Larry Robbins' Glenview Capital Buys Clearwire (CLWR): Investment Thesis

Larry Robbins' hedge fund firm Glenview Capital just filed a 13G with the SEC regarding shares of Clearwire (CLWR). Due to portfolio activity on July 28th, Glenview has disclosed a 6.53% ownership stake in CLWR with 16,228,264 shares.

This activity marks a 76.5% increase in their position size since the end of the first quarter. So while they were buying as recently as the end of July, the crazy market volatility that has followed in August makes it hard to know if they've battened down the hatches and held onto these recently acquired shares, or if they instead chose to reduce risk. We've also detailed how Glenview bought Flextronics (FLEX) as well.

Glenview's Thesis on Clearwire

Glenview's previous letter outlined their thesis on Clearwire (CLWR) as they own equity and debt. The company owns 45 billion MHz of wireless spectrum and was the first true '4G' wireless network. They like CLWR under the notion that capex was behind the company ($20 billion) and growth was ahead. The stock currently trades around $1.52.

Robbins goes on to say that the main backdrop for investing in CLWR is that, "over the next four years, mobile traffic growth is expected to increase 40 times, driven by increased video usage and data plans on PCs/tablets/smartphones ... The appeal of Clearwire is therefore simple; Clearwire has aggregated an unmatched amount and a sufficient quality of spectrum to be a viable 4G offering for a wireless carrier."

The hedge fund likes Clearwire because: "a) there is significant downside support from asset value, b) the investment to build those assets is substantially behind them, and c) the wireless industry is at an inflection point in terms of demand for these assets."

Another bit worth noting: CLWR is owned mainly by strategic investors (~84%), primarily by Sprint (S). Glenview hypothesizes that should the AT&T (T) and T-Mobile merger be approved, Sprint could compete by moving to purchase the rest of Clearwire. Either way, Glenview likes the risk/reward of CLWR.

To see the rest of Glenview's investments, be sure to subscribe to our Hedge Fund Wisdom newsletter, as a new issue will be released in the next two weeks that updates top hedge fund portfolios.

What We're Reading ~ 8/8/11

Dreman's contrarian investment rules [World Beta]

What concerns Passport Capital [Distressed Debt Investing]

On bond management [Aleph Blog]

Let's face it, market correction makes sense [Peridot Capitalist]

Why this is not 2008 [Capital Observer]

Paulson's flagship fund down 21.6% [FT]

Profile of Lansdowne's Paul Ruddock [Bloomberg]

Andy Beal becomes billionaire with FDIC assets [Bloomberg]

Are hedge funds too big to fail? [WSJ]

Steven Cohen's forbidden transcript [Reuters]

Introduction of the social web index [StockTwits]

Web 2.0: how to spot the top [Reformed Broker]

Don't call it the next tech bubble yet [Fortune]

Social networks: are real names required for real socializing? [AVC]

An inside look at the rise and fall of Research in Motion (RIMM) [Boy Genius Report]

Depressing but nonetheless: 25 documents you need before you die [WSJ]

E-Trade Baby Loses Everything - Fake Commercial

This fake commercial titled, 'E-Trade Baby Loses Everything' is pretty appropriate given the torrential wave of selling the stock market has seen over the past week. If you're at work, be warned that there's lots of cursing/bleeping.

Email readers will need to come to the site to watch the video:

Perry Capital's Investment Thesis on Iron Mountain (IRM)

Hedge fund Perry Capital's recent letter to investors outlines why they added to their existing position in Iron Mountain (IRM) in the second quarter. We also posted up Perry's thoughts on credit in another post. Regarding their equity stake in IRM, Perry writes,

"The company’s main business is physical document and data tape storage where it has the #1 market share. In part due to the urging of a shareholder, the company is engaging in a series of changes that should unlock value and drive returns to shareholders. We believe management’s commitment to the shareholders, new board appointments, reductions in capital expenditures, the recent sale of its non-core digital business, rationalization of its international operations, and potential conversion to a REIT all bode well for shareholder value creation. Along with the defensive nature of the business model, management has committed to return $2.2bn of cash to shareholders by 2013 (equal to one third of its market capitalization). This should provide adequate downside protection in an uncertain market environment."

Perry Capital 767 Fifth Avenue New York, NY 10153
212-583-4000 investorrelations@perrycap.com

Perry Capital: European Markets to Provide Credit Opportunity in Coming Months

Richard Perry's hedge fund firm Perry Capital returned -0.93% in the second quarter and is up 2.69% for the year. The firm now manages $8.6 billion and has used the market volatility to add to their positions in their highest conviction names.

In a past investor letter, we highlighted how Perry saw a growing amount of event-driven opportunities. Their second quarter letter to investors outlines why they sell existing positions:

1. more compelling opportunities are created by the markets
2. a position reaches value
3. our original thesis is refuted based on newly uncovered data.

Perry also writes, "we are comfortable holding higher cash levels when we see potential opportunities on the horizon. The European sovereign debt crisis could be the cause of the next market dislocation."


Credit Positions

The hedge fund's letter mentioned their position in preferred securities of government sponsored enterprises (GSE's) such as Fannie Mae and Freddie Mac. As 90-day delinquencies have been steadily declining, Perry feels the US taxpayers could recoup the $164 billion preferred investment. In the past we've pointed out how Michael Kao's Akanthos Capital Management likes GSE preferreds as well.

Perry also believes that peripheral European markets will be a 'robust' credit opportunity over the upcoming months. Additionally, Perry utilized the June sell-off to add "a small amount of structured credit to the portfolio with a particular focus on asset-centric instruments."


Equity Positions

The hedge fund sold their position in Equinox Minerals as Barrick Gold (ABX) purchased the company and after Zambian approval, Perry tendered its shares into the offer. They also exited their position in Swiss pharmaceutical company Actelion (ETR:ACT) after a failed attempt by an activist shareholder and a disappointing jury verdict.

They also added to their existing position in Iron Mountain (IRM). You can view Perry Capital's thesis on Iron Mountain here.


For more recent hedge fund letters, we've also posted up:

- Ivory Capital's thoughts on why value investing isn't working in this market

- Dan Loeb & Third Point's Q2 letter

- Oaktree Capital & Howard Marks' thoughts on the US debt ceiling

- Corsair Capital's Q2 letter

- David Einhorn & Greenlight Capital's letter

FINforums Annual Hedge Fund Summit: 10% Discount

On September 14th, 2011 in New York City, join FINforums, the events arm of top hedge fund news site FINalternatives, as distinguished experts from the hedge fund industry speak candidly about the biggest issues affecting managers today.

