FFH 2nd quarter report
SanjeevParsad   8/1/2008   

on risk and reward...doesn't matter what line of business you are in.  Fairfax is doing exactly that by reducing their insurance business, as the premiums soften.  The ...
nbsp;excellent prices as this insurance market weakens.     Compared to other insurers, Fairfax is a very good deal right now.  You are buying at book ...

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I have often thought that FFH was a bit of a two-legged stool. What they're missing is operating businesses that can lend recurring results and cash flows in times of weakness, like Berkshire has.   The theory of needing other operating businesses is a crock.  A business' only concern at all times should be to try and achieve the highest possible return on investment, in a manner which is the most acceptable based on risk and reward...doesn't matter what line of business you are in.  Fairfax is doing exactly that by reducing their insurance business, as the premiums soften.  The business they do write will continue to produce decent results.   At the same time, they will generate recurring income from their investment portfolio..be it fixed income, equities, or simply cash.  They are also one of only a handful of insurers in a position to pick and choose investments going foward.  Their ability to generate income from their investment portfolio is second to none in the insurance business.  And they will also be able to acquire other insurers at excellent prices as this insurance market weakens.     Compared to other insurers, Fairfax is a very good deal right now.  You are buying at book value, an insurer that will shortly be close to par with Berkshire when it comes to claims paying ability...I think it is reasonable to see that within 2-3 years, as reinsurance recoverables and debt are reduced further.  They are developing a globally diversified business, have one of the best insurance and investment management teams, and are still small enough to grow their market share at 15% or better annualized for the next 10-15 years.  Cheers!

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FFH 2nd quarter report
tiddman1   8/1/2008   

market decline. <<< I agree. Watsa and his team are wonderful investors. However, Fairfax's results tend to be very volatile, because the investment returns tend to be very ...
the case, they've run in tandem. This has led to extremely volatile returns from Fairfax over the years. The overall return has been pretty good, depending on your end points ...

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>>> I am nowhere near as optimistic as some of you this morning. Looking at the results, I think that we can say with confidence that CDS were the main and pretty much only driver of good results in the past 12 months. That position is now smaller than it was and has largely played out. We had quite a panic in mid-July following fears surrounding FRE, FNM and IndyMac. If that is not enough to move up the remaining CDS in value or enough to warrant some profit taking then what will? Once you remove the CDS factor what is left? I see declining underwriting profits in pretty much every division (NB results in particular were pretty bad even if you back out storms effects and currencies), nothing really great from their big bond portfolio and they are like me experiencing pain with the stock market decline. <<< I agree. Watsa and his team are wonderful investors. However, Fairfax's results tend to be very volatile, because the investment returns tend to be very lumpy, and the reinsurance business is cyclical. Ideally, the two drivers (investments and insurance) would run counter-cyclical to each other to smooth things out. However, over the past 5+ years, this has not been the case, they've run in tandem. This has led to extremely volatile returns from Fairfax over the years. The overall return has been pretty good, depending on your end points and time frame, but in the interim, FFH stock has seen huge peaks and valleys. I view the present time as much more of a peak than a valley. There is no way they're going to replicate the returns of their brilliant CDS investment, and that investment has grown so much that it is the tail wagging the dog. If they don't unwind the position, it will dominate their returns, and if they do unwind the position, the rest of the portfolio is probably not going to provide blockbuster performance in the near term. Meanwhile, reinsurance results are headed right into the wood chipper across the industry, I suspect that we're headed into a deep down cycle that will only be reversed once we see heavy losses. So you're looking at lackluster premium volumes and profits followed by some significant losses before we see solid reinsurance results. Add all of this up and I think you need to exercise caution with ORH and FFH. I have often thought that FFH was a bit of a two-legged stool. What they're missing is operating businesses that can lend recurring results and cash flows in times of weakness, like Berkshire has.

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FFH 2nd quarter report
Cardboard12   8/1/2008   

The Globe and Mail headline is scary: "Fairfax profit drops 84 per cent in quarter." although, the article is fairly balanced.   http://...

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The Globe and Mail headline is scary: "Fairfax profit drops 84 per cent in quarter." although, the article is fairly balanced.   http://www.theglobeandmail.com/servlet/story/RTGAM.20080731.wfairfax073   I am nowhere near as optimistic as some of you this morning. Looking at the results, I think that we can say with confidence that CDS were the main and pretty much only driver of good results in the past 12 months. That position is now smaller than it was and has largely played out. We had quite a panic in mid-July following fears surrounding FRE, FNM and IndyMac. If that is not enough to move up the remaining CDS in value or enough to warrant some profit taking then what will?   Once you remove the CDS factor what is left? I see declining underwriting profits in pretty much every division (NB results in particular were pretty bad even if you back out storms effects and currencies), nothing really great from their big bond portfolio and they are like me experiencing pain with the stock market decline.   So, if you are honestly asking yourself, what is going to drive earnings or book value significantly forward in the next 12 months? I think that only two scenarios can work out:   1- A global depression. IMO, the only way to drive further large CDS gains and to increase the value of their treasuries while offsetting massive losses in their stock portfolio. That could also help ending the soft market in insurance, but under such duress will people cut on insurance? 2- A "V" shape recovery with a significant increase in the USD (reducing inflation). That would bring massive profits in their stock portfolio, flat to slightly lower bond values and hopefully that they could foresee it and cash in their remaining CDS.   I am unable to commit capital based on either one scenario. If things remain more stable than these two cases then they will probably make some money, but even achieving their stated goal of 15% growth in book value will be a challenge. Don't get me wrong, they remain excellent companies, well managed and are well positioned with a solid capital base. However, capitalizing on opportunities (insurance and/or investments) that will develop seems quite a bit down the road. Say two years between the investment and the tap on the back?   I am sorry guys, but I will probably look for opportunities elsewhere. The upside here is probably 15-20% within 12 months based on revaluation. I will do as Dengyu suggests and try to reduce my price/value ratio in my portfolio with other companies that offer right now 3, 4 and 5 bagger potential.      Cardboard

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FFH 2nd quarter report
Partner24   8/1/2008   

Well, I've got an interesting for you. To me it summarize the story of Fairfax since 1999. Berkshire is the third house, but we've also began putting bricks ...

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Well, I've got an interesting for you. To me it summarize the story of Fairfax since 1999. Berkshire is the third house, but we've also began putting bricks on our house.   http://www.bbc.co.uk/cbeebies/tweenies/storytime/stories/3littlepigs/

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FFH 2nd quarter report
SanjeevParsad   7/31/2008   

Counterparties continue to pledge capital covering virtually all of our investment in the CDS portfolio - Fairfax has been buying back shares...they've bought back 216,901 for the year, or ...
want as things get worse in various areas.  Continued great work by everyone at Fairfax and it's subsidiaries!  Cheers! ...

