nwoodman

A great interview with Australian Fund Manager, Matt Mclennan, who runs about $80b at First Eagle http://www.afr.com/p/business/financial_services/interview_transcript_first_eagle_qgIOfuxoKGFCgUuKQDbUaM I particularly liked this section on Aussie banks and the housing sector: Q: Australia’s banking sector accounts for about 30 per cent of the sharemarket index and the majors rank among some of the most profitable institutions in the world. Are you investors? "We haven’t been investors in the Aussie major banks because the raw equity-to-asset ratios, as opposed to the ratios calculated using risk-weighted assets, are lower than our comfort zone. We also haven’t been there because there is an element of dependence on wholesale funding in the business model. We’ve felt that it’s been a pretty good time for Australia – there has been a fair amount of cumulative credit growth over the last generation – and if you look at the reserves-to-loan losses inside the banks it’s pretty low in the scheme of things. A lot of people would argue it’s been a successful, oligopolistic, and well-regulated market. But the risk-reward for us investing in an environment where the private sector has built fairly high levels of debt and the structural tailwinds for the economy are becoming structural headwinds, has made it non-compelling for us to spend a lot of time there. There are better non-brainer opportunities for us around the world. We’ve also had limited investments in banks as a whole because we’ve had a fairly healthy scepticism for the world’s financial architecture. Where we have invested in banks they typically have conservative loan-to-deposit ratios, high equity-to-assets ratios, and lower leverage than what you find in Australia. We like banks that focus on regional lending with wide net interest margins and which have big fee earning businesses attached to their balance sheets. Those are hard to find, and so banks have not been a big feature in our portfolio." Q: You are clearly very knowledgeable on the Australian economy – what are your views on the resurgent Aussie housing market? It is interesting to me when you hear a politician [recently Joe Hockey] saying this is not a housing bubble – that is just a supply-constrained market. At the end of the day, I think the Australian housing market is instinctively on the full side of fair value in a situation where the natural constituency, the marginal buyer, is already quite levered. I don’t understand why people feel the need to say a market is not in a bubble. I don’t think that’s a prudent approach when you see large levels of leverage and fairly low rental yields. While I get it that you want to support confidence, I don’t know what the upside is in talking down legitimate risks. We’ve always made money by not losing money. Ultimately you feel far more confident when a management team tells you what it is worried about than when it displays complacency. ------------- For those that are interested this was the "we're different" interview with Australian Treasurer, Joe Hockey, that is referred to above http://www.macrobusiness.com.au/2013/10/in-new-york-hockey-defends-housing-bubble/

at least by my calculations. cheers nwoodman

I thought the recent commentary from Market Scout was interesting. Overall rates for P&C were up around 5 % but the report notes the following: "Richard Kerr, CEO of MarketScout profiled the September market conditions by noting, “There are several medium sized publicly traded insurance companies who are encountering challenges in their ongoing business operations. These companies may be sold, restructured, or placed into run off unless they structure some creative solutions to get them past their current financial crisis. Very capable, smart insurance executives lead each of these firms. It just goes to show how quickly things can go wrong if an insurer experiences adverse loss development. Rates will increase if a few more companies experience similar deterioration.” http://new2.marketscout.com/zBarometerCommercial.php Does anyone know the insurers he is referring to? I would imagine Tower is one of them http://www.reuters.com/article/2013/10/07/fitch-downgrades-tower-group-on-reserve-idUSFit67244920131007 Cheers nwoodman

Many thanks. They certainly are sticking to their debt deflation view of the world "Economic growth should be very poor in the final months of 2013. Growth is unlikely to exceed 1%, even less than the already anemic 1.6% rate of growth in the past four quarters. Marked improvement in 2014 is also questionable." Cheers nwoodman

A mediocre translation. http://tinyurl.com/n4y4etd Cheers nwoodman

Another word starting with "f" springs to mind. At least Prem is holding to his word and won't sink more cash into the deal. Thanks for posting as this was my biggest worry cheers nwoodman

Oh! Foul company. An undeclared trace of milk in one of their bon bons. What a nanny state we have become. I'll give you a free pass on this as I normally respect your opinion. As a parent of a child with serious allergies, believe me, this is is serious stuff. Cheers nwoodman

The thought also crossed my mind but I couldn't see any concentrated positions they hold that I would be interested in. http://whalewisdom.com/filer/sac-capital-advisors-lp in fact it looks like they are deliberately running a lack of concentrated positions, at least as far as their 13f is concerned cheers nwoodman

Bill Gates has been visiting the merry old land of Oz. 7:30 Report http://www.abc.net.au/7.30/content/2013/s3769375.htm Q&A http://www.abc.net.au/tv/qanda/txt/s3761763.htm cheers nwoodman

Nice! We had relatives up on the plateau that then moved to Whale Beach. So I agree with both of you, it is a cracking part of the world. I hooked the biggest flathead of my fishing career in Pittwater :) Spent a wonderful Christmas eating and drinking and enjoying the view out to Whale Beach prior to my first Sydney to Hobart. Happy Days! If that is the plan Eric, it is a good one and richly deserved. cheers nwoodman

