Viking

Sanj, my vote says do what you feel is best. You have done a great job hosting this (and the previous) site and my bank account is much larger as a result. More importantly, I have learned alot and for this I owe a very large debt to you and other posters. Keep up the good job!

Cardboard, to provide a little clarity on the investment portfolio, I dropped the 13F numbers into an Excel spreadsheet (attached below). Please note, I did not include the GE calls; we also need to remeber that the 13F does not capture all investments (i.e. Canadian stuff etc) so I use this summary for directional purposes only. March 31 = $2,685 (million) April 24 = $3,142 or + $456 = 17% June 3 = $3,390 or + $704 = 26% Also, the $900 million communicated by FFH also included bond gains. Since April 24 stocks have done very well; bonds (muni's) have done OK. Bottom line is I don't think the gains since April 24 have added another $30 to FFH book (100% gain). I used 33% as my conservative guide of the possible additional after tax/minority interest gains after April 24. Regarding FFH versus ORH, I must admit that ORH shares do tend to trade in a sideways market (which can get quite frustrating 6 months or a year later). Check out the three year trend line and the high 30's looks to be the current trend line. FFH does seem to have much more volatility; I would like FFH to get about 10% lower before I get aggressive (given that I hold a chunk in ORH today). Mungerville, one reason I hold ORH is to play the equity markets/risk assets (via corporate bonds). If equity markets go 30% higher ORH will have even more mark to market gains (and book value will grow $3 to $4 more than I have previously stated). If equity markets go down 30% ORH will still see an increase in BV for Q2. If equity markets stay at current levels ORH will be sitting on large unrealized gains (we will see what Hamblin Watsa has sold when they report Q2).

Regarding ORH and their bond holdings, here are the numbers (in millions from p12 of Q1-10Q): - Total US Gov't = 2% of investment portfolio ($163/$7,500) - I am not including State Muni's in the above calculation because their yields have NOT run up to the same degree that US federal gov't bonds have. - bottom line is change in US Treasury yields will have no material effect on ORH investment portfolio in Q2. Fixed Income Securities Available for Sale - US government = $163 - State Muni = $2,436 - Foreign = $805 - Corporate = $433 Total = $3,846 Fixed Income Securities Held as Trading Securities - Corporate = $238 - Foreign = $82 - Mortgage Backed = $92 Total = $412 Total Bond = $4,258

alert, yes, the rapid increase in the CAN$ from the high 70's to $0.925 today certainly kills FFH in CAN$ terms. For those long term holders of FFH, the currency swings even out somewhat. Regarding calculation today, FFH is trading above stated book = US$265/$254 = 1.04xBV. - add in gains to Apr 24 (30$), add in additional investment gains ($10) and ICICI Lombard ($10) - FFH BV today is likely in the US$300 range = US$265/$300 = 0.88xBV - and yes, markets could crater tomorrow. FFH BV will be MUCH MORE volatile moving forward given their shift to risk assets. I have has a similar effect being an CAN investor and holding ORH. What has helped me is ORH has gone up in US$ terms since I purchased in separate intervals the past few months. - I am underwater by just under 4% and consider myself lucky. - ORH continues to trade under stated Q1 BV = US$42/$43.80 = 0.96xBV - add in gains to Apr 24 ($4), add in additional investment gains ($1.20), ICICI Lombard ($1.00?), currency gains ($2.00) and underwriting profit ($.80) - ORH BV today is likely in the $52.00 range = US$42/$52 = 0.81xBV Currently I prefer ORH to FFH because: 1.) it appears reinsurance pricing is firming sooner than insurnace pricing which leads me to believe ORH will outperform FFH in underwriting in the near term 2.) ORH interest and dividend income will be greater than FFH in the near term as ORH holds tax exempt municipals, dividend paying US stocks and in Q1 more corporate bonds, whereas FFH is weighed down somewhat by NB holding lower yielding (and taxable) CAN govt bonds - add 1 & 2 and ORH operating income should outperform FFH 3.) my guess is ORH investments are performing better than FFH (and my assumption is US investments - i.e. WFC and USB - are held primarily in ORH and C&F and CAN investments - i.e. Brick, Mega, Canwest etc are held primarily in NB). 4.) ORH continues to trade at a much lower multiple than FFH to Q1 end stated BV (almost 0.10) What I have been struggling with lately is should I buy more ORH? - it is cheap at current prices but not crazy cheap. - the CAN$ continues to move higher - as the first hurricane starts forming the re-insurance stocks tend to sell off (even though a big hurricance disaster would be a net prositive for ORH by hardening pricing)

