Jeffrey Gundlach: Buy Interest Rate Volatility on the Long Bond (Sohn New York Conference)

We're posting up notes from the Sohn New York Investment Conference.  Next up is Jeffrey Gundlach of DoubleLine Capital who talked about markets.


Jeff Gundlach's Sohn New York Presentation

•    Public debt about to explode and interest costs will explode. Especially once we hit a recession
•    He thinks there is more of a chance of recession
•    Interest rates will see more volatility
•    Fed Chair Powell has completely changed his tune and is moving towards MMT
•    Buy interest rate volatility on the long bond. Thinks volatility could double


Be sure to check out the rest of the Sohn New York conference presentations.

Notes From Sohn New York Investment Conference 2018: Einhorn, Robbins, Gurley & More

The annual Sohn New York Investment Conference recently took place and featured top hedge fund managers sharing their latest ideas to benefit charity.  Below are notes from the event.  We've also posted up notes from the emerging manager panel, Next Wave Sohn New York.


 Notes From Sohn New York Investment Conference 2018


John Khoury, Long Pond Capital: Long D.R. Horton (DHI).  He runs a $2.5B long/short fund mainly in Real Estate.  Pitch is DHI is getting asset light by only building on developed lots instead of buying raw land, getting approvals, and building the infrastructure.  So it's an asset-light model with less debt and better ROIC, so deserves better multiple.  They are the biggest US builder based on number of units - average price is $300k, basically entry-level homes, and they built 50k last year.  What about interest rates? Says that is the biggest fear now, but rates could go up 100 bp and housing would still be affordable in relation to current income and net worth of households.  Key is rates would be coming up from such a low place. Says record low inventories.  Expects $5.50 EPS by 2020, uses 13x to get $71.50, or 63% upside.


Li Ran, Half Sky Capital.  Long: GrubHub (GRUB).  2014 IPO.  Felt like the companion pitch to the TKWY pitch in the morning at Next Wave Sohn from Alex Captain of Cat Rock Capital.  Large addressable market, positive unit economics, proof of concept, and support from restaurants.  Painted a pretty rosy picture, didn't really touch on the bear case.  She says $70B TAM on 35% penetration on 110M diners (they have 14.5M now, and many analysts think they are close to fully penetrated in the US.)  She has done surveys of restaurant managers that expect GRUB to keep growing.Price Target $160, on 15x EV/EBITDA, up 60% from here.  Previously worked at Lone Pine Capital.


Jeffrey Gundlach, DoubleLine Capital: Long XOP ETF, short Facebook (FB).  His FB pitch seemed to mainly be based on technicals.  He used the fact that FB is below the 200 day moving average at the time as his reason to be short.  He also cited 2 examples of government regulation hurting stocks - one was tobacco. (He didn't mention other examples where stocks were stronger yet, such as credit cards, banks, etc.).  He pointed out a 'head and shoulders' formation on the FB chart, which is usually bearish.       


Chamath Palihapitiya, Social Capital: Long Box (BOX).  He said BOX was an AI play, and he also said you should have an AI basket of AMZN, GOOG, BOX.  He was less enthusiastic about NVDA, because he believed GOOG's TPUs are "ten times better."  On BOX, he said it goes up 10x in 10 years, even though it has 70% of Fortune 500 already.  Core business stable, adding SaaS revenue.  Big Data/AI play, and 4.3x revenue. Only growing 20% CAGR, yet he expects multiple expansion.


Glen Kacher, Light Street Capital: Long Palo Alto Networks (PANW).  Tiger Cub 1993-1997.  He was up 11% through the end of Q1 in 2018.  He talked about cyber warfare, and how firewalls weren't enough and how you need a platform approach.  $19B market cap, biggest in Cyber, ARPU 4x the competition, which is CHKP, CSCO, FTNT, JNPR and others. Compares their attempt to shift to subscription services that ADBE has done (though he didn't mention the difference is that ADBE didn't sell hardware).  He gets a $360 price target using 10.6x Revenue.  He admits products slipped in 2017, but thinks it comes in 2018.


Seth Stephens-Davidowitz, New York Times op-ed contributor, visiting lecturer at The Wharton School and former Google data scientist.  Gave an interesting preview of his book, Everybody Lies.  Basically, a lot of people have secrets and tendencies, even though they don't admit it, but you can find out because of Google searches, which he calls "Digital Truth Serum."


Scott Ferguson, Sachem Head Capital: Long Whitbread (WTB).  Basically "Dunkin Donuts of the UK, with a budget hotel thrown in.  "Hasn't done well, they have been stuck in it for a year, he says the bad news is now priced in.


John Pfeffer, Pfeffer Capital: Long bitcoin.  The other alternative coins aren't great, stick with best of breed.  The pitch was basically that bitcoin is gold 2.0, similar to what the Winklevoss twins have argued.  Used a lot of formulas in the pitch.  Ultimately says could be a 1% chance that XBT goes to $700k if it's used as a Reserve Currency.  Maybe it's only Gold 2.0, then it's worth about $90-180k per coin, up from about $9k today.


Bill Gurley, Benchmark, with Chamath Palihapitiya:  Interesting back and forth between two talented VCs.  Gurley contemplates the idea of "peak car" ownership in the US.  3.2 cars per household now, could never get higher.  Says Uber is getting turned around, culture improving.  Slack, AirBnB are big ones to watch when they IPO.  He says autonomy could be 2 decades away, because the US is such a litigious society.  FB- he would be long, says this is not an existential threat.  AMZN- "of course, long."  GOOG - he's concerned - they have problems, although he wouldn't short (He also told an amusing story how they turned them down for VC money).  TSLA- says Musk is making it too risky to own the stock.  SoFi- "when you are handing out money there is no barrier to entry and the guy doing the highest volume usually has the loosest rule set."  HTZ- he would be short, even against Icahn.  Several issues:"disruption and debt are bad sisters," 5-15x levered, depending on whether you count the car loans.  Ride sharing is a huge substitute for rental cars in many US cities.  Systematic used car problem - if the macro gets hard at all, this business has zero flexibility due to the debt load.


