thepupil

I don't mean to make this a pension section 10-K reading contest (there are better ways to spend ones morning)...but Spek, why do you think IBM is a problem? I don't know much about the company, but these numbers seem fine. https://www.bamsec.com/filing/155837020001334?cik=51143 US Plans: $52 billion of assets, $50 billion liability, fully funded as of YE 2019 The Qualified PPP portfolio’s target allocation is 12 percent equity securities, 80 percent fixed-income securities, 4 percent real estate and 4 percent other investments. Non US Plans: $40/$47 ($7 billion short) The weighted-average target allocation for the non-U.S. plans is 20 percent equity securities, 71 percent fixed-income securities, 3 percent real estate and 6 percent other investments, which is consistent with the allocation decisions made by the company’s management.

Sorry if I was not clear. For Boeing I used them as a continuation of the example as posted in the Twitter link, not trying to single them out or to suggest that they have a big issue. Their 737 issues are far bigger (at least from afar, I know close to nothing about the company). For the broader pension comment - I certainly agree that it's not a big problem for most corporates. However, for govt entities I do think it's a reasonably sized issue, particularly the entitlement programs. However, we start to get into politics about intergenerational wealth, which I don't think was the intent. So net net - I think we agree - market won't price securities on pensions until it's a huge problem, and for the most companies, it's not a huge problem. we do agree. I am an alarmist about government pensions/ entitlements. it is a problem at the local, state, and national level.

This is fascinating stuff. I had no idea this was happening. Imagine going to a customer and asking them to pay for your costs & future pension costs! You'd get laughed out of the room! Thanks for sharing. Learn something new every day. :) yep, a VIC write-up on LMT in 2011 taught me it. https://www.valueinvestorsclub.com/idea/LOCKHEED_MARTIN_CORP/7341821351 (Geek's accounting note: we've adjusted the EBITDA/EBIT numbers to reflect the real-world economics of Lockheed's pension liabilities and expenses, which are, briefly, as follows: Since 85% of Lockheed revenue is generated by sales to the US government, approximately 85% of its pension expenses are also picked up by the US government. While that sounds fairly straightforward, the government's contract accounting standards (CAS) for pensions are different than corporate financial accounting standards (FAS). We'll spare you the details, but the important point is that while FAS may dictate that Lockheed book x as its pension expense in a particular year, the government will only reimburse pension expense as dictated by CAS, which is generally a totally different number. Over time, the two will converge, but in certain circumstances - such as when the plan assets get hammered by a severe equity market decline - FAS pension expense will be much higher than CAS pension expense for a while. These are mostly non-cash issues, and our analysis basically reflects only the CAS expense that Lockheed books and which is reimbursed by the government.) I did what i could to verify this (googling around and talking to a few people) and it seemed legit, bought the stock for like 9x.

interesting, I think we look at the same facts and come to a different conclusion. in the context of these companies' market caps and earnings power (both of which are fluid, but I'm assuming don't utterly collapse), a few billion a year of unplanned contributions to close the blow-out in the underfunded doesn't seem like a big problem to me. I understand how the liability and pension return assumptions work and what falling rates does to that. But don't understand why you think this is a problem.

