ERICOPOLY

As to whether it's worth more than 1.5BV if a 'Kaboom' moment is coming, Mr. Gundlach's fund can be invested in without any premium to book value whatsoever. The market is having trouble valuing FFH at a high premium to book value because the market itself is the one setting the value of the underlying portfolio investments -- it would be truly bizarre for it to say that JNJ is worth more in FFH's portfolio than outside of it. Thus it's down to the operating income and growth assumptions of the insurance operations for the market to use as it's input for setting a PB multiple on the stock.

Smart, but isn't it a little alarming that the FBI can access Google search terms? Not these days post-Patriot Act.

The doubts I'm having with the "this can't end well" thesis is that there is still a large amount of debt out there. So it's not like borrowing will come roaring back. Without borrowing roaring back, I'm not sure where they run into trouble.

There is enough frustration over the government never making a decision to get me to bring it up again (out of frustration). The Democrats seemingly could finally get one thing they want (keeping more jobs onshore) if they could just give the Republicans some of what they want (US onshore corporate income won't get taxed twice). Instead they keep on trying all sorts of stimulus measures to get consumers to spend more, when part of the problem is that we already consume enough things that simply aren't produced here. Can't they at least make it relatively more profitable to do more business in the US by dangling a carrot to the Republicans? Maybe with more US jobs we'd need less unemployment benefits, and thus be part of the way to resolving "The Cliff". It seems painfully clear to me that one big benefit to the Australian dividend franking system is that it only applies to Australian sourced corporate income. An added incentive to not offshore your operations.

This is why (IMO) the corporate and dividend taxes would make more sense if replaced with a system like what Australia has where an income taxed at the corporate level can be paid out with an attached credit to be offset against personal income. They call it something like "franked dividends". Example: Take a corporation which payed 28% tax on that income in the United States and an individual personal tax rate of 35%. The individual needs to pay 7% tax on the dividend -- he gets a credit for the part already paid at the corporate level. Thus, shareholders of all companies are on the same level. If the corporation already paid taxes in the US, they get credit on the personal level. Benefit #1: The shareholder does not get any credit for corporate earnings that were taxed overseas. Thus it creates a disincentive to moving your taxable operations offshore. Benefit #2: The company is not incentivized to make uneconomic tax writeoffs and such -- it gets them nowhere as it only bumps up the eventual tax to be paid on the personal individual level. The Republicans ought to embrace it because it eliminates double taxation, and the Democrats ought to embrace it because it helps keep jobs onshore and ensures that the tax gets paid eventually even if the business operators are particularly clever at lowering their corporate tax rates.

From what I can tell there is a form of help from the Government: http://usmilitary.about.com/cs/joiningup/a/clrp.htm Active Duty. The military repays 33 1/3 percent of the outstanding principle balance of the loan annually, or $1,500, whichever is greater, for each year of service.

From BRK's perspective it would be. But from shareholder's perspective the capital gains (from BRK retaining the dividends) will be taxed again (but potentially deferred). That would take the rate for most shareholders to 27% = 1-(1-14%)*(1-15%) using the long term capital gains rate. For the sake of Warren's shares (and for many wealthy families who invest in Berkshire) there will be no such capital gains tax ever due (held until death).

I like this one last comment by Buffett in that article: In the meantime, maybe you’ll run into someone with a terrific investment idea, who won’t go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him. It's funny because Warren would probably invest in the idea through Berkshire where the dividend rate would only be 14% roughly (held in insurance subs).

Republican "president". Singular, not plural. Eisenhower did it in 1956,1957, and 1960. He raised the tax rate to 92%.

I wonder why he's leaving out real estate from these discussions. A person can defer capital gains taxes if an appreciated property is sold and the proceeds are reinvested in another piece of real estate. It seems this is a place where he could point out the inequity in the tax code. Especially since it would be fun to give a jab to Donald Trump.

