Zell: "Unreality and why everything is mispriced"

Sam Zell, a self-made real estate titan, is here speaking with the crew on CNBC.  Fortunately, they actually let him talk without bulldozing him with agenda based questions. Zell truly has a 20,000ft view of the economy, and he always speaks his mind.  His prognosis is not the rosiest.

"We need leadership, not criticism. We need encouragement, not discouragement..."
- Sam Zell

SAM ZELL CNBC INTERVIEW 

The Fraud Files

An interesting and quick read found via Santangel's Review showing the chart of one of the Madoff feeder funds.  Of course hindsight is 20/20, but looking at the chart of the Fairfield Sentry Fund is truly amazing...if it were real.  Cliche I know, but typically if things are too good to be true, then they are.  As Charlie Munger says, "There is no way to get rich with soft white hands."  Another quote that comes to mind is that of Richard Feynman which says, "The first principle is that you must not fool yourself - and you are the easiest person to fool."  I would imagine after being conditioned for decades of steadily upward performance, that one could start to believe in the viability of such "remarkable" performance. 


Sentry Fund Fraud Chart

Not so New

Keith Trauner and Larry Pitkowsky are the founders of the Goodhaven Fund (GOODX).  The fund is relatively new, but Trauner and Pitkowsky are not, having been integral parts of the team at Fairholme (FAIRX) with Bruce Berkowitz thru his finest years of out performance.  The interview linked below talks about their time at Fariholme, their philosophy and understanding of value investing, and the low down on some of their current favorite ideas.

The fund has put up decent numbers in its short existence, beating the S&P this year, though lagging a bit since inception in 2011.  Typically value will lag in a rising market as we have seen recently, but that is not all bad.  It is a sign that the managers have a clear cut value investment process that they are sticking to.  The true test will be in a significant market draw down.  If the GOODX managers truly invest with a Ben Graham-like margin of safety, then the fund's downside should be mitigated.  Furthermore, the managers have a significant portion of their personal wealth invested in the fund, so you can be assured that portfolio decisions are being made with shareholders best interest in mind. 


GOODHAVEN INTERVIEW






disclosure: this is not a recommendation to purchase any securities mentioned in this post or anywhere on the blog.  This blog strictly expresses the opinions of the author.

Music page update

FYI - I added a few songs to the TUNES tab in the Amazon player.  I ran across Anders Osborne, Junior Brown, Michael Kiwanuka, and another Bass Drum of Death track I thought I should share.  The drummer from BDOD is leaving for undisclosed reasons.  That's a bummer because he was a real bruiser when we saw them live at One Eyed Jack's in New Orleans.  Not sure how that will affect things going forward, but BDOD did say that a new LP was hitting the shelves soon.  Looking forward to that!

Recent commentary from FPA's Bob Rodriguez - "All In!"

"It is all about not underperforming the market or a benchmark, so don’t fight the Fed. Unfortunately, a strategy of following the Fed’s urging to take on greater risk will likely end in heartbreak. Should the stock market continue its upward march, both our clients and FPA’s portfolio managers will be tested. This is a time for discipline. Given that economic growth is languid at best and is likely slowing, the divergence between the stock market and economic reality cannot be sustained. One or the other has to adjust."
- Bob Rodriguez

Embedded below is Bob Rodriguez's latest commentary about the Fed's recent QE Infinity announcement.  That was a couple weeks ago, and the market's optimism about the maneuver is already fading.


all-in-commentary-9-2012BC714505E176

Pain is sending a message.

I found the excerpt below via the always insightful Farnam Street Blog.

“When we encounter pain, we are at an important juncture in our decision-making process.”

September 29, 2012

It is a fundamental law of nature that to evolve one has to push one’s limits, which is painful, in order to gain strength—whether it’s in the form of lifting weights, facing problems head-on, or in any other way. Nature gave us pain as a messaging device to tell us that we are approaching, or that we have exceeded, our limits in some way. At the same time, nature made the process of getting stronger require us to push our limits. Gaining strength is the adaptation process of the body and the mind to encountering one’s limits, which is painful. In other words, both pain and strength typically result from encountering one’s barriers. When we encounter pain, we are at an important juncture in our decision-making process.

Most people react to pain badly. They have “fight or flight” reactions to it: they either strike out at whatever brought them the pain or they try to run away from it. As a result, they don’t learn to find ways around their barriers, so they encounter them over and over again and make little or no progress toward what they want.

— Ray Dalio

Ray Dalio - Bridgewater 2012 Q2 Letter to Investors

Ray Dalio, one of the few macro mavens worth listening to, recently came out with his 2012 Q2 letter to investors. 

On an interconnected global economy:
"The breadth of this slowdown creates a dangerous dynamic because, given the inter-connectedness of economies and capital flows, one country's decline tends to reinforce another's, making a self-reinforcing global decline more likely and a reversal more difficult to produce."  

If China is truly slowing down it's important to think about how this affects the price of commodities and similar inputs to the Chinese economy.  How will that affect export countries of those goods?

On Stocks:

"The recent deterioration in global financial conditions and growth rates will certainly be a headwind to top-line revenue growth, but companies still retain plenty of ability to protect their operating margins and profitability by keeping labor costs down (given labor market slack and labor market competition from emerging markets). Yet the markets are currently pricing in the worst real earnings growth rate in a 100 years. To further exemplify, the dividend yield of US non-financial corporations is higher than the yield on US Government notes, something that has only happened once in the past 50 years, during the peak of the 2008 credit crisis. And this is now occurring in an environment in which companies have abundant liquidity to cover their dividends."

I interpret that as a positive sign for stocks and their relative cheapness, especially large-cap companies with diversified geographic footprints and pricing power.  As far as labor costs goes, many companies have resorted to keeping people on as 'freelance' or 'independent contractors'.  This keeps the employer's cost down, because typically that arrangement does not provide benefits.  Since so many companies have wrung out excess costs in their models because they had to in this environment to stay profitable, it is unlikely that they would reinstate the benefits and extra employer costs anytime soon.  I'm not saying that's a good thing for quality of life, but from a business standpoint it makes sense.  So many folks are happy just to be employed at all, that they don't feel they are in a position to push back too much right now to reclaim those benefits.

ECOPYNY01_SMTP_via_LDAP_07-17-2012_16-16-30


The only certain thing right now is uncertainty, and uncertainty is not the friend of the market or businesses, but it can provide opportunities.  Political uncertainty in America looms large, the European debt crisis continues to persist (investor/news fatigue), both of which contributes to uncertainty for managers which inhibits rapid employment growth, which keeps consumer purse strings tight, which leads to slower grow for corporations and producers.  

It's such a complex world with so many moving parts, it's nearly impossible to time markets and guess the future.  I do think that being aware of the macro environment has a place in one's investment decisions, but it should not be the sole foundation of those decisions.