Post New

I'm trying to wrap my head around these unusual times. After a long period of tracking the S&P we are a remarkable +24% YTD on the index. BRK is also well above long term averages of P/B etc.. I have known the S&P and BRK were going up in different manners, one seeing high multiples of growth stocks, one maintaining long term compounding, but they seemed to revert to "different approach, similar result". Now we hear hype about the wisdom and foresight of WEB, for selling some stocks and piling up cash. But how much premium do you price into a cash pile, especially when management is conservative and a change is inevitable.

I'm sort of at a loss for any feeling about where the price should be expected go. If things get worse how durable is the "safe haven, defensive stock status". If things get better, same question. Will it revert soon to average parameters? Will it continue this unusual disconnect from market trends??

“But how much premium do you price into a cash pile, especially when management is conservative and a change is inevitable.”

Short term, not much. Long term (beyond 3-5 years), a nice premium imo. Maybe that is what Mr. Market is pricing in as well, given our track record in previous times of cash build up & ensuing bear markets. Quite surprised to see us outperforming the S&P by 24%!

If things get worse ..... If things get better, same question.

The direction is clear, see here what the wellrespected FT (Financial Times) has to say:

On paper, in theory, on average, based on historical precedent and if the usual rules apply, the present moment is a once-in-a-generation opportunity to snaffle up US assets on the cheap.

https://archive.ph/q3xFR

With me thinking "What did they drink today? I want the same."

The direction is clear, see here what the wellrespected FT (Financial Times) has to say

Thanks for sharing the complete article.
She wasted a lot of electrons to say absolutely nothing, is my impression.
Let me know if I missed her point.

FWIW .. having lived in the USA for 30 years I finally learned the lesson...when people say, this time its different,and it wasnt , I was buying in the last 2009 meltdown.. so I nicely melted up in the 2009 recovery.

however... I do believe , this time it is different. why ? because we have a vengeful idiot in the Waffle House, who takes delight in throwing multiple grenades into a crowded room every day.. and there are no guardrails, and no opposition.. and I dont say "yet" either... we saw 4 years of version 1.0 , and in only 9 weeks look at version 2.0,
he can do this for at least another 4 years.... imho at least.

so this time , for me , is different. I am not buying except in euro stocks and currencies , enough to see me through the next 4 years. I already have a property abroad that I mentioned before. Not to say that ROW wont suffer either, I am positive it will, but less so and in a ,I believe, safer manner.

I may look back and with hindsight regret that I dont repeat my 2009 melt up successes , but I doubt it very much. for me , at least, its "bunker mode".

your mileage may vary , and if it does, I wish you well. GLTA. as an older singleton , I am risk off fpr 4 years. The rest can ride it out on the US stock market. (mainly BRKB)

Let me know if I missed her point.

As you read it, you'll appreciate that the quoted snippet is not the point of the write-up. The title is "The flaky case for buying the dip."

I took the point to be this:
Retail investors were/are enthusiastically buying the dip, and, to be fair to them, there are some superficial reasons suggesting that their decision is not irrational, as past situations which (superficially) resemble the current one have been good times to buy, and indeed those who bought at the recent bottom have been rewarded...so far.
BUT...
The professionals are all battening the hatches, big time. Only one of the two groups will turn out to have been right, and the author gives a hint of which group they think it will be:

From the last paragraph:
Record-breaking gold prices, a soaring Swiss franc and a massive jump in German government bonds are all a clear sign that professional investors are deeply spooked, and anticipating the next wave of pain. If the retail dip buyers are right again, this will have been a heroic call on their part, but the odds are heavily stacked against them.

Personally I think broad market buyers today are being sought out avidly to fill the shoes of the ever-scarce "greater fool" to whom one wants to sell any dodgy asset.

Jim

"I took the point to be this:
Retail investors were/are enthusiastically buying the dip, and, to be fair to them, there are some superficial reasons suggesting that their decision is not irrational, as past situations which (superficially) resemble the current one have been good times to buy, and indeed those who bought at the recent bottom have been rewarded...so far.
BUT...
The professionals are all battening the hatches, big time. Only one of the two groups will turn out to have been right, and the author gives a hint of which group they think it will be:"

Steve Clapham, a former analyst who now publishes a newsletter on Substack and runs training courses for both professionals and amateur investors made a similar point last week. As an example, he broke down the possible impact of the announced tariffs (before they were slightly rolled back) on Apple and how that affected the company's expected value - which looked to match the decline in the share price.

