Spekulatius

True, a country with a 4% inflation and a 10% growth rate and 14% interest rate would never occur as the data with each other. But such an economy could handle risk free interest rates higher than 4% for sure. a 4% risk free interest rate with a 4% inflation is still free money basically. same with a 2.5% interest rate and 2.0% Inflation, yielding a 0.5% net cost for a borrower. Generally speaking a risk free rate at about the rate of inflation seems to be OK. Any interest rate below the The argument remains whether the rate of change for interest rates is too fast. Now, that we are about level with inflation, further increases need to be more carefully considered. There is also the “risk” that inflation falls with a slowdown, pushing the net interest rate (interest rate minus rate of inflation) up. Then, as I understand it, the Fed doesn’t look at overall inflation, it looks at core inflation, which takes out volatile components like energy. Energy was up huge in October, but has fallen significantly since. Seems like quite and interest set of challenges for the Fed to look at, and getting it right isn’t easy.

I believe that slump is caused by Trump more so than the Fed. For one thing, the “Trump slump” started before the Fed raised the interest rates, which shouldn’t have come as a surprise for the market, as it was well telegraphed. What comes as a surprise is the lack of predictability from the current government and the infighting. That’s the issue that should be addressed and has nothing to do with the Fed. The market has shrugged of the political muppet show for a long time, but not any more apparently. It’s a little bit like the situation in Britain, where politicians continue to shoot themselves in the foot. As far as interest rates are concerned a 2.5% interest rate seems on the low side, if we get 2.5% growth ne t year and 2% inflation. That’s still basically free money I agree with Druckenmillet R that the rate of change could be important , but then again, we are at such low levels in terms of interest rates, that the rate of change starting from zero has to be somewhat significant to actually accomplish something. I am pretty sure that the Fed will change their plan for hikes next year, when the data warrants it. I am not so sure that our president stops digging when he finds himself in the hole deeper and deeper.

I haven’t added either, in fact I sold a few shares when there was a spike to $480 a few weeks ago. My concern is that HWC busy buying low quality assets. there are some dislocations in the credit markets, that they pot. could take advantage of, or perhaps just buy back their own preferreds (if that is possible).

This is getting insane. You'd think we are in the midst of some massive crisis. Or that every listed company in the US is cooking it's books... I know Tepper basically just declared the Fed Put dead, but all the writing on the wall, at least to me, seems to indicate that with a little more pain, a lot of folks are going to start looking to resurrect it. Ouch! I just miss the infamous phrase: “ Our liquidity is strong”. Feels more and more like September 2008 to me when they introduced TARP. They really should keep their mouth shut. Back then there was a problem, now there isn’t, unless they fabricate one.

It’s hard to know what BRK’s excess cash really is. The insurance subs need to hold some of their float in cash. just based on casually looking at some balance sheets, most Insurers hold about 15% of their float in cash and short term investments. Now, BRK is not an insurer, but a conglomerate. They also buy securities in size both at a holding level as well as with cash from their insurance subs.

I depends of how much of the tax cut will get competed away, which depends on industry, market position etc. I expect that most of it will get competed away in commodity businesses. Regulated businesses and those which already enjoyed very low tax rates won't profit very much either. So in aggregate IV certainly has not increased by 20%. The tax rate for many business was already way below the nominal tax rate befor the tax cut. When have you seen the last multiples national pay 36% tax rate? I GE’s tax rate was in the low 29% range before the tax cut even.nSame with tech companies. Domestic companies like insurers, and banks that don’t have that many opportunity to hide taxes benefited the most.

I don’t think a recession can reverse the trend towards craft beer. These brands are dead. Maybe it’s my circles, but no one brings Miller or Bud to a party any more. There best bet is develop or buy craft beer brands themselves, but they don’t come cheap, but I agree they may become cheaper in a recession. The problem is that the fragmentation probably reduces the profitability of the business permanently.

Wall Street is just pi$$ed because their bonus went to hell late in the year. :o

Anyone turned off the lights here yet? FFH has gotten absolutely wrecked. I am not quite sure why, their holdings aren’t of the best quality, but their insurance business is really not affected by an economic slowdown.

It looks like BRK has outperformed in the current selloff, even though the equities he owns haven’t. I also think that due to its larger industrial business, BRK is more economically sensitive than it used to be. I am quite surprised by the relative outperformance, quite frankly. FFH in the same time span has gotten absolutely wrecked.

Also a bit early perhaps? The situation is interesting: there's a number of large (mega) cap good and great companies that are not very expensive. Some even cheap(ish). But also a lot of moaty companies still very highly valued. (That's just from the universe I track... no idea about the companies I don't track.) So on one hand, it would seem we should not get another 20+% drop but on another hand it would seem we could. FWIW, I think markets will rally after the year-end dumping of "losers" ends. So in January. But then there's politics, tariffs, etc., so my prediction is possibly not worth a share of BAC. Yes, too early. however, the selling had been relentless, almost like October 2008. I think a lot of stocks are cheap, unless the economy falls apart. I don’t think that’s likely. I do agree that the selling has more to do with momentum than with fundamental issues.

FWIW, I added to WMB, GOOG and FRPH and Fujimak (5965.T) a bit. Almost out of cash now. I haven’t got anything to sell either, since pretty much everything is in the hellhole.

