LearningMachine

If I look at page 109 of their annual report, I get about 55% of debt due within 10 years and a weighted maturity of 13.29 years. Please see https://s23.q4cdn.com/611156738/files/annual/716f1951-3453-912b-2656-5c75ca7f5fa0.PDF.

Castanza, I found the maturity schedule in their annual report, page 109: https://s23.q4cdn.com/611156738/files/annual/716f1951-3453-912b-2656-5c75ca7f5fa0.PDF. In today's environment of low interest rates, utilities should be able to have much longer term maturity at low interest rates to protect the shareholders.

This is not a fully accurate statement of my view. A more accurate statement would be that I would like to make sure I'm covered for the probability that inflation/interest-rates will sneak up on us by making sure debt maturities are much longer term. If the probability doesn't come through, it should still be a reasonable investment. If probability comes through, it should be a reasonable investment then also.

Beyond that, their debt maturity schedule is not protected against the inflation/high-interest rate scenario. They have also been printing shares. I haven't looked far back, but assuming company DNA has been consistent, these issues were probably there in the past too. I understand these two issues don't matter to a lot of folks but just wanted to share my perspective. Also, Seattle recently banned use of natural gas for new commercial and apartment buildings taller than three stories and replacement heating systems in older buildings: https://www.seattletimes.com/seattle-news/seattle-city-council-passes-measure-to-end-most-natural-gas-use-in-commercial-buildings-and-some-apartments/ I wouldn't be surprised if Oregon and Washington states or other NW cities follow with some type of restriction.

https://www.cbsnews.com/news/south-africa-covid-strain-resistance-antibodies-coronavirus-vaccine-latest-research/ Researcher at a biohazards lab in Johannesburg seems to be claiming that new strain is 10x more resistant to the vaccine and possibly "knockout" the immunity from vaccine totally.

The Rockefeller researchers got blood samples from 20 people who had received either the Moderna or Pfizer vaccine and tested their antibodies against various virus mutations in the lab. With some [mutations], the antibodies didn’t work as well against the virus — activity was one-to-threefold less, depending on the mutation, said the study leader, Rockefeller’s Dr. Michel Nussenzweig. Source:https://www.marketwatch.com/story/some-covid-19-variants-may-reduce-effectiveness-of-vaccines-01611184451?mod=home-page#

Thanks wabuffo for being gracious with your time in helping everyone reach a deeper understanding on this. To help understand deeper your perspective, I wanted to go further with the analogy of Fed Reserve as the Recorder's Office, which keeps a record of who owns each property. ... Your idea of a closed-loop system is a good one especially for the loop related to the central bank's expanding balance sheet. For the other loop (regular banks making loans and taking deposits), you have to think of it also as a closed loop (there is some hoarding and the international flows murk the issues) and you want to integrate a flow component (the velocity part). For the longest time, it was thought that money supply was strongly linked (or should be?) to underlying real economic activity and it seems this link has been breaking down (it is suggested by some that the elastic can be stretched much further, even to the MMT extent but that remains to be seen). This is a fascinating topic with many layers and many perspectives but i wonder about the real value of the discussions although the interest may have nominal value under certain circumstances. Thanks Cigarbutt, interest rate is the key reason why I'm interested in this topic. I am of the opinion that a sudden inflation/interest rate tsunami will hit us and it will catch those who are unprepared by surprise just like it did in 1974. If I can put a more accurate probability and time-range on that conviction, it will be very useful. I've an insight to share based on my post above to wabuffo, but would like to see first if wabuffo or someone else can get to the same revelation without me having to say it as that will result in better collective understanding.

Thanks wabuffo for being gracious with your time in helping everyone reach a deeper understanding on this. To help understand deeper your perspective, I wanted to go further with the analogy of Fed Reserve as the Recorder's Office, which keeps a record of who owns each property. Imagine there is an island nation in the Pacific Ocean. The currency of that nation is developed sqft. Anything can be bought and sold using those sqft. Any transfers of property containing developed sqft are recorded by the nation's Recorder's Office. We make sure not to get confused about assets and liabilities, i.e. who is the grantor and who is the grantee in a given recording. Treasuries in this nation are long term contracts for delivery of developed sqft in the future. Similar to our Federal Reserve, the Recorder's Office expands its role to also buy long term contracts for delivery of developed sqft in the future in return for developed sqft now. However, nothing can leave the Recorder's Office, i.e. all recordings of developed sqft happen in the Recorder's office. All developed sqft are locked into the Recorder's Office because you can only assign your developed sqft to someone else within the Recorder's Office. Am I understanding you correctly so far?

Thanks wabuffo, looks like you are saying that think of the Fed Reserve as the county Recorder's Office, which keeps a record of who owns each property. Any transfers of property that happen in the economy just translate into a recording of what moved, the grantor and grantee. Similarly, the Federal Reserve keeps a record of which bank owns the cash. Any money transfers that happen in the economy just translate into a recording at the Federal Reserve that it moved from Bank A's account to Bank B's account. Do I understand you correctly?

