From Whitney Tilson’s email to investors – presented without comment.
In response to my last email, in which I shared my macro views, a friend suggested that this was very un-Buffett-like of me. My reply:
You don’t think Buffett had a macro view when he invested $5B in Goldman Sachs at the depths of the financial crisis? Of course he did – he knew if the U.S. government didn’t bail out the financial system, every financial institution was going under, including Berkshire – he’s said so.
You don’t think Buffett had a view that the U.S. economy would recover and drive strong earnings growth when he paid 18x current year earnings for Burlington Northern?
In general, over his entire career, Buffett has been counter-cyclical: he’s tended to be a net seller when the market is soaring (most notably when he actually shut down the Buffett Partnership) and a big buyer during times of distress (like 2008).
One could say that this was simply him responding to prices – but I think it’s also his general macro view of when to be aggressive and when to be cautious, as captured by his famous quote: “Be fearful when others are greedy and greedy when others are fearful.”
He’s had a macro view every day of his investing life.
The question is: how does one use that view and apply it to one’s investments and building a portfolio?
2) Speaking of macro views, here’s an alternative (and I think correct) way to measure how expensive U.S. stocks are (rather than Shiller’s):
A popular valuation metric pioneered by Nobel Prize-winning economist Robert Shiller says that stocks are dangerously expensive. But it may be sending a false signal.
…Mr. Shiller uses S&P 500 earnings under generally accepted accounting principles, or GAAP. That is probably the best measure of earnings because it avoids many of the tricks that companies use to flatter their numbers. The problem is that GAAP isn’t a stable concept, and has been revised multiple times. In 1993, for example, banks were required to mark to market a greater portion of their holdings. In 2001, accounting rule makers changed the rules on goodwill. In both cases, Mr. Siegel says, the changes lowered GAAP earnings, even though there were no changes in the underlying businesses.
An alternative CAPE, constructed by The Wall Street Journal, uses the same methodology as Mr. Shiller, but relies on a more consistent earnings measure: The Commerce Department’s quarterly data on total U.S. after-tax corporate profits. Then for prices, it uses Federal Reserve data on the total value of the U.S. stocks, rather than the value of the S&P 500.
The result: Stocks look much cheaper than Mr. Shiller’s data suggests.
The Commerce Department profit figures are based on corporate tax and financial data. Unlike GAAP, they follow a consistent standard over the decades. So the corporate profits-based CAPE isn’t bedeviled by shifting standards as Mr. Shiller’s S&P-based CAPE is.
As of the end of the second quarter, according to the latest data available, the corporate-profits CAPE was at about 19—just above its 50-year average of around 17. By contrast, it was 39 at its peak during the tech bubble and 24 at the market’s peak in 2007.
3) Good to see Europe (maybe) coming to its senses:
As Europe has grappled with the trauma of a devastating financial and economic crisis, policy makers have consistently relied on one approach to managing the damage — budget austerity.
Shrink government spending by trimming pensions and cutting social programs, the logic runs, and the markets will gain confidence in the tough-minded people in charge. Confident markets make for happy markets. Money will pour in, and good times will roll.
Even as prosperity has remained painfully elusive across much of Europe, leaders have time and again renewed their faith in the virtues of this harsh medicine.
Some policy makers are flashing tentative signs that they may be prepared to slacken their grip on public coffers to spur growth and improve the lot of ordinary people suffering joblessness and diminished wealth. In the clearest sign of this shift, the heavily indebted Italy is increasingly inclined to challenge Germany — the guardian of austerity — to loosen European purse strings.
The development comes after Britain’s stunning vote to abandon the European Union, an angry rebuke of the economic elite within struggling communities, and as populist, anti-immigrant movements across the Continent gain traction.
Above all, the change could be an antidote to years of dogmatic European policies, replacing a failed effort to generate economic growth through cutting spending with a focus on bolstering investment.
4) I cannot believe that one of the co-owners of Platinum Partners, which is the subject of a federal investigation, is trying to pay out some of the first $80 million distributed to HIMSELF – the definition of “chutzpah” in the dictionary may need to be updated with this brazen move… Given that it’s highly questionable whether the assets (and returns) are what Platinum claims, he should get paid out LAST! Hopefully the regulators investigating Platinum will block this.
Hedge fund Platinum Partners plans to pay back around $80 million to investors in the coming months, less than 10% of what the firm owes in total, according to people familiar with the matter.
Platinum, whose practices are the subject of a federal investigation, as of this summer said it had $1.25 billion under management.
Its executives, as recently as this month, continued to tell investors they hope to return the entirety of that sum over time, though they haven’t said exactly when they will do so.
Bernard Fuchs, one of the firm’s co-owners, will likely be among those paid first, the people said. Mr. Fuchs, 70 years old, had requested last year to pull some of his money even as he encouraged other investors to stay put, the people said.
