Cigarbutt

The history behind the design and development of the interstate highway is fascinating. The issue is still debated but part of the impetus for the infrastructure spend was national defense and fear of falling into a recession after the Korean War. For President Eisenhower, the inspiration seems to have been a real-life experience crossing the US after WWI. https://www.atlasobscura.com/articles/in-1919-dwight-d-eisenhower-suffered-through-historys-worst-cross-country-road-trip However, I would submit that the architect behind the grand plan was Francis V. Du Pont. https://www.fhwa.dot.gov/publications/publicroads/96summer/p96su10b.cfm Eminent domain transactions were numerous but the real challenge was (federal) funding. It looks like President Eisenhower insisted on a plan that involved a clear and sustainable path to reimburse issued bonds through a gas tax in order to avoid kicking the can down the highway. Effective governance is also cyclical. -----)Back to the US grid

Dean Foods is an interesting company and would appreciate that you eventually share the outcome and underlying rationale in the DF thread. FWIW, earlier this month, the CEO of Saputo commented that he looked at the company: "There is more capacity than people drinking milk in the U.S., which would make an acquisition of Dean Foods a volume play rather than a value play". Right now, I'm drinking a glass of milk but I agree with Mr. Saputo.

In this race to the bottom, the US has a lot of room to maneuver in comparison to other pushing-on-a-string benchmarks: --% of government debt with negative yields as of June 18, 2019 (total value 12T)-- Germany: 88% Japan: 74% Italy: 12% At the end of May 2019, 20% of European investment-grade corporate debt had negative yields. For those interested, here is a list of real-time tools to "Get Expert Insights to Manage FOMC-Related Event Risk". https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html Interesting times.

Shalab, It seems that we disagree about where we're going although it will have to be, in the end, the same destination. "However all data is pointing to the other direction, i.e., prices going down." This yield inversion talk is getting confusing but one of the most significant and fundamental measures I've been following agrees that asset prices may have entered a deflationary phase: the Tooth Fairy payout. https://www.prnewswire.com/news-releases/tooth-fairy-payouts-plunge-for-second-consecutive-year-300798356.html I've been able to match the Tooth Fairy payout until 2012 and then it seems that the payout has been looking for a reversion to the mean. You will also notice that the US regions that have suffered from globalization have shown their resentment through lower payouts.

I had heard of Enron during the energy deregulation era and then it was surrounded by a halo of success. I looked into it when Fairfax (through ORH) reported Enron-related losses (?bond losses) and when, for a while, some suggested that FFH was the next Enron. When looking retrospectively and using accounting prisms elaborated after the fact, red flags are pretty obvious (revenue recognition, cashflow vs income, SPEs etc) but IMO only a few individuals could have spotted the extent of the fraud and have the courage to publicly voice concerns. There were some relevant and investigative-type questions asked by analysts but it's very hard to unsettle a stock market darling that reports audited results and obtains adequate credit ratings. It's probably best to walk away from these potential situations using basic sniff (accounting or management trust) tests. Financial Shenanigans by Mr. Schilit is a good book. Edit: I agree with Grafter. The whole story about Enron though is fascinating (human nature etc). For the opening poster, Nomad, I have a few pages from the CFA level I and II program that deal specifically with the Enron post-mortem accounting analysis and something can be done privately.

"To me it's incomprehensible that somebody will tie up capital for 20 & 40 years respectively on such conditions. I wonder who is buying this stuff?" The long and low interest game has introduced a relative idiocy paradigm. Another area to look for potential candidates are European life insurers who own huge chunks of the fixed income market and who have to deal with guaranteed return and duration mismatches. The 90's Japanese experience comes to mind for life insurers. Fairfax recently issued 10-year bonds with (from memory) the lowest coupon ever for that duration. Forgetting all global unintended consequences for a minute, what's not to like when risk is basically free? On the who's buying question and their state of mind in Europe, prolonged ultra-low interest rates can produce weird phenomena. In the last few years, it has been possible, in some instances and in a few European countries, to finance or refinance individual mortgages at a negative (!) yield for quite significant durations. In those specific cases, it looks like the financial institution would choose to incrementally lower the principal owed instead of paying interest to the customer. ??? https://www.bloomberg.com/news/articles/2019-05-23/bankers-stunned-as-negative-rates-sweep-across-danish-mortgages Mr. Buffett is a fundamental investor though he has been suspected of occasional bets on currencies. The recent UK currency issue seems just like a specific opportunity for cheap capital and perhaps will match in due course specific asset investments. Yesterday, I came across an interesting piece that shows how challenging it will be for him or his legacy to beat the crowd. I would bet that the ability to do so will be based on rationality. https://politicalcalculations.blogspot.com/2019/06/warren-buffett-versus-s-500.html#.XQPiZ9NKjOQ

