Game On?: Commodities and Resource Equities Catch a Bid

The intense delevering by hedge funds took a massive toll on commodities and resource equities...if you were paying attention you saw the ball really get rolling to the downside mid-August, just about the time Ospraie's July swoon became public knowledge. Their 13% decline in the month rang a loud bell, and by the time the news hit they were probably down another 20% by mid-August, when they mercifully began to wind down their flagship fund.

There has been hell to pay since, but most of the delevering was finished by the time CNBC began incessantly chattering about copper last week.

But there was one ingredient missing, which was satisfied Tuesday afternoon in the currency markets. Is the dollar rally over?

October 28th
The prospect for the USD from this point forward is risky. Very risky. Every week that it strengthens, it undermines any fundamental reason to own it, as USD strength since July has seriously damaged US exports. Unlike the Yen, the USD does not have the multi-decade short position to support it. And then of course, there is the looming supply of US Treasuries set to trigger further over the next two years. gregor.us

Mr. Market Buys Into Ackman’s Plan for Target Corp.

Bill Ackman's detailed presentation to the investment community today was greeted enthusiastically, as evidenced by the stock outperformance today

Ackman does not need CNBC to further his case; a slick internet multimedia presentation included video and slides, and could be a template for future trial balloons.

Of course this was more than a trial balloon, and while Target Corp.'s (TGT-NYSE) is giving him the stiff arm for the time being, his idea certainly might have merit. Ackman essentially wants to have Target set up a REIT that will own land and lease it back to Target for 75 years. It would unlock the value of the land, which I assume is carried at cost on the balance sheet, and minimize taxes. If it can be done without lowering Target's credit rating it might be a go, at least theoretically.

Ackman argues that the stock could trade to $70 if action is taken. While some skepticism was voiced from internet participants during the Q&A portion of the presentation, the crowd in attendance, which included the likes of Ricky Sandler from Eminence Capital, seemed to buy into the thesis.

No doubt the assembled money managers are eager to get back to work after the events of the past few months. It has been a trying time for them, but bottoms up research similar to what Ackman presented is what they do best. I am assuming the long video will be up on Youtube soon, and will post when it becomes available.

Of course the $64,000 question is...will Target's Management take Ackman's proposal more seriously than regulators took his GSE plan?

Target Corporation Reviewing Real Estate Structure Ideas from Pershing Square, LLP
Press Release

Porsche To Help Hapless Shorts By Taking Partial Profits

Porsche Automobil Holding SE, the German Hedge Fund that masquerades as an automotive manufacturer, has decided to provide liquidity to short sellers who had put on a trade that made too much sense to actually work in the Constanza market (do the opposite) we find ourselves operating in at the moment.

The FT is all over this, and it appears Porsche is here to help the shorts:

Porsche Automobil Holding SE, Stuttgart, has information that speculative short sellers have had to buy Volkswagen ordinary shares in order to fulfill their delivery obligations.

In the very recent past, this resulted in a massive increase in the stock exchange price of the Volkswagen shares, which at one stage exceeded Euro 1,000 per Volkswagen ordinary share. In order to avoid further market distortions and the resulting consequences for those involved, Porsche SE intends - depending on the state of the market - to settle hedging transactions in the amount of up to five per cent of the Volkswagen ordinary shares.

This may result in an increase in the liquidity of the Volkswagen ordinary shares. Porsche SE denies all responsibility for these market distortions and for the resulting risks to which the short sellers have exposed themselves. Porsche wishes to point out that the applicable capital markets law provisions have been complied with at all times. FT Alphaville

Assuming I am interpreting this correctly Porsche will end up parting with a little stock and taking profits off the table...selling 5% of the outstanding shares could put billions of dollars in the bank, making this the most profitable trade since American hedge fund Paulson & Co. cashed in their bets against subprime slime.

Speaking of slime, it appears German securities regulators will not be taking any action, leaving the hedge fund "locusts", as they are called in Germany, to cry in their beer.

The stock is down 40% in pre-market DAX trading on the news, a sharp pullback from the roughly four-fold advance logged earlier this week.

Porsche to sell 5% stake in VW
FT Alphaville

Three Amigo’s Off Target, Attempt To Salvage 2008 With Marketing Blitz

We are approaching the "silly season" on Wall Street; the final two months of the year are often the salvation of the BuySide as they attempt to pull a rabbit out of their hat and get paid for their hard work whipsawing each other around.

Of course, this year has defied convention, and history. But that won't stop the few money managers that are left standing from going on offense. It is showtime, which means, for better or worse, Wall Street's Three Amigos will be in our face until the eggnog runs dry....

Pershing Square Capital Management LP, the hedge fund run by William Ackman, will give details tomorrow about a potential transaction involving Target Corp., sending the retailer up 10 percent in (early) New York trading.

Pershing, which controls almost 10 percent of Target's stock, will discuss a deal that ``will be of particular interest to investors and analysts focused on retail, real estate, fixed income and credit,'' according to a statement today. Bloomberg

Last we knew Mssrs Einhorn and Ackman were having a tough go of things; hopefully they were not still involved in the Volkswagen/Porsche pair trade that has reduced hedge fund managers to tears. But the Amigos have each others back. Whitney Tilson, whose Focus Fund (TILFX) has a broad mandate, allowing it to short stocks and hedge, is down high 30%'s YTD and natch, pitching in on the jawboning to rally the shares of Target Corp. (TGT-NYSE):

Damn the Deficit, Full Speed Ahead?

Bill Gross' estimates of a $1 trillion budget deficit last spring are looking more and more prescient...will we get there?

Some Democrats will say—are already saying—damn the deficit, full speed ahead. They are talking about a new New Deal, about the revival of Keynesian pump-priming. On the other side, however, stand the fiscally conservative House “blue dogs,” without whose support Obama will find it nearly impossible to move his agenda through the lower chamber. His outreach to that group—including his embrace of pay-as-you-go rules for budgeting—has been ardent, and if he were to spurn them now, the political consequences could be dire.

Obama plainly sees this conflict coming, this potential replay of the Clinton wars between deficit hawks and public-investment liberals. He has moved adroitly to give himself maximal running room. “I was heartened to see that page-one profile the other day on the role of Paul Volcker in The Wall Street Journal,” says a former Clintonista. “Some of these left-right tensions are going to be mitigated by the fact that Obama has built himself such a loud cheering section among the fiscal-responsibility crowd.”

The gathering shitstorms on the horizon will test him quickly and severely. How he handles them will either place him on the road to ruin or the path to greatness—any less dramatic a destination would seem, well, so very un-Obaman. And it will finally answer a question posed by McCain for reasons of his own, but that the rest of us, if we’re being honest, would admit to puzzling over, too: Who is Barack Obama? New York Magazine

We will soon find out.

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