uncommonprofits

At $20/barrel oil -- shipping advantages indeed favour the trucking industry. Move up to about $50-$60 though and it would seem to start favouring rail. At around $80/barrel (currently) we are just scratching the surface of the rail shipping advantage. As fuel costs rise --- so too does the rail shipping advantage. But there is more advantage coming in some form of Carbon Tariffs. Not only do you pay for your fuel -- but you also pay to burn it. It's not a matter of 'if', rather 'when' carbon tariffs become reality. As this all takes place - rails in general should benefit from the return of some domestic manufacturing where some overseas imports have an increasingly difficult time competing. But BNI has another strong wind in it's sails: of all the large rails, it is would seem to have the best strategic advantage with regards to Mexican import traffic (BNI would also arguably have an acquisitive advantage to stengthen their competitive edge in relation to this). As energy costs rise and carbon tariffs kick in, Mexico will have an increasing advantage over China in terms of cheap labour manufacturing for certain products. A very good book on the subject below. While what happens could be more gradual/long term than is often suggested in this book -- it does open one's mind to the energy situation we face in a growing global economy and the sort of changes to expect. Some of the moves we have seen BRK make the last little while (particularly the BNI acquisition) ... it leads one to think that WEB is thinking of forces at play along these lines. The book is called: 'Why Your World is about to get a Whoe lot Smaller' by Jeff Rubin. A very good read: http://www.kobobooks.com/ebook/Why-Your-World-Is-About/book-o6NpiolfFESaTS2DsQsRGw/page1.html UCP / DD

The publishing industry has the music format experience to look back on – there is no way they want a similar closed platform where they have little say. But keep in mind that the music format actually went digital back in the late 80’s with the introduction of the CD. Books are just now going digital. There is way more that you can do with books going digital (especially under an open platform) than you could with CD going to mp3/iPod. AMZN is trying to make e-books ‘book like’. Imagine if Apple had tried to make the iPod 'vinyl like'!! Yes, there are a lot of devices coming out --- tons and tons. For that there are similarities. But there are some big differences. Book retail is not as fragmented as music retail was. Yes, some book retailers are in trouble but there are some strong dominant players also. The publishing industry is huge, and many of the players provide a more viable service than record labels. The other big difference is the times we are in --- there is a big push toward open format for many platforms (think Android). Realizing there are some viable open platform alternatives, publishers are currently taking a stand against AMZN in delaying ebook releases. By under-pricing ebooks, AMZN has been trying to undermine the value of ebooks rather than trying to create value. I agree that it’s going to be hard to predict who wins the device war. But as for the content platform --- you have the bully approach of AMZN versus a relationship approach from someone like kobo. If the publishing industry is a pushover --- then AMZN wins. But I see this being more about relationships -- AMZN will have to adapt to that reality. I noticed that AMZN released this propaganda the day after Christmas. One would have to think that Christmas day would be the weakest day of the year in terms of on-line paper book sales by far. People don’t suddenly wake up Christmas morning with a paper book gift and say "hey this is so darn neat I am going to order another!!” ..... but if they wake up Christmas morning with a Kindle ..... of course they have a big incentive to try it out. Considering how strong Kindle sales were at Christmas – beating paper book sales was a given.... you could have predicted that months ago. AMZN used the opportunity to promote some propaganda – it gave me a good chuckle. Amazon’s catalog is not as significant as you think. The AMZN catalog currently stands at at 390,000 titles (including free). In a short 9 or 10 months Kobo has got to 200,000+ paid titles and 1.8 million free titles. Much of the free titles are thanks to the trust kobo has established with the Internet Archive. For free titles .... AMZN would appear left in the dust until Google Editions can come up with some sort of litigation settlement. In the mean time kobo keeps closing the gap as to paid titles .... and are going global in a big way. Long term, I doubt there is any moat with this ubiquitous cellular network -- but if there were it only applies to the States --- certainly not global! What the Kindle cannot do is transport a library from device to device. Imagine for a second if 10-15 years ago you could NOT take your excel spread sheet or word document from your Dell to your HP. Flash forward to today and imagine if you could only read your email on your Dell ..... NOT on your HP, NOT on your smart phone or any other device you might own in the future.... this is really what the Kindle is trying to do with their ebook strategy. Yes Apple managed to create a monopoly at the moment with their closed iTunes ecosystem --- but the story Apple will be forced to watch unfold will be Android. Ebooks have barely entered the first inning in terms of anyone gathering an immense installed base. The closed format era would seem to be ending --- we are shifting toward an era of open. UCP / DD

I would never advocate shorting AMZN (or any stock for that matter). But given the choice of two jockeys: Heather Reisman or Jeff Bezos? I do put my money where my mouth is: on Reisman!

