Kiltacular

Al, Wells Fargo bought back almost 70% of the TARP warrants when they were originally offered by the Treasury. http://www.stockbloghub.com/2010/05/24/wfc-wells-fargo-warrants-sold-by-u-s-treasury/38144 Rabbit, Frankly, I don't think there is any question that the language means it is only the amount above $0.34. But, I kind of like the enterprising attitude of arden and meiroy. When you read it carefully, the language is not crystal clear -- to a laymen -- that when the amount exceeds $0.34 in a quarter, it is only the excess above that amount. In other words, its written such that one could interpret is like an on/off valve. If a dividend in a quarter is below $0.34, no adjustment to the warrant / If a dividend exceeds $0.34 in a quarter, warrant adjusted for entire dividend. Still, as I said, I'm guessing (certain) that only the excess over $0.34 will reduce the strike and that there is no special benefit here. But, if they made this stuff clear enough so that you didn't need someone expert in the area to tell you what the law says about the meaning of the words in this context, a lot of lawyers would be out of work. ;)

Hear, hear -- well said.

meiroy, So, I've re-read the two sections mentioned in the response you posted above. I would love to hear that if dividends paid in any quarter ever exceed $ 0.34, the warrant strike is reduced by the entire dividend rather than just the spread between $ 0.34 and the amount over $ .34, since I own a bunch of these. I think the relevant languge is in the definition of ordinary cash dividends from page S-25 that I posted below. In particular, the second sentence, which uses the phrase "to the extent". Frankly, I had assumed (and still do) that this language has a definite meaning (already defined legally) with regard to the language used in these types of documents. These documents were drafted and reviewed by extremely sophisticated people. But, that doesn't mean they didn't make an oversight in their use of this language. We need someone with experience in this area -- an i-banker / lawyer used to drafting this stuff. You can imagine that there must be a definite answer. It is either established what "to the extent" means in these types of documents or it isn't. If it isn't, you can't expect that Wells Fargo's investor relations is going to acknowledge vaguely written langauge (if indeed the meaning of the phrase is not established) should be read in a way that hurts the company. I'll say this, if indeed someone can establish that "to the extent" doesn't exclude $0.34 of any dividend in excess of that amount, these warrants are crazy cheap. That would be great, cause I own a ton of them. So, continue your efforts and maybe someone else will chime in with knowledge of these things. Still, I expect it won't work out for us. If / when you look through these types of documents, one realizes that much of the meaning of the language must have established meanings for the most part, otherwise there would be lawsuits left and right over things like this. For example, take a look at the warrant / preferred filings related to Berkshire's recent deals with GE, GS and BAC. From page S-25 of WFC warrant prospectus: “ordinary cash dividends” means a regular quarterly cash dividend on shares of our common stock out of surplus or net profits legally available therefor (determined in accordance with generally accepted accounting principles in effect from time to time). Ordinary cash dividends will not include any cash dividends paid subsequent to October 28, 2008 to the extent the aggregate per share dividends paid on our outstanding common stock in any quarter exceed $0.34, as adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

Fascinating article! Thanks for posting this.

http://www.plattsenergyweektv.com/news/article/197403/293/031812-LNG-Exports 7 minute interview on Liquid Nat. Gas. WASHINGTON, D.C. (March 19, 2012) -- "Platts Energy Week," a weekly television news program focused on energy issues, hosted Center for Liquefied Natural Gas (CLNG) president Bill Cooper and former Federal Energy Regulatory Commission member Marc Spitzer for a roundtable discussion on LNG exports developments. The episode aired Sunday, March 18 in Washington, D.C. on CBS affiliate WUSA and on PBS stations in Houston, Dallas and Denver.

Arden, I'm pretty sure (like, positive) that the strike price only comes down to the extent that there is a dividend in excess of 34 cents in a given quarter. So, if (when) Wells pays, say, a 35 cent dividend in a quarter, the warrant strike will come down by a penny.

