Jeff Saut's Market Commentary: Still Due For a Pullback

Market strategist Jeff Saut released his investment commentary earlier this week.  In it, he talks about how the rally since the end of December has been rampant and is one of the longest he's seen.  He concludes,

"While we are certainly due for a pause/pullback, any such action should prove to be short-lived and shallow, providing there is not some kind of 'black swan' event that precipitates it.  If investors want to be bullish on the US economy, but are worried about the extended rally in stocks, they might consider 'long' positions in the US dollar."

Embedded below is Jeff Saut's weekly commentary:




You can download a .pdf copy here.

For more from this strategist, see his previous commentary on a permanent investment.

Lee Cooperman Raises Monitise Stake

Lee Cooperman's hedge fund Omega Advisors has revealed an increase in London listed Monitise (LON:MONI).  Due to trading on March 20th, Omega's position has increased from 5.65% to 10.06% of Monitise's voting rights.

Cooperman's firm originally took a stake in Monitise back in January of this year.  We've also detailed how Louis Bacon's hedge fund Moore Capital Management also disclosed a stake back in December.

Per Google Finance – “Monitise plc is a United Kingdom-based holding company. The principal  activity of the Company is as a technology company delivering mobile banking, payments and  commerce networks worldwide. The Company’s segments include Live Operations, Investment in  future operations and Investment in technology platform. Live operations include both territory  deployments and development contracts, which consist of Monitise United Kingdom, Monitise  Americas and Global accounts. Investment in future operations segment represents the Company’s  operations which are not live operations covering both pre-sales and start-up period. Investment in  technology platform segment comprises the ongoing development, enhancement and maintenance  costs of the Monitise technology platform. On June 25, 2012, the Company acquired US mobile  banking and payments specialist, Clairmail Inc.”

The Bull Case on Coach (COH) From Broyhill Asset Management

Broyhill Asset Management recently released its research on shares of Coach (COH).  They're bullish on the company and classify it as a classic compounder.

Broyhill writes,

"Coach currently trades at 8.3x EBIT,  13.0x current and 11.7x forward earnings. In other words, the stock is priced as if Coach’s growth is long in  its past. At its peak in 2001, shares fetched 32 times earnings. If we assume that Coach ultimately trades  back towards its average forward multiple of 15x over the next three years, we estimate the stock is worth  $76.60 in our base case, which represents more than 50% upside potential. In our bull case, upside is significantly greater."

Broyhill's thesis on this handbag retailer is pegged on three growth drivers: the ascent of affordable luxury, continued brand extension, and ongoing international expansion.

They feel a short-term shift in investor sentiment has created an entry point for long-term investors.  Their report, embedded below, highlights industry dynamics, competitive positioning, and executive leadership.


They also highlight the following as areas of potential risk:

- International expansion
- The Chinese consumer
- Margin compression
- Brand dilution
- Competition

Embedded below is Broyhill's full 20-page pitch on shares of Coach (COH):




For more research from this firm, we've also highlighted Broyhill's pitch on Oaktree Capital Group.

What We're Reading ~ Analytical Links 3/27/13

Doug Kass' basic investing tenets [TheStreet]

Cannibals: finding companies doing 'good' buybacks [ValueInvestingLetter]

Four villains of decision making [Farnam Street]

Student loan write-offs hit $3 billion in first 2 months of year [Yahoo News]

America's new railroad age [WSJ]

Examining Cupid PLC [Bronte Capital]

Relative value in credit risk [Bigger Capital]

Technicals: keeping an eye on Dr. Copper [Kimble Charting]

Soda consumption declines to lowest level since 1996 [CNBC]

Value investing in India is dead [Atyant Capital]

Investors face a shrinking stock supply [USAToday]

Market psychology money and investing personality tests [MarketPsych]

Hewlett Packard (HPQ) shares soar, but is it a real turnaround? [Barrons]

Dell (DELL) board continue talks with Icahn and Blackstone [Dealbook]

Google (GOOG): How YouTube is casually beating other social networks [PandoDaily]

