txlaw

Never say never, I guess - and you provided a counter-example in your assertion too! ;) Yeah, really. I was about to debate with the guy, but might be like arguing with a brick wall. ::) By the way, I disagree with that assertion. I think Zune is a great competing product to Apple. Actually, I'd love to hear some responses to the points I made in my prior post. I'm always interesting in hearing how people agree or disagree with me -- that's the whole point of posting for me. Or you could just keep rolling your eyes . . .

Never say never, I guess - and you provided a counter-example in your assertion too! ;) True, never say never. But if I had to handicap it, I would say that the probability of MSFT being successful at such a strategy is low.

Noooo...you don't say! ::) Seems obvious, but many people don't get that MSFT will never be able to release an integrated hardware/software product that's decent (Xbox excepted). I was a big fan of OnLive in concept. In execution, it's horrible: the response time of the controller lags; you need a 10 MB/sec connection to get compressed 720p (besides, 1080p is where the next gen consoles are going and you will need fiber to get the kind of bandwidth to stream that); the current game selection is horrible; there is a subscription fee of $15 a month ON TOP OF the ludicrous fee of "renting" the games to play; it's DRM, and all the gamers hate DRM with such a passion that if DRM was a business, it would be the equivalent of Monsanto, BP, or Goldman Sachs. Yes, but you're talking about the first iteration of this product. Once the concept is proven, competitors with deep pockets will probably enter the field. I'm not so sure you will need fiber to get the necessary bandwidth for this sort of remote gaming solution. It remains to be seen whether DOCSIS 3.0 will be fast enough to deliver games without any lag. But I would not be surprised to see the cable companies create facilities close to their end users to make this happen. Hardcore gamer probably hate DRM, yes. But what about ordinary folks who are increasingly getting into games? What if your subscription fee is folded into your Cable/Fiber Internet bill and you pay $15 per month to rent a game? If there were no lag, I would be willing to rent, say, God of War for $15 a month. Renting content is not a ludicrous concept. I love Netflix because I feel I get a lot of value -- there's no need for me to buy or illegally download movies. This is just wrong. The strategic relevance of the Xbox was always to get a toehold into the living room. The idea was to extend Microsoft's royalty stream onto any devices with screens attached. There are at least three screens that Microsoft has attempted to get a royalty stream on: the PC, the TV, and the phone. (See Buffett to Jeff Raikes letter for more on the concept of MSFT's royalty stream.) One way of getting a royalty stream in the living room -- hopefully with the smart device connected to more than just one's TV -- was to create must have hardware for technophiles. Once you get users hooked on your solution, you could be a gatekeeper for media and applications made for the living room, assuming the telcos and cable companies didn't fight against you tooth and nail. Hence the Xbox. This is also why MSFT bought WebTV back in the day. Sony had the same strategy with the PS3. But MSFT and SNE were too slow, and they faced strong resistance from media companies and telco companies. Now neither MSFT or SNE will be able to lock people into their own integrated hardware/software solutions for the living room since there is a pretty good open source software solution available for web-connected devices -- Android.

The problem, I think, has been Microsoft's multiple attempts to sell integrated hardware/software solutions. There's almost nobody who can be successful at such a strategy save for Apple. Furthermore, MSFT's strength has always been software, not hardware. The Xbox division won't get them anywhere either. It was a good idea when it was first released, but there are too many competing hardware devices that want to control the living room. I wouldn't be surprised if many of the new devices that we use in the living room are run off of Android (see Google, Intel, Sony, and Logitech partnership). Remote gaming (like OnLive) will also gain more traction and could make powerful gaming consoles obsolete in five to ten years, once we have faster connections into the home. In my opinion, Microsoft needs to focus as much as they can on having a somewhat uniform platform across multiple Internet-connected devices that is less complex, more secure, highly usable and more cloud computing-oriented. It needs to be adapted to each device based on the way one interacts with the device (e.g., touch vs. keyboard). These OS's will need to link into Microsoft's cloud platform, Windows Azure, but MSFT will have to walk the line in terms of locking application providers into their ecosystem at exorbitant rates. The big thing for MSFT will be Windows Azure. If it's done correctly, they might be able to get back into the game. But right now they're in danger of losing out to Google, Amazon, Apple and other vendors in that arena. And even if they do succeed with Windows Azure and their Android/Chrome OS competitor, what's going to happen to their cash flows once their business model is completely revamped? How much money will they be able to charge for cloud-based versions of Office? How much market share will they be able to hold onto when they have such strong competitors (Googe, Apple, Amazon, HP, and IBM) attacking them? The outlook for MSFT is very uncertain, and I would stay away unless it drops a lot lower than what it's currently trading at. Disclosure: Long GOOG

Originally found the video on Value Investing World, which belongs to one of the Chanticleer guys. Cameron talks a bit about behavioral economics and the part it will play in government going forward. Now you Brits have to answer me this question: are all British Conservatives so much more sane than American Conservatives? I mean, if David Cameron were running in the US, I might vote for him! And I'm definitely not a Republican.

