TonyCinTX

Has the Market Decoupled from Economic Reality?

The answer is simple; the government has proven by its actions that they have decided the Fortune 100 companies must not fail. The decoupling mentioned by User 353732 above is decoupling risk from performance. As has been said before, the Fortune 100 has pretty successfully privatized profit while making all risks a public responsibility, with losses now borne by taxpayers in the form of government bailouts, stimulus, zero-interest loans, and on and on.

The value of the DOW and S&P 500 companies has risen because risk has been abated, and in some cases eliminated. Smart, big-money investors discount prices for business risk, but when risk vanishes the discount is zero and the price rises.

This is why stock prices jump (in either direction) after a contract is signed or declined, or the FDA approves a drug or decides against it, or a lawsuit is settled in favor of or against a litigant: Until the final signature, bets exist on both sides, after it, all bets are settled up.

Well, my fellow citizens, we have collectively spent about a trillion dollars this year defining a whole brand new class of corporation in this country:

Too Big To Fail.

Buffett and Gates Discuss Potential Succession Plan

Thanks, that was great.

Krugman Puzzled by Housing Asymmetry

You completely misunderstand Krugman's point; he DOES know why that is true, he is saying that Arnold King is re-inventing 1934 macro-economic theory that FAILED to understand this point and therefore treated these two situations as EQUAL.

It is clear when the referenced article is read that Krugman understands this point completely and is criticizing Arnold King (and others) for failing to understand it. This headline is as foolish and misleading as 1934 macro-economics. Either the author has a problem with reading comprehension, or just wants to bash Krugman and hopes we don't notice.

Insiders Confirm: Rally Is Fake, Economy Is 'Getting Worse'

I have received stock options in three companies that I worked for. Seriously, folks, sell 'em when you get 'em, I did not in the first and that was a mistake, I did in the 2nd and 3rd and although I could have made about 50% more by holding a year or so, I made twice as much as the people that held two years or more. Trying to guess the peak is a loser's game, my recommendation (which I followed myself) was to get OUT of the company I was working for and buy dividend producing companies that are already about as big as they can get.

Yes it is wonderful if you can ride a rocket to the top, but the sad fact is that most companies are too greedy and try to grow too fast and are managed incompetently; and that means the odds are very good they will falter and fall long before they dominate a market. As DVK says before me; finalize your compensation and diversify. If your company really does grow, your options that mature next quarter or whatever will be worth more. Why bet everything on one unproven long shot that is likely to fail?

What's Next for Gold and Silver ETFs?

I am in Gold at 25% of my investment. Although I politically support the government spending that has and will occur on Obama's watch as necessary, I cannot see how it we can possibly pay for it without printing money. Print and spend is fine by me; it deflates our real debt (by paying it off with inflated dollars), but it does mean inflation and that HAS to mean gold rising.

I guess if you think we are going to get out from under the current financial mess by some means OTHER than printing money, Gold is a bad bet for you. But I will remind you that taxes, fees, or reduced government payments of any kind are politically unpopular, and only about 15% of voters care anything about the deficit, and only about 5% understand the ramifications (or are even affected) by the government printing money. So my guess is, the politically easy way out is to start the presses.

If Housing Were Priced in Gold

@jrainspe:

Oh, I can imagine it, and I can imagine that if the UN printed money we would have the same problem as all countries have now; they can print money at will. And tying it to some "basket of goods" is no good either, because that would also be subject to political intrigue in determining how to weight the basket, what to include in the basket, and everything else.

And you are wrong; pet rocks and virtual pets have the ultimate real and fair value: They were entertainment. Will you next argue that anything that counts as entertainment has no real value? Not movies, books, water parks, plays, professional sports, music, good clothes or good restaurants? About 75% of people's spent income is "wasted" according to your lights, because they spend it on making their lives more fun and pleasant.

A universal currency is not just pointless, it would be harmful because it provides a single point for corruption and manipulation. At least now, we can measure inflation, corruption, and manipulation by one currency trading against others.

If Housing Were Priced in Gold

Actually the value of the home is in its utility, like any other machine (e.g. car, laptop, lawn mower), not what one can sell it for. After all, you are going to have the expense of living somewhere no matter what. It is incorrect to say sell your home and rent: Your mortgage payment does not rise with inflation or fluctuate with demand, your apartment rent will never decline.

