ERICOPOLY

Regarding the homesteaders: The start of the video shows that 100 years ago Americans ate half as much meat, less than half as much sugar, and less than half as much dairy. The study in the video that implicates casein in cancer growth did this: they exposed the rats to aflotoxin (a known carcinogen). Then they observed that feeding them a diet high in animal protein (casein) turned on the cancer growth, and then reducing animal protein in the diet turned the cancer off again. So yes, there are more environmental carcinogens that we are exposed to. That makes us susceptible to getting a cancer started -- the research cited in the video suggests that animal protein plays a part in whether or not the cancer actually develops. As for the heart disease: if you go back to the video by Prof Lustig (Sugar: The Bitter Truth), that video points out that the high fructose consumption gets your liver to put triglicerides into your blood, and that winds up pairing up with LDL to create vLDL (the bad kind that starts the plaque formations in your arteries). So the homesteaders and the people in Africa are not loading up on fructose, thus don't have the problem with triglycerides. Anyhow that's my take on what the videos are trying to present.

They will probably shrink by cutting their long term debt. So cutting the least profitable part of the balance sheet.

I watched his lecture online, "Adiposity 101: Why We Get Fat". I haven't read the book. What struck me about his is that he DOES spend a lot of time discussing the role of hormones. He points to a slide of a woman with lipidistrophy and says "what did her bottom half overeat while her top half is on a diet?". That's why I liked his presentation -- comprehensive. Not pretending that all body types are the same or will respond the same to given foods.

I saw a video today where Blodgett got Whalen to say Bank of America is heading for bankruptcy. Here is a brief story about it: http://www.businessinsider.com/chris-whalen-says-bank-of-america-should-declare-bankruptcy-2011-9 I don't trust Whalen. Anyone else hold that opinion? He was nothing but negative about the bank last year because he said they had a cash flow problem. Now he's saying all of their banks are fine but that the holding company should file for bankruptcy because of the lawsuits (never at all mentioning there are offsetting earning and the potential losses in the suits aren't due immediately).

Sounds not very inflationary.

how graphic is this movie? I don't like the movies that try to convince you to not eat meat by showing slaughterhouses, etc.. They don't even mention slaughterhouses. The part that is driving my thinking here, the big wakeup call, is the CANCER they are attributing to diets high in animal protein. Specifically, the experiments around the casein protein in milk -- when fed to rats in amounts typical to our American diets, it gave them cancer. Then they went back to their research done in the 1970s in China -- people who were exposed to the least animal protein had the least amount of cancer. I'm probably not doing much good trying to summarize it. Anyhow, the only time you see any blood and guts is a very brief shot of somebody under the knife getting open heart surgery. That's it. Nobody mentions the poor little animals and their squalid lives -- this isn't a PETA movie.

The part that really impressed me was when they took the heart bypass patients and switched them to a diet of ZERO animal products. Their arteries actually healed, the damaged cells were repaired. Something it also mentioned is those Viagra candidates are having this disfunction due to damage to their arteries. This is actually an early warning sign for their heart disease.

I saw this tonight on Netflix. Very good by the way. Never mentions sugar, but I won't look at animal products the same way again. Makes me think about cutting way back on the animal products. http://movies.netflix.com/Movie/Forks-Over-Knives/70185045 Curiously, it makes a claim that drinking milk actually increases the rates of osteoporosis. The claim is that the rich protein content in milk contributes to a condition in your body called acidosis -- and your body buffers the condition by releasing calcium from your bones to buffer it. Really? They showed a chart of the countries that drank the most milk -- these were the countries that also had the highest rates of osteoporosis.

The concern led to a lot of testing of software, a lot of code reviews, a lot more testing, and this led to a lot of fixes to bugs that would have caused problems, and that led to a smooth transition period. The panic and hype provided the motivation to get companies to dedicate dollars to ensure the transition was well prepared for.

Alright, so how much of the Nikkei's malaise has to do with the fact that it started at a P/E north of 60x, and is the rest largely explained by their excess labor costs crushing margins (due to their not firing excess labor).

It just seems to me like in Japan the profits are thrown under the bus to save the workers. In the US the workers are thrown under the bus to save the profits. Maybe I'd rather work in Japan but invest in the US. Future generations in the US will pay for the unemployment benefits of today's laid off workers, whereas in Japan the corporations just seem to keep them around and bear those costs directly. I am surprised to see a Shiller PE10 in excess of 30 for Japan (two year chart going back to mid-2009): http://seekingalpha.com/article/275194-world-equity-valuations-by-the-shiller-pe-ratio

Look up the data since 1990. At worst, their unemployment increased by 3% (from 2.2% roughly in 1990 to roughly 5.5%). For as bad as people say they suffered... that's nothing. http://www.tradingeconomics.com/japan/unemployment-rate Perhaps US corporations are more adaptable in that they fire excess labor at the first sign of bad news on the demand front, preserving profits to a greater degree.

