wabuffo

AFS mark-to-market losses are taken to AOCI & shareholder equity as well as regulatory equity as they happen. It is the HTM losses that are not. It is these mark-to-market losses that created the issue for SVB & other banks. SVB faced the issue that they would have to begin to sell their HTM securities to meet deposit flight but which would unlock the losses and immediately flow them to regulatory equity rendering the bank insolvent. Bill

Its not just the buybacks. They used their (likely) overvalued stock during the pandemic to help finance their largest acquisition - Hargray Communications at over $2B. They issued stock but also issued almost $1B of 0% & 1.125% convertible notes (the convert price = $2275.83 lol). Overall, $1.57b of debt termed out to 2026-2030 at an average interest rate of 1.9%. I mean this is just super-smart management of the capital allocation function here. Bill

But does this assume the debt ceiling is raised? It will get raised but not before they go right to the wire, I'm afraid. It's such a silly exercise. Bill

$31T in federal debt is going to cost... It's not $31T -- you have to subtract $6.8t of intragovt holdings & $5.3t held at the Fed. That's left-pocket-right-pocket-the-govt-owing-itself stuff. The net amount held by the private sector (along with the foreign sector) is "only" $19.3t. And a sovereign issuer that issues debt in its own currency can never default on its own debt. Bill

Well - its official. Munger's other mystery foreign stock in DJCO's marketable securities portfolio is TenCent Holdings (0700.HK). https://i.ibb.co/svsC7CC/TenCent.jpg Bill

We definitely were creating those conditions in Q2 with the huge surplus. I think we are going to avoid those conditions now with September coming in at a small deficit (I was expecting a medium surplus). The fiscal situation is in full reflation mode now (not inflation - just removing the deflationary pressures). Dollar should come back to earth & US economy quite likely avoids recession. Current GDP in real terms is running close to 3% (7-8% nominal) and employment income in real-time seems to still be strong. I think the Fed has really painted itself in a corner with its stupid open-mouth operations. What happens in 2023 if CPI bumps along at 3-3.5%. Will they accept that and allow themselves to pause as economy continues to grow? Or will they worry about their previous comments about 2% being their target and continue to raise? I blame Bernanke for all of this. I much preferred a Fed that kept its mouth shut and only talked about general goals about sound money & full employment while running a tiny balance sheet. Bureaucrats gotta expand their scope, I guess, especially if they pay no personal price for failure. Bill

CB - I don't care about the politics of central bank "independence". What I care about is how the US monetary plumbing works. In order to do that, one has to view it from the angle of a consolidated sovereign fiat currency issuer. That means that the Treasury and the central bank are part of the sovereign's money creation apparatus with each playing a role in that process. Too much attention is paid to the central bank in an outsized manner relative to its limited role (mainly as inter-bank payment clearing system manager). Unfortunately, this also applies to central bankers who actually believe that they play an outsized role in the management of the economy. The only central banker in my lifetime who understood this was Greenspan. Volcker and Bernanke did not. Bill

The 430B is the estimated future value of receipts tied to those loans that were expected in the future lol. Bill

Page 5 of attached- September shows $487 B receipts, $917 B outlays; deficit = $429 B. What am I missing? Sorry - made a math error. Still a deficit, but a very small one = $56b. I always focus on cash (ie, US Treasury's reserve acct at the Fed = TGA). Reduction of operating cash = $34b for the month. Now some of that is due to debt redemption/issuance so we need to back that out. Borrowing from the Public added a net $22b. IOW, the TGA would've been lower by that $22b without the net issuance so that amount has to be added back. $34b + $22b = $56b operating deficit for the month of Sept (not $429b). Where's the difference? See that "By Other Means" section at $373b? That's an "accounting charge" guesstimate by the US Treasury for the Student Loan forgiveness program. Its "non-cash" and is instead a writedown of assets. How do we know? Let's go to the Appendices of the monthly Treasury report for Sept.... <flip, flip....flip>. Ah - here we go. I've highlighted it. Federal Direct Student Loans in the month were written down by $373b. Note that the accounting here is a "net reduction of asset accounts". See - this cash was spent from the TGA years ago when the Student Loans were originated/purchased by the US Treasury. That money already went to the institutions of higher learning probably under the Obama years. It never was treated as an expense that went through the deficit accounting rules because it was a purchase of an "asset". LOL! Hope this helps! Bill (your green eye shade deficit accountant)

