What We're Reading ~ 2/7/18

George Soros remarks at the World Economic Forum [George Soros]

It's hard to predict how you'll respond to risk [Collaborative Fund]

How delivery apps may put your favorite restaurant out of business [New Yorker]

Older piece but interesting: Disney as a service [Redef]

QVC plans to survive Amazon and escape the cable TV death spiral [Bloomberg]

Why one firm passed on investing in Ecolab [Intrinsic Investing]

A new mental model for investing [MicroCapClub]

Germany is still obsessed with cash [Bloomberg]

Why Rimowa rules the luggage carousel [FT]

Investing in UK retailers: bargains or basket cases? [FT]

The new robot revolution in manufacturing [WSJ]

Ikea's success can't be attributed to one charismatic leader [HBR]

The American sedan is dying, long live the SUV [Bloomberg]

Like great coffee, good ideas take time to percolate [FT]

Rick Rieder's Presentation at Invest For Kids Chicago 2013

Next up in our notes from Invest For Kids Chicago 2013 is Rick Rieder of BlackRock.


Rick Rieder's Presentation at Invest For Kids Chicago

•    21 years at Lehman; Fixed income analyst hall of fame
•    Upside value of FI is muted to say the least
•    Talk on convert – fundamental value of significant proportion
•    Investment regime is changing
•    2003 to 2007 – leverage built up
•    2008 to 2013 – Fed saving system
•    Rebooting system back to “2003 or 2004”
•    Growth in the next few years has exogenous for moderate growth for next 2 to 3 years
 •    Expect moderate growth framework for next few years
•    Low rate framework
•    Buying a lot of agency mortgages
•    Can re-lever US balance sheets
•    Cost of equity versus BBB yields is very wide
•    Investors are forcing CEOs to return capital
•    Dividend to CapEx has also growth so ST growth for equity price but LT underinvestment
•    Need for interest income in market yet not enough assets so investors are forced out the rick curve to equities
•    Converts provide upside convexity, income, and the ability to leverage volatility(options are priced cheap due to volatility being held on the Fed’s balance sheet)
•    Likes DR Horton, MGM, and Ford converts
•    Also works in Europe & Asia 


Check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Leon Cooperman Optimistic About Equities, Concerned About Employment

Legendary investor Leon Cooperman of Omega Advisors recently appeared on CNBC to give his take on the markets. The hedge fund manager oversees $6 billion and founded his firm after working at Goldman Sachs for 25 years.

Omega Advisors is currently optimistic and argues that the United States is not akin to Japan and won't see a lost decade. Cooperman highlights that while the consensus view is optimistic, many people aren't invested that way. He points to outflows in the equity market and inflows to the bond market as people seek stability after a tumultuous ride through the financial crisis.

Omega Advisors is currently 80% net long. This is much more long-oriented than the average hedge fund exposure levels. Cooperman is now the second subsequent major hedge fund manager to come out and say that he's optimistic on the markets. Appaloosa Management's David Tepper is also optimistic.


Cooperman Sees New Economic Expansion

Cooperman says that, "We're eighteen months into a new economic expansion. The average economic expansion has lasted five years. There's still plenty of runway." Now while he is optimistic regarding the future, he obviously acknowledges that things don't go straight up and he could see a potential market correction in February. However, after that, he is optimistic over the long haul provided we see improvement in unemployment numbers.

Hedge Fund Manager Prefers Equities Over Bonds

Cooperman says that, "stocks, at worst, are the best house in a bad neighborhood and if by some miracle this whole game works and we deal with fiscal issues long-term and stop kicking the can down the road, then I think stocks are the best house in a good neighborhood."

Below is the video of Cooperman's thoughts on equities and email readers will need to come to the site to view it:




Cooperman Likes Energy and Financials

Cooperman rattled off a few energy names he owns including Denbury Resources (DNR), Williams Companies (WMB), and McMoRan Exploration (MMR). Just last week we highlighted that Barry Rosenstein's hedge fund JANA Partners bought WMB as well.

In the financial sector, he likes Sallie Mae (SLM), JP Morgan (JPM), and singles out E*Trade Financial (ETFC) as a potential takeover target. The hedge fund manager also likes Teva Pharmaceutical (TEVA) which has a 20% return on equity and is a growth business trading at 11x earnings. Lastly, he mentions that he's long General Motors (GM) and Ford (F) too, as there's a lot of positive operating leverage there.

