Uccmal

Link01 - Agree to disagree. The flip side of this is that Pimco is in no way at odds with FFH. If there is in fact deflation would there not be a flight to the safety of bonds that pay a positive fixed interest rate, thus driving up the price of Pimco's Trillion dollars of bond holdings?

The above being said I was reading that the oil sands in Alta are booming again. In order to attract labour the companies are offsetting housing prices by constructing their own stock. They use natural gas in the upgraders.

Thanks for the idea! I too will dig deeper. I guess the big question is whether or not they can bring in enough cash to cover working capital and service the debt with gas at Aeco: 3.50 or lower. I dont really see an upside catalyst for natural gas at the moment. Heating season is looking less and less promising with each passing day. The economy is not running on all cylinders. Power generation from gas takes too long to make reasonable future predictions. Thanks again.

I find the way the press handles this a little bizzare. Pimco has sold these hedges to get a premium. FFH has purchased these hedges as insurance with an investment protential. Neither side is all in. In fact I would argue that FFH is actual betting in favour of mild inflation with the rest of their holdings in coal, oil, cable, insurance, real estate, and consumer discretionary. The deflation protection makes up a miniscule amount of their investments, similar to the Total Return Swaps. They also buy insurance like this, only when it is cheap. Over time the premiums on these two hedges will make little difference to FFHs cash flow but if an event occurs the profits will be extreme. Typical bet from the FFH bond desk. My reference article for my rant: http://www.theglobeandmail.com/globe-investor/investment-ideas/watsa-and-gross-face-off-over-us-deflation/article1709230/

I think the best thing to do to get the picture is to locate a copy of the lawsuit allegations. They may be in the FFH Sedar filings. The covering pages run about 70-80 pages of easy reading. The whole situation was pretty creepy. Chanos appears to be culpable. There were legitimate shorts who were not involved in the short & distort campaign but the majority were naked shorts. At one point there was more stock shorted than actual trading float and it cost 20% to rent the stock to short it. I feel today, in retrospect, that without the rescue from Markel, and Southeastern, and selling ORH and NB, that much of FFH would have been toast. NB, and ORH may have survived as separate entities, but the US P&Cs were basically all but wiped out before the infusion. The team at FFH is that much stronger then they ever were, and the Prem no longer makes use of leverage in the same way. Put another way. They were a very easy target at the time. Too bad the old board is gone. You could have gone through threads dating from 2003 on the topic.

These two have always reminded me of a married couple that knows how to stay married (minus the domestic fights and make up sex - please dont visualize this). They likely disagree frequently but have enough respect for the other that when decisions need to be made one backs off if the other is really keen.

I tried this once and decided it wasn't worthwhile. I would rather receive the cash and allocate as per Beerbaron's comment. However, I do appreciate companies who offer Drips where a lot of people participate, and the company gets to keep the cash, but still pays me to allocate the capital to greener pastures :). The discount on shares offered is generally not enough to excite me and at 5% is generally within the swings of any normal companies' stock price. Part of it is that I simply dont trust management of most companies to do a better job at allocating my capital than I can. Its like share buybacks - I'd rather get a dividend from nearly all companies rather than see buybacks for the same reason. Buybacks are seldom done well.

Not to be crass but 2018-19 is hardly short term. I had only one stock in my portfolio 8 years ago that I hold today (FFH). Of course there is going to be crap along the way. Just ask yourself where BAC stock will trade in 8 years. They obviously are in retrenchment mode at the moment but at some point growth will normalize. They also ate some dinner a couple of years ago that is still digesting. Suppose 10% per year growth in book over 7 years - low for a bank and a valuation of book value. Stock would be around $45 per share in the weakest scenario. Warrants would trade at about $30, which is a gain of about 17% per year. - reasonable. Under a return to value scenario with 15% growth and a move back to 1.5 book value the stock would be worth around $90. Warrants would be worth $77.00. That's significant. Even more significant would be a future p/b of 2.5-3x. The Canadian Banks all trade in this realm. That is really what this bet is. It is a bet with a low chance of ending in zero and a high chance of a return of far > 12%. The same goes for Wells Fargo.

