TwoCitiesCapital

I don't think the high yield market is attractive and prefer duration risk to credit risk. Likely there is no catalyst for nav gap to close on most CEFs Its not necessarily "high yield" (I.e. junk bonds) just because it's higher yielding. Many of these funds are picking up dollar denominated foreign debt, mid term duration, at prices below par. And since you're buying below NAV, you get another boost to yield. Many also employ leverage. A fund could feasibly yield 7-9% on mid grade foreign bonds that sport a coupon of 5-7% with leverage and the 8% discount to NAV. I'm not saying these are AAA rated entities but it's not like they're B either. You're picking up currency and a little extra credit risk in exchange for lower interest rate risk. Check out doubleline's CEFs. They've been hammered but it's because the used to trade at a 10% premium. The NAVs are only down 6-7% during the spike. The discount you're buying them at now is already pricing in another 100+ bp rise. If that happens, the 8% yield is all yours and the discount disappears. Did I mention they're 20% in cash too to reinvest in a rising rate environment? Its not a sure thing, but is far more attractive to me then showcasing on long term bonds that are highly leveraged to interest rates with no diversification and no margin of safety.

Instead of speculating with long term bonds, there are several high yielding, mid duration CEFs that yield 7-9 percent and trade at a 6-8 percent disount to NAV. That's less risk with a pretty good return if you're right.

Also, in regards to your comment about easy credit: I have a friend who is a new graduate who works part time. She was able to get a 20, 000 car loan with no money down and 0% interest for the first year or something like that. Sure it's only one instance, but I wouldn't necessarily dismiss it as an isolated instance either.

I think there is a lack of appreciation for how much damage a large decline could cause. You could make 7% ever year for 5 years straight and hit a 25-30% correction will all but wipe out your gains over the previous 5 years. For 5 years the portfolio of cash and bonds would "lose" only to end up ahead in the last year AND would be significantly ahead after the 5 subsequent years of a recovery when assets were moved over to risk assets. I still participate in the markets but am wary of the effects of this trickle-down wealth effect that Bernanke is trying to institute. Think about it, interest rates are already at historic lows, margins are at historic highs, valuations based on multiple measures are historically high, and there are still the potential for great threats between China and Europe and even the U.S. IMO. I'm not saying a crash is imminent and I have only been in the bear camp AFTER fully participating in the recovery in 2009, 2010, and 2011. My point is risks are high, positive catalysts can only run so much further, and there are tons of potential negative shocks. I think a "guarded" approach is warranted. Its not like I'm all in cash, just have been taking gains off the table and moving 30-40% to cash and bonds over time.

As I recall from my forays in 2008, 30-50 cent dollars often become 15-25 cent dollars as the general market falls 30-50%. Also, in such a steep downturn, there are usually economic implications that affect the viability of 30-50 cent dollars anyways given they're often in some sort of "temporary" trouble. I'm investing my money in what I view to be undervalued securities period - regardless of what the market is doing - but if the CAPE and Tobin's Q suggest the market is 30-40% overvalued then I will choose to a significant portion of my money in cash and bonds as opposed to investing in 30-50 cent dollars which will likely become even cheaper in the future. I'm beginning to appreciate the idea of taking calculated risks and managing my downside as opposed to trying to maximize my upside at all times. Keeping 30-40% in cash/bonds makes sense to me when the general market is overvalued, even if there are opportunities. Chances are that there will be better opportunities during the correction and I still get to participate at a 60-70% level in the markets if I'm wrong.

