HJ

The corollary is that "value" style is more practiced in credit analysis where guys are focused on minimizing downside protection because their upside is getting their principal back. They underwrite to past stresses and trough profit margins, assuming those will be revisited. "Growth" style is practiced more in the tech world where everybody is trying to invent new things or new business models to move away from the past. We've been living in a period of tremendous changes brought on by the advent of internet and mobile phones - ergo the dramatic underperformance of value vs. growth.

So you mean to tell me that if there was a virus that is very contagious and it make people want to leave densely populated cities with high rent, I am supposed to be shocked at that kind of rationale behavior by the upper middle to rich class? Wow, I would've never thought of that. 2008/2009 was scary as well. People tried to jack my tenants. Every 7-10 years, you have to experience some pain in real estate. It's just life. This is round 2 for me with 2008/2009 being more scary in general but NYC holding up better. This round is more specific for NYC. Back in 2008/2009, I was pretty bearish about NYC because all the revenue and profit center that drove that boom was so tied to mortgage packaging. That was totally going to go away. covid is precipitating trends that are not friendly to NYC. the biggest in my mind is the risk that "front office" as well as "back office" of the securities/finance industry will leave NYC. the latter has already mostly happened. covid is encouraging the former. if NYC loses much of the financial sector, then it will be shot to hell NYC lost the Madison Avenue advertising businesses, (think Mad Man), and it was once the fashion capital of US with its garment district, and the media center of the US with all big 3 broadcasters. Finance is obviously hugely important to NYC today, but there are fundamental forces that give NYC its regenerative capacity. Geography, for one, makes immigration benefit NY more than elsewhere in the US, and so are the transportation infrastructure, education institutions, etc. There's reason why finance was centered around NY in the first place. That said, it's going to be on a down hill for a while, especially with characters like AOC having influence over decisions surrounding Amazon HQ2. It'll take a while, but it's more about how it's run that will determine its future than just finance.

A lot depends on how it's managed going forward. Presumably there were good structural reasons for NYC to have become NYC, capital of the world, in the first place, be it institutional or geographical. Some of those reasons are impaired by the aftermath of pandemic, some are not. But clearly the short term is looking quite grim. Whether it go on for a couple of years or a couple of decades depends on how it's managed and how US interact with the world. Longer term, presumably those same advantages that created NYC in the first place will resurrect it, the same way they did after the 70's.

I have the book in Chinese. The segment on Timberland is actually from a talk he gave at Columbia in 2006, translated into Chinese. It's actually on youtube: The book is really a collection of his writings and talks. A big chunk of it is a discussion of the Chinese civilization in the style of Guns Germs & Steel, ergo the name of the book. Enjoy.

Don't know if you can generalize like that. There are many different kinds of insurance companies, P&C, lifers, reinsurers, etc. And many different types of banks. Global SIFI's, small regionals, super regionals, consumer finance, etc. Much like stock market investing, there are many different ways of making money in it, you need to find the one that suits the current environment and your personality.

I'll throw in a couple of names for kicks: Square and American Express Square because of its small business focus with large end market concentration in restaurants, and still has a $20 billion market cap. Amex because its billing is probably a bit more travel/leisure than typical, and the recent growth area of lending is also a bit more small businesses focused.

Not surprising if you think about the major advertising categories: Travel / leisure Consumer finance (credit cards / auto insurance / mortgages) Local (restaurants, car dealers) The only category that holds up is probably healthcare/consumer products. Even political ads seem to be drowned out by the virus news.

You should watch American Factory which is produced by the production company of the Obama's. It has very little to do with Trump, but simply lay out the experience of a Chinese glass maker trying to build an American factory making glasses fo cars. It highlights the differences, and concludes with the implications of automation. If the argument is simply that this is technological progress, let it run its course, and maybe even use government incentive to bring it about sooner, there will be consequences, quite a lot of it unintended. The communism ideology was born very much as a reaction to an earlier period of rapid technologically driven social changes, and as history shows, it easily gets high jacked by political opportunists. I understand the desire not to be political. But the 2 simply can't be divorced. We are suffering precisely from the political consequence of free trade. In a sense, through free trade, China was able to export a large part of its own political problems, and the US imported it.

