Packer16

I think the reason he is acting the way he is that he has different views of his personal life/perspective (his "brand") & his business or Presidential decisions. The press in there normal unaccountable way is mixing the two & in the process creating propaganda. If you look at Donald's and pretty much alot of other actors/personalities you this dichotomy. They are great actors/business people but their personal lives a pretty close to a train wreck. What Trump is reacting to is attacks on him as a person (his "brand") & he reacts in a fashion consistent with actors/personalities. Look at the issues discussed here, they are all personal attacks on his brand & have little or nothing to do with real issues. When he says he wants to hold the press accountable it is for personal attacks, nothing more. If he uses this rationale to defend poor decisions then the press & others have a point but we are not there yet. Also, the US has a very weak Federal government compared to other places on earth so absent a coup d'etat what the Federal government does has very little direct impact on folks lives which is good. If you look at the Trump Organization as business entity I think it is successful. He has built a brand around a cult of personality and made decent business decisions about real estate. IMO what Trump's core competancy is selection of people around him. So despite his unusual personality, he has a successful business & family life. What I find interesting is that folks were OK with Obama building a brand around his cult of personality, he was probably one of the largest we have had since Kennedy. IMO he made some terrible decisions but his "brand" saved him. That is why I think he was shocked when his policies were not a popular as he was. I do not sweat the cult of personality comments, this is with us in part due to the current culture. What I would have issues with is bad decision making being masked by a "brand". We had that with Obama, we may or may not have it with Trump, we will see. As to the taxes, I see the same issue (personal vs. business decisions). If we are going to be transparent lets take a look at medical records also. Why do we focus on taxes versus medical records as medical conditions could have a larger impact on the President doing his/her job versus the amount of taxes paid? Again this is side show & illustrates the press is against Trump no matter what. This will really hurt when if there is a real scandal as they have called "wolf" on things that do not matter. What may happen here is the destruction of the liberal press. I see this at NBC as they have hired 2 female conservative hosts & if they are successful others will follow. In the end this may lead to a more balanced press which is in everyone's interest. Packer

You need to look at the relative valuation of bonds & stocks. Every time we have had a large equity decline, the bond market provide an attractive alternative. Damodaran has some interesting thoughts on bonds vs. stocks here: http://aswathdamodaran.blogspot.com/ At a top level look bonds have a P/E of about 40. So stocks are expensive relative to history but not interest rates. There also tax cut & repatriation tail winds. I think these are consistent with Buffett's thoughts. Packer

One note on historical returns over the past 4 years is that given the strength of the USD, CAD results are about 8% CAGR better than USD returns on exchange rate changes alone. Quite a ride. Packer

+16.3% in securities I have a quote for. This has been a difficult year as I was right on O&G prices but hurt by some poor stock selection (GXE did great, BXE disappointing but now the cheapest in space & RMP (what was I thinking (???)) performance up low single digits. Korean preferreds outperformed indexes for third straight period but only up 27.3% cum in $ while index (KOSPI composite in $) is down 15% and WKOF (Koeran preferred fund) is down 20%. The strong $ hurt hear as Won declined by 16% vs. $. Greek cos flat (win w Autohellas loss w Intralot). Australia min svcs - 80% avg gain small overall gain (Emeco & Swick). HK real estate up about 10% (Asia Standard +15% & Shun Ho +25). US Telco/cable flat with a dip in the middle (GNCMA, HCOM, ALSK). Alliance same pattern - with majority shareholder now trying take-under - we will see if provisions put into purchase agreement to prevent this will work. TV & radio stocks (GTN & TSQ) bought at fire sale FCF multiples earlier this year - still cheap with multiple catalysts (up 20% in 3 months). Overall I like the valuations of portfolio cos but working on getting better at O&G selection & moving into more nanocap/semi-private situations. Packer

To clarify, I think there will be continued outsourcing but economic incentives to do so will be changed dramatically. I would not be surprised to see some of outsourcing tax that would be imposed if employment is down. I do not see this as bad for the US just catching up to what others do for access to their markets. This will hurt the ST profits of multinational firms who are not utilizing employees correctly. Packer

