Parsad

Why do you say that this will lead to years of Stagflation? I think stagflation is a best case scenario. I'm just of the opinion that we have record amounts of housing stock, and prices while stable, aren't about to rise any time soon. Consumers are saving and paying down debt. With all the stimulus being thrown, we are still finding that businesses are retrenching and trying to run more efficient operations. Thus the bottom line for businesses will improve, but unemployment and wealth creation will continue to suffer, especially in light of all the regulatory burden that will be instituted and higher taxes going forward. While deflation remains a risk if the stimulus is removed, I think slow growth with elevated levels of inflation from the stimulus will be around for many years. We said a couple of letters ago, that we think businesses will prosper modestly over the next several years. That being said, investors should be looking at individual investments, not the broad market or macroeconomic environment. Cheers!

I think there is no debate - we will not see deflation in our lifetimes. I have no idea what is going to happen, but I can tell you that deflation is still very much a real possibility. In fact, we've been experiencing a deflationary environment for over a year now. Cheers!

Just some stunning stats on mortgage delinquencies in the four hardest hit states. Can you say years of stagflation? Cheers! http://finance.yahoo.com/news/Mortgage-delinquencies-hit-apf-3335040403.html?x=0&sec=topStories&pos=1&asset=&ccode= The statistics, which are culled from TransUnion's database of 27 million consumer records, show that mortgage delinquencies remain highest in the four states where the crisis has hit the worst. -- In Nevada, the rate reached 14.5 percent, up from 7.7 percent a year ago. -- In Florida, the rate was 13.3 percent, up from 7.8 percent last year. -- In Arizona, the rate hit 10.4 percent, up from 5.5 percent in 2008. -- In California, the rate jumped to 10.2 percent, from 5.8 percent last year.

even people realising that it is a bubble and who choose not to participate, might refrain from taking the opposite side of the trade because they know that the irrationality might persist for longer than their bank accounts. And when people refrain from taking the other side of the trade - then this also helps forming the bubble. I think this is incorrect. Bubbles don't burst because there are investors with opposite positions. They burst usually because at some point, they are no longer sustainable. As one triggering event occurs, a cascading effect usually leads to the unwinding and deleveraging of the entire system. Now investors with the opposite position can speed the process of the unwinding, but they are never the underlying trigger. By the same token, I don't believe Prem et al. just got lucky with their CDS "hedge", just randomly buying a cheap hedge that happened to pay off during a random panic. I think they identified something that was likely to be a bubble, and figured out a way to profit from it. I don't think Prem and the team really were as concerned about profiting from the hedge as simply protecting their behinds from a one in fifty year storm. They held those hedges for over three years before they enjoyed the full benefit...and that was just icing on the cake. For an insurance business, it is often necessary to hedge against certain macroeconomic risks, because it means the difference between being able to write business and being out of business. For the average investor, hedging provides little value as the frictional costs over time will actually hurt their results. Cheers!

No the letter is legit, as they've filed with the SEC. I believe this is the no-backdown Patrick, thus the non-reviewed filing of the 10-Q. Most other CEO's would have bowed to Grant Thornton, filed the restatements and then filed another restatement when they finally figured out what was the correct treatment by the SEC. But in that old Byrne way, Patrick fired Grant Thornton, and took the risk of filing an unreviewed 10-Q until they've figured out what the SEC believes is the correct treatment. Naturally the shorts, Sam Antar and Gary Weiss are going to have a field day with this. They'll be furrowing their greasy brows and wagging their weasely tails for weeks! Cheers!

Here is the transcript from the interview with Charlie Rose. Cheers! http://www.charlierose.com/download/transcript/10711

folks was wondering what everyone thought the next potential bubble might be and how would you profit from it. It's a good question to be concerned about, but I think investor's energies are probably better spent looking for undervalued businesses and profiting from them. When you look for bubbles, you are generally looking for irrationality in a specific area, but as we all know, irrationality can often persist longer than our bank accounts can continue pouring money into hedges. Unless you can find something where the capital outlay is minimal, while the probabilities of a triggering event occuring over a reasonable timeframe is acceptable, you may be aiming for a lame duck investment. Cheers!

