wabuffo

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

And which team are you on, Bill? Team Transitory. I hope. But I'm not dogmatic about it. Still have my TLT LEAP puts on as insurance if long rates really spike. Last year I thought that BBB would pass by a hair, spending would ramp up & Fed taxes would be raised. I also though the end of the debt ceiling meant everything was setting up for a big jump in rates & inflation. But BBB didn't pass & the US has kept the 2017 tax cuts in place. Many of the pandemic spending programs were one-timers & with the freak-out over inflation, Congress won't pass anything, perhaps until the end of Biden's 1-term presidency. So guess what, the economy is booming already, Fed tax receipts are booming (+46% Dec 2021 vs Dec 2019, +28% in Jan 2022 vs Jan 20). Once all the pandemic restrictions are completely lifted, I think the US economy roars. ...and that huge deficit? Its already turning into a short-term surplus before the likely big tax receipt months of March, June and April (the really big one). The macro is setting up as a bit of a whipsaw, but its coming... and it will surprise everyone who thinks rates will rise, deficits will increase & monetary inflation will continue. By the end of the summer this year, we could have an inverted yield curve & slight deflation (bad for gold & long rates, good for ending inflation). Bill

Mr. Equity Market & Mr. Bond Market (as well as Mr. Gold Market) are all on Team Transitory, FWIW. The Fed will just invert the yield curve with their hikes. Watching the Fed is like watching a 1-year old in diapers carrying an expensive Ming vase high over their head while wobbling around a room with lots of obstacles in their path. It only ends one way. Bill

CB - thanks for that chart. I am always happy that you are one of the posters here who loves macro stuff almost as much as I do. A few observations (I could be repeating myself here, so sorry in advance for that). - US Treasury debt is really just US Treasury securities held by the public sector (I don't really consider this debt - any more than currency in circulation or bank reserves are debt. They are just one of three forms of private sector assets created by US Treasury deficit spending). If not for the debt ceiling + the TGA balance not allowed to go negative, the US Treasury doesn't have to issue US Treasury securities at all. As we've seen in a weird monetary plumbing experiment in 2021 (where the TGA balance started at $1.8t and ended the year near $100b), when the US Treasury does not issue securities to remove the reserves that its spending creates, reserves flood the system and rates start to fall. The only thing that prevented them from going negative in the second half of 2021 was the Fed stepping in and lending from its inventory of US Treasury securities (via reverse repo) to provide the US Treasury securities that the private sector needed. - starting in 1998 and lasting until mid-2002, the US Treasury went into a multi-year surplus (ie more Federal taxes going in than Federal spending going out). As you've heard me say often - "for the public sector (ie Fed govt) to run a surplus, the private sector needs to run a deficit (ie borrow to maintain its consumption). So it's not a coincidence, that the drop in US Treasury securities during this period triggered a large increase in private sector (mainly household borrowing via the mortgage market). In fact, the domestic private sector (US households) competes with the foreign sector's desire to net save US dollar and US dollar assets via the trade deficit. So in addition to the US Federal govt not providing enough of a deficit (and running a surplus instead), the admission of China into the WTO in 2001 really expanded the US trade deficit and combined with the US Federal surplus squeezed the US household sector really, really hard. Obviously, this trend has completely reversed now with large Federal deficits, smaller trade deficits equaling....surprise, surprise... astronomical levels of household savings and rock-solid balance sheets (in terms of debt) vs the early aughts. - I view business debt as a proxy for business investment and this brings in another axiom I'm fond of -- private sector (business) investment equals private sector (household) savings. Of course this is with a closed economy and no federal govt. If the household sector wants to save more than the business sector wants to invest, then household income falls until balance is achieved. This is where the Federal govt comes in. The new equation becomes: business investment + govt deficit = household savings. My contrarian view (despite the recent doom-mongering in the business press) is that the failure of Biden's BBB spending & taxing agenda plus a potential Republican sweep in next year's midterms would push the US Congress to the sidelines. The large deficit spending is rapidly declining to more reasonable levels (Federal tax receipts are booming! while some spending programs are falling off as one-timers end) and we get to retain all the benefits of the very stimulative-to-investment Trump tax cuts (low tax Federal corporate tax rates, accelerated depreciation, etc). Growth could really boom here for the next few years once the pandemic stuff recedes. Just my 2-cents and I could be wrong. Bill

Let's check in on US household debt to US GDP.... near decade's lows.... good, good. Even when GDP contracted at Depression-levels temporarily during the start of the pandemic.... Of course, US household debt is growing (cue scary music....) Bill

I was looking at a company that had total borrowings of $2.5B at the end of 1999 -- but those borrowings had ballooned astronomically to $116.9b by the end of 2020! That's 47x !!! What's even worse, it that this company has other contractual commitments that are even larger than its long-term debt! And those have been growing exponentially as well. When will the music stop for this highly leveraged company? Gotta be soon, right? Should be an easy short! The name of this company? Berkshire Hathaway! An example of the unintended irony of this thread's title. Bill

could be closing of his very successful shorts on the name as he rode it down from $317 to where it is today. The reason they appear as long position, is because the shorts were initiated against HK 9988, so you don't see it as they are not need to be disclosed by SEC, but in grand scheme of things they are offsetting each other, with the net between them left as profit. Hmm - I see disclosures of losses from the BABA long, and gains from holding three banks + BYD but no mention of these "gains" in MTM from shorts (even though they would be material to DJCO -- greater than $20m as at 9/30/21 10-K). It's also curious that the FMV of the total portfolio matches the exact closing MTMs of all six stocks (incl BABA) -- leaving no room for a short position MTM. Here's my working theory. Munger bought BABA and has suffered large M-T-M losses to-date on all three buys. The investment may work out, or it may not. Such is life. Bill

doubled DJCO's position size in BABA w/ another 300k share purchase during Q4, 2021. per new 13F-HR filed. Bill