Viking

I agree, private ownership would be better for Blackberry as it executes on its transformation. And Fairfax certainly should understand the company right now. Just wondering where Fairfax will get the $ from? They will need a big chunk of money. Another partnership with OMERS? And interesting that they feel this would be the best use of shareholders capital - versus buying Fairfax shares at a steep discount or growing insurance subs in hard market or buying something else. Perhaps something is driving the decision to make the purchase now.

Pre covid, restaurants in Canada were facing the perfect storm: 1.) rising minimum wage (here in BC it was going up almost $1 per hour for each year for many years) 2.) rising property taxes, as high as 6% in some municipalities 3.) increase in usage of delivery apps (Ubereats etc) resulting in less dine-in; Ubereats take results in very poor margins on these sales Restaurant stocks, especially large table count/dine in, were in a bear market pre-covid. None of the three trends listed above have gone away. And then you add covid and you have a business model that is now completely broken (especially the dine in). Establishments with take out windows are best positioned but that is not the majority of Recipe’s establishments (i.e. Keg) And recessions typically hit food away from home segment harder than food at home. The restaurant business is extraordinarily difficult even in good times to make money. Fairfax clearly did not understand this basic fact when they started on their journey into restaurant ownership. And they kept adding completely new concepts which added more complexity and resulted in few synergies (each concept has to make it on its own). We discovered over time there was no wizard behind the screen (although the various wizards did get very rich). The bigger Recipe got the greater the chance it would fail. Individual brands lacked leadership and got stale; ‘synergies’ (great word) never materialized. Having said all the above, there is a good chance that we could see in the next 6 months a devastating number of bankruptcies in this industry. There are lots of mom and pop operators who may not make it. The companies who can make it to the other side might be in good shape. Or perhaps we see a continuation of the long term trend: the industry muddles along and continues to destroy investor capital. Fairfax might be tempted to double down with Recipe. There will likely be lots of opportunities to pick up other restaurant chains for a song. Or expand existing concepts (as better locations come on the market). But do you give Recipe more $ when they have not demonstrated the pre-covid model even worked? Would there not be lots of ‘synergies’? They might need to go in the opposite direction. Start to sell off some of their concepts to other operators who are more focussed, passionate, motivated, nimble and better able to execute in covid world.

There is so much we do not understand about the virus. Chinese and Trump approaches to managing the pandemic are almost exact opposites so with each month that passes we will also get more information as to how effective each approach is from both health and economic perspectives. We all better hope we do not get a second serious wave before a vaccine is ready... China’s New Outbreak Shows Signs the Virus Could Be Changing - https://www.bloomberg.com/news/articles/2020-05-20/china-sees-signs-new-cluster-carries-virus-longer-than-in-wuhan Chinese doctors are seeing the coronavirus manifest differently among patients in its new cluster of cases in the northeast region compared to the original outbreak in Wuhan, suggesting that the pathogen may be changing in unknown ways and complicating efforts to stamp it out. Patients found in the northern provinces of Jilin and Heilongjiang appear to carry the virus for a longer period of time and take longer to test negative, Qiu Haibo, one of China’s top critical care doctors, told state television on Tuesday. Patients in the northeast also appear to be taking longer than the one to two weeks observed in Wuhan to develop symptoms after infection, and this delayed onset is making it harder for authorities to catch cases before they spread, said Qiu, who is now in the northern region treating patients. “The longer period during which infected patients show no symptoms has created clusters of family infections,” said Qiu, who was earlier sent to Wuhan to help in the original outbreak. Some 46 cases have been reported over the past two weeks spread across three cities -- Shulan, Jilin city and Shengyang -- in two provinces, a resurgence of infection that sparked renewed lockdown measures over a region of 100 million people. Scientists still do not fully understand if the virus is changing in significant ways and the differences Chinese doctors are seeing could be due to the fact that they’re able to observe patients more thoroughly and from an earlier stage than in Wuhan. When the outbreak first exploded in the central Chinese city, the local health-care system was so overwhelmed that only the most serious cases were being treated. The northeast cluster is also far smaller than Hubei’s outbreak, which ultimately sickened over 68,000 people. ...The northeast provinces have ordered a return of lockdown measures, halting train services, closing schools and sealing off residential compounds, dismaying residents who had thought the worst was over. “People should not assume the peak has passed or let down their guard,” Wu Anhua, a senior infectious disease doctor, said on state television on Tuesday. “It’s totally possible that the epidemic will last for a long time.”

