(HFW) Hedge Fund 13F quaterky analysis - see attached

>>> Consensus BUY
* StoneCo (STNE): For the second consecutive quarter, there weren’t many consensus new buys. The majority of the names on this list are either initial public offerings (IPOs) or stocks that don’t have as high of a consensus rating as usual. StoneCo falls under the former category as funds such as Lone Pine Capital, Tiger Global, and Berkshire Hathaway show positions after the company’s IPO. That said, some firms had already invested in the company back when it was still private. StoneCo is a Brazilian online payments gateway.

* Tencent Music (TME): This is another IPO that hedge funds show a stake in. Managers including Hound Partners, Coatue Management, and Tiger Global all owned shares at the end of 2018. This is basically the ‘Spotify of China,’ or a music streaming service in the world’s largest country.

* Shutterfly (SFLY): Funds that show new positions in Shutterfly include Coatue Management, Maverick Capital, and Greenlight Capital. The company produces personalized photo-based products and services. Shares nosedived from $100 to $35 in 2018 but have since rebounded to $46. Under normal circumstances, a stock with this low of a consensus rating would not be included on this list, but there basically aren’t any other stocks that many funds agreed on.

* Shake Shack (SHAK): The same can be said of this stock. Funds such as Coatue, Maverick, and Bridger Capital all show new positions. The burger joint has been expanding internationally and has touted China as a big opportunity. They’ve been encouraged by their few stores in Hong Kong that are consistently quite busy.

>>> Consensus Increased Positions
* Alibaba (BABA): This is the third consecutive quarter this stock lands on this list. Duquesne Family Office, Farallon Capital, Maverick, Coatue, and Viking Global all added to their positions. The stock has been negative on worries over a weakening Chinese economy and the U.S. / China trade war. However, funds have utilized that weakness to bolster their positions.

* Microsoft (MSFT): This is now the fourth consecutive quarter this stock has graced this list. Funds buying in the fourth quarter include Hound Partners, Farallon Capital, Duquesne, Tiger Global, and Viking. While ‘FANG’ stocks get all the attention, Microsoft shares have performed quite well on their own the past few years and CEO Satya Nadella has really turned the company in the right direction.

* Facebook (FB): Shares of the social media giant finally got cheap enough to entice many managers to buy. Maverick, Hound, Farallon, Coatue, Viking, Tiger Global, and Lone Pine all bought shares. Waves of negative publicity and privacy concerns hit Facebook hard in 2018. Due to this, their capital expenditures spiraled to $14 billion for the year and are anticipated to rise further to $18 billion in 2019. That said, the company is a cashflow machine and also has $41 billion in net cash.

* Amazon (AMZN): Shares of the dominant US e-commerce giant also sold-off significantly during the fourth quarter. A decrease of 34% was deemed a significant opportunity by the likes of Pennant Capital, Coatue, Viking, and Lone Pine.


>>> Consensus Sold Postions
* Electronic Arts (EA): This is really the only stock that was truly a consensus liquidation during the fourth quarter. Duquesne, Lone Pine, and Tiger Management are some of the managers that fully exited their previous stakes. Shares of the video game producer have not performed well over the past year. Some bulls had previously invested under the thesis that the game makers would be the largest beneficiaries in the rise of esports professional gaming leagues, video game streaming, and other trends in the industry.

* Express Scripts (former ticker symbol: ESRX) & Aetna (former ticker: AET): These two stocks were both involved in mergers that closed during the fourth quarter, and as such shares no longer trade. CVS Health (CVS) acquired Aetna, while Cigna (CI) acquired Express Scripts (ESRX). Some managers who previously owned ESRX or AET now may show corresponding ‘new’ positions in CI or CVS, depending on what they elected to do with the position.

>>> Consensus Decreased Positions
* Liberty Global (LBTYK): This European cable giant lands on this list for the fourth straight quarter. Funds that sold some shares include Maverick, Glenview Capital, Farallon, Brave Warrior Advisors, and SPO Advisory.

