frommi

Greece and the target 2 saldo should put us easily above 110% Debt/GDP and there will be a heavy contraction in GDP because all other european countries don`t pay in the same currency anymore. Its hard to see how this will all unfold and what the consequences are, but germany has a tendency to default instead of inflate. I hope that doesn`t happen.

+1, can you see how germany will not default at the end of the €?

Because introducing the € should have been an act that is not reversible, so they made no rule for an exit. No politician has thought about the current situation, politicians generally only think about what happens until the next polls.

Because there is no rule to leave just the €-zone, they have to exit completly and then can ask to get back into the EU.

Depends on if they can get rid of the debt outside of the €-zone. If yes they will be so much better of in 2-3 years, that italy will follow sooner or later. (Remember that they had a big surplus last year and they can tax all that €-money that is flowing back into the system.) The problem this greece vote has created is that nobody will bail out any €-country in the future.

Happy birthday!

NWH.AX and RSSS.

Funny how this topic of diversification vs. concentration pops up again and again. And still everybody has other definitions of this, for some concentration means 1-5 securities and for others its 1-15. For me it seems like in larger cap companies >500 million $ float the market is pretty efficient, but it has a tendency to undervalue companies with higher leverage be it operating leverage or leverage via debt (but not always). And this is because people are scared of leverage and underestimate the effect of operating leverage. ( Or is it just getting compensated for the risk of leverage in good times? :) ) The other is in micro cap companies where 1 seller can influence the price so much, that it is temporarily depressed. But this is the area where the most work is involved, because you can`t rely on the work of others. And there probably will never be a working hedge fund in this area, because investing in microcaps is not scalable. On the other side momentum is a strong phenomenom in the investing world which creates the value situation on its own (but only when stocks go down long enough). So for me these are the yin and yang of investing, you can`t have one alone. So as long as there is momentum, value will be working as well.

I can understand what they are doing. They help the clients protect against themselfs when they have only small downside volatility and make this capital more sticky to their company. For the average Joe this is probably not a bad deal.

Pointless to look at P/E ratios, there is no correlation between P/E ratio and next year or next 3-5 year returns. Shiller P/E has a small correlation. The risk is in earnings going down/margins contracting, not necessarily in P/E ratios contracting.

Not really macro related, but these stories feel like its the end of 1999 again. http://microfundy.com/post/121345282105/how-bubbles-are-blown-biotech-edition-exhibit

After thinking about FFH i sold my shares today and i am now 80% in cash. Its pretty close to fair value and was never in the last 10 years more expensive than currently based on bookvalue multiple. I have 3 scenarios for the next 2-3 years: 1) Prem is right, deflation hits, stocks tank and bookvalue goes up 30%, expected win: 30-40% 2) like 1, but bookvalue multiple goes back to 1, so zero gain. 3) Prem is wrong and bonds get further slaughtered, 30% loss. The expected value of this is zero when you equal weight these scenarios, so i stay on the sidelines and watch from now on.

This just depends on your view of inflation. With so much debt around the world i can just not see long term inflation picking up, maybe for a year or so dependend on currency movements. But i am a little biased by Prem Watsas view, so maybe something else is going on. Who knows? :) But i am pretty sure that the low in german bonds is behind us, because negative 10 year yields just make no sense. But i doubt that shorting bonds is a wise idea either.

I read this board most of the time through feedly (or pretty much every RSS reader will do it), this helps to skip very fast through all the stuff thats not interesting to me. Maybe this is a solution to the "filter" problem?

Thanks, looks like my feelings were bullshit! :)

I would like to hold cash in € sometime in the future and that gives me some problems. What happens with € at IB if one of the banks IB holds its cash in goes bankrupt? Into what currency is it converted should the € break? At a german bank i can be sure to get german marks, but at IB i am not sure, a basket of currencies? What if my account is at a german bank that was bought by a france bank, is my account than switched to the france currency? Is there a tradeable money market fund with only german short term bonds?

Since this is such a nice graphic do you have one with TLT and FFH? I have this feeling that they are more correlated, but i have no easy way to check it.

Because when i discount everything with 10%, a RoE of 10% means fair value is around bv. But maybe i just misunderstood your post in this regard, we are probably talking about different things.

Agree. Investment returns are really what would drive book value growth for Fairfax. So you have to ask what rate did they earn in the past? What was their return compared to the relevant benchmark i.e. the value add? What are the benchmarks likely to yield in future? Is the value add likely to be less, more or about same as in the past? This is what I tried to do in this blog post. http://vinodp.com/blog/?p=34 Vinod So following your logic, FFH is worth ~0.7*bv? And every insurance company is worth a lot less than bookvalue because stock and bond returns are lower going forward? :)

Since no one knows the future, i valued it a bit different. Book value: 395$ Unrealized gains not included in book value: ~39$ Float: (Long term interest rates - cost of float) * Float Per Share * 10= (2.6%-0.3%) * 711 * 10 = ~163$ ------ Fair Value: ~598$

Isn`t it that the FED was forced to raise rates because of inflation? I think inflation was caused by the huge amounts of government spending during the war and the recreation of infrastructure after it, but thats only my guess. Following this logic the governments of the world (and/or businesses) would have to spend a lot more money to create inflation.

You are right, not directly. But with the wealth effect rising stock prices create money when the stocks are used as a collateral for more debt. People paying back their debt reduce the amount of money in circulation so the FED has to print new money to compensate for that or we get a shrinking monetary base and a rising dollar which is deflationary. @Zorrofan Watch Ray Dalios video ( ), without printing money the debt problem can not be solved in a "beautiful" way.

I may be wrong but banks are linked to the credit cycle and look cheap at market tops. Autos the same, AAPL is hugely dependend on one product, its only cheap when they can sell more iphones every year. Maybe that happens, but i am not so sure. IBM has huge problems and still trades at an FCF/EV yield of around 6.4%, thats hardly very cheap when you compare it to JNJ,GIS or MMM (~5% FCF/EV, most consumer staples are around 4% FCF/EV.) VRX is cheap when you believe in the story, but only the future will show if it was cheap in hindsight.

If we get into deflation the markets are also expensive because growth and revenue volume assumptions will come down. The only market where stocks may be fair valued at the moment is when inflation is stuck between 0.5-1.5% for a long period of time. I really doubt that central banks all over the world are able to get this done when you look at current currency, commodity and bond volatility.