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DIS LBTYA LILA

This is certainly one way to look at it but you have to keep an eye on the economic incentives.

+1

Felix Zulauf shares in an interview what is essentially my macro thesis, too (except that I think that China is highly likely to devalue the yuan by more than 30% this year and that as a consequence the FED will answer with negative interest rates and/or QE4): http://mobile.fuw.ch/article/from-buy-the-dips-to-sell-the-rallies/

I agree with that but it's because of the wide audience. It's not at all true for his letters which often contain very unique and thought-provoking perspectives. Take his remarks on dividends as an example (I think it's in the 2013 letter). When you read them every step is completely logical and yet it's not common sense at all. People love dividends – but they make no sense. Apart from the whole tax advantages, why not let investors themselves chose whether to pay themselves "dividends" by selling shares? As far as I know, Buffett is the first one to have noticed this or at least to openly write about it. Even in this forum, I'd suspect, that's not the majority view.

I expect accountability. Show me Brier score way above average, I'll be impressed. Otherwise, no. To pick on you again: apart from couple of months in Europe (I believe), you have been wrong on deflation so far. So why should your future performance be better? Now, if you made a precise, evaluated calls ( for example, "oil will fall below $40 in 6 months" ) in the past and they were shown to be right, you'd have a good Brier score and your future precise calls might be more interesting. Wow, you have some really high standards. I never said that it has already happened but I think that it's in the process of happening. Wrong? Maybe. Let's wait and see. My point is that this perspective helped me stay out of trouble. It doesn't really matter whether the environment is one of outright deflation (which I grant you we haven't had much of) or disinflation, which we've been having everywhere. Anyway, you seem to enjoy turning reasonable discussions into polemic arguments. This is not going to happen here. Take care, too. Ps: I don't even know what a Brier score is but I somehow have the feeling that it doesn't matter anyway.

Of course it's always with a big fat if! Do you expect me to be the god of global macro? Oh, how rich were I if I knew this stuff in advance and the timeframe on top of that! Everything – everything – is a matter of probabilities. I suppose you don't expect 100% certainties and timeframes when buying value stocks, do you? Author didn't buy any energy stock and sold commodity stocks. Show me a single post where I didn't operate under the deflation hypothesis. You won't find anything because that's what I've been doing for 1.5 years now. Btw. I chose my quote because I remembered it. There are many others on this board who were earlier or more prescient with this thesis. As I said, my point was not to brag but to show that macro can be a useful tool for value investors, too.

Oh really? There is quite a long thread on deflation hedges that started back in December 2014. I encourage you to take a look at the first few posts. That thread pretty much proves my point. It was opened in december 2014 when oil prices where down ~40% year-on-year and the GSCI index was down ~30%. I don't think that's the point. Of course you need real-world developments to base a macro thesis on them. The decisive question is how did people think about the oil price drop back then? I give you another quote: I'm not doing this to brag but to underline my point that thinking about macro can be very useful for investment decisions. At the time I was, like many others on this board, thinking about oil companies and whether they presented good values. I didn't touch any of them and sold my ZINC and BAC positions purely out of macro reasoning. I liked the ideas but they wouldn't work in a deflationary environment.

Oh really? There is quite a long thread on deflation hedges that started back in December 2014. I encourage you to take a look at the first few posts.

Maybe unsurprisingly, I find myself in full agreement with Felix Zulauf's macro view. We'll see.

That's exactly what I do but I don't know anything. As with Graham's framework for companies there are frameworks that work in global macro and show you where you can find hugely favorable risk/reward ratios for certain macro events. Keep in mind that pure value investors can't know things either. In the end, value investing is all about risk/reward – exactly like global macro is. I certainly agree with you that you should know what you're doing. But a lot of value investors keep arguing that you can know value on the micro level but not on the macro level. I think that's false. And like value guys can point to WEB or Carl Icahn macro guys can point to Soros, Druckenmiller or Ray Dalio. I'm seriously worried, though, that we entered a macro environment in 2007 where strictly applying Buffet's methods maybe won't have the same success rate they had in the 60 years before.

