T-bone1

My understanding is that owning an MLP (or publicly traded partnership as the industry calls itself) can open you up to filing a tax return for unrelated business income in an IRA or other tax-exempt account. I believe you can have up to $1,000 in income of this type per year (which counts for BBEP regardless of whether or not they pay the dividend), but after that you probably have to pay. Filing a tax return for your IRA probably isn't much fun so I wouldn't suggest exceeding this limit. If anyone knows better than me please chime in. Thanks.

My understanding is that you get a lot more oil for each share of COP you buy. XOM has a lot of current earnings power, but has chosen to buy back stock rather than replace their reserves for years.

I could not be more frustrated that USAIR cancelled my flight at the last minute and I wasn't able to make it to the dinner. I hope everyone had a great time. If someone who was there wouldn't mind reporting back on the goings on for this unhappy camper and the rest of the board it would be much appreciated. -Tbone

But Wells Fargo doesn't "owe their ability to operate" to the taxpayers. Yes they took TARP money, but they didn't need it or neccesarily want it. You say the government could just create a "program to put loans out there" . . . thats exactly what this is. They give $25 Billion to Wells, and Wells makes loans with it. This makes sense because Wells is a bank and is in the business of making loans! This is exactly the government program you mention. Do you think a better government program would be to have a bunch of incompetant cronies dispense the loans rather than a proffessional bank? Isn't that part of the reason we are in this mess? How exactly do you propose the government make loans in a more effecient manner than coercing Wells to take the money and make the loans? I understand that this is all a little silly . . . congress is grandstanding and it is unlikely a bill will ever be made law (it is still illegal in this country to punitively tax a small group). So this won't actually hurt a company like Wells, but I am a little offended by the suggestion that they deserve their share of the backlash for taking TARP money they didn't want. Liddy is working for $1 a year - less than Buffett makes - so everyone should get off his back. Wells is taking TARP and lending it because the FED told them it was for the good of the country - they shouldn't be blamed or insulted for this. If anyone has issue with the above two facts, I would be happy to argue them (i.e. arguments that Wells would have entually needed the money or Liddy will be paid on the back end), but please don't act like the pathetic US congress and make grandstanding generalizations like "you took TARP, now you have to pay" end of rant.

I think this could be the start of a trend. For me at least, it is almost startling to see someone ask serious tough questions of some of these people . . . probably because I have never seen it before. My natural reaction is to think that Cramer deserves a break, as ScottyJukeBox says, because a lot of people got this wrong . . . but that is inside the box (or inside the system) thinking. Stewart makes the excellent point: should Cramer be doing this at all? If you step back from the difficulties of forcasting stock movements on a daily basis, this guy is in the business of getting people to trade stocks. His sponsors are brokers. He is nothing but a shil for Wall Street, and yet he holds himself out as the wise friend of the common man. I don't have anything against Cramer, and there certainly is a market for this type of show. I don't have anything against Casino's either (was it Munger who calls them a "math tax"?). My only point is that it was a real culture shock for me to see someone mainstream (or anyone other than Patrick Byrne) asking these types of questions. I think we might be entering an era, not unlike the 30s, where the American public believes Wall Street is working against there best interests. For this reason I think the financial services industry will shrink, and I have considered shorting some players.

SD, I agree with what you are saying, but I don't understand what opportunity you are talking about ("the opportunity may well be short lived"). I think you are dead on that lots of people will sell if they recover their losses, but politely, who cares? People on this board have been wondering recently if we go down to 600 or even 500 as Grantham posits . .. . who cares? We are talking about a 10-20% downside in a market that will likely double over the next 3-5 years. Inflation has become a "when" not "if" question . . . stocks will certainly outperform cash and bonds over the long term. The short term is scary, but that is why you buy with a margin of safety. Most stocks discussed on this board have an adequate margin of safety at this point so that things can get worse than we expect in the short term, and the investment will still work out. Buffett always says that no matter how smart you are, you have to realize that even if you know exactly where the economy is going, you still have no idea where the stock market will go. I have always been very against the efficient market theory, but I have to agree with Warren and Charlie; the weak form of the EMT almost always holds (other than in the midst of a crash of mania). There are a lot of very smart people on this board, and a lot of very smart people managing money out there - arguably the percentage of money that is "smart" is a lot higher than in the past. I think we all have roughly the same information: this board, Ben Bernanke, John Paulson, Warren Buffett, and most of our intelligent non-financial friends and relatives. In short, I think a lot of this stuff is priced in. All that is left in my opinion is being greedy while others are fearful. We could debate all day about what will happen this year . . .. but if you want to talk about whether or not FFH will outperform stocks, bonds, and cash over the next four years that will be a very short conversation. There are "sure thing" winners sitting around at unheard of prices . . . I think Grantham and others are right that it doesn't make sense to wait.