Mungerville has said this before but the best thing for well capitalized insurers like FFH/ORH would be a high cost storm year. Many companies (insurers and reinsurers) have no 'wiggle room' as their balance sheets have been impaired by investment losses. Sounds a little dark though...

For the benefit of new board members, attached is the press release from FFH that communicates the IRS' final assessment of the trasaction that lead to the 80% consolidation of ORH within the FFH tax group for 2003 & 2004: - www.fairfax.ca/Assets/Downloads/Press/fpr2008-07-30.pdf I remember Prem also had some choice words on the Q2 conference call regarding the short allegations at the time on this topic...

Vinayd, thanks for pointing out the NB purchase from a currency perspective. The purchase price was US$374 million or CAN$458.4 (exchange rate = $0.816)! I wondered at the time why they took out NB versus ORH and in hindsight perhaps the level of the CAN$ was a key factor. And with the CAN$ now appreciating NB is becoming more valuable to FFH (reporting in US$). Regarding ORH, they actually discuss exchange rate risk in their 1Q results (see btoom of post). - a 10% (equal) decline in Euro/BP/CAN$ = $189 million hit to ORH - can we not assume the opposite (roughly) 10% decline in US$ = $189 million gain - $189/60 milliuon shares = $3.15 - 35% taxes = $2.00/share = 4.7% increase in BV The investments they hold with significant operations overseas will also mitigate the impact of a declining US$ (J&J, Kraft, GE, Intel, Magna, Pfizer etc). As a Canadian investor what this all tells me is that a weakening US dollar is a net negative, but the actual hit to my ORH investment is something less than 50% of the currency move. (This assumes the CAN$ appreciates a similar amount to the Euro and BP.) Foreign Currency Risk (page 60, ORH-Q1 report) "Through investment in securities denominated in foreign currencies, we are exposed to foreign (i.e., non-U.S.) currency risk. Foreign currency exchange risk exists because changes in the exchange rates of the underlying foreign currencies in which our investments are denominated affect the fair values of these investments when they are converted to the U.S. dollar. As of both March 31, 2009 and December 31, 2008, our total exposure to foreign-denominated securities in U.S. dollar terms was approximately $1.9 billion, or 25.4% and 23.8%, respectively, of our total investments and cash. The primary foreign currency exposures were from securities denominated in the Euro, which represented 10.3% and 9.7% of our total investments and cash as of March 31, 2009 and December 31, 2008, respectively, the British pound, which represented 5.8% and 6.0% of our total investments and cash as of March 31, 2009 and December 31, 2008, respectively, and the Canadian dollar, which represented 4.6% and 3.5%, of our total investments and cash as of March 31, 2009 and December 31, 2008, respectively. As of March 31, 2009, the potential impact of a 10% decline in each of the foreign exchange rates on the valuation of investment assets denominated in those respective foreign currencies would result in a $189.2 million decline in the fair value of our total investments and cash, before taxes."

watsa-is.., I just e-mailed you the PDF file...

