Cigarbutt

^To add to the pseudo-"hedging" hypothesis mentioned above and to what SJ just described, FFH has substantially changed the duration (since 2016) of their fixed income portfolio with expectations that they would be able to reinvest coupons at higher rates. From their interest rate risk disclosure, with a 100 basis point decrease in interest rates, result in market value of the fixed income portfolio: 2015 928M 2016 125M 2017 161M 2018 290M Q3 2019 279M Since Jan 1st 2020, the 10-yr Tr. bond has gone down about 65 basis points. Hedging aside, interest rates elevation will require some reversal of fortune and perhaps some Fed cooperation but the Fed, these days, may be more into easing inoculation, not to fight the disease but to numb the pain. (Mr. James Grant compared monetary activism to a virus in 2015; Mr. Grant is sometimes wrong and often early).

^just in case you or others are interested, I came across today a recent report by the Argo Group which may be relevant. The idea is not to suggest that FFH is or will be a mirror image but a parallel can be drawn with the realization that previous business written may not be so profitable after all. Even if Argo's evolving situation walks and quacks like a duck (typical reversal of the reserve pattern), it is possible that the issue is isolated and already remediated but I doubt it. When you see a cockroach...and it potentially reflects (as a leading indicator) an industry-wide cyclical pattern. Argo is domiciled in Bermuda and has grown net premiums written at a very high rate during the last few soft years. Here's what happened to reserve development (unaudited): in combined ratio % -unfavorable in ( ) 2012 2.8% 2013 2.6% 2014 2.8% 2015 2.3% 2016 2.4% 2017 0.5% 2018 1.0% 2019 (8.0%) details in 2019, per quarter: Q1 0.6% Q2 (5.2%) Q3 (9.3%) Q4 (17.9%) Argo shows a pattern that moves slowly and then suddenly and rating agencies are getting agitated, which will likely make it hard for the company to grow profitable business to compensate for the reserve issue. https://www.reinsurancene.ws/argo-reports-operating-loss-unfavourable-reserve-development/ To be clear: IMO, FFH is relatively much better positioned but the wave may be coming and some may be more naked than others.

^Based on the following assumptions : -The underwriting cycle is typically associated with such a reversal. -FFH, even if more conservatively reserved than the median insurer, will tend to follow the industry trends of the typical delayed recognition of the trend reversal (business written that was felt to be profitable when, in fact, it was not). So, this educated guess is based on historical assumptions and maybe this time is different (looking to be convinced otherwise for the industry and for FFH specifically). But if history is any guide, the magnitude of the reversal may be correlated to the unusual softness of the previous leg of the cycle. How this plays out remains to be defined and one may want to play this actively, opportunistically or whatever.

^This was touched upon in reply #34. To expand slightly, the participation will be conditional on (and proportional to): 1-investment performance (absolute and relative) If the hard market is exacerbated by an impact on the asset side, FFH will not be spared and in fact may be, compared to peers, more significantly compromised (high equity exposure). 2-operating performance They would require hardening to outpace the typical reversal recognized in prior years' reserves and significant catastrophe losses would impact their regulatory capital to a significant degree given their reinsurance exposure. Reflecting on recent developments, they don't behave as if they have excess capital and we may be only at the beginning so... In the past, they have issued equity at prices they didn't like in order to 'benefit' from opportunities and that's a possibility that should be considered. I'm not a shareholder now (and I may be wrong about that) but remembering the last hardening phase, I was a shareholder and increased ownership significantly in the months that followed an end of year share issue in 2001, during a period when the risk-reward looked better (IMHO). https://s1.q4cdn.com/579586326/files/doc_financials/011103ceo.pdf see p.3, second to last paragraph, shares issued at 200 CDN https://s1.q4cdn.com/579586326/files/doc_presentations/2013AGMWebsiteCopy_v001_u6w5x6.pdf 2013 slide presentation, see slide 15 Take the above with a grain of salt as I sort of prepared for the US 30-yr bond to reach 1.81% (that's where it is now) but I'm still confused about the significance. I'm mentioning that because, recently, FFH shifted attitude on the fixed income side and expected rates to go up significantly so it's not unreasonable to consider the possibility that they're confused too.