None of the above. We're on the US chart, only you don't know what that chart looks like -- time will tell us.

Some sort of a discount seems warranted though. Would you for example ever swap one ounce of gold in your vault for one ounce of a "proven" reserve in the ground, without asking for some kind of discount? I would never do such a swap myself.

Do you discount for the present value of that future product sale?

I am not interested in gold mines right now, but your comment did get me interested in learning something about miners. First off, my instinct is to assume gold in the ground should always be priced lower than gold on the surface. The further into the ground, the greater I would expect the discount. However, how great should that discount be is my question? The reasons I think there should be a discount: 1) A dollar bill on the sidewalk is worth a dollar bill. One that is deep in the ground will be a pain in the butt to bring to the surface -- it will take a lot of time to extract all of it (discount the present value of that dollar to the day I'll actually have it in my hands), and hiring a miner to dig it up will cost money (I can't risk having the dollar cost me more than a dollar after including the cost of digging it up) 2) In buying a business you are trying to make a profit. If you pay too close to your final market price for that gold in the ground, then how much return on equity are you left with after paying for the mining operations? I guess it's like if you are selling pizza, you expect to purchase the raw materials at a big discount to the price you expect to sell it at after putting them all together and baking it. Then if you are dealing with mining, you can't just dump the gold on the market today. Rather, you have to take a risk that whenever you do actually get that gold out of the ground that the price of gold will still be high enough for you to make a profit. So you effectively might want a discount embedded in the price to guard against price volatility (instead of buying hedges). In other words, I think there should be a discount. I don't know what that discount should be. What do you think it should be?

They could tie the excess money up while they wait for maturity -- raise the reserve requirement for example. In theory if perfectly executed it ought to work (as I understand it anyhow). Likely it won't be perfectly executed, erring on the inflationary side I would guess.

The Fed claimed QE2 was intended to bring down interest rates. That never made sense to me though -- because if you want to bring down interest rates then doing nothing (and getting deflation) would do the trick well. At the time I thought the Fed was worried the government was borrowing too much money, and thus soaking up the liquid dollars out there. Perhaps that wasn't right. I don't trust gold's rise because I'm not patient enough to get in during 1980 and hold on until today, just to get back my CPI-adjusted value. It's easier for me to see the discount in BAC, and I strongly believe that what will be bad news on the inflation front will be very, very good news for business at the banks. That's because I believe the bank lending itself is necessary to get that very inflation! And so yes, gold has risen a lot in reaction to fears over inflation, but what to buy now I feel like I might pay twice last year's gold price in order to protect me against an overall doubling in the price level. So maybe we get a doubling in the price level from this coming inflation but gold doesn't move in price, because it anticipated the inflation already? So anyhow, I think that buying gold today after the move is going to work out only if the prices in the real world much more than double in the near term. But even then will it do better than BAC? Hard to say, but I'm guessing it would need to more than triple just to keep pace with BAC when this bank lending begins to materialize. Maybe some out-of-the-money gold calls at $5,700 an ounce would cover it -- to me it just feels like such a longshot. Of course, BAC could go bust. Time will let us know.

My dream is to just reduce the tax rates on such bonds, temporarily (phased out over time). The federal government lowered the cost of capital for states and munis by making them tax-exempt. Doing the same for all kinds of loans (like car loans or mortgages). It also rapidly recapitalizes the banks who can then sell the assets into the market place at better-than-otherwise prices. That's how you most effectively lower interest rates -- not by theorizing that if you buy down the long term bond with QE2 it will flow downstream to all interest rates. Anyways, that's not something the Fed can do. I just found it to be the best way of not only making loans cheaper immediately, but also recapitalzing the financial institutions. All in one stroke.

Fed gives me a dollar for my bond. I don't have to put it in the bank, I can buy another asset. But that just means somebody else has the cash. That person may buy a new asset, then somebody else has the cash. It knocks the bid up on several assets but somewhere it hits the bank, where it becomes yet another deposit. I think you are right, it is inflationary. That however does not mean we will get inflation. There are offsetting headwinds. I think that's what Gary Shilling was saying to Schiff -- revolving debt is declining. Money is created when reserves are lent against. It's destroyed when lending falls. Schiff's argument is QE2 therefore hyperinflation, without taking account the effect of falling economy being an offsetting deflationary force. I summarized it wrong, but I don't think Shilling is wrong (might have misstated himself in the interview).

moore_capital, I recognize it can be painful for others to listen to me at times, but here me out: The Fed swapped the private market some cash for their assets. Then the private sector did what with that money? Created a bank deposit. This didn't increase the amount of loans out there. It didn't increase the amount of assets out there either. It just made things more liquid. I commented before that if this is money printing, then they're using disappearing ink (the printing unwinds automatically as the Treasury bonds held by the Fed mature). And any time they want to reverse it, they can just dump the stuff back onto the market which is a way of putting the brakes on inflation given the effect that would have on interest rates. Now, they may not get the same price they paid for it -- at that time I'll concede it's certainly money printing to some degree.