Larry Robbins, Glenview Capital: Long ESRX, MCK, CVS.  Says AMZN is not going to get into their business, the PBMs aren't really gouging, they only make pennies, and drug prices have actually dropped over the last 4 years.  Says they trade at historically low multiples.  Says MCK goes up 91% in 2-3 years after the spin, and share buyback. ESRX deal with CI will happen.


Sohn Idea Contest Winner, Andrew Walker: Long LQM.  Mispricing due to taxable spin, incentive to keep price low.  This is a popular HF play right now.


Nathaniel August, Mangrove Partners: short EROS."Netflix of India" maker of Bollywood films.  He did a long presentation which focused on how he argues the company is cheating on their accounting every way possible.  He's being sued by the company.  Small cap, doesn't trade much.


David Einhorn, Greenlight Capital: Short Assured Guaranty (AGO).  Bond insurer, beset by Puerto Rico bonds and decline in overall muni bond issuance.  Business is also levered, with smaller room for error.


Be sure to also check out notes from the emerging manager segment of the conference: notes from Next Wave Sohn New York.

Sohn Conference New York Notes 2017: Ackman, Einhorn, Meister & More

Below we're posting up notes from the Sohn Conference New York 2017.  It featured top hedge fund managers sharing their latest investment ideas all to benefit pediatric cancer research.  We've also posted up the emerging manager presentations from Next Wave Sohn.


Notes From Sohn Conference New York 2017

Bill Ackman (Pershing Square): Long Howard Hughes (HHC)

He argued strong management and solid real estate locations as the main reasons to own the company.  Note that Ackman is the Chairman of the co.  We've posted up Ackman's slideshow presentation from Sohn here.



David Einhorn (Greenlight Capital): Short Core Labs (CLB)

Cyclical stock, expects earnings to disappoint.  Oil prices won't have a 'v' shaped recovery.  Company's annual report shows 65% decrease in oil prices over two years and then a 100% increase in price, a literal 'v' chart.  Says stock is pricey and that they're exposed to the least desirable parts of the market.  Exposure to international oilfield capex budgets which won't recover.  Fair value could be around $62, or over 40% lower.  Recall that Einhorn has also been short Pioneer Natural Resources (PDX) in pitch at previous conferences.



Larry Robbins (Glenview Capital): Long DXC Technology (DXC), FMC (FMC), Quintiles IMS (Q)

DXC has already doubled over the past two years but he thinks it can double again given the huge increase in earnings power.  FMC purchased businesses that Dow and DuPont dumped as part of their merger.  Thinks FMC benefits as the others had to divest this in order to get their big deal done.



Keith Meister (Corvex Management): Long CenturyLink (CTL)

Thinks the company's merger with Level 3 is a game changer.  Filing a 13D with the SEC today disclosing a 5.5% stake.  Says consolidation in telecom will continue due to more data.  If economy is doing well = more data growth which is good for CTL.  If economy doing bad = a 9% dividend yield versus a 10-year Treasury potentially falling back to 2%.  Would never have invested if it weren't for the merger.  Stock priced as if things are in decline permanently.  Sees 40% upside with dividends in base case, but potential return as high as 50-70% if there's corporate tax reform.



Clifton Robbins (Blue Harbour Group): Long Investors Bancorp (ISBC)

Has seen deposit and asset growth continue, should benefit from less regulations and tax reform as well.  They own around 9.9% of the company and one of their partners just joined the board.  Stock could be worth between $17 and $19.  Fortress balance sheet.  Have grown loans 22% CAGR.  Co has $1 billion in excess cash to allocate.  Could potentially be an acquisition target since it's a strong regional bank.  Has previously pitched this name at another conference a few years ago.  Also noted his firm is focusing more now on the importance of environmental, social and governance (ESG) in investing.



Chamath Palihapitiya (Social Capital): Long Tesla 2022 Convertible Bonds

He called Elon Musk this generation's "Thomas Edison."  Thinks playing the bonds means no money lost as long as the company is worth at least $15 billion.  Argues company will have 5% of car market in the next decade.  They don't spend on advertising or a dealer network, don't have unions, etc.  Very capital intensive.  Called TSLA "unmodelable."



Josh Resnick (Jericho Capital):  Short Frontier Communications (FTR)

Massive debtload and deteriorating EBITDA which is a bad combination.  Has been short for five years, from $4 down to $1.50, longest short of his career.  Thinks company goes bankrupt.  32% of revenue comes from voice (phones) and thinks it declines sharply.  Losing market share to cable as well.



Jeff Gundlach (DoubleLine Capital): Emerging market outperformance (EEM) vs S&P 500

Not very bearish on the US dollar, but also not a bull.  American stock market seems to be overvalued. Questioned the herd mentality around index funds.  Go long EEM short SPY and leverage it up 1x.  Also said he's now on Twitter: @TruthGundlach to fight back fallacious media reports.



Debra Fine (Fine Capital): Long DHX Media (DHX/B on TSE)

Creator, buyer and distributor of children's TV content in Canada.  Thinks fair value is C$20-C$30.  The change in how video is consumed has increased need for children's content.  Says new content buyers like Netflix, Amazon and YouTube are driving up prices.  Notes that children's content drives merchandise and licensing dollars.  Children's content ages well and is usually cheaper to produce.



Davide Serra (Algebris Investments): Short U.K. gilts (bonds), Long UniCredit (UCG:BIT)

Brexit doesn't really help the UK economy, thinks it costs U.K. around 7% of GDP (~$200 billion).  Thinks European stocks are at an inflection point.  Big gap versus S&P 500 over past eight years and that's about to change.  Also talked long UniCredit, thinks Europe is overdue for consolidation efforts.  Italian banks been penalized for high share of nonperforming loans which creates opportunity as the company is fixing this and then added tailwinds of interest rates normalizing.  We previously highlighted Dan Loeb & Third Point's thesis on UniCredit.



