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China is the second largest economy by US-denominated GDP and the largest by purchasing power parity, so I wouldn't be so quick to write them off. I'm not - I just don't get why they are biting the hand that feeds them. If they get their wish and the US becomes isolationist and withdraws, their economy would get crushed in the ensuing chaos while the US would do just fine. They are huge beneficiaries of the current world order but they are arrogantly trying to subvert it. Good luck with that. We are already seeing a glimpse into what the world looks like when the US appears weak cosmetically (but not in reality) just in the past week. Russia invades Ukraine, Germany re-arms, Japan builds (or installs US) nukes. You really think China prospers under that scenario? My point isn't to be anti-China or to "invite war". Quite the opposite, I really am hopeful that everyone comes to their senses and doesn't miscalculate. It's also to hope that the US resumes its strong global leadership rather than "leading from behind". It's getting quite scary, actually. "Peace through strength" Ronald Reagan Bill

Japan's 2020 Self Defense Force report. Peaceful pink image of Mount Fuji with cherry blossoms in the foreground. Japan's 2021 Self Defense Force report. A stark charcoal image of a Samurai on a charging stallion. Not too subtle... FWIW. It's becoming a scarier world unfortunately. Bill

Japan and South Korean end up nuking up and that's seems like a wholly unmitigated disaster for his foreign policy push. Speaking of nuking up.... Ex Japanese PM Abe has really been making headlines in the last few days. https://www.japantimes.co.jp/news/2022/02/27/national/politics-diplomacy/shinzo-abe-japan-nuclear-weapons-taiwan/ "' 'Japan should consider hosting U.S. nuclear weapons,' Abe says" Japan is taking the growing Chinese threat seriously and the world is quickly moving to contain China next. Japan is also pushing the US to end its policy of strategic ambiguity over Taiwan's defense & are pledging to come to Taiwan's defense. (Japan sees a PLA invasion of Taiwan as an existential threat to their homeland.) Russia has really scrambled the world in just a week. Bill

Russia is dealing from a position of economic weakness. China isn't. I wonder what the poor performance of the Russian military says about the PLA's capabilities. They rely on Russian military technology and like the Russians, rely on conscript armed forces that have not been involved in a military conflict since 1979 (much like the Russians whose last real military invasion was in the late 70s in Afghanistan). Meanwhile the US military has been honing its lethal fighting skills almost continuously since the 1991 Gulf War. It's easy to project a myth of invincibility until you actually have to use it and it turns out that its a Potemkin village in the face of a superior American force. As for China. More than any other country, China depends on the US's stewardship of the global trading system where the US Navy keeps all of the shipping routes around the world safe and clear for merchant shipping. Is it an accident that China's rise has coincided with the Pax Americana that pushed all of China's historic rivals to the sidelines militarily (Japan, Russia, etc)? I don't think so. China has large demographic and geographic problems that limit it's potential. It's aging (and male-skewed) population will rapidly decline by 30-40% over the next few decades (we can't be sure since China fudges its numbers - my guess is their population is smaller than they claim). It needs to import energy and food because its agricultural lands are limited and flood-prone. It is bordered by potentially hostile countries on all sides that force it to spend enormous sums on its military just to defend its borders & sea lanes. The US on the other hand still has favorable demographics and will also benefit from immigration. It's population is slated to continue growing well into this century. It is self-sufficient in energy and food production thanks to the world's largest agricultural breadbasket located in its Midwestern states. It is bordered by two oceans and two friendly countries on either side of its two land borders. Not needing to defend its borders, it can forward project all of its military force globally. Choose your fighter. My bet - the United States will continue to be the pre-eminent global hegemon well into the next century as its rivals (Russia, China) decline due to poor governance systems, demographics and geography. It's an accident of history that the best governance system the world has ever seen (a free market-oriented constitutional republic) landed on Plymouth Rock and took over the world's best geography (the continental United States) but a fortunate one for the world. Bill p.s. - I sincerely hope that the world comes to its senses & goes back to the Pax Americana where everyone can trade freely and co-exist peacefully.

I predict that the Ruble could collapse tonight or tomorrow morning once it starts trading. With collapse I mean >20% loss against USD/ Euro. Early forex quotes by a Russian bank I've never heard of are indicating that the Ruble has been cut in half vs USD (now 171 rubles to the dollar from 83-84 on Friday. But I'm sure that's just the ask of a very wide bid-ask of a suddenly illiquid market. Bill

If they had adequate anti-ship targeting capability, I believe the Chinese would implement their blockade of Taiwan with land-based anti-ship missiles, not submarines. So convoys with submarine escorts would be ineffective. Depending the capabilities of the Chinese missiles, convoys with surface combatant escorts may also be ineffective for the same reasons that even a carrier battle group may not survive attacks from sufficient numbers of advanced satellite-guided anti-ship missiles. You may be right. But the central point is that this would unfold over weeks and months. So the US and its Allies would have ample time to carefully formulate and implement a counter-strategy with lots of options to choose from. Bill