Ericopoly, I agree and I think that is what most market commentators are missing. If you buy a stock you are getting a "yield" (I prefer to look at free cash flow yield or in the case of FFH the after-tax annual book value gain, rather than actual dividend yield) and you are getting "inflation protection". Obviously with an oil company you get more from this hard-to-value "inflation protection" component than you would from a manufacturer with high maintenence capex costs". I think you can look at "fair value" of stocks as FCF yield, minus some risk premium, plus a bonus for inflation protection (or growth). This "yield" should be equal to the long term treasury yield (becasue you are subtracting for risk). So if Wal Mart has a FCF yield of 10%, you subtract 7% for the riskiness over treasuries and add back 2% for growth (inflation protection). This would leave you 5%, which is more than the long term bond yield. I think we would all agree that treasury yields are unrealistic right now, and it would be better to use some "normalized" measure, like the average of the yield on really safe debt (KO etc. and the treasury curve) - something like 4% for ten year and 6% for 30 year. Even using these higher rates, you are already out earnings treasuries with the FCF at a lot of companies. If you think 7% is a fair equity risk premium, then you need 12-13% FCF from a safe stable stock to equal the normalized treasury yields above. There are stocks where you can get this yield and you get the inflation protection for free. Basically, I think stocks are cheaper than '81 considering the outlook and where bond yields are. This is an awfully good time to get some free inflation protection in my opinion.

I'm with Mark. I'm all in but don't need to cash for some time. Also have some FFH calls. However on a look through basis (looking through to FFH's cash that is) I am still buying. Looks like another nice convert today

I thought that they removed the 25% of daily volume limit for buybacks. Was this only for financials during the temorary no-shorting rule?

I have to assume that on a day (or week) like this they are buying back stock hand over fist. In addition, I would be surprised if they didn't cash out the rest of their CDS here - if they haven't already. I expect them to hold the CDS related to RR until maturity and maybe roll it, but the speculative stuff is probably heading out the door.

I agree that we can't call the bottom, and then the best thing to do is follow Prem and Warren in saying: "this is close enough and I can survive whatever short term drops might still be ahead" I also note that when markets bottomed in 1980 or so and Buffett was buying things are 2-3 times earnings, ten year treasury rates were are 10. Today ten year rates are at 3% . .. . meaning an equivilent bottom would be higher this time around. The S&P bottomed at a P/E around 7 then, I think that the current P/E of around ten (this is a marketcap-weighted average, so banking losses have less of an effect) is equivlent, considering Treasuries are 7% lower.

Millsman, I think you have to expect combined ratios to occassionally be above 100%. If not, everyone would sell insurance, buy treasuries with the proceeds, and get rich. Last year was a tough year, the market was soft and their were a lot of expensive cat events. But even just combining the last two years gets them under 100% on average. I think this is a great result. Unless a company has invested a ton of time and money into growing a specialty insurance business in some inefficient niche (like MKL), I don't think you can expect the CR to be below 100 every year. It just doesn't make sense, because the market is competitive and efficient. t-bone1

