txlaw

I highly recommend this series, which explores the various networks and systems that make the US economy work: http://www.pbs.org/america-revealed/ All the episodes I've seen so far are great, and it's worth watching even if you're not American. In Episode 3, at 12:47, they show BNSF in the Powder River Basin. Amazing. And in Episode 4, at the beginning of the episode, they explain that the largest number of containers exported out of the US contain rolls and rolls of paper. Pretty interesting, and could explain why the low value added commodity is on HWIC's radar. If exports continue to increase, it might be nice to own the lost provider of paper.

Here's another thought that occurred to me. Let's just say that gold is an alternative currency and that when you own gold as in investment, you are really making a long term currency trade, betting that, at a future date, people will trade you purchasing power in the form of paper currency (unlikely that you will be able to directly trade your gold for goods) for your gold that is greater than the purchasing power you paid up to purchase the gold. In that case, how does one assess what amount of paper currency people will trade you for your gold in the future? My limited understanding of forex investing is that a currency will get stronger relative to other currencies based on various factors, including interest rates, general economic prospects of the country to which the currency belongs, balance of trade, capital flows, probability of money printing, probability of default, backing of the currency by hard resources, etc. Ultimately, paper currency trades are based on what's going on in the issuing country. But the gold currency has no backing of its value from a country-specific set of productive assets, natural resources, or general economic activity. The value seems to be based solely on people's psychology regarding gold, or at best on the general notion that governments will print money and therefore gold will go up. But even assuming that all governments will print money, why will gold go up if there is nothing backing the currency? These are not rhetorical questions.

WEB on Squawk Box: BECKY: I know you said that you don't like gold or a lot of other places to put your money, but John Merrill writes in with a pretty good question. He says, "Would you rather have, if you had to have one of the two, all the gold ever mined or all the paper dollars ever printed? The choice is between two monetary assets, either of which could be used to buy Exxon or farmland." And what's your answer on that? BUFFETT: I definitely don't like paper money. I like physical assets. So I would — I — but I wouldn't buy gold or I wouldn't buy rare stamps, although I was a stamp collector. I wouldn't buy paintings, although, you know, a number of them I appreciate. I would buy something that's productive. I bought a farm in the mid-1980s. You know, I mean, that farm is more productive now in terms of it actually — farming techniques have improved somewhat, fertilizers and all that, and then prices are somewhat higher. That farm will always be a good asset, and I don't get a quote. I've never had a quote on it in 25 years. I've never turned into the farm channel, you know. But it will be a productive asset. I would rather own that than own some asset that just looks at me. WEB analogizes holding gold to having a rare stamp collection or art collection (or a wine collection, in Aubrey McClendon's case). Einhorn's letter appears to retort that gold is not just a normal unproductive asset but is instead an alternative currency that is a substitute, in some sense, for paper money. Not a bad thing to point out, and I sort of agree with Einhorn on the notion that gold is like an alternative currency. But Einhorn never really gets into why gold is a good investment. I mean, would anyone say that cash is a good investment? Yes, the purchasing power associated with your cash may go up if there is deflation or if the currency it's denominated in appreciates relative to other currencies. But you're not really making an investment, per se, when you just hold onto cash, are you? Also, what's the deal with Einhorn's gold funds? Do they just hold bullion or also gold-related stocks? Not a bad way to keep AUM sticky by offering them a way to put some of their money that's kept with you in gold

