy hearing from Jack Schwager as he talks about what the investing legends shared with him. Don't forget to also check out Schwager's book too as it contains a wealth of information about these hedgies and how they got to where they are. It's definitely one of our favorite resources.

Stephen Mandel's Lone Pine Capital Buys a Basket Full of Apple (AAPL)

marketfolly@gmail.com (Market Folly) — Wed, 18 Nov 2009 18:45:00 +0000

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

The third hedge fund we're covering is Stephen Mandel's Lone Pine Capital. The hedge fund, named after a historical lone pine tree at Mandel's alma mater Dartmouth College, has an assets under management (AUM) base well in excess of $8 billion. Mandel's fund had returned 25% annually from inception in 1997 up until the crisis. 2008 was a bad year for them and definitely put a chink in their armor, so now they're looking to get back to winning ways. We track Mandel due to his excellent stockpicking skills as he runs a long/short equity fund that is easy to track. They seek out companies trading below intrinsic value and they also like to see good management teams.

We've already covered some of Lone Pine's recent activity when we noted that they had started a new position in MSCI (MXB) and also a new stake in Green Mountain Coffee Roasters (GMCR). While we're covering their holdings in US equities in the following post, we've also covered their UK positions as well.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter, starting with the largest new position first and working down):
Apple (AAPL)
Green Mountain Coffee Roasters (GMCR)
Cemex (CX)
Walgreen (WAG)
FLIR Systems (FLIR)
Schein Henry (HSCI)
Walter Industries (WLT)
MSCI (MXB)
Goodrich (GR)
Citrix (CTXS)
Huntington Bancshares (HBAN)
Popular (BPOP)
Estee Lauder (EL)
Dr Pepper Snapple (DPS)
Etrade Financial (ETFS)

Some Increased Positions (Positions they already owned but added shares to)
Discovery Communications (DISCA): Increased by a massive 24,581% (they held relatively few shares in the quarter prior)
Sears Holdings (SHLD) Puts: Increased by 207%
Southwestern Energy (SWN): Increased by 197.6%
Mindray Medical (MR): Increased by 96.6% (but still a relatively small portion of their portfolio)
Vistaprint (VPRT): Increased by 40%
JPMorgan Chase (JPM): Increased by 30.4%
Liberty Media (LMDIA): Increased by 28.9%
Hewlett Packard (HPQ): Increased by 16.4%
Pactiv (PTV): Increased by 9.4%
Monsanto (MON): Increased by 7.2%

Some Reduced Positions (Some positions they sold shares in)
Philip Morris International (PM): Reduced by 86.5%
Fomento Economico (FMX): Reduced by 86.5%
Coach (COH): Reduced by 62%
America Movil (AMX): Reduced by 57.4%
Deltek (PROJ): Reduced by 43.8%
Coca Cola (KO): Reduced by 38%
Vivendi (VIV): Reduced by 35%
Smithfield Foods (SFD): Reduced by 26.6%
Qualcomm (QCOM): Reduced by 26.2%
McDonald's (MCD): Reduced by 24.7%
Priceline (PCLN): Reduced by 20.9%

Removed Positions (Positions they sold out of completely)
Nike (NKE)
Google (GOOG)
Ecolab (ECL)
Urban Outfitters (URBN)
Union Pacific (UNP)
XTO Energy (XTO)
MSC Industrial (MSM)
Sandridge Energy (SD)
Mead Johnson (MJN)
Fifth Third Bancorp (FITB)
Suntrust Banks (STI)
Progressive (PGR)

Top 15 Holdings by percentage of assets reported on 13F filing

JPMorgan Chase (JPM): 8.91%
Monsanto (MON): 8.07%
Apple (AAPL): 7.12%
Qualcomm (QCOM): 6.55%
Hewlett Packard (HPQ): 5.78%
McDonalds (MCD): 4.51%
SPDR Gold Trust (GLD) Calls: 4.24%
Priceline (PCLN): 3.81%
Visa (V): 3.79%
Green Mountain Coffee Roasters (GMCR): 3.49%
Strayer Education (STRA): 3.47%
Mastercard (MA): 3.00%
America Movil (AMX): 2.73%
Southwestern Energy (SWN): 2.68%
Coca Cola (KO): 2.31%

The most noticeable thing about Lone Pine's portfolio is the gigantic stake in Apple (AAPL) they started. As of their last 13F filing (Q2), they did not hold a stake. So, in that three month period, they accumulated over 3 million shares and brought it up to their third largest holding in US equities. The second notable new position was the one they initiated in Green Mountain Coffee Roasters (GMCR), but we had already covered that as per their 13G filing on the name. JPM was their largest holding as of Q3 as they boosted their position in it by 30%.

In terms of positions they already held but increased, they definitely boosted their Discovery Communications (DISCA) stake in a big way. This is mainly because they held so few shares in Q2, but it's still worth highlighting. We also want to point out they ramped up their stake in Sears (SHLD) puts by over 200%, as it appears they are bearish on the name.

Their most notable sale was in shares of their longtime favorite America Movil (AMX). As we've detailed in the past, numerous of the 'Tiger Cub' hedge funds had been invested in AMX but suddenly started to sell it off. That is, all except Lone Pine, who was adding to their position in quarters prior. Now this quarter marks the first time in a while we have seen them sell shares of AMX in a big way, cutting 57% of their position. It had previously been their fourth largest long position in US equities and we'll have to keep an eye on this to see what they do with it in the future.

Also worth pointing out is that Lone Pine's portfolio is littered with a bevy of other sales. They sliced their stakes in Philip Morris International (PM) and Fomento Economico (FMX) both by over 85% and they also cut Coach (COH) by over 60%.

*Update: Lone Pine just filed an amended 13F with the SEC and actually disclosed that they still did own 2,499,729 shares of Vistaprint (VPRT) on September 30th, 2009. You can read our full update on the situation here. Originally, VPRT did not appear on their 13F so it looked as if they had sold out of the position entirely just months after boosting their stake back in August. But, in the end, it appears that they did not sell out of VPRT after all. What's interesting to note about this company specifically though, is that VPRT receives around 40% of their net from referral fees that they earn from forwarding customers' credit card information to third parties. The Senate commerce committee recently had a hearing on these practices following a 6 month investigation. So, VPRT's revenue stream could possibly be in jeopardy, but we'll have to wait and see how that plays out. In the end, Lone Pine did still own shares of the company as of September 30th, 2009 and actually increased their position by 40% on a quarter over quarter basis.

Lastly, given all the buzz about gold, it's also worth noting that they still retain their gold position via calls on SPDR Gold Trust (GLD); the position was unchanged and represents a decent chunk of their portfolio.

