Cigarbutt

You are right, the timing is impossible to predict or forecast. Think Kyle Bass. The description was only to convey that this complex financial structure is based on trust. The Imperial Palace will not disappear overnight but confidence can vanish. Some people thought the Berlin Wall would never fall. The model did not consider that as a viable option. I may be wrong but we clearly are in uncharted territory. Yeah and it's only an opinion. Story: I visited the Chicago Federal Reserve 4-5 years ago. There was a gentleman who was retired from a senior position. He was the guide. Nice man. One of the attractions of the exhibits was some kind of game where economic data would appear on a screen and the participant had to adjust dials (ie interest rates) in order to control the economy. The gentleman thought that the game was really funny. Funny thing, I left terrified. You're right: only an opinion.

"Now the Japanese private sector get's pissed of at the government and doesn't want to buy bonds anymore. It exchanges its yen for RWD and buys RW bonds instead. But now the thing is that RW has a bunch of Yen. It can't use them in RW because things are denominated in RWD over there. RW can do only two things with its Yen. It can buy Japanese assets - essentially Japanese bonds - so no funding crisis for the JP gov't. Or it can buy Japanese goods with it - the it increases JP exports and AD pushing the economy towards capacity so growth, revenue, etc." In order for this to work, you need relatively fixed terms of trade and exchange rates. Remember that Japan has a massive net liability in yens on its balance sheet. In substance, they're essentially at the helicopter money stage. Japan has very special attributes and that has, unfortunately, allowed going down this path. One day, everything is fine as "they" will do whatever it takes and will provide unlimited support. Then you wake up and buy your bread in the morning because it will be more expensive than in the afternoon and you start carrying your cash with a wheelbarrow. My opinion: not a recipe for success for the current economy.

"Not OK. Japan's external + balance is not in the billions of yen. It's in the trillions of yen. 349 trillion yen at last count to be exact and growing. That's about 3.1 trillion USD." I was wrong and you are right. OK. Even if the magnitude of my mistake is large (not very precise), I would venture to say that the conclusions are still accurate. The increase of public debt in the last 7 to 8 years matches the actual external debt. If this central management is OK, how come the central bank has essentially become the public debt market and how come this is slowly morphing into crowding out of even their stock market? Please show me how this is sustainable. Are they trying to get the train running or aiming to take off without wings?

A word about Japan. Each case is different but isn't it, in a way, a leading indicator? In terms of proportion and perspective, the external balance is net+, in the billions of yens. OK. In terms of public debt only, we are now in the quadrillion. ??? Trillion is between billion and quadrillion. Orders of magnitude in difference. The numbers are SO large. What is fascinating is that, even if the two piles are not really comparable (absolute and relative), Japan makes more money on the US government bonds it holds than it pays for its own public debt. :o I submit that holding a doctorate degree in economics may be detrimental when trying to explain that one. Believing in MMT may help. How is Japan going to get the train going? The public debt is essentially shifting from private hands to the central bank. In my book, this is called explicit monetization. Even if this is not openly recognized as such at THIS point. In terms of the I hold your debt and you hold mine concept, there is a game (and a song) called in my language: "jeu de la barbichette" I looked it up and it does not really exist, as far as I know, in the English speaking world. The best equivalent explanation I could find: I hold you You hold me By our little goatee. The first one Of us two Who will laugh Will get a wee slap! I agree that a possibility is that somehow, these seemingly huge imbalances may correct over time in a muddle through scenario. Fair enough. Leading to the real estate bubble, a major problem was that there was an actual disconnect between the debtor (ie buyer with a poor record and poor prospects) who was buying an inflated asset and the creditor who bought the debt after various financial steps. The discount rates had come to have no rational meaning in relation to the underlying real asset. The underwriting process was broken. This required a painful price discovery. Now, massive parts of the global and inter-connected financial system are characterized by the same conceptual flaw. There needs to be price discovery. Maybe this whole thing started way back (1971 and before) with the uncoupling to fiat money. In no way hoping for a return of the gold standard and I don't have the answers. This experiment may take a very long time to bear its fruits. Hoping that it won't be grapes of wrath. But I decided to fasten my seat belt. Just in case.

Debt services appear to be healthy. https://fred.stlouisfed.org/series/TDSP But deleveraging, what deleveraging? https://fred.stlouisfed.org/series/HCCSDODNS Then again, who wants to delever when they don't want/need to?