Embedded below is the video of Cooperman's thoughts on specific sectors:



And here is the final video with Cooperman's expanded comments:




Omega Buys Energy XXI Shares

Additionally, Omega Advisors just filed a disclosure of recent activity in UK markets regarding their purchase of shares in Energy XXI (LON: EXXS). Per the notification, Omega Advisors has disclosed a 5.9% ownership stake in Energy XXI with 4,062,380 shares. This is due to portfolio activity as of December 31st, 2010.

While Cooperman has purchased the EXXS shares traded in the UK, shares of Energy XXI are also traded on the Nasdaq under ticker symbol EXXI as well. Per Google Finance, Energy XXI "is an independent oil and natural gas exploration and production company with operations focused in the United States Gulf Coast and the Gulf of Mexico."

To view Cooperman's latest investments, subscribe to our Hedge Fund Wisdom newsletter as we'll reveal his portfolio in our new issue that comes out soon.

Mistral Capital Partners: Latest Investment Themes (Q3 Letter)

McLane Cover's Mistral Capital Partners recently released their third quarter letter and in it we see they were up 9.81% net for September compared to 8.55% for the S&P 500. While Mistral is down 5.9% year to date compared to an S&P gain of 2.3%, they are still up over 121% over the past 10 years. McLane Cover, President and CIO, sees two important themes driving the markets in the fourth quarter:

First, the Republicans taking the House following the November elections as the country demands a more fiscally conservative approach from the US Administration. And second, the Federal Reserve will likely continue to flood the economy with liquidity by pursuing a second round of Quantitative Easing.

Sector & Economic Themes

Recently, Mistral Capital has taken profits in the technology sector given the significant appreciation in their portfolio, but they continue to believe the sector is attractive and well-positioned going forward. Additionally, they believe asset plays will out perform as the Fed (and other central banks) remain focused on reflating the economy.

Consumer

They expect US consumer spending to remain constrained but probably exceed extremely low investor expectations. Mistral expects auto sales to remain strong and thus are sticking with their core position in Ford Motors (F). In the past we've noted that Jim Chanos is short F. Mistral also believes that the emerging market consumer becomes an increasingly dominant force, as they note that more than 80% of the world’ s six billion people currently live in emerging economies with China and India representing one billion each. McLane highlights ChinaCast (CAST) has a player in this space. ChinaCast is a leading player in four year vocational universities and they believe that the Chinese government’ s support of vocational universities will propel future growth.

Energy

Mistral Capital continues to believe that natural gas becomes a key component of US energy policy, though they admit they have been “ long and wrong” on this call for quite some time. Natural gas is politically attractive because it is sourced in America and we have a lot of it (90 years of supply by some estimates). Furthermore, an expansion in the use of natural gas would stimulate job growth. Natural gas is carbon based but its carbon footprint is half of coal and thus more environmentally friendly. Natural gas represents a bridge to more eco-friendly alternatives as wind, solar and geothermal become scalable and more economically viable.

They believe in JA Solar (JASO) as a play off a comeback in solar. JA Solar is a low cost quality leader in the solar space and is the world’ s largest manufacturer of crystalline silicon cells based in China. JA Solar has tailwinds as industry solar demand have continued to rise for 2010 and 2011.

Other Plays

In healthcare, they like Volcano (VOLC) – A leading global provider of intravascular ultrasound (IVUS) and functional flow measurement (FFR) equipment and catheters. In telecom, Mistral favors American Tower (AMT), a dominate wireless tower provider in the US with an emerging market presence in India and Latin America. The company is considered to have the highest quality portfolio among its peer group in terms of location and tower size. AMT was one of the specific equities highlighted in-depth as a hedge fund favorite in our newsletter, Hedge Fund Wisdom.

Embedded below is Mistral Capital Partners Q3 letter:



You can download a .pdf copy here.

We're starting to post up a bevy of fund manager market commentary and outlooks, so be sure to scroll through our set of investor letters as we continue to highlight them.

Notes From the Value Investing Congress: Einhorn, Bass & Pabrai (Day 2)

Today is the second day of our coverage of the Value Investing Congress including presentations from Kyle Bass (Hayman Capital), David Einhorn (Greenlight Capital), and Mohnish Pabrai (Pabrai Investment Funds). Their latest ideas are outlined below and be sure to check back frequently as we will be updating this post throughout the day.

