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claphands22

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    Have any of the FFH short sellers said their analysis was wrong?

    in Fairfax Financial

    Posted

    So FFH raised capital because if they turned over the subsidiaries to regulators, there would be outrage on part of the other stakeholders (policyholders, regulators, rating agencies) and a likely bad reputation? Did FFH ever said that's why they decided not to turn over the subs to the regulators?   

     

    Are there in cases insurance companies turning over their failed subsidiaries. I didn't even know companies could actually do that.  I thought their only option would be runoff or going bust.  

    Have any of the FFH short sellers said their analysis was wrong?

    in Fairfax Financial

    Posted

    BRK'S agreement with Lloyds was to take on about 6 or 7 billion dollars of assets and estimated liabilities and get that monkey off Lloyds back.  However, that contract provided that if ultimate claims should accumulate over the years to the amount of something like $13B, BRK had the option of putting that monkey back on Lloyds.  That cap makes the potential losses to BRK finite.   Lloyds still has latent liability, although it looks increasingly unlikely that they will ever have to carry that monkey around again.  :)

     

    If future loss development is as was predicted, BRK gets billions in free float to invest for many years.  If loss development is adverse to the extent of $13B, BERK still gets the use of that float at a reasonable cost of perhaps about 5%/year.  :) 

     

     

    Thanks for clearing it up. So finite insurance is definitely not a one size fit all type of reinsurance. It's depends heavily on what the definitions of the contract.

     

    Are insurance companies required to disclose all finite insurance contracts?

     

     

    Re: insurance companies having liquidity problems.  It happens.  Chanos' first big expose was that Baldwin United appeared to be dipping into reserves that were supposed to have been set aside to pay claims for past loss events to pay current claims.  It took about a year, but their regulator finally determined that was what they were doing, and the regulator seized that company and put them out of business.

     

    Excellent, but the regulatory agency were able to catch on.  That's what I wonder about FFH, if there were never insolvent but illiquid, why didn't the regulatory agencies never catch on? And if FFH was never illiquid but just insolvent, how could have that happened without it being very noticeable to the shareholders?  And if FFH was never insolvent or illiquid, why raise capital at such harsh rates?

    Posts from the old board (great resource) + Parsad's first post

    in General Discussion

    Posted

    I've gone through some of the posts from the old MSN Berkshire board. It has been a great resources and I'd suggest looking through it sometime.

     

    You can find the old posts at http://msnbrkboardarchive.multiply.com and clicking on the "Blog" link. There are 490 pages of posts, so there is a lot of material in there. I just wish I could google through the old posts  :o

     

    Here is Parsad's first post on the old board.

     

    Feb 20, '02 1:34 AM

    by Sanjeev for everyone

    Welcome to all the new members of the Berkshire Hathaway Shareholders board!  This board will not function properly without your contributions and unlike other boards, we will not tolerate antagonists, spam, advertisements, or hostility here.  It is your responsibility to make me aware of people who are breaking the rules of civil conduct here.  Those that break these rules will be banned.  Some of you will be regular contributors, and some will be lurkers, but as long as you find some benefit from this board, then we have achieved something!  There is also live chat attached to our board, so during periods of activity (market events, major reports or acquisitions, etc.) that demand more conversation, everyone is welcome to particpate.  Again, you should feel free and comfortable that you will not be harassed here, and that this is a tight-knit community board!  Cheers!

    http://msnbrkboardarchive.multiply.com/journal?&=&page_start=9780

    Have any of the FFH short sellers said their analysis was wrong?

    in Fairfax Financial

    Posted

    Uccmal, zippy1, twacowfca, SharperDingaan:

     

    Thanks for the reply.

