Aberhound

United Spirits and United Breweries have both dropped in half despite strong financials because of the difficulties at Kingfisher Airlines discussed here: http://online.wsj.com/article/SB10001424052970204443404577053180012713826.html?mod=googlenews_wsj India is in a classic boom as a result of money printing to keep its currency competitive. Spirits are preferred over beer so I prefer United Spirits business prospects, but United Breweries looks to be a safer and better choice as Heineken owns about 38% and perhaps is in a position to stop inter-corporate guarantees? http://www.moneycontrol.com/annual-report/unitedbreweries/notes-to-account/UB02 Kingfisher beer is excellent and is available for proper due diligence investigations at Vancouver 's excellent Indian restaurants. Perhaps there are some Scotch drinkers that can report on the quality of the UB Spirits brands. UB Holdings notes also show that UB Spirits shares have been pledged so might be seized and sold by the banks. http://www.moneycontrol.com/annual-report/unitedbreweriesholdings/notes-to-account/UBH The March 11 United Spirits statements disclose a $4.5B rp guarantee. http://www.moneycontrol.com/annual-report/unitedspirits/notes-to-account/US The billionaire owner gave a September interview which seems to be misleading at best regarding the security given to the banks. With all the airlines suffering it seems likely the problems will end, the billionaire will lose control of the airline as he says in the interview, and the reason for the related companies to give guarantees will diminish. If we are lucky we might get a chance to buy some of the United Spirits shares if and when the banks sell them. No position. I look forward to conducting further due diligence.

I bet the problems continue until the ESM treaty is implemented. Then I predict the ESM is the fastest growing bureaucracy in history. It is a bureaucrats dream: http://consilium.europa.eu/media/1216793/esm%20treaty%20en.pdf Article 27 ESM enjoys Immunity from member nation state laws, oversight rules and regulations Article 29 ESM enjoys secrecy forever and members and staff must keep it secret for life Article 30 Immunity for board, executive and staff for all official acts. Article 31 ESM and its employees are exempt from taxation. I like 31.6 which says there is no tax on dividends or interest its stocks or bonds based solely on where the interest or dividend is paid. So if I am a German and I pay tax because the interest or dividend is paid to Germany that means I pay no tax on the interest or dividend paid on ESM issued securities??? It looks like it is modeled on the ESF but it is more like the ESF on steroids as the ESF is controlled by Treasury and the ESF will be controlled by the alternates who are appointed, not elected. Eric deCarbonell has a good video and write up on the Exchange Stabilization Fund on Market Skeptics. http://www.marketskeptics.com/2011/06/the-esf-and-its-history.html As Eric points out when you create an entity which is secret and not subject to published audit or oversight you can predict that all sorts of wrongdoing will result. Democracy may not be perfect but from time to time the sunshine lets us clean out the vipers.

You really think declining morality is caused by income inequality? Are you positing that the rich got richer and eventually that led them to a loss of morality? Or are you seeing the elites as a third group whose morality declines when the rich get richer and the masses don't? ... You attribute immorality to some but not all, and interestingly not the masses. Why is that? Were just lenders greedy and not borrowers???? People are much the same, rich or poor. Income inequality creates unequal bargaining power so the invisible hand doesn't work so well. It also creates resentment and envy so the poor act in harmful ways as well. David Hume whose writings influenced Adam Smith writes that people act as a result of their feelings and desires, and while it is true that these may be influenced by what they believe to be the facts, it is not the knowledge alone that moves the will or restrains it from acting. Hume also says morality has nothing to do with reason, it is based on the effect of one's acts on the feelings of others. Finally Hume says we act based on our senses. He says many other things as well and EconTalk has a number of good podcasts discussing the theories in detail. I am sure that I don't remember well the details of Hume's excellent work because, as Hume points out, we all know less than we think we do. Accordingly I argue that when there is great inequality of wealth, it appears that morality degrades. It is not that people suddenly become different as human nature never changes. At times when the rich and powerful, acting as any human would do, gain the opportunity to exercise unusually great power due to the greater inequality in bargaining power that they take advantage of their situation acting in their own self interest. Normally Adam Smith's invisible hand protects us all because self interest usually benefits everyone. At times of great inequality of bargaining power the elites can game the system which is the first part of the problem: the opportunity. Second, they continue to do so even though millions may suffer because we all act based primarily on what we experience with our senses and because of our desires, not on facts. The poor in turn feel envy and resentment and they act based on feelings and desires. Some borrowers may send jingle mail, others may riot. I do not criticize rich or poor or human nature. Human nature is what it is and will never change.

