Michael Burry's Subprime Speech at Vanderbilt: Inside the Doomsday Machine

We wanted to post up a recent speech by subprime short-selling legend Michael Burry. His now defunct Scion Capital saw outsized returns as the value investor turned subprime expert saw the housing crisis coming and profited handsomely. His story is chronicled in Michael Lewis' bestselling book, The Big Short.

His speech is entitled, "Missteps to Mayhem: Inside the Doomsday Machine with the Outsider who Predicted and Profited from America's Financial Armageddon."

While the investor walks us through his past line of thinking, he is curiously hesitant to answer questions about his current investment portfolio. In late 2010, we learned that Burry bought farmland and gold.

Embedded below is Michael Burry's speech (email readers come to the site to view it):




For more on Burry's amazing trade, definitely read Michael Lewis' chronicle in The Big Short. Additionally, we'd recommend reading Burry's primer on credit default swaps & the subprime mortgage short which he originally penned back in 2006.

Third Point Focused on Spin-Outs & Closes to New Investors

Dan Loeb's hedge fund Third Point returned 8.6% in the first quarter of 2011 and manages $6.7 billion. Most recently, we noted Third Point's reduced net long exposure. Last time around, Loeb mentioned he would no longer be penning the letter to investors, but we still get some color on their portfolio construction and where they're finding value.

In particular, Third Point is focused on spin-outs as the Q1 letter details:

"At our annual Investor Day in January, we told you that we were enthusiastic about equities in a market poised for a wave of corporate transactional activity on a scale not seen since 2007. A combination of factors including record high levels of cash on corporate balance sheets, highly incentivized LBO firms, the return of cheap debt financing, and anemic top line growth is conspiring to make this an ideal period for the kind of special situation equity opportunities that are a core part of our strategy."

Loeb's hedge fund has focused specifically on the energy sector, owning positions in Williams Companies (WMB), El Paso (EP), and CVR Energy (CVI). We highlighted that Third Point started a position in El Paso in February.

Regarding Williams Companies (WMB), Third Point originally invested in November and has since added to the position as the company announced plans to split itself via an IPO of its E&P business in the second half of the year and a full spin of the remaining business in early 2012.

This is the type of event-driven investing Third Point loves. Besides Third Point, numerous other prominent hedge funds own a position in Williams Companies. You can read an in-depth analysis of WMB by subscribing to our Hedge Fund Wisdom newsletter as we featured the stock in our most recent issue.

Also of note is the fact that Third Point will close to new investors effective June 1st. They believe this is a prudent time and this is not the first time they've done so.

Embedded below is Third Point's first quarter letter to investors (email readers come to the site to read it):



To learn how to invest like Dan Loeb, check out his recommended reading list.

What We're Reading ~ 4/15/11

A recent John Paulson interview [Zero Hedge]

Latest investor letter from macro fund QB Partners [The Big Picture]

How to protect yourself from rising interest rates [Reuters]

See also the best investments during inflation [Market Folly]

The market leaders keep falling [Reformed Broker]

The easiest way to succeed as an entrepreneur [James Altucher]

Five things financial advisors are doing to make more money [New Rules of Investing]

Chartin consumer confidence: where do we go from here? [Research Puzzle]

How safe is your Roth IRA? [The Atlantic]

On the QE2 trade & more [Pragmatic Capitalism]

Apple doesn't have iPad strategy, has post-PC strategy [Forbes]

Google (GOOG) hurt by trying to stay competitive [WSJ]

Joel Greenblatt's New Book: The Big Secret for the Small Investor

Just wanted to give everyone a head's up that value investor and hedge fund manager Joel Greenblatt's new book just came out yesterday. It's called The Big Secret for the Small Investor: A New Route to Long-Term Investment Success.

The book details a new approach to investing based on value investing, common sense, and quantitative discipline. Basically, it intertwines his value investing style with an indexing approach. Greenblatt is the founder of Gotham Capital and has seen 40% annualized returns from 1985-2005. He is also an adjunct professor at Columbia Business School.

