Search This Blog

Wednesday, December 21, 2011

Reuters interview with David Einhorn

I recently read a good interview that Reuters had with David Einhorn (of Greenlight Capital fame) where they discussed in detail his Green Mountain (GMCR) thesis. He makes it sound as if he is still short (this despite the initial massive 40%+ drop and subsequent rally).

The full interview can be found here.

Here is an excerpt of my favorite parts:

REUTERS: Which of the issues you raised in your presentation do you believe Green Mountain has answered so that you would change them?

EINHORN: "Actually, I think everything we said in the presentation is as right now as it was then -- and in many cases even more so. Some of the things we pointed out, like the inexplicable sales of K-Cups in the June quarter, have now been revealed to have been very valid concerns and the rest remain unanswered. And some of them are things will have to sort of play out in the future like the competition."

REUTERS: Management says that fourth-quarter sales were hurt by wholesale orders, and do not indicate any accounting issues. In other words, you were right, but for the wrong reasons. Were you surprised by the earnings miss?

EINHORN: "The thing about an investment like this is that there are really a lot of ways for us to come out well because the risk-reward for the stock is so poor. And there are so many problems that they don't all have to hit at the same time in order for us to get a good result. In terms of what actually did cause them to miss the quarter? It was largely a sales miss, which seemed to follow from the unexplained sales spike that we highlighted in the presentation."

REUTERS: Management stated, "Though disappointing, we take the recent allegations of misconduct seriously. Our Audit Committee has reviewed the allegations and we are confident there is no misconduct. There is no wrongdoing." What is your response to this?

EINHORN: "Simply saying that you take allegations with misconduct seriously does not mean that you actually take the allegations of misconduct seriously. In other words, their response came only about three weeks after the presentation and there was an enormous amount of material that if somebody was going to take the material comment seriously, they would have to review. It doesn't seem to make a lot of sense to me -- or even be possible -- to think that somebody who took our concerns seriously would even be able to review it in three weeks. As a result, it kind of feels like a whitewash to me. The question at this point, since the company wasn't able to give any substantive answers to the most serious of the questions that were raised -- they instead deferred to a general statement from the audit committee -- the question now becomes whether the audit committee itself is part of the problem as opposed to being a part of the solution."

REUTERS: One of your concerns was that Green Mountain couldn't explain its capital spending. When the company announced earnings, it detailed its capital spending for 2011 and 2012 by category. What did you take away from that?

EINHORN: "I actually think the extra information led further support to our view that the capital spending is unlikely to be going for the purposes that Green Mountain says that they are. In the sense that when you break out the spending, they broke it into various categories.

"For example, they say they are spending $225 million this coming year on portion packs. By our calculation, that would be enough to add approximately 15 billion K-cups of annual capacity. And yet the company only needs to add about 4 billion cups of capacity. So there is a rather large delta there. But the clearest one of all (involving Green Mountain's capital spending) actually is the manufacturing facilities where they said that they are going to spend $175 million. They said the big pieces of this are at their expansion in Virginia and in Ethics, Vermont. We went into the various property records and the building permits relating to these kinds of expansion and we were only able to total in those properties -- and actually including another property in Waterbury, Vermont -- we were only able to find about $50-60 million of capital spending on the pieces that they say are the biggest pieces of the $175 million facilities and infrastructure spent.

"All of this adds together to leave us with the view that it is very unlikely that they have an adequate explanation for where approximately $665 million of capital spending can reasonably go to support the growth of this business."

REUTERS: After Green Mountain announced earnings, there were a raft of insider purchases. Is this a bullish signal for the stock?

EINHORN: "This is something that we see in a number of these types of positions, where when there is an effort by a management team to promote the stock they go and get a large number of insiders to make what we call nominal purchases or to use a term of art to 'paint the tape.' But what's interesting here is that you have a team where they've literally sold stock in the hundreds of millions of dollars -- and are buying back stock in the hundreds of thousands of dollars.

"In the more clear example of this, Michael Mardy (Director) sold 20,000 shares for $97.48 on August 5, 2011. He purchased 1,000 shares for $43.36 on November 14, 2011. David Moran (Director) sold 10,000 shares for $98.50 on August 5, 2011. He purchased 1,180 shares for $42.17 on November 14, 2011." (A Green Mountain spokeswoman said the August insider sales were part of a previously arranged share selling program.)

REUTERS: What's fair value on Green Mountain stock?

EINHORN: "I don't think there's any way to know for sure what the fair value is. When I think about this company, I think about the cash flow that it generates. And right now, the company should be in a fantastic position because it still has the monopoly on the ability to make K-cups. And despite that, the company has no cash flow from operations and has substantial capital spending. So it seems to me that a business that doesn't generate any cash -- and this is before the monopoly position on the K-cups disappears next September -- if you don't generate very much cash, it's hard to understand why there is a large value."

