ERICOPOLY

Have you purchased it? It does seem pretty cool My situation is complicated by a few factors: 1) I'm not a homeowner so I'd need the landlord to be a cosigner for the loan or agreement (not happening) 2) I'm exploring have a carport built later this year and having the solar installed there (I have a purchase option so the house is going to be mine in 3 years) 3) I want to look into the cost efficacy of using batteries to buy power at night and spend it in the day. Might be better than buying solar panels, but the company (BYD) refuses to answer their email (two weeks now, two tries at different departments). BYD is really irritating me. I don't like waiting a week and not getting a response to a basic question like price. And people think BYD has a rich future -- not if they routinely behave this way.

In short, you are obligated to save money for five years.

Solar City has a no money down program where after five years you can tell them to take their equipment away at no cost to you. So it's only a five year window, and during those five years your only obligation is to purchase the generated electricity at a lower price than your utility charges.

I met a couple at a dude ranch in Northern California -- back in early July. They were both medical researchers at UC Irvine. I talked about Tesla a bit and they told me they had a Solar City installation on their rooftop. They were recommending the company to others. They purchased the system rather than leasing it. It's hard to imagine why more rooftops don't have solar yet. No money down, and immediately your energy bill drops. We'll get there, it's a matter of getting the word out perhaps.

Elon Musk is bringing more to the table than iPhones and iPads. We were so easily wowed before.

Nearly a week... no response from them yet. Next time, I will ask them "pretty please, with sugar on top, do you guys have a price for this item?". To: bydenergy@byd.com Subject: price quote for energy storage Date: Thu, 8 Aug 2013 16:08:29 +0000 Hi, I would like to find out what the price is for the DESS-B08P03A-E. I live in Santa Barbara, California. I pay 9 cents a kilowatt between 12am and 6am, and during summer I pay 47 cents per kilowatt between 10am and 6pm. I have been thinking about the cost efficiency of buying the electricity at night when it's cheap and using it during the day when it is expensive. Thanks, Eric

Depending on inflation, 6% or 7% earnings yields could be just as good as getting 15% earnings yields. PE of 20 is a 5% yield and PE of 15 is a 6.7% yield. So a 170 bps movement in inflation can make a large difference to market levels (a 33% increase) without having any impact whatsoever on real earnings yields. Sorry I did not see this follow-up the other day. Even I look at my statement through the "real" cost of equity prism, it still stands that the market is currently implying a lower-than-historical-average cost of "real" equity. So assuming $100 operating EPS for the S&P and a $1,700 price, the PE is 17X and the EY is 5.88%. Assuming average inflation of 2.5%, the "real" EY is 3.38%, which is significantly lower than the GMO-calculated historical average of 6% real. A 6% real required return + 2.5% inflation implies a "fair value" PE of 11.76X, or $1,176 on the S&P 500. For the current market level to be considered "fair value" while maintaining a 6% real required return, then the market is implying 0% inflation in perpetuity. My example was intended to show that the market isn't that expensive in real terms if we do indeed get the 0% inflation. Yes, using historical inflation it is expensive. The market doesn't appear to be expecting historical inflation... if it were, then why is the long term treasury yield so low? Actually, P/E would be 16.66x if you assume 6% real returns and 2.5% inflation. My numbers include the idea that if you have 2.5% inflation, you might also have 2.5% nominal GDP growth. And if you have 2.5% nominal GDP growth, then the company earnings get this 2.5% nominal earnings growth tailwind.

Bill Gross' comments: Insurance companies, pension funds – all institutions with liability structures that require matched asset hedging require fixed income assets on the other side of their balance sheet. The recent several months’ experience of higher yields was, in fact, a blessing for them, as their future liabilities went down faster than the price of their bond assets did! http://www.pimco.com/EN/Insights/Pages/Bond-Wars.aspx

I can do simple math (I have BS in Math degree) so I can tell you what a 13% return on tangible equity translates into for a 10x or 12x earnings multiple. So based on that, I was in banks. I was in both banks for a while. I then concentrated only in BAC after Buffett invested in BAC and repeatedly commented that he can't imagine what Citigroup's earnings would be like down the road. I figured they both looked roughly just as good with my own knowledge, but Buffett only really cared to own one of them. So I followed Buffett's trail into the woods and invested only in BAC.