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Another decent quarter of house-cleaning toward more ratings upgrades:   - recoverables are now officially well less than equity - another couple of quarters, and total company debt (subs & holdco) will be about the same as total cash in the holdco!  Wow! - looks like a lot of short positions helped offset other investment losses - continued softening in rates...less premiums written...expected...other than C&F commutation hit to CR's, insurance business continues to do well in a soft market - Northbridge repurchased 150,900 shares in the 2nd Q - Holy shit!  Odyssey has repurchased nearly 4M shares in the 2nd Q, for a total of just over 5.7M shares in the year...about 9% of their float! - Fairfx now owns over 66% of Odyssey - Counterparties continue to pledge capital covering virtually all of our investment in the CDS portfolio - Fairfax has been buying back shares...they've bought back 216,901 for the year, or 86,301 in the 2nd Q...the ones in the 2nd Q were bought back at an average cost of $247/share   This company is now really in the place it should have always been.  Rock-solid, prepared for the worst, and able to buy when no one else can.  They are going to pick and choose what they want as things get worse in various areas.  Continued great work by everyone at Fairfax and it's subsidiaries!  Cheers!

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FFH: IRS Examination of U.S. Tax Returns Completed
Abyli3   7/31/2008   

As part of the examination, the IRS reviewed the purchase of Odyssey Re shares by Fairfax in March 2003 and the issuance by Fairfax of debentures exchangeable into shares of Odyssey ...
and issuance of exchangeable debentures or the inclusion of Odyssey Re and its subsidiaries in Fairfax's U.S. consolidated tax group as a result.   http://biz.yahoo.com/iw/...

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As part of the examination, the IRS reviewed the purchase of Odyssey Re shares by Fairfax in March 2003 and the issuance by Fairfax of debentures exchangeable into shares of Odyssey Re in payment for that purchase. No changes were made to the above-mentioned consolidated 2003 and 2004 tax returns with respect to that purchase of shares and issuance of exchangeable debentures or the inclusion of Odyssey Re and its subsidiaries in Fairfax's U.S. consolidated tax group as a result.   http://biz.yahoo.com/iw/080730/0420769.html

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FFH bids for additional 20% of Advent Capital Plc
smazz   7/30/2008   

Most ppl are focus on swaps gain, but how fairfax used those proceeds to fuel the growth in the next decade will prove to be ...

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"Most ppl are focus on swaps gain, but how fairfax used those proceeds to fuel the growth in the next decade will prove to be much more interesting." I am predicting with each annual, we will worry less and less (not void of mind you) the effects of hurricane season. The Capital structure is building nicely.

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FFH bids for additional 20% of Advent Capital Plc
uccmal2   7/30/2008   

http://www.adventgroup.co.uk/   Not intimate.  It is mostly a Fairfax creation in the style of ICICI Lombard, or the Hub group.  I cant recall ...

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http://www.adventgroup.co.uk/   Not intimate.  It is mostly a Fairfax creation in the style of ICICI Lombard, or the Hub group.  I cant recall since when exactly, but FFH has held it for some time and has been backstopping it.

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FFH bids for additional 20% of Advent Capital Plc
bidaskblog   7/30/2008   

is lots of opportunities out there. Most ppl are focus on swaps gain, but how fairfax used those proceeds to fuel the growth in the next decade will prove to be ...

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It's just nice to have cash in this market. There is lots of opportunities out there. Most ppl are focus on swaps gain, but how fairfax used those proceeds to fuel the growth in the next decade will prove to be much more interesting. And it's selling close to book. Sweet.

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FFH bids for additional 20% of Advent Capital Plc
uccmal2   7/29/2008   

seeking to buy the rest.  The offer is low and a good offer for Fairfax, crappy offer for Advent PLC shareholders.    Does this seem to fly against the "...
fair" portion of Fairfax? ...

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The offer is for the whole of Advent PLC.  20% of 100% (ffh holds 45%) have committed to sell and they are seeking to buy the rest.  The offer is low and a good offer for Fairfax, crappy offer for Advent PLC shareholders.    Does this seem to fly against the "fair" portion of Fairfax?

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Fairfax 13F Filing!
SanjeevParsad   7/28/2008   

Changes to Fairfax's portfolio:   - 8.6M shares added of Citizens Communications - 470K shares added ...

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Changes to Fairfax's portfolio:   - 8.6M shares added of Citizens Communications - 470K shares added of Cresud Sacifya - 1.3M shares added of Dell - 1.3M shares added of Pfizer - 45K shares added of Ryanair Holdings - Sold US Bancorp - only about 6.8K shares were held   Cheers!   http://www.sec.gov/Archives/edgar/data/915191/000090956708000837/o41430

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Fairfax Financial beats bad markets
SanjeevParsad   7/28/2008   

m not sure they make those ones any more.   All the attendees for our Fairfax Financial Shareholder's Dinner the night before the AGM this year, received very nice hats ...
as a show of gratitude from Fairfax.  The fact that they gave us hats showed a tremendous amount of class by ...

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I've got one of those hats.  Prem gave it to me when I had my lunch with him back in 2005.  I'm not sure they make those ones any more.   All the attendees for our Fairfax Financial Shareholder's Dinner the night before the AGM this year, received very nice hats as a show of gratitude from Fairfax.  The fact that they gave us hats showed a tremendous amount of class by the organization.  Even more class was shown by Sam Mitchell and Francis Chou showing up and talking to us for over an hour and a half.  Cheers!

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Fairfax Financial beats bad markets
dbcoop24   7/28/2008   

of 5 years or less.   Looks like the long discussions about concerns regarding Fairfax's large investment in long-bonds may be a moot-point.    The ...

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The surprise in the article for me was the current investment allocation;   25% t-bills (basically cash), 50% in SHORT-TERM Canadian or American gov't bonds, and 25% in CDS & stocks that are fully hedged.   50% in Short-term bonds? If you look back at page 35 of the 2007 Annual report, they had 25% of their bonds with 5-10 year maturities, and 44% with maturities longer then 10 years. Only 31% of the bond portfolio would be considered short-term, with maturities of 5 years or less.   Looks like the long discussions about concerns regarding Fairfax's large investment in long-bonds may be a moot-point.    The change in strategy and duration reduction would bode well given the impact of the high commodity and energy prices are having on the long end of the yield curve. Depending at what point the shift was made, FFH could have avoided losses on their bond portfolio. It will be interesting to hear the conference call this week!

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Fairfax Financial beats bad markets
ericopoly   7/27/2008   

We are not in commodities   Sold ICO then? ...

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We are not in commodities   Sold ICO then?  Or perhaps he means "for the most part".   25% is credit default swaps and some of this is in stocks which are fully hedged.   If I understand this right it indicates that they've bought shares in the companies that they have CDS on?

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Fairfax Financial beats bad markets
smazz   7/27/2008   

yes, I would like one of those caps too.   Sanjee...

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yes, I would like one of those caps too.   Sanjeev, any chance you can hook us up? C'mon, I know you know people

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Fairfax Financial beats bad markets
StubbleJumper   7/27/2008   

Interesting article. Also, those are really snazzy baseball ...

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Interesting article. Also, those are really snazzy baseball caps. They should give them out to attendees of the next annual meeting!

