Friday, 22 November 2013

Debacle between Hedge Fund Titans on Herbalife is getting ludicrous

Bill Ackman just appeared on Bloomberg TV on his short position of Herbalife. Head over here for the full interview.

Here's the succinct points on 7 Hallmarks of a pyramid scheme by SEC and Ackman says it exhibits all 7:
1) emphasis on recruiting
2) promises of high returns in short period
3) easy money or passive income
4) buy-in required
5) complex commission structure
6) no genuine product or service
7) no demonstrated sales revenue

***Update as of Nov 25th 2013: Poll results as shown***

This Herbalife trade has been the most high profile trade/investment to date. Ackman on the short side (he has change the structure of his trade from short stocks to buying put options with target of 0; and if the company were to be taken private he will restructure his trade to CDS).

On the other side of his short trade are the legendary hedge fund titans: Carl Icahn, George Soros (who used to have money managed by Ackman but have yanked it out), Stanley Druckenmiller, William Stiritz, Kyle Bass, and Dan Loeb (profited out of the position).

Read more here: Articles by Hedgie
Will Bill Ackman be eventually right on his short trade? free polls 

Debunking the Causality between pre-Great Depression and Now (Chart)

The market participants must be on the edge now given market charting all time high. Analysts tend to over analyze rather than acting in a rational manner.
So without further ado, let's debunk the myths. i) Correlation does not always equal causation but it does provide an insight into investors' sentiment/mirror its behaviour over time ii) My previous article had posit however that we may be transitioning into a secular bull market.

1) Dan Greenhaus of BTIG (@danBTIG) includes this chart in his latest nightly email. It shows the current market aligned with the market in the days before the Depression.

Read more here: Articles by Hedgie

How Paulson and Other Hedgies Have Been Hoodwinked to 'The Gold Trade' - An Alternate View

Most hedgies will declare “inflation” is on the rise and it is worth it to own gold as portfolio diversification has almost thrown in the towel by now and moved on. Recall how Paulson lost $736 million in Q2, which raises questions: How did he manage to make the greatest trade ever yet not continue his winning streak again thereafter? (As of the recent quarter though he had outperformed his peers.)

No other hedgies run the world’s greatest hedge fund than Ben Bernanke. There are a few schools of thought that i) inflation will rise thus compelling almost every money manager to chase for yields ii) inflation will not see an uptick too soon since there is a slack in productivity and excess capacity in production

Witness the inflation chart here (Inflation print at 1.2% as of September 2013):

Read more here: Articles by Hedgie

Bloomberg: Appaloosa's Tepper Says Stock Markets Not in Bubble (Interview)

Video: Appaloosa's Tepper Says Stock Markets Not in Bubble

Following my previous article: Is this the beginning of a secular bull market?
David Tepper has made another appearance on Bloomberg and opined that the market is NOT in a bubble.

Tepper is the highest paid hedge fund manager in 2012 and he is known for making sound market calls.

Key takeaways:
1) Market is not in a bubble. He uses S&P and Nasdaq Forward PE multiple to illustrate his point. Below chart shows PE multiple (not forward) of S&P500 which has rallied from 17x (1995) to 31x (2000) pre internet bubble. Now post GFC 2008, the market's PE has been in range bound between 10-18x; still well below implied PE multiple of 25x.

Read more here: Articles by Hedgie

Is this the beginning of a secular bull market?

"The Market Can Remain Irrational Longer Than You Can Remain Solvent”. Every pundit is worried about the impending crash or the QE taper talk hounds airtime needlessly. Let’s look the facts and take a vote here:
Is this the beginning of a secular bull market? free polls 

It will be interesting to see the poll results to gauge investors’ sentiment.

First off, what’s the definition of secular market? A secular market is “one where a market is driven market driven by forces that could be in place for many years, causing the price of a particular investment or asset class to rise or fall over a long period of time. In a secular bull market, strong investor sentiment drives prices higher, as there are more net buyers than sellers. In a secular bear market, weak sentiment causes selling pressure over an extended period of time”.

Read more here: Articles by Hedgie

Wednesday, 1 May 2013

Kyle Bass on his short thesis on Japanese Government Bonds

Below is an excellent video on Kyle Bass' short thesis on Japanese government bonds (known as the "widowmaker" trade).  

