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  1. Thank you for clarification. I didn't catch that part. how about starting from free cash flow on the cash flow statement (and deducting capital expenditures)? I believe that adds back depreciation but includes the interest expense. i wonder if this is a hybrid between roe and roic. so say FCF/total capital should include the cost of capital at any given balance sheet date?
  2. still don't see it, i'm probably blind ) net profit 1 billion, interest expense @ 5% on say 10 billion in debt is 500m , nopat is 1.5 bilion, total capital is say 10 billion + 5 billion equity, roic is 10% net profit 1 billion, interest expense @ 10%, nopat is 2 billion, roic is (as above) 13.3% It would seem as interest expense rises , roic increases, but this is a silly conclusion since it reduces profits. Just wondering why ROIC doesn't use net profit to account for the cost of debt.
  3. I don't get it. say a company has 100b equity and 100b debt. if Debt costs rise , then roic would seem to go up when in fact it makes less money after interest expense. I'm assuming roic equals net profit (or fcf) + interest expense / equity + long term debt
  4. I think compensation for loss of buying power affects those who have savings or investments. Those who do not are going to get killed by high inflation. Since I read that a large number of citizens cannot even pay a debt of a few hundred dollars and live paycheck to paycheck high inflation is indeed far worse regardless of how high interest rates go or how small or big the delta is. On the other hand, highly indebted citizens are a big social problem. It is possible that the populist tendency to keep interest rates suppressed to pay off the debt will be made at the expense of the daily living problems of high inflation. Perhaps the key is to look at the situation of the largest segments such as the middle class. Their financial situation will dictate policy I think.
  5. You know if inflation was 10% and interest rates say 7% it would not be much different than today at say 3% inflation and 0% rate. Perhaps it is the difference between the repression of rates and inflation, the real rate of interest that matters. How wide was this gap in the 70s before Volker jacked up rates? Was it like 3% and 15%? It might matter as a comparison. It is this delta to watch perhaps. If it gets way out of hand you know there will be a jack up of rates at some point and a big crash since otherwise you get hyperinflation. Another possibility is just inability to launch, small recessions after recession as rates slowly go up.
  6. I believe he used the 30 year yield because he invested in predictable certain fcf machines. I think i've heard stuff like 5%. But I would build in a margin of safety into the discount rate just like I would into stock valuation. It's a little double counting but as long as you are aware of the range...
  7. ¨This was a time when P/Es were not high to begin with, and interest rates were not that low to begin with. This time, it will be devastating if inflation/interest rates shot up that high by any chance¨ I think profits would be much higher, even if companies could not keep up with pricing power if inflation was unexpectedly 10%. Therefore even if pe now is say 30x, if profits double will be 15x. The stocks may still go down to say 10x pe but it is not more devastating than in the 1970s. Also it is not clear that stock market crashes are only influenced by inflation. inflation can be high or low when stock markets crash. Inflation does tend to produce sideways markets (and there is a good book called the little book of sideways markets that is worth reading I feel for the period ahead). These are markets that may not go down or up too much for many years. In this scenario, i feel you want income, you can do arbitrage, you can accumulate great companies on dips, but you should not expect 10 baggers except perhaps in some venture capital fields. Even there, there will be more headwinds than has been so far.
  8. say a deal closes in 1 year and inflation is increasing, should the spread widen or it is too short term to matter much? After all even if inflation was 5%, what would an investor buy if 1 year bond rates are repressed and stocks are having a headwind from the higher inflation?
  9. I would like LBTYA even more if it paid a dividend. I don´t want share buybacks from a utility. I want cash in hand, like VZ. I do own LBTYA but have reduced somewhat because I do believe European, including UK pricing will not allow for such higher margins as other countries. Anyone can borrow at 4% and make 8%, I think markets sniff out capital efficiency and ROIC and this will get more and more important especially as more capital needs to be ploughed into the venture to keep the same level of cashflows.
  10. that last point is interesting because if you look at berkshire, a large part of it is infrastructure. I think he finds it as a place to allocate large amounts of capital in fixed assets and stable returns meeting his 10% hurdle rate. Berkshire just cannot do what a smaller investor can do. For a smaller younger growth investor, VZ may not achieve their goals but for Berkshire it is the best practical fit. It also is in the US which has regulatory and knowledge advantages which he likes. Note he dumped a little LBTYA last year and then suddenly the VZ investment pops up.
  11. As the world gets better outside North America, there will be less workers because they won´t want to come. There won´t be a better quality of life. Therefore these countries will need to automate more. If they cannot they will have to pay more, causing very high inflation. Then, these countries will begin to ask, why don´t people want to come here anymore? They will pass infrastructure bills and spend huge amount of money they do not have to try to improve the conveniences and quality of life. This is not always possible as the quality is often cultural and often actually involves overbuilding - but in the right direction. This is a new continent. Europe has had 1000+ years to perfect infrastructure, layout and living. Much of it actually was post ww2 so we cannot say it is time I think. Perhaps it really is an attitude and priority issue. I also think more northern places will always have inferior infrastructure to more southern given the climate issues. Humanity evolved in the mid-tropic regions with mild weather, abundant food, agriculture.. all things being equal living in extreme environments is like living on Mars, you have to be a gluten for punishment. The question is why people do it. Perhaps there are some benefits but it does have economic consequences.
  12. You have to travel and think global. From what I see the world is vibrant, young and plenty of demand in many places. The western countries have followed failed economic policies for decades and have little to offer. I chalk it up to communism and too much government control. But if you look around globally things are not as bad, just in the so called ´western banana republics´. They either smarten up or continue down the road of more stagnation and pain for the dwindling population.
  13. calpers is on autopilot algorithm. a prime example of the dangers of AI or any algorithm without much intelligence behind it.
  14. what kind of Bs is this selective quote about war and WW2? over 75 million died in WW2 globally out of a 2.3 billion global population and so far 3 million worldwide for covid out of a much larger world population of 8 billion. spending is beyond WW2 levels for much less deaths. there is just no comparison.
  15. Deficit spending IS higher taxes...unless you want hyperinflation..which is also a tax. Therefore it is always a higher tax.
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