Billionaire media mogul David Geffen, founder of Geffen Records and DreamWorks, recently bid for hedge fund Harbinger Capital Partners' 20% stake in the ailing New York Times Co.
This is Geffen's second attempt to buy a newspaper – he bid $2 billion for the Los Angeles Times in 2006, but was rejected by Tribune. Harbinger also turned down Geffen's offer... The hedge fund spent $500 million acquiring New York Times shares in 2007 that are now worth less than $125 million. Geffen offered to pay market prices, but Harbinger balked.
Newspapers used to focus on good editorial. Now they sell advertisements. The Internet commoditized news and destroyed print media.
Yet we still see billionaires lining up to buy newspaper companies... Sam Zell levered up and bought Tribune in 2007 and failed miserably. The company filed for bankruptcy last December. And Rupert Murdoch bought Dow Jones (publisher of the Wall Street Journal) in August 2007. His investment isn't a complete failure – the Journal is the only paper to successfully charge for its online content – but it's still struggling.
So why do billionaires want to own newspapers? We experts call it egoitis mammuthus. In layman's terms, it's simply a massive swelling of the ego. Controlling the New York Times may not be a profitable job, but it's a powerful one. You control perceptions for millions of people. You can write whatever you want about anyone and anything.
Another billionaire suffering from egoitis mammuthus: Charlie Munger, vice chairman of Berkshire Hathaway. Munger is also chairman of Wesco, of which Berkshire owns 80%. Last week, I attended the first 60 minutes of Wesco's annual meeting at the Pasadena convention center in Southern California. Munger looked at the audience and said with a totally straight face that if he could "be a despot," he would run the country "like Singapore." I've never been to Singapore. But I hear you're not totally free to speak your mind there. That's kind of bad, isn't it?
Munger also said he would blanket the country with solar panels, even if it weren't cost effective, because – I'm not making this up – "we could really use the stimulus." He said this right after casting himself into the intellectually challenged abyss of believers in "peak oil."
Later on, he said if he were "in charge," he'd take away "everything from banks that wasn't boring." He said he'd shut down the credit default swap market, because "the world worked fine without them." Munger said we don't need an economy that resembles "a vast poker tournament."
So much for Munger's self-described wisdom and his lattice work of mental models. I finally figured out why billionaires generally side with typical welfare state, tax-and-spend liberals. Convinced that they're better and smarter than you, they want the power to run your life and make the choices they feel you are unable to make for yourself. Liberals and billionaires want to remake human nature in their own image and likeness.
I've recommended Berkshire Hathaway, which has a financial fortress of a balance sheet and is cheap at current prices. So far, I haven't worried that it's run by two idiot savant investors, who are great at making money and horribly far off base about so much else (read The Snowball and you'll see what I mean). But it's getting harder.
While the Wesco meeting was a disappointment, the two-day Value Investing Congress that preceded it was the best investment conference I've ever attended, bar none. I've never been to an investment conference where I wasn't exhausted from boredom at the end of the day. But when this one was over, I was energized and wanted more...
Three Joel Greenblatt protégés presented several excellent ideas. Two of them, David Rabinowitz and Jed Nussdorf, unbeknownst to each other, recommended the same London-traded reinsurance company, Lancashire Holdings.
Lancashire is run by Richard Brindle, who previously ran two Lloyd's syndicates. Brindle returned close to $400 million of capital to shareholders in 2007 and 2008, and has consistently walked away from premiums that were too low – the hallmark of a great underwriter. The firm is a conservative investor, with just $300 million of corporate bonds in a $2 billion investment portfolio. The firm's operating expense is low, at less than 10% of gross written premiums.
A couple of other reinsurance stocks discussed at the Value Congress also seemed attractive: Odyssey Re, which is 70% owned by Fairfax Financial Holdings, and Montpelier Re, which is 8% owned by billionaire Wilbur Ross. Both stocks trade at discounts to book value and have relatively little debt and conservative investment books.
Carlo Cannell of Cannell Capital, a conference regular, gave another entertaining presentation. This time, Cannell brought a PhD biologist, who interjected brief descriptions of how various animal species, like the Irish elk and the California condor, have failed to adapt to the changing environment. Cannell then discussed industries that are poor adapters, like computer hardware makers, semiconductor equipment makers, and restaurants.
Another excellent presenter was Charles de Vaulx of International Value Advisers. De Vaulx has only 30% of his $2.3 billion of assets in equities. Most of that is in Japanese and European equities. He has 34% of his money in high-yield bonds, another 8% in gold bullion, and 21% in cash.
Value Congress co-host, Whitney Tilson and his investment partner Glenn Tongue updated their highly detailed work on the credit crisis, concluding the worst is yet to come. Blowups in commercial real estate, construction loans, and resetting option ARMs all lie ahead. They also recommended Wells Fargo, which Tongue says has a negative tangible net worth, but will earn its way out of portfolio losses.
