Kiltacular

I'll add my thanks for the notes.

meiroy, You could also be right on your second point. It's difficult to tell at this point. Wells used to have an advantage because it could keep (retain) deposits without paying up for them as compared to many competitors. This fact made it clear that Wells had a moat and that, for whatever reason, some large portion of depositors were willing to forgo the higher rates available elsewhere and continue to bank with Wells -- was the reason the cross-selling (my guess), was the reason perception of safey, customer service. I don't know but I know they had a big advantage. Today, since interest rates are zero on demand deposits, we can't tell if the other "big bank oligarchs" will be forced to pay up in order to retain deposits once interest rates are raised again. And, if Wells does still have an advantage here, will they be allowed to get way above the 10% of U.S. deposits they've already got? If so, how high? Again, my point was that a lot of things have changed since the meltdown and the (new) concentration of banking deposits in so few institutions. The concentration of deposits in BAC, Wells and JPM is simply enormous today. Large corporations don't have nearly as many choices as they used to. Perhaps Wells has lost an advantage here over its competitors because there are just fewer options. We'll know more in the future. This is but one example -- though I think it is the most important question relating to the unknown permanence of their advantage since the meltdown. Post meltdown (and bank [deposit] consolidation), we have not yet seen what NIM's will look like at the new "oligarchs" when rates on demand deposits are, say, 2%. If Wells is both shows an advantage here and, importantly, is allowed to keep it (by regulators), then I think we can say again that Wells deserves a premium value to its large competitors. In addition, as you say, corporate culture is hard to change and WFC -- at this point -- appears to have other advantages as well. Cross-sell may be easy but we'll see how good the others get at it. Too, will BAC be able to regain a significant part of the mortgage origination market? Again, we'll see. I'm in the camp that looks forward to the day that BAC's valuation moves up towards a Wells or even a U.S. Bank (someday!). So, I tend to think there's also room for agreement with you from my perspective. Much of this is up in the air.

Kraven, This does seem like a version of the past that differs with what Wells had always said was their business model (no doubt things have changed post bubble). Whether the business was proprietary trading or their decision not to by something like Golden West Financial (which sunk Wachovia, as you know), Wells always avoided this stuff. I can't believe it wouldn't have been easy to buy into. Everyone else was able to buy into these operations. And, I can't believe that Wells wouldn't have been able to loan money more easily leading into the bubble had they chosen to -- this notion seems easy enought to understand that I don't think it needs further explanation. Now, that doesn't mean Wells, today, is worth some huge premium over the other big banks in the new "big bank oligarchy". But, that wasn't what we were previously discussing, was it? Anyway, I also think we see eye to eye on most of this stuff but I doubt it was just "luck" that allowed banks like Wells and U.S. Bank to avoid most of the mess since these two banks, as examples, were pretty explicit that they were sticking (generally) to community banking. We can just agree to disagree on this specific point -- which was the only point I thought we were originally debating. Today, Wells has, what, 35%+ of the mortgage origination market and huge position in servicing. U.S. Bancorp has grown massively in this business as well. They've expanded as others have been forced to retreat. Perhaps that's part of the premium valuation. Perhaps the premium valuation is a mistake by the market. BoA, where I also have a large position, has been forced into retreat in this area -- not because of Moynihan but because of past decisions leading up to the bubble. I guess we can just look back and say it was all luck but you wouldn't have ever heard Kovacevich saying: "As long as the music keeps playing [read: bubble keeps inflating], you have to keep dancing [read: loaning money to anyone with a pulse and leveraging up in every way possible]," as Chuck Prince did. Going forward, the big banks generally look more similar, to me, than they look different but I don't think the banking industry looked this way before the meltdown.

