CONTROLLED GREED.com

Five for the Weekend #73 -- Happy New Year Edition

Depending where you are around the globe, 2009 is either history or soon to be. Like Christmas last week, the holiday falls so that it will be a long weekend for most. And here are five items you might wish to check out as we kick off 2010.

• I don't want to close out the year without noting the passing of Christopher Browne, who died at the age of 62 from a heart attack this month. Browne was one of the partners of legendary value investing firm Tweedy, Browne in New York. Reading interviews with him in the pages of publications like Forbes in the last half of the 1980s and 1990s played a huge role in my development as an investor. Jason Zweig wrote a fine remembrance of the man in The Wall Street Journal. Rest in peace, Mr. Browne.

• Peter Brimelow covers the world of investment newsletters for MarketWatch. His latest column ranks the top ten performing letters of 2009. Equities Special Situations comes in first, racking up a gain of 174%. The rest include famous names like Harry Schultz and Ruff Times.

• Rachel Benepe manages the First Eagle Gold Fund, and she recently appeared on CNBC to discuss her firm's "gold as insurance" approach. The interview lasts five minutes. It took place on 12/22 with gold into its current correction (or what I believe is a correction). She said gold-as-insurance makes sense now more than ever. No argument from me.

• Niall Ferguson is always worth reading. And earlier this week he penned an essay on China -- "The Decade the World Tilted East" -- in the Financial Times (freely available on RealClearMarkets.com). This is lengthy, and you probably should print it out and read it.

• Finally, here's a consideration of the three rules of human conduct -- iron, silver and gold. No, we're not talking metals here. The linked piece was written by a man named Wayne Jackson in 1998, based on a course developed by T.B. Larimore (who died in 1929). Committing ourselves to living by the Golden Rule would be a great way to start 2010.

I wish all of you the best of health, happiness and prosperity in 2010 and beyond. Thanks for reading the blog, especially those of you who have been reading since Controlled Greed started in 2005 and haven't lost patience with my infrequent postings over the past year or so. But I suspect we'll have more to do in the coming months, so stay tuned. In the meantime, happy New Year.

Barron's Interviews Bearing Asset Management

Kevin Duffy and Bill Laggner of Bearing Asset Management sit down for a Q&A with Barron's in this week's issue. They've done quite well since opening up shop in 2002, averaging more than 18% annually.

Duffy has this to say about capitalism:

Capitalism is primarily attacked by two groups: utopians who wish to impose a more "compassionate" system, and political capitalists who want to enjoy the fruits of success without bearing the pain of failure. They use the coercion of the state to gain privileges, at the expense of everyone else.

As a country we've become less tolerant of economic failure. The result has been a series of interventions, such as meddling in the credit markets, promoting homeownership and creating a variety of safety nets for investors. Each crisis leads to an even greater crisis. The solution is always greater doses of intervention. So the system becomes increasingly unstable. The interventionists never see the bust coming, then blame it on "capitalism."

And when asked about the "little guy," he replies:

The little guy actually has been crushed. Nobody is asking where this money is coming from. And the money has to essentially flow into the political economy at the expense of the real economy. The little guy is always going to be the last one in the soup line. So he will get a bone tossed to him, like cash for clunkers. But if you are Goldman Sachs or if you have got essentially the red bat-phone to Washington, D.C., you are first in line.

Laggner adds:

AIG made sure its creditors received 100 cents on the dollar. Essentially you have the socialization of risk, but the survivors are still highly leveraged. There is still a multi-trillion dollar shadow banking system that FASB [the Financial Accounting Standards Board] wants to address next year. The central planners have already spent $3.15 trillion on various bailouts, credit backstops, guarantees, etc., and given approximately $17.5 trillion of government commitments, etc., while allowing many of these institutions to remain in place, with the same people running them.

Anyone familiar with Jim Grant talking about "the democratization of credit, the socialization of risk" years ago will find that sentiment echoing throughout this interview.

The pair give their longs (including gold -- oh boy!) and shorts. Read the entire thing if you subscribe to Barron's.

Five for the Weekend #72 -- Christmas Edition

With markets closing early today, and Christmas Friday, most of us are enjoying a very long weekend. So here are five items you might check out between now and Monday. Hopefully one or two of these little chestnuts will add just a little to your holiday cheer. Let's see.