The argument for some form of trade tariff isn't specific to China, which just happen to be the biggest trading counterpart with the most impact. So sure, it will go somewhere else, but should be taxed too. The argument is to slow down the structural changes that deeply impact people's livelihood, so they will have time to adjust. Years ago, Buffett proposed some form of import voucher to lessen the U.S. trade deficit at that time, which would have much more draconian impact than just a tax. And critics have long complained about the lack of a coherent U.S. industrial policy. So this argument isn't made simply because of Trump. He's an ass, but as Munger would say, he's not wrong on everything. It's also not true that the same low income people are impacted. Different people are impacted differently. How else do you explain the coast / inland political divide! The argument was always there, and regardless of who the next administration is, it will no longer be easily dismissed, as it shouldn't be.

The economists deal with efficiency, the politicians deal with the consequence of that efficiency. I watched "American Factory" on Netflix over the weekend. The pain of the Midwest manufacturing base is palpable. At some point, the question becomes whether the incremental efficiency achieved is worth the pain that it induces, whether in the form of income inequality or social cohesion of a community. And the election of Trump is a statement that we are at that point. It's one thing to be the beneficiary of lower costs of consumer product, and comment how low skilled labor need to upgrade their skill set. It's another to be fired and told to upgrade your own skillset, especially for those over the age of 45.

In historical context he's absolutely right about that. Prior to the financial crisis, US was arguably more than the Roman Empire in its relative standing in the world. Things have been fraying since. Sooner or later it declines in its relative importance to the world, but the time scale of Roman decline was measured in centuries. One can argue it happens quicker today because of advances in communications technologies, and the speed of information propagation. In geopolitical terms, US is still the new continent. For 500 years, humanity has been migrating from Eurasia to the Americas. There's no reason it stops now.

While general interest rate environment is important for insurance and bank performances, it's not the only factor. Risk underwriting environment, as in delinquency / charge off rates for banks and combined ratios for insurance companies is significantly more important than general rate concerns. You are probably just seeing a relatively benign underwriting environment for banks, and a worsening underwriting environment for insurance companies in general. Life insurance companies have morphed into much more complicated entities over the years, and to the extent mortality / morbidity prediction over large population pools is significantly better than loss ratio prediction for P&C insurance, the asset side, rate environment have become much more important performance driver for lifers. But each business is different. Hard to generalize like this.

Not that I'm any expert at European banking. But I think there's a general perception that Europe is over banked. Each country has their own national champion bank(s), and often times, those national champions are disproportionately large compared to their domestic GDP, relative to the banks in the US. The ultra competitive banking landscape also leads to a less developed euro bond market, and more willingness to finance activities in the emerging markets, which at different times can be a good or a bad thing. Spanish banks roam all over Latin America, HSBC and Standard Chartered feels more Asian than European, both Swiss banks are truly too big to fail for Switzerland. Maybe the one bank that has similarity in geographic mix in the US is Citi. But as noted in the Citi thread, they do seem to have a knack for getting disproportionately caught up in every financial crisis. These are obviously way too generalized statements, and each bank should be evaluated on its own merit. But European banking seems to be a slightly different animal, and a more difficult business than the US counterpart, where JPM, BAC, Wells Fargo all have super-regional, deposit taking roots.

Here's a nice interview for all you fans. After listening to it, I'm a convert. http://investorfieldguide.com/hinkie/

Very interesting line of discussion. I don't think brand loyalty in this context is necessarily that different from other contexts. What's the basis on which one choses Colgate vs. Crest? Pepsi vs. Coke? Tide vs. Arm & Hammer? A huge amount of it is inertia, some of it is pure availability of one vs another, and then there's personal experience (positive or negative), and influence by others around. In my personal experience, branch geography did factor in my choice of banks. I recently had to open an account for my teenage daughter who got her first summer job. I ended up picking Chase for her even though it's not my bank, because I feel like she will be going to college away from home one day, and I wanted to pick a bank that has a shot of having branches around wherever she will end up. As for myself, the last time I changed bank was because I moved to a city pretty far away, and my old bank didn't have a branch in my new city. Even though after the account opening, I hardly ever visited the bank branch again. It would feel strange to me to have my primary bank at a far away community bank that doesn't have any branches in the city I live, even if I could theoretically do it.

The follow-up to the follow-up. https://www.bloomberg.com/view/articles/2018-04-10/hovnanian-s-weird-cds-trade-gets-weirder Whatever you call it, this is not a market.