SD, Highly value your inputs and, going forward, still looking at insurance and reinsurance as potential opportunities and still looking at Fairfax as a potential field of dreams (if/when). Tried to do my homeworks to maximize the value of inputs. I understand the potential for faster services and decentralization of trust to decapture transaction costs but I don't see how long tail reserve management could be reasonably imparted. Isn't blockchain potential only limited to a leaner intermediate for the basic transaction? Aren't fragmented data sources and diffuse second-level liability management obstacles to long term commitments required by insurance contracts? In other words, even if the process becomes smoother and more efficient from risk assessment, to quote, to claim assessment, how does that threaten the moat associated with underwriting discipline and long term reserve management?

"History suggests that without the central bank interventions, we might well have needed a war to economically get as to where we are today." Was able to swallow the liquidity maneuvers to save bankers et al from the economic Pearl Harbor even if the average Joe felt the pinch. Have difficulty with life support though and so the populist movement, it appears. Would politely submit that we have not "worked through" the "problem" that perhaps rb alludes to. Currency wars, in theory, are played on paper. In reality, as maybe Keynes would have posited and as a guy named Kyle Bass presently conveys, synchronized easing now rests on the assumptions that a "stationary" state will persist and that no backlash will occur from those who stagnate. I would submit that these are very shaky assumptions. Next time questions will be asked, I somehow ask myself if two quotes from a previous President who, perhaps was not fully appreciated for his intellect, are relevant. Versus 2008 liquidity crisis, in a Bagehotian style: "If money isn't loosened up, this sucker could go down,” Versus the next time solvency questions are asked: "Fool me once...shame on...shame on you...Fool me...you can't get fooled again."

Great book that stirred its fair share of controversy including the very basic question if this wasn't mostly much ado about nothing. Conceptually speaking, on the debt question, the authors are descendants of Fisher, Kindleberger and Minsky. If interested, perhaps an article that more or less summed up the issue well: https://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up Of course infinitesimally low interest rates can give rise to an infinitesimally low risk of default and can support huge debt loads as well as lofty stock valuations. http://brucewilds.blogspot.ca/2017/03/low-interest-rates-carry-hidden-cost.html Extension of debt is not an issue when it is felt that the borrower has the ability to repay. It's the confidence part that gives rise to more than infinitesimally small concerns. The timing of which is impossible to predict. Always looks easy in retrospect.

Comments about debt service ratios are valid points. In a way, maybe we are no where near the thresholds that the likes of Reinhart and Rogoff have tried to describe. However debt service ratios are lagging indicators. So count me in the skeptics. Bias disclosure: if stuck, I would root for austerity over profligacy. Will keep an eye on savings rate. Mine and in the aggregate. Back to the 10-Ks.

"Hoping for a replay of the Great Depression to decrease income inequality while it would work mathematically is insane." Mellon's recipe was definitely not very popular. To figure this out, I think it is interesting to review what Richard Koo (the balance sheet recession "expert") said about this when he explained how "successful" Japan was in the 1990's when the government leveraged to balance private deleveraging. He often showed (around the early 2000's) a graph depicting how nominal GDP grew (muted but positive) and how GDP would have hypothetically cratered absent public "support". But now he seems to say that Japan hasn't pulled the fiscal arrow enough (?). This has been going on for more than 25 years and it looks more and more like palliative care. Question: If there is anybody insane, who is it? To deliver chemotherapy, an informed consent is necessary. Please show me the money. Tell me where I'm going to die so I don't go there.

"If you have a gangrene on the foot you don't want to operate on the liver." I submit that giving antibiotics, although slightly less grotesque, will not improve the outcome. Nobody likes to hurt. Optimism and patience required but the rehab may take a while.

I think that is not exactly what gigglebutt meant. :) No insight about the number of incoming calls. Just an impression about the overall supply/demand of deals. We understand that Mr. Buffett does not contribute to demand. My understanding of the supply side, looking at mergers and acquisitions activity, is that the trend is up. https://imaa-institute.org/m-and-a-us-united-states/ Also, on the supply side, there is simply more competition and buyers, including private equity, increase the supply of capital and (ultra?) cheap debt which converts into higher EV/EBITDA and Purchase price/Revenue multiples. https://www.theventurealley.com/wp-content/uploads/sites/5/2017/03/PitchBook_2017_Global_PE_Deal_Multiples_Report_Part_I.pdf For all I know, Mr. Buffett may buy Nike, 3M, Hershey and John Deere tomorrow. But he hasn't done so at this point. I bet eventually something intelligent would/will come up.

