Friday, July 22, 2011

Scout Capital Starts Sodastream (SODA) & Fresh Market (TFM) Positions

James Crichton and Adam Weiss' hedge fund Scout Capital just filed two 13G's with the SEC regarding Sodastream International (SODA) and The Fresh Market (TFM). Both are brand new positions for the hedge fund.

Scout Capital manages over $4 billion. Weiss and Crichton will be presenting investment ideas this October at the Value Investing Congress in New York. Market Folly readers can receive a 42% discount to the event here.

Sodastream International (SODA)

Due to portfolio activity on July 11th, Scout has revealed a 5.07% ownership stake in SODA with 1,010,000 shares. Since this position didn't appear on their first quarter disclosure, they've acquired their entire position sometime over the last three and a half months (with buying activity as recent as last week).

Per Google Finance, Sodastream "is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products. The Company develops manufactures and sells soda makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills, reusable carbonation bottles and flavors to add to the carbonated water."

The Fresh Market Inc (TFM)

The hedge fund also disclosed a 5.21% ownership stake in Fresh Market (TFM) with 2,500,000 shares (a brand new stake as well). To see what else they've been up to, head to some of Scout's recent portfolio activity.

Per Google Finance, Fresh Market is "a specialty retailer focused on perishable product categories, which include meat, seafood, produce, deli, bakery, floral, sushi and prepared foods. Its non-perishable product categories consist of traditional grocery and dairy products, as well as specialty foods, including bulk, coffee and candy, and beer and wine."

To hear these hedge fund managers' latest stock picks, be sure to head to the Value Investing Congress and take advantage of our discount before it expires next week.

Howard Marks on the U.S. Debt Ceiling: Oaktree Capital Commentary

Oaktree Capital's Howard Marks is out with his latest commentary, entitled 'Down to the Wire.' In it, he tackles the U.S. debt ceiling issue and its significance.

He notes that, "because the limitation is set in terms of absolute dollars and not indexed for inflation or growth, we would run into it every few years even if our debt only grew apace with the economy."

Marks, who recently released his book The Most Important Thing, is known for his insightful market commentary. Legendary investors like Warren Buffett and Seth Klarman sang the praises of his book and read his memos regularly.

Something worth paying attention to according to Marks is the shift in attitudes toward debt over the last forty years. The Oaktree Chairman highlights expanded credit card use, mortgages requiring little principal, the extension of borrowing power to companies with questionable credit ratings, and steadily increased borrowing by various nations.

Rather than summarize the rest of his thoughts, embedded below is Marks' latest commentary (email readers come to the site to view):

For more from Marks, head to his thoughts on the keys to success in a low return world.

And for more manager commentary, scroll through recent hedge fund letters we've posted up.

Jonathan Ruffer Worried About China, Says Reflation Trade Over

Jonathan Ruffer is out with Ruffer Investment Company's latest market commentary. Ruffer has returned approximately 16% per year since 2004 and is gaining respect as a top UK manager, following in the footsteps of Odey Asset Management and Lansdowne Partners.

Back in April, we presented Ruffer's commentary stating that the fund was overweight Japan. In their July missive, we see that the UK manager is worried about China as the country fought off deflationary forces by expanding its monetary base after the financial crisis.

China Concern

Ruffer writes (emphasis ours),

"China is overheating; a dislocative slowdown would disrupt the financial markets, and this, in turn, would likely compromise the global economy. This dynamic was very visible in 2008 in the West: the trade crisis was not predictable, though the soundings of industrialists - trade responded to the mayhem in the financial world ... China has the capacity to derail the whole world, and they don't publish their railway timetable."

This isn't the first time we've heard managers sound the alarm regarding China. Grandmaster Capital's Peter Wolff says China is a debt-fueled investment bubble.

Yet on the other side of the table, the legendary Warren Buffett has said China will be a big driver of growth for the next 10-20 years.

