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The fund’s return for January was positive 2.72%. The primary single?name contributors for the month included PetroBakken Energy (PBN), Tribune Company (TRB), Advanced Micro Devices (AMD), Hologic (HOLX) and Ocean Rig (OCRG NO). PBN’s +0.38% contribution was driven by the company’s tender for 60% of its convertible bonds related to a high yield offering. We tendered 20% and intend to retain the other 80%. TRB bank loans improved as the May 2012 bankruptcy plan confirmation date approaches. Its subsidiaries posted positive results and industry valuation multiples increased. The positions added +0.30%. AMD is an outright convertible position which added +0.28% from increased market demand for high?quality short?term paper. In the past, the company has been active in buying back bonds and we expect that it will continue to do so. HOLX added +0.21% due to strong quarterly results, increased free cash flow and a suggestion that they may retire some of their debt early. We do not anticipate a tender offer, but expect the company to make open market purchases opportunistically. Continued tightening of the offshore ultra?deepwater drilling market benefitted OCRG NO, which added +0.20%.

The largest single?name losses were CHC Helicopter (FLI), First Data Corporation (FDC), Delta Petroleum Corporation (DPTR) and MF Global (MF). FLI, a short corporate bond position, was impacted ?0.20% by the restructuring of maturing fleet leases and an equity infusion from its sponsor, First Reserve. FDC is a highly levered LBO that tightened with the market. Our position is short the credit through CDS and was ?0.14%. DPTR lost ?0.13% on virtually no volume as the major holders, like us, are restricted from trading. We expect a positive resolution which could result in par or better. The MF Global positions declined ?0.11%. In February, we have benefitted from our migration from convertible bonds to bank debt as the spread between the two securities has widened from 8 to 18 points. Further, there was positive news that the trustee knows the whereabouts of the lost assets and, baring any criminal issues, there should be more clarity and upside in the coming months.

Throughout January, we increased short credit positions and short portfolio equity hedges as European sovereign debt problems and political uncertainties continued to worry us. While the ECB’s LTRO significantly improved liquidity and confidence, it did not address the European sovereigns and banks’ solvency risks. It simply allowed for banks and countries to leverage up, which could make a future crisis worse. Thus far in 2012, we believe markets are focusing on the positives and ignoring the negatives. Experience shows us this can change abruptly. There has not been a real and committed solution to the crisis. We have, therefore, decreased risk and increased shorts and hedges in liquid instruments that are designed to mitigate a shock to the system. These hedges can be lifted if the ECB, together with the stronger European countries, make the difficult but necessary changes to ensure countries like Italy and Spain can finance their debts.