Closed Sohn Investment Conference 2013

It’s the 18th annual Ira Sohn Investment conference, the must-have ticket for Wall Street investors. Held in New York’s Lincoln Center, money managers crowd the cultural heart of the city as the Philharmonic gives up its stage to the virtuosos of the hedge fund world. They are here to pitch their best ideas in public, all in the cause of cancer research (the most expensive tickets top $100,000).

There have been big calls at the conference before, David Einhorn’s (left) big short against Lehman brothers for one, and even SAC’s Steven Cohen appeared in 1999. This year the cast of 18 includes: Elliott Management’s Paul Singer to start proceedings, Bill Ackman of Pershing Square and investing legend Stanley Druckenmiller either side of lunch. Jeffrey Gundlach and Mr Einhorn will finish off the day.

The FT’s Dan McCrum and Arash Massoudi will be there to capture all the tips and report back on repercussions out in the market.

As eager investors and money managers pour into Avery Fisher Hall at New York’s Lincoln Center, we are just minutes away from the start of the much-anticipated Ira Sohn Conference.

The conference is an annual gathering of some of the most powerful money managers and investors in the world and features a group of speakers who will each present their best investing ideas for the year.

Here’s a little bit more about the conference:

The Foundation honors the memory of Ira Sohn, a talented Wall Street professional whose life was cut short when he passed away from cancer at the age of 29. In 1995, Ira’s colleagues and friends Douglas Hirsch, Lance Laifer and Daniel Nir, along with Ira’s mother Judith Sohn and brother Evan, created the Ira Sohn Research Conference, now called The Sohn Investment Conference”.

This year, the expected speakers include top hedge fund executives such as David Einhorn of Greenlight Capital, Paul Singer of Elliott Management, and Bill Ackman of Pershing Square Capital. Market watchers are well aware of the impact any utterance about a single company or investing idea by one of these men and others can have on an asset. If you need any reminder of that, think of the volatile trading in shares of Herbalife, the nutritional direct seller, ever since Bill Ackman revealed his short thesis on the company last December.

Elliott Management’s Paul Singer is up first and about to provide his first recommendation.

Mr Singer’s big idea: those who own long-term bonds in the developed world own assets which are trading at the wrong price.

The wrong price might be “50bp or more” and these prices are distorted, he says.

“There is no safe haven in today’s markets.” He blames central bank distortions and the failure of developed world economies to deal with long-term entitlement programmes which are the equivalent of debt for him.

Singer is worried about the effect of debt and derivatives. Setting a very bearish tone.

If you count off balance sheet liabilities, pension promises and the like, debt to GDP for Europe and the US is really 500 per cent.

He says here’s what the basic balance of the surviving big financial institutions looks like.

$150bn to $200bn equity.

$2tn to $2.5tn of assets.

$50tn to $80tn of notional derivatives (Trillion with a T, he says)

Kyle Bass of Hayman Capital Management takes the stage and starts his speech with a joke about Mr Singer’s sovereign bond battles against Argentina.

Some more from Singer.

The notional derivatives number is not the right number to analyse banks, but there is no disclosure that means people like Elliott Management, his hedge fund, can work out what are one-way bets, and what is just to facilitate trading.

Anyone who thinks this is a proper framework to understand risks is naive.

Mr Bass is focusing his talk on the merger of SuperMedia and Dex One, the yellow pages businesses.

Singer concluded his warning about the system with a simple, if sweeping, recommendation.

Those who own long term bonds in the US, the UK, Europe and Japan, the assets are trading at the wrong price.

Back to Mr Bass: after a long financial analysis of the company’s growth and debt, he makes his big call. Dex Media will do well in the next few years. $DXM

Lo and behold: There’s been a pop in $DXM shares, which were trading lower on the day until Mr Bass’s call. Now? Up 3.9 per cent to $14.25

Bass on Japan, his big short call for the last three years.

On changes to Japan accounts, the introduction of Japanese compensation bonds.

You have to be shitting me, we are adding a ponzi sheme to a ponzi scheme.

Hint. He is a bear.

Li Lu is up next and is being introduced. We are told the founder of Himalaya Capital was a student leader at Tiananmen Square in 1989.

