txlaw

The funny thing is that the more I learn about Romney, the more I am considering possibly voting for him in the next Presidential election. Which might explain why conservatives don't really like him. I just think it's wrong to scapegoat Obama for problems caused by the House. To me, that's party politics speaking -- let's blame it all on Obama because we really want to get him out of the White House. No better than blaming George W for all the ills of our nation, which a lot of Dems did in the last Presidential election.

The thing is, building relationships with moderate Republicans can only go so far because their influence in the House is waning. I think that's the same with the Democrats. Underlying my defense of Obama is the notion that the polarization in the House has made it impossible for the President to broker compromises that will allow us to move forward. If the House were controlled by Dems and Romney were the President, I think he'd face the exact same problems.

I could ask a similar question: What evidence do you have that he can't get along with folks who have differences in opinion? Did Obama not compromise and extend the Bush tax cuts in order to keep lower rates for middle income households? This is just one example of his ability to deal with the Republicans -- both very conservative and moderate -- and anger his base. There's a difference between caving and compromising. With compromise, typically both sides come to the table and give up something to reach a deal. Here's what we got from the House GOP in the debt ceiling debacle: We want spending decreases, but no revenue increases. Absolutely no revenue increases. Compromising on someone else's terms, indeed! You give us what we want, and we'll give you . . . nothing. The political reality is that Obama cannot possibly cave in that way. Nor should he from a policy standpoint, IMO.

Well, sure -- you're not going to get many conservatives on the record in CQ putting forth any analysis of the situation that disses the Tea Party in a straightforward manner. But I would note that they did not just quote liberal sources, as your post implies. They also talked to and quoted the President of FreedomWorks, a former adviser to and biographer of Ronald Reagan, and a senior adviser to Boehner. Here's a quote from the article: Tea partiers at the grass-roots level are organizers who, Kibbe says, study the writings of the famed leftist agitator Saul Alinksy. That's Matt Kibbe that said that, not some left wing institution. Read up on Saul Alinsky, and you'll see why I believe that if the Tea Party actually has the sway they seem to have, they'll will do anything they can to destroy any compromise because they don't believe in it. Regarding Obama, I guess we'll just have to agree to disagree. I don't think it's Obama's lack of trying or pure incompetence that has resulted in an inability to obtain compromise. Nor is it Boehner's lack of trying or the Senate GOP's lack of trying. It's just the cards that have been dealt to these guys as a result of the rise of the radical right wing. There's no way to build coalitions with these folks who are exercising a disproportionate amount of power in the House. You're assuming the problem is because Obama can't get along or work with these other guys. But that's just wrong. Obama can certainly broker compromise in the Senate. But working with the Tea Partiers in the House is very difficult -- reminds me of recalcitrant union bosses who actually cause harm to their workers in the long run by refusing to compromise in the face of reality.

Honestly, I could quote you any number of non-WSJ articles that would take the exact opposite view. The evidence you're looking for may not be found in the sources you're reading. I wouldn't rely on the WSJ for giving a "fair and balanced" view of what sort of talks Obama has and has not had with the GOP. Partisanship is not new. But there was a long period of time when the parties could actually sort of work together. Now things have gotten so polarized and certain radical wings have gotten so much sway over the House that lots of stupid mistakes have been made (just my opinion). Take a look at this Congressional Quarterly special report on the debt ceiling debacle. http://corporate.cqrollcall.com/files/documents/CQWeekly_Sample.pdf. I think CQ is a much better source than the WSJ or the NYT for figuring out what's going on in DC.

I would say that the Tea Party organizers/backers know what they want. Not so much the actual folks who are participating in the "movement." There's no question that the Tea Party has influenced politics. Keep in mind that Occupy Wall Street is in its infancy. Don't count out that "movement" from having the same effect on Democrat politics that the Tea Party has had on Republican politics.

