ERICOPOLY

Consider that if they paid the cash out to you as a dividend, you could own more shares instead by purchasing them with your dividend. Either way, you own an equally greater economic share of the same cheap thing. Just a wash, except for tax differences. The buyback merely increases your economic ownership of this terrible thing -- sell a proportionate amount of shares to bring your ownership level of the bad thing back to the prior level. You have the same % ownership of the company, and you have the same cash you would otherwise have gained from the dividend -- but perhaps you'll be ahead by paying less taxes. This would be like saying that automatic dividend reinvestment programs (DRIPs) aren't wholly returning money to shareholders. The sales are not dilutive -- they own the same share of the company (post sale) as before the buyback took place. Likewise, if you don't 100% reinvest your normal dividend into shares of the stock, then you are slowly being diluted out of the company by people who do! There is no profit to be made from buybacks. It's just the return of profits. Similarly, there is no profit in the purchasing of new shares with your dividend. There is no alchemy. I guess I don't need to answer that one :D

Sounds like you are trying to get past first base.

The math lays it out pretty damn clear: a buyback at any price is equal to a dividend at any price -- as long as the shareholders sell an offsetting amount of their holdings. In other words, it's a tax efficient pass-through of the cash. The shareholders are the seller, the corporation is the buyer. No value is destroyed, only returned to shareholders. Run the math. Absolutely true. Not debatable. It's math. We can debate whether a stock is cheap or not, whether a stock is overcapitalized or undercapitalized, etc. But you can't argue with math. Simply put, if you own a stock (I don't own Apple by the way) and you can sell it (not subject to liquidity issues), then you think the stock is undervalued. You then need to ask yourself if the balance sheet is overcapitalized. Many balance sheets are not! But if it is, what is the best way to return/invest that overcapitalized balance sheet? Suppose Apple won a $500 Billion lawsuit from the U.S. Government. Let us also assume that the market cap went up $500 Billion as a result. They now had $580 Billion on their balance sheet vs. a market cap of $800 Billion. Do you think it makes sense for them to sit on $580 Billion or return some of that to shareholders? Further, how should they do it? Again, of you are long the stock - and could sell it at anytime - you would clearly prefer a buyback to a dividend, for tax purposes. But regardless, you would just be happy with getting some of the cash returned to you. Well, the preference would actually depend on how a person holds the shares. If they were in a ROTH, that would have different implications than if it was in a personal taxable account. Additionally, tax rates would have some influence on the preference of shareholders. I realize that this is getting pretty particular, but, they are real issues. The mention of the ROTH is interesting. I just thought of something! Shares of foreign corporations (like FFH) held in a Roth are tax inefficient because there is no foreign tax credit to recover. The Canadian government would take a cut of my FFH dividend and the US government would not reimburse me (because I have no US tax liability). So in that case, it's a huge advantage to go the buyback at any price route on FFH dividends for US investors that hold in a ROTH (or regular IRA).

I am actually okay with a buyback at any price... I simply did not say it is "good". Neither did I say it is "bad". From my perspective, it is neither good nor bad -- the price really doesn't matter. Just like with a dividend -- nobody cares at what price the stock was trading at when the dividend was paid. The point is that the cash is being returned to shareholders -- either way. Cash is cash. Under the serial buyback scenario I would tend to believe that you would benefit (over time) from that method relative to the alternative which is to get your cash via a dividend.... but that's due to tax considerations only. In a tax-free world, I would prefer to only get my money back via a dividend (no transaction costs and generally smoother). Now, one benefit of a buyback (versus) a dividend when the price is low is that you might have wanted to reinvest in the company anyhow -- so you'd be bitching if they paid it to you as a dividend due to the extremely inefficient tax implications. But aside from tax, if they paid you a dividend you could just buy the shares yourself... so no advantage to a buyback at low prices versus a dividend at low prices (unless tax is an issue). The recurrent theme is tax. You two are funny. I have seen this song and dance many times and look forward to the next engagement. With that said Ericopoly has won me over, it may not be prudent but its the same except for the tax differences. Well, Buffett would probably howl because Berkshire's capital gains tax rates are higher than Berkshire's dividend tax rates. But then, this is coming from Buffett... the guy who advocates raising the personal dividend tax rate but has yet to advocate raising the dividend tax rate that applies to Berkshire..

