ERICOPOLY

No, using today's earnings levels the market is not high at all. 15x forward earnings is completely normal. It's not 30%-50% overvalued unless you consider/believe that margins are abnormally high today.

Tesla is quite likely overvalued, but I found this pretty misleading: Tesla Motors, for example, sold 22,477 cars in 2013 but commands a market cap of $31 billion, while Fiat, which we like, sold 4.4 million cars but has a market cap of only $14 billion. Porsche of course sold for more than $20billion in 2012, and produced less than 140,000 cars at the time. Compare that to Fiat which sells roughly 32x more cars and yet is valued quite a bit less than VW paid for Porsche. Had they instead compared Porsche to Fiat in the same manner, would it not have made it sound as though Porsche was wildly overvalued in 2012? Yet they still found a private buyer. And yes, Tesla sells less than Porsche and is more highly valued. I'm just saying that their wording makes it sound all that more overvalued by comparing Tesla to Fiat, instead of comparing Tesla to Porsche. No need to exaggerate the optics with distorted comparisons.

How many people have left the farms in the US over that period of time seeking jobs in the city? I don't dispute that China has been building excess capacity, but I find it hard to compare China to the US due to the demographic migration of Chinese to cities from farms. Having said that, I don't know if that effect was already fully completed by 2008 or if the migration is still ongoing. And yes things can be overdone even if there was significant ongoing migration -- but it matters how long the excess capacity will remain truly excess... meaning how long will it take for that space to get filled if people are still migrating.

30% overvalued means 23% decline back to fair value. 50% overvalued means 33% decline back to fair value. However if you can expect a 7% return if you were to purchase the index for fair value, then over the course of one year going forward you can expect the following range of losses: 17.7% loss over one year if market is 30% overvalued today and it declines to fair value (and you make 7% return on fair value) 28.7% loss over one year if market is 50% overvalued today and it declines to fair value (and you make 7% return on fair value) So you would be expecting a loss of somewhere between 17.7% to 28.7% over the course of the next year if the markets are 30% to 50% overvalued today and they merely decline to fair value. It's interesting to calculate this out -- 30%-50% sounds a lot scarier than 17.7% to 28.7%. But I think I got the math right.

It distresses me to pay taxes when there is no gain.

Take a US multinational company that exports to Europe, China, and other emerging markets. They will lose sales and profits will fall. Their record margins will contract. So the index will fall. However as IBM's sales suffer, their profits suffer directly. But they are still able to pay their bank loans. Being a relatively less profitable exporter doesn't mean you can't still go on paying interest on your loans.

How much lending has US Bancorp done to borrowers in China? I agree that markets will go down, but remember... it was hedged against the market. So what's the point of selling? The market might unwind back to 2010 level, but these banks very well might not -- there is all that retained earnings since then.

They closed out JNJ. For last 4 years, it has been hedged against offsetting Russell 2000. The offsetting hedge was closed out when JNJ was sold. How did that paired investment do since 2010? JNJ +45.3% Russell 2000: +76% It is less bad than this because of dividends, but I think JNJ did not beat the index. WFC is up 61.83%. Again, it was a loss versus the index. Perhaps not much of a loss with dividends. USB is up 64.28%. A loss versus the index. Dividends would have made it close. Basically, no gains were made here since they began to hedge them in 2010. Interesting though, I would think the gains were largely due to earnings. Wells Fargo and USB have earned a lot of money over the last four years. Both companies have grown their per-share earnings by quite a bit. Put it this way, Wells Fargo is only up 61.83% versus 4 years ago. Is that really a reason to sell today? The stock was trading around a P/E of 10 4 years ago. A significant amount of that gain was in the form of retained earnings. The company is safer than 4 years ago, better loan portfolio, healthier borrowers, more capital. Stronger per-share earnings, and we're closer to the end of deleveraging. Yet they sell it anyhow for no gain over that period (erased by the loss they booked on the hedge).

I see it as a weak bet because if the markets go down their gains from the hedges will be largely offset by their losses on their equities. They had some concentrated investments that would have been difficult to unload in a hurry. They also had significant capital gains tax consequences to face. Both problems are avoided by hedging against the index. Besides that, holding cash wouldn't have avoided the opportunity costs -- so it would be no real advantage versus where they stand today. The losses are offset by the gains on the equities they hold. Cash is no better.

I didn't realize he was merchandizing. Where can I get a little Mohnish action figure?

They are concerned about the high stock market, so they sell things like Wells Fargo that aren't that high?

I see the IRAs with the pre-tax contributions as effectively a private/public partnership. The tax bill has not been forgiven. Rather, the Treasury is entrusting you to compound that tax bill at the rate you compound your account. Should you be very successful (the kind of success I've seen for example) you will be stuck drawing out your funds at the top tax rate (another way they benefit). Should you do poorly, perhaps you draw it out at a lower tax rate. It seems most likely that you will grow the tax liability at a rate faster than the Treasury's interest costs (given that they are financing the partnership with deficit).