^In terms of the competitive environment for deals, it's been said that Mr. Buffett was approached by Tiffany for a deal in 2019 and it's been reported that the price was felt to be too high although there may have been an element of a requirement for an operational takeover which is not an ideal situation for Berkshire. Tiffany was acquired by LVMH. It looks like the deal will be more than 60% financed by ultra low rate (and even negative rate along the duration) debt. I would not bet against LVMH but how can you compete (financially) in that kind of environment if your return requirements remain fairly inelastic? https://www.reuters.com/article/lvmh-bonds/update-1-lvmh-set-to-raise-10-bln-plus-from-bond-markets-for-tiffany-deal-idUSL8N2A55HA Money for nothin' and...

Viking, it looks like you made some money on this short ride. Based on a three to five year outlook, I didn't feel comfortable with the short term nature of the trade but well done for you. FFH announced (on the call, not in the news release) that a 216M charge was recorded in the run-off section for asbestos and environmental reserve strengthening in 2019. This comes after an asbestos-related charge of 143.6M in 2018 and 182.5M in 2017 (ultimately and mostly due to 'legacy' units from C+F, Clearwater etc). Concerning the asbestos reserves, it's interesting to note that net reserves are still at the same level as 20 years ago. Since then, a lot of cash has been paid out, reserves have been raised along the way and there have been a few acquisitions with embedded asbestos reserves. I come to the conclusion that FFH's progress has been largely in line with the industry in that regard (FFH has a leading global market share in asbestos reserves; for example BRK has only 1.7x FFH exposure in that area despite being much larger overall as an insurer). Recently, the social inflation has played a role (even more than the usual trend and JNJ's talc issue may help to inflate the issue) but I think that the asbestos question is now under control and will likely show a material run-off (reserves heading towards zero) within the next 5 to 7 years. At large, it seems that the industry is reserved at 90% of the ultimate amount and if FFH continues to stick to the average evolution, it is reasonable to expect 350 to 400M further reserve strengthening during that period. The potential relevant aspect here is the fact that the setup of the run-off sub came with many advantages (efficient way to run-off inside claims, potential profit center with acquisitions and especially the ability to separate poor results from 'continuing' operations). FFH has recently shown better than average underwriting results from continuing operations but it is helpful to remember that they were effectively able to segregate (channel is too strong a word) poor results into the run-off segments. Only for the asbestos charges, in the last 3 years, including these in the 'continuing' operations would have meant a combined ratio higher by about 2% each year. This is just to say that adjustments have to be made to the reported record. Speaking of adjustments, here's an update on reserve releases (unaudited) as a % of CR improvement ('continuing' operations). 2016: 7.8% 2017: 8.5% 2018: 6.8% 2019: 3.8% Overall, it seems that FFH has been able to develop a slightly better underwriting culture than the relevant part of the insurance industry (which is an amazing improvement compared to a certain period many years ago) but I would say that they are not much better than average and the true nature of reserves of recent acquisitions (Brit, Allied) is still, and will be, discovery in the making. Why this may be relevant, given a 5 year outlook?. IMO, the industry is shaping up for an unusual degree of hardening that could surprise to the upside if the capital "suppressants" that have been described eventually revert to the mean or more. I think the best way to make money here will be to invest in new capital ventures that will form opportunistically (ventures that will not have 'legacy' issues and that can set up a robust operating platform). But this comes down to timing the market versus time in the market and an alternative is to invest in companies that will be able to meaningfully grow (absolute and relative market share when the time comes). I happen to think that a lot of policies that have been written in the last few years and that have been associated with reserve releases will ultimately show a reversal of the trend with reserve deficiencies, to an extent that is not appreciated now. The following is potentially interesting (especially figure 17, which can even be more instructive if put in a longer historical perspective). JLT Re has cried wolf for a while underlining that timing may make you look stupid but looking stupid does not necessarily mean that all your arguments are. https://www.jltre.com/our-insights/publications/viewpoint-reinsurance-cycle/the-economic-cycle We are truly living through unusual times and I'm glad to be alive.

