StubbleJumper

I hope someday what happened to racism and sexism happens to ageism. People are people, with inherent worth and dignity, they are not worth less because their bodies are sick and frail and they have had many birthdays. Now I know you said "economically", but the tone still got to me. Maybe you didn't mean it to come across this callous with the lives of people who often already have tough lives. No, I had intended to use a clinical tone to deal with that age cohort. I have several family and friends who are in that cohort and I fully expect to lose more than a few from Covid. When that happens, it will be sad for me and those around me. But, when dealing with the aggregate question, you need to remain distant, clinical, and ideally, objective. SJ

I'm not leaning towards selling it. This isn't the Spanish flu which primarily targeted people in their 20s,30s,40s and largely left the children and elderly alone. The level of panic will subside once the general public comes to understand this. I am fearful for my parents who are in their 70s and 80s (my father has had pneumonia in the past 6 months) and I have two close social contacts with stage 4 cancer undergoing chemotherapy. However, I don't fear for myself, my wife or my kids . (I remarried in January). Eric, Congratulations for the new marriage. I wish you all the happiness in the world with the new wife. We have all seem to have lost our stiff upper lip. Your take on this virus strikes me as being bang-on. It is the 80+ year-old group who are being cleaned out by this. But, people are really struggling to process what it all means. I recommend that everyone take 15 minutes to pull up an actuarial life table like this one: https://www.ssa.gov/oact/STATS/table4c6.html If you are at all curious, you can look up what your probability of croaking was before Covid-19 came on the scene and compare it to what we think is the probability of croaking from Covid if you catch it. Here's a rough collection of datapoints for men: Age 20: Existing probability of death during a year: 0.001173 ==> Death rate if you catch covid: 0.002 Age 40: Existing probability of death during a year: 0.002420 ==> Death rate if you catch covid: 0.004 Age 60: Existing probability of death during a year: 0.011533 ==> Death rate if you catch covid: 0.036 Age 80: Existing probability of death during a year: 0.057712 ==> Death rate from covid: 0.148 Covid-19 is definitely bad news, but it does not appreciably increase your risk of dying in a year if you are young. It will, however, clean out the 80+ year-old cohort (but 5.77% of them were destined to croak in 2020 from some other cause anyway). Now, people might not like this comment, but I will make it anyway. Is a family/community/nation/country economically worse off or better off when an 80 year-old dies? The panic and lock-downs are what cause economic damage more than the morbidity and mortality. SJ

Just as an observation, the automobile accident fatality rate for males aged 21-25 is about 40 per 100,000 in a given year. The mortality rate from Covid-19 for people in that age range seems to be about 0.2%, or 200 per 100,000. One is clearly higher than the other, but if you are in that age range and you aren't afraid of routinely using a car during the year, you probably shouldn't be too afraid of death from covid either. SJ

Thank you for the salient points. Below are some thoughts on reserves. Reviewing the annual report is a reminder of how FFH has built amazing zones of strength while keeping areas of vulnerability. I guess that's why the stock is hard to handicap, especially at this juncture. Insurance and reinsurance remains the backbone of the business. Favourable loss reserve development (2010-2018, without the currency effect) 336.9 432.1 1,136.9 1,383.7 1,429.0 1,549.3 907.0 608.2 166.0 FFH does not disclose that but it’s possible to reconstruct year by year development for each calendar year business. A potential problem is the embedded currency effect which was quite positive in the 2018 annual report (2017 reserves column listed below). The following is unaudited: Reserve development (numbers in ( ) are unfavorable, as reported end of year+1) 2016 2017 2018 2013 74.3 45.0 3.5 2014 175.9 91.4 25.9 2015 40.5 296.0 144.1 2016 (69.8 ) 67.2 18.6 2017 483.2 (37.3) 2018 84.7 -The trend is variable but down. -The 2017 reversal is significant. It’s conceivable that FFH reports net negative adverse development as early as next year.. @ValueMaven With marked-to-market rules and perhaps a transitional new normal for volatility, book value may be a moving target. Thanks for the accident year transposition. I hope your concern about 2017 and onward is wrong. FFH has gone from providing copious detail about reserve development to providing very little. I guess that's one of the challenges of reporting on such a large enterprise. If you don't want a 1,000 page AR, you need to chop some material. SJ

