StubbleJumper

Always regard wealth statistics with a grain of salt because they are usually generated through surveys. So the questions are, "What do you figure your house is worth, what do you figure you've got in the bank, what are your stocks worth, do you have any debt and how much?" People answer to their best ability, but most people are woefully incapable of accurately estimating their net worth because they don't understand the value of their pension, or the survey might not even ask about their pension. We, on this site, know that pensions (both public and private) are a very large asset for almost everybody in North America. So, assume that there is zero value assigned to pensions in those statistics. Do the mental arithmetic about what a basic public pension is worth: Canada: Canada Pension Plan maximum monthly benefit (age 65): CAD$1,134.17 Old Age Security maximum monthly benefit (age 65): CAD$586.66 Total maximum monthly public pension: CAD$1,722.83 US Social security maximum monthly benefit (age 65): US$2,589 So, for somebody with a decent income, the annual public pension is about US$14k higher in the United States. Do your mental discounted cashflow thing, informed by life expectancy, and you might conclude that the maximum US public pension is worth US$100k+ more than the maximum Canadian public pension. And it's likely that a value of zero has been provided by survey respondents in both countries. Your wealth gap suddenly disappears and it even pivots in favour of the United States. Anyway, all of these reports are interesting, but we need to be pretty cautious about the interpretation. SJ

So, try to engage people with courtesy and dignity. It doesn't always work that way, but if you succeed almost all of the time, your digital footprint is not an albatross around your neck. The use of a basic pseudonym is also a straightforward way to discourage anybody but the most enthusiastic of sleuths. Sanj knows my true identity, but I don't worry about it. If it's revealed, it's revealed. I have little to hide. The pseudonym has been appropriate to insulate my former employers from whatever I post on the internet, but it's not the end of the world if that anonymity is lost. SJ

The EU tariff on cars is 10%, not 25%. The U.S. charges a 2.5% tariff on cars and 25% on light trucks, aka "the chicken tax". https://en.wikipedia.org/wiki/Chicken_tax Sugar supply management in the U.S. is a good example. Why? Because the system is very similar to dairy supply management in Canada. http://www.aei.org/publication/the-farm-bill-and-the-sugar-program-time-for-reform/ Sure, there are high US tariffs on sugar and peanuts, but that's not the end of US protectionism. Let us not forget their efforts to put in place Country of Origin Labelling for meat products where every meat item in a grocery store was supposed to be labelled as "Born in country X, raised in country Y and slaughtered in country Z." That nonsense effectively meant that US packing plants had to segregate Canadian born or Canadian raised animals from their US counterparts. It was a logistical nightmare and some packing plants just said, "screw it, too complicated." And that's to say nothing of ground beef or pork which is made from the trimmings of multiple different animals. Then, there's the Buy American regulations for government procurement which excludes Canadian vendors. Protectionism takes many forms. The President has focussed on a single class of Canadian products (dairy) as an example of egregious Canadian protectionism, but there are a great many examples of outrageous US protectionism. If the US seriously wants to drop all of its tariff AND non-tariff barriers, it should come out and say so, loud and proud. "We will drop all Buy American provisions, all other non-tariff barriers, we will open the TRQs and drop the over quota tariffs on sugar, tobacco and peanuts if the Canucks open the dairy market." But, Trump knows very well that congress would never accept that arrangement. SJ

