james22

I have in general been over-intellectualizing the working of the market for a few decades. I have had too strong a belief that investors would at least be influenced by past data in a sensible way. The market, however, appears not to care at all about the past or to learn much from it. https://www.gmo.com/docs/default-source/public-commentary/gmo-quarterly-letter.pdf?sfvrsn=46

Yeah, steal is too strong a word because his investors aren't mystified - he is very, very clear his concerns and actions. Have you seen how other value investors are doing in this market?

I think I understand what a digital currency is, how Bitcoin works, and some of the arguments for it. But I still don’t feel like putting my money into it, because I consider it a speculative bubble. https://www.oaktreecapital.com/docs/default-source/memos/yet-again.pdf

Only a durable sense of doom could survive such discouragement. John Kenneth Galbraith

Here’s one more example of how central banks’ global coordinated monetary stimulus in the wake of the financial crisis has increased systemic risk in the US: According to an analysis conducted by BlackRock, insurers are more vulnerable to a market downturn now than they were ten years ago. The reason? Ultralow interest rates have forced insurers to venture into markets with higher yielding assets, forcing them to stomach more risk along the way. Whereas insurers once tended to adhere to only the safest types of fixed-income products – typically highly rated government and corporate debt – they’re increasingly buying exposure to risky high yield and EM products, along with illiquid private equity funds, to try and boost their earnings back to pre-crisis levels. These products carry a potentially higher reward for insurers, but heightened risks are also omnipresent. In a downturn similar to the 2008 crisis, BlackRock estimates that US insurers' holdings would drop by 11% - even more than they did during the crisis. Such a drop would be tantamount to $500 billion in losses. http://www.zerohedge.com/news/2017-08-29/insurance-companies-could-face-staggering-500b-loss-during-next-downturn Might be an opportunity to buy up come any downturn.

Fairfax is underwriting more successfully than when we previously owned it, is about to complete a value-accretive merger with Allied World, and still has the investing prowess of Watsa and his team. Because the merger is on the come and Watsa is holding a large amount of cash that is not producing income, near-term reported earnings per share are well below the company’s long run earnings power.

BAM +19.72% YTD

This.

GMO's James Montier: All these years I have looked to Warren Buffett as a beacon of hope. Two months ago, he said that equities look cheap, relative to interest rates. It seemed like a dreadful thing to say. It might be true only if you believed there was absolutely no mean reversion—in that case you’d be looking at a 3% real return from equities, zero from bonds, and, say, minus 1% or 2% from cash. But here was a man who, using his favorite valuation indicator of market cap to gross domestic product, pointed to the tech bubble of 2000 and said it was insane. Using the same indicator, he pointed out when to buy equities in late 2008, early ’09. Here we are within a hair’s breadth of the levels in 2000, and he is saying equities are cheap. This is an unvaluelike statement, and I don’t think it’s true. There are plenty of reasons why interest rates are not related to performance—very low rates haven’t stopped a 50% decline in Japan. So I’m sticking to dead heroes now—Ben Graham and John Maynard Keynes. http://www.barrons.com/articles/coping-with-the-foie-gras-stock-market-1501305385

The *only* reason I'm in Fairfax is expected returns. If they've lost their way, I'm out. But I'm optimistic.

AQR expects 4.2%, Research Affiliates .5%, Hussman zero or negative, GMO -3.9%. What cash drag? With expected returns so low, my Stable Value fund might outperform the market. Very little opportunity cost to sit this out. This board is all about identifying buying opportunities, yes?

You might consider "fingers of instability." http://www.mauldineconomics.com/frontlinethoughts/fingers-of-instability-mwo082506

Yes, the US stock market is at bubble levels. (For the record.)

Saudi ARAMCO IPO – Great Opportunity or Riddled with Risk? https://www.perchingtree.com/saudi-aramco-ipo-key-risks-loom-for-investors/

Needn't be either/or. I prefer Small Value index funds in tax-advantaged accounts, individual stocks (BRK/MKL/FRFHF) in taxable. (Only when fairly valued - else bonds, cash.)

Vanguard Short-Term Treasury Fund Admiral Shares (VFIRX), SEC yield 1.16/1.26% ($50k minimum) Vanguard Federal Money Market Fund (VMFXX; Vanguard settlement fund), SEC yield .90%

Don't know the particulars for Oncor in Texas, but for transmission assets in the US they're generally allowed 12% ROE on a capital structure that's about 1/3 equity, 2/3 debt. From a 2014 article: Currently, Texas regulators allow a 10% return on equity and are likely to approve the $1 billion per year capital spending program Oncor has proposed for new infrastructure to help meet Texas’ rising electricity demand. http://www.utilitydive.com/news/which-utility-will-warren-buffett-buy-next/265887/

I'll buy it.

One of the reasons why valuations are poorly understood, and their importance is wholly underestimated, is that overvaluation alone is not enough to drive prices lower over shorter segments of the market cycle. For that reason, it’s essential to monitor the speculative inclinations of investors through the uniformity and divergence of market internals. The inclination of investors toward speculation or risk-aversion, as measured by the quality of market internals, is the hinge between an overvalued market that continues higher and an overvalued market that collapses. http://www.hussman.net/wmc/wmc170612.htm

Added to BAC-L and WFC-L.

