Liberty

Sorry if already posted elsewhere, but here's a feature in Variety: https://variety.com/2016/tv/features/john-malone-liberty-media-charter-communications-1201729414/

The problem wasn't just the overvaluation, it was the whole structure of the market; classifying crap as triple A, creating derivatives on these to compound the risk, nobody holding on to what they underwrote, so standards went down a lot because everybody just dumped the risk on someone else, high leverage everywhere making everything more brittle, implicit government support, socially acepted liar's loans, etc

People keep talking about Ackman and Pershing losing their shirts in this, but I think the real scandal is the Sequoia Fund's involvement. With a hedge fund like Pershing Square who have a track record in what you'd regard as fairly risky investments, you expect high volatility given how close he flies to the sun at times. Sequoia on the other hand have nearly 50 years of a track record of safe, reliable, steady investing in quality with high diversification. Last year, despite the warnings from Buffett and non-executive directors, they loaded 32% of their fund with this train wreck and now they've been crushed. The reputation of the firm, that has taken decades to build up has probably been irreparably damaged in less than a year. Not to mention that hedge fund investors tend to be wealthy individuals and institutions (though some pension funds do invest the small guy's money, but they diversify a lot). Mutual fund investors probably aren't nearly as well endowed in the wallet region, on average.

What do you mean? Why does it have to be explained any more than the fact that people were willing to bid things up in any other bubble (Nortel shares, Las Vegas houses, tulip bulbs, whatever). Nobody's saying that the market isn't hot or that there isn't real demand. The problem is that people are overpaying and many people who probably shouldn't be buying are buying because of FOMO/now-or-never/social pressure/cashback mortgages/family giving them a downpayment/the belief that nowhere else is worth putting money into/whatever.

Good stuff, thanks.

Who said it was easy?

They are self funding. But they don't throw off excess cash. True economic profit is after the capital required to support the business. It's a dial that can be turned up or down. If they stopped investing as much in growth and just did maintenance + some more modest growth capex, I'm pretty sure that they wouldn't be breaking even anymore but would have a surplus. The problem is that this is very hard to prove, because as I said, we don't have visibility into all the P&L centers inside Amazon. Hard to know what kind of ROIC they're getting over the long term. The company will be controversial with investors as long as they maintain this model.

Amazon's playbook is: Use their own e-commerce scale to bootstrap something, then open up the platform to third parties, then operate at a loss or break-even for a while to get maximum growth, and once enough scale has been reached and/or competitors are out of business, start making a profit (and use it to finance another startup elsewhere in the company). So right now, the distribution business might get financed by profits from AWS and e-commerce, and Amazon can operate it at low, or negative margins for a long time, something that UPS and Fedex won't do, so they might take market share (and if UPS and Fedex lose scale, that makes them even less able to compete, and they don't have another cash cow like AWS to finance themselves). Come on... It's more likely that UPS will become the dominant retailer than it is that AMZN beats UPS at logistics. UPS doesn't need to operate at negative margins to destroy AMZN in logistics. At break even, AMZN would have to operate with negative 15% operating margins for years just for customers to maybe be indifferent between the two. And even if AMZN, by some miracle, is able to displace and become the new UPS, UPS' enterprise value is $100bn. So if that's the end game, congrats, you paid $250bn to one day in the distant future own what is today a $100bn company. Amazon is already a logistics company. They just keep expanding what they do year after year, little by little. They're not going after everything UPS does right away, but it's definitely something they're looking at. Tell someone in 2006 that some online book and CD seller would be the main internet infrastructure company in ten years and it would've sounded pretty far-fetched too.

Amazon's playbook is: Use their own e-commerce scale to bootstrap something, then open up the platform to third parties, then operate at a loss or break-even for a while to get maximum growth, and once enough scale has been reached and/or competitors are out of business, start making a profit (and use it to finance another startup elsewhere in the company). So right now, the distribution business might get financed by profits from AWS and e-commerce, and Amazon can operate it at low, or negative margins for a long time, something that UPS and Fedex won't do, so they might take market share (and if UPS and Fedex lose scale, that makes them even less able to compete, and they don't have another cash cow like AWS to finance themselves). Financed by profits from AWS and e-commerce....but there are no profits from those (or at least no real cash flow after investing costs). There are, they're just being reinvested in growth. Amazon should be looked at as a collection of businesses, some are mature and profitable, and some are startups that aren't profitable yet. The latter are financed by the latter, with the aim of mostly breaking even on the net. It's a sound model, but it makes it very hard to value the business as a whole or understand what is going on under the consolidated numbers. I've always liked Amazon's model (except when they tried to build a premium smartphone -- not playing to their strengths), but I've always had trouble valuing it...

