prevalou

"How do you avoid bureaucracy in your decision making? We are very careful about that. On the investment side, we make sure that on our investment committee of six, each member makes decisions on a certain part of the portfolio. Committee members don’t have to get consensus to buy something that the others like. So if one individual in the firm buys US$10 million dollars of something, some stock that he likes, he doesn’t have to get everyone’s permission to buy. Then the rest of us can add to that and take it up to US$100 million. But to take it to US$100 million, it would involve the rest of us doing a lot of work on it ourselves to get comfortable. So we like this idea of individual decision making." From his last CFA interview

Hayek said abandonment of the gold exchange standard was a factor In prolonging the 1930 depression and explained the stagflation of the 1970s. He didn't say you could not have a good system after leaving the gold standard but that monetary discipline was harder to implement and would probably require another recession, which happened In 1981. He liked the gold exchange standard with its limitations but saw very little chance of it being reintroduced. If you read between lines, it seems Hayek would be appreciative of volcker's policy which paved the way for twenty years of growth.

in hindsight, you can say with 100% accuracy you bought a dollar for fifty cents (if your investment worked).

I don't find in the interview where Hayek said you could not have a good monetary system after leaving the gold standard. You could say also that for micro analysis, everything is right in hindsight too. Because Value investing worked since the 1930s doesn't mean it will work in the future. We live in an uncertain world.

I think Hayek was very acurate in his description of the economy and his predictions. The economy was in the doldrum until the second oil crisis with high inflation. Then the crisis triggered a strong reaction: Volcker anti-inflation stance and business friendly policies that set the stage for 20 good years. I don't see how he wad mistaken in his analysis in 1975 when he said only a recession of some length could change inflation policies. It's what happened in 1980/1981.

Easy to say, but where is the proof ? I read the emails and didn't find any fact that they orchastrated a short squeeze. It's usual GS bashing like McDonald's for the mad cow disease a few years ago or Nike for sweatshops, Wal Mart for bad labor relations, etc.

He looks after his own interests!

highly improbable because after government exit AIG cap will be about 70/80 B$

the kindle is better and easier on the eyes, except for pdf. You can download very easely directly to the kindle your materials. And the battery lasts a long time.

Has someone some idea/information about the new Red Robin CEO ? At first glance his track record doesn't seem to be outstanding. 10 years at El Pollo Loco: growth in the number of restaurants but profitability? He seems to be conventional (refering to Collins book good to great) and interested in his own protection (golden parachute). Am I missing something ?

The same examples are always quoted (US in the 30s and Japan in the 90s) to justify a difficult economy. But what about South Korea for instance which was much in debt in 1997 and recovered pretty quickly . There are maybe other examples in Asia or elsewhere. A double dip or flat economy is not a fatality.

one optimist and all other pessimists. it's generally a sign the optimist is right!

What could be the impact of a yuan reevaluation on Wal Mart business versus competitors? Are competitors also bying their goods in China for the same proportion of their business (for instance Costco) ?

Deaf people's dialogue...never mind. Thanks for sharing your ideas.

Are there the same assumptions to calculate fair value for these institutions ? (for instance discount rate)

Yes but the collateral is not invested. No leverage there unlike insurance.

Where is the float?

If I follow your reasonning Harrylong, because sou seem to know well your subject, I have to conclude SUR has a competitive dis-advantage because it is one of the biggest players in a fragmented industry: small players probably get the best business with companies like SUR getting what remains. We don't see it now because the sea lifts all boats but could discover it when the next tsunami happens(the surety industry like credit industry is prone to tsunamis). I add a second competitive dis-advantage: main competitors are multiline that can underprice SUR, if they earn money elsewhere. Moreover, SUR portfolio is heavily invested in munis, which Buffett call the next financial hurricane. The price seems fine but CNA group can take-under the business if it finds it undervalued, knowing the business better than outsiders. Thank you anyway for sharing your idea, I found it very interesting.

do you mean RLI underwriting is better if SUR has scale?

Actually, RLI combined ratio for surety insurance is better than SUR (77.5% average for 2005/2009 and 79.5% respectively) although RLLI being 10 time smaller in written premiums. There seems to be no advantage in scale for SUR. Or if SUR management is outstanding, RLI management is still better!

SUR has about 100% equity invested in munis and states. I imagine it is for tax reasons. (their tax rate is 30%) and "conservative" policy (if the past is an indication of the future...) I am wondering if these tax exemptions don't encourage bias in investments (especially if rating agencies give their approbation with AAA because these states and municipalities are too big to fail!) It reminds me other bubbles!

It is a question of degree. If you prefer, i can call them grey swans (recession in the construction industry, inflation of raw materials, irrationality of the players which is anavoidable). Insurance is more diversified and less correlated to a single event, altough extrem events (earthquake in California, etc.) can occur. The probability of a big contraction in the commercial construction industry is not so remote after all...

surety bonds have to be analysed like credit (objective no loss) and not like traditionnal insurance. They can be subject to black swans (like a big recession or hyperinflation) especially due to the fact they are concentrated in the construction industry.Once more, "only when the tide goes out do you discover who's been swimming naked." An historical perspective shows there were periods of combined losses for the industry (due to inflation after the oil embargo for instance, in 1992 due to recession or in 1985 due to irrationality of the actors). We habe been in a benign period with rational players for 7 years. How long will it last?

in some insurance market (long tail and correlated risks), numbers can look great until they are catastrophic (like in the financial markets). In the cds market for instance, before the financial crisis, it was not clear people were underpricing because there was no loss.

one of the dangers with a specialized insurer (even if its past seems to be brillant), is that multiline insurers can underprice in this speciality for years, without being bothered if they earn money elsewhere.So Sur could have a competitive dis-advantage versus multiline competitors.