Zorrofan
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Posts posted by Zorrofan
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I have never heard that definition before. Do you think FFH is investing hundreds of millions based on your theory of deflation?
I think they are investing hundreds of millions of dollars based on the idea that the US is in a Great Depression scenario which I think is wrong. You don't get much deflation from a consumer credit crisis. Because you can't fire your wife. You get deflation from business/financial credit crisis. During both the Great Depression and the Japanese credit crisis it was businesses that held huge debts. The deflation during the Great Depression was due to bank failures and businesses firing workers and lowering prices. This was explained competely by Irving Fisher. This is completely different than the current situation because the Fed bailed out the banks and the businesses were not heavily in debt to begin with. So you were never going to get huge deflation. Plus the retirement of the baby boomers is an inflationary tailwind. The whole thesis never made sense.
Wouldn't the retirement of baby boomers be deflationary? Smaller retirement incomes mean less spending.....
cheers
Zorro
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What nit-picking? I see it as following along with Sanj on this new and exciting chapter, and hopefully learning alongside him.....
cheers
Zorro
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There is a thread for it in the investment ideas section.
Having its own section would make it easier to discuss various issues, example the Russell Breweries takeover, by allowing each issue its own thread rather than having one thread for everything. Many of us are invested in PDH and i am guessing it will be a popular topic as Sanj grows the company.....
cheers
Zorro
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Given that Sanj has entered the next phase of his career with Premier Diversified Holdings, do we want to request that a separate section be set up to discuss PDH (as we do with FFH and BRK)? I for one would find it easier to keep track of what is going on at PDH......just a thought
cheers
Zorro
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Please explain to me how the outlook is higher now than before? The US private sector has deleveraged quite a bit and you have a decent economic recovery under way?
If you have an economic shock that doesn't mean deflation. To achieve deflation you will need another shock probably of a higher than the one in 08. Just that fed may tighten a bit early doesn't mean automatic deflation. Those errors can also be reversed. If the economy slows down I think we can be pretty confident that you see QE4 coming in.
Given the facts it really doesn't seem like cheap insurance at all.
You say that 2008 relevant enough to draw conclusions from. Ok look long term and let me know what cases in history do you think are more pertinent to the present situation in the US. I would leave Japan out since their doesn't really look like the US.
From the 2014 Annual Report....
Hedging our common equity exposures has been very costly for us over the last five years – particularly in 2013. However, we did warn you that we wanted to be safe rather than sorry – our time will come again!
We have worried about deflation in the past few years in our Annual Reports – it is now upon us! In spite of QE1, QE2 and QE3 and some twists, we saw deflation in the U.S. in the second half of 2014, as shown in the table below:
% change June –
U.S. CPI Index June July August September October November December June-Dec. 2014
238.3 238.3 237.9 238.0 237.4 236.2 234.8 -1.5%
We have had deflation at an annualized rate of 3% in the second half of 2014 in the U.S.! And it is not going
away. In fact, in January 2015, the U.S. reported its first year-over-year decline in the CPI index since 2009 of 0.1%. In Europe, we had deflation of 0.5% in the second half of 2014, as shown in the table below:
% change
European CPI June –
June July August September October November December June-Dec. 2014
117.6 116.8 116.9 117.4 117.4 117.1 117.0 -0.5%
As of January 2015, 17 out of 19 countries in the Euro area were experiencing deflation on a year-over-year basis.
However 8 months into 2015 where is the deflation? and at what cost? Over $4 billion dollars plus opportunity cost. One quick example, if FFH had not spent this money hedging it could have bought 100% of Brit, no equity issue required.
Here is a very interesting write up from Az Value, worth a read.....
http://azvalue.blogspot.ca/2014/04/fairfax-and-their-bets-now-looking-in.html
FWIW, while FFH is losing money hedging BRK is buying, investing $38 billion in PCP and another $4.4 billion in Philips 66.
my $0.02
cheers
Zorro
Zorro. Please explain where you're getting this $4 billion cost on CPI derivatives? Nonsense. Your spewing incorrect numbers just like AZvalue did in his post about FFH compared to BRK. AZvalue incorrectly calculated the change in book value per share in his comparision of FFH to BRK. Properly calculated FFH outperforms BRK in every category except 5 years. Try again next time.