Buffett's usually strategy is to demand good terms for convertible debt. With an injection of convertible debt at above market rates along with the opportunity to convert debt to equity shares, again at favourable terms, Buffett has been able to pick off some pretty great targets in the past by allowing the balance sheet of the company in crisis to be mended. So, essentially it's a risk-free transaction for Berkshire. Get high coupon income for a period with the opportunity to remove the capital if things don't work out. But if the company performs coming out of the crisis, he further reduces the company's debt/equity ratio by converting to equity and then takes all the equity upside. At the sizes that he puts these deals in place, he often comes out with a 10%+ equity stake. Berkshire can be a bank proxy and take on transactions within a day or two that other banking institutions and private equity lenders would struggle to finish in the time that Berkshire makes the commitment. BRK has gotten a very attractive risk adjusted return from these types of transactions in the past, but they were most definitely not "risk-free." SJ

You are expecting Fairfax to suddenly play fair? Don't hold your breath. I'm not a big fan of the short-and-distort crowd that made the short attack on FFH in '03 and '04, but they were actually right about one thing. When FFH holdco was cashflow challenged, Prem engineered an ingenious move whereby FFH bought a slug of ORH shares from an institutional holder by issuing convertible notes to that holder that convertible back into the ORH shares. Effectively, Prem "borrowed" the ORH shares from the institutional holder to enable FFH's holding to pop above 80%. At that point ORH was consolidated into FFH's financial statements for income tax purposes. This allowed FFH to use hundreds of millions of dollars of tax loss carry-forwards from TIG and C&F that would otherwise fall off the table. ORH made the tax payments to FFH, and then FFH offset them against the loss-carryforwards, which gave the holdco an enormous shot of cash. Was it legal? The IRS said it was legal. Was it ethical to pretend that you owned 80% of ORH when the reality was that the shares were borrowed? Well, I'll leave that one for you to decide. The moral of all of these stories is that Prem is very clever and very self-interested. SJ Stubble, thanks for the trip down memory lane... great summary of many things i had long forgotten (although i do still remember the day the ORH deal was announced... it was my biggest one day gain ever :-) I just want to add that, even if this was a grey area, the tax consolidation move was both clever and appropriate. The context included a potential material write-down of tax assets, further credit downgrades and other subsequent reflexive and potentially firm-threatening spiral. One can question the way they obtained the IRS acquiescence but, for this specific 'deal', I came to the conclusion that this was the best and most appropriate course of action. To tax consolidate without the economic interest is controversial but the intent of the transaction was a prelude to full consolidation. For those interested, the IRS continued to show discomfort with this type of transaction or perhaps that specific transaction: https://www.irs.gov/pub/irs-utl/am2012007.pdf ---) Back to the Fairfax India issue No, don't get me wrong here. The tax consolidation of ORH was definitely legal -- the IRS made that clear. Just as the $1B finite reinsurance contract from Swiss Re which was used to facilitate the TIG/C&F acquisitions was legal. They were both ingenious, but some people held the view that it was playing a little fast and loose from an ethical perspective. People are free to hold the view that they prefer. My only observation is that Prem has a long history of making very clever moves for the financial benefit of FFH, and sometimes that can be perceived as a financial dis-benefit for the people who took the other side of the arrangement (the short-sellers of the past, ORH shareholders, Abitibi shareholders, and possibly Fairfax India unit holders). It's not new. SJ

