rb
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Posts posted by rb
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Well in gas there's Chesapeake and EnCana if you have the stomach for them.
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Isn't that a pretty sight! ;D
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Good pt.
I guess it's a little tough though. If Warren retains a dollar and puts that dollar towards railroad growth CapEx, the BV didn't increase but assuredly the IV did. It's going to get tougher and tougher to think about IV relative to BV as time goes on.
Well the spread between IV and BV will widen. I don't know if it's right to think that it will be tougher to think of BV vs. IV. My view is that at some point maybe not too far away it will become wrong to think of BRK in terms of IV.*
I'm a bit encouraged by the use of debt in the PCP acquisition. Maybe they're starting to use the balance sheet a bit. We'll see if that turns out to be true.
I am usually too abbreviated on the internet. Obviously the link between IV and BV will be easy to think about b/c people have their estimate of IV and BV is a known number and they can compare the two. I was more thinking of the change in each. Will a 5% increase in BV be roughly equal to a 5% increase in IV etc.? It won't be a useful heuristic.
*You mean BV where the asterisk is above?
Yes I did mean BV. Thanks for catching that. I modified the post.
Obviously it is nice to have a neat multiplier on BV to get to IV and that worked nicely in the past. What I'm getting at when I'm saying that the relationship between IV and BV is breaking down is the company has changed to much from the past. In the past it was mostly a financial company and a lot of the assets would be marked to market so BV would be tracking IV. That relationship is breaking down because so many of the assets aren't marked.
This gets to your thoughts about relative changes in BV and IV. For example if the investment portfolio goes up by $1 then IV goes up by $1. In this case IV will grow by less in % terms rather than BV. However if BV of BNSF or PCP goes up by $1 then IV may go up by $4. Looking at it in a different way, if earnings go up by 10% in a year at BNSF we can infer that BNSF's IV went up 10%. That's a lot of value created and added to Berkshire's IV but very little of that would show up in the BV. So I don't think that even changes in BV and IV are correlated that much anymore.
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Good pt.
I guess it's a little tough though. If Warren retains a dollar and puts that dollar towards railroad growth CapEx, the BV didn't increase but assuredly the IV did. It's going to get tougher and tougher to think about IV relative to BV as time goes on.
Well the spread between IV and BV will widen. I don't know if it's right to think that it will be tougher to think of BV vs. IV. My view is that at some point maybe not too far away it will become wrong to think of BRK in terms of BV.
I'm a bit encouraged by the use of debt in the PCP acquisition. Maybe they're starting to use the balance sheet a bit. We'll see if that turns out to be true.
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I am looking for public stocks that meet these two criteria (Berkshire excluded)!
1. A genius - an extremely talented capital allocator with unusual skills. Not just talking the talk but literally being able to execute above the rest.
2. A great asset or collection of assets with great returns. A quality jewel that you can feel very comfortable owning without worrying about it going away or decreasing in value and in fact commanding or likely to command a premium for that quality.
To be honest, I can't really think of anything outside of Berkshire. Yes #2 alone could be nice but combine it with #1 and you have a dynamite investment at the right entry price. Maybe Bruce Flatt at Brookfield but I'm not so keen on the profit potential of the assets owned and their outstanding quality.
Ed Clark at TD was that. It remains to be seen whether the guy he groomed to take over is too.
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OK fair enough. I was just asking because i guess I do not have that 2nd order thinking. If he does get all that right, that would be great, and i certainly have followed him long enough that I can't say it is not possible. However, I wasn't as bullish on PCP as that, and when i saw that he bought it at not far from a price it traded at for a 52 week high in light of recent business headwinds it seemed expensive. He himself said he paid up, which means he strongly believes in its future prospect cuz despite Charlie's influence, he remains a tight wad at heart. He certainly is not going to get 10% on the 30+ billion he has employed right away, but i guess time will tell if he can over the course of time.
He always says he pays up for businesses and somehow they work out in a big way. I guess it's a better line than saying "We stole the company suckers!"
On the PCP front I think you'll be surprised. I've spent a lot of time researching this one so I can speak quite confidently. PCP is a highly coiled spring. Boeing and Airbus are looking to increase production at about 5-10% for the next couple of years. PCP prepared for that by investing in capacity and that built a lot of op leverage. The income should go up higher than that 5-10%. They've also had quite a bit of development costs for programs that are yet to come into full production like the XWB that are not going to re-occur. They've also had a headwind on the military part where basically the military ran down the inventory on spares to deal with the sequester ad other budgetary issues but that is also likely to reverse in the near future - at least if the military likes to keep its planes in the air.
