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Five for the Weekend #47 -- July 4th Weekend Edition

With Saturday being Independence Day here in the US, Controlled Greed is declaring victory and taking Friday off. We hope all our Canadian readers enjoyed a great Canada Day on Wednesday. Here are five items you might wish to check out over the next three days.

• The jobs report was a downer, showing US unemployment at 9.5%. The Lex take in the Financial Times: "This is a volatile measure. But if the disheartened are only now ceasing their search for work, that suggests a drawn out period in which they rejoin the labour force, lifting the unemployment rate. And they are right to be discouraged: the mean duration of unemployment is rising, points out Forward Capital, while at 54 per cent, the proportion of the unemployed permanently, rather than temporarily, laid off is at its highest since records began." In all fairness, President Obama cannot be saddled with this (sorry to all my conservative friends). At least not yet. My hunch is the economy doesn't become his until 2011 and 2012. I just wish he was as fair to bond holders.

• Alice Schroeder writes on Bloomberg about promoting her Warren Buffett biography in China: "It is just as strange that Buffett, the man of patient capital accumulation, has been so fetishized in China, the land of instant everything. The tour gave me a window into the attitude of Chinese investors. It resembled no book tour imaginable in the U.S., consisting of marathon two-plus-hour press conferences and six-hour “forums” (a speech of at least 60 minutes, followed by a panel, then audience questions and answers followed by a book signing and a banquet) in Beijing, Nanjing, Shenzhen, and Shanghai."

• I don't own Johnson & Johnson directly. Prem Watsa has raved about the company so I assume Fairfax Financial (FFH) still holds stock in the healthcare giant. I recently linked to a Barron's Online article claiming Johnson & Johnson was attractively priced. Now Barron's is running another article giving thumbs-up to the company acquiring Irish drug maker Elan.

• Matthew Lynn writes in The Spectator about the three-generation feud between German auto makers Porsche and VW. A bit: "Both trace their origins to one of the most brilliant industrial designers of the 20th century, Ferdinand Porsche, who was an engineer in the 1920s for Daimler-Benz — which turned down his plans for a small city car, preferring to concentrate on upmarket Mercedes limousines. Hitler was more impressed, however, and asked Porsche to design the Beetle, the ‘people’s car’ that launched Volkswagen. Over the next few years, he came up with other nifty vehicles for the Führer, such as the Tiger tank which made its debut on the Eastern Front in 1942. But it was the Beetle that was his enduring triumph."

• Mark Steyn may be the best obituary writer in the English language (he also used to write great movie reviews in The Spectator). Here's his take on Michael Jackson.

Well, that's it for now. Happy July 4th to everyone in the US. And for readers everywhere, the hunt for value enters the second half of 2009.

Barron's Forum, Jim Puplava Interviewed on King World News

Eric King continues his run of top-notch interviews on his site, King World News. This weekend included talks with a Barron's Forum -- including Tom Donlan, Randall Forsyth and Gene Epstein. Another interview was yet another discussion with Jim Puplava.

Part II of the Barron's Forum is scheduled for this coming weekend.

Southeastern Asset Management Loses in Attempt to Replace NipponKoa Insurance Chief Executive

I should have posted this at the end of last week, but time got away from me.

Southeastern Asset Management, famous for its Longleaf Partners family of funds, owns 17% of NipponKoa Insurance. This is the second year running that Mason Hawkins and gang have been unsuccessful in replacing the CEO. I doubt they thought they had a shot -- more likely just registering disapproval on direction.

After their first attempt last year, NipponKoa announced plans to merge with Sompo Insurance Japan, a move which Southeastern Asset Management supports.

Everything You Ever Wanted to Know About Gold -- and More

If you've got some time on your hands and looking for some interesting reading on this Monday, check out The Privateer Gold Pages.

They're written by Bill Buckler, publisher of The Privateer market letter based in Queensland, Australia. You'll read some fascinating stuff about gold, the history of gold, money and a whole lot more.

My hunch is that you'll find this worthwhile -- even if you don't share Buckler's views on gold or believe gold is the only honest money.

This is every bit as long as it is interesting, though. So you might want to bookmark the site for later reference if you've got things filling up your time right now.

Five for the Weekend #47

If you live in the US, you're probably amazed -- but not surprised, certainly -- how our three 24-hour so-called news channels can instantly turn themselves into the E! Channel. Oh well. In the meantime here are five items for your review this weekend.

