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.

Greenlight Capital Q2 Letter: Long Chemours (CC)

David Einhorn's hedge fund Greenlight Capital is out with its Q2 letter.  They feel that the 'Brexit' won't be a significant economic event by itself.

Turning to specific stocks, Greenlight outlines its thesis on Chemours (CC), a recent spin-off from DuPont (DD). 

They note, "CC should benefit from the continued recovery of TiO2 prices.  Further, EU regulations are driving adoption of CC's next generation refrigerant Opteon, which should increase fluoroproduts profits.  Lastly, management can reduce costs and shutter unprofitable businesses now that the company is independent of DuPont.  We expect the stock to appreciate as investors refocus on the earnings power of the business, which we think will approach $2.00 in 2017.  Our overall average purchase price is $6.58."

The hedge fund also exited numerous longs during the quarter: Macy's (M), American Capital Agency (AGNC), Baxter (BAX), Oil States International (OIS).

They also covered short positions after the Brexit volatility, including: Intuitive Surgical (ISRG), Under Armour (UA), and United Rentals (URI).

At the end of Q2, Greenlight's largest disclosed longs (in alphabetical order) were: AerCap, Apple, CONSOL Energy, General Motors and gold.  Average exposure was 96% long and 69% short.

Greenlight's Q2 letter is embedded below:



H/T ValueWalk


For other recent hedge fund letters, we also posted up Third Point's Q2 letter here.

Eric Sprott's Presentation at Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Eric Sprott of Sprott Asset Management who presented "Investment Opportunity of Your Lifetime."


Eric Sprott's Presentation at Value Investing Congress Las Vegas

•    Eric talked about manipulation and various issues – such as high frequency trading and front running. 
•    Gold manipulation – BaFIN the SEC equivalent in Germany said it was going to investigate the London bullion market Association in Nov/Dec 2013. In Jan 2014, they found that manipulation in Gold is WORSE than LIBOR. 
•    Deutsche Bank left the association that day.
•    Gold Fix study by Stein Business School shows signs of decade of bank manipulation.
•    2013 saw 6-8 sigma events a likelihood of one in a quadrillion.
•    Canada shouldn’t sell their gold at these prices.
•    Sprott’s analysis is that western central banks have no gold left. A raid is effected over 1,300 tones leave ETFs.
•    China’s demand is such that it consumes almost all the world’s mine supply.
•    India cooperates with other Central Planners to eliminate gold imports.
•    Gold isn’t a current account item – it’s a capital account item.
•    Who is buying? Iraq, China, Russia, Switzerland is now providing data on monthly shipping and where it is shipped too.


•    Pitched Barrick Gold and Crocodile Gold. At 1,300 gold price, both would earn .71/-.11, at 2,000 per ounce 2.52/.19 and at 2,400 per oz, 3.56/.36. 
•    Current price is 18.60 for Barrick Gold/.19 for Crocodile – price targets range from 94% upside to 1000% upside.
•    Every gold company has a contingent asset not on their balance sheet (assuming he is talking about a potential settlement).

Be sure to check out the rest of the Value Investing Congress presentations.

What We're Reading ~ Analytical Links 8/22/13

Rising markets batter short sellers [WSJ]

What has QE actually accomplished? [Mauldin Economics]

Cash is a drug for investors, redux [Abnormal Returns]

The best value investing quotes [Old School Value]

ESPN holds talks for web-based TV [Bloomberg]

Chinese search for infant formula goes global [NYTimes]

Barnes & Noble (BKS) reverses strategy in train wreck of a call [GigaOm]

8 pivotal acquisitions made by Google (GOOG) [Hongkiat]

In-depth reports on for-profit educators [Senate.gov]

Is the new Gmail killing email marketing? [BusinessWeek]

Life after Siri: Nuance's (NUAN) climb to being your digital assistant [Forbes]

On gold losing its shine [Telegraph]

Overseas investors spend $50 billion on Florida real estate [BizJournals]

JPMorgan's latest guide to markets [JPMorgan]

Newly revealed 1975 letter from Warren Buffett [Fortune]

Phone companies are winning new TV watchers, cable & satellite not so much [GigaOm]

Third Point Reveals CF Industries Position: Q2 Letter

Dan Loeb's hedge fund firm Third Point is out with their Q2 letter to investors.  In it, they reveal a brand new position in CF Industries (CF):


Third Point's CF Industries Thesis

Third Point writes,

"CF Industries is North America’s largest nitrogen fertilizer manufacturer and one of the  lowest-cost producers globally. CF currently trades at an unwarranted discount to  fertilizer and commodity chemical peers. We believe its structural cash flow generation  strength is misunderstood and that management should deliver a much larger dividend to  its shareholders. Such a dividend would highlight the sustainability of its cash flow  generation and lead to a substantial re-rating."