You are right. Buffett is reaching though. Trading is where capital gains comes into play. He seems to be suggesting that the high tax on dividends would have cut into trading. Perhaps it encouraged trading (trying to play volatility instead of patiently waiting for dividends). EDIT: For example, trading around the dividend-ex dates is more rewarding if the dividend tax rate dwarfs the capital gains tax rate.

This part is interesting: Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered. Towards the end of that period he shifted his focus to Berkshire Hathaway where that high 70% tax on dividends didn't apply. That's kind of a key issue -- it sounds like the tax rates did affect his investment style. He mentions the high 91% dividend tax rate didn't stop him from selling securities (at the relatively low 25% capital gains tax rate). In other words, he was invested only for capital gains. Does he expect everyone to do that? Nobody holding to collect dividends, instead only trading on volatility?

Red state denizens are tanning coon hides, calling in turkeys, arguing over road kill. He's probably waiting in line for the Black Friday sale at Cabelas.

Here is somebody not willing to step out on the risk curve: I asked a few of the people I meet on my Scene Last Night rounds to name their favorite Thanksgiving dish. Here’s what they said. John Griffin, Blue Ridge Capital LLC “Anything my wife makes, especially the cranberry sauce --with oranges.” http://www.bloomberg.com/news/2012-11-19/thanks-to-einhorn-robertson-cohn-for-holiday-treats.html?cmpid=yhoo

I think Buffett's entire personal tax bill is something like $30 million or so. So what if it triples to $90 million? He's got something close to 99% of his money in Berkshire. How much is a corporate tax rate drop of 35% down to 28% going to save him? You gotta love it, the man is going to get rich even faster. I don't think he's being two-faced or anything, I'm just fascinated that the media seemingly doesn't notice this.

Tax reform is going to lower Buffett's taxes. It's going to lower mine too. Berkshire is taxed at 35%. They're going to cut it down to 28%. Even Obama wants to cut it to 28% (Republicans want even lower rate). His share of Berkshire's income dropping in tax is going to save him a hell of a lot more than he will actually pay extra in personal tax. Me too. The actual amount that I will have to pay tax... if BAC distributes 30% of income as a dividend... is unlikely to be more than the amount I'll save on the 100% of my BAC earnings when the corporate tax is paid. The dividend tax is a total red herring for some of the rich that are invested in companies that actually pay that 35% tax rate. We can't wait for this tax reform to lower our overall taxes!!! Especially me given that it's only like 1/6 of my income that will actually be distributed as a dividend given my Roth IRA is sheltering 1/2 of my dividends.

I know one of the famous value managers criticized the BofA as a bad business (during the period of time last year when Bruce was calling BofA his best idea). I think that manager actually called BofA a "bad" or "terrible" business or some other non-quantitative adjective. That manager made HPQ his largest position (or it was right up there amongst the highest weightings). But looking out 2,5,10,15 years from now, is it easier to have a better handle on what HPQ will earn or what BAC will earn? I too at one point last year said some really good things about HPQ but I fortunately sold to buy things I thought were cheaper before I took a major loss. I've learned too since then more about what an "inevitable" is, and why that is important. That manager also said in an interview that he thinks Buffett has had better returns because he says Buffett has a better understanding of what a good business is. Well, Buffett bought IBM, and this other guy bought HPQ. So that's an example right there I suppose.

And so if you look at some of the heavily diversified portfolios, like an index fund, they have a concentrated risk of mean profit margin reversion. Bruce is not concentrated in that risk. And personally I've got no prediction but it would stand to reason that if the government deficit expanded at a slower pace relative to GDP (if it's due to cuts in spending and tax increases) then it might be a negative for profit margins, or if interest rates went up, or both. But I am not insinuating anything because I don't know enough in order to be that crafty.