My guess is the path of the virus and the economy will be key. If the virus news gets better (vaccine) then the economy can start to heal and everyone (including the Fed) continue to muddle along (like we have for the past 10 years). If the virus news gets worse and the economy remains in depression levels of activity then we will be in uncharted waters. We know the Fed will continue to do ‘whatever it takes‘. We also have a President who also will do ‘whatever it takes‘ to get reelected in 5.5 months (via the Treasury). If more and more unconventional levers are used then the risks of unintended consequences increase. Because the virus is impacting all countries my view is nothing will change in the near term (the next year) in terms of the US and its place in the larger order (reserve currency etc). My big picture concern is if we see hyperinflation down the road (that wipes out peoples savings :-)

And what is Japan doing with schools? Full lock down since early March. Doesn’t look to me like they are ‘just wearing masks...’ Japanese government prods schools to partially reopen by grade as pandemic eases (May 2 article) https://www.japantimes.co.jp/news/2020/05/02/national/japan-schools-partial-reopening-coronavirus/#.XsVSzi8iehA The education ministry has presented the option of schools reopening for some grades only amid the ongoing coronavirus pandemic, with priority given to classes for first- and sixth-graders at elementary schools as well as third-year students at junior high schools. The proposal was made to local education boards on Friday. Most school across the country have been closed since early March amid the outbreak.

I also thought it was very interesting what Cuomo said. Why is the administration only ordering proper masks to be produced for front-line workers? Trump is visiting one such plant this Friday, and Trump had to be told that he must wear a mask (and this no doubt is because Pence showed up at Mayo without one, and claimed he didn't know about their mask requirement). What people who talk about places without lockdown fail to understand is that that boat had sailed for the US. If you had strict hygiene and masks and people who understood things very early on, did good contact tracing, R0 will stay low enough that you can contain things. But if you don't and it just runs wild and exponentially double and double and double for a while, you are past the point where you can compare yourself to Japan or South Korea or Taiwan or New Zealand or whatever. You don't get to just decide you want these countries' results without having done what they did. I think people mis-understand what Japan has done to deal with the virus. They issued state of emergency that shut down large swaths of their economy. People stayed at home (they were asked to do things not required... different culture?). When you look at the economic numbers you can see the impact the virus had on individual countries. Japan's economy falls into recession in Q1 - https://www.marketwatch.com/story/japans-economy-falls-into-recession-in-q1-2020-05-17 TOKYO -- Japan's economy fell into a recession by one common definition in the first quarter of 2020, with worse expected in the current quarter. The world's third-largest economy after the U.S. and China shrank an annualized 3.4% in the January-March period, following a 7.3% contraction in the previous quarter when the national sales tax rose to 10% from 8%. Two straight quarters of contraction is one definition of a recession. ...The coronavirus pandemic pushed down spending by households and companies and kept tourists away. Private consumption fell 0.7% on quarter as people refrained from leisure and dining out to avoid infection. Capital expenditures by companies dropped 0.5%. Economists expect that the economy shrank at an annualized pace of 20% or more in the current quarter. Prime Minister Shinzo Abe declared a national state of emergency in April, which led many stores and restaurants to close. Most foreign visitors are barred from entering the country` and domestic travel has mostly stopped. Last week Mr. Abe lifted the state of emergency in 39 of 47 prefectures. It still applies in Tokyo and Osaka but is expected to end nationwide in the next week or two. "Sharp declines in private consumption, housing investment and capital spending are inevitable after April due to the state of emergency and the subsequent request for closing businesses," said Taro Saito, an economist at NLI Research Institute.