He also warned that while buying the dip may have worked for the last 60(?) years because of the market's rise, people investing during the previous 60 years (I can't remember off the top of my head if these were the actual periods of time he was referencing but the point will be the same) didn't have the same joy. That's not to say the future won't be a rosy one, but too many people seem to be calling others to 'buy the dip' on reflex.

I've met Clapham and took a mini-course he taught in Omaha last year. It was good information on techniques for assessing little stuff in the public financial information that can signal bigger adverse stuff happening within a company.

Buying the dip recklessly without study has never been advisable, yes? The period since 2009 has rewarded more broadly the buy the dip strategy without much deep stock analysis in part because the US stock market has been favorably bolstered by the net positive funds coming into the market day-after-day. It has been a long time since the financial conveyor has operated in reverse (more monies going out than coming into the market). Many sharp minds are voicing thoughts about the financial conveyors signaling a reversing. There are also scientific minds saying the North and South Poles are close to a reversing, too. Who knows what adverse complications the reversing of the Poles will create. We are to adapt to our conditions be they physical or fiscal. This is why we read each other's comments on this board to find ways to adapt. Additional information: some scientists today say Darwin's comments about "survival of the fittest" was meant to convey "survival of the best adapted".

The 1970s to early 1980s (1982 end point) were simply horrible in terms of overall market valuation growth amid an inflationary period (you could make the case stocks went down considerably more than the historical record shows when discounting for inflation's effect on the dollar). Still, there were numerous investors who made great valuation gains in their portfolios via buying quality companies at cheap prices, harvesting dividends and holding on until valuations returned to normal. We have seen more recent periods where the market languishes and yet sharp investors have bought quality companies when they were cheap and benefited over the long haul. If one has studied a company, its market, its competitors, its management, its products/services, its internal growth in people and products and the like and feels it is a worthy long-term buy and hold, then buying on the dip is warranted.

Is that not the philosophy of most of the participants on this forum board to identify quality companies at fair prices and then to hold onto those companies until a future day when the investment will be sold for retirement funding or given away to family members or charities (and a portion to our silent partners: Federal and State tax authorities)? I say we have fun and make some long term money by studying companies, finding those worthy of our investment when they meet our Margin of Safety threshold aspects and loading up when Mr. Market has a bad day or group of days.

Uwharrie

...so this time , for me , is different.

Ditto. It helps that we are no longer in accumulation phase. Increase in net wealth is awesome, but mitigation of risk has to be the primary concern, now that we don't have paychecks to throw at the down market. It's a financial survival event, IMO.

IP

Is that not the philosophy of most of the participants on this forum board to identify quality companies at fair prices ...... I say we have fun and make some long term money by studying companies, finding those worthy of our investment when they meet our Margin of Safety threshold aspects and loading up when Mr. Market has a bad day or group of days.

A) That's the Charlie/Warren mantra and the mantra shared here.
B) Plus, to focus on individual companies and not on the market or macro.

But this time it might be different and B questionable. At least I can't ignore that the macro developments shattered trust in a whole huge jurisdiction which is now seen as unstable and unpredictable.

So that this time it might be unwise for one who adheres to A and identifies a quality company at a fair price, say Google, to adhere to B and to ignore those macro changes with the simple reasoning "I don't care whether the markets are closed the next 5 years. I think longterm". E.g. what if after 5 years the markets open and you find that jurisdiction disallows you as a foreigner to move your money out of it?

I see it similar to the Alibaba discussions here some years ago. Most here adhering to these two principles identified Alibaba as fulfilling A, but buying? The same ones yelled "China!" and were absolutely unwilling to also adhere to principle B and to buy it. Was that a mistake? I don't think so. It was the correct decision at that time, no matter how much the price of Alibaba might rise tomorrow.

Sometimes it IS different.

Yes! This time it is different. Unlike every other time it was different---but it wasn't, no, THIS time is really is different.

Even though every other time it was different ... it was not different.

It is kind of funny. Even though every previous time "it is different this time", it was never different that time.

The world begins today.