Would you have preferred Bernanke, Paulson and Geithner just minded their own business and let BAC, JPM, GS, GE, eventually WFC, BRK and most other leveraged financial institutions fail in 2008? Government can work, as long as they don't cater to special interests and actually have the country's best interest at heart. Cheers! The problems are income inequality and declining morality of the elites. The former seems to cause the latter. Think of the robber baron age around 1910. It brought out the worst problems: income tax, the federal reserve, two world wars, the change of the US from a republic to an empire, and the great depression. The elites are using the threat of the collapse of the financial system to impose heavy debts on taxpayers, the taxpayers' children and the taxpayers' grandchildren. This is massive theft. Stupid policies favouring the elites are everywhere you look. Governments don't work well when dramatic income inequality allows the few to game the system. Income inequality is so severe that the only way to fix it and to reduce the debts is to let those who lent imprudently to go bankrupt. Corporate wealth is so concentrated that the collapse of any one of the few will cause them all to collapse because of derivatives. If the financial system collapses it will win freedom for our children and grandchildren. The collapse is the only way to eliminate the debt from the system and rid us of the quadrillions of derivatives which reward the immoral. The middle class and the poor can easily protect themselves by being prudent. Pay off debt and buy assets which will retain their value when the debt leverage is gone. I prefer a society where the prudent are rewarded and the parasites lose their position and power. Only the prudent will well survive the financial collapse and the collapse will teach morality. The generation that arose from the great depression was the "hero generation". They became moral people who left us a better world than they started with. With immoral people in charge the collapse is going to happen anyways. All we can control is the severity of the collapse. The severity is controlled primarily by starting the bankruptcy process sooner before more massive debts are incurred and by expanding the bankruptcy system so that the work is completed more quickly. No one will voluntarily roll over the huge debts so the next step is to make the loans involuntary. Napoleon's efforts to fund his war machine is a good example of what we can expect. Maybe that is why the Dutch and the Germans refuse to agree with the bailouts proposed by the elites. They remember when they were at the wrong end of the bayonets and they were forced to loan all their wealth to Napoleon's war machine.

Hayek's predictions are best when they predict human nature. In Road to Serfdom Hayek predicts that in response to the crisis, the state will respond with promises to fix the crisis with a firm hand to solve the unemployment crisis etc.. Then liberties start to dissappear, the rich find their assets confiscated through arbitrary action of the State and the Unions discover that it is now illegal to collectively bargain. Compare that prediction to the situation which will result if we follow the program Soros proposes in his new essay. He wants all European banks under European, not country control. Does "European" control mean control by the same few families who caused this mess? Was the decision in Basel II to allow banks to lever up government debts 70 fold intentional as a way to get power from the nation states and centralize it? He wants a European treasury with powers of taxation. Why would we want another level of bureaucrats and taxation, who will only use the money to bail out the banks and the same families who own them and perhaps set up a military industrial complex more like the US? The expanded power of the US Treasury and the creation of the secretive and unaudited Exchange Stabilization Fund run by the US Treasury in the Great Depression looks to be the turning point which changed the US from peaceful isolationists into what we see today. This looks to be a similar turning point. The result will be moral hazard in regards to bailing out banks, the end of socialism in Europe and the beginning of a US style m-i complex. The other solution, of course, is the capitalist solution called the bankrupcty court, rule of law and the free market. It works if you let it. That was the solution that should have been taken in 2008 when a political decision was made not to let banks go bankrupt using the proven and effective capitalist system of creative destruction. If Hayek's solution of limited state power is adopted it will soon be time to buy stocks as capitalism will thrive. If Soros' solution is adopted it is time to buy gold as capitalism is facing a crisis. I note that Soros bought gold and sold equities. http://www.nybooks.com/articles/archives/2011/oct/13/does-euro-have-future/

