yadayada

http://www.gatesnotes.com/~/media/Images/Books/Making-the-Modern-World/making-the-modern-world-cement-A_800_v2.ashx more cement in 3 years for china, then last 100 years in the US. http://www.bloombergview.com/articles/2014-02-24/laughing-along-with-the-fed-ritholtz-chart

The population of japan will be poorer with price increases. They will not magically make more money. It is not a given taht will happen. So you will not see much taxation increase, and you could see a panicky interest rate increase on anything longer then short term rates. And because these figures are so enourmous compared to tax income, any increase will kill them. So you could see a shrinkage in profits, not much increased taxes from wages, and interest rates on longer term securities that outpace inflation. And even if they manage to stay at 2% inflation, that still means their debt is growing faster then it shrinks, because it does not fill up their tax revenue hole. If anything that is more likely to become bigger. And cap gains tax, you will see when they sell. When people just flee into those things, that is not immidiate profit the the japanese government? Finally if the central bank buys up these obligations, isnt the problem simply moved? Interest still needs to be paid, and if they lose value, the bill is on the tax payer. A central bank only creates money by borrowing it, they dont actually create money? This is also why it could be problematic if the FED would want to offload their 4 trillion $. That is only possible over a longer time, because if they do it wrong, the US tax payer foots the bill. Also with over 10% of inflation at the end of the 70's, take a look at the S&P 500: http://upload.wikimedia.org/wikipedia/en/a/a3/Daily_Linear_Chart_of_S%26P_500_from_1950_to_2013.png It did not really spike up, it stayed kind of flat... So increased cap gains tax is not a given at all.

interest rates go up more then inflation. There is also more anticipated inflation priced in. Especially with such a huge debt load compared to tax revenue. Interest rates do not exactly trace inflation. And im not so sure about increased tax revenue either. If things get more expensive, that does not have to mean total spending goes up. There is a slice of consumer networth that spends money. And if this value goes down, it simply means people spend less. It could also mean people will want to save more for later. Japan household savings are not exactly high.

The reason these explanations are hard to accept is because they are all Bs speculations. In reality, no one is in control, and no one knows exactly what is happening. I think it is a combination of both? Speculators shaken out, and supply and demand gap getting wider? I like the theory that says that because of deflation fears, a lot of commodities are shaken out. So all the speculators that went into oil in 2010-11 that went into oil because of inflation fears, are now shaken out because deflation seems more likely now for the next few years at least.

Im probably out of my dept here, but isn't the 23 trillion $ all assets - all liabilities? So that would be about 66 trillion $ in assets? and 47 trillion $ in total liabilities. But where do pension liabilities and health care liabilities come in? And what will happens when they run out of people to borrow from? It seems government assets is not nearly that same figure. That is only a little over 6 trillion $ vs 6.5 trillion $ of debt now. Against what assets is that debt secured? Government cant borrow against private assets can they? So it seems those 66 trillion $ in assets is largely irrelevant. And since the economy relies for such a large % on government spending, what will happen when that grinds to a halt? Wont a lot of assets evaporate? It seems when they dont close the hole, and run out of lenders, the government goes broke? Also, can they really sell things like roads and bridges and train stations to private companies or their citizens? And when they do run out of lenders, the market will be scared of hyperinflation, and everyone will start offloading their yen, causing the yen to collapse? Im just curious what will happen when they cannot borrow anymore. I guess that is what my post boils down to. They would need to borrow against private assets? Which is not possible. And what will happen then?

That's what I thought would happen with shale gas. In fact, it turned out to be economic at much lower prices than this analysis suggested. Isn't the lack of exports holding down shale? prices are like 4x as high outside the US... It seems once the government stops blockign those terminals, prices would shoot up. As demand could not meet supply at those lower prices?

Is the state going to sell assets to pay for this? The state cannot monetize assets that are privately owned unless they seize them? And isn't a lot of this wealth in the hands of few? Unless the state takes this away, they will go broke. And isn't a lot of this networth owned by the 1%? How many of those assets are in Japan? They also tried to raise taxes, and I think GDP went down? They would really have to double tax income to climb out of this hole at this point. I think tax income was even higher in 2005. But how will they double taxes? It seems at some point investors will realized how bad the situation is and demand higher interest rates. As right now the market is gambling someone else will roll over their debt before the music stops? So 60 trillion yen is the most they will be able to get in tax income probably. Debt servicing is about 23 trillion now. And when the markets will demand higher rates, the whole thing collapses right away, unless the government manages to pull out several trillion $ somewhere in state assets? http://www.economist.com/news/briefing/21593458-advanced-countries-have-been-slow-sell-or-make-better-use-their-assets-they-are-missing Value of state owned firms is 500 billion$. And total value of non financial assets is about 6.6 trillion $. If you look at it like that, isnt the situation suddenly very ugly? Also if it collapses, will it not end in a firesale? Who says the state will not have to get a discount on the value of state owned assets? Since they are basicly insolvent if that happens. edit: Oh nevermind, national wealth is assets - liabilities. Reading comprehension :). Some of my points still stand though.

