JSArbitrage

Americans generally have an inherent distrust of government; it goes back to our founding. Americans generally don't like the idea that we have to pay 40-50% taxes when you add up federal, state, local, real estate, sales, etc. It goes against the American DNA. I am generalizing of course. But much of the problem we are having comes from the fact that Americans are becoming divided on the issue above. It used to be that most of America was against a larger, more active federal government. But many people have been watching Canada and much of Europe and have decided that it's not a bad system. So you have a clash. About half of the America still has the rugged individualism and about half see America as much more of a collective. So through the years, the rugged individuals have compromised to gain lower taxes and the collectives have compromised to gain more social programs. Now we run into a situation where those old compromises just don't work. We're out of runway. So now...which ones wins? Do the rugged inviduals cave and accept higher taxes or do the collectives cave and accept less social programs. Or a little bit of A and B?

I wouldn't trust CDS. The ratings agencies would probably play a game of verbal twister to prevent any payout ala the upcoming Greek default.

Obama: The Responsible Executive (another character to be played in this drama) http://www.nationalreview.com/corner/256199/obama-not-always-fan-upping-debt-ceiling-katrina-trinko Seriously: how do smart, educated people fall for this over and over? The desire to want to believe that our leaders know what they are doing and do it for the greater good? Goldfish memory? Obama, The Dems and Repubs are politicians through and through. They will be for or against the same thing, depending on who is in power. Pelosi/Boehner would vote to decide that 2+2=7 if it prevented the other from getting what they want. That's all this is. It's not responible executive Obama bringing reason to a bunch of animals. It's not courageous Republicans preventing a sale of our children's future. It's politicans fighting each other ... as usual. Stop falling for the same tricks over and over. This isn't good versus evil or reason versus emotion. And it's not enlightened finance versus defaulting luddites.

I think Warren's (and Larry Summer's) viewpoint that these represent "your bills" is a bit of a false premise. They aren't my bills or your bills technically. They are the government's bills. Governments change and people change. Why should their decisions still be binding? Should Russians today still have to pay for Soviet decisions? Should Iranian citizens still pay for the Shah's decisions? You get my point. Not to be tangential here but, as a society, I think it's completely normal to have serious debates about whether we want to accept the sins (or debts) of our fathers and grandfathers. That's a perfectly healthy debate. In fact, Judaism and Christianity has always accepted the idea of Jubilee: that over long periods of time, a forgiveness or debt and sin is healthy. Now all of a sudden it's "unthinkable" (Summers) and like a "gun to the head." (Buffett) I feel sorry for the society that doesn't have this conversation. P.S. - I am not saying we SHOULD; I am just saying the conversation is perfectly healthy. Just to be clear. We are having this conversation. Both on this board and in the real world. Calling something "unthinkable" or like a "gun to the head" is in no way advocating that people shut up about these debt problems that we have. Your idea about not paying the bills because they are the government's bills and not yours is very much at odds with our system of government. The fundamental premise of the US system is that the government is not a sovereign separate from the people. The people are the government. "Government of the people, by the people, for the people." Now, you might ask, why should we bound by the dead hand of the past? The only answer is that because there is a social compact that entails that we be bound to some degree to the decisions of past generations. And because the people have the ability, in theory, to change the situation by putting a new government in power. I mean, why should we follow the US Constitution or any past federal laws? We didn't come up with the text or elect those legislators who came up with those laws. Taken to the logical extreme, your idea is pretty radical. Actually, we don't follow the US Constitution and many people in power don't current follow federal law (unless you actually think Tim wasn't smart enough to use TurboTax.) But that's not what I was trying to say ... at all. This idea of sovereign default being "unthinkable" due to some nebulous view of a social compact (a view not universally held mind you) or the most famous line from a battlefield speech 150 years ago (a war in which the government "of the people" imprisoned their own political dissidents) is just childish. There have been 200 or so sovereign defaults in the history of this little blue planet. 201 is not some unthinkable outcome -- it's inevitable. Believe it or not, finance didn't begin in 2009 and, heads up, Greece has done this before ... A LOT (despite what George Papandreou wants you to think.) Sovereign default is simply a large efficient breach -- a legal strategy that is as old as contracts themselves. Someone compares this to having a "gun to your head" and what I say is radical? It's not radical ... it's history. If you a sovereign default is the end of the world, then it's a miracle we have come this far with all those "world ending" sovereign defaults from the past. But like I said in another thread, I am with Drunkenmiller on this one. People are getting sucked into the drama and losing perspective.

I think Warren's (and Larry Summer's) viewpoint that these represent "your bills" is a bit of a false premise. They aren't my bills or your bills technically. They are the government's bills. Governments change and people change. Why should their decisions still be binding? Should Russians today still have to pay for Soviet decisions? Should Iranian citizens still pay for the Shah's decisions? You get my point. Not to be tangential here but, as a society, I think it's completely normal to have serious debates about whether we want to accept the sins (or debts) of our fathers and grandfathers. That's a perfectly healthy debate. In fact, Judaism and Christianity has always accepted the idea of Jubilee: that over long periods of time, a forgiveness or debt and sin is healthy. Now all of a sudden it's "unthinkable" (Summers) and like a "gun to the head." (Buffett) I feel sorry for the society that doesn't have this conversation. P.S. - I am not saying we SHOULD; I am just saying the conversation is perfectly healthy. Just to be clear.

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.