More rumours about Apple's ereader/tablet. Interesting article here -- Apple's iSlate: The Kindle Killer: http://www.huffingtonpost.com/js-mcdougall/apples-islate-the-kindle_b_407516.html I'm not sure if the Apple iSlate will be the do-all, end-all for ereading devices --- but this quote points out some obvious flaws in the Kindle strategy (some of which has been brought up before on this thread): By releasing an e-reader so hopelessly tied to the paper, Amazon gave Apple an opening to provide something better. If the latest swirl of rumors is true and Apple plans to release a tablet computer, or iSlate, early next year, you can bet your life it will put the Kindle to shame when it comes to digital content delivery. Any e-ink device simply will not be able to compete. I'm not going to reveal any names, but I have it on very good authority, for example, that--unlike the Kindle--the new Apple tablet will, indeed, have a color screen. Might it also ... play video?! The bottom line is ebooks have barely entered the first inning. I saw an ereader in Costco the other day for $179 cndn. LG announced an ereader last week. So too did iRex (the spun off arm of Dutch Royal Philips) through distribution with Best Buy. And this is in addition to all the previous announcements from other device manufacturers (including many previously unheard of Asian entrants) -- ereading devices will be exploding on to store shelves throughout 2010. This war is only beginning. Kindle's strategy was to win the war (and somehow not cannibalize themselves). Kobo's strategy is to sell the bullets to Kindle's competition (and that list keeps growing). Just as Kindle's flawed device strategy has allowed an opening for Apple's iSlate (and others) .... AMZN also has a big hole in their content delivery platform by being closed platform and publisher unfreindly. This has allowed Kobo to quickly move up the ranks with their open platform, any device strategy .... and their close relationship with publishers in how ebooks evolve. AMZN seems to have placed themselves outside the boardrooms where these industry transformation decisions take place. UCP / DD

http://graphics8.nytimes.com/images/2009/12/15/technology/bits-bordersKobo/articleInline.jpg If AMZN was not taking Shortcovers (now Kobo) seriously by today. Maybe they will tomorrow: http://finance.yahoo.com/news/Indigo-Spins-off-Shortcovers-cnw-3866547156.html?x=0&.v=1 http://bits.blogs.nytimes.com/2009/12/15/borders-and-kobo-will-develop-new-e-reader/ Cheung Kong (Li-Ka-shing) is one of the new investor's in Kobo. Indigo retains a majority 58% interest. I like the name of Cheung Kong's subsidiary: 'Instant Fame'. UCP / DD PS: Note the colour theme. $99 ereaders are coming soon. Kobobooks.com has a catalog of 2 million + titles .... 1.8 million which are FREE! http://graphics8.nytimes.com/images/2009/12/15/technology/bits-Borders/blogSpan.jpg

Will AMZN get in on any of this? IF I were a Kindle owner --- I sure would want access to these extra 1.8 million titles! http://blog.shortcovers.com/2009/12/14/shortcovers-adds-1-8-million-titles-from-internet-archives/ http://finance.yahoo.com/news/Shortcovers-Adds-18-Million-bw-2553771753.html?x=0&.v=1 I agree. This will be more about relationships. I learned a very long time ago that in doing business, your customers are a lot more than just those you sell products to. A company’s customers are also it’s suppliers, employees, shareholders, etc. A top class company will do a great job of balancing out all these customer relationships. The more one looks into AMZN --- there are some very obvious pitfalls. AMZN’s approach is ‘their way or the highway’ ... but publishers have started to stand up to AMZN: http://m.usatoday.com/Money/1148806/full/;jsessionid=EA918CCBBE0E13874E96C104343D36DB.wap2 AMZN might just have some viable competition when it comes to digital books. Shortcovers understands the importance of relationships and also supports all mobile device formats. Shortcovers would seem to be establishing a key leading role in working out issues with the publishing industry as to how digital content delivery evolves: http://www.blip.tv/file/2798840 A rebranding of Shortcovers is supposedly underway to something called: KOBO(More details are due out tomorrow). Heather Reisman has put together one heck of a team – they have done a lot in a very short period of time. UCP / DD

You will have to see how much you love it once these new style of readers come out. They claim to rival Kindle’s gray “electronic ink.” I don't think they will be anything like a netbook LCD screen. These would seem to be entirely new technology. The problem for your Kindle is 'if' you ever want to switch over to one of these more vibrant displays with full colour capablity .... unfortunately you have to leave your Kindle library behind. The point I was making was with this netbook of my wife's --- we could well be wishing we waited a year or so as the choice would seem about to explode with some very new & interesting stuff. But at least it's not that big of a deal as far as the content she has bought ... it is all fully transportable. I can understand your decision buying the Kindle back in March/08 ... but for anyone considering one now .... I would hold off to see what these new technologies are about. UCP / DD

