giofranchi

Don't know exactly… These days it might be quite depressed… In my experience with the rent you can cover all the costs associated with owning such a luxury apartment with ease… but then not much money is left to put in your pockets! ;) Gio

Of course, I am no macro specialist either! I usually don’t trust macro specialists much! ;) What you say might be right as far as banks are concerned. In fact, the private sector in the US has deleveraged a little. Banks have been restructured and then have kept a low leverage. The public sector, instead, has increased leverage a lot. And QE1, QE2, QE3 have been outright purchases of government bonds, right? Anyway, this is not how I deal with such things. In a very complex system I don’t need to understand everything. When total debt to GDP has never been this high in the developed world + China… that’s enough to make me behave prudently! Also remember this is not a phenomenon that’s been going on only for the last 5 years… It is a much older thing: in 2000 Total Debt / GDP already was almost as high as at the peak of the Great Depression. Am I wrong? Probably… And I hope so!... My philosophy simply remains better safe than sorry! ;) Gio

I am just guessing: what about all the money Bernanke and Draghi have printed and used to buy Treasury Bonds and German, French, Spanish, and Italian bonds? What about all the money they have given to banks, which in turn have lent to businesses and individuals? Gio

Simple but very good advice! ;D Gio

I agree. But Italy has never been like Spain or Ireland: we have never experienced a very large real-estate bubble. There are at least other two offers for the same price. But the owner prefers to sell his appartment to me, because we have known each other for a very long time. :) Gio

It will surely generate rental income. :) But also there will be a lot of expenses, maintenance, taxes, etc… Gio

No. It is just a wonderful apartment… what you might call a “beautiful object” ;)… But the fact still remains: its market price a few years ago was 13-14k Euros per square meter, and I could buy it now for 7k Euro per square meter… The location is almost unique, and it is difficult to imagine how this could be anything else than a distressed sale. Actually, I know the owner quite well, and I am aware of the fact he unfortunately needs money now… Gio

Not at all. Just look at the picture in attachment: personal savings have rarely been as low as today. Gio Personal-Saving-Rate-and-Private-Debt-to-GDP-1900-2013.bmp

I have the opportunity of purchasing a very fine piece of real estate for half the price it was worth a few years ago. It is located in a wonderful little tourist town in Liguria, northern Italy, not far from France, La Cote d’Azur. I am almost positive the price it will sell for might get back to normal, once economic conditions in Italy improve. The fact, though, is I will have to sell some productive assets (stocks) to buy an unproductive one… And usually I’d hate to do that (and I never do!). It seems a great bargain, but I’d hate to see my productive capacity diminished. What would you do if you were in my shoes? And for what reasons? Thank you, Gio

In the US: 1950s, 4.3% 1960s, 4.5% 1970s, 3.4% 1980s, 3.1% 1990s, 3.2% from 2000 to 2012 1.7% Gio That growth looks solid to me. Yet that was a period of very high debt load after WWII. So it refutes your point, doesn't it? US total debt as a percentage of GDP reached 300% in the mid 1930s and after WWII was back down to 130% in the early 1950s. Then it just kept climbing, until it reached 380% in 2009. Now the US has delevered a bit and US total debt as a percentage of GDP is at 330%… Still higher than before WWII and during the Great Depression. Europe and Japan (and probably China too) are even in a worse shape. Gio

In the US: 1950s, 4.3% 1960s, 4.5% 1970s, 3.4% 1980s, 3.1% 1990s, 3.2% from 2000 to 2012 1.7% Gio

What I meant is that humanity has already dealt with the problem of too much debt many and many times in the past. And though we all associate nowadays the printing of money and the increasing of public debt with Keynesian economics, it is actually how humanity has dealt with the problem of too much debt at least since the days of the Roman Empire (during which I know of many instances when debasement of the currency and the issuing of public debt were employed). And the outcome as always been the same: slow or no growth for many years, asset bubbles followed by sudden crashes, generally difficult economic environments. I simply don’t understand how, by repeating what has already done many times in the past, we should now expect a different outcome… ??? Gio

I don’t think I suffer from a “home bias pessimism” if I say: 1) The macro situation in Europe and Japan is very worrisome; 2) The macro situation in the US is difficult, but better than in Europe and Japan; 3) The macro situation in China is one of unprecedented excesses, and therefore at least as worrisome as 1 and 2; 4) I remain bullish on good businesses, purchased at good prices, and led by good entrepreneurs who will behave flexibly enough and deal successfully with any kind of storm that might come our way. I think I am being realistic. Neither too pessimistic, nor too optimistic. If 1, 2, 3, and 4 are not true, I welcome anyone to show me some contrary evidence. Gio

frommi, just read the latest by Hoisington: more debt is now decreasing GDP, not boosting it! And the only effect of printing money is to spread the pain over decades, instead of concentrating it in just a few years. It might be the right choice, I don’t know… If you concentrate the pain in a few years you get the Great Depression, if you spread it over some decades you get Japan… Which is better? Europe imo is getting the worst of both worlds because of the Euro. Europe cannot print and cannot default… Therefore, it is running the risk of suffering acute pain for decades! ::) Gio

