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Mid-April 2014 Hedge-fund Performance

April 18th, 2014 No comments

Average hedge-fund +1.1% through March YTD

Median equity-focused hedge-fund lost more than 2% first two weeks of April

Viking, $28B hedge-fund PM: Andreas Halvorsen, –4.2% in March, –4% first two weeks of April

JAT, $2.2B hedge-fund PM: John Thaler, –9.3% in March, –4% in April so far, –10% YTD

Horseman, $1.7B, +10% March YTD

Discovery Global Macro, $15B, –6% April so far, –14%+ YTD

Caxton, $7B, –3.5% through April 15th, –6% YTD

Source: WSJ

Categories: News

Onion of the Day – Qualcomm (QCOM)

April 8th, 2014 No comments

News

-Digitimes is reporting Apple is looking to build their own baseband chips for the iPhone and is hiring an R&D team for that purpose.

Apple reportedly plans to form a R&D team to develop baseband processors for use in iPhones to be released in 2015 and will place the baseband chip orders with Samsung Electronics and Globalfoundries, according to industry sources.

Apple currently purchases baseband chips from Qualcomm, which then produces the chips at Taiwan Semiconductor Manufacturing Company (TSMC), indicated the sources, adding that Qualcomm and TSMC will be affected if Apple decides to develop baseband chips in house.

Why is it bad news for Qualcomm?

-Qualcomm dominates the baseband chip business with over 50% market-share and has Apple as one of its biggest customers. If Apple brings this in-house, it would be severely detrimental to Qualcomm’s financial performance. Remember Apple has done this before with the P.A. Semi acquisition to make ARM CPUs in-house.

-Digitimes says Qualcomm has over 50% market-share of the $16-19 billion annual baseband chip business ($8.75B of annual Qualcomm sales at mid-point using the 50%). Strategy Analytics says Qualcomm has 66% market-share of the baseband business. The consensus street estimate for Qualcomm revenue in FY2014 is $26.8B.

Categories: Orchid/Onion

Onion of the Day – Micron (MU)

April 7th, 2014 No comments

Summary
-Micron’s Q2 (February) earnings call revealed several important data-points that marked a key negative fundamental inflection point shift in the company’s guidance, supply situation, and demand.

-Moreover the impending demise of temporary positive demand drivers such as the Windows XP support end upgrade cycle and Bitcoin GPU mining bubble along with Micron already being a crowded hedge-fund hotel, do not bode well for the stock’s near-term performance.

Evidence
-Micron enjoyed strong DRAM pricing trends in the past few quarters due to 3 key reasons. Each of these reasons is now either ending or waning:

1. Hynix had a fire in their Wuxi manufacturing plant in China last year, which took off-line a large chunk of global DRAM supply. Micron said this on their conference call:   

“In terms of DRAM, it appears that Hynix’s Wuxi fab is back online and it supplies in the market..From what we can tell, DRAM capacity in the industry has normalized following the recovery of one of our competitor’s fabs in China.”   

So the largest driver of higher DRAM prices the past few quarters is now ancient history.

2. There has been a temporary PC/notebook upgrade cycle recently ahead of the April 8th, 2014 date when Microsoft ends support for Windows XP. This temporary driver will now be behind us after this week.

3. Bitcoin and Litecoin farming has been a big demand driver for high-end graphics cards which use a stunning 3-4 gigabytes of memory per card. (Source: Link) Many mining setups use 6 cards per motherboard. Demand for these high memory graphics cards will now wane with the recent collapse in the price of Bitcoin.

Conference call quote: “Our graphics business had a record quarter shipping over 100 million gigabits.”

It is highly likely this was the peak quarter in graphics card demand and it will be downhill from here.               

-Micron gave anemic guidance for the next quarter. DRAM spot prices have also come down significantly. The company also guided to lower ASPs and production next quarter.   

Conference call quote: “On a like-for-like product basis we expect to see some market price reductions for NAND in the third quarter

mu-guiddance
               
-Micron stock is the quintessential crowded hedge-fund hotel. Hedge-funds have piled in as the stock has rallied over 140% in the past year under the “this time it is different” thesis. Famous Tiger cub Viking, Seth Klarman, David Einhorn, and Discovery Capital (-9.3% fund performance in March 2014 according to the Wall Street Journal) are all top 10 holders. In fact according to Goldman Sachs a stunning 102 hedge-funds are long Micron representing 24% of the market cap (Source: Link). That is one of the highest concentrations in the entire stock market.

