Thursday, September 15, 2011

Omega Advisors' Leon Cooperman Likes Apple, Boston Scientific, KKR Financial, & Sallie Mae

At the Delivering Alpha conference, hedge fund founder Leon Cooperman of $6 billion Omega Advisors sat down with Maria Bartiromo to talk about the markets and what stocks he likes.

While Cooperman feels the market will be higher by the end of the year, he said that on a short-term tactical approach, he's found that hedge funds have low exposure. We've highlighted this as Dan Loeb's Third Point had reduced exposure for four consecutive months.

Cooperman thinks the fact that investors are underinvested could be a catalyst as money flows back into stocks and his focus is on a nine to twelve month timeframe. As to where the hedge fund manager is seeing value, he points to:

- Apple (AAPL): He says you can buy it at 10x next year's earnings.

- Boston Scientific (BSX): It generates over $1 per share in free cashflow annually (a 15% free cashflow yield) as the company looks to use that cash to buyback 10% of the company.

- KKR Financial (KFN): The stock yields over 9%, sells at a discount to book value, and the dividend is covered twice by earnings. He expects the yield to even go higher.

- Sallie Mae (SLM): Cooperman says that the $13 stock will earn $1.90 next year and he says the assets are worth $19-20.

In order to be bullish on equities (which he is), Cooperman says you have to invest under four assumptions:

1. The US is not like Japan and we will have a growing economy

2. The ECB will step up for European financial institutions

3. The President softens his anti-wealth, anti-business stance

4. Stability in the Middle East

Embedded below is the video of Leon Cooperman's interview from the Delivering Alpha conference:

We also detailed Leon Cooperman's appearance on the hedge fund best ideas panel at the conference as well. He will also be presenting his latest investment ideas at the Value Investing Congress.

Phil Falcone & Harbinger's 4G Wireless Network Bet: LightSquared

Philip Falcone's hedge fund Harbinger Capital Partners has invested $2.9 billion into private 4G wireless network: LightSquared. We've detailed Harbinger's 4G bet before, but Falcone yesterday was interviewed by Maria Bartiromo from the Delivering Alpha Conference.

His whole goal with this venture is to bring powerful wireless broadband to rural areas in an attempt to essentially blanket America with coverage. He says that the future is all about smartphones and tablets, and those devices need access to wireless networks.

Too Big of a Bet?

Critics have said that Harbinger has essentially morphed into a private equity fund or venture firm by allocating so much capital to one private investment. Falcone addresses this by saying that there's "a real asset here" as he first started looking at it five or six years ago.

He thinks the venture will change the wireless market. While he acknowledges that this single bet is quite large for one fund, he believes people would understand how valuable this is from both a capital and social perspective if they were around the everyday workings like he is.

GPS Interference?

Regarding the claims that LightSquared interferes with GPS, Falcone says that GPS is actually using their spectrum as they were given the right to build on that spectrum and the GPS manufacturers knew it. Falcone says that, "they're interfering with us, we're not interfering with them."

Embedded below is the video of Falcone's interview from the Delivering Alpha conference:

Falcone also presented his idea of going long Spectrum Brands (SPB) at the conference on the hedge fund best ideas panel which we also covered.

Bill Ackman's Presentation on the Hong Kong Dollar: Linked to Win

Yesterday we covered Pershing Square hedge fund manager Bill Ackman's latest investment: long the Hong Kong dollar. Today we present the slideshow presentation he gave at the Delivering Alpha conference entitled: Linked to Win.

In summary, Ackman thinks that the Hong Kong dollar (HKD) is headed for massive inflation and a real estate bubble. He argues the country can effectively mitigate this by allowing the Hong Kong Dollar to appreciate.

Ackman says there are four principal revaluation alternatives:

1. Allow the HKD to float
2. Repeg the HKD to a trade-weighted basket
3. Repeg the HKD to the RMB
4. Keep the USD peg, but revalue to an appropriate exchange rate

The Pershing Square manager feels that the Hong Kong government will repeg the HKD at a stronger exchange rate to the USD and believes a 30% revaluation to 6:1 is likely. As such, he says there are 3 ways to make money on the trade: buy HKD outright, buy HKD with USD leverage, and buy HKD call options.

