Mandel's Lone Pine Capital Starts Williams Sonoma (WSM) Position

Steve Mandel's hedge fund Lone Pine Capital just filed a 13G with the SEC regarding shares of Williams Sonoma (WSM). They crossed the 5% ownership threshold on September 20th according to the filing and now 5.6% of the company with 5,824,323 shares.

This is a brand new position for the hedge fund as they did not report owning any shares at the end of the second quarter. In other activity from this manager, we detailed how Lone Pine doubled its SolarWinds position as well.

Per Google Finance, Williams Sonoma is "a specialty retailer of products for the home. The Company has two segments: direct-to-customer and retail. The direct-to-customer segment has six merchandising concepts Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home. The retail segment has four merchandising concepts, Williams-Sonoma, Pottery Barn, Pottery Barn Kids, and West Elm, operating 592 retail stores located in 44 states."

John Thaler's JAT Capital Loads Up on Netflix (NFLX)

John Thaler's hedge fund firm JAT Capital just now filed a 13G with the SEC regarding shares of Netflix (NFLX). The hedge fund now has a 7.6% ownership stake in Netflix with 4,017,691 shares as of September 29th.

This means they've ramped up their position size by a massive 768% since the end of the second quarter. The fine print of the filing also shows that of the 4 million shares they now own, 2,617,691 are common stock and 1,400,000 are represented by options. The options portion of their position is new because they only owned 467,812 shares of common stock at the end of Q2.

This position increase is interesting for a number of reasons:

1. NFLX shares have largely sold off because of CEO Reed Hastings' recent announcement that the company will be separating its streaming business (Netflix) and its DVD business (with the newly named Qwikster). Also, NFLX shares have been under pressure due to a subscriber exodus over a recently announced price increase.

It's clear that Hastings feels that the streaming business is the future (and he's right). By separating the businesses, he's allowed the company to focus on its long-term future. However, critics question whether or not the split has come too soon and they've lambasted Hastings for a public relations nightmare in the way he's handled everything.

Thaler's hedge fund has clearly identified the NFLX sell-off as an opportunity to increase their wager on the company's long-term positioning and future. Thaler himself has 10+ years of experience in the technology-media-telecom space. Before founding JAT, he managed the Omni Fund at Shumway Capital Partners.


2. Hedge funds only have to file a 13G with the SEC when they cross the 5% ownership threshold of a given company's shares. JAT's filing indicates they crossed that level on September 20th. The only problem here is you don't know exactly when they were doing the bulk of their buying. As of September 29th, they own 7.6% of the company. On the 20th, NFLX was trading around $130 and shares currently trade around $113.


3. On Thursday, the internet was flooded with rumors of a hedge fund liquidating, mainly due to large price declines in "momentum stocks" such as NFLX. Some rumors even recklessly tossed out JAT's name as a fund that could potentially be "blowing up" since some of their other large positions were trading down sharply like Baidu (BIDU) and Sina (SINA).

However, those rumors were quickly quashed once people actually looked at JAT's numbers. As of September 16th, JAT Capital's Offshore fund was up 37.29% for the year. These performance figures of course don't include the week's most recent volatility, but we've been hearing they're still up big.


In the end, just focus on the facts. The SEC filing shows JAT was buying Netflix and they crossed the 5% ownership threshold on September 20th. And as of September 29th, they own 4 million shares via common stock and options.

For the time being, it appears as though Thaler's fund is betting on NFLX still having a bright future. In other coverage of this hedge fund, we detailed JAT's buy of IMAX in early August.

What We're Reading ~ 9/30/11

Notes from DoubleLine lunch with Jeff Gundlach [Reformed Broker]

The big difference between Apple & Amazon [Abnormal Returns]

Is Apple the new Microsoft? [Abnormal Returns]

Hedge fund redemptions not like 2008 [Barrons]

30 most influential finance sources [BigPicture]

Meet the institutional investors [FT Alphaville]

Notes from Bloomberg dealmakers summit [Distressed Debt Investing]

The road from depression [George Soros]

Yandex (YNDX): careful when you talk to hedgies [Barrons]

SEC registration plan may apply to midsize hedge funds [WSJ]

Slamming short selling restrictions [COO Connect]

Mohawk Industries (MHK): sum of parts analysis [FrankVoisin]

How the AMZN Kindle Fire changes digital media landscape [ContentMatters]

Netflix co-founder says company didn't screw up [Fortune]

Endowment & foundation investing today [John Bogle]

David Einhorn, Ricky Sandler & Boykin Curry to Speak at Value Investing Congress

The Value Investing Congress just announced three new speakers that will be presenting at the event. The big headliner here is David Einhorn of Greenlight Capital.

In 2007 at the Value Investing Congress, Einhorn presented his case to short Lehman Brothers before the company collapsed. Hear what his latest idea is: use discount code N11MF10 and click here to register for the event. This final discount expires tomorrow!

The event is taking place on October 17th & 18th in New York City. Other new speakers announced include Ricky Sandler of hedge fund Eminence Capital, as well as Boykin Curry of Eagle Capital, who has returned 15.1% annualized since 1988.

Here's the full list of speakers for the Value Investing Congress:

- David Einhorn, Greenlight Capital
- Bill Ackman, Pershing Square Capital
- Jim Chanos, Kynikos Associates
- Leon Cooperman, Omega Advisors
- James Crichton & Adam Weiss, Scout Capital
- Joel Greenblatt, Gotham Capital
- Ricky Sandler, Eminence Capital
- Boykin Curry, Eagle Capital
- Alexander Roepers, Atlantic Investment Management
- Guy Gottfried, Rational Investment Group
- Bernard Horn, Polaris Capital Management
- Timothy Hartch, Brown Brothers Harriman
- Vladimir Jelisavcic, Longacre Fund Management
- Whitney Tilson & Glenn Tongue, T2 Partners


To hear the latest investment ideas from these prominent hedge fund managers, click here to register with a discount. This final discount expires tomorrow, so take advantage before it's too late.

Andreas Halvorsen's Viking Global Buys Oncothyreon (ONTY)

Andreas Halvorsen's hedge fund Viking Global filed a 13G with the SEC regarding shares of Oncothyreon (ONTY).

Viking has revealed a 7.1% ownership stake in the company with 2,960,650 shares. This is a brand new position for the hedge fund as they did not report owning a stake at the end of the second quarter.

Remember that all SEC filings are made on a delayed basis, so while their filing says this activity occurred on September 14th, they weren't required to file with the SEC until yesterday.

This is the only 13G or 13D filing we've seen from Viking since we detailed they ramped up their position in Universal Health Services (UHS) back in April.

Per Google Finance, Oncothyreon is "a clinical-stage biopharmaceutical company. The Company focuses primarily on the development of therapeutic products for the treatment of cancer. Oncothyreon’s cancer vaccines are designed to stimulate the immune system to attack cancer cells, while its small molecule compounds are designed to inhibit the activity of specific cancer-related proteins.

The Company’s lead product candidate under clinical development is a vaccine it calls Stimuvax. Stimuvax incorporates a 25 amino acid sequence of the cancer antigen MUC1, in a liposomal formulation. Stimuvax is designed to induce an immune response to destroy cancer cells that express MUC1, a protein antigen widely expressed on many common cancers, such as lung cancer, breast cancer and colorectal cancer. Oncothyreon has granted an exclusive, worldwide license to Merck KGaA of Darmstadt, Germany (Merck KGaA), for the development, manufacture and commercialization of Stimuvax."

