TwoCitiesCapital

It might be a bit too high at this point in time, but WLRH regularly fluctuates at prices between $9.90 and $10.75. It's a SPAC with Wilbur Ross and it has less than a year left to announce a deal - if no deal is announces the fund will liquidate and shareholders will receive approximately $10 per share. I use this as a riskier form of cash and regularly purchase shares when it's around $10 and sell them as they get nearer to $10.50. This has multiple benefits: 1) Much more potential upside than cash in the event that a deal is announced while you hold the shares 2) Potential to trade in and out of the shares as the price rises/falls to generate a "yield" of around 5-7% pre-tax. 3) Near certain downside protection around $10 per share until a deal is completed due to knowledge that you'll get $10 back if no deal is announced by December. This is definitely higher risk than cash because the market could just decide to value this thing at 0.01 and you'd end up having to wait until the fund liquidated to get your full cash back and that might be in several months, but I think the likelihood of this is close to nil. Beyond that, you have a relatively certain downside that you choose with your buy-price and have the opportunity for much greater upside than cash. It currently trades for around $10.60 so it's a bit rich relative to the potential $10 downside, but if you are patient there are opportunities to trade it and will likely be more before it liquidates. I've entered and exited 2 separate times in the past year and hoping to get in one last time before the deal announcement deadline in December.

The way Prem talks about The Great Depression, about being cautious in 1925 and waiting through 1932, suggests he is going to wait a whole lot longer than 2 or 3 years. So I think he is going to stick to deflation camp for a very long time. A couple of years of inflation would seem similar to the way he had to wait for CDS bets to come through. Vinod You'd have to consider that 2-3 years on top of the years we've already been waiting which would be closer to 6-8 years at that point. The real "problem" is that the last 4-5 years have largely validated Prem's concerns. *Commodities have been eviscerated *Trillions in global stimulus still can't buy growth above 2% for the Western World *Inflation has trended lower and lower and lower until it went negative for much of the developed world last quarter. *Bond yields are significantly lower than they were 4-5 years ago and there are negative yields in Europe. *The velocity of money continues to hit new lows every quarter. *Wage growth has been totally stagnant If you had a 2-3 years where inflation picked up, wage growth picked up, GDP prints at 3+%, and bonds yields begin rising then I think you have significantly more pressure to forget the deflationary thesis than you've had over the last 4-5 years where everything he was concerned about has generally occurred - and within his time-frame too as he's constantly mentioning that it took a few years for deflation to set-in during Japan's crisis. I don't think that last 4-5 years of resilience and commentary in the face of confirming economic data can be used to predict how he would or wouldn't behave if that data was no longer confirming his concern.

I agree with the comments regarding the income generated by their investment portfolio. Fairfax has $1240 per share in investments. If they can achieve just 3% returns on this amount, that would amount to a 7% return post-tax. Not stellar, but reasonable outcome based on a very low performance bar. 3% is hard for them to achieve with 50% of the portfolio hedged/cash with the rest being in bonds, but the portfolio won't resemble that forever. Also, this analysis totally excludes any gains generated by underwriting and the consolidated affiliates which have the potential to impactful in any given year. Ultimately, in a normal environment, I'd envision Fairfax being able to easily generate $85 per share on it's current assets/insurance business. We're currently far from a normalized environment, but I see these working out one of three ways: 1) Fairfax is right and there is deflation in western economies. Bond portfolio pays off hugely with Fairfax recognizing billions in gains. The hedges and deflation derivatives quite literally mint money and give Fairfax large upfront gains which would be subsequently deployed into assets classes that now have attractive forward valuations. We get a large bump in earnings on the front side and then very volatile earnings afterwards with the inevitable ups-and-downs associated with the value assets purchased. Fairfax likely manages to make greater than my $85 per share per year over an economic cycle during this period. 2) U.S. economic growth picks up and inflation with it. Fairfax waits for another 2-3 years (maybe shorter) in the face of strengthening U.S. data before determining that their deflationary thesis has been invalidated. Fairfax re-risks their portfolio for a more normalized outlook and begins generating the $85 per share that I believe they can earn. 3) Economies continue to muddle on with some quarters validating Fairfax's cautionary stance and others making them absolutely wrong. Earnings will be hard to predict and will be entirely dependent on underwriting results and alpha generations. Earnings per share are more likely to be in the $25-30 per share range but will be extremely bumpy due to the constant shift in asset prices back and forth between positive and negative sentiments. It's hard for me to say which one of these scenarios is most likely, but scenarios 1 and 2 don't end up so badly for investors other than being volatile or requiring additional patience. Option 3 would be moderately troublesome from current prices, but I also think that it's the least likely. We've muddled through for the last 7 years, but without any significant slowdown and with trillions in liquidity and support pledged from central banks along with zero-bound interest rates. The seeds of the next crisis have likely been sown and something will happen somewhere to re-awaken volatility and the concept of loss at some point in the next few years. I have a hard time imagining a muddle through scenario if we see severe asset price correction or a recession in the major economies - either one could easily happen after 7 years of relative calm.

