LearningMachine

You could have purchased BRK with the same logic on Dec 7, 2007. But then, he was 77, and now he is 92. This time, BRK is also sitting on 44.1% of the portfolio in a single stock that has not yet adjusted for treasuries yielding higher than (FCF-SBC or buyback) yield on that stock and has not yet adjusted for many risks over risk-free treasuries.

I was not saying that the Monday filing would show that he purchased regional banks in the open market. To the contrary, I was saying that the Monday filing would likely show what his Wednesday filing showed :-). See https://www.sec.gov/Archives/edgar/data/315090/000089924323008649/xslF345X03/doc4.xml .

Because of that, I think BRK's Monday filing is likely to show something similar to his last Wednesday filing on what he purchased among all the noise :-).

Because Buffett is likely not going to be here for many years. If Buffett was going to be around, you could be safe in buying BRK knowing that even if it falls temporarily , Buffett would invest wisely and bring it back up.

Let's take a concrete scenario: #1. FDIC guarantees FRC deposits. #2. John takes his $500K balance at FRC and buys treasuries #3. FRC's reserve balance goes down into negative. FDIC doesn't have any more balance to help FRC. Fed/Treasury step in to print cash using some mechanism, e.g. they give FRC $500K for treasuries with $500K face value, and $300K FMV, without expecting it to be paid back. #4. BAC that had sold the $500K treasuries to John, takes the $500K and parks it with the Fed, earning 5% on that $500K, that is, $25K. Step #3 above prints $200K cash Step #4 above prints $25K cash Did I make an incorrect logical leap above?

Selling bank parks the cash with the Fed, printing more money.

Indeed, not saying it won't move the yields down, and treasury prices back up. My point is about the sequence of events, i.e. what if the sequence was like this: #1. FDIC guarantees all $20T in Deposits #2. Some people continue moving deposits to treasuries, driving treasury prices back up, causing held-to-maturities at banks holding treasuries to move up #3. Small and mid-size banks still end up losing deposits to treasuries, causing FDIC to step in, and Fed/Treasury to print more money if necessary. #4. $20T cash ($5T added during covid and possibly more added during #3 above) in people's hands continues going after limited goods & services, continuing inflation

To stop the bank run, what if there is no choice but for FDIC to guarantee all $20T in deposits. Before covid, bank deposits were at $15T, and 2011, they were at $10T. With deposits guaranteed, what if certain percentage of $20T, say $5T, moves to money-market accounts, and government has to come in and print money to be able to make whole on that guarantee. High Inflation continues, and we learn inflation is not that easy to get control of, and we choose inflation over bank runs. What do folks think the probability of above scenario is? Wonder if there is another entity out there as strong as FDIC/Fed/Treasury that has the ability to effectively guarantee minimum price of its product (with some lag) so that it can keep member countries' budgets at least in line with inflation, and companies selling that product were available at unleveraged 10% FCF yield.

What if you owned the income from those held-to-maturity's worth of BAC, and you had purchased those held-to-maturities at 1/10th the cost (because of bank's own leverage), and the purchase of those was really funded by millions of customers' money needed to clear their rent/mortgage/credit card check spread across 1000s of branches across the country, and it is a lot of friction for those customers to go change their paystub deposit accounts with their employers and autopay settings with their rent/mortgage/credit card companies, and now they are hearing stories about smaller banks going bust, and feeling that their money is safe. And, you had the patience for those held-to-maturities to get deployed to higher earning loans/securities as they mature, just like Buffett had the patience that the building he bought in NYC will get rented out at higher rates over time.

How trustworthy is the table above from twitter? Does anyone know the original source, and how it was put together? I looked at the profile of the person who tweeted it, but can't tell from the profile if it is someone who would have put together this table from authoritative sources of info.

Returns have not been super-great also for the big banks over the last 10-years because #1. interest rates have been low #2. Banks, especially Category I banks, have been required to build higher CET1 ratios. So, all the money that could have been going to make loans or given back to shareholders has been getting used to more than double the equity needed in some cases. That money could have been used to return 100% of the equity back to shareholders, but it wasn't. It was the right thing to do make banks more robust. The above two are not true going forward.

Merchant services is indeed the key reason USB comes out well in Fed's severely adverse scenario, where according to Fed it is one of the few banks that makes money even during severely adverse scenario on page 19 at https://www.federalreserve.gov/publications/files/2022-dfast-results-20220623.pdf . Clearly, Fed got a lot of things wrong, especially with Charles Schwab. So, take the stress test results with a grain of salt. For commercial real estate losses, I'd just double/triple the losses that Fed is assigning to each bank to see how each bank would do. US Bank does do much better than PNC with CRE losses that way. That said, I think US Bank's merchant services is facing some threat from Stripe, Square, Paypal, etc., and eventually Apple. Does anyone know deeper how much threat, and how much longevity US Bank's merchant services have left? I'd have thought it was a sticky space, but somehow competitors have been growing by leaps and bounds. I was surprised to hear Munger mention how well Stripe is doing in a recent video. Wonder if that's one of the reasons why Buffett sold USB. Also, looking through the most recent earnings transcript, looks like they took 180 basis points impact on CET1 as a result of the Union Bank acquisition that they need to work through at a time like this. Anyone looked into that?

