Packer16

I get the Value Line Investment Survey - hard copy as I use multiple pages at once for comparison. Morningstar also has an afforable premium subscription that I have found worthwile. I scan the VL sheets to keep up to date on current sector valuations and potential new sectors to look into. Packer

Value investing works in all environments. Macro investing is investing on the unpredictable. The most I have seen value investors do is make educated high payoff/low loss bets on such events (CDS, protective puts and deflation swaps). The story of Atlas Investment Corp is interesting in that it bought distressed assets from closed-end funds in the early 1930s and actually increased NAV in this period as a result. In 1929 NAV was $5 by 1932 it had increased to $7 by 1932. In 1933, Atlas actually sold for $18 share. So even in a depression, money can be made. The other area that made money was gold stocks because the gold price was increased from $20 to $35 per share. Packer

I was wondering if anyone knows of a variance swap model outside of Bloomberg or FinCad? TIA Packer

What the statistic was meant to show was the decline in real housing prices after a debt induced financial crisis. It is from Rienhart and Rogoff's study of financial crises. How this compares to China today in terms of magnitude is dependent upon how overvalued housing is compared to these crises. I am not familar with the details enough to make an estimate but the range provides an order of magniturde guess. Packer

But the software they are buying helps the recurring service revenue stream and visa-versa. If you think in terms of recurring revenue streams in makes alot of sense. IBM will provide the software and services the customer wants and will bundle everything together with 3rd party hardware to automate the customers processes. The commodity area of hardware is where IBM has reduced its focus. The core process automation is where the recurring revenue comes from. This was the same business 10-years ago and will be the same in 10-years (just different hardware, maybe software and the same service). The other cheap software company is MSFT which would probably be purchased excpet for WEB friendship with BG. Packer

What evidence (other than political talk) do you have that Europe is going to put it together. In my mind you have the pols trying to hold an uneconomic system together by throwing good money after bad and the electorates not wanting to take any pain. The only way out is devaluation of the Euro debt. It happened in the 1930s around the world with a small amount of deflation due to the deflationary trends in the economy at the time. However, the banks collapsed in Europe which caused the chaos leading up to dictatorships. The idea of fiscal integration is a fantasy of the highest order as this would entail giving up sovereignity to Germany and the rule of law. This will not be done in times of distress. The devaluation will happen via split in the Euro into N. Euro and S. Euro or the Southern countries falling out of the Euro system. In either case, the banks will need to be re-captalized with the N. Euro to cover the losses. The recap funds will have to come from governments until they can be sold to the private sector (ala TARP). The time to buy will be when the re-caps occur. Packer

Based upon the late 1990's bust real land value fell from 20 to 55%. That was even in non-depreciating countries like Hong Kong. There are two offsetting factors more leverage and more foreign reserves held by China. Clearly land will fall by more than home prices. Packer

You are correct and the only other major stock to have prices greater than 1929 prices was Alaska Juneau Gold. These firms mined the only asset that held its value as the devaluation occured. The only question I have is it still valid today given the lack of a gold standard? Seth Klarman appears to be betting that gold is good hedge against this devaluation as he has purchased some gold miners recently. Packer

This has been a tough year here also. I think with all the overleverage in the system, it has scared folks into lower-risk assets. The way this has historcially been dealt with is either devaluation (Great Depression - US/UK) or default (other nations). Once the devluation event occurs, the debts become smaller and the real assets increase nominally to work our way out of the debt. The devaluation can also happen via inflation. This is happening now with negative real interest rates. As more flight to safety occurs, real interest rates become more negative. I think once folks realize how negative these real rates are, they will flock to stocks. Packer

If you look at what did the best in the last Depression (1930s), it was gov't bonds or even better gold-backed bonds. There was a competitive devaluation after the sterling crisis (1931) and the US dollar devaluation in 1933. So given these were hedges in the last depression, they maybe again. Packer

In some cases I have replaced equity exposure if I have a better return investment but for the most part I like to buy cheap LEAPs on cheap stocks (ala FFH a few years ago). I have found one that I am invested in now EXC LEAP and in the process of examining another. With these position I purchase the longest LEAP available at a slightly out of the money strike and treat like an equity position. If the stock approaches a resaonable upside, I like to get 5-8x returns. Since these positions are more risky than most I limit purchases to 5 to 10% of portfolio at most. I will invest maybe 2 to 3% of portfolio at max in a LEAP position. So my down side on a portfolio basis is 2% but the upside is 10%+ per position. Packer