An example is Xerox. Here you have a company that has alot of IP, primarily developed in the US using US infrastructure (trained employees & political stability paid for with US tax dollars) that is outsourcing high paid engineering jobs to India. They even have the US engineers train their Indian replacements. What do you think is going to happen in India? Eventually some of the trained Indians will compete with Xerox and margins will spiral downward. Who is the winner/loser here? The ST winner is Xerox. Both the ST & LT losers are US employees & society in general. Xerox made the wrong decision to maximize ST profit. What can be done about this? You have 2 options. Number 1 the status quo, which is accept it and pay more unemployment & benefits to displaced workers. The main issue with this is that takes the corporation off the hook for their responsibility to workers and the US in general for access to its markets and investment it has made in its infrastructure. Option 2 is the right thing to do, outsource lower level tasks to India and re-deploy the engineers to higher return projects. If management's don't have the insight to do this they should be fired. Trump has put corporations on notice that this type of behavior (outsourcing) will be taxed out of existence with his Carrier example. This example will have firms think creatively to maximize US jobs in addition to maximizing profits. The current set of incentives is only to maximize profits and pay for the roadkill via taxation which is tilted towards taxation of US firms who employ US workers. So the multinationals get the benefits of lower cost overseas workers & lower taxes by shifting income overseas but pay nothing for access to the US market & infrastructure. Trump has leap frogged Obama et al. who was not even thinking on this level because they are so removed from how business works. So the multinationals benefit from the status quo & Trump is going to take from them (in terms of expecting more higher cost US workers & higher taxes for those who hide profits overseas) and give to the US firms (in terms of lower taxes) and US employees (in terms of more jobs from multinationals). IMO what Trump is starting from the perspective of what would the system look like if there was no Cold War and we did not have to provide incentives to join Team USA. If you listen to Wilbur Ross' comments he said tariffs will be used as incentives and prevent dumping, like we are doing today. This concept of a trade war is touted by those who do not understand what Trump is doing and are stuck in the current status quo scenario. This view is magnified in the press who dislike him because he has removed some there access benefits and most have not even tried to understand him. Just a contrary view. Packer

The loser may be the multinationals' profits who are playing labor arbitrage and giving away IP without considering the benefits they have from access to the US market without paying for them. They take IP developed in the US and give it to others to use to generate short term profits for themselves. I do not see much loss other than the short term profits of the multi-nationals. In the long term it may prevent a race to the bottom so there may be more longer term profits. Packer

The main issue with article is the facts are not given in context. The 2 other times (2000 & 2007) interest rates (10-yr treasury) were 5.8% and 4.4% respectively and the ERP (the expected return of stocks over bonds were) was 2.5% and 4.4%, respectively. Today interest rates are 2.4% and the ERP is 6.0%. These numbers are from Damodaran's website. So while stocks are expensive compared to history, the relative value of stocks to bonds is quite good (ERP/interest rate), 2.5 versus 0.43 in 2000 and 1.0 in 2007. The average for this ratio is 0.88 since 1960. Packer

I think the assumption of non boost the economy is in stock prices given the current interest rates. The idea of a boost IMO is a variant perception especially with the media's built-in skepticism. We will see. Packer

The issue I have with taking Trump at face value is that is what the pundits got wrong in the election & will continue to be off until they realize that Trumps words are the beginning negotiating position not his goal. This is what Reagan did with the old Soviet Union. This will be good as this will reset the trade rules post Cold War. Remember that during the Cold War the deal was join our alliance and you can have access to the US market. When the US no longer needed allies against the Communists, this concession was kept in place. Now it will be re-negotiated on a market by market basis by Wilbur Ross. I hope folks buy into your narrative as it provide us an opportunity to buy some cheap stocks based upon a misunderstanding of Trump. However after the election, I think some folks are getting smarter but we will see. Packer

