Parsad

For anyone not going, Morningstar will have a live blog of the AGM: http://discuss.morningstar.com/NewSocialize/blogs/berkshire/default.aspx Last year a couple of other news sources also had live blogs going. If you know of any others, please add a link on this thread. I will be up in the morning following them. Cheers!

From Atlantic.com: http://www.theatlantic.com/doc/200905/imf-advice Cheers!

One of the biggest issues that Fairfax faced during the tough years was to stick to their guns on disclosure, or let the media and hedge funds run amok and create panic around the business. Prem's comments are simply part of their attempt to provide enough information, so that shareholders have the correct information around material events. With mark-to-market accounting, significant changes in equity are occurring quarter to quarter with the amount of volatility the markets are experiencing. Thus, they need to provide enough information so that investors are informed, but not so much where they start to create earnings guidance. It's a very tough balancing act, and they are damned if they do and damned if they don't. The earnings conference calls were something they never did as well, but if that's what they have to do to make sure the correct information is transmitted to shareholders, then that is what they have to do. It's kind of silly for investors to even discuss this issue if they saw what happened in 2003. Any extra information provided regarding the 2nd quarter is disclosed publically, and it won't change what happens one way or another. Cheers!

Therefore, as an investor comparing various market opportunities, I would want to know what FFH is currently trading at compared to where its portfolio is currently priced at, because, theoretically, I can recreate the same portfolio if I want (given the SEC filings). So if the company is trading at 0.5x MTM BV, I have no incentive to do so, but if the company is trading at 3X MTM BV, then I might as well sell FFH and just buy the underlying holdings equity directly. Correct, but you would not be able to replicate the insurance businesses or the 5-1 leverage. Cheers!

Book value would be up about $10 from year-end based on the appreciation of investment gains. So even though during the quarter, mark to market losses were significant, they pretty much more than offset them into April. Cheers!

but the difference betwwen salad and garbage is timing I've never heard that quote before in my life! Where the heck did you come up with that one Jim? ;D Cheers!

thank you for your clarification and sharing your wisdom, Prasad. On a personal basis, what is best to do - keep your money in the things you,ve bought, or take some profits for the next downturn? You know, I really think this is where what Sam Mitchell commented on comes into play...you cannot avoid the macro view. We were very bullish on stocks in November and then again in early March, simply because we think they were completely oversold based on fundamentals. But at the same time, I don't think the market's manic optimism is warranted either. We reported a 6.1% annualized decrease in GDP yesterday...how is that something to be optimistic about. Unemployment numbers look like they've been increasing exponentially over the last few months...I don't see a slowdown in unemployment. If the countries production is decreasing and unemployment is increasing, how will that benefit the economy in any manner. This will be long and painful with bouts of optimism and pessimism. So, we buy when things look cheap and sell when they look closer to fair value. I don't want to comment on specific investments, but we are paring back again on investments. Cash is increasing in the fund again, although we remain very long on stocks over the long-term and the bulk of the fund's capital remains in our core holdings and ideas. But the one thing I've always found is that ideas eventually always show up. Cash gives you tremendous flexibility until those ideas appear. I think investors should be mostly invested going forward, but a significant amount of capital should be in cash and distressed debt. Cheers!

It's just not possible for the deleveraging process to complete so quickly. If this was a patient, this wasn't a mild heart attack...this was catastrophic. The patient will take several years to recover. What we are seeing is just a normal sense of optimism after a period of severe pessimism. And the optimism is there for good reason...significant stimulus has been injected, financial institutions stabilized, capital available for credit, inventories that were liquidated are slowly stabilizing and some purchasing is occuring, and home prices are stablizing as alternatives to foreclosure are made available. But it will take a long time to rebuild capital bases, savings, credit and restore venture capital. It doesn't mean we are going to see the lows of November or early March, but going forward, investment valuations will grow based on economic recovery and a restoration of global equity. This will take considerable time, and it will be a great period for active investors who do their own research and seek bargains. But it will remain volatile as the economy goes through various growth spurts and purges...it just isn't a linear line of growth and what we've seen so far is investors slowly coming to their senses that things have stabilized. Cheers!