Don't blame Barnes & Noble (BKS) [Digital Book World]

10 influential blogs financial advisors should be following [Financial-Planning]

What We're Reading ~ Hedge Fund Links 3/22/13

An earnings report every hedge fund manager should review [All About Alpha]

Nelson Peltz reportedly plotting Mondelez/Pepsi merger [Telegraph]

Hedge funds continue with their dollar love affair [ValueWalk]

Hedge funds dividing into haves and have-nots [II Alpha]

When David Einhorn talks, markets listen, usually [BusinessWeek]

SAC Capital's CR Intrinsic unit agrees to insider trading settlement [SEC]

After disappointing start to 2013, how will hedge funds catch up? [Reuters]

SEC digging into fund fees [WSJ]

Hedge funds are fueling foreclosure inflation [UPI]

Farallon Capital launches real estate vehicle [Reuters]

Behavioral finance helps fund managers spot losers [Wall Street and Tech]

Hedge funds build treasury bets to '07 high [Bloomberg]

Can investors win by following Carl Icahn into battle? [Yahoo Finance]

Hedge fund fees under pressure [Financial Standard]

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

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

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

He writes,

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

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

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





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

Bill Ackman's Latest Herbalife Presentation: Comparing HLF to Fortune Hi-Tech Marketing

If you haven't seen it yet, Bill Ackman of hedge fund Pershing Square Capital has released a new slideshow on his short position in Herbalife (HLF).  In it, he further elaborates on his claim that HLF is a pyramid scheme and compares it to Fortune Hi-Tech Marketing.

Ackman made this comparison due to the FTC's recent legal action against Fortune Hi-Tech Marketing.  Obviously, he feels there are numerous similarities and he points them out in the slideshow.

Embedded below is Ackman's latest Herbalife slideshow presentation:




For more analysis on this name, head to Ackman's original short thesis on Herbalife (HLF).  He also followed up with questions for Herbalife.

What We're Reading ~ Analytical Links 3/20/13

What matters more in decisions: analysis or process? [Farnam Street]

The stock market and the economy are two very different animals [Abnormal Returns]

One of the most sentiment-driven rallies ever [Reformed Broker]

A pitch on retailer Coach (COH) [Old School Value]

Walt Disney (DIS): Can ESPN sustain its fee subscriber growth? [Trefis]

A small investors' guide to activist investing [Fool]

When will interest rates rise? [LearnBonds]

Technical tools for helping to identify possible market tops and bottoms [Chris Perruna]

Confirmation bias and the importance of asking "why might I be wrong?" [Incblot]

Why Redfin, Zillow (Z) and Trulia (TRLA) haven't killed off real estate brokers [BW]

This is the future of TV [Quartz]

Is it time to short Canada? [Bonddad]

How to beat Amazon (AMZN), Best Buy (BBY) edition [WSJ]

The scariest statistic about the newspaper business today [The Atlantic]

Short sellers flee the scene [WSJ]

10 signs stocks are about to tumble [Marketwatch]

Should investors be on Twitter? [Felix Salmon]

March madness analytics: blind bracket tool [WSJ]

Discount to the London Value Investor Conference 2013

We're excited to announce a special discount for Market Folly readers to the upcoming London Value Investor Conference 2013 that benefits children's charity Place2be.

London Value Investor Conference 2013

£100 Discount Code: MARKETFOLLY123 
Click here to register

Market Folly has managed to secure a very limited number of discounted tickets to the forthcoming London Value Investor Conference 2013.  This year's conference takes place on the 9th of May 2013 at Central Hall Westminster with the following excellent speaker line-up:

- Howard Marks, Oaktree Capital - The Most Important Thing
- Michael Price, MFP Investors - The Peter Cundill Foundation Address
- David Harding, Winton Capital - Searching for Value in Data
- Anthony Bolton, FIdelity China Special Situations Fund - Q&A Session
- Nick Purves and Ian Lance, RWC - New Challenges for Value Investors
- Richard Oldfield, Oldfield Partners - Still Simple, Still not Easy
- Plus speakers from smaller, less well known funds (see the full list of speakers here)

As part of their presentation, each of the speakers will give at least one current investment idea.  Winton Capital has also kindly agreed to sponsor a drinks reception after the event, which will be a great opportunity for networking amongst the value investing community.

