Uccmal

Think about this a moment. The year was 2008. A huge number of companies much bigger than FFH that recorded multi-billion dollar losses. Not only did FFH make 1.4 Billion profit this year, and 1.1 billion last year but they are sitting on 1.2 B in cash. How many financial companies can make this claim? None? They have a massive float that grows every year and they are investing it at feverish clip, in the cheapest investing climate in most of our investing lifetimes. The insurance business serves one purpose to FFH, and that is to provide investable cash. To put this picture into perpective, at the very best they may earn 400 Million on insurance for a full year at their present size. They made 4 x this on the investment gains. So, good underwriting is a nice to have and a worthwhile goal but it is far outwieghed by the investment performance. It is as if the CRs were actually 65% not over 100%. It completely baffles me why this company is not trading at 600-1000 US rather than 290. If this was 3 years ago this stock would have been at 1000 with results like this.

Happy to say my guess was wrong although I expect the equity portfolio has taken a bath in the last 6 weeks. After NB what is holding company cash: about 1.2 B? Quarterly returns should be way up. Underwriting should move to BE or plus in Q1; Q2 Remaining CDS must be doing well: Swiss Re; C; BAC Like to see the higher interest and tax free bond portfolio. Almost 3% above what they were getting earlier on that 4 B. 2 Billion in Equities with a P/B of <1 (excepting JNJ) and P/E ~ 6-8 Be reading it in detail on the plane tomorrow.

I have decided that we have reached inverse Mungerist Capitulation where in stocks go down no matter what. :'(

The $10 estimate seems reasonable for the end of Q4. The period until FEb. 15th will be a loss of around minus $15/share.

jason, I am having trouble making anything out of those charts. How many years annual income would it cost the average American to buy a house versus Canada and other parts of the world?

To me, plans like this boil down to - shareholders get all the upside while taxpayers have all the downside. It creates poor incentives and encourages moral hazard. Well then I guess your only choice is to nationalize the banks. You are going to have to do all of them though since the next one in line is always going to get hit because everyone withdraws capital when they become concerned it will be nationalized. We are seeing this with Wells Fargo right now. Or you can let them fail completely and be done with it. While everyones tossing trillions around without making the real hard decisions (who lives and who dies) private money is going to stay off the table.

If you ask me this is the single largest stumbling block to getting money moving again. The administration wants to get private money into the system again. Ask Prince Alwaleed about his investment in Citi. The financial markets are going to continue to languish until there is clear direction as to exactly which way the government is going to proceed. No one is going to invest in anything until they are entirely sure their principal is going to be protected. Perhaps the best way to avoid spending gov't money indefinitely, and encourage private investment is to fully guarantee that anyone who invests in any "designated" company for the next three years will get their investment back, in whole, should the need arise to nationalize a company. No easy solutions. Your not getting your head around it because no one else is either...

Let me re-examine that: 12 M shares of GE/ 18 Million FFH = 0.67 shares of GE/FFH = 670/1000; ignoring minority interest Sometimes I wonder if I need to invest anywhere else, other than FFH.

Quite impressive. NQ - I agree with you on Magna. Great company; great management; but very greedy management. FFH knows the company inside out so it doesn't surprise me. Maybe Frank will have the decency to keep his pay capped to a reasonable level until they can increase the dividend again. Now; how much GE do I hold per share of FFH. Will be back to you on this.

UCP, Your first chart sort of gets what I was talking about in regards to capitulation. - The markets will trend upwards long before the recession is dust. - Company profits will start to trend upward long before the recession is officially over. Writedowns will be written down; layoffs will have slowed; profit margins will improve; stocks will rise - Then, unemployment will start to drop and the GDP will start to rise above 0.

Liar loans, and upside down loans got started in Canada a few months ahead of July 2007. Very few were ever issued. Housing prices went up substantially in a select few areas, notably parts of Toronto, and Calgary. For the most part they went up a maximum of 1.5% from 2004 to 2008 after languishing for 16 years. Not enough stress to cause bank issues here. Most of the Canadian Bank exposures came from US holdings (Subs, and MBS).

