ERICOPOLY

I prefer Bing for a couple of reasons: 1) more attractive page 2) Shorter name to type as I use the address bar

Are you talking about the legendary investment expert, Whitney Tilson? http://seekingalpha.com/article/318944-the-time-is-now-to-buy-bank-of-america Identifying and seizing on these opportunities is a well-known investing tactic utilized by legendary investing experts such as Warren Buffett and Whitney Tilson.

Have you ever considered that extingushing the flames when our rivers start catching on fire again will create much needed jobs? In fact that is the foundation of Rick Perry's jobs plan. I read the biography of Rockefeller. Apparently before the automobile there was no use for gasoline so they just dumped it in the river (all they wanted was the kerosene for lighting). I guess this means the auto industry cleaned up our rivers. The oil industry led by Rockefeller actually saved the whales (kerosene replaced whale blubber). Electric light nearly killed the oil industry were the car not to come along just in time. The EPA never saved the whales. Who needs the EPA when you've got the Texans? Whales for Texans 2012! Although back in those days oil hadn't been found in Texas yet.

They've only just barely got going with fracking and already we've had recorded earthquakes and contaminated drinking water. No wonder one of the political parties wants to get rid of the EPA. Geez I wonder why?

I'm finding nice suburbs in Sydney where a modest house rents for about $70,000 per annum, or a 5% gross rental yield over market asking prices. This is not much different from the San Francisco Bay Area real estate market. Here is a typical house near where I grew up (I grew up in Los Altos Hills): http://www.realtor.com/realestateandhomes-detail/1681-Kensington-Ave_Los-Altos_CA_94024_M16447-11083 It's just a modest 1953 rambler selling for $1,649,000. That equates to roughly a 5% gross rental yield. No different from Sydney really.

But that money has to go somewhere, either US Govt or Banks or MBS holders. It will come off the homeowner's liability side of the balance sheet, but he assumption is that after it wipes out its liability, the homeowner will then go out an re-lever himself to start the game again. The key thing holding back investment is final demand from consumers. That's it! Look if people are buying things off the shelves companies will hire and expand. They can only do this if they have the cash flow. Refinancing can not only boost their cash flow but accelerate their debt retirement at the same time. It does wonders for morale.

Adding to my last point... You see these charts that show US consumer debt being at an extremely large level relative to GDP. Those historical levels where the consumer debt was much lower had mortgage payments in excess of 7%. I mean, 7% is rather low historically. But my example shows that 4% mortgage payments initially repay at a 76% faster pace than 7% interest rate mortgages. So those charts can be a bit misleading because there is no RATE OF DECAY component, and the rate of decay is all important.

The best news I've heard recently is the rumor (rumor is news these days) of a new Obama mortgage refinance push. It does quite a bit to address the consumer debt. We are already at nearly the lowest household debt service level in 32 years. 1) Getting mortgage payments even lower is only going to push that debt service level lower. 2) The initial payment's principal component of a 30 yr fixed mortgage refinanced at 4% is 76% larger than one at 7%. So principle payments 76% larger? Yes, that's accelerated de-leveraging. While at the same time reducing the absolute size of the payment. Who says you can't haver your cake and eat it too?

I'm not in agreement. It is important to make sure the rally has legs before buying in. I would wait until the market can break through several more resistance levels before thinking of committing any serious money in this market.

He mentions Warren Buffett not caring if he buys IBM at the highest price possible because he's got $10b in his back pocket.

Pandit pushes for more transparency: The chief executive of Citigroup has said banks should be forced to publicise how they measure risk so that investors can “punish” institutions that are too optimistic about the quality of their assets. http://www.ft.com/intl/cms/s/0/35fefc26-3b99-11e1-bb39-00144feabdc0.html#axzz1j5de6qJv

BNP settles in the restructuring case (In other words, more commutations and the European bank needed the liquidity): http://www.ft.com/intl/cms/s/0/230fe70c-3ba7-11e1-a09a-00144feabdc0.html#axzz1j5de6qJv

If it's only 1/3 of the money going to new hiring, the 2 million new jobs at $50k each adds a lot to new household formation. New household formation drives recovery in home construction, and that drives new jobs and new household formation even further. Anyhow, like I said I've concentrated my portfolio upside in BofA. So my narrative fits my strategy. What a coincidence :o

Well damn I'm up 20+% now in 2012. How arbitrary. Could be higher next week, or gone next week.