"The most brilliant Macro argument I have ever seen in my life is this one: http://www.gutenberg.org/files/15776/15776-h/15776-h.htm" So this refers to Keynes work on the economic consequences of peace. Indeed brilliant. Some numbers but a lot of common sense. Words that should have been heeded? Keynes was a complex man and his opinions have evolved, sometimes even coming full circle. His 1919 paper dealt among others about the dangers of currency debasement. I understand that he subsequently advised FDR against an expansive monetary policy because hoping to get the economy going this way was like trying to get fat by buying a larger belt. Isn't the velocity curve graph these days supporting this loose belt hypothesis? Also interesting to note that Keynes, the great mind, apparently did not do so well with macro investing. My understanding is that his record became much better after the 1929-32 debacle when he used a value-based framework. Food for thought. Yeah, a lot of this is based on intuitions and impressions. In 1919, Keynes felt "dreadful anticipations". The sad thing is that he was right. Cameron, please keep the numbers coming.

"Whose the economy working well for today? " Rising asset prices benefit those have assets. The more the better and more and more so. Isn't this the objective (the so called wealth effect)? https://realinvestmentadvice.com/fed-study-the-bottom-90-the-failure-of-prosperity/ That's assuming that there won't be a populist backlash against the establishment. ???

-Often wonder if this macro stuff is worth the time spent. -Looking at the charts, especially the first one: -if you look at the period that corresponds to the Buffett partnership years (1957-70), market headwinds were favorable and Mr. Buffett closed his funds "when statistical bargains disappeared". It's all about the risk-free rate, isn't it? -the 1987 "crash" even if described as "epic" was really only a blip in the long term scheme of things. Simply a buying opportunity. -if you "smooth" the line from the early 1980's to now (smoothing in the sense that the dot-com and the 2007-9 episodes become blips in the long term scheme), the upward move is mostly unprecedented and breathtaking. -the Great Moderation, which remains largely unexplained, is still alive. -the Great Moderation may have something to do with the greatest monetary experiment of all times. So, what to do? Even if concerns are valid, holding your breath may be detrimental to your capacity to survive. Going long volatility may cause your investment thesis to decay. The commodity price disconnect with asset prices that is described after the post-war short-lived recession did not correct immediately as a result of mean reversion forces. There is a difference between thinking and shouting that the emperor has no clothes. Occasionally the easy thing is the hardest. Disclosure: sustainability bias.

"I don't remember any technical analysis in level 1." When I did it, I think it was near the end of the "quantitative" section. That's also where I learned about regression.

Just finished. Potential advantages of unconventional thinking. Especially liked chapter 6 which deals with skill versus luck. Something I came away with is that people like him are essential for progress but it would be difficult to get through each day if everyone were like him.

Technical stuff is required reading in the CFA material. I thought the specific chapter in level I did the job. Otherwise, for flavor, there is also: https://www.credit-suisse.com/pwp/pb/pb_research/technical_tutorial_de.pdf Disclosure: not using any of this but I seem to remember that there can be hope after despondency.

Dynamic, I appreciate your posts. One of the reasons for participation on these boards is to improve. Some of the ideas implied by the posts and related links help with that. Your posts are also uncomfortable. My opinions sometimes differ. But you may be right. My return assumptions for the Market as a whole over the next ten years are based on more restrained optimism. Counter-cyclical macro focus has worked for me in the last 20 years but that may change. It’s a numbers game played in an animal spirits environment. Crystal ball versus the rear view mirror. As you say the best answer is I don’t know. Still. In the past, spent some time understanding the VaR concept. Not because I felt it was useful but because it seems that it was a fundamental flawed concept used by large financial players and which played a key role leading in the 2007-9 global liquidity crisis. A contention I make about present conditions is that the future may not look like the past and one may have to discount the possibility of thunderstorms even in sunny skies. One of the concerns I have is the disconnect between the average Joe and the privileged top. On this Board, there are discussions about the real estate environment. There’s a description of a real estate deal for a house in Vancouver and I try to connect that story with what my nephew (average Joe) is experiencing. Here’s a link. http://www.mymoneyblog.com/hours-work-required-to-buy-sp-500.html As one of your suggested links implies : « as with any chart, there is a clear and present danger of reading too much into it. » and the warning may be particularly relevant for this last link but, still, this raises interesting questions. Maybe, the chart shows an artificial and irrelevant correlation. Maybe we will just muddle through. Maybe wages will eventually catch up. But maybe there is the possibility that the imbalance disappears through a lower level for the S&P. It’s happened before. Keeping in mind the discount of various possibilities these days, I submit that cash has value and firms with strong balance sheets and enduring strength such as Berkshire Hathaway also. Maybe I just need to get rid of concerns. Not there yet.