     

    --> Uccmal

    Makes me wonder if other reinsurance companies that that time need to re-reserve themselves due to the hurricanes; or was FFH re-reserving (am i making a up a word here...?) mostly due to TIG

     

    --> zippy1

     

    Thanks for the link. I found the old archives here http://msnbrkboardarchive.multiply.com Unfortunately the search option is craptastic. You literally have to go through one page at a time to find what you are looking for. With 490 pages, about 20 posts per page, and comments not visible unless clicked on...going through all that data is going to be a freakin' project.  I did find one post here with Bsilly:http://msnbrkboardarchive.multiply.com/journal/item/5755/Fairfax_Financial_AGM_Notes

     

    I have not found any posts yet with Brogalboy, but once again...it's a giant pain searching through this data. Makes me realize how lazy I am and how much my life depends on Google =P

     

    --> twacowfca

     

    Thanks for explaining about the difficulty of properly reserving. How can an investor know or make an intelligent decision if their insurer is properly reserving?

     

    Regarding finite insurance....I still don't quite understand it. I thought finite insurance was a way for insurers to transfer their risks to other reinsurers at a cost; yet with finite insurance neither the ceding party tends not to actually lose much risk since they are still on the hook if the potential liabilities of the risk they transferred is higher than the premiums they originally paid. 

     

    I thought the insurance contract Berkshire did with Lloyd's wasn't finite insurance, since Brk is on the hook for all potential asbestos liabilities. No? 

     

    Sorry, if you could expand on finite insurance I would appreciate it. The use of finite insurance seems to be at the heart of the old short thesis but I don't completely understand it.

     

    --> SharperDingaan

     

    How could an insurance company have liquidity problems? I though insurance companies are heavily regulated so they wouldn't have liquidity problems. Banks could be solvent but have liquidity problems, such as a run on a bank, but I don't see how insurance companies could be in the same boat.

     

    I don't quite understand your sentence "Easy target, especially when you gloss over that FFH was essentially the guy with the T-Bill (cash coming from TIG in run-off)" 

     

    Are you saying the FFH was the insurer trying to lower their regulatory capital? What do yo mean the cash came from the TIG run-off? Could you expand on this a bit. The way I am reading this is FFH did these contracts in order to lower their regulatory capital and they paid for these contracts with the cash from the TIG run-off.

     

    ---

     

    thanks everyone =)

    Have any of the FFH short sellers said their analysis was wrong?

    in Fairfax Financial

    Posted

    Thanks everyone for their feedback. Especially Ben, uccmal, twacowfca, and ubuy2wron.  I feel almost bad about questioning FFH on this board, and I appreciate someone giving back a nice objective response.

     

    From what I understand, no one here thinks FFH misled their shareholders about their reserving. They might have been aggressive and/or might have played on the line, but they did not misled their shareholders. Correct?

     

    I have a few other questions about the FFH saga that doesn't seem to add up for me, and I hope someone can piece some things together.

     

    1.) If the company was reserved, why did they have to sell shares below book value and sell parts of their subsidiaries?  How can an investor tell the difference from a company that made a reasonable mistake with their reserving policy, and a company abusing the complexity of reserve accounting to make themselves look better than they really are?

     

    2.) What would be a legitimate reason for an insurance company to use finite insurance? Did FFH ever give a reason why they used finite insurance?

     

    3.) Did John Hempton really have bad intentions? A lot of people have been bashing on short sellers and particular Hempton, yet, I read his whole blog from the first post (took forever...) and he didn't strike me as a bad guy at all, maybe aggressive, but not a bad guy. Just in the span of the three years he uncovered 3 frauds. (1) American currency hedge fund (2) large Australian broker (3) a China RTO.  This seems like something a good guy would do.  You could say he had a financial interest in the Chinese RTO, but not in the first two.  Also he was a senior analyst that specialized in financials who probably worked through the Australian HIH (insurance) fraud, he likely saw FFH and red flags popped up.

     

    Also, if an insurance company is committing accounting fraud, that would be a very despicable sort of fraud. If a manufacture or a retailer commits accounting fraud, the people hit are the shareholders, creditors and employees, which is evil. Yet, if an insurance company commits fraud it's on another level of evil.  Not only do the shareholders, creditors and employees get hit, but also the people depending on the insurance. People who depend on their insurance payment are generally not wealthy: sick, old or retired.

