oec2000

On Day 91, I am surprised that some still give more credibility to major investors like Wellington, Davis, Richard Chandler et al. than to a questionable miscreant like Carson Block. ;D When are we finally going to give Carson Block due credit for nailing a bunch of crooks? I tried, Myth, I tried:

Probably bad news for state and muni debt of US border states that rely in part on collection of sales tax. Yes, when i heard that I was wondering with whom the benefit lay but then i realized perhaps it is the fact that less than $1000 duty wasnt easily enforced and time consuming from a benefits std pt. May have to do with border resources allocation - streamline the coming from Canadas pay more attention to the Mexican border? Thats my guess. Isn't it because it doesn't make sense for an American to shop in Canada because of higher prices and sales taxes? In reality, they probably haven't been collecting much taxes in the past anyway. What would benefit the US more is if they got Canadian Customs to provide a reciprocal $1,000 duty free allowance for Canadians crossing the border - maybe this is what they are after.

From the G&M article: The commission also revealed Friday that Sino-Forest recently suspended Mr. Ho, Mr. Hung and Mr. Yeung temporarily and curtailed Mr. Ip’s duties and responsibilities. Why was no company announcement made of this? But, hey, why trust the guys at OSC who are just a bunch of underpaid and underachieving civil servants? They have no skin in the game unlike Richard Chandler and Wellington who have bet with their wallets. ::)

The US under the last gold standard faced a run on it's gold though -- due to worries over the nation paying the debts. This is what I am wondering -- how does the gold standard instill fiscal discipline when we know it failed to do so the last time around? I suppose I need to ask, how would the prior system need to be modified to prevent such failure if we go back to the gold standard again? Could a system where a truly independent supranational organisation, like the IMF (except not one controlled by the US), is given control of all member countries' gold reserves work? I don't think the problem of a run on gold reserves is the problem with a gold standard - after all, with the current fiat money system, you can have runs on a country's currency and debt too. With a gold standard, foreigners can only withdraw that amount of gold that they have "earned" by running surpluses with the US (for e.g.) and no more. So, as long as a country regularly adjusts economic policies to prevent sustained current account deficits it will not lose all its gold reserves. On the other hand, with the current system, a confidence crisis can truly overtake the fundamentals of a country. The problem with a gold standard is that it removes flexibility of economic policy from a country and can aggravate problems in times of economic weakness. The question we should ask, however, is whether the current replacement solves this problem or makes it worse by giving govts the power to let problems fester until they precipitate crises? For example, if Bernanke had known that he did not have a helicopter in the Fed hangar, would he have pursued a more prudent monetray policy in the mid-2000s (or Bush a less reckless fiscal path)?

I am not denying that Buffet does know about these more than most people but I was simply replying to examples quoted above. Just to elaborate. 2000 Tech Bubble - He did not make any macro call. He simply did not buy because he can not predict tech realted business outcome for the next 15-20 years. Returning money - It was not a macro call. He did not find any cheap stuff so he returned money rather than sitting on cash or buying not so cheap stuff. 2008 buying due to keeping some cash being macro call - Buffet always kept some cash above certain limit in Berkshire. He has never been low in cash after getting into the insurance business. Infact he sold JNJ to raise more cash earlier. Clearly being able to buy cheap in 2008 was not due to any macro call. Can not comment much about him directly shorting US dollar though. Tech bubble - he made a speech in Sun Valley in which he warned of the unsustainability of the bubble. 1980 - there is a well known Fortune magazine article in which he explained how cheap markets were. Short USD, long Brazilian Real - a macro call for sure since it cannot be a value decision. 2008 - isn't it curious that he could not find anything cheap in the weeks before his "Buy America" call and then he goes all in? I believe it was said that he held only treasuries in his personal account until then. There is no doubt that his macro calls are driven by "value factors" but that does not make them any less than macro calls imo.

