Greenlight Capital's Q4 Letter: Dramatically Increased General Motors Position

David Einhorn's hedge fund Greenlight Capital finished 2016 up 8.4% and has returned 16.1% annualized since inception in 1996.

Their fourth quarter letter examines how their portfolio is positioned now that Donald Trump is president and will be trying to change policies. 

Greenlight is long various US value stocks that could benefit from corporate tax cuts (AMERCO, CC, Dillard's, DSW), they're long companies that can benefit from repatriation of foreign cash (Apple (AAPL)), and they're long companies that can benefit from demand for consumer durables (General Motors (GM), a position in which they've "dramatically increased their position."

They're also short 'bubble basket' stocks (Netflix), oil frackers, and Caterpillar (CAT).

Turning back to their thesis on GM, Greenlight writes that, "While the bears have been screaming 'peak auto' for the last couple of years, we think a strengthening job market will sustain the current upcycle and lead to better than expected credit performance at GM's finance subsidiary.  While the bears also cite long-term concerns over self-driving cars, we see a huge intermediate-term opportunity in assisted-driving cars."

During the quarter, David Einhorn's firm also exited its positions in AECOM (ACM), Michael Kors (KORS), and Take-Two Interactive Software (TTWO).   They also covered short positions in FLSmidth (Denmark: FLS), Mead Johnson Nutrition (MJN), and Reynolds American (RAI).

At the end of 2016, their largest positions in alphabetical order were: AerCap, Apple, CONSOL Energy, General Motors, and gold.  Their average exposures were 106% long and 81% short.

Embedded below is Greenlight Capital's Q4 letter:



We've posted up a bunch of letters today, so be sure to also check out Third Point's Q4 letter as well as Howard Marks' latest memo.

Jim Chanos Short Cheniere Energy, Caterpillar, Solar City & More: Interview

Noted short seller Jim Chanos, founder of Kynikos Associates recently appeared on CNBC to share his thoughts.

During the interview, he revealed a new short position: Cheniere Energy (LNG).  We've highlighted how Carl Icahn went long LNG recently.  There are also numerous other prominent hedge funds long.

Chanos, on the other hand, has been negative on the liquefied natural gas space over the past six months, thinking it's a "looming disaster" because it's tied into Asia and that LNG demand isn't growing anymore.

He went on to say, "LNG has been seen as a unique animal because it's going to be U.S. based, they're opening its Sabine Pass later this year.  With the stock at 30 times 2020 earnings, with the upside coming from a glutted market, we think the risk/reward in this, given where other LNG plays are in Australia and elsewhere, is just completely out of whack."

Chanos noted he's still short Caterpillar (CAT) but has covered his Joy Global (JOYG) short.  He argues CAT is trading at a rich multiple relative to its peers and that the company isn't letting on just how bad things are out there.

Chanos is also negative on pretty much everything in the PC chain.  He argues that "the value in the hardware chain gets competed away" as the products are commoditized.  He's short Hewlett Packard (HPQ) and some PC manufacturers in Asia.  He's hedged this by being long Apple (AAPL) with better growth and products.

He called Tesla (TSLA) "silly" as it trades on 2025 earnings that's become a momentum and concept stock. Regarding other Elon Musk companies, he thinks Solar City (SCTY) is the most problematic.

On China, Chanos continues to be concerned.  He says that "one of the worries we've always had was they were going to lose control of their currency ... that's why I think the markets took a real shudder in August."  That said, he argued that the US is the country "least affected by what's happening in China."

Lastly, Chanos also said cybersecurity is one of the few areas of growth.

Embedded below are videos from Chanos' interview:

Video 1:



Video 2:



Video 3:



Video 4:



Video 5:




For more from this short seller, be sure to also check out another recent Jim Chanos interview.

Jim Chanos Says China 'Worse Than You Think;' Reveals SolarCity Short

Noted short seller and founder of Kynikos Associates Jim Chanos recently appeared on CNBC to share his thoughts on the markets.

