GMO Quarterly Update

Please find the latest quarterly update from Jeremy Grantham's GMO. It holds lots of good market data. Inside they make an argument on how U.S. small cap is now incredibly overpriced and poised for a potential pull back.

"U.S. small cap stocks are now as expensive as we have ever seen them. Perhaps more surprising still is the deafening silence about this distinctly frothy group. Although the S&P 500 price index is still some way below its all-time high, U.S. small caps are within spitting distance of theirs: a high that was last reached with a booming global economy, strong employment, and a debt-driven consumption binge in full swing."

Jeremy Grantham has been arguing the virtues of large cap for a couple quarters now so its interesting to see this reiterated here and supported with some data.

Enjoy.





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Crispin Odey - Odey Asset Management Q1 Call Notes

Crispin Odey of Odey Asset Management recently had his Q1 conference call. As some of you may now, Crispin is famous for predicting the credit crunch and betting correctly on many a banks demise.

In the Q1 call they interesting talk about the threat of inflation.

"The only question is when you get to a position where the West is competitive, we are not going to continue to see wage growth of 1.8% or 1%, because the fact is we are building up this sense in which we are way behind the line in terms of keeping up the cost of living so we anticipate, whether it is 2012 or whether it is 2013, that we will not see a 1% rise, we will see a 8% rise and if we see a 8% rise, 75% of that will come through straight back into inflation. So our forecast is that inflation, far from being 5% at the end of that, it will be at 11%. Which means at that moment interest rates have to rise because that is the moment that the central banks have got that mandate. If interest rates rise from 0% to 7%, you can be sure that at round about 35% to 40% of that rise will make its way again through to inflation."

The threat of inflation is huge and you have seen Seth Klarman's Baupost Group and some other astute funds position for high inflation going forward via various black swan insurance policies.

Without further delay..enjoy:


Crispin Odey's Transcript Q1-11

Jeremy Grantham and GMO Capital's Q1 2011 Letter

Below please find Jeremy Grantham of GMO Capital and his always enjoyable quarterly letter. In the Q1 2011 letter he discusses his view on commodities and the capital markets. One particular idea that was rather interesting:

"Until about 1800, our species had no safety margin and lived, like other animals, up to the limit of the food supply, ebbing and flowing in population. From about 1800 on the use of hydrocarbons allowed for an explosion in energy use, in food supply, and, through the creation of surpluses, a dramatic increase in wealth and scientific progress. Since 1800, the population has surged from 800 million to 7 billion, on its way to an estimated 8 billion, at minimum. The rise in population, the ten-fold increase in wealth in developed countries, and the current explosive growth in developing countries have eaten rapidly into our finite resources of hydrocarbons and metals, fertilizer, available land, and water. Now, despite a massive increase in fertilizer use, the growth in crop yields per acre has declined from 3.5% in the 1960s to 1.2% today. There is little productive new land to bring on and, as people get richer, they eat more grain-intensive meat. Because the population continues to grow at over 1%, there is little safety margin. The problems of compounding growth in the face of finite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety)."

That does a great job explaining why the long-term trend for agriculture and related assets is very bullish over the near term. I am particularly interested in CVR Partners (UAN) which is a nitrogen fertilizer facility that is structured as an MLP. Haven't dug deep yet but it has decent potential.

Without further delay. Enjoy:

GMO - 4-25-11

Howard Marks - The Most Important Thing

As you may or may not know, Howard Marks of Oaktree is coming out with a new Book next week. The book is titled The Most Important Thing: Uncommon Sense for the Thoughtful Investor

I am a huge fan of Howard Marks' letter and am quite excited to read this upcoming book. The Innoculated Investor was lucky enough to obtain an advanced copy of the book and posted a detailed review. I enjoyed the review and it got me even more excited to read the book once its released. The Innoclulated Investor's review can be found below:

Book Review- The Most Important Thing by Howard Marks

Longleaf Partners - Mason Hawkins Q1 2011 Letter

Below please find Mason Hawkins' Longleaf Partners Q1 2011 letter. Longleaf is a well run mutual fund that has a fantastic long-term record. In the letter they discuss how their insurance holdings illustrate one of their major advantages in generating superior long-term returns, how rising energy prices are affecting certain key holdings, and why they’re finding more opportunities today outside the U.S. than in it.

