Kraven
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Posts posted by Kraven
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I think that people need to remember the golden rule on chat boards. Don't feed the trolls!
Look, at the end of the day, as far as I'm concerned anyone can say anything they want. But this is supposed to be an investing board and it is a bit irritating for someone to come on and post solely about non-investment topics. I am not sure how that furthers the purpose of the board. But that's just me. The definition of a troll is someone who posts solely to get a rise out of people and not with an intent to further the discussion. Note that I am not commenting on the substance or lack thereof of the posts. I would simply say to people to stop feeding.
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I bet he is even reading those hundred page mortgage securitisation prospectuses that Michael Burry used to short the mortgage market a few years back.
LOL. All of them? There are thousands upon thousands of them and that's just the RMBS. What about their CMBS, CDOs, CLOs, CDO squareds, structured notes, credit default swaps and other derivatives, etc.? What about their OREO spread throughout the world? And this is just a small percentage of things. Buffett is a genius, don't get me wrong. Truly the smartest investor ever and I would bet every penny I have he can't provide an accurate value on these assets.
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I love his analysis as well and would and have put money on it. I have answered the question about the balance sheet before. The answer is simple, but perhaps not satisfactory. In terms of how you get comfortable with it . . . you just do. You have to take a leap of faith. Banks are a black box in that way. You will never be able to analyze their assets in a way that will give you 100% comfort. But at the end of the day, how is this so different from other companies that are non-financials?
I thought this was supposed to be a value investing forum?
I can assure you, when Warren Buffett invests in a financial, he certainly does not take any leaps of faith. The numbers are all out there, if you're diligent enough, you will find them.
Amusing. I didn't say the numbers weren't there. You have misunderstood my point which was that all investments entail a leap of faith in that all we know are the numbers that have been provided us. So yes, the numbers for a financial are out there. My further point was that many believe that the numbers for a financial are somehow not trustworthy while they are for an industrial for example. Many on this board don't question the numbers for an insurance company, but do for a bank. There's no difference. I assure you that even Buffett takes a leap of faith on certain of the assets in a bank like WFC. I know their desks and their products. Certain of them are impossible to value even if you had the deal documents in front of you. I doubt anyone is reading the deal documents on thousands upon thousands of different securities. So yes, the numbers are there and one can take the macro values and discount or do whatever you think is appropriate, but the best one can do is be approximately right rather than precisely wrong. But again my point is that is the case with any investment and not just banks. The leap of faith we take is that the numbers we are provided are true and correct. I didn't mean to imply otherwise. Hope this makes more sense.
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If you can't get comfortable with the leverage, which is an inherent feature of any bank, I guess you won't be investing in banks then.
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I completely agree regarding the black box issue. I would guess Buffett does as well, and that's why he chooses to own WFC, which fully discloses its "Other Asset" category, does not make dumb acquisitions and has a relatively simple business model.
All I ask before buying BAC is to have some idea of what those assets are. Investors got smoked back in 2008 and 2009 buying AIG, Fannie, Freddie, BAC and C based on perceived "earnings power" and assuming the risk of a black box.
I would contend as well that this period of time is NOT akin to the early 1990s. We are in the process of unwinding a massive credit bubble, which will take much longer to unwind than the 1990s banking crisis. I say that to say there is a very big risk bank balance sheets are inflated due to accounting shenanigans (read any of John Hussman's commentary since the recession started), and thus investors must not simply "have faith" in BAC's ability to fairly account for its "Other Asset" category.
I agree which is why I dont own banks. At some point you just have to place your chips on the table or not. Banking is in the too hard pile until the age of deleveraging is over. Thats my plan.
My point, which perhaps I didn't make clearly, is that while banks are a black box in a way, so is everything else. Banks are no more a black box than a retailer or an insurance company or a restaurant. That is, if a bank tells you they have $X in loans, securities, etc., how is that so different from a retailer telling you they have $Y in inventory (which let's say is tshirts and jeans)? Investors have a false sense of security that since tshirts and jeans are tangible - they could theoretically touch and feel them - that is so much better than loans, for example. But when a retailer tells you they have $100 mil in inventory, what does that mean? Can you go see it? Even if you could, what is it worth? I could sell a loan book faster than a retailer could sell a warehouse of tshirts and jeans. If BAC wanted to offload a bunch of financial assets there would be countless bidders shortly. Put out a BWIC and bids come in quickly. Put out an offer to sell tshirts and jeans and . . . crickets most likely. Yet, most investors would say an Aeropostale or a American Eagle is transparent, while BAC is not. I don't believe it is true. BAC is a complicated entity. They have tons of things that are difficult to value and perhaps their "other" category isn't as well disclosed as WFC, for example.
