StubbleJumper

If you believe that this is a meaningful risk, then the most straightforward way is to take a long position in cash. Unfortunately the precise allocation to cash that is optimal is not easily divined, but in the 1930s those who were able to rebalance between de-valued equities and cash/treasuries did just fine. Personally, I'm running about 5% cash at the moment, so a depression scenario would be a real kick in the teeth for me. SJ

Pssst. ELF is selling for a shade more than 50% of BV. Keep it secret! SJ

I tend to browse Easterling's and Shiller's websites as they regularly update their market valuation work. The other website that pulls together some of the long-term valuation analyses is this one: http://advisorperspectives.com/dshort/updates/Market-Valuation-Overview.php You probably don't want to spend hours and hours thinking about long-term valuation, but IMO, it's worth spending 2 or 3 hours on one occasion to read Easterling's book and then 15 minutes a few times per year to read the articles that he and Doug Short write. SJ

There are advantages and disadvantages of each. However, for about the past year, RBC has allowed clients to maintain both $Cdn and $US registered accounts. For me, this is a tremendous advantage as foreign exchange spreads can significantly eat into your returns (ie, if you want to buy 1000 shares of WMT, and you only have CDN$, you'll pay about $500 in foreign exchange spread when you buy, and then if you sell again in a few weeks/months and convert back to $CDN you'll get hit with about another $500 in foreign exchange spread). There have always been other ways to avoid these charges with RBC by swapping securities in and out of your cash and registered accounts, but it was a real PITA....now it's simple. RBC used to have much higher equity commissions and higher other fees than I*trade, but that is no longer true. You should, however, look at your asset level to determine what sorts of charges you'll end up paying. IIRC, for both RBC and I*trade, "cheap" trades and low administration charges start when you hit about $50k in assets.....and then the RBC Gold Circle benefits kick in at $250k assets. Those thresholds are very important to consider when assessing your probable investment fees (I am the original tightwad bastard cautious with my money and I avoid fees when I can). While I haven't used I*trade in a couple of years, my recollection is that neither website is anything to write home about. They both get the job done, but they look like they were developed by a 15-year-old in his basement in 1998.

Hard to see how a voluntary haircut will work. We tried all types of schemes like that to fix the asset-backed commercial paper freeze-up in Canada three years ago, and it only takes a small percentage of self-interested participants to dig their heels in. Why shouldn't an investor tell Greece where to shove their "voluntary" haircut? Everybody "sucker" who accepts the haircut just increased your likelihood of an eventual 100 cent recovery.... And if they try to strong-arm you, then they face the risk of default! SJ

I read Van Hoisington's report a couple of weeks ago, and couldn't quite figure out how he came to his total debt numbers. The federal and provincial government debt amounts to about 6x% of GDP and the figures are regularly published at the following site: http://fin.gc.ca/frt-trf/2011/frt-trf-11-eng.asp Given that those are pretty solid estimates for fed/prov debt, that would imply that municipal and private debt must exceed 300% of GDP for Van Hoisington's numbers to be correct. I have a great deal of difficulty believing that there's so much private debt out there (ie, it would have to be more than $100,000 per person). I think Van Hoisington's broad conclusions are bang-on, but for Canada his numbers look to me as if they are badly incorrect. SJ

that's not what Buffett did. He stopped buying stocks when there were no values left. Subtle difference. He pretty much stated that if he was managing $10m a year he could ring up 50% appreciation year after year. He "worked" hard though. All he did was look for value in individual securities. I don't believe he spent a lot of time reading academic dissertations on why the market should be selling 30% cheaper. If you have less than $100m to invest there are plenty of situations that make sense today. But reading Hussman will keep you from "looking" for them. Not only did Buffett spend time reading academic dissertations about why the market should be selling 30% cheaper, he actually WROTE such academic dissertations. Of course, it didn't stop him from searching for attractive individual securities, but he sure as heck spent time thinking about how the broad market valuations compared to historical norms... FWIW, if you haven't already done so, there are a great many worse ways that you could spend 3 hours of your time than reading some of Easterling's work. SJ he didn't need academic research to tell him stocks are cheap or expensive. he probably read it for a laugh. I can't imagine Buffett writing anythiing academic. He may have been published in academic journals but all his stuff is written so anybody with common sense can understand it. He didn't write it in an academic journal (and to my knowledge, neither Shiller nor Easterling typically publish their mickey mouse valuation work in academic journals either). He actually wrote a very prescient and accessible article in Fortune magazine : http://money.cnn.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm As is always the case with Buffett, it is written in an easily grasped, folksy manner, but do you doubt that he spent some of his precious time studying the history of markets prior to writing such a piece? Nobody's saying that an investor should burn hours and hours per year looking at the past. But if you're going to put your money on the line, it behooves you to understand something about where we are in the context of the past. Of course, you should discount what I say as I'm one of those "low class" personal investors who only risks his entire financial future when he invests. I'd love to scoop 2 and 20 from somebody else's capital, irrespective of what stupid investment decisions I might make... SJ ps. For those who are curious, when Buffett wrote that article, the S&P was ~1,400 while today it's ~1,200. Happily enough, broad market valuations are nowhere near as silly now as they were then.