* Charter Communications (CHTR): It seems hedge funds were out reducing exposure to John Malone’s cable empire during Q4 as both LBTYK and CHTR land on this list. Managers that reduced exposure to the US broadband company include Pennant Capital, Bridger, SPO, Faralllon, and Berkshire Hathaway. The company has been rolling out a mobile service to complement its existing television, broadband, and home phone offerings in order to reduce churn

* DowDuPont (DWDP): Hedge funds that took down their DWDP position sizing during the fourth quarter but still retain positions were Omega Advisors, Viking Global, Glenview Capital, and Third Point.

* PayPal (PYPL): Shares of this online payments giant were sold by Duquesne, Coatue, Third Point, and Lone Pine during the quarter. Over the past few years, this stock has performed quite well, but in 2018 it largely traded sideways.

9to5 : Fired Apple lawyer charged with insider trading released on $500k bail bo

Gene Levoff, Apple’s former senior director of corporate law and corporate secretary for Apple, has been released on $500,000 bail bond after pleading not guilty to charges of insider trading.
Levoff is accused of using non-public information to trade in AAPL shares, seeing a net benefit of $382,000 from his inside knowledge …
Bloomberg reports that the bond was set at a level which reflected Levoff’s flight risk.
Gene Daniel Levoff appeared in federal court in Newark, New Jersey, on Wednesday, a week after prosecutors said he had traded on confidential revenue and earnings filings since 2011.
“We very much look forward to defending Mr. Levoff in this case,” his attorney, Kevin Marino, said after the brief hearing.
In setting the bond, U.S. Magistrate Judge Steven C. Mannion noted that Levoff had traveled extensively and held “extensive assets.”
Apple uncovered the alleged insider trading, initially placed him on leave in July, while the matter was investigated, and then fired him in September. It’s likely that Apple reported the matter to the Securities and Exchange Commission at that time, which would then need to carry out its own investigation before filing charges.
If the allegations are true, it seems a crazy risk to have taken for the sum of money involved, given the likely income of a senior lawyer at Apple who was only one rung below general counsel.
The photo shows Levoff leaving court after the hearing.

>>> US Gapping down


Gapping down
In reaction to disappointing earnings/guidance:

  • CBLK -17.8% (also CFO Mark Sullivan resigns), SATS -15.2%, SPTN -11.3%, VIPS -8.8%, LASR -8.2%, MIC -7.4%, FTI -7%, FLS -6.8%, DPZ -6.8%, EVTC -5.4%, XPER -5%, CONE -4.1%, ATR -3.3%, BG -3.2%, EFX -2.9%, SM -2.7%, WEN -2.7%, NUVA -2.5%, DLPH -2.5%, IAG -2.4%, XEC -1.9%, SAIL -1.9% (postpones Q4 release/call due to accelerated implementation of ASC 606; expects to exceed the high end of prior Q4 guidance on an ASC 605 basis), TS -1.9%, ICLR -1.9%, OR -1.9%, ORAN -1.9%, BRC -1.8%, VG -1.7%, PI -1.6%, TYL -1.5%, PAAS -1.4%, SUN -1.2%, A -1.1%, NDSN -1%, MUX -1%

M&A news:

  • NAVI -6.4% (Navient notifies that Canyon Capital has withdrawn its initial expression of interest in acquiring Navient and announced an intention to propose an independent minority slate of Navient directors)

Select metals/mining stocks trading lower:

  • OR -1.9%, PAAS -1.4%, GOLD -1.2%, SLV -1.1%, BHP -1%, GDX -1%

Other news:

  • CGC -3% (files amended and restated Q3 MD&A)
  • JNJ -2.4% (disclosed it received subpoenas related to talc investigation; co will cooperate with these inquiries by producing the requested information)
  • NKE -1.7% (NCAA basketball player Zion Williamson of Duke University suffers injury early into last night's game as a result of his Nike shoes seemingly breaking apart)
  • VALE -0.7% (announces signing of preliminary agreement for indemnifications)