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center. I think shareholders have to learn not to separate the CEO from his own soul. Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO. Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? In fact, why even do big shin-dig AGM's like they do? You guys should be treated like Leucadia Shareholders...just an hour of their time every year! Of course personal stances will play a role at times in their investments and behavior. Buffett ran Salomon's because he had to save the investment. This happens and it's nothing new. RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in. Cheers! It may be a relatively small investment financially, but it sure seems like its taking up a good amount of his time. Investors need to take their emotions out of investing, and it seems like Prem has not been doing this the last few years. He comes up with theses (like his expectation of deflation he's been preaching for the last 6 or so years) and seems to not want to admit he's wrong and move on. I think this is disingenuous. 1) He bought deflation hedges with a maturity of 10 years for a reason. It hasn't been 10 years yet so it's hard to say he's absolutely wrong on these - no? Secondly, it was to hedge his business - not necessarily to maximize investment gains. As I recall it took years for him to be "right" on the CDS too, but that protected Fairfax from the financial crisis AND provided huge profits. I'm not saying that it will happen again, but I think it's clear from U.S. GDP coming in at 1% in Q1 despite a "recovering housing market" and trillions in stimulus that there is still a very real deflationary threat. Same could be said for your Europe if we see another spike in interest rates like we did in 2011 where the borrowing costs of Italy and others nearly doubled in the span of weeks. As Prem is fond of pointing out - it took years for Japan to experience deflation. These aren't events that occur overnight. They're long-term secular trends. 2) On Blackberry, just because he was wrong to invest at $40 doesn't mean he was wrong to double down at $7, nor does it mean he's emotionally attached to have done so. By becoming involved (and by buying at such a cheap price) he had the potential to mitigate the losses from the original investments and possibly turn a profit. In a sense, he was limiting his downside while amplifying his upside. It wasn't that long ago that BBRY was pushing over $1B in FCF a year. Right now it sports an EV of just $2B. If it ever recovers to some sustainable shadow of it's former self, it will be seen that Prem got a ridiculous price for the company at $7 and probably a good price at his average of $17. If the company fails, chances are he still makes money on the shares bought at $7 and he was able to mitigate the losses with some small gains while retaining upside potential. I don't see how this equates to being emotionally attached...the liquidation value of the company is quite clearly more than $7 and probably more than the $10 it trades at. How do you get a liquidation value of $7? And how is Prem going to buy the company at $7? I think you misread my comment - I said chances are he'd make money on his investment at $7 (when he doubled down to 10% ownership in 2012) in a liquidation scenario. I didn't suggest liquidation was only $7. I think it's between $12-15 if cash burn is kept at an acceptable rate and were to do so relatively soon.

That's assuming they ONLY use the Shiller P/E, nothing else, and are trying to time the market exactly with it. I tend to use it as a guideline for my investment allocation. I think the market is over-valued right now, but I don't want to be fully out of stocks if I'm wrong. With the CAPE and Tobin's Q being so overvalued on a long-term basis, I decided to move 35% of my portfolio to bonds and cash, 15% to European stock exposure, and a 5% short on select U.S. equities. The remaining 55% is in U.S./Canadian multi-nationals and other value plays. As the Shiller/PE ratio becomes more expensive, I'll begin allocating more to cash and bonds and increase my shorts. With each substantial market correction - 15-20% or more - I'll allocate more back U.S. equities regardless of what the CAPE. For me it's not a sign to time the market - it's a measure of the risk inherent in the market that may not be so obvious from 1 or 3 year earnings. I use it to adjust my equity exposure based on the risk in the market. I wouldn't every be 90%-100% in equities without a single-digit CAPE.

The market could care less about a lot of things. It didn't care about the increasing volume of defaulting mortgages in the U.S. in 2006. Value investors prosper from situations that the market doesnt care about. I think we can certainly agree the market isnt always right. It's been above average for two decades and in the last 13 years we've had two 50% corrections in the U.S. with the tobin's Q and the Shiller P/E suggesting that we might see another one soon. I think it's dead on. This. +1. In our lives we we see dozens of small cycles, but only a few of the overarching ones. Bear markets and bull markets that last 20 years often times encompass the majority of a manager's investment experience until they believe the last 20 years represents the norm. We had stock valuations that were way out of wack in 1998-2000 to skew the results of much of the past decade. Now you have had the Federal Reserve maintaining 0% interest rates for last 5 years also arguably inflating stock market indices. Is it any wonder that the last 20 years have remained above average and have been punctuated my massive corrections?

http://www.bloomberg.com/news/2013-08-19/fairfax-financial-to-sell-reinsurance-unit-to-catalina.html