Some have figured that the challenges to Kindles e-reader are far out in the future ... leaving them time to adapt their own device. Below is a link to an announcement today regarding the colour thing I have mentioned. It is real and coming VERY soon (2010) .... be sure to watch the Sports Illustrated Tablet video Demo: http://insidetech.monster.com/news/articles/6698-5-top-publishers-create-color-e-reader-format-to-challenge-kindle When people start seeing some of these other options in 2010 ... they might think twice about the Kindle. The Kindle has two obvious flaws: #1 - It's Black & White. Might not seem meaningful for regular old black and white text; however if you buy an ebook -- don't you at least deserve to see the colour cover! But work your way up the chain -- for a newspaper or something like Sports Illustrated the flaws in the Kindle are serious. #2 - Closed Platform. The publishing industry is pushing for Open. The Android platform is pushing for this on an even broader basis. The best multi-purpose ereader device to this point seems to be these netbooks. My wife loves the 10" Toshiba I bought for her birthday. Some people have mentioned Kindles great battery power ... this netbook of my wife's actually gets around 10 hours. Don't know what the units such as in that video will get for battery useage, nor their price .... but face it, these things just keep getting smaller, thinner, greater clarity and better battery time. Seeing some of these newer technologies coming out in 2010 --- my wife's netbook will obviously be ancient pretty soon... but at least she can re-download her library from the Shortcovers cloud..... with any of the new fancy gadgets (of her choosing) in the future! Try switching to one of these new fancy gadgets when your library is in closed Kindle format ..... you are going to have a BIG problem. But those are all problems people won't find out until later .... more immediate is the explosion of colourful devices due out in 2010. Reflecting on Kindle's inferior B&W nature -- it will be interesting to see if they can somehow sustain their popularity in 2010 and beyond. ucp / DD

Perhaps there is some confusion. I am not talking about the colour of the Kindle. I am talking about the fact that the display is Black & White .... vs colour. Yes, people are going to buy these gadgets. In fact I think the projection is for 6 million or so in 2010. Meanwhile, Apple's iPhones are projected to hit 35-40 million in 2010.... with the estimate growing to 80 million in 2012. And we are only talking Apple (doesnt include Blackberry, Palm, Nokia, Symbian or any of the new Android based phones). It also does not include the projection of netbook sales .... which are getting smaller (and will eventually have nicer displays). Sure Kindle has a better reader than anyone else at the moment .... but other device makers dwarf their size. When (not if) these other device makers have products that are more reader like, are available at a lower price point, and/or can do more -- the Kindle may have some significant challenges. Magnify these challenges big time if the Kindle is still in Black and White (and the new gadgets are capable of an array of colour making the experience magical like). You simply don't know what is out there in development (a lot of this is kept pretty top secret). If E-Ink were such a great technology .... then all the device manufacturers would be licensing it. With Prime View paying $250 million for this technology ... they obviously beleive in it. But as far as I know Kindle does not have a stranglehold on this technolgy. If AMZN were selling razor blades and only a limited few companies were capable of manufacturing the actual razor ... then perhaps the whole Kindle thing makes sense. But there is a much larger battle going on out there. It involves the closed platforms of several handset manfuacters (primarily Apple, Blackberry) vs. the Open Handset Alliance's push for Android. Either way it works out ... the picture is not very rosy for Kindle. Kindle can make their display as nice as they can .... but if it's not compatible with other devices ... it's evenually going to get the thumbs down from the consumer. Why? Because something will come out that at minimum is 'near comparable' in terms of display .... but has a bonus feature of compatibility with other devices. In fact this compatibility part is already here (not through Kindle though).... the display experience is the only thing lacking at the moment. [Hence for now, Kindle gets the thumbs up!] Compatibility is just as important as display. And compatibility will become an even more important issue as this evolves over time. Here is an excellent presentation of that evolution: http://www.blip.tv/file/2798840 UCP / DD

