Estimated Profit

Canary in a coal mine? http://www.bloomberg.com/news/2010-08-24/british-nightclubs-shut-as-economy-forces-revelers-to-stay-home-with-booze.html

There will likely be many things hit by inflation while we have a stagnant economy. Anything in demand in developing nations will be hit by it. Materials, Oil (not necessarily natgas), Food, perhaps very talented skilled individuals (brain drain from West to East so to speak), luxury goods... Eastern demand = lower Western supply. Anything not in demand will disinflate: labour, discretionary products and services, products and servcies which compete based solely on price: e.g. rates for telephones, internet, contractors, mechanics, will all contract. As spending is reduced supply will increase as demand decreases. It looks like there is a big reversion to the mean when it comes to standards of living from West to East, ours flattening out while theirs improves.

*i haven't read the co.s annual report so this is all tongue in cheek* :P Looking at their Canadian segregated fund business. 1. The MER's for their seg funds are approx 50% higher than MERs on comparable mutual funds. (approx 1.2% higher) 2. Presuming they get a discount on volume on the average MER from the fund companies they use they probably make 1.5% more on the seg funds than they would on a comparable mutual fund sale. 3. MOST seg funds have guarantees that aren't paid out until a. death b. 10 years after the last reset c. Many, though not all have maturitiy guarantees that range from 75% - 100% 4. They have, in the prospectus for their seg funds, a clause that allows them to raise the cost of insurance for their product. CI used this on their Sunwise Elite platform last year, earning them additional sums on all existing policies. Now if we presume that the vast majority of these funds will not pay out for 10 years then the chance that the company will be underwater when the funds mature is very low. Also, they will have enjoyed 10 years of revenue at 1.5% more than they would have realised on similar mutual funds. These contracts hedge themselves to the tune of approx 15% over the years and have the opportunity to maintain these ratios by increasing the fees on existing policy holders. If we use the last ten years as a guide, the incredibly huge fall from the 2000 bubble's popping, they are making money on all of those contracts. Similarly, most of the contracts that they entered into in 2008 won't mature for the mostpart until 2018. I think there is a pretty good chance that the market will be at least flat by then. In other words, there is a great chance that the majority of these contracts will all end up being profitable, no matter how much is marked to market in the interim. The company has already hedged them through the additional fees and if it comes down to the company needing to issue more equity to hedge these shadow losses, there should be no problem doing so. I hope for existing shareholders that it doesn't come to this, but it may given that the mark to market is crippling the company. At any rate, I'm going to open up the annual reports and analysts reports to find out if my presumptions are all garbage or if there is a remarkable hidden asset here.

Ben. It's difficult sometimes to communicate via blog or any other written medium as it's so difficult to emphasise what you wish to and sometimes it's hard to support your thesis with arguments when we all have a tendancy to digress from our points. At least that is what I experience. I guess this was your main point: I can't disagree with what you said above. But sometimes we get frustrated with pundits and stop listening to them entirely even when they have something valid to contribute. This is a great point. 6 months ago it wasn't the no brainer strategy. And this is where Roubini and his comments are valuable in spite of his posturing. What he does in this article is demonstrate to us that the brilliance of the trade is over. This is where the dumb money comes in and rides the wake of the wave of smart money. 6 months ago huge bodies of smart, cheap, leveraged money jumped into the pool and started the massively profitable waves of the carry trade. Roubini points out that anyone to enter this trade now is chasing it. The "easy" money has been made by those that could see and have the capital to make this trade possible. As the dumb money jumps in the pool after the smart, the bubble will keep inflating. With the Feds comments last week I see no reason why it will stop here. The value of Roubini's comments are that he connected the dots that were swirling around in my brain. They had no form before now and I'm greatful for the article because I'm better poised to see the danger signs coming (hopefully) and I can try to position myself closer to the door in the event that a stampede for the exits begins.

