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If tomorrow morning we have twice has many U.S. dollars in circulation, shouldn't the price of everything priced in dollars doubles without any real growth in the economy and without much transactions? The pie is just divided differently, no? This would be true if everything is held constant (same supply and demand) but it is not. Today the demand is trending downward as unemployment is increasing. If demand does increase, the supply would increase as their few barriers to build houses in most parts of the country. So on average there is a downward bias in home prices (except in those areas where building is restricted). Packer

One big difference between the 1970s and now is that a large part of the world was following centrally planned economies and flawed economic theories based upon politics and not economics. This sidelined much of the worlds productive capacity (China, India, Russia and much of Latin America) to create goods and services the world demanded versus what the central planners thought folks needed. This disconnect lead to increased prices because the centrally planned systems did not have the pricing signals to correct the supply for demand. Demand was eventually brought down by high interest rates. In the following years, as more markets began supplying the world demand prices moderated. This deflationary trend continues today. This is what the world was like in a globalized economy before the Depression. This trend is currently being offset by an increase in money supply. As long as the price declines continue to be greater than the money supply increases, prices will go down. This is the reason why are standard of living can increase with stable or declining wages. I think economic progress should be measured in how many hours does it take to buy a given basket of goods and services versus the amount of wages (which does not take into account changes in purchasing power). Packer

I believe it is $320 per share but I don't think they understand the company. They also don't understand the media firms or the silver royalty firms the value. The former they assume terminal revenue declines (thus get no value) and the later they discount at the risk-free rate so they overvalue it. Packer

I don't know how he does it by I have set limit orders and waited for buying and selling. Sometimes it takes a few days to buy and sell the positions but I am only buying really undervalued firms (100% upside+) with money I do not need for a long time. Packer

The reason the company went up so much is the leverage in these types of business. Berkowitz's other holding in the rent space is URI. He has an interesting thesis of large free cash flows being generated from de-fleeting (reduction in fleet size to match demand) and being used to reduce debt. I think most of his investment is in the debt of these firms as they were yielding high returns. The common stock of these firms is like a call option on the value of the equipment they lease out. If you go to the Fairholme site, you can get an OID excerpt which describes his thesis in detail. Packer

I have been looking for the historical investing record of Chanticleer or any of its principals but have not been able to find it. Does anyone have what their historical record has been? The data I have been able to find seems to show that they follow a value investment philosophy but I wanted to get an idea of their performance before I made a decision to invest especially since it appears that some of the investments in Chanticleer haven't worked out to well (a mortgage broker written down). TIA Packer

A useful framework I have found (not found in many books) is to perform scenario analysis. For example, what would my option or alternatives be worth if the underlying was at $x. Since you have some insight into the common this should be a useful extention. One caution is that determining the timing of when a stock price is going to be where is much more difficult than it originally appears and focusing on underlying you really understand is very important. Another useful tool (for in the money options) is to calculate the implied borrowing cost in the option by substracting the stock price from the option price plus the strike price and dividing by the strike price. This also can be compared to margin rates to determine the cost of downside insurance. Packer

What Miller missed was the macroeconomic effects that lead to the crisis. Sam Mitchell described this at this years FFH Shareholders dinner. Most value investors don't pay attention to macro factors and it cost them in this case. However, in their defense, in most cases the macro look provides opportunities (cheap stocks) rather than an actual tradable warning signals. Packer

Note: I have a family of 4. TIA Packer

Since many of you live in the Toronto MTA, is there a good value priced hotel to stay in that is close to local transportation (train, metro). TIA Packer

Sanjeev, I agree there is little attention paid to the supply side of the equation. The attention has been focused on reviving demand rather than slowing down supply. Given the low barriers to entry and the excess supply of resources to build housing the supply will continue to grow. This is what happened in 1930 as the first reaction to the Crash (increase capital spending) which increased supply above the already low capacity utilization. I find the opposite problem with health care. There appears to be a shortage of supply of health care services and most of the discussion is about decreasing demand with few proposals about increasing supply. Some interesting game changing ideas can come from focussing on supply (most importantly the reduction of costs). Packer

Bronxburnboy, I wasn't trying to lie a blame only pointing out that the proposed solutions of spending more and taxing business and individuals for an undefined plan whose details are not defined is not good policy. It seems like there is less change in the underlying behavior (more spending and debt) only a change on what it is being spent on and by what means (gov't control/subsidies versus individual control/tax cuts). Packer

I agree that the data seems to be pretty sparse. The only data I have seen is some earnings reports (lower or expected revenues with higher earnings due to cost cutting) and improved home sales. The LEI includes stock price changes but the prices have come off multi-year lows. If there wasn't such an overhang of homes or about to be defaulted mortgages, I would be more optimistic but I think home sales numbers may be misleading. The consumer debt issue has not been resolved and the current US admin doesn't seem to get it that we can't spend like crazy on health care and rack up more debt. However, the recent rally may be a reaction to the will of most that the public option change as currently proposed may not go through. Packer

I think what made gold a good investment pre-New Deal was the fact that gold was used a the reserve currency. The only firms up from 1929 to 1933 were gold stock because the value of gold increased due to the devaluations of all currencies. It may be a good investment if gold remains a portion of the reserve currency. Packer

