benhacker

Well, when the CEO owns 85%, that tends to happen. ;-) Great manager, and great moat on the brokerage side. MM side is a bit black box, and no way to really ascribe a moat to it. I think you buy this for the brokerage biz and the management, and you say that the MM side is worth book but no more. I own a tiny amount from under $16... would like to own more if it got cheaper. Ben

Thanks for the discussion Richard, clearly we are talking past each other. I'll check that Moody's piece when I get some more time. Eric, you set me up for my key point (not disagreeing with anything you said): I believe this sentence should be follow by "... thereby encouraging EVERYONE in the country to become pet rock manufacturers, sellers, etc." And THAT is the problem. (what I was harping on regarding incentives). Everytime the government makes an allocation decision, several things happen: 1) A lobbyist is (usually) vindicated/rewarded. This encourages companies that don't lobby and didn't sell pet rocks, to now be forced to hire lobbyists so that their good of choice will be the next non-optimal government 'stimulus' target. 2) People who are generally highly intelligent motivated and prodcutive, now want to become lobbyists. 3) Individuals looking at their carreer options may focus more on being a pet rock salesmen, manufacturer, or marketer... "it's where the money is!" 4) Companies create a new division called "How to get the most out of the stimulus plan for XYZ Corp" 5) Entrepreneurs who didn't sell pet rocks feel like the system is stacked against them, thus lowering their productivity and incentive to work. 6) All else equal, the non-optimal use of capital will come with a cost, lower growth, high taxes, or higher inflation. 7) Lastly, and most incidiously, the population gets the feeling that handouts are somehow free AND that they derserve one free, becasue it's clear the pet rock guy didn't deserve it. Richard chose to misread what I said above with reard to debt, and that is fine. Debt can be good, and government spending can certainly be good. Non-optimal spending is always and forever terrible, and we should never accept it... in the case of debt fueled crappy spending, the debt remains and all you have a asset worth lesst han the debt, OR, in the case of hookers and booze, nothing at all. It's like those who thought a little bit of stupid spending in the stimulus is ok because it will "hit" the economy faster, so build a few hooters, or put some "jobs" in a state where you need a senators support and it's all good. It's bogus thinking and a 3 year old knows it. Want to have the money hit faster, just give it to citizens on a pre-paid $200 debit card that has to be spent in 60 days... seems simple, but it wasn't done... I should probably stop talking here because this is an investing board, but capital allocation at the macro level and at the individual company level are very similar. Good allocation is usually obvious. Many economists and sympathizes and burearats try to spin it that doing things that are obviously stupid are somehow warranted because of XYZ but they are all missing the point. I'm all for government regulation of certain activiites (banks, utilities, airlines, key infrastructure (roads, telco, airwaves), etc). I'm all for RATIONAL government spending that is fully transparent and planned over a long time frame. I'm not averse to debt, but I do believe that when using debt you must be financing AN (appreciating) ASSET that has a longer life than your debt maturity. The problem our GOV has is that so much of our spending is debt financed, that we are now in a structural deficity position just to maintain operating costs of our government; forget infrastructure. I believe what I have said above is universal and almost inarguable (maybe people disagree on regulation, etc, I'm talking about the allocation of capital part).... not because I'm some economic wizard (I'm not) but because it is freaking common sense. We can all disagree on shades of grey, but to believe that good can come from wreckless spending is so totally ridiculous. I'd appreciate anybody who thinks what I've said is wrong to speak up... I won't respond, I'll just listen. :) In the end, Richard wasn't really defending wreckless spending, but he was excusing it for the sake of the greater good of the times. That's fine and all, and we have emerged from our near term problem a bit which is good. In the long run however, our government is wasting billions of dollars a year in the name of "job creation" and has done so for so long that we are in quite a pickle. I think the times for excuses are past, and times for excusing should have ended years ago. Everyone (in government) should know what should be done (to a rough degree), the fact that it's not happening should no longer be excused. Ben (sorry for typos, wrote too fast)

