thepupil

you probably have people moving from other areas of the country marveling at how cheap things are at $180 / foot. my house has gone from $500 / foot to $600 / foot since 2019 and there was recently an eyepopping sale nearby that went for $400K over ask / $800 / foot. that feels like a bubble, but I guess someone really wanted this 90 year old house w/ a very unique for the area separate 6 car garage (which can be converted to a guest house). https://www.redfin.com/DC/Washington/6130-Utah-Ave-NW-20015/home/9994389?utm_source=ios_share&utm_medium=share&utm_campaign=copy_link&utm_nooverride=1&utm_content=link

to update on the Wisconsin Place tracking April 2020: 2BR's: $3,600 October 2020: 2BR's $2,400 April 2021: 2BR's $3,100 Nature appears to be healing for yuppie apartments. where i used to live, my 2BR unit is now $3,100. this is what i rented it for in 2016 which had dropped from $3,400 ish due to some new supply that had recently came on, we locked this in for 2 years, it got raised to $3,300, then we chose to not renew in 2019 when it got bumped to $3,500 (and it was time for us to buy). using this anecdata, rents are staging strong recoveries from the lows, but aren't near peak (not sure if they get to peak for a while). I think all this is mostly priced in and don't think the high quality blue chip MF REITs are terribly attractive (unless we go full Europe/Japan etc in terms of rates or Canada / Oz in terms of housing prices lol.

agreed. posts take up so much space and 80% of my desktop is just grey or white blank space. i am generally quite appreciative of this site and how it's run and try not to be a negative nancy, but the space efficiency is awful. Condensing on the activity stream mitigates this a little, but not fully.

I don't have any insight and haven't looked into the companies. Just gave them a 5 minute look to see why their ROE inflected to much higher from the prior years. In general, mortgage banking is quite cyclical given refi volumes are related to the refi incentive (difference between current rates and rates that mortgage borrowers have) as well as home purchase volume. But again, I haven't looked into any of these specific names.

I'd be careful extrapolating one year. In First Savings case, they feasted upon mortgage banking. In general, small banks might have fee producing businesses that are a larger % of the earnings and therefore have high ROE's. [quote]Noninterest Income.  Noninterest income increased $87.2 million, or 199.0%, from $43.9 million for the year ended September 30, 2019 to $131.1 million for the year ended September 30, 2020.  The increase was due primarily to an increase in mortgage banking income of $84.8 million. The increase in mortgage banking income is due to production from the secondary-market residential mortgage lending segment that commenced operations in April 2018. Net gains on the sale of loans guaranteed by the SBA also increased $1.1 million for 2020.  In 2019, noninterest income increased $30.6 million, or 229.9%, from $13.3 million for the year ended September 30, 2018 to $43.9 million for the year ended September 30, 2019.  The increase was due primarily to increases in mortgage banking income and real estate lease income of $30.7 million and $589,000, respectively.  These increases were partially offset by a decrease in the net gain on sale of loans guaranteed by the SBA of $924,000.  The increase in mortgage banking income is due to production from the secondary-market residential mortgage lending segment that commenced operations in April 2018.  The increase in real estate lease income for 2019 is due to the acquisition in October 2018 of a commercial office building that now serves as the Company’s new corporate headquarters, a portion of which is leased to other tenants.

I took 2 things away from this. 1. Your life sounds very nice and congratulations on this set up. Sounds like a great family setup and overall lifestyle. 2. Holy shit, I knew Canada housing was expensive but that is another level of insanity. That’s like less half the gross rental yield in my area, and many would consider housing in wealthy suburban DC to be “expensive”.

