maverick

Thank you Packer. Do you know anything about mortgage REITs? It seems like ABR is a mortage REIT paying over 9%. These REITs don't have real properties right? Mortgage REITs are capped like bonds/loans & thus the yield you get is all the upside you get. You may actually have a loss due to loan losses. Mortgage REITs like you say are debt funds so the value is in the underwriting or lack thereof the manager. Packer On mortgage REITs - the trick is to buy them when they are trading at a substantial discount to book value if you have confidence that the discount could narrow over time and even turn to a premium. Otherwise, Packer is right that what one earns is the dividend yield. Also, growth comes from issuing equity when the stock is trading above the book value.

But it's so far to find quality companies in the current environment at reasonable valuations.

Thanks to all for posting their inspirational returns. Should folks be also posting a range of AUM in addition to the returns? It's easier to generate higher returns with smaller AUM and one could easily make extremely concentrated bets. However, it's harder to make those concentrated bets with larger AUM.

https://www.cnbc.com/2017/08/30/about-80-percent-of-hurricane-harvey-victims-do-not-have-flood-insurance-face-big-bills.html "Much of the Houston area falls outside those most vulnerable zones and many homeowners who aren't forced to have coverage have decided to do without. Now they are stuck because much of the damage in the nation's fourth largest city won't be covered by their homeowners insurance." Do folks from Houston agree with this report that most of the flooded homes in Houston are without the flood insurance? Homes within the flood designated zones are mandated to have flood insurance. Is the extent of damage more for homes located within the flood zones (and hence with coverage) than the homes located out of the flood zones?

I think one is seeing a rotation from growth into value.

IVR and IVR-PA

HighIQinvestor - so basically you are trading this choppy market, not really investing. Is that a correct interpretation? I think that it's not the time to get very bullish, but it's time to be cautious. I will be using this rally to get out of some of my equity holdings.

I am not so sure about the assertion that Fannie & Freddie did not actually require a bailout back in 2008. For an entity that is leveraged 40-50x, all it takes is a mere 2%-3% decline in the value of assets to completely wipe off the equity. Asset prices declined much more than 2%-3%. They were able to borrow very cheaply in the debt markets because there was always this implicit government guarantee. Could they have continued to borrow cheaply while being insolvent at those low rates without the government backstop. No, they would not have. They would have experienced the same fate as did Bear, Lehman, and MF Global.

My 2cents on preferreds (since I haven't looked at FN/FH preferreds in detail) - if it's a cumulative preferreds, then they can trade much higher than par as all the missed dividend can get added to the par. Since these are not cumulative preferreds, all they can do it is get close to par and trade at whatever the market yield on preferreds for similar risk profile is. If equity has any residual value then the preferreds will go to par. The beauty of preferreds is that the common can't get any dividend till the preferreds get their dividend. I love preferreds, in general, as a high dividend play.

I am not long Fannie or Freddie. Therefore, let me try to challenge the longs (no hard feelings please) and they could perhaps convince me to take a long position. The only reason Fannie and Freddie are still around is due to the government bailout. If not, then the equity and preferreds would have been wiped out. The US Treasury is getting a lot of money from these enterprises now. The longer this has gone on, less is their motivation to spin them back as private enterprises. Further, Fannie and Freddie are shedding most of their risk on newly originated mortgages to the private investors. The government is on hook only for a scenario of catastrophic loss. How will the will to wind them down come if the government is minting money while only exposed to catastrophic losses. To me it appears like a lottery ticket. I am fine to take a position with OPM but will not put my own money into this.

At least 3 bullsh*t macro threads going on at the same time on this board. If some of these characters put as much time into actually studying companies, and learning the practical side of trading, they might actually find something to invest in that didn't have S&P in its title. When I posted earlier in this thread last week, the TSX was in bear territory. It is up several percent since then, while people moaned about S&P market valuations, and fretted about whether a rally is real or not. I bought stocks up to last week, and was selling into the rally yesterday. I agree that it's a trading market and there is money to be made trading in and out. Unfortunately, I have a full time job which precludes me from spending my energy on trading. I own some individual stocks which I believe are undervalued and I want to hold them on for long term (investing rather than trading). I have a large exposure in fixed income type earning a steady 8%-12% current yield. I believe that equity prices are currently being governed more by central bakers' policies than the fundamentals. It's hard to find value currently and the value names could get even more cheap if the market has a total loss of confidence in the central bankers. I am willing to wait patiently before going for the swing.

