jb85

You could make the argument that in order to develer, Japan and Europe actually need to print money. Ray Dalio makes this exact argument. print enough money to get GDP to grow at a good rate, and keep interest rates below that GDP growth rate...and over a 10 year period or so, if you're lucky, you will have a "beautiful deleverging". That being said, i'm not guaranteeing this will happen. Plenty opportunities for road bumps going forward.

i'll just play devil's advocate here. Not sure that we are or are not in a bubble, but i'll make a case here that we aren't in a bubble. *Using the 10 year E/Y, stocks are yielding now about 100/27.14 = 3.7%. *10 year treasuries are at 2.31% so we have a decent spread here..about +1.4%. Not a ton, but to give perspective, 2006 and 2007 actually saw bonds yield about 1% MORE than equities (negative 1% spread or so). Obviously if interest rates went up to 4 or 5%, then the market at these prices would look expensive...but seems to me it all hinges on interest rates. Is there at least a case to be made that interest rates will remain low (below 4%) for the next 5-10 years?? I've been reading dalio's beautiful deleverging whitepaper over and over the past month or so. Hard to predict exactly what will happen, but seems to me theres a decent chance that over the next 5 years the major economies all get into a currency devaluation competition and keep rates low. Look at the continual deleverging in terms of TOTAL credit to GDP. we peaked at 360% or so, and we are down only to 330%...as much as people complain about the govt debt, we as a society have actually reduced our debt slightly. If that continues on down to below 200% over the next 10 years, that would seem to imply lower rates as the govt keeps interest rates below GDP growth. i've found the UK beautiful deleverging (mentioned in dalio's paper) very helpful. It took 20 years or so, but shows it is at least possible. interest rates in the UK during that time remained low there for most of those 20 years. finally, not saying it will happen, but lets say 10yr rates are at 2.7% in 2019...a true bubble at that time would be an 10 year E/Y yield of about the same number or even slightly higher (making the spread zero or slightly negative). So that means a 10 year CAPE ratio of somewhere in the mid/high 30's. Again, not saying in anyway this will happen, but just trying to work through all scenarios

You can get this using FRED data. https://research.stlouisfed.org/fred2/graph/?graph_id=152517&category_id= yup, FRED is where i got the post 1950 data. Pre 1950 data is linked below. Using only the NYSE for pre 1950 data, there's obviously a bit of comparing apples and oranges here, but i think it gets us in the right ballpark http://www.bloomberg.com/image/iZj5ds4HctRo.jpg

i'd be curious what his cash position is currently. its probably growing a few % per year because of him not reinvesting dividends, but wasn't he basically 100% in wells fargo? excluding reinvesting dividends and assuming he never sells, he may not need to make another purchase for the next 50 years ;)

I'm not sure he was all that bearish. His concluding remarks of that article were: "The country's economy has grown and stocks are lower, which means that investors are getting more for their money. I would expect now to see long-term returns run somewhat higher, in the neighborhood of 7% after costs. Not bad at all--that is, unless you're still deriving your expectations from the 1990s." not full on bull, but not bear either. he's in his "Zone of reasonableness" at date of this article imo its really a tough call to call a market top or bottom. rarely do a bunch of metrics line up. In the past, most peaks and troughs had one or two metrics that matched up, but others that implied it was still reasonable. Shows how hard it is to call a top/bottom. Below i expand a bit more on my previous post, comparing two metrics 1) spread btw 10 yr earnings yield and 10 year bonds and 2)market Cap to GDP. As you can see below, its pretty rare for both metrics to line up. 2000 was obvious, 1974 was obvious, 1932 was obvious was the 2007 peak obvious? not really. was 1968 (when buffett wound up his partnership b/c he couldn't find value) obvious? not really...market cap to GDP ratio looked reasonable so just really tough to tell imo. Date | spread btw 10yr E/Y and 10yr bond | market Cap to GNP sep 1929 | -.32% | 74% June 1932 | +14.4% | 20% Dec 1968 | -1.54% | 84% Dec 1974 | +4.63% | 30% May 1980 | +2.15% | 38% Jan 2000 | -4.37% | 153% Jan 2001 | -2.46% | 102% Dec 2001 | -1.81% | 100% Mar 2003 | +0.88% | 80% Jun 2007 | -1.45% | 112% Mar 2009 | +4.68% | 62% Nov 2014 | +1.38% | 131% edit: regarding high margins, the 10 year E/Y should control for that at least to a degree. and regarding low interests. I don't have a clue what they will do, but i'm a bit skeptical of folks who think/know they are going to rise a ton in the near future (say 5 years). There's certainly a chance that we have a lot of deleveraging to go, and deflation could be with us for the foreseeable future. I'm not sure on that, but it seems that in order to go 100% cash or something close to it, you're betting on rising interest rates. Im not sure enough of that to make a move so my cash position is low. Maybe i'll get crushed by 50% in the next few years (as i would have in 2007, using my above figures). but that's life i guess.