I'm far from being an apologist for the banking industry, but to the extent there is revisionist history, I don't think it is coming from Wells Fargo. The shareholder letter for Wells from 2007 is particularly interesting in support of the notion that they didn't do the incredibly stupid things that many of the banks did. And, while the 2007 letter is a good recap of what they didn't do, reading earlier shareholder letters up to 2007 are also useful. As many recall, Kovacevich immediately emerged from the TARP meeting with the other bankers and the gov't and said he was forced to take the TARP money. This is also substantiated in many books covering that period. Wells wasn't perfect but they were far, far better than the average large bank (in my opinion, of course). If all others behaved as they did, I don't think there would have been a problem anything like what was ultimately seen. Here is a link to the 2007 annual report: https://www.wellsfargo.com/downloads/pdf/invest_relations/wf2007annualreport.pdf Page 5: "Our company maintained its credit risk discipline reasonably well during the years of excessive risk taking in our industry. Unlike many of our competitors, we did not make option adjustable-rate mortgages (ARMs)—consistent with our responsible lending principles (www.wellsfargo.com/jump/truthinlending). We did not make negative amortization ARMs. We offered in only a very few instances, below certain credit scores, stated-income mortgages and low- and no-documentation mortgages. Because of our prudent lending to customers with less than prime credit and our decision not to make negative amortization loans, we estimate we lost between two and four percent in mortgage origination market share from 2004 to 2006. That translates into losing between $60 billion and $120 billion in mortgage originations in 2006 alone. We’re glad we did. Such lending would have been economically unsound and not right for many borrowers. Unlike many of our competitors, we did not participate to any significant degree in collateralized debt obligations (CDOs), structured investment vehicles (SIVs) to hold assets off our balance sheet, hedge fund financing, off-balance sheet conduits, the underwriting of low-covenant or no-covenant, large, highly leveraged loans and commitments to companies acquired by private equity firms through leveraged buyouts (LBOs). Our balance sheet strength enables us to take the long view. We have minimal ARM interest rate “reset” risk in the loan portfolios we own because we underwrote those loans to account for higher interest rate resets. We sell the vast majority of our mortgage loans to capital market investors. We believe our commercial lending portfolio is among the highest quality of any large bank in the nation. We’re disappointed with the $1.4 billion in special credit provision, but it is less than two percent of common equity after tax, and it’s relatively small compared to the $163 billion in write-downs taken by our competitors."

Well, I, for one, thought it was classic!! I shat some gold this morning too -- I no longer flush, of course (no Bill Gates toilet for me).