-- Got it. I wasn't argueing with the stat, so I should not have said anything anyway. -- To a first order, I agree. The possible broken incentives that government create change how people allocation both human and other capital which can have a much bigger effect longer term than $1 of spending. -- What is the $1 spent on booze makes each part of the productive chain less productive through providing a disincentive to be productive? -- It was not entirely clear, but the assumption that bad spending in a large part of our economy doesn't make our system less efficient by drastic amounts is absurd to me. -- Don't worry, I'm on board with Velocity... -- Do you think the fact that SOOO many people in this country are inovled in the housing market has anythign to do with our governments poor 'allocation' choices?? I think so. We subsidized housing (mortgage interest deduction, abnormally low rates funding by GSE backstop, and now tax credits, and cash for caulking)... what is the result of this. "The money just moves around" and all is well with the system? Not at all, what you get is a society that changes the way they behave. They move into areas of the economy they wouldn't have otherwise, they feed off the system the government has created. Goverment spending (if maintained over time) drives capital (abnormally) into an area it would not have been otherwise. Sometimes this is good, some times bad. -- The first sentence should end "in the short term".... and the second sentence is probably what we should be thinking about. -- I wasn't advocating tax cuts per se. I think these "create jobs" stats are all bogus, but I'd love to see the source. Again, it's the quality, and longevity of the productivity / jobs that are created that matters. We can all become mortgage brokers tomorrow if the government decided, but in 10 years when our economy blows up again, I'd have to argue with the rationale (again). -- This is crazy talk... the money has to be paid back some day... what did it create other than a bunch of unsustainable activity? -- I think it is you are ignoring the second order effects. We all (I hope) understand velocity very clearly. In the short term, what you are saying is all good. The question is what does this kind of wreckless spending we have been talking about incentivize? The answer is "all the wrong things". In order for wealth to exist, people and machines must create things cheaper, faster, with less raw materials. When the government spending facilitates technology or infrastructure that makes this value creation move foward it's all good... but when the government sends a message that "booze and hookers" are what it values... or buying a mcMansion, or pushing paper around, than people will get the message loud and clear. The long term of effects of some of the ideas here are devistating. Incentives matter, and wealth can't come from stupid spending.

Richard, What? First, what does Ken Fisher know about anything? He's a total sales job guy with no economic sense or saavy (I know a guy who worked at his house as an analyst... not a real inspiring financier). Second, just because money changes hands, doesn't mean it creates any long term sustainable positive value... how citing the US mortgage machine as a productive use of money is beyond me... certainly it creates jobs, but there are those of us (myself) who believe that in the short run inefficient allocation of capital can create quite a growth engine for jobs and perceived wealth, but it may not (always) be good for us long term. Has this crisis taught us nothing? We can't all just trade stocks and real estate and mortgages back and forth... somebody has to be productive (not that each of those tasks isn't needed, it's just that 25% of the country doens' need to be involved). Third, hoarding has negative connotations, but what about 'saving'? Is saving bad, should we all just blow our money and "create jobs"? Maybe I'm just tired, but your post and point of view captured most of the problems America has nicely in one post... short term, forest for the trees, totally inverted thinking. I'm not a libartarian, negligible government advocate, but implying that government spending is more efficient because it has a short term boost on jobs ignores the entire "capital allocation" aspect of capitalism and why our economy creates wealth. You can create as many jobs as you want, simply define cashing welfare checks as a "job"... done, we're all employed. But where does the real wealth creation come from??? Sorry if your post was meant as a joke and I just missed it... by disagreeing with you, I'm not agreeing with TWA, but your comments were crazy to me so I thought I would say so. Ben