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Speakers Include:

Frank Ahimaz, CIO, Museum of Modern Art (MoMA)
Michael Alexander, Director, Smarsh Inc.
David Asman, Anchor, Fox News and Fox Business Network
Peter Carey, Managing Director, SkyBridge Direct
Jack Flaherty, Investment Manager, GAM
Simon Fludgate, Principal, Aksia
Bruce Frumerman, CEO, Frumerman & Nemeth
Ibrahim Gharghour, Managing Partner and CIO, Pulse Capital Partners
Todd Groome, Chairman, AIMA
Deepak Gurnani, Head of Hedge Funds, Investcorp
Constance Hunter, Chief Economist, Aladdin Capital Management
Jeremy Kroll, Co-founder and CEO, K2 Global Consulting
Joseph McAlinden, CIO, Catalpa Capital Advisors
Michelle McCloskey, Head of Hedge Fund Research, Man Investments
Eric Munson, Managing Director, Stride Capital
Vinod Paul, Managing Director, Eze Castle Integration
Cathleen Rittereiser, Dir. Of Investor Relations, Concordia Advisors
Larry Smith, Chairman and CIO, Third Wave Global Investors
Don Steinbrugge, Managing Partner, Agecroft Partners
Lisa Vioni, President and CEO, Hedge Connection
Christopher Vogt, Global Head of Hedge Funds, Allstate Investments
Ezra Zask, Founder and President, SFC Associates

Hedge Fund Third Point Reduces Equity Exposure For Third Consecutive Month

For the month of July, Dan Loeb's hedge fund firm Third Point offshore fund was up 0.3%. Year to date, they are up 6.9% versus 3.9% for the S&P 500. Seeing 18.4% annualized returns, it's no wonder that Third Point is closed to new investors.

Net Exposures Down Yet Again

Loeb's hedge fund is only 23.3% net long equities (39.7% long and -16.4% short). In June, we detailed how Third Point reduced equity exposure again. July marks the third consecutive month in which Loeb's firm has reduced risk.

In July they ratcheted down exposure from 30.7% net long down to only 23.3% net long. Caution is the name of the game for Loeb's firm and he outlines the rationale in his quarterly letter.

Their largest net long equity exposure comes in the energy sector at 6.1%, as well as consumer and basic materials each at 5.7%. They are net short technology and utilities.

In credit, Third Point is 20.9% net long (32.2% long and -11.3% short). They continue to be net short government issues and their largest net long exposure comes in asset backed securities (ABS).


Third Point's Top Positions

1. Gold
2. Delphi Corp
3. El Paso (EP)
4. CIT Group (CIT ~ multiple securities held)
5. Mosaic (MOS)

Loeb's stake in MOS is brand new and the thesis on Mosaic is detailed in Third Point's Q2 letter. They also continue to hold Delphi, a position numerous hedgies like.

In the past month, Third Point's top winners include gold, Peregrine Metals (PGM), CVR Energy (CVI), Delphi, and an interest rate hedge. Their top losers included NXP Semiconductor (NXPI), CIT Group (CIT), Pall Corp (PLL), Health Net (HNET), and Brenntag AG (BNR).

Shares of NXPI have traded down almost 43% in the past 3 months. Many see this company as a play on the future 'mobile wallet' due to its near field communications (NFC) chip that allows transactions between phones. Third Point has been able to offset the negative performance of this company with gains in other areas.

Margin Call Movie Trailer: New Film About the Financial Crisis

Below is the movie trailer for the new financial film, Margin Call. It will be in theaters on October 21st, 2011 and features actors such as Kevin Spacey, Jeremy Irons, Demi Moore, Stanley Tucci, Paul Bettany, Simon Baker, and Zachary Quinto.

The movie is about the beginning stages of the financial crisis as it chronicles the final 24 hours of Lehman Brothers and is filmed from the viewpoint of people working at the (now extinct) Wall Street investment bank. The film is written and directed by J.C. Chandor.

Embedded below is the Margin Call movie trailer (email readers come to the site to watch):

While this movie probably won't top the legendary movie, Wall Street, hopefully Margin Call is at least better than Wall Street 2.

Market Strategist Jeff Saut Cautiously Favors the Upside

Market strategist's Jeff Saut latest commentary continues to focus on key support/resistance levels in the S&P 500. Last week he was concerned about market action. As the markets gyrate back and forth (essentially trading sideways), he waits for a resolution. This week, he can't help but be slightly optimistic, writing:

"Nevertheless, earnings continue to be the driver of the stock market's buoyancy and earnings remain robust as 73% of the 345 U.S. companies that have reported 2Q11 earnings have beaten estimates."

However, he also points out the obvious that if the debt ceiling is not raised, we'll see another downside hit. Saut's support levels for the S&P 500? 1316-1320 and the second is 1292-1296.

Lastly, it must be highlighted that Saut quoted lesser known rapper Tech N9ne in his missive, in what has to be an industry first.

Embedded below is Jeff Saut's latest market commentary:



You can download a .pdf copy here.

For more from Saut, head to his piece on the biggest worries of 15 European portfolio managers.

David Einhorn Buys Huntington Ingalls Industries (HII)

David Einhorn's hedge fund Greenlight Capital started a brand new stake in Huntington Ingalls industries (HII) per a 13G just filed with the SEC. Due to portfolio activity on July 15th, Greenlight has disclosed a 5.1% ownership stake in HII with 2,510,000 shares.

Huntington Ingalls was spun-off from Northrop Grumman (NOC) and started trading in April 2011. NOC operates in the security industry focusing on aerospace, information and electronic systems, etc. Since being spun-off, shares of HII are down almost 15%.

To read up on the rest of recent portfolio activity from this hedge fund, head to Greenlight Capital's Q2 letter as well as Einhorn's presentation from the Ira Sohn Conference.

Per Google Finance, Huntington Ingalls Industries Inc (HII) "designs, builds and maintains nuclear and non-nuclear ships for the United States Navy and Coast Guard, and provides aftermarket services for military ships around the globe. HII’s business divisions are Ingalls Shipbuilding and Newport News Shipbuilding (NNS)."

And to learn to invest like Einhorn, check out his recommended reading list.

Why Value Investing Isn't Working In This Market (Hedge Fund Ivory Capital)

Curtis Macnguyen's value-oriented hedge fund Ivory Capital says that the current market is very difficult for fundamental value investors as market participants opt for growth over value.

Earlier today we posted up Ivory Capital's Q2 letter and in it they outline the main reasons why the rules of value investing aren't working:


1. Excess Liquidity: "If there is very little cost to money, then it matters much less how much one is willing to pay for an asset; valuation becomes less relevant."

2. Scarcity Value of Growth Stocks: Investors are willing to pay-up for revenue growth in a low growth environment.

3. Mutual Fund Flows & ETFs: As value funds underperform, investors sell them off, depressing prices even further.

4. Quantitative Strategies: Models have de-emphasized valuation and emphasized momentum and revenue growth instead.

5. Poor Capital Allocation: Large/mega cap companies aren't allocating efficiently, creating an overhang in shares. Activism is needed to alleviate this.

