This content is from: Portfolio

The Morning Brief: David Tepper Sounds a Long Warning

When David Tepper speaks, the financial markets react. And this time many stock indexes fell after the Appaloosa Management founder expressed his worries about stock valuations at the SALT conference in Las Vegas. Speaking on Wednesday after the markets closed, Tepper advised the audience not to go too long at this point and said holding cash is a good idea. “I’m not saying go short. I’m just saying don’t be too frickin’ long right now,” he counseled. And on Thursday the markets had a selloff. The Dow Industrials and S&P 500 were each down roughly 1 percent, while the Nasdaq Composite was off about 0.75 percent. Tepper, who topped Alpha’sRich List for the second straight year after earning $3.5 billion in 2013, also said he is now more worried about deflation than inflation. Of course, when Tepper thinks it is time to go frickin’ long, he’ll do it quickly, swiftly and before the rest of us know it or are confident enough to do it. Meanwhile, in the first quarter of this year Tepper warmed up to Internet stocks, which accounted for three of his four new positions — Priceline Group, Expedia and Facebook. Google is also one of his five largest holdings.

—Omega Advisors’ Leon Cooperman told CNBC that 15 percent to 20 percent of his portfolio is currently invested in structured credit. The portfolio is up about 6 percent this year.

—Short-selling specialist James Chanos told CNBC on Thursday afternoon that he is shorting Valeant Pharmaceutics. Chanos doesn’t like the company’s acquisitive nature; he said Valeant is essentially a rollup that is not growing organically and is “playing very aggressive accounting games when they buy companies.” He also said Valeant insiders appear negative on the company. “There have been six executives who left, senior executives, in the past 15 months and a lot of insider selling, including the executive vice president of corporate and business development, who sold stock yesterday,” Chanos said in the interview, adding he was short before the Allergen acquisition announcement.
Interestingly, in the first quarter of 2013 at least two Tiger Cubs boosted their stakes in Valeant. O. Andreas Halvorsen’s Viking Global Investors is now the third largest shareholder and Valeant is Viking’s fourth largest holding. Jonathan Auerbach’s Hound Partners also counts the stock as its largest holding, with more than 13 percent of the firm’s assets. And Jeffrey Ubben’s ValueAct Capital, which has been in the stock for 10 years, is the second largest shareholder.
Chanos also said in the interview with CNBC that he is short Keurig Green Mountain, a long-time short of David Einhorn’s Greenlight Capital. “The core business has been slowing for a while,” he said, adding that a lot of insiders have been unloading the stock over the past two months.

While equity investors are filing their 13F’s for the first quarter of 2014 in time to meet the 45-day deadline, several firms filed amended forms from prior periods. One of those is Alec Litowitz’s Magnetar Capital, which caught up with a year’s worth of previously undisclosed holdings. The most significant revelation is that for the past year the hedge fund had been invested in Leap Wireless, which was officially acquired by AT&T in March. It disclosed in an amended filing for the June 30, 2013 quarter that it held 1.24 million shares of the common stock, call options as well as notes issued by the company. At the end of September 2013, it doubled its stake in the common to 2.5 million shares, and simultaneously hedged that position, with a put option exposure that was nearly double a call option bet. In a separate amended filing of its year-end 13F, Magnetar reported that its stake in Leap Wireless’ common rose to 3.6 million shares. It also had hedged with a sizable put position, but no calls. In addition, at year-end we learned that Magnetar owned small positions in LSI Corporation, a semiconductor maker being acquired by Avago Technologies Limited, and puts on Liberty Global, the global cable giant. Magnetar regularly amends three earlier 13F’s each quarter when the current one is due.

Louis Bacon’s Moore Capital Management cut its U.S. stock portfolio in the first quarter by nearly 25 percent, to $4.9 billion from nearly $6.4 billion the prior quarter. The macro maven initiated positions in puts on separate exchange traded funds that track industrial stocks and financial stocks and unloaded an ETF that tracks Chinese stocks.

Paul Tudor Jones II’s Tudor Investment Corp., another macro legend, raised its U.S. stock exposure by 15 percent, to $2.36 billion in the first quarter.

Andrew Law’s Caxton Associates, which generally runs a puny stock portfolio, reduced its U.S. equity portfolio by nearly half, to $1.6 billion at the end of March from $3.1 billion at the end of last year. The firm had a total of $7.6 billion at the beginning of the year, ranking number 83 in the Alpha Hedge Fund 100 rankings.

Hedge fund luminaries were clearly present at Sotheby’s art auction on Wednesday night. But they were not heavy buyers. According to Bloomberg Businessweek, the biggest transaction involving a hedgie was the sale of 19 works that fetched a total of $44.6 million for Adam Sender. Sender worked for Steven Cohen of the former SAC Capital Advisors before launching his own firm, Exis Capital Management, which he shuttered earlier this year. Sender’s art collection includes Martin Kippenberger’s painting of two men walking arm-in-arm down a street sold for $5.5 million, according to the report. Meanwhile, several hedge fund managers were in attendance even though there was no confirmation that they were buying, including Cohen and Daniel Loeb, who recently joined Sotheby’s board. Loeb was reportedly yawning during the bidding. Outside the building, Cohen told Businessweek, “I am here just to watch.” He said he wasn’t selling but refused to comment on whether he bought anything. Meanwhile, another hedge fund manager, David Ganek, formerly of Level Global, was identified as the consignor of Andy Warhol’s “Big Electric Chair.”

Hedge fund assets hit a new all-time high of $2.938 trillion in April 2014, exceeding the prior peak set in the second quarter of 2008, according to eVestment. Investors pumped $17.9 billion into hedge funds in April, bringing this year’s four-month total inflows to $68.4 billion, “far surpassing” inflows from 2013 and 2012 for the same time frame, according to the data collector. “Investors continued to show preference to equity strategies over credit in April, however equity fund flows were noticeably lower than over the prior three months, a possible sign that recent performance losses are weighing on investor sentiment,” eVestment notes.

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