I agree with Cardboard. Hoisington provides a good history lesson to what has happened in the past but what will happen now will be different because folks have very little tolerance for lenders who are not their citizens. The only time since the depression that a country has not devalued its debt is Japan because of the large amount of internal savings that funded the debt. As more US debt is held by foreigners, the higher the incentive to devalue as the effects will not be to US citizens but to foreigners. The initial reaction will require higher rates but where else will the money go? Packer

You can get the full amount back if have under $300 for individuals and $600 for joint filers. If you have more than this amount, then the it is treated as a deduction. Check with your tax advisor or the IRS for you specific case. Packer

A great choice. I did the same thing for my undergrad (a EE degree from Union College paid for by the AF). Packer

What pulled us out of the Depression free fall was devaluation of dollar denominated debt. During the 1920s, the US had built up very high levels of debt 200% of GDP (although today our level is closer to 400% of GDP). The delay of this devaluation just caused the debt burden and real interest rates to sky rocket. The amount of overcapacity was incredible. Hoover's approach was initially to encourage addition investment creating more overcapacity resulting in declining prices and stress on debtors. The strains on the banking system were very high as the collateral on there asset values was declining but the dent remained the same. Eventually, he developed the RFC to provide loans to private businesses, banks and local governments. Some key differences today are 1) there seems to be an inflationary/spending bias versus a production/investment bias in the early 1930s, 2) the banking system is stronger (in part due to the inflationary bias which will not impair collateral as much as in the early 1930s) and the gov't will step in if there is a systematic failure (although the value of this becomes less and less as financial position of the US gets worse) and 3) we don't at this point have trade issues. I think the trade argument for the Depression is more a natural result of the overcapacity issue. Historically, the overcapacity issue has not been an issue as the cycles of various industries were not in sync. Packer

Sanj, He is smart man but very academic. His solutions to the mortgage crisis is to have a mortgage that adjusts to the mortgagers salary amongst other complicated insurance products. A product that in theory would be good but no one would ever take the other side of the mortgage unless given a very high return. The CS Futures have non-existent volume and his concepts of hedging housing price risk will be used by speculators more than hedgers. I think the major flaw in his product ideas are they are hedging illiquid assets (which is what got CDSs in trouble) and are to complicated to work . He has done some good historical study work but beyond that I have found his ideas high unworkable. Packer

I am thinking of in some of the less levered radio and TV broadcasting firms but am hestitant due to their debt levels. I know the assets are worth multiples of what they are trading for today but 2 have upcoming debt puts or rollovers and the debt of both are yielding in the 30 to 50% YTM. I have burned by these types of situations in the past and have made out better by investing after the restucuturing versus before. Has anyone been able to get comfortable these types of firms prior to re-structuring? TIA. Packer

In think part of the difference between Buffett and Prem is Prem incorporates some of Taleb's ideas (betting on blow-ups with out of the money puts - think hedges and CDSs) while Buffet does not. This leads to a less bumby ride as when things are good you don't go up as much but when things are down you are protected. Packer

In the Depression, when some municipalities were shut out of the bond market, due to high deficits, banks provided finances but also provided conditions on the financing like reducing spending. In those days, there were no block grants of federal money to the states. The RFC was established in late 1931, to provide federal loans to industries (railroads), banks and local governments. The RFC was dissolved in 1934 as direct federal aid was provided to the states and municipalities. When a municipality defaulted, like Arkansas or Detriot, the entity would exchange existing obligations for lower yielding bond with sinking fund features based upon taxes collected along with a plan to reduce spending. The municipality was able to dictate the terms much as in the auto bailout because there is no recourse when you are dealing with the government. Packer

I think Hoisington's argument is weak in two respects. For every case he has given (US and Japan), the country has had more than enough savings to support the currency internally and each country has had a trade surplus, thus no need for foreign buying to support the currency. The US now is in a different situation where the strength of the currency is not as dependent upon savings (which would indeed lead deflation) but also upon foreign buyers/holders of the currency (which can lead to a currency decline (in an orderly exit) or a crash (in disorderly exit). This is what happened to emerging markets in the 90s. The currency declines will lead to inflation (push) not price inflation leading to a currency decline (pull). A certain amount of the decline in demand will occur over time as other countries catch up to US on a relative basis. The real question whether the psychology of the situation will be heightened by an attitude of crazy spending on the part of the US gov't which is not used to being in a currency collapse situation.

Prem talked about managing outside money the CFA conf in Dec and stated that he doesn't like the constraints that managing money for institutions that put you through the performance wringer. He actually for a time managed institutional money. He could follow Baupost and only manage wealthy family money along with the insurance investments and avoid the institutional derby. Packer

I agree about informal contacts. I think forums like this help us all to refine our skills and may the future of education. I am in the business appraisal business and you can learn all the theory in a MBA class but the there is a whole additional layer of on the job learning required to develop a decent valuation. We have some pretty smart MBA-types that we hire and it takes them at least 2 - 3 years and performing at least 50 - 60 valuations to feel comfortable with all the aspects of a particular valuation. Packer