The Sohn Investment Conference, which is like Nerd Prom or the Met Gala for investors, kicks off its 21st annual iteration today at New York’s Lincoln Center. This is Investopedia's almost-live blog.
The conference was launched in 1995 to honor the memory of Ira Sohn, a financier who died of cancer at age 29. Tickets, which run as high as $5000, fund the Sohn Conference Foundation, which so far has raised $70 million for cancer research. New York is the original Sohn, but it has spread to Canada, Hong Kong, London, San Francisco, and most recently, Tel Aviv. As is always the case, speakers this year include the toppermost of the poppermost of the investing world (with hedge funders and private equity-ites heavily represented), including Stanley Druckenmiller (maybe the most famous Forex trader of all time), Chairman and CEO of Duquesne Family Office LLC, David Einhorn, President of Greenlight Capital, Inc. (maybe the most famous short seller of all time, hello Lehman) Notably absent from the speaker list this year is Bill Ackman, CEO of Pershing Square Capital Management, who has recently been enmired in controversies surrounding his fund's involvement in Valeant Pharmaceuticals International Inc. (VRX)
5:15pm: David Einhorn, President, Greenlight Capital, Inc.: "Short Caterpillar, Long GM"
Read the full article here.
5pm: Dan Ariely, James B. Duke Professor of Psychology & Behavioral Economics, Duke University
Highlight of this game theory talk: "Revenge is true altruism."
4pm: Zachary Schreiber, Chairman, CEO and CIO of PointState Capital LP: ‘We hope the Saudis act in their own self-interest’
"Saudi Arabia is a relative bastion of stability" in the region, said Schreiber, "but they hold that position at an ever-increasing financial cost." The population has grown 8% per year for the last six years, but employment has not risen in tandem. Bigger problem: "The Saudi government is the first and last resort employer," with three-fourths of nationals employed by the state. Furthermore, defense is one-third of the national budget and, as we all know, "The region is a mess".
Schreiber then played the 1991 Naughty by Nature rap song "OPP" and started dancing, and I'm not sure why.
So what's Saudi's plan? Said Schreiber, "They're looking to you guys to fund these gaping deficits. Any takers?"
In order to fix their economy, said Schreiber, oil would have to get to $80 to $90 a barrel, which they cannot achieve without cutting production. He mocked the much-derided National Transformation Plan, Vision 2030, an specifically the "Moving beyond oil" plan. "These proposals are insufficient to close the gaping fiscal deficit," said Schreiber. "They also pose a 20% hit to the average Saudi.
Surprising fact: According to Schreiber, Saudi Arabia is the most Twitter-saturated nation in the world. This would make implementing reforms very difficult, said Schreiber, citing the example of the many angry Saudi tweets that followed the government's decision to sack the energy minister.
Dumbest idea ever, says Schreiber, was killing the golden goose, ie selling off 5% of the state-run oil concern Aramco. The nation has a $90 billion fiscal deficit while owning 100% of Aramco; "if they sell the golden goose how do they own anything? It's insane."
Another problem: Persistent capital flight. "Saudi citizens are taking $60 to $70 billion a year out of the country," said Schreiber.
Basically, the whole cash flow is going in the wrong direction. "They need to attract $4 trillion to transform their economy over the next 15 years."
3:55pm: I try to interview Bill Ackman.
He says no.
3pm: Stanley Druckenmiller, Chairman and CEO, Duquesne Family Office LLC: The Fed has no end game. Also, buy gold.
Full article here.
1:10 pm: Chamath Palihapitiya, Founder and CEO, Social Capital LLP: Amazon.com Inc (AMZN) is a $3 Trillion opportunity by 2025
Palihapitiya gets the biggest laugh so far: "There is a multi-trillion dollar opportunity in plain sight. That company...is Valeant. Too soon? That company is Amazon, everybody." He thinks Amazon will be worth $3 trillion in the next 10 years. From an investor's perspective, that's 24% IRR (internal rate of return)/year.
By 2025, he says, Amazon will grow as follows: Retail will be $1T, AWS (Amazon Web Services) will be $1.5 T, bets and cash $0.5 T.
"What's crucial to growth is Amazon Prime. We think it's just beginning. Jeff says he's going to make it functionally irresponsible for any consumer around the world to not be a prime member." Last year people bought 6.5 billion "things." By 2025 this would be 30 billion units sold. The current multiple of Walmart is at 18. If you apply that to Amazon, then by 2026, you get to $1 T.
AWS is where it's at. "All the stuff that hasn't been invented yet, like the future Snapchat, will also move to the cloud."
There are going to be "an unbelievable number of losers" as AWS grows in scale.
"Jeff will invent things," and for everything he invents, there will be two monopolies in place already: Amazon retail and AWS. Amazon is "king-making."
12:45 pm: John Khoury, Founding and Managing Partner, Long Pond Capital LP: ‘There is 65% upside to Hyatt’
Hotels are out of favor, says Khoury. Lodging is the most out-of-favor real estate sector today, partly due to fears about Airbnb. Hotel stocks have taken a beating. Lodging index has underperformed the REIT index by over 30%. As for lodging costs, “Hotels are the cheapest they have ever been.”
