market folly

Goldman Sachs VIP List: Most Important Stocks To Hedge Funds: Q1 2012

marketfolly@gmail.com (Market Folly) — Thu, 24 May 2012 17:39:00 +0000

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor report. In it, they reveal the latest VIP list of 50 stocks that are most important to hedge funds. These are the positions that appear most frequently in the top 10 holdings of fundamental focused hedge funds.

This quarter, they've also released a new list of very important short positions to hedge funds which we've posted up as well.

Goldman's VIP list of the most important holdings is accessible on Bloomberg via < GSTHHVIP >. It has "outperformed the S&P 500 by 55 bp on a quarterly basis since 2001."

Goldman Sachs VIP List (Q1 2012)

Stock: Number of funds with stock as top 10 holding

1. Apple (AAPL): 106
2. Google (GOOG): 73
3. Express Scripts (ESRX): 56
4. Microsoft (MSFT): 46
5. Qualcomm (QCOM): 38
6. Citigroup (C): 31
7. General Motors (GM): 29
8. Priceline.com (PCLN): 29
9. JPMorgan Chase (JPM): 27
10. Liberty Media (LMCA): 26
11. Delphi Automotive (DLPH): 24
12. BP (BP): 23
13. Pfizer (PFE): 23
14. Tyco (TYC): 22
15. Visa (V): 21
16. Yahoo (YHOO): 21
17. LyondellBasell (LYB): 20
18. Anadarko Petroleum (APC): 19
19. Bank of America (BAC): 17
20. Ford Motor (F): 17
21. WellPoint (WLP): 17
22. American International Group (AIG): 16
23. Charter Communications (CHTR): 16
24. eBay (EBAY): 16
25. Rock-Tenn (RKT): 16

It's no surprise that Apple (AAPL) is the most widely owned top position amongst fundamental hedge funds. But despite that, Greenlight Capital's David Einhorn argued hedge funds actually have less than 2% of assets in his Ira Sohn conference presentation. We've also posted Dan Loeb's thesis on AAPL as he was a big buyer of shares.

Both Tyco and Priceline were featured in the equity analysis section of our Q4 2011 Hedge Fund Wisdom newsletter due to heavy ownership by top funds. TYC is an event-driven play while PCLN is a huge growth and international play.

Here's the rest of Goldman's VIP list:

26. Seagate Technology (STX): 16
27. Berkshire Hathaway (BRK.B): 15
28. Cisco Systems (CSCO): 15
29. Equinix (EQIX): 15
30. Hertz Global (HTZ): 15
31. Liberty Interactive (LINTA): 15
32. Pioneer Natural Resources (PXD): 15
33. Visteon (VC): 15
34. Valeant Pharmaceuticals (VRX): 15
35. Wells Fargo (WFC): 15
36. Baidu (BIDU): 14
37. Dollar Thrifty (DTG): 14
38. Hess (HES): 14
39. Mastercard (MA): 14
40. News Corp (NWSA): 14
41. Williams Companies (WMB): 14
42. Barrick Gold (ABX): 13
43. CIT Group (CIT): 13
44. Capital One (COF): 13
45. Calpine (CPN): 13
46. Devon Energy (DVN): 13
47. EMC (EMC): 13
48. Hewlett Packard (HPQ): 13
49. Illumina (ILMN): 13
50. Salesforce.com (CRM): 12

Of the above, we've previously highlighted why Passport Capital likes LINTA. And in the brand new issue of our Hedge Fund Wisdom newsletter, we've analyzed Equinix (EQIX), a big new position by Philippe Laffont's Coatue Management and John Thaler's JAT Capital.

Some of the stocks on the list are brand new additions as enough hedge funds boosted their positions in Q1: ABX, AIG, BRK.B, COF, CPN, CRM, DVN, EBAY, EMC, EQIX, F, HES, HTZ, ILMN, RKT, WLP.

Be sure to also check out Goldman's brand new list of hedge fund very important short positions.

Goldman Sachs Very Important Short Positions For Hedge Funds: Q1 2012

marketfolly@gmail.com (Market Folly) — Thu, 24 May 2012 17:38:00 +0000

Goldman Sachs is out with its Q1 2012 Hedge Fund Trend Monitor and we've already posted up Goldman's VIP list of most important stocks to top funds. Now we're posting a new addition to their research: the very important short position list.

This tracks short exposure of hedge funds as an equal-weighted basket that "consists of 50 S&P 500 constituents with the highest total dollar value of short interest outstanding." It can be accessed on Bloomberg via < GSTHVISP >.

Goldman emphasizes that this list is not based on 13F holdings (because hedge funds are not required to disclose shorts). They also note that it's not a basket of stocks most held short.

Goldman Sachs Very Important Short Positions For Hedge Funds

Stock, value of short interest (in $ billions)

1. Johnson & Johnson (JNJ): $2.9
2. Exxon Mobil (XOM): 2.8
3. Intel (INTC): 2.6
4. International Business Machines (IBM): 2.4
5. Amazon.com (AMZN): 2.4
6. AT&T (T): 2.3
7. Chevron (CVX): 2.1
8. Verizon (VZ): 1.8
9. Duke Energy (DUK): 1.7
10. Walt Disney (DIS): 1.5
11. Abbott Laboratories (ABT): 1.4
12. Coca Cola (KO): 1.4
13. General Electric (GE): 1.4
14. Walmart Stores (WMT): 1.3
15. Caterpillar (CAT): 1.2
16. ConocoPhillips (COP): 1.2
17. Walgreen (WAG): 1.2
18. Time Warner (TWX): 1.1
19. Lockheed Martin (LMT): 1.1
20. Home Depot (HD): 1.1
21. Dell (DELL): 1.1
22. Bristol Myers Squibb (BMY): 1.1
23. Oracle (ORCL): 1.1
24. Schlumberger (SLB): 1.0
25. United Parcel Service (UPS): 1.0

Of the above. David Einhorn recently made comments about Amazon.com (AMZN) at the Ira Sohn conference. While he seemed to be skeptical of the company during his talk, he did not say he was short. He highlighted that the company has destroyed other businesses, taking market share, but criticized their weak profit growth.