Greenblatt has authored numerous other books and they each cater to specific investors, including:

You Can Be a Stock Market Genius - Though the title is somewhat cheesy, this book has been recommended by hedge fund legends like Seth Klarman and David Einhorn. It is the definitive text on spin-offs, restructurings, and special situation investing.

The Little Book That Still Beats the Market - Teaches readers how to find good businesses when they're trading at bargain prices.

Greenblatt's newest book, The Big Secret for the Small Investor, is seemingly aimed at the broadest audience since it looks to be a quick read (150 pages) and details value-weighted indexing as an applicable investment style.

Don Coxe: Risk of Stagflationary Bond Bear Has Arrived (Latest Investment Recommendations)

It's been a longtime since we checked in on market strategist Don Coxe. He publishes the 'Basic Points' each month and his latest rendition is entitled "Slouching Towards Stagflation?"

At the end of his commentary, Coxe lays out his latest investment recommendations, including a market weight position in Japan. Just this morning we touched on how investment manager Ruffer is seemingly overweight Japan.

Here are Coxe's latest recommendations:

1. His main advice ties into the title of his commentary regarding stagflation. Coxe writes, "Just because Stagflation of Seventies proportions is only a remote possibility doesn't mean that meaningful stagflation-style damage won't be inflicted on bond portfolios - particularly those denominated in currencies of grossly overindebted countries. We think the risk of a real stagflationary bond bear has now arrived, and have therefore reduced recommended bond durations. Unless the stagflation risks recedes, we shall be reducing those durations further in coming months. So should you."

This is a big talking point because Warren Buffett himself has reduced the duration of Berkshire Hathaway's bond portfolio as well. There is a slight difference in the reasoning, though, as Buffett was concerned about inflation whereas Coxe is concerned about stagflation.

2. Cease underweighting Japan and move to market weight (with special attention to buying global brands).

3. Underweight European financials and euro-denominated debt. Emphasize exposure to Swiss francs and Canadian dollars.

4. Overweight precious metals in commodity-focused portfolios and include exposure in balanced portfolios.

5. "Agricultural stocks remain the commodities group with the best balance of risk and reward among all the possible outcomes of the current crises in the Mediterranean region and the Arabian peninsula."

6. Overweight the oil sands companies and emphasize coal and oil names in North American energy portfolios. Fellow market strategist Jeff Saut of Raymond James was also out singing the praises of the oil sands this week. Industrial clients, Coxe says, should hedge against remote risk of catastrophe in the Middle East by purchasing far out of the money calls on crude oil.

7. Overweight offshore oil companies that "do not face continued litigation risk from Macondo." This means avoid the likes of BP (BP), Transocean (RIG), Anadarko Petroleum (APC), Halliburton (HAL), etc.

8. Continue to avoid uranium stocks (Cameco (CCJ) is a major player there).

9. Pay heed to food and fuel inflation, which are working together to dent consumers' discretionary incomes.

10. Underweight base metal stocks despite their near-term benefit of rebuilding in Japan.


For more insight from strategists, check out their market commentary we've posted up recently.

Tremblant Capital Reduces Rightmove Position

This is the second major hedge fund to reduce a position in UK-traded Rightmove (LON: RMV) in the past month. Brett Barakett's Tremblant Capital Group have reduced its previous 3.97% ownership stake in RMV below the 3% disclosure threshold.

Tremblant actually owned as much as 14.22% of the company back in September 2008 but has steadily reduced its position size since that peak. Before founding Tremblant, Barakett was a portfolio manager for Louis Bacon's global macro hedge fund Moore Capital. Also, Brett's brother, Timothy, used to run fellow hedge fund Atticus Capital.

Just last month, we highlighted that Lee Ainslie's hedge fund Maverick Capital had reduced its position in Rightmove below the 3% ownership stake as well.

