ERICOPOLY

Imagine an independent Coca Cola bottler deciding to sell Pepsi adds on the Coke cans. That's like Compaq wanting to install Netscape links on the Windows desktop.

Remember when Gates had to go infront of Congress? As crazy as it sounds right now with their revenue and NEt - Apple doesn't have a monopoly the way Microsoft did back in the day. Neither did Microsoft. Obviously the barriers to entry were overstated! Microsoft was way closer to a monopoly at that time Compared to Apple today. History suggests that there was no (edit: impenetrable) monopoly on personal computers. There was a monopoly on Windows software, but there's a monopoly on the Coke recipe too. Yet there is Pepsi, and Apple. Nothing the government did led to the success of Google and Apple. That was innovation. If I remember correctly it wasnt actually the windows software itself rather how Windows Operating software and its arteries were installed on most all PCs out of the box. Well, this is a long discussion. But in 1995 I got my first PC and it was out of a retail store (installed) that provided me a PC with dual boot Windows 95 and Linux! Yes! Right out of a retail store. Fully 3 years before the antitrust BS. So consumers who wanted Linux could find it. But they didn't want it! I sought it out and found it.

Remember when Gates had to go infront of Congress? As crazy as it sounds right now with their revenue and NEt - Apple doesn't have a monopoly the way Microsoft did back in the day. Neither did Microsoft. Obviously the barriers to entry were overstated! Microsoft was way closer to a monopoly at that time Compared to Apple today. History suggests that there was no (edit: impenetrable) monopoly on personal computers. There was a monopoly on Windows software, but there's a monopoly on the Coke recipe too. Yet there is Pepsi, and Apple. Nothing the government did led to the success of Google and Apple. That was innovation.

Remember when Gates had to go infront of Congress? As crazy as it sounds right now with their revenue and NEt - Apple doesn't have a monopoly the way Microsoft did back in the day. Neither did Microsoft. Obviously the barriers to entry were overstated!

I got a call back tonight from the Australian Tax Office, this time from someone with experience dealing with the repealed Foreign Investment Fund (FIF) rules. He confirmed that under the old rules my IRA would have been taxed based on account balance swings, irrespective of whether any gains were realized. Thus, Buffett himself if he held all of his Berkshire shares in an IRA would be taxed in the multiple billions per year (on a good mark to market year for the BRK shares) if he were an Australian citizen prior to July 2010! Hows that for a Buffett rule! He said firmly that the FIF is currently repealed and no tax exists at the present. However they are expecting the new Foreign Accumulation Fund (FAF) rules to take effect in July. Yet they don't know what those rules will be as they are not official. So maybe I'm staying in America, or maybe I'm leaving in July. Stay tuned!

At least twice the interviewer tried to get Dimon to say that Bank of America would come out alright.

The rates were only the same from 1988 to 1990 per this source http://www.ctj.org/pdf/regcg.pdf It is really hard to take seriously an article where the authors cannot even spell Buffett's name correctly. Just as annoying they argue that the loss of $18 billion in tax revenue from the super-rich results in higher taxes for everyone else. Patently false. One it is not zero sum. Two, the middle class enjoyed a tax cut too. While not a huge amount per person it is huge in terms of the overall budget. The main takeaway though is that Romney himself still worked hard even when capital gains rates were as high as income. Common sense would dictate that 65% of a 20% gain is better than 0% of a 0% gain! As much as I hate paying higher taxes, I agree that taxing capital gains the same as income will not kill capitalism. The only argument I firmly believe in is that the stock market in the aggregate does not appreciate much more than inflation. Maybe the price level beats inflation by 1% real rate over time. The rest of the "real" gains come from inflation (edit: dividends). So once you lower capital gains rates to account for inflation, the corporations tend to buy more stock back for tax laundering motivation. So it's kind of a whack a mole thing.

