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This one seems pretty small to make much of a difference That's the wrong way to look at it. Bill

I would like to point out that Buffett/BRK seems to buy these leveraged bond portfolios (ie, P&C insurers) at the tippy-top of aging, multi-decade bull markets right before big equity market declines. 1966- National Indemnity 1998 - Gen Re 2022 - Alleghany (?) coincidence... or cue ominous sounding music.... Bill

Good to see that Buffett is making an all-cash acquisition and not issuing any BRK stock. I wonder if a superior bid to BRK's offer comes in and, if so, what the break-up fee is. Buffett must really be worried about inflation - he's putting the cash pile to work w/ OXY, Y. What else will he go after next? Bill

Spek - I think you understand it better than 99% of the people out there (even some PhD economists). Bill

Oh no! We're all making more money. The economy is going to crash! Bullish! Bill

Is this a good level to get into DJCO given the BABA blow-up?? No. Bill

Wow - I love this view - I hope you are right!! Think about it - this has been a debacle for Russia. But as bad as it has been for Russia, it has also been bad for China who quietly was neutral/supportive of Putin. But China must be getting increasingly alarmed at the 180-degree outcome from what was expected. Rather than a bolstering of Russia as a strategic rival to the West, Russia is failing militarily, its economy is being destroyed - and even worse, a strengthening of NATO around the US. But what really hits close to home is the focus this invasion has placed on Taiwan. If Russia ceases to be a strategic competitor to the US, the world world swings around US leadership to Taiwan. That's not in China's best interest. So I expect China to make a move to force Putin's hand. China will join the US and other Western countries to force a negotiated peace in Ukraine before this gets any worse for them (both Russia and China). As for the US economy - just look at real-time employment income (via Fed tax receipts on the US Treasury Daily Statement). US households have never been in better shape from a balance sheet & income perspective. They are going to spend now that their consumption is no longer suppressed by pandemic restrictions. Just my 2-cents. Bill

FWIW - no US recession. 1) US economy is ready to boom and will absorb the hits due to commodities. 2) Russia/Ukraine war will be over in 1-2 weeks -- Russia has already lost, strategically speaking. You want to be positioned for the rally in equities that is coming and you don't want to be in commodity plays. Just my 2-cents. Bill

Also - Buffett repurchased a further 4.5m B-share equivalents in the 2 weeks since the 10-K came out. I reckon another $1.4b in common stock at ~ $315-$316 avg price per B-share. Good to see him still buying at prices well above $300 per B-share -- though pace this Q will definitely be lower than last couple of years. Bill

What you describe as « incorrect » may simply be a matter of perspective or even accrual. CB - why you are overly focused on deposits/reserves & coin/banknotes as "money" but not Treasury securities? Treasury securities are money, too. That's why M2 concepts are flawed. Alternatively, why are US Treasury securities considered debts of the government, but currency in circulation and bank reserves are not? If you are going to throw around accounting terms like accrual, then I think you are obligated to think in terms of the domestic private sector's balance sheet and debits/credits. You have to ask yourself a couple of questions. 1) At what point does the private sector's aggregate balance sheet net equity (assets - liabilities) expand? That's what's important - not individual balance sheets but the private sector's balance sheet in total. Think this through in that example of yours. 2) What is the right way to think about the issuance of Treasury securities? As for examples from previous monetary eras - you have to remember that most of those times, the central government's money was subordinate to gold. Thus, any time a breaking of a peg to gold happened due to any number of reasons, it was a devaluation that released the safety valve on bottled up inflation all in one go. That's not the monetary regime we are in today. Always enjoy these conversations, CB! Bill

The bank creates an asset (government debt) and simultaneously creates a matching liability deposit, ie new M2 money that ends up in private bank accounts, ready to be spent. This is an incorrect statement. The key question is not what creates a deposit. The more important question is what creates a net financial asset for the private sector. Let's go through all four types that can affect deposits. First, it is important to consolidate the Fed and the US Treasury as one entity (the central govt sector as fiat obligation issuer) and the private sector (including the domestic banking sector) as the other. 1) The Fed does QE by exchanging a reserve deposit for a US Treasury security with the private sector. Clearly no net financial asset is created. Private sector had a US Treasury security asset, after the exchange it has a reserve deposit. 2) The US Treasury issues a Treasury security. Again, no net financial asset is created. Private sector had a deposit balance and exchanged it for a US Treasury security. 3) A bank lends thus simultaneously creating an asset (loan) and a liability (deposit). It's true a deposit has been created out of thin air. But what I think gets missed is that for the private sector, its net financial assets haven't increased. From a balance sheet equity perspective before the loan and after the loan, the net equity is the same for the private sector - so again, no net financial asset has been created. 4) The US Treasury spends. This (and only this transaction) creates a new net financial asset for the private sector. Just think of your net equity position right before and right after the stimmie check gets deposited into your deposit account. Clearly this transaction has increased your net financial assets. So from my perspective (which is the MMT perspective) - deficit spending by the US Treasury is the only one of these four transactions that creates a net new financial asset for the private sector. The net equity position of the private sector increases by the amount of US Treasury deficit spending. This is why the folks that focus on deposits (ie M2) get it wrong so often. They focus on the wrong thing. It's not the amount of deposits that counts - its the portion that is the direct result of US Treasury deficit spending. After that, the central govt sector (Fed + US Treasury) merely changes the composition of that new net financial asset by offering the private sector three forms in which to hold that new net financial asset (ie. currency in circulation, settlement reserves at the Fed, or US Treasury securities -- or as I like to call them in equivalent banking terms - a choice between cash, demand deposits, or time deposits). It is really conceptually very simple - but few really understand it and so a lot of confusion gets spread around. The final point is that a growing private sector economy needs more new, net financial assets from the central government (ie, deficit spending) - it is the natural order of things. But its a balancing act, too much leads to inflation, too little (or even running a surplus) leads to deflation. There I just summarized Kelton's poorly written book in one post. Bill

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