physdude

Maybe I don't get it since I am not American, but why does the place of birth really matter for a president? I get it that the constitution says that the president should have been born in the US (or apparently at least a US military base as John McCain was born in Panama) but is that really an important qualification for a president particularly given that it is, by definition, something that is out of the hands of the candidate and can therefore never reflect on his/her suitability? It seems really weird if a fantastic candidate is rejected purely because he/she was born when the parents were on an overseas trip or such.

Thanks for the useful spreadsheet! Really appreciate your effort.

But since the cost of servicing the debt is much lower than ever (and quite a bit of the debt is even being monetized while the dollar remains strong), the main costs of running a large trade deficit outlined in the article are no longer present and the conclusion that the deficit is a major problem is not valid in the current circumstances. In fact, given the current strength of the US dollar, one could argue that the deficits are too small. If your trade partners are willing to lend to you at negative real (and maybe even nominal) rates, it would actually be financially irresponsible to run small trade deficits and not take advantage of the situation.

The exact equivalent of buying DITM calls is safer from a margin perspective and far more advisable IMHO (eg., if a broker suddenly raises the margin requirement).

10Q here - http://www.berkshirehathaway.com/qtrly/3rdqtr15.pdf. Apart from the known rough patch for the investment portfolio, it looks decent though operating earnings growth has slowed. A particularly bright spot was BNSF which is still doing well in this environment.

Honestly I don't know why. I've read a lot of Michael Price had to say I even read the hard to find book of his most important apprentice - Seth Klarman. There's a lot of market game theory going on in there that I'm maybe not smart enough to understand. It's a lot of if you're thinking that what is the other person thinking. If people are coming to Omaha why is BRK undervalued. I'm a simpler man than that. I try to think about valuation and what IV is. If I can buy something cheap I'll do it. I won't loose much sleep about the idiot that sells it to me cheap. That's his decision. Though if I knew what some of my counterparties were I would spring money for postage and a thank you card. I am totally guessing there - perhaps while most people still revere WB for his past record and broadly appreciate his thinking on investing and the world, they are not convinced WB can do a lot to lift BRK's performance in coming years. This thinking might be based on the fact that his large public holdings have not performed too well recently (IBM probably has done the most harm) and BRK's size may have become too big. The valuation has become cheap as a result. What I find strange is that the market is ignoring the much bigger home run in Kraft-Heinz and the excellent asset swaps (PG shares for Duracell, PSX shares for Lubrizol Specialty Products etc.) that make capital gains taxes essentially go away given that these are enabled due to the presence of WB. It is true that the public stock portfolio's performance could have been better but it looks to me that these people are missing the forest for the trees. I find it amazing that the stock is now trading at lower prices than at the same time last year given the large new additions to IV that have taken place (KHC, asset swaps, more retained earnings and even a decent increase in float). Too bad the buybacks are restricted to 1.2xBV and lower as buybacks now would almost definitely increase IV in my opinion.

I doubt he'd disagree with you that there are exceptions. I think his point is that majority of companies are borrowing money to buy back expensive shares. When downturn comes they might be hit with double whammy: stock drops but they don't have money to buy back cheap shares and they have to pay interest on debt. +1 Clearly some companies maybe borrowing prudently. By and large however, these companies are acting irresponsibly and will face consequences down the road. My guess is 2-3 years. Can someone here give example(s) of companies with low returns borrowing at high rates to buyback shares? How about Arcelor Mittal (MT) in 2007 and 2008? They were buying back shares at close to $100/shr on very high earnings which turned out to be highly cyclical. They then had to issue convertible debt with a strike of just around 25 when the financial crisis hit. A more recent example is ASPS which issued debt to buy back shares at around $100/shr. This actually threatened the viability of their business after the NYDFS signed an onerous agreement with Ocwen. Borrowing to buy back shares doesn't seem a good idea to me unless there is a substantial moat and undervaluation but using FCF to do so can be a very good idea (like STX in the recent past).

Currency futures are by far the cheapest way to hedge currency risk. The imbedded interest rates are much better than you can get as a retail investor. When the contracts come due and you don't want to take delivery of the underlying currency you simply roll the contracts to a future expiration date, i.e. you buy/sell the contract due and sell/buy the contract with a later expiration date. The contract with the next expiration date is usually the most liquid. At IB it's very cheap to trade futures. Are there futures that allow you to trade smaller dollar amounts? For JPY I see contracts for 12,500,000 JPY. For EUR I see contracts for 125,000 EUR. Are there any for smaller amounts or is selling cash short at the retail rates the only option? There are mini futures available for half the full contract amounts but they are slightly less liquid (which should be irrelevant unless you are day-trading them).