Analyst comments:

  • GFI -3% (downgraded to Neutral from Overweight at JP Morgan)
  • SSTI -2.1% (downgraded to In-line at Imperial Capital)
  • BIIB -1.4% (downgraded to Hold from Buy at Stifel)
  • GRMN -1.3% (downgraded to Neutral from Buy at Longbow)
  • BDC -0.8% (downgraded to Neutral from Buy at Longbow)

>>> US Gapping up


Gapping up
In reaction to strong earnings/guidance:

  • SRCI +12.4%, CAR +11.1%, CSTM +11.1%, CYH +10.3%, PEGA +7.7%, TNK +7.5%, ALB +7%, NCLH +5.2%, LOPE +5.1%, JACK +5%, UAN +4.9%, MCRN +4.7%, GDDY +3.4%, NE +3.3%, SAM +3.2%, WPG +3.1%, CDE +3.1%, GHDX +2.9%, NEM +2.9%, CRK +2.7%, TSLX +2.4%, FND +2.4%, PQG +2%, ET +1.8%, DIN +1.7%, NTES +1.5%, TK +1.5%, SNPS +1.4%, QEP +1.3% (also announces review of strategic alternatives), CAKE +1.3%, SEDG +1.2%, WK +1.2%, RBBN +1%, SITC +1%

M&A news:

  • IMDZ +315.5% (to be acquired by Merck (MRK) for $5.85 per share in cash for an approximate value of $300 million)

Other news:

  • HTZ +7.3% (following CAR results)
  • PCG +2.6% (PG&E Board extends deadline for receipt of written notice by a shareholder of any business, including the nomination of any person for election to the Board)
  • ONDK +1.7% (after CEO and two Directors disclosed insider buys)
  • SRPT +1.7% (to announce results from the first 3-patient cohort of the phase I/IIa gene transfer clinical trial using MYO-101 to treat patients with Limb-Girdle Muscular Dystrophy Type 2E on Wednesday February 27 )
  • EGRX +1.5% (discloses that the FDA issued a decision in favor of it regarding the scope of exclusivity for BENDEKA)
  • FL +0.8% (increases quarterly dividend to $0.38/share from $0.345/share, approves new $1.2 bln share repurchase, and approves $275 mln capex program for 2019)

Analyst comments:

  • BTX +8.7% (BioTime initiated with a Buy at H.C. Wainwright; tgt $4)
  • SAM +3.2% (upgraded to Neutral from Underperform at Macquarie)
  • APHA +1.7% (initiated with a Buy at Seaport Global Securities)
  • X +1.6% (upgraded to Buy from Hold at Berenberg)
  • HMY +1.4% (upgraded to Overweight at JP Morgan)

9to5 : With four estimates of Q1 iPhone shipments now out, Gartner is the most p

With four estimates of Q1 iPhone shipments now out, Gartner is the most pessimistic

Apple didn’t reveal its fiscal Q1 iPhone shipments or sales this time around. We know from its revenue of $84.3B that sales must have been significantly down year-on-year, but we’re dependant on market intelligence companies to provide estimates of the actual numbers for the holiday quarter.
We’ve previously seen estimates from Counterpoint, IDC and Strategy Analytics – and now Gartner has completed the set with the most pessimistic view of the four …

