The best quote I've seen in a while.

The Wall Street Journal: Rare Bears. [$]

Quote:

"With hedge funds and the pressure they're under to perform, we're getting this Texas Hold'em poker style of investing: all-in or all-out," he says.

[Quote from Vinny Catalano, chief investment strategist of Blue Marble Research.]

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I don't think hedge funds are the only guilty parties here, but they are probably a little more guilty than other folks.

Anticipating these moves can make you money though. Clearly, so far in 2007, energy is out and tech is in.

Bare Naked Capitalism.

Bloomberg: Cerberus May Buy Delphi Car-Parts Plants, People Say.

Ben Stein on Cavuto on Business (Fox News) keeps making this suggestion, and it is sort of interesting, so I thought I'd bring it up.

So, here's the pitch:

A money losing auto parts making operation, currently in bankruptcy, desperately in need of major restructuring, saddled with sky-high union salaries, serious pension obligations, spun off from a parent automaker (General Motors) that is in similar shape.

Sounds awesome, right? It's Delphi. (DPHIQ.PK - the 5 character symbol and .PK because it is in bankruptcy and booted off the major exchanges)

Well, maybe.

Normally, you should run for the hills from this kind of investment (I hesitate to call it an investment, let's call it a speculation.) Or perhaps you buy the bonds. Never, never, never, ever buy the stock. Except maybe this time.

All kidding aside, normally when a company goes into bankruptcy, the stock is ultimately worthless, anyone holding the stock loses everything, and the bondholders end up owning the company with newly issued stock (think Kmart). So even though you may see stocks trade during bankruptcy, it is almost always people flushing their money straight down the toilet.

However, in Delphi's case, you have a major hedge fund - Appaloosa Capital - with a very sharp manager - David Tepper - as a major holder of the stock, trying to work a deal here where the unions accept lower pay rates, various factories are sold off to interested parties, other costs are rationalized, etc. etc. [Note that the article highlights Cerebrus. I'm more interested in Appaloosa, which is also mentioned.] Obviously though, getting people to take huge pay cuts is not easy. If things go wrong, the stock will be worthless, the bondholders will end up with everything. And, we'll also note, Kirk Kerkorian, an investor who knows a few things, just dumped his entire stake in General Motors when he lost faith in their ability to make the major changes he was seeking. So Mr. Tepper has his work cut out for him.

I will note that in response to Ben Stein's suggestion to buy the stock, former hedge fund manager Jim Rogers suggested buying the bonds instead, which is safer. But if this works out for Appaloosa, the stock is going to give you much more juice than the bonds.

I leave you with the wisdom of Oingo Boingo:

There's nothing wrong with Capitalism
There's nothing wrong with free enterprise
Don't try to make me feel guilty
I'm so tired of hearing you cry

There's nothing wrong with making some profit
If you ask me I'll say it's just fine
There's nothing wrong with wanting to live nice
I'm so tired of hearing you whine
About the revolution
Bringin' down the rich
When was the last time you dug a ditch, baby!

Peter Thiel says be careful out there.

Peter Thiel runs hedge fund Clarium Capital Management and since I started this blog in Feb. 2005 his assets under management have risen from a coupla hundred million dollars to roughly $2 billion. And it ain't just dumb luck folks, as Peter strikes me as seriously sharp in his interviews, and has an impressive investment record to boot. One day I fully expect to hear Peter's name listed alongside some of the real luminaries in the history of hedge funds, names like Rogers, Soros, Steinhardt, Cohen, Simon, et al.

In this interview from MarketWatch, he explains his current views of the markets after the US elections. He sees the potential Democratic sweep of the House as a vote of no confidence on the US economy by the electorate, is worried about equities in general and also very worried about the US housing market for 2007. He continues to be bullish on energy equities, and believes that as a result of Fed moves (or the lack thereof), the US dollar may continue to strengthen.

Generally, these are the same viewpoints he has been expressing for some time, and while he was early on his calls on housing, the more we hear from homebuilders and realtors (Toll Brothers and Beazer announced new orders down more than 50% yesterday, Hovnanian today announced a loss due to land charges.) the more it looks like we may still have a turbulent adjustment period ahead of us in housing.

MarketWatch Video: Peter Thiel.

[note: although MarketWatch lists the video as available, the link no longer appears to link to the proper video.]

Jim Rogers: Time to buy natural gas.

Here's an interesting trade.

Jim Rogers, former hedge fund manager, on Cavuto on Business this weekend:

"Two hedge funds have collapsed recently, have driven down the price of natural gas. Two things:

It's gonna be cheaper to heat your house if you use natural gas; if you don't use natural gas, switch to natural gas.

But secondly, buy natural gas, you'll make a fortune."

[Note: The transcript on Foxnews.com contains only the first comment about using natural gas in your house. The quote above is more accurate.]

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One of the funds he's referring to is Amaranth which hasn't collapsed and is trying to stay open, though that seems a little unlikely given the circumstances, so ultimately he'll probably be right. Using borrowed money to gain serious leverage, they played natural gas futures for early 2007, in the process basically cornering the market for themselves. When they ran out of money to keep buying, it turned out everybody else had taken their toys and gone home (quite possibly on purpose), and the market plunged, leaving Amaranth holding the bag.

The other fund he's likely referring to is MotherRock LP which also incinerated itself with natural gas trades. The notable thing about MotherRock is that one of the managers was a former President of the New York Mercantile Exchange (a major commodities exchange) who probably had a little bit of experience with trading commodities before trying his hand at running a hedge fund portfolio.

So, justifiably, natural gas is considered the most volatile commodity of all, and it has certainly proved it recently, burning even those with experience. After spiking last year to $15, it's now down to under $5.

Jim Rogers is probably counting on three things to support this trade: First, that the blowup of these two hedge funds has created a temporary dislocation in the price of natural gas to the downside, and secondly that natural gas is now trading at the low end of it's range in it's normal relation to oil. This idea is also supported by energy analyst Kurt Wulff, who recently wrote "Natural gas may not have positive price momentum, but it has value at near the lowest ratio to crude oil in the 00's decade." Finally, we are just ahead of winter and natural gas has a tendency to spike sharply if you get a period of very cold weather during the winter.

A couple of things to keep in mind: This is a trade he is recommending, so you need to keep a watchful eye on your position to sell into a spike. Predictions for this winter suggest it will be warmer than normal.

If you don't trade the commodity, you could take a look at stocks that generally trade along with natural gas, some of the ones I found correlated are EGN, PXP and WMB. The larger producers of natural gas include COP, ECA, EOG, APC, XTO, CHK.