One area that I really have enjoyed being a part of is donating to a local school that provides opportunities for youth (elementary to high school) to get a multi-cultural (including multi-economic situations) education while finding their purpose in life. I would suggest that you look for local opportunities in locations around the US & the world as this is a tangible way to change your local community. In my case, the school provides an excellent education for less than half the cost of the local public school. Packer

But there haven't been any actions. Some of the above is going to get snarled in congress, and have long lag times. I am sticking my neck out but I figure we get a full on bear market soon. All of the above will keep the US afloat but it will become a matter of minimizing damage rather than future growth forever more. No one is using any data points, because there aren't any. Fairfax is operating on a feeling. Corporate tax cuts would do a certain amount but where is the money coming from. For most corps. it wont be a huge difference since their marginal tax rates are lower than the suggested new rates, anyway. The infrastructure program is not alive yet, and I fail to see how it would be different than subsidizing solar and alternate energy is now. Again, government has to pony up at least some of the money. Tax repatriation holidays have happened before and their effect has been unexpectedly mild. So, for the incumbent government, pulling out all the stops right away will get them quick growth, perhaps. But it will kick the can down the road, and the added deficits and deregulation will get us back to eight years ago. And they will get unelected if there is a bear market too close to the next fed. election. There are no actions but look at what the conversation now is about in Washington versus before the election. It has shifted to pro growth policies from policies of slow growth & redistribution. With one party in charge of Congress & with Harry Reid's actions to weaken the minority in the Senate, the probability of something happening to reflect the discussion is much higher. In terms of tax cuts does it matter where the money is coming from as long as the US is more frugal than others? What choice do people have to place there savings but in dollars? Increased money can be used to monetize the debt as long as the inflation caused by the monetization can be offset by the technology improvements. Smart infrastructure is investing things folks will use and benefit from versus the solar boondogle. What do you think will be around generating economic benefits in 20 years, some outdated and obsolete solar cells or a road? If the money is spent wisely it will make a difference if it blown in buying soon to obsolete technology it will be wasted. As to the tax changes the losers will be the multi-nationals who as you say may have little or no benefit but the US based companies will benefit. It will encourage generation of revenues in the US versus overseas which IMO will have a positive effect on the US economy. As to a bear market, my question is what alternative do folks have than to stay invested. With LT rates at 2.5% and earnings yields at 7.0% (see Damodaran's site for details) there still is a large premium for owning stocks 180% of bond returns. In all bear markets the ERP shrinks significantly so investing in bonds is not too bad of an option. I just do not see it here unless LT rates double. Rates that increase to that extent are caused by a large capital destructive event (war, famine or epidemic) which I do not see. Packer

I think people are focusing too much on the politics of the election versus the economics. The markers have rallied about 9% since election day. The proposals on the table include corporate tax rate declines, which would encourage domestic investment as well as reduce taxes and a large infrastructure program with a private market tilt. The tax rate reduction alone of at least 10% increases value by at least 15%. Then you have the incentives to repatriate & possible move intangibles assets to the US because of the lower rates. Then you have the infrastructure spending. These working together will have huge networking effect. From a political perspective you had the US take Kaopectate to cleanse the system of constipation that was occurring. There are many skeptics based upon Trump rhetoric but ask yourself if Marco Rubio won the election with these proposals would your opinion change? The skepticism is where the opportunity lies & I think the folks at Fairfax see this. The same was true with Reagan. Folks thought he was going to get us into a nuclear war and cause us bankruptcy & poverty with his tax cuts. We will see but I see Prem et al. making a smart bet before the everyone realizes it. Focus on the actions not the words. Packer

Congrats. It always nice to see another young one enter the value family. Packer

Bill Chen over at Rhizome has found some interesting asset plays with management teams or events that are in the process of unlocking value. See his letter below. Packer Rhizome_Partners_Q3_2016_Investor_Letter_Final.pd.pdf

The reason is that Brookfield is picky & will only do deals if it meets or exceeds their rate of return. They also focus on projects where they have synergies so they more easily make there targets. Packer