Are we talking about pre- or after-tax margins? If it's after-tax, what I think it is, then what I'm wondering is how much of that margin expansion is tax-driven (especially all the large tax inversions) and, therefore, long-term unsustainable. That said, I'm focussing more on the balance sheets because what companies have been doing – on average – is bringing leverage up and buying back stock, thereby blowing up the EPS and making themselves look cheaper by that metric. What they are essentially doing is replacing equity with debt and, because the debt is cheaper and more tax-efficient (you can deduct the interest as an expense whereas you can't deduct dividend payments to shareholders), it seemingly looks very rational. Naturally, after having levered up the new, higher EPS are way more fragile and the whole business just became riskier. Stanley Druckenmiller and some others have been criticizing this for at least 2 years now.

Another post I almost completely agree with. Only one thing: I don't see any negative market scenario in which inflation is going to pick up (aka stagflation). Where should inflation come from? Money supply? Not with this huge credit contraction going on.

HAHA. You will always be right -- as long as you're allowed to be far too early. Yes. True. That's why I said he's a good economist and not a good trader/investor. What interests me are the arguments and what to conclude from them.

Dalio is brilliant - and he's been concerned that we're coming to the end of a long-term debt cycle and that people are too focused on the short-term debt cycle. Oil isn't the problem. Oil is a symptom. Oil prices were artificially propped up by a weak dollar which was held down by artificially low interest rates forcing people into riskier assets like commodities, EM, etc. etc. etc. The high oil prices drove a lot of investment into the area as new technology was discovered that could reach previously unreachable oil for singificantly cheaper than the current cost. That drove over/malinvestment into energy which increased supply causing a potential a glut. The glut was solidified when OPEC refused to cede market share. You can't look at all commodities being a 3-4 year bear market, except oil, and then suggest that when oil prices fell that they were the cause of the problem. All commodities have been falling for years because they are all affected by the problem - oversupply and malinvestment. It's funny that a few months ago people were expecting lower oil prices to be additive to GDP. Now low oil prices threaten the economy? Here's the deal - consumer behaviors have changed. This is what happens after deep crisis - this is why you need one every 3 generations or so because people forget the lessons learned in the first one. Consumers, who used to spend every penny they earned plus some, no longer spend that. Now they take the majority of their incremental savings from lower prices and use it to continue to deleverage. Raising the price of oil doesn't change that - it would simply delay the catalyst that will eventually occur to cause the system to reset and wipe out the poor investments. We've been delaying that catalyst for 8 years now. Maybe we find a way to delay it more, but a day of reckoning will occur and the longer it takes to get here, the bigger it will be. +1 Agree with you 100%. By focussing on the price of oil people are barking at the wrong tree. It's a global demand issue caused by the turn in the long-term debt cycle in 2007/2008. Central bankers can and should try to smooth this credit contraction but they can't invert it.

My point is that you guys are confusing price and value. I don't see falling apart anything. I don't really think that it matters which country's treasury it is as long as the treasury is traded in this country's currency and the coupon is in the same currency but let's say it's the US. Let's say the bond falls in a flash crash 80% over night, does this change anything regarding the fact that you will be paid $100 tomorrow? Don't you see that there's a difference between an income producing asset and a commodity? With all income producing assets there is a difference between price and value. With every commodity there just isn't. Its price is its value. The kernel of my argument is that what you guys are doing is trying to predict market price movements. Feel free to do that but it has nothing to do with IV or MOS. Maybe we should just agree to disagree.

I'd argue that Apple wouldn't be a zero because it has +100bn in cash on its balance sheet. This is cash you, as a (controlling) shareholder of the company, can access. Stocks aren't a great example for IV because you usually don't have control and cash flows are uncertain. But take treasuries as an example. You can't argue that a treasury bond paying you $100 tomorrow is worth $50. You can't do this kind of calculation with commodities. I think this is not only a philosophical question but an important insight, because it's a trap for value investors and the reason I don't like investing into commodity companies either. I think I made my point clear. There is a difference between the market price of something (and the prediction thereof) and cash that you have access to when you are the 100% owner. You are the 100% of one gallon of oil. What do you have access to? You have access to one gallon of oil. So, now imagine you were the sole owner of Apple, what do you have access to? Not only to 100% of Apple stock (which would be the equivalent to a gallon of oil) but to the cash Apple has in its accounts and the future cash Apple will earn. This is fundamentally different from just owning the commodity. And, no, I don't think bitcoin has intrinsic value. Bitcoin – like gold – has zero intrinsic value. It has exactly the value people agree to give it. I'm looking at this from a risk/reward perspective – but that's a whole other discussion.