Bass on Japan.

He predicts 2 per cent inflation, yen over 125 to the dollar. He says the quantitative analysis is now done, the country is insolvent, it’s a matter of when.

Says that banks and dealers have started to pull back, no longer quite so willing to take the other side of his bets. Now he is just a small Texas hedge fund, but the psychology is changing.

Quotes Churchill, though not exactly

It is the beginning of the end…

Li Lu is focusing his talk on Korean preferred stocks…

Some scuttlebutt from the pre-start mingle. Rumour circulating that a Yelp short will be a topic today. Emoticon Attach a health warning to that. Emoticon

Part of the game is guessing what will come up. Last year Herbalife was the much speculated pitch that did not pitch up.

Glad to find out we aren’t the only ones struggling to follow his talk:

Li Lu’s big idea? The “irrational discount” of Korean preferred stocks, means that Samsung Electronics and Hyundai are cheap.

Keith Meister is next. He is the managing partner of Corvex, a fundamental and event-oriented management firm. We are told he worked under Carl Icahn, the activist investor, for many years.

Mr Meister: “We live in a macro world and we need to invest in companies that favour macro trends.”

Mr Meister: “The growth of data over networks is up and to the right.” His talk is going to focus on opportunities in communication networks and infrastructure.

Mr Meister’s big idea: TW telecom, $TWTC, and Level 3, $LVLT. Both companies will benefit from consolidation in the telecoms space.

He says Corvex will reveal in a securities filing today that his firm has taken a 6 per cent stake in $TWTC. He adds “we own 3.5 per cent of Level 3″.

Emoticon Both $TWTC and $LVLT have become red-hot since Mr Meister’s call. $TWTC: up 4.5% now. $LVLT: up 5% to $24.42

We love the enthusiasm for these companies from Mr Meister, but must say the wireless connections in the auditorium have raised several eyebrows.

More upbeat tone from Mr Meister, an equity guy after the big bond bears, who is making his first appearance here today.

The former Icahn lieutenant is also an activist, with ADT and Ralcorp recent targets. Had a big year last year, up in the region of 25 per cent.

It’s the new and lesser-known guys who are actually the draw here, said one long short manager in the pre-game mingle. The big-name guys, you already tend to know what they think, he said.

He was also here because there is a cocktail party afterwards and it’s a good place to catch up with friends from Greenwich, Boston, etc.

Sometimes it’s less what you say, but where you say it.

Sober charity pitch from Ira Sohn’s brother.

By the time you go home tonight, seven children will have died.

The speakers talk for free, and the tickets fund the cancer work.

Cindy Campbell, who chronicled her son’s fatal battle with cancer on a blog, is on stage to raise awareness for pediatric brain cancer.

This is an unusual experience for your faithful bloggers. The event juxtaposes unbridled capitalistic calls interspersed with the heart-breaking stories of cancer victims from loved ones.

To anyone following our live blog, feel free to share your thoughts about the conference on the reader comments section located on the top right of the page.

Guess who’s up next…Bill Ackman.

A twitter user, @SKramer_trim, has compiled a list of some of the folks twitting from the Sohn Conference. View it here.

We’re expecting something new from Bill today.

According to a person familiar with Pershing Square’s thinking, there were two big ideas under consideration yesterday.

And what will he say about JC Penney…

Previous ideas from Mr Ackman, short MBIA, and long General Growth, a ten bagger, so we’ll forgive JCP.

And it is Procter & Gamble!

One of the great businesses of the world

You might have washed your hair with Head & Shoulders, brushed your teeth with Oral B toothpaste.

These are great brands, and recurring revenue streams. You buy a new tube of toothpaste every time you run out.

Ten bagger: making at least 10 times your initial investment. One or two of these can make a career.

Bill thinks P&G could be earning $6 per year in earnings. That would put it on around 13 times earnings at $77 share price.

Some market watchers suggest Mr Ackman has made a more sombre pick after his high-profile Herbalife and JC Penney calls:

Many peer companies have lower emerging markets exposure, weaker brands and lower earnings growth.

Gross margins are 200bp below where they should be.