FDIC didn’t commit to saving all depositors over FDIC limit in all banks yet. I wonder if some depositors in other niche banks will still try to get their deposits out before others based on the rationale that FDIC might not be able to save all depositors over FDIC limit in all banks.

I think there might indeed be dichotomy between market's voting machine and the reality of risk of bank runs at regionals. Ackman's comments don't make any sense about widespread contagion to regionals. Unlike at SVB, my guess is 99th percentile deposit at the average regional bank is going to be under FDIC limits. So, there is a chance market might offer opportunities, even though regionals don't have the cost-of-deposit, tech-investments, operational-leverage-improvement benefits of BAC. @lnofeisone, instead of IAT (which is focused on bigger 37 regional banks), why not keep an eye on KRE (which has 143 holdings, including smaller banks). There is a chance KRE might end up facing the dichotomy more, and as a result might end up falling more due to contagion from SVB in the stock market but maybe not in reality because percentage of deposits protected by FDIC will probably bigger with KRE than IAT. See https://www7.fdic.gov/sod/ . Sure, in the extreme case, maybe risk might end up materializing for a few banks in KRE, but that is just a few of 143. If the risk does materialize for a few, KRE might drop a lot, creating opportunities. Thoughts?

@RedLion, you probably know this already, but it was a surprise for me to learn: even if call options are longer than one year, upon expiry, the amount you sold them for is subject to short term capital gains.

Given you have to pay short-term capital gains on expired calls regardless of duration, wonder if writing calls is worth it for giving up the opportunity for bigger gains.

Thanks @bizaro86 for raising that. I think the difference is that NTR & MOS (who together own CanPotex 50% each), and BHP are still within the reach of U.S. antitrust law if they tried to signal to each other to reduce supply to keep prices high. On the other hand, OPEC+ is not under U.S. antitrust law's reach & thus can openly discuss & announce production cuts to support prices. This is why NTR's two predecessors & MOS (three of who together owned CanPotex 1/3rd at the time) chose to pay $100M to settle the last antitrust lawsuit. I don't think NTR & MOS would want another antitrust lawsuit, and thus wouldn't be able to legally signal to each other to allocate production share to cut down supply when potash prices start coming down while BHP's new potash mine Jansen starts producing more. They will be wary of the fact that any announcement of production cut by either to support prices could be used as evidence of signaling.

Those should be recyclable, no? I still question the claim that metals needed will be 10X of what energy tonnage is today. I'd like it to be true not for any investment in metals, but because that would be positive for energy needed for production & movement of that much metal, but I just don't see it. Investing in metal miners is way way harder because there is no cartel to protect the price by controlling supply. Oil is the only commodity where a cartel is working on your behalf to at least keep somewhat inflation adjusted cashflow for its member countries.

Thanks @SharperDingaan for sharing your thoughts here. You're thinking Berkshire is interested in Permian for cash flows further out in the future from gas instead of cash flows near term from oil? As LNG market gets developed, wonder what are your thoughts on whether a cartel similar to OPEC+ will get formed based on global distribution of gas reserves and production share? Looks like Russia and Iran signed an agreement recently, but wondering if it will extend further to create an OPEC+ like cartel for gas, and likelihood of that or whether that would be just speculation?

Thanks @Xerxes for pointing that too. I've always thought the same that Permian was for the long haul (protection against inflation currently and any future inflation due to calamities). I wonder though why Permian over oil sands when Permian depletes so much faster than oil sands.

I agree. In the video above, I found it odd when he made the logical leap from some specific metals needing a lot more supply to saying the total amount of all metals that will be needed per year will be 10X in mass compared to oil, etc. needed today. Anyone else surprised by how he made such a big logical leap? Do folks think that was just a mistake, or he actually has data backing that up that he just didn't share in the video? I'm thinking it was a probably a mistake, but how could a person so involved in this make such a big mistake.

Yes, in case of banks, where the deposits are not due to primary relationship where money is needed to clear day-to-day checks, they will have to indeed pay higher interest rates to keep those deposits, and thereby have losses spread out over time. However, in case of banks, where the deposits are due to primary relationship, where customers are going to keep bulk of the deposits regardless of zero interest, you can think of the deposit franchise as farmland were rents (interest on loans made using those deposits) are going up as old leases expire (securities mature and old loans are refinanced/paid back). The rents are going to go up multiple times on the new leases on that farmland over the next some years, and those higher rents are going to start showing up in the income statement at some point.

If you take out SBC, FCF yield comes down to 4.5%. The risk you take with Apple is when treasuries are yielding more, and market is slowly digesting new interest rates, all it takes is P/E going from 20 to 14 for you to temporarily lose 30% of your investment. Low likelihood but if a cybersecurity/reliability risk materializes, you could lose more until at least the brand reputation is repaired. NFLX I see no point in touching when you don't even know when you will get your cash back if you were to buy it entirely.

Thanks @Spekulatius for sharing. This is very disruptive for Paypal, and still somewhat disruptive for Visa/Mastercard. Canada has that today with Interac e-Transfer, and you can see a lot of the transactions that Canadians do already with e-Transfer that Americans are currently doing with Paypal and Visa/Mastercard.

I haven't been following this, but hoping someone has done the math on what will be available to shareholders after mortgages/debt is refinanced at higher rates as it matures.