PlanMaestro

The financial "repression" argument is very messed up: (1) They do not include all the winners like: the unemployed, the entrepreneurs, the mortgaged, the business owner. (2) Nor do they make the point that CURRENT SAVERS are also BIG WINNERS. Current savers have had their bond portfolio wealth vastly increased with the even further lowering of interest rates. And regarding FUTURE SAVERS, that are supposed to be the QE losers ... without QE there is bad news anyway. Without growth, low interest rates will be here for at least a decade. The money is in the mattress of banks and financial institutions without profitable opportunities because of lack of loan growth. The solution for low interest rates is GROWTH and these policies have a better than good chance of achieving it. I would prefer fiscal policy and mortgage restructuring but this is good anyway. Paraphrasing, "the solution for high oil prices is high oil prices" ... in this case the solution for low interest rates is low interest rates.

Yes all this MUST be structural. That goes a long way to repudiate the myth that you need to understand macro to be a good investor. Here is the recent oped of Edward Lazear, former chairman of the Council of Economic Advisors under George W Bush. Another lefty Keynesian most probably. http://online.wsj.com/article/SB10000872396390444914904577623110908143058.html Here is the widely distributed paper. Great charts at the end on why the unemployment is NOT structural. http://www.kansascityfed.org/publicat/sympos/2012/el-js.pdf And by the way, the economy did respond to the fiscal stimulus. Just watch how the UK is doing, compared to the US, with their "Austrian" budget: one of the worst recoveries in British history, comparable or worst than the Great Depression. I should not not mind these investors talking macro, everyone is in his right to believe in myths and macro is not essential or even necessary to be a successful investor. Besides, people with Austrian beliefs do not change their minds ... I've tried, my best friend is an Austrian and I am in awe of his moralistic views and disregard to data ... while designing robots for Mars. However, much more important is that these barrages of nonsense (gold standard, hyperinflation, US government going bankrupt) have huge implications for the millions unemployed that do not have a voice in this money driven political system. Austrians are loud and are given widely disproportionate airtime compared to their relevance. But hey, they still believe the reason that very few economists take them seriously is that they have not been able to show their case ... Can we come back to study ideas?

I guess you have not read what Taylor, Mankiw, and Hubbard believe ... that is not much different from what Milton Friedman believed, not from what Ben Bernanke is implementing. I never expected to see the day when even Milton Friedman would be considered a lefty Keynesian. Sorry Monetarists, I guess the whole economics profession is Keynesian now.

That's a great lesson. And it comes back to Eric's point of also not confusing trading volatility with value investing. Concentration demands a higher quality and certainty from the picks. Better be sure they are not fliers.

Absolutely. The "bet it all" part, especially if it includes debt, is the one to handle with care. But I think Eric, or his mother, also said something like: "do not bet what you cannot afford to lose."

:) Mostly, I completely endorse the process. However, Roshtein died young most probably killed for debts after a cold gambling streak. Also, he will be forever associated with the Black Sox scandal. You have to know when to retire. But Eric's last comment is not a comment from a compulsive gambler. http://en.wikipedia.org/wiki/Arnold_Rothstein

That's a deep thought. I take back my Eric Roshtein comment.

Exactly ... and the jump in 10y treasuries yield and 5y TIPS spread suggests that there is a good chance that it will improve the economy. http://www.themoneyillusion.com/?p=16230 http://www.themoneyillusion.com/?p=16202

For the banks this is great. I will not even talk about the benefits for the balance sheets, they have already the best in decades. The banks only problem is that they have more than 30% of their assets in securities, mostly short term, waiting for the opportunity to resume loan growth while suffering a slow net interest margin compression thanks to low interest rates. Without monetary intervention, since fiscal policy and mortgage restructuring seems out of the question, we would be seeing low interest rates and anemic loan growth for years if not a decade. With QE3, earnings might be negatively affected short term but the expectations of seeing a period of loan growth and higher interest rates over the next years has been increased. And the banks and their low leverage can be an important factor in the recovery if loan growth starts to kick in. Milton Friedman has spoken. --------- Michael Woodford has spoken too: http://www.businessinsider.com/michael-woodford-on-the-federal-reserve-2012-9

What is the equivalent to the American statutory reports in Canada and where can I find them?

