StubbleJumper

I too read this as a new Czech nympho....but after reading it more carefully, it's a much less interesting Christmas wish!

IBM

Ummm. How about BAC at $25? ::)

I'm sorry SJ but I have to disagree with you. Banning incandescent is a sensible policy because of the sheer volume of energy wasted in lighting. There are equivalent solutions on the market that not only last longer but also reduce the energy bill. Think of the amount of coal wasted because most people just don' know the more efficient solutions are worth it. Also, I have not looked at the detail of the law but it's probably aimed at the retail market. Nobody stops you from buying from a distributor or online. BeerBaron [/quote “No tendency is quite so strong in human nature as the desire to lay down rules of conduct for other people.” William Howard Taft Amen. My neighbour has the right to engage in the wasteful silliness of using copious quantities of electricity to heat a swimming pool in the northern latitudes, but I no longer have the right to buy a goddamned 100 watt incandescent lightbulb so that I can quietly read a book in my house using the type of soft light that I like to read with? And the government cannot even lay out the principles that gave rise to this policy so that we can apply those principles equally, consistently, and coherently across the products and across the economy? If the most efficient appliance is to rule the day, then goddamnit, insist that the most efficient device be used everywhere and always instead of cherry-picking. If electricity consumption is the problem, then tax the hell out of it in the Pigouvian tradition, but DO NOT usurp my right to choose in a random, incoherent manner.

I use CFL bulbs in a few places in my house (because I'm a tightwad bastard careful with my money), but as a matter of principle I oppose banning incandescent bulbs. It is completely offensive to me that governments have the audacity to take away my freedom to choose the bulb that I want without having articulated any coherent public policy objective. If the concern is that we collectively consuming too much energy, or collectively emitting too many greenhouse gases, then take a coherent approach and consistently ban the most wasteful and least energy efficient devices. So, if my incandescent lightbulbs are banned for being the least efficient lighting option, then my neighbour's Lincoln Navigator should also be banned for being among the least energy efficient transportation options. And my neighbour's pool heater, which consumes as much electricity as all the bulbs in my entire house, should also be banned. This nonsense of selectively (randomly?) banning products constitutes nothing more than populist pandering to the environuts.

Well, I would also add that he is actually holding a lot of cash (30% of portfolio!). So, he has opted both to retain some exposure to his alpha and to get some of the stability cash provides. At least, this is how I see it. :) Gio As many of us observed during FFH's lean years, when you are dealing with a holding company that is an umbrella for several subsidiaries, sometimes cash is not located exactly where you need it. When you look at the consolidated balance sheet, there might appear to be plenty of liquidity but the holdco might be a wee bit short. During the lean years, one of the uncertainties was the extent to which the regulators would permit FFH to dividend funds up from its subsidiaries to the holdco. And then there was the black box of subsidiary capital adequacy, particularly for the run-off group. Prem pulled a number of rabbits out of his hat to keep the ship afloat, including IPOs of ORH and NB, a little financial wizardry to allow him to consolidate ORH for income tax purposes, and a couple of timely private placements of FFH shares (notably to Sir John). Having learned this lesson rather painfully, Prem is not allowing the holdco cash balance to be pressured. SJ

I can't really speak to Geico's operational efficiencies and whether they are fully replicable by other firms. The only observation is that a 92 CR and 5 percent investment returns leaves a fair bit of incentive for others to (unwisely?) bring new capital to the industry. The death-knell for good returns in the insurance industry are good returns. For this reason, even the old man would probably be happy with any sub-100 CR over the longer term and 92 is unthinkable (isn't it?). SJ

Okay, and what have you assumed about the portion of GEICO's capital that will be liberated as the aggregate premiums decline? If premiums go down by 75% then you can re-deploy 75% of GEICO's statutory capital to some other use. At a minimum, you'd need to value that liberated capital on a one-for-one basis when calculating intrinsic value in your second scenario. And it wouldn't be much of a stretch to argue that the intrinsic value of the re-deployed statutory capital could exceed 100% of its nominal value (assuming that there are decent investment opportunities that appear regularly over the next 25 years). The second observation is that it might be a stretch to calculate an intrinsic value of the float over a 10-year timeframe based on a 92 CR and 5% annual growth in float. In essence, there are a couple reasons why this is questionable: 1) underwriting quality tends to get undermined as you add market share which might imperil a 92 CR...and projecting 92 as a terminal CR is a bit scary; 2) market share starts to get very large as GEICO currently has about a 10% market share but 5% growth for 10 years would put it at around 16% market share. So if you tone down the assumptions underlying your IV and you redeploy some statutory capital what is the impact? A big earthquake? SJ

I don't think anyone is really arguing that insurance will go away entirely. Rather, the most expensive perils will drastically decline (ie, personal injury, followed by collision damage). If collisions are virtually eliminated, what's left of car insurance policies will essentially be the comprehensive portion (vandalism, weather damage, break-in, theft, etc) and an extreme tail-risk of a freak collision. Working by memory, for my car insurance the comprehensive premium is about 25% of my total premium. So what would this mean for Geico? Well if my rough estimate of a 75% decline in premiums is more-or-less correct and if the market size does not grow, that means that Geico's float in today's dollars, eventually needs to decline by perhaps 75% and about 75% of Geico's statutory capital can eventually be liberated and re-deployed to other uses. Working again from memory, Geico's float is about ~18-ish billion, implying that maybe $14.5B would eventually disappear (by about year 2037). I have trouble getting too upset about this prospect, as $14.5B of float is less than 5% of BRK intrinsic value, and the re-deployed capital will create some new intrinsic value to partially offset the loss of float. And none of this even begins to occur for another 10 years and doesn't fully kick-in until 25 years down the road. So there's a credible risk of less than 5% of intrinsic value disappearing some time in the next 25 years? Who really cares? That's just a bad west coast earthquake. SJ