Owl Creek & Cyrus Capital Active in YRC Worldwide (YRCW)

Hedge funds have been active in shares of YRC Worldwide (YRCW) recently. Jeffrey Altman's hedge fund Owl Creek Asset Management and Stephen Freidheim's Cyrus Capital Partners recently filed various forms with the SEC regarding the company. There are a lot of moving parts to their positions, so let's dig in.

Owl Creek Asset Management's Position

The 13G shows the latest activity as of September 16th and reveals Owl Creek has a 17.4% ownership stake in YRC Worldwide. This is based on 75,011,292 shares of common stock, 218,570,388 shares of common stock issuable upon conversion of Series B notes ($13,507,650 in aggregate principal amount), and finally 94,284,663 shares of common stock issuable either as make-whole shares or upon conversion of the PIK notes.

Digging into the footnotes, we see that Altman's hedge fund holds $17,573,269 in aggregate principal amount of 10% Series A Notes. These notes are not convertible until July 22, 2013 and the current conversion price is $0.1134.

Their Form 4 filed with the SEC shows they sold common stock in YRCW in the latter half of September, reducing their position from 110.5 million shares down to the current 75 million shares. The majority of their sales came at $0.07x.

For all the particulars of Owl Creek's position in YRCW, head to their 13G here. We also recently detailed how Altman's firm started a position in Forest Oil (FST).


Cyrus Capital Partners' Position

Stephen Freidheim's hedge fund Cyrus Capital actually filed an activist 13D on the company compared to Owl Creek's passive 13G. Cyrus revealed a 20.3% ownership stake in YRCW with 447,860,113 shares. This includes 289,738,036 shares of common stock issuable upon exercise of the Series B notes. For all the fine print of Cyrus' filing, head here.


YRC's Reorganization

YRCW is currently trading around $0.059 and underwent a charter amendment merger on September 16th, "whereby a wholly-owned subsidiary of the Issuer merged into the Issuer and the certificate of incorporation of the Issuer was amended and restated to increase the number of common stock authorized."

Due to this, the above hedge funds' preferred stock automatically converted into common stock and the Series A notes became convertible two years from the date of issuance (as detailed above). The Series B notes became immediately convertible at a fixed price into shares of common stock.

The company recently announced that Jeff Rogers will be YRC President and Mike Naatz will be Holland President, both reporting to YRC Worldwide CEO James Welch. Some analysts, though, haven't ruled out a bankruptcy filing for the trucking company.

Per Google Finance, YRC Worldwide is "a holding company. YRC Worldwide, through wholly owned operating subsidiaries offers its customers a range of transportation services. These services include global, national and regional transportation, as well as logistics."

Strategist Jeff Saut Says 1,100 = Key Level on S&P 500

Given the recent volatility, we thought it would be prudent to check in on market strategist Jeff Saut. His weekly investment strategy note reiterates how he has pointed to 1,100 on the S&P 500 as a key technical level if the market were indeed in the midst of a bottoming process. He still maintains this stance as the market currently trades above it.

We've noted for a while now how many hedge funds have low net exposure to the market. Under the notion that cash is a position, Saut says that "we have still been pretty circumspect in recommitting capital to the broad stock market until it is apparent THE bottom has been recorded."

This raises an interesting point. Everyone seems to have a lot of cash on the sidelines now, afraid to be the first one to jump back into the pool. It's clear any future rally could be a fierce one as cash comes rushing back from the sidelines. But the question is, will there be a bottom and what will cause it?

Saut says that if the market breaks S&P 1,100, the next downside level he would target would be 1020-1030.

Embedded below is Jeff Saut's market commentary:



You can download a .pdf copy here.

Check out more thoughts from Jeff Saut on why this isn't a recession as well as Saut's favorite stocks.

Pershing Square Buys Total Return Swaps on J.C. Penney (JCP)

Bill Ackman's hedge fund Pershing Square Capital Management just filed a Form 4 with the SEC regarding shares of J.C. Penney (JCP).

The filing indicates that Pershing Square bought total return swaps on September 22nd with a conversion price of $26.14 and an expiration date of 9/22/2016, representing 15,969,239 shares of J.C. Penney.

Here's the fine print of the SEC filing:

"Under the terms of the cash settled total return swaps (i) certain of the Pershing Square Funds will be obligated to pay to the bank counterparty any negative price performance of the 15,969,239 notional number of shares of Common Stock subject to the swap, plus interest at the rates set forth in the applicable contracts, and (ii) the bank counterparty will be obligated to pay certain of the Pershing Square Funds any positive price performance of the 15,969,239 notional number of shares of Common Stock subject to the swap. Any dividends received by the bank counterparty on such notional shares of Common Stock during the term of the swap will be paid to the Pershing Square Fund. All balances will be settled in cash."

Additionally, the hedge fund recently amended their activist 13D filed with the SEC. This now shows Pershing's ownership stake in JCP as 18.3% of the company with 39,075,771 shares. They've only added to their common stock position by 360,200 shares since the end of the second quarter. We've of course detailed how Ackman bought $600 million worth of various investments during the August volatility.

Late last month, Pershing disclosed their intention to own exposure equal to 26% of JCP's outstanding stock via a "synthetic long position." In the agreement with the company, Ackman reduced his voting rights to 15% of shares outstanding and made it so that any additional shares purchased require written consent from JCP.

For recent activity from this hedge fund manager, check out Bill Ackman's presentation on the Hong Kong dollar.

Philippe Laffont's Coatue Management Buys Universal Display (PANL)

Philippe Laffont's hedge fund Coatue Management just filed a 13G with the SEC regarding shares of Universal Display (PANL). In the filing, Coatue reveals they now own 6.3% of PANL with 2,881,463 shares.

This is a brand new position for the hedge fund as they previously did not own any shares at the end of the second quarter. Given that Coatue is fixated on technology, this investment plays right into their focus on the theme of mobility. PANL provides essential display parts to smartphones, tablets, etc.

Per Google Finance, Universal Display is "engaged in research, development and commercialization of organic light emitting diode (OLED), technologies and materials. OLEDs are thin, lightweight devices that emit light, making them highly suitable for use in full-color displays and as lighting products."

For more activity from this hedge fund, we've detailed how Coatue was buying SINA earlier this summer, a name that has been hit recently due to increased fears of regulation in China.

Soros Fund Management Adds to ClickSoftware (CKSW) & Ciena (CIEN) Positions

Soros Fund Management recently filed two 13G's with the SEC. First and most recently, filed a 13G on ClickSoftware (CKSW). Due to portfolio activity on September 20th, Soros has disclosed a 5.12% ownership stake in the company with 1,580,040 shares. This marks only a 14.6% increase in their position size as they owned 1,378,666 shares at the end of the second quarter.

Second, the hedge fund firm also disclosed a a 5% ownership stake in Ciena (CIEN) with 5,102,085 shares due to trading activity on September 13th. At the end of the second quarter, Soros only owned 1,100 common shares of CIEN. However, they also owned senior convertible notes representing 74,934,000 shares at that time.

