Spekulatius

Bankruptcy or not, the layoffs will happen anyways, with the park being empty.

He is putting a lot of effort into juicing the stock market, even though we know what the stock market can well take care of itself when everything is running along nicely. It’s his outer scorecard. The interest rate cut don’t surprise me, but the extend of it did. I expected a 0.75% cut, it they shot the entire wad. maybe we go negative next?

Explain to me what economic activity is worthwhile undertaking with 0% risk free interest rates can’t be done with 1%. Europe and Japan went this route and have nothing to show for it, other than the destruction of their financial system. US is probably next.

Futures are limit down, interest rates are zero. That went well. Bank stocks are not going to like this.

When things actually get bad in the economy what will they do next to stimulate? Futures down ~3%. I am impressed. Could easily end up being an other limit down day.

Insurance is more tail risk, but a lot of their wholly owned business are highly sensitive to the economy : Iskar (Tools, Peer would be KMT), PCP (aircraft, energy are main markets), Burlington (moves still a lot of coal and recently crude), retailers and then a portfolio chuck full with bank stocks thet were done 30-40%. I frankly don’t think they it is that great of a bargain here real-time to many other securities available right now. One can sleep well at night knowing that they do have a great balance sheet, stable utility and insurance earnings (Geico probably has a great year because people are driving less) and he might be able to snap up and elephant for a good price. There is a lot of value in that.

That would be a deal. Even if FUN goes bankrupt, the underlying asset is sound and it will recover, even though it may take time.

I think the consumer not shopping at those dinky retailer ADS serves is a bigger problem than medical costs. Spekulatius - let’s say you’re right, that people stop shopping at these retailers over the next two months. And I mean really stop shopping, let’s assume that they do zero credit card sales, online and offline, over the next two months starting today. Well in that scenario, ADS’ current ~$18.0 billion book of receivables, which have principal collections of ~12.5% per month (per their most recent trust data), would be a book of ~$13.0 billion of receivables. Now let’s also assume we enter a recession and charge-offs hit ~9.0% (roughly consistent with 2009.) At this point, we are basically breakeven for the banks, and that is assuming zero operational cost cutting from 2019 levels. After that, things start to normalize and we get back to 7.0% charge-offs (still historically high), and we cut some costs from operation to get back to a level that makes some sense (let’s say $1.5 billion of operating expenses, which is 20% higher than ADS’ operating costs with a book of ~$14.0 billion of receivables.) Based on my numbers, that business has about $4.50 of owner’s earnings per share and a substantial amount of cash on the balance sheet. I would venture to say that their book of receivables would grow going forward, but let’s assume for stress testing’s sake that it doesn’t. Well, I would be willing to pay about $45.00 per share to get a 10.0% return on those owner’s earnings into perpetuity, without taking into consideration any return of capital we could potentially receive from the principal collections not being reinvested. I’m not saying there is no risk - of course there is. It just seems reasonable, and rational, to like the risk vs. reward setup here. My question to the board is this: would the inability to fund new receivables cause the trust to enter early amortization? I’ve been reading through the documents and have not been able to come to a firm conclusion on this yet, any insights would be greatly appreciated. Thanks, Dan You could well be right, your numbers make sense. My response to this one is why is this better than SYF or DFS at this point? The latter are better managed (imo) , have produced cleaner numbers (earnings) and are quite cheap.

There we are, interest rates cut to zero. That went fast. https://finance.yahoo.com/news/federal-reserve-cuts-rates-to-zero-restarts-quantitative-easing-qe-210001968.html