Hi Viking, Not intending to pick on you: Why should company earnings get worse going forward? Your friends and financial advisor do not represent the general markets which are down 45% on massive volume - obviously the majority were selling The crash in 1929 wiped nearly everyone out. Those who went back in such as Ben Graham later got wiped out on much lower volumes ....However, capital preservation is my new mantra. - Exactly why I believe we are at capitulation

One of these might fit the bill: RY; BNS; TD; BMO; CM - all listed in New York as well. Paying dividends above 6% in depressed Canadian dollars - should the CDn dollar rise your dividend will rise. BMO is priced for a dividend cut which may not happen. I hold BMO, RY and TD and I am opportunistically picking up more of all of these, except CM. I am also a customer of most of the above as are nearly all Canadians - oligopoly sactioned by our federal government. http://business.theglobeandmail.com/servlet/story/RTGAM.20090215.wrgseven16/BNStory/Business/home

The problem with the SPY - PE chart is that it is really intended to look at Price only, not E. The earnings on the S&P 500 during the 70s grew at a much greater clip (roughly 9% per year from 72 to 82), than the S&P (about 4%). So there was alot of multiple compression. As companies put 2008 with all of its writedowns behind them, earnings will stabilize, and then grow relative to the low reached in 2008/ early 2009. Using Starbucks as a simple example. They took 1 B in writedowns in the 4th Q of 2008, and will perhaps take another few hundred million in the 1st Q of 2009. After that the cash coming in will be free cash. The same should apply to GE, MSFT, and others that represent the largest pieces of the S&P. Even a modest recovery in bank earnings would go a long way to raising the E. I am thinking of all of those smaller banks that took non-lethal hits to their balance sheets and still have a healthy active small commercial and retail business.

Thanks Sharper, That was very valuable. Al the noob

Being a lead story on Bloomberg, and in the WSJ, cant be good for business. Oh, to be a fly on the wall at SAC and Kinkos Capital to see how they are going to manage redemptions. In this climate investors will run so fast you will hear the wind roaring past. No one wants to get stuck unable to redeem if there is a big fine. The unfortunate side effect is the lawsuit will be bleeding a stone at the end. Never mind that the enforcement agencies are going to play "pile on the rabbit" now. What choice have they got? F--ers deserve everything they have coming.

Only God knows if we are there yet but I have been noticing: - the markets get a slew of bad news, drop for the day, and then rebound - they seem to be range bound for the moment. - the bad news no longer seems as bad. Once you have Madoff somehow losing 50 B, the other reports of 3 B, 8B seem to have no effect. In contrast when Bear Stearns announced the losses at the BASM funds the markets took a shit kicking and yet the numbers were comparatively small. It almost seems like it will take someone announcing a 9 Trillion loss to do further damage. - the bad news is so pervasive that I am numb to it. - Long practicing value investors are all screaming buy - EVeryone else is on the sidelines saying the time is not yet right - Roubini and Taleb have rockstar status - Reminds me of the Canadian Y2K Guru (Peter something). In Roubinin, Taleb and Krugmans case it is make hay while the sun shines. - governments worldwide are all on the bandwagon now. Isn't government the last to figure something out, and then manages to actually do something when things are on the mend (conjecture) - credit markets are slowly recovering - The TED spread (interbank lending rate) for example is trending lower each week. - housing is well - maybe - stabilizing.... - the US consumer found alot to buy in January I dont know, I am not much for technical analysis, but things do seem to be slowly turning.

I carry my brokerage business with TD. IMHO, there is no chance in hell they would be allowed to fail to the point where the brokerage accounts would be compomised. That would end confidence in the system for generations. No government would want that on their hands. RE: British, European, and US banks, all of whom are further along in the process. Maybe I am naive or missing something but have any of the bank based brokerages being compromised to the extent of freezing their margin accounts. Not that I am aware of. Citigroup has been a counterparty to billions of CDS and I have not heard of contracts not being honoured. Same with RBS - they are just being nationalized. I am not referring to the ABCP market in Canada which was frozen over inability to value and move the assets. It looks to me like the end result of all of this kerfluffle will see the nationalization of the biggest Zombies such as Citigroup, and some European, and UK banks. The Canadian banks seemed to have side stepped alot of this unlike past debacles. I would think they would be easily nationalized with alot less hoopla than in the US. RE: The conservative government. After Harper's miss-steps in November they no longer have any significant power in Canada. The are being allowed to govern totally at the grace of the Liberals right now.