6. Short-term Focus: There is a ton of pressure on funds from investors to generate returns NOW. Managers sell positions that aren't working (i.e. value stocks), sending shares lower. We noted how fellow hedge fund Shumway Capital shut down mainly due to short-term fixation by investors.



So while many value investors are having a hard time in this market, momentum chasers are seemingly having a field day. Be sure to check out Ivory Capital's investor letter for risks in the current market and updates on their current positions.

Curtis Macnguyen's Ivory Capital Q2 Letter

Founded in 1998 by Curtis Macnguyen, Ivory Capital is a long/short equity hedge fund that focuses on value-based investments. It's worth noting that before founding Ivory, Macnguyen worked at Siegler, Colliery & Co, the same shop that Greenlight Capital founder David Einhorn previously worked for.

Ivory is based in Los Angeles and today we're covering their second quarter letter that updates their portfolio.

At quarter end, Ivory Capital's top five positions were:

1. Microsoft (MSFT) 6.5%
2. Yahoo! (YHOO) 5.1%
3. Citigroup (C) 4.0%
4. DeNA Co (TYO:2432) 2.7%
5. Advanced Micro Devices (AMD) 2.6%


Performance & Equity Exposure

Ivory finished the second quarter -2.2% and year to date for 2011 they are -1.85%. Their equity exposure is 69.5% long and 43.4% short, leaving them net long 26.1%. While they saw outperformance in their other long positions of Sprint Nextel (S) and CVS Caremark (CVS), other longs hurt them.


Position Updates: Western Digital (WDC), Seagate Technology (STX) & Hospira (HSP)

The hedge fund thinks that consolidation in the hard disk drive industry should bring solid economics and dampen the cyclical nature of the industry. They also like STX's share repurchases and dividend (4.5% yield).

The current issue of our Hedge Fund Wisdom newsletter analyzes STX as numerous other hedge funds own shares (and it also features analysis of YHOO, a controversial stock at the moment).

Ivory also fancies generic injectables and infusion pump maker Hospira (HSP) because they see it as a strategic asset with 25% market share and high barriers to entry.

Embedded below is Ivory Capital's Q2 letter to investors (email readers come to the site to view):



For more letters from hedge funds, we've posted up the following:

- Oaktree Capital: Howard Marks' latest commentary

- Corsair Capital sees increased volatility ahead

- David Einhorn & Greenlight Capital's Q2 letter

- Third Point buys MOS & SLE

- Jonathan Ruffer worried about China

Third Point Buys Mosaic (MOS) & Sara Lee (SLE): Q2 Letter

Dan Loeb's hedge fund firm Third Point is out with its second quarter letter. Months ago, Loeb said he would no longer be writing the quarterly letters but his displeasure with the government caused him to take to the keyboard again.

Loeb notes that while he is typically a bottom-up investor, the economic and political environment require that investors pay attention to and incorporate macro factors into their thought process.

As we already pointed out last month, the hedge fund reduced equity exposure and the letter confirms this further. Third Point's rationale:

"Beginning in April, we concluded that the equity market no longer offered compelling upside considering the S&P was up ~9% YTD despite the heightening of the issues noted above as well as the Japanese earthquake and tsunami disasters. Towards the end of the quarter, we started to increase our single name short equity portfolio, largely because we saw that the market had started to reward individual stock picking for the first time in months, as correlations finally started to fall."

And even though they reduced net equity exposure, they did do some buying in the quarter:

Mosaic (MOS)

The fertilizer giant intrigued Loeb's fund due to the removal of a large overhang: the Cargill family selling their stake in the company. Third Point acquired their stake via a secondary at $65 per share. They have also subsequently added to their position during the market volatility.

They like grain and corn fundamentals and think potash fertilizer has "yet to recover to trend-line levels of demand."

Sara Lee (SLE)

They already owned this position, but added to their stake in Q2. Third Point believes that the market underestimates the company's earnings power and thinks both of their businesses (meat and coffee) could be attractive to strategic buyers.


Embedded below is Third Point's Q2 letter to investors (email readers come to the site to view it):



For more from Third Point, check out Dan Loeb's recommended reading list.

Scout Capital Starts Sodastream (SODA) & Fresh Market (TFM) Positions

James Crichton and Adam Weiss' hedge fund Scout Capital just filed two 13G's with the SEC regarding Sodastream International (SODA) and The Fresh Market (TFM). Both are brand new positions for the hedge fund.

Scout Capital manages over $4 billion. Weiss and Crichton will be presenting investment ideas this October at the Value Investing Congress in New York. Market Folly readers can receive a 42% discount to the event here.

Sodastream International (SODA)

Due to portfolio activity on July 11th, Scout has revealed a 5.07% ownership stake in SODA with 1,010,000 shares. Since this position didn't appear on their first quarter disclosure, they've acquired their entire position sometime over the last three and a half months (with buying activity as recent as last week).

Per Google Finance, Sodastream "is engaged in developing, manufacturing and marketing home beverage carbonation systems and related products. The Company develops manufactures and sells soda makers and exchangeable carbon-dioxide (CO2) cylinders, as well as consumables, consisting of CO2 refills, reusable carbonation bottles and flavors to add to the carbonated water."

The Fresh Market Inc (TFM)

The hedge fund also disclosed a 5.21% ownership stake in Fresh Market (TFM) with 2,500,000 shares (a brand new stake as well). To see what else they've been up to, head to some of Scout's recent portfolio activity.

Per Google Finance, Fresh Market is "a specialty retailer focused on perishable product categories, which include meat, seafood, produce, deli, bakery, floral, sushi and prepared foods. Its non-perishable product categories consist of traditional grocery and dairy products, as well as specialty foods, including bulk, coffee and candy, and beer and wine."

To hear these hedge fund managers' latest stock picks, be sure to head to the Value Investing Congress and take advantage of our discount before it expires next week.

Howard Marks on the U.S. Debt Ceiling: Oaktree Capital Commentary

Oaktree Capital's Howard Marks is out with his latest commentary, entitled 'Down to the Wire.' In it, he tackles the U.S. debt ceiling issue and its significance.

He notes that, "because the limitation is set in terms of absolute dollars and not indexed for inflation or growth, we would run into it every few years even if our debt only grew apace with the economy."

Marks, who recently released his book The Most Important Thing, is known for his insightful market commentary. Legendary investors like Warren Buffett and Seth Klarman sang the praises of his book and read his memos regularly.

