ni-co

Can we agree that after-tax ROI to shareholders is what counts? I'd simplify your separation, merkhet. In the end, there are really only three options: (1) Internal reinvestment (2) External reinvestment (3) Giving capital back to shareholders Good capital allocators choose between those three options and pick the one with the highest ROI. Whether you invest into (1) internal growth opportunities (acquisition of new customers etc.) or (2) external growth opportunities (M&A): management that isn't able to correctly value and choose between those two investment options is bad at allocating capital and should keep its feet still in the M&A space. However, free cash should always be distributed to shareholders when there is no good investment opportunity (meaning the anticipated ROIs of (1) and (2) are below expected market averages). Keep in mind that there is not a huge* difference between, on the one hand, buying back shares at any price and shareholders simultaneously selling an equivalent part of their holdings (in order to re-dilute their stakes), and, on the other hand, paying out dividends. Buy-backs and dividends are two sides of the same coin (= distributing capital to shareholders). Therefore, share buy-backs are probably* always the preferred choice compared to dividends because shareholders are able to decide whether to take the cash (by selling shares) or reinvest it tax free into the company (by not selling shares). There is one case that causes all the confusion about buy-backs: Only in the one case that the share price is so low that investing into the company's own shares promises far higher ROIs than internal or external reinvestment – and only then – the company should prefer buy-backs to investing into options (1) or (2), even if they promise to deliver above market ROIs. This case is very rare and hard to recognize for most management teams. It's mostly true in bear markets or when companies are continuously misunderstood by the market (as e.g. the Liberty family is, in my opinion). -- * This is of course depend on (i) how capital gains are taxed compared to dividends and (ii) how large your accumulated capital gains are. But as long as dividends and capital gains are treated equally, selling shares will be better or equal from a tax perspective. This is because 100% of your dividend will be taxed in any case while your share sales will only taxed in the amount of your capital gains. Only in the event that you acquired those shares at zero cost, your sales will be taxed at the full 100% of the market price of the shares sold. You can reduce this to: Selling shares is always preferable to receiving a dividend.

+1. And oftentimes Option #1 has great tax advantages for the company itself.

I'd put it into XOM or similar stocks I guess. I think there is still a huge blood bath to be had in the oil industry – a blood bath which the very large multinationals will survive and from which they will come out stronger than before. That said, I think you need to be very patient. Only after Blackstone & Co. will have gotten killed with their oil funds there can be real consolidation. The bad loans in the industry will have to be written down in the end.

http://www.bloomberg.com/news/articles/2015-07-31/exxon-chevron-bracing-for-dark-times-ahead-as-oil-slump-lingers

http://www.valuewalk.com/2015/07/sears-holdings-shld-liquidation/ http://www.valuewalk.com/wp-content/uploads/2015/07/Sears-shld.jpg Which jackass drew up those price targets? 3bn market cap if Eddie succeeds in turning the company?! ;D ;D ;D SHLD would have to shrink its revenues by 80% to come anywhere near 3bn market cap in case of profitability.

Very good podcast about bitcoin from an economic perspective: http://www.econtalk.org/archives/2015/07/wences_casares.html

https://www.hvst.com/posts/47293-global-macro-investor-july-2015-monthly The price for Raoul Pal's monthly newsletter is $60,000/year – might be worth a look…

Here is the full download: http://ftalphaville.ft.com/files/2015/07/Bridgewater-Greater-Risks-in-China.pdf

Icahn: http://www.valuewalk.com/2015/07/icahn-blackrock/ Surely, most of you have seen Icahn's rant by now. I think he is right and find it very interesting to think about the implications. It's not only corporate high yield but also sovereign EM debt that could cause a financial crisis. The problem, as always, is liquidity. Bond ETFs are supposed to be liquid, much more so than the underlying securities. When everybody wants to sell at once it's like a huge hall full of people squeezing through one small exit in the event of a fire.

This is exactly the kind of ideological thinking that drives German policies. I'm not talking about propping up the Greek economy in a short recession or whatever people mean when they talk about "Keynesianism". It's just common sense that you cannot outgrow such a mountain of debt by cutting your expenses. How is this supposed to work? Greece has been in a deep depression for years now – there are two ways out of this: either a huge debt haircut or inflating the debt away; the latter is impossible while keeping the euro. If your argument had any substance Spain should prosper – which it is not. It has exactly the same problems. All the imposed austerity policy has done so far is to push Greece's debt from 130 to 200% of GDP while essentially killing the Greek economy. At least the IMF is facing reality here (I guess this isn't an outcome Angela Merkel expected when insisting that the IMF should be on board): http://www.ft.com/intl/cms/s/0/444a0bc8-2a46-11e5-8613-e7aedbb7bdb7.html [paywall]

