market folly

What We're Reading ~ 1/27/12

marketfolly@gmail.com (Market Folly) — Fri, 27 Jan 2012 17:22:00 +0000

A good performance year for some Tiger Cubs [Institutional Investor]

David Einhorn rapped for insider trading in UK [FINalternatives]

Ken Griffin's Citadel back above high watermark [Dealbreaker]

20 common sense investing rules [Reformed Broker]

Is anyone any good at picking hedge fund managers? [Big Picture]

On why Sears (SHLD) isn't going private [ValuePlays]

Pivot Capital on China's investment boom (& pending bust) [Zero Hedge]

On the value of an independent financial review [Research Puzzle]

Rethinking the equity risk premium [CFA Institute]

The great hedge fund humbling of 2011 [Reuters]

Warren Buffett's apprentice makes strong debut [FinancialPost]

Days of easy money for fund managers are over [Bloomberg]

Federal officials charge 7 in insider probe [WSJ]

Joel Greenblatt assesses his Magic Formula results [Morningstar]

How to conquer a banking job [Salon]

Biggest Discount to the Value Investing Congress Expires Tomorrow

marketfolly@gmail.com (Market Folly) — Thu, 26 Jan 2012 19:15:00 +0000

We wanted to let readers know that the Spring Value Investing Congress is right around the corner on May 6th & 7th. This year it's taking place in Omaha, Nebraska right after Warren Buffett's annual meeting at Berkshire Hathaway at the CenturyLink Center. Now you can squeeze two value investing events into one trip.

Biggest Discount Expires Tomorrow!

If you sign-up before tomorrow at midnight, our readers save $1,600 by clicking here and using discount code: O12MF3

Here are the speakers announced thus far:

Doug Kass - Seabreeze Partners
J. Carlo Cannell - Cannell Capital
Keith Trauner - Goodhaven Capital
Larry Pitkowsky - Goodhaven Capital
Thomas Russo - Gardner Russo & Gardner
David Nierenberg - D3 Family Funds
Matthew Swaim - Advisory Research
Bruce Zessar - Advisory Research
Whitney Tilson - T2 Partners
Glenn Tongue - T2 Partners

One thing worth highlighting: Trauner and Pitkowsky previously worked at Bruce Berkowitz's Fairholme Capital before founding their new firm Goodhaven Capital so it will be interesting to hear their ideas.

Click here to receive the biggest discount to the Value Investing Congress and use discount code: O12MF3. Act fast because the discount expires tomorrow at midnight!

East Coast Asset Management's Q4 Letter: Embracing Uncertainty

marketfolly@gmail.com (Market Folly) — Thu, 26 Jan 2012 18:55:00 +0000

Christopher Begg is out with East Coast Asset Management's Q4 2011 letter to investors. In it, he discusses the concept of embracing certain uncertainties. He writes,

"We observe a general misclassification between uncertainty and risk. Looking forward, we also anticipate the general perception of 'risk' versus 'risk-free' assets will change. Central bank intervention to mitigate the effects of the inevitable deleveraging cycle will raise the cost of capital and compromise the value of paper currency. We expect this could be a disappointing realization for those seeking long-term shelter in cash and bonds."

They've somewhat touched on this notion before when in a past letter they outlined why they see heightened and prolonged inflation ahead. This falls into one of their seven broad views in which they have constructed their portfolio currently:

1. Deleveraging
2. 'Fair Wind' for high quality equities
3. Inflation
4. Emerging market consumer
5. Eurozone consequences
6. Jobs and housing
7. Adaptation

We want to draw specific attention to their focus on the emerging market consumer because they aren't the only firm fixated on this phenomenon. Hedge fund Kleinheinz Capital has pointed to the power of the emerging market consumer, but also cautions that inflation is the biggest threat in emerging markets.

On the subject, Begg writes that, "This 'impression, sunrise' of the emerging market consumer is one of the most underappreciated change agents that will ultimately drive global economic growth over the decades to come, and help move the world economy beyond the deleveraging currently at hand."

Embedded below is East Coast's Q4 letter:

Given that East Coast's letters often serve as vehicles for passing along timeless educational aspects of investing, be sure to check out their pieces on competitive advantage and gaining an investment edge.

David Einhorn's Greenlight Capital Q4 2011 Letter: Covered First Solar, Bought Dell

marketfolly@gmail.com (Market Folly) — Thu, 26 Jan 2012 18:38:00 +0000

After a brief hiatus, MarketFolly.com is back in action covering top hedge funds. Right to the action: if you missed it, we wanted to post up David Einhorn's Greenlight Capital Q4 2011 letter to investors.

