Parsad

Take it easy on Munger. He relies on viewing the world with the same blackness that David Rosenberg does. Let's take a look at this Zerohedge presentation from a couple of years ago. Then view what they say with what transpired. Some things they got right, some things they got wrong. But things never became as bleak as they expected. And that's all I'm saying. Folks like Blodget, or Smith, or Munger will have you consider that the worst case scenario is the likely scenario without actually attributing odds to that event occurring. Every investor should make their bets accordingly. Cheers! http://www.zerohedge.com/sites/default/files/The%20End%20Of%20The%20End%20Of%20The%20Recession.pdf

$15-$20 billion in increased mortgage-litigation reserves. Zero Hedge thinks BoA is understating the liability for mortgage litigation costs by this amount. See explanation here. Why set up a reserve until you've actually discovered what your reasonable estimation of litigation costs are. If Zerohedge can come up with that number without actually seeing BAC's loan portfolio, then they've got a skill-set that no other person in the industry does. Some percentage of $80 billion of "second mortgages." Yves Smith thinks these should probably be written down by 60%, or $48 billion. You can pick your own number. Some percentage of $182 billion in commercial real estate loans. The "extend and pretend" game in commercial real-estate is even more pronounced than in residential real estate. So as Yves Smith observes, there's almost no chance those loans are actually worth $182 billion. A healthy percentage of $78 billion of "goodwill." Bank of America built itself by acquisition. "Goodwill" is what's left over when management overpays for something. As Yves Smith observes, Bank of America's former CEO Ken Lewis loved overpaying for things. He overpaid for Countrywide, for example, which has since been written off to zero, and Merrill Lynch, which he could have had for free by waiting a couple more days. Untold amounts of exposure to collapsing European banks and sovereign debt. Yves Smith says Bank of America says its sovereign exposure is $17 billion. Really? Has the firm not written any credit default swaps protecting customers in the event that European banks or countries go belly up? Might the firm have to post some cash "collateral" to satisfy these contracts? That's what Lehman had to do, after all. And that's what made Lehman go from "having plenty of capital" to being broke overnight. You speak of platitudes, but these numbers are pulled out of thin air. How does Smith know exactly what loans are on the books. She's basing the decision on acquired portfolios of loans, and past underwriting standards. How many of these loans have already been rung out? How much new business has been brought in of significantly better quality? Any future losses from these portfolios should be incurred as they take the hit, quarter after quarter, and they will be offset by business from newer loans. BAC today said that the analysis of their foreign soverign exposure was off by a magnitude of 10! So who knows their books better...the analyst who has no access to them, or the CEO & CFO? Moynihan hasn't done anything to date that would indicate he's playing games. In fact, he took the higher road on the settlement side so that the company could move forward. He could have dragged these cases through the courts for years, but he didn't. So, taking some back of the envelope numbers, it looks as though we could easily come up with, say, $100-$200 billion in write-offs and exposures to "clean up" Bank of America's balance sheet. Yup, it looks pretty easy. Just like St. Joe should have taken huge write-offs. Just like Fairfax should have taken huge write-offs. I've seen plenty of people throw around numbers who have no clue what the actual liabilities for a business are. Remember John Gwynn's $4B number at the time? He then cut it in half a couple of weeks later. And this was an insurance analyst who dug as deep as he could into Fairfax and had all sorts of hedge funds and journalists on his side. I remember being told not to buy WFC at $9 and GE at $7, because things could get worse. Easy to come up with worst case scenarios, but hard to come with probable scenarios. It's why some people missed the rebound in 2009 and 2010. Same reason they'll miss it again in the next year or so. Cheers!

It is crazy! This bank is trading at 0.32 times book now. It has so much capital. Their loan business is great. Merrill alone would make up half the current market cap and MBNA the other half! So is their banking business alone worth zero based on future cash flows and liabilities? I don't think so. Their banking business now may be by far their largest asset, as the loan portfolio is cleaner and getting better every day. Their deposit and lending business is a cash cow. I think their management under Moynihan is terrific! And we haven't even talked about their other subsidiaries or their $20B stake in China Construction Bank. This thing is so irrationally priced that somebody has to walk in and take a huge stake. It won't be Buffett because of his stake in Wells, but there has to be some large institutions that would just say to themselves, let's strike a $20B preferred deal like Buffett did with Goldman and kill the shorts. Somebody is going to buy into this thing at this price...just crazy! Cheers!