• China reiterates its call for a new world reserve currency: “Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong. I'm not a gold bug, but I do believe gold is the honest form of money. But Central Bankers and governments will fight it to the death.

• The Lex Column in the Financial Times points out the the King of Pop was also a King of Debt. In some ways, Michael Jackson's death reminds me of Elvis' in 1977. Both in poor health at relatively young ages, finances in poor shape, hangers-on existing like leeches on their host and abuse of pain medications. Back to Lex: "They say the rich are different, but it is the famous who are really different. The merely wealthy would have gone bankrupt long ago. Even faded stars such as Jackson can stay afloat with the promise of income from comebacks like his now-aborted concert series." The Elvis estate made a spectacular financial comeback, and look for Jackson's to do the same. R.I.P. Mr. Jackson.

• At the risk of sounding crass, while on the subject of painkillers, portfolio holding King Pharmaceuticals (KG) this week announced it expects regulators to delay sales of the first short-acting oxycodone pill designed to deter abuse. The stock fell on the news, but its only a few cents below my entry price. So I'm not in any pain...yet.

• Africa-Asia Confidential runs an in-depth profile of China's role in the power-sharing negotiations inside Zimbabwe. China's increasing bilateral trade with African countries is one of the most interesting -- and unreported, at least here in the US -- stories in our time.

• Free Money Finance, a great personal finance blog, has an interesting post on whether women should marry for money. FMF links to a WSJ.com blog post. Good link, good FMF post, and I enjoyed reading the commenters on FMF. Maybe you will, too.

Have a wonderful weekend, folks!

Fairfax Financial Twofer Thursday

Two items of note regarding portfolio holding Fairfax Financial (FFH) today.

First is news that the SEC has completed its investigation, with no action being taken:

Fairfax was subpoenaed in 2005 and 2006 by the SEC regarding its non-traditional insurance or reinsurance transactions and comments Watsa made in response to a question during an investor conference call.

Second is this Globe and Mail blog piece including Fairfax in its list of stocks on the Toronto Stock Exchange with "wads of cash in their back pockets." This was actually posted last night, but what the heck, I saw it today:

The “net cash per share” screen is just one tool used by value investors looking for investment opportunities in companies whose shares have sometimes been under sustained selling pressure.

The formula for net cash per share is the total value of all cash and equivalents less the total of the short- and long-term liabilities divided by the shares outstanding. The net cash per share is then expressed as a percentage of the current price.

Interesting article -- interesting list of companies.

Warren Buffett Wednesday

The big news on Warren Buffett today was the interview he gave to CNBC on the lousy state of the economy. His statements echo those of the Barron's Roundtable participants a couple of weeks ago, who were downright, well, down on business conditions.

And when the CEO of Verizon appeared on Charlie Rose the other night, they spent most of the time talking about communications. Towards the end Rose asked about the overall state of the economy, and the CEO (name escapes me) seemed to be bending over backwards not to be too negative. Yet maybe that's just what I sensed and reading the transcript would give a different impression.

More interesting is this WSJ.com piece on Warren Buffett's portfolio holdings being cheap.

My take is that it might be better to just buy Berkshire Hathaway. BUT I wouldn't pay any "Buffett premium" -- and may only buy if Berkshire traded at a nice discount to NAV. Perhaps I'm being too greedy in that view. I just like it when I can buy big conglomerates like I bought Cheung Kong Holdings earlier this year -- at a 70% discount to book. I know. I know. Not exactly an apples-to-apples comparison.

Will Berkshire ever trade that cheaply? Doubtful. And I'm not holding my breath.

Japanese Retail Investors Turning on Managements?

According to Bloomberg, 78% of all retail investors in Japan who are planning on voting are prepared to cast ballots against managements.

This section in particular catches my eye:

Southeastern will vote against the re-election of NipponKoa Insurance Co. President Makoto Hyodo at the insurer’s shareholder meeting scheduled for June 25, the fund said in a statement in March.

It would be the Memphis, Tennessee-based fund’s second attempt to oust Hyodo. Southeastern, which has about 17 percent of the casualty insurer, has cited his failure to raise shareholder value. Nipponkoa shares have slumped 19 percent this year, compared with a 6.7 percent decline by the nine-member Topix Insurance Index during the same period.