Bass has put forth his call since 2010, and we first saw the sell-off in short-dated Japanese government bonds recently when Bank of Japan announced its massive stimulus program. The Japanese equity market has been on a tear recently (see chart), of which investors have been dubbed by Bass as "macro tourists."  

Read more here: Articles by Hedgie


Poll: Are you a “macro tourist” or “widowmaker”? free polls 

Poll 2) : Which trade do you think will give the better absolute returns, irregardless of the holding period/time frame? free polls 

Tuesday, 30 April 2013

"Macro tourist" trade

What do Daniel Loeb and Bill Ackman have in common? Both are well known for their hedge fund activist investing. Loeb in the ensuing years has transitioned from activist to macro hedge fund manager; evident from his stellar return in Greek government bonds and most recently, from the Japan trade (initial currency/index trade). Ackman, despite his recent hiccup in few investments such as J.C. Penney (JCP) and Herbalife (HLF), had also dabbled in macro investing such as in Hong Kong dollar back in 2011. As Ackman put it recently, “The current printing of money is a 'non-sustainable' situation." Hong Kong should adjust is currency peg, he said, and he has a small position essentially shorting it.


Read more here: Articles by Hedgie


Poll: Are you a “macro tourist” or “widowmaker”? free polls 

Poll 2) : Which trade do you think will give the better absolute returns, irregardless of the holding period/time frame? free polls 

Friday, 19 April 2013

Short interest ratio: First solar squeeze of a lifetime

Any experienced trader will know that short interest ratio above 8x indicates that the stock is heavily shorted. Look at First Solar (FSLR) chart below which shows a strong rally due to short squeeze of epic proportion back in 9th April. The 40mil volume traded, with stock spike from $26+ to close to $40+ send short sellers running for the exit. It also help pushed the entire solar stocks north, due to FSLR had released a higher than expected full-year financial target and announced that it will acquire a high-efficiency module company.


Read more here: Articles by Hedgie

Thursday, 18 April 2013

Andrew Lahde's Farewell Letter

Anyone who has read the book in its entirety will surely have been bewildered about how beguiled Wall Street was in the subprime mess. You can get the book here: The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Portfolio - 2013 Stock Picks and Performances Defied Wall Street and Made Financial History

One notable character that has gone unnoticed was hedge fund manager, Andrew Lahde. At first blush, he struck me as unpolished hedge fund manager, unlike the titans which we are familiar with such as Soros, Dalio, Bacon, Simons with all their great track records and fortunes amassed over the years

Read more here: Articles by Hedgie Andrew Lahde's Farewell Letter by DealBook

Wednesday, 17 April 2013

Ray Dalio, Hedge Fund Titan

Oldie videos but a goodie. Gives you a good perspective of hedge fund industry.

John Paulson's Gold Trade Gone Awry

John Paulson made the “greatest trade ever” against the subprime mess, netting $15 billion of profits for his firm and sealing his spot as top hedge fund manager. Impeccable timing is everything. Any hedge fund managers may have the best investment idea, but it may not be able to pull off the trades as markets can remain irrational a lot longer than you and I can remain solvent.

His subsequent trade idea on long gold since 2009 has not paid off, just like his initial short on the housing market through CDSs. The debacle in gold has lost Paulson $1 billion in just two days. Yet, he is still sticking with his guns, on his conviction that the only asset that would hold value is gold against government’s continuing printing of money.

Read more here: Articles by Hedgie

Monday, 1 April 2013

George Soros comment on German economist Hans-Werner Sinn's latest piece for Project Syndicate: "Should Germany Exit the Euro?"

George Soros ranked one of the most successful investor with his $1 billion profit on short GBP, and of most recent trade, short JPY had retorted with his response to German economist Hans-Werner Sinn's latest piece for Project Syndicate: "Should Germany Exit the Euro?" Sinn, had proposed for tough austerity measures to continue for peripheral countries. The octogenarian argues for Germany to agree to "Eurobonds" – which would mutualize the public debts of euro area member states OR make an exit. If Germany remains obdurate, the weakness in peripheral countries may drag Germany down too. 