You're right. The point of tracking stocks is that they can be the first step towards a real spin-off. This can be really interesting when they aren't quite ready for prime time and you want to keep the two companies' balance sheets together for tax and financial reasons. This is the way John Malone uses tracking stocks, anyway. So, with tracking stocks you can participate in a kind of "pre-spin-off spin-off" but you have to trust management that prime time will come someday. Listen to maestro himself:

Great article by Barry Eichengreen: http://www.project-syndicate.org/commentary/greece-debt-agreement-risks-by-barry-eichengreen-2015-07

There's certainly a Greece element to it. Yet, it could be partly caused by those new ETFs (or preparation for them).

I consider Wolfgang Schäuble to be the worst finance minister Germany ever had – and this says something. He has not the slightest idea why Germany has prospered for the last few years while the southern countries have been suffering. He really thinks this is a result of austerity and, thereby, sees himself as a strict teacher bringing this lesson to the rest of Europe – I don't know whether to laugh or to cry.

Yes, this is a great interview that basically got me interested in cable companies for the first time. Every time I see Malone in an interview I'm impressed by how candid he is. Really a great visionary and also seems to be a fun guy.

Greece and the target 2 saldo should put us easily above 110% Debt/GDP and there will be a heavy contraction in GDP because all other european countries don`t pay in the same currency anymore. Its hard to see how this will all unfold and what the consequences are, but germany has a tendency to default instead of inflate. I hope that doesn`t happen. I don't think a Greek default per se is the problem but I can't see how Greece exits the Euro without Spain, Portugal and Italy (I think even France) eventually following; not in 2015 but within the next 10-20 years. German banks are loaded with European sovereign bonds, Germany has "off balance sheet" pension liabilities worth several times our official debt and our demographics are just awful. If it takes 10-20 years for a large European crisis to unfold this will hit the sweet spot of our demographic problem: A large number of people retiring just at the right time for other European countries to default on their debt. The timing couldn't be worse.

I don't know what will happen. My guess is: a hugely deflationary scenario first (we get a taste of it by looking at Switzerland) and inflation and/or default afterwards. In any case, it will be very bad for our export driven economy. There will be a lot of tax raises before inflation/default – that's for sure.

There is only one sustainable solution that is keeping Greece in the Euro Zone: essentially the United States of Europe. This is not going to happen anytime soon (though I wish it would). The same is true for keeping Spain, Portugal, Italy and France. This is why I see zero chance of keeping the Euro with the current legal, political and economical framework. This is fighting gravity. And European politicians either don't want to tell the truth to the people or they don't understand it (because they are vastly overestimating the power of politics vs. markets). I think it's more of the former than the latter because most politicians aren't stupid – it's all about incentives.

European politicians love to fight gravity but I think that what we're witnessing here is the beginning of a long and winding road towards the end of the Euro.

Stock prices have reached what looks like a permanently high plateau.

Interesting – I've heard similar things about Australia. There are a lot of signs for capital flight from China. But are there enough foreign buyers to keep prices on a "permanently high plateau", even when those economies go downhill?

Sure. But zero interest rates didn't stop US house prices from collapsing, right? I think the most important factor for Canada is commodity prices. Why was there no dip in 2008/2009? Canada didn't have a crisis because of China's massive investment spree. People don't get that China saved Canada and Australia in 2008/2009. Won't happen this time (because they can't). In my opinion people are massively underestimating how long and severe this commodity price slump could go. Canada, Australia etc. haven't seen something like this in decades. Everybody talks about mean reversion but do we really know where the mean is or will be 5 years from now? My favorite short candidate so far: Home Capital Group.

+1! Thanks for sharing.

Thanks, that was a good read. Agreed, thanks for the article. I've been waiting on the sidelines (renting) for years. I definitely think we're a bubble and I hope it pops soon. Any ideas on how you could make money on the short side? I looked into shorting the non-government mortgage insurers, but decided against it. I've read that shorting the Canadian banks is the way to play it. Are there listed Canadian home builders? It's not specifically a housing bet but I think that Canadian government bonds are a good one if Richard Koo's scenario plays out (and even if it doesn't), especially the long end of the yield curve, e.g. ZFL.

I think that the worldwide commodity price decline could finally be a trigger to a credit/housing crisis in Canada. Canadians, have a look at this interview with Richard Koo: http://www.macleans.ca/economy/economicanalysis/is-canada-at-risk-of-a-balance-sheet-recession/