They see CF's ability to tap lower-cost natural gas in North America as an advantage and the spread between CF's production cost and higher cost producers is a nice benefit:

"On today’s  equity value, that would mean CF is currently trading at an 11% free cash flow yield using  these onerous assumptions. Given the low-risk profile of this portion of CF’s cash flow, it  should receive a bond-like multiple (e.g. 7 - 8% yield), which alone implies significant  upside to the current share price."


Sells Gold Position

It's also worth highlighting that Third Point exited its gold position at the beginning of the 2nd quarter at around $1450.  They see it as an asset that will be hurt as real yields rise.

The letter also touches on Third Point's activist stakes in Sony (SNE) and Yahoo (YHOO).  The hedge fund recently sold a chunk of its YHOO stock to the company.

Embedded below is Third Point's Q2 letter to investors




For more recent hedge fund letters, we also posted up excerpts from Viking Global's Q2 letter.

John Paulson on Gold, Housing/Real Estate & Risk Arbitrage: Delivering Alpha Conference

John Paulson, founder of hedge fund firm Paulson & Co, sat down with CNBC's Carl Quintanilla at the Delivering Alpha Conference today and touched on numerous topics, mainly focusing on gold and the housing recovery/real estate.  He noted that his returns this year at his main funds range from 5% and 32%.


Paulson on Gold

He's been getting a lot of negative publicity for his Gold Fund.  However, he points out that this fund is only around 2% of his assets under management.  He was looking for a currency alternative to the US dollar in the event we get inflation, and he notes that gold has been an excellent candidate for this in the past.

Paulson said, "Although the Fed has printed a lot of money to date, there is little inflation.  Some (investors) who bought gold have lost patience.  The rationale for owning gold has not gone away.  The consequences for printing money over time will be inflation... it's just difficult to predict when."

He thinks gold is in a 'pause period' right now and sees demand for gold increasing again and points out that it's always been volatile.  He thinks it's an important part of anyone's portfolio.


Paulson on Housing / Real Estate / Land

They took a long-term view on housing, as it's a cyclical area (7 years up, 7 years down).  They saw a peak around 2006 (and shorted subprime) and they think it's bottomed so they've gone long.  He sees it as the beginning of the recovery and said it could last another 4-7 years, inviting others to jump in, saying "it's not too late."

Paulson went on to say, "Buying a home is the best investment an individual can make.  Affordability is at an all time high.  You can lock in rates of a fixed rate mortgage and get the benefits."

He then continued, noting, "I'm not sure (home prices) will increase 10% every 5 years, but probably around 5-7%."

Paulson has exposure in real estate via land as he says land is actually affected the worst in real estate cycles.  He noticed this pattern in the crisis of 1990, so he set up special real estate funds to exclusively buy entitled lots across the country.

Prices fell almost 80% from their peak value in 2006.  They like to buy in distressed situations (from banks, builders, etc) in growth areas of the country.  They've focused on Arizona, California, Colorado, Nevada, and Florida.

They've also played securities:  Before/during the crisis, they shorted BBB tranches, then started buying AAA tranches that fell in price by 40%.

He also highlights his stake in Realogy (RLGY), the largest residential broker in the country (we flagged Paulson's stake in RLGY late last year and also pointed out how Lone Pine Capital bet on RLGY recently as well).

On his bet on the housing recovery, John Paulson said he's as sure of this bet as he was about his subprime short.


Paulson on His Legacy Risk Arbitrage Strategy

Paulson's legacy fund strategy is merger arbitrage.  He talked about how companies he likes to buy are often ones from the announced deals that could get a competitive bid.  He's also looking to see which industries will see consolidation and take a stake in companies that could be takeover targets.

He also talked about his stakes in Sprint and Leap Wireless that have panned out well.

Paulson also noted how there's a lot of talk/chatter in the cable business.  He pointed to John Malone's stake in Charter Communications (CHTR), which he thinks will acquire more cable assets.  While there's been talk of Time Warner Cable (TWC), he says that's a large entity.  He also named Cablevision (CVC) as a potential target, but notes that's up to the Dolan family.

