ERICOPOLY

You talked about the company doubling or tripling in a hard market, due to what is effectively an excess of capital. Paying it out now to reduce the share count will reduce future opportunity. The company you'd have left would be more levered, so better short-term returns, but during the hard market you'd be less able to expand and thus wind up with relatively higher combined ratios (relative to the lower ones that would come with expanding business at great pricing). That would be my take on why you aren't seeing them buying shares.

If HPQ gets to 7$ earnings per share by 2014 (and as you commented they need almost no growth to get there if current buybacks continue) we would be at a PE of 5! If one reviews earnings by division at HP and listens to Leo's plans, we are not talking about restructuring things or whatever. We are talking about putting focus on higher value added products at the service division and ramping up cloud efforts. Technologies and infrastructure to get there already exist at HP. Many analysts that had a 50+ price target on the stock simply say: hey it still is a very good business but I still downgrade it to 40 or so (so that I fit with the rest of the street). Taking the March 2009 bottom of $25 and adding in earnings for 2009,2010, and 2011 (projected), one arrives at roughly the present stock price. This is a funny market. It first hit the $36 price level 13 years ago. There are probably some board members in first grade back then?

HELOCs are full recourse. This is why every time somebody talks about Wells Fargo's underwater HELOC exposure I wonder why the same people don't make a big stink over credit card exposure. After all, both are full recourse and neither is backed by an asset. Why should underwater HELOCs be written down any more than credit card debt, given the same delinquency numbers (if the same)?

Now, if we use the Depression as a yardstick to measure any "investment", then we might also use Weimar Germany too. Thus even the zero coupon bonds are a terrible investment. The question on the thread wasn't about whether or not a Depression was coming, it was about mild deflation or deflation. Perhaps this is a question about what to buy for the 1920s, a period of mild deflation. Or Japan -- had you bought real estate in Japan with cap rate north of 10% you'd be doing fine today. The trouble is, cap rates in Japan weren't at 10% in 1989 which is why the price fell. Like all things, it's best to buy when price to cash flow is well and truly out of whack with the median levels. It doesn't surprise me at all that the Fairfax officers didn't mention real estate as a good investment right now -- it's completely below their radar to be buying $60,000 houses for rentals. You might as well ask Buffett which microcap stocks he's considering for Berkshire's portfolio of stocks. EDIT: Actually, were it not for the government intervention in 2008 Berkshire would already be bankrupt by now. So that's not a good investment either.

Prem once said "we do not invest in gold" on a conference call -- was somewhere in the 2007-2009 time frame.

The returns are higher on owned homes vs rentals, because you don't have to pay tax on the implied rent you are earning. Everybody has to live somewhere -- owners pay rent... it's implicit. It's the rent they would otherwise be earning if they moved out and rented it... but then they'd have to pay rent themselves to live elsewhere. Back it up a step so they don't move out and live elsewhere, and one can see what is going on -- both your own landlord and tenant. This is why owning a home is the best investment most people will ever make. Hardly anyone can find another investment that would dependably throw off enough after-tax income to pay their rent, and 100% adjusting in lock step when rates rise. But it's not in vogue to call it an investment. Yes, you can stupidly take on too much mortgage, but you can also stupidly rent a place beyond your means that leaves you with no money left for savings. So that's a wash.

Are we going to see a rebirth in US labor and manufacturing if China cannot afford it's currency peg anymore? Or will it just go to some other low cost nation, perhaps with labor that already cheaper than China's at the present.

Agreed! Where is inflation at this point however? Everyone talks about it but I can't see it in the numbers (I agree that it depends on how you count it). To me you need to have continuous money printing exceeding deflationary trends/money-credit destruction, wage inflation accompanied by spending/velocity/credit increase or a combination of both in the long run to get to inflation. One more thing that could produce the most significant form (house price) of asset inflation: Building them slower than growing demand. Are we building them slowly? Granted, hasn't yet led to anything but price declines, however we all concede that we started with too many. What happens to prices when we have too few? I'll wager that a significant portion of that personal debt per capita is at least partially if not substantially backed by real estate.

Then there are the people who say that companies have boosted their profit margins by cutting labor costs, and that the trend must revert to the mean. That wouldn't be deflationary, but it would hurt some equities (not the banks or home builders). EDIT: Here is the link to "The Invisible Stock Bubble": http://www.smartmoney.com/invest/stocks/the-invisible-stock-bubble-1305647031991/?cid=sm_dailyfinanceRSS Of course, if incomes are temporarily depressed doesn't that mean that the personal debt bubble isn't as big as people say?

Fairfax's deflation bet is pretty small (as percentage of equity) compared to their previous CDS bet (which was something like 10% of equity). This despite the fact that the CPI contracts are 10 yrs duration vs 5 yrs duration for the CDS. They are worried about their equity prices however, clearly. I think the first 25% drop in the Russell 2000 will get them back to about the point where they bought those hedges... and I think the index traded down to a point 30% below current levels last year, and they didn't close them out at those levels.