Assets from the collective holdings reported to the SEC via 13F filing were $8 billion this quarter compared to $7.37 billion last quarter, so a slightly noticeable tick to the upside. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series . We've already covered Seth Klarman's Baupost Group and Bill Ackman's Pershing Square, and this is just the beginning of the hedge fund portfolio updates, so check back daily.

Millennium Partners: Israel Englander's Keynote Speech From the Absolute Return Symposium

marketfolly@gmail.com (Market Folly) — Wed, 18 Nov 2009 18:25:00 +0000

A while back we mentioned on the blog that there would be quite a cast of hedge fund characters at the Absolute Return + Alpha Hedge Fund Symposium. That event recently took place in the beginning of November and we'll have a full post covering the event shortly. But in the mean time, we wanted to present the keynote address given by Millennium Partners' Israel Englander.

Englander addressed the issue of transparency and 'friendly' relations between hedge funds and investors. Due to the crisis, investors have (rightfully) demanded more information and more rights. The credit crisis certainly highlighted some of the flaws in the industry and Englander also points out that the manager's interests need to be aligned with that of the investor.

We highly recommend checking out this hedge fund great's take on the current industry. Courtesy of Dealbook, embedded below is the transcript of his keynote address (RSS & Email readers come to the blog to view it):

Unfortunately, Dealbook blocked downloading privileges so you'll have to make-do with the Scribd embedded document. We recommend selecting 'full screen' so it's easier to read. Stay tuned as we'll pen a separate post detailing the event where we'll cover insight from other prominent hedgies.

Bill Ackman's Pershing Square Boosts McDonald's Stake (MCD)

marketfolly@gmail.com (Market Folly) — Tue, 17 Nov 2009 18:58:00 +0000

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

Yesterday we kicked off our coverage with the most requested hedge fund by readers: Seth Klarman's Baupost Group. Today, we're continuing our coverage with another highly requested fund: Bill Ackman's Pershing Square Capital Management. Ackman is a well known value oriented and activist hedge fund manager who often takes large stakes in companies. For a more in-depth look at Bill Ackman, head to our profile of Pershing Square here.

Ackman's fund is good to track via SEC filings because he runs a very concentrated equities portfolio and typically holds the names for a longer timeframe. This way, the timelag associated with SEC filings is not detrimental to our coverage. Not to mention, Ackman typically takes larger stakes in companies which often require 13G or 13D forms to be filed so we are always on top of his portfolio maneuvers. And, our coverage of his portfolio via his latest 13F highlights just why it is prudent to monitor all SEC filings by any given manager.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Corrections Corp of America (CXW) - See Ackman's presentation on this play

Some Increased Positions (Positions they already owned but added shares to)
McDonald's (MCD): Increased by 243.6%
Target (TGT): Increased by 4.6%

Flat Positions (No change since Q2)
Greenlight Capital Re (GLRE)
EMC (EMC)
Borders (BGP)

Some Reduced Positions (Some positions they sold shares in)
Automatic Data Processing (ADP): Reduced by 15.7%

Removed Positions (Positions they sold out of completely)
n/a

Pershing's Entire Portfolio (by percentage of assets reported on 13F filing)

Target (TGT): 38.80%
EMC (EMC): 31.95%
McDonalds (MCD): 15.04%
Automatic Data Processing (ADP): 7.68%
Corrections Corp of America (CXW): 5.32%
Borders Group (BGP): 1.05%
Greenlight Capital Re (GLRE): 0.15%

As we mentioned earlier, Pershing Square runs a very concentrated portfolio. Target makes up the bulk of their holdings but keep in mind that much of that is due to their Pershing Square IV hedge fund that holds Target as its only position. The only new addition to Pershing Square's portfolio is that of Corrections Corp of America (CXW). We had already detailed his thesis behind this investment from his presentation at the Value Investing Congress. The other notable change to their portfolio was the boost in their MCD position and Ackman detailed some of his thoughts on this investment in his Q2 investor letter.

While SEC filings do not require funds to disclose short positions, we do know that one of Ackman's shorts is real estate play Realty Income (O). Previously, we posted up Pershing's presentation on O which laid out why he thinks it will have to cut its dividend, sending its retail investor base fleeing.

The fact that we know one of Ackman's shorts in addition to almost all of his longs has made readers wonder why investors are willing to pay management and performance fees for his hedge fund when the majority of his positions are readily disclosed. The counterpoint to that question would be the fact that you don't know *all* of his shorts, nor can you put on his positions that are institutional in nature. Typical investors usually don't have access to credit default swaps (CDS), a tool Ackman likes to use for putting on his short plays. And, in addition to his equity plays, Ackman also has various positions in the debt markets (General Growth Properties being a prime example). So, while you can create a semi-Pershing portfolio simply through their equity plays, you can't entirely replicate their portfolio solely through SEC filings.

Those of you avidly tracking the General Growth Properties (GGWPQ) situation will note that it is not present in this 13F filing. This is *not* because he has sold out. Pershing still holds GGWPQ debt and equity. It is simply not listed because the SEC has deemed GGWPQ to no longer be a reportable security for 13F filings. This is most likely due to the fact that they are no longer listed on the exchange (GGWPQ is traded in OTC markets). The main thing to take away from this is the fact that we will still see Ackman's moves in GGWPQ through Form 4 filings since he is now on the board of directors. For more info on their position, Ackman's Q2 investor letter briefly touches on GGWPQ here.

Post-13F, Pershing Square has also recently revealed a position in Landry's Restaurants (LNY) but due to the complex nature of that situation we will be penning a separate post on the details shortly.

Assets from the collective holdings reported to the SEC via 13F filing were $3.1 billion this quarter compared to $2.26 billion last quarter, a notable increase in assets invested in long equities. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio since their actual AUM is a figure much larger than what is reported on a 13F.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series . We've already covered Seth Klarman's Baupost Group so check back daily as we'll be posting up a new hedge fund each day.

Warren Buffett & Bill Gates Speak at Columbia Business School

marketfolly@gmail.com (Market Folly) — Tue, 17 Nov 2009 17:41:00 +0000

Recently, legendary investor Warren Buffett and Microsoft founder Bill Gates sat down with CNBC's Becky Quick for a town hall type event at Columbia Business School on November 12th, 2009. We wanted to make sure everyone had a chance to see/read about the event so here it is.

Embedded below is the video of them on CNBC, RSS & Email readers come to the blog to view it:

Or, if you prefer, you can also read the full transcript (warning: it's very lengthy). Embedded below is the transcript of the event (RSS & Email readers come to the blog to read)

You can also download the .pdf of the transcript here. Definitely worth a read/listen so make sure you check it out!

