Gmthebeau
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Posts posted by Gmthebeau
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On 1/12/2024 at 5:38 PM, bargainman said:
S&P or total stock market fund.
Agree. Over 30 years almost nobody beats an index fund. The world changes to much to commit to something for 30 years. Even Berkshire may become dicey once Buffett is gone.
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Charlie always sounded like he was miserable really when he was interviewed. He never sounded happy like Buffett. Charlie probably could have used a big house or something to make him more happy.
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8 minutes ago, Saluki said:
Yes, they have the opposite problem, too much cash. That Coke position was dead money for a decade but he held it and now it doesn't make sense to sell it because the basis is so low that it would be a big tax hit, and he would need to buy something else a LOT better to make up for it. Since he's got $150bln that he can't deploy, this would probably just be short term treasuries, which are paying about what the KO dividends are, but don't grow.
I think the problem is also that we all have stories of trimming something and looking back later and regretting it. Bill Miller held onto Amazon and he's a billionaire. Lots of people bought it when it crashed to $1 and patted themselves on the back when they sold at $3 and missed the next $1000.
When I first tried Greenblatt's spinoff strategy, I bought one that went up about 40% in a few months and sold it. It went nowhere for a couple of years then went 10x over the next couple of years.
When Todd (or Ted?) bought that position in Dillards, it was a 10x, but it also went nowhere for a few years. It's hard to figure out which are the flowers and which are the weeds when you are just looking at some small green shoots coming out of the ground.
Yes, most people sell the winners way too quickly. I owned NVDA a couple of times at much lower prices and should have just kept it obviously.
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5 minutes ago, gfp said:
I would agree there is pretty good demand around 5%, but I think we will see it again probably in late 2024 but as fast as markets move (or get manipulated) who knows maybe by mid-year. Nobody is going to buy 30 year bonds at 4%, despite all the TV pundits trying to get you to buy the ones they would like to sell. Core inflation is still around 4%, so rates are again to low on the 10-30 year part of the curve. The only way it makes sense is if inflation totally collapses (very unlikely) soon.
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Cramer is a complete idiot. If you followed his advice you would be flat ass broke long time ago. He is nothing but entertainment tv. I would say at least 95% of what you see on CNBC is just entertainment and has no practical application to investing.
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15 hours ago, Xerxes said:
One could argue that Berkshire “water the flowers but keeps the weeds to”.
Besides the big 5-6 equity names there is a whole bunch of tracking stocks. And this predates the inception of T & T mini portfolios.
This is definitely Buffetts preferred approach especially if he owns the entire company. He never spins off or sells something despite owning some real losers. He has constant cash flow though will allows him to use this approach. If you dont have constant cash flow you will need to cut the losers.
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Everyone and their dog saying lock in long term rates here at 4%, but virtually nobody saying it at 5%. Rest assured the crowd always wrong, and we will likely see persistent inflation and despite Jerome salivating to cut rates, the 30 year will likely re-approach 5% sometime in 2024.
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17 minutes ago, gfp said:
Everybody knows the government numbers under report actual inflation huh?
Sounds like you got it all buttoned down Mr Thebeau
Even if it doesn't under report it is still nearly double the target.
However, yes most believe it under reports. Congress has essentially directed the BLS to change the calculations in the past so that it reduces social security payments.
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9 minutes ago, gfp said:
I don't know why everybody seems convinced that inflation is still a big deal. The difference between the current inflation rate and the Fed's target is basically going to be determined by OPEC+. Mission accomplished. The new wage inflation is getting to keep your job / hours.
lol, the government numbers are 3.7% which is almost double their target, and everyone knows the government numbers under report actual inflation.
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On 10/22/2023 at 10:02 AM, RedLion said:
I’ve been thinking about this a lot, and I’ve bought over $2 million of real estate this year which is a significant chunk of my net worth. Most of these deals are value add, so obviously even if real estate crashes I’m happy to hold these.
But I disagree that real estate is a bad play just because we have unsustainable 8% mortgages.
There’s a huge difference between today and the 1970s and 1980s, and that’s that the cost of replacement is far more. For example it costs the median household income of about 10 years to build a meh new construction house in my California city, and it’s not even one of the crazy expensive cities.
I just saw a statistic that in 2022 40% of homes bought by millennials. In 2023 the number was below 10%. This is where your interest rate unaffordability is going. It’s delaying demand from millennials and gen z buyers. I also read that for every 1% drop in mortgage rates there will be 3 million more eligible buyers to qualify.
