Viking

Added to FFH; starter position in FIH (Fairfax India)

Xerxes, I am with you... I do not want to see Fairfax growing its exposure to Blackberry (over what they had in the past). So the fact they have shrunk this exposure by US $170 million is a win of sorts. There is the potential for a solid win for Fairfax IF Blackberry is sold.

Now that the Blackberry deal has closed is it not a solid win for FFH shareholders? The key, of course, is how Blackberry performs moving forward. The timing is interesting (why not wait until November)? Fairfax has reduced its exposure to Blackberry significantly ($330,000 Debenture versus $500,000) but is positioned to own 16.5 versus 15.7% of shares outstanding. I am surprised Blackberry has not been taken out by a larger player given all the hype we are seeing in their business segments. Fairfax is now positioned very well should this happen. On the Q2 call Prem talked about continuing to monetize assets... this one looks like a strong candidate to me. Checks off lots of boxes. Sell asset at premium valuation. Lock in nice profit (where it is currently carried on the books). Raise significant amount of cash insurance subs can use to write more business. Significantly de-risk equity and total investment portfolio. Close the book on the whole RIM/Blackberry drama. New deal: “Fairfax now beneficially owns, and exercises control or direction over, the Purchased Debentures, representing 55,000,000 Common Shares assuming full conversion. Together with Common Shares already owned by Fairfax and its subsidiaries and assuming full conversion of the Purchased Debentures, Fairfax would beneficially own 101,724,700 Common Shares representing, assuming all other Debentures are converted, approximately 16.5% of the total Common Shares outstanding“ Old deal: “Together with Common Shares already owned by Fairfax and its subsidiaries and assuming full conversion of the Fairfax Redeemed Debentures, Fairfax would have beneficially owned 96,724,700 Common Shares representing, assuming all other Redeemed Debentures were converted, approximately 15.7% of the total Common Shares outstanding.” —————————- Fairfax Announces Acquisition of 1.75% Convertible Debentures of BlackBerry Limited After Redemption of Existing Convertible Debentures TORONTO, Sept. 02, 2020 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (“Fairfax”) (TSX:FFH and FFH.U) announces that it has acquired, through its subsidiaries, ownership and control of $330,000,000 aggregate principal amount of 1.75% unsecured subordinated convertible debentures maturing on November 13, 2023 (the “Debentures”) of BlackBerry Limited (“BlackBerry”) representing approximately 90% of BlackBerry’s private placement (the “Private Placement”) of an aggregate principal amount of $365,000,000 of Debentures that closed today. The Debentures are convertible at the option of the holder into common shares of BlackBerry (“Common Shares”) at a price of $6.00 per Common Share and, therefore, the Debentures purchased by Fairfax’s subsidiaries (the “Purchased Debentures”) are convertible into 55,000,000 Common Shares. Prior to the redemption thereof by BlackBerry (the “Redemption”), which redemption was completed prior to the Private Placement, Fairfax held, through its subsidiaries, ownership of $500,000,000 aggregate principal amount of 3.75% unsecured subordinated convertible debentures (the “Redeemed Debentures”) of BlackBerry maturing November 13, 2020. The Redeemed Debentures were convertible at the option of the holder into Common Shares at a price of $10.00 per Common Share and, therefore, the Redeemed Debentures held by Fairfax’s subsidiaries (the “Fairfax Redeemed Debentures”) were convertible into 50,000,000 Common Shares. https://www.fairfax.ca/news/press-releases/press-release-details/2020/Fairfax-Announces-Acquisition-of-1.75-Convertible-Debentures-of-BlackBerry-Limited-After-Redemption-of-Existing-Convertible-Debentures/default.aspx

Tomorrow I think the courts in the UK are supposed to come down with a ruling on contract language and Covid which will impact Brit. Lots of near term headwinds for the insurance industry: - Covid - recession - active hurricane season - West Coast forest fires - very low bond yields - reserve releases shrinking - reinsurance pricing starting to harden I like Fairfax at current prices. But the news flow into Q3 results will likely be pretty bad. The good news is the industry is in hard market which started last year could last for some time. The insurance side of Fairfax has been holding up reasonably well which is encouraging.

