2014 was a very good year for the top 25 hedge fund managers of 2014, combined, they took home a staggering total of $21 billion. That is almost a billion per person!
The best of the best, David Tepper of Appaloosa Management took home an incredible $3.5 billion. While first loser (second place) Steve Cohen of SAC took home a disappointing $2.4 billion.
The Top 10 Hedge Fund Manager Salaries of 2014
1. David Tepper (Appaloosa Management) $3.5 billion
2. Steven Cohen (SAC Capital Advisors) $2.4 billion
3. John Paulson (Paulson & Co.) $2.3 billion
4. James Simons (Renaissance Technologies) $2.2 billion
5. Kenneth Griffin (Citadel) $950 million
6. Israel (Izzy) Englander (Millennium Management) $850 million
7. Leon Cooperman (Omega Advisors) $825 million
8. Lawrence Robbins (Glenview Capital Management) $750 million
9. Daniel Loeb (Third Point) $700 million
10. Paul Tudor Jones II (Tudor Investment Corp.) $600 million
Albert Edwards is a strategist at Societe Generale who has a number of far out of left field views. Here are his most interesting thoughts:
Albert Edwards’ Bleak Crystal Ball Reveals Gold Above $10,000; S&P At 450 ; And Sub-1% Bond Yields
April 25, 2013 – “We still forecast 450 S&P, sub-1% US 10y yields, and gold above $10,000.” We will get enormous inflation, but we have to go through crushing Japanese style deflation first.
Why will gold go up as interest rates fall? “My own view is that the reasons
for owning gold have not changed. I expect imminent recession to be
more likely than imminent takeoff and hence the real yield (a key gold
driver) should remain low.”
Todd Harrison is the founder of Minyanville, a financial education website. Prior to founding Minyanville, Harrison, was the head trader for a $400M hedge fund. Here are a few of Harrison’s best articles:
Minyanville Alert: The Moment of Truth!
April 25, 2013 – link
According to Todd Harrison the moment of truth has arrived. A push through 1600 on the S&P will be a win for bulls and a rejection of that level triggers a double top, which favors the bears. It looks like tomorrow will be an interesting day.
The S&P 500: Breakout or Shakeout? – Apr 25, 2013
Harrison is tactically trading the S&P with a short bias. He sees tiered resistance from 1580 to 1610 and will stop out of a portion of his short exposure at 1585.
Eurasian Minerals is a prospect generator. It has an expertise in finding valuable mineral deposits and partnering with majors in return for a percentage of the revenues generated by its finds.
EMX Company Presentation – Feb 28, 2013 (link)
- Market Cap: $102M
- Stock Price: $1.41
- Interests in 150 properties on 5 continents
- $27M in cash and securities
- Royalty portfolio generated $5M in 2012
- Key Executives: David Cole, Eric Jensen, David Johnson
- Cumulative expenditures: ~$105M
- Cumulative recoveries: ~$40M
- Key Shareholders: EMX Management 11%, Sprott 6%, Lundin 1.6%
- Fully diluted shares: 91M
EMX 12/2012 Financial Highlights
- Cash $21.7M
- Current Assets $24.5M
- Current Liabilities $1.8M
- Roughly $20M of working capital to fund exploration
- No preferred or long term debt
- Operating Income -$15.9M
- Operative CF -$14.4M
EMX 12/2012 Annual Report Highlights
- Leeville royalty $4.1M potential
- Sufficient cash for next 12 months
Lone Pine Capital Hedge Fund’s top stock picks are Ebay, News Corp., Liberty Global, Davita and HCA Holdings. According to Forbes:
Steve Mandel’s fund is Lone Pine Capital, founded in 1997. The firm manages about $16.5 billion and returned 23% in its first 11 years. Before striking out on his own, Mandel worked at various firms, including Julian Robertson’s Tiger Management, whose former employees that became independent managers are often considered “tiger cubs.”