^The above-described swap transactions would probably not be OK with tax authorities and their appraisal staff as they would not qualify as open market transactions but it is interesting to note that such non-arm's length transactions would simply tend to accelerate price discovery and the sticky adjustments of property taxes. So, the underlying question may be the expected trajectory of fundamental property values in the Detroit area. It seems that it will get worse before it gets better, and perhaps the timeline will be extended? Aren't many owners stopping paying taxes hoping to be ignored and hoping to buy back on the cheap in the auctions? For comparative purposes, here is a commercial property I've been looking at in my area: -built in 2000, good condition, well localized, 0.8 acre. -total 6.3K SF with 45% lent to a bank and 55% vacant for a while -appraised value land: 0.7M building: 0.97M total: 1.67M property tax: 37.5K -for sale, asking price: 2.495M The common denominator is the inadequate cap rate in both places, but for different reasons.

A simplified conceptual way to make money with investments is either to buy cheap stuff and sell it when it gets to intrinsic value or to pay a reasonable price for stuff that will grow intrinsic value over time. The initial article which refers to William Bernstein alludes to the cost of capital. A possibility is that the wall of cheap money is larger than the wall of worry and, intuitively, this suggests a tendency for general valuation levels to rise and a necessary forward-looking underlying assumption is that the cost of capital needs to continue to be low. Cheap capital or cheap money either means the crowd is getting brighter or dumber and I would submit that the jury is still out. http://www.efficientfrontier.com/ef/adhoc/coc.htm

One can question methodology and holding-period returns at the individual level may make those studies irrelevant. This has been looked at along many variations of the same theme and here are two examples: https://www.chase.com/content/dam/privatebanking/en/mobile/documents/eotm/eotm_2014_09_02_agonyescstasy.pdf https://csinvesting.org/wp-content/uploads/2017/05/Bessembinder-Do-Stocks-Outperform-Treasury-Bills.pdf The idea is that there is significant positive skewness with a far right-sided fat tail. So, the returns have been concentrated among a select few and, interestingly, returns have continued to be concentrated within only a few days of the total holding period, with most or all return in the last few years (since the irrational exuberance speech in 1996) happening in the 24h before and after Fed policy public annoucements (typically 8 times a year).

