TwoCitiesCapital

I've got friends pushing this philosophy on me, but I don't agree with it. Of course the Russians have a motive. Of course they're doing this to influence the elections. But if a politician does some heinous stuff that would prevent them being elected if revealed, and it's revealed, then I don't blame the person doing the revealing (even if they have motive). It's still the fault of the person who did the heinous stuff and the identity of the person revealing it is totally irrelevant to the outcome of the election. If anything, we should thank the Russians if they have particularly damning evidence that is released that prevents an unfit person from becoming president... I disagree for two reasons. One, there's a distinction between acts/statements that are bad politically and ones that are bad morally. For example, if Hillary or Donald sent an internal e-mail affirming that she/he would be inclined to push TPP through after the election, I think that is a rational economic decision that can be justified based on policy grounds, but it would undoubtedly harm/his her popularity among the electorate. However, it wouldn't show that she/he is somehow morally unqualified to be President. Second, you presume that the foreign government doesn't have equally or more damaging information about the alternate candidates that it will not disclose. The purpose of their release of information isn't to embrace transparency by revealing all wrongs, but to selectively release data that furthers their agenda. Agreed with your point 1 - except this is a body that was presumably supposed to be unbiased and not going out of it's way to support or dismiss a specific candidate. If you find out that the "unbiased" body IS biased, while denying any bias when accused, that IS morally reprehensible and suggests a corrupt party establishment that does what they want as opposed to what they're supposed to (which is represent their electorate and follow the rules they set for themselves). Point 2 - you're absolutely right. If they did have info on Trump, and failed to release it, you would be correct in suggesting that this was an event that tainted an election. But that's only if you're right. So far, there's 0 evidence to suggest that is the case and until there is evidence, you're only speculating into the possibilities with nothing supporting them. I can't prove the absence of the information, but for this argument to be valid, you MUST prove the existence of such evidence that would support this argument.

I've got friends pushing this philosophy on me, but I don't agree with it. Of course the Russians have a motive. Of course they're doing this to influence the elections. But if a politician does some heinous stuff that wouldn't prevent them being elected if revealed, and it's revealed, then I don't blame the person doing the revealing (even if they have motive). It's still the fault of the person who did the heinous stuff and the identity of the person revealing it is totally irrelevant to the outcome of the election. If anything, we should thank the Russians if they have particularly damning evidence that is released that prevents an unfit person from becoming president...

This can't be the first time you've seen a politician being interviewed? Seriously - every politicians go-to when answering a question is either "bury them with bull sh*t" or "answer a different question that's more favorable to you." No one every directly answers questions - not in interviews, not in debates, not in anything. The purpose isn't for the general populous to have an idea of who they're electing. The purpose is to get them elected. Trump is not a politician, no? Not politically correct and all that? He follows the same playbook. Just doesn't come off as a politician so as to capture the "angry at the establishment" vote that has worked so well for support in bother parties (i.e. Bernie). Was there every any evidence suggesting it was Assad? At the time, I remember there were whispers that it might have been the rebels because they were the only ones with anything to gain from the U.S. getting involved. Further, it's these very rebels who defected to ISIS from the FSA after receiving U.S. arms and training...so I wouldn't have put it past them to kill a few of their own to further their agenda. And calling Obama a pacifist is hard for me to understand. Maybe he hasn't been as "active" as Bush (whose invasion of Iraq may have been the largest foreign policy failure in my lifetime), but he's pushed for military intervention in Syra and Lybia and continues drone-bombing all throughout the middle East (including a wedding and a hospital operated by Doctors Without Borders). Further, there is some evidence to suggest the U.S. had a hand in orchestrating the violence in Ukraine which resulted in the overthrowing of a pro-Russian gov't and replacing him with a pro-U.N. individual instead. I'm not trying to justify Russia's eventual invasion, but it certainly makes A LOT of sense within the context of being defensive in response to the encroachment of foreign powers into a country that was intended to serve as a borderland between East and West - especially when you have a "West" that has been as eager to "intervene" in other countries' affairs as we have been in the past. So drone bombing countries, militaristic actions in Syria and Lybia, training/arming/funding rebel armies that eventually defected to ISIS, supporting an uprising that led to an eventual invasion/war...these aren't the actions of a pacifist or someone with a passive foreign policy. If anything, he's been far too active for my tastes.