Key Takeaways:

- Covered their short in First Solar (FSLR)
- Covered short in Diamond Foods (DMND)

- New position: bought Dell (DELL) @ average price of $15.53
- Re-established position: bought Xerox (XRX) @ average price of $7.61

- Sold Travelers (TRV): Greenlight cut their forward earnings forecast
- Sold Pfizer (PFE)
- Sold Becton Dickinson (BDX) due to disappointing guidance
- Sold CVS (CVS) to fund more compelling opportunities

Embedded below is David Einhorn's letter where you can read Greenlight's rationale for their new buys of Dell (DELL) and Xerox (XRX):

For more from this hedge fund, you can also check out Greenlight Capital's Q3 letter as well as David Einhorn's short case on Green Mountain Coffee Roasters (GMCR).

New Hedge Fund Wisdom Issue Now Available!

marketfolly@gmail.com (Market Folly) — Mon, 21 Nov 2011 18:08:00 +0000

The brand new Q3 2011 issue of our premium Hedge Fund Wisdom newsletter is now available! Current subscribers, please login at hedgefundwisdom.com to download it.

Included In The New 91-Page Issue:

- Long versus short: An analysis of battleground stock Netflix (NFLX)
- Investment thesis on potential housing recovery play: Lowe's (LOW)
- In-depth equity analysis of payment-processor: Visa (V)
- Hedge fund consensus buy & sell list
- Portfolio updates on 25 prominent hedge funds
- Expert commentary on their latest portfolio moves

Written by hedge fund analysts, our convenient newsletter saves you a ton of time by aggregating and summarizing the latest hedge fund activity. And most importantly, it tells you WHY they were buying or selling a particular stock.

See a FREE SAMPLE of a full past issue by clicking here (.pdf)

See What Top Hedge Funds Have Been Buying & Selling:

Published four times a year. To pay by credit/debit card or PayPal, please click the 'subscribe' button below and read the next page carefully to select your method of payment.

1 Year Subscription (Save 20% with this option): $299.99 per year

Quarterly Subscription: $89.99 per quarter

If you would like to pay via check, please email us: info@hedgefundwisdom.com

See What Top Hedge Funds Are Buying & Selling: Subscribe to Our Newsletter

marketfolly@gmail.com (Market Folly) — Tue, 15 Nov 2011 17:30:00 +0000

The brand new Q3 issue of our premium Hedge Fund Wisdom newsletter will be released on November 21st. Our publication aggregates and summarizes everything you need to know about all the recent hedge fund buys & sells in one convenient document and saves you a ton of time.

Written by hedge fund analysts, our quarterly newsletter includes:

- The latest portfolios of 25 top hedge funds (4 issues each year)

- Consensus list of the top buys & sells

- Expert commentary & analysis on each fund's moves

- In-depth equity analysis section: the investment thesis behind their picks

Hedge fund portfolios featured in our newsletter:

Seth Klarman (Baupost Group)
Warren Buffett (Berkshire Hathaway)
David Einhorn (Greenlight Capital)
Stephen Mandel (Lone Pine Capital)
David Tepper (Appaloosa Management)
Bill Ackman (Pershing Square Capital Management)
John Paulson (Paulson & Co)
Bruce Berkowitz (Fairholme Capital)
Chase Coleman (Tiger Global Management)
John Burbank (Passport Capital)
Leon Cooperman (Omega Advisors)
Dan Loeb (Third Point)
John Griffin (Blue Ridge Capital)
Lee Ainslie (Maverick Capital)
Julian Robertson (Tiger Management)
George Soros (Soros Fund Management)
Roberto Mignone (Bridger Management)
Philippe Laffont (Coatue Management)
Richard Perry (Perry Capital)
Larry Robbins (Glenview Capital)
Andreas Halvorsen (Viking Global)
Thomas Steyer (Farallon Capital)
Carl Icahn (Icahn Capital)
Barry Rosenstein (JANA Partners)
Alan Fournier (Pennant Capital)

*** FREE SAMPLE: Check out a full past issue by clicking here (.pdf)

See What Top Hedge Funds Are Buying & Selling: Subscribe Below

To pay by credit/debit card or PayPal, please click the 'subscribe' button below and read the next page carefully to select your method of payment.