I am actually okay with a buyback at any price... I simply did not say it is "good". Neither did I say it is "bad". From my perspective, it is neither good nor bad -- the price really doesn't matter. Just like with a dividend -- nobody cares at what price the stock was trading at when the dividend was paid. The point is that the cash is being returned to shareholders -- either way. Cash is cash. Under the serial buyback scenario I would tend to believe that you would benefit (over time) from that method relative to the alternative which is to get your cash via a dividend.... but that's due to tax considerations only. In a tax-free world, I would prefer to only get my money back via a dividend (no transaction costs and generally smoother). Now, one benefit of a buyback (versus) a dividend when the price is low is that you might have wanted to reinvest in the company anyhow -- so you'd be bitching if they paid it to you as a dividend due to the extremely inefficient tax implications. But aside from tax, if they paid you a dividend you could just buy the shares yourself... so no advantage to a buyback at low prices versus a dividend at low prices (unless tax is an issue). The recurrent theme is tax.

They are fed the idea that it's prudent to keep a massive rainy day fund. It is prudent from the standpoint of management, because it ensures they can keep their jobs no matter what happens to the cash cows of today. Not prudent from the standpoint of the owner though. I think this is yet one more reason why Buffett likes wholly owned companies for Berkshire -- it's just one more way in which he gets more value over time.

The point of having it is to piss it away at some point in the future while defending against disruptive technological shifts. They know that if they pay it out today and later ask for it back (when their cash cows no longer bring the milk) as a capital raise you won't give it to them... because you'll consider it speculative at that point, which it would be!

The math lays it out pretty damn clear: a buyback at any price is equal to a dividend at any price -- as long as the shareholders sell an offsetting amount of their holdings. In other words, it's a tax efficient pass-through of the cash. The shareholders are the seller, the corporation is the buyer. No value is destroyed, only returned to shareholders. Run the math. Absolutely true. Not debatable. It's math. We can debate whether a stock is cheap or not, whether a stock is overcapitalized or undercapitalized, etc. But you can't argue with math. Simply put, if you own a stock (I don't own Apple by the way) and you can sell it (not subject to liquidity issues), then you think the stock is undervalued. You then need to ask yourself if the balance sheet is overcapitalized. Many balance sheets are not! But if it is, what is the best way to return/invest that overcapitalized balance sheet? Suppose Apple won a $500 Billion lawsuit from the U.S. Government. Let us also assume that the market cap went up $500 Billion as a result. They now had $580 Billion on their balance sheet vs. a market cap of $800 Billion. Do you think it makes sense for them to sit on $580 Billion or return some of that to shareholders? Further, how should they do it? Again, of you are long the stock - and could sell it at anytime - you would clearly prefer a buyback to a dividend, for tax purposes. But regardless, you would just be happy with getting some of the cash returned to you. Well, the preference would actually depend on how a person holds the shares. If they were in a ROTH, that would have different implications than if it was in a personal taxable account. Additionally, tax rates would have some influence on the preference of shareholders. I realize that this is getting pretty particular, but, they are real issues. Yes they are real issues. I don't deny it. And another big issue for the small shareholder would be the transaction cost. My point is just that buybacks are a return to the shareholder... if he chooses to reinvest in the stock then he does nothing. If he chooses to use the cash elsewhere, he sells. For the best example I can think of, Microsoft returned a big chunk in a well advertised tender offer -- that's one way a company can return cash at a price you can sell it at, where you're not left to guess at whether or not they are buying back, and what was the price paid. My father was actually holding some MSFT at the time that he had purchased at a higher price -- so better than a dividend where he would owe tax, he was able to sell at a loss and reduce his tax bill.

I'll just lay out an example. Let's say the company is a serial re-purchaser of it's own shares, irrespective of price or value. Let's say that every quarter they buy back 1% of their outstanding shares, and you (as a shareholder) read about this every quarter. So after getting the quarterly, you sell an offsetting amount of shares to bring your holdings back into balance and realize the cash distributed. Some quarters you'll sell near or above the price the company paid, some quarters you'll sell at a lower price. And you were the one telling me not to think on a short term basis? Harumph! Now, since you mentioned MSFT and DELL back in 2000, let's take a swing at that. Back in 2000, the dividends were taxed as regular income. So, for somebody with a cost basis of $50 in the 35% tax bracket, every $1 returned to shareholders via repurchase would be recovered on a tax-equivalent basis at a selling price of $32.50. Yes, so while you might not necessary sell at the same price the corporation paid, you have a lot of room to go down -- potentially all the way to $32.50. Other people with a higher cost basis would the added advantage of getting a tax loss, and some would be looking at a capital gain... but the capital gains rate was lower back then (relative to the dividend tax rate). So it depends on a few factors... dividend tax rates vs capital gains tax rates, and cost basis being an important one. But the serial repurchaser of shares will give their shareholders roughly equal chances to sell at lower or higher valuations over time. Like you said, don't think short-term about this. I'm not saying they are good either. I'm just saying it's not really much different from paying a dividend, provided you sell some of your shares to offset your increased ownership. I'll be the last one to bitch and moan if the company is willing to buy my shares for a high price. Like... that's probably the least of my complaints about management!!! Would somebody (anybody) please pay me at least full value? I really don't mind who it is.