The company should be able to generate a 24 per cent EBITDA margin

Ebitda = earnings before interest, taxes, depreciation and amortisation.

P&G aims to save $6bn from cost of goods sold by 2016, this equates to a 3 per cent saving which is the bottom end of the range targeted by peers.

Only half of P&G businesses have margins that are better than peers.

Says that central costs, sales general and administrative, are in line with peers as a percentage of revenues.

The problem this analysis doesn’t take into consideration is that P&G’s business is around 4 times the size of each of its competitors.

(That’s the core of Bill’s argument right there, and why he might have a somewhat interesting relationship with the management team he has supported with caveats. P&G is massive, and it should have already taken advantage of that scale to either improve profits or undercut competitors and so grow faster.)

Mr Ackman’s call boils down to one idea: P&G’s position in multiple global, high-margin brands will allow it to grow earnings per share from $4, its 2013 fiscal year forecast, to $6 by 2016.

What’s holding the company back?

CEO McDonald has been distracted by outside interests.

Puts up a very long list of 21 outside directorships. (Robert McDonald is a solid member of the great and the good class of senior US businessmen.)

This sucks up on a conservative estimate 25 per cent of his time.

Topic de jour: Bill advocates splitting chairman and chief executive role at $PG.

So the target price: this is a business that deserves at the very least a 20 times multiple (it’s currently the lowest rated of peers), so at $6 per share in earnings, that would get you to $125 per share.

While the audience may have been hoping for a more colourful pick from Mr Ackman, there is no question that Procter and Gamble’s board is playing close attention to his presentation.

Pershing Square, his firm, is the 10th largest institutional shareholder in the US consumer giant. Click here to see how stakeholders break down.

Pershing has been in P&G for a long time, but we think this is the first time that Bill has actually laid out the thesis in detail, in public.

Shareholders may shrug, however. Ground breaking it is not. Every large consumer goods group has been subject to the analysis: if only they were more efficient.

Fast-moving consumer goods companies are inherently slow moving and defensive: if you don’t speculate how they might be more efficient, there is very little to say about them. Turnrounds take years though, just ask Unilever.

A break to network and eat, which we will now do. Back in an hour with Stanley Druckenmiller, hedge fund legend and Soros partner, on taking down the pound in the early 1990s.

Here’s the afternoon line-up:

2:15 Stanley Druckenmiller

2:30 Mitchell Julis

2:45 Steven Eisman

3:00 David Stemerman

3:15 Oz Pearlman

3:30 James Chanos


4:25 Tor Olav Trøim

4:40 Jonathon Jacobson

4:55 Clifton Robbins

5:10 Sohn Investment Contest

5:25 Jeffrey Gundlach

5:40 David Einhorn

Actually, scratch that hour break, we restart in a few minutes. (Laptop was still set to Omaha time.)

Welcome to the digital age of journalism. The seed planted in the liveblog has already grown into a fully formed story.

The action is set to resume shortly, with audience members returning to their seats. This was the scene at the (tasty) snack break.

Hedge fund manager Stanley Druckenmiller is our first speaker after the break.

His presentation is entitled “The Commodities’ conundrum”.

Mr Druckenmiller goes after Fed chairman Ben Bernanke with his opening remarks, calling the US central bank’s current actions “the most inappropriate monetary policies…in the history of the free world.” EmoticonEmoticonEmoticon

His opening remarks end with a contrarian view, as many on Wall Street have predicted a pull-back after the record run for stocks…

“In the short-term we are going up. I see no condition for a bear market until there is a tweak in the Fed’s policy,” Mr Druckenmiller says.

Mr Druckenmiller believes that recent Japanese stimulus efforts are more warranted than those in the US, given the Asian country’s deflation and depreciating currency over the past decade and a half.

He transitions to commodities and the focus immediately has shifted from the US and Japan to China and commodity usage in the world’s second-largest economy.

Mr Druckenmiller says slowing Chinese growth and the de-emphasis of commodities in China have been missed by many who have bet heavy on the commodities super-cycle. “Not only did commodities users not anticipate (the slowing Chinese growth), they bet further on it. There’s going to be a huge surge in supply going forward.”

The limits are visible… the last gasp of an old regime.