Long term consequences are that the rest of the world (US/Europe) ends up being just like Japan. imho there is no painless way to get out of the malaise we are in.

It's interesting that Barron's had the same question this weekend: Is the Recovery Real, or Just a Bear-Market Rally? http://www.barrons.com/articles/is-the-recovery-real-or-just-a-bear-market-rally-1457157521?mod=BOL_hp_we_columns "The leadership of the beaten-down stocks suggests to Louise that this is most likely a pleasant interlude otherwise known as a bear-market rally. Their bounces suggest some extreme bargain hunting, as well as covering of short-sale bets. Meanwhile, the ongoing strength in defensive stocks, such as consumer staples and utilities, many of which sport fancy, above-market price/earnings ratios, implies that investors are still bracing for more pain ahead." I think a few questions to ask are: 1)Has oil bottomed? With the Cushing storage approaching its full capacity, could that lead to another leg down in the oil prices? 2) Even if the oil were to rally to around $50, will that prevent the bankruptcies in the overleveraged energy names? For instance, a recent Bloomberg story mentioned that "Blackstone Group LP’s credit unit, which has 20 dealmakers dedicated to energy, hasn’t found much to do during the commodities price rout -- just yet. “We haven’t yet found a lot of opportunity,” Bennett Goodman, the head of Blackstone’s GSO Capital Partners, said Thursday at a conference in New York. “No doubt there’s going to be tons and tons of opportunity,” Goodman said. “There’s another $200 billion coming in a theater near us sometime soon,” he said, referring to the energy producers whose credit is being monitored for possible downgrade by rating companies...........Oil’s 68 percent decline since its June 2014 peak has left dealmakers divided over when exactly to step in with debt or equity investments. Blackstone’s GSO has stayed on the sidelines because of uncertainty about whether producers can repay loans while continuing to fund their businesses long enough for oil prices to recover, said Goodman, who co-founded GSO and joined New York-based Blackstone when it acquired the firm in 2008." 3) If we believe that default rates are going to pick up even further and with recovery rates being historically low, wouldn't the malaise in credit spread to the equities market? 4) One could argue that OK, things are bad but the equity markets would be saved by even further more aggressive policies by central bankers of the world. The question to ask is if the central bankers are reaching their limit and whether investors are losing their confidence in central bankers now.

There are members of the board who have previously written about buying put options, therefore asking this group of esteemed value investors. Except in energy, metals & mining sectors, it's very difficult to find value. Everything is way overpriced due to continued efforts by central bankers of the world to support equity markets. Profit margins have peaked, earnings growth rate is coming down, and even GDP is slowing down. The only one big source of demand for equities continues to be the corporate buybacks. While it's a fools game to forecast a recession and even difficult to recognize one while you are it, US is perhaps getting closer to the next recession. Economists are talking about banning cash ($100 bill in US). There is not an insignificant probability of NIRP coming to US in the distant future which could could kill the banks earnings power. What is it that would take us out of our current malaise!

Is the current rally for real or is it another opportunity to set up new shorts? What do you folks believe. What's the catalyst which could take the S&P 500 above the 2100-2200 level?

Uneasy calm awaiting lift-off https://www.bis.org/publ/qtrpdf/r_qt1512a.htm Is the world in a better place since August? Is any one else afraid of the markets here? With the Fed hell bent to increase rates starting in December, how are the esteemed value investors positioning themselves.

Seth Klarman: Keryx

Agreed. It's insane that some of these are being priced above book. It could also be riskier. There's probably some basis risk in there and if rates shoot up, things might get ugly. Folks most mortgage REITs have been trading at a significant discount to their book value (0.65XBV - 0.85XBV) for the past 1-2 years. The reason is that the market is pricing in the increase in rates. In the past, mREITs have traded at 1.1x-1.2X their book value too. If rates were to go up rapidly, a hybrid mortgage REIT may perform better than a pure agency mortgage REIT. For those not comfortable in venturing out too far away from one's circle of competence, I would recommend taking a look at the mREITs preferreds. With that not only one gets a high dividend but has more price stability (and higher up in capital structure) too.

With bad news being good news again, with the Fed expected to hold off on increasing rates, and with the chatter of further easing (quantitative easing, negative interest rates, nominal GDP targeting) increasing - do the esteemed value investors believe that the worst is behind us for the time being. Or do you think that the recent rally should be used to set up index shorts to either express a macro outlook or as a hedge for ones portfolio holdings.