If you haven't already heard, Soros Fund Management will be returning outside investor capital and morphing into a family office to manage George Soros & family's wealth.

Per Google Finance, Ciena is "a provider of communications networking equipment, software and services that support the transport, switching, aggregation and management of voice, video and data traffic."

ClickSoftware is "a provider of software products and solutions for workforce management and optimization for the service sector. The Company derives revenues from the licensing of its software products and the provision of consulting and support services. ClickSoftware’s solutions are grouped into four main suites which together comprise its Service Optimization Suite: Field Service Daily Suite, Mobility Suite, Roster (Shift Planning) Suite and Forecasting and Planning Suite."

For more recent hedge fund activity, we posted up how Philippe Laffont's Coatue Management just bought Universal Display (PANL).

What We're Reading ~ 9/23/11

The Warren Buffetts next door [Matt Schifrin]

Excerpts from Seth Klarman & Baupost Group's Q2 letter [ValueWalk]

Third Point's presentation on Yahoo! [Dealbreaker]

Ten market crash commandments [Reformed Broker]

The fall of FrontPoint Partners [AR+Alpha]

The rise & fall of Yahoo! (YHOO) [BigPicture]

Third Point raises $500m for reinsurer [FINalternatives]

Hedge funds offering more separate account options [OnWallStreet]

John Paulson loves stocks [WSJ]

Has Paulson lost his touch? [BusinessWeek]

Good take on the Netflix (NFLX) situation [Splatf]

Meet Warren Buffett's new hire [Fortune]

Does the euro have a future? [George Soros]

Gaining by betting against Chinese reverse mergers [WashingtonPost]

Copper leads commodities downward [Barrons]

Activist investors finding more targets [Reuters]

Harvard endowment rises 21% on hedge fund gains [Bloomberg]

Asking the right & wrong questions [Dan Ariely]

Oldie but goodie: Wall St trader tells all [Independent]

Lone Pine Capital Says Euro is Doomed & China's Debt Will Lead to a Crisis

Steve Mandel's hedge fund Lone Pine Capital says there are major concerns for global financial markets going forward.

*Update: excerpt removed per request from representatives of Lone Pine



Their point on China is not the first time we've heard this cautious approach. Grandmaster Capital's Patrick Wolff has called China a debt-fueled investment bubble. Kleinheinz Capital also believes that inflation is the biggest threat to emerging markets. And lastly, hedge fund manager Jonathan Ruffer also put out commentary that he's worried about China.

But at the same time, there are other prominent investment managers that take the other side of the argument. We've covered previously how Maverick Capital is focused on China's importance and how Warren Buffett has said China will be a big driver of growth for the next 10-20 years. At the Delivering Alpha Conference, Xerion fund's Dan Arbess debated against Kynikos Associates' Jim Chanos as to whether China is a bubble or bonanza.

While big names stand on either side of the argument, only time will tell who is ultimately proven correct.

Lone Pine Capital's Current Investment Themes

Today we're covering the current investment themes from Steve Mandel's hedge fund Lone Pine Capital.


*Update: excerpt removed per request by representatives of Lone Pine


In more recent portfolio activity, we've detailed how Lone Pine nearly doubled its SolarWinds (SWI) stake and has been buying the dip in VanceInfo Technologies (VIT).

Mark Massey's Hedge Fund AltaRock on Domino's, Mohawk Industries, & Carter's

Today we present an update from Mark Massey's hedge fund AltaRock. Since his inception as portfolio manager, Massey has seen a compound annual growth rate of 11.9%. And through the end of July, AltaRock was up 17.6% net for the year. While that obviously doesn't include the August volatility, it's certainly impressive.

Last year we posted up AltaRock's investing principles and received a ton of positive reader feedback about the piece. Since their letter was theoretical and practical in nature, the one question readers kept asking was: what are they invested in and why? Clearly everyone wanted to see these principles in practice.

Well today we're happy to share AltaRock's mid-year 2011 letter which walks you through their rationale with very in-depth write-ups on the following new additions to their portfolio: Domino's Pizza (DPZ), Mohawk Industries (MHK), and Carter's (CRI).

Massey writes that, "we invest with the mindset of a long-term business owner, and we seek superior businesses with durable competitive advantages."

Embedded below is the update (email readers please click this link to come read it: AltaRock's 2011 letter):



Be sure to also check out AltaRock's investing principles as it truly is an excellent piece.

Bridgewater's Ray Dalio on His Principles & Investment Outlook

Bridgewater Associates' founder Ray Dalio was at the Bloomberg Markets 50 Summit recently and gave his thoughts on an array of topics. Bridgewater topped the list of the top 10 biggest hedge funds in 2010 and now manages an estimated $122 billion as the biggest hedge fund in the world.

Through the end of August, Bridgewater was up an astonishing 25.3%. How did they generate such outperformance? Dalio takes a diversified approach to investing, saying that "you're playing the role of the casino rather than the gambler in the casino, that's how you're going to make money I believe"

Bridgewater's August gains were at least somewhat attributed to their long positions in gold, Treasury bonds, and the Swiss franc.

It's clear that Bridgewater has been "long safety" and as the global macro hedge fund examines all asset classes around the globe on a daily basis.

Dalio is pessimistic overall, especially on the Eurozone. However, he does think the US is better positioned than Europe. Dalio also believes the Federal Reserve is the key to any equity rally: "if the markets are going to rally, and things are going to be good, it is going to be the Fed that will come in to save us." QE3 anyone?


Embedded below is Dalio's video interview (email readers click the link to come to the site to watch):



And if you can't listen to audio at work, here's the full transcript of the interview embedded below:




Dalio sparsely appears in the media, so those of you looking for more insight from the zen master himself, head to a rare interview with Dalio from earlier this year.

We'll end with one of our favorite all-time quotes from Ray Dalio: "Alpha is zero sum. In order to earn more than the market return, you have to take money from somebody else."

Omega Advisors' Leon Cooperman Likes Apple, Boston Scientific, KKR Financial, & Sallie Mae

At the Delivering Alpha conference, hedge fund founder Leon Cooperman of $6 billion Omega Advisors sat down with Maria Bartiromo to talk about the markets and what stocks he likes.

While Cooperman feels the market will be higher by the end of the year, he said that on a short-term tactical approach, he's found that hedge funds have low exposure. We've highlighted this as Dan Loeb's Third Point had reduced exposure for four consecutive months.

Cooperman thinks the fact that investors are underinvested could be a catalyst as money flows back into stocks and his focus is on a nine to twelve month timeframe. As to where the hedge fund manager is seeing value, he points to:

- Apple (AAPL): He says you can buy it at 10x next year's earnings.

- Boston Scientific (BSX): It generates over $1 per share in free cashflow annually (a 15% free cashflow yield) as the company looks to use that cash to buyback 10% of the company.

- KKR Financial (KFN): The stock yields over 9%, sells at a discount to book value, and the dividend is covered twice by earnings. He expects the yield to even go higher.

- Sallie Mae (SLM): Cooperman says that the $13 stock will earn $1.90 next year and he says the assets are worth $19-20.