Both hedge funds could either retain a small position in the name (<3% of shares each) or they could have sold out of the name completely; it's impossible to discern. We won't know anything further regarding these positions unless they breach the 3% threshold again.

Per Google Finance, Rightmove is "a United Kingdom-based company that operates in a residential property industry, connecting people to properties. The Company is principally engaged in the operation of the Rightmove Website, rightmove.co.uk, which is the residential property portal. Its customers include estate agents, rental agents and home developers, who pay fees for the right to display properties on the Rightmove Website, which provide home hunters with property details to search."

Scroll through all our coverage of hedge fund activity in UK companies here.

Ruffer Investment Company Overweight Japan: Market Commentary

Continuing our expanding coverage of hedge fund managers, today we focus on Jonathan Ruffer and Ruffer Investment Company. Ruffer is headed to be on par with other talented UK managers that we've covered like Odey Asset Management and Lansdowne Partners. Ruffer has returned approximately 16% per year since inception in 2004.

Jonathan Ruffer starts his most recent commentary by pointing out that the financial press has become more interested in his firm's views as his firm has grown. Though not part of the press, Market Folly is jumping on the bandwagon as his commentary is intriguing and pertinent.

Main Takeaways

Ruffer has almost one-third of their equity exposure in Japan. Clearly, they favor the country and see it as a compelling opportunity. Ruffer writes, "while in the short term the direction of the markets is anybody's guess (and may well be frighteningly volatile), this is a turning point which will introduce the structural changes in Japan and, in turn will lead to a sustained bull market for lasting years. There is, frankly, no other market for which this is a remotely possible outcome."

The investment firm expects the Bank of Japan to pump liquidity into the system. They note that this will be bad for the yen (but good for the country overall). In past months, we've pointed out how some hedge funds have shorted the yen.

Some of Ruffer's investments in this arena have included Prospect Japan Fund (PJF) and Japan Residential Investment (JRIC). Ruffer actually owned some of these names in 2010 before the crisis even hit. He is unwavering in his conviction, it seems.

Embedded below is the latest market commentary and investment review from Jonathan Ruffer:



You can download a .pdf copy here.

For more coverage of UK-based managers, we've posted Odey's thoughts on agriculture & commodities, as well as Lansdowne's portfolio activity.

East Coast Asset Management on Competitive Advantage: Quarterly Letter

East Coast Asset Management's quarterly letters have become one of our favorites for insight and timeless advice on the topic of compounding as well as variant perception. This time around, Christopher Begg focuses on competitive advantage and the ability of businesses to first become 'local champions'.

Begg writes that, "high quality businesses that can raise prices and whose products have localized advantages with a growing emerging market consumer will thrive." This point is exemplified by Warren Buffett & Berkshire Hathaway, whose latest purchase of Lubrizol was seemingly based on pricing power.

The main gist of the letter is that solid investments are found in businesses with solid competitive advantages that allow them to do something their competitors cannot.

East Coast's letter also goes on to quote Steve Mandel of Lone Pine Capital who said, "Our ability to identify businesses that have the market opportunity, product distinction, competitive advantage and management skill to grow earnings and cash flow for longer than is factored into consensus expectations has distinguished our investment effort over the years."

Lastly, Begg gives an example of misclassifying an investment in Cisco Systems (CSCO) and how he has learned from the mistake. Investors never stop learning and this is the perfect example of why many successful investors critically focus on competitive advantage.

Embedded below is East Coast Asset Management's latest letter:



You can download a .pdf copy here.

Begg has also accepted a position as an Adjunct Professor at Columbia Business School and will be teaching Security Analysis this summer. For more great insight from this firm, check out East Coast on gaining an investment edge.