Great point. Trying to make macro calls like the typical strategist is a mug's game. However, there are times when animal spirits drive markets to such extremes that it would be stupid not to pay attention to the macro environment. Despite what has been said about Buffett ignoring market timing, there have clearly been times when he has made macro calls - when he returned money to Buffett Partnership investors; at the start of the long bull run in the early 80s; the tech bubble in 2000; shorting the USD. In 2008 when he bought heavily into the market, he would not have been able to do so if he had been fully invested so he must have made a bearish call of sorts prior to that even if he did miss the housing crisis. The question is whether we are in such an extreme environment right now. The markets are not at valuation extremes but financial leverage worldwide is (going by the Rogoff/Reinhart book). I think it is prudent to consider the possibility of economic shocks ahead especially if the excesses in leverage are not dealt with in a sensible way. The problem I have is figuring out how the Western economies can address the leverage issue without severely crimping economic growth which in turn means that the electorate will not allow their politicians to do the right thing until they have no choice (as in Iceland, Greece and Ireland).

The flaw I see in gold is that it essentially rises in real purchasing power over time yet is meant to remain stable. Observe: fixed quantity of gold at the same time as a rising quantity of goods&services. Doesn't this lead to the cost (priced in gold) of goods/services to fall? You can't forever increase goods and services and have stable prices vs a fixed amount of gold. Anyhow, that's the flaw I see in it. Creates deflation effectively. The quantity of gold is not really fixed - it increases over time due to new production. The beauty is that its supply is in a way self-adjusting to the rising quantity of goods. If the value of gold rises relative to goods (because of limited supply of gold), this will cause more gold to be mined which would then bring the equation back into balance. This is probably why gold has more or less retained its purchasing power even as the quantity of goods consumed has increased exponentially. The key is that the quantity of gold is only "fixed" at a particular "price" of gold. True, there may come a day when we completely exhaust our supply of all gold on the planet in which case your scenario would play out. I don't think we are at that point yet. Until then, it seems a better alternative than a fiat money system dependent on the whim (or, worse still, ideology) of one individual such as Greenspan or Bernanke.

He was also "wrong" about housing/debt problem/CDS for a few years. But he did go "all in" into the market in 2009 and put most of the hedges on only in 2010 after the market had gone up significantly. Also, he and HWIC deserve accolades for getting the treasuries calls right at least thrice (long heading into 2008, switch into munis in 2008, then back into treasuries last year) in recent years - these were huge and gutsy calls that went against the crowd (including Buffett and Bill Gross). And how many moves ahead is Buffett seeing? :) What's interesting these days is how differently the two of them see (or at least talk) about the macro economic picture. I can't help but wonder whether Buffett's style has evolved because of size, age (in planning his own succession, he may not want to encourage/leave behind a culture that has elements of macro calls), and the Fisher/Munger style of buy and hold. He has admitted to missing the housing crisis (which others did not) so it is not inconceivable he could be wrong about a double dip and stubbornly high unemployment. Maybe, he justs feels "double dip" is too much of a low probability bet to call and he would rather focus on the high probability bet (which is that the US will eventually sort itself out). Fwiw, Prem seems to have a better record of macro calls against Buffett's superior record on underwriting and stopckpicking.

Playing devil's advocate here and following Munger's prescription of "not [having] an opinion on [a] subject unless I can state the arguments against my position." Isn't it more accurate that Jim Grant's views on gold are less ideological than those who uncomprisingly eschew gold because it is "simply silly." Grant has come to this view only because of his analysis; and, if the economic situation has not changed fundamentally since he came to this view, is it fair to say that he is being dogmatic or ideological? On that other hand, the anti-gold crowd seems to hold the view that they would never buy gold "no matter what." This sounds more ideological imo. Shouldn't we be able to conceive of situations where buying gold might be justified - e.g. if you're Zimbabwean?

Munger, If you think unsecured loans are "air," then you must consider equites "less than air" since they rank behind unsecured debt. If that is the case how do you rationalise investing in stocks? Most companies carry some form of unsecured debt (e.g. Trade receivables) on their balance sheet. All these companies are worthless? If a banks capital ratio is dependent on it's market cap, how do you determine capital adequacy of privately owned banks?