With 8 weeks to go, the number of delegates attending is already well ahead of the total who came last year.  It is expected that the 2013 conference will be the largest gathering of value investors ever outside of the USA.

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In order to claim your special £100 discount to this conference,
please use the code MARKETFOLLY123 when signing up here.

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The last London Value Investor Conference donated its profits to the children's charity, the SMA Trust.  This year's conference will be supporting the children's charity Place2be.

Ruane Cunniff Goldfarb: Sequoia Fund Annual Letter 2012

Catching up on a few more notable 2012 annual letters, we turn next to the Sequoia Fund run by Ruane Cunniff & Goldfarb.  An investment of $10,000 at inception in 1970 has grown to over $2.89 million as of the end of 2012.  They returned 15.68% in 2012.


Key Takeaways

- They currently don't see many compelling investment opportunities.  Began 2012 with 21% cash position, ended the year with 16%

- "In the fourth quarter of 2012, we were modest net sellers of equities for the first time since 2008, in response to specific situations at several of our portfolio holdings."  They exited Target (TGT) and Becton Dickinson (BDX).

- "Valuations for stocks are heavily influenced by interest rates, and particularly by the risk-free rate of return on 10-year and 30-year United States Treasury bonds. Relative to the current return on Treasury Bonds, stocks continue to be quite attractive.However, the current risk-free rate of return is not a product of market forces.  Rather, it is an instrument of Federal Reserve policy."


Top Holdings At 2012 Year-End

1. Valeant Pharmaceuticals (VRX): 11.6% of assets
2. Berkshire Hathaway (BRK.A): 10.9%
3. TJX (TJX): 7.5%
4. Fastenal (FAST): 5.6%
5. Mohawk Industries (MHK): 4.0%
6. Idexx Laboratories (IDXX): 3.2%
7. Advance Auto Parts (AAP): 3.1%
8. Precision Castparts (PCP): 3.1%
9. Rolls-Royce (LON:RR): 3.0%


Embedded below is Ruane Cunniff's annual letter from the Sequoia Fund where they go into detail about some of their positions and overall market views:




For more on this fund, late last year we posted up why Ruane Cunniff likes Valeant Pharmaceuticals.

PointState Capital Reveals Stake in iStar Financial (SFI)

On Friday, Zach Schreiber's hedge fund PointState Capital filed a 13G with the SEC regarding shares of iStar Financial (SFI).  Per the filing, PointState has revealed a brand new equity position in the company.

The hedge fund firm now owns a 6.5% stake in SFI with 5,492,500 shares and the filing was required due to portfolio activity on March 5th.

PointState was founded by former Duquesne Capital employees with seed capital from Stanley Druckenmiller after he wound down Duquesne as well as capital from other former investors in Duquesne.  We recently highlighted lessons from Druckenmiller, which has been a popular post.  Druckenmiller also gave a rare interview recently.

Per Google Finance, iStar Financial is "a fully integrated finance and investment company focused on the commercial real estate industry. The Company provides investment capital to high-end private and corporate owners of real estate and invests directly across a range of real estate sectors. The Company is a real estate investment trust (REIT). The Company operates in three segments: lending, net leasing and real estate investment."

A few months ago, we also highlighted other portfolio activity from PointState.

Market Folly's 4th Annual Free March Madness Bracket Contest

It's that time of year again: march madness.  This year marks Market Folly's 4th annual bracket contest for college basketball fans.

To join the free contest, please click this link:  http://marketfolly.mayhem.cbssports.com/e
The password to join is: mf


Prizes

1st place:  The winner of the contest will receive a free one year subscription to our Hedge Fund Wisdom premium newsletter (a $300 value).