My take is that they sold Riverstone because they needed the cash, and even when added to the divvies from the subs, the $560m that they are getting probably won't be enough to fund the holdco's activities for 2020. So, until they float a debt offering, they seem to be reliant on that revolver -- IMO, it is not a great idea to have your operations reliant on operating credit because usually it is accompanied by 25 pages of covenants which means that your operating credit can get pulled if something weird happens (ie, debt:equity soars due to stock market crash or asset write-downs, EBITDA drys up for some reason, etc). A large revolver is a nice tool to keep around for emergencies or to opportunistically exploit opportunities (ie, suddenly buy a $1B sub or buy $1B of convertible notes on short notice). But, once you draw on it, the preferred approach would be to replace it by floating a bond issue to obtain long term funds for which the indentures are less restrictive than the 25 pages of revolver covenants. My point about the buybacks was about both tone and strategic direction. Pull up the annual letter from March 2018 and read it again. There's the usual rah-rah, we're awesome, and more than a few humble-brags. But the message was that the masterpiece was pretty much painted, the acquisitions were about done and buybacks would be the way forward -- heavens, Prem even had the temerity to trot out Henry Singleton's name, as if to suggest that FFH would initiate a long-term process to buy back ~90% of its shares! In that letter, he shared the usual "Financial Position" Table, but for the first time that I can recall he gave us the song and dance about dividing the insurance companies from the non-insurance companies and differentiating the debt by claiming that the non-insurance debt is non-recourse, so somehow that made it okay (more on that later). But, take a look at that same table from Friday night. Using Prem's mental accounts approach, compare the Net debt/Equity Ratio from two years ago to that from Friday. That ratio has risen from 16% to 25.5%. Seriously, pull up the those two letters and read them in succession and tell me that you are not left scratching your head. So the announced strategy in 2018 was to temper growth through external acquisitions, solidify the balance sheet, and return capital to shareholders through buybacks, but what we instead saw was injections of capital into Toys R Us, Carillon, AGT, Stelco, Fairfax Africa, Seaspan, etc, in addition to the expected investment in Brit (at least the Brit injection was consistent with the announced direction). From the outside it is difficult to assess where they sourced the cash for those moves -- it could have been subsidiary cash or it could have been holdco cash, but it doesn't really matter. The fact of the matter is that Prem's behaviour as a serial acquirer does not seem to have changed one whit, and FFH has continued on a debt-financed growth spree for the past two years. This is, unfortunately, a little reminiscent of the past. Debt-financed growth is great when it works and disastrous when it doesn't. Prem's protestations about non-insurance debt being non-recourse are not re-assuring. At least in '03 or '04 he postured-up and publicly declared that ORH debt was FFH debt and it would be managed and treated as such, irrespective of whether ORH and the other FFH subs were cross-collateralized. Now we have this strange weasle-ish notion that FFH would walk away from a troubled non-insurance sub, so we don't need to bother counting that debt. But, on that, I call bullshit. If FFH ever walks away from any debt, insurance or non-insurance, who the hell would ever trust them to honour an insurance policy? It's *all* FFH debt, irrespective of whether it is cross-collateralized, full-stop. So, yes, I am just a little bit uncomfortable that quality of earnings has been dubious for the past two or three years, debt has grown, some of the subs seem to be capital constrained, a portion of Riverstone is being sold despite Prem's assertion from two years ago and this year that it is an excellent vehicle for organic growth, and FFH seems to be using operating credit at the holdco. Does this seem like well planned implementation of strategy to you? It strikes me as a bit of a chaotic and ad hoc approach to managing a $70B enterprise. We've been here before. SJ

Do you examine which margin loans where used to buy stocks that are dividend paying or just take the total interest expense? About the only stock that I own which doesn't pay divvies is BRK, and I have not bought that one on margin (it would have been a good idea to do so!). Pretty much every other security has at least a trivial dividend. But think about it from CRA's perspective. If you are reporting say $30k or $40k of dividends and then you also report say $4k of interest deductions, why would that raise a red flag on their end? If I worked at CRA, what that would tell me is that somebody has about $1m of invested assets to generate the divvies and they might have borrowed $100k to trigger the interest. Nothing too weird with that. But, I guess in the end, if they get curious and ask for supporting documentation to link the borrowing to a divvy, it would be a pain in the ass. SJ

Oh, there are lots of options available. That;s not really the issue. The increase in the debt load over the past couple of years, the sale of part of Riverstone and drawing on the revolver are all things that make me raise my eyebrows. I have commented previously on the quality of earnings in 2018 and 2019 which reflect that value has been created over the past 5 or 6 years, but has not really generated distributable cash. What happened to the song and dance from a couple of years ago that the insurance side of the business was adequately built, the acquisitions were done, and reducing the share count was the way forward? Fast forward a couple of years, and now FFH is reliant on operating credit in the form of a revolver, they are selling the crown jewels (okay, mild exaggeration!), and they seem to be challenged to fully exploit a hardening market. It will all probably work out just fine, but there's a bit of a history here. SJ SJ

