watsa_is_a_randian_hero

I'm bruised up on this one. Short since 110. Been adding to the short along the way. Started just with puts, now shorting outright. I look at it from a porters five forces perspective: Bargaining power of suppliers: Extremely high. Suppliers have typically earned the economic profits in this industry Bargaining power of customers: Extremely high. Very low switching costs. Threat of New Entrants: Extremely high. Threat of Substitute Products: Extremely High. (Redbox, apple, walmart, pay-per-view) Rivalry: Low. This is the only factor helping nflx right now. With blockbuster in chapter 11, there has been more than enough business to go around for rival redbox. And other rivals have to catch up. In total, I see this eventually eating away all of the profits of nflx.

35% of personal net worth. 14% of assets in portfolios managed for friends/family.

WSJ tonight is reporting MSFT is considering taking debt also now to pay a special dividend

its a twofer. Expiring tax rates and low interest rates. We just did work for one company that issued a 2.5 billion leveraged dividend - all borrowed. It was equivalent to 1/3 of the company's market value.

is watsa_is_a_randian_hero really that confusing with watsa? my handle is a tribute to him - I am saying he is akin to a randian hero for the battle he has gone through the last decade with hedge funds. I dont think its that hard for people to copy the full name when referring to me - or do something like hero - i've seen that. Either way, I don't really care, if Parsad wants me to change it I will. I'd rather devote time/energy/discussion to things that matter... I've been meaning to ask, but what is a randian hero? It's a most interesting handle. Ayn Rand was a precocious little Jewish girl who grew up in St. Pete -- Petrograd during the Russian revolution. She saw the horrors that occurred when collectivist ideology developed to its logical end: from the subordination of the individual to the altruistic welfare of the socialistic collective and then to the enslavement of everyone to the state. She escaped to the US when she was about twenty, and stayed with a relative who owned a movie theater where she watched hundreds of films. She had written a short biography of an actress that was published while she was in Russia. Then she moved to Hollywood to become eventually a screenwriter. Her novels and some of her screenplays celebrated the individual over groupthinking manipulators and capitalism over socialism. Her Randian heroes stood away from the crowd and were true to ethics based on honest exchanges of value, despite many attacks and trials by those with a collectivist mentality. Ah, thanks for that. I was extremely confused by the handle. Watsa is Canadian, and I thought randian hero was some sort of word play on that. Does anyone know if Watsa subscribes to the libertarian philosophies of Ayn Rand? From wikipedia for randian hero: a man whose ability and independence leads to conflict with others, but who perseveres nevertheless to achieve his values. I thought that was a perfect description for watsa during the hedge fund/shorts conflict years I have no idea what philosophy he subscribes to...but I thought the description was good for him. Personally I am a fan of individualism and individual rights as opposed to collectivism.

For which period? CF was more than NI in 2007, less than NI in 2008, more in 2009, and less in the TTM. It was less in the TTM because sales are up 25% in the TTM (because of toning footware) as compared to 2009. That kind of growth in this industry requires significant working capital investment - I don't find that unusual. Just hope they don't suffer the fate of CROX and have huge inventory write-offs.

What did you buy at? I don't think it is done running yet, should be higher. It was at 23 pre-SEC pre-flash crash, and credit spreads have narrowed since then and the SEC issues are behind them.

Any opinions? $23 / share price $7 cash per share No/little debt Trailing PE: 7 Forward PE: 5 The toning footware has boosted sales/margins...they are trading at a PE of about 10 when you adjust sales/margins downward assuming to 07 levels. I look at it as a fairly priced stock (adjusted pe of 10) with a great balance sheet and a free embedded call option (who knows how long they can ride this toning footware gravy train or how big of a fad it will become). Am I missing something? By a comparison, when you adjust for cash, CROX sells for over twice the P/S ratio and over twice the P/E ratio as SKX, and has a higher absolute market cap. Does that make sense?

is watsa_is_a_randian_hero really that confusing with watsa? my handle is a tribute to him - I am saying he is akin to a randian hero for the battle he has gone through the last decade with hedge funds. I dont think its that hard for people to copy the full name when referring to me - or do something like hero - i've seen that. Either way, I don't really care, if Parsad wants me to change it I will. I'd rather devote time/energy/discussion to things that matter...

Id be interested to see this for average american

seigniorage

I was just thinking about MSFT - our IT guy is very excited about the new window's 7 phones for some reason.

If you beleive that Gold and Silver are intrinsically worthless, please explain why the dollar value of silver coins withdrawn from circulation in the 70's have increased in fiat price by a factor of about 10.... according to your theory they should have dropped and should now be virtually worthless. Also please explain why the IMF, the Federal Reserve and most central banks hoard their gold as assets to back their currency. They should have dumped their gold ages ago since it is worthless and creates no real return. I do not think Gold and Silver are intrinsically worthless. I just feel the intrinsic value for gold is far less than the current market price and could be estimated by its industrial use value. Silver trades much more in line with its industrial use value.

I am short gold. Gold is just as much of a fiat currency as the US Dollar or any other currency. Nothing backs gold, it pays no interest, pays no dividends, produces nothing, and selling it at a higher price is dependent up a "greater fool." If you want inflation protection, a much better bet is leveraged hard assets. Oil tanker companies, crane equipment companies, mining equipment companies. Another great bet for inflation is shorting futures on the 30 year swap. If you have access to an account with futures the ticker is I3.

My major hobby is fishing. Enjoy golf too, but not any good. Most of the free time I have, outside of research, is spent hanging out/meeting with with various circles of friends.

