Thursday, February 23, 2012

What We're Reading ~ 2/23/12

Free excerpt from the new issue of Hedge Fund Wisdom [Market Folly]

Bridgewater sells stakes to institutional investors [FINalternatives]

Retail brokerages: 2012 online broker review []

It's never been a better time to be an individual investor [AbnormalReturns]

David Einhorn & levered equities [Distressed Debt Investing]

Notes from Bloomberg portfolio manager conference [ReformedBroker]

Seth Klarman bets on mega quarry [Fortune]

Hedge funds exit stage left, pursued by bearishness [FT Alphaville]

The placebo effect of large hedge funds [Pension Pulse]

The 400% return fund manager [SmartMoney]

Small hedge funds draw investments as bigger funds stumble [Bloomberg]

The Norway vs Yale models: who wins? [aiCIO]

Superinvestor Walter Schloss dies at 95 [Bloomberg]

Leon Cooperman on Bonds, Stocks, and Apple vs. Research in Motion

Leon Cooperman of hedge fund firm Omega Advisors yesterday sat down with Bloomberg Television to talk about the markets, his portfolio, and what he likes/dislikes at this juncture.

On Treasuries:

Cooperman said that, "I have great confidence the Fed is ultimately going to get their way. The Fed is trying to elevate asset prices, help consumption, help the economy and in two-three years time, we will be worrying about inflation and interest rates will be materially higher. An instrument that I have absolutely no interest in - the most widely traded instrument in the world - is US government bonds. I don’t think people understand how risky a US government bond is at 2% return."

On Equities:

After bashing government bonds, Cooperman also examined the potential of investing in high yield bonds but dismissed them as fully priced. So he turned to equities and said that, "the S&P, which is 13 ½ earnings, yields a bit over 2%, 10% below the historical multiple at a time when interest rates are below historical and you can find lots of cheap stocks out there that will yield more than bonds today that are good companies that will grow over time."

This is largely in line with what the hedgie has been preaching for sometime now. We've highlighted in the past his trademark phrase that equities are the best house in the financial asset neighborhood.

On Apple (AAPL) versus Research in Motion (RIMM):

The Omega Advisors founder thinks Apple (AAPL) is worth north of $600. On Research in Motion (RIMM), he notes that, "It's funny, it was really like a mass hysteria. We put about a half of one percent of our assets into RIM late last year on a theory that they had a revenue base that was being mispriced by the market. Which was 20% of what we had in Apple, we've owned Apple now for a long time, and we continue to own a big position, so we had five times more Apple investment than RIM."

He says they sold RIMM due to stop loss discipline, but he admits that it's still intriguing. David Einhorn's hedge fund Greenlight Capital recently bought shares of RIMM, as highlighted in this free excerpt from our newsletter.

Cooperman also mentioned that he likes gold, Qualcomm (QCOM), JPMorgan (JPM), Bank of America (BAC), Altisource Portfolio Solutions (ASPS), Unitedhealthcare (UNH), WellPoint (WLP), Boston Scientific (BSX), Echostar (SATS), and Dish Network (DISH).

Embedded below is the video from Cooperman's interview with Bloomberg TV:

For more from this hedgie, you can view Cooperman's presentation on risks to the equity outlook.

Balestra Capital on Gold and Inflation: Quarterly Commentary

James Melcher's hedge fund Balestra Capital focuses on thematic global macro investing and has seen a compound annual growth rate (CAGR) of 24.3%. They're out with their quarterly newsletter where they discuss gold, inflation, and the evolution of money.

On Gold

On the precious metal, Balestra writes that,

"While gold does not pay interest or a dividend, unlike fiat currencies, it cannot be created in infinite amounts ... Gold deposits have become harder to find and far more expensive to mine and process. Central banks have recently been building their gold reserves, instead of selling them. Gold is not substantially held across the worldwide spectrum of investors. Nevertheless, if for no other reason than that the global store of gold is limited while paper money is rapidly proliferating, gold's role as a store of value is expanding, and its investment profit potential is rising."

Gold has been a popular investment among numerous hedge funds, though John Paulson's gold fund probably got the most media attention, as betting against the US dollar was his 'next big wager' after his successful subprime short.

However, what's interesting is the rising number of long/short equity portfolio managers that have allocated a percentage of their portfolios to either physical gold, the SPDR gold trust (GLD), or various gold miners.

David Einhorn's Greenlight Capital owns both gold and gold miners. Dan Loeb's hedge fund Third Point continues to hold gold as its second largest position. Stephen Mandel's Lone Pine Capital just started a position in gold last quarter ...and the list goes on.

Balestra's macro focus has led them to own physical gold and gold derivatives since 2002 and it's been their single largest asset. The main difference between all these hedge funds that own gold is their rationale for doing so. Some are using it as a hedge against fear and uncertainty, while many others (like Balestra) are using it as a vehicle to bet on currency debasement and inflation.

