BAGAKOAA, March 31, 2010 Hedge Hogs what they are eating. . .
BAGAKOAA;
March 31, 2010 Hedge Hogs what they are eating. . .
Well, it’s the end of an era, well Ok it’s the end of a quarter. We finished a bit soft because of a weak ADP report which can be a tell for the employment report on Friday. The Chicago PMI was positive, but not a good as I thought or others though it would be adding a couple of bricks to the anchor bag in the markets today. The oil sector got a shot in the arm especially one of my favorites (RIG), when President Obama promised to responsibly allow development of coastal oil reserves. He wants a clean and reliable energy plan which is why he supports oil and coal. HELLO, we are still waiting for this white house to discover gas. God knows they pumped enough gas into the health bill. Seriously, why not LNG, Liquified Natural Gas. (For the answer, compare the lobbyist expenditures for the coal and oil industry to the nat gas industry. Oh yeah the nat gas industry did not have a lobbying effort until October 2009. So that would make millions to congressmen, senators, the RNC and DNC and countless other PACs –both sides of the aisles- to $0 for the gas industry.mmmmm. It is public information. Of the 154 million paid by 776 lobbyists in 2009 about 4.2 million were from nat gas pure plays the rest were oil concern with more than half coming from Exxon, Chevron, Conoco, and PB.) But I digress.
Ok, last night in the wee hours I was thinking about what the hedge fund people will be doing over the next coupld of weeks. Let’s face to quote a friend and mentor of mine, “We are just a bunch of monkeys in a casino.”, when it comes to figuring out this Wall Street Game. I have a nice portfolio and my trades, even though they scare me at times, have absolutely no influence in the scope of things in the investment world. I know many of you hang on my every word to see what gem of wisdom might be disclosed, but despite that, it does not matter.
Cramer said it great this week, I think on Tuesday’s Mad Money. Don’t try and figure out the logic of the market, because you will always get it wrong. He has been doing it thirty years and he still cannot figure it out. He does have a lot of respect for the market and learns as much as he can about the players. One of the largest if not largest palyers in the market at hedge funds. If you could collective figure out what the major hedge fund managers were going to do before they do it, you could be extremely successful in the market.
You will never know what they are going to do before they do it but it would be a start to know what they have done recently and possibly why.
Let’s start by understanding what a hedge fund is. First off they have been around for about 50+ years. Simply explained, think of them as a mutual fund for special individuals that are not under the scrutiny of the SEC. In order to invest directly in a hedge fund you must be a prequalified (High Net Worth) investor or an accredited investor.
The Hedge fund Manager controlling million and in many cases billions of dollars directs the fund based upon the funds core strategy. Depending upon the core strategies the fund manager invests in equities, debt, commodities, foreign exchange currencies and various derivatives of all of the above. Typical core strategies include global macro economic which plays off of regional news and events to determine what direction that market might be going and then trades commodities and equities associated with that region. A great example of that would be hedge fund managers who are currently speculating with billions of copper futures, the Chilean peso future contracts, and of course publically traded companies in the Chilean market.
Equity hedges, some times called directional hedge funds basically play just the stock markets. Their equity strategies can be all over the place but each fund has its own core strategy. You could have long stocks, short stocks, emerging market equities, short positions, value stocks, and blends of all of the above. Another sector of fund is called specific event funds such as distressed asset funds which buy stocks or company assets below market value with the intent to repackage or sell of the assets later. Also in this group there is a strategy called merger arbitrage which takes advantage of market pricings of companies in the midst of a merger. The other core strategies include fixed income arbitrage, Equity arbitrage, Convertible arbitrage, Fixed income corporate, asset-backed securities, fixed income arbitrage, credit (bonds) long / short, statistical arbitrage (technical trading using charts), volatility arbitrage wear they are betting in the change and direction of price rather than price itself, yield alternatives as in the dividend or yield to maturity versus the price of the underlying stock or bond and a weird one called regulatory arbitrage where they attempt to take advantage of regulatory differences between two markets. (An example might be hedging Swiss currencies and Swiss banks when Cayman got tough of off shore corporations.)
So as you can see hedge fund can hedge just about everything. For our purposes, let’s focus on equity hedge funds. Again they focus mostly on stocks. Here are the top ten for 2009 and their asset value in Billion as of the end of the year: J.P. Morgan $53.5, Bridgewater Associates $43.6, Paulson & Co. $32.0, Brevan Howard $27.0, Soros Fund Mgmt. $27.0, Man Group $25.3, Och-Ziff Capital Mgmt. Group $23.1, D.E. Shaw Group* $23.0, BlackRock (BGI) $21.0, Farallon Capital Mgmt. $20.7.
