frommi

Ha, just as i read it, do we both suffer from home bias pessimism? ;D Are the americans in this forum worried about the us more than the eu?

Gio looking only at debt is looking at only one side of the equotation. Debt/GDP is what should matter, and when you can take on more debt that boosts GDP even more, than yes more debt can solve the problem. The only other solution is a default, but what do you think would happen when the US would do that? As long as real yields stay negative for a very long time we get the necessary deleveraging, so the US is right on track. Europe currently is not and when this continues will lead to further debt defaults in europe, which is stupid. We could simply do the same as the US/UK and win in the end. But our political leaders are to stubborn to understand that and i doubt that if Merkel/Schäuble stay at the helm that the problems in europe ever gets solved. The current nearing deflation in europe is just a logical consequence of the austerity policy. (And debt/GDP levels in europe are now even higher as before the last crisis.)

There were already plans for this i think it was at the start of 2013 where the us had these budget problems. The US is printing money since more than 100 years, has the US ever encountered hyperinflation? German hyperinflation had to do with debt repayments that where not in its own currency. Comparable with argentinas situation, but never with the US.

Thanks! Man, tap dancing into the future, this sounds like a very good world to live in!

Has someone thought about the consquences? Unlimited, cheap and clean energy ... My first thought is short coal mining, solar and o&g drilling (But oops, too late ;D). But what the heck can we produce that we don`t at the moment that takes a massive amount of energy to build and who profits from that?

How so? Total nonfinancial debt/GDP went from 344% to 350% in six months from 3Q13 to 1Q14 National debt is up from $11th to $18th in six years. Yes, leverage is being transferred from individuals to the state and that buys some time because the state can pay lower rates. But this can't be classed as de-leveraging unless, eventually, the deficit falls or GDP accelerates such that debt/gdp falls. Unfortunately we seem to be stuck in a rut where lower deficits kills GDP growth. But I'd love to know which paper you're referring to. I was referring to the paper in this thread: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/deleveraging-what-deleveraging/msg190809/#msg190809 From my understanding a part of the deleveraging process is that household/corporate debt goes to the government and is then partly bought from the FED, where it gets nullified as money printed. Of course this whole process will take decades to finish. I just have a limited understanding of all this, but in theory all the debt the government has that is already bought by the FED can be cancelled with one swipe (or a billion dollar coin pressed by the government). When you think about this, the US is not in bad shape currently, because it has all levers in its hand. Where as in the EU this is simply not possible, because the government and the central bank are not working together and are based on rules that where made in good times, where this scenario was not even thought of.

Thanks for your reply. When i view stocks as equity bonds shouldn`t the industry/sector the companies are in be irrelevant, as long as they are not cyclical and FCF is stable? In the end free cashflow is free cashflow or not?

Deleveraging in the us is in full progress when i remember the paper that was posted here last week correctly. Japan is on a good way with higher taxations and printing money at the same time. I am pretty sure this will work out very well over the next decades. Europe is the one without strategy and hope and china is a massive problem right now, i doubt that we will ever see growth rates above 7% there. India and africa are in my eyes the players where i have the most hope that they can create the next worldwide boom. Btw. looks like the US is now deleveraging via margin calls, too. :D

In the case of AIQ i took 66 million $ as FCF and 766 million $ as EV. They are not growing so its reasonable to assume that reported capex equals maintenance capex or not? Intralot looks to be cheaper, but a lot riskier. I calculated with 80 million € FCF and 630 million € EV. Ok thats a 12.7% yield. But thats still nothing that cries buy me into my face. Even at a marketcap of 0 € it is just a lottery ticket with a 15% FCF yield and no downside protection. When i look at my japanese stocks there are things that look cheap on every metric you use on them and trade on FCF/EV yields of 40-300%. And at the same time they trade below liquidation value. But i am sure i am missing something, because Packer is successfull with this kind of investing, but what is it? Packer i need your help :).

Sold KMI today. Makes no sense to hold if i can`t fully decide if its cheap or expensive here and i am not comfortable with my valuation on the dividend yield. I want to build a clean value portfolio at the end of october, and this has probably no place in it with its massive market cap. Also trimmed some of my put positions.

I shouldn`t overthink the things, you are of course right. So in the end FCF/EV is the metric that should matter. Now i really don`t understand why people think AIQ or Intralot are super cheap, because on that metric AIQ has barely an 8% yield? H&R Block or Verisign for example trade at the same FCF/EV yield, but are surely better businesses? Or am i doing something wrong?