return, I have been asking the same question... here is the math/reasoning I am using: 1.) FFH said they were sitting on $900 million pretax ($30/share after tax & minority interest) in gains from all investments as of April 24. - all ORH said was that they were sitting on material mark to market gains 2.) I estimate that ORH investments represent about 40% of total FFH investments - this leads me to extrapolate that they were sitting on about $900x.40=$360 million - after tax = $360 - 35% = 234 / 60 million shares = $3.90 after tax (very rough) 3.) thanks to margin of safety's ORH NAIC filings we know in Q1 ORH purchased: - 7.6 million WFC shares at $18.41 (46% of total new FFH purchases) - 6.86 million USB shares at $16.66 (43% of total new FFH purchases) - 478 thousand BNI shares at $63.01 (61% of total new FFH purchases) - 654 thousand LUK shares at $17.31 (65% of total new FFH purchases) - given that WFC (and USB to a lesser extent) has been the key driver of the unrealized gains since March 31, it is safe to assume that the ORH equity portfolio is ourperforming FFH since March 31 4.) regarding the bond portfolio, my guess is ORH is also outperforming FFH as FFH has Canadian govt bonds (Northbridge) which have likely performed better than US treasuries but not nearly as well as US minicipals or corporates (majority of ORH bond portfolio). 5.) since April 24, the FFH equity portfolio has appreciated roughly 5% Wrap it all up and FFH is likely up quarter to date more than the $900 million they reported (mark to market April 24). I think it is a reasonable assumption that ORH is up something more than $4.00 after tax per share. Factor in Q2 operating earnings and this gives me a current book value of $43.80 + $4.00 + $.70 = $48.50. With the stock currently trading about $38.5 then PB = 0.79 Yes, the equity portfolio could fall precipitously so one has to take all this stuff with a grain of salt. However, it is relevant and important because if ORH was sitting on $4.00 in unrealized losses (putting BV = $40.50) then I would feel differently about the margin of safety of buying at todays price ($38.50 or PB = 0.95) all things being equal.

Mark Jr, I appreciate the comments. Regarding the holding period, to clarify, should FFH sell off dramatically, I do not expect the stock to appreciate in 2 to 4 months. Rather, that has been my experience of what has actually happened the past 6 or so years that I have been closely following the company. I would not have a set holding period. Regarding understanding the company, I probably understand FFH better than any other company out there given the years spend following the stock, reading ALL quarterly filings and others opinions and observing management (and learning about competitors) etc. However, my understand would not be close to that of a small business owner of their own operation. Question: when you made the plunge, how much of your net worth was tied up in your company? And for how many years? My guess is it was well over 50% (perhaps closer to 80 or 90%). Is it really all that much different than what I am proposing? Bargainman, great post. Actually, I think a bad catastrophe year would actually work in FFH long term favour. Right now many of their (and ORH) competitors have little 'wiggle room'. Investment losses that past year have cause large write downs and eroded capital. Interest income is anemeic (given low bond yields). Underwriting is OK. Many companies have also in the past year released a disproportionate amount of prior year reserves (in what appears to me) to help underwriting results. Capital markets are still not open for insurers. FFH, on the other hand, has been building excess capital the past two years (ORH alone has $550 million), interest income is very high compared to peers (given tax free munis etc) with OK underwriting. My guess is they have also been very conservative with underwriting losses (given the investment gains they had no reason to dip into prior year reserves to pad earnings). If we have a bad catastrophe year, FFH will survive and we will have the mother of all hard markets. The only question would be how much excess capital they would still have to write new business...

Cardboard, I liked the article. Bottom line, asset values are rapidly declining but total debt outstanding is not. I also expect that FFH has been opportunistic and booked some profits given the size of the move in stocks and bond yields. Broxburnboy, perhaps inflation expectations are playing into yields moving higher. I do not think inflation is a risk and at some point later this year people will start to realize that it will take years to work through this thing and that deflation is the real issue and we will have a repeat of last Nov (lower stocks, lower treasury yields and a higher US$) although perhaps it will not be so severe. gaf63, very good point and makes sense. However, if treasury yields continue to move higher and muni yields continue to move lower (due to tax advantages) I would be surprised if FFH did not sell some muni and shift to treasury. (Although the BRK guarantee got me thinking... should armageddon happen, perhaps BRK is a better counterparty than the federal government?) I also thought about the gang at Hoisington... they may yet prove to be right (US treasury yields will trade lower for an extended period) but the volatility must be gut wrenching!

