ERICOPOLY

I read about SQL Azure last year. At some point a lot of those in-house SQL Server databases and .NET apps will be moving to Azure. I think it will end up shrinking a lot of the support staff in IT departments. Some will still be required to deal with sync/network issues between the in-house network and the cloud. It will probably be partially offset by additional hiring on the development/business analysis side. At my office, it's taken them a while to warm up to using the virtual servers, but they have slowly come around to using them. The cloud could be a next step. Something like this may be their first step: http://www.microsoft.com/windowsazure/appliance/

I may not have read every post on this thread... so hope this isn't repeating what others have said. There is a calculator estimating how much revenue Microsoft will be collecting for a given cloud application written for the Windows Azure platform. Click the "launch the calculator" link: http://www.microsoft.com/windowsazure/economics/ The strategy for Azure is to be the cloud operating system. If this wasn't plainly obvious already. So you can have a user with an iPad or Chrome tablet, using it for a business meeting, but if he is running a cloud application that was written for the Azure platform, then he is in effect running a Microsoft operating system 8) I'm counting down the minutes until Azure incorporates Skype functionality somehow. The Server & Tools division is where a lot of growth is going to happen (just my forecast).

Going back to a discussion we had on this board in January, Coca-Cola means "big tobacco" to me now. Their past growth benefitted from a world in which the sources of a growing epidemic of metabolic syndrome had yet to be understood. Will people be willing to consume 64 ounce Cokes thirty years from now? How many board members smoke a pack a day? Smoke even once a week? What would have been the percentage 30 or 40 years ago? Fear not investors, you have made a lot of money as the merchants of death, despite the drop-off of smokers in the USA. Rest assured, you will continue to send a lot of Coke drinkers to an early grave and the opportunity to continue doing so well out into the future exists. It is a "wonderful" business.

I can't remember a time when you needed Windows operating systems to run Office. In fact, I just ordered (yesterday) an iMac for my wife (configured with MS Office pre-loaded). What else (it's not MS Office) has driven corporations to upgrade to Windows 7 desktops instead of to Mac desktops?

Mobile Me costs $99 per year. Microsoft gets $0 presently (no such service yet). So is Windows a mature business that has no growth potential? Perhaps, but perhaps that's just a shell game because the revenue growth will happen in the "online services" division.

What if your per-user purchased software licenses and per-user settings were mirrored in "the cloud"? HKEY-Current-User (or an improved analogue of it) follows you wherever you go. How about at least some of your files being mirrored in "the cloud"? You simply take a folder on your computer that you wish to have mirrored, and tag it with a property to have it mirrored? How much can they charge users for such a service? Or think of something like "MobileMe", but for Windows. There are revenue opportunities here -- more than you get from just selling Windows licenses.

I predict they will look at the combined balances in your 401k/IRA/RothIRA, put it through some sort of annuity calculator, and deduct that amount from your annual Social Security benefits.

So perhaps you just want to know how much you can walk away with if the house price keeps on declining.

Not sure why, but you subtracting principle payments from "profit". This is similar to a corporation taking a charge to earnings for paying down debt.

I would question why you even type the name of your main search engine. You can set it as your browser's 'home', so that pressing the home button brings you there. You can put a bookmark in the bookmark bar that is always visible.. Most modern browsers have a search field or a URL address bar that can be used as a search engine field (you set it in the preferences), or they auto-complete URL (so that you just type G and maybe O and it'll suggest "www.google.com"). Personally, I have my Chrome set up so that I can search from any search engine from the address bar with one prefix letter; so "g something" is google search for "something", "a something" is on Amazon.com, "i something" is on IMDB.com, "b something" is bing, etc. You should question many of the things I do. Really though, I just go to the address bar. Historically I've been an IE user (except when using a Mac). You just press "Tab" after a page loads and then you're in the address bar. And the Yahoo! and Google toolbars destabiized the browser process -- not sure if they've fixed those issues, but it was enough to keep them off my system. It's been at least 4 or 5 years now since I last tried those search toolbars in IE.

Regarding this discussion on Bing vs Google. I was an Altavista user originally. It was a painfully long name to type. Then I moved over to Google. It gets the job done. Because of this thread, I've been giving Bing a shot today. Honestly, I like it. It actually feels faster than Google -- especially the map feature. Maybe it's bias. I can't say. I do prefer typing "Bing" vs "Google". The latter takes 75% more keystrokes. But if Google's website goes down, I can move to Bing without missing a beat IMO.

