CaptainJJack

And Bernanke Didn't Think Unemployment Would Reach 10%

Come in waves, do they?

You must be very rich. After all, since these waves come around so often, you must have been in short term Treasuries before this last crisis, and since it was a wave, you must have bought around the bottom knowing it will eventually turn up.

In 1982, Barrons ran story showing that if you bought a single interest rate futures contract in 1975, and ALL YOU DID was call the right DIRECTION of interest rates in each of the successive three months, and kept rolling over your gains, you would have been worth $3 BILLION.

They went on to say that since they didn't see a lot of 3 billionaires walking around Wall Street, it might have been harder than it looked.

By the way, when are we going to get the next wave?


On Nov 08 11:48 AM Michael Clark wrote:

> Check back in 2019 and we'll see if they really avoided the Depression.
> These things come in waves.
>
> In the 1930's:
> 1929-1932: depression wave.
> 1932-1935: recovery wave.
> 1936-7: depression wave.
> 1937-38: recovery wave.
> 1939-45: world war depression wave.
> 1944-46: recovery wave.
> 1946-47: depression wave.
>
> Don't be surprised when the next wave hits: 2010.
>
> Don't give any Nobel Prizes out just yet to Bernanke and Hank Paulson
> (Paulson will go down in history as the greatest Plunder Artist in
> the history of the world). He has his own place in Hell reserved
> for him, next to Crassus and Plutus.

And Bernanke Didn't Think Unemployment Would Reach 10%

Well, let's see.

The alternative plan promoted by the Republican house was a tax cut bill that amounted to $400 billion split between individuals (2/3) and business (1/3).

The current stimulus has about $250 billion in individual tax cuts and very little business tax cuts.

However, since businesses lost money, last year, and since over 90% of small business file as individuals anyway, the effect would be about what we are seeing now.

Further, since most investments are in qualified plans, Capital gains taxes no longer have any significant effect, it is hard to argue that ANY cut in capital gains taxes would do much.

SO, I conclude that Obama administration underestimated the mess we were in, but they did a FAR better job than Bush and Republicans would have done.

If we would have followed the Republican plan, we would have decimated our capital stock FAR worse than we have already done. Creative destruction is one thing, but allowing whole industries to disappear, together with all the skills involved, is quite another.

As for the deficit, Bush was racking up trillion dollar deficits, but like all good politicians, he hid a third of it in Off Balance Sheet items.

While Bernanke and Paulson should have done more to prevent this mess, I would give them both Presidential Medals for avoiding a Depression.

By the way, when you compare today with the Depression, remember to include the fact that the unemployment numbers in the Depression INCLUDED unemployed farm workers.

Finally, I could find THOUSANDS of quotes that could embarrass either side of this debate.

Your analysis adds very little.

What Buffett's Burlington Northern Buy Really Means

I picked up the wrong numbers in calculating Warren's cost basis.

He owned 22,5% ( thought he owned a lot more), before the bid.

So, I am now guessing his basis is in the mid 90/share.

What Buffett's Burlington Northern Buy Really Means

I agree with this analysis. I own BRK, and, fortuitously, I own BNI, as well, so I am biased.

While the deal was valued at $44 Billion, Buffet's cost was less than $100/share. He already owned a substantial block of BNI. I am guessing his cost basis in the mid $80s.

I think this is a bet on the West, including Mexico, more than a bet on the US, and it is clearly a bet on efficiency

I like it when someone with Warren's skill set owns the whole company. He runs his companies for the benefit of the shareholder, and he is especially careful when it comes to capital expenditures, requiring managements to show how they make sense in light of future CASH earnings.

And, he never allows them to take on inordinate debt when times are good.

Intrinsic Value and Warren Buffett's BNSF Purchase

Warren already owned a substantial block of BNI before he made his $100/share bid. I am guessing his cost basis, overall, is in the mid 80s.

For that he gets to own the whole company. Paying a premium to control the whole deal is VERY common.

I own BRK and BNI, and I think this was a very, very good deal long term.

In the short run, I see it as okay, but not great. Since I've owned both BNI and BRK for years, I can wait

Where Is the Competitive Advantage for IT Companies?

I just sold my ACN shares @$38.

I bought in at $30 primarily because I have a discipline that requires my to buy when my Stock/Bond ratios get too low. Things were spooky at the time, and ACN had a strong balance sheet.

While I agree with your analysis on competitive advantage, (I personally think that the relationships are the key source of profitable advantage because it keeps the customers you have) the issue for me has never been with the company as much as the stock.

How do you possibly value a company with a price to book greater 8 times? What kind of metrics, other than P/E, are meaningful?

I got out of ACN even though I have no issues with the company, per se. I just feel like I got what I wanted (downside protection), and I got a 20% gain to boot.

And I had no way to know whether it was still a good deal, or not.

I wish there were more info on Book-to-Bill ratios. The only hard guidance management seemed to give were sales numbers; there was not much concerning new orders.

