Viking

+1. I especially like how he questions the accepted financial orthodoxy :-) His $ going to the Gates Foundation will benefit many.

I have been in and out of BRK three different times in the past month. Small 3-4% gains each time. Bought more today. BRK is pretty unloved right now. Expectations are very low. Not expecting anything big to be announced tomorrow. However, one of these years we will get a nice surprise (larger stock buybacks or big purchase or something else) as Buffett will do something with the +$100 billion in cash.

If this talk becomes more prevalent and Trump picks it up we are going to see a couple of limit down days in a row. Treasuries will get absolutely destroyed with obvious consequences for the financial system. He's been playing for small stakes with all his previous bankruptcies. Now he wants to scale it up & show he's truly the master when it comes to running businesses into the ground. This falls under the ‘holy shit’ category. Unbelievable.

AAPL; $40 billion and just added $50 billion = $90 billion in authorization Starbucks

At some point the reality of what is happening from an economic perspective (devastation) will matter to financial markets. What is happening is new so it is not surprising that people are not able to grasp the significance. It is like standing on a beach and the water is running out into the ocean and you know the tsunami is coming. Do you run for high ground? No. Ignore the facts and stand paralyzed waiting with curiosity to see what happens next. After all, the sun is shining and it really is a beautiful day! And nobody else looks worried. :-) European Slump Is Worst Since World War II, Reports Show - https://www.nytimes.com/2020/04/30/business/europe-economy-coronavirus-recession.html?action=click&module=Top%20Stories&pgtype=Homepage FRANKFURT — Europe is in the midst of a downturn not seen since the end of World War II, and the worst is yet to come, the president of the European Central Bank said Thursday after the release of a barrage of dismal economic data. “The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” Christine Lagarde, the president of the central bank, said as she warned that the eurozone economy could shrink by as much as 12 percent this year. In a bid to prevent another financial crisis, the bank’s Governing Council decided Thursday to effectively pay banks to lend money and vowed to do whatever was necessary to counteract the economic impact of the coronavirus. ...Under certain conditions the central bank will allow commercial banks in the eurozone to borrow at a rate of minus 1 percent provided the money is passed on to businesses and consumers. The negative interest rate means that banks could borrow up to 3 trillion euros, or $3.3 trillion, without having to pay all of the money back.

Pete, if we get deflation it will be the result of a severe, likely global, recession. This will hit EM harder than DM. I think India is in a precarious position; last year their financial system had serious issues and my guess is they were not fixed. The current worldwide recession could not have come at a worse time. CSB might be a good bank; it is just in a very tough situation. I do like CIB’s long term track record but will be staying clear of EM stocks for now. Having said all that, for those ok with high uncertainty, able to handle severe volatility and with a long term perspective there is likely lots of money to be made investing in EM stocks today. Just not a good fit for me :-)

Xerxes, you seem to have it all well thought out :-) i do own BRK. In all honesty, probably mostly just because i like Buffett. And the fact they have so much cash (ideal in the current environment). It is likely just a short term hold... i will be happy to sell for a quick 3-4% gain. Done it a couple of time already :-) Fairfax India looks interesting. I do like some of the assets (but not CSB). But until i get some clarity regarding the path of virus i am going to get very selective (which means FIH will just stay on my watch list :-)

To add to what Petec mentions, look at pretty much all the Indian companies held the past 3-5 years. There was what looks to be a bubble in Indian stocks a couple pf years ago. The ride that Fairfax has been on with these holding has been absolutely amazing. Moving forward Fairfax had better hope that Hoisington’s macro call is wrong (that we are moving towards mild deflation). Emerging markets (India) could be challenged moving forward. Some of the individual holding like Recipe (Canadian restaurant stocks - many full serve) will also struggle mightily in the near term. Is is staggering how the outlook for Fairfax has changed in 12 weeks. 12 weeks ago my view was Fairfax was ideally positioned to benefit from hardening insurance market and risk on in stocks (including emerging markets). They had made a number of moves to lock in some investment gains and get other investments positioned to succeed. The virus has completely submarined them. Completely unexpected. Resulting in more pot holes that will now need to be filled in (testing shareholders patience). My focus right now is quality. Recently bought CB and WRB. Cheap; well managed; easy to understand; well positioned. I feel good when i listen to their conference calls (although i much prefer listening to the old Berkely to the son :-).