Sanj, why do you say that Burlington will suck up BRK's cash for the next 50 to 100 years? Sorry, I should rephrase that. Burlington, like MAE or Netjets, are capital-intensive businesses. Overtime, they will be able to plow back alot of their income into their own businesses, leaving less cash in the hands of the CIO's. Many other Berkshire businesses like See's, GEICO, etc, spew off alot of cash into Berkshire's hands. They can't really plow it back into their operations. If Berkshire spent that $44B on businesses like that, that would mean billions more flowing into the hands of the eventual CIO's, who aren't going to be as good as Buffett with large amounts of capital. Cheers!

Yeah, I guess I should have clarified that "off-topic" discussion rule. I don't mind off-topic, as long as I don't get multiple complaints from boardmembers. So feel free to discuss "off-topic", but if multiple complaints come in because the subject is controversial or offensive, then I may have to pull it. If I start getting complaints from Patriot's fans, you're out of luck! ;D Cheers!

She's getting as much press as Doug Kass or Whitney Tilson these days when it comes to Berkshire and Buffett. I think it's kind of crass and naturally self-serving, but hey Buffett created the beast in the first place by giving her all access. Didn't anyone at Berkshire see this possibly coming? They run their businesses thinking about the worst possible outcomes, yet Buffett didn't think giving this woman more access than anyone else could backfire? His original intention of his annual shareholder's letters being his legacy and biography was the best and most fitting idea. Cheers!

Definitely off-topic, but I know there are some football fans here, if not Colt and Patriots fans. My boy Manning pulled his team through one more time against the amazing Brady. Unbelievable finish to this game! 9-0 baby! Cheers!

When you look 30+ years out, and attempt to rank which businesses/industries are most likely to still be around, I think BNI would definitely be above Coke on the list. Just as I think Coke would be above Google and Microsoft (even though both have larger franchise values). Sorry Max, I have to disagree here. While railroads have been around since the early 1800's, BNI itself was formed recently. Coke has been around since 1886. That's enough history to probably assume that both moats are at least equal. I would also argue that Burlington's business is solely dependent on the success of the U.S. over the next 50-100 years. Whereas Coke's success isn't dependent on any single nation. If the U.S. stumbles over the next 30 years, that's ok because China or India will be drinking more Coke. Coke's moat would also be unhindered by new technological advances, nor would profit margins be compromised by other's developing new distribution centres for competitive products. I believe the only real weakness Coke could be exposed to is if litigious judgments are made against Coke, by consumers who decide that the product could be detrimental to one's health. I think it is a very remote possibility, but there is always the chance that it could happen over time, not unlike the tobacco industry's demise over time. Smoking at one time was as acceptable and commonplace as someone eating a Big Mac or drinking a can of Coke today. Who knows what things will be like 50 years from now? On another note, I would also like to comment to boardmembers that what is good for Berkshire, isn't necessarily in the best interest of the average small investor, or even small investment firm. Berkshire makes investments for Berkshire's size and succession planning. The average investor really has neither concern when buying something for their portfolio. Burlington, like MAE, will suck up excess cash at Berkshire for the next 50-100 years. That means less cash in the hands of the potential CIO's, who are unlikely to be as good as Buffett...at least over such an extended period of time and with large amounts of capital. There are much smaller and cheaper targets that we all can look for. Cheers!

There's a new Charlie Rose interview with Buffett: http://www.charlierose.com/ Buffett also said that Burlington Northern was not cheap, and it was an investment for the next 100 years. Cheers! http://www.bloomberg.com/apps/news?pid=20601087&sid=arwqyNBGLRG8&pos=1

Actually, if you can get past Schroeder's first 120 pages or so in the Snowball, full of unnecessary innuendo and crap about Buffett's supposedly dysfunctional family, then it becomes quite an extraordinary book on Buffett...easily one of the best. I don't like all her marketing right now, but some parts of that book are absolutely engrossing! Cheers!

