As we warned yesterday, the curse of the inverse correlation between CNBC appearances and investment performance has struck once again. The rumor is true as everyone's favorite knife-catching, Buffett-following, leveraged beta fund manager Whitney Tilson has split from his 'colleague' Glenn Tongue who has gone off to run his own 'unencumbered' fund. As the full letter below (h/t DealBreaker) explains, he couldn't be more optimistic about T2's future (so this is a good thing then?) and have no fear since he sees 'a target rich environment' as he has already picked up some 'low hanging fruit'. We wait with bated breath for the next letter...
From the inbox: "Tilson splitting from Tongue, unwinding T2 Partners, new fund at KASE Capital" We very much hope our tipster is wrong: after all how will CNBC Fast Money viewers know to buy JCP at $27, and $26, and $25, and $24, and all the way down to $19 where it is today. Also who could have possibly foreseen the end of a mega long-biased end of a $345 Million fund which had over $125 million in long derivative equivalents? Oh wait...
Whitney Tilson may have met his match. Canadian commodities hedge fund Salida Capital is no stranger to media notoriety: last October none other than Zero Hedge wrote that "Fund Blamed For Gold Sell Off, Salida Capital, Tumbles 37% In September, 49% YTD" after the fund's infamously timed bet on more easing by the Fed backfired and resulted in losses so severe it was enough to warrant liquidation rumors across all commodity classes, which in turn set off follow on liquidations worries in a self reinforcing feedback loop. In retrospect, anyone who read the caveats about the Toronto-based asset manager would have been wise to get the hell out of dodge, because the firm that simply had used massive amount of leverage to generate ridiculous returns such as +35.84%, -66.50%, +188.55%, 44.88%, and -53.39%, is now down 75% in the last 12 months, meaning anyone who invested $100 with the fund, is down to just $25 (and realistically less when management fees are accounted for). It also means that the fund's Sharpe ratio is borderline negative. Finally, it is precisely such fantastically leveraged contraptions on coin toss-based outcomes that even further undermine what little credibility and standing the last vestiges of real, alpha not beta-focused, asset managers remain in this New Normal of ubiquitous central planning.
Remember when Whitney Tilson praised every drop in the price of JC Penney stock as a gift from heaven, give or take? Well the gods really are generous to the Sharpe ratio 0.000 asset manager of over a hundred million in stock call equivalents, all of which are now deeply underwater. Because if Tilson liked JCP at $27 one short month ago, he must absolutely love it at $21 where it is today after collapsing over 10% overnight. After yesterday's announcement of the departure of the company's president, the stock is getting blowtorched and is now down to 2 year lows. Someone else who better be doubling down is retail "genius" Bill Ackman who is down $100 million on the stock today alone, and will need to seriously defend his these or, well, else. Who else is getting pulverized? See below.
If anyone is wondering why the darling stock of Bill Ackman and Whitney Tilson, for whom every collapse of JCP is a buying gift from god, namely JCPenney, is plunging after hours, it is because the company's president, Michael Francis, hired October 4, 2011, has just quit. To wit: "J. C. Penney Company, Inc. ("jcpenney") (JCP) today announced that Michael Francis will be leaving the Company, effective today. Chief Executive Officer Ron Johnson will assume direct responsibility and oversight of the company's marketing and merchandising functions." And to think that just 9 months ago the company CEO Ron Johnson announced, that "I am thrilled to welcome Michael to our team... He is an extremely talented executive with the vision and courage to re-imagine the department store experience. His ability to innovate and deep understanding of the industry will be invaluable as we set out to transform J.C. Penney into America's favorite store." And while his ability to do anything else appears to have been a dud, his ability to read the fine print in his contract, especially where it talks about his perks, was second to none. Because despite leaving just 9 months after his hiring, Francis is entitled to collect a whopping $9 million in pro-rated signing bonus (alongside $100,000/month in salary): all in all - a tidy package of $10 million for shooting the breeze while observing a sinking retail ship. Not bad for a company whose stock has just plunged to September 2010 levels.