Something worth paying attention to according to Marks is the shift in attitudes toward debt over the last forty years. The Oaktree Chairman highlights expanded credit card use, mortgages requiring little principal, the extension of borrowing power to companies with questionable credit ratings, and steadily increased borrowing by various nations.

Rather than summarize the rest of his thoughts, embedded below is Marks' latest commentary (email readers come to the site to view):



For more from Marks, head to his thoughts on the keys to success in a low return world.

And for more manager commentary, scroll through recent hedge fund letters we've posted up.

Jonathan Ruffer Worried About China, Says Reflation Trade Over

Jonathan Ruffer is out with Ruffer Investment Company's latest market commentary. Ruffer has returned approximately 16% per year since 2004 and is gaining respect as a top UK manager, following in the footsteps of Odey Asset Management and Lansdowne Partners.

Back in April, we presented Ruffer's commentary stating that the fund was overweight Japan. In their July missive, we see that the UK manager is worried about China as the country fought off deflationary forces by expanding its monetary base after the financial crisis.


China Concern

Ruffer writes (emphasis ours),

"China is overheating; a dislocative slowdown would disrupt the financial markets, and this, in turn, would likely compromise the global economy. This dynamic was very visible in 2008 in the West: the trade crisis was not predictable, though the soundings of industrialists - trade responded to the mayhem in the financial world ... China has the capacity to derail the whole world, and they don't publish their railway timetable."

This isn't the first time we've heard managers sound the alarm regarding China. Grandmaster Capital's Peter Wolff says China is a debt-fueled investment bubble.

Yet on the other side of the table, the legendary Warren Buffett has said China will be a big driver of growth for the next 10-20 years.

The question Ruffer is asking though, is what exactly is this growth costing and what happens if it stalls? That's certainly something worth pondering. Ruffer concludes that, "It looks reasonable to acknowledge that if China needs to slow its economy, then most of the developed world will need to maintain very low policy rates to support growth and the banking system."


The Reflation Trade: Over?

The UK manager also goes on to declare that the reflation trade is 'no longer wholly appropriate.' While selling US dollars and buying commodities was *the* trade much of the past two years, Ruffer notes that "zero interest rates in America mean that the monetary policy of the entire world follows in its wake."

Ruffer argues that the performance of financial assets has been largely (if not completely) driven by dollar debasement via quantitative easing. Yet now that Ben Bernanke has signaled that QE3 is not the preferred choice of action, what happens to all the money chasing returns in a low interest rate environment?

The insurance policy that backstopped risk-taking is no longer there. Thus, the reflation trade is over.

Embedded below is Ruffer Investment Company's latest market commentary (email readers come to the site to read it):



For related reading on these topics, check out hedge fund Kleinheinz Capital's thoughts on how inflation is the biggest threat to emerging markets.

Scout Capital's Adam Weiss & James Crichton Presenting at Value Investing Congress

It's just been announced that the founders of hedge fund Scout Capital will be speaking at the Value Investing Congress in New York City on October 17th & 18th. We've featured Weiss and Crichton's fund on the site numerous times before as they manage over $4 billion.


42% Discount to the Event: Market Folly readers receive a 42% discount by clicking here and using code: N11MF4. Take advantage of this ASAP because it expires July 29th!

Other Speakers:

- Bill Ackman (Pershing Square)
- Leon Cooperman (Omega Advisors)
- Jim Chanos (Kynikos Associates)
- Joel Greenblatt (Gotham Capital)
- Alexander Roepers (Atlantic Investment Mgmt)
- Guy Gottfried (Rational Investment Group)
- Michael Kao (Akanthos Capital)
- Whitney Tilson & Glenn Tongue (T2 Partners)

As you can see, the Value Investing Congress is loaded with prominent hedge fund managers. Get a peak inside their portfolios by hearing their latest investment ideas in New York this coming October.

The big discount for our readers expires in one week, so act now. Click here to save 42% off admission.

ValueAct Capital Goes Activist on Moody's (MCO), Buys More Motorola Solutions (MSI)

Jeff Ubben's ValueAct Capital has been quite active recently as evidenced by two 13D filings submitted to the SEC. As Ubben has explained in a previous interview, his fund employs an activist value investing strategy.

Going Activist on Moody's (MCO)

First, ValueAct has gone activist on Moody's (MCO) according to a 13D just filed. Per the filing, we learn that ValueAct has a 6.1% ownership stake in MCO with 13,866,970 shares.

At the end of the first quarter they only owned 8.2 million shares. The hedge fund firm has purchased over 5.5 million shares over the past 3 months, increasing their position size by over 67%. ValueAct were buying as recently as July 12th through 19th, adding at prices between $35-37, right where shares currently trade.

While Ubben's firm has filed a 13D signifying their activist intent with the position, the filing contains standard boilerplate about monitoring their investment and does not lay out any specific plans.

Moody's stock is interesting mainly because you have prominent investors on both sides of the table. Warren Buffett's Berkshire Hathaway owns a significant stake in MCO but was selling some shares last year.

David Einhorn's Greenlight Capital, on the other hand, has been short MCO and laid out their short thesis here. With ValueAct now coming to the table, it's clear they intend to apply their trademark activist style. We'll see what happens.


Buying More Motorola Solutions (MSI)

Ubben's hedge fund also just filed an amended 13D with the SEC regarding shares of Motorola Solutions (MSI). They now show a 7.0% ownership stake in MSI with 23,601,000 shares.

ValueAct recently purchased over $161 million worth of MSI shares, buying in late June and early July at prices ranging from $43.95 to $45.50 per share.

As we outlined in Ubben's previous pitch on MSI, ValueAct likes Motorola Solutions due to its improving margins and the fact that it is still growing despite a downcycle. MSI came to be as a result of Motorola splitting into two separately traded entities: MSI and Motorola Mobility (MMI).


For more on ValueAct Capital, head to Ubben's interview about his fund.

Lone Pine Capital Buys More VanceInfo Technologies (VIT)

Stephen Mandel's hedge fund firm Lone Pine Capital just filed an amended 13G with the SEC regarding shares of VanceInfo Technologies (VIT). Lone Pine now owns 10.1% of VanceInfo with 4,507,146 shares.

This marks a 7% increase in their share count as they owned 4,192,821 shares back at the end of the first quarter. In the past three and a half months, Lone Pine has purchased 314,325 additional VIT shares.

Back in late 2010, we detailed how Lone Pine added to its VIT stake and we noted then that the majority of this position was contained in their Lone Dragon Pine fund, their emerging markets investment vehicle. That continues to remain the case.

In additional recent portfolio activity from the hedge fund, we covered how Lone Pine bought more iSoftStone (ISS) and added to its WABCO (WBC) stake as well.

Per Google Finance, VanceInfo "is an information technology (IT) service provider and an offshore software development company in China. The Company’s range of IT services includes research and development services, enterprise solutions, application development and maintenance (ADM), testing, as well as globalization and localization."