Check out Krugman vs. Ferguson on Fareed Zakaria GPS: http://www.cnn.com/CNN/Programs/fareed.zakaria.gps/

True, but I'm only going by past behaviour. With Fremont Michigan and Steak n' Shake, he filed a 13D from the outset. Another thing is that he could be trying to establish himself as a friendly acquirer at the right price, in which case he probably wouldn't file a 13D.

I used to own RRGB and discussed why I liked the business at the price it was trading in a post. I bought RRGB stock and sold most of it at a very nice profit, though I would have made even more had I sold it all after the huge run up in the first half of the year. I completely sold out a couple of months ago. The reason I sold out of RRGB is because it became apparent that although they seemed to know how to grow their brand and create a great customer service experience, they didn't have good capital allocators at the helm. I actually called their IR department (outsourced to an IR firm) at one point, which I have never done before for a company that I own, and suggested in a voice mail that they buy back some stock and pay off their maturing debt instead of investing in too many new restaurants. My criticism was directed at focusing on ROIC, though I understood that with a growing franchise company, you do sometimes sacrifice some return in order to build out a brand. I think this is particularly the case when you want to eventually refranchise your company owned restaurants. In any case, I was sort of turned off by the inability to get someone on the phone, and I ended up selling out and moving on to bigger and better ideas. I kept an eye on it and was intrigued by the Clinton Group and Spotlight activity, but that was not enough to get me very interested in reentering. However, now that Mr. Parsad and Mr. Biglari have entered the picture, I am interested again. Bought a bit on Friday.

I like the added value that Ferguson brings as an economic historian, but I would also note that Bernanke is a historian of the Great Depression. We often fail to give him credit in that regards, and some would say it hasn't born fruit at all in terms of the policy decisions he has made (I wouldn't say that, though). Japan is also different because they mostly owe money to themselves, and as I understand it, their currency is still overvalued. Think about what would have happened to their economy if the yen had properly devalued. They would have even more of a trade surplus against the rest of the world, and they could have used such surplus to pay off some of their debt by raising taxes. The problem I have with Jim Rogers and Austrians' arguments is that they believe that if we get to a place with 25% unemployment, we will again start climbing back towards an economic equilibrium to where we have lower unemployment and lower debt. But I don't buy that. I think it's much harder for the economy to recover from a devastating depression than they think and that people truly suffer during that period. Furthermore, political instability can easily result with revolutions and whatnot occurring. Ultimately, if we're looking to place blame, we can also say that the vast income inequality that has arisen out of the US's second Gilded Age helped precipitate the financial crisis. Raghuram Rajan, one of the few economists who warned of a financial crisis, believes that wage stagnation that has occurred over the last few decades meant that those worst off were force fed credit by marketers, policymakers, and creditor nations in order to obscure the fact that things have gotten worse for them in times of supposed prosperity. And that's only wage stagnation we're talking about; what about increased work hours, less job stability, unsecure pensions, skyrocketing costs of education, rent, and health care? People, most of whom are unsophisticated investors, were told that their homes were a store of value that would appreciate and then were given crazy interest rates and shady loans. They were given usurious credit cards by supposedly sophisticated lenders who were really just looking to sell their shit to institutional investors. They were also told to allocate their hard earned wealth into financial assets without regards to price. Policymakers are certainly to blame, but I don't think it was their caring about the worst off that made the financial crisis happen; it was the exact opposite, in fact.

I wish I could watch Ferguson's speech. Is it available for public consumption, or do you have to be a member of the CFA Institute to watch it? Full employment will not be achieved through stimulus alone, but stimulus is needed to keep the economy from getting markedly worse, i.e. lapsing into a deflationary spiral, in which case unemployment would go much higher. I can't counter Ferguson's historical arguments without understanding what periods of time Ferguson is referencing. However, I do believe that Japan's Lost Decade and the Great Depression serve as historical examples of why stimulus is necessary in this case. If Japan hadn't taken the measures they did, I think we would be talking about the Japanese Great Depression instead of the Japanese Lost Decade. And in the counterfactual case, Japan's national debt would be even worse than it is now. Ultimately, the case for stimulus is premised on the notion that we are in a balance sheet recession. If we were in any other recession, I would say "no" to stimulus spending. I don't think we, the US, will default. We will solve the debt problem primarily through monetary inflation. That is the price we must pay for our past sin and folly.