What We're Reading ~ 4/8/11

Thoughts on Ackman's latest activist holding: ALEX [Value Plays]

Notes from the Harvard Business School turnaround conference [DDI]

Jeff Gundlach breaks down a multi-asset portfolio [Prag Cap]

Margin in Trading [Stone Street Advisors]

Carl Icahn calls Blockbuster the worst investment ever made [Fast Company]

Bill Ackman's letter to Howard Hughes (HHC) shareholders [ValuePlays]

Google (GOOG): The freight train that is Android [Above the Crowd]

Mutual funds employing hedge-fund like strategies [USAToday]

Top 10 dying industries [WSJ]

Career tips from Goldman Sachs [Business Insider]

Oaktree Capital's Howard Marks Speaking at the Value Investing Congress

Readers of the site should be familiar with Oaktree Capital's Howard Marks as we've posted his commentary numerous times and found it very insightful. Now you can hear his latest thoughts on the markets and his favorite investment ideas as he will be speaking on May 3rd & 4th in Pasadena, California. Learn more about the Value Investing Congress.

Marks is a contrarian and founded Oaktree in 1995 and now manages over $80 billion. He has a new book coming out entitled The Most Important Thing: Uncommon Sense for the Thoughtful Investor and everyone attending the event will receive a free copy.

Additionally, Guy Gottfriend will be presenting. He is the founder of Rational Investment Group and has generated net returns of 40% per annum since launching in 2009 while holding 25% of assets in cash.

Here's the full list of speakers at the event:

- Howard Marks, Oaktree Capital
- Jeffrey Ubben, ValueAct Capital
- Steven Romick, First Pacific Advisors
- David Nierenberg, The D3 Family Funds
- Rahul Saraogi, Atyant Capital (India)
- Michael Kao, Akanthos Capital Management
- Ori Eyal, Emerging Value Capital Management
- Kian Ghazi, Hawkshaw Capital Management
- Guy Gottfried, Relational Investment Group
- Whitney Tilson & Glenn Tongue, T2 Partners

Here's a rare chance to get the latest market thoughts and investment ideas from hedge fund managers. It's also a great chance to network and talk stocks with other analysts and portfolio managers attending the event. Click here to register for the Value Investing Congress.

Michael Steinhardt on Differences Between Past & Current Hedge Funds

Michael Steinhardt founded Steinhardt Partners in 1967 and generated 24% average annual returns over a 28 year period. He was one of the true pioneers in the industry and he recently sat down with CNBC for an interview.

The former titan talked about his time as a hedge fund manager, saying "When I was doing it, it was an elite phenomenon. Now it ain't an elite business anymore." Steinhardt is now the chairman of ETF firm, WisdomTree.

Hedge Fund Differences: Then & Now

Performance: He notes that the main difference between hedge funds then and now is the goal of performance. He targeted (and achieved) outsized returns, while many funds today are happy cranking out "only" 12-14% gains.

Assets Under Management (AUM): Steinhardt also slipped in his signature phrase of 'diseconomies of scale,' referring to the fact that as assets under management (AUM) grew, true outperformance was harder to achieve. He chastised modern hedge funds as asset gathering behemoths with goals of making money from the assets (management fee) rather than making money from performance.

Impact of Fund Size on Returns: This is a big talking point amongst investors, especially as of late it seems. The classic example, of course, is John Paulson. His hedge fund Paulson & Co catapulted to fame with his stellar returns shorting subprime. As his AUM has swelled, investors have raised concern and Paulson addressed his fund size in his year-end letter.

Maverick Capital's hedge fund founder Lee Ainslie also wrote a quarterly letter to refute the notion that large fund size negatively impacts a manager's ability to generate returns.

Steinhardt's point (and it's a good one), is that regardless of whether or not these funds generate performance, the funds are still making money due to the management fee on a sizable chunk of assets.

Hedge Fund Herding: The hedge fund legend also points out that so many managers are using similar strategies these days, whereas he was one of the few employing them in his time. This is yet another topic that high profile funds have been forced to address via investor letters. Viking Global's Andreas Halvorsen wrote about hedge fund herding here (scroll down in the post).

In short, Steinhardt raises some valid points about how hedge funds have slightly strayed from their original incarnation. The reason? Money, of course.

