Subject: Re: Jim Grant on Berkshire/Cash/Valuations
In nominal terms I would guess something like 4.5% for T-Bills (the current yield), 3.5% for the S&P 500 (the trailing twelve months earnings yield) and 5.5% for Berkshire Hathaway's equity portfolio (S&P 500 plus 2 percentage points). If this is more or less correct, then a very high allocation to T-Bills makes sense.

I don't know. What I do know is that we haven't had a "natural" recession for 15 years or so. Despite those who think that government+federal reserve have "cured" recession forever and ever, the odds are high that there will one sometime during the next 5 to 10 years. And when there is a recession, interest rates are dropped, especially very short-term interest rates like those on T-bills. So therefore I don't think there's a chance that T-bills will yield 4.5% for 5 or 10 years. Heck, the 26-week T-bill is ALREADY below 4.5% (and has been since the middle of September), and the 52-week T-bill has been below 4.5% for a few months now (IIRC, since August).

Now, as far as Berkshire returns go, I think it nearly all depends on the SEQUENCE of S&P500 returns. If the S&P500 muddles along, with single digit returns for all 5 to 10 years, then perhaps yes, it might sit on all that cash for quite a long time. But if the sequence has at least one LARGE drop (like 50% or close to it), then opportunities will surely arise such that deployment of large chunks of capital will happen. I don't know what those opportunities might be, but when any big problems and panic arise, opportunities suddenly appear like magic. For example a crisis of faith in banks can lead to some sweet preferred convertible deals. Of perhaps a crisis in commercial real estate could someday provide some sweet deals? And heck, even if many run of the mill good performing companies get caught in a widespread downdraft, and they will, then good investment opportunities are sure to follow for those who can move quickly. And those who own those ultra short-term T-bills are the ones who indeed can move fast. You don't see Berkshire buying any treasury notes (1-10 years) or treasury bonds (more than 10 years), do you?