Hoodlum

I wonder how much Fairfax is involved now? Going from ~60M shares to potentially almost 600M shares is significant dilution for existing shareholders. But the lower debt will help them become more competitive. http://business.theglobeandmail.com/servlet/story/RTGAM.20090313.wabitibi0313/BNStory/Business/home Under the proposal, $2.9-billion of Abitibi-Consolidated notes are to exchanged for $321-million in new notes paying 12 per cent interest and $810-million in 11 per cent notes, along with 86.7 million shares of AbitibiBowater and 230.7 million warrants in three series to buy stock at prices ranging from $1.00 to $1.50 per share. There also is to be a $350-million offering of new notes with a face value of $389-million attached to 222.2 million warrants to buy shares at $1.25 each. The company plans to repay $413-million of 13.75 per cent notes due in 2011.

The markets are comparing BRK to Turkey, Peru and Colombia. Berkshire credit costs trade like Turkey's

An interesting comment from this morning's CNBC interview. http://news.yahoo.com/s/nm/20090309/bs_nm/us_buffett_3 He said Berkshire will write less catastrophe insurance this year after investing roughly one-third of its available cash in high-yield securities issued by General Electric Co, Goldman Sachs Group Inc and other companies.

Looks like Fairfax got into their insured muni bonds just in time. http://www.financial-planning.com/news/buffett-stays-cautious-on-bonds-2661225-1.html Since Warren Buffett's Berkshire Hathaway Assurance Co. entered the bond insurance market, it has limited its production of new business and asked for high premiums. Last year, it wrapped just 22 issues with a par value of $3.3 billion in the primary market, according to Thomson Reuters. In his annual letter to Berkshire Hathaway Co. shareholders released this weekend, Buffett explained why the business has stayed small. He wrote that the company remains "very cautious" about the new public finance business it writes and "regard it as far from a sure thing that this insurance will ultimately be profitable."

The Markets have dropped 25% since Dec 31, 2008. So even if the available cash has not changed it now represent 100% of existing stock market capitalization, only surpassed by the 120% ratio in 1974. The ratio could be even higher if more money has been pulled from the market since Jan 1st.

Another way to look at this is to compare the cash on hand during various recessionary periods. I don't think we will see the same boom after the bust this time around, but we must be getting close to the bottom now. http://www.theglobeandmail.com/servlet/story/RTGAM.20090305.wheinzl0306/BNStory/Business/ In the United States, there was about $8.85-trillion (U.S.) sitting in cash, bank deposits and money market funds at the end of 2008. That was equal to 74 per cent of the market value of all publicly traded companies – the highest ratio since 1990, according to a Bloomberg report. The report went on to say that when the amount of cash relative to stock prices reaches extremely high levels, the market often rebounds forcefully. In 1974, for example, cash reached a record 120 per cent of U.S. stock market capitalization. Over the next six months, stocks rose 31 per cent. In 1982, with the ratio at 95 per cent, the S&P 500 posted a six-month gain of 36 per cent. And in the recession of 1990, the ratio reached 75 per cent and stocks jumped nearly 30 per cent in the following year.

My concern is what effect any write-offs would have on debt convenants. When you add in the possibility of downgrades then I can see how this could snowball. Debt in this environment can cause any company a whole lot of pain.

Here is one example of the fallout we should start seeing with Private Equity. I am not sure who holds the debt and what impact this would have on KKR. KKR's Masonite reaches restructuring agreement "The plan aims to reduce the company's debt from $2.2 billion today to about $300 million. It will also reduce the company's annual cash interest expense by $145 million, one of the sources, who is familiar with the company, said." "KKR bought Masonite in 2005 and took it private for more than $2.7 billion, according to the Journal"

Looks like most of the assets are gone. http://news.yahoo.com/s/nm/20090302/bs_nm/us_stanford_receiver;_ylt=AmXcMaTbGe5WNnKCxhFa6hS573QA "There is a liquidity crisis in this company," Ralph Janvey, the Stanford receiver, told U.S. District Judge David Godbey in Dallas in his first public comments since taking over the Stanford companies in February. Hundreds of millions of dollars of Stanford assets will likely be recovered for investors instead of billions, Janvey told the court.

Lots of uncertainty with GE. General Electric Falls Again As Credit Rtgs Remain In Focus But even the cut couldn't stem fears that the rating was in danger, as Standard & Poor's and Moody's both said later Friday they would leave their negative outlook unchanged. Moody's analyst Richard Lane said in a Friday release that "the reduction in GE's common dividend will address some of the concerns regarding the stress on GE's cash flow" but reiterated that deteriorating asset qualities and tight credit markets make it still vulnerable to a cut. If GE lost that coveted rating, it could soon find itself out of compliance with some debt and be forced to refinance or pay back outstanding debts. Monday, equity analysts also remained in doubt the move would prove a cure-all for GE's problems, though they applauded it as necessary anyway. "We don't expect the incremental dividend reduction to translate to a corresponding increase in liquidity since we never expected GE's cash flow from operating activities (COFA) in 2009 would adequately fund GE's prior dividend payouts," analysts at Sterne Agee said in a Monday note. "We currently believe Moody's is likely to reduce GE's credit rating sometime during mid-late March, 2009, which is likely to be quickly followed by other rating agencies."

My mistake :-[

http://news.yahoo.com/s/nm/20090220/bs_nm/us_ponzi_cftc_brookshire_1

Fairfax owns about 22M shares (22% of outstanding shares). I suspect their average cost to be about $120M+ since most of their shares were purchased in 2007 and early 2008. http://business.theglobeandmail.com/servlet/story/RTGAM.20090219.wrcanwest20/BNStory/Business/home "Leonard Asper is scrambling to secure a financial lifeline for CanWest Global Communications Corp. [CGS-T] before the end of the month to prevent his family-run media empire from sliding into bankruptcy protection... CanWest's largest non-family shareholder, Fairfax Financial, is among investors that have expressed interest in a new capital injection to forestall bankruptcy protection. Bankers close to the company suggest Fairfax or other investors would have to inject about $300-million to be effective. A condition of such an investment by Fairfax would be a change in control at CanWest, according to sources. Some other funds, including the Canada Pension Plan Investment Board, have been approached by CanWest officials, but said they were not interested in investing in the media company, sources say. Sources familiar with the matter said Fairfax is holding off on a proposal until it gets more information on the state of CanWest's financial health — something it has been unable to obtain thus far. Any proposal would require an investor to hammer out a separate agreement with Goldman Sachs [GS-N], which is a partner in CanWest's specialty channels, a stable of assets that rank among the company's most prized properties."

The consumer has driven the US economy for the past 25 years. Now I believe we are entering a period where the consumer will start to save more. Part of this due to high debt. But the baby boomers will now start switching significantly into savings mode. This will cause a drag on company earnings and growth for many years. I am still unsure how this will impact the emerging markets. Obviously the direction of the US market has an impact globally, but the emerging markets are also becoming more self sufficient. Will we start to see the emerging markets go in a different direction than the US and the rest of the western world?

For those not in the Boards time zone you should change your time offset. Helped me to easily understand what new messages came in.