copying an older (Jan 2020) post on this with some additional data. I don't think corporate pensions are a big issue because, for the most part, they've had years of bull market equity gains and for the most part behaved well and partially immunized them. I don't love a lot of the businesses on this list to begin with, but I don't think it's pensions that will make them bad investments. the twitter seems pretty alarmist. I agree with her estimate of duration of the liability based on boeing's 10-k https://www.bamsec.com/filing/1292720000014?cik=12927 you can find details of boeing's pension on page 97. it is 49% fixed income and 30% equities, so it's not like the value of its $61 billion in assets is collapsing with the equity correction Also, I would note, that it's not a coincidence that defense contractors run the biggest deficits. the federal government is responsible for a significant portion of pension costs: https://fcw.com/articles/2012/02/10/federal-agencies-stuck-paying-for-federal-contractor-pensions-group-says.aspx https://www.pionline.com/article/20130204/PRINT/302049981/defense-contractor-pension-assets-eyed https://www.cagw.org/thewastewatcher/another-deficit-driver-contractor-pensions https://www.investors.com/etfs-and-funds/sectors/sp500-ge-not-alone-25-companies-owe-trillion-pension-payments/ Largest 25 pension obligations collectively owe $1 trillion, and have a funding gap of $150 billion ($1 trillion of liabilities against $850 billion of assets) Those 25 have a market cap of $3.5 trillion and $238 billion of EBIT, and $390 billion of EBITDA. Most of these, their funding gap would add maybe half a turn or less to their leverage ratios. GE the data is wrong because they have negative EBITDA so it messes up the calculation. For the companies that have the largest funding gaps as expressed in EBITDA, 4/4 of the top ones are defense contractors (Lockheed, Raytheon, Northrup, and Boeing). Many defense contractors utilize cost plus contracts that INCLUDE the cost of the pension benefits. The federal government is responsible for some portion of those folks pensions. Lockheed has the biggest funding gap, adding 1.3 turns to its leverage. I recognize that the funding gap can really blow it if rates go down and stocks go down since that increases the liability and decreases the assets, but given the trend toward immunization, the very long term nature of funding a pension, and the low absolute numbers here as a percentage of these companies earnings power, I see very little risk in terms of corporate pensions. Fear not the corporate pension "problem". Let's say you think EBITDA is bullshit, so I'll use $240 billion of EBIT. I'll stress that down to $180 billion for fun. I'll increase the obligation by 20% and decrease the assets by 10%. then these collectively could get to 100% funded with just over 2 years of EBIT. And of course they don't have to do it like that. Lockheed Martin -1.330194232 Raytheon -1.161483702 Northrop Grumman -1.091703057 Boeing -1.085029431 DuPont -1.015721604 Delta Air Lines -0.745312682 United Parcel Service -0.660816813 General Motors -0.634868058 Ford Motor -0.538615238 Exelon -0.405309555 Exxon Mobil -0.328415521 Caterpillar -0.316484311 Pfizer -0.250183959 United Technologies -0.227562352 3M -0.218516389 Johnson & Johnson -0.181629476 Merck -0.117022936 AT&T -0.067857536 Verizon -0.04536176 Citigroup -0.03108909 Honeywell 0.166219154 General Electric 1.852617649 International Business Machines -0.521864315

I don't either, I'm just saying it isn't "risk free". he could also move up capital structure and buy some long duration oxy notes at 60 cents right now, a cool 40 points down since issuance just a few months ago and 30 from friday The company's 4.400% notes that mature in August of 2049 slid to 63 cents on the dollar from 90.14 cents in late trade Friday, according to MarketAxess data. The bonds were 289 basis points wider on the day for a yield spread of 665 basis points over comparable Treasurys. https://www.marketwatch.com/story/occidental-petroleum-bonds-collapse-as-crude-price-decline-raises-concerns-it-may-need-to-cut-dividend-2020-03-09

https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD I will likely add to my “I’m dumb and don’t want zero energy” basket tomorrow (XOM,MMP, BSM) If we stay down here in the $30’s my biggest fear is the political instability, not the <5% in energy stocks I’ll have.

Agreed, he could lose money on OXY pref if this rate of destruction continues in O&G. I don’t think he will, but it’s still preferred equity, not senior secured (of course it’s possible to lose money in senior debt too, but you all get my point).

