Vilas Fund Up 55% In Q3; 3Q18 Letter: A Bull Market In Bearish Forecasts
by ValueWalk - October 10th, 2018 11:58 am
By Jacob Wolinsky. Originally published at ValueWalk.
The Vilas Fund, LP letter for the third quarter ended September 30, 2018; titled, “A Bull Market in Bearish Forecasts.”
Ever since the financial crisis, there has been a huge fascination with predictions of the next “big crash” right around the next corner. Whether it is Greece, Italy, Chinese debt, the “overvalued” stock market, the Shiller Ratio, Puerto Rico, underfunded pensions in Illinois and New Jersey, the Fed (both for QE a few years ago and now for removing QE), rising interest rates, Federal budget deficits, peaking profit margins, etc, the list of reasons for the market to fall seems to grow longer and longer by the day. Because of this, investors, including individuals, institutions, hedge funds, etc, have lower exposures to stocks than in past periods of time. Various strategists at major investment banks regularly predict a downturn more wicked than the financial crisis. In essence, if you want to sell newsletters, newspapers, research, or get clicks for web stories, all you have to do is create a prediction of the next major downturn and find some reason, such as sun flares, zodiac signs, or trouble in Portugal, and you have revenue. What is wrong with being cautious and prudent?
Q3 hedge fund letters, conference, scoops etc
It is in vogue for institutions and individuals, whether large or small, to allocate away from stocks. For example, Yale today has roughly 4% of its assets in US stocks, a large family we spoke with a while back had roughly $40 million of their $12 billion fortune in stocks, or well under 1%, and advisors regularly tell us that their clients, by and large, would prefer little exposure to stocks, if any. Whatever exposure they have, “cut it” is their instruction. Quite frankly, this fear of equities has affected active equity managers’ ability to raise capital, including ours. Who wants to hire a manager to, oh the horror, buy stocks? The result of all of this bearishness is that domestic equity funds, including actively managed, index funds and ETF’s, have seen significant outflows since 2007.
Sources: ICI and FRED. Flows into EFT’s, Mutual Funds, Money Market Funds and Deposits.
As the table above shows, US equities took in $1.7 Trillion of…
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CEA Chair Kevin Hassett On CNBC Talks Economy And Dow 36,000 (JK)
by ValueWalk - October 10th, 2018 11:38 am
By Jacob Wolinsky. Originally published at ValueWalk.
CNBC Excerpts: Council of Economic Advisers Chair Kevin Hassett on CNBC’s “Squawk Box” Today
WHEN: Today, Wednesday, October 10, 2018
WHERE: CNBC’s “Squawk Box”
The following are excerpts from a CNBC interview with Council of Economic Advisers chair Kevin Hassett CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Wednesday, October 10th. The following is a link to video of the full interview on CNBC.com:
Watch CNBC’s full interview with CEA Chair Kevin Hassett
Q3 hedge fund letters, conference, scoops etc
All references must be sourced to CNBC.
Kevin Hassett on GDP and China:
I think now, you know, we’re looking at GDP growth of about 3.5% this year and carrying on to something a little bit north of three next year. And I guess that’s a little bit more optimistic than they are. You know, I think we’re all at the White House hopeful that talks can resume and that we can move to a positive place with China. But make no mistake, you know President Trump is serious about it, that if they don’t, you know, behave a little better, stop stealing our intellectual property, lower their tariffs on our products, then, you know, this could continue longer.
Kevin Hassett on the Independence of the Fed:
The White House really do respect the independence of the Fed. I think even what the president was saying last night made that evident where he said, you know, he stays out of it, he doesn’t browbeat Jay Powell or anything, but he thinks interest rates could do this or that. The fact is that the president’s respect for the independence is clear in the quality of the people we send over there. And you know, so anyway I have to stay away from these inflation picking up conversations.
Kevin Hassett on a Capital Spending Boom:
When you get a capital spending boom like we have, that’s a big increase in supply. And in our models at the CEA, that puts downward pressure on inflation at the margin. Because if you have more supply than you’re kicking out down the demand curve. So we think that the fact that grow this coming from…
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For Analysts – Seek First To Understand, Then To Be Understood: Take Notes, Then Use Visuals Often
by ValueWalk - October 10th, 2018 11:38 am
By Sentieo. Originally published at ValueWalk.
