Dan Loeb's hedge fund firm Third Point LLC is out with its July Offshore fund portfolio (Marketfolly)

Taken from the Marketfolly
"Dan Loeb's hedge fund firm Third Point LLC is out with its July Offshore fund portfolio disclosure. For the month of July, the fund was up 3.2%. Year to date for 2010, the fund is up 13.7%. Third Point currently has an impressive 17.9% annualized return with a Sharpe Ratio of 1.25 and a correlation to the S&P 500 of 0.40. To learn to become a successful investor like this hedge fund manager, we'd obviously point you to Dan Loeb's recommended reading list.In their latest portfolio breakdown, we see some changes worth highlighting. Here's a look at Third Point's top five positions:1. Chrysler (multiple securities)2. Delphi Corp (multiple securities)3. CIT Group (multiple securities) 4. Dana Holding Corp (multiple securities) 5. Anadarko Petroleum (APC)Keep in mind that 'multiple securities' simply means that they own numerous positions across the capital structure in that specific company and this list takes into account their collective position. Right away there are two major portfolio changes to notify you about. Firstly, Dan Loeb has started a brand new position in Anadarko Petroleum (APC) because it did not appear when we examined Third Point's Q1 portfolio. They've started this position presumably as shares have tumbled due to APC's partial operating stake in the deepwater rig responsible for the oil spill in the Gulf of Mexico. While BP (BP) has taken the majority of the blame for the spill, Anadarko owned a 25% interest and thus bears some liability.This means that Loeb has joined the ranks of other prominent investors who have identified opportunity as a result of the Gulf oil spill. Just yesterday we highlighted Grey Owl Capital's purchase of Transocean (RIG). Prior to that, Whitney Tilson's T2 Partners bought BP (BP) as they feel the company will have no problem surviving. And although this next company was not directly involved in the spill, David Einhorn's Greenlight Capital purchased Ensco (ESV) as a result of the sector trading down.The second portfolio change to highlight is in Third Point's PHH Corp (PHH) position. In previous portfolio disclosures, Loeb's hedge fund has listed PHH as one of their top 5 holdings (they owned multiple PHH securities). This time around, however, PHH is not listed in their top 5 positions. This leaves a few scenarios in play: Third Point could have sold part or all of their stake in PHH, or they could have raised their stake in other positions ahead of PHH (for instance their new stake in Anadarko). There's no way to know which scenario is the case and this could only be a minor change, but we'll have to wait to verify. PHH shares traded up 11% yesterday as the company reiterated its full year earnings outlook. In terms of other recent portfolio activity, we've highlighted Third Point's stake in Emmis Communications (EMMSP).Let's next move to the top winners in their portfolio for July. These included their longs of Delphi (multiple securities), Atlas Pipeline (APL), Chrysler (multiple securities), Lyondell (LALLF), and an undisclosed short position. Of these stakes, you'll recall that Jamie Dinan of York Capital is bullish on Lyondell as well. Third Point's top losing positions for the month consisted of Gala Casino (multiple securities), SemCrude LP (multiple securities), Peregrine Metals (multiple securities) and two undisclosed short positions.Next, let's focus on their latest exposure levels. In equities, Third Point is long 43.8%, short -12.1%, leaving them net long to the tune of 31.7%. Their largest sector net longs are in Consumer at 8%, Financials at 8%, and Basic Materials at 6%. In credit, Third Point is 50.6% net long with their largest exposure coming from MBS at 19.1%. Their distressed exposure comes in at 16.4% and their Performing exposure at 15.1%. Third Point has significantly reduced their distressed exposure as they were previously 25.1% net long and now are only 16.4% net long. Lastly, in terms of geographic exposure, Dan Loeb's hedge fund is net long the Americas at 84%, net long Europe at 13% and net short Asia at -1%.

What I have read this week (July 26)

1 Should you buy energy stocks? (Fortune)

2 How Apple maintains explosive earnings growth (Fortune)


3 Paulson To Launch Retail Version Of Flagship In Europe (FINalternatives)

4 A Short History of Financial Euphoria by John Kenneth Galbraith

5 What Hedge Funds Are Seeing in the Current Market (at Seeking Alpha)

Friday confirmed my prediction, bear market ahead

As we have predicted, the DJIA faced resistance at 10400 level. On Friday it went down more than 260 points out of bad economic data and poor cooperation reports. We said before that if the Dow fails to achieve 10400, there will be a big bear market waiting ahead. With the confirmation on Friday, this is very likely to be true, unfortunately. My personal guess is that the market is going to decline to about 8000 and then come back again at the end of the year.

I have already reduced my long exposure and begin to bet against the market. This is going to be a tough summer for investors. Be patient and I am sure the market avalanche will turn out to be a good buying opportunity by the end of the year when the bulls coming back.

What I have read this week (July 12)

1 Strategies: Robert Prechter’s Market Forecast Says ‘Take Cover’ (NYT)

2 Investing: When Cash Takes a Vacation (at BusinessWeek)

3 Hedge Fund Third Point Files 13D on Emmis Communications (EMMSP) (Marketfolly)

4 David Einhorn's Hedge Fund Greenlight Capital Buys Ensco (ESV) (Marketfolly)

5 One Up On Wall Street by Peter Lynch

What are we expecting in July?

The Dow Jones Industry Average rallied on Wednesday after two consecutive months of decline. The Dow surged 274.66 points and ended above 10,000 out of the optimism of the US economy. so, is this optimism justified? Is today's trading a bullish sign? My opinion is not just a 'NO', but not yet.

If we take a look at the historic data, we will find that there has never been a bearish market that lasted more than three years, not even the 1929 market catastrophe. The longest market contraction happened during the 2000 technology stock bubble, which lasted about three years and followed by a big bull market (Shown in the graph below). If this is true, then we can expect to see a bull market soon because it is almost been three year since the market started to tumble during the end of 2007. Therefore, for the worst,we have yet 4 or 5 months left to see the bull coming back. However, we do not need to be that pessimistic. The martket is very likely to rally before the end of this year, if certain conditions can be met.


As for now, I am sticking with my bearish view about the market. I have always held the view that the market will have another big tumble in 2010 after a bullish year in 2009. I was proven to be right as the market went down in May and June. Despite today's big surge, I am still very bearish. Today's big increase is very likely to be a retaliatory surge after the market touched resistance at about 9700. However, it is going to face another price celling at about 10,450. If the market fails to achieve this level in the next couple of days, I will say there will be a big market decline. The Dow could be as low as somewhere around 8500 before the expected bullish market coming in the end of the year. However, if the Dow rises above the celling price in the coming weeks, it is very likely for us to jump right into the bull market I just talked about.


Until then, my suggestion is to be consevative and be prepared for another market dip.

What I have read this week (June 28)

1 A lobbying tempest engulfs financial overhaul (Yahoo Finance)

2 SandRidge hedge fund hit in June by natgas trades (Reuters)

3 AOL Waves Bye-Bye To Bebo (Forbes)

4 BP shares hit 14-year-low; shares down over $104B (Yahoo Finance)

5 FACTBOX-New regulations limit banks' investments in hedge funds (Reuters)

6 Asian hedge fund hopes take a dive in 2010

Cliff Asness discusses trading strategies in AQR Captical Management

Recently, Cliff Asness was interviewed in Chicago which he talked about how to make money in a volatile market. He talked about mutual-fund format fund can be used to make money in either market direction, up or down.