Poll: Should Germany leave Euro or agree to Eurobonds? free polls 
George Soros’s response to Hans-Werner Sinn, copied in verbatim below: 

Hans-Werner Sinn has deliberately distorted and obfuscated my argument. I was arguing that the current state of integration within the eurozone is inadequate: the euro will work only if the bulk of the national debts are financed by Eurobonds and the banking system is regulated by institutions that create a level playing field within the eurozone. Allowing the bulk of outstanding national debts to be converted into Eurobonds would work wonders. It would greatly facilitate the creation of an effective banking union, and it would allow member states to undertake their own structural reforms in a more benign environment. Countries that fail to implement the necessary reforms would become permanent pockets of poverty and dependency, much like Italy’s Mezzogiorno region today. If Germany and other creditor countries are unwilling to accept the contingent liabilities that Eurobonds entail, as they are today, they should step aside, leave the euro by amicable agreement, and allow the rest of the eurozone to issue Eurobonds. The bonds would compare favorably with the government bonds of countries like the United States, the United Kingdom, and Japan, because the euro would depreciate, the shrunken eurozone would become competitive even with Germany, and its debt burden would fall as its economy grew. But Germany would be ill-advised to leave the euro. The liabilities that it would incur by agreeing to Eurobonds are contingent on a default – the probability of which would be eliminated by the introduction of Eurobonds. Germany would actually benefit from the so-called periphery countries’ recovery. By contrast, were Germany to leave the eurozone, it would suffer from an overvalued currency and from losses on its euro-denominated assets. Whether Germany agrees to Eurobonds or leaves the euro, either choice would be infinitely preferable to the current state of affairs. The current arrangements allow Germany to pursue its narrowly conceived national interests but are pushing the eurozone as a whole into a long-lasting depression that will affect Germany as well. Germany is advocating a reduction in budget deficits while pursuing an orthodox monetary policy whose sole objective is to control inflation. This causes GDPs to fall and debt ratios to rise, hurting the heavily indebted countries, which pay high risk premiums, more than countries with better credit ratings, because it renders the former countries’ debt unsustainable. From time to time, they need to be rescued, and Germany always does what it must – but only that and no more – to save the euro; as soon as the crisis abates, German leaders start to whittle down the promises they have made. So the austerity policy championed by Germany perpetuates the crisis that puts Germany in charge of policy. Japan has adhered to the monetary doctrine advocated by Germany, and it has experienced 25 years of stagnation, despite engaging in occasional fiscal stimulus. It has now changed sides and embraced quantitative easing on an unprecedented scale. Europe is entering on a course from which Japan is desperate to escape. And, while Japan is a country with a long, unified history, and thus could survive a quarter-century of stagnation, the European Union is an incomplete association of sovereign states that is unlikely to withstand a similar experience. There is no escaping the conclusion that current policies are ill-conceived. They do not even serve Germany’s narrow national self-interest, because the results are politically and humanly intolerable; eventually they will not be tolerated. There is a real danger that the euro will destroy the EU and leave Europe seething with resentments and unsettled claims. The danger may not be imminent, but the later it happens the worse the consequences. That is not in Germany’s interest. Sinn sidesteps this argument by claiming that there is no legal basis for compelling Germany to choose between agreeing to Eurobonds or leaving the euro. He suggests that, if anybody ought to leave the euro, it is the Mediterranean countries, which should devalue their currencies. That is a recipe for disaster. They would have to default on their debts, precipitating global financial turmoil that may be beyond the capacity of authorities to contain. The heavily indebted countries must channel the rising their citizens’ discontent into a more constructive channel by coming together and calling on Germany to make the choice. The newly formed Italian government is well placed to lead such an effort. As I have shown, Italy would be infinitely better off whatever Germany decides. And, if Germany fails to respond, it would have to bear the responsibility for the consequences. I am sure that Germany does not want to be responsible for the EU’s collapse. It did not seek to dominate Europe and is unwilling to accept the responsibilities and contingent liabilities that go with such a position. That is one of the reasons for the current crisis. But, willy-nilly, Germany has been thrust into a position of leadership. Europe would benefit from a benevolent hegemonic power. So would Germany.