Warren Buffett Interview: Summary, Video & Transcript

Yesterday on CNBC Warren Buffett sat down for a 2-hour interview with Becky Quick and shared his thoughts on a number of financial topics.  Here's a summary and select quotes, with videos and transcript below.


Warren Buffett Interview Summary

- On the economic signals he sees from all his businesses:  "The rate of improvement has tapered but certainly hasn't flattened ... Home construction has been disappointing, but our retail figures in January were not strong, but January is a peculiar month.  Right now things look fine."  He also noted he sees some signs of inflation in raw material costs.

- On the Federal Reserve & interest rates: "I don't second guess (Jay Powell) at all.  He's a terrific choice."  He said what the Fed does doesn't affect what Berkshire does.

- He's amazed that ten years after the crisis that rates are where they are worldwide (especially negative rates) with the world doing 'really well' now.  "The real question for investors: are these rates the new normal?"

-  On Apple (AAPL): "The lower it goes, the better I like it obviously ...  If it were cheaper, we'd be buying it.  We aren't buying it here"  This quote is interesting considering that AAPL was recently down as much as 30+% in the fourth quarter, but Berkshire was a net seller of shares as one of the portfolio managers (not Buffett) was selling.  His average cost basis is around $141 per share.

- Likes financials as "very good investments at sensible prices.  They're cheaper than other businesses that are also good businesses by some margin."  Says Moynihan at Bank of America (BAC) was underestimated and has done excellent.  Says JPMorgan Chase (JPM) is a very well managed bank.

-  Wanted to be buying stocks in Q4 as they were cheaper, but it sounds like Berkshire was keeping cash on hand for a potential acquisition that didn't materialize.  He said they haven't been buying equities yet in 2019 as the market as 'basically gone straight up.'

- Notes that portfolio managers Ted Weschler and Todd Combs since joining Berkshire: "Overall, they are a tiny bit behind the S&P, each, by almost the same margin."  The now manage around $13 billion each.  Buffett says they've also done better than he has over that time period.

-  On the trade war: The tariffs have had some impact on some of his businesses.  "It pushes prices up, there's no question about that."  It hasn't had a big impact at 10% but 25% you'll have to make changes (pricing, sourcing, etc).

- On KraftHeinz (KHC): Brands in general aren't what they used to be, and in many cases consumer packaged goods companies are being threatened by a ton of new brands, increasingly strong private label, and more.  "The ability to price has been changed, and that's huge."  On his investments he noted: "We didn't overpay for Heinz ... but we overpaid for Kraft."  Says the co still has real debt to be reduced.

- Sold Oracle (ORCL) quickly after concluding he didn't understand the business well enough.  His past dalliance with IBM also entered his mind.  "I don't think I understand exactly where the cloud is going."

- "You do not want to have a political view in investing."

- If Bloomberg announced he were running for President, he would be for him.  If Howard Schulz runs as an independent, he thinks he'd take votes away from Democrats, so it'd be a mistake for him to run.  Generally, third party candidates are going to hurt one side.


Warren Buffett Interview Video

Embedded below is the video of the full interview




Warren Buffett Interview Full Transcript

You can also read a full transcript here.

For more from Berkshire, be sure to also read Warren Buffett's annual letter 2018.

Julian Robertson Interview: FANG Stocks Not Frothy At All

Tiger Management founder Julian Robertson was recently interviewed by CNBC.  Here's a summary and the full video below:

- When asked about Paul Tudor Jones' recent comments about stocks heading higher into year-end, Robertson said that, "I think there's a very good chance of that happening (in the next year) and I'm positioned accordingly."

-  He thinks it's possible that interest rates go up so high so fast that the Fed would have to ease up a bit.  But doesn't think rates will go 'wildly' up

- Says the President has done a reasonably good job, but could do with a dose of humility

- Tax cuts have helped corporate earnings but also the earnings of the middle class tremendously

- Feels a slowdown is at least 6 months and 'hopefully' 2 years away

- Tech stocks: he doesn't think FANG stocks are frothy at all, especially relative to the rest of the market. This is one area where he feels he differs in opinion from a lot of market participants.  Adds Microsoft (MSFT) to that bunch as these stocks have growth rates similar to their multiples

-  He likes the management at many of these companies, Facebook etc

-  Air Canada at 3x next year's cashflow is not an expensive stock and is 'beautifully run'.  Also likes Ryanair in Europe.  Doesn't really have any airline favorites in the US right now

-  Loves the banks, thinks they're very reasonably priced in relation to earnings.  Huge cashflow yields next year and thereafter.  Thinks they're in terrific shape, likes JPMorgan (JPM) and Bank of America (BAC)

-  Would tell grandchildren to own FB, BAC, JPM, probably Citigroup (C), which is 'reasonably priced'

