helped by ultra-easy-money
Specs liquidating at a furious pace in gold. US Dollar on the cover of the Economist, insider selling in stocks–all lend support to real asset undervaluation.
Who wants gold?
The Dow in dollar terms (yellow) and the Dow in gold terms.
Remember that you don’t have a good contrarian trade UNLESS this happens:
Posted in Economics & Politics, Search Strategies
Tagged Easy money, inflation, Real Assets
A Nor’easter is coming my way (up to two to three feet of snow with high winds) so I may be out of contact for two or three days. But push on we must. We continue to study Chapter 3, in Deep Value and Buffett’s investing career.
The best investment article I have ever read of Buffett’s is:
Buffett & Inflation Highlighted plus if you wish to read all that Buffett has said about inflation then Buffett inflation file.
A key case for you to focus on is See’s_Candies_Case_Study. Combined with Buffett’s Inflation Swindles the Equity Investor (Fortune Article: Buffett – How Inflation Swindles the Equity Investor), you will see a leap in Buffett’s thinking. Both are important to understand and complementary to each other.
Finally, Sanborn_Map_Case_Study_BPLs is another case mentioned in Chapter 3 of Deep Value.
Hopefully, students will discuss in the comments section.
Time to bring out the snowshoes!
—
It’s not entirely clear what will happen in the near term, but the financial markets are already pushed to extremes by central-bank induced speculation. With speculators massively short the now steeply-depressed euro and yen, with equity margin debt still near record levels in a market valued at more than double its pre-bubble norms on historically reliable measures, and with several major European banks running at gross leverage ratios comparable to those of Bear Stearns and Lehman before the 2008 crisis, we’re seeing an abundance of what we call “leveraged mismatches” – a preponderance one-way bets, using borrowed money, that permeates the entire financial system. With market internals and credit spreads behaving badly, while Treasury yields, oil and industrial commodity prices slide in a manner consistent with abrupt weakening in global economic activity, we can hardly bear to watch.. John Hussman, Jan. 26, 2015 www.hussmanfunds.com
The above represents my understanding of INFLATION, not prices rising. Prices may or not rise depending upon supply/demand for goods and currency. Usually, as the supply of currency increases much faster than the production of goods and services, then prices rise or the value of the currency declines.
Thanks to www.acting-man.com and www.zerohedge.com
Posted in Humor & Entertainment, Investor Psychology, Risk Management
The Risks of investing during times of deflation/inflation: inflation-june-2014
Interesting…………..Massive short position built up by managed money in silver.
www.marketanthropology.com
The above video gives you a short analysis of the causes of the financial crisis from a businessman’s perspective.
Books on the Federal Reserve and Banking
The books below will make you an expert on how the FED and the banking system work to create fiat, irredeemable money and credit out of “thin air” or by key-stroke.
After reading those books, can YOU tell me how the central bankers EXIT strategy will work? Watch Japan for a preview.
Here is Jim Grant
Inflation is a state of affairs in which there is too much money. It’s not too much money chasing too few goods. It’s too much money, the thing that this money chases is variable. And in this particular cycle and for some time, it has chased commercial real estate, bonds, stocks, financial assets of all kinds. Iowa farm land. There is a huge excess of liquidity in the world. Central banks furnish this, they stuff us with it. In the interest of levitating markets that will, they think
On the Equity rally:
Yes there are terrific companies generating terrific cash flows. That is certainly true. But beneath the surface of things or not so far beneath the surface of things, as far as central banks, practicing not original policies but original sin. This is these policies are not so original. They go back to the time of Revolutionary France. You know the idea of creating currency with which to create human happiness is as old as the hills.
On Gold:
Gold has been in a bull market for 12 years. Gold is this rare thing in which you can be bullish and yet contrary and also with the trend. There is I think a general fatigue animus towards gold. The gold prices are reciprocal of the world’s view of the competence of central banks. The greater the world’s confidence in the Ben Bernanke’s of the world, the weaker the gold market. The less the world holds confidence in the institution of managed currencies, the stronger the gold market. And to me the confidence is utterly misplaced,
See videos:
http://www.grantspub.com/resources/video.cfm
The Horror!http://www.federalreserve.gov/monetarypolicy/fomcminutes20121212.htm
Next post on Wed………..Have a Great Weekend!
Yeah, another RECORD high in the Dow. Can you hear the cheers? But what can the Dow buy you in Bananas vs. the past? What is the real Dow in 
Based on the wholesale price of bananas, the Dow currently buys you a whopping 15.35 tons of the tropical fruit. But this is exactly the same amount of bananas the Dow would buy back in February 2008, when the Dow was just 12,266. And it’s a massive 60% drop from June 1999 when the Dow bought 38.51 tons of bananas. While investors are cheering the new nominal high in the Dow or S&P 500, they fail to grasp what is happening to their purchasing power. Buffett always said THE goal of an investor is to maintain his or her purchasing power. At the end of your investing period will the dollars obtained after selling your investment bring you the same amount of “bananas” as your dollars would have obtained at the beginning of your investment period.