The recent fall in commodities prices, Mr Druckenmiller says, marked the end of a secular move high. Emoticon

The commodity supercycle is over, it’s not a correction, it’s the beginning of a trend.


I would avoid all commodity currencies like Brazil, South America, and Canada, and frankly I would short the Aussie dollar.

Scary chart of foreign ownership of Aussie bonds. Think very small at left, very big at right end of scale.

Google is his largest holding, at the centre of the world’s data.

Google now, Google glass, Google car, they are using that data to grow.

At 16 times earnings, I can’t imagine a better steal, and oh by the way, they don’t have any exposure to China.

Mr Druckenmiller closes his electrifying presentation with one last comment. “Oh and one more thing, I don’t have any exposure to China.”

Mitchell Julis, co-head of Los Angeles-based Canyon Management, is up now. And he cuts right to the chase with his first idea: Clear Channel Outdoor, $CCO

US banking editor Tom Braithwaite reminds us that Paul Singer has attacked bank disclosures before. The investor fell out with Jamie Dimon at Davos, that Swiss mountaintop talking shop for the world’s elite.

The chief executive of JPMorgan was unbowed after a year in which severe problems of risk management were revealed, and Mr Dimon rebuffed criticism from Mr Singer that banks made “completely opaque” disclosures.

Shares in $CCO have popped and are up 6.3 per cent to $7.70 upon Mr Julis’s call that it is undervalued. Emoticon

Mr Julis quotes his former boss Michael Milken, as he weighs in on the Google vs Apple debate and the future fortunes of the world’s largest consumer technology group.

Capital structure is everything

A timely tweet on some of the calls from the conference:

Hopefully he’ll elaborate on that. For now he’s spent a few minutes establishing that the world is complex, and now he is explaining how the credit crisis was a vicious cycle, not the virtuous cycle everyone thought.

A slightly bored rustling from the hall.

Ah, Pericles.

It is less important to foresee the future than to prepare for it.

I guess with all the China bears around Sun Tzu bon mots are out of favour.


Compound interest is the most powerful force in the universe.

And that brings us to Clear Channel Outdoor. Er, what?

Mr Julis is preaching a simple formula for finding value: “Staying power + earnings power = compounding capital over time. In the case of $CCO that has both. It is a leveraged equity making it a long-term option that has potential value.”

Question we would ask about CCO. How much capital will it have to spend over the next decade to go from paper and paste billboards to dynamic video ads/e-ink etc?

Steve Eisman, founder of Emrys Partners, is up next. And he says he will focus on housing in the US and Canada. Quick run: US = positive, Canada = you’re going to have to wait for the end of our presentation (ominous chuckle)…

Patrick Wolff of Grandmaster Capital is doing an ad for the Excellence in Investing conference in San Francisco on October 23, in aid of pediatric cancer.

Mr Wolff is a chess grandmaster, hence the name for his hedge fund when he left Clarium.

Mr Eisman’s previous call at this venue was to short the for-profit education companies. Pay attention people, this man has form.

US housing: single family starts to grow in excess of 20% for the next few years, Mr Eisman expects. He goes on to add that there has been an acceleration of good news from housing market data in the past few months and that he expects that to continue.

He likes homebuilders

A few companies were gutsy enough to buy land at the bottom, and they now have enough to build homes for years.

Buy Lennar ($LEN), PulteGroup ($PHM) and Standard Pacific ($SPF)

In addition, Mr Eisman singles out Forestar Group, a real estate and natural resource company that has lots of land in the US. He says the current price of the company is particularly compelling. He likes $FOR’s land portfolio and believes it could go to $30/share.

Financials now.

Credit quality in the banking sector has improved dramatically, but loan growth and demand slow. So he will focus on two niche plays.

First is Colony Financial, $CLNY, a mortgage real estate investment trust that has recently diversified into the home rental business.

Assuming that the housing market continues to improve, then you get a mid teens return.

Presents a sum of the parts analysis that shows that, adjusted for the value of the rental business, it is cheap.

Number two is Ocwen Financial, the largest non-bank mortgage servicer in the US. Services $500bn of loans, specialising in impaired loans.