1 Year Subscription (Save 20% with this option): $299.99 per year

Quarterly Subscription: $89.99 per quarter

If you would like to pay via check, please email us: info@hedgefundwisdom.com

What We're Reading ~ 11/11/11

marketfolly@gmail.com (Market Folly) — Fri, 11 Nov 2011 16:16:00 +0000

Memo to David Einhorn re: gold miners [Reformed Broker]

On Apple (AAPL) fatigue [Abnormal Returns]

4 major secular bear markets, 1900-2011 [Big Picture]

Five rising hedge fund stars to watch [Absolute Return + Alpha]

Viking Global to close to new investments [Absolute Return + Alpha]

Analyst antics at Green Mountain Coffee Roasters [CNBC]

How a cash-rich split could take Yahoo! to $41/share [Forbes]

Top 50 CIO salary list [Charles Skorina]

A view from the buyside [Distressed Debt Investing]

John Paulson hopes to profit from Delphi IPO [WSJ]

Tsang says Ackman will lose money on HKD bet [Bloomberg]

On hedging for financial advisors: rent-a-bear? [WSJ]

Long/short: cleaning up an absolute mess [FT Adviser]

Turmoil hits Lansdowne as hedgies falter [City AM]

Cardano seeks distressed debt opportunities [eFinancialNews]

Peter Thiel's founders fund raising up to $600 million [Bloomberg]

Hedge Fund Scout Capital Buys More Arcos Dorados (ARCO)

marketfolly@gmail.com (Market Folly) — Fri, 11 Nov 2011 15:00:00 +0000

James Crichton and Adam Weiss' hedge fund Scout Capital just filed an amended 13G with the SEC regarding their position in Arcos Dorados (ARCO).

They've boosted their position size by almost 48% since the end of the second quarter. Scout now owns 10.78% of Arcos Dorados with 13,962,000 shares per portfolio activity on November 9th.

In other activity from the hedge fund, we detailed that they acquired total return swaps on Domino's Pizza.

Also, we've posted Scout's presentation on Williams (WMB) and Sensata Technologies (ST) from the Value Investing Congress.

Per Google Finance, Arcos Dorados is "is a McDonald’s franchisee. As of December 31, 2010, the Company operated or franchised 1,755 McDonald’s-branded restaurants, which represented 6.7% of McDonald’s total franchised restaurants globally. It operates McDonald’s-branded restaurants under two different operating formats, Company-operated restaurants and franchised restaurants."

Steve Cohen's SAC Capital Adds to GNC Holdings (GNC)

marketfolly@gmail.com (Market Folly) — Fri, 11 Nov 2011 14:30:00 +0000

Steve Cohen's hedge fund firm SAC Capital has filed a 13G with the SEC on shares of GNC Holdings (GNC). In it, we see that SAC now has a 4.8% ownership stake in the company with 4,908,334 shares.

This marks a whopping 21,138% increase in their position size since the close of the second quarter because they only held 23,111 shares back then. The date of transaction requiring this filing was October 31st.

You can view some of SAC Capital's other portfolio activity here.

Per Google Finance, GNC Holdings is "is a holding company. It is a specialty retailer of nutritional supplements. Nutritional supplements include vitamins, minerals and herbal supplements (VMHS), sports nutrition products, diet products and other wellness products. GNC operates in three segments: Retail, Franchising, and Manufacturing/Wholesale."

Leon Cooperman on Risks to Equity Market Outlook: Invest For Kids Presentation

marketfolly@gmail.com (Market Folly) — Fri, 11 Nov 2011 13:00:00 +0000

Yesterday, we posted up comprehensive notes from the Invest For Kids Chicago conference where numerous hedge fund managers presented their latest investment ideas. Omega Advisors' Leon Cooperman was one of the speakers and we're proud to present his slideshow presentation on risks to the equity market outlook below.

Cooperman pitched CHRS, KFN & ETFC at the event and you can click the link to read about his thoughts on those stocks. His actual slideshow, though, focused on economic data and risks to the equity market outlook.

Embedded below is Leon Cooperman's slideshow presentation from Invest For Kids Chicago (email readers click the link to come view it):

And for more picks from hedgies at this conference, head to notes from Invest For Kids Chicago.