He mentioned that he feels that China is "worse than you think" and that "the biggest lesson over the last three months, for me anyways, is people are beginning to realize that the Chinese government is not omnipotent and omniscient."

Chanos, of course, has been a long time vocal skeptic on China's growth and property market.

Turning to the US, Chanos feels that people have gotten a bit 'complacent,' noting that markets have gone basically straight up and that's not how markets work.  He also mentioned that he's short Hewlett Packard (HPQ), Caterpillar (CAT), Shell, Chevron (CVX) and also unveiled a newly disclosed short: SolarCity (SCTY).

He called HPQ a "challenged business" and thinks it's in secular decline.  He says "in technology if you're not growing, you're in effect dying."

On CAT, he said it's a commodities supercycle problem.

On SCTY: Chanos argues the problem is that they have a residential model and it's really "a subprime financing company in effect" since they lease out solar panels.

Embedded below are clips from Chanos' interview:

On China:



On Hewlett Packard:



On SolarCity:



On Caterpillar:



For more from this short seller, be sure to also check out Jim Chanos' interview on Wall Street Week.

What We're Reading ~ Analytical Links 7/31/13

Inflationistas and the global supply shock [FT Alphaville]

Equity long short funds: do they provide return-free risk? [Reformed Broker]

Is Caterpillar (CAT) nothing but the Dow's most overpriced dog? [ZeroHedge]

Interview with the 2013 Ira Sohn Contest winner [Santangels Review]

Thoughts from the Valuex Vail Conference [Institutional Investor]

A dozen things I've learned from Seth Klarman [25iq]

You don't know as much about bonds as you think you do [Term Sheet]

The hardware revolution is upon us and why it matters [True Ventures]

A pitch on Cedar Fair (FUN) [Broyhill]

The irrelevance of Microsoft (MSFT) [Benedict Evans]

Why online consumers love Zillow and Trulia [Realtynex]

The cult of home ownership is dangerous [FT]

Goodbye mail carrier, hello cluster mailboxes [CNN]

Delivering Alpha Best Ideas Panel: Mark Kingdon, Chris Hohn, Jim Chanos, Lee Cooperman

The Delivering Alpha Conference today featured a 'best ideas' panel that featured some hedge fund titans including Jim Chanos (Kynikos Associates), Chris Hohn (Children's Investment Fund), Mark Kingdon (Kingdon Capital), and Lee Cooperman (Omega Advisors).  Here's a brief summary of their picks:

Mark Kingdon, Kingdon Capital

Long Japanese automakers: Long Toyota (TM), Long Fuji Heavy (7270.TO) Long Mazda (7261.JP)

He says these companies obviously benefit from Abenomics in Japan.  Toyota he likes as an innovative leader with focus on hybrid technology.  Fuji Heavy (Subaru) is moving from low margin to high margin products.   He says Mazda might have the most upside of the names. 

Chris Cooper-Hohn, Children's Investment Fund

Long Porsche (PAH3.DE) - It's basically a holding company owning 150 million shares of Volkswagen.  If the two merge eventually, the stock doubles.  We've highlighted Hohn's thesis on Porsche before.

Long EADS (EAD.FR) - A liquid large cap with a new focus on making money.  Could double over 2 years. 

Long Aurizon Holdings (AZJ.AU)- Australian railroad, a total turnaround story as the company has transitioned from government-owned to a company more aimed at profit.  He thinks it could double over next 3 years


Lee Cooperman, Omega Advisors

Long Qualcomm (QCOM) - points to a large amount of cash on the balance sheet and a lot of pessimism on the name.

Long Sandridge (SD) - could be a double.

Long Express Scripts (ESRX) - company is growing and buying back stock.  We've also posted up another Cooperman interview recently where he talked about other stocks he likes.


Jim Chanos, Kynikos Associates

Short Caterpillar (CAT) - a bet on China's property development slowdown and he says the company is just exposed to the wrong products at the wrong part of the cycle.  Here's Chanos' pitch on CAT here.