Source: video and transcript from CNBC

Raymond James' Jeff Saut: Beginning of a New Secular Bull Market?

marketfolly@gmail.com (Market Folly) — Tue, 17 Nov 2009 17:15:00 +0000

Raymond James' chief investment strategist Jeffrey Saut is back with his latest weekly market commentary. This week's piece, entitled " 'Tis the season?" focuses on how we have entered the best six months for equity markets historically. The months of November through April have typically performed better than the months of May through October. Saut also highlights this intriguing statistic, noting that "over the past 12 years the DJIA has always shown a profit between November 11th and December 5th." Always is quite a strong word when it comes to equity markets, that's for certain.

Saut's investment strategy this week also focuses on whether or not this is possibly a beginning of a new secular bull market or a "bull market within the confines of the trading range we have been in for the last nine years?" It's a tough question to answer and he admittedly can't answer it either. In fact, he says that nobody can answer that question right now. His team has been cautious after the March lows on a few occasions where they felt the market was overextended. They (like many others) were wrong and have tried to adjust accordingly and play the tape ala what famed trader and hedge fund manager Paul Tudor Jones would recommend. In the end, Saut and his team feel the market indices "will trade higher into the first quarter of 2010."

Embedded below is his latest investment strategy letter (RSS & Email readers come to the blog to read it):

You can also download the .pdf here.

We've covered Saut's commentary each week so make sure you also check out some of his notable previous thoughts where he talks about how numerous fund managers wished they would have bought at DOW 8000... ah yes, hindsight. Also, Saut has examined Dow Theory sell signals in the past and he has also put out this insightful piece on what a 'permanent' investment might be. We'll continue to cover his thoughts on a weekly basis.

Seth Klarman's Baupost Group Sells Capitalsource Shares (CSE)

marketfolly@gmail.com (Market Folly) — Mon, 16 Nov 2009 23:40:00 +0000

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

We're baaaack. We're kicking off our Q3 2009 portfolio tracking with the hedge fund that was most requested by readers: Seth Klarman's Baupost Group. This should come as no surprise given Baupost's amazing 20% annual compounded return. While Warren Buffett is often singled out as the greatest investor out there, one other man could very well be mentioned in the same sentence. We're talking of course about Seth Klarman. If you want to learn how to invest like Seth Klarman, then we'd highly recommend picking up his very hard to find book, Margin of Safety where he provides a "how-to" on risk averse value investing.

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 as our portfolio is about to be re-balanced with new holdings).

Keep in mind that the positions listed below were Baupost's long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single minor portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter):
Enzon Pharmaceuticals (ENZN)

Some Increased Positions (Positions they already owned but added shares to)
Viasat (VSAT): Increased position by 148%

Some Reduced Positions (Some positions they sold shares in)
Capitalsource (CSE): Reduced position by 41%
Syneron (ELOS): Reduced position by 32%
Facet Biotech (FACT): Reduced position by 20%
Audiovox (VOXX): Reduced position by 6%

Flat Positions (Holdings with no change in position size)
Alliance One (AOI), Breitburn Energy (BBEP), various Capitalsource notes, Domtar (UFS), Ituran Location and Control (ITRN), Liberty Media (LMDIA), Multimedia Games (MGAM), News Corp (NWS-A), Theravance Notes, Theravance (THRX), and RHI Entertainment (RHIE).

Removed Positions (Positions they sold out of completely)
GHL Acquisition
iStar Financial (SFI)
Horizon Lines (HRZ)
KBL Healthcare (inactive)
News Corp (NWS)
PDL Biopharma (PDLI)

Top 15 Holdings by percentage of assets reported on 13F filing

News Corp (NWS-A): 21.68%
Capitalsource (CSE - including positions in common stock and various notes): 19.53%
Theravance (THRX - including positions in common stock and notes): 12.34%
Liberty Media (LMDIA): 9.68%
Breitburn Energy Partners (BBEP): 7.12%
Viasat (VSAT): 5.97%
Facet Biotech (FACT): 4.47%
Domtar (UFS): 2.97%
Alliance One (AOI): 2.91%
Syneron (ELOS): 1.76%
Ituran Location and Control (ITRN): 1.31%
Enzon Pharmaceutical (ENZN): 1.26%
RHI Entertainment (RHIE): 1.13%
Multimedia Games (MGAM): 0.98%
Audiovox (VOXX): 0.90%

Many of Baupost's moves detailed in their 13F filing we've already covered here on Market Folly. This just goes to show why it's prudent to track the full spectrum of SEC filings. We already knew that Baupost had sold out of Horizon Lines (HRZ) and had been selling shares of Facet Biotech (FACT). Not to mention, we already covered the fact that Baupost sold out of PDL Biopharma (PDLI). The only new addition to Baupost's portfolio was Enzon Pharmaceuticals, and we had already disclosed this addition earlier on the blog as well.

So, there's really not a whole lot of new information revealed in their 13F filing apart from two changes. The first major change we see was that Klarman sold 41% of his common stock in Capitalsource (CSE). We saw Thomas Steyer's hedge fund Farallon Capital also sell some CSE common as well recently. While Baupost trimmed their stake there, the rest of their position in Capitalsource via various notes remained unchanged. Secondly, we also saw that Baupost sold completely out of their News Corp B shares position (NWS). This is interesting because they retained their full position in the A shares (NWS-A) but dumped the B shares. Maybe they saw something in regards to valuation or arbitrage there, who knows. One thing is clear though: they prefer NWSA over NWS. Keep in mind though that the bulk of their holdings in News Corp has always been through the A shares and that their B shares position was much smaller. Also, in terms of positions Baupost already held but added to, Viasat (VSAT) fits the bill. They've been adding to this name very recently as they just filed a 13G on VSAT.

Assets from the collective holdings reported to the SEC via 13F filing were $1.35 billion this quarter compared to $1.26 billion last quarter, so a slight uptick. Observant readers will note that Baupost in reality has an assets under management (AUM) base of around $20 billion, so there's quite a gap here. Firstly, keep in mind that Baupost typically keeps a lot of cash on hand. Secondly, Klarman has been out recently saying that equities are not as attractive as previously so it doesn't sound like he'll be too active there. Thirdly, he also mentioned that he is starting to like illiquid investments here and so that could also count for some of the assets. And lastly, remember that 13F's do not include short positions, holdings in other markets (foreign markets, futures, etc) or cash. So, all of the above combined helps to bridge the gap between 13F reported assets and their actual AUM.

Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

We'll continue to monitor Baupost's 13G and 13D filings as that seems to be where the bulk of their action comes in. For more resources of Klarman and Baupost, check out the following:

- Klarman's interview from the annual Graham & Dodd breakfast
- Recent thoughts from Seth Klarman
- An interview with Seth Klarman

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series . Baupost is the first fund we've covered but check back in each day as we'll be cranking out updates daily, identifying what the top hedge funds are investing in.

Eclectica Fund: Hugh Hendry's November Commentary

marketfolly@gmail.com (Market Folly) — Mon, 16 Nov 2009 14:55:00 +0000

Today we've got Hugh Hendry's latest market commentary through his Eclectica Fund November investor letter. We often feel it's pertinent to examine both sides of the argument in any given situation. Not to mention, there are always 'two sides to a trade.' One of the main arguments engulfing financial markets has been the inflation versus deflation debate. Hugh Hendry has been our resident deflationist as we've covered his thoughts numerous times. While many of you may not agree with his thoughts, it's at the very least worth the time to weight the other side of the argument, as Hugh seems to be a contrarian in many of his plays. Not to mention, he is in good company with his deflationary stance as PIMCO's bond king Bill Gross has bet on deflation as well.

Hugh was recently out in the media saying that the market was 'all one trade' and was too crowded for his taste, as we detailed in our hedge fund news update. In his November commentary, Hendry again focuses on the latest market action as a 'rally in inflationary assets.' He notes that it is essentially all one trade: long emerging markets, long commodities, short the US dollar, etc. In the end, they are all tied to inflation. His letter then goes on to focus on why this rally could be a fake and we recommend reading his thoughts in their entirety below.

This is interesting mainly because so many hedge funds we track have been putting on curve cap plays and have been betting on inflation through various instruments. Many funds have even gone long copious amounts of gold, as they seek to hedge themselves from the printing presses of governments that are devaluing fiat currency. As such, Hugh's stance is a departure from the norm we've seen from many hedge fund managers here on the blog.

Embedded below is Hugh Hendry's Eclectica Fund November Commentary. RSS & Email readers come to the blog to view it:

Also, you can download the .pdf here.

For more from Hugh Hendry's Eclectica Fund, definitely check out his past market commentary here, as well as here. As always, we'll cover Hendry's thoughts as he continues to divulge them. Because after all, it's always prudent to examine both sides of the argument. And for those of you continuing to examine this debate, check out this post examining commodity inflation versus asset deflation.

Trading Ideas: Technical Analysis Weekly Watchlist

marketfolly@gmail.com (Market Folly) — Mon, 16 Nov 2009 14:33:00 +0000

As always, here's the latest from the OptionAddict who posted up his weekly watchlist of trading ideas. He scans through some charts to identify some possible trading ideas for the near-term. Definitely worth a look if you're a swing trader.

Here's his technical analysis video embedded below (RSS & Email readers come to the blog to view it):

Need Help From Readers: Which Hedge Funds To Track First?

marketfolly@gmail.com (Market Folly) — Fri, 13 Nov 2009 14:01:00 +0000

Yep, it's hedge fund 13F filing season for the third quarter of 2009. We will have no life for the next week or two, but it's okay because let's face it... we love tracking hedge funds. Earlier this morning, we posted up a list of hedge funds whose portfolios we'll update.

We have two simple questions for you:

1. Which hedge funds do you want us to cover first?

2. Besides the ones already on our list, what other hedge funds do you want us to track?

You are the ones reading, so tell us what you want to see!

Site visitors, please click on the 'comments' button below this post and let your voice be heard.
RSS readers, come to the blog to post up your comment, or email us.
Email newsletter readers: Simply reply to the daily email you receive from us.
Twitter followers: Just '@' reply to us with your picks.

Thanks for your help!

Hedge Fund 13F Filings: Q3 2009 Portfolio Tracking

marketfolly@gmail.com (Market Folly) — Fri, 13 Nov 2009 13:55:00 +0000

This post is the preface to the series we will be doing in the coming weeks that details what many prominent hedge funds have been up to in the third quarter of 2009 as per their 13F filing.

Four times a year (once each quarter), hedge funds & asset managers with greater than $100 million AUM (assets under management) are required to report to the SEC their long holdings from the previous quarter. These filings do not show the funds' short positions and require them to disclose their long holdings in equity markets. Additionally, they are required to file various puts or calls purchased in the options market as well as notes & bonds. These filings do not cover commodities, currencies, or other markets. So, we just wanted to clarify that for people new to 13F filings.

We check these 13F filings quarterly just to get a sense as to where these funds are putting their money. If you just sit down and do some simple number crunching between this quarter's 13F and the one prior, you can see exactly what everyone has been up to. And, if you create a cloned portfolio based on these top hedge fund holdings, you can see 26.1% annualized returns like our Market Folly portfolio created with Alphaclone.

Please note that these 13F's should be treated as a lagging indicator simply because the 13F's that are being released currently (November 12th-21st 2009) show the funds' portfolio holdings as of September 30th, 2009. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to and what their concentrated positions are.

We like to specifically follow equity focused hedge funds as they are the easiest to track. We focus on value based (or growth-at-a-reasonable-price) hedge funds in the hope that they won't experience ridiculously high turnover and thus allow us to somewhat track their movements as they build up concentrated positions. Specifically, we follow the 'Tiger Cubs' (otherwise known as the proteges of former hedge fund Tiger Management legend Julian Robertson). Many of these former proteges/right-hand men have started their own funds and here are the ones we've been following.

- John Griffin's Blue Ridge Capital
- Stephen Mandel's Lone Pine Capital
- Lee Ainslie's Maverick Capital
- Andreas Halvorsen's Viking Global
- Chase Coleman's Tiger Global
- Shumway Capital Partners (Chris Shumway)
- Philippe Laffont's Coatue Capital Management
- David Gerstenhaber's Argonaut Capital Management
- Charles Anderson's Fox Point Capital Management
- Jonathan Auerbach's Hound Partners

Additionally, we also like to follow the Commodities Corporation "offspring" which have gone off to start their own funds and typically employ a global macro strategy. We don't track them for their equity portfolios since they typically deal in futures, but we like to see what sectors they might be flocking to and whether or not they have a large allocation to US equities.

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

Additionally, we like to follow other well known investment gurus. These include:

- Warren Buffett
- Carl Icahn
- George Soros

Next, there is an assortment of funds that employ various strategies ranging from activist to global macro and often run concentrated portfolios. We track some of these funds due to their solid returns over the years, while we track others due to the spotlight that has been cast on them during the crisis.

