Posts Tagged ‘Greenlight’
Frontrunning: May 16
Thursday, 16 May 2013 06:45
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  • As scandals mount, White House springs into damage control (Reuters)
  • Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
  • JPMorgan Chase asks Bloomberg for data records (Telegraph)
  • Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
  • Syrian Internet service comes back online (PCWorld)

    • (Read more…)

  • Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
  • Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
  • Factory Ceiling Collapses in Cambodia (WSJ)
  • Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
  • Snags await favourite for Federal Reserve job (FT)
  • James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)

 

Overnight Media Digest

WSJ

* A heated takeover battle has erupted around generic drug company Actavis Inc as industry players seek to shore themselves up amid increasing competition and fewer new knock-off-drug opportunities.

* U.S. officials dealt a blow to the fledgling digital currency called Bitcoin, freezing an account tied to the largest Bitcoin exchange just months after regulators warned such entities should follow traditional anti-money laundering rules.

* One of Goldman Sachs Group Inc’s top energy bankers, Stephen Daniel, has retired, leaving the firm a year after his personal stock holdings in a pipeline company proved a point of controversy in a takeover deal.

* Mexican home builders and their creditors have been hiring U.S. bankruptcy lawyers and other advisers, as the companies struggle with mounting debt obligations.

Two of the country’s leading builders, Urbi Desarrollos Urbanos SAB and Corporación Geo SAB, missed debt payments in April and have reported dismal earnings. Urbi is considering a bankruptcy filing in Mexico as one option, some people familiar with the matter said.

* The rise in prices for agricultural land slowed somewhat to start the year in parts of the U.S. farm belt, new reports showed, signaling a boom in land values might be moderating as commodity prices cool and incomes for farmers are expected to weaken.

* An industry group wants to add criteria to a form of debt-default insurance that would lead to payouts for bondholders when banks are rescued.

The International Swaps and Derivatives Association is circulating a proposal that would add another item to that list of “credit events” that lead to payouts for swaps holders. The group is circulating its proposal this week to various members of its Credit Derivatives Market Practice Committee.

* Groupon Inc is not likely to name a permanent new chief executive until next year, the daily deal company’s interim chiefs said.

The company, which stumbled badly after going public in 2011, has been looking for someone to fill the top job since it ousted Andrew Mason in February following a string of missteps and disappointing results.

* Texas is pickup truck country and the front line in an expanding battle among auto makers to load up on profits from pickups, one of the richest businesses up for grabs as the global auto business roars back to life.

After years of waiting on the sidelines, pickup buyers are returning to dealer showrooms, offering millions of dollars in profit and potentially lifelong brand loyalty to Ford Motor Co , General Motors Co or Chrysler Group LLC and rivals.

* Comcast Corp’s NBCUniversal unit is projecting advertising sales of more than $800 million for the Olympic Games next year in Russia, which would be a record for the Winter Games, despite the decision of two longtime sponsors to pass on the event

 

FT

Google Inc has launched a subscription-based streaming music service on Wednesday ahead of rival Apple Inc , which pioneered online music purchases with iTunes but is yet to adopt the fast-growing newer business model.

In the last set of quarterly forecasts before Governor Mervyn King retires, the Bank of England predicted that Britain’s economic growth would be faster and inflation lower than it expected three months earlier.

RP Martin, the British interdealer broker that became involved in the Libor fixing investigation when two of its employees were arrested in December, suspended David Caplin, its chief executive, and Alan Farnan, an executive director, on Wednesday.

Lawyers for JPMorgan Chase & Co, one of the biggest customers of Bloomberg LP, have demanded details of which Bloomberg employees accessed data on the use of the bank’s financial terminals.

HSBC Holdings Plc said it would cut between 4,000 and 14,000 jobs as it intensified its cost-cutting efforts and became the first big bank in Europe to hint at a likely share buyback.

Britain’s Prime Minister David Cameron on Wednesday said he wanted Royal Bank of Scotland Group back in a state of “good health” and ready for sale “as fast as possible”, signalling a possible return of the state-controlled bank to private ownership before the next election.

 

NYT

* After the factory collapse in Bangladesh a search for new locations has taken on greater urgency for Western retailers, whose complex manufacturing needs already shrink the pool of potential locations.

