Third Point Q1 Holdings Update: Reduces YHOO, AIG Stakes, Adds New Stakes In Virgin Media, Tiffany And B/E Aerospace

With Paulson's star long gone down, there are few remaining "new generation" hedge fund wunderkinds, especially in a world in which the best performing hedge fund is Federal Reserve Capital LLC - Onshore Fund. One among them is Third Point's Dan Loeb, who continues to be one of the best performing hedge fund managers for the 4th year in a row. He just filed his Q1 13F, amounting to $5.3 billion in disclosed long equity positions, which are summarized below. Of note are the following changes:

• New stakes in Virgin Media ($538MM), Tiffany ($188MM), Anadarko ($105MM), Thermo Fisher ($99MM), Cabot Oil and Gas ($84MM), Hess ($72MM) and others. Some of these overlap with the initiations of David Tepper and David Einhorn especially Hess: did some "idea dinners" take place in Q1 we were not aware of?
• Fully exited stakes in Tesoro, Morgan Stanley, Nexen, Symantec, Herbalife, Illumina, Coke, PVH, Abbott Labs and others.
• Reduced positions in Yahoo, AIG, New Corp, Murphy Oil, Delphi, Lyondell and others
• Added to stakes in International Paper, Abbvie, Dollar General, Constellation, and Ariad

Tesla Announces Offering Of Common Stock, Convertible Notes

Several moments ago, TSLA (hardly) surprised the world when it filed an open-ended S-3 (Shelf) statement, as many had expected it was only a matter of time before the company used the recent surge in its stock price to sell shares. Then, a few moments later, TSLA once again (hardly) surprised the world when it announced a joint $450 million convertible bond and 2.7 million share common stock offering. And because a dilution is not a dilution if the founder is participating in the common offering (buying his own equity at an unprecedented price to "anchor" it as a benchmark- sure why not - after all he is making much on all the other equity he has in the firm that he is not buying, as a result), the stock is trading up after hours.

Subprime 2.0 - Auto Loan Deliquency Balances Rise 24% YoY

As we warned six weeks ago, the Fed's ZIRP side-effects have driven auto-lenders to scrape the bottom of the subprime-lending barrel once again (loans to subprime borrowers +18% YoY). It seems, based on the Fed's latest data, that this over-exuberant lending is coming back to bite once again as delinquent balances surge 23.9% year-over-year (though optimistically Experian reflects "obviously, we never want to see a rise in delinquencies or repossessions, but... they are still lower than the recession-level rates,"). As Experian also notes today, repossessions rose 16.9% year-over-year. All this as lending volumes overall rose 9.6% to $726 billion in Q1 2013 but average charge-off amounts rose by 9.8% to $7,401 on each defaulted loan - and the worse is yet to come, as "we continue to move forward, we should start to see more increases as some of the subprime loans coming onto the books begin to deteriorate." This will end well.

Guest Post: The Brewing Generational Conflict

The promises made to the 76 million baby Boomers cannot be met. It's really very simple: promises made when the economy was growing by 4% a year and the next generation was roughly double the size of the generation entering retirement cannot be fulfilled in an economy growing 1.5% a year (and only growing at all as the result of massive expansions of public and private debt) in which the generation after the cohort entering retirement is significantly smaller. We desperately need an adult discussion focused on reality rather than resentment. The solution will require dismantling open-ended, everyone-deserves-everything Medicare, which will bankrupt the nation itself. The solution is currently "impossible". What nobody dares say is that if the 76 million Boomers press their claims to the point the nation is bankrupted, then the next generations (X and Y) will have to wrest political power from the retirees, not for their own sake but for the sake of the nation and for the generations behind them.

The Other Great Rotation - From Reach-For-Yield To Dash-For-Trash

It appears that the only thing driving this market higher now is shorts covering. The 'most shorted' names (as we first suggested here) have tripled the performance of the market in the last 4 days (+5.2%). Simply put, this is not a reach-for-yield anymore (which is somehow pitched as a reasonable conservative 'ah shucks' thesis to be buying stocks), this is a dash-for-trash (at a time when financing for this trash is actually blowing higher) - and that always ends well...

Visualizing The Taper

When the noisy-as-you-like-prone-to-epic-revisions non-farm-payrolls figure hit on May 3rd, it seems we crossed the streams. From a regime where Fed liquidity was expected to be large for long, discussions started to turn to good-is-bad and Fed 'Tapering' conversations began. Across every asset class, prices began to shift in the direction one would assume based on a less expansive monetization scheme by the Fed. But there is one market; a market incapable of believing reality; that remains in its own world of hope and unicorns. The US equity market has seen one of its best runs ever during this post-NFP period in the face of the rest of the world's pricing in a tapering.

Guest Post: 5 Questions That Every Market Bull Should Answer

There have been a litany of articles written recently discussing how the stock market is set for a continued bull rally.  There are some primary points that are common threads among each of these articles which are that interest rates are low, corporate profitability is high and the Fed's monetary programs continue to put a floor under stocks.  The problem is that while we do not disagree with any of those points - they are all artificially influenced by outside factors.   Interest rates are low because of the Federal Reserve's actions, corporate profitability is high due to accounting rule changes following the financial crisis and the Fed is pumping money directly into the stock market. Being bullish on the market in the short term is fine.  The expansion of the Fed's balance sheet will continue to push stocks higher as long as no other crisis presents itself.   However, the problem is that a crisis, which is always unexpected, inevitably will trigger a reversion back to the fundamentals.