• Jim Grant and the gang at Grant's Interest Rate Observer are giving away their first annual "Grant's Winter Resort & Ski" issue -- a compilation of vintage articles from 2009. It's 33 pages of great stuff, and you can download it from Grant's homepage here.

• Here's a good profile of Joe Lewis, the billionaire who lost a lot with his Bear Stearns investment, but has otherwise racked up huge sums with his currency bets and real estate developments. The 72-year-old started out in London as an "East End geezer" to living in Lyford Cay.

• Paul Kangas is stepping down from hosting the Nightly Business Report on PBS. I discovered NBR in the mid-1980s, the same time I started watching Wall Street Week with Louis Rukeyser. The Miami Herald has a good profile of Kangas. I especially liked the story of Kangas being in the Coast Guard when JFK was killed. His admiral told him when the news broke, "Call my stock broker, immediately." He describes how the move made $600,000.

• Randall Forsyth writes on Barron's Online about what he learned in 2009. And then speculates what we all may find in 2010: "The Federal Reserve is widely expected to begin tightening monetary policy, which may mean relearning the lessons of 1937, when reversing easy money led to the second down-leg of the Depression. Meantime, risk perceptions, as encompassed in the VIX, have continued to fall. That implies a large level of complacency. In which case, cash -- the worst asset class of 2009 -- might end up the winner of 2010."

• Now for some fun. The Mark Steyn Christmas Show is two hours of great conversation and holiday music. I'm not big on Steyn's views on interventionist foreign policy. But he's a fine writer, true wit, and possesses vast knowledge of musicals and old standards. He also pens the best obits of anyone these days (a skill little appreciated in the US, I'm afraid). And he used to write The Spectator's movie reviews (why he no longer does is beyond me). Anyway, enjoy.

I wish all of you a very Merry Christmas and happy holiday. And I hope this season can be a time of great joy and fellowship for all those you care about. Take care and thanks for reading.

Five for the Weekend #71

We're bracing for a snowstorm in my neck of the woods. So here are five items you might wish to review, whether your weekend involves being snowed in or enjoying the sun somewhere around the globe.

• This is from October, so it's not breaking news. But I came across this short video interview with Meryl Witmer of Eagle Capital Partners at a Barron's conference. She discusses two stock picks, one of which is E*Trade. Witmer, as readers of this blog know, is a member of Barron's annual Roundtables -- and the next one is right around the corner.

• Hong Kong-based David Webb has posted his annual Christmas Pick. Except this year he doesn't, writing that the picks aren't what his corporate governance site about. What he does write about is the possibility of setting up a closed-end fund, describing why the tax laws in HK make it unattractive at this time. This is a good article, and if you've just heard of Webb, you'll like checking out his past stock picks from the past decade.

• Matt McLennan, who took over from Jean-Marie Eveillard running the First Eagle Funds, recently gave an interview with the Wall Street Transcript. He discusses investing in Japan and the rest of Asia. And, of course, answers questions about the fund's owning gold. To get the link, go here and scroll down.

• Prem Watsa of Fairfax Financial (FFH) was interviewed by the Financial Post in Canada earlier this month. Asked if the worst is over: "80% of the economy [the private sector] is de-leveraging. 20% is government stimulus. Companies are operating at 65% of capacity or utilization rate. Unemployment is rising. If in six to 12 months' time, the stimulus and bailouts don't work, and we are at zero interest rates, what then? We had 20 years of good, meaning no recession to speak of, and only one year of bad. We are not worried about inflation, just the opposite. If wages start to go up, there will be inflation. But there is lack of demand. That's the problem."

• I've posted several links to stories on China's investment in Africa. Here Africa-Asia Confidential runs a feature story about Chinese involvement in a Liberian mine project.

And that's it. Have a great weekend.

BCE Rings Up Another Dividend Hike and Share Buyback

Some very good -- and unexpected -- news came today for BCE Inc. (BCE) shareholders:

BCE is hiking its annual dividend by 7% to $1.74 a share for 2010, has launched a bid to buy back up to $500-million worth of shares, and will trim annual costs by making an up-front $500-million contribution to its pension plan.

This is the company's third dividend increase since last December.