Bear Market Dow in Gasoline
Read more: http://www.sovereignman.com/finance/reality-check-the-dow-jones-industrial-average-vs-bananas-11112/
All investors should understand the effects of inflation on their equity investments. Read, memorize, and sleep with the following:
Buffett & Inflation Highlighted and Buffett inflation file and for beginners: Buffett Inflation depreciation and capex
Buffett Lecturing on Inflation
Don’t believe the lies:
CPI Year-to-Year Growth
The CPI-U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the U.S. Government’s Bureau of Labor Statistics (BLS).
While the headline number usually is the seasonally-adjusted month-to-month change, the formal CPI is reported on a not-seasonally-adjusted basis, with annual inflation measured in terms of year-to-year percent change in the price index.
The chart below shows the Shadow Government Stats -Alternate CPI estimate. It figures inflation based on our own government’s official methodology for computing the CPI-U in the years through 1980.
Under the old rules US inflation has been in the double-digits for much of the preceding five years. The ‘new’ BLS numbers want you to believe price increases since 2008 have been quite mild.
The Bureau of Labor Statistics also uses a technique called ‘substitution’ to hold down their reported inflation figures. If an item in their index goes up in price they can assume consumer would simply trade down to something cheaper instead.
If your favorite rib-eye steak went from $7.99 to $12.99 per pound you’d simply eat hamburger instead. Have those organic bananas gotten too expensive. Try prunes. Need a replacement for your Lexus? Buy a Kia instead. Presto, there’s no inflation evident in any of those situations according to the BLS.
All these changes in the way CPI is calculated have been duly disclosed to the public. That doesn’t make them any less dishonest when viewed the way most people gauge changes in their real cost of living. See http://www.beatingbuffett.com/?tag=inflation
http://www.beatingbuffett.com/?p=4436 Individual investors making poor decisions.
http://marketshadows.com/2012/12/31/covered-calls-the-hidden-risk-for-2013-and-beyond/ The danger of selling covered calls now.
More discussion about Buffett and inflation here: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/buffett-on-inflation-and-stocks-%28part-1%29/40/
You’re warned! Now plan.
Posted in Economics & Politics, Investing Gurus
Tagged bananas, Buffett and inflation, inflation
We continue our study of Herbalife’s saga with a recent post from www.brontecapital.com. There are lessons here on conducting research and on hubris.
What this story is really about
Herbalife is a company which combines a lot of good (think the life-saved diabetic above) with some pretty ugly features.
But this is not really a story about Herbalife – Herbalife will survive globally. Like all multi-level marketing schemes it will have its ups and downs. There will be all sorts of problems (such as tax compliance throughout the scheme, cash handling, perhaps even using Herbalife accounts to launder money).
What this has (deservedly) become is the story about how Bill Ackman can be so wrong. He spent (by his own admission) a year and a half analysing this company and his thesis can be falsified by visiting a few clubs in his home city. Bill Ackman’s thesis is the most easily falsified bear-thesis I have seen from a major hedge fund ever.
You have to wonder how this happened. So I am going to tell you:
Bill Ackman a Harvard educated (magna cum laude) billionaire New York hedge fund manager bet over a billion dollars on a short position (imperilling his fund and his reputation) without checking the facts.
And he did not check the facts because he was so rigid with a misplaced silver spoon that he could not stoop to sit on a subway for thirty minutes and talk with poor people for ninety minutes.
Read the entire article–an important read
http://brontecapital.blogspot.com/2013/01/notes-on-visiting-herbalife-nutrition.html
Also…..http://seekingalpha.com/article/1111331-implications-of-herbalife-s-soaring-short-interest-ratio
Expectations of Low Future Growth?
Market Review LMCM See Future Value (See page 5). Perhaps the market is discounting real growth vs. nominal growth? Don’t take that chart at face value.
Where is the Inflation (CPI) ? Another lesson in why price aggregates are so misleading.
Critics of the Austrian School of economics have been throwing barbs at Austrians like Robert Murphy because there is very little inflation in the economy. Of course, these critics are speaking about the mainstream concept of the price level as measured by the Consumer Price Index (i.e., CPI).
….
High prices seem to be the norm. The US stock and bond markets are at, or near, all-time highs. Agricultural land in the US is at all time highs. The Contemporary Art market in New York is booming with record sales and high prices. The real estate markets in Manhattan and Washington, DC, are both at all-time highs as the Austrians would predict. That is, after all, where the money is being created, and the place where much of it is injected into the economy.