the problem , people are confusing break even prices. Cash break even and full cycle break even. Cash break even is the cost of getting it out of the ground now, when land is paid for, seismic photo's are made and the oil wells are drilled in the ground. But those wells tend to run dry within 1-2 years for shale oil. And to make more photo's order new wells and put them in the ground, those costs run much higher. Really those levered oil producers like PWE are drilling because they need to pay their debts. If they were all unlevered, production would have shrank significantly. They are not getting their original investment back. That only happens when oil is trading much higher. So when those wells run dry after one year, you need prices around 100$ for them to drill new shale wells. So when that happens , and price of oil is still 60$, you will see a sharp drop off in oil production, and price will spike up again, as there will be a small gap in supply/demand if prices dont go up. Or maybe they will anticipate this, and drill new wells anyway with low oil prices, depends on how much fear and pessisism there will be in the sector. Also oil is not comparable to gold. Oil is used up, gold isn't. If oil production would dry up alltogether, oil prices would shoot up close to a thousand dollars at least. If gold production dries up, not that much would happen with the price of gold since there are huge reserves.

Im a fan of looking at the numbers, and looking at those numbers, it has not looked this bad in almost a 100 years. But you make a very good point about medical technology. Allthough if that means people live longer, it could also make it more expensive for the state (but stretch it out more). So a person that is 65 now becomes 120, instead of 85 or whatever. And it is cheaper every year, but it will drag on longer, and you will need reforms eventually when the costs build up. But that will take at least short term pressure away. Basicly immigration and technology could be the wildcard here that saves the day. For example the aging population thing has never been a problem before on this scale in the history of the world. So looking at history is not really an option. The conditions change constantly, and you have to look at each situation as if it is unique. Ironically, the republicans want less government spending, but no immigration. And the democrats want the opposite. While both less spending, and more immigrations are solutions to go broke basically. I will be following the yen closely though. Anyone know any other signals that could foreshadow a Japan collapse? There were some clear ones in the 08-09 crisis. I think when they run out of people to borrow from, it can go very fast, and the yen can collapse within days when the panic hits. At least you can prepare by selling leveraged stocks and financials, and free up some cash. When nothing happens, you are still invested in your safest bets.

Should probably put it on a blog, but thoughts? Im thinking that owning some gold is not such a bad idea after all. I would prefer owning stocks that provide a hedge against this though. Im thinking, pawn stocks? They do very well if gold goes up because they use gold as collateral. I was on the camp of, well we will be fine! But im not so sure anymore now.

Kraven show us on this doll where the smileys touched you.

Maybe it's my faulty memory, but do I correctly recall you also dislike emoticons? I'm morally opposed to the use of emoticons. For example, whenever I try to post a negative string of numbers that ends in "8" using the format with parentheses, as in (0.7) for negative 7/10th, I get this annoying guy (0.8). Maybe trying to ban the use of emoticons is as quixotic as Munger wanting to ban derivatives, but here goes: "6. Only Giofranchi is allowed to use emoticons." (I think this is reasonable, since we cannot see Gio's hands and arms while he is making his emphatic points. Perhaps Sanjeev can find some emoticons that are based on hand/arm gestures, including the gesto dell'ombrello.) :-X Your memory is quite fine ;), lol, fyi Kraven hates emoticons...Dont know why :) ;) :D ;D >:( :( :o 8) ??? ::) :P :-[ :-\ :-* Emoticons should be subject to the 20 punchcard. If they were, people would think long and hard before using up one of their allotted emoticons. yeah that is what warren said about stocks. ::) ::)

yeah this Kraven guy is a bit judgemental, im not sure if warren or charlie would approve ;D ;D :o

read greenblatts book, you will at least know they exist then.

Lots of hindsight bias here. If you did not understand something, you did good by not investing. Even if it went up 5x.

All the difference lies in what assumptions you use on the 2-3x estimate. If it is 'well if they can grow FCF by 2017 by 40%, and you give it a 18x multiple like it's peers it will be worth 150% more by then'. Which is obviously stupid as that is more a best case scenario.

This is a major argument against libertarians I guess. They could just sell their car instead they end up paying that amount, and losing the car... Some people are just stupid. loaning money at 170% interest is never ever good unless a loanshark wants to break your legs or something.

hehe ill take note of it. glad you find my rambling usefull :D

Also note that having a few other ideas giving potential upside is basicly a hedge against downside risk in your other positions. So having 50% cash and 50% in one stock could be riskier then investing the other half in a few stocks. So if you have 4 stocks that are worth 3x more, and you put 25% each in them. If only one takes off, your downside risk is hedged. That seems like a better idea then buying puts to me. By spreading it out over 4 high conviction picks, you suddenly cut your risk down by a huge amount. Without really cutting that much in your upside.

