Viking

Tx, I agree with everything you have said. Trump seems to want to pick a fight with China and I am not sure how this ends well. I am happy that FFH is moving on from an investing standpoint. IF inflation is indeed picking up and the US economy continues to improve then FFH will benefit.

Prem has had a close long term relationship with Wilbur Ross; given his role in the new Trump administration I wonder if this is providing Prem with a little more conviction regarding what will likely be happening in the US in the next couple of years. A couple of comments from the conference call held earlier today: 1.) perception that Prem underpaid; will be interesting to see if another competitor enters with a competing bid 2.) likely Fairfax gets significant cash infusions from outside investors to cover a majority of the shares required (similar to Brit transaction); this would allow the cash part of the offer to increase significantly

From one of the quotes above, it looks like Fairfax is in the process of doing a complete 180 in terms of positioning of the investment portfolio. My guess is what remaining equity hedges they had may have been sold and it would not surprise me to see them scale back they deflation hedge. Fairfax has underperformed the past 5 years primarily because their hedging has not worked out and this has led to poor returns in their investments. The good news is they are performing well with underwriting. If they can once again start generating decent investment returns then earnings have lots of upside. What they do with the investment portfolio of Allied will be key. Prem has lost credibility the past 5 or 6 years due to decisions made in the investment portfolio. Can they get their investing mojo back?

Here are a couple of interesting quotes from Prem regarding the rational for the purchase: “The recent election . . . has a strong potential to make the business climate for growth great again,” he said. “We believe the US may see significant growth in GDP and our business in the US will benefit from any such positive development.” Mr Watsa suggested that there could be more US deals in the future: “When the biggest economy in the world is on the way up we think the downside is significantly reduced and it becomes a value-oriented, stockpickers’ market. In the last few years we’ve played defence. We expect to play offence.” https://www.ft.com/content/da6d1b3a-c5f5-11e6-9043-7e34c07b46ef?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo

Could the driver to do a deal today be the paradigm shift we are seeing in US interest rates/bond yields? Back in June we saw 10 years treasury yields fall to 1.35% Tough environment for insurance companies' earnings. Today bond yields are spiking. The 10 years is now at 2.6% and some pretty smart people like Gundlach are suggesting yields may continue to move up significantly in the coming years. If this happens then earnings for insurance companies should benefit. It would make sense that stock prices would also move higher. Perhaps Fairfax feels that as bond yields continue to increase over the next year insurance companies will get repriced higher by mr market; hence, the decision to buy now even though their own shares are trading near 52 week lows.

Fairfax over the past 30 years has a very good track record when it comes to investment results. The past 5 years or so have been poor. They have continued to increase investments per share. The quote below is from Prem's letter to shareholders in the 2015 Annual report. "At the end of 2015, we had $769 per share in float. Together with our book value of $403 per share and $134 per share in net debt, you have approximately $1,306 in investments per share working for your long term benefit – about 5.6% higher than at the end of 2014."

Fairfax has underperformed for the past 5 years. BV per share (US$) has grown but modestly. Share price (in US dollars) is also up a small amount. 15 years ago when I first invested in Fairfax they were considered very good investors and below average underwriters. Reading RBC's most recent report it is now the opposite: good underwriters and poor investors. My guess is they will get the investing thing figured out over time. Good underwriting plus good investing will result in a much higher share price.

So recently Fairfax exits long dated US treasuries and reduces equity hedges. Then Trump is elected and long bond yields spike and stock markets go to all the highs. And Fairfax sells off. I hope it continues to sell off...i have not owned shares in many ears and would be happy to own them again.

For those looking to better understand what is going on today Gundlach certainly has some thoughts. His most recent presentation is about an hour long and provides what looks like a pretty decent review of what has happened the past 6 months and why. He also provides some thoughts on what may come in the next couple of months. (There is also lots of self promotion etc; however, there is also lots to chew on and that is what I like...). Sorry if someone has already linked to this presentation. :-) http://www.doublelinefunds.com/webcasts/ A couple of my key takeaways (looking out to mid 2017): 1.) inflation in US will be going higher, especially with oil trading today at $50 (Jan of 2015 it was at $26) 2.) US interest rates are going higher; after basing for a while at 2.35% US 10 year will begin the next up leg 3.) US$ is going higher 4.) volatility will increase (buckle your seat belts)

I find listening to Jeff Gundlach and Stanley Druckenmiller fascinating. Both are of the opinion that we may have seen the bottom in long bond yields. They see 2.35% as a key level on the 10 year, with another leg up very possible. Watsa sold all of his long bonds and also reduced equity hedges 50%. My read was we are in a bond bubble. Trump getting elected perhaps simply provided the final nail in the coffin for the bond market (as his policies are perceived as being more negative for bonds than Clinton). When 10 year US Treasuries dropped to 1.4% earlier this year everyone who wanted to own long dated government bonds likely had bought. The interesting thing is where we go from here. Should yields on the US 10 years move meaningfully higher from current levels (of 2.35%) then the bond bear market may be officially on. And then what higher yields do to the US economy etc, etc will be fascinating to watch. Investment portfolios will be turned on their heads. Bonds have gone up for 30 years (as yields have fallen). Hard to see stock averages going up a great deal from current levels (PE's are already elevated). Perhaps we will have 5 years of a sideways market... Stock selection will likely be key moving forward (similar to when Lynch was running Magellan back in the '80's).

