RuleNumberOne

Trump never threatened to harm the economic well-being of people and companies. Elizabeth threatens to destroy the economic well-being of all kinds of people and companies.

Come to think of it, there is a "risk of permanent capital loss" everywhere if Trump has a stroke and Elizabeth becomes President. Elizabeth could decide the two transcontinental railroads have increased prices too much (Berkshire owns one of the two). She might decide her voters would like the latest iPhone at a 50% discount (Buffett's largest holding). The possibilities are endless... As it is she has proposed a special tax on just financial firms of $900 billion over 10 years. That is half of Buffett's portfolio. Please let us and Mr. Buffett know where we/he can make a 12% return with minimal risk of permanent capital loss. I have trouble finding investments that meet these criteria where I can put a couple of millions at work…

Curiously European pension funds all prefer US stocks over European ones. Look at the holdings of Norway's sovereign wealth fund. On top of this the US taxpayer also pays for European defense via NATO! Trump asked them to "pay their fair share" and they have only spewed hate against Trump ever since.

And the cash and bonds in Q3 2007 was earning a higher return than the current T-bill rate. More incentive to deploy now and increase Berkshire's earnings power.

Buffett stopped reporting book value per share in his annual letters because he says it is no longer relevant. Cash and bonds in its insurance unit was $65 billion in Q3 2007 10-Q. Cash and bonds in its insurance unit is $143 billion in Q3 2019 10-Q. In November 2007, BRKB stock price was at $91 In November 2019, BRKB stock price is at $215. Buffett could increase the intrinsic value/earnings power per share if he deployed that cash at say a 12% return instead of 1.75%. What is he afraid of?

Brooklyn Investor (BI) contradicts himself. BI says market is not in a bubble. Yet Buffett has piled up $128 billion in cash. Then BI says Berkshire beats the market over the long term - he/she says it does 1.5 times as well as the stock market. So which is it BI? Buffett piled up $128 billion because the market is not in a bubble or because Buffett beats the market over the long term?

Politicians want the housing bubble to inflate until their term ends. https://www.ft.com/content/6d5ee188-e292-11e9-9743-db5a370481bc "European central bankers have expressed their frustration at politicians’ reluctance to introduce tighter regulations in the region’s mortgage market to shield banks and households from the risks linked to rising house prices. Francesco Mazzaferro, head of the secretariat at the ESRB, told the FT: “We wanted people to understand that we are back to pre-crisis peaks in the housing markets of a lot of countries — roughly half of those in Europe.” Klaas Knot, head of the Dutch central bank, said at an ESRB event on Friday that the country’s politicians were reluctant to take action on the “very important vulnerability” in its housing market. He pointed out that the Netherlands had the highest level of household debt in the eurozone, at more than three times income. “The political cycle is simply not synchronised with the economic cycle and politicians will never solve a problem they do not have, so politicians will only start to focus on it when they see the problem . . . and only when it is too late,” said Mr Knot."

When I started this topic on June 20, the BVP "Emerging Cloud" Index was at 1254, today it is at 1102. The upward momentum has been lost. Not sure whether that is permanent or temporary. WeWork went bust in record time! If Evasive Elizabeth becomes the nominee, there would be a big crash. IMO Brooklyn Investor's article looks weakest when it addresses what happens if Lying Liz keeps advancing. Leon Cooperman is right, the market circuit breakers will be triggered if Warren wins. https://www.independent.co.uk/news/world/americas/us-election/warren-biden-trump-impeachment-latest-2020-race-quinnipiac-polls-frontrunner-a9124731.html "Four polls used by the Democratic National Committee (DNC) to determine which candidates qualify for its debates this week gave Ms Warren a lead over Mr Biden in Iowa, the first state to hold a primary or caucus, and in New Hampshire, which is the second."

My guess: S&P 500 has this problem to a very small degree. Russell1000 and NASDAQ should be having the problem though. Every IPO makes it into Russell 1000. News articles focus on the S&P 500, but there is a lot of bubbly in the Russell 1000 that has not been allowed into the S&P 500. Needless to say, DJIA would not have the low-float problem at all. Probably nobody buys the DJIA index funds. Don't really understand why he believes ETF's are a bubble. It's simply a shift from actively managed funds... no reason to expect all the money to suddenly pour out without new money pouring in. Unless there is a panic but then I don't see why this would be any different than a general stock market crash.