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center. I think shareholders have to learn not to separate the CEO from his own soul. Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO. Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? In fact, why even do big shin-dig AGM's like they do? You guys should be treated like Leucadia Shareholders...just an hour of their time every year! Of course personal stances will play a role at times in their investments and behavior. Buffett ran Salomon's because he had to save the investment. This happens and it's nothing new. RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in. Cheers! It may be a relatively small investment financially, but it sure seems like its taking up a good amount of his time. Investors need to take their emotions out of investing, and it seems like Prem has not been doing this the last few years. He comes up with theses (like his expectation of deflation he's been preaching for the last 6 or so years) and seems to not want to admit he's wrong and move on. I think this is disingenuous. 1) He bought deflation hedges with a maturity of 10 years for a reason. It hasn't been 10 years yet so it's hard to say he's absolutely wrong on these - no? Secondly, it was to hedge his business - not necessarily to maximize investment gains. As I recall it took years for him to be "right" on the CDS too, but that protected Fairfax from the financial crisis AND provided huge profits. I'm not saying that it will happen again, but I think it's clear from U.S. GDP coming in at 1% in Q1 despite a "recovering housing market" and trillions in stimulus that there is still a very real deflationary threat. Same could be said for your Europe if we see another spike in interest rates like we did in 2011 where the borrowing costs of Italy and others nearly doubled in the span of weeks. As Prem is fond of pointing out - it took years for Japan to experience deflation. These aren't events that occur overnight. They're long-term secular trends. 2) On Blackberry, just because he was wrong to invest at $40 doesn't mean he was wrong to double down at $7, nor does it mean he's emotionally attached to have done so. By becoming involved (and by buying at such a cheap price) he had the potential to mitigate the losses from the original investments and possibly turn a profit. In a sense, he was limiting his downside while amplifying his upside. It wasn't that long ago that BBRY was pushing over $1B in FCF a year. Right now it sports an EV of just $2B. If it ever recovers to some sustainable shadow of it's former self, it will be seen that Prem got a ridiculous price for the company at $7 and probably a good price at his average of $17. If the company fails, chances are he still makes money on the shares bought at $7 and he was able to mitigate the losses with some small gains while retaining upside potential. I don't see how this equates to being emotionally attached...the liquidation value of the company is quite clearly more than $7 and probably more than the $10 it trades at.

Two years ago, with a net worth of more than $5m, I couldn't get a loan for $100k. I was trying to purchase a $200k property in Sacramento, a 4-plex with $32,000 gross rental income. The property was fully occupied, the rents were below market. Wells Fargo and Bank of America, plus other local banks. None would bite. They wouldn't loan me under 2% of my net worth! On a property where I was putting 50% cash down in a market that was already crushed in valuation! The loan amount was roughly 3x the gross rent! And then John Stumpf (Wells Fargo CEO) would get on TV and claim they wanted to make loans but there were no creditworthy opportunities. What an unbelievable statement. Their chief excuse was that I didn't have experience as a landlord. I lived a thousand miles away in Seattle and, as I told them, was going to hire a property manager (with experience). I had this issue too. In 2011 a friend and I were looking at buying a triple-net lease in small town Mississippi (about an hour from where we both went to college). The building was occupied by a Dollar General with 5 years left on the lease and option to extend for a few more years. There was one other dollar store within 30 miles and no Walmart within 30 miles and the Dollar General had grown sales from 700k a year back in 2000 to over 2M a year in 2011. There was also a % of sales over 1M option that kicked in at the end of each year that was a great supplement to the annual rent :) . The DG was already negotiating signing a new 10 year lease if the current owner would drop the option. In other words, they're weren't going anywhere anytime in the near future. The yield on the property, including the option, was 12-15% after expected expenses/taxes and before any leverage from a loan. It was a motivated seller who needed cash to cover mortgages on unoccupied condo developments in Denver. We were going to put 30% down. Both my roommate and I have ample savings, no debt, great credit scores, and individually had incomes that could easily cover the mortgage bill without any monthly income from the DG....and yet, no banks would bite. They all lead us on for weeks through loan application processes before telling us ''no'' for some bullsh*t reason ("you have no experience", "we don't lend for out of state properties", "we don't lend to out of state principals", "we'll give you a SBA loan with an amortization of 7 years but then it's uneconomical", etc. etc. etc). I've hated the big banks ever since. Between that and the "goodwill" they created with me during the crisis, I hope that I can build a business that will fund itself and will never have to give them 1 cent of my hard earned money again - they clearly don't do anything to deserve it.