http://www.scribd.com/doc/61138146/Rothbard-Reading-Hayek Hayek was one of the few people to predict the Great Depression. He describes in this 1975 interview how he came to the Feb. 1929 prediction. I wonder if Prem has read these theories and used them to bet on deflation primarily in Europe. Europe is similar to 1929 as the Euro is like the gold standard. In 1975 Hayek said more stimulus and pump priming would only make the eventual depression worse. He didn't expect the boom to last another 30 years! The global warming scam, the phoney terrorist war, increased warfare, the end of the Peace of Westphalia, the loss of freedom, and the deteriation of rule of law are consistent with the conduct of the government sector predicted in Road to Serfdom. This environment seems likely to result in a large contraction in the p/e ratios until there is a flood of monies from government bonds to the private sector and gold as a consequence of government debt defaults. The remedy is to reverse these ills but I don't see any progress.

Great Depression: A Diary is a great read. It is written by a business lawyer who had clients coming in telling him what really happened. The lawyer teaches himself economics and tries to figure out how to profit. Unfortunately he concludes that the only solution is to sell before the crash. After the crash few have money to take advantage of the depressed prices. Some consequences are unexpected such as landlords getting stuck because rents are not paid or that the time to buy stock was in the middle of the worst of the bank failures before it felt like an upturn. Reading this book will help encourage you to sell assets and build cash now before the depression starts. I suggest reading Hoover's autobiography of the Great Depression as well, particularly the part that the extent of the debt problems being worse than expected, but this diary is better as unlike Hoover, Roth tells it like it is instead of trying to preserve his reputation.

Assets values vapourize while the debts remain, the central bank is rendered insolvent and the burden of debt increases through the Fisher debt deflation cycle or the currency is destroyed. I hope they choose the former and put the bankruptcy courts into high gear. "Bad" doesn't even start to describe it. Soon the incompetents that have been running things will disappear into history and we will likely discover like after the fall of the Soviet empire that the truth was much worse than the propaganda. Those that hold stores of value will have the best investment opportunity of their lifetimes if they can find Buffett's patience like he demonstrated in 1969 and his courage which he used to invest in 1974. Capitalism is dynamic and once they get rid of the incompetents Europe will recover.

You never no when gold will prove useful. As I recall James Bond pulled out a belt of 50 kruggerands to bribe a Spectre agent in a train compartment and used them to whack his opponent, disabling him sufficiently so he could push him out the window.

My approach is to scour for risks so I am more cautious. For instance, this US big bank comparison chart causes me to believe that Morgan Stanley and Bank of America have sold the most Euro sovereign debt insurance. ARe these charts anticipating defaults in the fall? BAC probably fell partly because it also has US mortgage loss exposure so I think MS has the greatest exposure to European risks. I sold Fairfax to take advantage of the rise (I missed the chance to sell in the managed portfolio) and because earthquake and storm risk seems to be unexpectedly large so I am concerned that the premiums have been too low. I read an interesting paper on the increase in atomic decay rates. I was taught that they were fixed so I am mystified. Is that the cause of the increased volcanism and earthquakes and if not what is? BRK looks cheap but I decided to hold off while I consider if the insurance risk has changed unexpectedly. I bought CEF (gold/silver) for 25% of my personal portfolio (first time gold holding for my personal portfolio) because I expect increased debasement. There is some good public policy as I am watching for measures that improve business competitiveness and profitability. The US seems to have enjoyed the greatest improvement in competitiveness as the real estate collapse has lowered the cost of real estate and local and state governments are forced by the better constitutional structure to cut costs. Unfortunately too much hubris in the federal government is causing so much harm that these improvements are masked. This laptop I am writing on cost me $325 in the US which is a third of what I paid two years ago in Canada and the quality is much better. For the managed portfolios I already had them 25% gold/silver, 10% FFH and 50% cash and 15% oil and gas (store of value) after taking profits this spring in anticipation of the Euro problems and possible war in Syria then Iran. Sovereign defaults will cause a flood of money from bonds to the stock market so I am watching the US big moat companies with interest. I am watching for some humility in Washington as my signal to buy. Ironically the managed portfolios which I manage to preserve wealth have done much better than my personal portfolio which I have so far managed on the traditional value investment approach. I ran a comparison of CEF and BRK and CEF has outperformed 700% to 100%. The CEF chart looks logarithmic compared to an arithmetic rise for BRK. I don't see a change in the factors which have caused this anomaly.