September was a surplus. Bill

What's your take on gold's slide, given your framework ( gold as a signal of USD scarcity/surplus)? Fiscal deficit has been too small for most of 2022. Q2 had a huge surplus in April due to record tax receipts. September has also been a surplus, though a lot smaller. Overall its causing a shortage of USD both domestically & internationally and is reflected in USD's surge vs gold & other major currencies. Those currencies aren't really weakening (if you compare them to gold) - its that the USD is uniquely strong. Will it last into 2023. No idea. It will depend on whether tax receipts stay strong, IMHO as there won't be much extra on the spending side. Bill

Charlie has also been selling part of the BYD holdings that DJCO owns for the past year or so. Bill

1 yr inflation expectations falls below 2.3%. The Prices Paid component of all 5 regional Fed surveys declined in August, and all but one (Richmond) is at its lowest level since at least January 2021. I agree with Spek - the Fed's rates (IOER, o/n RRP) are meaningless. What's important is the yield on 10-yr & 30-yr Treasury securities. 30-year fixed rate mortgages are based on the 10-year Tsy rate and it has flattened out. Meanwhile the historical spread between 10-yr Tsy & 30-yr mortgage has blown out well above its historical 170bp spread & mortgage rates have begun to fall. Equity risk premiums for DCFs are priced off of the 30-year Treasury yield & it too has stopped rising. Meanwhile high-yield credit spreads have collapsed and losses on all sorts of consumer loans are at 30-40 year lows. Employment income is booming in the US. Can we talk ourselves into an economic contraction. I don't think so but we sure are trying with all the bear porn.... FWIW, Bill

I don't believe the current consensus is for 75+75+50. More likely 50+25+25 and finished. The funny thing is that this same CME Fedwatch has the Fed cutting from 325-350bp in Dec, 2022 down to 275-300bp by July 2023 (i.e., a 50bp cut sometime in first half of 2023). So maybe not quite finished in December. Bill

In the past I believe you said you stated a surplus caused the 2000 bear market. When did surplus become a deficit? Any relation to that and the bottom of the market in 2002? Yeah - surplus lasted from 1998-2001. By 2002, the recession created by the surplus flipped the budget back over to deficit. Market bottomed in October, 2002. By 2003, the US Treasury was back into full deficit mode and equity markets had one of their best years ever in 2003. Bill

What's the history of deficits and surpluses from 2000-2003 and from 2007-2009? Does that match with the drawdowns witnessed? I know you've said in the past that there was a surplus in 2000 which led to the recession. What I'm curious if there was a deficit near the bottom of bear market or any surpluses in 2007 era. I'm not sure I understand your question here - can you rephrase and simplify it? Thanks. Bill

Do you have a view on the scale of deficit spend in 2020/2021 relative to the actual economic shortfall of the the COVID/lockdowns? Clearly we over did it or did we?....do you have rough math in your head......did we do twice as much as was needed / three times? Like I said I think we need 6% of GDP per year. I think if you do the math for 2020-2021-2022, its quite possible that the surplus of 2022 (and maybe 2023) is coming close to covering the 6% per year needed for 2020-2023. So in my opinion, any monetary reasons for inflation will have completely subsided by the end of this year, early next year. Finally do you have your own personal feeling on whats driving the inflation numbers and to what extent its supply chains, US aggregate productive capacity being reduced due to great resignation/boomers/fall off in immigration in addition to deficit spending/money printing (or classic Friedman inflation)? Trillion dollar questions I know I still believe two-thirds of the inflation we are seeing is the supply issues related to shutting down the global economy & wrecking all kinds of supply chains. I think this is what is still left in the forward looking (not CPI) inflation outlook. FWIW, Bill