That’s about 270 Billion worth of buying power in the equities market. Yes Ben that is more than I have in my portfolio. Now how would you like to know what they recently bought. You can and very easily.
Go to Edgar on line the face of the SEC database. Let’s pick the smallest of the top ten to start. Farallon Capital Mgmt. In the search box type in Farallon and you will see a bunch of companies come up with the name Farallon in it. Many of these are associated with Farallon, but we are looking for Farallon Capital Management. Now you will click on that company and you will see their SEC filings. You will be looking for all the 13-(alpha a-f) especially the 13-f filings. These have to be filed by the fund manager when a significant position is altered. So lets look at them.
The first one listed for Farallon is a 13f-hr filing. Click on it. There you will see a detailed descriptive of the filing. Go ahead and download the txt file. You are now looking at the actual sec filing from December 31, 2009 for this fund. As you look at the value columns, you must remember these are in thousands of dollars. What I do is to look at the new filings. About 12 down you will see the word NEW on alisting for Delta Airlines. You will see they took a 1.296 million dollar position in Delta stock. They bought 113,000 shares. Do the math, they paid about 11 bucks for the stock. It is now selling for 14.89. Not to shabby. Look further down the list. They initiated a position (NEW) in EPL, Energy Partners Limited. They are a gas and oil exploration company in the gulf. They paid about 8.54 for a stock now selling at 12.25. This guy is good.
Now here is what you can do. Understand the hedge fund core strategy. If these are mid to long term investments, do your own homework on the stocks like Delta or EPL and if this manager just got in the stock and you like the fundamentals, ride along on his tail coat. If he or she bought EPL in late 09, I doubt he is expecting a turn around in the first quarter of 2010. Because of their filing requirement and their volume, they cannot pop in and out of stock quickly or easily.
The other way to look for this info is just to do a search for 13-f filings for the day. This will populate just the 13-f filings for yesterday. That will be the most recent filings.
Again, you still have to do your homework, but at least this way you can see what the gorillas in the casino are doing. Actually these maybe the Pit Bosses.
Salve Lucrum
March 31, 2010 Hedge Hogs what they are eating. . .
Well, it’s the end of an era, well Ok it’s the end of a quarter. We finished a bit soft because of a weak ADP report which can be a tell for the employment report on Friday. The Chicago PMI was positive, but not a good as I thought or others though it would be adding a couple of bricks to the anchor bag in the markets today. The oil sector got a shot in the arm especially one of my favorites (RIG), when President Obama promised to responsibly allow development of coastal oil reserves. He wants a clean and reliable energy plan which is why he supports oil and coal. HELLO, we are still waiting for this white house to discover gas. God knows they pumped enough gas into the health bill. Seriously, why not LNG, Liquified Natural Gas. (For the answer, compare the lobbyist expenditures for the coal and oil industry to the nat gas industry. Oh yeah the nat gas industry did not have a lobbying effort until October 2009. So that would make millions to congressmen, senators, the RNC and DNC and countless other PACs –both sides of the aisles- to $0 for the gas industry.mmmmm. It is public information. Of the 154 million paid by 776 lobbyists in 2009 about 4.2 million were from nat gas pure plays the rest were oil concern with more than half coming from Exxon, Chevron, Conoco, and PB.) But I digress.
Ok, last night in the wee hours I was thinking about what the hedge fund people will be doing over the next coupld of weeks. Let’s face to quote a friend and mentor of mine, “We are just a bunch of monkeys in a casino.”, when it comes to figuring out this Wall Street Game. I have a nice portfolio and my trades, even though they scare me at times, have absolutely no influence in the scope of things in the investment world. I know many of you hang on my every word to see what gem of wisdom might be disclosed, but despite that, it does not matter.
Cramer said it great this week, I think on Tuesday’s Mad Money. Don’t try and figure out the logic of the market, because you will always get it wrong. He has been doing it thirty years and he still cannot figure it out. He does have a lot of respect for the market and learns as much as he can about the players. One of the largest if not largest palyers in the market at hedge funds. If you could collective figure out what the major hedge fund managers were going to do before they do it, you could be extremely successful in the market.
You will never know what they are going to do before they do it but it would be a start to know what they have done recently and possibly why.