Notes From Invest For Kids Chicago: Lasry, Perry, Cooperman, Zell & More

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 16:00:00 +0000

Yesterday at Invest For Kids Chicago, numerous high profile hedge fund managers shared their latest investment ideas. The event had 800 attendees and raised $1.1 million (100% of the proceeds went to charities benefiting children). Please click the links below to view notes on each speaker's presentation:

Invest For Kids Chicago Notes:

Marc Lasry (Avenue Capital): Long General Motors & Hovnanian Bonds

Richard Perry (Perry Capital): GSE Junior Preferred Securities & RBS Tier 1 Securities

Leon Cooperman (Omega Advisors): Charming Shoppes (CHRS), KKR Financial (KFN), E*Trade Financial (ETFC)

Sam Zell (Equity Group Investments): Brazil's Investment Opportunity

Barry Rosenstein (JANA Partners): long McGraw Hill (MHP)

Thomas Russo (Gardner Russo & Gardner): Look abroad for opportunities, Nestle

Michael Milken (Milken Institute): Thoughts on Capital Markets

John Keeley (Keeley Asset Management): ITT Corp (ITT)

Barry Sternlicht (Starwood Capital Group): Likes Lowe's, Toll Brothers, NVR

Michael Elrad (GEM Realty Capital): Long Macerich (MAC)

For more of our coverage of the latest investment conferences, be sure to also head to notes & presentations from the Value Investing Congress.

Marc Lasry: Long General Motors & Hovnanian Bonds ~ Invest For Kids Chicago Notes

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 15:30:00 +0000

At Invest For Kids Chicago yesterday, Marc Lasry of Avenue Capital gave a presentation on going long General Motors (GM).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long General Motors (GM)

Lasry pitched GM, saying that the company had the largest US market capitalization at $12.2 billion in the late 1950's. In 2000, GM's revenue was higher than Wal-Mart at $189 billion. Currently, GM equity trades at less than 1.0x EV/EBITDA (including JVs at 17.9B, cash 20.3B, Market Cap 41.7B, other assets 4.3B, 5.5B in debt, and 6.9B preferreds).

He compares GM now to Apple (AAPL) back when they needed $150 million from Microsoft (MSFT) or AAPL would have gone bankrupt. Since that loan from Microsoft, Apple many years later has become the largest company in the world at $350 billion.

Lasry says investors are focusing on timing re: GM and that's not the right way to do it. Ultimately, he acknowledges there's lots of risk out there. But the key question you have to ask, he says, is "are you getting paid enough to invest?"

The risk for GM is another recession and people buy fewer cars. As a true contrarian, he likes to buy when others aren't. He started buying the bonds when it was 2x EBITDA and you can get an even better entry point today. We just covered how David Einhorn's Greenlight Capital bought GM equity in the third quarter as well.

Long Hovnanian (HOV)

Lasry also mentioned that he liked homebuilder Hovnanian as rates and prices are both very low. The company has 350 million in cash, 1B inventory and 1B NOLs. He likes the 6 to 7% bonds at 35 with 20% yield. You get paid to wait and thinks you are covered and he'd rather get paid to wait with the bonds than take on more risk with the equity. Avenue Capital believes that the US GDP will have 1% growth next year and no double-dip recession.

You can view full notes from Invest For Kids Chicago here.

Richard Perry: Long GSE Junior Preferreds, RBS Tier 1 Securities (Invest For Kids Chicago Notes)

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 15:15:00 +0000

At Invest For Kids Chicago yesterday, Richard Perry of Perry Capital gave a presentation on going long GSE Junior Preferred securities as well as RBS Tier 1 Securities.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long GSE Junior Preferred Securities

Perry founded his firm 23 years ago and now manages $8 billion. He's only had 1 down year in 23 years. His first pick was to go long GSE Junior Preferred Securities as a highly asymmetric play.

Many people believe GSE's are the cause of the crisis and represent and endless black hole to the taxpayer and numerous politicians have called for their elimination. Perry takes the opposite view and believes GSE's will soon be breakeven and/or in a position to recapitalize themselves. He argues they provide necessary counter cyclical liquidity.

At 8.5 cents on the dollar, Perry thinks they offer asymmetric risk reward for huge upside. By changing the guarantee fee "a little bit," the CBO says they could raise $30 billion for each 10bps increase in fee and that could reopen the mortgage market and spur the economy (could happen over 2-3 years).

Long RBS Tier 1 Securities

Perry's other idea was going long securities of a bank that was at one point the largest in the world. In 2008 & 2009, RBS underwent a big housecleaning. Their Tier 1 securities have 'must-pay' dividends and 'may pay'. 'May pay' was shut off with the bailout through 2014 and trades at a 25-35% discount. This is the security he likes.

With Basel 3, core Tier 1 are likely to go away. All "real banks" will buy back to take off balance sheets. There's £10 billion of these and he expects them to turn on in 2012 (April for RBS and January for Lloyds).

Perry says that RBS' balance sheet is restructuring and you must analyze loan to deposits. US is roughly 95% and Italy is 120% to 150%. The UK has a government asset protection scheme where if RBS has a loss of ~60 billion, the government backstops other pool.