- Bret Barakett's Tremblant Capital
- Peter Thiel's Clarium Capital
- Philip Falcone's Harbinger Capital Partners
- Boone Pickens' BP Capital
- John Paulson's Paulson & Co
- Barry Rosenstein's Jana Partners
- Eric Mindich's Eton Park Capital
- Farallon Capital Management (Thomas Steyer)
- Raj Rajaratnam's Galleon Group (they have already liquidated their portfolios but we will post up what they previously held as many readers have already asked for coverage of this)
- Ken Griffin's Citadel Investment Group
- Jeffrey Gendell's Tontine Associates

A few value & activist funds:

- Seth Klarman's Baupost Group
- David Einhorn's Greenlight Capital
- Dan Loeb's Third Point LLC
- Bill Ackman's Pershing Square Capital Management

For our readers, we also track some quant and highly active trading funds. We do not track these firms to gain insight for portfolio investing ideas. Instead, it's merely for fun because for whatever reason, people like to see what they are doing. It's basically useless to track them due to their high frequency trading nature and none of us could really tell you the rhyme or reason behind any one of their positions.

- Jim Simons' Renaissance Technologies
- Steven Cohen's SAC Capital
- David Shaw's D.E. Shaw & Co.

We also track some managers who previously worked at funds mentioned throughout the list above, but now have struck out on their own. As they were some of the brains behind the solid returns of some funds listed above, we feel it's only appropriate to track them now.

- David Stemerman's Conatus Capital (ex-Lone Pine)
- Anand Parekh's Alyeska Investment Group (ex-Citadel)
- Matt Iorio's White Elm Capital (ex-Lone Pine)
- Lee Hobson's Highside Capital Management (ex-Maverick)
- Roberto Mignone's Bridger Management (ex-Blue Ridge)
- David Gallo's Valinor Management

We've also just recently started to track another set of funds due to high demand from our readers. While Market Folly is only a team of 1, we'll try our best to crank out as much hedge fund content as we can.

- Passport Capital (John Burbank)
- Sprott Asset Management (Eric Sprott)
- Balyasny Asset Management (Dmitry Balyasny)

Over the coming weeks we'll touch on some of the important position moves these funds and market gurus have made. Our hedge fund coverage now spans well over 40+ funds. If you would like to see a specific hedge fund covered here on MarketFolly.com, post up a comment in the comments section below. We're always looking to add more funds that readers would like to see, so please drop in your suggestions.

Last, but not least, we're always looking for people to help us cover these hedge funds, as it gets to be a bit tedious (this is a one-man show here). If you're interested in helping out posting up 13F information or have resources worth sharing, please get in contact with us at the top of the site. The hedge fund tracking series third quarter 2009 edition starts today, so spread the word and check back daily.

First up, Seth Klarman's Baupost Group (in a separate post).

Ten Rules For Successful Investing

marketfolly@gmail.com (Market Folly) — Fri, 13 Nov 2009 13:53:00 +0000

The following is a guest post from Keith Fitz-Gerald, chief investment strategist of Money Morning.

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With all the financial woes in the global economy, the worst thing an investor can do is to “freeze up.” With all the ups and downs in the market, it’s all too easy for investors to allow their emotions to take control. That’s when the smallest mistakes turn into the biggest mistakes.

There’s one antidote for this problem … remembering a few basic rules. Just embrace the 10 ideas that follow and you’ll be in line to make some serious money in the months ahead.

Rule Number 1: Invest on the Right Side of Major Economic Trends:That old investing adage “Don’t fight the Fed” serves as a good example here. Rising interest-rate environments make meaningful gains difficult to sustain – unless you know what to look for. Far too many investors got it wrong in the 2000-2003 and 2008-2009 periods by betting on growth stocks in a recessionary economy, and they’re still getting it wrong. Those investors are likely to get burned again should the economy slow even more, despite the government-bailout and federal-stimulus efforts. Make sure to analyze all of the other major global trends, as well – and ride the ones that are truly unstoppable. You’ll know them when you see them, because they’ll have trillions of dollars in new capital flowing directly at them – investment plays in such areas as infrastructure, inflation, energy, food, and water (both supply and purity) are great examples.

Rule Number 2: Sell Your Winners: This may seem counterintuitive, but – if you want to succeed – you must sell your winners. Rule Number 6 – thinking like a plumber to prevent losses – is only part of the success equation. To be really effective, you have to take profits, too. That way, you get more capital that you can put to work. Think of it this way – Safeway Inc. (SWY) regularly replenishes the inventory in its Produce Department to keep it fresh. You should do the same with the “inventory” in your portfolio because, if you let your stocks sit on the shelf too long, they’ll eventually go bad – just like fruit that’s past its expiration date.

Rule Number 3: Always Sit in an Exit Row:This rule goes hand in hand with Rule Number 2. One of the most common problems investors have is not knowing when to sell. Sometimes, they’ll let a big loss get out of control (which violates Rule Number 6) – or, worse, they’ll notch a big gain and then sit on the investment so long that it sneakily turns into a loss. The bottom line is that, up or down, you should always have planned exit points when you initiate a position – and enforce them with "protective stops,"adjusting them as prices move in your favor (but never when they go against you).

Rule Number 4: Your Broker is a Salesman. So unless you know you want to buy what he has, don’t go shopping today! Wall Street is not a service business. Brokers exist for one reason and one reason only – to sell you stuff and make money . . . from your money. And the more of your money you give to them, the less you have to make more for yourself. So buy only what you want and what fits your goals and objectives – not the “stock of the day ” the broker is pushing to meet his weekly quota.

Rule Number 5: Invest for High Yields:Contrary to popular belief, rather than investing for capital gains, you should aim for the highest possible yields and the most certainty you can find. The real secret to wealth-building is compounding small gains over long periods of time. In fact, studies show that compound returns can outperform so-called "growth stocks" by as much as 22-to-1. Furthermore, dividends account for a huge percentage of total returns – varying studies have claimed anywhere from 60% to as much as 97% over time. So, don’t ignore them!

Rule Number 6: Think Like a Plumber: Big losses – like six inches of water in your living room – are expensive and can set you back years. Professional traders – and I’m not including the risk-junkie cowboys who drove the derivatives mess to heck in a handbasket – understand this. And because they do, they focus the majority of their efforts on avoiding losses, instead of on capturing gains. It’s counter-intuitive, but it really makes a difference. Besides, if you keep those portfolio pipes from bursting, you won’t have to worry about your assets leaking away, drip by drip.