Mandel owned 60 stocks at the end of the second quarter of 2012, which includes 10 new ones. The largest new buys are: eBay Inc. (EBAY), News Corp. (NWSA), Liberty Global (LBTYA), DaVita Inc. (DVA) and HCA Holdings Inc. (HCA).
All of Mandel’s top holdings have increased in price since he purchased them. Will they continue to rise in price and propel Long Pine’s Hedge Fund even higher over the next quarter?
Which hedge fund manager will have the highest hedge fund manager salary in 2013? Perennial favorites are Jim Simons, Ray Dalio, David Tepper, Steve Cohen and George Soros. John Paulson has done well in the past but his recent performance has been lackluster and his assets under management have fallen significantly, so he faces a triple whammy: smaller aum, a lot of ground to reach the high water mark and having to generate good performance after a slump. This is a very tall task.
Ray Dalio has so much assets under management that he will be really hard to beat in 2013 even if he generates mediocre returns, because big paydays can be had even on small returns when you manage a lot of money.
Jim Simons has one of the highest compound returns ever and even though his firm has returned a lot of money to keep the fund small, his exceptional returns always seems to lead to a big payday.
George Soros has also returned a lot of outside investor money to focus on managing his own massive fortune. But he is known for going for the jugular when a trade lines up and so he can generate a jack pot salary if another explosive trade like his breaking the Bank of England manifests in 2013.
So who will have the highest hedge fund manager salary in 2013? I guess we’ll have to wait and see.
Bronte Capital’s John Hempton believes that Focus Media is a compelling short. He thinks that the risk in the trade is $2 which is the buy out price, while the reward is potentially $22 for an 11x reward/risk ratio. His thinking is that the deal to take the company private at $27 will fall apart when Carlyle performs full due diligence and that Muddy Water’s Carson Block is right about the company’s numbers being made up. Here’s what Hempton has to say about Bronte’s short position in the stock:
I would love to be a fly-on-the-wall as they work out how to test the Muddy Waters allegations. Due diligence is sometimes (incorrectly) treated as a formality. But in this case the stakes are real. Billions of dollars are on the line and the very credibility of some firms (especially Carlye) are on the line with it. Carlyle has been burnt by some frauds in Asia before. If – after warning by Muddy Waters – Carlyle were to buy this firm and it turned out to be fraudulent the question would arise as to whether Carlyle staff were deliberately buying frauds to loot the Carlyle funds. My guess is that the very existence of Carlyle is at stake.
But Carlyle have competent staff laced throughout their organization. They will do their due diligence – and if the deal closes I think you can presume that Muddy Waters was wrong.
If the deal doesn’t close with the backing of the the largest shareholder and at this pricing then you probably have to conclude that Muddy Waters is right. If Muddy Waters is right then the revenue and the margins of this firm are grotesquely overstated and the stock is probably going to settle somewhere below two dollars.
Disclosure: I think there is a reasonable chance that Carlyle – and perhaps some of the other firms in this syndicate will walk. In all honesty I have no idea whether they will or not but as the stock will wind up at $2 (or less) if they walk the bet is worth taking. So I am short and risk losing the difference between the current price (25 and change) and the bid price (27) if the deal does close.
I suppose there is a risk that someone else comes over the top with a bid that is greater than $27, but would one really want to bid against a controlling shareholder with superior information? But whether Hempton is right or wrong about the stock, he is definitely right about one thing. This is definitely an intriguing story that is well worth being obsessed about.
Are John Paulson’s redemptions signaling the start of the hedge fund apocalypse? Paulson’s funds were down a boat load in 2011 and are down double digits again in 2012 and now large investors are withdrawing their money. According to ZeroHedge:
Because redemption requests are like cockroaches: once one appears, assume many, many more:
- CITIGROUP’S PRIVATE BANK SAID TO PULL $500M FROM PAULSON FUNDS – BBG
- CITIGROUP SAID TO REDEEM FROM PAULSON ADVANTAGE, ADVANTAGE PLUS – BBG
Plus only 89% of all hedge funds are lagging the S&P, so you can bet that the rest of the industry is also facing massive redemption requests. With stocks at 5 year highs and a boat load of redemptions coming on 9/30 which marks the end of the quarter. The odds are good that fund managers will start selling to prepare for redemptions and when it comes to stocks or crowded theaters its probably best to be one of the first to hit the exits.
