Viking

i agree and that is what we are already seeing. However, i do think some US equities, like Apple, could be collateral damage. If so, that could be what drives markets the next leg lower. So we could see a flight to quality (US$) and lower equity markets. US bonds could rally with inflation set to move higher. Crazy times.

Can we take away any investment lessons from Putin’s invasion of Ukraine? I think there is one big one: political risk for an investment is being significantly re-defined. This risk was already being re-defined over the past 15 months. KWEB peaked at 86 in January of 2021. Today it is trading at 24 = -72% decline. BABA was trading at $300 in Nov 2020. Today it is trading at 87 = -71% decline. Charlie Munger clearly misjudged one important aspect of his investment in BABA - political risk. But up until now political risk was primarily seen as investing in companies with their base of operations in China (largely along the lines of can you trust the government or can you trust the accounting). Or more recently Russia (take a look how Van Eck Russia ETF has traded over the past 3 months). But the war in Ukraine is magnifying another big political risk (that is not yet on most investors radar) for companies with global operations: especially those with significant operations in Russia and China. Obviously, all the companies who have exited Russia have destroyed shareholder value in the process. Obviously no one saw this coming. POLITICAL RISK IS NOT THEORETICAL… IT IS REAL. Given the learnings of the past 15 months, and the past 3 weeks with Russia/Ukraine, how do CEO’s and investors now view the political risks of doing business in and with China? For multinational corporations. One of the usual outcomes of war is a spike in nationalism. In all countries. As relations between US and China continue to deteriorate (has been getting worse for years already) at what point do Chinese citizens decide buying Western brands is not just uncool but unpatriotic. Will this be good or bad for Apple’s iPhone sales in China? How about Nike? Or KFC? When war is waging the opinions of ‘the mob’ can change fast (usually with a little help from the government). And once they change there is no going back. And it looks to me like we are on the knifes edge in China. Is this political risk priced into Apple trading at 30X earnings today? (And if Apple sells off, given its massive size, guess what will happen to the market indexes?) The second emerging political risk is where you source your production. Need stuff from Russia to build you widget? You are screwed. Europe and nat gas is the poster child of this risk manifesting. If our relationship with China blows up how will that play out for Apple? People might want to stock up on their Apple products while they are still available. Now i am saying this tongue in cheek. What I know, as an investor, is the risk of a blow up with China is rising. So multinational companies, already taking it on the chin in Russia, now have to be re-assessing and re-evaluating their exposure to China. Especially if the relationship with China and US/the West deteriorates further in the coming weeks. As we learned with Russia, things can get repriced very quickly and in very unexpected ways.

“What influences them?” Propaganda works exceptionally well. There is a reason dictatorships are obsessive about control of the media. Most people in Russia are going to think exactly what Putin/Russian military wants them to think. Russia is in Ukraine with a peaceful operation to liberate the country from the Nazi regime that is occupying the country. The Russian soldiers are giving the local population food and warm clothing. https://www.thefocus.news/celebrity/misha-katsurin/

I think there is a really simple answer to your question: 15 years in jail if you say anything about the war the government doesn’t like. Not sure i would characterize the ability of citizens in US/Canada/Europe to get information as garbage; not that difficult to access good/balanced information if you want. If its garbage here, it is infinitely worse in Russia today. ————— Ukraine news: Journalists flee Russia amid Putin's information crackdown - https://www.foxnews.com/world/ukraine-war-journalists-flee-russia-putin “Independent and foreign journalists based in Russia are fleeing the country as Russian President Vladimir Putin cracks down on dissenting information about his invasion of Ukraine. Alexey Kovalyav, an editor at an independent news outlet in Russia and a fellow at the World Press Institute, said he left the country in a Friday tweet. "Never thought it'd come to this, but I did have to leave Russia, crossing the border on foot in the middle of the night, with my panic-packed bags on my back and my dog in tow," he wrote. "Felt a massive door slam shut behind my back. Barely had enough time to call my parents. Crazy times."