He has over delivered to expectations since the election. Lets hope it continues :-)

My read is many, many people in the US are VERY upset with the status quo. The media needs to spend some time fleshing this out. People voted for change. Everyone is fixated on Trump and that is stopping them from understanding what is really happening tonight.

Performance Sports have made some decisions that have failed in a big way. They overpaid big time for Easton (and funded it largely with debt). Opening stand alone Bauer stores alienated their long term retail partners; at one of the the largest hockey shops in Vancouver Bauer skates have gone from 80% of the facings to 50% (with CCM being the big winner). They also had a couple of their largest US customers declare bankruptcy. And hockey and baseball markets are stagnant to declining (overall). Mix it all together and you have a perfect storm. Will Bauer and Easton brands survive? Of course. Will they regain market share they had in hockey and baseball a couple of years ago? Not likely.

I think a key factor is your outlook for interest rates. My pick today is C. However, if interest rates were to move materially higher then I would favour BAC.

Looks like there is lots of blood in the streets.... Usually a good time to buy. Crazy, crazy situation... But one that will get dealt with over an extended period; UK and Europe will muddle through. Hard to see how this makes UK and Europe stronger. On balance, looks to me like strong, big US multinational companies will be the winners. Regarding the big banks, looks to me like the big US banks will be winners (over the next few years). Who will want to deal with the big UK or Europe banks moving forward (I am thinking big companies or very wealthy individuals)? Who will want to work for them? Too much uncertainty.

The big US banks have sold off the past couple of weeks (with some down 6-8%) so part of the big move today may be because they were oversold. Regardless, they are still quite cheap. At current prices my favourite is Citi; they trade way below tangible book value and have a PE of about 9 (current year earnings). They are over capitalized and capital is growing faster than earnings (as they utilize their sizable DTA). Capital return will increase nicely this year. The next catalyst to the shares should be CCAR announcements in June. Hopefully Citi will be approved to return 12-15 billion over the next 12 months; if so, I expect the shares to pop.

Agreed that well researched stats are in short supply. I also agree that crazy low interest rates are the fundamental factor driving the market higher (although I am not sure that explains the 30% increase in prices we are seeing year over year as I think interest rates have been roughly flat over this period). On my street in Langley (30 minutes outside of Vancouver) 5 houses have sold in the last 24 months; 4 buyers were new to Canada from China. My neighbour who listed his house earlier this year had 40 people come through in 24 hours and told me 'the vast majority' were Chinese buyers. It may be that my neighbourhood is being targeted (as it has a reputation for having very good schools). Bottom line, I do think Chinese buyers are goosing prices in certain neighbourhoods in Greater Vancouver. Unfortunately, it is all happening 5 years too early for me (if my kids were out of the house I would be happy to sell, pocket the gains and rent or downsize (to a townhouse).

I think a key cause of the real estate popping in the US was they ran out of fresh meat. By 2007 if you had a pulse you 'owned' a home. Income did not matter. Job did not matter. The market simply exhausted itself.

I think it is pretty straight forward to identify a bubble. I think it is near impossible to predict when it will pop and what the cause of the 'pop' will be. It looks to me like Vancouver is in a housing bubble. Living here, it is taking on the feel of a game of monopoly. Prices up 20% over the last year in some neighbourhoods? Prices up 50% in 5 years? My neighbours sound like they are intoxicated when they talk about real estate. The one caveat I have is China. If demand from China continues at current levels (people wanting to get their money out) then the Vancouver market could stay elevated. It could even continue to go higher. Bizarre....

I live in greater Vancouver (Langley). 2,350 sq ft houses sold for $600,000 six years ago. Two years ago they sold for $700,00. Last year it was $750,000. This year a house was listed for $850 and it sold for $1,030 (it is now affectionately referred to as the 'million dollar house'). My neighbour recently listed their house at $938,000; they had 40 people though, multiple offers, and a final offer of $983,000. Most of buyers are Asian looking to get their $ out of China. Total blows me away to see prices going up one hunded thousand dollars each year for many years. Hard to see how this is not a bubble. The crazy thing is the flow of $ from China is expected to continue so we may very well see prices go even higher. Vancouver is such a small city it does not take much demand from China to cause prices to spike. Both of my new neighbours are from China (very nice families and great neighbours). :-)

listening to these are of high value for me. It normally takes me three conference calls to get a decent read on management (do they walk the talk). As an example, by my third RIM conference call I had no faith in management and exited my full position with a small haircut (and avoided getting scalped).

+19%; pretty much all due to CAN$ appreciation. I did OK with JPM, offset by being too early back in Apple (closing Dec 31 at 105 did not help). :-)

The price dipped below $10/unit this morning, which is about where it ipo'd at the beginning of the year. I like the idea of getting some exposure in my portfolio to India; can't think of a better way than Fairfax. The key will be to give FFH 3-5 years; I think it will take that long to build a very good portfolio of businesses. My guess is FFH will be focused on buying positions in quality businesses (given the other risks such as corruption etc). The stock market in India has also been on a tear the last few years. It looks to me like FFH will be making purchases at fair prices. This means the benefit to FIH shareholders will take years to show through earnings growth at the acquired companies. :-)

cash - fed raising rates further in 2016 likely means lots of volatility in equity markets; having some cash on hand will likely come in very handy

About 35% cash.... Wondering what happens when the fed actually raises rates.