     

    I am not defending all actions of intense short sellers, but from that angle; I can see why some short sellers could be incredibly zealous about a plausible accounting scandal of an insurance company. 

     

    ----

     

    Anyways, thanks for reading the post/thread. I respect people's thoughts on this board.

     

     

    TRE - Sino-forest put.

    in General Discussion

    Posted

    Muddy waters is trying to use the SAIC to determine fraud at TRE.  Here is an interesting article from February that explains why this is not possible based on how businesses need to be structured in China.

     

    http://weybenjamin.wordpress.com/2011/02/18/benjamin-wey-a-china-experts-views-on-saic-and-sec-filing-discrepancies-for-u-s-based-companies/

     

     

    Please be aware that Benjamin Wey is not a objective player in this scene. He was discussed in the Barron's report "Beware of This Chinese Export"

     

    One of the most controversial promoters of Chinese reverse takeovers, Benjamin Wey, continues to find work. Wey'shistory of suspension and censure by Nasdaq and state securities regulators has been amply reported, including a Barron's story ("AgFeed Trips on Its Way to the Trough," May 19, 2008). Since our piece describing Wey's work for the hog farmer AgFeed Industries (FEED), the company has missed production targets and its shares have slumped from 15 to below 2.50. The company could not respond to queries by presstime. In an interview last year with the English-language newspaper China Daily, officials of his New York Global Group investment bank claimed that 15% of the Chinese companies on Nasdaq were its clients. The firm has offices in Beijing and at 40 Wall Street in New York. On its Website (www.nyggroup.com), Wey's firm brags of alliances with four city governments and China's central bank. With hedge-fund operator Michael D. Witter—grandson of the brokerage founder Dean Witter—Wey last year announced plans to raise $300 million to invest in China companies. Neither Wey nor Witter responded to Barron's queries.

     

     

    I am utterly fascinated with these Chinese RTO's.  The characters involved are interesting, the stories behind the companies are interesting, the SEC filings could be used for an forensic accounting class and there have been some very smart people who have been burned by Chinese RTO's.  

     

    I highly suggest everyone to watch this story about Richard Heckmann being duped by a Chinese RTO. http://www.thestreet.com/story/10953579/1/dealmakers-long-trip-through-china-rto.html  I'd also suggest watching the series of "The Shanghai Numbers"

     

    In terms of Muddy Waters.   I think they need to come clean about any mistakes they have made in the TRE report. It only makes any of their good points look less valid.  

     

     

    TRE - Sino-forest put.

    in General Discussion

    Posted

     

    What do you think about the two errors TRE points out in their PR? It's a fine report but doesn't seem top notch to me. it has lots to details that one cannot really verify by reading through the filings.

     

     

    I think if TRE can only point out two errors in a 40 page report, then TRE is in a lot of trouble. I expect their to be a larger report out rejecting MW soon, then I expect MW to release a report rejecting what the management said. This will probably go on until TRE gets delisted, or MW loses all their hard earned reputation because they wrote a report that was completely false and TRE's management proves it. I think the former is far more likely.

     

    The reason I think it's top notch is because it includes a lot of work that you can't get through reading the filings. I've some disclosures in chinese filings that make my head spin, but when I tell my friends about them they say "well, it might be a bad company, at least they disclosed it." 

     

    So I really respect people who put on their shoes and dig up their research. They find material that wasn't disclosed to the average shareholder and should have been.

    TRE - Sino-forest put.

    in General Discussion

    Posted

    I really respect muddy waters for their research. I have read the reports and concluded they have probably done more due diligence than anyone else. Their TRE report was top notch and would advise anyone to read the 40 page report.

     

    I am not short or long TRE but I am short some other Chinese cos. If someone put a gun to my head and forced me take a position in TRE I would be short.

     

    FFH got burned by short sellers, that doesn't means we shouldn't assume the worse from short sellers, especially when they have a high hit rate on their shorts. I don't discount Pabrai just because of DFC or Watsa for Abbi or Buffet for Irish banks. In this case it's wise to be skeptical but foolish to be cynical.

