valuesource

I think we need to strip out the Blocks going through at 9:30am most days, to arrive at a normalized volume. I suppose these could have been tax loss repurchases. It seems Bullish to me because the pricing on Blocks seems to be at higher levels.

WRB is indeed a good bellweather. Also, did you notice IFC pre-released cat losses of $0.80 which had no negative impact on the stock. IFC reports on or about Feb 8th, so likely a day or two before FFH. My system expects FFH to report on Feb 9th but I am thinking it’s going to be Feb 10th (the Thurs).

Some good work here MMM. I called Fairfax on Dec 30 to get some colour on the timing of the USD Cash proceeds from the Tender. It was received by Computershare in the AM on Dec 29th. On Dec 30th, CDS confirmed the total amount they would pay (PM). We received Cash on Dec 31 shortly after 3:00pm. That was disastrous timing. There were a lot of entries here. Odd Lots & Board Lots were entered separately and the Dividend vs PUC were separate too. That’s 4 separate entries in addition to the repurchases I made on the half day in Canada and the 2 full days OTC in US (Dec 27/28). I managed to buy a fair amount OTC on Dec 27th. In terms of the timing, my entries were booked as of Dec 31 (both PUC & Deemed Dividend) but weren’t actually completed until yesterday. I would assume both the Deemed Dividend and Capital Gain/Loss would be taxable events in 2021. Fairfax will account for this in 2021. They did confirm that on Dec 30th. My situation may be different since I only Tendered shares from RRSP and TFSA a/cs. I have an extremely low cost base in most a/cs due to the exercise of Jan 2008 $140 USD Call Options. In the case of higher income people ~216k+ in Canada, Dividends are taxed at about 40% while Capital Gains max out at about 27%. I didn’t think it made a lot of sense to A) Trigger a Capital Gain, when I might continue holding the stock and B) Have exposure to a massive amount of Dividend Tax. In Canada, the Gross Up would make a modest amount of Dividends quite Tax efficient. In fact, up to about 70k of total income, the Tax on Dividends would be negative. I suspect there are some different situations. On Capital Gains, there is no differentiation between Short Term & Long Term Capital Gains in Canada. Even at full Capital Gains rate in Canada, I think you guys are correct. It would make more sense to have simply sold the stock where it’s been trading. However, on Dec 23rd FFH was trading at $595 CAD. That’s the info we had at the time to make a decision.

I had a look at Intact Financial Q4 results after the bell. Possible FFH sympathy trade tomorrow? IFC has been talking about a hard market for several quarters and things seem to be falling in line. P&C premiums in US grew 19% with CR of 92. Canada (which is a bigger business for them) Personal Property was 73%. Conf call tomorrow at 11:00am. Kind of an odd time to schedule a call.

Cannot site a source.

Apparently, they are just waiting for Delaware.

Hi Al, I've dabbled in VIX options. I've resigned myself to shorted dated contracts due to the fact that they are European options which can only be exercised at expiry. It kind of pisses me off that they don't track the VIX very closely. I'd be interested in your experiences.

There is significant optionality built into this deal. They still have about 45 days to decide how much stock/ cash to use, correct? (from conf call)

I think the terminology in this dialogue is a bit confusing. I agree, they can issue new shares (which they did via the private placement) but the term "secondary offering" usually refers to a scenario where an existing holder offers a block of shares through a bank or financial intermediary. So in the secondary market/not from treasury. Secondary offerings can be "bought" or "marketed, similar to new issues.

+1 good to hear from you B

That's him! After all of the success gargling hedgie nuts and slinging absolute bullshite about Fairfax he became a pastor in a NYC church. (Vineyard West Side)

Good summary TwoCities, I believe these contracts have about 7 yrs left on them. It's important to reiterate this 2.5% is cumulative deflation. Some of the contracts strike at 1% meaning cumulative deflation of less than 1% over 7 yrs is profitable. -value

I think Pete hit the nail on the head. We will make a decision about whether to extend the flexibility to Fairfax to continue issuing SV shares in order to make acquisitions, investments or otherwise deploy capital for our benefit. But if we don't approve an increase in votes, Fairfax may simply stop issuing additional SV shares creating a clear downside, in my opinion. (opportunity cost)

Would it not be difficult to charge 1.25% to hold cash? Maybe he breaks it out?

This vote is about maintaining the Fairfax "culture" which has been paying dividends recently. We've seen some accretive deals which are due, in some part, to fair dealing (fair-and-friendly acquisitions) a premise which Fairfax has gone to great pains to project over 30 years. Ben Watsa, Prem's son, will not control Fairfax. The board has instructions about what to do in case of catastrophe. Prem has eliminated any premium he or his family could get from the voting control. We are voting on whether to extend flexibility going forward. In some cases, issuing shares to raise capital may make sense if it can be allocate for the benefit of shareholders.

It seems important enough to to note that Sanj was referencing HERB Greenberg, not Hank Greenberg as "claphands" was weighing in on. I thought Hank Greenberg played baseball? I definately agree with Sanjeev on this one. Herb is one of the biggest idiots in journalism today. I'll qualify that by saying he knows nothing about security analysis nor has he made any effort to learn or improve throughout his career (or check facts, be smart or classy...) He is simply a shill for extremely biased people and he propagates rumour and innuendo.

