yadayada

not much to be bullish about in the short term. China imports down 20%, house prices are starting to go down, Japanese Central bank is buying almost all the JGB's in the market, and slowly losing credibility. Europe and euro looks shaky, with Greece looking likely to be kicked out. world debt/gdp at sky high levels. The situation seems similar as in 2007, except on steroids.

yes but if the opportunity is there, the money will find its way somehow. And I dont find his argument very convincing. There is a huge correlation between work ethic and economic prosperity. Ofcourse what is important is the system, if the system is bad and corrupt, no amount of work ethic will make up for that. Higher levels of corruption and regulation, with lower levels of work ethic and moral are what caused the crisis. I think Ray Dalio would back that up if you read his paper. And the Chinese outperform everyone when it comes to math scores. And when it comes to work ethic, second generation Chinese perform better in the west as well. On international coding competitions, the Chinese dominate. In China academic excellence is what people look up to, not athletics. And you now have a pretty good system in China that unlocks all that potential, they are fighting corruption, and actually making quite a bit of effort to improve their educational system. Also total savings do not equal total investment? What about the trillions of dollars that are parked with the central bank? What about the reserves in banks that are not loaned out? Doesn't seem to me that all the money that is not spent is automatically invested? actually that article shows exactly what is wrong with cargo cult, i mean macro economics. He says, those countries joined the EU, and excess savings had to be invested in those countries. This makes no sense: what....? He also contradicts himself, because unemployment was higher before this was the case. Unemployment rates in Spain have always been high, except during the peak of the bubble. So forcing down some abstract ratio to where it used to be, will fix this somehow?? It seems like classic man with the hammer syndrom. He also makes the mistake of thinking that 'exporting unemployment' is a zero sum game. That always some country has to have high unemployment. And he does not mention culture, corruption or work ethic at all, even though all the countries that have problems now score badly in those area's. Here is his paper: http://bwater.com/Uploads/FileManager/research/how-the-economic-machine-works/ray_dalio__how_the_economic_machine_works__leveragings_and_deleveragings.pdf On page 241 you see ranking of all the countries. I think the main reason southern europe is doing so badly after they got into the euro is because countries with poor culture and productivity got access to too much money on the credit market and got overlevered, with the assumption that they would be similar to germany. Starting page 282 it gives all the numbers in detail. As you see all the southern EU countries are doing badly. All that credit infused in those countries did not only not increase productivity, but actually destroyed destroyed wealth. That is why they do badly now.

I dont think saving is the issue? It is really investment, and that has nothing to do with savings, as foreign investors can come in and invest. Germany's investment ratio is 17%, compared to around 50% for China. So savings are high for China, but investment is also high. The economist has an interesting article this week about Germany and underinvestment, and possible causes: http://www.economist.com/news/europe/21643193-germany-investing-too-littlehurting-europe-world-and-itself-no-new-deal I think what will happen is that Chinese labor will become more valuable as Chinese people become better educated. So they will become more competitive with the western world, while staying cheap. edit: I guess you are right about savings not mattering much. And TE's argument that minimum wage causes investment growth also doesn't make sense much. Honestly all economists are talking about underinvestment and current account deficits, but we are living in an information economy now. They are missing the point. And macro economics should be called cargo cult economics. They are not getting to the core of things. There is almost no debate on how to improve education, or the effect of crappy education on an economy. There are only now, 15 years after the dotcom boom, discussions wether or not programming should be a thing in high schools. Are you fking kidding me lol. That right there shows how bad it is. That should have been a debate 10-15 years back. What proves my point is that almost all economic growth comes from technology. Imagine a world without combustion engines, radio waves and digital communication networks. Without specialized seeds, fine tuned distribution networks and I can go on, the list is long :) . So if you want growth, focus on that. And that does not happen by cutting spending on education, or by leaving it to clueless government bureaucrats. That is something what economists are missing really. They are like car mechanics that never open the hood, but instead try to figure out what is wrong by just looking and listening to the car from the outside. Never getting the brilliant idea to maybe to open the hood and check it out yourself.

