StubbleJumper

By the time the FFH lawsuit is ever resolved, there's a good chance there'll be no money left at SAC. However, maybe some of the other defendants will still have some assets... Does joint and several liability prevail in the US? SJ

Do not forget that the FFH shares that we currently own are already B shares. Prem owns the multiple-voting A shares.... I guess the question is whether there should be a split for existing shares, or whether issuing a C share would be appropriate... so far, I'm ok with the existing structure, as there is no real disadvantage to trading odd-lots, and I am reasonably able to access options when I want... SJ

So what was the justification for making this a taxable event instead of just giving ORH shareholders FFH stock? FFH sold more shares to raise capital for the transaction no? I could understand it if they didn't raise money through issuing shares, but this seemed like a bad decision for shareholders of ORH from a taxation standpoint no? (I remember this being partially discussed before but can't remember what was concluded) Yeah, in the spring I posted some crap about how I wanted FFH to buyout ORH using a share exchange instead of cash. At least they bought out ORH, even if it was just for cash. Anyway, I used the proceeds to buy FFH shares, but the capital gains tax represents unnecessary friction for my portfolio.... You know life is good when you're bitching about all the income tax you're forced to pay. SJ

I received the money on October 27th.....and I will have a nasty income tax bill to pay on April 30th! SJ

I've already received mine, and it's already re-invested....

Maybe we could ask Fabrice Taylor to draft up a freelance piece? ::) ::)

They only lost $21.1 on commutations in all three quarters combined of 2009 (all in Q3 actually). You are probably looking at the line where they talk of the $80m commutation at C&F -- but look at the date on that... 2008. You're right. My bad. ??? ??? ???

Did anyone else notice the commutations? They lost $100m on commutations at TIG and C&F which is like 9 points of CR..... Now this happens with some regularity, but either you discount your reserves or you don't. FFH doesn't, so when they commute contracts, we shouldn't bitch and moan about poor underwriting. Christ! SJ

That's getting pretty close to the Net Interest Margin for some institutions. IMO, there's still room for non-performing commercial assets to increase... This unwinding ain't done yet. SJ

Maybe you could short FFH? :P :P :P :P :P :P Just kidding! SJ

For preferreds, liquidity is only one issue. The other major issue is the risk that interest rates take a sudden jump which can have a drastic impact on the market value of a perpetual (this is a legitimate risk in Australia and Canada these days....). IMO, you should only buy a preferred when the perpetual income stream is attractive in the context of the risk to which this issuer is exposed. If you think that you'll need your cash back soon, a preferred might be a poor choice. There is, however, an exception to this. The re-set preferreds that have been issued in Canada are much less susceptible to fluctuations in interest rates as the return will always be re-set to "roughly market rates" in a maximum of five years. For this reason, the valuation of re-set preferreds should not tend to jump around so drastically. I still prefer a government insured bank account for money that I know I will need to access in the near future... SJ

SJ, Using PPP as a tool to value currencies makes a lot of sense to me, in fact I like this idea lot. Yet, their valuations don't take into account the amount of currency held outside the country (which if sold would flood the market with dollars), debt/GDP or other countries destroying their own currencies. Great link. Do you know if using PPP as valuation tool has worked in the past? Like if PPP was used a valuation tool 10 years ago, how well the results matched the valuation prediction? PPP can show undervaluation or overvaluation for long periods, potentially even a few years, but normally there is a reversion. As always, it would be of minimal use for short-term trading as the market can remain rational for longer than you can remain solvent. However, if I had paid attention to PPP in 2003, I might not have aggressively bought US- denominated stocks if I had understand that I would likely be facing a 30-40% currency headwind. OTOH, looks like there might now be a bit of a tailwind for the next few years. SJ

A rough approach is to apply Purchasing Power Parity theory when valuing currencies. These models would suggest that the Canadian dollar might be about 15% overvalued vis-a-vis the US dollar..... For Canadians thinking about buying US blue chips like JNJ, PG, WMT, or PFE it might be somewhat reassuring that there is some prospect of currency reversion that might slightly juice the returns. For those interested, this is a good site on PPP: http://fx.sauder.ubc.ca/PPP.html SJ

With the current prevailing interest rates being soooooo low, IMO there is only one place where I will put cash, and that's in a government insured bank account. At this point, I don't really care about the interest rate as short-term money generally yields less than 2% on pretty much any vehicle. There's not much point in taking ANY risk of a permanent loss of capital by using a non-insured short-term investment vehicle when your incremental return from so doing is extremely small. We should not forget the lessons of last fall when people who held money market funds (that were thought to be liquid) could not access their money... In today's environment, CDIC or FDIC insurance seems like a no-brainer. SJ

Hmmm.... I wonder why insiders would choose to buy the preferreds? In particular, if Prem is sincerely targetting a 15% annual growth in book value, and if his management team is on the same page, then there should be no reason for them to buy the preferreds through this offering rather than simply buying the common on the open market. The common should be far more compelling. Am I thinking about this too hard? SJ

