Cigarbutt

Opinions voiced about the relative "appropriateness" of regulators' actions may be correct. Relative contrarian opinion here is that the potential for infrequent but significant shocks is underestimated (through insufficient reserves against surprises and through recency bias) but I may be wrong. But, if a significant shock were to occur, the "real estate eco-system" happens to be in a very vulnerable posture. So, a variance of opinions is possible and depends on the weighting one attributes to various scenarios and their potential severities. Interestingly for context, in a typical fashion for the years preceding the GFC in the US, here's a link which shows how the "regulator" may have suffered from looking too heavily in the rear-view mirror. Speech from Federal Reserve 2006: https://www.federalreserve.gov/newsevents/speech/kohn20060518a.htm So, this was an environment of tolerable gyrations within a Great Moderation frame of mind, despite real, growing and significant risks within household real estate (at least relatively apparent to modest contrarian observers). This was also an era where reliance on market discipline was to become challenged shortly after by issues where bank nationalizations were considered as potential remedial measures. When dealing specifically with the prevention of crises: "A third principle is that the actions taken to prevent a crisis should not raise the odds of creating more problems in the future. In particular, the problem of moral hazard is a significant concern. If market participants begin to rely too much on regulators and central bankers to manage possible future crises, they may act in a way that has the effect of raising the risk of a financial crisis. For example, they may fail to engage in adequate due diligence when extending credit to other market participants or to maintain adequate capital for the risks they undertake. And they might come to believe that the government possesses more tools and resources than are actually available to shield them from the consequences of poor risk management." I would humbly submit that their assessment of moral hazard was VERY wrong. Collectively, their assessment was precise but quite inaccurate. Also, when you look at USA-based and European surveys and ivory-tower assessments done around 2005, 2006 and even 2007 versus the potential trouble brewing in US real estate and potential spillovers, the wording is almost exactly copy and paste compared to what is presently reported by the Bank of Canada (2018): "More broadly, participants in the Bank of Canada’s Financial System Survey were asked about their confidence in the Canadian financial system if a large shock were to materialize. Most survey participants remain confident in the current resilience of the financial system." Enough doom and gloom for this topic. BTW, whack-a-mole is one of my family's favorite game when we see one. In a terribly competitive environment, I usually get the second score and my son typically gets first prize. What's your recipe? You have to get your rhythm and anticipate the moves, he says. Easier said than done.

I've been using specialized voice recognition software for three years and have come to the conclusion that there has been displacement of human work and increased productivity. Three levels: 1-basic transcription work: level reached. 2-first-level analysis: level not reached, at least not quite. A while ago, an experienced and knowledgeable assistant doing the transcriptions would suggest additions and omissions when, for intance, comparing for coherence and completeness as expressed in other previous reports (data base). It looks like this could be "artificially" achieved relatively soon. 3-second-level analysis and other higher cognition: IMO sustainable moat will be enduring for a while.

... Hence what happened in the US is not really comparable. When "reflecting" on the housing bubble, US "wise" men suggested that they could have done better, maybe… (government and regulations). But who wants to take the punch bowl away these days? Read this morning, article title: "Why are so many Canadians obese? There’s not an epidemic loss of willpower" and from the article: "Blaming people doesn’t do us any good...it just makes it worse". In fact, discussing this financial obesity issue is really only possible on an anonymous board such as this one. What happened in the US was different mainly because of securitizations and some mass scale deleterious aspects of many mortgages but key ingredients are shared: ultra-low interest rates, very significant credit expansion and IMO irrational expectations about home prices. Whichever way one looks at this, home prices have decoupled from sustainable earning power of significant segments of buyers. IMO, the real estate outcome is baked in the cake. In another life, I was asked to prepare reports/testimonies on the validity of cause and effect relationships. In some cases (baked in the cake), an outcome happens and one tries to allocate for a trigger factor. In these cases, one can use the practical example of an apple that is ripe enough to fall. When sitting under a tree (thinking of a gravity theory or whatever) and seeing an apple falling, you may think that it's the wind, people walking around or even you looking at the apple...But, one may need simply to realize that the apple was ripe for detachment. I would say that the best time to harvest apples is during the fall, which I plan to do today. :) Opinion: Public oversight should be more pro-active and counter-cyclical but who wants to be a party pooper? Canada real estate was not ripe in 2007 but IMO it is now. Contagion goes both ways.