Some Bank Stocks Are So Cheap, That Even Christopher Whalen Can't Resist Running A Bank Fund http://articles.businessinsider.com/2011-12-06/wall_street/30480966_1_bank-stocks-bank-fund-institutional-risk-analytics My personal thoughts: the reason why he continues to suggest that the big 4 banks are zombies is that it gets him on TV. Getting on TV gets his name out there. Getting his name out there gets him clients. Last fall it was the absolute worst time for BofA in terms of public opinion. So he gets on TV and says it needs to go bankrupt. He also said last fall that Bank of America doesn't need to close any branches or fire any employees -- that's also the popular thing to say. Now, do you think that Bank of America, operationally, has absolutely nothing wrong with it as Chris Whalen contends? Or is Moynihan the wiser man in righting the expense vs revenue equation? Note that in December of 2010 Whalen said that the banks were in trouble because of their expense vs revenue issue. He argues that declining NIM and regulation was crushing them -- so as BofA begins to address the expenses to bring them in line with the new revenues, Whalen then shifts his posturing and argues that firing employees and closing branches is not the right approach, but rather it's all about bankruptcy now because of legacy liabilities? Would the bankruptcy option somehow fix the NIM and regulation? Whalen has stated that the top four banks are zombies. That of course includes Wells Fargo. Interesting. From the article: Christopher Whalen has joined Tagent Capital Partners, where he will be a senior managing director and run an investment fund focused on small and mid-cap banks . . . “I want to focus on the part of the industry that never dropped out of the ‘A’ category during the crisis,” but hasn’t attracted interest from investors, Mr. Whalen said in an interview.

Sure. If you're paying below market rents and locked up for such a low rate for the future, then you should be able capitalize the between greater assets and liability. Whether asset will match with liability is a question for the accountants. It is better to reflect reality someway than leaving it out from the balance sheet and in the disclosure. Interesting. So it sounds like equity for companies with below market rents could go up as a result of putting below market operating leases on the balance sheet.

Question: Will the right to use asset always match up one for one with the operating lease liability? Like, say, you have long term real estate leases where you are paying below market rent, and then you sublease the real estate, earning a spread. Do you capitalize the right to use asset such that the asset is greater than the liability?

Article on European fracking bans. http://www.bloomberg.com/news/2012-05-23/european-fracking-bans-open-market-for-u-s-gas-exports-1-.html

After they reached a tentative agreement, Buffett told Trott not to telephone until later that afternoon because he had an important appointment. “He told me he promised his grandkids to take them to Dairy Queen, and he was not to be interrupted,” Trott said. I wonder if those kids are old enough to always remember that day -- it will be a good story to tell about their grandfather.

One final thing to point out. Ultimately, capital allocation is the key factor for DELL. You have to believe that DELL is deploying capital appropriately when it makes its acquisitions, such that DELL is making a good ROI on the acquisitions and making its total portfolio stronger in the context of providing productivity solutions. In order to make such a judgment, you need to have some understanding of the businesses they are buying into and the way that DELL leverages its customer base for these acquired businesses, rather than looking solely at quantitative aspects of acquisitions. For example, when, DELL acquires Wyse Technologies, you have to ask yourself whether the acquisition makes sense and what that means strategically for DELL. If you think Compellent or Perot were bad acquisitions, you'll never believe that DELL is a good value for the long term.

And to clarify, the excess cash noted above should also be netted against long term debt.

I'd go a step further. Be conservative in your quantitative analysis and projections. Only consider current assets as excess to the extent they are above working capital, despite the negative working capital model. Of course, take into account finance receivables and the relationship with debt on the right side of the balance sheet. Build product revenue decline into your model and be conservative with the margins you think they can earn. Realize that some amount of SG&A is investment expenditure rather than maintenance expenditure. Also realize that some amount of cash flow must be put into acquisitions to continue to transform the company. Finally, after you have done that, set aside the quantitative aspects of the investment -- don't be fooled by the notion that DELL is "statistically cheap." Instead, tear apart the business as a businessman would and see if you think their strategy for the future is correct. After I do that, I come to the conclusion that DELL is cheap.

Just to reiterate what Plan said, DELL today is different than DELL in 1997. The price may be the same, but the company is not. Big difference. I suspect DELL will trade at low levels for a while because the Chanos "value trap" thesis is going to be the talk of the value investor community, who are the only people who really believe (or used to believe) in DELL.