* Under pressure from Wall Street lobbyists, federal regulators will soften a rule intended to rein in banks’ domination of the shadowy but lucrative derivatives market.

* In the midst of a closely watched investor vote on whether to separate the roles of chairman and chief executive at JPMorgan Chase, the firm providing tabulations of the vote stopped giving snapshots to the proposal’s sponsors.

* The Obama administration stepped up pressure on the Internal Revenue Service by ousting its acting commissioner and sought to insulate itself from the outcry over the agency’s special scrutiny of conservative groups.

* The U.S. administration is pushing for greater protections for reporters who refuse to identify sources, even as officials face anger over the seizure of Associated Press records.

* On Wednesday, Google unveiled a new Google Maps, by far the biggest redesign since it introduced Maps eight years ago. The company announced the maps at its annual I/O developers conference, where it also showed off new tools for search, photo editing and to-do lists, along with a music service and features for Android and Chrome apps.

 

Canada

THE GLOBE AND MAIL

* British Columbians voted overwhelmingly to send the Liberal Party back to power on Tuesday in one of the most dramatic political comebacks in recent Canadian history. The election was a stunning turnaround for Premier Christy Clark, although she was struggling Tuesday to hold her own seat in Vancouver-Point Grey.

* Canada will take the helm on Wednesday at a ministerial summit of the circumpolar, eight-nation Arctic Council, where Health Minister Leona Aglukkaq faces a clamour from southern nations seeking a greater role in the race to extract the Arctic’s vast oil and mineral riches. China, India, Japan, South Korea and Singapore all want observer status at the council as climate change exposes Arctic resources and opens new, shorter shipping lanes.

Reports in the business section:

* Ron Mock has completed his rise from the ashes of collapsed hedge fund firm Phoenix Research and Trading Corp, putting a controversial failure behind him to become the new chief executive of the Ontario Teachers’ Pension Plan.

Mock, 60, was named on Tuesday as the successor to Teachers Chief Executive Jim Leech, who is retiring at the end of the year. Mock is currently Teachers’ senior vice-president of fixed income and hedge funds, heading the largest of the pension plan’s six major asset management groups.

NATIONAL POST

* Canada’s Conservative government said on Tuesday it would boycott a United Nations disarmament conference chaired by Iran – currently targeted by sanctions over its rogue nuclear arms program – on the grounds that it makes a “mockery” of the effort against arms proliferation. It is the latest sign of a new boldness in Canada’s stance against the Islamic Republic.

FINANCIAL POST

* Canada’s oil sands and U.S. tight oil plays will contribute more than one third of new supplies to global markets between now and 2018, the International Energy Agency says. Production from northern Alberta’s bitumen reserves, the world’s No. 3 deposit, North Dakota’s Bakken play and the Eagle Ford shale in Texas will provide 40 percent of new supplies in the next five years as global output surges by 8.4 million barrels a day, the Paris-based agency said Tuesday.

* Internet video provider Netflix is facing an onslaught of competing streaming services launched by Canadian media giants such as Bell, Videotron and Astral as they clamour to cash in on the increasingly popular platform. But Reed Hastings, chief executive of Los Gatos, California-based Netflix, is nonchalant about the market his company pioneered becoming increasingly crowded.

 

China

CHINA SECURITIES JOURNAL

- The People’s Bank of China Shanghai branch released data that showed individual housing loans continued to soar in the month of April. In April Shanghai’s new foreign exchange personal housing loans rose to 5.3 billion yuan.

SHANGHAI SECURITIES NEWS

- The Chinese trade hub of Yiwu plans to expand its pilot scheme to allow more cross-border yuan settlement at the end of May.

CHINA DAILY

- Chinese airlines will get their first Boeing Co Dreamliners this quarter, said Boeing’s China President Marc Allen. China Southern Airlines is due to receive its first Dreamliner jumbo jet by the end of May.

 

Corporate Finance

* Dish Network Corp has lined up four banks to finance its $25.5 billion bid for Sprint Nextel Corp, escalating the bidding war against Japanese telecom company SoftBank Corp, according to two people familiar with the matter.

