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Portfolio Update: DirecTV Merges with Liberty Entertainment; Dumping Remaining Liberty Media Tracking Stocks

The planned merger of Liberty Entertainment into DirecTV Group (DTV) has been completed. This results in DTV being back up to 9% of my portfolio, even after selling half of my original DTV stake when it doubled in price. For now I'm holding, believing John Malone will engineer something further rewarding shareholders. A sale to AT&T or another company is a definite possibility.

The merger left me with three Liberty Media tracking stocks, which when added together didn't equal a full portfolio position. I think Liberty Media Corporation - Interactive has possibilities, and could revisit it at some point. Still, I decided to dump all the tracking stocks, adding to my cash. It earns nothing, yet being liquid seems prudent with not much cheap out there. And with complacency reigning among investors right now.

As has been reported, the broad stock market is priced for 5% GDP growth. Either companies will grow to catch up with stock prices, or stock prices will "catch down" to the state of companies. My cash balance is the residual of not seeing a lot of bargain stocks right now.

So Much For Being A Regional Financial Hub

The Lex column in the Financial Times nails it on Dubai:

Its failure to communicate decisively and promptly with the capital markets on which it relies, has left its ambition of becoming a credible financial services hub in tatters.

This further down:

There is no Plan B for Dubai, now that its cheap credit-fuelled City-in-the-desert plan has been shown to be a mirage. Without the oil revenues of Abu Dhabi, sharply curtailed credit availability, an oversupplied property market, and a tourism industry hit by the global downturn, the emirate will be cut down to size. This much will not be lost on Abu Dhabi. However, it cannot afford to let its go-go neighbour fester. A face-saving solution for both would be for the UAE to step forward with a coordinated regional plan. However the UAE, which everyone believed was a federation, has yet to show it can act like one.

Crazy Monday

Or maybe it just seems a bit crazier than normal after a four-day weekend.

First, Dubai. By itself, the Dubai crisis shouldn't be a big deal globally. The questions are whether there is something more to come, or whether this sparks a larger panic. Right now, markets have been reacting as though this isn't much of a story. Maybe living in times where the word "trillions" gets thrown around like tissue paper leaves one immune to hearing some entity can't repay $80 billion in loans.

And then there's gold.

My conviction is that the gold bull continues. But if you've been reading Controlled Greed, you know my gold investment (the ETF) is an insurance play, not a get rich play. If I'm right and the gold bull will go forward over time, at some point I'll take some profits. Just not now.

Peter Brimelow of MarketWatch has an interesting piece about gold bugs and Dubai. Check it out if this story is part of your investing universe. Note this bit:

Another veteran, Dow Theory Letters, Richard Russell, felt moved to write on Friday: "Over the holiday, I've been reading the gold advisories that I usually follow. Almost without exception, they've had their subscribers trade out of gold. ... I've said over and over ad nauseam, that you can't out-trade a powerful bull or bear market. Bull markets like this gold bull market come along, if we're lucky, once or twice in a lifetime. I'm talking about bull markets that can make you rich. But there's something very different about this gold bull market. It can do two things -- it can make you rich AND it may save you from a disaster in your other investments. This gold bull market is attacking the very foundation of all investments denominated in paper currencies."

Again, my gold investment isn't about getting rich. But this bull market in the yellow metal isn't about jewelry demand or anything like that. It is about gold as money and a store of value going back throughout history.

Five for the Weekend #68

Here are five suggestions to fill out your weekend reading. Let's go.

• King Pharmaceuticals (KG) is among several drug companies Bloomberg reports as being potential takeover targets of private equity firms. I'd love for this to happen for two reasons. Specifically and first, because I'd like to receive a nice offer for my shares. And second because increased buyout activity would be good for the markets generally.

• Anthony Bolton is a very famous fund manager in the UK and author of Investing Against the Tide: Lessons from a Life Running Money. He writes in the Financial Times that his bullishness on China has become so great that he is putting off retirement, and also launching a China investment fund: "I recently spent three months based in Fidelity’s Hong Kong office and this rekindled my interest in the region and China in particular. After a few weeks there, I said to my wife that the exciting opportunities available in China, and my belief that the market could go a lot higher over the next few years, made me wish I was still managing money. Rather to my surprise, she said that as I only had one life I should consider running a fund again while I still had the opportunity. I spent the next few weeks discussing the idea with my family and senior colleagues before deciding to give it a go."