I have done a few things over the past couple of weeks. I have dumped some of the BAC puts, and purchased a variety of 2016 BAC puts in $17, $15, and $12 strikes. 1) Previously I had written some JPM and C puts. I bought them back in and purchased the underlying common stock in both names instead. I then purchased at-the-money puts in both names. As part of that same trade I wrote an offsetting amount (on a notional basis) of Jan 2015 BAC $17 strike calls for $1.40 (break-even stock price of $18.40). This was a means of switching some money to JPM and C while hedging out the BAC so I'm not adding additional downside. A price of $18.40 to get out of BAC in order to switch to present values of JPM and C seemed like a great deal. I got the C for $47.07 average cost and JPM for $55.61 average cost. So buying C and JPM at those prices in exchange for BAC at $18.50 -- I think that added value. One of the best parts is that if BAC, JPM, C rally by a lot and those calls happen get bought back for a big loss, I can then write an offsetting amount of calls on JPM and C (to pay for the cost of buying back the BAC calls). Meanwhile, I can book the tax loss on the BAC calls. I just need to be careful of wash sales and constructive sale rules. But I think I can be careful. The low SHLD price motivated me to write more puts on SHLD to finance the longer-term (2016) BAC puts.

Perhaps management could come up with a provision to adjust the strike price of employee options to capture ordinary dividends paid. I feel like they would probably do something like that if you got your wishes to have no buybacks. Were you instead to just wish for no stock options awarded to management, it would solve all of the problems wouldn't it? Then we could still have tax-advantaged buybacks with no drawbacks.

HELOC might be a cheap interest rate, but it is usually if not always a full recourse loan. Non-recourse leverage is best.

A part of me today feels like Congress has the CCAR results in their hands.

How much gold does Munger have exposure to in order to hedge against the central planning that worries Klarman? (rhetorical question)

So the point is that he isn't selling what he bought in 2009.

How much cash is he holding at DJCO today?

It doesn't limit the combined balances. It just limits your ability to contribute more funds to the accounts after the combined value hits the threshold. This is more specific wording compared to last years' proposal where he seemingly talked about limiting the balances. However, even with his new proposal it appears you can still contribute limitless amounts to variable annuities. In that regard his new proposal still makes absolutely no sense. He should just limit pre-tax contributions if that's what he's really after.

Update from his 2015 budget proposal. Obama doesn't seem intent to make me withdraw anything, but rather to limit me from contributing anything further. Oh, and by the way... that means you can't contribute anything if you are 40 and your accounts amount to $1m in total! http://money.cnn.com/2014/03/04/pf/taxes/obama-budget-taxes/index.html?iid=HP_LN Limit savers' combined balance across tax-preferred accounts: The president wants to prohibit contributions to tax-advantaged retirement accounts once a person's combined balance exceeds a certain level. Such accounts include IRAs and 401(k)s. The cap on the combined balance would be based on a saver's age and would vary over time based on factors such as inflation and interest rates. It also would be determined by what it takes to buy a "maximum benefit" annuity at age 62, with a 100% survivor benefit for one's spouse. In 2013, a maximum benefit annuity would have provided $205,000 a year. Last year, for instance, the cap would have been $3.4 million for someone who was 62, but just $1 million for someone who was 40, according to a Tax Policy Center report.

I would get worried if an economist argued that debt can be expanded without limits and we shouldn't worry that it would have any disastrous consequence. Similarly, I get worried when people argue that we don't need to worry about limitless release of greenhouse gas without consequence. In both cases, like you said, there are multiple variables. But even in the presence of a complex system, I believe there are things that we are doing that are bound to make things worse if nothing else.

It isn't saying you can buy more. It's a measure I believe of whether you have enough equity remaining to support your borrowing. This has to be measured somehow so they can communicate to you how increasingly fucked you are getting as the prices of your stocks decline.

I believe Excess Liquidity is a product of the house rule thing. Whereas SMA is the Fed rule thing. So Excess Liquidity doesn't go to zero simply because SMA has.

My amateur understanding is "No". There are Fed margin rules and house margin rules. The Fed rules prevent you from making a purchase with more than 2:1 margin. The house rules allow your leverage to go higher -- that way if you initially start with 2:1 margin at the instant of purchase, if the price of the assets starts to drop your leverage can go higher (under the house rules). That's why they explain it in a way that suggests you can make an additional $2,000 purchase under SMA margin if the assets appreciate by $2,000. The SMA doesn't go negative -- it's either a positive number, or it's zero. Again, this is not professional advice.