Sold short July $0.50 puts on ACI for $0.09 in my low P/B portfolio to put some of my cash to work. 18% yield for less than two months exposure for an equity that trades at just 7% of stated book value with a current ratio of 2.5x seems like a decent short term scenario to me. Working to restructure debt due years out and bankruptcy is not currently being considered. Owned the name before at $0.80 and sold out using call options for a total of $1.10 a month later. Hard to not want to keep entering this name and collecting volatility premiums from puts/calls while waiting for the news to hit.

Increased allocation to PKX today by 35% in my IRA. Looking to add more. Not really a long-term view on the position as it was already one of my larger ones but I'm trying to get favorable tax treatment on the position since it's fallen so much from my cost basis (around $70). I'm buying shares in my IRA with the intent of selling the same number of shares in my taxable account at a later date (probably in the next 3 months or so). Therefor, my exposure to the name will be elevated for the next few months as I accumulate shares in the IRA and wait to sell the shares in the taxable account to maximize the tax benefits.

I also think it's a matter of simply wanting someone else to bear the cost. It's pretty common knowledge in the United States that the government budget is, and has been, ridiculous for decades. Most people would agree that running consistent defacits is bad and most would agree that we should cut the debt. But this is where it gets tricky - you could cut 100% of "discretionary" spending and still be running a deficit. People agree that we should balance the budget, but nobody wants their social security check cut, their pension benefits reduced, military spending wound down, less funding for schools, etc. etc. etc. Everyone agrees that there should be cuts as long as you don't cut what is important to them...so nothing gets cut. Same parallel in Congress - everyone agrees that Congress is embarrassingly ineffective and needs change, but the same people keep getting re-elected because everyone is happy with their individual congressman. The problem seems to be that everyone realizes that change needs to be made, but are unwilling to accept any changes themselves. They're expecting someone else to bear the burden. In the case of pensions, nobody is going to forego the "now" for the the "later" because they're expecting whoever comes after them to be the ones to bear that burden.

Very sad, rest in peace. :'( I have to +1 Palantir. This is a second wake up call this year (the first one was the value investor killed in Omaha) for wearing seat belts in any car. I am personally bad with this when I sit in the back seat and I think there are others who only wear them in front seat. So reminder for all. Peace. Yea. It's weird. I'm always uncomfortable without wearing one in either seat unless I'm in a cab. I don't know what it is about being in a cab that is different, but I rarely wear one. Definitely a good reminder and an unfortunate occurrence. Nash contributed much to his field - it's sad to see him go.

I'm not Scott, but here are a few tips: if you're having trouble with something like this, I would recommend training up to it; start with something small, and build up your confidence with small successes. Say 'no' to a small thing first, or reclaim some easier part of your life, then move on to what really gives you trouble. Also, make sure you explain some of your reasoning to people, they can be understanding when things don't seem to come out of nowhere. Also, just for your general well being, learn to stop caring too much about what other people think ( http://waitbutwhy.com/2014/06/taming-mammoth-let-peoples-opinions-run-life.html ). Hope that helps :) If I might make a suggestion, I'd suggest a good start might be leaving your cell phone on silent 24/7 as a small step towards the unconventional/freedom/independence. I started doing this a year ago and it's been great! Far less distractions when I'm trying to get something done, far less stress when I'm in the middle of something and it is constantly ringing/vibrating, I don't wake up at 2 AM anymore due to annoying facebook/text notifications, I spend time with those around me and occasionally check my phone instead of being on my phone with others around me, etc. etc. etc. I'm free to check it when I want, I'm free to be available when I want, and ultimately I control how often I interact with my phone and not anyone else. I only turn it on vibrate when I'm expecting an imminent phone call. It's incredibly freeing to not have to feel like you have to respond to that text message or answer that call immediately just because someone decided to send/call at that moment in time. Just be prompt with your responses when you do have time and it doesn't seem like people get too annoyed.

