Cigarbutt

A partner or a fox? If your thesis lies on the assumption of more of the same, the CEO’s assessment is reasonable. I would say that this status quo reasoning reinforces a false sense of security, an ideology of cautionary principles and stationary states. If your thesis lies on a coming disruption with many small, unknown and bold players waiting to deploy their ideas, given the opportunity, then the big-three announcement may signal that the door is opening. It may be reasonable to think that Amazon will set up some kind of technology-based transparent marketplace for the providers and the “consumers”. Something like a consolidated middleman. A relevant example is what happened with the transportation logistics revolution that occurred since the early 80’s, although few people realize it was a revolution and it is often a neglected factor in the economic growth of the last few decades. Transportation logistics specialized in maximizing efficiency at all levels: from the order, to temporary storage, to the coordination of carriers, transfers, warehousing and delivery. Most transportation firms (asset-heavy) have an in-house logistics hub but this side of the business has been somewhat overtaken by asset-lite specialized entities (CH Robinson, Expeditors, etc) who became sophisticated brokers (middlemen). Transportation is not healthcare but nobody would go back in time in the transportation industry. Transportation costs are way down and these specialized brokers have been very profitable investments. My humble take on the article and on the position of the “industry” is that if they want to partner with the big-three project, I see it more as a Trojan horse situation. The crafty Odysseus was able to bring the horse right in the middle of the city of Troy. Not a technology expert but I understand that a “Trojan” is used in the techno area as a trick or strategy that creates a context where the “virus” is spontaneously loaded into a protected or secured bastion and then fashioned to induce the host to willingly activate and use it.

One would have to define market timing. I remember reading the following which really helped with perspective: http://brooklyninvestor.blogspot.ca/2014/03/buffett-market-timer-part-1-partnership.html There are five parts.

On the potential squeeze and potential transformation, we appear to be very early in the game. There will be certainly pressure on the suppliers but demand will have a strong tendency to go up. Potential winners may the ones able to position themselves to achieve satisfactory rates of regulated returns and gain market share. DVA seems to be a good example. Simply getting to move at the speed of an elephant may be a comparative advantage to slow moving dinosaurs. The "customer" cost/value proposition can be improved.

Dynamic, I always read your posts with interest. Impressed by the level of internal consistency and transparency. Question: "Last night we checked our household budget and brought forward and increased our usual cash subscription to add another 1.5% to our portfolio, which should be available to invest today or possibly as late as Monday. I'm also considering switching our 4% position in Wells Fargo to BRK.B, so might well do both on the same day and add about 5.5% to our BRK.B weighting soon somewhere in the $191 region (GBP £137)." Is this simply a one time adjustment in the saving/investing dynamic or is it some kind of periodic and opportunistic dollar cost averaging?

"Took another look now. Looks like things haven't been going so well for rails since 2014. I'm not sure their current valuations are justified." "Freight revenue per ton-mile has held up actually, but returns have converged. The industry has pricing power, but volumes have gone down materially." and: If you look at CNR PE now, it is in the historical low range. So a firm/industry hit by short term issues with good long term prospects. Value investing? This may belong to a separate thread, but a few comments about CNR: -consistent operating history -leader in efficiency -main transportation alternative for many (inescapable for some) -asset base resulting in very high barriers to entry -long term comparative advantage to other forms of transportation This is not a high level growth company and the capex burden is high. Also, pension liabilities are getting larger. But, if I would go fishing for 10 to 15 years, this stock/industry would be on my target list.

Whenever I go back to this topic, I look at: https://www.aar.org/ Every year, they come out with Class I statistics: https://www.aar.org/Documents/Railroad-Statistics.pdf Railways have a great past and great future and will likely remain as a privately owned infrastructure.