But wouldn't blockade be China's strategy with Taiwan? I think you are right that this might be China's most likely strategy to try to force Taiwan's surrender. But blockades rarely work in practice, if history is any guide. From what I've read from Easton's book and others, China would indeed, threaten Japanese and US Navy ships and bases in Okinawa and Japan with cruise missiles in order to create an "umbrella" around Taiwan. Then, the strategy would be to unleash the PLA's submarine fleet into the Taiwan strait to sink merchant shipping as well as the air force over the island to prevent air cargo landing into Taiwan's airports. The Taiwanese air force would counter - but let's assume the PLA prevails and creates a "no-fly zone" over Taiwan. The main threat would come from PLA subs sinking merchant ships - much like the German U-boat campaign during WW II that tried to blockade England. But submarine campaigns, even when they have complete air and sea superiority only take down 10% of cargo. Of course, the PLA's hope would be to scare merchant ships out of the area completely. Meanwhile, the US (and its allies) would have weeks and months to consider their options (as opposed to the very short reaction time required to counter an invasion) and rally the world into opposition to the blockade. My guess is that in addition to sanctions and financial measures, the US could deploy its submarine force to attack the PLA subs and escort merchant shipping through the strait - a strategy not without risk but probably low risk to the US Navy. The US nuclear subs would just loiter silently in and around the Taiwan strait, wait for the "noisy" Chinese subs to expose themselves in order to enforce the blockade and then take them out and scoot out of the area. This is what ended the German U-Boat campaign after the Allies launched their anti-submarine campaign. As you've noted, the US could also itself (along with its allies) put in place a counter-blockade by cutting off shipping from the Middle East and the through the Stait of Malacca to all inbound Chinese merchant shipping. China is a country that can't feed its population without imports and also must important significant amounts of petroleum. This would put serious strains on the Chinese economy as further pressure. The blockade strategy would probably end up in a huge stalemate with costs on both sides but not be a decisive victory for China. In the end, there's no doubt that both sides can unleash a lot of destruction and death on each other - even with just conventional high tech weaponry. So hopefully this situation just stays in a kind of perpetual Cold War stasis, as uncomfortable as that may be. Just my 2-cents. Bill I would also add another non-military but related point. Russia and China both suffer from terrible demographics. Both of these populations are now in steep decline (Chinese stats understate the real numbers as they do for most "official" statistics). I think the geopolitics of nations is largely based on two big factors that are beyond their control - demography and geography - both of which are hugely in the US's favor. Anyhoo - I think I've emptied my tank on this subject and will only end up becoming boring and repetitive. Thanks for the interesting conversation, y'all.

There is no comparison of Afghanistan and Taiwan, in terms of geography, geopolitical and economical importance I agree with Spek's POV. Japan also has to be factored in the mix. They will not wait for the US and will rush to Taiwan's defense because for them a PLA stationed on Taiwan is an existential threat to the Japanese home islands. While the Japanese Self Defense Force is not a navy that matches the US's (no one does), it is a true blue water navy and has been for decades (the US never disarmed Japan or its defense industry after World War II). Japan has four full aircraft carrier battle groups and also has fourth and fifth generation F-35 stealth fighters that can launch vertically from Japan's smaller carriers. Japan's SDF Navy is also fully inter-operable with the US Navy's surveillance, underwater listening systems and signal intelligence and would draw on these resources even if the US went to the sidelines. Japan's submarine hunting capability is second only to the US. It has the firepower to take on the PLA and can also move into the Indian Ocean and interdict all China bound oil tankers from the Middle East in an effective blockade out of reach from PLA missiles. Japan recently signed a military logistics pact with India which gives the Japanese SDF Navy full use of Indian naval bases and ports for re-supply/re-fueling. In a weekend full of tectonic-plate-shifting news flow, this speech by Japan's former PM needs to be paid attention to. The Japanese are not usually this public in their foreign policy thinking. https://asia.nikkei.com/Politics/U.S.-should-abandon-ambiguity-on-Taiwan-defense-Japan-s-Abe Bill

