gfp

So I had this curve steepener trade on as a hedge and have closed it out. The CME came out with a product called "Micro" yield futures that make the trade a lot more straightforward to put on. The contracts are sized by CME to automatically match size ($10 per basis point of yield) so you don't have to figure out a proper ratio of contracts to trade a spread like 2s-10s. The interesting thing about this trade, as a hedge or otherwise, was that I was wrong on my thesis and the inversion still went away and I made the same profit. I fully expected the 2-10 inversion to flatten because the 2 year would be very responsive to recession and the market's re-evaluation of short term interest rate direction - a "bull steepener". The opposite occurred - we had a stronger economy than I expected (wabuffo was not surprised), and the 2 year stayed flat while the 10 year and 30 year yields moved up - a "bear steepener." So the hedge designed to pay me in the event of recession ended up also paying me for the opposite outcome.

Berkshire Hathaway Energy has continued to sell some BYD shares in Hong Kong. We know now that these sales have been used to purchase a $3.3 Billion interest in the Cove Point LNG business. Since June 19th (the last update), they have sold an additional ~$335 million worth of BYD shares (an estimate based on average prices). The media will of course misreport the sale as only 820,500 shares when the report is actually showing the sale of 10.99 million shares. https://di.hkex.com.hk/di/NSAllFormList.aspx?sa2=an&sid=2508&corpn=BYD+Co.+Ltd.++-+H+Shares&sd=31/10/2022&ed=31/10/2023&cid=2&sa1=cl&scsd=31%2f10%2f2022&sced=31%2f10%2f2023&sc=1211&src=MAIN&lang=EN&g_lang=en&

It is worth listening to if you skip the long Tiny ad at the beginning- it is a rare well edited audio feed of Charlie. But if you need to read it, this is what I found - https://app.podscribe.ai/episode/89341322

At this time, the total share count is 506 million plus the potential for 28 million more shares granted as RSUs or underwater options to management. The 28m potentially dilutive shares are not currently included in the share count because they would be "anti-dilutive." As with every company, the company can always dilute you in the future by issuing more shares. Be careful with investing in individual equities until you get a handle on share counts and market values.

Always get your share counts and market capitalization figures from the SEC's website. The share count is 506 million. At 1.62/share the entire company's market cap is $820m. https://www.sec.gov/ix?doc=/Archives/edgar/data/1705110/000170511023000068/angi-20230630.htm

I wouldn't be surprised to see BRK.B trade down to the 315/sh range on this move. Everything is going A-OK for Berkshire the company, with 5.5% T-bill yields and a great super-cat outcome in Florida this year. Berkshire will probably show a lot more "cash" in t-bills at quarter end than people expect - since they have been trimming uninspiring equities and probably didn't repurchase much stock during Q3. Berkshire is doing great. But the share price will head where the indices and ETFs that dominate the daily trading of BRK go. Most Berkshire shares just don't trade.

You know how people get when the S&P goes down... Don't neglect your daily dose of Wabuffo https://twitter.com/wabuffo

If I had to guess, I would guess this: The second tranche of equity Berkshire purchased was extremely expensive and the price paid was based on a formula that was laid out in a contract years earlier. Berkshire paid what the formula spit out but Buffett was not happy about the way the game was played. But he honored his commitment. Then immediately Greg fires the Pilot CEO and CFO, brings in BHE and former BHE executives, and immediately exits a few of Pilot's newer lines of business. Now this disagreement over accounting methods / treatments comes public. I think it is clear that Buffett didn't love what he saw and Greg is now in control cleaning it up. (notice the first listed defendant in the lawsuit is Abel) Buffett overpaid for the recent chunk of equity (much of which did not go to the Haslams, but to the other family). His reputation for honoring his commitments was more important than a few billion dollars. Further confirmation would be when we see the goodwill write down on Pilot. I'm sure he contrasts this behavior with the way the Pritzkers handled the multi-stage Marmon deal and this behavior compares unfavorably. Charlie would say that this (gaming of the system based on incentives in a contract) is exactly what we should expect and take it as a learning experience towards the next similar contract that MTO writes up for BRK. edit: just to update this, the main dispute seems to be over the huge depreciation and amortization that depresses the reported net income of Pilot post-acquisition by Berkshire. This huge jump in non-cash D&A was mentioned in Berkshire's 10Q: "Operating and other expenses include depreciation and amortization expense of $243 million in the second quarter of 2023 and $411 million in the five months ending June 30, 2023, a significant portion of which derives from property, plant and equipment and finite-lived intangible asset fair value remeasurements in connection with our application of the acquisition accounting method in 2023. "

