Here is what one told me in a telephone interview last week:
Dallas investor Sam Wyly, who manages family and partner money through his $130 million Maverick Capital, is a particularist, a tough, bottoms-up investor who ignores soothsayers, economists, and public policy pundits in a global search for deals too good to pass by. In the process, he and the crew that works with him find many deals that are the opposite--- too good to be true.
Mexico was one of those deals.
"We were, and are, short (Mexico). In mid January we'd lost $500,000 long and gained $2 million short. We were basically doing what we do all the time which is bet on the strong ones and short the weak ones.
"...We stayed with dollar denominated debt. We were troubled by the Peso which was at the bottom of its band. We were just uncomfortable. We didn't predict a devaluation.
"Mexico was supposed to have $26 billion in reserves and it turned out to be $6 billion. A big deficit doesn't look so bad if you got $26 billion in cash. The difference here is that they didn't let anyone know what was happening. In Argentina you can read the book. They may be suffering about having a hard currency but you know just where they are.
"In Mexico it was a $20 billion secret on what they actually had. Then you ask how you can trust anything?
"Did you notice that the day the $40 billion guarantee plan was announced, the dollar dropped 2 against the Yen? That's a tax U.S. buyers will now be paying in Japan."
I asked Mr. Wyly what other results he expected.
"At Michaels ( Mr. Wyly, in addition to Maverick Capital, is chairman of the $1 billion Michaels store chain, and Sterling Software.) we'll get our picture frames 40 percent cheaper. They'll be some adjustment but they'll be very competitive."
What worried him about the bailout?
"One American Senator... one single filibuster... could kill the $40 billion guarantee deal. We're now the central bank for Mexico and, maybe, Canada. Some hard headed Senator could just decide to filibuster. I don't think it will happen but it could. The market ( in Mexico) doesn't say that. The market believes the bailout is firm."
Maverick, however, is still net short Mexico.
Is Maverick looking for anything in particular?
Yes. In conversation with Mr. Wyly and Lee Ainslie, Managing Director , they mentioned the following investments:
o The Mexico closed end funds are selling at large premiums to net asset value so they were short Mexico fund and Emerging Mexico.
o They were short Maseca, a tortilla company whose ADRs are listed on the New York Stock Exchange. Selling at a multiple much higher than its slow growth justified, they expected government pressure on rising tortilla prices to erode profit margins.
o They were short CIFRA, the department store chain now in partnership with Wa-Mart. Why? Because growth would not meet market expectations and half of that growth would belong to Wa-Mart anyway. CIFRA has come down so much, they noted, they have been both buyers and sellers. Yesterday, Wal-Mart announced that it was suspending expansion in Mexico.
o They were long Penamco, a Coca Cola bottler that is headquartered in Mexico City but does only 40 percent of its business in Mexico. The stock has fallen along with the entire Mexican market and is now selling at an attractive 13 times earnings.
What were they looking for?
"If it can be worked down to a set of relationships," Lee Aineslie said, "it's companies that earn in dollars but have peso costs and low operating margins. That way, their earnings leverage is very large. On the short side, we look for the exact opposite." ( Peso earnings and dollar costs.)
"You can get very excited about some companies, then you look at their balance sheet and all their debt is in dollars. You really have to look at a lot of detail in everything."
Did they think the Bolsa was near a bottom?
"I don't need to look for market bottoms. I can be long AND short. So we just look for individual company values. Our being short Mexico wasn't a Peso bet, it was the result of company values--- they were too high. So we shorted.", Mr. Wyly said.
Still, the investment balance is more short than long.
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