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Fairfax Financial beats bad markets
Abyli3   7/27/2008   

Prem Watsa, Chair of insurance conglomerate Fairfax Financial Holdings Ltd. , began to worry about a credit meltdown a few years ago. So ...
he and his investment team devised a defensive strategy. Today, Fairfax is in great shape financially, despite lousy markets. Prem is smiling.....         &...

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Prem Watsa, Chair of insurance conglomerate Fairfax Financial Holdings Ltd., began to worry about a credit meltdown a few years ago. So he and his investment team devised a defensive strategy. Today, Fairfax is in great shape financially, despite lousy markets. Prem is smiling.....                             http://network.nationalpost.com/np/blogs/francis/archive/2008/07/27/pre

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Negative equity death spiral, Wells Fargo, and US financials...
SanjeevParsad   7/23/2008   

your peers are moving backwards, while you are either flat or moving forward...think Fairfax or Wells Fargo.   So called value mutual funds have been the hardest hit the ...

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Typically value investors try to buy when stocks are at a cyclical low as measured by Price to book value and price to forward earnings. But buying low is not in itself value investing... there must be some sort of anticipated catalyst to drive the companies earnings and hence price forward.   That is correct.  The catalyst can also be that your peers are moving backwards, while you are either flat or moving forward...think Fairfax or Wells Fargo.   So called value mutual funds have been the hardest hit the last year and the vaunted "margin of safety" has proven to be an illusion.    We are up 12.1%, while the S&P500 Total Return is down 13.1% in the last year (July 1st to June 30th).  Margin of safety and value investing are just fine.  Cheers!

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New ICP Statement. Are there no slander laws in the US?
viking   7/21/2008   

it called institutional credit partners or ICP and by William Gayen [ph] ICP employee accusing Fairfax from profiting from an improper tax transaction. ICP and Gayen [ph] had dependents in a ...
lawsuit brought by Fairfax in which Fairfax alleges that they and others engaged in a racketeering conspiracy to harm Fairfax by disseminating ...
information about Fairfax so that short sellers could profit. I just wanted to make two points. First we ...
...

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Here is the question and answer transcript from the year end conference call: Operator We have a question from William Gayen [ph]. Your line is open. Please state your company name. <Q>: Bill began, from ICP capital. I have submitted some very detailed and comprehensive questions related to your 2003 tax consolidation. First question is do you plan on responding to those in written form? <A>: Yes, good morning, William. You put a press release out, so let me put this into perspective in relation ship to your press release. The press release was issued late yesterday afternoon by a company. This is for our shareholders just so that they know a little bit about the perspective on it called institutional credit partners or ICP and by William Gayen [ph] ICP employee accusing Fairfax from profiting from an improper tax transaction. ICP and Gayen [ph] had dependents in a lawsuit brought by Fairfax in which Fairfax alleges that they and others engaged in a racketeering conspiracy to harm Fairfax by disseminating information about Fairfax so that short sellers could profit. I just wanted to make two points. First we took great care and obtained expert advice before entering into the transactions raised in the release. We have reviewed the accusations in the press release and we are confident they are baseless and misleading. Second, when Fairfax first learned in October 2006 that GAyen was alleging fraud by Fairfax, our counsel requested that Gayen [ph] to provide any information he had about this alleged fraud and to meet to discuss this information. But he never responded to that request. Because these accusations have also been raised by ICP and Mr. Gayen [pn] in their response to the racketeering lawsuit brought by Fairfax, it would be improper to address these accusations now in any further details. So thank you for asking that, and Jane next question. Here is the link to the thread when this topic was last discussed (Feb 22): http://groups.msn.com/berkshirehathawayshareholders/general.msnw?action

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New ICP Statement. Are there no slander laws in the US?
ubuy2wron   7/21/2008   

policy. If ICP is truthfull in their disclosures they mention they are long CDS on fairfax. The ratings upgrades and RBC's recent commentaries probably hurt them a fair bit. I ...

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The best way to make these guys go away is to continue to do what they are doing. Make great investments and mkt calls and run a disciplined and profitable underwriting policy. If ICP is truthfull in their disclosures they mention they are long CDS on fairfax. The ratings upgrades and RBC's recent commentaries probably hurt them a fair bit. I do wonder what will happen when they get to discovery stage in the legal battles.

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New ICP Statement. Are there no slander laws in the US?
cwericb   7/21/2008   

and refers to a report issued a few days ago, it certainly seems to reference Fairfax's current financial health. Here is the final paragraph and I have highlighted the comment. &...
a Canadian corporation on the brink of financial collapse , is a very public, regulatory issue. Fairfax and BOA have repeatedly rebuffed our requests for disclosure on numerous critical aspects of the ...

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Given that the this news item is dated july 21, 2008 and refers to a report issued a few days ago, it certainly seems to reference Fairfax's current financial health. Here is the final paragraph and I have highlighted the comment.   ".... The U.S. Senate Permanent Subcommittee on Investigations' issued a Staff Report on Tax Haven Banks and U.S. Tax Compliance on July 17, 2008 stating that "each year, the United States loses an estimated $100 billion in tax revenues due to offshore tax abuses ... A related issue is the extent to which financial institutions in tax havens may be facilitating international tax evasion." BOA's assistance in the misappropriation of over $400 million U.S. tax dollars, in this case by a Canadian corporation on the brink of financial collapse, is a very public, regulatory issue. Fairfax and BOA have repeatedly rebuffed our requests for disclosure on numerous critical aspects of the Transaction. We once again urge you to fulfill your obligation as Board members by independently investigating the impropriety of this transaction and remediate the ongoing disclosure deficiencies. INSTITUTIONAL CREDIT PARTNERS LLC Sincerely, William F. Gahan

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New ICP Statement. Are there no slander laws in the US?
Shah_Khezri   7/21/2008   

empty analysis regarding <st1:City w:st="on"><st1:place w:st="on">Fairfax</st1:place></st1:City> just makes you want to throw up.  If ...

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The amount of crappy, half-empty analysis regarding <st1:City w:st="on"><st1:place w:st="on">Fairfax</st1:place></st1:City> just makes you want to throw up.  If it's not the New York Times, it's a hedge fund or a rating agency or whatever.  It really makes you question every mainstream media outlet, Buffett once said something along the lines of a lie/rumor will have already traveled around the world twice before the truth even puts its shoe on.  I'm glad Prem doesn't speak up, seriously, why even honor an answer to a drunk playing Russian Roulette with only one empty gun chamber.  It's all penis envy anyways.  This shareholder base isn't going to budge; at least I know I won't.   S.K.

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New ICP Statement. Are there no slander laws in the US?
wilscott   7/21/2008   

is to the period of March 2003 which would be segnificantly different than saying Fairfax is at that stage today. This is badly written....perhaps on purpose.   Wilscott ...