Obama is certainly a pragmatist. He's no left winger -- he's alienated the vast majority of left leaning people who believed that "hope and change" would entail a radical change in policy. Instead, he brokered compromises that left a bad taste in the mouths of both sides of the political spectrum. This is why he has had to change his rhetoric in the last year -- he has to pander to the base to make sure he gets people to vote in the next Presidential election. It is, however, an open question as to whether is an effective pragmatist. He has made some huge mistakes with important policy decisions. For example, I strongly believe that he should have adopted the Bowles-Simpson recommendations early on to get the country focused on taking appropriate action for the future. For the life of me, I don't get why he didn't do so. I get the feeling he decided to test which way the wind blew after a couple of months to make the right political decision on where to start, and as a result, we got the posturing episode that occurred with the debt ceiling. I also think that while fighting for increased health care coverage was a worthwhile fight (which also cost Obama a lot of political capital), it was a huge mistake not to push harder on the cost side of the equation -- we've truly kicked the can down the road in that respect. But it's not that Obama is not reaching out to the other side. I think that he is unable to broker compromise because both sides are so divided and focused on winning for their team. The GOP, in particular, will do whatever they can to make sure that Obama doesn't win the White House. If the situation were reversed, I'm sure the Dems would act the same way. I believe the following WEB aphorism applies here: "When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact." Given the current environment in DC and the state of the economy, which is largely out of Obama's control, it is not surprising to me his reputation is in the dumps.

People do ignore what they don't want to hear, and sometimes people distort what is actually happening in their own minds because it fits with their narrative of the other side. I actually agree that the Occupy Wall Street people's focus would appear to be misplaced. But actually, it's unclear whether there is any focus at all. I was listening to a Planet Money episode, where they went to Occupy Wall Street to figure out what those people are actually protesting. Although a lot of people are there to protest against "corporate greed," it appears that Occupy Wall Street is a hodge podge of people who are really protesting a number of issues. The binding tie appears to be that they all strongly believe in protest and participatory democracy. The same can be said about Tea Party functions. I'm not so sure there is a coherent movement. These people -- Tea Partiers and Occupy Wall Streeters -- just feel bad. They feel they have no say in what's going on in the country. They feel that these protests will make a difference and possibly change the existing power structure. And in my mind, the result will be that politicians adopt and co-opt the sentiments of the "movements" (Dems will do with Occupy Wall Street what the GOP did with the Tea Party). Conservatives will bash Occupy Wall Street and liberals will continue to bash Tea Partiers, not because of sound reasoning because they're the crazies on the other side. It looks like Congress will continue to be very divided going forward. I hope we get a Romney versus Obama election because I believe we need to have sensible pragmatists in the White House to counter this deep division that is predictably occurring as a result of the events of the last decade.

Never did and never will. I agree. Perhaps the more salient point of her presentation is that the notion that people are in debt primarily because of crazy consumption is a half truth at best.

Interesting article related to JOE: http://www.starfl.com/news/port-23709-joe-week.html

I know a lot of people on this board probably aren't so fond of Elizabeth Warren's political perspective, but she is a very well respected commercial law scholar who has done a lot of groundbreaking work on bankruptcy using actual data rather than conjecture. See http://www.huffingtonpost.com/elizabeth-warren/america-without-a-middle_b_377829.html and America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security. Going to college and finding a good job no longer guarantee economic safety. Paying for a child's education and setting aside enough for a decent retirement have become distant dreams. Tens of millions of once-secure middle class families now live paycheck to paycheck, watching as their debts pile up and worrying about whether a pink slip or a bad diagnosis will send them hurtling over an economic cliff. Just another perspective on Person D, the real "forgotten man."

It will be interesting to see if Lampert tries to get GAP to open up some stores -- either Gap or Old Navy -- in some of the Sears stores within a store projects. I bet Ackman is thinking about doing the same thing with JCP, since they already have things like the Sephora store. If I were GAP management, I'd run the numbers on opening up Old Navy in Sears, Gap in JCP, and keeping Banana Republics separate stores.

I read an edited version of this book that was also in the same collection as an edited version of Confusion de Confusiones by Joseph de la Vega. Apparently, the Amsterdam stock exchange was a hotbed of options trading back in the day (I'm talking 1600s). The book also talks about how people would spread rumors to benefit a trade they were putting on. Also talks about how traders are either bulls or bears. Talks about short selling. And as I recall, there were only like two or three issues trading on that exchange. It's pretty interesting to see how little things have changed.

Did he work for CNN? afaik he's retired.. No, but he appears to be a big fan of Poppy Harlow.

