original mungerville

This was inevitable. I have some commercial land there (which was purchased quite a few years back), which we plan to eventually put a small condo building on over the long-term...more of a location play rather than a general real-estate play. I felt this general bust was going to happen with near certainty as the prices were so out of balance relative to even high incomes in India.

You might look back and think that you should have inconvenienced yourself and sold now. I would - nothing wrong with renting somewhere for 5 years while you sit on a mountain of money.

What's weird is I remember sharing a crack shack / mansion link on Vancouver real-estate back before the financial crisis - probably 2006/07 timeframe. Been going on for 10 years now - maybe the bidding wars were not as crazy.

Hi Cardboard. I appreciate the kind words. Actually, we did not escape this recent volatility unscathed even if we were preparing for it. It's very difficult to know exactly when the shoe will drop and as we have seen the past 6-7 days, things can also quickly snap back. Overall, I still maintain decent long exposure and as such (like everyone else) have seen some negative surprises in the portfolio over the last few weeks. That said, the most important factor in our portfolio's performance over the last 2 years was our allocation in gold and USD denominated fixed income securities. Being in Canada, we outperformed our peers on the FX component which has been a great boost. Interesting. My highest conviction exposures are 1) long gold / miners / silver, and to a far far lesser extent 2) long US dollars, and lastly 3) gorilla shorting stocks (ie moving in and out of a hedged position to a short position in equities, not daily or anything but say every couple months) #1 and #3 have cost me a lot over the past few years, #2 has helped. The jury is still out on whether I will recoup my outsized position in #1. (I am talking about my own portfolio here which fluctuates like a yoyo, whereas the OPM I advise has gained double digits on average every year since 2005, including the last few months due to its US dollar and 15% precious metals exposure - 5% each in gold, silver and miners - large cash position, and hedged equities.)

Personally, I think the smartest way to handle your cash position is to put 85% in local currency and 5% gold, 5% gold miners and 5% silver; or 90% cash and 3.3% in each of those three. And don't rush to reinvest into equities until you see an absolute steal of a deal.

Oh really? I don't think they get a lot of attention. My impression is that most people don't have a clue why DB's equity is on a 20 year low and spreads are blowing out (which I wouldn't regard as "not giving a ****"). What's your theory on this? If at all, people are talking about how bond holders might lose the principal of their CoCos but I haven't seen a sensible discussion about the interplay between those bonds and the common share capital – neither here nor in the WSJ, the FT, the Economist or Zerohedge for that matter. But this is my whole point (I couldn't care less about some bond holders losing their money). CoCo nominal vs. Wells Fargo market cap doesn't matter in my opinion. I think what matters is CoCo nominal vs amount of equity capital of the issuing bank and you may know that this is substantial for most of the European banks. Apart from that, size isn't really the biggest problem but that capital markets are closed for now for those banks and they are really in need of equity capital. I don't think they are getting that much attention either. Raoul Pal has been raising awareness re European banking problems although he can not say what exactly the issue is - he thinks its maybe a bunch of things. We could list initial issues being 1. recycling of petrodollars turning into selling by sovereign wealth funds to fund their government deficits, 2. structural $US short position of Emerging markets and other factors continuing to drive to the dollar up and Fed currently diverging from Japanese and European monetary policies, 3. large sovereign debt levels in Europe, 4. negative interest rates negatively impacting margins, 5. big opaque derivatives book, 6. emerging market default potential and large European exposures to those markets (eg, Spanish banks lending to South American countries), 7. commodities collapse and f/x volatility impacting derivatives positions (ie some sort of net exposure must have swelled somewhere over the past couple quarters), 8. trading bank regulations/capital requirements impacting trading margins, 9. cultural issues at bank not really changed where traders continue to seek profit for their own short-term gain rather than for long-term gain of the bank, 10. importantly market may perceive thin equity capital on a mark-to-market basis (ie book overstates equity capital), 11. Add cocos' equity dilution potential to this mix, 12. Potential for a Chinese banking crisis as well (see Soros and Kyle Bass), 13. Related is a sharp devaluation in Yuan (Bass, Soros, Druckenmiller, Mark Hart, etc). Anything else we can add to this list?

Ni-co, I want to discuss. Something feels weird but Why a banking crisis?

I've been accumulating SAN/BSBR the whole way down through additional purchases and reinvested dividends. I'm short SAN, DB and CS and think Europe is on the verge of a banking crisis. Why a banking crisis in Europe? Spreads are blowing out on subdebt...something looks potentially very wrong; bank stocks are tanking. Why a crisis?

I said four years total, 2 before and 1 after the peak. So for the 2007 top, assuming you don't have a crystal ball, and start getting conservative in 2005/06 to a degree and start hedging somewhere and be bearish for 2007/08. So four years total for each top, and with 3 tops in the S&P 500 over 18 years that's about 12 years out of 18 or 2/3rds of the time. There has never been 3 tops like this in the S&P 500 in this short a timeframe, and who knows maybe our brave Fed will ensure a higher top for this third top or create a fourth and Hussman will be wrong for longer. But he ain't going to send any rich man to the poor house, unlike many hedge funds. And he should not be judged until we look back and see exactly where we are in the cycle.