Carl Icahn Talks Raised Clorox (CLX) Bid, Potential Breakup

Legendary investor and 'corporate raider' Carl Icahn recently made a bid for Clorox (CLX). After being rejected by the company, just yesterday he raised his bid to $80 per share, more than the current trading price of $74.

He sat down to chat with Bloomberg TV about his thought process. Icahn thinks that shares aren't trading up to his offer because the company still has yet to say they're for sale. Icahn also made it clear he wants to avoid a proxy fight.

If he was successful in a purchase, he would consider splitting it up, possibly keeping one of the divisions (though he refused to mention which). As far as antitrust concerns go, Icahn says that he doesn't think it would be a problem for CLX to be acquired by another company. At $80 per share, he thinks CLX is great value and that a large buyer looking for synergies could pay $100 per share.

That last point is why many investors seem to think that Icahn's 'bid' is merely posturing to ignite a bid from another company. The scenario plays on. As far as other recent investment ideas from Icahn, at the Ira Sohn Conference he pitched his own company: Icahn Enterprises (IEP).

Embedded below is Icahn's interview with Bloomberg TV (email readers come to the site to view):



Bloomberg TV also recently profiled Scion Capital's Michael Burry which we recommend watching as well.

Michael Burry of Scion Capital on Bloomberg's Risk Takers

Last night on Bloomberg TV's "Risk Takers", Michael Burry was profiled for his extraordinary subprime short. The former Scion Capital hedge fund manager is featured in Michael Lewis' excellent book, The Big Short.

While Burry is a value investor by nature, when he saw the warning signs of the impending housing bubble, he had to act. Bloomberg takes us through Burry's thinking and the pushback he received from investors upon straying from his equity value investing ways.

Embedded below is the profile on Burry from Risk Takers:



The video showcases blurbs from some of the letters Burry sent to clients before the crisis. We've posted up Burry's primer on credit default swaps & the subprime mortgage short for those interested.

At the end of the video, he mentions he's investing his own money now and doesn't have to deal with investors. Where exactly is he investing? We've posted up before that he's been buying farmland and gold.

For more great resources on Burry, we've posted up his recent subprime speech at Vanderbilt: Inside the Doomsday Machine.

East Coast Asset Management Sees Heightened & Prolonged Inflation Ahead

Christopher Begg is out with East Coast Asset Management's second quarter letter and in it takes a look at markets from a top-down perspective. While East Coast's investment principles are guided by value, they, like many other value investors such as David Einhorn (Greenlight Capital) have incorporated a top-down view into their thought process.

At present, East Coast takes the following notes:

- Developed countries continue to print money.

- Developed world currencies depreciate against emerging currencies.

- "Inflation will be heightened globally and accumulated wealth is at risk of losing purchasing power, therefore we will limit intermediate and long-term fixed-dollar investments."

- As paper currencies lose value, global equities will provide the alternative.

- Businesses with pricing power will outshine those without. (In the past, Market Folly highlighted how Berkshire Hathaway bought Lubrizol due to pricing power.)


Begg has also spent this summer teaching security analysis at Columbia Business School. The letter embedded below introduces his concept of 'finding longitude' which focuses on refining each investment to specific datasets that gauge how a business is truly performing:

(Email readers come to the site to read the letter)



East Coast's letters are always packed with insight, theory, and practical applications of investing so if you haven't read them, we'd highly recommend viewing East Coast's thoughts on:

- Competitive advantage
- On the topic of compounding
- Gaining an investment edge
- Variant perception

Tiger Global Adds to BitAuto Stake, Discloses HomeAway Position

We wanted to highlight some of the latest SEC filings from Chase Coleman's tech-focused hedge fund Tiger Global. Last year we focused on how Tiger was buying stakes in internet companies in emerging markets. That trend remains unchanged.

Coleman's firm has found great success by morphing into a venture capital fund, investing in private early stage tech companies. While these investments typically represent only a small portion of their funds (~10%), they've made a significant impact. According to II, Tiger is up a whopping 34.5% in 2011.

A perfect example of such success is social networking site Linked In (LNKD). The company went public in June and Tiger already owned a stake back when the company was private.

HomeAway Inc (AWAY)

Turning to recent portfolio activity, Tiger Global now has a 5.88% ownership stake in HomeAway Inc (AWAY) with 4,691,881 shares according to a 13G filed with the SEC.

This is yet another investment that they made pre-IPO. The company's initial public offering was on June 29th.

Per Google Finance, HomeAway is "an early-stage company. HomeAway operates the online marketplace for the vacation rental industry. As of March 31, 2011, HomeAway operated its online marketplace through 31 Websites in 11 languages and provided listings for vacation rentals located in over 145 countries."


BitAuto (BITA)

Tiger Global also filed a 13G with the SEC regarding shares of BitAuto (BITA). They disclosed a 7.3% ownership stake in BITA with 3,020,745 shares due to portfolio activity on June 20th. This marks almost a 47% increase in their position size as they only owned 2,055,500 shares at the end of the first quarter.

Per Google Finance, BitAuto "is a provider of Internet content and marketing services for People’s Republic of China’s automotive industry. Its bitauto.com and ucar.cn Websites provide consumers with up-to-date new and used automobile pricing information, specifications, reviews and consumer feedback."

To see what other equity investments Tiger Global has made, head to our premium newsletter.

What We're Reading ~ 7/20/11

Black swan fund hedges against extreme events [Forbes]

John Paulson: behind the backlash [Fortune]

Backlash against Harbinger's LightSquared plan [Dealbreaker]

The perfect hedge for this crisis [Marketwatch]

Notes from John Paulson's latest conference call [BusinessInsider]

Bulls see consolidation, bears see market top [Market Anthropology]

Piece on Raj Rajaratnam & Galleon's insider trading [New Yorker]

Profile of Bridgewater's Ray Dalio [New Yorker]

On the changing dynamic between hedge funds & prime brokers [All About Alpha]

Short-sellers are betting against these stocks [WSJ]

Barron's mid-year roundtable [Barron's]

Start-up hedge funds turn to seeders [Dealbook]

On redemptions at FrontPoint Partners [WSJ]

Why Bruce Berkowitz doesn't want to be Carl Icahn [Investment News]

Cash doesn't lie [Forbes]

More to come? Tweets land broker in trouble [Dealbook]

Corsair Capital Sees Increased Market Volatility Ahead (Q2 Letter)

Jay Petschek's hedge fund firm Corsair Capital Management finished the second quarter up 0.2% net, bringing them to up 6.2% for the year. They've turned in a solid 15.3% annualized return since 1991 and are one of our favorite funds to track.