Cruises have long (perhaps unfairly https://www.cdc.gov/nceh/vsp/pub/norovirus/norovirus.htm) been associated with norovirus outbreaks aboard. I don't think the cruising public will punish cruise ship operators for covid19 months/years after the coronavirus hysteria is over any more than they have in the recent past for the occasional norovirus outbreak aboard. The lure of a cheap vacation in the tropics is too much for most to pass up. And oil is down big and likely going lower as OPEC+ falls apart so a major cost for cruise operators just got reduced. Honestly I don't think cruises are that cheap and I really really don't understand the appeal. I am not a buyer of cruises, but a simplistic analysis of Carnival says its cheap if you think this does not permanently change the industry's supply / demand/profitability/pricing power. Has made about an average 10%-11% (I did not precisely calc this and just eyeballed it) or so ROE since 2005 and it trades for 0.7x book. If you assume it gets to its historical ROE and is worth book to a slight premium in say 3-4 years (note that the range in the past 5 years is like 1.4x-2.0x pre-corona) then you could make some decent dough. So while I'm not a buyer (I'd rather buy less directly affected stuff for slighlty more expensive prices to "normalized" earnigns/asset value whatever), I can understand the appeal as a mean reversion play. When you compare to other stuff that's down 20% or 30% and may have already been cheap before, I can't be enticed to buy something so directly in the bullseye of this. I can see the appeal in the short term for bears: high fixed costs, probably some construction committments, may even need to raise some capital, etc. etc. Do you think that if this kills 0.2% of infected people under 30 and is gone in a year or 2, that college kids aren't going to go on a spring break cruise? according to my 5 second google, only 30% of carnivals customers are over 55 (this is surprising to me).

I work in healthcare. The only advances that we have come up with in that time that are effective against this are 1) hand washing, 2) contact isolation, 3) mechanical ventilation (but by this point it is already way too late). Also, we severely lack # of ICU beds and resources which will become apparent soon. It is already apparent we lack resources if you look at how testing for this has rolled out. Can someone help me reconcile dalal's (and some others' I've read, including healthcare professionals) view that we haven't really made advances in fighting this stuff and this headline today from Gilead / Seeking alpha. how should one handicap this? Gilead up 3% ahead of expected COVID-19 drug data readout Mar. 6, 2020 1:56 PM ET|About: Gilead Sciences, Inc. (GILD)|By: Douglas W. House, SA News Editor Evercore ISI's Umer Raffat says that preliminary data from a China-based study of Gilead Sciences' (GILD +3.4%) remdesivir for the potential treatment of COVID-19 could be available this month, ahead of the expected release in April. The study began in early February at Wuhan's Jinyintan Hospital, in the epicenter of the outbreak. Health experts believe that the antiviral will show sufficient efficacy to warrant widespread deployment in an effort to corral the outbreak. A little over a month ago, the first confirmed case in the U.S., a man in Seattle, responded well to treatment. All symptoms, except his cough, resolved within a week. Remdesivir (GS-5734), a nucleotide prodrug that blocks a key enzyme needed for viral replication, is also being developed for Ebola virus infection.

I hope you're not. :-[ hahaha, well my wife works at a Washington DC hospital...so probably eventually going to get it

I am paranoid of a permanent impairment in corporate earnings power or value in the real assets I own. For this reason I own puts. I am paranoid of reinvestment risk and not ever being able to buy the great companies and assets that I own at these prices again, given what is an unprecedented rate environment. For this reason I'm fully invested. my first paranoia cost me 100-200 bps / year. my second costs me full beta to the market's swings up to about a 20-30% drawdown, which is more than handle-able. I am paranoid too. i have become a bit of a perma-bull, but I think we all need to keep the upside tail in mind.

on a 0-24 month basis, I completely agree with you.

I don’t work in healthcare but I read Wikipedia The bar for 1918 is pretty high right? Infecting 25% Killing 1-4% of the population. And yet the global economy and markets pressed on, right? Don’t get me wrong, I have some disaster hedges, but I’m also fully infested and corona will certainly not stop that.

You’re right, 102 years of medicine and healthcare advances may help fight this relative to 1918

Let’s take a less extreme example A company has $100 of equity. It earns $8 and has 100% payout ratio.it does not grow.it trades for $100 A shareholder owns this company in an IRA (or a pension, etc, a substantial portion, maybe even the majority of investment dollars aren’t taxable). In scenario 1, the company pays out all earnings in dividends, and the shareholder reinvests these dividends. In scenario 2 the company buys back stock with all of its earnings. Which scenario will result in the better outcome over 10 years. Is your answer different if in 10 years, the company is valued at 0.5x,1.0x, or 2.0x book? Is it the same?