You know he argues he's *not* a permabear, yes? The reality is that my reputation as a “permabear” is entirely an artifact of two specific elements since the 2009 low, but that miscasting may not become completely clear until we observe a material retreat in valuations coupled with an early improvement in market internals. http://www.hussmanfunds.com/wmc/wmc140929.htm Contrary to my inadvertent mischaracterization as a “permabear”, I’ve responded to that opportunity by adopting a constructive outlook after every bear market loss in three decades as a professional investor. http://www.hussmanfunds.com/wmc/wmc160502.htm A quick note on my reputation as a "permabear." The most recent cycle required us to seriously contemplate Depression-era outcomes, and that presented us with significant challenges. I still believe it would have been reckless to ignore Depression-era data as irrelevant, and I also believe that investors invite ruin if they pursue approaches that are not robust to that data (or worse, restrict their attention to data that primarily includes the bubble period since the mid-1990’s). http://www.hussmanfunds.com/wmc/wmc130107.htm Reminiscences of a misidentified permabear http://www.hussmanfunds.com/wmc/wmc140324.htm In recent years, I've gained the reputation of a "perma-bear." The reality is that I'm quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are. There's no question that conditions and evidence will change... http://www.hussmanfunds.com/wmc/wmc130204.htm When we shift our outlook over the completion of the current market cycle and begin encouraging a constructive or even leveraged stance, those who’ve incorrectly inferred that I’m some sort of “permabear” may become bewildered, or even believe that I’ve abandoned my investment discipline. The permabear label may be satisfying in a sort of “kick him when he’s down” kind of way, but it doesn’t explain the success prior to 2009. http://www.hussmanfunds.com/wmc/wmc150713.htm People often like the idea of being part of an exclusive club, sometimes the more exclusive the better. As Groucho Marx put it, “I’d never join a club that would have me as a member.” With the percentage of bearish investment advisors recently plunging to just 14%, investment bears are certainly a rather exclusive group, mostly representing advisors who are considered “permabears.” What’s odd is how little affinity I feel with members of that group. Though I seem to be one of the better-identified members, those who actually understand our narrative in recent years should recognize that I stumbled into this clubhouse quite unintentionally. The fact is that I’ve become constructive or aggressively bullish after each bear market retreat in the past quarter century. The main difficulty began with my 2009 insistence on stress-testing our methods against Depression-era data, which cut short our late-2008 turn to the constructive side (see Why Warren Buffett is Right and Why Nobody Cares). I continue to view that decision as a fiduciary necessity (as 2009-like valuations were followed, in the Depression, by another two-thirds loss in the market), but it was unfortunately timed. ... There is a problem with both permabears (among whom I feel decidedly misclassified) and permabulls (who would never call themselves that, preferring instead to extol the virtues of buy-and-hold, but who rarely advise investors to consider their investment horizon and risk tolerance, or to temper their expectations about future returns when valuations are elevated). http://www.hussmanfunds.com/wmc/wmc150406.htm Despite my reputation in recent years as a “permabear,” I’ve actually had quite a variable relationship with equity risk across three decades in the financial markets, and that relationship has always depended on market and economic conditions. It’s difficult to judge stocks as “good” or “bad” investments without reference to valuations and other factors. For example, after the 1990 bear market, I had a reputation as a “lonely raging bull” and advocated a leveraged stance in equities for years, based on a combination of reasonable valuation and strong market internals. http://www.hussmanfunds.com/wmc/wmc140908.htm Etc, etc. Instead: Our investment discipline remains focused on accepting market risk in proportion to the return that we expect to be associated with that risk, on average. But carry on.

Cynicism is cheap. How many marketing hucksters share their reasoning like Hussman? Maintain intellectual consistency in face of redemptions? How many marketing hucksters have earned a PhD and made meaningful contributions without renumeration? http://fortune.com/2011/04/26/john-hussman-cracking-the-autism-code/ http://www.hussmanautism.org/ http://www.hussmanfoundation.org/ http://tunews.towson.edu/2013/11/07/hussman-stinars-among-those-honored-for-philanthropy/

2016 http://seekingalpha.com/article/3832656-one-preferreds-overpriced-another-bargain http://seekingalpha.com/article/3861386-tempting-bank-america-preferred 2015 http://seekingalpha.com/article/3376045-a-non-callable-6_3-percent-yield-from-wells-fargo http://seekingalpha.com/article/3564116-6_7-percent-non-callable-yield-bank-america

BAC-L and WFC-L

... the shares carry the same risk that any long-term fixed income security carries, which is the risk that long-term interest rates will meaningfully rise, forcing prices to adjust downward to create competitive yields. But these securities, at their current prices, offer three features that can help mitigate that risk, at least partially. First, at 6.15% (tax-equivalent: 7.26%, 8.28%), their yields and YTWs are already very high, higher than essentially any other similarly rated fixed income security in the market. Conceivably, in a rising rate environment, their prices won’t need to fall by as much in order for their yields to get in line with other opportunities. Second, if their prices do end up falling over time, they’ll be accumulating a healthy 6.15% yield during the process, helping to offset the losses. That’s much more than the 2.5% to 3% that long-term treasuries will be accumulating. Third, as discussed earlier, increases in long-term interest rates will tend to increase the profitability of Wells Fargo and Bank of America. The realization of interest rate risk in the shares will therefore have the counterbalancing effect of reducing their credit risk. Granted, the market might not see the shares as carrying any meaningful credit risk right now, and therefore the credit risk “relief” that comes with improved profitability might not help prices very much. But if the shares do not carry any meaningful credit risk, then why are they trading at a yield of 6.15% (tax-equivalent: 7.26%, 8.28%)? Is that the kind of yield that risk-free securities normally trade at in this market? Obviously not.