Jim Chanos is short Dell (DELL) and he points to the decline of personal computing in favor of tablets and other mobile devices. He's been correct in that regard as Dell recently reported declines in those segments in their latest earnings release. But of course the bull case points to Dell's other business lines as they shift toward the enterprise.

Here's the rest of Goldman's Very Important Short Positions List:

26. Amgen (AMGN): 1.0
27. AvalonBay (AVB): 1.0
28. Chipotle Mexican Grill (CMG): 1.0
29. Boston Properties (BXP): 1.0
30. Union Pacific (UNP): 0.9
31. Simon Property Group (SPG): 0.9
32. Procter & Gamble (PG): 0.9
33. Cerner (CERN): 0.9
34. Host Hotels & Resorts (HST): 0.8
35. Kohl's (KSS): 0.8
36. Waste Management (WM): 0.8
37. CenturyLink (CTL): 0.8
38. Carnival (CCL): 0.8
39. Philip Morris (PM): 0.8
40. American Express (AXP): 0.8
41. DuPont (DD): 0.8
42. McDonalds (MCD): 0.8
43. MetLife (MET): 0.8
44. Fastenal (FAST): 0.8
45. Merck (MRK): 0.7
46. Comcast (CMCSA): 0.7
47. Sysco (SYY): 0.7
48. Freeport McMoran (FCX): 0.7
49. Alcoa (AA): 0.7
50. Staples (SPLS): 0.7

Be sure to also check out Goldman Sachs VIP list of most important stocks to hedge funds for Q1 2012.

On Seth Klarman & Baupost Group's Chargeurs Investment

marketfolly@gmail.com (Market Folly) — Thu, 24 May 2012 11:00:00 +0000

Seth Klarman is one of the most successful investors of our time, so it's no surprise that investors have an insatiable appetite for any information regarding Baupost Group's investments. Today after rummaging through the French regulatory database, we found a French company Klarman's firm has been invested in for quite some time: Chargeurs (CRI:PAR).

It appears as though they originally invested in the company over 16 years ago (or at least that's the earliest trace of their ownership we could find). But the main reason we're highlighting it is because the company says the hedge fund still holds a stake in the company.

Not to mention, it appears as though the equity is trading at lower levels now than it was back in 1996 (the first trace of Baupost's activity).

Chronicling Baupost's Chargeurs Ownership

Looking back through the collection of Baupost Group letters we've previously posted up, we found Chargeurs listed as a holding back in one of their 1996 letters.

Searching through past filings in the Autorite Des Marches Financiers (France's equivalent of the SEC), it shows that Baupost held a 5% stake in 1998. Then after shares of the company dropped, the following year they disclosed a 10% ownership stake in Chargeurs. In 2011, their ownership dipped below the 10% threshold.

And now, according to the company's website, Baupost currently hold the equivalent of 8.68% of Chargeurs voting rights, or 1.16 million shares.

Stock & Convertible Bonds

We use the term equivalent because it appears as though Baupost owns a mixture of shares and convertible bonds.

A search of the French regulatory system revealed that Baupost had 1.24 million shares on April 13th, 2010, the date the filing was made public.

Because preferential rights were given to existing shareholders to purchase the convertible bonds, it seems likely that Baupost would have purchased some prior to the March 12, 2011 cut off. Bear in mind that there was also a secondary market in the preferential rights which complicates the situation a bit further.

Convertible bondholders who hold until maturity in January 2016 will receive 6.06 shares at par, so shareholders will continue to be diluted by bondholders.

It's situations like this that provide a good reminder that it's never wise to blindly follow a hedge fund without trying to grasp the situation and doing your own research first.

It's also an amazing example of how Klarman truly focuses on the long-term. He's held a stake in this company for 16 years, an eternity by today's investment timeframe standards.

About Chargeurs

Per Google Finance, Chargeurs SA is "a France-based company which, manufactures and distributes wool and textiles. The Company manufactures fabrics and garment interlinings for the apparel industry. It operates in three business segments: temporary surface protection, through Chargeurs Protective Films, primarily in the building materials industry, but also in electronics and household appliances; Technical textiles, through Chargeurs Interlining and Raw material processing, through Chargeurs Wool which specializes in topmaking, which consists of designing wool blends. Chargeurs SA operates in five production unites and it's present in 34 countries on five continents."

This isn't the only French company Klarman owns, as it recently came to light that Baupost had been buying Vivendi (VIV:PAR), the stock of a French conglomerate.

Stay tuned as we'll be revealing more of Seth Klarman's investments that have been flying under the radar. In the mean time, check out notes from Seth Klarman's Margin of Safety.

What We're Reading ~ 5/23/2012

marketfolly@gmail.com (Market Folly) — Wed, 23 May 2012 18:16:00 +0000

Warren Buffett's Berkshire sought to buy mortgage lender [FINalternatives]

Notes from David Einhorn's Greenlight Re annual meeting [Santangel's Review]

Nardin Baker on the low volatility anomaly [Abnormal Returns]

Interview with Bridgewater's Ray Dalio [Barron's]

Institutional clients prod hedge funds for more transparency [P&I]

Inside Canadian Pacific's overthrow [Globe & Mail]

Look at CP Rail after Ackman's proxy fight [Financial Post]

Implications of Google becoming a hardware company [BusinessWeek]

Buffett buys local newspapers [Omaha]

Why Buffett is buying newspapers [PaidContent]

Infographic: Apple by the numbers [Give Me Mind]

Inspirational commencement speech from Neil Gaiman [Vimeo]

Bill Ackman's Ira Sohn Slideshow Presentation on J.C. Penney (JCP)

marketfolly@gmail.com (Market Folly) — Tue, 22 May 2012 23:17:00 +0000

Last week we posted up notes from the Ira Sohn Conference including a summary of the Pershing Square founder's talk on J.C. Penney. Now, courtesy of the WSJ Deal Journal, is Bill Ackman's slideshow presentation on JCP from the event.

Entitled "Think Big", Ackman examines the future of the retailer under new CEO Ron Johnson. He notes that all the requirements for a turnaround are in place:

- Solid core business with natural competitive advantages

- New, high-quality management team

- Management incentives are aligned with shareholder returns

- High potential new sales strategy

- Abundant "low hanging fruit" in the cost structure to fund sales opportunity

The hedge fund manager compares the turnaround at JCP to that of The Gap (GPS) in the mid 1980's as that company had a broken model to fix, hired talented new management, implemented a strategy change, and after some poor results eventually turned around and the stock rose ~60x.

