rukawa

He says that he doesn't invest in stocks in overvalued currencies because he never hedges currency. I guess he never learned to use IB.

Kong Zhong private merger is completed. Zhaopin price currently is greater than its merger price because it entered into a merger agreement at an even higher price than in my original post. The IRR on the Zhaopin deal from my original post is about: 1.167^3 - 1 = 58%. Unfortunately I lacked confidence so I invested in neither deal. Air Media which I considered the worst of all the deals did the best with a 26% increase in price.

The geometry of the forces is a lot different if the pressure is external rather than internal. Because pipeline operate under tension they are much stronger than the hyperloop which operates under compression. For instance if a dent occurs in a pipeline, the forces inside the pipe will actually tend to remove the dent. Whereas with the hyperloop a dent can cause the structure to buckle and the forces will actually make the dent worse. This is why you can collapse railway tanker with partial vacuums: Here you are seeing a railway tanker collapse with probably less than 16 psi of external pressure but that same tanker would be fine >100 psi of internal pressure. This is a known problem that can be experienced when railway cars are unloaded and there are procedures and mechanisms known in the railway industry for avoiding this problem. Mythbusters has a good explanation:

Ok if its easy to do please build me a 10000 km long vacuum tube with a diameter of 1km. I expect you to be done by next month since as you have stated its easy :). Scale matters. Building a vacuum tube you can fit in your hand is very different than building the hyperloop. The forces for one are vastly different. You are basically arguing that a 5 order of magnitude difference in scale is irrelevant. And they would be completely freaking correct! At the advent of the transistor, 2 billion transistors was impossible. And would remain impossible for decades. Same with air travel. Most of these things took decades to figure out and required a lot of incremental innovation. They were only worked on because they had modest practical immediate applications that didn't require 2 billion transistors or in the case of air travel high reliability. I can't think of anyone who ever argued for 2 billion transistors when computers were first created in the 1950's. If Musk wanted to argue for something a lot more modest and at a much smaller scale or if he wanted to propose it as something we should strive for in 50 years than that is exactly what he should have done. His argument is that the hyperloop is realizable today and much much more cheaply than conventional transportation systems (he quotes 6 billion for 600km which is 1/10th cost of conventional systems). I think that is completely insane. And I think it would be similarly insane if someone stated at the advent of the transistor they were going to build a 2 billion transistor chip in the next decade as an alternative to vacuum tube systems and at 1/10 the cost.

It's really more of a problem with the energy of the pods. Just letting air into a vacuum chamber isn't that big a deal - as long as the walls are thick/strong enough. Back in my student days, we machined vacuum chambers out of aluminum with very thick walls. We had one beast (made of steel) that you could basically walk/climb into. The easiest way to stop small leaks was to put some epoxy on the offending hole. I can't see how the project makes sense cost-wise and it does seem to be overly risky for passengers, but I've not looked into it carefully. Atmospheric pressure is 14.7 pounds per square inche. Assuming a pure vacuum, a meter square area of steel needs to resist a force of 14.7*(10000cm^2/m^2)*(in^2/ 5.6 cm^2) = 26000 pounds. Or about 10 or 11 toyota corollas. That is the force on every single square meter of the structure. To give you some idea of what that force can do: And then you compound this with an object travelling 700km/hr on the inside of the structure. The Hyperloop as Musk has proposed it isn't even close to pure vacuum. As I said before, Musk's version is really moderate and doable. A pure vacuum version won't be feasible until materials science progresses to the point where we can make the tubes to contain it safely and affordably. The full vacuum tube transportation system is in the same category as the space elevator. We could build it easily if we had a material which could handle the requirements. For the calculation I gave it might as well be a pure vacuum. Musk proposal is below: https://www.tesla.com/sites/default/files/blog_attachments/hyperloop_alpha3.pdf His tube air pressure is 0.015 psi (see p.24). This will only reduce the force I calculated above by 0.015*10000/5.6= 26 pounds. So instead of 26000 pounds per square meter I would get 25974. Basically no difference. He is using a pressure 1/1000 of atmospheric. So for structural strength purposes there is no practical difference at all between a pure vacuum and what Musk is proposing. Having a small amount of air pressure does however make a big difference for other part of the proposal like the pump design and the energy expenditure to maintain the vacuum although I still think those will be very high. It should also understood that there are two pressure differences a hyperloop system must deal with. He has to protect the pod from the vacuum of the tube since the pod must be maintained at atmospheric pressure. And he also has to protect the tube from atmospheric pressure of the surrounding atmosphere.