Brad Gerstner (Altimeter Capital): Long United Airlines (UAL)

Thinks skepticism of the airline industry that's been pervasive for years is too negative.  Led to lower multiples despite margins that were uptrending.  Sentiment shouldn't be that low.  Millennials are traveling more than their parents did so airlines can be a secular grower.  Altimeter settled proxy contest with UAL last year.  Sees 18% increase in EPS to around $16.75.  More conservative base case is $13 a share by 2020.  Consolidation of the industry cannot be overstated and has basically resulted in an oligopoly.  Planes are full and price wars are long gone so there's pricing power now.  We've also highlighted how Warren Buffett likes airlines now too. Shares could double.



Kevin Warsh (Former Fed Governor):

Thinks a lot about tail risks and tail outcomes.  Feels most assets aren't ready for downside surprise.  Says to watch capex going forward.  If companies are spending, the economy still has further legs.  If there's a cut, not so sure the economy can keep it in high gear to go forward.  Biggest question for him is if lower inflation continues with slow growth.  Thinks institutional credibility rather than the printing press will be biggest asset going forward.



Tal Ben-Shahar (Potentialife): General advice: Do less

If you want to be happier, do less as quantity affects quality.  Reduce multi-tasking and find time for play, for friends, for family.



Sohn Contest Winner Dylan Adelman: Long eBay


Be sure to also check out notes from Next Wave Sohn which featured emerging managers pitching their investment ideas.

Jeff Gundlach: Watch 2,130 Level of S&P 500

DoubleLine Capital's Jeff Gundlach was interviewed on CNBC yesterday and here's his thoughts:


And although he's a fixed income manager, Gundlach often opines on the stock market and this time was no different.  He said that, "I would turn particularly negative if the S&P closed twice below 2,130."

He notes that the Fed wants to raise rates in December once the election ends.  He also mentioned he's turned negative on most assets since July.

Gundlach said he doesn't think the election is all that important because he feels that both candidates would be 'caught up in the trend' of fiscal stimulus.

Embedded below is video of Gundlach's CNBC interview:

Notes From Sohn Conference New York 2016: Druckenmiller, Robbins, Einhorn & More

The 2016 Sohn Conference New York just concluded and featured top hedge fund managers sharing investment ideas in order to benefit the Sohn Conference Foundation which is dedicated to the treatment and cure of pediatric cancer and childhood diseases.  Here's the takeaways:


Notes From Sohn Conference New York 2016


Larry Robbins (Glenview Capital): “Get a Grip.” Theme was stocks can be a bumpy ride for investors, and hedge funds have taken a lot of hits in the press, but if you expect them to not be short-term traders, then don’t judge them by their short-term records.   He talked his book; claiming that fundamental investing is not dead.   He is long: VCA (WOOF) – Veternarian hospital, multiple has compressed as earnings have grown and “There is no Obamacare for Veternarian hospitals.” Also pitched his longstanding holding of Thermo Fisher Scientific (TMO).  Yes, it has FX issues, but it has EPS growth.  Pitched Lab Corp (LH) as well: hit by fears of new technology, but Theranos story shows that it’s not that easy to come up with new technology. On CBS (CBS): the viewing model is changing, with over-the-top (OTT), but content still has value.   Flextronics (FLEX): they got out of the low value business, but still grew revenue 3% and EPS 15% yet their P/E is only 8.5x.  The stock fell in February 19% and nobody knows why. Abbvie (ABBV): has a pipeline, Humira has IP protection, and biosimilars will take time to develop. Brookdale Senior Living (BKD): earning less, but still, oversold. Talked about Anthem (ANTM): 1.     Managed care is still a good business  2.     Cigna (CI) merger could lead to 20% accretion  3.     ANTM vs ESRX contract repricing spat could lead to more earnings  4.     Market pricing says deal breaks, he doesn’t think it will.


Carson Block (Muddy Waters):  Famed short seller says, “No such thing as alchemy in banking” and touts Bank of the Ozarks (OZRK) as a short because they’ve done a lot of aggressive construction loans and acquisitions. Best case stock re-rates due to unsustainable EPS growth rate, worst case, balance sheet pressure.


John Khoury (Long Pond Capital):  Value oriented, private equity approach. Hyatt (H) long. Says 65% upside, and low leverage gives a floor to valuation.  Admits Pritzker family controls company but says they make good capital allocation decisions. Low end, leisure hotels most vulnerable to AirBnB threat.  Hyatt has more corporate, higher end, which is relatively insulated. Not making a bullish call on all hotel stocks.  Saying Hyatt since 2010 IPO, EBITDA is up 66%, shares up only 14% while they have bought back 20% of shares outstanding.    Uses SOTP to get $79 PT, 65% upside.


Chamath Palihapitiya (Social Capital):  Silicon Valley investor. Says Amazon (AMZN) is a multi-trillion monopoly in plain sight. Walked through e-Commerce, Amazon Web Services (AWS), says this is just the beginning, that Jeff Bezos will make good investment decisions. Says AWS is not understood by the Street and could be worth a lot more. (Seems like the AWS bull case is already widely touted by AMZN bulls?) Lots of potential losers as AWS scales.


Jeff Smith (Starboard Value): Activists. In 12 years they have replaced 162 board members at 50 companies. Likes Depomed (DEPO) long, pain medication, like Oxycontin, less abuse potential. Not taking price increases. Horizon Pharma (HZNP) tried to buy them, they refused to deal. Starboard has nominated a new board- sounds like a proxy battle is brewing.   Also like Westrock (WRK), merger of Mead WestVaco and Rock Tenn.  Sounds like a commodity business, but he says it is not, and it’s still cheap, at 4.9x 2017E EBITDA. Has $71 PT, almost a double from here.


Richard Deitz (VR Capital):  They do a lot of emerging markets stuff. He says long Greek banks and Greek treasury bonds.  Went through the sordid history of bailouts, and says now things are better, the banks are finally strong, may need one more round of recapitalizations.  141% upside, 34% IRR over next 3 years.


Stanley Druckenmiller (Duquesne Family Office): In a sentence: we have low rates, high multiples on stocks, high leverage, sell stocks and everything, buy gold.  Fed is out of control, encouraging borrowing, reckless behavior. China is out of control, just buy gold.