I hate to beat a dead horse, but with regard to many posters' comments/complaints about underwriting: 1) The portion of the combined ratio related to currency was directly hedged. This should not be thought of as part of combined ratio. They recieved an equivelent amount for their hedges. (I know it is a little confusing that they could have such a large move since they report in US$, but apparently a lot of non-US subs had dollar denominated liabilities). This portion of the combined ratio is simply irrelevent. It was a risk that was hedged out without counterparty risk (bought extra treasuries to hedge). This is not different than reinsuring a risk with Buffett . . . it should no longer count towards your performance. 2) The commutation of the reinsurance policy - to get the money now - hurt underwriting. This is a different issue, but again .. . who cares? This has nothing to do with insurance: this was an investment decision they made that affected their combined ratio. It was a good decision based on the implied rate of return in the commutation an what they think they can make. This is like the combined ratio being affected by the decision of whether or not to sell debt at the holdco level. The CR for 2008 was 110.1 If you take out the commutation and the currency issues it was 104% . . . this isn't bad for a big catastrophe year. They break out what it would have been without the catastrophe, 96.2% in 2008 and provide the 2007 CR also adjusted for the currency (benefit that year) for comparison. In 2007 it was 94.8% after removing the currency benefit. I agree with many here that you should back out catastrophe's, but rather look at the average CR over time. However, if you figure the last two years where average (when in fact as a group of two years they were worse than average both for insurance rates and catastrophes) and you spread this year's cat losses (7.2%) over the last two years, then it would have been: 2007: 98.4% 2008: 99.8% This looks pretty damn near the "zero cost float" everyone has been hoping for - And these were bad insurance years! I don't mean to rant, as I know that everyone here is a fan of FFH management and that many who don't like the stock at these prices (or those of a few days ago) are past investors. But I must say . . . these guys are great investors on the long side, not the short side. Until last year, they had made almost all of their money on the long side (and preserved it by being more than prudent at very opportune times). I would posit that THIS MARKET we are in right now, not the overvalued market of 2007-2008 is the ideal time to be invested with Prem and his team. I think that insurance results will be even better going forward, and they certainly have tailwinds to help this, but I think investment results will be stellar too. Everything in this company and management teams' philosophy and past performance suggests the best is yet to come. The notion that suddenly we can't afford to pay a few points for insurance float (not that I think we will) is a little silly in my opinion. If anything, we can afford to pay more for float now. I would ask the question to those who are not interested in FFH at current prices (or roughly at book value): At what point in FFH's past has the outlook ever been brighter (balance sheet strength, investment opportunities, insurance market hardening)? again, sorry for the rant. I obviously am emotionally attached to the company, but rationally, I can't figure out why now isn't the best time to buy FFH (other than saying there is "much cheaper stuff elsewhere"). If someone can explain to me why the outlook isn't as good as I think, please let me know. If someone sees a safe multi-billion dollar company that is a better buy right now, please also let me know why. If someone thinks my analysis is innacurate, offbase, or poorly spelled, those comments are welcome too.

the company repurchased 1,066,000 (rounded) shares during 2008 for $282 per share. The company is worth more now, and the other opportunities are better, so I consider it a wash. I am with Prem and consider $282 a good purchase price, I would bet the company is buying today.

The lawsuit looks frivilous to me, and I think its cheap enough to compensate for the uncertainty. I have a full service broker, I don't know how you would buy bonds without one, but I guess just call whoever your broker is and tell them exactly what you want and what you are willing to pay - make sure they don't screw you on price.

you might want to look at BBEP, Klarman sold LINE in Q4 to buy more BBEP. CMZ's debt trades at about 35 cents on the dollar for a 37% YTM. I think that is the safer bet on the company, but just one man's opionion. However, If they could find a way to buy back their debt at these prices . . .

forget earnings, how about Book Value per share? Over/Under $292 (just a number I made up)??? any takers?

I'm with you Whitman, I think that is a disgusting reflection on the culture of entitlement among America's youth (of which I am one). The idea that she has some right or claim to distribute Warren's wealth (that he earned in an honest manner, as opposed to the many other ways to get wealth) because her mother married Warren's son is dillusional to put in nicely. I don't think Warren's own children have such a right, much less their offspring or stepchildren.

I think Crip makes the right point . . . these results might look crappy, but they have about the same 5 year BV growth rate as FFH. MKL is a phenomonal insurer (always over-reserved, great specialty businesses, 85% combined ratios), and a slightly above average investor (no huge mistakes, will outperform the market over time) FFH is a phenomonal investment vehicle (in the top 1% of all hedge funds, mutual funds and financial companies over the last ten years. Great long term record, and we know how they do it . . . it isn't a fluke) and an above average insurer (conservative reserving, and combined ratios around 100%) I think these companies should see similar book value growth over time (say over the ten year period that we are in the middle of right now). If you assume that going forward they will both grow book value at 20% (at least for the next five years) then they are probably worth 1.5 to 2 times book. I think MKL has a book value premium to FFH because their underwriting is obviously repeatable, whereas you need to have a good amount of understanding and/or faith to think that Prem and Brian's investment performance is repeatable. The market believed this about FFH once, I think they will again. MKL will never grow like FFH can in the future because there just isn't that much business you can write at 85% combined ratios, no matter what your culture is. I for one would love to see FFH get their hands on some specialty businesses with low combined ratios, and then really knock the cover off the ball. My money is on FFH, but if MKL was available at FFH prices (probably about 1 to 1.1 times FFH's adjusted current book value right now) I would definately buy some.

Bloomberg has an article on HannoverRe today saying that reinsurance rates are up ~10% this year. They say this is because many regular insurers are low on capital and need to lay off their risk (as FFH had to years ago). It should be fun to be on the other side of this. I figure this could subtract 6-7% off of ORH's combined ratio, all else being equal.