@Pelagic i agree with much of what you posted. The problem with Mearsheimer’s perspective is it conveniently ignores the reality of what has actually happened over the past 35 years in Eastern Europe / the former Soviet Union. According to Mearsheimer Lithuania, the first country to break from the Soviet Union in 1990, were idiots. A the time, there was a very big risk the Soviet Union would respond with their military. Then the flood gates opened and every country that could ran like hell from Soviet/Russian control. And it continues today. Look at all the other countries who were successful the past +30 years in escaping the Soviet/Russia bear hug: Estonia, Latvia, Lithuania, Poland, Hungary, Czech Republic, Bulgaria, Romania, Slovakia, Slovenia, Albania, Croatia, Montenegro, North Macedonia. And according to Mearsheimer’s logic all of these countries were idiots to do what they did. So his theory has a pretty abysmal track record explaining what is actually happening in the real world (although is sounds great like most models do). The problem for Ukraine is Russia, under Putin, has decided to wage war. As a result, Ukraine is going to have to fight to maintain its freedom.

i will not stay in cash so i am not too worried about the hit from inflation in the short term. And living in Canada if commodities rock (as they are today) i do expect the Can $ will start to strengthen at some point (most of my cash is in C$) so perhaps this positioning will help. My guess is i will get a few great opportunities to buy stuff i understand/like during 2022; just don’t know when. As i have said before… @Gregmal will be my Jiminy Cricket sitting on my shoulder whispering into my ear (so i do not remain too cautious). What i am really trying to understand is if we are at an inflection point. With inflation. With interest rates. With commodities. Etc. Interesting times indeed!

@changegonnacome i wish you would stop ‘paraphrasing’ what i have said previously because it is not accurate. Please debate what i say at the time i say it. Happy to do that. Because how do i debate what you say i said but that i did not say? ‘Russia losing the war’ : yes, the war has been an unmitigated disaster for Russia. They clearly mis-calculated. Are they losing the war? Probably not. But Ukraine’s response so far has been impressive and a surprise to me. Where do we go from here? No idea. Because i have no idea what Putin will do. And i have no idea how Ukraine will respond. ‘putin to be overthrown’: not likely. But it makes sense to me the chances of this scenario have increased a little over the past month. ’the ideal Ukrainian soverignity & self-determintion’: their sovereignty amd right to self determination is based on the rule of international law. Laws are not ideals. ‘tribalism...in that everything 'we' do is good, what 'they' do is bad‘: no idea where you got this conclusion from. I did say that what the US/West/Canada did in Iraq was a complete catastrophe. But don’t let what i actually say get in the way of what you think i say on an issue. If i am hard on Russia that does not mean i think everything ‘we’ do is good. But i understand that is how many people think these days. ‘clip from a recent interview with John Mearsheimer’: basically what Mearsheimer is saying is Russia is free to do whatever it wants (US and China as well). Ukraine today. The Baltic countries tomorrow. The former Soviet East block states after that. Might is right. Rule of law does not matter. He think the Ukrainian people and all the other countries either in the former Soviet Union or part of the East block should quit NATO and sue for peace with Russia IMMEDIATELY. Because the alternative, war with Russia, is not in their interest. Sounds rational. But i don’t think other countries in Europe (aligned with the West) are looking to sue for peace with Russia. Quite the opposite in fact… (The Vietnamese clearly were idiots to take on the US… according to Mearsheimer’s ‘logic’.) ‘Like it or not Russia is great power’: from i military perspective, i agree. It is no longer an economic power. And its economy looks looks like it will be contracting big time. ‘the law of the jungle which sits below everything.....or as Mearsheimer says in the clip below "might equals right"’: i agree whole heartedly with the might part: Russia invading Ukraine was a pure exercise in power. Not complicated. But that does not make it right. Also not complicated. And that is why we are in the current catastrophe. Russia mis-calculated.