That point about competitive pressures on rents is true today, it was true last year, it was true 10 years ago... etc... What matters is this... why will the competition increase? Why hasn't this already happened? If competition hasn't yet hit a zenith during a long period of housing oversupply, when will it ever? Home-building at record lows nationwide, especially in the most oversupplied areas. This is favorable for the future direction of rents. The buyers aren't irrational in areas where cap rates are 10+%. So as long as you are right on your cap rate being 10%, then you have eliminated this concern.

Are you using the Russel 2000 index again? It seems to be the small caps are where the highest prices are, and the most vulnerable.

Backing out all cash net of debt (so backing out roughly $8b out of their $14b total cash). That leaves them with $6b of cash to play with. HPQ gets by with $10b in cash on their balance sheet, yet they are three times the size of DELL and compete in the same markets. So I think I leave DELL with plenty of cash with which to run their operations.

Suppose you get one of those HomePath deals where you put 10% down, and you buy a home with a cap rate of 10%. I'm not sure what interest rate you get with that, but I'm guessing about 6%. I think that's a 46% yield on your invested equity. 46%! So if this were a stock, you might say it trades at roughly 2x pre-tax free cash flow. And this doesn't even consider the other part of the equation: A 10% property price increase doubles your equity, plus you get the yield on top of that. You should be begging for high nominal price inflation, as that's where you get your biggest bang! Besides, rent inflation drives up your interest coverage ratio... you will be routing for Bernanke. Now here is an asset class any dummy can understand, yet people are passing it up.

I'm just going to drop the subject. Let it be known though, that I think people who say it earns 0% are wrong.

So it's 100% of the time -- unless you have found houses on the rental market where the rent is free? Well it's both at the same time really. You can either own the investment and have it throw off cash which you use to pay your rent, or you can just skip that step and buy the house. Especially difficult in a market when rent is rising -- buying the house is the investment that perfectly cancels out the rental expense, no matter how fast the rent is rising. In either scenario, the house remains "a place to live"... but so what? Now, it's exceedingly difficult for the average Joe to find investments that will reliably throw off enough income AFTER tax to pay his rent. Which is why it's the better investment for most people to own the house before investing elsewhere.

This makes the assumption that the criminals are unsuccessful in their endeavours. It appears that they were attempting to kill FFH , put it out of business . It smacks slightly of hubris not to understand that the good guys do not always win. Come June of 2006 that game was already won by the good guys. Runoff was breaking even as posted months beforehand in the annual report, big gains were being booked on Indian equities, the only catalyst left for the hedgies was a major hurricane season. But the people who do this professionally were still writing business in Florida, albeit at higher rates (insurance companies). The expectation as we discussed at the time was to NOT have a repeat of 2005, which of course is exactly what happened. The hedgies overstepped when they became dependent on natural disaster as their sole recourse -- I remember we were discussing the company otherwise trading at a P/E of 3 for the year due to the big gains coming in. I think they got too emotionally caught up in their lie -- too hard to give up and admit that the good guys has already won. I remember one of those hedge funds was still trying to short the company even when they had all the CDS hedges during the financial crisis -- was killed in the short ban. I agree. The key to our using options to double down on FFH and then double down again before the hurricane season was over was the fractal way hurricanes in the gulf develop. The key to understanding fractal phenomenae in time series is the high correlation with the recent trend. It's the same pattern we see with earthquakes. The hurricane trend in prior years leading up to 2006 had been ominous, but the most recent trend was zip halfway through the 2006 hurricane season. Therefore, knowing that the strongest predictor was the most recent results, we doubled and redoubled our holding of FFH before the hurricane season was over. :) Another funny tidbit is that despite Katrina/Rita/Wilma, they actually made money in 2005 were it not for the runoff 1) In 2005 runoff lost $536 excluding KRW losses 2) In 2005 Fairfax as a whole (including runoff) lost $498 million So if you'd had break-even runoff in 2005, they would have actually made a net profit, despite KRW!!! So the shorts only had one thesis: 1) Continued runoff losses Yet runoff was beginning to break even in 2006. So the shorts were toast. And they were paying more than 20% per annum to borrow the shares to continue their short. Something had to give.

The real return on businesses is zero if you disallow their earnings. Similarly, real estate offers no returns when you disallow the cap rate. But neither scenario is realistic. For some reason though, perhaps it's the real estate crash, it is becoming popular to pass around articles suggesting that real estate offers zero returns.