He's not alone in his concern, either. After all, so many prominent funds wouldn't have to address such issues had they not seen continuous signs of concern from their investors.

You can watch Steinhardt's interview below where he also gives his macro outlook and oddly enough goes on a tirade against Warren Buffett (email readers come to the site to watch):



In the video, Steinhardt also briefly mentions that he remains short 2 year Treasuries. You can also read his past thoughts on why he thinks treasuries are foolish.

T2 Partners Attributes Poor Performance to Contrarianism

Whitney Tilson and Glenn Tongue's hedge fund T2 Partners sent out a monthly update to investors and they reveal performance of -4.3% in March and -3.1% for the year. This trails the S&P 500, which is up 5.9% in 2011. More interesting than the performance figures, though, is the the notion of deviating from the herd and its subsequent effect on that performance.

T2 writes that, "a bigger reason for our underperformance, especially last month, is our investment strategy, which is rooted in deviating from the crowd with contrarian bets. It's the only way to outperform the market over the long term, but it also carries with it the risk - indeed, the certainty - that there will be periods during which one underperforms the market."

Obsession With Short-Term Performance

This is worth pointing out because Wall Street and investors are seemingly always fixated on short-term performance. In part, this is one of the reasons that Shumway Capital Partners returned outside investor capital (among many other reasons). In his letter, Chris Shumway noted that returning outsider money would allow him to focus on long-term positioning that he has been so successful with.

When investors place monthly expectations on a manager, rather than yearly ones, the manager is pressured to attain short-term performance and it compromises their core investment strategy.

Value Versus Global Macro Managers

To illustrate this point, we turn to a comparison between value-based investors and global macro traders. If a macro manager sees a mountain top (gains from a potential trade), he will go after it. However, if he encounters a valley (temporary loss of capital) on the way to the mountain top, he will pivot and trade around that position to eliminate near-term risk or even profit from the decline by temporarily shorting.

A value-based manager, on the other hand, will continue to hold their long position and ride out the valley (decline) in order to get to the mountain top (gain). Their deeply rooted stance makes them more prone to near-term underperformance.

T2's Letter

In the recent past, T2 Partners has blamed poor performance on their short positions. Yet despite covering their short of Netflix (NFLX), they puzzlingly held onto other valuation shorts like Opentable (OPEN) and Lululemon (LULU), but that's a whole 'nother conversation.

Now they are attributing poor performance to contrarianism. Some will undoubtedly say this is just excuse after excuse and wonder what the fund will blame next. Putting that aside, T2 does underline a prescient point worth extracting: sometimes it's painful to be contrarian.

In the letter, T2 goes on to highlight that, "it's easy to deviate from the crowd, of course, but it's much harder to be right - and even harder to be right on the timing."

If a value investor can stomach the near-term anguish (and assuming their thesis is proven correct), they'll make it to that mountain top eventually. T2 gives an example of this with their investment in Iridium (IRDM). While they think the stock is a triple in 3-5 years, they have to hang on through the bumpy ride in the near-term as last month the stock was down 15.1% and the warrants dropped 24.1%.

T2's run of poor performance continues and you can read their take on the situation embedded below in their investor letter (email readers need to come to the site to view it):



For more on that particular stock, head to T2's analysis of Iridium.

Hedge Fund Third Point Reduces Net Long Exposure: Latest Positioning

Dan Loeb's hedge fund firm Third Point LLC has released its March performance and exposure report. Third Point returned 0.9% in March and is up 8.6% year to date versus 5.9% for the S&P 500. Third Point's Offshore Fund now has an annualized return of 19%.

Latest Exposure Levels

Third Point is net long equities to the tune of 42.2%. This is a decrease of 14%, down from last month's 56.2% net long exposure. As various crises (risk) around the world escalated, Third Point has ratcheted their exposure down. In Loeb's year-end letter, he voiced that he was concerned about the consensus bullish view.

