rb
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Posts posted by rb
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I have to disagree with you - maybe just a bit.
I don't think that the examples you've put up are very good ways to get money out. It's more likely that some spiffy algos will capitalize on those trade before the perpetrator has a chance to get the money.
But I think you may be right. I may not be thinking it through enough and I may be a bit handicapped as well. I am not a thief and thieves think differently. But there are other things as well. Firstly, to get into an account you'll have to break through IB's encryption which is pretty damn good. Secondly, there haven't been a lot of cases of fraud involving brokerage accounts.
The third and really most pertinent has more to do with location. I live in Canada and we have much tighter laws than the US around identity theft. So if anyone else would do fake trades or other fraud in my IB accounts IB would be liable and I would get all money back. So with secondary security I am actually inconvenienced ( and I seriously have a lot of these cards) just to save IB potential losses.
I realize that it may be a bit of an asshole position to take but maybe we should all be allowed one of those from time to time ;)
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I use IB as well and I have a ton of security cards that annoy the hell out of me. Since the only way you can move money into and out of IB is through a bank account that has the same account owner as the IB account owner, what's the point? Is someone going to break through IBs 264 bit SSL encryption just to see what trades I make? I think it's easier to ceck my postings on the what are you buying today thread on CoBF.
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I think it's more about the equity hedges. They are really a more substantial portion. With markets going down they're gonna recoup some money off of that. For better or for worse it's money in.
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Would be cool if it worked, I'll have a look later. Would love to be able to only see relevant topics under "recent posts".
Instead of seeing only Valeant? Oh yea.
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Can you believe stats can reported debt service ratio as interest only until now? What a useless/misleading metric
I am highly disappointed and ashamed by stats can. They don't track a lot of stuff, their interface is total crap, and a lot of data you have to pay for. I think Canada may have the worst statistical service of the developed countries!
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Any thoughts on this: When Buffett first announced that BRK would buy back shares, people were saying that he was putting a floor under the price. My immediate argument was that that may still not be a great time to buy because sellers could overwhelm any amount of buying by Berkshire Hathaway. (Which would be a great thing as Buffett would be getting an even better deal on his buybacks.).
Then Buffett came out and said* he'd be buying "aggressively" if the price fell below the criteria (whether it was 1.1 or 1.2 I can't remember). That statement had me thinking that he was deliberately putting a much firmer floor under the price.
So now I wonder what it might take for any buyback floor to collapse under selling pressure. For instance, right now the price has fallen, and Buffett is still going strong. Should Buffett suddenly drop dead in a market like we had last week how far could it fall...
* in term of why he'd have said "aggressively", I think this is in keeping with Buffett's practice of hinting to shareholders when BRK is too highly or too lowly valued. Knowing that he might drop dead, he's deliberately trying to put a floor under the price to limit volatility and harm to existing shareholders. Otherwise, let it collapse to the benefit of future shareholders.
Kin, I may be a bit harsh in this post and I don't know if you deserve it or no. Maybe you do. But oh well take the better with the bitter.
In your post you talk a lot about floors and prices and levels. Nowhere do you talk about value. Buffet also said that they may not do buybacks at 1.2 book. Basically they will do whatever the hell they want. By the way the whole price floor concept is some wall street bullshit. I have yet to see a buyback program that puts a floor under any stock.
Over here we get to a community of people that want to build value. You're concerned by price floors. I don't care. If BRK is worth 1.6 book and they buy back at 1.2 they create a lot of value and I get richer. If the market busts through that level and BRk can buy back at 1.1 or 1.0 book I get even richer so why should any of the shareholders care too much about price floors? I pray that there is no price floor. I like 70 cent dollars especially when you can buy them in bulk.
The thing is that one of the key reasons why Berkshire was so successful is because it had a shareholder base that was never concerned by the issues you raise. They were more concerned about value than price. If it was the other way around Berkshire could very well have half the market cap it has today.
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Or, you can take Buffett comments in this year's AR.
If an investor’s entry point into
Berkshire stock is unusually high – at a price, say, approaching double book value, which Berkshire shares
have occasionally reached – it may well be many years before the investor can realize a profit. In other
words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire
is not exempt from this truth.