Yeah! I agree with you 100%. But this faith in human ingenuity shouldn’t prevent you from seeing the truth. Einstein once said: So, let me ask you: How is all this printing of money and increasing of public debt supposed to solve a debt accumulation problem that started 60 years ago? In other words, to solve a debt problem with even more debt is all that human ingenuity can conceive? ??? Gio

I think Einhorn is more entrepreneurial than you seem to believe. And now at the helm of Greenlight Re he is trying to build a sound reinsurance company. Not many of the fund managers who have quitted the game after 10-20 years have done that! ;) Gio

Mmm... I guess then I have chosen the wrong thread! ;D Gio

If Brindle is gone, I am gone! ;) Gio

I absolutely agree! In my last post I have written: if Einhorn is gone, I am gone… ;) Gio

Hi Pete, we are all here talking about Buffett, Malone, Munger, Gates, Walton, Watsa, the Google Guys, Dalio, Marks, Jobs, the greats of the past, etc., and we discuss, we try hard to understand their methods, what has set them apart from the crowd, and how we could somehow emulate them… But in my experience the simple truth is you cannot know for sure… Why are they so successful? Short answer: no one really knows. Of course, you might study what they are doing and decide if their processes are something you understand and approve… but to replicate them and expect the same results…? Better not to fool ourselves... This is basically the reason why I look for those entrepreneurs who imo are the most successful out there, who are doing something I can understand and think can be replicated for a long time in the future, and then I just try to keep in their company (always making sure I pay a fair price!). The problem I have with teams is that I think “democracy” is usually not good for business. Even in my small organization I can see this: if I had to convince other people that what I want to do is the right way to go, I would be stuck going nowhere most of the times. Of course, there might be exceptions, and a team like the one of Markel surely is extremely good. But it gets very difficult for me to judge. For instance: if Einhorn is gone, I am gone. When, instead, could I decide I don’t like the Markel team anymore? Though Gayner is young, there are many people in the Markel team today who are much closer to retirement. Should one of them decide to leave the management of the company, and be replaced by someone new, how am I supposed to judge: 1) The quality of the new member in the Markel team, 2) His/Her effect on the rest of the group? The Markel team might evolve in a way which loses the alchemy that has rendered the team so good and effective until now, without me ever noticing… So, to sum up, I guess two are my problems with teams: a) Successful teams are much rarer than successful entrepreneurs, b) Successful teams are much more unpredictable than successful entrepreneurs (if Einhorn gets bored and retires, I am pretty sure I won’t miss the news, and I will act accordingly!). Gio

Me neither... ::) Gio

You are perfectly right, and I think MKL might be a wonderful choice! ;) The only thing I can tell you is I have a great deal of respect for Einhorn. On the contrary, I cannot muster the same confidence in anyone running MKL today. Of course, they might be a great team, instead of a great entrepreneur… but let's just say I think I understand great entrepreneurs better than I understand great teams! Regarding GLRE insurance underwriting I think they are very conservative. They write almost only high frequency – low severity contracts, and rarely get involved in writing catastrophe policies. They are building some float, but not in a hurry. And today are still very much unlevered. They have already proven to be able to reduce their business, when rates are not satisfactory enough. I also think that if Bart Hedges is good enough for Einhorn, he might be someone who deserves trust. :) Gio

How so? Total nonfinancial debt/GDP went from 344% to 350% in six months from 3Q13 to 1Q14 The number for aggregate debt in the US in the latest Hoisington market commentary is 334% GDP. While it reached a peak of 360% GDP. A long way to deleverage, but seemingly on the right track... Instead the EU and Japan are not on the right track: for the EU aggregate debt is 460% GDP, and for Japan it is 655% GDP. ::) Gio

Hoisington Quarterly Review Q3 2014 Gio HIM2014Q3NP.pdf

My 4 investments, of course ;): Fairfax Financial Biglari Holdings Liberty Media Greenlight Re Good entrepreneurs (I would say great entrepreneurs) at the helm of good businesses, purchased at good prices. The caliber of those people (hopefully, they all have at least a 10 years working horizon in front of them, even Malone) and the nature of their businesses make me believe they will be flexible enough and adjust successfully to any kind of storm that might come our way. Gio