Rabbitisrich

Greenspan hasn't claimed no fault, to my knowledge, but has claimed that low interest rates did not significantly contribute to the credit bubble. He actually has a decent argument involving correlations between short-term rates, the 10-year treasuries, and overseas savings. However, that is not an argument to absolve the Fed given the regulatory powers that Greenspan squandered in his Fountainhead fantasy. http://finance.yahoo.com/news/Greenspan-defends-record-at-apf-712700185.html?x=0&sec=topStories&pos=main&asset=&ccode= "In his opening remarks, Greenspan blamed a litany of other parties and historical events for the meltdown but accepted no responsibility for himself or the Fed, which he led from 1987 until early 2006." Boy, I watched Brooksley Born ask Greenspan about AIG's CDS guarantees, and I almost threw a conniption fit when he said that AIG could just as easily have written bad insurance. Greenspan sounded less like an academic and more like a bureaucrat.

I know someone who has worked there for almost four years, and apparently very few of his first-year friends are still working for PIMCO. It must be quite a balancing act to maintain such a high pressure environment while adhering to conservative principles.

Greenspan hasn't claimed no fault, to my knowledge, but has claimed that low interest rates did not significantly contribute to the credit bubble. He actually has a decent argument involving correlations between short-term rates, the 10-year treasuries, and overseas savings. However, that is not an argument to absolve the Fed given the regulatory powers that Greenspan squandered in his Fountainhead fantasy.

Are those accounts prone to abuse? It seems like it would be easy to stash money away and then have a relative in a low tax bracket "tutor" the kids.

I'm interested in your projections about future capital expenditures in the operating companies. Is Berkshire really becoming an operating company with an increasingly less important investment department, or does BNI merely represent a 5-7 year capex obligation, followed by unencumbered cash flows requiring really smart investors at the helm?

Just to clarify, when you consider the cost of float, you want to make sure that you aren't double counting elements from Debt (D). The formula A = D + E assumes that D includes all liabilities.

Every public company pays a 'fee' for the its assets. If you had a company financed entirely by debt with zero equity, then the cost of capital is explicitly represented by the YTM of the debt. But if you have a debt free company with no growth, no volatility, generating $10 a year, then with a market cap of $100, the market demands a 10% return. You can think of it as the return the market demands when you try to sell more shares to them. So the cost of capital for most companies is the weighted average of D + E.

Thanks.

:o... >:(... :D... :(

Ericopoly assumes that the worker starts with enough cash outside of his/her IRA to cover the tax, so the IRA and the ROTH IRA compound at the same dollar amounts until the retirement period. That assumption may have to be relaxed given the current state of the economy, and its impact on older workers without a college degree. Another point that individuals should take into account is the effect of multiple period tax deductions for qualifying IRA contributions. For individuals who anticipate major differences in their active-retired tax brackets, those contributions may increase the attractiveness of an IRA.

Thanks for that article, but as I understand, much of China's growth in the last two decades comes from growth in total factor productivity. Also, China does some very smart things like leverage its monopoly over rare minerals to lure high-tech manufacturing and the accompanying talent. If you factor in China's emphasis on high level science and math education, and the below average labor participation rate of Chinese women, there is a good argument for China's long-term prospects. Can someone link the Chanos presentation that has been so influential?

This old Globe and Mail article provides a nice summary of the events leading to Fairfax's involvement: http://www.theglobeandmail.com/report-on-business/rob-magazine/the-empire-strikes-back/article1149686/

I'm not savvy on Japan's economy, but if cost of capital is below the returns on incremental capital, then shouldn't ROE actually be quite high? Allocators should borrow until the incremental ROA matches cost of capital, in which case we would see companies with fairly high leverage earning decent amounts on equity. If, as you say, ROE has suffered despite a low cost of capital, then there are either serious impediments to efficient allocation, or there just aren't that many good opportunities. EDIT: My mistake, I see that you are referring to a carry trade. If you can hedge out currency risk, rollover risk, you can get non-recourse debt and you have the resources to ignore volatility, then why not?