Good luck with the new job. Thanks for taking the time to share your ideas. Please continue to share what you can moving forward :-)

Calculated Risk blog has started tracking six indicators to help track the recovery: 1.) daily total traveller 2.) diners 3.) domestic box office 4.) hotel occupancy 5.) gasoline consumption 6.) mobility trends: driving, walking, transit MONDAY, MAY 18, 2020 Six High Frequency Indicators for the Eventual Recovery - https://www.calculatedriskblog.com/2020/05/six-high-frequency-indicators-for.html

cwericb, I personally consider your post - generally & on overall basis - in line with what Vinod has posted in [as far as I remember] this topic not so long ago. The real question - at least to me - is : Who has the burden on their shoulders of the responsibility to actually act on the situation, if the incumbent POTUS - for reasons of mental illness is not fit & proper? -What does i.e. the US Constitution [or other legislation] say? [Personally, I don't know.] John, my view is the Senate Republicans are the key enablers of Trump. The problem is they are too afraid. So what the US essentially has right now resembles a version of an absolute monarchy. Trump is in the process of re-making the Presidency in his image. Loyalty is the only requirement. The interesting thing is the man is only getting started...

Read whole thing... That was a hellava article. Thanks. Yes. It is an incredibly balanced piece and that is what makes it so frightening. It captures in great detail what has happened in the Trump administration. Given we are only at the start of the second inning of this pandemic (according to Scott Gottleib) the US is so screwed moving forward. What is really fascinating to me is it really does not matter what Trump does... he can screw over who ever he wants... his base just does not care what evil he does. Or how incompetent his actions are. Or what the ramifications are. ‘The alternative is worse.’ Amazing. And such complete bullshit. I think that must have been what Germans were saying in Germany back in 1938. And then Hitler proceeded to destroy their country. ————————- Article’s conclusion: “Trump is caught in a box which keeps getting smaller,” says George Conway, a Republican lawyer who is married to Kellyanne Conway, Trump’s senior counsellor. “In my view he is a sociopath and a malignant narcissist. When a person suffering from these disorders feels the world closing in on them, their tendencies get worse. They lash out and fantasise and lose any ability to think rationally.” Conway is known for taunting Trump on Twitter (to great effect, it should be added: Trump often retaliates). Yet without exception, everyone I interviewed, including the most ardent Trump loyalists, made a similar point to Conway. Trump is deaf to advice, said one. He is his own worst enemy, said another. He only listens to family, said a third. He is mentally imbalanced, said a fourth. America, in other words, should brace itself for a turbulent six months ahead – with no assurance of a safe landing.

Another factor boosting S&P 500 earnings per share data the past 10 years is the huge amount of debt taken on by corporations to buy back shares. Some call it effective use of balance sheet and others call it financial engineering. BRK did not ‘lever up’. Did the opposite in fact by building cash to $135 billion. This should matter when looking at earnings moving forward. Especially as we start the ‘most severe recession since the Great Depression’.

If i had to pick highest probability of armed conflict it would be an oil country like Libya or even Iran. The longer oil stays low, combined with a possible resurgence of the virus In the fall, the greater the odds of armed conflict. Also, if down in the polls in Sept an easy way to mobilize base is to be involved in armed conflict. Americans will rally around the flag/President. Low cost and high reward. Given the way politics is done today in the US this is also highly rational and easily justifiable. Win at all costs. Morals? Ethics? Right? Does not matter. ‘The alternative is so much worse’. Anything can be easily justified :-)

Covid is quickly becoming THE political issue in the US. Scott Gotleib has said we are only in the second inning of this game. Hard to see how the continued politicization of this is going to help the US moving forward. The battle against the virus is moving to a new even more difficult stage. G.O.P. Defiance of Pennsylvania’s Lockdown Has 2020 Implications - https://www.nytimes.com/2020/05/14/us/politics/pennsylvania-tom-wolf-coronavirus.html?action=click&module=Spotlight&pgtype=Homepage Republicans, sensing a gut-level anger in exurban and rural areas after nearly two months of restrictions, see an issue with the potential to drive turnout by voters in a state where Mr. Trump, as elsewhere in the industrial and Midwest region, needs a surge of support to repeat his narrow victory of 2016. In Wisconsin, also a swing state, the State Supreme Court sided with Republicans on Wednesday and threw out the stay-at-home order of Gov. Tony Evers, a Democrat. In Texas, armed men have shown up to support businesses defying government orders to stay closed, an extreme sign of the politicizing of social distancing rules. At the same time, polls show that Mr. Wolf, like other governors moving cautiously and heeding scientific benchmarks to reopen, is enjoying record support, including among many Republicans.