Would you like to provide a quote of anyone here who has "jumped to the conclusion that Block's report is completely legitimate." If you are referring to the opinion I expressed, may I remind you of the clarification I posted - which is that your use of argument from authority and unsubstantiated risk-reward ratios have no place on a value board. Why don't you provide a single value (BRK or FFH style) argument for investing in Sino? If I remember correctly, you actually characterised Sino as a interesting gamble or speculation early on purely on the basis of the attractive risk reward ratio. As for your purchase of Sino at $3, let me tell you of the time I made a 300% return in Las Vegas in just half an hour. What does it prove other than I was lucky and probably dumb? Let's just deal with one fact that I have pointed out before but you seem oblivious to. In the cc, Sino said that they had no way of verifying whether their authorised agents had paid Sino's taxes on their behalf. Can you explain to me then whether you think Sino can verify the amount of cash that these AIs hold on their behalf? If not, how can you value Sino?

Take a well run company like BRK. In boom times, it builds up cash reserves; in bad times, it invests the cash. There is nothing inherently wrong with running a country like a business (with some differences perhaps on social issues). Singapore Inc is run like a business and operates pretty much along similar lines (even if their investment decisions are not as good as Buffett's) - saving during the good times and spending on infrastructure in bad times - and has been a success story. The problem with USA Inc is that politicians today have no concept of saving for a rainy day - they want to spend in the both good and bad times

The "idea" that I am saying does not merit discussion is your method of using one similarity between TRE and FFH to qualify as analysis. I did not say TRE was not worthy of reasoned analysis and discussion. Again, I refer you to my previous posts in which I repeatedly tried to inject some analysis into this discussion. As for being open minded, do you see that I relied solely on info from TRE for my analysis? I actually started out looking for info to refute MW's claims. Unfortunately, what I saw were lots of red flags and so I formed my negative conclusion accordingly. Being open minded means you should be indifferent to either opinion - buy or sell TRE. Any reasonable person reading your posts can see that you are tilted towards the buy side (nothing wrong with this) and your view has not changed much despite this evolution of the facts: All the "reputable" analysts (RBC, Dundee, etc) have withdrawn/changed their earlier opinions, Paulson has sold out, new "reputable" sources (Nomura, Globe and Mail) have come out with negative reports. Accepting that we have to make decisions under conditions of uncertainty (since there is no advantage once all the facts are in), a good test of your open-mindedness is to ask yourself what it would take for you to say TRE is a sell. If you can't come up with a plausible scenario where your view goes from positive to negative, if you are so wedded to the view that the short story is unreliable because it comes from a disreputable character, then you have clues to your actual degree of open-mindedness. I am responding to your post not to prolong the argument on TRE (which has long gone past the point of marginal utility) but because I think it has become an interesting exercise in understanding our psychological weaknesses and how we can avoid errors like TRE in future. As I discuss this, I am thinking about my own biases (and a similar hammering I am taking on a stock I am long - YLO - although the circumstances are very different; no suspicion of fraud) and learning about strategies to avoid them in the future.

"It's good to keep an open mind, just not so open that one's brains fall out." Have you considered my comments on the TRE conf. call and the red flags from an earlier TRE presentation? They were based completely on TRE material; it was not simply a matter of jumping on Block's bandwagon. It also seems like you chose to ignore the negative comments of Nomura analyst, Anissa Lee. Lol. What do you think the RBC (and other sell side) analyst gets paid to do? You don't think they earn their keep by issuing positive reports for investment banking clients? The only similarity between FFH and TRE is that they were/are the subject of short sellers. FFH has a business model that is understandable and a management team that is highly regarded. Their track record was consistent with and could easily be tied back to their actions and the prevailing economic environment. In addition, insurance company accounts are independently reviewed not only by auditors but by actuaries and government supervisors. TRE's business model, track record and oversight is in a completely different realm. It is a joke to put Prem Watsa and Allen Chan in the same boat without making even the most cursory of analyses. The only "analyses" that can be gathered from your posts are: a) I would rather trust the reputable analysts; b) the upside is much greater than the downside; and c) it could be a similar situation to FFH at $60. Given your own admission that "no one really trusts TRE's figures" and "I don't put a lot of faith in any of the analysts," you are left only with the FFH analogy. I don't get how this idea even merits a discussion on this value oriented forum. With FFH, we were never close to the point where "no one trusted their figures." In a situation where you can't trust the figures, who do you think is the patsy in the poker game with Allen Chan?