I wonder how many were advocating buying the dip in the Japanese market in early 1990. It took about 35 years for the Nikkei 225 to exceed the record it set in Dec. 1989. As long as 23 years after that 1989 high, it was still down 78%. And all that happened without an autocratic coup in Japan.

Elan

this time it is different. why ? because we have a vengeful idiot in the Waffle House,...
he can do this for at least another 4 years.... imho at least.

I think the bottom line is that this time really has some potential to be different. From the BRK point of view, I have always been confident that the next five years were very likely to show reliable price increase. Now, not only do we have a historical level political and economic disrupter, we have very high valuations and in five years, we can only hope that WEB, like Charlie, makes it to 99. I sold some BRK at the first trip to 534, and was so amazed when it bounced back to that level I sold more, in spite of a burgeoning tax liability. It was that fast rebound from the dip that got me baffled. Like Jim said, it had a certain "greater fool" vibe. This time might not be different, but I can picture something similar to some of the historically long or large downturns.

If this time isn't different in reality, similar to hummingbird, it is at least different in my behavior!

"The professionals are all battening the hatches, big time. Only one of the two groups will turn out to have been right, and the author gives a hint of which group they think it will be:"

I was looking at charts of the S&P500 on Friday.

In the last 16 years (since the financial crash) the US economy has roughly doubled in size. Even with the recent drop, the S&P500 is at over 5x the 2009 level. The rise in the last 16 years is crazy large and I can easily see a lot more of it unwinding.

SA

I was looking at charts of the S&P500 on Friday.
In the last 16 years (since the financial crash) the US economy has roughly doubled in size. Even with the recent drop, the S&P500 is at over 5x the 2009 level...


It's always hard to get a handle on valuation levels, especially S&P versus Berkshire, because the answer depends so much on the interval chosen.

I tried a new method to pick a "fair" interval.

On June 17, 2005, just under 20 years ago, the S&P 500 was valued about 5% more richly than its average valuation multiple since then.
On June 17, 2005, just under 20 years ago, Berkshire was valued about 5% more richly than its average valuation multiple since then.
Since those are the same, it seems like a reasonable starting point.

Currently, the S&P 500 is valued about 25.6% more richly than its average since that same date in June 2005.
Currently, the S&P 500 is valued about 27.5% more richly than its average since that same date in June 2005.
Again, pretty close, so it's coincidentally not such a bad end point to consider.
Both got a little more expensive, and by the same amount.

The observation from the interval from then to now is that the observable value of Berkshire (using peak-to-date book-per-share) has risen (8.3%/year) a lot faster than the observable value of the S&P has (4.02%/year).
This is a discussion of the value and valuation level of each, not total return! Obviously the S&P also pays a dividend.
Unfortunately, that gap (4.27%) in real value growth per unit is a whole lot more than can be made up for by S&P dividends. Thus the real pretax total return of Berkshire has been 2.22%/year higher than the real total return of the S&P. SPY real total return has been 7.00%/year since then, and Berkshire real return has been 9.22%/year.

The gap in this specific interval is, I think, a whole lot more meaningful than most figures you see, since both horses in the race started at the same apparent level over over/undervaluation, and both ended at the same level as well. In this instance, the difference in returns is equal to the difference in value generation.

Here is a graph of the value of the S&P index using smoothed real earnings, and the value of a share of Berkshire using peak-to-date book-per-share, with that same baseline in June 2005. Again, this is NOT a comparison of total returns, but the rate of value growth per unit. The S&P paid enough in dividends to close about half the visual gap.
http://www.stonewellfunds.com/BRKandIndexValueGrow...

Nothing earth shattering, just pointing out that in the last ~20 years, the value of a share of Berkshire has risen a whole lot faster than the value of the S&P 500 index has.

Jim

On June 17, 2005, just under 20 years ago, the S&P 500 was valued about 5% more richly than its average valuation multiple since then.
On June 17, 2005, just under 20 years ago, Berkshire was valued about 5% more richly than its average valuation multiple since then.
Since those are the same, it seems like a reasonable starting point.

Currently, the S&P 500 is valued about 25.6% more richly than its average since that same date in June 2005.
Currently, Berkshire is valued about 27.5% more richly than its average since that same date in June 2005.
Again, pretty close, so it's coincidentally not such a bad end point to consider.

First, I fixed the typo, the above is correct. I said S&P twice in the last section.