While JCP's first quarter was disappointing in terms of same store sales (SSS) and gross margin, Ackman is thinking long-term here and points to goals of growing sales and achieving ~40% gross margins. He also highlights that the dividend cut has caused forced selling by yield investors.

Embedded below is Bill Ackman's slideshow presentation on J.C. Penney from the Ira Sohn Conference:

You can download a .pdf copy here.

Be sure to check out the rest of the notes from the Ira Sohn Conference where tons of big-name hedge fund managers presented.

And for more actual slideshows, we've also just posted up David Einhorn's Ira Sohn presentation on preferreds.

David Einhorn's Ira Sohn Slideshow on Use of Preferreds

marketfolly@gmail.com (Market Folly) — Tue, 22 May 2012 22:58:00 +0000

David Einhorn's Greenlight Capital just released his presentation from the Ira Sohn Conference on preferreds. The presentation is entitled "Greenlight Opportunistic Use of Preferreds (GO-UP)."

If you missed it, we've also posted up a summary of Einhorn's presentation at Ira Sohn, as well as notes from the Ira Sohn Conference.

On its website, Greenlight has posted its idea for a security that would satisfy investors' enormous appetite for yield. They argue that many companies have great balance sheets but their stocks trade at low multiples as investors don't want to pay for earnings.

While most companies elect to pay dividends, Einhorn says that these companies then just become "a stock with a low P/E and an attractive dividend."

Greenlight advocates companies creating a new type of preferred security, essentially a "perpetual preferred stock distributed directly to shareholders, so that shareholders would own and could separately trade both the GO-UP and the common stock."

Here's how Einhorn envisions it:

- 4-6% dividend rate (taxed at preferential rates)
- Quarterly cash payments
- Customary protective provisions

Greenlight also highlights the benefits to issuers:

- "Since the liquidation preference only needs to be satisfied upon a sale or wind-down of the business, there is no immediate use of cash, no maturity or refinancing risk, and no default risk."

- Very high quality credits (trades to reflect long-term interest rate expectations)

- Bought or sold as needed to suit investment goals

Embedded below is David Einhorn's slideshow from Ira Sohn on preferreds:

You can download the slideshow here. And Greenlight has also posted an Excel spreadsheet analysis on its website here.

For more actual slideshows from the Ira Sohn Conference, head to Bill Ackman's presentation on J.C. Penney as well.

BlueCrest Capital's Michael Platt on European Crisis & How He's Trading

marketfolly@gmail.com (Market Folly) — Tue, 22 May 2012 17:06:00 +0000

BlueCrest Capital Management's Michael Platt spoke with Bloomberg Television about the European crisis and how he's trading the current situation.

On the financial impact of a Greek exit:

“I think the order of events would be Greece exits, shock wave across Europe, massive stress in banks, Spain turns into the battleground for the euro because of distresses in their own banking system, and then we either get a very swift and strong European solution or we get a hugely disorderly meltdown in Europe. “

On whether Spanish banks are acknowledging their real estate positions:

“No, they are not. In a country with 24% unemployment, they have a 3% provision against their mortgage book…The mortgage book of Ireland has a 10% provision. What is going on in Spain is that 22% of Spanish mortgages have been reworked, half of them more than twice. In other words, there’s evidence that the banks have been evergreening loans. In which case, 7% of it, you have to take another allowance of 7% to get it to Irish levels against 650 billion euros. That’s another 50 billion euros there. And the same is going on in the loans to small and medium enterprises.”

On how he's trading Europe right now:

“The problem is you can make a pretty sensible argument for almost any outcome in Europe. It could be a run on the banks very quickly. The Greeks could end up staying in for a little bit longer. They could vote to take themselves out. There could be a eurobond. The whole situation could be overtaken by events. We could have bank runs in Spain. We could have LTRO. We could have a concerted bond-buying action from the ECB. You can make a sensible argument for almost any outcome it's in such a state of flux right now. I think that when you get into these sorts of situations, the first thing you want to do is you want to ensure that your money is in a place where you like the credit so that if there is a major banking problem you're not going to lose money on credit…The reason why the treasury market's doing so well. Treasuries, and the short end of Europe with German government bonds, for two years now yield being essentially zero.”

Embedded below is the video of Platt's interview with Bloomberg Television:

For more on how hedgies are playing the European crisis, head to Marc Lasry on opportunities in distressed debt.

Eton Park Capital Discloses Cove Energy Stake, Reduces Sable Mining Position

marketfolly@gmail.com (Market Folly) — Tue, 22 May 2012 16:59:00 +0000

Eric Mindich's hedge fund Eton Park Capital has just disclosed activity in two positions in UK markets.

Cove Energy

First, Mindich's firm has disclosed a new position in Cove Energy (LON: COV). Due to trading on May 16th, the hedge fund has disclosed a position of 3.09% of outstanding shares in COV via equity swaps.

Per Google Finance, Cove Energy is "engaged in the exploration for and the development and production of oil and gas reserves. The Company operates in two segments: oil and gas exploration, and mineral exploration. The Company properties include Rovuma Offshore, where it has 8.5% working interest; Mozambique Onshore, where it has 10% working interest; Tanzania Mnazi Bay, where it has 16.38% working interest in production and 20.475% exploration interest; Kenya Offshore (L5, L7, L11A, L11B and L12), where it has 15% working interest, and Kenya Offshore (L10A and L10B), where it has 25% and 15% working interest."

Sable Mining

Second, Eton Park has significantly reduced their position in the London listed African miner Sable Mining (LON: SBLM). Their disclosure shows they've gone below the threshold of a 3% ownership stake. Market Folly originally flagged when Eton Park bought Sable back in April 2010 at a placing.

Sable Mining is still owned by Audley Capital who hold 7.1% of the shares outstanding.

Per Google Finance, Sable Mining is "formerly BioEnergy Africa Limited, is a mining company. It focuses on investing in early stage exploration and development mining businesses or assets located in sub-Saharan Africa."

In other activity from this hedge fund, we've detailed Eton Park's new position in Teekay (TK).

