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Both Japanese & Korean equity markets at new highs - as has the US S&P index. All of these are a fixture of an expectation of a Federal Reserve interest rate cut this week.

Berkshire Hathaway has benefitted (as have I personally) by acquiring significant in Japan's main trading companies (Itochu Corp, Marubeni Corp, Mitsui, Sumitomo and Mitsubishi)

On a parallel post on Shrewd'm:
"Berkshire Could See $3 Billion Hit to Interest Income If Fed Slashes Rates in Next Year."

This brings up a discussion I recently had with WendyBG about how to structure a balanced approach to insulating us from a substantial reduction in US equity prices. Of course what causes the US equity market to revert to the mean will matter, but at some point, revert it will.

Depending on our age, we both remember decades of "normal" financial conditions with %4-ish interest rates, stock P/E ratios of sub-10 being normal and recession/"equity crashes" every decade or so - but the banking system was rock-solid under Glass-Stiegel (though a credit union crisis did point to potential vulnerabilities). A gross-oversimplification, but just making a point.

Then inflation gripped the economy and banks/bonds paid substantial interest rates. Many got used to "making money" from the interest payments - ignoring the fact that inflation was higher than the interest rates and, adding insult to injury, you paid income taxes on the interest.

Volker brought this under control by the Fed increasing the cost of investor's ability to borrow money. Those whose strategy included buying long-bonds at the higher rates benefited for years afterwards (and, frankly created my kid's college fund).

I won't bore you with the ups and downs of the markets since then other than to state that we are now in unprecedented times which combine a lack of banking regulation not seen since the 1920's, stock valuations which are "frothy" to be polite and a Fed which is likely to become increasingly "accommodating" considering the likelihood that it will become politicized.

Many berate Buffet for holding a relatively huge cash hoard - partly created from unspent income and partly by the sale of appreciated equities. The truism that "nobody can time the market" is used to promote complete investment. While neither Buffet nor I can predict when, or even how, a major decline in the stock market (actually markets, as it has been demonstrated that the global markets are bound like Siamese twins to the US ones), we both, apparently, feel it is beneficial to hold an oversized powder keg in preparation for the inevitable decline from these lofty heights.

So, the question is not only what to hold to maximize portfolio value today, but possibly more imports, what will be most resilient by providing income (or equivalent benefit) as well as survivability. Choosing the best time to redeploy cached resources will have to wait for the point of maximum pain and fear.

So, the moral is not to lament that money's utility to make maximum profit today is a waste, but rather that it is a prudent policy at this point of time.

Within that context, what should a prudent equity portfolio look like today? Likely, it should have some growth stuff. I'm not smart enough to choose which AI play will be the chosen one, but have put more chips onto electrical infrastructure plays. I have no idea which manufacture will benefit, so I have invested in general miners (RIO, BHP, Vale, etc.) as stuff will have to be made from "something". Considering the current state of geopolitics, I have elected (actually for decades) to diversify beyond the US dollar and and currently have over half of my equity portfolio invested in foreign companies.

Most of my current bond portfolio is invested in TIPs as I believe the Fed will be forced politically to allow inflation to become rampant - as paying back US bonds with depreciated bucks will appeal to the same crowd as a lower USD.

There is no rest for the weary, despite my selling of a chunk of my portfolio (including half my Berkshire Hathaway), the rest has done well and the portion of liquid assets invested in equities is back to 36.5%. Well, as I continue the waiting game, it just means that the fall of Icarus will be from a more lofty position when the sun explodes.

Jeff

So, the question is not only what to hold to maximize portfolio value today, but possibly more imports, what will be most resilient by providing income (or equivalent benefit) as well as survivability

Bold by me. Because in the current times this is my main focus, and not where my money earns a few % more or less. And while you (and WendyBG it seems) are discussing stocks and bonds, and how to internationally balance them, with respect to "survivability" I am more interested in a 3rd leg, "real" real estate: To (if I can finally decide where to live most of the year) put a good part of my assets in buying land and a decent home there. Simply to own the land on which I live, as --- apart from it being demolished by a war --- this is more of a "last resort" than any virtual paper (though my ownership of it, yes, in the end also is just virtual paper in that jurisdiction).

Warren Buffett once mentioned he is concerned by the increasing proliferation of nuclear weapons. Me too. This and a world that seems to become ever more crazy.... We had many peaceful decades, nearly a century without war in Europe (and the US). Everybody takes that for granted now, but historically it is not the norm.

I won't bore you with the ups and downs of the markets since then other than to state that we are now in unprecedented times which combine a lack of banking regulation not seen since the 1920's, stock valuations which are "frothy" to be polite and a Fed which is likely to become increasingly "accommodating" considering the likelihood that it will become politicized.

This is not intended to be political, though some will surely take it so.

From the US Policy board comes this nugget:

Not long ago, I asked Google's net sifter if the German stock market went up in the 30s. Yes, the German market went up, but the companies closely associated with the Nazi party went up more than the average.
https://www.shrewdm.com/MB?pid=165471763

...with respect to "survivability" I am more interested in a 3rd leg, "real" real estate: To (if I can finally decide where to live most of the year) put a good part of my assets in buying land and a decent home there.

