Monthly Archives: October 2010

Arbitrage Opportunity – Brookfield Infrastructure Partners (NYSE:BIP) takeover of Prime Infrastructure Group (ASX:PIH)

Details of take over:
Holders of PIH will receive a combination of cash and BIP stock. For each PIH share, holders will receive
 
·         0.24 BIP shares
·         $AUD0.20
 
Idea
Go long PIH @ $AUD4.80 (ASX:PIH)
Short BIP @  $USD20.13 (NYSE:BIP)
 
Return = 4.7652/4.439 – 1 = 7.35%

Some Risks
 
Deal does not proceed:
Main risk is that deal does not proceed, and PIH returns to pre deal levels.
 
FX Risk
You have a long AUD currency position on the $AUD0.20 payment to be received on the 8 December 2010 – although you can lock this in by buying USD now
 
Execution Risk
NYSE and ASX trading times do not overlap. This makes it difficult to enter and exit the trade since there is never full information at hand:
·   If there is a big move, could be closed out of one half of position – before other market opens to net off position. This is especially true if you have leveraged in to position.
·   i.e. if BIP has a big rally – you could be stopped out of your short position if you do not have enough collateral despite the fact that you would expect PIH to have an offsetting rally when it opens in Sydney time.

(contributor: , with credit given to Steve Kempler)

Value Investing Congress Presentations

Here are some of the best presentations from the NYC Value Investing Congress:

Field of Schemes: If You Build It, They Won’t Come (David Einhorn)

Neglected, Hated, & Feared: Investing in Out-of-Favor Industries (Zeke Ashton)

Go East: Value Investing in Europe (Francisco Garcia Parames)

Opportunities Amidst the Crisis (Michael Lewitt)

Clear Value Today (Alexander Roepers)

The Emerging Indian Investing Landcape (Amitabh Singhi)

Market Overview & Two Stock Ideas (Whitney Tilson/Glenn Tongue)

David Einhorn: St. Joe will need “substantial writedowns”

Just got back from the Value Investing Congress in NYC, where David Einhorn made his short case for JOE. Click below for presentation.

Guest Post: Sun Healthcare Group (SUNH)

Today’s guest pitch is Sun Healthcare Group (SUNH). The author considers himself a value investor and currently works in the financial services industry. He is also a CFA Level III candidate. He can be with questions or comments at

Warren Buffett: ‘Quite Clear Stocks Are Cheaper Than Bonds’

Warren Buffett says it is “quite clear stocks are cheaper than bonds” right now, but notes that relationship will change eventually when confidence in the economy is inevitably restored.

In an appearance at the Fortune Most Powerful Women Conference in Washington, Buffett said he “can’t imagine” choosing bonds over stocks at current prices, but concedes that’s what many investors have been doing because of a “lack of confidence” in the economy’s future.  “They’re making a mistake, the ones that are buying the bonds” at record low yields.

“It’s quite clear that stocks are cheaper than bonds. I can’t imagine anybody having bonds in their portfolio when they can own equities, a diversified group of equities. But people do because they, the lack of confidence. But that’s what makes for the attractive prices. If they had their confidence back, they wouldn’t be selling at these prices. And believe me, it will come back over time.”

It’s not a new opinion for Buffett.  Back in early 2009, he was writing about an “extraordinary” U.S. Treasury bond “bubble.”

Fortune’s Street Sweep blog points out that the 10-year Treasury yield has dropped to under 2.5 percent from 4 percent over the past six months.

FDIC Chairwoman Sheila Bair told CNBC there “a bit of a bond bubble now”, longtime bond bull Goldman Sachs believes bonds have peaked and will be heading lower from here, and Pimco’s Steve Rodosky tells Dow Jones today that “the best day in Treasurys is probably behind us.”  He hasn’t bought them since July.

Meredith Whitney: Federal Gov’t Will Bail Out States

The recent report released by Meredith Whitney regarding the dire financial conditions of states across is long overdue. Readers will recall an article we wrote last July regarding the possibility that the federal government may step in at some point to bail out struggling states.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.