Summary of Balestra's Viewpoints

The hedge fund has summarized their macro views as follows:

1. The developed world is overly indebted.
2. So far, there is little indication that heavily indebted countries will be able to grow their way out of debt.
3. Recent measures to cut government spending will create further headwinds to near-term economic growth.
4. Failure to provide added monetary stimulus will likely risk a fall into a debt deflation spiral (this risk is heightened by the Euro zone situation).
5. Central banks will continue to 'print money', as needed, to prevent debt deflation

All of these point to one main conclusion in Balestra's eyes: more monetary stimulus is on the way and gold prices are going higher.

Embedded below is Balestra Capital's commentary on gold & inflation courtesy of ValueWalk:

For more on the topics of gold & inflation, be sure to also check out:

- Gold versus gold miners

- Oaktree Capital's Howard Marks on gold

- Best investments during inflation

About Balestra Capital

James Melcher founded Balestra in 1979 and has had a long career in the hedge fund and asset management industry. He received his Bachelor of Arts degree from Columbia University. Since January 1999, the hedge fund has returned 1625.62% and has seen a CAGR of 24.3%. Balestra returned 1.71% in 2011, -3.18% in 2010, 4.22% in 2009, 45.78% in 2008, and 199.82% in 2007.

Wednesday, February 22, 2012

FREE Excerpt From the New Issue of Hedge Fund Wisdom

The brand new Q4 issue of our Hedge Fund Wisdom newsletter was just released. For a LIMITED TIME ONLY, we're offering a free excerpt from the new issue.

Included in this free 16-page excerpt:

- See the Latest Portfolios From: Warren Buffett's Berkshire Hathaway, Seth Klarman's Baupost Group, David Einhorn's Greenlight Capital, & Leon Cooperman's Omega Advisors

- Equity Analysis of United Rentals (URI)

To receive your FREE excerpt from the new issue, please click here to download.

We've also embedded the excerpt below:

Citadel Boosts Position in Ultrapetrol (ULTR)

Ken Griffin's hedge fund firm Citadel recently filed a 13G with the SEC regarding shares of Ultrapetrol (ULTR).

Citadel has disclosed a 4.9% ownership stake in Ultrapetrol (ULTR) with 1,550,689 shares. They've increased their position size by 185,833% over the past two months (they only owned 834 shares at the end of 2011). The SEC filing was made due to trading activity on February 15th.

In other portfolio activity, we also detailed how Citadel boosted its stake in Constant Contact (CTCT) as well.

About Ultrapetrol (ULTR)

Per Google Finance, ULTR is "an industrial shipping company serving the marine transportation needs of clients in the geographic markets. It serves the shipping markets for grain, forest products, minerals, crude oil, petroleum, and refined petroleum products, as well as the offshore oil platform supply market through its operations in three segments of the marine transportation industry: River Business, Offshore Supply Business and Ocean Business. Its River Business, with 591 barges and 30 pushboats, is an owner and operator of river barges and pushboats that transport dry bulk and liquid cargos through the Hidrovia Region of South America, a region with growing agricultural, forest and mineral related exports. Its Offshore Supply Business owns and operates vessels that provide logistical and transportation services for offshore petroleum exploration and production companies, in the North Sea and the coastal waters of Brazil. Its Ocean Business operates nine ocean-going vessels."

Scout Capital Builds Sally Beauty (SBH) Stake

James Crichton and Adam Weiss' hedge fund Scout Capital filed a 13G with the SEC in regards to their new position in Sally Beauty (SBH).

Scout originally started a brand new position in Sally Beauty in the fourth quarter. And according to their most recent SEC filing, they've continued to buy SBH shares in the new year. Scout now shows a 5.9% ownership stake in SBH with 10,986,862 shares.

At the end of 2011, they owned just over 7 million shares. Over the past two months, they've increased their position size by almost 56%. The SEC disclosure was triggered due to portfolio activity on February 7th.

For more from this hedge fund, we've previously posted Scout's presentation on Williams (WMB) & Sensata Technologies (ST).

About Scout Capital

Scout was founded and is co-managed by James Crichton and Adam Weiss. Before founding Scout, Crichton worked at Zweig-DiMenna and received his MBA from Harvard. Weiss, on the other hand, worked at Dan Loeb's Third Point and received his MBA from Columbia.

About Sally Beauty

Per Google Finance, Sally Beauty is "an international specialty retailer and distributor of professional beauty supplies with operations primarily in North America, South America and Europe. The Company operates primarily through two business units: Sally Beauty Supply and Beauty Systems Group (BSG). Through Sally Beauty Supply and BSG, the Company sells and distributes beauty products through 4,128 Company-owned stores, 181 franchised stores and 1,116 professional distributor sales consultants. Sally Beauty Supply stores target retail consumers and salon professionals, while BSG exclusively targets salons and salon professionals."