What are you buying today?

[arcube]

WFC $25 strike leaps 2022 at $5.15

 

Are these Jan 21, 2022 expiry?

 

Yes, I'll edit

 

Thank you.

[arcube]

WFC $25 strike leaps 2022 at $5.15

 

Are these Jan 21, 2022 expiry?

 

Yes, I'll edit

 

Mephistopheles  - Do you mind sharing your thoughts on the size of this position and how you allocate?

[KJP]

Comcast

General Dynamics

Alexander's

[Spekulatius]

Comcast

General Dynamics

Alexander's

 

I also added GD  and TRV and restarted CMCSA and ORI.

 

Strange disconnect in the Market, some stocks go to the moon, others into the doghouse.

[HalfMeasure]

Comcast

General Dynamics

Alexander's

 

I also added GD  and TRV and restarted CMCSA and ORI.

 

Strange disconnect in the Market, some stocks go to the moon, others into the doghouse.

 

It seems there is no tolerance for owning things that "aren't working" (e.g. anything going down is broken), and no tolerance for not owning things that "are working" (e.g. FOMO). Everything feels very momentum driven, whether business/fundamental momentum (businesses doing well must certainly keep doing well) or merely price/sentiment momentum (stocks going up must certainly continue to go up).

[Mephistopheles]

WFC $25 strike leaps 2022 at $5.15

 

Are these Jan 21, 2022 expiry?

 

Yes, I'll edit

 

Mephistopheles  - Do you mind sharing your thoughts on the size of this position and how you allocate?

 

Sure. I have a mix of common and options. Bulk of it is common with some options at strikes 25, 27.5, 30. Options like <1% of portfolio. I bought today because WFC is near the lows from March, and cost of leverage was only about 10% + dividends. Meanwhile the stock is at like 75% of TBV. Depends on how this crisis plays out, I thing the banks are very well capitalized. Govt will never let them fail.  Zero or negative rates for long would hurt. Everyone says we will have same rates or lower for long. People act like we will never see high rates again but I don't think we can ever be so sure.

[arcube]

WFC $25 strike leaps 2022 at $5.15

 

Are these Jan 21, 2022 expiry?

 

Yes, I'll edit

 

Mephistopheles  - Do you mind sharing your thoughts on the size of this position and how you allocate?

 

Sure. I have a mix of common and options. Bulk of it is common with some options at strikes 25, 27.5, 30. Options like <1% of portfolio. I bought today because WFC is near the lows from March, and cost of leverage was only about 10% + dividends. Meanwhile the stock is at like 75% of TBV. Depends on how this crisis plays out, I thing the banks are very well capitalized. Govt will never let them fail.  Zero or negative rates for long would hurt. Everyone says we will have same rates or lower for long. People act like we will never see high rates again but I don't think we can ever be so sure.

 

Thank you.

[kab60]

More BRK

[Ballinvarosig Investors]

I have been buying Markel. Never thought I would be given a chance to get it at a cheap price again, but here we are. Looks like it's slightly better value than Berkshire to me as well.

[Broeb22]

I have been buying Markel. Never thought I would be given a chance to get it at a cheap price again, but here we are. Looks like it's slightly better value than Berkshire to me as well.

 

Some on this board hate FRFHF/FFH, but what are your thoughts on MKL relative to FFH? Do you just like the S&P500 plus portfolio returns Markel delivers better than the deep value dumpster-diving Prem prefers? FFH seems pretty cheap right now too, and I've considered adding to my baby position.

 

There is a whole lot more pessimism built into FFH right now because people don't believe the investment results will be good going forward. From 60% of book, they don't have to be great to get a decent return in the equity. But I think investing is hard, and Prem is fundamentally a good investor who made a couple large bad bets (particularly deflation hedge which might have become pretty valuable around now) which really dented performance. If you back out the losses from that large bet, results are only mediocre since 2010.

[clutch]

There is a whole lot more pessimism built into FFH right now because people don't believe the investment results will be good going forward. From 60% of book, they don't have to be great to get a decent return in the equity. But I think investing is hard, and Prem is fundamentally a good investor who made a couple large bad bets (particularly deflation hedge which might have become pretty valuable around now) which really dented performance. If you back out the losses from that large bet, results are only mediocre since 2010.