I have been a huge fan of real estate and have done very well with it, so when I encourage you to consider the changing environmental conditions and it's impact on things like insurance and other related housing costs, don't dismiss it lightly.

Obviously only you know what directly relates to you, and IIRC you are not USA based so YMMV, but housing costs here in the US have seen a huge percentage increase, which is likely to continue as inflation increases the costs of things and increased intensity of weather events wreaks havoc on your property. Our insurance has spiked even without incidents either in our area or at our property, beyond the increase in value. Taxes of course also escalating with increased value, but add on to that movements that impact rent profitability, which is something we always analyze as a fall back position when we buy a property. We had landlord friends who came close to losing their shirt during Covid, when regulations eliminated the ability to evict for failure to pay rent, all while mortgages, taxes and other expenses had to be maintained without income. We felt the risks of rentals increased too much during that time, and while our rental was fine, (previous residence that we kept as a rental for a few years,) we felt the risks were too large on a long term rental, and we sold before losing capital gains exclusion on sale of residence. Our area is starting to talk about regulating rents now. And unlike stock, which can be sold per share, (though this is the BRK board and if you have class A shares then per share is pretty darned pricy too,) if you need income you can't just sell part of the property to meet your income needs. You take a hit on the capital gains, minus exclusion, of the whole proceeds. That's a further consideration for USA landlords/property owners.

That said, I do like the inflation protection typically received by real estate, and am hesitant to sell our residence at the bargain basement prices being offered in today's market. We are already cash heavy, perhaps too much so, and should we also figure out an area we want to go to regularly, we may consider buying another property...just for us, or to put on the 30+ day rental market for while we are not there. It's all about survival of these times for us as well, and looking at enjoying our assets rather than simply growing them.

IP

With property you can also just pay interest only with your mortgage on a longish term, low fixed rate (if available) and stick the extra cash into tax free accounts.

Eg we purchased our current house 15 years ago with a 20% deposit, the equity has now grown to 60% and the house has doubled in value, ive also not paid a dime off the mortgage.

The current monthly mortgage payment is 15% of the monthly rent of the same house opposite!

Taking a very long term view inflation is your friend.

Actually, I specifically omitted real estate for a reason. Yes, all things being equal, there have been real estate opportunities that I passed on that would exceeded any profit that I've made in the stock/bond market (like turning down buying a commercial property for $350K in 1984 which sold for $250M in 2005, etc.). La vie, they say.

While there is "generational wealth" which can be accumulated in home ownership, I have traded the accompanying inconvenience of a home for a rent-stabilized apartment for the past five decades, so instead of my money growing in a house, I pay a ridiculously low rent and let it accumulate elsewhere.

The other reason I have psychologically avoided home ownership is that I have a distrust in things always going well. That has been a driving force in my initial bouts of currency trading and then ended up with that money invested abroad.

So, avoiding all mention of politics, it is safe to say that the geopolitical/socioeconomic climate of the US has taken some dramatic turns recently and, being an amateur student of history, the (in the clutches of post-COVID manic emotions) world is beginning to rhyme with that of the (post-WWI/Spanish flu manic emotions) 1920's as it moved into the grimmer 1930's.

So, Said's quandary becomes very germane. If the US is no longer a friendly place to spend my dotage, that opens the world to careful examination. Based on recent events in Ukraine, combined with the US no longer being an unimpeachable ally (not to mention a potentially hostile agent if it decides to annex Greenland), as well as the more frequent rise of right wing politics there, let's cross Europe off the map.

Canada is a possibility (I would opt for Vancouver, rather than Toronto as, even though it rains too much, at least it doesn't tend to get cold), but again, the US has expressed a desire to absorb it.

Other than Botswana (and that's too insular for my tastes), despite my enjoying travel in Africa, there is nowhere I would feel safe enough to permanently move to. In South America, I would say that maybe Uruguay might be safe enough, but that's also a bit of a stretch.

In Asia, Singapore is certainly a possibility. I love Japan, but living there would be like living on Mars, likewise India.

That brings us to Australia and New Zealand. NZ is peopled by the nicest folks on earth. It is also at the far end of the earth and an oxymoron for someone who likes to travel. Australia is a bit easier to reach, but still a stretch and, in the absence of the US appreciating its allies, could experience problems from China. We're heading to both Anzac countries at the beginning of the year and will be keeping our eyes open.

At least, to move, all we have to do is turn over the key to the apartment, kiss our rent security goodbye and get on a plane.

Jeff

NZ is peopled by the nicest folks on earth.

I wouldn't argue too much.

They also have a nice two year retirement visa.
Super short summary: you have to be a healthy non-criminal over 65 with NZ$500k (About US$300k) to support yourself and NZ$750k (about US$450k) to invest in NZ things (bonds, businesses, or commercial real estate) for the duration. There is no minimum number of days you have to spend in NZ, but you can't leave NZ for more than six months in a row. Interestingly, it does not appear to make you *automatically* domiciled in NZ for tax purposes...the separate usual tests determine that.
https://www.immigration.govt.nz/visas/temporary-re...
It doesn't come with the right to extend it, but it can be extended if you ask and they say yes. I have been led to believe they DO extend it if you still meet the requirements and are not naughty.