Enjoy.


Southeastern - Q1'11

Bill Browder of Hermitage Capital speech at Stanford

Below please find a Bill Browder's (of Hermitage Capital) speech at Stanford in 2009. While the video is a touch dated it is very interesting. For those who are not familiar with Bill Browder and Hermitage capital his story is truly fascinating. He at one point ran the largest hedge fund in Russia and really minted money using a flavor of activism. His fund has truly outstanding performance. I don't want to ruin the story but let me reiterate that if you are not familiar with him it is worth watching.

Jim Grant on Wealthtrack

Below please find Jim Grant of Grant's Interest Rate Observer (which I am a huge fan of) recent interview on Consuelo Mack's Wealthtrack. James Grant explains why he believes the Federal Reserve’s easy money policies will wreak havoc on the economy and markets. The dangers of inflation creep and how to protect yourself against it. It is quite enjoyable.

Third Point Capital (Daniel Loeb) - Q1 2011 Letter

Daniel Loeb's Third Point Capital is out with their latest Q1 2011 letter. For the quarter Third Point returned 8.6% and they manage $6.7 billion. They are event drive and have paid particular attention to energy as of late. Loeb's hedge fund has focused specifically on the energy sector, owning positions in Williams Companies (WMB), El Paso (EP), and CVR Energy (CVI).

Third Point originally invested in WMB back in Nov 2010 - they have since grown this 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 a classic special situations investment so be on the look out for more like it.

Loeb does a nice job discussing the energy names mentioned above.

Enjoy.


Third Point - 4-8-11

Video of Michael Burry's speech at Vanderbilt

Below please find the video recording of Michael Burry's - of Scion Capital and Michael Lewis' The Big Short Fame - recent speech at Vanderbilt University. In the speech he discusses QE2, his thoughts on how Goldman Sachs orchestrated a short squeeze in order to establish a bigger CDS position, how he goes about investing, etc.

It is worth watching. He unfortunately gives no explicit investment advice. The lecture is titled "Inside the Doomsday Machine with the Outsider who Predicted and Profited from America’s Financial Armageddon" so as you can guess the speech focuses around his first hand account of how and why the housing bubble occurred and how he profited from the crash.

Without further delay, enjoy:

Paulson & Co 2010 Year End Letter

I was rummaging through some of the many letters that I have read and it recently dawned on me that I forgot to post up John Paulson's year end letter to his investors. My apologies. The letter does a nice job of walking you through Paulson's 2010 returns for their various funds. As you can clearly see being in gold denominated shares was a good bet in 2010. The letter then walks through some organizational updates, My favorite part of the letter is Paulson's roadmap. It is interesting to see what has worked and what they are planning on going forward. They also give some color on the current state of the economy.

Without further delay, enjoy.

Paulson_Co-Q4-2010

Jeff Gundlach and DoubleLine presentation on the current state of the economy

Below please find Jeff Gundlach's (via DoubleLine) presentation on the current state of the economy. There are some pretty startling charts showing alarming debt to GDP levels, etc. This shouldn't really be news to anyone but it is shocking to see it in graphical form. It is 97 pages of interesting graphs and data.

Enjoy.


4-12-11 JEG Webcast Deja Vu

GMO white paper on the potential of another lost Japanese decade

GMO's Ed Chancellor has a nice peice out on common perceptions, or rather misperceptions, about Japan that prevailed before the latest crisis. He talks about demographics, deficits, deflation and corporate decline. It is interesting to take this in perspective with some of the arguments we have seen from people like Kyle Bass of Hayman Capital (for those who have forgotten please check out Hayman Capital's Q4 letter.


