JRH

What's safe to assume? I think: 1) He wants more cash than he has 2) He doesn't want to trigger capital gains by selling existing holdings #1 could be a result of seeing opportunity or redemptions squeezing the existing cash cushion. I know that's pretty basic, but just laying it out.

If they were called or otherwise liquidated at par or some fraction, or converted to common relative to par, then yes. If they someday reinstate the dividend, then they might be priced relative to the coupon. You could estimate the market's weighting of both factors - as well as liquidity - by looking at the relevant features of each.

There are certainly opportunities that often arise due to opacity of those processes, as well as turnover of the shareholder base that often accompanies such turning points. But seriously, with Watsa resigning, what are the chances they bid? 90%? 10%? A coin flip? I have my opinion, although I haven't acted on it.

WOW... What price do you think Fairfax will end up offering? Talk about telegraphing intentions. Edit: I only slightly kid.

I would call the comments "prudent", not "stupidly conservative", but that's just me... ;D A friend made a LOT of money on Genworth from the lows, good for him. I never bought because I assumed the possible outcomes were bimodal, as you mentioned. I consider myself a "reversion to the mean" investor, so even a mediocre business with a low price/book might be worth another look if they are de-risking. Thanks!

New 13F filed... CHK, CNQ, GNW are new positions. Edit: Only CHK position is of meaningful size. Genworth is an interesting choice at this point. Do you think he watched it rise hundreds of percent off its lows, patiently waiting to be certain before pulling the trigger? (the BofA template?)

Has an "income style mutual fund" EVER moved up 11% in one day? :o Especially one 40% in cash?! ;)

I fully agree. I think he transcended the role of "movie critic". If you followed his reviews, it was obvious how much he loved the cinema. Many critics try to be "objective" but really just become emotionally and aesthetically turned off. His writing was always filled with spirit and humanity.

HNR has/had two problems: 1) Liquidity since the asset sale was cancelled 2) Notice of accounting misstatements I love situations like this because the capitulation of holders in situations with multiple issues is often much greater than the sum of capitulation that would be caused by either individual issue. In other words, you can get extreme price overshoots to the downside if you're lucky (and if you're lucky enough to know better than the market). At a glance, it looks like #2 MIGHT not be an issue (non-cash charges certainly helps, for what it's worth). I haven't done the research on #1. You can say the book value is X based on the sales price for their assets that didn't go through, but that's not even remotely the same thing as saying equity ends up worth X in an actual bankruptcy/liquidation scenario.

I believe a Resolute Forest Products thread exists under AbitibiBowater: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/abh-abitibibowater-inc/ I assume "marginal propensity to buy and sell amongst market participants" is not going to satisfy your question?

HNR disclosed accounting problems yesterday, after the Venezuelan asset sale fell through a month ago, as well as that their auditors will identify a "going concern" risk due to their liquidity position (they were probably counting on the sale). I owned them a few years back and my impression of the management team from that time is that they are straight shooters. I have DD to do but the market reaction since $9/share a month ago may be overly pessimistic.

Agreed all around. Have you seen the video of Elizabeth Warren asking the regulators when the last time was they took a big bank to trial? Depressing!

It's very interesting - I've thought about this subject a lot. There are actually two questions: 1) Are we running out of resources? (Grantham's first assertion) 2) Inclusive of but not limited to #1, where are resource prices going? In regard to #1, I am not sold. I find it an inconvenient piece of information that the commodity price turning point that Grantham illustrates is in the late age of central banking (largely the last ten years, where central banks have gradually waged a greater and greater war on real yield) and with the advent of the financialization of those products (resource ETF's being an obvious example but really just the tip of the iceberg). I think it is more likely that what we have seen is a one-time adjustment in price as these products are accumulated by intermediaries that can now get their hands on them in order to hedge, store value, or speculate (or all three). The alternative - that we are suddenly (and simultaneously) running out of a broad range of basic resources - seems unlikely, although I cannot dismiss the possibility. I have no opinion on #2.