* RP Martin Holdings Ltd, the British interdealer broker that became involved in the Libor fixing investigation when two of its employees were arrested in December, suspended its chief executive and a director on Wednesday, a source familiar with the matter told Reuters.

* The consortium of investors seeking to take over Severn Trent Plc offered just under 20 pounds per share for the British water company, valuing it at around 4.7 billion pounds ($7.16 billion), a source told Reuters on Wednesday.

* The Portuguese government and JPMorgan Chase & Co are attempting to resolve a tussle over potentially costly derivative contracts sold by the U.S. investment bank to state-owned companies, a source familiar with the situation said.

* Swiss drugmaker Roche Holding AG is exploring a sale of its blood glucose meters business, three people familiar with the matter told Reuters on Wednesday, as the industry grapples with increased competition and reimbursement pressure.

* Macquarie Group Ltd -backed Asian Pay Television Trust has priced its Singapore initial public offering at S$0.97 per unit, at the bottom of a narrowed marketing range, people familiar with the matter told Reuters on Thursday, raising $1.14 billion.

* Before Optimer Pharmaceuticals Inc even put itself up for sale earlier this year, Cubist Pharmaceuticals Inc offered to buy the antibiotic maker for $20 per share, or nearly $1 billion, two people familiar with the matter told Reuters on Wednesday.

* Bain Capital LLC has emerged as the last party standing in the race for Yankee Candle Co Inc, three people familiar with the matter said, making it likely that the largest scented candle maker in the United States will stay in private equity hands.

* Singapore’s Changi Airport Group has sold its 8.36 percent stake in Italy’s Generale Mobiliare Interessenze Azionarie SpA at 1.43 euros per share, a source close to the situation said on Wednesday.

* British tour operator Thomas Cook Group Plc will announce plans to raise about 400 million pounds ($609.02 million) through a placing and rights issue on Thursday, according to two travel industry sources.

* Austin Brown, a portfolio manager with a focus on metals at Caxton Associates, has left the London office of the $6 billion U.S. hedge fund, according to a source at the company.

* Publishing company Mecom Group Plc is set to appoint veteran investment banker Rory Macnamara as its chairman as it continues to restructure its business, the Financial Times reported, citing people close to the company

 

Fly On The Wall 7:00 Market Snapshot

ANALYST RESEARCH

Upgrades

Beazer Homes (BZH) upgraded to Buy from Fair Value at CRT Capital
Con-way (CNW) upgraded to Hold from Underweight at BB&T
First Busey (BUSE) upgraded to Market Perform from Underperform at Keefe Bruyette
InterXion (INXN) upgraded to Buy from Neutral at Citigroup
Palo Alto (PANW) upgraded to Overweight from Equal Weight at Morgan Stanley
Rosetta Resources (ROSE) upgraded to Outperform from Market Perform at Wells Fargo

Downgrades

3D Systems (DDD) downgraded to Underperform from Market Perform at William Blair
ABB (ABB) downgraded to Neutral from Buy at Citigroup
AMD (AMD) downgraded to Sell from Neutral at Goldman
CSC (CSC) downgraded to Hold from Buy at Deutsche Bank
Chesapeake Utilities (CPK) downgraded to Neutral from Outperform at RW Baird
Chesapeake (CHK) downgraded to Neutral from Overweight at JPMorgan
Comstock Resources (CRK) downgraded to Hold from Buy at KeyBanc
Covanta (CVA) downgraded to Equal Weight from Overweight at Barclays
Everest Re (RE) downgraded to Equal Weight from Overweight at Morgan Stanley
Great Plains Energy (GXP) downgraded to Neutral from Overweight at JPMorgan
Iconix Brand (ICON) downgraded to Hold from Buy at Benchmark Co.
Jack in the Box (JACK) downgraded to Outperform from Top Pick at RBC Capital
Lincoln National (LNC) downgraded to Underperform from Neutral at Credit Suisse
MB Financial (MBFI) downgraded to Underperform from Market Perform at Raymond James
Medtronic (MDT) downgraded to Neutral from Outperform at Credit Suisse
Piedmont Natural Gas (PNY) downgraded to Neutral from Outperform at RW Baird
SodaStream (SODA) downgraded to Hold from Buy at Deutsche Bank
Stratasys (SSYS) downgraded to Underperform from Market Perform at William Blair
tw telecom (TWTC) downgraded to Equal Weight from Overweight at Morgan Stanley
Unum Group (UNM) downgraded to Underperform from Neutral at Credit Suisse