I hold WFC and no BAC. The way I think about BAC as having closer ties to Europe. When Europe does well BAC will do well. I noticed that when the debt fears about Europe became mainstream, BAC and Morgan Stanley's stocks dropped the most relative to the other big US banks. This is a clear signal to me that the undisclosed exposures in Europe are held by these institutions. In the pre 2007 period when there was little extra yield on Pig debt someone was selling the insurance. So for these two I will wait until the European tide goes out to find out who is exposed. Also, since early this year the Euro is unexpectedly strong vs. the USD. Somebody in the US is lending large to the European banks which is exactly what happened in 1929 to 1931 just before the massive European defaults as described in Pres. Hoover's autobiography. I have been unable to determine who holds this exposure. Hoover was shocked when he discovered how much US banks had lent to the European banks. We are talking big lending enough to move the exchange rate 10% to 15%. History will likely rhyme and I won't hold BAC until we find out who is lending. It could be the Fed because I agree that the current BAC executive are making a lot of smart decisions. Maybe they have has no choice like the seemingly foolish decision to buy Countrywide by the predecessor. After the European bank crisis banks will likely be rewarded by being less opaque. Think how FFH was rewarded as it simplified its balance sheet. I prefer WFC because its derivative exposure is small compared to BAC. The whole theory that you can offset one risk by holding an offsetting risk with another bank is obviously flawed because when one domino topples it is very hard to predict how far the contagion will go. I admit here I rely on faith to a certain extent in buying WFC but I have observed that Scottish thinking has saved many Canadian banks and I think of WFC as benefiting from a greater degree of Scottish thinking than the other big US banks.

http://www.cfainstitute.org/learning/products/publications/rf/Pages/rf.v2009.n5.7.aspx Dalio's 2009 article for understanding the situation we are in. Dalio's paper shows he understands the debt deflation problem and yet his 13F shows broad exposure to the market. If the government response is a combination of higher taxes on the rich, money printing and anti free market activities like confiscating gold and capital and trade barriers, and war p/e ratios should eventually plummet. Why doesn't Bridgewater liquidate? For that matter, how come Buffett isn't selling Berkshire's assets? Holding cash in the currency which most debts are payable in should be a better strategy than holding assets with high p/e ratios whose valuation will plumment as the p/e ratios contract as credit destruction occurs.

Great article about the Greek crisis and the extent of collapse of Italian bank shares: http://www.acting-man.com/?p=8269#more-8269 For me it is in the too hard pile but someone with Buffett's skils might find a well run Italian bank that will survive. Perhaps it is time to try the Charter City idea in Rhodes and Crete instead of Honduras. A Hong Kong and Singapore in the Mediterranean would give southern Europe's young people something useful to do. Greece should lease the land for a 2% to 6% lease rate (to repay debts for now) instead of selling the land so the taxpayers and creditors capture some of the future prosperity. Greek taxpayers should be given a constitutional guarantee that they can pay past and future taxes with current Greek government bonds at current face value in Euros whatever happens. This will cause the debts to be sold by non-taxpayers to taxpayers and support the price of the debt while increasing domestic support for budget sanity. It would also decrease future tax revenues in the event the government chooses to default making the choice to default less likely. Investors would be attracted as they could buy debt at a discount to cover future tax liabilities.

