StubbleJumper

I'm not sure that financial resources are such a constraint (I made this same argument last summer when we were speculating on the potential of buying ORH). My take on FFH's cash situation is: Current Hold-co cash Hold-co cash as at Sept 30: $2,340 (from Q3 report) Less: ORH payments ~-$1,000 Dividends ~-250 Redeem A&B preferreds ~-150 Corporate Overhead ~-30 Add: Issue C preferreds ~+250 Issue E preferreds ~+200 Hold-co Cash as of today (before subsidiary dividends): ~$1,360m Potential Subsidiary Dividends Beyond current cash at the holding company level, there is significant dividend capacity at the operating subsidiaries. In particular, last year's A/R showed that the net-written : statutory-surplus ratio was 0.7 for ORH and 0.8 for C&F. Those two subs could issue a dividend large enough to take them to a 1.0 ratio without the regulators batting an eye. Conservatively speaking FFH could pull dividends out of the subs of the following magnitude: ORH $500 C&F $250 NB ??? Total: $750m+ In conclusion, if you take the holdco cash and augment it with subsidiary dividends, it is not inconceivable that FFH could have a war-chest of $2.1B at the hold-co level. That's roughly enough to buy ZNT and still have adequate liquidity. SJ

Yeah, its already expired. It would have shown up in item 6 of the filing had it still been in effect. I believe it expired in 2006. As for a new sub, keep in mind the size of zenith, the current size of the FFH ownership stake, and the current multiple to book of znt. In other words, I wouldn't go out and buy call options just yet, but who knows. I'm getting a market cap of about $1B, of which FFH already possesses 10%? So the remaining 90% would cost them $1b*90%*130%, assuming a similar premium to NB and ORH. They just issued a nice chunk of preferreds. ORH and C&F have just a silly dividend capacity..... Don't write it off! SJ

Yeah, ok, fair enough. ::) ::) KO was ridiculously overvalued, and BRK is just is the process of getting less ridiculously undervalued. The exaggeration aside, the point still stands. Once a security hits its IV there may be value in re-examining whether you should still keep it. In retrospect, I should have dumped BRK the last time the baby-Bs hit $5k. I don't want to make another error of omission. SJ

Don't even think about it unless you find something much better. Realize that BRK has been chronically undervalued compared to all other S&P500 cos. In the future, it's likely that the value of the cos in the index will no longer be a ceiling for BRK's relative price, but usually a floor if BRK continues to maintain it's superior economics after Warren meets his maker.:) Well, at what point do you sell? BRK goes through long cycles of trading at a significant discount to IV, and only occasionally seems to pop up near or above IV. If this is the case, it might be reasonable to expect that one could unload a position in BRK over the coming days (weeks?) at a price near IV and presumably be able to re-enter at some future point at a discount to IV. The alternative is a long-term hold, which would be ok too, but beyond tax considerations, I fail to see a reason to keep BRK once it's trading around IV. Looking back a few years, WEB made this very same error by not unloading BRK's position in KO when it was ridiculously over-priced....this cost shareholders untold millions. So if you wouldn't dump it in the $80s, at what point would you dump it? Put in a limit order for $120? $150? SJ

Can somebody refresh my memory? Did FFH have a "stand-still" agreement with Zenith? Has that agreement now expired? I'm wondering whether this might be the next subsidiary for them....

So I guess my question is how long do we hold out? I tend to think that IV might be somewhere around $150k for BRK-A, or about $100 for a B-share. The baby-b shares hit $77.50 yesterday. Do they have enough legs to hit IV over the next few weeks? I was of the view that I might unload my Bs at some price in the 80s, and then wait for an opportunity to buy back in later in the fall..... SJ

Excellent! Undervalued insurers are an excellent potential investment. Now, if WEB wants to buy more shares in an insurance company, I know of a great little operation that is undervalued, well-reserved, and has top notch management. It trades under the symbol BRK.B. SJ

Sure, Rent-to-Own is running a business, and some people like it and some don't. The irony about the blog is that a certain John Hempton from Platinum Asset Management asked a rather pointed question during a FFH conference call during the period that FFH was under attack by the shorts. Now, for the record, John Hempton was not named in FFH's lawsuit, but some of us think that his question was a little strange and it did cast aspersions on FFH. Happily enough, Prem pinned his ears back. Now, I wouldn't suggest that Hempton was a party to the short attack, but it is rather grand that 7 years later he would be posturing himself as an expert in values and ethics after having been ridiculously wrong on FFH.