2nd place:  A free copy of Bethany McLean and Joe Nocera's book: All the Devils Are Here: The Hidden Story of the Financial Crisis.


Only one entry per person.  You must fill out your bracket before games start this Thursday!  Good luck!

Sohn Conference Speakers Announced: Druckenmiller, Singer, Einhorn, Eisman & More

The 18th Annual Sohn Investment Conference has just released its list of speakers and it's packed with prominent hedge fund managers.  This is always one of the premier investment conferences each year and proceeds benefit the Sohn Conference Foundation, dedicated to the treatment and cure of pediatric cancer.  You can register for the event here.

Event Details

Date: Wednesday, May 8th, 2013
Time: 12pm - 6pm with reception to follow
Location: Lincoln Center, New York City


Speakers List

Stanley Druckenmiller, ex-Duquesne Capital
David Einhorn, Greenlight Capital
Paul Singer, Elliott Management
Steve Eisman, Emrys Partners
Bill Ackman, Pershing Square
Kyle Bass, Hayman Capital Management
Jim Chanos, Kynikos Associates
Mitchell Julis, Canyon Partners
Jeffrey Gundlach, DoubleLine
Keith Meister, Corvex Management
Li Lu, Himalaya Capital
David Stemerman, Conatus Capital
Clifton Robbins, Blue Harbour Group
Tor Olav Troim, Seadrill


As you can see, the list of speakers is fantastic so there should be some intriguing investment ideas shared, all benefiting a great cause.  To get a ticket to the event, click here.

What We're Reading ~ Hedge Fund Links 3/15/13

Once bashful, hedge fund pros bask in media glare [Yahoo Finance]

Oaktree Capital's founder knows how to get an edge in investing [Barron's]

Bill Ackman on what makes a great investment [Advisor Perspectives]

York's Dinan squares off against Ackman over JC Penney [Reuters]

Ray Dalio on the upside of negative feedback [Freakonomics]

BofA: hedge funds are fully invested [Business Insider]

New hedge fund launches rise on record industry capital [Investment Europe]

Lansdowne bets against one of France's biggest firms [ValueWalk]

Debunking myths about activist investors [Harvard Law]

Top pension approves $800 million for commodities [Hedgeworld]

Mixed hedge fund views on China [Institutional Investor]

Paulson's fund a bust in 2012 [NYPost]

Micros Systems jumps after ValueAct Capital takes stake [Bloomberg]

Blackstone said to get $2.1 billion loan for home purchases [Bloomberg]

What Vegas can learn from Wall Street [Bloomberg]

Ackman, Loeb, Icahn: The big short war ~ full article [Vanity Fair]

Tiger Management buys Dubai internet start-up [ArabianMoney]

Eddie Lampert's 2012 Annual Letter: Sears Holdings

For value investors interested, below is Eddie Lampert's annual letter from Sears Holdings (SHLD).  He reviews 2012, provides SHLD specific commentary, and also shares thoughts on the retail industry in general.

Embedded below is Eddie Lampert's 2012 letter:




For other recent value investor commentary, be sure to also check out Warren Buffett's annual 2012 letter.

New Book Recommendations From Warren Buffett

If you missed it, Warren Buffett's annual letter was released recently and in the Berkshire Hathaway 2012 annual report was a recommended reading list from the Oracle of Omaha himself.


New Books Recommended By Buffett

The Outsiders by William Thorndike Jr. - A book about CEOs who excelled at capital allocation.

Tap Dancing to Work: Warren Buffett on Practically Everything by Carol Loomis - Authored by Buffett's longtime friend.

The Clash of Cultures: Investment vs Speculation by Jack Bogle - On how certain things have altered the concept of long-term investing

Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications by Laura Rittenhouse - In an age of 'management speak' this helps you read between the lines.



We've added these to the other books found on Warren Buffett's recommended reading list.

Lee Cooperman Boosts Polycom Stake

Lee Cooperman's hedge fund Omega Advisors just filed a 13G with the SEC regarding shares of Polycom (PLCM).  Per the filing, Omega has revealed a 5.43% ownership stake with 9,608,699 shares.