Interesting - https://finance.yahoo.com/news/berkshire-sued-changing-accounting-rules-221454765.html

Close to a sweep, but that pesky 2 year held on to the 5 handle...

Everybody knows the government numbers under report actual inflation huh? Sounds like you got it all buttoned down Mr Thebeau

I don't know why everybody seems convinced that inflation is still a big deal. The difference between the current inflation rate and the Fed's target is basically going to be determined by OPEC+. Mission accomplished. The new wage inflation is getting to keep your job / hours. https://fred.stlouisfed.org/series/T10YIE

It will be interesting to see if anything on the UST curve from 2's out to 30's can close today with a 5 handle... As I posted above, the seasonal pattern is playing out just like 2018. Big September-effect yield fake out. There is a lot of demand for US government securities at 5%.

This print was primarily a reflection of the still-strong employment situation and the strength of the consumer. I guess you can try to trace that back to government spending somehow but this quarter was the consumer and the inventory cycle -

Remember the US fascination with labeling China a "currency manipulator" because the US Government felt that China was pegging their currency too low in order to gain an economic advantage in exports / manufacturing? Kind of funny how things go

I've been posting about this here for a while. Why doesn't China just let the CNY decline vs the USD? What is so important to them about defending this currency level? The funny part is all the media outlets painting these declines in Chinese holdings of USD reserves as somehow a reflection of dollar weakness / de-dollarization when it is plainly the exact opposite - a dollar shortage in Asia. (INR, CNY, JPY, same same)

Good answer right here in the thread - call Tim if you want guidance beyond which broker to use.

Outside of a crisis, all of these European sovereign bonds trade at a spread to Germany and Europe has a weaker economy / is already in a recession. Is an Italian bond much better than a Greek bond? One of the problems with Germany having it's fiscal house relatively in order is that they don't produce enough bonds to satisfy the market's need for high quality European government bond collateral. This is a primary reason European rates were negative or near negative in so many places for so long. The buyer of that security isn't making the same decision you are picturing (would I lend to this credit for this length of time for this price?) - The buyer of that security might be making their return elsewhere in a chain of events/swaps/derivatives/whatever you want to call it and needs to post quality European sovereign bond collateral in the process.

https://static.ew.wbm.infomaker.io/wp-content/uploads/sites/4/2023/10/Baden_Baden_Daily_One.pdf?utm_source=listrak&utm_medium=email&utm_term=Download+issue+one%3a+22+October&utm_campaign=Welcome+to+our+Baden-Baden+2023+Day+One+edition%3a+Sunday%2c+22+October link to a free insurance industry publication with several interviews and recent color on industry expectations (from Baden Baden conference)

That storm ain't headed TO the US! It is currently heading towards the US but that ain't the same thing.

And, cough, Berkshire. Shorter than them all.

Yeah, same deal with Berkshire - stock is down and hurricane season and their several billion dollar profit are pretty much locked in - plus a huge amount of cash earning 5.5% vs negative cost funding. Sometimes it takes an earnings release to wake people up

I don't think Sokol is as problematic as many seem to. I don't even think Warren and Charlie were that upset with him. The Holmes letter was just because he is very active in the Horatio Alger society and had gotten to know her through that group. Personally I think the relationship between Fairfax and Sokol will be a big positive for Fairfax. Aviation Gin already worked out well for them together.

I think there is a lot of demand across the curve for treasury securities with a 5 handle. This year's bond market (and maybe the stock market as well) is shaping up to rhyme with 2018.

He got the Korean book from his brokers at Citi. I don't think anybody has ever shared a pdf of the book but I don't think it is a regularly published manual. If someone here works at Citi maybe they can ask around and track down an old version.