As mentioned above in the thread, Ashley Vance's biography of Elon Musk is a good read and gives a glimpse of what it must be to be him. The biography is easily available for download but here's an "official" link: https://www.amazon.com/Elon-Musk-Billionaire-SpaceX-Shaping-ebook/dp/B00SIDCSWY Interesting that "burnout" syndrome is mentioned. "It's better to burn out than to fade away" is a key line in a classic song written by Neil Young in the late 70's. Neil Young was not referring to the "burnout" syndrome then and later explained what he meant: "it's better to burn out really bright than to sort of decay off into infinity", which may reflect how Mr. Musk feels in general. Also interesting to note that the social definition of the "burnout" syndrome has evolved. Before it became associated with stress and heavy extrinsic demands, in the 70's and 80's, classical burnout cases were manifested by people, typically idealists, who failed to reach unrealistically self-imposed intrinsic high altruistic goals, possibly a better potential depiction of Mr. Musk. “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” George Bernard Shaw Whatever disease or syndrome considered, Mr Musk's "problem" is that he has been unusually unreasonable. Mr Thiel has said of him: "To the extent that the world still doubts Elon, I think it’s a reflection on the insanity of the world and not on the supposed insanity of Elon.” He indeed may need help but this may not be an option for him. Hope he does well.

The perspective is historical. If you have an interest in cycles or if you feel that interest in cycles is counter-cyclical. Freely available now in a pdf version: https://www.bridgewater.com/big-debt-crises/ Thought it was a nice complement to Mr. Marks' latest memo.

To prune or not to prune? That is often the question. Thank you.

CREA has national statistics on residential market balance with inventory in months and it is possible to look at regional inventory numbers. http://creastats.crea.ca/natl/ http://creastats.crea.ca/treb/ Looking for disconfirming evidence but would tend to say that the Canadian mortgage regulatory framework is more "sound" although Timothy Geithner and Ben Bernanke used to give reassurance that was growing alongside implicit and explicit government involvement. And things turned out more complicated than forecasted. -underwriting standards appear to rely on stronger documentation and clearer rules for down-payments and affordability -mortgage interest is not deductible and lenders have legal authority to go after borrowers -the mortgage product is less "exotic", no teasers and the principal is scheduled to go down -the mortgages are less intermediated In contrast to the US where the government encouraged home ownership and the subprime wave, I find that, in Canada, the government has "only" allowed an environment where households became "comfortable" with debt and became used to rising house prices much faster than fundamentals. However assumptions relied, at least in part, on mortgage interest rates remaining low and the regulators now appear to be behind the ball. So, the mortgage markets are different animals when one compares the US and Canada. In 2006-7, an argument can be made that the subprime sector imploded, spread to the rest of the mortgage sector and then the economy went south. For the above reasons, IMO the Canadian real estate market is unlikely to turn badly on its own but different measures show a relatively high degree of vulnerability if the economy experiences a cyclical downturn (for whatever reason). Asset busts are much more painful and longer than the typical cyclical economic busts. https://www.bankofcanada.ca/wp-content/uploads/2015/12/fsr-december2015-cateau.pdf see pages 55 and 56 of the document, including Box 1. But nobody really knows until we find out. Sometimes objects in mirrors are closer than they appear. It is possible to envisage the possibility of "deep trouble" but the banks should make it through considering that public entities would rapidly rescue and back-stop with the undesirable potential side effect of preventing the deleveraging from bearing its fruit.

No need to answer 'cause politics is heavy today and I mostly agree here but food for thought: What is meant by "useful"? Who would define "usefulness"?

