John Burbank of Passport Capital is the next presenter. He is being patched in via video conference, which had a rough start due to technical issues. It added comic relief, which was welcome given the depressing morning presentation and current market numbers.

Passport Capital is targeting 30% annualize returns and the word here is that he is currently generating 40% annualized returns.

The presentation is focused on looking at the big sector changes. The presentation is themed to the Wizard of Oz of all things.

The market is now at Emerald City and the curtain on the Wizard is parted and the U.S. is now exposed for what it is. Net foreign purchases of U.S. Treasuries are down. This has not been good for the wizard’s buddies, the U.S. financial banks.

Burbank believes Bernanke is making a huge policy mistake and not getting enough liquidity into the market. He believes less will be investing in the United States, foreign capital will be invested more in their own markets.

Burbank’s firm believes in peak oil. Oil exporters are highly liquid and are an area to look for opportunities.

EFG Hermes and other regional managers seem to provide great value. AUE government ownes 25% of the company. The forward P/E looks very compelling.

Another company in this sector is Shuaa Capital. Great sales growth at both of these.

Burbank also likes fertilizer minerals quite a bit, since the emerging markets need these inputs. The focus here is on Mosaic (MOS) and Potash (POT). The P/E for MOS is around 3 and the P/E for POT is around 4. Potash is like the Saudi Arabia of potash. The replacement costs for these companies’ capacity is high and not really factored into the price of stock.

Burbank is long farmers and foreigners and short a leveraged United States and General Electric. He seems to question Buffett on this.

Burbank believes the financial markets are in massive cardiac arrest. They need to cut rates tremendously and flood the market with liquidity. The rest of the world has the ability to flood the country with dollars and that is what has to happen.

George
www.fatpitchfinancials.com

It’s hard to believe it’s already been five months since the last Value Investing Congress (May, Pasadena), but the New York edition could not come at a better time. An ever worsening credit crisis has markets and investors in panic mode, and there’s no place I rather go for analysis and interpretation than the VIC. Day one kicked off today with an introduction from co-founder Dr. John Schwartz. First up today were (Schwarz’s VIC co-founder) Whitney Tilson and Glenn Tongue of T2 Partners.

Tilson and Tongue led off right where they left us in May, with an analysis/update of the mortgage and credit crisis. They didn’t sugar coat their analysis and thoughts in May, and they certainly didn’t today, either. In fact, the negative tone of their May presentation has at the very least been realized as the crisis has worsened, and housing markets try to find a bottom.

Tilson cited soaring delinquencies, accelerating foreclosures, huge inventories of unsold homes, and vacancy rates at all time highs in his discussion, suggesting that it’s going to get worse before it gets better. Tilson believes home prices have considerable further downside, a situation that will be further exacerbated by mounting job losses. The only potential good news is that mortgage rates have fallen, but not nearly enough to make much of a difference at this point.

For his part, Glenn Tongue suggested that perhaps subprime mortgages were not the worst part of this debacle, but that the specter of Alt A and option ARM resets, will hit the markets hard the next few years. Perhaps most frightening are the option ARMS with teaser rates, where homeowners mortgage balances have actually increased due to the terms on these loans, a situation made appreciably worse by falling home prices. Did I mention potential for further damage brought by home equity lines of credit (HELOC’s) and closed end second mortgages? We’ll save that topic for another day.

Tilson and Tongue also shared 3 ideas they are bullish on including one new name (Echostar), and two others (Fairfax Financial and Berkshire Hathaway) they’ve laid out in previous Congresses:

In a well thought out analysis, Tongue made the case for Echostar Corp, a textbook sum of the parts play. Currently trading at $23, Tongue suggested the stock is worth between $51 and $62, and that the current price reflects the values of the satellite services business and cash on the books. In this scenario, Tongue believes, investors are getting the set top box business, Sling Media division, and joint ventures for free.

John Burbank, Passport Capital

Burbank kept the positive energy flowing with a discussion centered on the demise of the US markets. Burbank believes we are headed for (or already in) a deflationary bust; one that has been tremendously mismanaged by Bernanke, Paulson, et al.

Burbank suggested that we are entering a new era, one where interest in US markets, including foreign purchases of US agency bonds is on the down swing. Burbank highlighted some of the names that he currently likes, including:

• Potash Corp (POT)- Saskatoon Canada based fertilizer company Burbank referred to as “the Saudi Arabia of Potash”

Jonathan Heller, CFA

Disclaimer: I have no positions in any of the companies mentioned