IIRC the most often cited positions for this type of concentration were BAC, AIG, GM, which tick none of those boxes (well maybe the first). In hindsight they all looks like no-brainers, but that's hindsight. I read all of the blogs and research on ASPS/OCN before it tanked, and it was very compelling. I can understand why people invested in it, and it's very unfortunate what's happened. Someone said earlier that it's all about style and preference. HEAVY concentration isn't for me, and I think it'd be a tough one for anyone with a family or investors. Also, don't listen to me. At the moment, I suck at this ::) Yeah i wouldnt want a lot in those stocks either. So I agree with you there. Ill give you some examples that seem candidates in hindsight, feel free to disagree: Quilmes: arginetine beer stock. Almost monopoly, lot's of untapped pricing power. Unlikely to get screwed. And people always drink beer, and very very cheap. I think possible upside was like 2-300% with pretty much no downside risk. And you couldnt get screwed as minority holders. Conrad industries: Maybe not the greatest business, rock solid balance sheet at 10$ at the end of 2010. You got the business for almost free basicly. Management was aligned, and the business had some sort of moat and some possible tailwinds. I think for 60m$ you would get 10m$ in earnings, about 20m in net cash, and about 50m in net current assets. It paid out almost half its market cap at the time in dividends since then. Picanol at 10 euro's: 150m in net cash, market cap of 200m. Manager that had proven himself already. Earnings of 50m (year after earnings were actually 75m). seemed really hard to lose with this one, and worth at least double. Business had a decent moat, and manager seemed v smart judging by results. Google at 10x earnings in 2011 I think? Net cash position of almost 1/3 market cap I think. Huge moat and still growing fast. Schuff: Net tang equity of 80m. Market cap of 40m at 10$ (even better when it was at 7$). trading at almost 1x peak cyclical earnings. Little debt, and it hadn't made any serious losses even in down cycles. High inside ownership. In those cases you were usually protected by some combination of competenent aligned management, a moat and a rock solid balance sheet and cheapness. It seems some hong kong stocks meet these criteria, allthough there you have to be double sure about management. Which you cannot be in most of those cases.

I think that was not a good candidate for really concentrated positions in the first place. I would not be comfortable enoguh with regulatory risk, no matter how good the company is. Condition for a very concentrated position -rock solid demand for product, or trading under NCAV (so probably no O&G, tech) -no regulatory risk -a solid moat -management that is aligned and not incompetent. I dont think ASPS/OCN ticks all the boxes. If you put 50% of your money in something, it really needs to tick all those boxes.

100% agree. I think that we have stumbled on to a pretty good compromise -- post results while having a few of us consistently whispering to the board "memento mori." (http://en.wikipedia.org/wiki/Roman_triumph) It seems short term results over 1 year are completely meaningless. Even 7 year returns can easily be a lot of luck. And it is only an inspiration to know that it is possible when i see long term killer results. Because if no one was doing it, I wouldnt think I could do it ':) . So seeing alot of members scoring 20% returns or higher gives me some confidence.

I think if you boil it down, packer never seems interested in stocks that trade at >5x earnings or FCF multiples. He is only interested in stocks that trade cheap right now. You buy something when it trades at a cheap multiple, that is worth much more right now, not 3 years from now. And usually the cheapness has to be kind of non obvious, or it is simply a pessimistic market that prices everything down. Or it is lack of liquidity. And the discount has to be very big. Often i see threads here of things trading at like 10-15x earnings. That is only going to give you massive outperformance if it grows really fast, and it has a really solid moat (so maybe google or something). Or if some special siuation type event reveals true earnings power 2-3x as much. It seems like 10-15x is the magic multiple number. If you buy far below that, when it is priced cheaply for no good reason, you make great returns. If you are right a lot, and it goes from like 4x to 12x, and you sell it, that is a 200% return. If that rerating happens in a bit less then 3 years on average, that is a 50% IRR. If you always buy stuff at close to 10-15x multiples, you will likely not outperform much unless it grows like 30-40% or margins expand. And you find those things by looking at hated or ignored area's. If I read about buffetts early days, he bought obscure stuff at really really low earnings multiples. Sometimes less then 1x earnings. And I notice that he focussed quite a bit on catalysts (graham too). No wonder he did those returns buying at those huge discounts! I always see statements here like 'better buy a great business for an ok price then an ok business for a great price'. But that is only really the optimal method if you dont spend a lot of time on investing or if you have billions of dollars to invest. Buffett only adopted this mantra after he became too big for those obscure cheap companies. Why was BAC interesting? It was trading at 3-4x earnings. And it was somewhat conceiled (if you spend only 2 minutes on the financials) and it would be revealed within the next few years what it's true earnings powers was. Often see that those multiples are ignored a lot on this board and everywhere else. Because in the end that is what drives return, 3-4x multiple returns to a 11-12x multiple = 200% worth more right now and not 5 or 10 years from now. Im not v experienced though, but this is what I make of it when I study these high return guys.

Texhong, potentially 2.5x earnings. competent manager not out raping minority holders .If cotton prices stabilize, it could go up a lot. There still seems to be a large spread which will not go away in the near future. Dividend, and normal earnings again are catalyst.

I agree with your premise, I also try to aim for that return. That way your worst case scenario is always still outperforming. But putting all your money in a stock that could in theory go to zero seems a bit much? At some point, even if it goes right 499 times out of 500, I dont want to end up broke in that 1/500 times. I can see making it a 20% position, maybe even 30%. But anything more seems excessive risk taking.