Eric Roshtein

Read his books. There were limits on the % of Magellan he could buy in one stock (5% I think?). Though, he could keep all of it if he did not sell. For that reason, Chrysler's price increase threatened at one moment to make it like 10% of his port. He had hundreds of positions and there are several anecdotes of him going through the very long list and the constant visiting of companies. I don't want to end with prematurely white hair like him.

According to Nick Tirimaos from the WSJ: "The new rules won't have any impact on the current battle over who winds up with the bad loans made during the boom years." http://online.wsj.com/article/SB10000872396390443779404577643814065823718.html

Turn, turn, turn, there is a season, turn, turn, turn. Damn Alex Rubalcava and his song recommendations in Twitter. http://www.ft.com/cms/s/0/6b35fddc-fb91-11e1-b5d0-00144feabdc0.html#ixzz267fHtsOT The new policies were announced on Monday by the companies’ regulator, Edward DeMarco of the Federal Housing Finance Agency. They include giving lenders a reprieve from possible “putbacks” if borrowers have made their monthly payments for the first 36 months of a loan and earlier reviews of possible underwriting breaches. .... BofA, once the largest mortgage lender in the US, had about $11bn in outstanding repurchase requests from Fannie Mae and Freddie Mac as of June 30, according to the bank’s securities filings. Bank analysts have pointed to Fannie Mae and Freddie Mac’s repurchase requests as a reason for investors to be cautious when debating whether to purchase shares of large US home loan lenders like BofA. BofA said that during the first six months of this year, it received $6.3bn of repurchase requests from Fannie Mae, of which $4.4bn had been on loans for which the borrower had made at least 25 payments. Borrowers had made at least 37 payments on $2.1bn of the loans. The new rules will not affect existing disputes over loans that have defaulted. Mortgages sold or delivered to the housing financiers beginning in 2013 will be eligible under the new guidelines.

Wage rates tend to be among the less flexible prices [Plan: and that is beyond unions and regulations]. In consequence, an incipient deficit that is countered by a policy of permitting or forcing prices to decline is likely to produce unemployment rather than, or in addition to, wage decreases. The consequent decline in real income reduces domestic demand for foreign goods and thus demand for foreign currency with which to purchase these goods. In this way it offsets the incipient deficit. But this is clearly a highly efficient method of adjusting to external changes. If the external changes are deep-seated and persistent, the unemployment produces steady downward pressure on prices and wages, and the adjustment will not have been completed until the deflation has run its sorry course. - Milton Friedman, The Case for Flexible Exchange Rates The argument for a flexible exchange rate is, strange to say, very nearly identical with the argument for daylight savings time. Isn't it absurd to change the clock in summer when exactly the same result could be achieved by having each individual change his habits? All that is required is that everyone decide to come to his office an hour earlier, have lunch an hour earlier, etc. But obviously it is much simpler to change the clock that guides all than to have each individual separately change his pattern of reaction to the clock, even though all want to do so. The situation is exactly the same in the exchange market. It is far simpler to allow one price to change, namely, the price of foreign exchange, than to rely upon changes in the multitude of prices that together constitute the internal price structure. - Milton Friedman, The Case for Flexible Exchange Rates

