Uccmal

Chrysler has been trying to strong arm the Canadian government and the CAW by threatening to take their plants out of Canada. My opinion is "let the f__s leave". Their biggest market by % of market share is Canada. Talk about a bad strategy. We'll take our ball and go...where? I am sure of one thing, they can kiss their Canadian market goodbye if they pull a stunt like this. Cerberus sure picked up a dud on this round. Looks good on them. And interestingly, why isn't Cerberus putting more money into Chrysler? Is the 3 headed dog to protect Cerberus potential shareholders from putting their money in hell, or to keep the money in once its been extracted. End of rant. I was going to express my feelings on thievery at AIG next but I'll pass. Plenty of others have expressed their outrage. It's pretty simply to break a contract, Arnold just did it in California. And I am not even a socialist in any normal sense of the concept.

Oldye, Put it this way. This space has caused me nothing but grief. I am staying clear of anything with Pulp or paper in its name. So maybe it is time to invest, or maybe not. Sfk.un has to be one of my biggest all time losers. Bought for all the right reasons too. I even understood the business. Is it a case of bad luck, bad timing, or a really bad business (the pulp business as a whole). I held the company through the top of the price cycle and lost money. I hold it through the dropping of the Canadian dollar and lost money. The drop in energy prices and lost money. FFH (NB) has lost far more than I have, it just hurts less. So, I will leave the too hard pile for them since they can take advantage of diversification. Lumber will bounce back when construction improves.

Thanks Sharper, I took some time yesterday to review some of the material on their web site and listen to a recent presentation. Will be doing further due diligence. It looks like there will be a lag effect before the stock starts to rocket. It is interesting to see how the next O&G rally is setting up. Drilling drops way off, gas poduction in particular drops quickly. At a certain point the price will start to rise rapidly due to low supply and drilling will come into big demand again. Thanks for you comments as well Kyle.

The more I think about the pulp and paper business as a whole the more I am certain that we are entering a railroad type of scenario. The industry is beyond deep value into buggy whip territory. As Peter Lynch says it is darkest before the pitch black! The same can probably be applied to paper news. The small paper in Seattle that closed today is an example of what the future holds for most newspapers. And Toronto has four of them, not including the free dailies. FFH is a shareholder in a few companies that are potential non-entities. I happy they have spent more money on PFE, JNJ, GE, WFC, and other big caps than on Torstar, Abitibi, and SFK pulp.

Sharper, You suggest that one needs to understand the company to understand its value. PD seems to run a specialty in coal bed methane, and unconventional gas drilling, slanted holes, SAGD etc. They also provide turnkey service to their customers. Is this the sort of thoughts you have in mind. I should probably start a separate thread.

Sharper, Are you talking about Precision Drilling? What makes them so attractive to you?

I have been watching this. Not a good time to be an ABH common shareholder. FFH's notes entitle them to a portion of the company such as it is. I hope they can hold onto them for now to collect the interest rather than converting them to equity. Look for a repeat throughout the industry.

At this juncture it wouldn't be a very good use of capital to retire debt. It would probably weaken their credit ratings as the agencies look at financial flexibility. The ability to raise debt and pay debt is part of the rating. I expect you will see the company move the debt out in cycles every couple of years to keep it distant, and perhaps at lower rates. They are in a good position now where the debt will benefit rather than hurt the company. As mentioned, the debt is also an inflation hedge. RE: ORH filing. This is a little confusing. It looks to me as if they are trying to buy in some of the debt and preferreds at the low price to maturities. Any other thoughts?

I would think any company that can use debt without having the debt called in easily. That would imply BAM, or some other equivalents. They also need long term debt so they dont have to renew in a higher interest rate environment. They also need to be in a business where they dont require debt to expand - this works against the oil business where more working capital is a constant requirement. Once inflation sets in it needs to be broken by high interest rates. You wont see this until year 2 of Obama's second term assuming he gets that far. Buying medium/long bonds during periods of high interest rates would work very well. That is also conceivably the easiest (re: safest) investment to make.

Peter, Your rationale doesn't make sense. The title of the thread was value plus growth. There was no implication of margin of safety which IMO exists for none of the companies you mentioned or Rim. Here is what I see: MSFT - weak franchise - many of their products are steadoly being supplanted by open source - will remain a good cah flow generator due to perpetual upgrade cycles. Nokia - no longer in the game where Rim is concerned - a mobile phone maker. Apple - dependent on the fickleness of consumers and the continued wizardry - probably by far the highest risk of the companies you mentioned. Easy to figure where they make their money but hard to figure where they will make their money one year from now. Google - doesn't offer the value - unknown future competitors. Too dependent on advertising. Rim - technology risk exists but they have a fairly strong SERVICE franchise among the parties I mentioned. Closest resemblance is to MSFT, with its perpetual upgrade cycle. Not presently a shareholder in any of the above. My order of purchase at the present time would be RIM, MSFT, and none of the others.

