Santayana

Santayana and bmichaud, I don't know if you guys are individual investors or if you're managing OPM. I'm sure you indicated one way or the other in the long thread about market values, but to be completely honest, it was very long and I wasn't terribly interested in the discussion, so I only skimmed it. :P The one thing I'd point out is that I think you both might share a sense that thinking about market valuation or macro is about risk tolerance. It's not. It's about volatility tolerance, and that's a separate thing entirely. If you're managing OPM, then thinking about volatility tolerance might be good -- depending on your client base. If your clients are flighty, then you might want to blot out volatility. If your clients are not, then you might not want to bother. If you're managing your own money, then the analysis is the same. Hmmmm, that is a very interesting point merkhet. How you do differentiate the two? I agree that some of what I'm hedging against is volatility, but I'm not entirely sure how to separate risk vs. volatility, especially if you're talking about timeframes of 10 years or more. If I take a position that loses 50% of it's value, and it then takes 15 years to recover, is that just volatility?

You have balls of steel Eric! How much of your position is covered by those puts? I could make some comment here about stupid retail investors and their hedges, but I won't go there ;D

I don't think I've ever heard anyone on this board suggest paying attention to the macro forces in lieu of picking good stocks that you want to own. Where the disagreements seem to come from is whether it ever makes sense to consider the macro when deciding whether to hedge, whatever your method of hedging may be. Some posters have said that hedging is always wrong, no matter what. I've always been of the opinion that it's more about the individual's risk tolerance than anything else. I like having dry powder, it helps me sleep at night, but that hasn't kept me from making money the past few months from MSFT, SSW, WFC and CIM.

You could just not respond if you want to ignore me, but if you do respond please don't lie about my posting history. You instigated the personal attacks with the message below and I responded a couple of times. And by the way, I never worry about the markets. Moore_Capital said: Santyana Misterstockwell and Bmichaud, this is not necessarily a fair argument, but I am willing to bet that the combined line you swing in the market in terms of assets is equal to maybe 1-2% of my personal net worth. I am sorry I had to resort to this but you have to put things into perspective. I am a professional investor, a fiduciary and a capital allocator that serves clients who demand I allocate their capital and provide exposure to equities. You guys are waiting to time the market with your small lines, but there is no doubt that even if you buy at the bottom of bottoms on the perfect low of the day of the lowest low the markets print, my nominal performance will be substantially better. Now we can debate about this all we want, but I have absolutely never met a professional investor with your frame of mind, only small time RRSP style investors with $50-500k to invest, who go to sleep at night thinking they're the next buffets. I get paid 2 and 20 to deploy capital on a daily and monthly basis. Take this however you feel, but time will prove I was right. We can check back in a year or two. You guys waste so much time thinking about capitulation wet dreams because you can afford to, your swinging a small line in the markets and your insignificant, you are retail investors, that most probably clip coupons as well.

I wish I were half as crazy as you. Tell me what you see for IRE. Again, it is my humble opinion that it is important, in order to keep this forum as intellectually honest as possible, that posters who say half their portfolio is in IRE, add a small note such as, (But I am in College and have a $5k portfolio) just so we all know what were dealing with. Last time I mentioned this all hell broke loose, but it was really something I felt strongly about only because I see the level interaction on here, and how much time posters will spend responding to almost anyone. The guy who starts a thread on a value investors board where we should be focused on the long term, in order to brag about his 2 month performance, is worried about intellectual honesty. That's a good one.

So that means that in eight years every man woman and child on the planet will have 6.6 devices that require streaming for that stat to hold true. I'm calling BS on that. Let's revise this and consider that in eight years it's unlikely that the entire world population will be out of poverty and will be able to afford 6 $100+ devices with their associated data contracts. So let's say that 50% of the world will be able to afford them, so that means 12 devices per person. This stat shows how meaningless linear projections are. Twelve devices...give me a break, I'd need a murse to carry all that crap... Of course every one of these devices would have to be for personal use. There's no way that companies would be providing them to their employees for work reasons. And I can't even fit my television or PC in my murse/european carry all/ok it's just a purse.

Hah! I'm just waiting for some poster who shall remain unnamed to jump all over you for that one! I'm still happy I bought when it was around $1.....but definitely would have had a better year had I sold in July. Overall I was down around 5%. Had some SSW calls that expired in November which ended up being around the low of the year and right before the tender offer announcement. I really thought the div increase last spring would put a floor on the price around $15. Serves me right for trying to predict what Mr. Market would do in the relatively short term.

???

Everyone should look at the charts on this Wells Fargo report before talking about "recovery". And as always, be careful with seasonal adjustments -- "On a not seasonally adjusted basis, single-family starts totaled 32,300 units in November, which is slightly below their year-ago level. On a year-to-date basis, single-family starts are down 10.2 percent from last year and are on pace for their weakest year on record."