News & headlines from the day
From Whitney Tilson's just released letter: "It was an ugly month – our second-worst ever – but for perspective, our fund gave back slightly more than the 12.3% gain of the previous two months. We’re still having a decent year, with a healthy, market-beating gain. In fact, this is the fourth-best start to a year in our fund’s 14-year history." Is that so? May one inquire, in the aftermath of the JPM CIO scandal, does T2 mark the bulk of their positions, which as Zero Hedge disclosed recently are call options, based on market, or based on magical bid/asks, to be made up on the go (as in JPM'scase)? That's right - a hedge fund which "invests" in theta. Is there any wonder why the "hedge fund" with about $200 million in actual stock-based AUM (the balance being calls and warrants), may be the first one with a negative Sharpe ratio? For a visual summary of why LPs (aside from friends and family of course) in T2 are singlehandedly propping up the bottom line of Dramamine, see the chart below.
While we were told during the PSI process that all was fixed and that Greece now had breathing room to cut spending and meet its TROIKA-mandated targets on the road to glory, it appears - just as we said it would - that things have got worse (much worse). In the 44 trading days since the PSI deal was struck, Greek government bonds are down over 44% in price - trading below 12% of par today for the first time ever. So much for Greylock's "no-brainer", "trade of the year" eh? Did equity markets signal an expectation of hope and change even as the government's largesse was priced into its debt? Not so much - the Athens Stock Exchange index is down an incredible 35% since 3/22 - back at 22 year lows! Where is the Greek Whitney Tilson when we need him most?
In the aftermath of last night's Dell cataclysm, we would like to cheer up any remaining bulls - below we present at least one bullish perspective from the inimitable Whitney Tilson who has a $21-$29 price target (and owned 768K shares of stock). Ignore that the stock is down 20% since the reco, and 33% from recent highs: it takes special skill to discover "pent up value."
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.
The Athens Stock Exchange broad index of Greek stocks just dropped to its lowest level since 1992. It is now around 90% lower than its 1999 and 2007 peak levels. The index of Greek banking stocks is rumbling along the lowest levels on record down over 97% from its 2007 highs. Where is the Greek Whitney Tilson (or Dick Bove) when they need him?
Fidelity is happy to announce it has an opening for a new consumer discretionary analyst, because the current one, the one who recommended the firm's investment in Green Mountain, is now looking for a job. Fidelity's GMCR position , which as of 3:59 pm amounted to $1.13 billion, was minutes later trimmed by $445 million, after the company finally posted earnings (and we use the term loosely) which may have finally validated the David Einhorn (and every single skeptic's before) thesis on the name. Because while the earnings themselves came in line, it was the forecast that buried the company: specifically, its forecast of $885 million in Q2 revenue on expectations of $971.7 million, $3.92 -$4.05 billion in full year revenue on estimates of $4.32-$4.46 billion, as well as its 2012 EPS which were forecast to come at $2.40-$2.50 while the street was looking for 2.631 EPS. The result: the growth thesis is now over, and the growth premium has collapsed, with the stock plunging by 40% after hours.
I have to confess, I am tired of writing "structured" articles, the ones where I have to limit my thoughts to 800 words. So with this one I am taking a break. This is an unstructured stream of thought, in no particular sequence.
The most popular talking-head on financial TV (after Bill Miller and Byron Wien), Whitney Tilson, has not had a #winning year so far. In fact the simple pair trade Anti-Tilson (Long GMCR-Short Netflix which we closed when it returned 50% in just over a month), that was so popular last year, has been expanded to include his biggest shorts (as we promised yesterday). While we do not know weightings (obviously), on an equal-weighted basis from today's price, Tilson's 10 largest shorts have managed an impressive 7.37% gain on the year, handily outperforming his 15 largest longs which have managed a sub-market performance gain year-to-date of 1.45%. So being long Whitney's shorts and short the-ever-smiling manager's longs (on an equal weighted basis) would have made you around 6% year-to-date - considerably better than the +2.5% move in the S&P itself.
Whitney Tilson Calms Investors Following Abysmal Year By Telling Them He Has Lost Money Faster In The PastSubmitted by Tyler Durden on 01/10/2012 10:13 -0400
Grab a cup of coffee, find a comfortable chair, lean back, and prepare to be entertained: here is Whitney Tilson's Mea Culpa for "returning" -24.9% in 2011.