You are expecting Fairfax to suddenly play fair? Don't hold your breath. I'm not a big fan of the short-and-distort crowd that made the short attack on FFH in '03 and '04, but they were actually right about one thing. When FFH holdco was cashflow challenged, Prem engineered an ingenious move whereby FFH bought a slug of ORH shares from an institutional holder by issuing convertible notes to that holder that convertible back into the ORH shares. Effectively, Prem "borrowed" the ORH shares from the institutional holder to enable FFH's holding to pop above 80%. At that point ORH was consolidated into FFH's financial statements for income tax purposes. This allowed FFH to use hundreds of millions of dollars of tax loss carry-forwards from TIG and C&F that would otherwise fall off the table. ORH made the tax payments to FFH, and then FFH offset them against the loss-carryforwards, which gave the holdco an enormous shot of cash. Was it legal? The IRS said it was legal. Was it ethical to pretend that you owned 80% of ORH when the reality was that the shares were borrowed? Well, I'll leave that one for you to decide. The moral of all of these stories is that Prem is very clever and very self-interested. SJ

This will be fascinating to watch. It's relatively easy for a despotic country like China to impose travel limitations and quarantines. Italy seems to be on the cusp of announcing a large scale quarantine. But what about the culture? Is it even possible to control 10 or 15 million Italians? Heavens, go to an airport, subway or any other place where order is required and watch the behaviour of southern Europeans. While Canadians and Americans will politely queue up in an airport or virtually anywhere else, southern Europe is a different world! They seem to hold the view that rules are made to be broken! Even in Canada or the US, I am unconvinced that a large scale quarantine could even be enforced. At least in Canada there's the advantage of distance and limited transportation routes between some communities. But, I could quite well imagine people telling the government F-U, and just driving around any road blocks (it's hard to seal off every road). I guess time will tell how well this will work in a modern liberal democracy.... SJ

Frankly, I don't know how the holdco will finance its activities in 2020. Working from memory, it's been a decade or so since FFH published an unconsolidated holdco income statement, so we don't have much visibility on what they are doing. But, short of going back to the old sources-uses analysis, this is what I think we know: Sources: -the revolver and whatever new debt FFH might float ~$2B -Riverstone proceeds ~$600m -subsidiary dividends (see page 95 of the AR for capacity) -management fees (Fairfax India, Africa, and whatever Hamblin Watsa gets for managing the subs' portfolios) -interest and divvies on the holdco's $1.1B balance (less than $50m?) -divvies (if any) from non insurance companies (zero?) -tax loss carry-forwards (zero?) Uses: -Common and pref divvies ~ $300m -Holdco interest payments = $4.1B debt x weighted interest rate = ~$250m -Operating expenses -purchase of minority stakes (Brit ~$100m, Allied in next 3 or 4 years ~$1.5B) -stock buybacks (zero?) So, how does it shake out? My take is that the holdco needs at least $700m in 2020. They've taken $300 from the revolver and are getting $600 for Riverstone. Is that how the year shakes out? If they want to pay back the revolver then they likely need some divvies from the subs. ORH has some cash, Allied has some cash....but if you need $500m from the subs, you'd need to draw from the less capitalized subs (in actual fact, they took a divvy from C&F in 2019, but then they injected an offsetting capital investment...not sure I understand that). This was all much clearer when they published a hold co income statement. But, then again, those were the bad old days. SJ

I referred to them as "shit-holes" last year, so I didn't want to be repetitive. :D

I do it every year. Just grab your total interest expense and plunk it in. CRA has never questioned me about it. SJ