Either we continue to have higher inflation and rates, which will continue to increase replacement cost and exacerbate the shortage, or else we have recession, lower rates, and likely higher housing prices as a result.
I’m not saying housing is a slam dunk, and obviously it’s not possible to do 75% ltv on a 4 cap rate at 8% mortgage, but it’s totally possibly at 30% ltv. I’m actually only at about 15-20% ltv and still looking for more properties.
I think you’re almost certainly a smarter and better analyst than I am, so this gives me pause to take the opposite stance here, but I really do think 8% mortgages only last for a bit, and if not it’s because of a lot of inflationary pressures that have historically been good for housing.
Housing is definitely an inflation hedge, due to what you cited the replacement costs. If we have persistent inflation which seems likely you will continue to have pressure on commodity prices, labor costs, all of which goes into the replacement cost. The FED itself does not expect to hit a 2% inflation target until 2026! With the massive debt the government has they have no choice but to try to inflate away the debt. Many people believe they intentionally let inflation get out of control and have been intentionally slow to deal with it because they don't intend to get to 2% even by 2026. I mean their projections are notoriously way off!
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5 minutes ago, dealraker said:
And potentially buying JOE at $36 has absolutely nothing to do with house prices falling. My earlier text had nothing to do with prices falling!
Right, I have no opinion on JOE, not really looked at it. Stocks can move far beyond fundamentals at times due to emotional trading so if their business of selling new homes goes south looking at a chart I could see it hitting $20.
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8 minutes ago, dealraker said:
So here on the lake where I live the prices haven't subsided one bit according to realtors. Sales? None! Not one single sale on the lake for two months.
Oh it gets complex doesn't it?!
Exactly, this is my point. Sales dropped but not prices. I believe this is what we will continue to see for years. Slow sales, but continued increase in prices due to lack of supply. Obviously, if you are a supplier of housing materials this may impact your business adversely. If you are selling new homes business may slow, but none of that means anything to or impacts existing housing prices.
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1 hour ago, ValueArb said:
The average price of anything increased 93% from 1976 to 1984 due to inflation.
Also median home prices can be misleading. Typically homes have grown significantly in size and standard features (AC, etc) over time, but during periods of high prices it's likely that that trend pauses or even reverses to maintain affordability.
Affordability doesn't determine prices if there is a shortage. It is just like oil. If they Saudi's stop pumping prices go up because there is less available (assuming nobody else starts pumping). They said the EXACT same thing in the late 1970s, houses were unaffordable yet prices continued higher. https://www.gao.gov/products/ced-78-101
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41 minutes ago, RedLion said:
You and I must somehow be wired to think alike. All I hear is the sky is falling because affordability is terrible because interest rates are up significantly.
But stepping back, the demand situation is huge with most millennials wanting to buy homes and gen z as well. Now thanks to Ozempic all the diabetic boomers are gonna be kicking for another 20 years. Millennials bought over 40% of all housing in 2021 and down to 8% I read currently.
On the supply front we have a lot of new multi family hitting the market, not a ton of single family homes, and construction on those is slowing.
So lots of pent up demand. Not a lot of supply coming.
And guess what, it was far far cheaper to build in the time frame above. As a percentage of family income. My parents built a gorgeous custom home in 82 on one bachelor’s degree level income, and I know a ton of other boomers did the same thing.
Only the wealthiest millennials/gen z will have money for custom builds. Most can’t afford new builds in the sunbelt until rates come down and definitely can’t afford building in the previously desired coastal and west coast markets.
So why are prices going to fall? There’s not any supply. The marginal buyer pushes the price, and we aren’t building enough sfh and the millenials definitely aren’t going to figure this out anytime soon.
As soon as rates drop you have a huge pent up demand that’s going to flood back into the market.
But even while rates are high, this is increasing the deficit spending, and as a result of high inflation. Construction is one of those pieces of the market that seems to inflate structurally faster than average (like healthcare but more volatile), so if we stay in a high inflation and high rate period for a matter of years, this should be a tailwind to housing since it continues to hold back supply, increase cost of new construction, and presumably the smart/lucky millenials/Z’s will benefit from this inflating economy and bid ever higher prices for their piece of the American dream.
Either way housing seems like a solid bet right now unless your over leveraged.
There’s clearly potential for a correction/hiccup as the market works through affordability issues, but I don’t see any reason to think the existing housing stock is overvalued on the whole.