I'm not going to comment on AIG itself but I think that characterization of Berkowitz is way off. He had no analysts for the first 20 years of his investing career and he did wonderfully well (see his OID features dating back to 1992 when he was at Lehman) as an investment advisor. He made his name owning large concentrated positions in financial stocks in the 80's and 90's - Fireman's Fund, Berkshire, Freddie Mac, Wells Fargo, MBIA, Salomon Brothers, Leucadia (when it was basically an insurance and banking company), Household Int'l, etc.. It's almost all pubicly documented. And if you read those features and some of his more recent stuff, it suggests to me a very detailed researcher who uncovers what most gloss over. Then, this same guy who made his career in financials manages to avoid the one period when it was a terrible idea to own them - an almost incomparable feat. And now that he's back in his area of specialty, he's lost his mojo and he doesn't do his homework anymore? He may end up being wrong, investing is risk, but the idea that it's because he doesn't know what he's doing or his success is due to a few analysts...I find it very hard to believe. Remember that he's got hundreds of millions tied up in the same stocks as his clients. His money, unlike most, is where his mouth is. I think the negative stories always come up when things are challenging for a manager. Nobody says anything bad about the guy when he's manager of the decade. But if he makes a ballsy bet, then it's his analysts who get the credit for the past, while he gets the blame for the present. These guys don't suddenly become stupid! If you are a Buffett acolyte, you tend to make heavy, concentrated bets. That will cost you sometimes, but it works the other 90 percent of times. Look at Mohnish. He was shooting the lights out, and then that concentrated focus cost him big through 2008 and early 2009, but then the framework eventually worked its way out of that drop. That's what is so hard about the business and investing in general. You pay dearly to be right, and you have to endure looking like an idiot until that day comes! Cheers!

The fretting around Bank of America has reached absurd proportions. Almost crazy how the frenzy is so detached from reality. Henry Blodget, the numbskull, said today that BAC may need $100-200B! Nuts! Cheers! http://finance.yahoo.com/news/BofA-shares-drop-debt-rb-1373949543.html;_ylt=AsO2RYspWeXraBxiih2FMQ27YWsA;_ylu=X3oDMTE1b2NpMXI1BHBvcwM2BHNlYwN0b3BTdG9yaWVzBHNsawNib2ZhbmVhcjA5bG8-?x=0&sec=topStories&pos=3&asset=&ccode=

That was quite funny. The only thing funnier would have been if they had some distraught women standing next to the chair being comforted. Regardless, I think the earthquake was caused by the Tea Party, as they promised to "shake up Washington!" Cheers!

A group of the 16 richest people in France have signed a petition asking the government to tax them more for their country. Cheers! http://blogs.wsj.com/wealth/2011/08/23/frances-rich-say-tax-us-more/?mod=yahoo_hs

It may get worse, and it may get better. Who knows? Unless you are retiring in the next 3-4 years, you should not be overly concerned. And if you are retiring or retired, you are perfectly fine if you live within your means. The S&P500 is at the same place it was 13 years ago. In between, there was a whole lot of volatility and excitement. Yet, here we are and the index is at the same level as in 1998. Whether this continues for a few more years as the system deleverages should not matter. This is where investors get tested. It's always easy to talk about investing for the long-term, yet people don't want to do that when the crap hits the fan. Some of the financial and technology stocks are so battered, that it's almost amusing to watch how low they can go. It is night and day from 3 years ago. I've been investing for nearly 17 years and I've never seen corporate balance sheets so good. I've never seen underwriting standards for loans and insurance so good. When the world believes things will never get better, they ultimately do get better, and those waiting are caught on the sidelines. Cheers!