Rule Number 7: Buy Value: Buying when the underlying value is “right” can mean the difference between pathetic single-digit gain and truly market-beating returns. It’s hard to make money when valuations – as reflected by Price/Earnings (P/E) ratios are greater than 20. More normal valuations sit in the 12 to 14 range. However, to really make money, you need to buy when valuations have been beaten down into the single digits – assuming, of course, that the company’s underlying value is real. Doing so puts the odds strongly in your favor and can dramatically boost returns.

Rule Number 8: Retirement is a Lifestyle Issue, Not a Monetary One: When

most people think about retirement, they think about safety. Big mistake. The single biggest problem facing us today is running out of money before we run out of life. If you’ve followed Rule Number 9, this shouldn’t be a problem. However, if you’ve thought about safety and have not invested enough, what you’re really doing is crippling your ability to earn future income – income you’re going to need in order to eat, keep a roof over your head, and provide lifelong life health care. Oh yeah, and have some fun.

Rule Number 9: Start Early and Leave Your Money Alone For as Long as Possible: This is not the same thing as "buy-and-hold" investing. Buy-and-hold is not an investing strategy, it’s a marketing gimmick – and, these days, it’s more like “hope-and-pray” investing, anyway. The world’s most successful investors – think Jim Rogers, Warren Buffet and the late Sir John Templeton, to name a few – don’t buy and hold. And I don’t believe you should, either. These experts buy and “manage,” confining themselves to stocks and strategies that meet their specific objectives. Given that one of our critical objectives is to have our money working hard for us rather than us working hard for it, the point is that you want to start as early in your life as possible and never miss an opportunity to invest. The longer you have your money in play, the better you will be paid when you’re ready to cash out!

Rule Number 10: All Investments Contain Risks – But Not All Investments

Contain the Same Risks:Despite all my talk about avoiding losses, the simple truth is this: If you want to grow your wealth, you have to take on risk. It’s unavoidable. Every investment involves risk – the only questions are how much and under what circumstances. Remember, success is not about how much money you can make, but about how much money you keep. As such, the true secret of wealth-building is taking risk properly.

Indeed, the late legendary U.S. Army Gen. George S. Patton Jr., once said: “There is nothing wrong with taking risks.” But he also cautioned: “That’s quite different from being rash.” I completely agree. What’s more, I think that Patton would have agreed with my belief that if you want to be successful in anything, you have to take a certain amount of risk every day. It’s just a fact of life.

Yet, most folks are unwilling to do so – or they spread themselves too thin, and over-diversify, all with the goal of “protecting” themselves. Unfortunately, by doing so, these investors actually set themselves up for failure – not because they take too much risk, but because they don’t concentrate the risks they do take in the right places!

What are those “right” spots? They’re the investments that can provide the potential rewards to justify the risks the investor has taken.

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The above was a guest post from Money Morning, thanks to them for an interesting read! Keith Fitz-Gerald (the author of the post) has also recently released his new book, so check out Fiscal Hangover: How to Profit From The New Global Economy.

What We're Reading, Friday The 13th Edition

marketfolly@gmail.com (Market Folly) — Fri, 13 Nov 2009 13:50:00 +0000

Random sidenote: This is the third time this year we've had a Friday the 13th... just found that odd and wanted to highlight it. (Others were in February & March). Anyways, onto the links...

John Murphy, an award winning book author, recently provided a free seminar on technical analysis [INO TV]

Investing by the seat of their pants [Abnormal Returns]

What Galleon teaches us [Eric Jackson's Breakout Performance]

Interview with Alice Schroeder re: Warren Buffett's biggest weakness [Motley Fool]

Hedge fund SAC Capital says no insider trading there [Bloomberg]

Hedge funds ready for new boom in start-ups [Bloomberg]

May buy and hold R.I.P. ? [Yacktman]

Interview with prominent Indian value investor Chetan Parikh [Simoleon Sense]

Gold Could Take A Breather; Where To Place Stops

marketfolly@gmail.com (Market Folly) — Thu, 12 Nov 2009 15:03:00 +0000

The guys at MarketClub have been all over the move in gold and initially outlined a price target of $1,110 for the precious metal. Well that target was hit a few days ago and in their latest gold technical analysis video they see gold 'flattening out' a little bit as it could likely consolidate and trade sideways for a while before continuing its trend higher.

They note that it's always prudent to lock in some gains and protect them by using stops. If you're a longer term player in the metal, you can use more flexible stops and they suggest placing one below the most recent low at around $1,030 or so. If you're playing this as more of a shorter-term trade, then you'll obviously want to lock in your profit quicker with a more conservative stop right around $1,095 or so. Watch the video to see what they say about placing stops in gold.

They also highlight that you should move stops up as the market heads higher to continue to lock in gains. The pattern in gold that built up over multiple months is a powerful base that could propel the precious metal to their price target of around $1,250-1,300. If you're not playing the metal directly, keep in mind you can play the popular exchange traded fund GLD. Hedge fund manager David Einhorn of Greenlight Capital prefers storing physical gold, while John Paulson's fund Paulson & Co has bought $4.3 billion worth of gold investments. Either way, the guys at Market Club see gold cooling off for a bit here before setting up for another run higher.

Hedge Fund Lansdowne Partners Favors Large Caps In Developed Countries

marketfolly@gmail.com (Market Folly) — Thu, 12 Nov 2009 15:01:00 +0000

Lansdowne Partners have been regularly rated as one of the best hedge fund managers in London. Whilst they do have global macro and long-only funds they specialize in long-short stock picking. Their flagship, the UK Equity Fund, has returned an impressive 19.37% annualized since 2001 (see table below). Additionally, we recently saw that their UK strategy fund was up 0.32% for the month of October and is now up 22.19% for the year.

	YTD	6m	1y	3y	5y
Lansdowne UK Equity Fund	22.9%	14.0%	24.1%	71.4%	161.9%

Source: Trustnet Offshore

One of the interesting things about Lansdowne is that they currently have a much more bullish outlook on the economy and equities than many other hedge funds we follow on Market Folly. Lansdowne are strongly opposed to a downbeat view and point to a number of factors that they see as positive for equities and the economy in general.

They argue that current valuations in both absolute terms and certainly relative to government and corporate bonds are compelling. They believe that it is premature to worry about growth disappointments because there are still large boosts to growth yet to come from the normalization of the inventory cycle and importantly from the lagged response to the expansive fiscal and monetary actions. In addition, they argue that interest rates are unlikely to rise for some time because the authorities are likely to want to see firm evidence of a recovery. The output gap - estimated to be approximately 4% in the developed markets - means that inflationary pressures are likely to remain muted for some time thereby extending the period that policy can remain accommodative.