Thanks wabuffo for sharing your thoughts and the diagrams. Are you saying that each bank has two types of accounts with the Federal Reserve: (1) that they cannot withdraw from because it is funded by asset sales to the Fed, and (2) that they can withdraw because they funded it voluntarily with customers' cash? Here is an excerpt from a Bank of America earnings call, where they are saying that they have a choice on what to do with incoming cash from customer deposits to either (a) park incoming cash from customer deposits at 10 bps with the Fed Reserve or (b) buy securities. Are you saying that if they pick (a), they cannot take that cash out to start funding riskier loans later? Federal reserve interest rate of 10 bps to banks on required and excess reserves: https://www.federalreserve.gov/monetarypolicy/reqresbalances.htm

Thanks Cigarbutt for the visual complement :-). Federal Reserve Bank of New York agrees with you at https://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html: I think what wabuffo seems to be saying is that part of the deposit accounts at banks are somehow required to be held at the Federal Reserves such that customers can't access their deposits?? Trying to understand wabuffo's point deeper and get authoritative sources with questions in post above.

Thanks wabuffo for the very clear answer. It helps me understand your perspective better. For this perspective to hold, all of the following have to be true: * #1. JPM has to be required to sell its treasury bonds to the Fed * #2. JPM's reserve account with the Fed can only be used to clear payments between JPM and other federally-chartered banks or between JPM and the US Treasury * #3. JPM is not allowed to withdraw from its reserve fund at the Fed * #4. Even when the asset bought by Fed from JPM matures, JPM is not allowed to withdraw from its reserve fund at the Fed I can understand banks can be induced to do #1 if Fed is paying the highest price, but it is not required right? Regarding #2, #3 and #4, any chance you would have a link to the actual regulation that has language stating each of these?

Wabuffo, I'd like to understand deeper what you're saying regarding these two events. #1. Fed buys Treasures, T-Bills and Mortgage Backed Securities in the amount of $X. #2. Banks collectively put $X of their customer deposits (which are part of M2 money supply) into Fed Reserves Are you saying that #1 effectively forces #2 to happen because banks don't have anywhere else safe to put their customer deposits?

As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions. Source: https://www.federalreserve.gov/monetarypolicy/reservereq.htm

So far. An interesting article on why velocity has been decreasing so far by the Federal Reserve Bank of St. Louis: https://www.stlouisfed.org/on-the-economy/2014/september/what-does-money-velocity-tell-us-about-low-inflation-in-the-us I wonder if it is a question of "when" people might stop hoarding money not a question of "if".

Looks like Mr. Buffett ended up realizing how strong the pricing power was of the drug companies, and decided to invest in them, instead of fighting with them :-) However, it is hard to price the drug pipelines and predict which companies will be able to continue to get new income streams as old ones expire. So, he decided to let the market price the pipelines for him. However, since then, a risk has developed to the pricing power with Trump's executive order, which the drug companies will fight, but it will be hard for the house and senate to ignore. Still hard to predict the risk to pricing power here because you can follow the money and see lawmakers from both parties getting paid by pharma. Legalized bribery! However, those who are not getting paid might not ignore this when Trump's executive order is fought by big pharma.

I agree with this. So far, the goods and services that CPI measures have not gone up in price. Part of it is probably that folks impacting the marginal/supply demand of those goods and services have not been getting the increased money supply. With minimum wage going up, I think those folks will start getting a part of the increased money supply as well, and they will then compete with each other on the same limited goods and services to raise their prices. Regarding asset inflation so far - yes, part of it could be due to money supply, but I think for a lot of assets, e.g. real estate, it has been due to the lower interest rates. With inflation, will come high interest rates, which will be negative for CRE.

Have folks been paying attention to the M2 Money supply? Since March 2, 2020, it has increased 23.7% (annualized rate of 28.4%) from $15.513 Trillion to $19.197 Trillion, much faster then it grew during money printing days of GFC. Maybe we'll get high inflation and high interest rates this time. Source: https://fred.stlouisfed.org/series/M2

Now that the probability of a (1) new strain that is more contagious than the (0) original strain has materialized, what do those who know more think is the probability that we'll have (2) another strain for which the current vaccines won't help develop immunity? I understand the current belief is that the current vaccines will help develop immunity for #1. I'm curious what folks think about probability of #2.

Agreed, that needs to be kept in mind.