So as you can see there is a lot of optionality built into the business that is about to pay off. The only downside is that they've built some capacity for oil and gas and orders are not coming in right now. But that is a small part of the business.
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Kevin,
Don't take this the wrong way but your posts are a bit all over the place on some very complex issues. It's global debt, it's China, the US... which are we talking about? Then you bring up leverage and mix stocks of debt and rates of change while ignoring economic growth.
I'm glad to engage with you and talk about these things but please focus the issues you want to talk about. You are shooting off a 3 line generic post that would take a doctoral dissertation to reply to. That will be a huge time investment and I'm not sure that many other people here would be so interested in it.
The points you bring up are definitely important, but again let's distill them a bit.
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Do you think Buffett is getting/going to get 10% on capital deployed? I doubt it, and one of the reasons i was surprised at the deal. I understood that he thought it was a good business but given the headwinds in Oil/Gas and China, and the numbers PCP was posting lately, surely $235 was a high price. I just wonder if this will outshine other investment opportunities he might have had coming down the pike. He will almost certianly have to hunker down for a couple of years to reload the elephant gun, and if those years happen to be turbulent, there will be missed opportunities.
I am a bit confused by your post, I can't figure out if you argue against the fact that BRK can get 10% returns in general or on PCP in particular.
In general it's not hard for BRK to get 10% returns on capital deployed. They can get 10-12% in BH Energy and that one is more or less guaranteed by the gov't. That business also has a long runway and a structural advantage over the competition. They could easily sink 100B in that business at 10% return over the next 10 years or so.
About PCP they stole the company. Not only they bought it way below value, PCP has a long runway too. They are one of those firms that can make critical components than no-one else can and those components go into very expensive applications. They have great materials technology and the future of industry is all about high tech materials. To use a very bad analogy PCP is like the Google of industry. And PCP will be way more valuable inside of BRK cause the management at PCP is great at doing acquisitions and now they have access basically to unlimited funds so BRK can double up by doing tuck ins at PCP.
Also oil and gas is a small part of PCP and the aircraft fleet is the oldest its ever been. So I don't understand what your concern about oil and gas or china is regarding BRK or PCP?
Like Original Mungerville says you'll see very clearly how he'll get >10% on PCP in the next several ARs. Stay tuned.
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Nice spot Kevin, Thanks. I'll have to look more into this. If this guy's for real and he's also a good operator not just running his mouth he may be a great find.
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The market will do whatever causes the most confusion to the most people.
Ain't that the truth!
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I'm not sure if anyone in the O&G space has the true outsider capital allocation mentality. I actually think in many ways Murray Edwards at CNQ is the best. They never seem to sell anything, but I'd say they're very good at buying low and operating efficiently.
Personally, that's my dream job, outsider style CEO of small O&G company. There is so much capital inefficiency in the industry, that someone dedicated to buying only when returns were high AND selling when they were low could make out like a bandit. There are all sorts of weird capital structures (distressed debt, royalties, farm-ins, flow-through shares, etc) that I think there are opportunities for extremely accretive corporate transactions on a small scale. I don't think I'd ever choose to drill anything that wasn't proved, but capturing upside optionality from someone else's spending via opportunistic land purchases and farm-outs (sort of the Altius model) would probably make sense.
Murray Edwards is great. He owns a shitload of stock to boot. He may own the most out of big(er) oil CEOs
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Let's play a bit of market guessing game. Do you think the bottom is gonna fall out of the market at the close like it did in past sessions?
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Thanks bizarro. My broker did let me enter the trade in RYCEF as you mentioned. However, the trade wasn't executing despite my setting a limit slightly above the current ask! I might try making the trade again and giving it more time.
Which broker?
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Tried to buy Rolls Royce yesterday but found out I am not able to hold it in a registered account.
One option there is to open or move a registered account to IB, where you could buy RR in London. Because it is exchange traded there, it is a valid registered holding.
An alternative option would be to work with your broker, as you should be able to buy foreign stock (not ADRs) as long as it is also traded on a allowable stock exchange. You should check, but as long as it is the same foreign security, it would be allowed. So the RYCEF shares should be ok, but not the ADRs. You'd probably have to execute that by phone and explain it all.
While IB offers registered accounts now you they only let you trade CAD and USD product in them so you can't buy RR in London. TD won't let you do it either. Questrade may do it over the phone but they'll probably fleece you.