I'm not sure you all fully appreciate what happened in the U.S. First, not all U.S. states have the protection you describe above. While California does, some other large states -- I believe Florida -- for example do not. I'm not going to go check but others here can. Ultimately, it hasn't mattered which type of state you live in. The biggest risk-takers have suffered the least relative the those that didn't take the risks. Second, even in a state with such protection -- California as an example (which I'm familiar with and which is huge...12% of the U.S. population -- the protection DISAPPEARS once you refinance the loan. And, of course, in order to "get cash out" you have to refinance the loan. Naturally, this stipulation was to discourage people from doing excatly what they did do -- take out all their new "equity" and spend it. Since most of the people that got in the largest amount of trouble had given up their non-recourse status, they should have suffered. Yet, the banks -- by and large -- haven't gone after people. Moreover, of course, most people didn't (don't) have any signifcant recoverable assets. This rule -- where it applied -- had little practical effect on preventing the bubble. Third, an additional discouragement was that if a homeowner engaged in a short-sale -- where the effect was that the lender "forgave" a large amount of the loan balance -- the dollar amount difference between the loan balance at the time of the short sale and the ultimate amount the bank accepted from the borrower was treated as income by the taxing authorities. This law was summarily changed after the fact to protect those that had made idiotic decisions. There were / are a lot of voters in this group, ya know. Considering all three of these factors have gone out the window, the people taking the largest risks have suffered the least relative to their folly. Moreover, those of us who warned about what was happening, while it was happening, and pointed out these negative aspects while the bubble grew ever larger, now see that as long as enough voters suffer together, the rules will be changed after the fact. We're the chumps. To now add insult to injury, those of us who stewarded our capital and, say, put it into the equity of a bank rather than into a home, have to listen as the banks are blamed for loaning money to these fools: "They should have known better", and then, when the fools (voters) can't pay (even though many of them took out all their gains -- my original point), the banks are blamed for not "properly foreclosing" (aka: robosigning). As if poor foreclosure practices were the cause of these people not paying their contractual obligations in the first place. Like I said: Comical. But, and I mean this not in jest, I have no idea if this is likely what is going on in Canada.

Buffett in the just released shareholder letter: Homeowners everywhere felt richer and rushed to “monetize” the increased value of their homes by refinancings. These massive cash infusions fueled a consumption binge throughout our economy. It all seemed great fun while it lasted. (A largely unnoted fact: Large numbers of people who have “lost” their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender.) Yet, the "scandal" is robosigning. Comical. It likely that the biggest "winners" in the Candaian version will also be those most irresponsible. The key is that you have to be unimaginably irresponsible to win big.

+1 Excellent points. In response to some of the other comments: (1) U.S. Banking has, effectively, become an oligopoly -- is anyone paying attention. This was, in my opinion, by design in reponse to the insane results produced by an the hyper-competitive U.S. banking system in the 20 years leading up to the implosion. (2) Wells Fargo's mortgage underwriting leading up to and during the mortgage bubble was, for the most part, exemplary. Take a look at their latest presentations wherein they actually have a slide pointing this out. Their "problems" are from Wachovia (whose problems came from Golden West). Those problems were more than reserved for (so far...they've been over-reserved) on the date they closed the deal for Wachovia. (3) Consider what Buffett is doing. He has waded into BAC and today mentiond that he owns JPM. So, Buffett owns US Bank (#5 in size) and WFC and BAC for Berkshire and says he owns JPM for his personal account. The only bank we don't know he likes in the top 5 U.S. banks is Citigroup -- the only one with large foreign exposure. Please keep in mind that before the meltdown Buffett repeatedly commented that neither he nor Charlie could make heads or tails of the exposures of the big U.S. Banks (aside from Wells) even after going through all the footnotes. Buffett warned of a derivatives implosion crushing these banks -- at least he warned of that if you read the tea leaves. The implosion came and most of these banks still have derivatives and now he likes them. He sees the new oligopoly in US Banking and he's bought in. The big U.S. based banks are going to do very well from these prices. And, though I own it, US Bancorp is probably the least cheap of the group -- though it does have a current excellent return on tangible capital and likely no SIFI. If you believe Buffett understands financials, he could hardly make a more clarion call. BAC deal. Bought more Wells since the start of the year. Owns JPM for his personal account. He's got huge and growing exposure to the U.S. banking sector oligopoly. My 2 cents