In order to be bullish on equities (which he is), Cooperman says you have to invest under four assumptions:

1. The US is not like Japan and we will have a growing economy

2. The ECB will step up for European financial institutions

3. The President softens his anti-wealth, anti-business stance

4. Stability in the Middle East


Embedded below is the video of Leon Cooperman's interview from the Delivering Alpha conference:



We also detailed Leon Cooperman's appearance on the hedge fund best ideas panel at the conference as well. He will also be presenting his latest investment ideas at the Value Investing Congress.

Phil Falcone & Harbinger's 4G Wireless Network Bet: LightSquared

Philip Falcone's hedge fund Harbinger Capital Partners has invested $2.9 billion into private 4G wireless network: LightSquared. We've detailed Harbinger's 4G bet before, but Falcone yesterday was interviewed by Maria Bartiromo from the Delivering Alpha Conference.

His whole goal with this venture is to bring powerful wireless broadband to rural areas in an attempt to essentially blanket America with coverage. He says that the future is all about smartphones and tablets, and those devices need access to wireless networks.

Too Big of a Bet?

Critics have said that Harbinger has essentially morphed into a private equity fund or venture firm by allocating so much capital to one private investment. Falcone addresses this by saying that there's "a real asset here" as he first started looking at it five or six years ago.

He thinks the venture will change the wireless market. While he acknowledges that this single bet is quite large for one fund, he believes people would understand how valuable this is from both a capital and social perspective if they were around the everyday workings like he is.

GPS Interference?

Regarding the claims that LightSquared interferes with GPS, Falcone says that GPS is actually using their spectrum as they were given the right to build on that spectrum and the GPS manufacturers knew it. Falcone says that, "they're interfering with us, we're not interfering with them."

Embedded below is the video of Falcone's interview from the Delivering Alpha conference:



Falcone also presented his idea of going long Spectrum Brands (SPB) at the conference on the hedge fund best ideas panel which we also covered.

Bill Ackman's Presentation on the Hong Kong Dollar: Linked to Win

Yesterday we covered Pershing Square hedge fund manager Bill Ackman's latest investment: long the Hong Kong dollar. Today we present the slideshow presentation he gave at the Delivering Alpha conference entitled: Linked to Win.

In summary, Ackman thinks that the Hong Kong dollar (HKD) is headed for massive inflation and a real estate bubble. He argues the country can effectively mitigate this by allowing the Hong Kong Dollar to appreciate.

Ackman says there are four principal revaluation alternatives:

1. Allow the HKD to float
2. Repeg the HKD to a trade-weighted basket
3. Repeg the HKD to the RMB
4. Keep the USD peg, but revalue to an appropriate exchange rate

The Pershing Square manager feels that the Hong Kong government will repeg the HKD at a stronger exchange rate to the USD and believes a 30% revaluation to 6:1 is likely. As such, he says there are 3 ways to make money on the trade: buy HKD outright, buy HKD with USD leverage, and buy HKD call options.

Embedded below is Ackman's presentation on the Hong Kong dollar (email readers click the link to come read it):



To read more on Pershing Square, head to our posts on Ackman's recent portfolio activity as well as Pershing's hedging strategy.

For more hedge fund insight from the Delivering Alpha conference, check out the hedge fund best ideas panel featuring Kyle Bass, Dan Loeb, Leon Cooperman, and Phil Falcone.

Hedge Fund Best Ideas: Kyle Bass, Dan Loeb, Leon Cooperman, Phil Falcone

All today we've been covering the Delivering Alpha conference and we conclude with the Best Ideas & Alpha panel featuring Kyle Bass (Hayman Capital), Leon Cooperman (Omega Advisors), Philip Falcone (Harbinger Capital), Dan Loeb (Third Point), J. Tomilson Hill (Blackstone Alternative), and Anne Popkin (Symphony Asset Management). Each presented their best current idea:

Kyle Bass (Hayman Advisors)

Bass is well known for his subprime short and prediction of sovereign defaults. At the conference, he said that the sovereign debt crisis is unlike anything seen in history.

Bass believes Japan is in the worst position, saying "Japan spends almost half of their revenue on debt service. So, a minute move can put them literally into check-mate ... We see a structural anomaly creating the cheapest option in the world."

Simply put, Bass says to buy price put options on government bonds in Japan. He believes it's the best opportunity in the world. In the past, we've outlined how Bass was betting against Japanese Government Bonds (JGBs).


Leon Cooperman (Omega Advisors)

Earlier this summer, the legendary hedge fund manager presented at the Leaders in Investing Summit where he was concerned about employment and thought that bonds were screaming to be shorted. At today's conference, Cooperman says that the economic and financial crisis from 2008 would not repeat in 2011 or 2012.

The manager continues to avoid government bonds and again says that stocks are the "best house in the asset management neighborhood." He likes stocks assuming that Obama softens his 'anti-wealth' stance and that the Middle East remains stable. He mentioned liking Apple (AAPL), Sallie Mae (SLM), and Boston Scientific (BSX). To see what other stocks Cooperman is invested in, head to our Hedge Fund Wisdom newsletter.

Cooperman will also be presenting his latest investment ideas at the Value Investing Congress next month.


Philip Falcone (Harbinger Capital)

Falcone has seen somewhat of a transformation lately as his hedge fund looks more like a private equity fund with his large private investment in a 4G wireless network: LightSquared. At the conference, he pitched Spectrum Brands (SPB), noting the company's solid balance sheet and high free cashflow (11-12% free cashflow yield).

The company sells batteries, personal care products, home and garden items, and more. Falcone points to their strong management team and collection of strong global brands. The company is currently focused on debt paydown and reducing leverage from 3.5x to 3x.

Harbinger owns 28 million shares via his publicly-traded Harbinger Capital. We detailed Falcone's original acquisition of SPB shares back in August 2009 as well as his subsequent purchase in April of 2010. While SPB isn't a "high octane" stock, he likes it.


Dan Loeb (Third Point)

We've covered Loeb's recent activist investment in Yahoo! (YHOO) and that's exactly what he talked about at the conference. Just today he sent another letter to Yahoo as his first conversation didn't seem to go too well. Ahh, the trials and tribulations of activist investing.

He feels YHOO has an intrinsic value of around $20 per share and you can see Loeb's investment thesis in his original letter to Yahoo. But in summary, he feels that the company has great assets but has been horribly mismanaged. Calling the board of directors "clowns," Loeb points out that the company hasn't changed since 2004, has kept a "crappy interface" and the "same stupid logo."

In particular, it seems that Loeb really likes their ownership stake in Alibaba Group. Interestingly enough, Loeb says that the company does not need to break up. He says they've hedged the position against the S&P 500 and they've also hedged exposure to Yahoo Japan.

We've also detailed how Third Point has reduced equity exposure for four consecutive months.


J. Tomilson Hill (Blackstone Alternative Asset Mgmt)

This manager believes that non-performing loans and mortgage-backed securities are the best play on a risk-adjusted basis. He also says that, "you have the ability to buy mortgage servicing rights at prices we've not seen before."


Anne Popkin (Symphony Asset Management)

She argued that levered credit is cheap and is focused on loans and high yield bonds. The manager cautioned not to put all your eggs into this one basket and not to buy an entire position right away. Popkin says, "risk management is absolutely crucial here, because volatility is very high." So it sounds as if she's used the volatility in the sector to slowly assemble a position.