The math lays it out pretty damn clear: a buyback at any price is equal to a dividend at any price -- as long as the shareholders sell an offsetting amount of their holdings. In other words, it's a tax efficient pass-through of the cash. The shareholders are the seller, the corporation is the buyer. No value is destroyed, only returned to shareholders. Run the math. If you ever find yourself bitching at management for directing the corporation to buy back stock at an "inefficient" price, ask yourself why you aren't selling to them.

No I haven't. However, you bring up a good point: I have in effect been raising my Vitamin D intake over the past year as I've switched from deli meats to sardines on my daily lunch: http://www.npr.org/templates/story/story.php?storyId=111509588

Here is a good link for the thinking man once you are finished with the horrors of what the sugar and refined carbohydrates did to you: http://themedicalbiochemistrypage.org/lipid-synthesis.html It's not just the hamburger bun and 32 oz Coke that is hurting your health. I hinted at that earlier in this thread when I pointed out that grass fed beef has a ratio of 2:1 omega-6 to omega-3, whereas grain fed beef (which is what you get at McDonalds) has a ratio of 14:1 -- oh, and it's not just the beef. Grass fed (pastured) dairy has the same advantages over feed lot dairy -- so it's also the cheese you eat at the fast food restaurant and the milk you drink from fast food restaurant that compound your health problems. If you wish to get interested in the evolutionary diet, which ratio do you think we evolved to thrive on? Did we hunt and milk feed-lot animals? By the way, it isn't the quantity you eat of omega-3, it's just the ratio that you intake of omega-6 to omega-3 -- the body will substitute one for the other if you are deficient... and that's when your body & mind start to malfunction. It's a bit unfortunate that the Good Calories Bad Calories book doesn't touch on this. He just talks about "fat", and suggests that fat intake isn't the problem. This might lead you to forget everything bad you've ever heard about fat (if you think weight gain is the only risk to heart disease). I think that would be a mistake Here is a link that you might find interesting: http://en.wikipedia.org/wiki/Omega-6_fatty_acid It's one thing to get thin... I suppose he is tackling one problem at a time. Personally, I already had little problem with weight (I generally don't like sweet foods so I already drink my coffee black and skip dessert). But like I said earlier I was very prone to getting depressed after I moved up north from California to Seattle. This is the first season where the weather and light have gone unnoticed to me, and I don't feel the effects at all -- but then this is the first year that I've switched to a diet high in omega 3 rich meats and paying attention to reduction of foods that are high in omega 6 yet low in omega 3... trying to get the balance down to the evolutionary level where the range is likely 2:1 through 4:1 (it's somewhere in that ballpark). So here is the deal... you might think that eating salmon once or twice a week is going to boost your omega 3 in your diet and therefore take care of things... but if you go and eat french fries (vegetable oil is high in omega-6 and low in omega-3) and a hamburger patty you are rolling back the benefit of the salmon meal. Excerpt from the first link: It is important to denote that when discussing omega-3 fatty acids, their dietary origin is quite important. Omega-3 fats from plants, such as those in flax seed oil, are enriched in ALA. As indicated above, ALA must first be converted to EPA (requiring three independent reactions) and then to DHA (requiring and additional four reactions). Omega-3 fats from fish are enriched in EPA and DHA and thus do not need to undergo the complex conversion steps required of ALA. In addition, the conversion of ALA to EPA and DHA is inefficient in individuals consuming a typical Western diet rich in animal fats. When omega-3 and omega-6 fatty acids are consumed they are incorporated into cell membranes in all tissues of the body. Because of this fact, dietary changes in the composition of PUFAs can have profound effects on a cell's function because the membrane lipids serve as a source of precursors for the synthesis of important signaling molecules involved in cell growth and development as well as modulation of inflammation. Another important consequence of dietary alteration in fatty acid composition is the fact that omega-3 and omega-6 PUFAs compete for incorporation into cell membranes. The most important omega-6 PUFA is arachidonic acid. When cells are stimulated by a variety of external stimuli, arachidonic acid is released from cell membranes through the action of phospholipase A2 (PLA2). The released arachidonate then serves as the precursor for the synthesis of the biologically active eicosanoids, the prostaglandins (PGs), thromboxanes (TXs), and leukotrienes. (LTs) The arachidonate-derived eicosanoids function in diverse biological phenomena such as platelet and leukocyte activation, signaling of pain, induction of bronchoconstriction, and regulation of gastric secretions. These activities are targets of numerous pharmacological agents such as the non-steroidal anti-inflammatory drugs (NSAIDs), COX-2 inhibitors, and leukotriene antagonists. Dietary omega-3 PUFAs compete with the inflammatory, pyretic (fever), and pain promoting properties imparted by omega-6 PUFAs because they displace arachidonic acid from cell membranes. In addition, omega-3 PUFAs compete with the enzymes that convert arachidonic acid into the biological eicosnaoids (PGs, TXs, and LTs). The net effect of increasing dietary consumption of omega-3 PUFAs, relative to omega-6 PUFAs, is to decrease the potential for monocytes, neutrophils, and eosinophils (i.e. leukocytes) to synthesize potent mediators of inflammation and to reduce the ability of platelets to release TXA2, a potent stimulator of the coagulation process. Probably the most important role of the omega-3 PUFAs, EPA and DHA, is that they serve as the precursors for potent anti-inflammatory lipids called resolvins (Rvs) and protectins (PDs). The Rvs exert their anti-inflammatory actions by promoting the resolution of the inflammatory cycle, hence the derivation of their names as resolvins. The resolvins are synthesized either from EPA or DHA. The D series resolvins are derived from DHA and the E series from EPA. An additional anti-inflammatory lipid derived from DHA is protectin D1 (PD1). The E series resolvins reduce inflammation, regulate PMN infiltration by blocking transendothelial migration, reduce dendritic cell function (dendritic cells are potent antigen presenting cells which prime T cell mediated inflammatory responses), regulate IL-12 production and lead to resolution of the inflammatory responses. More information on the synthesis and actions of the Rvs and PDs can be found in the Aspirin page. The omega-3 fatty acids DHA and EPA have also been shown to be important for normal brain development and function. Several studies have demonstrated that DHA is essential for proper development of the prenatal and postnatal central nervous system. The benefits of EPA appear to be in its effects on behavior and mood. In clinical studies with DHA and EPA there has been good data demonstrating benefit in treating attention deficit hyperactivity disorder (ADHD), autism, dyspraxia (motor skills disorder), dyslexia, and aggression. In patients with affective disorders consumption of DHA and EPA has confirmed benefits in major depressive disorder and bipolar disorder. In addition, some studies have demonstrated promising results in treatment of schizophrenia with some minor benefits in patients with borderline personality disorder. Of significance to these effects of EPA and DHA on cognition, mood and behavior is the fact that administration of omega-3 fatty acid containing phospholipids (such as those present in Krill oils) are significantly better than omega-3 containing triacylglycerides such as those that predominate in fish oils.

