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It's 13F season, where hedge funds with at least $100M in assets under management disclose their holdings. The flurry of filings gives investors a chance to see what they bought and sold during the quarter, like long positions, and call and put options, though shorts aren't included on the statements. Besides detailing where the "smart money" is being put to work, some may seek out vulnerabilities they can profit from... remember last year's GameStop saga? It all started when a Reddit user flagged Melvin Capital's heavy puts on GME, which eventually spiraled into the notorious short-squeeze enabled by WallStreetBets.
Where are the big guys investing their money? With the form required to be filed within 45 days of the end of a calendar quarter, hedge funds usually wait until the last minute to publish their holdings as not to let the public know what they are doing. Check out some of the top headlines on Seeking Alpha:
While the transactions can be helpful, it's important to remember that 13Fs don't tell the whole story about what funds are doing. As noted above, bearish bets like short-selling are not included on the statement, so visible long core holdings could actually be hedges against those positions. In some instances, the reports can also reflect investment decisions made months ago, since they are only filed up to 45 days after the quarter is complete.
Case in point: Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) purchased a nearly $1B stake in Activision Blizzard (NASDAQ:ATVI) during Q4 as shares were beat down from the "frat boy culture" lawsuit filed by the California Department of Fair Employment and Housing. The stock fell to as low as $56, before Microsoft (NASDAQ:MSFT) announced its intent in mid-January to acquire the game developer for $95 per share. At Activision's closing share price of $81.50 on Monday, Berkshire's stake would be worth almost $1.2B - a solid profit, but who knows if the conglomerate is still holding the position?
Federal investors have commenced an investigation into block trading on Wall Street and are said to be looking into whether banks improperly tipped off hedge fund clients before large share sales. The SEC has reportedly sent subpoenas to firms including Morgan Stanley (MS) and Goldman Sachs (GS), while the Justice Department is also investigating the matter.
Snapshot: Block trades are important business for Wall Street and there were nearly $70B worth of them last year. That's a five-year high, according to data from Dealogic. The most active bank last year was Morgan Stanley, which scored more than a quarter of the deals (ranked by value) and earned upwards of $300M in fees.
The latest probe is part of a long-running investigation into stock transactions that are typically big enough to move markets. Regulators have been checking into similar irregularities since at least 2019, when the SEC first requested records from big financial institutions.
Example: Once a block sale hits the market (or even hours before), the stock being offloaded tends to go down due to the increase of share supply. That can give an opportunity to favored hedge funds - that were alerted to coming transactions as liquidity providers - to make money on a short sale, in which an investor sells borrowed stock and buys it back at a lower price. Things get even more complicated, as there are no definitive rules on how Wall Street firms can tell clients about coming block trades, as well as questions whether revealing such information - or acting on - is in fact illegal.
European markets are getting a lift this morning from headlines out of Russia, where the country's defense ministry announced the pullback of some forces after they completed military drills near the border with Ukraine. Units of the Western and Southern military districts will now begin returning to their permanent bases, according to the Interfax news agency. U.S. stock index futures are riding the de-escalation sentiment, with contracts linked to the Dow ahead by 1.1%, and S&P 500 and Nasdaq up 1.4% and 2%, respectively. Hopes of averting an energy crisis also sent crude futures (CL1:COM) down nearly 3% to $92.69 a barrel, retreating from the $95-level seen over the weekend.
Is it a ruse? The news comes a day after the U.S. warned that long-range artillery and rocket launchers were moved into "firing positions," Russian units were shifted into "attack formation," and an invasion could "essentially come at any time." The Kremlin has consistently denied plans of an attack, saying movements of forces on its own territory are an internal matter. Russia is also continuing its largest drills in years in neighboring Belarus that are due to finish on Feb. 20.
Meanwhile, Ukraine appears to be doubting the "overstated" assessments as well, with security and defense council chief Oleksiy Danilov downplaying the threat of invasion. "Today we do not see that a large-scale offensive by the Russian Federation can take place either on Feb. 16 or 17," he declared, though he did warn of the risk of "internal destabilization" by unspecified forces. "The situation is fully under control. They will not be able to do any harm to our country now without internal destabilization."
Between war and peace: Adding to the confusion over the situation on the ground, Ukrainian President Volodymyr Zelensky, who had a career as a comedian before taking office, took to social media yesterday to say that "February 16 will be the day of the attack." The apparently sarcastic quip triggered a brief bout of selling, with the S&P sliding 1.2%, before Zelensky's chief of staff explained the remarks should be interpreted as irony. "It's been a crazy day after a crazy week," added Michael Purves, founder of Tallbacken Capital Advisors. "We are dealing with very twitchy markets. Geopolitical tensions come with lots of dramatic headlines."
Shares of Tower Semiconductor (TSEM) skyrocketed 50% in premarket trade after Intel (INTC) agreed to buy the Israeli chipmaker for $53 per share in cash, representing a total enterprise value of $5.4B. The acquisition advances Intel's IDM 2.0 strategy as the company expands its manufacturing capacity, global footprint and technology portfolio to address industry demand. It will also accelerate its path to becoming a major provider of foundry services and capacity globally.
Bigger picture: Many companies are looking to secure chip capabilities following a pandemic that saw a global semiconductor shortage snowball into a crisis. Early in the pandemic, many firms canceled their orders fearing a demand dropoff, but were pressed to secure supplies when it rebounded strongly not long after. Remote work and learning additionally saw a strong demand for computers, networks and electronics, as well as a large range of durable goods, like cars and trucks, which can require thousands of chips.
"This deal will enable Intel to offer a compelling breadth of leading-edge nodes and differentiated specialty technologies on mature nodes - unlocking new opportunities for existing and future customers in an era of unprecedented demand for semiconductors," CEO Pat Gelsinger said in a statement.
Go deeper: In January, Intel announced a whopping $20B investment for a massive new manufacturing facility near Columbus, Ohio. The company will build at least two semiconductor fabrication plants, or fabs, on the 1,000-acre site, though it has the option to eventually expand it to 2,000 acres and up to eight fabs. Construction will begin this year and comes in addition to another $20B investment to build two fabs in Arizona.
In Asia, Japan -0.8%. Hong Kong -0.8%. China +0.5%. India +3.1%.
In Europe, at midday, London +0.8%. Paris +1.6%. Frankfurt +1.7%.
Futures at 6:20, Dow +1.1%. S&P +1.4%. Nasdaq +2%. Crude -2.9% to $92.69. Gold -0.7% to $1856. Bitcoin +4.6% to $44,159.
Ten-year Treasury Yield +4 bps to 2.04%
Today's Economic Calendar
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