I have once again started buying some FFH. I like the insurance businesses and we are definitely in an insurance hard market. That side of the business should do very well the next few years. What is stopping me from backing up the truck? The investing side of the business. Based on the terrible results from the past 10 years. Having said that it does look to me like the worm is slowly turning. Atlas looks like the real deal and it is a massive position within Fairfax. Digit in India looks like another star and the runway is long; this investment alone could be another $1 billion home run for Fairfax over the next decade. I like Fairfax India and am ok with the volatility. Quess looks like a solid long term hold. I like some of the smaller equity positions. Most importantly, the terrible performing holdings continue to shrink in size (Blackberry, Recipe, Resolute etc). They look more than discounted with Fairfax trading at less than 0.7 x BV. It also looks to me like Fairfax has slowly been dealing with its Investing issues. The process started when all the short positions were removed after the Trump election win. Problem children are slowly being dealt with: Fairfax Africa, APR Energy being the most recent 2 examples. I think Prem also mentioned on the most recent conference call that they are looking to continue to monetize some of their assets. (Blackberry would be ideal, especially in this environment.) Fairfax has been VERY creative over the years in this regard. First Capital and European Runoff are two large examples but there are also many smaller examples. I expect more to come in this regard. So solid insurance franchise combined with improving investment results should get the stock back close to BV. Perhaps it will take a year or two. From current prices ($290US) investors might actually see a couple of 10-15% returns the next couple of years :-)

Where you do business (and local norms around policy wording) matters a great deal in terms of covid and financial impact. Looking at FFH, Brit is (once again) experiencing very large losses due to wording on UK contracts.

FFH (sold BRK, which was up 20% from purchase). So essentially a flip of positions.

CVS, ENB, KW

Interest rates in most of the world are zero or negative. This is likely to be the case for many years (according to the Fed). Given bonds are yielding so little why are dividend yields for so many decent stocks so high? 1.) expectation interest rates will be materially higher in the near future 2.) investors only wanting to invest in FANG type stocks 3.) Mr Market has not figured it out yet (market is not efficient) 4.) there is no mispricing; high yields reflect company specific issues (market is efficient) 5.) still to early in the recesssion/recovery to buy economically sensitive stocks 6.) other? The current situation reminds me of 1999. Back then, investors only wanted to own .com stocks. Government bond yields were north of 5 or 6%; lots of old economy stocks had very large dividend yields. And it went on for years. A few examples across different industries: - Telecom: BCE.TO; dividend yield = 5.9% (T?) - pipelines: TRP.TO; dividend yields = 5.3% (lots of other examples here) - Energy: SU.TO; dividend yield = 4% (after being cut 55%) (XOM?) - Financials: TD.TO; dividend yield = 4.9% - Real Estate: KW; dividend yield = 5.9% What are the best dividend yielding stock situations that you see today? ——————————- Just came across an article discussing how dividend stocks in Canada have performed year to date, which ties into my question asked above: “The iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ), for instance, returned negative 11.9 per cent (all return figures include dividends). The BMO Canadian Dividend ETF was down 11.7 per cent. And the Horizons Active Canadian Dividend ETF (HAL) was off 7.4 per cent. Several other dividend ETFs also trailed the model portfolio.“ https://www.theglobeandmail.com/investing/education/article-my-dividend-portfolio-is-bruised-not-broken/ ————————- Durable dividends: Canada’s top companies kept payouts flowing in second quarter https://www.theglobeandmail.com/investing/markets/inside-the-market/article-durable-dividends-canadas-top-companies-kept-payouts-flowing-in/

SAP.TO, BCE.TO, SU.TO

It is pretty clear to me that the differences between China and the US/West are irreconcilable: - rule of law - human rights - freedom of the press - democracy As China grows in economic size and strength it will bring more and more countries into its sphere of influence. It is also clear to me that the US/ the West has had its ‘ah ha’ moment. I like Druckenmiller’s line from a year or two ago: Trump will go down as the most pro China President of the ones who follow. What i do not understand at all is how some companies, like Apple, continue to be so reliant on China. Apple is supposed to be a progressive company. Yet it produces most of its products in a country that is one of the most repressive regimes in the world. Fortunately, China is starting to flex its muscles and this is providing everyone with a glimpse of what is to come. My guess is companies like Apple understand the predicament they are in. But it will take years to fix. I will give Trump credit for identifying China as a threat. However, his strategy to deal with the threat from China has been an abject failure (like most other things during his term in office).

