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Thursday, October 27, 2011

Hugh Hendry at LSE Alternative Investment Conference

Earlier in the year Hugh Hendry presented at the LSE Alternative Investment Conference. Luckily someone was there to capture it all on film. Enjoy the following videos. In it he discusses global leverage, China bubble, currency wars, Japan short, and much more.


Part 1:

Part 2:

Part 3:

Part 4:

Part 5:

GMO Paper Analyzing European Bail Out

Below is a paper from GMO analyzing the European bailout. Here are the key takeaways:
1. In low growth world, it would take a miracle for Greece to escape without negotiating a large cut in the principal of its debt;
2. Defaults can be limited to a few small countries, and perhaps only to Greece, while the rest can string things along until a somewhat more normal global economic growth pattern resumes later this decade;
3. The probable need to recapitalize commercial banks to cover defaults casts a long shadow on the process; and,
4. The eurozone is likely to need more resources than it has gathered so far (i.e. more money printing on the case of the ECB).


GMO Eurocrisis

Whitney Tilson on CNBC

Whitney Tilson was recently on CNBC and described why he likes Sandisk, Netflix, Microsoft, and a couple of other companies. Netflix is particularly interesting as he recently announced given the big selloff that he was going long Netflix. For those with a longer-term memory remember that T2 Partners had a big short on Netflix for sometime and got burned before covering. He then goes on to discuss why he is long Microsoft and how he thinks they need to further leverage their balance sheet (buybacks, etc.).

Tuesday, October 25, 2011

Ray Dalio was on Charlie Rose

Ray Dalio was recently on Charlie Rose. He talks about his views on the market, what it takes to found and run a macro fund like Bridgewater, and other interesting tidbits. Enjoy:

The full interview can be seen here at Charlie Rose's website.

The complete interview can be seen here

Thursday, October 20, 2011

Notes from the 2nd Annual Ira Sohn Investing Conference - West

Below please find notes from the 2nd annual Ira Sohn Investing Conference - West. The event had speakers such as, Matthew Berler - who discussed Spirit Aerosystems, Brian Zied who discussed Cabelas, Joe Jolson who discussed Move Inc, Mark Lambert who discussed Ligand Pharmaceuticals, Jeff Ubben who discussed CB Richard Ellis and Adobe, and a number of other noteable speakers. There were a number of interesting ideas, I highly recommend reading the notes below. Enjoy:

Matthew Berler, Osterweiss Capital Management - Spirit Aerosystems (SPR)

Osterweiss is a value investor that places a high emphasis on companies that can generate highs levels of free cash flow. They are attracted to “Toll Booth” type businesses that do not required robust GDP growth. Matthew likes an out of favor aerospace company called Spirit Aerosystems (SPR), a spin off from Boeing several years back. Spirit is undergoing several events that will drive improved free cash flow. They have increased and diversified their backlog to a new record level of long term projects. The average life of a project lasts 15-20 years. Backlog has gone from 100% Boeing to business being won at Boeing, Airbus, Gulf Stream and Bombardier.

SPR has been suffering cost overruns and push outs do to the Boeing 787 delays to the tune of $283 million in charges. Several secular trends are in Spirits favor, including the aging of America’s airline fleet, emerging markets increased purchases of planes and continued outsourcing trends by the major manufactures. At 10x earnings, Spirit trades at a discount to the group at 15x, which Matthew believes can reach 12x in 2012 placing the stock in the range of $32-$36.

Brian Zied, Charter Bridge Capital Management - Cabela’s (CAB)

Brian has been following the retail industry for the past 16 years. Brian’s stock pick was Cabela’s (CAB), the hunting and fishing retailer. Being from NYC, Brian admittedly was not at a big hunting enthusiast, but he was intrigued by the high quality customer experience that Cabela’s was able to create for its shoppers. Beyond the destination experience that their stores generate via large store footprints in small markets, Brian looked at internet comp scores and realized that the average person spends 9 minutes on their site vs. the industry average of 3-4 minutes.

Brian felt CAB’s credit business was the most misunderstood part of their revenue stream and an area that the shorts underlined as a big problem. Cabela’s brand loyalty program, through their Visa/Cabela’s credit, offers 5% incentives vs. the industry average of 1%. Cabela’s has $2.6 billion in receivables, which short sellers suspected was mostly low quality and a driver to pushing new sales. Upon investigation, Brian realized that 40% of their credit card holders pay down the entire balance each month. In fact, 75% of Cabela’s credit card customers had a FICA score of 720 and above vs. Nordstrom which is approximately 50%. Brian felt their receivables should be valued in line with an American Express vs. Discovery or Capital One. Cabela’s currently has 33 stores. Brian believes new management can grow to 100 within rational store footprints . Hibbett Sports & Dicks Sporting Goods trade at 15x earnings vs. Cabela’s at 10x. Through 5% earnings growth on 10% revenue improvement, Brian felt Cabela’s could trade in line with its peers.