In risk arbitrage, he says "There's always a regulatory risk, and that's an important part of the analysis."

Paulson said he never considered retiring after his successful big subprime bet: "The goal in money management is not to do one great year, it's to compound returns over many years."  He says he'd like to manage money another 20 years, as he admires Warren Buffett and George Soros.

Video from Paulson's interview is embedded below:




For more from the Delivering Alpha Conference, head to:

- Nelson Peltz on PepsiCo & Mondelez

- Best ideas panel with Mark Kingdon, Chris Hohn, Jim Chanos & Lee Cooperman

- Larry Robbins & Jacob Gottlieb on healthcare plays

- Carl Icahn on activism 

What We're Reading ~ Analytical Links 7/10/13

On saving investors from themselves [WSJ]

Smart and stupid arguments for active management [Reformed Broker]

Incorporating right-brain thinking into your investment process [Investing 501]

How gold lost its luster [The Big Picture]

A dozen things I've learned about the psychology of investing [25iq]

Steel: an inferno of unprofitability [The Economist]

On dealing with a rising interest rate environment [WSJ]

30-year mortgage rates surge to highest level in 2 years [Zillow]

The Dow Jones Index between 1789 and today [Go Infront]

MJN, ABT, NSRGY: China investigates foreign makers of baby formula [WSJ]

DVA: dialysis pay would drop $970 million under CMS proposed rule [BNA]

DIS: An interview with head of ESPN John Skipper [HollywoodReporter]

Talk of mergers stirs cable TV's big players [NYTimes]

Labor market spider chart [Federal Reserve Bank of Atlanta]

The best investment advice you'll never get [San Francisco Magazine]

Merchant banks make a comeback [WSJ]

The scam Wall Street learned from the mafia [Rolling Stone]

A report on Corrections Corp of America (CXW) [Scribd]

Introducing the Winklevoss Bitcoin trust [FT Alphaville]

Jeff Gundlach's Sohn Conference Presentation: Short French Bonds, Short Chipotle, Long Gold

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Jeffrey Gundlach of DoubleLine.  He talked a lot about quantitative easing and various other topics.


Gundlach's Talk on Quantitative Easing

He thinks quantitative easing will stay for a long while for many months if not years into the future.  It's a way to keep interest expense low and can also generate lower insurance premiums so he would avoid insurance companies.

Just because rates are low now doesn't mean they have to rise quickly.  Timing is everything in investing.  The Fed mentions the downside of QE just "so they can say they talked about it."  He said this isn't the beginning of a new bull market.  If you want to play QE via stocks, do it in Japan.

Gundlach said that Cyprus' taking deposits worries him as a precedent has been set so he said to avoid sticking money in the bank.  If you want to play QE in Europe, just short French bonds. 

He points to Treasuries not being a crowded trade.  Asking the audience to raise their hands if they own them, very few hands were raised.  He says QE is a put on Treasuries. 

Gundlach's picks:  Short Chipotle (CMG) ~ "gourmet burrito" is an oxymoron, short French bonds, gold.  Avoid bank deposits.

For more on this manager, we've also highlighted some of Gundlach's previous thoughts on holding cash here.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

What We're Reading ~ Hedge Fund Links 5/3/13

Seth Klarman cautions "false sense of calm in the US" [ValueWalk]

Emerging manager interview with Tappan Street Partners [Distressed Debt Investing]

Children's Investment Fund trumpets Japan Tobacco investment [Moneybeat]

Paul Singer on gold's irreplaceability and euro's dark future [ValueWalk]

Corvex's Keith Meister lays out investment in Commonwealth [Moneybeat]

Valiant Capital has rough first quarter [Institutional Investor's Alpha]

JANA's Rosenstein slams Agrium [Absolute Return]

SEC said to push for lifting ban on hedge fund ads [Bloomberg]

Hedge funds scooping up personal property tax liens [Term Sheet]

Highfields Capital faces uphill task with Tim Hortons [Hedgeworld]

Eddie Lampert tries to convince shareholders Sears is on the right track [Hedgeworld]

Lansdowne exits Prudential short after meaningful losses [Bloomberg]

You've never heard of one of the best performing hedge funds [Quartz]

Tough times for hedge funds that bet on market tumult [Reuters]

Hedge funds drive demand for Greek Corporate Debt [Moneybeat]