It's really more of a problem with the energy of the pods. Just letting air into a vacuum chamber isn't that big a deal - as long as the walls are thick/strong enough. Back in my student days, we machined vacuum chambers out of aluminum with very thick walls. We had one beast (made of steel) that you could basically walk/climb into. The easiest way to stop small leaks was to put some epoxy on the offending hole. I can't see how the project makes sense cost-wise and it does seem to be overly risky for passengers, but I've not looked into it carefully. Atmospheric pressure is 14.7 pounds per square inche. Assuming a pure vacuum, a meter square area of steel needs to resist a force of 14.7*(10000cm^2/m^2)*(in^2/ 5.6 cm^2) = 26000 pounds. Or about 10 or 11 toyota corollas. That is the force on every single square meter of the structure. To give you some idea of what that force can do: And then you compound this with an object travelling 700km/hr on the inside of the structure.

Its a 600 km long near vacuum. There is absolutely no cheap way to make that work and the issues are obvious. Destruction of the vacuum at any point makes the whole thing fail and when vacuums fail you get explosions and/or implosions. If I were a terrorist...bash an SUV into the tunnel a little before a train is passing through at 700km/hr, the vacuum tube implodes or explodes. The pod in the tube comes out at 700km/hr and hits a building. Just too easy. The power needed to maintain the vacuum would be tremendous. The explosive energy of the vacuum itself would be incredible. And then of course there are the ridiculous cost estimates which are 1/10th what you would expect. The utterly ridiculous design which is completely insufficient to deal with the forces produced by vacuums. Its a 2 inch thick steel tube. Any real world situation which produces vacuums of the kind you will get would typically have all sorts of structural reinforcements and redundancies like multiple layers of containment which would hugely increase costs. This becomes an even bigger issue when you consider safety and terrorism which almost no typical large vacuum application has to deal with because they aren't using the vacuums to do mass transport. This of course mean you are dealing with costs that aren't 1/10 of normal public transportation costs but more like 100 times traditional transport costs. The operational problems which all center around the huge vacuum and the incredibly high speed of the pods are tremendous. Probably every single day you would have catastrophic failures. I would say the operational problems are essentially equivalent to space shuttle launch every single time a pod runs through. This article lays out the problems: http://dailycaller.com/2016/07/26/scientist-lays-out-5-huge-problems-with-elon-musks-hyperloop-video/ There is no way Musk is stupid enough not to understand this. All the problems of space and electric cars involve the type of physics and mechanics that would easily enable him to grasp this. Logically Musk must already know this isn't going to work. So then the question is what is his real agenda.

The hyperloop is an incredibly stupid idea. Its obviously really really stupid. But somehow Elon Musk proposed it. Elon Musk is not stupid. I have tried to understand this. And the only thing that make sense to me is that Elon Musk out of some sadistic sense of humour decided to propose as ridiculous an idea as he could and see how many morons he could get to buy into it. He is trolling the world and its working.

Well, at least one could argue that the alternative (human-driven process) have been proven to not work against passive investing... What is the proof that active investing is not as good as passive investing? I don't think I've ever seen compelling evidence proving either side is better. I'm not sure why there would be evidence proving passive > active investing. With a sufficiently representative sampling, we should expect passive outperformance relative to active would be capped at around the difference in management fees charged. I've seen studies that show both active > passive or passive > active in short time periods or specific long-term periods. Vanguard's own study on active v. passive shows that the answer is almost certainly inconclusive. This is the answer I would expect. I think pushing passive investing helps remove risk for large institutions and it's why you see so many news articles about it. If they can convince everyone to invest passively then economies of scale becomes the only thing that matters and the incumbents will guarantee profit streams indefinitely. Otherwise, the large institutions have to compete against small up-start firms (like they always have) on numerous variables (better temperaments, cultures, analysis and risk management skill, and so on). https://personal.vanguard.com/pdf/ISGACT.pdf I think this passive/indexing thing is way overblown and the hype is being driven by the long bull market. We've had very few downturns over the last 8-9 years. Lets see how much people believe passive > active after the S&P 500 takes it on the nose for a prolonged period. In aggregate, active performance = passive performance - fees. So on average, its nearly impossible for active management to beat passive. This isn't a mathematical identity but for practical purposes it might as well be. It isn't a mathematical identity because active managers can also make market making fees (e.g. algo traders) off of passive managers and these fees can become significant in the extreme of close to zero active management. But we are very very far from that extreme, which was discovered by the brilliant blog: http://www.philosophicaleconomics.com/2016/05/indexville/

I think this board needs people like you. I actually think its a great board because there are a lot of intelligent people and the views are pretty diverse. Its kind of funny because I have a friend something pretty similar to what you are doing with marijuana. I pretty sure it won't end well for you or for him. But I am often wrong. Anyways if it doesn't, don't beat yourself up about it...if your life isn't working it makes sense to experiment with things even if it doesn't work out. Good luck to you!