We've already posted a wealth of information from the event, including:

- Presentations from John Burbank, Lee Ainslie, & Francisco Parames
- Further notes from day 1 of the Congress
- Bill Ackman's Q&A session

Let's now dive right into day two's presentations from the Value Investing Congress:

David Einhorn ~ Greenlight Capital

Three years ago, Einhorn pitched a short of Lehman Brothers at the Value Investing Congress. We all know how that turned out. This year, he doled out his latest short sale: a 139-slide presentation against the St. Joe Company (JOE). In essence, Einhorn believes Joe's whole portfolio of land is incredibly overvalued. He joked that he'd be wrong if JOE discovers oil on its land. After news got out of Einhorn's short, shares of St. Joe plunged more than 9%.

He highlights that the company should have impairments from their riverfront properties but that they have taken none. JOE is counting untouched land as 'developed'. He believes St. Joes's rural land is worth somewhere around $900 million, or between $7-10 per share (JOE shares are currently trading in the low $20's). Einhorn argues that if the company continues current practices, it will eventually be worth $0 in 10-15 years.

In his presentation, the Greenlight Capital fund manager went through specific properties of JOE. He highlighted Windmark Phase II which JOE carries as $165 million on their 10K while Einhorn argues its only worth $18 million or so. He also believes an impairment should be taken on their Rivertown property that is selling lots below cost. Overall, he takes issue with the fact that St. Joe only writes down an investment when they exit it.

Market Folly readers will recall that Bruce Berkowitz (Fairholme Fund) is on the other side of this trade, long the stock. And 'long' is an understatement; he owns almost 29% of JOE. In the question and answer session, Einhorn mentioned that he reached out to Berkowitz but is awaiting his response. Berkowitz started buying JOE in late 2007 and purchased additional shares in February 2009. This is the beauty of markets and the dichotomy of opinion. For a counter-argument, we've also posted up the bullish case for St. Joe from Broyhill's Affinity hedge fund.

Lastly, in Einhorn's Q&A session, he said he is excited about Vodafone (VOD) and that the market is still not giving the company credit for their stake in Verizon Wireless. We've previously covered Einhorn's Vodafone thesis here.


Kyle Bass ~ Hayman Capital

Bass' presentation, 'Does Debt Matter?' is by far the gloomiest of all the speakers thus far. He immediately cites the high levels of US credit market debt and not only the staggering amount of unemployment, but the fact that we are seeing permanent job loss. Bass notes that there's now $200 trillion in total credit debt throughout the world and this amount has tripled over the past 8 years.

He is very concerned about Ireland and says they're very likely to default. Bass is also 100% certain that Japan will default. It's not a matter of 'if', but 'when.' In fact, we've covered how Bass is betting against Japanese Government Bonds (JGBs). Bass mentioned that he is using out of the money interest rate call options to play the potential (or in his mind, inevitable) Japanese default. Should he be correct, he will make 50x to 100x his original investment.

Additionally, Bass says Greece and Iceland are the two other countries in peril here. Greece's default is inevitable and people's reaction will be to buy US dollars. Lastly, the Hayman Capital manager shifted his focus to Australia where he believes the country is due for a housing crisis.


Mohnish Pabrai ~ Pabrai Investment Fund

Pabrai's presentation centered on his 'checklist,' a system of questions/guidelines on how to approach an investment. Pabrai's presentation at the Value Investing Congress West back in May also focused on his checklist. Pabrai will tell you about the checklist, why he created it, and how you can create your own. However, he seemingly does not tell you what is on his checklist as he must regard it as proprietary.

He says the best way to craft an investment checklist is to look at crashes and hone in on others mistakes. By learning from them, you can ensure you don't make the same ones. His checklist is an ongoing process and he's had around 97 questions on the list broken down into categories such as management, ownership, moat, and leverage. While no company can give him the green light by successfully answering all 97 questions, it helps him decide how he should allocate position sizes. This has led to a change in his portfolio allocations. He was previously more concentrated and now is more diversified. A 2% position is a basket trade, a 5% bet is baseline, and a 10% position would be considered a 'home run.'

