Friday, March 11, 2011

Crispin Odey Still Bullish: Latest Hedge Fund Commentary

Crispin Odey, founder of hedge fund firm Odey Asset Management, is still quite bullish. Odey's previous commentary from November 2010 notes that he was optimistic on stock markets and that stance is maintained today with his most recent commentary from January 31st.

Given the recent bump in market volatility since he published this, it will be interesting to see if Odey has held steadfast in his views. Before we delve into his latest stance, we wanted to highlight a recent purchase by his firm:

Due to trading on February 24th, Odey have disclosed a new purchase in London listed stock, Xchanging (LON: XCH). They now own the equivalent of 7.13% of Xchanging's outstanding shares via CFDs (see our primer on CFDs: contract for difference). Odey's flagship European fund is holding 4.74%.

Per Google Finance, "Xchanging plc provides processing services to the banking and insurance industries, as well as procurement, finance and accounting, and human resources services across industries."

"Current Outlook

Dylan Grice at Société Générale is pessimistic about markets. The reasons he gives are:

- Developed economies' governments are insolvent.
- There is too much debt around.
- China's economic model is biased towards misallocating resources.
- China and the USA are in an early arms race.
- Bottlenecks are developing in key commodity markets.
- The only thing central banks are good at are creating bubbles.
- Most people think these things are unimportant.
- They might be right.

It is odd to find oneself agreeing with everything he writes and yet so disagreeing with his conclusion. Such are the bricks that make up the wall of worry we need to climb. My role, as I see it, is to protect your money when it is dangerous and make as much money as I can when the opportunity presents itself. This opportunist approach means being a different kind of investor at different times. As of today it means being very long of stock markets, in Europe and the USA, and short bond markets. Why fight the Fed?

Most investors are now waking up to the fact that we are in the midst of a global boom, which is taking key commodities very much higher. Bread riots are being seen in many countries and will intensify but the unseen effect is that inflation in emerging markets is remaining at four times the inflation rate in the developed economies. Inflation may be painful in the developed world, bringing with it a fall in living standards but it also brings a welcome competitive convergence, which will price people back into jobs eventually. When that happens, inflation in the West will get out of control, but for now we have the best of all worlds: inflation rising, interest rates unlikely to rise immediately and an investment boom in its infancy.

Europe is a microcosm of these trends, Germany is now booming. Profits will surprise enormously to the upside. Wage claims in Germany will start to spiral up, but the boom in the domestic economy will provide rich pickings for the depressed southern economies.

For particular reasons, related to bank funding pressures in Ireland and Spain, Europe is the only area likely to see rates rising this year. December's Euribor future is pricing in a 1% rise in interest rates by year end. I think rates could be up by 2%. The authorities in Germany are not going to enjoy the boom they are going to get. They will be pleased to find their southern partners, for reasons of their own, to be equally happy to see rates rising.

Will it hurt the stock markets? No. History is quite clear that not until rates hit 6% do equities get frightened by inflationary pressures. That seems a million miles from here.

This year has started off very well and my own forecast is that there will not be the same volatility as there was last year."

Again, keep in mind that Odey penned the above on January 31st, 2011. Since then, market volatility has certainly elevated so it will be interesting to see if his optimism is wavering in his next commentary.

Overall, Odey has been quite bullish for some time now and it seems as though he'll maintain that outlook until more rampant signs of inflation are evident. For more on this hedge fund, check out Odey's short position as well as Odey's previous commentary.

What We're Reading ~ 3/11/11

Financial Shenanigans: How to detect accounting gimmicks & fraud [Howard Schilit]

Biggest potential headwinds for stocks in 2011 [ReformedBroker]

Review of the book on equity research [Research Puzzle]

Trapeze Asset Management's latest letter [MyInvestingNotebook]

A only-somewhat-complete list of the 25 best financial "blogs" [TIME]

And on that note: the professionalization of financial blogs [Abnormal Returns]

Top hedge funds betting on plastics [Reuters]

David Tepper is mainly concerned about Middle East blowing up [Institutional Investor]

See earlier: Tepper cautious but optimistic [MarketFolly]

Carl Icahn returning outside investor capital [Dealbook]

Bill Gross dumps Treasuries [Bloomberg]

A few months old, but great interview with global macro manager Renee Haugerud [Galtere]

James Montier on the seven immutable laws of investing [Docstoc]

Hugh Hendry's presentation on why he's shorting China [BusinessInsider]

Tepper may invest in other hedge funds [Marketwatch]

Behind the curtain at D.E. Shaw [WSJ]

Nokia (NOK) and its risky strategic bet [Can Turtles Fly]

Thursday, March 10, 2011

Forbes Billionaire List 2011: Top Investors That Made the Cut

Forbes is out with its billionaire list: 2011 edition. This year, the list features 1,210 billionaires with a total net worth of $4.5 trillion. Digest that for a second. What might surprise you even more is the number of prominent investors that grace this accomplished list.