If it's a mass-market item by 2022, then it won't likely be dominant on the road until around 2037 as the fleet ages and older cars are scrapped. So, we have about 10 more years of business as usual, followed by 15 years of transition as premiums drop drastically because the collision and upset portion will disappear. So what do you end up with? Perhaps in 2037 premiums in real terms might be one-quarter of the current aggregate amount (ie the comprehensive portion of existing policies), meaning that a pile of capital needs to be redeployed? I think I'll worry about that in 10 years. SJ

Great. Prem fell in love with RIM and can't get out, so now he must dilute existing shareholders while he tries to extract himself from this tar-baby. It's one thing to put another $250m at risk for the debs, but subsequent dilution is brutal. SJ

Sanj must really be chowing down!

Heavens, I made so much money off WCF-L, HBC-, ORH-A, TSX:CCS-E and a preferred that was issued by Epcor. Some of those purchases were just silly obvious as they were effectively a binary outcome of a return to near-par or a complete zero if armagedon of the financial system occurred. And if the financial system did totally blow up, would any financial asset have been worth anything? Effectively, had I been uncomfortable with any of the tickers that I listed, then logically I should instead have put my money into non-perishable food, ammunition and gold bullion! Good memories! SJ

Keep at it, Sanj. Mostly I make a pile of money when you over-eat! :P SJ

IMO, consumers are irrational. Everybody knows that a cup of coffee is not worth $5 and that the difference between SBUX and any number of competitors is marginal. But I chalk it up to a simple application of Veblen's theory of pecuniary expression and theory of pecuniary emulation. It's hard to act rich on major purchases, but it's easy to do so with minor purchases. Am I cynical, or do I just have no taste in coffee? SJ

Actually, I would have been happy had Prem quietly made some money for me rather than making a high-profile, but very dubious acquisition. I really don't care if the rest of the world knows who he is. Just do a solid job on capital allocation....which unfortunately is an open debate right now. :(

Yep. Hoisington might be right. And if he's right, FFH is well positioned.

I thought that it would be a book written by John Hempton or something. The world could always use another crime novel based on a real life story. :P

I've never heard of a tax liability for divvies in arrears. Generally, it would seem to run contrary to the doctrine of constructive receipt. SJ

WOW... What price do you think Fairfax will end up offering? Talk about telegraphing intentions. Edit: I only slightly kid. Let's hope you're wrong. The sooner that we're done with RIM, the better. SJ

The issue is that low inflation can quickly become deflation. Deflation is a nasty beast that drives both low interest rates AND low P/Es. The best work that I've seen on this was done by Ed Easterling. A nice little summary of how this works can be found at: http://www.crestmontresearch.com/docs/Financial-Physics-Presentation.pdf Cheers, SJ

Wow! They still figure that treasury rates have not bottomed out....and they've constructed a well-thought argument to support that view. If they're right, then Prem is guiding FFH's portfolio perfectly. Thanks for reminding us that the letter had been published. SJ

IMO, we should expect approximately zero from the lawsuit. The value of the lawsuit is: Probability of winning the case * Probability of winning the inevitable appeals * Settlement awarded * Percentage of award actually collectible / (1 + r)**n - Legal costs So, plug in your own parameters. Maybe a 50% chance of success on the case, and 50% chance on the appeals? Maybe $4 billion award? Maybe SAC will go BK so that only 10% of the award is actually collectible? And maybe you don't actually get the money until 2023, so discount that at 10% per year. If those BS parameters are correct you are left with a present value of: .50 * .50 * $4b * .1 / (1+ .10)**10 - legal costs or, about $38m - legal costs. IMO, the lawsuit is nothing but a distraction. I'd rather have Prem's attention focussed on making me money! SJ

Gosh, there are so many things to do in Toronto. A few ideas: -catch a Blue Jays game at Rogers Centre...no risk of a rain-out! -visit the CN Tower if the skies are reasonably clear -the Hockey Hall of Fame is quite interesting -Art Gallery of Ontario -visit the provincial parliament at Queen's Park -attend a Toronto Argonauts football game (the Canadian football season begins in July!) -walk through Chinatown -- Toronto's is one of the largest in the eastern half of the continent -visit Castle Loma -go to see a play...Toronto has the third largest professional theatre scene in the English speaking world (after NY and London). Currently the Wizard of Oz is playing in one of the Mirvish theatres. -take a two-hour cruise on Lake Ontario. -visit the Toronto zoo There's lots of stuff to do! SJ

As a simple observation, we already have this model -- they're called taxis. The difference is that our current taxi regime requires two full-time drivers. So your argument is effectively that the cost advantage of replacing two full-time taxi drivers with Google navigation will be sufficient to entice the population to abandon personal car ownership? While I love your thought process, I don't buy the conclusion. In metropolitan areas, there is already plenty of incentive to use taxis over personal cars even with the cost of two full-time drivers per taxi (ie, $40k/year each). But how many people actually respond to that existing economic incentive? Only people who are seriously budget-constrained or people who just cannot get parking at a reasonable price.... SJ