For Paulson D-Day may have arrived. It is also coming for hundreds of other underperforming funds who will now have to shift from net buyer to gross liquidator as their LPs demand their cash back ahead of the September 30 redemption deadline. Add that technical consideration to all the other September sell off woes.
In short – he who redeems first, redeems best.
Over at King World News, Richard Russell muses that something evil is brewing in the market. Everyone is really complacent, implied volatility is at historic lows, yet hidden risks lurk all around the world:
My only conclusion is that something evil and bearish is bubbling in the guts of this market — and it’s giving the market a severe case of indigestion. Of course, I could say that with a yield below 3%, the Dow is classically overvalued, and any rally would just render the Dow more overvalued.
Even good old Bill Gross, the bond king, knows that something is up and it doesn’t look good for pension funds and the millions of pensioners that they will fail to support. Both stocks and bonds are priced for perfection and their yields are no where near the mythical 8% that pension funds need to stay solvent:
Bill Gross, founder of giant PIMCO, states that ‘the cult of equities’ is over, meaning that stocks are not priced for decent profits over the coming years. Worse, Gross warns that stocks and bonds will not create enough profits to fund the needs of thousands of pension funds over coming years.
So with the S&P above 1400 and VIX below 14, everything is hunk dory, right? I mean what could go wrong? Russell says:
I was thinking, the market has been dull and listless and hardly moving. Maybe the market is telling us that nothing of importance is going to occur. There are countless terrible events that could occur at any time. Israel could bomb Iran. The US could go over the fiscal cliff. Unemployment could suddenly become worse. The market could crash.
Nah! Bad news is good news, because the Bernank will come to the rescue with QE and we will all live happily ever after.
Apple has become the biggest hedge fund hotel ever with a record 230 hedge funds owning it and also hitting a record market cap. But like the Hotel California, checking in is easy, checking out may not be so nice.
“Welcome to the Hotel California Such a lovely place…You can check-out any time you like, But you can never leave!”
According to Zerohedge:
Three months ago when we looked at the latest quarterly hedge fund position tracker from GS, we were not surprised to learn that a record 226 hedge funds were long AAPL stock. And as the chart below proves, a major driver of the increasing price of Apple stock is that increasingly more hedge funds continue to simply pile into the name, which in times of underperformance, such as now with just 11% of hedge funds outperforming the S&P as reported yesterday, is a short-cut means to generating modestly low-risk, high beta due to the collusive nature of all HFs rushing into the safety of one name all at the same time, that at least has some (arguably tenuous if indeed the leaked iPhone 5 photos are of the final thing) fundamentals propping the stock price.
We all know that Einhorn thinks that Apple is a great company selling at a budget PE. But could it be a value trap, could the “E” may come under fire without Apple’s visionary Jobs at the helm?
Where does Warren Buffet’s Alpha come from? The answer may surprise you. You might think it comes from his amazing stock picking prowess, but this study from Yale researchers concludes otherwise:
Buffett’s performance is outstanding as the best among all stocks and mutual funds
that have existed for at least 30 years. Nevertheless, his Sharpe ratio of 0.76 might be
lower than many investors imagine. While optimistic asset managers often claim to be
able to achieve Sharpe ratios above 1 or 2, long-term investors might do well by setting a
realistic performance goal and bracing themselves for the tough periods that even Buffett
In essence, we find that the secret to Buffett’s success is his preference for cheap,
safe, high-quality stocks combined with his consistent use of leverage to magnify returns
while surviving the inevitable large absolute and relative drawdowns this entails. Indeed,
we find that stocks with the characteristics favored by Buffett have done well in general,
that Buffett applies about 1.6-to-1 leverage financed partly using insurance float with a
low financing rate, and that leveraging safe stocks can largely explain Buffett’s
Can this be true?