To add insult to the injury related to the Don’t Fear the Repo section on share repurchases. The author does a good job at showing how the massive amount of cash allocated to buy back activity has not materially reduced the share count over time overall and in many cases. An interesting but mostly undiscussed topic is the ultimate value transferred through compensation packages that contain options, RSUs etc. One can infer the “true” value better when looking into the GAAP accounting and the tax accounting basis, something possible when comparing reported earnings and NIPA profits. When the stock award is issued, the value of the grant is estimated using models and expensed during the vesting period. When times are good, the ‘value’ realized from the stock compensation ends up being larger (often substantially larger). One could argue that interests are aligned and people should get what they deserve but often the incentives are short-term in nature and there are problems. Problem#1: The idea of stock-based compensation is for management to accept lower current-period wages and salaries with the expectation that the growth in the market value of the company stock will offset the reduction to their wages. With defining factors often largely more significant than specific company performance (where the wind is blowing), in good times, the value of the stock-based compensation may end up much higher that initially thought or anticipated through GAAP accounting. NIPA reports company profits using a different methodology, using tax accounting reflecting the value of the option or grant upon exercise, which reflects more directly the eventual value of the allocated stock-based compensation. There are periods (leading to the early 2000s and now) when a significant part of the divergence between the reported operating earnings and the NIPA profits diverge significantly, indicating that compensation expense ends up much higher than initially recognized and never shows up in reported company numbers. If compensation expense is not an expense, then what is it? Problem #2: When things go downhill, options, performance RSUs and others get cancelled and a batch of new ones are issued which is effectively a way to legally reprice the instruments and which is a way to make sure that higher than planned expenses in the previous period are not matched by an opposite scenario in the following. If interested in the technicality: https://apps.bea.gov/scb/pdf/2008/02%20February/0208_stockoption.pdf Disclosure: I often discard companies that manifest poor capital allocation decisions (such as share repurchases) even if underlying operations are fine and have recently come to the conclusion that the parent of a relatively illiquid security has a compensation policy that is becoming excessive, in part given the above value consideration.

Short comment on the opening section titled: The power of retained earnings. The reference to Mr. Edgar Lawrence Smith’s Stocks as Long-Term Investments (1924) is, at least to my humble eyes, incredibly fascinating, given what Mr. Benjamin Graham had written about it in a relatively contemporaneous way. Mr. Graham agreed on the principle but not necessarily on the application. In a way, the points of contention were that the price paid was an issue to consider and if the past always meant the future. Mr. Graham found out that sometimes prices are not justified and had the moral fortitude to remain graceful after he got hammered. But who reads Security Analysis these days? If anybody is interested, the relevant section is found in chapter XXVII titled: The Theory of Common-Stock Investment with the subtitle: A Sound Premise Used to Support an Unsound Conclusion In the 1934 edition: pp 312-6 In the sixth edition (2009): pp 361-5 with some comments by Mr. James Grant in the introduction (page 17) -As far as buyback activity, it may happen and perhaps in a big and opportunistic way but I wouldn’t hold my breath against Mr. Buffett’s rationality. -For KHC’s potential impairment, the power of compounding may work in the opposite direction and it may become cumulatively more and more difficult to disregard the discrepancy with market value, based on judgement and a long-term intent. -An excerpt: “Here, a pause is due: I’d like you to know that almost all of the directors I have met over the years have been decent, likable and intelligent. They dressed well, made good neighbors and were fine citizens. I’ve enjoyed their company. Among the group are some men and women that I would not have met except for our mutual board service and who have become close friends. Nevertheless, many of these good souls are people whom I would never have chosen to handle money or business matters. It simply was not their game.” Loose translation without the Dale Carnegie veneer: “Over the years, I’ve had to work with a lot of bozos.”

Then would a reasonable compromise be to read what he writes but to ignore his stock recommendations? I liked The Success Equation. Some of it has to do with humility and the role of luck. From the book: “For almost two centuries, Spain has hosted an enormously popular Christmas lottery. Based on payout, it is the biggest lottery in the world and nearly all Spaniards play. In the mid-1970s, a man sought a ticket with the last two digits ending in 48. He found a ticket, bought it, and then won the lottery. When asked why he was so intent on finding that number, he replied “I dreamed of the number seven for seven straight nights. And 7 times 7 is 48.” Signed: The patsy at the table

I've never really experienced low back pain but have developed some kind of interest in the topic. Direct and indirect costs are hard to assess (especially the indirect component) but the issue is the poster child of rising costs (faster than nominal GDP) without any net benefit. While some of the increase in costs may be attributed to a progressively older population , that aspect has a had a minimal impact as higher costs have been driven by people receiving more treatments per episode with the more specialized forms making a progressively larger proportion. The prevalence of neck and back pain has not really changed. To link with the spirit of the thread, reading The Back Pain Revolution by Mr. Gordon Waddell was time well spent (biopsychosocial approach to a so-called mechanical problem). Anyways, this appears to be another example of your spontaneous and natural capacity to capture the essential elements of a complex situation.