Here’s a question that might throw you: What is the difference between a journalist and an investor?
The difference is more minute than you might think, and you can trace the history all the way back to the very first hedge fund. Alfred Winslow Jones had a doctorate in sociology and wrote for Fortune magazine for ten years before realizing that a levered, hedged portfolio could produce far superior risk adjusted returns, and went on to found A. W. Jones and Co, outperforming the best mutual fund of its time by 44%. For the many decades since. journalists have continued to go into money management and money managers have continued to write; from book length theses like David Einhorn‘s Fooling All the People, Some of the Time to simple. understated blogs like John Hempton’s Bronte Capital.
[REITs]
Q3 hedge fund letters, conference, scoops etc
There is a real reason for the close relationship between the professions of writing and investing. To make their name, journalists must get scoops and break news at the micro scale, but also identify and tie together multiple disparate data points to cover emerging trends at the macro scale. This closely matches the interplay of near term and structural concerns that equity analysts must deal with. While equity analysts are ultimately competing for capital, journalists must compete for space above the fold. There is limited research time, limited room for output, and a potentially unlimited space of stories that may be worth following. Miss the big trade or the big story of the year, and you underperform.
While note taking software has long been a core edge and focus for journalists to gather multiple disparate threads on stories they are working on, the same can not be said for the equity analyst toolset. Sentieo helps make equity analysts more effective by enabling them to take notes on everything. Everything. From clipping web articles, to copying snippets from SEC fillings and transcripts with linkbacks to sources, to emailing in your specialist sales notes. to writing meeting takes on tablets and phones. there is a way for you to pull that in and understand the unfolding story. We are especially proud of our iPhone app, which works just as well offline as it does online:
But understanding is only half the…
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Elon Musk Enron, WorldCom, Tyco, Lehman Brothers, And Valeant Versus Short Sellers
by ValueWalk - October 10th, 2018 11:33 am
By Umair Tariq. Originally published at ValueWalk.
Whitney Tilson‘s email to investors discussing his free seminars in Asia and defending short sellers from Elon Musk’s attacks.
1) I’m looking forward to my barnstorming trip in Asia next week, during which I’ll be doing free investing seminars in Shanghai this Sunday (Oct. 14), Singapore next Tuesday (Oct. 16), and we just added Hong Kong on Thursday (Oct. 18). If you or anyone you know would like more information or register to attend, please click here, here or here, respectively.
2) I was on Yahoo Finance’s lunchtime TV show today, defending short sellers against Elon Musk’s wrongheaded and self-interested attacks. Click here to watch the 8-minute segment.
Q3 hedge fund letters, conference, scoops etc
I argued that short selling is healthy for markets, especially long, complacent bull markets like this one, as markets need both buyers AND sellers.
But it’s not all short sellers Musk is attacking – just those who dare to share their views and research publicly. I think it’s especially important to encourage these brave investors because they offset the incessant promotion of stocks by managements (e.g., Musk) and Wall Street analysts.
That’s why I’ve organized a unique conference dedicated solely to short selling, in which 20 brilliant investors share their favorite, actionable short ideas. Our first one was a huge success so we’re doing it again at the NY Athletic Club on Monday, Dec. 3 (for the first time, we’ll also be livestreaming it for those who can’t attend in person). Additional information, including a list of confirmed speakers, and registration links are here. The early bird price of $2,495 expires on Monday, so register now – and save 20% if you use discount code WT20.
Short sellers have proven, over and over again (think Enron, WorldCom, Tyco, Lehman Brothers, Valeant and Lumber Liquidators, which I exposed), to be like the boy who says the emperor has no clothes – and Musk is looking mighty naked right now so no wonder he’s lashing out against those who are raising legitimate questions about major problems at his company. They threaten the story he’s woven about the ultimate story stock.
I think Musk is a tremendous entrepreneur…
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The Wealth Elite – On Taking Risks, Swimming Against The Tide, And Harnessing Failure
by ValueWalk - October 10th, 2018 8:55 am
By Guest Post. Originally published at ValueWalk.
Researchers have been complaining for decades that there is a social group about which we know far too little, namely “the rich.” Unlike poverty research, wealth research is still in its infancy. Yes, we know something about “millionaires next door,” thanks to authors such as Thomas J. Stanley, and we also have glimpses into the lives multi-billionaires, who are frequently the subject of public attention.