The question Ruffer is asking though, is what exactly is this growth costing and what happens if it stalls? That's certainly something worth pondering. Ruffer concludes that, "It looks reasonable to acknowledge that if China needs to slow its economy, then most of the developed world will need to maintain very low policy rates to support growth and the banking system."

The Reflation Trade: Over?

The UK manager also goes on to declare that the reflation trade is 'no longer wholly appropriate.' While selling US dollars and buying commodities was *the* trade much of the past two years, Ruffer notes that "zero interest rates in America mean that the monetary policy of the entire world follows in its wake."

Ruffer argues that the performance of financial assets has been largely (if not completely) driven by dollar debasement via quantitative easing. Yet now that Ben Bernanke has signaled that QE3 is not the preferred choice of action, what happens to all the money chasing returns in a low interest rate environment?

The insurance policy that backstopped risk-taking is no longer there. Thus, the reflation trade is over.

Embedded below is Ruffer Investment Company's latest market commentary (email readers come to the site to read it):

For related reading on these topics, check out hedge fund Kleinheinz Capital's thoughts on how inflation is the biggest threat to emerging markets.

Thursday, July 21, 2011

Scout Capital's Adam Weiss & James Crichton Presenting at Value Investing Congress

It's just been announced that the founders of hedge fund Scout Capital will be speaking at the Value Investing Congress in New York City on October 17th & 18th. We've featured Weiss and Crichton's fund on the site numerous times before as they manage over $4 billion.

42% Discount to the Event: Market Folly readers receive a 42% discount by clicking here and using code: N11MF4. Take advantage of this ASAP because it expires July 29th!

Other Speakers:

- Bill Ackman (Pershing Square)
- Leon Cooperman (Omega Advisors)
- Jim Chanos (Kynikos Associates)
- Joel Greenblatt (Gotham Capital)
- Alexander Roepers (Atlantic Investment Mgmt)
- Guy Gottfried (Rational Investment Group)
- Michael Kao (Akanthos Capital)
- Whitney Tilson & Glenn Tongue (T2 Partners)

As you can see, the Value Investing Congress is loaded with prominent hedge fund managers. Get a peak inside their portfolios by hearing their latest investment ideas in New York this coming October.

The big discount for our readers expires in one week, so act now. Click here to save 42% off admission.

ValueAct Capital Goes Activist on Moody's (MCO), Buys More Motorola Solutions (MSI)

Jeff Ubben's ValueAct Capital has been quite active recently as evidenced by two 13D filings submitted to the SEC. As Ubben has explained in a previous interview, his fund employs an activist value investing strategy.

Going Activist on Moody's (MCO)

First, ValueAct has gone activist on Moody's (MCO) according to a 13D just filed. Per the filing, we learn that ValueAct has a 6.1% ownership stake in MCO with 13,866,970 shares.

At the end of the first quarter they only owned 8.2 million shares. The hedge fund firm has purchased over 5.5 million shares over the past 3 months, increasing their position size by over 67%. ValueAct were buying as recently as July 12th through 19th, adding at prices between $35-37, right where shares currently trade.

While Ubben's firm has filed a 13D signifying their activist intent with the position, the filing contains standard boilerplate about monitoring their investment and does not lay out any specific plans.

Moody's stock is interesting mainly because you have prominent investors on both sides of the table. Warren Buffett's Berkshire Hathaway owns a significant stake in MCO but was selling some shares last year.

David Einhorn's Greenlight Capital, on the other hand, has been short MCO and laid out their short thesis here. With ValueAct now coming to the table, it's clear they intend to apply their trademark activist style. We'll see what happens.

Buying More Motorola Solutions (MSI)

Ubben's hedge fund also just filed an amended 13D with the SEC regarding shares of Motorola Solutions (MSI). They now show a 7.0% ownership stake in MSI with 23,601,000 shares.

ValueAct recently purchased over $161 million worth of MSI shares, buying in late June and early July at prices ranging from $43.95 to $45.50 per share.

