They traipsed across the stage every 15 or 20 minutes — 15 high-profile hedge fund managers in all, over a span of six and a half hours.
What brought these industry household names together? The annual Ira Sohn investing conference, which has become widely watched in recent years as a place where the big shots of the hedge fund industry unveil their next major bets. In exchange for making a sizable donation to the Sohn Conference Foundation (named after Wall Streeter Ira Sohn, who died of cancer at 29), attendees are supposed to receive “actionable” investment ideas from a slew of investment luminaries.
And in years past the conference has delivered. Ira Sohn is where Pershing Square Capital Management’s William Ackman unveiled his big bet on shopping mall owner and operator General Growth Properties — a bet that he claims has made him 77 times his investment, including spin-offs and dividends — and where he unveiled his blockbuster bet against municipal bond insurer MBIA, which eventually earned $1.1 billion.
But this year’s gathering was not exactly a smorgasbord of useful recommendations. Several hedge fund honchos delivered older, slightly stale presentations, including Ackman himself. He once again made his case for Procter & Gamble — which he had publicly disclosed 11 months ago. Although his case for P&G hitting $125 two years from now is based on the stock trading for 20 times his estimate of $6 a share by then, the skeptical hedge fund manager noted, “What if they trade for 18 times?” No matter. The stock barely budged on Wednesday or the following day, trading slightly above $78.
Elliott Management’s Paul Singer also repeated himself, using his presentation to warn about the excesses of quantitative easing and the growing deficit, a case he has made before. But he didn’t exactly give detailed instructions on how to play his thesis. Singer reluctantly told attendees he does not recommend shorting anything, but they should avoid long-term bonds.
Singer’s forecast is hardly unique. These days there is no shortage of quantitative easing skeptics and worrywarts.
And short-selling specialist James Chanos of Kynikos Associates once again made the case against the personal computer industry and any company that makes disc drives, especially Seagate. This has been a very profitable play for the hedge fund manager since at least last year.
Another disappointment: Li Lu, chairman of Himalaya Capital. He talked up supposedly undervalued preferred stocks in Korea, but he did not name names, and his ideas sounded like more of a bother to research. “Better off buying MLPs,” sniffed one prominent hedge fund manager during a break.
And Jeffrey Gundlach, CEO of DoubleLine, quickly slipped in toward the end of an unrelated presentation that he is shorting Chipotle Mexican Grill. At first I actually thought he was joking. You’ll recall that Greenlight Capital’s David Einhorn made a detailed case for shorting the food chain at the Value Investing Congress in the fall. After initially plunging following Einhorn’s presentation in October, the stock has surged 55 percent from its November bottom. Sorry, but as a lover of Mexican food, I never go to Taco Bell or trucks on the street, Gundlach’s competitive fear for the company. I go to Chipotle or Moe’s Southwest Grill.
While most of this year’s presentations were a snooze, a few got my attention. Keith Meister, who started Corvex Management after serving as a right-hand man of legendary activist investor Carl Icahn, made the case for two telecommunications companies that benefit from the growth in data transmission. He told the crowd that he had filed a 13D that day announcing he owns more than 6 percent of TW Telecom — which he called underleveraged — and that he owns 3.5 percent of Level 3 Communications, which he said is overleveraged. He suggested that in an industrywide consolidation TW Telecom is a likely seller, while Level 3 is a potential buyer. Little surprise, though, that both stocks surged on the news, with TW Telecom rising 7.2 percent and Level 3 by 5.6 percent. If you waited until Thursday to buy, both stocks dropped 1 percent. Oh, well.
Stanley Druckenmiller gave the day’s most interesting presentation — as one would expect from the onetime head of George Soros’ Quantum Fund and founder of Duquesne Capital. Before his retirement from Duquesne in 2010, Druckenmiller’s gains compounded at 30 percent over 30 years without a single losing year. So when he talks, people listen.
He warned the audience about the Federal Reserve Board’s second round of quantitative easing, which is still in effect, but conceded he is bullish until the Fed changes its policy. Druckenmiller asserted that when the Fed signals that the days of QE are over, look out. “The five-year bull market will end.” Yikes!
But it wasn’t all doom and gloom. Druckenmiller seemed to think Google is the greatest company around and said it represents his largest holding. “It is in the catbird seat in the migration to mobile and big data,” Druckenmiller said.
However, the biggest takeaway from Druckenmiller’s talk was his prediction that the commodities bull market will end, in part due to declining demand from China. “We’re betting on the end of the big super cycle in commodities,” he stated emphatically.
He said commodity producers like Australia misread the cycle and ramped up production several years ago, so it helped to create the global supply-demand imbalance. Druckenmiller said investors should avoid all “commodity currencies.” This includes those of Brazil, South Africa, Canada and Australia.” As for the Aussie dollar, he says, “it will come down hard.”
Druckenmiller’s presentation also created a great backdrop — and foreshadowing — for two subsequent presentations. Steven Eisman, founder and portfolio manager of Emrys Partners and a former portfolio manager at FrontPoint Financial Services Fund, also trashed Canada. But he did not focus on its currency or its commodities.
Rather, Eisman warned of a huge housing bubble north of the border. He said this year has seen the slowest sales volume since 2009 in large part because Canada Mortgage and Housing Corporation, Canada’s Fannie Mae, has instituted much more stringent underwriting guidelines in the past couple of years. Banks stepped in to fill the gap, but Eisman said the stocks are priced extremely high and are overearning. He sees a drop in interest margins and return on equity.
The most vulnerable company, according to Eisman: Home Capital Group, a large originator of nonprime mortgages. “It has 100 percent of the credit risk,” he warned. “If housing rolls over, that company will have problems.”
Meanwhile, David Sterman, the founder of Conatus Capital Management and a so-called Tiger Grandcub — because he previously worked for Stephen Mandel Jr.’s Lone Pine Capital — explained why he thinks South Africa is on the verge of a bust. He said the passage of the National Credit Act in 2007 led to a borrowing binge in unsecured loans that is going to end ugly. He claimed that the average person shells out 40 percent of his net income to service debt at high interest rates. Sterman also blamed shoddy lending practices. The most vulnerable stock there: a company simply called African Bank.
Overall, this year’s Ira Sohn gathering was a great opportunity to hear a bunch of top-shelf hedge fund managers speak without having to waste an entire day at a conference. And there were even a handful of interesting ideas, especially if you are a professional investor.
But if you are an armchair investor who thought it would be cool to attend the conference but is not comfortable shorting stocks in foreign countries, there were very few actionable takeaways that did not soar in price before you were able to do a cursory amount of research and then press “buy” on your iPhone app.