I dont think China is going to be bad. First of all they have huge savings, and their debt to gdp is still much smaller then the US, and they are still growing more then 7%. And the Chinese work like horses. They seem to have good work ethic and a lot of motivation, they will be fine. Im much more worried about southern Europe to be honest. People protesting for 35 hour work weeks and pension ages of 60 years. They obviously don't like to work, and their debt levels are more troubling. I really like Macau currently, some companies there are so cheap right now, and demand is likely to be incredible for the next decade or so. Values have collapsed there after a bad 2014. If I can buy a growth company with high return on capital for 10x earnings or less, with a bunch of assets on the balance sheet to protect me, I will do fine whatever happens. I think it is best to focus on cheapness first, and demand second. If you can buy a cheap company in industry that is likely to do well regardless of what happens, then you can't really go wrong. But if you buy something in a industry that will have a lot of headwinds, you won't do as well, and they probably turn out to not be that cheap after all. @joel, to be fair if you started out in 1929, and cashed out in 49, you would have done terrible. You would have lost money the first 10 years. http://dqydj.net/sp-500-return-calculator/ And a 0.5% return in 15 years, and 1.3% over 20 years. But if you would have waited it out untill 1932 or 1933 your return would have been much better.

I think you are underestimating dividends reinvested: http://dqydj.net/sp-500-return-calculator/ After inflation that was still a 6% annual return between 1912 and 1954. I think that is why a lot of these large funds go for an index. Probably still a good return because PE levels were low, so dividend pay out was higher. Must have been a lot of low hanging fruit :) . I think the worst timing must have been right in the dot com bubble. Would take you over a decade to get back to break even :) . But still tells you how low risk it is. Your likely to make a 4-5% return after inflation over 15 years, even the market doesn't do much from todays levels. Miles ahead of those crappy bonds I would say.

I think the trillions of dollars that are pumped into the system by central banks are making sure of that. Most of these professionals have no alternatives, so equity markets it is. Worst case you get only a few % long term. You can't leave it all in cash. Honestly there has not really been a delevering, what you saw is that debt simply moved from private balance sheets to public balance sheets. Or what will really turn out to be private balance sheets again when those pensions cannot be paid. Also interesting to note that for example in Italy, the younger generation so far paid 50% more taxes then the older generation (before 1970), and likely won't get a full pension. Must be similar elsewhere too. Then you hear about money laundering schemes, and see that the same old boys club that were sitting on the boards and running the banks are still running the show... You have to wonder how long that is sustainable before you see major unrest. Especially if the system melts down when governments cannot jump in anymore, and central banks lose credibility. There comes a point where governments have to seriously tighten the belt, and then you will see major GDP contractions. As a large % of spending is government spending. Already the discussion about Japan is that the government can simply tax the people or not pay all those pensions. The discussion is no longer about various ways they can repay the debt. Japanese people might be submissive and just take it, but Im not so sure about the US or various EU countries. Interesting times :) .

Isn't that an advantage then for the large players? Since smaller players likely dont have that kind of leverage.

It seems like airlines have fixed costs in airport fees? So if they are very concentrated in one area, they have lower fixed costs.

Cramer hating on musk had something to do with this:

Yeah but the people profiting from the buyback scenario are now richer. Index funds go up etc. That extra wealth will end up in the economy somehow. Also if those investment opportunities are decent, someone will invest. There is an enourmous amount of yield hungry capital laying around now. If nobody is touching, it probably wasn't that value accretive to begin with.

Saying companies should invest without good incentives is like saying people should buy more washing machines to stimulate the economy. Makes no sense at all. Unless you think everyone has suddenly become irrational, and there are good investment opportunnities laying out there for the taking. But even then it doesn't make sense, with the abundance of capital and all. There is a reason most of that money the FED pumps into the system is not invested. Also saying that buying more stock with dividends you just got is better then the company doing it instead is simply wrong . In the context of optimizing long term returns, that is not even debatable. That is like arguing gravity doesn't exist. You could literally mathematically prove it.