Hi Crip, You should be okay there as Granite Post said. I am really looking forward to meeting you. Al.

Research in Motion: PE = 13 It's the intangibles that are impressive. Users: - Your president; police forces across NA; Governments across the world; Businesses worldwide; I think this company most closely resembles Microsoft around 1990. It's the network not the device. The users want a secure network. The stock is near a 3 or 4 year low. No holdings at the present time.

I dont know Arbitragr, There is actually signs of life out there. The dividend cuts and writedowns are starting to flow cash into those banks, and GE capital. And the stimulus hasn't even begun to take effect. If Citi, and BAC, and JPM actually reports a profit in a few weeks all hell will break loose on the upside.

They will write 2-3x the business in a hard market at a profit. 10 Billion of this money will be invested in equities, and 40 Billion in bonds of some kind, and 2 Billion in some kind of derivatives as a hedge or play on the inflationary future. This in turn will allow them to generate over 100/share in earnings/year in 1.5 years time. These also ran insurance companies are been pretty productive. Put another way, even Berkshire is having a so/so insurance year.

Viking, the reason it resembles FFH is because Grantham, and Grant (of Grant's interest rate observer) are the two people that FFH follow most ardently. The macro ideas that FFH utilizes comes from these two men. FFH just happens to be very good at grasping and applying the concepts.

Thanks for the options tips guys! RE: the Barron's article. It's interesting in that it shows the low precision (or is it accuracy) of the DJIA at the time. Including or excluding one company had an enormous effect. Would a broad measure have shown as bad a downturn? WE will never know, obviously. Other things of interest. The bulk of bank closings occurred well into 1931 in response to tightened monetary policy and lack of an FDIC. The stock market bottom was after that point in 1932. There was no FDIC or equivalent in other countries (IPF in Canada) to protect peoples savings in the banks. There is a fascinating video on Calculated Risk Blog of the FDIC taking over Heritage Bank - a 60 Minutes production. In the case in question the FDIC spent next to nothing, other than labour to rescue the bank. Helicopter Ben et al are doing the direct opposite to encourage bank stability. Finally, the elimination of dividends, and past writedowns, is paying dividends. Citi was the first to announce. I am pretty sure Vikram Pankit wouldn't have said that in this climate if he wasn't sure that was the case. How long before several of the biggest S&P companies start announcing better than expected results due to rapid build up of their balance sheets?

That's just stupid!

Hi NP, Yes, Unfortunately I bought a few before the downdraft and am temporarily overextended. I did by one 220 yesterday. My ideal scenario: FFH stock value stays put for now. S&P rises 20-30%, or more, from here. I hold about 10000 leaps on the SPY exchange traded fund. Unfortunately, I expect they will more or less move in tandem since FFH is now perceived as holding a basket case of US mega caps or former mega caps. Al.

I was looking up the past two times when I piled into FFH Leaps. The first time was in Summer of 2006 - The book value was around 145 (restated) and the stock was 100-120. So it was trading at 70% to 80% Book. Many of us loaded up and a couple retired. The company had bonds that were out of the money, CDS contracts that no one was paying any attention to. The Short game was going full run (then the lawsuit was announced). Markets were bouyant. FFH had just finished two winters of selling stock at below book to Southeastern and Markel. They had just sold out 20% more of ORH. The SEC/DOJ were hot on their trail over finite re and some comments Prem made in the winter conference call. Runoff was eating vast amounts of cash. The second time was the summer of 2007 - Book value was about 170 (ended year at 240 after CDS gains) - share price was $200. Things started to really turn in July when I was buying the Futures. They started to report gains on the CD portfolio. Things really begain to turn later in the year. Now: BV is 285/share. The situation at FFH is so vastly different than 2.5 years ago as to be non-comparable. Once need only read the annual from 2005 (February 2006) and the subsequent two Q reports to see what a shambles the company was in. There is simply no comparison. The major difference for me this time is that the Leaps are simply not as cheap. The other difference is that I had 50% of my net in FFH 3 weeks ago before the downtrend so this has really hurt bad. I would think a 20% increase in the S&P and its associated components (GE, WFC, JNJ etc) should be enough to fire up the stock into the 300s again.