Is the secret to Buffett’s success really this simple: buy high quality, low beta stocks at a low price to book value and simply leverage it up?
Well, there’s only one way to find out.
What are the best natural gas stocks? Which ones will survive the supply glut and skyrocket? And which will flame out before the cycle turns?
Horizontal drilling and fracking have lead to a tremendous surge in the supply of natural gas. This has pushed prices to historic lows, which will cause many bankruptcies in the natural gas industry.
But after these companies go off line, the survivors will reap massive rewards. Natgas may be selling for $2 to $3 here but in the rest of the world it is selling for $12 to $15. In 2015, a liquid natural gas export terminal will be completed and allow producers to ship their $2 natural gas to the rest of the world and sell it for $15, leading to an explosion in profits.
The Best Natural Gas Stocks
The best natural gas stocks are the ones with the lowest lifting costs, largest reserves and strongest capital structures.
One such company that exhibits all three is Devon Energy. Another interesting company is Chesapeake Energy, which has recently attracted interest from Carl Icahn. But Chesapeake’s weakness may lie in its capital structure. It has massive reserves and a low lifting cost, but it is stuffed to the gills with debt.
Natural Gas Stocks to Buy
This is not individualized investment advice. But the best way to determine which the best natural gas stocks to buy is to simply eliminate those that are over leveraged. Until U.S. natural gas prices rebound, which is likely to happen after the opening of the LNG export terminal any company with too much debt can be hurt by the glut and forced into bankruptcy.
Liquid Natural Gas Stocks
One of the hottest areas will probably be natural gas liquids or liquefied natural gas. Some interesting stocks include:
Cheniere Energy which is building an LNG export terminal to ship $2 natural gas to the rest of the world where it is selling for $15, thus taking advantage of a simple arbitrage, buying low and selling high.
Teekay LNG Partners which is building tankers to ship LNG across the world.
According to Graham Summer’s of Phoenix Capital, Europe is small potatoes to the REAL crisis which lies closer to home. The U.S. is facing it’s worse drought since 1956 and this means that corn and soy will be in short supply. Recall that when food prices skyrocketed the result was riots in Mexico and Africa. This lead to regime changes in Egypt and Libya. But now the food crisis is beginning to hit closer to home. Corn is used through out our food chain. We consume it directly and we use it to feed chickens, cows and pigs. Almost all of the food we eat has some corn in it. And people are already struggling to put food on the table as evidenced by the S.N.A.P. numbers.
According to Michael Pollan, author of The Omnivore’s Dilemma, corn is in roughly 25% of all items located in your average grocery store. So a corn shortage means BIG TROUBLE for the US when it comes to food.
The situation is equally gloomy for soybeans, the second largest produced crop in the US: today inventories are at their lowest levels in 32 years. And the current drought has resulted in 39% of this year’s soybean crop being in poor to very poor condition.
What does this all mean? That we’re likely heading into a food crisis in the US regarding corn and soybeans.
Bob Janjuah says take risk off immediately. He says that he expects to make 300 S&P points while risking only 30 points for a 10x risk/reward ratio at this juncture. Janjuah is the uber-bearish Nomura strategist who managed to call this recent risk on phase, which indicates that he is not one of those broken clock perma-bears that are only right when the market moves in their direction.
Just in case something genuinely new and unusual is happening – we note that the risk on phase has, time wise, extended for a few more days than we had originally forecast – and in the interests of prudence, my stop loss on the risk off call effective immediately is a consecutive weekly close on the S&P500 at or above 1450. As the Global Macro Strategy team is looking for Mr Bernanke to disappoint markets at Jackson Hole next week, and also because we are confident that markets will soon discover that neither the ECB nor Eurozone politicians will actually be able to deliver on their ‘promises’, we are hopeful that our stop losses will not be triggered. For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favour.