Canadian Business Magazine did a piece in the most recent issue on CEO and Director Renumeration at the largest 100 Canadian publicly traded companies. Results: 97/100 for highest pay check: Prem Watsa - we know he makes that up with the dividend but thats okay by me. And: 96/100 for highest total directors fees Other notables: Linamar, E-L Financial

SD, I am not sure I have got the gist of your thinking but there are some key elements missing: 1) Money is cheap on a long term basis. Companies who are able, are not paying down debt but are borrowing at very cheap rates. JNJ was one recently, IBM I think, FFH. Consumers can get a five year mortgage for less than 4%. Not since the 1950s, at least, has debt been this cheap. 2) Due to cheap debt provided by those who paying it off M&A is picking up. This puts alot of fringe economy to work - I-bankers etc. How much has BHP paid to cobble together a bid for Potash - 10-20 m - i'd wager. 3) Consumers have reduced their balance sheet debt. Even a spark of a reasonable recovery and increased hiring should fuel some spending. You were in Canada during the jobless recovery in the 1990s (I know I was - that is what fueled my obsesssion with investing - being off and on out of work for 7 years). Look where Canada sits now. 4) Econ101: Bonds have rallied - in fact bonds have undergone the biggest rally of all time. This leads me to believe we may head into the biggest stock rally in years. Would I bet on that - I am fully invested but it is mostly in what I would classify as Blue Chips that should now be more resistant to a crash than ever. They will be the first out of the gate on the way up. That is already starting to show up with KO, KFT, HD, IBM, etc. Some thoughts.

That about sums it up. He is certainly imitated, probably daily, but not on the scale he operates.

mranski, I have PWF in both cash and RRSP, but is my second largest holding in RRSPs. A couple of past blowups in the RRSP have left me leery of anything that does not have a very high level of safety. I figure that PWF/POW are as close as you can get to risk elimination (stock wise). PWF and FFH have been replacements for NB. I like the dividend in the RRSP as it guarantees some growth even in down years. I recently started putting FFH coming in as well as the company has become more of a fortress of capital.

Bronco, Power Corp/Power Financial do the same as Loews. Their returns have been stellar for as long as anyone except Buffett. Major holding is Great West; lesser holdings are IGM Financial; Pargesa (agglomeration of public and private European holdings. They also keep a good handle on the downside. PWF is one of my largest non FFH holdings. They could easily take any of the subs private but have never even hinted at it. I am not sure why they have chosen this method except perhaps it offers more chance to raise money via bonds and preferred shares. It also allows their various CEOs to run somewhat autonomous operations - which decreases corner suite turnover. Their turnover in management is very low. Very smart operation. One of the few companies I am willing to hold in my RRSP accounts.

I think it is unlikely you will see FFF buying businesses outright that are not insurance related. It is a very different structure from Berky. No offence to Prem but he is not Warren Buffett. People sell to Warren and keep working for Warren. If you sell to FFH you are selling to an insurance conglomerate run by committee with Prem at the top. You are not selling to Watsa. These recent moves have been very interesting and totally fascinating. Hamblin-Watsa is staying within their circle of competence with both the medical insurance and the real estate. Bronco, FFH has had at least one real ugly loser recently - Canwest; they also have some dubious ones still hanging such as Torstar, LVLT, ABH, MB.

Why do they always schedule these things on the shortest most depressing day of the year. I hope they schedule the next extinction event after that for summer holidays, or around early June, so we can have some time off. Well, the Mayans lived in the Southern Hemisphere so they got it right scheduling it for their summer. ;D oec, I think you are confusing the Mayans with the Incas. Must be the extra gravitational pull from the asteroids :D

Why do they always schedule these things on the shortest most depressing day of the year. I hope they schedule the next extinction event after that for summer holidays, or around early June, so we can have some time off. Good Point Al, Dec 21 is very depressing not only because it is the shortest day but also because its usually the day I realize I have to start XMas Shopping! :o The kids like Tim Horton's coffee and Shoppers Drug Mart candy and prescriptions?