Embedded below is video of the entire Best Ideas & Alpha hedge fund panel:




For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Paul Touradji & Jeff Scott on commodities

- Jim Chanos: long corruption, short property in China

Paul Touradji & Jeff Scott on Commodities: Delivering Alpha Conference

Continuing coverage from the Delivering Alpha conference today, we turn next to the commodities panel with Paul Touradji, founder of hedge fund Touradji Capital and Jeff Scott, CIO at Worts & Associates (both pictured left, image courtesy of CNBC).


Commodities Fueled by Emerging Markets

Paul Touradji was the 'commodities guru' at Julian Robertson's Tiger Management back in the day. Since then, he went on to found his own hedge fund, Touradji Capital. He kicked off the panel by saying that "the story of commodities going forward is in the emerging markets."

Jeff Scott added that, "in emerging markets, they're lowering interest rates because they're worried about growth. So weak growth now in emerging markets so in theory commodities prices should fall."

We've highlighted in the past how hedge fund Kleinheinz Capital thinks inflation is the biggest threat to emerging markets.


On Gold

It seems like a ton of hedge funds and investors in general own gold these days. Dan Loeb's Third Point has gold as its largest position. David Einhorn's Greenlight Capital has long owned physical gold. John Paulson even has a separate gold fund.

Jeff Scott pointed out the prevailing sentiment toward the precious metal. He presented the audience with a true story about a taxi cab driver in Alaska that was asking him about gold. He said this means that everyone is piling into gold and it makes him nervous. After all, when the mania around any particular investment trickles down to the random 'John Doe' on the street, many see that as one of the age-old contrarian indicators.

While Touradji is seemingly a long-term gold bull, he did agree by saying, "I'm heartened to hear Larry Fink's take on gold equities, $2,500 and a lot higher a year from now. But to put a price on it when it's in a phase like this, it's useless. I agree with (George) Soros that it will soon be in a bubble."

They polled the audience asking whether gold was going higher or lower: 34% thought it was going lower while 33% said higher.


Inflation Versus Deflation

Commodities are always affected whether there is an inflationary environment or a deflationary one. Jeff Scott said that, "at this point in time, you need to be thinking about deflationary and inflationary aspects in terms of angling your portfolio for the long-term." In the past we've posted up the best investments during inflation and the best investments during deflation.

Paul Touradji went on to add that "Ten year TIPS are at zero. The market's worried about recession. But there also aren't rational people, they're acting out of fear and a flight to safety."



For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Jim Chanos: long corruption, short property in China

China: Bubble or Bonanza? Xerion Fund's Dan Arbess Versus Kynikos' Jim Chanos

Continuing our coverage of the Delivering Alpha conference today, we turn to the panel on China: Bubble or Bonanza? In the bull corner sits Perella Weinberg Partners' Dan Arbess, who runs the highly successful Xerion Fund. Opposite him in the bear corner is renowned short-seller, Kynikos Associates' Jim Chanos.

While the respective fund managers disagree on whether to be bullish or bearish on China, they do agree that there are 3 key issues in Chinese investing:

1. Real estate
2. Financial system
3. Dependency on fixed assets

Dan Arbess has long said to play the 'shake hands with China' trade by buying multinationals that are seeing high revenue growth from China. This is something we've touched on in a past Xerion Fund letter and you can also read up on Xerion's 2011 investment strategy.

Arbess says that, "to short China in general is to short the march of history. The single most important development of our lives is the devolution of communism and the entry into the global consumer economy of the 3.5 billion people." He clearly feels there's a monumental shift taking place in the global economy.

Chanos, on the other hand, says that GDP in China has declined over the last few years and net exports have fallen too. He feels that the country is structurally imbalanced.

In the past, Jim Chanos has fixated on China's 'ghost towns' as reasons to short China property. Chanos today said that, "these buildings may not be standing in five or 10 years. You're talking about an economic system where profits are not maximized for the largest economic actors. You're talking about a history of horrible lending. You're talking about a system in which the export-driven model hasn't been changed by Western demand."

Arbess counters that Chinese ghost cities are a red herring. He argues that everyday people are moving to the cities and plugging the supply of developments. While he admits that there is speculation in the property market, policy makers are dealing with it by clamping down credit and curtailing the ownership of multiple homes.

The Xerion Fund manager went on to say that, "I think there are misallocations of capital. But those misallocations of capital can be managed by various levers of policy that Chinese policy makers have to keep the urbanization, industrialization of their economy on track."

Earlier today, we highlighted how Chanos is long corruption and short property in China. He likes being long the Macau casinos but short property developers and short some banks (he noted he is not short US banks).

On Ackman's Long Hong Kong Dollar Trade

Both men came on after the speech from Pershing Square's Bill Ackman where he unveiled his new long Hong Kong dollar trade. Given the China bull/bear debate that Arbess and Chanos had, it was also interesting to get their takes on Ackman's latest investment.

Arbess said Ackman's play was plausible while Chanos said he would prefer to be long the Singapore dollar if he was choosing an Asian currency. Earlier we detailed how Tiger Management's Julian Robertson likes the Singapore dollar as well.

Bill Ackman's Latest Investment: Long the Hong Kong Dollar

At the Delivering Alpha conference today, the keynote speech was given by hedge fund manager Bill Ackman of Pershing Square Capital Management. He revealed his latest investment idea: long the Hong Kong Dollar (HKD).

He thinks the trade has the potential to return 100x and has purchased the currency as well as options on the currency. (Pictured left speaking at the conference, image courtesy CNBC)


Currency Re-peg

Ackman's presentation began with a history of Hong Kong's currency. He said that very low interest rates in Hong Kong were driven by US monetary policy, which in turn will cause a Hong Kong housing bubble and high inflation. Ackman seems to believe that Hong Kong will end its US dollar peg by 2015. He says that US rates at zero provides a signal Hong Kong to re-peg.

In terms of position sizing, Ackman says the trade is one of the smaller ones he's put on, but it has the potential to be the most profitable. He feels inflation will force the country to see its currency inflate by 30%. He argues that in 3-6 years, HKD could easily be convertible into the yuan.

The Pershing Square manager also noted that if China implodes/has a hard landing, that's obviously bad for the trade. However, he feels that there's minimal downside mainly due to the fact that the HKD has been pegged to the US dollar since 1983.

Ackman says there's 3 ways to play the trade: buy Hong Kong dollars outright, buy with leverage because the carry cost is low, or buy options on the currency.


Bought in August

Ackman was buying in August and we detailed his investor letter where he bought $600 million worth of investments in various equities and apparently currencies as well. In late August, he revealed that he had bought shares of Family Dollar (FDO), Kraft (KFT), Fortune Brands (FO), and Citigroup (C).

However, he also mentioned that Pershing had bought two new investments that he declined to name. Well, now we know one of them was the Hong Kong Dollar.

In his recent letter to investors, Ackman compared one of the at-the-time-unnamed investments to that of his past play in General Growth Properties (GGP) where there was a chance of exponential return. This Hong Kong Dollar play seems to be the one he was referring to.


Ackman a Macro Trader?

The most intriguing thing here is the notion that Ackman has stepped into the global macro ring of investments. Typically, he has focused on equity and real estate-centric investments in the past. We'll have to see how his first major foray into macro bets plays out.