DELL is actually still very cheap. It's just that the market will never recognize this until there is sustained and non-sporadic revenue growth. The big decline in product revenue and lower margins was quite predictable, actually. In a quarter where problems in Europe continued, where public sector sales were of course going to go down, and where the iPad had record setting sales, how could anyone be so optimistic as the Street? It's no wonder Chanos leapt on the opportunity to short DELL, correctly realizing that Street expectations would not be met. Stay the course -- this is a long game, here. Nice to see growth in the strategic areas, as expected. Skeptics will be proven wrong in the long term, IMO.

That is a good one txlaw and it seems that the trials against them and State Street are doing OK. And it proves the point that, these days, one can find large nuggets of gold even where everyone is looking rather than wasting time on trying to find golden needles in haystacks. Of course, if it's your job to find golden needles in haystacks, can't fault you for it, I guess.

I'm a big fan of AMZN as well, though I would never buy it at current prices.

Funny just opened a position yesterday. It's a pretty nice business that trades at 10 times earnings.Buffet doubling it's stake made me pull the trigger. BeerBaron Is that a WEB position? It looks like it might be a Todd Combs or Ted Wechsler, as opposed to WEB.

Here's an idea. Bank of New York (BK). You get a royalty on global growth in financial assets. It's also a natural hedge against interest rates rising. And the price is right.

I agree with you guys that V and MA have moats -- when I made my commentary a while back on VISA, I was factoring in price you pay. IMO, the saving grace for V and MA will be partnerships with various players in the payment systems (banks, telcos, OS providers). I don't think that these guys will go away, and they will probably increase the absolute volume of transactions they handle. However, from a market share perspective, I just don't know what's going to happen. I like AXP because they are really forward thinking, and I expect them to take market share away from MA and V over time by working with savvy tech players like Square, Google, and maybe even Apple. One thing we should be on the look out for: Is the new iPhone going to have NFC built in or not? If so, then you would expect a partnership between Apple and some of these payments guys. And cuts of the transaction might start going to Apple. Hard to say what their strategy will be.

I attended the recent meeting for Sequoia fund. They made an interesting comment on Visa / Mastercard (they've owned MA, IIRC, for a long time and thier past bullish comments have been posted on this board). To paraphrase: "The mobile payment threat is potentially quite big to V and MA. Companies like Apple and Google have enormous networks of people that they could leverage to compete with V and MA. The risk of mobile payments is that they can use ACH (Automatic Clearing House) to get around the V and MA payment networks. To do so, however, they have to have bank account information and it is possible that people won't want their bank info. exposed. But, it is very possible. No one knows how it will shake out." -- Again, the above is a paraphrase. But, it got me thinking. Isn't something like American Express a much better option than V or MA. The standard -- recent -- counter argument is that Amex has credit risk. Not much...take a look at their numbers. And, importantly on the subject above, what Amex does have that (as I understand it, V and MA don't) is a very powerful rewards program that keeps customers using their card. Obviously, other card providers have rewards programs but those are mostly banks and the banks don't have the V / MA network. Amex has both and has the high-paying customers as well. Just a thought when comparing V / MA to Amex when considering the mobile payments threat. I have passed on investing in M and VA before for the reasons articulated by Sequoia. See http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/visa/msg22547/#msg22547 These guys will try their best to partner with the telcos to make sure they don't get cut out of the payments process. See, for example, Isis Mobile Wallet.

Moynihan on JPM and Dimon: http://www.bloomberg.com/news/2012-05-21/bofa-chief-says-dimon-will-do-what-s-needed-to-cap-losses.html

Thanks for posting. I'm always interested in hearing what this guy has to say.

More likely for CLWR than for S, I think. But I think that it is even more likely that there is just more and more dilution for shareholders, thanks to Hesse and team.

Thanks. The Tom Russo interview is phenomenal.

I guess "buy" isn't really the right term. Apparently, he has collected $1 million worth of nickels. Bizarre.

Did he really buy a bunch of nickels?