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I could be wrong but I believe the reference to being "on the brink of collapse" is to the period of March 2003 which would be segnificantly different than saying Fairfax is at that stage today. This is badly written....perhaps on purpose.   Wilscott

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New ICP Statement. Are there no slander laws in the US?
cwericb   7/21/2008   

So how can ICP come out today and issue a defamatory public letter stating that Fairfax is "...on the brink of financial collapse". That would seem to be ripe for a ...
that the tax issue does not seem to have been adequately addressed by management at Fairfax and it is probably past time that it is confronted because ICP keeps bring it ...
up. But even if Fairfax was in the wrong on the tax issue, could that lead to the collapse of ...
...

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But I guess my point is this: If I go out in public and and issue a public statement saying "Cardboard is a crook", I could end up having to prove that accusation in court and if I can't proove that Cardboard is a crook, than I have a problem and perhaps an expensive one. So how can ICP come out today and issue a defamatory public letter stating that Fairfax is "...on the brink of financial collapse". That would seem to be ripe for a defamation suit. According to Wikipedia: "In law, defamation (also called vilification, slander, and libel) is the communication of a statement that makes a false claim, expressively stated or implied to be factual, that may give an individual, business, product, group, government or nation a negative image. Slander refers to a malicious, false, and defamatory statement..." One assumes ICP’s statement is wrong and provably wrong. So at the very least, shouldn’t ICP be called upon to either provide support for that statement or retract it? Millions of people see this statement - it was sent to me through Google alerts - and the statement is detrimental to us as shareholders and to the company as a whole - certainly when read by those who are not aware of the history with ICP and their rants. I tend agree that the tax issue does not seem to have been adequately addressed by management at Fairfax and it is probably past time that it is confronted because ICP keeps bring it up. But even if Fairfax was in the wrong on the tax issue, could that lead to the collapse of the company? Surely not? So perhaps it is time ICP was held accountable for some of their rash statements and required to present some proof that Fairfax is on the "brink of collapse".

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New ICP Statement. Are there no slander laws in the US?
Cardboard12   7/21/2008   

It is hard to deny that Fairfax was in terrible financial shape back in early 2003 and it is also hard to ...
deny that this deal with BAC wasn't terribly well disclosed by Fairfax. Also hard to deny that it was done to save taxes and not much else.&...
nbsp;   Being a shareholder of Fairfax during these tough times, I was reading everything I could find related to the ...
...

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It is hard to deny that Fairfax was in terrible financial shape back in early 2003 and it is also hard to deny that this deal with BAC wasn't terribly well disclosed by Fairfax. Also hard to deny that it was done to save taxes and not much else.    Being a shareholder of Fairfax during these tough times, I was reading everything I could find related to the company. My impression at the time reading their disclosure was that they had effectively acquired the shares of ORH by exchanging them for convertible debt. A pure and simple exchange. A couple of years after, we learn that it was done via an offshore entity of BAC and using some short sale strategy. Was it naked, who knows?   ORH shares are getting hit today by this garbage once again. I am really fed up. I think it is time for Prem to go to the IRS and to request a public statement from them that this transaction was reviewed and that they issued to Fairfax some form of authorization to go ahead. Until it is done, we will never get rid of these guys and issue. Look how long it has been and they are still there. If there is something wrong here, then I think it is also fair to ask Prem to pay whatever taxes are due and related penalties as soon as possible. Let's move on!   It reminds me that the SEC investigation is still on-going. I am not sure if this is one of the things being looked at since using the tax losses against ORH profitable operations at the time was surely helping Fairfax's financials. If the transaction was done right in the eyes of the IRS, no problem. If there is something to it, then the SEC could say that it did impact their financials while looking to raise capital. The good thing is, if I recall properly, every equity raising activity by Fairfax was done privately. It is unlikely that Southwestern, Markel and some of their friends would come back asking for some "refund".    Cardboard

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New ICP Statement. Are there no slander laws in the US?
cwericb   7/21/2008   

nbsp;   In their latest press release attacking Fairfax, issued today, ICP refers to Fairfax as "...a Canadian corporation on the brink of financial collapse".   The full release can ...

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In their latest press release attacking Fairfax, issued today, ICP refers to Fairfax as "...a Canadian corporation on the brink of financial collapse".   The full release can be seen here  http://www.marketwatch.com/news/story/bofa-board-urged-icp-end/story.as   Certainly Slander can be a bit of a gray area but when you come right out and issue a clear statement like this, there doesn't seem to be much of a gray area here. Anyone on this board qualified to give some sort of a legal opinion on this?

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Curbing Short-Sellers!
mills-man   7/16/2008   

Maybe the new rules (naked short on FNM)can be legally used by Fairfax. If naked short are not good for Fannie, why the SEC do not protect other ...
before Mr Cohen will face powerful ennemies. The environment is improving for the Fairfax case. http://www.bloomberg.com/apps/news?pid=20601087&sid=aForAmXi1B.w&am &...

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Maybe the new rules (naked short on FNM)can be legally used by Fairfax. If naked short are not good for Fannie, why the SEC do not protect other company. Its an evidence. But they are serious now, like Cardboard said before Mr Cohen will face powerful ennemies. The environment is improving for the Fairfax case. http://www.bloomberg.com/apps/news?pid=20601087&sid=aForAmXi1B.w&am

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Rediscovering Rule #1
viking   7/12/2008   

future.   Oh, you may want to look at a small Canadian insurer called Fairfax. Will do OK if things don't get ugly and will make a fortune it ...

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I know we are not supposed to care about the general economy when picking stocks... I guess I just can't help myself. I was recently looking at Canwest Global and Torstar. With all the debt, Canwest looks very ugly (end of story)! Torstar, with a nice 6% dividend and much lower debt, actually looked tempting at current prices. Then I thought about the Ontario economy... ugly and likely getting uglier (their primary market). And then I thought about real estate in Canada... yup a bubble that looks like it has just topped out... real estate likely is a key part of advertising revenue for Torstar that likely also has peaked. And, almost forgot, newsprint prices (thank you Abitibi) are going through the roof... another negative for Torstar. OK, let's invert... what are the near term positives.... can't think of any. OK, Torstar is off the list (for now).   Next industry... let's review food. SYSCO, US food distributor, the Loblaws of US and Canadian foodservice (before Lablaws lost its way). Trading close to its 52 week low. But what happens to earnings as consumers reign in spending due to imploding housing, sky high fuel and food and rising unemployment? On second thought let's wait until consumer issues in US are actually more fully priced into consumer stocks in the US and Canada.   Financials? Yes, residential real estate issues have been priced in to stock prices. What about consumer debt (i.e. credit cards and lines of credit) and commercial real estate loans. Oh, and what about all those questionable loans that went towards leveraged buyouts for third rate companies... who is holding all that stuff when the US actually enters a recession? Canadian banks... surely a safer place to go? Perhaps not as the real estate bubble here bursts and we enter a recession.   Commodities? The easy money has already been made... got a coin?   And so it goes...   What is one to do? My initial instinct is to go with my best couple of investment ideas. And then it hits me. RULE #1: don't lose what you got.   My answer? Build cash and wait for something to come along that I understand that is dirt cheap that has some nice upside in the not too distant future.   Oh, you may want to look at a small Canadian insurer called Fairfax. Will do OK if things don't get ugly and will make a fortune it things do get ugly.   (I recently flipped my ORH into FFH, which got almost as cheap. And I still hold a large stake in SFK... the stubborn part of me is telling me to hand in there... I like the company but would like my stake to be smaller in size.)   Are others feeling a similar conflict? Fully invested or raising large cash positions?

