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Unfair to say the least. BUT, the economy was in freefall when this policy was put forward along with a broad range of confidence restoration mechanisms. I recall swapping some private emails with a friend many months ago on this subject and noted Buffett hadn't made a big deal out of this. As time wears on, he may comment more publicly on the unfairness. As banks recapitalize, the need for TARP will diminish and the playing field needs to be releveled. I have to agree with re-capitalization of the financials as a necessity, but it rubs me the wrong way on principle. It's a sorry chapter and a response to wild speculation. Some tougher alternatives were certainly contemplated by the Obama crowd. -O

This is amusing :D http://brontecapital.blogspot.com/2009/06/in-defence-of-naked-short-selling-or.html -O

Looks like the Cdn/US dollar arbitrage may be ending... http://www.theglobeandmail.com/report-on-business/carney-set-to-act-on-high-dollar/article1229193/ -O

A long read...Good overview of financial system risks and reforms being proposed. - O GAO-09-739, Financial Markets Regulation: Financial Crisis Highlights Need to Improve Oversight of Leverage at Financial Institutions and across System, July 22, 2009 http://www.gao.gov/pdfs/GAO-09-739?source=ra

http://www.reuters.com/article/mergersNews/idUSBNG39720620090717 * Cash offer at 76 pct premium to Advent's Thursday close * Fairfax already owns about two-thirds of Advent * Fairfax plans to delist Advent (Adds details) July 17 (Reuters) - Toronto-based Fairfax Financial Holdings Ltd (FFH.TO) said it agreed to buy the remaining stake in British insurer Advent Capital (Holdings) Plc (ADV.L) for 220 pence per share, valuing Advent at about 94 million pounds ($153.9 million). The insurance holding company said it would buy the shares of the Lloyd's of London [LOL.UL] insurer that it does not already own and the offer represents a 76 percent premium to the stock's closing price on Thursday. In July 2008, Fairfax had offered to buy Advent for 165 pence each. As a result of the prior offer and subsequent market purchases of Advent shares, Fairfax owns about 66.7 percent of the company's shares, it said. Fairfax plans to buy out the minority investors in Advent and delist the company. Merrill Lynch International is Fairfax's financial advisor, the insurer said. Advent shares were indicated up 72 percent at 215 pence at 0704 GMT. Shares of Fairfax closed at C$292 on Thursday on the Toronto Stock Exchange. ($1=.6106 Pound)

Is the $600M number new? I realize that the top-line number isn't all FFH, but I'm assuming that they're in for half for ~$300M. It might be worth a question (what's FFH's current exposure to ABH) at the next quarterly call if anyone from the board is going to be on the call... http://www.bloomberg.com/apps/news?pid=20601082&sid=aVrZ5b43eVfk AbitibiBowater won court approval on June 4 to borrow as much as $600 million from Fairfax Financial Holdings Ltd. and Avenue Investment LP, according to court documents. Earlier this month a securitization facility was granted that will provide the company with as much as $300 million for the next 12 to 18 months. -O Wow! I wonder why Prem thinks this is a good idea? I wonder whether he is just stubbornly refusing to admit defeat? $180m is another $10/share. Surely there must be better opportunities out there for a large block of money like that?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0kAlJZXFtzQ CIT Group’s Bondholders Said to Discuss Debt Swap (Update2) July 16 (Bloomberg) -- CIT Group Inc. bondholders are holding calls today to discuss whether to swap some of their claims for equity to reduce the 101-year-old lender’s indebtedness, according to a person familiar with the situation. Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, was to host a call, and debt owners are considering hiring financial and legal advisers, said the person, who declined to be identified because the discussions are private. The company hasn’t proposed an exchange offer. CIT is running short of cash and may need as much as $6 billion to avoid filing for bankruptcy protection, after the U.S. wouldn’t give the firm a second bailout, CreditSights Inc. analysts said. CIT, which has reported $3 billion of losses in the last eight quarters, received $2.33 billion in funds from the U.S. Treasury in December and hasn’t been given access to the Federal Deposit Insurance Corp.’s debt-guarantee program. -O

Factoring is a commodity business, but the quality of the business also depends on the relationship between liquidity provider and the client. Long-term relationships and a judicious eye can weed out the bad apples from the liquidity provider's portfolio. In this environment, former "quality customers" are likely causing writeoffs and CIT has died a death of 1000 cuts. Factoring is still a required business and it's likely that there will be a vacuum as CIT heads into bankruptcy. I would expect that CIT's assets will be bought by a banking interest. In Canada, the 2 largest providers are GE Capital and Accord Financial who have segmented the market. Accord is the provider to the small end of the market (i.e. below $10M sales). These businesses may experience some customer wins since they both have presence in the US markets along with many other US providers. This is still a tricky environment, so pricing from the provider side will likely firm. -O