Lone Pine Capital Buys More Ulta Salon (ULTA)

marketfolly@gmail.com (Market Folly) — Tue, 22 May 2012 13:00:00 +0000

Steve Mandel's hedge fund firm Lone Pine Capital recently filed a 13G with the SEC regarding its position in Ulta Salon, Cosmetics & Fragrance (ULTA). Per the filing, the hedge fund now owns a 5.6% stake in the company with 3,498,638 shares.

This marks a 61% increase in their position size since the beginning of April. The disclosure was made due to activity on May 10th as it looks like they utilized the recent sell-off to add to their position.

Mandel made a rare appearance at the Ira Sohn Conference where he talked about what type of investments he likes. You can also read notes from the entire conference here.

Per Google Finance, ULTA is "a beauty retailer, which provides one-stop shopping for prestige, mass and salon products and salon services in the United States. During the year ended January 28, 2012 (fiscal 2011), the Company opened 61 new stores. It operates full-service salons in all of its stores. Its Ulta store format includes an open and modern salon area with approximately eight to 10 stations."

Brand New Hedge Fund Wisdom Issue Just Released

marketfolly@gmail.com (Market Folly) — Mon, 21 May 2012 18:07:00 +0000

The brand new Q1 2012 issue of our premium newsletter has just been released! Subscribers please login at hedgefundwisdom.com to download it.

Included in the new 85-page issue:

- List of consensus buys & sells among top hedge funds

- Equity analysis on: Tempur-Pedic (TPX), AutoZone (AZO) & Equinix (EQIX)

- The latest portfolios of 25 top hedge fund managers: Seth Klarman, Warren Buffett, David Einhorn, John Paulson, David Tepper, Julian Robertson, Carl Icahn, Steve Mandel, Bill Ackman, Dan Loeb, Lee Ainslie, John Griffin, George Soros, Roberto Mignone, Leon Cooperman, John Burbank, Bruce Berkowitz, Chase Coleman, Philippe Laffont, Richard Perry, Larry Robbins, Andreas Halvorsen, Thomas Steyer, Barry Rosenstein & Alan Fournier.

- Expert commentary on what each fund has been up to

Want to see a sample? Click here to download an old issue for free.

See What Top Hedge Funds Have Been Buying & Selling

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

Quarterly Subscription: $89.99 per quarter

The Alpha Masters: Review of Maneet Ahuja's Book on Dalio, Paulson, Tepper, Loeb & More

marketfolly@gmail.com (Market Folly) — Mon, 21 May 2012 13:35:00 +0000

We've just finished a must-read book on some of the top hedge fund managers in the game. The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja takes you behind the scenes with exclusive interviews and profiles of the managers you read about on this site each day.

Ahuja is CNBC's hedge fund specialist and co-creator of the Delivering Alpha summit. Through her roles, she's developed quite the rolodex and has put it to work by giving readers unprecedented access to prominent managers. With a foreword by PIMCO's Mohamed El-Erian and an afterword by Myron Scholes, Ahuja's book profiles the following nine managers:

Chapter 1: The Global Macro Maven - Ray Dalio, Bridgewater Associates
Chapter 2: MAN versus Machine - Pierre LaGrange & Tim Won, MAN Group/AHL
Chapter 3: The Risk Arbitrageur - John Paulson, Paulson & Co
Chapter 4: Distressed Debt's Value Seekers - Marc Lasry & Sonia Gardner, Avenue Capital
Chapter 5: The Fearless First Mover - David Tepper, Appaloosa Management
Chapter 6: The Activist Answer - Bill Ackman, Pershing Square Capital
Chapter 7: The Poison Pen - Dan Loeb, Third Point
Chapter 8: The Cynical Sleuth - Jim Chanos, Kynikos Associates
Chapter 9: The Derivatives Pioneer - Boaz Weinstein, Saba Capital Management

The book's cover photo is the perfect depiction of what many perceive the hedge fund industry to be: money and secrecy hidden behind locked doors (or in this case, a bank safe deposit box). But just as the cover suggests, Ahuja has unlocked the door to the industry's top titans and she lets you in on some of their secrets and little known facts.

How David Tepper Named His Hedge Fund

One such tidbit is found in Chapter 5 about David Tepper. While Market Folly often details Tepper's portfolio activity, The Alpha Masters sheds light on little known facts such as why he selected the name 'Appaloosa Management' for his firm to begin with.

It's always interesting to learn what hedge funds are named after because they often tell a story or reveal information about the managers themselves. In Tepper's case, it simply highlighted his desire to make money.

Ahuja writes,

"Tepper and Walton only needed the perfect name for their new venture. Greek mythology was popular at the time and they first decided on Pegasus, the flying horse, before discovering it was already taken. So Walton went to the library and came back with a book on horses. They knew they needed a name that started with 'A' to be first to receive faxes on trades, which was how orders were processed back then. They had learned well from their stints at Goldman that two minutes could make or break you. The first name they came across was 'Achaikos' but they found it too hard to pronounce. So they skipped ahead and settled on 'Appaloosa.' And the fund was born."

Why The Alpha Masters is a Must-Read

This book is a compilation of stories and fascinating facts about nine top managers. We've been tracking these prominent hedge funds for years, but The Alpha Masters kept peeling back layers of intricate details.

At first glance, some of the historical background on the managers' lives may seem tedious and boring. But then you realize that Ahuja has included these anecdotes because it paints a picture as to who the manager was and what they've become.

These stories told in the manager's own words make you feel as if you're simply at lunch with a friend reminiscing about their past. But Ahuha has masterfully taken that friend and replaced them with a hedge fund titan removed from Wall Street's trillion dollar pedestal. And when you've finished reading, these seemingly untouchable god-like moneymaking machines have morphed into mere mortals just like you.

After all, like many entrepreneurs and small business owners today, these hedge fund icons at one point in their lives took a big risk, pursued their dreams, and started their own firms. Ahuja chronicles the entire journey (even before the fund's inception) and the real value is seeing what each manager had to go through to get where they are now. As these dream chasers soared to amazing altitude, they now tell their success stories as luminaries sure to inspire the ascension of the next master money managers.

But apart from the human element, this book does exactly what its title implies: it's unlocked the genius of the world's top hedge funds by giving you tons of access to people you'd probably never meet as well as stories and wisdom you'd probably never hear otherwise.