Jeff Gundlach (DoubleLine Capital): Comedy show, with art talk in the beginning.  In other words, his usual type of presentation. Says short XLU (utilities) long REM (mortgage REITs.)  REITS are priced at 0.88x p/book, with 11% dividend, Utilities are 1.9x p/book with 3% dividend, you earn 8% net and you can lever it up 100% and earn 15%, plus the two should converge. He mocked the “low volatility” equities and showed that even utilities have had 56% drawdowns in the past. His most incendiary statement was that Donald Trump would be President, and “he’s comfortable with debt.”


Zach Schreiber (PointState Capital): He is the man that pitched oil short 2 years ago, when it was $100 per barrel.   Long USD, short the Saudi currency, he says.  He made a compelling case for why Saudi is in an “unsustainable equilibria” with lavish unfunded entitlements, unsustainable debt, and not enough currency reserves to protect their peg. Other oil producers’ currencies are down 25- 45% vs the dollar- Mexico, Norway, Russia, for example, yet the Saudi currency is unchanged.  Only costs 1.5% to put this trade on and very asymmetric pay off.


Sohn Investment Contest Winner (Mark Grow, Columbia Business School):   DXCM, Dexcom short was the pitch. Insulin device maker (continuous glucose monitoring ~ CGM) which is facing impending competition and is unable to increase price as revenue per user declines. Says stock can drop in half.


Adam Fisher (Commonwealth Opportunity Capital):  Real estate background, now a Macro guy. Says short Japanese rates, long European rates. Very compelling case for how long JGBs that yield only 30 bps have nowhere to go but up. Even a move to 40 bps yield wipes out 10 years of return.  Says maximum return for bondholders is 9% return over 30 years - that is not a CAGR of 9%, that is a TOTAL of 9%!  Huge convexity in the trade.


David Einhorn (Greenlight Capital): He pitched Caterpillar (CAT) short, says company is NOT at trough earnings yet and the mining sector will never recover to the heights of the China boom.  No catalyst on the short, other than EPS growth expected to take longer than expected.  Then he pitched General Motors (GM) as a long, admitting that US business would drop off almost 20% but the currently money losing segments in Europe and Mexico could make up for the shortfall.  Long deck with lots of charts and cartoons as usual.  GM pitch rested on low P/E of 5.6x to increase despite US EBITDA to decline.


Jim Chanos (Kynikos Associates): Got a dig in on Tesla (TSLA), which he had said he was short earlier that day on TV.  He said Elon Musk had not enough production, not enough batteries, and now not enough executives, but he pulls production forward 2 years.  “What a showman,” he said. His pitch was a complicated one, talking about weakness in South Africa, and Nigeria, which led to a short of MTN group, a wireless carrier which is also struggling with subscriber growth and declining average revenue per user (ARPU).  At $20B EV, this is a big company that he says is not cheap.

Delivering Alpha Conference Notes: Richard Perry, Eric Mindich, Bill Ackman, Nelson Peltz, Jeff Smith & More

The 2015 Delivering Alpha Conference hosted by Institutional Investor and CNBC is currently taking place and we wanted to highlight some of the thoughts from top investment managers on the best ideas panel and other panels.  Here's a brief summary of what each manager said:


Delivering Alpha Conference 2015 Notes

Richard Perry (Perry Capital): He feels Puerto Rico could possibly be the 51st state and thinks it's an interesting place to invest; he said GO bonds are safe and will trade at par. Perry argued that Greek bonds trading at 50 cents on the dollar could eventually return to par as there's a 'meaningful possibility' that a Greek bailout would actually be followed through.


Eric Mindich (Eton Park Capital):  He said that it's mostly individual investors in the turbulent Chinese A shares market.  He called the H shares more interesting.  He's a bit troubled by the future of the euro due to the situation in Greece.


Nelson Peltz (Trian Fund):  Peltz talked about his activist investment in DuPont (DD) and noted that he'd "rather be rich than right."  He continues to like PepsiCo (PEP) and thinks the company can deliver earnings growth each quarter but could do better.  Commenting on McDonald's (MCD), he said that the culture needs to be flipped on its head and it could take years.  Peltz feels Pentair (PNR) has the potential to become a platform company.  He said he has two new positions, one industrial and one he's not naming which account for 1/3 of his capital.  We recently highlighted some of Trian Fund's portfolio activity here.


Bill Ackman (Pershing Square): Ackman likes businesses that will withstand the test of time and he avoids tech since it's 'too dynamic.'  He mentioned that a lot of people haven't been talking about one of his newest investments: Fannie Mae and Freddie Mac and he really likes these.  Peltz chimed in that he doesn't know anything about the company but thinks Fannie is his favorite of Ackman's investments.  While some investors like Bruce Berkowitz (Fairholme Fund) have played the preferred shares, Ackman has a large position in common stock.  He says it offers the most upside but also conceded that it has the most downside too.  Ackman also voiced concerns on China, citing leverage and lack of transparency.  He says that almost every company he owns today is some sort of 'platform company' and we've highlighted this concept via Ackman's presentation at the Sohn Investment Conference.


Jamie Dinan (York Capital):  He keeps a lower media profile so it's always good to get his thoughts.  He avoids leverage since he lost a lot on margin in 1987 which was a very valuable lesson for him.  His keys to success?  Go where the action is and respect risk parameters.  Dinan notes that if you're in a position and the rules change, that's when bad trades happen.  York has more than half its base in illiquid credit.  He likes Japan, noting that "The Bank of Japan is your friend" and valuations are good with possible corporate governance changes coming.  He compared Japan now to the US in the 1980s in an economic sense.  He noted they've invested $700 million in Indiana toll roads.  Dinan also said he likes Puerto Rico but not the GO bonds.  He prefers complex infrastructure plays.


Jeff Smith (Starboard Value):  He mentioned a new idea of his, Macy's (M).  He thinks you get the company 'for free' when you take out the EV of its real estate.  He values the real estate at around $21 billion and hopes to work with management as he thinks M is worth $125 per share.