Says it is cheap, on seven times earnings, and the most levered stock to a recovery in the housing market.

Ocwen has free cash flow yield of 20 per cent to 25 per cent!! Will produce cash approaching three quarters of its market cap in the next three years. Cheap.

Financial blogger, Josh Brown, with a nice summation of Mr Eisman’s $OCN thesis:

Moving onto Canada vs US housing.

A story of misaligned incentives and a poorly understood housing market.

But this is not a macro story, he cautions.

Mr Eisman is basically calling a bubble in Canada’s housing sector. And he is now considering the impact it will have on Canada’s banking sector, which is heavily exposed to it. He says there is a tremendous opportunity…to the down side.

More on this thesis in the next few posts…

Between 2001 and Q3 2012 the Canadian Mortgage and Housing Corporation (similar to the housing agencies Fannie Mae and Freddie Mac) insured $348bn of domestic mortgages. And a Canadian bank doesn’t have to hold any capital against insured mortgages.

It’s like sovereign debt.

But the Canadian government has got nervous, reined in the CMHC, and banks are having to underwrite their own mortgages. Returns for the banks are not going to be what they were.

Mr Eisman has made a short call on Canada’s Home Capital Group, $HCG.CA, which he believes is the most susceptible to the possibility of a hard landing in Canada’s housing sector.

$HCG has non-prime, uninsured mortgages equal to $15bn. Of that, $8.8bn is not guaranteed by the CMHC meaning the company bears 100% of the credit risks.

If housing rolls over, this company is in trouble.

Tiger Cub up next (a protege of Julian Robertson’s Tiger Management). It’s David Stemerman of Conatus, an equity long short house.

Here for the first time, he’s getting an ad for his hedge fund in first.

I will be your tour guide today on a trip to South Africa, to show you a boom that is on the verge of a bust.

Mr Stemerman’s short call is directed at African Bank, a South African bank he says is particular vulnerable to a downturn in the country.

Ah ha, more legislative unintended consequences. The National Credit Act made unsecured lending much more attractive. It has tripled in the past five years, and doubled in the past two.

Net income after debt service is negative for almost all income groups.

So he says most borrowers have to borrow more to make ends meet.

His argument is made up of four parts: first, there was the passage of the National Credit Act four years ago in South Africa that led to a boom in lending that has become unstable. That was driven by unsound lending practices that have parallels with the US subprime crisis. The credit cycle is turning downward as lenders pull back. African Bank is vulnerable to a downturn with all of its business focused on consumer lending.

Lenders have reacted to this unsustainable loan bubble by shifting people into larger and longer-term loans. However, David cites the head of a local bank:

After three years of an unsecured loan, people begin to forget why they took out the loan in the first place.

Mr Stemerman:

We also believe that there has been widespread fraud.

Borrowers under-report living expenses, and banks have been complicit. (Sound familiar?)

Responsible bank Nedbank is restricting credit as borrower ability to play is deteriorating, he says. This withdrawal of credit could be the trigger for the boom to bust, he says.

He says for African Bank a 1 per cent move in loan losses = a 14 per cent drop in earnings per share.

African Bank’s motto is the “credit that works for you” but Mr Stemerman is betting it is soon about to stop working so well.

image courtesy of African Bank’s website

And one more thing.

It relies on wholesale bank funding. (Pictures of failed investment banks appear on screen).

Now, obviously, African Bank are not here to defend themselves, so you better go get their side of the story before taking the short seller at his word.

In terms of pure presentation, though, that was the best so far today. Clear thesis not heard 100 times before, with a direct link to the investment thesis on the company involved. Excellent debut.

No. He’s not a hedge fund manager. Oz Pearlman, a magician, has taken the stage to provide a little entertainment. We’ll take a moment to catch our breath because legendary investor Jim Chanos is up next.

South Africa is not a hedge fund favourite at the moment, a commodity-dependent economy enjoying a credit boom. Nice place for a spot of research too…

The “magic” show is still going on. We’re getting antsy. Emoticon

An anecdotal word on Australia. There were plenty of Aussies in Omaha at the weekend. The Financial Times is told that prices for both beer and apartments in Brisbane are comparable to Manhattan these days. Now which is most sustainable?