In his presentation this time around, Pabrai addressed the mistakes that famous value investors have made in order to learn from them. Currently, he is seeing opportunity in Japan and he's building a basket of high quality Japanese stocks. It's interesting to see Bass pound the table on Japan's demise one minute, and the next to see Pabrai recommending the country. Lastly, Pabrai echoed the sentiment from yesterday's presenter Zeke Ashton as he also likes Fairfax Financial (FRFHF). For more from this value investor and Warren Buffett emulator, we've highlighted notes from Pabrai's annual meeting as well.


Michael Kao ~ Akanthos Capital Management

Kao invests across the capital structure including equity and debt. While he usually takes around 40 positions, his top ten positions typically comprise up to 50% of his portfolio. Giving a case study, Kao in particular liked GM convertible bonds. He mentioned he was long the convertible bond and short the stock. Overall, he thinks we're close to a bottom in vehicle sales.

Speaking on GM, Kao highlights their 13% market share in China and consolidation of car brands. The current iteration of the trade would be long GM convertible bonds and then short Ford (F). We've detailed in the past how Jim Chanos is short Ford as well, although his does not seem to be a pair trade. The Akanthos manager thinks GM debt has around 50% upside. He says that GM convertible debt is trading at 2x EBITDA while F is over 4x EBITDA.


That wraps up this set of presentations. To see what top hedge funds are buying and selling on a daily basis, receive our free updates via email or our free updates via RSS reader.

Jim Chanos Still Short Ford (F) & China Property Developers

Noted short seller Jim Chanos recently appeared on numerous media outlets and we wanted to check in on the latest thoughts from the $6.7 billion Kynikos Associates hedge fund manager. If you're unfamiliar with him, then you can verify his short selling credibility with the fact that he called out Enron's shenanigans. For those of you perhaps less familiar with short selling, check out Kathryn Staley's book, The Art of Short Selling as well as Chanos' comments on the power of negative thinking.

In his conversation, Chanos touches on the auto bailouts and he takes issue with "rewarding failed business decisions repeatedly." While President Obama recently pointed out that a lot of people would be out of work if the automakers failed, the Kynikos manager thinks it would have been a lot cheaper to put a federal guarantee on warranties.

In the sector specifically, Chanos has been short Ford (F) for quite some time and he continues to be. He argues that there is too much capacity both domestically and globally. The industry, he opines, is similar to that of the airline industry and steel industry. Embedded below is Chanos' interview with CNBC. Here's the first part (email readers will need to come to the site to view it):



Additionally, Chanos has been short China via commercial property developers and basic commodity companies. We presented his in-depth investment thesis there in the past. And here's part two of his recent interview:



Chanos makes a very brief cameo in the new movie, Wall Street: Money Never Sleeps. He was also a consultant on the film and persuaded Oliver Stone to change the focus from hedge funds to Wall Street investment banks. Lastly, in a separate interview with Bloomberg, Chanos commented that he is still short for-profit education companies and he's been short them for a few years now. To learn more about shorting, head to Kathryn Staley's widely recommended book, The Art of Short Selling.

Hedge Fund Manager Jim Chanos Shorting Automakers

Jim Chanos, the noted short-seller and manager of hedge fund Kynikos Associates was recently interviewed and provided some insight as to what he is shorting. And, we see that he has taken aim at automakers as he is short the manufacturers and said he would not want to be long Ford or Fiat. While it seems he is talking about the equity here, we found this interesting as many hedge funds have been long the debt side of the automotive industry as bonds in GMAC, Ford Motor Credit Corp, and Ford had previously been scooped up by prominent hedge funds.

Interestingly enough, Chanos is also betting against China and is doing so by betting against copper, iron ore, and various other commodities used in China's expansion. Take note though, that he does not include gold in this list of commodities to short since people typically don't create buildings out of gold. He says that he is just now putting on these shorts and he may be early but he sees many opportunities there.

This recent insight comes after we also covered an in-depth interview with Chanos. If you're unfamiliar with him, Chanos graduated from Yale and is well known for his short selling prowess where he puts a large focus on identifying fundamental flaws in valuation due to underestimated or unearthed problems within a given company. He founded Kynikos which is Greek for "cynic" and is most known for uncovering the issues at Enron.

Here is the full video interview from CNBC (Email readers will need to come to the site to watch it):




Make sure to also check out a recent in-depth interview with the Kynikos manager, as well as Chanos' presentation on ten lessons from the financial crisis.