You could join Ackman on this macro trade as Bergen Capital tweeted that you can mimic this trade by buying "$100mm notional exposure of 1Y HKD calls at 7.50 strike (~4% OTM) for roughly $700k." Though while that's a 1 year trade, Ackman thought the peg wouldn't end until 2015.

This leaves one more unnamed investment from Pershing Square. Perhaps Ackman will reveal it at the upcoming Value Investing Congress?


Embedded below is the video of Ackman's talk from the conference:



We've also posted Ackman's slideshow presentation on the Hong Kong Dollar.



For more from this prominent hedge fund manager:

- Pershing Square bought $600 million worth of investments during August volatility

- Why Bill Ackman bought more Citigroup

- Pershing's hedging strategy

Jim Chanos: "Long Corruption and Short Property in China"

Hedge fund manager and renowned short seller Jim Chanos of Kynikos Associates was interviewed on CNBC today from the Delivering Alpha conference. Chanos is known for his short of Enron before it collapsed.

Recent Portfolio Activity

Chanos says that "we're long corruption and short property in China." As such, he's long the Macau casinos. He didn't name names but obviously Wynn (WYNN) has a large presence there via Wynn Macau (1128.HK), as does MGM (MGM) and SJM Holdings (0880.HK), controlled by the family of Stanley Ho.

Conversely, we originally detailed how he was also shorting the property developers in the country.

In the past month, Chanos has pressed his shorts in the renewables sector (green energy) and in particular, solar. We covered Chanos' presentation at the Ira Sohn Conference where he said he was short First Solar (FSLR) as well as wind power play Vestas (CPH: VWS).

Chanos also noted that his fund is not short US banks.

Email readers come to the site to watch Chanos' interview embedded below:



Chanos will be presenting his newest investment ideas at the Value Investing Congress in New York on October 17th & 18th and Market Folly readers can register here.

Julian Robertson Bullish on Apple, Google, Mastercard & Visa

Legendary hedge fund manager Julian Robertson of Tiger Management recently sat down with CNBC's Maria Bartiromo to give his latest thoughts on the market. Tiger saw nearly 32% annual returns between 1980 and 1998.

Equities

He likes the tech sector and thinks the technology boom is far from over and he thinks these stocks can rally further. In particular, he likes Apple (AAPL), even without Steve Jobs, noting that the company would be trading "at 3 or 4 times" what it is now if this were 1980. He calls the multiple it's trading at now "ridiculous." Also, he likes Google (GOOG).

Robertson is also fond of the payment processors such as Visa (V) and Mastercard (MA). He likes these names as they don't bear credit risk (the banks do). We've long detailed Robertson's bullishness on these names in our Hedge Fund Wisdom newsletter as he's owned all the above stocks for some time now.

Currencies

In currencies, Robertson says he's finding opportunities in Europe by going long the Norwegian Krone. Around the rest of the world, he also fancies the Singapore dollar and Canadian dollar. Conversely, he likes shorting the Hungarian forint.

Interest Rates

Robertson also goes on to highlight that while interest rates continue to slide down, it wouldn't be hard for them to skyrocket higher. He points out that if a large seller were to sell US bonds quickly, rates could fly higher. A few years ago, we detailed Robertson's constant maturity swap (CMS) trade as he got hammered with his "short bonds" bet.

Lastly, Robertson expects Greece to default.

Julian's interview is embedded below (email readers come to the site to watch Robertson's interview):



To see the rest of Tiger's equity investments, head to our newsletter. For more on this legendary manager, head to our profile on Julian Robertson.

Dan Loeb Gets Hung Up On, Sends Another Letter to Yahoo! (YHOO)

We recently detailed that Dan Loeb's hedge fund Third Point went activist on Yahoo! (YHOO). In their activist 13D filing with the SEC, Loeb also attached a scathing letter to Yahoo, something he has become known for.

But, it didn't stop there. In an amended 13D filed with the SEC today, Loeb attaches a new letter (copied below) where it's apparent that he wasn't too pleased that he was hung up on:

“Dear Mr. Yang:

Thank you for taking the time to speak with us by telephone on Monday. We are only sorry that we were not able to finish our conversation as a result of Mr. Bostock’s abrupt unilateral termination of the call.

Mr. Bostock’s failure on the call to acknowledge his pivotal role in, and accept responsibility for, the decline of Yahoo! makes clear that he does not intend to voluntarily follow his recently terminated hand-picked executive, Ms. Bartz, out the door. It is our strongly held belief that not only has Mr. Bostock been a destroyer of value, but also so long as he serves as Chairman of the Board, the Company will not be able to attract the talent it needs and deserves, particularly at the CEO level. This opinion is based not only on our prematurely truncated conversation, but on numerous discussions with Silicon Valley cognoscenti and other people familiar with both Mr. Bostock and the Company.

As a Founder and major shareholder of the Company, the abysmal record of the current leadership must be heart-rending to you personally, as well as damaging to your net worth. We urge you to do the right thing for all Yahoo shareholders and push for desperately-needed leadership change. We are prepared to support you and present you with suggestions on candidates who could help bring Yahoo back to its rightful place among the world’s top digital media and technology companies.

Sincerely,

Daniel S. Loeb”

Be sure to check out Loeb's original letter to Yahoo which outlines his investment thesis on the company. Also, head to Third Point's latest exposure levels.

Jeffrey Altman's Owl Creek Starts Forest Oil (FST) Stake

Jeffrey Altman's hedge fund firm Owl Creek Asset Management recently filed a 13G with the SEC disclosing a position in Forest Oil (FST). Per trading activity on September 6th, Owl Creek has revealed a 5.04% ownership stake in FST with 5,760,829 shares.

This is a brand new position for the hedge fund as they did not own a stake at the end of the second quarter. Forest Oil recently announced a special dividend to investors of 70 million shares of Lone Pine Resources (LPR) that are owned by Forest.

The distribution will be made on September 30th for shareholders on record as of September 16th. For every one share of FST owned, shareholders will receive 0.612 of a share of Lone Pine common stock.

Per Google Finance, Forest Oil is "an independent oil and gas company engaged in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids in North America."

Back in 2010 we also detailed Altman's appearance on a hedge fund panel where he talked about how his firm had tail hedges via S&P puts and CDS because they were worried that the government wouldn't be able to do much in the event of another economic problem since rates were already at 0%. Though the recent volatility hasn't been as drastic as 2008, that was still prescient hedging.

Hedge Fund Valinor Management Buys More Accuride (ACW)

David Gallo's hedge fund Valinor Management recently filed a 13G with the SEC regarding shares of Accuride (ACW). Due to portfolio activity on August 25th, Valinor has disclosed a 5.6% ownership stake in Accuride with 2,647,414 shares.

This marks a 46% increase in their position size since the end of the second quarter, as they've purchased 836,130 additional shares. Gallo's hedge fund has been active lately as they also added to their Popular (BPOP) position.

Per Google Finance, Accuride is "engaged in manufacturers and suppliers of commercial vehicle components in North America. The Company’s products include commercial vehicle wheels, wheel-end components and assemblies, truck body and chassis parts, and other commercial vehicle components."

Valinor is invested in another economically sensitive name involved in the commercial vehicle sector as they also own Swift Transportation (SWFT).

Howard Marks & Oaktree Capital's Latest Commentary: What's Behind the Downturn?