In my household, I would say that 99% of circulating photos, clicks, likes, searches, videos watched (the number of which has been growing sequentially and quasi-exponentially) should NOT be counted in GDP. Unless we made it to the leisure society but I think the economic possibilities are not quite there yet. That's a good point. So, let's say you don't have these free services anymore. Are you not going to print pictures and would it not cost money? How much information are you getting now free that would have cost you money before? How many times have you looked up some info and used it, instead of relying on paid experts? How many free youtube videos? Email? What would be the alternatives and would they be free? etc. Even if you somehow not spend any money if all of these are turned off tomorrow (unlikely) it would not negate the fact that they added value and increase productivity, for free. Transportation: much, much more efficent with Google maps; how is this economic and life improvement captured in GDP data? Education: much, much better with the internet; how is this economic and life improvement captured in GDP data? Software is transforming every aspect of life. Banking is a great example of this transformation. Not that long ago i used to get paid with a paper check that i would then have to go to the bank, stand in line and deposit. Need cash to buy something? Go to the bank, stand in line and withdraw cash. I would write a check to pay someone (who would then go to the bank, stand in line and make a deposit). Need to pay your utility bills? Go to the bank, stand in line and pay. Want a second account? Go to the bank stand in line and open. Investing was pretty much impossible for most people; so they bought Canada Saving Bonds or left their money in a savings account at their bank (my monther-in-law still does this). If you did have investment accounts, most people paid big fees. This was life a few short years ago. Today everything is done electronically. Much, much quicker. Much more accurate. Much, much cheaper. Much more selection. Quality of life is much, much better. How are all of these improvements captured in GDP data (maybe they are .... not sure)? And for banks, their cost structure has to be way, way lower. All the people they no longer need must be a big drag on GDP (layoffs or separation or someone leaves and are not replaced). And we are just getting started with software improving pretty much every aspect of ones life... I agree that marginal utility can be significant (efficiency and fun). But I remain unsure if, as a whole, we are getting more productive in a revolutionary way (vs evolutionary). Transportation: For example, productivity improvements have been phenomenal for 3rd party logistics providers (CHRW, EXPD). But given innovations and technological advances, why is commute time getting longer in North America? (compare to railway and internal combustion engines introduction). https://www.npr.org/2018/09/20/650061560/stuck-in-traffic-youre-not-alone-new-data-show-american-commute-times-are-longer Education: Is the value of education getting better? Is the education industrial complex getting more efficient and productive with technology? Banking: GDP share of finance has gone up in tandem with the introduction of technological tools and, based on aggregate measures of intermediation costs (which remained stable during previous historical revolutionary changes in technology), those costs have been going up in the last 20 or 30 years (during the IT revolution). Lower transaction fees have been more than compensated by a significantly increase in the number of transactions such as when people follow a rinse-and-repeat strategy :) People may consider using credit cards as a great personal advantage but may not fully realize that merchant fees and rewards do not meet the free-lunch definition. In another life, was involved in assessment of the value in introducing technological tools and was always amazed how allocators of funds (especially if not their funds) considered technology to have a magical appeal. Technology perhaps should be seen as a tool and not as your master. Of course, technology allows discussions and debates that otherwise would not occur. ;) I read the following recently and it seems relevant: https://blogs.wsj.com/cio/2019/03/29/the-productivity-paradox-digital-abundance-scarce-genius/

In my household, I would say that 99% of circulating photos, clicks, likes, searches, videos watched (the number of which has been growing sequentially and quasi-exponentially) should NOT be counted in GDP. Unless we made it to the leisure society but I think the economic possibilities are not quite there yet. I like the anecdote (which seems reasonable for him) when he decided to sell all long exposure and buy treasuries instead, on the spot, while playing golf. He says it was a tweet and I guess he felt the wind change.

^I had similar concerns years ago. The answer I had obtained (if memory serves well) was that my broker was using a rolling 5-day weighted average price on the payment date. After following a few quarters, it seemed that the brokerage firm was applying a consistent method. If you have discipline, doing the buying yourself may save some broker-specific embedded fees of the "free" plans, especially for larger amounts. But discipline also has an implicit price.

I used to have DRIP programs in my accounts for companies offering them but no longer do because 1-I think/hope to do better with the timing of reinvestments and 2-of concerns that, with firms paying high dividends and having a high DRIP participation rate, dividends may be reinvested during a period of artificial and temporary increase in demand (slightly higher prices). In one specific situation, the DRIP option helped to transform a losing value trap proposition into a neutral result. It's basically a form of dollar-cost averaging. The share issuer initiates the program and may outsource the administration to a transfer agent. Some issuers even offer a discount on the shares bought through the designated re-investment program. Look at the WFC prospectus: https://shareowneronline.equiniti.com/PlanMaterial.aspx?Type=Dpp&Plan=NW01 For the cost basis, the broker statement should update the cost with the additional shares bought through the plan. You still have to pay the tax on the dividend though. :)