Along the same lines, FYI: https://www.bis.org/publ/qtrpdf/r_qt1809u.htm

Welcome Tadimety. Where do you see both stocks in 10 years?

The reason for this post: -With enough conviction, I would short a basket of Canadian banks. -In the meantime, I am scouting real estate (apartment buildings) in my area in order to be ready to buy, given the right circumstances. It is even reasonable to consider the possibility, contrary to the historical trend, that condos could eventually be converted to apartments. The context is the Australian real estate market and the narrative is the parallel development with Canada, New Zealand and some Scandinavian countries. https://lt3000.blogspot.com/2018/09/the-australian-housing-bust-why-this.html According to the author, the market is priced for perfection and a perfect storm (that's what it would be called in hindsight) combining the economic and credit cycles could deflate what could eventually be called a bubble. https://www.whitehelmcapital.com/wp-content/uploads/2018/05/201805-Feature-Article-Tightening-Lending-Standards-Brief.pdf The report that confirmed what many suspected. Since then, the mortgage market has tightened and prices have started to decrease but the damage will be "contained" (heard that before?). https://www.rba.gov.au/publications/bulletin/2009/may/pdf/bu-0509-4.pdf https://www.rba.gov.au/speeches/2018/pdf/sp-ag-2018-02-20.pdf What I find absolutely fascinating is that "authorities" could explain, in 2009, the Australian exceptional experience during the GFC but apparently fail to appreciate now that the very factors that allowed the relative smooth transition (absence of excessive price and over-extension, "better" regulation and tax policies) then are no longer true. When facts change... https://www.businessinsider.com.au/chart-australian-wages-house-prices-2018-3 (compare graph 14 in 2009 document to above; note that the latter graph does not measure the exact same thing but the proportional change holds. Specifically, the rising "dwelling" price to income measure has certainly thinned the margin of safety to the point of oblivion. A similar conclusion can be reached for LTV ratios which have "improved" lately but with a high starting point (coming back to earth?). Like in Canada for many cities, Australia home affordability is challenging. Coming back to the LT3000 blog thesis, timing is the issue and there is always the possibility that mortgage debt to GDP will just continue on its upward historical trend. ::) http://www.abc.net.au/news/2017-04-09/mortgage-to-australian-gdp-ration/8429174

Sorry, it's difficult to convey some stuff on the internet. Another way to say what I mean is that there are only a few people who can show both show a high level of confidence AND a high level of critical self-doubt. It's hard because one tries to achieve the balance between two contradictory forces. When we take decisions, we have incomplete information and may have to act decisively (like the subject of this thread or when we make an investment) while at the same time remain comfortable that we may be wrong. I think Seth Klarman has said something like: "You have to balance arrogance and humility". To understand this though perhaps makes it easier to recognize mistakes and to learn from them. An alternative is to remain angry.

Fair enough. Helpful to remember however that, if people were rational at all times, value investing would be much less fun. :) Still painful to watch an upcoming train wreck, even with apparent slow motion. Good for you. Anecdotally (but maybe typical of what is happening in the education systems of developed countries?), earlier this week, I went for the meeting with the teacher to start the school year (6th grade). The teacher seemed to be dedicated and competent but spent about half of her presentation on the importance of student self-esteem and how the inner voice is an enemy. I agree with you that one should make his or her inner voice an ally but, in my humble experience, the strength and purpose of the inner voice tends to be inversely proportional to the inner score card strength. The combination that both John and you show appears to be rare.

Trust in media is reaching cyclical lows as the media used by media is undergoing transformation. But "there are so many good stories that haven't been written yet". If one of my children would decide to become a journalist, I would say that the long term value has not changed.