That's exactly right. However, the question then becomes one of how and when are recovery value determined. There is a wide range of reality between illiquidity and insolvency. (Think AIG or Fannie Mae / Freddie Mac during the crisis.) The protection buyers, influenced by their "big short" experience think most default are by definition disorderly, and price recovery value assuming prices are set more by forced sellers at the time recovery value is determined. However, the very existence of a financier in a distressed scenarios can change the recovery value of a bond or loan dramatically. The question then becomes can a financier front run his own activity without telling the world about it. In public securities space, it's insider trading. These, however, are not public securities. One can also imagine scenarios where somehow there are more CDS notional created than the underlying financing itself. Come settlement time, the price setting can be chaotic. During the crisis, the shorts won, and also wrote the rules as the crisis developed on how to settle these positions. They claimed big victories, and forced cash settlement on some bonds that subsequently went on to become 10 baggers. Here, they are getting a dose of their own medicine.

Here's another one. All these sophisticated hedge funds are getting their heads handed to them on finance 101. Swaps are private contracts. Not a security, and doesn't benefit from any of the protections a security offers an investor. (Bloomberg) -- It seemed like a sure-fire bet: short the debt of a highly leveraged newspaper company that’s losing money. And for a while, it worked as investors piled up almost $500 million of wagers by buying credit-default swaps on the publisher, McClatchy Co. That is until hedge fund Chatham Asset Management stacked the deck with a deal that’s threatening to make those swaps all but worthless. The McClatchy situation is the latest trade that’s drawing jeers from critics who say the $11 trillion CDS market has devolved into a haven for manipulation. One regulator has already warned it’s looking at practices in the market after another trade by Blackstone Group LP’s credit arm that would engineer a default by a homebuilder and allow it to collect on $333 million of CDS. “CDS is being manipulated to the point that it potentially invalidates the product,” says Mike Terwilliger, a money manager at Resource America Inc. “Fundamentally, markets rely upon valid prices. How can I use a product if I need to worry that counterparties are trying to vandalize capital structures to contort CDS contracts?” Gold Rush In the McClatchy trade, New Jersey-based Chatham struck a deal with the newspaper publisher -- founded in California on the heels of the Gold Rush -- to refinance most of its $710 million of debt with two new loans. The loans will allow the company to trim about $50 million off its most expensive bond and give it a few more years to repay the bulk of its debt. The news did little to boost McClatchy’s $72 million market cap. But because of a condition in the deal with Chatham that would move McClatchy’s borrowings into a new wholly owned subsidiary, the impact was seismic for holders of the derivatives. In a matter of hours, the refinancing wiped out 70 percent of the market value of a five-year CDS on McClatchy, data compiled by Bloomberg and price provider CMA show. That was bad news for the hedge funds, banks and other investors that had bought insurance against a McClatchy default. Because the new debt would be shifted away from the parent and into the new unit, it’s fueling speculation that the Chatham deal will create what’s commonly known in the CDS world as an orphaned contract. In other words, anyone who bought insurance on a McClatchy default would effectively be paying insurance on an entity with no significant debt. But for Chatham, the deal could bring a potential windfall. Leading up to the deal, Chatham had been selling swaps insuring against a default by McClatchy. So if the transaction were to be completed, it would be getting paid CDS premiums to guarantee against a default that could never technically happen. A spokesman for Chatham declined to comment. A representative for McClatchy, which owns newspapers including the Miami Herald and Sacramento Bee, didn’t respond to requests for comment. “It’s 100 percent fair to take the opposite side of a trade,” said Jochen Felsenheimer, the Munich-based managing director at XAIA Investment GmbH. "But if then you do something bilaterally with the company, that isn’t a fair trade.” In addition to the CDS trades, Chatham had been snapping up McClatchy bondsfor months, collecting $356 million of its $365 million of debentures. The buying drove the price of one of those bonds -- those maturing in 2029 -- to 125 cents on the dollar, making it the best performer in a Bloomberg Barclaysjunk-bond index this year. McClatchy has said the loans will be priced relative to the fair trading value of the bonds, which means Chatham may be issued the loans at a premium to par, the publisher’s executives said on an earnings calllast week. The deal is still contingent on McClatchy’s ability to refinance almost 300 million of first-lien bonds due in 2022 that Chatham doesn’t own. Reverse of Hovnanian In many ways, the McClatchy deal could shape up to be the opposite of the Hovnanian Enterprises Inc. trade orchestrated by Blackstone’s GSO, which hasgripped the derivatives market for months. GSO has been embroiled in a lawsuit over its maneuver with the New Jersey-based homebuilder over the trade. The Commodity Futures Trading Commission last week sent a warning to market participants that it may act to prevent manipulation “to help ensure market integrity.” “The whole market is losing credibility when you have events like this where you try to trigger the CDS or create orphaning situations,” XAIA’s Felsenheimer said.