Thursday, December 15, 2011

Michael Platt of BlueCrest Capital on Bloomberg

Michael Platt the founder of the $30B hedge fund BlueCrest was on Bloomberg today. It was a very interesting interview. He talks about the potential for a Euro zone breakup. They dont see anything at the policy level that gives them confidence that the overleveraged nations won't default. According to him, if Italy has to pay rates between 5% - 7% the situation is unsustainable. He thinks the market is steadily increasing the odds of a Euro zone breakup and going forward it will only get worse. He thinks most of the banks in Europe are insolvent if they took on mark-to-market practices simliar to what hedge funds are forced to do. He advocates buying US Treasuries and German Bunds. He is sticking with the short end of the maturity curve. He thinks we are on the eve of a potential crash that could be worse than 2008. Overall it is very interesting and worth watching the 14 minute interview.

December Letter from Kyle Bass

Below please find the December letter from Kyle Bass. For those who have followed the site, this is the letter that Marc Faber was referring to yesterday.

The letter takes a fascinating look into collateral chains and how it will lead to the restructuring of sovering debt.


Hayman Capital Letter Dec 14

Wednesday, December 14, 2011

Kyle Bass on CNBC

Kyle Bass was on CNBC recently. In the interview he discusses his views on the EU and echos many of the sentiments that he talked about in his Q3 letter (can be found here). Enjoy.

Dan Loeb / Third Point letter to Yahoo!

Dan Loeb and Third Point are out with their latest letter to Yahoo!'s board opposing any notion of a minority investment. Below is the full letter. Enjoy.

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Mr. Roy Bostock, Chairman

Dear Directors:

Third Point LLC, as the beneficial owner of 5.2% of Yahoo! Inc.’s (“Yahoo”) outstanding shares, remains extremely troubled by news reports regarding the dysfunction and inequity being exhibited in the process of maximizing stockholder value that the Board is allegedly “managing”. We are disturbed but not surprised by this mismanagement given the history of strategic bungling by Yahoo Board Chairman Roy Bostock and Founder Jerry Yang, which has been chronicled in our previous letters and in numerous critical media and analyst reports. As significant shareholders with our own fiduciary duties to investors to uphold, we cannot stand by silently if such reports are accurate and Yahoo, a company in no need of cash, plans to engage in a sweetheart PIPE deal which will serve only to entrench Mr. Yang and the current board while massively disenfranchising public shareholders and permanently robbing us of the opportunity to obtain a control premium.

We are not alone in our concerns. Shareholders, analysts, and the media are questioning the integrity of the process currently underway. As stewards of our assets you are charged with a duty to place stockholder interests above personal gain or other motives. In order to allay the concerns and uncertainty permeating the marketplace and provide much needed transparency on the supposed “process” that Yahoo is undertaking, we ask that you immediately make public the letter(s) in which Yahoo invited third parties to make proposals for the Company (the “Process Letters”). We assume that Yahoo’s Process Letters did not place any artificial restrictions on the proposals that the Yahoo board was willing to consider in its search for strategic alternatives, such as discouraging, or even prohibiting, bids to purchase Yahoo in its entirety.

Of course, we appreciate the need for confidential negotiations, and therefore stockholders need not know at this stage who received the Process Letters. Rather, stockholders should simply be allowed to see if the Process Letters, which may be published in redacted form, are consistent with the Board’s paramount duty to maximize stockholder value. Additionally, Third Point does not seek and does not expect to receive material non-public information and thus requests that you file such letters publicly with the Securities and Exchange Commission via Form 8-K with all deliberate speed.

In light of the serious, timely concerns expressed by nearly all Yahoo stakeholders and interested parties, undertaking this action is the only fair and reasonable thing to do.

Very truly yours,

Daniel S. Loeb
Chief Executive Officer
Third Point LLC
390 Park Avenue
New York, New York 10022

Thursday, December 8, 2011

Marc Faber on Bloomberg

Marc Faber was recently on Bloomberg where he discussed his views on the Euro and the global economy. Needless to say he reiterates his bearish views and stresses the importance of holding some gold.


Wednesday, December 7, 2011

Pauslon & Co Q3 2011 Letter

Below please find John Paulson (aka Paulson & Co) Q3 2011 letter. The quality is not what I would like but its bettter than no letter at all. In the letter they touch on their YTD miserable performance. They walk through a couple of positions. I found the discussion on the upside at Hartford Financial particularly interesting - they have a price target of $45.

It also has a nice chart at the end that walks through the historical performance of all their funds. Pretty interesting stuff.


Paulson q3 11 Report: Downloads Disabled for legal reasons

Monday, December 5, 2011

GMO - Jeremy Grantham Q3 2011 Letter

After much delay, Jeremy Grantham of GMO Capital is out with his Q3 2011 letter. As usual her currently has a rather bearish bent and continues to advocate purchasing quality companies and has interest in the natural resources sector. He also provides some dramatic data on the potential for disapointing future performance in the S&P 500 based upon past bubbles performance.

Grantham Qtrly Letter

Thursday, December 1, 2011

Kyle Bass - Hayman Capital Q3'11 Letter

Below please find Kyle Bass (Hayman Capital) Q3'11 letter. He talks about the global debt situation and the immenient impending defaults. He reiterates his conviction on his Japan play.

Overall its a very interesting read. Enjoy.