-A note on the sale price and financing Last month, we bought a nice garden shed. The sales price included 12-month "free" financing. By paying cash, got a 7.5% discount (!). Three years ago, buying a new mini-van, got a 4% discount from waiving "cheap" financing. The car seller's way of explaining was more contorted but it basically came to a creative definition of cheap or free. I think car dealerships have a future. In the last few years, selling new cars has become a pretense to make money with the package of options coming with the ownership and operation of physical locations selling cars. There are obvious secular headwinds but cars are becoming filled with technological gadgets that will require onerous maintenance and repairs. The models will evolve. Given the perceived headwinds, the significant operating and financial leverage and where we are in the cycle, FWIW I think it is a good time to spot the survivors and the ensuing consolidators. Useful references: https://advisory.kpmg.us/content/dam/advisory/en/pdfs/the-end-of-car-dealerships.pdf https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474857318 NADA comes out every year with a report and long-term trends can be assessed.

Thanks for those comments. An interesting aspect is that while you reject the academic argument, to justify expectations, you basically submit what Myron Scholes brought to the quantitative side of LTCM. Being idiosyncratically stupid in most areas, I've found that, to do well, I have to be ready when genius occasionnaly fails. Some months ago, there was an interesting thread led by meiroy about the Austrian stock market. The 10-year government bonds then were at about 0.46%. Today, it says about 0.12%. Does that mean that I should expect stocks to have tripled or quadrupled? When I visited Austria, they seemed to behave like most people do in most circumstances. Your inputs remind me of the Great Moderation period when one of the other inputs were initial claims. Nobody knows the future but what I see looking back are cycles and, since 2007-9, most of the subpar "growth" has come from people going back to subpar work. Looking forward, it seems to me that a lot of people will be disappointed and, maybe, that's what long-term bond yields are saying. https://fred.stlouisfed.org/series/ICSA

What is RuleNumberTwo again? https://www.collaborativefund.com/blog/five-lessons-from-history/ "Long-term success in any endeavor requires two tasks: Getting something, and keeping it. Getting rich and staying rich. Getting market share and keeping market share. These things are not only separate tasks, but often require contradictory skills. Getting something often requires risk-taking and confidence. Keeping it often requires room for error and paranoia. Sometimes a person masters both skills – Warren Buffett is a good example. But it’s rare."

I read this book after boilermaker's recommendation. It's a short book which can be read slowly. One of the messages is that it is not necessary to suffer to find meaning in life. If unavoidable, the author candidly reveals how he found meaning during a life-changing event. Reading the book was easier than going through three years of concentration camp exposure.

I’m sorry, must be missing something, how does this relate to my post on GEICO’s value? I’m very familiar with insurance regulatory capital req’s. In 1995, tangible net worth for Geico was 1.9B and surplus at end of 2016 was 15.7B suggesting that a significant part of statutory operating income (including the 15.5B of pre-tax underwriting gain) was retained at the sub level. In the 2018 report, Geico's float is stated at 22.1B. The 2010 report has interesting comments about intrinsic value of Geico, referring to the fact that the intangible value paid in 1996 for policyholders stood at 97% of written premiums. Adding the 2016 surplus of 15.7B to 97% of 2018 written premiums (33.1B) approaches the 50B mark. Geico does not have the same potential for growth now but interest rates are lower and perhaps will stay low. @DooDiligence Thank you for the corrective due diligence as León Gieco is the Argentine Bob Dylan.

2 questions: By moving sources of imports to different countries (trade diversion effect), a)How will that improve the trade deficit? b)What about the common sense suggestion that the eventually imported product will be more expensive to the consumer? It's hard or impossible to predict what will happen but, from a historical perspective, the last 30 years has witnessed a very unusual rise in global trade and the consensus is for more of the same with some tweaks along the way. The following two references seem to be helpful: https://blogs.imf.org/2019/04/03/economic-forces-not-tariffs-drive-changes-in-trade-balances/ https://www.schwab.com/resource-center/insights/content/street-fightin-man-president-trump-ups-trade-war-ante?cmp=em-RBL

