you've got to be one of GM's largest shareholders by now. How many million shares do you have now?
The company is performing very well. Last quarters EBIT adjusted was 1.4 billion and included 1.4 billion in recall and restructuring costs, so 2.8 billion ex-costs, up from about $2.6 billion the year before. GM will be paying off the preferred stock this year, so earnings will be going exclusively to common. EBIT adjusted ex-recall costs should easily be in excess of $9 billion this year. Interest expense barely exceeds interest income and could fall below it in case of a rising rate environment. $34 billion of deferred tax assets including about $10 billion of operating loss carryforwards means that GM doesn't have taxes to pay for many years.
GM's market cap is less than $52 billion so its easy to see how attractive the valuation is for a company that can earn close to $9 billion without taxes is.
if the fed allows inflation and doesn't react with rate increases then we would be way worse off than if the fed did the job its supposed to do, preferably in a gradual way starting earlier as Mr. Fisher has been vocal about
they had been buying back stock at least until the last report but the rate of buybacks had slowed down significantly. Of course as you pointed out, that's not surprising given how the compensation is set up. Incentives matter.
What they have done is maintained a higher dividend than they otherwise would have been able to by the discontinuation of swap accounting. To many this can be seen as a de facto buyback because the effect is the same, a reduction of shareholders equity because dividends exceed earnings at least in the short term.
Anworth's discount does make it attractive but management seems determined to make investments in new categories and prospective returns aren't very promising. I do think its worth a position, but the position I would take would not be the common stock but the series B convertible.
What sort of tax implications would you face if you chose to sell your holdings? I would lean towards BRK but it depends on your tax basis.
Well lets assume your expectations are correct for 10% book value growth. In that case the difference between 9% and 10% is immense because Berkshire currently retains its earnings.
At a 10% discount rate fair value is largely unimpacted by retaining its earnings because the rate equals the book value growth. 9% is impacted much more. The main variable is then when do they start paying a dividend and how much. Lets say that it is a dividend of 5% of book value but doesn't start for 10 years. At a 10% discount rate, fair value of Berkshire B would be ~ $109.50, whereas at 9% it would be $149.4. The longer Berkshire can retain its earnings for the bigger this discrepancy gets. 15 years before paying a dividend, fair present value at 10% is still ~ $109.50, but at 9% its now ~$156.37. At 20 years, $109.50 and $163.69.
Of course retaining earnings for 20 years, creates its own challenges as you now have a company thats more than 6x the market value or if you assume 3% inflation nearly 4x in real terms.
After the third year, which is the soonest the preferred can be redeemed (for a 10% premium), burger king is required to pay make whole payments representing the difference of the Preferreds being taxed as a non-us company. Fascinating.
Yep thats terrific, so berkshire basicaly owns 1.75% of the company. The other place where berkshires preferreds have typically had a lot of value is the redemption premium but that may not be phblic information
Not too bad
Don't forget how fast things can change. In the 2000 market he gained 50% while the s&p lost 50%. Returns in a new market crash won't be as strong as there's less divergence among large and small caps. But even a 25% gain vs a 50% market loss would be decently redeeming
yeah I kinda like the TIPS. The 5 year is at about 0.19%, not too bad considering its been negative the vast majority of the last few years. Thats implied inflation expectations of about 1.63% annually over the next 5 years. The 10 year tips has implied inflation of 2.06. Personally, I think inflation will be somewhat higher otherwise I wouldnt opt for tips over treasuries. near zero real returns aren't very exciting but may very well end up being better than equities over the next few years.
Well UVVZP has had a strong drop too. I do think that it's the best way to play this though. The possible redemption at 1000 in 2018 seems less of an issue now
yeah that cant be it. The ex dividend on that was about 3 weeks ago. Might have been some tobacco news elsewhere but I didnt see it.
he does the wine country conference in sonoma, ca for autism each year where you can eat dinner with the speakers but those tickets are ~ $1500.
well what I meant was income to common stockholders and I was again incorrect. 2011 was over that threshold at 7.6 billion, but that was with substantial help from a $1.6 billion gain on sale of delphi automotive and a negative tax rate from a change in valuation allowance.
yeah that was stretching the truth a bit. GM hasnt actually earned $6 billion since 1999 I believe. However, I believe they are now approaching that capability again as they pay off the 9% preferred stock at the end of the year.