While we are on the bet aspect, here is a potentially interesting article about another aspect of Berkshire Hathaway. https://www.fool.com/investing/2017/07/23/an-interesting-chart-about-berkshire-hathaway.aspx What do you "see"? -If you believe in cycles and occasional divergence from intrinsic value, BH may be well positioned to increase the distance of the two curves for some time. There may be circumstances when a Fort Knox type balance sheet will fetch a much higher value. -If you believe in diminishing returns due to size, there will be an increasing tendency for the two lines to converge. Buy, hold and prosper?

Versus Supremex: Followed closely when they were consolidating the envelope manufacturing industry in Canada. -did not result in a very profitable result either because timing was too early and/or paid too much. Now seem to be involved in a similar environment in the US. -your analysis may help you decide if this will be worthwhile or not. -maybe better positioned for gradual geographic expansion, as manufacturing operations have a geographic radius of potential profitability. -maybe worthwhile to look into Cenveo which is a large relevant US competitor in relative distress. -Cenveo and Supremex have a common history (many years ago). A key aspect is that the main business will get to be a gradually smaller pie overall. Also, they are trying to diversify into related fields which has its own risk-reward profile. Will follow too. May get involved if I become convinced that they can profitably grow market share in the US. Not convinced at this point.

I enjoyed reading about the D-L method. At this point, I find that game theory has been much more helpful than all the CFA stuff that you refer to. Since we're into sports, you may be interested in the odds of a squeeze play in base-ball. There's a safety squeeze and a suicide squeeze. It's all about risk management. And there's nothing like doing it for real. Back to the position sizing and this post, I understand that a lot of participants have sizable positions in Berkshire Hathaway. One of the obvious advantages is that one benefits from the equity return of a firm with good prospects. If one thinks that better results can be obtained without BRK in the portfolio, maybe, a periodic retrospective look over the long term is necessary to verify that assumption. However, I would submit that one of the reasons to hold BRK may be related to a concept that can be derived from the efficient frontier (despite being obviously flawed with the definition of risk) where holding an "uncorrelated" asset will drive down the volatility. In this case, holding BRK in a downturn, may give rise to loss of proportional correlation with markets as (rightly so I think) BRK is likely to fall less. The [shadow=red,left]potential[/shadow] bonus is that BRK [shadow=red,left]may[/shadow] rebound more than the market after. When reading the early partnership letters, Mr. Buffett describes this phenomenon as being related to his investing mindset. And he is still at the helm. And this may have something to do with the rising cash position. So, I would say that it is more relaxing to hold BRK as a core holding because, otherwise, the hurdle becomes to beat BRK over the complete cycle. Perhaps, this may become easier going forward. Simple concept, easier maybe but still not easy.

Late 1990's, when started to experience positive cash flows from my own operations. Autodidactic learning. Took a while. Reading annual FFH reports helped define a contrarian, concentrated and value-based approach. Around 2000, inherited Nortel through a spinoff (Bell Canada). Sold Nortel. Then watched it rise and fall. These were the days when re-pricing of risk and mutual fund run risk were discussed and when concerns were backed by more than words.

Links: https://www.wired.com/story/captains-of-finance-dismiss-bitcoin-at-their-peril/ https://www.forbes.com/sites/johntamny/2017/10/22/bitcoins-surge-to-5600-reveals-why-its-a-junk-currency/#4ca9293f61c8 from Mark Jr: "These things are an inelastic currency that use asymmetric cryptography to facilitate zero knowledge capital flow." One of my tests for investment ideas requires that I could convincingly explain the thesis to my 10 year-old in less than two minutes. I'm not there yet. First, I have to review the meanings of trust and agreement in the dictionary. Then again, who can you trust these days?

Interesting to note that the introduction of your post did not lead where it said it would. It seems that the message slid into how the "one belt one road initiative" may be taking pre-emption on the "gunboat diplomacy". Would humbly submit that the topic may need to be discussed and is an issue where I come to a very different conclusion. Energy and Politics are indeed intertwined. Back to wind turbines.