Yes, it's called Confidence Game. It's a very good book. Enjoyable. Some decent background on the financial crisis as well. I'd characterize the book as mostly about his battle with MBIA. You must read this book if you're invested in MBIA.

I have thought for a while. It also seems like most of the most powerful people in the world genuinely like him and enjoy his company, its a good look. I once thought that I would try to go into journalism after I got out of law school, but that wasn't gonna happen as the profession was collapsing as I was exiting (not that I could have made it anyway). I really am jealous of Charlie Rose. How's Oz treating you? Getting your board fix during the afternoon lull?

Totally. He was in full force on Charlie Rose. As much as I'd like to be like WEB, I think I might rather be in Charlie Rose's shoes. He's got one of the best jobs in the world.

That was a damn good interview. Also worth watching him and Bill G at the AllThingsD Conference:

Ackman is legit. Unlike some of his cohorts, I might actually consider him worthy of being held up as a "guru." Although I question some of his decisions -- like the TGT debacle and pushing for the MBI holdco and other financial holdcos to be zeros "for the good of the country" -- I can't deny that he's damn smart.

Ericopoly would beg to differ, I think. ;D

Great interview: http://www.gurufocus.com/news/147306/bill-ackman-interview-with-bloomberg

I think WEB has gone on record saying that he missed the severity of the housing bubble, not the fact that there was a bubble. I'm glad that WEB, who has access to lots of real data, thinks that there won't be a recession, but the fact that all those smart guys are worried about a recession means that it's probably a good idea to build a recession into your outlook when determining whether there is a margin of safety in your investments. [i accidentally removed my previous post. Don't think there's a way to undo that.] One other thing that I find interesting. Buffett has said that he doubts we will go into recession. Fred Smith of Fedex doesn't see a recession. Jack Welch thinks we will have 1 to 2% growth. Notably, it is mostly finance types (other than WEB of course) and economists who believe that there will be a recession or that we are in a recession right now. That's a little cause for optimism, I guess.

How are you guys getting comfortable with the derivative risk on Wells Fargo's balance sheet? I think that comes down to comfort with managent - as Buffett says, the CEO needs to be the Chief Risk Officer. I'm comfortable with WFC b/c they don't have a black box prop trading unit. Its I-banking unit is primarily fee-based revenue. I would add that the thread on US derivative exposure provides some good detail on why an AIG-like risk is likley off the table, at least with US banks. http://www.cornerofberkshireandfairfax.ca/forum/index.php?topic=5312.0 Ultimately, it comes down to whether you believe the mechanisms and legal documents associated with these derivatives trades have changed post-financial crisis. To analogize a US bank's netted out derivatives book now to what it was pre-crisis is wrong, IMO. Same with analogizing the assets and liabilities of the banks now versus the pre-crisis days.