Outperformance over ten-year periods is difficult, sure, but who cares? All that matters is end performance. Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995. Hussman LOL, says the guy who has not made any money for investors for 10 years+ : http://hussmanfunds.com/theFunds.html BTW, his argument is broken: he does not look at market recovery post crashes which produces great returns. And BTW, there are about 5 people in the world who can avoid market crashes. But of course, there are a lot more who believe they can do so only to be proven wrong. Hussman is a loser who sells to idiots. No, I don't think Hussman is a loser. He missed the market recovery - he fucked that up big time. Reading his stuff, he doesn't come across as a loser - I haven't seen his results but I bet he hasn't blown up. And if the S&P were to decline to say 1600 or so this year, I would guess (again I haven't tracked his results) - so this is a pure guess, that he would be beating the market since 2000, so for over 16 years. Could that be correct? If the S&P fell to 1,600, and Hussman has been calling for a deep decline since the S&P was at 900 (in 2009, no less), does it matter if his portfolio beats for a brief moment in history? He'll still be waiting for the Apocalypse, and will continue to write academic "what should happen" rather than preparing for the worst, but riding in the market he has. If you believe the market is going to implode, but it continues to ride upwards, hold cash, along with your investments...Hussman continues to buy S&P puts ad nauseam, and eventually will be right one day (maybe even now, as I believe). None of his investors will be there to reap whatever little reward he finds from this strategy. Put another way, if Hussman was so right about the 2007-Q1 2009 decline, why doesn't his 10 year performance show any outperformance of the market? Of course the answer is he needed to be right on the decline, and right on the exit point of his bearishness. He's a permabear, and will never find a way out of the theoretical rabbit hole he entered. I don't even think it needs to get to 1600, it can get to 1700-1800 and he probably starts to outperform over 16 years. And by the way, why should any dip be brief? The market could stay at 1700 for a few years, it doesn't necessarily have to spike back up as you suggest (eg, on news of QE4 as the QEs continue to be less and less effective). So don't judge Hussman just yet. "Permabear", "loser" - you and Jurgis talk with such certainty. Maybe you need to understand that the period from 1998 to 2016 has been filled with bubbles including what will likely be seen as three major tops in the S&P 500 (ie 2000, 2007, and 2015). So 3 bubble tops potentially over 18 years. Throw on a couple years on the front side of each top, and one on the back (as declines are more abrupt than rises in the market) and that's 4 years for each top where it was correct to be somewhat conservative or bearish (ie hold lots of cash leading to the top and start hedging closer to the top assuming you are a magician and know exactly when to make the switch). So that is 12 of the 18 years or 2/3rds of the time where being conservative made sense. I am not saying Hussman is some investing God or anything - his track-record isn't that good - but I would not judge him at what is very close to the top of the market. And he is unlikely to blow up like many hedge funds.

Outperformance over ten-year periods is difficult, sure, but who cares? All that matters is end performance. Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995. Hussman LOL, says the guy who has not made any money for investors for 10 years+ : http://hussmanfunds.com/theFunds.html BTW, his argument is broken: he does not look at market recovery post crashes which produces great returns. And BTW, there are about 5 people in the world who can avoid market crashes. But of course, there are a lot more who believe they can do so only to be proven wrong. Hussman is a loser who sells to idiots. No, I don't think Hussman is a loser. He missed the market recovery - he fucked that up big time. Reading his stuff, he doesn't come across as a loser - I haven't seen his results but I bet he hasn't blown up. And if the S&P were to decline to say 1600 or so this year, I would guess (again I haven't tracked his results) - so this is a pure guess, that he would be beating the market since 2000, so for over 16 years. Could that be correct?

Something seems off here - I agree with Uccmal despite my respect for them. If I could communicate one thing to those guys, it would be something Jeremy Grantham said/wrote during the financial crisis. He said value outperforms growth stocks. This is what analyses show over many decades. The caveat, however, was the Depression because traditional value stocks (low price-to-book, etc) tend to be lower quality companies, and lower quality companies failed during the depression. I thought that was very very interesting. So you had a lot of traditional value stocks (like the stocks Watsa seems to be buying) going to zero in depression conditions and Greece, Ireland, and the oil patch seem to have been or are in depression-like environments. Brazil is now in one as well, and other countries may soon enter. I think you need to factor what Grantham said here. It speaks to buying higher quality, or it speaks to moving from 40 cent dollars to a larger margin of safety like 20 or 30 cent dollars (ie if you have 10 stocks, 2 go to zero, 2 stay stable and the remaining 6 go to $16 total over 5 years for about 10% compounded annually on the overall portfolio, those 6 need to be about 40 cent dollars - not exactly easy and all that for a 10% return on the whole portfolio), or (God forbid) it speaks to drastically lowering your portfolio return expectations. If you have depression-like conditions in some of the markets you invest in, maybe buying traditional value you need to expect 3 zeros rather than 2 zeros out of 10 stocks. And with 3 zeros you need 5 stocks going to $16 to make that rough 10% return over 5 years - they need to be 30 cent dollars. If you are in a global depression impacting all markets you invest in, maybe you need to expect 5 or 6 zeros - I don't know. The point is that you should factor this in here. The other implicit point is that as you grow in portfolio dollar size, its hard to find 40 cent dollars, let alone 20 or 30 cent dollars.

Wow, doesn't say much for US securities regulation.

Agree. I left the country for 3 years from 2010-2013, came back and food prices were up very significantly. Over 2014-15 they seem to be rising as well. I mean I think food has to be up close to 40% in 5 years.

One tidbit I remember from the crisis is that at one point, in order to get even great asymmetrical exposure quickly, Watsa/Fairfax offered to buy out any or all of Burry's investors who wanted out.