Initiations

Amazon.com (AMZN) initiated with a Buy at Lazard Capital
Apple (AAPL) initiated with a Neutral at Susquehanna
Churchill Downs (CHDN) initiated with a Buy at Brean Capital
Interpublic Group (IPG) initiated with an Overweight at Evercore
Monarch Casino (MCRI) initiated with a Buy at Brean Capital
Stillwater Mining (SWC) coverage resumed with an Outperform at Wells Fargo
Wabtec (WAB) initiated with an Overweight at Atlantic Equities
eBay (EBAY) initiated with a Buy at Lazard Capital

HOT STOCKS

DDR Corp. (DDR) acquired select prime power centers from its Blackstone (BX) JV for $1.46B
TC PipeLines, LP (TCP) unit entered agreements for $1.05B in pipeline stakes
Wells Fargo (WFC) confirmed reinstatement of $203M judgment in overdraft case
FDA approved Simponi (JNJ) to treat ulcerative colitis
Arch Coal (ACI), Meritage Midstream Services to form joint venture
HollyFrontier (HFC) announced unplanned downtime at refineries
OCZ Technology (OCZ) to delay filing 10-Qs

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Prestige Brands (PBH), NetEase.com (NTES), Eagle Bulk Shipping (EGLE), Youku Tudou (YOKU), Acxiom (ACXM), Sapient (SAPE), Jack in the Box (JACK), Cisco (CSCO), Flexible Solutions (FSI)

Companies that missed consensus earnings expectations include:
TransAtlantic Petroleum (TAT), Aegean Marine (ANW), Multiband (MBND), Skechers (SKX)

Companies that matched consensus earnings expectations include:
Commtouch (CTCH), NetQin Mobile (NQ), Safe Bulkers (SB)

NEWSPAPERS/WEBSITES

  • The euro zone debt crisis has mutated into Europe’s longest slump of the post World War II era, with no recovery in sight for a broad swath of the continent. Continuing government austerity, banks that can’t or won’t lend and heavy household debts are weighing on many countries, the Wall Street Journal reports
  • Valeant Pharmaceuticals (VRX) and Mylan (MYL) are weighing options after approaches made to Actavis (ACT) were rebuffed, and a report by the Wall Street Journal, citing a source, says Novartis (NVS) is weighing whether to launch its own bid for Actavis
  • Google (GOOG) plans to help create a new laboratory to study quantum computing, a high-profile endorsement of the esoteric technology—and D-Wave Systems, a Canadian company that has been pursuing it since 1999. An unusual supercooled machine built by D-Wave, the Wall Street Journal reports
  • BP (BP) wants Prime Minister Cameron to intervene with the U.S. government over the escalating cost of compensating U.S. companies for the Gulf of Mexico oil disaster in 2010, according to the BBC, Reuters reports
  • Alternative asset managers such as Blackstone Group (BX) and KKR (KKR) have for decades scoured the stock market for undervalued companies. Now they are trying to convince investors that shares in their own firms are a bargain, Reuters reports
  • Gold demand slid 13% to the lowest in three years in Q1 as record exchange-traded product sales by investors outweighed a surge in buying from China and India, says the World Gold Council, Bloomberg reports
  • A year ago the U.S. housing market hit bottom after the biggest plunge in eight decades, and now signs of excess are re-emerging. The U.S. spring home buying season has been marked by a frenzy of demand fueled by the Fed’s move to push down borrowing costs, a scarcity of listings and Wall Street’s new appetite for foreclosed homes, Bloomberg reports

SYNDICATE

Ambit Biosciences (AMBI) 8.125M share IPO priced at $8.00
Customers Bancorp (CUBI) 5.373M share IPO priced at $16.75
Cyclacel Pharmaceuticals (CYCC) files to sell common stock
DDR Corp. (DDR) files to sell 32M shares of common stock
Diamondback Energy (FANG) 4.5M share Secondary priced at $29.25
OMA Airports (OMAB) files to sell 100M Series B shares for selling holder
Tesla (TSLA) files to sell 2.7M shares, CEO intends to buy $100M of stock
UBIC, Inc. (UBIC) 1.1M American Depositary Share U.S. IPO priced at $8.38
Wave Systems (WAVX) files to sell 1.8M shares for holders
William Lyon Homes (WLH) 8.7M share IPO priced at $25.00