Southeastern’s unsuccessful bid last year contributed to Nipponkoa announcing cost cuts and a plan to merge with Sompo Japan Insurance Co. amid declines in premium income.

You'll recall I mentioned NipponKoa earlier this month. The company is a legacy holding of mine, since I purchased Koa Fire & Marine Insurance back in 1998.

Breakingviews: Market Turning, Green Shoots Mowed Down

Regular Controlled Greed readers know I respect the editors of Breakingviews.com immensely. The top guy, Hugo Dixon, oversaw the Lex Column at the Financial Times before launching BV some years ago.

So when they put out a piece like this one, I sit up and pay attention:

Falling copper prices, a World Bank report questioning global growth, talk of currency trouble out east in Belarus were all possible triggers. But the results were plain to see. Equities, oil and other commodities were hit brutally, as well as recent market darlings such as the Australian dollar and the Brazilian real. The US dollar muscled in like a new enforcer.

Further down:

But now the hopes and the stimulus are being questioned. Wednesday will be important. The US Federal Reserve is expected to confirm the markets' broad expectation that it does not plan to print yet more money. There may even be Fed intimations of an 'exit strategy' from stimulus. Less money printing should be good for the dollar - but is potentially very bad for commodities, currencies and equities that have scampered ahead on pumped cash, a frail dollar and reflationary hopes.

And finally:

Meanwhile, central bankers are warning governments about fiscal stimulus, which has gone over its limit in the US and UK. That leaves the markets to reassess a world showing only meagre signs of economic recovery but with prices that have leaped ahead in just months. The risk is that Monday's shoot-out is the first of many until more rational levels are reached. After the merry months, the forensics could be kept busy for a while.

Hate to say "everyone knows." Yet everyone should have known this has been a bear market rally. The question is now: did it end Monday?

Looming Energy Plays?

John Dorfman expects energy stocks to surge when the recession ends:

Energy stocks may be especially timely now. They usually do quite well after the end of a recession.

No one knows when the current recession will end. A few months ago, most economists were guessing 2010 or 2011. Today, many are predicting it will end this year -- a view I share.

I examined the performance of three energy indexes after the end of the past five recessions. By my calculation, oil drilling stocks rose 22 percent on average over the ensuing 12 months. Oil exploration and production companies gained 13 percent, and integrated oil companies 9 percent.

By comparison, he reports the S&P 500 averaged a gain of 8%.

I've actually been thinking of some energy stocks -- particularly oil and gas related companies. But I've got to do a lot more research before putting any money to work there.

Eric King Interview with Jim Grant

Jim Grant of Grant's Interest Rate Observer was interviewed by Eric King on King World News.

Grant discusses the economic mess and a host of other things, including his fondness for the classic gold standard the world was on from around 1880 to 1914. And no, he's not thinking we'll get back to that anytime soon.

Controlled Greed has fawned over Grant so much and so often since launching this blog in 2005 that we're unable to be objective. But like anything we've ever seen written by or said by Grant, the interview is highly recommended and should prove well worth your time.

And here's a heads up: King World News is scheduled to interview some folks from Barron's, including Thomas Donlan.

Barron's Interviews Templeton's Greg Motyl

Greg Motyl, chief investment officer for Templeton, is this week's interview in Barron's. He joined the firm in 1981, the third investment professional hired by John Templeton. I wonder how many managers at Templeton were there when Sir John was? But that's beside the point for now.

Motyl reports on Templeton's breakdown by sector:

Our biggest weightings as of March 31 were health care [16.28%], financials [15.73%], information technology [13.26%], telecommunications services [11.74%], consumer discretionary [10.22%] and energy [10.16%]. The rest was in industrials [9.41%], consumer staples [6.71], materials [3.66%] and utilities [2.84%].

And by geographic region:

Our largest market is Europe, with 49.76% of our assets. Next is North America, with 32.89%, followed by Asia, at 12.82%; Latin America, 2.52%; Australia/New Zealand, 1.1%, and the Mideast/Africa, at 0.91%.

The Templeton Global Equity Group manages some $90 billion. Great having that much but hard putting it to work (not that I'd mind having that problem).

Five for the Weekend #46

Let's get right to the five items being offered up for your review over the next couple of days.