In their September 2009 report, Lansdowne argue that a combination of five factors make large-cap companies in developed countries particularly attractive at the moment. Firstly, large companies have done particularly well at cutting costs during the recession, especially labor costs. Consequently, earnings (and more importantly cash flows) have been protected. Secondly, there will be a positive, lagged impact from the fall in commodity prices on input costs mostly from natural gas and oil. Thirdly, currency tailwinds will help US and UK denominated companies where their respective currencies have been weak over the last 12 months. Fourthly, stronger companies will capture market share from weaker competitors; particularly from those who have over-extended balance sheets and are financially constrained. In addition, merger and acquisition opportunities are now back on the agenda. Finally, emerging markets remain a strategically important and ever increasing focus of growth for multinational companies with strong brands.

Lansdowne say that they continue to discover a very large range of potential investment opportunities. In case you were wondering, all this bullishness is not just talk. In their October report, Lansdowne noted that their gross long exposure level was 149% of NAV, up from the previous month (it also includes a 10% short futures position). This is extremely close to the top of their stated range (150%) but even so, they were not inclined to take profits believing that further upside was achievable. Gross short positions were 72% of NAV. Compare that exposure with, for example, David Einhorn's Greenlight Capital who recently disclosed they were 99% long 59% short. Lansdowne say that they are likely to remain bullish until the authorities step back from their accommodative stance and raise interest rates, which they believe is unlikely in the short-term.

We can get an idea of the type of large-cap company that Landowne believe will prosper going forward because they detail their largest 11 holdings in their UK Strategic Equity Fund in their September letter:

Barclays, BHP Billiton, Coca Cola, Colgate, Goldman Sachs, International Business Machines, JP Morgan, Palmolive, Rio Tinto, Roche, Wells Fargo

Plenty of US large-caps there for a fund with a supposed UK focus! In terms of sector and thematic positioning from their September update, they maintained exposure to the banking and mining sectors. Lansdowne believe that the biggest exogenous threat to their world view would be 'cost push inflation' arising from the commodity markets. In order to combat that threat they own out-of-the money call options on oil and miners like BHP Billiton and Rio Tinto.

In their October letter, they note that they added to their positions in Lloyds and Barclays on weakness. To hedge this, they also added to their shorts in the insurance sector. They also boosted their position in Roche up "to a full weighting" after shares slumped around Q3 sales. They think the pharmaceutical sector is intriguing here after underperforming for many years.

Now let's turn to look at what we can learn about Lansdowne's holdings in the UK market from their regulatory filings to the London Stock Market. Our primer on understanding the UK disclosure system can be found here. Remember that there is no equivalent of the 13F form for hedge funds in the UK and generally speaking hedge funds only have to disclose long positions that are greater than 3 percent of a company's outstanding equity. It's important to recognize that the UK disclosure system provides us with a distorted view of hedge fund holdings as large-cap holdings are rarely seen because they often do not breach the 3 percent threshold but investments in mid-cap and particularly small-cap companies show up prominently. Of course this information is still useful because when a hedge fund builds a large stake in a small or medium sized company, it demonstrates a great deal of commitment to the investment thesis as such positions can be difficult to exit at speed, particularly in a down market.

Company	Symbol	Date	Shares	% of Equity
Inmarsat	ISAT	01/07/2007	46001346	10.06
		03/01/2008	50958170	11.14
		14/05/2009	55810250	12.14
		02/09/2009	59942059	13.04

The Evolution Group	EVG	27/04/2009	11305306	5.03

Henderson Group	HGG	31/10/2008	45098010	6.22

Proximangen Neuroscience	PRX	20/03/2007	1520270	7.59
		25/11/2008	3156723	14.63
		24/06/2009	14849580	25.92

Oxford Catalysts Group	OCG	16/11/2006	3106609	8.32
		10/10/2007	5174586	12.76
		25/01/2008	5309586	13.09
		20/11/2008	10109586	16.95

Renewable Energy	REH	15/07/2008	5633166	8.26

Afren	AFR	15/04/2008	47208333	12.83
		07/05/2009	82,208,333	11.53
		29/05/2009	78,139,283	10.91

Heritage Oil	HOIL	03/04/2008	18996540	7.45
		22/06/2009	28776161	10.05

IP Group	IPO	08/05/2007	24674785	9.99
		04/02/2008	32924785	13.15

It's interesting that Lansdowne holds a big 13 percent chunk of Inmarsat (ISAT). ISAT provides global mobile and transportable broadband communication services to maritime, aeronautical and land mobile users. Many believe that activist hedge fund Harbinger Capital is likely to make a formal offer for Inmarsat anytime soon. Harbinger currently hold a 29 percent stake in the company as we detailed in our article on Harbinger's activist positions in the UK.

Renewable Energy is a position that Lansdowne share with Paul Tudor Jones' hedge fund Tudor BVI Global. (See our article on Tudor's holdings in the UK here). Renewable Energy Holdings owns and operates windfarms in Germany and Wales. The Company’s subsidiaries are also involved in developing wave power technology and as a by-product, desalinated water. Oxford Catalysts Group PLC has close links with the University of Oxford and is engaged in the design and development of catalysts and microchannel systems. It develops technology for the production of clean fuels from both conventional fossil fuels and renewable sources, such as biowaste. IP Group helps owners of intellectual property like universities to develop commercial ventures through the formation of long-term partnerships and the management of venture funds. They focus on early-stage United Kingdom technology and pharmaceutical companies.

The holdings in Herderson Group and Evolution Group provide support for the idea that Lansdowne believe in further recovery in the financial sector. Henderson Group Plc is a United Kingdom-based company engaged in providing investment management services. The Evolution Group through its subsidiaries is involved in investment banking and also provides private client investment management.

Both Afren and Heritage are independent companies involved in the exploration and production of oil and gas. Afren has an African focus while Heritage is involved in Africa, the Middle East, Russia and South Asia.

Proximagen Neuroscience plc is focused on developing drugs for the treatment of age-related neurodegenerative disorders, including Parkinson's disease and Alzheimer's disease.

That ends our first look at Lansdowne Partners. As always, we will be continuing our tracking series where we look at the positions that prominent hedge fund managers hold in UK markets. If you've missed some of our previous posts, make sure you check out the holdings of Harbinger Capital Partners, Stephen Mandel's Lone Pine Capital, Ken Griffin’s Citadel , Louis Bacon's Moore Capital Management and Paul Tudor Jones’s Tudor Investment Corp .

If you're unfamiliar with our new series tracking UK positions, check out our preface here. We have also covered the potential for hedge fund activism in the UK investment trust sector and London based, GLC Ltd.