This marks a 70% increase in their position size since the end of 2012.  The 13G was required due to portfolio activity on March 6th.

Per Google Finance, Polycom is "a provider of unified communications (UC) solutions and a provider of telepresence, video, voice and infrastructure solutions based on open standards. With Polycom RealPresence video and voice solutions, from infrastructure to endpoints, people all over the world can collaborate face-to-face without being in the same physical location."

For more from this manager, Cooperman recently said the market is fairly valued and talked about some of his other positions.

Oaktree's Howard Marks: Equities in Stage 2 of a Bull Market

It's no secret that Oaktree Capital's Chairman Howard Marks pens some of the most-read memos on Wall Street (Warren Buffett even reads them).  So while Marks' last memo talked about high yield bonds, his newest missive is entitled 'The Outlook for Equities'.


Valuing Stocks Today


The Oaktree founder says that earnings yield is a better measure of stocks' long-term potential (earnings yield is the flipside version of the P/E ratio, i.e. E/P).

Marks points out that the P/E ratio today is around 16 and the earnings yield is around 6.25%.  Comparing the yield ratio to historical figures, he argues things are favorable today.  However, he cautions:

"The problem with basing pro-equities arguments on the yield comparison is that most of equities' current attraction on that basis comes from the lowness of interest rates."


The Bull Case For Equities

Marks highlights a few different reasons to be bullish on equities, such as: mutual fund inflows have been low (and outflows have stopped) and stocks aren't highly valued.  His most intriguing point, however, lies in investor behavior:

"A move upward can be powered by a switch from the fear of losing money to the fear of missing opportunity.  When attitudes are moderate and allocations are low, it doesn't take much."

So the main question here is, are investors now more concerned about downside risk or missing out on the rally?

Marks feels there are three stages of a bull market

1. Few people begin to believe things will get better
2. Most investors realize improvement is actually underway
3. Everyone's sure things will get better forever

He thinks we're currently in the first half of stage 2.

Embedded below is Howard Marks' latest memo, 'The Outlook for Equities':




For more from Oaktree, be sure to also check out Howard Marks on high yield bonds today.

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

The truth about market timing [The Big Picture]

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

7 big questions to help you invest better [Fool]

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

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

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

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

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

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

Sidetracked: why our decisions get derailed [Simoleon Sense]

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

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

Gold is the worst investment of 2013 [Quartz]

Quantitative easing: the greatest con ever sold [Minyanville]

7 investment principles for entrepreneurs [Inc]

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

Amazing shift in US fuel consumption trajectory [FT Alphaville]

What We're Reading ~ Hedge Fund Links 3/8/13

Some hedge fund short activity in Europe [ValueWalk]

Hedge fund fees: price competition? [Research Puzzle]

What GLRE is worth to David Einhorn [Brooklyn Investor]

Market thoughts from Whitebox's Andrew Redleaf [Absolute Return]

Interview with Mohnish Pabrai [Outlook India]

Tiger Accelerator Fund pounces back after early losses [HFIntelligence]

Skybridge: MBS trade far from over [HFIntelligence]

For mortgage hedgies, 2013 is a bond-picker's market [Reuters]

Paulson gold fund down 18% [Bloomberg]

Why it's smart to be reckless on Wall Street [Scientific American]

Fees on global hedge funds rise in 2012 [LifeHealthPro]

Quotes from Vanity Fair's profile on Bill Ackman [BusinessInsider]

Bridgewater the hottest fund for Harvard Grads [Daily Beast]

Porsche/VW: 12 hedge funds drop US appeal over short squeeze [Reuters]

In Herbalife (HLF) short war, hedge funds miss the target [Dealbook]

Hedge fund investors rediscover taste for equities [Reuters]

Agrium (AGU) issues proxy circular, slams JANA's break-up plans [Reuters]

Lansdowne CEO Paul Ruddock to step down in June [Reuters]

Hong Kong is no longer such a haven for Western hedge fund managers [Quartz]