Yep, affordability and sales may very well drop...but prices will still go up because of limited supply. We will likely be supply constrained for quite a few years in single family housing. Prices already corrected (10-20%) in the hot markets, like Austin, San Francisco, etc...those areas may correct a bit more but probably not much. In most areas prices will just keep going up.
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17 hours ago, ValueArb said:
I love when people post things like this, because most people have severe recency bias. They think that whatever happened from 2009 to today is the entirety of history, instead of the abnormality that is actually was. It is interesting to note that I looked back at median home prices during this timeframe (1976-84) and they nearly doubled.....which is also not what most people think is going to happen.
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On 10/13/2023 at 1:10 PM, thepupil said:
I don't think we'll see that kind of relative performance out of LT tips. At peak equity valuations in 1/2000 TIPs offered 1% more than SPX's earnings yield. stocks were more expensive then then they were today. then stocks collapesed in GFC and bonds went to negative real yields.
I think today is much less extreme. but 2.5% risk free real in context of a highly highly indebted society, is attractive and unsustainable IMO.
2.5% risk free real is very good deal today. I think there is a chance it could get as high as 3%, which would be back up the truck moment.
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27 minutes ago, tede02 said:
I agree that low inventory will put a floor on housing prices. Maybe they come down 10% but nothing like we experienced post GFC. I bought my first house in late 2008 and the situation was completely opposite, there were forclosures everywhere. Now there is nothing to pick from.
I think I timed the mortgage market perfectly with a refi in Aug/Sept 2021. I noticed how low nominal rates were AND how tight spreads got. Locked in 2.375% on a 30 year with no points. In hindsight, I wish I would have paid a point and locked in at 2%!
yea, 2.375 on a 30 year fixed is amazing. We locked in 2.625 on a 30 year fixed rate for the house I planned to retire at. I am now retired. Can buy treasury bonds paying 5% to pay off the house and the difference is profit. The banks will be eating losses on these loans for decades.
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3 minutes ago, Spekulatius said:
My first mortgage was 6 7/8% as well but my house was way cheaper relative to my salary and affordability was better. I suspect that was the case when you puchased your house as well.
What I think will happen is that the existing pool of buyers get exhausted while sellers (due to life changes etc) will trickle back into the market over time because they have to. That will shift the balance towards a sellers market where prices will be more determined by affordability.
This will only play out this way when mortgage rates remain high. If mortgage rates go down both sellers and buyers will get into the market and transaction volume will increase, but maybe not prices.
In any case, the buyers at current prices have a very poor risk reward. They could get stuck with 8% mortgage and if home prices go down, they might not be able to refinance, if their mortgage goes underwater, even if interest rates go down a little.
What you suggest may eventually happen but I think it will take many years maybe even a decade. I don't think we are going back to low rates again, as that would set off inflation again which has still not even been reversed. I would agree buyers today have a poor risk/reward, but most people who buy just want a house and many times people are willing to overpay just to get the house they want. I don't know how "housing affordability" is calculated but I suspect there have been changes in the economy, peoples benefit packages etc that make those comparisons today to be irrelevant to decades ago. For example, UPS workers with no degree are reportedly making 180k. I find it hard to believe there is a housing affordability problem. Auto workers asking for 30-40% pay increase. Health care workers going on strike. Most people today want a new home (or mostly new) compared to decades ago when people bought homes that were older. I don't think the comparisons are accurate.
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17 minutes ago, Spekulatius said:
I am curious why the WSJ think that only commercial RE will be affected. We all know that the higher interest rates has removed sellers from the market because they have low cost mortgages but that's not a lasting effect.
At some point, residential RE will have to come down with higher mortgages because the key metric affordability is a multi decade low. There simply won't be buyers at current prices and with current mortgage rates.
My first mortgage was 8% years ago, so I would say that the endless stream of people saying people won't buy are wrong. This was NORMAL decades ago. The recent 15 years was an ANOMALY. There will be less buyers but there are also less sellers and low inventory. I think residential at worst just goes sideways in price. I don't prices will come down in any significant way.
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44 minutes ago, TwoCitiesCapital said:
I am also concerned about the banks in this scenario, but probably not BofA.
As proven time and time again, too-big-to-fail is a competitive advantage. Each bank that fails has deposits that flee to other banks buying the survivors more liquidity/time without threatening their own solvency.
I imagine the large banks will capture a disproportionate amount of those deposits. I own a small bit of USB speculating that it'll make it through alive. If things get really bad, I'll add JPM and/or BofA at the right prices to benefit from the further consolidation of the industry.