We are running nearly an hour behind schedule. That magic act could have probably been shorter.

After the magic show, it’s time for short seller extraordinaire Jim Chanos.

Others go long and short, Mr Chanos fights the market every step of the way as a pure short. To do that takes conviction, skill and patience. Will it be a reprise of his well-worn China thesis, or something new?

Not China, hard disks: collateral damage in the mobile computing revolution.

He also says by way of aside he is now short Brazil, but that’s not the topic for today.

I’m trying to annoy the largest country on every continent.

For all the talk of the death of PC, the decline in units started only about a year ago. The hard disk drive business began rolling over a little earlier, accelerated, and while the manufacturers are cheap they are a value trap.

He hones in on two companies, Western Digital $WDC and Seagate Technology $STX, and says there is little value in both even though they trade at a cheap 5-6x

Doesn’t like the accounting for deferred tax assets.

The disclosure on taxes in their 10K is surpassed only by the 19 pages of risk factors.

Toshiba, large competitor, recently said that it expected margins to fall by half this year. There used to be a fourth competitor, Samsung, but it has sold out to Seagate which, if he had to pick, is the one to sell.

Management’s gross margin projections of 27 per cent to 32 per cent are not supported by data.

Oh dear. SEC filings show that the top four insiders sold 57 per cent of their shares in 2012.

We think both they and Toshiba have a strong sense of what is about to happen in this business.

$STX has dropped 3.5 per cent in after-hours trading.

That was quick, wonder if he got the hurry-up. Ten-minute intermission, still running 45 minutes behind.

While everyone is out on a break, it’s worth pointing out the more upbeat mood among many of the attendees here today compared with last year. Even if criticism of Fed chairman Ben Bernanke and ultra-loose monetary policy has been a focus of many presentations today, there’s no denying the rally in the US equity market.

Case in point: the S&P closed at yet another record high today and has already risen 14.5 per cent. Good news if you are an investor like many here. Although, we suppose, that’s going to make it even harder to beat the benchmark for fund managers.

We are preparing to hear from Tor Olav Trøim, who we are told is the right-hand man for one of the world’s richest men, John Fredriksen.

With his thick Norwegian accent, Mr Olav Trøim rattles off some quick facts about the Fredriksen Group.

He says:

Everything we touch has high volatility, we like that.

Josh Brown is showing off why he has become one of the top financial bloggers out there. Here he shares his notes from the conference so far. A great run-down.

As Mr Olav Trøim highlights opportunities in the shipping industry, specifically an offshore drilling company called Seadrill, some are having trouble following the presentation…

Mr Olav Trøim’s is the most corporate of the presentations we’ve seen today. Why we own businesses like Seadrill: they are great. An example slide:

Drilling is highly beneficial for oil companies!

Thanks Tor

There will be a shortage of drilling capacity, given the number of discoveries versus production of wells. Seadrill has lots of capacity coming, though. Thinks ebitda* will go from $2.5bn last year to $4bn in 2015.

Ok, there is something weird going on in the capital structure here. Enterprise value to ebitda is 10.3 times, but the price earnings ratio is only 11.9 times. In 2015 the numbers are 7.3 and 8 times respectively.

Either Seadrill has almost no interest and tax cost, or there is very little amortisation and depreciation going on, which sounds odd for a company making all these wells. Or maybe there is a load of debt. Further investigation required.

*Earnings before interest, taxes, depreciation and amortisation.

Jonathon Jacobson, head of Highlands Capital, an $11bn Boston-based investment management fund, is up next.

Mr Jacobson’s presentation is called “The Illusion of Yield”. On his mind, he says, is a short call. In fact, this is the first time he has ever publicly presented a short, he adds.

“A rarely seen phenomenon,” he says, pointing to the unusual rally in the S&P 500 this year, which has been led by defensive, slow-growth stocks. This is something our US markets team has written about at length in recent weeks.

All dividends are not created equal.

He says beware AT&T. The wireless business is going to get a lot more competitive, and wireline is “a melting icecube”.

Also wary of Linn Energy.