Last quarter, we highlighted that Corsair anticipated increased M&A activity. Their second quarter letter focuses on the 2011 market landscape thus far and macro concerns.

They write, "there seems to be a delicate balance worldwide between stimulating economic growth and keeping prices of basic necessities within an affordable range ... we believe this uncertainty only increases general investor skittishness and market volatility."

Portfolio Updates

They also update their various positions by noting that they continue to expect Innophos (IPHS) to earn $5.00 of adjusted EPS in 2012, surpass market expectations, and trade at a 15x multiple. We've previously covered Corsair's bullish case on Innophos.

They continue to like their stake in Expedia (EXPE) as the company announced the impending spin-off of its TripAdvisor segment. The current issue of our Hedge Fund Wisdom newsletter lays out the investment thesis on EXPE in detail for those interested.

Corsair also updated their stakes in Maiden Holdings (MHLD), KAR Auction Services (KAR), and Pace Oil & Gas (PCE). Their letter also includes a write-up on their new investment in TNS Inc (TNS).

Embedded below is Corsair's Q2 letter (email readers come to the site to view it):

Larry Robbins' Glenview Capital Adds To Flextronics Stake (FLEX)

Larry Robbins' hedge fund Glenview Capital has disclosed a 5.45% ownership stake in Flextronics with 40,305,334 shares per a 13G just filed with the SEC.

This represents a 46% increase in their position size as they've purchased 12,757,291 shares since March 31st. To see the rest of Glenview's positions, you can of course head to our Hedge Fund Wisdom newsletter.

The filing was made due to portfolio activity on July 15th. While they bought shares last week, keep in mind that SEC regulatory rules only requires disclosure of such positions on a delayed basis.

For recent market thoughts from this hedge fund manager, we also detailed notes from Robbins' presentation at the Leaders In Investing Summit.

Per Google Finance, Flextronics is "a global provider of vertically integrated advanced design and electronics manufacturing services (EMS) to original equipment manufacturers (OEMs). The Company designs, builds, ships and services electronics products for its customers through a network of facilities in 30 countries across four continents. Its portfolio of customers consist of Alcatel-Lucent, Applied Materials, Cisco Systems, Dell, Ericsson, Hewlett-Packard, Huawei, Johnson and Johnson, Lenovo, Microsoft, Research in Motion and Xerox."

What We're Reading ~ 7/19/11

Recent surge in stock spin-offs [Abnormal Returns]

Sell in May and come back when? [FT Alphaville]

Ten ways to improve your investment process [Greg Speicher]

Ten Year Treasury during and after QE2 [Bespoke]

Italy is like Lehman Brothers [Reformed Broker]

Boring is good, buy Chemtura (CHMT) [Economic Musings]

Comparing junk bond ETFs [IndexUniverse]

Don't call the next tech bubble yet [Fortune]

History suggests big tech discount could linger [Reuters]

James Montier on tail risk hedging [Surly Trader]

Common attributes of individual investors [CXO Advisory]

Carl Icahn is still looking for trouble [CNNMoney]

Treasury printing less dollars as use of cash is down [NYTimes]

Strategist Jeff Saut Worried About Current Market Action

According to his weekly commentary, market strategist Jeff Saut is worried about recent market action. His worry, it seems, largely stems from the 1320 level on the S&P 500 which he sees as an important "attractor/repellor" level. Since the market has fallen below 1320, it has tried (and failed) three times to recapture it.

Just last week, Saut highlighted the biggest fears of 15 European portfolio managers. There is no doubt that caution seems to be the word of the summer. While Saut has not given up on the notion that the economic backdrop is set to improve, he does not like the current market action.

In order for him to give up on his optimistic/bullish call, he says he would need to see the S&P fall below 1295; a level that can easily be reached with one more sour day of market action.

Embedded below is Jeff Saut's latest weekly commentary:



You can download a .pdf copy here.

Saut mentions a few stocks in the missive above, but you can also see his current list of favorite stocks as well.

Request For Hedge Fund Letters

Now that Q2 hedge fund letters are starting to be released, we want to remind readers to please feel free to send in any hedgie letters you might have access to. Email us or add us to your distribution list: marketfolly@gmail.com

All submissions are treated as confidential and anonymous; your privacy is our top priority. We'll do whatever makes you most comfortable and can remove watermarks, summarize the letter, etc. The more people that share, the more manager updates we'll be able to cover.

Thanks for contributing!

Seth Klarman's Baupost Group Doubles Syneron Medical (ELOS) Stake

Seth Klarman's Baupost Group recently filed an amended 13G with the SEC regarding shares of Syneron Medical (ELOS). Per portfolio activity on June 30th, Baupost Group has disclosed a 11.06% ownership stake in ELOS with 3,836,071 shares.

This marks a 155% increase in their position size as they only owned 1,500,000 shares back on March 31st. So while Baupost added to this position significantly, keep in mind that it's still a relatively small equity position for them. Not to mention, Baupost has under 10% of its assets under management allocated long US equities.

In other disclosures from the hedge fund, we saw that Baupost trimmed its Audiovox stake (VOXX) and we also detailed their position in Gabriel Resources (TSE:GBU) as well.

Per Google Finance, Syneron Medical "designs, develops and markets aesthetic medical products based on its various technologies including its Electro-Optical Synergy (ELOS), technology, which uses the synergy between electrical energy, including radiofrequency (RF) energy, and optical energy to provide aesthetic medical treatments. The Company’s products, which it sells primarily to physicians and other practitioners, target a range of non-invasive aesthetic medical procedures, including hair removal, wrinkle reduction, rejuvenation of the skin’s appearance through the treatment of superficial benign vascular and pigmented lesions, acne treatment treatment of leg veins and treatment for the temporary reduction in the appearance of cellulite."

David Einhorn Buys Seagate Technology (STX), Sells Various Stocks

ZeroHedge posted up David Einhorn & Greenlight Capital's Q2 investor letter which reveals that the hedge fund was down 2.5% for the quarter and is now down 5% for the year.

Greenlight noted that the US economy has continued to soften as energy and food prices eroded consumer purchasing power. At the same time, Greenlight points to strong corporate earnings as a positive.

Bought Seagate Technology (STX)

During the quarter, Einhorn's hedge fund saw notable portfolio turnover. Greenlight built a "medium sized long position" in Seagate Technology (STX) with an average purchase price of $16.06 a share (STX currently trades around $16.90). The current issue of our Hedge Fund Wisdom newsletter features an analysis of STX for those interested.

Sold Positions

Greenlight also sold completely out of its position in Cardinal Health (CAH). At the same time, they continue to hold a large position in CAH's spin-off, CareFusion (CFN). You can also see the investment thesis on CFN in a free sample of our newsletter.