From page 20 of the Fairfax 2014 annual report......
In the last five years, we have had significant losses, mostly unrealized, from our hedging program and from our CPI-linked derivative contracts, as shown below:
2010 2011 2012 2013 2014 Cumulative
Equity hedges (936.6) 413.9 (1,005.5) (1,982.0) (194.5) (3,704.7)
CPI-linked derivative contracts 28.1 (233.9) (129.2) (126.9) 17.7 (444.2)
Total (908.5) 180.0 (1,134.7) (2,108.9) (176.8 ) (4,148.9)
My nonsense as you call it comes from the annual report, try reading it before attacking someone next time....and try being civil.
Reread your post. Where did you say you were including the equity hedges? This is the deflation hedges thread and all you quoted and discussed was the CPI hedges. We are 8 months into 2015 and the costs of the CPI hedges are $444 million dollars, not $4 billion. Now you want to include the equity hedges. Ok, whatever. As Dazel has pointed out this is a 1% cost spread over a number of years for insurance. Time will tell if they will pay off.
Clearly you did not read my original post, where I was clearly talking about the equity hedges and the CPI hedges. But life is too short to waste time arguing with you. You want to ignore $3.6 billion in hedging losses, your choice......
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Please explain to me how the outlook is higher now than before? The US private sector has deleveraged quite a bit and you have a decent economic recovery under way?
If you have an economic shock that doesn't mean deflation. To achieve deflation you will need another shock probably of a higher than the one in 08. Just that fed may tighten a bit early doesn't mean automatic deflation. Those errors can also be reversed. If the economy slows down I think we can be pretty confident that you see QE4 coming in.
Given the facts it really doesn't seem like cheap insurance at all.
You say that 2008 relevant enough to draw conclusions from. Ok look long term and let me know what cases in history do you think are more pertinent to the present situation in the US. I would leave Japan out since their doesn't really look like the US.
From the 2014 Annual Report....
Hedging our common equity exposures has been very costly for us over the last five years – particularly in 2013. However, we did warn you that we wanted to be safe rather than sorry – our time will come again!
We have worried about deflation in the past few years in our Annual Reports – it is now upon us! In spite of QE1, QE2 and QE3 and some twists, we saw deflation in the U.S. in the second half of 2014, as shown in the table below:
% change June –
U.S. CPI Index June July August September October November December June-Dec. 2014
238.3 238.3 237.9 238.0 237.4 236.2 234.8 -1.5%
We have had deflation at an annualized rate of 3% in the second half of 2014 in the U.S.! And it is not going
away. In fact, in January 2015, the U.S. reported its first year-over-year decline in the CPI index since 2009 of 0.1%. In Europe, we had deflation of 0.5% in the second half of 2014, as shown in the table below:
% change
European CPI June –
June July August September October November December June-Dec. 2014
117.6 116.8 116.9 117.4 117.4 117.1 117.0 -0.5%
As of January 2015, 17 out of 19 countries in the Euro area were experiencing deflation on a year-over-year basis.
However 8 months into 2015 where is the deflation? and at what cost? Over $4 billion dollars plus opportunity cost. One quick example, if FFH had not spent this money hedging it could have bought 100% of Brit, no equity issue required.
Here is a very interesting write up from Az Value, worth a read.....
http://azvalue.blogspot.ca/2014/04/fairfax-and-their-bets-now-looking-in.html
FWIW, while FFH is losing money hedging BRK is buying, investing $38 billion in PCP and another $4.4 billion in Philips 66.
my $0.02
cheers
Zorro
Zorro. Please explain where you're getting this $4 billion cost on CPI derivatives? Nonsense. Your spewing incorrect numbers just like AZvalue did in his post about FFH compared to BRK. AZvalue incorrectly calculated the change in book value per share in his comparision of FFH to BRK. Properly calculated FFH outperforms BRK in every category except 5 years. Try again next time.
From page 20 of the Fairfax 2014 annual report......