The most valuable aspect of this book is that it gives you a front row seat in a classroom full of hedge fund icons detailing their investment thought process, what mistakes they've learned from, how they've developed as investors, and what it takes to succeed. While many perceive hedge funds to be secretive, Ahuja has acquired astute anecdotes from top managers and purveyed them for all investors to learn from. And, unbeknownst to us, it was a pleasant surprise to find MarketFolly.com listed as a reference at the end of the book.

Definitely check out The Alpha Masters (hardcover) or Kindle e-book version here.

Strategist Jeff Saut On Why It's Time To Dip Into Stocks

marketfolly@gmail.com (Market Folly) — Mon, 21 May 2012 13:30:00 +0000

Given the recent volatility in the markets, we thought it'd be worthwhile to check in with strategist Jeff Saut to get his thoughts on the action. We've pointed out how Saut's been cautious leading up to the recent decline, but what's he advocating now?

In his latest investment strategy note, he highlights numerous contrarian signals as reasons to step back into stocks. First, he points out that the CBOE Equity put/call ratio is flashing a buy signal "that has proven profitable at every downside inflection point since 1994."

Second, Saut draws attention to the American Association of Individual Investors (AAII) survey, which recorded its lowest bullish reading (23.6% bulls) since August 2010.

Lastly, Saut highlights that major indexes have been down 13 out of the last 14 sessions. He says that, "such downside skeins are at historic proportions since markets tend not to go more than 11 sessions in any one direction."

Simply put, Saut says it's time to bring out the 'buy list' and to begin "judiciously recommitting some of that cash to stocks." It appears as though he's advocating a gradual deployment of capital over time.

Embedded below is Saut's latest market commentary:

You can download a .pdf copy here.

For more from this strategist, head to Jeff Saut on risk management.

Coatue Management's Philippe Laffont on Facebook, Apple, Equinix, Virgin Media & His Portfolio

marketfolly@gmail.com (Market Folly) — Fri, 18 May 2012 14:00:00 +0000

Coatue Management's hedge fund founder Philippe Laffont gave his first-ever interview to Bloomberg Television yesterday and talked about Facebook (FB), Apple (AAPL), Equinix (EQIX), Virgin Media (VMED) and his portfolio in general.

On Facebook's IPO (FB)

"It is clearly an incredible company and it also has an incredible management team. One of the things to respect about Mark [Zuckerberg] is that he has surrounded himself with great executives. The tough part about an investment is you are looking for good businesses, good management team, but it is different if you buy a stock at 30 or at 100."

"I would like to get as many shares as possible. That's what probably everyone wants to do. I'm sure the stock is incredibly oversubscribed. The real decision is what will happen. We have lots of previous examples (of risks), both in the year 2000, 1999, but even as recently as LinkedIn. LinkedIn had a small float. The stock started at a low IPO price. The stock moved all the way up, came all the way back down, and in a few months later it's back to where it started. It is possible the same happens to Facebook. I do not know. It is a great business. Not only do they have the potential to grow their advertising a lot, but in addition they are making money with mobile games. They have a lot of new potential growth products."

On Apple (AAPL)

"[We invested in Apple] 2003. When we got involved with Apple, the stock was at $10. We did not get involved until maybe it was at $100. We missed the whole iPod. When the iPhone came in, we thought it would be a repeat of the iPod. Today you still have the iPhone 5 coming out, which I think will be an incredible product and then potentially Apple TV. This is an amazing company. They have so much growth going on. They represent 5-10% of the market and they can get a much bigger market share."

On His Concentrated Portfolio

"Concentration is a problem over the short-run, but it sort of goes away over the long run. We try to invest over the long-run and are willing to take the volatility. The less concentrated you are, the more your returns will look like the S&P or the Nasdaq. If you want to try to outperform, you have to focus on your best ideas. it is something we transmitted to investors from day one. They understand the risk. It puts a premium on being right."

On Equinix (EQIX)

"We pitched it at the Ira Sohn conference yesterday Equinix. It's a great story. Basically, if I am Bloomberg, I want to get my news feeds from the NASDAQ and the New York Stock Exchange very close to me so I have the prices immediately. By putting my servers right next to them, I can get those prices and send them out to all of my customers. Bloomberg needs to have their servers right next to the servers of these other companies, and that is what Equinix allows you to do."

"I think the demand for the internet will continue to grow. We are in the early innings. The company is growing 25-30% revenues and EBITDA. It should continue to do that…We started buying it years ago really and have just been adding on to the position. I think right now we might be the largest shareholder of the company."

MarketFolly note: What's interesting here is how Laffont mentions "we started buying it years ago really and have just been adding on to the position." However, EQIX has only just now shown up as a 'new' position for them in the first quarter of 2012. They did not disclose owning a stake in the fourth quarter of 2011.

So, we searched through their previous 13F's filed with the SEC. Going back a few years, we found that the last time they disclosed owning a stake in Equinix was in the first & second quarters of 2010. EQIX then disappeared from their filings in the third quarter of 2010 as they apparently sold the stake. And it hasn't shown back up in their 13F's. Until now.

As such, Laffont's statement is a bit puzzling as his filings show they just re-entered the position. The reason we bring this up is because there's a big difference between buying a position "years ago" versus establishing an entire stake in the first quarter.

Maybe he simply meant to say that they've been involved in the name in the past and have recently acquired it again. We've asked Coatue for clarification and will update if there's a response.

On Virgin Media (VMED)

"Virgin Media, whereas Equinix solves the problem at the core, Virgin Media solves the problem at the edge. Right now wifi enables many people to share the internet together in a household. Virgin Media has that pipe from the home back to the core back to Equinix. It's the fastest pipe out there and with HD streaming and online games, you just need to have this fast pipe."

Coatue's Current Exposure

"Right now we have a conservative exposure to the market. It's sort of hard to dissociate. We have great equity valuations in the U.S. in some of the big tech names. But I can't ignore what is going on in Europe and China and elsewhere. I would say we are reasonably conservatively positioned. It would be done though a combination that just in the way that we're looking for winners, we are also looking for losers, and we're hoping that our portfolio of winners and losers balances itself out. We also have some options of tail risk protection."

Embedded below is the video from Bloomberg TV's interview with Laffont:

For more from this manager, be sure to check out Laffont's presentation from Ira Sohn Conference two days ago.