I wonder how Berkshire Hathaway fared with its investments through the tech bubble and its bursting...Is that old crank Buffett still managing money or did he get a job at CNBC too? Also, note that Druckenmiller has been pushing cloud companies in his interview as an example and he believes they are a better value than banks, because they can grow in anlow growth environment and banks only can make more money at higher interest rates (which IMO isn’t true either). last I checke, the cloud companies arnt soing thwt grsat either, but it’s possible that he changed his mind. anyways, Druckenmillet is a macro trader. I enjoyed listening to his interview and I think he has valid point regarding the forward guidance. Greenspan perfected the art of saying nothing,which may be preferable. They should just state what they do and nothing else. No guidance and just look at the data every time and hopefully come to the right conclusions. Powell seems a bit like a Mickey Mouse Volker, except that Volker brought interest rates to 20% and Powell to 2.5% and yet here we are....

I am bullish on midstreams. It’s very similar to real estate and assets can be moaty. Locations and connections count and there is the FERC to regulate supply. They generate nice cash returns for decades and some pipes run for 50+ years, even though they are fully depreciated. in some cases they can be repurposed. Vulnerability is the same - overinvestment, cash return lag Capex expense during buildout phase and credit markets need to stay accessable for them to work. The E&P is like the airline industry 30 years ago and shale is the worst thing that ever happened to the industry.

The Fed chairman has been elected by Trump, so no conspiracy there. Their mandate is low inflation and full employment. If an elected president is going to push inflation, the central bankers should absolutely run counter, if they do their job and don’t get fired. Same in the EU, except their mandate is more biased towards low inflation. This is because upon formation, the EU central bank was created after to mirror the German Bundesbank. The Bundesbank only mandate was low inflation. Full employment wasn’t their mandate. We expect too much from central banks, as if they can steer the economy. I don’t think they can. They can in the short run to some extend but almost anything they do has long term consequence that runs counter the short term action. Nobody really knows if the QE has any LT consequences and what and when they may transpire. It would probably be better if central bankers would do less not more.

I bet other than the stock market falling a bit, Powell doesn’t have much to go by in terms of leading indicators to suggest a slowdown right now. I guess, if you are in the hedge fund business like Druckenmiller, than the market is important, but for the Fed, I don’t think it matters much what the stock market does. I do think that Powell needs to look at this with an open mind - interest rate changes take about 6 month to filter through in the real economy and I would bet that they may pause the interest rate hikes if they see weakness in March 2019.

I am guessing that Druckenmiller is betting on increasing spreads. he may do this directly buy going long treasuriesnwnd shoring corporate bonds or indirectly by shorting financials. FWIW, increasing interest rates are rarely a problem by itself. What is far worse are increasing credit spreads. Credit spreads were at record low and I think this is because of QE. There is quite a bit of trash credit out there (private equity) or companies that leveraged up with buyouts that will probably have issue when spreads start to rise to normal level and junk bonds are again in the vicinity of 8% interest rates rather than 5-6%. HYG (junk bond ETF) is already looking sickly.

I remember 1987. the market went down 25% in one day and Reagan just said that the stock market is doing its thing. We didn’t get a recession either. Anyways, the slump has a lot more to do with what Trump does than with Powell or the Fed.

“Bailing out” an economy us very different than bailing out specific companies. Investors in overvalued tech companies were never bailed outend neither were employees who lost their job.

My prediction is that BRK get’s broken up before GOOG and FB.

My rule is to never invest in banks, if I don’t likely the macro environment in the future. banks are foremost macro bets, due to high leverage and to some extend market perception. They will do poorly, if credit spreads start to rise or the macro environment takes a hit. that’s why I don’t invest in British banks (prior to Brexit) or the like. A lot of times, it has been said that it’s priced in, but in my experience, it never is.

I have been putting money to work in the recent slump, as I am seeing the best valuation since at least 2015. It’s true that the overall market doesn’t look cheap but for sure many many stocks are.

I think the Fed should hike as planned and probably acknowledge increased risk for the economy next year. The stock market should not be a major concern for the Fed and its not really that bothersome if its flat yoy anyways. The housing slowdown prevents trouble down the road and is a good thing.

Thanks for the link. The question is limited to one state but may represent a larger current. I live in a place where electricity is essentially a vertically-integrated regulated monopoly (wholesale and retail) with hydro responsible for more than 90% of electricity needs and with policies in place favoring low and uniform prices and in a relatively steady place versus the socio-political sphere. But I really like what has been going on in the US considering the experiments with various deregulation plans. It's noisy and sometimes disruptive and inelegant but it seems like it's the best way to go IMO. What is happening in Nevada (it seems like the ballot item will pass?) may be part of more to come at the national level and underlines the risks of transition costs and partial recovery of the value of stranded assets and I guess BH can manage transitions but investments in regulated utilities does rely on trust versus potential regulatory harm. The context in Nevada is fascinating with the recent residential solar issues and the ballot question does not go along traditional political divisions. I've looked into the issue, from a Nevada perspective, and come to the conclusion that it is very hard to decide what is best on a net basis for "society". In terms of consumer costs, I wonder if the Nevada experience would look more like California or more like Texas. I would tend to vote against the trend and for BH (bias here) because of the traditional reasons that it has used to justify the venture into regulated utilities (efficient operations, low cost of capital, reasonable rates of return, long-term outlook with stable and low retail prices and flexibility for alternative sources of energy and environmental concerns). Found the following to be useful: https://guinncenter.org/wp-content/uploads/2018/07/Guinn-Center-Q3-2018.pdf https://guinncenter.org/wp-content/uploads/2018/07/Guinn-Center-Q3-Voter-Guide-2018.pdf But this is not simply a story about two billionaires. A town in my neighborhood in MA has bought out their electricity distribution network from the utility a couple of years ago and they seem to be doing quite well with it. Prices are lower than in surrounding towns and their electricity network is more reliable it seems, since they are doing a better job maintaining it. This micro utility still purchases their power wholesale.

The 6-7x capitalization is due to the lease duration. 6-7x lease capitalization equates to an duration or roughly 10 years discounted.