Indian hedge funds dare where foreign investors fear [Reuters]

The hunt for Steve Cohen [Vanity Fair]

What We're Reading ~ Hedge Fund Links 4/26/13

David Tepper builds stake in Energy Holdings debt [ValueWalk]

Mark Anson's formula for choosing a good hedge fund for your portfolio [CFA]

How hedge funds need to adapt [All About Alpha]

The mind of DoubleLine's Jeffrey Gundlach [Crossing Wall Street]

George Soros' European solution to the Eurozone's problem [George Soros]

JANA Partners says Rockwood worth $80 in possible takeover [Bloomberg]

ValueAct takes $2 billion Microsoft (MSFT) stake [Yahoo News]

John Paulson says he's staying the course on gold [Hedgeworld]

Rob Arnott: most hedge funds disappoint [Term Sheet]

Hedge fund managers mixed on 2013 outlook [HedgeCo]

Billionaire Carl Icahn's tale of aggression [Forbes India]

Hedge fund gold wagers defy worst slump in 33 years [Bloomberg]

Hedge funds plowed into gold as market looked vulnerable [Hedgeworld]

Devitt sees consolidation in outlook for fund of funds [Investment Europe]

Hedge funds find new Swiss rules good for business [Reuters]

Singapore will replace Switzerland as wealth capital [CNBC]

Kyle Bass on MBS, Housing & Gold: Bloomberg Interview

We wanted to quickly highlight Kyle Bass' appearance on Bloomberg TV from last week for some of his comments on housing, the mortgage-backed securities market, gold and other topics.  The Hayman Capital founder also talked about Japan, his longstanding topic of interest.


On residential mortgage-backed securities: “That investment is working…The various concentric circles surrounding housing not getting worse, which is how we think about it. We are not expecting it to get materially better, just not to get worse. The services sectors, the new mortgage insurance companies, the things that are actually asymmetric investments you can make around the housing market not worsening are where the majority of our long side of our portfolio is.”

Just yesterday, we highlighted a piece from hedge fund Prologue Capital on MBS and the housing market which featured bullish comments on the industry as they see a recovery happening.

Bass mentioned playing mortgage servicers and these related bets have been popular amongst hedgies.  Our Hedge Fund Wisdom newsletter in the past has flagged that many funds have been active in shares of Ocwen Financial (OCN) and the like.

Turning to other positions Bass might potentially be involved with, Hayman disclosed an ownership stake in Realogy (RLGY) at the end of the fourth quarter.  The residential brokerage house completed its IPO during Q4.


On the future of Fannie and Freddie: “I have no clue…We decided to just exit, thinking about them when you meet with both sides of the aisle, they both want a bullet in their head. Typically when that happens you get a bullet in your head. The second thing we were thinking about, if you remember there was a proposal to start raising the g-fees. There is a way for the U.S. Treasury to get paid back all of the money they've pumped into Fannie and Freddie if they start raising g-fees."


On gold: “We have always had a position in gold. When you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don't have a great answer for you other then you should maintain a position.”


Embedded below is Bass' latest Bloomberg TV interview where he talks about many other topics:



For more on this hedge fund manager, we've also posted up Bass' short of Japanese Government Bonds.

Eric Sprott: Sell-off In Gold Is Opportunity To Buy "At An Artificially Low Value"

Eric Sprott of Sprott Asset Management has penned his latest commentary entitled "Do Western Central Banks Have Any Gold Left???"  In it, he examines the selling pressure in gold recently, arguing that it's a great time to buy the precious metal.

Sprott notes that the supply of gold has pretty much remained the same, and that demand has steadily increased (thanks to India and China).  He also points out how central banks have been net buyers (instead of net sellers) of the precious metal.

He writes,

"Much ado has been made about the recent sell-off in the yellow metal forcing certain  ETPs to liquidate, adding a supply of gold into the market in the process. Our work  reveals that the previous ETP sell-offs, (which occurred in January 2011, December 2011,  May 2012 and July 2012) have all coincided with gold finding strong price support and  rallying higher."

Sprott concludes that this sell-off in gold is an opportunity to buy it "at an artificially low value."  While he does make some prudent points, it is worth highlighting, however, that Sprott has been a gold bull for quite some time.

Embedded below is the latest commentary from Sprott Asset Management: Do Western Central Banks Have Any Gold Left?





For more from this manager, be sure to check out Sprott's previous commentary: ignoring the obvious.

