StubbleJumper

I don't want to create a jinx or anything, but Blackberry shares are trading at US$6.18 this morning. The conversion privilege of the $330m debentures is at least temporarily in-the-money. Lots of small pieces of good news over the past three weeks. SJ

I just listed the BB convertible debs on my spreadsheet with no value/change in value. Any increase in value in these should be added to the $1 billion. Is it correct the increase would fall in the ‘mark to market’ bucket? Those particular securities are not traded, so they would need to be marked-to-model rather than marked-to-market. I presume that they would be included in the "mark to market" bucket in the same way that the value of the CPI derivatives are adjusted every quarter based on their modelled value. However, we probably wouldn't even notice a ~$50m mark for the debs when they are included with all of the other changes in the $30B fixed income portfolio.... SJ

Viking, what have you done with the BB convertible debs? Just eye-balling the change in the BB stock price, I would guess that if the debs were marked-to-model that they would likely now trade at a premium over par value (they are not yet in the money, but clearly the conversion privilege is quite valuable and has become considerably more valuable since Sept 30)? Probably at least another $50 million, conservatively? As an observation, BB's $7 calls expiring in January 2023 traded at $1.91 on Friday and $0.95 back on Sept 30. FFH's $6 calls expiring in November 2023 for 55 million shares are worth a fair bit these days... SJ

Actually, I've never had the "silver spoon" portfolio management issue. In my case as an individual investor, it usually arises because you've been shooting out the lights for 5 years or 7 years and you make a careless comment after drinking a few beers, or somebody infers from your behaviour that you have been shooting out the lights. The astute people who learn or infer that you have been shooting out the lights want to jump aboard the train and have you do the same thing for them with their $100k retirement account. The problem with all of this is the standard saw about "past performance does not guarantee the future," as well as the fact that the people on this board often end up with a very unconventional portfolio in their quest to shoot out the lights (if I am not mistaken, you have written on occasion on your unconventional portfolio concentration). This can result in periods of under-performance (sometimes lengthy periods), and sometimes you incur permanent losses of capital. The friend/family with his $100k retirement fund is rarely well suited from a mental and emotional perspective to the bad periods. What is more, there will be periods where you will be doing perfectly fine by some metrics, but you will be doing much worse than the market high-fliers. Your friend with the $100k retirement fund will look at AMZN and conclude that you have picked a bunch of duds simply because AMZN has risen by 66% in the past year and your selected portfolio hasn't done quite so well. Either of these cases can be drivers of friction in the friendship or family relationship. As others have suggested, if you are doing all of this for free, what is the upside? SJ

I will not comment on your actual question about the legal framework. But, I would note that business and friendships often do not mix well. I have always taken a hard pass on managing money for friends and family. SJ

Recuperating some capital from BB would be excellent news, indeed. The capital has been tied up for what, 7 or 8 years now? Interestingly, BB shares have been edging up since the vaccine announcement of last week. The renegotiated debs are not yet in-the-money, but at least there is some prospect that they might head there during 2021. Starting from today's price, a doubling of the BB share price would take some sting out of the equity investment and it would obtain a nice return on the debs. A tripling of the share price would get the investment up to the status of mediocre. It would be nice to have a favourable exit from this one during 2021... SJ

I got the sense he was meant to be a Fairfax lifer and possibly Bernard’s heir apparent, so this is a blow. I would not automatically assume that this is a blow or a loss. Situations change within companies all of the time. It is sometimes the case that rising stars lose their shine and become problem employees -- too good to fire outright, but not the right fit to promote. In those cases, organizations struggle to push them out and move forward. This is the second instance in less than a year where senior people who were seemingly leadership material have left through the side-door, with a little assistance from FFH (Paul Rivett and now Scott Carmialani). My curiosity is piqued about why they have both left through the side door. What the hell is going on at FFH that the company is facilitating the departure of its executives? In the end, if there is some irreconcilable conflict between the execs and Prem, then they absolutely need to go and their departure should not be viewed as a loss. But, we should ask why this is occurring? Is it just chance (fooled by randomness) or is there something else going on that is unhealthy within the outfit? SJ