Embedded below is the video of Julian Robertson's CNBC interview:

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What We're Reading ~ 4/19/17

The Attention Merchants: The Epic Scramble To Get Inside Our Heads [Tim Wu]

Why we think we're better investors than we are [NYTimes]

Inside the hotel industry's plan to combat Airbnb [NYTimes]

Two law professors mimic activist hedge fund: a corporate raiding adventure [The Atlantic]

Vanguard is growing faster than everybody else combined [NYTimes]

Q&A with Blackrock's (BLK) Larry Fink [Bloomberg]

Why Facebook (FB) keeps beating every rival: it's the network of course [NYTimes]

A look at the first decade of augmented reality [Ben Evans]

Barry Ritholtz's rules of valuations [The Big Picture]

The making of a brand [Collaborative Fund]

Is American retail at a historic tipping point? [NYTimes]

E-commerce is a bear [Andy Dunn]

American Express, challenged by Chase, is losing the 'snob' war [NYTimes]

The potential of graphene to revolutionize the airline industry [Richard Branson]

A day in the life of a food vendor [NYTimes]

Glenn Greenberg's Brave Warrior: Long Financials (CNBC Interview)

Glenn Greenberg of Brave Warrior Advisors sat down with CNBC for a rare interview.  Here's some key takeaways:

- He looks to buy stocks that will have around a 10% free cashflow yield 1-2 years from now

- Focused on 2-3 years ahead, less concerned about short-term swings or quarterly volatility. Likes to focus on companies that build wealth.

- Long financial stocks JPMorgan (JPM), Primerica (PRI), and Charles Schwab (SCHW).  "We made a big bet that normal interest rates would not stay at zero.  It was that simple and we didn't know when they would change, but the payoff we felt would be substantial so we have had a lot of financial stocks in our portfolio the last few years."

- On JPM: "They should be earning $8-9 in a couple of years if rates track at the moderate increases that are in the dot plot (of the Federal Reserve)."

- On SCHW: "Amazing franchise" and sees it largely as a bet on interest rates normalizing ... 175 bps now versus 350 bps back in 2007 on client cash positions.

- On Freddie Mac: "Best business model I have ever seen."

- "(Interest) rates could go a lot higher, Inflation could go a lot higher."

- Also owns Airbus (AIR.PA), Express Scripts (ESRX)

- Says Valeant Pharmaceuticals (VRX) was "biggest investment mistake over last 30 years" for him.  But still broke even on it.


If you missed the interview on TV today, it looks like the video replay is behind CNBC's paywall.

What We're Reading ~ 11/3/16

The rule of 72 [Mohnish Pabrai]

David Rubenstein speaks with JPMorgan's Jamie Dimon [YouTube]

Charlie Rose interviews Amazon's Jeff Bezos [Charlie Rose]

When do you give up on a stock? [Oddball Stocks]

Pitch on Discovery Communications (DISCK) trading at 12x free cash [ContrarianEdge]

A framework for shorting the VIX [EconompicData]

The competitive advantage of an owner-operator [Base Hit Investing]

Winning at trading by being different [Brett Steenbarger]

China can resist a crash but can't prevent one [Bloomberg View]

Beware of the low stock price illusion [ETF]

Buy the housing dips [Dead Companies Walking]

The science of why you should spend money on experiences, not things [FastCoexist]

Bill Miller Thinks We're in a Secular Bull Market, Talks Stocks He Likes

Value investor Bill Miller of LMM Investments appeared on CNBC today and thinks we're in a secular bull market that began in March 2009.

"Bonds are unattractive in my view.  I believe we hit a double bottom in bonds in the summertime... 35 year bull market in bonds is over."

"As long as stocks yield more than bonds, stocks are attractive."

Miller is fully invested and says, "Cash earns zero, why do I want something that earns zero?"

He likes One Main Financial (OMF), bought in the spring, still thinks it's 'crazy cheap.'  Thinks smaller financials are attractive, mentioned MGIC (MTG) and Radian (RDN), mortgage insurers. 

Miller also likes big financials as well: Bank of America (BAC), Citigroup (C), JPMorgan (JPM).  Value investor Rich Pzena also likes financials, as he mentioned in his interview last week.

Bill Miller has owned Amazon (AMZN) since the IPO and still owns it today.  He says that was one of the best decisions he's ever made, and one of the worst has been selling any shares of it.  It's his largest position and says people have misunderstood AMZN's valuation from the beginning.  "Amazon's total addressable market is just so much bigger than any other company on earth."

He also talked about Twitter (TWTR), saying he sold half of his call options when it was in the $20s, and thinks it's a unique asset as a 'network of interests.'  He thinks they need a fulltime CEO and suggested they could perhaps switch to a paid monthly platform.  "We own Twitter because of the optionality."  He think it has a floor of $15-16.