Jim Rogers appeared on Bloomberg this morning and (surprise, surprise) he's still bearish on the dollar. He said the U.S. dollar will end in a "currency crisis" and believes the recent rally is due to short sellers covering their positions. Rogers said he may add to his yen holdings and prefers the euro to the dollar and the pound... "We're going to have a currency crisis, probably this fall or the fall of 2010," Rogers said. "It's been building up for a long time. We've had a huge rally in the dollar, an artificial rally in the dollar, so it's time for a currency crisis." He also said the st
ock market isn't the place to be "in the next two to three years."
Rogers likes silver better than gold, palladium, or platinum and is still buying agricultural commodities.
A couple months ago in Extreme Value, I recommended a small Canadian stock. It had just started a farming project that could eventually grow to a million acres. That's an enormous farm, given that 25,000 acres is considered a big farm. The company has already invested more than $25 million. The region it's in has a large labor pool, all the necessary agricultural infrastructure, and a strong agricultural tradition.
Since I recommended this stock, it's only gone up a few percent, so it's still very cheap. One of the most successful investors in Canada runs the company. It recently invested $55 million in a smaller company and sold its stake for $240 million a couple years later. If you want to know more about Extreme Value and the little company with the big farming project, click here.
We wrote it, did you buy it?
The White House announced it's open for business once again. Insurance companies are now eligible for TARP (the government's Troubled Assets Relief Program). Concerned about the health of insurance companies' investment portfolios, the government decided to throw money at that industry's problems, too. So... was it a coincidence that five different insiders had, less than one week before, bought shares of the insurance company Conseco (NYSE: CNO)?
...We expect Conseco to earn roughly $600 million a year on its operations. And considering the stock is currently trading for only $275 million, that would be a very attractive investment. – Inside Strategist, April 15, 2009
Shares in Conseco soared 21% yesterday. The company said all three of its insurance businesses are now profitable. Yesterday's big gain takes the total return since our recommendation last month to more than 130%. (That's the second double we've recorded at Stansberry & Associates on stocks recommended this year. The first was in our Oil Report, where Matt Badiali's April recommendation of Parker Drilling doubled in less than 30 days.)
In addition to Conseco, Inside Strategist has made three other big trades in the last two months, including 60% on Overseas Shipping (OSG), 56% on Bronco Drilling (BRNC), and almost 40% on Chimera (CIM) – whose CEO was buying shares again last week.
Since Porter and Braden took over the letter in late February, they've averaged 40% gains across eight recommendations. Significant insider buying is their favorite bullish indicator – and their track record proves why they spend so much time studying it.
President Obama's call last year for "shared sacrifice" doesn't extend to federal employees, at least based on the details of his administration's 2010 budget released this week. As the official unemployment rate is nearing double digits, and 6.35 million people are receiving unemployment benefits, the U.S. government is on a hiring binge.
Executive branch employment – 1.98 million in 2009, excluding the Postal Service and the Defense Department – is set to increase by 15.6% for the 2010 fiscal year. Most of that is thanks to the Census Bureau hiring 102,000 temporary workers, but not counting them still yields a net increase of 2% in one year.
There's little belt-tightening in evidence in Washington, D.C.: Counting benefits, the average pay per federal worker will leap from $72,800 in 2008 to $75,419 next year.
If you know anything about investing in farmland, or even if you just want to tell us how much you worship Munger and Buffett, write us here: feedback@stansberryresearch.com.
"Thanks, Dan, for the best laugh I've had for a long time with your statement, 'I wish we had more half-wits in high places. It's the zero-wits who are killing us.' So sad; but so true. Yet I couldn't help but laugh. The irony of it all is that the zero-wits are for the most part college-educated. So am I. But, I've begun to wonder what's happened to our educational system and if there's any real value in spending a small fortune for a college education these days. Especially since it means that the kids or their parents sometimes have to take on huge debt to do so. The 'man on the street' without the college education seems to be a bit smarter.
"When I ask them lately if they think the economy is improving I get answers like, 'All I know is that more and more of the people I know are losing their jobs. So no, it doesn't look better to me.' So maybe tomorrow's children should strive to get a real education on their own and forego the expensive college education." – Paid-up subscriber Carolyn
Ferris comment: It's a comedy of errors. We send our "best and brightest" to Harvard, Yale, and other institutions of higher learning. Then they go to Washington, and we get the likes of Obama, whose best ideas are to raise taxes, spend more, suppress civil liberties, wage another unnecessary war, and turn the U.S. into Sweden, where I've heard stories of armed guards in some clinics because patients wait so long to see a doctor they start getting violent... or maybe Canada, where they wait so long for treatment, that those who can afford it come to the U.S.
"Found your letter to the guy earning $150,000 very rude and the net you came up with was extremely low to live on in this day and age. I don't understand you writing a letter like that if you want to keep your subscribers. Very upset by your letter." – "A maybe canceled subscriber"
Ferris comment: I would have thought it was impossible to miss Porter's sarcasm. Did you go to Harvard?
Regards,
Dan Ferris
Medford, Oregon
May 12, 2009