TwoCitiesCapital

I can`t really see how the US is able to default without creating a huge problem for retirees at the same time. And since this is a growing and voting cohort, its nearly impossible for the US to go that way. Of course printing money is a slow and long process, but its the one that can work without a revolution. Assuming we get a long period of deflation has the implicit assumption that the FED has no power/control anymore (at least over the currency). I simply don`t believe this. I don't think any defaults because "they can." They default because they have to. An explicit default and an implicit default are the same thing. All that changes is who pays for it and when. Also, I'm having a hard time understanding how printing $4 trillion to buy bonds in a bid to force interest rates to 0 so would-be retirees have to save 2-3x the amount of money they needed for retirement just 8 years before so that we can stoke inflation to destroy the value of those very savings doesn't seem like a real winning strategy with retirees either....but maybe that's just me. Also, if QE was really intended to print money and induce inflation, it's probably about the poorest mechanism one could come up with to do it. The Treasury could quite literally print $4 trillion dollars and pass it out at random and likely produce better inflation results than we've seen. Better yet, you could target it and only pay out to the bottom half of society - it's still $22,000 per individual on average. Somehow $4 trillion sitting on reserves of banks is better at inducing inflation/economic activity/dollar velocity/etc. than $4 trillion injected into the real economy?

Japan has not really printed that much money until the start of Abenomics? When too much debt is the problem, QE is the only workable solution isn`t it? They have to print enough money to offset the negative money velocity. And ideally the government spends more money financed by the FED. That way you simply can`t have deflation. At the moment the FED is not printing money and the government is spending less, the outcome of that is what we see at the moment. I would disagree. Japan originally embarked on QE in 2001 - over the course of 4 years it purchased over $30 trillion yen worth of bonds. That was equivalent to about 2-3% of GDP per year being infused into the financial system where it sat as excess reserves. Before the U.S., and other countries, started regularly running deficits of 7-8% GDP after 2008, a consistent 2-3% was considered large. Sure, Abenomics was much larger, but policy makers are already beginning to doubt its efficacy and many have deemed it a failure. In the meantime, the Japanese currency has lost half of it's purchasing power and what do the Japanese have to show for it? A GDP level that has yet to exceed the high set in Q1 2014? The Japanese have basically had an implicit default - if you pay back all of your debt in a currency that is worth 1/2 as much, it's no different than paying only 1/2 your debt and writing off the other half. One of these is immediate - the other is drawn out. Both are defaults. So, if anything saves Japan in the future, it will be the default via a destruction of their currency and not the effects of 15 years of QE that has left them with a significantly higher debt burden. You say that QE is the only solution. That assumes it's a solution at all - I wait for you to provide evidence of it's efficacy. Secondly, assuming supporting data exists, let's compare two scenarios: 1) Managed delevering/default cycle where debts are slowly paid off or written off over the course of a decade or more. Growth is constrained, but the balance sheet of the American consumer and government is repaired and more responsible attitudes towards debt and personal finance likely emerge from the financial strains. Also, on the moral side, the highest costs are generally borne by those most responsible OR 2) Print $4 trillion dollars to buy government debt to monetize a deficit to help facilitate a transfer of debt from consumers to the government. Consumer balance sheets are moderately repaired ONLY if you assume they never have to pay the money back via higher taxes. Best case scenario, very little headway is made in balance sheet reparation and general attitudes are little changed. Also, on the moral side, almost the entire cost is borne by a later generation that had no vote in the matter nor did they contribute to the problem that their money is required to solve. Yea, #2 seems like the only workable solution...

Japan doesn't have a fixed currency either and they've suffered from deflation for the last two decades. Secondly, QE isn't inflationary for anything but risk assets which has the potential to transcend to the greater economy - but generally doesn't since most of the risk assets are owned by a handful of the wealthy that don't typically spend the money unless if they just bought a Picasso. The majority of the money has been stuck as bank reserves and isn't loaned which is why after 4 rounds of QE we have paltry growth, record low monetary velocity, and had headline deflation in the first quarter. There could be a real argument made that QE has been absolutely pointless except in potentially driving asset bubbles and monetizing the government debt.