If you look at the level of debt in the private sector there should be more de-leveraging to go (at least for a few more years). If the government goes for austerity then there could be a wave of deflation. Wouldn't you agree? Anything is possible. However I'm wondering about that idea of looking at debt in the private sector. If I have $300,000 of mortgage debt and my house is underwater by $100,000... and I walk away from the house, isn't that delevering? I can still go out and spend like I always did... nay, I can spend more because renting is cheaper.. And supposing the MBS that carries my mortgage is already discounted in the market place by that $100,000... then what happens to the economy? I walk away and the value of the MBS doesn't change, but now I spend more? I realize that this doesn't explain the entire picture, I'm just wondering if we've already deleveraged at least a good portion of that consumer debt... this due to so many of them trading in the marketplace in these bundled securities, and at least substantially discounted by the market.

The moment that happens they'll just rent the unit that is being sold. These rents are far lower than the mortgage they were trying to pay. Surprises me that people aren't noticing that foreclosures simply mean people with extra money to spend on consumption. Except for the squatters that got 18+ months of sitting in the home without making payments of course. But generally speaking, the rents are nowhere near the 2006 level of mortgage payments. It seems to me like the prior rent level must have been artificially low, due to the oversupply of housing during the construction boom (people who should have remained renters bought new homes, artificially depressing rents). Now the opposite situation over the next few years if construction remains depressed -- a housing shorting, artificially boosting rents. Of course, people argued that over supply was the main impetus behind the housing collapse, but refuse to accept that a supply shortage is looming. They want to instead point out that Japan house prices just kept going lower, despite their population of home dwellers doing the same (which doesn't seem to matter to these bears, for whatever reason supply/demand isn't in vogue).

Look what they are saying about HPQ: http://stocks.investopedia.com/stock-analysis/2011/Worries-About-Tomorrow-Sink-Hewlett-Packard-Today-HPQ-IBM-DELL-CSCO-EMC0519.aspx?partner=YahooSA Even if the company can't grow much more than 1%, it looks no worse than fairly priced Fairly priced at $36 with non-GAAP EPS of $5 given a scenario of 1% growth? Since when did fair price for the components of the DOW imply earnings yield of 13.9% under the expectation of growth instead of decline?

You are ignoring the value of the cash flow. I guess a utility yielding 14% is not worth purchasing if the price gains are merely nominal? I mean, that's really the issue here. You are asserting that real estate is poor investment but not discussing the fundamentals. Just speculating on price movement.

Even the 1920s were deflationary: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt I came up with a net 1.17% decline in the CPI using the data from 1920 to 1929. EDIT: sorry about that link... something is forcing the *http* onto the front of an *ftp* URL.

1930s were deflationary. ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt We start out with deflation even BEFORE the 1929 crash -- so it isn't like a huge new trend that suddenly happened with the crash, rather it was a magnification of that trend: 1927 -1.7% CPI 1928 -1.7% CPI 1929 0% CPI Deflation accelerates with widespread panic -- no doubt the cascading bank failures had something to do with this (no FDIC protection either) 1930 -2.3% CPI 1931 -9.0% CPI 1932 -9.9% CPI 1933 -5.1% CPI Then, after that period is over, what happens for the rest of the decade? 1934 +3.1% CPI 1935 +2.2% CPI 1936 +1.5% CPI 1937 +3.6% CPI 1938 -2.1% CPI 1939 -1.4% CPI 1940 +0.7% CPI Is it presently the beginning of 1930 and we're about to see 9+% deflation over the next two years? Or is it the end of 1933 and we're going to see inflation for the next 4 years, followed by two mild years of deflation and then followed by another decade of inflation?

Yes, however I can't find any MSFT puts expiring in the 1930s. Here is a bit of background though -- we can wonder/speculate if a repeat of such a banking crisis is likely today: http://www.fdic.gov/bank/analytical/firstfifty/chapter3.html

His price target is DOW 1,000 -- in other words, the DOW will fall 92%. So let's just look at some DOW components: MSFT: will fall to $16b market cap? Wow, net-net. Who would have imagined that? This guy is truly visionary.

It's the Windows laptop market that is getting hurt the most. Things that will reinvigorate sales are new models incorporating solid state drives and power sipping processors. Trouble is, I hunted around for a model with a solid state drive and could only come up with Samsung's Series 9. SSDs are still quite expensive relatively, but that should come down rapidly. SSDs fix many of the Windows complaints, such as boot time and resume time. When "asleep", the power is actually completely off, so you can swap out the battery for example. Then it takes only three seconds to resume. In other words, you would very infrequently go through a full boot sequence, which is 60% faster anyhow. Airplane travel gets better when sleep is full power off.

That is a good way of putting it.

Don't forget to look at the $774m they've issued the past 6 months under employee stock plans -- comes to $4,202b retired combined Q1 and Q2. However, that's still quite a bit... at this pace buybacks reduce the share count by 10.5%, which drives EPS by 11.2% (at today's stock price). Starting at $5 2011 EPS (non-GAAP), they need 12% annualized growth in EPS to get above their $7 2014 target. Need: 12% to hit 2014 target. Get: 11.2% from buybacks alone at current 2011 pace Delta: 0.8% Wall Street has very low faith in HP execution.

They are making good money for the time being, about $1.24 per share for the quarter (this is their non-GAAP number) -- which is an increase of 14%. Consumer PC sales were down 24% YoY. However, I don't see how WebOS is going to succeed. They will just have to wait for Windows 8 tablet to save their PSG sales.

HPQ getting pounded after hours.

Post consent decree, I wonder if they can now have native anti-virus software built into Windows. It is extremely odd that it isn't a critical part of the OS -- it is, after all, security.

MacBook price point is about $1 a day (buying a new one every 3-4 years).