I maintain that this line of thinking misunderstands the mechanics of various government securities (T-bonds, reserves). The JCB can set the interest rate of both instruments explicitly, regardless of inflation (if they set the rate below, it is commonly known as "financial repression", which you can dislike for all sorts of normative or policy reasons but is nevertheless perfectly viable from a technical perspective). The risks, broadly, are 1) that the JCB will mismanage the situation, or 2) that a decrease in the value of the currency precipitated by selling (whether it be by domestic or international market participants) will spiral into a psychological rejection of the currency. To be clear, there are few, if any, applicable precedents for the situation of a currency issuer with a floating currency and no foreign-denominated debt. The basic adjustment mechanism in such circumstances is not interest rates, but exchange rates. No position, but I believe currency depreciation is FAR more likely than interest rates spiking in any case I can conceive of. EDIT: To be clear, I believe I understand this situation, but even I can see it is without precedent in certain ways and therefore am standing aside and am eager to learn either way as events develop!

Can you be more explicit? Do you mean because he's in contact with MBIA and BAC management? Something else? Yeah, I don't feel like I can grok the situation well enough to guess particulars (which would be fairly useless anyway from a risk assessment standpoint) but as I understand the concepts of inside information and materiality, he'd have to know something that hadn't been clearly made public. I have speculated before that Fairholme would act as a liquidity provider to MBIA in the worst-case scenario but honestly that is pure speculation. If they had discussed such a possibility, even at a high level, Bruce could end up with information that could be construed as insider info. It's also possible at this point in time that I am approaching the realm of "conspiracy theorist". None of this speculation goes into my rationale for holding a position in MBIA (or BAC, for that matter).

This seems VERY significant to me. Make a list of the reasons Berkowitz would be afraid he has material info. Seems like a pretty short list to me.

I don't see this happening, but I guess anything is possible. I would more readily bet on a parallel permanent capital vehicle being brought up alongside. Seems to me the most logical move from here is more evolutionary - for St. Joe to hire Fairholme Capital to manage investment of the excess cash on their balance sheet. Even a move like that doesn't seem like more than a coin-flip to me, though.

My preference is for FAAFX for the following reasons: 1) Berkowitz has stated FAAFX is designed to reach smaller opportunities than FAIRX, but he obviously doesn't forfeit being able to go after the big ones (i.e. AIG, BAC, etc....) 2) Berkowitz has stated that FAIRX is large enough that opportunities appear to lend money or facilitate corporate transformations (i.e. GGP) that a smaller fund couldn't do. HOWEVER, when he has done this, he has included the smaller fund(s) in these transactions as well. Therefore, no disadvantage to the smaller. 3) People investing in FAAFX are more familiar with Fairholme, in my opinion. Therefore, the investor base is likely to behave better on average during periods of underperformance, etc...

Press release clarifies the SEC filing - "closing to new investors" is on a per-fund basis. If you have money in one, you can only contribute additional money to that one. http://www.fairholmefunds.com/sites/default/files/January%202013%20Fairholme%20Funds%20Press%20Release.pdf

It was enough of a punch that he went fully invested in the 2nd half of the year (in at least one interview, he said he was down to <=5% cash). I remember late in 2009 he said that he didn't think the fund had even a single month of outflows during the downturn. The difference between having the full faith and support of his client base in 2008 and being essentially abandoned in 2011 would have to be a striking difference, especially occurring just two years apart. If anything, I think closing the funds to new investors is a very controlled reaction to that experience.

I actually emailed investor relations last night asking these very questions and will post the answers when I hear back. My suspicion is that unless you have a "direct" account with Fairholme, you will not be able to switch between funds as a way to get around being "closed to new investors". That's based on similar, prior experiences that indicate to me that the brokers simply don't have the information systems/logic set up to tell cross-fund or cross-account whether someone qualifies to put money into a "closed" fund, but we'll see.