Notable Moves From Last Year

Last year in a quick scan, we highlighted 36 top investors on Forbes' list. This time around, we found 48 prominent investors. The top three slots remain unchanged from 2010 with Carlos Slim Helu, Bill Gates, and Warren Buffett occupying their same respective positions. It should come as no surprise that many of the founders of the top 10 biggest hedge funds also grace this list of billionaires.

Moving Up: John Paulson moved up six slots on the list by adding to his fortune by 33% (+$4 billion). Appaloosa Management founder David Tepper jumped up 50 spots on the list as he boosted his net worth by almost 43% to $5 billion.

Moving Down: Energy trader John Arnold's fortune shrank by $0.7 billion and as a result he dropped 124 spots. David Shaw's net worth declined by 12% and he fell 166 slots on Forbes' list. Wesco and Berkshire Hathaway veteran Charlie Munger somehow saw his savings swoon by 41% as he slid 558 spots.

Net Worth Up, Rank Down: George Soros saw his personal warchest grow by only $500 million (we use the term 'only' very loosely) and thus was leapfrogged by numerous other investors on the list. Paul Tudor Jones found himself in a similar scenario where he increased his net worth by $100 million but slipped 39 rungs on the ladder. It appears as though the rich were simply getting richer faster than these two hedge fund titans.

Top Investors on Forbes' Billionaire List

(Click links for recent activity from each manager):

1. Carlos Slim Helu $74b: Made money in telecom but still a large investor
2. Bill Gates $56b: Invests via his Cascade vehicle
3. Warren Buffett $50b: Berkshire Hathaway (see his reading list)
26. Prince Alwaleed $19.6b: Famous for his investment in Citigroup
39. John Paulson $16b: Hedge fund Paulson & Co (see his year-end letter)
46. George Soros $14.5b: Soros Fund Management
57. Paul Allen $13b: Made money via Microsoft but invests (Vulcan)
61. Carl Icahn $12.5b: Recently announced he's returning outside capital
74. Jim Simons $10.6b: Renaissance Technologies Medallion Fund
114. Steven Cohen $8b: SAC Capital
162. Ray Dalio $6b: Bridgewater Associates (see his recent interview here)
169. Stephen Schwarzman $5.9b: Blackstone Group
208. Sam Zell $5b: Real estate and private equity
208. David Tepper $5b: Appaloosa Management (cautious but optimistic)
235. Bruce Kovner $4.5b: Global macro hedge fund Caxton Associates
268. Robert, Daniel, & Dirk Ziff $4b each: Brothers from Och-Ziff
281. Henry Kravis $3.9b: Co-founder of KKR
304. Eddie Lampert $3.6b: ESL Investments (runs Sears Holding Co)
310. Leon Black $3.5b: Founded private equity firm Apollo Management
336. Paul Tudor Jones $3.3b: Tudor Investment Corp
336. Daniel Och $3.3b: Och-Ziff
336. John Arnold $3.3b: Energy trader of Centaurus Capital
362. Peter Kellogg $3.1b: Wall Street specialist firm Spear, Leeds & Kellogg
459. Stanley Druckenmiller $2.5b: His Duquesne Capital recently shut down
459. Mark Cuban $2.5b: Made his fortune in technology but is avid investor
512. Julian Robertson $2.3b: Tiger Management founder
512. Ken Griffin $2.3b: Citadel Investment Group founder
540. David Shaw $2.2b: Founder of D.E. Shaw & Co
540. Philip Falcone $2.2b: Harbinger Capital focusing on 4G network
564. Bill Gross $2.1b: PIMCO's bond vigilante
651. Wilbur Ross $1.9b: Specializes in leveraged buyouts
651. Izzy Englander $1.9b: Millennium Management
692. Leon Cooperman $1.8b: Omega Advisors (see his recent interview)
692. Alan Howard $1.8b: Hedge fund firm Brevan Howard
736. Louis Bacon $1.7b: Global macro hedge fund Moore Capital Management
736. Ken Fisher $1.7b: Fisher Investments
736. Glenn Dubin $1.7b: Highbridge Capital
736. Stephen Mandel $1.7b: Hedge fund firm Lone Pine Capital
782. Richard Chilton $1.6b: Chilton Investment Company
833. Michael Price $1.5b: MFP Investors
833. James Dinan $1.5b: York Capital Management
833. Peter Thiel $1.5b: Made fortune in tech, runs hedge fund Clarium Capital
833. Marc Lasry $1.5b: Avenue Capital
879. T. Boone Pickens $1.4b: This energy maverick also manages a hedge fund
993. Henry Swieca $1.2b: Highbridge Capital
993. Howard Marks $1.2b: Oaktree Capital
1140. Charlie Munger $1b: Berkshire Hathaway
1140. Nelson Peltz $1b: Trian Fund Management

Overall, prominent investors comprise around 4% of this exclusive list. For more recent investor accolades, be sure to also check out the top 10 biggest hedge funds in 2010 as well as the list of 2010 hedge fund returns.

Tuesday, March 8, 2011

Value Investing Congress Discount Expires Next Week

Just a reminder that the opportunity for our readers to receive a sizable discount to the Value Investing Congress expires on March 15th. After that, the price will go up substantially. So, take advantage of the low prices by clicking here for the discount.