QUARTERLY HEDGE FUND FILINGS

Berkshire Hathaway: NEW STAKES: Liberty Media (LMCA) and Chicago Bridge & Iron (CBI). INCREASED STAKES: Wells Fargo (WFC), IBM (IBM), Wal-Mart (WMT), DirecTV (DTV), and DaVita (DVA). DECREASED STAKES: Mondelez (MDLZ), Kraft (KRFT), and Bank of New York Mellon (BK). LIQUIDATED STAKES: General Dynamics (GD) and Archer Daniels (ADM).
Greenlight Capital: NEW STAKES: Oil States International (OIS), Hess (HES), Spirit (SPR), IAC/InterActiveCorp (IACI), and Capital Bank (CBF). INCREASED STAKES: Apple (AAPL). DECREASED STAKES: Microsoft (MSFT), Seagate (STX), Delphi (DLPH), CBS (CBS), and Computer Sciences (CSC). LIQUIDATED STAKES: Ensco (ESV), Xerox (XRX), Yahoo (YHOO), NVR (NVR), and Google (GOOG).

    



 
Uncle Buck Upstages Bernanke
Friday, 10 May 2013 18:20
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Some recent volatility in currency markets began with the Reserve Bank of New Zealand intervening to stem the rise of the Kiwi. At the same time, the Reserve Bank of Australia cut its overnight lending rate. Both actions caused sharp declines in their currencies. (Read more…) These currencies had been a particular favorite of Japanese investors (aka, Mrs. Watanabe) seeking more yield than what’s available in Japan.

All this roiled currency markets Friday in Asia as the yen plummeted further crossing the psychological level of 100 vs the dollar. Bucky rallied against most other currencies feeding on itself Friday in the U.S. This then slammed gold, other commodities and in turn hurt commodity dependent emerging markets. Equity markets in Japan rallied mightily as the yen/dollar cross collapsed. Also JGBs (Japanese 10 year bond prices fell by the limit.) A natural economic competitor to Japan, South Korea, saw its equity market slide as its currency (won) declined to match the yen’s fall. (South Korea still remains a major weighting in the MSCI Emerging Market Index which saw the index slide over 1%) Like falling dominoes, Brazil’s real currency also fell on inflation fears. And so it went.    

As Greenlight Capital’s David Einhorn observed in his client letter: “…unconventional monetary policies is now a global phenomena. Other central bankers notice and, acting in the philosophy of ‘Anything you can do, I can do better,’ take turns in one-upmanship. This serially correlated behavior smacks of a bubble mentality. But investors are currently complacent about the unintended consequences of central bank money printing, and like most investment cycles and fads, this will persist until it doesn’t.”  

This chaotic market behavior will no doubt be addressed at this weekend’s G-7 meeting in London. Other than calming rhetoric, there is little else they may do since currency wars and QE game is now a “global phenomena”.

The Bernanke Chicago speech became little more than a side show Friday. He did say the Fed was keeping a watchful eye on yield risk-taking given ZIRP. He’s a little late to that observation methinks.

Bond Daddy Bill Gross (PIMCO) tweeted the long bond bull market is over. The statement is honest yet odd since he owns more bonds anyone.

U.S. stock markets didn’t fluctuate too much Friday but beneath the surface conditions appeared more tenuous. Thursday we noted how recent ultra-light trading combined with active algo/HFT trading made the market vulnerable to rumors. Current algos are programmed to pick-up any hints of trouble and run with it before the next guy. That makes markets more accident prone.

Tech (QQQ), homebuilders (ITB), consumer discretionary (XLY) and biotech (IBB) led markets higher. Losers included gold miners (GDX), energy (XLE) and bonds (TLT). The dollar (UUP) rallied sharply while gold (GLD) was the big loser. Commodities (DBC) fell sharply along with energy (USO).

