kab60

I liked Fairfax' response yesterday, but they should just refute the report one point at a time in writing. However bad Muddy Waters' take is, they won't be able to address all the points in the call, and why most of the points are bollocks, it's not like it takes long to address them in writing.

Love your takes, @StubbleJumper. You're the only one I've seen point out how Prem was playing with fire leading up to covid, and even though he avoided a catastrophe, it's probably one to keep in the back of your mind. I'm not sure what the right price is for Fairfax, but what's different this time around is you've got a ton of earnings power locked-in over the coming years, and it seems as if there's generally little sign of softening in insurance markets. I imagine large bond losses at peers might result in this market staying hard for longer, but I'm really no expert. There's no doubt that the gravy train will eventually settle down, but when it does, book value/share should be much higher than today just from the locked-in interest, and thus investors might do reasonably well here even without multiple expansion. If we get that on top, that's gravy. I agree with others that the MW report is pretty awful. But I also wouldn't mind if Fairfax simplified a little. Those total return swaps were obviously a nice bet, but I'd prefer if he cashed in over the coming year(s) and locked in his return and switched to buybacks. He should have the money now.

Ebay spun off Paypal, so the above doesn't make much sense unless you think there were special synergies at work here. EBAY shareholders got to participate in Paypal following the spin-off, which if anything unlocked value as they were valued differently and could optimize incentives and capital allocation (and cater to different shareholders). I also don't think Ebay has been particularly good at doing buybacks. They did most of their buybacks in the post-covid period where shares briefly touched $80. So while they've spent a lot of money on buybacks, they don't exactly seem to have timed them well. I'll throw Arrow Electronics in the pot. It's mostly a semiconductor distribution business. Does like 1B of net income on 3B in tangible equity. It's cyclical but as a distributor has counter-cyclical cashflows, so it's one tough cockroach to kill. It's a simple business, one Buffett likes (owns TTI and Mouser), and the industry is well-consolidated so basically just bolt-on deals+buybacks left for Arrow to do.

If AIG is 'fixed'? I'm no insurance expert, far from it, and it's always difficult to know anyway considering how much damage can be done with a pen and how big some of these things are, but I think the below suggests things have improved since new management took over about five years ago (not as CEO initially): I never invest in financials unless I'm very comfortable with the jockey, so I spend most time reading up on management and obviously like what I see.

You're welcome @Gregmal. I started following when Dan Loeb wrote about it in Q4 and thought it was an obvious opportunity as well. Then it got killed along with most other financials during March and May even though there's no deposit flight risk, and I sorta wondered if I was missing anything, but I don't think I did, so I bought... (they have some office exposure+HTM losses in their investment portfolios, but they don't have a ton of duration and investment yields are ticking up nicely...) I talked with some folks at some big funds about it, but they'd rather buy Chubb and WR Berkley with decades of good returns behind them and pointed to the meager ROE of AIG. Rearview mirror versus looking ahead, I think. I'm not saying those are bad picks either, they're great businesses and all, but they're also trading at 2-3xTBV versus <1x here, and this one is engaged in humongous capital returns AND unlocking of value through spinning off and selling down Corebridge+various subs... Next big levers is taking out a ton of costs, as the CEO wants AIG to become a pure-play insurer with a lean structure versus this bloated conglomerate with tons of costs and inefficiencies... This guy did some good write-ups on the opportunity: https://seekingalpha.com/article/4600871-aigs-underwiting-performance-is-deserving-of-a-higher-valuation (I think perhaps he was even on a podcast recently talking about the opportunity in Fairfax and AIG.).

I think Canadian producers look quiet interesting still. My largest holding is $IPCO, which is down around 30-35% this year, but realized prizes oil prices aren't all that different from Q4 '22. While oil prices have dropped, so has the differential between WCS and WTI, and the Transmountain Expansion opens in Q1 '24 which all else equal should be positive for the differential as well. I'm licking my wounds from Harbour Energy PLC, where I definitely got the European gas situation wrong (at least in the short term).