    Screening Chinese RTO frauds

    in General Discussion

    Posted

    I don't see the logic in buying puts on these chinese small caps...they are likely to be halted on the exchange making your options unsellable and risky to exercise.  Yet, I think guys like citron/bronte/muddy waters could make a small fortune by buying puts before they release their research and selling them after the market tanks on their findings....i dunno if that's legal or not, but that's the only reason i dare to own options on these companies.

    Screening Chinese RTO frauds

    in General Discussion

    Posted

    Hi prunes,

     

    Here is a website that has a list of all the chinese cos. It's not perfect since it included ADRs & foreign listed ones, but has a good deal of nasdaq/amex listed ones as well.

     

    http://geoinvesting.com/companies/all.aspx

     

    All these small cap cos have been hit hard, especially after CCME. I'd check out citron/bronte/muddy waters for Chinese frauds, they generally do a good job....sans their experience with ffh.

     

    I'd also recommend reading Quality of Earnings by O'Glove if you decide to do some detective work. The Quality of Earnings book does a nice job helping investors see when the accountants are doing funny business.O'Glove goes through examples of companies that report higher income than operating cash flow, over a long period of time, are generally playing with their numbers. You can see that with RCON http://www.google.com/finance?q=rcon  Although, their can be legitimate reasons for such things...the fact an overwhelming majority of chinese small caps do it, is highly suspect.

     

    This space still has interesting opportunities but it's now more treacherous for short sellers (high volatility, high short interest.) I'd also wouldn't suggest buying puts on these cos since recently they've only halted trading for the cos instead of kick them off exchanges. Although you can still exercise the puts, you won't be able to sell the stock in the market so you would be under too much uncertainty.

    finding warrants - where to look?

    in General Discussion

    Posted

    Quick Info on the FFBCW

     

    Current Warrant Price: 6.13

    Expire: Dec 23, 2018

    Exercise @ 12.90

    Current FFBC share price is 16.57

    Adjust when quarterly dividends are above 0.17

    Current Quarterly dividend: 0.12

    Average 2012 Analyst EPS: 1.29

    Current Tangible Book Value per share: 11.17

     

    Prospectus for the Warrants

    http://www.sec.gov/Archives/edgar/data/708955/000114420410031630/v187278_424b5.htm

     

    Recent investor presentation for FFBC

    http://www.snl.com/interactive/lookandfeel/100255/FFBC_Q12011.pdf

    Exxon Mobil CEO Says Oil Price Should Be $60 to $70 A Barrel

    in General Discussion

    Posted

    Where's the data that supports the idea, that it's wall street pushing up commodity prices, not global demand?

     

    I really have no take on the commodity question, just would like to read more data to support the lower/sustained gas prices. It's easy for a CEO of an O&G to blame high prices on Wall Street when you are testifying before congress. I'm not saying he is wrong, I'm just wondering where the facts are.

    Beware of using market valuations because they might use you

    in General Discussion

    Posted

    Hey Tariq,

     

    Looking at asset class valuations compared to market valuations is a more reasonable technique. Yet, you would also be making the same mistake of not investing in certain stocks because they were part of an asset class that is, as a whole, over valued. Most of these of asset allocators currently feel small cap stocks are over valued, yet using the asset-class idea, they would would be staying away from companies like EVI, MGAM, ITEX and IDT: which I think are undervalued.

     

    I still stand by my original argument, which is investors should all but completely ignore market/asset-class valuations, as long as they find a company with a margin of safety. 

     

     

     

     

     

    Beware of using market valuations because they might use you

    in General Discussion

    Posted

    Hi TariqAli, I am a big fan of your blog http://streetcapitalist.com/, I appreciate the reply to the thread.

     

    I got to be honest, I don't think I understand your criticism. Are you saying that, using my Buffett factoid was a misinterpretation of buying cheap stocks irrelevant of overall market valuations because REITs are assets that don't follow the overall index? Therefore, Buffett only bought those REITs in 2000 because he thought they wouldn't be dragged down when the overall market got re-priced?

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