Archive - May 15, 2012

For all the totally inexplicable facetime T2's Whitney Tilson gets on prime time financial comedy air, one would imagine that the man runs billions and billions. Instead, as per the just released 13F, Tilson's fund has a grand total of $345MM in long AUM as of March 31. So far so good, however that does not explain why the manager has a Sharpe ratio of roughly 0.00 in the past 3 years. Well, now we know: of the $345 MM total, a ridiculous $104 Million is in call options! In other words, not only is Tilson nothing but a bullish bet that copycats various other select hedge fund portfolios, it is a mega-levered one at that, with what appears ridiculously high theta! It get's worse: as it turns out, another $24MM or so is... in Warrants. Yup: all levered products without actually owning the underlying, leading to massive monthly swings in actual P&L. In other words, real assets held by Tilson amount to $217 Million. And one wonders why the fund can be up 20% one month and down 30% the next... or how Tilson can spend hours a day on TV.

Presented without comment as the iconic tech firm of our time loses the somewhat satanic $555 lows of pre-earnings taking the firm back to two-month lows and dragging the rest of the market with it...

What's $2 Billion for Ben Bernanke's Chosen Son?

Most informed people are familiar with the concept of Peak Oil, but fewer are aware that we’re also entering the era of Peak Government. The central misconception of Peak Oil -- that it’s not about “running out of oil,” it’s about running out of cheap, easy-to-access oil -- can also be applied to Peak Government: It’s not about government disappearing, it’s about government shrinking. Central government -- the Central State -- has been in the expansion mode for so long that the process of contracting government is completely alien to the nation, to those who work for the State, and to those who are dependent on the State. Thus we have little recent historical experience of Peak Government and few if any conceptual guideposts to help us understand this contraction. Peak Government is not a reflection of government services or the millions of individuals who work in government; it is a reflection of four key systemic forces that drove State expansion are now either declining or reversing.

This is serious folks...

Blew my mind!

Now that the market (and by market we mean AAPL of course) suddenly feels like it could have far less bid-side support, and hedge fundies, up until this point relishing that definitely certain year end bonus, are once again getting very nervous that the comp situtation could be a replay of 2011, we bring them some respite: because the only thing that can bring a smile to a PM with a red P&L is known that the guy down the street is redder. Below is that latest full breakdown of monthly and YTD performance courtesy of HSBC. And yes, as pointed out yesterday, it does seem that David Tepper, did Topper-tick the market...

The unsurprising and yet depressingly real budget data from California today should shock no-one and CNBC's Rick Santelli provides the most succinct and even more saddening reality check on the situation this morning as he points out the $15.7 billion shortfall and how cuts and compromise will fill that gap. His sane response to the implicit rise in taxation that this compromise realistically requires will mean - happy feet as Californians leave the state. His rant is one of the best but a little later in the day, the problem appears to be on its way to being fixed by none other than the hoody-in-chief himself. According to Bloomberg, Facebook Inc.’s initial public offering likely will account for 20 percent of California’s personal income growth this calendar year, the state fiscal analyst said. The state expects personal income to grow 4.9 percent in 2012. If the Facebook IPO were excluded, that would total 4.0 percent, the agency said. Money paid to company executives, investors and insiders would equal 1 percent of all personal income in 2012, the agency said. So two things come to mind: 1) we sure hope there are more mega-IPOs due next year to fund CALI's shortfall or we may have to pull the 'transitory' or unsustainable card out of the drawer; and 2) how will all those Facebook employees (and the corporation itself) feel when they start facing higher taxes (as Saverin just pre-emptively did?). Will they follow Santelli's happy feet out of the state? In the meantime, it would appear that the Facebook IPO is just the snake-oil medication that everyone needs - how could the IPO go wrong?

One of the few things we know with certainty is that which is unsustainable will go away and be replaced by another more sustainable arrangement. Whether we like it or not, or are willing to accept reality or not, unsustainable public pensions will go away. What makes "defined benefit" pensions unsustainable? 1) Promised cash/benefits packages that are not aligned with the fiscal realities of what can be contributed annually to the pension funds 2) New Normal low yields on low-risk investments and 3) skyrocketing costs of healthcare benefits.

This is easily illustrated with basic math.

Earlier we were complaining that the newsflow was on its way to getting full-retard surreal. It just crossed that line. From NBC:

NY FBI Opens Inquiry into JPMorgan Chase Loss

Just when you thought you'd seen the worst, its gets worsterer. While US equities are oscillating in a broad range trying to ignore the Eurocalypse, European asset markets had one of the worst days of the year today across the board. Spanish and Italian bond spreads are 40bps wider this week alone (adding 15-20bps today) and Portugal (sorry Stevie) are 52bps wider this week as our prediction that a compressed basis would remove any technical support for the bonds has come true. With sovereigns deteriorating rapidly, and given the forced contagion of the LTRO program, it is no surprise that financials are imploding. Senior and Subordinated credit spreads are underperforming dramatically with Subs +90bps and Seniors +55bps in May, while high-yield credit is 100bps wider and broad European equities (Bloomberg's BE500 index) are tracking them lower now practically unchanged for the year (and back below its 200DMA). Of course, while Greek bank runs are accelerating (and are likely beginning in Spain) and ASE is at all-time lows, the hope remains that if things get ugly enough, the ECB will save the day and Draghi will magically re-appear. The hope of another LTRO is meaningless, though likely inevitable, as it will only exacerbate the stigma that we have been so accurate on. With collateral in short-supply, especially in Spain, any further encumbrance will crush LTRO-facing bank debt and equity-holders via subordination and so it may make sense to be even more long the 'stigma' divergence between LTRO and non-LTRO.

No, this is not a joke:

• HOLLANDE'S PLANE TURNS BACK TO PARIS AFTER BEING HIT LIGHTNING EN ROUTE TO BERLIN - PRESIDENTIAL SOURCE

Greece lightning? Even Zeus demands deleveraging, pardon, austerity.

All you need to read.