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constructive

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  1. On top of this, Russia is fairly vulnerable to economic sanctions.

     

    This is true but sanctions would have to be limited. If you apply extreme sanctions and turn off Gazprom pipelines in winter time, people all over central Europe would freeze to death.

  2. The immediate goal of American diplomacy is to improve the situation in the Ukraine, not address problems elsewhere in the world. Military threats would only make Ukrainian civil war more likely.

     

    Realistically we are limited in our response to Russian aggression in Crimea. It's past time to give up the Team America World Police mentality.

  3. Allen & Co. Flourishes as a Tech Deal Maker

    Facebook's WhatsApp Purchase Highlights Allen & Co.'s Rise in the Technology Sector

     

    http://online.wsj.com/news/articles/SB10001424052702303636404579397112054095536

     

    "Allen & Co. has long been a big player in media and entertainment deals. Facebook Inc. FB +3.04%  's $19 billion acquisition of WhatsApp Inc. highlights the boutique investment bank's rise as a Silicon Valley deal maker.

     

    Allen advised Facebook on the transaction, its latest accomplishment following work on the initial public offering of Twitter Inc. TWTR -0.09%  and a big round of private financing at Dropbox Inc. Underwriting roles in IPOs from Coupons.com Inc. and Castlight Health Inc. also are on tap.

     

    Last year, Allen ranked sixth among banks in proceeds raised from U.S.-listed tech and Internet IPOs, according to Dealogic. Before 2010, it had never ranked higher than 21st. On tech mergers globally, Allen ranked 16th last year, up from 53rd in 2010.[...]"

     

    Considering the likelihood that WhatsApp will end up being a huge dud, you would think they would be sensitive to reputational risk. How much money is it worth to be the face of bad dealmaking in the second tech bubble?

  4. I am from India too and use whatsapp extensively. Like earlier used yahoo messanger, msn messanger, sms, bbm etc :)

     

    Now just a thought - what if someone like Google launches a clone of whatsapp, with the promotion that they will pay 100 most prolific users over a year 10 million dollar each or 1000 users a million dollar each (total cost 1 billion only:) ), whats gonna happen to whatsapp base - i think it will be a mass shift, right ?

     

    Doesn't seem to meet 'Buffett test of competitor with a billion dollar to burn' test....       

     

    Good idea.

     

    Or what happens when major telecom companies introduce a more functional message format and lower their prices? They make billions of profit from text messages - they have the most incentive to compete and stop the growth of proprietary alternative message services.

  5. The market is up 66% in the last 4 years. Let's say the market's intrinsic value is up 46% (10% annualized). By hedging out the market risk, Fairfax has permanently lost that 46%. And stocks are only 20% more expensive than they were 4 years ago, not 66%.

     

    The risk/reward for shorting the market is pretty bad, except under extremely rare circumstances.

  6. can someone boil down for me why this would be a good investment? And not be thrown on the too hard pile. At first sight it looks pretty complex

     

    I can summarize the bear case.

     

    FNMA and FMCC were put into conservatorship because they were insolvent.  The book value of public shares (equity value minus senior preferred) has been deeply negative since 2008. Equity and profits in the last few years are an illusion - they belong entirely to the government according to the terms of the senior preferred shares.

     

    The status quo is negative because they are currently shrinking and paying billions of dollars to Treasury. FNMA and FMCC shareholders need political action, or more likely court action, to recover any value.

  7. I agree that I like Fairfax and the way they think, however, these hedges have become a disaster.  When I first asked about these a few years ago and the AM they said these were temporary and not a normal part of their investing program but in fact since 2009 they have been.  They have destroyed a good part of the returns they have generated by removing the high appreciating alpha from their portfolio.  If they are too levered to hold as much equity as they want then get rid of the debt and preferred shares and delever,  What you have this year is a good underwriting year that no one expects to be repeated and it has saved their bacon.  Could you imagine a bad underwriting year and the investment losses combined, which is what we may get next year. 

     

    Having your strategy based on your investment alpha too is very risky because over time beta has added so much to equity returns that removing it increases risk and reduces returns.  This has been an expensive and painful investment period.  My take from the history of money managers that have either tried to hedge or gone to a large % cash have all lost to the market (call is the triumph of beta over alpha).  I hope the folks at Fairfax being students of history can/will learn from this as they have done with other aspects of their investment approach.  If they are worried about a large decline why don't they sell the hedges and buy 20% OTM puts instead?  This will provide them protection and if they are wrong the upside they have earned.

     

    Packer

     

    This is very well said, although the downside of cash might be a bit overstated.

     

    The 7 lean year / 3 fat year model sounds like Gambler's Fallacy to me. Lean years don't make fat years more likely. The only way to predict good results is to observe good business practices.

     

    The market is more expensive than it was 4 years ago, but I'm not convinced that Fairfax is any better positioned today than they were in 2010. The equity hedges are probably better positioned, but we are 4 years closer to interest rates rising and 4 years further into Blackberry's decline.

  8. Nothing is mentioned about a "duty" to Treasury.

     

    The point of the preferred stock agreements is that FNMA and FMCC have a duty to pay interest and principal on the senior preferred. They have a higher priority to company value than public shareholders do.

     

    What a lot of people don't understand is that public shareholder equity has been deeply negative since 2008, and it still is. The balance sheet and income statement are deceptive if you ignore the role preferred equity plays.

  9.  

    The administration had a policy since 2010 to shut out the common shareholders from all earnings but it was never disclosed to the common shareholders?    Who decided this was not a disclosure item!  I look forward to the discovery process.  We will very likely find more examples where the administrations public statements (or overt omissions) that are at odds their internal dialogue.  If that happens, the government's case will move closer to indefensible.

     

    This was an internal document in Treasury, so Fannie and Freddie may not have known about the policy until later.

     

    The full income sweep policy was certainly disclosed in the 2012 PSPA revisions.

     

    http://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx

  10. I think size is the major reducers of returns.  Look at Buffett and Baupost.  Buffett returns have declined as size has increased and Baupost returns capital (forcibly reducing size to maintain performance).

     

    I think Buffett has slowly lost the go for the jugular, animal instinct to grab more than his share. He had that impulse like Soros and Icahn when he was a young man. Icahn is still willing to fight you over a dollar on the sidewalk (just ask Ackman).

     

    Baupost is a good point. They are still pretty huge though.

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