• I first heard of this reading The Privateer website a couple of weeks or so ago. Then I saw the story again in the Daily Telegraph: Shoppers in Germany will soon be able to buy gold from vending machines. I note that the editors of Breakingviews aren't all that hot on the idea, though they think the metal itself has possibilities.

• The Can Turtles Fly? blog links to Marty Whitman's 2nd quarter letter and Sivaram adds his thoughts as well. Interesting reading on both accounts.

• I can't recall offhand whether it was last year's annual report, or the one before that. But Prem Watsa in his letter to Fairfax Financial (FFH) shareholders sang the praises of Johnson & Johnson. My only exposure is through owning Fairfax stock (and I remind readers that I've sold enough Fairfax stock to get my original capital back, making the company a free ride for me). Barron's Online has an article saying that Johnson & Johnson has rarely been this cheap over the past 20 years.

• David at the Finance Trends Matter blog links to a thoughtful (and meaningful) essay by 85-year-old Richard Russell, of Dow Theory Letters fame. The essay is "Identity: Know Thyself" and is something I'll read again this weekend after reading it today.

• Famed UK value manager Anthony Bolton reportedly thinks the stock market will continue making gains over the short term: "I think the economic data will continue to improve over the next few months and this could prove the backcloth for a further significant rise before the market consolidates," he says.

Have a great weekend. See you next week if not sooner.

Lonrho: More Than African Longshot?

Regular readers know that Controlled Greed has been interested in the potential of Africa generally. And keeping an eye on Lonrho in particular. Lonrho is the way I'd like to play Africa -- if I played at all. The company invests in a range of industries over different countries.

Lonrho trades in London under symbol LONR. And even though it is a conglomerate, it is very small. It pays no dividend. But it also is dirt cheap and has no debt. It's almost like a start-up in that it has been burning through cash, though management says its businesses are becoming cash-flow positive.

The Daily Telegraph ran a favorable piece on Lonrho today -- while cautioning it is a speculative play on African growth:

In the first half of the year the company managed to post a small pre-tax profit of £600,000, although it is likely that the group will be loss-making for the full year. However, Questor feels that the company's valuation is too low for an entrepreneurial business operating in a growth market.

Investors should not put a great deal of money in the shares and regard them as a longer-term speculative buy, but the stance on the shares is positive.

Normally, I'd be tempted to buy shares in this outfit. But these are not normal times. We're in a bear market -- currently a bear rally -- and patience may yet yield bargains in the developed world. Without the risks of frontier markets like those in the Dark Continent. We'll see.

Gary Shilling on Financial Sense Newshour Last Weekend

Forgot to mention yesterday that Gary Shilling appeared on Jim Puplava's Financial Sense Newshour last Saturday.

As you've doubtless read here previously, I find Shilling an interesting guy who tries to peer into the unknowable future and predict trends and outcomes. He's been around for a long time and is the real deal.

This is the third or so time he's appeared on Puplava's show -- so let's keep our fingers crossed that he's become one of Jim's regulars. It is refreshing to be able to hear Shilling give his thoughts in complete sentences, even paragraphs. I haven't watched CNBC in a while. But when Shilling would be on Larry Kudlow's show he'd be one of who-knows-how-many panelits -- all interrupting and talking over each other. All of whom (I suspect) aren't qualified to tie Shilling's shoelaces.

Dorfman's Latest

In his new Bloomberg column, money manager John Dorfman explains the way he see the investing world now:

The yield on 10-year Treasuries hit 3.99 percent on Wednesday, the highest since October. The 30-year bond yield rose to 4.77 percent, the highest in a year. Traders blamed a large U.S. Treasury bond auction and Russia’s threats to sell some of its U.S. debt.

Get used to it. Interest rates are likely to climb more in the next three years as U.S. government spending increases. And Russia isn’t the only nation tiring of U.S. paper. China and other countries voice similar sentiments.

Later in the piece, he mentions BHP Billiton, OM Group, Perot Systems and US Steel -- all of which he owns personally and for clients.

DirecTV Getting Bought (Eventually) by AT&T or Verizon?

Another post by Barron's Eric Savitz today discusses a research report speculating that DirecTV Group (DTV) will eventually get purchased by AT&T or Verizon. And that John Malone won't do a deal for less than $35 a share.

Since I got in at $15.50, sure sounds good to me. (Nice to see that every stock in the portfolio isn't a blow-up!)