80% for 12 years... turns 100k into $100+m. I'd love to know the name... Ben

I mostly agree with Ron. There is some more pain in housing but we are mostly done through the price declines. Also, whoever mentioned above (Onyx I believe) about the Option ARM resets starting in 2010-11 is just regurgitating the Credit Suisse report that has been debunked before, and it's very dated. The report mixed / confused resets and recasts and paints a totally skewed picture.... and it also belies any knowledge of the actual loan terms of an option ARM loan. To understand that the report is completely false, one only had to read Wells Fargo's financial statements over the years (and GoldenWest's back in the day). O-ARMs (written by GoldenWest --> Wachovia --> Now Wells) were set to recast in 10 years after originally being written *or* when the loan balance reached 125% of original principal balance. Given the low low rates, and the fact that the vast bulk of these loans were not written until 2004, it's clear that the majority of reCASTs (which are what you should fear for the housing market, not resets) won't start until 2013-14. Credit Suisse was wrong, and just because everyone parrot their chart, doesn't make it any less wrong. Let's not continue the propagation of the lie. Careful not to take other peoples' data without a dose of reality because they don't usually have your best interests at heart. Ben

barminov, <hat tip>

Thanks Uhuru... maybe I just made it up... :) I like it at least... Ben

The big disadvantage is that the ETN is directly exposed to JPM's credit risk... you may be comfortable with layering that kind of (remote) risk, but it's something to think about. Ben

Sorry, but I figure someone can help me here, I think it was some investment person, maybe Buffett that said the follow (paraphrased): "The more recklessly those around you carry out their business, the more carefully you must carry out yours." Any help appreciated on finding the source. Thanks, Ben

So your broker will actually perform the conversion themselves of sfk-un.to --> SFKUF (ADR)? That makes perfect sense, and NITE may simply do that when an order is made... but my only confusion is on the shares that already may exist in the account that are now magically TSX shares, they can't be wrapped in an ADR shell ex post... so how do I move them? Maybe per your statement, the broker will just sell them through NITE and you will eat the spread... Lots of things should be possible, but I'm never sure how all this works when the rubber hits the road. Ok, I'm off to think about other things, I'll wait until this actually happens to judge the results. :)

Valuesource, are you implying that NITE will facilitate a trade on a foreign stock directly on the pinks (i.e., without an ADR)? If you can show me an example of them doing that, I'd like to see it, because I don't believe that is possible without (at a minimum) a Level I ADR... I've love to be corrected, but what you are saying sounds like you are misunderstanding the process. I 100% agree that any broker will HOLD a foreign stock for you, but the trading of it is a different ballgame, and I don't think NITE can help with that (again, without an ADR and some sort of a conversion). Perhaps we may be best to wait for the actual reality to meet theory here I guess... Ben

FFHWatcher is right, but unfortunately there are some (many?) brokers who (at least claim) don't/can't execute trades on the TSX. This may be the final straw for me as I have my RIA business through Options Express and they don't trade on the TSX... so I'll be moving my business to IBKR depending on their response... I've been noodling on it too long already... Ben

I would bet a lot of money on it... there are 10 of thousands of un-sponsored ADRs available on the pinks and many trade with good liquidity. The following and size of FFH would virtually guarantee that a market for such an ADR backed by BNY or JPM would have decent enough volume to employee a market maker and to harvest a small cut from the dividend. The fact that the market for FFH shares is already primed should seal the deal for an ADR custodian to do this. http://en.wikipedia.org/wiki/American_Depositary_Receipt#Unsponsored_shares Now I don't know the mechanics of how FFH.U converts to this ADR, or if that is even possible, but I can pretty much guarantee an an ADR will show up soon after. We'll see I guess. Ben

Check the 13HR, the XOM holding is not under GEICO. There is no need to speculate on which part of Berkshire owns what, it is all disclosed in the filing (assuming they don't do any funky accounting /location stuff with the holdings which I doubt they do). See http://sec.gov/Archives/edgar/data/1067983/000095012309063028/v54313e13fvhr.txt and note the "other managers" column. Exxon is listed under 4, 14, and 17: NO. FORM 13F FILE NUMBER NAME --- -------------------- ------------------------------------------------- 4. 28-554 Buffett, Warren E. 14. 28-718 National Indemnity Co. 17. 28-717 OBH Inc. Not under 9, or 10 (GEICO) or 19-21 (Wesco). Ben