Buffett also said in that interview (last few paragraphs), that he expected long term equity returns of 7% or so. And at the time, the Market cap to GNP ratio was at about 130%. About the same as today. more numbers: Metric | Dec 2001 | Nov 2014 Mk Cap to GDP | 133% | 131% 10yr CAPE | 30.5 | 26.8 10 bond rate | 5% | 2.34% Wouldn't all of this at least imply that we are still in a zone of reasonableness as of Nov 2014?? http://archive.fortune.com/magazines/fortune/fortune_archive/2001/12/10/314691/index.htm

After reading this one and Einhorn's book, you have to wonder how much it pays to be publicly shorting a stock. IMO, its much less painful do the research and wait to short into an decline. In hindsight I'd say that's easy but you have to be good at timing and forecasting macro factors, both of which are nearly impossible. And then you may not get the benefit of buying so cheaply. If i recall correctly from the book, he went public early...like in/around 2003...then proceeded to have paper losses of 99.9% on his original MBIA short. Doesn't seem like timing was particularly great or that him going public with his short helped either. IMO what mattered was he was right on the facts, and had the conviction to hold even after being down 99%

more on climate change and uncertainty here: http://daviddfriedman.blogspot.com/2014/10/climate-implication-of-uncertainty.html

Started looking into this more and found a few charts. 1) http://1.bp.blogspot.com/-zg5YFW3JN1Q/Uls8PpIbUWI/AAAAAAAAGyM/RP7ZRCqAa24/s400/()+GLobal+Public+and+Private+Debt+GDP.png First chart seems to imply that at least other countries have had and still have much higher overall all debt (public and private) to GDP. We are currently a bit over 300%, but Japan is at 600% now...and has been over 500% for close to 30 years! So i don't know....calling the peak of that ratio looks to be pretty difficult. similar to trying to time the top of the dot com bubble. CAPE of about 30 at start of 1997 seemed like a good time to get out...but if you got out then, you woulda had to wait 10+ years before you got back in at lower prices. Not sure many people (me included) would be willing to wait that long 2) http://1.bp.blogspot.com/-fdXw5lHO26s/Uls7BzplpjI/AAAAAAAAGyA/7QZvLuAvfx4/s400/()+US+Private+Debt+To+GDP.png now looking at only US total debt to GDP, it looks as if this ratio actually peaks near market bottoms. total debt to GDP bottomed out in 1932 and 1875...both about 2 years AFTER the respective stock market peaks. So not sure how much of a leading indicator this ratio is.

In the US: 1950s, 4.3% 1960s, 4.5% 1970s, 3.4% 1980s, 3.1% 1990s, 3.2% from 2000 to 2012 1.7% Gio That growth looks solid to me. Yet that was a period of very high debt load after WWII. So it refutes your point, doesn't it? I haven't followed the whole discussion, but what happens if we look at total credit market debt as a % of GDP? 1950's saw a mild decrease in that ratio followed by significant increases in the following 50 years... http://i.imgur.com/1s0nach.png edit: point being, at first glance it doesn't look like there was much significant deleveraging (as measured by above graph) during the 1950s and 1960s

possibly, though i'd argue the market is probably efficient enough so that, over the long term, even 100M+ company screen should do about as well as any other market cap screen. this is of course assuming that you pick enough companies in your portfolio say 20+ companies large cap vs small cap outperformance can go in long cycles...longer than 7 years...i think its more just luck/random that large caps happen to have outperformed. if you look at the late 90s early 2000s small cap investing would been the way to go based on market segment P/E's

