ERICOPOLY

Take a US multinational company that exports to Europe, China, and other emerging markets. They will lose sales and profits will fall. Their record margins will contract. So the index will fall. However as IBM's sales suffer, their profits suffer directly. But they are still able to pay their bank loans. Being a relatively less profitable exporter doesn't mean you can't still go on paying interest on your loans.

How much lending has US Bancorp done to borrowers in China? I agree that markets will go down, but remember... it was hedged against the market. So what's the point of selling? The market might unwind back to 2010 level, but these banks very well might not -- there is all that retained earnings since then.

They closed out JNJ. For last 4 years, it has been hedged against offsetting Russell 2000. The offsetting hedge was closed out when JNJ was sold. How did that paired investment do since 2010? JNJ +45.3% Russell 2000: +76% It is less bad than this because of dividends, but I think JNJ did not beat the index. WFC is up 61.83%. Again, it was a loss versus the index. Perhaps not much of a loss with dividends. USB is up 64.28%. A loss versus the index. Dividends would have made it close. Basically, no gains were made here since they began to hedge them in 2010. Interesting though, I would think the gains were largely due to earnings. Wells Fargo and USB have earned a lot of money over the last four years. Both companies have grown their per-share earnings by quite a bit. Put it this way, Wells Fargo is only up 61.83% versus 4 years ago. Is that really a reason to sell today? The stock was trading around a P/E of 10 4 years ago. A significant amount of that gain was in the form of retained earnings. The company is safer than 4 years ago, better loan portfolio, healthier borrowers, more capital. Stronger per-share earnings, and we're closer to the end of deleveraging. Yet they sell it anyhow for no gain over that period (erased by the loss they booked on the hedge).

I see it as a weak bet because if the markets go down their gains from the hedges will be largely offset by their losses on their equities. They had some concentrated investments that would have been difficult to unload in a hurry. They also had significant capital gains tax consequences to face. Both problems are avoided by hedging against the index. Besides that, holding cash wouldn't have avoided the opportunity costs -- so it would be no real advantage versus where they stand today. The losses are offset by the gains on the equities they hold. Cash is no better.

I didn't realize he was merchandizing. Where can I get a little Mohnish action figure?

They are concerned about the high stock market, so they sell things like Wells Fargo that aren't that high?

I see the IRAs with the pre-tax contributions as effectively a private/public partnership. The tax bill has not been forgiven. Rather, the Treasury is entrusting you to compound that tax bill at the rate you compound your account. Should you be very successful (the kind of success I've seen for example) you will be stuck drawing out your funds at the top tax rate (another way they benefit). Should you do poorly, perhaps you draw it out at a lower tax rate. It seems most likely that you will grow the tax liability at a rate faster than the Treasury's interest costs (given that they are financing the partnership with deficit).

How much gold does Munger have exposure to in order to hedge against the central planning that worries Klarman? (rhetorical question)

So the point is that he isn't selling what he bought in 2009.

How much cash is he holding at DJCO today?

It doesn't limit the combined balances. It just limits your ability to contribute more funds to the accounts after the combined value hits the threshold. This is more specific wording compared to last years' proposal where he seemingly talked about limiting the balances. However, even with his new proposal it appears you can still contribute limitless amounts to variable annuities. In that regard his new proposal still makes absolutely no sense. He should just limit pre-tax contributions if that's what he's really after.

Update from his 2015 budget proposal. Obama doesn't seem intent to make me withdraw anything, but rather to limit me from contributing anything further. Oh, and by the way... that means you can't contribute anything if you are 40 and your accounts amount to $1m in total! http://money.cnn.com/2014/03/04/pf/taxes/obama-budget-taxes/index.html?iid=HP_LN Limit savers' combined balance across tax-preferred accounts: The president wants to prohibit contributions to tax-advantaged retirement accounts once a person's combined balance exceeds a certain level. Such accounts include IRAs and 401(k)s. The cap on the combined balance would be based on a saver's age and would vary over time based on factors such as inflation and interest rates. It also would be determined by what it takes to buy a "maximum benefit" annuity at age 62, with a 100% survivor benefit for one's spouse. In 2013, a maximum benefit annuity would have provided $205,000 a year. Last year, for instance, the cap would have been $3.4 million for someone who was 62, but just $1 million for someone who was 40, according to a Tax Policy Center report.

I would get worried if an economist argued that debt can be expanded without limits and we shouldn't worry that it would have any disastrous consequence. Similarly, I get worried when people argue that we don't need to worry about limitless release of greenhouse gas without consequence. In both cases, like you said, there are multiple variables. But even in the presence of a complex system, I believe there are things that we are doing that are bound to make things worse if nothing else.