Every commercial property lessee is going to ask for rent reduction /participation in cost due to COVID-@9 impairments. Have some office space where you can’t fit all the people in the elevator at the same time, or can’t occupy your office space with the same density - well you are going to ask for a rent reduction. Same for pretty much any B&M store which are getting whacked by online retailing anyways. That’s going to have quite a bit of impact for the real estate asset and CMBS loan valuations. Ouch! The virus is causing value destruction all the way down the chain: - retail establishment or restaurant is impaired - lower employment - commercial real estate is impaired (depends on scale) - suppliers to retail / restaurant are impaired; bad debts? - advertising budget cut etc - everyone earns less so they pay less in taxes Its like a recession that is hitting the globe at pretty much the exact same time. No wonder most people have no idea where this crazy train is taking the global economy :-)

Get ready for alot more actions like this. Commercial landlords are in a very tough spot... Starbucks asks landlords for a year’s worth of rent concessions - https://www.washingtonpost.com/nation/2020/05/13/coronavirus-update-us/#link-IRDOQGL7NBFNFOTF2E5VL4U3XE In a letter to corporate landlords, Starbucks said it “will require” rent breaks for at least a year in the wake of its stores’ closures from the coronavirus pandemic. The Seattle-based coffee giant is asking for adjustments to lease terms and base rent for 12 months effective June 1, the company’s chief operating officer, Roz Brewer, wrote in a form letter, which was obtained by the Greater Baton Rouge Business Report and several news outlets. “Starbucks will require concessions to support modified operations and structure, so we can withstand this uncertainty together,” Brewer wrote. The letter is dated May 5, a day after Starbucks announced that 85 percent of its 8,000 company-owned U.S. stores would reopen by the end of that week. The company temporarily shuttered half of its stores in late March. “None of us know the full extent of the challenges ahead, but it’s clear the value of commercial real estate has changed,” Brewer wrote. “We understand what we ask of you may not be easy, and our commitment is to be fair in our discussions.” “We look toward the future with realistic optimism and expect, as you have in the past, your support in the enduring success of the Starbucks brand,” she added. Given the scale of the company, the ask will have ripple effects, especially as landlords negotiate with other tenants and may have bankers to pay.

I voted just fine like it always was. Back in late Feb and during March there was lots of Coronavirus posting. April / May it has shifted (thank god) back to investing and regular stuff. Not that Coronavirus is not important... When i got annoyed at some posters on the coronavirus thread (i am sure it just happens to me :-) i just ignore them. I. Take a self imposed time out. I actually like the fact that there is so much disagreement on important topics. Normally it means there is some learning to be had. Look at the Fairfax threads... i agree with both sides (depending on the day). Coronavirus is just the primer... the real story will be happening in November. Put your seatbelt (or hockey helmet) on if you think the Coronavirus thread was a wild ride :-)

I haven't been able to envisage the end state here. So imagine you are super-successful like Oz, NZ, Singapore and your cases go to zero. The rest of the world (ROW) screws up and muddles its way to group immunity, perhaps at horrific cost. So ROW have 70-80% people with immunity, and the virus is still circulating. Now you have three ways out. 1. Vaccine is developed and you get immunity without the horrific costs. 2. The virus is totally eradicated. 3. You live in your bubble, separate from the rest of the world until either 1 or 2 happen. This doesn't seem like a viable option if its a long time. So whats the end state these guys are thinking of or hoping for? I wouldn’t necessarily discount the possibility that bilateral travel bubbles form between countries with a low enough prevalence of COVID-19. In fact both New Zealand and Australia are thinking about this and this would help out the New Zealand tours industry as most tourist come from Australia. I can see other bubbles forming in other regions like Northern Europe and later southern there Europe if the number go down far enough. You only need to do this for 18 month hopefully until a vaccine is there and / or you can reduce the risk of adverse outcomes with better medication. So they would be the end state since you ask for it. Since I am basically located in a COVID-19 leper colony here in MA, I am not counting of going anywhere far this year, certainly not Europe as I planned. It’s probably going to be a camping trip north, if those folks from VT, NH or ME will have us. https://www.theguardian.com/world/2020/may/05/trans-tasman-travel-bubble-to-allow-flights-as-soon-as-lockdowns-ease-morrison-and-ardern-agree Who is going to want to allow travellers in from the US given the large number of continuing cases? I think Canada and US will need to decide soon what to do about the border for June... my guess is Trudeau is going to want to continue with current restrictions while the ‘stable genius‘ is going to want to get back to normal... International travel is going to be severely restricted. Imagine being that person from China who travels to the US and is involved with a positive test? Or an American going to China and same? Just think about the political points to be scored by Trump or the Chinese state. Crazy times.