I think it's much higher than 2%. The reality is many people are sick and not dying of pneumonia - I would assume a portion of posters on this very thread are experiencing symptoms as well as the rest of the population, or had experienced symptoms in Jan/Feb and recovered. The first reported US case was January 21. This is an incredibly fast transmitting virus. The odds are, cases existed prior to Jan 21. And further, the odds are that the spread of this virus across the US was much faster than official reports claim. This is due to lack of testing i.e. lack of timely, accurate information. But ultimately, I agree w/ the principle of: better safe than sorry. For the obvious reason, and for the secondary reason as it provides a "trial-run" on a global basis for future pandemics. I am about 20% cash btw. If I didn't suffer from biases like anchoring and all that stuff I would think about 1/3 cash is the ideal amount right now. https://www.nejm.org/doi/full/10.1056/NEJMoa2001191 Question for you guys as I havent seem to be making any friends swimming against the tide! Above is the NEJM article on first case of corona virus. This is what I don't understand. First US case was January 20st, with 4 days of symptoms and as I have read this is a very fast transmitting virus. Some have said this is very fast, some fast, symptoms take a while to show up, agree. Please reconcile this for me. It has been exactly 2 months since this gentleman returned to the US from wuhan China. Is it out of the way to assume that there was community spread with this gentleman? 4 days of cough, fever, flew on a plane? Lets just work on that premise. Now I have become lost with all of the projections, graphs, charts, etc. Pick whatever model you want. My question is this: Its been 2 months since that virus was officially detected in a known area. I'm not aware of this so please help. Is there overload in the area where this gentleman was? Are there people dying? What does it look like? Are they running out of ICU beds? How is california? They were not far behind and have a HUGE population! I know there can be a delay in symptoms but isnt 2 months long enough for this virus to really get going, especially with lockdown, social distancing just happening now? The consensus for the origination of coronavirus is late November in Wuhan. It did not become a big deal until 2 months later. The way exponential growth works is that when you start with small numbers, it takes time for them to snowball into significant numbers. Once significant numbers are attained, then the growth becomes impactful and felt in a very real way. Berkshire Hathaway was a company not on too many people's radars in the 1960s and 1970s. Eventually it became impossible to ignore. Thanks, but I wasnt asking about Berkshire Hathaway. Can anyone else help on this? Orthopa, I am not an expert, but it is impossible to predict what happens when a single person gets infected. It’s jut random walk static’s, maybe that person is asocial and doesn’t have many contact and might remain the only person. Maybe this person is a social butterfly and gets into contact with a lot of people that are vulnerable and it spread like wildfire and he becomes the infamous patient zero. Just about could happen. The way statistics works it is easier to predict what happens when a larger number of people get infect (100 is probably a reasonable number) since the law of large numbers makes random fluctuations less important. I also think that 100 infections (based in some articles I read) in a cluster is the point of no return when an infection most likely can’t be contained any more because these 100 people generally have so many interactions during their incubation period that it is basically untraceable . Again, am not in the medical field or an epidemiologist, but just from a basic understanding of statistics, I think what I wrote is directionally correct. I also think Dallal is correct that the way exponential growth works, it takes time until the number is in the 100,000 or millions when it become really a factor in a country with the US population. If 1 million people are infected, chances are that each of us will know someone who is infected, if it’s just 10k, chances are that few of us are in the same situation.

Irrresponsible and Unbelievable. I just talked with my brother in Germany. Germany is in a virtual lockdown. Some places area till open but practice social distancing and patrons at the coffee house sit a table apart. many places aren’t even open any more. His daughter has the final test (Abitur) next week Tuesday supposedly, but she isn’t even sure it’s going to take place or may be rescheduled. This brings life on hold , because without this Abitur exam passed, you can’t apply at the university. Rules are being made up as we go. Another interesting tidbit from my brother, who sells wood/lumber wholesale is that the Chinese are back in the market with huge orders. He can’t make sense of it, but heard from other folks in different trades that they apparently restarting their factories so there are orders for other stuff as well. Wood is dirt cheap so maybe they are taking advantage of the low prices or there is more stimulus? No idea, but interesting nevertheless.

Interesting - spat over US government attempts to entice a German biotech company working on infectious disease vaccines to develop a vaccine exclusively for the US: https://www.cnbc.com/2020/03/15/coronavirus-germany-tries-to-stop-us-luring-away-firm-seeking-vaccine.html #MAGA? I guess that’s the government equivalent of people hoarding hand sanitizer?

I wholeheartedly agree with this.

Yes, it’s a different one. PSX still owns a 50% stake in a JV with CVX producing Polyethylene. It has been a cash generator, but earnings have withered lately with worse to come.

