Santayana

Well the topic was the valuation of stocks specifically, and my point was that not being expensive is not synonomous with being cheap. (Although I do think they are expensive since a typical major bottom would be P/Es into the single digits, and we aren't there yet). I don't consider myself at all qualified to speak as to the value out there in debt instruments, but would say that I would definitely be very careful in considering those investments. It's a stretch to say that one can "easily" put together a portfolio that will end up yielding 10-12%. If you really think that, I think you are misjudging risk.

Just because stocks may provide nice returns over the next 50 years (a bit longer than my horizon), doesn't mean they are "cheap" at current prices. That is not to say there is no reason to be buying right now.

I'm not sure that stocks can be called "cheap" by any valuation measure right now. The earnings power of the S&P is going to be hampered for a long time because of what we're in the middle of right now.

We are entering a time of falling incomes and GDP. Unemployment will continue to rise for a while, regardless of any stimulus package. Pensions and benefits are being reduced everywhere. House prices will continue to fall further than normal as a result. After a bubble like we just had, there is bound to be some overshoot on the downside as well. US Dollars are becoming more valuable right now, not less. I really don't think the Fed has it in their power to restart inflation on demand, helicopters notwithstanding. It's not just WFC and GE that I see having a high risk of failure, it's any company deeply involved in financing activity, because a lot of them just aren't going to get paid back. I'm really hoping that we learn on Friday that FFH still has a very large holding of US Treasuries. That would make me more comfortable with this.

I think what it really comes down to is where you think housing prices are headed. I fully expect another 50% decline before all is said and done. I don't have any numbers in front of me right now, but given the loans WFC made themselves in bubble prone areas, plus the Wachovia/Golden West portfolio, I expect them to have massive numbers of defaults. I need to spend more time looking at numbers to see what % it would take to create $19.6B in losses.

I think they pulled the trigger too early. One of the reasons I started investing in FFH was how well they were positioned for what Prem was calling a "1 in 100 year financial storm". Now after experiencing a drop equivalent to something we saw 35 years ago I learn that he is buying. I think he was right in the first place, and the financial storm is just beginning. I think companies like GE and WFC have a > 50% chance of outright failure in the next 5 years, and frankly don't see the margin of safety. Is anyone looking at those balance sheets? Do people really think that huge numbers of the HELOCs WFC made in CA and AZ aren't going to default?

Very nice. ;D Is the intent that all threads will live in "General"?