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Christopher Bloomstran Profile picture
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30 Aug, 6 tweets, 2 min read
This is a fantastic question and thought exercise. Michael does not introduce a maturity or call/put features. This is essentially a perpetual bond. Price is coupon/discount rate. It’s not a business that retains earnings or grows. Price it like a perpetual bond. 1/
The average annual “coupon” is simply a probabilistically derived 54.5 cents. That’s the coupon. Win luck doesn’t matter. Now what’s the discount rate? The 30-year UST is less than 2%. If Janet sold a perpetual issue, some fool (read Jay Powell) would buy it at 3% or lower today.
Now introduce credit risk and inflation risk in setting a premium. If the borrower were a classy, reputable, credit-worthy guy like @IgnoreNarrative, you might demand a couple points. If it were a few of the yahoos here on Twitter, you should demand damn near 100%. Maybe more.
How much to add as an inflation risk premium? You decide. I’d also consider opportunity cost. You don’t have to buy a bond. You can buy Berkshire at an earnings yield of more than 7%. Again, that’s a business retaining/growing earnings, which is not the case with the perpetuity.
So what’s the price? If the issuer were the US Treasury and the buyer the Fed, the price would be $0.545/.03 = $18.17 (33.3x coupon). The @IgnoreNarrative high-quality price with 2% inflation premium would be $0.545/.07=$7.79. The high-credit risk anonymous Twitter price
would be $0.545/1.05=$0.52. So quite a range. The 3% UST yield is 1% real at a 2% inflation rate. Remember, at today’s 1.91% yield, the 30-yr trades at 52x earnings. Maybe the smart money thing to do would be to assign a $3,000 target price for 2025. At $700 the price is a steal.

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Christopher Bloomstran Profile picture
21 Aug
I'm biased against the life companies as investments. My opinion on purchasing life insurance favors term. If you are young and have a spouse/family that would need income if you get hit by the proverbial bus then you should buy life insurance. I strongly favor term from a
well-capitalized, highly-rated insurer. Term is very inexpensive the younger you are. Buy a long dated LEVEL-TERM policy that has has a RENEWABLE option at expiration. Without being renewable you are screwed if you become ill. At maturity you don't have to renew and can shop if
you still need insurance. Policies gets more expensive as you get older, which is why you buy a long-dated policy with a fixed annual premium. Once your kids are raised and particularly once you and spouse have enough financial assets to financially independent then you can stop.
Read 13 tweets
Christopher Bloomstran Profile picture
18 Aug
Dear Cathie, I was surprised at the indignity of seeing a high-profile investor short your largest product, so sought to determine why. Examining the $ARKK June 30 Factsheet, it appears devoid of what some investors refer to as “fundamental data.” Important? Let's see...1/
I see your performance, which is really good, except for this year. Looks like you're actually now down 6.9% for the year. I took briefly to the Bloomberg and other sources to decipher these metrics. What I concluded is you and your team must be counting on growth. Lots of it. 2/
To wit, a calculation for portfolio price to earnings yields a NMF, which must mean the portfolio holdings, aggregated as though a single business, lose money. It appears only 14 of the 51 report a profit. It seems like a lot, but in the realm of disruptors and "but Amazon"...3/
Read 37 tweets
Christopher Bloomstran Profile picture
15 Aug
Britain left gold in August 1931. They demanded payment in gold from the US in 1971. 50 years ago today the US left the standard with gold at $35. Five decades and 8.2% per year on, gold is $1,779. Little noticed is the 77%, 2.9% annual decline in the dollar v the Swiss Franc. 1/
More fiscal and monetary restraint by the Swiss, yet still flawed. Government debt is ~45% of Swiss GDP vs 100% across Europe, nearly 140% in the US and 250% in Japan. Swiss interest rates are negative. The Swiss central bank owns nearly $170 billion of US stocks. 2/
Meanwhile, the US is running consecutive $3 trillion deficits. 2020 at 16% of GDP. With a stronger GDP, 2021 will be ~13%. These are peacetime deficits. While the Swiss are far from potentates of sovereign monetary and fiscal prudence, Europe, Japan, UK and US they are not. 3/
Read 5 tweets
Christopher Bloomstran Profile picture
7 Aug
Quick observations on Berkshire's 10-Q:
Cash: Because everyone mentions it, $144B is up from $138B at yearend. For perspective, cash totals 15.78% of $912.5B in total firm assets, down from 15.89% at yearend. Firm assets grew $39B from yearend. Book value up $27.2B to $470.4B. 1/
There is no liability for T-bills purchased so the media and other watchers will correctly report the cash balance. Much lamentation will occur about the "huge" cash pile and the inability to spend it. It's not much above the 12% average cash to assets relationship since 1997. 2/
On spending cash, share repos of $6B in the quarter, following $6.5B in Q1 and $24.7B for all of 2020. Another 4,181 "A" share equivalents have been bought since 6/30 to 7/26. At ~$427k/share, that's an additional $1.8B. The cadence of repos roughly matches operating profit. 3/
Read 25 tweets
Christopher Bloomstran Profile picture
27 Jul
For those that haven’t read Robinhood’s 360-page S-1 and subsequent registration amendment, some brief observations follow on some of the most egregious aspects of one of the most one-sided, enrich the insider casino offerings I’ve ever seen, and there have been some doozies. 1/
If Robin Hood robbed the rich to give to the poor, the modern-day version is now in the business of gutting the sheep and pocketing the wealth of the retail speculator for himself. Fleecing at least. “Robinhood is democratizing finance for all,” reads the prospectus. Sure. 2/
Robinhood, who in December paid a $65 million fine (without admitting or denying guilt, wink) for best execution and payment for order flow alleged violations, will raise on the order of $2.3 billion from new shareholders in its upcoming IPO. What does The IPO investor get? 3/
Read 43 tweets
Christopher Bloomstran Profile picture
4 Jul
Outside of the financial reporting of certain car companies, SPAC promoters and countless others, I haven't read fiction in ~30 years. Limited, I know. Outside of investing/business reading, I love US history, particularly the American Revolution. In the spirit of the 4th, 1/
I thought it would be fun sharing some favorites. Mostly bios and written from the "great man" perspective. To McCullough, Adams was the greatest; but to Chernow and Ellis it was Washington. Of course, when Ellis wrote on Jefferson he was the man and so forth. All were great. 2/
What's remarkable about these giants of the revolution is the risk they took in rebellion from England. Captured, the signers of the Declaration and other revolutionaries would have hung. It's amazing how young many of them were. Franklin was the elder statesman at age 70. 3/
Read 11 tweets

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