I will say upfront that I've owned DELL off and on since the market bottomed out in the middle of the recession, and I know far more detail about DELL than HP. However, below are a couple reasons why I like DELL over HP. HP PC earnings are more tied to the consumer, while DELL is more about the biz. In a declining biz with an increased focus on tablets, I like DELL's position better. I don't know what happens to HP printer/imaging division going forward, and that division generates 17% 28% of earnings. I like DELL management/board members better. More shareholder friendly. Less crazy board shenanigans. More willing to put their money where their mouths are. I like Dell's increased focus on cloud hardware and services. I don't get why HP is trying to compete with Google, MSFT, and AAPL on the OS front. It might weaken HP's relationship with these guys, who are in a much stronger position to dominate. And it could lead to a RIMM-like disaster for their PC/tablet biz. I like what DELL is doing abroad. On the consumer side, DELL is number one in market share in India and is number two in China. Dell has the number one brand in Brazil. They're partnering with CHL in China. They're helping build out Tata's IaaS service in India and Singapore. Michael Dell is on the governing board of the Indian School of Business in Hyderabad, India. The former joint CEO of Wipro is now leading Dell Services in India. It goes on and on. Basically, I think the DELL transformation has been occurring and continues to occur and will be executed properly. I'm not so sure what's going on at HP. I became a DELL shareholder late last week. They are both priced roughly the same on forward earnings after backing out net cash. I think they will both double within 4 years (just doing the math on their earnings). I own the same amount of both.

Do you think there is an inverse way to do with options so you can take money out of tax-deferred account and not be taxed on it? (could be useful when close to retirement when you have to start taking money off the tax-deferred account) You could probably buy long term at-the-money calls in your taxable account and write them covered (same strike, same price) in your IRA. This way you don't ever lose money on the whole (in terms of net worth), but you "withdraw" gains at the long term capital gains tax rate instead of paying the regular income tax rate that IRA gains are taxed on. Could be useful today, with 15% LT gains rate vs potentially 35% income tax rate on IRA withdrawal. Not sure if that's even legal by the way, but I don't see why not. I don't have a regular IRA anymore though -- 100% RothIRA at this point.

I'm not a Johnson&Johnson heir. Given the station in life I was born into, I think my fair federal tax burden is right where it would be if I were still employed at Microsoft. I took a huge risk and I feel strongly that the reward is mine. Nobody would have shared in my losses. ericopoly, I can't figure out what you mean here. The reward is yours, but so are the tax liabilities. How else should it be? Are you just making a statement that you would prefer a flat tax system? The system I want is one where I can make unlimited contributions to a tax-deferred account, and can withdraw money at any time without early-withdrawal penalties. This way, I pay income tax in line with the income I consume, just like most everyone else. So it's sort of similar to variable annuity, except it eliminates the early withdrawal penalty and is more cost efficient (variable annuities carry heavy fees) -- plus I can select the investments, rather than be stuck only with funds. I don't think Americans are first in line for taking my money -- I would rather help people elsewhere in the world first where the money goes farther and the problems are deeper. I would also like to make the money compound for a while before giving a large part away. So I follow in the tradition of Gates and Buffett somewhat in this thinking (the former wants to help people outside the US, the latter wanted to compound it tax-deferred before giving it). And neither believes the US Treasury should be the beneficiary of their gifts!

Yep, a 7% real return, after income tax. You would need to earn ~11% from a taxable account to get an equivalent return. The stock market does not return 7% real, but Siegel's work would suggest that it might return around 6.5% in real terms. With such a small difference in expected returns, the only meaningful advantages that housing offers is the ability to easily leverage returns and the income tax aspect. I bought my house at a cap rate of about 7.5%, and it's been a good deal so far! SJ It's funny though that the article claimed the real rate was 0%. Were that to be the case, every rental out there would have a cap rate of 0%. And that was from the Harvard Business Review?

Well, most people pay rent on the money they borrowed from the bank ;) Oh, so we're assuming they don't have cash? So what do they use to buy the stocks? The article compares stock market returns vs using that same cash to buy a house. I could buy a house in Sacramento for $150,000 in a decent area, or I could put $150,000 in S&P500. One of them has 10% real returns (Sacramento), the other has nowhere near that. And that 10% real is after-tax, because the "would be" rent paid is always in after tax dollars. Owner-occupied ownership of single family homes makes more sense than investor ownership of single family homes for this reason -- the owner/occupier gets 10% after-tax, the investor gets 10% cap rate before paying income tax. Which, is what StubbleJumper just said.

Like, for example, when the landlord/investor evicts you and sells the house.