Tuesday, October 29, 2013

By Cheryl Hall, The Dallas Morning News – October 11, 2009

Famed New York money manager Mario Gabelli began his speech at the Great Investors' Best Ideas symposium last week by pointing out that nearly every major market index was about where it was a year ago.

Based on that, Gabelli told the nearly 1,000 heavy-hitter investors at the Meyerson Symphony Center, one could conclude that they were in a dull business.

The line drew a slightly pained guffaw from the audience of mostly hedge fund and money managers who've somehow survived the last 12 months of carnage and rebound.

Gabelli, chief executive of GAMCO Investors Inc., was one of nine big-name speakers at the third annual GIBI event, where folks pay $1,000 to get wide-ranging investment tips and help charities in the process.

The cost of the symposium was covered by Dallas businessmen Shad Rowe and John Neill. All proceeds will go to the Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Fund, which helps at-risk kids in a neighborhood east of Central Expressway.

Each of the three GIBI events has had a different attendee feel to it. The first, in 2007, before the bust, was filled with mature lions stalking fresh meat. Last year, in the midst of the meltdown, they were deer caught in the headlights – although they all claimed they'd cashed out of equities six months earlier. Right.

This year, the crowd, the largest and the most youthful, seemed willing to chill a while longer, until they sense a job-based recovery heating up. There was a definite show-me-the-money attitude.

What they heard were numerous high-risk recommendations (like newspaper stocks), seriously scary macroeconomic scenarios, homespun truisms and a call from Dallas investor Rusty Rose to live up to the spirit of business law, not just the letter of it.

Some speakers talked about money you should actually run from.

Depending on which arguments rang truest, you might have left the Meyerson and immediately shorted the dollar, the Japanese yen or the Chinese renminbi, a.k.a. "the people's money."

David Einhorn, president of Greenlight Capital and the renowned successful short-seller of Allied Capital and Lehman Brothers, is worried about Japan and a global currency crisis that it might precipitate. The Land of the Rising Sun is sinking from too much debt and an aging population that's a decade older than ours.

"Should the market reprice the Japanese credit risk, it's hard to see how Japan would avoid government default or a hyperinflationary currency death spiral," he says. And that would probably set off a domino effect for some other currencies.

His recommendation: Buy gold, options on gold and gold stocks as insurance.

China in peril?

But Mark Hart III of Fort Worth-based Corriente Advisors LLC thinks the Chinese are the ones in economic peril.

His reasoning: China is a communist propaganda machine successfully hyping its currency and economy while trashing ours. And its money-printing presses are in overdrive, making ours look like they're in slo-mo.

"They have built more factories, shopping malls, condos, roads and bridges than could ever be put to good use, even assuming a dramatic upswing in global growth," Hart said. "Growth in actual wealth has dramatically lagged growth in credit, growth in money supply and growth in GDP. This is not sustainable."

Hart, known for being contrarian, admits that he's alone in his pro-dollar vs. renminbi stance. He expects to be vindicated sooner rather than later. Why? Because nobody seems to think disaster is coming.

"It's like the mudslide after a heavy rain," Hart said. "The more it rains, the more unstable the hillside becomes. Eventually, a landslide ensues."

After the symposium, Dallas investor John Muse said he's made money listening to Hart's contrarian warnings.

"Mark's been right on so many things, including the sovereign debt in Europe being mispriced. He crushed it in '08. Everyone else got crushed," Muse said. "When the market's not cooperating with his ideas, he can have some really bad months. But if you stay with him, it works out in the end."

Inflation forecast

James Grant, editor of Grant's Interest Rate Observer, sees inflation ahead, even though the Federal Reserve is unlikely to shift its rate stance anytime soon.

"The Fed is in the business of price-fixing. It fixes interest rates and then tries to predict the future," Grant said. "Well, price-fixing doesn't work, and the future cannot be predicted. Other than that, I love the business model."

The good news is that Grant expects the recovery to be robust. He's bullish on the stock market and lukewarm about gold.

My favorite investment tip came from Michael Price, who says to buy beleaguered newspaper stocks – although I wasn't particularly warmed by his reason.

The billionaire head of MFP Investors LLC likes to invest in stocks that have "really been trashed" and thinks newspapers are king of the heap.

His company has "a few million dollars" invested for the long haul in The Washington Post. Since most of the $1.6 billion under his company's management is Price's own money, he takes such investments personally.

Price hopes that altruistic and deep-pocketed foundations – such as Warren Buffett's or Bill Gates' – will cut deals with newspapers to absorb their losses until they figure out how to make money in the brave new virtual world. In return, newspapers would give the foundations a percentage of revenue from online sources. He sees this happening in the next few years.

"If we can somehow get these foundations to realize that if they can spend millions of dollars for vaccines in Ghana, what about absorbing The Washington Post's $30 million in annual losses to keep that content flowing?" he said.

"The guys at Google don't want to provide content," Price told me after his speech. "They want to do searches and transmit it. Amazon wants to transmit it. The idea is the foundations can step in and bridge this gap until the industry figures out how to get them a return for it. There's a lot of public good in the meantime."

Know the CEO

I also liked Jim Barrow's practice of studying the personality of the guy or gal running the show before buying any stock.

"I shouldn't buy companies that have overcompensated CEOs," said the principal of Dallas-based Barrow, Hanley, Mewhinney & Strauss. "I shouldn't buy companies run by folks with Napoleon complexes. I should not buy companies where the CEO travels with an entourage. ... When somebody's salary is out of whack, watch out.

"If the CFO won't talk numbers with you ... it's because he doesn't like the numbers. Be careful."

Barrow, who has survived nearly four decades of market cycles, said his buying habits are slow and boring:

"We give our investment ideas time to work. We also don't go off and do different things. Our restrictions keep us from doing stupid things."

His advice: "We're all one-trick ponies. Find out what your trick is and stick to it."