Merkhet, Any thoughts on Ackman's timeline of 12-18 months for a trial? Was that in line with your own expectations?

Isn't the other alternative to stop taxing banks 8)

This is a common argument and I believe people keep repeating it without really thinking about it. Perhaps you should ask yourself what happened when GM had faulty ignition switches and work from there. Completely agree with Jurgis. There is some interesting court cases (can't recall names - I'll update with links if I do) from the 1910's and 20's when cars first became used in mass. Similar type arguments about machines causing deaths were used (as opposed to the safer mode of travel - horseback/carriage). Honestly, if Tesla were to sell automated cars to everyone in the world then they would settle the case with the child's family with the trillions in the profit they make. I think a bigger problem would be if automated cars took off too quickly and patent protection caused problems down the line with bad/inefficient standards that are expensive to retrofit. This is not the biggest problem, just pointing out what I see as real issues with automated cars. A limited number of deaths are to be expected. Also, to your point about Uber/Airbnb running into legal issues that you imply are unfair. Uber is acting as a taxi company while officially registered as a pickup service company. The regulations are night and day which gives them a huge advantage. Judges have ruled that Uber's app constitutes as soliciting a future car ride as opposed to hailing a car (which is what they are actually doing). Others have tried what Uber is doing, Uber is the first to be successful in court. That is where a lot of the pushback is coming from. A few judges basically awarded a HUGE competitive moat (cost, brand, and first-mover) to Uber when their idea/operations were not novel or new. A lot of folks are justifiably annoyed. With Airbnb, you have similar problems with tax invasion. Previously, if you advertised your homestead for rent than you were a landlord and get everything that comes with. I'm not as well versed with Airbnb issues but I would imagine only a small minority of those renting their homestead pay the proper taxes or use the one-time event as a reason to take tax deductions. You add in the fact that most cities count on hotel tax for a lot of major municipal investments and I'd imagine nearly all leasers are not contributing (even though they probably should). The tax code needs to be updated for temporary hotel/motel usage. Just trying to give you the other end of the spectrum. The pushback is not necessarily due to a conspiracy or holding back change. A lot of it has to do about unfair competitive environment created. There is a very small minority of wealthy person/company with ill-intent (like every classification of humans). Hopefully I didn't overly read into your post but animosity towards the wealthy only causes more problems. In my opinion, the income/wealth gap is due to prolonged low interest rates more than any other single cause (as unlikely as this may seem). To get back OT, the market is really expensive! Count me as +1 for a ~20% [real] correction. I don't care whether it's 3 years of -5% - 0% returns or 1 terrible year; we really need one. It looks like it won't happen until equity yields become less attractive relative to bond yields so let's start raising rates now! I can provide insight to Airbnb as I am a host. Airbnb provides the IRS (and you) with documentation on how much income you received via the service through the year. It's up to the individual to claim the income on their tax paperwork and pay the amount owed, but the IRS has all of the information they need to identify those who are skipping out on the tax and put them away. I paid several thousand dollars in taxes from the Airbnb income I made if that changes your opinion of us at all. Also, I can understand the regulations preventing you from purchasing an entire building and renting out the empty rooms on airbnb. That would be a hotel. I can't understand the pushback from renting out an individual room in your apartment/house while you're presently staying there as this isn't too much different than having friends/family/friends of friends etc. stay with you. Thanks! Good to know and my opinion of hosts is slightly higher haha. The problem I see with hosts is you are still undercutting local hotels anywhere there is hotel taxes (state or local). Although a random guest seems equivalent to family/friends, in most states/localities you are generally only exempt from the tax if it's a family member or if a non-related person is staying with you for free. So technically every person should be responsible for a hotel tax anytime a friend stays with them and compensates them in more than a trivial manner. In most states it seems like even an expensive steak dinner in return for the couch should technically trigger the tax (although this seems ridiculous in practice). The problem with Airbnb is their intent which is to act as a quasi-hotel (with millions of non-standardized and ever changing locations run by owner-operators). Not necessarily for hosts like yourself but I do think Airbnb should be forced to build this cost into all prices where necessary (although you seem to do pretty well :) - in general it seems unreasonable for hosts to be responsible for such nuanced state/local law when Airbnb acts as the broker/agent). Consider the recent BRK AGM. If all visitors used Airbnb instead of hotels (booked through any avenue) then the city of Omaha could have potentially lost out on (2 days * 10.5% of revenue * ~$100 hotel/night * ~10k rooms(?)) ~$200k in tax revenue in just 2 days! It's not that I personally care and Airbnb provides a significantly cheaper alternative to hotels but it does hurt local economies/governments and creates an unfair business environment. In effect, it becomes a small additional "tax" paid by all tourists staying in hotels to random residents. Airbnb takes each geographical locality and treats it differently due to differences in laws and regulations so I can't speak for everywhere. I know that in NYC, they offered to collect income taxes on behalf of the hosts and hotel taxes due from tenants and pay out a regular distribution to the local treasury. For some reason probably due to subtleties of tax law, the government said no. So I have to file my own income taxes and it's the responsibility of the tenants to pay the hotel tax - of course, there's little ability of the government to be able to enforce tenants from foreign countries pay the hotel tax so it's the local governments ineptitude that is preventing them from collecting and not Airbnb.