The short answer is that if you exercise a call or "leap" call, your holding period for capital gains treatment begins on the date of exercise. So, if after you've exercised, you sell the stock within 12 months, it is a short-term capital gain. If you sell the stock after 12 months, it is a long-term gain. If you hold a call option and sell it (without exercising), it is a short-term gain if sold within 12 months and long-term after 12 months. If you sell / write a put and the put expires without the underlying having been put to you, it is always a short-term gain (no matter how long you've held it). If the underlying stock is put to you, your holding period on the stock begins when it is put to you. There is a lot of additional detail (worth knowing if you're interested). In the U.S., see this link (and search for "puts" and you'll find the section): http://www.irs.gov/publications/p550/ch04.html#en_US_2011_publink100010627 Below is an excerpt: "Puts and Calls Puts and calls are options on securities and are covered by the rules just discussed for options. The following are specific applications of these rules to holders and writers of options that are bought, sold, or “closed out” in transactions on a national securities exchange, such as the Chicago Board Options Exchange. (But see Section 1256 Contracts Marked to Market, earlier, for special rules that may apply to nonequity options and dealer equity options.) These rules are also presented in Table 4-3. Puts and calls are issued by writers (grantors) to holders for cash premiums. They are ended by exercise, closing transaction, or lapse. A “put option” is the right to sell to the writer, at any time before a specified future date, a stated number of shares at a specified price. Conversely, a “call option” is the right to buy from the writer of the option, at any time before a specified future date, a stated number of shares of stock at a specified price. Holders of puts and calls. If you buy a put or a call, you may not deduct its cost. It is a capital expenditure. If you sell the put or the call before you exercise it, the difference between its cost and the amount you receive for it is either a long-term or short-term capital gain or loss, depending on how long you held it. If the option expires, its cost is either a long-term or short-term capital loss, depending on your holding period, which ends on the expiration date. If you exercise a call, add its cost to the basis of the stock you bought. If you exercise a put, reduce your amount realized on the sale of the underlying stock by the cost of the put when figuring your gain or loss. Any gain or loss on the sale of the underlying stock is long term or short term depending on your holding period for the underlying stock. Put option as short sale. Buying a put option is generally treated as a short sale, and the exercise, sale, or expiration of the put is a closing of the short sale. See Short Sales, earlier. If you have held the underlying stock for 1 year or less at the time you buy the put, any gain on the exercise, sale, or expiration of the put is a short-term capital gain. The same is true if you buy the underlying stock after you buy the put but before its exercise, sale, or expiration. Your holding period for the underlying stock begins on the earliest of: • The date you dispose of the stock, • The date you exercise the put, • The date you sell the put, or • The date the put expires. Writers of puts and calls. If you write (grant) a put or a call, do not include the amount you receive for writing it in your income at the time of receipt. Carry it in a deferred account until: • Your obligation expires; • You buy, in the case of a put, or sell, in the case of a call, the underlying stock when the option is exercised; or • You engage in a closing transaction. If your obligation expires, the amount you received for writing the call or put is short-term capital gain. If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put. If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. If you enter into a closing transaction by paying an amount equal to the value of the put or call at the time of the payment, the difference between the amount you pay and the amount you receive for the put or call is a short-term capital gain or loss."

I had a few 70 hour days but they were all in Vegas -- ah, youth. 8) Seriously, though, Lynch is probably the single best guy on process. For the right situation -- especially tax-deferred accounts -- his methods are incredibly powerful and easy to follow. If, as a beginner investor, you read the famous Buffett recommendation of Chapters 8 and 20 of Graham's "Intelligent Investor" and all of Lynch's stuff, you'd be set.

Not really a shld post, but anyone notice that "JOE" is hitting 52 week highs.

I get a bit concerned when I see some very intelligent and economically literate people discussing each side of this debate without accepting that, often, each side is appealing to the center (independent vote who decide elections) without alienting their base. When one sets aside all of this, it seems clear that people who understand the numbers accept that we cannot endlessly increase debt at a rate of 10% of GDP while the GDP itself grows at a much smaller number. Someone like Buffett -- who has social views that I tend to agree with -- also has views on the economics that I tend to agree with. Yet, both parties -- since they are appealing to thier bases -- tend to ignore the very relevent details of his opinions. On this forum, we should be able to focus on the specifics. Buffett has said that we cannot continue to run these kinds of deficits -- 10% of GDP (he's also noted that it is a HUGE stimulus). So, discussing whether this money should be spent as transfer payments to welfare and medicare recipients or whether it should be spent on roads, bridges or the military misses the important point. It is not sustainble no matter what we do. Now, how long it can go on at this rate without disastrous repercussions is entirely unclear (at least to me) -- is it 5 years or 50 years. I don't know but it isn't sustainable. (As a side note, it is clear that expenditures on healthcare cannot forever increase at a rate of more than twice GDP growth. The math is simple. The same is true for the rate of increase in the cost of college. Again, how long these things can grow at a rate that is much higher than GDP is unclear but was is crystal clear is that it cannot go on forever). But, that WE CAN forever run a deficit that is about 2%/3% (give or take...depends on growth rate of economy) of total GDP. The debt will forever increase but so will the economy. The percentage of debt to GDP can, though, remain constant over time. But, some in the republican party want to have no deficit -- this doesn't make sense. Meanwhile, some on the left talk as if the absolute rates of increase in debt don't matter at all -- this also doesn't make sense. The republican side may hurt the optimal rate of increase in wealth per capita. The democrat attitude WILL eventually cause a crisis. Isn't it incumbent upon those of us that understand the numbers and the math to at least discuss the fact that we can't have an economy where healthcare expenditures (for example) are a larger number than total GDP -- it is IMPOSSIBLE. At the current rates of growth, we will hit a wall. That math doesn't lie. Sometimes I do get the feeling that some on the left understand this mathematical fact but expect that those on the right will take the hits as the problem is solved. But, that is politics. Still, Buffett says he's a democrat and Munger says he's a republican and yet I'm certain they both understand these facts. Buffett himself recently called our healthcare expenditures -- and the fact they are so much higher per capita than those of our competitors -- the "tapeworm" on American business. They both know the math but only one of them acts like someone who is willing to take the "hit" of saying difficult choices must be made or they WILL be made for us. What am I missing?

