rb

Did he miss the stake in KHC?

The issue about the fake gov't numbers has been debunked many times. It's actually not possible for gov't to mess with the numbers. Economists and people would figure out that pretty quick. Shadowstats is a nutjob organization. if you want a secondary measure for inflation I would recommend MIT's Billion Price Project. Generally I would say that I agree with Packer that you won't see meaningfully higher rates soon. Our views probably differ on why. But my view is that most of Aggregate Demand is quite constrained while at the same time you have a lot of excess savings in another segment. If you raise rates too much you'll bonk AD. As for the excess savings those provide a lot of credit supply. If the tax cut package goes through it won't help with either (probably make it worse) so not much change. Now for the caveats: Caveat 1. There is a bias towards tight monetary policy in the US, especially in the conservative circles - from where the new fed chair comes from. In that case we may end up with overly tight policy. So elevated rates, below target inflation, and a bad business environment. This would be the nightmare scenario for equities. However the Fed is a bit like the Borg. it definitely tightened up the doves. Maybe it will loosen up the hawks. We will see. Caveat 2. Historically rates have been all over the place. In 1971 with fed funds @4% nobody would have guessed that 10 years later fed funds would be at 19. In 1981 with fed funds at 19 nobody would have guessed that fed funds would be at 3 in 1992. In 2000 with fed funds at 6.6 definitely nobody would have guessed that fed funds would be zero in 2010.

Yea it was more of a day dream as GE would be one hell of an elephant. I don't think they'll do GE whole because of the whole bureaucratic mess - Buffett hates that. If there was a deal for GE he'd most likely do it with 3G where he sends in the 3G guys to clean the place up. I do however think that they may be looking at picking up some GE businesses or at least they should be. Transportation and Lighting especially look like BRK businesses. These could be either stand alone or tucked into Marmon.

Here's a crazy idea. Berkshire buying GE. How's that for an elephant?

That's a ridiculous comment. Why would you compare the index relative to bonds as opposed to other equities? And since when is it a good thing if your equities earn 3% more than treasuries?

Fits right in with his boss. That article was pretty brutal. I guess the Forbes people are pretty pissed off.

I don't mean to reign on any parades but I think that with where retail is today a lot of the cap rates are wrong so you can't really go on that. Let's say that the current cap rate you're earning is 6.5%, but all your tenants are going bankrupt. In my mind that's a clear indication that you're over earning. The thing with these large retail real estate companies is that it's a pain to analyze them. They have some super prime locations in the center of major cities. Those are under earning because you can make more money knocking them down and building office or retail condos on the land. But that is countered by loads of shit locations in the boonies or the middle of nowhere that aren't worth much without their tenants. I think to value these cos you have to go location by location which is a pain when they have hundreds. But their current cap rates are meaningless. Taking those and projecting them into the future is dangerous.

Yea he's full of if. I say he's full of it because I don't think he's dumb. They can't "lean" on anyone. It's not Mexico that decides what imports to buy but rather independent economic actors in Mexico that decide what to buy. If it's so easy as they say why don't they just lean on America to buy more American goods and less Mexican goods? Also while they've been talking smack about Mexico they've been poking Canada with a stick. If these guys don't think that Canada will retaliate on trade they are deluding themselves.

Your share count is a bit off. The share count is 1,644,716.39 A equivalent or 2,467,074,578 Bs. So for the As BVPS is $187,435.36 and buyback threshold is $224,922.43 MV is $280,470. For Bs BVPS is 124.96, buyback threshold is 149.95 and MV is $187.27 It's not a big difference, but hey... you asked. Also not sure how you get 1.75 years from year end 2016 to Q3 2017. From end of 16 to Q3 17 (0.75 years) I get BV growth of 8.9% or 12.1% annualized.

I don't think think this topic has shifted to hyperinflation. Someone is just trying to take it there for no reason. Going through the list in the article none of the countries were demand constrained and borrowing in their own currencies which is what we're talking about here.