Embedded below is Ackman's presentation on the Hong Kong dollar (email readers click the link to come read it):

To read more on Pershing Square, head to our posts on Ackman's recent portfolio activity as well as Pershing's hedging strategy.

For more hedge fund insight from the Delivering Alpha conference, check out the hedge fund best ideas panel featuring Kyle Bass, Dan Loeb, Leon Cooperman, and Phil Falcone.

Wednesday, September 14, 2011

Hedge Fund Best Ideas: Kyle Bass, Dan Loeb, Leon Cooperman, Phil Falcone

All today we've been covering the Delivering Alpha conference and we conclude with the Best Ideas & Alpha panel featuring Kyle Bass (Hayman Capital), Leon Cooperman (Omega Advisors), Philip Falcone (Harbinger Capital), Dan Loeb (Third Point), J. Tomilson Hill (Blackstone Alternative), and Anne Popkin (Symphony Asset Management). Each presented their best current idea:

Kyle Bass (Hayman Advisors)

Bass is well known for his subprime short and prediction of sovereign defaults. At the conference, he said that the sovereign debt crisis is unlike anything seen in history.

Bass believes Japan is in the worst position, saying "Japan spends almost half of their revenue on debt service. So, a minute move can put them literally into check-mate ... We see a structural anomaly creating the cheapest option in the world."

Simply put, Bass says to buy price put options on government bonds in Japan. He believes it's the best opportunity in the world. In the past, we've outlined how Bass was betting against Japanese Government Bonds (JGBs).

Leon Cooperman (Omega Advisors)

Earlier this summer, the legendary hedge fund manager presented at the Leaders in Investing Summit where he was concerned about employment and thought that bonds were screaming to be shorted. At today's conference, Cooperman says that the economic and financial crisis from 2008 would not repeat in 2011 or 2012.

The manager continues to avoid government bonds and again says that stocks are the "best house in the asset management neighborhood." He likes stocks assuming that Obama softens his 'anti-wealth' stance and that the Middle East remains stable. He mentioned liking Apple (AAPL), Sallie Mae (SLM), and Boston Scientific (BSX). To see what other stocks Cooperman is invested in, head to our Hedge Fund Wisdom newsletter.

Cooperman will also be presenting his latest investment ideas at the Value Investing Congress next month.

Philip Falcone (Harbinger Capital)

Falcone has seen somewhat of a transformation lately as his hedge fund looks more like a private equity fund with his large private investment in a 4G wireless network: LightSquared. At the conference, he pitched Spectrum Brands (SPB), noting the company's solid balance sheet and high free cashflow (11-12% free cashflow yield).

The company sells batteries, personal care products, home and garden items, and more. Falcone points to their strong management team and collection of strong global brands. The company is currently focused on debt paydown and reducing leverage from 3.5x to 3x.

Harbinger owns 28 million shares via his publicly-traded Harbinger Capital. We detailed Falcone's original acquisition of SPB shares back in August 2009 as well as his subsequent purchase in April of 2010. While SPB isn't a "high octane" stock, he likes it.

Dan Loeb (Third Point)

We've covered Loeb's recent activist investment in Yahoo! (YHOO) and that's exactly what he talked about at the conference. Just today he sent another letter to Yahoo as his first conversation didn't seem to go too well. Ahh, the trials and tribulations of activist investing.

He feels YHOO has an intrinsic value of around $20 per share and you can see Loeb's investment thesis in his original letter to Yahoo. But in summary, he feels that the company has great assets but has been horribly mismanaged. Calling the board of directors "clowns," Loeb points out that the company hasn't changed since 2004, has kept a "crappy interface" and the "same stupid logo."

In particular, it seems that Loeb really likes their ownership stake in Alibaba Group. Interestingly enough, Loeb says that the company does not need to break up. He says they've hedged the position against the S&P 500 and they've also hedged exposure to Yahoo Japan.

We've also detailed how Third Point has reduced equity exposure for four consecutive months.

J. Tomilson Hill (Blackstone Alternative Asset Mgmt)

This manager believes that non-performing loans and mortgage-backed securities are the best play on a risk-adjusted basis. He also says that, "you have the ability to buy mortgage servicing rights at prices we've not seen before."

