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Kevin Hollins
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Kevin Hollins is CEO of The Canal Group, a Baltimore-based private equity firm focused on commercial real estate, venture capital, and capital markets investments.
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  • The Devil's Lesson About Inflating Fiscal Problems Away

    We were reminded today in a WSJ article that using the printing press to inflate away money troubles is anything but a new idea. Even Goethe warned us of the troubles that follow. In his play "Faust", the devil Mephistopheles and Faust visit the Emperor's court. The empire's extravagance has left it in financial ruin, but Mephisto and Faust offer a way out.

    Up until that time the empire conducted its transactions in gold. But what could it do with all of its gold having been pledged?

    Well, they remind the Emperor, there's still gold in the ground, isn't there? Yes.

    And doesn't all of that gold, in the ground or not, belong to the empire? Of course.

    Well then, the empire can simply issue paper money as promissory notes backed by the value of gold as yet unmined from the earth.

    Brilliant!

    As Mephisto tells the Emperor:

    Such paper notes, instead of pearls and gold,
    Are practical, you know how much you hold;
    No need to be a trader or a vendor,
    To lust for love and wine you can surrender.

    The initial results are wonderful. The empire's spending problems are solved thus allowing them to…spend more money! The implication of course being that even if the short-term problems are solved, there is actually only so much gold in the ground, and beyond a certain point the volume of paper currency will sow the seeds of its own collapse.

    It took Goethe sixty years to write Faust, with Part II published (posthumously) in 1832. 180 years later, new emperors in the guise of central bankers at the Bundesbank, Federal Reserve and ECB should keep the playwright's lesson in mind as "Global QE Infinity" continues apace.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 03 3:55 PM | Link | Comment!
  • Book Value and Stock Price at Berkshire Hathaway
    In a recent article, Seeking Alpha contributor David Van Knapp wrote about Berkshire Hathaway's policy of not paying dividends, while often investing in companies that do. Whenever anyone writes an article about BRK, I like to read the comment thread (the good and bad part of internet journalism), as it seems to bring out all kinds of opinions on Buffett and Berkshire.  Many of the comments were quite thoughtful, with one prompting Mr. Van Knapp to reply:
    ...I've always found it interesting that in his superb annual reports, Buffett gives a year-by-year history of the increase in book value of Berkshire and compares it to the S&P 500, which he beats handily over time, although of course not every year. There should be one more column in the table: Berkshire's stock price. I suspect that the reason that is not shown is that (as all Buffett fans know), the market is irrational, and it prices any stock (including Bershire) irrationally sometimes. Without having researched this, common sense suggests that there would be years that Berkshire's book value increased nicely, but its stock price did not keep pace--maybe even went down. Because Berkshire does not pay a dividend, the ONLY way a shareholder can profit from owning Bershire is via price changes, whether they are rational or not. I think the stock's price change per year should be added to that table. You can't spend book value.
    As simple as that point is, it is both obvious and important, and I am interested to know what other SA readers think about it. 

    Do you care about book value?

    Does change in book value only mean anything if there is no intent to sell?

    Would looking at a change in book value versus a change in price cause an investor to look at a potential investment (or sale) differently?

    Despite his well documented goal of having shareholders who will never sell, is Mr. Buffett presenting an incomplete picture by not highlighting changes in BRK.A's stock price year-over-year?

    If, as Ben Graham said, in the long-run the stock market is a weighing machine, what would be wrong about reporting changes in the stock price?





    Disclosure: LONG BRK.B
    Tags: BRK.A
    Sep 03 9:31 PM | Link | Comment!
  • Big Think
    This morning I came across a very interesting site called Big Think.  On the site are articles and video interviews with experts across a wide range of topics, from physics to business to the arts to a series simply called "The Big Questions". 

    In the "About" section on the website, it says: 

    We believe that not all information is equal. We believe that expertise is invaluable and should be shared. If you had a heart problem and could afford the counsel of the world’s leading cardiologists, you would seek their advice. If you owned a business and wanted to expand into China or Russia, you’d want to hear from people who had already done that. If you planned to write a novel or a screenplay, you’d want to get pointers from the world’s leading writers. At Big Think, we put you in contact with the ideas of very smart people.

    We do not believe that experts have all the answers. On many subjects deep thinkers disagree. We do believe that we will all make better decisions in our personal and professional lives if our thinking is informed by expert opinion.

    Big Think also hosts a series of blogs on various topics -- well worth checking out.  Enjoy!


     

    Aug 10 8:25 AM | Link | Comment!
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