Hey guys, Was looking at bull spreads and bear spreads over the weekend. I built myself a small calculator to the heavy lifting for me. Figured some of you may be interested in using it. Some required disclosures: 1) I haven't really tested this yet. I've casually looked over the numbers, but haven't really run much of a scenario analysis. It's quite possible there might be a small error in it. If that's the case, I'm sorry. Let me know and I'll fix it and repost for everyone. 2) You need macros enabled to run. 3) I refuse to accept responsibility for any losses incurred while using the tool ;) Please give me your feedback. I enjoy making things like this and am considering starting a small freelance thing on the side doing so for small businesses for data analysis. Just need to know about the ease of the design, etc. Instructions are pretty simple - 1) Enter the ticker of the equity you want to analzye 2) Enter the expiry month 3) Click refresh data 4) Enter the strike prices you want to initiate the position at and how many contracts you want. It will do the calcs for you. Options_Workbook.xlsm

P/Es may have stayed high relative to U.S. averages, but it's quite clear from that chart that there was a pretty big compression nonetheless. First half of the chart shows a multiple range between 40 and 100+. After that the range is between 20 and 40. Still high, but evidence of major multiple compression. I do think stability is and low rates of inflation or deflation is key. Its my understanding that Japan has undergone persistent, yet low, deflation. This still falls right into stable and low rates and shouldn't really be much different from low and stable inflation

Forgive my long post. I'm going to try to coordinate meeting with some of you now that I've gone through all the posts :) My story is St. Louis, MO > Belleville, IL > Wichita Falls, TX > Biloxi, MS > Shreveport, LA > Hattiesburg, MS > NYC Hey, you're in Brooklyn? Want to meet for a drink and stock talk? Meeting up sounds like a great idea. If all of you are still in the NYC area, why don't we coordinate something? It'd be great to finally meet people from the forum. I don't have very many peers my age who enjoy this kind of stuff and it would be nice to find like minded people who actually enjoyed talking about this stuff on a semi-regular basis. PM and I'll coordinate something. I visit NO about once a year. Went to college about 2 hours from there and have a lot of friends in the area I visit. Find me on facebook or something (same name as my username, the one in NYC) and we can meet up when I'm back in town (won't be for months though, was just there). Most of my family lives in the St. Louis area and I visit a handful of times a year. Same goes for you two if you'd ever be interested in meeting up for a beer or something while I'm in town.

This debunks nothing. If you were told that the 10 year would be 1.5% forever, wouldn't you be willing to pay a higher multiple for stocks? Markets are based upon expectations. Investors are worried that rates will increase causing a contraction in multiples. If they knew that rates would decrease, multiples would expand. I did agree with this: "But should it work in theory? The common rationale for the Fed model relates to the “discounted cashflow” approach to valuing equities. Lowering the discount rate you apply to future cashflows increases present value (the share price), other things being equal. The trouble is, other things aren’t equal." There are too many variables when trying to think about equity market valuations. That is way I don't (try not to?) think about market valuations. As the article says, bond yields tend to reflect inflation expectations which also reflect growth expectations. When investors adjust their discount rates lower to reflect lower risk-free rates, they should, at the same time, adjust their growth expectations lower, hence the multiple shouldn't be significantly higher. Exactly. In a deflationary environment, bonds can trend towards 0%. That doesn't mean P/E multiples shoot through the roof. Quite the contrary... As long as you have stable, but low inflation P/E multiples will be trending high. As you move from away from that stable level in either direction (high inflation or deflation) P/E multiples will likely come down. Stability is really the key. Given that we've had relatively stable and low inflation for the past few years, it seems like we can only get more "unstable" from here in either the upward or downward direction. P/E multiples will likely compress when that happens, on top of normalizing margins, and we'll find ourselves still within the secular bear market that started in 2000.

Unfortunately I'll be taking Level 3 again.... Just didn't really have a disciplined study regiment for this and didn't need one for the first two. Have to adapt to pass this one; my results were abysmal.

True, but I believe these remaining long duration bonds are, more so, held to a maturity type of position unlike the much larger position of a few years back that were sold at a very large profit. It would appear, to me anyway, that the portfolio is in a somewhat win-win situation now. For example, if spreads widen like they are doing now then the economy is doing better and WFC, JNJ, BIR all do better and probably have alpha against the hedges. If the economy sours, then spreads flatten back out and the losses on the hedges and bond portfolio are mitigated somewhat. Call me naive, but what is the downside with FFH today? Cheers JEast Just because they have the ability to hold to maturity doesn't mean that they will. It's their investment portfolio; if stocks, crater they would sell alot of their treasuries at a loss in hopes of picking up stocks for a large gain. Marking down the portfolio and discounting for such seems appropriate to me. Secondly, low rates have really been the only thing supporting the higher P/E multiples we've been seeing. Volatility within interest rates will result in volatility within stocks as the multiple adjust to expectations on inflation/disinflation/deflation as well as supply/demand differentials due to competitive investments now offering higher yield. Frankly, I think what we're seeing is overblown; rates will likely come back down due to the fact that they can't go back too high without shutting down the economy and/or cutting profit margins down from historic highs. Deflation is still the main threat and higher rates and deflation don't really go together unless if you're a credit concern.

