SumZero had the privilege of sponsoring and attending this year’s Harbor Investment Conference. Buyside funds from around the world gathered in midtown to hear some of the best minds in investing educate, pitch, and debate.
The Cancer is Back: Whitney Tilson’s Renewed short on Lumber Liquidators.
After a 90% return shorting Lumber Liquidators (LL:US) at last year’s Harbor Conference, Whitney Tilson of Kase Capital renewed his short position. The flooring retailer has been under fire when it was discovered that some of their products contained high levels cancer causing formaldehyde. Tilson’s new short highlighted errors in the original CDC study on the levels of formaldehyde, which due to an improper unit conversion from feet to meters, grossly under-represented concentrations of the chemical in LL’s flooring products. He now views LL as a probably bankruptcy case.
Ben Axler Shorts Planet Fitness
Long-time SumZero member and shorting expert Ben Axler presented a short pitch on Planet Fitness. Citing aggressive accounting and guidance, a sub-par product, intense competition, and lack of further expansion opportunities, Axler things Planet Fitness is likely to miss earnings soon and disappoint expectations.
Panel: Jasjit Rekhi, Adam Brenner, Thomas Einhorn vs Bill Ackman
Three rising hedge funds presented their best ideas to Bill Ackman: Short Western Union (WU:US), Long Fidelity National Information Services (FIS:US), and most interestingly a pair trade of Venezuelan Sovereign debt. According to Einhorn, certain classes of Venezuelan debt lack a key “collective action” clause which will make them more valuable in the event of a collective action event. A similar opportunity existed in the past for Greek sovereign debt, and Einhorn suggested going long the debt lacking the clause and short the debt with the clause.
“The Big Lie”: Bruce Berkowitz on Fannie and Freddie
In final event of the day, Bill Ackman and Bruce Berkowitz sat down together on stage to discuss their litigation against the US Government for violating the rarely-quoted Third Amendment of Fannie Mae and Freddie Mac. According to Berkowitz, Fannie and Freddie were commandeered by the US Government during the financial crisis unnecessarily, and now the companies are kept in government conservatorship for the purpose of diverting tens of billions in profit to offset government budget deficits. To quote Berkowitz: "This all picks up from 'The Big Short.' And now we're into what some people are going to call 'The Big Lie' as to what's going on."
Ackman on Valeant
To a question from the audience, Bill Ackman reaffirmed his long position on Valeant Pharmaceuticals. Though he admitted Valeant is “probably the most contrarian” investment around for a myriad of reasons including SEC investigations, high leverage, and patent and regulatory risk, he continues to be bullish the drug maker due to the consistent prescriptions and sales of its products. In his view “either Valeant will resolve its problems...or it will be acquired”, at a premium to shareholders regardless.