benhacker

I'd be interested.

I think Mr. Raymond is at least (nearly) universally viewed as a fantastic employee. There are so many 8 and 9 figure payouts for incompetants, I think the focus would be best spent on those. 42 years with deferred comp can be a big payday... Still though... wow. I hope the 'wealthy' (however you define it) realize that a proative approach to addressing exec comp is in order. The masses will drive something soon if it is not reigned in. My 2 cents, I hope capitalists take the necessary steps needed to save capitalism... Ben

I think anyone holding a leveraged etf at all can't do math. If you think you get 20% over 1 year if the market does 10% with a leveraged 2x ETF, you are sadly mistaken. Take a stroll through the past performance of leveraged etfs over various time frames... also peruse their taxable distributions and their efficiency. These things are totally toxic, but people love to play short term moves, and they do work for that. Ben

I'm with Eric 100% on this. Are the bonuses to AIGFP personal crazy? Yes. Should they be refunded or have been stopped... I'd definately lean to 'yes'. Does this Bill cause more than $180m in collateral damage. YES. Think about this, they enacted legislation in the tax code to address a very tiny issue. Seems insane. If we want to change the landscape of banking forever, that's fine, but you are going to have to acknoledge that some little stuff is going to slip through teh cracks. $180m is little stuff, there are bigger fish to fry. In the end, I think this won't do horrible things, but the principle is getting scary, the government is making pretty fast reactionary moves to respond to perceived public opinion and this is really not the way a government should be run. I hope we can get out of this funk soon so our country doesn't go down the drain... tired of seeing so much irrationality at all levels. :( Ben

Crip / Mandeep, my apologies. I didn't realize this was a question for the AM... I think it's a good question, i was just giving my reason. Didn't mean to dismiss the question as non-relevant. I personally am assuming that Buffett is/was adding to WFC. But, I've been under the assumption that a safer preparation is to be buy debt now as long as it's convertible. You get better deals from companies that need capital than from companies that don't... so likely focusing on campanies where you are providing direct funding is a good strategy. My 2 cents. Ben

Mandeep, I think it's because Buffett is getting better deals by buying A rated debt at junk yields and getting equity kickers. Why buy cheap, when you can buy even cheaper? Ben

Shah, if you read this I'd be interested in what you have to say about these guys. This appears to be an amazingly cheap company. Insurance is definatly not a business to buy a mediocre company, but I think this company is far from mediocre. I'll try to take some time and make a post dedicated to them. Ben

"And if she's right, then you should be shorting C, BAC, JPM and WFC, not going long." And we should all be shorting the market waiting for an even earlier better entry point... What does this kind of thinking asist in? Will any banks survive 15% unemployement? YES... will their stocks do well... NO. There is always a possibility things can get worse... You handicap your odds, diversify your bets, and you take your chances. You protect your downside as you see necessary. It's a little to faddish these days to talk about all this worst case crap... nothing is new, it can always get worse. It can also always get better. Ben

I don't know much about Whitney, just that she is among many names who are referred to as 'experts' now, but I had never heard of before 2 years ago (Roubini, Doug Kass, etc). The interesting thing to me, is that there were all these massive dislocations in our economy... they are now ALL reversing (savings rate is up, consumer spending down, exports from china down, housing prices normalizing, stock prices normalized mostly, credit cost is now more realistic, etc etc etc). A recession is a repayment of growth for past misallocations... we get it. But you can't cite a correction of a problem as a bad thing when everyone is aware. Should we have $5T of credit card lines available? NO!!!! It should be 1/10th of that (if any). The people who use their credit cards as cash management are going to be forced to save... yes, that will slow the economy in the near term, but freakin' A, isn't the end result what we always wanted?? If people want to be bearish about all these macro things heading in the wrong direction from 2003-2006, at least acknoledge that they are heading in the RIGHT direction now... don't start focusing on how GDP is going to get hit by it when you were NOT focusing GDP to the upside. Maybe I am just misinterpreting Ms. Whitney. Some people just seem naturally negative about what happens... always. (some folks are the opposite). I just don't get why the above CC stats are bad... Ben