Do U.S. laws passed by Congress allow banks to steal your money? The answer appears to be yes according to an article on ZeroHedge:
There is a very important article on Jesse’s Cafe Americain blogspot, “Warren Pollock and Ann Barnhardt On the Increased Risk to Customers In the US Financial System,” that illustrates how the US bankruptcy laws now enable theft brazen theft of customer funds by the largest banks.
“Basically, there is a new 7th Circuit opinion saying that there is no reason to impose a constructive trust on a lender’s takings of customers’ funds from client commodity firms that were used (inappropriately) to secure the firms’ borrowings, as long as the lender can say that it did not know WITH CERTAINTY that customers’ funds were being repledged. Negligence and misappropriation (vs. knowing criminal intent) are now a sufficient excuse for letting the lender keep the money and go to the head of the line for distributions in bankruptcies of the client commodity firms. Spread the word.”
So if you put your money in the wrong place, it can essentially be “stolen” to help shore up the finances of a bankrupt financial system.
What are somethings you might consider to help protect your money?
First, no customer should EVER use a broker-dealer as custodian, either for securities or cash. The 2005 bankruptcy reform legislation and the Seventh Circuit decision make clear that customers of a broker dealer have no legal protection from the predatory behavior of the large banks that clear for these firms.
Second, no customer should maintain funds in a depository about the FDIC insured limit if that bank has a broker dealer subsidiary. Based on my reading of the Seventh Circuit decision, it is entirely possible for a bank to place a broker dealer affiliate into bankruptcy and then raid the customer accounts to protect the bank.
Keep in mind that this is not financial advice. Please talk to your financial adviser.
Japan has one of the highest debt to GDP ratios in the world and yet it has the lowest interest rates in the world. It no longer runs a trade surplus and its population is starting to spend rather than save. As John Mauldin says, Japan is a bug in search of a windshield. At some point Japan is going to provide the trade of the millennium because the risk/reward presented by its debt is astronomical. With 10 year interest rates of 0.80%, the downside is probably bounded by rates of zero, while the upside in a middle of the road scenario is easily 2% if it were to come in line with world interest rates. But with a debt to GDP that is worse than Greece, its rates even came close to the Spartans, Japan would provide explosive returns.
Japanese Fiscal Situation
Zerohedge has provided 14 charts on the “terminal keyesian endgame” that is Japan. Here’s what Tyler has to say:
It is hard to find fiscal situations that are worse than Japan’s. The gross government debt/GDP ratio, at more than 200%, is the worst among the major developed economies. Yet yields on Japanese government bonds (JGBs) have not only been among the lowest, they have also been stable, even during the recent deterioration during the European debt crisis. Thisapparent contravention of the laws of economics is both an enigma for foreign investors and the reason for them to expect fiscal collapse as a result of a sharp rise in selling pressure in the JGB market
Some key take aways:
- Japan’s fiscal situation is the worse in the developed world
- Japan’s debt to GDP is worse than that of Greece
- Japan’s savings rate is falling
“I am sickened by the vast sums I see households squandering on hopelessly marginal “investments” in expensive higher education, healthcare and housing. I too am caught in the crony-capitalist/State cartel web of waste, skimming and fraud: we have paid tens of thousands of dollars on no-frills healthcare insurance (no eyewear, no dental, no meds, $50 co-pay) in the past decade, and received perhaps 3% of this sum in care.” – Charles Hugh Smith
Healthcare, education, housing we spend enormous amounts of our hard earned money on them. But according to Smith, these “investments” are going to result in catastrophic losses, because their costs have been artificially inflated by the “cartels” that run our country:
The average American household has been persuaded that pouring money into costly higher education, healthcare and housing are all “investments” that offer high yields.