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Northbridge Shares
woodstov   7/5/2008   

02, ie $10.2m spent). Sedi also appears to be missing some updated info, re Fairfax holdings of Northbridge. The Sedi report shows the following four positions, all from 2003-06-...
05: 3,887,028 held by Fairfax Financial Holdings Ltd 11,450,863 held by 3077446 Nova Scotia Co 14,359,822 ...
340,000 shares were sold in June/2003 as the overalllotment from initial offering, leaving Fairfax directly and indirectly holding 36,111,306 shares. And 6,000,000 shares were sold ...
...

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Sedi shows 150,900 shares repurchased in Q2/08 for $5.0m, an average cost of 32.95 Q1/08 was 331,500 shares (avg cost 31.02, ie $10.2m spent). Sedi also appears to be missing some updated info, re Fairfax holdings of Northbridge. The Sedi report shows the following four positions, all from 2003-06-05: 3,887,028 held by Fairfax Financial Holdings Ltd 11,450,863 held by 3077446 Nova Scotia Co 14,359,822 held by TIG Insurance Group 7,753,593 held by United States Fire Insurance Company However, an additional 1,340,000 shares were sold in June/2003 as the overalllotment from initial offering, leaving Fairfax directly and indirectly holding 36,111,306 shares. And 6,000,000 shares were sold in the May(?)/2004 secondary offering by Fairfax, leaving Fairfax holding 30,111,306 shares. No info re which subsidiaries hold those shares. Anyone know?

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Moody's Just upgraded Fairfax
oldye   7/3/2008   

Moody's Investors Service upgraded the senior unsecured debt rating of Fairfax Financial Holdings Limited (Fairfax) to Ba2 from Ba3. In a related action, the rating agency also upgraded the preferred ...

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"Moody's Investors Service upgraded the senior unsecured debt rating of Fairfax Financial Holdings Limited (Fairfax) to Ba2 from Ba3. In a related action, the rating agency also upgraded the preferred stock ratings of TIG Capital Trust I to B1 from B2. Moody's changed the rating outlook on both entities to positive from stable. "

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Moody's Just upgraded Fairfax
oldye   7/3/2008   

I feel like a kid in a candy store. http://investmentexecuti...

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I feel like a kid in a candy store. http://investmentexecutive.com/client/en/News/DetailNews.asp?Id=45237&cat=149&IdSection=149&PageMem=&nbNews=&IdPub=

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Idaman gets nod to commence talks with Fairfax
oec10210   7/2/2008   

Hooi, do you have a sense of what the quality of Idaman...

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Hooi, do you have a sense of what the quality of Idaman's business is like?   My knowledge of the general (P&C) insurance industry in Malaysia is out of date but it used to be hopelessly fragmented (50-60 insurers in a very small market) with >80% of the insurers being infamous for being ponzi-like cashflow underwriters (i.e. insurers who write business with cashflow and not underwriting profits as the key priority) who focused primarily on writing auto business. The only general insurers who could make real money were the ones who had some form of captive business (i.e. insurance subsidiaries of banks or large conglomerates).   I have not heard of Idaman before. Is it a relatively new company or has it changed its name recently?

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MKL -- theoretical question
glider3834   6/28/2008   

hi eric, morningstar's fair value estimate for Fairfax I can't understand personally - company has 25% + return over 2 decades - has one ...
the bill.   Odyssey re is undervalued & I own it too with Markel & fairfax - its important to appreciate though that Odyssey re's business in reinsurance is far more ...
competitive - Markel & Fairfax's specialty businesses have more or less narrow moats due to their expertise & understanding ...

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hi eric, morningstar's fair value estimate for Fairfax I can't understand personally - company has 25% + return over 2 decades - has one of best investment teams & capital allocators in insurance/investment industry - has understated book value with ICICI lombard - so the company is worth fractionally more than its book value or the sum of its net cash & investments after liabilities ? Does this make any sense ???   Why do some insurers trade for more than book value? I see a few reasons why & looking at Markel specifically warrants a "quality" premium   1. a lot of insurers understate their liabilities - often thru poor underwriting & through aggressive reserving - this is a primary concern for any person investing in an insurance company - so having a strong conviction that an insurer is being conservative with reserving etc means an investor will be prepared to pay a premium to book value to own an insurer like Markel  that has consistently displayed conservatism,honesty & excellent risk management over a long time (ie not 5 years) but over 20 years +. Markel also tends to be overly conservative with its liabilities also which can tend to understate book value.   2. Markel has an excellent brand name and excellent understanding of the niches they operate in - they have very low staff turnover so their people are really experienced - its a high quality operation - again a premium warranted.   3. Markel's capital management has been excellent historically & certainly during this latest credit crisis - AIG by contrast gets a F for fail ( AIG has such a great insurance business - I can't believe how appaulingly bad their risk management has been - perhaps a case study in how to take an amazing insurance franchise & shove it down the toilet )   I could go on & on... but my point is that people will always pay more for a business that is a high achiever in its industry & treats its shareholders well & Markel fits the bill.   Odyssey re is undervalued & I own it too with Markel & fairfax - its important to appreciate though that Odyssey re's business in reinsurance is far more competitive - Markel & Fairfax's specialty businesses have more or less narrow moats due to their expertise & understanding of certain industries eg Markel is an expert in equine insurance

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Insurance stocks
glider3834   6/24/2008   

Now, for companies like Berkshire, Fairfax, Markel, etc, it is a game changer when taking into account their investing prowess"   ...

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"Now, for companies like Berkshire, Fairfax, Markel, etc, it is a game changer when taking into account their investing prowess"   If you are a shareholder of any of these companies , then this is the kind of stockmarket you want! - lower prices for stocks will enable them to compound shareholder's equity at a faster rate through investing as underwriting lags over the next few years.   I think Warren Buffett has said he would pay someone to lower the prices of companies he owns by 50% - this would enable him to compound Berkshire's intrinsic value at an even faster rate - irrational markets are good for Berkshire & others.

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Insurance stocks
1Simpleton   6/24/2008   

know why there is downward pressure on insurance stocks? I notice Berkshire, Markel, White Mountains, Fairfax all are at all-time lows for the year.   Without speaking to those companies ...
exposed to the credit crunch, CDO's, ABS, etc.   Now, for companies like Berkshire, Fairfax, Markel, etc, it is a game changer when taking into account their investing prowess.  ...
Those companies tend to invest their "float" very well relative to most other insurers.  Fairfax and Markel have done decent from an underwriting perspective, maintaining good (not great) combineds over ...