Third Point's largest net exposure is in energy, basic materials, and consumer. In credit, Third Point is 17.1% net long asset backed securities (RMBS & CMBS exposure), 11.5% net long distressed, 6.1% net long performing and -5.1% short government securities. Their credit allocations are largely unchanged from last month.

Third Point's Top Positions:

1. Gold
2. Delphi Corp
3. Chrysler
4. El Paso Corp (EP)
5. NXP Semiconductor (NXPI) ~ multiple securities held

In February, we highlighted how Loeb started El Paso as a new position and it remains one of their top holdings. This month, their exposure to NXP Semiconductor (NXPI) replaces LyondellBasell (LYB) as their fifth largest position.

NXPI is a prime player in the NFC (near field communications) space that seems to be sweeping the mobile industry as interest in mobile payments heats up. The company recently priced a secondary offering at $30 per share and has been doing a roadshow to drum up investor interest. This offering significantly helps liquidity in the stock and should allow larger hedge funds to accumulate positions.

Top Winners & Losers for Third Point

We get a glimpse at some of Third Point's other positions with their top winners from the month, including: CVR Energy (CVI), Short A, Statoil Fuel & Retail ASA (SFR), Aveta, and Health Net (HNET). Their top losing positions for the month include Potash (POT), PHH Corp (multiple securities held), Inmarsat, ProSieben (multiple securities held), and El Paso.

To see analysis of Loeb's portfolio and the investment thesis behind some of his picks, check out our Hedge Fund Wisdom newsletter.

Bill Ackman Starts Activist Position in Alexander & Baldwin (ALEX)

Bill Ackman's hedge fund firm Pershing Square has initiated a new activist position in Alexander & Baldwin (ALEX). Per a 13D filed with the SEC, Pershing has disclosed a 8.6% ownership stake in ALEX with 3,561,943 shares due to portfolio activity on March 21st. This comes after Ackman's other activist position in J.C. Penney (JCP) as well as his stake in Fortune Brands (FO).

Not a New Position?

While this appears to be a brand new position, Pershing also filed an amended 13F for the fourth quarter of 2010. And guess what all of a sudden appears? Shares of ALEX. At 2010 year-end, Ackman's hedge fund actually owned 172,001 shares. This position was previously unreported on their last 13F filing because they filed with the disclaimer of "confidential information has been omitted from this report and filed separately with the Commission."

Ackman obviously did this in order to stealthily accumulate his position. Because let's face it, had he been forced to disclose the tiny new position back in February, the imitators who mimic his every move would have seen this new position and driven prices. Pershing accumulated most of their stake in March. To see the rest of Pershing's investments, head to our Hedge Fund Wisdom newsletter.

Working With Marcato Capital Again

Also worth highlighting in Pershing's new activist stake is the fact that they will be working with fellow hedge fund Marcato Capital again. Marcato was founded by ex-Pershing analyst Mick McGuire and he had previously recommended shares of Landry's Restaurants to Pershing and the two worked together on the activist position.

They've teamed up again on shares of Alexander & Baldwin and Marcato owns 1.3% of ALEX with 551,881 shares. Collectively, the two hedge fund firms together now own 9.9% of the company. Their average purchase price seems to be around $41.xx per share given they spent $168.8 million on the stake.

Additionally, the hedge fund firms have exposure to 372,900 shares via total return swaps. These have a price of $45.12 per share and their ownership stake inclusive of these jumps to around 11% of the company. Overall, the SEC filings contain the standard activist boilerplate regarding talking to management about enhancing shareholder value. We'll have to see what tricks Ackman and McGuire have up their collective activist sleeves.

Per Google Finance, Alexander & Baldwin is "engaged in property development and agribusiness operations. The Company’s wholly owned subsidiary Matson Navigation Company, Inc., together with its two subsidiaries, is engaged in ocean transportation operations, related shoreside operations in Hawaii, and intermodal, truck brokerage and logistics services. The Company operates in five segments in three industries: Transportation, Real Estate and Agribusiness."

To learn more about this hedge fund, check out our profile of Pershing Square.