"A correction is healthy and probably inevitable after such a strong start to the year. But basically we've just retraced the 2018 gains and are back to where we were at the end of 2017. And predictably we are already starting to see the "buy the dips" mentality kick in. After strong returns in 2016 and 2017 it wouldn't be surprising if the S&P 500 went sideways this year with more volatility than we've been used to. But unless inflation really kicks off or growth really disappoints it is difficult to see anything resembling a market crash. Even if interest rates drift up towards 4-5% that would still support a PE ratio of around 20 and by the time interest rates get there S&P 500 earnings will probably be more like 120-130 so I can't see us drifting too far from the current level of 2600-2700." mattee2264, Thanks for the comment and guidance. I wish I could show this degree of confidence for the short term outlook. I respect what you mention but have to reconcile with the following quote from Professor Shiller: "Stock prices are likely to be among the prices that are relatively vulnerable to purely social movements because there is no accepted theory by which to understand the worth of stocks….investors have no model or at best a very incomplete model of behavior of prices, dividend, or earnings, of speculative assets." I guess this is why value investing is so fascinating.

"I've never understood the modern fetish for positive emotions. We are the products of thousands of years of evolution. If negative emotions were not important they would have been bred out of us a long time ago. Almost every single important step in my life was proceeded by a lot of depressive and negative thinking. And many of the greatest people were enormously negative...Lincoln, Churchill, a tonne of artists and writers." This may relate to investing and to the ability (sometimes innate) to show contrarianism. You make want to reflect on the interaction of mood and attitude, or vice-versa. You may also enjoy reading about William James, the philosopher and mathematician. Here's a quote, when he discusses the inadequacy of healthy-mindedness: "...because the evil facts which it refuses positively to account for are a genuine portion of reality; and they may after all be the best key to life's significance, and possibly the only openers of our eyes to the deepest level of truth." BTW, I have read a lot about Lincoln and Churchill and don't quite agree with your "negative" conclusion. I would submit that they were often inhabited by bouts of melancholy and each suffered their share of sad events and failures but Lincoln worked very hard at forging a positive attitude in the worst of times and Churchill is the one who said the following: "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty" and "Attitude is a little thing that makes a big difference". If you want to "enjoy" reading about another Ivar but real, go for Goethe, the writer (Faust), statesman and scientist. You won't be disappointed. Disclosure: optimist but complacency and oblivion can ruin your day. :)

One of the things I admire most about Mr. Buffett is his unique ability to act rationally, whatever the circumstances. On the question of spotting opportunities, making "stupid" mistakes and buying stocks after significant price appreciation: "We've done it before". Now, he is sitting on a pile and as far as I know, he hasn't pulled the trigger. It is fair to say that BH would not bet against Amazon but they also would not invest in it at this point. I think that represents a reasonable position. https://www.cnbc.com/2017/05/08/warren-buffetts-one-word-answer-for-why-he-hasnt-purchased-amazon-shares.html

@gary17 "rb can you explain for those without economics degree why when China runs trade surplus they need to buy T bills?" rb's answer is the classical answer and quite satisfactory. If you're looking for something more "visual", you may want to try: https://www.khanacademy.org/economics-finance-domain/macroeconomics/forex-trade-topic/current-capital-account/v/why-current-and-capital-accounts-net-out If you aim for a more "folksy" answer: http://archive.fortune.com/magazines/fortune/fortune_archive/2003/11/10/352872/index.htm A certain investor said that "a solution must come" as he saw an unfavorable trend. The article was written in 2003. In macro, it may take a long time to find an explanation or for an explanation to find you. :)

"Amazon seems like a nice elephant." I'm not sure what you mean? Are you referring to the elephant acquisitions that Mr. Buffett talks about? If that's the case, maybe there is something to learn. My understanding is that Mr. Buffett always carries his loaded elephant gun but is known to have said that he enjoyed shooting fish in a barrel. He does not seem to use an enterprise value to revenue ratio as a selection criteria. In many ways, what Amazon has accomplished in the last 20 years is nothing short of extraordinary. I submit though that it is priced now for more of the same. Here is a link that I read earlier today that is superficial and sensational in nature but that nonetheless helps to put things in perspective: https://thefelderreport.com/2018/01/31/amazon-adds-a-mcdonalds-in-market-cap-in-the-month-of-january/ Funny because there may be some interesting parallels between Jeff Bezos and Ray Kroc.

https://finance.yahoo.com/news/one-qualification-warren-buffett-like-berkshires-next-ceo-172054448.html Modest and motivated. Rare breed.