Systematically important banks trade at 7% yield on preferred stocks (Bank of America, Barclays, SocGen, BNP, UBS). If RBS pays the dividend they save 80 bps on funding (where better banks are) or 6 billion and pays 400 million in dividends which he says is good arbitrage.

For more of our coverage of Perry Capital, we've detailed Perry's investment thesis on Iron Mountain (IRM) as well as their thoughts on European markets.

You can view full notes from Invest For Kids Chicago here.

Leon Cooperman: Long Charming Shoppes, KFN & ETFC ~ Invest For Kids Chicago Notes

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 15:00:00 +0000

At Invest For Kids Chicago yesterday, Leon Cooperman of Omega Advisors gave a presentation on going long Charming Shoppes (CHRS), KKR Financial (KFN), and E*Trade Financial (ETFC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long Various Equities

Cooperman previously worked at Goldman Sachs for 25 years and made money in bottom-up stockpicking even when the market did nothing during the first 10 years of his career. He points out that currently everything in the markets is correlated and eventually this will change in time.

He agrees with Marc Lasry that we'll see low growth (1% GDP) and no double-dip recession. In order to dent unemployment, he argues we need to see 3% GDP growth.

Regarding the markets, Cooperman says that "people are light risk and that was why October was up so strong." He believes the market is discounting very conservative set of expectations and that the ECB will do what it takes to solve the Euro crisis. He believes there is no chance of a repeat of 2008.

Cooperman continues to preach that stocks are the best house in the neighborhood. This is the same message he presented at the Value Investing Congress. In particular, he likes three names:

Charming Shoppes (CHRS) - He likes the Layne Bryant division which services a niche of large women's apparel. He thinks the division is worth $700 million while the company has $227 million in cash and $140 million in debt and says it's probably worth 2x.

KKR Financial (KFN) - He likes the debt management arm of KKR as the 9% dividend is 2x covered by earnings. You get a 5-6% return plus the 9% dividend he says.

E*Trade Financial (ETFC) - He continues to like the improvement in the company's mortgage portfolio after their horrible foray into the market went so poorly years ago.

Additionally, Cooperman mentioned he likes the following stocks as well: Apple (AAPL), Boston Scientific (BSX), SLM (SLM), and Energy XXI (EXXI). For more from this manager, head to Cooperman's presentation from the Value Investing Congress here.

You can view full notes from Invest For Kids Chicago here.

Barry Rosenstein: Long McGraw-Hill (MHP) ~ Invest For Kids Chicago Notes

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 14:45:00 +0000

At Invest For Kids Chicago yesterday, Barry Rosenstein of JANA Partners gave a presentation on going long McGraw-Hill (MHP).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long McGraw-Hill (MHP)

Rosenstein is a private equity style investor in public markets and he likes finding undervalued companies. He compares MHP to the classic 1980's style "sleepy business." The ratings segment sees $800 million of EBIT and has moat and pricing power. The financial services, Capital IQ and Ratings Direct segment has $175 million EBIT, while educational business segment has $300 million of EBIT.

He focused on the company's capital allocation as the educational business is more capital intensive but has a lower return on invested capital and garners the lowest multiple. He says the company has starved this business so they've lost market share.

He dislikes the bloated conglomerate structure and partnered with the Ontario Teachers' Pension Plan to go activist on MHP. Not surprisingly, the company is spinning out its education business and accelerating stock buybacks.

We've also previously detailed Rosenstein's slideshow presentation on MHP on why the company should split up. He says the company's cost cuts should be $200 million rather than $100 million and buyback $1 billion in 2011 and 2012 (15% of total shares).

The risk he pointed out was litigation issues of the ratings business and he said only a small fraction of claims are making it into court as the courts denied class action status to claims. He sees 40% upside to today's price.

You can view full notes from Invest For Kids Chicago here.

Thomas Russo: Investment Opportunities Abroad & Nestle (Invest For Kids Chicago Notes)

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 14:30:00 +0000

At Invest For Kids Chicago yesterday, Thomas Russo of Gardner Russo Gardner gave a presentation on investment opportunities abroad and going long Nestle (NSRGY).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Find Better Opportunities Abroad

Russo has 70% non-US exposure and he's been looking at European ideas that generate revenue outside of Europe. He lists the benefits of investing globally:

1. Capacity to continue to reinvest in pursuit of corporate wide ROICS
2. Freedom from dividend burdens
3. Corporate ethics / culture knowledgeable
4. Corporate governance
5. Global talent pool
6. Global best practices
7. Lower valuation available (Euro companies loathed)
8. Reduce translation risk

Nestle (NSRGY): He likes that they're focused on better foods. The secure global parent company is much cheaper than underlying national divisions.