The Taiwanese company (Prime View) that manufactures these displays for AMZN is in the process of purchasing the rights to this e-ink technology --- as far as I know AMZN does not own any contractual rights to the patent in any way. One would think that the reason Prime View is paying so much ($250 million??) for this technology is not only for the Kindle device ... but also for so many other device makers that they can either royalty to .... OR manufacture the displays on their behalf. And besides there are so many alternative technologies being developed by other manufactures (Apple, Microsoft ..... oh never mind you know the rest). Alternative technologies have the potential to be 'as good' (if not better). Correct me if I am wrong ... but isn't this current Kindle still in black and white? Future e-readers will be capable of colour. The ITablet I am talking about has not even been released. The details are still a bit fuzzy on it as I understand. You are comparing the Kindle with whatever is out there today ..... without looking at what so many other company's are developing for tomorrow. Wireless mobile technology is still in it's very infancy. Laptops are getting smaller .... cell phones are getting smarter (in fact the term 'smart phone' is just beginning to replace the term 'cell phone'). Displays are going to improve dramatically. The Kindle might too --- the risk for them is if they can keep pace. I don't disagree with you .... but how about advancement in colour first? Imagine the additional interest it might generate. Young children are not going to be very interested in a B&W Kindle .... but offer them something more magical and you attract a whole new audience. Drop the price below $100 and you might also have a game changer. Hard to dispute that AMZN has an advantage in their product offering (ie. their huge library). But if it was that huge of an advantage -- perhaps they would have chose to stick to their knitting and left the development of devices to other's. The new entry I mentioned (Shortcovers) is rapidly catching up. I believe SC is now at 150,000 + versus AMZN's offering of 300,000 + titles. But this huge project that Google is undertaking (digitizing all of the out of print books) will add about 500,000 titles. 'Google Editions' should be out by mid-2010 .... and when it is - it will be accessible for ALL on-line retailers. Suddenly overnight AMZN's titles grow to 800,000+ --- with SC not that far behind at 650,000+. And I anticipate that Shortcovers will continue to play catch up here as they have over the last 9 months or so.... they may possibly get more innovative on foreign language books also. It's interesting that you bring up the MP3 player .... AMZN was a major push behind this technology at the time. The MP3 player was out well before the iPOD. They were the new/cool gadget of the day .... everyone had to have one ...... along came Apple. With the Kindle ..... AMZN is simply trying to repeat what Apple did with iTunes. But these are different times. There are significant industry players who don't like the closed monopoly platform that Apple created with iPod, iTunes, etc. When you look at past devices ... something called competition meant that no single company had a stranglehold on the market. Vinyl, Cassete, CD --- they all had their various brands. Yes there were some monopolies such as the RCA Jacks (GE) ... but no one company had a monopoly over the device itself .... everyone involved was allowed to 'play fair'. The Open Handset Alliance's mission is to return things to normal ... it is not right to have unhealthy competiton (check out all the baby bells). If Android becomes the operating system of the future .... where does this leave Apple .... let alone the Kindle? Sooner or later they will have to adapt to an open platform ... it is a matter of 'when' NOT 'if'. If the industry does not sort this out amongst themselves --- some form of Anti-Trust will. The bottomline IMO is the industry will work out these competitive issues. AMZN's moat is built around the physical delivery of books. With that market about to shrink ... they run a very serious risk of cannibalizing themselves. Sales of Kindle units might make up for this (for the time being) .... however, as competition enters the e-reader market the price in which they are selling the units will drop substantially. In itself that is a challenge ... on top of it you have the challenge of maintaining device market share .... as well as content share. If they can increase market share then perhaps things work out ok for them. However, if market share goes stagnant ..... then they start cannibalizing their tradional business. But with all the devices in the development pipeline ..... and with AMZN not having the similar moat they have in their traditional business model ... the problems could turn out worse than just cannibalization. UCP / DD

I would be very surprised if the Nook made the Kindle obsolete. It's just another device being developed by a non-hardware type company. The real interesting products are going to come from those that are in the business..... the Apples, Samsungs, Motorolas, Sonys, LGs, HPs, Dells, Texas Instruments, Blackberries, Palms, Nokias, and all the little unknown companies working on these sorts of devices. If a device comes out that can give me both an excellent reading experience ..... and still be capable of other tasks (such as a laptop does now) .... and if it sells for <$100 -- I'm IN!! And I suspect a whole lot of other value concious consumers will be too. Amazon is not prepared right now for that world. They might get there but are going to have to rely on their recent purchase of Stanza to do it. Within a year or two .... I suspect that shopping for an e-reader and/or multiuse e-reader will probably be an overwhelming experience with so much choice .... similar to shopping for a laptop or netbook is today. I currently have downloaded and read some ebooks on my laptop..... and so has my wife on her netbook. It all gets downloaded to Adobe Digital Editions (epub format) ... and it is actually pretty good. Yes, I know that the Kindle would be a lot better ... but through Shortcovers I am 99% certain I will still be able to access these books in the future without worrying about switching brands. As long as the future device is supported by Shortcovers ... I am ok to re-download my library from the Shortcovers cloud. The neat thing about this app is you can have it on something like 6 different devices. Reading on a smartphone would be a little painful for me ..... but if I forgot to take along some reading material where-ever I might be ... hey why not download something from my library to the furture smartphone device (don't have one yet -- but when I do it will probably be Android based). UCP / DD