that's not what Buffett did. He stopped buying stocks when there were no values left. Subtle difference. He pretty much stated that if he was managing $10m a year he could ring up 50% appreciation year after year. He "worked" hard though. All he did was look for value in individual securities. I don't believe he spent a lot of time reading academic dissertations on why the market should be selling 30% cheaper. If you have less than $100m to invest there are plenty of situations that make sense today. But reading Hussman will keep you from "looking" for them. Not only did Buffett spend time reading academic dissertations about why the market should be selling 30% cheaper, he actually WROTE such academic dissertations. Of course, it didn't stop him from searching for attractive individual securities, but he sure as heck spent time thinking about how the broad market valuations compared to historical norms... FWIW, if you haven't already done so, there are a great many worse ways that you could spend 3 hours of your time than reading some of Easterling's work. SJ

funny a guy who has been in the trenches valuing businesses like a businessman would, making 30% plus a year, JG, says stocks have rarely been cheaper. Give me "real world" instead of ivory tower any day. Another couple Billionaires Cooperman and Buffett have been buying hand over fist. Ackman and Berkowitz are both positive too. But none of them are academic egg heads! cheers! Yeah, and are any of your billionaires foolish enough to be just buying the broad market? No. Without a doubt, they are being selective about the securities they purchase and are being cautious about their use of leverage. That would seem to me to be a good approach to managing money in a (possibly) modestly overvalued market. FWIW, I'd love to have a chance to invest in a market where an investor could simply buy the broad index, leverage the hell out of his investment and have a solid prospect of a stunning 10-year return. But for now, the prospects of that are remote. SJ p.s. You never asked me what my current cash level is.

Yeah, 950 is not far from the last "fair value" estimates that I made last spring. FWIW, here's a nice piece that shows a half dozen different ways of looking at "fair value," all of which indicate that we're probably still 20-40% overvalued today: http://advisorperspectives.com/dshort/updates/Market-Valuation-Overview.php With the broad market likely being overvalued, it's imperative to be selective about individual securities!

That's not necessarily true in all cases. Most feedlot placements are stockers (around 600 lb) or feeders (around 800 lb) and they are fed up to about a 1,300 lb undressed carcass weight. Some of this is fat, but much of the weight gain is actually meat, particularly when you place stockers. Health concerns aside, the fat is actually a positive quality attribute because that's what gives beef much of its flavour and its moist tenderness. While coarse grains (corn, sorghum, barley) dominate the ration, it also includes some forage and protein meal. The fossil fuel issue is an interesting question. What uses more fuel? To produce corn which enables feedlots to achieve a rate of gain of 3 lb/day for a steer, or producing hay so that cattle can overwinter at a rate of gain of 1 lb per day? It would be interesting to see the arithmetic! I agree that fat makes it taste better. Health concerns aside, sugar adds flavor to candy. My father grew up with bread fried in bacon grease -- it also improved the flavor. For some reason if the animal is slaughtered with all the fat already on it we think of it differently than, say, just soaking toast in it. Could you imagine if people were forced to consciously ask for more fat trimmings to be added to their lean grass-fed beef. I doubt they would do it. I mean, you can always ask for extra butter on your fish. Do you? It's more expensive in Australia to buy the marbled feedlot beef. True! They don't have a huge corn industry. So most of the beef is pastured, grass fed beef (and healthier). Interesting. We didn't really soak our toast in fat, but McDonalds used to fry their french fries in beef tallow (they have since switched to canola oil). I must confess that I always preferred the flavour of the fries when they were cooked the old way and coated with a liberal dose of salt! The health issue was never a concern when I ate McDonalds fries, and I guess it's probably still not the destination of choice for a healthy meal! I also DO actively seek cuts of beef with a greater fat content and grades of beef that have better marbling. When I eat red meat, I want the flavour and I fully understand the potential disadvantages of saturated fat. Despite the lower price, I actively avoid eating Australian beef as I find it drier and a little bit gamey. My preference is actually barley-fed Canadian beef which has pure white fat, and if I can't get that then I'll sometimes buy the corn-fed US beef with the yellowish fat. But, I guess I'm a bit fussy about the beef I eat! Ultimately, it's all about eating this stuff in reasonable quantities. Give me my fatty primal cuts, but not 7 days per week!

That's not necessarily true in all cases. Most feedlot placements are stockers (around 600 lb) or feeders (around 800 lb) and they are fed up to about a 1,300 lb undressed carcass weight. Some of this is fat, but much of the weight gain is actually meat, particularly when you place stockers. Health concerns aside, the fat is actually a positive quality attribute because that's what gives beef much of its flavour and its moist tenderness. While coarse grains (corn, sorghum, barley) dominate the ration, it also includes some forage and protein meal. The fossil fuel issue is an interesting question. What uses more fuel? To produce corn which enables feedlots to achieve a rate of gain of 3 lb/day for a steer, or producing hay so that cattle can overwinter at a rate of gain of 1 lb per day? It would be interesting to see the arithmetic!