This is a great quote (but it doesn't seem accurate. When were capital gains taxed the same as labor income?): Actually, Romney's own business career makes the point better. No one seems to have noticed it, but Romney worked those long hours and made those risky bets mostly during a decade-long period when capital gains were taxed at the same rate as labor income. For a brief shining moment, the 1986 Tax Reform Act that Romney's icon Ronald Reagan supported interrupted the steady decline of capital gains taxes and restored the simple idea that all income should be taxed equally. That is to say, Romney's own success suggests that low capital gains rates aren't necessary to encourage the kind of entrepreneurship that Romney now celebrates. http://www.cnn.com/2012/01/24/opinion/hacker-pierson-romney-taxes/index.html?hpt=hp_c2

I already have some. I'm sort of amazed that they are going for so little.

He might have run afoul of the Personal Holding Company rules if he were to own it outright. He'd then be hit with the tax penalty on undistributed profits.

Personal income taxes!

You can just own Berkshire stock and tax-exempt munis if you don't want to pay taxes. None of his proposals change this. Hint: don't directly own the JNJ stock. Utilize a holding company that doesn't distribute dividends. But make sure you hold the equities in insurance subs so as not to trigger the Personal Holding Company rules on distributing earnings.

Yup, that's why I'm not diversified. BAC is not a black box by the way -- it's gold.

Can anyone give me an idea of the perception of the quality of the University of Waterloo education in Canada? Is the Waterloo area a mini-Canadian tech hub (ex-RIMM)? Perhaps FFH's interest is linked more to this phenomenon. If RIMM can attract the brightest Canadian tech developers, then over time it will find a way to compete globally. I believe Waterloo has a top notch engineering program.

Look if it doesn't work out then he will be spending less time on his Blackberry. So some time recouped there.

Personally I think this is a low risk investment with very high probability of doubling in next 6 to 18 months. So my position is likewise humongous. I still drive my car most days even though I've heard reports that people get horribly mangled in these things. I take mortal risks every day.

I liked the FFH at bottom trade in June 2006 because you had the 2005 annual report already in hand where it said very clearly that they believed runoff would break even in 2006. Runoff was the only thing wrong with the company that would scare people -- we had the numbers by then to show us that the company actually made a profit in 2005 were it not for the runoff division -- and 2005 was the Katrina/Rita/Wilma year. People were dropping the stock in 2006 because of hurricane fears and that's something where I KNEW that Mr. Market didn't know anything about that I didn't. It wasn't like I was worried that everybody else knew the future regarding the hurricane season. Very expensive multiple landfalling hurricanes are exceedingly rare, yet people thought they were likely due to recency bias perhaps?

I think I saw the $10 strike 2013 calls trade down to 20 cents or 22 cents in December. That's roughly 50x leverage of notional value at the strike price, with tangible book value likely at $14 or so by expiration. Not that dissimilar to the FFH situation in 2006!

They would treat an IRA account as a "Foreign Investment Fund" and tax the increase in balance as income. So, for example, if you had an IRA (or Roth IRA) with a $3m balance and the account balance increased by 10%, then you would have $300k in taxable income to report to Australia. This happens even if you do not withdraw any funds from the account! They are paranoid about abusive offshore tax shelters and don't distinguish an IRA from an offshore tax sheltering scheme. Eric - I might be reading this differently but my impression was that they treat income from the IRA as ordinary income for taxation purposes. Therefore it's not necessarily tied to the account balance but is instead based upon realized capital gains, dividends, interest etc. - just as if the account was not a retirement account. Therefore from your example, the $300K would only be taxed if that was actual realized income and not if it was unrealized capital gains. It's still a massive tax implication. As an Australian citizen can you roll your IRA into a Superannuation Fund (the Aussie equivalent)? You might be right, and I need more clarity. A couple of days ago I called the Australian Tax Office and they are researching my questions and will have somebody contacting me on what they find. I could always put all of my BofA positions into warrants in my RothIRA if that's the case. Or sell common stock deep-in-the-money PUT positions that won't pay dividends and also won't expire before I leave :D So lots of questions still. My wheels are turning.