Parsad, How did you calculate Bershire's leverage (Assets/Equity) to be 3:1? I get a much lower number. If you consider their insurance ops, it is very small (222B assets, 62B float). I agree with you that one of Fairfax's problems is too much leverage in the insurance ops. Your comparison however implies it is closer to Berkshire's leverage when it is not. Hi Sreenr, Sorry, I was just rounding. Berkshire's leverage historically over the last few years has been around 2.5-1. If you include off-balance stuff like their derivatives exposure, finance business, etc. it's probably a little higher, so I just rounded to 3-1. Cheers!

I don't think comparing Buffett and Watsa are fair. They are two different people, who started their businesses in two different periods. Neither is above any sense of hypocrisy, since both have done things that they long talked about never doing. Buffett just recently split B shares, which he said he would never do, as well as invested in derivatives, airlines and technology (BYD). Prem's biggest turnabout was issuing stock below book, but he kind of had to do that to save the company! Unfortunately, we are all guilty of that, since you are constantly learning when investing. You will make mistakes...Buffett has made his share and Watsa made his share. Sometimes you have to eat your own words to correct mistakes, or you view the world a bit differently and take another approach. The only thing I wish Fairfax would emulate more of Berkshire is the reduced leverage...3-1 at Berkshire and 6-1 at Fairfax, although leverage has come down closer to 4-1 at Fairfax with the huge runup in book value, so Prem's headed in the right direction. But I don't believe there is any other insurance company that has acted with the same moral compass and decisive capital decisions as Berkshire...the closest is Fairfax, whether people like to admit it or not. Not Markel, not White Mountains, etc. If you look at what has transpired over the last 24 years at Fairfax, in particular the type of leadership it took to do what they have in the last six years, it is the stuff of what legends are made of. Cheers!

I watched the program tonight. There were some interesting points, but alot of it was stuff you've heard before. I actually found the old 2005 biography on Bill Gates immediately after the program more interesting! Cheers!

Fairfax purchased $750M of California's $908M in BAB bonds that were ordered. I guess Fairfax is making a bet on the U.S. as well. ;D Cheers! http://www.forbes.com/feeds/afx/2009/11/12/afx7117728.html

I suppose he means between Prem, Cundill, Southeastern, Markel, Templeton, other principals at Hamblin-Watsa, and Francis, they control close to 75% of the stock. I was surprised by that number as well! I thought it was probably closer to 55% or so. Perhaps, they mean 75% of the votes, as Prem's multiple-voting stock would probably allow them to approach 80%. Cheers!

Not a major crash across the board, but you will have some serious consequences in commercial real estate in many areas, and as Prem said, over the next few years there will be some opportunity. And I have to say, I believe it will be fairly significant opportunity...perhaps on par with what we are seeing in residential real estate in the U.S. in some overbuilt areas. It was a period of easy money, and unfortunately there is ultimately a trickle-down effect when significant wealth is destroyed. The commercial real estate industry is probably one of the final receipients of that undesired gift. Cheers!

Bloomberg had a little article about some comments Prem made in his speech at ACG Toronto this morning. Not sure if anyone attended, but if so, they may be able to add to the article. Cheers! http://www.bloomberg.com/apps/news?pid=20601082&sid=a7yoVC2buPhE

CNBC will be airing a special with Bill Gates and Warren Buffett at Columbia University tomorrow. It will replay on Sunday. Cheers! http://www.cnbc.com/id/33495537

Excellent interview with Harvard prof Ken Rogoff who was previously with the IMF. Wonderful discussion on the U.S.' current problems and what it will take to try and resolve them. Cheers! http://www.charlierose.com/

Would anyone have a problem with me putting a PDF copy on here? Yes, it's copyrighted material! There are plenty of sites that have it for viewing as the links show, so it's better to use those links than post the file here. Cheers!

No problem Saumil! Cheers!