If the inclusion rate is increased, I don't consider this the highest probability scenario. To my recollection, when the capital gains rate changed in the past, the rate change typically took effect the day after the budget was released, not the day the budget bill was approved through royal asset. Yes, by my memory that's true. It was the elimination of the $100k Lifetime Capital Gains Exemption in roughly 1994 which had an implementation period. People cashed out their winners to max out their gains before the measure hit the sunset date. Is it a good policy approach or a bad policy approach to give people a transition period? If you cannot have predictability is a "fair" transition a second best? SJ

SJ, Slovakia’s results don’t show a 10-to-1 ratio of true cases to reported cases. They tested the whole population and found about 2-to-1. Previous PCR based results: 79k, with 23k recovered, I.e 56k active cases https://www.worldometers.info/coronavirus/country/slovakia/ Then they tested everyone else with rapid tests, and found 57k. https://ca.reuters.com/article/health-coronavirus-slovakia/slovakia-says-covid-double-testing-cut-number-of-infections-by-more-than-half-idUSL8N2HV5G4 Herd immunity may be further if you change that assumption down to 2-to-1. A ratio of 2:1 would definitely leave a long road ahead to arrive at herd immunity. There have been a considerable number of antibody testing studies that have been published over the past 7 or 8 months, all of which have varying results. Most of the early tests have been suggested of a 10:1 or 15:1 ratio, or sometimes even higher. The most significant recent study was the dialysis users study ( https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)32009-2/fulltext ) which suggested that about 8x more people carried covid antibodies than were ever officially diagnosed with the virus. Turning to the Slovakia study, I am not sure that I've entirely understood what they have done, but it appears to me that it was an antigen study rather than an antibody study. What they seemed to be attempting to measure is the number of people currently ill rather than those who have antibodies that are indicative of past illness. They seem to have obtained a nice current snapshot of the situation, but as I understand it, that doesn't really tell us what has happened in the past. That being said, there is much uncertainty of the true covid infection rate. We know very well that it is much, much higher than the officially diagnosed cases would suggest, but we don't really know for certain how much higher. I would encourage people to keep an open mind about just how far and wide this has spread in the United States. If you believe that herd immunity kicks in once ~60% of the population has been infected, that would require about 200 million people to have already had covid. If you believe the studies that suggest a 10:1 ratio between true cases and official cases, then the US might hit herd immunity once about 20 million official cases are reported. If you believe the 8:1 ratio suggested by the dialysis study, then you might expect to see herd immunity once about 25 million official cases are reported. As of today, the CDC is reporting 10.2 million official cases. Are we half-way there? Is it 40% of the way there? Something else? By the time the first person in the US is immune by virtue of the vaccine (which will be approximately January 1st), how many official cases will there be? It's another 50 days, so add at least another 5 million or so to the existing 10 million? SJ

