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Fund Manager Ackman Teases Investors With Mystery Trade


Parsad
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lol AOL.  not a chance

 

Why not?

 

It has plenty of cash.

 

Many assets could be auctioned off in this "Web 3.0 Social Media" bubble environment at lofty valuations.

 

Ackman can pay next to nothing for product (freelance writers) and sell advertising against it.

 

and this...

 

http://blogs.barrons.com/techtraderdaily/2011/08/31/aol-deal-or-not-sub-biz-is-a-cash-cow-says-ubs/?mod=yahoobarrons

 

UBS analyst Brian Fitzgerald today reiterates a Buy rating on the stock, and a $20 price target, writing that the subscriber business is a “potent cash cow” that can support a turnaround, even though its expected to decline by 20% per annum over the next couple of years.That “access” business, the old dialup operation, is seeing a lower rate of cancellations, also a good thing, he notes.

 

-and-

 

http://www.huffingtonpost.com/2011/01/21/aols-dirty-little-secret-_n_812307.html

 

According to Auletta, 80% of AOL's profits come from subscribers
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It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.

 

I'm curious what he means here...perhaps a gold miner? What long position would provide a hedge to a portfolio already so heavily tied to a healthy economy (sans FDO perhaps)?

 

 

 

 

 

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I would guess a financial. Maybe Frannie as others have suggested, or maybe AIG/BofA warrants or maybe some beaten down European bank that people are assuming will go belly up like they assumed for GGP.

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It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.

 

I'm curious what he means here...perhaps a gold miner? What long position would provide a hedge to a portfolio already so heavily tied to a healthy economy (sans FDO perhaps)?

 

Can't figure that out either. However, I don't think it's a gold miner, as he's been pretty vocal against investing in gold. And from what I can remember, hasn't ever made an investment in commodities.

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It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.

 

I'm curious what he means here...perhaps a gold miner? What long position would provide a hedge to a portfolio already so heavily tied to a healthy economy (sans FDO perhaps)?

 

Can't figure that out either. However, I don't think it's a gold miner, as he's been pretty vocal against investing in gold. And from what I can remember, hasn't ever made an investment in commodities.

 

That's what I was thinking, but figured he may say that a miner generates cash flow and thus has intrinsic value. Perhaps he simply means the investment is so event driven that it will perform well independent of the market and his other holdings...

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fannie / freddie prefs?

 

This came to my mind too.  GSE Preferred is available at cents on the dollar so it fits with the 'modest amount of capital commitment' part. 

 

Right now, the GSE's control 90% of the US mortgage market.  If they were to go away (and presumably the value of the preferreds go to zero), the big banks would gladly take their place and benefit from a windfall of new business.  The latest SEC filings show 12% of Ackmans fund is in Citigroup.  Maybe this is what he means by 'significant hedging benefits'.

 

Just a guess.

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Watching the video gives one the impression that Ackman would not touch Freddie or Fannie with a 100 foot pole since it was revealed that shareholders are the last people the conservators are thinking about while trying to protect the assets in runoff.

 

Interesting that you all are talking about the GSE's.  Take a look at the fourth video in the link below.  The discussion with Bill Ackman starts about 8 mins in to the video.

 

http://www.gurufocus.com/news/121785/michael-porter-bill-ackman-and-clayton-rose-interview-with-cnbc

 

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Theres a good chance this could be a CDS trade.  I think the most asymmetric CDS trade right now is long Japanese Government (JGB's) CDS.  The 5 year contracts go for 104 bp.  quote link here: http://www.bloomberg.com/apps/quote?ticker=CJGB1U5:IND

 

This trade would also provide a large hedge position as Ackman suggests.  I have not found a bull case for Japanese Debt so far.  The writing is on the wall right now. 

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I respectfully refer any Japanese bond bear to Cullen Roche's website www.pragcap.com to learn why countries such as Japan and the USA will not have a debt crisis. Japan and the USA are never revenue constrained, and as long as they issue debt in their own currency it will never happen. Einhorn purchased calls on Japanese interest rates in the 4Q of 2008 and Kyle Bass has been preaching about Japan coming to the "Keynsian End Point" for the past two years - both are incredibly smart men and both have been DEAD wrong.

 

Theres a good chance this could be a CDS trade.  I think the most asymmetric CDS trade right now is long Japanese Government (JGB's) CDS.  The 5 year contracts go for 104 bp.  quote link here: http://www.bloomberg.com/apps/quote?ticker=CJGB1U5:IND

 

This trade would also provide a large hedge position as Ackman suggests.  I have not found a bull case for Japanese Debt so far.  The writing is on the wall right now.

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The US is completely different from Japan as their debt ratios are no where near each other, their central banks operate differently, and both countries have completely different cultures and demographics. 