Russo focused on how companies must have a chance to reinvest (strength in brands). He alluded to Kraft Foods and its domestic history where the core business lacked ability to effectively expand overseas. He says you must have long tail to expand abroad.

Pernod Ricard: They went to China with large capacity to grow and invest. 15% of profits are in China and it's family controlled. India is a huge opportunity for spirits.

SAB Miller: The company just purchased Fosters and local brewed beer is a big opportunity. Their sales are rising but EBITDA margin is down and.

He says that market volatility is a friend of the long-term investor. It permits more efficient capital reinvestment, offers M&A opportunity, and enhances share repurchase opportunities. He also says that investment managers have to have the capacity to suffer, in 1999 he was down 2% while the market was up significantly.

At the Leaders in Investing Summit earlier this year, Russo said he likes SAB Miller as well.

You can view full notes from Invest For Kids Chicago here.

Michael Milken: Thoughts on Capital Markets (Invest For Kids Chicago Notes)

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 14:15:00 +0000

At Invest For Kids Chicago yesterday, Michael Milken of the Milken Institute gave his thoughts on capital markets, credit, and a variety of other topics.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Thoughts on Capital Markets

Milken said that people "hardly ever learn anything" from history as it's nothing new in finance. History reflects "confirmed unteachability of mankind." He argues it was easy to predict where we are today due to unit labor costs.

The American Dream comes down to equal opportunity and equal access. Access to capital is based on ability. Prosperity = sum of finantical tech * (human capital + social capital + real assets). He says human capital is the US' largest asset and there's 3 ways to increase it: education, lifestyle, and integration.

Credit Nature

He also talked about how credit is not leverage. Most real estate loans are not investment grade and sovereign debt is the worst of all credit. Greece (recently) was in default 1 of every 2 years historically. 4th century BC Temple Delos took an 80% haircut on loans to Greek city states. Only 4 companies are AAA in the US. More money is lost on AAA investments than any other investment. No loan to real estate is a good loan.

You can view full notes from Invest For Kids Chicago here.

John Keeley Jr: Long ITT Corp ~ Notes From Invest For Kids Chicago

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 14:01:00 +0000

At Invest For Kids Chicago yesterday, John Keeley Jr. of Keeley Asset Management gave a presentation on going long ITT Corp (ITT) and some savings and loan companies.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long ITT Corp (ITT)

Keeley runs $5 billion focused on long-only in the small and mid-cap space. He focuses on spinoffs, cap assets, emerging from bankruptcy, below book value, S&L conversions, and distressed 'wayward' utilities.

There have been 849 spinoffs since 1895 (around 33 per year). He singled out ITT Corp as they focus on industrial products. It trades at 20 and they think it's worth 26+. People are ignoring it because they like the water business (Xylem Inc - water products & services, Exelies - defense & has the highest upside but also the highest risk because of defense spending questions).

Keeley also likes savings and loan companies but says you have to buy a basket in the small market cap arena. His best ideas are: Capitol Federal Financial (CFFN), Oritani Financial (ORIT), ViewPoint Financial Group (VPFG), Rockville Financial (RCKB), and Territorial Bancorp (TBNK).

You can view full notes from Invest For Kids Chicago here.

Sam Zell on Brazil's Investment Opportunity ~ Invest For Kids Chicago Notes

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 13:55:00 +0000

At Invest For Kids Chicago yesterday, Sam Zell of Equity Group Investments gave a presentation on Brazil as a unique investment opportunity.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Brazil as a Compelling Investment

Zell focused on how globalization has been a part of everyone's vocabulary and that GDP in emerging markets is closing the gap. The demographics in Japan, Eastern Europe, Russia and Italy are poor. Brazil on the other hand has 25% middle class rising to 2/3rds middle class. The country has 180 million people with growth of 5 to 6%. They're self-sufficient in food, energy, water and has the scale to grow further.

Brazil also has an educated workforce and "free agent managements." The country has pent up demand as they're expanding housing and helping people enter the middle class. $60 billion of foreign capital went into Brazil, a "drop of water." Consequently, there's inflation and interest rates are high. People seek high returns with a willingness to pay. Zell says it "feels like the US in the 1950's."

Zell concludes that Brazil is full of unique investment opportunities with a focus on service and an aspirational and growing middle class. While Zell did not specifically mention it, we thought we'd point out the exchange traded fund many choose to invest in Brazil is via EWZ. Earlier this year, we highlighted how Xerion Fund's Dan Arbess had been investing in oil companies in Brazil.