The Lords of Finance is great. If you want something brief: The Gold Standard and the Great Depression Barry Eichengreen, Peter Temin http://www.nber.org/papers/w6060.pdf?new_window=1 Replace every mention of the Gold Standard by the Euro and it becomes a Greek tragedy. Other brief articles: Lessons from the Great Depression for Economic Recovery in 2009 Christina D. Romer Council of Economic Advisers http://www.brookings.edu/~/media/events/2009/3/09%20lessons/0309_lessons_romer.pdf The Great Depression Peter Temin http://en.wikipedia.org/wiki/Peter_Temin http://papers.ssrn.com/sol3/papers.cfm?abstract_id=701277 Regarding books, besides Friedman/Schwartz The World in Depression 1929-1939 by the outstanding Charles Kindleberger (the same author of Manias, Panics and Crashes) http://en.wikipedia.org/wiki/Charles_P._Kindleberger http://www.amazon.com/The-World-Depression-1929-1939-Twentieth/dp/0520055926/ref=tmm_pap_title_0 Golden Fetters Barry Eichengreen http://en.wikipedia.org/wiki/Barry_Eichengreen http://www.amazon.com/Golden-Fetters-Depression-1919-1939-Development/dp/0195101138 The World Economy between the World Wars Feinstein, Temin, Toniolo http://www.amazon.com/The-World-Economy-between-Wars/dp/B004JZWW6M/ref=tmm_hrd_title_0 Lessons from the Great Depression (Lionel Robbins Lectures) Peter Temin http://www.amazon.com/Lessons-Depression-Lionel-Robbins-Lectures/dp/0262700441/ref=pd_sim_b_5 OK, now to the Friedman-Eichengreen theory of depression. Friedman famously argued that the key factor causing the Depression was a collapse in the US money supply, which was not due to a sharp fall in the monetary base, but rather to a sharp fall in the money multiplier, as households decided that cash in the mattress was better than money in the bank, and the surviving banks decided that cash in the vault was better than money lent out. The Eichengreen theory of the international spread is that as countries’ commitment to the gold standard came into question, the gold coverage ratio rose: central banks, especially the Bank of France, started wanting to hold more gold reserves. — Paul Krugman

Crazy people in both parties. Those Daily Show interviews at Republican meetings are also very funny. More important to tell is if anyone's tail is wagging the dog ... so to do the right thing and vote for the other one. Munger on Ideology http://variantperceptions.wordpress.com/2011/08/12/munger-on-ideology/

In these day where we disagree on almost everything (gold, macro, politics, and religion I suppose) is it too much of a stretch to unite once again against an old foe? And who likes Putin anyway. Team USA just pulled an historic victory over the old bad bear in their own game: chess. Almost like being in those great battles from the Brezhnev times: hockey, basketball, and Bobby Fischer of course. In passing, Team USA threw the Chess Olympiad into utter chaos with four teams tying for the lead with 3 rounds to go: Russia, USA, Armenia and China. Great game by Hikaru Nakamura, #5 in the world and fan of all things Vancouver, beating former champion Vladimir Kramnik. Here are the games with computer evaluations and there is a feed with live commentary. http://www.chessolympiadistanbul.com/livegames/games.php?section=0&round=9&match=0

Hey, I liked that Morningstar report. Just the 10y financials Valueline-style are worth the price of admission. Well, it's free but you know what I mean. I am not so sure I agree that the buybacks at around $20 were so stupid, but I am sure one the reasons given to avoid the stock.