Large drop in the discovery debentures.

Healthcare is practically a religion...it makes zero sense if you examine it any rational way. I think most healthcare is pseudo-scientific. We have basically taken Shamanism, dressed it up as science and decided we are going to spend hundreds of billions of dollars on it. You would have a much better healthcare system if the focus was on drastically reducing its use and finding ways to kill less people. The Canadian system as horrendous as it is is much much better at both of these things than the US.

Its not a book store. Its the ONE store. One store to rule them all, one store to find them, one store to bring them all and in the Internet bind them. That was the original vision of Amazon and Jeff Bezos is playing it to perfection. Even Charlie Munger has agreed with this.

I believe average house price in Toronto is around mid 700's. Average detached is above 1m. Your analysis is interesting and much better than mine. How are people even getting CMHC insurance? I don't get it. CMHC require that you can spend no more than 32% of your gross income on Principal, Interest, property taxes and heating on housing. https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_003.cfm So with the median household making around 76k, you can only service your house with 76k*0.32/12 = 2k per month. Heating is 100 a month. Property tax is 300 a month. So you are left with 1600 to service the house. I've plugged that into the TD mortgage payment calculator and I get that the most you can afford is $400,000 of principal for the mortgage.

The better way to deal with this is to post your own analysis with your own numbers. We are conducting a debate with words. I am trying to pin people down with numbers. I asked for a number. You haven't given me one. What is your number for an upper limit? A trillion per thousand square feet, a billion? I'm trying to pin you down. You do have to live somewhere...but you also have to pay for things in your life and given that you only make a certain amount of money there is a limit to how much you can pay. We argue with words...we should be arguing about numbers. Otherwise this debate is largely rhetorical and emotional. My argument is that there is an upper limit for housing prices and that limit is based on affordability. So please give me a number and justification for the number.

I had a friend who argued that you should never time the market in real estate and it always made sense to buy. I remember asking him, what if the average price were 10,000,000 for 2000 square feet, would you still buy. His claim was that this could not happen since the real estate market was in some sense efficient and prices could never go this high since people would not be able to afford it. The implication here is that there is a level at which it does not make sense to buy real estate. Even cwericb would have to admit this number exists even though it might be some platonic idea that is never reached in practice. So the real debate is about three things: 1) Some ballpark estimate of the upper bound on real estate after which prices are no longer sane 2) The question of whether its possible for the market to ever breach this number 3) And whether the market has already breached the number For 1) assuming that household income is around 78k (typical for Toronto), my view is that a sane price would have to reflect what people could pay off by retirement. Here is my breakdown: Household income: 78k After tax: 60k non-house Living expenses for two people: 30k Money available to pay for house: 60k-30k = 30k I assume the average Torontonian has 30 years from ages 30-60 to payoff their house. The rest of the time they are either saving for retirement (60-65) or getting their shit together (23-30). Then the total possible upper limit is: 30k*30years = $900,000. No of course there are interest costs but there are also GDP per capita increases which should translate to salary increases. I assume these balance out (probably a bad assumption since interest costs are paid early and gdp increases come later). I am curious as to what cwericb number would be for a sane upper limit to house prices? And how he would change the analysis above.

You have no choice but to bail out banks in a fractional reserve system because if you don't the money supply contracts and you get a recession/depression. Its as if the banks are holding a match to the money supply and saying to you: Let us fail and we will burn it. For instance in 1995, M1 was 1200 billion and the monetary base was 400 billion. If every single bank throughout the whole US failed simultaneously, M1 would shrink from 1200 to 400 and you would have a Depression that would make the Great Depression look like a fun picnic. This is why central banks MUST intervene!! Because the dynamics that play out when this happens: Massive unemployment, bankruptcies are too painful. However in a fully reserved system, it doesn't matter if every single loan throughout the entire country defaults at precisely the same time. You won't get a Great Depression. Employment won't be affected. So there is absolutely no need for any bailouts or central bank intervention.