Imagine 100% of cars sold this year were EVs. Total car and light truck sales per year are around 17 million in the U.S.. There are a total of 274 million registered vehicles in the U.S. In that draconian scenario, it will still take 16 years to replace the fleet. If you are projecting it will take a decade to hit 50% of sales to be EV, when do you think we will hit 100% sales to be EV? My point is we have many many years ahead of usage of high quality refinery and gas station assets. The lower quality ones will start shutting down first. I think we have to handicap percentage reduction in volume of gas by timeline. How much reduction in gas demand do you need to make refining and to a lesser degree distribution a crappy business due to margin pressure - that’s the key question not when 90% of the gas demand disappears. Prior to the shale becoming a factor, refining had a lousy decade due to overcapacity. This could well happen again. I agree Refining is not a great business in general. We already have extra capacity in Refining. Many lower quality refineries have already been running below capacity or being shut down. Yet, some operators are able to make some money off the higher quality refineries or because of their direct access to retail channel, while allocating that capital earned to a better business. I don't think we will get a high enough percentage in gas demand reduction due to EV sales alone in the next five years to worry about good operators given EV sales replaced only about 0.320 million of the 274 million registered vehicles in 2019, i.e. 0.12% of the fleet replaced in one year. Let's assume EV sales grow 30% per year to 1.18 million sales in five years. Then, that year, we'll replace 1.18/274 = 0.4% of the fleet.

Imagine 100% of cars sold this year were EVs. Total car and light truck sales per year are around 17 million in the U.S.. There are a total of 274 million registered vehicles in the U.S. In that draconian scenario, it will still take 16 years to replace the fleet. If you are projecting it will take a decade to hit 50% of sales to be EV, when do you think we will hit 100% sales to be EV? My point is we have many many years ahead of usage of high quality refinery and gas station assets. The lower quality ones will start shutting down first. I think we have to handicap percentage reduction in volume of gas by timeline.

Looking at Seattle area, these are areas that are desirable for high-tech workers or support workers for different reasons. Here are some examples: Good school districts: Dieringer School District (Lake Tapps, WA), Bainbridge Island School District, Tahoma School District, Snoqualmie Valley School District, University Place School District, Pullman School District, etc. Waterfront/island living: Warm Beach, Bainbridge Island, Kitsap Peninsula in general, Camano Island, Whidbey Island, Lake Tapps, Lake Stevens, San Juan Islands, etc. Access to airport: Areas within x miles of SeaTac airport. Areas giving access to multiple metropolises for support workers: Mount Vernon, WA. New construction: Monroe, Marysville and Snohomish County in general, Maple Valley, Enumclaw, Snoqualmie, Pierce County, Skagit County, etc. For San Francisco/silicon valley, I'm hearing Lake Tahoe is getting popular. Another thing that is incentivizing silicon valley folks to work out of Nevada or Texas is zero income-taxes.

My handicapping model is mostly consistent with what you're saying. Currently, I see three key features impacting what human neural nets' desire: * #1. Avoid multifamily due to Covid risk * #2. More willingness for some folks to commute some more miles from their employer as a result of WFH announcements while still staying near the city / in good school districts, access to restaurants, airports, amenities, etc. * #3. Interest rates Presence of all three features is already starting to have positive impact on pricing of residential real estate in exurbs. Currently, these features are also having somewhat positive impact on residential real estate in suburbs, next to key employers. When Covid is over, #1 feature will stop having an impact, while #2 will continue. The impact of #1 stopping will effectively release a supply of multifamily housing that is currently being avoided, which will have some negative impact on price of houses that are currently being bid up just for feature #1. To handicap the impact of #2, I've been looking at various pieces of data. Here are a couple of the data points to consider. First, here is what Zillow found at: https://www.zillow.com/research/coronavirus-remote-work-suburbs-27046/ Next, I did a survey myself with two questions: (a) What is the max you would have commuted pre-Covid when you had to work in office 100%? (b) What is the max you would be willing to commute post-Covid assuming your company will let you WFH 50% without manager approval and 100% with manager approval? The results are enlightening and consistent with Zillow. Percentage of people who used to be willing to commute only 15-minutes has gone down drastically. Percentage of people who used to be willing to commute only 30-minutes has also gone down a lot. Percentage of people willing to commute 45-minutes or 60-minutes for their dream house has gone up a lot.

Yes, I handicapped on ESRT, got in below $5.50 and got out at $10. Thanks to your and pupil's contribution to that handicapping as well. Because someone was talking about Seattle in this thread, I went along. When trying to handicap residential prices next to Microsoft, Amazon, Facebook and Google in Seattle area, I'm saying there will be some negative impact to prices in real life as a result of Bill Gates' prediction of more than 30% of days not being spent in office anymore (which I agree with), and there will be some positive impact to residential prices in exurbs in Seattle area. I agree with you that young people will not leave cities. I hope you will also agree that young folks also don't have to live next to their employer anymore. Some can live in the middle of Seattle next to bars cheaper than for living next to Facebook, Amazon, Google or Microsoft. Some family folks can live in exurbs with water view cheaper than for living next to headquarters. Looks like you also agree with Bill Gates' prediction, and that's why you are saying suburban office real estate might be in trouble.