Joe Jolson, JMP Securities and Harvest Opportunities Funds - Move, Inc. (MOVE)

Joe made a modestly bullish call on an improving housing market. After reviewing the current market conditions for the housing market overall, he believes we will see a stabilization of prices in 2012. He pointed to the election year and the opportunities Obama could push through to stabilize the industry. Historically he points out that home builders have been the best way to play an improving cycle. This time he is betting on a technology company called Move Inc (MOVE) which provides an online network of websites for real estate search, financing and moving. Websites include,, and Move predominately benefits from new listings and ad spending. They are benefitting from a trend of people switching to digital ads vs. print spending. They have also spent the last several years improving their technology offerings and mobile apps. Move is the exclusive license of National Association of Realtors website through With the housing industry stabilizing, Joe contrasted Move’s big discount to the recent IPO of and believes the stock can trade up to $5.50/share.

Mark Lambert, Biotechnology Value Fund - Ligand Pharmaceuticals (LGND)

Mark’s favorite stock is Ligand Pharmaceuticals (LGND). Mark laughed when he pointed out that Ligand has been around for 25 years and has never made a dime, but he loves the stock. Before reviewing Ligand he outlined BVF’s investment process to discover value-oriented opportunities with outlier biotech return potential. They look for companies with embedded options hidden in low valuations such a company called Vanda Pharmaceutical that traded for half the price of cash and went up 15 fold after getting an underestimated drug approval. After a long history of poor management discipline and excessive spending, Ligand’s new CEO John Higgins dramatically cut the fat out while maintaining their portfolio of over 60 royalty bearing patents. He cut the staff from 270 employees down to 30. Expenses went down from $200m to $25m and the company will go cash flow positive this year.

Their key drug, Promatca, which helps increase blood platelets, (thrombopoietin) is showing stable royalty growth and could be a large contributor to revenue growth going forward. Mark replayed a quarterly earnings call of Glaxo’s CEO highlighting recent phase II data for Ligand’s Hepatitis C product where he was extremely excited by the opportunity. In addition to slashing and burning Ligand’s operating expenses, Higgins has looked for and bought other bloated biotechnology companies and proceeded to do the same thing. Overall, Mark believes Ligand represents very low risk with biotechnology like returns and can survive further drug failures through it large and diversified portfolio of new drug candidates.

Jeff Ubben, ValueAct Capital - CB Richard Ellis (CBG) and Adobe Systems (ADBE)

Jeff presented two ideas: CB Richard Ellis (CBG) and Adobe Systems (ADBE). These were the only two stocks they were buying in October. CB Richard Ellis’ fundamentals are much more stable than the market would suggest. He agreed with Jolson’s premise that commercial real estate prices have been stabilizing. Their cost reductions have been impressive, and Jeff was excited by managements move to a recurring revenue business model. CB Richard Ellis has been very public about targeting 20% operating margins. The global outsourcing of real estate is in early stages, and it’s a two player market between CBG & JLL. Both have achieved regional density on a global scale. Jeff believes there is limited risk to management making poor capital allocation through covenant protection and there is no debt coming due until 2015. Even in a double dip recession, Jeff felt CBG’s high free cash protected them on the downside.

Jeff’s second idea was Adobe Systems (ADBE). Jeff anticipates two software industry trends: continuation of desktop apps to sell more suites vs. one unit, and collaboration of the workflow through access of the cloud. Mobile devices and multiple platforms will continue to fuel the growth which is causing a change on how content is created. Change rewards innovation, and Adobe is adapting to and creating products to compete, specifically in the collaboration trend afforded by the growth of work flow residing on the cloud. Jeff felt the acquisition of Macromedia was brilliant and will continue to generate new product innovation. He believes Adobe is a double digit grower and thinks the market views Adobe as a non-innovator. Though he would not compare valuation to the faster growing SAAS players, he believes valuation should be somewhere in between.

Meridee Moore, Watershed Asset Management - WR Grace (GRA)

Meridee recommended the purchase of WR Grace (GRA). Meridee’s origins are with Farallon Capital and Lehman Brothers investment banking. Grace is a cyclical chemical stock that has been in bankruptcy for the past 10 years. The company has used bankruptcy to streamline its businesses and the company is levered to a global recovery in construction and infrastructure spending. The company has finally settled all of its claims, and the plan was confirmed with a few hurdles left. After bankruptcy, Grace will be a global, under-levered chemicals company with a high return on investments. Many of the markets that it competes in are oligopolies. Free cash flow is approximately 13%.