I believe that is correct. I had a good look at the terms in the prospectus. The way I had it worked out was that any dividend above 0.04 per annum for BAC gets taken off my purchase price for the warrrant when I calculate my adjusted cost basis. I paid just above $7 for the warrants so it is actually conceivable that over 8 years my ACB could go below zero - unlikely I grant you.

Some of these are awesome investments. To value them any better than Francis Chou has, is obviously impossible. However, they have some interesting advantages over common stock and common options: 1) They are the same as holding the common stock in that you dont need to realized any capital gains for a few years, or ever, if you choose. 2) You get paid the dividend as it rises beyond the bogey but dont pay taxes on it until you sell the security. 3) Your downside is a total wipeout, which can be taken at your convenience as a tax loss. By this, if BAC stock goes to an extremely low level the warrants dont need to be exercised until your convenience. I picked up a small position in both WFC and BAC.WS.A. If these banks hold true to form they will raise their dividends as things recover, which lowers the cost basis. The best thing is that holding a small position makes them easy to ignore.

Why do they always schedule these things on the shortest most depressing day of the year. I hope they schedule the next extinction event after that for summer holidays, or around early June, so we can have some time off.

Once in the darkest period, Prem was asked during the AGM about why not sell one or more of the subs. His answer was simple and truthful: "You wouldn't like the price we would get." I have vague recollections of that comment. I may too have stated things inaccurately as to how I think: Most are simply incompetent. That may be more to the truth. Or they are not as able as the job could really use. Buffett realized this early in his career. If anyone has read 'The Big Short' by Michael Lewis, there is a comment by one of the short sellers about Ken Lewis, CEO of BAC, to the effect of 'I cant believe that a guy this dumb is running one of America's largest corporations'. My guess is that political, and rhetorical skills are more useful in rising to the top of a large corporation, than general intellect or business skills.

I have met an enormous number of company owners and managers over the years and have to disagree with the sentiment of this thread. Most people are honest, and most CEOs are also honest and hard working. Will they put a positive spin on their companies or products - absolutely. Prem and Buffett are included in this - I dont know the others as well. Prem didn't always tell it exactly like it is. It would have put FFH stock to zero had he done that. Believe me when I tell you that he wasn't exactly available for comment during the short attacks in 2003, and the bad years prior. There was one point of access to him and that was the annual meeting. In fact, that is how I found this board. I was searching for info on FFH as to why the stock dropped like a tank after the NYSE listing and came across this fine group with Parsad, Cardboard, Crip, and Bsilly, being the resident FFH experts at the time. In his present position it is easy for him, or Buffett for that matter, to give you the bad news as well. I am not implying in any way that either is dishonest. However, if you look at the press releases that accompanied the cash raises from Longleaf and Markel they state that the money was for general corporate purposes. No where in there does the press release state the true nature of the situation which was to avoid the entire company being put into runoff. Same with ORH going public, and NB going public. A good CEO will do what is necessary in a time of war as well, which may involve spinning things up a bit.

Irwin Michael - ABC funds - maybe 1 Billion Cdn Including Buffett is going to skew your stats a little....

Agree fully with Woodstove's assessment. Would like the dividend to be made quarterly and increased at a stable percentage each year. Then its my choice to buy more stock or not.

rick, I think your about right on the number of shares, direct and indirect. No options for Prem. Small numbers for other managers. Not enough to provide even a modicum of dilution. The cultural expectation is that those who receive the options will convert them and hold the stock as owners.

Cardbaord, Francis doesn't mince words. If he felt there was a risk to the portfolio he would say so outright. As said above this hedge/investment makes a good headline. If the CPI doesn't do what FFH intends then they will make more in JNJ stock alone then the entire investment in these derivatives.