CEO George Cope said, "BCE is committed to delivering attractive ongoing returns to our shareholders and has done so through consistent and sustainable dividend increases and share buybacks since December 2008."

Sitting here in the US, I like receiving payouts from a Canadian outfit like BCE. The longer term trend of the US dollar looks to be going down (though nothing goes in a straight line). And a commodity based currency like the Canadian dollar should appreciate in value against its American counterpart over time.

Five for the Weekend #70

Well, 2009 is coming to a close. It will be interesting to see if 2010 is when the bear market finishes its work. What do I mean by that? Simply that as bad as the bear was earlier this year, we never saw the market-wide single-digit P/E ratios and fat yields typically seen in secular bear markets. And, if you believe as I do that we're in a bull rally within a secular bear market, that is something to keep in mind.

Here are five items you might check out over the next couple of days.

• Listening to Bloomberg radio out of Asia late last night, I heard that Mark Mobius has a blog. And he does! Mobius is Templeton's emerging markets guru, and John Templeton was certainly ahead of the curve in starting Templeton's emerging markets closed-end fund with Mobius in 1986 or thereabouts (here in the US anyway). Mobius has since been managing something like 30 different funds with many billions in assets, and that's probably hampered performance in many ways. The blog looks interesting, but "corporate blogs" are often less-appealing -- and for all sorts of regulatory reasons we shouldn't expect stock picks.

• Speaking of Bloomberg, this profile of investor Bob Rodriguez recently appeared on their website. Rodriguez is a value guy with First Pacific Advisors, and the fund he manages for FPA is known to have very high cash balances at times. In fact, he's averaged 30% cash since 1998 (the average for funds has been 4%). “People told me, ‘You are not paid to manage cash,’ ” he said in a telephone interview from his home in Zephyr Cove, Nevada, where he moved three years ago from California. “I am paid to exercise my best judgment. If you don’t like it, you can leave.”

• Martin Wolf wrote in the Financial Times this week about China's exchange rate policy: China’s exchange rate regime and structural policies are, indeed, of concern to the world. So, too, are the policies of other significant powers. What would happen if the deficit countries did slash spending relative to incomes while their trading partners were determined to sustain their own excess of output over incomes and export the difference? Answer: a depression. What would happen if deficit countries sustained domestic demand with massive and open-ended fiscal deficits? Answer: a wave of fiscal crises. Neither answer is acceptable; we need co-operative adjustment. Without it, protectionism in deficit countries is inevitable. We are watching a slow-motion train wreck. We must stop it before it is too late.

• Sticking with the FT and China, David Pilling has a must-read piece about Chinese investment in Africa: A few years ago, Lukas Lundin, a mining executive, rode his motorbike 8,000 miles from Cairo to Cape Town. His journey, which took just five weeks, meandered through 10 countries, including Sudan, Ethiopia, Malawi, Zambia and Botswana. He was amazed to discover that 85 per cent of the roads he travelled were tarred and of high quality. Many had been built by Chinese companies.

• I've long enjoyed the "High Life" columns Taki pens for The Spectator. They aren't investment-related pieces so they don't find themselves getting linked to my blog. But here's his take on the Dubai debacle: One of the most intriguing aspects of the Dubai debacle is how genius status is conferred upon business gambits by the creeps who descended to that crappy little place down south hoping to sell sand to the Bedouins. Many of them were Iranians and Pakistanis, and not a small number were Lebanese, all as honest as the day is long on 21 December in Helsinki. What they all did do was pay the poor Philippine and Pakistani workforce below-survival wages, confiscate their passports in cahoots with the Dubai authorities, and work them to death. So, it couldn’t happen to nicer people and I hope they eat lotsa sand (and they can also drink it if they like). They’ve held workers hostage for a very long time and in conditions far worse than those in Guantanamo — without the water boarding — so don’t cry for the Dubai Brothers as yet.

Have a great weekend, folks!

Buying Geeknet Inc.

Today I established a new position in the portfolio, buying shares in Geeknet Inc. (LNUX) at $1.30 each, which is where they ended the day.  Geeknet changed its name from SourceForge, Inc. in early November.