I started using MFI with real money in 2007. I've added a quick general market screen on whether to invest in large (1B+ market cap) or small market cap based on P/E multiples of the sp500 vs russell 2000. Its basically been investing in all large caps since 2007...large cap only MFI has done very well...slightly better than Pabrai over that time frame (2007-2013). we'll see if that continues

a bit random, but does anyone know how pabrai did in 2013 performance wise? Something approx within a percent or two would be great. I try to keep track of performance for a few managers i admire, and he's the only one who's 2013 performance i'm still missing/can't find online. Can PM me too. Thanks

However, I am not going to get a 5% discount on products if I use bitcoin. In some states, it is illegal to have a different pricing for credit card transactions. So, if I have to pay an extra 4-6% anyway, why not get cash back and purchase protection ? Again, what's the consumers' incentive here to switch to bitcoin ? so why not blame the excessive regulations that don't allow for adaptive pricing based on payment method (ie "it is illegal to have a different pricing for cc transactions"). Doesn't it seem insane to anyone else that we have a lower cost way of transacting and yet we are basically penalized for using that low cost method? The issues are with the regulations...not bitcoin itself. That's like blaming toyota for detroit's inability to make a cheap reliable car. I'd personally rather have the option. Get a 5% cheaper product when i'm sure i don't need the protection...and use a (bitcoin backed) insured card that charges me 5% more for the option of protection, etc. Seems to me more options would be a good thing.

*carrying large amounts of money across borders is a hassle now (potentially very easy with bitcoin) *waiting multiple days for bank transfers is again way to slow and costly (no waiting time for bitcoins...at the most 1 hour wait and only for very large transactions) *small transaction are effectively impossible with credit cards (much more economical with bitcoin) - could lead to programmable currency (example: microtipping other cars wirelessly on the high way in order to pass them when you are in a rush) *its one of the better currencies for the global black market. using the money supply vs size of black market...you can arrive at a nice floor for the bitcoin (much higher than now...considering that black market is at least a few Trillion $ in size). much more convenient for those using the black market, to use bitcoin. As awareness grows, so will adoption rate in this market I agree its a pain now, but the internet was a pain in the pre-browser era...didn't mean there wasn't potential. Furthermore, the hassle is entirely a result of existing regulations (coinbase taking days to verify your identity, etc). At its base, with bitcoin, i could send money to someone in exchange for bitcoins and it would take only minutes (in fact i did this with bitfloor...dude was running his site from a personal checking acct..i just deposited cash into that account). All the extra hassle is not an issue with bitcoin at its core...and hassles will naturally vary according to local laws. You got to kinda skate to where the puck is going to be on this one. edit: furthermore, adoption doesn't work as you implied. Just because 1 billion people have heard of bitcoin, doesn't mean they should all go out and buy bitcoin instantly. There's social proof and self education that needs to occur for people. For my own case, it took me more than 6 months after hearing about bitcoin before i bought my first coin. to use the internet analogy again...many people had heard about the internet in 1993 or 1994...yet only a minority were online at that time. It takes time for populations to adopt technologies. by most metrics, the number of bitcoin users is increasing by about 10x per year. we'll see if that continues, but if it does anything close to 10x new users per year then that's plenty quick for me

So if i understand it correctly, Buffett's main concern with bitcoin is that it can't used as a unit of account (hence his quote in the recent CNBC interview: "its dollars at both ends"). After researching some potential rebuttals to this, i found this article to be helpful. Its not entirely convincing but does lay the framework for how bitcoin could still function without being a unit of account for the foreseeable future: http://konradsgraf.squarespace.com/blog1/2013/9/14/bitcoin-as-medium-of-exchange-now-and-unit-of-account-later.html