My prediction is gloomier. Don't invite me to any dinner parties. 1. The Estonia/Latvian solution will be imposed on Greece etc. with internal devaluation 2. Euro will muddle through with lots of Austrian Economics pain mixed with theft from the public to pay for bankers mistakes. 3. US will continue with Keynesian policies until the dollar collapses. 4. We will all have a Euro imposed on us from an international level to "solve" the problem. 5. Then you have it right: [pre]"What I think will happen is : - Very strict austerity measures will be applied. - You will get massive outcry by the populace...perhaps a large exodus of both people and capital. (To safe havens like India?) - The economy will suffer for the next several years decades, but will survive longer term. - They We will all stay a part of the union as the alternative isn't any better we won't have any choice."[/pre]

No I do not use a credit card. I stopped using them in 2003 when I was in my early 40s and I have been far better off ever since. You spend less, you have more to invest and you become a better investor. I was greatly influenced by Prem's and Munger's writings. I suggest reading A Great Depression Diary by Benjamin Roth and follow his advice: sell assets during the boom, spend less, pay off debt and accumulate cash so you are in a position to invest in hard times. Instead of a credit card you can get a debit card with the Mastercard insignia for the purpose of renting cars and booking hotels. Avoid the points because they are part of the trick to fool you into spending more.

I am surprised that such a smart group of people on this board use credit cards at all since you all know of Munger's warnings about human psychological weaknesses which we exploit in our investment choices. Studies show that merely using a credit card increases your spending on average by 20%. Some of you might also reject using the credit card for religious or moral reasons. Since the banks create the money out of thin air which the credit card users then spend as purchasing power, where do you think the purchasing power comes from? The purchasing power credit card users spend comes from your neighbours in the form of debasement of the currency. This means that by using the credit card you are stealing a little bit from your neighbours. If you intend to comply with the 10 commandments I don't see how you can use credit cards. Fortunately in this case being moral or religious leaves you better off financially as not using the credit card will mean that you have more to save and invest and being more cognizant of the one's own psychological weaknesses makes you a better investor.

People that believe in the steady improvement of technology believe that prices higher than $60 to $70 will bring a torrent of supply. 1. What if more cheap natural gas is used for transportation? 2. What if more of the 150 trillion barrels of oil shale in US is exploited? http://dailyreckoning.com/oil-shale-reserves/ 3. What will happen to oil production when the fracking technology is used to exploit oil reserves like the Baaken formation? 4. If deep high pressure wells like Macondo well in the GOM are put into production isn't the only safe way to produce such high pressure wells to allow such wells to flow at high rates to keep the pressure from building? 5. What if oil wells replenish and you can increase the yield by encouraging the up migration from the deep sources where abiotic oil is formed? Isn't this why lots of oil is found near faults? 6. What will happen when the THAI process for oil sands rolls out? The technology genie is already out of the bottle. If the existing technologies could be exploited oil prices would fall to $60 to $70.

Here is the link of Prem's recent speech mentioning JNJ about 1/3rd way I think: http://www.bengrahaminvesting.ca/Resources/Video_Presentations/Guest_Speakers/2011/Watsa_2011.htm

I noticed the terms of the JNJ purchase of Synthes is priced in Swiss Francs with the majority paid in JNJ shares calculated in Swiss Francs with a collar on the number of shares calculated at the time of closing. Since the Swiss Franc is on a flight to safety tear these terms place the JNJ shares at risk due to the possibility of currency movement, perhaps triggerred by a EU debt crisis restructuring. The Synthes shares are likewise unlikely to rise much because of the premium being paid and the risk the deal will not be allowed due to the more than 50% share of the trauma market. I have wanted to buy JNJ during their current problems. Prem's analysis on the recent value investor speech post discusses JNJ and he makes the point that only a few times in its history has it traded at 12x earnings so a buyer hopes for the usual 10 to 15% growth in earnings plus an expansion of the multiple. Perhaps buying Synthes with the now strong Canadian dollar gives a cheap entry into JNJ? The risk will likely suppress JNJ's price in the interim and the buyer of Synthes will therefore enjoy the price rise of JNJ when the risk is removed. You also get the possibility of currency bonus if debt problems occur in EU prior to the closing. There seems to be a growing consensus in both the mainstream news and blogs that it is better to restructure the debts now rather than waiting until later when it will be more expensive so I am expecting a "restructuring" announcement before the end of June.