AD - what are the determinants of AD? I would think AD is determined by access to credit. The general public is essentially spending their future income to make luxury purchases today. Over time, I would expect to see AD decline as access to debt becomes more difficult. If this is indeed the case, then what would be the leading indicators of such a scenario? a. Declining GDP? b. Slowing money velocity? c. Increasing defaults- credit card, home, auto. d. Rising interest rates? e. Declining Asset prices - ie. homes. In my mind, there is no question that this will happen as the debt burden continues to grow and the interest payments consume increasingly more income. This is inevitable. The question is the time line. I understand that governments and the fed will try and ease sudden movements, but ultimately - the debt has to be reduced and to do this with a debt fueled AD system seems to be impossible. Also, much of the increase in debt has been to fund over inflated asset prices rather than to improve consumption. As such, there is very little bang to the buck - regarding debt improving AD. Hence the loss of effectiveness of each additional round of QE. Ok, I've been posting a lot on this thread today on number of vectors and I'm a little tired so you'll excuse if I make some oversight somewhere. Let's get a couple of disclaimers out of the way. I know you're Canadian but at this post I'm looking from a current US perspective (in Canada we have a whole different can of worms). Now AD is aggregate demand. It's like this AD=C+I+G+X-M. where C=household consumption I=economic investment (think equipment and inventories not stocks) G=government consumption X=exports M=imports Access to credit and level of credit most definitely impact AD. That is why monetary policy is a thing. But it's not so much of a thing that any change in monetary policy will lead to either a raging boom or a massive bust. Central banks actually try to moderate the business cycle through variations in credit. AD gets too strong, take some of the punch bowl away. AD gets too weak add a little vodka to it. There are many things that impact AD that have nothing to do with credit. And there's no set amount of credit that makes it too much or too little it's up to the people to decide. But you want to smooth movements in AD so if I goes up because strength in C then C can pull back a little and let I take over for a bit. Then households can delver - basically scenario 5. None of the factors you've listed from a to e are leading indicators of AD. Except maybe rates (but not so much). They're all lagging indicators. As far as indicators of AD you're looking primarily at inflation and secondarily at unemployment in a context of where you think full employment is. If AD is too strong you should see advancing inflation. Employment is secondary because you have an idea where NAIRU should be but the labour market can get really weird. For example we think that NAIRU for the US is somewhere in the 5% range. But right now we have unemployment around 4.5%. At this level we would expect to see significant inflation pressure but we don't. So there's two options: either there has been a structural change in the economy or there's something funky going on in the labour market.It's probably the latter. You are right that monetary policy looses it's teeth as you get to the lower (zero) bound. So QE wasn't that effective. Fiscal stimulus works very well there. But the gov't adopted a contractionary stance, so the Fed was the only game in town and they (rightly) floored it. Now monetary policy at that point is not so effective but it is somewhat effective. Apparently just enough to do the trick. One thing to keep in mind is that what is true in forward is also true in reverse. And while monetary policy wasn't that effective (most QE went in excess reserves) as they taper the same thing will be true. Most of the taper will come out of excess reserves. There is a chance of gross incompetence as there always is. But let's not jump to conclusions that it will come to pass. The Fed has been spot on on it approach throughout the mess (despite even valied threats of bodily harm). Maybe it was luck or maybe it's an organization of people that show up to do their best.

It was a stylized model on international money flows. Yes there are added layers to that but you want to move one layer at a time. I think i prefaced the thing with it's unlikely to happen. Your idea of an advanced economy going from deflationary stage to wheelbarrows of cash over night is ridiculous. Yeah, it's your opinion but not based in any fact of economic model or any empirical data for that matter.

Well you've nailed the 40% so yay. Also yes the government can make it's banks do whatever it likes. But if it borrows in its own currency as Japan does it doesn't really have to. Your scenario of the Japanese private sector not wanting to hold Japanese bonds is unlikely to happen. But that's not a problem either because of money flows. Let's run with that scenario. Here's a good way to picture how it works. Let's say you have only 2 countries. Japan which uses Yen as it's currency. The second country is RW (rest of world) and it uses RWD as its currency. Now the Japanese private sector get's pissed of at the government and doesn't want to buy bonds anymore. It exchanges its yen for RWD and buys RW bonds instead. But now the thing is that RW has a bunch of Yen. It can't use them in RW because things are denominated in RWD over there. RW can do only two things with its Yen. It can buy Japanese assets - essentially Japanese bonds - so no funding crisis for the JP gov't. Or it can buy Japanese goods with it - the it increases JP exports and AD pushing the economy towards capacity so growth, revenue, etc. This is not restricted to Japan. Works for most countries that have functioning economies (no supply problems) and which have independent central banks and borrow in their own currency. It doesn't work for Greece because Greece doesn't have the latter.

Not OK. Japan's external + balance is not in the billions of yen. It's in the trillions of yen. 349 trillion yen at last count to be exact and growing. That's about 3.1 trillion USD.

Yea that's not right either. China and Japan combined hold abut 11% of total treasuries pretty much evenly split between them and they are by far the largest foreign holders of treasuries. I think what you were going for is total foreign holdings of US treasuries. That's about 30%. Well that's really the perennial question when it comes to Japan. The Japanese are really stubborn savers. It looks like the consumption situation in Japan is improving but it looked like that at times in the past as well. So who really knows? I don't. Japan data is also hard to work with because of the demographics issue. All i wanted to do is correct the record and point out that despite eye popping numbers that make for great headlines, Japan doesn't really have a problem financing itself and likely won't have a debt crisis. The rest? God knows. The current administration has put the pedal to the metal though and is not gun shy like past administrations. All I wanted is correct the reco

Yes, here you actually have a point. Maybe the Fed does something bad like pull a 1937. That's a very valid worry, especially if they put someone dumb in charge of the Fed. Which is a real possibility now. You're also right about Greenspan & co screwing the pooch. However I'm optimistic that the risk of something like that is lower now. Remember that the Fed is concerned with unemployment and inflation. During the naughts unemployment and inflation figures were good. So from a Fed perspective it could be said that it was A-OK. There's still a lot of debate on why we were seeing those numbers and whether the Fed should have actually done something or if someone else should have intervened instead. This time around if the Fed over tightens you'll see that reflected in unemployment and inflation pretty quickly. So the Fed will get clear signals that they're doing something wrong and should reverse course before they cause a lot of damage. Also a big risk is that the Fed and the Gov't tighten at the same time (the tax cut package while counter intuitive could do that). But again there should be pretty clear signals that something is wrong this time around. While it's not the best place to be in... it's better.