Btw, if anyone manages to buy RR in a registered account please share.
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yea brokers won't let you hold OTC stuff in registered accounts
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More Rolls Royce
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He's not very chatty but I'll read anything that Joe Stiglitz has to say. He's probably the best economist of our generation and probably the next.
Paul Krugman. I may not agree with some of his personal beliefs but the man is a brilliant economist.
Corner of Berkshire & Fairfax. A collection of smart and thoughtful people.
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I don't think you have a clue as to what original mungerville is talking about. Since the bursting of the so called credit bubble, global debt has continued to rocket ahead by 57 trillion dollars (through Q2 2014). That means the total global debt to GDP is now close to 300% while back during the last crisis it was 269%. There has been no bursting of the debt bubble, no deleveraging.
Debt is the problem, it is driving the growth. Without ever increasing debt, developed economies are screwed. You are correct that households in the USA have deleveraged as a % but they have not in Canada and many other developed economies. You relying on one of very few data points that have deleveraged since the last financial crisis. I would pull the corporate data if I were you and especially the government. US government debt is up almost 10% annually since the last credit crisis. That more than offsets any deleveraging among households.
Meanwhile in China, debt to GDP has increased from 158% to 282% (through Q2 2014). No big deal. Total debt in China has grown from $USD 7.4 trillion to 28.2 trillion since the last crisis. Keep in mind that China's GDP is $10 trillion per year. Stop and think about that for a second, its almost unbelievable.
How big is the credit bubble going to get?
I think maybe you shouldn't throw stones this fast. I was stalking about the US as the poster was talking about numbers from the US. Do I think that we in Canada have a problem have a problem and keep out heads in the sand? Yes! Though most of the people I meet disagree with me. Does China have a debt problem? I don't know but I have a feeling they're working they're way there.
If you want to talk about why we need debt to generate economic growth, I think that we may get to Summer's thoughts about secular stagnation and why income doesn't find its way its way into demand despite the closed loops of the macro economy. Then we get to issues of public policy about addressing deficiencies in demand that I don't think are in the scope of this thread nor things that may be enjoyable for you to talk about.
But let's look at the US a country where I think they did a poor job of managing this downturn but I also think that they handled it among the best (speaks volumes about the rest of us). They had massive private sector deleveraging. Of course in that environment government debt should go up - the government has to step in to smooth demand. It's the correct thing to do otherwise you have an uncontrolled deleveraging and that's how you get a great depression and those are no fun for anyone.
So between 2009 and 2015 you have households going from 98% debt to GDP to 80% - a significant deleveraging. Non financial corporate debt went from 45.4% of GDP to 43.7% not as dramatic but debt to equity ratios in companies improved quite a bit (not gonna spend much time pulling those numbers now) so deleveraging there. Now during this time total government debt (all levels) increased from 77.36% of gdp to 102.85% - that's 4.86% CAGR nowhere near your 10% claim. Unless you are talking about the stock of debt vs ratios though it is weird that you speak of in ratios for everything else but once you get to US gov't debt you move to stocks of debt don't you think? Let's look at those anyway. From 2009 to 2015 the total public (again all levels) stock of debt $11.1 Tn to $18.1 Tn. That's 8.5% CAGR even for the stock of debt. Also less the your claim of 10% CAGR. Again I find highly suspect you switch from rates to stocks.
I would suggest that before you accuse others that they don't have a clue and cherry picking numbers, maybe you should have your numbers in order.
P.S. The US has had significant fiscal tightening in the past 4 years. The economy is still operating below potential output. When it comes in equilibrium it is quite likely that it will have a budget surplus.
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The gold miners are in the shitter relative to Gold, they make the oil producers look like they are in a bull market relative to Oil.
The gold miners have indeed pissed away capital over the past 15 years and have been horrible investments, but over the past 3-4 years investors started getting pissed and management started to adjust. So they aren't pissing away as much as they used to and they are cheap relative to the gold price and oil (one of their most important input costs).
So should we just assume that after 20 years of stupidity the gold miners have found the road to Damascus and they will be good stewards of shareholders money or is it a safer bet that they'll continue to go back to old way after a brief period of contrition? Everyone is free to do what they want with their money. I personally don't buy the new and improved gold miners story. If I'm wrong I may miss on some profits. I'd rather have that than piss away capital.
Just 20 years? I think it requires a special gene to be gold digger !!