Just might clarify that I don’t know a whole lot about what the rest of Amazon is up to or what their future prospects might be. I do know that Books is a good portion of their business though .... and also that a company is only as good as their weakest link. From what I have heard/read is that AMZN does not treat their affiliates very well .... nor customers (publishers in the instance I have heard of). The word that comes up frequently is ‘bullying’. If true it could come back and haunt them at some point. In the mean time like many have said ... there isn’t much of a safety cushion. I am mainly versed on the book side of the business through my ownership of a company called Indigo Books and Music here in Canada. Indigo would be the equivalent of Barnes and Noble ..... only a whole lot smarter and top-of-class operation. The jockey here is a very smart lady by the name of Heather Reisman.... who several years back managed to pull off somewhat of a monopoly in the bricks and mortar book retail business here in Canada. She is very well connected throughout the world and a very intelligent honest woman. Be your own judge: Indigo was a late entry into the ebook market in February ..... their platform is called ‘Shortcovers’. Shortcovers is device agnostic .... meaning they make it work on almost any device (current and future) other than the Kindle. Shortcovers has made a lot of headway in a short period of time. I don’t know if they will take market share away from Amazon (athough they might) ..... the potential here is to link up with book retailers around the world with their technology and content partnerships. There has been a slogan on the wall in most Indigo Stores for quite some time that reads: ‘The World Needs More Canada’. They seem to be out of the starting gate with this Shortcovers venture to prove that point (1 million downloads of their app thus far). Now one might ask .... what about cannibalism at the retail level. As mentioned the channel expected to get hurt the most in the first phase is on-line distribution. For most traditional book retailers (IDG included) .... they don’t have a whole lot to lose in this regard. Margins are pretty much zero for what they sell in the online segment anyway. But the other thing that IDG does very well .... is they have been increasing the inventory of gift and toy items while better managing book inventory. A new concept Superstore thus far only has 15 out of 90 stores rolled out. These newer stores have higher sales and margins -- in the next 2 or 3 years all 90 stores should be converted along with some new store additions. http://m.theglobeandmail.com/globe-investor/indigo-turning-a-page-into-the-digital-age/article1199063/?service=mobile&page=0#article Again, not saying that Shortcovers will take market share away from AMZN -- but they certainly stand to gain on a world wide basis in the book business. But 'if' AMZN's moat is breached (which is possible) .... I don't know of anyone else who is in a better position right now. Barnes and Noble's rollout of their Nook looks like a copy-cat Kindle strategy. One could see B&N partnering up with IDG at some point too (accelerated if Fictionwise and Stanza were to part ways). Shortcovers isn't only catering to all devices (present and future) ... it is also world wide .... the app has been downloaded in 189 countries. UCP / DD

Amazon could have some challenges ahead of them with regards to their Kindle strategy. First of all – their moat never revolved around being a hardware company. Nor did it revolve around delivery of digital content. For their Kindle strategy to be successful, Amazon will have to do one of the following two things (maybe both): 1.) Make their proprietary DRM platform (AZW) the industry closed standard. 2.) The Kindle (and any future versions of it) will have to keep in front of the competition in being the best reading device ever known to mankind..... and they will likely need to substantially reduce the price. As for making AZW the industry closed standard .... one might first consider the big push on right now by the Open Handset Alliance. The OHA was founded only a couple years ago ... led by Google and the Android platform ... it includes some very big players ( Intel, Motorolla, Qualcomm, Texas Instruments, Samsung, LG, T-Mobile, Nvidea, Sony Ericsson, Toshiba, Acer, Asus, Garmin, Atheros, Sprint, China Mobile, etc.). In the short couple years .... Android has been quickly moving up the ranks ... so much so that some are saying Apple’s platform could be in jeopardy. Where does this put Kindle and AZW??? Well I guess that is why they bought Stanza a few months ago ... perhaps as insurance? But as far as I know Stanza stll only supports the IPhone at present ... it does not support Android or any other platform (Blackberry, Palm, etc)..... at least not yet. Sure the Kindle is selling a ton of these readers ..... even in this difficult economic environment. But there are many companies involved in developing competing products that have yet to be introduced. Apple’s rumoured ITablet is said to be a multi-use device. Nextronix and Texas Instruments are developing an ereader that can apparently talk to your cell/smart-phone.... it might also double up as a personal computing machine (again with the brains in your pocket kind of idea). Present Kindles (and Sonys) have only scratched the surface --- where do HP and Dell fit in all this. What we saw with the netbook this past year or so was the start of a merging of the handset with the traditional lap-top/PC. The Kindle is kind of stuck right in the middle of this squeeze. Mobile devices are going to get better .... they will become as good as the current Kindle is .... and eventually will get better. Think colour ... think magical in terms of what the Kindle can do today. And even better yet they will also get cheaper. All indications are there will be at least one device on the market in 2010 for $99. The other issue at stake is that e-book sales will at first impact mostly the on-line distribution channel. One can’t help but think that AMZN will end up cannibalizing their own sales right off the start. In order not to do this will require a high degree of success with Kindle sales and/or taking further share away from the retail channel. One has to wonder if AMZN can make money selling the Kindle for $99? And it all goes back to AZW ... if they are not successful in making this the standard .... what is the risk that all these current Kindles out there become obsolete very quick like? UCP / DD

Yes Wimp!