It isn't saying you can buy more. It's a measure I believe of whether you have enough equity remaining to support your borrowing. This has to be measured somehow so they can communicate to you how increasingly fucked you are getting as the prices of your stocks decline.

I believe Excess Liquidity is a product of the house rule thing. Whereas SMA is the Fed rule thing. So Excess Liquidity doesn't go to zero simply because SMA has.

My amateur understanding is "No". There are Fed margin rules and house margin rules. The Fed rules prevent you from making a purchase with more than 2:1 margin. The house rules allow your leverage to go higher -- that way if you initially start with 2:1 margin at the instant of purchase, if the price of the assets starts to drop your leverage can go higher (under the house rules). That's why they explain it in a way that suggests you can make an additional $2,000 purchase under SMA margin if the assets appreciate by $2,000. The SMA doesn't go negative -- it's either a positive number, or it's zero. Again, this is not professional advice.

I can't figure out their math -- 3.5 basis points on $1.9 trillion is only $665 million. However the article claims it is $2.7 billion: quoting: The biggest U.S. banks and insurance companies would have to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion under a plan to be unveiled this week by Congress’s top Republican tax writer. quoting: The basic arithmetic suggests that JPMorgan, which had $2.4 trillion in assets at the end of 2013, would pay $2.7 billion a year, or about 15 percent of 2013 net income. http://www.bloomberg.com/news/2014-02-25/biggest-banks-said-to-face-asset-tax-in-republican-plan.html

My system has been to cheat off of others. I realized that if I started by going through 27,000 public companies I would make all kinds of mistakes thinking I had a shot of becoming the next Warren Buffett. I would have discovered every kind of financial shenanigan the hard way. So instead I figured out who some of the better investors were, and limited myself to stocks that they hold in their portfolios. This way, those investors serve as a screen that filters out a lot of the junk. It's a more sanitized population of stocks. Not guaranteed to be sterile, but getting closer on that spectrum. I did very well with this technique. It's like having a loosely coupled team of analysts working for me for free. I wrote about this technique a couple of years back. Then a couple of months ago I noticed that Mohnish was talking about the very same thing. So I like his approach!

OMG Becky! Like, for real, the weather forecast is for sub-60 degree weather this Friday! That hasn't happend in like, OMG, not yet this year!

Pretty much sums it up right there.

Roughly 30% went to MPIC.

Me? No, the reason why I recently retired from managing my RothIRA (as well as my wife's) is to eliminate myself as the systemic risk to my family's financial security :) Sometimes you need to hand the keys to a friend when you are at the party if you know you have a problem.

Australian dollar headed to low 60 cents against USD in 2015: http://www.bloomberg.com/news/2014-02-20/china-s-iron-ore-stockpiles-to-stymie-aussie-rally-insight-says.html?cmpid=yhoo The Australian dollar’s rally this month will be short-lived as demand for the nation’s chief export wanes with China stockpiling record amounts of iron-ore, according to Insight Investment Management Ltd.

Wages, rents, and the velocity of money—how quickly it changes hands—are “going to be rising significantly over the course of the next several quarters,” Rosenberg says. He adds that his stance will then seem less “ludicrous” than it does now. http://www.businessweek.com/articles/2014-02-20/inflation-ahead-economist-david-rosenberg-says?campaign_id=yhoo

The positive side is that the further along we get in this deleveraging, the less of it's drag there is ahead of us. What deleveraging? The US is, a little (total debt down from ~390% of GDP to 340%). But the world overall has added 30% to its debt load since 2007. Private sector debt carries higher financing costs than public sector debt. So you may scoff at 390% vs 340%, but I think the difference is more significant than that. Let's say you take a private citizen that was paying 6% interest on his personal debt, and you tell him instead that he only has to pay 3% interest if it is moved to the public sector. I am not scoffing at it - it is a very significant improvement. But I would point out that it is still far above the long run normal, so there will be a lot more deleveraging to come if rates return to their long run normal (and that will be hard given the rising cost of service in that situation). My bigger point though is the global figure. That, ultimately, is what Watsa is fretting about, as I understand it. I think he fears a *global* deleveraging focussed on China with all the deflation that entails. A. Gary Shilling has been saying that there is about 4.5 years left on the deleveraging. He thinks before 2019 we'll be growing GDP at the normal long term trend growth again. I hear that and I get bullish. I mean, that's really good news. It's been a long time since I've heard something so optimistic out of his mouth. More than ten years ago, in 2003, he said we were facing a decade of deflation. His reasoning is that we've already deleveraged so much.