twacowfca

We did a pairs trade during the 2008 2009 market meltdown that was very profitable. This was The Fannie or Freddie common paired with the most underpriced of their many preferred issues. Analysis of their capital structures suggested that the common was grossly overpriced in relation to the preferred, often by a factor of five, in any scenario in which there would be any recovery by equity holders. We were in and out of the trade two or three times with great profits. The main difficulty was that the preferred took a very long time to accumulate and later sell while the common could be sold in a heartbeat. Currently, the common is not so greatly overpriced in relation to the various preferred issues as several months ago. However, it's still an interesting speculation because it looks like the government is finally going to take them out of the public arena. Here's the trade: Wait to see if the rumor mill suggests that there might be something left for the shareholders when the government may deprivatize them in early 2011. If this happens, the common of both GSE's will likely run up more than the preferred issues because the common is liquid. If this happens an interesting trade would then be to short the common and buy an equal dollar amount of the preferred. if it turns out that there is no recovery for any of the equity holders, the only loss would be the small amount of interest forgone. If there is anything left for shareholders, the preferred should have a much better recovery than the common. :)

Who is John Galt?

Maybe they could also sell some of their bodies as collectibles. Especially the one that came from the area of China next to the prison that held the dissidents, the body that appeared to have a bullet hole in the back of the skull.

Did he see the handwriting on the wall?

Is the other company related in any way to the one formed by the Nazi doctor's son?

The Bodies were run out of Germany because of The Nazi medical experimentation on sacrificed concentration camp prisoners connection to their founder. How can you ignore that?

Has the CEO come around to the idea of not wasting resources on non core business and mending fences with the franchisees?

Any legacy costs like pensions? How much is their debt, and what are the terms and duration?

I think the former CEO stretched for yield with crappy MBS as well as committing other sins. If they had been domiciled in the US, they might have been a candidate for being seized by their regulator. The New CEO was installed at the insistance of the investment community. The board would not be receptive to an exploitative takeover. They are trying to prevent a blot on the reputation of offshore insurers. The new CEO is doing a good job running things conservatively, but they are still facing headwinds. Stay tuned.

Banks get squeezed. When there is inflation, short term interest rates rise proportionally the most ,squeezing margins, and their customers have difficulty paying more interest on loans. Some insurance companies, especially life insurance companies with fixed long term liabilities, do well as they earn higher returns on investments when they roll them over to higher yields as they mature, provided that their book is solid ,without accelerated redemptions in an inflationary environment. Life insurers with a relatively shorter duration on their portfolio than the average time it takes for paying claims on their policies will be relatively well off. P&C companies like BRK with short duration assets and many long tail liabilities would be in a very sweet spot as they quickly start earning higher yields that more than compensate for inflation of the claims they pay. Other P&C companies can become distressed if they have longer duration assets that can't be rolled over quickly enough to compensate for inflation of claims. This can soon lead to a very hard market that will benefit the wiser BRK type insurers even more. :)

Keep in mind that the most powerful predictor of secular large order changes in the valuation of stocks and other securities is change in fiscal and monetary policy -- especially taxation in relation to stock prices. The low dividend tax will expire EOY 2010. Conversions to Roth IRA's, available for high income tax payers this year only, will suck investable capital out of many portfolios in late 2010 through 2012 as large tax bills come due for these conversions. Thirdly, income tax rates are scheduled to increase in 2011. This could change if Congress passes major tax cuts, but assuming that rates won't rise may be wishful thinking. The prospect of increases in taxes and tax payments is not exactly bullish for stock prices, to say the least. Keep your eye on Congress.

Soros must have zigged when he should have zagged. :)

But you can't get chewing gum there. :) Unemployment is low there, so you may not get canned. But there's no guarantee you won't get caned. :)

BUY BUDDY BUY! :)

I'm no expert, but it could be MTM difference.

Declining businesses are not often managed with the main object of maximizing liquidation value. Often, the unstated object is to preserve jobs, especially the bosses' jobs, treat exiting employees fairly, strengthen the pension plan and other retirement benefits and keep the status quo ante as much as possible. It takes an owner's orientation and a lot of hard work to counteract the institutional imperative to some degree in these problematic businesses.

Packer, I respect your acumen. How do you project cash flows, especially those that will be truly "free", after all the debt might be paid off for highly leveraged companies that appear to be in declining, if not "buggy whip", businesses?

Sister lives in Palm Harbor, 30 miles north of St. Pete. Nice area. Interestingly, she also just got canned, the last duck standing in the IT programming dept of a company that increasingly outsourced all of it's programming to India. Let me know if you need specific information about the Tampa Bay area. :)

Though I grew up in Canada (Southern On) that gets me too in the winter. It is really a killer during the long dark winter months but when it snows its great! I havent spent much time in Vancouver however I enjoyed my stay in Victoria BC. FACTOID: The southernmost part of Ontario is farther south than the northernmost part of California.

True, however I'd rather have the Social Security of today than the 1930s situation where your savings went the way of a bank failure, leaving you with nothing at all. The workers of the 1930s who still had jobs could hoard their income -- today they can't do that to the same degree because a good portion of the would-be discretionary income is now being redistributed -- and those below-the-poverty-level incomes get spent immediately. So it's harder for us to pull back our spending quite like we used to -- however no doubt any pullback is still painful. The Grapes of Wrath (if written today) would be a different story with the whole family moving in with the grandparents, rather than the grandfather feeding from (well, you remember the book). Viva La Leche League! The perfect food! And a proven remedy for gastritis, according to John Wesley, of all people! Proven as a cure for his father's gastritis! :)

Looks like MW, but when he peels off his jacket, there's a BIG S on his shirt underneath! :)

You're lucky if you don't get scalped trading on the pink sheets. Liquidity is directly correlated to narrowing of the bid/ask spread.

Big trades that don't move the market are often cross trades among related entities, especially for companies like FFH with a few major holders.

Hear! Hear! Don't forget Chile! ;)

Thanks, Sanjeev. From the literary style and the signature Hamburg wrote it. BRK's doing relatively well, given the U shaped recovery. No dramatic rebound from the recession, just better blocking and tackling as with the large cost cutting at Net Jets. :)