Einhorn's fund also sold out of CIT Group (CIT), Yahoo! (YHOO), Vicat SA (France: VCT), MI Developments (MIM), MDC Holdings (MDC), and Xerox (XRX). They also covered their short position in LED-maker Cree (CREE).

While Einhorn sold out of CIT Group, we noted last week that Dan Loeb's Third Point continues to hold CIT as one of their largest positions.

Given that Greenlight sold so many positions, it will be interested to see if they've put that capital to work elsewhere or have merely raised cash levels as a form of protection. We've highlighted one buy as Greenlight purchased Playtech (LON:PTEC) shares. Embedded below is Greenlight's Q2 letter:



If the embedded doc doesn't work, you can view/download it here.

For more from Einhorn, be sure to check out his presentation from the Ira Sohn Conference.

The Biggest Fears of 15 European Portfolio Managers

Market strategist Jeff Saut just concluded his visit with numerous European portfolio managers and his latest commentary summarizes their viewpoints. While he spoke with roughly 200 portfolio managers, it's interesting that most were bearish or very bearish on US equities due to fear of the debt situation, the dollar, and the debt ceiling.

While many PM's shared this view, Saut asked what their biggest fear was and here were their responses:

1. Fund managers that only use mutual funds & exchange traded funds (ETFs)

2. Investing is practiced in too complicated a fashion when it should be easy

3. A military coup in Greece

4. Inflation goes down instead of up

5. China sells half of its Treasury Bonds

6. Europe and the U.K. don't tackle their pension problems

7. There is blood in the street, but the markets trade higher

8. Most of the unemployed are un-hirable

9. The EU doesn't stay together

10. Water

11. Used to worry about Ireland, but don't anymore

12. Over-regulation

13. If the EU breaks up, what happens to the boom in German exports

14. The fact that only 11 residents in Greece declared annual incomes of one million Euros or more

15. Everyone is so negative that when the blue skies arrive they will be ignored


You can then compare and contrast the above viewpoints with that of UK hedge fund manager Crispin Odey who says that stockpicking is still working in his latest commentary.

Turning back to the US, Saut's recent missive also notes his skepticism around recent soft economic numbers as he thinks they are largely attributed to high commodity prices and the tragedy in Japan. Embedded below is Jeff Saut's full commentary:



You can download a .pdf copy here.

Be sure to also check out Saut's thoughts from mid-June that a trading bottom was near as well as some of his current favorite stocks.

What We're Reading ~ 7/11/2011

Richard Russell: #1 reason to be underweight equities [PragCap]

Can investors make money following hedge funds? [Institutional Investor]

Review of a great book on short selling [Davian Letter]

Highly recommended: The Art of Short Selling [Kathryn Staley]

How well does your hedge fund hedge? [All About Alpha]

How likely is a hard landing in China? [WSJ]

China's boom is more investment than consumption [AR+Alpha]

Stop fooling yourself, you're not Warren Buffett [Old School Value]

ZAGG: A thin film between love and hate [Financial Investigator]

Hedge fund giants are coming up small this year [Reuters]

Paulson & Co enjoys $550 million Lehman boost [CNBC]

Hedge fund bosses sound alarm on super-sized funds [Reuters]

Third Point Reduces Equity Exposure Further in June

For the month of June, Dan Loeb's Third Point Offshore Fund returned -2.6% but is still up 6.8% for the year and has seen 18.5% annualized returns. The Offshore fund manages just under $4 billion and Third Point recently closed to new investors.

Equity Exposure

At the end of June, Third Point's total equity exposure was 56.3% long and -25.6% short, resulting in 30.7% net long exposure. Their largest net long exposure comes in the consumer sector at 7.1% net long and the energy sector at 6.5% net long. The only sector they were net short was technology.

This marks a reduction in Third Point's equity exposure for the second consecutive month. At the end of May, they were 42.6% net long equities and so they've decreased exposure by almost 12% month over month.

Credit Exposure

Dan Loeb's firm also reduced credit exposure during the quarter down to 21.7% net long (down from 34.4% net long at the end of May). Their largest exposure this time around was 18.1% net long asset backed securities and 10.2% net long distressed debt. On the other side of things, they continue to be -10.1% net short government securities.

Top Positions

1. Delphi
2. El Paso (EP)
3. Gold
4. CIT Group (multiple securities held)
5. Technicolor (multiple securities held)

While at the end of May gold was Third Point's largest position, the slide in the precious metal caused it to slip to their third largest position a month later. CIT Group moves into their top 5 holdings this month, replacing CVR Energy (CVI).

Delphi is Loeb's largest holding and David Einhorn's Greenlight Capital also recently took a stake. In fact, Third Point and Greenlight share a few other common positions such as gold and CIT Group.

Top Winners & Losers

In the month of June, Third Point's positions in CVR Energy, Volkswagen, and various asset backed securities were their top winners. Their top losers in the month included Delphi, LyondellBasell (LYB), El Paso (EP), gold, and Technicolor.

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Eton Park Capital Opens Position in 3Legs Resources

Eric Mindich's hedge fund firm Eton Park Capital has opened a brand new position in 3Leg Resources. According to a UK regulatory filing made on June 28th, Eton Park now own 3.49% of 3Legs' outstanding shares.

3Legs Resources is involved in the exploration and development of unconventional oil and gas resources with a particular focus on shale gas in Europe. Poland is the group's main country of operation.

The company was admitted to trading on London's AIM market on June 14th, so it seems likely that Eton Park acquired their shares via the placement.

For other activity from Eton Park, we've covered the reduction in their Airgas (ARG) position.

What We're Reading ~ 6/30/11

Top ten perks of the 2011 proxy season [Footnoted]

Hedge fund setups: small teams versus sector heads [Bronte Capital]

Gold's investment attributes [AAII]

PIMCO loads up on muni-bonds backed by tobacco companies [Barron's]

Seahawk Drilling: value in bankruptcy? [Oddball Stocks]

Some hedge funds picked up Seahawk shares in the past [Market Folly]

Hedge fund persistence (.pdf download) [Financial Analysts Journal]

Investors' new worry: is there Greek debt in money market funds? [WSJ]

Why some pros still believe a big stock rally is coming [CNBC]

Direct hedge fund investments boosting consulting business [Pensions & Investments]

The $100 million ATM receipt [Dealbreaker]

Audio: angry shareholder confronts Carol Bartz @ Yahoo meeting [Techcrunch]

Nelson Peltz's Trian Fund Reveals Kraft (KFT) Stake

Nelson Peltz's Trian Fund Management just filed an amended 13F with the SEC and in it they reveal a stake in Kraft (KFT).

The new disclosure shows Trian owning 12,176,335 shares of KFT as of March 31st, 2011. Adding this data to their original filing, Trian's KFT position represented 18.3% of their reported assets at the time.

