Spekulatius

Because printing money doesn’t do anything. The Fed can print all the money they want, it doesn’t do anything if it is put in a locker. Only spending money does and that’s why 2020/21 is different as the Treasury sent out stimulus checks for example to almost everyone (=helicopter money). In 2008, we printed money but effectively put it into a locker. Later there was a a lot of talk about QE, but QE didn’t really give you or me an extra dollar to spent so I don’t think it has done much. Today we are printing money and the treasury is sending checks out within the $1.9T stimulus package which is 9.1% of GDP. We have some slack in the economy to absorb some stimulus , but not 9.1% our economy. So, I think we will see inflation, but it likely will be a short term spike.

Well, the $1.9T stimulus bill has passed so that will keep the supply of USD going. Total US GDP is 20.9T, so this spending is 9.1% of the GDP. I don’t know when the stimulus bill kicks in and the duration, but it sure looks like it will have an inflationary to me. Those are USD hitting the economy and most of it goes into spending and as we have seen in the past, part of this gets invested in stocks as well.

My buys were BABA, AMZN, COST and FROG.

This is the golden age of stock promoters. Chamath is one of the best, but nobody beats Elon Musk.

I would try to find something your child is interested in, e.g., sports --> Nike, cosmetics --> L'Oreal, TV --> Netflix. If the first company "analysis" goes well, then try another more generic company in the same or a related industry. Someone learn a lot just by trying to understand the differences in gross margins between, say, Nike and Jerash Holdings. (Of course, this is stolen from Buffett's lessons about See's Candies, etc.) Perhaps the Motley Fool website? They do a good job summarizing what the companies do in an easy to understand format.

This aspect is interesting because it may explain (IMO) some of the cash build-up at holdco. When Mr. Buffett made the PCP acquisition, he paid a normalized PE of 18 (earnings yield of about 5.5%). The idea then was that the rest of the return would come from growth (organic and acquisitions). From 2003 to 2015, operating earnings had grown at a CAGR of 15-16%. When announced, many people suggested that the switch in investment mindset (pay more for growth) was the right one and many suggested that he had under-paid for the acquisition (i just checked for fun what people here said at the time). So, for this specific transaction, the outcome is likely to be satisfactory over time but the price paid was too high as a result of assumptions that were initially too optimistic. Of course, it's easy to say in retrospect. PCP is unlike Heico as was asked before. PCP is basically in the precision metal forming business while Heiko makes parts. PCP was first hit by the energy , while it was acquired in 2016 after the crash, t(r lingering effects also caused energy generation (turbines etc) which was one of PCP’s end markets, Then came COVID-19 which affected aerospace where PCP had redirected some of their capacity in the mean time. I also think that PCP was over optimized to show earnings when Buffet bought it. At least recall reading about this issue at the time of the acquisition. I think it was a so- spur chase when he bought it already and that was totally exposed with COVID-19. Lubrizol actually is another not so great purchase, but better than PCP. I believe Berkshire had to write off some goodwill on the Lubrizol acquisition as well.

FWIW, just bought some more COST shares yesterday AH after they missed earnings. Anecdotally, I also just ordered a washer dryer set from them to stop endless complaints from my wife about the washer 'eating' her laundry. COST e-commerce is a massive opportunity and they have not been good at it traditionally (the website is still so so), but they are getting much better. I love them for big ticket items because of their better return policies.

Why not? If you sit at home and don’t drive much, why not shop for a cheaper insurance? I generally agree on PGR being fairly reasonably priced, but I do think that the advent of self driving cars will keep a lid on the exit multiple. At some point, they have to pivot into other kind of insurance and it is unclear if they have much of an advantage in anything but car insurance, plus the tails are longer, which drives different economics.

Hear hear! And most importantly welcome back, Gregmal.

COST, AMZN and a small add to VNT

https://app.tikr.com/register?ref=o94y6y

It will be interesting to hear Wabuffo‘s opinion, but UBI alone won’t cause all that much inflation. It will increase spending and deficits but that alone won’t really cause inflation, in particular as they likely will go hand in hand with a stronger USD. I do think that increases in minimum wage could increase inflation as they affect services and goods that part of the basket goods and services that is used to calculate inflation. Min wage has been stagnant for a long time before that, which I think was deflationary. I think the bigger question for investors and in particular growth investors is that if longer term interest rates stay relatively high (steeper yield curve), some of the weird justification for the high growth stocks multiples is harder and harder to justify. After all, from a monetary perspective, we might look more like 2018 or 2016 and multiples at those points in time weren’t really that extended for growth stocks than they are right now.

I am not sure you are talking about the past future but recently, the USD has been very weak relative to the EUR, GBP and Yen and the US interest rates have been moving up (Euro and Uk interest rates not so much). I do think the USD will strengthen - I don’t know what is chicken or egg, but the interest rate differential relative to the EUR and the GBP suggests the USD is now attractive: Maybe it is just an indication that the economic recovery in the US will be stronger than in the Euro Zone or the UK. I do think the inflation scare could end up just like 2010/11 inflation scare - a short flare that ended up meaning very little in the long run.

Also ironic - the market (SP500) goes up today ~2.7% because the JNJ vaccine gets approved and JNJ stock goes up 0.8%.

