Bookkeeping: Restarting 3 Positions

1. Apple (AAPL) - bought a 3.9% stake in the $93-$94s
2. Mastercard (MA) - bought a 1.8% stake in the $152s
3. CME Group (CME) - bought a 3.3% stake in the $360s

The former 2 of the 3 above were major hedge fund holdings and have been liquidated relentlessly. I don't know if the hedge funds are done but frankly this drop has been so severe it is going to mean the redemptions are going to happen in a short duration of time - I earlier thought it might drag out all the way until December 31st when hedge funds CHOSE to close up shop since they won't be able to make their performance fees in 2009; but instead many will be FORCED to close up shop much earlier. Or be much much smaller.

Of these 3 I have the least conviction in Mastercard (MA) simply from a "I can figure out ways people will freak out about the stock" thesis so it has the lightest weighting. It looked to be bottoming around $150 the past week but I already have buyers remorse as its falling below. :) Speaking of "all the bad things a person could say about MA" here is an analyst report this morning that represents said issues

• An analyst on Friday cut his price target and earnings estimates for Visa Inc. and MasterCard Inc., and downgraded MasterCard because of an expected global economic slowdown.
• The downgrade comes as MasterCard is in worse shape than Visa heading into a potential global recession, Mammone wrote in a research note. Mammone said MasterCard lags Visa in debit transactions, where the bulk of nondiscretionary spending continues. Visa also does not have exposure to a potential downturn in Europe, since its subsidiary is independent. (so exposure in the US is better?) Hedge funds also own a greater portion of MasterCard, which could make trading of its stock more volatile than Visa's, Mammone wrote in the note.
• Mammone did say that despite the downgrade, MasterCard continues to be one of his favorite stocks in the payment processors sector.
• The analyst maintained a "Buy" rating on Visa. But he cut his price target and earnings estimates for both MasterCard and Visa because of the potential onset of a global recession and how it could affect consumer spending. Visa and MasterCard earn the bulk of their revenue through fees each time customers use their branded cards to make purchases. If consumer spending declines, fee revenue at the companies declines as well.
• Currency exchange could also negatively affect MasterCard and Visa's earnings in the coming year, Mammone wrote in the note.

Apple (AAPL) has a cash rich balance sheet and by buying in the low $90s we are re-entering the position $60 below where we sold it a month ago - unbelievable (40% lower). I even wrote on Sep 24 I found Apple tempting - that was @ $130. Again, this is going to be a terrible Christmas but electronic gadgets are like Cabbage Patch dolls or Transformers for this generation's kids/teenagers. They sure aren't buying $130 jeans at Abercrombie & Fitch (ANF) anymore, judging by their same store sales. On the chart Apple has been bottoming in the $85-$90 range the past 5 days despite carnage - this is serious relative strength.

CME Group (CME) we sold off last fall but with news it is in the running for the CDS derivatives exchange and the strong action the last week it is back on the radar - it had peaked up to $440 early in the week on the news it might win this lucrative new business but even before that it has been trading in a narrow range of $340 to $410 for 3 weeks which is "only" a 15-18%ish range. Importantly it has not been making new lows - which is a rare find in this market.

Again, I'm not calling "the" bottom or "a" bottom - for the individual traders who read the blog - you can be completely in and out of all your positions every few minutes - I'm not in that position. So I'm investing with different needs in mind. If we don't get strength in the 3-4 PM hour we are going to start Monday off badly as well I'm afraid. But we can begin picking here on the long side after the worst week in market history. This is why we have cash - why have I been holding a huge batch of cash for 10 months if not to buy in situations of utter panic like this? I saw Ken Heebner on CNBC last night and they asked him would he be buying today - he answered he was already invested and was just watching the stocks go down at this point. Again, most funds find it cruel and unusual to even have a 5% cash stash which I always found strange - the excuse is "people pay me to invest, not hold cash"; I'm of the mind they pay you to try to make money or at least not lose so much in this type of market? We still have a good amount of cash (15%+) even with today's purchases and hold short exposure in case we continue to drag down. Our cash holdings always make us lag the market and peers on those big up days in the market, but there is a reason we have it always handy.

As for the market, if we reverse up at the end of the day, and can get near flat or even green - I do believe this will be an intermediate bottom. But 3 PM will be the witching hour when redemptions scream through Wall Street - we'll see how many there are today. The great irony for any of you newer to the market is in the "old days" (i.e. 6 months ago and previous) it was a great thing when a stock had high ownership among hedge funds - it meant the "best & brightest" were with you in those stocks - now its a total curse :)

p.s. the action in Goldman Sachs (GS) and Morgan Stanley (MS) is either (a) scary or (b) a sign that these 2 institutions are going to be among the first two the government injects capital into (in return for equity, causing dilution).... or perhaps both (a) and (b) :) Ironic, with Goldman Sachs that the government will be injecting liquidity into itself... eh.

Long all names mentioned in fund; long none in personal account