I would agree that Canadians are being screwed by the dairy farmers and most are blissfully unaware that it's even happening. The sad part of it is that higher dairy prices disproportionately hurt the poor and lower-middle class because they are the ones who have kids drinking milk. It would be beneficial to 99% of Canadians to undertake domestic policy reform to eliminate supply management. Now, turning to the question of trade agreements and the noise coming from the US dairy industry, I would issue my typical warning to Americans and Kiwis who lobby to open the Canadian industry: At this point, Canada does not export a meaningful amount of dairy products because supply management is intended to balance supply and demand for Canada's domestic needs only. Kiwis and Americans should be damned careful about what they ask for. At the moment, the US and New Zealand are effectively the only real competitive players in world export market for dairy products. They have that market sewn up, and with the speed at which demand from China is growing, it's a market with a pretty good future. When the US and New Zealand industries ask that Canada dismantle supply management, they are shooting themselves in the foot. Sure, they'll get access to a small-ish market of 35 million people, but they should think about the supply side. Canada is a *huge* exporter of nearly every agri-food product that can be effectively produced in a cold climate. If we take the hand-cuffs off our dairy industry, there is considerable potential for the establishment of large-scale, low cost-of-production dairy operations here and these operations would be free to export on the world market. Production from Canada would likely *increase* after the elimination of supply management, which would actually be counter-productive for farmers in the US and New Zealand. So, they should be careful what they ask for... As a consumer, I'd love for that Stalinist system to be eliminated, but exporting countries are making a mistake if they assume it would be beneficial for them. SJ

Okay. From a risk management perspective, do you have a view point about the appropriate position size? I have certainly made my views clear about the difference between ploughing $1b into RIM vs ploughing $1B into JNJ....as well as the difference between investing $500m in Bank of Ireland and having it grow to $1B+ vs investing increasing amounts of capital into a posiiton. So, does $1b in seaspan make sense, or should they bump it to $2B (basically full ownership)? Is this a prudent investment at its current sizing and does it ever become imprudent? SJ

Well, as I understand it, the book value of the investment currently sits at US$500m in debt and now US$500m in equity for a total of US$1B. Market value should be ~$500m for the debt and now ~$700m for the equity plus the new warrants that have been granted are worth ~$25m. So, FFH has dedicated $1b of shareholders' capital to Seaspan and that investment now has a market value of ~US$1.225b. That's a pretty good short-term return. But, returning to the question of position sizing, the current market value of the Seaspan position is getting pretty close to the amount that was invested in BlackBerry and it's pretty close to the position size of the Bank of Ireland before FFH trimmed it. My take is that they've put about as much capital into Seaspan as would be wise and that they should think hard before adding more (other than a couple hundred mil to exercise their new warrants in seven years).

This is encouraging. The Seaspan debt is still performing, and now FFH is up ~US$200m by exercising the warrants and they get another batch of warrants with an intrinsic value of ~US$25m. That's a tidy profit in a relatively short time-frame. So, with US$500m of debt and a commitment for ~US$700m market value of common shares, how much more should FFH invest in Seaspan? What's an appropriate position size? I'd say it's about as large as you'd want to see for that type of investment. Happily, the additional 25 million warrants have a 7 year expiry, so there's no rush to sink more capital into seaspan than the US$1B that's already been committed. SJ

need a subscription to read this article? Open it in an incognito window (that's the term in Chrome, I think it's a "Private Browser" in Firefox) SJ

So according to you, he should simply "put an outrageously large one time payment together" (that likely represents a lifetime of saving+patience+discipline+foresight+risk taking+luck, that may or may not be repeated in the future) without thinking it through...just because...he's crazy smart and figure out to make money back in the future? And also because "kids are more important" ? Okay, I should just mind my goddamned business, but... The short answer to your question, is yes. My rough memory is that Eric had $15-ish mil a few years back, which should still be mostly intact. So, what does a divorced guy truly need? If he can get by on 33% of the family wealth and still has the talent to grow it, then maybe Dazel's viewpoint is not Bat-shit crazy. If offering her $10-ish mil makes the child custody thing go away, why would a guy not keep $5-ish mil and joint custody of the kids? When you get right down to it, what else do you have other than family? I'd say that Dazel has a legit viewpoint, even if the lawyers would shit a brick by even thinking about it. The other bat-shit extreme approach would be to threaten the wife that Eric could go for full custody and then move the kids back to Australia. It's the old Clint Eastwood question for the wife. "You've got to ask yourself one question: "Do I feel lucky?" Well, do ya, punk?" Wishing all the best to Eric in a shitty situation. SJ