In his op-eds, which I would say are generally way over the top, Paul Krugman functions as an advocate, not as an academic. He is trying to sway public opinion and have an effect on what policy decisions get made. I think it's hilarious that Marc Faber, of all people, is calling Krugman insane. Because Marc Faber is the epitome of measured rationality -- right. Both Krugman and Koo, I think, know what the "exit strategy" is: reduced spending, increased taxes, and debt monetization over the long run. They are fine with that because they view full employment as the best outcome even if the overall purchasing power of Americans declines and the wealthy get disproportionately affected. That is not a crazy philosophical viewpoint to have, though many folks will disagree.

Packer, I don't know what Koo would say, but I think the answer to your question is a combination of reduced government spending, higher taxes, and debt monetization. But not yet, as Augustine would say. That should occur over the long run. I'm a big fan of Jeremy Grantham, but I would disagree with the notion that government spending is always borrowing growth from the future. If the money borrowed is used to set up the economy so that future generations have good economic prospects, you are getting a good return by borrowing and spending today. I think Jeremy Grantham has actually advocated something along these lines at one point, specifically in the context of an energy policy.

Cardboard, I bought SFK/FBK at $1.20 after the Chilean earthquake, added to the position at higher prices, and then completely sold out for a small loss prior to the announcement of the rights offering. I just can't get comfortable with what pulp prices will be like over the long run, and I didn't want to rely on SFK selling its US assets or being bought out in its entirety by another company in order to realize gains. The other thing is that I felt I had other opportunities with just as much upside and much less risk so there was no point in holding on given that I could deploy the cash into other investments and offset some capital gains. This is not to say that SFK/FBK will not work out. Given the intelligence of the investors involved in this thread, there is a high likelihood that many holders, especially those with 0.68 cost bases(!), will make good money off of it. But my aversion to cyclical, secularly declining commodities remains as strong as ever, and I will watch from the sidelines on this one. I think it's very good to have you on this board voicing your concerns. Gotta keep everyone thinking about the downside!

That quote is hilarious. I bought Of Permanent Value a month or two ago. Well worth the price. It's taking me forever to read though!

Wait, so you don't think that we were at the precipice of a Great Depression in 2008? Even WEB said that we were facing an "economic Pearl Harbor." It was the US government's policies that kept us out of the Great Depression 2. One of the key points in Soros' speech is that there could be another financial crisis, probably with European banks failing due to sovereign defaults. Wilbur Ross said the same thing today. It's hard to say what the spillover effects of a Europe-centric financial crisis could be in the US. But such a crisis could affect confidence enough to where you might see companies, particularly multinationals, continue to shed US jobs as a result of reduced global demand for their products. And let's not forget that WEB just recently started talking about terrible problems with municipal defaults. That would mean more austerity measures on the local level, which act as a negative stimulus on the US economy. Not saying that we'll ever get back to the market bottom. Who knows what the market will do? I'm just saying that the global economy could relapse into disinflation/deflation, which would have a deleterious effect on the businesses we own as equity holders.

Very interesting speech by George Soros: http://www.georgesoros.com/interviews-speeches/entry/iif_spring_membership_meeting_address_june_10_20101/ Near the end of the speech, Soros says this: "And as I said earlier the financial crisis is far from over. We have just ended Act Two." The financial crisis is far from over, says Soros. That's scary stuff. It would be wise to own businesses that will hold up in the event of a double dip recession -- or hedge accordingly.

I've never delved deeply into CLWR, but it will be interesting to see how Sprint fares with the release of the EVO, which is the first "4G" phone to be released and which runs on the CLWR network. Sprint, Comcast, Google, and Intel own stakes in CLWR. They took their stakes for strategic reasons, I believe. Who knows -- in Comcast's case they might may eventually bundle mobile Internet connections (CLWR) along with there video services and fixed Internet service. Note that AT&T will have problems for now, but they are slated to roll out their own 4G technology, LTE, next year.

Biaggio, you might want to take a look at the following thread for more discussion on Citi. http://cornerofberkshireandfairfax.ca/forum/index.php?topic=1826.0

Philosophical and political reasons. The US government's philosophical stance on direct government ownership of enterprise is that we just don't want it if we can help it. Furthermore, from a political standpoint, it makes a lot of sense for the government to get out with a profit as soon as possible so long as there is no risk of the investee company going under due to their selling out. The government wants to be able to tell citizens that they made money off the Citi bailout and that they have always been reluctant owners. By the way, it's not clear that anyone else in the world would want the federal government to start getting into investing. Could you imagine the outcry that would occur globally if the US government set up its own sovereign wealth fund?