We kicked the ball around a bit when Q4 numbers were released in mid-February. It's nice to have gotten the A/R to get a more fulsome picture: 1) General comments - Nice to see double-digit increases in Net Written and hopefully the pricing environment drives better CRs, but unfortunately the interest rate environment over the coming months does not look favourable. This was always the risk of the move to a tight duration that was initiated two years ago -- in a rising rate environment, FFH would have come out ahead, but pandemic-phobia is that slightly unexpected grey swan. The question is how long these silly low rates will last...a poster last week compared them to crack cocaine and I can't really say that I disagree. 2) International insurance companies - For the second consecutive year, Prem has dedicated a considerable amount of ink to the international insurance companies (see page 6 of the AR). For a second consecutive year, that all of that ink seems to be an attempt to put a positive spin on a collection of pretty shitty CRs. And for the second consecutive year I will observe that those subs should be considerably more profitable. Seriously, if FFH is going to invest capital in banana republics like Columbia or Chile, or in the potential kleptocracies of Eastern Europe the investments should at least be quite obviously profitable. Much is made about premium growth, but in most cases the CRs are so high that the value of underwriting growth is dubious. Interestingly enough, unlike last year, FFH did not provide a break down of the international sub profitability this year so it is no longer possible for us to assess whether the investment returns are an adequate enticement to accept this collection of disappointing CRs. Should we take Prem at his word that these subs are valuable contributors? 3) Included in the table of international insurance companies was a bit of disclosure about GroupRe, probabably because it is domiciled in the Carribean (again see pages 6 and 7 of the AR). GroupRe put up a 96 CR, in large part by re-insuring a portion of the other subsidiaries' books of business. Prem goes on to note that GroupRe has racked up a CR of 88 over the past 5 years by re-insuring portions of the other subs' underwriting. That's pretty good, but if reinsuring FFH's book is that lucrative, it does call into question whether FFH isn't ceding too much premium to reinsurers (invert, always invert!). Would an extra $1B of capital scattered amongst the primary subs result in a similar level of profitability? Obviously you do need some amount of reinsurance, but maybe the current attachment points don't offer particularly good value? 4) When does Farmers Edge start to make money for FFH? - It has lost about $1.50/sh for each of the past two years (see page 183). Did this investment ever fall within Prem's circle of competence? 5) The Loss Triangles - it was nice to get updated loss triangles because they are essential to better understand what's going on with UW (see page 79 of the AR). As I have observed on several occasions over the past year, favourable development has been chronically ridiculous, regularly clocking in at 10% of reserves. All of that came to a screeching halt in 2019, with only $100m of redundancies on $29B of reserves. The decline has actually been a bit more gradual than it appears, if you strip out the impact of currency translation and getting slapped in the head once again by APH (it's really a "gift" that keeps on giving...how much of the APH liability is related to the TIG and C&F acquisitions?). Stripping out those two factors, the change in favourable development isn't so bad. Once again, this year I would note my disappointment about not getting the loss triangles for each of the major subs....somehow I suspect that C&F's is a bit of a shit-show, but we'll never know. 6) Capital adequacy / underwriting capacity - Prem trotted out his usual bravado about FFH's financial position being rock solid (see page 20 of the AR), but I'm not sure that I like everything that I see. The holdco is down to about $1.1B in cash, so it will need a fair infusion of divvies from the subs during 2020. On page 95 of the AR, the dividend capacity of the major subs is depicted and the lion's share is found in Allied World and ORH. It is quite likely that the holdco will need to draw at least some divvies from NB, Brit and C&F during 2020. However, on page 195 of the AR underwriting capacity is described through a table which displays the existing premiums to statutory capital ratios. C&F, NB and Brit still have room to grow their book, but it would be disappointing if FFH were forced to draw $200m or more of divvies from those subs during 2020. It has been years since I have fussed about the holdco's liquidity and prepared a cash sources-uses analysis, and I really hope we are not headed back into that world. There will be cash coming down the pipe shortly from the Riverstone sale, and there will be cash used to buy up some of the minority stakes in 2020, but let's just say that Toronto and Omaha have different preoccupations when it comes to the cash balances. 7) Drawing on the revolver - continuing from the previous observations on capital adequacy, I found it interesting that FFH drew $300m on its revolver in Q1 (see page 88 of the AR). I expressed a bit of bemusement when FFH renegotiated a $2B revolver 2 years ago when the holdco was swimming in cash, but observed that the best time to obtain revolving credit is probably a time that you don't really need it. But, why did they draw the $300m and is it the plan to continue to draw on that revolver rather than to dividend money up to the holdco? 8) Euro denominated debt - It's neither here nor there, but I found it a bit strange that Prem dedicated some ink to the fact that FFH issued Euro denominated debt (see page 20 of the AR). It makes perfect sense to issue some Euro notes as a hedge if you expect to have Euro denominated income. But it seems a bit strange that notes for 750m Euros would merit mention, particularly when FFH had French Franc denominated notes decades ago. 9) Legacy debt interest rates - it's nothing new, but while reading the financials I always look at the note about historical debt issuance (page 86 of the AR). Zenith still has debentures on their books that mature in 2028 at a 8.55% interest rate and the holdco has notes outstanding at 8.40% interest. It's amazing how much the operating environment has changed! If you floated debt at 5% today, we would say that you had gotten scalped! 10) What caused pension assets flop in 2019? - On page 97 of the AR the financial situation of the pension plan is depicted. The fair value of pension plan assets declined from $727m to $606m during 2019. That's only $4 or $5 per share, but what the hell is going here? How did FFH manage to register a decline in the value of pension assets during 2019? Were there *any* asset classes that declined in 2019? Seriously, Prem's dog could have chosen a portfolio of stocks and bonds by shitting on the investment pages of the newspaper and those securities would likely have registered a gain in 2019. 11) Is FFH reaching for yield? - On page 109 of the AR, fixed income ratings are depicted. In 2019, 66% of fixed income was rated A level or higher, while in 2018 74% of fixed income was A or higher. Some of this was due to moving from fixed income to cash, but there does seem to be a bit of a move down the credit quality scale. IMO, this is not the time to reach for yield because you really don't get paid to take on the credit risk. 12) What the hell is going on with duration? - On page 114 of the AR, the interest rate sensitivity chart is about our only insight on the duration of the fixed income portfolio. What is going on here? There is an asymmetric impact of interest rate changes. A 200bp increase wacks the FI portfolio by $463m, but a 200bp decrease is a $696m gain. 13) More adverse development from Allied (see page 174 of the AR): Are there still more skeletons in the closet, or what is going on here? Anyway, that's my stream of consciousness. SJ