This doesn’t even consider what prices would be like if the Fed and world central banks had not acted as they did. Housing prices would be lower, commodity prices would be lower, CPI and PPI would be running negative. Low-income families would have seen a surge in their standard of living. Savers would get a decent return on their savings.
Of course, the stock market and the bond market would also see significantly lower prices. Bank stocks would collapse and the bad banks would close. Finance, hedge funds, and investment banks would have collapsed. Manhattan real estate would be in the tank. The market for fund managers, hedge fund operators, and bankers would evaporate.
In other words, what the Fed chose to do ended up making the rich, richer and the poor, poorer. If they had not embarked on the most extreme and unorthodox monetary policy in memory, the poor would have experienced a relative rise in their standard of living and the rich would have experienced a collective decrease in their standard of living.
http://mises.org/daily/6340/Where-Is-the-Inflation
Posted in Risk Management, Valuation Techniques, YOU
Tagged Ackman, Bronte Capital, CPI, herbalife, inflation, Low Future Growth, research
I have always maintained that excepting fools, men did not differ much in intellect, only in zeal and hard work. –Charles Darwin
Value investing works, because it does NOT work ALL the time. –Joel Greenblatt
Today’s post focuses on accounting (GAAP) and valuation through the words of Warren Buffett. The case study on See’s Candies and the other readings will help improve your skills. The burden is on you to understand and apply the lessons. If you do not understand FIFO or deferred taxes, then look up those terms in a basic accounting book, then do problem sets to grasp the concepts. Don’t take Buffett’s words on faith; try to apply the concepts of economic Goodwill to a commodity based company like, for example, US Steel (X) versus a franchise company like Coca-Cola (KO). Do you agree with Buffett’s analysis?
Prof. Joel Greenblatt’s book, The Little Book that Beats the Market, is (simply) an application of Buffett’s thoughts on economic Goodwill.
Helpful hint: Take a subject like share repurchases or divdend policy and try to find many different sources on the subject. Learn the subject to death. Master how, when or if a company should act in returning capital to shareholders.
SUPPLEMENTARY READINGS
A Parable on Valuation: The Old Man and the Tree or a Parable of Valuation
Inflation:Inflation Swindles the Equity Investor and Buffett inflation file
EBITDA: Placing EBITDA into Perspective and TEV to EBITDA Research
Joel Greenblatt: Little Book That Still Beats the Market, The – Joel Greenblatt
Secrets of (view): http://youtu.be/3PShSES5nBc 25 minutes
Share Repurchases: Corporate Structure and Stock Repurchases and Assessing Buybacks from all Angles_Mauboussin
Dividends: Dividend Policy, Strategy and Analysis
You will beat Wall Street easily if you apply the above lessons. The hard work is in mastering the material. Stay the course.
I don’t understand it. Jack will spend any amount of money to buy votes but he balks at investing a thousand dollars in a beautiful painting.–Jackie Kennedy
Bailing out banks is inflationary: http://mises.org/daily/5890/Bailing-Out-Banks-Is-Inflationary
How we can transition to honest money: http://mises.org/daily/5926/The-Transition-to-Monetary-Freedom
Current prices for pancakes around the world: http://www.economicpolicyjournal.com/2012/02/cost-of-making-pancakes-around-world.html
Opposing view: Diapers and Deflation (What is Krugman Smoking?) http://krugman.blogs.nytimes.com/2012/02/06/diapers-and-deflation/
The next worry from the Fed: http://blog.haysadvisory.com/
Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains — in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date. –Warren Buffett
In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives over time.
Obviously, the readers of this blog are aware of the Federal Reserves easy monetary policy–growing monetary aggregates, zero interest rate policy, and high reserves in the banking system. However, as followers of Austrian economics (some of us), we realize that there is no perfect correlation between X growth in money supply and Y increase in nominal stock prices. The world is an extremely complex place and to model precision and prediction is MADNESS. However, you can gain a sense of how the wind blows. If people wish to hold lower cash balances then the effects of inflation will be increased.
Learn more here about monetary policy: www.economicpolicyjournal.com and www.mises.org and http://scottgrannis.blogspot.com/
I strongly urge you to read one of the greatest articles on investing by Buffett, How Inflation Swindles the Equity Investor. HERE: http://www.scribd.com/doc/65198264/Inflation-Swindles-the-Equity-Investor
We spoke at length about investing and inflation during this post: http://wp.me/p1PgpH-1h
Posted in Economics & Politics, Investing Gurus, Valuation Techniques
Tagged Austrian Economics, Buffett, inflation