Article on Irving Kahn, former assistant to Ben Graham. Cheers! http://www.thedailybeast.com/articles/2011/08/15/irving-kahn-105-perhaps-world-s-oldest-investment-banker-says-economy-in-downturn-just-a-blip.html

Yeah Shalab, I agree with that one. I think they should also grant some credit or total credit to professionals who have studied elsewhere, as long as certain requirements are met or they article/audit at a U.S. institution or facility. So a doctor/engineer/etc who has studied in India, Japan, China, Australia, or Europe is given a fair shot at getting their education recognized here, and then allowed to work in areas that are difficult to fill employment or have depressed economies. Cheers!

Blankfein hires a prominent defense attorney. Cheers! http://money.cnn.com/2011/08/22/news/companies/goldman_blankfein_lawyer/index.htm?source=cnn_bin&hpt=hp_bn3

I've got a couple of good ideas, and hopefully it's what Buffett tells Obama, since he can't raise tax revenues and he can't cut the budget significantly. How about the government gives all U.S. domiciled companies with foreign subsidiaries, a one-time tax free opportunity to repatriate all their foreign capital back to the U.S., as long as they use the funds to invest here. So all these companies like Microsoft, with huge cash hoards elsewhere, are allowed to bring that money back and invest in a weak U.S. economy with depressed asset prices. Perhaps, even create five-year tax credits that can be applied against some of the income they earn on those investments as well. Also, the U.S. should loosen up their immigration policy to the business class for the next five years. If you've got $3.5M to invest and plan on employing at least 3 people, you and your immediate family get an automatic green card to the U.S. if you can pass the security background checks. And you tailor these green cards so that the immigrants have to live in specific states that have been hit hard...thus they buy homes there, consume there, invest capital and employ people in those areas as well. Cheers!

Article on Obama getting some advice from Buffett on how to spur economic growth. Cheers! http://www.bloomberg.com/news/2011-08-22/obama-spoke-with-berkshire-s-buffett-about-economy-aide-says.html?cmpid=yhoo

How are the Markels and Tom Gaynor not in this conversation? Insurance, investments, whole businesses, shareholder friendly, conservative compensation, fantastic results in both underwriting and investments, honest, ethical and forthright. I would say Leucadia should be in the conversation as well. But if you want people who have done it almost exactly like Buffett, then Markel comes to mind ahead of anyone. Cheers!

Hi Moore, No worries on the debate. I enjoy that aspect as do many others. You have to tear down ideas to find out if they have value or not. I was just asking because your handle has Moore Capital on it. I was just going to make a point that if that was where you worked, your institution has numerous internal controls in place to prevent fraud, illegal trading, etc. Yet, even then you can have fraud or unethical behavior occur there, such as the case with Christopher Pia who was fined $1M there for illegal trading activities. You'd be surprised by who we work with. In regards to 43-101 certification, all you need is five years exploration or mine development experience, and be registered as a member with any professional geology organization. About the same as a CGA or CFA in terms of depth of study. I know and have seen a number of geologists go through the process. In terms of auditors, I've seen every auditor in Vancouver, from small ones to the big 4, certify financials for some crappy companies. There are a couple of firms where all they do is certify financials for shell companies and new exploration companies for large promoters. Even the large audit firms use CA students and senior managers to do the testing, while partners review the financials, MD&A and results of testing. There is plenty of room from the drilling stage, to the certification process, and finally the operations side for fraud to occur. All auditors and internal control specialists can do is establish enough key controls to reduce the amount of fraud and allow it to be detected more easily. We can't stop it. My off the cuff remark about geologists, executives, etc, was a generalization, but the amount of fraud is rampant. And that is partially due to the incestuous relationship between officers of companies, the geologists, board of directors, investment banks and promoters. The incentives are completely misaligned, enforcement is lacklustre, and the majority (I would guess 80% or better) get the shaft. You must be relatively young, because David Baines has been covering more OTCBB companies in the last few years primarily because alot of West Coast promoters have gotten their hands more heavily involved on there. He used to write only on TSX Venture, or what used to be the VSE, for pretty much most of his career. He still does write regularly on TSX and TSX Venture companies, but more time is spent on OTCBB's. Anyway, I've spent considerable time examining the space from the interior and the exterior, including reading plenty of 43-101 reports. I've viewed the business from on-site drilling and exploration to the company's head office and boardroom. I've interviewed executives, directors, geologists and administrative staff. Examined ledgers, continuity schedules, treasury orders, inventory, asset valuations, payrolls, etc. The handful of companies you mentioned sprouted from thousands and thousands of companies that failed...partly due to unsuccessful projects, and often due to unethical conduct, incompetence and mismanagement. Often I've seen companies that have raised financing, simply find a garbage property so they can continue to work, receive salary and options, and feed off the retail investor trough. Are there legitimate companies...sure, plenty. But they are outnumbered by the rubbish. Cheers!