Short Hewlett Packard (HPQ) - he also reiterated his call against the PC, saying it's dying a slow death.  This has been a longstanding short and we've posted up Chanos' thesis on HPQ as he called it a value trap last year.



For more from the Delivering Alpha Conference, head to:

- John Paulson on gold, real estate & merger arbitrage

- Nelson Peltz on PepsiCo & Mondelez

- Larry Robbins & Jacob Gottlieb on healthcare plays

- Carl Icahn on activism 

Jim Chanos Short Caterpillar (CAT): Delivering Alpha Conference

At the Delivering Alpha Conference today, Kynikos Associates' Jim Chanos laid out the chase to short Caterpillar (CAT).  Basically, he sees CAT as a loser in a commodities super cycle (on the heels of a Chinese construction boom) is coming to an end.

This notion isn't really new from Chanos, as he has repeatedly talked about his bearishness on China property/development.

Chanos says Caterpillar is a great company, but they're essentially levered to the wrong products at the wrong time (the worst part of a cycle).  While it's cheap at 12-13x earnings, he points out that earnings aren't really expected to grow in the next few years (meaningfully above historical levels).

Embedded below is the video of Chanos' idea explained in full:



For more on this short seller, head to Jim Chanos' Sohn Conference presentation on shorting hard disk drive makers.

David Einhorn: Short Iron Ore (Great Investors Best Ideas Conference)

We're posting up notes from the Great Investors' Best Ideas Investment Symposium in Dallas and next up is David Einhorn of Greenlight Capital.  Einhorn made a presentation entitled 'If you give a miner a dollar..." and said to short dirt.  And by dirt, what he means is to short iron ore.

While Einhorn said that everyone "should have gold miners in their portfolio," it became clear he was less sanguine about other types of miners.


Iron Ore Supply/Demand

Einhorn started his presentation with the supply/demand dynamics of iron ore, noting that the infrastructure to get ore out of the ground is not cheap.  He pointed out that it's cheaper for China to import ore from Australia than to dig it out of their own ground.  Einhorn put up a chart showing iron ore prices from 1981-2011, peaking in the most recent year.

He went on to say that, if you give miners dollars, they dig holes.  Higher prices attracted new supply and new players.  It takes years to bring new supply online and he points out that there's a massive amount of supply about to hit the market.

He points out the Chinese investment binge as the driver of demand and notes that "something that's unsustainable persists... until it doesn't."

Einhorn then shifted to steel and noted that 2010 was the last year where steel saw double-digit demand growth.  Supply now exceeds demand and they're in the midst of expansion.  Big projects from 2010/2011 are coming online and the cost of stopping development is too high.
 
Einhorn argues that you can't contain the near-term situation since it's so expensive to halt projects.  He feels that ore prices will head below 100/ton and could get as low as 80/ton.  He even said that by 2014 it could go as low as the 60's.  He opined that the iron ore situation could soon reflect the same situations that took place in polysilicon and LEDs.


Losers Singled Out By Einhorn

While Einhorn did not explicitly come out and say he was short any of these names, he put up a list of companies that will lose in this scenario:

Iron Ore Miners (huge projects that will come online into declining markets): Vale (VALE), BHP Billiton (BHP), Rio Tinto (RIO), Fortescue (FMG), Cliffs (CLF)

Equipment Makers (already have seen growth into infrastructure build): Caterpillar (CAT), Joy Global (JOY)

Integrated Steel Companies: US Steel (X), Arcelor Mittal (MT).


Einhorn pointed out that X and MT have had an advantage because they own their ore supplies while their competition purchases ore in the markets.  However, he says this competitive advantage erodes as the price of ore falls.  The price of steel is also falling.  These integrated steel companies are also facing competition from irrational Chinese steel mills that are willing to operate at a loss.

Last week we also highlighted that Tiger Management's Julian Robertson said to avoid steel stocks as well.