Lol! Dollar Shave Club was a great business model as compared to buying the higher-end Gilette razors like I used to. I still like their shave butter, but only was with them for a very short period of time until I was sold on The Art of Shaving. It was a much larger upfront cost for the brush, oil, lotion, and blades/safety razor; but it really was the best shave I ever had, I have only needed to replace one pre-shave oil in 18 months (still have cream and lotion from original purchase), and safety razor blades are dirt cheap (<$10 for 100 blades). Lastly, it actually allowed me to enjoy the process of shaving. I did the math, and doing this was significantly cheaper, over time, than even dollar shave club given how long supplies last and how cheap replacement razor blades are. I expect them to do well with people who don't care about the ritual/comfort in shaving OR don't want to spend the upfront money, but anyone who gets easily irritated skin after shaving or is actually interested in saving the most money over time, the Art of Shaving is probably the better go to. BOTH are better than traditional options though so I imagine they have plenty of runway ahead.

This can't be the first time you've seen a politician being interviewed? Seriously - every politicians go-to when answering a question is either "bury them with bull sh*t" or "answer a different question that's more favorable to you." No one every directly answers questions - not in interviews, not in debates, not in anything. The purpose isn't for the general populous to have an idea of who they're electing. The purpose is to get them elected.

agreed. rational behavior, not bubble behavior. there is a difference between being a value investor and lamenting that everything is too expensive, and crying bubble Return chasing behavior = bubble behavior. (Why expect antsy investors desperate for any return to act like greedy investors euphoric and offering stock tips?) Return chasing behavior ≠ rational behavior: A world where short-term interest rates are compressed to zero is also a world where economic growth is likely to run several percent below historical norms. The narrow gap between low expected growth and no growth at all implies an elevated probability of intervening recessions and credit strains. The extreme level of equity valuations also implies an elevated potential for steep cyclical drawdowns. In this high-risk environment, investors should be demanding larger-than-normal risk premiums on equities versus the returns available on Treasury securities. Instead, current stock valuations imply 10-year expected returns that provide no compensation at all for the additional risk. http://www.hussman.net/wmc/wmc160718.htm +1

i've seen 2 bubbles in >30 years: internet 2000 and mbs (and to a lesser extent, HY) 2008. each time i was aware that things had gotten crazy, not just expensive. the only sector currently that i would say is crazy is sovereign LT debt (and i aint shorting against a printing press). alas, neither 2000 nor 2008 was i convicted enough to go short I think things have gotten crazy! The U.S. equity market is the single stand-out in a globe full of assets pricing in a recession. The rest of the world is priced for either malaise or mayhem and the U.S. is priced for perfection. I mean, it's hitting new highs despite the fact that we're already 18 months into an earnings recession. People seem excessively confident that one of the longest running earnings recessions will also end as one of the most shallow despite the fact that earnings are still contracting on a global scale and expected to continue for the next two quarters (probably the longest period of time we can forecast with any certainty). TIPS breakevens have cratered. Yield curves are the flattest they've been in the last decade barring recessionary periods. Commodities are in a 4-5 bear market with oil being the last shoe to drop. EM assets were priced one of the cheapest levels we've seen them in in two decades and their currencies have plummeted similarly. The dollar is significantly off it's lows and looks likely to continue to rise. And to top all of that off, the liquidity has been tightening either via financial market conditions or via Fed rate hikes. None of these point to an S&P that should be hitting new highs...

+1 One of the biggest realizations I had when I moved from the South to NYC was that EVERYONE does drugs. Basically everyone I know in NYC uses some form of casual drug - these are doctors, lawyers, financial professionals, etc. The question isn't are people using - it's what they're using. I know it's different in other parts of the country, but the whole idea of drugs being for criminals and that highly productive, well-behaving, well-paid members of society avoid them is a complete farce.

Would you be able to do this within an IRA where taxes aren't part of the consideration?

How about 18 months of declining earnings/revenues/margins and the S&P is hitting record highs at elevated multiples?

I wondered the same thing. He made it very clear that the State department was grossly negligent, but there was no hard evidence of an intent to commit a crime. I'm surprised that there will be no action brought for gross negligence or that the willful use of the private server and cell phone which had previously been prohibited didn't count as "intent", but I'm not a legal expert.... That being said, I think the case here clearly has more in the way of evidence in regards to "intent" than what I've seen with HRC, so that has to count for something...