And the next question on everyones mind is what is going on with US municipals? Check out the chart comparing the 20 year Treasury to Muni yield: www.munibondadvisor.com/market.htm It looks to me that speads were about 300 basis points at their high in November/December. It now appears they are now less then 25 basis points, close to the long term average. Implications for FFH/ORH? 1.) by selling their Treasuries they missed this bloodbath 2.) they have made significant gains on their muni holdings I wonder now that spreads are back to normal if they will now sell the munis to realize the gains and move back into Treasuries? Unbelievable!

Has anyone else noticed the spike in Treasury yields that has been happening since their Dec lows? The 10 and 30 year have now moved more than 100 basis points higher since March 31st and even the 5 year is up 76 basis points. The insurers who sold their 'risky' assets in Q4 and moved to 'safe' US treasuries will be looking at some more material mark to market losses when Q2 closes! I wonder what the yield Why the sharp move? 1.) move to stocks/corp bonds (risk assets) has reduced demand for Treasuries 2.) concerns over fiscal situation in US 3.) less buying from China/other foreign governments??? Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 12/18/08 0.03 0.00 0.15 0.43 0.68 0.92 1.26 1.59 2.08 2.86 2.53 03/31/09 0.17 0.21 0.43 0.57 0.81 1.15 1.67 2.28 2.71 3.61 3.56 05/26/09 0.13 0.18 0.30 0.50 0.96 1.45 2.30 3.05 3.50 4.42 4.45 05/27/09 0.18 0.17 0.29 0.49 0.96 1.50 2.43 3.22 3.71 4.58 4.59

I continue to think about diversification and what has worked for me in the past and what I want to do moving forward. Lets say that in the current environment, FFH moves to $220 Canadian (at $0.90 to US) = $198 US Given what I know of FFH I would be comfortable putting 50% of my net worth in the company. Are there any small business owners on this site? Is my proposal above any different that a business person who has most of their net worth tied up in a small business? Regarding timing, I am not suggesting a holding period of forever. Rather, may experience has been that within 2 to 4 months the stock appreciates substantially. Yes, there is a chance the company could blow up (earthquake etc)... less than 2% probability Or they deliver between 10 and 20% ROE... most likely... 60% or they underperform with <10% ROE... 25% or they outperform with >20% ... 13% What do others think? Reckless?

Perhaps with all the overleveraged companies with slowing business out there the shorts no longer need to manufacture (short and distort) the bust and therefore are in the process of moving on to easier kills... ;)

Here are some things I found interesting: Southeastern looks to be pretty bullish on outlook for P&C insurers & re-insurers: Partners Fund: added Berkshire "We bought a new position in Berkshire Hathaway. For the first time in our careers the stock fell and remained far enough below intrinsic value for us to buy. The company’s misunderstood derivative contracts created optically messy short-term results. In addition, some of Berkshire’s recent investments have been hotly debated, though it is far too soon to judge their ultimate outcome. The company’s book value (as well as our appraisal) incorporates the market price of Berkshire’s public equity stakes, which we believe are also selling for significant discounts to their intrinsic worth.We therefore are getting a double discount for a company that is financially and competitively advantaged, has a proven record of terrific insurance underwriting, owns a number of great brands in non-insurance businesses, and has two of the world’s best capital allocators at the helm." Small Cap: hold 9% in Fairfax (3 P&C companies =21% of total portfolio) - FFH, Everest Re & Markel "Fairfax, the Fund’s largest holding and best performer in 2008, pulled back 15% in the first quarter, making it the biggest detractor from results. Fairfax declined after reporting somewhat weaker than expected fourth quarter insurance and investment results. The company has never been as strongly capitalized and is well-positioned to benefit from current investment and underwriting opportunities. Volatility in quarterly results is a price worth paying for the superior long-term investment returns that Prem Watsa and his team have delivered to Fairfax shareholders." "The Small-Cap Fund sold for less than 40% of appraised value at quarter-end.We own companies that have staying power through the recession due to their financial and/or business strength. Many will gain advantage over weaker competitors. For example, the capital positions of Fairfax and Everest Re should enable each to attract more policies while other underwriters struggle with weaker balance sheets." International: hold another 9% in Fairfax (3 P&C companies = 24% of total portfolio) - FFH, Nippon Koa & Sompo "Owner-operators KS Li, Florentino Perez, Prem Watsa, Lorenzo Zambrano, and KT Lim have spent their lifetimes creating value by acting intelligently for the long-term while many around them fret over current events.We do not know when the market will turn, but we do know that most of the gains will accrue to those investors with the courage to invest when all others are fleeing."