Mostly equity stock below $200 million. On the larger cos (multi b$ firms), I typically hold LEAPs versus the underlying. FFH is my largest equity position. Packer

I got it from Investing the Templeton Way chapter 6 page 161. Packer

John Templeton had a strategy of going short IPOs about 10 days before the "lock-up" was expired and had increased by 3x the initial IPO price and did quite well in the dot com boom and bust. Packer

The major issue with his train of thought is that if you keep going and at some point the markets don't trust that you are going to pay back the debt, interest rates will rise as investors put money into real assets and equities. By the time that happens, it is too late to do anything about it. As we have seen, interest rates just don't gradually go up they go up non-linearly. The irrationality of the market requires that you don't try to push your luck by spending too much. Just ny 2 cents. Packer

One comment is that if you get the latest edition read the commentary with a grain of salt as it is written by an efficient markets guy. I don't understand how an efficient markets guy was chosen for the II commentary while such good commentators were chosen for Security Analysis 6th edition. Packer

Not necessarily. Gold actually increases in value the last time deflation raged (the 1930s). Packer

How real is this without a change in intellectual property protection and a gov't controlled currency? It is like saying the ruble will be a reserve currency. I think the real and Indian Rhupee have a better chance. Packer

My observation is these grad are having no problem finding multiple offers and althogh some of the lower level coding and testing can be outsourced, the higher level requirements development and customer facing applications cannot. You point about the trades is also on point. Packer

Especially for low skilled labor. The shortages are in engineering and science, the more highly skilled portion of the labor force. Traditionally, some of the low skilled labor becomes more skilled which leads to income mobility (if the skills are gained in areas of labor shortages). We just need to incentivize where the need is versus where it is not. Packer

I think as Gates states that the inequality is due in good part to education. What I don't understand is why there is not more of focus there. That is a cause we can do something about and I think it crosses party lines. What is needed is radical reform (results for the money we now spend and only if it works spend more - if it fails try something different) not just more money thrown at it. As an aside, the actual cost for a good liberal arts college education is about $20k per year based upon the cost from schools that don't take federal aid (Grove City and Hillsdale). The actual cost of a high school education is much less also about 50% less than we are paying in Upstate NY. It is shame that the gov't allows the education mafia to inflate the price of the one item that can reduce inequality. Packer

I think the issue with Iceland was the banks and speculation. Otherwise, the country had a stable economy - taxes versus expenditures. Greece on the other hand has a spending problem and has been a serial defaulter versus Iceland which has not been. I think comparing the two is appropriate for a short term solution but in the long term Greece needs to decouple from the Euro unless they are willing to become German. Packer

I agree about the the emotional part of riots but most have a logical rationale that gives them life. In the 1960s, the riots got life from a real lack of opportunity due to racism. I don't think this is in the US to the extent to give riots a more than a temporary duration. Greece is different in that to get ahead you have to have either relationships with those in power or be close to the gov't and the goody bag the gov't has is being taken away. The Greeks do not have a clear rule of law to get ahead and are reliant on relationships/gov't which by definition is exclusive in nature. That is why I think all Euro countries that have this type of system must be suspended and let back in only when they have established a rule of law. Just my 2c. Packer

If you look at the parallels between 1931 and the European currency crisis it is interesting. At that time Austria and Germany owed the debt (reparations and rebuilding debt) to US, UK and France. The UK and the US kicked the can down the road and France wanted to push Germany in default. In the end, when Austrain and German banks failed, the UK had to go off the gold standard becuase of the run on the pound due too much bad debt held by the Bank of England. If the EU continues to kick the can rather than kick So. Europe out of the Euro (or at least suspended them), the same may happen to the Euro. When a run starts, it is hard to stop. I can see why China would not want to touch this situation with a 10 foot pole. Packer

I am not sure about the keeping the peace business. It is much harder to get folks to riot when they have the basics of life taken care of (and the differences in wealth are not visible - a poor persons iPhone is the same as a rich persons) you have the freedom to do what you want and the rules for obtaining wealth are well defined and independent of who you know. That is in my opinion why the large disparity of income in the US is less relavent in the US versus other places where folks have less freedom, don't have the basics or the wealth/power comes from who you know versus pre-defined rules. People will riot if they are starving, don't have freedom or the way to get ahead is based upon relationship (which they don't have). If you have the basics, freedom and a road map to welth/power, why spend your time caring about what others have. If the OWS is a reflection of the level of unrest in the US, it is small on a relative basis compared to the rest of the world where the wealth disparities are wider. Packer