Geeknet is a network of community-driven media and e-commerce websites. It is a small company -- market capitalization is less than $80 million and there are approximately 60 million shares outstanding. The stock price is 1.7 times book value and there is no dividend. The current ratio is more than 5-to-1 and the quick ratio is more than 4-to-1. There is very little debt and about 50 cents a share in cash.

Geeknet has reported negative free cash flow, yet insiders have been aggressively buying the company’s stock for the past several months.

My hunch -- note the word, “hunch” -- is that the company may be taken private, or sold to another, larger outfit like Amazon. Of course, there is always the possibility that insiders have been adding to their stakes simply because they like the long-term prospects for the company. And insider buying alone doesn’t guarantee anything.

Anyone thinking about this absolutely needs to do their own due diligence. I’m in -- and could always end up with egg on my face.

Mourning the Loss of the Gold Standard

I have linked to so many Jim Grant op-eds and columns that I've labeled "must-read" that I won't do so again. They're all well worth our time. And I will repeat something I've said lots of times previously -- that Grant is the best financial writer around. And that reading his writing is enjoyable even if you don't agree with his point of view.

Grant's latest op-ed is found in The Wall Street Journal, mourning the loss of the gold standard. Not the last remnants that President Nixon abolished in 1971. But the classic gold standard ending in 1914.

A key bit:

As for the Great Recession, the Bernanke method itself was a leading cause of our troubles. Constrained by the discipline of a convertible currency, the U.S. would have had to undergo the salutary, unpleasant process described above to cure its trade deficit. But that process of correction would—I am going to speculate—have saved us from the near-death financial experience of 2008. Under a properly functioning gold standard, the U.S. would not have been able to borrow itself to the threshold of the poorhouse.

That's just one of many, many great things in this piece. Read it in its entirety.

Five for the Weekend #69

Better-than-expected jobs numbers and Helicopter Ben's reconfirmation hearings in Congress are the biggest market-related news items in the US this week. Here are five more items for your weekend reading.

• NipponKoa Insurance is a legacy holding for me, dating back to a forerunner purchased in 1998 -- long before launching this blog. Southeastern Asset Management is endorsing NipponKoa's planned merger with Sompo Japan Insurance: "Southeastern believes that the new board, together with management, shares our commitment to building value per share and having value recognized," the U.S. company said, adding, "We believe that this commitment will strengthen NKSJ's customers, employees, and shareholders."

• Actually, I will link to something regarding Ben Bernanke. The Wall Street Journal editorialized this week that Bernanke should not be reconfirmed: "The real problem is Mr. Bernanke's record before the panic, with its troubling implications for a second four years. When George W. Bush nominated the Princeton economist four years ago, we offered the backhanded compliment that at least he'd have to clean up the mess that the Alan Greenspan Fed had made. That mess turned out to be bigger than even we thought, but we also didn't know then how complicit Mr. Bernanke was in Mr. Greenspan's monetary decisions."

• Sivaram of the Can Turtles Fly? blog posts about and links to an interview with Gary Shilling. This is good stuff, whether you or I agree with everything Shilling says. I particularly enjoyed the end where Shilling lists areas he finds attractive and unattractive going forward.

• Canadian value investor Francis Chou has posted his holdings as of September 30. It is worth reviewing his holdings in all his funds, but I pay most attention to his flagship Chou Associates Fund. He's pretty much fully invested, with the largest industry categories being health care and telecommunications services.

• And finally, yet another article from Africa Confidential on Nigeria. This one about a corruption case in Switzerland that is snaring some of Nigeria's political elite: "Swiss investigators showed how Abacha family members and their advisors set up front companies and channelled hundreds of millions of dollars in stolen state funds through established Western banks including Credit Suisse, Merrill Lynch and Goldman Sachs, with few questions asked."

Have a great weekend, one and all.

Eveillard Interviewed on Bloomberg TV

I came across Jean-Marie Eveillard's interview on Bloomberg yesterday, which you can access through GuruFocus here. I recommend clicking on the text link for the full interview.

Eveillard updates us on his views on gold and gold mining stocks, and reports being underweight US stocks. He doesn't run the portfolio full-time (he's an advisor to First Eagle, not a portfolio manager) but said he thinks First Eagle Global is about 25% in US stocks -- low for the fund.

Simply put, with cash earning nothing, he thinks gold and stocks are the place to be.