Not all hotel companies are the same, however: There are incredible nuances. Airbnb presents different risks to all those companies. Lower-end, commodity-style, leisure-focused hotels will be severely impacted. But corporate travel and high-end leisure will be insulated. That is where Hyatt Hotels Corp. (H) comes in.
12:28: Carson Block, CIO, Muddy Waters capital LLC, on OZRK: A tale of hubris
Block cited Bank of the Ozarks Inc. (OZRK) in Litttle Rock, Ark., as a cautionary tale. Currently, OZRK has 35% of its loan book in construction lending. "In the best-case scenario, Ozark re-rates because it cannot sustain these earnings. Worst case: When there are downturns in real estate lending markets, their balance sheet could come under severe pressure."
Block describes the storied history of Ozarks in three phases.
Phase 1: Bank started in 1979, when CEO George Gleason brought a controlling interest. It operated as a semi-regional bank that weathered through the financial crisis.
Phase 2: Ozarks began acquiring failed banks from the FDIC. "These are great transactions. They were buying loan portfolios at a discount and those banks gave them excess deposits." They focused on growing their loan portfolio to use up the excess deposits. "My interpretation is they looked like they were the smartest guys in the southeastern conference." Then, the "seeds of hubris" were planted.
In 2011, they aggressively tried to grow the loan book.
Phase 3: The "ass-backward business model:" They used up excess deposits, growing earnings, so then they said, "This is pretty easy. Why don't we keep making the same kind of loans? As far as funding, we'll acquire banks – and sell assets if we have to have deposits – and we'll fund the loans." This works better if you have a growth multiple; it doesn't work so well if you start to close that growth multiple. Overly aggressive growth in New York with construction lending: "Not trying to be elitist here but if it were me I'd be moving a little more slowly on this."
Banks should be increasing their provisioning. Ozarks has been decreasing their provisioning.
12:15: Larry Robbins, Founder, Portfolio Manager and CEO, Glenview Capital Management LLC "Don't throw the baby out with the bathwater."
"Why are we not just paying attention to the stable fundamentals? People think someone in a garage is going to create something that is going to put our companies out of business." Example: Theranos was supposed to fix all our ills "with just three drops of blood... except for one small problem: It hasn't worked yet, it's not safe according to the FDA."
Glenview portfolio is 13x this year and 11x next year.
Anthem, where Glenview has a sizeable position: "The managed-care business remains a good business." Anthem is likely to merge with Cigna. They have $180bn today; they will have $121 bn [more] when Cigna acquisition closes. There is a 1 in 3 chance of the deal closing, but even if it doesn't go through, Anthem Inc. (ANTM) will go up.Confident that public-policy initiatives will want this deal to go through, due to smaller outfits closing in the wake of Obamacare.
Noon: They are playing The Who's Baba O'Reilly as they usher us into David Geffen Hall. I don't know whose idea that was but I approve.
Next Wave Sohn talks stock picks: Kraton – long; TripAdvisor – long; GoGo – short; Oil – long; Royal Dutch Shell – long; Italian Banks – long, but hedge with 3-year Italian sovereign debt, specifically Italian bank demutualizations.
11:30 AM: I am standing at the Pershing Square Capital Management LP-labeled hobnobbing table. It is surprisingly uncrowded.
In fact I am the only person here other than one person who is definitely not with Pershing. In other news, the avocado wrap is good. The fruit plate, as always, has too much cantaloupe.
10:30 am: Davide Leone, Founder Davide Leone and Partners Investment Company LP: "You have to carry a short position against the long."
Leone, hailing from Italy and heading a London-based company, spoke about Italian sovereign debt and the Eurozone in general. He does not think Brexit is likely but warns that even under normal circumstances, "the Euro is difficult to hold. There are 19 national treasuries and one central bank." In the event that Brexit did happen, he predicts two outcomes: 1) That Germany and France will pool resources and pull themselves together--that's the good news. 2) However, "we will face a much bigger risk", ie the Southern European nations with weaker economies will be marginalized. "You have to watch the periphery," Leone said. "I'm not advocating shorting Italian bonds," he joked, "but you have to watch your redenomination risk. If integration doesn't let [Southern Europeans fully participate], the South will turn to pesetas, liras, and drachmas. You have to carry a short position against the long."
The morning’s proceedings are devoted to “Next Wave Sohn”, which is the up and coming talent. I was very distracted during the first two talks because people kept kicking me out everywhere I tried to plug in my computer, but my passive hearing did register that I’d heard the word “EBITDA” more in half an hour than I’d heard in the rest of my life put together. Now a woman is talking about GoGo way too quickly for me to understand. I mean like, Gilbert and Sullivan’s Modern Major General song, fast. The guy sitting next to me seems to have trouble following also. “Is she saying short GoGo? Or what?”
Biggest surprises so far:
- This is Lincoln Center, so I was sort of surprised that the "break is over" bell is not the same method used to summon you back to the Opera. It's more like Will Farrell's cow bell from the SNL sketch about Blue Oyster Cult.
- New fashion trend among millennial 1% aspirants: it looks like it is now ok for men to wear khaki trousers with blue jackets that are not blazers. In my day, you either wore a suit or you wore khakis with a blazer. Blazers have shiny buttons. I am glad my mother is not here to see this.