This is a common argument and I believe people keep repeating it without really thinking about it. Perhaps you should ask yourself what happened when GM had faulty ignition switches and work from there. Completely agree with Jurgis. There is some interesting court cases (can't recall names - I'll update with links if I do) from the 1910's and 20's when cars first became used in mass. Similar type arguments about machines causing deaths were used (as opposed to the safer mode of travel - horseback/carriage). Honestly, if Tesla were to sell automated cars to everyone in the world then they would settle the case with the child's family with the trillions in the profit they make. I think a bigger problem would be if automated cars took off too quickly and patent protection caused problems down the line with bad/inefficient standards that are expensive to retrofit. This is not the biggest problem, just pointing out what I see as real issues with automated cars. A limited number of deaths are to be expected. Also, to your point about Uber/Airbnb running into legal issues that you imply are unfair. Uber is acting as a taxi company while officially registered as a pickup service company. The regulations are night and day which gives them a huge advantage. Judges have ruled that Uber's app constitutes as soliciting a future car ride as opposed to hailing a car (which is what they are actually doing). Others have tried what Uber is doing, Uber is the first to be successful in court. That is where a lot of the pushback is coming from. A few judges basically awarded a HUGE competitive moat (cost, brand, and first-mover) to Uber when their idea/operations were not novel or new. A lot of folks are justifiably annoyed. With Airbnb, you have similar problems with tax invasion. Previously, if you advertised your homestead for rent than you were a landlord and get everything that comes with. I'm not as well versed with Airbnb issues but I would imagine only a small minority of those renting their homestead pay the proper taxes or use the one-time event as a reason to take tax deductions. You add in the fact that most cities count on hotel tax for a lot of major municipal investments and I'd imagine nearly all leasers are not contributing (even though they probably should). The tax code needs to be updated for temporary hotel/motel usage. Just trying to give you the other end of the spectrum. The pushback is not necessarily due to a conspiracy or holding back change. A lot of it has to do about unfair competitive environment created. There is a very small minority of wealthy person/company with ill-intent (like every classification of humans). Hopefully I didn't overly read into your post but animosity towards the wealthy only causes more problems. In my opinion, the income/wealth gap is due to prolonged low interest rates more than any other single cause (as unlikely as this may seem). To get back OT, the market is really expensive! Count me as +1 for a ~20% [real] correction. I don't care whether it's 3 years of -5% - 0% returns or 1 terrible year; we really need one. It looks like it won't happen until equity yields become less attractive relative to bond yields so let's start raising rates now! I can provide insight to Airbnb as I am a host. Airbnb provides the IRS (and you) with documentation on how much income you received via the service through the year. It's up to the individual to claim the income on their tax paperwork and pay the amount owed, but the IRS has all of the information they need to identify those who are skipping out on the tax and put them away. I paid several thousand dollars in taxes from the Airbnb income I made if that changes your opinion of us at all. Also, I can understand the regulations preventing you from purchasing an entire building and renting out the empty rooms on airbnb. That would be a hotel. I can't understand the pushback from renting out an individual room in your apartment/house while you're presently staying there as this isn't too much different than having friends/family/friends of friends etc. stay with you.