In the context of commercial RE, does it scare anyone that the savings rate is going down? http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

This article is germane to the thread: http://www.bloomberg.com/apps/news?pid=20601087&sid=aG6Sm37czbss&pos=6 Also, note that Blackrock increased its AUM by 133% with the purchase of Barclays Global Investors.

http://fundooprofessor.wordpress.com/2010/03/16/the-alchemy-of-finance-at-reliable-engineers/

I agree. I disagree. Some can be attributed to luck. Some is strategy. If you are not prepared you cant take advantage of luck. Several of us on this board (actually its predecessor) bought FFH leaps in 2006. I did then, and repeated it in 2007, 2008, and 2009, and have massively leveraged the gains in FFH stock. Like Eric, though, it is no one trick pony. It is more formulaic. Somehow one learns to identify the opportunities. Of coz, I didn't mean only luck was involved. Smart ones will stop making this all-or-nothing bet after a while... some wasn't smart enough to stop and ending up in a disaster. First-hand experiences here. Eric is smart enough to admit he lucked out. With that in mind, I am sure he will continue to be a successful investors for years to come. Over-confidences can kill! On the other hand, you could say that Ericopoly made a skilled choice to view his ROTH investments in the context of his total assets, which included the value of his future earnings. If he played that way with all his assets, in addition to taking on recourse leverage, then we could fairly say that the guy just got lucky.

Nice rundown, TariqAli. I really enjoyed the discussion about shorting. Looking back on many of the casualties of the credit crisis, Burry is right on in saying that you don't have to be the first short. David Einhorn could have slept a lot better had he waited until 2008 to short ALD. The market seems to resist bad news before capitulating. It's also interesting that Burry thought that he "read way too much." It may have been tongue in cheek, but it's still a great point about the primacy of the editing process. Sometimes when Warren Buffett appears on T.V., the pundits assume that he knows every detail of his companies, but if you listen closely he focuses upon crucial facts. Edit, edit, edit. We are lucky that the silicon investor thread spans years. You get to see the evolving skills of a few smart people, as well as the group dynamics of people who formed an internet community near the inception of such communities. The Reggie Middleton posts are especially interesting, in that they demonstrate how otherwise rational investors sometimes derail their goals for non-economic reasons. It almost became more important to be "right" than to make money.

Ericopoly, it's true that you benefited from luck in your Roth account, but you also deserve credit for being flexible with your asset classes. Using options to support your more aggressive moves is something that a lot of value investors don't think of, even when prices seem unsupportable by near term results. I had a pretty risky portfolio as well, but I held mostly equity. In retrospect, I could have achieved the same results by holding LEAPS in my leveraged companies, while increasing my equity allocation in the fortress companies. Same results, but with less portfolio risk.

Ericopoly, don't you think you're being a little selfish? Think about your counterparties; they have families too!

You wouldn't necessarily be fooling investors by funding PPE with debt. Keep in mind that even Buffett made adjustments to owner's earnings if there were special circumstances with working capital and growth vs. maintenance capex. The numbers are an aid to understanding the economics of a company. If the rate of return on an asset is greater than the debt used to fund it, then you may have a good purchase so long as the additional debt doesn't significantly impair the balance sheet.

I liked the article and it follows the same reasonable skepticism exhibited by the PIMCO team. Even my favorite macro-speculator, Michael Aronstein, has largely limited his bullish commentary to inventory rebalancing and 2009's market rebound. I also note that certain of my highly levered companies are beginning to price at levels that don't account for refinancing and covenant issues. I don't have any brilliant hedging ideas, but I've raised my cash allocation from less than 1%, in Nov. '09 after tax allowance, to 12%. If the market cooperates I'll have it to 30%+ by June. I'm only holding back due to tax considerations, so I'm not exactly holding my cards from a position of strength.

I appreciate the reply, SharperDingaan, but it only supports my intuition that I should remain an interested and ignorant spectator.

SharperDingaan, is an NBSK price above $750 USD necessary to your thesis? Do you feel that NBSK demand will improve in North America and Europe, or are do you believe that emerging markets will provide a long runway for pricing? I've never been able to get over SFK's working capital, capex, and sourcing risks. It seems like a business whose capital structure and model requires a firm view on the commodity.

Bookie71, why don't you try Applebees for a comparison? They have an under 550 calorie menu that offers good portions of delicious food. Here is a link to the menu: http://www.applebees.com/Menu_Under550.aspx With all the calories you avoid, you can get the spinach and artichoke dip on the side.