Miller also owns various homebuilders such as Lennar (LEN) and TriPointe (TPH).  Feels builders will grow double-digits for the next few years.

On airlines, Miller still owns them and says Delta (DAL) is trading at a 15% free cash flow yield and will generate $5 billion in free cash and return 75% of that to shareholders.  He likes United (UAL) with more upside as the margins are depressed and they've got new management there.

Miller also commented on former hedge fund hotel Valeant Pharmaceuticals (VRX):  "It's probably the most toxic stock in the overall market.  It's blown a hole in Ackman's portfolio, it cost Bob Goldfarb, one of the best investors in our generation his job.  Our cost is from $20-35, we just bought more last week." 

He says they have 2 issues: the legacy issue of transitioning new leadership and then the debt load.  He thinks it doubles in 3 years as the company has a lot of cashflow and will look to sell non-core assets.

He also talked about Netflix (NFLX), noting it's an incredible company and he's owned it twice before, but thinks it's expensive now.  Also thinks Tesla (TSLA) is expensive and most energy plays are as well, especially the integrated players.

For more from prominent investors, check out David Tepper's recent interview, as well as Keith Meister's thesis on YUM China. 

Grant's Spring Conference Notes 2016 - Bessent, Dimon & More

The Grant's Interest Rate Observer Spring 2016 conference just took place yesterday.  Here are some notes from all of the speakers at the event:

David D’Alessandro (CMDTY Capital) – Long Oil

·      Peak oversupply of 1.5-2m barrels/day; started 2016 with 600-700k which isn’t weather adjusted (El Nino).

·      3 buckets of supply

·      North America – modeling down 700-800k by ‘17

·      OPEC – Iraq, Iran, Saudi Arabia. Overall modeling up 600-700k

·      SA – look for them to freeze. Signs are on the table, they’re willing to attend meetings.


·      Iran – ramping to 500k growth yoy due to sanctions lifted. Difficult to export due to capex needs.

·      Iraq – At the limits of their export capacity; won’t raise production.

·      Non-OPEC – Most will be down, some flat. Models down 600-800k


·      Libya is the wild card on supply side – dire situation, but can do 1m/day export if political situation changes.

·      Just on supply, we are undersupplied. Counter: 900m inventory?

·      A third is unusable (essentially reserves that never are used).

·      Look at days of inventory – because demand is increasing, this is decreasing.

·      Demand was up 1.8m in 2015, assuming 1.5m for 2016, range of 1.0-1.8m increase.

·      Drivers: India, South Korea, US, China. - Variant perception

·      Supply is declining


·      Demand is accelerating


·      No sudden surge in US production at $50-55 like sell-side projects

·      Labor markets aren’t as loose

·      Bush-era EPA not around


·      Stricter capital

·      Dug but not completed wells are overstated.

Scott Bessent (Key Square Group) – Japan

·      China isn’t the biggest risk – Japan is.

·      Abenomics – underappreciated aspect is Abe’s leadership in 2006 as PM.

·      Tons of charts on various macro elements in Japan

·      3 arrows partially successful – but craters in the policy

·      JPY depreciation solely during inflation


·      Limited structural reforms outside of women labor participation and corporate governance

·      Services recovery will be needed to drum up CPI.


·      Sales tax increase will be cancelled

·      Good chance of surprise at April BOJ meeting

·      Debt write-off is eventually how we get out of this

·      Never count on immigration or privatization being a factor in Japan

·      If you’re investing, look to take off FX hedges in Japanese stocks, stay long JPY.

Anne Stevenson-Yang (J Capital Research) – L/S China 


·      China since 2006 has looked like Silicon Valley in 1999 – growth at the expense of profitability

·      Two sources of capital – both end with massive capital flight – best short ideas are the most loved names

·      State via household deposits

·      FDI / Portfolio / etc.

·      Short BABA

·      Look to put on when the capital flows change


·      Maxed out ecommerce platform – avg annual spend of $1075 vs AMZN $330 (faking?).

·      Poor capital allocation; using capital to generate growth


·      Misleading GMV


·      Dubious assets – Investment in equity investees, goodwill & intangibles

·      Long Tingyi

·      Largest maker of noodles – have scale, brands, operating leverage, 10b US revenues

·      Competes with UPC but UPC backing down / becoming more rational

·      Extensive distribution, partnerships with SBUX & PEP – upside from beverages segment

·      20x PE vs 30x historical, 10% op margin historical vs 3% now > expansion of both leads to 2-3x winner

·      Short RMB

·      Nothing has changed in the policy, but politicians say it has; don’t believe them

·      PBOC using forwards / swaps to hide capital outflows, delay booking in foreign reserve declines

·      9 months before reserves run down to perilous point

Jamie Dimon (JPMorgan Chase)

·      Auto is a little stretched, but overall consumer credit is pristine

·      Student loans are going to be a problem – growing too fast

·      Rate normalization is a good thing – strong economy. 25bps will have a de minimas impact

·      Grant: is the gov’t digging a moat for your biz in regulation? What would it take to replicate JPM?

