Wall Street Breakfast: Pass The Chips

Pass the chips

It’s 13F season, where hedge funds with at least $100M in assets under management reveal their holdings. The flurry of filings gives investors a chance to see what they bought and sold during the quarter, including long positions, as well as call and put options, and generally detail where the “smart money” is being put to work. While shorts aren’t disclosed on the statements, some may still seek out vulnerabilities they can profit from (like heavy put-based short squeezes).

Snapshot: 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 so as not to let the public know what they are doing. Check out some of the top headlines on Seeking Alpha:

Elliott Management adds Triple Flag Precious Metals, exits Diamond Offshore

Steve Cohen’s Point72 enters Dell, EOG, exits Nike, McDonald’s, Coca-Cola

Carl Icahn takes stakes in Crown Holdings, Twitter in Q3

Saudi Arabia sovereign wealth fund ups stakes in Meta, Alphabet

Nelson Peltz’s Trian Fund pares stakes in Ferguson, Sysco

Tepper’s Appaloosa closes positions in Kohl’s, Micron, Occidental, Netflix

Druckenmiller’s Duquesne adds Amazon, exits Westlake, lowers Microsoft stake

Soros Fund Management invests in Sierra Wireless, Booking, Agree Realty

Tiger Global scoops up HubSpot, PayPal in Q3, exits XPeng, Samsara

Dan Loeb’s Third Point opens bet in Range Resources, gets rid of Cenovus

ValueAct exits Bausch Health, SLM, boosts NYT stake, trims Rocket Cos.

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 in the statements, 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.

The Oracle: Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) took a new position in Taiwan Semiconductor Manufacturing (TSM), sending the chip giant’s stock up 11% in premarket trading. The stake of 60M shares follows a two-year low notched last month amid a sharp slowdown in global chip demand, but the firm apparently believes that the world cannot do without silicon. Buffett doesn’t typically make big technology bets, but has done some in the past with mixed success. While a six-year wager on IBM (IBM) did not pan out, Berkshire is sitting on massive unrealized gains with its $126B stake in Apple (AAPL). (54 comments)

#G20BaliSummit

Some thawing of relations appears to be happening at the G20 summit after President Biden met with Chinese leader Xi Jinping for three hours on Monday. While Taiwan still remains an issue, the two sides agreed to resume climate talks, and touched upon supply chain stability, as well as health and food security. The language was also warmer, noting that there should be more incentives to work together as opposed to decoupling from “each other’s economic development.”

Bottom line: “We were candid and clear with one another across the board,” Biden declared at a press conference. “I absolutely believe there need not be a new Cold War.”

Later today, the summit will kick off in earnest, with a gathering of G20 nations (and the EU economic union) that accounts for more than 80% of global GDP. Divisions over Russia’s war in Ukraine is shadowing the conference in many areas, which has the potential to sow discord among the participants, but they may find some unity as all the members face a darkening economic outlook. Looming recessions are the talk of the town, as well as instability over food and energy, and jumbo rate hikes to counter historically high inflation.

Go deeper: “Recognizing that the G20 is not the forum to resolve security issues, we acknowledge that security issues can have significant consequences for the global economy,” read a draft resolution that will reportedly be published at the summit. “Most members strongly condemned the war in Ukraine and stressed it is causing immense human suffering and exacerbating existing fragilities in the global economy… There were other views and different assessments of the situation and sanctions.”

‘Risk off the table’

Layoff contagion is spreading through Big Tech, with multiple reports suggesting that Amazon (AMZN) is about to slash its headcount. About 10,000 positions will be axed as early as this week, making it the largest-ever reduction at the e-commerce behemoth. It comes after Facebook parent Meta said it would shed 11,000 roles, adding to recent tech layoffs at Snap (SNAP), Lyft (LYFT), Twitter, Salesforce (CRM) and Stripe.

Bigger picture: In the firing line at Amazon will be many corporate and technology roles as the company reviews potential cost cutting measures and reassesses unprofitable ventures. Within these divisions, the Alexa devices organization, human resources and retail departments are expected to see the bulk of pink slips. It’s a big contrast to the expansion that happened during the pandemic, though much of the hiring that took place was to staff the firm’s hundreds of warehouses to keep up with a surge in online orders.

While the holiday period is typically when Amazon makes most of its sales for the year, the company is preparing for some serious economic uncertainty. Consumer spending could pull back due to macro pressures, and soaring costs and slowing growth could even hit the online business. Amazon shares have slumped roughly 42% YTD, resulting in a market cap of around $1T.

Worries on the horizon: “I don’t know whether we’re technically in a recession, economists argue over that and they have technical definitions, what I can tell you is that the economy does not look great right now,” declared Jeff Bezos, executive chairman and founder of Amazon. “The probabilities say that if we are not in a recession now, we are likely to be in one soon. My advice to people is to take some risk off the table right now.” Last month, Bezos said to “batten down the hatches,” in response to a comment from Goldman Sachs (GS) CEO David Solomon, who warned businesses to think more cautiously and to factor volatility into their economic outlooks. (119 comments)

Record privacy settlement

Google (GOOG, GOOGL) has settled a 40-state privacy investigation, agreeing to pay the group over $390M as part of a probe over its approach to tracking user location. Oregon State AG Ellen Rosenblum said the investigation was launched from a 2018 AP article that reported Google tracked movements even when explicitly told not to, via a pair of account settings (for Location History and Web & App Activity). In addition to the monetary settlement, the company has agreed to “significantly” improve tracking disclosures and user controls, starting in 2023.

Thought bubble: While the fine may be petty cash for Google, it is the largest AG-led consumer privacy settlement ever. Google may also face lawsuits from other states, meaning the final bill could come in at around half a billion dollars. Looking to the future, that could set a precedent for the industry and embolden privacy regulators to go after violations.

“For years, Google has prioritized profit over their users’ privacy,” Rosenblum continued. “They have been crafty and deceptive. Consumers thought they had turned off their location tracking features on Google, but the company continued to secretly record their movements and use that information for advertisers.”

Response: “Consistent with improvements we’ve made in recent years, we have settled this investigation which was based on outdated product policies that we changed years ago,” Google spokesperson José Castañeda said in a statement. (9 comments)

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