Jeff Ubben spoke today At Chicago CFA Society –  Below are very brief notes also stay tuned we are getting his presentation slides. Also first check out are scoop on ValueAct and AXP

As American Express Disappoints, Tensions Among … 

Valeant Pharmaceuticals Intl Inc (VRX) & Jebb Ubben

ValueAct Capital Hit By Valeant, Rolls-Royce, Has

Jeff Ubben – CFA “shape the future of investing”

He now feels like a bearish druckenmiller following the expansion of leverage and cheap rates…

shareholder activism came into power in the mid 90’s due to excess executive compensation. And the Fed induced era of financial engineering (to smooth global volatility) has ushered in a new era of excess executive compensation….

.. the signals in the 2010’s are the exact opposite of the 1980’s …

DEBT to GDP ratio… FREE money is catalyzing a rise in corporate greed as well as excess…

1.Buybacks and M&A totaled $2trillion dollars….

2.Financial engineering corporate buybacks and mergers = $750 billion

3.Organic company growth and investments only amounted to $250 billion

Jeff Ubben ValueAct Jeff Ubeen
Jeff Ubben

STOCKS have become the new bonds ….

 

 

3 largest investments of size remain painful

  1. rolls Royce : moved from 20% market share to 40% market share..
  2. bake hughes (we have been wrong) the industry is becoming very efficient .. they are making money at $55 oil …
  3. Morgan Stanley – $40billion in capital stuck in a trading book due to low volatility / 20% ROE – their equity has doubled but assets are down by half… 16% equity to asset ratio

HE NEEDS regulation to move from terrible to LESS terrible which will help their morgan S investment because there is a liquidity issue as Morgan is in the MOVING business not in the storage business anymore… their stagnant trading book is earning much less vs it should…

–Lack of volatility is hurting morgan’s trading book more vs any other factor..

This “moving” and “regulation” talk pertains to morgan trying to do something with its $40 billion in trapped capital….

ZERO pain in corporate deal making… because money is free..

BOND market is upside down.. 10 year yield is much too low @ 1% or thereabout

NO PAIN in san Francisco – they can fund anything for essentially free ..

Jeff Ubben – Q&A

He favors NETFLIX and cord cutting… he is Critical of comcast on the premis set top boxes which cost $25 a month.. which is not sustainable in his opinion. Value lies in IP and content not distribution….

He didn’t make it clear wether or not he owns Netlifx, it was in response a question from audience. But he was bullish cord cutting and IP and bearish distribution companies like Comcast et al.

He was saying he is a fan of digital streaming across all mediums which dovetailed off his rant about cable companies earning $25 a month just to lease the cable box. So he sees growth in digital distribution and sees declines in traditional cable tv distribution like Comcast. Time Warner. As he thinks soon companies will not be allowed to charge the set top box lease fee, so they revenue will be gone soon.

Jeff Ubben – Valeant

Question: How do large hedge funds get it so wrong?

He didn’t sell all their VRX stock .. they took a lot of pain.. they were drinking the koolaide like others and his/their returns reflected the carnage…

their investment premise in VRX: were looking for undervalued companies and looked to improve the management of VRX.

2010-2011 assets were much cheaper and things were easier .. the CEO of VRX was meeting budgets and firing on all cylinders..

the VRX tide turned when market started assigning richer valuations which led to some bad executive decision making at the top of VRX…

express scripts does not like what VRX is doing with the raising or drug prices..

“must get off the near term earnings parade”

Jeff Ubben – ETF’s ARE NOT Consumer friends during periods of marked indecision and dislocation