I do agree though that we all decide what "bets" we are willing to take and we either put our chips on the table or we don't. Nothing wrong with that.
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I love BB's BAC analysis, and I would put money (literally and figuratively) on it that he ends up right in the long run. However, I have a question that continues to dog me as I look at this company...
How do we know within reason what is on BAC's balance sheet? For example, in the line "Other Assets" on its balance sheet, BAC dumps over $100MM of assets and does not disclose very succinctly what is in that line...I was able to find in a note that one of the assets in their is their China Construction Bank investment that is currently carried at roughly $19B. There is very little information regarding what else is in that bucket, and if for some reason that entire bucket was wiped out, shareholder equity would be gone.
Just the CCB investment alone is worrisome - they've had that on the block for awhile now, and with China's real estate mess only getting worse, who know what that is truly worth.
All that to say - Parsad, it sounds as if you potentially are in BAC...if so, how do you get comfortable with what is on BAC's balance sheet outside of the Bruce argument that BAC earnings $45 to $50B PTPP and can earn their way out of it? If in fact BAC is forced to write down fluffy assets in the next couple of years, that is not enough time to "earn" their way out of it due to limited profitability over the near term.
I love his analysis as well and would and have put money on it. I have answered the question about the balance sheet before. The answer is simple, but perhaps not satisfactory. In terms of how you get comfortable with it . . . you just do. You have to take a leap of faith. Banks are a black box in that way. You will never be able to analyze their assets in a way that will give you 100% comfort. But at the end of the day, how is this so different from other companies that are non-financials?
Take FFH or BRK, for example. You have a list of assets and you think you know what they are worth. But all you know is what is listed on a piece of paper. They both have countless subsidiaries, etc. What is an insurance company really worth? You think you know and you do, so long as the numbers on the piece of paper are correct. Are you actually going to various insurance companies and doing an audit on their figures? Even if you had that kind of access, would it even be possible to do? Is one capable of doing it? Then, in BRK's case, there are all the operating companies both wholly owned and the investments. What is KO really worth? They tell you they have operations all over the world. Have people been to Nepal to analyze their exposure there? What about China? What about all their bottling companies?
At the end of the day as with any investment, all we know is what is listed on a piece of paper in the 10-K. Either you take the numbers at face value with your own bit of analysis built in, or you don't. I'm not saying that one shouldn't discount or whatever, as appropriate, but if you think BAC is playing games, don't invest. I can assure you that no one knows exactly what any of these banks is truly worth in the sense of putting an exact valuation on it. Buffett doesn't really know what WFC is worth. Berkowitz doesn't really know what BAC is worth. The structured assets alone, even if you had a list of each and every one is impossible to value accurately. But you don't need precision to know that at the current price BAC is undervalued. As they used to say on an old tv show, believe it . . . or not.
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These kinds of conversations, while fun sometimes, never go anywhere. People used to be able to come together and figure out a solution that was best for the country. Now every minute that goes by people are more divided. Liberals believe that if Jesus ever decides to hang it up and retire, Obama is ready to step in and take his job. Conservatives believe (to borrow the analogy from above) that only they stand in the way of the evil empire taking over. It's strange because I always learned that a good deal was one which was good for everyone. A good deal was not one in which you got everything you wanted, but one in which you get a lot of what you want and the other side gets something too. If you always strive for that last penny or the "best" deal, you will not be in business for long as no one will play with you anymore. Of course, government is obviously different. They just need to do it. That's it. Figure it out. It's really as simple as that.
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Below is a link to the video (I'm not affiliated to the blog or its owner)
http://financetrends.blogspot.com/2011/07/bloomberg-profiles-michael-burry-on.html
Enjoy.
Just watched it too. Thanks for posting. It was very good and anyone interested in Mike Burry should definitely take the time to see it. It's only about 25 min.
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I'd love to see this too. ValueWalk published a "special, advanced transcript" of the show. Looks like some quotes from Burry, but, as always, anything from Burry is worth reading.
http://www.valuewalk.com/financial-crisis/special-michael-burry-bloomberg-tv-tonight/
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In the case of Sino, if Carson Block proves to be right he has done the investment community a service.
However, if it turns that he simply made up most of his allegations simply for personal gain, would that not leave a bad taste in your mouth? If that turns out to be the case he will have cost investors billions in loses and have caused serious damage to a legitimate company. And then to add insult to injury, the company has almost no recourse or defence against these practices.
This is really the point though. If he's right, he's done a good service. If he's making it up, sure it would leave a bad taste in my mouth. But if so, he should face legal action for that and possibly jail time. No less so than if someone is long a stock and puts rumors out there that are positive, i.e. pumps and dumps.