If you look at S&P 500 stocks with a small average daily volume traded, you will see they have very high betas. This is true of all recent IPOs (IPOs within the last 5 years). They deliberately float a small number of shares and watch the price shoot up on low volume. These low-float stocks haven't been tested in a bear market when employees throw in the towel and sell. Right now, most employees of companies that have gone IPO are still holding onto their pre-IPO shares. If they capitulate during a bear market, there will be a huge amount of stock put onto the market compared to average daily volume. Don't really understand why he believes ETF's are a bubble. It's simply a shift from actively managed funds... no reason to expect all the money to suddenly pour out without new money pouring in. Unless there is a panic but then I don't see why this would be any different than a general stock market crash.

Yikes, doesn't look good so far! 3 out of 4 voters report drops! I am one of the voters reporting a drop.

Since this impacts consumer spending and the health of banks.

I don't watch or read anything on politics, but i presume some demagogues must have done some attacking to get ahead in their careers. Drug companies are at historically low valuations. Same goes for banks and oil companies. That can only mean the Dem primaries are going on. This adds to the negative wealth effect.

IMO, Software Tariffs on Canada may happen sometime in the future. The bad immigration situation for foreign engineers in the US has led to a boom in Canada. Who Just Beat the Bay Area in Tech Jobs? Toronto https://www.bloomberg.com/news/articles/2018-07-24/toronto-beats-bay-area-in-new-tech-jobs-and-new-york-in-talent Toronto’s tech scene is so hot the city created more jobs than the San Francisco Bay area, Seattle and Washington, D.C., combined last year, while leapfrogging New York in a ranking of “talent markets.” https://www.seattletimes.com/business/microsoft/microsoft-moving-canadian-headquarters-into-toronto-as-it-expands/ "As part of its investment in the country, Microsoft will spend $570 million on office expansions, including the Toronto headquarters and new offices for its Vancouver sales team and Montreal lab." Toronto tech: why Canada is attracting the ‘best’ people https://www.ft.com/content/de63f33c-34e6-11e9-bd3a-8b2a211d90d5 "82,100: The number of tech jobs added in Toronto in 2012-17, according to CBRE. That compares with 77,830 in the San Francisco Bay Area and 34,730 in Atlanta." https://press.aboutamazon.com/news-releases/news-release-details/amazon-expands-toronto-tech-hub-and-announces-plans-create-600 "With this expansion in Toronto, Amazon has this year alone announced plans to create more than 6,000 new jobs in Canada, from cloud computing and engineering roles to customer fulfillment positions" Silicon Valley Looks North as Tech Giants Expand in Toronto https://www.wsj.com/articles/silicon-valley-looks-north-as-tech-giants-expand-in-toronto-11566054001 "Silicon Valley is invading Toronto. Intel Corp. has announced plans to build a graphics-chip design lab in Canada’s largest city. Car-hailing service Uber Technologies Inc. will be opening an engineering hub. Google’s parent, Alphabet Inc., proposed building a new Toronto campus as part of a sensor-laden “smart city” on the Lake Ontario waterfront, and Microsoft Corp. said it would expand its Canadian workforce by more than 20%."

Another unreported deflationary effect is Silicon Valley housing. Home prices in some areas have fallen 20% from the peak. I myself took a nearly 20% hit compared to the peak when I sold a house recently. This hasn't been accounted for in the tariffs line item. Most engineers here are foreigners (eg. China/India) and Trump's administration has made it very painful to switch jobs and has been threatening to rescind the H4 work authorization (the threat is to rescind by the end of every month - i.e. the month never comes but the sword hangs above people's necks.) Earlier it would take a visa holder a few days to switch jobs, whereas now it takes maybe 6 months or more. This removes job security. If an engineer runs into a crazy manager, he finds it will take him 6 months to move to a secure job at another company. If their spouse's H4 work authorization is rescinded, it halves their income. Most people have just stopped buying homes over the past year. Some young Chinese engineers get their downpayment funded completely from their parents back in China, so the sentiment back home matters too. The green card for Indian engineers takes many decades now instead of years. There is too much fear and uncertainty in Silicon Valley real estate because nobody can be sure what Trump may do next.

