July 26, 2013
Comment on Model Portfolio activity
view remains that a correction is needed and will occur. But timing is
everything and as spot on as our timing was last year it has been spot off this
year. We thought the markets needed a correction entering this year and since
we maintain the same view we expect a larger correction to occur. The economy
is recovering but the Sequester of $85 billion of government spending has hurt.
Last year the east coast hurricane resulted in a one-time appropriation of $50
billion in infrastructure and repair/replacement spending which has somewhat
offset the Sequester but unless there is an even large hurricane or natural
disaster this year the full impact of the overall reduction in spending will
have more of an effect next years the $85 billion per year Sequester continues.
($85 billion per year is being removed from the budget- not a one-time $85
added a few stocks that tanked on missed earnings this quarter and will add
more for trades/holds as earnings season continues. We are trading around our small-
now smaller with a sale of half the position in the ultra-short S&P 500
(SPXU). Our short position now matches our equity exposure in most accounts for
a relatively neutral position. (Donít ask just trust.) We have difficulty being
short the market or any security since we are bulls at heart but we do think we
will at least break even on this trade and have reduces it to a sleepable level
remain at 52% and Bear at 19% in the latest survey.
2% gain for the year pales in comparison to last yearís gain but there is a lot
of time left in the year. And the 2% return still exceeds that of the ten year
Treasury which is in minus territory for the year.
misses on earnings.
Say what? Amazon
doesnít have earnings Ė only sales- as it tries to put every retailer in
America out of business.
Don't Mean To Be
Dense, But How Is This Huge Yahoo Stock Deal Not Insider Trading?
Some startling news from
Yahoo this morning...
The company is buying $1.1 billion worth of its stock
from its largest investor, Third Point, and three of the company's most
important directors--including Third Point's Dan Loeb--are quitting the
This is big news for
Yahoo! from a fundamental perspective. The three board members who are
resigning, activist investor Dan Loeb, media consultant Michael Wolf, and
turnaround expert Harry Wilson, have made a major contribution to Yahoo's
turnaround and stock price resurrection over the past two years.
This also seems like big
news from another perspective:
It seems like the very
definition of insider trading.
Well, sometime prior to
the open of the stock market this morning, three of Yahoo's most important
board members decided to resign.
And, sometime prior to
the open of the stock this morning--before the board-member resignations were
made public--Yahoo's largest shareholder, which knew about the resignations,
dumped $1.1 billion of stock.
The information that
three important board members are quitting is highly material
information--information that almost any reasonable investor would want to know
when considering a Yahoo trade. Trading while in possession of material
non-public information, meanwhile, is insider trading.
Given that Yahoo's three
most important board members just quit, it's not surprising to see Yahoo's
stock down 5% this morning. It's actually surprising to me that it's not down
more than that.
Third Point and Yahoo
obviously knew that three of Yahoo's board members were about to quit when they
agreed to the terms of the deal in which Yahoo will buy 40 million shares of
its stock from Third Point.
Third Point and Yahoo,
however, did not wait to agree on a price for this trade until after the news
about the board member resignations had been made public.
Third Point and Yahoo did
not, for example, wait until the close of trading today, when
Yahoo's stock price will presumably reflect the market's assessment of the news
that Yahoo's three most important board members have just quit.
Instead, Yahoo and Third
Point priced their transaction based on Yahoo's closing price on Friday--before
the news about the directors quitting was made public.
So Third Point is getting
the pre-resignation price for its stock, while knowing about the upcoming board
member resignations. And the rest of us Joe Schmo Yahoo shareholders, who
didn't know about the resignations, are now getting the post-resignation price.
Again, the definition of
"insider trading" is trading while in possession of material
It would be extremely
hard to argue that the sudden and unexpected resignation of three of Yahoo's
most important directors is not material non-public information.
And it would be
impossible to argue that Third Point and Yahoo did not trade while in
possession of this information.
So, how is this not
I don't mean to be dense
or rude here. And I'm also not a lawyer. So maybe there's some exception
to insider trading laws that allows insider deals like this to happen.
To be clear, I'm also not
objecting to big private block trades. Those happen all the time. (In most cases,
though, they happen at a discount to the prevailing market price, to account
for the likely impact of that amount of stock changing hands on the market
price. This one, I note, did not happen at a discount.)
And, very importantly,
these big private block trades also do not happen when both parties--and no one
else--are in possession of highly material non-public information, such as
the resignation of three key directors.