The antibody tests (immune system reaction to the foreign entity) and antigen tests (that recognize a piece of identity of the virus) are complementary to assessment of symptoms and signs manifestation as well as relevant exposure. The tests work the same way conceptually as when one forms an opinion about a specific investment opportunity: you start with a conditional probability that gets refined with further data points or "tests" (quarterly reports, company announcement, industry development etc.). The inherent uncertainty of the process is fertile ground for various conspiracy theories and fake news that can, at times, reach epidemic proportions. Open mind required but that does not preclude sensible discarding of wacky hypotheses. Interestingly, the focus now on the Coronavirus has removed the spotlight from a significant issue that people have gotten used to over time: influenza. https://www.realclearscience.com/articles/2020/02/15/this_flu_season_was_already_weird_it_is_getting_weirder_111294.html "So far this season, there have been an estimated 26 million illnesses, 250,000 hospitalizations and 14,000 deaths from flu, according to the CDC." There is nothing wrong with alternative views per se but I find it concerning that vaccination rates could be improved, including and especially for the sub-groups most at risk. Influenza vaccines are only a partially effective solution but, statistically and rationally speaking, remain the most convincing way (evidence-based) to stay alive, especially if you have specific risk factors. It is also interesting to note that the effectiveness of vaccinations would be severely impaired if a critical mass of people start to consider these prevention tools as nefarious.

^Helpful. I took a rapid look at Yext and it's clearly out of my league. It reminds me though of TRUP (Trupanion, the pet insurer) in the sense that a path to future profitability is defined and there is a risk of deep disappointment just because aggressive targets are not met. For the understanding part, some companies' disclosures and communications with investors seem to be meant to help understand. For example, concerning bankruptcy-remote entities formed to securitize receivables, I find KMX (Carmax, the used car dealer) does a good job at delineating the key criteria that allow to verify (trust but verify) the economics of material transactions, even if the substance of the transactions is off-balance sheet. For Enron and perhaps similar entities along the quality of earnings spectrum, disclosures are often unclear, obtuse and, in a way, one feels that their aim is to discourage efforts to understand, which is clearly a red flag unless you decide to rely on trust alone.

1- I guess one can uses nonspecific filters (nonspecific in the sense that the filter will not discriminate between poor profitability, high valuation multiples, fraud or else). But when fraud is involved, numbers reported cannot be relied upon and, in theory, numbers could have been presented in a way to bypass your usual filters. How do you evaluate trust? I guess investing in a large number of companies can help but I would say that a more concentrated approach does require a deeper level of evaluation for trust. 2- This comment is not about fraud but about the difficulty in quantifying the future. Enron was profitable (these days, there are a lot of companies which require discounting of future profitability far into the future) and many described a promising future (involvement in the internet broadband sector etc). Of course, Enron used this uncertainty in order to feed the narrative and I would say the disconnect was far from obvious when looking through contemporary eyes. https://archive.fortune.com/magazines/fortune/fortune_archive/2001/03/05/297833/index.htm "In the end, it boils down to a question of faith. "Enron is no black box," says Goldman's Fleischer. "That's like calling Michael Jordan a black box just because you don't know what he's going to score every quarter." Then again, Jordan never had to promise to hit a certain number of shots in order to please investors." The lesson I'll keep from the Enron story is that faith is very hard to handicap and, in my humble book, rapidly results in a zero position size, which means that many lucrative bets are missed. Too bad.

Many ways to do it, including: 1) Use the dividend capacity already approved by regulators to send a divvy from the capital-rich subs to the holdco and then it's no trouble at all to shift if from the holdco to the capital-poor sub; 2) If the capital poor sub operates in the same jurisdiction as a capital-rich sub, merge them; 3) Float another holdco bond issue for $500m, and sprinkle the proceeds into the subs that require more capacity; Maybe it's just a one-time freaky thing in Q4 that they were laying off premium on the reinsurers? But, that's not exactly how I imagined the company attacking a hardening market. SJ That's a concern I had about the capital flexibility to grow in a hard market. When you look at yr-end 2018 regulatory dividend capacity at the (re)insurance subs, only Allied World (685.6M) and OdysseyRe (329.7M) had significant capacity. Crum and Forsters had some dividend capacity but up to Q3, after an early upstream dividend, overall, net capital has flowed to the sub to 'support' growth. Up to Q3, OdysseyRe has paid 50M in dividends to the parent and Allied World has paid 126.4M to minority interests. I'm not sure how easy it would be for the parent to obtain dividends from Allied without some kind of permission or sharing to the 32.2% minority interest. If this hard market continues, in order to participate, FFH needs profitability from operations and investments which renders the premium growth (and its retention) conditional. Even if their equity investments are not likely to be correlated with markets, the level of equity investments to total capital is high and unusual in its composition and that aspect has regulatory capital implications.