Dividend rate may be retarded somewhat by the piles of cash being retained overseas by US multinationals (the S&P500 is after all a large cap weighted index). I would expect some improvement (how much I'm not sure) if there were no US tax levied on repatriated profits. This slope might be associated with the increasingly globalized nature of the profits (or might not): http://www.early-retirement-planning-insights.com/SP500-dividend-payout-chart.html Has there been any historical rise in acquisitions using retained earnings? Like for example the rise of conglomerates in the index.

LOL. You are always so optimistic. Let us ballpark this. I think publicly traded stocks total profits are something like $1200 billion very roughly. This is at a profit margin of about 10%. Say profit margins drop by 2.5% that is about $300 billion or before tax about $400 billion. This amount would go to either consumers via lower prices or to employees via higher compensation or higher costs of raw materials. Let us assume all this goes to either higher compensation or to raw materials for simplicity. I would think of this about 25% would easily go to foreign exporters/subsidiaries as either compensation or raw materials. So at most we have $300 billion in additional money in the hands of consumers. Does this give enough of a boost to bank's profits, given that non-financial businesses that are major customers of banks have lost about $400 billion in pretax earning power? Vinod Hire 6 million people and pay them $50k each. That's $300 billion. Nice dent in the unemployment rate. What drives bank consumer losses BTW?

My portfolio is concentrated in financials which trade well below the mean, however I remain very interested in the market valuation level as a whole. Partly because it impacts financials. What is going to cause this mean reversion in profit margins? Will it be an investment and hiring boom from upstart competitors that will blow bank earnings and growth through the roof? Is S&P500 mean profit margin reversion something for me to fear as a bank investor or is it instead an opportunity?

I read all of the MBI transcripts from conference calls, and letters to shareholders. Somewhere in there I remember reading that they use 5.X% to calculate their adjusted book value -- it's a net present value thing. I believe for example that you would have $2.20 in earnings if you had ABV of $40 calculated with 5.5% discount rate. Now if the market priced your stock at 10x earnings you would trade at $22, which is a huge discount to ABV of $40. I could be completely wrong -- I encourage anyone to tear me up if so because otherwise I don't learn anything.

Second question: If retained earnings are used to acquire cash cow bolt on acquisitions (like when JNJ buys a medical device maker)... What is your method? Do you disregard the new earnings from the retained-earnings-induced-acquisition -- that is, do you just pretend it didn't happen and use the prior decade-ago earnings when you value JNJ?

Historical dividend payout ratio (not going back as far as I would like): http://www.early-retirement-planning-insights.com/SP500-dividend-payout-chart.html Do you guys reckon any per-share return is earned on the retained earnings? Berkshire Hathaway grows it's earnings per share at an above average rate in part because it retains it's earnings (the rest is pure magic of course).

The data is inflation adjusted per share earnings. Does anyone have data that strips out the effect of share issuance/repurchase? Surely it matters to you too.

I'm not sure about timeframe -- anyhow it just looks to me like adjusted book value is academic in nature, however it appears to offer management's view of earnings power if you think of that discount rate in terms of a yield on adjusted book value.

BTW, my positions in AGO and MBI these days are downside only -- I sold puts and used the proceeds to purchase BAC calls when BAC was in the low $5 range. I just see much higher upside in BAC. A kamikaze strategy would be to go 100% BAC long with 100% BAC downsize risk. My BAC strategy is more like an unpiloted predator drone rather than a kamikaze.

The stock should be priced based on a multiple of earnings though. I would think that instead of looking at adjusted book one should instead just be looking at earnings power and figuring out a multiple that seems appropriate. You could apply a 4% discount rate instead of 5.x% and get an even higher adjusted book. Doesn't mean squat -> as an investor you care what your earnings are relative to the price you pay.

The discount rate to achieve the adjusted book value was in the 5% range. I therefore don't think the stock should be trading up that high as investors should be wanting more return than 5%. Am I looking at this the wrong way? Also note the price performance of AGO since they got their settlement. They are not anywhere close to their adjusted book.