So, I sold.

Riding the Rails: Why BNI Was Berkshire's Best Bet - And Vintage Buffett

Overpaid? Chinese Railroads?

I own BNI, and while I bought it at $74 - 80, I sure looked at it when it was over $100, and oil was at $130.

BNI has a relatively high P/B, at around 2.5, but the Chinese railroads have P/B north of 30! And, I would argue there is more than a little political risk involved.

As for Buffet being too old and past his prime, let's see, there are the Goldman warrants, the Preferreds he did with GE and Harley. There is the Wrigley deal, the Mars deal, and the rail car deal (I forgot the name of the family that sold to him) -- all in the last year.

I also own BRK. I don't think he's lost it.


On Nov 04 12:10 AM Mark Anthony wrote:

> My comment is Warren Buffet has good big picture view, bad timing
> and bad pricing. Every one in the world has known for two years that
> Warren Buffett loves railways. He openly talked about it more than
> two years ago. So why why he picks a time to pay nearly the higest
> price? Way over-paid.
>
> If he likes railway, Chinese railways are way much better play. The
> capacity of China's railways transportation is stretched tot he extreme.
> Whole America's railway system has excessive capacity that is idled.
>
>
> If he likes commodity and transportation play, he should be buying
> coal mines, and he should be buying dry bulk shippers. Both sectors
> are dirt cheap compare with railways.
>
> seekingalpha.com/autho...
>
> I am afraid Warren Buffett is getting too old to calculate relative
> valuations correctly. There are so many good under-valued assets
> around at dirt cheap price. Railway will be the last thing I will
> pick up. It's going to be good, but just not as good as other things.

Dinallo Has Common Sense Solutions on CDS and Regulatory Issues

The Credit Default Swap is not an insurance contract. There is no way to pool the risk.

It is a risk transfer product, just like a futures contract or an interest rate swap contract.

The issue is "contagion" , and it is why you do not see insurance contracts written on investment risk, generally. The environment that creates a problem for one creates the problem in many.

The correct way to regulate these is in an exchange, like other investment derivatives. They should be subject to the standard rules on market manipulation and clearing, in cash, everyday, at market.

There is no need for an insurable interest anymore than there is a need for an insurable interest in an interest rate swap or a grain futures contract.

Finally, I could not agree more that the repeal of Glass Steagall was the single biggest cause of this crisis. The Fed and the FDIC were formed in recognition that commercial banks were historically not regionally diversified, and often when a town or region went down, so did the banks.

However, the Fed requires that these banks hold much greater capital, with leverage at roughly 10 times, and the FDIC requires that the commercial banks fund the losses. Given the margins in this business, these banks achieve high ROEs even with the low leverage.

The Fed And FDIC were never designed to backstop an investment bank. The investment banks primary strategy is to borrow money and trade, and there is almost no way they can survive long term without 30+ leverage, the margins are far to thin.

As long as the one type of bank can own the other, we will see bad outcomes.

Cramer's Mad Money - When the Facts Change...(10/23/09)

I subscribe to Cramer's "Real Money", and unlike many others, I think it has a lot of value.

That said, Cramer is a trader, not an investor. He will talk about missing the opportunity one day, and then tell you to sell a week later.

As far as bad calls, in February, 2000, Cramer declared that the ONLY companies worth owning were internet companies.

Still, even after all that, I do listen to his predictions or his calls, I listen to his analysis.

He is a good thinker, and I respect that.

David Einhorn Increasingly Concerned About Dollar Crisis, Hoarding Gold

I understand the concern about insurable interest, but the same issues arise when you talk about any speculative risk.

There is a fundamental difference between an insurable risk and a speculative risk. It is pooling of risk versus transfer of risk.

The CDS market is a risk transfer market, not an insurance market because the underlying risk is an investment risk, and all the markets dealing with investment risk are transfer markets, including the stock exchanges, the options exchanges, and the futures market.

While I understand there have been abuses, I do not think the solution lies in identifying an insurable interest anymore than it would be to require that only the holders of a stock should trade the option on a stock, or that only grain farmers trade grain futures.

YES, there will be bubbles, but that is the nature of a speculative market.

But, I do not think the existence of the CDS market was the main problem here.

The way I assessed the Lehman downfall is that hedge fund managers took huge positions in the CDS market betting on the failure of Lehman AND THEN started "asking questions" about Lehman's solvency AND THEN started a concentrated program of shorting the stock.

THAT was the abuse, in my opinion.

As Warren Buffet has said many times, financial stocks trade on trust, and there are laws about starting false rumors, causing a run on the bank.

By putting the CDS market in an exchange, you get at a lot of these abuses because you force transparency.

At least a regulator can find out if the guy "asking questions" (i.e. promoting the rumor) is the same guy who stands to make a lot of money if it is true.