But there is one group that researchers have neglected, the group I refer to as the “wealth elite,” or to use the vernacular of wealth managers, ultra-high-net-worth individuals.. These are individuals with a net worth in at least the tens to hundreds of millions. To date, little is known about the genesis of wealth in this group, or about the personality traits and behavioral patterns that have enabled them to be so economically successful.
In absolute terms, the number of individuals with net assets in at least the tens and hundreds of millions is so small that standardized approaches with quantitative methods were out of the question for my study The Wealth Elite. I therefore selected a qualitative approach, namely guided interviews. In relation to the genesis of individual wealth, it became increasingly clear that one of the areas this research should focus on was the personality traits that are the basis for financial success. So, the essential questions the research sought to answer, were: Which personality traits do the super-rich share, what do they have in common, what distinguishes them, and what influence did these traits have on their financial success? I conducted 45 interviews (each lasting one to two hours) with individuals whose net worth in the lowest category ranged from 10 to 30 million euros and, in the highest category, from several hundred million to several billion euros. The majority of the interviewees are worth between 30 million and one billion euros. Most are self-made millionaires.
One of the subjects explored during the interviews and in the psychological test the interviewees completed was risk orientation.
Researchers have intensively considered the issue of risk orientation among the wealthy. Some researchers have identified a strong, positive correlation between risk propensity, entrepreneurial success and wealth. In contrast, others have found that entrepreneurs characteristically only have a moderate appetite for risk. A third group of researchers supports the hypothesis that,…
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SaxoSelect Sees 36 Percent Increase In Its Managed Trading Strategies AUM In Q3
by ValueWalk - October 9th, 2018 7:01 pm
By Jacob Wolinsky. Originally published at ValueWalk.
SaxoSelect, the digital service that enables clients of Saxo Bank to invest in pre-selected investments, which has reported a 36% increase in AUM for its range of Managed Trading Strategies over the third quarter. The sharp increase in riskier investment strategies comes despite an uncertain economic background throughout the quarter. SaxoSelect also saw a 14% increase in total AUM across all of its portfolios, with 10% coming from capital inflows and 4% from investment performance. The increase in AUM in the current market signals a desire from investors to make their money work, take calculated risk and look for a differentiated offering to traditional portfolios.
SaxoSelect’s two managed Equity Portfolios of global stocks, which utilise the strategies and research from world leading experts at Morningstar and most recently, Nasdaq, target strong growth over the medium term. In the third quarter, the Nasdaq DW Global Momentum portfolio enjoyed a significant uptick in capital inflows, pointing to the fact that some investors are looking at the portfolio to access cheaper emerging markets. SaxoSelect also offers diversified Balanced Portfolios which utilise Blackrock’s iShares and are based on low cost ETFs for long term investments and savings. The higher risk Multi Asset ETF portfolio range saw growth, with investors once more favouring higher risk profiles, as its AUM grew by 24%.
Q3 hedge fund letters, conference, scoops etc
SaxoSelect sees 36% increase in its Managed Trading Strategies AUM despite uncertain economic backdrop in Q3
- The SaxoSelect portfolio range total AUM is up 14% over the quarter
SaxoSelect, the digital service that enables clients of Saxo Bank to invest in pre-selected investments, has reported a 36% increase in AUM for its range of Managed Trading Strategies over the third quarter. The sharp increase in riskier investment strategies comes despite an uncertain economic background throughout the quarter.
SaxoSelect saw a 14% increase in total AUM across all of its portfolios, with 10% coming from capital inflows and 4% from investment performance. The increase in AUM in the current market signals a desire from investors to make their money work, take calculated risk and look for a differentiated offering to traditional portfolios.
The two managed Equity Portfolios of global stocks,…
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DoubleLine Global Bond Webcast Slides: Navigating Global Cross Currents; The Rise of Populism in the Developed World
by ValueWalk - October 9th, 2018 5:42 pm
By Jacob Wolinsky. Originally published at ValueWalk.
DoubleLine Global Bond webcast slides for the month of October 2018, titled, “Navigating Global Cross Currents Navigating Global Cross Currents.”