I am thinking mostly that number 6 is the most likely reason. The initial drop after the earnings release was due to a drop in future expectations. The rest is due to people selling the stock because they had to. Concurrent with FFH's start down was the next leg down of the general market. Nothing is rationale. If this was 1996 the stock would have gone the absolute opposite way. Very frustrating though as I am sure most people would love to buy but have exhausted their ammo. I have sold common to buy Leaps, not something I would like to do but something that seemed to be the best future bang for my buck.

I place money that FFH has been investing in Index futures of some kind to take extra advantage of any upswing from here. 400 M bet on SPY, or Dow Index futures could easily triple should things turn up. It is fitting with their MO. I am expecting to see an announcement at some point increasing the share buyback programs at FFH and ORH. Who knows, maybe Prem has his eye on repatriating ORH at some point but you can bet they will take out as much float as possible along the way. Right now they couldn't do it without signficant balance sheet stress. I am using 55 share price and 17.7 M shares. There is certainly no hurry. God, I wish I had more money to buy FFH shares right now.

Well OEC, that is exactly what I have done. I have not been out of FFH for 12 years and my position is now as high as it has ever been. Unfortunately the recent 35% drop in the FFH share price didn't help my portfolio value in these tough times. However, I have reasoned that FFH is exposing me to a proportionate share in GE, WFC, JNJ, etc. Interestingly if I add up all of my shares of FFH and the amount of shares/FFH share of each of these companies it would likley equal what I would want to hold in anything else on the rebound.

Hi Mark, Am I reading your chart wrong? I think you forgot to take out the capital gains tax? Because of this, all three scenarios seem overly optimistic. The low growth scenario has BV growth of 21% in the first year, 19% - yr. 2; 17% yr. 3 Medium growth: 35% yr. 1; 29% yr. 2; I do a similar but much simpler calculation when considering buying leaps: 15% growth in Book 285; 327; 376; 432; 496; 2013 - 570.40 BV multiple of 1.3 370; 425; 488; 561; 644; 2013 - 741 Now, I think that the next couple of years will easily manage 20% or greater jumps in Book value due to buying distressed securities, buying back shares at 20% below book, and increasing float by 100% in the hard market. In addition there should be underwriting gains not losses for 2 or 3 years starting mid-way through this year. Now could I do this analysis with WFC, BAC, or GE? hmmmmm?

Eric, I should have phrased that more appropriately. When you write puts you are required to post a large amount of collateral. The more the stock drops the greater the collateral requirement. In my case writing puts caused me to have a margin call due to the huge amount of collateral they require. This was in the November phase of the crash. Moving along, I dont know if you have perused Derek Foster's book "Money for Nothing". Derek bills himself as Canada's youngest retiree. Recently he was talking about a situation where he wrote some puts for Vulcan. Vulcan, an aggregates company in the US, was trading around $80 when he wrote the puts. He wrote the puts for 60 strike for $4.00. The stock dropped way down. He didn't have to exercise since they are 2010 puts. He states that he renegotiated the puts at a cost of $8.90 to a 45 strike price for proceeds of $9.40. In effect he reset his buy-in price to 45-9.40 = 35.60. His profit on the puts would then be $4.00 from the original wiriting plus 0.50 fromt he renegotiated price. Is this possible? How would one go about it? It wouldn't have helped me at the time because I was in a position of margin calls but in the future it is worth knowing. Phoenix, Lesson #1 is proving to be perhaps the most important lesson of all. The margin does disappear when you need to buy the shares! Lesson #2: I agree fully. I am narrowing my focus to companies where I can definitely quantify the risks and fully comprehend the business model. If I had 15 cents for everytime a CEO has uttered the words "we have no intention of cutting our dividend" I wouldn't need to be writing puts for income. It has become very clear to me that the vast majority of the business leaders in the area of finance, insurance, and banking have NO IDEA how to manage risk or even identify it.

Yeah, Unless you have a huge amount of margin available dont bother. Selling puts in a declining market sets you up for margin calls. Take my word for it. Unless you have the cash set aside to buy the underlying stock at the strike it will be a complete disaster. I have decided that my market prediction skill is simply not good enough for this climate. I sold GE puts for $6 when the price was at around $19. Well, January came and went and I became the proud owner of GE stock which I have since sold to generate the tax loss and buy FFH calls. If you have a huge amount of cash then go for it. But then If I had a huge amount of cash I would be buying about 6 zillion other things right now.