But, Ben, aren't you making the same mistake you described with CAT with US financials? Let's say you are correct that the market is valuing many of these companies incorrectly based on a current earnings multiple that incorporates peak earnings rather than mid-cycle earnings. The same is certainly not true of the US banks. If anything, the markets are valuing US financials as though they will forever have EPS at trough earnings. Forget BAC because clearly you are worried about a big hole in the balance sheet there due to legal problems. But what about a WFC, BK, or a GS? Don't you think the market is valuing them as though their earnings will collapse for the next decade? Unless you believe there are humongous write downs to occur in the future, isn't now the time to buy US financials in aggregate in terms of pricing? (Note that I'm just talking about US financials, not financials in Europe or anywhere else.) It's getting close to the time to buy fins as a group, and WFC specifically. I think the time it takes to get to "normalized" earnings power is going to be longer than many investors expect due to the environment we're in. There is ZERO demand for loans bc the private sector is deleveraging massively. WFC and USB will probably be the only large US banks that actually can increase their core intrinsic value through this environment, but I would venture to say that gain will be lower than many believe. We just spent 10 years over-borrowing - the only logical conclusion out of that is that the banking system over-earned for the past ten years. Thus I do not believe current "trough" earnings are in fact trough - perhaps slightly below mid-cycle. I'm not saying banks aren't becoming more attractive, they are, and I am certainly closer to buying (as a group) now than I was 20% ago on the XLF. The banks certainly over-earned over the last ten years, especially because a lot of those earnings disappeared through massive write downs. But I have to disagree on whether bank earnings have much further to drop -- I think we will find in the next few years that the US banks are at trough earnings right now. Additionally, you have to look at both P and E. Right now P relative to E is ridiculous for the financial sector as a whole and for particular companies that I believe the market is misjudging as zeros. As WEB has said the decline in US bank stocks hasn't made much sense. http://money.cnn.com/video/news/2011/10/04/n_co_buffett_banks_selloff.cnnmoney/ How do we know what "normal" is when loan demand and growth continues to decline? What does a "normal" loan book look like for WFC in a normalized environment? Its current loan book is still running off in a sense. I have an extremely rough guess as to what that normalized number may be, but regardless, I think it is going to take awhile to reach that normalized state. So if we think WFC is worth $50 in a normal environment, but we won't reach that environment for 3 years, then we have to discount that back two years at a 10% cost of equity for a current FV of $41. I want to buy a bank at 50 cents on the dollar - when WFC reaches that, I'll buy. The example above is purely for demonstration. IMO the FV could arguably be lower than $50 in a normal environment, and could take longer to reach normal. Thus I am going to demand a greater margin of safety than 50% of $41. Some may call it timing, other may call it making a macro call - I call it valuation and demanding a MOS. All of the so called "macro" debate really comes down to the varying degress of MOSs we demand and our valuation. That's what makes a marketplace and what makes the debate on this board so valuable! Take a look at the numbers for WFC though. What have total interest bearing liabilities done YoY compared to total interest earning assets? Yes, NIM compression is there, but is the market correctly judging what the earnings will be going forward? And aren't both the assets and liabilities on the balance sheets much less riskier than they were pre-financial crisis? Our disagreement is not necessarily in the timing aspect of it, but on the MOS. The MOS of US bank investments in aggregate has become even greater because of a collapse in prices. In fact, there is no other sector that I can see that has a greater MOS. Downside protection is there. WFC may not currently be a 50-cent dollar, but if it is a 70-cent dollar that increases IV at a rate of, say, 6% over current IV (just throwing out numbers), that gets you a damn good return over three to five years when Mr. Market realizes his mistake. It's all about lengthening the time of your thinking. I think it's a mistake to completely pass up some of these financials in the hopes that prices will collapse even further, although you can certainly base position sizing on what you think the market will do. But as you say, this debate is what makes a market.

But, Ben, aren't you making the same mistake you described with CAT with US financials? Let's say you are correct that the market is valuing many of these companies incorrectly based on a current earnings multiple that incorporates peak earnings rather than mid-cycle earnings. The same is certainly not true of the US banks. If anything, the markets are valuing US financials as though they will forever have EPS at trough earnings. Forget BAC because clearly you are worried about a big hole in the balance sheet there due to legal problems. But what about a WFC, BK, or a GS? Don't you think the market is valuing them as though their earnings will collapse for the next decade? Unless you believe there are humongous write downs to occur in the future, isn't now the time to buy US financials in aggregate in terms of pricing? (Note that I'm just talking about US financials, not financials in Europe or anywhere else.) It's getting close to the time to buy fins as a group, and WFC specifically. I think the time it takes to get to "normalized" earnings power is going to be longer than many investors expect due to the environment we're in. There is ZERO demand for loans bc the private sector is deleveraging massively. WFC and USB will probably be the only large US banks that actually can increase their core intrinsic value through this environment, but I would venture to say that gain will be lower than many believe. We just spent 10 years over-borrowing - the only logical conclusion out of that is that the banking system over-earned for the past ten years. Thus I do not believe current "trough" earnings are in fact trough - perhaps slightly below mid-cycle. I'm not saying banks aren't becoming more attractive, they are, and I am certainly closer to buying (as a group) now than I was 20% ago on the XLF. The banks certainly over-earned over the last ten years, especially because a lot of those earnings disappeared through massive write downs. But I have to disagree on whether bank earnings have much further to drop -- I think we will find in the next few years that the US banks are at trough earnings right now. Additionally, you have to look at both P and E. Right now P relative to E is ridiculous for the financial sector as a whole and for particular companies that I believe the market is misjudging as zeros. As WEB has said the decline in US bank stocks hasn't made much sense. http://money.cnn.com/video/news/2011/10/04/n_co_buffett_banks_selloff.cnnmoney/