Are you expecting people to be hard on you? It's CHINA. Anyone who has ever been to China knows there is fraud everywhere.

It's the captive audience and the fact that the theatre basically makes no movie off of the ticket sale. The studios make most of the ticket sale money (I think 80c of every $1 of a ticket sale goes to the studio.) The theatre then pays FTE, PTE, rent/taxes, water, power, etc. with concession sales. So, given that fact, the theatre pretty much has to gouge on the concessions given the fixed amount of food per person (e.g., very few people would buy 2 buckets of popcorn even if the theatre cut the bucket price in half.)

I disagree. Believe it or not, there are actually very high quality business that choose to remain small. Two that immediately come to mind are In-And-Out Burger and Blue Bell Ice Cream (a brand in the South.) McDonalds: 32,000+ locations. In-And-Out: 258.

For your reading enjoyment. It seems fake but it's a TIME article: http://news.yahoo.com/s/time/20110606/us_time/httpmoneylandtimecom20110606homeownerforeclosesonbankofamericayesyouheardthatrightxidrssfullnationyahoo

I agree. In fact, it seems many well-regarded mainstream economists seem to spiral into silly places when it comes to politics. For example, The Chicago School is currently pretending that the lack of self-regulation by financial institutions had anything to do with our current predicament because doing so would completely invalidate their Randian views of government. So you've seen some really weird claims coming out of there over the last few years. John Taylor at Stanford is also brilliant but pretty much agrees with anything the Republican Party recommends no matter how dumb. Politics really twists economists into pretzels. In other words, economists are brilliant when it comes to the "who, what and why." It's the "so what can we do about it" that they don't do well. Heck, even Bernanke claims that the financial crisis was impossible to predict, that the Fed had nothing to do with causing it, etc. Of course, objectively, we know this to be untrue. I think even he knows it to be untrue. But politically, we has to the protect the Fed because how else will PhD's be able to manipulate the economy without the Fed? So a Bernanke's gotta do what a Bernanke's gotta do.

I think the Apple/Google versus Microsoft evil debate has to do more with switching costs. If I want to use Yahoo Search or a Samsung phone, I can easily do that. But Microsoft has the consumer PC market in a choke hold. The closest you can come to not using MSFT without being a tech whiz is buying a Mac (which wasn't a viable option in the MSFT anti-trust days.) Even now I use Microsoft Office on my MacBook Air so they still got me. I think there is a difference between someone being a dominant player because their products are great and someone who is a dominant player because there is really no viable alternative. P.S. - No MSFT hater here. I think Win 7 is terrific. I use it on my desktop.

Ah, yes. The games I have played. Credit card companies are gifts that keep on giving if you are young and in need of capital. In the US at least, credit card companies give the craziest offers. I've used credit cards that give you free round trip airlines tickets to spend more than $X amount in 60 days. So you simply buy dollar coins from the US Mint and then pay off the balance. Or give it to your parents (who presumably have more expenses than you) and have them pay it off every month. Free tickets. Or they give discounted gift certificates for reward points. So basically you can buy major brand gift certificates for like 50% off with rewards and then put those gift certificates on craigslist/ebay. They usually go for about 90% of face. There are 100 different ways to work the system and that doesn't even include 0-4% loans. Way too many to write about. It's amazing and so fun. It was a hobby of mine in my younger days. But when you get older, the amounts are no longer worth the time. P.S. In my experience, Wells is the worst for these deals (they are tight with terms) and CitiCards is the best. Heck, with citi cards, you can balance transfer a cash EFT into your bank account. Basically a cash advance but falls under balance transfer terms (so you get 0-4% cash loans for 1-3 years.)

Gap Inc is definitely an interesting situation. It's decently cheap and has good brand recognition. Zero debt and $1.5B in cash. I think Lampert's attraction is the shareholder friendly attitude of GPS management. By my calculations, they've pretty much given almost every dime of FCF over the last 3 years back to shareholders through dividends and buy-backs. They aren't pursuing a growth-at-all-costs strategy (they've actually reduced square footage.) But you never know with Lampert. He can remain inactive for years before pulling a major rabbit out of a hat. Who knows if there is a plan for Sears/Gap? Not me.

If you wanted to get into RE, I think it'd be crazy to do single family homes. First, your revenue is too concentrated. It's like investing in a company with 1 source of revenue. Secondly, competition is very high. You are competing against people who might have paid that home off years ago and are just looking for some extra cash each month. Or people that are underwater so they refuse to sell and just want to pay off some of the mortgage. Or, if it's a vacation area, you are competing against people that just rent it out for some extra cash in the off-season; they fully intend to lose money on it. Lastly, prices are held up by economically irrational buyers (i.e. they aren't crunching the numbers on a cap rate basis. They are buying because they can afford it and their wife liked the granite counter-tops. Lots of "goodwill" value in homes for people.) I'd much rather take the debt side of housing, particularly of the hard money variety. There is an active market for people looking for short-term, high-interest money and there are investors willing to pay for it. I'd much rather broker a $100K loan to a group of high net worth investors and take my commission. It's better than putting my money at risk and unclogging toilets of tenants. Of course, you could buy a high-moat company selling for a reasonable P/E with a growing imbedded coupon and play golf and sleep tight. Whatever floats your boat. I just think owning single family dwellings as an investment is for the birds. I'll take a 100% passive 10% over a middle-of-the-night repair trip for 15% any day.

I think he'll be hilarious. Buffett has a terrific sense of humor.