Howard Marks on Oaktree's IPO

marketfolly@gmail.com (Market Folly) — Fri, 18 May 2012 13:00:00 +0000

Oaktree Capital's Chairman and founder Howard Marks was recently on Bloomberg TV talking about his company's recent initial public offering (IPO).

On pricing an IPO and investing in general: "You can't ignore your environment when you take investment action." He mentions this because he had to reduce Oaktree's offering and it priced at the lower-end due to the rough market as of late.

His thoughts on the environment: "We're not at the bottom. I don't think we're at the top. I don't detect frothy psychology. I don't see peak valuations, if you look at things like P/E ratios on stocks or yield spreads on riskier bonds. I think we're on some middle ground."

On how he's approaching things now: "Our mantra is move forward... but with caution. We do have a good level of caution, primarily because of the macro concerns."

We also highlighted how David Einhorn's Greenlight Capital disclosed a stake in Oaktree after it went public.

Embedded below is Marks' interview with Bloomberg TV:

Be sure to also check out an excerpt from his book we've posted up: Marks on contrarianism.

What We're Reading ~ 5/18/12

marketfolly@gmail.com (Market Folly) — Fri, 18 May 2012 12:00:00 +0000

Since we're busy writing the brand new issue of our Hedge Fund Wisdom newsletter that is due out early next week, here are some links for the mean time:

If you missed it, notes from the Ira Sohn Conference [Market Folly]

Putting lipstick on the pig at Chesapeake Energy [Footnoted]

Peter Thiel on what 2 areas he'd short right now [Business Insider]

Will soaring rents lead to higher core inflation? [Big Picture]

Investment analysis of PHH Corp [Above Average Odds]

Scott Cottier: 3 places to find value in muni bonds [Learn Bonds]

On Wall Street's summer [Forbes]

Ben Graham then and now [Forbes]

Jeff Gundlach: bond savant [Business Week]

2012 US investment management award winners [Institutional Investor]

Buy bullion, not gold stocks, top hedge fund manager says [Globe & Mail]

Good old interview with Seagate's CEO [Forbes]

Investors missing rally dump bearish bets most since 08 [Business Week]

What happened to First Solar? [Technology Review]

Notes From Ira Sohn Conference Presentations 2012

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 01:13:00 +0000

The hedge fund mecca known as the Ira Sohn Conference in New York is over and we've posted up notes from all the speakers. Below are the links to each presentation:

- David Einhorn's Ira Sohn Presentation on Tons of Stocks

- John Paulson's Three Long Ideas

- Lone Pine's Stephen Mandel On What He Likes

- Larry Robbins: Long THC, HMA, HCA, LPNT. Short ITC

- Jeffrey Gundlach's Ira Sohn Presentation

- Philippe Laffont on Equinix (EQIX) & Virgin Media (VMED)

- Hoplite Capital's John Lykouretzos on Starbucks (SBUX)

- Bill Ackman's Ira Sohn Presentation

- Dwight Anderson (Ospraie): Long Palladium, Short Platinum

- Michael Price on J.C. Penney & Contest Winner on Xerox (XRX)

- Meryl Witmer on Viacom (VIA.B) & Gildan (GIL)

- Johnathan Kolatch: Long Argentina Sovereign Debt

- Dan Ariely's Presentation on Psychology

- John Wilder on Natural Gas

- Kenneth Rogoff: This Time is Different

Enjoy!

David Einhorn's Ira Sohn Presentation on Martin Marietta Materials, Apple & More

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 01:09:00 +0000

We're posting up notes from the Ira Sohn Conference. Greenlight Capital's David Einhorn gave a presentation on a ton of different stocks.

He screamed through 100 slides and provided very little detail, more of a way to touch on several ideas, so people can do their own work.

Short Martin Marietta Materials (MLM): priced at 35 p/e. One time fiscal stimulus has goosed earnings. Multiple too high.

Short France: exposure to Italy and Spain. Default or return to Franc not out of the question. Spain, retailers.

On China: "Big trouble in little China" Big knowledge gap, and cultural gap. Shows all the RTO frauds, no specific names to short. Overbuilding outside of main cities in China, projects don't pay off the debt service. Now USD not coming in anymore, so the gig is up. Banks are in trouble. Chinese elites are taking money out of the country.

On Japan: bad demographics. Sales of adult diapers outsold those for babies this year. Shorting the yen. Long DeNA, Gree: Japan's two largest social network companies are in the cellar. Games under regulatory scrutiny. Better than FB.

Long Apple (AAPL): Hedge funds actually have less than 2% of assets. Says Trillion Dollar market caps aren't prohibited. Other bear case is hardware company, it's not, it's a software company. iOS platform sticky, "captured the customer" Also long Microsoft (MSFT), Marvell Technologies (MRVL).

Perpetual Preferred Stocks: Advocates use of perpetual preferred stocks. 4-6% dividend, taxed at preferential tax rates. Some special form of preferred. "Some will object that there is no precedent for this idea. That is because this is a new idea."

Thoughts on Tons of Other Stocks: Short Zara/Inditex. Long DIA. Long Norway. Long Cairn Energy, small cap E&P. has cash in USD. Negative words on Amazon.com (AMZN): Revenue growth, no op profits; criticized company's weak profit growth... didn't say he was shorting? "Is Jeff Bezos Batman?" Impact on other retailers is clear. Hint at other shorts. Short Dicks Sporting Goods (DKS)? He says co is in big trouble with Amazon's big push into the category. Trades at 20x, could be left in the dust. Short US Steel (X). Likes Norway's GJF.

David Einhorn will also be presenting investment ideas at the Value Investing Congress in NYC in October. Market Folly readers can receive a discount to the event by clicking here and using discount code: N12MF3

P.S. - Don't miss other presentations from John Paulson, Bill Ackman, Larry Robbins & more: notes from Ira Sohn Conference 2012.

John Paulson on Caesars, AngloGold Ashanti, & CVR Energy: Ira Sohn Presentation

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 01:05:00 +0000

We're posting up notes from the Ira Sohn Conference. Paulson & Co founder John Paulson gave a presentation on three long ideas: Caesars (CZR), AngloGold Ashanti (AU) and CVR Energy (CVI). Paulson is featured in the book, The Greatest Trade Ever.