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Does anybody know why there is downward pressure on insurance stocks? I notice Berkshire, Markel, White Mountains, Fairfax all are at all-time lows for the year.   Without speaking to those companies specifically, I think the market is pricing in the fact that combined ratios have been relatively strong over the past several years -- especially for liability lines of coverage -- and those combined numbers are expected to take a turn for the worse as rates continue to fall.  9/11 kicked off a hard market (one in which rates are high relative to the risk the insurer is assuming) and those rates have really dropped fast over the past 2 to 3 years.  Since liability coverages have a "tail" it takes a few years for loss development to occur.  For example, a book of business written today will experience the vast majority of its losses a few years down the road.  For the most part, industry combined ratios have been pretty decent over the past few years as they have realized the juicy premiums from the hard market.  Now the tide is turning.  Historically soft markets (one in which rates often do not compensate the insurer for its risks) have lasted quite a long time -- a decade or more in some cases.  The market doesn't turn hard again until industry loss experience gets really ugly.   So basically, in my opinion, the market is probably not giving the insurance company stocks the benefit of the doubt regarding likely future combined ratios.  Also, the market is probably reevaluating the expected performance of insurance companies investment portfolio's over the next several years.  A year or two back, I'm sure most people were expecting higher investment returns than they are in this kind of market.  Not to mention the fact that some insurers investment portfolios were exposed to the credit crunch, CDO's, ABS, etc.   Now, for companies like Berkshire, Fairfax, Markel, etc, it is a game changer when taking into account their investing prowess.  Those companies tend to invest their "float" very well relative to most other insurers.  Fairfax and Markel have done decent from an underwriting perspective, maintaining good (not great) combineds over the course of their existence.  With subsidiaries like Geico and National, Fire & Marine, Berkshire has been a standout in terms of underwriting profits.  There are very few insurance companies out there who maintain the discipline to consistently post sub-100 combineds.  It is the equivalent of an investor outperforming the major stock indices by a few percentage points every year.  It takes lots of discipline and know-how, even for companies like Geico that have a low expense ratio.   Anyway, I think we are unlikely to see strong underwriting performance from the industry as a whole over the next several years.  Whether or not the insurance sector is a good buy right now is not necessarily correlated though.  Just my 2c.

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Insurance stocks
scorpioncapital   6/23/2008   

know why there is downward pressure on insurance stocks? I notice Berkshire, Markel, White Mountains, Fairfax all are at all-time lows for the year....

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Does anybody know why there is downward pressure on insurance stocks? I notice Berkshire, Markel, White Mountains, Fairfax all are at all-time lows for the year.

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FFH short interest up!
mills-man   6/21/2008   

nbsp;losing value on a strong market performance.   So , they can short Fairfax stock to hedge their real short position. ...

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Short argument are maybe; -inflation (US bond) -Hurricane -Shorts FFH positions (CDS,SPDR) losing value on a strong market performance.   So , they can short Fairfax stock to hedge their real short position.

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ORH CDS Portfolio
glider3834   6/21/2008   

CDS profits.   ORH's CDS portfolio is roughly a quarter the size of Fairfax so the profits would be larger across the fairfax group   What about ORH's ...

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thats sounds right, I couldn't put a figure on the MTM position of the CDS portfolio - not sure what they have done during the qtr   I think with Radian particularly given those numbers the market is bascially saying bankruptcy is highly likely so the risk reward situation in my view would be to cash in those CDS profits.   ORH's CDS portfolio is roughly a quarter the size of Fairfax so the profits would be larger across the fairfax group   What about ORH's investment in International Coal!

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ORH CDS Portfolio
glider3834   6/21/2008   

nbsp;   I hope that Fairfax have been taking profits on the mortgage insurers in particular PMI is their largest position &...

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I hope that Fairfax have been taking profits on the mortgage insurers in particular PMI is their largest position & the credit spreads jumped to 895 - the CDSs on Radian & MGIC have all blown out well past their March 31st levels - see article below.   http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aY4Ah._Khqbc

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FFH hits book
mills-man   6/20/2008   

can break 11500 on the Dow before july . And the market give no respect to Fairfax. We saw this week citi,fitb, AIG and WM problems plus Ambac ...

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What a month could do. CDS are climbing now,( forget the 300 pretax loss) short position in SPDRs, common stocks, and equity swaps will probably provide nice gain if we can break 11500 on the Dow before july . And the market give no respect to Fairfax. We saw this week citi,fitb, AIG and WM problems plus Ambac and MBIA finally downgraded by Moody's. This story seem really to be at the beginning. I'm ready. Another billion in sight? Have a nice and sunny week-end. For me its rain, rainy and rerainy,moist, wet...

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Oil, coal and fertilizers
mills-man   6/19/2008   

Cardboard, is it your ORH and Fairfax experience who lead you to look on a momentum strategy? I truly respect your ...

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Cardboard, is it your ORH and Fairfax experience who lead you to look on a momentum strategy? I truly respect your opinion, so you certainly know that value investment required a lot of patience and will never be funny like momentum trade.  Reason why the crowd let jewel behind. But we can do it.   Its probably a dangerous way to play the market. Momentum pratically lead to unrealist valuation, on both side. The beginning of a trend is really hard to find, and it often lead us to take a position when the sector is already high or to be too confident in the trend. It place your money in front of a permanent losse. Its an art. Each down movement is freaking too, because its pratically impossible to difference a momentum pause from a bubble pop. Simply because the market use unrealist or new way to value a sector. Trying to justify valuation (speculative value). If someone keep in mind that he is in a bubble, maybe he will go out before others participant with strong results. But if you go out too early, it must be frustrating too and could lead to go in at a worst time. I simply know that i'm not personnaly able to play momentum , because i'm not able to control my emotion.   But momentum highlight the problem that undervalue stocks face. To convince investor that they are not lemon. Maybe you will find really good info for your goal in the period when Buffet manage his first private fund. Geico, W.Post, Coke and others where facing troubles when Warren was buying. Not really growing stocks.Maybe the key is on the brand reputation. Look at McDo last performance. The market is really quick to find growing stock, like RIMM.

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Third Avenue`s Q2 letter out
SParsad   6/19/2008   

to being a responsibility for regulators?  What if Chanos was wrong?  In Fairfax's case he was, and he is being sued.   Media is power. If it ...

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So was propaganda that pointed out that Enron was about the collapse a bad thing? Anyone watch the movie "Smartest Guys in the Room"? Doesn't it kind of come down to what the 'truth' really is? (like that isn't a loaded term). In that case Enron's collapse wasn't due to short sellers or any speeches they gave, it was due to the terrible ruthless unethical management (Skilling, Lay etc).   Doesn't that come down to being a responsibility for regulators?  What if Chanos was wrong?  In Fairfax's case he was, and he is being sued.   Media is power. If it weren't for the media and people calling out dishonesty and unethical behavior a lot more shenanigans would occur behind closed doors. The fact that we live in a free society where people are free to speak their mind is really a positive thing.   People are allowed to speak their mind...no one has a problem with that.  Our whole society is based on free-speech.  But would you go up to your neighbour on a daily basis and call him a thief in front of everyone?  Would you write articles about him/her being a thief and have them published nationally?  Would you call the police on occasion and file false reports?  Would you hire detectives to investigate his/her shopping habits?  How about putting videos on YouTube saying that he/she is a crook?  Probably not.  Cheers!

