Tuesday, August 9, 2011

Who has got the margin call?

Bronte Capital tends - as this blog has said many times - to be long large cap and relatively liquid companies at 10-16 PE ratios.

And we are short the wildest range of frauds, fads and failures you can imagine.

Our shorts are small and relatively illiquid. They are also higher beta - so we tend to be 2-2.5 times as long as we are short and that is only mildly market correlated.

The strategy has been wildly profitable for the last six months and is not bad most the time but we do not like days when the market really pukes.

When the market really pukes it is the biggest, most liquid names that get sold. Why? Because you can sell them.

And they go down hardest.  Which is problematic if you are long that which goes down hardest.

So today is not our strongest day - and whilst we are down far-less than market - I can't say I am enjoying it.

But I am fascinated.

You see the desperate selling of the biggest liquid names is a sign of margin calls.

The market is not puking. Some prime broker is puking the stocks held by one or more very large hedge funds.

So lets play the game: guess who got the margin call!

Guesses by email or in the comments...



John

46 comments:

Anonymous said...

PAULSON

Anonymous said...

paulson

Anonymous said...

My bet is Paulson. Main fund was already down 20% thru June plus the down moves in his big positions (BAC, WFC, ANR, etc). Guarantee he's getting redemption requests.

John Hempton said...

Everybody has the same guess as me.

Pretty amazing really.

J

John Hempton said...

Still its a flat guess from me. Nothing more.

J

Burt said...

The average hedge fund is about 30% net long, so they all are pukeing. Also, expect to see illiquid credit marked down big time with no trading.

John Hempton said...

If you are 30% net long and everything moves down 5% you are NOT puking - you are buying.

Sort of logical really. Say you were 130 long, 80 short.

Your longs down 5%.

Your shorts down 5%.

You are down only about 1.5 percent - but now you are not 130 long - you are about 122 and you are not 80 short - you are a fair bit less.

Capital is freed up.

You are not puking - and as capital is freed up you can buy the market.

So NO the average hedge fund is not puking. They are going down but they are NOT puking.

Someone is puking.

J

Burt said...

I have to disagree. There are plenty of NY hedge funds who are down 7+ % this month. A monthly number of 10% is enough to send investors heading for the exits. people know it and are trying to save their businesses.

We will know in a few days anyway.

Kid Dynamite said...

I am involved in many of the event driven names (HK, VSEA, BJ, TIN, NDN) which are getting mercilessly slaughtered - and some of these (the first 3) are basically done deals (knock on wood)... POSITIVELY someone is liquidating.

Paulson is obviously a huge arb guy, but that would be a different fund from his fund that owns BAC, i would guess...

Our Man in NYC said...

re. US LSEQ: I think they may have been 110 L and 80 S, but they're long liquid stuff (that's being sold) and they're long hedge-fundy stuff (like all their NY HF friends, that's now being crushed. See LYB, MOS, etc). Hence their L are down 20% mtd (vs 12% market) and their S are down say 15%

Thus they've lost: 2200bps on L side, and made 1200bps on S-side, to be down 10%

That leaves them at 98% L (88/90) and 75% S (68/90) but in a big hole mtd/ytd and not knowing what to do...

MaysonicWrites said...

I have no idea— but I love seeing McGraw-Hill down eight and a half percent.

Anonymous said...

Let's see what happens with gold. We all know about Paulson's much-vaunted "gold share class". He is gonna have to dump as the margin calls accelerate...
- KC

Anonymous said...

Paulson called Gold.

You'd have to be irrational to think it's Paulson.

Jeff, Greenwich CT said...

I think one of em is SAC

Did you see WAC over past few days? It got... er.. you know'ed

Anonymous said...

We can speculate on who, but it's no surprise that we had margin selling. On the other hand, it we could some way get these extremist politicans to give way to the centerist who have common sense, the market may just recover.

David said...

Since when did centrists have common sense? They don't even admit it when they're wrong!

Not Surprised said...

I call Paulson plus others. A lot of these HF guys (esp. those with relatively recent professional market memories) wildly overestimate their skill verus their luck. A lot of this ECB+US Debt+China stuff is way, way over their heads (NOT echoes of things not found in the last few decades...), but they still push their psycopathic BS. I for one will be greatful when the market delivers them a hard kick to the crotch.

yoyodyne said...

Advantage Plus.

Kid Dynamite said...

Fairholme Fund is clearly getting rocked... BADLY rocked... look at their holding! every one crushed....

Anonymous said...

If it was Paulson how come gold is up a lot today?

Anonymous said...

Any thoughts on GMCR John?

Anonymous said...

Agreed on Paulson and Fairholme. Financials exposure is just too much. But also there has to be someone in energy blowing up. XOP is down 30% from the 52wk high and 12ish today alone.

John Hempton said...

Re gold - I do not know - but it really is a huge market relative to Paulson - so he might not have moved it.

J

John Hempton said...

Every email I got was also Paulson.

Everyone except one which said Renaissance.

I have no idea why Renaissance would be victim.

Anonymous said...