I agree with you Ben. If the banks defer the payments on the preferred, then it is the same thing as common, but they aren't doing that...and like you, I'm not sure why they aren't. Unless much of the preferreds being issued are ONLY non-cumulative because the purchasers demand it. That's the only reason I can think of why the preferreds would be converted. Cheers!

Brown is incorrect in his comments. There is a huge difference between preferred equity and common equity...just ask Level 3 or Abitibi who were paying 12-15% interest on their preferreds. Removing that interest payment frees up capital that would normally go as interest payments. Even debt is significantly different than common equity, since equity is a permanent base of capital, whereas your bondholders can call your loan at anytime. Interests are also more in line with business operations when preferreds or bondholders get switched to common equity. If all bank executives had to invest all their assets into their company's common equity and hold it for the rest of their life, do you think they would have sold the esoteric products or subprime mortgages that they did? Investors take their hits based on what form of investment they own...equity, preferred equity, subordinate debt, senior debt...if the government is bailing out corporations, then it is only fair that losses hit investors in order. Many equity investors have already been wiped out, now its time for the rest to take their fair hits and not expect a bailout. Cheers!

Some business is returning simply because deflationary forces are providing opportunities and good deals. But we are in a whack of serious trouble that will be very painful. We've only begun to see the peak unemployment numbers. I would not be at all surprised to see 12-13%. As Prem said, 20% is trying to support 80%...just not gonna happen. Eventually all of it is going to have to work its way through the system, and it will be tough. What we are watching right now is a normal rebound as efforts are made to stabilize the system, but the system's losses are far too big. It will take years and years to rebuild asset bases and allow the average consumer to build enough equity to start spending freely. Good time for bargains, but not a time to spend willy-nilly. Cheers!

More on the weekend. Looks like they are focusing on the company and economy this weekend, rather than have the quarterly report distract. Also, if you click on the "Video" tab on the top of the article, there are several more new interviews with people. Cheers! http://www.bloomberg.com/apps/news?pid=20601109&sid=a4s8iyX2f_vA&refer=home

Folks, Rick Mayhew who put up the information regarding the Yellow BRK'ers Party, said he'll have some red sticker nametags at the front table to the party. You can identify yourself by writing your name on there. Looks like there are about 15 of you going, so I think it would be the best initial place to meet up, and then you can always arrange to meet afterwards somewhere else as well during the weekend. Hope you guys have fun!

California financier Danny Pang arrested. Cheers! http://finance.yahoo.com/news/Calif-financier-Danny-Pang-apf-15063307.html?sec=topStories&pos=main&asset=&ccode=

so you take on a million dollar subordinated note in exchange for a million dollars, you get 1 million in cash which counts as tier 1, and the money you owe on it is tier 2 capital? So you end up with, 2 million in capital? This is rather confusing because they're using the same terminology as FASB 157...nm thats level 1,2,3. Totally different. They sound the same, but totally different. In regards to the example, what Ackman was suggesting was you take say a $1B of the subordinated debt (Tier 2) and force them to convert to either common or preferred share equity (Tier 1). This moves that capital from the less desired Tier 2 to the more desireable Tier 1, automatically strengthening the capital ratios so that the bank can actually lend twice as much now on that $1B of capital. This would have a dramatic effect on credit markets. Even if the banks decided to remain conservative in the amount of credit they lent out, they would increase their lending at least by 50%, if not more. At the same time, the taxpayers are no longer on the hook, the banks can lend more, and interest payments decrease. Bondholders suddenly have significantly more at risk, but the fact remains that the business becomes more durable in an environment where spreads on lending and deposits would be enormously beneficial to banks. Increased returns on capital would be retained and bank balance sheets would strengthen over time. As long as they didn't go back to their esoteric products and mortgages...this is where the government really should step in, rather than injecting so much capital into them and preserving the bondholder's investments while stifling the actual banks future. Cheers!

