petec

Because they have traded as bond proxies, or why? One thing that intrigues me is that gold stocks have sold off despite (I would have thought) a higher inflation outlook. Oh maybe the stock prices will go down cause they have traded as bond proxies. I don't have a view on that. I was talking more toward the fundamentals of things. The fact is that household budgets are strained already. If you apply additional strain because of let's say a bump in health care costs (but it could be anything SS cut, whatever). Then households have two options: One, they can lever up. This could happen, but households are already in delevering mode and additional strain could actually blow the other way and push them to delever even more. Again not good for aggregate demand and for the economy. Two, they cut from elsewhere. Consumer products is an easy place to start: use less(lower volume), switch to a lower brand (lower margin), oh and forget about price increases. But I brought up CPGs because it's an obvious place of impact. Other areas will be affected as well: consumer durables (keep that old car longer, we don't need a new washing machine), also lower corporate investment in reaction to soft aggregate demand, etc. I'm not worried at all about higher inflation. I think it'll be great if they can actually achieve higher inflation, but it's not a problem at all. I thought the whole point of the tax cut was to stimulate demand (and jobs).

No need to apologise, I appreciate the advice, but all I can see is the arrow that takes me to the last post.

Because they have traded as bond proxies, or why? One thing that intrigues me is that gold stocks have sold off despite (I would have thought) a higher inflation outlook.

Perhaps. But is this really gonna be the outcome of "repeal DF"? We'll see. On that I share your scepticism. Will be very interested to see what Prem has to say on his next call!

Ah yes, 10 years haven't passed from Great Recession, European banks are still on the brink of collapse, US banks are fortresses due to Dodd-Frank, so let's repeal it and see if we can get another speculative bubble and burst. Great idea. I agree entirely with your sentiment, but maybe not method. Why is Dodd-Frank, with all its expense, a better way of regulating the banks than having a sensible real rate of interest and decent reserve requirements? And why are deposit-taking banks allowed to have investment banking operations? I'd be a fan of simpler, tougher regulations.

By accident!

But they are not planning to cut spending as I understand it. So you've got a hell of a deficit denting confidence, and potentially offsetting the benefits. I agree with you on balance, but that's the fly in the soup. To put it another way this policy mix is inflationary and that has unintended consequences.

The one question mark I have on the reflation theme is that US government debt has been rising $1.4tn a year which is a 7.5% deficit. That's far bigger than the reported deficit, and I don't fully understand the reasons why. But, I question how much scope Trump will have to expand the deficit. That said, if lower taxes stimulates the economy and ends up with a classic Laffer-style increase in the tax take, it won't be an issue. If.

Is anyone here changing their portfolios due to the election?

Certainly I think the odds of reflation have risen. I'll continue holding my FFH - I always saw it as a stock for all seasons, with an insurance business that will benefit from rising economic activity, inflation, and interest rates. But I agree, I also saw it as a great hedge and I am sure there are sellers out there as a result.

They pay out insurance indemnities to their policy holders with the $10b of cash. The potential uses of that cash are somewhat limited...basically most of it needs to be invested in some form of sovereign debt, state/provincial debt, or munis. I guess a little bit could be directed to corporate bonds or equities, but I'd be surprised if Prem were to reach for yield in the one case or increase his equity allocation in the other case. ...depends what value he finds!

Insurance stocks up much > market in last few days... I don't think what you said is a thing. KIE as a proxy is up 5+% No insight on why Fairfax is down other than the obvious that it trades at a premium valuation to book, and is perceived as a deflation and market hedge... neither of which is valuable (opposite actually) in the last few days. Agreed. Rather misses the point that inflation is a much better environment for the insurance business than deflation, and FFH is sitting on nearly it's entire market cap in cash in a volatile market - talk about an elephant gun.

Benhacker and bsilly - excellent posts - thank you. Or at least, I agree with them so they must be excellent ;)

If I thought Trump was competent and honest, I'd agree entirely. Edit: if I thought Trump was competent OR honest, I'd agree entirely. But he can't even get over that hurdle.

Oh, you've got an anecdote. I didn't realize that. Consider your point proven--your ironclad evidence refutes anything I could possibly say. As opposed to conflating causal and correlative effects of formal education? I'm sorry for you that you feel bad enough about yourself to think that you wouldn't have amounted to anything without the government and the education system babying you. Maybe it is true in your case, but I hope not for your sake. Whereas there is no conflating causal and correlative effect in the statement "It's no wonder that the higher the level of education, the bigger a Democrat you are likely to be".

Clinton strikes me as a fairly standard politician: she's told some lies, she's made some dubious money, she's made some bad decisions, she's spun some half truths, she has a lifetime of service and experience. Trump is an out and out bastard. As a matter of theory, I'd trust a warmonger over a rapist any day. That might sound odd, but to go to war with someone on the other side of the globe in the name of a good cause requires far less intrinsic evil, far less hate, and a far less twisted personality than deliberately harming someone right in front of you - even if that war turns out to be a disaster. Now, Trump's not a rapist. But there is a mountain of evidence that he is a vindictive liar who gets a kick out of imposing himself on other people. So it's not a huge leap of faith to think he might have the character of a rapist (especially since his ex-wife swore under oath that he raped her). Hillary is not perfect but this is the simplest election decision I have ever seen. I'm also intrigued to know how many of the people who castigate Hillary for being a warmonger would say the same of G. W. Bush.