There is an inverse JGB ETF JGBS but it seems extremely illiquid. There have to be JGB futures trading somewhere but I have to figure out how to find them on IB.

With JGBs now yielding less than 0.3%, is it finally the time to take the short JGB aka widowmaker bet? It looks like you can lose at the most 4-5% of your capital (barring seriously long term negative yields - hey with Japan anything might be possible ;) ) and could gain quite a lot depending on precisely how things play out in the long run.

I think the Japanese MoF's website http://www.mof.go.jp/english/budget/budget/ should have what you want.

My take is that the BoJ will finally probably end up holding most or all of the JGBs once the onset of inflation becomes clear as everyone will sell their JGBs at that point. Then the BoJ+govt together will not see any real loss or gain as there will be a huge transfer of real wealth from the BoJ to the govt. This has no direct impact on the BoJ as they only care about nominal losses of which they will have none. Inflation and zero rates will force people to spend thus raising consumption and tax revenue and they will probably be finally able to raise taxes to a reasonable level. Of course, the Japanese could respond by investing abroad and forcing down the yen a lot so some sort of financial repression will have to be imposed. This will also be necessary as Japanese savings will decline significantly in real value at the same time as higher taxes are imposed and that is where the main part of the pain will come. However, this is likely to take some time to play out as the money illusion is strong and it might be some time before savers realize they have been left holding the bag. The only spanner in the works might be that inflation rises too fast and the money illusion becomes too weak to pacify the savers. I seriously doubt this will happen as the fundamentals in Japan heavily favor deflation in the absence of large scale money printing but I have to admit that I have no way of knowing how well these two gigantic forces (debt monetization and fundamental deflationary pressures) will balance each other out. I think we might be in for some interesting times.

At this point, the BoJ is essentially setting the long term interest rate as well as the short term through QE. They just need to go the next step and simply monetize all the debt completely by buying up any excess bonds (both existing and newly issued ones) and driving down the entire yield curve to zero. This might be just enough to get some inflation going though I won't be surprised if even this fails to overcome the highly deflationary demographic trends. If inflation resumes, their problem is solved as long they continue to maintain nominal yields at zero as the debt will be inflated away. Hyperinflation is almost impossible as a rapidly devaluing yen will only make them more competitive and increase the value of their vast foreign reserves in yen. Hence, I think this situation is manageable and will, at worst, lead to a significantly, but not catastrophically, weaker yen. If inflation does not resume, they can continue to monetize any new debt away essentially making the debt free of cost to the govt so they can do fine this way too (at least until inflation kicks in and the debt is finally inflated away). I was earlier of the opinion that the situation will have to implode at some point but I am not so sure anymore. If JGB yields of 0.33% cannot move them to their inflation target why should yields of 0% do so? At 0%, the debt can be rolled over perpetually at no cost whatsoever.

20% -- not bad if looked at in isolation but I am very disappointed in that it was over 30% in September and my main holdings (BRK DITM LEAPs and QCOR which got merged into MNK) at that time did nicely in Q4. So how did I end up with only 20%? Well, I sold off a significant amount of those holdings to take profits and put them into beaten down (only slightly beaten down in retrospect) energy companies and OCN/ASPS. I was also market neutral bringing down my return by about 13% over the year due to overvaluation concerns (this doesn't bother me as I do think the market will reach normal valuations at some time in the next couple of years).

It is very difficult to see how removing the peg could cause a devaluation as every HK$ in existence is backed by US$ in a 7.8:1 ratio. The markets have also been clearly betting on the possibility of appreciation as long term HK$ govt bonds are trading at significantly lower yields than equivalent US treasury bonds (the yields should be equal if nobody expects the peg to collapse given that there is essentially zero possibility that either govt defaults).

For those interested in mechanical screens, the Mechanical Investing board on the Motley Fools boards (http://boards.fool.com/mechanical-investing-100093.aspx?mid=31352318) is a goldmine.

I just upped my allocation to 35% in Berkshire mostly in DITM calls (representing about 90% of my portfolio's worth in shares) since I cannot see how the PPS will remain this low for more than 2 years straight without a sharp drop in the S&P (I plan to soon buy a bunch of S&P puts to take care of this possibility). I know that this sounds nuts from a simple portfolio allocation perspective but the risk/reward seems absurdly good now. 80 strike 2016 calls at slightly less than 34 means that the BV at end 2015 must be less than 142,500/A share or Berkshire must be trading below the buyback threshold for one to actually post a loss. Any multiple expansion in the next two years or decent increase in BV by then will result in a very nice return (I am going to sell slowly into any strength). Looks like a nice risk/reward situation. Please tear this thesis to shreds - I still keep thinking I am nuts to have such a large allocation to one stock but the math keeps coming back to tell me this is a really great deal.