Guys, this kind of thing is literally picking up nickels in front of a steamroller. This will be a great strategy. You'll make money 99% of the time, and you'll feel like it's 'free'. Then you'll add a little weight and start making more money. Then one day, 20 years from now, your life savings will be vaporized by something totally out of left field. I own SHLD and Bonds, but this is not a sound idea in my opinion. AIG did this same thing with RMBS... it's a great idea until it isn't anymore. Ben

@ Peter, I think the 'structure' of the options grant was incredibly shareholder friendly. I think the size of the grant was despicable. Don't let the former blind you to the latter... incentives are all that matter as Munger implies, look out what behavior the companies you own are incentivizing. Granting massive option grants at big premiums to book value rewards excessive risk taking. In my opinion. Ben

Speaking of carry trades, I thought this was timely. http://accruedint.blogspot.com/2009/11/i-warn-you-not-to-underestimate-my.html

Check out the option grants for the CEO in '06 and '07 (I think). From memory, I think the grants were 1-2% of TOTAL OUTSTANDING shares. I can't bring myself to buy this thing after seeing that. I think that's why Buffett got out... too much incentive to reach for yield with the out of money payday lingering around. No position, but the company is obviously cheap. Ben

Schiff has many interesting ideas. Unfourtunately, it appears that he has lost his compass and no longer can seperate BS from fact (including his own). It is sad becasue while many would be well served to hear *some* of his ideas, most rational people are turned off by him quickly (from my experience). I strongly recommend the book "History of Money" on this topic. Boring as I'll get out, but it brings to light what money is really for, and why we use paper instead of coin. Each comes with it's own risks and drawbacks of course, and the history is fascinating. Ben

Got to agree with Scorpion here. LUK seems pretty reasonably priced to cheap here. I think the big risk (and why I haven't invested) is just how long with C&S be with the ship. Even compounding 15-18% starts to make me wonder if they have to do a wind down at the end of the road in 8-10 years. However, just as with BRK, I think the acknowledgment that these guys are freakin' smart, and fair, which means they will probably come up with a good solution. I somewhat regret not buying this under $12, but the other stuff I was buying at that time did well so I don't cry too much. That said, I'd be pretty interested in the $16-18 range again I think. They don't come much better than these guys. Ben

EP, this will be my last post on this thread just due to my excess blathering, but I wanted to address one comment only out of your post, and thank you so much for you well thought out answer to my post!: I 100% disagree. Roubini made no case for any of the following: 1) The trade was ever smart to begin with (was it, was it always stupid, or was it genius for those of us going all in in March? I don't know.) 2) The trade is now long in the tooth (I think it may be, but I'm not certain, and it's certainly not my game to play) 3) The trade is at the end of it's life (maybe it has 3-5 years left which would make this mirror the '02-'06 period - I don't know) He simply inferred that it can't go on forever, but he didn't make any compelling argument for why it is out of equilibrium other throwing the word bubble around. Again, I'm not asserting he is wrong, not at all.... but... During the downturn when asset prices were collapsing people talked a *bit* about the fact that DE-leveraging is just the carry trade unwinding. The Yen was rocketing and so was the dollar (for the same but opposing reasons). It was simply the process (roughly) of the last 6 months in reverse. Maybe what we have today is just a reversion to the mean... where are we on the mean is the question? The FED has been trying to start the leverage, velocity, carry trade machine again, and it looks like it's finally running... Roubini never said the DE-leveraing was unsustainable... presumably because he felt more unwinding, deleveraging, etc was required so he AGREED with the market. Roubini is not using data here to support his views, he is describing what is happening, but he is not describing an equilibrium point we should reach (fair value, fair leverage ratios, etc etc etc). This makes his statements conversationally appealing but intellectually devoid (if others can point to where Roubini has gone into the valuation / fair equilibrium statements please attach... unsurprisingly I have spent my many hours a week of reading focusing on other more relevant (to me) pundits). I contrast Roubini (a blowhard economist with no market sense) with Jeremy Grantham who actually backs up his commentary with math, ECONOMICS, and market history. There needs to be some discussion of fundamental valuation levels with Roubini but his commentary is always devoid of it. He talks of bubbles but I struggle with defining ANY of the world markets as bubble (overvalued by 20%? SURE!!!). I almost think he is losing his mind when I read his articles. My suggestion: Read Grantham, read Accrued Interest, read some of the smart conservative/smart guys on this board like Mungerville. These guys know their sh1t, they are fair and balanced, and you will learn a lot (take it all with a grain of salt of course). Listen to economists at your own risk. The profession is broken. Just my 2 (maybe it's only 1) cents. Thanks, everything I've said is just my opinion obviously. I hope I didn't offend anyone or come off as anything other than just being me. I've seen too many people take the words of experts without data for too long and I've been getting a little bit more frustrated lately so I speak my mind when the topic comes up. Ben