The reported GDP is real GDP (2.0%). In the example below, nominal GDP would be 3.8%, not 2.0%. Q2 GDP was 2.0% annualized. Q2 inflation was 1.8% annualized. The economy is basically already flat in real economic terms and any additional pile on, or reduction in economic activity, will result in an economic contraction.

Over the very long-term it should be modeled as a %age of GDP. But right now, if the government doesn't spend the tariffs it collects and just reports a smaller budget deficit, it is a hit to GDP. (Since government debt doesn't get counted in GDP but government spending does.) Right now, for investors it is best modeled as a hit to profits. Has AAPL given any tariff-related guidance yet?

Corporate profits are only $2.1 trillion. $150 billion in tariffs is 7% of corporate profit. It should be viewed as a %age of corporate profits because that is exactly where it is coming out of. For example, AAPL could announce next week that it is going to eat the tariffs rather than pass it on. That is a transfer from AAPL's bottomline to the government. Or AAPL could pass the tariffs to the consumer in which case fewer consumers upgrade to new iPhones/Macbooks. This is a transfer from AAPL's topline to the government. The tariffs are supposed to incentivize American companies to move by penalizing their profits. But where exactly are they supposed to move? Does anyone want to buy a $2000 iPhone? If they move to another cheap country, Trump may target the new country with tariffs. Viewing it as a %age of GDP is Peter Navarro's line and doesn't make sense. We will find out over the next few quarters how much the impact on the topline and bottomline is going to be.

The ECB is distorting the US yield curve. Why don't they try some fiscal stimulus instead of budget surpluses? https://www.wsj.com/articles/theres-no-place-like-u-s-in-hunt-for-yield-11567080003 "Several analysts and investors are describing the buying spree by foreign investors as a revival in American exceptionalism—and they say they expect it to continue. “I call this the new abnormal,” said Yoram Lustig, head of multiasset solutions for Europe, the Middle East, Africa and Latin America at T. Rowe Price . The diverging outlooks between the U.S. and the rest of the world have pushed Mr. Lustig of T. Rowe Price and other investors in foreign assets to buy more Treasurys for clients in recent months, while maintaining or adding to their positions in stocks. He said he favors the positive yields of Treasurys over Germany, Japan, Sweden and other countries that contribute to the $16 billion stockpile of negative-yielding bonds. Mr. Lustig said he has been using the strong dollar to boost his returns from Treasurys. “For the first time in my career, I started buying U.S. Treasurys without hedging the dollar,” he said. “Having unhedged U.S. Treasurys in portfolios gives you exposure to two safe-haven investments.” Traditionally, he said he hedged Treasury purchases to account for currency fluctuations, with the cost usually being the difference in short-term rates between the two countries. But the dollar has defied most analysts’ expectations over the past 18 months. The WSJ Dollar Index, which measures the greenback against a basket of international currencies, is up 2% this year after notching a fresh high Wednesday."

When a US President gets down on his knees and begs a dictator for a trade deal, this is what it sounds like. The Chinese negotiators must be laughing their ass off with the "three million jobs" line. There is zero probability they are going to give Trump a trade deal. Does Trump have the guts to stick shoppers with the 30% tariff this holiday season? What a "manufactured disaster"! https://theweek.com/speedreads/861116/china-itching-trade-deal-because-cant-lose-3-million-jobs-trump-says "President Trump has nothing but compliments for China's President Xi Jinping — at least today. In a Monday press conference following the end of the G7 summit, Trump discussed his ongoing trade war with China, touching on the increased tariffs both countries levied on each other on Friday. After this many taxes, China "want to make a deal" and doesn't "have a choice," Trump said, because Xi "can't lose three million jobs in a short period of time." Yet as The Washington Post's Aaron Blake notes, while three million jobs would be a huge hit for America's 160-million-person workforce, it's more of a blink for China's 750 million workers. Still, Trump remained convinced that a "brilliant leader" like Xi wouldn't let the continued conflict "break down the Chinese system of trade." Trump then pivoted to slam China for the apparent $500 billion trade deficit it has held over the U.S. for "many many years," which, as CNN's Daniel Dale points out, is not even close to a correct number. Trump went on to pepper Xi with more compliments, calling him a "tough guy" who he respects. And when he was asked why he calls Xi a friend one day and an enemy the next, he quickly said "that's the way I negotiate. It's done very well for me over the years.""