What is the availability of rentals like?

i think there are scenarios where it does not work, but not all royalties are priced dearly. BSM for example is paying $0.7 / unit annualized and covered that by 1.8x, thought they "expect [the coverage] to come down in 2021 w/ lower production/realized px's from hedge portfolio". Plenty of risk (long term volume/production, concentration in some basins, etc), but starting at an 8% distribution yield with some wiggle room that is linked directly to 2 commodity prices* may not be an entirely bad inflation hedge. *though hedged on a 0-1.5 year basis

John, thanks for pointing me to page 3,303 of Joel's document. I am very impressed with your recall/searching capabilities! I don't find the answer overly satisfying, but in the end, owning Berkshire is an act of deserved faith/trust, so moving on.

fair points and appreciate the contributions. my understanding (from reading long ago and I can't find corroboration of this) is that BNSF is held at National Indemnity for tax efficiency purposes. For tail risk purposes, I would prefer it be held at the Berkshire/holdco level and away from insurance liabilities (I understand we're getting into wacky / tail scenarios) it seems it would not drastically impact NI surplus (to distribute/dividend out the BNSF LLC interest to Berkshire) if BNSF is counted at a discount to book. On the flip side, this does seem to be a good reason for Berkshire to float a little BNSF and get a public mark. Overcapitalization would become even greater overnight (even if they applied a bigger haircut than to normal stocks). anyways, this is all very tail / not relevant, so I'll shut up.

has anyone ever looked into how insurance regulators treat the BNSF stake? National Indemnity owns 100% Questions that spring to mind: How is BNSF valued by regulators? (book? comps? haircut to comps for illiquidity?) If UNP went up/down by 30% does that have any effect on Berkshire/NICO's relationship with regulators? Here are NICO's "financials" . It has $306 billion of assets. How is BNSF figured in that? I've never taken the time to figure that out / delve into NAIC filings. http://www.nationalindemnity.com/files/financialreports/nico.pdf Here is something from 2018, as of Year end 2016. See page 25. there's a line item "other invested assets" that's a very stable $46-$48 billion. I think that's BNSF. https://doi.nebraska.gov/sites/doi.nebraska.gov/files/doc/National%20Indemnity%20Company%20%28NICO%29%202016%20NE%20Exam%20Report-FINAL%20REPORT_0.pdf

I agree; we can't take the market's valuation of KSU or UNP at face value. But it is a good data point. Even if you haircut the $120-$130B or whatever by a significant amount (say to $80 billion), this still compares very favorably to BNSF's $44 billion of equity value at Berkshire. Said more succinctly, BNSF is 10% of Berkshire's equity and market comps are at 2.7x Berkshire's book value. Even if the market's too hot, a big haircut will get you to 1.8x. So when buying Berkshire at 1.3x, knowing 10% is "worth" 2.7x to the discounting mechanism that is Mr. Market (who could be off), is a helpful data point re potential margin of safety / upside. I also think it's useful in thinking about Berkshire's concentration / relative position sizes. It tells me the order in which I should worry about things. For example, I should give about 8-15x as many shits about railroads as Kraft Heinz. Or 4-8x as many shits about railroads, as Coca Cola you do have to be careful and not double count though. For example, I've caught myself writing up BNSF/BE and then writing down the DTL separately (a big portion of which is attributable to BNSF and BE). Railroad Utes, Energy @ Berkshire has $209B assets and $98B of liabilities ($111 billion of equity) but then has ~$25B / $74B Deferred tax liabilities which is on a separate line item. So the book value (using the 10-Ks of BNSF and BHE to corroborate) of BNSF and BE is about $87 billion, pretty much evenly split between Berkshire Hathaway Energy and BNSF.

my lazy method is 0.9x UNP which is $125B, and then +/- 20% or so for rough bear/bull, depending on how I feel that day. A nice round $100-$150B seems adequately wide but not to the point of meaningless range. there was also loose/subtle corroboration of $100B+ when Buffett in the most recent letter talked about BNSF/AAPL being similarly sized / valued parts of Berkshire with the AAPL state at $120B at the time/$110B now. they are pretty comparable (though UNP has adopted PSR to a greater degree) UNP Revenue 2018-2020: $21, $20.2, $18.2 Net Income: $5.3, $5.9, $5.9 OCF: $8.5, $8.6, $8.6 BNSF Revenue $20, $23, $23 NI: $5.1, $5.4, $5.2 OCF:$7.9, $8.1, $7.9