Yes. It seems like a great little business, I just don't think it looks particularly interesting from a valuation perspective considering the cyclicality. I like Kitwave, Macfarlane, S&U and Sabre Insurance around these levels. Also think Pendragon is interesting as a special situation of sorts. But the UK is where capital returns go to die, so I'd probably not go balls long any of those names. Mortgage Advice Bureau and Belvoir Lettings are also interesting plays on housing (and inflation).

Not saying this is an Autozone either, but those guys run with negative equity and negative working capital - basically having suppliers finance their operation. And I wouldn't call them levered either at 2xnet debt/ebitda. I'm not saying the cash at Wickes is 'free' per se, of course they want some at hand, but if they were aggressive they'd probably finance that through a revolver or term loan instead of equity. Like most retailers Wickes has a ton of operating leverage, and long term leases are obviously dangerous if things turn south. But I think that's just the life of being a retailer. Sure some own their real estate, which they can selloff piece-meal if things turn to shit, but in reality that rarely works out either, as we all know (cutting off limps to try and stop the bleeding...). I've been looking at Wickes on-off over the last couple of years and think it looks pretty cheap, I just don't think it's better than a lot of alternatives.

Highly levered? Do you count their leases as debt? Ignoring leases, they have 100m net cash per last Q. The accounting for UK companies with leases is confusing and makes the cash flow statement a mess. But I agree Wickes is definitely no HD.

Yes, that's correct. My bad. As an AIG shareholder I was/am entirely focused on how much capital we're getting back through the transaction (>4,5B), as I saw 3B quoted around.

Don't wanna make this about AIG, which I hold, but I think Renaissance RE are paying >2.2x BV for Validus RE. Look at the press release from AIG: AIG to Receive all Capital in Excess of $2.1 Billion of Shareholders’ Equity of Validus Re and Achieve Future Capital Synergies of Approximately $400 Million from the Recapture of Reserves as a Result of Transferring the Validus Re Balance Sheet to RenaissanceRe , which together, as of December 31, 2022 , was over $1.5 Billion ; Total Transaction Value to AIG is Expected to Exceed $4.5 Billion https://aig.gcs-web.com/news-releases/news-release-details/aig-sell-validus-re-renaissancere

If you ever get bored, Viking, maybe you could add AIG to the bunch. That's one ugly duckling trading even worse than $FFH despite putting up great improvements in CR since current management took over and overhauled the operation. I prefer Fairfax' credit exposure, but AIG has been putting up 90% CR's in recent years and trades at like 2/3 of 'adjusted' TBV (adjusted for HTM losses) while gobbling up shares. I understand why investors stay away from AIG due to the number of headfakes since the GFC, but it does look a little different this time (or perhaps they're just benefitting from the hard market...). It really does seem like AIG turned the corner on underwriting (famous last words?), and they'll be taking cost out over the coming years as they simplify the business to focus entirely on general insurance. They already IPO'd part of their life insurance-business, which they're looking to fully divest over time, and as that gets off the book they'll run a much simpler and leaner operation.

Results look pretty good. Analysts will love that they locked in some duration, and the timing looks favorable. Now they just need a big recession and/or stock market crash and flight to safety, so their treasuries get bid up, and they can swap to corporate bonds.

Yes, actually ticked up a bit for small banks.

I think $tslx is interesting. It's a very well-run BDC with 1,15xdebt/equity, funded by well-staggered, unsecured debt and it has a ton of liquidity. It has paid up for that liquidity over the years to be able to strike if there was ever any stress. Almost every loan they hold is first lien and floating, so they're benefiting from higher rates. It's not gonna be a home-run, but it has beaten the S&P500 since inception, and I'm sure they'll find interesting things to do in the current malaise. I'm also drawn to SLM Corp., but that's a longer pitch, and there's a trifecta of risks; funding, political as well as credit. I do think odds look pretty attractive though. Generally, a basket approach probably makes sense. Would suck to hold the one regional bank caught in a meme-instigated bank run!