As a follow up, I've never really looked into SWCEY much, but I have to say it bears some work I think. 1) Buffett is involved in a way that at least is mildly positive for the equity 2) Price implies a Mkt Cap of 1x operating earnings from 2007 3) Price to book is 25%, or 33% if you remove goodwill The above was a totally brainless grab from reuters with no fact checking... still, seems enough to pique your interest no? Anyone have any research here they care to share? Thanks, Ben

http://www.marketwatch.com/news/story/swiss-re-provides-details-buffetts/story.aspx?guid=%7B9AE85930%2DFFA4%2D416F%2DA3AE%2DD42AFAF760EA%7D&tool=1&dist=bigcharts& LONDON (MarketWatch) -- Reinsurance group Swiss Re said Friday that its planned 3 billion Swiss franc ($2.5 billion) capital injection from Warren Buffett's Berkshire Hathaway will be in the form of a perpetual instrument with no maturity date. Berkshire Hathaway will have the right to convert the investment, which pays annual interest of 12%, into shares after three years. The conversion price will be 25 francs a share, which is still 70% above Thursday's close of 14.68 francs. Swiss Re can repurchase the investment at any time in the first two years for a 40% premium and any time after that for a 20% premium. The reinsurance group can also elect to pay interest in shares, which would be valued at a slight discount to the average price over the previous five days. I really think the market is just missing that fact that Buffett is shooting elephants left and right and everybody is pissing and moaning about a potential $40B liability in 15 years... talk about the forest for the trees... Probably the safest company on Earth, but the key man risk I guess is ever present. Ben

Cheap guy, I'm a big fan of the puts... but you can't assume Buffett compounds 10% pa in an environment where the indexes drop >50% over a 20 year period. PErsonally, I don't think you can assume the S&P will be at 200 either like SF is in 20 years becuase that doesn't even pass the sniff test. I think you can assume buffett is doubling his money on that $4.x Billion over time (safely) AND the worst case that we care to think about in the market would be maybe a 0% GDP/GNP growth for 20 years and a valuation of 35% of GNP for the overall markets at that time. I think that puts the S&P 15-20% below where it is today... (totally swagging right now)... implying a pretty bad 1-2% pa return for stock investors from here... Buffett makes a net profit on this deal or we are all slaves to an alien race. (hey, maybe both... ;D) Ben

Someone email me the files at ben AT remickcapital .com I'll see what I can do. Watsa, what is your email addy? (just send to the above). Ben

Check this out: http://acrossthecurve.com/?p=3577 GE CDS trading off the charts... I wonder how the remain small CDS portfolio is doing?? I don't follow GE, but i probably should be, the price action seems incredible. Ben

FYI, that Morningstar "analysis" was ripped off. They stole someone's rough spreadsheet analysis from another board. I have no affiliation with M* or the poster who was ripped off, but I thought the fact that an M* analyst would blatanty steal from a source on the Internet without citation or a simple request was deplorable... so I'm spreading the word. He also stole some data typos with it, so it's 100% clear it's a rip off (to me). Just an FYI... in general, I don't disagree with the conclusion... just the method... the guy should be fired tomorrow. Ben

Oldye, do the math, you return sub 20% if you assume 'fair value' at the end of 10 years. IV today, $1. Price today, $0.50. IV 10 years --> $10 * (1+.1)^10 = $2.59 $0.50 compounding for 10 years to $2.59 is a 18-19% annually. Correct me if I'm wrong. You will potentially make much more if the gap closes quickly of course.