Strategy Analytics was first out of the gate, with an estimate the same day Apple reported its financials. This suggests the company was waiting the revenue figure as a sanity check for its shipment estimates, which are based on reports from sales channels.
The company put the number at 65.9M iPhones, down 15% year-on-year.
IDC was next, suggesting a significantly higher number of 68.4M. Counterpoint then backed the Strategy Analytics number, providing the exact same estimate of 65.9M.
But Gartner thinks they are all too generous, reports Business Insider, putting the number at 64M. It said that although most smartphone brands saw their sales fall – Huawei a notable exception – Apple was the worst hit among the biggest players.
(Note: Gartner refers to the holiday quarter as calendar Q4 while others refer to it as Apple’s fiscal Q1.)
Apple sold 64 million iPhones in Q4, down from 73 million in Q4 2017. Apple now has a global market share of 16%, down from 18% in Q4 2017.
China was mostly to blame, with Apple’s market share there slipping to 9%.
Samsung saw a slight sales slowdown, and has a market share of just over 17%, down from 18% in 2017.
Huawei sold 60 million phones in the fourth quarter, up from 44 million in Q4 2017. Huawei now accounts for 11% of the global smartphone market.
The challenge for Apple, says Gartner analyst Anshul Gupta, is that it is relying primarily on existing customers upgrading phones, and isn’t doing enough to bring first-time buyers into the iPhone world.
Apple and Samsung mostly appeal to “replacement buyers” — people who already have an iPhone or Samsung smartphone and are going to upgrade.
Up-and-coming Chinese players appeal to first-time smartphone buyers in emerging markets like China, India, and Latin America because they offer a broader range of phones that are considerably cheaper than an iPhone.
Gupta says it’s unlikely that Apple will release a substantially cheaper iPhone just to appeal to budget-conscious consumers. “They have always tried to focus on the value share, rather than the market share,” he said.
Apple relies on older models to provide a more affordable entry-point – but that doesn’t work in markets like China, where buyers like to have the latest tech. Chinese companies, in contrast, offer new models at all price levels.
Huawei […] manages to appeal to both high-end consumers with its P series and budget-conscious buyers with the Honor brand.
“Huawei is capitalising on all these market trends in the best possible way,” said Gupta. “They have really worked hard in the last three or four years to raise their brand visibility. They are respectable in the European market.”
IDC data on the Chinese market specifically suggest that iPhone sales fell twice as fast as the smartphone market as a whole during the holiday quarter.

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • IMDZ +306.3%, SRCI +16.2%, CAR +11.7%, CYH +11.5%, CSTM +11.1%, TNK +7.5%, HTZ +6.1%, PEGA +6%, ALB +6%, LOPE +4.6%, JACK +4.2%, GHDX +4%, GOGO +3.5%, NE +3.3%, SAM +3.2%, WPG +3.1%, UAN +2.6%, TSLX +2.4%, SFM +2.3%, SNPS +2%, SRPT +1.9%, ET +1.9%, ONDK +1.7%, DIN +1.7%, NTES +1.4%, CAKE +1.3%, WK +1.2%, BCS +1.2%, TFX +1.2%, GDDY +1.1%, RBBN +1%

Gapping down:

  • CBLK -19.9%, SPTN -11.3%, LASR -8.2%, VIPS -7.7%, FTI -7.6%, FLS -6.8%, NAVI -6.4%, EVTC -5.4%, XPER -5%, MIC -5%, BG -4.2%, CONE -4.1%, EFX -2.9%, GFI -2.7%, SM -2.7%, NUVA -2.5%, IAG -2.4%, MUX -2.1%, CGC -1.9%, XEC -1.9%, SAIL -1.9%, TS -1.9%, ICLR -1.9%, OR -1.9%, QEP -1.8%, VG -1.7%, PI -1.6%, ORAN -1.6%, A -1.5%, TYL -1.5%, PAAS -1.4%, PAAS -1.4%, NKE -1.4%, DLPH -1.4%, GOLD -1.2%, GDX -1.1%, NDSN -1%, HL -1%, SLV -0.9%

WSJ : Deutsche Bank Lost $1.6 Billion on a Bond Bet

Deutsche Bank Lost $1.6 Billion on a Bond Bet
One of the banking industry’s biggest soured bets since the financial crisis involved a complex municipal-bond investment. Warren Buffett was enmeshed in the deal.

DBK racked up a loss of $1.6 billion over nearly a decade on a complex municipal-bond investment that it bought in the runup to the 2008 financial crisis, and failed to confront head-on even as markets were upended and regulations tightened.