Eton Park Reduces Airgas (ARG) Position

Eric Mindich's hedge fund firm Eton Park Capital has reduced its stake in Airgas (ARG). Due to an amended 13D filing with the SEC, Eton Park now shows a 4.92% ownership stake in ARG with 4,145,191 shares due to portfolio activity on March 29th.

This is a 31% reduction in their position size. Back in December 2010, Eton Park owned 7.15% of Airgas. The bulk of their recent sales came on February 16th and March 30th at weighted average prices of $63.0019 and $66.3244, respectively.

You'll recall that Airgas had in the past been subject to a takeover bid by Air Products (APD). Eton Park had supported the bid after APD raised its offer numerous times. However, Airgas did not seem receptive. For now, Eton Park still holds a position, albeit a smaller one than previous months.

Per Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies."

Viking Global Increases H&R Block (HRB) Stake

Andreas Halvorsen's hedge fund Viking Global has boosted its stake in H&R Block (HRB). Per a 13G filed with the SEC, Viking has disclosed a 5.5% ownership stake in HRB with 16,664,422 shares. This is a 60% increase in their position size as they owned 10,408,200 shares at the end of 2010.

The firm has been taking more concentrated positions as each portfolio manager essentially owns each other's "best ideas". Before founding Viking, Halvorsen worked at Julian Robertson's Tiger Management. You can see the rest of Viking Global's portfolio here.

Per Google Finance, H&R Block is "has subsidiaries that provide tax, banking, and business and consulting services. The Company’s Tax Services segment provides income tax return preparation, electronic filing and other services and products related to income tax return preparation to the general public primarily in the United States, and also in Canada and Australia."

What We're Reading ~ 4/1/10

Evaluating equity investments: Accounting for Value [Stephen Penman]

Famed subprime short-seller Michael Burry's FCIC testimony [ValueWalk]

AIG's mistake explained [Economics of Contempt]

How Verizon could purchase Sprint and harm Vodafone [Cautious Bull]

Bill Ackman speaking at Make A Difference in Milwaukee on April 27th

Bridgewater, Elliott & SAC shape report on long-term investing [AR+Alpha]

More on Chinese reverse mergers [CNBC]

GGP, HHC, The Wall Street Journal and David Simon [ValuePlays]

What hedge fund managers know about making money [Marketwatch]

Managed account platform assets grow by 27% [HFMWeek]

Hedge funds may salvage month despite quake [WSJ]

Short linkfest this week. For more good financial reads, head to Abnormal Returns

Crispin Odey on Agricultural Commodities & Farming

The founder of UK based hedge fund firm Odey Asset Management, Crispin Odey, is out with his latest market commentary and investment outlook. Penned on the 28th of February, Odey writes on the slightly tangential, yet increasingly talked about topic of farming and agricultural commodities.

We've detailed how legendary investor Jim Rogers is bullish on agriculture and has also bought farmland. Also, the now famous subprime short-seller Michael Burry also bought farmland. While these well-known investors focus on arable land, Odey's recent commentary expresses concern regarding agricultural commodities and supply/demand imbalances.

Here's Crispin Odey's outlook:

"This is always the time of year when my farming friends ring me up every day to ask 'should they be selling forward their harvest?' The truth is that at this time of year they have little to do other than worry about it, and because they worry they are always early sellers. Like everyone, they are risk averse. By now with the harvest less than six months away, they are probably 65% pre-sold and yet they watch the price rising and falling and of course on weak days they kick themselves for not selling more.