The problem is once the fundamentals shift, as I think they clearly have from the evidence above, and when hedge-funds and their adoring copy-cats start headed for the exits, the fall can be swift and dramatic. This in many ways reminds of GM in January, another hedge-fund hotel “this time it is different’ cyclical name. When the stock was near its highs and the company gave anemic guidance, the fall was swift.

Conclusion
Investors love to extrapolate the recent past forever and often miss the subtle underlying shifts in the fundamentals. This is especially so for technology companies when “rapido dinero” generalists are long the stock.

With Micron telling us clearly that the Hynix supply situation is back too normal, demand and ASPs are down-ticking next quarter for both flash and DRAM, and the big demand drivers of Windows XP support end upgrade cycle and Bitcoin mining bubble waning, maybe this time isn’t different and commodity cyclical companies are commodity cyclical companies? The cyclical peak is now behind us.       

Categories: Orchid/Onion

March Jobs Number 192K vs. 206K est. Prior 175K revised up to 197K

April 4th, 2014 No comments

marchjobs2014

Source: Bloomberg

Categories: News

March ISM Non-Manufacturing 53.1 vs. 53.3 Est./51.6 Prior

April 3rd, 2014 No comments

ismservices

Categories: News

Orchid of the Day–AutoNation (AN)

April 2nd, 2014 No comments

News
-AutoNation CEO went on CNBC and was extremely bullish on current sales trends and his confidence on auto sales for the rest of the year

”happy to declare the epic winter of 2013 officially over”
business in the last 10 days of March was simply phenomenal..that follows 10 weeks of (low showroom traffic)”
”going forward..16 million will be achieved..confirmation consumer is coming out of hibernation..will probably have a very strong spring market”
now say confidently the industry will break through 16 million for the year”

Why is it good news for AutoNation?
-Confidence in good business trends and a recent up-turn inflection point in the business is positive for AutoNation fundamentals

Categories: Orchid/Onion

Russian Population in Former Soviet Republics

April 1st, 2014 No comments

cia

Categories: News

March ISM Manufacturing 53.7 vs. 54.0 Estimate/53.2 Prior

April 1st, 2014 No comments

ismmfg

Categories: News

The Most Moving Scene in the Movie Casablanca Plays Out in Real Life Crimea

March 30th, 2014 No comments

The most moving scene in the movie Casablanca is when the French in Rick’s café overwhelm the Nazis singing their anthem with a louder patriotic rendition of the French anthem punctured with shouts of Vive La France at the end. Here is the clip:

A similar scene played out in real life at the University of Sevastopol which is on the Southern tip of Crimea on March 28th, 2014

In the Crimea the students of Sevastopol National University of Nuclear Energy and Industry ignored the hymn and the flag of the Russian Federation.

On Friday, 28/03, in Sevastopol National University of Nuclear Energy and Industry was held a ceremony of lowering the national flag of Ukraine and the rise of the flag of Russia. During the removal of the national flag of Ukraine a significant portion of students started singing the national anthem of Ukraine and continued singing it without music after it was hurriedly off soundtrack. During the further procedure of lifting the Russian flag and the national anthem of the Russian Federation dozens of students ostentatiously left the parade ground.

As it was informed before, the rector of Sevastopol National University of Nuclear Energy and Industry Myhaylo Divizinyuk was dismissed from his post because of his refusal to lift Russian flag above the university and to move into the legal framework of the Russian Federation. Source: Link

You can watch the students sing and chant Glory to Ukraine starting at minute 3:21 and then see dozens of them walk off when the Russian flag is raised and the Russian national anthem is sung.

Categories: News

March Rotation in Technology from Growth to Value

March 30th, 2014 No comments

Every time Jeff Gundlach does a presentation he has a segment where he talks about the “bloodless verdict of the market” on recent price action moves of various instruments and sectors.

Since I focus on the consumer technology sector, I’d be amiss to not document the significant rotation from tech growth names to tech value names in this month of March. It has been a stunning move. I’m not really sure what was the catalyst behind the timing of this rotation, but we shouldn’t ignore it. If you have a good theory or thesis on why this is happening now, let me know by emailing news(at)firstadopter(dot)com. Here are some of the examples on my screens:

Value Technology Companies (Lower Earnings Multiples)

ttw

aapl

ibm

hpq

gme

intc

Growth Technology Companies (Higher Multiples)

amzn

ddd

feye

zng

trip

yelp

Categories: News