The gap between US and China is getting smaller and closing quickly. Some facts: Aircraft carriers: US has 11 super carriers +2 under construction. They are all 50 percent bigger and hold twice as many aircraft as China's 2 carriers (+ 2 under construction). Fighters launched from US carriers carry 40% more ammo because they are catapulted into the sky which Chinese carriers can't do. China's carriers are steam-powered and need to be refueled and refurbished back at port regularly limiting their range. US carriers are powered by nuclear reactors that only need to be replaced once every 50 years or so and can stay out at sea for long periods of time. Basically, US carriers are portable airbases that can be positioned all around the world for long duration. Of course, also important is the types of airpower associated with the US Navy. It operates hundreds of stealth fifth-generation fighter aircraft. China operates none and probably won't for a decade or more. Huge advantage here for US that really won't be overtaken by the PLA. Submarines: China has nine nuclear subs which are smaller and carry less than 50% of the munitions of current US subs. They are louder than US subs from the 1960s and easily picked up by sonar. The US Navy can track them at long ranges with its sound surveillance system. China has no such system and is trying to develop one. US submarines are so quiet that they are not picked up even at close range to targets. China also has 50 or so diesel subs which are much quieter when they switch to electric battery power but they sail at half the speed and have half the endurance of the US's over 70-strong, 100% nuclear powered submarine fleet. Because of these limitations, China's diesel subs have limited range beyond China's naval bases. Again its not close here either. Destroyers/Cruisers: US Navy destroyers and cruisers carry 40 to 60 percent more munitions than China's larger naval ships. They are also equipped with radars and data systems that are at least one or two generations ahead of China's. In addition, they are equipped with Tomahawk cruise missiles which can strike targets a 1000 miles away. Chinese navy has no such capability - their current strike range is between 100-300 miles. It's not just about counting ships. Its also about technology, capability, weaponry and battle-tested experience. The US Navy is so far ahead that its hard to see how it will be overtaken. Hope this helps. In my opinion this a stalemate situation where not much will happen to the status quo. There's some good books that I would recommend on this area if you're interested. One is "Unrivaled" by Michael Beck and anything by Peter Zeihan is also very informative ("Accidental Super Power", "Disunited Nations"). Also Ian Easton’s “The Chinese Invasion Threat”. Bill

This assumes the US would even get involved. It’s a big risk to defend Taiwan and have China cut off all manufacturing to the US….what then? Japan alone could repel an attack on Taiwan and the Japanese government has said publicly that an invasion of Taiwan is an existential threat to the Japanese homeland. US gets far more goods and items from China than Taiwan 430b vs 29b. A single fab would be worth risking the rest when we are building our own (Intel)? That would cripple the US economy. We get $430b in goods and we give them dollars (which we control the price and quantity of). I think that's a very good deal for us. In the end, I think that the west will do what it is doing now with Ukraine, PR/sanctions, but not getting involved militarily. I disagree. Ukraine (unfortunately) is not strategically important - despite the tragedy unfolding in front of us. Taiwan is very important to the US strategically and existentially important to Japan. The PLA on Taiwan would threaten the future of Japan in terms of freedom of navigation and trade. Bill

Keep in mind the style of warfare in Vietnam/Afghanistan vs Ukraine/China/Taiwan is very very different. Mainly due to geographics and population density. Guerilla warfare with a difficult to identify enemy hiding in tunnels/mountains via terrain that benefits defending against an unfamiliar foe. Look at Ukraine…air defense and tanks lead to fighting in the streets. This IMO is closer to “normal” fighting that we could expect vs jungle and dessert, and gives more of an advantage to the superior firepower and tech weapons available to be used. Geography is also very important. Taiwan is an island. A populous and well defended island armed with high tech weaponry. There has never been a successful invasion of a large well defended island in modern human history. Nazi Germany decided against it vs England (Operation Sea Lion) and the US also drew up plans for an invasion of Japan's main island (Operation Downfall) during World War II and scrapped it. An invasion of Taiwan would require over 2 million soldiers (needs a 5-to-1 ratio vs defensive, dug-in army). Imagine how many ships, ferries, and carriers would be needed to try to cross 2 million PLA regular infantry across the rough seas of the Taiwan Strait while deeply hidden and deeply silent US nuclear attack subs hundreds of miles away wait to be assigned their targets. This isn't Normandy either - even if landfall is made, Taiwan's coastline is rocky and mountainous making its coastline very easy to defend by even a small force. Very different degree of difficulty with low odds of success for the invading force. There's a reason it hasn't been tried in over 70 years - it's an unbelievably difficult operation. Bill

I think the question is will US be able to afford/win a sustained war with China over Taiwan? I wouldn't frame it that way. The US would be able to successfully defend Taiwan until the PLA gave up or its navy and air force was devastated. This is defense of an island, not a land war of invasion/occupation like Vietnam or Korea or Afghanistan. It would be a high-tech war fought with nuclear submarines and advanced fifth-generation stealth fighter/bombers. US military superiority in this type of combat is unrivaled and the PLA can't ever catch up any time soon. Just my 2-cents. Bill

I think the war in Ukraine has unraveled the myth for the world to see with its own eyes that Russian (and Chinese militaries) relying mostly on conscripts with poor equipment and poor morale are somehow able to match US military capabilities and thus must be feared. If China tries to invade or even blockade Taiwan, assuming the Taiwanese people wish to remain independent - I don't believe the PLA air force and navy could subdue the Taiwanese & US military (and Japanese Self Defense Force). Bill

https://bigcharts.marketwatch.com/historical/default.asp Type in the ticker and the specific date....and voila! Easy peasy, lemon squeezy! Only problem is that Jan 15, 2006 appears to be a Sunday. Bill