Ya it just surprises me because I would think people would reach $1,2,3 million (mass affluent, top 10-5%, but not like super wealthy) and would still have at least a decent sized mortgage or even car loan. It would scare me to have no debt, because then I’d be super concentrated and illiquid. Even if one lives in a part of the country where houses are cheaper, $1.5mm just seems like not enough to have a big % tied up in an unlevered house. I feel like having no debt is a suboptimal and risky choice to be made only when one has a ton of money, very surprised by the data. Anyways, back to inflation <—which is another reason I feel safer with debt

ha, there's no tension, just relaying how i see things. I'm not a macro guy, but I'll happily be branded as the permabull in the hood on the right. I really like the breaking down the net worth distribution. Can you point me to the source? I am really struggling with the top 2%-10% having 16x as much in assets as liabilities. This seems crazy to me based on anecdote (but the data is the data). someone needs about $1.3 million to make it to the top 10%. Who has $1.3mm net worth and virtually no liabilities? seems like a terribly unlevered way to go through life! https://dqydj.com/net-worth-percentile-calculator-united-states/

Constructive criticism. Thank you for the info*. The conclusion relays an impression of an incomplete picture. It's like if a company would describe the effect of currency movements on its balance sheet by focusing on the differential exposure between the components of the liabilities. The valuation 'narrative' of the last few years is based on a low interest rate environment. Rising rates (i'm not saying this will happen; in fact i think (on a weighted basis) this is unlikely to happen, at least for the 'risk-free' part) would trigger a reappreciation of the asset side also. But individual net exposure may vary and the idea that debt can be inflated away is an attractive one. *The info doesn't seem to include nonfinancial corporate loans (kept on banks' balance sheets) which are still quite a significant amount and which (the last time i checked) were about 85% variable. The increasing rate exposure that scorpioncapital describes also needs to take into account a dynamic aspect with rolling refinancing risk (cost of capital may be higher and more 'floating') and a very unusual bunch of potential fallen angels. it wasn't meant to be comprehensive, but rather a simple rebuttal to scorpioncapital's anecdata. he was saying "i see a bunch of people w/ margin and home equity loans" and I was simply providing the data that puts that in perspective, likeweise on the corporate side. not really saying anything about valuations. i agree that valuations may come down if rates rise, particularly if they do substantially. that's why i pointed out the maturity. there are a lot of companies that will be exposed to rising rates (and directly so). I own a few (for example BERY has wgt average term of 4ish years), but if the vast majority of corporate America (at least publicly traded corp america) looks more like an IG issuer, that's issuing 13 year debt on average w/ like 2.0x debt to EBITDA, and the IG index has wgt average maturity of 12 years I just don't see how rising rates is going to cause this big increase in cost of financing or fallen angels. last time I looked at the bank loan market, the "nonfinancial corporate loans" are not really kept on bank balance sheets anymore and are, for the most part put into CLO's (which are captured in the leveraged loan data), things like revolvers may not be on there, but those are small part of a capital structure and first leien to be clear, I'm not trying to dismiss the risk of inflation generally. Dramatic Inflation will wreak short term (and potentially long term) havoc on some corporates'/households' earnings power, but instead I'm trying to point out that i think the vast majority of people, corporations, etc have positioned their balance sheets for inflation to a much greater degree than deflation, including me. one thing that's beatiful about the american mortgage is that if we japanificate, one can refi at lower rates with no penalty, which offers some protection from long term fixed obligations becoming more burdensome (assuming one has a job/income statement is intact) EDIT: I said leveraged loans were "included in the data" but now realize that was in another thing i was going to send, but did not, can't find it now, but IIRC from last time i looked at it, HY is about $2T outstanding and LL are $2T and the IG market is like $10T+