Estimated Profit, I just re-read the thread and I don't see a single statement dismissing Roubini's comments, I am dismissing the man himself as a source of wisdom. The particular article linked has much truth in it. It just isn't insightful. And on top of that, he continually spins things to be bad which just bothers me because it feels like he is pimping himself. Just wanted to clarify my point. Roubini has many comments I have disagreed strongly with, but this (at least the carry trade / unwind comment) was not one of them. As you, and almost every intelligent bond investor I follow has pointed out, there is much truth to what he says. I (I'm assuming you were addressing me) have been questioned twice now on this thread for disagreeing or dismissing comments that I actually AGREE with. I am curious because I wonder if it's my writing not being clear, or something else. I honestly think I have clearly stated my thoughts on this thread but I feel my point is being inverted. To be clear, the Carry Trade is in full effect.... but this was started in April / May so I'm confused as to his commentary now... In April / May he was still talking about the "insolvent" banking system. Ben

Txlaw, ask yourself why are Money Market rates so low? Then ask yourself what money markets are (they are just commercial paper)... See here: http://www.federalreserve.gov/releases/cp/ Rates are like gravity... all companies may not get the Fed Funds rate, but quality companies can borrow (in very safe, short term ways) very cheaply. I can't tell you the mechanics of how this borrowing works, but LIBOR, FED Funds, Commercial paper rates, and 1 year note rates are all related (for all companies). Solid institutions can pass that savings on if they choose. Some like IBKR use this as a loss leader to get business and give their funding away at cost. Maybe they net that against other clients who are in cash, maybe they borrow via a banking subsidiary (they don't in this case) or maybe they roll 30 - 60 day commercial paper... of maybe it is just the company lending surplus cash to a VERY SAFE client. It's very safe because the loan is fully collateralize and can be liquidated any time they choose. That margin loan looks cheap to me, but for a company with excess cash, loaning to me at 1.00% may be better than investing in T-Bills (maybe). Someone else more familiar with typical brokerage mechanics can step in... but when MM rates are 0.5%, don't forget that MM loan money to corporations so there is a direct connection. Ben

Txlaw, To your first question, see here: http://www.interactivebrokers.com/en/accounts/fees/interest.php Borrow from any prime broker at very low rates, invest abroad... your liability is in USD, then sell USD to buy Foreign denominated assets AUD, RMB, etc. Rinse, repeat. The FED is funding the lending indirectly via the funding provided to banks (assuming SHORT Term variable borrowing is what we are talking about - FED / PRIME rates are the benchmarks). There is much untapped leverage in the world (not suggesting it SHOULD be tapped...), just through margin brokerage accounts I'm sure there is untapped credit lines of >$1-2T. I know my credit lines are relatively untapped... There were many comments in that blog that were surprising to me, this was among them. Economists like him shouldn't use that much hyperbole, and if it's not hyperbole, than I think think he is less important than I gave him credit for because that comment makes no sense. Yes. Every market participant who is paying attention is aware of this. Wonder why Gold and Silver are flying - cause velocity+Mx is ramping back up. The FED is openly talking about these issues and to suggest they UNDERestimate the problem, may indeed be fair.... to say they are UNAWARE of what they are doing strains the reasoning a 3rd grader could put to this topic. Myth, In general I agree. I hope I don't come across as berating these points too hard, but I think there is some seriously intellectual laziness going on by a lot of folks in the media and just cause you have a fancy degree and credentials doesn't mean you should get a pass. Cheers, Ben