The application of the lessons from 2020 does not work well in 2022 so far. Its very specific to sudden bursts of deflation as in 2002, 2008 GFC and the 2020 shutdown of the economy. Bill

Unfortunately the lesson from March 2020 was to buy the trashiest companies you can because they would rally the most. The shitco's, if you will. Posted in real time (see below)...... Bill

The company undoubtedly has access to liquidity to cover any eventuality. No it doesn't. Both operating businesses are losing money and too small to be able to get outside financing. DJCO also has no positive cash flow coming in from either the newspaper business nor the software business. The Utah property is already mortgaged. I guess he could throw a mortgage onto the LA properties or do a dilutive secondary. If catastrophe strikes in both the equity markets and the economy, Charlie has painted himself in a corner, in my opinion, unnecessarily. Look - I'm not saying that this won't work out. I'm also not saying that its going to zero. But why court even a small chance at catastrophe. Buffett doesn't. With that said, I guess I've made my point - no sense belaboring it. Thank y'all for letting me make it. Bill

Margin is roughly 20% of invested assets- 395M of securities You have to deduct taxes on unrealized gains. What counts is margin as a % of net worth (which must subtract deferred taxes from asset values). If he has to liquidate now, he pays taxes so that part isn't available to cover margin. If the stocks fall such that there are no taxable gains.....well margin is higher than 20% and that's a whole 'nother problem. Bill

The margin question gets asked at the DJCO AGM and.....Munger ducks it! Sad! Bill

Also, the entire culture that BRK is built upon is considering shareholders as partners with a responsibility as caretakers of that capital. Thats not something that just Warren practices, Munger believes that as well, to their core, for BRK shareholders as well as those at the Daily Journal. It's true that Buffett also used borrowed money in the portfolio during his Buffett Partnership days. But, in my opinion, there are two key differences between Buffett's stewardship of BPL & Munger's current stewardship of DJCO. 1) Buffett had his whole family's net worth invested alongside his partners at BPL. Munger owns very little of DJCO (~3%). Charlie is not "eating his own cooking" here. 2) While Buffett used borrowed money at BPL, he clearly laid out the "rules" for when & how much he used. Thus - Buffett used borrowed money only against market-neutral special situations & limited the borrowing to a maximum of 25% of total net worth (though he was usually in the 10-20% range depending on how many workouts were in the portfolio). Munger, on the other hand is already at 26% margin on the Daily Journal's portfolio net worth. $40m of that borrowing was ostensibly used to invest in a Cayman Island VIE that has a dubious claim on the operating business in China. The contracts that spell out the legal & financial relationship between said VIE & the operating business may or may not be recognized by Chinese courts. And as we've seen in the case of NTP (but also BABA itself when it "stole" AliPay from Yahoo & Softbank), if the local management decides to steal the operating assets, the foreign shareholders (even when they control the shares) have a difficult time enforcing their ownership rights. Compared to Buffett's protection of the downside in his use of borrowed money, Munger appears to favor the "heads, I might win some, tails I can lose a shit-ton" approach to margin. Look, I wouldn't be comfortable even if Munger had used this margin to open a big position in Berkshire Hathaway (a company that is beyond safe in terms of low risk from permanent capital impairment and that he knows the best) much less to buy a stake in a company whose very name is derived from a fable about forty thieves. It will be interesting to see if Munger gets any questions today on this. I'm sure he will get generic questions on BABA, and he will answer them generically. But it would be truly interesting if he was asked to explain his view about (1) DJCO's "legal ownership rights" in the BABA investment, and (2) why he is using borrowed money to buy it on behalf of his shareholders. Bill

Would that require a disclosure? I think it does Bill

I wonder if BHE has been selling BYD - given DJCO has been selling it They have held it so far (thru Sep 30, 2021 Q. Haven’t sold a single share. Also, BRK not buying any BABA, either. Bill

To summarize, Charlie Munger, acting as a fiduciary for DJCO shareholders, has over the last twelve months invested $152m in BABA & other foreign securities while using $40m in borrowed money (an astounding 26.6% margin percentage) and has incurred almost $30m in unrealized losses so far. Meanwhile, both DJCO operating businesses (newspapers, tech) lose money on a cash flow basis. Bill

Trading cash for Meta (the financial group). Actually you are trading cash for CASH! The bank artist formerly known as Meta! LOL Bill

Not long gold. Once BBB looked dead, I pitched it overboard. Gold's thesis depended on profligate spending still coming out of Congress & the prospect of higher taxes. Stayed with the 2023, 2024 TLT puts. Bill