Let's push this idea further. There has been a financial environment shift since the 2007-9 episode in the P+C world with most companies adapting to the 'cheap' capital environment, settling with lower ROE and gradually increasing P/B ratios. During the same period, FFH reported a very lumpy ROE, with an overall slight underperformance overall based on that metric and the market perception is resulting in a declining P/B ratio. FFH continues to differentiate itself from the pack (float investment side) and the question is how it will perform going forward. An interesting feature is that 'cheap' capital has resulted in resistance to harden the market (ie tolerate higher combined ratios) and has resulted in very low returns on the fixed income side of the portfolio (float). https://www.macrotrends.net/stocks/stock-comparison?s=roe&axis=single&comp=WRB:TRV:CB Is FFH better positioned at this point compared to peers? Is the answer in the risk management section? I don’t think that FFH is position better than its peers. It has improved its underwriting to the point where it probably is in the better 50% bucket of the industry, but it’s not in the top 10% either. It’s the investment side where they have been lacking. They make very contrarian investments as detailed by Stubblejumper. It seems that they want to jump 10 foot hurdles, where a one or two foot hurdle would suffice as an insurance company. Stelco, BlackBerry, RFP etc are all deep underwater. Part of the reason is they their aspirational goal of a 15% ROE is just too high. TRV is an example that have a bit above underwriting and just takes whatever they can get in terms of investment returns in bond markets without taking much risk (equity and real estate seems ~5% of their float) and they can get ~12-13% ROA. Excessive capital is burned off via stock repurchases and some dividends, It’s a model that works and boring in a good sense. FFH Model has too much risk (as evident by the wings in book valued) for the returns it is generating.

https://twitter.com/reformedbroker/status/1238867417851461639?s=21

Passive selling of all oil ETF's. Before the plunge, you have to remember distillate demand fell off a cliff because we aren't travelling. The net effect is probably not much, but you'll see refiners have OP'd E&P's by a fair margin. Keep in mind they some basic chemical stocks haven’t fared much better than PSX. DOW and LYB for example have been almost cut in half.

I am pretty sure they have to cut the dividend at these prices, Same for the other majors. The majors can last a long time at the conditions, if they can make some money on their downstream operations. I think RDS is the most diversified, followed by XOM, BP and then CVX. CVX was the most oily when I looked at them a few years ago. RDS is Very gassy (they bought British GS), but at least LNG is anchored by crude prices as well and will be impacted. Vitali Katelson mentioned Equinor, the Norwegian national oil company. They are very heavily taxed on their upstream earnings on the Norwegian shelf, which makes their cost structure very variable. I don’t think they can last at $20 crude though.

Low or negative interest rates mean that the economy tends to be very slow growing and fragile. This also means that profits don’t grow a d may be fragile, which doesn’t support high equity multiples. If Europe and Japan is any guide, the multiples for equity won’t go up if interest rates in the US go negative, because this won’t occur in isolation, there will be other factors that negate higher discount rates (crappy profit growth, fragile profits etc). At least that’s how I think about this, but I am not an economist. I do think that multiples for real estate, especially residential RE will go up if interest rates go negative, because borrowing costs is the largest cost factor except in very high tax states.

You can’t make this up. I am certain it is timed to get the stock market to close up, as the news conference started late at around 15:20 or so. Another positive news, I got this email today, which eases many of my concerns. Got to love NH - Boston is shut down, MA schools are shut down, the grocery stores are a zoo and overrun by the mob, but the NH liquor stores remain open:

In Germany, schools and Kindergarten are shut down. The main concern is not to get a repeat of Italy! With too many cases popping up in too short of a timeframe. Lots of companies there are shut down as well. Today, my sons school was shut down for a Clorox 360 cleaning, because of a pot COVID-19 case. Tonight, they sent an email that school is shut down for 2 weeks. I think we are close to a lockdown state, but I still got to go to work next week.

What I think happened: Retail investors + an aggressive IR outreach campaign* + a belief that CEO had found capital allocation "religion" + a lack of awareness of management's shenanigans. Presumably no one buying this knew about the Houston single family houses or the aircraft fetish * Maybe the only company I have ever contacted that immediately emailed me back and, unprompted, wanted to set up a phone call. Got to watch the bouncer and the pimp closely if you own a titty bar.

My wife went to the hospital for work today and they are obviously preparing for the storm. Most patient have been moved out and every elective procedure is postponed. The hospital is eerily quiet , she said she has never seen it as quiet before. Even the lights are dimmed. The calm before the storm. Hopefully our system holds better than Italy.

Yeah, I opened a small limit order for GOOGL before the press conference which filled almost at yesterday closing prices and then it ran up 7% during market hours. Mr Efficient market at work obviously. I think I want to own stocks just from 15:30-16:00 in the future. Why bother holding it the rest of time with all the risk that comes with it?

GOOGL and TRV