Buffett buys about 20 million shares of Wells Fargo in Q4. Paulson dumps just about the same number. As Buffett said in the 1991 shareholders letter: "... the stock market serves as a relocation center at which money is moved from the active to the patient."

outlook w/out exchange server.

sprint But, I could switch.

I want something that can integrate with microsoft outlook. Something that has a large screen and good battery life and some speed. Also, lightweight.

thx

twa, The WSJ search function stinks. Do you happen to recall the title of the article? Thx

Tim, Good post and good points. The part that Buffett is leaving out -- though he has repeatedly alluded to -- is that her benefits are going to be cut. It's a bit frustrating that Buffett isn't making a bigger deal of the other half of his argument. That is, getting gov't spending as a percentage of GDP down to the level he has talked about -- 20 to 21% -- would require current year cuts on the order of more than $600 billion. Buffett also knows that every day we wait to make these cuts, the more we'll have to cut in the future. Moreover, and Buffett knows this, in order to make these kinds of cuts, it will have to come in large part from Social Security and Medicare -- since that's where the bulk of the spending goes. No one -- including Buffett -- is yet prepared to come out and say: "We're going to cut your benefits." Interestingly, you won't get a Republican politician to say it (you might find a couple but readers get my drift) and you won't find a Democrat politician saying it. In fact, you'll find almost no one in the public eye willing to explain this. In my experience, the average person -- no matter their political affiliation -- does NOT want to hear that their benefits are going to be cut. This is, of course, particularly true if they are at or near retirement age. And, as readers know, this is a large voting block in any generation but with the boomers now on the cusp of this group, it is a HUGE voting block. You'll often hear things like: "Well, we need to cut defense." Sure, and defense is being cut. Do citizens really want to cut it to zero? Unfortunately for proponents of this solution, defense simply isn't a large enough portion of the pie to solve the problem. Again, someone like Buffett, whom actually looks at all the numbers (and what the future holds) also knows this can't solve the problem. The only thing to solve the problem is a cut in the Social Security and Medicare payments. People often lament that: "Politicians only want to get re-elected." Right -- and so, as voters, we get the politicians we want. Imagine a world where no politician was worried about re-election. They want to get re-elected and so they give us what we want. And, in this instance, they're not going to give us what we don't want. The populace is not yet ready to see these benefits cut. My belief is that Buffett knows that the longer this is put off, the worse the risk for the future is. My belief is that Buffett knows, one way or another, the benefits will have to be cut. My belief is that Buffett is only talking about one half of the problem publicly while clearly alluding to the other half of the problem because the other half of the problem is so politically unpopular. (Recall what happened to Buffett when, as quasi-advisor for Gov. Schwarzenegger, he suggested that California should reform its property tax system. If you don't recall, go look it up...after those comments, Buffett was shunted to the background.) So, this time around, Buffett is only attacking one half of the problem. Meanwhile, he is hoping that he can convince both parties to come together and both be willing to say what needs to be done. If both aren't willing to say it, he KNOWS NEITHER PARTY will say it -- it is still political suicide. What use is it for a congressperson to step up and say: (1) I'm in favor of tax hikes on the rich and (2) I'm in favor of significant cuts to Social Security and Medicare, IF they are immediately going to be voted out of office. There is no way they'll be able to get anything done. Both parties have to agree on this. I hope, as I believe Buffett does, that this agreement is achieved before we have to enter a crisis. And, make no mistake, there will be a crisis unless this is resolved. The math is very simple. The solution is clear. It will require both halves. But, there is no question that human nature says it is easier to blame "the other side". The implication of this approach is that, "the problems could be solved, if only the other side would agree with me." That's an easier approach than for each individual to face the fact that we've got a serious problem -- a disaster -- if we continue to grow GDP at 2.5% and debt at 10%. There is ZERO doubt the lines eventually cross.