I get what you are saying, I just don't agree with you. Using your example of a $5m portfolio with my current family situation (single guy, no steady girlfriend, and I better not have any kids in 9-12 months). So I probably would take on bets of ~40% allocation with that amount of money and probably more than I currently do. It's not like I want to be so concentrated all the time and with every bet. When it comes to position sizing, I'd bet age and/or family status plays a much larger role in risk tolerance then the amount of money you have. Which is why it's unfair to blindly dismiss returns of aggressive investors just because you may have kids or the strategy isn't for you. We wouldn't dismiss the results of conservative/diversified investors who lost less than the market in 2008/2009, regardless of their actual underlying performance. So what is a representative time period and how do we determine skill quantitatively? Hope you don't mind some disagreement. Hi Schwab, I wasn't trying to be dismissive of anyone's great returns. 1MM was also a randomly picked number - I just meant to imply a large portfolio size. With a large portfolio (which is not OPM), taking a highly concentrated bet needs balls of steel (Ericopoly comes to mind. Though it appears that he too became conservative after crossing a certain threshold, I guess at 5MM+.) How to handle a large % decline on a concentrated bet also requires a learning experience (for instance, highly discussed ZINC is down 60%-65%, hold or fold or double down!!!!) Also, a 10%-20% hit on a large personal portfolio is a large $$$ hit. One needs to learn how to deal with it. Let me highlight a relatively safe way to make ~9% return: NRF or MITT preferreds. The preferreds are senior to the equity in the capital structure which provides a cushion in case shit hits the fan. Dividend is cumulative, so preferred will always get its dividend before the equity gets dividend. Fed will have to raise rates at a very very slow pace (some smart investors are calling for QE4 next year as the next Fed move). This means borrowing cost could remain low. Given where these preferreds are trading at, their yield should not widen more if the long rates go up. Seems like a decent investment. I struggle with position sizing.

It will be helpful if the folks posting their returns also post if the returns are on >1MM invested or not. This is helpful because as another poster posted that it's easy to generate high returns on a small invested amount. However, it gets harder when the invested sum is large.

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. rb, I went long miners last year mistakenly believing that gold has bottomed. I started cutting my position size after I realized that I was wrong and that gold has not bottomed. My current view is that gold could go below $1,000. Deflation comes before inflation sets in. I will try to go long once again after I am convinced that gold has found a bottom or is close to bottoming. mungerville is right in pointing out that loss of confidence in currencies could push gold higher.

I don't see much of your point here about debt and deleveraging? You say of debt has gone up by >1 Tn! No deleveraging! Ok which debt? How much has GDP moved during that time? Debt has definitely gone up since 1920s too. Are we more leveraged now than then? You may want to pay closer attention to these things. Btw, household debt to gdp has gone down from 98% in 2009 to 80% now. Sure looks like deleveraging to me. I'm not gonna spend time now pulling the corporate debt numbers but those have gone down too. So how exactly is deleveraging not happening? Regarding financial repression as you put it, I see no shortage of sophisticated private investors lining up to buy US treasuries. 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? rb, there you go. If you want to read up further, here it is: http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

I have said it before, but I'll say it again: you should all have at least 10% of your net-worth (or more) in precious metals. Right now, I would split that 50% gold miners, and 50% silver. I've heard the Buffett dig gold out of the ground and put it in a safe thing and he is right stocks will outperform Gold over a 100 years because although gold maintains purchasing power, it does not have a ROE above the rate of inflation like equities do. But, when we hit the inflection point noted in my above post, I think Gold will outperform stocks and bonds by a very wide margin. 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.

Basically, we are one US recession away from a major inflection point (especially if it is at a time of global weakness). ... Either we go into recession then depression OR they print a shit ton of money to counter the next recession. At some point we will reach a point of inflection - not necessarily right now, but not in 5-10 years either, around the time of the next US/global recession. I agree with most of what mungerville has written. I am myself very negative about both worldwide and US growth. In the US, the Q2 GDP was propped up due to inventory build and the payback from that could lead to a low Q3 or Q4 GDP print. I agree that we are manufacturing $1 of growth by borrowing more than $1. The deleveraging which was supposed to happen after 2009 has not really happened and the debt level now is >trillion dollars higher. Due to all this I believe that the worldwide rates could stay low for much longer (till the market loses confidence in the central bankers, however that is not a near term risk imho). And I think that the financial repression that comes due to low rates would continue to force investors into seeking higher risks leading to inflated equity prices. What is wrong with owning good businesses such as INTC, GM, LVLT, GILD, Malone's, etc.