But I think he said capital, not specifically equity capital. According to regulations, a simplified definition of bank capital includes: common/preferred (tier 1) plus debt (tier 2) plus investments in unconsolidated subsidiaries (tier 3 or total regulatory capital). At least half of a bank's capital must be in the form of tier 1 capital, as I understand it. This defines how much leverage a bank can implement. Equity capital is not by itself considered total capital from a regulatory standpoint. So, I didn't really understand what Ackman was saying. Yes, that is correct. Going back to what I said: Assume a bank has $10B in assets and $1B in equity. Bondholders have $2B. Convert $1B of debt to equity...now you have $1B in debt (Tier 2) and $2B in equity (Tier 1). Asset to equity leverage drops from 10-1 to 5-1. The bank can actually lend twice as much now through leverage while maintaining substantially better capital ratios. debt is a liability...not an asset...its not tier 2 capital. Subordinated debt is considered part of Tier 2 Supplementary Capital. Cheers!

Can someone explain what Ackman was trying to say about how swapping $1 of debt to equity creates $2 of capital - that one went right over me. Assume a bank has $10B in assets and $1B in equity. Bondholders have $2B. Convert $1B of debt to equity...now you have $1B in debt and $2B in equity. Asset to equity leverage drops from 10-1 to 5-1. The bank can actually lend twice as much now through leverage while maintaining substantially better capital ratios. Cheers!

Bloomberg article discussing some Bill Gates comments, and other issues surrounding succession at Berkshire. Cheers! http://www.bloomberg.com/apps/news?pid=20601103&sid=aIiCTmPGE0BY&refer=us

Any boardmembers here going to Omaha this weekend? Please respond to this thread if you are. I'll try and organize something quickly for you guys, and then you can all agree to meet somewhere. I have some suggestions, but I'll provide them once we see how many respond. Cheers!

Is there any parties with lots of free food and drinks from noon in Omaha on May 1? Nice Buffettgroupie! Ya mooch! ;D Sanjeev, hey just wondering if there is enough members of the "corner" headed to Omaha to have a cocktail hour on friday or sat night?? Hi Scotty! There probably is, but I'm not going this year, so you guys will have to organize something. What I'll do is start a thread here under the Berkshire page entitled "Boardmembers going to Omaha". We'll see how many respond as you've only got a couple of days before everyone heads over there. Cheers!

Morningstar has a bunch of commentary and videos ahead of the Berkshire AGM. Cheers! http://news.morningstar.com/articlenet/article.aspx?id=288879

Gee Jack, I'm glad your quite open-minded about all of this! What I completely and utterly agree with Ackman is that SOME of the banks need to be recapitalized by issuing equity for debt. This does two things: One, it aligns the bondholder interests with the progress of the bank. Why should bondholders get a free ride from taxpayers? Equity shareholders have been or will be ultimately wiped out...either by more preferreds issued to the government for capital injections, or equity issues in the open market if they can raise capital. Two, banks are no longer on the hook for massive interest payments or possible calls on their loans. Why would depositers put their money with a financial institution if it is still in difficulty and the government has to constantly pour more capital in? This also reduces the amount of leverage the banks are exposed to. Ideally banks should be only in the lending and deposit taking business. Esoteric products and mortgages is not what banks need to be involved with. They should be simple, slightly leveraged businesses, where over time they make decent returns on lending and deposit spreads. The balance sheet should not be obfuscated with off-balance sheet items. I'm not sure Ackman said anything entirely different than that. Cheers!

The SEC is currently investigating 150 hedge funds. Cheers! http://www.cnbc.com/id/30439325

Well I think the FDIC is now attempting to do that. Sheila Bair is looking for authority to systematically shut down the "too big to fail" institutions when they are in trouble. Basically seeking to create a good bank/bad bank, where one side will continue to operate, while the other side with toxic or troubled assets is wound down. Shareholders and debt holders would be on the hook for all costs. Cheers! http://www.bloomberg.com/apps/news?pid=20601087&sid=aeH.c5sqMplw&refer=home

Yeah, I saw that interview on the weekend. As I've said before, I don't like Ackman's publicity stunts, but he is a very smart guy. Terrific speaker and his ideas on the banks are actually ones I completely agree with. Cheers!