oec2000

Australian wines cost more than they do in the US too - as I found out on my trip there last month. It used to be that London and Tokyo were considered expensive cities but I met people from these cities who complained that Sydney is more expensive now. Having said that, the nice thing about Australia is that the price you see is the price you pay unlike here in North America where taxes and tips are extra. So, menu prices are about 40-50% more than in Vancouver, adjusted for the 30% taxes and tips you have to add on here, the difference is not so great. One positive you forgot to mention - you get great coffee in Australia, very un-Starbucks. Btw, do you feel that Australians are more tuned in to what is happening in Asia (China in particular) and the pace of change there. Although people are more aware these days, I feel that many North Americans still haven't grasped the significance of what is happening in Asia - it's frustrating to see the petty bickering that goes on here that is so parochial.

Isn't it true also that the high we get from making money has similar effects on the brain as cocaine? Explains Buffett's love of stocks and coke (the legal type)? :)

The impact of surrenders is not straightforward and even though in some situations insurers make money from surrenders, generally speaking surrenders are not a good thing for insurers. Because of new business strain (caused by high upfront costs), surrenders in the early years of a policy result in losses. This is a negative. After a policy has been in force for a while, surrenders do throw up gains for lifecos via the release of surpluses. (Policy reserves in excess of cash surrender amounts paid out.) While this provides a short term boost to profits, there is a negative long term impact to the insurer - because they lose the future profits from the policies. These lost revenues then have to be replaced with revenues from new policies which introduce the drag of new business strain. The most negative and dangerous impact of surrenders is when interest rates rise sharply. Policyholders holding policies bought when interest rates were lower (thus providing lower rates of implied return) now have an incentive to surrender their policies and reinvest in higher yield instruments. Because this happens at a time when interest rates are elevated and therefore investment values are depressed, the insurers are forced to liquidate discounted investment assets to pay off policyholders. There is another negative dimension. Healthy policyholders (i.e. those still insurable) are more likely to surrender than those who are uninsurable - this will end up skewing the mortality risk of the insured lives that stay on the book. In any case, my original post was in response to a comment about using life funds as float. The danger of unpredictable surrenders is what makes life insurance float risky and thus less attractive than general insurance float. This is why neither Buffett nor Watsa are interested in life insurance float. In fact, I believe Prem used to work at Confederation Life which experienced such a run (must confess my recollection is vague and someone else may be able to give a better account of what happened). I would add that term life as well as life reinsurance policies do not have these problems because they work more like general insurance. I don't think, however, there are companies that do only these types of business. Wonder why Buffett or Watsa are not interested in this form of float - what I am missing?

The two key problems with life insurance float are: 1) They are subject to runs - policyholders can surrender their policies. With P&C business, once the policies expire the money is locked in as float until claims have to paid out. So, the life business is not unlike the banking business where you borrow short and invest long. 2) Life insurers are committed to very long term pricing. If they get it wrong, they will be screwed for a very long time (as we are seeing MFC experience over the past few years). Also, for some products, they commit to very long term fixed returns to their customers. These fixed returns cause problems when you have severe economic environments when interest rates go either very high or very low because policyholders can act selectively against the insurer. The current economic environment where we might have a prolonged period of abnormally low rates which oculd then be followed by a period of high inflation and interest rates is excatly the mix that is not good for lifecos. Their spreads suffer when rates are low; and they are vulnerable to surrenders when rates go high. Investing the float without certainty of the duration of liabilities is a major problem.

They are not stupid, just realistic. The PM knows that if they cannot implement the austerity measures successfully they will be back asking for more help eventually and the austerity cannot be carried out without the support of the people. Greece's problem are indicative of the problems facing other countries if they do not arrest the trend of rising debt/GDP ratios soon. The 50% debt haircut brings Greek sovereign debt down to 120% of GDP for now - but unless they can balance the budget going forward, this ratio is set to rise again. The perverse thing is that if they balance the budget but do it at the cost of causing an economic contraction, the debt ratio still rises! What is scary is that Italy is already at 120%, and the less indebted countries in Europe will have to increase their ratios to provide the support needed to the EFSF and their own banks. So far, except for the Greek debt writedown, none of the schemes proposed in Europe solve the fundamental problem of overindebtedness - they are just rearranging chairs. Even the Greek debt haircut has to deal with unintended consequences of Greek banks and pension funds getting hit on their bond holdings - presumably the Greek govt will have to borrow to fill up these holes! It's a crazy situation. Probably explains why Prem remains worried.

It would be nice if everyone could be all things to all people. The reality is that we are all composites of good and bad. Rather than wishing for something idealistic that will not happen, why not be glad that we have people who excel in different things, character faults notwithstanding. We are infinitely better off in a world where Jobs, Churchill, Gandhi, Buffett, Mandela, Franklin, Princess Diana, etc focused on what they did best. The work of the great humanitarians would more than offset the pain caused by the "assholes." This would be certainly be a more interesting world than one in which Diana and Jobs wasted half their time doing things they were bad at, such as creating electronics and helping AIDS and landmine victims respectively. The Theory of Comparative Advantage works.