When looking at Fairfax today: 1.) insurance businesses in aggregate are in solid shape writing at 96 CR. 2.) bond portfolio is positioned reasonably well 3.) dividend and interest income, with run rate of $900 million is solid. What is the above worth? 4.) the remainder is the equity portfolio: stocks, associates, wholly owned companies which i think is around $9 billion. The real question When trying to value Fairfax is what is this group of assets worth? I wonder what would happen to Fairfax’s stock price if they publicly stated that moving forward they will be moving up the quality spectrum with future equity purchases. And disposing of some legacy equity positions (the stinkers). Shift a couple of billion in equities from low quality to higher quality. This would hit BV in the short term (losses on sales); but would likely also result in a higher price/BV from Mr Market. Perhaps this is kind of what we are seeing play out the last 18-24 months. The biggest new purchase, by far, is Seaspan/Atlas and this looks like a decent company (how good we will only know in a few years as it is still very young in its current incarnation). Last year there were lots of moves to get some of the operating companies into a better spot (Eurobank, AGT etc). We will see the size of Alphabet and Exxon positions. Wishful thinking?

Today the overall market is down 2%, insurance stocks are down about 3% and Fairfax is down 5%. Sounds about right for a risk off day. I was wondering what would happen to Fairfax if the market started to once again sell off. Looks like there is still risk to the downside. How low could it go? Look at the WFC thread... some stocks just seem to be one way trains. Crazy times. We seem to have a bifurcated market - big winners and big losers. The stock market looks like it might be rolling over. What happens to the dogs if we get another brutal sell off?

The US is like a big petri dish for the virus. There will be lots of learnings... Colorado restaurant illegally reopens with no social distancing and hundreds of customers - https://www.washingtonpost.com/nation/2020/05/11/colorado-restaurant-illegal-reopening/ “I expected it to be busy. I never expected this,” she told Colorado Community Media. “I’m so happy so many people came out to support the Constitution and stand up for what is right. We did our time. We did our two weeks. We did more than two weeks … and we were failing. We had to do something. ...A sign on the door reportedly read: “ATTENTION: Our freedom doesn’t end where your fear begins. … If you are afraid to be within 6 feet of another person, do not enter this business!” The Yelp review page for C & C Coffee and Kitchen... Arellano’s supporters tried to defend her with compliments, including one woman who said “the coffee is to die for.”

“I think human society will accept a reduced human life expectancy.“ Sam, the problem is we still do not understand the virus very well. If you let the genie out of the bottle the death toll may spike much higher than expected. And at that point you have made the wrong decision but you are screwed. My guess is the health authorities in Wuhan, in Northern Italy and in Iran all made what they thought at the time were rational decisions based on their projections of what the virus would do (based on the actions they were taking). My guess is that today ‘human society’ in those regions are not happy with the decisions made. It is not as simple as virus or economy. The two are actually highly linked. When you have this much incomplete information there is no right answer; just a bunch of options with probability distributions (that likely are not very accurate). We are flying blind. PS: i am not proposing a specific course of action. I really have no idea. It will be very interesting to see how it plays out :-)