Weren't they just suggesting that asymptomatic covid carriers could continue to work in a hospital's covid hot-zone? The patients in the hot-zone all have covid anyway, so does it really matter if some of the staff also have covid? I guess there's the viral-load argument that the staff could contribute to the viral load in the air, but that seems to me like a pretty marginal effect. Now, if they were suggesting that a covid-positive doctor work in a hospital's cold-zone, there might be some serious ethical and legal considerations.... SJ Short answer: you are technically and theoretically correct. Longer answer: First, there are practical considerations. For people going to work in hospitals, where do they change, eat, go around, use bathrooms? Do you create a separate infrastructure? In my area, it was shown that significant spreading events occurred in nursing homes from people (healthcare workers) sharing the physical space where they ate and, despite theoretical considerations of 'protection', there were several super-spreader events from healthcare workers (Covid+) who continued to work in several centers (due to human resources shortage situation). Do you think safety measures are well observed when there are worker shortage situations? Second, from a conceptual point of view, sticking to the surge scenarios' perspective, it's accepted (CDC and all) that contingency plans need to be in place, just in case, and the next level is to have Covid+ workers treating Covid- patients, and the next level is to have workers without protective equipment etc. i simply wonder if underlying assumptions should not be questioned when going in this direction. In Canada and other areas of 'socialized' medicine, compromises have to be reached all the time when dealing with supply-demand mismatches and this is obviously a significant problem but it's surprising (and perhaps humbling) to see such contingency plans in places that are relatively new to the concept. i understand that you have a fatalistic approach to the whole thing but i'm perplexed at the extent of the reach for herd immunity when effective vaccine options are on the way. That's certainly a series of practical considerations. Clearly, you would need to designate separate staff facilities in the hot-zone. The bathroom and lunch facilities are probably less of a problem than designating a segregated entrance to the building, separate elevators and change-room for covid-positive staff. Every facility likely has different latitude to re-purpose space within a hot-zone, but in most cases it's probably not a show-stopper. Your second observation is a bit perplexing. Your argument against doing something that can be done relatively safely is that it could be the stepping-stone to doing something that is clearly unsafe? Is that the "gate-way drug" argument? On a personal level, this is the second time you have referred to my "fatalistic" views. I think I have been pretty clear that covid can only be curtailed (not eradicated) at a significant economic and social cost, and generally through using control measures that are not sustainable. My opinion is that most people in the western world are unwilling to accept that cost for a prolonged period (is that fatalistic view or a simple objective observation?). The "reach for herd immunity" is a simple observation of the virus' progress to date, which IMO, is a perspective that is sadly lacking amongst public health officials. The vaccine which will be administered over the next 6 months will be of considerable value in many countries, notably Canada, where the progression of the virus has been modest. But, in a few countries, such as the US, Belgium and the Czech Republic, it looks to me as if the virus may very well begin to burn itself out roughly at the same time that the first vaccine recipients receive their second shot. Those countries might very well have achieved herd immunity (ie R0<1) without a meaningful contribution from the vaccine (that does not, however, imply that the vaccine has zero benefit for those populations). On all occasions, I try to articulate my assumptions, share the basic arithmetic and not to be too abusive of significant digits. People are free to agree to disagree with my assumptions and replace them with their own. But it is completely baffling to me that any interested observer would NOT be trying to understand the extent of the virus' progression within a population of interest. The public policy question which you now seem to be hinting at is, how should virus control measures be directed on a going forward basis now that a promising vaccine has been announced. In essence, with the development of this vaccine, governments have moved from decision making under uncertainty to decision making with relative certainty (ie, a 90% effective vaccine which can be likely be generally administered within 6 or 8 months). On that point, I would suggest that the decision making process is a much easier process because the economic and social cost of lockdown measures are reasonably well understood from our experience last spring, but the benefit of lockdown measures has become much more clear -- it is no longer a situation where economic and social costs are incurred on the basis of a faint hope that there might be a benefit. At this point the benefit seems relatively clear and the challenge for governments is to assess whether that cost-benefit proposition is well-aligned with the preferences of their population (those preferences differ in every country). While you may find it counter-intuitive, my guess is that the majority of countries will not impose meaningfully stricter control measures for the next 3 or 4 months, despite the compelling cost-benefit proposition. But, that opinion is not a should or should not opinion, rather it is my guess about how governments will manage the risk preferences of their population. SJ

Weren't they just suggesting that asymptomatic covid carriers could continue to work in a hospital's covid hot-zone? The patients in the hot-zone all have covid anyway, so does it really matter if some of the staff also have covid? I guess there's the viral-load argument that the staff could contribute to the viral load in the air, but that seems to me like a pretty marginal effect. Now, if they were suggesting that a covid-positive doctor work in a hospital's cold-zone, there might be some serious ethical and legal considerations.... SJ No, not every patient in a CoVID-19 hotspot zone has CoVID-19 and not every employee or nurse or doctor has it, but with these lack of precautions they probably will. We are basically seeing a repeat of NYC in March in a rural setting with less people. I think mortality rates will be quite bad. Perhaps I wasn't very clear. A "hot-zone" within a hospital is a segregated area where all of the covid patients are housed. It's the area where it is presumed that the virus is circulating in the air and is present on surfaces. It is unlikely, but not impossible, that somebody could be misdiagnosed and errantly placed into a hospital's hot-zone (it could happen that a patient exhibited covid symptoms and registered a false-positive on their covid test). If a covid-positive staff member is working in the hot-zone, both he and his patients already have the virus. SJ