With the 'black tar' subsidy that US pulp producers are currently getting and the CAN$ close to $0.90US the Canadian pulp producers have to be a little shell shocked. SFK is a great company (as is Canfor Pulp). Goes to show that just because you have a strong business model/good management and are well run that you can't get gorged by a partner or global events... I will be sitting this one out, but believe pulp will be a solid investment at some point in the next 12 to 24 months.

swf, my favourite currently is ORH, which is trading below 0.9 x BV (US$38.55/$43.80). We know ORH is sitting on sizable investment gains and also that their ICICI Lombard stake is undervalued. As well, reinsurance pricing is moving higher (more so than insurance pricing). Looks to me to be lots of safety and also several catalysts to drive share price moving forward. I am waiting for FFH to fall to 0.9 x Q1 BV = US$253 = US$228 = CAN$256 At this price, similar to ORH, we know there is $900 million in mark to market gains (about $30/share) and ICICI Lombard is undervalued. Regarding directly comparing ORH to FFH, yes, it is difficult. Here are a few thoughts (would appreciate others): FFH Strength (versus ORH) - size... more diversified - runoff... further large distributions to parent likely coming this year - investment leverage (I believe FFH has more than ORH) - less dependent on US market/impacted less with dollar weakness (important for CAN investor) ORH Strength - simpler business to understand - reinsurance pricing is firming faster than insurance - possibility that FFH purchases 30% it does not own (likely at 1.2 x BV or higher) A major weakness with ORH is the small float (given FFH 70% ownership). However, as the company continues to grow and the investment community comes to appreciate its business model/management this may not be the issue is was in the past. The fact that it is currently trading at a multiple to BV that is higher than most of its peers tells me it may be getting a little more respect these days...

Here is a great summary article on reinsurance from Aon Benfield (players, size, 2008 results compared)... ORH performance sure stands out. www.aon.com/attachments/ABAFY2008.pdf

I wonder how the oil sands will fare 5 or 10 years out given the building outcry regarding the environmental concerns (and Obama's negative view). Perhaps our petro currency is not so pumped up...??? Cardboard, I have a hard time understanding how the CAN$ will move much north of parity to the US dollar (for any length of time). Right now there is a perception the Canadian economy is doing OK (versus the US). Wait until unemployment here gets going as manufacturing continues to get hollowed out. And all the spending cutbacks in the resource industry really begin to hit. My chief concern is what happens if there is a stampede out of the US$ (an accelerated version of what we have seen the past month or so). Perhaps this is what you are getting at... something that happens quickly and destabilizes fiat currencies...

Woodstove, I agree, I think you have to look at each individual move that FFH has made with respect to how it fits into the whole. And given that we have a less than perfect view of the whole it becomes very difficult to understand the individual moves. Last year, I tried a strategy of piggy backing on the ideas of FFH/Chou etc. It worked OK and I now have a decent understanding of many companies that I may chose to invest in again. Currently, I will be content to buy ORH (at current levels) and if FFH falls much more I will again be a buyer.