I agree on every point. Especially on the idiotic idea of buying a company because it pays a dividend! Only exception I would say to holding stocks that pay dividends are companies that are fairly valued but are not capable of re-investing 100% of their disposable earnings at sufficient ROIC hurdles. I'm thinking of KO or something similar. Any other reason for paying dividends is inefficient capital allocation. I'm going to disagree on dividends. I like buying cheap companies that pay me (the owner) part of the profits back as dividends each year. My thesis doesn't usually rest on earnings, sometimes it does, but it's usually assets or acquisition value. I'm essentially paid to wait for IV to be realized. I own a number of illiquid stocks that never appreciate, but I get a dividend on them. I'd rather get a steady dividend for years while waiting for the 'one day' when the stock jumps at once. This way I get two types of returns, the continuing dividend return plus the eventual appreciation. Dividends are something I'm starting to appreciate as I grow older as well. Extremely successful investors who have been at this for decades all seem to favor a dividend of some sort. I believe there's a reason for that. Even Buffett likes to own companies that pay him dividends. This does not make sense either. Let's say you buy a company with 10m$ in liquid assets and no debt. and 1.25m$ of FCF. Market values them at 10m$. They could buy back roughly 25% of their stock. Lets say they have 10 million shares at 1$ per share. They make 1.25m$ a year. If they reduce share count by 25%, you now have 7.5m shares at 1$ per share. Let's say that half of the buybacks were done with cash that was already on the balance sheet, so assets are reduced by 1.25m$. If you think business is worth 12.5m$ (10x FCF) and 8.75m$ of remaining assets a year later, shares are now worth 21m$/7.5m = 2.8$. But if they would have paid a dividend of 2.5m$ (half of which was their FCF and other half was from some of the cash on balance sheet), you get 8.75m$ of assets and 12.5m$ (assuming again you value the business at 10x FCF), is 21m$ over 10m shares is 2.1$ per share. Plus the 25 cents in dividends. So 2.35$ per share. So let's say you got lucky, and apreciation happened in 1 year. in the buyback scenario at exactly the same valuation you made 180% return, but in the dividend scenario only 135% return, plus some extra taxes paid. Ofcourse the dividends were not invested, so it is slightly unfair. But if you assume the dividends were reinvested in the company at 1$ per share, that would still give you a higher return in the buyback scenario before even considering taxes. And if the company would start to pay dividends after they did those buybacks, you would now get 25% more dividends, even though they return the same amount as before. And this effect is even more pronounced if the company is a real bargain and buy back lot's of stock. So if you are long term oriented, and dont care about short term fluctuations, buybacks are always the better way to go. If 3 investors buy stocks that are undervalued by the same amount. But one only picks companies that buy back stock, one only picks dividend stocks, and the third buys companies that leave most of the cash on the balance sheet. The investor that buys stocks that buy back their own stock is going to make by far the best return. Even though they all invest in similar stocks with similar ROE, and similar undervaluations, with similar times it take to return to fair value. Honestly, the difference between investors with a 10% return or a 30% return can be as dumb as simply picking undervalued stocks that do aggressive buy backs.

Plus it juices up your return if the stock is undervalued vs reinvesting dividends at the same price of buybacks. Unless you sell while they buy back ofcourse.

The arguments that investor can decide for themselves with dividends makes no sense. If the stock is undervalued, buybacks are always better If the stock is overvalued, buybacks are bad. But why hold the stock? The fact that the investor is holding an overvalued stock means that he will not invest it somewhere else in a better way. He is holding an overvalued stock after all! I see that a lot on this forum too. If you prefer a company to pay dividends, you should sell the stock right away. Because either you can invest it somewhere else with a better return, or you are holding a overvalued company. This is simply rational, and not some matter of preference like some think. Finally you could argue that the index investor will be hurt by this. But on average you would say an index is unlikely to be very over or under valued? As it balances out, so in that case buybacks aren't that bad? If companies are slightly overvalued, the fact that the investor doesn't pay tax on the dividend makes up for it no? And on average, over time, I would say buybacks are not very likely to take place when stocks are overvalued. Unless there is some systemic bias that makes CEO's buyback overvalued stock, but not undervalued stock.

space travel could become interesting with lifespans that. They could build travelling mini planets that hop from solar system to solar system. If you think about it, technology could still so drastically change life, that looking back on today 500 years from now will look worse then looking back on the middle ages now. Also staying in one place, with one person, would seem really boring to do for 2-300 years. Also thinking back on something that happened 300 years ago? We will probably find the limit of the human brain to remember things. Or what about unlocking all the secrets of the brain? What if we could just plug into a shot of heroin every day without building up tolerance or damaging the brain? It would be totally irrational to not do that, if possible.