Anne Popkin (Symphony Asset Management)

She argued that levered credit is cheap and is focused on loans and high yield bonds. The manager cautioned not to put all your eggs into this one basket and not to buy an entire position right away. Popkin says, "risk management is absolutely crucial here, because volatility is very high." So it sounds as if she's used the volatility in the sector to slowly assemble a position.

Embedded below is video of the entire Best Ideas & Alpha hedge fund panel:

For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Paul Touradji & Jeff Scott on commodities

- Jim Chanos: long corruption, short property in China

Paul Touradji & Jeff Scott on Commodities: Delivering Alpha Conference

Continuing coverage from the Delivering Alpha conference today, we turn next to the commodities panel with Paul Touradji, founder of hedge fund Touradji Capital and Jeff Scott, CIO at Worts & Associates (both pictured left, image courtesy of CNBC).

Commodities Fueled by Emerging Markets

Paul Touradji was the 'commodities guru' at Julian Robertson's Tiger Management back in the day. Since then, he went on to found his own hedge fund, Touradji Capital. He kicked off the panel by saying that "the story of commodities going forward is in the emerging markets."

Jeff Scott added that, "in emerging markets, they're lowering interest rates because they're worried about growth. So weak growth now in emerging markets so in theory commodities prices should fall."

We've highlighted in the past how hedge fund Kleinheinz Capital thinks inflation is the biggest threat to emerging markets.

On Gold

It seems like a ton of hedge funds and investors in general own gold these days. Dan Loeb's Third Point has gold as its largest position. David Einhorn's Greenlight Capital has long owned physical gold. John Paulson even has a separate gold fund.

Jeff Scott pointed out the prevailing sentiment toward the precious metal. He presented the audience with a true story about a taxi cab driver in Alaska that was asking him about gold. He said this means that everyone is piling into gold and it makes him nervous. After all, when the mania around any particular investment trickles down to the random 'John Doe' on the street, many see that as one of the age-old contrarian indicators.

While Touradji is seemingly a long-term gold bull, he did agree by saying, "I'm heartened to hear Larry Fink's take on gold equities, $2,500 and a lot higher a year from now. But to put a price on it when it's in a phase like this, it's useless. I agree with (George) Soros that it will soon be in a bubble."

They polled the audience asking whether gold was going higher or lower: 34% thought it was going lower while 33% said higher.

Inflation Versus Deflation

Commodities are always affected whether there is an inflationary environment or a deflationary one. Jeff Scott said that, "at this point in time, you need to be thinking about deflationary and inflationary aspects in terms of angling your portfolio for the long-term." In the past we've posted up the best investments during inflation and the best investments during deflation.

Paul Touradji went on to add that "Ten year TIPS are at zero. The market's worried about recession. But there also aren't rational people, they're acting out of fear and a flight to safety."

For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Jim Chanos: long corruption, short property in China

China: Bubble or Bonanza? Xerion Fund's Dan Arbess Versus Kynikos' Jim Chanos

Continuing our coverage of the Delivering Alpha conference today, we turn to the panel on China: Bubble or Bonanza? In the bull corner sits Perella Weinberg Partners' Dan Arbess, who runs the highly successful Xerion Fund. Opposite him in the bear corner is renowned short-seller, Kynikos Associates' Jim Chanos.

While the respective fund managers disagree on whether to be bullish or bearish on China, they do agree that there are 3 key issues in Chinese investing:

1. Real estate
2. Financial system
3. Dependency on fixed assets

Dan Arbess has long said to play the 'shake hands with China' trade by buying multinationals that are seeing high revenue growth from China. This is something we've touched on in a past Xerion Fund letter and you can also read up on Xerion's 2011 investment strategy.

Arbess says that, "to short China in general is to short the march of history. The single most important development of our lives is the devolution of communism and the entry into the global consumer economy of the 3.5 billion people." He clearly feels there's a monumental shift taking place in the global economy.

Chanos, on the other hand, says that GDP in China has declined over the last few years and net exports have fallen too. He feels that the country is structurally imbalanced.

In the past, Jim Chanos has fixated on China's 'ghost towns' as reasons to short China property. Chanos today said that, "these buildings may not be standing in five or 10 years. You're talking about an economic system where profits are not maximized for the largest economic actors. You're talking about a history of horrible lending. You're talking about a system in which the export-driven model hasn't been changed by Western demand."