Interesting how nobody in this thread said a word against Mt Gox until 2 weeks ago. Hindsight bias is a powerful thing. I voted with my dollars/bitcoins (ie never used them). If it is truly hindsight bias, then why did I and many others go through the troublesome task of creating paper wallets and moving our coins off the exchanges? If its really hindsight bias, and i thought that the possiblity of a mt gox bankrupcty was very low/0%, then why go through all these extra steps. Much easier just to buy coins and store them on gox (i learned the hard way with my bitfloor theft...i'm never trusting an exchange again or at least not until security is drastically improved) Just so its in writing and i won't be accused of any more "hindsight bias", i think every exchange has a non trivial chance of running into major issues at any time. gun to my head, i'd say BTC-e will be next major btc org to run into problems IMO. The best exchange right now is coinbase (if i were in the US i wouldn't use any other exchange save possibly for international wire xfer to bitstamp and immediate xfer to cold storage), though i want to be clear they too could have issues. As i've said many times before, don't trust any online exchange with a significant amount of coins. Research offline cold wallets and store them yourself. I'm not some wizard who can pick out the next btc bankruptcy. With cold storage wallets i don't have to.

I still "believe" in it...or at least some form of cryptocurrency (though i certainly admit it could/is likely to fail). I would agree that regulation will help with adoption, but i believe that will be a country by country issue and the bitcoin at the base protocol will remain unregulated (it is very difficult to regulate bitcoin transactions...much easier to regulate the entry/exit points to bitcoin - fiat to btc exchanges, merchants accepting bitcoin, etc - but again, with bitcoin this could a "whack a mole" type problem for the govt). I very much think an all bitcoin world would be vastly superior to the various currencies we have now. However all of this is essentially a discussion between whether you think a central authority should have control over the money supply or whether you are for freely competing currencies (minor other discussion points are whether that money supply should be fixed or not...various cryptocurrencies have different inflation/deflation rates so you can choose what you favor). In the past, if a individual created a currency, it was quickly and easily shut down by governments. For the first time there is a currency that is not as easy to shut down. We shall see whether that difficulty of shutting down allows bitcoin to grow. Furthermore, its not an all or nothing situations. if 70% of countries outlaw bitcoin, but 30% use it, then bitcoin will still be wildly successful. It would take coordinated actions by every government in the world to truly shut down. How we get there is my biggest question mark. We can't have this sort of volatility if people are going to use it for every day purchases (though i will say many emerging market currencies show similar volatility pattern to btc as of late...but btc definitely needs a longer track record) Other interesting ideas for using the blockchain are: *timestamped transactions. example: if i want to donate money to a heir of mine, i no longer have to use a third party. Program address ABC (controlled by me) to give 50 bitcoins to address XYZ (controlled my my heir) when timestamp = 2020. *betting without third parties. require a X of Y signature transaction, so no third party is needed in a 2 party bet. example: i want to bet you that tomorrow temp will be 50 degrees or higher. we start a 2 of 3 signature transaction. You and 1 each are one of the three, with the third being a program that check on google, whether the temp is above 50...if yes, then sign, if no then don't sign. Therefor the third party (google search script) is the deciding factor. it is incorruptible and removes the need for an expensive third party)

Its been very clear to anyone following bitcoin that they were at the very least having issues. No one doing even a minimal amount of research should've been investing with Mt Gox. My personal feeling is that the Gox CEO lost/had stolen 200K+ bitcoins in 2011. Since then he has been running a sort of fractional reserve system with the gox coins...trying to makeup for the 200K lost coins via fees. In theory he could've pulled this off but it would've required much more price stability and deposit withdraw stability than actually occurred.