Things are looking tougher and tougher for BYD. Cheers! http://www.bloomberg.com/news/2011-08-22/byd-first-half-net-income-falls-88-6-to-275-4-million-yuan.html?cmpid=yhoo

Moore, let me ask you something. Do you work for Moore Capital of New York? Cheers!

I suggest you dig into the business. The single best source of information for newbies is this: It's the weekend. If you have time, I suggest you watch ALL the videos on Ore Deposits in sequence: http://www.gril.net/education You will understand how incredible the opportunities are in the junior space. The only downside is that they can be very illiquid at times. I actually do the internal controls for a number of junior exploration companies in Vancouver, and I actually do as in-depth examination, probably more so, than most audit firms. And I can tell you for a fact that investing in junior exploration companies is as big a crapshoot as investing in technology startups. In fact, because so much of the junior's assets are tied up in their properties, you have a better chance of being correct on the future success of a technology venture than any junior exploration. Forget about financial fraud, egregious stock options, or deficit financing of most junior explorations companies...there are so many points in the geologic drilling and assay process where fraud could occur. The 43-101 certification is no different than a CFA report...any geologist after becoming certified can write those reports. The promotion and underwriting of junior exploration companies is probably the most incestuous form of underwriting you will find in the investment world. I've seen so many companies that are outright frauds where the CEO, CFO and directors are simply running the company as their own personal piggy bank. Where much of the capital raised is spent on "investor relations", salaries, consulting fees, travel, entertainment, etc. Enforcement is virtually non-existent. David Baines has been writing about so many of these companies for 20 plus years, and less than 0.5% of them have had any enforcement or sanctions. There are a few mining executives who do really understand the space, and they generally work only with other people they've dealt with in the past. That allows for a little more certainty in the assay reports, and legitimacy in the actual exploration operations. But they are few and far between. Many of the promoters, investment banks, geologists, executives and directors don't really give a damn as long as they have a job and are making money. So many trade on inside information as well. It is simply the most corrupt industry I have seen! With gold prices where they are, the money is sweet for many of these guys right now. The easiest way to make money is buy a shell, then buy a property for a few thousand dollars, and go raise capital at any of the investment banks. They sell the stock to their retails clients, take an 8% cut, and will raise you anywhere from $500K to $50M. Then you just blow the money on "exploration expenses" and your operational expenses (salaries, promotion, travel, office, IR, consulting). And don't worry, you can always find an audit firm to sign off on your financials! When you start to run low on cash, go back to the investment bank, and they'll do it all over again. I've seen so many shitty companies raise millions, and the CEO just keeps recycling the story over and over! Cheers!

Unfortunately, this event is by invitation only, but I will be at the Pabrai Funds AGM in Huntington Beach on September 17, 2011. Please let me know if you are attending, and hopefully you'll spot me in the crowds somewhere. Cheers!

Please post upcoming events, including city events, that Corner of Berkshire & Fairfax board members would enjoy attending.

Hey Folks, My apologies! Your resident tech guru (me) was fooling around with a couple of modifications and I took down the site. Paul and his team got it going again in less than an hour! Sorry. Cheers!