The loss, which hasn’t previously been reported, represents one of Deutsche Bank’s largest ever from a single wager—roughly quadruple its entire 2018 profit—and ranks as one of the banking industry’s biggest soured bets in the last decade.

The prolonged struggle over how to handle the investment sheds light on cultural and financial challenges inside one of Europe’s biggest banks that have hampered its ability to compete with stronger U.S. rivals.

Deutsche Bank resisted for years reducing the value of those bonds and related derivatives on its books to a level that markets suggested they were worth, and it brushed aside concerns raised by the bank’s financial auditors about how it was valuing the trade, according to internal bank documents and people involved in discussions about the investment.

During that time period, the bank was telling investors its internal financial controls were sound, and it raised billions of dollars in the capital markets without any disclosure of the bond valuation issue. Behind the scenes, the badly timed bet exerted a sustained drag on the bank’s finances.

Internally, the bank acknowledged losses on the trade only incrementally. After it finally liquidated the position nine years after buying the bonds, bank executives debated whether to restate past financial results, but never did so, according to people involved in the discussions.

“This transaction was unwound in 2016 as part of the closure of our Non-Core Operations” unit, a bank spokesman said in an email. “External lawyers and auditors reviewed the transaction and confirmed it was in line with accounting standards and practices.”

Bank executives, the supervisory board’s audit committee and external advisers all were involved in the decision not to restate financial results, and the bank shared results of the review with regulators, said one person briefed on the process.

The saga of the troubled bond investment played out as the bank grappled with an array of problems, including declining profits, regulatory fines and investor doubts about its capital position and competitive strategy. Deutsche Bank reported full-year losses for 2015, 2016 and 2017.

This account of the investment is based on interviews with more than a dozen people involved with the trade and its aftermath, and hundreds of pages of documents related to bank valuation policies, accounting records and communications involving Deutsche Bank’s top executives.

Banks have some leeway in deciding how to value trading positions held on their books—especially those that are “illiquid,” or difficult to trade—and when to record losses on them.

Deutsche Bank has been accused before of mismarking illiquid holdings. In 2015, it paid $55 million to settle Securities and Exchange Commission allegations that it had misstated financial statements and lowballed risks in complex derivatives positions by between $1.5 billion and $3.3 billion, at the height of the financial crisis. Deutsche Bank, which neither admitted nor denied the allegations, said at the time it didn’t update the transactions’ market value because it didn’t think there was a reliable method for valuing them in the illiquid markets during the crisis.

In 2007, Deutsche Bank bought the roughly $7.8 billion portfolio of 500 municipal bonds, which funded schools in California, public works in Puerto Rico and transportation projects in New Jersey, among hundreds of other uses. The bonds were insured by specialized “monoline” insurers to protect the bank against defaults by the issuers.

Then the financial crisis took hold, sowing concerns about whether municipalities would make good on their bond obligations—and whether insurers would be strong enough to cover potential defaults.

On March 26, 2008, Deutsche Bank purchased additional default protection from Omaha-based Berkshire Hathaway Inc. Warren Buffett’s conglomerate agreed to insure the bonds against default in a complex deal involving derivatives called credit-default swaps. Deutsche Bank paid $140 million for the protection, up front.

Inside the bank, the entire bond investment became known as the “Berkshire trade.”

Three years later, some Deutsche Bank managers began to question the bank’s valuations of the bonds and derivatives. By year-end 2011, the bank had a little over $115 million set aside to cover potential losses.

Around that time, Deutsche Bank’s financial auditors from KPMG LLP raised questions about whether the bank had set aside sufficient reserves for the bond positions, according to people involved in the matter. In December 2011, Deutsche Bank managers reassured KPMG, partly through a 14-page white paper. The paper, reviewed by The Wall Street Journal, argued that the bank was doing a good job surveying the market and estimating municipal-bond recovery and default probabilities. A KPMG spokesman declined to comment.