Arbess counters that Chinese ghost cities are a red herring. He argues that everyday people are moving to the cities and plugging the supply of developments. While he admits that there is speculation in the property market, policy makers are dealing with it by clamping down credit and curtailing the ownership of multiple homes.

The Xerion Fund manager went on to say that, "I think there are misallocations of capital. But those misallocations of capital can be managed by various levers of policy that Chinese policy makers have to keep the urbanization, industrialization of their economy on track."

Earlier today, we highlighted how Chanos is long corruption and short property in China. He likes being long the Macau casinos but short property developers and short some banks (he noted he is not short US banks).

On Ackman's Long Hong Kong Dollar Trade

Both men came on after the speech from Pershing Square's Bill Ackman where he unveiled his new long Hong Kong dollar trade. Given the China bull/bear debate that Arbess and Chanos had, it was also interesting to get their takes on Ackman's latest investment.

Arbess said Ackman's play was plausible while Chanos said he would prefer to be long the Singapore dollar if he was choosing an Asian currency. Earlier we detailed how Tiger Management's Julian Robertson likes the Singapore dollar as well.

Bill Ackman's Latest Investment: Long the Hong Kong Dollar

At the Delivering Alpha conference today, the keynote speech was given by hedge fund manager Bill Ackman of Pershing Square Capital Management. He revealed his latest investment idea: long the Hong Kong Dollar (HKD).

He thinks the trade has the potential to return 100x and has purchased the currency as well as options on the currency. (Pictured left speaking at the conference, image courtesy CNBC)

Currency Re-peg

Ackman's presentation began with a history of Hong Kong's currency. He said that very low interest rates in Hong Kong were driven by US monetary policy, which in turn will cause a Hong Kong housing bubble and high inflation. Ackman seems to believe that Hong Kong will end its US dollar peg by 2015. He says that US rates at zero provides a signal Hong Kong to re-peg.

In terms of position sizing, Ackman says the trade is one of the smaller ones he's put on, but it has the potential to be the most profitable. He feels inflation will force the country to see its currency inflate by 30%. He argues that in 3-6 years, HKD could easily be convertible into the yuan.

The Pershing Square manager also noted that if China implodes/has a hard landing, that's obviously bad for the trade. However, he feels that there's minimal downside mainly due to the fact that the HKD has been pegged to the US dollar since 1983.

Ackman says there's 3 ways to play the trade: buy Hong Kong dollars outright, buy with leverage because the carry cost is low, or buy options on the currency.

Bought in August

Ackman was buying in August and we detailed his investor letter where he bought $600 million worth of investments in various equities and apparently currencies as well. In late August, he revealed that he had bought shares of Family Dollar (FDO), Kraft (KFT), Fortune Brands (FO), and Citigroup (C).

However, he also mentioned that Pershing had bought two new investments that he declined to name. Well, now we know one of them was the Hong Kong Dollar.

In his recent letter to investors, Ackman compared one of the at-the-time-unnamed investments to that of his past play in General Growth Properties (GGP) where there was a chance of exponential return. This Hong Kong Dollar play seems to be the one he was referring to.

Ackman a Macro Trader?

The most intriguing thing here is the notion that Ackman has stepped into the global macro ring of investments. Typically, he has focused on equity and real estate-centric investments in the past. We'll have to see how his first major foray into macro bets plays out.

You could join Ackman on this macro trade as Bergen Capital tweeted that you can mimic this trade by buying "$100mm notional exposure of 1Y HKD calls at 7.50 strike (~4% OTM) for roughly $700k." Though while that's a 1 year trade, Ackman thought the peg wouldn't end until 2015.

This leaves one more unnamed investment from Pershing Square. Perhaps Ackman will reveal it at the upcoming Value Investing Congress?

Embedded below is the video of Ackman's talk from the conference:

We've also posted Ackman's slideshow presentation on the Hong Kong Dollar.

For more from this prominent hedge fund manager:

- Pershing Square bought $600 million worth of investments during August volatility

- Why Bill Ackman bought more Citigroup

- Pershing's hedging strategy

Jim Chanos: "Long Corruption and Short Property in China"

Hedge fund manager and renowned short seller Jim Chanos of Kynikos Associates was interviewed on CNBC today from the Delivering Alpha conference. Chanos is known for his short of Enron before it collapsed.