Interesting topic. So many variables, including sentiment. Not clear though how this can "impact" investment decisions/outcomes. Maybe should spend the time reviewing DaVita instead. The theme is to assess the possibility of "restructuring" and how to position to have protection or to benefit. Trying to connect some dots after reading an interesting report that is relevant to the US government 10 year bond yield. http://en.dagongcredit.com/index.php?m=content&c=index&a=show&catid=88&id=4937 The complete report (bottom of page) has some nice graphs. I understand that the analysis may be biased but isn't it interesting to learn about competitors' assessment? Especially if they are major owners of the very paper (electronic entry) they are holding? So, can the US government default? The answer is very likely no in the classic sense given the ability to "print" its own currency and given our present risk-free environment. But the default definition can be elastic. Interestingly, in January 2009, Mr. Market (the credit default swap spread market) assigned a probability of US government default at 6% (!) over the next 10 years. (Amazed by this phenomenon as one had to rely on a counter-party ???) Since then, I understand that the measure has remained below 1%, and often a small fraction of 1%. end 2008: total public debt/GDP=73,5% Q3 2017: total public debt/GDP=103,8% The US has never failed to repay its debt. But there were two episodes where the elastic definition applied. First in 1790 (interest deferral in a venture capital spirit) and in 1933 with the gold devaluation that petec referred to. At this point with the economy firing on all cylinders, the public deficit stands at about 3,5% of GDP (growing trend) and private savings rate (December 2017) is at 2,4% (low point and declining). More questions than answers at this point. In 2018, -What is the standard of value? -What is the (real) price of debt? -If you represent the standard of value and you need somehow to devalue, how can you devalue without "partners" doing the same? One can hope that the underlying economy can reach its full potential. Interesting times for the 10 Year Bond.

"How does it impact the overall healthcare system in the US? We'll find out." We will indeed. The intent is long term but the short term focus will be on the cost/quality curve for their own employees. Private firms have had the option of outsourcing the health care benefit management. The decision is becoming more costly and it appears more and more to be a poor value proposition. For those interested in comparing their own premiums with averages, here's an interesting link: https://www.kff.org/interactive/premiums-and-worker-contributions/#/ The "premium" is the total cost and you can adjust the graph for single/family status and can "compare" with employee contribution which is a fraction of total cost. Interesting to note that the total cost, even if the trend has somewhat improved comparing to the 1980's-90's period, continues to grow at relatively high rates. Also interesting to remember that rising health costs have been only one of the few items keeping CPI above zero in our (still) largely disinflationary world. The "big three" announcement has been met with some doubts: "The new company will have to align itself with main industry players". Helpful to remember that many previous attempts have failed but, lately, many similar endeavors are coming to life. Intel has made some regional progress on this front. Also, in 2016, many self-insured employers (including American Express, BNSF, Coca-Cola, Verizon...) have formed the Health Transformation Alliance. The essence of these initiatives, at this point, is to "cooperate" and gain scale/leverage. So far, these groups show some promise but have not been able (so far) to address the fundamental cost drivers of unnecessary care and avoidable complications. In a way, health care is a puzzle of components that are essentially commoditized. The way the incentives are set up, at this point, prevents competition and the associated downward pressure on prices as ill-defined collusion forces make prices "sticky". Also, over the years the third-party "shield" (on a net basis, obviously not the case if you have to deal with higher deductibles and higher co-payments) has become larger, delaying the impetus for significant reform as many participants tend to think that there is a free lunch somehow. The new "project" spearheaded by Amazon likely will target the whole supply chain. Some analysts have mentioned that the fear of healthcare disruption will have to be reconciled with today's reality. The treatment of a tapeworm infection rests on the necessity to evacuate it. But first, you have to put it to sleep.