The event takes place on May 3rd & 4th in Pasadena, California. Here's the full list of speakers:

- Steven Romick (First Pacific Advisors)
- Jeffrey Ubben (ValueAct Capital)
- David Nierenberg (D3 Family Funds)
- Rahul Saraogi (Atyant Capital India)
- Michael Kao (Akanthos Capital Management)
- Ori Eyal (Emerging Value Management)
- KKian Ghazi (Hawkshaw Capital Management)
- Whitney Tilson & Glenn Tongue (T2 Partners)

As always, the event is a place to hear some great investment ideas and to network with tons of finance professionals. Take advantage fast because this discount expires next week. Click here to save money on registration to the Value Investing Congress.

Roberto Mignone Buys Cott (COT)

Roberto Mignone's hedge fund firm Bridger Management just filed a 13G with the SEC regarding shares of Cott (COT). Due to portfolio activity on February 25th, Bridger has disclosed a 6.8% ownership stake in COT with 6,400,000 shares. This is a brand new position for the hedge fund and you can see the rest of Bridger's investments here.

This is now the second major hedge fund to invest in Cott over the past few months. As we've previously singled out, David Gallo's Valinor Management started a stake in the company back in December and recently increased its Cott position. The interesting thing here is that prior to founding Valinor, Gallo worked at Bridger. As such, the fact that both hedge funds have recently acquired positions in the same company isn't that surprising.

The other unique aspect of this investment is that shares are largely trading around the levels where these managers purchased COT. While disclosures filed with the SEC are time-lagged and on a slightly delayed basis, this is a rare opportunity where shares haven't been massively bid up from the level where the hedge fund established a position.

COT recently reported earnings largely in-line with estimates. Analysts are expecting continued margin pressures (cost inflation) at the company. On the positive side, they also expect increased synergies and the pay-down of debt to help offset this.

Per Google Finance, Cott Corp is "a non-alcoholic beverage company and a retailer brand soft drink provider. In addition to carbonated soft drinks (CSDs), its product includes clear, still and sparkling flavored waters, juice-based products, bottled water, energy-related drinks and ready-to-drink teas."

David Gallo's Valinor Management Increases Clearwater Paper (CLW) Position

David Gallo's hedge fund firm Valinor Management recently added to its position in Clearwater Paper (CLW). Due to portfolio activity on February 24th, Valinor now shows a 5.1% ownership stake in CLW with 581,380 shares.

This is a slight increase in their holdings as they owned 505,106 shares at the end of 2010. As such, they've boosted their position size by 15%. We've detailed some of Valinor's other portfolio activity as well.

In general, the paper and packaging industry has garnered increased interest from hedge funds as of late. Dan Loeb's hedge fund Third Point explained why in a recent letter, citing four factors for the industry's upheaval:

"1. The expiration of the (black liquor) tax credit caused the closure of many marginal paper plants and led to much higher paper pricing for the survivors in 2010-11.

2. Paper can only be recycled only a limited number of times before the fiber wears out, further increasing OCC (recycled paper) pricing.

3. Softwood pulp producers or those who are vertically integrated with their own softwood pulp enjoy a substantial cost advantage.

4. The combination of industry consolidation and capacity reduction has led to many paper grades currently running at +90% utilization, a level that gives them the flexibility to raise prices."

Be sure to read Third Point's full rationale on the paper industry. Hedge funds have also been active in Smurfit-Stone (SSCC) as the paper company received a takeover offer, as well as Abitibibowater (ABH), another paper company that just emerged from bankruptcy.

Per Google Finance, Clearwater Paper is "a producer of tissue and paperboard products in the United States. The Company’s products are manufactured in the United States and utilize primarily wood pulp. The Company operates in three segments: Consumer Products, Pulp and Paperboard, and Wood Products."

Scout Capital Orders More Domino's Pizza (DPZ)

James Crichton and Adam Weiss' hedge fund Scout Capital Management recently updated its position in Domino's Pizza (DPZ). Per portfolio activity on February 23rd, Scout has now revealed a 5.07% ownership stake in DPZ with 3,040,000 shares.

This recent SEC 13G filing marks almost a 21% increase in their position size since the end of last year. At 2010 year-end, Scout previously owned 2,519,600 DPZ shares.

For other activity from the hedge fund, we've detailed some of Scout's other positions here. Signs of a 'fast food' theme are evident in Scout's portfolio as they also own Yum! Brands (YUM) and McDonald's (MCD), the latter in size.

Scout manages over $4 billion and was founded in 1999. Before founding Scout, Weiss worked at Dan Loeb's Third Point and earned his MBA from Columbia University and undergraduate degree from Harvard. Crichton previously worked at Zweig-DiMenna and earned his MBA at Harvard.

Per Google Finance, Domino’s Pizza, Inc. (Domino’s) is "a pizza delivery company in the United States. The Company operates through a network of 8,999 company-owned and franchise stores, located in all 50 states and in more than 60 international markets. It operates in three segments: domestic stores, domestic supply chain and international."