While I use portfolio management software from Advent (called AXYS), it is very expensive if you're looking at just doing your own portfolio. This software is cheap and nifty: http://www.timevalue.com/products/tvalue/overview.aspx While I believe it was built originally for loan amortization schedules, you can use it very effectively to calculate returns because you can enter cash outflows and inflows with exact dates and solve for rate of return. It will require a bit of work to get used to it but the manual is pretty good and I believe you can even call them for support (may be additonal fee in excess of the one time $149 for the program itself).

I'd add, too, that for me one of the lessons from LTCM is that you can be sure (AND CORRECT) about what has to happen -- on the run and off the run Treasury prices will converge, for example -- and still lose your ass. Why? Because, others things can happen first. When you're highly leveraged, everything goes to zero on a long enough time scale. Things that haven't happened before will happen. Buffett has been talking about this since Taleb was in high school. Buffett was able to get extraordinarily wealthy -- because he was so good at this -- even without leverage (though the float was a big help in Berkshire's golden period). And so, if you follow his example, it is almost certain that you won't get the same returns without a lot of borrowed money. And, if you borrow a lot of money... It is hard to do extremely well without leverage and that is why it will always be the sirens's song of the investment game.

I watched the presentation -- thanks for posting. Obviously, they need a huge amount of work on their presentation skills but this device looks extremely interesting. In another thread, people were talking about Buffett and how he thinks about a business, etc. I think that applies here, in the MSFT, situation. MSFT was hobbled by the anti-trust stuff for a very long time. Can you imagine if they tried to come out with their own hardware of this type (basically, a PC) during those days? As Apple and Google have grown so large, it has opened the door for MSFT to design their own hardware without listening to the howls of the hardware makers. Those guys will have no traction against MSFT in this competitive environment. There's no way that was the case, say 7 to 10 years ago. The hardware guys -- if they want to keep building hardware (and maybe they don't) will either have to work with MSFT or expect that MSFT will continue to design their own devices. While I'm not too impressed with Windows 8 simply based on carefully watching the full presentation of the Surface -- there were at least 4 times that the software looked cumbersome -- I still think the main issue to take away from this is that MSFT will design their own hardware experience (since it has become a necessity) and, most importantly, the rest of the PC hardware makers will not be able to complain about it. Thoughts on this idea?

Ditto Another lesson is from the speech itself: Don't let people convince you that you shouldn't pursue something about which you're passionate. It's trite, yes...but it remains true throughout life.

It's interesting. Pre WWII, it would be relatively clear where Europe was headed -- War. Since the advent of nuclear weapons, war is, of course, not a palatable option on a large scale. It's the only upside of Nukes. So, how does this shake out? In the short run, they have to figure out a way to print and/or there has to be a a wealth transfer from Germany? The long-term problems for many of these nations are obvious. And, on a very long scale, it's clear you can't have welfare states without population growth but with a strong currency that you can't print. There's no way this can work, is there?

