scorpioncapital

Excellent post. I would also say that for those parts of society/government that can go bankrupt or have no printing press there is a very real risk of reduced quality of life. Usually this creeps on through user fees, more aggressive 'penalties' for all kinds of daily transgressions you may not even know you had done. Sometimes higher direct taxation. In a crisis, how much can a government squeeze its residents before they start cheating? Actually you see a lot of black market and corruption in some countries because people have lost faith in the government. Not just lies or policy, but too high costs, low services, and insufficient incomes.

I like these articles - https://scholar.harvard.edu/files/this_time_is_different_short.pdf , https://www.hks.harvard.edu/publications/sovereign-bonds-waterloo Growth and innovation require investments (lately by governments because the state seems to have really taken over). Interest rates are low. These investments may reduce the need for full default. I feel it's unlikely some default to creditors of money won't happen as the debt is growing faster than the growth and innovations. Geography is often destiny. There are some real banana republics out there but they have great weather. They will always be desirable. Politicians and powerful people often tax labour, sales taxes, service fees first and at high rates and reserve privileges for themselves on business, corporate, and investment taxation. This philosophy may be changing but... In a global competitive world where capital is mobile and countries don't mind to perpetuate these anti-good for the human race economic structures (look at the regressive taxes and oligarchs in so many countries) what can one do? Capital controls, exit taxes, restrictions on travel or even living abroad (ahem, Covid )? Has debt helped more citizens of a country than in countries that don't spend so much on their people? Are some social goals for the vast majority (even if it doesn't affect you but costs you higher taxes actually) worth accepting? What is the right balance? Lots of interesting questions. I find it strange thought that governments have taken such a big role for debt and investment. Why is it individuals and private business aren't taking on the debt themselves? Or if they have, why is so much more public debt needed?

Throughout the history of nations it's been a combination of growth, default (inflation, financial repression, pension cuts), taxes and austerity (service cuts). I don't expect any difference going forward. A combination of all of the above.

a lot will depend on someone's age, job, risk profile. Having recovered from covid earlier this year I cannot say it was much different than recovering from a flu or cold in any other year , and I never got a vaccine before. Unpleasant? sure. annoying? absolutely. But unless you have a job or risk that is out of the wide spectrum of normality I see no need for it. I feel that covid vaccine is more of a 'stockpile psychological' situation. The fact people believe something exists, they will be more confident. It's almost like the Fed jawboning. Just threatening to do something often is enough to get the intended result.

6. Interest rates are not really that low. I mean they appear low for the government and perhaps for margin traders but have you looked at the interest rates for personal lines of credit, for actual company issuance of debt, and for mortgages? They are most certainly not 0 or 1%. I would say corporate debt is actually being issued around 4-7% (a large spread between golden borrowers and average borrowers).

"socialism + capitalism--clearly works better for things like healthcare" - disagree 100%. In the end, the issue is that there are lots of people with money. Not necessarily alot of money, like the billionaires using offshore trusts or protected by countries that don't tax them much, but just average run of the mill people middle class. That segment has enough money to want to pay for more than 'basic service'. Sure have the basic service. But I know socialist -capitalist countries that ideologically do not want any providers that offer service+. That would be 'unfair' to waiting in line and one year wait times. In these countries you often have to go to the USA or Europe that have an actual hybrid private -public system and don't take ideological stance about it. Large private hospitals and they even treat in public hospitals private customers.

Any idea how value stocks, cheap stocks and inflation oriented stocks like financials, reits, hard assets did in the 1970's inflation?

Isn't there some rule now that banks must separate investment and core banking operations? I also looked at brokerage firms as bank substitutes these days. Sounds from all this that the key is who you get into bed with. The reputation. Even in insurance, there are so many run of the mill insurers, if there is nothing special or you can't trust or understand what management is doing it is like delegating your capital to endless layers of a black box process.

I see Buffett has always liked both insurance and banking. They are cousins but which is actually better if run well? Both use other people's money - depositors vs policy holders. And they have leverage ratios usually 4:1 for Insurance and 10:1 for banks/investment banks. Which business model has the lowest cost of capital all things being equal? Does the extra leverage of banks compensate for having to eventually pay depositors some interest? Combined ratio can be under 100% for well run insurer long term. Also is there a difference in the assets they can hold? Standard insurer holds mostly government bonds but it seems banks do many more loans like real estate, commercial loans , although less so equities. Any thoughts on if they should do roughy the same from the cost of financing benefit and type of investments they can make?

You say , most importantly #2 - tax. Never let tax dictate an investment decision. Besides the point that half the world has no capital gains taxes, even if it did, sell if this is the #1 reason. "Good bluechips with strong moat can have some premium " - my experience is the opposite happens. Good blue chips have eroding moats with low or negative growth and become value traps with even lower P/E ratio over time than smaller, faster growing stocks. Not all but many...There was a good book by a business professor in Utah, can't remember the title, but the point was that success breeds eventual stagnation and erosion of moats. Not much lasts forever. Competition is fierce. Some companies reinvent a portion of their business or break-up and become more nimble. I do worry large profitable blue chips may actually one day trade at a discount.