And PS, that last bit should NOT be interpreted as saying that the S&P and Berkshire are equally overvalued at the moment.
They are equally overvalued relative to their respective 20-year average valuation levels, which is not the same thing.

Berkshire's 20 year average price-to-peak-book is 1.397, which is hardly high, so being a little above that would not count as overvalued in my books. We're quite a bit above that, so today might amount to "moderately overvalued"?

And the S&P's 20 year average trend real earnings yield of 4.16% equates to a P/E of 24, so even that average level seems a bit rich. As we are now sitting 27.5% above that at 30.6 times trend real earnings, it really does seem overvalued to me.

Jim

exactly ! Uwharrie. all the best to you !

-oops, exactly InParadise !!

In the last 16 years (since the financial crash) the US economy has roughly doubled in size. Even with the recent drop, the S&P500 is at over 5x the 2009 level. The rise in the last 16 years is crazy large and I can easily see a lot more of it unwinding.

That mantra "just buy the S&P" has been chanted over and over. WEB has recommended that. The Bogleheads swear by it. Irritating individuals on the old board preached it. It has been told so often for so long that it can't possible be wrong. Or can it? OK, it was oversold in 2009, but those numbers are scary, as are the other metrics. The safe and standard strategy is looking like it has developed a self-fulfilled bubble. It was amazing the outrage and horror at the rather modest dip that Trump initiated, when the 1 year result was still acceptable and the two year return pretty good. The general investing population seems to be unrealistic in their expectations and a likely reversion to long term means is going to make some serious waves. I don't see a big upside to buying the dips, and at my age, I feel some security in selling the upticks.

That mantra "just buy the S&P" has been chanted over and over. WEB has recommended that. The Bogleheads swear by it. Irritating individuals on the old board preached it. It has been told so often for so long that it can't possible be wrong. Or can it?

Buying on a dip DOES make sense...but only if the thing you're buying offers a decent return starting from its new price. i.e., if it's now undervalued, or at most fairly valued. You just have to know what you're buying, and what its value is, or at least *some* kind of crude guess. The logic that "it just dipped in price" isn't enough.

I don't think the best estimate of the future trajectory of value of most stocks is what it was a couple of months ago, but opinions can differ.

Jim

"I wonder how many were advocating buying the dip in the Japanese market in early 1990. It took about 35 years for the Nikkei 225 to exceed the record it set in Dec. 1989. As long as 23 years after that 1989 high, it was still down 78%. And all that happened without an autocratic coup in Japan.

Elan"

I just got back from a week in Japan yesterday. Here's my take...... We were in Yokohama and Tokyo. All I could think about was the quote above because Japan has basically gone nowhere since 1989. And yet here's the thing- I don't think I have seen a more modern and organised society than Japan. So while economically speaking the country may have gone "nowhere" there has undoubtedly been massive progress which means someone (or perhaps everyone?) had to be gaining. I think of Warren discussing the British Empire and stating that even though the empire collapsed the average British citizen is undoubtedly better off than they were before WWI.

What I fear in the US right now is the unquestionable darkness of this self induced delcine. The US is in a bad place! The bond market is revolting not because of a factual decline but out of fear that this decline is inevitable and the old adage about "not being able to fool the bond market" is further freaking everyone out. Why? Because every fear of electing an unhinged dictator has so far proven to be true. Without evidence of a viable check and balance being put back in place I don't see the market in general improving.

Japan's decline has had as much to do with demographics as it did with reckoning the man made bubble it created. They have had a declining population which is the ultimate market killer and do not have any form of immigration to offset that decline. So while there has been no "growth" there has been progress because the country has been trying to move forward despite the headwinds. Contrast that with the US- we are taking a hammer to the federal government, tossing people out of the country and sending them to gulags in Central America and unquestionably damaging our brand with absurd rhetoric on a daily basis. And some are wondering why the bond market is revolting??

I have no idea what will happen. Nor does anyone else. I sold out of all US equities in my wife's account which is tax free because she is not a US citizen. I have sold nothing in my US Schwab account which is 85% Berkshire and Philip Morris International so thankfully that has held up for the time being.

Until the fevered pitch of Trumpism is broken I just don't see the country going anywhere but down. Call that statement "political", shout it down if you must but I grew up in NY and I know a con man when I see one. Actually, I've this since the early eighties which has made the last ten years even more bizare but that's a different story! Let's hope for signs of a viable check and balance!! We can survive the next four years if we have that. If we don't? Just look to the bond market........