My view on this issue continues to be primarily driven by Ukraine (a sovereign country) and the Ukrainian people. All +40 million of them. Its funny how little we talk about them when trying to understand what is going on. What they want. What they are willing to die for. How much resolve they have. Today it appears to me THEY ARE PREPARED TO DO WHATEVER IT TAKES TO KEEP THEIR FREEDOM (right to self determination). People on this board need to think about why this is? Ukrainians are not stupid.

So where does the global economy go from here? My macro crystal ball is pretty cloudy these days. We have war in Europe - on a scale not seen since WWII - with little near term visibility on how it will resolve. We have inflation running at the highest levels since the 1970’s and all commodities are spiking in price leading some to predict we are in a new super cycle. We have global central banks just beginning to tighten financial conditions (trying to do something about out-of-control inflation). Consumers are starting to get cranky about ever rising prices. Covid remains a factor - global supply chains are still a mess and China is continuing with its zero covid policy. What is an investor to do? Certainly, the extreme market volatility is creating some juicy short term opportunities. Overall, i am getting more cautious; my usual playbook when things get ugly. So I am back up to 65% cash. Why? Buffetts first rule of investing is don’t lose what you got. Second rule is don’t forget the first rule. If i was younger i wouldn’t be 65% cash. I have enough. Don’t need more. Would not be happy if my portfolio fell 20-30% from here. And i am finding as i age out my ability to stomach volatility is changing (diminishing). Moving to a very high cash weighting (for short periods of time) has been a strategy that has worked very well for me over the past 25 years. At the start of the year i was way overweight oil so my total portfolio is up about 8% (was up 12%) so i am happy to largely lock in my YTD performance and sit in the weeds. I will continue to take advantage of all the volatility. But i am going to try and be a little more patient with big decisions. And wait until i get more clarity on some of the questions i ask below. 1.) How long does the war in Ukraine last? Can it escalate? - result is flight to safety trade in the short term. - how do consumers react, especially in Europe? 2.) What happens to inflation? - will US inflation increase from 7.9% in 2H? - how long will inflation remain elevated? - how do consumers react to $+100 oil? Do they get cautious? 3.) Are we in the early innings of a commodity super cycle? - how high will oil prices go in 2022? How likely is $150 oil? Will high prices persist? - at what point does high commodity prices affect consumer behaviour (pull back in spending)? 4.) How aggressive does the Fed get, starting this week? - does liquidity matter? - purchases of bonds has just stopped (no longer adding liquidity). - how many times will the Fed raise rates in 2022 and 2023? - how aggressive are they with balance sheet run off? 5.) What impacts will covid continue to have on the global economy? - does China continue with zero covid policy? - how abrupt with consumer shift from goods to services be? 6.) Have we seen peak globalization? - will countries look to have more domestic production of critical inputs/goods? If so, is the inflationary? - if the war in Ukraine persists will it put a chill on relations between West and China: will we see start of economic decoupling here? 7.) How does all these different factors fold into financial markets for the next 3-6 months? Next 12-18 months?

