Davy Bui

A Portfolio Update: Replacing Gold with Energy

Hey folks,

Thanks for the comment. SeekingAlpha changed my admittedly boring original title to what's shown above. It is not my position to exchange gold positions for energy positions. I sold NXG but still have big positions in other gold stocks. My point is simply energy looks cheap here relative to gold (and most everything else). The time to buy the gold sector was a few months ago. I guess gold could go higher but it's highly volatile so you'll probably get better entry points with a little patience. Or you could miss the train if some macro-altering event occurs to boost gold so that's a risk.

So I agree with Barking -- gold and oil. The US$ has been strong but the strength seems ill-conceived. Do investors want to stay in this nightmare forever? If not, what happens to the US$ once the economy regains its footing? It seems to me that the best-case scenario for dollar bulls is the Roosevelt 32-37 situation where government life-support props up the economy but no true growth or recovery is actually occurring thus spurring investors to cling to the flight to so-called safety trade.

Penn West Energy's Reassuring Earnings Update

Quick point for folks so people aren't confused by some of these comments.

The standardized distributable cash payout ratio is defined by the company, not me, as cash distributions declared divided by standardized distributable cash (aka free cash flow). The number you want is less than 1. Anything over one, by definition, means the company is declaring more in cash distributions than they can generate after capital spend. The commenter above is completely wrong.

Q4 Holdings of Bruce Berkowitz, Robert Rodriguez and Mohnish Pabrai

Hey Maz,

Good catch on Berkshire. I assumed he was selling Berkshire to buy other stocks, similar to what Pabrai does. If he said that, I agree with him & actually posted something a few weeks back similar to what you've quoted.

Where'd you find that quote from? I don't remember that from the conference call -- in fact, he mentioned that Berkshire around $2500 (b shares) was a good buy.

Eye-Catching Portfolio Moves by Klarman, Witmer and Einhorn

Hi SeaKC,

Thanks for the comment. I use a perl script to parse the filings into spreadsheet format so some information may be lacking, probably by the filers' design.

In any case, it isn't a typo but rather just incomplete/misleading. The iStar position isn't equity but rather, convertible debt at 29 cents on the dollar. Obviously, Klarman doesn't go out of his way to tell us that in the filing!

Re-examining My American Capital Strategies Position

najdorf -- I pretty much agree with you on all points.

Hopefully, I won't ever try to develop a rationale to hold a company but rather, let the "facts on the ground" guide me to a good decision. Easier said than done but that's my goal.

I didn't spend much time trying to forecast how their companies are going to perform because, as you pointed out, it is a fruitless exercise. Non-performing loans stands at 8.2% of cost and as I've said before, I expect this number to go up. How high, who knows? Subjectively, I'm hoping it doesn't go past last downturn's 15%. I have spent more time going into management's ability & track record in managing these risks in previous posts:

enlightened-american.c.../

Re: share buybacks -- again, I agree. AmCap raised equity in March 2008, during the credit crisis, at a premium to book and are now in "steady-state mode." Book value at Q1 2008 was $28.16 and today they're selling under $23. Last week, they were around $15-16 per share. Hopefully, they bought back some shares or investors may have some unpleasant surprises in store.

Re-examining My American Capital Strategies Position

Thanks for the constructive comments guys.

Asterisk .*. -- I never said that share price had anything to do with debt/equity ratios. My point was that the market is pricing ACAS well below book, implying the book number is coming down. Either the market is wrong or we (longs) are wrong. If the market is right and book value is closer to current share price, then according to last quarter's debt numbers, AmCap's debt/equity would be at or above 1 and I'm not sure what happens at that point.

shudda, Thanks for the additional background. First, to be clear, I did not say that I expect the management to cut their dividend, only that, at near 20% yield, the market is possibly pricing one in. I think that is a reasonable statement.

My feeling is that management has a little more discretion re: the dividend than you give them credit for. For instance, they've already "de facto reduced" the dividend when they announced their new dividend policy of rolling over and paying long-term capital gains in the dividend (less 4% excise tax) rather than retaining the capital gains, paying a 35% tax and treating gains as deemed distributions. I call this a reduction because previously, they were able to grow the dividend without paying out these long-term cap gains so it suggests a weakness in growing their NOI. But if they needed cash, it seems to me that they could reinstate the deemed distribution policy but maybe I'm missing something. I am definitely not an expert in BDC/RIC regulations as evidenced by my questions regarding what happens if ACAS exceed 1:1 debt/equity. By my spreadsheet, AmCap hasn't paid over 90% of net realized earnings since 2004. I realize that isn't necessarily net taxable income but I don't have those numbers. If you have more insight into this aspect of the business, please share.

Financials Likely in Dead Cat Bounce, But Fed's Now a Wildcard

Having read books by both Dremen & Whitman as well as a few interviews with Miller, Nygren, I kinda get the feeling that these guys are a little locked into their playbook right now -- i.e. buy beaten-down financials cause they always bounce back. Maybe they're right, but will the same old moves always work? Isn't this somewhat analogous to if Warren Buffett always bought newspaper stocks when they get killed because look at how the Buffalo Evening News and Washington Post paid off for him?

Perhaps markets and economies evolve and some investors don't adjust as fast as others. This month's Smart Money has a face-off with David Dreman and Bruce Berkowitz about whether financials are a buy (Berkowitz is bearish). If you examine Berkowitz's portfolio at the beginning of this decade, you'll see it peppered with financial companies whereas now, it is weighted more toward natural resources.

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

billb - The gov't needs to get the f^&k out of the way and let the housing correction run its course. And hey pal, it looks like I'm advocating a free-market solution unlike most supposed free-marketeers like Kudlow. Obviously, you're too blinded by ideology to "understand my parellel or my spin."

jcrash - Actually the worst borrower is the US government (being the largest debtor in the history of the world). It actually gets the best rates but that's besides the point. Congresswoman Sanchez pointed out that with her 800+ FICO and assets and her job, she could not get a mortgage at the 6% rate listed in the papers.

I haven't done the math but if you took out a $500,000 loan on a house that's now only worth $300,000 and then negatively amortize the reset interest while your rate is "frozen", how will you ever "make out like a bandit?" You're gonna pay hundreds of thousands of dollars of interest alone just on the lost equity. How long do you think it will take that house to get back to $500,000? If the government keeps trying to put in false bottoms, a hell of a long time. You'd need a hyperinflationary scenario to come out of this alive.

Full disclosure: I was a wannabe first-time homebuyer (in Sacramento -- ground zero) around this time last year. The numbers didn't make any sense and now I'm biding my time. I obviously would like to see prices come down more.

The point is that this plan is not aimed at homeowners but rather financial institutions and the markets. Anyone eligible for this should turn it down, go back to renting and start over if they can (I don't know the various bankruptcy/foreclosure laws). In most cases, if you have 3% equity, that will be wiped out by the 5-25% drop in prices yet to come. In the meantime, these people will be paying massive amounts of money on an upside-down asset that's negatively amortizing. All in the name keeping people in their homes but really in trying to stave off balance-sheet reckoning day by keeping as many loans performing as possible.

At this stage, it is too late for a bail-out. This is only the first pass. As the crisis worsens, the bail-out will more fully materialize, complete with taxpayer money.