·      Could give you $1t and you couldn’t remake this.  Employees, customers, goodwill, etc.

·      Banks will trade at 2.0x TBV when regulation, lawsuit overhangs go away.  Look at pace of change in regulation.

·      We’ll be there for energy customers in tough times – most loans are still money good.  We can’t run from the problems or sell stock – we’re not traders, we’re building a business

·      Grant: “The fed out to provide a living will for the central banks.”

·      The fed sets short rates, but market participants set the curve

·      More detail on credit: 10% debt servicing to mortgages; this is near lows, all good here.  Credit cards are pristine. Some may get hur tin auto, terms extending, but will be very small.  $1.3t in student loans, 30% delinquent. Went from 20% to 80% government underwritten.

·      I own stock – HD / YUM / JNJ / BA and the like.

·      Nil chance to make money in US treasuries over the next 10 years.

·      By 2030, China will house 30% of the Global 3000.

  

Pierre Lassonde (Franco-Nevada Corp) – Gold 


·      Demand rising, has outperformed everyone the last decade

·      Mine supply has not kept pace with demand because cost of production risen 4-5x over past 30yrs. 


·      Production next 6-7 years goes down. 


·      Takes 7-12 years to get production online from field discovery, discoveries have fallen since 80’s. 


·      China and India now over 50% of worldwide demand 


·      Shanghai will take over the London Exchange in 5-10 years. It becomes a casino and prices skyrocket. 


·      Central banks went from sellers to buyers in 2010 – now buying 400-600tonnes/year 


·      Retail investment has grown since 2008, Europe now largest market 


·      Negative interest rates spur demand – greater uncertainty, no opportunity cost, uncertainty in FX 


·      Recycling has grown to meet shortfall between supply and demand 


·      Gold: liquid, low volatility, low correlation to other asset classes 


·      80% of price is determined by USD, which will roll over again, driving gold higher (mean reversion). 


·      Trump would accelerate this devaluation

·      DJIA / Gold = financial assets / real assets. Expect normalization at 1:1 and a 3-7 year bull market 


Kevin Warsh (Hoover Institution) – Case of the missing growth 


·      Yellen gets done what she wants to get done; don’t make fed watching more complicated than that.

·      We all have bias to think our economic status is better than other countries 


·      Growth doesn’t just appear by being one step ahead on devaluation 


·      QE was initially to restore markets, drive liquidity, not to boost asset prices.

·      Difference between 2% and 3% GDP growth is not 1%, it’s 50%. And we’re not even getting 2% here, nor 3% internationally, and int’l trade is slowing; policymakers shouldn’t be doubling down. 


·      This is the most important year since 2008

·      The 8 Growth destructive policies

·      Conflated regimes

·      Politicians fail so fed turns to multipurpose agency

·      Fed has wrong dashboard – backward looking and heavily revised data

·      Short-term time horizon as if managing q/q not thinking like a long-term biz owner

·      QE is copied abroad – the wealth effect – works primarily to boost financial assets, not real assets

·      Regulatory structure is in purposeful limbo with respect to banks – “we’re only 60% done implementing so we can’t be blamed if something goes wrong again” but now tougher for banks to make money

·      Models are still from the 1970’s

·      Story of an aggregate demand shortfall with no acknowledgement of supply side

·      Central bank buying takes away the price signal – no clue about risk premium > price of assets. Asset prices shouldn’t worry the fed but they’re still managing around them, vocal about it.

·      Want growth? More people working and more productive workers.

John Haskell (Explorador Capital) – Long LATAM equities 


·      Forex, earnings, and the multiple in LATAM all down in 2015 – attractive grounds. 


·      INRETC1:PE

·      1/3 malls, 1/3 supermarkets, 1/3 pharmacies (think Walgreens)

·      Hold 22%, 36% and 53% share respectively

·      Accelerating private label from 33% to 40%; drives higher margins.