A rise in Gold signals inflation of the dollar, and inflation is either caused by or will produce salary increases. But your mortgage payment is FIXED, so while the number remains the same, as a percentage of income it is reduced by inflation. We also have the situation that home buyers tend to be younger and will earn more as they grow into their careers. This is why anytime you talk to somebody with a twenty year old mortgage their payment seems a ridiculously low fraction compared to typical apartment rents for the same square footage.

The author fails to consider that much of that free 300 ounces of gold would have been eaten by skyrocketing apartment rents rising with inflation; he assumes the apartment rent for the same square footage will just cost the same as the mortgage payment was in 2001. Good luck with that.

I am not arguing that money cannot be made on bubbles if you know when they are coming and when they are ending; far from it. But in times of inflation, a fixed-rate mortgage payment is your friend.

Tilson Explains the Increase in Berkshire Hathaway's Intrinsic Value Estimate

I own a LOT of BRK-B, and I would buy more (and did recently) but I hate to have more than 50% of my net in one stock no matter what it is. Anyway I agree with Tilson; BRK-B is at 75% or 80% and is worth $4200 to $4500. It is trading at $3400. The market is insane, instead of betting on working companies it is speculating on getting rich off of bailouts and health care "reform" and Ponzi schemes. That might work for them, but I'm afraid I'll just have to hold on to companies actually earning a profit by making customers happy, and leave the political and financial criminal profiteers to their own ways.

CEO Pay and the Reverse Robin Hood

@Jack789:

Ah, well, I once believed Obama's rhetoric, enough to vote for him, but I am disillusioned now. You have no need to worry, Obama is just as much in the pocket of big business as any other politician. I have no doubt he will protect the existing system of ripping off the common man to benefit the wealthiest corporations; for the latter it will still be ice cream and cake, perhaps different flavors but just as delicious.

Obama's rhetoric is for the common folk like me, but as he has proven at least a dozen times already by signing statements, orders, and secret deals, his words are just words. Whatever "fundamental change" he claims to accomplish is going to be superficial and cosmetic, I feel certain.

And let me preempt any that disagree: I speak as a hard left liberal that donated $500 to the liar. Obama will protect the WORST of the capitalist system. I thought differently during his campaign, but the day he voted for telecom immunity after promising to *filibuster* over it, we knew for certain who was buttering his bread.

On Sep 05 09:00 AM jack789 wrote:

CEO Pay and the Reverse Robin Hood

@GALT:

You miss a crucial difference between actors, actresses, news anchors, sports stars, music stars and other celebrities and CEOs.

Not one of these celebrities, including the ones you mention, has any responsibility to others when allocating their own pay. Katie Couric is not responsible to the shareholders of CBS for using their money wisely; she is an independent contractor. She demands a salary and perks, and the fiscal geniuses at CBS decide whether her services are worth it to them.

Julia Roberts doesn't own a movie studio. Somebody else owns the studio, approaches her (through an agent), pitches their picture and her share. She is an independent businesswoman with her own staff, lawyers, and negotiators. Somebody else decides whether she commands enough audience to be worth $20M, and that person has the fiduciary obligation to spend the money of their shareholders or investors wisely.

In all of your counter-examples, not one of those celebrities has any fiduciary obligation to the shareholders of the company paying them. In all of those cases, somebody else is trying to get the most bang for the buck out of their money, or the money of their investors or shareholders. Call that "maximizing value."

In the case of the public companies, The BOD and C-Level officers ARE specifically responsible for maximizing value, and setting their own salaries is a direct conflict of interest.

@Wisdom vs... saying "don't buy their stock" is like saying if you don't want to get mugged, stay in the house. I have a fundamental right not to be robbed, defrauded, misled or lied to by companies in which I invest, and I believe I have the right to not get mugged by CEOs or boards that are supposed to be representing my interests, even if that mugging is only 1% of my profits.



> On Sep 04 03:04 PM John Galt wrote:

CEO Pay and the Reverse Robin Hood

It is pretty simple, really. Once you get to these levels of compensation, the best interest of the Cxx and BOD is to maximize their own short-term compensation even if it screws the stockholders, investors, lenders, workers, and society. They can get their money and walk away from a total train wreck. We rely upon their honor and integrity and the potential for shame, but at our peril, because some of them HAVE NONE.

We may know who they are, but nobody gives a crap, because the big traders only own the stock for a few months before selling; they are all short termers too. Corporate governance be damned, that is always the next buyer's problem. I admit I am always surprised to receive a proxy statement to vote on the corporate executives; I usually don't know them and don't care, I just happened to be holding the stock on the day of record.