Castanza, i do agree with you that there are terrible outcomes on both sides of the virus coin. At the end of the day, the virus is one of the great issues every country in the world is grappling with. My point was more that given the terrible outcomes it needs to be managed exceptionally well so you minimize BOTH the negative health and the negative economic impacts. Now if you mismanage the virus BOTH the health and economic impacts get much, much worse (that what they would have been with better management).

Yes, avoiding/mitigating the virus causes lots of issues. There is the other side of the coin which is... the virus itself of course. What are the health (and death) issues for those who get the virus, their family member, their social network, work network and the community where they live? And those who have been around someone shortly before they tested positive? What happens to a family when a member is diagnosed positive. Lots of mental anguish for everyone. First waiting (feeling sick but not knowing if it is the virus). Then getting tested. Then waiting for results (Sometimes a week). Then contacting everyone they have been in close contact with that you may have spread the virus to them and their ‘bubble’. But you do not know. Once results come in, if it is positive, then return phone calls to lots of people. Lots of explanations. Other people then need to decide if they need to quarantine (or physically distance). Testing? Notify others? I can see how individuals can get ostracized over being around a positive test. And it you test positive yourself... not good. Think about all the mental anguish the millions who have tested positive (and their families and their social networks have gone through). And of course there are the tens of thousands who have lost their life to the virus... lots of stress and anguish for everydoby there too. And tragedy of course. Not to mention what all the front line workers are going through every day (health care, food production, grocery stores etc). Soon teachers are going to be in the thick of it. The virus is wickedly complicated. That is why it should be managed by health care professionals and the politicians should stay in the shadows. In terms of how it has been handled by developed countries the US response to the virus is near the bottom of the list. 7 days to get a test result? In August? Gates said delays that long make testing useless. Crazy. But that is what you get with Trump as President. (And yes, it really is that simple.)

Curious -- are you American? Good question. 3/4 of the respondents in this thread live in Canada and are infatuated by a political system they have no input on and constantly shit on the US. Their voice doesn't count Thank god. They cant get enough of it though. They will say its because they hate Trump or cant believe how stupid we are but they really know that the US butters their bread so are eager participants in the discussion. I think a great majority are still butt hurt because Trump had the balls to go after NAFTA or wouldn't share masks! Either way they just come to this thread and bitch about a country that they highly benefit from. If you took out all the posts in the thread of paranoid scared Canadians bitching about Americans it would be probably 15 pages long. Eh? I think Trump is a disgusting person. When i say this i am not ‘shitting on the US’. Just like when i criticize Trudeau when he messes up. I am not ‘shitting on Canada’. I am very happy to have the US as a neighbour.

I am not sure why there continues to be so much debate about pretty much anything Trump says. He has demonstrated over and over again to be an unabashed liar. When he talks why would anyone take anything he has to say seriously?

Lots of people want to own a single family home (at least where i live). They want out of high density no space type places. Especially if they have young kids. Covid is really hitting young families hard. Demand for single family homes is solid. Supply is limited - who wants to sell right now?

I was thinking about this today. Tried to think of a positive situation. - High School graduates this year and the next few years may entertain the idea of not pursuing college right away or at all. - Could help sure up the lag in filling blue collar jobs. - Potentially change the financial mindset of an entire generation. - The plethora of BA. BS holders looking for employment may benefit if there is some lag in upcoming college graduates. Basically give them some more time to filter through the system (if the economy up ticks) I have three kids. Bottom line, one year on-line should be fine. If this stretches into fall 2021 and 2022 then i am not sure. Kid 1.) entering third year university: mix of school and coop job in fall. Transitioning to online learning not a big deal. Kid 2.) entering first year university (computing science): was told by university councillors to only take 4 courses (versus usual 5) due to all classes being online. Doing some prep this summer. Kid 3.) entering grade 12: currently taking French online (during summer) to get one course finished before fall. Sept classes will be mix of in class and on-line. The big difference is both kid 1 and 2 will be living at home (versus living away from home). The key will be keeping things fresh in the house, especially when exams hit :-) We have also had each kid figure out what they need for technology and work stations to get the most out of online learning. Computers, lap tops, iPads (pencils), desks, chairs etc. We actually did not need to spend much but the exercise was time well spent. And Money well spent. Kids need to feel like they are in control. Now families with younger kids or toddlers... yikes! Older kids? Not ideal but manageable. PS: the best part of Covid is each of our three kids are learning how to cook. They each do at least one meal a week. The only rule is their is no rule. They give me their ingredient list and i buy it no questions asked. Beef tenderloin. Tiger shrimp. Prime rib. Gnocci (make from scratch with 60 minute zoom call with grandma). Chicken parmesan. Shrimp linguini. Eggs benedict. etc. They are all having fun coming up the next favourite menu item. Great education can also happen outside of school.