I think it's dangerous to dismiss the current comments of a Professor of Economics just because he was as caught up in the madness of the March lows as anyone else. Before I read this article yesterday, forwarded to me from another source, I was looking at a few different things. 1. Chart of the USD vs. CAD. Amazing spike in value going into the crisis and amazing decline in value coming out of the crisis. One would have made (ballpark) 70% by exiting the CAD for USD in September last year and reversing the trade in March. 2. Chart of the inverse correlation between the USD and global equity markets. I can't imagine what returns are like for US investors should they have exited the USD in March and bought Canadian investments. 3. Goldman Sachs' investment Returns. http://www.bloomberg.com/apps/news?pid=20601087&sid=azB7kHpYKRy4 Today’s filing showed the weighted average interest rate paid by Goldman Sachs on its unsecured short-term borrowings dropped to 1.70 percent in June from 2.14 percent in March and from 3.37 percent in November. I think there is no doubt that these are the guys that are running the show. But as Roubini points out in his article "The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time." To sum up the argument and to agree with Roubini, USD is a funding currency at present. If there is a catayst to cause a need to repatriate capital quickly global markets will take a kicking. If something will happen inevitably - it's a matter of when and not if. It doesn't necessarily matter if things are good or bad. The issue with investing is timing. I remember reading articles about derivatives written by buffet in 2003/2004 a full 4 years before the ticking time bomb blew up. The same about articles about Squanderville. It took a while for the street to realise that he was right, but there was a hell of a bull market to get through before all the gains were erased. This article is wonderful not because Roubini is giving us timely advice, when to buy, when to sell. He is giving us a heads up about a real issue that may ultimately come to haunt those that aren't prepared for it.

My apologies everybody. My flair for the dramatic seems to have offended the sensibilities of everyone that has a flair for accuracy. SD got it best when he wrote: My point is that FFH has traded at wonderful discounts in the not so distant past and in all likelihood will do so again in the future. Here is my official stance. 1.) Hold a permanent long position 2.) Have a trading position which you buy when you feel FFH is trading at a discount to book and wait for 1/4ly numbers for it to adjust back to book value. Taking a position that is speculative waiting for multiple expansion isn't wise in my opinion. That's it. Cheers. ;)

How quickly we forget how volatile the markets can be. We haven't had a nasty cat for some time but domestic terrorist attack, earthquake, hurricane and all of a sudden we see .6 book in short order. Also, a general panic in the markets and a broad based sell off in financials will take this company down with all the rest regardless of whether or not it deserves it... but then again when was the last time that happened? ???

As the reporting of the third quarter approaches speculation as to whether or not to buy into earnings is rampant. My short answer is maybe. All things being equal Q3 should have attractive earnings should HW have kept their portfolio constant. However, we don't know what they are holding as we have more or less in the past as far as Q2 EPS was concerned or the CDS portfolio last year. I am in the camp of Value Buff with his 40% of a position thesis. FFH is one of those companies like MVL that one needs to hold on to, because though very volatile, you really do want to hold it for the long term. Sharper Dingan though has a thought that I hadn't considered until now which is the headline risk. Competing with last year's returns offer the headline: FFH profit down 80% on Investment Earnings.... or somethingto that effect.To say again however, people just don't realize how cheap this company can get and in all likelihood, we will see .6x book many times before we see 1.4x book. For anyone with a full position here at BV they will in all likelihood see good "crunchy" returns over the next 5 to ten years. But they will in all likelihood miss out on the next 5 to 10 .6x book to book market mispricings and repricings that will happen along the way. But, once more, maybe the shorts are tired of getting their a$$es handed to them by HWIC. Maybe they have moved on. But being a non household name, with low trading volumes, this will in all likelihood, attact those looking to make a quick buck via market manipulation. Sorry for the long post. If you are going to speculate going into these earnings, count the amount of maybe's in your investment thesis and recognize speculation for what it is and don't fool yourself into believing that you have a large margin of safety for your capital here. (Disclosure... I am speculating going into earnings. I'm not all in, but I have replaced 50% of the positions that I sold after Q2s revaluation to book as I believe we are at a discount now.... I do know that I'm rolling the dice however, looking for a short term gain.) ;D

The assumption here is that immigrants don't come in to take the sh1t jobs because they aren't getting compensated to do so. They may as well stay in their respective home countries. What this means is that native Americans / Canadians are so hungry for work that they are now accepting the sh1t jobs. Work they would otherwise not have wanted for wages they would otherwise not have accepted. For us to be at this point, our workforce would need be in an unprecedented state of desperation. Put another way, for immigrants to voluntarily choose to stop coming to our countries for work, it means that prospects in our countries for labour are as bleak as in their home countries = domestic poverty = less spending = less demand = deflation for anything with labour as an input cost.