 

A couple? NO.

[Castanza]

MSGS, BRK

[TwoCitiesCapital]

WFC $25 strike leaps 2022 at $5.15

 

Are these Jan 21, 2022 expiry?

 

Yes, I'll edit

 

Mephistopheles  - Do you mind sharing your thoughts on the size of this position and how you allocate?

 

Sure. I have a mix of common and options. Bulk of it is common with some options at strikes 25, 27.5, 30. Options like <1% of portfolio. I bought today because WFC is near the lows from March, and cost of leverage was only about 10% + dividends. Meanwhile the stock is at like 75% of TBV. Depends on how this crisis plays out, I thing the banks are very well capitalized. Govt will never let them fail.  Zero or negative rates for long would hurt. Everyone says we will have same rates or lower for long. People act like we will never see high rates again but I don't think we can ever be so sure.

 

I dunno - I think everyone is saying that rates will go lower because they've been tired of being wrong for the last 12-years.

 

It was just as recently as 2018 when no one wanted to own bonds and were sure that rates were headed higher. Basically, since 2008 people have been saying rates can't get any lower. And despite certain bounces off local-lows like the taper tantrum and post-Brexit moves, the general trend for the last 10-years has been lower with new lows in rates set every few years...because the economic environment demands lower rates.

 

I don't see that changing just because people are finally throwing in the towel after 12-years of being underweight duration and wrong. They're only beginning to see the light and that may change 6-months from now when people may, once again, be clamoring for higher rates saying the bottoms are in and there is no way rates can go lower.

 

Rates will fluctuate in the short-term, but my guess is the 10-year doesn't go anywhere near 2% for the next few years. As a point of reference, the recent high was ~3.25% in 2018 at the middle of the rate hiking cycle.

[Mephistopheles]

 

Sure. I have a mix of common and options. Bulk of it is common with some options at strikes 25, 27.5, 30. Options like <1% of portfolio. I bought today because WFC is near the lows from March, and cost of leverage was only about 10% + dividends. Meanwhile the stock is at like 75% of TBV. Depends on how this crisis plays out, I thing the banks are very well capitalized. Govt will never let them fail.  Zero or negative rates for long would hurt. Everyone says we will have same rates or lower for long. People act like we will never see high rates again but I don't think we can ever be so sure.

 

I dunno - I think everyone is saying that rates will go lower because they've been tired of being wrong for the last 12-years.

 

It was just as recently as 2018 when no one wanted to own bonds and were sure that rates were headed higher. Basically, since 2008 people have been saying rates can't get any lower. And despite certain bounces off local-lows like the taper tantrum and post-Brexit moves, the general trend for the last 10-years has been lower with new lows in rates set every few years...because the economic environment demands lower rates.

 

I don't see that changing just because people are finally throwing in the towel after 12-years of being underweight duration and wrong. They're only beginning to see the light and that may change 6-months from now when people may, once again, be clamoring for higher rates saying the bottoms are in and there is no way rates can go lower.

 

Rates will fluctuate in the short-term, but my guess is the 10-year doesn't go anywhere near 2% for the next few years. As a point of reference, the recent high was ~3.25% in 2018 at the middle of the rate hiking cycle.

 

Will we have zero interest rates in 10 years? Maybe. But what does that mean for income for banks and their valuation? NIM will suffer of course, but I suspect non-interest income will play more of a role in banking profits. Secondly even if interest income and net income suffers, valuations should hold up or expand right? At zero interest rates, normalized valuations could be 20+.

 

Willing to bet on WFC is at like 10x 2010 earnings.

[TwoCitiesCapital]

 

Sure. I have a mix of common and options. Bulk of it is common with some options at strikes 25, 27.5, 30. Options like <1% of portfolio. I bought today because WFC is near the lows from March, and cost of leverage was only about 10% + dividends. Meanwhile the stock is at like 75% of TBV. Depends on how this crisis plays out, I thing the banks are very well capitalized. Govt will never let them fail.  Zero or negative rates for long would hurt. Everyone says we will have same rates or lower for long. People act like we will never see high rates again but I don't think we can ever be so sure.

