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Giving Foot Locker the Boot

I sold my Foot Locker position today at $11.95. I bought FL in 2007 at an average cost of $18.93, so it has been a loser. Not as bad as the two Japanese consumer lenders, but that's cold comfort.

Actually, since FL has a solid balance sheet and pays a good dividend I'd normally be tempted to hold it. But there are at least three stocks out there on my radar that I believe are better. I might put the FL proceeds in one of them in the next few days, or wait and see if the market corrects a bit. Stay tuned (and, no, I don't mention stocks I'm looking at, for the most part).

Since the cash in my brokerage accounts pays nothing (or less than nothing), I certainly don't see my cash balance as something I want maintained for long.

Some gold observers (bulls at that) are thinking gold will correct. If so, I might boost my GLD exposure. Then again, GLD is a double position for me already, so I may just ride any correction out.

Things feel fluid. Let's see what happens going forward.

Bill Fleckenstein on the Grant Conference

Jim Grant just held his fall conference, and Bill Fleckenstein describes it (lightly so as to not be unfair to Grant) a bit concerning gold and inflation:

I also had a chance to chat with the Lord of the Dark Matter at the conference. He has information, on pretty good authority, corroborating the viewpoint expressed on several blogs that Chinese authorities would like to purchase the International Monetary Fund's gold.

Whether that transaction comes to pass, we'll have to wait and see. But when it comes to China's interest in gold or other hard assets, it does seem that where there is smoke, there is fire, and China is making its interest known by its actions.

Just because the Chinese don't come out and say, "Gee, we want to buy all the gold we can," doesn't mean that they don't want to. Obviously, if they did say something like that, they'd be shooting themselves in the foot, and they're way too smart for that.

True. I suspect China has been a major behind-the-scenes buyer of gold. And who can blame them? They own so many US dollar assets and -- despite what the US Federal Reserve or American administration say -- America want to cheapen those assets with inflation.

On another note, I see that the Longleaf International Fund will be removing its currency hedge. A lot of the value players hedged currencies back when the US dollar was strong, and a surging US currency cut into their results when it came to international/global funds. That doesn't look to be a problem for the foreseeable future.

Five for the Weekend #59

Posting has been light as I've been busy with non-blogging duties. The big news this week has been the G-20 meeting in Pittsburgh, and the US Fed keeping interest rates at virtually zero.

The view here at Controlled Greed is that the US Government wants inflation. Not hyperinflation, but inflation nonetheless. There is no will in Washington to slash spending to any extent, much less the extent required to reduce the massive debt burden. So that leaves lightening the burden through monetizing the debt.

Anyway, here are five items you might wish to review over the next couple of days.

• David Rosenberg writes in the Financial Times that equities are overvalued, echoing his recent Barron's interview. This appeared on RealClearMarkets.com, so it should be available without a FT.com subscription: The banker J.P. Morgan was fond of saying: “I never buy at lows, I never sell at the highs, I play the middle 60 per cent.” Well, from our lens, we are well past that middle 60 per cent point of this bear market rally.

• The Gannon On Investing blog has been quiet for most of 2009. The Can Turtles Fly? blog caught up with Geoff Gannon by email recently to get his views on Lexmark. Check it out.

• Ambrose Evans-Pritchard writes of HSBC bidding farewell to US dollar supremacy. Specifically, that the dollar looks like sterling did after World War I. A monetary policy of near zero rates – further juiced by quantitative easing – is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.

• This weekend will see a new issue of Barron's, yet here's an article on gold from last week's. I continue thinking gold makes sense as a form of insurance, especially for US investors. As you know, I own GLD and it is a "double" position in my portfolio. Back to Barron's: Gold could correct 10% to 20% in the near term, but some fans think it could double in coming years as the deficit widens, the dollar falls and inflation arrives.

• Africa Confidential has a new feature article on why the banks remain optimistic about Nigeria. The reason? Well, it has to do with oil, gas and Africa's biggest market. You don't get this kind of reporting in America, unfortunately.

With that, have a great weekend.

Jim Grant: From Bear to Bull (Sort Of)

Over the weekend, The Wall Street Journal ran a typically thoughtful essay by James Grant. It had what many would think is an untypical headline for a Grant piece -- "From Bear to Bull."

It starts:

As if they really knew, leading economists predict that recovery from our Great Recession will be plodding, gray and jobless. But they don't know, and can't. The future is unfathomable.