·      Accelerating store count

·      Reduced dollar exposure from 74% in 2014 to 23%

·      Trading at 13.8x 2018 EPS vs comps > 20x

·      GRAM:US

·      Largest engineering firm in Peru

·      End of commodity supercycle means depressed results in core E&C biz

·      Capital structure stressed due to cash cycle and business shift

·      2016 outlook is positive; inflection point

·      Up 52% since Monday morning, whoops

·      Trading 3.2x ’18 EBITDA – core E&C biz for 1.9x EBITDA

·      ENTEL:CL

·      36.9% mobile market share in Chile (the VZ there)

·      7.6% share in Peru vs Telefonica at 52% and Am Movil at 37%

·      Buy Chila biz for 4.3x ’16 EBITDA and get Peru biz for free

·      25% dilution – due to desire to participate in spectrum auction

·      Founder’s HoldCo owns 55%

·      MCO downgrade

·      Potential Liberty / Malone target

Jim Millstein (Millstein & Co) – Puerto Rico

·      60% of additional 50b in debt from 00-15 was to fund operating deficits.

·      Don’t blame gov’t completely; they’ve tried – raised taxes and cut employment / benefits

·      Framed as liquidity vs insolvency problem and now decidedly unsustainable / insolvent

·      Defaults on May 1 & July 1

·      Author’s note: admittedly didn’t follow much of this presentation

Amy Falls (Rockefeller University Endowment)

·      Low rates – lower returns for savers, increases risk – leverage, excess investment, erodes system’s capacity to absorb risk, increases inequality

·      Endowment provides one-third of budget, spend 5-5.5% of it each year.

·      HEPI outpaces CPI by 1% on avg since 90’s. 70% of HEPI is salary and benefits

·      Absolute rates matter more than credit spreads

·      Seeing shorter durations and less cash holdings in many endowments now

·      Declining implied vol masks increasing structural weaknesses

·      Typically run 2-5% cash, now 8%

·      Seek managers with wide mandates and the ability to exploit them

·      LATAM looks attractive to us, too.

·      You are actually comped for letting your managers hold longer. Longer lockups > higher returns w/lower Std. dev.

·      > 1 yr: 12 - 14%

·      1 mo – 1yr: 11 - 13%

·      < 1 mo : 6 - 9%

·      Don’t outsource your investment functions – intelligent institutions work both sides of the balance sheet

·      Yale model isn’t about the outputs or the allocations, but the analytical rigor.

·      As nations grow as a % of world GDP, their market caps tend to follow – Brazil, Mexico, and Argentina are all the most attractive here.

        

Jim Grant v David Zervos (Jefferies) debate on monetary policy
Zervos

         -  Fed was fighting deflation at any cost. With high debt levels, worst thing to do is deflate. Make assets increase, 
liabilities decrease to repair broken balance sheets from 2008. 


         -  China is pegged to the US however, and we caused their bubble via our QE; we don’t just do monetary policy for 
ourselves anymore, must consider consequences. 

Grant


         -  If the USD is a commodity, it’s natural price will near the cost of production ... 


         -  700 PhD economists on fed payroll 


         -  Fed MO is to distort price mechanism 


         -  He said a lot of other good classic Jim Grant stuff in here that I didn’t write down... 


         -  Took a shot at Bernanke at PIMCO and whoever happens to live in Greenwich 

Zervos 


         -  US, China, Japan, Europe – 4 countries that matter for FX. 


         -  Tightening causes feedback – see August and the Chinese 3% devaluation; our stocks off 10%. 


         -  If we go, it’s got to be a turbocharged tightening 


         -  When Europe and Japan devalue, it’s against us but against China too; Draghi took the signal and looked to pump 
inflation without relative devaluation. 


         -  Japan can print and buy back its own equities. 


         -  This is a prisoner’s dilemma – won’t break down before the November election, but Yellen considering all these 
interdependencies. 


         -  S&P will form base here and go much higher, but real trade will be in EMs. Worst possible asset to hold is cash; it will 
be diluted by CBs. 


         -  Understanding CB reactions to data is the only way to get an edge. Everyone is terrible at forecasting data; I’d never 
give a trade rec on unemployment, GDP, or inflation. 


What We're Reading ~ 3/2/16

Quality Investing: Owning the best companies for the long term [Lawrence Cunningham]

How to learn from market mistakes [WSJ]

In-depth interview with JPMorgan's Jamie Dimon [Bloomberg]

Key checklist items [Value Investing World]

The great investment advice hidden in Warren Buffett's annual letter [Fortune]

Hard truths for investors to wrap their heads around [Morgan Housel]

Software is the new oil [AVC]

A pitch on Broadridge Financial Solutions [Intrinsic Investing]

Thoughts on industrial gases [Dislocated Value] 

Why restaurants hate GrubHub Seamless [Tribeca Citizen]

Why the economy isn't about labor productivity anymore [Bloomberg]

What I learned from losing $200 million [Nautil.us]

Visa moves at the speed of money [Forbes]

How mobile payments reshape lifestyles [WSJ]

The robots are coming for Wall Street [NYTimes]

Why media titans would be wise not to overlook Netflix [NYTimes]

Expedia thinks it can help you find the dream vacation you didn't know you wanted [Bberg]

Top tips from China's richest man [CNN Money]

Richard Lashley's Presentation on Bank Plays 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 Richard Lashley of PL Capital who pitched TARP Warrants, Metro Bank (METR), Horizon Bancorp (HBNC), and Intervest Bancshares (IBCA) .