In essence, a college degree has lost its scarcity value, and in an era of labor arbitrage (a.k.a. offshoring and international competition), automation and relentless pressure to lower costs, even advanced degrees in law, science and business management that once were perceived as guarantees of secure high-paying employment no longer have scarcity value: the number of people with advanced degrees far exceeds the number of open positions.
Meanwhile, the education cartel has raised prices at a rate that is three times the rate of inflation.
Remember the days when you could work part time, pay your way through college, graduate with zero student loans and get a good job after you graduated? Well don’t forget them because those days are long gone:
Simply put, minting 10,000 PhD chemists (for example) does not magically create 10,000 jobs for PhD chemists.
I see family after family making enormous sacrifices to send their children to costly colleges or make bloated mortgage payments with little hope of positive return; I see families who did not have health insurance struggling to pay off crushing bills for hospital care. I personally know people with science PhDs and post-doctoral experience at top universities competing for scarce academic/research jobs against fields of 60 or more other qualified candidates.
Yes, education and healthcare are necessary, but cartels have leveraged this necessity into vast skimming operations that yield marginal returns even as their costs balloon without limit.
Could we balance the budget if the rich would only pay their “fair share”?
The answer is a resounding: NO!
Even if we taxed the rich at 100% of their income, this would not be enough to make a dent on our deficit, let alone the national debt and unfunded liabilities.
According to Mish, here are a few questions to ask and what we would have to do:
- Would fair share tax hikes be enough to fund US government spending?
- What if we took 100% of the profits of Walmart and Exxon Mobile?
- What if the corporate tax rate was 100% for every corporation?
- What if we confiscated 100% of the wealth of the super-wealthy including Warren Buffet and Bill Gates?
- What if we did ALL of the above? Would that balance the budget?
To meet total spending requirements of $3.2 trillion, but not counting $117 trillion in unfunded liabilities, not only would we have to do everything in the five point list above, but we would have to take the combined salaries of all players in the NFL, Major League Baseball, the NBA, and the NHL, cut military spending by $254 billion, and tax everything people make above $250,000 at a 100% tax rate.
That’s what it would take to meet the 2012 budget of $3.8 trillion. It would do nothing to pay down the existing national debt of close to $16 trillion. It would not come remotely close to meeting $117 trillion in unfunded liabilities.
Surely tax rates on the wealthy are open to discussion. But from the looks of things, unless we solve the spending side of the equation. Raising tax rates to 100% will not be enough.
Hedge fund tycoon’s helper Rajat Gupta was officially busted for insider trading. According to NPR:
Jurors in the insider trading trial of Rajat Gupta did not waste any time coming to the conclusion that he had violated the law. He was found guilty on four of six charges and faces up to 20 years in prison.
Gupta was busted for passing insider information to hedge fund tycoon Raj Rajaratnam. Next to Rajaratnam, Gupta was one of the highest profile business leaders caught up in this insider trading scandal:
In addition to being on the board at Goldman, Gupta is the former head of the consulting firm McKinsey & Company. U.S. officials said he had long-standing personal and business ties with Rajaratnam, head of the Galleon Group hedge fund company.
One of the big questions in my mind is why is insider trading illegal for just about everyone but legal for U.S. Senators?
It looks like the SEC is casting a wider net in insider trading. This time Steve Cohen who runs SAC Capital Advisors has been caught in the dragnet according to business week:
Cohen, 56, was recently deposed by Securities and Exchange Commission investigators in New York about trades made close to news such as mergers and earnings that generated profits for his fund, said one of the people, who asked not to be identified because the investigation isn’t public. Neither Cohen nor Stamford, Connecticut-based SAC Capital, which oversees about $14 billion, has been accused of wrongdoing.
But not to worry, SAC seems to have no problems attracting investment:
Cohen’s main fund, SAC Capital International Ltd., saw net deposits in 2011 before he closed it to new investments in August, people with knowledge of the matter said at the time. The fund raised $2.8 billion from June 2009 through October 2011.