Hi Folks, I was just testing out the themes. I've changed it so you can change the theme to whichever one you want for you own viewing. This can be done under your profile settings...in layout. It seems many of you like the new default theme, I've left that one standard. If you want the old theme then select "Core", which will make your view look like the old board. I prefer that one actually, so that is what I have on my own setting. This is Simple Machines 2.0, so there a bunch of additional features which I'm going to have to figure out and you will sort of have to tell me if you like or not. You can make this board much more custom than the old one. So we'll do that by trial and error, and your feedback. Cheers!

Perhaps he's part of Shaw Food Pty. Cheers!

Yup, they're levered and have been for some time. But they stick to most of the basic banking functions and stay away from esoteric products. Mortgage loans here are also of pretty high quality. But they will get hit at some point as some loans eventually do go bad, business loans slow or interest rates hike up. They got hit badly in the 80's. For the most part, they are fairly well run...except CIBC, and Royal had significant US exposure during the last couple of years...but they would be able to sell assets or raise capital and easily support themselves. Cheers!

I think the problem is that a lot of value investors just read a copy of Security Analysis and/or Intelligent Investor and base every single investment decision through that prism. Actually I think it's because Security Analysis and Intelligent Investor rationalized the whole process of investing in equities. It was the first piece of literature that actually created an intellectual framework for valuing a security. I can talk to 1000 people about equities and intrinsic value, but only 50 or so will actually go pick up a book by Graham. Of that 50, for ten of them it will be like a light bulb went on...enlightened perhaps! That's why many people cannot wrap their head around your views on gold. It was the same thing when people talked to them (me included) about internet stocks that were trading at 100 times price to earnings. It's the same thing when we looked at Salesforce.com or Open Table in the last few months. Same thing when Jeff Rubin said that oil was going to hit $200/barrel a couple of years ago. Or when HGTV showed nothing but marathons of "Flip That House!" We've seen all of this before. There is always a way to justify gold's price, yet every nascent instinct we have is telling us that this cannot exist at these levels for a prolonged period. Money will be made...be it through speculation or divine intervention. The whole world will clamour to this path of gold...oh wait, they already have! And we will look stupid, through $1,000/oz, $1,250/oz, $1,500/oz, $1,750/oz and very likely $2,000/oz. When fear or greed run rampant, the limits are always underestimated! And then with a thunderous thud, it will come down. The seasoned veterans long gone, the recent investors hammered, and the institutions caught somewhere in the middle...but it won't matter because they'll get some sort of support from someone...options granted recently gone unexercised of course! And then people will assume that gold will one day go down to zero. Which is when I bought it $350/oz. Everyone thought it would go down to $100/oz! I remember people telling me that it was crazy to buy Wells Fargo at $9 and GE at $7 three years ago. I was told Fairfax was a fraud eight years ago...at $80 US. And I remember how I was told that Buffett didn't understand the internet twelve years ago when Berkshire B's were at $1,250....$25 split-adjusted! Recently, I've been told that I'm buying way too early...which I've done on numerous occasions...and I've also sold early too many times. I'm only human! The reason we put our faith in Securities Analysis or Intelligent Investor is because it works! It protects us from new fads, rampant fear and blind greed. I've never permanently lost a significant portion of my investments, my corporate investments or partnership funds since reading those two books. We won't make money quickly, but we certainly won't lose it either. Not to mention it's worked pretty darn good for the people below: Warren Buffett Charlie Munger Walter Schloss Marty Whitman Prem Watsa Roger Lace Brian Bradstreet Lou Simpson Peter Cundill Francis Chou Tim McElvaine David Winters Mohnish Pabrai Bruce Berkowitz Ian Cummings Joe Steinberg Steven Markel Anthony Markel Tom Gaynor Arne Van Den Berg Howard Marks Seth Klarman Jeremy Grantham Larry Sarbit Irwin Michaels Eddie Lampert Robert Rodriguez Guy Spiers Sardar Biglari Whitney Tilson Glenn Tongue The list goes on and on. They've all done alright by most standards. My point is that sometimes you don't need to look any further than that prism. Cheers!