For us carbon-based but systematic investors it’s a battle of trend-following duty vs emotions when dealing with current markets. The higher we go the more systems are challenged to stay with the trend. Taking some profits and raising stops is all one can do.

Volume remains ultra-light despite all the market-moving action from overseas and currency chaos. Breadth per the WSJ was positive.

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You can follow our pithy comments on twitter and become a fan of ETF Digest on facebook. 

SPY 5 MINUTE

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NYMO

NYMO

The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

NYSI

NYSI

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

VIX

$VIX

The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

…

 

This was a light week for economic data but a heavy week for currency chaos. Bulls gutted it out to close the week with a lift. But we’ve seen other markets roiled particularly emerging markets, Australia and Asia in general.

Next week we’ll get more in the way of economic data (Retail Sales, Industrial Production, Housing data, Empire State Mfg, Philly Fed, Jobless Claims and Consumer Sentiment). Europe will also provide some GDP data. The tail end of earnings and more QE is on the way no doubt.

Markets are overbought from an intermediate term view but corrections have been difficult to come by with all this liquidity.

Let’s see what happens.

 

    



 
David Einhorn’s Q1 Investor Letter: “Under The Circumstances, It Is Curious That Gold Isn’t Doing Better.”
Friday, 10 May 2013 13:27
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Sadly, not much in terms of macro observations this quarter or discussions of jelly donuts, but a whole lot on the fund’s biggest Q1 underperformer, Apple and the hedge fund’s ongoing fight for shareholder friendly capital reallocation as well as proving Modigliani-Miller wrong. And then this cryptic ellipsis: “Under the circumstances, it is curious that gold isn’t doing better.” Say no more, David. We get it.

(Read more…)

In other positional news, Greenlight closed out longs in XRX and ESV and shorts in AVB and MBI. Greenlight also initiated a long position in Germany EVK (ahead of public listing). It appears Greenlight is still long Green Mountain.

From Greenlight Capital, as of May 8

Dear Partner:

The Greenlight Capital funds (the “Partnerships”) returned 5.8%1, net of fees and expenses, in the first quarter of 2013.

It was a quarter of reversal: Marvell Technology Group (MRVL), our biggest loser in 2012, was our biggest winner this quarter. Yen puts, our biggest losing position in both 2010 and 2011, were our next biggest winner. On the other hand, Apple (AAPL), a top three winner in 2011 and 2012, was our biggest loser.

Overall, it was a decent start to the year with a good risk-adjusted return. It’s unlikely for us to keep up with the sort of one-way market that we saw in the first quarter, where the S&P 500 never suffered more than a trivial weekly decline. Our long portfolio roughly matched the S&P 500, we had a modest loss in our short portfolio, and macro was positive. We are four years into an economic recovery. Corporate earnings, which grew steadily during the initial stages of the recovery, are now growing anemically. The market advance can be better explained by investors convincing themselves that extraordinarily accommodative monetary policy is bullish for stocks. Unconventional monetary policy is now a global phenomenon.

The Japanese government replaced its conservative central banker with a more aggressive one. This regime change has led Japan into the global battle to see who can debase their currency the fastest and this drove our gains in Yen puts, as the Yen weakened from ¥86.74 to ¥94.19 against the dollar.

Now every major central bank is fully engaged in aggressive, unconventional policy. It seems that as each bank implements a new experiment without immediate consequence, the new policy is deemed safe, if not effective. Other central bankers notice and, acting in the philosophy of ‘Anything you can do, I can do better,’ take turns in one-upmanship. This serially correlated behavior smacks of bubble mentality. But investors are currently complacent about the unintended consequences of central bank money printing, and like most investment cycles and fads, this will persist until it doesn’t. Under the circumstances, it is curious that gold isn’t doing better.

AAPL shares fell from $532 to $443 during the quarter. The biggest problems with our AAPL investment are disappointing earnings and a diminished forecast. When AAPL announced its year-end result, it made clear that it would earn less in the March quarter than it did a year ago. Forward estimates have been falling for a while. Last July, consensus estimates for fiscal 2014 were $64 per share; estimates now stand at $44. When we thought the company would earn $64 per share, the shares seemed cheap even as they reached $700 in September. Of course, that required AAPL to meet that forecast.

