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And you're right, they will print. But it's not that simple. The Federal Reserve can't fix a massive credit crisis just by providing liquidity to the Treasury market. Many of the systemic problems during times of extreme stress require fiscal policy, an act of Congress. The Federal Reserve is simply a lender of last resort; they legally can't spend money. Have you taken a good look at our Congress lately? I've been more impressed by the intellectual display of chimps at my local zoo. A fiscal crisis would leave everyone with nothing but bad options. I do not expect good judgment to come from our current government.

Exactly! On this last point I completely agree. Their corporate and business structure is a thing of beauty. They don't need to do a whole lot more than hit singles on the investment side to compound relentlessly and for a long time. I'm glad you mentioned the likely link between the big win with CDSs and the subsequent upside down macro bets and shorts. I highly doubt the lost decade would have toured out the way it did without that home run in 2008/9. In the aggregate it may even have cost more. Lastly even excluding the Shorts, the deflation swaps and the market hedges. Their investment returns were well behind most benchmarks. They sure had some beauties during that period, everyone and their mother knows about the infamous blackberry, but Sandridge energy, Resolute forest and a couple others that don't immediately come to mind. They lagged the benchmarks significantly to the extend that a colleague of mine said they look more like gamblers than investors. 2019/2020 was truly a turning point. I didn't see them do any crazy during the Covid market selloff, in fact they doubled down on what they knew best ie TRS on their own shares. And masterfully handled the emerging inflationary environment. I think everyone here sees a relatively viable path to 15-20% annual compounding for the next 5-10yrs if they stay in this lane.

Yes. But we've seen what happens when it's time to collect. The losses are socialized and the government prints and deflation is avoided. It's not morally right. And you should invest in the companies owing the credit. But as long as we're the reserve currency, we'll print. No, printing is the alternative outcome to offset the contraction in credit. And they'll print. And they succeeded both times. And will do again.... because they'll print.

As a starting point, more than last year. 2025 - “During the year we purchased 1,006,535 subordinate voting shares for cancellation for cash consideration of $1.6 billion, or $1,615 per share", said Prem Watsa, Chairman and Chief Executive Officer.” Fairfax thought their shares were very cheap a year ago - they were very aggressive with buybacks. The shares closed Friday at $1,625, about what they paid in 2025. But the value of Fairfax has increased quite a bit over the past year. And it is going up nicely every quarter. So Fairfax is a much better deal today than it was a year ago. As a result, I think Fairfax will be more aggressive. In terms of $, Fairfax has lots of options. They can be very creative when they are motivated (look how they funded the dutch auction in 2021). If value keeps growing and the shares stay at current levels (or go lower) it could get to a point where Fairfax acts (gets creative and more aggressive with buybacks).

Money in our economy is primarily credit. When there is a run on the system, and the means for originating credit come to a halt, deflation is the only outcome due to the money supply rapidly shrinking. 2008 and 2020 were both instances of the Federal Reserve and Treasury racing against deflation in order to stave off collapse of the financial system.

We made a deal with Iran. Whoopee fucking ding dong.

Let’s assume we stay between 1.2-1.4x BV for the remainder of the year. How much do you think they spend on the buyback? My working assumption is half of the dividend capacity of the insurance subsidiaries ~$2B, proceeds from Poseidon held at the holdco $400m, and potentially another $600m from the proceeds of Eurolife. I think the constraints are investments:equity leverage and debt to equity.

Regarding buybacks, my guess is the persistency of current low stock price has likely caught Fairfax a little by surprise (like the rest of us). Beginning in Q4 of last year Fairfax has been very aggressive with share buybacks. And it seems to be having little impact on the share price (this has surprised me). Fairfax also been very busy on the capital allocation front in recent months (lots going on in addition to buybacks). If the share price stays at current levels, I think there is a good chance that Fairfax will get more aggressive with buybacks. They are very opportunistic. And also very good at sizing their bets.

PBR.A back below $12 and I will reload.

Especially when the MOU (which is an agreement to negotiate an agreement) isn't going to be signed for another 5 days.