Another part:

The very best investors don't even try to forecast the future. Rather, they seize such opportunities as the present affords them. Henry Singleton, chief executive officer of Teledyne Inc. from the 1960s through the 1980s, was one of these enlightened opportunists. The best plan, he believed, was no plan. Better to approach an uncertain world with an open mind. "I know a lot of people have very strong and definite plans that they've worked out on all kinds of things," Singleton once remarked at a Teledyne annual meeting, "but we're subject to a tremendous number of outside influences and the vast majority of them cannot be predicted. So my idea is to stay flexible." Then how many influences, outside and inside, must bear on the U.S. economy?

Much further down the essay:

I promised to be bullish , and I am (for once)—bullish on the prospects for unscripted strength in business activity. So, too, is the Economic Cycle Research Institute, New York, which was founded by the late Geoffrey Moore and can trace its intellectual heritage back to the great business-cycle theorist Wesley C. Mitchell. The institute's long leading index of the U.S. economy, along with supporting sub-indices, are making 26-year highs and point to the strongest bounce-back since 1983.

And the end

And that is my case, too. The world is positioned for disappointment. But, in economic and financial matters, the world rarely gets what it expects. Pigou had humanity's number. The "error of pessimism" is born the size of a full-grown man—the size of the average adult economist, for example.

Obviously, I've not done justice to the complete essay by posting bits here. Read the entire thing if you subscribe to WSJ.com.

Five for the Weekend #58

After missing last week, let's get right to this installment of Five for the Weekend.

• Neill Ferguson argues in the Financial Times that saving Lehman Brothers would not have prevented the crisis: If only we had learnt from Lehman that no bank should be “too big to fail”, we might still have a real capitalist system, instead of the state-guaranteed monstrosity that is the real legacy of last year’s crisis. If only. I don't agree with Ferguson on everything he writes and says. But, gosh, I wish Charlie Rose (my favorite TV show) would have him on instead of the same old, same old economists and financial writers who worship at the feet of Keynes.

• Holman Jenkins gives his take on Lehman and the financial meltdown in The Wall Street Journal: The time to worry about moral hazard is now, between crises, when we have an opportunity to change the incentives of the system to make future crises less likely.

• Staying with WSJ, one of their blogs interviews Congressman Ron Paul about what the world would be like without the Federal Reserve: "You’d go back to the day that if you wanted to borrow money to build a house, somebody would’ve had to save some money. You wouldn’t have zero savings and all the credit in the world. That’s just a total distortion of capitalism. Capital comes from savings. The part you don’t use for everyday living which you have left over, you reinvest and you save or you loan it out. We were living with something absolutely bizarre that had nothing to do with capitalism. We had no savings whatsoever yet there was all the credit in the world."

• John Wasik writes on Bloomberg about a potential financial product called the "R" bond -- and how it could help Americans saving for retirement protect their funds against the next Lehman-style catastrophe.

• Peter Brimelow reports on MarketWatch about investor Charles Allmon, who's been bearish since the 1980s. Allmon still thinks Dow 3000-4000 could happen: The remaining three stocks in Allmon's portfolio are firmly based in a dark view of human nature and human action: tobacco companies Altria Group and Philip Morris International Inc. ; and gold producer Newmont Mining Corp. Allmon writes: "Smokers continue to puff away, so we'll accept their largess. When does inflation ignite and begin to ravage the U.S. economy? Do keep in mind those great intellects in Congress who manage our government and would love a wee touch of inflation, around 2%, more or less. I would expect that to continue, until something ignites a bigger inferno."

And with that -- have a great weekend.

Brett Arends: "What Price Suits Gold?"

Check out this WSJ.com article by Brett Arends on the buzz surrounding gold. This is up on RealClearMarkets.com, so you don't have to be a WSJ.com subscriber to access it. Here's part:

A long-standing rule of thumb among gold enthusiasts is that an ounce of gold should equal the cost of one high-quality man's suit. (A fund manager I know in London argues that this goes back to ancient Rome, when an ounce of gold allegedly was enough to purchase a top-of-the-line toga.)

That wisdom isn't particularly helpful today. At Saks Fifth Avenue you could pay $795 for a Hugo Boss suit, or $2,050 for Dior. When I last bought a suit on Savile Row in London some years back, it cost me about $1,200, but one could have spent a lot more.