Hi Kawikaho, Those rates dont sound right. The rates I can get with TD Waterhouse for over 100,000 are 3.75% in the US. Margin rates rise and fall with the prevailing interest rates based on some spread from the rate for short term treasuries. So, that part is too good to be true. In an inflationary environment you could find yourself with interest rates at greater than 10%, very quickly. The other too good to be true is the leverage you think you are getting. That can be changed on a dime by the broker. I use leverage but in a discretionary manner. I work out a rough worst case scenario for use of borrowed money. Having experienced a couple of margin calls in my time I am suitably humbled as to what can happen when you dont have enough margin left to actually execute the trade ($7.00) - that doen't mean I had lost everything just that I had no margin available (leaves you in a position of promising your broker that you will clean house at a loss of course). This was one of the causes of the panic selling we saw in the fall. Major and minor investors getting hit with margin calls. Finally, until you get a good handle on the ins and outs of trading, margin, and stock behaviour you may want to stay to cash investing. Losing 50% on an investment that's in cash leaves you with a 50% cheaper investment. Losing 50% on a 75% levered investment leaves you owing the brokerage alot of cash and filing for bankruptcy. Some professional value investors with 30 years experience thought Citi, and other large financials couldn't go down 98%.

I imagine everyone saw the headline by now. Does anyone think this is a mite strange. FFH is providing credit to a number of companies because they have available cash (it is in the float). However, This is cash that generates income which could be used to pay down any debt. These same rating agencies rated tranches of bad mortgages as triple A credit. These are also the same agencies who are toying with lowering GE from Triple A to something lower. At what point does anyone care about the ratings? If everyone gets lowered below AAA except BRK then does AA not become the new AAA. Its pretty obvious to anyone insuring with FFH or buying their debt that they are good for the money so what is the point.

Now Crip, That really wasn't very nice, (I wish I could put Mr. Spock raising his eyebrows here now). ;) Do his investors bear some reponsibility. Black box investing, oh dear.

Sharper, The only two metrices of this equation that have any effect are profits and stock prices. Once the biggest companies take their writeoffs, do their layoffs, and clear out inventory (where applicable), their profits will recover. So: Layoffs, writedowns first; then profits increase; ratio decreases to the 50-60% range, then the ratio increases as stock prices slowly start to catch up to profits.

Someone please correct me if I am wrong here. I believe you need to move your shares into an all cash account i.e. not a margin account. Then your broker is required to pay you the money for the borrow. 38% seems really high. I guess people are sure it is going to go bust and fast. That 38% will disappear your short profits if they stay solvent for 24 months and then go bust. Sears going bust wouldn't surprise me at this point. There is only so much ESL can do in this environment.

The amount of cash being held on the sidelines by individuals has grown to a sum significantly greater than the total market cap of U.S. stocks. I wonder how they determine this statistic? Can this be determined from borkerage account reports are are they assumming the mass movement into treasuries as a proxy. Thoughts? noobie...

Over the long term I am not sure the US consumer moving into savings mode is going to negatively affect economic growth. To be sure certain areas of the economy would benefit from such a movement such as banking, financial management, and health care (due to the aging). One of the most simple, and incredible statistics I have seen is the effect of changes in the behaviour of US consumer on savings and as a result banks holdings. 100 Million working people save $1000 this winter (maybe from gas savings alone); becomes $100 B. Save $10k this year begets 1 Trillion; save 20k over 3 years begets 2 Trillion. That is an awful lot of liquidity to invest. Add in Europe and NA and the dollars saved, and available to invest becomes enormous, even in the context of the 3 Trillion Bill Gross wants governments to spend. And we beget another boom in something or other.