What We're Reading ~ Analytical Links 3/13/13

The truth about market timing [The Big Picture]

Here's what happens when rates rise [Reformed Broker]

7 big questions to help you invest better [Fool]

Advice from a contrarian: when running with the herd, it's easy to trip [Globe & Mail]

The paper world of Brookfield Asset Management (BAM) [SIRF]

Greed is Groupon (GRPN): can anyone save the company from itself? [Verge]

NYSE Net Margin debt: most important chart of last six years [Aviate Global]

Nu skin (NUS): ladders, losers and direct-marketing schemes [Caixin Online]

No Kodak moment for Hewlett Packard (HPQ) [II]

Sidetracked: why our decisions get derailed [Simoleon Sense]

In spinoffs, a time to jettison undesirable liabilities [NYTimes]

A pitch on Northbridge Industrial Services (NBI.L) [Octomore]

Gold is the worst investment of 2013 [Quartz]

Quantitative easing: the greatest con ever sold [Minyanville]

7 investment principles for entrepreneurs [Inc]

Offshore cash hoard expands by $183 billion at companies [Bloomberg]

Amazing shift in US fuel consumption trajectory [FT Alphaville]

Ray Dalio: Cash Will Move Into 'Stuff' in 2013

Ray Dalio, founder of Bridgewater Associates, spoke with CNBC at Davos about a myriad of topics.  Dalio started Bridgewater with $5 million and now manages $130 billion.  His Pure Alpha hedge fund ended 2012 up 0.8% though his long-term returns are much more impressive.


Cash Will Move Into 'Stuff'

The Bridgewater founder thinks 2013 will be a year of transition as cash moves into 'stuff' like goods, services, financial assets (equities, gold, etc).

He points out that there's so much cash in the system due to central bank action.  Since cash has a negative real return, he argues that it has to go somewhere as risks are being reduced.  The desire to hold cash is being reduced. 

Dalio laid out his framework as essentially a scenario where US investors pile into stocks driving markets higher which will then give the Fed confidence to start to tighten, which will then cause a pullback across risk assets.


Bearish on Europe

However, he's quite bearish on Europe it seems noting that there's a terrible economy with a gradual restructuring.  He says there will be a depression there or a 'lost decade'.


Wisdom From Dalio

Dalio also had a some fantastic quotes about approaching investing, saying that,

"The way to look at any market... is to look at the buyers and sellers and to understand who's buying and who's selling and what the motivations are behind that."

He went on to note that,

"Too many investors are reactive decision makers... if something has gone up, they say 'ah, that's a good investment,' they don't say 'that's more expensive.'  It's the most common mistake in investing.  You have to look ahead and say what is the transaction? What will determine the buyer or seller?"

Dalio also points out:

"So much of the driver of any asset class returns is based on how events actually transpire relative to expectations. So there's a certain discounted growth rate in equities."

Lastly, Dalio made an excellent analogy comparing investing to poker:

"The bets are zero sum.  In order for you to beat me in the game, it's like poker, it's a zero sum game.  We have 1,500 people that work at Bridgewater, we spend hundreds of millions of dollars on research, and so on.  We've been doing this for 37 years and we don't know that we're going to win.  We have to have diversified bets.  So it's very important for most people to know when not to make a bet.  Because if you're going to come to the poker table, you're going to have to beat me, and you're going to have to beat those who take money.  So the nature of investing is that a very small percentage of the people take money essentially in that poker game away from other people who don't know when prices go up whether that means it's a good investment or if it's a more expensive investment."

This analogy is not a new concept and there are actually many similarities between poker and investing/trading.  Numerous hedge fund managers play poker (like David Einhorn) and we've highlighted the link between hedge fund managers and poker.

Embedded below are the videos of Dalio's interview from Davos:

Video 1



Video 2



For more on this legendary investor, Dalio is profiled in the book The Alpha Masters.  You can also check out Dalio's other in-depth interview on QE3, gold and other topics.

Third Point Ramps Up Net Long Equity Exposure in December

Dan Loeb's Third Point Offshore Fund finished 2012 up 21.2%, managing just over $5 billion.  In the hedge fund's most recent December report, we see their exposure levels and latest top holdings:



Exposure Levels

The main takeaway from Third Point's latest exposure report is their sizable increase in net long equity exposure.  They went from being 27.7% net long at the end of November to 43.1% net long at the end of December.