^Interesting CPA journal link. The fundamental flaws were likely difficult to effectively be detected on a prospective basis but, in retrospect, the SPEs were the main elephants in the room. After the fact, it was found that the basic tenets of FAS 140 had not been respected. Enron had retained control of the SPEs (with the CFO on board) and the economic substance and risks had not been transferred. “Sales” should not have been recorded and the SPEs should not have been consolidated. A factor leading to the difficulty in spotting the fraud was related to the leading individuals (culture) who did not only try to take advantage of reporting ambiguities but basically set up creative structures destined to fool investors, regulators and even auditors. It’s interesting because some of these guys were very smart (but somehow did not realize how this would invariably end; this happens also with authors of Ponzi schemes who seem to believe that they can permanently delay the inevitable). One of the creative features was the use of total return swaps in order to avoid GAAP reporting requirements for financial obligations. A way to appreciate their objective is to consider that their aim was to somehow revalue their book value in order to reflect market value, something which was unavailable with US GAAP (but possible to some degree with IFRS –as a “revaluation”). By capitalizing the SPEs with Enron stock, their idea was to use the stock as a hedge (assuming the stock would keep going up and not be correlated to other assets) to other SPE assets, capturing the premium allocated to the Enron stock by the Market. Abuses are bound to happen again. Even if SPE reporting criteria were then strengthened, SPV in mortgage securitizations became widely used and the problem was not the bankruptcy-remote status of the entities but the actual products being fed into them. It was very hard to assess the endurance and trend of earnings from core operations with Enron and that always signals the need for at least a heightened level of scrutiny. @Longhaul It’s interesting that you recommend a book whereby the author of the preceding post had made the exact same recommendation before. I remember asking you how you assessed the quality of evidence in general (I guess a relevant step if you’re looking for fraud, red flags or something) and you had answered that you sometimes focused on summaries and used consensus opinions. You’re lucky then because dissecting reports can be tedious exercises.

I hope it works out for you. Keep us informed. I used to brew my own beers (in university) and microbreweries have become very popular around my area (Montreal area). The reward was meant to be tongue-in-cheek but I would surely appreciate sharing a beer or two (?) one of these days because I like to learn. Let's make it happen before a wall is built. :)

^Thought-provoking piece indeed. It’s interesting that a variant of the securitized debt for future recurring revenues looks similar to royalty financing for mining ventures at the exploration stage. It’s interesting because I remember a few exchanges with Linealdin where I was trying to understand the point of view by using the concept that the market was perhaps using hyperbolic discounting (difficulty or tendency to use an excessive discount rates for cash flows far in the future). It’s hard to quantify the future and perhaps the SaaS model is getting closer to that. It may boil down to the question: "Is the cat dead or alive?" and maybe only people like Schrödinger could answer the question. It (future revenue-based investing) also reminds me of the “David Bowie” bonds (many variants here) which securitized version was an innovative way to monetize future royalty streams of revenues based on somewhat intangible and intellectual property rights. Holders of these bonds did OK even if the interim to maturity date was associated with credit rating pressures. The music industry changed to an extent that few could have predicted. David Bowie was a genius (also financial engineering genius it seems) and he was the one behind the Man Who Sold The World even if many people thought it was Nirvana.