Berkie is down because of the underlying stocks are down (if I had to guess) that he owns. Lots of wild stuff today. Wells Series L preferred just dropped 20% today to 35% of par... 20+% yield. For those who kept powder dry, I envy you a LOT! Best of luck to everyone navigating this, now is the time. Ben

On TARP and what the gov says vs what they really did... see some comments from USB CEO. http://www.twincities.com/allheadlines/ci_11722986 Basically says that banks were forced to take TARP and the big 5 were 'encouraged' to buy up their troubled bretheren with the money. Pretty amazing if the GOV now wipes out shareholders... Ben

So I just glanced at the Wells 1992 financial info, and I really don't see the drastic difference today in term of the ability to withstand losses. Then (Q4 1992): ~$25B in loans $1.7B in 'buffer' (6.8% of loans) $2.8B in common equity (11.2% of loans) Today (Q4 2008): ~865B in loans $21B (+$37B) = $58B in 'buffer' (6.7% of loans) $68.2 in common equity (8.0% of loans) Big difference is that there is a lot more preferred equity these days at Wells (due to WB acquisition mostly). I'm not sure how different the numbers would have been for 1991 etc, but I doubt much. I think it's also worth noting that Wells' core business locations have been leading the economic downturn so they are if anything further along the process than many other banks. Just my 2 cents.

Thanks for posting this Shah. I think BB&T is indeed the best managed bank, and his words about Wells are true. I think 2-3 years to integrate Wachovia is realistic. The core economics of 'good' banks is improving rapidly. As Mungerish said, Q1 should be good, and there may be some positive credit surprises due to the Refis. Lots of uncertainty here, but if you want to protect against disaster, I'd just buy Wells with a out of the money market put. Assuming Wells goes under is assuming a depression, period. and I think that is totally hedgable. Thanks, Ben

Yeah, I second downfin's comments. A 10% loss estimate for a lender levered 10:1 is a pretty tough hurdle. I'll have to dig into Wells' old financials to see if that could have ever been tested. Prevalou, if you could share your calcs, I'd be interested to see them... doesn't immediately make any sense to me, but I may be thinking about it wrong. These days, Wells can survive a 10% hit (not talking about any recoveries) with minimal capital additions given the massive provisions they have in place, plus the purchase buffer they took with Wachovia + 2 years of Pre Tax, Pre Provision income. The likelihood of a company like Wells getting to a point where they actually have to write off 10% of their assets is pretty astounding to me... like Great Depression type stuff >15% unemployement. Or maybe I've just drank my WFC cool aid too much. Ben

Sharper, I don't ever recall you posting so frequently... hope all is well! "If you missed the best 100 trading days on the Dow over the last 107 years your wealth would be 99.7% lower; but if you missed the worst 100 trading days your wealth would be 43,396% higher." What exactly is this supposed to tell us? Seems like mathmatical sleight of hand to me by conflating two things that are not really comparable. First, what is the baseline for wealth increase if you just held the whole time? Second, what was the return of those 100 worst days vs. the 100 best? Everyone knows that crashes tend to be more dramatic on a daily basis thans rises, but I don't think this helps us somehow avoid the former and ride the latter. No one wants to be a value investor at the bottom, because at the bottom, it's scary. Hopefully we can pull through. With our beliefs intact. Ben

IB is legit (and public). http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ibkr&sid=0&o_symb=ibkr Rates are Benchmark + 0.5% on $3m+ balances. FF is the benchmark. All their fees are cost plus, and they are razor thin margin on their broker biz... their primary money comes from option market making. I'd be interested to know the logistics of their margin biz and how that works. Any shareholders out there? Is it internal netting with cash balances / margin? Ben

Interactive Brokers base their lending rates off Fed Funds (not LIBOR) so I think that is the broker. The main statement of the OP was that the rate is fixed... it is not. So you are trading a fixed long rate for a short term variable. Could work, could not. It's not risk free though. Ben

Note that Buffett has stated in the 50-60's that 50-60% of GNP was fair, and he said in the late 90's that 70-80% was more appropriate now. He did not clarify why, but I don't think it takes much imagination to come up with a few pretty obvious reasons that explain at least of chunk of this. 1) US business composition 2) % GNP delivered by public vs. privat companies But, as the author so blindly fails to call out, Buffett's article is about US Stocks vs. Treasuries... 75% of GNP is blazing cheap given THAT particular alternative. Ben