nwoodman

Thanks for the link, well worth watching Cheers nwoodman

Some interesting analysis by Chovanec http://chovanec.wordpress.com/ "China’s developers are playing out a kind of prisoner’s dilemma: rush to complete, in hopes of cashing out. But while supply keeps going up, demand is going down. In late March, a central bank (PBOC) survey reported that only 14.1% of Chinese consumers were looking to buy a house in Q2, the lowest level since 1999. Only 17.7% expected home prices to rise in Q2, and 62.9% said they still consider prices to be too high. So all those rushed completions only add to the glut already on the market, driving prices down further and giving buyers — investors and aspiring residents alike — all the more reason to hold off for a better deal."

I agree, I would rate this site in my top 5 clicks in the morning to get the day started....one of which is the Nespresso. I can't say the same for FB.

Looks like regression to the mean continues. It will be interesting to see if the RBA drops by 50 bp at their meeting today. http://www.theage.com.au/business/home-price-fall-adds-to-rba-focus-20120501-1xvya.html http://www.theage.com.au/business/home-sales-sink-to-lowest-since-1994-20120430-1xtur.html

Low double digits. His appeal for me, especially in this letter, is in his pro USA bias due to low cost energy. He also has a healthy skepticism towards China, that fits somewhat with my own views Cheers Nwoodman

Full letter now at Zerohedge http://www.zerohedge.com/news/hugh-hendry-back-full-eclectica-letter

A couple of articles discussing Hugh's latest letter to shareholders http://www.businessinsider.com/hugh-hendry-letter-to-shareholders-2012-4 http://www.alsosprachanalyst.com/economy/hugh-hendry-on-why-he-is-so-bearish-on-china.html cheers nwoodman

It's a good point. If Prem is true to his word then they will max out at around $250m in terms of this position. However what price should FFH put on his time?

December rates show +1% in P&C. Workers comp up +3%, looking better for Zenith http://www.marketscout.com/frontend/barometer2.asp cheers nwoodman

Great post. This really struck a chord! LRE was was a winner for me also . Loews and Berkshire were a drag. Haven't had the time to calculate the IRR but looking back over the 6years of allocating my company's excess funds we are up a paltry 1% in AUD terms. The 30% increase in the AUD has been a drag. Looking forward to some regression to the mean on the currency front

Merry Christmas to all. This board is one of the first things I read in the morning and I thank you all for your interesting and stimulating thoughts. Sanjeev, a special thanks for moderating and maintaining the culture. Cheers Nwoodman

<$100m in sales http://www.ctv.ca/generic/generated/static/business/article2281164.html Fairfax Financial Holdings Ltd. has struck a deal to buy 75 per cent of Sporting Life Inc. as the upscale “fashletics” retailer aims to expand across Canada. The fashion and sporting goods chain, which is more than 30 years old, is privately owned by its co-founders David Russell, his wife Patti, and Brian McGrath. “We are very pleased to acquire such a pre-eminent retailer as Sporting Life,” said Prem Watsa, chief executive officer of Fairfax. “Today’s acquisition is consistent with our ongoing interest in acquiring strong, established franchises from entrepreneurial founders who want to find a long-term home for their business.” Mr. Russell said the co-owners plan to expand Sporting Life beyond its four-store Ontario base into a cross-country retailer with between 10 to 15 stores in the next decade or more. “With the aid of Fairfax, we will be even stronger financially than we were prior to this investment,” the owners said in a statement. Sporting Life’s sales, at under $100-million, rose 10 per cent in 2010, they said, adding the retailer is profitable. The owners have committed to stay on long term. “We will not open stores faster than we can manage the customer experience,” Mr. Russell said. “Our wish is to be the best – not the biggest.”