As we outlined in Ubben's previous pitch on MSI, ValueAct likes Motorola Solutions due to its improving margins and the fact that it is still growing despite a downcycle. MSI came to be as a result of Motorola splitting into two separately traded entities: MSI and Motorola Mobility (MMI).

For more on ValueAct Capital, head to Ubben's interview about his fund.

Lone Pine Capital Buys More VanceInfo Technologies (VIT)

Stephen Mandel's hedge fund firm Lone Pine Capital just filed an amended 13G with the SEC regarding shares of VanceInfo Technologies (VIT). Lone Pine now owns 10.1% of VanceInfo with 4,507,146 shares.

This marks a 7% increase in their share count as they owned 4,192,821 shares back at the end of the first quarter. In the past three and a half months, Lone Pine has purchased 314,325 additional VIT shares.

Back in late 2010, we detailed how Lone Pine added to its VIT stake and we noted then that the majority of this position was contained in their Lone Dragon Pine fund, their emerging markets investment vehicle. That continues to remain the case.

In additional recent portfolio activity from the hedge fund, we covered how Lone Pine bought more iSoftStone (ISS) and added to its WABCO (WBC) stake as well.

Per Google Finance, VanceInfo "is an information technology (IT) service provider and an offshore software development company in China. The Company’s range of IT services includes research and development services, enterprise solutions, application development and maintenance (ADM), testing, as well as globalization and localization."

Carl Icahn Talks Raised Clorox (CLX) Bid, Potential Breakup

Legendary investor and 'corporate raider' Carl Icahn recently made a bid for Clorox (CLX). After being rejected by the company, just yesterday he raised his bid to $80 per share, more than the current trading price of $74.

He sat down to chat with Bloomberg TV about his thought process. Icahn thinks that shares aren't trading up to his offer because the company still has yet to say they're for sale. Icahn also made it clear he wants to avoid a proxy fight.

If he was successful in a purchase, he would consider splitting it up, possibly keeping one of the divisions (though he refused to mention which). As far as antitrust concerns go, Icahn says that he doesn't think it would be a problem for CLX to be acquired by another company. At $80 per share, he thinks CLX is great value and that a large buyer looking for synergies could pay $100 per share.

That last point is why many investors seem to think that Icahn's 'bid' is merely posturing to ignite a bid from another company. The scenario plays on. As far as other recent investment ideas from Icahn, at the Ira Sohn Conference he pitched his own company: Icahn Enterprises (IEP).

Embedded below is Icahn's interview with Bloomberg TV (email readers come to the site to view):

Bloomberg TV also recently profiled Scion Capital's Michael Burry which we recommend watching as well.

Wednesday, July 20, 2011

Michael Burry of Scion Capital on Bloomberg's Risk Takers

Last night on Bloomberg TV's "Risk Takers", Michael Burry was profiled for his extraordinary subprime short. The former Scion Capital hedge fund manager is featured in Michael Lewis' excellent book, The Big Short.

While Burry is a value investor by nature, when he saw the warning signs of the impending housing bubble, he had to act. Bloomberg takes us through Burry's thinking and the pushback he received from investors upon straying from his equity value investing ways.

Embedded below is the profile on Burry from Risk Takers:

The video showcases blurbs from some of the letters Burry sent to clients before the crisis. We've posted up Burry's primer on credit default swaps & the subprime mortgage short for those interested.

At the end of the video, he mentions he's investing his own money now and doesn't have to deal with investors. Where exactly is he investing? We've posted up before that he's been buying farmland and gold.

For more great resources on Burry, we've posted up his recent subprime speech at Vanderbilt: Inside the Doomsday Machine.

East Coast Asset Management Sees Heightened & Prolonged Inflation Ahead

Christopher Begg is out with East Coast Asset Management's second quarter letter and in it takes a look at markets from a top-down perspective. While East Coast's investment principles are guided by value, they, like many other value investors such as David Einhorn (Greenlight Capital) have incorporated a top-down view into their thought process.

At present, East Coast takes the following notes:

- Developed countries continue to print money.

- Developed world currencies depreciate against emerging currencies.