You can view full notes from Invest For Kids Chicago here.

Barry Sternlicht Likes Lowe's, Toll Brothers, NVR ~ Invest For Kids Chicago Notes

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 13:45:00 +0000

At Invest For Kids Chicago yesterday, Barry Sternlicht of Starwood Capital Group gave a presentation on going long.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Likes Lowe's, Toll Brothers, NVR

Sternlicht is a successful real estate and hotel investor who founded Starwood Capital Group in 1991 and has structured 40 transactions. He says themes to invest behind right now are residential land as it's a contrarian bet and return of the US residential market is a question of when, not if. During 2007 to 2009, household formation fell well below the historical trend.

He says the problem is appraisals because of distressed sales when bank dump properties. Housing affordability is a good thing and we're building 3800-400k new homes when the real need is around 1-1.2 million. When people finally start to move there will be "pent up demand."

He likes certain homebuilders such as : Toll Brothers (TOL), Lennar, DR Horton, and NVR (NVR). TOL is his favorite along with NVR, which has limited inventory and turns its inventory better (Ryan Homes).

He says to avoid Beazer (BZH) and Hovnanian (HOV) because they could go bankrupt depending on how long the turnaround takes. This is interesting because Avenue Capital's Marc Lasry said he was long Hovnanian bonds at the same conference.

Lowe's (LOW): Sternlicht also likes LOW because the company owns 90% of its stores and benefits from housing demand. It has a diverse revenue stream and the internet can't replace things like home remodels because you need to see in-person what you're purchasing.

He notes that management is willing to repurchase 70% of share buybacks in 4 years (reminds him of Teledyne). The company is free cashflow positive and has a 2.5% dividend yield and trades at 6.5x EV/EBITDA. Pershing Square's Bill Ackman also likes LOW he revealed at a different conference yesterday.

You can view full notes from Invest For Kids Chicago here.

Michael Elrad Likes Macerich (MAC): Invest For Kids Chicago Notes

marketfolly@gmail.com (Market Folly) — Thu, 10 Nov 2011 13:30:00 +0000

At Invest For Kids Chicago yesterday, Michael Elrad of GEM Realty Capital gave a presentation on going long Class A malls and Macerich (MAC).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.

Long Macerich (MAC)

Elrad likes investing in both private and public real estate. He likes top down real estate themes, bottom-up investing (long and short), and hedging. His top down theme is Class A malls. 90% are owned by public companies like Simon Property Group (SPG), Westfield, Macerich (MAC), and Taubman (TCO). Leases are 10 years in tenure and 6.3% nominal cap rates and 5% for private.

His idea is to go long Macerich (MAC). It has a 4.4% dividend versus 3.7% for its peers. It is 84% Class A malls and has reduced leverage to 45% down from 84% before the recession. It has 4% more of its holdings in Class A malls than its competitors and is likely the next REIT to be added to the S&P 500.

MAC trades at a 10% discount to its peers and has a de-staggered board and is an acquisition candidate. You can hedge if you want to with non class B malls/strip center REITS - he'd hedge 50 cents for every 1 dollar of MAC.

He likes malls because there's often Apple (AAPL) stores in them. He says they've been a success because upscale malls drive people who can touch and understand products and he feels this is a reason there's not internet risk (market share).

You can view full notes from Invest For Kids Chicago here.

Chase Coleman's Tiger Global To Reduce Size, Adds Feroz Dewan as Key Man

marketfolly@gmail.com (Market Folly) — Wed, 09 Nov 2011 17:22:00 +0000

Chase Coleman's Tiger Global has decided to offer a special redemption window, the hedge fund noted in its third quarter letter to investors.

Tiger Global currently has $6.8 billion under management (AUM) and their rationale for decreasing their AUM is as follows:

"As the Fund's assets have grown, it has become increasingly difficult to source attractive short opportunities and size them appropriately. It has also become challenging to take meaningful long positions in certain smaller capitalization companies, particularly in emerging markets."

Feroz Dewan Added As Key Man

The second bit of major news from Tiger Global is that they've added co-portfolio manager Feroz Dewan to their key man clause in addition to founder Chase Coleman. Tiger writes that, "Chase is in good health and is in no way changing his role or commitment to the business on a day-to-day basis." This becomes effective at the start of 2012.

Portfolio Notes

On the short side of their portfolio, they've seen most success in the Media & Internet and Retail Consumer sectors. In terms of positioning, Tiger Global has 139% gross exposure with 45% net long exposure. To see some of the hedge fund's investments, we've posted up Tiger Global's portfolio activity here.