And in general there is no capital gains tax. Including things like, for example, shares in Berkshire.

Jim

And in general there is no capital gains tax. Including things like, for example, shares in Berkshire.

It's more complicated. New immigrants for the first 4 years are not taxed on foreign income. After that the FIF (Foreign Investment Funds) regime applies which in fact IS kind of a capital/dividends gains tax: Each year you choose to be taxed either

A) on the virtual (unrealised) difference between end and start of the (tax) year
or
B) on a set virtual dividend (usually 5%, though I think it was up to 7% before)

So in a year the increase of your share value was below 5% you choose A, otherwise B.

Btw: No inheritance tax.
Btw: Without prenuptial assets are split 50:50 after living 2+ years together (married or not).

It's more complicated. New immigrants for the first 4 years are not taxed on foreign income. After that the FIF (Foreign Investment Funds) regime applies which in fact IS kind of a capital/dividends gains tax: Each year you choose to be taxed either

A) on the virtual (unrealised) difference between end and start of the (tax) year
or
B) on a set virtual dividend (usually 5%, though I think it was up to 7% before)

I was pretty startled to be told that if your equity then loses mark-to-market value YoY, you apparently cannot take that as a tax credit. But after realizing that there was no plausible way I could afford to get on a path to NZ permanent residency at my age, I abandoned that idea and went for Portugal. Pity, NZ was definitely the most beautiful country I have ever been to.

And in general there is no capital gains tax. Including things like, for example, shares in Berkshire.
...
It's more complicated.

Indeed--but hey, it's hard to get an entire tax code into a sentence even if you understand it.

To the vague extent that I follow, it's a little like a 2%/year wealth tax on your ex-NZ investments during the holding period, combined with no tax on realized profit when sold. A non-dividend-paying investment is deemed to have sent you a dividend equal to 5% of its value taxable as (if I understand) ordinary income taxable at around 40%, and ~40% of 5% is ~2%. Assuming most board denizens are top-tax-rate kinds of folks.

So in a year the increase of your share value was below 5% you choose A, otherwise B.

Yeah, more complexity. You have to make the same FDR-vs-CV choice for all your investments. Then there are "quick sale" rules. And it's not clear to me whether/which options fall into the FIF regime. And on and on...don't we all love tax codes!

Jim

Pity, NZ was definitely the most beautiful country I have ever been to.

I have to agree.
At one point, driving across country with my lovely wife, I pointed out a particularly nice vista. She said "Sorry, can't look. I just can't take it any more."

At another spot, we came to a tee junction. The view straight ahead was a lovely split-rail fence, then a meadow, then higher and higher implausible rolling green hills with a few sheep, then jagged mountain peaks, with a few puffy clouds in a cerulean sky. And a sign with an arrow pointing down the road to the left, saying "Scenic View" [this way].

Jim

At one point, driving across country with my lovely wife, I pointed out a particularly nice vista. She said "Sorry, can't look. I just can't take it any more."

In a way the best part was how mountainous the country is - driving along the coastal "highways" was constantly wondering what interesting vista would show up beyond the next coastal hills I passed. Also I lost all fear of driving on extremely narrow roads with no guard rails and 30-50 metre dropoffs after 3000 km there.

It helped that NZ drivers were collectively by far the most polite I've encountered. Portuguese drivers are very *attentive*, and I have no fear of being run down in one of the many uncontrolled crosswalks - but they also love to lay on the horn and yell at each other.

And it's not clear to me whether/which options fall into the FIF regime

Non-NZ and non-Aussi shares.

driving along the coastal "highways" was constantly wondering what interesting vista would show up beyond the next coastal hills I passed.

The highways show only the "boring" parts. The very best you see by driving the South Island offroad 4wd tracks and using as little Highway as possible.

It's one of the top 3 highlights of my life to have been to NZ, the South Island specifically. Most pictures can't do it justice; but I do remember sitting at an overlook exactly as Jim describes. Un real.

FC

I believe the Fed will be forced politically to allow inflation to become rampant - as paying back US bonds with depreciated bucks will appeal to the same crowd as a lower USD.

As far as I am aware, we haven't "paid back" any US bonds in quite a long time. We refinance ALL of them. And we refinance ALL the interest due on them. AND we finance a trillion or two of new excess spending every year!

So we aren't paying anything off, we just constantly refinance at the going rate. And when inflation spikes, we will be constantly refinancing at higher rates. And it will cost more and more and more. But I agree, that if by some magic we begin paying any of it off, paying it off with inflated dollars may look attractive so some (mostly uninformed or misunderstanding folks).

(like turning down buying a commercial property for $350K in 1984 which sold for $250M in 2005, etc.)

I also briefly considered buying a piece of the Brooklyn Navy Yard and/or surrounding areas. But I didn't. I know one guy who did and he made huge sums of money from it.

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