Grace has little coverage on the street with over 1 billion in NOLs. The CEO has been around since 2003, is a very good communicator and has dramatically improved ROIC while in command. Meridee outlined Grace’s discount to its peers and believes the stock could go up 60% if you apply an average historical chemical company multiple. A district court judge must affirm the final plan; it is currently under review. If the judge does affirm, Grace’s lawyer believes claimants will continue to litigate, but this does not impact Meridee’s valuation opinion. She believes that Grace can earn over $5/ share in 2012.

Bob Peck, FPR partners - Arch Capital group (ACGL)

Bob recommended a very boring but well managed reinsurance company called Arch Capital group (ACGL). FPR looks for stable industry fundamentals, high barriers to entry, solid management teams and low price/book. ACGL trades under tangible book value and is a specialty commercial insurance company that writes only company insurance. Its risk is individually written, with no standardized policy. The industry valuation is at an all time low and insurance rates are at all time low as well. Management has done a good job of not writing excessive policies during the low insurance rate cycle. If you are patient, with current low valuation to book, Arch Capital can continue to grow book value by 20% per year in a backdrop of the low GDP growth.

Scott Clark, Darlington Partners - Seaspan (SSW)

Scott recommended a shipping company called Seaspan (SSW). Darlington takes concentrated positions and has only made 27 investments in the last nine years. Scott is not a big fan of the shipping industry, but believes Seaspan is a low risk floating REIT with potential for a large dividend payout shortly. He calls it a “not if but when” idea. Seaspan is an underfollowed, under the radar company that he views as more of a real estate finance business play. Scott believes the dividend will double in the next 6-12 months. Seaspan owns 65 shipping vessels that it leases to high quality counter parties. Contracts are long term and iron clad. Seaspan follows the same blue print each time it builds a new ship by locking in long term contracts for the vessel when completed. An average lease is eight years with the leading shipping companies in the world. Seaspan gives a five year of EBITDA guidance and has delivered on their projections. Management has been very transparent and he believes their progressive dividend policy will be the catalyst to valuation. Management has financial incentives to get the dividend above $1.90.

Jerome Simon, Lonestar Capital Management - Surgutneftegas Pref. (SNGSP RX) and Graphic Packaging Intl. (GPK)

Jerome had two picks. His first idea is the fourth largest energy company in Russia, Surgutneftegas Pref. (SNGSP RX). Jerome runs a very diversified portfolio and has been viewing this company since 2003. SNGSP.RX trades at a 40% discount to the common and the company generates a lot of free cash flow. The risks are integrity of the numbers. SNGPS has the ability to generate $8-10 billion in EBITDA. There are no clear signs of a corporate restructuring. Jerome invests in Russia as a passive investor and believes there is very little interest from the investment community to invest there. On occasion extraordinary investment opportunities exist. Jerome highlighted the brown field development trend, extracting oil from old depleted fields, which he believes is a huge opportunity in Russia.

Jerome’s second idea is Graphic Packaging Intl. (GPK), a relatively stable packaging company in very stable market. The bottom line is GPK is a deleveraging story that if given time to generate will achieve an investment grade rating. Though he has not met the CEO, he’s committed to the story. Jerome has been buying this company since 2009. He believes management is very conservative and does not anticipate any future dilutive acquisitions. One risk he highlighted was their underfunded pension liability. The ownership is primarily legacy private equity investors. He does not have good visibility as to what their intentions are. Jerome thinks the 9% notes will eventually get refinanced again, driving further valuation improvement.

Bill Duhamel, Route One Investment Co. - News Corp (NWS)

For large cap media, News Corp is very cheap. He thinks investors view News Corp as having a high exposure to newspapers, but actually is a small part of the EBIT. Cable Assets are the large driver to valuation. News Corp cable assets are high quality global assets that have not been fully monetized. He is a little uncomfortable with News Corp’s exposure to regional sports networks. Historically, media has been a cyclical business but 70% of their business comes from subscriber fees. Bill was very excited by the retransmission fees opportunity which he views as having a 10 year run rate. 22% of EBIT is from the film studios. These are very stable assets. They don’t grow, but are very good hedges due to the ownership of content. All in, News Corp generates around $1.30 of free cash flow which includes $6 of unconsolidated good assets.