There is $800 billion margin debt outstanding https://www.advisorperspectives.com/dshort/updates/2021/03/17/margin-debt-and-the-market-up-another-1-9-in-february-continues-record-trend There is $11.5 trillion of single family mortgage debt https://www.statista.com/statistics/274638/mortgage-debt-outstanding-on-us-family-residences/ So there’s 15x the ratio of mortgages (most of which are fixed) to margin. Home equity lines have been decreasing since the GFC (but are now Increasing). This says $250-$500 billion https://www.mba.org/2020-press-releases/august/mba-study-finds-home-equity-lending-growth-hindered-by-alternative-products-and-covid-19 On the corporate side, the investment grade market is FAR larger than the high yield / leveraged Loan market. IG debt IIRC has a weighted average maturity of about 13 years https://www.oecd.org/corporate/ca/Corporate-Bond-Market-Trends-Emerging-Risks-Monetary-Policy.pdf The index says 11.7 for US IG corps https://www.spglobal.com/spdji/en/indices/fixed-income/sp-500-investment-grade-corporate-bond-index/#data Not very recent data, but 3/4 of global corporate debt is investment grade https://www.statista.com/statistics/274638/mortgage-debt-outstanding-on-us-family-residences/ Last time I looked less than 5% of S&P 500 market cap were speculative grade issuers. Whether you are a household or corporate or government, you are likely to be short long duration fixed obligations, much moreso than short duration variable obligations.

There were winners and losers in the 1970s. I've heard my father commenting many times about how that period of inflation rapidly paid off the house and brought the family a higher standard of living. His pay rose with inflation. Yes, it's great for people with debt, but horrible for people living on fixed incomes or cash savings. Hence the boomer retirement plan of buy the biggest house you can mortgage then downsize when its time to retire. I mean this is the (shitty) retirement plan for the vast majority of Americans and people in many other countries. Home ownership is a cult and the federal government welcomes one into the cult with a massively subsidized fully prepayable 30 year fixed rate mortgage at an (almost) negative and fixed real rate of interest. Sometimes it feels like “everyone” owns a bunch of stocks but when you look at the statistics, vast majority of people who have any wealth at all have huge portion tied up in levered, illiquid, home equity. Outside the extremes, these people want moderate inflation, no? With mid 60’s percent of the US owning a home and the bulk of the country’s decision makers having a good bit of wealth in home equity, who wants deflation other than some Austrians and people who read too much Jim Grant?

my boat loads of long duration debt at 2 7/8% 30 year fixed very much accepts inflation. my equities, well, I don't know, but I am pretty certain that I prefer inflation to deflation (as was the Bernank and all his successors). why worry about it when one can position oneself to benefit? I worry about deflation far more, having positioned myself for the base case and that which the central banks desire (inflation). Of course, most risk assets are probably short both tail risks to some degree (hyperinflation wouldn't be great).

Agreed, I had added to MF REITs in an IRA in January, sold those additions today for 12-27% (basket approach with ESS/EQR/CPT/MAA

just to piss LearningMachine off, I'll have him know that I just bought some Coca Cola 7 3/8% of 2093 for a 4% yield in my parents IRA today.

Because all the rich people left New York, EQR had to reach real far down to find renters making a meager $218K / year versus their typical $234K / year in order to get to 95% occupancy*. *as of February across the company, NYC occupancy is at 90% as of 12/31/2020 but probably a few points higher now.

yea, this is pretty big, daily average value traded is $100mm over the past 5 years, $350mm in 2021, $520mm since February 1, and $910mm since March 1st, with what seems like a record $1.25 billion yesterday.

hyper elitist education for the win. Palm Beach Day just ain't gonna cut it. Dalton or Bust!* https://www.bloomberg.com/news/articles/2021-03-10/wall-street-a-listers-fled-to-florida-many-are-eyeing-a-return *for the record, pupil went to a poseur south florida prep school, not in NYC/Northeast

I am probably misusing the term ADR. I now own JARLF as well in Fidelity.