there also lots of wonky central bank/ treasury money supply nuance going on in that figure too that it would be great if @wabuffo might explain for us? I tend to ignore M2. I think you can too. There is one school of economic thought that bank deposits are the most important form of money. Since banks create deposits when they create a loan, this school of thought thinks that banks acts as agents of the Federal Reserve and thus are licensed to "print money" through their lending. IOW - total bank lending = total bank deposits. And that appears to be largely true. If one goes to the Fed's H8 report which lists the total assets & liabilities of the US banking system, you'll see that total bank credit = $17.2t while total bank deposits = $18t. But my counter-culture view is that this form of deposit creation is not money creation because it is not creating net financial assets in the private sector. Basically if a $100 loan is created which in turn creates a $100 deposit - the private sector has no new net equity, in aggregate (just more leverage). My point of view, FWIW - is that the only form of money creation is when the US Treasury deficit spends. Here are four examples of commonly perceived forms of "money creation" -- Treasury spending, Treasury bond issuance, Bank lending, and Fed doing QE. Notice that only the first payment flow (US Treasury spending) actually creates net equity for the private sector (bank + individual/business). My view is that what counts is the size of the US Treasury's deficit as a % of GDP. The US ran a $3t deficit in 2020 & a $2.7t deficit in 2021. So far in 2022, the deficit thru July month-to-date has shrunk to just $390b (much of that in Jan-March, we've run a surplus since April). The issue is that the US needs to supply enough money via its deficits not just for the US domestic economy's growth, but for the rest of the world's need for US dollars & US dollar assets (which the rest of the world gathers by net exporting to the US via the trade deficit). So, IMHO, that means the US has to run an annual deficit of ~6% of US GDP ( or ~1.5% of world GDP). With the US starting to run a surplus or too-small deficit, we are starting to unleash a mild deflationary shock since April 2022. This has manifested itself in the strength of the USD and its compressing effects on gold, oil, commodities, forex, equities and, lately, long-term US Treasury yields. We'll see if that continues (which will depend on whether the US Treasury deficit continues to stay small or begins to widen again). FWIW. Bill

IMHO, the Fed is and has been largely irrelevant in this cycle. They've raised to 158% bps on IOER & really haven't done any QT yet. That's pretty small beer, IMHO. The real macro force is that since late February/early March, the US Treasury has slipped into surplus (and not deficit). This is the most powerful deflationary force one can see. And its not over yet. Gold tells you that as it is the most sensitive monetary commodity & offers a real-time price indicator on the USD's increasing "scarcity". I think this will force a contraction of economic growth (maybe recession, maybe not) until the compression reduces tax receipts due to unemployment & greater spending due to countercyclical Federal programs that kick in until we are back to a normal sized deficit. That might not be until early 2023.... So please stow your tray tables and return your seats to their upright positions. FWIW, Bill

No idea. Maybe the ownership stake percentages are pre-conversion by Buffett. I use the 15.6% to calculate the total B-share equivalents which wouldn't matter whether its pre- or post-conversion. Also of note is that the 15.6% could be anywhere from 15.57% (zero reduction) to 15.64% (9.9m share reduction). We really don't know the exact share count - but the good news is that the repurchases have been activated again. I hope Buffett is really firing the big gun at current prices. Bill

Based on Buffett's 13D related to his annual charitable giving, we can infer BRK's up-to-the-minute share count. https://sec.gov/Archives/edgar/data/0001067983/000119312522174841/d352507dsc13da.htm After pausing in April when the B-shares went above $350 per share, at recent prices, looks like 4.2m B-equivalent shares were repurchased. Bill

This is a good indicator, but the YoY figures for the month are worrying, no? Don't forget that the 2021 tax filing deadline was moved to May from April - so that skews comparability. I think the Y-T-D numbers are the best measure. Also remember that the Federal govt's fiscal year ends on Sep 30 - so y-t-d numbers represent almost two-thirds of the fiscal year. The other thing to note is that year-over-year spending is down quite a bit too. That's not too surprising since many big pandemic spending programs were one-timers in 2021. The deficit has come down so much that it may now be too small and may cause deflationary pressures to emerge. Yeah - you heard that correctly. Bill

where do you find these special situations? I set up certain types of search terms & SEC document types which help me flag them. Also google news alerts based on those same types of search terms. You have to cast a wide net that most of the time comes back empty - but occasionally it catches something. Bill

Fedguy12 and Maroon Macro are very knowledgeable and informative to listen to....but I find they are too Fed-centric and stuff they can't explain via a specific Fed action, they then create explanations for these market reactions that make no sense ("market front-runs the Fed", etc). I think this is because they ignore the actions of the US Treasury - or don't have a model to integrate the actions of the US Treasury into the real-time data of rates and supply/demand for things like Treasury securities and how all this interacts with the Fed's balance sheet. FWIW, Bill