I wonder what would happen to the brain if you could make your body live about 200 years. It would probably result in a lot of jaded 40 year old looking 150 year olds. It seems a 130 year old with a healthy body and still a lot of energy would have a huge edge against a 30-40 year old. So much more wisdom.

If you look at twitters cost, they got almost 800m$ of R&D costs. That is such a massive number. What do they do with that money? Do they pay like a huge amount of smart people a lot of money to sit in a building and think very hard how they can make a profit? What is that staggering number actually spent on? Elon musk actually spent less, and he managed to build rockets that go into space. And they only have a few thousand employees. It seems kind of absurd to spend that much for a company with a website where people can say shit in less then 140 characters. It is a glorified chat website. Ok here is a credible explanation: http://www.businessinsider.com/twitters-research-and-development-costs-2013-10?IR=T

Maybe he bought some walmart shares a long time ago and forgot all about them. And remembered right before dying. And just went with the whole 'yeah im frugal and dont care about money thing' while being very pissed off he had that money all along and did not spend it.

http://money.cnn.com/2015/02/03/investing/oil-price-rebound-opec-200/index.html?sr=twmoney020415opec1200story

that is beyond stupid. How did he not dividend a couple 100 million out?

A lot of EU countries go through that ray dalio stage where they still think they are rich, but are really quite poor already. And will be even poorer if they dont make drastic changes. 35 hour work weeks, no evictions by banks and maximum salaries aren't those changes lol. Argentina got stuck in that stage for many decades. It is really sad when a country is narcisistic like that, and cycles through one populist after another spending money they dont have to keep up the illusion. Northern europe will be fine though. They are a lot better off then the US. No massive budget deficits (except france) and managable debt levels. Then there are those cheaper eastern EU countries which are really like emerging economies, but with shrinking populations. But low debt levels. EU is really in various ray dalio stages. Some countries are richer then they think like bulgaria and romania. Some are not as rich as they think (looking at you PIIGS!) and some are about as rich as they think they are, like germany, netherlands, switzerland, denmark etc. And the ones that are about as rich as they think, are sick of the ones that are richer then they think leeching off them. And the ones that are richer then they think want to get out of the euro for some reason because they will be better off? Even though they will not be better off.

Those are some good notes, thanks!

They are the opposite really. If the fed had to buy those crap assets, why didn't the market buy them instead? The smart money left those things alone for good reasons. A value investor is someone who gets a good deal on something, not someone who catches falling knives. The fed had to buy those things exactly because valueinvestors wouldn't want to touch them... Warren Buffett didn't even want to follow the government into certain financials, to help bail them out.

but 260 billion $ at an average price of 70$ is still only 3.7 billion barrels of oil. between 2003 and 2008, 150 billion barrels were consumed. That is only 750 million barrels a year, or about 2.5% of annual oil consumption. Which would be 8 or 9 days of oil consumption. Shale oil is already 4.5%, so if some of that would be shaken out, the price should go up? Why would it take decades to adjust? Especially if the price of oil goes so low to drastically cut back demand. Also if you roll futures contracts forward, doesnt that mean you are basically selling them and buying new ones with a later expiration date? Since speculators dont take delivery of the product, doesn't that mean that they are still sold, which means someone else has to take delivery?

Im curious how much did they invest? Since there isn't that much storage capacity? Speculators should not have the means to distort prices for longer periods? It isn't like copper or gold that you can easily store. With those commodities, the % of hoarders have a pretty big influence on the price. Same with something like bitcoin. You can't exactly store it anywhere and expect it to be ok years later? You need expensive storage capabilities. I can imagine how on the short term this can distort prices like in 2008, but not in the long run, given that oil in storage is only a small % compared to the oil being used up world wide over the years. Thoughts? edit: so 4.1 billion barrels of oil are stored in reserves world wide, 1.4 billion of those by government. The world uses about 33 billion barrels a year. So I doubt this 'hoarding' of oil really has such a big long term effect on the oil price? Besides adding a bit extra demand each year? That is about 1.5 months of reserves. So if let's say oil would stay at 50$, and reinvestments wouldn't be made, production would decline estimated: by up to 9 million barrels. that is 3.3 billion barrels a year. So it seems even with large oil hoards, if no new investments are made, that can last about a year or two before reserves run out.