Here is what I would prefer. You would have two types of institutions to replace todays banks: loan investment funds and custodians. The custodians would hold deposits that would be 100% reserved backed. That means that for every deposit held in the custodian would be backed by an equivalent amount of either physical dollars or dollar reserves accounts at the FED. The custodian would NOT pay any interest to depositors. Instead all depositors would pay annual fees in the same way as people pay for all other services. The other institution would be a loan investment fund. This fund would be funded through investor equity or perhaps a debt like instrument with credit risk. The equity/debt proceeds would be used to issue loans to people that wanted them. You would still have loan officers, credit ratings and all the rest of the things a bank does to make sure loan quality is good. But it would be funded by investors with the understanding that if the debtors defaulted they would lose money. Thus the only way for loan investment funds to increase credit would be to obtain more investors. And the only way to do that would be by increasing interest rates on the loans to increase the interest/dividends going to the investors. Increases in credit WOULD NOT increase M1, the money supply, at all since any increase in loans would be balanced by a decrease in some investors cash holdings. The FED would increase the money supply by buying government bonds from private investors and retiring them. This of course means that any increase in the money supply would directly fund government expenditures. And the FED would increase the money supply at about the rate of the long term GDP growth rate. You could add 2% to that if you want inflation...but I don't think its necessary. That is it.

Let me provide a real world illustration of what I'm talking about. Canada's M1 over the last 10 years from 2005-2015 has doubled. https://fred.stlouisfed.org/graph/?g=d4Co Why? Did the real economy produce twice as much? Canadian GDP grew 32% over this period. Why such a huge increase? Can anyone explain the necessity of this and does no one think this is linked to what is going on in Canadian housing? The Canadian housing bubble has been greatly enabled by the fact that banks can increase the supply of credit at will without any need whatsoever to attract corresponding loanable funds by increasing interest rates. Banks take no responsibility for interest rates and the B of C takes no responsibility for the money supply. This is how we can arrive at the absurd situation observed in Canada where interest rates managed to decrease even as the demand for mortgage loans grew! I'll ask one question: where did the money come from that Canadian banks used to fund the massive increase in mortgage debt? My claim is that Canadian banks basically created this money out of nothing. This is the problem.

The concern I have isn't just bank runs. Its the ability of the banks to increase/decrease the money supply arbitrarily. Interest rate control is the wrong paradigm and its why we got into this mess. I am talking about targeting the money supply DIRECTLY. Screw interest rates..banks should be the ones setting them, not the Fed. The FED should be determining the money supply itself. Currently the way things work is that we have fractional reserve banking. In this system its impossible for the FED to directly control the money supply because the banks do. Generally the FED increases reserves in proportion to the demand from banks based on the amount of loans banks issue (growth in demand deposits). The tail wags the dog. Why should money supply increase just because banks decide they would like to give out more loans because everybody is super optimistic about the economy. In what way is this a rational policy? Why should the money supply be decided by animal spirits? I think bankers should determine interest rates not money supply. And in a fully reserved system they would do so based on the supply/demand of loanable funds. The only way loans in such a system could increase is if investors/savers were willing to part with their money for a certain duration of time to fund the loans. Otherwise the banking system as a whole would find it necessary to increase interest rates to attract more investors/savers. A system that requires geniuses to function properly is not a great system.

Incidentally this article provides an excellent explanation as to how banks create money in a fractional reserve system: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

That article doesn't explain the idea well although it provides information about what is currently being discussed. I've attached the original proposal and provided a link below. Read pages 20-32. https://web.archive.org/web/20121103110209/http://home.comcast.net/~zthustra/pdf/a_program_for_monetary_reform.pdf a_program_for_monetary_reform.pdf

I had a debate with a friend yesterday about the monetary system. He believes in Austrian business cycle theory. I believe in the debt deflation theory of Irving Fisher. One thing though we both agreed on was that fractional reserve banking should be ended. In my view it is the primary cause of business cycles. I was surprised to find out that I wasn't the only one with this idea: https://blogs.cfainstitute.org/investor/2016/01/27/is-this-the-end-of-fractional-reserve-banking/

I know someone who wrote a script to evaluate this. The correlation between number of posts and returns is almost 1 to 1. The more posts the worse the return. Your best bet is to just look at ideas with zero or a handful of responses. If there is a lot of discussion move on. That is basically what I do. This also means that it pays to look at threads in the Investment Ideas section that are no longer near the front.

The Chinese Go Privates deals are a lot like mergers arbs except they are not as sexy. They tend to have high spreads. Trina Solar (TSL) which can be found here is a good example: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tsl-trina-solar/ At one point the spread on this was 25% Anyways if I were looking for deals I would probably just search prnewswire. Most companies make announcements there. Try using their advanced search and searching for the phrase "merger agreement". http://www.prnewswire.com/search/