Let’s start by understanding what a hedge fund is. First off they have been around for about 50+ years. Simply explained, think of them as a mutual fund for special individuals that are not under the scrutiny of the SEC. In order to invest directly in a hedge fund you must be a prequalified (High Net Worth) investor or an accredited investor.
The Hedge fund Manager controlling million and in many cases billions of dollars directs the fund based upon the funds core strategy. Depending upon the core strategies the fund manager invests in equities, debt, commodities, foreign exchange currencies and various derivatives of all of the above. Typical core strategies include global macro economic which plays off of regional news and events to determine what direction that market might be going and then trades commodities and equities associated with that region. A great example of that would be hedge fund managers who are currently speculating with billions of copper futures, the Chilean peso future contracts, and of course publically traded companies in the Chilean market.
Equity hedges, some times called directional hedge funds basically play just the stock markets. Their equity strategies can be all over the place but each fund has its own core strategy. You could have long stocks, short stocks, emerging market equities, short positions, value stocks, and blends of all of the above. Another sector of fund is called specific event funds such as distressed asset funds which buy stocks or company assets below market value with the intent to repackage or sell of the assets later. Also in this group there is a strategy called merger arbitrage which takes advantage of market pricings of companies in the midst of a merger. The other core strategies include fixed income arbitrage, Equity arbitrage, Convertible arbitrage, Fixed income corporate, asset-backed securities, fixed income arbitrage, credit (bonds) long / short, statistical arbitrage (technical trading using charts), volatility arbitrage wear they are betting in the change and direction of price rather than price itself, yield alternatives as in the dividend or yield to maturity versus the price of the underlying stock or bond and a weird one called regulatory arbitrage where they attempt to take advantage of regulatory differences between two markets. (An example might be hedging Swiss currencies and Swiss banks when Cayman got tough of off shore corporations.)
So as you can see hedge fund can hedge just about everything. For our purposes, let’s focus on equity hedge funds. Again they focus mostly on stocks. Here are the top ten for 2009 and their asset value in Billion as of the end of the year: J.P. Morgan $53.5, Bridgewater Associates $43.6, Paulson & Co. $32.0, Brevan Howard $27.0, Soros Fund Mgmt. $27.0, Man Group $25.3, Och-Ziff Capital Mgmt. Group $23.1, D.E. Shaw Group* $23.0, BlackRock (BGI) $21.0, Farallon Capital Mgmt. $20.7.
That’s about 270 Billion worth of buying power in the equities market. Yes Ben that is more than I have in my portfolio. Now how would you like to know what they recently bought. You can and very easily.
Go to Edgar on line the face of the SEC database. Let’s pick the smallest of the top ten to start. Farallon Capital Mgmt. In the search box type in Farallon and you will see a bunch of companies come up with the name Farallon in it. Many of these are associated with Farallon, but we are looking for Farallon Capital Management. Now you will click on that company and you will see their SEC filings. You will be looking for all the 13-(alpha a-f) especially the 13-f filings. These have to be filed by the fund manager when a significant position is altered. So lets look at them.
The first one listed for Farallon is a 13f-hr filing. Click on it. There you will see a detailed descriptive of the filing. Go ahead and download the txt file. You are now looking at the actual sec filing from December 31, 2009 for this fund. As you look at the value columns, you must remember these are in thousands of dollars. What I do is to look at the new filings. About 12 down you will see the word NEW on alisting for Delta Airlines. You will see they took a 1.296 million dollar position in Delta stock. They bought 113,000 shares. Do the math, they paid about 11 bucks for the stock. It is now selling for 14.89. Not to shabby. Look further down the list. They initiated a position (NEW) in EPL, Energy Partners Limited. They are a gas and oil exploration company in the gulf. They paid about 8.54 for a stock now selling at 12.25. This guy is good.
Now here is what you can do. Understand the hedge fund core strategy. If these are mid to long term investments, do your own homework on the stocks like Delta or EPL and if this manager just got in the stock and you like the fundamentals, ride along on his tail coat. If he or she bought EPL in late 09, I doubt he is expecting a turn around in the first quarter of 2010. Because of their filing requirement and their volume, they cannot pop in and out of stock quickly or easily.
The other way to look for this info is just to do a search for 13-f filings for the day. This will populate just the 13-f filings for yesterday. That will be the most recent filings.
Again, you still have to do your homework, but at least this way you can see what the gorillas in the casino are doing. Actually these maybe the Pit Bosses.
Salve Lucrum
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