Hedge Fund Paulson & Co Buys Even More Cadbury (CBY)

marketfolly@gmail.com (Market Folly) — Thu, 12 Nov 2009 14:01:00 +0000

Literally just yesterday we touched on the fact that hedge fund manager John Paulson is betting on the Cadbury (CBY) buyout by buying shares. Well, he has just bought even more. Paulson purchased 6,395,000 more shares at a price of 759.96 pence each. This brings his total securities exposure to 26,768,256 shares. As we touched on yesterday, Paulson also has 8,116,401 shares of exposure through CFD derivatives. The hedge fund now has an aggregate ownership stake of 2.54% of the company with 34,884,657 shares represented. Here are screenshots of the regulatory filings:

(click to enlarge)

(click to enlarge)

Paulson & Co has now bought shares of CBY as the price heads higher, implying that they are confident that Cadbury will receive a higher bid from suitor Kraft Foods (KFT). As always we'll continue to monitor the situation. Stay tuned this coming week as we'll be starting the next leg of our hedge fund portfolio tracking series where we'll update the arbitrage heavy equity portfolio of John Paulson's firm and many other prominent hedge funds. In the mean time, you can read up on Paulson's big bet against the US dollar.

How Long Can The Rally Last?

marketfolly@gmail.com (Market Folly) — Wed, 11 Nov 2009 15:03:00 +0000

First and foremost, no one can deny that the trend right now is up. The guys over at MarketClub have placed an emphasis on the saying, "don't fight the tape." At the same time though, they wonder how long the market rally can really last. They highlight the 50% fibonacci retracement as potential resistance ahead at Dow 10,339 in their latest market technical analysis video. They don't debate that the trend is up. However, they feel that the market has the potential to begin to roll-over and so they're watching cautiously. The market has been stair-stepping higher and each sell-off is met with more buying. What's important to watch is those levels where the market reversed and headed higher yet again. If the market takes out those mini-dip levels to the downside, they say that could be your signal it is starting to roll over. But still, "don't fight the tape." Wait for the weakness at the levels they outline in the video.

Also, if you're interested in technical analysis on specific equities, they recently put out a video on Research in Motion (RIMM). They think this name could potentially trade all the way down to the $40s, even after their announcement of a share buyback. The current technical pattern is bearish for RIMM in the coming weeks according to the video.

Lastly, they turn to commodities. In a crude oil video, they are taking a look at classic charting patterns that are taking shape. They note to pay attention to the MACD, saying that if it crosses the average it will be bullish. Aditionally, the commodity itself has gone into a flag pattern which has the potential to send oil much higher. So, they say to keep an eye on the chart. See their crude oil analysis here.

John Paulson's Latest Bet: Doubling Down On Cadbury (CBY)

marketfolly@gmail.com (Market Folly) — Wed, 11 Nov 2009 14:01:00 +0000

John Paulson's hedge fund Paulson & Co has doubled down on their Cadbury (CBY) stake. According to UK disclosures, Paulson emphatically boosted his stake in Cadbury to 2.1% of the company as he purchased 14.8 million shares at a price of 759.59 pence each in the UK market and he now owns a total of 28.5 million shares. This means he bought 112 million pounds sterling (or $187 million) worth of shares. Cadbury of course was the recent subject of a bid from Kraft Foods (KFT) to take over the company. Paulson seems to be wagering that not only will a buyout happen, but it will come at a higher bid. Kraft's stock and cash offer was for 720p while Cadbury was trading around 763p. Needless to say, it appears many besides Paulson think that given Cadbury's rejection of the initial bid, a higher bid is inevitable. We note that Paulson & Co is not the only prominent hedge fund in this play as Eric Mindich's Eton Park Capital had been buying shares in September for 800 pence each.

While hedge fund Paulson & Co has been thrust into the spotlight over the past 2 years for their bet against subprime or their more recent big gold purchase, many seem to forget or overlook the fact that Paulson's equity strategy involves merger arbitrage and this type of play is right up his alley. While we cannot verify that Paulson & Co specifically has done this, it would be pretty safe to assume that like most funds pursuing this trade, he would go long Cadbury and then short Kraft. And, as FTAlphaville points out, "the short base in Kraft - a measure of how much of its total share pool is on loan - has risen by 45 per cent in the past week. Meanwhile, utilisation - the amount of stock available to borrow that has actually been borrowed - now stands at 4.2 per cent." Clearly, the merger-arb players are out in full force.

Interestingly enough, 1.49% of Paulson's ownership stake in Cadbury is represented by securities, while 0.59% of their ownership stake is represented by derivatives, and in particular, CFD's (contract for difference). We've previously examined what CFDs are as it is unique to the UK and hedge funds often use this derivative to help establish a position in a company. This primer of course goes right along with our introduction on how to track a hedge fund's UK positions. We're expanding our portfolio tracking coverage to include stakes held in other markets and many prominent hedge funds often hold positions in UK based companies. To see what some of the largest hedge funds are buying and selling in the UK, head to our most recent post covering Moore Capital Management, Louis Bacon's hedge fund firm.

In other notable activity, Paulson also recently invested $77.9 million in insurer Conseco (CNO). This purchase comes from 16.4 million common shares as well as warrants to purchase 5 million additional shares in a new offering that was announced October 14th that will dilute current shareholders. This gives Paulson & Co a 9.9% stake in the company.

So now we wait to see if Paulson can get that higher bid he is hoping for in his most recent play. For more on John Paulson and his hedge fund, we highly recommend checking out WSJ columnist Gregory Zuckerman's new book, The Greatest Trade Ever, where he had exclusive access to Paulson in order to pen the story behind his victorious subprime bet. And reportedly, Paulson is not necessarily happy with how the book turned out. You can read our book review here.

Taken from Google Finance,

Cadbury plc "formerly Cadbury Schweppes plc is a confectionery company. The Company is engaged in the confectionery business, with participation across the three categories of chocolate, gum and candy. The Company’s seven business units are Britain and Ireland, Middle East and Africa, North America, South America, Europe, Asia, and Pacific. Cadbury plc has developed a global portfolio of brands. The Company’s brands in chocolate are Cadbury Dairy Milk, Creme Egg, Flake, and Green & Black’s. Trident is the Company’s gum brand. Other gum brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo. Halls is a candy brand of the Company. Other brands are Maynards, The Natural Confectionery Co. and Cadbury Eclairs. On May 7, 2008, it completed the demerger of the Americas Beverages business, which became Dr Pepper Snapple Group, Inc. (DPS) following the demerger."