As I detailed recently, DirecTV is the portfolio's largest holding at 9.3%. And it's even larger than that considering Liberty Media owns a lot of the company as well.

Let's see what happens. It's good to be with John Malone in this.

Barron's Midyear Roundtable Tech Picks

Eric Savitz in his Barron's Tech Trader Daily blog details the technology picks of the Midyear Roundtable participants.

He says the "most surprising" tidbit is that two people (Fred Hickey and Meryl Witmer) picked Microsoft (MSFT).

I don't know why that would be the case. If anything, Microsoft has become a conventional value holding over the past few months or so.

Meryl Joins Fred in Mooning Over Microsoft

The Midyear Roundtable is the feature article in this week's issue of Barron's. I still need to study it carefully as I've just scanned it so far. Fred Hickey liked Microsoft (MSFT) in January, and still does. He says the company is unloved because of competition from Google and an antitrust problem with the European Union:

It is the best play in the tech world right now. It trades for 12 times earnings, something you don't ever see. The catalyst for the stock is Microsoft's best upgrade cycle ever. In the next 12 months the company will introduce about a dozen new products or upgrades. Windows 7 will ship on Oct. 22. It will kick off an upgrade cycle for the whole computer industry.

Now Meryl Witmer is onboard (I became a Microsoft shareholder earlier this year) -- in fact, it is her only recommendation this time:

We like Microsoft at 22 a share. The obvious reasons to buy it are its bulletproof balance sheet and lots of earnings. It could have $3 a share of net cash as of June 30, the end of its fiscal year, and earn $1.71. The Street estimates earnings of $1.90 in fiscal 2010. Net of cash, it is trading at 10 times earnings. It is very inexpensive. Three things have gotten my attention beyond the P/E and the cash. Microsoft is in front of a product cycle in its client division, which sells personal-computer operating systems. Microsoft is coming out with Windows 7 for the 2009 holiday season. Win 7, as they call it, has gotten great reviews, and the company has bent over backward to damp expectations about upgrade revenue. It could surprise on the upside, as corporations didn't upgrade en masse to Vista, the prior operating system.

You can watch Barron's Lauren Rublin give a short overview on what all 10 Roundtable participants think of the investment scene with half the year gone:

Five for the Weekend #45

Well, another weekend is here. And with it, another five items for your review. Let's get rolling.

• Andrew Willis has a neat piece in Friday's Globe and Mail on niche insurers: "Lloyds and U.S. insurer Chubb Corp. dominate this space, with companies such as Swiss Re, Munich Re and Fairfax Financial Holdings Ltd. playing secondary roles. The field also includes niche players such as Georgia-based insurer American Hole'n One, which is totally focused on insuring golf contests." Markets are endlessly fascinating.

• The What Would John Templeton Say? blog has an interesting post on the importance of controlling our thoughts for effective action: "Just as Sir John mentioned, the term 'thought control' can produce a negative connotation. However, the inherent irony of this negative response is that its practice as Sir John describes it produces deeply positive effects and outcomes." True, but can be very hard to achieve. I succeed and fail at this sort of thing to greater and lesser degrees over time. Sticking-to-it is the operative term, I guess.

• The Spectator profiles property tycoon Gerald Ronson: "History will regard Gerald Ronson as the man who withstood the humiliation of a high-profile trial and conviction, took his punishment without flinching, and returned quietly to his métier of making millions. Speaking from the comfort of his boardroom at Heron, his family’s property empire, the 70-year-old tycoon says, ‘Did I get a black eye, yes; did I take it, yes; and did I come back better than anyone else in the Guinness case? Yes.’"

• Speaking of The Spectator, the magazine's business editor, Martin Vander Weyer has a good op-ed in sister publication the Daily Telegraph: "But there has also been a lot of loose talk about signs of recovery, encouraging us to feel we're definitely not in the grim territory of an L-shaped slump, which would mean no significant upturn for the foreseeable future; or even worse than that (one for which there's no convenient letter, but let's label it the "backslash" model), a bottomless downslope to total collapse."

• Noted author and historian Peter Bernstein recently passed away at age 90. There are doubtless many obits and stories to read about this, and deservedly so. But among the best things I've seen on this man's death are video interviews Bernstein did with The Financial Times, found courtesy of the Finance Trends Matter blog. Rest in peace, Mr. Bernstein.

That's all for now. See you in a couple of days or so.