Not sure if formal teaching with an elaborate curriculum is the way to go or if only some kind of online simplified program could do the trick. Perhaps an even more targeted approach (cost effective) may help. Just for awareness of potential evidence, there seem to be green shoots. https://www.inceptia.org/PDF/Inceptia_LoanSummary_Whitepaper.pdf https://www.in.gov/che/files/150722_PressRelease_TruthInBorrowing.pdf https://www.in.gov/che/files/Loan_Disclosure_Template_for_Mail_Merge.pdf A simple annual "reminder" seems to "nudge" people in the right direction. A bit sad that we may need "programs" to help people helping themselves but the principle of secondary prevention is to minimize the impact of a disease once you have it. Obviously primary prevention is better but democracies are not perfect.

This is an old thread but relevant as patience is a potential requirement. In retrospect, 2009 was a great time to be in stocks but since then, along with some minor bumps, junk bonds have fared very well and continue to reach new heights. When climbing a high mountain, gradual ascension can decrease the risk of cerebral malfunction due to lower levels of oxygen but confusion can happen. The last elevation segment is always the most tricky. And now, some feel that the sector has become a "safe haven" above a sea of potential volatility. https://www.marketwatch.com/story/heres-how-junk-bonds-became-a-quiet-haven-for-investors-says-baml-2018-09-10 https://www.hvst.com/organization/thornburg-investment-management/posts/beware-high-yields-siren-song-X7QTZzx5?position=1 http://www.leveragedloan.com/covenant-lite-share-us-leveraged-loan-market-hits-record-79/ Maybe, this is a story with no end but I would tend to bet in the other direction. Good ole Ben Graham used to say that, in some instances, the only effective resistance is to look away. In Homer's Odyssey, in order to escape the funest appeal of sirens, Ulysses "resisted" by having his ship's crew tie him up, and members of the crew were ordered to block their own ears with wax to prevent themselves from hearing the song.

There's a broader underlying point here about the financial illiteracy of even apparently intelligent people in this country, whether teenagers or adults. As you note, this person made the initial decision to go to NYU and major in journalism when he was 17 or 18 years old. He appears to be an intelligent person. So, why did he (and many others like him) not make wiser decisions? I understand the point about personal responsibility, but most people absorb the lessons they see around them. Interesting question. Looked for answers. https://www.brookings.edu/wp-content/uploads/2016/06/Are-College-Students-Borrowing-Blindly_Dec-2014.pdf https://static.newamerica.org/attachments/2358-why-student-loans-are-different/StudentLoansAreDifferent_March11_Updated.e7bf17f703ad4da299fad650f47ac343.pdf So, this is an issue tied to individual responsibility. But what if everybody around you (parents, friends, social circle, school, government and other institutions) say: "Don't worry, just sign here." Is it reasonable to expect that the average college applicant will behave responsibly? Somehow, I would say that the "system" can be improved and not only through emphasis (and consequences) on personal responsibility. This has a lot of parallels to the unfortunate mortgage episode that happened recently. Doesn't history repeat itself sometimes? Can we learn from mistakes?

Interesting discussion about responsibility. When faced with it, an easy way is to point fingers and share the blame. Sometimes though, responsibility does need to be shared. IMO, it's hard to say that the government (our image?) has a fiscally responsible behavior: https://fred.stlouisfed.org/series/FYFSD Some days, I have a feeling that we are living on borrowed time. Wonder if the Financial Crisis was not wasted? That's life and humans are humans.

The pattern of country-of-origin immigration has followed a very similar course for both the US and Canada with Europeans now forming a minority. In my line of work, brain drain to the US (and those looking for larger incomes) in the 1990's was a relatively significant problem but the trend has become neutral and (numbers show) has started to reverse. In general, my understanding of the net migration number between the US and Canada is that it has been pretty much neutral for a while. The US continues to be a potential magnet for talent (students and professionals) and I would say that the net migration for the retiring/retired will be in the direction of the US because of climate unless you like ski-doo (that could eventually be my case). https://www.migrationpolicy.org/article/canadian-immigrants-united-states

This anecdote reminds me of a conversation I had in 2007 with a same-year graduating colleague who wanted to relocate from Fresno, California, who had bought a larger mansion in 2006 and had kept the previous one for "investment" purposes. https://fred.stlouisfed.org/series/ATNHPIUS23420Q Like the Toronto investor you describe, sometimes I get a feeling that the renter is on the right side of the transaction. I haven't spoken to this person for a while but I hear that he hasn't relocated because he wanted to stay relatively close to the ocean. I would bet though that he may still be still underwater.