A true humanitarian. So worried and against what is happening in the USA but no issues whatsoever with owning the stock of Philip Morris International.......UCMTSU.

“Until the fevered pitch of Trumpism is broken I just don't see the country going anywhere but down”

There are a few signs the people here are waking up. My staunch Republican neighbor just admitted to me the tariffs are stupid and he regrets voting for Donald. 12 House Repubs said they would not back the huge Medicare/Medicaid cuts and that has thrown a wrench into their funding bill. Protests are happening all over the country. Some law firms and universities are growing spines and fighting back. Courts are trying to stop Donald’s deportation without due process scheme.

We are definitely not out of the woods by any means, but at least we are showing some signs of fighting back. My wife is the Democratic county chair in our very red small city, and she is working like crazy to organize and wake people up here, and it’s slowly working, I think?

Why? Because every fear of electing an unhinged dictator has so far proven to be true. Without evidence of a viable check and balance being put back in place I don't see the market in general improving.

Somehow I'm reminded of an old quotation - that some attribute to an ancient proverb:

"Those whom the gods would destroy, they first make mad."

We can just hope the the destruction he causes will be slowed, and recovered in time.

I have two bright, wonderful, granddaughters. One majored in physics and now works in AI. The other is graduating in pre-med next month. At our Easter dinner yesterday, they both - STEM majors - spoke to the impacts this administrations war on science is causing. The subject of getting into med school - or other advanced degrees - came up for discussion. Both knew of friends whose prior admissions for graduate work that have been cancelled as government funds have been cut off. This included one going for her PhD at U. of Penn. The younger, and her boyfriend - also a pre-med now graduating - had any remaining funding for their research projects cut off. Both dealt with research on cancers. The concern about their future admissions to medical school is current and very real.

We finally had to agree as a table to change the topic, or we would otherwise lost any joy in Easter.

Both knew of friends whose prior admissions for graduate work that have been cancelled as government funds have been cut off. This included one going for her PhD at U. of Penn. The younger, and her boyfriend - also a pre-med now graduating - had any remaining funding for their research projects cut off. Both dealt with research on cancers. The concern about their future admissions to medical school is current and very real.

We finally had to agree as a table to change the topic, or we would otherwise lost any joy in Easter.

What a lovely family to have!

Perhaps another tack that could be taken in such a discussion would be to consider just how crazy it is for the US Government to be continuing spending "as usual" now that we have a debt of $34 Trillion and an annual deficit of $2 Trillion and now that our "credit card payments" (spending on servicing the existing debt) exceed our spending on our own (and more than 1/2 the world's) defense budget.

You all sound like people who would recoil instinctively from a relative who was digging this same kind of hole for herself by living off her credit cards. You would possibly even, like me, not even be able to guess what happens when you keep driving that bus at 75 mph towards the cliff.

A fun question to ask: just what spending cuts would you recommend to such a relative that would seem like crazy counterproductive spending cuts if the relatives had, say for example's sake, no credit card debt?

And from there, a comparison of how being disinvited to a graduate program because of a loss of reserarch funding would compare to the kinds of things we might imagine happen if we continued driving the bus towards the cliff for another 6 months, another year, whatever.

Of course all this would make a lot more sense if the money saved by such capricious spending cuts were being systematically applied towards the deficit. But considering that NONE OF US THAT KNOW MATH can imagine a way to eliminate a $2 Trillion dollar deficit that doesn't involve a trillion or two of spending cuts combined with a trillion or two of increased taxes, one can consider the current environment as perhaps a dry run for what we're all going to hope gets done some time soon, just as Covid was a dry run for a real pandemic.

Happy Easter!

R:

A fun question to ask: just what spending cuts would you recommend to such a relative that would seem like crazy counterproductive spending cuts if the relatives had, say for example's sake, no credit card debt?

And from there, a comparison of how being disinvited to a graduate program because of a loss of research funding would compare to the kinds of things we might imagine happen if we continued driving the bus towards the cliff for another 6 months, another year, whatever.

Ralph,

I generally enjoy and rec your comments. But I'm damned if I understand your point on this one. Reducing spending on science is the way to solve our national debt problems?

None of these kids - my granddaughters or her boyfriend - depended in any part on government support for their educations.