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RBS issues crash alert
mills-man   6/18/2008   

If Paulson is right, Fairfax will continue to print money. "We don't see any signs of stabilizing"...This market ...

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If Paulson is right, Fairfax will continue to print money. "We don't see any signs of stabilizing"...This market is very emotional. FFH shares seem to be sold each day in the last 20 minutes...Someone is betting the wrong way.

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RBS issues crash alert
mills-man   6/18/2008   

nbsp;bull-trap, before to collapse. We will see, but i sleep well with the Fairfax portfolio.   The fall of the US consumer can take time. Imho, consumers ...

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Its a courageous call. He can be right on the fact that central banks have played their cards. Goldman Sachs predict another round of financing for banks. FITB today. For more than a month CDS are slowly rising too. Silently, we approach the 12000 , and will probably test the march bottom. But this time, the FED will be out of game. Yes this market is vulnerable, and too much commodities dependant. Slowing US economy have weight on Asian index. It seem some think they are not really dependant. And asia economy is the main argument for bullish comodity players...1+1=? Historically, a bear market can lure participant with strong  bull-trap, before to collapse. We will see, but i sleep well with the Fairfax portfolio.   The fall of the US consumer can take time. Imho, consumers will be the key. It take time before to change our consumers habits. We are resilient and don't like (or want) to realize that we can't spend like before. But when the process begin, a change in consumer mind could lead to several years of saving. FED and white house know that. When are you thinking that consumer will be force to face their debt. We are probably near this point. US falling dollar (foreing creditor) and credit concern in the bank system are sufficent to me, in spite of low yield. Japan consumers experience. Have a nice day.

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FFH - Interest Rate Risk
oldye   6/16/2008   

thinly trading below book. Perhaps it would be better suited to your sleeping habits. As Fairfax's financial position continues to improve, they'll be able to strategically increase their position ...

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FFH holds treasuries because they're the safest investment you can make...what other investments with a positive yield/carry have a 100% guaranteed return of principle. Holding cash/low yield short term bonds in hopes of timing the market isn't what this company is about. There is a little insurance company in So Cal Called Unico American Corp that holds all of their investments in short term treasuries and it is thinly trading below book. Perhaps it would be better suited to your sleeping habits. As Fairfax's financial position continues to improve, they'll be able to strategically increase their position in equities..till then they'll continue to hold a huge treasury position and hedges. Good Luck.

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FFH - Interest Rate Risk
glider3834   6/15/2008   

Hi everyone, this is my first post on the board. The discussion on Fairfax financial & interest rate risk seems a good place to start. For disclosure I hold ...
shares & FFH through Markel also.   Firstly, when the Q108 numbers came out for Fairfax I was expecting a large increase in comprehensive income from the bond portfolio. Without going ...
would not make up the difference. Someone may have this realised bond gain figure.   Fairfax has a mix of US & foreign bonds so this may partly explain the difference + ...
...

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Hi everyone, this is my first post on the board. The discussion on Fairfax financial & interest rate risk seems a good place to start. For disclosure I hold both FFH &ORH shares & FFH through Markel also.   Firstly, when the Q108 numbers came out for Fairfax I was expecting a large increase in comprehensive income from the bond portfolio. Without going through the different treasury notes/yields, I think there was around a 50 basis decline on the 10 year treasury (& bigger declines on 2yr & 5yr). Using the 07 annual report I would have expected approximately 430 mil in comprehensive income. However, when I reviewed the Q1 report it was closer to 190 mil (from 74 to 260 or so)- I appreciate they did sell some bonds but this would not make up the difference. Someone may have this realised bond gain figure.   Fairfax has a mix of US & foreign bonds so this may partly explain the difference + foreign exchange rate moves.    I have also emailed Odyssey re to ask IR if they are using hedging or interest rate options with their fixed income investments.   So if the appreciation in the fixed income portfolio was less than what I expected, & what other msnberkshire users also expected after reading earlier posts, then it may not be appropriate to assume that the 07 annual report estimates of 200 basis point move will cause a 1.4 bil impact on comprehensive income.   Since March 31st we have had a 100 basis move in interest rates - its been very volatile - particularly last week - everyone has a view on inflation & I can't say I know where its going to go.   Anyway to me it would seem more appropriate at this stage to perhaps double the 190 mil + realised as being the decline from a 100 basis move in interest rates - a lotof which happened rather suddenly last week.   I think some have alluded to but it is heartening to see that Fairfax's equity portfolio & investment in Abitibi Bowater have performed really well this quarter & should take some of the sting out of the fixed income portfolio movements.   To me, the Treasury position of safety first & yield second has been the right strategy - its better to lose some yield to inflation rather than have loans permanently impaired - Fairfax have started to move into the high yield space with ABH .   As for what strategy is right at this moment if we have high inflation - I'm sure hamblin watsa are watching things carefully - they have a 10% bond return over last 20 years I think its worth bearing in mind - I'm not suggesting it means they are right on the inflation issue as we are all human but they have a track record that makes a lot of bond investors look mediocre.

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FFH - Interest Rate Risk
Cardboard12   6/15/2008   

I believe that some are making too much out of Fairfax's exposure to long term treasuries. We are talking about $7 billion invested in ...
for each scenario and so far it is somewhere in between.   Also, considering that Fairfax is in competition with other insurers to obtain float, just imagine the impact on ...
much harder. This will force some of them to take right downs while Fairfax will be able to hold these long term bonds with no impact on regulatory capital. &...
...

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I believe that some are making too much out of Fairfax's exposure to long term treasuries. We are talking about $7 billion invested in bonds due after 5 years of the safest type. It is a big percentage of their equity, but it seems like a reasonable percentage out of a portfolio of $20 billion.   Then you have around $8.5 billion invested in cash and also in ultra safe bonds these due within 5 years. That is a very significant amount of money maturing each quarter to be reinvested in whatever opportunity comes up. Also, a significant inflation hedge if you will. The rest or $4.5 billion is invested in equities with around $1.2 billion invested in CDS and puts.     So in terms of asset allocation, it looks pretty conservative to me and capable to deal with both high inflation or deflation. There is no "All in" bet. A good stance in my view since I have heard so many compelling arguments over the past 10 years for each scenario and so far it is somewhere in between.   Also, considering that Fairfax is in competition with other insurers to obtain float, just imagine the impact on the many insurers who have reached for yield to match analysts expectations on operating income. If inflation skyrockets, the impact on the pricing of bonds of issuers of lesser quality will get hit much harder. This will force some of them to take right downs while Fairfax will be able to hold these long term bonds with no impact on regulatory capital.     I have mentioned previously some of the reasons why I believe Fairfax share price is not likely to do well in the short term. The decline in the value of their long term bonds is one of them. This company right now has no good story to tell. There is no momentum whatsoever. Don't get me wrong, I still think it is attractive on a longer term basis with a low price to book and very large earnings potential, but until we see signs that these earnings are showing up, I think that the stock will go sideways.   Cardboard

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FFH - Interest Rate Risk
niels12think   6/15/2008   

bad really...   Such a shock to the economy might hit other insurers harder than Fairfax, making it possible to increase premiums even further. Just take a look at AIG and ...