The big idea, though, is Digital Realty, a data centre provider. Mr Jacobson calls the company a melting icecube that is “highly dependent on capital markets for growth”.

Reasons for the short:
1. Deteriorating fundamentals
2. Commoditised product
3. Recurring capital expenditure

The dividend is not sustainable and highly dependent on the company’s continued access to capital markets

Says that it trades at 3 times book value. Replacement cost is $18 per share. It was $69 before he started speaking, down 6 per cent now.

He says in 2012 DLR generated $454m in cash from the business, but spending on capital investment (capex) and the dividend was $1.186bn, a difference of $732m provided by the capital markets.

His argument is that they have to spend to stand still. Have a look at the 10K, he says.

In 2011 they changed the definition on non-recurring capex to include maintenance expenditures.

Clifton Robbins, the founder of Blue Harbor Group, which bills itself as having “a private equity approach to public markets”, is up next. Let’s see what big idea is on the mind of the former KKR and General Atlantic exec…

The first company Mr Robbins wants to discuss is CACI, a government services contractor, which focuses on intelligence and surveillance work. Mr Robbins says Blue Harbor has a 9.5 per cent stake in the company and believes it is undervalued because it is mistakenly being lumped with other defence companies. $CACI

Mr Robbins has broken some news. His company, over the past month, has taken an undisclosed position in Akamei, the content delivery network, $AKAM.

15-30% of the world’s internet traffic is touched by Akamei every day, Mr Robbins says.

This is a singularly unique business.

Before any eager investors go out on a buying spree, it’s worth pointing out that Akamei is up 31% over the past month, according to Google finance. Looks like Mr Robbins got some of that upside for himself before sharing with the Sohn attendees.

On a cash flow basis, he says the stock is undervalued by 20-30% at present and that’s just the start of it.

Our base case would see 42% upside from here.

Next step: the winner of the 2013 Ira Sohn investment contest. But first, an aside from a presenter about Rashid Wallace, the former NBA player.

These tenuous analogies throughout the day have worn us out.

We are just moments away from the final two (and most anticipated) presentations…

And Simeon McMillan of the Columbia Business School is the winner, and his idea is Tribune! The under-appreciated charms of a media business. We are all ears.

How to value the newspaper business. Lazard put a conservative value of $623m on it, but let’s say $1bn for the “marque value” of the brands. An excellent round number.

Broadcast television is healthier than many people give it credit for.

Television has actually increased its share of overall ad spending over the last ten years.

(Interesting, although is that because classified advertising disappeared altogether?)

Jeff Gundlach, the manager of DoubleLine, which manages over $60bn in assets, is next. Mr Gundlach is one of the most colourful money managers on the planet and you can feel the excitement in the somewhat sleepy auditorium as it comes to life.

Last year at the Sohn, Mr Gundlach predicted that Apple would fall $425. A call that proved unbelievably accurate.

Mr Gundlach, part of whose vast art collection was stolen last year and later recovered, has called his art-filled presentation “Investment Cubism: 2013″

An unusual start, Mr Gundlach is invoking as the father of current markets, President Franklin Delano Roosevelt.

He says FDR did not run on a campaign of gold confiscation in 1932, he ran on cutting costs and the song happy days are here again.

From there the Depression accelerated.

In what’s quickly become a wide-ranging historical diatribe, Mr Gundlach brings up an FDR proposal of a tax on corporate savings, which was not approved by Congress. Mr Gundlach wonders if the government would consider such a proposal given the record high level of corporate savings to GDP.

And Cyprus comes up. Mr Gundlach drops this bomb:

I recommend you take all the money out of any bank account you have.

He says that it’s not likely that American banks will confiscate savings but why take that chance?

Many are likely to say Cyprus is just one country, to which I say the Lusitania was just one small boat.

(Lusitania story here for non-history buffs.)

Here’s a good summary on his take on the Fed and the US government debt:

Asking when Quantitative Easing ends is the wrong question, Mr Gundlach believes.

You should be asking, what should I do, now that QE is going to go on as far as the eye can see.


You may be bullish on US equities and you may be right, but the one thing we can agree on is that this is not a new bull market.

