By Sam Forgione and Steven C. Johnson
NEW YORK May 8 High-profile money managers raised red flags about the loose monetary policies taking place around the world at the annual Sohn Investment Conference, a closely watched charitable event, on Wednesday.
The event, which raises money for pediatric cancer research, is where big-name hedge fund managers come to share their "best ideas" with other wealthy investors.
The Federal Reserve's monetary policies, with its monthly purchases of $85 billion in Treasuries and mortgage securities, came in for sharp criticism. Money managers touched on a wide variety of investment topics.
Managers are gathering at a time the hedge fund industry is again underperforming the broader market. The average fund is up about 4.4 percent through April, compared with a 14 percent gain for the Standard & Poor's 500 index.
History also has shown that some of the best ideas of managers don't look so good a year later. A case in point is Apple, which Greenlight Capital's David Einhorn praised last year but has fallen 17 percent since last year's conference.
Here are selected comments from the conference:
DAVID EINHORN - Hedge fund manager Einhorn, of Greenlight Capital, this year offered another long recommendation, this time on Oil States International. "OIS's offshore products are technologically advanced, highly engineered and some are considered must haves," Einhorn said.
Einhorn said the average peers of OIS are trading at four times earnings before interest, taxes, depreciation and amortization. OIS trades at 6.9 times, but if the company were broken up, the sum of the parts would trade at 8.6 times EBITDA, he said, adding that the OIS share price would be $118, compared with the current price of $95.
He noted that Jana Partners in late April reported that it had taken a 9.1 percent stake in OIS.
STEVEN EISMAN - Eisman, the founder and portfolio manager of Emrys Partners, who is known for shorting securitized subprime home mortgages, said he is positive on the U.S. housing market.
Eisman said he likes Lennar Corp, Forestar Group Inc and Standard Pacific Corp. He said he is also a fan of Ocwen Financial, calling it "completely mispriced" and the "most powerful" play on housing in the entire sector.
Eisman's short idea was Home Capital Group, which trades in Canada. "If housing rolls over, this company is going to have serious problems."
PAUL SINGER - Singer who founded the $21 billion Elliott Management hedge fund and is a big contributor to Republican political candidates, said the Fed's monetary policies are distorting the prices of long-term bonds and the global recovery.
"Everyone wants a safe haven," said Singer. "There is no such thing in today's markets and that's one of the elements of the distortion."
He said a number of developed countries are facing "long-term insolvency" and the monetary stimulus will not fix that. Singer said the ultimate question for a fiat money regime is, At what point does confidence in money disappear?
KYLE BASS - Bass, of Hayman Capital Management, called Japan "completely insolvent."
In April, the Bank of Japan said it was likely to purchase over 7 trillion yen ($75 billion) of long-term government bonds a month, an aggressive monetary policy to end years of deflation in the world's third largest economy.
Bass said he likes Dex Media Inc., a marketing services company, because a transformation is taking place at the company that published the yellow pages directories. Shares of Dex Media briefly soared 27 percent after Bass spoke.
WILLIAM ACKMAN - Ackman, the founder of The Pershing Square Capital Management, talked up the prospects of Procter & Gamble Co, in which he took a $2 billion stake last July when the shares were trading around $59. The stock is now trading around $78, or roughly a 30 percent gain. Ackman said on Wednesday that P&G could hit $125 per share in two years.
STANLEY DRUCKENMILLER-- Druckenmiller, who founded Duquesne Capital Management, said the Fed's monetary policy is the "most inappropriate" in history. He also said commodity prices are at the end of a supercycle.
"We're betting that the move down there is not a correction, that this is the end of the big supercycle in commodities that started 10 years ago," he said.
KEITH MEISTER - Meister, of Corvex Management, who was activist investor Carl Icahn's right-hand man prior to founding Corvex, said he likes telecommunications companies TW Telecom Inc and Level 3 Communications Inc, pushing up their share prices.
The Corvex managing partner said a telecom marriage between TW Telecom and Level 3 is likely down the road. "One day these two companies could be together," he said.
Meister said he likes Level 3 for its accelerating revenue growth and the direction of its chief executive, Jeff Storey.
JAMES CHANOS - The founder and managing partner of short-selling firm Kynikos Associates said hard-disk drive companies are likely to decline.
Chanos, noted for predicting the downfall of Enron and a vocal bear on the Chinese economy, said the hard disk drive business is a "value trap" that is nearing a downturn similar to that of the personal computer business. As examples he cited Seagate Technology and Western Digital Corp.
Western Digital was down 2.5 percent in after-hours trading, while Seagate Technology lost 3.4 percent.
JONATHON JACOBSON - The founder and both chief investment officer and chief executive of Highfields Capital Management LP, an $11 billion investment management firm, said investors should be wary on AT&T Inc and Linn Energy.
Jacobson said Digital Realty Trust Inc, a global operator of data centers, is a good short idea, noting that his "smoking gun" on Digital Realty was in 2011 when "they changed definition of nonrecurring capex to include maintenance expenditures."
Shares of Digital Realty were last down 6.6 percent at $64.44 after the bell. Jacobson said fair value is $20 per share.