TAB I – Today’s Cross Currents
Q3 hedge fund letters, conference, scoops etc
The Rise of Populism in the Developed World
Source: DB Research
Populism Index: an aggregated index of populism in seven large countries over the last century weighted by populist votes and population size. We include the lower house elections in France, Italy, Spain, United Kingdom, Japan and Germany in addition to presidential elections within the United States. While the definition of populism is inherently subjective, the criteria used were as follows: Parties that espouse communist policy positions. Parties that espouse nationalist tendencies with regards to immigration and militarism. Parties led by leaders with dominating, charismatic personalities rather than well-defined policy positions. Regarding Europe, generally parties that display euro-sceptic or anti-Nato tendencies. Anti-Corporate Progressive Presidential candidates in US Elections whose political ideologies fell outside the political mainstream were also included.
Trump Approval Rating
Source: Bloomberg, DoubleLine
America First
Source: DoubleLine
G8 – France, Germany, Italy, the United Kingdom, Japan, the United States, Canada, and Russia; G7 – France, Germany, Italy, the United Kingdom, Japan, the United States, Canada
U.S. Goods Trade Deficit by Country
Source: Bureau of Economic Analysis, DoubleLine 2017 data
World GDP
Source: Bloomberg, DoubleLine, IMF
China Global Leader in Exports
Source: Bloomberg, DoubleLine
Non-Tariff Barriers higher in EM and China
Source: DB Research EM: Emerging Markets
Services Trade Restrictiveness Index: OECD Services Trade Restrictiveness Index (STRI) catalogues barriers to services trade and identifies potential scope to unlock growth through regulatory reform. The STRI composite indices are derived by quantifying the qualitative information as binary scores. The resulting sectoral indices take values between zero (complete openness to trade and investment) and one (total market closure to foreign services providers).
Escalating Tariffs
Source: Goldman Sachs GIR
G20 Tariff Rate
Source: DB Research
Impact of Tariffs on China GDP
Source: Bloomberg, DoubleLine
Double Deficit Countries at Risk
Source: Morgan Stanley EM Research
U.S. Exceptionalism: Fiscal Measures on U.S. GDP
Source: DB Research
CBO: Congressional Budget Office; DB: Deutsche Bank
U.S. Exceptionalism: Deregulation
Source: Bloomberg, DoubleLine, Federal Register https://www.federalregister.gov/uploads/2018/03/pagesPublished2017.pdf
See the full slides below.…
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High yield corporates show significant refinancing needs in coming years, potentially under adverse future financing conditions
by ValueWalk - October 9th, 2018 4:05 pm
By Jacob Wolinsky. Originally published at ValueWalk.
LISI investment letter for the fourth quarter of 2018, titled, “A Tale Of Two Perspectives.”
Q3 hedge fund letters, conference, scoops etc
- A chasm has formed in the US between two perspectives so far apart that reconciliation seems impossibly distant: is the end of the economic expansion near or not? Now approaching 2019, market observers fall into two camps: one that anticipates further growth by pointing to fiscal stimulus and an allegro drumbeat of positive economic indicators, and another that trumpets caution as it spies the darkening clouds of peak-of-market activity that have historically preceded a downturn
- After September’s Fed rate hike, the US sovereign yield curve may finally be normalizing as the US Treasury 10-year Note reached a 3.2% yield after months of stagnating below 3.0% (we expect further Fed rate hikes in December and into 2019). Fears of imminent yield curve inversion that might signal coming recession would be alleviated by a yield curve that begins to morph toward its regular upward sloping shape. New heights reached by US stock indices provide a telling corollary to the rising bond yields with the Dow and S&P 500 reaching new records
- Issuers have taken advantage of low interest rates to refinance in recent years. Yet, a gradual tightening of refi standards by global banks and investors could eventually congeal into a sclerotic mass of resistance that leaves some highly leveraged companies exposed to threats of a liquidity crunch. A wave of defaults would likely ensue that, when coupled with waning investor confidence, could result in an economic downturn and falling equity markets. Still, despite higher interest rates, continued economic expansion may allow companies to generate sufficient cash to address their leverage directly as debt comes due
- High yield corporates show significant refinancing needs in coming years, potentially under adverse future financing conditions. While issuers have largely paid down 2019 maturities, the following years to 2023 reflect an aggregate repayment need of $550bn for developed market HY issuers and $360bn for their EM counterparts (see charts below)
- As fiscal stimulus has taken the baton from the multi-year support of extremely accommodative monetary policy, strong corporate performance leads the LISI Investment Committee to maintain an overweight equities stance in its
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Jeremy Siegel Goes Bearish?! Says, Rising Rates Are A Major Impediment For Stocks
by ValueWalk - October 9th, 2018 3:33 pm
By Jacob Wolinsky. Originally published at ValueWalk.