Purchasing Power Parity would put it in the 60-70 cent range. An overshoot, as these things typically do, would put it into the 40-50 cent range. http://fx.sauder.ubc.ca/PPP.html It has been a wonderful period to invest funds overseas as the margin of safety has been the AUD. Alas, most Australian's have been sinking the proceeds of a multi-generational terms of trade boom into residential property. As the AUD drops and inflation picks up, no doubt house prices may well track sideways for 10 years. The punters will conclude property never goes down. They will be correct except for the fact that their purchasing power has been halved. cheers nwoodman

Me too:) That was a value trap if there ever was one. At one time I had a large chunk of my measly net worth in it, thankfully I was able to blow up that idea. In terms of French stocks, I currently have about 2% of the portfolio in Parrot (PARRO.PA). I like Henri Seydoux's style and innovative touch. Company seems cheap but they need to accelerate new products to replace their hands free bluetooth offerings. I am betting they can and the collaborative endeavors with Phillipe Starck give me hope. It is kind of like finding a French version of Apple on the cheap. cheers nwoodman

Those derivatives may pay off yet "WASHINGTON (Reuters) - With the inflation rate about half of the Federal Reserve's 2.0 percent target, the central bank is facing a major test and some experts wonder whether it will eventually need to ramp up its already aggressive bond buying program. The Fed cut official interest rates effectively to zero in late 2008 during the financial crisis. Since then, it has bought more than $2.5 trillion in bonds to bolster an anemic economic recovery and speed up the decline in unemployment. Despite those actions, its favored inflation gauge, the Personal Consumption Expenditures (PCE) price index, has fallen to a 3-1/2 year low of 1.0 percent. Further, by the Fed's own forecasts, inflation is likely to remain short of the central bank's target for years." http://news.yahoo.com/feds-credibility-tested-inflation-drifts-below-target-050452235.html

It will be interesting to see if we feel the same way in 12 months time. Right now the hedging as well as the low P/B is what I find so appealing about FFH.

Sure is. Been a while since I checked Gurufocus and noticed that they have also added some extra metrics. US Market Cap/GNP (MKT/GNP 107%) http://www.gurufocus.com/stock-market-valuations.php Schiller P/E (P/E 23) http://www.gurufocus.com/shiller-PE.php Australia (MKT/GDP 126%) http://www.gurufocus.com/global-market-valuation.php?country=AUS Although way too early, the more extended this becomes the easier time I have with FFH's hedging policy. I have even rotated a small amount of BRK into FFH which I thought I would never do.

A reprint of the WSJ article on the same topic (but no subscription required) http://www.foxbusiness.com/news/2013/04/26/buffett-berkshire-hires-four-top-aig-executives/

Thank-you for posting this, it is very generous of you. The graph of the PC industry profitability over the longer term is very helpful cheers nwoodman

http://www.businessinsurance.com/article/20130425/NEWS04/130429867?tags=|306|76|78

Thanks Frith2012. I wish Munger's views carried some influence here in Australia. We are taking the opposite stance, instant gratification :(

Thanks for posting the interview. Loews comprises a material amount of my portfolio but every time I hear JT interviewed, inevitably there are those cringe moments. I think I know where he is coming from but his arguments for capital allocation by the private sector and exporting gas were particularly weak today. I don't disagree with him but we are spoilt after listening to the unforced force of more eloquent business luminaries such as Munger. Has anyone ever heard Munger state his position on whether the USA should start exporting LNG? I certainly recall that he believes we are squandering longer chain hydrocarbons by combusting them rather than using them to generate more elaborate products. cheers nwoodman

Congratulations Sanjeev and thanks to all participants. I am definitely wiser and wealthier for the experience Regards nwoodman

FWIW 1.5-1.6 is my baseline valuation as well. I hope it never gets there as it will be difficult to find another investment that has the same "sleep easy" characteristics. If FFH was still at book then perhaps....

Q4 2012 CC Transcript http://seekingalpha.com/article/1188131-fairfax-financial-holdings-limited-management-discusses-q4-2012-results-earnings-call-transcript?source=google_news

Dataroma is correct based on the 13F. However as you rightly point out the 13G filing is almost twice as much. The entities relating to the 13G filing are: 1. This statement is being jointly filed by the following persons (collectively, the “Reporting Persons”): 2. V. Prem Watsa, an individual; 3. 1109519 Ontario Limited (“1109519”), a corporation incorporated under the laws of Ontario; 4. The Sixty Two Investment Company Limited (“Sixty Two”), a corporation incorporated under the laws of British Columbia; 5. 810679 Ontario Limited (“810679”), a corporation incorporated under the laws of Ontario; 6. Fairfax Financial Holdings Limited (“Fairfax”), a corporation incorporated under the laws of Canada; 7. Fairfax (US) Inc. (“Fairfax US”), a Delaware corporation; and 8. Odyssey Reinsurance Company (“Odyssey”), a corporation incorporated under the laws of Connecticut. Any clues as to how you can have such vastly different amounts between filings considering Sixty Two and Ontario are Prem's vehicles for his Fairfax shares? Cheers nwoodman

Dataroma Link http://www.dataroma.com/m/holdings.php?m=FFH