The use of minority parters to fund their acquisition spree from 2014 to 2017 was brilliant. An important outcome is the size of Fairfax’s insurance business is overstated (net premiums, float, underwriting profit). And that is because of the minority interest in Allied World and Odyssey. At least that is how I think about it conceptually. When Fairfax takes out minority shareholders, the earnings (driven by NPW, float and UP) that accrues to common shareholders will increase. It is the same as buying another company. Of course, Fairfax also locked in a low purchase price - when they put each of the original deals together. That is icing on the cake. This given an elegant way to continue to grow in a soft insurance market. (Not that anyone cares.)

Draft and 500k soldiers to Iran. You guys are crushing it. How about we sending a MAGA volunteer Army? Sign up at a recruitment center and show these non believers what you are made off.

Based on the track record of previous announcements by Trump I think it would be optimistic to even apply Churchill’s WWII comments to the situation: ”Now this is not the end. It is not even the beginning of the end. But it is perhaps the end of the beginning.”

@SafetyinNumbers , the Fairfax story is full of nuances. The “lost decade” moniker I like to use is catchy but it does oversimplify the reality of what was actually happening under the hood. Fairfax’s insurance business was slowly getting transformed for the better - and it doubled in size from 2014 to 2018 (acquisitions). Basically the insurance spring was getting coiled tighter and tighter from 2010 to 2020 (in terms of earning power) - and then it doubled in size again from 2020 to 2025 (hard market). There are many stories like this… where the earnings power had increased significantly but it was being masked by losses from equity hedges/shorts/poorly performing equities. There are so many interesting angles to the Fairfax story.

Oils still 20% higher than pre war and ...."oil hasn't gone up"...

https://www.wsj.com/world/middle-east/iran-threatens-to-pull-out-of-talks-after-israel-strikes-beiruts-outskirts-d0390e22

in 10 or 20 years

When are we going to close the gap from $65-80 from May?

Now we are patiently wait for the details of the deal to see how much Iran won by!

They also used their more fairly valued stock to buy Allied World which reduced the impact of the hedging strategy by issuing equity and dramatically increased the float ahead of what they expected to be an increase in interest rates. That ultimately took a lot longer to happen. They were already in talks with AW in September of that year but they did bump in December to help get the AW BOD on board. Another example of how Fairfax often expresses the same bet in a multitude of ways.

Great analysis as always @Viking. What’s interesting to me is that most professional active managers are using the “lost decade” as a basis for avoiding the stock. It’s the right strategy for most cyclical businesses as margins are more likely to mean revert to the last cycle lows. For Fairfax it means assuming interest rates go back to decade lows i.e. below the mean which is closer to where we are now and the equity portfolio which is filled with entirely different businesses has the same poor performance. Another wrinkle, that these managers miss is that along with the hedges, in 2012, Fairfax started adding more equity positions where they owned more than 20% which impacted the accounting returns negatively. Now that this strategy has matured, I believe it means structurally higher equity returns as investments that are sold book large gains and investments that are not contribute to ROE above 15%. Another headwind that has turned into a tailwind. I have a lot of confidence in predicting a floor for BVPS growth over the next 5 years. I have less confidence in predicting the P/B multiple but I suspect it will be difficult for it to go and stay below 1.2x for over a year. I also don’t think the multiple can get much above 1.4-1.5x unless we have another hard market. The good news is this will mean a lot of buybacks and strong contribution from the TRS as there will be no need to retire them.

This is going to take years and also only works for crude not the other goods that go through the SOH both ways. Also the pipeline and storage facilities are still vulnerable to attack. Just look at what happens in Russia. Mitigations can be developed but can only partly solve the problem.

Actually, you are not. That's how they got rid of the screwworm in the 1960's. It was essentially eradicated for the last 60 years. It infects open wounds in cattle, as well as humans. It could drive the cost of beef up significantly and has made its way up from South America over the last few years. It finally arrived in the U.S. about two weeks ago. It is a legitimate scourge and problem! Cheers!

Thanks as always, @Viking, for these fascinating posts. I am relatively new to FFH, but do remember being impressed at the time when Prem took off the hedges in 2016 after Trump got elected. I think we can all think of fund managers who became bearish, not unreasonably, but who have struggled to concede they were wrong, and have just stayed stuck with their convictions, underperforming. So while it was a painful decade, it is a great credit to them that they managed to recognise their mistake, and how things had changed, and reposition themselves. Cheers

Thanks for posting the interview