It's at record levels in terms of absolute dollar amounts which would generally be expected in a rising market because increased stock prices allow you to increase the debt available to you. I don't know if it's at record highs as a % of free float though - that would probably be a better measure.

I'll just say my 2 cents even though I have very little idea what happened here. First a recap: An outside company approached Fairfax to sell with an offer of $1.20. Fairfax rejected an countered for $1.50. The company refused. Then another company that Fairfax owned a large portion of made a bid for $1.00 and Fairfax agreed to tender their shares. This is where the story should stop - it doesn't matter that Mercer came back with a higher bid because Fairfax had already agreed to tender their shares, right? So the question should be why did Fairfax tender to the lower bid? Well, they had two alternatives: 1) sell the company for less than it's worth at $1.20 or 2) sell the company to another company they own a large portion of for $1.00 and still maintain large exposure to potential upside as the new company accrues the benefits of acquisition approaching IV. There might of even been some consideration that the assets would be worth more in the hands of the new management team. So Farifax could have sold it for an undervalued amount or could sell it to another entity it maintain large ownership in and still maintain upside exposure while getting some cash out of the deal. They chose what made sense for them. Just because that's different than what made sense for you doesn't make it unethical. You could argue that they should have abstained from voting either way and I might generally agree - but I have a hard time understanding why what they did was wrong. They just had different incentives and every right to vote in favor of those incentives as opposed to voting in favor of yours.

Sure, but in my opinion, even 4% is far too low of a discount rate for uncertain cash flows in a competitive environment. Maybe if you owned a royalty with no price exposure and a some-what certain life, but not an equity. My other issue that I've been trying to continuously remind myself of is that we're likely at peak earnings for a lot of companies in the mid-term - not just cyclicals. Do we really want to be paying peak multiples on peak earnings? This is what has kept me from pulling the trigger on companies like AmEx - sure the current multiple looks good, but what if margins fell by 25% to their normalized average? Now it doesn't look nearly as attractive. Impossible for me to know. I doubt everything will fall in tandem 1:1, but I have a hard time believing that most things won't fall a good bit in a general market compression of multiples (not to mention things generally get more correlated in down markets). Low P/B stocks have underperformed for the last 4 years so there could be a good argument for finding a good shelter in those - but then you consider that a large n# of them are overleveraged oil companies and it's hard to imagine an economic slowdown being good for that type of portfolio either. I've generally been avoiding U.S. stocks except for very select opportunities just because i'm concerned about historically high multiples on top of historically high margins and low rates being used to justify it.

It just really, really bothers me that we have to keep saying "equity valuations are reasonable if we consider how low rates are." Yes. I get it. As the discounting factor gets smaller, the present value of all future cash flows gets higher. My problem with this is that it's another form of relative valuation and it's usefulness breaks down at extremes. What if we end up in European-moment where U.S. rates are zero-to-negative 7 years out on the curve. Does this mean we don't discount any risk to those cash flows at all and pay face value for them? As we get closer and closer to 0, the value of stocks has to be considered on more absolute measures - otherwise you'll get monkey-hammered when rates go from 0% to 3% again and your discounted DCF goes to hell. Also, we'd expect that multiples in Europe would be significantly higher than multiples in the U.S. if this were the case, but that's not what has happened. This argument made sense a few years back when rates were 4%. It might still make some sense at 2%, but I'd argue it makes less sense and I don't like having to rely on it to justify current equity valuations. Relative value can be relatively dangerous.