Crip, I have done a bit of a deep dive with the medium sized reinsurers over the past 6 weeks and it has helped me better understand their differences. One thing that stands out is how conservative almost all investment portfolios are. Part of this is due to the type of business written. Those companies writing short tail business (one to two years out) really should stay away from equities. Bottom line is yields at most insurers is going to be very low for the forseeable future. And because Treasury bond yields are now pretty much as low as they can go (actually moving the other way), there will be no further realized investment gains due to falling interest rates for Treasuries. With historically low interest and dividend income and limited opportunity for realized investment gains, to hit ROE return targets insurers are going to have to have stellar underwriting. The fellow at WR Berkley said that given the level of pricing the past 12 months (not great) he was surprised with the CR numbers being reported. I think he was suggesting that insurers over the past few quarters were pulling large numbers from prior year reserves and reporting underwriting numbers that were a little (or a lot) inflated. Bottom line, the cushion (prior year reserves) has likely shrunk quite a bit the past 6 quarters and companies will have even less wiggle room on a go forward basis. One of the insurance executives (Veritus?) was asked why he was not buying back stock in the current environment (with company stock trading at around 0.8 of BV) and he said that when the hard market hits and you grow premiums they tend to be sticky - meaning the new business normally stays with you for three years on average - and profitability of this business (quite high) then drives serious book value growth over a two or three year period. I set up a portfolio of the mid sized re-insurers in Google to compare stuff and what amazed me was how many of these companies are trading at a price to book that is lower than ORH = 0.9 (most). Looks to me that ORH is starting to get some respect and the level it is trading at is more a reflection of how poor the investment community views the reinsurance industry right now. The catalyst for reinsurance stocks will be confirmation that the market is hardening. Year to date, the signs are positive. Next on the watch are June 1 renewals in Florida and then July 1 renewals in general. As Mungerville mentioned perhaps the best thing we could hope for is a terrible year regarding hurricanes. I have little doubt that if that happened most insurers do not have the capital and with the capital markets largely closed the hard market would be here in full force. AIG is one company that may really screw things up. It was mentioned that they were historically the price leaders. Right now they are a mess and the fear is they could hold pricing too low for too long (who cares if they cheat a little bit on the underwriting when the losses will not show up for a few years). One scenario regarding AIG is parts of their business could simply implode as companies view them as too risky to do business with (insurance, just like banking is built on faith and trust). So perhaps a wounded AIG slows the arrival of a hard market... all this likely does is ensure they (AIG reinsurance) will dramatically shrink a little later as reserving issues do them in (all these re-insurers are sharks and will not hesitate to kill off one of their own). I loved the question posed to one company CEO that asked in the Bermuda reinsurers were openly telling customers that they were not willing to write business with AIG as a partner. The insurance exec said that they have an obligation to their shareholders to only partner with companies that are financially sound, have an ability to pay AND an ability to process claims properly (meaning Uncle Sam's backing is not enough... their underlying business model cannot be impaired as they lose people etc). It sounds to me that there are large cracks appearing in the AIG reinsurance business model and many customers are rethinking how they utilize reinsurance and the role that AIG will play in the future. Bottom line is AIG is in deep trouble. Regarding ORH: - they write longer tail business (on average) and therefore can put equities into their portfolio as a 5 year time horizon is fine. When I look at the equities, the current BV = $43.80 pretty much locks in most of the downside risk. They likely are sitting on $5 or $6.00 in pretax gains (including bonds). My guess is we will see FFH take profits on part of the equity positions (i.e. be opportunistic) as they were in Q1 when it looked like they had about 15% turnover. Why not sell some Wells Fargo at $25 and reinvest in some stallwart with a high dividend yield. When the markets sell off again, sell the stallwart and buy Wells Fargo again. We will see. - their current before tax portfolio yield (interest & dividends) of 4.55 to 5% (not sure which) is at the very high end of their peer group. - the fact they hold no US Treasuries may prove to be brilliant (should Treasuries continue to sell off in the coming months). Yes, at some point all bonds will be impacted... my guess is corporates and municipals will not move up as fast (spreads will continue to narrow). - they currently have $550 million they could use to buy back stock. The fact they are not right now with the stock trading at 0.9 x BV (closer to 0.8 x May 23 BV - my estimate) is very telling. They must be expecting a hard market to get started very soon. - I think ORH is licking their chops right now. They have an industry leading yield on their portfolio. In Q2 they backed up the truck and purchased corporate bonds and more equities and are now sitting on some pretty large gains. The reinsurance market is LOOKING like it will harden at any time and they have the surplus capital to grow a great deal. - the key to me will be their underwriting results on a go forward basis. As I have posted before, there is a decent chance that the legacy issues (pre-2001) are done. As well, they earned so much the past two years from investments their prior year reserves SHOULD be in great shape as they did not need reserve releases to help (yes, I know insurance companies do not manage their business this way... and I don't buy it!). We should see average CR's and decent prior year reserve releases. In other words their underwriting should start to move to the front of the pack (instead of being at the back). Before people get their back up, if you look at ORH overperformance since 2002 it has come via investment gains. Period. What I am saying is with better than average yield, continued better than average investment gains AND NOW better than average underwriting as we enter a hard market this will be a $100 stock in the next couple of years. I think that is the bull case (that has been gestating in my mind the past few weeks). Will all factors come together? Perhaps not... however, I do like the risk reward. Please feel free to rain on my parade (I have thick skin) and sorry for the long post. PS: and for other Canadians (like me) should the CAN $ continue to rise and ORH stay below $39US then the opportunity gets even better. PS 2: if anyone has come across any good articles or write ups where AIG or the re/insurance industry is going please point me in the right direction. Thanks!