Bill Ackman's Pershing Square Capital also owns a sizable stake in KFT and likes the opportunity for organic growth and margin expansion. You can view Pershing's presentation on Kraft here.

Nelson Peltz's business partner Peter May recently laid out Trian's bullish case for Tiffany & Co (TIF) at the Ira Sohn Investment Conference as well. In the past, we've also detailed some of Trian's portfolio activity.

Omitting Positions From 13F Filings

Trian Fund Management omitted the Kraft position in their original 13F filed on May 16th which included a note that reads, "confidential information has been omitted from this Form 13F report and filed separately with the Commission."

Trian most likely arranged this treatment with the SEC because they were still in the midst of acquiring their position and felt public disclosure would boost prices. Other large investors have utilized this technique in the past, with the most notable being Warren Buffett.

Also, we recently detailed a scenario where Bill Ackman's Pershing Square Capital filed information on their Family Dollar (FDO) position confidentially with the SEC and released the info to the public at a later date. It seems more and more prominent funds are being granted this treatment by the SEC so we'll have to monitor a potential growing trend.

Jason Mitchell of GLG Partners on Investing in Sustainability

Jason Mitchell of GLG Partners was recently named one of Institutional Investor's 2011 rising hedge fund stars. He appeared on CNBC to talk about sustainable picks as well as how he approaches socially responsible investing.

He ponders, "What is sustainability? What is the opportunity set around that? And how we've defined it is: sustainability is the investment required to address demographic, environmental and social change."

He says there are around 8-10 sectors that reflect that, mentioning healthcare, education services, and agriculture.

Regarding healthcare specifically, Mitchell notes that "it's defensive, there's value, there's a lot of optionality, but even outside of the US, we're sitting on the cusp of a really interesting start of privatization in Germany ... probably two-thirds of German public hospitals are losing money and as a result, under investing. And the government is slowly, very deliberately and thoughtfully privatizing some of that and there are two companies out there. I mean, these are mid to large cap companies and they know how to run it. They reinvest, increase doctor count, and as a result get a more efficient balance sheet."

Embedded below is Mitchell's video interview with CNBC (email readers need to come to the site to watch the video):



We've also posted up an interview with another 2011 hedge fund rising star: Grandmaster Capital's Patrick Wolff who says that China is a debt-fueled investment bubble.

Crispin Odey's Latest Market Commentary: Stockpicking Is Still Working

Crispin Odey of UK hedge fund Odey Asset Management is out with his most recent market commentary, advocating that it is still a stockpicker's market.

Earlier this morning we posted that Odey started a stake in RSM Tenon and his missive below reveals additional purchases in shares of AXA and Zurich Financial.

His commentary also draws comparisons between the cost of home ownership in the US and UK and he implies that house builders are good value in the UK.

Crispin Odey writes,

"Over a month most of the macro-economic news has appeared to be disappointing. The unemployment rate in the USA has failed to fall, China has slowed down, the Japanese tsunami has turned out to have a greater influence on world industrial production than was hoped and banks have produced worse numbers than anticipated. The stockmarkets are down, government bonds are up and people are generally more nervous.

Equity markets have performed better than I could have expected in the face of these uncertainties, especially with Greece still being a problem. Stock picking is still working.

Our thesis of steamy convergence of third world to developed world incomes remains the template by which we measure recovery. The overheating of the emerging market economies, thanks to the rise in energy costs, has now been followed by a slow down but we still remain happy that the 20% wage increases in emerging markets against the flat wage growth in the west will continue to power world growth. The 5% cost inflation in the west that we suffer for now, will ultimately rebalance the world economy.

I continue to find companies to invest in. This quarter saw Henri de Castries of Axa approve the sale of their Canadian life business, and pull out of the life business in the UK, too. With such a new commitment to a 12% return on capital across all business lines so evident in management's mind, a discount to book value of 25% seems harsh. Meanwhile Zurich Financial, who have long practiced virtue, yields 8% in Swiss Francs.

Banks are as yet not allowed to have a business model but they are certainly cheap enough if a business model evolves in the future. House price moves in the USA which have ensured that the average house sells on only 2.4 times disposable incomes makes this an interesting market for bottom feeding. The ending of Fannie Mae / Freddie Mac's reign in the third quarter of this year should allow commercial banks to re-enter this market. Even if net interest margins rose to 400bp, buyers would still be paying less than they would be if they were renting, and that after paying a 4% redemption yield!

In the UK, affordability is still a problem with house prices 4.4 times disposable income vs. USA's 2.4 times, but interestingly prices only reflect the fact that in the USA, mortgage repayments include a 4% repayment of principal and so average cash costs are 7% of 240 or 16.8% of disposable incomes. In the UK, interest only mortgages are around 4%, and 4% of 440 =17.6% of disposable incomes. Rent typically costs around 22% of disposable incomes. So in both countries it is cheaper to own than to rent, provided that interest rates do not rise before wages rise. Since this is our view it makes sense to investigate further.

House building is running at around 110,000 down from 220,000 three years ago. Supply is running far behind national demand. House prices are no longer at a premium to old house prices, despite much lower running costs. With the house builders you are seeing 27% profit margins of 2007 now down to 7%, thanks to the need to swallow a 10% loss on 3 year old land banks. The shares are typically trading on 70% of sales, 10 times pre-tax profit. New land purchases at lower prices, should allow margins to rise to 17%. To find a business which is doing okay now, when real wages are falling, and not having to overpay, makes me excited. The day that we become competitive globally, these house builders should benefit from rising wages.

Meanwhile, the good news with the fund is that companies in our portfolio continue to be bid for. News of Avis, the American 'parent', bidding 60% more than the last share price for its European 'child', was welcome news for a holding that was worth just over 1.3% of the fund. No hooks, no fish. 31st May 2011."

For more insight from this hedge fund manager, we've also previously posted up Odey's thoughts on agricultural commodities and farming.

Odey Asset Management Open RSM Tenon Group Position

Crispin Odey's UK hedge fund Odey Asset Management has opened up a position in RSM Tenon Group (LON: TNO). Per trading on June 23rd, this brand new position is equivalent to 5% of RSM's outstanding shares.

The disclosure was made on June 27th and indicates the position was acquired via the contract for difference (CFD) market. We've also just posted up Odey's latest market commentary where he says it's still a stockpicker's market.

UK-based hedge funds have been busy as of late as Lansdowne Partners was out buying Mwana Africa as we detailed last week.

Per Google Finance, "RSM Tenon Group PLC, formerly Tenon Group PLC, provides a range of professional and business services. The Company has five segments: audit, taxation and advisory; turnaround and corporate recovery; risk management; financial management, and specialist tax. It provides solutions to clients that range from individuals and entrepreneurially-led owner-managed businesses to corporations and public sector organizations."