It would be nice to see price come down significantly for two reasons: 1) I'm currently talking my book 2) Because if they stay this high for years to come, millenials will likely find themselves in worse shape to retire than current boomers.

I'm certainly no expert, but I thought that most spin-offs were done with 0 tax consequences. I could be wrong though - all of the spin-offs I've participated in so far have been in tax-free/tax defferred accounts so I don't have any direct experience. edit: just realized that the ones I participated in weren't ADRs and were simply the foreign shares trading pink sheets in the U.S. Sorry that this doesn't apply :/

The market seems disappointed for some reason...maybe it's the lag that's been discussed here before? Would be happy to pick up more sub-$500 USD.

http://www.federalreserve.gov/aboutthefed/section13.htm 13(3) is a provision dealing with the powers of the Federal Reserve. The plaintiff is arguing that the government is not authorized to accept equity as anything other than collateral. The benefit here wouldn't have anything to do with the Fannie warrants as the Treasury was free to accept warrants for their deal versus the Federal Reserve accepting warrants. The applicability of the AIG case to the Fannie & Freddie case is that there will be relevant precedent on what might constitute an illegal exaction in this type of case, whether what happened to AIG is a physical or regulatory taking and how economic loss will be viewed. Thanks! I figured there was a difference, but wanted to know what it was and what implications a turnover of the 79.9% in the AIG case would mean for us.

Throughout the transcript, the loan to AIG is referred to as a 13(3) loan. Could someone point me in the direction as to determining what the means and what it is? It seems that one of the plaintiffs arguments was that the government is authorized to accept equity on top of an interest rate in exchange for the loan and makes multiple references that this was only done required of AIG. Ultimately, I'm trying to determine how the 79.9% equity stake granted to the government here differs from the 79.9% granted to the government in the case of Fannie/Freddie to know how relevant this ruling will be to us. Thanks,

I cut the chord. I generally went to a bar to watch sports games anyways - it's more fun that way and a good reason to splurge on food that's awful for me :). I mostly use Netflix/HBO GO for the little bit that I do watch. Even both of those are friends' accounts though. I don't think I'd be willing to pay for either from how little I really use them.

ESTP. The E and the P are so borderline though that's it's really hard to call. I imagine if I took the test again I could just as easily score as an ISTJ. http://www.16personalities.com/estp-personality This is so me though - ever since my early teens I've broken willingly broken rules that made no sense or failed to serve the purpose they intended. A good example would be that I generally treat traffic lights that are red as stop signs late at night (assuming no traffic cameras or other people in the intersection). I also generally have a preference for asking for forgiveness as opposed to permission due so many authoritative figures failing to see things from my point of view. http://www.16personalities.com/istj-personality But then again, this also describes me to a T. I'm definitely somewhere in the middle.

I've donated to cancer research and supported charitable companies like Toms and etc. I don't mind giving money and that has been the bulk of my giving in the past, but I've been burdened recently with the feeling I should be investing time into something as well. I'm considering focusing more on devoting a portion of my time to activities like Big Brothers & Big Sisters or Habitat for Humanity.

Why HOG? It seems a dying business. Younger people dont buy HOG and current fans are retiring. HOG sells ~40% of their bikes overseas and the strong dollar is hurting their foreign business right now. International growth is still intact and their domestic growth, though slow, is positive. This has been the case since 2005. Q1 '15 was weak and the stock sold off. The market is taking Q1 as the start of the real decline of the brand and is pricing it at a PE and P/FCF lower than any period over the last ten years aside from 2009. As for the future of the brand: I'm not sure HOG doesn't have young fans. Their bikes are expensive and young people cannot afford to buy them. The 20 and 30 somethings zipping around on crotch rockets are going to trade them in one day for something comfortable. The 20-30 somethings that give up their bikes will still have a midlife crisis in their 50's and go out and buy a bike. I really cannot think of a brand with a stronger following. I wonder how many hippies in the 60 and 70's were buying hogs? A bunch of those hippies own Harleys now... This. I've been watching HOG too. I've been reducing leverage in my portfolio for the last 4 months or so and I'm not quite to my goal yet, but if the price of this and American Express keep falling I'll have to re-evaluate my current holdings. Maybe I can finally redeem myself for not buying it in 2009 when I was looking at it around $13.