Bill Miller (Legg Mason):  He continues to like airlines stocks, saying they're in a long-term uptrend.  He likes Delta (DAL).  Commenting on bonds, he said that there's a benign bond market.  He also loves Amazon.com (AMZN) which is his biggest position at 6%.  He also likes builders and they're a big part of his portfolio as well, as he thinks they'll earn around 20% a year.


Jeff Gundlach (DoubleLine Capital):  He doesn't think the Fed will raise rates in 2015.  He said he's fond of emerging market debt (dollar denominated) and some high yield bonds (a shorter-term view on the latter).  He thinks high yield bonds will be a 'debacle' in 3-4 years.  Regarding bond rates, he notes they're rising secularly and went on to say that this is a good thing which most people don't realize.  Bond portfolios want rates to rise since you can reinvest at higher rates.  Looking extremely long term, he thinks India is a great place to put cash for the next 50 years.  Lastly, he also mentioned that he's allergic to companies that don't make money (AMZN).  He mentioned he bought Annaly Capital (NLY) recently and is out of his Apple (AAPL) position.  You can hear more from Gundlach in his recent Wall Street Week interview.


Keith Meister (Corvex Capital): He pitched American Realty Capital Properties (ARCP), a name he's presented at previous conferences as well (he owns 8% of the company).  He thinks you're taking 'bond like' risk for 'equity like' returns with this one and that the stock will pop once they reinstate the dividend and sees 25-50% upside.  Our Hedge Fund Wisdom newsletter analyzed the company if you want to play catch up quickly.


Tom Sandell (Sandell Asset Management):  His best idea was Ethan Allen (ETH), a furniture retailer.  He notes the company has practically zero debt and could be an ideal private equity candidate for a takeover.


Paul Singer (Elliott Management):  He likened the situation in China to potentially worse than the subprime crisis.  He thinks that perception of securities there has been impaired and it's just 'wild.'  Authorities there are trying to sustain the market with all kinds of moves but confidence is damaged by some of these rules.  He said the 70% haircut that Argentina forced on bondholders was the most severe he's seen in a large economy.  Singer said his firm essentially manages risk by putting in a lot of effort, a hands-on approach (basically activism).

...

Check back for more updates later.

Sohn Investment Conference Notes 2015: Einhorn, Tepper, Ackman, Robbins & More

The 2015 Sohn Investment Conference just took place in New York where hedge fund managers pitched their latest stock ideas to benefit the Sohn Foundation and pediatric cancer research. 


Sohn Conference New York: 2015 Notes

- David Einhorn (Greenlight Capital): Short Pioneer Natural Resources (PXD).  Compared it to St. Joe (JOE).  Energy companies with negative development economics, negative on frackers in general.  US production boom: Bakken, Eagle Ford, Permian.  Buy the land, set up drills (expensive).  Huge cumulative CAPEX, more than oil brought out.  None of them generated cash flow, even when oil was high.  $20B cash burn by group last year.  Depletion is the "D" in EBITDAX.  It's not really growth, because once you get the oil out it's gone.  CAPEX has been 75% of revenue over last 5 years.  Not natural gas frackers, they are fine.  PXD:  Well located, well run, Permian assets mainly.  #2 pure play behind EOG.  $26B market cap, EV $27B, may earn $1.50 per share next year.  Spent $19B in CAPEX last few years - funded partially by capital raises.  Proved reserves have been flat or down despite huge CAPEX.  $36 rev/bbl, if you take out the $28 CAPEX, they lose $12/bbl.  Negative NPV if you include time cost of money.  If you had used $68 price of oil, reserves are only worth $9/share.  He says if you cut their costs, it's $22/share.  Value creation per $ spent is only 0.74.  You can view Einhorn's slideshow presentation on PXD here.  For even more from him, we recently posted up Greenlight Capital's Q1 letter as well.


- Barry Rosenstein (JANA Partners): Walgreens (WBA) and Qualcomm (QCOM).  WBA an example where activism worked.  12 layers of management between CEO and store managers vs. 5 at CVS.  Turnaround began with deal to buy Alliance Boots.  Then they got involved (cost cutting, tax inversion talks, but they didn't actually do the latter).  QCOM: Bloated costs, board with no owner orientation, family in positions, issuing a lot of stock.  He tries to downplay the breakup idea (tech analysts say it can't be done).  He says they need to return capital; doing a $15B repurchase, which is 13% of market cap (says they have 30 per share in cash).  He wants to cut/change management compensation, reduce board size, evaluate corporate structure (break off the chipset business).  Smartphone market is large and growing, IP model approved by China (although many OEMs still not paying royalties).  For more from this manager, we recently posted Rosenstein's appearance on Wall Street Week.


- Keith Meister (Corvex Capital): Long Yum Brands (YUM).  1/3 in China, outside of that it's almost all franchise, inside it's owned.  KFC, Taco Bell, Pizza Hut restaurants.  Says China problems are being fixed.  Top 5 holder of the stock.  Says franchise mix leads to more leverage, better multiples.  Simply put it's a bet on recovery in China (previous food issues at KFC).  SSS getting better, but still negative.  51% of those surveyed in China said KFC was their favorite place to eat.  Today 0.97 of $2.09 in earnings is China.  If they go back to '12 rev/unit, it would be over $3 EPS from China alone in 2017, that would be about $6 EPS in 207, with stock at $60, paying only about 10x now.  China business is very different - should spin it off.  Have it enter a franchise business deal with the main "FranchiseCo."  Says it unlocks $16/share of value.  ChinaCo becomes "more Chinese" which helps in China.  Valuation: 50-90% upside.  $130-16 PT.  Franchise co worth $88 in 2017, ChinaCo, $41-72 depending on how well it recovers from the food scandals.  Dan Loeb's Third Point also laid out the YUM investment thesis its Q1 letter.