The grocery thread talks about money, seafood, steaks, and erections. 4 things most of us enjoy. It shouldn't be weird it's popular. rb, thanks for making me laugh out loud. My kids think I am a little touched and i think I like that ... :-)

The Japanese thought US citizens were lazy and bombed Pearl Harbour to break their spirit. We all know how the US responded. I think you are way underestimating what the US population is capable of when they rally to a cause. The virus has presented the US with its greatest challenge since Pearl Harbour. To defeat the virus leadership was by far the most important factor (just like in WW II). Trump’s performance has been terrible. The US response has been one of the worst of any developed country. Imagine if Trump was President pre Pearl Harbour. He would have been lauding Hitler and Imperial Japan... concentration camps? Go ahead and build them! Want to over run Hong Kong... who cares. He loves dictators :-)

Smart move. They ate their vegetables, now they move onto dessert. USA? Stuck in futile "isolate seniors/vulnerables" until/if a vaccine ever emerges. Oh, and economy takes on water over longer term now even without any more lockdowns. "Isolate seniors strategy" a.k.a. prepare for long term hits to tourism, entertainment, no spending by those who have money to spend (seniors/retirees), less spending even by young folks who also really don't want covid themselves, restaurant/hotel volume hits, etc etc. Oh, and good luck completely sealing off seniors from the rest of the population. Maybe we can pull some seniors out of retirement to run the nursing homes... The EU will not be alone in doing this. Canada keeps extending severe border restrictions with US and it is hard to see why they would be lifted with the spike in US cases. The rest of the world will likely continue shutting out the US. I am sure this fits with Trump’s re-election strategy... all part of the well thought out plan :-) ‘stable genius’ that he is.

You look at all the economic devastation caused by the virus. Of all the things individual people can do to get the economy back to normal, wearing a mask when out is the most simple and most effective. Given our need to get the economy back to normal as quickly as possible wearing masks when out should be a requirement. But governments in US and Canada would look stupid (given previous communication on wearing masks) so this will likely not happen. So most people will continue to not wear masks when out; and many of these same people will bitch and complain about the need for the government to end restrictions and get the economy back to normal. Crazy times :-) Taleb has 6 reasons why masks help. Here is one of them: Third Error: Mistaking Absence of Evidence for Evidence of Absence “There is no evidence that masks work”, I kept hearing repeated to me by the usual idiots calling themselves “evidence based” scientists. The point is that there is no evidence that locking the door tonight will prevent me from being burglarized. But everything that may block transmission could help. Unlike school, real life is not about certainties. When in doubt, use what protection you can. Some invoked the flawed rationalization that masks induce false confidence: in fact there is a strong argument that masks makes one more alert to the risks and more conservative in behavior.

Do you see inflation as a result of current Fed actions? Or future Fed/Treasury actions? I would watch one of the many Lacy Hunt (Hoisington) videos on YouTube. He sees mild deflation in our near future. When debt bubbles go bad the result is deflation. He also says the Treasury, not the Fed, is the key (if we are to see inflation in the future). Fed actions (under current mandate) will not result in inflation. Globally, we have too many workers. And too many plants (capacity). Too much retail space. This suggests deflation is in our future. The rapid move to technology is just getting started and is hitting every industry - and this is highly deflationary (need fewer people, offices). So my guess is mild deflation is more likely in the coming years than inflation. Perhaps 1 or 2 percent. This will not be good for debt holders as the real total value of total debt will grow. So if you have a $400,000 mortgage and deflation is 1% then at the end of a year the real value of your mortgage is now $404,000. Deflation and debt bubbles would be terrible for the economy. This is likely why the Fed is so afraid of deflation getting established, even if it is mild.