Everyone seems to be believing higher for longer, but this is the same Fed that totally missed the inflation of 2021 to begin with. Any of their expectations beyond 6-months should basically be ignored. Lower rates will be an immediate salve to the financial sector, even if accompanied by increases on defaults, and I imagine there will be some decent opportunities in financials before then.
I think the banks will go lower there is nothing but bad news coming for them. The FED will stay higher for longer until the job market cracks. The higher rates will eventually bite it just takes awhile when people have termed out debt at low rates, but all the zombies will eventually be forced to pay higher rates, bankruptcies will increase, unemployment will go up, people won’t put as much money into 401ks when they don’t have jobs, people will have to start repaying their student loans, housing is leveling off and may eventually crack but probably just go sideways for years, stocks will eventually reprice lower as the PE is way to high at these interest rates. -
19 minutes ago, dealraker said:
Somehow very average types like me can simply invest money over time in a somewhat hopefully logical manner based on what thus far seems to be a successful "value/growth" model - which tends to do the mostly upwards-to-the-right on the charts...but not blast-off-to-Mars and such. We types watch the superstars come and go, fantastic years and terrible ones, but the theme is incredibly consistent and that is if you have a good year or good period then anything you say is sucked up my all the fast go-go types as world truths.
Do you guys ever think a man like Dalio can't help himself and he just says in what I'd call "make-it-up" mode really crazy, maybe even stupid stuff, just to see how well it circulates?
All people, especially men, seek status, tell stories, and above all we imitate.
Agree, Dalio is just trying to remain relevant in some way. He has been dead wrong in virtually everything he says for a really long time. Bill Gross is another billionaire trying to remain relevant. He rode a massive bond bull market to fame, had nothing to do with skill.
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2 minutes ago, tede02 said:
This is exactly what I've been thinking about. If we get a hard landing, probably will have some deflation. I've bought TIPS and regular notes because I don't have strong conviction either way. I hope we get a soft landing but who the hell knows.
hard landing is most likely because it will be hard to bring inflation back to 2% without it, and the FED won't fail because they would lose all credibility.
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35 minutes ago, Dinar said:
@Gmthebeau, sure, if you hold bonds to maturity, you don't lose money in nominal terms, you actually make money. However I presume that most people care about purchasing power=real wealth, and once you take inflation and taxes into account, you can easily end up with a huge loss in real terms even if you hold long term bonds to maturity. TIPS, in my opinion, are a different story.
If you don't think the FED will get inflation back to 2% TIPS are a better value, but if you think they will be successful and with the massive amount of debt out there, if we ever have any fiscal discipline (compared to what Trump/Biden did) then if we even have a year or so of deflation then regular treasuries will be better than TIPS.
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26 minutes ago, Dinar said:
@thepupil, so I would agree with you that bonds are beginning to look interesting, particularly TIPS - 2.4% real yield, although I would still prefer to own PM or L'Oreal than TIPS.
However, where I disagree with you is your point that it is very hard to lose money in bonds. In your 08/06/2020 example, in real terms, you are down another 20%+. To be down 35% after-tax is gigantic for supposedly a "safe" asset. By the way, that's probably for the index. The long bond is down 50% before inflation and 60% after.
From here yes, I think you will do well in TIPS in a tax indifferent account or to preserve wealth. To grow wealth for a taxpayer, I don't see how it can be done given 40.8% marginal tax rate (37%+3.8% Obama surtax) when say 30 year pays 4.85% (so 2.9% post tax but before inflation.)
It depends on your time horizon. If you buy treasuries and hold to maturity you are not going to lose money. Sure they could be down 50% at some point, but they will mature at PAR value and you will get the interest payments. If you buy a bond index you can figure you will get at least the starting yield to worst if you hold it for at least 2x the duration of the fund. If rates continue rising and you reinvest it will shorten how long you need to hold. But yea, it's hard to lose money in bonds if you hold them to maturity. If you try trading in and out of them thats a different story.
Elon needs more Tesla stock to motivate him
in General Discussion
Posted · Edited by Gmthebeau
Total A-hole move. He wasted a shitload of money on twitter so now he wants the Tesla shareholders to eat his mistakes. Honestly, at this point I think Tesla would be better off firing him and getting an adult CEO. He didn't even found the company like most people think. It already existed. The Tesla Roadster already existed. Between twitter, apparently doing drugs according to the WSJ, spaceX, and his other assorted companies how much can he actually be working anyway?