- Larry Robbins (Glenview Capital): Long Abbvie (ABBV) & Brookdale Senior Living (BKD).  Money is cheap now.  BB junk bond 10-12 year debt for less than 4% after tax.  Own over-capitalized businesses and have them borrow money.  ABBV:  Old school pharma to new.  Spending 16% of revenue on R&D.  Structural acquirers and owner-activists pressure them on both sides.  Why ABBV?  1. Growth through 2020, 2. Numerous areas of upside optionality, 3. Excess cash they could use for acquisitions.  Says Humira grows through 2017, acknowledges the debate about patents expiration.  Biosimilars are not exact copies.  6 key upside optionalities: Pipeline is underappreciated, making biosimilars is 1000x harder than generics (state by state regulation, difficult process, etc), Humira patent protection possible, could change formulation of Humira to extend economics, look at Evercore ISI work, paying 30% repatriation tax plus dividend taxes in US "don't give it to us, keep it and do something productive with it", says they could buy 30% of shares with leverage, adding $15 to share price, also could be more M&A "they could be the pill swallowed, or be the Pacman."  Almost a double from here.  BKD: Bet on the aging population.  By far the largest and can sell ancillary services in same facilities.  Also real estate options.  You can also read Robbins' thesis on other stocks in Glenview's recent letter.


- Lee Cooperman (Omega Advisors): 8 stock picks (ACT, AER, C, DOW, GOOGL, GM, PCLN, GULTU).  Generally bullish, 7-9% return on market, appropriately valued, negative view of fixed income.  35% of stocks in SPX yield more than bonds.  Inflation is not bad for stocks - it raises their nominal revenue.  Bear markets occur for one of four reasons: oncoming recession, overvaluation, geopolitical event occurs, hostile Fed.  Nothing today indicates oncoming recession.  He says he doesn't understand the consternation about the Fed hiking rates.  On average, the stock market raised 30 months after the first hike, the shortest was 10 months.  On average, a year later, market is up 9.5% the year after a rate hike.


- Mala Gaonkar (Lone Pine Capital): Long Microsoft (MSFT).  Value hidden in legacy tech.  1.5B installed office users globally, only 250M actually pay for it.  New stronger management (Satya Nadella).  Built the cloud platform Azure. Works with 3rd party software, no more "saving Windows first."  Solid mid-to-high single digit revenue growth.  Most controversial aspect of this pitch.  Fear is consumer Windows will die, but it is only 5% of revenue.  Enterprise software is 17%, and more more sticky.  Mainframes still a $5bn annual business and they are using MSFT software.  "Price elastic market" very stick in ADBE, Autodesk as well.  Cloud is 10% now, growing faster than the rest of the business.  Office 365 more than doubles users.  Reduces piracy.  Operating cost cuts.  Been no restructuring since dawn of PC age.  Spend $1bn marketing consumer Windows.  Cloud shift cuts costs - no commissions to pay resellers.  Capital return, has way too much cash.  Raised share buybacks, but should be much higher.  Could earn 3.89 next year, fro 3.04 this year.


- Jeff Gundlach (DoubleLine Capital): Puerto Rican Muni Bonds.  They have priced in a lot of problems.  Triple tax free yield of 11% for 8s2030 at about 78 of face.  Says they may go lower first. "You're supposed to buy them at 78."  Also talked about negative interest rates and said to borrow infinite amounts at that level.  Fed talk is just noise.  2 year Treasury bottomed 4 years ago - you can see it on the chart.  Same with 10 year - 2012 was the low.  Very bearish on junk bonds, says no one alive in the room has lived through a secular rise in high yield bond yields.  Junk bonds do NOT do well when the Fed starts hiking rates.  A couple of years of runway.  For more from Gundlach, watch his appearance on Wall Street Week.


- David Tepper (Appaloosa Management): Thoughts on markets.  Also said junk bonds are not cheap.  "Something has to give."  "Either stocks have to go up a hell of a lot, or treasuries will go down a hell of a lot."  Could 22.78 P/E vs average now 17x on stocks.  Implies 30% move if treasuries don't move.  Monetization of debt in China.  "Don't fight the Fed; don't fight 4 feds."  (US, ECB, Japan, China).  Implies Hong Kong stocks are cheap, 10x P/E.  "Maybe the big banks aren't that bad if you look at them."  Don't short options that lengthen (they become more valuable).  This is why it's risky to short China.  What happens when China does first cut?  Stocks start going up.  Reinflation of their economy.  Says terrible environment for bonds.  "This monetary policy has worked for 5 years."  Now all 4 central banks are going one way.  "Good luck" with shorting.


- Bill Ackman (Pershing Square): Long Jarden (JAH), Platform Specialty Products (PAH), and Valeant Pharmaceuticals (VRX).  JAH: 45x return in 14 years, constantly undervalued over the years.  Always valued on next year's EPS.  PAH: A shell they funded.  NOMHF: Nomad, another shell/SPAC.  Flat at cash value for a year, then bought Iglo and the stock went up 80%.  Why is the market mis-valuing these companies?  He calls them "Platform companies" not just on multiples based on comaprables.  Others as examples: Danaher, Liberty Media, AB InBev, Transdigm.  Key is to find the right management teams that do good acquisitions.  VRX: Paid $196/share, 20m shares, 20% of his capital.  Tax-advantaged structure.  Units have autonomy.  Drawback is there is a lot of competition in acquisitions.  Gives the example of the Bausch & Lomb acquisition.  Value of business is correlated with ability to buy companies and integrate them, take synergies.  PT $332, from $223.  Based on organic growth and small deals.  Compares it to a Berkshire Hathaway in the making.  For more from Ackman, check out Pershing Square's presentation from its European investor meeting.


- Ian Bremmer (Eurasia Group):  Geopolitical analyst.  Oil production in the US has reduced our willingness to engage in fights, especially in the Middle East.  "Weaponization of Finance" to use finance to influence behavior.  US may have realized that they spent so much in Iraq and the country still fell apart.  "We will see $100 oil no time soon."  "Likely to see an Iranian deal, which will be another 1.2m barrels a day."  Putin is in a corner.  More Russian cyber attacks against the US.  China - the rise is important.  They are not confronting the US militarily.  Economically China does want to challenge US hegemony.  "Best money the Americans ever spent was the 4% of GDP on the Marshall Plan.  It paid off for decades."  The only country in the world with a cohesive global strategy is not us, it is China.  China does not want to occupy countries.  Some countries will be hedging, and ally with China economically.  Including Germany, South Korea, etc.  For the next 5-10 years, China is more stable than you think.  They will be the world's largest economy, but they will be totalitarian still, and will have a lot of world influence.