They are slightly net short healthcare and their largest net long exposure comes in the TMT (tech, media & telecom) and industrial sectors.

In credit, Loeb's firm is net long 29.5% and their largest allocation there continues to be asset backed securities.


Third Point's Top Positions

1. Yahoo! (YHOO)
2. American International Group (AIG)
3. Gold
4. Ally Financial (multiple securities held)
5. Murphy Oil (MUR)

Compared to the month prior, there are two notable changes.  First, their position in Greek Government Bonds (GGB's) falls out of their top holdings.  We posted an article about them trimming this position in our weekly linkfest. The second change is that Ally Financial has climbed up the position sheet.

Top winners for Third Point in December included GGB's, AIG, Delphi (DLPH), and Nexen (NXY).  The government exited its stake in AIG, one of the many catalysts Third Point outlined in their thesis on AIG.

NXY has been a big arbitrage play among hedge funds as their merger deal was approved by Canadian authorities.  This stock was flagged as a consensus buy among hedge funds in our November Hedge Fund Wisdom issue.

Dan Loeb's Third Point November Exposure Report

Dan Loeb's Third Point Offshore Fund is out with its latest exposure report for November.  They finished the month up 2.9% and sit up 17% year-to-date and manage $10 billion.


Exposure Levels

Loeb's firm reduced net long equity exposure by a noticeable amount.  They went from 44% net long in October down to 38% net long at the end of November.  Their largest sector exposure continues to be tech, media & telecom (primarily due to their large stake in Yahoo).

In credit, Third Point is 27.7% net long, a 1% increase from the month prior.


Third Point's Top Positions

1. Yahoo! (YHOO)
2. Greek Government Bonds
3. American International Group (AIG)
4. Gold
5. Murphy Oil (MUR)

Their top holdings as a group remain unchanged this month, though their GGB and AIG stakes flipped position ranks.


Top Winners & Losers

Third Point's top winners included Greek Government bonds, Yahoo, Delphi (DLPH), Aveta, and Ally Financial (multiple securities held).  Their top losers included AIG, Short A, Short B, Apple (AAPL), and Liberty Global (LBTYA).

Embedded below is Third Point's November exposure report:




Overall, not too many notable changes in Loeb's portfolio aside from the reduction in net long equity exposure.  Head to Third Point's Q3 letter for more color on their positions.

James Grant Likes Gold & Metropolitan Life: Invest For Kids Chicago

Next up in our notes from Invest For Kids Chicago is James Grant of Grant's Interest Rate Observer.

•    Grant founded his firm is 1983 and called Japanese bubble and housing bubbles
•    Tongue in cheek legal disclaimer is that “Congress shall make no law abridging the freedom of the press”


Grant's First Idea: Metropolitan Life

•    Metropolitan Life
o    Japanese life insurers died out in long run.
o    825 billion of assets - a great franchise
o    Long due to potential for dividend.


Grant's Second Idea: Gold

•    Gold: is a “legacy monetary asset”
•    1920 there was a depression (not Great Depression). 18 months after peak then industrial production jumped significantly
•    "I'm a professional interest rate observer.  There are none"
•    Grant notes interest rates move in generational cycles

Grant is obviously not alone in his fondness for the precious metal as numerous hedge funds own gold for a myriad of reasons.  Some own it as a hedge against inflation or currency debasement, while others view it as an uncertainty hedge.


For the rest of the hedge fund presentations from the event, head to notes from Invest For Kids Chicago.

Hugh Hendry On Gold, Treasuries, Japan, China & More: Buttonwood Gathering

It's been a long time since we last checked in on Hugh Hendry of Eclectica Asset Management so today we're highlighting his recent talk at The Economist's Buttonwood Gathering.  He touched on hot topics such as gold, treasuries, China, Japan, hyperinflation and a myriad of other things.

Key Takeaways

Hendry continues to like gold, but not the gold miners.  While he has been an advocate of the precious metal for many years, he continues to like it (albeit with slightly less conviction than previously).

We've highlighted one hedge fund's view that miners are better than gold and Hendry obviously disagrees with that.  And recently at the Great Investors' Best Ideas conference, David Einhorn made a quip that one should have gold miners in their portfolio.  Clearly, this is a divisive topic.

Hendry is also worried about creditor nations.


Notable Quotes From Hendry

Hendry said that, "My community of global macro managers always wants to short the JGBs and short the yen, and yet they've gone the opposite direction ... If you want to be short JGBs for the ultimate response, you don't survive the journey."