Professor Jeremy Siegel of the Wharton School says rising rates are a major impediment for stocks and the market.
H/T dataroma
Jeremy Siegel: Rising Rates Are A Major Impediment For Stocks
Q3 hedge fund letters, conference, scoops etc
Transcript
Well I was on CNBC Thursday and I said this is a major impediment for stocks this is.
You know two things make up stock prices earnings and interest rates and all that good news on earnings is basically out there. I mean this has been a super year far better than expectation but it’s already in those prices. What is not in the prices is this sudden movement upward in the long bond. The Fed saying you know again that it’s going to be very very aggressive another hike in December. They say three weeks again in 2019.
This is really competition for stocks. You know the Divinia on the S&P is one point eight. And you know we’re going to be almost double that if we move into the threes. That’s you got to get capital gains and you know for years you didn’t have to get the capital gains to do better. Now you got to get them. I think it’s going to be impediment for the fourth quarter. You don’t at the at the end of last year I said it’s going to be a zero to 10 percent return on S&P. And I thought gee I might have been a little bit too cautious but you know I’m going to stick to that in terms of what this year begins. I think fourth quarters is definitely going to be challenge.
Well because of because of these rates it sounds like you’re having a bit of a change of tune to. But we’ve spoken with you. We’ve spoken with you recently. You didn’t you didn’t sound all that alarmed about where the stock market was then we’ve had this bit of a jump in rates right. But there were four of them all over the rates.
Yeah I. Well that was before the rates moved up. I mean again I mean you know it was between two and three quarters and three and it was sort of that all…
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Bill Ackman’s Presentation On Startbucks (SBUX) – “Doppio”
by ValueWalk - October 9th, 2018 3:14 pm
By Jacob Wolinsky. Originally published at ValueWalk.
Bill Ackman‘s presentation slides on Starbucks (SBUX), titled, “Doppio.”
- Leading global specialty coffee retailer and iconic brand
- 29,000 stores with over $32 billion in systemwide sales
- 50% U.S., 50% International
- 53% Owned (U.S. 60%,China 100%, RoW 30%), 47% Licensed
- Americas (primarily U.S.) = 67% of EBIT, Asia Pacific = 22%(1)
- Market capitalization and enterprise valuation of ~$77bn(2)
- Pershing Square owns 15.2 million shares at an average cost of $51 per share(3)
Q3 hedge fund letters, conference, scoops etc
Long-Term Share Price Outperformance
Startbucks (SBUX) has generated an annualized TSR of 26% over the last ten years, twice the return of the S&P 500 over the same period
Share Price Down Over the Last 3 Years
SBUX shares are down 6% over the last three years. Including dividends, shareholders have earned a 0% total return, despite EPS growth of ~50%
Current P/E at a Discount to Recent History
SBUX is trading at 22x consensus P/E today, a substantial discount to recent historical averages of ~26x
Investment Highlights
Category killer in away-from-home coffee with leading omnichannel presence
- Quality and innovation advantage over low-cost coffee and traditional QSR players
- Convenience, technological and cost advantage over high-end, boutique players
Premium coffee is a secularly growing and attractive category
- Frequent consumption creates loyal customer base and trade-up potential
- Aligned with health and wellness and sustainability trends
Attractive unit economics support owned business model in key markets
- Frequency, price point and high gross margins support profitability
- Build costs are lower than traditional restaurants due to the absence of kitchens
- New units in the U.S. generate ~30% cash EBITDA margins and ~65% pretax ROIC; new unit economics in China are even higher
- China will become an increasingly greater percentage of the total company over time
Long runway for unit growth in the high-single-digits
- Robust international unit growth led by China as well as other underpenetrated countries
- Incremental penetration opportunity in the S.
Track record of consistent growth in same-store sales and transactions
- Long-term average same-store sales (“SSS”) growth of 5% both in the U.S. and globally
- SSS historically driven ~50% by transactions, ~30% by pricing, and ~20% by mix
Recent acquisitions and divestitures suggest strong focus on core business
- Acquisition of East
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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