- Jay Walker (Founder of Priceline): Black Swan events more likely than ever.  A few people with a few million dollars could wipe out billions in market cap.  "Bioweapons plus drones plus social media."  Risk of economic collapse.



- Sohn Investment Contest Winner (Angelo Martorell, Wharton Student): Long IAC Interactive (IACI).  Owns March.com/Cupid/Tinder, Ask.com, About.com, Vimeo, HomeAdvisor.  $5.9bn EV.  Uses sum of the parts and says market not giving value for Tinder, because there is no revenue, profits.  IACI has all the best dating properties.  "Facebook of dating."  If Tinder was private it would be more than the market cap of entire IACI.  Says 1/4 of millenials won't marry.  "Network of effect."  Tinder premium will give unlimited right swipes, 2.5% of MAUs will pay for it.  $10/month.  Online dating makes it very easy to have an affair.  Tinder will crush Ashley Madison.  You can have dates in places you travel.  Cross-selling - some can go from Match to Tinder and vice versa.  Users spend 77 minutes/day on Tinder versus 40 minutes on Facebook.  Also it's fully integrated with FB.  Valuation?  Says you get Tinder for free with current stock price.



Next Wave Sohn New York 2015

- Snehal Amin (Windacre Partnership): Long PowerFinance


- Didric Cederholm (Lion Point): Ukrainian sovereign bond play (steepeners) & Ally Financial (ALLY)


- Alex Denner (Sarissa Capital): Long Ariad Pharmaceuticals (ARIA)


- Daniel Dreyfus (3G Capital): Long Phillips 66 (PSX)


- David Zorub (BlueMountain): Long Sunrise Communications

Jeff Gundlach's Appearance on Wall Street Week

The classic show Wall Street Week has recently been rebooted by Skybridge Capital's Anthony Scaramucci.  The first episode recently aired and featured DoubleLine Capital's Jeff Gundlach.

In it, Gundlach talks about his specialty: fixed income markets.  He pointed out that in 2018-2019, there will be tons of bond maturities.

He's also worried about junk bonds:  "One thing that I think is really important that nobody talks about or has been thinking about is the entire life of the junk bond market has been secularly declining interest rates."

On what will happen to the junk bond market when interest rates go up, Gundlach proclaimed: "I think that's the next bond market crisis."

On interest rates, Gundlach said, "I think the probability of a rate hike in June is very, very low." He also thinks it could be possible that the Fed doesn't raise rates at all in 2015.  He emphasized that the Fed is data dependent and so the data will need to give them a reason to act.

Embedded below is the video of Jeff Gundlach's appearance on Wall Street Week, which starts around the 3:30 minute mark:

Sohn Conference Notes New York 2014: Einhorn, Tudor Jones, Shumway, Laffont & More

Below are notes from the 19th annual Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  As always, top hedge fund managers pitched their latest investment ideas to benefit pediatric cancer research.  Here's this year's edition.


Sohn Investment Conference Notes: New York 2014

David Einhorn (Greenlight Capital): Short Athena Health

Bill Ackman (Pershing Square): On GSE's Fannie/Freddie

Philippe Laffont (Coatue Management): Long Liberty Global

Chris Shumway (Shumway Capital): Short the CNH, long Moody's

Larry Robbins (Glenview Capital): Long Humana, WellPoint, Monsanto

Paul Tudor Jones (Tudor Investment Corp): On the macro environment

Michael Novogratz (Fortress Investment): The case for Brazil

James Grant (Grant's Interest Rate Observer): On Russia and Gazprom

Jeff Gundlach (DoubleLine): Short homebuilders

Zach Schreiber (PointState Capital): Long refiners Valero & Marathon

Mariko Gordon (Daruma Capital): 3 long ideas

Dan Ariely (Duke University): On the psychology of money

Investment Contest Winner: Michael Guichon: long Fiat


And if you missed it earlier, we also posted up notes from the Next Wave Sohn Conference.  This was the mini-conference that took place before the main event where emerging managers pitched their latest ideas.

Jeff Gundlach: Short Homebuilders (Sohn Conference Presentation)

We're posting up notes from the Sohn Investment Conference in New York, produced in partnership with Bloomberg LINK.  Next up is Jeffrey Gundlach of DoubleLine who argued that housing is declining and said to short homebuilders.


Jeff Gundlach's Sohn Conference Presentation

Pitch: Single Family Housing recovery is not happening.  Household debt fell only because mortgage credit dropped due to default.  Housing market has been supported by a surge in second lien financing and cash transactions.  Cash transactions are 50% of deals, up from 20% in pre-2008.  Existing home sales and new ones are weak. Housing starts have improved, but still below 1M per year.

Housing affordability isn't really that good now if you look at the long-term charts. There are no first-time buyers. Household formation is depressed. Young people are staying with parents much longer and have higher unemployment rates. Student loan debt is higher, another headwind. People moving rate has been in decline for decades. Still 19.4% negative equity nationally.

Generational preference shift - young people prefer to rent. He says home ownership rate will DECLINE further, not rebound like most people think. Says the rest of his career we will NEVER see 1.5M housing starts in a year again. IDEA:  Short XHB. 

Be sure to check out the rest of the presentations from the 2014 Sohn Investment Conference.

Invest For Kids Chicago Notes 2013: Lasry, Eisman, Peltz, Cooperman & More

The fifth annual Invest For Kids Chicago conference just took place and MarketFolly has notes from the event which featured tons of prominent hedge fund managers presenting investment ideas to benefit charities.