You are correct, but I would add a bit of precision. It's not management that benefits, its FFH that benefits via the performance fee. That's might be trite, but I make that point because it is important to recognize where Prem's financial interest resides. It resides in the performance of FFH shares, not FFH India. I am certain that people are tired of me dredging up the ancient past, but this is nothing new. When FFH bought out ORH, we did not really have a fully independent management cadre or board of directors to ensure that ORH shareholders received full value in that buyback. Prem had access to a larger collection of ORH financial data than did minority shareholders, so we did not know at the time that he was effectively buying ORH at book value (although as Chairman of ORH, it is almost certain that Prem would have been aware of that). Okay, it mostly worked out. Most of us made good money on ORH, but I remain unconvinced that we received a fair price for our shares. The lesson here is that if there is a divergence between Prem's personal financial interest and your personal financial interest, you would be well advised to consider measures to ensure that your interests are well aligned with his. Do I need to dredge up Abitibi Bowater? It's basically the same conclusion. Understand where Prem's financial interests reside! SJ

Clearly there will be some heart-wrenching decisions on the front lines. SJ

That is interesting. In general, I have always understood the driving principal of triage to be that the sickest should be given priority for treatment. But, with a shortage of ventilators, is that the best allocation of resources? Or should the limited capacity be dedicated first to the patients who have the best prospect to respond to treatment? SJ

No, the concept simply shows that if you can squish down the curve, you get benefits, which is hard to understand for the "well, the genie's out of the bottle, it's all pointless, nothing to be done" crowd. Not shown on the graph is also the possibility of a vaccine, so you could draw a vertical line at some point, and the part of the cruve that gets squished past that line could also have it a lot better by vaccinating the most at-risk populations. You do not need to be insulting or condescending simply because others view the situation differently from you (I have generally found that it is best not to assume that I am the only one who has found Jesus). It is a completely valid thought process to question the potential efficacy of prevention measures and to advocate for preparedness measures, which might have a more tangible outcome. If you are in the camp that you expect 80% of your cases are of the mild variety and that those 80% of people will largely continue with their day-to-day life, there's a limit to changing the shape of that curve. If you are in the camp that the development of a potential vaccine is likely to take 12-ish months, ramping up production of it another couple of months, and then actually getting people vaccinated yet another couple months, then the vertical line appears in exactly the correct place on that graphic....which is to say that it appears so far to the right hand edge of the timeline that you cannot even see it. We should certainly hope for a vaccine, but you are far better off to plan to not have one for the next year or year and a half. SJ