Felix Salmon The problem with buybacks, Dell edition http://blogs.reuters.com/felix-salmon/2012/09/04/the-problem-with-buybacks-dell-edition/ LINKING IS NOT ENDORSEMENT (I only put a couple of comments on things that did not pass the smell test) Fifteen years ago today, on September 4, 1997, Dell stock closed at $86.69 per share; on a split-adjusted basis, that works out to $10.84 per share today. The stock peaked at almost 5 times that level, in March 2000, but it’s not looking quite so hot any more: it’s now back down to $10.52 per share. Over the course of the intervening 15 years, Dell has been solidly profitable, and in fact reached record earnings per share of $1.87 in 2011. It has never had an unprofitable year, and the company’s total earnings since 1997 (if you exclude 1997′s earnings but include the $1.68 in 2012) total $15.40 per share. How is it possible that Dell has earned more than $15 per share since 1997, has never lost any money, has never paid a dividend, and is now worth less than $11? The answer, of course, is buybacks: Based on their annual 10K filings, from Fiscal Year 2005 to 2012, Dell has purchased approximately 989 million of its own shares at a cost of over $24bn [average of $25 per share does not sound too bad to me]… Going back further to 1997 (through February 3, 2012), Dell has reportedly spent approximately $39 billion in share repurchases under a $45 billion repurchase program. $39 billion is more than double Dell’s current market capitalization of $18 billion, and it’s over a thousand times more than the $30 million that Dell actually raised from the market in its 1988 IPO. Dell, then, is an extreme example of a phenomenon that is actually typical of the market as a whole, which has seen net equity issuance of negative $287 billion in just the past ten years — and that’s not even counting dividends. Shareholders like to think of the stock market as a place where they fund companies with equity, take risks, and then reap returns. But in reality shareholders take out much more than they put in. Every company says it wants buy-and-hold shareholders, who will stick with the firm for the long term. But a buy-and-hold shareholder in Dell is looking particularly idiotic right now. If you bought 15 years ago at $10.84, you should expect to have at least $15.40 in value at this point: after all: that’s how much the company has made since then. Instead, you have less than you started with. And all the extra money went to fickle shareholders who sold their stock back to the company. In principle, I quite like buybacks over dividends: they’re a way of returning cash to shareholders, without sticking those shareholders with possibly-unwanted income. In theory, shareholders who want income will sell some percentage of their shares back to the company and get income that way, while shareholders who don’t want income will see the value of their shares rise, thanks to the fact that there’s extra demand in the market and the fact that the free float is shrinking. In practice, however, as we can see with Dell, it doesn’t always work that way. The company ends up overpaying for its shares when the stock is high, thereby essentially taking money which belongs to all shareholders, and distributing it only to those who are exiting. As a result, the most loyal and faithful shareholders can end up with less than they started with, even when the company has been solidly profitable all along. If things were sensible, a company could simply declare a dividend, and then the investors who didn’t want the income could just reinvest that dividend back into the stock. In the UK, we have things called scrip dividends which serve that purpose: you basically get your dividend paid in stock rather than cash. If you want to sell that stock and take the dividend you can, but if you don’t, you don’t have to. If Dell had gone for a scrip dividend rather than buybacks, then at least our hypothetical 1997 buy-and-hold investor would have more stock now than she had originally, [???? of a higher total number of shares!] and the past 15 years’ profits wouldn’t have disappeared into the pockets of the lucky few who sold high on the secondary market. Those people would still have made money on the movement of the stock; they just wouldn’t have taken profits from other shareholders. As for Dell’s statement, justifying its lack of a dividend, saying that “our earnings are best utilized by investing in internal growth opportunities, such as new products, new customer segments and new geographic markets” — well, it doesn’t pass the laugh test. Dell has spent all of the money from its earnings — and then some — on stock buybacks, rather than on new products or new markets. And stock buybacks are never an “internal growth opportunity”.

It was a derogatory term used by Dell's rank and file meaning that Dell had outsourced its brain. But I have to say, there are worst consultants to outsource your brain to.

Dell's consultants telling what they've been doing in the PC segment. I guess Dell continues to be Baindead. BTW, the article is also interesting if you are following the JCP saga. http://www.bain.com/publications/articles/focused-products.aspx Dell’s simplification saga Dell’s meteoric rise from dorm-room start-up to the leading personal computer company of the mid-1990s and early 2000s was really a story of customer focus. Its direct sales model allowed it to deliver products at significantly lower cost. Its customer relationships and innovative supply chain enabled it to understand the innovations that buyers wanted and provide them faster than competitors. Dell’s model also gave sophisticated customers the ability to configure their computers exactly as they wished. Over time, however, the business changed. The PC market expanded, technological innovation slowed and prices fell. Fewer customers valued configurability. Competitors began selling fixed-configuration machines directly, reducing Dell’s historical advantage. Before long, Dell’s legacy model of allowing vast configurability was dragging down every part of its business. Salespeople had to spend a lot of time on the phone with each customer. Tech support was expensive—the more configurations, the more frequently the computers were likely to fail. Dell’s performance deteriorated: Its market capitalization, once more than $100 billion, sank below $20 billion by mid-2009. Recognizing clearly the value of recapturing its historic customer focus, Dell attacked the problem, using the five-step process described above. Its first step was customer research. Teams analyzed millions of records, using statistical tools such as cluster analysis to determine which product attributes were most important to each customer segment and which options buyers in each segment tended to choose. The analysis showed the company how many clusters would be required to meet each segment’s needs, and it revealed which components fit best together in a cluster. Thanks to this clustering, Dell eliminated more than 99% of its consumer product configurations—a remarkable feat in any business. In parallel, Dell X-rayed every cost bucket to understand how each set of costs changed with complexity. It also benchmarked competitors to understand the cost position required. A dedicated cross-functional team then set cost targets, reinvented processes to help the company meet those targets and established the necessary governance procedures to keep complexity out. The results of all these measures have been remarkable. Dell lowered its manufacturing costs by 30% and improved operating margins. Its revenue growth outpaced the industry. “Exactly what you want faster than anyone,” claimed the company—and the numbers supported the claim. More than 40% of buyers were ordering preconfigured machines in early 2012, up from zero in 2010. Dell was shipping orders out the next day 98% of the time. The PC market, of course, is continuing to evolve, and Dell along with it. But the company’s renewed customer-centered approach should provide both the foundation and the funds for the company’s future growth.