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nsw & oec,  The intrinsic value might increase even if book value decreases.   Assume you hold a bond paying a nominal interest of 4% per year and after ten years, the full amount is paid. Say the price and the nominal amount of this bond is $100. The ten year interest rate is 4%.   Say the 30 year interest rate is 4.5%, so that a 30 year bond with the full $100 amount paid after 30 years with a nominal interest of 4.5% is also valued at $100. Inflation is 2% now and in the future.   Let's say that something drastic occur over night: the inflation risis 500 basis points to 7% and both the 10 year and the 30 year interest rates increases 500 bp to 9% and 9.5%, respectively.   This makes the price of the 10 year bond drop from $100 to $67.91 and the price of the 30 year bond drops from $100 to $50.83.   You now have the option to sell your 10 year bond at $67.91 and buy 30 year bonds for the proceeds. Then you hold 1.34 30-year bonds paying a coupon of $6.01 per year instead of the old coupon of $4 per year.    I.e. over night you have increased your annual income with 50% from now on! The best of it all - you get to keep most of the additional income.   Of course - after 1 year the additional 5% inflation have eaten away some of the gain and the claims paid out during the year may also have increased with inflation - but its still a nice gain in the annual income. And, the premium payments that you are charging will also increase by additional 5% per year going forward, and the increased premium payments may now be invested at the higher 9.5% interest rate. If the inflation and interest rates were to come down again, you would make a killing on the increase in bond prices.   not so bad really...   Such a shock to the economy might hit other insurers harder than Fairfax, making it possible to increase premiums even further. Just take a look at AIG and mortgage related losses.   However, regarding the valuation of the company: even if the company increases its earnings, then this cash flow would have to be discounted with a higher interest rate as well. But let's be reasonable - a 500 bp increase in inflation and interest rates over night is not very realistic ;-)    regards

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FFH - Interest Rate Risk
nsw2093   6/15/2008   

regarding Fairfax -- Good tables mills-man. Thanks niels12think. Like oec I tend to think more in terms ...

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regarding Fairfax -- Good tables mills-man. Thanks niels12think. Like oec I tend to think more in terms of a quick 500 bps increase, but StubbleJumper may have it right: "Is it possible? Yes. Is it likely? No." If it's reasonably possible, the bond position is unpleasant. Contrary to intimations, stock declines may be likely if interest rates spike and there's simply no necessary correlation between rising interest rates and CDS payoffs. (It's unexpected defaults, not somewhat rising rates per se, that can wipe out banks generally. Meanwhile inflation may help mortgage insurers while writers of CDS may collaborate rationally to prevent credit defaults.) Regarding the final supposition that rising rates would nicely whack liabilities: that's spot on with regard to fixed-rate debt, dubious with regard to insurance contracts. <<"From the AR, page 64, the effect of a 100 basis point rise in interest rates on the prospective fair value of fixed income portfolio would be to lower the fair value of these assets with $768.4M. From the AR, pages 42-43, the effect of a 100 basis point rise in interest rates on the fair value of insurance and reinsurance contracts would be to lower the fair value of these liabilities" 294.4m. The net effect of a 100bp rise in interest rates would therefore be a more 'modest'" $474m.>> I took the liberty of substituting fair value impact net of reinsurance a la oec. Oec may be too generous though, because any fair value markdown of liabilties not repurchased may be dubious. Supposing rising rates reduce fair value of insurance contracts seems as wrong as companies with no liquidity marking down their debt based on the distressed prices at which it trades and trumpeting their resultant equity. In the distressed debtor's case, its liabilities remain wholly payable if its equity is to retain value. If it can buy its debt at a discount, let buying it improve its equity. Otherwise the debt markdown reflects a fantasyland wherein the debtor has fairies sprinkling it with liquidity available to retire debt. In the insurer's case, the markdown may be reasonable if its liabilities are mostly payouts fixed in nominal dollars. Otherwise it may be a nutty exercise of applying a higher discount rate to a static estimated liability without accounting for the probability that a higher rate means higher inflation with higher payouts as, for example, repair&replacement costs rise in nominal dollars. Talk of foreign currency bonds mitigating risk is erroneous. Accepting a 4% nominal yield fixed over 10 years in any printed currency not match funding liabilities is simply imprudent, regardless of how it turns out. (Yes, all JPN long-term bond investors are imprudent.) In any case the bonds we're talking about are mostly US: $6.6 of $9.3 billion. Over $4.5 of that $9.3 matures after 10 years. Simply, the bond position has appeared incongruent with talk of extreme risk aversion, rather a risky speculation not apparently hedged.

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FFH - Interest Rate Risk
mills-man   6/15/2008   

nbsp; Yeah, Fairfax is touch by macroeconomic. The facts: Prem see this recession in early stage at ...
fighting the FED or expect they will failed to contain deflation. I don't think Fairfax well prepared for hyperinflation because they see deflation. But a quick rise in inflation follow ...

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Yeah, Fairfax is touch by macroeconomic. The facts: Prem see this recession in early stage at the AGM. They are positioned for US deflation since 1999. Ok 10y rise to 4.23 from 3.3 in only two month. So what. Bond market are now afraid by inflation, thanks to oil. We know FED afraid by deflation (1930)and working to inflate to go out of this crisis.   Prem is fighting the FED or expect they will failed to contain deflation. I don't think Fairfax well prepared for hyperinflation because they see deflation. But a quick rise in inflation follow by a rise in  FED fund could lead to deflation simply because US are debt loaded now. Not the case at the end of 1970 but more like 1930. Debt will reduce future growth. And the growing size of the debt force the FED to keep interest rates low.   Like you can see on my attached document 10y are more stable than Fedfund.

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FFH - Interest Rate Risk
Partner24   6/15/2008   

threat for me. The ongoing "journalists" repeated attacks were, to me, a part of the Fairfax project.   To me your point is relevant and should be discussed openly. It ...

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You're welcome oec.   Maybe they are so used to seeing shorts denigrate FFH that it is an instinctive reaction to any criticism of FFH.   I don't know regarding others. I would understand if it was, because over the last few years, I've seen so much scrap written by some "journalists", so I'm very cautious now...I want honest and fair critics and real potential threats. And if I see some, I try to be very open about them. FFH management misconduct, lack of honesty or transparence was not that king ot real threat for me. The ongoing "journalists" repeated attacks were, to me, a part of the Fairfax project.   To me your point is relevant and should be discussed openly. It should also be addressed if it represents a real and significant threat, even if the probability is low. If somebody have more detailed information and knowledge about that, please share it.   Head (deflation and recession), we would do great. Tail (significant inflation and rise in interest rates), I would like to know if we wouldn't lose too much.

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