The US and Canada have a lot in common and IMO continue to be great potential destinations for immigrants. But there are "cultural" differences in the host countries and that may account for unobservable self-selection differences for the immigrants, which is difficult to measure. The host countries selection criteria are also different and shalab, whether his questioning is genuine or not, may have a point. The Canadian immigration system has evolved, over the years, to increase the level of education and skills for incoming immigrants. This has been shown to "work" in the sense that the immigrant profile shows a higher education level. However, some research shows that this has not translated into a better economic result (income, poverty level), at least for the initial period after arriving in the host country. The US, somehow, for this part, seems to be better even if no similar changes have been made in the selection criteria. Helpful to remember that there is an awareness and a process going on to improve the integration challenge. The difference between the European descent and other places in the world can be explained, at least for the initial period, because the cultural distance is greater. Over time, these differences tend to disappear especially with the second generation and this phenomenon has also been shown in the US. Immigration is a two way street, but people usually emigrate in order to increase the range of opportunities. https://sencanada.ca/en/senators/ataullahjan-salma/ http://www.parl.ca/iia/Default.aspx?DCId=4&DTId=1&P=1388_interview-SalmaAtaullahjan&Language=E

^For 1) either keep the share-based compensation as a "true" expense or add it back and use the diluted share number. Tough question especially since this line item can be quite large and since, in a way, this expense can be seen as a discounted loan from existing shareholders to management/employees where the ultimate value (value of which one could derive with company's disclosures using models but which often end up very far from estimates) to be "paid back" upon maturity is still unknown. This can "become" a more expensive owner expense over time but, fortunately, if that's the case, as a share holder, you likely end up rewarded by the market too unless management is better at timing of exercise and sale of shares. For 2) NOPAT is an unlevered measure.

I'll give it a shot. Mr. Buffett has defined some assumptions: -ROE and inflation are not proportional and not even sticky -Higher inflation periods are typically associated with poorer general economic conditions with +/- lower demand and higher partial fixed capital utilization His take seems to be that firms with stronger pricing power would be relatively less punished (or swindled) versus capital intensive firms which, typically under these circumstances, would have delayed and partial pricing power and would have a relatively higher amount of capital sitting idle (so lower ROEs). The reinvestment of retained earnings question remains open but Mr. Buffett has shown the ability to deal with that specific question over time. Given BH's huge size now, this would also explain his interest for large utilities with contractual indexing and pretty much guaranteed capacity utilization. If you like to think along multiple dimensions, here's an unrelated example. I'm into cycling and sometimes do racing. Conditions vary but the best time to "attack" or to differentiate, in general, is not when going downhill or on rolling terrain, it is when going uphill, at a time when your relative competitive advantage or power/weight "moat" may grow larger with gravity working against you. If you have time or interest, here's a collection of what Mr. Buffett has said about inflationary conditions. A lot of the comments have to do with the effect on reserves but a lot of it has to do with your question. http://csinvesting.org/wp-content/uploads/2015/01/Buffett-inflation-file.pdf

This could be the beginning of a partial answer to your question: "Fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance." ---Charlie Munger "If you surround yourself with people who are better than you are (high-grade people) you will end up behaving more like them, and they, in turn, will get it back from you. It’s like a planetary system. If you hang around with people who behave worse than you, pretty soon you’ll start being pulled in that direction.” ---Warren Buffett Maybe, the quote you're looking for does not really exist and you'll have to create it yourself. :)

https://www.bloomberg.com/graphics/2018-shrinking-hedge-fund/ Why search for "alpha" with Mr. Einhorn and other high-profile hedge fund managers when all one has to do is to ride the wave, the wave with no end in sight. "And yet it moves", he apparently muttered.