We've pointed out Kyle Bass' negative views on Japan and JGBs in the past.  Hendry points to real problems coming in Japan should some of their major companies near bankruptcy (he mentioned Sharp).

Hendry on Treasuries:  "Don't tell me China will sell their US treasuries.  If they sell their treasuries, the renminbi goes higher and higher and higher.  And their companies that export go bust."


Embedded below is the video of Hendry's entire talk at The Buttonwood Gathering:



We've previously highlighted some of what Hendry was buying earlier this year.  And for further hedge fund commentary from the Buttonwood Gathering, head to David Einhorn's talk.

Dan Loeb's Third Point: October Exposure Report & Top Holdings

Dan Loeb's Third Point Offshore Fund is out with its latest exposure report for October and in it we see that they were up 2.6% for the month and are up 13.8% for the year.


Net Exposure Levels

Their equity exposure continues to rise as they are now net long 44.1%, an increase of 2.4% in net long exposure from the month prior.  This looks to mainly be attributed to a reduction in their short exposure. 

Their largest net long equity exposure continues to come from the technology sector (largely due to their Yahoo position) at 18.8% net long, followed by financials at 8.7% net long (mainly due to their AIG stake).

In credit, they were 26.7% net long at the end of October, down from 30.4% the month prior.


Top Winners & Losers

Their stake in Dolphin Capital Investors was a top winner during the month.  We were the first to reveal that Third Point was set to buy a stake in the Greek property & land company.

Other winners for Third Point include their new stake in Greek Government Bonds as well as Yahoo, AIG, and Murphy Oil.  Murphy recently announced it would spin off its US downstream subsidiary.

Their top losers in the month were Apple, gold, and Overseas Shipholding Group, a new name we've not seen listed in their reports previously.


Third Point's Top Positions

1. Yahoo! (YHOO)
2. American International Group (AIG)
3. Greek Government Bonds (GGB)
4. Gold
5. Murphy Oil (MUR)

You can read Loeb's thesis on AIG, GGB & Murphy in Third Point's Q3 letter.

Jonathan Ruffer: Seeking Refuge in Inflation-Linked Bonds, Gold & Japanese Equities (Q3 Commentary)

It's been a while since we checked in on what Jonathan Ruffer is up to, so today we present the latest Q3 market commentary from his Ruffer Investment Company.  The UK-based fund provides perspective on the other side of the world and outlines what's worrying them currently.

On Dangers They See

"We therefore hold investments on the basis of how they will perform in an environment quite different from today, and we have identified two dangers which need to be guarded against.  The first and, arguably the most worrisome, is that the price of cash (no income on bank deposits) is distorted: you are robbed if you hold cash.  That drives savers into investments which have cash-like qualities.  The result is that the safer and surer an investment is, the more it will reflect (by overvaluation) the distortion of cash on deposit.  When that distortion reverses, the capital value of these safe investments will decline as they re-price for the new normal."

Ruffer goes on to lay out the second great risk that investors face at the moment:

"... to assess what will happen when the stimulus of monetary liquidity grinds to a halt."


Ruffer Sees Future Inflation

Of all the printing of money worldwide by central banks, Ruffer notes that:

"The markets, the inflation rate, the experts and the populace remain quiescent - but sooner or later that will change - and suddenly.  High inflation will follow - but not the hyper-inflation that the doomsters (who, as a group, are the guys who are looking in the right direction) hope for."

It's worth noting that Ruffer has been concerned about inflation for some time now. 


How They Are Playing It

"It is not  enough to see it coming: we need also to have the wisdom to know what is likely to represent a safe haven – bearing in  mind that safe havens are all entering this new and frightening overvalued phase, because the attack on savers has already started. That is probably the right way to look at the lack of yield on deposit. We are taking refuge in inflation-linked bonds and gold, of course: but we remain attracted by Japanese equities, which have, up until now, stood out like a bad deed on  Armistice Day. Japan is one of the few countries which will be the outright beneficiary of inflation, since the perils of  deflation have been an intermittent reality in that country. Although heavily indebted, the owners of the debt are exclusively  Japanese, and the government bonds they own are conventional, and not inflation-linked. Remember the argument above:  the way to clear the debt is to transfer the asset wealth from the saver to the borrower."


Embedded below is the latest market commentary from Jonathan Ruffer:





For additional recent investment manager commentary, head to: Dan Loeb's Q3 letter