Is this similar to the fire that didn't kill the people at the theater, rather it was the crush of people clamoring for the exit? Why is it that I haven't yet been crushed while leaving a theater -- is it because I haven't yet been in one that is on fire? You're right, it makes no sense. He is perhaps expecting a lot of loan growth -- that's all one can come up with to defend Bruce.

1.5% would get you to Bruce's $1 -- Pandit has been saying 1.25% - 1.5% (he said it again today on the conference call). I think the optimism around higher than historical ROA is based on a return to a lower cost funding strategy (leaning more on deposits). They effectively (pre crisis) used high cost debt to buy high yield assets. The Citi Holdings split moves them away from that (liquidating non-core assets for reducing debt as it matures). In doing so the risk of the blowup that you speak of every 10 years is also reduced. Most of their pain came from that risky strategy. And they had concentrated US consumer exposure, which they will no longer have -- geographic diversification ought to help. Anyhow I got into the stock at $3.30 12 months ago, and it's not the same value proposition any longer (that's not all bad news for me though). Interestingly (I only recently realized this), if you had bought the stock at book value 10 years ago (which you couldn't have) you would have actually made a little bit of money even if you are still holding it (counting dividends). Of course, it was trading at 2x book in 2000 -- but today it isn't. I'm just saying that even if the next 10 years look just like the last 10, you won't lose any of your capital (but not making much money is quite painful isn't it?).

Berkowitz' estimate is $1 per share.