And EGI Financial (EFH) can still be had for less than .9x book. A lot of business is sure to spill over to EFH due to this Kingsway uncertainty. And at a very unique time when there are some pretty hefty premium hikes taking place and some regulations implemented that should reduce claims. EFH is very conservative and discipline -- passing up on a lot of NS business the last few years. Meanwhile, their leverage ratio (of annualized net written premiums to Shareholder Equity) has been dropping like a rock ..... now 1.1 times (compared to 1.4 a year ago). Management believes 2.5:1 would be a fully leverged ratio (MCT margin is currently 314%). The company could pay out a substantial one time dividend and still be in very fine shape. Of course they aren't about to do that ... instead they will be letting the business spill over from this unique situation (not only from the Kingsway blowup but from Standard insurers exiting NS), build out their niche products division and the business they are establishing in Florida. Also the potential of acquiring distressed books/businesses in any of these (or other) situations. IMO it is a great time to own a top of class insurer sitting on a ton of surplus cash. UCP / DD

With inflation on the horizon (??) ..... what will the increases be to that same rental property. If there were a mass exit like you suggest ... I don't know that rental properties could keep up to the demand (particlarly of comparable nature). A good majority would likely need to downgrade significantly.... is that what they want? Not if they can help it. I realize that vacancy rates are currently pretty high .... but don't forget to factor in domestic population growth + immigration factor here.... and also a point where you reach maximum unemployment: egs. Since graduating from college a couple years ago the young guy/gal (who's been hanging out in the parents basement) might want to get a place of his/her own now that work has been found. While what you say perhaps makes sense for those with keen investor intellect and/or money thrift savy.... most people are Not wired this way. The majority of citizens are Not going to think about it that way ... let alone execute on it. If they like the idea of home ownership ... and if they can struggle by .... a good majority will hang in there. If the bank forecloses - well that's another story. It also sounds easy to go save that $1400/mo difference and invest it in the nest egg ... but most will fail. They will spend it on travel, fancy vehicles or other lavish things in life. Perhaps a time will come when folks once again save up to have never had a loan .... and buy their dream house outright; however, the forces at play work against it. The best that can be hoped for is real returns similar to the past 50 years; however, we seemed to have entered an era of negative real returns (if lucky - flat). I have always said that owning a home is a luxury ... Not an investment. The only thing that appreciates with a home is the land it sits on. The building and landscape features depreciate. Yes there is maintanence ..... and moreover everything (excluding the land itself) has a life cycle of replacement. The style can get out-dated, there are perhaps (minor/major) upgrades along the way. When people look back at what a terrific investment their home was (say in 30-40 years) -- most are not going to include all these extras. Add in property taxes + the cost of borrowing; and home ownership is a very poor proposition from an intelligent investment perspective. But again, most people won't look at it this way.... their home is THEIR HOME and in the end for most will be the best investment they ever made (in preserving their hard earned dollars from the forces of inflation). The bottom line is most people desire home ownership and most will think of it as a primary investment. Think of it this way: a senior couple today are about to downsize and rent a small condo ... hence are selling the home they bought just prior to the recession of 1958. Where would they be today -- if back in 1958 they walked away from their $140/mo mortgage (+taxes, maint, etc) .... in favour of $90/mo rent down the street? Despite the depressed housing prices of today ..... such long term home owners are likely much further ahead than the average rental type over all those years. Sure there are exceptions ... but one thing you can be sure of is that over the years a lot of money will get soaked into a home -- most of those dollars get preserved in tomorrows currency. I definitely agree there are a lot better things to do with excess cash ..... but there are a lot worse things too. UCP / DD

So your 'guess' on Stagflation (ie. best case scenario) would then be 3+ years out? Do I understand this correctly? And further to this -- are you then forecasting a total of 4-5 years of <3% GDP? I am saying 4-5 --- as 2009 is almost behind us. [According to the figures I am looking at, 2008 GDP was +2.6%, 2009 at Q3 was -1.7% YOY ... of course the Real GDP #'s are even worse!!]. UCP / DD

I think you are missing the point. What I don't get is how you feel this could possibly lead to years of Stagflation??? Did you perhaps mean Stagnation? Obviously this situation is uglier than 1982 -- that is understood. And as pointed out -- in 1982, mortgage delinquencies kept rising until well after the recession was over. Why would it be any different this time? Before you see these delinquencies peak --- you will have to see the unemployment rate peak (in addition employers expanding hours/wages previously cut back). There is also a couple more years of sub-prime resets .... no question that mortgage delinquencies go higher before they peak. If 1982 did not ignite stagflation (in fact did the reverse by stomping it out) .... how possibly could this crisis which is so much worse? I don't understand your concern with Stagflation. Again, 'if' there were another energy crisis--- this could perhaps ignite stagflation. However, that would Not be a result of this housing crisis. If we are really lucky, this financial crisis 'might' temper some of the energy subsidies (OPEC + BRIC) ..... but at some point a recovery will likely lead to more demand for energy in the emerging world. At some point I can certainly see inflation .... just don't understand your concern with Stagflation (at least in the context of this housing crisis). Again, IMO I think we are headed to a similar situation like the 40's where Inflation will have to run it's course. Perhaps a decade of negative real rates of return for high quality fixed yeild instruments .... something we have not experienced for about 50 years. The 40's was a period of relentless loss of buying power --- yet a very good period economically. At the end of the 40's equities had faired reasonably well ..... their underlying value even better. Cash, Government Treasuries or AAA Corporate Bonds was dismal. UCP / DD

