I’ve Never Been So Uninterested in 13-Fs as I Am Now

There was a day in age when hedge funds were respected for their stock picking talent. They found ways to access information that they layman could not even dream of accessing. It was a world filled with serious people out to make some serious money. All of that has changed, especially with the Fintech revolution that has evened the playing field for the average Joe, sputtering around in his Toyota Camry, trying to grow his nest egg.

I am dead serious about this.

The tools and sites and people sharing ideas online have truly empowered people to the point that paying attention to the once cherished 13-f filings, by some of our most prestigious hedge funds, is pretty much a non-event. Some of the new positions of mega-titans, like Buffett or Tepper, will always draw interest and perhaps lift the shares for a day or two. But, for the most part, people don’t give a shit what Tiger Global or Viking are buying and selling anymore.

Agree or disagree?

The industry is so maligned by years of underperformance and chicanery that betting against them is often a better strategy than betting with them. Additionally, so many of them have become so big in size, they’re all stuck buying the same stocks. There’s so much money sloshing around in search of performance that the very performance desired can only be found in outlier years, black swan events, or much smaller funds.

This is why Buffett thinks hedge funds are idiotic, especially when compared to buying an index fund like SPY and reinvesting the dividends. The fact that the SPY beats upwards of 70% of hedge funds is absurd and comedic. The only thing the industry is good for, apparently, is convincing people to send them money.

The U.S. treasury has released Saudi Arabia’s treasury holdings for the first time, coming in at just $116 billion, down from $123 billion achieved in January. Normally, I’d read this data point, sneer at it, then go about my day. However, given Saudi Barbaria’s (remind me to never travel there) $587 billion current account surplus, one has to imagine where in the world all of that money is being domiciled?

To house all of that money, you can’t just leave it in a checking account, or even a bank for that matter. Money of this size is normally held in treasuries, due to the implicit safety of the U.S. treasury and liquidity.

In comparison, both China and Japan own upwards of $1 trillion a piece in treasuries. For the love of Christ, Belgium owns $143 billion in treasuries and they make a living selling chocolate bars around the world.

So why, all of a sudden, are the finances of Saudi Barbaria being laid bare? That’s the bigger question. Moreover, why is this important, occurring at the same time they try to whore off Saudi Aramco, their state own oil crown jewel, in a $2 trillion IPO?

Perhaps by removing the secretive veil that’s been in place since 1973, this is a warning shot of sorts for them to fall in line with something America deems important? Who knows? I find it interesting that we first became besties with Iran after oil collapsed by 60%, followed up by surprise transparency in The House of Saud’s finances.

One thing is for certain, they aren’t important holders of U.S. debt.

One last thing, maybe it has something to do with a NYT report from several month’s ago, claiming that Saudi Arabia would dump $750 billion in U.S. assets if a certain bill was passed?

What a Debbie Downer narrative this is on a +140 day. I’m like a macabre mortuary worker throwing ashes of the dead on people celebrating life, who are smiling in the sun and drinking champagne.

Nevertheless, the yield curve is flattening. I’m not just making this stuff up, you know.

For those of you new to this game, the tightening of the yield curve, the spread between the 2s and 10s, is a harbinger of doom. When it inverts, it typically means recession is on the horizon. Since the accuracy of this warning signal is almost flawless, it’s important to keep track of it when the damned thing is on the move.

It’s moving Gordo. It’s moving!

This is the tightest spread since 2007, one year before the world was almost destroyed by Lehman Brothers and the assholes at AIG.

That’s a headline you won’t read anywhere else.

Nigerian rebels are wreaking havoc again, running about the countryside, generally messing with oil production. As such, Goldman is out with a boolish note on crude, due to sudden supply constraints. With crude jumping, stocks, slavishly, are following suit.

It’s very amusing to see everything so interconnected.

Biotech is a notable standout, thanks to the ANAC deal. Financials and retail are lackluster.

As long as crude remains strong, it’s hard to see how the market can sell off today, especially after last week’s sell off.

Thank God for those Nigerian rebels, coked up, turning their oil fields into a shooting gallery.

David Kostin from Goldman Ballsachs is warning clients to get the fuck out of stocks this morning, pouring cold milk over everyone’s heads.

He thinks the market is complacent and without decorum. Moreover, he likes downside puts protection here, as the options market is living in a fantasy world of bullish fervor.

“A drawdown during the next few months could find the S&P 500 index falling by 5-10 percent to a level between 1,850 and 1,950,” they write in their latest research.

High valuations
Price to earnings ratios—a popular measure for whether a stock is expensive relative to history and to its peers—remain stubbornly high. To illustrate this “extended valuation,” Kostin and his team point out that the forward P/E multiple of the S&P 500 is now in the 86th percentile, when looking back over the past 40 years. The median stock in the index trades in the 99th percentile of historical valuations, the bank adds.

Supply and demand
Investors weren’t very quick to buy U.S. stocks during the first few volatile months of 2016. “Even as the S&P 500 index rebounded from its Feb. 11 low, institutional and hedge fund U.S. equity futures positions remained net short,” Goldman writes. That has changed quite drastically. “Sentiment has shifted sharply during the past few weeks. Since the end of March, investors have bought $23 billion worth of futures positions, lifting our Sentiment Indicator to 32, a less bullish level compared with mid-winter.”

No one knows what the Fed will do
There isn’t much consensus as to when the Federal Reserve will raise benchmark U.S. interest rates again. While Goldman economists expect two hikes this year, the wider market is pricing in even chances of one or fewer rate increases. The mismatch means “more likelihood exists for an incremental hawkish surprise than a dovish surprise,” the equity analysts write.