My point was simply that so long as things are done appropriately, than it shouldn't matter. If it isn't appropriate, than obviously I have no time for that.
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As someone who doesn't short and doesn't plan on investing in any Chinese companies any time soon, I do find it odd that so many on this board are so vehemently anti-shorts. So long as people make their investments in an appropriate way, why so troubled? No one seems to care when people are long and come out and tout their stocks, but when short and they tout that, it seems to be viewed as a very bad thing. People seem to forget about the goose and the gander. Just my 1 cent.
I do have a problem with it. I've had a problem with it for the last eight years. And that isn't because of someone shorting stocks in and of itself. But because disclosure rules for those with short positions, still aren't the same as those with long positions.
They've talked about it...they plan on implementing it...but it still isn't the same yet. Once they do I won't have a problem. After that I'll move on to derivates traders and how their disclosure rules aren't adequate. But until then, hell yeah shorts are on my scope! The rules should be equitable, and no one should be given any special privilege in hiding their incentives or motives. Cheers!
I can see an issue with disclosure on a general basis, but many of those that short are quite clear about their intentions and their positions. So do you have a problem if someone says I am short ABC stock in X amount and I think the company is crap, here are my reasons? Historically we've seen the treatment that people like Einhorn, etc. get when short and it is quite clear what they are doing.
By the way, disclosure on derivatives will never be satisfactory. It really isn't possible in my view. Valuation is subject to too many assumptions and most people don't understand the nature of the contracts to begin with. Does anyone really think that a trader entering into a basket credit default swap, for example, is reading the long confirm that goes along with it?
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As someone who doesn't short and doesn't plan on investing in any Chinese companies any time soon, I do find it odd that so many on this board are so vehemently anti-shorts. So long as people make their investments in an appropriate way, why so troubled? No one seems to care when people are long and come out and tout their stocks, but when short and they tout that, it seems to be viewed as a very bad thing. People seem to forget about the goose and the gander. Just my 1 cent.
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Personally MSFT is up about 10%+ for me since Harry said it should be shorted. ;D I always like to track my investment returns based on daily, weekly and monthly numbers though. That makes the most sense to me. :o
Ha! Ha! I shall vow to one-up you by tracking the investment performance hour-by-hour and maybe if I can do it, minute-by-minute. ;D
If by 9:31 am on each trading day I am not in positive territory in my portfolio the whole day is ruined. I then liquidate in order to find brand new ideas which I expect to put into place by no later than 10 am. I know I need to give it some time to work so I check in again around 10:15. I am a long term buy and hold investor.
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Perhaps, as someone else pointed out, the problem is that whoever took down the notes didn't do so accurately. As to a net net not being a buy just because it's a net net, I am in full agreement.
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Personally MSFT is up about 10%+ for me since Harry said it should be shorted. ;D I always like to track my investment returns based on daily, weekly and monthly numbers though. That makes the most sense to me. :o
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For what it's worth, whether his views on net nets are that he isn't interested in one with little in the way of recurring income, it shows he doesn't fully grasp the concept of a basket approach to net nets. The "cigar butt" concept isn't one of recurring income but of a misunderstanding by the market of the value that's there based on assets in hand. For example, if the company is never going to earn another dime, but is selling for 2/3 of it's NCAV, it should liquidate. Since, per Graham, NCAV is a rough index to liquidation value, you've just made 50% on your investment in this hypothetical should the company liquidate. Or someone could buy them and put the assets to better use. Or new management might come in or present management find religion.
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His statements on net nets also make no sense whatsoever. I am surprised a value "guru" would make such statements. From Ben Graham to Tweedy Browne net nets have been shown to outperform the market time after time. Combined with his views on bull and bear cycles, I am wondering what exactly it is he is thinking.
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I am probably wrong but I am very much on the side of Drunkenmiller on this issue. People have fallen into the theatre that the politicians have purposefully created around this issue but fortunately investors haven't fallen for it (iRates haven't budged.)
The fact that the US is even having this conversation shows just how solvent we are. If we miss an interest payment for a few days or weeks, no one would care. That's like saying investors would stampede out of Coke if they said they were going to defer a single dividend payment one week. At the end of the day, billions of servings are going to be guzzled and Coke is going to make money off of it. Dividend timing here and there is largely irrelevant.
Same goes for US debt. We are still the biggest economy with the brightest people with a very reasonable debt level. And the US has plenty of run-way for taxing these people more and more. Timing here and there is a non-issue.
P.S. - On a similar note: the state of California had a somewhat similar issue and issued IOUs. And you know what ... those things were 100c on the dollar. Banks even took them as deposits at face. If people shrugged at California; they won't even blink at the US.