We will start to learn more about the impact of the virus on companies and industries. Pretty sobering stuff. Impacts existing shareholders, bond holders, creditors. Also instructive to read their outlook of what the next 24 months will look like. Norwegian Proposes Debt Restructuring That Will Wipe Out Owners - https://www.bloomberg.com/news/articles/2020-04-27/norwegian-proposes-debt-restructuring-that-will-wipe-out-owners ...Norwegian is asking the holders of three bonds to convert about $350 million into equity, while aircraft lessors would swap at least $500 million of the 33.3 billion kroner ($3.1 billion) they are owed. The proposal would leave existing owners of the stock with 5.2% of the company -- and that’s before a 400 million-krone equity issue that would dilute them further. ...As part of the new business plan, the carrier plans to only operate 7 airplanes in the Scandinavian region until April 2021 to minimize its cash burn, and then gradually resume long-haul and European flights. Norwegian only expects normal operations in 2022. Even then, it expects to operate fewer aircraft and focus on profitable routes. ...Norwegian plans an “optimizing of fleet size, including disposal of aircraft no longer needed,” and only plans to operate 110 to 120 jets onces it returns to normal operations, compared with 168 aircraft before the pandemic, it said in the presentation.

I listened to the podcast. Quite grim. Is anyone aware of a macroeconomic history of the post-WWII era written by someone who shares Hunt's macroeconomic views? What i liked the most is Hoisington/Hunt provides a framework to understand what is going on in the economy today. Especially all the debt. They feel the next logical step is mild deflation (-1 or -2%). Consensus ‘wisdom’ is with interest rates so low it is rational for companies (and people) to take on a bunch of debt. Hoisington has the opposite view: debt is very bad in a deflationary environment as the real interest rate will be going up. At the same time company earnings and personal income will be falling. Once the deflation cycle gets started it is very difficult to reverse. Oil prices this low will feed what is already a deflationary environment. Population growth in US is slowing (lowers economic growth). My guess is a strong US$ is also deflationary (this is my opinion). Japan is stuck in mild deflation. Looks like southern Europe might be following. As total debt % to GDP grows, the benefit of more debt (to grow GDP) diminishes. More debt today reduces future consumption. Hoisington also provides a framework to understand what the Fed is doing and what activities might be deflationary and what future activities might be inflationary.

Yes, countries have all managed the virus in very different ways. Some, like Italy, had a health catastrophe. To suggest that Sweden’s approach would have helped in Italy makes no sense. Each country had its own unique situation (general preparedness, clusters, testing, culture, population density, geographic size etc) that required a specific response. Bottom line, when you mismanage the virus you will have to resort to lock down. This was true in Feb and this is just as true on April 26. All governments have been warned. Moving forward we will see who is up to the challenge.

I am thinking AirBNB units will also be coming on the market at the same time. Anecdotally, where is live in greater Vancouver in my cul-de-sac every young adult (university student or young adult) has moved back home for the summer. Most would have stayed in their rental for the summer and worked. Where my older daughter was renting (house with 3 - 3 bedroom units) two recently came up for rent. The landlord, who owns the house, said he was dropping the rent to ensure he got the 2 units rented and to good tenants. He was successful. For renters this is likely a great time as there is lots of supply. Good chance to upgrade and possibly lower cost.