A bit more info from the website http://www.sportinglife.ca/sportinglife/company/aboutUs.jsp Originally located at 2045 Yonge Street, south of Eglinton, the company's early years were devoted to building clientele for its ski equipment, running shoes, racquet sports gear and fashion apparel for sports enthusiasts. Success came as a result of the untiring commitment to customer service and the full range of product options available to help customers make more informed purchasing decisions. Twenty Nine years later, Sporting Life now has 4 locations, including its own 55,000 square-foot home at the corner of Yonge and Blythwood. Just down the road at Yonge and Roselawn is another facility that specializes in bikes and snowboards. In 1995, it established its third store in Etobicoke, a location that occupies 36,000 square-feet in Etobicoke's prestigious Sherway Gardens. Sporting Life's most recent store opened in December 2002 in downtown Collingwood, the heart of Ontario's ski country. These locations stock over 200 brand names, including fashion from Bogner, The North Face, Patagonia, Ralph Lauren, and Tommy Hilfiger, as well as equipment from Nike, Salomon, Rossignol, Burton, Specialized, Cannondale, Rollerblade, and more. Sporting Life is the single largest retailer to carry many of these lines. In 1979, the store had a staff of just fifteen; now the company consists of close to seven hundred associates.

No mention of price, are they a big chain? http://www.theglobeandmail.com/globe-investor/fairfax-financial-buys-75-stake-in-sporting-life/article2281164/

http://www.bloomberg.com/news/2011-12-18/china-debts-dwarf-official-data-with-too-big-to-complete-alarms.html "Local governments’ reliance on land sales for revenue means a drop in property prices may expose weaknesses in the borrowing, Huang of ICBC said. “The real problem is the real estate market cannot fall, the price can’t go down,” he said. “If the property market really falls, the local government financing vehicle problems will really come out. Not only will they have problems, but the banks will have problems.” There are signs the market is already declining, with residential property prices falling in November from the previous month in 49 cities of the 70 measured, the worst performance this year. The cities of Guangzhou in the south and Wuhan in central China canceled land sales in the last three months. Tianjin, which isn’t among the cities piloting municipal bonds, was reliant on land sales for 41 percent of its income in 2009, according to China Index Academy, a Beijing real-estate research firm. That doesn’t bother Xu Hongzhi, the chief accountant for Tianjin Binhai Construction, which is building Yujiapu’s transport hub. He said that the company can pay its debts because the area’s economy is growing at 10 percent a year. “There is no risk,” he said." Of course not!

Whatever you do, don't call him Stevie ;D http://business.financialpost.com/2011/12/14/lawyer-for-sacs-cohen-dont-call-him-stevey/ "Michael Bowe (Fairfax’s lawyer): Okay. So the compliance manual — you have the authority, Stevey Cohen, to ignore the compliance manual? Martin B. Klotz (Cohen’s lawyer): Object to the form. And I particularly object to the obnoxious, deliberate use of “Stevey” in addressing Mr. Cohen. Bowe: It wasn’t deliberate. It was a mistake. Klotz: No it was intentional, Mr. Bowe. Knock it off. Bowe: How do you know? Klotz: Because I know. Bowe: I know you’re trying to be a tough guy in front of your client, but why don’t you knock it off? I know you’re trying to be tough — defend your big client. I understand that. This was a mistake. I’m sorry I used the word “Stevey” if I offended you. Cohen: I’m not a big client. Bowe: If I offended you, I apologize. I’ll (sic) the word Steven from now on. Klotz: Why don’t you use the word Mr. Cohen? Bowe: Steven Cohen. Klotz: Why don’t you call him Mr. Cohen. Bowe: I’ll tell you what, Marty, I’ll question this witness however I like. Klotz: I just ask that you be professional. Bowe: You know what’s not professional is when you accuse someone of doing something intentionally when you have no idea whether they did or didn’t. Okay. That’s not professional. Mr. Cohen – Can you read back my question? Withdrawn. I’ll rephrase it."