Within months, the valuation debates sparked an internal bank investigation. Some executives hatched “Project Marla,” a plan to reclassify the bond investment as a “financial guarantee,” eliminating its day-to-day price volatility on the bank’s books. The bank would move the bond portfolio out of its trading book and into loans and receivables. Legal and accounting objections inside the bank scuttled the plan.

In the fall of 2012, an assessment by Deutsche Bank of other Berkshire-insured municipal holdings suggested the bank’s valuation was off-base. The bank boosted reserves to about $161 million at year-end.

Late that year, Deutsche Bank unveiled a so-called bad bank, called the noncore operations unit, to wind down or sell positions that were troubled or expensive to maintain. It contained hard-to-sell assets including the Cosmopolitan Las Vegas casino, structured real-estate loans and many opaque derivative positions. The municipal-bond investment went onto the pile.

The idea was to protect the bank’s operations by selling or reducing the risk from assets that sucked up capital and other scarce resources without earning enough profit to justify their costs. The bad bank was supposed to give investors more transparency about unwanted assets. Executives hoped it would reassure them that the bank was slimming down, cutting risk and repositioning itself for a new era of tighter regulatory controls.

In April 2013, Deutsche Bank issued a new round of shares, raising $3.3 billion. But internal concerns about the municipal-bond portfolio were mounting. A review that June showed that Berkshire Hathaway was valuing the credit-default swaps that provided default protection on the bonds at roughly $1 billion less than the bank valued them.

By the end of 2013, reserves for the Berkshire trade had risen to $579 million, still insufficient, according to bank documents.

In 2014, Deutsche Bank sold another $9.6 billion of new stock. Its internal estimates for losses from the municipal-bond investment rose, pushing year-end reserves set aside to cover potential losses from the position to $620 million. A year later, those reserves stood at $813 million.

At the start of 2016, the figure rose above $1 billion. Even then, some risk and valuation managers inside the bank warned executives it wouldn’t be enough, according to people involved in discussions about the trade.

It wasn’t.

That May, the bank calculated how much it might cost to sell the bond portfolio and unwind the loss protection from Berkshire. The additional loss: between $728 million and $768 million, according to management-board minutes and emails to top executives of the noncore unit.

Even that number might not be high enough, managers warned. “Cost to exit could increase by an additional $100mn depending on market conditions,” an internal memo noted.

On May 17, 2016, top Deutsche Bank executives met in Frankfurt, Germany, for an update on the noncore unit. The biggest obstacle to lessening risk was the municipal-bond portfolio. It was tying up at least $400 million in capital that could have been used elsewhere, and getting worse, according to internal estimates. Executives including then-CEO John Cryan wanted the position gone by the end of June, when the bank would close its books on the second quarter.

Mr. Cryan privately fumed about the position, citing it as a prime example of trades that tied Deutsche Bank’s hands and demanded precious capital and attention from traders, lawyers and accountants long after any hope of profit had evaporated, according to people involved in discussions about the position.

That summer, the bank finally dumped the position. On its second-quarter earnings call that July, Mr. Cryan referred obliquely to the transaction. “In early July, we successfully unwound a particularly long-dated and complicated structured trade, which was the largest single legacy trade” in the noncore unit, he said. He didn’t specify the amount of the loss.

Mr. Cryan didn’t respond to requests for comment.

That August, Berkshire Hathaway said it had paid $195 million to get out of its obligations of an eight-year-old credit-default contract tied to a portfolio of 500 municipal bonds. It didn’t name its trading partner.

At the end of 2016, Deutsche Bank closed down its noncore unit. In early 2017, it tapped the equity market again, raising $9 billion.

Later that year, it opened an internal investigation into whether it had misled investors or needed to address problems with how it valued certain complex positions.

In April 2018, Deutsche Bank’s supervisory board fired Mr. Cryan, replacing him as CEO with longtime executive Christian Sewing.

Senior Deutsche Bank executives continued debating as recently as mid-2018 whether to restate past financial results tied to the municipal-bond trade, according to people briefed on the review. They decided not to, and the internal investigation closed.

The bank never publicly disclosed the exact trade or the scope of its losses.