On the Directions website, I found a link to the following blog by John Hempton in which he gets on a soap-box to decry the dishonest business practices of the "Rent-to-own" industry: http://brontecapital.blogspot.com/2010/01/sweetest-usurious-bastards.html I've seen quite a few strange occurrences over the past decade or so, but never in my life would I have expected to see John Hempton hold himself up as an authority on values and ethics! :o :o :o Interesting times. SJ

Devalued relative to what numeraire? The pound sterling? Gold? Or do you mean relative to "real goods" like apples or eggs?

Hmmm. I hope they don't waste the money on Canwest.....

Yep, the little bit that I added last week at $3280 is already up about 9%. Of course it probably needs to go up at least another 20% to get near intrinsic value.... I won't hold my breath! SJ

It's interesting, the price is probably going up in expectation that investors are going to pile into the B-shares once they're split. I think it might scupper a few plans if the newly split B-shares actually went down on the first few days of trading :D Good luck to anyone who thinks they'll make money out of this. I recently added a small amount to my BRK holding. In some respects it is a "heads you win, tails you win" situation. If there is a short-term price spike caused by the split, that's great because you can sell for a nice profit. Otherwise, you get to hold a wonderful under-priced security in a company managed by the best capital allocator on the planet. Seems like a sweet spot to me... SJ

Yep. California has some difficult decisions to make. Other states in the US may also have a tough time. Greece looks to be in a similar boat. Are there any lessons from the southeast asia currency crisis of (1998???) that we can use to make money in 2010?

Grenvillle, Thanks for the forensic accounting work! I'm not sure that I love the idea of pumping more money into MB, but this is a classic cigar butt investment. Not my style, but FFH might do ok with it.

If it comes into an account holding FFH.TO will be a Canadian account so i think they will ding us for the exchange. I cannot recall what happened last year. I may have held all my FFH.NY so it may have come over straight US$. Now I just hold all of it FFH.TO. I wonder if they could hold the US$ and transfer to my us account without the dingage! That's what I do...it's all held in my $US account so those $%^^#$% don't screw me over on the exchange rate. If I ever do want to convert it to $CDN, I'll have to suck it up. But I hate automatically getting screwed on the exchange rate.

I would suggest that the reason why there was such vociferous criticism of the ORH deal was that a great many people had significant skin in the game. For some of us, the impact of the takeover price (ie, $60, $65 or $70) had an impact of several thousand dollars...which provides an enormous incentive to bitch and moan! Further, some have hypothesized that FFH staff sometimes skim through this forum, so there may have been an element of certain posters wanting to send a message to FFH. In the case of CHK, very few people here have skin in the game. A few tens of millions amounts to bugger-all in the context of total market cap, so the effective impact on any one small shareholder is very little. It's hard get motivated to bitch and moan too much about wastage of 10 or 20 cents per share.... It doesn't make it right, but incentives do drive our behaviour! SJ

Ah, now that FFH is only on the TSX, will they move back to paying CDN dividends? Presumably they'll stay with $US because the majority of their operations (C&F, ORH, US run-off) conduct their business in $US, which they then dividend upwards to FFH. The advantage of FFH not converting the $US into a $CDN dividend is that a dividend in $US can be stable in nominal terms, but it could end up jumping around a fair bit after conversion to $CDN. Normally investors prefer the appearance of stable, increasing divvies rather than seemingly random, volatile amounts.... Personally, I don't really care which currency it's in, but I would like to have enough time before the stock goes X-D to "move" my shares from my US account to my CDN account so that my brokerage doesn't automatically ding me on the currency translation for the dividends. SJ

Too much caffiene? I must say that I don't quite get what Carl's all about. He comes on this board an writes a cryptic message about Level 3, with no discernible thesis. The thread runs hither and yon, taking about 30 replies to basically say nothing. In the end, he focuses on developing a precise share count which is a roughly useless exercise. To this date, I still don't know what the hell was the point of the original post. Was it to solicit views on Level 3's prospects? Was it to chide Prem for making a mediocre investment (medium return, super-high risk)? What was the purpose of the thread? Now he's on other threads portraying himself as a victim because other people on this board do not live in his very precise world where somebody is either 100% in favour of shorting or 100% against shorting. Get over it!