This is what I'm arguing doesn't make "sense" to me about the current attitudes by hedge funds on this issue. But, it could be possible that I am missing something about the credit risk issue. I don't think so, though. My reasoning goes like this: Heading into the crash, Amex did let its loans balloon a bit and Amex did rely on securitization for funding, etc. It got down to where it did during the meltdown, I think, not primarily because of its credit risk but because of worries about it ability to get access to credit to fund its loan book. That is, it got really cheap not primarily because of fears of losses on its loan book but due to fears of a liquidity squeeze. Post crisis, Amex now has access to the FED window. I don't see why they'll ever give this up. Amex looks safer to me THAN IT EVER HAS BEFORE the crisis. In fact, Amex seems to me to be the biggest winner of the crisis if it can keep access to the Fed window permanently. From Amex's perspective, it can easily meet the capital requirements of the FED and still post enormous returns on tangible capital unlike pretty much everyone else that came out the other side of this. Amex doesn't trade (like a Goldman) and so won't face an real restrictions that I can see from being a bank holding company. Meanwhile, it has its positive attributes whereby it owns the card issuer and the network. And, it has a brand name that appeals greatly to the high spend customer. As I mentioned, people with Gold and Platinum cards use them as status symbols and want to pull them out. If you're sharing a meal at an expensive restuarant you and the guy in the other couple don't want to give both your mobile phones to the waitress -- you each want to pull out your AMEX. You've got a Platinum card and him on the Gold. Victory. That's how people go about this stuff. Meanwhile, Amex provides a very, very generous rewards program that V and MA can't because they only handle the network. The rewards are something that card users don't want to give up. Since AXP owns the whole loop (except in the smaller subset of cards it is letting banks issue), it can offer rewards and keep total control of the customer. It possible I'm missing something crucial here -- I'm all ears. But, it seems to me that post crisis, a firm like AXP should have a higher multiple than MA and V. Though they all likely deserve very high multiples. Take a look at their recent fixed income presentation -- slide 13. Their billed business is about equal to the next three card issues combined. But, their period end loans are only a tiny percentage of the other players combined. They're making a lot more on every card for just a very little credit risk. And, I'm arguing, they've got a stonger brand because people using the card want to make a statement (even if it is just "I'm a richer A**hole than you are." I can't get the presentation to post -- attachment is too big, I guess. But, you can see it here: http://ir.americanexpress.com/phoenix.zhtml?c=64467&p=irol-FLS_05092012

txlaw...Thx for linking to that old post of yours...good insights. Since the regulatory card has been played, it seems the biggest current threat to V / MA is now the networks of Google / Apple / MSFT you mention (Sequoia was a year behind you!). I also find the rewards business for Amex a moat for them compared to the pure payments networks. Also, someone like Buffett probably would say that AMEX has cache among the wealthy -- they want to actually pull out the AMEX Gold or Platinum card (so others might see it). I think this gives them some protection at the high-end (where they concentrate, as you know) as compared to the mobile payments side of things (where I agree we'll very likely see enormous growth over time). Just a thought.

I attended the recent meeting for Sequoia fund. They made an interesting comment on Visa / Mastercard (they've owned MA, IIRC, for a long time and thier past bullish comments have been posted on this board). To paraphrase: "The mobile payment threat is potentially quite big to V and MA. Companies like Apple and Google have enormous networks of people that they could leverage to compete with V and MA. The risk of mobile payments is that they can use ACH (Automatic Clearing House) to get around the V and MA payment networks. To do so, however, they have to have bank account information and it is possible that people won't want their bank info. exposed. But, it is very possible. No one knows how it will shake out." -- Again, the above is a paraphrase. But, it got me thinking. Isn't something like American Express a much better option than V or MA. The standard -- recent -- counter argument is that Amex has credit risk. Not much...take a look at their numbers. And, importantly on the subject above, what Amex does have that (as I understand it, V and MA don't) is a very powerful rewards program that keeps customers using their card. Obviously, other card providers have rewards programs but those are mostly banks and the banks don't have the V / MA network. Amex has both and has the high-paying customers as well. Just a thought when comparing V / MA to Amex when considering the mobile payments threat.