Weren't they just suggesting that asymptomatic covid carriers could continue to work in a hospital's covid hot-zone? The patients in the hot-zone all have covid anyway, so does it really matter if some of the staff also have covid? I guess there's the viral-load argument that the staff could contribute to the viral load in the air, but that seems to me like a pretty marginal effect. Now, if they were suggesting that a covid-positive doctor work in a hospital's cold-zone, there might be some serious ethical and legal considerations.... SJ

I believe that it may have been TwoCities who helped us better understand the mechanics of the equity swaps. SJ

Did I miss something? That article didn't say when the first jab will be delivered. I understand that Pfizer needs to collect data for another 3 weeks or a month before it can provide incontrovertible evidence that the vaccine works. So, the first jab might be around December 1st? And the first people with vaccine-induced immunity might be around January 1st? SJ

As of today, the US is at 9.8 million official covid cases. If you believe that it would take, say, 45 days to hit 250k new cases per day, that would likely imply about 45 x 180k/day cases = ~8 million additional official cases between now and Christmas. That would be a total of about 18 million official cases. If there are 18 million official cases, how many true cases will the US have had? Is it 10-to-1? How about 8-to-1? Something else? At a certain point, a considerable portion of the US will have already had covid and the R0 will drop by virtue of running out of potential carriers. If you believe that R0 will be pushed below 1 once ~60% of the population has already been infected, you would probably be pretty close to the finish line when you see 18 million official cases reported in the US. What is interesting is to look at some of the countries with the most official cases per million population. Belgium and the Czech Republic are interesting because they are both at about 40k official cases per million. So in reality is that 300k or 400k actual cases per million if you believe in a 10-to-1 or 8-to-1 ratio? In principle, herd immunity might begin at a 60% infection rate, or about 600k/million. Will the virus soon begin to run out of new people to infect in those two countries? We will probably have a pretty good idea around Christmas time about whether they are heading to herd immunity. The US is slightly behind those countries, with 31k official cases per million, so it's worth carefully watching the countries who are "leading" this race. I would say that on January 20, it will become pretty apparent what levers are truly available to the federal government. My guess is that it will be business as usual, but the new administration will at least say the "right" things and do the "right" things which will make some people happy. But, in terms of concrete new measures.... SJ

Given that Farmers Edge has been losing money, so it's a bit of a shit-cake I'd be a bit surprised if it were IPO'd on its own. But in the Michael Lewis tradition, FFH could put some icing on the shit-cake by merging Farmers Edge and AGT into a single agri-food technology and marketing company, and then doing an IPO. SJ

^ On the issue of the dividend, Prem was entirely right to skate in circles rather than to directly answer the question. The final decision about a potential January dividend does not need to be taken until a couple of days after Christmas, a day or two before the end of Q4. If a dividend is paid this year, it looks like it will be funded from the revolving credit facility because in a hard market, FFH will not want to draw meaningful dividends from its insurance subs. At the moment, there is plenty of revolver space available (only $0.7B out of $2B was drawn as at Sept 30) and the covenants do not appear to be binding as at Sept 30. But, there are plenty of things that could happen in the next two months before the end of Q4. Some black swan type of catastrophe could happen which results in $500m or $1B of unexpected claims, the presidential transition could go badly and the stock market could drop 30%, vapourizing $1B of FFH's equity portfolio, or the bean-counters could decide to take a number of asset impairments that add up to $500m or $1B. So run a couple of scenarios to see where the revolving credit facility sits under varying assumptions: Base Pessimistic Case: FFH earns zero income in Q4 (more or less like Q3), but decides to pay the dividend any way: 9/30 12/31 Net Debt 7,553.7m draw $300m to pay divvy 7,853.7m Equity 16,486.4 reduce $300m for divvy 16,186.4 Total Capital 23,940.1 23,940.1 Debt/Cap Ratio 31.6% 32.8% 1-in-50 Year Scenario: All hell breaks loose in Q4, the stock market crashes and FFH has income of -$1B during Q4, but decides to pay the dividend anyway: 9/30 12/31 Net Debt 7,553.7m draw $300m to pay divvy 7,853.7m Equity 16,486.4 reduce $1,000 due to negative income and $300m for divvy 15,186.4 Total Capital 23,940.1 22,940.1 Debt/Cap Ratio 31.6% 34.2% Under the base pessimistic scenario, if Prem gets to Christmas and realizes that there will be zero income during Q4, he could declare the annual dividend anyway and the Debt/Cap ratio would still remain nicely below the revolver covenant's 35% threshold. The revolver would still offer FFH flexibility to operate during Q1, but it might be time to hold some proactive discussions with the lender. On the other hand, the 1-in-50 stock market crash scenario would see that Debt/Cap ratio blow out to 34.2%, which means that the revolver basically becomes useless for Q1 because you can't go past 35% under the covenant. At that point, the holdco would need to operate using its cash balances alone and hope that FFH earns some money in Q1 and Q2 (or some other solution would be required). Given FFH's liquidity situation and the obvious potential for the US election to trigger volatility in equity markets, I don't blame Prem at all for not committing to the annual dividend in October. There's not much upside to making an early verbal commitment, and the potential downside is that it is entirely plausible that FFH could find itself in a position where it needs to conserve capital. The most likely scenario is that Q4 will be a good one for FFH and they'll earn a couple hundred million dollars, and the divvy can be declared and paid with no trouble at all, but there's no need to make that commitment before you need to... SJ