Our thesis is that AAPL has a terrific operating platform, engendering a loyal, sticky and growing customer base that will make repeated purchases of an expanding AAPL product offering. Unfortunately, there have been a series of disappointments including slower sales growth, lower margins, and increased competition. There have also been delays in new carrier wins, next generation product introductions, and new product category launches. While all of these have had an understandably negative impact on AAPL’s share price, we take a longer view and believe our thesis is intact.

As shareholders, we watched AAPL accumulate a cash stockpile greater than the market capitalization of all but 17 companies in the S&P 500, and recognized that its high cost of capital and shareholder-unfriendly capital allocation were depressing the stock price. AAPL’s management and Board, either unconcerned or unaware of the detrimental effects of AAPL’s all common equity capital structure, seemed uninterested in finding a solution.

As shareholders who believe in AAPL’s core business, we wanted to help AAPL resolve its cash problem in a way that satisfied AAPL, the market, and its shareholders. Based on years of observation and many discussions, we believed that AAPL would not issue debt under any circumstances, and especially not to return cash to shareholders. With this in mind, coupled with our awareness that AAPL was loath to repatriate (and thereby pay taxes on) its overseas cash, last year we suggested iPrefs to Peter Oppenheimer, AAPL’s CFO. We had no better luck than any of the many other investors and analysts who for years have pressed Apple to return excess capital to shareholders. Our concerns fell on deaf ears.

In February, CalPERS came out in loud support of a proposal aimed at improving AAPL’s corporate governance that inexplicably bundled several measures into a single voting measure. The proposal, which included an unwarranted provision prohibiting AAPL from issuing preferred stock, was in direct violation of SEC rules, and we filed a lawsuit insisting that AAPL allow the shareholders to vote on each measure separately. We believed this would generate a public dialogue around AAPL’s capital allocation strategy.

When Tim Cook later called the lawsuit a sideshow, it was understandable. Whereas we chose to focus on the very real issue of Apple’s capital structure, others seemed more intent on turning things into a circus. A lawyer known mostly for preserving the autonomy of Boards to act in any manner they wish wrote a piece titled Bite the Apple; Poison the Apple; Paralyze the Company; Wreck the Economy. Given the hysteria implied in the title, one would think we had suggested that AAPL hire Steve Ballmer to run new product development. A retired Fortune 500 CEO said “I’d give Einhorn the back of my hand,” prompting us to wonder why he wouldn’t give us the front of his hand. Perhaps most startling was the reaction from CalPERS, who vigorously defended the proposal.

The essence of corporate governance is form over substance. The belief is that properly-made decisions will lead to better decisions, so it was odd to watch self-identified corporate governance advocates support a proxy proposal that violated SEC rules. Incongruously, CalPERS believes good corporate governance is unnecessary when approving policies that purport to improve corporate governance.

Others ignored the circus and focused on the balance sheet. We received feedback from many AAPL shareholders, including some of AAPL’s largest institutional investors, thanking us for initiating the public discussion. Even some who disagreed with our idea helped further the public debate. Respected NYU finance professor Aswath Damodaran wrote a critical piece that pushed us to refine our presentation of the iPrefs idea. These thoughtful responses reinforce the value of speaking publicly, despite the more obvious drawbacks.

In the end, the judge sided with us, and AAPL withdrew the proposal from consideration. Once the shareholder meeting passed, there was nothing left for a court to do, so the case became moot and was dropped. Not long after, we met with AAPL management and its investment bankers to further discuss AAPL’s options. We believe that our thoughts were given a fair hearing.

Ultimately, the Board and AAPL decided to abandon their “no debt” philosophy and gave birth to iBonds. As rejections go, AAPL’s bond issuance ($17 billion in bonds were issued at about a 2% average interest cost) was as good as anything shareholders could have hoped for and the market seems to agree. AAPL announced that it will return $100 billion to shareholders by the end of 2015 and will evaluate returning additional capital annually. This vastly more shareholder-friendly capital allocation policy is a dramatic shift from where AAPL stood just a few months ago. We have added to our AAPL position. We now await the release of Apple’s next blockbuster product.