Shalab, I think the decision to make Paul Rivett president of the holdco was an indication of their confidence in his ability. I've known Paul for over 10 years and he's an outstanding lawyer, executive and investor. I think Fairfax's overall team approach to investment decisions will bode well for them in such a transition. -vs

Obviously several of his bad calls are missing. And while we're at it we may as well add that Herb doesn't do his own research. http://www.thestreet.mobi/story/12622083/1/greenberg-my-worst-mistakes.html?utm_content=buffer6906d&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Is there enough liquidity in out of the money puts for a multi billion portfolio? I'm sure there is. They can deal directly with the bank(s). In 2007 they had a multi-billion dollar hedge via call options (a hedge against the market climbing). Or they can deal with BRK. Buffett happily wrote multi-billion dollar puts a few years back. I've spoken to them about this. Apparently, it has more to do with cost than liquidity. Either the time premium or the cost of rolling would be too high to make OTM options competitive. Seems to me the liquidity issue could be solved by a market maker. Certainly when they hedged using S&P options they would have contacted a market maker -- which was costly. Russell is less liquid, and there costly.

http://www.finalternatives.com/node/26088 Chanos reported results last week of -14%. 2012 was -1%. It bears mentioning that Kynikos is a short-biased fund. If I remember accurately, Sanj posted 10 yr results for Kynikos many moons ago. They were poor. Many of you will recall Jim Chanos from the Fairfax saga of 2003-2006. Several emails emerged as part of discovery in Fairfax's ongoing suit vs. a bevy of hedge funds. Chanos forwarded an email from Mark Heiman, an analyst at his firm, to a contact at SAC Capital. The email contained information on a negative research report which John Gwynn, an analyst at Memphis-based broker Morgan Keegan, intended to publish. Gwynn was subsequently fired and promptly died of a heart attack. Chanos is still chasing young girls around his pool in the Hamptons. Lest we forget... -value

Well, it should go without saying that I've been surprised by FFH earnings and market reactions to them before. However, I don't think we're going to see a drawdown of that magnitude tomorrow. My point is not that the value of the company has declined, it is that I can easily see the market overreact to the big loss. Examples are numerous including that one could have purchased Markel below $440 14 months ago IF one was able to ignore the noise and focus on the company. My crystal ball is a bit cloudy, but it would not surprise me to see a 10% decline here and there over the next few days. To those who were looking for an entry point, it is advisable to have your finger on the proverbial trigger. Regarding the results, certainly no one can be happy to see the massive losses on equity hedges. That said, for me to criticize Prem and Co.'s investing moves is like a reporter questioning Michael Jordan's performance on a given night. Hindsight is 20/20 and while it would be wonderful to have that $2B back ON the balance sheet, I do not see that this has changed the FFH story. The FFH story is that Prem and Co will invest well over time. This "mistake" notwithstanding, that has not changed. What MAY have changed is the underwriting. Granted that this year was rather benign in regards to CAT activity, but those results are really, really good. Time will tell whether or not this is a fluke but, historically, underwriting was a weakness of this company. If that does become a neutral, much less a strength, then the story changes for the better, dramatically so. Not selling, may be buying more on any overraction. -Crip I hear you and I've certainly been suprised by market reaction in the past. I was merely saying that a $30 USD drawdown in reaction to what they just reported would BLOW ME AWAY. They lost 5.5MM in Q4 which is a rounding error and doesn't even include positions for which they equity account. (+643MM unrealized) Remember that the marjority of the 2013 loss was in Q3 which was already reported. So it's not really a surprise. I'm the stock drops more than $10 today, I'm going to add. -value

Well, it should go without saying that I've been surprised by FFH earnings and market reactions to them before. However, I don't think we're going to see a drawdown of that magnitude tomorrow. Just so we are all on the same page - $370 USD or CAD? I assumed Crip was talking about the USD price. So it would still mean a drawdown of $30 USDs which I feel is not likely to happen.

Well, it should go without saying that I've been surprised by FFH earnings and market reactions to them before. However, I don't think we're going to see a drawdown of that magnitude tomorrow.

Did anyone else notice the mammoth MOC imbalance from yesterday? By 4:30 the total volume was 578,984 and 443,600 was batched in the MOC facility. Several things about this surprised me. First, the price remained relatively firm after the imbalance was published at 3:40. Usually we would see a stock trade materially lower immediately after an imbalance of this size was published. In this case, the price adjusted by less than $1.00 between 3:40 and 3:45. Also, my attempt at explaining all of this activity involved BMO and CIBC laying off some of the stock they acquired as part of the bought deal equity financing. I thought it a reasonable surmise that they got stuck with stock. After 5 days I called and apparently the books were still open. I asked if the issue was pro-eligible and the answer was yes (a good indication that the deal hadn't gone too well). This is very bizarre.

Sanj, I think the insurance business sounded good from the perspective that there was no competition. If they got paid for float it would have been great (in theory). Most of the big business was in insuring large machinery (mining) but it was being written outside Mongolia. They pulled the chute early and the general sentiment was, "focus on the original strategy". You guys have it pinned pretty much. Big GDP Growth = Higher Income = Lifestyle Aspirations. They own primarily commercial properties in prime locations. In most cases, they are prepared to make reasonable leasehold improvements when it converts to immediately higher rents. I may go to visit them next year (not till the summer!)