How exactly do their people suffer? The rest of the world wants to continue buying from China. The rest of the world are the continents of Asia, Europe, Australia, South America, countries of Canada, Mexico... Just read in Forbes that even a 25% tariff is not enough to cause companies to move because China's infrastructure (rails, roads, power, ports) is so good. China's position is much stronger than the US. Why should they listen to a guy who alternately insults China and begs China for a trade deal? Friday Trump calls Xi an enemy, the very next day he calls him a brilliant man and a friend. Friday he tweets the US would be better off without China, the very next day he grovels for a trade deal by making up stuff about phone calls and "losing three million Chinese jobs". China's workforce is 5 times larger than the US, they don't need Trump, they have the rest of the world. Trump has three problems: - uncontrollable temper - uncontrollable stupidity causing miscalculations described above - uncontrollable need to tweet and broadcast his feelings all the time

There is never going to be a trade deal. Jim Cramer gets it. El-Erian gets it. Trump and Kudlow sense it. China's clear message has been: if you don't like the current trade setup, we don't need your trade. Trump needs to stop squealing and begging for a trade deal. Every time he has a trade tantrum, he is seen as weak, very weak. When he attacks the Fed, and gets angry at China, he reveals extreme weakness and desperation. China has shown a lot of strength, unflinching, not a flicker of pain. If they have to do with less farm produce, so be it. They are a superpower and have the rest of the world to export to. Their population is 4 times larger than the US. When China's #2 said the Tiananmen response was too harsh, he was put under house arrest for the rest of his life.

If you look at what Chinese retired generals are saying (i.e. sink US aircraft carriers), it matches what Trump and Kudlow are saying (US companies should leave China) Kudlow is a trade dove, but even he is asking US companies to leave China. The markets should just move on. There is really no uncertainty here. It has been laid out in black and white.

Likely, there will never be a trade agreement. Once the market realizes this and the uncertainty leaves the room, stocks will go up. China is not Japan or Germany. Both Japan and Germany run trade surpluses with the US, but their retired generals don't urge the sinking of US aircraft carriers. https://www.wsj.com/articles/has-xi-jinping-stirred-a-backlash-11565968019 "The latter group includes retired generals who have recently urged Beijing to take an even more aggressive approach, including invading Taiwan and sinking U.S. aircraft carriers. In a June speech at a conference attended by his U.S. counterpart, Chinese Defense Minister Wei Fenghe vowed that Beijing wouldn’t succumb to American pressure. As trade tensions with Washington intensified this summer, many editorials in Beijing’s government publications zeroed in on so-called “capitulators” who argue for a softer stance toward the U.S. and a less assertive foreign policy, accusing them of lacking faith in China’s abilities and of betraying the country’s national interests. “Yes, the elites are being cautious—but if you talk to people on the street, that’s very different,” a senior Chinese military official said. “They want more.”"

Long-Bond investors have been having a great time. ‘Greater fool’ theory drives weird world of negative yields https://www.ft.com/content/29dc8738-ae0f-11e9-b3e2-4fdf846f48f5 "As Lex pointed out this week, German government debt has returned 30 per cent in the past year. There may be more gains to come, but we are into “greater fool” theory here. We hear the arguments that insurance companies and pension funds need to match asset returns to future liabilities, but this only makes sense if those liabilities are going to shrink, which would be a novelty. Otherwise, lending at a guaranteed loss only makes sense if another buyer can be found who is prepared to risk a bigger guaranteed loss."