What do you think it cost to build a hotel in San Francisco, San Diego, Maui, Naples, Amelia, South Beach, etc? The replacement cost (which doesn’t matter if you think Airbnb kills the industry or that corona means no one will travel again) is probably $400-$500K/room across the whole company, higher in many individual cases. If you can rent out a room for $400/night or a wedding costs $60K of F&B at your hotel, or a conference, or can obviously be quite profitable to own one of theses assets. That said, they are cyclical and capital intensive, of course. https://www.bizjournals.com/sanfrancisco/blog/2015/04/hotel-construction-san-francisco-million-per-room.html And this is for Waikiki high rise not Maui on the beach https://www.hawaiibusiness.com/waikiki-construction-refreshes-hotels/ Carey also notes that development in Waikiki – particularly away from the beach – is hampered by cost constraints. “If you want to build a high-rise hotel,” he says, “the rule of thumb is you need to get a dollar of average-daily-rate for every $1,000 of construction costs. In Waikiki, it probably cost, at a minimum, $350,000 to $500,000 a key to build a high-rise hotel, which, using traditional underwriting, suggests you need $350 to $500 a night in average rate to make a pure hotel. There are very few locations that enable that kind of underwriting.” It’s this calculation, he says, that explains the paucity of new hotel projects.

2% for the higher rated tranche, 2.5% for the other one if I’m reading Bloomberg correctly Almost any insurance company in the world would buy it, I presume.

https://ir.hosthotels.com/static-files/da439e04-a444-4d19-b247-8fb6cc7fc639 https://ir.hosthotels.com/static-files/8ad80617-ef9d-41b2-955a-f4c94e529d2d just to follow up here, it's more like $260K / room now. HST has issues pre-corona such as wage inflation due to enhanced border security generally tight labor market, and more secular threats from airbnb and other new hotel type of offerings (the ones where newbuild apartments/condos leas their unsold/leased inventory as hotels for example). it was and is a popular HF short (6% of float) due to its abundant liquidity, presumed lack of takeover optionality (too big, highest median pay in the S&P500, will never sell). HST goes out of its way to highlight that its top 40 assets (63% of EBITDA) are a different animal than the rest of its assets and they are right. these do $37K / EBITDA per room and $362 RevPar. To give an anecdotal example of how things have shifted, they bought 3 hotels from Hyatt for $1 billion ($700K / key), so at the current price you are buying at a very significant haircut to that print. They bought the Don Cesar for $600K / key and have since brought EBITDA/Key up to $50K. they bought a South Beach hotel for $1.4 million a key and $600mm+! Now they probably overpaid for those trophies, but if anyone knows thepupil well, they know he loves to buy trophies for less than what others overpay. Paying $260K for something that in a good year makes $50K of EBITDA isn't half bad (Don Cesar). Paying $260K for a hotel on the beach that does $400+revpar probably works too. If I could buy a condo on the beach in MAui or Amelia Island or NAples for $260K, I'd do that too. Or in San Francisco, or downtown San Diego on the water. the whole company trades for 8.5x EBITDA (which will obviously collapse soon). Given the giant freaking sensitivity and the fact that I'd expect some of their hotels to go unprofitable and revenue to be down 80% for the next q's, I am not interested here, despite what is likely a "good price" over the long term if you think these types of properties have a reason to exist. I do. One can't get married or have a conference in an Airbnb. The Ritz Carlton Amelia Island on the other hand is a great place to do those things. an interesting wrinkle is that HST is MAR's largest partner (their HQ's are located nextdoor to each other, as HST is the PropCo from old MAR from You Can Be a Stock Market Genius). HST is embarking on a big capital program where they invest heavily in a lot of their MAR assets. MAR gave them various performance guarantees that happen to coincide with Corona. I don't think this is that important, but just find it interesting that MAR (as the sexy asset light franchisor) may experience significant costs from this. HST extremely modest IG rated (less than 2x) debt trades for 90-180 bp spread and less than 3% all-in yields. in terms of debt/cost of capital/liquidity, its the SPG of hotels. a starter position is warranted soon.