Richard Lashley's Value Investing Congress Presentation

•    $200MM asset manager – 18 years of history, specialized in small cap banks. Shareholder activists in banks – which surprisingly is the third most active areas for activist investing. Former CPAs at KPMG – also did M&A at KPMG. One of the top ranked financial services hedge funds. Primarily long only.
•    Three crises in banking –early 90’s, LTCM and from 08-09. 
•    Average P/TBV – not back to the mid-point or average since 1992.  Believe we can get to 1.75x – 2.0x TBV average.
•    Average bank in their portfolio is at 1.09x – strategy is to sell their banks to a mid-cap bank at greater than 1.5x TBV.
•    A lot of acquisitions, generally one acquisition per day. M&A is going to happen in banking no matter what happens in the market.
•    Most banks sell for 10x post cost save earnings – as the acquirer can redeploy excess capital.


•    Idea 1: TARP warrants many are deep in the money. First warrant is JPM, strike at 42 - $18 in the money, and expire in 2018. What will happen? Book value will grow from earnings. JPM TBV today is 40, by FY18 will be around ~$64. Warrant trades for $20. Thinks it will trade for higher than 1.2x BV – should be at least a 16% IRR through 2018. Further, treasury has an anti-dilution clause, meaning the exercise price declines with a big dividend.
•    Capital One Warrants – 7% earnings growth, 30% payout, 20% IRR in the capital one warrants. For a 17% ROTCE business, thinks it is worth more than 12x PE.
•    Another warrant idea includes PNC warrants – minimum 25% IRR, with 7% earnings growth and assuming 13x PE multiple.


•    Small cap bank ideas: Metro Bank (METR) – filed a 13D, started buying a year ago, actively buying all three names. Has low cost deposits, 2.8B franchise, will benefit from higher rates. CEO is 73 years old – is going to meet with the CEO next week. The bank is located in PA. They are spending too much money, very expensive model being open 7 days a week. Efficiency ratio is 73% -very high, should be 60% - 65%. Value will grow regardless at $2 per share if nothing else happens. Assures us that the bank will be sold.


•    Horizon Bancorp (HBNC) – in the Russell 2000, located in Indiana and Michigan. Trading at 1.48x TBV, while peers trade much higher for high ROTCE banks. Stock is $22 – going to earn $2 per share. Filed a 13G but they like a CEO – could be a buyer or seller.


•     Intervest Bancshares (IBCA) in NYC/Rockefeller. It is a wholesale bank – gathers wholesale deposits. Very lean and mean, trading at 83% of TBV. Will benefit from margin expansion as high costs will run off. The Company may be booted off the Russell- will be buying hand over fist if that happens.
•    Generally buy MHC after the conversion occurs as it is difficult to set up deposits.
•    Look for second-step conversions- after the three years are up look for the sale of the business. 

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

Rusty Rose Says Avoid Major Banks

We're posting up notes from the Great Investors' Best Ideas Investment Symposium in Dallas and next up is Rusty Rose of Cardinal Investment Company.

Rose: Avoid Major Banks

His presentation centered around avoiding major banks as investments.  He argued that they've gotten so big and have strayed from what true banks used to be that you no longer really know what you're investing in.

Rose rattled off a list of reasons why, including capital structure, subsidy (banks enjoy low regulated interest rates), and structural mismatch among others.  He feels that banks should compete without subsidy and that the deposit guarantee should be axed.

He wondered why analysts use book value for banks when they don't underestimate assets and they don't overestimate liabilities.  He also feels banks are still over-levered and taking too much risk (due to management incentives).

Rose also touched on how the regulatory/political environment for financials peaked in 2008.  He compared big bank stocks to Paris Hilton, saying both are famous for being famous.


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

Jim Chanos Still Short China, Talks Other Positions (Interview)

Jim Chanos appeared on CNBC this morning to share his latest thoughts on the market and his positioning.  The Kynikos Associates hedge fund founder said that 20% of his global short fund is China.  We've posted up the hedge fund China bear thesis before as Chanos notes it's a credit boom over there.

Why He's Short China

He's been quite patient with his China short and it's paid off.  He noted that "we get criticized that China's not in smoking ruins ... we've done just fine."  Chanos says that corporate profits are imploding in the country.

He points out that while China's exports are important, their imports are also very relevant to watch.  While the trade export balance has been decreasing (not a new phenomenon), capital is also leaving and that's a new development Chanos drew attention to.