• Capital Southwest (CSWC) has released its semiannual report dated 9/30/09. President and Chairman Gary Martin reports finding a few things to do, some new investments plus some additions to existing ones. CSWC trades at a significant discount to net asset value, and if I inherited an all-cash portfolio the first thing I'd do is put 4% to 5% in the company. (It accounted for 4.3% of my portfolio at end of Q3.) You have to be careful because it is somewhat illiquid with less than 4 million shares out.

• George Melloan, former Wall Street Journal columnist and deputy editor and author of The Great Money Binge: Spending Our Way to Socialism, returned to the Journal this week with a must-read op-ed. It's about, as one has come to expect these days, the massive debts the US federal government is piling up at alarming speed: "Yes, things have changed in a year. Feeding the government and starving free enterprise looks like a prescription for long-term economic stagnation. It's not unlike what we witnessed in the depression of the 1930s."

• Africa Confidential runs a feature story on proposed reforms in Nigeria regarding the nation's oil reserves. Specifically, sharing oil revenues with those communities in the Niger Delta. Nigeria in particular and Africa in general continue generating interest, even though my desire for a continent-wide investment play has weakened since the global financial crisis hit.

I hope everyone in the US had a great Thanksgiving. And I will add, belatedly, that I hope all Canadian readers had a great Thanksgiving back in October. For readers the world over, may peace and fellowship find you and those you care about. Stay safe and I'll see you next week if not sooner.

Random Thoughts, Thanksgiving Eve 2009

Tomorrow is Thanksgiving here in the US, markets will be closed and reopen for Friday. Trading is likely to be light the rest of this week. So what follows are random thoughts, in no particular order. Some contradict each other -- but that's the way it goes when we're in the fog of war.

• This bear market has likely NOT seen its lows. Stocks have yet to see normal bear markers of single-digit P/E ratios and fat yields. Why? Because of the unprecedented money-pumping done by the US Fed as well as central banks around the globe. This can't go on forever.

• That said, the more the "conventional wisdom" says we're in store for a weak recovery, the more I start thinking the surprise may be on the upside. This is one reason why I still am invested in stocks, for the most part. My stock market exposure has a time horizon of more than a decade. Keep that in mind.

• There is very little among stocks that strike me as bargains here.

• The portfolio was 20% in cash at the end of Q3, and closer to 25% with my partial sale of DirecTV. That cash is in a US Treasury money market fund, paying nothing, which is not something I like. Yet this cash level is the byproduct of finding little in the way of equities.

• My gold investment, SPDR Gold Trust ETF (GLD), has had a nice run. I haven't sold any of it. Central banks sold gold earlier this decade, helping drive the gold bullion price down. Now central banks are either buying or at least not selling, which could drive the price even higher. India's big buy from the IMF got the headlines. Yet others, like Russia, have been buying and are looking to add. Though not in the gargantuan chunks of India's recent purchase to be sure.

• Some gold mining stocks may actually be better buys than the bullion. But I'd never buy just one or two mining stocks. And with GLD more than 10% of my portfolio, I start getting into issues with over-concentration and lack of diversification if I start adding gold miners.

• Gold certainly could see a correction. If it does, and my "gold as insurance" views hold up, I could see letting gold have 15% of the portfolio. That's certainly not a prediction or something I want. This is a weird time and there are a lot of moving parts in this story.

Lastly, India bought gold not because they see gold going up so much as they see the US dollar going down. Have a great Thanksgiving if you're in the US, and all the best to readers the world over.

Five for the Weekend #67

Let's get right to it -- five items you might check out over the next couple of days.

• I reported selling half my DirecTV Group (DTV) stake this week, when the stock doubled from my entry price. My remaining half remains an important holding for me. John Malone said this week he wouldn't rule out DTV merging with AT&T or Verizon.

• Fairfax Financial announced today that it is voluntarily delisting from the New York Stock Exchange. When I first bought FFH it was trading only in Toronto (this is before launching Controlled Greed). It was easy for me to buy then and I'd imagine anyone in the US won't have a problem buying or selling the stock. My only caution is that Fairfax can be somewhat illiquid in trading volume. I note that in Toronto Fairfax will trade in Canadian dollars and US dollars. I take that as another thumbs-down on the long term prospects of the US dollar. Like DTV, I've sold enough of my Fairfax holding to get my original capital out.