2011 isn't normal, so I just wouldn't be tempted to use it for anything. This interest rate environment isn't normal. The falling home prices aren't normal. Jingle mail isn't normal. The unemployment rate isn't normal. Their portfolio isn't even normal! They are still taking losses on Countrywide crap for example, which isn't normal because they didn't even underwrite that crap in the first place and never would have nor will they in the "normal" scenario. Start with the $12b in cost savings from reducing headcount, add back in $15b from R&W reserve build and you have $27b. Then add back in the 2011 elevated legal expenses, adjust for the elevated loan losses. What about all those mortgage LOSSES! They are in that business to MAKE money, not lose it. So add back in some normal amount of profit in addition to the 2011 losses they took on mortgages. I'll bet you're well and truly blasting through $35b (pre-tax) although I'm too lazy to add it all up. Sooner or later they are going to lower those corporate tax rates in the US to be more competitive with headline rates found in other countries -- guess who is going to benefit? Being nearly the top tax rate in the world is also not "normal".

Some of the regulations in those Asian countries are very conservative. Like in Korea 65% LTV is maximum allowed for mortgages. Think they are going to have any trouble with the Korean portfolio? I don't. They're not like here in the USA where we allow 100% (or more I think). We trust in "the free market", boy didn't we ever learn a lesson. Yet we still have nothing like Korea's law and probably never will.

That's interesting. Another reason we bought BAC B warrants when we did was that the day after BAC closed below $5.00/SH, it got major price support from a major institution that put an ascending floor on the price. Almost all the spiky price movement for a few days afterward was on the upside with plateaus in between and almost no spiky minute by minute downward price movement. The terms of the $5b deal he struck in August allows him to purchase an ownership stake of up to 15% of BAC. So whether it was his idea to give him that much room to operate or the banks', I have no idea. Anyhow I believe the warrants count toward his 15%. So I guess in the low $5-$6 per share range he could only pick up another $4-$5b worth of shares or so as his warrants are already about 7% ownership. That would be his maximum fill unless he got more approval from the bank.

and mortgages is still the most important stress ahead. I have both but Citi seems to be on the fast lane and also very cheap. Thanks Eric, love your comments. I would be careful with Citi. Their exposure to Asian markets may (probably) will come back to haunt them. We own only BAC and WFC. As mentioned, I'm more confident in U.S. banks and the financial system than any other part of the world at the moment...including Canada! Our bet is on the U.S. coming back, while the rest of the world struggles. Cheers! I unloaded my Citi to buy more BAC a couple of weeks ago. Even though I take on more concentration risk, I couldn't justify the opportunity cost (I think BAC has more upside).

They certainly do reinforce each other. 1) Construction worker (or related industry worker) gets laid off 2) Loses house 3) House in foreclosure or threatening to be there (shadow inventory +1) However... 4) Construction picks up (meaning he gets his job back) 5) Shadow inventory -1 So just by building a new house, does it add to supply or does it reduce shadow inventory to actually reduce supply? It has been estimated that a single family home creates 3 jobs. So if you get new household formation greater than 1 as a result of building that new house, then building a new house actually reduces total supply on the market. So ironically it's possible to have construction of new homes actually reduce the supply -- or at least the 3 jobs created might at least create an offsetting demand.

Household formation is everything. A month or two back I counted the number of housing units built since 2000 and subtracted out 250,000 per year for the amount (estimated) destroyed annually. It turns out that we have not added more homes to national supply than needed -- if you assume 1.3m annual trend new household formation (this was the trend up until the financial crisis hit). We built too many for a few years and now we've built too few. We're at even. The problem isn't too many homes anymore, it's the fact that this jobless rate has driven new household formation way below trend line. It's the jobs stupid, just the jobs.