@Gregmal i love to debate ideas. People post lots of things i don’t understand. So i ask questions about the ideas they post. What is the build? What is the actual logical argument? I ask questions because i am hoping to learn something new. I think my posts have more information than most posters provide (including links) so i try an do my part to let others see what my logic is and where i am getting my information from. And i welcome a healthy debate on the facts. When people ask specific questions i try and answer them, usually in a thoughtful way. 1.) “You don’t think hanging that carrot to trigger aggression had anything to do with this whole thing?” - My view, and i have stated it multiple times, is Ukraine is a sovereign country and its citizens have the right to self determination. Yes, Putin disagreed. That does not give him the right to invade a sovereign country and bomb and kill its inhabitants. And i thought the exact same thing when the US/West (including Canada) went into Iraq - it was a humanitarian disaster. And wrong. Idiotic. Just like what Putin is doing now. 2.) “You’re boasting that these politicians are what? Talking about getting energy elsewhere? Self interest I’d say? You say what? Sending big bad Vlad a message? Definitely not standing with Ukraine. None are standing behind Ukraine even as Zaleski begs them yet the media tells you otherwise and you believe them?” i stand by what i just said about Europe and what i think so i do not need to repeat it here. What is your infatuation with “the media tells you” thing? Why is it when someone says somethoing you do not understand or agree with that its “the media tells you”? FYI, there are lots of great ways to very good information on different topics other than the media… 3.) “You say Europe is taking unprecedented action, even though you offer few real specifics and those you cite have very little to do with actually helping Ukraine, but then ask me to Google things?” You are right, i did not provide specifics of what Europe was doing… my posts tend to be too long to begin with… instead, I presented two broad themes of why i felt we were seeing unprecedented action from Europe to support Ukraine: one political and one economic. Are you seriously suggesting Europe is NOT doing anything of substance to help Ukraine? Military aid? Intelligence aid? Supplies (pretty much everything you can think of)? Massive sanctions on Russia? Humanitarian aid? Support for millions of refugees? The list goes on and on. 4.) “Differing opinions are not welcomed.” Diversity of opinion is what makes the world go round. You might want to re-read some of your past posts see how ‘welcoming’ you sound to the opinions of others. Now you have lots more questions in your post… and i am not sure if you want me to answer them or not… let me know if you want me to carry on. ————- You did ask one investing question at the end of your post. “also, cardboard still reads some of the stuff here. He s been on point with the markets lately to a crazy degree. He wanted me to ask how you took profits when you’re so heavily in cash and Fairfax is lower than the price you paid for it a couple days ago? Ok that’s in gest but I laughed when he emailed me about it.” - Did i say i sold Fairfax today? To clarify I did not sell any Fairfax. Forestry is a sector i have been posting lots about lately. Resolute is my favourite name to trade of the lumber stocks; it is wicked volatile. I think i have said pretty consistently that i think Resolute is a buy in at US$12. That was one of the positions i was happy to sell today for a decent short term gain. And i will be happy to buy back should it fall back to $12 (although lumber prices have started to come down the last 2 days so i will be paying attention to that moving forward). Say ‘hey’ to Cardboard from me

Yep its amazing when a country/bloc feels an existential threat isn't how they'll react, so I'm not that amazed on the solidarity of the Europeans????Existential threats get reactions....Cuban Missle crisis?........& I dunno like NATO/EU/USA encroaching into Ukraine set off existential threat thoughts in Russia.....well mind fuck guys.....Putin just did to the Europeans/NATO/USA what they had been doing to him for the last 10 years......Putin/Russia encroached into Ukraine and made it not neutral and not a buffer state.....and the West literally shit its pants and managed to rally together on sanctions etc................so...............how does everybody stop wearing adult diapers in the West and in Russia?............well Ukraine goes back to being a buffer state again and everybody behind closed doors agrees it was madness to ever get into a tangle ever again over Ukraine. As a result of the unprecedented sanctions on Russia, Europe is tanking its economy. The sanctions are being applied in support of Ukraine - to help force a Russian exit. If not in support of Ukraine, why do you think Europe is applying sanctions and tanking their economy?

Clearly i am an idiot. I missed that war (or was it more than one?). Please answer: 1.) What country did Europeans/NATO/USA invade in the last 10 years? 2.) How long did the war last? 3.) How many people were killed by the Europeans/NATO/USA? 4.) How many soldiers did the Europeans/NATO/USA lose? 5.) What was the economic cost to the country that was invaded? 6.) What was the international communities response?

OK, i’ll bite… if Poland flies the jets into Germany and then the US flies them into Ukraine (which i think was the proposal) would that not give Putin the ability to ‘claim’ that NATO was now directly involved? And give Putin carte blanche to respond how he saw fit? Are you suggesting NATO should get involved? That “we banded together and showed Russia who’s boss!” thing you mentioned above? i think it is smart for NATO to be very careful… Putin is a snake and will twist anything he is given.