VAlue^2..Well, I guess I am glad I am not relying on you for investment advice..Next time please do some research before commenting. Could you explain their capital allocation decision? Whats the logic behind all this? Yes i know, they cut finally dividend rate, but still If we look last 2 year, 08 - 09, they have paid dividends 184M and same time raised fresh equity issuing new stock 326M, difference 326M - 184M = 142M, so actual need was less than 142M and they raised 326M. I dont know about you, but as owner i should paid taxes for these 184M unnecessarily. Maybe we are just different type of investors i like buybacks and hate dillution. You focus more on yield, no matter how it is achieved. Hmmm... That also sounds like Prem Watsa. FFH paid out a divvy last February of roughly $140m and will probably announce another divvy over the next couple of days of roughly $200m ($10 x 20m shares). As we know, FFH issued $1B in equity last year. Does that mean that Prem is a bone-head who is just trying to satisfy us yield pigs? SJ

So, you were hoping that this wouldn't become an emotional battle....what exactly were hoping for when you made the original post? A broad accolade for your observation that 3 has been a mediocre investment so far? Or were you hoping that someone could give you a thesis for a potential investment in 3? Or did you want a discussion about Tom Hanks movies? SJ

It's not a major problem if the lenders of the 2.5 Trillion cash are other than the Fed who would simply create the money, hence further dilluting the purchasing power of all other US bucks. Unfortunately it looks like the US is out of other lenders, especially at low rates. The outlook therefore is increased rates and QE and subsequent price inflation. Stock prices may benefit from the excess liquidity in the short run. Check out the different measures of CPI inflation at shadowstats: http://www.shadowstats.com/ No matter which one you choose the trends are clear, more borrowing will only confirm and extend these trends. Best hedges in my opinion... FFH ... best and most experienced bond traders/hedgers out here. Nice portfolio of inflation indexed bonds TBT... Proshares Ultrashort 20+ year Treasuries ETF Cheers I'm not sure that I fully understand your observation. Are you suggesting that the fed might print an additional $2.5T to re-pay the existing treasuries instead of simply rolling them over? If so, then I would agree that there could be a bit of an inflation problem if we add an additional $2.5T of high-powered money to the financial system. On the other hand, my point was existing treasury holders need to do something with the cash that they will get upon maturity. Many of them will once again be seeking to buy treasuries as a "risk-free" investment option. As a result, there should be no trouble attracting most of that money back into the treasury market. Would an insurer like FFH ever suddenly stop buying treasuries? Obviously they increase and decrease their treasury allocation on a regular basis, but they are never completely out of that market. Same deal with pension funds and other institutional investors. They will always be in the market to some extent. Even foreign holders of treasuries have limited options. If they choose not to roll over their investment into new treasuries it will probably be due to fear of a declining US dollar...in which case they would likely want to avoid all dollar-denominated investments. Frankly, it's pretty difficult for all foreign investors to run for the sidelines en masse. The US is just too important from a market cap perspective. There's not enough quality securities in the rest of the world to run towards. SJ

About 2 months ago Benhacker mentioned WNA-P as a potential buy. At the time, it traded at about $19.5, with a resulting dividend yield slightly higher than 9%. Add to that the likelihood of a reversion to par prior to the 2022 redemption date.....and then add on a little for the devaluation of the CDN$, I could see 11-12% returns over 5-10 years. So I did take a small bite in October, and it's worked out quite well. Thanks Ben! It's now selling at about $21.5, so that's still a dividend yield over 8%, with a little room for capital gains..... SJ

There's $2.5 billion that needs to be refinanced....but that also means there's $2.5 trillion in cash coming down the pipe to existing treasury-holders that needs to be re-invested in something. I don't see this as a major problem. SJ

It's funny how much the world has changed over the past year. Time has faded our memory of the fear and panic that prevailed in capital markets during the fall of 2008. Or maybe the subsequent bull market has caused us to forget? Outside of a select group of value investors who have big balls, nobody wanted to deploy capital last year. Most people were cashing out, running to the sidelines. Some large banks and insurers were collapsing. People were talking of nationalization of the US banking system. With or without a large tenant for the half-completed project, H&R was risky. Go back and check out the WTI oil price from November or December 2008. It was ~$40/bbl. People were scared as hell of an "oncoming world depression" with 25% unemployment. There was speculation that the WTI oil price could tumble to as low as ~$20/bbl due to drastically lower world demand. Of course, all of that speculation has turned out to be poppycock, but at the time, the fear was real. If we had hit $20/bbl for any length of time, the commercial real estate market in Calgary would have collapsed, and H&R's entire portfolio would have been in serious trouble, irrespective of whether they had a major tenant for a half-completed project. NOBODY would touch H&R at that time. That was how FFH was able to extract 11.5% interest plus the warrants. The banks wouldn't touch that potentially toxic mess, the Ontario Teachers Pension fund wouldn't touch that mess, the Caisse de depot et placement wouldn't touch it either. Heavens, H&R has exchange traded convertible debentures that were trading at ridiculous yields, and anyone could have bought them....but evidently, there was insufficient demand to push the price up. I seem to recall that anybody could have purchased the exchange traded converts for a slightly higher yield than what FFH got.... Anyway, if oil had continued to tumble down to $20-30/bbl, we would not currently be celebrating the H&R decision. In the end it worked out, but that outcome was far from assured. FFH could have had a permanent loss of capital. SJ