Sorry I don't want to invest time to go longer than that. As you say, I think the results may be similar ;)
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The gold miners are in the shitter relative to Gold, they make the oil producers look like they are in a bull market relative to Oil.
The gold miners have indeed pissed away capital over the past 15 years and have been horrible investments, but over the past 3-4 years investors started getting pissed and management started to adjust. So they aren't pissing away as much as they used to and they are cheap relative to the gold price and oil (one of their most important input costs).
So should we just assume that after 20 years of stupidity the gold miners have found the road to Damascus and they will be good stewards of shareholders money or is it a safer bet that they'll continue to go back to old way after a brief period of contrition? Everyone is free to do what they want with their money. I personally don't buy the new and improved gold miners story. If I'm wrong I may miss on some profits. I'd rather have that than piss away capital.
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Cardboard, I think it's admirable that you're trying to make some sense of all those things. But seriously I think it's futile to try to understand the middle eat. You may loose your mind in the process. You should give that up. Your contributions to this board are much too valuable to be lost over that.
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I admit that I don't understand the issue -- but genuinely I am amazed that all that QE did pretty much nothing to the gold price. Perhaps it permanently propped up a gold price that was already in a bubble (but isn't anymore after the QE). Just don't know.
I'm fully with you on this. I don't really understand the gold bugs. For them it's never a good time for gold to decline. If the economy is doing good gold should go up because the money supply is going up. If the economy if doing poorly gold should go up because... well fear!.
I kinda figured that it's kind of a waste of time trying to figure it out cause gold miners don't perform well. The best performing asset in that industry has been physical gold but once you count the negative carry from storage that hasn't performed that well either. So what's the point?
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I am a newbie writer to this board, though I have been reading all the posts here since a long time. I tend to agree with most of what original mungerville has to say. I am myself painfully long the gold miners. I was even longer but have been cutting my longs after realizing that I was wrong in my assessment last year that gold has bottomed. Right now I believe that gold has more downside and could easily go below $1,000. However, mungerville is right that gold will shoot up when the markets lose confidence in the central bankers. However, I don't believe that to be an imminent risk. In the near term any bounce in gold should perhaps be faded.
As you say, you are a newbie on this board (I'm not a veteran either) so don't take this as I'm picking on you. But why do you think that it's a wise idea to invest in gold miners. You should have a better business/economic case than oh QE, or markets will loose confidence in central bankers.
Ericopoly has a very good post of physical gold vs. QE.
I'm going to look from the side of the gold miners - what you actually bought. Firstly in the past 5 years there were a lot of projects developed by gold miners that assumed a $1,500 price for gold to be viable. Those projects subsequently had a lot of cost overruns. Why do you think it's good to hold those in current price environment for gold (you could argue upward leverage to the price of gold.... ok).
But let's look at the performance for gold miners. Barrick - the largest. Back in 1999 (the furthest back google finance lets me go) was $28 a share. Today is $9.39. You may argue I cherry pick data but all the miners look different shades of bad. Back in 1999 the price of gold was about $300 an ounce now it's say $1,100. So you have a case where the price of your product went up 267% and your stock price went down by 76% is that the business you want to put yourself in? Do you think that if Coke can triple its selling price its stock would go down?
Btw in that period BRK.B went from $35/share to 127.79 today a 265% increase and you didn't need to do much work there or think too much about the FED.
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Agree, it will be the right thing to do to hold the center - so this correction should be limited to 10 to 25%. But of course the risk is, that at some point, maybe soon, may in a few years, maybe in 5 years or even 10. At some point, ever increasing amount of debt and QE have to lead to disaster. Would you not agree?
This is a better and harder question that you pose. It may or it may not. That's not entirely sure. I personally think that it won't. What you are talking about is debt at the federal level because the private sector has deleveraged quite a bit. The FED has a lot of ways to tighten. It can do it gradually by not repurchasing treasuries as they mature, they can do it faster by selling treasuries (sort of a reverse QE) if the economy picks up steam. But does it make sense to create a crisis now (by tightening, doing austerity, whatever) just so we don't have a crisis in the future that may or may not happen? Especially when you don't have to?
Personally from an investing point of view right now I am way more concerned about a revision to the mean of profit margins. Though even if that happens I don't think it will be as bad as the bears think for US equity.
While Many Panicked, Japanese Day Trader Made $34 Million
in General Discussion
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So some guys get's lucky and then he gets a Bloomberg story?