The demographic of this 2MM people and their health profile is probably very desirable too. What works within this small group may not work for the population at large. Will they be covering retirees? How do they draw the line of who qualifies, and what is covered, and how are they covered, etc., etc. There's no doubt this will be great for these three companies. How does it impact the overall healthcare system in the US? We'll find out.

This may have been an easy statement to make when main players in the treasury market are private entities, banks and insurance companies, foreign or domestic. Today, half of the treasury market is owned by foreign central banks and Federal Reserve, whose motivations are driven by as much politics as economics. This statement becomes more questionable. Over the long term, it certainly remains true. But that long term can be much longer than most people's investment horizon.

CDS is and always has been simply a side bet, where the shorts and longs manipulate for gains. It doesn't serve a financing need of the underlying economy. And as Munger suggested, it probably shouldn't exist. The rule of the game was always "make it up as you go". The more mathematically inclined may find beauty in a theoretical pricing model, but it serves very little real life purpose. Why would a bank buy credit protection? Because they are too long on a credit. Well, instead of lending too much to that borrower and then hedging it, maybe you shouldn't have lent this much to start with. You say OK, I didn't realize I'm too long until after too much credit was extended, so now I need CDS. But then why buy protection? If you don't think you should lend this much, sell it for cash. The only reason you would still keep it, but buy CDS is because you don't like the price, and buying protection allows you to not realize that full loss right at that moment of realization. Now both sides have all the incentive to manipulate that CDS pricing for gains for as long as the contract is outstanding. It's not a real or fair market by any stretch of the imagination, and never has been. It's caveat emptor all the time for those who want to be involved.

If you look at 5 year crude price, the Jan '16 low was not as bad as $30, and the bounce off that is not quite as dramatic either. Besides that, the big thing that happened on the fundamental side of the business is the cancellation of a couple of big gas takeaway expansion projects vs. the completion of some of the Marcellus takeaway projects.

Dialing it all back, productivity (the way US economists measure it) in the developed world may not have kept up, productivity worldwide has absolutely improved. Think about the integration of China into world trade, the productivity of 1.5 billion people has increased by leaps and bounds, and, to the extent the world figured out how to accommodate their incremental commodity needs reasonably well (which so far it has, agricultural commodity is back at lows, oil may rise again, but for now at $50-$60 is reflection of human ingenuity compared with $30 in the early 80's), the defining event of our time is absolutely deflationary. Yeah, advancement in communication system and internet figures towards that. The spread of productive knowledge, the substitution of the need to do fact to face meetings ..., ...

GDP numbers and productivity numbers are all macroeconomic estimates which are terribly imperfect. They measure things that sometimes are only useful to economists themselves(and politicians that they work for). The rest of us are only told that they are important statistics. They don't necessarily correspond to human progress, or even their trajectory doesn't necessarily measure the trajectory of human progress. Take the invention of printing press, there's no question it was, over time, an incredibly powerful and important invention to humanity. But where is that in GDP numbers around the time they were invented (if any of the economists were ever to attempt to venture an estimation for that period of time using their modern day techniques)? Take something like the wide adoption of wireless communication, it may not be on par with the invention of printing press, but there's no question that it represents important progress and over time betters humanity. Plus, as some have pointed out, these may not have necessarily showed up in US or developed market GDP. But I am of a firm belief that the advancement in communications technology, the spread of internet, availability of cheap computing power to every person in whatever form it takes, all represent very important innovations to humanity that somehow economists will prove incapable of measuring. And politicians, other than Al Gore, won't attempt to take credit for.

This one comment really made me think? Are we really in a great phase of innovation? Hard to tell while we are in the middle of it..... We certainly are. Things like wide adoption of wireless communication, carrying a powerful computer anywhere you go, google translate is incredibly good, available to everybody on demand for free, advances in genetic engineering, even horizontal drilling and fracking, all happening more or less at the same time, iPhone is only 10 years old! Nothing short of miraculous.