Notes From Invest For Kids Chicago 2013

- Marc Lasry (Avenue Capital): Long JC Penney & Connacher Debt

- Lee Cooperman (Omega Advisors): 4 long ideas

- Steve Eisman (Emrys Partners): Long Ocwen Financial & Altisource Portfolio Solutions

- Nelson Peltz (Trian Fund): Presentaiton on Mondelez

- Dinakar Singh (TPG-Axon): 2 investment ideas

- Sam Zell (Equity Group Investments): Real estate thoughts

- Jeff Gundlach (DoubleLine): His presentation

- Mark Kingdon (Kingdon Capital): Thesis on Boeing & Aegerion Pharma

- Steve Kuhn (Pine River Capital): Pitch on American Capital

- Rick Rieder (BlackRock): His presentation

- Stephen White (Castle Union): Pitch on Avid Technology

- Peter Zaldivar (Kabouter Management): Long Hotel Shilla

Jeff Gundlach's Presentation at Invest For Kids Chicago

Next up in our notes from Invest For Kids Chicago 2013 is Jeff Gundlach of DoubleLine Capital.


Jeff Gundlach's Presentation at Invest For Kids Chicago 2013

•    QE with its monumental scale and scope tries to
•    FDR is a parallel to Obama.  Government – federal, state, and local – costs too much…  New Deal
•    FDR inauguration in a banking panic
•    FDR blamed bankers immediately
•    FDR sent congress a record numbers of bills
•    FDR “try something” & the new slogan is “whatever it takes”
•    Record corporate profits – will they catch the attention of the tax man?
•    FDR raised the marginal tax rate to 100% (500,000 equivalent in today’s dollars)
•    Dynamite shack – sounds like quantitative easing
o    For now the dynamite keeps getting stuffed into the plastic shack
•    Synonym for early is wrong
•    Interest rates are low but don’t have to rise in the near term
•    FDR confiscated gold and the Fed now explains things are “the policy”
•    Speculation at the expense of savers
•    US margin debt is borrowing at the purpose of speculation – mirrors S&P 500
•    Currently alarmingly high
•    Lunch atop a skyscraper
•    Amazon with no earnings, Netflix, Tesla
•    Advice: do not get sucked in to QE and remember ocean of liquidity and risk manage accordingly 


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

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.

Jeff Gundlach: Investors Should Hold Cash

DoubleLine Capital's CEO Jeff Gundlach recently appeared on Bloomberg to talk about how to invest in this environment and claimed that "investors should be holding cash."  Below are some excerpts from his interview as well as the video.

He noted that risk assets have diminishing returns and that he didn't see much value in the US stock market and said to act cautiously in the US bond market.


On how to trade this environment:

"I think that investors should be looking for lower prices on most risk assets in these developed countries with the exception of Japan... investors should be looking for the potential inflationary consequences of all this money printing exercise and the place to look for that is Japan."


On whether investors should get more disciplined and look at fundamentals:

"The fundamentals are always important but it does get trumped by policy decisions when policy decisions are so radical as has been the case in recent years…There seems to be diminishing returns on the various rounds of quantitative easing. It's almost like a half-life of a radioactive particle. The first quantitative easing brought 50%, the second brought a little more than half of that, the third half again, the fourth less than half again. It just seems that the idea of a Pavlovian reaction when you see quantitative easing that you should go out and buy risk assets--it has worked four times, but it doesn't seem like you are getting much bang for your buck any more…I would point out that gold, for example, hasn't done much of anything in the last couple of rounds of quantitative easing. It seems that the fundamentals are starting to exert themselves more powerfully against the backdrop of endless quantitative easing, so it's possible that the market support is close to finding its limit. This is why I think that investors should be holding cash and buying risk assets at lower prices once the fundamentals assert themselves."


On where to put money now:

"You've got to survive with virtually no return if that's the way you look at things. I actually recommend that for many investors. I think the small amount of money that you might make by trying to push it here as we get closer and closer to the end game where this thing might tail out--the amount of money you might make will be dwarfed by the amount of money you might lose when things reprice lower. Put it another way, if you just stay in cash and earn a small return or stay in a low risk investment and earn a middling single digit return--the money you might be able to make as we move into late 2013 or early 2014 with repricing, the amount of money you might make if you are able to deploy the money at that point will make all the difference. People always want investments to go up like a line…That's just not reality. You make 80% of your money in 20% of the time in investing and you have to be patient…I see some values in some of these foreign markets. I don't see a lot of value in the U.S. stock market and I think you have to play it safe in the U.S. bond market with funds that are really dedicated to having low volatility." 


Embedded below is the video of Gundlach's interview with Bloomberg TV:

Jeffrey Gundlach's Ira Sohn Presentation

We're posting up notes from the Ira Sohn Conference.  DoubleLine Capital's Jeffrey Gundlach gave a presentation on going long: IBEX, 1 year LIBOR, natural gas, and cash.  Short: SPX, Nordstrom (JWN), Apple (AAPL), and 2 year swaps.  He previously ran TCW's bonds but manages $34 billion at DoubleLine now.

"Investment Cubism 2012" Building portfolios that can handle seismic shifts.

Quotes Marx about fight between oppressed and oppressor. Non-cooperation causes bear markets. Invention is a key driver of economic growth, but it alters the existing balance. Massive buildup of worldwide debt. EZ massive unemployment. Spain now 22.9%. Germany has dropped, now only 5.6%. Europe borrowed a lot of money, and gave it all to Germany. Youth under 25 Spain unemployment at 50%. Art sales show that the very wealthy are moving out of currency, into hard assets.

Mocks "Growth plus prosperity" talk. Tax rates on the top have actually dropped over time. Middle class has actually had a tax increase. Debt limit is just a gimmick. 2007 severity in job losses, taking twice as long to get back.


LONG: IBEX, 1 year LIBOR, natural gas, cash

SHORT: SPX, Nordstrom (JWN), Apple (AAPL), 2 year swaps


GOOG vs AAPL chart overlay. "Apple shoeshine boy" moment. Natural gas "the anti-Apple" long, he says. JWN- says "wants vs needs" retailing. Doesn't like the chart. Long IBEX, the hedge for inflationary money printing in Europe. Short SPX against the IBEX. Doesn't like SPX chart. Put 100 bills in cereal boxes, no one will steal them. The idea is invest the portfolio as a whole, don't just take one his ideas in isolation.


P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.