 

I dunno - I think everyone is saying that rates will go lower because they've been tired of being wrong for the last 12-years.

 

It was just as recently as 2018 when no one wanted to own bonds and were sure that rates were headed higher. Basically, since 2008 people have been saying rates can't get any lower. And despite certain bounces off local-lows like the taper tantrum and post-Brexit moves, the general trend for the last 10-years has been lower with new lows in rates set every few years...because the economic environment demands lower rates.

 

I don't see that changing just because people are finally throwing in the towel after 12-years of being underweight duration and wrong. They're only beginning to see the light and that may change 6-months from now when people may, once again, be clamoring for higher rates saying the bottoms are in and there is no way rates can go lower.

 

Rates will fluctuate in the short-term, but my guess is the 10-year doesn't go anywhere near 2% for the next few years. As a point of reference, the recent high was ~3.25% in 2018 at the middle of the rate hiking cycle.

 

Will we have zero interest rates in 10 years? Maybe. But what does that mean for income for banks and their valuation? NIM will suffer of course, but I suspect non-interest income will play more of a role in banking profits. Secondly even if interest income and net income suffers, valuations should hold up or expand right? At zero interest rates, normalized valuations could be 20+.

 

Willing to bet on WFC is at like 10x 2010 earnings.

 

I'm tired of addressing the low rates = high multiples argument so I won't really go into the details.

 

But if rates are at 0% because inflation/growth is 0, or negative, than no - you won't have 20x multiples on equities. Just like we didn't have 20x multiples on equities in the Great Depression when rates were near 0. Just like Europe hasn't had 20x multiples on its equity indices for the bulk of the recovery despite low/negative interest rates.

 

And to expect that on equity markets as a whole is one thing. To expect it on bank stocks whose primary form of revenue/income has been decimated and needs to be replaced with a fundamentally new business model seems foolish.

[KJP]

Huntington Ingalls Industries.

[jgyetzer]

GLIBA

[CorpRaider]

WFC. 

[thepupil]

I'm tired of addressing the low rates = high multiples argument so I won't really go into the details.

 

haven't high quality companies in Europe and Japan traded at nice multiples throughout the low rates and low growth?

 

I can't find data over time, but I'd point out that "quality" companies in these parts do trade at a healthy 19x earnings. They don't trade at 40x instead of 20x because rates are zero instead of 1 or 2%, but it's not like they trade at 10x or 13x either.

 

I mostly agree about your point about banks. I think low rates/growth are an argument for multiples of high quality super long duration assets holding up, not necessarily banks trading at high earnings multiples. japanification/europification will not be kind to banks (though I think American banks are in much better shape)

 

MSCI Japan Quality is at 19x versus MSCI Japan at 13x

https://www.msci.com/documents/10199/83875536-eccc-410e-ac69-0e56010de620

 

MSCI Europe Quality is at 19x versus MSCI Europe at 13x

https://www.msci.com/documents/10199/3bc1a893-9602-45da-ba28-24220cec261f

 

MSCI EM Quality is at 18x versus MSCI EM at 13x

https://www.msci.com/documents/10199/a032d7c7-e72a-4f02-b95a-6aaa77fcd152

 

 

[gurpaul88]

If banks are looking to go the Europe route are they really bargains?

[Spekulatius]

I have been buying Markel. Never thought I would be given a chance to get it at a cheap price again, but here we are. Looks like it's slightly better value than Berkshire to me as well.

 

Some on this board hate FRFHF/FFH, but what are your thoughts on MKL relative to FFH? Do you just like the S&P500 plus portfolio returns Markel delivers better than the deep value dumpster-diving Prem prefers? FFH seems pretty cheap right now too, and I've considered adding to my baby position.

 

There is a whole lot more pessimism built into FFH right now because people don't believe the investment results will be good going forward. From 60% of book, they don't have to be great to get a decent return in the equity. But I think investing is hard, and Prem is fundamentally a good investor who made a couple large bad bets (particularly deflation hedge which might have become pretty valuable around now) which really dented performance. If you back out the losses from that large bet, results are only mediocre since 2010.

 

BRKB> MKL>> FFH, imo.

 

Based on current prices, risk adjusted..