See, I don't know anything about Greenlight RE :)

Letter to Khan May 5, 1938. I will not dare to highlight anything from such a perfect piece. The question about policy is very interesting. I daresay there is more temperament than logic in the solution. I can only say that I was the principal inventor of credit cycle investment and have seen it tried by five different parties acting in detail on distinctly different lines over a period of nearly twenty years, which has been full of ups and downs; and I have not seen a single case of a success having been made of it. In addition to this experience, the most logical followers of the policy whom I know are some of the American investment trusts, and their results are not encouraging. As regards individuals, I know one or two who make a modest livelihood by jobbing on general short-term principles without perhaps too much regard to the longer swings, but the credit cyclers have not by now enough capital left to be much of a recent guide. Credit cycling means in practice selling market leaders on a falling market and buying them on a rising one and, after allowing for expenses and loss of interest, it needs phenomenal skill to make much out of it. My alternative policy undoubtedly assumes the ability to pick specialities which have, on the average, prospects of rising enormously more than an index of market leaders. The discovery which I consider that I have made in the course of experience is that it is altogether unexpectedly easy to do this, and that the proportion of stunners amongst one's ultra favourites is quite small. Moreover, this practice does, in my opinion, in fact enable one to take at least as good an advantage of fluctuations as credit cycling, though in a rather different way. It is largely the fluctuations which throw up the bargains and the uncertainty due to fluctuations which prevents other people from taking advantage of them. The refusal of the American investment trusts to pick up bargains as long as they believe that it is still broadly speaking a bear market is typical of credit cycling mentality. For it is an essential of a logical carrying out of this not to allow exceptions or be carried away by having fancies about specialities. The whole thing is really summed up in something that I said in the original version of my memorandum. It is a much safer and easier way in the long run by which to make investment profits to buy £1 at 15s. than to sell £1 at 15s. in the hope of repurchasing them at 12s.

Relax Gio, I am not saying it is a bad investment. A below average reinsurance company with an above average investor (paid very well though) at 1x BV is most probably a good investment. But you were criticizing an investment in, among others, AIG that has distribution and size strengths, it is very diversified, has turned around its underwriting, has been fantastic with its capital allocation, and it is priced at half book. And then, suggested a below average reinsurer priced at book. Below average CORs in an industry that is notorious for attracting dumb money and where mistakes can get you "asbestosed" like Lloyd's or "9/11d" like GenRE ... well, it is an important factor to consider. And the justification of buying GLRE based on the macro foresight of your initial post looks very thin and pales in comparison with those risks. Also by throwing GLRE into the ring you have abdicated the "black box" argument (BTW, I think is being very exaggerated for a very regulated industry with tons of info in those statutory reports). Therefore, if you think AIG is impossible or very hard to understand it is difficult to argue that GLRE is a LOT easier. Hey, I personally admit to not have even tried to understand GLRE because I prefer to ignore it considering its CORs and Einhorn (yes, not all people are his fans). Ignoring is OK. Maybe I am wrong, maybe this is just a case where you have not tried to understand AIG but have really analyzed GLRE in depth. But I admit this kind of arguments irritate me because there are a lot of value pretenders that are more like cheerleaders than real investors. Hiding behind the brand throwing feces w/o thinking critically that in my view is a key part of being a good investor. Let me emphasize, I am not saying this is your specific case. As I said, I do not know GLRE in depth and you may have done a lot of work on it. But the macro thing argument has been in fashion lately. http://variantperceptions.wordpress.com/2011/09/15/thinking-about-investing-in-us-banks-a-short-answer-to-david-merkel/ http://en.wikipedia.org/wiki/Lloyd's_of_London#1988.E2.80.9396 There are two requirements for success in Wall Street. One - you have to think correctly; and secondly you have to think independently. — Benjamin Graham