Fairfax is a three legged stool: 1.) insurance / underwriting - solid 2.) investing part 1: fixed income - solid 3.) investing equities / op co’s - a mess The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2). The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-) And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind... Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock. The other potential catalyst for shares is Prem’s creativity in surfacing value. Hi Viking...I agree with your 3 legged stool analogy concerning Fairfax with one exception. To date Fairfax's fixed income investing has been very solid---in my view the real strength of the company over the last many years. My concern is that given the ultra low interest rate environment we are in and will likely remain in for a very long time I am not at all optimistic going forward that Fairfax will enjoy the lift that it has from its fixed income investments in the same way that that it has over the last 30 years. Sure it can fund some private debt deals and achieve some yield enhancement in the corporate market but the bulk of its fixed income investments will be in governments bonds and hence return virtually nothing for the foreseeable future. This will put even more pressure on its equity investments and on this point point I could not agree with you more---- this part of the 3 legged stool is a total mess. So although a few posters on here are saying that all Fairfax needs to do is achieve a 3% return on its investments in order to achieve a 15% long term compound on its shares from this point forward I am not so sure this is as much of a slam dunk as some others on here seem to think it is. Your thoughts/comments and those of others would be appreciated. Well, then create your own pro-forma income statement for 2021. It might look a little like this: 1) UW profit Net Written Premiums $16B (up 6.5% over 2020) Consolidated Ratio: 94% (take the YTD CR, strip out the 10 cat points for 2020 and replace with 4 cat points for 2021) UW profit = $960m 2) Investment returns Investment portfolio $40B Investment return 2% (bond duration is strangely favourable for this assumption) Inv profit = $800m 3) Overhead = $200m (just grab the number from 2018) 4) Interest = $500m (run rate the first three-quarters of 2020) Earnings before taxes = $960m + 800 - 200 - 500 = $1,060m Taxes = $281m (tax rate 26.5%) Earnings after tax = $779m Sharecount: 26.2 milion EPS = $779/26.2 = $30 Is there anything outrageous about that bit of school-boy arithmetic? The current stock price is US$268, so a basic EPS of $30/sh would be an 11% earnings yield, which is not reliant on much of an investment return and makes no assumption of further price increases. The 15% target would be left in the dust if FFH actually got a 3% investment return. SJ SJ---your "school boy arithmetic" seems reasonable for 2021. My question however related to the potential for long term compounding for the shares at the 15% level. Your 2% investment return assumption which produces $800m in your analysis for 2021 seems high post 2021(note the drop off in interest and dividend income from 2019 to 2020). If my concern is correct on this point than an investment return well in excess of the 3% target is needed to achieve the 15% overall earnings yield. Expecting Prem (and team) to produce this level of long term investment returns on a sustainable basis is simply not reasonable based on either the results of the last 10 years nor the longer term prospects for the company's current equity holdings. The 2% is already very conservative. Of the portfolio, about $10b is corporate bonds yielding about 3.5% with a 3-yr duration, ~$17B is governments bills and bonds yielding about 0.5%, plus another ~$13B is equity-like investments (preferreds, common stocks, investments in associates). There should be no trouble at all to make 2% until the end of 2022 when the corporates will mostly need to be rolled. When you weight it all out, getting a weighted 3% might require about a ~6% return on the equity-like investments, which is not a particularly outrageous hurdle. After 2022, who the hell knows? It could go a couple of different ways. Either the risk-free rate remains at 0.5% in the "lower for longer" scenario, in which case you should expect to see tighter underwriting practices and higher insurance prices, or the risk-free will return to a more "normal" level which makes the 3% return easily attainable. But, over the longer term, capital will leave the industry if there is not some acceptable combination of underwriting and investment profit. SJ