Cigar, thanks for doing the leg work on their recent work. I am reading up on deflation and came across the Podcast linked below (recorded just a week ago) The kid asks good questions; best of all he just lets Lacy Hunt (from Hoisington) talk. Very educational whether you think deflation is coming or not. Skip the first 4 minutes if you are in a hurry :-) It is long (45 minutes) and full of economics stuff... so you have been warned :-) I now understand why it is rational for someone to want to own a 30 year US treasury bond! - how can they have a 30 year perspective (being invested primarily in 30 year treasuries)? Answer: their investment process has a 3 to 5 year time horizon. - Vance Crowe Podcast: Lacy Hunt (April 18, 2020) - PS: Cigar, can you update the the title to just Hoisington Management? For future...

who needs to extrapolate to the rest of the country, for goodness sakes!!! apples to apples. NYC is the epicenter of the crisis, and because major media is NYC-centric, the mass hysteria was exported. why does the governor of michigan go stalinesque? because she wants to look like she is on top of things like cuomo. so of course this doesnt have to be extrapolated nationwide, because NYC's experience isn't the nation's experience. this 20% antibody positive rate makes covid less deadly than the flu. and if this result doesnt comport with how you want to think, then just call it a bad test. an inhale some more sand NYC: 11,267 deaths divided by 21% of 8,000,000 people=mortality rate of 0.67%. just like the flu. In all of the US last year there were a total of 15,500 murders. The death rate is infinitely lower than the flu (not just like the flu). Therefore we can now conclude that murders are not important. All the effort put in by law enforcement to solve them is a complete waste of time. Judiciary? Waste of time and resources. Jails? Who will need them moving forward? Bottom line, we now have out metric to determine if an activity is useful to society: how does is compare statistically to the flu? We have been so blind for so long. Thanks to those on the board who keep pushing this logic... i finally understand (so you can stop anytime :-)

The best part is watching them squirm when their lack of knowledge is exposed. It's pretty hilarious, in a "laugh so you don't cry" sort of way. Crazy how those in charge get a free pass. “But their intentions were good.” So it really doesn’t matter if they burn down the house with their stupidity. Actually, the stupidity is to be celebrated; and the more stupid the better. And then we are told that all this stupidity is just ‘common sense.’ It is explained and twisted in ways that reek of Animal Farm. George Orwell is smiling from the grave right now at all the irony.

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days. I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward. Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts? More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale? I assume that's quite low. So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff? It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy. https://oilprice.com/Energy/Oil-Prices/EX-BP-CEO-Low-Oil-Prices-Are-Here-To-Stay.html The reality is that it will take YEARS of demand > supply, to work off the existing above ground inventory, and because there's lots of inventory - prices will stay low during that entire time. Left to the market, that means widespread and long-standing shut-in/re-drilling across most production sectors, and largely state-only production. Hard on jobs. More practical, is national energy policies, and 'in-country' prices [tariffs] high enough to sustain domestic production. Alternative energy incentives switch to pollution minimization incentives. In Canada, a made-in-Canada price, and more pollution saved by Tar Sands polluting less/carbon sequester, versus switching to EV. NEP 2.0, and rebuilt pipelines across Canada. We 'the people' pay more, but we get jobs, stability, and the ability to plan our futures. Canada might even improve its Kyoto Accords performance!, albeit not in the way intended. SD Trudeau and pretty much the rest of Canada (outside of Alberta and Saskatchewan) has moved on from oil. Oil is so hated my guess is completing the pipeline projects will be difficult; more massive protests with many groups doing everything they can to stop it. Meanwhile, the economy is falling off a cliff. But the government is cutting everyone a check so who cares about being ‘unemployed’ or if we have a shitty economy.

