ERICOPOLY

I wonder if the shorts are new investors, or whether they experienced the Dot Com craziness.

Looking beyond it's high PE ratios, Japan's market cap to GDP is not high nor is it's Price to Book. So basically their earnings have been depressed and their stock market has not traded off of the earnings -- rather, it's being supported by other factors, like the market in relation to GDP or book values. Or perhaps instead it's the low interest rates after all. I'm more inclined to believe that Japan trades high on earnings due to the collapsed nature of the earnings in relation to the GDP and book value.

Here you go, here is the permanently high PE chart for Japan: http://www.vectorgrader.com/indicators/japan-price-earnings Are we turning Japanese?

Kind of like how the Nikkei PE has expanded downward with interest rates over the past 20 years? Are you saying Japan has had a low PE ratio during the period of deflation? Do you have data on the Nikkei PE? I keep finding references to relatively high PE ratios, even in recent years. Here is one from 2006 that claims Japan's PE was 33.66 in 2006: http://tickersense.typepad.com/ticker_sense/2006/06/global_pe_ratio.html

No material breaking news. The only thing that surprises me is why Warburg Pincus started selling now. I believe their cost is like $20 a share. http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9442545-1264-16713&type=sect&TabIndex=2&companyid=7168&ppu=%252fdefault.aspx%253fsym%253dMBI I believe I had a better experience than them :D eric are you out of MBI, if i may ask... In part. I did sell the majority of it around $14.70 (well, at least in the Roth IRA accounts). Not that I know much about what the right thing to do from here is though. I really can't tell you that much about the company. Eighteen months ago I held the opinion that the CEO would stall a settlement because he wouldn't be reasonable (the tenor of his communications tipped me off) -- then it turns out (or so the rumor goes) that the board had to negotiate for the settlement with the CEO out of the room. I only bought back into the stock because there was that eerie silence that suggested both parties might finally be settling, and that's how it turned out. I wasn't the first to notice it, I just acted when another board member pointed it out. I bought MBI back within 5 days of the settlement announcement! But no, I don't really think this qualifies as "value investing" where it's described to be something where you don't dart in an out of positions and you are meant to hold them for 3 or 5 years. More like speculation. But that's okay, I have no shame.

Thanks for sharing Eric. So how is your car after a few days of testing it? So far so good? I don't have any complaints about the car. I think the tires won't last long though. It's fun just getting up to 30mph in a 30mph zone -- it's virtually silent, and it takes 1.7 seconds to reach 30. Normally a performance car starts off slow and then the turbos kick in -- this car is the opposite. The fastest part is right at the beginning. The voice commands are interesting. You can say "navigate to McDonalds" and it will pull them all up on the Google map -- then you just touch the one you want and it routes you. Or you can say "play Trip Like I Do" and it will find the song on Slacker internet radio. So I find it a bit of a novelty still. Soon all cars will need to have that.

Batteries already less than 25% of the cost of the Model S: By most estimates, the battery for the Model S that I drove should cost between $42,500 and $55,250, or half the cost of the car. But Straubel indicated that it is already much lower. “They’re way less than half, actually,” he says. “Less than a quarter in most cases.” Straubel says more can be done to lower batter costs. He’s working with cell and materials suppliers to increase energy density more, and he’s changing the shape of the cells in ways that make manufacturing them easier. http://www.technologyreview.com/news/516961/how-tesla-is-driving-electric-car-innovation/

No material breaking news. The only thing that surprises me is why Warburg Pincus started selling now. I believe their cost is like $20 a share. http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9442545-1264-16713&type=sect&TabIndex=2&companyid=7168&ppu=%252fdefault.aspx%253fsym%253dMBI I believe I had a better experience than them :D

Charging in five minutes. http://www.technologyreview.com/news/516876/forget-battery-swapping-tesla-aims-to-charge-electric-cars-in-five-minutes/

I read the conference call for Q2. Musk says that they cannot build cars any quicker right now because their suppliers can't supply them with enough parts. Apparently their suppliers never tooled up because they didn't believe Tesla would sell this many cars.

I remember reading that self-dealing is illegal. Do I have it wrong? I believe the spirit of the law is to keep people from manipulating the share price.

To give them credit where it's due, they are currently selling a hell of a lot more than 5,000 cars a year.

Tesla raised prices over the past week. It would cost an extra $8,000 to order my car today (versus last week). The options went up in price. The premium sound package went up from $800 to $2,500. The rear facing child seats went from $1,500 to $2,500. 21" wheels went from $3,500 to $4,500. Etc... Etc... So in other words, they must be seeing strong demand.