one of the many classic video's i saw in the last few days. The typical american consumer is like the typical smoker. They try to quit or cutback when they're running low on funds or the price of tobacco goes up. In the end, though, Great Recession or not, they cannot stop themselves from buying anything and everything. And, if it's on "sale" they'll buy it -- even if they haven't made a waffle in their entire lives. Looking at me like, you know, "Stupid...I can always sell it on EBAY." The best thing about this otherwise tragic addiction is that I (we) (even they) can set up our affairs so that we can, at least, profit from this addiction and we aren't even considered dealers. That's the only way I can cope with it...knowing that these profligate addicts will be bitching at the prudent among them 2 score years from now that we need to kick in a bit more to fund their retirement (so they can continue to feed the final years of the addiction).

WFC will get hit by SIFI. The article suggested it might only be 1%. If you're saying that Wells' SIFI will be the same as JPM, C, etc. -- I wouldn't necessarily disagree but that's not what the article suggested was the preliminary result. Your point about banking products becoming more plain vanilla is exactly what I'm saying as well. That plays right into the hands of banks like Wells and US Bancorp.

Here's a recent article on the sifi buffer: http://www.bloomberg.com/news/2011-11-07/citi-jpmorgan-may-face-highest-basel-surcharges-regulators-draft-says.html If the maximum buffer above the Basel III requirements is 2.5%, then some banks will need 9.5% of capital. The article suggests JPM and C might be in this group. At a 1.5% return on assets, a bank could earn about 15.8% on capital. The article mentions that it looks like Wells Fargo will only get a 1% sifi, which would put it at 8% capital. A 1.5% ROA would mean that wells could earn 18.75% on capital. My guess is that US Bancorp will only need a 1% buffer at a maximum. US Bancorp's Q3 ROA was 1.57%. They're already looking really, really good. I feel that after the next election in the U.S. (a year from now) banks will come out of the headlines no matter who wins the presidency and how the Congress breaks down. For banks like Wells and US Bancorp, I think the clampdown on leverage in this industry will actually be a boon as their competitors will be forced to be more rational in the areas that these two have always focussed on because their competitors can't make outsized returns in other areas. Finally, I feel that the effect of the banking crisis has been to concentrate power (deposits) into a very small group of institutions and that this concentration has been intentional on the part of policy makers. They have limited competition and have made regulation and oversight much more manageable. Whether this is good for the country or bad, this is what I think they've done and why I think they've done it. In exchange, the banks that made their money taking huge risks with lending and proprietary trading have seen their future returns brought down. However, for banks that have always focussed on "basic banking" (like WFC and USB), this new scenario seems ideal. If both of them only need 8% capital, they should be able to get very good returns on equity.

Oec, As I said before, you make good points. I've noticed that most people aren't used to being agreed with so let me say that I think your reasoning and logic are sound on most subjects I've seen you discuss -- including this one! My comment was just a nitpick about Buffett not a refutation of your points about Soros. If you look at Berkshire's BVPS growth before the corporate taxes (which you "can't" since book is after taxes), one would see that his "gross" returns -- as a hedge fund would report -- are just INSANELY high over a very long period. If Berkshire's real tax rate averaged 30%, Buffett's "hedge-fund-comparable returns" were over 30% even when one considers that Buffett's capital base exploded in size in the later years. That's doesn't reduce what Soros has done! Finally, you're correct that both the permanent capital and the "float" are large contributors to Buffett's results through Berkshire. Good stuff and keep it up. kiltacular