Eric with respect, that post was extremely disappointing, and its quite the contrary. Your post proves you have absolutely no clue about how central banking works in a fiat money system. You may or may not be right. I am humble with respect to my knowledge and abilities. But I think Gary Shilling is right!

This video is great. An economist by the name of Gary Shilling is explaining to Peter Schiff that QE2 did not print money: http://www.youtube.com/watch?v=E8XUmLdYmXs A lot of gold bulls, if you listen to them, do not understand this. Or at least if they understand it, they seem to wish to keep it quiet. They don't shout it from the rooftops to be sure.

Moore_capital, I didn't say there is not enough gold. I said it doesn't make sense to me at current prices if used as the basis for the world's currency. Put differently, if you were to price it at $1 per ounce maybe Buffett could just buy all of it and be the world's banker (and of course on a fractional reserve basis as you day). How would you be able to extract it from private hands? You'd have to pay a suitable price that is scaled to at least sensibly match the private wealth of the people in the world. What if people refuse to redeem the gold? Ultimately, I think the price would need to be scaled to match the dollars already out there in order to make sellers happy. But consumer priced are already scaled to match the dollars out there held by the people who demand those goods.

I was short, I covered. How did you like the "short" thread? I didn't pay much attention to it. I pay attention to long ideas, and normally ignore the short ones. However why were you shorting a large cap given your thinking around outsmarting the herd of people who follow large caps? Even if any given large cap situation ends up being profitable, overall, the odds in the large cap space are probably stacked against us, and if they are not right now, will increasingly be over time. As you know, I am not a discretionary investor, so I'm not at an inherent disadvantage in the large cap space. Everybody wins with MSFT. You won because you traded on a dip, and anyone that held on during that period beat the market and will continue to do so I believe if held for a sufficient time. Your point though about being discretionary.... I feel the large cap space is going to be one where people basically agree on the future earnings. I'm not for example going to have any advantage in valuing WFC's 2012 or 2013 forecast versus the experts in the field. Yet, you take the consensus forecasts of banks for example. The sector is so out of favor psychologically that they can be cheap and easy to spot as cheap by the discretionary investor without needing to disagree with the consensus earnings estimates (in other words, Mr. Market is at odds with the industry analysts). So you can just side with the people who spend their lives specializing in covering the banking sector. A person can easily win if they merely are determined to wait out the turn in psychology, which will come when time passes along. It doesn't really matter if multiples ever expand -- you just won't do poorly long term making 15-20% earnings yield when the overall market is getting 7%. So just because they are heavily analyzed doesn't mean squat during these exceptional times. Similarly, Coca Cola was heavily analyzed but any old fool could see that at 40x earnings the long term returns would be poor. So there is no reason to stay away from large caps when the prices are completely out of whack with what reasonable industry experts agree will be the likely earnings. The time to stay away is when the price too closely reflects what they believe will be the future earnings. In other words, don't try to be a better forecaster of earnings than the industry experts. Rather, just buy when the market prices the assets in complete disregard for their expert opinions. But they are sometimes totally wrong of course. What were the 2008 earnings forecasts for Citigroup back in early 2007? But nobody seriously predicts a WFC or a USB is about to go under -- that's not why they're cheap relative to the market as a whole. So very small caps are just different in that you might be the only one covering them.... where that certainly won't be the case with large caps. At any rate, you can play a psychology angle with the large caps (high earnings yield because they are hated) even though you have no information angle. Eric, you are exceptionally skilled and will do well no matter what market cap decile you play in. However, I think for the vast majority of discretionary value investors, they would do best to stick to situations in which they have no competition. I think making a quick 100% on SURW was a lot easier than making the equivalent return in a money center bank. ;D And on a % basis, you probably also made more money more quickly in CRVP ;D And for anyone who played SUR before their buyout offer, that was very easy money as well, with a great underwriter, selling below book :D There are some other nano-cap situations I am looking at that are dirt simple compared to money center banks. The board is interesting. Guys like bmi love to get freebie ideas like SUR, SURW, FMMH, etc. Everyone likes prize fish. What they don't like is when you start to point out that those fish came from a very specially designed reel outfitted with custom lures ;D I could keep finding prize fish, or I could become a reel or lure designer. I think the latter creates more lasting intellectual/philosophical/business/mathematical value. You can catch most species on a woolly bugger. Even when they are sipping tricos.