Paulson's Three Long Ideas

Caesars (CZR): Stock with high option value. Was LBO. Common is only 7% of valuation, $1.7B, Opco Debt $16.9B, Net PropCo debt $4.8B. $23B total cap. So equity gets the upside. LBO guys put $6B in, now equity only $1.7B. Says they are turning around.

Stock owners have not only gaming properties, but Social gaming company worth $6-9, Online gaming could be $24 per share. Key is growth. Are seeing RevPAR growth. Added Octavius Tower. Adding Cleveland. 2013 LINQ in Vegas, Cincinnati.

Online gaming upside option. No debt due until 2015. Three years runway. 2007 they did $2.8B EBITDA, LBO at 11x. Guess they get back, adjusted to new facilities, $3.2B Likes hotels because the rates increase with inflation. Online gaming may be another $300M, so total to peak, get to $3.5, with 11x multiple stock is $138, a 10x upside. (that's way too rosy)

AngloGold Ashanti (AU): Pure gold upside. Been getting crushed, much worse than gold price, correlation has broken down. Bears say just buy the ETF. He says, you're paying more by doing that. Says you're getting the company at only $133 per proven reserves. It's also worth highlighting that Paulson was buying fellow gold miner NovaGold Resources (NG) in April as well. We've also previously posted a look at Paulson's gold fund.

CVR Energy (CVI): "A gift from Carl Icahn" Merger Arb transaction. Buy stock at $30.35, tender to offer at $30.00, cost of CCP is $0.35. "Contigent Cash Payment" rights. If they sell company for $36.15 CCP could be worth $6.15, with cost of $0.35, that's a 17.6x return.

P.S. - Don't miss other presentations from David Einhorn, Bill Ackman, Larry Robbins & more: notes from Ira Sohn Conference 2012.

Stephen Mandel's Ira Sohn Presentation: Long Kohl's, Bearish on Fixed Income

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 01:01:00 +0000

We're posting up notes from the Ira Sohn Conference. Lone Pine Capital's Stephen Mandel gave a presentation on how he's bearish on fixed income and how he likes Kohl's (KSS) & companies that shrink their share counts, as well as tech leaders.

Mandel runs $12 billion in global equities. He started in 1997, previously covered retail stocks at Tiger Management and Goldman Sachs.

Where He Doesn't See Value

Fixed income:. "Heads I win very small, tails, I lose very big." Governments printing money, and want to inflate their ways out of debt. Pensions and individuals are using the rear view mirror to flood into fixed income.

Where He Sees Value

Equities have several significant areas of value. Can't mention specific stocks.

Likes "Tech Leaders." Companies that are leaders in their fields, internet search, PCs & mobile devices, travel. (Note: he owns Apple (AAPL), Google (GOOG), and Priceline.com (PCLN)). Generate high ROIC, lots of excess cash, yet trading to less than run of the mill low growth industrial companies. Close to 20% of long portfolio in these.

Likes "Share Count Shrinkers": Modest growth, but using FCF to shrink number of outstanding shares by 8% to 10% annually. 20% of portfolio here too. Kohl's (KSS) as an example. Over last 20 years, gone from 30 stores to national, higher sales than JCP. $46 stock, trades less than 10x 2012E eps, buying back stock. Took markdowns, viewed as obsolete, beaten by internet.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Larry Robbins' Ira Sohn Presentation: Long THC, HMA, HCA, LPNT; Short ITC

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 01:00:00 +0000

We're posting up notes from the Ira Sohn Conference. Glenview Capital's Larry Robbins gave a presentation on going long/short various equities.

"How to cope with the market's electile dysfunction."
Disclaimer: do your own work.
Stresses now: Economy, liquidity, DC, legal review of Obamacare.
New highs: treasuries, utilities, defense.

He says long hospitals/life sciences, short treasuries/Utilities/defense. We recently posted up why Robbins likes Life Technologies (LIFE) as well.

Long: Tenet Healthcare (THC), Health Management Associates (HMA), HCA (HCA), & LifePoint Hospitals LPNT

EBITDA has grown every year for hospitals, 9% CAGR, 1% admission growth, 3% pricing, 2% leverage, new hospitals 3%. "Affordable Care Act" is now 2409 pages, has 2 key legal questions: is the individual mandate constitutional? If not, is the rest of the ACA law, or is it all thrown out? If all thrown out, it's good for hospitals because some cuts come out.

Hospitals benefit from medicaid eligibility, reduces bad debt expense. At 6x eps, thinks worth it in any option. Worst case, no reform, 21% CAGR on eps, Medicaid expansion implies 28%, plus individual mandate over 30%. Half of hospitals are non-profit, just get by.

We flagged when Glenview bought more HMA in April as well as when Glenview started its stake in THC back in March.

For profit hospitals- can the government unilaterally take their profits from reimbursements? Not likely. P/E averages are 8.1x for the sector.

Short ITC Holdings (ITC)

Short this utility. Transmission company. FERC regulated. 60/40 equity/debt. Allowed 11% ROE, FERC allows 13.2%, so customers are overpaying by $260M to $550M.

No accounting issues, just getting a "sweetheart deal" that the regulators won't let this go on forever. If you cut their ROE by 194 bp, earnings get hit by 18%. Consensus EPS is $4.00, could really be $2.00, NI down by 20%, and share count up 60%.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Jeffrey Gundlach's Ira Sohn Presentation

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 00:56:00 +0000

We're posting up notes from the Ira Sohn Conference. DoubleLine Capital's Jeffrey Gundlach gave a presentation on going long: IBEX, 1 year LIBOR, natural gas, and cash. Short: SPX, Nordstrom (JWN), Apple (AAPL), and 2 year swaps. He previously ran TCW's bonds but manages $34 billion at DoubleLine now.

"Investment Cubism 2012" Building portfolios that can handle seismic shifts.

Quotes Marx about fight between oppressed and oppressor. Non-cooperation causes bear markets. Invention is a key driver of economic growth, but it alters the existing balance. Massive buildup of worldwide debt. EZ massive unemployment. Spain now 22.9%. Germany has dropped, now only 5.6%. Europe borrowed a lot of money, and gave it all to Germany. Youth under 25 Spain unemployment at 50%. Art sales show that the very wealthy are moving out of currency, into hard assets.

