Harvey

Hurricane

Mother Nature certainly is a beast at times.  Watching her ongoing treachery on the television is heartbreaking to say the least.  Looking out the window, I see sporadic rain – which will continue for a few days – but nothing of the magnitude being experienced just a couple hundred miles away.

As my mind wanders a little due to the same images being replayed over and over, I can’t help but thinking of the economic impact of Harvey.  Being resident in Texas, my portfolio has a little bias towards my home state.  In a similar vein, which companies stand to lose – or gain – from this tragedy?  I figured I’d lay out my thoughts – which probably are incomplete – as a basis for determining whether my portfolio can weather (pun intended) a storm of this severity.

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The Big Boys are Playing

I was starting to wonder when – not if – and how the big guns would start deploying their cash stash.  Most have investors to answer to and it has been a relatively quiet year so far – so it must be time to begin prowling for deals to bake and pots to stir.

First out of the chutes was the kingpin Warren fresh off the aborted Unilever deal.  Leaving 3G in his dust, last week he ran one from his playbook that worked before.  This time the victim being Home Capital Group which required a cash infusion following a run on deposits.  His $C2B 9.0% loan is at better terms than the one currently in place provided by the Healthcare of Ontario Pension Plan.  He’s also getting a discounted share price on a stake that could equal 38%.  The advisors were RY and BMO in which I’m long both.  As an aside … if the US dollar weakens further, profits could be booked on the FX angle as well.

Then only this morning he announced a 9.8% stake in Store Capital.  This one should provide support for REITs in general while (at least on paper) be an investment that meets his standards for playing nice.

This morning brought the announcement that Dan Loeb’s Third Point has amassed a 1.3% stake in Nestlé.  This appears to be a ploy to pressure the company to create ‘shareholder value’ by shedding assets and taking on debt.  It could be argued that Nestlé’s stake in L’Oreal is a slight hedge against commodity pricing and their conservative nature is an asset rather than liability.  I see this as more of an attempt at greenmail with minimal risk.  If pundits are correct, the Swiss Franc should get stronger versus the US dollar this year.  If so, even without spurring corporate change, profits could be booked on the currency.

In today’s most twisted play, the title goes to Tiger Global who reportedly have shorted Tesco plc while being long Amazon.  Not a bad call with Amazon’s Whole Foods announcement last week hurting grocery retailers.  But if the FT report is correct and this position was initiated in January, one has to wonder if they were privy to inside information?  Especially when initiated anonymously through an offshore entity?

So much for this week’s questions … and onward toward month end.