LOL, nice switcheroo there. You realize that your new question is total turnaround from your previous claim that oil has no intrinsic value? The fair price of oil is obviously the price paid right now in open market. But that's again not what you really wanted to know, is it? Well, indeed, I don't realize this because those were rhetoric questions. There is no answer to those questions – which was my point. Look up the definition of intrinsic value anywhere. There is no intrinsic value of commodities – which is exactly what Howard Marks is saying. I don't say that commodities are worthless! But they can't be valued intrinsically. This is what you can do however with a bond or a stock. With commodities it's like you said: There is only a market price determined by supply and demand – nothing else. There is only price action and no underlying value you can compare the market price to. But if you have only a price and not a value of something you can't calculate a margin of safety. What you can do is trying to guess where supply and demand are going to go and then speculate on the future price movement. But this has nothing to do with intrinsic value.

I think Albert Edwards from SocGen actually is one of the best economists out there. He's being ridiculed as a perma bear but in my opinion he just always is far too early. If you've been following him an event like the current China/EM crisis and yuan devaluation didn't come as a surprise at all. He's been pro treasury bonds for years and people completely ignore what a great trade that was.

That macro does matter a great deal if you're a value investor. That there is such a thing like value in global macro. That "the economy works like a machine". That the next 70 years in the stock market won't resemble the last 70 years and that, therefore, even long term modeling over decades is very dangerous (applies to WEB wisdoms, too). That inflation won't return for many years. That people may lose faith into money itself. That owning bitcoin makes sense.

I had to look a bit for it but in a 2014 Bloomberg interview Howard Marks made his (and my) point much clearer: http://www.bloomberg.com/news/videos/2014-12-16/russia-rule-of-law-is-concern-for-investors-marks-says-video (starting around the 4 min. mark).

LOL. Of course oil has intrinsic value: without oil nobody goes anywhere. If you believe that businesses have intrinsic value - and I guess you do because you mention "cash flows" - then you should realize that without oil pretty much all your businesses have no intrinsic value either (there are few exceptions perhaps). It's amazing how for people with a single hammer ("cash flows") everything looks like a nail... ::) Beat me to it Jurgis. If anything the value of oil is the easiest intrinsic value to find. It is definitely somewhere above the low prices of the late 1990s. If we assume some increase in E&P costs and inflation the intrinsic value should be right where we are at today, plus or minus a few bucks. Or you could take the difficult route and estimate the cost of all oil infrastructure in the world, the barrles produced, with the appropriate depletion rates and end up with 30 plus or minus a few bucks. So you two value investors: What is the fair price of oil? I.e. how do you calculate your margin of safety? Funny enough, that's quite what I thought when I read about the "margin of safety" in oil.

Interesting chart. Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52. If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually. If you were waiting for a reversion to the mean in 1986 you would have waited a long time. Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above? Howard Marks: "You have no idea about future price of oil" http://www.bloomberg.com/news/videos/2015-10-06/howard-marks-you-have-no-idea-about-future-price-of-oil meh, you've got no idea what the future price of anything is. At $20 not even Saudi Arabia is getting good economics from oil. I don't see it going much below that for an extended period of time. What Marks is saying is that oil doesn't have an intrinsic value. Oil is not generating cash flows. There can't be such a thing like a margin of safety in oil.

Interesting chart. Average price since 1946 is $41.70, since 1980 is $53.24, and since 2000 is $64.52. If you are expecting reversion to the mean, regardless of when your starting point is the price should go up from here...eventually. If you were waiting for a reversion to the mean in 1986 you would have waited a long time. Seems like a decent margin of safety. @rkbabang did you buy or are you thinking of buying any of those ETFs you pointed me to above? Howard Marks: "You have no idea about future price of oil" http://www.bloomberg.com/news/videos/2015-10-06/howard-marks-you-have-no-idea-about-future-price-of-oil

Hmm, I see a number of ways this could blow up. Disclaimer: I don't short. Sure, pair trades always have some blow-up risk. With a mid-term horizon I can only think of one blow-up scenario: an inflationary environment. You could do the less risky version of this, though: sell some stocks and buy some closed-end HY funds to replace them.