Mocks "Growth plus prosperity" talk. Tax rates on the top have actually dropped over time. Middle class has actually had a tax increase. Debt limit is just a gimmick. 2007 severity in job losses, taking twice as long to get back.

LONG: IBEX, 1 year LIBOR, natural gas, cash

SHORT: SPX, Nordstrom (JWN), Apple (AAPL), 2 year swaps

GOOG vs AAPL chart overlay. "Apple shoeshine boy" moment. Natural gas "the anti-Apple" long, he says. JWN- says "wants vs needs" retailing. Doesn't like the chart. Long IBEX, the hedge for inflationary money printing in Europe. Short SPX against the IBEX. Doesn't like SPX chart. Put 100 bills in cereal boxes, no one will steal them. The idea is invest the portfolio as a whole, don't just take one his ideas in isolation.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Philippe Laffont on Equinix & Virgin Media: Ira Sohn Presentation

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 00:55:00 +0000

We're posting up notes from the Ira Sohn Conference. Coatue Management's Philippe Laffont gave a presentation on going long Equinix (EQIX) and long Virgin Media (VMED). He was previously a tech/media/telecom analyst at Tiger Management and currently runs $6 billion at Coatue.

"Old Internet Model is Broken"

Network based on safety, slow core, edge too slow. Shift from email, download video to HD streaming, cloud. "Speed is money" AMZN, 1 second of extra load time is $5B revenue loss. Need to fix the core, and the edge of the internet.

Long Equinix (EQIX): Back in March, we flagged Coatue's purchase of EQIX. Laffont says Data-centers are the new core. "Network effect" because if FB is in the EQIX datacenter, everyone else wants to be there. Big cities, EQIX has huge share of internet backbone: SF 66%, Chicago 69%, DC 88%. Why can't everyone else just do this? Because carriers have set up peer points, and EQIX won the RFP for these spots, when no one knew how important it was. "Beach front property." 50% ROEs with minimal leverage. $1.6B revenue to 4.0B, EBITDA $700M to 2.1B. Stock triples or more.

Long Virgin Media (VMED): We highlighted when Coatue recently disclosed its VMED stake. $22. $6B company, $9B in debt. Edge. Need 50-100MBps now, up from 5-10-20 in past. (HD video) Fastest cable broadband network in UK. EBITDA $2500M less $1000M CAPEX, 20% unlevered ROIC. Broadband ARPU $26, $23 gross profit, better than cable TV, so mix shift helps. Only 4% revenue growth, 10% FCF growth, but they are also buying back shares, so 25% per share FCF. Buying 10% of shares this year alone, 25% in last few years. Has capacity to literally buy back all of it's shares in the next 5 years.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

John Lykouretzos' Presentation on Starbucks (SBUX): Ira Sohn

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 00:53:00 +0000

We're posting up notes from the Ira Sohn Conference. Hoplite Capital's John Lykouretzos gave a presentation on going long Starbucks (SBUX). Note: This is his largest disclosed equity long per the most recent 13F filed with the SEC. He just initiated the position in Q1.

Lykouretzos started at Tiger Management as an industrial analyst, PM. He then launched Hoplite in 2003. He thinks about owning and shorting businesses, not stocks. No pair trades, no short ETFs.

Long Starbucks (SBUX): $54 now. $90 price target in next 3 years. $42B market cap. Net cash $1.7B. Two main drivers:

1. Coffee market is large, growing rapidly, driven by "premiumization" $76B market, not cyclical. Single serve is gaining share, still only 10% of coffee market. US single serve is only 8% of market, but growing at 55% CAGR. K-cups are driving the market, from 5% to 18% share. Stores getting better, mobile payments, etc.

2. SBUX will capitalize; CPG, China growth. CPG growing, K-cup now 17% share from 8% a few months ago. China growth; brand like NKE or AAPL. In US, it's a morning coffee business, in China, it's an evening/afternoon with food, great margins, best in the company. Not undiscovered, but "winners keep on winning"

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Bill Ackman's Ira Sohn Presentation

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 00:53:00 +0000

We're posting up notes from the Ira Sohn Conference. Pershing Square's Bill Ackman gave a presentation on J.C. Penney (JCP).

Best ideas are most contrarian. Like buying GGP, right before bankruptcy. Short AAA stocks is most contrarian. Shorted MBIA. Long JCP pitch again. Same JCP thesis, same story Ron Johnson said last night.

Says comps worse than expected but still moving ahead with the turnaround. Says customer is beginning to understand the process. He focuses on the cost savings; JCP spends 31% on SG&A, Kohl's (KSS) only about 21%. "Not a lean company trying to cut costs, they are running fat."

At JCP, employees used Netflix and consumed 20% of corporate bandwidth! Spending 6% of Rev on ads, KSS around 4.5%. Bloated inventory, etc, etc.

We've also posted up Bill Ackman's presentation on Burger King for those interested.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Larry Robbins & more: notes from Ira Sohn Conference 2012.

Dwight Anderson: Long Palladium, Short Platinum (Ira Sohn Presentation)

marketfolly@gmail.com (Market Folly) — Thu, 17 May 2012 00:50:00 +0000

We're posting up notes from the Ira Sohn Conference. Ospraie Management's Dwight Anderson gave a presentation on going long palladium, short platinum, as well as long Westlake Chemical (WLK). He's a fundamental investor focused on bottom-up research, mines, agricultural. Was previously at Tiger Management, Tudor Investment Corp.

Long: Westlake Chemical (WLK). Ethylene, and Vinyls (options on improving housing volumes) Petroleum-based competitors are bleeding cash. Westlake improves from shale in US. As of 2013, Ethyne prices will drop by 0.25 a pound, a 50% increase in WLK eps. $55, should earn $5 this year. Replacement value $75. Management is expanding capacity, still $150M FCF.

Long Palladium/Short Platinum: Changes in prices gets no supply response for Palladium. Platinum: auto is 65% of demand, then tech, dental, jewelry, per vehicle can't be less, despite engineers efforts. In 2007, 75M vehicles, 4.1M oz. of platinum, but at 85M vehicles, it fell to 3.1M. So story is simple, Palladium is taking share from Platinum.

P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.