Cardboard, the Canadain dollar has been on my mind lately as well. I wonder how Canadian manufacturing (particularly in Ont/Que) will be able to cope. As an investor, I do not like what it does to my current US holdings (i.e. ORH). However, other companies that I would like to hold, like BRK, are now much cheaper and I like that. Net/net, given that I can increase me US holdings I will be able to use the stength of the CAN $ to my advantage (note, the CAN$ would need to move to the $0.95 range before I seriously start thinking about buying US stuff to take advantage). Regarding the near term outlook, David Rosenberg is of the opinion that we are seeing a bear market rally and when fear returns to the market (and stocks and commodities sell off) the Can$ will also sell off again. This makes sense to me as likely. Regarding the medium term outlook, I do think China and their demand for commodities going forward will provide a somewhat new dynamic for Canada's resource producers (less linkage to US). I think our healthier balance sheet will also result in 'less bad' stuff happening up here. Having a strong Can$ over time helps not only maintain our purchasing power but actually increases it (good for most investors, unless one is maxed out with US holdings today). Cardboard, I also think about the Remnimbi. I think this is the currency to hold long term. Do you (or others) have any thoughts about the Chinese currency? Any thoughts on how to get exposure?

WR Berkley aslo presented at the UBS conference. They expect the market to harden into Q4 and 2010 due to two basic reasons: 1.) pricing is too low today 2.) balance sheets need to be repaired The Q&A session at the end of the call was very interesting: ir.wrberkley.com/events.cfm They also are struggling with the current investment climate and were asked if they will begin to hold more equity securities: 1.) "We make money in insurance business" 2.) "Have to make sure the capital account is not jeopardized from a statutory point of view" 3.) "Equity securities will jeopardize capital account" 4.) "High quality fixed income securities will not" 5.) "Capital account lets you write insurance business... thing that generates return" VERY different business model than FFH... There was a question regarding AIG and why they were not shrinking faster. The answer was the shrinkage is gaining momentum and they are being asked to write less business and pretty much all of their good people are actively looking to leave. WR Berkley feels they have not seen so much opportunity before them as they currently do!

For what its worth UCP, looks like Controlled Greed may be thinking along the same lines as they just initiated a position in EGI... [www.controlledgreed.com//url]