Seems like the only thing that matters at this point is vaccination. UK is currently ~31% US is currently at ~21% Europe around 7% and Canada ~5% of the population. I don’t follow Canada, but Germany is a total disaster. Supply of vaccine is lacking and it looks now that Germany won’t approve the Asta Zeneca vaccine for people above 64 years old (lack off efficacy), but at the same time, they don’t give shots to people below 64 either because of priority for older people. You can’t really make this up. BioNtec now build a production facility in Marburg for more vaccine, but it isn’t ready yet (EU failed to order enough and they ordered too late) but I hear now that the supply from Marburg may not even get sent to Germany first. We have done a lot of critique on Trump’s “ Warp Speed” but since the current vaccine supply situation is the consequence of decisions made ~6 month ago (mostly) he has done a better job than Europe throwing money at everything basically. Given the cost of maybe wasting $10B vs spending trillions of stimulus that was an easy choice to make (imo) but it appears that nickel and dime-ing in the EU and wasting time seemed like good idea for some at that time, but now really backfires. https://ourworldindata.org/covid-vaccinations

That portfolio has probably the lowest price/ book ratio that has been listed so far. A long time ago, I took a look at 5161.T (Nishikawa Rubber). What interested me a while ago was that they made speciality parts like Earthquake dampeners for buildings etc. i never drilled much beyond that but it looked indeed incredible cheap.

Yes, the letter itself was disappointing. One thing they did do was participate in the Snowflake IPO. I realize it wasn’t him most likely but it should still be mentioned? What did they learn from this. BRK due to their size and diversity is a huge user of technology, can they lever the insight gained from this for investing? I would have liked to hear something about this. 2020 was such an eventful year, but this shareholder letter seems lame. It’s a missed opportunity.

^ Yes, the tax angle makes this even better. When I read the annual letter, it sounded to me that Buffet wanted to go even bigger with BHE, most likely with an large acquisition of an utility. I can see the rationale for covering the entire amount of float (minus the $20B+ in spare change) with regulated investments in Railroads and Utilities. The Utilities yield about ~10% ROE and if that’s mostly tax free, it is a great deal compared to bonds yielding ~2-3%. He needs the insurance co to be overcapitalized because since is still equity, but very low risk. I think his last act may be just to do this and find a large acquisition to supplement BHE. it would be almost Malone like in terms of taxes. Then his successor can run is on autopilot and just worry about the other holdings and the unregulated business within the BRK umbrella.

It seems like he really likes to put more funds into BHE. Come to think about it, an regulated utility is an ideal bond substitute to invest insurance float in - low risk and volatility, secure and growing cash flow for decades and reinvestment potential - ROE around 10% give or take.

Always liked the idea of owning SRE given the TX utility and exposure to LNG / Mexico growth stories, but never did more than a superficial look due to the CA wildfire noise. Has that been addressed at this point in the wake of PG&E? How do you get comfortable? SRE never had an issue that caused a wildfire. EIX had some smaller issues but never to the scale of PCG. SRE is the best run of the three (by far) then EIX and last PCG. Adding a few more SRE shares. Results came out and headline numbers look good. 10-k size is 77MB :o

Sold the remainder of my CBOE.

Growth stocks: A bit of AMZN (which I sold previously at lower levels ) and a bit of FROG.

Yes, that's a real risk but manageable, at this point, IMO, for the reasons below. You may like the book that wabuffo referred to: When Money Dies (if you haven't already). Even if the macro stuff is felt to be irrelevant, the book describes several interesting social phenomena that occurred then, for example when people started to look for an alternative (any) for the fiat currency (stocks for a while, cigars, apples and even rutabagas?). The author also describes well the non-linear changes that can occur when trust is lost (ties in well with the velocity concept if you believe in this) with people buying their food in the morning before the food gets more expensive during the day. Something that the book helps with is to differentiate from the 70s or today and the essential ingredients necessary for runaway inflation. There has to be an alternative. The Weimar hyperinflation story is a currency exchange story. For the USD, what is the alternative: the euro, the yen, the renminbi, bitcoin?, asteroid mining? In the 70s, when the tie to gold was definitely severed, there was a time-limited crisis of confidence until it was realized that the USD had become the indispensable global reserve currency. I haven’t read the book, but We had studied this period in history courses in Grammar school and I actually heard Forst hand accounts from my grandparents. Germany actually had two hyperinflation periods one after WW1 and another one during and after WW2. In both cases, the economy evolved into a barter economy, Those poor souls that lived from a salary and got paid In cash would run to the sore when they got their pay and buy good right away, so money velocity would go way up. For many (including some workers who would get paid in goods) the economy evolved into a barter economy where instead of cash, good were used as a medium of exchange and store of value. After We2 those were famously cigarettes, but anything food or boozy would work almost as well. So there is always and alternative, it is just a matter how convenient and efficient it will be. I think now it may be gold, Bitcoin or foreign currencies like Euro or Swiss Franc if the USD fails. The other thing if note is the reflexivity of hyperinflation. If most people loose the trust in the currency then the currency is toast. a it was one of Hjilmar Schacht masterstroke to reverse this and issue a Rentenmark which really was nothing else than the former Reichsmarks with 9 zeros scratched out. However he could convince the populace that the way forward would be different and that was enough to break the reflexivity patterns (in addition, the printing presses would go way slower) which is really remarkable considering how far things were gone. FWIW,I think Powell made a mistake stating they he would run inflation hot for a while. I think Greenspan’s “Oracle” talk would be better as everyone interpreted what he stated it the way they like and he could do as he pleased without contradicting himself and losing credibility.

Life insurers should do well with rising interest rates. All long tail insurers will benefit from higher rates.

Just because the interest rates "can't go up" doesn't mean they wont go up. 8)