News&Notes: Citadel, Passport Fund, Trim Tabs & Fortune's Favor I

Hedge fund selling puts new stress on market - WSJ
WSJ reports hedge funds are selling billions of dollars of securities to meet demands for cash from their investors and their lenders, contributing to the stock market's nearly 10% drop over the past two days. One of the biggest hedge funds, $16 billion Citadel Investment, is being asked by several major banks to post additional collateral to cover big losses on its investments, according to people familiar with the situation. Citadel, which is run by Kenneth Griffin, was until recently considered a possible savior for troubled Wall Street cos. But his biggest hedge fund has fallen nearly 40% this year, prompting the co to hold conversations with lenders including Goldman Sachs, Deutsche Bank and Merrill Lynch that finance Citadel's trades. Citadel executives say the calls for more cash are a normal part of business when securities they hold fall in value, and they emphasize they have significant amounts of cash to satisfy their lenders. They say they have met all the demands for collateral. Lenders are hoping regulators would orchestrate a settlement among the companies involved in Citadel's loans if necessary, according to a person familiar with the situation. "Citadel is a valued client, and we continue to do business with them as usual," said Ed Canaday, a Goldman spokesman. Deutsche Bank spokesman Ted Meyer said, "Citadel is a valued customer and our relationship is business as usual."

RCM Comment: If you want to understand the vicious swings in the markets look no further than this story and the stories to follow. The markets drop of 10% in the 2 days following Obama's election has nothing to do with Obama's election contrary to what some of the talking heads in the media want you to believe. The market swings are directly correlated to inflows and outflows of capital by major mutual funds and hedge funds. Read the Trim Tabs report below and you will see the rally up in the 1st week of November correlates to an inflow of capital, the 1st in weeks. Will the inflow continue? No one knows for sure, but I will vote no and here is why: between here and the end of the year there will continue to be redemptions. The story above about Citadel I feel is very important. This may very well be the next 'shoe to drop'. The statements I highlighted in red are dangerously similar to statements we read about Bear Stearns (BSC), the two big BSC hedge funds, Lehman Bros., AIG, FNM, and FRE right before they failed. There is a pattern here, lots of misleading comments and assurances right before the bankruptcy. Both Citadel and Passport Fund claim they are down because of market forces not redemptions. If that is true, then the redemption wave is sure to follow and that will negatively effect markets.

Citadel suffered 22% loss in October - NY Post
NY Post reports Citadel Investment Group founder Ken Griffin continues to be haunted by the Wall Street meltdown horror show, as October proved to be more challenging than September. The hedge fund lost about 22% last month, which followed a 16% loss in September. October's loss was Griffin's biggest setback since he launched the now $18 billion fund nearly 20 years ago with $1 million in capital. Year to date, Griffin's Wellington and Kensington flagship multi-strategy hedge-fund vehicles are down 38%, according to people familiar with Citadel's performance... Sources tell The Post that despite the flagging performance which has walloped Griffin over the past two months, the hedge-fund manager is sanguine about credit markets, which appear to be thawing after a long freeze, and about the prospect that Citadel will emerge from the crisis stronger.

Passport Fund falls by 38% in October - NY Post
NY Post reports add another hedge fund to the growing roster getting slammed in October - which is on track to be the worst month in history for the industry. Passport Capital, the fund run by respected hedge-fund manager John Burbank, posted a whopping 38% drop in the flagship Passport fund in October, dragging down the fund's year-to-date performance 44%, The Post has learned. The October results mark a sharp turn of events for Burbank, who though down 9.5% in September, was still performing better than the overall market. Assets under management also sank, with the co reporting October assets of $3.1 billion, down from $4.5 billion at the end of September, according to an investor letter reviewed by The Post. Officials from Passport declined to comment, but a person close to the co said the decline in assets was all from performance, not investor withdrawals, known as redemptions.

TrimTabs estimates all equity mutual funds post inflow of $2,186 million in week ended Wednesday, November 5
TrimTabs Investment Research estimates that all equity mutual funds posted an inflow of $2,186 million in the week ended Wednesday, November 5, versus an outflow of $9,227 million in the previous week. Equity funds that invest primarily in U.S. stocks posted an inflow of $2,326 million, versus an outflow of $7,051 million in the previous week. Equity funds that invest primarily in non-U.S. stocks had an outflow of $140 million, versus an outflow of $2,176 million in the previous week. In addition, bond funds had an inflow of $518 million, versus an outflow of $5,867 million in the previous week, and hybrid funds had an inflow of $184 million, versus an outflow of $2,751 million in the previous week. Separately, TrimTabs reports that exchange-traded funds that invest in U.S. stocks posted an inflow of $885 million, versus inflow of $903 million in the previous week. ETFs that invest in non-U.S. stocks had an inflow $2,048 million, versus an inflow $1,226 million in the previous week.