It's somewhat like the problem of having your desktop computer running before there was a sleep/resume power management implemented in the OS: Here is what a Tesla employee wrote on the Tesla Forum: Regarding the ancillary drain of Model S. Over the course of the next several months the firmware will continue to be updated to reduce the power consumption of the car’s computer systems. We strive to strike the right balance between minimum energy consumption and ability to have the car always ready and responsive. In our next major firmware release coming this summer, the car's computer systems will use half the power they currently do when the car is off. By the end of this year, they will use about 1% of the power that they do now when the car is off. The loss of range when the car is off has absolutely nothing to do with energy needed to heat, cool or otherwise do anything to the battery pack. The battery pack simply doesn't consume energy when the car is off nor do the systems that manage it. All of the "sleep" energy loss is going to onboard computer systems and providing the useful benefit of keeping them ready to start-up at a moment’s notice when the driver returns. As noted above this energy consumption will be almost completely eliminated over the next 2-6 months. http://www.teslamotors.com/forum/forums/vampire-drain

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Two years ago, with a net worth of more than $5m, I couldn't get a loan for $100k. I was trying to purchase a $200k property in Sacramento, a 4-plex with $32,000 gross rental income. The property was fully occupied, the rents were below market. Wells Fargo and Bank of America, plus other local banks. None would bite. They wouldn't loan me under 2% of my net worth! On a property where I was putting 50% cash down in a market that was already crushed in valuation! The loan amount was roughly 3x the gross rent! And then John Stumpf (Wells Fargo CEO) would get on TV and claim they wanted to make loans but there were no creditworthy opportunities. What an unbelievable statement. Their chief excuse was that I didn't have experience as a landlord. I lived a thousand miles away in Seattle and, as I told them, was going to hire a property manager (with experience). Idiocy at its best.. and yet the banks have turned it around and we are buying shares in them? I wonder who is crazy!!! maybe I should be getting rid of my shares in BOA.... Would you loan me lots of money at these rates fixed for 30 years. Or would you rather borrow from the fed at practically nothing and loan it out short term for a better spread? It seems to me that as a shareholder longer term they are doing what is best for me. Plus what gets them to better profits now. When rate go up I can see them starting to loosen. I wasn't looking for anything that long term. I would have been happy with a 25% down, 3 yr fixed at 7% rate. The gross rental yield was just so fat it was ridiculous. Anyways, you probably heard stories about how it was all cash buyers bottom fishing in markets like that. From my point of view and experience it had nothing to do with a lack of creditworthy borrowers. Rather, just banks that wouldn't lend. On a rental, cap rates in the teens with a big down payment should be credit enough. The cash flow and risk comes from the property itself. $100k loan, $32k in gross rents... 50% downpayment... that's not a creditworthy situation Mr. Stumpf?

Two years ago, with a net worth of more than $5m, I couldn't get a loan for $100k. I was trying to purchase a $200k property in Sacramento, a 4-plex with $32,000 gross rental income. The property was fully occupied, the rents were below market. Wells Fargo and Bank of America, plus other local banks. None would bite. They wouldn't loan me under 2% of my net worth! On a property where I was putting 50% cash down in a market that was already crushed in valuation! The loan amount was roughly 3x the gross rent! And then John Stumpf (Wells Fargo CEO) would get on TV and claim they wanted to make loans but there were no creditworthy opportunities. What an unbelievable statement. Their chief excuse was that I didn't have experience as a landlord. I lived a thousand miles away in Seattle and, as I told them, was going to hire a property manager (with experience). So how did you pay for your current home in CA? Did you pay cash? I leased for the past year, and two weeks ago I signed a purchase option expiring in late July 2016. Thus far, I've paid cash for 10% of the negotiated final sale price.

Thank you for making it rational. I too read Klarman's letter and I found it bizarre when he fixated on this. I wonder if it would be interesting to him to check on whether the market has been up on 20 consecutive full moons? Failing that, we could look for crescent moons, etc...

Two years ago, with a net worth of more than $5m, I couldn't get a loan for $100k. I was trying to purchase a $200k property in Sacramento, a 4-plex with $32,000 gross rental income. The property was fully occupied, the rents were below market. Wells Fargo and Bank of America, plus other local banks. None would bite. They wouldn't loan me under 2% of my net worth! On a property where I was putting 50% cash down in a market that was already crushed in valuation! The loan amount was roughly 3x the gross rent! And then John Stumpf (Wells Fargo CEO) would get on TV and claim they wanted to make loans but there were no creditworthy opportunities. What an unbelievable statement. Their chief excuse was that I didn't have experience as a landlord. I lived a thousand miles away in Seattle and, as I told them, was going to hire a property manager (with experience).