Einhorn argues that the equities of the above companies reflect resumption of Chinese demand but that seems dubious.  He feels like companies are investing a lot at the top.  For more from this hedgie, also check out Einhorn's presentation on 3 ideas from the Value Investing Congress.


For the rest of the GIBI presentations, head to notes from the Great Investors' Best Ideas conference.

Goldman Sachs Very Important Short Positions For Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor and we've already posted up Goldman's VIP list of most important stocks to top funds.  Now we're posting a new addition to their research: the very important short position list.

This tracks short exposure of hedge funds as an equal-weighted basket that "consists of 50 S&P 500 constituents with the highest total dollar value of short interest outstanding."  It can be accessed on Bloomberg via < GSTHVISP >.

Goldman emphasizes that this list is not based on 13F holdings (because hedge funds are not required to disclose shorts).  They also note that it's not a basket of stocks most held short.


Goldman Sachs Very Important Short Positions For Hedge Funds

Stock, value of short interest (in $ billions)

1. Johnson & Johnson (JNJ): $2.9
2. Exxon Mobil (XOM): 2.8
3. Intel (INTC): 2.6
4. International Business Machines (IBM): 2.4
5. Amazon.com (AMZN): 2.4
6. AT&T (T): 2.3
7. Chevron (CVX): 2.1
8. Verizon (VZ): 1.8
9. Duke Energy (DUK): 1.7
10. Walt Disney (DIS): 1.5
11. Abbott Laboratories (ABT): 1.4
12. Coca Cola (KO): 1.4
13. General Electric (GE): 1.4
14. Walmart Stores (WMT): 1.3
15. Caterpillar (CAT): 1.2
16. ConocoPhillips (COP): 1.2
17. Walgreen (WAG): 1.2
18. Time Warner (TWX): 1.1
19. Lockheed Martin (LMT): 1.1
20. Home Depot (HD): 1.1
21. Dell (DELL): 1.1
22. Bristol Myers Squibb (BMY): 1.1
23. Oracle (ORCL): 1.1
24. Schlumberger (SLB): 1.0
25. United Parcel Service (UPS): 1.0


Of the above. David Einhorn recently made comments about Amazon.com (AMZN) at the Ira Sohn conference.  While he seemed to be skeptical of the company during his talk, he did not say he was short.  He highlighted that the company has destroyed other businesses, taking market share, but criticized their weak profit growth.

Jim Chanos is short Dell (DELL) and he points to the decline of personal computing in favor of tablets and other mobile devices.  He's been correct in that regard as Dell recently reported declines in those segments in their latest earnings release.  But of course the bull case points to Dell's other business lines as they shift toward the enterprise. 


Here's the rest of Goldman's Very Important Short Positions List:

26. Amgen (AMGN): 1.0
27. AvalonBay (AVB): 1.0
28. Chipotle Mexican Grill (CMG): 1.0
29. Boston Properties (BXP): 1.0
30. Union Pacific (UNP): 0.9
31. Simon Property Group (SPG): 0.9
32. Procter & Gamble (PG): 0.9
33. Cerner (CERN): 0.9
34. Host Hotels & Resorts (HST): 0.8
35. Kohl's (KSS): 0.8
36. Waste Management (WM): 0.8
37. CenturyLink (CTL): 0.8
38. Carnival (CCL): 0.8
39. Philip Morris (PM): 0.8
40. American Express (AXP): 0.8
41. DuPont (DD): 0.8
42. McDonalds (MCD): 0.8
43. MetLife (MET): 0.8
44. Fastenal (FAST): 0.8
45. Merck (MRK): 0.7
46. Comcast (CMCSA): 0.7
47. Sysco (SYY): 0.7
48. Freeport McMoran (FCX): 0.7
49. Alcoa (AA): 0.7
50. Staples (SPLS): 0.7


Be sure to also check out Goldman Sachs VIP list of most important stocks to hedge funds for Q1 2012.