Europe is taking unprecedented actions to support Ukraine. You might want to expand your sources. Quick Google search and you should be on your way. Not sure if you are aware but Ukraine is NOT part of NATO. Since the war started, what else is Europe not doing that it could do? Please be specific. (My prediction is you won’t answer my question and instead will talk about fake news, what a swell and misunderstood guy Putin is and some Brandon guy…)

Europe’s reaction to the Russian invasion of Ukraine has been a BIG surprise to me. First, the solidarity in the EU right now is nuts - getting 27 diverse nations to ALL agree on anything is pretty much impossible. Even the Swiss are involved. This is highly instructive: they are unified like never before on the threat Putin and Russia pose today. Second, follow the money to understand conviction level. Well Europe, in decoupling from Russia’s economy, will likely be in a severe technical recession shortly. And they know it. These 27 nations are prepared to pay a massive price TO PROTECT THEMSELVES AND THEIR CHILDREN FROM PUTIN AND RUSSIA. This is also highly instructive about how Europe perceives the risk of Putin and Russia. What is happening in Europe today is unprecedented in modern history. Folks, we are in unchartered territory. ————— So are markets ready for a likely technical recession in Europe in the coming months? Are markets ready for 10% inflation in the US in the coming months? My guess is no.

“Who are we going to listen to?” Well, here is a suggestion: we could learn to think for ourselves. You know… do that Stanley Druckenmiller thing… be inquisitive. Be open minded. Lot’s of great sources of information out there. My favourite right now is a military analyst named Micheal Kofman (look him up on YouTube).

i think you nailed it. What does Ukraine want? They are on the verge of DEFEATING Russia. Ukraine is ALREADY destroyed and bombed out. People think Putin is going to DICTATE TERMS? Especially when everyone (well most everyone) in the world with an internet connection and a working brain can see he is a lying POS. Ukraine would be stupid to give in to Putin - HE WILL BE BACK AND THEY KNOW IT. My read is Putin is delusional. And the noose is closing (militarily in Ukraine and economically in Russia). So i expect this war will get worse, not better. And last longer than people think. Putin’s only out is to call for a cease fire and lie about his intentions (which will be eagerly gobbled up by a few on this board). And he will use the cease fire to rest and re-arm his troops. And then he will return to Ukraine to finish the job. THE SAME PLAYBOOK AS CHECHNYA. There is no way Ukraine is going to put their head back in the mouth of a lion once they get it out. They aren’t stupid. ————— The implications from an investing perspective? Markets are WAY TO DISNEY - still. I expect things to get much worse. There is also a very good chance Putin expands the war to trap/draw NATO in. The man will be getting increasingly desperate. I am back up to 40% cash (rallies like today are a wonderful opportunity to lock in gains). So i can take advantage of the volatility i expect will continue for months. ————— There is also the chance that Putin exits Ukraine in the coming weeks. I think this is the scenario markets are currently discounting. I don’t see it.

Looking at Russian history one would have to agree with you. I was taught in university that what causes revolutions isn’t poverty or cruelty or terrible leadership. What causes revolutions are expectations and when they are not met. I wonder if enough Russians have had a taste of a better life that the coming economic depression creates the next impetus for change…

Well it is increasingly looking like Putin made a historic mistake. He has a military disaster unfolding in Ukraine. He has an economic disaster unfolding in Russia. He has united Europe. He has made NATO imperative; all of Europe is in the process of re-arming. And time is his enemy - things are only going to get worse with each passing day. His military is not prepared for a long drawn out war. And Russians will not long tolerate the economic depression that is unfolding. Most importantly, he has exposed himself to the world for all to see. Hard to put lipstick on that pig.

To quote Russell Crowe from one my favourite scenes from the movie ‘A Good Year’. ‘Well lab rats… today is greedy bastard day’ Big add to my Interfor (down 6.5%) and West Fraser (down 5%) positions. Lumber prices are flat. All lumber companies are going to report monster Q1 profits. What to do with all those earnings? Weak share price? Hello meaningful stock buybacks.