Interesting to note that Mr. Buffett and Mr. Munger have been unusually vocal concerning the financing aspect of healthcare and seem to back a single-payer system. But the internal focus will initially be on the health benefit cost per employee aspect in a way perhaps that is related to how 3G capital would look at every step along the way to cut cost. The bottom line would include the value that the employee would perceive as the end result in terms of health benefits. Friction expected along the way but a potential win-win. And then, the model could be expanded, whoever pays the bill at the end of the line.

This is great news. What analysts describe as a relative disadvantage (new player with a yet undefined vision) may be one of its greatest entrepreneurial strengths. The idea of starting with a cash flow negative pilot project makes sense before a scalable model is deployed. Healthcare is based on science but its delivery is far from scientific. Just comparing regional variations would meet the definition of haphazard. A lot of what is considered “complex” could be simplified with the introduction of efficiency and discipline. The timing is excellent as true “reform” will likely take precedence over idleness factors. It appears that there is great potential to increase quality and satisfaction (patient, provider, insurer) AND to decrease cost. If that is achievable, the “profit” can be shared. Creative destruction at work. Bring it on.

Perhaps a good time to re-visit as the above-mentioned book was as much a biography of the man as a story of the famous brand. http://www.irishnews.com/news/worldnews/2018/01/28/news/ikea-founder-ingvar-kamprad-dies-aged-91-1243700/ It seems that his successes had a lot to do with energy, flair and focus, combined in an unusual intensity. On a related note about a piece he wrote in 1976: http://www.ikea.com/ms/en_US/pdf/reports-downloads/the-testament-of-a-furniture-dealer.pdf

Aberhound, Yes, interesting read. Not sure, I follow you down the conspiracy path against the oligarchs but believe in cycles, and sometimes wonder about collective intelligence. Your post reminded me of a quote I recently came across: "Economic life is not a race, nor a game. It's simply housekeeping, and getting maximum enjoyment from available resources." If you like to read, you may enjoy the biography of Bernard Baruch by James Grant. It is long but meticulously researched and you may discover some surprises.

"Feels like 1994" These days, really looking at optionality in FFH bond portfolio. Mr. Bradstreet has done an amazing job over time and the return component of the bond portfolio may not have been (and may not be) fully appreciated. Speaking of 1994, FFH had a net negative move on unrealized gain on bonds of 20,8 million then with the message that bonds would fluctuate and could be held to maturity. SE was 391,9 million. In 1995, the net move was +39,2 million. In 1997, as per annual disclosure, Mr. Bradstreet was building a significant put bond position with dual maturity dates and that position continued to grow++. In 1999, long bonds went down about 20% and FFH reported 1,241 billion unrealized loss on bonds. SE was 3,116 billion and then, FFH was facing a difficult negative cash flow environment. The unrealized loss position reversed after. What's the point: -FFH (Mr. Bradstreet) has been able to find bond opportunities in many different circumstances. -They don't seem to mind huge unrealized positions as long as their long term thesis holds. -My understanding is that they mostly expected rates to go down over time. -The actual cash position now at FFH is highly unusual. I understand the investment team is (was?) morbidly fascinated by the the way Japan evolved in terms of general interest rate yields. In a way , if you're not mindful of the JGBs-type widow maker trade, a simple way to make money would be to short bonds if you expect yields to go up. No? Can't wait to see the evolving strategy on this front.