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets. The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso! I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong. Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest! Well, I mostly agree with that. But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment. Essentially PPP is fundamental analysis performing a relative valuation of two currencies. My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years. So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon). Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade. That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP. SJ That's why you leverage the currency trade using futures OR the currency isn't the investment. I use opportunities like this to pick up foreign assets on the cheap. Typically when the currencies are cheap, it's due to capital flight, which means risk assets are cheap as well. So don't buy pesos - go on hunt for risk assets denominated in pesos. Using $ to buy cheap assets means you get the same typical appreciation when the recovery occurs, but also the 20-30% currency kicker compounding the gains on top of that. There were some large, recongizable names in Brazil/Russia that returned 300-600% in USD terms in the 12-18 months following early 2016 due to the dramatic revaluation in earnings multiples AND currencies. Yep. I do that for CAD/USD. Try to find something cheap to buy using the currency that's also cheap. Easier said than done, but if you can find something cheap, it's nice to not be taken out behind the wood pile when the currency reverts. SJ

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets. The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso! I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong. Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest! Well, I mostly agree with that. But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment. Essentially PPP is fundamental analysis performing a relative valuation of two currencies. My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years. So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon). Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade. That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP. SJ

From where would they take $3-4B? Last I looked, there wasn't a whole lot left in the 5+ year maturity range. I guess they could liquidate that last little bit and move it to short-term, but my sense was that the job was pretty much done. I was a bit surprised about how fast they were. SJ Cash/equivalents? I'm assuming most of that is much shorter than 24 months. Are we not assuming that most of that cash is earmarked to buy-out the minority positions in some of the subs, and this will likely occur in less than a 24 month horizon? SJ FFH had $17B in subsidiary cash at the end of Dec 2017. Then FFH had $12B in subsidiary cash and cash equivalents at the end of the most recent Q. So, lots of cash sitting there waiting for a higher yield Referring to Note #5, yes, there were about $6b in US treasuries that were <1 year, and presumably those will be rolled over into some other US short-term treasuries....whether it's <1 year or 2 year treasuries is the question. I don't see them doing anything with the actual cash, however. There was $6b of actual cash, but the holdco cash is probably earmarked to buy the minority positions in the subs and for general liquidity and the subs' cash is for liquidity, so I don't see much prospect for that to be moved into 2-yr.

From where would they take $3-4B? Last I looked, there wasn't a whole lot left in the 5+ year maturity range. I guess they could liquidate that last little bit and move it to short-term, but my sense was that the job was pretty much done. I was a bit surprised about how fast they were. SJ Cash/equivalents? I'm assuming most of that is much shorter than 24 months. Are we not assuming that most of that cash is earmarked to buy-out the minority positions in some of the subs, and this will likely occur in less than a 24 month horizon? SJ

From where would they take $3-4B? Last I looked, there wasn't a whole lot left in the 5+ year maturity range. I guess they could liquidate that last little bit and move it to short-term, but my sense was that the job was pretty much done. I was a bit surprised about how fast they were. SJ

I don't doubt that at all. But, what will be the potential savings? A typical train might move 10,000 tonnes of freight and it requires how much labour to operate? Are there three guys in a train these days? So, if you eliminated those three guys, you'd save perhaps $100/hour each, or $300/hour total? So, you might save $300 for every 600,000 tonne-miles? Those savings don't strike me as a game changer. Eliminating human error from railway operations, however, is probably a good thing. SJ

Beating the market? You would think that the typical denizen of Detroit is prosperous from that video! You would also think that the typical Detroiter is walking around with bricks of cash and Detroit is the place to be! To be fair, carrying bricks of cash is only for the weekends and holidays....NOT everyday. ;) You guys don't have banks out there in D-town? 8) To be fair, if you were a banker, would you underwrite mortgages in Detroit? :P

Maybe, but you don't even need any alpha to amass money like that. Just be a prodigious saver early in life, keep your costs low and if you get average returns the compounding takes care of everything else. So in your link, the secretary was 96 years old? Some of her money must have compounded for ~70 years? Not a surprise that the end result was significant, even if there was no alpha at all. SJ