It’s an election year
An unconventional political season means that Goldman’s clients are paying even more attention to electoral campaigns. “The U.S. presidential election is now part of every client conversation,” Kostin and team note. Even without the added surprises, the S&P doesn’t usually do well during the summer of election years. “History shows that during a typical presidential election year, the S&P 500 index remains relatively range-bound until November,” Goldman says.

In a separate note, another Goldman analyst said oil has bottomed, thanks to the wonderful strife in Nigeria, the Canadian fires, and a sundry of events which has led oil production supply to fall to levels that make a rally in crude plausible. Naturally, these are transient events and utter horseshit, especially when taking into account what these large and small oil companies are reporting in their earnings: record production levels are still being achieved.

Nevertheless, it’s important that Goldman curry favor to both the bull and bear crowd, in order to look right no matter the outcome.

This is a unicorn. A merger in the energy sector, something that might very well light a fire under midsized companies, especially with oil spiking this morning.

Range Resources is buying Memorial Resource Devlopment for $15.75.

The combination — one of few U.S. energy mergers during the market rout — will give Fort Worth-based Range access to gas and oil properties in north Louisiana, adding to its operations in Oklahoma, Pennsylvania and Texas. Both companies have seen their shares drop during the commodities slump, which dragged down U.S. gas prices to a 17-year low in March amid a supply glut.

The transaction is “accretive to our cash flow, bolsters our credit profile and enhances the overall portfolio,” Jeff Ventura, Range’s chief executive officer, said in a statement.

Considering the debt load of some of these companies, getting bigger is better from a credit point of view.

RRC is down 2% on the news.

Berkshire Hathaway reported a 9.8 million share position in Tim Cook’s gay Apple today, which is odd, since Apple is wholly a piece of shit.

However, judging by Warren’s recent moves, perhaps senility is finally taking grip of the great one’s gigantic brain. Buying Apple is almost like taking money and simply throwing it away.

Nevertheless, shares of Apple are slightly higher this morning, off this news.

Less than a week ago, an oracle at Mizhuo securities propheciezed an ANAC takeover. Early this morning, we are entreated to such news. If I cared a little bit more than zero, I’d go research who the chap was who made the call. But, seeing that I am without shares of ANAC in my naked account, I’d rather spend my time idling by the fireplace, staring  into the blaze.

Speaking of blazes, this is sure to light a fire under the biotech sector today, as the 50% premium for ANAC is a very healthy one indeed.

The wonderful thing about Exodus is its detachment from emotions and the headlines that sometimes sets a mood in the wrong direction. Often times the headlines can cause one to make foolhardy decisions.

This is rarely the case with Exodus.

On Friday, the shortest term duration of all of our algorithms, the 3 month, flagged a systemwide Oversold signal. This isn’t something that I deem actionable, but more of a canary in the coal mine. The 3 mo algorithm’s threshold score is now higher than the 36 mo, which is the principle algorithm by which the system relies upon. This is indicative of a stronger trending market. It also means, according to the recent stats, that over the past 3 months the market has rallied off these levels.

Moreover, a sundry of bullish upside ETFs ended the week oversold, also indicative of a market that may bounce in the interim.

My feelings are irrelevant in regards to these signals. I’m overtly bearish on markets, but keenly aware that markets ebb and flow and tend to trend upwards over time. I do believe these signals to be backward looking and lacking sufficient data points to make any strong opinions, one way or another.

In short, if you believe the market will continue to behave as it has over the past 3 months, this is the point where you buy. However, if you believe the tides have turned for the wor st and a malevolent storm of 10,000 hurricanes approaches, ignore these signals and wait for the principle 36 month algorithm to be triggered, before dipping into the markets on the long side.

If this doesn’t tell you everything you need to know about the legitimacy of Chinese listed companies in the United States, nothing will.

Chinese regulators are contemplating a move to bar Chinese ‘going private’ transactions and relisting their scams at home at what they view as excessive valuations.

They know the true nature of these scam artists, unlike our investment banks who willingly turn a blind eye.

Shares of many Chinese deal stocks unraveled last week, shedding billions in market cap. Over 40 companies have received buyout offers, valued at over $35 billion, with 75% of these deals open and pending. The biggest deal pending is QIHU at $9.3 billion.

The unraveling started on May 6 when the China Securities Regulatory Commission said that it’s studying the impact of companies seeking to relist domestically after withdrawing from overseas. The regulators are concerned the valuations estimated for some domestic backdoor listings are too high and could affect the stability of the stock market, according to the people familiar with matter. Policy makers also want to avoid encouraging more buyouts that could prompt capital outflows, the people said, asking not to be identified as the information is private.

Below is a table comparing the U.S.-listed Chinese companies with the largest differences between their share prices and buyout offers. The widening of the offer premium indicates increasing concern that the deals will complete.

Company Name Closing Price ($) Offer Price ($) Premium (%) Premium A Week Ago
China Information 1.20 4.43 269.17 216.43
21Vianet 13.66 23 68.37 23.26
Renren 2.5 4.2 68.00 37.70
Momo 11.68 18.9 61.82 29.63
KongZhong 5.50 8.56 55.64 24.24
YY 44.85 68.5 52.73 20.98
Trina Solar 7.94 11.6 46.10 31.52
Dangdang 5.49 7.812 42.30 19.27
iKang 17.98 25 39.04 17.65
AirMedia 4.32 6 38.89 25.19
Jumei 5.29 7 32.33 15.51
Autohome 24.80 31.5 27.02 11.78
Note: share prices are as of May 13.

It’s worth noting that Chinese regulators are actively trying to crack down on corruption, from their scam IPOs to food safety to casinos. However, as an American investor in these mystery wares, you should be alerted to these facts before diving in headlong. For the most part, China is still the Wild West, corrupted by an institutional and innate culture of thievery and corruption.

Buyers beware.