In the last five years, we have had significant losses, mostly unrealized, from our hedging program and from our CPI-linked derivative contracts, as shown below:
2010 2011 2012 2013 2014 Cumulative
Equity hedges (936.6) 413.9 (1,005.5) (1,982.0) (194.5) (3,704.7)
CPI-linked derivative contracts 28.1 (233.9) (129.2) (126.9) 17.7 (444.2)
Total (908.5) 180.0 (1,134.7) (2,108.9) (176.8 ) (4,148.9)
My nonsense as you call it comes from the annual report, try reading it before attacking someone next time....and try being civil.
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I guess what i am saying is after 5 years is FFH wrong? Maybe they are right, i don't know. But i see BRK buying good business after good business, building the cashflow stream regardless of possible macro events. FFH could have used that money to do the same. There is an opportunity cost to the hedging, and it is growing larger each year. I read the post by AZ Value and thought it raised some good points......
cheers
Zorro
PS Having posted this, we will likely face a huge deflationary wave shortly and FFH will make billions......
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Please explain to me how the outlook is higher now than before? The US private sector has deleveraged quite a bit and you have a decent economic recovery under way?
If you have an economic shock that doesn't mean deflation. To achieve deflation you will need another shock probably of a higher than the one in 08. Just that fed may tighten a bit early doesn't mean automatic deflation. Those errors can also be reversed. If the economy slows down I think we can be pretty confident that you see QE4 coming in.
Given the facts it really doesn't seem like cheap insurance at all.
You say that 2008 relevant enough to draw conclusions from. Ok look long term and let me know what cases in history do you think are more pertinent to the present situation in the US. I would leave Japan out since their doesn't really look like the US.
From the 2014 Annual Report....
Hedging our common equity exposures has been very costly for us over the last five years – particularly in 2013. However, we did warn you that we wanted to be safe rather than sorry – our time will come again!
We have worried about deflation in the past few years in our Annual Reports – it is now upon us! In spite of QE1, QE2 and QE3 and some twists, we saw deflation in the U.S. in the second half of 2014, as shown in the table below:
% change June –
U.S. CPI Index June July August September October November December June-Dec. 2014
238.3 238.3 237.9 238.0 237.4 236.2 234.8 -1.5%
We have had deflation at an annualized rate of 3% in the second half of 2014 in the U.S.! And it is not going
away. In fact, in January 2015, the U.S. reported its first year-over-year decline in the CPI index since 2009 of 0.1%. In Europe, we had deflation of 0.5% in the second half of 2014, as shown in the table below:
% change
European CPI June –
June July August September October November December June-Dec. 2014
117.6 116.8 116.9 117.4 117.4 117.1 117.0 -0.5%
As of January 2015, 17 out of 19 countries in the Euro area were experiencing deflation on a year-over-year basis.
However 8 months into 2015 where is the deflation? and at what cost? Over $4 billion dollars plus opportunity cost. One quick example, if FFH had not spent this money hedging it could have bought 100% of Brit, no equity issue required.
Here is a very interesting write up from Az Value, worth a read.....
http://azvalue.blogspot.ca/2014/04/fairfax-and-their-bets-now-looking-in.html
FWIW, while FFH is losing money hedging BRK is buying, investing $38 billion in PCP and another $4.4 billion in Philips 66.
my $0.02
cheers
Zorro
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http://azvalue.blogspot.ca/2014/04/fairfax-and-their-bets-now-looking-in.html
Since there is a lively discussion of AZ Value's post on Valeant, i thought it might be interesting to look at their take on FFH's hedges and CPI contracts. They do raise a good point about Buffet buying quality companies while FFH has spent a lot of money on these hedges...
cheers
Zorro
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ss, I am a bit cautious at this time and I have a hard time understanding why the world was so interconnected since 2008 and now all of a sudden, the U.S. is becoming the only place in the world totally insulated from the outside. Anyone else?
Cardboard
It's one of the relatively most insulated, with exports being a small percentage of GDP (at about 13%).
The rest of the world feels relatively more pain when the US stops buying their goods, than vice-versa.
Eric, are the S&P 500's overseas earnings part of "exports". My line of questioning relates to if they aren't, then with emerging and Asian economies slowing, this could impact Europe's economy (which may be more reliant on exports than the US). If this is the case, the rest of the world may be slowing dramatically reducing the S&P 500's overseas earnings (which I hear is half their earnings).