Lastly, he notes that he wouldn't trust any accounting in China and he could spend an hour talking about that issue alone as corporate accounting is that bad over there.

Chanos' Other Shorts

In regards to what else he's been shorting, he continues to dislike Hewlett Packard (HPQ).  He's long Microsoft (MSFT) and Oracle (ORCL) as hedges to that stake.

Chanos again addressed the notion of global value traps (his presentation via that link).  He says you want to be short printers and ink.  The cloud is fundamentally changing the tech landscape.

On the financial side, he likes to use the term "deleveraging credit python,"  noting that China, Europe, and the US are the three to watch.  In banking, they're long JPMorgan (JPM) and Citi (C).  For the other side of the coin, we recently detailed why Bill Ackman sold Citi.  Kynikos has also been short Chinese and Spanish banks.

Back in 2007 and 2009, Chanos was short healthcare but he no longer is short.  Though he says that longer term, healthcare is a huge issue.

Embedded below are the videos from Chanos' TV appearance this morning.  Video 1 on China:



Video 2 on tech companies & banks:




For more from the well known short seller, check out:

- Chanos on the psychology of short selling

- Chanos on the power of negative thinking

Goldman Sachs VIP List: Most Important Stocks To Hedge Funds: Q1 2012

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor report.  In it, they reveal the latest VIP list of 50 stocks that are most important to hedge funds.  These are the positions that appear most frequently in the top 10 holdings of fundamental focused hedge funds.

This quarter, they've also released a new list of very important short positions to hedge funds which we've posted up as well.

Goldman's VIP list of the most important holdings is accessible on Bloomberg via < GSTHHVIP >.  It has "outperformed the S&P 500 by 55 bp on a quarterly basis since 2001."

Goldman Sachs VIP List (Q1 2012)

Stock: Number of funds with stock as top 10 holding

1. Apple (AAPL): 106
2. Google (GOOG): 73
3. Express Scripts (ESRX): 56
4. Microsoft (MSFT): 46
5. Qualcomm (QCOM): 38
6. Citigroup (C): 31
7. General Motors (GM): 29
8. Priceline.com (PCLN): 29
9. JPMorgan Chase (JPM): 27
10. Liberty Media (LMCA): 26
11. Delphi Automotive (DLPH): 24
12. BP (BP): 23
13. Pfizer (PFE): 23
14. Tyco (TYC): 22
15. Visa (V): 21
16. Yahoo (YHOO): 21
17. LyondellBasell (LYB): 20
18. Anadarko Petroleum (APC): 19
19. Bank of America (BAC): 17
20. Ford Motor (F): 17
21. WellPoint (WLP): 17
22. American International Group (AIG): 16
23. Charter Communications (CHTR): 16
24. eBay (EBAY): 16
25. Rock-Tenn (RKT): 16


It's no surprise that Apple (AAPL) is the most widely owned top position amongst fundamental hedge funds.  But despite that, Greenlight Capital's David Einhorn argued hedge funds actually have less than 2% of assets in his Ira Sohn conference presentation.  We've also posted Dan Loeb's thesis on AAPL as he was a big buyer of shares.

Both Tyco and Priceline were featured in the equity analysis section of our Q4 2011 Hedge Fund Wisdom newsletter due to heavy ownership by top funds.  TYC is an event-driven play while PCLN is a huge growth and international play.


Here's the rest of Goldman's VIP list:

26. Seagate Technology (STX): 16
27. Berkshire Hathaway (BRK.B): 15
28. Cisco Systems (CSCO): 15
29. Equinix (EQIX): 15
30. Hertz Global (HTZ): 15
31. Liberty Interactive (LINTA): 15
32. Pioneer Natural Resources (PXD): 15
33. Visteon (VC): 15
34. Valeant Pharmaceuticals (VRX): 15
35. Wells Fargo (WFC): 15
36. Baidu (BIDU): 14
37. Dollar Thrifty (DTG): 14
38. Hess (HES): 14
39. Mastercard (MA): 14
40. News Corp (NWSA): 14
41. Williams Companies (WMB): 14
42. Barrick Gold (ABX): 13
43. CIT Group (CIT): 13
44. Capital One (COF): 13
45. Calpine (CPN): 13
46. Devon Energy (DVN): 13
47. EMC (EMC): 13
48. Hewlett Packard (HPQ): 13
49. Illumina (ILMN): 13
50. Salesforce.com (CRM): 12

Of the above, we've previously highlighted why Passport Capital likes LINTA.  And in the brand new issue of our Hedge Fund Wisdom newsletter, we've analyzed Equinix (EQIX), a big new position by Philippe Laffont's Coatue Management and John Thaler's JAT Capital.