Sure - I agree that national debts (alongside personal debts) also are at risk here. The interesting thing is that there is collusion between other nations to prop up debt burdened countries to avoid 'contagion' . We've seen this with Greece, who knows whats going on behind the scenes with Italy and Spain. And you mention how US and China are helping out Japan. The global coordination of 'inflation' and debt support makes it difficult to know where the chips will fall in my mind. I guess it depends on who blinks first. Yea I'm sorry but this is just wrong. US and China DO NOT hold 30% of Japanese debt. In fact total foreign holdings of Japanese debt are about 11%. US and China combines hold about 3.5% of Japanese debt and Luxembourg holds more Japanese debt than China. Most Japanese debt is held locally and JCB owns the biggest chunk. http://www.mof.go.jp/english/jgbs/publication/newsletter/jgb2017_09e.pdf On top of that Japan is the world's largest creditor. Holding $1.1T USD of treasuries alone on top of loads and loads of other stuff. Bottom line Japan does not have an international finance problem where other countries have to prop it up. Japanese households also are not very levered (household debt to GDP is about 57%) and they tend to have a pretty high savings rate and lots of assets. It's important to keep in mind while the gov't debt is a liability for the government it is an asset for the private sector. Households can continue holding these assets(they're inter generational) or sell them and consume. If they decide to sell them and consume then you get growth, inflation, and tax revenue. All good. One the train gets going you can do some fiscal tightening as well.

2.2 Trillion in excess reserves be damned right? Or that number 5 scenario I was talking about. Where do you think those saving would go? Or that the Fed after all that work has lost it's mind and now has decided to screw the economy. So it will keep going on with the taper even if it sees that there's weakness in the private sector? No I think they are going to have to lower the amount they are going to taper, I said earlier they will also have to lower interest rates. They may have to. So what? The think is that you're arguing based on feelings. You feel that they will have to do this or that. The reality is that that indicators are pointing that the private sector should be able to absorb more tightening. The fed has tightened quite a bit and inflation has been stable. That's very promising. Of course the Fed will continue watching the economy and adjust course based on the data. It's what it does. But there's no indication of a disaster looming.

2.2 Trillion in excess reserves be damned right? Or that number 5 scenario I was talking about. Where do you think those saving would go? Or that the Fed after all that work has lost it's mind and now has decided to screw the economy. So it will keep going on with the taper even if it sees that there's weakness in the private sector?

$179 is 0.9% of GDP. That's just a small tightening and yes somewhat higher interest rates but that doesn't mean you take out 2% of GDP. What's most likely to happen is the private sector picks up that slack and you have lower excess reserves not lower GDP. You take 0.9% out of GDP. Unless you think the private sector can adsorb 175 billion in bonds? Dude seriously try to think about this stuff for a bit before type. No it won't straight take out 0.9 of GDP. The Fed is not a direct consumer in the economy. Most of the money from QE went into excess bank reserves. As the taper happens most of the money will come out of excess bank reserves. That's how monetary operations work. So yes the private sector can absorb 175 billion in bonds no problem.

$179 is 0.9% of GDP. That's just a small tightening and yes somewhat higher interest rates but that doesn't mean you take out 2% of GDP. What's most likely to happen is the private sector picks up that slack and you have lower excess reserves not lower GDP.

Maybe you should extrapolate more because that still doesn't make sense.

How exactly will it cut off 2% of GDP?

Well and economy is a big and complex thing which means that you have multiple of these scenarios happening all the time. We're out of crisis mode so 1 isn't really happening so much anymore. You don't really want to have a lot of 2 because that weakens aggregate demand (AD) and in turn investment (I). We seem to have moved away from that for now. So what's going on is that you have a mixture of 2, 4 and now finally some sort of 5. The economy looks to be chugging along and investment is picking up. Keep in mind that I responds to AD. If AD is depressed there's no need to invest so I is depressed. AD right now looks like it is somewhere in the vecinity of where it should be -unemployment is low, though lowish inflation is a bit of a worry. In response to this I is increasing. I is about 2% of GDP too low, so let's say that I increases by 1% of GDP C can go down by 1% of GDP. This means that households can pay down 1% of GDP nominal without affecting AD and in turn without hurting the economy. Throw in some inflation and productivity gains and the result is that households can reduce their debt to GDP by about 3-4% per year without bad things happening. That's actually not bad and that's kinda sorta what's going on right now.

A downturn wouldn't be ideal. But you can have asset prices retreat.