• Longleaf Partners has released the Q3 report for its mutual funds. As I continuously point out to readers of this blog, I think reviewing the thoughts of guys like Mason Hawkins and Staley Cates can be more valuable than those of Warren Buffett. I bow to no mortal in my admiration for Buffett. But the immense size of Berkshire Hathaway limits his investing universe.

• Regular readers know Peter Cundill has been a great inspiration to me over the years. The Cundill name means much more in Canada than here in the US. In fact, many of this blog's readers never heard of him until this blog. Cundill is now retired. This article is about the new managers who have taken over the flagship Cundill Value Fund. Among their buys is Microsoft (MSFT). My take is that MSFT is a hold. And, like yours truly, they're trimming their stake in DTV.

• Megan McArdle writes a spectacular profile of Dave Ramsey, a well-know personal finance personality in America. Ramsey has a hugely-popular daily radio show, a nightly Fox Business show, and is a best-selling author. His most popular book is The Total Money Makeover: A Proven Plan for Financial Fitness. Some are turned off by Ramsey's religious overtones. Regardless of that, his message of getting out of debt and having an emergency fund are spot on.

And with that, have a great weekend.

Selling Some of My DirecTV Group

I bought DirecTV Group (DTV) in 2005 at $15.50. This afternoon I sold half of my stake at $31.00. The shares ended the day slightly under $31.00. Long-time Controlled Greed readers know I sell half of any position when it doubles, so that's what happened today.

DTV clocked in at about 10% of portfolio assets at the end of Q3. It remains a significant position for me. And when we recall that DTV is a huge part of one of the Liberty Media tracking stocks, it is even larger. (I hold all three Liberty Media tracking stocks and consider them a single position.)

This move adds to my cash (20% of portfolio assets at end of Q3). My cash in my brokerage account is a US Treasury money market fund. Which means it earns nothing. I'd like to put it to work -- but not much looks cheap right now. I'll have to see how much longer that remains the case.

Jim Puplava Interviews Rachel Benepe of First Eagle Gold Fund

If you're interested in Jean-Marie Eveillard's approach to value investing and using gold as insurance, check out part 2 of the third hour of Jim Puplava's Financial Sense Newshour.

It includes an interview with Rachel Benepe, manager of the First Eagle Gold Fund. She describes the First Eagle philosophy to buying gold bullion and gold mining stocks, and it is really enlightening. And she breaks down three mining stocks her fund owns, explaining what the First Eagle team sees in them.

One of the most intriguing interviews I've listened to (or seen, for that matter) in a while.

Gold Bugs Remain Bullish (Which May Not Be Surprising)

Peter Brimelow, who covers the world of investment newsletters for MarketWatch, reports today that gold bugs don't think the latest move up for gold is over. A bit:

But The Privateer argues that this past correction in gold, from mid-March 2008 to late September 2009, "was longer lasting and deeper than its predecessor. So far, Gold has only broken out of that correction for six weeks. After Gold broke out of the first correction in Mid September 2007, it roared higher for the next six MONTHS."

This gives The Privateer confidence.

The Le Metropole Café, as usual, relies heavily on what local gold premiums say about physical market conditions:

"The first thing to be stressed is that the physical market is in a profoundly different posture than in Q1 2009. Then regular buyers like Turkey, Vietnam and even India were exporting. Now to varying degrees they are buyers. ... India's return to the bid because of the rupee move noted here on Friday may have been decisive in the NY session's Bear rout, and of course Vietnam premiums as last reported over $30 are crying out for gold supplies."

Le Metropole Café maintains Vietnam now imports a similar amount of gold to China.

Five for the Weekend #66 -- NOT!

I'm on deadline for several non-blogging projects, so there's no installment of Five for the Weekend this week. This has been the case more than I'd like over the past months. Yet at least it is occurring with not too much going on with regards to specific investments.

I will say, again, that I believe the US Federal Reserve and the Obama administration (like the Bush administration before it) want easy money, and like the weak dollar. I would like to be a fly on the wall in some of the secret meetings in Asia going on right about now.

Have a great weekend. See you next week.