You shopped for a box of see's candy lately? Buffett's main criteria for investing in see's was because he could raise the prices and still get the same amt of sale volume. he rationale was something a long the lines of "men aren't going to tell their wife on valentines day, 'honey i got you the cheapest box of chocolates i could find"

This is exactly why you do your due diligence. If you were dealing with mt gox at any point in the last year, then its pretty clear you 1) either were aware that this could happen, or 2) you didn't due you due diligence. Especially this early in the game, bitcoin is the wild west. I personally am for the burden being on investors/individual and not some government agency to determine who to trust. Sure a law suit should be brought against Mt gox is fraud or negligence is found, but either way..good luck getting your money back. Due your research, find a reputable exchange and minimize the time that you hold coins on the exchange wallet (ie instantly transfer to a cold wallet where you are solely responsible for its security). Ultimately holding bitcoins involves much less "trust" than holding other currencies. Getting from fiat --> btc is a bit troublesome right now, but places like coinbase are fairly safe and if you move to cold storage instantly, then the risk is very small. I have little sympathy for anyone who lost money in mt gox. Sometimes you have to get burned and these cases will eventually make the public more aware/safe. I would argue cases like this are necessary and beneficial over the long run. (I lost over 30 coins a year or two ago b/c i stored them on an exchange wallet that eventually got hacked. It wasn't a problem with bitcoin or the fault of someone else. It was entirely on me. lesson learned.) Furthermore, why would you lump all exchanges together together...bitcoin is decentralized so I believe your logic is flawed by saying "btc institution 1 = btc institution 2"). When Washington Mutual goes bankrupt does that mean so to does Wells fargo, simply because they both deal in US dollars?

interesting to hear him say this. Been tossing this idea around for a while. Filter MFI based on whether large/small caps are over or undervalued. Using something similar to this: http://static.seekingalpha.com/uploads/2009/11/6/saupload_small_cap_valuation.PNG

Agreed. I'm hoping bitcoin would adopt anonymity features, but its looking like the bitcoin foundation and the other main bitcoin devs are not for this. In the US, anonymity may not be that big of an issue, but if i were in say argentina/some other corrupt country, i would definitely want anonymous coins. Acct linking to actual identities can be done above the basic bitcoin protocol, but the base layer should be as fungible as possible and that means anonymity. On the other end, i hope that no form of "colored coin" or "coin validation" ever makes it into the core protocol.

http://www.overstock.com/bitcoin Overstock goes live with bitcoin payment acceptance 6 months earlier than expected. They partnered with coinbase. You have 10 minutes to lock in the exchange rate...otherwise you must get a new quote no cashback returns...only can be returned for store credit

I view BTC at the current $10B as pure noise. No real difference between a $100M market cap and $10B. No one is using bitcoin to transact right now. It either catches on as a means of exchange (in which case the velocity of money calculations mean a much higher value than $10B) or it doesn't and it goes to zero or stays low (below $1000) and is purely speculative. The upside is certainly there. if you assuming btc as means of exchange, then various M1 figures etc are in the trillions if you assume store of value, then world wide wealth is about $240T. Its impossible to predict where it will end up, but the ceiling is quite high. Who knows how to handicap those odds. I wrote earlier that i wildly guessed the there was a 95% chance of failure. The other 5% incompase bct =$10K - $1 Million. I may be wrong on this but coinbase isn't technically an exchange. They have to buy the coins and then offer to sell them. was reading they can either hit right or low when buying coins and then selling to you (theres a delay so they have a btc holding risk if btc goes up after they give you your quote). They try to buy for 100 and sell for 101. I think in a pure exchange like MT gox those fees are much lower (though there's still the xfer fee charged by banks) . You can send via blockchain.info and only pay a base bitcoin transaction fee (that the miners collect for verying your transaction). This is much lower than 1% right now. While it grows, the 1% fee(via coinbase) to get into BTC is prob not going away regarding merchants accepting btc, i've been tracking the raw number of btc merchants on coinmap.org it was 826 merchants on 11/21/2013. As of 1/3/2014 that number was 2280. Not sure if those merchants are actually transacting much, but interesting to view the 3x growth over the last 1.5 months. Bitpay (another merchant to btc interface service) has saw about 6x growht in number of merchants signed up during the calendar year 2013. At the end of the day, i don't see any of the alt coins adding any real value (and nothing that could overcome the existing network affect of bitcoin). Bitcoin has some weaknesses, but i don't see any that are 100% fatal. and the protocal can be updated if the network approves of the change. At the end of the day all the altcoins have the same weakness. You need a sufficiently expensive computer network to ensure that all blockchain transactions are valid - no double spend etc - and that a malicous attack can't be mounted