Purchases of Berkshire that investors make at a price modestly above the level at which the company
would repurchase its shares, however, should produce gains within a reasonable period of time. Berkshire’s
directors will only authorize repurchases at a price they believe to be well below intrinsic value.
He is practically giving you his valuation. At 1.2 P/B it is unambiguously cheap. At P/B of 2.0 it is expensive.
If you estimate "well below intrinsic value" to be 25%, then IV is around 1.6 P/B. Very hard to improve on this.
Vinod
Vinod,
I think you hit the nail squarely on the head. Their explanation fit very nicely with my estimate of Berkshires IV. But this was the most clear estimate of Berkshire's IV yet from Buffett and Munger. I was shocked to see it spelled out so clearly when they've been playing can and mouse games for years regarding the IV.
Just to share another insight. It was an off the cuff response from Buffett at an annual meeting a few years ago. There were questions about the value of the smaller BRK subs. Buffett came out and said that they're worth about 14x pre-tax earnings. I was shocked to hear such a direct answer about their value - it was late in the meeting so maybe he was tires. Then I went home and dove deep and found that it's true.
I think these days maybe they're trying to obfuscate the valuation of the smaller subs by combining them with insurance.
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Wow, what have I not learn from Charlie and Warren, okay here are somethings
- The necessity of continuous learning
- Rules number one and two of investing, 1)don't lose money and 2)always remember rule #1
- The punch card method
- Concentration in your best ideas
- Shoot fish in a drained barrel
- Have and build a circle of competence
- When learning an industry, be fanatical, use the Phil Fisher method, plus read everything,
I tried to limit myself to one thing. But your list is a pretty good summary of what the man taught us.
- The necessity of continuous learning
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A major conflict or maybe even WW3, will happen well before any of this deflation thing plays out.
Then you have the Helicopter Ben theory.
Do you guys really think that world powers will let their economies unravel like Japan did for years without doing anything even if it is dangerous and stupid?
Cardboard
My question is, if monetary policy is so powerful and printing money is so easy, why did Japan have such a hard time getting out of deflation?
Japanese M2 is up almost 30% since 2007 and BOJ balance sheet has tripled, but CPI has essentially gone nowhere.
Is the BOJ so incompetent that they just can't print enough money to revive inflation? and are the other central banks around the world more competent than the BOJ?
Well as I said before there are certain fundamental differences between the western economies and Japan. One of them being that the Japanese are prodigious savers and not very consumerist. The Americans are about the opposite of that. This results in chronically weak domestic demand in Japan. If you want to disregards that fact go ahead.
There is more to creating inflation than printing money. You need to have people that want to spend it. You have more of those in America than Japan. It's also easier to prevent an economy from going into deflation than to pull it out.
Is that true though? Velocity of M2 shows a different story.
https://research.stlouisfed.org/fred2/series/M2V/
I would recommend reading this piece: https://www.stlouisfed.org/On-The-Economy/2014/September/What-Does-Money-Velocity-Tell-Us-about-Low-Inflation-in-the-US
So why did the monetary base increase not cause a proportionate increase in either the general price level or GDP? The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it.
What are we doing here mcliu? Playing gotcha games with strawmen?
You've asked for a comparison of why things in the US would be different than Japan. Japan has a massive savings rate and thus a weak domestic demand BEFORE they even hit any crisis. In the US you had no such thing. The US households decided to start savings not by choice but because they found themselves overlevered. Did the US savings rate increase? Yes. I've pointed out above on this board that the US households went through a significant delevering. Would that fact be reflected in M2 velocity? Of course. Did the US have a deleveraging-deflation spiral? No because the government stepped in to close the demand gap and control that deleveraging.
I've also mentioned in my post that there is no immaculate relationship between money printing and inflation at zero lower bound. I see that you have decided to not include that in your quote. That is what you see in the M2 velocity. So what is your point?
Yes the US households have been saving, yes they have delevered, yes the M2 velocity has decreased, yes the debt overhang over US households is lower, yet no deflation.
