|| The 22nd Annual Sohn Investment Conference.
Left to right: Keith Meister; Debra Fine; Josh Resnick
(Photo Credit: Kholood Eid/Bloomberg).
One of my favorite stock market adages is that stocks climb
a wall of worry. When everyone is bullish, head for the
So, after sitting through the Sohn
Investment Conference this year, I am a little concerned.
Investors seemed mostly upbeat and were eager to trot out their
favorite bullish ideas. Of course, that’s what
this conference is all about — with the noble goal of
raising money to fight pediatric cancer and other childhood
Except last year most of the presenters were bearish or
cautionary. And what happened? The markets finished the year
This time we are now in the ninth year of the bull market
— although just four months for the new presidential
administration. And just one person expressed some sort of
macro fear, and it wasn’t a hedge fund manager.
Kevin Warsh, who served on the board of governors of the
Federal Reserve System during both the Bush and Obama
administrations and is now a lecturer at the Sanford Graduate
School of Business, wondered whether the central bank is
prepared and has any bullets left to fight the next economic
Otherwise, hedge fund luminaries — none of whom
incidentally will have qualified for the Rich List this year
when it is published shortly — mostly trotted out
their favorite long positions. Yes, several hedgies talked up
short bets, while one offered a hedge. Jeffrey Gundlach of DoubleLine Capital
thinks the Standard & Poor’s 500 stock
index’s outperformance of emerging markets is over
and recommended going long the iShares MSCI Emerging Markets,
an exchange-traded fund that bets on emerging markets stocks,
and simultaneously shorting SPY, the most popular S&P 500
Davide Serra, founder of London-based Algebris Investments,
recommended shorting British government paper, while two other
investors recommended shorts of specific equities. Otherwise,
we mostly heard longs on a day that was filled with interesting
Here is a sample of a few.
The most shocking short recommendation came late in the day
after the market had already closed, when
Josh Resnick, the founder of Jericho Capital Asset
Management, recommended shorting Frontier Communications,
noting the telecom company’s stock is down 50
percent but has "100 percent more to go from here."
Translation: It is going bankrupt.
He has been short the stock for five years, the
longest-standing short in his career. Resnick expects the
company, which recently slashed its dividend by 62 percent, to
eliminate it altogether. He also thinks that later in the year
it will be in breach of the covenants of some loans. He also
pointed out that the company gets 32 percent of revenue from
traditional phone lines, a dying business. After marshaling
additional negative facts and playing videos of unhappy
customers, he had many of us convinced.
Resnick’s presentation was the mirror image of
the presentation of
Corvex Management’s Keith Meister. Earlier in
the day the activist talked up the shares of another telecom
company, CenturyLink. The over-riding reason: It is in the
process of acquiring Level 3 Communications for about $34
billion. He asserts consolidation is very profitable in the
telecom business, because the bigger company benefits from more
traffic and greater scale.
CenturyLink also has a 9.2 percent yield, the highest in the
S&P 500, which he felt was not safe before the deal but is
now. "The Level 3 merger was game changing," Meister said. "It
secures the dividend," he added, among other factors. Meister
did reference Frontier’s dividend cut, but
otherwise didn’t seem to have a play on it.
David Einhorn, the sometime-activist whose
Greenlight Capital has been suffering this year, in part
from short bets against stocks in its famous "bubble basket"
— such as Amazon.com and Tesla Motors — as
well as his recent disclosed short in Caterpillar, went public
with his short on Core Laboratories. He called the stock "way
overvalued" and made the case for the stock to drop to $62. It
had closed on Friday at $113.43, before dropping 2.4 percent
Monday on Einhorn’s presentation.
Einhorn asserts investors and Wall Street’s
sell-side analysts mistakenly think it is a secular growth
company rather than a cyclical oil services company. "It was in
the right place at the right time in the last cycle, but not
this time," the hedge fund manager insists. He says the company
does not heavily benefit from a boom in the shale business.
Einhorn also mocked the company for asserting it is in the
middle of a V-shaped recovery.
The most interesting, niche long play was presented by Debra
Fine of Fine Capital Partners, conspicuously the only woman to
present at the main program, which led to her opening line that
she didn’t want to be seen as the "token Jew" at
the event. Her comic timing was pretty good.
In any case, she talked up DHX Media, a little-known
Canadian company traded on the Toronto Exchange. The stock was
selling for C$5.50, and she thinks it is worth closer to $20 or
more. The company owns some old children’s
television programming and toy names, like Teletubbies,
Degrassi, and Inspector Gadget, to name a few.
The company basically arbitrages the assets, buying them at
what they used to be worth and then monetizing the assets with
much better merchandising and video deals. Fine stresses that
unlike adults, children can watch the same show over and over
and over. "The value of children’s content does
not devalue after first showing," she adds. It is also cheaper
to produce and more globally transferable. Meanwhile, new
buyers like Netflix and Amazon are driving demand. Who