12.5%of my 401(k) via ownership of Fairholme Fund. Packer

The potential in providing a lower tax rate in the US versus the rest of the world is huge. With a higher tax rate in the US versus overseas the incentives to invest overseas was large. With this change coupled with a lower repatriation tax will cause an investment boom in the US. Now one party control, all this can get done. At a CFA conference last week, this was the gist of one of the presenters presentation. In effect, the incentives are turned on their heads. Packer

I would not underestimate this as a chance to give back to country that has provided you the environment to get wealthy. This gives you a hands on way to make a difference. I agree with you about Trump. For all his shortcomings he has done an excellent job at selecting folks and then making adjustments if needed. To have an empire his size he must have done something right & a large part of it appears to be people selection despite his many personal shortcomings. All of his kids are great are from what I see was his good selection of mothers that for the most part raised them. Who knows, if he uses this skill as President then he may be one of the great ones. Packer

I am trying to illustrate the differences between the systems without making a value judgement. Each person can make that for him/herself and decide which is best for them. Assuming that one is better than the other and forcing the characteristics of that system on all is denying choice and is what IMO the election in the US was all about. In the US you really have both systems co-existing in places like NY and Calif versus Texas so you can choose what you like best. Packer

I was reading an editorial by Luigi Zengalos and he has stated that in Italy that the only effective way to defeat a guy like Trump (Burlesconi) was with facts. Attacking him on an emotional level only made him stronger. Packer

I like walking also. It lets some of my ideas stew together. I am not sure if I could do it NYC as there would be too many distractions for me. Packer

It is only fiction to those who free ride on others efforts & are catching up technologically but not truly innovating. The fiction you speak of is why the US has and will be dominate going forward in innovation. It is no fiction that the most innovative firms are in the US. If you think China is such a great place why is money flooding out of China to real estate and other assets to the US because China is such an innovative place. The US has such an environment because of the incentives in the US system. This would become obvious if we charged foreigners to access our markets. I am not saying innovation does not occur in other places just that US has an incentive system to maximize it & Obama et al was changing the system to be like the rest of the world were the incentives do not exist. Packer

I think what some folks may not get here is the differences between the US free enterprise system and the more restrained or blended form in other former British/Dutch empires & the Nordics. In the former B/D colonies & the Nordics, historically the government worked together with free enterprise in many ventures like Crown corporations in Canada and the Dutch and British East India companies to name a few. The US has historically had a government as a check on corporations in contrast to colluding with corporations. Both have there pluses and minuses. The possibility of corruption is higher in the collusion model as referee is also a player on the field. To prevent this many of these countries have rules enforced by law versus voluntary compliance. In those countries the rules are accepted for this. Many of these same rules would not be accepted in the US as a restriction on free choice. Now the upside for the US is an environment like no else in the world where IP can be exploited for maximum gain. This leads to high investment in IP-type businesses and more important attracts the people with best ideas to come here to maximize their gains. Now others can free-ride this R&D but they are also forgo the IP investment environment in the US. I do think as a a part of this free ride other countries should have to give concessions to the US in trade negotiations which is another area I think Trump can add some value here as we no longer need allies to fight the communists. Packer

According to the GAO, the 14% is the amount on average paid by profitable firms but the total amount paid on total pre-tax income (including losses) was 29% and over 40% if state and foreign taxes are included. I think the average includes alot of smaller business (many private) that pay the lower rates. Most of the large public companies are the ones paying the higher overall average of 29% so they would in fact see increased AT cash flows if rates decline. As to the military, spending on equipment has a spin-off effect of technology development versus deployment. If you go by what pols say versus what they do it will not add up that is part of the pol game. This is especially true with Trump the king of hyperbole. The fundamental are already here, low interest rates. Lower corp tax rates may also follow. The scenario that would make stocks more expensive would be interest rates increasing to 5 to 6% from 2 to 3% & I agree that stocks would decline if rates increased that much. From my reading of history I think it is a long shot. Packer