Oaktree Capital's Chairman Howard Marks is out with his latest commentary. His letters are read regularly by the likes of legendary investors Warren Buffett and Seth Klarman. Marks also has a new book out entitled, The Most Important Thing.

Marks' prior letter addressed the debt ceiling and his latest missive tackles the question of what's caused the recent downturn in markets. He argues that all the signs for the downturn existed well before the actual decline took place.

When it comes to "double dips" in the economy, Marks doesn't know how people reach firm conclusions on such a scenario. Instead, he offers Oaktree's approach:

"For our purposes, it suffices that we have operated since the financial crisis under the assumption that the recovery would be sluggish, rather than V-shaped. We still feel that way. And that feeling is inconsistent with moving out on the risk curve or down in credit quality, investing more in cyclicals or taking on leverage."

Embedded below is Howard Marks' & Oaktree Capital's latest commentary: What's Behind the Downturn? (email readers come to the site to view it)



For more investing insight from this successful hedge fund manager, check out Marks' book.

For other recent hedge fund letters, head to our post on how Bill Ackman bought $600 million worth of investments recently as well as Perry Capital's thoughts on European markets.

Dan Loeb's Third Point Goes Activist on Yahoo! (YHOO)

Dan Loeb's hedge fund firm Third Point LLC has just filed a 13D with the SEC signaling their activist investment in Yahoo! (YHOO). This is a brand new position for the hedge fund.


Specifics of Third Point's Stake

Third Point started buying on August 8th and were buying as recently as September 7th. They now own 5.15% of the company with 65,000,000 shares. 45,000,000 of those shares are common stock where they have a cost basis of $12.7x.

He's already up on his position, as shares currently trade around $14. Last week we noted how Third Point is outperforming, but had reduced exposure for four consecutive months.

The other 20,000,000 shares Third Point owns are represented by call options. The majority of Loeb's call options are at the $12.50 strike price. He also bought $13 and $14 calls, though no expiration month was specified.


Loeb's Activist Plan

Earlier we posted up Loeb's letter to Yahoo! which we recommend you read in full, as his letters are always classic. But in summary, Loeb desires a "reconstituted board with new directors who will bring fresh eyes, relevant industry experience and increased investor alignment to the table."

Yahoo fired its CEO Carol Bartz two days ago, so a management shake-up is inevitable. Ironfire Capital's Eric Jackson suggests taking things a step further by breaking up the company into 3 segments. As to who could replace Bartz, he offers up Peter Chernin (former President of News Corp).

Jackson thinks YHOO is worth up to $31. Loeb thinks shares of YHOO have an intrinsic value "in excess of $20 per share."


Investment Thesis

The main thesis investors have bought shares of Yahoo! under is sum-of-the-parts based. Basically, YHOO has an ownership stake in a ton of unique Asian assets. Loeb thinks Yahoo's 40% stake in Alibaba Group and their stake in Yahoo Japan are key. He writes,

"Our analysis suggests that at a share price of $13.61, with $2.49 per share in tax adjusted net cash, $3.10 per share and $5.24 per share of after-tax values for the Yahoo! Japan and Alibaba Group stakes respectively, core Yahoo is left at an implied value of $2.78 per share or 2.2x 2012 EBITDA. With more effective and focused management, one could realistically envision a re-rating to at least 7.0x 2012 EBITDA, driving a target of over $19.00 per share."

Investors feel these assets are not being valued appropriately and that they've been mismanaged. We've detailed the full investment thesis on YHOO in a past issue of our Hedge Fund Wisdom newsletter.


Yahoo an Event Driven Investor Graveyard?

Earlier in the year, David Einhorn's Greenlight Capital bought YHOO, only to abandon it weeks later out of frustration with developments surrounding the company's stake in Alipay. Corporate raider Carl Icahn had also owned YHOO in the past, only to exit his position.

Curtis Macnguyen's Ivory Capital, on the other hand, continues to hold a large YHOO position. And at the end of the second quarter, other large YHOO shareholders included hedge funds Perry Capital and Maverick Capital.

Numerous other investors have put capital to work in YHOO, only to see shares slide or trade sideways. While Einhorn exited with a small loss on his position, Loeb currently has a small gain. It will be interesting to see if other hedgies follow Loeb's new activist charge.

To see what else Loeb has been up to, head to Third Point's investor letter.

Dan Loeb's Letter to Yahoo! (YHOO)

Today Dan Loeb's hedge fund Third Point went activist on Yahoo! (YHOO). The hedge fund manager is well known for his eloquently penned letters that often attack his targets with brutal honesty.

Below is Dan Loeb's letter to Yahoo! (YHOO):

"September 8, 2011

Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Mr. Roy Bostock, Chairman

Dear Ladies and Gentlemen:

Third Point LLC (“Third Point”) is a registered investment adviser with approximately $8 billion under management. We are writing to inform you that certain investment funds we manage have acquired a 5.1% interest in Yahoo! Inc. (the “Company” or “Yahoo”), bringing our holdings of common stock and currently-exercisable equity options to 65,000,000 of the outstanding shares, and positioning us as the Company’s third largest outside shareholder.

This letter details our principled demands for sweeping changes in both the Board of Directors (the “Board”) and Company leadership, and outlines the hidden value of Yahoo, which has been severely damaged – but not irreparably – by poor management and governance.

The Failures of Yahoo’s Board of Directors Necessitate a Significant Infusion of Fresh Board Talent

Yahoo’s current Board of Directors has made a number of decisions that have directly harmed the Company and resulted in a stock price far below the Company’s intrinsic value. While we are focused on the future for Yahoo under new management, it is instructive to understand how this Board’s many mistakes have created the current conditions at an asset and talent rich company. Among others:

1) It is now widely accepted that the Board made a serious misjudgment in approving the hiring of Carol Bartz as Yahoo’s Chief Executive Officer, given her inexperience in the consumer-oriented internet space. Although we are pleased that the Board has terminated Ms. Bartz’s employment, we fail to understand why this decision was so long in coming given her abysmal performance over the last two and a half years. During this period, Ms. Bartz’s poor decision-making and communication skills publicly alienated the Company’s highly respected Asian partners, as well as its shareholders, sell-side analysts, bloggers, customers and employees.

While the decision to hire her alone is grounds for questioning the Board’s competence, its willingness to turn a blind eye to these serious problems and inexplicably remain supportive of Ms. Bartz notwithstanding the negative impact she was having on the Company is even more troubling. As recently as June 23, 2011, at the Company’s annual meeting, Chairman Bostock reportedly stated that the Board remained “very supportive of Carol and this management team” and that they were “confident that Yahoo [was] headed in the right direction." These comments demonstrate that this Board lacks the courage to urgently make the difficult decisions required by the situation today.

2) It is also now widely recognized that the Board made a gross error in turning down the $31 per share Microsoft bid in 2008, which would have generated significant returns for Yahoo’s shareholders. This mistake is all the more frustrating given Yahoo’s current depressed stock price of $13.61 per share — far below the Company’s intrinsic value, which we currently place in excess of $20 per share, as detailed below.