- "Inflation will be heightened globally and accumulated wealth is at risk of losing purchasing power, therefore we will limit intermediate and long-term fixed-dollar investments."

- As paper currencies lose value, global equities will provide the alternative.

- Businesses with pricing power will outshine those without. (In the past, Market Folly highlighted how Berkshire Hathaway bought Lubrizol due to pricing power.)

Begg has also spent this summer teaching security analysis at Columbia Business School. The letter embedded below introduces his concept of 'finding longitude' which focuses on refining each investment to specific datasets that gauge how a business is truly performing:

(Email readers come to the site to read the letter)

East Coast's letters are always packed with insight, theory, and practical applications of investing so if you haven't read them, we'd highly recommend viewing East Coast's thoughts on:

- Competitive advantage
- On the topic of compounding
- Gaining an investment edge
- Variant perception

Tiger Global Adds to BitAuto Stake, Discloses HomeAway Position

We wanted to highlight some of the latest SEC filings from Chase Coleman's tech-focused hedge fund Tiger Global. Last year we focused on how Tiger was buying stakes in internet companies in emerging markets. That trend remains unchanged.

Coleman's firm has found great success by morphing into a venture capital fund, investing in private early stage tech companies. While these investments typically represent only a small portion of their funds (~10%), they've made a significant impact. According to II, Tiger is up a whopping 34.5% in 2011.

A perfect example of such success is social networking site Linked In (LNKD). The company went public in June and Tiger already owned a stake back when the company was private.

HomeAway Inc (AWAY)

Turning to recent portfolio activity, Tiger Global now has a 5.88% ownership stake in HomeAway Inc (AWAY) with 4,691,881 shares according to a 13G filed with the SEC.

This is yet another investment that they made pre-IPO. The company's initial public offering was on June 29th.

Per Google Finance, HomeAway is "an early-stage company. HomeAway operates the online marketplace for the vacation rental industry. As of March 31, 2011, HomeAway operated its online marketplace through 31 Websites in 11 languages and provided listings for vacation rentals located in over 145 countries."

BitAuto (BITA)

Tiger Global also filed a 13G with the SEC regarding shares of BitAuto (BITA). They disclosed a 7.3% ownership stake in BITA with 3,020,745 shares due to portfolio activity on June 20th. This marks almost a 47% increase in their position size as they only owned 2,055,500 shares at the end of the first quarter.

Per Google Finance, BitAuto "is a provider of Internet content and marketing services for People’s Republic of China’s automotive industry. Its and Websites provide consumers with up-to-date new and used automobile pricing information, specifications, reviews and consumer feedback."

To see what other equity investments Tiger Global has made, head to our premium newsletter.

What We're Reading ~ 7/20/11

Black swan fund hedges against extreme events [Forbes]

John Paulson: behind the backlash [Fortune]

Backlash against Harbinger's LightSquared plan [Dealbreaker]

The perfect hedge for this crisis [Marketwatch]

Notes from John Paulson's latest conference call [BusinessInsider]

Bulls see consolidation, bears see market top [Market Anthropology]

Piece on Raj Rajaratnam & Galleon's insider trading [New Yorker]

Profile of Bridgewater's Ray Dalio [New Yorker]

On the changing dynamic between hedge funds & prime brokers [All About Alpha]

Short-sellers are betting against these stocks [WSJ]

Barron's mid-year roundtable [Barron's]

Start-up hedge funds turn to seeders [Dealbook]

On redemptions at FrontPoint Partners [WSJ]

Why Bruce Berkowitz doesn't want to be Carl Icahn [Investment News]

Cash doesn't lie [Forbes]

More to come? Tweets land broker in trouble [Dealbook]

Tuesday, July 19, 2011

Corsair Capital Sees Increased Market Volatility Ahead (Q2 Letter)

Jay Petschek's hedge fund firm Corsair Capital Management finished the second quarter up 0.2% net, bringing them to up 6.2% for the year. They've turned in a solid 15.3% annualized return since 1991 and are one of our favorite funds to track.