Mr Gundlach’s one big call: short Chipotle, the Mexican fast-food chain that is known for its fancy burritos. $CMG

I like Chipotle products but a gourmet burrito is an oxymoron

Now Jeffrey is comparing the New York Case-Shiller Index for median house prices (stabilising downward trend) to CNBC obsession with the sales of penthouses to millionaires.

He suggests that taxing “jerks”, ie buyers of $60m apartments, would be a relatively easy wealth tax, as all the mechanisms are already in place.

So, David Einhorn of Greenlight Capital is here. Last year it was a blistering ride through 137 pages of a presentation, with a lot of tips that produced very mixed results (overall up 0.7 per cent a year on).

He also compared Jeff Bezos of Amazon to Batman, and introduced GO-UPs to the world, the prefered stock plan that he tried to push on Apple this year.

Mr Einhorn, slightly dismayed, says an activist fund, Jana Partners, has spoiled his pick but he will go forward with the presentation because he thinks there’s more to discuss about….Oil States International, $OIS, the low-cost provider of services for shallow and mid-depth drilling.

Important background: on April 29 Jana Partners disclosed a 9.1 per cent stake in $OIS believing that its shares were undervalued.

Mr Einhorn is going through the four parts of $OIS’s business and breaking down the value of each, piece by piece.

OIS operates four main businesses:
1. Drilling services.
$OIS is a low-cost provider with 34 rigs for shallow to moderate drilling on land. That’s $181m towards the sum of the parts valuation that Mr Einhorn is building.
2. Completion Services.
This is a higher-margin business with lots of patents, valued at $1.1bn.

3. Tubular services
No real comps, but a couple of rough peers there. $366m in our valuation. This is 27 per cent of revenues, but only 7 per cent of ebitda, and a big reason why the market undervalues the rest of OIS.

4. Offshore
Swept past that, but worth $1.5bn.

And then there are the Hospitality operations. Building and running hotels, accommodation for workers in drilling and mining areas. Sounds like a nice business, doesn’t build without contracts in hand, tends to have long-term tenants.

Plenty of room to grow from 20,000-room base, says Mr Einhorn. But he does say that it is capital intensive, and no brand value. So put on a 20 per cent discount on hotel valuations. That takes the total for everything to $7.5bn.

Mr Einhorn believes fair value for $OIS, which closed at $94.72 today, is $118.28.

The crux of Mr Einhorn’s (and Jana Partners’) bet on $OIS has to do with splitting the hospitality/accommodation business into a REIT. And if you do that you could reach $155.

Since Jana Partners moved first, Mr Einhorn says Greenlight wishes the activist fund the best. Greenlight will sit back and enjoy the show, it seems.

Mr Einhorn is providing a defence of his business, and to some extent, the hedge fund business as a whole. He is rattling off figures that suggest Greenlight hold stock for the medium-to-long term.

Whether you choose to pay attention or not, it doesn’t make sense to blindly follow me…Do your own work…The ideas we talk about tend to do better over a year than the next 24 hours.

We wonder if Mr Einhorn read the front page of today’s FT…

And with that, the cocktail party is on! Let’s do a quick wrap of today’s action.

The stand-out presentation of the day had to be the short thesis on African Bank by David Stemerman of Conatus Capital Management.

Cogent, compelling and troubling, all at the same time. We’re keen to follow that story as it develops.

1) Who could be the biggest bear?
Investors have to choose from Japan, the US, Canada, commodities, commodity-linked currencies from Brazil to Australia. Or if you are Jeffrey Gundlach…the global banking system.

2) Long-ideas:
Property, whether US homebuilders or turning parts of certain companies into REITS to generate value.
Network Technology, whether it be service company that handles a huge chunk of internet traffic or companies that could benefit from a consolidation in the network communications industry.
Old-media, Kyle Bass likes a US yellow pages business and the student investment idea was for Tribune Media Co.

3) Global figure most associated with negative views: the one and only Ben Bernanke.

4) And biggest idea, if true. Stanley Drunckmiller calling an end to commodities super-cycle.

We recommend you read Javier Blas’ critical analysis on this very theme.

And with that, Dan McCrum and Arash Massoudi are signing off. Look forward to following all these calls and more in the coming months for you on