Fairfax is a three legged stool: 1.) insurance / underwriting - solid 2.) investing part 1: fixed income - solid 3.) investing equities / op co’s - a mess The way to make very good money with Fairfax for the past 20 years is to wait for the turn in stool leg 3. (Mr Market was always slow to catch on so the shares became $20 bills lying on the ground in plain sight for all to see.) The problem for Fairfax investors is stool leg 3 has underperformed for the last 7 years (more than offsetting the gains made in stool legs 1 and 2). The good news for new investors in Fairfax is with shares trading at US$266 they will likely do well moving forward if Fairfax simply stops losing money with bucket 3. Crazy thing to say... but i think it is true (posters think i am only hard on Trump :-) And that is how out of favour this company is today... People do not want to own it because they expect Fairfax to lose more money in bucket 3. There are lots of legacy dogs still barking in the shadows: Toys R Us, Recipe, Blackberry to name a few that quickly come to mind... Now having said all that i might reestablish a position tomorrow. Because, to Sanjeev’s point, if they ever start to make a positive return from stool leg 3 the stock will rock. The other potential catalyst for shares is Prem’s creativity in surfacing value. Hi Viking...I agree with your 3 legged stool analogy concerning Fairfax with one exception. To date Fairfax's fixed income investing has been very solid---in my view the real strength of the company over the last many years. My concern is that given the ultra low interest rate environment we are in and will likely remain in for a very long time I am not at all optimistic going forward that Fairfax will enjoy the lift that it has from its fixed income investments in the same way that that it has over the last 30 years. Sure it can fund some private debt deals and achieve some yield enhancement in the corporate market but the bulk of its fixed income investments will be in governments bonds and hence return virtually nothing for the foreseeable future. This will put even more pressure on its equity investments and on this point point I could not agree with you more---- this part of the 3 legged stool is a total mess. So although a few posters on here are saying that all Fairfax needs to do is achieve a 3% return on its investments in order to achieve a 15% long term compound on its shares from this point forward I am not so sure this is as much of a slam dunk as some others on here seem to think it is. Your thoughts/comments and those of others would be appreciated. Well, then create your own pro-forma income statement for 2021. It might look a little like this: 1) UW profit Net Written Premiums $16B (up 6.5% over 2020) Consolidated Ratio: 94% (take the YTD CR, strip out the 10 cat points for 2020 and replace with 4 cat points for 2021) UW profit = $960m 2) Investment returns Investment portfolio $40B Investment return 2% (bond duration is strangely favourable for this assumption) Inv profit = $800m 3) Overhead = $200m (just grab the number from 2018) 4) Interest = $500m (run rate the first three-quarters of 2020) Earnings before taxes = $960m + 800 - 200 - 500 = $1,060m Taxes = $281m (tax rate 26.5%) Earnings after tax = $779m Sharecount: 26.2 milion EPS = $779/26.2 = $30 Is there anything outrageous about that bit of school-boy arithmetic? The current stock price is US$268, so a basic EPS of $30/sh would be an 11% earnings yield, which is not reliant on much of an investment return and makes no assumption of further price increases. The 15% target would be left in the dust if FFH actually got a 3% investment return. SJ