I agree. These data, combined with the obvious inflation in asset prices and therefore cost of shelter and cost to retire, make me think we are actually in the midst of a huge inflation, with more to come. This assumes that prices remain elevated which is unlikely from a historical perspective. When looking at equity multiples, traditionally when they reach elevated heights, they correct to form incredibly low bottoms. Sure, retirement is expensive now! After a 50% correction? Not so much. I tend to buy the demographic argument against real estate for most Western countries which would support lower housing prices in places with aging/declining populations. At least for a period of 10 years or so before the real thrust of the millenial family growth outweighs that of the boomer decline. Disclaimer: I'm biased towards deflation and have regularly said that it needs to show up in housing for it to be sustained, so could just be inclined towards my own thesis. As a 27 year old the majority of my friends are content renting. Obviously, this will likely change as they get married and have children, but statistics suggest that this is occurring a lot later for millenials (every year the average age for them to get married ticks up - pushing 30s now). Having lived in TX, MS, LA, NJ, and NY - I can confirm that I only have 3 friends who are married (all from Southern States) and the remainder remain single. Those in NY aren't even in committed relationships and most are late 20s and early 30s. It's hard for me to imagine much of a change in this trend over the next 5 years. 10 years could start to make a difference but remains to be seen. I'd imagine that there's likely to be large imbalances in the real estate inventory and real estate demand as boomers downsize or pass away while millenials continue putting off buying until they establish families. Also, my guess is that they'd be satisfied with smaller houses too given their long-term experience in apartments/condos and their inability to have save as much money as their parents did by that age. It's hard for me to imagine how the trillions of money printed by the Federal Reserve isn't inflationary, but it doesn't seem to have made it's way into circulation for goods yet. Obviously, asset prices are supported, but those prices are established at the margin (each individual trade reprices the whole company and not just a purchase for the whole company). It's quite easy to see a scenario where the Federal Reserve has $4 trillion in "stock" but the marginal flow pushes asset prices downwards regardless of what the Fed owns.

On a more serious note, although I may get flamed for saying this, I think shorting these 'safe', 'bond-like' consumer stocks like Hershey, Nestle and their ilk is a tempting opportunity. Why? Nestle has grown low/mid single digits for a very long time and can pass through inflation (if we ever see it again) to consumers. It's yielding a little over 4% right now with absolutely no leverage. In a world with 2.5% fixed 30 year treasury yields, why on earth would you not rather own Nestle? Now you may say you think its crazy to lend money at 2.5% for 30 years (I agree), but in a world where that's the "safe" place to put money, I would say Nestle looks pretty cheap as a "safe" investment. Well, Hershey is up big today after Mondelez's takeover offer, so....short away ;)

I'm still pretty bullish on EM generally and commodities in general. I have pretty large exposures to Russia (specific names), Brazil (specif names), and China (funds) and diversified EM bonds. Considering adding Fairfax India to this list to round out exposure some. Despite the recent rallies from lows, many of these names still trade at single digit P/Es with 7-10% yields which should allow them to far exceed the performance of the SP500 going forward over the next 5-10 year horizon. Especially since EM currencies are the most undervalued they've been since the Asian contagion in the 90s. Commodities I'm bullish on just due to valuations and the past 4-5 years of a bear market across most materials. Many appear to be approaching lows not seen in decades (oil and timber for example). That's how people have typically made fortunes in these types of things in the past so I want to be a buyer at multi-year lows. We may not see another route or two in specific commodities, but I don't think that a diversified exposure among them will go much lower. Key names I own for this exposure are large positions in Altius (Coal, Copper, Potash, Gold, & large iron deposits) and Pardee Resources (Hardwood, Softwood, Coal, O&G) with a basket of low P/B oil companies (spread out across midstream, production, and E&P). I've generally been adding to Europe giving significantly higher yields and lower P/Es than America - especially among financials BUT I don't see them being anywhere near as attractive as EM so allocations here have been smaller. Mix of individual names and fund exposure. The other interesting opportunity to me is more speculative in nature - shorting the S&P with U.S. small caps and high beta names sprinkled in (long LEAP puts, short indices, and tiny shorts across some individual names). Really, the only market I hate right now is the U.S. market and that's simply an argument on valuations. Hard for me to envision staying at elevated multiples after 6 quarters of profit/revenue decline with margins that peaked 2 years ago - especially since we're at the very long end of the range for most expansive cycles. Don't know what the catalyst will be to shock everyone into being rational again, but 24x trailing-12M earnings that are still projected to shrink further seems like a lesson in insanity to me and I want to profit from it. If U.S. markets crashed, everyone would say "duh" in hindsight with how obvious this should be, but few seem to be concerned about it right now. I don't want to be one of those who waits for the hindsight portion - I want to benefit from shorting it ahead of the "duh" moment. Also, if you like conservative positioning but don't want to short - Fairfax is looking pretty attractive right around $500 IMO. Especially the way insurance has been going - I'm estimating something like $500M in gains simply from bonds/coupons in Q2. No idea what insurance and total equity exposure will do (too lazy to calculate the individual names at the moment), but inflation breakevens are lower across the curve this quarter boding well for their deflation derivatives too. A $500+M quarter wouldn't be too shabby for an $12B company.