That always happens though in the maturing of the cycle. As rates move higher, lenders can accept more defaults and still end with the same, or higher, income due to the higher rates. Riskier loans means defaults get higher even if the economy is strong. It's not to say that there's nothing to worry about, but you can't just look at the data in a vacuum like that. I mean I get your point, but I'm not only looking at that data. I was just adding it to the mix. No defaults on cars probably wont bring down the economy. But If we hit a recession it will have some big implications. Especially when you look at how inflated used car prices are and how over saturated the market is. You have used pickups with 200k miles on them selling for 6-8k less than a new one. If we hit a recession, I think the auto industry will be one of the first to take a dive. It's also worth noting that if your willing to take out a risky loan on a 70k vehicle then that lack of financial aptitude probably carries over into other aspects of your life. https://wolfstreet.com/2019/05/15/subprime-bites-serious-auto-loan-delinquencies-spike-to-q3-2009-level-despite-strongest-labor-market-in-years/ So two perspectives on this. 1-Sales are growing and so are defaults and pent-up demand will continue to manifest itself (see slide 37 Fairfax Financial 2019 annual slides) 2-I was following this in 2006-7-8 and it seems that defaults are building up before an actual decline in car sales or general economic activity. Most of the stress is building up in the subprime segment (especially the younger age groups) which is relatively smaller vs total auto loans but there has been a very significant absolute increase in the volume and outstanding value of subprime loans (and duration of loans has increased). If interested, there was a related thread: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/leap-puts-on-sub-prime-auto-lenders/

Interesting. Always looking for disconfirming evidence. On the return of manufacturing jobs: https://www.bloomberg.com/opinion/articles/2019-04-05/manufacturing-jobs-boom-is-fading There has been some change in the trend (trend about to change again?) which occurred also in the context of a massive Keynesian-like stimulus (Keynes is dead but he had said during his lifetime that a stimulus was to be used counter-cyclically and that a surplus was to be built for times of duress). On the new NAFTA. Most suggest that changes will be relatively marginal (at least from my side of the border). It is expected (expectations vary according to allegiance) that auto manufacturing jobs will be created because of relocated production in the US but most balanced analysts mention the risks of increased auto prices for the consumers, reduced competitivity of North American producers and increased incentive for automation (may be a good thing but obviously not what is promised, in terms of jobs). A large part of the alchemy is based on the premise that white american blue collar workers expect to go back to the golden days of manufacturing but an alternative scenario is that a synonym for alchemy is trickery.

I wouldn't read too much into the announcement. For AI (however you define it) to work, connectivity and a certain level of transparency is required. This evolution makes the data processor more accountable for confidentiality access and privacy standards.

On November 3rd 2016, FFH sold 90% of their long-dated US Treasury bonds and, shortly thereafter, removed their equity hedges. The expectations was for long term rates and stocks to go up. https://www.forbes.com/sites/antoinegara/2016/11/11/canadian-billionaire-prem-watsa-nailed-the-trump-treasury-trade-and-is-bullish-on-stocks/#2ebe1ef257b6 As of today, after 2.5 years, long term rates are at the same level as on the selling date and the R2000 is up by about 10 to 12%. I think that deflationary forces will continue to "win" over inflationary forces despite increasingly polarized forces and, for better of for worse, that conclusion continues to contaminate the investment thought process.

I can't figure out how to make money with CRSP and EDIT but found the following useful as it covers (the basics) the playing field. https://www.cbinsights.com/research/what-is-crispr/

These odds-ratio and relative risk studies are helpful but need to be validated and tentative conclusions have to be handled with care. The studies tend to show correlation but there is a big conceptual step to cause-and-effect. For schizophrenia and for other similar ailments, in the absence of a spurious statistical aberration, one has to try to differentiate between a risk indicator (pure association) and a true risk modifier (epigenetics stuff that Hielko refers to). The classic example here is the association of mental disease (including schizophrenia) and very high cigarette smoking prevalence. A lot of work has been done to show how an exposure to nicotine or else could trigger the disease. There is however an important body of work showing that there is simply an association through behavior. Also, there is a school of thought suggesting that people suffering from schizophrenia actually benefit from smoking (improved cognition, similar to looked-for effects with medications) and smoking may then actually consist in a mitigating behavior. It's a classic nature versus nurture problem but genes play a very significant role. I guess it's similar to value investing: it can be learned but it's easier if it is in your genes.