OMERS always got paid its dividends in cash. I'm not sure whether that was a preferential arrangement, or whether Fairfax opted to capitalise Brit to grow by taking stock instead. I need to revisit the disclosures on Brit over the years. I think OMERS have done quite well. Well, yes, that was the second part of my observation. Not only did the buyout cost rise compared to guidance that I recall Prem providing during earlier teleconferences, but also it seems that OMERS was on the receiving end of a 9% dividend? WTF? It doesn't really make me feel better about any of the other existing partnerships that FFH has established with OMERS. SJ

What can you say? It was a pretty good quarter, all things considered. Can't complain about EPS of $4/sh and a 101 CR on an accident year basis. A few observations: 1) Double-digit growth in Net Written is encouraging. What is more perplexing is how light the cats were compared to some of the other players in the industry (RenRe, Arch, etc). Seriously, the Atlantic basin ran out of English alphabet letters for this hurricane season and the meteorologists have had to revert to naming storms after Greek letters. Add to that the wildfires in the Western US and the mid-west derecho, it is interesting how few non-covid cat points that FFH registered. After all of that, the accident year CR was 101 for the quarter? Not too shabby. 2) How are losses from short equity exposures continuing to overwhelm gains from the long? What shitty selection of securities drove that result? It's hard to believe how poorly the equity portfolio has performed. 3) The holdco repaid a large chunk of what was drawn on its revolver during Q3. Was that due to the commercial paper having come to term and the absence of acceptable short term investments to replace it? It looks to me as if FFH has just enough equity to draw the entire $2B revolver without violating its covenants. A decent result in Q4 would make things a bit more comfortable. They will probably want to float another bond offering early in the new year. 4) This is not new in Q3, but it's nice to see a considerable chunk of the bond holdings in the 1 to 5 year category, because prospects for rolling maturing bonds during 2021 don't look great. Maybe 2023... 5) FFH bought the rest of Brit for $220m in August. Didn't Prem tell us that it would be about $100m? Maybe all of those business interruption covid claims made Brit more valuable ;D ? Interesting that Brit paid a $20.6m dividend to the minority interest back in April and FFH bought that interest out for $220m. What the hell kind of arrangement was that? Better than I had expected.... SJ

In the United States, the first part of that planning process should be a diagnostic blood test in advance to see who is already carrying antibodies. So, create a two-stage vaccination process where people can apply in November to be amongst the earliest vaccinated, but as part of the deal, they go for a blood test in advance to see whether they have antibodies and actually have any imminent need for the vaccine. Then, once the initial surge of demand is satisfied, you have stage 2 where anyone can present themselves at a vaccination station and obtain the vaccine on demand, whether they need it or not. Today, we are at 8.6m officially diagnosed cases in the US. So, how many true cases are there, maybe 85 million? That would suggest that already there is 27 or 28 percent of the population that likely has at least temporary immunity and does not urgently need the jab. If the first jab does not actually occur until January 1, and if there are a modest 50k/day of officially diagnosed new cases in the US, there would be a total of 12 million official cases on January 1, which would likely represent perhaps 120 million people who have already had covid, or about 35 percent of the population. Given the extent of covid spread to date, it is entirely possible that only ~100 million vaccinations would be required to drive the R0 below 1. Other countries, such as Canada, where the spread has been less pronounced will require a much more comprehensive vaccination program. SJ I don’t know if your 10x multiplier (tested positive vs actual infected). I have seen multipliers of 4-5x based on studied in Germany that may not apply here. As testing gets better , this multiplier comes down. As for antibody tests, they are somewhat costly and certainly will cost more than a vaccine. Frontline workers don’t get tested for antibodies either, so who exactly will bear this cost? I don’t think the capacities for widespread antibody testing is there either. I don’t think antibody test results will play a role on how the vaccine is distributed. I think the last large scale study in the US was the dialysis users' study, which showed that 9.3% of dialysis patients had antibodies during July. In mid-July, there was 3.7m, official cases in the US, which was about 1.1% of the population. So, the most recent major study would suggest 8 or 9 to 1 ratio for a sub-population of people who are more vulnerable than average and who should have been well motivated to avoid covid. But, I would agree that presumably the 10-to-1 comes down as testing becomes more prevalent. I suspect that you are correct that diagnostic antibody tests are unlikely to be used in a vaccination programme. The first 20 or 30 million vaccinations in the US will be in hot demand from the most vulnerable populations, healthcare workers and first responders and then demand will slow as less vulnerable people will be less motivated. Unfortunately, it is likely that 30% or 40% of those initial vaccinations that will be in very high demand will be "wasted" on people who are already immune by virtue of having already had covid without even realising it. The cost of the "wasted" vaccinations in dollars will be pretty minimal, but the frustration of those who are anxiously awaiting their turn will be palpable (as it was during the H1N1 vaccination process). SJ

