scorpioncapital

I found the lecture interesting, Scholes is an academic, I think in that realm he has some valid ideas regarding intermediation, attractors, and setpoints. Of course, it's just scientific talk to explain simple concepts like "new normal" and how the future is hard to know. I found it interesting though that he thinks alpha is a zero sum game, like beta, so many hedge funds claim to "seek alpha" and his message is that in the aggregate this is misfounded. One should seek gains in intermediation (which by the way is what LUK does as a liquidity umbrella for illiquid stakes + a tax benefit).

and same for governments :)

By this definition, bankruptcy doesn't exist for anything, individuals, corporations or governments. I can never be bankrupt because I can renegotiate my loan terms to 50 years instead of say 5 or negotiate not to pay any of my debts as I don't have the money.

"Thus, if all sovereign long bonds are "junk", then ALL long debt is "junk" as well" A company can set the interest rate it pays to investors to compensate them for the loss of purchasing power, the market can demand only short-term loans or higher interest rates - and this will work fine because companies are not bankrupt, they have positive equity. The US government (see the report on another link on this site) is bankrupt, it has a substantially negative net worth and cash-flow, thus it cannot contract to pay substantially higher interest rates to compensate for the loss of purchasing power of the currency. As a result, sovereign debt is worth much LESS than private debt.

But credit risk is intimately intertwined with inflation. The US should be far lower than AAA in real terms and that's how I think credit ratings should be imparted to all countries - who is devaluing more or less. The rating should be a measure of rate of devaluation. So for example very few deserve close to triple A, maybe Japan. Since government has the ability to print money, very few governments have long term credit worth anything. Companies have credit in so far as they can pay an interest rate to keep up with inflation, but their hands are tied as they can't print money.

Actually I never understood the rating system because it doesn't take inflation into account. All long term sovereign debt should be rated junk status. All short term debt can most certainly be rated AAA. So there is just a gradient between AAA (short term) and C or lower (long term). This S&P downgrade is for long term bonds or a blended average?

"On the other hand, when you add in the devaluation of the dollar the S&P500 is actually down to the level of august 2010" It's down to the level of 13 years ago, but the US dollar was stronger then, so take something like the CDN dollar and it's down to the level of something like 15 years ago.

Great article, I really admire what people like Block are doing in the public markets! As an aside: "An on-the-ground investigation in China by The Globe and Mail found discrepancies in Sino-Forests’ public statements regarding its timber holdings. A key Sino-Forest partner in Yunnan Province as well as Chinese forestry officials said the company controls far less timber than it has claimed"

Congress failed to pass TARP on first pass, stock market goes down 2000 points or so. Congress obviously passes it after that, and a year or two later the stock market is back where it was. Same possibility with the debt vote - only opportunity due to volatility.

Logic is always more important than checklists and formulas. The reason people promote formulas and systems is because most people don't have logic. Which begs the question , why play when you don't know what you're doing? This leads to the conclusion that most players are beginners. At this level, systems are actually beneficial because they have a slight advantage. The system to invest in index funds produces an average result - it's the system to try for average, not the average itself however that is the key point here. At the root of systems is consistency, people have a hard time being consistent. So have a system or use logic, but be consistent, anything in-between is sloppy thinking :)

Movie ticket - ~$10 Popcorn and drink - ~$5 -- = 50%, I don't think you need any outside argument to see it isn't an insiginificant part of the ticket price. Perhaps he is referring to it as a proportion of disposable entertainment money?

The top chief of Leucadia Energy also believes shale gas production economics are over-blown and believes natural gas could be in the $6-$7/mmbtu range over time.

- Usually companies have a different set of financial statements for tax reporting purposes. These statements are a hybrid between the cash-flow and earnings statements. However, even the government recognizes the non-cash nature of certain expenses such as depreciation. - You can sometimes work backwards from the actual corporate tax paid and the posted marginal tax rates to deduce approximately what the company is claiming for net taxable income. This is actually a useful audit technique to see discrepancies between reported earnings and actual earnings. - The only advantage I see with conglomerates with respect to tax is the ability to offset gains in one business with losses in another instead of having to wait for profits in the losing business to recover.

< 0 - as usual.

This article made me laugh, here's a company and stock that have made many a shareholder rich beyond their wildest dreams over the years and they have a problem with their jets :)

There are no small companies with a durable competitive advantage or wide moat. Small companies either don't have these traits or they are developing them. If they had them, they wouldn't be small. A more interesting question is what are the signs of a developing advantage.

"However, underneath the quiet calm, interest rates will still be 0, employment will be less than inspiring, and house prices will continue a downward trend. Growth in China will encounter larger problems related to reduced ROI from capital investments and higher inflation." You can't go wrong predicting the present :)

Is there any professional study in sports or hockey showing a home-game effect, that is a psychological advantage to the home team? Similar to the home-bias in investing?

excuse the pun, but some are missing the sino-forest for the trees here. You can't do business with crooked managements, or ethically borderline. Even if the minor allegations are true about the decisions these people made, I would consider not touching it, despite cheapness because the final outcome , whether now or years from now, can't possibly lead to superior investment returns.

My thinking is that given all the variables to consider, LUK is the cheapest of the group. I don't see $200 billion market cap companies outperforming $10 billion market cap companies so MSFT and BRK are out. As for Fairfax you have an average insurance operation with large amounts of fixed financial assets on the books selling for twice book in an inflationary future, not a dealmaker, not having much in the way of industrial operating businesses. Given all these variables LUK is the cheapest and most likely to outperform, just my opinion of course!

I find this a somewhat disingenious argument, the vast majority of public companies are liquid investments that own so-called "illiquid assets." Some exceptions, insurance, banking, and even there it takes years and years to run-off an insurance operation so even that is not entirely liquid.

"At 10% real rates, most Americans will be quite happy having money in the bank earning interest. " If inflation is 10% real rates will be 0%. Most Americans will be quite unhappy earning nothing in an inflationary world as they are now in a dis-inflationary world. No world promises a real return since even deflation is likely to produce a loss due to recession. To get a real return one must invest - under all possible scenarios. So given all the macrotalk, investing is still the right thing to do if you want more money.

"Levels of debt seem still pretty high to think that a bit more is in the card at least" There's nothing like inflation to melt away debt and make debt ratios look miniscule. Suppose I have $100 debt and $200 of hard assets, my debt to asset ratio is 50%. But now inflation kicks in and my hard assets are worth $400 but my debt is still $100 , my debt to asset ratio is 25%. There is no such thing as too much debt in an inflationary campaign, it all goes away like magic!

I'm not worried about millionaires - they won't suffer that much if bad things happen. It's the people who stretch - that should be the metric. The statistic that prices are 9x income is misleading. if the contest was between 1000 millionaire families against all the income earners in the province that would be unfair no? I bet many of those who have 1/10th the income to afford a house are probably renting and rental rates especially in the immediate suburbs are not as crazy.

The business meeting is the formal part (votes, ratification of directors, etc..) like the stuff they do at Berkshire after the Q&A. The actual Q&A comes after but you're right in total it's no more than 60 minutes for LUK +/- 10-15 minutes individual Q&A after so it's very light.