Subtitle: The Power of Courageous Leadership in Turbulent Times. Did not pick up this book expecting business/investing insights. But it's about leadership and I thought it would be relevant to do a review here. May have practical value when watching a CEO "perform" either as a leader of one of your core holdings or as a key actor in a difficult situation (ie restructuring). This book will stay with me and I highly recommend it. https://www.amazon.com/Forged-Crisis-Courageous-Leadership-Turbulent/dp/1501174444/ref=sr_1_1?ie=UTF8&qid=1516544944&sr=8-1&keywords=forged+in+crisis The author, a historian, elegantly brings five historical characters to life. 1-Ernest Shackleton, a polar explorer 2-Abraham Lincoln, the 16th President 3-Frederick Douglass, an advocate and spokesman 4-Dietrich Bonhoeffer, a young German minister 5-Rachel Carson, a scientist/author/activist The chapters on President Lincoln show a man sometimes inhabited by doubts and frailty but at the same time determined to take what he considered to be the right path. I thought that the author's description fit nicely to the depiction of tranquil strength showed by Daniel-Day Lewis in the movie Lincoln. Impressive. The chapters on Dietrich Bonhoeffer expands on the "price" to pay for your actions. Those familiar with the works of Hannah Arendt on personal responsibility may particularly appreciate the degree of moral commitment. The author's most provocative proposition is that leaders are not born but made. It must be terribly lonely at the top. I got my copy from the local library but I have included a link above.

Just thinking out loud and not taking a specific position on the role of the ECB. The 2017 report is interesting and draws a realistic picture of the present situation. Thanks for the link and the observations. Just re-read their 2006 and 2007 Economic Forecasts. Definitions Forecast: prediction based on objective facts (ideally) or experience or something else. (my bold) Foresight: vision, or a horizon of expectations, based essentially on your internal farsightedness, prudence or general mental preparedness. (my bold) I would venture to say that if macro is useful at all, it should rest (at least try to) on the latter definition. With all due respect, I find that the ECB does not discount the possibility that what "it" thinks or does may not be relevant for the Markets in certain scenarios. :)

When you look at the interest rates (ie US 10 yr bond) trajectory in the last 30 to 40 years, the trend cannot continue unless interest rates become negative. ??? It may be reasonable to expect higher interest rates going forward. But cannot offer a "base forecast". With all this talk about relative valuations between asset classes, it seems that what you describe is becoming mainstream thinking. Another example (skip the section on China, look at graph Cyclically Adjusted Earnings Yield US 10yr Bond Yields... and associated commentary): http://archive.is/6BCMF I wish I could see what's coming but it is always darkest just before the Day dawneth.

Interestingly, the Globe and Mail had a small commentary about this topic yesterday with a reference to an article written by a hedge fund manager who used to be government economist. Is that what they mean when they say that some people are reaching for yield? https://www.theglobeandmail.com/globe-investor/investment-ideas/gi-newsletter/article37632557/ https://behavioralmacro.com/there-is-zero-correlation-between-the-fed-printing-and-the-money-supply-deal-with-it/ The gist of the article would tend to go along what rb describes in relation to the multiplier effect and velocity of circulation. The actual transmission mechanism does seem to rely on animal spirits. I like also the way Rainforesthiker describes the forces which are multi-factorial and often opposing. It must be a challenge these days to manage a bond portfolio, especially if your goal is to earn more than the benchmark. :)

@RichardGibbons I reviewed this topic. Thanks for shining a light on my (relatively weak) assumptions and for underlying other key issues. Live and learn.

One feature that I have followed and that may have implications in the opportunistic "future" of FFH is the growing presence of alternative capital, especially in the reinsurance market. Last year was unusual in terms of the size and frequency of major catastrophes. Despite the losses in several catastrophe bonds, there seems (anecdotal and some data) to be an abundance of capital (often from the same sponsors) who continue to provide "replacement" capital. This appears to be a slight positive for primary insurers as reinsurance rates are "kept" lower but some say alternative capital is looking into the territory of primary carriers as well. I find that the capital inflows provided by the insurance-linked securities market has been unusually strong in the last few years. I suspect that this may be a major enhancer of the underwriting cycle. It must be frustrating for reinsurers to have competitors who can provide capital almost out of thin air in softer environments. Even if this may prolong the softness of the markets, I submit that, in due course, it may also contribute (disappearing capital) to a harder market in a more difficult environment. From my limited perspective, I would like to see net premiums written by the reinsurance segments of FFH to remain stable or even shrink in this environment. www.artemis.bm/deal_directory/cat_bonds_ils_issued_outstanding.html What is a "SOP" valuation?