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Well as I said before there are certain fundamental differences between the western economies and Japan. One of them being that the Japanese are prodigious savers and not very consumerist. The Americans are about the opposite of that. This results in chronically weak domestic demand in Japan. If you want to disregards that fact go ahead.
not anymore:
"The country’s savings rate, long one of the highest in the world, is now below zero. In short, Japan’s citizens are spending more than they earn. By comparison, the rate in the United States, where consumers have a reputation for living beyond their means, is on the rise, hitting 5.5 percent in January."
eggbriar, thanks for posting this. I'm not following Japan that closely these days. It is definitely encouraging to see the savings rate in japan go down. Maybe they'll have a resurgence in domestic demand. We'll see. Interesting stuff.
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So kevin, basically your economic argument and investment thesis is fingers crossed?
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A major conflict or maybe even WW3, will happen well before any of this deflation thing plays out.
Then you have the Helicopter Ben theory.
Do you guys really think that world powers will let their economies unravel like Japan did for years without doing anything even if it is dangerous and stupid?
Cardboard
My question is, if monetary policy is so powerful and printing money is so easy, why did Japan have such a hard time getting out of deflation?
Japanese M2 is up almost 30% since 2007 and BOJ balance sheet has tripled, but CPI has essentially gone nowhere.
Is the BOJ so incompetent that they just can't print enough money to revive inflation? and are the other central banks around the world more competent than the BOJ?
Well as I said before there are certain fundamental differences between the western economies and Japan. One of them being that the Japanese are prodigious savers and not very consumerist. The Americans are about the opposite of that. This results in chronically weak domestic demand in Japan. If you want to disregards that fact go ahead.
There is more to creating inflation than printing money. You need to have people that want to spend it. You have more of those in America than Japan. It's also easier to prevent an economy from going into deflation than to pull it out.
On weather the BoJ is incompetent, I don't know about now but it certainly was massively incompetent in the past. It was very shy about QE, failed to supervise its banks, failed to clean them out after the crisis, and it let its economy fall into deflation. And yes, there are certain central banks that are more competent than others. The fed was definitely the most competent in the 08 crisis. The Bank of England was next. ECB and Bank of Canada weren't that good. It seems that the ECB got way better under Draghi but it's hampered by a lot of rules he has to dance around.
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What would you expect to happen to the price index given the following conditions over a ten year period?..
Population increases by 26%
Fuel consumption doubles.
Real value of manufacturing output increases by 2/3rds.
Volume of grains and cotton consumed increases 50%.
Exports of wheat increase 3 fold, corn 4 fold, cotton 60%.
Employment increases at a rate of 3% per year.
This was the period 1870-1880 in the USA and the wholesale price index fell by 25%. In the 1880's deflation continued at about half that rate, before flattening out at zero inflation in the 1890's. Note that from 1875-1900, money supply doubled.
Companies that were hit hard by the this adjustment were those that had heavy fixed interest and dividend obligations, without a locked in revenue stream (railways, financials..)
The lesson for me is - anything can happen & i'm not smart enough to know what will happen. My response is to look for companies that throw off predictable cash-flow with built in price increases.
Joel, I don't know if you are just misinformed or disingenuous. The period you mention 1870-1880 is called the long depression. It was called the great depression before the 1930s came around. During that time you have what is still the longest contraction in US history at 65 months (50% longer than the 1930s contraction). In that time you have a catastrophic uncontrolled deleveraging, financial panic, bank runs and outright chaos. There were massive waves bankruptcies including hundreds of banks and 10 states. From the end of the initial recession in 1879 the economy continued to be shaky until the 1900 with the US economy being in recession for 114 out of 253 months. (source: NBER).
It sounds like a lovely economic period. Also back then there was no central bank. All of this was caused by a massive monetary tightening in 1873. It has since been referred as the crime of 1873. As congress passed legislation to loosen the money supply deflation eased.
It really sound just like the situation we're in today.
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I don't think I have said that. Yor are mistaking what I have said with other posters.
I know you didn't say that. But those numbers are still a fact. So if you need negative inflation for the CPI derivatives to pay out and right now you have positive inflation so you're moving away from the strike how are the contracts supposed to get into the money pretty quickly? You're not talking about a slowdown or a recession you are talking about a crushing economic catastrophe the kind that would push unemployment to 20% or higher. It would be nice if you could explain how we get there from where we are today and what the probability of it happening are.