The only part the government funded was their ability to participate in meaningful research on a subject pretty important to the well being of us all. So the government maybe saved some money? There was no indication that the research cut-offs were related to the subject of the research projects. They were simply part of a wholesale cutoff of government participation in academic research - no study, no questions, just fire without aiming.

In turn, they lost the unpaid participation of of some very good minds. And threatened their ability to further their future education? It isn't the ability of the two families to fund the educations without government help. It's the reduction in opportunities to do so. We've checked - the reductions in college admissions are real. Is this the way to progress our nation in one of the increasingly few areas where we still lead? Reduce the supply of those who can provide such leadership going forward? Not that they can't pay or succeed - just no rooms available.

The bus wasn't driving towards a cliff in science until this administration. Now it is - without a driver. A more serious cliff, part of a process that has shaken the world economy.

National debt is a very serious problem. Idiotic actions aren't the way to address it.

Buying on a dip DOES make sense...but only if the thing you're buying offers a decent return starting from its new price. i.e., if it's now undervalued, or at most fairly valued. You just have to know what you're buying, and what its value is, or at least *some* kind of crude guess. The logic that "it just dipped in price" isn't enough.

Speaking of some kind of a crude guess, I estimate that from current price SP500 will at least keep up with inflation over a 10 year time frame.

2024 sales for the index = 2004.54. Sales have reliably increased at 1.5% real over the past several decades. So 10 years from now, sales will be 2326.35 real. Slapping a middle of the road 10% profit margin and 18 multiple gives you 4187.43 real as the index price. Starting from today's price of 5158.20, that's -2.06% annual price return. Adding the 2% dividend gives you a 0% real total return. Not a bad outcome if you are already rich and all you want to do is stay rich, i.e., keep up with inflation.

"Perhaps another tack that could be taken in such a discussion would be to consider just how crazy it is for the US Government to be continuing spending "as usual" now that we have a debt of $34 Trillion and an annual deficit of $2 Trillion and now that our "credit card payments" (spending on servicing the existing debt) exceed our spending on our own (and more than 1/2 the world's) defense budget.

You all sound like people who would recoil instinctively from a relative who was digging this same kind of hole for herself by living off her credit cards. You would possibly even, like me, not even be able to guess what happens when you keep driving that bus at 75 mph towards the cliff.

A fun question to ask: just what spending cuts would you recommend to such a relative that would seem like crazy counterproductive spending cuts if the relatives had, say for example's sake, no credit card debt?

And from there, a comparison of how being disinvited to a graduate program because of a loss of reserarch funding would compare to the kinds of things we might imagine happen if we continued driving the bus towards the cliff for another 6 months, another year, whatever."

For one, it is silly to think the deficit can be addressed by cutting scientific research. Scientific research isn't even a minor factor in the budget. it is less than a rounding error.

For two, it is short sighted. To use your analogy of family budgeting. It is like a family cutting out fruits and vegetables from the grocery list and buying potato chips and cookies instead in order to save money all while going on lavish vacations and driving expensive cars. The savings are negligible compared to the rest of the budget and will likely cost more in healthcare costs in the long run.

Besides, there is a lot of evidence that federal money spent on research more than pays for itself in the long run from benefits that come from that research.

If the deficit is going to be addressed there are 4 major factors that need to be looked at: Entitlement spending, military spending, and interest payments are the biggest budgetary categories, but probably the most important factor is the way the U.S. collects tax revenues. It is insane, wasteful and subject to special interests.

I generally enjoy and rec your comments. But I'm damned if I understand your point on this one. Reducing spending on science is the way to solve our national debt problems?

I'm sorry I thought I was clear enough. But to be clear, Reducing Spending is the way to solve our national debt problem.

At this point I would favor a balanced budget amendment. CLEARLY the US Government as currently constituted has not business making rational decisions about when it makes sense to take on debt. The more polarized our politics become, the more readily each side when they get their filthy hands on power briefly will use the public moneys to try to bribe voters to vote for them. Not a good recipe for... anything really. And we have given NOT having a baalanced budget amendment more than 50 years of a trial, and what we got for our efforts was all the jokes about a billion here and a billion there have had to be rewritten using trillions.

I would favor telling the congress that if they think something is important enough to spend money on, they it is important enough to tax the country to raise that money for. And a good way to tell something is NOT important enough to spend money on is that you don't or can't or won't increase the tax to pay for it.