Never in my life have I owned 30 stocks [*edit* at any one time]. But, then what do I know? SJ For a while I owned 30+ small banks alone. I've since trimmed it down. Just counted, just shy of 40 positions. To each their own...if you can beat the market to your satisfaction with a few positions then more power to you. I'll add a caveat, I own a business, and the value of the business dwarfs my investments. So in a sense I'm very concentrated in a single illiquid position, but I can control this position whereas in the public markets I don't control anything I own shares of. Yep, and for me a quick count yields 14, of which 2 are special situations which are (hopefully!) short term in nature. But hey, it's worked for me. I'm normally damned happy if I get two great ideas per year. Some years I don't get any great ideas and I just shlock along adding money to things like WFC or BRK. SJ

Never in my life have I owned 30 stocks [*edit* at any one time]. But, then what do I know? SJ

That's funny. My #1 advice for learning to beat the market is concentration in high conviction positions. Don't waste capital on your 27th best idea. Cheers. SJ

A couple of observations: 1) You wouldn't need a convoy of 100 trucks because you could just as easily have 15 convoys of 7 trucks. 2) If trucks ever get automated, there is an excellent opportunity to *decrease* their individual weight because there's no meaningful labour advantage to having one truck instead of two. That might actually reduce the damage that heavy trucks are currently doing to the road. Bullshitting just a little bit more, charging a per-mile toll for trucks becomes relatively straightforward if they are fully computerized and that might even give states the opportunity to put in place time-of-day road pricing (ie, if you want to send your autonomous truck down the turnpike at 8am, it'll cost you 40 cents per mile, but if you do it at 1am, it'll be 1 cent per mile). SJ

I'm not familiar with the costs in these industries, but they cannot beat rail at energy efficiency. Platooning only results in about a 20% reduction in drag (http://www.extremetech.com/extreme/241442-mit-study-driverless-truck-platoons-will-save-fuel-money-especially-tailgate). Rail is more efficient mostly because of the coefficient of rolling resistance of the best pneumatic tires on tarmac is about 2.3x that of rail. A fully-loaded semi uses about half its power overcoming drag, and about half overcoming rolling resistance. Interesting. So, if you accept the proposition that the speed of a driverless truck could be dropped from 65 mph (110 kmh) to 50 mph (80 kmh) without really affecting delivery times, you would save what, 20% in fuel use from the lower speed? And then in a convoy you are saying that there would be another savings from reducing drag? That 4-to-1 fuel advantage that WEB referenced in years past might drop to 2.5-to-1 or something like that? Interesting. SJ

Well, I'd say a great burger compared to what? In the 1970s and early 80s, McDs was about the only game in town for a burger. Sure, you could go to a mom and pop diner and get a burger, but my memory is that there wasn't much competition. And their fries, which were cooked in tallow, were uniquely good. Fast forward about 30 or so years, and burgers are a big deal in North American cuisine. Any decent sized city has boutique burger joints which sell an outstanding burger, as well as any number of chains which are positioned higher in the market than McDs (Five Guys, etc). It's pretty easy to find a burger that blows the snot out of McDs, but you need to be prepared to pay a little more and you need to be prepared to wait a little longer. When I travel by car, I make extensive use of McDs because I know exactly what to expect: a passable burger, clean washrooms, decent coffee, fast service and a relatively low price. It's perfect for when you are on the road but it's a bottom of the barrel option for your home city. SJ

Thanks, that's helpful. so they've probably locked in a YTM a shade better than 2%. And it'll likely be higher when the capital is re-invested next winter. SJ

I was a little surprised to see that FFH moved ~$5b from cash equivalents into treasuries. Looks like they are mainly 1-5 year treasuries, so that would likely be a YTM of what 2%, 2.25%? So, that's probably $100m annually of incremental income. It was the right thing to do, but I'm surprised that it was done with such conviction (ie, magnitude and speed). There's a good chance that these expire in 2 or 3 years and will be re-rated favourably as interest rates climb. I'm not sure that I like the underwriting results. During the last conference call, Prem spoke of rate increases for renewals, but given the accident year CRs, you'd be hard pressed to see the benefit of any rate improvements. Renewals are stronger in Q2, so maybe things will get better from here? SJ