SJ, you had me going for a while. Spent a few minutes looking into CASH-Q before I realised your joke! :D Just out of curiosity, have you been trimming your preferred positions? OEC Yes, I trimmed a few of my "least preferred" shares over the early summer (and then they continued to rise ??? ???). In particular, I dumped my entire holding in CCS-C and EPP-A as I felt that they no longer offered a sufficient return to compensate me for the risk involved (dividend yield is now south of 7% and you can get Canadian bank preferreds at around 6%), as there is a reasonable possibility of financial failure for each. When I entered the position, they struck me as obviously mispriced, and I had margined modestly to seize the opportunity. After a couple of healthy dividends and a solid capital gain, I was happy to dump them. To date, I maintain my preferred positions in ORH-A, HBC- and WFC-L, and feel no immediate need to chop them. My guess is that ORH-A will be repurchased over the next year. Overall, I consider the market to be fairly valued with the S&P500 PE ratio around ~15-16. At that level, prospective returns for the next decade might average 8-9%. That's ok, but I hold the view that we've not yet unwound the credit bubble and I speculate that we will see the economy head south rather than north over the next year. At some point there may be an opportunity to jump on some seriously mispriced securities. I want to have some cash in hand for that opportunity (I am currently about 13% cash). SJ

Over the summer and fall, I've been loading up on this awesome little security that is waaaaay out of favour. It shows up on my brokerage statement under the ticker symbol CASH. Do your own research, but I think it's a no-brainer. ;D ;D ;D SJ

As always, an interesting read. This view will probably have some impact on the management of FFH's bond portfolio. It's nice to see a point of view that counters some of the popular media's bleating that the recession is over. I'm solidly with Van Hoisington's view that you can't unwind a credit bubble in 12-18 months. There'll be more hurt to come. SJ

When thinking about decade long returns, I like to refer to a nice little article written a few years ago by Jack Bogle: http://www.vanguard.com/bogle_site/sp20060515.htm Looking at current valuations (ie, S&P500 ~ 15X) and applying the Bogle framework, an optimist might expect an average annual return in the high single-digits over the next decade....perhaps 9%? Of course, if that's assuming valuations remain in the 15-17X range. The doom and gloom crowd would generally argue that the PE goes to single-digits when the market hits bottom...but maybe that was in March 2009? SJ

Canwest has been a real dog for FFH, but it's important to try to separate the causes of the bad outcome. Some of it may have been bad analysis, and some of it may have been bad luck. The latter element is an important consideration in this case, particularly as it relates to turbulent markets over the past year. If Canwest had been able to dump their Australian sub for double what they actually got and if the bottom hadn't fallen out of the advertising market, the financial situation of the company would be much different. With the long term pressures that media companies are facing, I still think that it would be a dog even without last year's market collapse, but perhaps it might look more like a Gannet type of dog instead of a bankrupt company. Anyway, Canwest will be a permanent loss of capital for FFH shareholders, but it's not completely the result of bad analysis. SJ

FFHwatcher, I mentioned this before but it doesnt seem to be on the radar for alot of people but the Flooding in Southern On this year is 1 in 100 year type of stuff. Not trying to be alarmist but i would really be suprised (wont be the first time Im wrong) if this is not in some way material to the bottom line in the next Qs. Flooding is often an exclusion on insurance contracts. Doesn't mean that NB didn't take a hit, but I'd be surprised if it were a large hit. SJ

Well, AFAIK if there are exchange listed preferreds, ORH must continue to regularly file documents at the SEC. Once those preferreds are repurchased, the reporting burden would drop significantly (just NAICS, no SEC). The cost savings might be enough to justify such a move. In particular, as you noted, a repurchase would save 2.375% less a 4% premium, for a net cost of 1.625%. If there are $29m of ORH-A outstanding (as was suggested earlier in this thread) the reporting requirement could be eliminated for 2010 at about a $5m cost. Does it cost $5m to develop, audit and publish quarterly filings? Dunno. SJ

Friedman argued that premature tightening caused the Great Depression. Bernanke is a serious student of the causes and consequences of the Great Depression....I wonder if he holds the same view as Friedman? The other way to think about this is the 9/11 way. Do you keep rates low as a precautionary measure? If the recovery has truly arrived and you fail to tighten, the adverse consequence would just be a little extra inflation. On the other hand, if the recovery is a "false positive" and you mistakenly tighten, the result is a prolongation of misery. Which is the more serious error for a Fed Chair? SJ

I'd say that you're probably correct about (a) and (b). Seems like a no-brainer for FFH to redeem the ORH preferreds that pay 8.125% by issuing an FFH preferred at 5.75%. They may want to eliminate all of ORH's exchange-traded securities so that they can reduce their reporting/disclosure burden. SJ

Excuse me -- why don't you read my posts before you start claiming that my "investment thesis is driven by a bunch of 'maybes' and 'hopes.'" When did I say that I would buy Walmart now or that it was cheap? I specifically said in my first post that I believe it is trading at a fair (or reasonable) price but is not cheap, and that I would not buy WMT given the other opportunities available at the moment. Well, that's a wonderfully breathy and indignant response! Do you lead a stressful life by any chance? :o After further review, it would appear that I confused you for the OP, which was entirely my error. :( In any case, I would note that my observation about there being a lack of value in distant and uncertain ventures may be "worthless" in your opinion, but if you read through many investment fora, you will see numerous examples of people basing investments on these sorts of remote and dubious cashflows. In your own unique, defensive manner, you have pointed out that you would never errantly attribute excessive value to these types of distant prospect, so I guess that it's of no value to you. Inhale, exhale.... SJ