Recent Portfolio Activity

Chanos says that "we're long corruption and short property in China." As such, he's long the Macau casinos. He didn't name names but obviously Wynn (WYNN) has a large presence there via Wynn Macau (1128.HK), as does MGM (MGM) and SJM Holdings (0880.HK), controlled by the family of Stanley Ho.

Conversely, we originally detailed how he was also shorting the property developers in the country.

In the past month, Chanos has pressed his shorts in the renewables sector (green energy) and in particular, solar. We covered Chanos' presentation at the Ira Sohn Conference where he said he was short First Solar (FSLR) as well as wind power play Vestas (CPH: VWS).

Chanos also noted that his fund is not short US banks.

Email readers come to the site to watch Chanos' interview embedded below:

Chanos will be presenting his newest investment ideas at the Value Investing Congress in New York on October 17th & 18th and Market Folly readers can register here.

Julian Robertson Bullish on Apple, Google, Mastercard & Visa

Legendary hedge fund manager Julian Robertson of Tiger Management recently sat down with CNBC's Maria Bartiromo to give his latest thoughts on the market. Tiger saw nearly 32% annual returns between 1980 and 1998.


He likes the tech sector and thinks the technology boom is far from over and he thinks these stocks can rally further. In particular, he likes Apple (AAPL), even without Steve Jobs, noting that the company would be trading "at 3 or 4 times" what it is now if this were 1980. He calls the multiple it's trading at now "ridiculous." Also, he likes Google (GOOG).

Robertson is also fond of the payment processors such as Visa (V) and Mastercard (MA). He likes these names as they don't bear credit risk (the banks do). We've long detailed Robertson's bullishness on these names in our Hedge Fund Wisdom newsletter as he's owned all the above stocks for some time now.


In currencies, Robertson says he's finding opportunities in Europe by going long the Norwegian Krone. Around the rest of the world, he also fancies the Singapore dollar and Canadian dollar. Conversely, he likes shorting the Hungarian forint.

Interest Rates

Robertson also goes on to highlight that while interest rates continue to slide down, it wouldn't be hard for them to skyrocket higher. He points out that if a large seller were to sell US bonds quickly, rates could fly higher. A few years ago, we detailed Robertson's constant maturity swap (CMS) trade as he got hammered with his "short bonds" bet.

Lastly, Robertson expects Greece to default.

Julian's interview is embedded below (email readers come to the site to watch Robertson's interview):

To see the rest of Tiger's equity investments, head to our newsletter. For more on this legendary manager, head to our profile on Julian Robertson.

Dan Loeb Gets Hung Up On, Sends Another Letter to Yahoo! (YHOO)

We recently detailed that Dan Loeb's hedge fund Third Point went activist on Yahoo! (YHOO). In their activist 13D filing with the SEC, Loeb also attached a scathing letter to Yahoo, something he has become known for.

But, it didn't stop there. In an amended 13D filed with the SEC today, Loeb attaches a new letter (copied below) where it's apparent that he wasn't too pleased that he was hung up on:

“Dear Mr. Yang:

Thank you for taking the time to speak with us by telephone on Monday. We are only sorry that we were not able to finish our conversation as a result of Mr. Bostock’s abrupt unilateral termination of the call.

Mr. Bostock’s failure on the call to acknowledge his pivotal role in, and accept responsibility for, the decline of Yahoo! makes clear that he does not intend to voluntarily follow his recently terminated hand-picked executive, Ms. Bartz, out the door. It is our strongly held belief that not only has Mr. Bostock been a destroyer of value, but also so long as he serves as Chairman of the Board, the Company will not be able to attract the talent it needs and deserves, particularly at the CEO level. This opinion is based not only on our prematurely truncated conversation, but on numerous discussions with Silicon Valley cognoscenti and other people familiar with both Mr. Bostock and the Company.

As a Founder and major shareholder of the Company, the abysmal record of the current leadership must be heart-rending to you personally, as well as damaging to your net worth. We urge you to do the right thing for all Yahoo shareholders and push for desperately-needed leadership change. We are prepared to support you and present you with suggestions on candidates who could help bring Yahoo back to its rightful place among the world’s top digital media and technology companies.


Daniel S. Loeb”

Be sure to check out Loeb's original letter to Yahoo which outlines his investment thesis on the company. Also, head to Third Point's latest exposure levels.