Rabbitisrich
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Posts posted by Rabbitisrich
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Or silver and brazilian cash ;)? (Raised eyebrow, leaning back, enjoying awesomely quick reply)
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I think Sam Mitchell said it best a couple of years ago at our AGM: "You just can't ignore the macro in some cases!"
Despite what has been said about Buffett ignoring market timing, there have clearly been times when he has made macro calls - when he returned money to Buffett Partnership investors; at the start of the long bull run in the early 80s; the tech bubble in 2000; shorting the USD. In 2008 when he bought heavily into the market, he would not have been able to do so if he had been fully invested so he must have made a bearish call of sorts prior to that even if he did miss the housing crisis.
I don't think you can clasify these examples as making a macro call. I think it was simply the case of buying only when things were cheap. If he could not find cheap stuff then he did not buy or was not able to buy. Thats the way I see it as far as above examples are concerned..
But certain businesses require a sense of macro conditions. In the most recent interview with Charlie Rose, Buffett suggested that months sold in housing might be overstated (he actually just referenced inventories but I am making the leap) and that improved residential spend and home prices would lead to greater than anticipated growth. To make that statement, he probably has some estimate of mortgage roll rates, cures, and other factors related to the speed of the wind down of the shadow inventory.
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This thread will be an interesting read in one year. If you skip the analysis and just glance at the financials the whole tech industry looks cheap:
Using figures from the last 10-Qs and last year's GAAP earnings:
HPQ - -$1.8B net cash and investments, $8.8B
DELL - $8.5B net cash and investments, $2.6B
CSCO - $28B net cash and investments, $7.8B
RIMM - $2.4B net cash and investments, $3.4B
AAPL - $67B net cash and investments, $14B
$546B combined market cap to $36.6B last year's earnings plus $108B net cash and investments. Value traps, or just crazy undervalued?
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Like Kiltacular, my guess is that Buffett's article is less about direct effects on the budget deficit, and more about defusing class hatred. Majorities have historically committed to self-destructive paths when indignant.
Focusing solely upon cash generated seems tone deaf and ahistorical.
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Gundlach offers some thoughts on recent equity volatility, declining yields, bond manager underperformance, deflation, and bank exposures to the eurozone.
http://doubleline.com/archive/2011/08/8-10-11-market-turmoil-conference-call-replay/
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I think Moyinhan sounds like he is confident that BAC will turn around. But as a shareholder, this news kind of bothers me.
http://online.wsj.com/article/SB10001424053111904823804576502680497287052.html?mod=asia_home
What looks worrisome? At face value, Moynihan requested the meeting to argue for regulatory pressure to resolve the lawsuits favorably.
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Consuelo Mack Wealthtrack
King World News
For more general economic discussion you can peruse this list:
http://www.tradestreaming.com/2011/02/07/best-financeinvesting-podcasts-on-itunes/
CFA Institute puts up a few conference speeches.
Tim Harford offers a nice podcast called "More or Less".
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I'm more interested in regulator demeanors. Are they pushing for certainty before the Basel III capital stepups? Will they pressure BAC into uneconomic settlements and excess of caution equity raises?
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I also wonder whether the equity markets are incautiously anticipating QE 3.
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There are still a few dispiriting issues like the possibility of EU monetary and fiscal "responsibility", China's fixed investment boom (bubble?), and the declining effects of government funds in the U.S. Of course, all these factors are considered in your purchase price, but factors that you would think the market had to have already discounted end up hitting later.
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Munger, I'm not sure why you are focusing on BAC since your argument applies to the banking model. The problem with your argument is that it assumes that unsecured loans losses will increase and that banks will need to access the capital markets. As far as I can tell, you are saying:
1. Banks lend against their stock prices
2. Equity per share will be impaired when shares are issued at low prices
3. Unsecured loans aren't worth anything when they are worth nothing
Great thoughts!
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Munger, you are changing your argument halfway. You say that you will defend your position that a bank lends against its market capitalization, then you proceed to argue that a loan that goes to zero is worthless and can't be "accessed". Yes, if a loan goes to zero it can't be accessed. Good point.
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Munger, I found the Denninger quote and I think that you misunderstood his point. He didn't argue that banks lend against their market cap; equity, in his usage, referred to book value, or risk adjusted book value, which he believes is overstated in times of stress. At least, that's what I hope he meant or he is an incredibly stupid idiot.
That is just part of banking, or any industry that plays the yield curve. If there is a bank run, for pretty much any reason, valuations melt and the bank is in serious trouble. One thing to watch for is deposit performance through this period, which may get hairy as BAC seems to receive an inordinate amount of negative attention. If depositors aren't calling their funds, then the points you have raised will be largely irrelevant in comparison to the cash flow generated by air and other things.