On the other hand, Benmosche sounded pretty optimistic at the hearing today, and the Treasury's restructuring officer basically said that the government will do what it takes to make sure that AIG has an investment grade rating without government support. From the restructuring officer's testimony: The mechanics of the restructuring plan itself are relatively straightforward in concept: sell sufficient assets at fair prices to pay off AIG’s obligations to the FRBNY, streamline AIG’s business portfolio, and recapitalize AIG’s balance sheet to support investment grade status without the need for ongoing government support. At that point, the Company will be a simplified life, property and casualty insurer with solidly capitalized insurance subsidiaries, adequate liquidity, and a stable balance sheet. Executing this plan will enable the government to sell its equity interests in the Company as soon as market conditions permit. I only own AIG indirectly via FAIRX, but for those of you who actually own AIG common, you'll want to take a look at the testimony. See http://cop.senate.gov/hearings/library/hearing-052610-aig.cfm

Recent comments from Bill Berkley about AIG's reserving are worrisome: Chairman Berkley said at the media lunch that AIG is charging commercial customers "prices that are clearly uneconomic" as it works to retain clients. "AIG continues to be one of the most aggressive participants in the marketplace," he said, while saying the company is "a little less aggressive" than it was a year ago. Still, he said, the company is no longer setting aside enough money to pay claims on the policies it's selling. "AIG has reserving issues, in my opinion," Berkley said. "AIG's reserves are, at best, optimistic," he said, while allowing that he didn't have as much information about the bailed-out insurer's business as AIG does. "No one knows AIG's reserves as well as AIG does." Berkley's comments seem to echo those of others, including CEO Ted Kelly of Liberty Mutual and Chubb Corp. (CB) CEO John Finnegan, who said AIG has been cutting prices to keep customers. AIG has vigorously denied the charge, and a study by the Government Accountability Office found no evidence after an earlier round of accusations from rivals a year ago. http://english.capital.gr/news.asp?id=977783

Amazing lecture. Thanks for posting.

Your point is well taken. However, being regulated by OFHEO pre-crisis is a little bit different than having the Fed, Treasury, and other regulators all up in your books post-crisis. Regulators in the federal government tend to be reactive and will focus keenly on problems once they've blown up. Just saw this troubling WSJ article that says that BofA, C, and DB were very active in reducing leverage at quarter end to make things appear less risky than they were. See http://online.wsj.com/article/SB20001424052748704792104575264731572977378.html. However, the article also states the following: At Citigroup, average net repo borrowings have exceeded the bank's reported period-end debt by an average of 52% over the past 10 quarters, according to the analysis. However, in each of the past two quarters, Citigroup appears not to have borrowed in the repo market in this way. in both quarters it was a net lender, rather than a borrower, both on an average basis across the entire quarter, and at quarter's end. Bankwide leverage also declined from average to period-end in most of the quarters at both Citigroup and Deutsche Bank, according to the analysis. I am willing to bet that the regulators shut this practice down at Citi when the Repo 105 story began to break. Also saw another post that talks about the Qatar Investment Authority possibly purchasing some of Treasury's stake in Citi. http://dealbook.blogs.nytimes.com/2010/05/26/qatar-mulls-treasurys-shares-in-citi/

Reasons for why Berkowitz and now HWIC are in Citi: -We've passed the inflection point for the pig in the python losses -Gov't ownership acted as quasi-receivership where the government would have closely examined Citi's balance sheet and off balance sheet arrangements; the government would probably not be selling if they did not think Citi could survive more economic turmoil -Citi is still too big too fail, but the capital markets are in good enough shape that Citi probably could get private capital (or sovereign capital) to help with any further issues they might have, if any -Citi is overcapitalized and Citi Holdings dispositions and runoff will help serve as a buffer to keep Citi Corp overcapitalized in case of more turmoil, both in the US and abroad -Low CRE exposure compared to the other big US banks -New loans are the best loans as we are at the bottom of the credit cycle -Long term, Citi is in a good position as it is one of the three big network banks (see Economist special report on banking in emerging markets); you can't replicate their network, their payment systems are vital to multinationals and governments, and they will probably continue to win more advisory business from foreign firms -Citi continues to dispose of non-core businesses and will not really be affected by the push to break up the banks, as that is already an ongoing process at Citi Given all of the above plus the price at which it is trading, it will likely be a great investment over time. Obviously, I own C.

Actually, my broader question, which I framed as "gold croupier investments" in order to catch people's attentions (hasn't worked, it seems), is whether as value investors, we can capitalize on fear in the market by making "croupier" investments. For example, I haven't done much research into IBKR, but my understanding is that the profitability of its operations increase markedly when there is more volatility in the market. For those who have done detailed research into IBKR, is this the case? If so, it could be a better way to profit from fear than using the VIX or GLD/PHYS. There is a better margin of safety than using those proxies because there is an underlying business that will provide profits regardless of what happens in the market. Or if there is a correlation between volatility and the use of options for hedging, then options-focused brokers might do better in markets where there is a lot of fear in the air. Just seeing if there is anybody else thinking along those lines.