I wonder about all that farmland dedicated to growing food for the livestock -- does it drive up the price of fresh produce? Would you grow corn without the subsidy? Or would you be growing a higher sticker price item? In other words, would the price of fresh produce be boosted by scarcity of arable land? Ten calories of grain expended per calorie of meat produced. There's not really much of a trade-off between corn and vegetables. The amount of fertile land required to produce the US requirement for fresh vegetables is minimal (the yields on an acre of tomatoes or potatoes are really mind boggling). Area planted to corn tends to be around 80 million acres in the US, which if it were in potatoes instead would yield about 16 billion hundred-weight...or about 1.6 trillion pounds of potatoes. That's about 50,000 lbs per capita. Clearly, US demand for potatoes (and other vegetables) is satisfied with only a tiny fraction of the land currently dedicated to corn. The price differences that you noted are not primarily driven by subsidies (but they do have some impact). Rather, cost of production is the reason why tomatoes cost more than corn (or even hogs). Corn can be produced in Iowa for about $0.10 per pound (irrespective of subsidy levels). With a feed conversion ratio of even 4:1, it's pretty obvious why live hogs can be raised for $0.90/lb, and certain cuts of pork can be retailed for $2/lb. Tomatoes, on the other hand, are expensive to produce because they are more labour intensive, require significant chemical inputs, are very difficult to handle and transport, and are very vulnerable to spoilage. That being said, I fully agree that the subsidisation of various agriculture products is baffling.

How about a big pile of BRK shares? ;D

Because people will be searching for better places to deploy capital (at least better opportunities than treasuries) and will throw piles of capital into the insurance industry?

+1 for the Google spreadsheets. I open it up in the morning and it happily updates itself all day long. Cheap, portable and easy. SJ

Most of the illicit cross border traffic happens along the St. Laurence Seaway. It'll be a real son-of-a-bitch job to build the 20 foot high fence in the middle of Lakes Superior, Huron, Erie and Ontario. You'd need fence posts about 800 feet long in some places! SJ

The spreads are usually pretty disgusting with the major brokers. However, what is absolutely disgraceful is their lack of disclosure. You have no idea how much they're skimming off your transaction until after it's already completed....and even then you're just making an educated guess. I'd be much happier if they'd clearly disclose that they're bending me over for 1% or 1.5% instead of always being in the dark. The sad thing about all of this is that the typical retail investor will get really fussed about the difference between an equity commission of $6.95 vs $9.95 or $19.95. In reality, getting bent over for a single medium sized currency transaction swamps any equity commissions that I'll incur over the course of a year. SJ

Wouldn't surprise me if 25% did happen on a weighted average basis. IMO, such an event would probably look a little like: Place Drop Population affected Greater Vancouver -50% 2 million residents Calgary/Edmonton/Regina -35% 2 million GTA -30% 5.5 million Ottawa -25% 1 million Montreal -20% 4 million Elsewhere -15% 18 million Weighted average >25% 32.5 million Not saying that something like that will actually happen, but for me it would not be a shocker

So the whole article essentially states that property taxes are not high enough to cover the long term maintenance costs for infrastructure in the suburbs? And? That which cannot continue won't. Municipalities will eventually need to crank up property taxes, and there will be a corresponding decline in the value of the housing stock (ie, if you crank up my property tax by $5k per year, the value of my house ought to decline by around $75k). As long as the property tax increases are gradual, life goes on. If it happens overnight, it could be a shocker. FWIW, even if the true cost of suburban housing were imposed on homeowners, I suspect that there would still be a large segment of the population who would continue to opt for the advantages of suburban housing. SJ

Give it time. IMO, we will see a fair bit of adverse development from the policies underwritten over the past couple of accident-years. A good chunk of capital will ultimately be [glow=red,2,300]vapourized[/glow] (because of decisions already taken!).

I have a fuzzy recollection that there's supposedly some small listed company that operates a gravel pit in the vicinity of NYC. The economics of gravel are such that it really doesn't make sense to transport it any farther than you absolutely have to, so supposedly this little (mythical?) company effectively has a near monopoly in the NYC area because it's damned near impossible for a competitor to get a new gravel pit approved. I've never actually dug around to verify whether that legend is actually true, but it is an example of a way that a small-ish company could have a sustainable moat. SJ

I think it was in 2004 that we were all bitching about FFH's Q2 numbers being affected by thunderstorms and tornadoes. At the time, I believe we complained that they're always making excuses for poor underwriting, but in actuality the cumulative effect of the storms was significant. I expect that the cumulative effect will also be significant this year. Makes the Chilean earthquake of last year look small.... SJ

And now they're offering another $400m at 6.40%? How would you like to be the guy who just bought the last batch at a yield of 5.847% only two weeks ago? SJ

Viking, I'm about to renew my mortgage... which mortgage originator offers 5Y at 3.5%? BeerBaron BeerBaron, There are plenty of financial institutions that quote ~4% for five years. With a little negotiation, the quoted rates can often be reduced (sometimes substantially!). Here's a table of the current quoted rates: http://www.financialpost.com/personal-finance/rates/mortgage-closed.html SJ