Just curious, why do people think it's Paulson?

Anonymous said...

Who knows who got the call. Heaps of them would be my guess.

All I know is Soros was and is a big seller. As he's liquidating his hedge fund and returning the money to investors.

And he cannot be the only one.

Thanks President Barry - O. Thanks Congress and the Senate.

Putting more regulations on private investors is working real well.

BlackRaven said...

I agree Paulson wouldn't move gold, but he certainly would move anglogold, and that is in line with peers...

zzen321 said...

Steven A. Cohen in response to DNDN

Anonymous said...

Paulson had a play on the economic recovery that is obviously not working. That said, I doubt he was levered as much as some other players out there.

Renaissance is not supposed to have a directional bet on the market, so an unwind there should not bring down the overall market so much.

Have you seen massive short covering in the market action?

Looking for another levered long-bias investor out there.

Fairholme not super-levered either.

draghkhar said...

How about David Tepper, the famously bullish hedge fund manager? While he may or may not have had margin calls, he was down in Q2 and may be dealing with many redemption requests and/or engaging in 'dynamic hedging'. Assuming this article accurately represents his key holdings:

http://seekingalpha.com/article/284158-david-tepper-s-favorite-stock-picks

He got rocked REALLY hard today, with top holdings BAC down 20%, C and GT down 15%, and IP, M, and MU down 9%, among others.

Anonymous said...

It's Paulson b/c the boyz are trying to take down his gold position

Anonymous said...

Capital group was puking earlier in asia. They are not a hedge fund. Are they leveraged?

Anonymous said...

excuse an amateur question: wouldn't paulson need substantial leverage for a margin call?

jfxgillis said...

Hmmm. A bunch of right-wing blogs are going crazy over a short trade against Treasuries made July 21 reported Sunday night in the The Daily Mail.

The idea that Soros made it is idiotic, and the idea that whoever made it made money is even more idiotic. The point, however, is that short trades against Treasuries would have been a reasonable position in the days leading up to the debt ceiling deal. It wouldn't be at all surprising if one or more hedge funds found themselves way out of the money come Monday morning.

ozchop said...

I don't agree with the premise, everyone is selling. There is no good news. Paulson never should have been managing that much money, he probably is getting redemptions.

Anonymous said...

Tepper?

Ted K said...

The topic and conjecture are fascinating. My hat is off to Hempton for the fascinating topic, and his readers' fun conjecture.

I find the Fairholme theory the most plausible. Berkowitz has bet a HUGE amount of money and lip-service to the TBTF banks.

Frankly I think Paulson is an idiot. I have ZERO respect for him as an investor. The money he made on the derivatives insurance was basically underwritten to fail, so how can you respect someone who is on the no-lose end of an investment which the contract has been written for certain failure. That's not a true "free market" test of IQ in my book. So Paulson fails on his claim to fame.

Let me also add, the Sino-Forest thing ranks as EPIC in the annals of stupidity in humanity, not just stupidity in investments. A Hempton type scan of the investment materials would have revealed that to your average 12 year old. And as far as blaming the Sino-Forest clusterf*ck on his fund underlings, I don't buy that one either. You can bet if the Sino-Forest investment had been a success, he would have been there for the picture ceremony, and his supposed underling would have been told to take a vacation in the Caribbean as Paulson was getting the Forbes cover. So, Paulson puts his name on the fund and takes all his bows, then he needs to MAN UP, they are ALL his mistakes.

My Answer: We'll found out when the 13F and 13G forms come out. (I know, I'm such a wuss).

Burt said...

This web site does a spreadsheet analysis of the 13-F filing and figures out what the losses would have been...

http://www.insidermonkey.com/blog/2011/08/09/these-hedge-funds-may-be-blowing-up-right-now/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InsiderMonkey+%28Insider+Monkey%29

Anonymous said...

P sold half of BankO De Americas yesterday. Margin call of the Duke & Duke size...ouch

Anonymous said...

To me the trading yesterday looked computer generated. It would not surprise me that all of the computers directly attached to NYSE created a reinforcing trend. The quotes they were getting from the floor directly were constantly lower than the quotes they knew retail customers were seeing, so the computers sold.

Honne LP said...

RE: Jeff, Greenwich CT

SAC is not getting margin calls. A friend of mine met Stevie Cohen two weekends ago and he told everyone to get out of the market. SAC was probably net short before the big drop.

-Derek

AV said...

see story below ...

www.finalternatives.com/node/17675

harlemise said...

http://www.insidermonkey.com/blog/2011/08/09/are-these-hedge-funds-behind-yesterdays-market-crash/

theintriguedtrader said...

Wasnt Soros 75% cash and returning the only USD 1billion in client money back to them?
I would say he is shorting the market or something...

Nina permata sari said...

..................NICE…. ^_^v.................

Anonymous said...

I love how people call Paulson an idiot. He not only shielded his investors in 2008 but made them money. Plus, from what intelligent investors say, he's only had 1 down year in 17. I know taking shots at billionaires when they stumble is in most people's DNA but come on!

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