damianolive

JPM's earnings are higher than the $18BL implied in the article (closer to $22.5BL). Considering the real earnings power and the fact at that the asset tax would be a deductible expense, the impact on net income is around 8%. The proposal includes lowering the nominal tax rates - if it goes down by 5 percentage points (35 to 30%) the impact of all of this would be very small for JPM.

Comparing multiples to book or tangible book may not be the best alternative for Citi right now. If you instead look at price to basel 3 tier 1 capital used at Citicorp (i.e. excluding Holdings) and compare that to BAC and JPM, they are very similar (1.4x in all 3 cases). This makes sense considering that capital tied up at Holdings has a negative return now. However, this ignores the high probability that Holdings will break even in the near term as well as the pace of capital build up at Citicorp from earnings, DTA use and decline in Holdings RWA. Citi is on its way to massive over capitalization in the next 2-4 years and the stock price doesn't reflect it. This is perhaps reasonable given Citi's performance in the 2012 ccar (who knows if shareholders will get their hands on that excess capital) but it sill ignores the ~20% annual growth in basel 3 tier 1 capital that Citicorp can achieve in the next 3 years just by staying the course (i.e. using Wall Street consensus numbers, which assume modest earnings growth). As a side note my work relates to investing in EM and I'm from Argentina. The issues going on there are specific to the country, I don't think the chances of contagion are high, but we'll see.

txlaw: good questions. The excel file attached is a very crude attempt at trying to answer questions of addressable market and valuation. It includes a 7-year good growth scenario and a 10-year scenario of stagnation in revenues. Both cases allow for significant erosion in prices. You can add a scenario of collapsing margins and see what happens (it will kill the thesis). The potential market is still huge for iPhones and iPads, and I'd argue Macs will grow market share for a very long time (some of this is baked into these scenarios). Maybe the most interesting figures are the ones on R&D productivity (R&D tab) for the last 10 years, they show that Apple is in an separate league in this regard. Good luck with your analysis. AAPL.xlsx

“If the stock is cheap, we will buy it,” he said. “If it isn’t cheap, we won’t buy it.” And he expects to get rich with this? Some people don't know jack about this business. http://www.bloomberg.com/news/print/2011-09-30/berkshire-bought-4-billion-in-common-stock-during-third-quarter.html

The statemet of stockholders equity in the financial statements gives you precise information regarding shares - both issued and in treasury. You can see year by year how much they bought back and how much they issued due to compensation.

Claphands22, Well said. In case your Buffett REIT example is insufficient, here's another. The Shiller P/E hit its all time high in early 2000 (at around 43x). In April 2000, the Baupost Fund had 62% of its assets in US public equities, plus 10% in Western Europe equities. If Klarman had been guided by the Shiller P/E, this type of exposure would not have made much sense. Over the next 12 months that fund did pretty well, up 27% vs. S&P500 down 13%. Metrics like the Shiller P/E seem like a poor excuse for those who don't want to do the work. Is it realistic to think that you can get rich by spending a few moments every now and then on a website that is available to everyone?

If an employee from the bank advising Berkshire on the purchase had acquired Lubrizol shares when he learned of Sokol's intentions, that employee would most certainly have been charged with insider trading. Insider trading is never a sure thing, it's always about probabilities, so it doesn't matter at all that Sokol didn't know with certainty what would happen. Sokol clearly held material non public information about this stock. The shareholders of Lubrizol who sold their shares on January 5, 6 and 7 have a very good case against Sokol. My guess is that they will take legal action and Berkshire will settle out of court - with an apology letter attached to the check. What seems surprising here is that Buffett did not fire him. What kind of message does that send to the CEO of a public company considering a sale to Berkshire? The CEO could rightly think that Buffett does not consider it unlawful or cause for dismissal if an employee of Berkshire is front running the shareholders of his (the CEO's) company -i.e. the people he (the CEO) works for. Buffett is obviously a master at all things related to people and business, but I wonder if he has fully captured the reputational repercussions of not having fired Sokol. If the #2 at a major private equity fund did this, it would taint the franchise of that fund in perhaps irreparable ways. By not being a lot tougher on Sokol, Buffett might be putting at risk his most valuable asset - reputation.

The John Paulson interview is fascinating, he explains in simple terms his subprime CDS thesis (it's similar to what has been written in books and articles, but it's worth hearing directly from him).

Here's the excel. The first tab is based on book value growth and the bank specific tabs are based on a couple of key variables (growth in loans, growth in pretax preprovision profits, charge offs, etc). This obviously over simplifies reality, but the idea is to get a sense of returns under various scenarios - you can play with the variables in blue. The BofA A warrant does not have the strike price reduction feature from dividends, so it needs this adjustment. There's also some historical info on charge offs and aggregate banking system financials that can help as background. Also some info on the experiences from the early '90s on a few banks (note Wells Fargo actually recorded zero provisions in '95). Of interest, in the last 3 majors charge off cycles (mid seventies, early nineties, early 2000s) it took exactly 4 years to go from peak to trough. If we assume that the peak was in the 4Q/2009 (the tab called 2010 shows this for the big banks ex Citi), then we're in for a slow and steady process of charge off reductions. This is at odds with what Walls Street is projecting for some major banks (e.g. COF); this cycle might be longer, but it's hard to see how charge offs will simply stay where they are, which is what they assume. Finally, I did not have time to update data from the 3Q, but this can be easily done in tab 2010.

I believe Sanjeev might have been referring to an excel I sent him. I have it in the office, so I'll post it on Monday. It will also give me the chance to update the excel with financial data from the third quarter now that most of the large banks have reported. Regards