The other significant loser in the quarter was Green Mountain Coffee Roasters (GMCR). We would love to be the “Credentialed Bear” that gets invited to ask tough questions at its annual shareholder meeting, but we aren’t waiting by our iPhones. Shares of GMCR increased from $41.34 to $56.76 in the quarter.

In addition to MRVL and the Yen, Vodafone (UK: VOD) was another material winner during the quarter. It is now clear that Verizon does in fact want to buy VOD’s 45% interest in Verizon Wireless. We can hear them now. We believe that a premium sale followed by a successful return and/or redeployment of the proceeds could unlock substantial value latent in VOD stock. VOD without Verizon Wireless might also become a good acquisition target for AT&T. During the quarter VOD shares advanced from £1.54 to £1.87.

MRVL reversed its 2012 decline as investors began to pay attention to MRVL’s prospects for share gains in controllers for hard disk drives and flash memory drives, as well as its new processor for cell phones and tablets. The company should see significant fixed operating leverage in 2013, as it has been carrying the cost of the investments in these products without any corresponding revenue until now. The company has also continued to buy back stock aggressively, adding to the potential earnings leverage.

We initiated a long position in Evonik (Germany: EVK), a global chemical business, through a private placement at an effective price of €29.13 per share, ahead of a public listing in April. EVK has a high quality portfolio of chemical assets in the U.S., Europe and Asia, including market leadership in methionine, a high margin, high structural growth business that tracks the demand for animal feed. EVK’s business is less cyclical than that of its European peers as demonstrated by its positive EBITDA growth each year even during the recession. EVK is currently in the middle of a capital investment cycle that we believe will enable it to grow its earnings power from €2.50 in 2012 to €4.00 per share in 2015/2016. We think that its combination of secular growth, superior asset quality, and low cyclicality makes EVK the premier European chemical company, which deserves a rerating to a premium multiple.

We initiated a long position in Oil States International (OIS), a solutions provider for the oil and gas industry, at an average price of $77.16 per share. OIS has four business segments: Well Site Services, Tubular Services, Offshore Products, and Accommodations.

We believe that the company trades at a significant discount to the sum of its parts. Though the shares trade at slightly less than 7x 2013 EBITDA (a multiple typically associated with its lower multiple businesses), the majority of its profits come from Accommodations, which is a high growth, high return-on-capital segment that deserves a much higher valuation. At 8.6x 2013 EBITDA, an appropriate multiple given a sum of the parts analysis of OIS’s business mix and where comparable companies trade, OIS would be worth close to $120 per share. We believe that OIS could unlock significant shareholder value by converting the Accommodations unit into a REIT and separating it from the rest of the company; if completed, it would suggest a valuation of $155 per share.

We closed several positions during the quarter including longs in Ensco (ESV) and Xerox (XRX), and shorts in Avalon Bay (AVB) and MBIA (MBI).

We bought ESV, an offshore contract oil driller, after the Macondo oil spill. At the time, we believed that the shares were depressed over fears of curtailed offshore drilling. Subsequently, the fears were resolved and the drilling business recovered. We earned a 34% compounded return over our 4+ year holding period. The return was helped by favorable trading around the position. We sold in order to redeploy the capital into OIS.

XRX did not perform as well as we had hoped. We bought the shares based on expectations that synergies from its acquisition of Affiliated Computer Services would lead to revenue growth and margin improvement. Unfortunately, the company did not deliver.

Despite this, we sold the shares for a modest gain.

We finally gave up on our short of AVB. Our initial short in early 2007 worked nicely during the credit crisis, but we overstayed our welcome. It is a mediocre business with cyclical risk and an extreme valuation due to its REIT nature. Nonetheless, the company recently acquired Archstone  properties and issued a lot of stock. The shares declined from their recent highs and we took the opportunity to admit defeat and exit with a loss.

During the quarter, we finally declared victory on our MBI short, which we have held in some capacity since 2002. It was rough sledding for the first five years until the stock collapsed from $76 to $2 between 2007 and 2009. This was another case of a misunderstood business and a management team engaged in assorted accounting and business chicanery. While it is possible that sleepy regulators will ultimately put this company and its management out of their misery, the opposite seems equally possible. We’ve decided to enjoy the healthy profit we made and step aside for the time being. Cumulatively, this was the third most profitable short position in our history.

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