The Tiger Global Bottom?
Lot’s to discuss on this week’s trading. Let’s start with trying to put a picture together of what ails stocks. For the week:
$QQQ down 3.9%
$SPY down 2.8%
Oil down 5.5%
Wheat down 9%
$BABA down 14%
$AMZN flat
CNN Fear and Greed 14
Put/Call running consistently 1.0 or better most weeks
Hedge funds de-grossing last week the most in 10 years
Tiger Global takes out a $1b loan from JP Morgan
Lot’s to digest. What do you see? I see stocks getting creamed while commodities maybe peaked and hedge funds forced selling? You might say well that looks right but what stops them from continuing to sell and why would we bottom during a war with the Fed needing to raise rates? Amen, good question. We have repeatedly struck a tone of caution on price to sales stocks while trying to catch tradeable rallies in higher quality (as measured by growth and free cash flow) names. Equally, we have reminded that buyers live higher and sellers live lower. This is about positioning more than anything else and when everyone has thrown overboard all stocks/items no longer “must have” for the boat trip (life) that is when a stock or the market bottoms. You might say thanks sherlock, but when? And how have you done this year trading? We are disappointed that we are down about 5%, but that’s the business, taking risk and about ½ our loss is 2 small caps we are holding that have asymmetric risk/reward we want to take. Enough about us.
Chase Coleman started in the business about when we did in the early 1990’s. He worked for Julian Robertson at Tiger and quickly became a whiz kid building Tiger Global into a powerhouse based on big big themes and narratives. Chase has always been ahead of the investing curve. The fund ended 2021 with $45 billion in long positions according to Bloomberg. He was Melvin Capital before Gabe exited college and is 10x more talented than the Talented Mr. Plotkin. That said, Tiger Global is in a world of pain. They were down 37% for 2022 at the end of February. They had nearly $4b invested in JD and BABA which are down another 33% and 19% in March alone. This by itself wouldn’t sink a large well capitalized fund like Chase, but look at his other large holdings performance in March:
$MSFT down 7%, $SNOW down 33%, $SE down 38%, $NOW down 12%, $RNG down 20%, $DASH down 18%, to name a few large ones.
This is just in March which is only 2 weeks old. Sure he has shorts, but you can’t hedge effectively with $QQQ only down 7% this month with the above moves (and leverage). JPM announced on Thursday it had loaned Tiger Global $1 billion, unclear what for except it seems like a margin call likely backed by Chase Coleman personally on the loan. Our speculation, but it can’t be good.
The market acted very funky on Thursday and Friday, in our view. After a Wednesday mega rally (I guess the Demark buy signals worked atleast for that move) based on oil declining, the Thursday Friday declines in the Chinese stocks seemed to lead to Nasdaq, technology and then the overall markets. After all, it is hard for the $SPY or $QQQ to go up without technology stocks. Do you smell a rat? China stocks get pummeled Thursday, a massive pre market futures rally Friday up 1.5% gets sold to down 2% by the close and the names Tiger Global owns mostly get decimated far worse than the indices. In the old days, bids wanted used to be a thing. That came back when Archegos was forced to sell literally. Tiger has far more transparency and respect on Wall Street that they likely get a deadline for reducing exposures. In summary, we think this week was the Tiger Global knock out punch for this round of the fights and while they surely survive (hell, Melvin did), this likely marked some sort of bottom by forced selling this week, the same way Melvin marked the top covering his uber arrogant, well researched short calls.
By now, you know our trading style. We try and find some off beaten path longs like $AMTX $VTNR or interesting themes while investing in larger cap with good risk/reward and use volatility to get long by selling puts underneath. Make no mistake, we write names we are involved with each week and trade them. We do not use stops per se but we know when something isn’t acting like he hoped and reduce and revisit and find names that do. Our outright longs right now are $MSFT $QCOM and $NTNX (Chad from fintwit bagged us calling this quarter the inflection lol). We have puts underneath for this week expiry on AMAT, AVGO, CZR, EBIX, GM, PYPL, TSLA, V. At some point, we hope/expect to have the “perfect” portfolio of longs outright and sell weekly calls against. Said differently, right now we are in the first 3 names for the long haul using that mindset and the puts sold we either collect the premiums or become long and feel our way thru with news flow related to each and sell calls against where it makes sense. The list above makes a lot of sense to us right now, but will always trade and look for new ideas and better risk rewards as they come up. In our minds, if $MSFT was $310, that might be an outright sale if we found a better r/r idea.
Some notable news flow this week across the markets included:
1) $FB said Europe is weak outside of Russia and e-comm hangover still exists, expect a better 2H (we shall wait to see)
2) $AMZN 20 for 1 stock split reward you with flat for the week tells you the market we are in
3) $FDX speculation of activist abound but it didn’t get much play
4) $MSFT sounded very upbeat at a conference on the continuation of strength despite the macro
5) Baseball season lock out ended!
To summarize, this week was a selling climax of sorts that maybe finishes next week. We are on vacation down south out of the country but will bring our devices to trade as it is likely to be fireworks with the Russian conflict and the Fed decision. Sadly, both seem to be known events with the Russian leader/war criminal seemingly not stopping til a surrender and the Fed is going to be relentless on inflation albeit in a measured manner as hikes don’t really solve the issues that plague us. Yes, this feels like the inverse of a Goldilocks investing environment which can only lead to better times ahead. You know the saying “you can’t fall off the floor!” Stay disciplined, don’t use leverage, take trades when you can and keep position sizes in mind.
Rob’s Educated Guesses