All sorts of interesting developments week regarding my favorite misogynistic, racist, xenophobic, hateful, mentally ill clown, madman, and grifter:
1) A former Republican staffer in Washington, John Stubbs, has drafted a letter (below) for “owners, CEOs and executives of American businesses” to sign, explaining why Donald Trump “would be bad for business, bad for the economy, and bad for the people who work for our companies, buy our products and services, and invest in our companies.”
I’m one of the initial signatories. If you’d like to add your name, please go to: www.trumpisbadforbusiness.org/#leaders-against-trump.
Below are two stories about it by the USA Today and AP – I’m quoted in the former:
Whitney Tilson, who manages the Kase Capital hedge fund and describes himself as a moderate Democrat who voted for Republicans down-ballot, said it’s worth it for him to speak out despite the risk of losing pro-Trump investors.
“I think the business community is very important, very influential. But I see too many business leaders, in my opinion, being cowardly. They know that Trump is a madman. They know that a President Trump would be terrible for their businesses and for their stock prices, and yet they’re not saying anything,” Tilson said.
2) Yesterday I received this email from Woody Johnson, owner of the Jets (a team I will now be boycotting), inviting me to a breakfast fundraiser with Trump and Pence this coming Friday in Manhattan:
From: Woody Johnson – Finance [mailto:email@example.com]
Sent: Friday, October 07, 2016 6:51 PM
Subject: 10.14 Breakfast with Trump and Pence
We hope you will join us.
Here is the reply I sent:
Given that we now know that Trump has no regard for other peoples’ marriages (or his own), can you assure me that if I bring my wife (who I think is very attractive), he won’t try to “f$#k” her, “move on her like a b#tch”, or “grab her by the p#$sy” because he thinks “when you’re a star they let you do it…you can do anything”?
The timing is really impeccable. I wonder if any of the 34 people whose names appear on the invitation – and are therefore endorsing Trump, giving and raising large sums for him, and publicly associating their names with his – are regretting it right now?
And I wonder if any of them now might listen to what I urged them to do, “persuade Donald Trump to step aside and endorse Mike Pence as the Republican presidential nominee,” in the article I published in the Huffington Post a month ago, An Open Letter To Influential Trump Supporters (see below). It begins:
Dear influential Trump supporters,
I am writing to urge you to do everything in your power to persuade Donald Trump to step aside and endorse Mike Pence as the Republican presidential nominee, for three reasons:
1) The good of our country;
2) The good of your party; and
3) Your self-interest.
I’ve long had grave concerns about Trump becoming president, but his words and actions over the past couple of months have now convinced me – and countless others, including the former head of the CIA, Michael Morrel, and 50 GOP national security experts – that he is a genuine threat to not only the future of our country, but also, in light of the President’s unilateral power over our nuclear weapons, to human civilization.
This is not self-interested, partisan advice – in fact, it’s directly contrary to my desire to see Hillary Clinton elected (albeit not with tremendous enthusiasm, but as a lifelong Democrat). You’ve seen the polls and know as well as I do that, if Trump is her opponent, it is highly likely that she will win (70-86%, according the various polling firms and oddsmakers). So, selfishly speaking, I would hope that he stays in the race.
But the danger is too great for me to think selfishly – too much is at stake. Thus, I am urging you to do something that, if successful, would meaningfully reduce Clinton’s odds of winning.
Lastly, this course of action is also very much in your self-interest because, in supporting Trump, you are jeopardizing your reputation – permanently. A significant number of Americans – especially your well-educated peers, both Democrats and Republicans – have rejected Trump and what he stands for, to the point that they are questioning the character and/or thinking of those who support him. As Charles Blow wrote recently, “acceptance of racism is an act of racism.”
Because of your wealth and power, I suspect that most people won’t say anything to your face, but behind your back, they’ll be saying to one another (as a friend said to me of a mutual friend): “That’s the guy who’s supporting the racist lunatic for President.” Is that what you want to be known for? Do you really want to have to explain this your grandchildren?
I’ve heard the rationalization that, “Hey, I’m a Republican and all I’m doing is supporting my party’s candidate for President. It’s not a big deal.” But this time it’s different. With his denigration and demonization of immigrants, Muslims and women, his calls for violence, etc., Trump isn’t the same as mainstream Republican candidates like McCain, Romney, Rubio, Walker, Cruz and the Bushes. Supporting him will likely cause significant and long lasting damage to your well-earned good reputation.
I think odds are slim that you’ll be successful in persuading Trump to drop out: his ego is too large and he’s too disconnected from reality (until the very end, he’ll be convinced that he’s going to win), but I urge you to at least try.
If he doesn’t, do the right thing – for your country, your party and yourself – and withdraw your support.
3) Lastly, in response to a friend who warned me to tone down my rhetoric around Trump because I might be burning bridges, I wrote:
While I recognize the risk and don’t wish to make anyone angry with me, at this point I’m all in. I am willing to risk burning any and all bridges in pursuit of my mission to prevent a hateful, dangerous, mentally ill madman from becoming the most powerful person on earth.