Some of the stocks on the list are brand new additions as enough hedge funds boosted their positions in Q1: ABX, AIG, BRK.B, COF, CPN, CRM, DVN, EBAY, EMC, EQIX, F, HES, HTZ, ILMN, RKT, WLP.


Be sure to also check out Goldman's brand new list of hedge fund very important short positions.

Notes From SALT Conference: Barry Rosenstein, Leon Cooperman & Joel Greenblatt's Panel on Stocks

In Las Vegas today at the SALT Conference, the talking stock panel focused on perspectives from value investing legends such as Leon Cooperman of Omega Advisors, Barry Rosenstein of JANA Partners, and Joel Greenblatt of Gotham Capital.


Barry Rosenstein of JANA Partners talked about how he's been involved in activist investing since the 1980s and thinks today's environment for it is the best he's seen.  They've been an activist in McGraw-Hill (MHP).  And though not an activist stake, we've posted JANA's thesis on Barnes & Noble, one of their latest investments.

He also touched on his firm's lack of exposure to financials, noting that the sector is too hard to analyze.  Rosenstein will be presenting an investment idea at the NYC Value Investing Congress in October. Market Folly readers can receive a discount here with code N12MF3.


Leon Cooperman of Omega Advisors reiterated his stance that US government bonds are fundamentally overvalued.  We've highlighted his case against bonds numerous times before.

In terms of stock picks, he has allocated capital to financials via AIG (AIG), E*Trade (ETFC), Capital One (COF) and Western Union (WU). On the political side of things, he deemed this upcoming election one of the most important in his lifetime.



Joel Greenblatt said he likes tech giants Microsoft (MSFT) and Hewlett Packard (HPQ).  He also mentioned Wellpoint (WLP) and CVS Caremark (CVS).  His book You Can Be a Stock Market Genius, despite its somewhat cheesy title, is recommended by tons of top hedge fund managers.


Whitney Tilson, the moderator of the panel, said his hedge fund T2 Partners was buying more JPMorgan Chase (JPM) TARP warrants this morning.  We also recently posted T2's presentation on AIG.

For more notes from the SALT Conference, check out:

- Identifying opportunities in emerging markets with John Burbank

-  Notes from panel with Kyle Bass, Dmitry Balyasny & Steven Tananbaum

- Risk panel with Phil Falcone and Eric Sprott



The above was compiled from notes sent in along with help from live tweets from: @katyawachtel & @realrobcopeland

Leon Cooperman on Bonds, Stocks, and Apple vs. Research in Motion

Leon Cooperman of hedge fund firm Omega Advisors yesterday sat down with Bloomberg Television to talk about the markets, his portfolio, and what he likes/dislikes at this juncture.

On Treasuries:

Cooperman said that, "I have great confidence the Fed is ultimately going to get their way. The Fed is trying to elevate asset prices, help consumption, help the economy and in two-three years time, we will be worrying about inflation and interest rates will be materially higher. An instrument that I have absolutely no interest in - the most widely traded instrument in the world - is US government bonds. I don’t think people understand how risky a US government bond is at 2% return."

On Equities:

After bashing government bonds, Cooperman also examined the potential of investing in high yield bonds but dismissed them as fully priced. So he turned to equities and said that, "the S&P, which is 13 ½ earnings, yields a bit over 2%, 10% below the historical multiple at a time when interest rates are below historical and you can find lots of cheap stocks out there that will yield more than bonds today that are good companies that will grow over time."

This is largely in line with what the hedgie has been preaching for sometime now. We've highlighted in the past his trademark phrase that equities are the best house in the financial asset neighborhood.

On Apple (AAPL) versus Research in Motion (RIMM):

The Omega Advisors founder thinks Apple (AAPL) is worth north of $600. On Research in Motion (RIMM), he notes that, "It's funny, it was really like a mass hysteria. We put about a half of one percent of our assets into RIM late last year on a theory that they had a revenue base that was being mispriced by the market. Which was 20% of what we had in Apple, we've owned Apple now for a long time, and we continue to own a big position, so we had five times more Apple investment than RIM."

He says they sold RIMM due to stop loss discipline, but he admits that it's still intriguing. David Einhorn's hedge fund Greenlight Capital recently bought shares of RIMM, as highlighted in this free excerpt from our newsletter.

Cooperman also mentioned that he likes gold, Qualcomm (QCOM), JPMorgan (JPM), Bank of America (BAC), Altisource Portfolio Solutions (ASPS), Unitedhealthcare (UNH), WellPoint (WLP), Boston Scientific (BSX), Echostar (SATS), and Dish Network (DISH).

Embedded below is the video from Cooperman's interview with Bloomberg TV:



For more from this hedgie, you can view Cooperman's presentation on risks to the equity outlook.

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.