The cracks are starting to appear around the globe... US housing was the core issue in 2008. What will be the financial cause of the 2020 recession? Yes, the virus is the core issue. Perhaps a decade of negative interest rates has built up instabilities (like global banks reaching for yield) that will make the coming global recession much worse. BOJ warns of potential financial system risks triggered by pandemic - https://finance.yahoo.com/news/boj-warns-potential-financial-system-121504660.html TOKYO (Reuters) - The coronavirus pandemic, if prolonged, could trigger a negative feedback loop in which a worsening economy threatens to destabilise Japan's financial system, the Bank of Japan warned on Tuesday. Japanese financial institutions have increased lending to middle-risk borrowers, or companies with higher credit risk, in search of higher yields amid years of ultra-low interest rates, the BOJ said in a semi-annual report on the financial system. They have also increased high-risk overseas lending, such as those to energy firms hit by plunging oil prices, making their balance sheets vulnerable to global market volatility, it said. Such exposure to various risks is among factors the BOJ must take into account in scrutinising Japan's banking sector, particularly because some of the loans could turn sour as the pandemic hurts the economy, the report said. "Japan's financial system is under strong stress but remains sound as a whole, with financial institutions providing necessary funds to support economic activity," the BOJ said. "If the economy suffers a prolonged and deep slump, however, that could trigger a full-fledged, banking-sector correction," it said.

On the other hand, the natural gas forward curve has been rising, with the January 2021 contract up around 25% in the last 45 days. I assume part of the reason for that is the assumed decline in associated/byproduct gas going forward. Also, for US producers, what percentage of oil production is hedged at much higher prices than the June or July contracts? More broadly, if you've already incurred the expense of drilling and completing a shale well, what is the actual cost to lift and transport it for sale? I assume that's quite low. So, wouldn't US production likely decline with the aging curve of recent shale wells, rather than simply fall off a cliff? It makes sense to me that once storage capacity is reached production WILL come down. Prices will keep falling until this happens. Volume cuts will be voluntarily or forced via bankruptcy.

It looks like we are starting to see some second order effects play out from the economic devastation brought on by the virus. Oil has seen an unprecedented massive demand shock that is ongoing. Producers have not cut back nearly enough. Excess storage is now full. So what is the solution? Lower prices. The problem is cutting production results in lower employment and no national government wants this so everyone keeps producing. What we are seeing is what happens to an oligopoly when there is no cooperation. Interesting commodity indexes are now trading at new historic lows. And the 10 year US Treasury is trading lower (near its all time low). Disinflation is a reality. And that train is just getting started. We are in unprecedented times... i wonder what will be the next shoe to fall? Low commodity prices, a rising US$ and virus ravaged economies can’t be good for emerging markets (Brazil, Turkey, Iran, Iraq, Venezuela, India etc).

I think what you are really asking is this: is it important. And if so how important? The US decided it was important to go to the moon. With leadership, planning, experts, resources, money and effort they made it happen. Yes, there were set backs; learn, iterate and keep going. The virus is killing the global economy (not just the US). And it is costing lives. I think one can make the case that this is the biggest economic/health issue to hit the globe since the great depression. So i think we can all agree that dealing with the ‘virus’ is massively important. So it then follows that governments would do everything in their power to deal with it. One would expect the government to mobilize all necessary resources no different than when it fought WW1, WW2 or when it decided to go to the moon. And the leadership HAS to come at the national level. It also needs massive international coordination. Imaging fighting WW1 or WW2 without international coordination? Or how about if the US presidents at the time said ‘we are going to fight a world war and the states individually can manage the the war effort as they chose as per the loose guidelines as set forth by the Federal government.’ And then the President then said that all people who do not support the war should let their governors know and actively demonstrate in their state. And the states were also short on ammunition; production of which was controlled by the government who said when they asked for more ‘you have enough...’ Some countries have decided that dealing with the virus is of the utmost importance: Taiwan and South Korea. It has taken great political leadership, a national approach, has required individuals to give up some personal freedoms. Most importantly it required a vision, planning, trust in science, excellent communication, resource mobilization (people and medical), cooperation, strong execution. Is it important? If so, how important?

Trump is getting killed on how he has managed the virus and it is getting worse. So what does he do? He manufactures a new ‘issue’ that the news media will shift their focus to. The messier the better. Smart, smart man! However, this is not good for the US. Among other things, immigration brings in needed skills. It also provides a nice boost to GDP as all those immigrants provide a nice economic boost (need to eat and sleep somewhere).