I think it's important to note that he does qualify that by saying "once the deleveraging is over." I don't even think it's really begun yet - all we've seen is a transfer of debt from consumers to national governments which deleverages some as the cost to carry that debt is reduced, but it's not a true delevering.

I've been thinking about picking up more as well - hoping for $450 since I already doubled my holdings at $500 back in January.

I've been thinking about this awhile and the only negative thing that I come up with in a prolonged deflationary scenario is you have fixed rate debt obligations - which every tax-paying American does on top of whatever we have individually. The government has a massive vested interest in inflation, because we're already talking about the potential of it being broke under unfunded entitlements and that is before tax revenues start consistently shrinking. I think that there is the potential for seriously prolonged deflation though - it would take a massive change in political good will to actually enforce a policy that would be almost guaranteed to start inflation of some sort: flying around in a helicopter and raining down freshly printed dollars on the poorest of neighborhoods. Of course, this wouldn't be productive inflation - simply goods inflation that would likely result in bubbles across different consumer products, but at least the government can start paying it's debts in devalued dollars, right?!?!?

Is that the link you meant to post?

They're afraid because markets are still extremely fragile. We're seven years after the initial blow up and we still have massive deficits, extraordinarily accommodating monetary policy, and massive expansion in the monetary supply, and extremely low interest rates and yet GDP growth is still below average, inflation is far below average, and wage growth is non-existent. Plus, also consider the European drama and the slowing growth in China has the ability to push a major portion of the global economy into a recession further pressuring a fragile "recovery." I don't know if they'll raise rates or not: my guess is they either won't or that it will prove to be a mistake and they'll have to quickly retrench in the 12-18 months after they begin raising them. Full disclosure: I'm in the deflationist camp.

I guess I should also clarify. Not all taxes are theft. Just the current form of income tax and how the U.S. gov't aims to collect. A VAT tax, as I supported earlier, would only tax those who purchase items. If you don't want to pay the tax, you don't get the item. Just like any other transaction. The whole transaction is voluntary and nobody goes to jail for deciding not to buy items (and thus avoid the tax) like you do now if you avoid your income taxes. You can have a tax system that doesn't rely on organized theft, but as long as the government is taking something from you from a non-voluntary transaction that uses coercive forces and threats of violence, then I think it's pretty fair to call it theft.

It was my understanding that it would not set the precedent. Greenberg had a case because of the particular regulator and their actions taken. Ours was done by the U.S. Treasury so it's not the same.

What else would you call forcing someone to pay you money with a gun to their head? I mean, don't get me wrong. I don't believe we'll ever make it to a taxless state and I fully agree with, and support, progressive taxation if taxation is to exist, but having another name for an activity just because the government does it seems wrong. If you don't pay your taxes, you don't simply lose the benefits they buy. You're thrown in jail. The government is taking something that is yours and using coercive methods to achieve it - if anyone else did that it would be called theft, but because it's the government holding the gun it's something else?

I've always liked consumption taxes. If I want a giant boat or sports car I pay a lot of taxes for it, but if I just want to live simply I'm not paying as much in taxes. A theory of mine has been a tax system where capital gains and dividends are taxed at 0%, but incomes are taxed progressively. In theory it would create the incentive for company managers to own stock and pay dividends vs just pigging out on a fat salary. At least with dividends shareholders would benefit as well. You could probably set the threshold fairly high and it would only catch executives, lawyers, orthopedic and plastic surgeons. I understand the allure of consumption taxes, but.. If we recognize that the tax code has become ridiculous due to government tinkering, why replace it with a system that opens the door for tinkering? A consumption tax will inevitably lead to government choosing what is and what is not taxed. That leads to lobbying and eventually changes. Realtors and investors will argue that real estate is not consumption, it is investment, art collectors will argue paintings are investment, and of course gold investors will say gold, including jewelry is an investment, etc. Will buying a new car be consumption, but a classic car an investment? A flat tax, where each one is free to spend as they choose seems wiser. And for some who post on this board, it seems more consistent with their libertarian beliefs. You simply tax all physical goods and services at the same rate. No exceptions. All purchases/fees/transactions would carry the same VAT on the service/transaction/purchase/fee amount. Anytime cash is exchanged for something, there's a VAT on it. As simple as that. I don't see why it would have to be difficult. I think a consumption tax makes way more sense than a tax on income which doesn't seem productive at all....plus, there seems to be way more loopholes on how income is categorized than transactions. It's as simple as if you exchange payment for something, then VAT applies.