Does this make sense?
I thought the overseas earnings were what we derive from the exports. Happy to be proven wrong though so I can keep learning.
All exports are overseas earnings but not all overseas earnings are exports. Many multi-nationals have both production and sales located in other regions (ex. China). GM produces and sells cars in China, however since they are produced in China they are not US exports but they are overseas earnings for GM.
hope this helps...
cheers
Zorro
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The word austerity has become too dirty and talk of it way too dogmatic instead of practical. If spending is wasteful in government then in the long run you will benefit from cutting that spending.
Why do you think the Greek people haven't been paying their taxes? Because they don't want to? No.. because they don't trust the government and how it's being spent.
As an interesting side note, it is also a cultural thing, derived from centuries of occupation by the Ottoman empire. Who wants to pay taxes to an occupying force?
https://en.wikipedia.org/wiki/Ottoman_Greece
your history lesson for today ;D
cheers
Zorro
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vote delayed......
http://www.reuters.com/article/2015/07/20/fairfax-fin-meeting-idUSL1N1001DY20150720
cheers
Zorro
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IMO, we should make Chinese invest in Greece and we'd solve two issues at once.
Never mind if they don't get their money back.
I know you are joking but at one point during the worst of the financial crisis I believe China was buying euro bonds. I think the market turmoil in China is more a symptom of their problems rather than THE problem....
cheers
Zorro
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While there is much worry and angst in the press about Greece, is the recent stock market crash in China a bigger problem looming on the horizon?
http://www.huffingtonpost.ca/2015/06/26/china-stock-market-crash_n_7674838.html
Consensus seems to be no but China is now the second largest economy in the world. Is the crash a symptom of deeper problems to come??
cheers
Zorro
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Is there something there in particular that you find funny/objectionable/etc.?
Yes. They just had a referendum a week ago that had almost the exact same proposals as this one. Sure, they will get some more money, but what did the last 6-8 months cost their economy? What about respecting the 'No'? So yes, quite funny and absurd to me. So long for being extremist lefties.
Btw, I "get" it. Their bluff was called and they had to fold. Tsipras isn't an extremist in the end. It just goes to show that the last half year was completely hopeless and gave the Greek people false hope. There is no other way that is sensible.
Their bluff was called? You mean the creditors - whose brilliant reforms to-date helped create a depression in Greece as the economy contracted 25% - are forcing more austerity onto Greece. Yes Greece needs to reform, it is long over due, but there is plenty of blame to go around. If Greece is a debt riddled spending junkie the EU is their dealer. Even the IMF is calling for debt forgiveness. Albert Einstein defined insanity as doing the same thing over and over and expecting a different result. Apparently the EU feels that after 7 years of austerity the best thing is more austerity? Again. plenty of blame and Greece needs to reform but lets have some compassion for the people of Greece. Ask yourself "what would here if the economy contracted 25%" .......
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Happy birthday and lets hope PDH compounds at high rates for many decades!!! :-)
what he said! all the best...
;D
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ZeroHedge has been a perma bear and has successfully predicted 10 out of the last one crisis in the past decade. :)
ZeroHedge has probably lost more people more money than most financial sites out there. Opportunity cost is real.
+1
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Congratulations!
cheers
Zorro
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Shorted TNA (Direxion Daily Small Cap Bull 3X Shares) and bough KMI
Thanks,
Lance
Lance,
Regarding KMI, I am considering lightening up as I am anticipating another "taper tantrum" when the FED finally raises rates this fall. Also worried about the high payout ratio, they are paying out the vast majority of their cashflow.....your thoughts?
cheers
Zorro
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Prem comments on Greece and FFH investments there.....
cheers
Zorro
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surprised no one thought of this already......
this is a tough one, with pros and cons. This keeps Prem in control for next ten years (pro) but if he dies tomorrow does his son take over (con?)? What is his track record??
cheers
Zorro
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thanks for posting
Deflation hedges
in Fairfax Financial
Posted
Very interesting....thanks for your reply. Couple this with the roll off from the oil price collapse (as pointed out by TwoCitiesCapital) and we could see some interesting results over the next few years.....