In the United States, the first part of that planning process should be a diagnostic blood test in advance to see who is already carrying antibodies. So, create a two-stage vaccination process where people can apply in November to be amongst the earliest vaccinated, but as part of the deal, they go for a blood test in advance to see whether they have antibodies and actually have any imminent need for the vaccine. Then, once the initial surge of demand is satisfied, you have stage 2 where anyone can present themselves at a vaccination station and obtain the vaccine on demand, whether they need it or not. Today, we are at 8.6m officially diagnosed cases in the US. So, how many true cases are there, maybe 85 million? That would suggest that already there is 27 or 28 percent of the population that likely has at least temporary immunity and does not urgently need the jab. If the first jab does not actually occur until January 1, and if there are a modest 50k/day of officially diagnosed new cases in the US, there would be a total of 12 million official cases on January 1, which would likely represent perhaps 120 million people who have already had covid, or about 35 percent of the population. Given the extent of covid spread to date, it is entirely possible that only ~100 million vaccinations would be required to drive the R0 below 1. Other countries, such as Canada, where the spread has been less pronounced will require a much more comprehensive vaccination program. SJ

As you may have observed, I have been doing a little fussing about cats for Q3 and for the full-year 2020. The following is a nice article about the level of cats in Q3: https://www.insurancejournal.com/news/national/2020/10/16/586710.htm It doesn't look to be a great quarter for FFH, but maybe it will be a bit better than I had expected? So negative EPS for the quarter, but not deeply negative? I guess we'll have to see what they add to their covid reserves... SJ

I don't want to put words in Muscleman's mouth, but some of us were dreaming that herd immunity might kick in at ~25% of the population with antibodies, but it is pretty clear that was a pipe dream. As of today, there are 8 million officially diagnosed cases in the United States. If you believe the dialysis study, the number of people carrying antibodies is about 10-for-1 of the official cases, or perhaps 80 million. That would be 24 or 25 percent of the US population. Clearly, we are not anywhere close to herd immunity today. Conventional wisdom is that herd immunity might kick in when ~60% of the population is resistant. So the US might currently be at ~40% of that path? Ignoring the notion that R0 will gradually tail off as people are infected, another ~12m official cases would be required. At ~50k new cases per day that would be 8 more months, but the tailing of the R0 would likely extend that for a great deal longer. So, I will pose the question once more: which will come first in the US, a generally available vaccine, or generalized herd immunity? The numbers in France are astounding. I don't pay much attention to the day-to-day counts because there is a great deal of daily noise. But, the 7-day average in France is 20k new cases per day for a population of 67 million people. Multiply by about 5 to get a number comparable to the US population, and it gives you 100k/day, which is even worse than the worst days that the US experienced in July (the worst day for the US was 76k new cases). The Netherlands seems to have an even worse mess on its hands than France. I agree fully with your observation about Thanksgiving. In Canada, we celebrated Thanksgiving last Sunday (we celebrate it earlier than in the US) and we will likely see the covid results of the family get-togethers early next week. Our second largest province took the extraordinary measure of prohibiting visitors to houses in almost all of the province. What an extraordinary time it is that a government in a free society would deign to prohibit people from having any visitors at all in their house! But, they did it, and we might see next week whether it made a difference. Let us hope that the impingement on personal freedom at least had a useful public health outcome. While Thanksgiving is an important holiday in Canada, it is much, much more important in the US...maybe even more important than Christmas. It is the biggest travel day of the year. The first week of December could be interesting.... SJ