Hahaha. I couldn't help it. We have clients exploring this...one client in particular just did a very large leveraged dividend (bullish sign).

Novel idea for corporate use of excess cash - dividends?

Not sure how that was misconstrued as me advocating the $1m tax credit. I am a libertarian. If anything, I would advocate abolishing the FED and make people take their medicine now rather than this "delay and pray" strategy. My only point is the government does have, contrary to what some have indicated here, all the ammo in the world it needs to create inflation. Deflation is preventable. I was using the hypothetical $1m tax credit to illustrate that point. That was my only point. I think this is a great hedge. Great optionality. It cost them approximately 1% of notional to protect against inflation lower than 2% for 10 years. They did this when the 10 year was at almost 4% though. Now it is at 2.5%. Not sure if you can interpret the trade as Prem thinking deflation is the most likely outcome. I interpret the trade more as a hedge (which is exactly why I hold a large portion of my portfolio in FFH - it represents a hedge for me).

In any economy there can be various countervailing effects at any time. To say that QE is not inflationary because Japan did not have inflation I do not believe is evidence. Japan QE that occurred was just not large enough to offset the deflationary headwind. Imagine this scenario: US gov buys back every treasury. Thats it, no more treasuries, banks, insurers, pensions can either hold cash or lend. And in addition to this, the US uses fiscal stimulus, runs a deficit, lowers tax rate to 0, gives refundable credits, and prints more cash to fund all of it. $13 trillion of debt monetized isn't inflationary? My point is, seigniorage is inflationary at the margin. Monetizing debt, printing money, QE, whatever you want to call it, it is all a form of seigniorage and is inflationary in nature.

Yeah, me too. Watsa + is correct. Imagine instantaneous inflation: The US decides to do a two for one split of the dollar. The next day everyone has twice as many dollars in the bank etc. BUt loan balances are the same. Ergo, Loan balances are much easier to pay off. But lenders are gypped because the dollars they got will quickly lose value. That is what I'm trying to argue. Japan just didn't do strong enough stimulus. Imagine a $1 million tax credit. Everyone is a millionaire. All loans repaid. Debt is no problem At the margin, QE does have inflationary effects.

I dont understand. Are you really refuting the concept inflation causes wealth redistribution? It is textbook. Econ 101. this is just from a quick google search: http://www.nd.edu/~cwilber/econ504/504book/outln13c.html Chapter 13 Outline III. EFFECTS OF INFLATION A. The Redistribution of Income and Wealth 1. Unanticipated inflation, inflation that is not expected, will redistribute income and wealth. a. Redistribution of income occurs because some wages and salaries increase more rapidly than the price level while other wages and salaries increase more slowly than the price level. b. Redistribution of wealth occurs because some asset prices increase more rapidly than the price level while other asset prices increase more slowly than the price level. 2. One important redistribution of income and wealth that occurs during unanticipated inflation is the redistribution between debtors and creditors. a. Debtors gain from inflation because they repay creditors with dollars that are worth less in terms of purchasing power. 3. Anticipated inflation, inflation that is expected, results in a much smaller redistribution of income and wealth. a. When inflation is anticipated individuals take actions to protect themselves from the effects of inflation. 4. Inflation can decrease the production of goods and services. a. Because inflation erodes the purchasing power of money people devote more resources to reducing money holdings and fewer resources to the production of goods and services.

QE = Inflation (this is the whole point, search any source you'd like) A surprise or unexpected increase in inflation can create wealth redistribution from creditors to debtors (this is also obvious)

1. Insurers, Pensions, and banks all have liabilities that they need a return on assets in order to pay. They also all have duration matching issues and investment policy statements. They cant be 100% cash. 2. As a hypothetical, pretend treasuries dont exist. The fed has bought them ALL. Then what do they do? They will go out the curve in duration, and make more risky investments. This will compress spreads, increase price of real estate, increase prices of stocks, and increase prices of commodities. This will spur investment demand which will spur consumption demand and inevitably consumption inflation. Again, at some point, QE will inflate asset prices and cause inflation, meaning there is no balance sheet recession. Deflation is only a problem in situations such as these where the stimulus was too weak. Those thinking deflation is inevitable and the government is pushing on a limp string are burying their heads in the sand. How about a $1 million dollar tax credit to every citizen. Think we'll have deflation then? Deflation is 100% preventable, so long as proper stimulus is applied.

I'm not speaking about my opinion of what is the "solution" to "our" problem. I don't have a problem. Through the recession my net worth has increased from less than 1x annual spending to over 4x annual spending. From my point of view, there is no solution that does not cause pain. I am a libertarian, I would prefer the government do nothing. That being said, I don't let my preferences affect my expectations about what will actually happen. I believe what will actually happen is the (1) US Government will continue buying back debt and fiscal stimulus. The act of buying back debt reduces our economy's leverage (solving the "balance sheet recession problem") but increases cash in circulation. (2) this increase in cash in circulation from government buying treasuries back from insurers, pensions and banks will force them to invest in other marketable securities, pushing up asset prices, creating asset-based inflation (3) this inflation will reduce the debt/assets and debt/GDP ratios of the country. Anyone in debt will benefit from the inflation, helping average consumer. Any lender will hurt, hurting the wealthy. QE is wealth redistribution.

Definitely agree. The "boom" that occurred only benefited a minority. Most people even in midyear elections of 2006 were talking about the economy as if the recovery was still jobless and weak. In my opinion psychology of the average joe as been that nothing good has came from economy from last 8 years.