Hi Spekulatius, I've taken your initial post as an implicit consent to act as your agent. :) Disclosure: I have limited (if any) "back-office" practical knowledge but have occasionally held twilight-zone securities (a brewery in Cameroun is really interesting however) and have functional knowledge of French (the functional currency in France). I've always thought that English was better than French for business but French works much better for poetry (that's another story). Anyways, I think you like it when people get to the point so here's the result of the interactions which suggests that there may be a simple way out of this potential mess (but what do I know?): "Bonjour Monsieur, Le plus simple est que votre collègue donne simplement instruction à son courtier de vendre classiquement ses titres dans le marché, une fois que l’offre sera ouverte (ce qui n’est pas encore le cas) au prix de l’offre publique, puisque la Société de Bourse Gilbert Dupont sera dans le marché, à compter de l’ouverture de l’offre, acheteur de tous les titres qui se présentent à la vente au prix de l’offre. Pas de risque sur cette base qu’il se retrouve avec des titres sans valeur. Bien cordialement, Pascal MATHIEU" i think this basically says (if I get it) that you can wait for the trading to re-open (it seems like it will) and submit your selling bid with a limit based on the offer price and the market making activity to maintain liquidity should do the trick (at least in theory). Anyways, if you want to communicate with the "gérant", here is the connecting info: [email protected] 33.1.40.22.40.07 If necessary, I could continue to be your agent (translating agent) as the person seems to have rusty abilities in English or German. If this works out, I guess a commission is deserved and i would accept a beer (brewed in Cameroun would be a premium) if our paths ever cross (physically speaking). CF

I can share some experience but will not go into specific names or ideas. I've got three children who have reached higher education and the fourth one (if past results are indicative of future events) should reach the goal in 5 years. I've used a similar "strategy" as in other accounts and it made it easier for decisions (consistency). In retrospect, I'm glad I did that. A "family account" is practical as funds fed into the RESP can be transferred and used for children who actually access higher education (something which is hard to predict early on) and you can deal with "fairness" in due course according to your values etc. Getting children involved in investment decision making has not worked out (they're OK with an annual bird's eye review but are not into reading 10-Ks) so they don't care what's in their investment accounts. In the last few years, I've confirmed an interesting planned 'strategy' that is within the rules of the RESP game. Once a child reaches higher education (and accumulated funds start to get paid out), you can retire the "capital" invested in the family account under the specific child's name and re-deposit the amount in the family account under another younger child's name which gives access to another round of government grants. The number of times you can do this is (n-1)!, n being the number of children you have. In my part of our great country, the federal grant is 20% and the provincial grant is 10% and it looks like I will get 1.8x the "capital" (at least for the initial capital and there is an absolute maximum of grants $ per child) invested just with the grants alone. So, potentially useful. To do this out-and-back-in thing, there are no specific restrictions at the federal level. At the provincial level, the grant is given only to the extent of the net positive transfer of capital per calendar year, so some planning required once that phase is reached. Good luck. Personal note: Within my acquaintances, extended family etc, the only people doing this effectively don't really need to do it which is food for thought from a policy point of view but that's another story.

Isn't this an example of linear thinking based on a rear-view mirror analysis? Why is there a built-in expectation by many that further fiscal stimulus is necessary 10 years into an economic 'recovery' with monetary support still in a full-fledged form? How can further crowding out of the private secret-sauce sector result in a lasting boost? Although I think RNO's bottom line does not survive the baloney detection test, I wonder if what is said about sentiment does not hold more than a figment of truth? Opinion disclosure: The private sector has already internalized the growing deficit picture and this will likely impact somehow the asset price levels, especially given where we stand in terms of the total debt to GDP levels. i think the multiplier idea is dead for now. Potential bias disclosure: I've always been fascinated by financial restructurings (liquidity vs solvency analysis) and perhaps the wrong analytical prism is used here.

Yes all the above are I portent, but if I ad to pick a few it would be 1) favorable macro / local economy 2) favorite market structure , ideally and oligopoly with a few banks holding large market share. (U.K. and Ireland are examples of this) 3) competent management based on ROA achieved, NPL. Examples are Lloyd’s (UK) and possible the AIB Group in Ireland mentioned in these bards occasionally. Ireland is interesting because it is an oligopoly ( 2 banks control the banking business ) and I think the macro looks better than the rest of the EU. The UK has an independent interest rate policy as they kept their currency so they may avert the negative EU interest rates, which could become a “meat grinder” for financials (banks and insurance companies). Then on the other hand the macro in the UK has higher risk due to pot. Brexit disruption. Ok I'll keep an eye on those as well. I'm long a little bit of AIB actually for all the reasons you laid out above but another European bank I've been digging around on is Svenska Handelsbanken which has less market share than AIB at 22-23% while AIB in Ireland is closer to 31% market share. Another nice thing about Svenska is Sweden has its own currency and while the krona is quasi-pegged to the euro they have more ability to stray from the ECB's policies than anyone using the euro for sure. They also don't have any issues like Lloyds may have with Brexit so it could be an interesting alternative. If you want a quick summary of Swedens banking sector this may be helpful [https://www.swedishbankers.se/media/3854/competition-in-swedish-banking-sector.pdf] Full disclosure I got these ideas from reading an interview with John Hempton at Bronte Capital so he deserves full credit for sniffing them out. If interested in learning more about the culture of that bank and its potentially enduring edge: A Blueprint for Better Banking Svenska Handelsbanken and a proven model for post-crash banking by Niels Kroner