Crip, Useful / interesting info. Thanks

Greenspan "ARM"ing the Housing Bubble -- early 1994: http://www.usatoday.com/money/economy/fed/2004-02-23-greenspan-debt_x.htm "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said. -- Heads you win. Tails, you bring down the world financial system.

Plan, I thought I previously recalled Buffett showing interest in Direct Line. I found this old article. Perhaps a second bite at the apple. http://articles.economictimes.indiatimes.com/2010-08-29/news/27585228_1_insurance-business-insurance-arm-rbs

worked it out -- thanks val and racemize

Val, Yeah -- I am signed in and my account shows up. But, I have multiple portfolios of tickers -- you know -- like one portfolio is called: "Energy", another is called "Retail", etc., etc. So, when I use google finance on the iphone, I can see my first portfolio called Energy and I can see all the tickers included in that portfolio. The rest of my portfolios appear but the tickers don't load so I just see the portfolio names -- like "Retail" but I can't get any of the tickers in that portfolio to show up. I've tried doing a hard reset, I've tried talking with Apple -- so far, no solution. I'm wondering if others have this problem and if so, whether they use some kind of app? Thanks

Anyone use a "google finance" app on the i-phone? I am able to use google finance without an app BUT I can only get one of my portfolio's of tickers to load. The rest of my separately created portfolio's won't load. Anyone have any advice -- it would be much appreciated.

I think the reality will continue to get better and better. Once the election is over (no matter who wins), the trend will continue. The politicians don't care about fixing this stuff (for the most part) -- it is just popular with the electorate (both the left and the tea party folk). The banks have been the scapegoat for the meltdown (whether fully deserved or not). After this election cycle, I believe that we'll see the trend reverse. It is one reason that a lot of the regulations stipulated by Dodd-Frank have not been fully decided on -- they're all waiting until after November, when this won't cost them votes. Even so, there's already lots of pushback on the regulations. As an example: http://www.bloomberg.com/news/2012-03-22/volcker-rule-deadline-may-shift-as-momentum-for-revision-builds.html

I think you've captured a point here that is important. Combined with Parsad's point, I think I've realized the problem. The thing that is pretty amazing about a lot of what Buffett has done personally is so impressive because -- in the end -- he's just another person making his way through life. I too thought the Buffett's handled this situation in a "touching and mature way" (well said). And yet, the manner in which Alice Shroeder presented it in the book left me feeling as though it were somehow seedy or scandalous. The reader didn't need to know all those details to imagine that when a man's wife leaves him to move to one of the coasts and sing in bars that...well...just that! Moreover, given the specific conclusions Schroeder arrived at with her psychoanalysis (at least those that she included in the book), she can't be surprised that Buffett ultimately got upset with her. The irony here is that Schroeder herself made the point over and over again that Buffett -- after his experience with his mother in childhood -- needed (only wanted) women in his life that protected him, gave to him, etc. (whatever all her points were). Given those were her notions, she should have realized that if she chose to include the gory details about the woman that Buffett loved most, he'd get upset. What is annoying me about Schroeder is that it was her choice to include it in the book -- saying it was her duty as his biographer. That's an acceptable response. But, given her choice, she should be tough enough to accept a big consequence of such a choice -- the subject of the biography might get really upset. After Buffett cut her off, she said things like: "I sent him the book and he didn't say anything." Again, the irony her is that she still doesn't get it -- that it's her own psychoanalysis of him that applies. Of course he didn't say anything -- that's completely in keeping with Buffett. Buffett wanted her to look at his life and him and only see the good (however irrational that might be). He wanted the approval from her that he didn't get from his mother. That's what she would say, right?