I am always a fan of getting more data on the Japan situation especially as I think they provide interesting lessons for an already over levered United States. Without further delay, enjoy:

Ed Chancellor Another Lost Decade from Japan

Leon Cooperman (Omega Advisors) on CNBC

I found this discussion to be fairly interesting. Leon Cooperman of Omega Advisors discusses his view on the economy going forward, his view on Buffett and the Sokol affair, and finally Michael Steinhardt's recent comments on CNBC. It is a little lengthy but worth listening to in the background.

Enjoy.

T2 Partners Q1 2011 Letter

Below please find T2 Partners' Q1 2011 letter (technically its their monthly letter but seeing as how it covers the end of Q1 I have labeled it as such). Hat tip to marketfolly for posting the letter so quickly.

Performance was down -4.3% in March and -3.1% for the year. This trails the S&P 500, which is up 5.9% in 2011. They do briefly address the Sokol situation and Berkshire Hathaway (which they are shareholders of).

Without further delay...enjoy.

T2 Partners - 4-4-11

Absolute Return Partners April 2011 Letter

The folks from Absolute Return Partners are out with their April 2011 letter. For those who are unfamiliar with them they are a European based fund that manages around $225m. The letter makes the argument that investors should seek out illiquid investments as they believe they will outperform their more liquid brethren. Basically stating that the illiquidity premium has risen to multi-year highs due to investor reluctance to commit to these names after getting badly burned in the Great Recession.

Anyways, enjoy.


ARP

Top Paid Hedge Fund Managers of 2010

Alpha magazine is out with their annual ranking of the top paid hedge fund managers of 2010. Ten years ago, when the hedge fund industry was much smaller than it is today, it took 25 hedge fund managers to earn a combined annual payday of $5 billion. Last year this number was earned by John Paulson - primarily driven by his bet on Gold and the U.S. economic recovery.

Last year was very lucrative for some of the biggest and best-performing hedge funds’ chiefs. Wealth was so concentrated that a mere 25 people pocketed a total of $22.07 billion, according to this year’s annual ranking by AR Magazine, which tracks the hedge fund industry. At $50,000 a year, it would take the salaries of 441,400 Americans to match that sum.

If you track fund flows - which I do - you see that the larger funds are taking the lion's share of new capital. This results in many big funds getting bigger while smaller funds struggle to grow even if the performance is there. One result of this is a number of of top hedge fund earners pocketing massive pay days despite only single-digit returns for their investors. For instance, David Shaw of D. E. Shaw, a firm that uses complex algorithms to determine its investments, made the list with income of $275 million, even though his biggest fund returned a paltry 2.45 percent and over all the firm lost 40 percent of its assets. Other managers who collected big paychecks while their funds had mediocre returns included George Soros, who is retired but has most of his money in the $28 billion Quantum Endowment fund. The Quantum fund rose 2.63 percent last year, its worst performance since 2002. Likewise, funds at Moore Capital Management had mostly single-digit returns, but the manager, Louis Bacon, pocketed $230 million based on the increase in value of his holdings in the funds as well as a portion of the firm’s 3 percent management fee and 25 percent performance fees.

This leads me to believe that fees will inevitably come done. While I have no qualms about paying up for top performance, no one should pay up for mediocre performance. This is why I have always been a fan of having management fees just covering costs (maybe even small salaries for staff <$100k) then they bulk of their income coming from performance based payments. These payments should be deferred over multiple years that way managers don't get paid if performance lags after a big up year.


Enough with my ranting. Here is the official list:

1) John Paulson - Paulson & Co. - $4.9 billion
2) Ray Dalio - Bridgewater Associates - $3.1 billion
3) James Simons - Renaissance Technologies - $2.5 billion
4) David Tepper - Appaloosa Management - $2.2 billion
5) Steven A. Cohen - SAC Capital Advisors - $1.3 billion
6) Edward S. Lampert - ESL Investments - $1.1 billion
7) Carl Icahn - Icahn Capital - $900 million
8) Bruce Kovner - Caxton Associates - $640 million
9) George Soros - Soros Fund Management - $450 million
10) Paul Tudor Jones - Tudor Investments Corp. - $440 million