I am sure that this deal
was lawyered out the wazoo. So I'm sure there's some innocent explanation.
But until I hear that
explanation, I will be scratching my head.
A source familiar with
Third Point's view of this trade says that it was legal because the stock was
sold to Yahoo, not the public. Yahoo was in possession of the same information
as Third Point, the source says, so there was no information on one side that
was not known to the other side.
And I certainly see that.
As a Yahoo shareholder,
I'm a bit annoyed that Yahoo didn't insist on getting a modest discount to the
trading price in exchange for buying such a big block of stock, as I would have
expected in this scenario. But I'm not arguing that Yahoo got shafted by being
sold stock while not being in possession of the information on the other side
of the trade.
The folks I'm frustrated
on behalf of are Yahoo's other shareholders, who didn't sell, and who didn't know about this material
non-public information that both Yahoo and Third Point knew about when they
traded at that juicy $29+ price on Friday.
A Yahoo shareholder who
was/is thinking of selling his stock, for example, I can tell you that I sure
would have liked to have known on Friday afternoon that Yahoo's three most
important board members were about to announce that they were quitting. That information
might have made a difference to me when I was considering selling my stock
(which, as it happened, I actually was doing on Friday afternoon. I didn't
sell.) And I certainly feel like a bit of a sucker this morning, now that I
have learned that Yahoo's smartest shareholder, Dan Loeb, unloaded $1.1 billion
stock on Friday, while knowing what I was I blissfully clueless about all
UPDATE: Bloomberg's Jonathan Weil offers one explanation
about why this trade technically is not insider trading: It does
not involve the theft or misappropriation of inside information.
(Personally, I don't understand how Third Point would be legally entitled to
trade while in possession of information acquired by a board member just
because they happened to employ the board member. Dan Loeb obviously did not
misappropriate the information that he and two other board members were
quitting. But Third Point is not Dan Loeb. And it is Third Point that sold the
stock...while knowing something that other investors did not--that Loeb and the
other board members were quitting.)
DISCLAIMER: I am absurdly conflicted here. First, I'm a
Yahoo shareholder. For better and worse, I've owned the stock since 1998. (I
have been thinking of selling it recently, in part because I'm sick of having
to explain that I'm a Yahoo shareholder when I write or talk about the company.
It looks like Friday might have been a good time to sell.) Second, I work for
Yahoo: I'm a host of a Yahoo Finance video show called Daily Ticker. Third, I
have friends and acquaintances at several companies involved in this
transaction and many more companies that might have been involved. Basically, I
have so many conflicts and potential conflicts with respect to this story that
I could spend the rest of the day describing them....
Follow the money:
A Legal Bane of Wall Street Switches Sides
When he left his role as
Wall Streetís top federal enforcer, Robert S. Khuzami began a long courtship
with a whoís who of the legal world. Ö Six months later, lawyers briefed on the
matter say, Mr. Khuzami has accepted a job that pays more than $5 million a
year at Kirkland & Ellis, one of the nationís biggest corporate law firms.
In doing so, he is following the quintessential Washington script: an
influential government insider becoming a paid advocate for industries he once
July 19, 2013
Comment on Model Portfolio activity
We remain in cash with a
small S&P 500 short position with SPXU ETF in many accounts... Bulls are
now 52% and Bears 19%. Itís getting lonely on the negative side of the markets.
July 12, 2013
Comment on Model Portfolio activity
We sold our remaining stock
positions this week for profits end made a losing round trip in the NASDAQ 100
ETF and a partial position of the triple Short S&P (SPXU.) A nice profit in
Walgreen helped offset the realized losses in those short ETFs.
Bernanke says the economy
remains weak and so QE2 will remain in place and the markets rallied. Two weeks
ago when Bernanke said the economy was doing better and so QE2 would be tapered
the markets weakened. Go Figure.
Bulls rose to 48% and Bears dropped
to 20% according to Investors Intelligence. As markets rise so does bullish
sentiment. Go figure.
We await the correction.
July 5, 2013
Comment on Model Portfolio activity
We have been trading around our bearish bias for the past
two weeks realizing some very slim gains- but gains none the less. The
Employment Report on Friday was bullish for the thin holiday markets and we
repurchased the triple bearish SPXU and double bearish NASDQ 100 after selling
them on Wednesday. We plan to continue to trade this bias for a while. We will
also trade quality stocks that disappoint during earnings season this month as
with the repurchase of Walgreens this week when sales disappointed. We are
looking for bunt singles and walks given our expectations of a correction.
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