Just went through a relatively large rebalancing effort. I try to develop most of my investment ideas myself, but will occasionally steal one of I like it enough. DBLTX - 11% FRFHF - 12.7% BBRY - 11.3% MBI - 5.1% - board idea. Thanks guys SAN - 5.1 % MURGY - 4.7% ATUSF - 4.5% - board idea. thanks guys AAPL - 4.8% SB - 4.3% OGZPY - 2.0% MRVL - 2.0 % - following David Einhorn on this one. GOOG - 2.0 % TOT - 2.0% SLV - 1.75% AMZN - (3.2%) Cash - 16.2% Other market exposure through various funds Stocks - 6.3% Bonds - 2.7% Real estate - 2.3% I'm also short calls covering half of my MBI position and long calls for BBRY. Net long exposure through calls is only 1.3%. Totals don't equal a hundred because these were my best estimates off the top of my head.

In an environment with low interest rates, companies that aren't capital intensive will be undervalued and companies that are capital intensive will be overvalued. This is simply because a company that can generate tons of cash on a small asset base has less of advantage if companies who can't can cheaply lever up to achieve the same results. If your paying 0%, you could borrow all the money you needed to operate and the ability to generate it internally isn't very valuable.... until interest rates rise. If you think rates will be low for a long time,then the company with a higher return on equity may not receive the premium valuation it deserves until rates move higher giving it a clear competitive advantage.

There was a similar large move upward during tax season in 2012. Rates came back down afterwards. Rates will likely remain low if history is any guide. I only see them rising in the near term if Bernanke admits he was a total failure and his policies flawed from the start which I think is unlikely. Even then rates could remain low. Some points to make: ) Market rates are set at the margin. The Fed may be buying 90% of government issued bonds but the price will be set by the remaining 10% and what they are willing to pay. ) 90% of new issuance is still a small part of total government debt/mbs markets. ) interest rates have to remain low for the government to finance itself. Its curious that Fed buying has roughly matched deficit spending. Does Bernanke want to be remembered as the man who bankrupted the U.S.? Probably not. The deficit is doen due to forced capital gains last year in fear of higher taxes. It'll likely be back up next year along with increases in Fed buying. Just my two cents

I'm about halfway through the Shipping Man and have been a little disappointed. Maybe it's because I've owner shares is Safe Bulkers for the past two years and have been reading a lot about shipping as it is, but I feel that there are much better way to learn about the industry. I guess my complaints about the book so far are 1) The story itself seems made up, characters are exaggerated, no real character development, etc. Overall just bad writing 2) Knowledge gained is really basic and could be likely picked up elsewhere without wasting time on a bad story I haven't gained anything that I haven't been able to pick up elsewhere and I largely feel like I'm wasting my time reading it. Maybe it's a little too early to judge, but after reading half I don't know if I'll take the time to bother to finish.