So 1 in 4 are "hungry"? Meanwhile, the other 3 are obese. It's an insult to those that have truly starved to suggest that 1 in 4 U.S. children are starving -- with not enough to eat. This idea -- that 1 in 4 children in the U.S. -- are "hungry" is obviously absurd. The question those believing this nonsense should be asking themselves is why / who is telling them these lies? What is their goal? Seriously, spend some time reading about what people do if / when they are starving. Read about Red China. Read about WWII concentration camps. Read about modern day North Korea or the (intermitent) famines in parts of Africa. It's just preposterous on its face to make this claim about 1 in 4 U.S. children. Just think about what you would do -- in the U.S. -- if you were hungry. There is food -- huge amounts -- just thrown away. You'd start with the trash. If you couldn't find food there, you'd eventually just steal it -- given the abundance in the U.S. I can't bear to have my intelligence insulted in this way and to see the memory of those that have starved to death insulted. Disgusting. Again, think about why those that believe this are being fed these obvious lies. There is not enough cynicism when absurd claims like this are tossed about. If you want to (help) solve the problem of real starvation, think about how to prevent the next North Korea from happening. It's complicated. You might have to be willing to go to war. Like the U.S. did on the Korean peninsula. Today, you have S. Korea -- one of the wealthiest places in the world. North of that, you have people literally starving. Was that war a just war? Of course.

Oec, I like your posts and agree about Soros, but let's not forget that the BVPS growth rate of 23.6% was AFTER Berkshire paid corporate taxes. The way people got so incredibly wealthy owning Berkshire was because he grew their share of the pie at a massive rate and, as long as they didn't sell, they never paid personal income taxes. Hedge funds must produce much higher returns for indivdiuals exposed to current taxes (especially if they are of the short-term variety). Just a minor nitpick.

Myth, How long does your visa run? Eric, I know you have dual....but is it actually possible for a us citizen to become a citizen of Australia? Thanks guys

"Charlie, it's not greed that drives the world, but envy." -Warren Buffett If you show me a society where greed doesn't pay, I'll show you one where envy is extraneous. I want that economic pie to keep growing. I want the next Bill Gates or Larry Page to do his thing in my country. He'll have more than me but I'll have more than I otherwise would. What scares me -- the only thing that scares me -- is reading young, budding capitalists carry on and on about the inequities in the United States. I understand many think the answers to these problems are obvious but many of them are as old as recorded human history. It is why the ancient myths of the Greeks still resonate today. As long as there are people, there will be inequality. What is "new", what is uncommon, what is easily lost?: societies that see constant improvements over time in living standards (in rights, in freedoms, etc., etc). This is a relatively new phenomenon. Hundreds and even thousands of years went by without an improvement in much of anything for the average person. In many cases, things got worse over long time frames. Improvement in living standards is not foreordained. Before decrying things today, you must explain why things started to work in recent centuries. Young people here, don't forget this. Think it through. In your zeal to solve these "obvious" and "simple" problems, don't kill the golden goose so that all other geese can avoid dealing with envy. The golden goose is a rare bird indeed. All that said, the carried interest loophole should be closed -- it should have been closed a long time ago. Buffett was paying 25% in his partnership days (50+ years ago) when the marginal rate was 70%. Unfortunately, as others have pointed out, closing this loophole won't solve our deficit problem...that's going to involve some pain that neither party's constituents are ready to face. I guess that scares me a bit too... Those at the tippy top should recognize the golden goose too. I believe they will when it is clear to everyone that big sacrifices must be made by all.

Thanks Liberty. When I go into account settings, it tells me that I don't have public profile (which looks good). So, when I scroll over one of these +1 icons and it tells me: "click if you want to publicly recommend as John Doe" is it just a glitch since I don't have a public profile? If not, then can you guide me where in account settings I turn this off b/c I can't find it.