Arthur Young, Blum Capital - Advanced Auto Parts (AAP)

Arthur Young of Blum Capital Partners presented his positive thesis on the auto parts industry and why Advanced Auto Parts (AAP) is his number one pick in the group. Advanced Auto Parts has created a large defensive moat and trades at a 30% discount to the group. He favors the exposure to non-discretionary spending and the fact that AAP has not overstored the market place. Advance Auto Parts has been able to increase operating margins from 27% to 37% with a high increase in customer satisfaction during the last five years. At a 6x forward EBITDA and 11% top line growth, Arthur thinks AAP should trade closer to the top three in peer valuation.

Bill Ackman's Presentation from VIC

Below please find Bill Ackman's presentation from the most recent Value Investing Congress. The presentation focuses on his thesis around the recent Fortune Brands spinoff, Fortune Brands Home Security (FBHS). Basically its his low risk way to play a rebound in housing. Fairly interesting stuff.



Jim Chanos Presentation

Attached please find Jim Chanos' presentation from the Value Investing Congress. Hat tip again to Marketfolly.



Ricky Sandler's Presentation on CME from VIC

Below please find Ricky Sandler's (of Eminence Capital) presentation on CME. For avid readers of Value Investor's Insight they will remember that this thesis was spelled out by Ricky in the August Issue (I think thats right). Anyways enjoy:


David Einhorn's Presentation on GMCR

Attached please find David Einhorn's detailed presentation on Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress. Hat tip to Marketfolly for doing a great job covering the event.


Tuesday, October 18, 2011

Bernard Horn of Polaris Capital Management's presentation from the VIC

Below please find Brenard Horn's presentation from the Value Investing Congress. Hat tip to Marketfolly for finding it as well as posting notes of the event, they can be found here.



Leon Cooperman's Presentation from the Value Investing Congress

Below please find Leon Cooperman's presentation from the Value Investing Congress. In the presentation he talks about the state of the economy, why we are unlikel to experience a double dip, why the market is presently attractive, and why he likes Apple, Boston Scientific, eTrade, etc.



Thursday, October 13, 2011

Jeff Gundlach on CNBC

Jeff Gundlach was on CNBC today where he shared some of his thoughts on the market. He also shared his potential Halloween costume choices - Jim Cramer or Burl Ives. He talks about the weakness in the ABX market and the PrimeX market, and how that is disjointed from the overall credit market.

He then goes on to describe the technical and fundamental reasons why it has sold off and where its going.

Pretty interesting considering he probably understands mortgages better than anyone else.

Wednesday, October 12, 2011

Eddie Lampert on Long-term Investing

Eddie Lampert, Eric Schmidt, and Larry Summers were recently featured on a panel debating the merits of long-term vs short-term investing. While its nothign earth shattering it is interesting and a very rare media appearance for Eddie Lampert.

Tuesday, October 11, 2011

Marc Faber on CNBC discussing Economic Policy

Marc Faber was on CNBC today discussing his thoughts on economic policy and how the Keynesian mentaility is hurting the U.S.


Jeff Gundlach - Doubleline - Are Risky Assets Cheap Enough?

Jeff Gundlach gave a presentation today on risky assets and debated whether investors are being paid enough for the risks associated with high risk (read high volatility) assets. It was pretty interesting. A replay of the call can be found here:

Risky Assets Cheap Enough

Thursday, October 6, 2011

Update - Full Interview with Bill Ackman

Yesterday I posted a brief video interview with Bill Ackman. Bloomberg finally got around to posting the full video. Warning it is 53 minutes, but its well worth listening to in the background.


Wednesday, October 5, 2011

Bill Ackman on Bloomberg TV

Bill Ackman of Pershing Square capital was recently on Bloomberg TV discussing his view on Hewlett Packard (NYSE: HPQ). Basically he says HP looks cheap but the future of the PC industry is difficult to handicap and there announcement to potentially spin the PC division off has irreparably hurt that brand. He basically said they internally have brain damage and need to do a bunch to right the ship.

T2 Partners Q3 Letter

Below please find T2 Partners Q3 Letter. T2's fund declined 9.5% in September vs. a loss of 7% for the S&P 500 and a loss of 5.9% for the Dow. For the year T2 is down 29.6% vs. a loss of 8.7% for the S&P 500 and a loss of 3.9% for the Dow.

The letter does a nice job walkin through their losers and some of their current thinking. They compare this recent down performance tho the Oct 2008 period and think they can bounce back just like before.

They go on to do a nice job of walking through their thoughts on Berkshire Hathaway, Howard Hughes, Iridium, Grupo Prisa, Goldman Sachs, Citigroup, and MRV Communications.


T2 Partners - Q3 2011 Letter