Depending on inflation, 6% or 7% earnings yields could be just as good as getting 15% earnings yields. PE of 20 is a 5% yield and PE of 15 is a 6.7% yield. So a 170 bps movement in inflation can make a large difference to market levels (a 33% increase) without having any impact whatsoever on real earnings yields.

Okay, so let's throw out the PE analysis since it is easy to be misled into thinking the market is cheap when things like rising deficits can pump up profits. Let's instead go with the old standby, market cap to GDP. First, here is Japan: http://www.vectorgrader.com/indicators/japan-market-cap-gdp It looks like the Japanese market has traded above 80% of GDP at least once during every 5 year period dating back to 1990. That's what a period of deflation has done to them. Then there are those brief periods where it bounces off of 50% of GDP. Most of the time it's in-between.

Yeah that was good. I hope I'm not distorting things by pointing out that competition won't be driving margins down if ROIC is at such low levels today. Presumably companies are investing capital into competing with each other, but getting nowhere in their efforts? One would tend to think that ROIC would be high if there were such fat low hanging fruits to be had. Then the paper goes on to point out that profits were driven up by falling interest rates and falling labor costs. Again, not something that Watsa sees rising on either count. The only explanation left from Ned Davis is the bit about the falling rate of savings and high deficits.

I asked this question before and couldn't get a very satisfactory answer. How do margins come down from competitive forces without competitors expanding/investing/hiring? Suppose a company is making fat margins, and further suppose this is widespread so that margins are fat in the aggregate... then shouldn't there be some boom in hiring and investment before the margins come down? You can't launch a competing product without a lot of investment... isn't that true? I'm interested in understanding the mechanics of what happens in order to bring about the lower margins. I doubt the margins are coming from optimal leverage of existing productive assets -- I thought I heard that we have idle capacity. Or are we getting away with paying too little for labor -- are there pressures that will bring up the labor costs? Or is debt too cheap? But isn't this a period of very low rates for a long time, per Watsa and Company? Or are commodities too cheap? I thought Watsa and Company believed their pricing went hyperbolic. Is energy too cheap? I hear we have natural gas cheap for a lifetime ahead of us, and solar prices will soon fall below cost of fossil fuels. So I would like to hear how competitive forces are going to spring into action without first igniting an investment and hiring boom.

Looking beyond it's high PE ratios, Japan's market cap to GDP is not high nor is it's Price to Book. So basically their earnings have been depressed and their stock market has not traded off of the earnings -- rather, it's being supported by other factors, like the market in relation to GDP or book values. Or perhaps instead it's the low interest rates after all. I'm more inclined to believe that Japan trades high on earnings due to the collapsed nature of the earnings in relation to the GDP and book value.

Here you go, here is the permanently high PE chart for Japan: http://www.vectorgrader.com/indicators/japan-price-earnings Are we turning Japanese?

Kind of like how the Nikkei PE has expanded downward with interest rates over the past 20 years? Are you saying Japan has had a low PE ratio during the period of deflation? Do you have data on the Nikkei PE? I keep finding references to relatively high PE ratios, even in recent years. Here is one from 2006 that claims Japan's PE was 33.66 in 2006: http://tickersense.typepad.com/ticker_sense/2006/06/global_pe_ratio.html

I remember reading that self-dealing is illegal. Do I have it wrong? I believe the spirit of the law is to keep people from manipulating the share price.

Okay, this might sound like a stupid question, but how does one buy the BYD option? There is no pricing on their website, and when I tried to ask them they didn't even bother to reply to me. Here is what I sent them on July 25th: To: nmd.og@byd.com Hi, I would like to find out what the price is for the DESS-B08P03A-E. I live in Santa Barbara, California. Thanks, Eric

At bottom, this is why I've been a bit concerned about FFH (I don't own any at the moment, btw). It's almost like they're going for an "absolute return" strategy vs. a "total return" strategy, where they always make positive mark to market returns despite aggregate market movement. On the other hand, they may believe that the best thing to do for "total return" is to preserve the ability to underwrite as much business as possible because they believe a very hard market will ensue at some point. If that is the case, they should be more clear about this, rather than saying, we're trying to "protect" ourselves. This is why I continue to be puzzled about the notional value of the equity hedge. Why 100%? When they first put the hedge on at 1060, with 25% notional value, it only protected about 1.75% of book value if the market were to drop back down to 800 level (where they had dumped all of their hedges). Now think about that... 1.75%! Really??? Honestly why is that "protection" from anything?