For more hedge fund Q3 letters, we posted David Einhorn & Greenlight Capital's letter yesterday.

East Coast Asset Management on the Fear of Bubbles: Q3 Letter

marketfolly@gmail.com (Market Folly) — Wed, 09 Nov 2011 16:43:00 +0000

Christopher Begg is out with East Coast Asset Management's third quarter letter to investors. In it, he tackles the latest global macro mess and how the fear of bubbles has captivated markets.

While many equity investors have begun to place a lot of focus on macro events (even betting on macro outcomes), he prefers to stick to his value investing focus. That's not to say that Begg disregards the global macro, though. Last time around, we highlighted how East Coast sees heightened and prolonged inflation ahead.

Instead of letting global macro events dominate their investment strategy, they've simply used macro analysis as a tool to reflect on how various scenarios effect businesses and investments.

Begg aptly describes the current status of financial markets by writing:

"There is a very large disconnect between the prevailing emotional sentiment and truth. The vast majority of investors are tightly huddled in a consensus of uncertainty and fear. Fundamentals and merit appear in solitude at the edge of chaos ... We sadistically love these environments for the bargains they produce."

And he also touches on some of his latest portfolio movement:

"Our new holding in our core portfolio has recently emerged from bankruptcy with a much improved balance sheet. It is in an industry which has been materially improved as capacity has been removed and a more rational shareholder mindset adopted. We bought this business at a free cash flow yield above 15% from current earnings."

As always, East Coast's letters are better read as a whole than summarized and it is embedded below (email readers click the link to read):

Since East Coast's past letters are often focused on timeless educational aspects of investing, we'd recommend checking out their pieces on competitive advantage and gaining an investment edge.

Kyle Bass' Hayman Capital Buys MGIC

marketfolly@gmail.com (Market Folly) — Tue, 08 Nov 2011 17:42:00 +0000

Kyle Bass' hedge fund Hayman Capital Management just filed a 13G with the SEC regarding MGIC Investment Corp (MTG). This is a brand new position for them as they did not show a stake at the end of the second quarter.

Hayman now owns 10,047,937 shares of MTG which represents a 4.9% ownership stake in the company due to trading on October 31st. MTG is a provider of private mortgage insurance in the US.

It appears as though Bass is using this as a proxy to play a housing recovery. According to the WSJ, Bass likes that MGIC has a positive equity position and believes it will be one of the survivors after the whole housing mess subsides.

It also appears as though this is a longer-term holding for Bass as he thinks housing is still 2-3 years away from bottoming but that any losses between now and then would be modest.

In other activity from Hayman Capital, we've also covered Bass' bet against Japanese Government Bonds (JGBs).

Steve Mandel's Lone Pine Capital Buys Netease.com & Wyndham Worldwide

marketfolly@gmail.com (Market Folly) — Tue, 08 Nov 2011 16:24:00 +0000

Steve Mandel's hedge fund firm Lone Pine Capital just filed two separate 13G's with the SEC regarding shares of Wyndham Worldwide (WYN) and Netease.com (NTES). The hedge fund previously owned stakes in both, but has been adding to its positions in each as of late.

Netease.com (NTES)

Lone Pine's biggest buy between the two was NTES as they ramped their position size up by 3511% since the end of Q2. Mandel's firm now shows a 5.5% ownership stake in NTES with 177,328,000 shares (based on direct ownership of 7,093,120 ADR's) due to portfolio activity on October 26th.

Per Google Finance, Netease.com is "is a Internet technology company. NetEase provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games (MMORPGs), including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II and Datang, as well as the licensed game, Blizzard Entertainment’s World of Warcraft.."

Wyndham Worldwide (WYN)

Lone Pine boosted its holdings in WYN by 22% since the end of the second quarter. The hedge fund now shows a 5.4% ownership stake in Wyndham worldwide with 8,259,034 shares due to trading on October 26th.

From Google Finance, Wyndham is " a hospitality company. The Company offers individual consumers and business customers a range of hospitality services and products across various accommodation alternatives and price ranges through its brand portfolio. Its operations are grouped into three segments: lodging, vacation exchange and rentals and vacation ownership. It has more than 20 brands, which include Wyndham Hotels and Resorts, Ramada, Days Inn, Super 8, Howard Johnson, Wyndham Rewards, Wingate by Wyndham, Microtel, RCI, The Registry Collection, ResortQuest, Landal GreenParks, Novasol, Hoseasons, cottages4you, James Villa Holidays, Wyndham Vacation Resorts and WorldMark by Wyndham."

We've also covered some of Lone Pine's other portfolio activity here.