Housing is a pro-business state financed by a 30 year mortgage is better than renting. Interest rates will rise in the future as the rates cannot be manipulated forever without causing inflation. If your rate is locked in you don't care. With growing and high government debt the Fed will likely try to continue to manipulate interest rates which will cause inflation. The same thing happenned after WWII when the Fed set interest rates artificially low to help the government repay the WWII debts. Bonds were a terrible investment until Volcker. Pershing has an excellent write up explaining why housing + a 30 year mortgage is a great investment because it works like a hedge against inflation. If you buy now instead of renting in ten years your mortgage payments will be the same but the rent you would otherwise pay will be much higher. Another way to think about it is that your mortgage will be paid back partly by inflation. Your income should rise with inflation but the mortgage payments will stay the same. Conversely whoever holds the 30 year paper will suffer a big loss. Currently it looks like taxpayers will bear the loss which increases the government debt and its rate of growth and likely will cause the Fed to print more money which debases the currency so we have a self-fulfilling prophesy.

In China depositors get 3% interest. Food prices are over 40% of the CPI which now has had the food component reduced so understates inflation for the poor. With rents and food prices rising what is the real inflation rate? Over 10% certainly. Property prices are now at ridiculous multiples to earnings and the government is trying to drop prices by restricting lending and introducing property taxes. Money supply growth is about 25% per annum and peaked at 40% in 2009. Monetary policy has a two year lag so inflation will be a big problem in 2011. Savings rates are extremely high. Now the growth in the supply of labour is dropping and incomes are rising. Buying gold seems to be the least risky option for these Chinese savers who have never believed in paper money and rising incomes means that demand will increase as there are more savings to invest and limited good choices of where to invest. China is where gold prices are being set now. To control inflation the government will be forced to let the Yuan rise which will drive up gold in dollar terms.

1. I wonder if there is enough juice in doubling the insurance rates and cutting the government preferred dividend in half to increase the value of the commons as well. 2. Considering the massive amounts of agencies, these are at risk without continued government and Fed support unless the government can create some value in the common shares. Presumably the government and the Fed want to stop providing that support so this is a way to do it. 3. Creating value in the common shares might give the government an exit path. They can convert the preferred shares to common and double the insurance rates. This will further dilute the existing common shares but will create the exit strategy if the common shares start to rise since the government could then sell the converted common shares at a profit. Earning capital gains on the common may be more profitable than getting a 10% dividend on the preferred. The government could create the profit on the common by simplifying regulation and taxation to make US more competitive and increasing immigration or granting amnesty for illegal immigrants. There are 14 million empty homes to fill. These policies would be good for the big banks too so I am surprised that bank friendly Obama hasn't already adopted these policies. And how else are you going to fix social security and medicare unless US brings in millions of young employable people to pay for the growing number of old retirees. 4. This is a better path than simply letting banks take over the business as doing so would concentrate even more risk in the big banks where there is enough risk already. Better to split the risk of mortgage defaults like in Canada and soon Australia as well although I would prefer the risk born by the Canadian government to be born by private publicly traded companies instead. Obviously whoever starts writing market rate mortgage insurance at low real estate prices is going to make a lot of money. It could be argued whether prices have further to fall or not but that depends on government policy on competitiveness and immigration. Buffett and Munger have written previously what a wonderful business it is so the government has a good game plan to follow. 5. My bet is the best way to play it is to buy the preferred for now and then switch to the common shares if the government swaps the preferred shares for common shares. Hopefully the dilution will cause the commons to fall in price but that depends on the terms so can't be predicted. I think the desire to get the agencies self-supporting gives the government and the Fed no choice but to follow this path.