I am recently scratching my head about that topic. So given two investments one where marketcap=EV and one where marketcap=1/3 EV and both trade at the same FCF/P. Which one do you prefer? (Under the assumptions that growth rates and FCF stability are the same) At first glance i would have answered the investment without debt because that trades at a higher FCF/EV. But the one with more debt probably has the higher upside or not? And when i compare that way, should i add back interest expenses to FCF? Capital allocation for the CEO of the indebted company is probably easier because all they have to do is pay down debt to get a higher FCF/EV, whereas the CEO of the company without debt has to make intelligent buyback decisions. Which one do you prefer?

For many members of this forum renting is probably the best option. I would only buy a house to reduce risk of doing something stupid with the portfolio, but then only when its a small part of my networth (and of course without a mortgage). The average family buys a big mac mansion and in doing so has paved the path to a wealthless future because they can`t afford to save more money and are stuck to the location (I don`t know how high the switching costs in the US are, but in germany you pay more than 10% transaction costs when buying a house). I am pretty sure that a cheap mortgage is counterproductive for them.

I have not heard Buffett say that he is expecting higher inflation ahead. But shorting rates is that kind of bet or not? When house prices don`t go up but down and your income is not growing its not a very good idea to do it. Taking on a mortgage to invest it in the stock market is playing with the risk curve and can get you deeply into trouble. Ask the japanese how good this idea worked over the last 25 years. (double whammy here, house prices fall and stock market, too.) I don`t think the us will go that route, but you should never ignore the possibility of it. So in my view this bet only makes sense in a inflationary world, so in the end it is a bet on inflation. So long as you understand what you are doing go for it, but always know the risks :).

Isn`t Buffet saying with this that he expects higher inflation going forward? I like Buffet, but his macro predictions where not pretty good in the past if i remember correctly.

After looking at a lot of drilling companies i am really questioning if it is wise at all to invest in one of them. The only company with more or less stable free cashflow generation was XOM. Nearly every other small or midcap driller have mainly negative free cashflow, so whats the reason to invest there? (Is this just a bet on huge inflation going forward?) For me the oil service sector looks a lot more appealing. Or am i missing something? ( Given that i am a little bit stupid, please help me learning :) )

Isn`t this normal hedge fund behaviour? When they start talking about their investments on TV/press they typically want to get rid of them. They need liquidity to sell.

Gio i think they use this because this is probably what the audience wants to hear. Nobody on TV wants a pessimistic view on the market, perhaps only to have something to laugh about. They just want to hear that when the market is already crashed. And the P/E ratio is probably the only thing a typical american will understand as a measure of valuation. (Even if its nonsense to predict the market behaviour that way.) I always have a smile on my face when i see Tepper, i want to see him more regularly. Can`t they just start a comedy series with him? :)

Hussmans latest: The Ingredients of a Market Crash http://www.hussmanfunds.com/wmc/wmc140929.htm I don`t like permanent crash talk, thats the reason i do it only now and once. :) Market crash is just around the corner!

i can understand you. also sold last week my posco to buy some stocks with more Price potential And i thought i am good at timing. ;D It was probably not a bad idea to sell pkx, even when i still think that there is still plenty of upside in the coming years.

Sometimes i post really stupid shit :). If that would be the case the NAV would have fallen a lot, so they probably sold their positions in the meantime.

Looks like the USD will get stronger and stronger. This will have an impact on US exports and on earnings of nearly every S&P company (margin mean reversion finally kicking in?). I am really interested in the next quarter of earnings results. When this continues without the FED also printing money the US will get deflation in the near term. Cheap energy will probably aid this process. When the FED starts printing again because it has no choice, we will see massive inflation but this is probably some years away. Macro is really interesting but it sucks a whole lot of time thinking about how the world will implode someday.

Did i misread something or do they have a nominal amount of 1.1 trillion of EUR/USD futures in their holdings as of 03/31/2014? (PIMCO Total Return Fund A (PTTAX), Annual report page 25/26) That would be a loss of 80 billion$ in the last 3 month. Holy cow, please tell me that i am wrong.

The last time we had this discussion was a good time to buy FFH. :D I can imagine that buying both and rebalance to 50/50 every now and then resulted in very good outcomes.

Thanks packer, was a nice weekend read and something that has its place as a reference on my desk. Its one of the few books that gives concrete formulas on how to value companies. What i found interesting is that he wrote that most of the investors were not fully invested all the time, so this buy and hold forever or be 100% invested at all times is a little debusted here. I now have to find a book on the turtle traders :).