@glider3834 i also saw the disclosure of ShawKwei & Partners. Dec 31 Fairfax had $374 invested +$202 new $ = $575 million investment. This is material - making it a top 10 equity holding. Solid long term track record. I love the additional disclosure from Fairfax. It allows investors to better understand where the equity $ is parked. The update on EXCO is timely. That business performed well in 2021. And it certainly looks well positioned as we start 2022. Fairfax certainly is well positioned with its various commodity holdings. Especially if the current boom in prices lasts into 2023. - Stelco: steel - Resolute Forest Products: lumber - EXCO: nat gas - Altius (royalties): copper, iron ore, coal, potash - Foran: copper, zinc (2025 start?) - Ensign Energy: oil drilling

+1

Startup Ki has been on my watch list since first announced by Brit. This business is exploding in size. A doubling of gross premiums in 2022? With a combined ratio below 100%? Not what i was expecting. Very happy to see expectations for CR < 100 in 2022. “Ki, Brit’s partnership with Blackstone, had a fantastic year in 2021 under Mark Allan’s leadership, writing nearly $400 million in gross premiums in its very first year. There is no question that Ki’s digital platform works and it expects to write $800 million in 2022 with a combined ratio below 100%. Ki had the fastest start-up in Lloyd’s history.” ————— “At Brit, the management team deserves great credit for bringing in the year at a combined ratio of 97%, absorbing another larger-than-usual level of catastrophe losses. The underlying strength of its portfolio, along with reserve releases flowing from prior years, allowed Brit to close with $56 million of underwriting profit. Along with growth in its core syndicate, Brit benefited from the successful launch of the Mark Allan-led Ki Syndicate, which recorded almost $400 million of gross premiums written in its first year of operation. Ki is the first fully automated follow only underwriter operating in the Lloyd’s subscription market. With Martin Thompson stepping in as interim CEO while Matthew Wilson takes a health-related leave of absence, Brit enters 2022 with a strong head of steam and a bright future.”

Yes, We got confirmation that Fairfax made a few sales in Q4: - Leon’s 7.2 million shares at C$25 = C$180 million - IIFL Wealth 4.1 million shares for proceeds of about US$78 million - IFL Finance 28.4 million shares for proceeds of about US$115 million All 3 positions were sold for very healthy gains. And as has been mentioned by others, with the recent purchase of Fairfax India at a substantial discount to BV Fairfax was able with its Indian positions to essentially sell high and buy low a few months later (with part of the proceeds). It is almost comical because Fairfax India owns substantial stakes in all the IIFL Wealth and Finance. A small but very good trade for Fairfax shareholders. This also further concentrates their Indian holdings in Fairfax India which simplifies things a little. Exiting Leon’s also looks smart. Fairfax got a very good exit price - near all time highs at C$25/share. Shares currently trade at $22. Shares traded at $16 pre-pandemic. Fairfax also recently received a special $1.25 dividend (Oct). Home furnishing retailers have seen a boom in business in Canada due to the pandemic. It is less certain how sales will trend post pandemic - especially if we see a shift in consumer spending in Canada towards services. Bottom line, today it looks like a great move by Fairfax.

@StubbleJumper you make some great points. I completely agree the transactions where Fairfax partners with OMERS, CPPIB, AIMCO) come with a definite cost. To be completely honest i do not understand all the puts and takes very well. Do we know how much Fairfax will have to pay the partners to buy the position in Odyssey back? 1.) Is it a fixed amount known today - like perhaps US$900 million? 2.) Or is the amount unknown and based off the future value of Odyssey (9.9% of a much higher future value)? Understanding this is important to understanding the true cost of the deal over its life. if it is option 1.) above i like the deal a whole lot more than if it is option 2.) If 9.9% of Odyssey is ‘worth’ $900 million today, we KNOW 9.9% will be worth much more in 5 years time (my guess is Odyssey will compound in value at 12-15% over the next 5 years given we are still in a hard market). It might be interesting to look at the Eurolife deal to better understand how all the financial puts and takes worked over its lifetime.