I think it is because CP costs less than a line of credit with a bank. Basically, CP allows borrowers to borrow directly from lenders and cut out spead earned by the middleman (i.e. the banks). CPs also bypass the capital adequacy rules that banks would have to comply with when providing lines of credit.

Anyone buying here I wonder? 15 to 1 upside vs. downside. Surely, a worthwhile gamble over 3 months. There were enough red flags for those who wanted to see. If he got duped, it is not due to lack of resources, it was due to an inadequate focus on risk. "If it is too good to be true, ........................" It is ridiculous to compare Paulson's mistake with Buffett's - Paulson's error is amateurish. Sadly, this was not the message people wanted to hear 10 days ago. Back then, the talk was about having to take risk in order to get multibaggers. The other points to take away from this episode is not to put blind faith in "reputable" analysts and not to dismiss outright the claims of short sellers, whether you like them or not.

Fair point; my mistake. I may have read too much into your comments (below) which gave the impression that you thought there was a buying opportunity (I assumed that your questions were rhetorical). So if the truth lies somewhere in between, and that seems more and more likely, than do we have a buying opportunity here? Of course a lot of investors don't think so, but isn't that what makes a buying opportunity? I don't think anyone should be betting the family farm on this, but I certainly think it deserves some thought. I agree, but I don't think Sino allowed any analysts capable of calling out management to be on the conference call. No buy side analysts, and Anissa Lee from Nomura, a pre Muddy Waters critic, was cut off. That's why I had "reputable" in quotes - basically in reference to the sell side analysts that various posters here have implied to be reputable and trustworthy.

Prescient words - though I'm pretty sure you did not mean literally. One of those rare times when I feel ashamed to be a Vancouverite.

From the conf call transcript posted on TRE's website: While we have been transparent in our practices since we began the business in 1994, but do not feel comfortable to publicly disclosing certain proprietary information such as the name of our customers and disclose the exact locations of where our plantations are as it will impede our future long-term replanting program. I was shocked to hear this on the cc, thought I might have misheard so waited for the transcript to confirm it. I don't understand how anyone can ignore bright red flags such as these. How does disclosing the locations of their plantations impede their replanting program?!! I sure don't see the "reputable" analysts calling out mgmt on things like this. It's amazing that some continue to call this a buying opportunity on the sole basis that the company "must be worth something between zero and $20+" and then rationalising this speculation by saying that it's ok because we are not betting the family farm on it and dismissing the red flags because we don't like or trust the guys waving it.

Thanks, Sanjeev, for the timely reminder. Some of us get carried away from to time to time in the heat of the discussion. A gentle reminder is always welcome. Cheers!

First reason: http://www.theglobeandmail.com/globe-investor/markets/markets-blog/sino-forest-volatility-until-clarity/article2060580/ Richard Kelertas, an analyst at Dundee Securities who recently removed his target price and “buy” recommendation on Sino-Forest Corp..... First, he calls MW's report crap. Then, he withdraws his own rating and buy recommendation when there has been no change in fundamentals reported by the company. I don't know how you interpret this but it seems to me that Kelertas is now pretty much admitting that his own previous report was crap. (As for the CS analysts, naming a $6 target price when he has a $28 NAV tells you what he thinks of his own NAV estimate.) How can you respect any analyst who lets Mr Market drive his analysis? Second reason: What do you think Buffett will advise you to do with analyst reports? Third reason: How many reputable analysts protected investors from Enron or the mortgage crisis? Btw, in none of my posts have I said that we should believe MW. My analysis has been based solely on info from TRE and I am just calling it as I see it. Bearing in mind that we all have our blind spots, I am more than happy to hear your comments on where my analysis has been faulty. That would be more productive than simply asserting that some have blindly jumped on the Muddy wagon.