By the way, to address your earlier point about money printing and why it hasn't caused inflation. It is pretty standard economic theory that increasing the monetary base in a deleveraging cycle with zero interest rates doesn't cause a lot of inflation. That's the whole idea behind the concept that you need fiscal stimulus in depressed economies.
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A major conflict or maybe even WW3, will happen well before any of this deflation thing plays out.
Then you have the Helicopter Ben theory.
Do you guys really think that world powers will let their economies unravel like Japan did for years without doing anything even if it is dangerous and stupid?
Cardboard
China is doing a great job of keeping their economy from unraveling.
Right China is having an economic slow down and their stock market dropped to the level it was in February. Behold the unraveling!
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I am just saying that I do not have as much confidence in authorities as you guys. I do not mind having insurance in place especially when 7 years of money printing and low rates still have not increased inflation.
I am fairly sure if we get a recession or slow down those hedges will be in the money pretty quick. We would not require actual deflation to take place.
YOu are saying you are sure we will not have deflation.
I am saying I am sure that we will have a dlow down at some point and FFH is likely to do well.
Actually only 11% of the notional CPI derivatives require less than 0.5% inflation to pay out. The rest require outright deflation to pay out. So wisdom please make the case of how they get in the money pretty quick. What kind of recession do you need for that to happen? How do we get that kind of a recession given current conditions?
Up to now your argument is basically that the deflation hedges will pay out because you say so.
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rb - FFH can do the same with deflation hedges. They do not need outright deflation, just the perception in the market.
Aren't the derivatives linked to CPI?
The latest contracts only need CPI to be 0.5%.
And no, the contracts do not need outright deflation, just like credit default swaps don't need a default. Market perceptions will greatly influence the price.
Great! so if CPI growth drops to 0.5% they'll stop loosing money.
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I love the higher correlation on the downside. It means more buying opportunities :D
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rb - FFH can do the same with deflation hedges. They do not need outright deflation, just the perception in the market.
Aren't the derivatives linked to CPI?
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Well roughlyright is looking for a security to profit when inflation goes negative. Right now core inflation is humming along steadily. If you would move from where we are to say -1% inflation treasuries are probably gonna jump like crazy and those call will make a lot of money. Another nice thing about the treasury calls is that you don't need actual deflation to make money. If inflation just slows down say to 0.5% treasuries will do really well. I'd say the odds are way better to have a slowdown in inflation rather than outright deflation.
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Bought my first BRK@130
welcome to the club :)
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If I assume that Prem's theory on deflation is going to be proven correct, how can a small investor ride the coat tails of Prem?
I cannot buy CPI linked derivatives in the Market as a small investor. What other ways can I profit from a deflationary world?
well what I've been saying is that it looks highly unlikely that we will have a deflationary world. But if you're convinced that deflation is coming there's a ton of way to profit. The simplest way would be just long treasuries. You can create your own derivative with a long/short trade with treasuries and TIPS, or you can probably make a killing with bond options. This is just off the top of my head. I'm sure there's other ways too.
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RB,
If china was a huge seller of treasuries (as they are now) and the rest of the pack jumped in taking the rates higher to 4%.
the deflation hedges would like be worth$20 billion as the deflation in the U.S would be depression like.
Still don't see why China selling treasuries would push rates to 4%. Are you considering the circularity of money? China sells treasuries, they get cash USD why wouldn't that cash USD find its way back into the treasuries market? It's not an accident that China has that many treasuries. They were forced to buy them because they had USD reserves from running a trade surplus with the US. If you have USD you have to buy USD assets.
Also you assume that the fed is just gonna sit back and watch the show as interest rates rise and cause all sorts of havoc. I think it's more realistic to assume that the fed will step in and stop that.
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Wrote some BRKB 130-strike Sept 4 expiration puts for $1.10 per contract.
Those may get exercised.
Providing for future generations
in General Discussion
Posted
I may actually open a new thread about immortality. I think the issue of longevity is pertinent to investments especially when it comes to the actuarial aspects. The fact is that life increased between 5 to 10 years in the past 100 years and that includes the invention of antibiotics and a shitload of medical procedures and technology. Despite all the BS about people living longer.
It may take a bit until I get to that cause it's a bit of work to get the stats and there are other more pressing and more profitable persuits at hand.