+1 I especially like his comment about the lack of clarity when the market is rising.

Housing has a much bigger impact in the CPI index than just the rent itself. Go to any region with sky-high housing and everything else is very expensive too. Rents and paychecks feed off of each other. A pool service guy who comes once a week is $75/month in the Sacramento region, but $160/month in Santa Barbara. The pool guy needs somewhere to live, and he has to pay the high rents. So he demands more pay too. Absolutely - furthering that idea, houses move faster as the prices rise. Higher housing mobility and higher sales feeds into increased demand for other products (paint, tape, tools, steam cleaners, etc. etc. etc.) as people repair, decorate, move in etc. You slow down the process of housing sales and you delay all that spending to some future date. The raw weight is 30%, but it's impact on other industries brings it to a much higher figure. People also tend to spend more as housing prices are rising even if they don't sell so that helps too... The virtuous cycle becomes a troubling one on the way down. I tend to be in the deflation camp, but don't expect to see it sustained if housing doesn't participate. I also tend to believe that housing will likely be the last shoe to drop this time around as opposed to the first largely because my thesis for housing rests more on demographics and housing trends than it does the economy.

The real question is housing. You won't see sustainable deflation/inflation if it's not reflected in housing as that's such a huge part of the CPI index - (around 1/3 if I'm not mistaken). If housing prices/rents start to flat-line/decline, you'll have your answer. It's hard for me to make predictions without knowing what other "magic" the Central Banks will stir up in an attempt to pull forward demand and discourage savings, but I generally lean towards deflation being the bigger threat to developed markets in the near term. Debt is deflationary in a downturn (just as it's inflationary in an upturn) and we have more of it now than we've ever had in history.

TwoCities, I thought in my first reply you understood I agreed with your point. Why are you beating me over the head with it a second time? LOL Sorry - was quoting that more for Mephistopheles and less for you. Not trying to beat you over the head with it - just demonstrating that even once you have a full understanding of the double taxation, that it doesn't really matter.

Hmm ok. Say you take out a $100k loan, and pay back with interest $110k. When you retire and take distributions, you have to pay tax on the $100k which I agree is not really double taxation. But do you have to pay tax on the $10k interest as well? If so, then wouldn't that portion would be double taxation? I know when you take distributions from an IRA account, you don't have to pay state taxes on the amount you deposited post tax, at least in NJ which doesn't allow IRA deductions. So if you contribute $6,000 to an IRA, and that grows to $10,000. While you would owe Federal tax on the full $10k, you only owe it on $4k in NJ. Edit: On second thought the $10k isn't really double taxation because the lender/investor (401k) made a profit, just as you would from dividends on stocks. Therefore of course it would make sense to owe taxes on it. It just sucks if you're the borrower as well, but it makes sense. When I first mentioned double taxation I am talking about double taxation on the gains. Not the original principle (aka contributions). So suppose you want a $100k loan and pay 4% interest. You have to earn $6k to keep $4k post tax to pay that interest per year. That $4k is in your 401k but when you withdraw you keep $3k after tax. So earned $7k but kept only $3k because of double taxation. I am not sure what TwinCities meant. Other examples or double taxation is when you pay tax withholding on foreign stocks in your ira. That tax paid is not recognized when you withdraw at retirement. As for the IRA taxation that isn't right. I hope you filled out a form 8606 for you non deductable contributions. Non deductable contributions is post tax money. That amount is basis and is deducted from your account to derive your gains which is taxed when you withdraw. Form 8606 is a federal form so it means it apples to federal taxation. no? if not I am really wrong on my tax planning. Now run through the same example at a slightly higher rate for an unsecured loan (7-8%?) and see which one you're better off with. Nobody is saying you're not double-taxed, but avoiding double-taxation isn't the point of taking a loan. The point of taking a loan is financing a need at the lowest cost available and unless if you're taking some form of secured debt (like a mortgage), the 401(k) loan is probably going to have the lowest total cost of anything else available even considering the double taxation. This is why I hate it when people bring up the point. It's an immediate dismissal of a form of financing without doing any comparative analysis to other forms of financing.