Prefs are good for long term uses of cash as fixed income, but as a place to keep your dry powder they aren't so good. They tend to be illiquid so if you are looking to liquidate on a given day, especially if there is a selloff and the markets sieze up a little, you may not get the price you wish to get at all. If you're putting up $25,000 it's one thing, if you're trying to put up more it becomes difficult. If you're going to use prefs to store cash, the best thing to do would be to buy lots of different issues so if you want to liquidate you don't move the respective markets when you come out.

Speaking from a North-North American perspective. That is Canada and the United States. I think that we are going to be in a situation where we will have inflation on commodities and deflation on services. This will lead to an overall measurement of benign inflation and allow loose monetary policies for longer than many predict. Two reasons for commodity price inflation: 1. Expansion of the money supply means that if it's priced in USD the price is going to go up. 2. We will be competing with industrialising nations for natural resources and the prices for the energy to attain them will rise. Reasons for deflation of services: 1. Rampant unemployment will result in more competition for local jobs and this will keep wages restrained or declining. Oftentimes Labor is the largest cost for production. 2. A globalized workforce will see manufacturing and some service jobs going overseas to lower cost labor. This will lead to more unemployment and feed into point #1. 3. A deleveraging consumer will need to decrease spending and be more aware about purchases and will go to the lower cost provider leading to agressive price cuts for anyone looking to keep sales up. 4. Lower profit margins will feed again into point #1 as businesses become more focused on cutting costs to reduce prices. Without trade barriers I don't see how the above scenarios can be avoided. (I'm not advocating for them) Based on these arguments, I think that low interest rates and loose monetary policy may be in place a lot longer than people expect as main street has only just begun to fix their balance sheets and this will in all likelihood take quite some time. Given that we have service economies this may be very painful and these loose monetary plicies will feed further into commodity price inflation. Any comments would be appreciated. Perspective is everything.

Viking, I wanted to quote your entire post as I couldn't agree with you more. People have made so much money in the last 6 months that they all think that they can walk on water. I'm an investment professional and my clients are coming in begging to buy stock. This always gives me the heebie geebies as it's all I can do to try to convince them that there is nothing wrong holding cash. Conversations about divesting take longer than conversations about investing. Everyone is starting to reach for returns. That's a bit of an aside from what I wanted to say in fact. Myself personally the only $20 bills I see lying around are in the gold and commodities markets. Not surprising as I'm Canadian perhaps, but the way I see it, if it's priced in USD then the value is going to go up. The USD is not what it used to be and will continue dying a slow death until it reaches a dramatic demise. I say this because it's a matter of time before foreign countries realise that it's not a reserve currency anymore in that it can't be counted on... In my view this is value investing. Finding an asset that doesn't reflect it's true value and buying it if undervalued or selling it if overvalued. Go to a 3rd world country with USD and watch them freak out over trying to get their hands on them. My prediction is that soon many 3rd world countries won't care as much for them as the currency is devaluing as fast or faster than the local currencies. Should this reach main street the game is over and we'll all be scrambling for gold. Flight of fancy perhaps but once faith is lost, it will be lost forever.

http://www.chrismartenson.com/crashcourse I would appreciate feedback from anybody that watches this presentation. As doomsday scenarios go, this one isn't bad. Thesis: The next 20 years will be radically different than the last 20 years. -Collapse of Fiat Currencies (USD in particular) -Accelerating debt bubble in the US -Explosion of money supply (same thing as the debt bubble) -Explosion of global population (70 million new people per year) -Scarcity of natural resources -Destruction of ecosystems I can't say that I disagree with him, but I'd really like to. As the Globe and Mail says: Perspective is everything. If anyone would like to offer theirs to this that would be great. EP

A big thank you to John Z who led this horse (me) to Fairfax as well as MVL. Myself, friends, family and others have made hundreds of thousands of dollars from these two ideas. John opened my eyes to these two investments which I have gotten to know well over the years. They would never have been on my radar had it not been for his mentioning them. I am sad that MVL has finally done what many people have often said it might do... get bought by Disney. I feel like one of my children has grown up and moved away. :'( This brings me to say one thing however, invest in what you know, are intimate with and don't leave the company if you think it still makes sense. MVL traded in a range for years and it was only a conviction that this was a damn good company that could be bought out at any time that kept me with a large permanent position that I'm very glad to have had. At any rate, John, thank you wherever you are. P.S. Disney is getting one hell of an asset with MVL, the synergies are going to be absolutly crazy. They bought a diamond for the price of a gem.

Hey Hey, The gang is all here. Thanks for this Sanj. I'll be back to lurking after this post... ;D