Last quarter, we highlighted that Corsair anticipated increased M&A activity. Their second quarter letter focuses on the 2011 market landscape thus far and macro concerns.

They write, "there seems to be a delicate balance worldwide between stimulating economic growth and keeping prices of basic necessities within an affordable range ... we believe this uncertainty only increases general investor skittishness and market volatility."

Portfolio Updates

They also update their various positions by noting that they continue to expect Innophos (IPHS) to earn $5.00 of adjusted EPS in 2012, surpass market expectations, and trade at a 15x multiple. We've previously covered Corsair's bullish case on Innophos.

They continue to like their stake in Expedia (EXPE) as the company announced the impending spin-off of its TripAdvisor segment. The current issue of our Hedge Fund Wisdom newsletter lays out the investment thesis on EXPE in detail for those interested.

Corsair also updated their stakes in Maiden Holdings (MHLD), KAR Auction Services (KAR), and Pace Oil & Gas (PCE). Their letter also includes a write-up on their new investment in TNS Inc (TNS).

Embedded below is Corsair's Q2 letter (email readers come to the site to view it):

Larry Robbins' Glenview Capital Adds To Flextronics Stake (FLEX)

Larry Robbins' hedge fund Glenview Capital has disclosed a 5.45% ownership stake in Flextronics with 40,305,334 shares per a 13G just filed with the SEC.

This represents a 46% increase in their position size as they've purchased 12,757,291 shares since March 31st. To see the rest of Glenview's positions, you can of course head to our Hedge Fund Wisdom newsletter.

The filing was made due to portfolio activity on July 15th. While they bought shares last week, keep in mind that SEC regulatory rules only requires disclosure of such positions on a delayed basis.

For recent market thoughts from this hedge fund manager, we also detailed notes from Robbins' presentation at the Leaders In Investing Summit.

Per Google Finance, Flextronics is "a global provider of vertically integrated advanced design and electronics manufacturing services (EMS) to original equipment manufacturers (OEMs). The Company designs, builds, ships and services electronics products for its customers through a network of facilities in 30 countries across four continents. Its portfolio of customers consist of Alcatel-Lucent, Applied Materials, Cisco Systems, Dell, Ericsson, Hewlett-Packard, Huawei, Johnson and Johnson, Lenovo, Microsoft, Research in Motion and Xerox."

What We're Reading ~ 7/19/11

Recent surge in stock spin-offs [Abnormal Returns]

Sell in May and come back when? [FT Alphaville]

Ten ways to improve your investment process [Greg Speicher]

Ten Year Treasury during and after QE2 [Bespoke]

Italy is like Lehman Brothers [Reformed Broker]

Boring is good, buy Chemtura (CHMT) [Economic Musings]

Comparing junk bond ETFs [IndexUniverse]

Don't call the next tech bubble yet [Fortune]

History suggests big tech discount could linger [Reuters]

James Montier on tail risk hedging [Surly Trader]

Common attributes of individual investors [CXO Advisory]

Carl Icahn is still looking for trouble [CNNMoney]

Treasury printing less dollars as use of cash is down [NYTimes]

Strategist Jeff Saut Worried About Current Market Action

According to his weekly commentary, market strategist Jeff Saut is worried about recent market action. His worry, it seems, largely stems from the 1320 level on the S&P 500 which he sees as an important "attractor/repellor" level. Since the market has fallen below 1320, it has tried (and failed) three times to recapture it.

Just last week, Saut highlighted the biggest fears of 15 European portfolio managers. There is no doubt that caution seems to be the word of the summer. While Saut has not given up on the notion that the economic backdrop is set to improve, he does not like the current market action.

In order for him to give up on his optimistic/bullish call, he says he would need to see the S&P fall below 1295; a level that can easily be reached with one more sour day of market action.

Embedded below is Jeff Saut's latest weekly commentary:

You can download a .pdf copy here.

Saut mentions a few stocks in the missive above, but you can also see his current list of favorite stocks as well.