The size of the estate shouldn't matter. Depends on what your goal is. If you intend to limit one individual from being given too much, then it should be an inheritance tax instead of an estate tax. $10m inherited by an only child is very different from $20m inherited by 8 children (4 of them spouses of 4 children born) and 14 grandchildren (22 people all put together). It's not a dynasty when you inherit less than a million! $20m may look like a lot, but it really only matters how much each person is actually getting IMO. My grandmother died in 2011 and she had about $18 million in shares, cash, and property. She had 4 children, all surviving, and each was married. There are 14 grandchildren including myself -- we were all at least 35 yrs old. It looks like a lot, but it's not a dynasty. The only people to get more than a million were the children, who were all in their late 60s and early-mid 70s at the time. It's not going to ruin their lives and they are too old for it to become a "dynasty" problem -- once divided amongst their children, it's just not a mind-blowing amount of money and won't change the lives much. So to meet social goals of limiting dynastic wealth, I don't see why a $17m estate necessarily needs to be taxed. And it wasn't taxed -- her estate was in Australia. You're quite right. I change my opinion to be for inheritance taxes as opposed to estate taxes. In my mind they were roughly equivalent, but now that you've walked me through it I certainly see the difference. I know that families generally blow the inheritance money they receive, but it only takes a handful to invest it wisely to create dynastic wealth that affects politics/business/etc. for generations. I'm not down for that and don't think that children, grandchildren, and great grand children are in any way entitled to the wealth their relatives made. I intend to be wealthy and have no problem with the idea of the government taking upwards of 50-75% of everything I want to leave my children above a reasonable limit. Forces more money back in charities, local developments, or into the government coffers for redistribution elsewhere.

It's bizarre. I've been wondering myself for years why Google Finance didn't just zoom past Yahoo! like it did everything else.

I like consumption taxes. They're the hardest to game. You want to live like your wealthy, then you'll pay wealthy-level taxes. If you're frugal, lower income, or setting aside all of your money for investment - then you're taxed the lowest through a limited number of purchases. You could also make it 2 or 3 tiered to adjust for people's incomes as well if necessary. Get rid of all credits/deductions/etc. Period. Charities would still survive without tax credits - people don't give $100 to charity to save $25 on their taxes. They could just give $75 if it's really that big of a deal - which would be a cut, but a survivable one. I'd also add that the VAT should reset every year to adjust with the current budget/deficit to make Americans more budget conscious. It's insane that people don't appreciate the amount of debt per person or per taxpayer. It's staggering. That ignorance wouldn't likely continue if you're paying it each time you buy something. It should also contain a provision that the VAT be enough to cover the current budget plus whatever amount is needed for 15-20 year amortization of the current debt. That way, current generations can't simply get away with highway robbery of future generations. They'll be paying back some of the principal. While I'm saving the world, I'd say lower corporate rates and higher estate taxes for any wealth over some arbitrarily high limit - maybe $10M adjusted for inflation. Just think of all of the productivity we'd free up if we didn't have an entire industry dedicated to calculating your taxes just because it's become too damn difficult to do yourself. Do you know how ludicrous it is to have to pay someone to tell you how much you made and what % of that you owe? Vote for me!

That's unfortunate. Yahoo! Finance is by far the best one that I've used in the past. I use Google Finance to check prices of individuals stocks and etc., but when it came to news, financials, metrics, portfolio tracking, etc. it was always Yahoo! Anyone have any ideas for a good alternative?