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The concern right or wrong is BANK CAPITAL LEVELS relative to ASSET QUALITY. No one outside of bank management themselves has any certainty in this regard. Those willing to have blind faith in management marks reminds me of LEH and Bear Stearns. I'm not saying current TBTF banks are LEH or Bear Stearns (I don't know) but the faith of the bulls reminds me of the faith of the bulls in those companies when they were imploding. Subsquently we learned that comments from those management teams we complete lies. We also learned that most companies that claimed they were well capitalized at the time would have failed if the Fed had not bailed them out.
Asset values in 2007 were based upon long period of increasing home prices and declining personal savings rates. Three and half years later we have seen loan performance in a deep recession and most measures have improved or leveled.
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When the pubics start walking, this investor starts running.
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I've been buying the BAC common the last two days, warrants havent really traded as pressured as the common the past two days, which is surprising.
I am starting to think that it is all about Berkowitz (and maybe Paulson) and some of his concentrated positions (MBI, AIG, C, BAC, and he does not have the warrants). It is almost as if there are bets based on redemption pressures ... the type of scenario for why he always wanted some cash.
I think so too. I'm sure that there is legitimate fear surrounding these names, but Berkowitz is a concentrated investor with public cash flows. I opened a position in BAC today and, wonderful news, I am already down!
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Rabbitisrich, don't you think that probably the only real question for Moynihan is the Europe exposure? Especially French and German banks including derivatives. Most of the other stuff seems very manageable and known.
I don't question the depository business much. September 2008 was a great test of the franchise, and the deposit performance was excellent in the states, and manageable in foreign offices.
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TxLaw, it's tough to contest your complaints, but Moynihan seems more competent and self-assured than the ex St. Joe and Pfizer CEOs. He lost a bit of credibility on the street by misreading the SIFI buffer discussion, but otherwise he has been doing a fine job.
In the Pfizer, I had the impression that Berkowitz heard what he wanted to hear, and that Kindler simply agreed with some comments regarding generics without committing to specific plans and timelines. I suspect that the upcoming call with Moynihan will feature more specific plans and clear explanations of recent developments and strategies regarding capital buffers, loss development, counterparty risks, and dilution.
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I'm guessing that it would take more severe disinflation to justify QE3. Some of the newer voting members implied the possibility that the output gap may have been exaggerated.
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It's amazing that this news didn't receive more attention, but in the week ending Tuesday money market investors withdrew 3.9% of total funds:
http://www.latimes.com/business/la-fi-money-market-20110804,0,1331360.story
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I'm not sure that the BV moves are especially significant given the stated intention to hold on to most of the debt.
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What "change in customer mix" means for the receivables build is likely that they are shifting towards more international customers. NA paper demand has been down 4.5% this year, whereas the rest of the world is growing; and typically days of sales outstanding increases as you sell to farther international customers.
Looking back to the 2Q10 and 2Q09 reports, when sales kicked up in the U.S. with the RBK segment, there was an increase in sales/(avg. receivables). America is driving the revenue growth this quarter as well, so an increase in days receivable reflects a change in practice. This could all be simply noise, but it's worth noting that customer concentration has increased as well.
In any case, cash flows are still very good relative to the price and the balance sheet looks good at current commodity pricing.
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The cash flow story is still great, even with declining margins. Does the receivables build worry anyone, or is it just noise like the inventory moves a couple of quarters ago? Last time, FFHWatcher quickly related the inventory volatility to seasonal maintenance.
Customer concentration in the NBSK and the RBK segments quarter to quarter and yoy.
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What would have happened if the house and senate were both controlled by one party? We would have a big problem. I think what we all consider stupidity with the debt ceiling debate, actually makes the system work better, because no one gets exactly what they want and no special interest gets exactly what they want. The U.S. will do fine going forward because the system works. There is alot of work to do, but with no single party in control, they will have to work together.
Things look messy right now, but that's the way things work! Cheers!
Maybe over time, but for now we have a country that ignores the issue of deficit spending amidst two decades of improving asset prices and declining household savings, then makes a national emergency of deficits when the trends reverse. Is this the Bible's recommended prescription for 7 years of famine? Year 1: hoard food. Year 8: party!
Household economics scaled to macro = hedge like it's 1999.
Appears likely to get a lot worse if...
in General Discussion
Posted
The interviewee made a lot of good points. The EU is going through their own version of the debt ceiling crisis by offering the underfunded EFSF without explicit and open ended support from the ECB. Cardboard, you are likely correct, but the EU is going to have to make a choice between releasing money to support their financial system, or accepting the bankruptcies and deflating their way to "recovery" (what about exports?). There could be a panicky period when the market forces the ECB to choose.
After that crisis, then we can have a panic over chinese fixed investment spending!