In my hedge fund we are also forced to get involved. We are shareholders in a station in Australia which this year has grown over 23,000 acres of cotton, and plans to grow 25,000 acres next year. Cotton has nearly tripled in price in eighteen months and it is no surprise to find that we sold this year's harvest, which is just about to start, at half the current prices. Why? Because we had sold 2/3 of our crop forward by November of last year. We were the lucky ones because our neighbours further down the Darling River lost most of their crop, thanks to the flooding, and the rise in the price from $100 to $220 per bushel was nothing more than them covering that shortfall. Like many people, they hated taking a loss and the same conservatism that had led them to sell forward, led them to sit and hope that the price would come down before delivery in April. Many of these farmers face bankruptcy, in the best year for cotton in 30 years. This year the farm will make a 30% return on our investment made nearly four years ago. If prices hold into next year we would almost earn what we paid for the farm, in one year. In other words prices are very unlikely to hold!

However, if you look generally at where we are globally, soft commodities are suffering from the same kind of demand/supply imbalance that has driven steel production worldwide to go from 580 million tons to over 1350 million tons in less than a decade. Taking grain production last year globally, the world produced 2.179 billion cubic tons, down 2.4% from the previous year, but up from 1.87 billion cubic tons, produced in 2000. However, consumption was 2.235 billion cubic tons and inventories in thenorthern hemisphere are now 27% below where they were in 2000 and down 15% in a year to 425m tons. The importance of China can't be overstated. The USA increased exports of corn, soy beans, wheat and cotton by 18% last year, but China's share of exports rose by 34%.

Over ten years China's urban incomes have risen threefold; their agricultural incomes have doubled. If you believe like I do that China's growth will not falter until their current account deficit goes negative, my farming friends may have to devise an alternative pastime after the shooting season ends in January, to selling their harvest early.

The corollary of all of this is of course that the cost of living is rising for the developing world at an alarming rate. Most of these countries exacerbate their problems by subsidising food prices. Investors must expect that revolutions, sparked by bread riots, will be part of their diet, for as long as China's demand continues to grow."

More insight from this manager can be found in Odey's previous commentary.

Jeff Saut: A Lot of Price Risk Has Been Removed From Select Stocks

The last time we checked in with market strategist Jeff Saut in late February, he was putting money to work in stocks, but cautioned that the correction was not yet over. And he was right, as the market fell 4.77% further in the weeks after his prescient call.

This time around, his latest missive is entitled, "Be Conservative, Not Conventional." With a title like that, one can easily guess what the gist of his message is. He quotes the wise value-investing-father Benjamin Graham who wrote, "The essence of investment management is the management of RISKS, not the management of RETURNS. Well-managed portfolios start with this precept."

Saut hints that the recent low in the market on March 16th could be "THE" low for quite some time, but if a re-test were to occur, he'd be a buyer. He also reiterated his call in buying Williams Companies (WMB) when it was trading around $28.70. This stock has been a hedge fund favorite and you can read an in-depth analysis of WMB in our current issue of Hedge Fund Wisdom.

He also cites fondness for Peoples United Financial (PBCT), LINN Energy (LINE), and EV Energy Partners (EVEP).

Overall, the market strategist concludes that, "I think a lot of the price risk has been removed from select stocks and therefore I am not afraid to gradually accumulate favored names."

Embedded below is Jeff Saut's latest market commentary:



You can download a .pdf copy here.

More insight from the strategist can be found in his thoughts on the never-ending market cycle of fear, hope and greed.

Hedge Fund Glenview Buys More ArvinMeritor (ARM)

Larry Robbins' hedge fund Glenview Capital has increased its position in ArvinMeritor (ARM). Due to portfolio activity on March 18th, 2011, Glenview has disclosed a 5.72% ownership stake in ARM with 5,388,617 shares.

This marks a 33% increase in their position size from the end of 2010 when they owned 4,038,617 shares. Since the beginning of 2010, shares are down around 6%. Keep in mind also that ARM's ticker symbol will be changing to MTOR at the end of the month. In addition to this recent portfolio activity, Larry Robbins' hedge fund recently expanded its short portfolio as well.

Per Google Finance, ArvinMeritor is "a global supplier of a range of integrated systems, modules and components to original equipment manufacturers (OEMs) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The company serves commercial truck, trailer, off-highway, military, bus and coach and other industrial OEMs and certain aftermarkets, and light vehicle OEMs."