I think the earnings report coming out tomorrow for Amazon will continue to be a positive. They're relentless in going after new and existing markets. I don't think it matters. The stock only goes up.

This is an interesting development. I never read her first book but I did see the movie which was excellent. It just appears that the pressure on this entire situation continues to build. I agree with doughishere that it appear that maintstream media is starting to catch on to this story more. My instincts say that the pressure alone will force an outcome at some point. This is really an interesting story. I haven't followed it as closely as others here. My exposure is indirectly through my holding in FAIRX. Nonetheless, thanks to Merket in particular for the ongoing deep analysis and commentary on this subject. +1 Definitely a big thank you to Merkhet who continues to provide extremely valuable commentary on the matter.

There are ways to do this, like Purchasing Power Parity; however, differentials often last for YEARS. I think it was Stanley Druckenmiller who said that currencies could stay overvalued or undervalued for years and that they have big moves in multiyear trends as it takes awhile for the such long-term misvaluation to correct and because of reflexivity.

Just picked up more Altius at $10.00

There's still probably a healthy gap from this sort of document to being certain a court will grant relief, I think. e.g. if you go back to the Lamberth decision, he pretty much concludes that the reasons for the FHFA's actions are not relevant, so depending on the claim it's not clear if these documents would matter much in a court's decision. That said this filing is obviously good news! I think the Amici Curiae from former Delaware Supreme Court Justice Myron Steele is more helpful than the documents in the Perry brief if the appeals court agrees that FHFA has broad discretion on how it operates as a conservator. (https://www.dropbox.com/s/iyhdmn2o1vnhuy3/2015-07-06%20myron%20steele%20amicus%20curiae%20brief.pdf?dl=0) However, it remains to be seen whether using the GSE cash flow for political purposes (allegedly to keep from hitting the debt ceiling) would be a permissible conservator action. I think that's where the action is in terms of the appeal re FHFA's powers as conservator. I think the very notion of that would be a direct violation of their role as a conservator, no? Why should the FHFA give a damn about the debt ceiling or federal spending period. Their job was to rehabilitate Fannie and Freddie. If they chose to pass along those profits to prevent a politically created crisis, than I think it clearly shows they were derelict in their actions as a conservator OR that they were operating under the sway of the Treasury. My uncertainty is surrounding the court's interpretation of how much leeway the FHFA should have in enacting their duties as conservator and level of the bar of reasonableness that they have to surpass to justify their decisions. It might be a real, real, real low bar....

I don’t agree: maybe after 250 years of history you could do without a strong central government… I strongly doubt it!... But surely not at the beginning! ;) Cheers, Gio I'd say the United States' central government is much stronger today than it was when the country was founded. It took over two centuries for it usurp as much power as it currently has from cities and states. Especially in recent years. That also appears to coincide with a period of record debts/deficits/lacking accountability. Coincidence? I doubt it. I'm not coming anywhere close to suggesting we get rid of the central government - just saying that the more decision-making that is delegated to localized authorities the better the end result would be in general.

I would actually just remove #1 from the list. There are some very important things that a central government can do; however, delegation of duties to smaller, localized governments at the city and state level allows for more accountability, better management, and more economic and fiscal flexibility. I'd say we actually need stronger local governments and less of a central government (outside of a few main tasks). Also, just to be cynical, let's remove #2 from the list as well, because we know we're just going to roll the debt into oblivion and/or inflate it away so there will actually never be the need to pay much of anything on time.

Sold MKL It's up about 50% from where I purchased a year and a half ago and I already have pretty heavy exposure to insurance companies through Fairfax, Lancashire, and through my employers ESOP. I let it go to buy more FCAU and SBRCY while leaving about 10% of the proceeds in cash.

Merkhet, I've always thought this would go to trial and that the duration of the trade would be several years with all of the litigation/appeals with obvious pops/drops upon each decision. It seems like you are thinking that a settlement might be an alternative that is in the cards. What would the time frame on a settlement be? Maybe expressed as a range as the nearest possible to furthest guess? I'm just curious how much that would effect my time horizon for the position if the settlement becomes the most likely option.