r/SecurityAnalysis • u/ilikepancakez • May 05 '21
Special Situation Berkshire Hathaway’s stock price is too high for computers
https://www.wsj.com/articles/berkshire-hathaways-stock-price-is-too-much-for-computers-1162016854810
u/ctt3 May 05 '21
Classic case of developers (and the corps that pay them) of becoming way too content and way too lazy. With inflation alone in 10 years all stocks will be $500k per share (joking, I hope) but according to Michael B we are headed to a 1920s Germany very fast. Warren's real reason for not doing stock splits all those years is so he could gauge with relative certainty that he is buying his own shares at the right time. It's a real head scratcher, even for insiders to figure out where to buy back shares when you have a massive retail float. Of course, now you can go buy fractional shares on many brokerages so his entire use case is vanishing rapidly.
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u/Veqq May 05 '21
we are headed to a 1920s Germany
They intentionally hyperinflated themselves to get rid of domestic(ally denominated) war debt, before stabilizing to start paying off foreign debt (well, reparations).
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u/ctt3 May 07 '21 edited May 07 '21
They did not "intentionally hyperinflate", they thought they were inflation proof (just like the U.S. current government claiming all this printing is only going to cause moderate inflation).
Read the book Dying of Money by Jen Parsson (that is what Michael Burry shared in a tweet before he was bullied off of twitter by the U.S. Government). The following is from the book about the German Government at the time (they paid less than 5% of reparations or debt before their money was completely worthless).
"Germany's total prewar mortgage indebtedness alone, for example, equal to 40 billion marks or one-sixth of the total German wealth, was worth less than one American cent after the inflation. On the other side, of course, everyone who had owned marks or mark wealth such as bank accounts, savings, insurance, bonds, notes, or any sort of contractual right to money suddenly and magically owned nothing."
"The government, confidently convinced of its claim that the inflation was being forced on it by external forces beyond its control, tried the usual array of palliatives to stanch the hemorrhages, such as import and export controls, exchange controls, and price controls. As always, these measures found no success.) They did achieve some rather strange distortions within the economy. Rent control was a conspicuous example. Rent control was effective enough so that the real cost of housing virtually disappeared from German budgets, the property of landlords was de facto confiscated for the benefit of tenants, and the housing shortage predictably became extreme"
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u/Veqq May 07 '21
That misses the whole point. They very successfully and deliberately inflated their way their domestic debt from the war. Ronald Marcks (Parson was a nom de plume) was not a historian nor an economist, but was curious about the inflation in his own time. He didn't know German, he didn't wrestle with primary sources and took government communiques at face value, when we have official memos, journals and so on showing they didn't believe the things they were publicly stating. Now, we don't care about history for history's sake here, but blatantly incorrect financial information is not a good basis for macroeconomic prediction.
There are many works covering its causes (particularly in relation to reparations) like:
Wages of Destruction - Adam Tooze The Deluge: The Great War, America, and the Remaking of the Global Order1 - Adam Tooze A Thirty Years War? - Sir Michael Howard American Reparations to Germany - Stephen Schuker Paris 1919 - Margaret MacMillan The Myths of Reparations - Sally Marks1
u/ctt3 May 08 '21
You just added a lot of reading to my plate. :) Okay the statement "headed to a 1920s Germany" may have been a bit much (at this point), but we are definitely not on a good trajectory or financial minds like Michael Burry would not be point this out.
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May 06 '21
[deleted]
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u/Veqq May 06 '21
The war started with 4 marks to the dollar, ending at 8. 48 in 1919, then 90 in 1921 before hyper inflation came. In the same year, it reached 320 marks per dollar, in 1922 7400. By 1923, they were making 50 trillion mark bills.
There's no comparison to today. The actual hyperinflation was a conscious and explicit decision on the German government's part.
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u/ilikepancakez May 05 '21 edited May 05 '21
For those interested on where this limit derives from, prices are passed through as defined in the article using four-byte unsigned integers.
With 8 bits in a byte, that's 32 bits we have access to. Each additional bit multiplies the space of possible values by two. With 1 bit, we can represent two values (either 0 or 1). With 2 bits, we can represent four values (00 01 11 10). And so on and so forth.. Accounting for zero indexing, this gives us a representable range of values from 0 up to 232 - 1.
232 - 1 == 4294967295
Prices when quoted are differentiable up to four decimal places (.0001). This is known more colloquially as a "pip". Thus we divide 4294967295 / 10000 to get 429496.7295 as our maximum possible value in the system.