Berkowitz is smart to ignore the critics. He is investing in banks when they are safest from an underwriting and capital perspective. He is investing in insurance when there is a huge discount to book even though interest rates and underwriting are both soft. The cycle must be near the bottom but it's fully priced in. Both industries are depressed by the current period of low interest rates. Both are discounted to compensate you for it. His critics are investing in all sorts of industries that are poised to take it up the arse if this record profits margin period is to regress to the mean over time. Berkowitz' thinking aligns with mine on this one -- hide out in the industries that are depressed by the current interest rate environment.

Did he say all excess returned to shareholders? I thought the tune he's been singing was roughly 1/3rd buybacks, 1/3rd dividend, 1/3rd reinvestment That's right, he gave the 1/3, 1/3, 1/3. He also said everything above the minimum capital requirement (+50 bps) will be returned. So I interpret his words to be that he'd like to return anything that tips us over the 9% threshold -- when there is an opportunity to invest that 1/3 in the business (and leverage it up with loans so that it doesn't tip us over 9%) then he will do so. Maybe some gets pushed up to the parent to retire high cost debt, and meanwhile loans expand in the subsidiary -- keeping the 9% ratio neutral. Actually, the Fed has also said that returns can only be 30% dividend. So for those of you that are hoping for a higher mix of dividend yield, well it's not going to happen. EDIT: Maybe the game is to get dividend approval for 30% of your expected capital generation and buyback approval for all rest. Then you don't do as much buybacks if reinvestment (lending) opportunities arise. Otherwise (if there is not enough loan demand to reinvest anything back in the business), the capital ratio will just build up.

Just leading the witness.

That sounds right. And then they expect to fully implement "NewBAC I" by end of Q3, giving them $2b of savings over Q4'13 and Q1'14. That gets them to $14.2b. Then I'm throwing in another billion for savings from LAS rundown, although I figure it will be more than just 1 billion. The Fed wording suggests they are allowed to return based on their forward looking capital generation, not their present level.

We'll see what happens... but here is what I think BAC wants to do. 1) Last year the rumors were flying. BAC's managment decides to race to full strength capital levels for a year to make a statement 2) Goal met. Confidence partially restored due to capital levels being ahead of peers. 3) Restore more confidence. Maximize the payout to project strength. I don't think it will be helpful to only get approved for a dividend of just a few pennies. They need to make a splash -- 10 cents a quarter. You're telling everyone about your fortress, you must now walk the walk. Don't limp around acting like you still need to build capital when you don't. That's right about what they can afford at $15b return level if the Fed is limiting the dividend portion of the payout to 30%. Yeah, I know the peers started small and it took several iterations to boost their payouts. They were building capital at the same time. BAC is already there -- skip the building capital part and go straight to full payout.

It will probably be around 5-7 cents a quarter. Big jump, but only about 2-2.5% yield. I would think they would try to buy back $3-5B of stock as well. Cheers! Regarding that chatter from Moynihan today about only maintaining a 50 bps buffer over their Basel III required level.... does it change your assumptions at all? He also said today that the purpose of that 50 bps buffer is so that they could handle a legal settlement without dipping below their required minimums. So I presume from that he is saying that he doesn't first have to wait for the putback settlements to be resolved before he begins opening the spigot. They ended Q3 at 9%. You've mentioned before that you're pretty confident they can generate another 50 bps ($7.5 billion) by end of Q1 if not end of Q4. So if they are at 9.5% at the beginning of April when they pay that first dividend... And if they can generate about $15 billion over the following 12 months (utilizing the DTA )... That leaves about $22.5 billion that they can return over Q2,Q3,Q4,Q1 while still keeping their heads above their 9% mark. Then they have their ongoing asset sales, less whatever they have to burn through for legal settlements. But then, the Fed is what the Fed does. Your capital return estimate is far more generous than what I've seen suggested by the analysts. What do I know? EDIT: 22.5b 6b (subtract worst-case putback liability if that's a planned outcome over the time interval) 16.5b capital return (this still leaves a 7.5b, or 50 bps, buffer above their required minimums to settle other legal issues)

You don't need one as there are two trunks ! Christmas tree in the "frunk" Surfboard in the "trunk".