^Disclosure: I don't have specialized knowledge about Italy's finances but have followed the banking sector and Unicredit and have shared some sentiment with people living in Italy. The big story for many European and Italian banks (including Unicredit) has been the net interest margin and the evolution of non-performing loans. Unicredit has done a reasonable job at cleaning its balance sheet and the Bank of Italia has recently downgraded the non-performing loans issue from threat to financial stability to a number to simply follow. However, the process has been painstakingly slow and IMO incomplete. Of course, the ECB (and Italy's growing public debt) has allowed that. It is fair to say that slow adjustments are less painful but I wonder if this is not an example of a wasted crisis opportunity as the potentially dead has become a zombie. Private credit growth has been declining (see second link and click max) and how can this trajectory be changed within the Euro construct does not appear possible under present circumstances. https://www.econstor.eu/bitstream/10419/173102/1/PC-06-2017.pdf https://tradingeconomics.com/italy/loans-to-private-sector https://www.bloomberg.com/news/articles/2020-02-08/ecb-s-visco-sees-significant-risks-for-italy-s-economy-in-2020?srnd=markets-vp I can provide a few quotes from the third link if access is a problem. Spekulatius, I really admire the way you change your mind when facts don't go your way at times and wonder if the ECB and other macroprudential public entities should not apply the same principles when dealing with the economic consequences of superficial peace. BTW, Unicredit tends to produce good research about who's holding what in the public and reciprocal sphere: https://www.research.unicredit.eu/DocsKey/fxfistrategy_docs_2019_170284.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsEwG0xblWxFK9BVQAB4eryA==&T=1

Somewhat unrelated, one of the benefits of having a surveillance state is that criminals are more hesitant to commit crime. When I went back a couple years ago, people mentioned that robberies and theft have gone down quite a bit since they installed cameras everywhere. Of course, the US news sources will only report the emergence of a police state and not the fact that most everyday citizens enjoy the fact that they can catch child abductors and robbers rather quickly. Not that I would want to live there, but there is a some benefits to having a police state. Occasional incursion into the political meanders: Because of the apparent lack of concern related to unbound authority and the chilling caution that transpires from previous experiments. In my area, building a new hospital would take 20 to 25 years, with a good "business" case, which is highly inefficient and unacceptable. In China, there are social ingredients that allow building a hospital within a few days. This is both extraordinary for extraordinary circumstances and terribly unsettling for long term prosperity and the right to happiness. The German people were grateful to Hitler for what they saw as His economic recovery. If interested, read about Hjalmar Schacht to observe what happens when subordinates lose control of the narrative. ----)Back to the general discussion that has gone viral.

^There is clearly sustained hardening in some lines but some describe divergent trends and the question "How long will it last?" remains. For the impact of alternative capital, best to look at the reinsurance side. The flow of capital has eased which helps to explain the change in sentiment and pricing but the effect is uneven across different lines. See the following two links, pages 13-14 of the second downloadable link. https://www.reinsurancene.ws/total-reinsurance-capital-hit-record-625bn-high-in-2019/ https://www.willistowerswatson.com/en-gb/Insights/2020/01/willis-re-1st-view-january-2020-markets-diverge Overall, there has been a readjustment of the risk-reward equation in the alternative market but spreads continue to be relatively low (IMO), especially given where risk-free rates are.

^I just spent a few (unaudited) seconds on this and, for fun, used some of the above mentioned inputs: Annualized "returns" (total return for the index), period 2013-2019: -Nominal GDP: 4.1-4.2% (may need a minor adjustment with tomorrow's release) -sales growth, members of Russell 3000: 4.4% -total return R3000 index: 13.6% Of course, this may be considered irrelevant for individual picks and maybe this is just a catching-up phase or even a new normal. But it's also possible (I guess this could be the essence of Rule#1's 'message') that sentimentals have outpaced fundamentals.