Hmmm.... I think you are minimizing this a bit. People didn't shrug at California. I had some tax due in California at the time and received an IOU. I looked into the banks accepting them as deposits and one, it was very few banks and two, I am pretty sure that after a brief time even they stopped accepting them. I am just going from memory on this so I could be wrong. I do know that I had to sit on the IOU and didn't have any other options, or at least no options that were easily obtained out of state. In fairness, when the time came to get paid, I sent in the IOU and had money literally about 5 days later so it all worked out.
I know a lot of people in California. The state is in miserable shape. Teachers are being laid off in droves and even wealthy schools have drives in order that the kids have pens and pencils and paper. Teachers not laid off have seen some work furloughs, etc.
Anytime there is a stoppage in payments, even if short term, I don't agree that is a non issue and don't agree that everyone knows the payments will start again. At the very least it shows that there is something rotten somewhere.
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The wide agreement of the assumption of a rally after an agreement is reached is what concerns me! I am making no predictions, but, don't see how something that is widely regarded as a certainty is such a certain thing.
Your probably right Ragnar... Things are never that predicatable.
I think unfortunately, at least in the short term, ever since the financial crisis things are that predictable. In the past 3-4 years, good news is great news and bad news is good news. The smallest iota of good news is blown out of proportion and bad news simply means Ben will come riding to the rescue.
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I wonder if Buffett will buy it. Seems like something that would be nice to keep in the family.
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Penn Central put off necessary capex for many years, and then suddenly went bankrupt to the surprise of Ben Graham and many others! :o
Not sure what you mean by that. Perhaps the bankruptcy itself was a surprise, but Graham noted many times, particularly in the 4th edition of The Intelligent Investor that even as late as 1968 through standard tests and analysis that no shares or bonds of Penn Central should have remained in any securities account watched over by a competent analyst. So anyone following his methods would not have been caught with Penn Central securities even if the ultimate resolution (i.e. bankruptcy) can never be predicted with any certainty.
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I suspect you are going to have trouble finding a fund that limits itself to only having 100% of anything. What immediately came to my mind was something like one of the Vanguard funds. They have the same "at least 80%" language. This makes a lot of sense actually. It's not that they intend to hold 20% of other types of assets, it's that they may not be able to buy the actual securities themselves or may be able to pick up a few extra bp by doing say a repo. If they have money to invest, but can't find the right treasuries, for example, they need to enter into a derivative to do it. Or what if they have a little cash? That isn't a security. So while economically the fund is 100% tied to treasuries, it isn't technically 100% invested in treasuries. So if the statute requires 100% investment in these types of securities, you may need to buy individual ones and skip the fund. Or, you may want to check to see whether it actually requires it be invested as opposed to economically linked.
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Sorry, I don't know the answers. The original question was about someone doing it as a retail investor. Obviously the brokerages are lending to each other on the equity side. They will have master securities lending agreements in place. At that level there will be some kind of collateral provision. On the debt side for securities that weren't necessarily fungible, it was trickier. Someone else on the board may have more current experience with all of this than I do. Mine is a bit dated.
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So on the institutional side is it safe to say that you would only lend through a reputable party who either asborbs the counter party risk or alternatively to a counter party whose credit is not in anyway suspect?I am not familiar with it from the standpoint of retail investors. I have some familiarity with it on the institutional size, but it's been a while. The biggest risk is counterparty risk. That is, that you lend the securities, whoever you lent them to fails (goes bankrupt) and you don't get your securities back or only with tremendous cost, delay and aggravation. Frankly, for the minimal amounts I am sure you would get doing it retail, I just don't see the point in doing it. But then again, as I said, I have no familiarity with it being done on the retail side.
I am not sure what you mean by lending through a reputable party who absorbs the credit risk. Do you mean that a 3rd party guarantees the transaction? In terms of a counterparty whose credit is not in anyway suspect, after the financial crisis who would that be? There isn't anyone that is 100% immune from bankruptcy. Remember that Lehman would have fallen into that category before they pulled the plug. With all the big banks whenever someone questioned the status as a counterparty, everyone used to say "c'mon, it's Lehman [or insert name of bank], what's gonna happen?" I never really liked securities lending to be honest. There are uses for it, but generally people do it as a way of making a few extra bp. So you lend out tons of your securities and you make pennies. I only thought it was ok if it was fully cash secured, but for obvious reasons no one wants to cash secure it. Sometimes you could do it though and that minimized the counterparty risk; at least you had something to bargain with when the trustee came calling. On the retail side, who is going to cash secure.
RT
in General Discussion
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Thanks for posting this. Interesting.