For those not familiar, this is what many people do to get around the 5% downpayment rule. On TD's website:

Amazon's playbook is: Use their own e-commerce scale to bootstrap something, then open up the platform to third parties, then operate at a loss or break-even for a while to get maximum growth, and once enough scale has been reached and/or competitors are out of business, start making a profit (and use it to finance another startup elsewhere in the company). So right now, the distribution business might get financed by profits from AWS and e-commerce, and Amazon can operate it at low, or negative margins for a long time, something that UPS and Fedex won't do, so they might take market share (and if UPS and Fedex lose scale, that makes them even less able to compete, and they don't have another cash cow like AWS to finance themselves).

Where are you? Are you comparing buying & renting an equivalent house? But you are right, there are definitely other considerations (pros and cons) to renting and buying that can pull things in one direction or the other.

Indeed. What they forget is that with upside potential comes downside potential (and since a lot of people are super-levered in their houses, a drop of 5-10% can wipe out many people's equity, and more than that can drag them underwater). And if I build up equity outside of the place where I live, I can invest it, and there is upside (and downside) there too. It's not like the only alternative to putting money in a house is putting it under a mattress.

Both of these are true where I live as well. I hear both arguments a lot. Here houses are primarily overvalued due to taxation rules by the government (you can subtract mortgage payment from income taxes) but that will change eventually. No way I'll buy a house for these ridiculous prices. I'll start to slowly consider it after the prices drop by at least 50% from here (which I doubt they will). Another thing that most people don't realize: If you have a huge mortgage, you are renting, even if you don't realize it. Rather than renting a house or an apartment, you are renting a big pile of money from the bank, which you then turned around and bought house with. If the cost of paying interests on that pile of money plus maintenance and taxes (all the thing you don't pay as a renter) are higher than the rent on the equivalent property, why buy it? By saving the difference (and more) I can build equity faster, with less hassle, and if I wait for a less overheated market to buy, I can save on that side too (and all the saved interest over time).

10 years of AWS: http://perspectives.mvdirona.com/2016/03/a-decade-of-innovation/

I think two big factors encourage canadians to put everything they have in real estate. During the 2000s, they've been burned many times by the stock market. GICs and savings accounts aren't attractive either because of the low interest rates. On the other hand, houses have been going up fast as far as anyone can remember (which isn't very far), and it doesn't cost much to get into a very expensive house (a few years ago you could do 0% down and amortize over 40 years, now it's mostly 5% down and 25 years, but you also have tons of lease-to-own schemes and cashback mortgages which mean pretty much 0% down). And since people buy houses like they buy cars - they look at the monthly payment and if they can afford it things are fine - the absolute amount of debt is rarely considered (how many hours, after tax, must the average wage slave work to pay down an average mortage + interests over 25 years at the average interest rate over those 25 years?). It's basically a momentum strategy. People are piling on the thing that has been going up and getting out of the things that have been going down. There's a lot of social pressure to buy, and renting is basically seen as a failure and "wasting money". I also think that, perversely, what happened in the US reinforced the bubble here because when things didn't go down much, it cemented in most people's minds that Canada was immune. Americans, who had the bargains of a lifetime in RE recently, weren't buying because they had a very fresh memory of a painful event. All of this probably helps explain why the saving rate is just 4% (US is 30% higher at 5.25%, iirc -- that's pretty damn low too, but 4% is really really low. A high-earning $100k/year household could maybe buy a Camry after saving for 5-6 years...). All the reasons used now to explain why Canadian RE is different and solid sound to me like "halo effect" artefacts. Just like a company doing well is said to have good management, a good strategy, good products, etc, and as soon as it starts to go wrong then it has bad management, bad strategy, etc, I expect that when things go wrong suddenly Canada will become a country with crappy weather, where it gets dark at 4 PM for half of the year, a moribund economy, too much dependency on commodities, big structural issues at the provincial level, high taxes, crumbling infrastructure, etc.