Dexterra aquisition by Horizon North Logisitcs; Fairfax to get 49% of new company (close expected in Q2) I missed this announcement back in early March. Fairfax looks to be trimming down the number of small private investments that it holds. It recently sold APR Energy to Atlas/Seaspan in return for shares in Atlas. As more private investments migrate to publicly traded companies it does make it easier to follow and value the various businesses/equities that Fairfax holds. More importantly, it hopefully gets the holdings into a better situation to grow their business. That looks to be the case with APR and hopefully happens with this and future transactions. From Fairfax's Q1 Report (page 51): "On March 9, 2020 Horizon North Logistics Inc. ("Horizon North") entered into an agreement with Dexterra whereby Horizon North will legally acquire Dexterra by issuing common shares to the company representing an approximate 49% fully-diluted equity interest in Horizon North. Upon closing the company expects to obtain de facto control as the largest shareholder and will consolidate Horizon North. The transaction is anticipated to close in the second quarter of 2020, subject to approval by Horizon North shareholders and the satisfaction of customary closing conditions. Horizon North, based in the province of Alberta, is a publicly listed corporation providing a range of industrial services and modular construction solutions." By way of background, Fairfax purchased Carillion Canada out of bankruptcy in March 2018 (at 5x free cash flow) and renamed Dexterra (not sure what the total purchase price was). Market cap of Horizon North is $98 million, with shares trading at $0.59 (May 8). While Covid 19 is impacting the business of both companies greatly, the deal will happen under the terms announced March 9. 2019 Revenue EBITDA HN $458 $31 (has debt) Dexterra $261 $17 (no debt) - http://www.horizonnorth.ca/wp-content/uploads/2020/03/InvestorPresentation-2020-03-26.pdf - http://www.horizonnorth.ca/investors/ - https://dexterra.com/about/

Stubble, thanks for your thoughts. I did read your lengthy post after FFH posted results and found it very helpful :-) Fairfax was very fortunate with the timing of the Riverstone deal. It brought them $600 million of much needed cash at (a now premium) valuation. With the economy in such terrible shape Fairfax will not be growing written premiums in the next 2 quarters (I am pretty sure this is what Prem said on the conference call) so the subs will likely not be needing $ from the hold co for business growth. In the past Prem has proved to be very creative in surfacing value. Perhaps he has a rabbit or two yet to be pulled out of his hat.

Recemize, i would be quite happy with a 5-7% gain. I have had a good year and am sitting mostly in cash. The past month or so i have been very tactical taking a couple of small positions and selling for small gains. I need to do a little investing/trading to keep my brain from going Covid19 crazy :-) I am happy to sit in cash With the majority of my portfolio until i have a better understanding of the impact of the virus on the actual economy.

Does anyone have an opinion on the likelihood that FFH will need to do an equity offering in the near term to shore up their balance sheet? My guess is they are ok today. However, there are risks moving forward: 1.) possible operating losses in Q2 and Q3 2.) sizable impairments on equities/associates (Recipe and Toys R Us are flashing red and there are more) Offsetting this will be some gains in their equity portfolio since March 31. The $2.9 billion in bonds they bought likely also will see some nice price appreciation. Dividend and interest income is also now a $900 million run rate which is very good (especially given the sale of 40% of runoff). What do people think? Too many moving pieces and when combined with the virus (path unknown) simply too hard? Best case scenario for Fairfax is a vaccine is discovered that can be deployed in volume in Q4. My interest in FFH right now is as a short term trade. The company is out of favour. And the sector is out of favour. And the stock price has been very volatile of late. Stock Price = US $250 BV = US $422 P/BV = 0.59 If we adjust BV to reflect Associates at fair value Vinod estimates BV = $390 P/adj BV = 0.64 Petec also suggested discounting BV further to reflect Fairfax India and Fairfax Africa at fair value —————————————————- Some notes after listening to the conference call: - CR was decent at 96.8, with 2.6 points for Covid 19. - Covid exposure is manageable with largest exposure at Brit and Odyssey - expects to post underwriting profit for the year (even after Covid losses) - expects written premiums to fall in Q2 and Q3 and rebound in Q4 as economic activity gets back to normal; expect flat for the year - purchased $2.9 billion in US corporates; yield = 4.25% and term = 4 years ($123 million in interest income per year) - run rate for interest and div income is $900 million - continuing to focus on redeploying cash to grow this - Riverstone divestiture happened March 31. 40% sold for $600 million. Continue to hold 60% valued at $605 million. - debt offering in April $645 at 4.625% will add $30 million to interest expense per year Balance Sheet - had $700 million cash At hold co - drew $1.8 billion of credit line; cash = $2.5 billion - April debt issue = $645; total cash, net on credit line = $1,345 billion - as global economies restart expect to pay down credit line Can someone help me out with what happened to the $600 million proceeds (March 31) from the Riverstone sale? Is that included in the above figures? - said FIH, FAH, Recipe and TC all have access to financing and do not need $ from Fairfax - said covid did not affect long term value of Bangalore Airport - Atlas, largest equity holding by far, reported decent Q1 results with strong future guidance (expects manageable impact from Covid)