Here are a couple of notes from what i am hearing here in Vancouver: 1.) condo’s are weakest part of market today 2.) demand has picked up as lock downs end; families are trying to get settled before school starts - my guess is there are lots of families who live in a condo, apartment, townhouse who are getting sick of having no space. They have to be dying to own a detached house with more square footage and a yard. 3.) supply has not picked up in detached housing segment - who is wanting to sell a single family house right now? You have space, a yard... the virus is likely coming back in the fall so and decision to move will likely be delayed a year. - My guess is detached single family houses are going to remain in tight supply as long as covid is around as an issue. 4.) with demand picking up more that new supply coming on the market prices have held up well 5.) condo prices are down about 5% and detached houses are only down a couple of percent 6.) if you want to sell better to do it right away as opposed to waiting a year; prices are expected to be lower in another year (across all segments); CMHC is calling for price decline from 9 to 18% over next year in Canada. 7.) immigration is a key driver of economic growth in Canada. We bring in about 350,000 immigrants each year which adds about 1% to population growth. This in turn drives GDP growth and demand for housing. My guess is few immigrants are coming in as long as covid remains a problem. 8.) few international students will be coming this fall. Canada had 720,000 international students in 2018 (2% boost to our population). This will be a big hit to GDP and demand for rental units. 9.) watch the alternative lenders for stress in the fall; if there are problems with lenders this is where it will likely pop up first. 10.) rental prices are down about 6-8% - lots of young adults have move back home to ride out covid - big universities in Vancouver have announced Sept classes will be online so demand from students will be minimal - as mentioned above, minimal immigration and far fewer international students will materially shrink demand for rental units - and makes sense AirBNB units will be moving to long term rental market (increasing supply) until tourism picks up My guess is it will be after October that we will start to understand the real estate market here in Vancouver. By then we will understand what wave 2 of the virus looks like and also understand its economic impact. ————————- For those of you who are interested in a local perspective (Vancouver) you might want to follow Steve Saretsky. He does a weekly update and posts it to YouTube. Real estate broker. Very informative. Likes to talk macro.

Holy shit! Everyone in the US needs to read and reflect deeply on what Mattis wrote. Mattis is a Republican, a professional soldier, a patriot and has intimate knowledge of who Donald Trump really is as a person and how he thinks and acts as President. This message is not from a partisan Democrat hack. Mattis’ is very clear in his assessment of the situation and the President. Donald Trump is clearly not fit for office (and it is not even close). How anyone with a working brain can continue to support this man completely boggles my mind. No, the alternative is NOT worse. That is a false choice. Read the underlined section below if you still do not understand why he must be defeated at the polls in November. “...Donald Trump is the first president in my lifetime who does not try to unite the American people—does not even pretend to try. Instead he tries to divide us. We are witnessing the consequences of three years of this deliberate effort. We are witnessing the consequences of three years without mature leadership. We can unite without him, drawing on the strengths inherent in our civil society. This will not be easy, as the past few days have shown, but we owe it to our fellow citizens; to past generations that bled to defend our promise; and to our children.“

With all due respect, i think the Blackberry purchase was a disaster. After Fairfax’s first purchase they had 6 months to learn how challenged the business was amd how poorly managed it was; it was pretty obvious (all you had to do was listen to the quarterly calls to understand the management team was not up to the challenge.). PS: i actually bought RIM shares back when Fairfax initiated their position. It took me 3 conference calls to figure out the RIM management team was in way over their head (the company was no longer a start up and the industry was morphing fast with strong competitors). I took a small hit when i sold my position. But investing in RIM became one of my best investment decisions ever because it taught me about the cell phone industry. 18 months later Apple got wickedly cheap (the narrative then was Samsung was going to take over the world) and i was able to take my learnings from my time in Blackberry and buy a truckload of Apple over a 4 month period (the stock just kept going lower), which ended up being by largest gain ever :-) Learn...