The problem is one of scale, that is all, and the way to fix it is to limit the SCALE of public companies. I am not sure what the best measure of that is, but perhaps we limit them to 1000 employees, or $1B in revenue, or both. If they grow larger than that, we require them to split in two with equal assets and equal rights to any intellectual property and to be completely independent. The shareholders get a share of each stock in return for their original share, but no officer of one can vote any shares in the other for at least three years. Let them compete with each other.

Then the companies always have competition, they must compete for the workers who now have a choice, the shareholders have more than one company to choose to invest in, and consumers can choose between their products and be rewarded by price competition.

If a company doesn't want to split equally, let them spin off independent public firms before they get to that point, but require true independence of the spin offs with no possibility of manipulation by the parent: All they get is non-voting stock.

And for any private company, no such limits, except for anti-trust laws already in place.

Keep companies small, and this runaway compensation will come to a halt.

The Economics of Shopping Malls

Specifically, the Mall air-conditions and maintains a HUGE indoor space in the form of just the 50' wide hallways, escalators and other open areas. That same space is just a sidewalk and/or parking lot in the strip mall, about twenty times less capital cost and far less utility and maintenance costs.

In fact, since the Mall still has those sidewalks, parking lot and similar green islands, I'd argue their hallways are 100% overhead both in building and in ongoing maintenance. We have an open air strip malls down here with about a hundred stores and twenty+ buildings; you actually must drive from end to end.

The open air strip mall is simply a better mechanical model than the enclosed mall. The capital costs are less and that makes the mortgage expense less; the maintenance costs are less also, and together these produce about the minimum rent. The Mall worked, but the novelty is decades old and worn down, and neither the shop-keepers or the customers are willing to pay for the fancier digs anymore.

I will also echo the convenience factor: We often want to go buy something from a specific shop, and at the strip mall we can park within 50 yards of it. We don't have to walk half a mile from the lot to the store, like we would in the Mall. Again, the open air mall is just a better mechanical model than the enclosed mall.

More flexible for vendors, more convenient for customers, and it costs less for both. We evolved a better species of shopping center, and I'd bet the enclosed mall is on its way to extinction, when the current structures fail. I certainly wouldn't invest in any new ones, I think that would be a bad bet.

Warren Buffett and Brett Favre's Big Mistake

With half my total invested portfolio in BRK-B, I don't buy this analysis. Buffett's moves are still admirable and seem like the right moves. C'mon, those Goldman Sachs warrants are Gold, Man, Sacks of it.

Should Warren die I imagine Berkshire will decline temporarily but I will not divest one share. I am in BRK-B because Berkshire holds truly valuable stuff and has been able to go where no normal investor could tread. I am betting on Warren's past accomplishments: Who else could have gotten that GS deal? Who else could have gotten the Mars Candy deal? I would not be betting on MORE deals like that, I am betting that the deals already made are worth much more than the stock reflects right now.

Now if Warren dies or steps down, I am willing to wait and see if he was telling the truth about his successor; but he shall be judged (like Warren) on his actions and the deals made. If the new leadership makes a bunch of "me too" deals I will get out of Berkshire, but if they use the unique leverage of Berkshire to make those unique big-money deals no other investor on the planet can swing, then I am still in.

The current decline of BRK is no worse than the decline of the market as a whole, and in my opinion it is undeserved; Buffett's moves during the meltdown have been just fine by me. Stars of any field should retire when they no longer have comparative game.

I have quite a bit of money riding on my belief, backed up by evidence, that Buffett still has comparative game.

Has the Rally Already Exhausted Itself?

People don't need companies to work for. They can work for the military, work for the federal government, work for the state government or highway department, and work for the county government. All those pay money. I work for a state college and I am proud of my work (and I pay my taxes), it isn't a "company."

Buffett's Recent Portfolio Changes: What's the Message?

A public option isn't reform? It certainly has the potential to massively reform the health insurance industry, it will bomb them back to the stone age (for them, about the 1960's). Personally I find this a good thing.

Because insurance and the health industry are in the same economic whirlpool, there are quite a few floated options that would also reform the health industry specifically, those that prevent insurers from controlling treatments or countermanding doctor's orders by refusing to pay or capping lifetime payments or rejecting people based on existing conditions. I don't know about "reform" but these portend some massive changes to health care per se, putting the white coats back in charge over the gray suits.