Level 3 candidate here. Good luck to you guys. Tou

1) take anything the CBO says with a very large grain of salt. Their prediction record has been abysmal. 2) housing prices are increasing? Maybe the third time since 2009 will be the charm. Tell me who will buy them when the coming generation is graduating with the largest amounts of student debt and the lowest paying jobs we've seen in a decade? 3) trade balance is improving precisely because individuals can no longer afford many of the imported luxuries they used to buy IMO. Hardly bullish. 4) stock mutual fund flows have consistently been negative up until this year. Not sure if this will last through the next correction or not. 5) deflation takes years to culminate. Even Greece is just now experiencing it. Increased Federal debt has made up nearly every penny of consumer deleveraging. All that's hit the economy has been corporate deleveraging if I recall my numbers correctly. Realize that all interests have to do is go back to the 4-5% they were at before the crash and we're spending more than 30% of current government receipts servicing interest. You don't think that will be a drag on th future economy? Spending will have to be cut somewhere or revenues will have to rise or we can keep interest rates artificially low until we've inflated enough of the debt away where that's not a threat (not bullish for the economy either), 1) industrial production increasing isn't a substantial part of the economy anymore. I'd say this is more of a lagging indicator and is a small part of a much much larger economy. 2) debt service is only at multi-decade lows due to extremely low rates. What happens when rates rise with a recovey? 3) bank capital ratios mean nothing in light of the trillions of derivatives that they hold on their books with global counterparties who aren't as strong (European banks leveraged 30-to-1 who have gone double or nothing in buying European sovereign debt). 4) the level that housing construction is rising from is meaningless without the context of the overbuilding that occurred. There are still empty neighborhoods with vacant houses in places where the most overbuilding occurred. 5) housing may be the most affordable it's been, but only for those who can obtain credit. Not the easiest task nowadays. 6) non-farm jobs are being added but they're typically low wage, part time jobs that are replacing the full time jobs. Not bullish for real wages (which have been declining for a decade) which means its not all that bullish for the long-term economy. Granted, some jobs are better than no jobs. All of this isn't to say that I think Watsa will be right. It's simply saying arguments could very easily be made for the other side. He's been cautious in his approach to protect capital, not necessarily to maximize short term gains. Also, we're seeing unprecedented amounts of global stimulus that aren't sustainable. What happens when trillions in liquidity stops? The velocity of the dollar has continued to slow and has fallen very far from where it began in 2007. This is not the sign of a healthy economy, but is partly why we aren't seeing inflation from printing. I think Watsa made a very smart choice. He looked at the unprecedented rise in global debt over the last 30 years, asked himself what are the consequences if this goes South, and hedged accordingly. This was a way to protect his business. Could we have profited from it? Sure. Was that the intention? Unlikely. Secondly, you focused on all U.S. statistics but the majority of the deflationary derivatives were written on Europe. Europe does appear to be heading towards a deflationary end game and these may still pay off in the next 5 years. I have nothing to add but do I count as an upcoming generation? I graduated in 2011 and I bought a house in 2012 and now I am trying to buy another. ;D This is in the SF Bay area too so no 200k house for me. Plenty of people still have money. As for inflation or deflation, I have no clue! The recovery is bifurcated. I've been fortunate to see both sides. I graduated in 2011 in Mississippi. Many friends are still unemployed, or employed at part time jobs, can't afford to move away from home and certainly can't afford to save any significant amount. Me? I had no student debt, moved to Manhattan, got a job and have done well for myself. Most people up here seem to be doing well. Many people I know from MS, AL, LA, GA , etc. aren't. It seems like the upper 10% are doing pretty well. Everyone else is struggling and jogging in place. Congratulations on the houses though. I was trying to buy a piece of rental property 2 years back that was occupied by a Dollar General. Place yielded $50K a year, was on sale for $250K from a motivated seller. I had 20% down between myself and my business partner, had been to the property in person, we had pristine credit, banks approved us on cash flow coverage, collateral, credit scores, business model, insurance, and still refused to give us a loan. Said they don't give loans to new businesses, or they don't give loans to out of state principals, or th don't give loans for out of state properties. Every where we turned we got turned down for reasons that didn't seem to really matter (non-economic reasons). This was banks in NYC and MS. Didnt sound as if banks were too interested in making loans if they're turning away business like that. Can't even imagine what's its like for someone with poor credit and/or no savings. The photos of Ordos are dramatic, by our standards, but keep in mind that the estimates are that urbanization increase over the next 15 years will be 300 million people. That's about 12 Manhattans a year, 1 Manhattan every month for the next 15 years. Approximately 1 America. Now that's dramatic! I think when you say Manhattan, people who don't live there typically think of the entirety of NYC (could be wrong). Just to make things clear in those terms, it's about 2.5 NYCs every year. That being said, this has been the trend for awhile and Ordos has been empty for years, just because that many people are urbanizing doesn't mean they're going to move to the empty cities. They're going to move to the cities where there are jobs. Jobs will be provided by businesses who need customers (also not found in empty cities). I have a hard time seeing these places filled up without the government forcing them to be. Then the question becomes what kind of long term structural disadvantage do they have in that location. Large cities grew to be what they are largely because they were at the center of some big trade activity (close to ports, rivers, or the source of raw materials). They dont just pop up out of nowhere for no reason. Was there a reason that not many people lived these areas of a China in the first place? Probably because they weren't well situated for large cities. Governments without a profit motive often misallocate capital in this way.

Hmmmm. Any idea what the room for growth is in the U.S. or globally? Seems hard to imagine this ever contributing in a meaningful way. I mean, if they're one of the oldest and operate in all states and still only maintain a market cap of $15 M it seems like growth is very very limited.