At a point, I will probably buy HST. All hospitality REITs trade cheap to NAV. HST is the most liquid, least levered, only IG rated one (it’s blue chippy REIT to the core), and owns some very high quality assets that they recently overpaid for. Trades like $300K / key when a lot of their asset base is worth much more. Unless things improve much more quickly than I expect, i will wait a while. Not that much cheaper than when I took a look at it a few months ago and passed.

they are the same (ignoring taxation at the shareholder level). Buffett says so himself. in both cases $100 of equity pre-dividend or buyback -$2 from dividend/buyback $98 of remaining equity subject to the market's valuation thereof. you are subject to the market's whims on the remaining equity no matter what, whether you sell or not. In the case of buyback this $98 is divided over fewer shares. In the case of dividend, the same amount of shares, but shareholders have $2 less taxes and/or transaction cost to buy the shares to have the same amount as if a buyback occured. .

The fundamentals of the U.S. economy remain strong,” Powell said in a four-sentence statement Friday. “However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.” Powell Put.

hey assholes, please stop and let my greedy $43.5 order get filled. ;D

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/wilshire-5000-market-cap-gdp-exceeds-dot-com-peak/msg392360/#msg392360 My view on this is as follows: publicly traded investment grade corporate america is in great financial shape and poses little credit risk or systemic risk. debt is primarily fixed, well termed out, and interest is covered many times. this isn't universally true, but I think if you go through the data it is tough to conclude otherwise. I have some data in the linked thread on this. worry about public valuations and sustainability of earnings (taxes, margins, etc) NOT credit risk. private equity/sponsor backed companies are in worse shape and vulnerable to a decline in operations, an increase in the cost of financing, or a simple decline in valuations. they are more expensive on an EV basis and more levered than their public counterparts and the structure of the leverage is worse (leveraged loans with floating rates, leveraged loans have grown at the expense of HY market, because investors want floating rate). the worst positioned are those who are mezz lenders to these companies, as they don't really get the upside if things go well, and are taking impairment risks. all else equal, i think you see lower default rates (no covenants), but much higher loss given defaults in leveraged loans and CLO's. I don't think this really proposes systemic risk in that I think those who own the risks are unlevered institutional investors rather than banks. Japanese banks love CLO AAA, but I think AAA is going to be totally fine. I think comparisons to subprime are difficult to make in that banks are in far better shape and you don't have anything truly going on with ratings wackiness that is comparable to back then. I think WB is mostly talking about who he is competing with for add-ons: Private Equity. things I'd avoid because of this view: BDC's, CLO mezz/equity (I do own TFG which has significant exposure to this), Junk bonds, mediocre private equity funds and their sponsors/GPs (I don't think a few dissapointing funds will hurt the big guys franchise), CRE CDO's and BDC's that own them, CLO issuers like Jefferies (which I also own). Most of these are very easy to avoid. again I think the bulk of the risk lays in a sliver of a pension's allocation to "direct lending and private credit" or "alternatives" allocations of me-too institutional investors who've strayed too far afield. my word is not gospel and there are more negative and positive interpretations of the data, but I've put a fair amount of work into forming this view (mostly with data from LCD to which I no longer have access). Data: Covenants: https://finance.yahoo.com/news/cov-lite-fight-leveraged-loans-110012689.html https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/leveraged-loan-news/leveraged-loans-another-new-record-for-covenant-lite Leveraged Loan/CLO Growth (lots of good data here) https://www.financialresearch.gov/frac/files/OFR_FRAC-meeting_Leveraged_Lending_CLOs_07_09_2019.pdf

I think all that he is saying is that Berkshire's liquidity is low relative to its float and market cap. For example, just to use a stock that potentially has more "speculation" in it, ServiceNow trades about $560mm / day. Berkshire (adding A & B) trades $880mm / day. Berkshire Hathaway is a $540 billion company. ServiceNow is a $63 billion company. NOW trades 0.88% of its market cap / day. Berkshire trades 0.16% / day. all else equal its easier to buy (on a percentage basis) 5% of NOW than BRK/A/B. AAPL trades about 0.5% / day (but mind you that's $6.4 billion average value traded), it's easy to buy oceans of apple shares. TSLA trades 2.7% of its market cap / day and traded $54 billion (1/3 of its market cap, higher percent of float) in one day at the height of TSLA-mania there are only about 250 trading days / year, so it's very easy to see why Buffett is "complaining" about his pesky hold forever ownership base. I don't think it's any more complicated than that.