Bernanke and Miller Win, Global Macro Loses in Crazy Week

Trend followers have been pushing commodities relentlessly higher, but their one way ramp has been rudely interrupted.

The most crowded trade of them all, gold, had its worst week in 18 years and quickly wiped out a month of gains. Global Macro hedge funds were on the wrong side of nearly everything this week, with stocks up, gold and oil down, and the dollar rallying.

Bill Miller and Ben Bernanke might be the biggest winners this week. Miller has just posted his best 3 day stretch in over a year against his peers, and Bernanke has to be pleased how the markets responded to his innovative measures. The internet is still not a safe place for Ben to show his face, given the mob mentality, but Ben torched their Fannie's this week.

Miller got a nice boost from the ramp in financials ex-Bear Stearns; the XLF ETF is once again unchanged from mid-January levels. Too, his homebuilding positions are showing signs of life. His Value Trust Fund was up about 800 basis points Tuesday through Thursday, and perhaps it is indeed Miller Time. A few weeks ago he said:

"What took us into this malaise will be what takes us out," Bill Miller, portfolio manager for the Legg Mason Value Trust, wrote this week in a letter to the fund's shareholders. "Housing stocks peaked in the summer of 2005 and were the first group to start down. Now housing stocks are one of the few areas in the market that are up for the year."

There are some intractable homebuilding bears our there, we are debating some of them daily and trying to trade around the moves and covered a short around 18.50 on the XHB. Speaking of intractable, noted value investor Whitney Tilson is on the other side of Miller's homebuilding bets.

The numbers of his Tilson Focus Fund (TILFX) are looking so hot, however.

We can appreciate Tilson’s comments on Fast Money that resets that will he hitting mortgages and housing mid-year. But Whitney should have been bearish in 2006 when we were bringing up the topic:

December 2006
About $1 trillion in adjustable rate mortgages are due to reset next year (2007) and I think that while some will be refinanced, some of the riskier credit risks will not be able to do so.  This could lead to higher inventories of houses on the market and lower prices.  This scenario would be very bad for the homebuilders, particularly if the economy is slowing or we are heading into a recession. Signs of the Times

The Fast Money boys did not seem to be completely buying into Tilson’s thesis; housing bears probably will not cave until the XHB trades with a 3 handle and a new president is in the White House. It could take some patience to make money long, and there will be chances to fade ‘em for a trade, but the lows in the builders are in.

Which would probably would suit Bill Miller just fine.

Tilson on Fast Money

February 25th
Value Guru’s Square Off
1440 Wall Street

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