I would favor answering EVERY claim that spending cuts are the wrong cuts to make with "wow, you are right, so great, what tax are you going to raise to pay for it?"

Or more trivially, "good point, and just as soon as we are not increasing our debt anymore we can put that right back on our list of things to spend on."

As long as the population thinks "well surely the thing that I like spending money on is not the right thing to cut" then the population thinks "NOT driving the economy over the cliff is NOT the most important thing we can do with our budgeting process."

None of these kids - my granddaughters or her boyfriend - depended in any part on government support for their educations.

The only part the government funded was their ability to participate in meaningful research on a subject pretty important to the well being of us all.

Respectfully, I'd be quite surprised if those kids were not going to receive "research fellowships" that would pay them a monthly stipend to do the research and would also pay their tuition. At least that's the way it was done when I was the recipient of this government largesse 40 years ago. If I am actually mistaken, then my apologies. But in my experience as both a student and a professor, the students who didn't need a tuition subsidy or a stipend were admitted whether or not we had research money, and the government research grants were always budgeted to pay a certain number of student stipends and tuition subsidies in order to get the proposed research done.

***

Of course it would be better if a rational thoughtful process was used to cut government spending and eliminate the deficit. Indeed, this was done successfully 30 years ago by Clinton and Gore and the federal budget was balanced. But in the absence of anybody who wants to do it the right way actually being able to do it, I'd rather have a slash and burn BEFORE we actually enter the debt death spiral than to pretend we have a choice to not enter the death spiral and to wait for a better option.

I did just realize that I consider defaulting on gov't obligations to be the "death spiral". I think that is a pretty reasonable definition of the death spiral. And if anything, the current administration seems hell bent on getting us to that point earlier rather than later. Indeed the whole discussion of any kind of coercive exchange of 10 year notes into "perpetual" notes is, in fact, a default.

Of course, if you think we should keep science funding an not let concerns about the death spiral screw up the good that that will do us, then we just disagree.

Excellent point! Ben Graham wrote Security Analysis as a response to the catastrophe of the great depression. His question was “how can you avoid significant losses in the midst of an economic meltdown”. This is EXACTLY THE TIME members of this board should be sharing their securities analysis.

But to be clear, Reducing Spending is the way to solve our national debt problem.

Reducing WASTEFUL spending is ONE of the ways to solve our national debt problem. Raising taxes is of course another, but cutting the IRS is not a smart way to collect the taxes already on the books. What is going on currently wrt cutting spending is neither logical nor disciplined. I do not see any economizing of gov't expenses when it comes to what pleases Trump, like his weekend jaunts on the golf course which costs us taxpayers in significant security bills, not to mention padding his company income by the gov't paying for all of his entourage to fill his resort rooms. Or lets look at the use of US military planes to take a few deportees to their home country, at an astronomically higher price than the traditional use of airfare carriers like American Airline, etc. His talk of cutting expenses due to need to reduce the debt is more lies, rather than a true expression of what he is trying to accomplish, or he would reign his own spending of gov't funds in as well.

Debt is a tool, and not to be avoided entirely. We could buy properties without a mortgage, but currently hold a 30 year fixed rate mortgage at 2% while our cash earns 4.5%. I view a mortgage as an inflation hedge, and have bought multiple properties with a mortgage for that reason, rather than because we needed the mortgage to complete the purchase. We do not hold debt on depreciating assets, like cars, and so far our kids are doing the same. We use credit cards freely, but pay off in full each month and pay no interest, so freely is not only about the incidence of use, but about the cheapness of use. There is a time and place for debt.

Critical thinking includes watching to see how people walk their talk. If Trump is truly concerned about gov't debt, then he should be more careful with his own use of gov't funds.

IP

We do not hold debt on depreciating assets, like cars, and so far our kids are doing the same.

One consequence of the current "economic policies" is that used cars are going up rapidly in value. As a result, today I am selling my 2018 Honda Clarity for $20200, not much less than I bought it for in 2019 (about $26K after various EV rebates). Moving to Lisbon where I won't need a car, and wouldn't suffer the Trump Tariffs if I bought one anyway, so all good. I paid nearly as much in car insurance as I did in depreciation, over the lifetime of the car.

Post New

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.