As an aging soccer player I have learnt some tricks that work for me: 1. Grass fed beef tastes better. In Vancouver Steveston Farms sells it at a price to please any value investor. 2. Scotsmen were hunter-gatherers longer than most Europeans so don't do well eating wheat. A paleo diet is best. 3. If you are warmer than your partner your thyroid is probably healthier. Healthy thyroids need iodine. Iodine is on the same column in the periodic table as bromine, fluorine and chlorine. These therefore are chemically similar with the same charge and must be avoided or they will compete with the iodine and deprive the thyroid. Colder people probably each too much bread, toothpaste with fluoride and chlorinated, fluoridated water and struggle with their weight. There is no fluoride in Vancouver water and Vancouver residents are significantly skinnier than most Canadians. 4. A healthy thyroid allows the pituitary to pump out the human growth hormone that comes from intense cardio exercise. HGH is what keeps muscles strong, helps to keep you lean and helps to prevent injury. This is why regular soccer players look like soccer players. 5. Eating sugar allows other soccer players to play better than you. If you don't eat it you no longer want it as it tastes sickly sweet except when mixed with dark chocolate. Dark chocolate and wine do not seem to harm soccer performance and a post-game beer seems to speed recovery. No one has yet proven that coffee in the morning is bad for soccer players. 6. Reishi plus Vitamin C helps me score more goals. I don't know why. 7. If you do intense exercise like soccer you can experiment to see what helps or not. The intense exercise makes it obvious. 8. Eating millet on game day morning seems to reduce muscle fatigue and reduce post game pain. Pre-game baroque music seems to improve performance. Coaches often have kooky sounding advice that seems to work. 9. Your mother was right about eating your vegetables. You can tell real organic vegetables because they taste better. 10. Don't bore your wife with diet tips. She doesn't want to hear it.

I considered buying way out of the money puts on GLD when I noticed that there are large bets for gold to drop to $500. Buying puts on GLD gives you the additional possibility that the rumours about GLD not actually possessing the stated physical gold are true. Alternatively, it might turn out that there are multiple claims on the same gold. The trouble is that it is unlikely their will be an audit until the paper gold market collapses because of multiple claims. I have expected the paper market to collapse when I read the details of the gold and silver certificates which are offerred by banks. There is a clause in which the holder has to pay the extra amount which might be necessary to buy the gold or silver on the market. My conclusion was that such certificates were stupid investments because you get little upside except for slow steady price increases while you lose your return compared to holding bonds. When people realize this and try to exhange certificates for physical the market will collapse. It is similar to Maxim's Cakes in Hong Kong which collapsed in 1997 when everyone tried to redeem Moon cake gift certificates at the same time before the communist takeover. The trick is to foresee the trigger event then buy the GLD puts in time before the event. If you think a trigger event is coming please post and explain!

The FFH options seemed riskier at the time. I remember debating with myself over the $120 calls at $3.50 or so compared to the $140 calls at $1.60 or so and I bought the $120 calls. I thought the $160 calls were too risky to consider and that all the one year calls were too risky. The uncertainty wasn't whether FFH would rise back from $100 to $150 or so, but whether it would recover in time. It was the end of June and my fear was that another bad hurricane season like 2004 and 2005 meant another round of bad dilution. The rationale for the purchase was classic Munger analysis when I realized that the chance of another bad season for no more likely than usual and "recency bias" caused the fear of hurricane to be higher than was rational. Hurricane insurance prices were therefore too high for the same reason so the likely result was that 2006 would be a good year for Fairfax. It turned out to be a year of unusually low hurricane activity and Fairfax enjoyed excellent results. It could have been a bad year for investments as Prem had been warning of the crash since 2003. The amazing part was how few contracts were being traded. It was as if the only buyers were people from this board. Even so I was only willing to bet 5% of my portfolio. The 5% limit proved beneficial when I subsequently tried buying bank calls in late 2008 during the crash and unfortunately I chose Washington Mutual calls which became worthless.