I just think this creates more uncertainty for their agents in Ontario and a further catalyst for these agents to switch policies over to one of the other two NS insurers. One of these of course is Echelon (EGI Financial - EFH). EFH's leveraged ratio (of annualized net written premiums to Shareholder Equity) keeps coming down -- it is now 1.1 times (compared to a year ago). Management believes 2.5:1 would be a fully leverged ratio. EFH is very discipline and have patiently waited things out --- they are in very fine shape to take on more business. Not only from the Kingsway blow up ... but also from what seems to be the start of the cycle of Standard insurers exiting NS. Meanwhile, there have been some pretty hefty premium hikes taking place and some regulations implemented in Ontario that should help on the claims side. Echelon's MCT margin is currently 314%. The company is also growing a niche products division and moving in to the Florida market at a time when competitors are highly leveraged. Still trades for <0.9x Book. UCP / DD

Raise interest rates --- and people are going to save even more. Not only that --- but how do you pass along increased interest costs when an already strapped nation is further burdened with higher inflation costs (a lot of which will have to do with energy demand). Inflation might just have to run it's course like it did in the 40's .... for long term bonds that meant a negative real rate of return. A little while back, I took a look at the history of negative real bond returns ..... as IMO that is the road we are headed. The 40's was by far the most dismal decade in terms of real yields for bonds. The yield on the average LT corporate AAA bond remained in a range of about 2.5-2.8% --- averaging about 2.7% for the decade. Inflation averaged 5.6%. Therefore, the negative real rate of return for LT AAA corporate bonds was about -2.9% (I can't imagine the real return on a short term government backed treasury!!). Meanwhile, it was a very strong period economically. Gross Domestic Product for the decade compounded at about 11.3% (or about 5.7% Real). Why would our current era be anything like the 40's? Well it was preceded by a previous long term stretch of very good times for bonds (in real yield terms)..... and also preceded the drastic economic environment of the 30's. Now one could argue that the success of the 40's is explainable from the fact that the 30's was longer and harsher ... hence the pent up demand stronger .... and it's probably true. But there is right now a couple years of pent up demand happening to this point from the current crisis. The real rate of return for LT bonds during the 30's stayed positive throughout (thanks to deflation). If we get deflation -- then perhaps a 40's scenario gets delayed .... but IMO once inflation perks up this is where we are headed. Perhaps we don't see real economic activity of 5.7% --- but it might be much better than many expect (except for those holding treasuries!!). UCP / DD

They make some good points ... lots of ways to extrapolate the data. I didn’t mean to debate (or confuse) the data itself [i have edited the second paragraph of my post]. My prime points are as follows: Mortgage delinquencies from the aftermath of 1982 did not peak until 1984 – delinquencies were a lagging indicator. In the next couple years you have more sub-prime mortgages (issued in the 2006/2007 era?) coming up for loan resets --- expect more delinquencies. But once again, I think a case can be made that Mortgage Delinquencies are likely to be a lagging indicator. Stagflation. Again with unemployment at 10%+ (and still rising) – I fail to see the risk. However, with the US$ falling and energy costs persisting – there is the potential of Inflation. Moreover, I fail to see the correlation of Stagflation to morgage delinquencies. If Stagflation like in the 70's comes about -- expect it to be tied to energy supply. If you want/need something to worry about regarding economic recovery .... make it Energy supply. The US does not have the luxury of ‘simply’ getting a foreign country to turn back on it’s oil taps. The current risk is for rising energy costs to push things back into recession. Stagflation only becomes a problem when you see wage pressures ... and that only happens when you see rising employment. But unemployment always rises after a recession is over ... when it peaks this time around is yet to be seen. UCP / DD