I think you can throw in foods with an unnaturally high omega 6 to omega 3 component. For example, grain-fed beef and farm-raised tilapia fish. Farm raised tilapia fish worse than bacon: http://www.wkyc.com/news/health/health_article.aspx?storyid=92741&catid=7 Regarding beef -- this is interesting: http://www.eatwild.com/healthbenefits.htm You've got to scroll down that link to see the sub-section under the heading “Omega-6 is like a fat producing bomb...” Look at those mice! Meat and dairy products from animals fed a high-grain diet, which is the typical feedlot diet, have up to ten times more omega-6s than products from animals raised on their natural diet of pasture. This study suggests that if we switch to food with a healthy balance of omega-6 and omega-3 fatty acids, we will be leaner and healthier, and so will our children, grandchildren, and great grandchildren. Personally, I've noticed a huge difference in my emotional health since I've switched to a diet high in omega 3 -- it is fortunate that I enjoy eating sardines (my wife hates them). This is the first year that I'm not suffering from seasonal affective disorder since I moved to the Seattle area from California in 1997. From that link above: Tilapia has higher levels of potentially detrimental, long-chain, omega-6 fatty acids than 80-percent-lean hamburger, doughnuts and even pork bacon," write the Wake Forest researchers in an article published this month in the Journal of the American Dietetic Association. In the United States, tilapia has shown the biggest gains in popularity among seafood, and this trend is expected to continue as consumption is projected to increase from 1.5 million tons in 2003 to 2.5 million tons by 2010, the researchers said.

BTW, I've lost 18lbs in the last two weeks --Eric You must be losing a lot of fluid? Are you bleeding? Fat has about 3,500 (working from memory) calories per pound. In 14 days, you haven't lost 18 lbs of fat.

Junk food is one of those markets where the sellers privatize the profits and socialize the costs.

I'm about to go back to Sydney for a month (leaving Feb 13th). The past few years I've been going to Sydney for a month, but the past two years especially that I've done this trip I have noticed that it's a vacation from the Depression -- you leave North America, then 14 hrs later you are walking off the plane and it's not only the middle of summer, but it's 2006 again! The mood of everyone around you absolutely makes an impact on how you feel. Economically, I am doing great but living in North America I feel like times are bad -- but that's because everybody else is uneasy and I get dragged down by it. But just hop on a jet and you're in Australia where times are booming and unemployment is low -- it's amazing how your own happiness depends on the success and happiness of everyone else.

I got rid of my Blackberry this summer for an IPhone. I hated the Blackberry so much that I switched from Verizon to AT&T (the only IPhone provider). I wanted a better browser -- that was the core reason. Of course, I love the integrated IPod on the IPhone too (with Bluetooth I just play music on my new Pioneer Elite streamed from my IPhone).

If a company refuses to answer a question on those grounds it's fairly lame. Never heard of a FAQ?

Me too.

I thank you very much for the gift horse, and I hate to look it in the mouth, but I didn't understand the reasoning behind the counter-party risk. Somebody could always tear up the lease after the ship has been unloaded, or can tear up the lease on the new-builds that are not yet delivered. Anyhow, an academic point that isn't terribly important the way things have worked out (so far). Or maybe I didn't understand the maritime laws governing non-payment -- is it on a per-ship basis only (allowing them to break lease after ship is unloaded) or can you seize any cargo from any of the ships (making it difficult to coordinate their ships all being unloaded at the time of lease being broken)? Incidentally, my grandfather's grandfather (my great-great-grandfather I think) had all of his ships (about 13 I believe) sunk in the Crimean War. Family legend has it that he was (in his late 20s or early 30s I think) on his way to being a shipping tycoon. I think I have better luck but we'll see.

This isn't always true. The cost of being synthetically short versus being synthetically long is sometimes affected by the borrowing costs of a security (when it is heavily shorted). Take SHLD a year ago for example -- you could write a put at-the-money and with the proceeds you could buy two calls at-the-money. Totally out of whack. Write a put for 1x downside and buy a call for 2x upside. This exact scenario was brought to the attention of this board at the time. The world is full of surprises I suppose.

I had 25-30% in 2010. I can't work it out because I'm on the lamest internet speed ever devised in modern times (satellite). The "Disney Magic" ship charges you on time instead of volume downloaded -- for a reason! The Bahamas are nice. I think this is where Tempelton lived? Feels like summer. My 2011 gains (3 days worth) are 8.79% (I'm using SmartMoney.com to track my gains from now on so there is no error from withdrawals). It kind of feels like a blow off top in terms of the speed at which things are going up, but my gains are from C, BAC, and SSW -- none of them are expensive. So I will hold and ride out the ups and downs. Hopefully more ups.