Since this thread has morphed to emerging economies, currencies and commodities, it's interesting to note that the Mexican government has had a policy to hedge its export production at 49 WTI this year, apparently 100% hedged and called the Hacienda hedge (versus 55 last year). In Canada, the last quote on WCS is 4.23 (maybe lower tomorrow) which is about 50$ lower than exactly a year ago. Canadian operators have various hedges in place and it may not be as efficient as the Hacienda hedge and I will let you guess who the counter-parties are (hint: they are fully back-stopped by the Fed). ---) Back the low interest rates are great topic So help me out here... the investment banks (like Goldman) do the hedging for Mexico but who do they offload the risk to? Mexico has made as much as $6 billion in the past with this hedge; likely more this time round. https://www.bloomberg.com/news/features/2017-04-04/uncovering-the-secret-history-of-wall-street-s-largest-oil-trade

We have never had a situation where NFL, MLB, NBA, NHL, PGA, NCAA, World Soccer etc were all shuttered at the same time for an indefinite period of time: minimum 6 months and more likely 12 months or longer. This is just one of many industries facing the exact same reality. My basic point is all of these closures have to add up to some meaningful economic contraction that will likely last a year (until a vaccine is ready). Financial markets are off to the races higher and likely pricing in a V shape recovery. We will see :-)

Here is an update on one industry that is in deep shit. Lots more just like them. But don’t worry, the Fed is printing money and governments are spending like never before... so it doesn’t matter :-) The Coronavirus Doesn’t Care When Sports Come Back: The prolonged shutdown of the sports world is taking a huge financial toll. And comeback plans all have a pesky hurdle — public health. - https://www.nytimes.com/2020/04/19/sports/coronavirus-sports-economy.html?action=click&module=Top%20Stories&pgtype=Homepage A Major League Baseball season to be played entirely in the Arizona desert without fans, and with teams isolating themselves from the outside world. The N.B.A. taking over a hotel on the Las Vegas Strip so its stars can dine and dunk in their own bubble — but only after the league gets access to instant coronavirus tests. Mixed-martial-arts fights live on TV from a private island … somewhere. More than a month into the coronavirus shutdown, the American sports industrial complex is getting creative, or perhaps desperate, searching for a moonshot that might bring professional athletics back to a nation largely cooped up at home and suffering from collective cabin fever. Fans are clamoring for something, anything, to distract from the pandemic and restore sports to the rhythm of American life; even Dr. Anthony S. Fauci, the presidential adviser on infectious diseases, recently mused about seeing the Washington Nationals defend their World Series title. Meanwhile, owners, executives and athletes — and all the related businesses and workers who depend on them — are increasingly worried about the economic damage from this prolonged, inescapable off-season. But the hurdles to any return are numerous, and they start with securing access to tests for the virus and persuading players and officials to agree to strict confinement, among other conditions. Over the past two decades, the business of sports in the United States has ballooned into a chunk of the economy that generates well over $71 billion annually and employs tens of thousands of people, from superstar athletes to hot dog vendors. But all of that has ground to an abrupt halt. The financial losses climb every day, as games go unplayed and are absent from television, and entire seasons could be canceled.

Stocks are great replacement for low-yield bonds, as long as they don't go down :-X Packer, i agree theoretically with what you are saying. I think one of the drivers of the increase in stock prices the past few weeks is money starting to shift from bonds to equities. Institutions holding bonds are saying why would i hold a bond paying less than 1% interest? Blackrock talked about this shift happening on its quarterly conference call. The problem with this strategy is stocks are not bond substitutes (even utility type stocks). If we get a severe recession/deflation lots of pension funds/insurance companies could be in deep shit. Yes, this is low probability. I wonder if asset managers will be communicating this risk to their members? Negative bond yields really does corrupt the investment decision making process.