The graphic is an illustration of a concept, not a prediction or data about current levels of anything. I thought that was incredibly obvious so didn't think necessary to mention. Of course it's a concept. But, it is essential that we not simply drink the Kool-Aid that preventative measures will be adequate to ensure that demand does not outstrip capacity. The graphic was conveniently drawn to give that impression (and maybe that graphic would be realistic for some countries with greater capacity). But, let's get real here. In Canada we have 2.5 hospital beds for every 1,000 people. That's 2.5 beds for available for all maladies, including cancer, heart attacks and car accidents. If you are in the camp that expects 60%-70% of your population to catch this in the next 18 months, and if you believe that about 10% of those who catch it will spend 2 or 3 weeks in the hospital, we will almost certainly not have anywhere near adequate capacity. Hence my suggestion that the capacity line for Canada should likely be drawn through the word "Measures" in the blue curve. There's nothing wrong with prevention to change the shape of the curve, but it doesn't really change what is coming. At a certain point you need to start thinking of ways to push the capacity line a bit higher... SJ

My view, with respect to a virus, is it constitutes all the available resources of a country that can be harnessed to ensure it is managed as well as possible: you do whatever it takes as a nation to avoid the red coloured curve in Liberty’s chart. King County is now buying motels to house the surge of people who need to be quarantined. That motel is now part of the health care system. Creative solutions will be found. For that county, perhaps it will soon be time to close a few schools so they can be converted into temporary hospitals. If we are lucky, hopefully we will be able to scoot through until late May or early June without needing to generally do that kind of thing. Chopping 3 or 4 weeks off the school year isn't the end of the world, but it would be nice to not chop 3 months off the school year. The return to school in September should loom large in our minds. SJ

+1; a picture is worth a thousand words. Now we just need to get this picture out to the politicians. Well, that's a nice graphic that depicts the theory of taking protective measures. Conveniently, the that graphic the protective measures are just adequate to not outstrip the capacity of the health care system ;D . But, Castanza's question is the right one. "What is the capacity of the health care system?" Our dirty little secret in Canada is that we surpass our system capacity nearly every winter when flu season hits its peak. Principally older people become ill and require hospitalization and, most years, we have more patients than we have beds resulting in people being treated in hallways. That graphic almost certainly does not fairly depict what will happen in Canada with Covid-19. Demand will likely exceed capacity relatively early in the outbreak, and there will likely be inadequate hospital capacity for a number of consecutive months. If I may be permitted a bit of gallows humour, our only saving grace will be that there might be a considerable number of long-term care spaces that become available over the period of the outbreak... For Canada, re-draw that schematic with the system capacity line going through the centre of the word "Measures" and you might have a fairer depiction of what awaits us. SJ

I can't! I think both countries should be limiting travel internationally for at least a few weeks. Citizens returning from overseas (particularly problem areas) should be quarantined and tested. Yeah, me too. They should be blocking international travel. BC has had better testing than the USA, but the federal government doesn't seem to be able to walk (deal with blockades) and chew gum at the same time (implement anti-coronavirus strategies). I think the problem is that Trudeau generally cares much more about people's perceptions of him than concrete solutions to real problems. No_free_lunch, you believing that criticism of the US response indicates support for the Canadian response is most likely a result of your bias. Travel restrictions are hard to impose on Canadian passport holders. It would be possible to try to implement a quarantine against a Canadian citizen travelling from an infected country, but I am guessing that would be relatively easy to circumvent because people can take a two or three stage trip through uninfected countries and we wouldn't necessarily know (eg, travel from China to Dubai on a foreign passport, and then from Dubai to Frankfurt to Toronto on a Canadian passport). However, it would be possible to immediately suspend all 10-year multiple entry visas for certain foreign passport holders. We cannot deny Canadians the right to return to Canada if they present a valid passport, but we have no obligation to allow foreigners to visit. SJ

There are a number of people in this thread who are emotionally invested in this issue. Personally, in the past, when I have become emotionally invested in certain discussions, I have found it valuable to withdraw from discussions on the internet for 7 or 10 days as a cooling off exercise. A little distance does a lot of good. SJ Nah, it's my education & training as engineer + physician that has me concerned. But not a bad idea about stepping away for a while like I did in the TSLA thread. After all, if I am right, I can come back and LMAO again. So yes, peace out and see you in 30 days. Do not laugh your ass off, whether it turns out either way. There are plenty of bright people who have different takes on this situation characterised by uncertainty. Some people's assumptions will turn out to be wrong, ex post, but that does not make them bad analysts or bad people. Peace. SJ

There are a number of people in this thread who are emotionally invested in this issue. Personally, in the past, when I have become emotionally invested in certain discussions, I have found it valuable to withdraw from discussions on the internet for 7 or 10 days as a cooling off exercise. A little distance does a lot of good. SJ