You may well be right, however in the Australian context it might help to reduce the hollowing out of the economy. At the moment it is all house and holes (banks and mining). The ROE's especially in the banking sector are abnormally high due to the government providing a backstop. In fact most high ROE's in Australia are either result of natural endowment or anomalies such as government implied guarantees that are gimmees. Anyway, the current countries that have partly implemented the policy are hardly banner economies at the moment ;)

It is an interesting concept. I haven't done a lot of reading on it yet but there are some interesting papers available off the internet http://www.imf.org/external/pubs/ft/wp/2006/wp06259.pdf "the idea of an ACE is to address this difference in the treatment of debt and equity by allowing firms to deduct a notional interest rate on their equity as well. Specifically, the ACE or the notional return is defined as the product of the end of last year’s equity stock, Et-1, with a notional interest rate iˆ . The notional interest rate should be defined as the risk free nominal interest rate because the tax advantages are certain. It could be approximated by the rate on government bonds." The author goes on to list some of the advantages of ACE: Most obviously, the ACE system ensures neutrality for financing choices. Firms will thus be indifferent between debt and equity finance, at least regarding the corporate tax implications. More generally, the ACE system is neutral to investment. Therefore no tax is charged on marginal projects, as for such projects the notional return will exactly match the pre-tax profits. Hence any investment that would be worthwhile in the absence of tax remains worthwhile when taxed. The method of tax depreciation is irrelevant under an ACE system. Any increase in depreciation in early years, will reduce the stock of equity and hence the ACE in later years, which exactly offsets in net present value terms any benefit from earlier depreciation The system is also unaffected by inflation. Any increase in monetary profits that is due to inflation will be offset by a higher notional return, as the notional interest rate will also be higher as a result of inflation. Indexation is therefore unnecessary. The ACE thus achieves far more than just equal treatment of debt and equity finance, and from the list of properties above, it would appear to be such a great system, that it is a puzzle as to why not more countries have implemented it. There must clearly also be some drawbacks, and the following are among the main ones: Because of the narrower tax base, a higher tax rate needs to be set if the same amount of revenue is to be collected. This could be harmful in the presence of tax competition for mobile economic rents. There may be doubts as to whether other countries will accept corporate tax payments under an ACE system as a basis for double tax relief.

Interesting changes being entertained for the Australian Tax Code "The nine-person working group, set up by Mr Swan after the tax summit, is examining a proposal known as Allowance for Corporate Equity, which would apply no tax to the portion of corporate profits necessary to get a reasonable return on equity. Most companies - especially manufacturers - fail to meet that hurdle and would pay no corporate tax." http://www.canberratimes.com.au/news/national/national/general/business-tax-could-be-cut-to-nothing/2382561.aspx The usual commentators are starting to work themselves into a lather http://www.businessspectator.com.au/bs.nsf/article/banks-super-profits-tax-australia-gillard-governme-pd20111207-par9x?opendocument&emcontent_gottliebsen&src=msp

http://www.zerohedge.com/contributed/another-sweet-deal-buffett-%E2%80%93-who-pays-you-do I don't necessarily agree with the tone of the article but it looks like the project has some hefty subsidies that allow it to achieve a more than acceptable hurdle rate especially for a profitable tax paying business like Mid American

Great post, but the reference to Loews is a little outdated :) http://www.nytimes.com/2008/06/11/business/11menthol.html

So says Market Scout "After Six Years and Eight Months of Soft Market Pricing, U.S. Composite P&C Rates Finally Increase" http://www.marketscout.com/frontend/barometer2.asp

"Prime Restaurants (TSE:EAT) said Friday it will seek the advice of the Superior Court of Justice in Ontario, as to whether or not the take-over bid it received from Fairfax Financial (TSE:FFH) is superior to that of Cara Operations" http://www.proactiveinvestors.com/companies/news/21635/prime-restaurants-seeks-advice-of-superior-court-in-cara-fairfax-tussle-21635.html

The Economist's take on housing valuation http://www.economist.com/node/21540231?fsrc=nlw So there are still a few countries with housing more overvalued than Australia ;)

Next sub? http://www.marketwire.com/press-release/fairfax-announces-acquisition-of-additional-common-shares-of-mega-brands-inc-tsx-ffh-1589734.htm