It makes sense, but obviously wished they would have sold back in June/July when treasuries were hitting their record lows and offered less value than after one of hte largest bond sell-offs in history. Granted, Trump was guaranteed the presidency then, but "Brexit" and other nationalistic movements around the globe should have suggested probabilities were strong and the value in Treasuries, even relative value to other gov't bonds, had all but disappeared following "Brexit". That would have been the time to sell...not once bonds returned to pre-Brexit levels. Anyhow, I'm not overly concerned about the move. I just thought it bizarre that they'd sell the Treasuries now and not 4-5 months ago. Did you think it was bizarre that they weren't selling at the time, or is this hindsight speaking? Not getting at you, just interested. Because while I agree, I wouldn't have got the timing right either so I can't criticise them ;)

+1

Could you elaborate? When you put together the incredible improvement in underwriting over the last several years plus the huge expansion of insurance via acquisition, it seems clear to me that they are *very* focussed on insurance. They are also, of course, focussed on investing the float. And they've had a very successful in long term treasuries. But, they have decided they don't want to take the risk of a yield spike around the election that might not reverse soon because of increased fiscal deficits. I really like this decision for two reasons: they are now a beneficiary of both a deflationary bust and an inflationary bust (up to now an inflationary bust was a risk); and this is fairly clear evidence that they can change their minds if the facts change. I was a little concerned they had one worldview and would cling to it regardless. Each to their own but they have taken out the one thing that worried me about my position so I am quite happy!

Wow. That's huge. Suits me perfectly: the deflation hedges don't involve much risk if they are wrong, but I don't think the same way about a 30-year treasury. Short duration bonds and big hedges is exactly what I want, given what I want FFH to do in my portfolio. Bit late to be buying SP500 *calls* though! Results better than I assumed tbh but they will take a bit of a hit on the sale, vs quarter end valuation. I recall Prem saying they kept a very close eye on inflation indicators - maybe they think something has changed a little. Also a great quarter from Zenith - they paid well under 10x underwriting profits (i.e., excluding any net benefit of float but also excluding operating cost and tax) based on likely FY16 earnings. I know it's taken a while but I think that was a very solid deal.

Speak for yourself, Speech Policeman. I appreciate DTE's anecdotal evidence. I too have found DTE's thoughts to be useful for many years! +1

I think Buffett actually compounded at a faster rate when he was doing cigar-butts. Part (not all) of his conversion to quality was driven by the fact that he couldn't do cigar butts when he got to a certain size. I am sure that his "guarantee" that he could do 50% CAGR with smaller sums of money isn't based on compounding quality. Cigar butts is a perfectly sound way of investing, even if it hasn't worked recently (and few value managers have done well recently). If quality was the only way to go, we'd all do it, and quality would get overvalued.

+1. A far more important factor.

Seems to me that most of the issues created by indexing are all self-solving. If indexing drives more and more capital to fewer and fewer ideas, pockets of value will open up - and there is no shortage of smart people picking the market over looking for them. Capital will, eventually, go where the need (and return) is greatest.

Speaking as an (economically) very right wing European: some ideas of the left are very useful. For example, antitrust is a fairly left wing idea but it brings out the best of capitalism imho. And heresy of all heresies: I think socialised medicine might be better than the current US system because it is apparently more efficient (cost/outcome). Capitalism only improves lives to the extent that it is inventive and competitive and efficient, and you do need some regulation to ensure that it is. That said, I agree with the thrust of your point. Whether any party in the US now genuinely stands for free markets, I am not so sure. I think both of you are mixing the US political system with the free market. Political parties here have always been split into a workers party and the party of the affluent. They like to think that their fiscal policy determines the direction of the market but in reality they are always catching up. This is unlike the other countries where the government have a lot of influence. I once asked a Chinese businessman about how to find opportunities to do business in China. He replied, start reading the government's five year plans. He said we don't read annual reports of companies, we read government policies. Europe to a less extent works the same way. Its completely different here. Think about the shale revolution, sharing economies like Uber, Air BnB etc. They disrupted large regulated businesses and now the government is catching up with them. Read the Rockefeller or Carnegie's biographies and you'll find the same pattern when they disrupted oil and steel. Read the political news of those times and you'll find the same charges/counter charges. The only difference is that the voices are shriller which makes the division seems much starker than they actually are. I can guarantee you that this country will be ahead of everyone in the next decade , next 25 years. It takes generations to get the entrepreneurial culture in the DNA. I don't see a single country capable of that right now. I agree with you, except that I don't think the voices are shriller. I'm reading Titan (Rockefeller) at the moment and Tarbell et al were pretty shrill.