I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation. You don't agree that the US was in a housing bubble in 2007 and that Canada is now way way higher than that point? Other indicators are also pretty high, like the 165% debt-to-income level, rents-to-buying ratios, inflation has been low and house prices usually track inflation, etc. Liberty I agree that Canada's housing market - especially in Vancouver , where I am, has gone nuts and a correction is overdue. However, I do not believe we have the same issue as that of the US bubble experience in 2007 /08 though -- I guess it depends how you define "same", but in broad strokes, Canadians are paying more than they can afford for housing, and that will stop at some point. Sentiment will change. If you look at the charts I posted, there was a correction in the early 1990s and it took until the middle 2000s to get back to the previous high in real terms, but everybody in the country has already forgotten that these things can happen.

I'd argue that your endpoint for the U.S. is skewing the data. The housing market in the U.S. is not functioning properly. So you can say that Canada is overvalued, relative to the U.S. But it might be more accurate to say the U.S. is undervalued, relative to Canada. Both are probably true but using the U.S. as your measuring stick exaggerates the overvaluation. You don't agree that the US was in a housing bubble in 2007 and that Canada is now way way higher than that point? Other indicators are also pretty high, like the 165% debt-to-income level, rents-to-buying ratios, inflation has been low and house prices usually track inflation, etc.

Not being the worst in the world is hardly a great consolation. I probably wouldn't buy RE in these markets either unless renting is even more overpriced (which it isn't where I am). Canada and the US are neighbours with very interlinked economies and have traditionally more or less tracked each other.

So A does not equal B. I don't see anything interesting so far. Where is the analysis? Can you arbitrage? Economists call housing nontradable goods for a reason. Just like I wouldn't pay $60k for a Toyota Corolla, I won't pay the multiples of replacement cost, rents, income, inflation, etc, that houses are going for in my area right now, so I'm happily renting until things are more rational. Also, I can judge sentiment by talking to people and reading, and it is not a healthy market to be a buyer in right now. There's bubble "can't lose/FOMO" mentality, though that's starting to soften around here (apparently not in GTA and Van, though). http://i.imgur.com/D21t9IJ.png http://i.imgur.com/K8ELThh.png http://i.imgur.com/i7WKdkR.png http://i.imgur.com/qVwu5Vy.png

Good explanation, Rishi. This is indeed an extremely impressive achievment and a step change in AI's ability to play the game, which has taken most informed observers by surprised.

I assume MVNO is a commodity business since it is not that difficult to enter that business? (*It will vary depending on the regulatory environment in a particular country.) But if the spectrum and network owners are renting out their infrastructure, than the MVNOs are mostly buying a commodity and reselling+repackaging it. Obviously they have to be good at marketing and providing customer service. For cable companies, the MVNO business can be attractive to them since they already own infrastructure- a Wifi network. They can try to get their customers to use their Wifi router, which greatly expands their Wifi network. They can also add Wifi hotspots to their existing data network. The main benefit of a MVNO is reducing churn via triple and quad play. If you can get churn down, it can be very profitable to run a MVNO, and it also gives you a foot in the door if you ever decide to own your own wireless infrastructure.

Thought this was interesting. According to the Canadian Real Estate Association (not exactly a transparent organization, but still), the average house in Canada was $470k as of January 2016. http://www.crea.ca/housing-market-stats/national-average-price-map/ Van and Toronto are really driving it, though: http://www.cbc.ca/news/business/housing-crea-january-1.3449838 According to Statscan, the median household income in 2013 was $76k (or about $38k per person if you assume two earners). Median house price in the US seems to be around $185-215k depending on the source.

Prem Watsa in the recent Fairfax letter:

I thought it was interesting that the average new detached home in the US is about 400 square-feet larger than the average new detached house in Canada. Another thing to keep in mind when comparing prices. http://www.demographia.com/db-intlhouse.htm