Okay, this might sound like a stupid question, but how does one buy the BYD option? There is no pricing on their website, and when I tried to ask them they didn't even bother to reply to me. Here is what I sent them on July 25th: To: nmd.og@byd.com Hi, I would like to find out what the price is for the DESS-B08P03A-E. I live in Santa Barbara, California. Thanks, Eric

At bottom, this is why I've been a bit concerned about FFH (I don't own any at the moment, btw). It's almost like they're going for an "absolute return" strategy vs. a "total return" strategy, where they always make positive mark to market returns despite aggregate market movement. On the other hand, they may believe that the best thing to do for "total return" is to preserve the ability to underwrite as much business as possible because they believe a very hard market will ensue at some point. If that is the case, they should be more clear about this, rather than saying, we're trying to "protect" ourselves. This is why I continue to be puzzled about the notional value of the equity hedge. Why 100%? When they first put the hedge on at 1060, with 25% notional value, it only protected about 1.75% of book value if the market were to drop back down to 800 level (where they had dumped all of their hedges). Now think about that... 1.75%! Really??? Honestly why is that "protection" from anything?

They currently have about 50% of book value in equities. A 40% market drop (if their portfolio fell by the same amount) would hit their book value to the tune of 14% before considering the impacts of income and potential capital gains from the bond portfolio. Not really that bad is it? It sort of feels to me like they are emphasizing smooth returns over lumpy returns.

The other way to look at things is the index has recorded more than $300 in earnings since they went to 100% hedged. It has burned off, through earnings, more than 25% of the market valuation (the fat) since they hedged. So does that make $900 the new $1,200? Or is this the wrong way to think about it? They went completely unhedged at $800, and when it came back up to $900 they didn't use that opportunity to go fully hedged. Not until $1,200. But there is a lot of earnings under the belt now -- so how do they view those accumulated earnings in relation to where they would un-hedge?

There will be a time when consumer deleveraging will end. That's been a headwind this entire time. States have also been raising taxes and the Feds have done the same. Did they really "pull out all the stops"? I find that pretty hard to believe. In California a wealthy investor pays a 52% tax rate on mortgage bond income, and a 0% tax rate on municipal bond income. Can you guess which stop wasn't pulled out?

Three years from now that initial 1,200 S&P500 number will be 1,608 (growing it at 5% a year). 1,420 would be the equivalent mark where they can return to a 25% hedge position (dropping 75% of the hedges). Of course, that's if the market bounces around for another 3 years instead of plunging sooner than that. In summary, following their initial plan to hedge 25% at 1060, we can expect them to drop 75% of the hedges if the market is at 1,420 in 3 years (and not sooner). EDIT: And in 3 years time, the equivalent level for the 2009 low of 666 will be 1,069. I'm using 7% a year growth in that 666 number to account for the market trading at a higher earnings yield at the bottom in 2009.

Regarding turning Japanese, This guy says that in 2011 the Shiller PE was 37 for the Nikkei. I wonder if anyone reading this knows where to find the underlying earnings data for the Nikkei -- I am interested in looking them, but my web searches are just getting nowhere. http://www.rwroge.com/2011/06/world-equity-valuations-by-the-shiller-pe-ratio/

Thank you Ben! 1200 is much more consistent with the math that leads me to think a 30% decline in the market should be required to recoup all the losses from the equity hedges (1700 x 0.7 = 1190). Maybe Al is right and my math is wrong, but I still don’t understand where my error lies… Other very good points as well. :) giofranchi I think Ben is right as well -- it looks like it was only 25% hedged at 1060. However I don't follow Giofranchi's reasoning. Recouping all of the losses means losing a largely offsetting amount on equities -- what does that get you? Why is that exciting? The opportunity cost is baked in today. Call it the real cost of float.

Question: How much did the earnings of the Nikkei decline from 1990 to the present? Not the prices of the stocks, but the level of the underlying earnings.

I highly doubt it. They claimed specifically that it was the runup in stock prices, and gave no other reason other than continued "economic uncertainly in US and Europe". There was plenty of that uncertainty at S&P 800 in 2008 as well. I checked both the Q3 2009 transcript and the Q2 2010 transcript (can't find the ones in between those two). Given their reasons, they would not have hedged if the market had stayed at 800.

Let me put it to you differently... They dropped all hedges at 800 because: A) They thought the market would continue to fall B) Margin of safety at 800 and time to make some big money I'm worried if you answer "A". ;)

Again .. they are not terrified of a 20% drop but of a massive 90% swing .. where they will effectively get wiped out. Again... they dropped all hedges at 800 -- that's a 20% drop.