 

Also CDS on Japanese debt have gone from 37bp 2 years ago to 105bp today.  So its been a very profitable trade for Kyle Bass and others. 

 

I respectfully refer any Japanese bond bear to Cullen Roche's website www.pragcap.com to learn why countries such as Japan and the USA will not have a debt crisis. Japan and the USA are never revenue constrained, and as long as they issue debt in their own currency it will never happen. Einhorn purchased calls on Japanese interest rates in the 4Q of 2008 and Kyle Bass has been preaching about Japan coming to the "Keynsian End Point" for the past two years - both are incredibly smart men and both have been DEAD wrong.

 

Theres a good chance this could be a CDS trade.  I think the most asymmetric CDS trade right now is long Japanese Government (JGB's) CDS.  The 5 year contracts go for 104 bp.  quote link here: http://www.bloomberg.com/apps/quote?ticker=CJGB1U5:IND

 

This trade would also provide a large hedge position as Ackman suggests.  I have not found a bull case for Japanese Debt so far.  The writing is on the wall right now.

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fannie / freddie prefs?

 

This came to my mind too.  GSE Preferred is available at cents on the dollar so it fits with the 'modest amount of capital commitment' part. 

 

Right now, the GSE's control 90% of the US mortgage market.  If they were to go away (and presumably the value of the preferreds go to zero), the big banks would gladly take their place and benefit from a windfall of new business.  The latest SEC filings show 12% of Ackmans fund is in Citigroup.  Maybe this is what he means by 'significant hedging benefits'.

 

Just a guess.

 

Having made good money three times since the beginning of the financial crisis on the F&F prefs, am by no means a bear, but realization of their relative exceptional value compared to the common is entirely a prediction exercise with politics at the forefront.  Don't expect clarity until the 2012 national election results are in.

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Interesting that you all are talking about the GSE's.  Take a look at the fourth video in the link below.  The discussion with Bill Ackman starts about 8 mins in to the video.

 

http://www.gurufocus.com/news/121785/michael-porter-bill-ackman-and-clayton-rose-interview-with-cnbc

 

Thanks for posting this Dcollon.  The fact that he asked the question tells me that the GSE preferred was on his radar.  Even though Rose answered that his duty is toward the conservator, the conservation agreement says that their responsibility is to maintain the value of the GSE assets in order to protect the governments’ senior preferred, so the junior preferred benefit indirectly. 

 

I may be deluding myself here (as I am long the preferred) but I believe the massive upside (10-15x investment) here gives Ackman an incentive to spend some effort as an activist in favor of keeping some government involvement in the housing market.  He will have some have some strong facts in his favor, such as:  (1) The GSE's underwriting has been very good as shown by significantly lower default experience vs. private label, (2) The GSEs operated very well for decades but ran into trouble when they started buying private label AAA's with poor underwriting.  This killed them and they would be alive today if they stayed with their original charter, (3) Govt. involvement in the housing finance market can provide a critical shock absorber during times of stress (like today) when big banks might retrench.

 

Its a long and complicated story, but that is why Ackman would be ideally positioned to separate the truth from the political spin.  My hunch is that he is waiting until FNMA's default experience improves to where FMCC is today which should be within a year. 

 

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Having made good money three times since the beginning of the financial crisis on the F&F prefs, am by no means a bear, but realization of their relative exceptional value compared to the common is entirely a prediction exercise with politics at the forefront.  Don't expect clarity until the 2012 national election results are in.

 

Having made good money once, so like twacowfca no bear either, some crazy people in Congress are battling hard against them. There were plans to decrease the 10% rate of the senior prefs and they were clipped.

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fannie / freddie prefs?

 

This came to my mind too.  GSE Preferred is available at cents on the dollar so it fits with the 'modest amount of capital commitment' part. 

 

Right now, the GSE's control 90% of the US mortgage market.  If they were to go away (and presumably the value of the preferreds go to zero), the big banks would gladly take their place and benefit from a windfall of new business.  The latest SEC filings show 12% of Ackmans fund is in Citigroup.  Maybe this is what he means by 'significant hedging benefits'.

 

Just a guess.

 

Having made good money three times since the beginning of the financial crisis on the F&F prefs, am by no means a bear, but realization of their relative exceptional value compared to the common is entirely a prediction exercise with politics at the forefront.  Don't expect clarity until the 2012 national election results are in.

 

I agree with you Twacowfca.  And likely not until a good amount of time after 2012 too.  But between now and then I think it is a safe bet that the GSE portfolios will continue to improve and with that the heated political dialogue around them will moderate too.  And then at some point, when given a opportunity to payback the taxpayer advances, I think the politicians will do it.

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