At the tail end of the 1982 recession (late 82), mortgage delinquencies wavered between 5.5 - 5.75%. But didn't really peak until about 1.5 years after the recession was over (mid 84 -- see chart below). And that peak was around 6%. Obviously the situation is even uglier this time around .... but once again mortgage delinquencies will likely be a lagging indicator. The labour picture needs to improve before delinquencies go down ..... and in every recession, the unemployment peak has always occurred after the recession is over. The aftermath of the 1982 recession also involved record amounts of housing stock, consumers were also saving and paying down their debts, businesses were also retrenching, etc, etc ... but this is not what caused Stagflation. Quite to the contrary ... it stomped out the Stagflation from the 70's. I agree with possible concerns of stimulus this time around ... but maybe an even bigger concern should be energy prices. The catalyst for Stagflation in the 70's was the Oil Shock .... causing wage pressures to spiral (a necessary ingredient of Stagflation). Right now with 10%+ unemployment, there is no immediate threat of out-of-control wage pressures. However, once the labour market improves ..... energy supplies could once again get very tight. The 70's supply problem was political (the middle east turning off the taps) .... the recession of 82 changed that (the taps were turned back on). This time around those taps are more or less turned on. Reducing demand through efficiency and development of alternative sources will be key .... but if it cannot be done within a timely manner then we are likely to again see significant wage pressures and of course Stagflation. With unemployment at 10%+ ... wage pressures are likely a long ways off in my view. You could start seeing some inflation costs being passed on, but at this point I'm not worried about Stagflation until the unemployment picture improves dramatically. And a final point on Stimulus ..... I find it a much easier critter to tame than an all out energy crisis. http://4.bp.blogspot.com/_N_vrglIqnJs/RfbOK1RQ71I/AAAAAAAAAHU/KeehQbmBB-g/s400/q4%2B07%2Bdelinquency%2Brate%2Bchart.bmp

UCP - I encourage you look into the effect that very long useful lives have on reported amounts of depreciation expense (e.g., current depreciation expense on an asset class with a 35 year useful life is comprised of 1/35 depreciation on a capital expenditure from 35 years ago [when things cost a lot less], 1/35 depreciation on an expenditure from 34 years ago, etc.), how that may affect the comparison of current cap ex and depreciation expense, and whether one should really ever expect one amount to "merge" with the other. OK ... point taken.... provided volumes increase in the future as aticipated by BNI .... then you are quite right Depreciation and Amortization will Not converge..... my mistake. However, one of the concerns mentioned here was 'what if' America falls flat ... where then is the 'margin of safety'? In such a case, BNI's volumes would also fall short ...... therefore the average railway asset will outlast the useful life. The useful life of anything increases with less than predicted useage. BNI's capital expenditures of today have factored in a certain amount of future volume growth. If that growth does not pan out -- then the capital expenditures of tomorrow are going to decrease (on an inflation adjusted basis) at some point. A bridge that is forecasted to last 35 years based on increasing volumes of 2-3% annually ...... could potentially last 40-50 years if (upon year 34) volumes had only averaged 1-1.5% annually. UCP / DD

I agree ... BNI does not need to hold back all it's cash flows to fund it's business. They need some of it (perhaps 60% currently) ... but not all of it. The other thing to realize is that BNI is going through a major Capital Expenditure phase at the moment --- the differencial between Depreciation/Amortization and Cap Exp over the last few years has been $800-$900 million ++. But this will not go on forever .... depreciation and capital expenditures will eventually merge .... and as that starts to happen you will see the percentage of 'free' cash flow rise faster than the percentage increases in profits reported. Note - there have already been some pretty significant increases in dividends over the last several years. The one thing I do agree with Sanjeev on though is that as small investors .... we have the luxury of seeking out tremendously smaller (and unknown??) ideas than either BNI or BRK. I do though continue to hold Ingersoll Rand as a large cap staple in my portfolio and am quite glad that BRK did not go after this one instead. IR is integrating the Trane acquisition well --- there are a lot of synergies (also some inventory/working Cap balance sheet recoveries). I figure IR should generate close to $4/share in free cash during this most weak economic year. They will also be better structured for the next downturn. In a recent presentation, IR mentions that with the recent transitioning of the company -- it is pretty much set up for the next 100 years. At some point, BRK might take a run at this one also -- but hopefully not for some time to come. IR is a play on energy prices, China/India and even what is starting to happen in wireless.... it's also a play on global warming (should it happen ... but they have global cooling covered as well). UCP / DD

I see Shortcovers has it available for download in EPUB: http://www.shortcovers.com/mixes/The-Business-Of-Value-Investing/book-RUukJMIVBki3ERQ9TgJ-lw/page1.html First Chapter is unlocked --- so you can read it entirely free. A chapter that looks a little bit interesting is 'Starting an Investment Partnership'. Just wondering if anyone has read it yet? Note, if anyone is thinking about downloading this book from Shortcovers -- use the current discount code (Promo20) and you will get 20% off the $27.29 cndn sticker price. I don't know whether this discount code works for the lower US$$ prices (for those in the States) or not. Great thing about Shortcovers is you don't need to buy a Kindle to start downloading books. And it's in EPUB format ... so you can carry/transfer your digital copy using a multiple of compatible devices (up to 6, or maybe even unlimited). So you can use it not only on an e-reader (warning: the current Kindles are NOT compatible with EPUB) but also on numerous devices such as a PC/Laptop, IPhone, Blackberry, Palm, etc. About the only compatible ereader out there at the moment is the Sony but there are others on the way (such as the soon to be released Nook from B&N and the rumoured Apple ITablet, etc). Shortcovers is a segment within the Indigo/Chapters book chain (I have a good portion of my portfolio invested in Indigo, So does Tim McElvaine). UCP / DD