From the failed Microsoft sale negotiations, to a subsequent bungled and disappointing search deal with Microsoft, through a series of misguided CEO selections, and most recently the Alipay debacle, this Board’s failures have destroyed value for all Yahoo stakeholders. Ms. Bartz’s exit and Mr. Morse’s elevation to interim CEO makes him Yahoo’s fourth CEO in four years and further demonstrates the poor corporate governance Yahoo investors have been saddled with for too long. Even before Ms. Bartz’s hire, Yahoo’s shares materially underperformed the market and their peer group, as graphically evidenced in the Company’s most recent 10-K. Against this background, it is evident that merely replacing the Company’s CEO – yet again – will not be enough to alter the direction of the Company. Instead, a reconstituted Board with new Directors who will bring fresh eyes, relevant industry expertise and increased investor alignment to the table is immediately necessary.

Yahoo’s website states the Company’s values, among them: “We foster collaboration while maintaining individual accountability.” It is time that certain members of this Board were held accountable for its past failures and their individual roles. Accordingly, we insist that Mr. Bostock, who championed Ms. Bartz’s hiring and led the charge against the Microsoft deal, promptly resign from the Board. We also demand that fellow Directors Arthur Kern and Vyomesh Joshi, who have stood by silently during these last five years of woeful performance, join Mr. Bostock in resignation. Finally, we can only assume that Director Susan James, the President of Tri-Valley Animal Rescue, will also resign, given her close relationship with Ms. Bartz. If she does not do so voluntarily, the Board should request her resignation as well.

As the Company sets out to recruit a new CEO and evaluate strategic alternatives, we are adamant that reconstituting the Board is crucial to provide any serious CEO candidate or strategic counterparty with a stable and responsive governance structure. There is much work to be done and time is of the essence. Even after the Company announced Ms. Bartz’s dismissal and the pursuit of strategic alternatives, Yahoo shares rose only 5%. We believe the muted market reaction to Ms. Bartz’s dismissal represents a recognition that this management change is a necessary, but not sufficient, step towards unlocking Yahoo’s actual value. Investors’ reluctance to embrace the stock and their lack of confidence in this Board’s ability to lead the franchise is understandable given the current Board’s track record.

Third Point has held discussions with many highly respected entrepreneurial executives active in technology, internet, media and consumer-related businesses. From these discussions we have distilled an All-Star team of potential Director candidates, who would be indispensable in working with the reconstituted Board to pursue the three paths outlined in the recent company announcement: CEO search, business review and strategic options. We look forward to sharing our candidates with you shortly.

The Obscured Value in an Iconic American Technology Asset

We firmly believe that there is much to be gained from a successful and rapid transition in management, as we are convinced that Yahoo is grossly undervalued. We have followed Yahoo for many years, and our analysis suggests that at a share price of $13.61, with $2.49 per share in tax adjusted net cash, $3.10 per share and $5.24 per share of after-tax values for the Yahoo! Japan and Alibaba Group stakes respectively, core Yahoo is left at an implied value of $2.78 per share or 2.2x 2012 EBITDA. With more effective and focused management, one could realistically envision a re-rating to at least 7.0x 2012 EBITDA, driving a target of over $19.00 per share. When coupled with tax efficient outcomes for its Asian assets, an additional $3.00-4.00 per share stands to be realized. Continued share count reduction via buybacks and other potential capital structure optimization alternatives would further bolster the Company’s stock price. In addition, based on our discussions with industry experts and entrepreneurs, we believe that with new management, there is significant further value in leveraging Yahoo’s globally trusted franchise and platform for a range of new products and innovations.

Focusing specifically on the Alibaba Group, the mid-term value potential for this stake alone could represent another $5.00 per share of upside. The e-commerce interests housed under the Alibaba Group umbrella hold the dominant positions in the “B2B” (63% of 2010 market share according to Marbridge Consulting), “C2C” (85% share) and “B2C” (51% share) Chinese e-commerce markets. Alibaba Group’s Taobao business is essentially Ebay and Amazon on steroids in terms of market share and revenue growth. According to Goldman Sachs, the Chinese e-commerce market was $75 billion in 2010, with a 3 year forward compound annual growth rate of 43% compared to the $193 billion U.S. market with compound annual growth of 14% over the same period. We currently estimate a pre-tax value for Alibaba Group of $25 billion. Given Alibaba Group’s growth potential and market share, it is entirely conceivable that Yahoo’s 40% fully diluted stake in Alibaba Group could double in value over the next 2-3 years, highlighting its tremendous value.

Looking deeper into core Yahoo, it is clear that the Company possesses unique scale and scope as the Internet’s premier digital media company. The near completion of significant platform transitions and increasing ad format creativity and client engagement translate to exciting prospects for 2012. These compelling Yahoo initiatives were sadly lost in the chaos surrounding Ms. Bartz’s tenure as CEO. Hidden by Yahoo’s senior management drama is a franchise benefitting daily from tremendous investment in resources and new platforms successfully built by Yahoo’s corps of talented, committed engineers, product development team and salespeople.

Finally, the Company’s leadership needs to rebuild relationships with its valued Asian partners in Yahoo Japan, Softbank and the Alibaba Group. These are important sources of value for Yahoo, and the Company needs to enter a new, constructive era with these critical allies and friends of the Company.

In conclusion, we are eager to present to the Board our candidates and thoughts on the Company’s future. We hope that the Board will take our proposals seriously and move towards the leadership overhaul that we are championing. While the decision to undertake Board turnover initially rests with individual directors, ultimately, shareholders like Third Point have other means to effect changes necessary to protect their investment. We are prepared to propose a slate of directors at the Company’s annual meeting next year should it become necessary. Such proxy disputes are burdensome, and we sincerely hope that one will not be necessary here. Shareholders have already suffered enough.

It is time for new leadership at Yahoo. Yahoo’s investors, employees, clients and users deserve it. We look forward to having what is great about Yahoo make headlines, encouraged and communicated by new CEO and Board leaders.

Sincerely,

/s/ Daniel S. Loeb

Daniel S. Loeb
Chief Executive Officer
Third Point LLC

CC: Ms. Patti Hart
Ms. Sue James
Mr. Vyomesh Joshi
Mr. David Kenny
Mr. Arthur Kern
Mr. Brad Smith
Mr. Gary Wilson
Mr. Jerry Yang
"

Be sure to read more about Third Point's activist bet on YHOO.

Find Out What Hedge Funds Are Buying in This Volatile Market

Warren Buffett is famous for saying, "look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." In fact, this quote is where MarketFolly.com got its name.

It's no secret that market volatility creates opportunity. So here's your chance to find out what top hedge funds have been buying (or shorting) during the recent market turmoil. Market Folly readers receive the early bird discount that expires in 7 days, so register for the Value Investing Congress.

Top managers will share their latest investments October 17th & 18th in New York City. A bunch of additional speakers were just announced, so here's the full list:

- Bill Ackman, Pershing Square
- Leon Cooperman, Omega Advisors
- Jim Chanos, Kynikos Associates
- Adam Weiss & James Crichton, Scout Capital
- Joel Greenblatt, Gotham Capital
- Alexander Roepers, Atlantic Investment Management
- Guy Gottfried, Rational Investment Group
- Bernard Horn, Polaris Capital Management
- Timothy E. Hartch, Brown Brothers Harriman
- Whitney Tilson & Glenn Tongue, T2 Partners

This is your last chance to save $1,500 off the regular price before the early bird rate expires. Click here for the discount.