In 2007 BAC had a Tier 1 common ratio of 3.5%, under Basel 1. Today it's 9.17% (reported), and it will become 9+% under Basel III rules over the coming years. Going from 3.5% to zero will be like going from 9% to 6.5%. And that 6.5% would still be considered grossly overcapitalized by 2007 standards. You probably need to roughly triple the severity of the crisis to completely wipe out the Tier 1 common. WFC will reportedly be required to hold 8% under Basel III. These crises of the past 30 years simply aren't crises anymore for these banks when they hold that much capital. They're more like minor headaches. I just wish I felt like I could really trust the numbers they report.

There are so many ways this can play out it's anyone guess, but it’s hard to imagine a scenario where it doesn’t go one for 5 years or more. Walnut Place is only one of 44 parties who want to intervene in the settlement. Some want more money, some want the option to opt out, and some want the distribution among parties to be different. WP owns only a handful of the 530 covered trusts. If, years from now, WP is successful, surely the other trusts will petition the trustee for an improved settlement. But even if the trustee convinces BOA to up the settlement amount from $8.5bln, will it be over? I say no. State AGs other political interests will want their notoriety. Other certificate holders will still want a different distribution among senior and junior classes, and still others will want even more in settlement amounts and may bring their own actions. Since non-GSE claimants need a higher threshold to receive damages (they must show that the R&W breach caused them material harm) it’s easy to see this turning into a decade’s long litigation nightmare. If BAC decides to fight it out in court the present value of the settlement will work in their favor. Additionally, since BACs losses are a function of house prices on the put-back loans, BAC liability will drop over time as the housing market recovers. The more time, the better chance their losses are minimized or even eliminated. If they decide to file CFC in BK11, the litigation window may not be as long, but it could easily be 5-10 years because of the tens of thousands of unsecured claimants. I’m pulling for the settlement to hold, but if it does not, it’s far far from game over for BAC. this is true, especially now that Buffett has blessed the company and it's management. not only that, as the economy starts to improve, and slowly but surely bac numbers begin to improve, they will have even less incentive to settle on a bad deal for them. The Zerohedges of this world will sound like little Casandras and their influence will wane. The parasites will see that settling sooner rather than later will be wise. You know the story of Cassandra is that she was always right?

Be careful with the seasonal adjustments. Actual new claims were over 520,000 which was up ~150,000 from the prior week.

I've read The Intelligent Investor annually since being introduced to it 4 years ago. Others include -- Most of Malcolm Gladwell's books Crime and Punishment Godel, Escher, Bach A bunch from rkbabang's list -- Zen and the Art, both Heinlein books, Walden, Cryptonomicon,.. Currently re-reading White Noise by Don DeLillo.

It's no wonder we disagree on the value of hedging so much if you think Prem just "got lucky".

How do you figure that? Workers will demand much more monopoly money inside the country, and costs will rocket higher for products sourced outside the country. The only benefit would be to those buying the products internationally, but the companies would need to do all business overseas and use only non-Yen currencies, plus would need to have had stashed tons of working capital in other currencies just to stay afloat. A crashed yen would not help the Japanese companies. I don't believe that currency collapse equates to immediate and commensurate raises in wages of local workers. That's where we disagree. The company may also have long term debt denominated in Yen -- easily washed away with the rapidly rising nominal value of the export business. You only have to look at recent history in the US to validate what Eric is saying. Weakening dollar, but stagnant wages for quite some time now.

I thought Klarman was something like 50% cash right now because he is worried about the macro? This is pretty much the opposite of what Moore has been saying.

Right on cue, here's Moore to belittle anyone who has a different risk tolerance that he does.

Which number are you looking at Sanjeev? I see 1.8% growth YTD vs. 2010 in total carloads and think that's pretty anemic. Yes it's not negative, but nothing that screams growth either.

I think SPY puts make a great hedge, but at current volatility levels I wouldn't initiate any new positions. Unfortunately the best time to hedge is when things look like clear sailing, trying to hedge after you see the storm clouds is a difficult proposition. Your best bet would probably be to reduce your long exposure and raise some cash, keeping in mind that you'll kick yourself if your holdings rally from here.

Yah, this is baaaaad. If a primary dealer is able to comingle funds and not get caught (only caught b/c of the bankruptcy), how many other places are doing the same thing? The system needs trust to work, and this is NOT something that helps with that.

Yeah, it's pretty crazy when you can have trillions of dollars of stock value disappear in a couple of trading hours based on the days rumors....errrr I mean "news".

Meanwhile, Italian bond yields keep climbing. Over 6% on the 10 year now.

I don't think the Germans will allow inflation to be the answer.

What's really notable about that to me is that years 1-20 of that period were fantastic for stocks.

That's too funny. My daughter's been streaming The Wonder Years from Netflix lately.