 

Also worth a look: TRV , CB (own a bit TRV).

 

Today, I added some BRKB

[TwoCitiesCapital]

I'm tired of addressing the low rates = high multiples argument so I won't really go into the details.

 

haven't high quality companies in Europe and Japan traded at nice multiples throughout the low rates and low growth?

 

I can't find data over time, but I'd point out that "quality" companies in these parts do trade at a healthy 19x earnings. They don't trade at 40x instead of 20x because rates are zero instead of 1 or 2%, but it's not like they trade at 10x or 13x either.

 

I mostly agree about your point about banks. I think low rates/growth are an argument for multiples of high quality super long duration assets holding up, not necessarily banks trading at high earnings multiples. japanification/europification will not be kind to banks (though I think American banks are in much better shape)

 

MSCI Japan Quality is at 19x versus MSCI Japan at 13x

https://www.msci.com/documents/10199/83875536-eccc-410e-ac69-0e56010de620

 

MSCI Europe Quality is at 19x versus MSCI Europe at 13x

https://www.msci.com/documents/10199/3bc1a893-9602-45da-ba28-24220cec261f

 

MSCI EM Quality is at 18x versus MSCI EM at 13x

https://www.msci.com/documents/10199/a032d7c7-e72a-4f02-b95a-6aaa77fcd152

 

Only in recent years have European equities hit that level - primarily after the 2017 "everything" rally based on my holdings in them. And it's not even widespread - sure you get 20x in Germany, but not all across Europe as a whole.

 

Japanese equities have traded at elevated profit multiples for a period of time, but the EBITDA/EV relative to US corporations is WAY lower given the large cash balances and limited leverage - so still much safer - and also basically an occurrence of the doubling of the index over the last 5-7 years or so.

 

So no, I still do not accept that low rates = high multiples. 1-2% inflation = high multiples. You get above or below that figure, multiples come down pretty quickly. 

 

We've been in that band for a few years, despite policy makers' best efforts for 2+% inflation.  What is the likelihood policy makers thread that needle to get it just right in response to this crisis? We're going to fall out of that range which means the entire market likely rer-ates.

 

If it's to the low side, God help the banks. Some European banks are down 80-90-ish % from their pre-08 highs despite surviving, adapting business models, and consolidating what was left of the industry.

 

And while I think "quality" companies are better prepared for this, their priced for it. Christ - Google is at 30x it's earnings despite all of its customers suffering and slashing ad budgets. If Google was 15-20x reduced earnings, I'd buy hand over fist. I'm not touching 30x falling earnings. This will be 2006/2008 all over for Google holders IMO with the exception Google won't be hitting record revenues and earnings through the period as it's stock drops

 

[rb]

I think one error you guys are making when thinking about banks and rates is that you are not comparing Apples to Apples.

 

The Japanese are degenerate savers. A large tract of Europe are degenerate savers. Americans are degenerate spenders. One of these things is not like the other.

 

Maybe you should look somewhere closer to home. Pre GFC Canadians have been moderate savers, post GFC Canadians have become moderate spenders. Rates came down, NIM margins contracted a lot. Now check what happened to the earnings of Canadian banks.

[Cigarbutt]

I think one error you guys are making when thinking about banks and rates is that you are not comparing Apples to Apples.

 

The Japanese are degenerate savers. A large tract of Europe are degenerate savers. Americans are degenerate spenders. One of these things is not like the other.

 

Maybe you should look somewhere closer to home. Pre GFC Canadians have been moderate savers, post GFC Canadians have become moderate spenders. Rates came down, NIM margins contracted a lot. Now check what happened to the earnings of Canadian banks.

But sir, the facts, they are changin'.

https://fred.stlouisfed.org/series/PSAVERT

https://www.jcer.or.jp/english/household-savings-rate-going-up-or-down

Given the evolving age profile , it's hard to see a scenario where Japan does not enter a dis-saving phase.

As far as the outlook for oligopolistic CDN banks and their ability to thrive in a minuscule net-interest-margin world, when a typical CDN is asked why he or she is not saving: "I don't need to save, I have a house". In the US, savings rate started to go up after it was realized that houses were not necessarily piggy banks.

 

 

[jgyetzer]

TCX