Sure, I agree with your point. But I am saying there are deterrents to borrowing from your 401k to make frivolous loans. Well, my only response would be that it's always a bad idea to take frivolous loans and that has nothing to do with the double-taxation of the repayment ;) We can let this go though, lol

Noice - Thought about re-entering Lancashire, but wanted to do more Fiat instead.

Well the fact that the interest is doubly taxed is a deterrent for one. The interest paid comes from taxed salary. Then when you retire and withdraw that interest money it is taxed again. Secondly if there isn't a meaningful interest rate it is like free money, money that has never been taxed free for you to spend. When you say double taxed - do you mean since you can't deduct the interest rate that you pay to your 401k, as interest expense, as opposed to mortgage interest? Also, whatever you earn on the 401k, you'll have to pay taxes on when you take distributions, no? So what's the difference if you earn that from charging interest to yourself or you earn it from investment gains? It's not really a tax loss if you owe taxes no matter what. What he means is that the money you put into your 401(k) is tax deferred. You don't pay taxes on those deposits and their earnings until you withdraw money in retirement. So only one set of taxes - those paid when you withdraw. If you take a 401(k) loan and spend that money, you're paying back pre-tax contributions that you borrowed with post-tax dollars from your paycheck (tax #1). Then once it's paid back, you'll pay taxes on it again when you withdraw in retirement (tax #2). People say it's a bad idea to borrow from your 401(k) because of that double-taxation, but the point that I made above is that ALL forms of borrowing are paid post tax, so if you're going to have to borrow, that shouldn't be what keeps you from doing a lower interest option.

SAN and FCAU

To answer OP: 1) The interest you pay goes into your account. You pay yourself interest. At least - that was my understanding when I looked into doing this myself (but never did). 2) The whole $7,000 would be offset assuming that the gain/loss are both long-term or short-term in nature. The limit of $3,000 was for capital losses to offset income - not for offsetting other capital gains. If you 100k in capital gains, you can offset that with 100k in capital losses in the same year. There's no limit for offsetting gains/losses of the same time - just limiting how much of a deduction you can take against your income for the year. Well the fact that the interest is doubly taxed is a deterrent for one. The interest paid comes from taxed salary. Then when you retire and withdraw that interest money it is taxed again. Secondly if there isn't a meaningful interest rate it is like free money, money that has never been taxed free for you to spend. I'm generally tired of hearing this "you pay it back with after-tax dollars". It seems totally irrelevant to 99% of people taking loans against 401k. Taking a loan against a 401k is a cheap form of financing - it comes with a low rate and you're paying yourself. How is ALL financing paid back? With after-tax dollars. It's irrelevant if the 401k is also paid back in after tax dollars. All that's relevant is the rate and the terms - the terms of 401k loans can be onerouse, but a 0% rate (cuz you're paying yourself) is hard to beat. The only time the tax function comes into play is if you're looking to borrow against your 401k to leverage returns in other investments (as opposed to needing the money or using as a form of financing for an investment you'd make regardless). Then you'd have to compare the forward looking rate of return within the 401k to solve for the value of the tax-deferred compounding on the amount you intend to borrow. That is your cost. PV that cost and compare it to the cost of interest on the loan you would have to take from a private institution. I don't think the tax-deferred benefit of the compounding comes out to be anywhere near 6-10% per year on your principle which is what it would likely have to come to for other forms of financing to make sense. Further, this analysis is highly, highly dependent on assumptions used for future growth of the 401k and the rate you discount it back to find PV - a largely useless exercise.

Won't happen - I'm optimistic that he'll get 10-15% of the vote so Libertarians become a swing factor in future elections, but he'll never get enough support to become president. Even among his supporters are those who will vote right/left because they don't want to "waste" a vote.