It gets curiouser and curiouser! "You know what, we don't trust our AIs to have paid our taxes on our behalf so we provide for them, just in case. And, you know, we can't really ask them if they have paid because they may not want to tell us, or worse, they may lie to us. But, hey it's cool, we trust them enough to let them hang on to all our cash proceeds from timber sold." Hmm, I wonder whether they can ask the AIs whether the cash or timber is still there. What if they don't want to tell, or worse, lie?!! ;D "Counsel has advised that pending the report by Price waterhouse and the independent committee, we cannot carry out share buybacks." Er, they have enough cash to buy the whole company at these prices. Why not dispense with the report and just buy back the whole damned company? End of story; end of short sellers. Why wait 3 months? Hang on a sec, what if the AIs don't want to give us our money back. Hey, maybe if we say, pretty please. "We will not disclose the names of our AIs because the information is proprietary and disclosure could expose us to undercutting by competitors." I get this part - if their competitors know the identities of the AIs, they could go to them and sell them timber cheaper. Right, so are we saying that their AIs are dumb asses who don't realise there are better deals out there or don't know how to go out there and look for them? But, hey, somehow they are smart enough to find buyers for our timber at great prices; that's why we need to hang on to them! "We don't get to touch any of the cash from the timber sales because our BVI companies that "technically" own the timber can't have bank accounts in China." Is this true?! They can't set up a structure that allows them to open bank accounts in China? I wonder how Li Ka Shing does business in China. Something smells fishy - just not sure whether it's coming from Block or from blocks of wood in the Sino forest.

Have you looked at SCP.TO (Sprott Resource Corp? They are not completely agri but their other businesses provide diversification and are promising ones anyway. Slightly early days in their farm buildout but they are close to critical mass now. They have an interesting vision of building out the largest farm in North America and want to try and change the traditional farming model by "branding" their products and selling retail (i.e. direct to customers who want assurances of quality and stability of supply). Best part is that you can still get this at a discount to NAV (about 40% of which is effectively cash). You'll find more on their website.

This is not accurate. Take a long investor in ETFs who decides to hedge his position with a 100% short. If he uses Chanos (who earns 1% p.a. after costs, roughly), his total return would be the long ETF return + 1%. If he goes with your method of buying ETFs, his return will be the long ETF return - the cost of the ETF puts. My guess is that cost of the ETF puts would leave the long investor with a return that is less than the risk-free rate of return. This makes sense intuitively - otherwise, we would have found the solution to alchemy by creating a riskless return. This is the reason why Chanos exists and his business model works. In my former example, the investor has enhanced his returns while at the same time significantly reducing his volatility. Cheers!

This is exactly what I said in my post. Chanos is among the most successful shorts and even his returns are dismal. I used him to make my point that shorting is hard and contrary to the perception that shorts make tons of money killing companies, the reality is far from it. The Midas Letter writer displayed this ignorance in claiming that he could make more money if he chose to sell short. Shorting as an independent exercise does not make economic sense - which is probably why Buffett doesn't do it. Shorting only makes sense for people who want to dampen the volatility of their long portfolio. How can saying that "there is a certain distastefulness in the way they make their money...from the death of a business" not be construed as negative? (The tone of many anti-short posts here are clearly negative). The majority of short sellers do so either (1) to take advantage of an irrational Mr Market (which imo is not ethically different from longs who do the same), or (2) to protect their own position (as FFH did when they did the CDS trade). Although FFH would have made a lot more money if some major banks had gone bust in 2008, I don't think the guys at HWIC were sitting in their offices praying for the death of these institutions. I really don't think they were hoping for a collapse of the financial system. If one is simply taking advantage of the irrationality of markets to profit, I see no difference ethically between a long and a short. The ethical problem arises only when people use underhanded tactics to to discredit their short targets. Given the season, a hockey analogy is appropriate. I am sure you do not think it distasteful for a Canucks fan to root for the total demise of the Bruins. ;D Like the Canucks, I believe most shorts are just trying to win the game they are playing; most of them are not focused on killing the other side. Cheers! Go Canucks!