Michael Narwani, a tailor and the owner of Custom Clothiers in Wellesley, Mass., says his bespoke suits vary from around $700 up to many thousands, but "$1,000 would buy you an excellent suit." By that measure, gold would be about the right price now.

A silly debate? Maybe. But this is the central issue any investor faces when dealing with gold.

We should expect the silliness to get really wild among those debating gold if things keep going.

John Dizard Considers Gold's Bull Run

John Dizard's weekly Financial Times columns are consistently a treat. If you subscribe to FT.com and are interested (not to mention, invested) in gold, you'll want to check out this latest piece. Dizard examines the gold run:

The gold world knows a bell was rung last week by mining group Barrick Gold’s announcement that it will unwind the rest of its hedge book (ie gold sold for future delivery, which partially offsets any price declines). The question is whether the bell signified the beginning of the end for the bull market, or its breakthrough to higher levels.

That's how it starts. Here's the end:

Mr Nenner, who also believes that the interest rate cycle is about to turn up from the current low levels, says: “When money becomes expensive, with higher rates, people don’t buy gold. That comes together with low inflation. Real inflation only comes with a wage spiral, and we don’t see that now”.

He is looking at long-term trends. The gold and gold-related securities dealers have a somewhat shorter horizon. As one of them says: “The big reason gold could come down and stay down is if Obama pulls it off. If he succeeds because he compromises, that could revive faith in the dollar and the US. If the dollar performs better, then there are much better ways of hedging risk than gold.”

You need to read the whole thing, because I'm not posting enough here to do it justice (or get in hotwater with FT.com for posting the entire column).

The fact is, gold could go up or down significantly. I think the odds are it goes higher -- but my SPDR Gold ETF purchase wasn't to make me rich. It was a Jean-Marie Eveillard-style gold-as-insurance play.

Barron's Interviews David Rosenberg

And it is an excellent interview at that. Lots of thought-provoking stuff. A few parts below.

On the differences between the US and Canada:

First, Canadian banks never endured near the same default experiences as was the case south of the border. The primary reason for that is because the words "down payment" were never stricken from the mortgage-market lexicon, as they were in the States. So not only did no Canadian bank cut its dividend, but no Canadian bank had to go cap in hand to the government for its survival.

Second, the Canadian economy and the stock market have about three times the exposure to the commodity sector that the U.S. does. If you see Asia as being in a secular-growth phase, that means that the Canadian stock market is in for a period of secular outperformance, compared to the United States.

Another bit further down the linked article:

It's crucial to understand that secular bull and bear markets move in 18-year cycles, and to understand that today, we are really only halfway into the secular bear market. Then you know how you can service your clients. In a secular bear, market rallies are to be rented, not owned. But in a secular bull market, corrections are opportunities to build your long-term positions at better prices, as was the case with the crash of October 1987.

And finally this:

We are in a post-bubble credit-collapse environment, and what is critical is capital preservation and income. Asset mix is extremely important. We at Gluskin Sheff have a cautious view toward U.S. equities. We're more positive on Canadian equities, given that the banks are stable and the commodity market is in a bull phase. We've been big fans of corporate bonds, though, admittedly, a good part of the low-hanging fruit is behind us. But they will be relative outperformers.

Read the entire thing if you subscribe to Barron's.

Five for the Weekend #57 -- NOT!

Nothing the is week. Been swamped with non-blogging duties. See you next week when I come up for air. Have a great weekend in the meantime.

Prem Watsa's Business Style on Display

Barry Critchley has a column in Canada's Financial Post about Fairfax Financial (FFH) and its deal to takeover the rest of Odyssey Re it doesn't own. A part:

"We have a lot of reverse enquiries," said Paul Rivett, Fairfax's chief legal officer, referring to calls from either existing or new shareholders who wanted to let the company know that they would be willing buyers if and when Fairfax decided to raise capital following last week's decision to purchase the rest of Odyssey Re Holdings Corp.

"We got calls from shareholders who had our stock and wanted more and from others who had been waiting for a while to get in," said Mr. Rivett.

So rather than launch a US$1-billion bought deal and make a lot of Bay St. underwriters richer, Fairfax decided to split the deal and cash in on the pent up demand itself.

The end result: Fairfax saved about US$24-million in sales commissions because while it paid 4% for the bought deal, it paid a mere 1% for the US$800-million it placed itself, but still process by underwriters.

If you're a Fairfax shareholder, or just a Watsa observer, be sure to read the entire thing.