Good point, the next FAANG is very likely an unknown today. Not some incremental addition to an existing stock. "Ninety-four of the surviving firms are still in the S&P 500 index, 26 are publicly traded companies not in the index, and five are in bankruptcy proceedings." There is huge survivor bias. However I think an investor can do well even with moderate growth , mid-large cap winners. No need to swing for the fences to win. Unless CBs partner with crypto, I see crypto as having little to no future. Peter Thiel's Zero to One is a good book that deals with this issue. The next great company is not some copy, iteration, or copy-cat of another. It is a truly revolutionary and new idea at the time. Microsoft went nowhere for almost 15 years around 2001. There is actually a lot of mergers in corporate history. if that deal is all cash, you have to buy the buyer or you're out. Again, how many of the FAANGs came about via merger? I would say none originally. They all had a powerful unique organic business to start.

If they are mistakes of omission, it implies that you should have owned them, and perhaps in large size. Why didn't you? Random chance or you weren't very sure after all? Or the price got away? Philip Fisher says never nickel and dime a good potential investment. In today's world this could mean buying say 10-15% above your buying point. One has to figure out what leads to the thumb sucking. Not sure if Munger and Buffett ever explained why they didn't do what they knew very well. Presumably these are investments in the strike zone that you didn't take.

I believe it's now 12,000. But even so, there will be very little tax to pay because if you take 6 months of this, and have then a regular salary (whatever that means these days) for the other 6 months, there is no way you are pushing more than 40k and so tax will be very low.

Just make sure it's not a value trap..overly complex, management that doesn't know what it's doing. If you can't understand their presentations that's always a bad sign.

Didn't Buffett always say he would warn shareholders and the market if Berkshire stock was undervalued BEFORE buying back shares so the market had a chance to make up its mind about it and so that he wouldn't be taking advantage of exiting shareholders? Whatever happened to this sentiment? To the person who was worried about the pcp write off, I wouldn't be. This could easily be reversed when aerospace returns. It is just conservative accounting for this year given the magnitude of the drop - but it could still be very temporary.

It all depends [ : - ) ] [on the local tax system]. You mean those deadbeat countries that are tax havens?

Is it actually possible to have inflation - or at least the benefits alleged to it if everyone knows there is inflation and buys inflation protection? some say the benefit of inflation is its asymmetry. seems today people are more educated and on top of things in understanding these issues compared to the past?

I'm not so dogmatic about doubt. Doubt can be on a scale. And if I feel my doubt is say 40%, conversely my certainty is 60%, I might keep some.

So something like get paid in shares, sell them to recreate the dividend and maybe on the tail-end of the option expiry if the price has risen, get the dividend back and keep the remainder as an equity holding. If things look just as bad in 8 or 9 years, just sell it all out via the shares and consider it a dividend-equivalent? If they got paid entirely in stock instead of dividends what break-even price would recreate their current dividend of 8%?

Frankly I don't really think any bond investment is that great. short or long. I remember Buffett said in an interview he would love to be long Sp500 and short 30 year bond but he didn't know how. I see the problem. You can't really lock in an efficient bet on the bond part long-term. And he actually could do it with derivatives. Maybe he didn't find a counterparty. One could in theory buy an investment that provides income during disinflation and has a tail hedge against inflation - like hard asset component. Well this is of course the standard commodity, agriculture, real estate, energy playbook. Is there a reason to think bond ideas are going to outperform?

How about hedging a little by shorting 30 year bonds? Like that black swan guy who made 4000% every time people think they got it all under control ) Of course you have to have a hedging insurance mentality and find a suitable product. That's the catch.

The problem is that less than 5x earnings is often a sign of the many problems that made it so cheap. Rarely will a company be solid and cheap. It's like one or the other.

Some would argue low rates are a sign of a very sick economy, not a healthy one. Enticing people with cheap money because things are so bad does not strike me as particularly healthy.

If float is like the cost of money, then something like Berkshire is turbocharged, although with more volatility...But most insurers don't write so well as to have zero cost. Sometimes if they are not very good their cost of capital is even higher than prevailing interest rates to borrow the cash. It's a fine line between borrowing with interest and using float. I think an exceptional insurance operation will always do well, but you can't deny they are financial companies and definitely are vulnerable to seismic shifts in financial conditions.

- Insurance companies depend on net investment income to make up underwriting losses and also for paying claims. - Low rates will show unrealized (and possibly realized) gains on the leveraged bond assets and large rises in book value , but this is temporary. - When they go to renew expiring bonds that have appreciated (meaning yields are even lower), they will have less investment income. - If unexpected rise in inflation and rates, they will suffer losses by locking in the lower yields. In higher inflation, claim costs increase too. It could suffer large losses. Basically you have heard over the last 10 years how pension funds and insurance companies are suffering. That's because they can't make good investment income for their business operations without incurring more risk. Then if that risk is realized they will have a double failure and possibly go bankrupt. So it's a double edged sword too low interest rates.