I agree that a "softer" version of #4 is the best interpretation for what HE thinks will happen - a decrease in productive capacity will trigger interest rates to increase, but in my mind that makes the theory [GDP decrease] -> ??? -> [spiking Interest Rates!] I would simply point out that regardless of what holders of sovereign debt choose to do, the Bank of Japan can always set interest rates, as they have the ability to buy every Yen-denominated bond in existence and replace them with reserves, which simply act like checking accounts for banks. I would characterize the risks as institutional, by which I really just mean that the yield curve or the deficit would be mismanaged in such a way that facilitated higher interest rates. Plenty of ways that can happen but Bass sure seems to be suggesting something a little more drastic than an adjustment. One thing is for sure, someone is going to be wrong! Sounds like Bass isn't paying much for the bet, though, so perhaps it's "heads I win, tails I don't lose much".

My thoughts on the subject as someone fallible but with some analytic background. First, Hussman has mentioned that data is their largest expense after payroll. Not the same thing to "buy research" and "buy data", I admit. However, there is no reason to believe that a combination of analyses will produce a better analytic record than the one "best" analytic method. Usually, it is just the opposite. I think that is where people misunderstand Hussman's approach. For instance, people criticize him for not using the "don't fight the fed" methodology (which has worked very well lately), but he has shown how it consistently backtested worse than the method they utilize. On the other hand, in backtests, his trend-following technique captures the good (would have stayed invested late 90's) without the bad (would avoid big historical drawdowns). Even if you employed an ensemble of recession indicators, how would you weight them? Any time one or more predicted recession, you'd go defensive? Only go defensive when they all predict recession? What you are really doing is shifting around confidence intervals, not materially improving your protection against knowable risk. New data always diverges from historical data to some degree. That degree is the risk to any model, no matter how well built. The idea you can anticipate the nature of that degree is suspect and would be hard in any one instance to disentangle from the domain of luck.

I personally disagree with Bass. Not because it isn't possible, but because it isn't likely. You can itemize the reasons that interest rates spike on sovereign debt and Japan is not standing in the headlights of any of them: 1) They can't control their money supply (i.e. Greece vs. ECB, "gold standard" situations) and debt servicing becomes unsustainable and forms a positive-feedback loop. 2) They peg their currency (target price instead of quantity - Russia 1998) - really just another form of #1 - and the exchange pressures become unsustainable and form a positive-feedback loop. 3) They hold foreign-denominated debt (Argentina 2002) and the domestic currency they print to pay it depreciates faster than they can pay off the foreign debt in a positive-feedback loop. 4) The real productive capacity of the economy collapses (Weimar Germany, Zimbabwe). Triggered by extreme societal stresses and a psychological rejection of the currency by the people. 5) The central bank SETS high interest rates in order to stamp out high inflation/high inflation expectations (Volcker, early 80's U.S.). The most viable of these options but certainly not imminent, IMO. By far, I think the most important point is that Japan is sovereign in the Yen and do not have institutional restrictions (gold standard, currency peg, etc...) that prevent them from setting interest rates wherever they want them. Whether they have future inflation is a matter of whether the economy pushes against its productive capacity, and, to a lesser extent, cost of energy, food, and other "inputs". Bass makes it sound like the BoJ can just, whoops!, one day lose the ability to set interest rates wherever they want them. All they have to manage to is aggregate demand unless Japan one day finds itself in one of the situations above.

It's interesting... Most people don't understand where their own outperformance comes from (when it happens). I think the innate human reflex to outperformance is to feel that you have some innate talent, rather than that your results can be explained by your investing process, informed by the laws of statistics and accepting an appropriate degree of randomness. Personally, my outperformance since 2009 (when a significant portion of my portfolio first became stocks, rather than mutual funds) is likely explained in that paper. I've simply researched stocks being bought in considerable quantity (as a % of their portfolios) by Buffett, Berkowitz, Watsa, Pabrai, Ackman, etc..., and then copied their actions. The only difference is that I have done this judiciously, further pruning the list to my own subjective liking and understanding. I haven't backtested the theory, but it's quite possible I could have done just as well without so much as looking up what companies the tickers represented, if I only had quantitative portfolio criteria for making a composite "best ideas" portfolio from these investors. Instead, I have spent hundreds of hours reading filings and message boards, listening to conference calls, etc... It's an interesting thought and something I should probably look into. I would welcome having that time back in the future.