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General Discussion / Re: Druckenmiller on CNBC
« Last post by Viking on Today at 03:38:05 PM »
Rb, I think Druckenmillerís concerns with interest rates and QE is they are creating bubbles in many asset classes (or at a minimum very inefficient distortions).

The best personal example I have is real estate pricing in Vancouver (clearly a bubble). People are blaming foreign buyers and calling for government help to allow young and low income people to buy which creates very poor public policy. My view is if you want to address housing affordability in Vancouver you need to start by normalizing interest rates (perhaps a 5 year fixed rate of 4 to 5%). Of course this cannot happen as it would crash the housing market and remove the only pillar of growth (for Canada). Crazy low interest rates are possibly creating the mother of all bubbles in many financial assets.

Until the ECB and Japan end QE and get rates normalized the party will continue; all the money they are injecting into the system will be put to use. However, it does look like we are coming to the end of the game (or at least this chapter) possibly in the next 24 months. While it has been fun on the way up, it likely will be very uncomfortable on the way down.
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Investment Ideas / Re: MKL - Markel Corp
« Last post by Partner24 on Today at 03:01:47 PM »
About Markel. I've red many shareholders letters over the years.

Steven Markel is more the introverted kind of guy, but very pragmatic and based on the return to shareholders. Tony Markel, on the other hand, seemed like a hands on down to earth kind of man. Than came Tom Gayner. More extroverted kind of guy. He has his North Pole idea and he likes his investment themes. Also the idea of not being redeemable to the shareholders over the short and mid terms. But it's been years now and his whisky does taste fairly good, but not as good as some migh been able to produce with permanent capital and patient shareholders likes he's blessed to have. So in my book, he is different with what you'll see with Steven Markel, Warren Buffett, Brian Joffe and the likes.

But still, as far as I know, Markel is still a good managed business. I hope that Tom will not let that very down to earth business management philosophy let go over time. Having 1% or 2% or 3% yearly advantage is terrific for easily redeemable capital. For permanent capital, it's ok at best.

Cheers!
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There are those who have rightly pointed out about duration matching. This is important.
There are others who have rightly pointed out callable/non-callable leverage should be determined by asset volatility. Also important.
Something similar could be said for the use of recourse/non-recourse debt.

Lastly, I think the correlation of the asset with the liability/leverage matters quite a bit. When do margin loans go bad? Typically when the market/name don't perform well. So what is appropriate use broker margin for? Shorting stocks, buying puts, buying long-duration bonds, etc. Items that would tend to do well in the environment that you'd expect to be called against. These would act as a natural hedge to the type of environment you'd expect margin calls to go bad in.

Something similar could be said about housing leverage. A mortgage is a short-position in interest rates. If you opt for the cheaper leverage in the form of a floating rate, when rates rise - the value of liability you're short rises AND the value of the asset held as collateral drops. A terrible situation for many in 2008 leaving many insolvent. A fixed rate mortgage may be more appropriate simply because it acts a natural counterweight to the asset volatility allowing for individuals to carry a significantly higher amount of debt more safely.
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General Discussion / Re: Cryptocurrencies
« Last post by Jurgis on Today at 01:51:02 PM »

  https://ftalphaville.ft.com/2017/12/07/2196526/what-happens-when-bitcoins-market-cap-overtakes-world-gdp/

  Interesting article on the FT to the effect that the market structure even with the advent of futures trading could see prices go a lot higher.

Why world gdp? I'm sure the interstellar object that just visited us was here to buy bitcoin for Vegans. After all there's only 21mln bitcoins available IN THE WHOLE GALAXY (actually in the whole UNIVERSE!)! Buy them before aliens show up and slurp up all the liquidity!
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Investment Ideas / Re: MKL - Markel Corp
« Last post by TBW on Today at 01:28:02 PM »
I sold my MKL a couple months back after holding for years.  The premium to book felt too high to me as well, relative to future available returns.  Also, it should be said that recent combined ratio's are quite poor.

While nothing I said there was anything new, here is a point I would like to make.  MKL has been a huge beneficiary of the twin effect of lower rates and higher stocks.  My concern with MKL is what happens if the world changes to one of higher rates and lower equities?  That is the scenario where things get ugly and the one I try to think about.

Hard to know exactly how bad this would be for MKL.  I don't have my notes in front of me, but I recall seeing MKL take a large hit to equity in the range of 25 to 35% in a very bad scenario.  Not fatal by any stretch, but that would be painful for an investor at these valuation levels.
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In countries where taxes are high, and especially have capital gains taxes, I imagine leverage equal to the tax hit would make sense, say 25% or 30%. There are ,of courses, countries of residence that neither tax capital nor in some cases many types of income and there I would feel leverage is less necessary.
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General Discussion / Re: Bitcoin-too late to the party?
« Last post by JimBowerman on Today at 01:01:27 PM »
Donít disagree with you on the store of value calculation though Iíd be curious why you think bitcoin canít eventually become a currency?

Bitcoin can't even process 10 transactions per second.  (In contrast, Visa has processed 47,000 transactions per second.)  To actually do a transaction, it costs $6-20.

If the network can't handle people purchasing stuff with bitcoin, and people get charged huge amounts to actually make a purchase, it seems unlikely to ever be a currency.

Have to skate to where the puck is going on this one.  Lightening network and/or sharding, etc make 100k tx/s fairly easy.  We are a long way from bitcoin being needed to buy a cup of coffee.  But technically itís not a big problem
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Should we consider 4560 dead? It needs 60 votes in senate and was voted along party lines in the committee. I don't trust Corker as he initiated Jumpstart in the first place. After so many public appearances, touting his allegiance to the nation and so much talk about deficit, he is voting yes as he knows tax bill will pass without him. His moment to vote was when bill passed the senate last time.  Probably siting alone on the lunch table, made him realize that he has no support for any of his bills to kill GSE's and hand it over to banks. He can't be trusted, so 4560 is something to keep an eye on and i read that folks continue to contact congressman and senators to vote NO on it. He may try to sneak it into an obscure bill.
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General Discussion / Re: Bitcoin-too late to the party?
« Last post by RichardGibbons on Today at 11:29:16 AM »
Donít disagree with you on the store of value calculation though Iíd be curious why you think bitcoin canít eventually become a currency?

Bitcoin can't even process 10 transactions per second.  (In contrast, Visa has processed 47,000 transactions per second.)  To actually do a transaction, it costs $6-20.

If the network can't handle people purchasing stuff with bitcoin, and people get charged huge amounts to actually make a purchase, it seems unlikely to ever be a currency.
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