On Oct 21 09:07 AM CaptainJJack wrote:

> For the life of me, I do not see where a regulated market, similar
> to the markets for options and futures, would not solve 95%+ of the
> problem.
>
> I understand that there are some situations where the standard contract
> would not work well, but that often happens in futures markets, and
> most of the time, the basis risk is far less than the risk you are
> trying to hedge.
>
> With a regulated market, the contracts "settle" each day, in cash,
> and leverage, while high, is controlled by contract.
>
> I can see why many do not want to have even the margin money tied
> up, and that, I think, is the primary appeal of the current CDS market.
>
>
> But, that is what got us into trouble in the first place, and anyone
> doing a large transaction today almost always has to have some escrow
> to back up the guarantees, anyway.
>
> Am I missing something?

David Einhorn Increasingly Concerned About Dollar Crisis, Hoarding Gold

For the life of me, I do not see where a regulated market, similar to the markets for options and futures, would not solve 95%+ of the problem.

I understand that there are some situations where the standard contract would not work well, but that often happens in futures markets, and most of the time, the basis risk is far less than the risk you are trying to hedge.

With a regulated market, the contracts "settle" each day, in cash, and leverage, while high, is controlled by contract.

I can see why many do not want to have even the margin money tied up, and that, I think, is the primary appeal of the current CDS market.

But, that is what got us into trouble in the first place, and anyone doing a large transaction today almost always has to have some escrow to back up the guarantees, anyway.

Am I missing something?

Large Caps Could Lead the Market Much Higher

We have had a HUGE run-up of P/E multiples since March. In fact, I could argue that the ONLY thing that has really changed since March are the P/E multiples.

Anybody who has been in this market over the last year knows how notoriously bad the forward earnings numbers are -- just take a look at forward estimates at the start of this year for THIS year.

While there is a lot of manufacturing leverage now that companies have cut so much payroll, the current fixed infrastructure is currently being supported by large government (both US and Abroad) stimulus.

The key question is: What happens when the stimulus is withdrawn?

The key metric is the top line, not the bottom line: Those forward earnings are only as good as the sales projections.

As an aside, there has been a significant tax cut which, if I remember the numbers right, amounted to 2/3 of the tax stimulus proposed by some Republicans ( there never was a unified Republican stimulus alternative, but the number $400 billion was often used as the tax cut required --- and the only stimulus needed).

We should have seen the top line numbers rising by now if the tax cuts were as powerful as they were being promoted, and I for one, do not see it.

As far as I can see, the $250 Billion tax cuts have had almost zero effect, and this is similar to the tax rebates of last year--coming into effect in at the end of the 2nd quarter, after the recession was 2 quarters old, and just before the economy tanked.

Toward an Economic Model for Gas-to-Liquid Fuels?

George Olah, who won a Nobel Prize in Chemistry, has written a book on the Methanol economy. He has a number of practical ideas about our energy future.

His ultimate proposed transportation fuel is methanol that comes from getting hydrogen by cracking H2O using very high temperatures, then combing the hydrogen produced with CO2 to form methanol, CH3OH.

Olah proposes this as an alternative to hydrogen as a transportation fuel. Methanol is FAR easier to transport and store than hydrogen.

And even though the burning process releases CO2, when you consider the whole cycle, it is CO2 neutral, as long as the cracking is done in a nuclear power plant.

Accenture: Poised to Grow

I own Accenture, and I regard it as a very solid company.

However, I have a stop-loss at $38, and I tightened it substantially over the last few days. I expect I may be out of it over the next few weeks.

While I like the company, at the current prices, I don't love the stock, and I've learned the hard way over the years, that there is a big difference between a company and a stock.

What leads this company's stock performance is the book to bill ratio, especially in consulting, and that has deteriorated with the economy. While the stock has had a huge run, it is mostly in improving multiples and was justified by the incredible ROE, in my opinion.

But, it is currently trading at over 8 times book, so ratios such as ROE or ROI, which are based on book value, are now close to meaningless as far as the stock price goes.

From everything I can figure out, the growth rates will be flat, with risk to the downside, and the stock is trading at around a 15 P/E. I figure it is pretty much fully valued until its prospects improve.

So, I have had a great run. I started buying at 28, and most of my buy was at 30. It may go to 40, but it may fall back. I put the odds at 50/50.

In general, I am very cautious about the next few years. While I consider Bernanke and Paulson to be heros for saving us from a depression, there are going to be downsides: there isn't any area of economic activity that isn't currently backstopped in one form or another by the government, and this cannot end well.

SO I am happy the market has recovered, but as my stock/bond ratios get above my objectives, I am a seller, not a buyer.

The Great Shift: China Rising, U.S. Falling

The biggest hole in the "China rules the world" thesis is that China is an export driven economy. Until that changes they hurt themselves every time they try to exercise their power.

The problem for EVERY country is that their fortunes depend on the fortunes of the rest of the world, and some (China) more than others.

The US is fading because our exports have long been less than our imports, but that problem is not due to China. It is one word:

OIL.