I found this disturbing: "We have assembled, with support from Capital Economics in London, foreign debt to GDP ratios that are comparable to the U.S. debt to GDP ratio. The debt figures in these ratios include both private and government debt; thus, they are measures of aggregate indebtedness. These statistics indicate that the euro currency countries as a group, the United Kingdom, Japan and, interestingly Canada, are all more deeply indebted than the United States. This should not give the U.S. solace, nor detract from our severe problems. However, the greater debt in these areas may serve to provide backhanded support for the dollar. More critical is that all major countries are destined to experience slower growth because of excessive indebtedness. The latest readings indicate that debt to GDP ratios are about: 450% for the Euro zone and the United Kingdom; 470% for Japan, and 410% for Canada. Thus, the Euro Zone, UK, Japan,and Canada ratios are 100%, 100%, 120%, and 60% higher, respectively, than the U.S. debt to GDP ratio of 350%."

Last time I checked, it did not appear that either current management (i.e. those who have not been suspended) or the auditors really knew what was going on in the company. Do you think they know whether the company is solvent?

I totally agree, and this is what annoys me most about politics around the world. The lack of adults in the room. Its very interesting because you get elected by promising to lower taxes and increase entitlements. We all know that wont work long term but its what they do each session. One day it will give though. This is one adult worth listening to. :) (The Jamie Dimon of Canada?) http://www.theglobeandmail.com/report-on-business/read-ed-clarks-speech/article2207111/

You should check out his other book reviews on Amazon - very high quality and informative. (Thanks, James! :))

All investors (including Buffett and Watsa and I presume all of us here) invest with selfish intentions of making money - it is simply unfair to imply that only short sellers have selfish intentions. No one is claiming that shorts are altruists out to help the world. But we cannot deny that the actions of both longs and shorts can contribute to the greater good (e.g. when the longs provide capital to good companies and when the shorts expose dishonest management). I understand and share your distaste for unscrupulous characters who short, distort and collude. However, there is a tendency for the negative "rush to judgement" of shorts who go public with their positions. Unless there is evidence of wrongdoing, shouldn't we practise the principle of "innocent until proven guilty?" Where is the evidence that Carson Block deliberately singled out healthy companies for attack and spread false rumours? Why do people think that shorts would deliberately choose healthy companies to attack? No matter how unethical they are, it doesn't make sense to choose a healthy company to short over an unhealthy one. The simpler explanation - that shorts, like longs, occasionally make mistakes in their analyses - seems more plausible to me. That's a false analogy, because a hit and run sees the victim severely injured for a period of time. A negative writeup on a company, although it distracts management, doesn't affect the core business. Alfred Little's blog ramblings don't make it harder or more difficult to mine silver. Unless there is some silver fairy that I don't know about working for the shorts and disrupting mining procedures (I wouldn't put it past the Sith Lord). Access to capital is a privilege not a right. Capital can freeze with or without shorts, just due to a loss of confidence. Silvercorp will get that privilege back if and when the shorts are proven wrong (they are possibly most of the way there) and/or the market restores confidence in them, just like the Fairfax story. Hester, don't you think we should make a distinction between "good" and "bad" shorts? To the extent that "bad" shorts drive down a company's stock with false rumours and coordinated attacks resulting in a highly dilutive fundraising (as happened with FFH), there is some permanent damage done. The bad shorts have the privilege to trade in markets but surely that doesn't give them the right to use illegal tactics. I think the problem with this debate is that we have one group who want to demonise all high-profile shorts and another group that want to defend all shorts. Why not just accept there are some "bad" shorts (whom we should all condemn) and some "good" shorts (whom we should all support for their contrary views)?

If you understand how ponzi schemes work, you will not think this curious at all. Ponzi schemes work BECAUSE the operators do pay interest - at very attractive rates usually!

Which is why we need to look at age and family size adjusted spending. Using my suggested formula, a 25 year old single spending $10,000 is roughly equivalent to a 55 year old (family of four) spending $120,000. In this context, the $10,000 doesn't look so so crazy. Agree with you completely. While it is important in the capital accumulation phase to make sacrifices, we want to be able to wean ourselves off the sacrifices as our financial situation improves. I have both experienced and seen it in others - where after many years of frugal living that it becomes difficult to shake it off. Don't underestimate the power of habit. I know it is a bad example for a value investing forum but don't wait till you are 65 to buy a Ferrari (if that is what you desire and can afford it when you are younger). Money should just be a means to an end but too many people forget and make it the end - which is why many seriously rich people still believe in ripping other people (especially shareholders) off. It's always good to have in mind when enough is enough.

Sanjeev, It's your call as organiser but my suggestion is that we have two groups of people - the ones who want food can come earlier to have dinner (or hor d'ouevres) and pay more; the ones who don't want food can come later and pay less. This way we don't deter people because of cost. Also, we maximise the collections for the Foundation. oec

I think a better formula would be: (Annual expense)/(Household size)/(Age-10) to adjust for family size and age.