Why not look at the ad agencies instead? It's a cheaper call option on the upside from renewed ad spend. -O

Projecting ahead...there has to be another flight to quality coming in the bond market if states and municipalities start defaulting. Cali is the 8th largest economy by GDP. -O

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/25/AR2009062500887.html So the NY Fed is the proud owner of 2 Special Purpose Vehicles (SPVs), with the life insurance obviously (ALICO) not being competitive with BRK, FFH, MKL, etc. AIA operates in China, so Kenneth Kwok at Falcon (FFH subsidiary) will see some competition, for example. If the NY Fed buys two subsidiaries, surely there are other deals pending as AIG divests and deleverages to pay back the Fed... -O

This is the point in the change from recession to recovery where questions arise about how quickly the recovery will occur. I posted an essay from John Train a couple of times and I'm finding it's good for my outlook to re-read it. Train's essay is part fiction, but it captures his experiences as a money manager in several business cycles. My take on his essay is that we're still in the "Early Surge". There was a quote by Nouriel "Dr Doom" Roubini a few weeks ago about "pushing on a rope", but it seems to have disappeared from the available news stories. Buffett's awesome quote today that getting nine women pregnant won't make a baby in one month was classic! http://web.mac.com/thebroadside/T/Broadside/Entries/1994/11/13_Twelve_Choruses_of_a_Market_Cycle_files/market-choruses-TB.gif 2. The Early Surge: "Things look better but it's too early to buy. Wait for a pull-back." The government, shocked by the decline and, as always, beset by the clamour to "do something", announces public works and other stimuli which, of course, will not take effect until many months later. So, the pundits declare that, this time, the stimulus isn't working. "It's like pushing on a rope," they say. Months go by and prices rise. A few mutual funds will have been started during the bottom area: indeed, you read that the Hercules fund has risen 75 per cent in six months. When "everybody" is waiting for a buying opportunity, there will ordinarily be no buying opportunity. And here's the Buffett story that I nicked the picture from... http://web.mac.com/thebroadside/T/Broadside/Entries/2009/3/20_Buffett_Naked.html

I wish...Sardar Biglari had a wonderful quote in his 2007 Chairman's letter: As Wal-Mart founder Sam Walton once said, “Most everything I’ve done I’ve copied from someone else.” -O

Careful where you look for green shoots! ;D http://web.mac.com/thebroadside/T/Broadside/Entries/2009/3/20_Buffett_Naked_files/shapeimage_2.jpg Cheers, -O

microvalue on another board shared an interview with Julian Robertson (ex-Tiger Fund) who contributes the following idea: JR: There are a lot of things to do. The insurance policy I would buy is called a CMS [Constant Maturity Swap] Rate Cap, which is the equivalent of buying puts on long-term Treasuries. If inflation happens the way it could, long-term Treasuries are just going to explode. [Editors’ Note: Tiger trader Pat O’Meara explains that the CMS Rate Caps are options to bet on interest rates rising for 10-year or 30-year Treasuries. He provides a current example, in which one could buy for $50,000 a five-year option, betting that the yield on $10 million worth of 10-year Treasuries rises above 4.2% between now and expiration in 2014. Including the 0.5% cost of the option, the break-even yield level is 4.7%.]

Sprott is just regurgitating Bill Gross, but with an alarmist message. Here's Gross' original: http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/IO+June+2009+Staying+Rich+in+the+New+Normal+Gross.htm Paul McCulley, also at Pimco, indicates that the Fed can also shrink its balance sheet through asset sales and is not purely adding liabilities to its balance sheet. Also, he provides some insight into the differences between quantitative easing vs credit easing. McCulley also argues against "rip-roaring inflationary fire". http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/Global+Central+Bank+Focus+June+2009+Exit+Strategy.htm Sprott's thesis is inflation and thus metals and commodities -- typical Canadian money manager stuff, sell what's in your back yard. Sprott's probably still recovering from last year. http://www.sprott.com/priceperformance.aspx?id=15&t=2 -O

NY Times had a piece (May 8th) on real estate in Grosse Pointe, MI where many auto execs live(d). I grew up 2 hours away from both Detroit and Toronto, been all over North America and Europe, but have only seen Detroit at night from the air. Grosse Pointe http://maps.google.com/maps?q=detroit+map&oe=utf-8&client=firefox-a&ie=UTF8&split=0&ei=H7EzStu-AtqMtge1jaS0CQ&ll=42.386951,-82.904205&spn=0.015278,0.038624&t=h&z=15 http://www.nytimes.com/2009/05/10/fashion/10michigan.html Bloomfield Hills—where nearly half the houses were valued at $1,000,000 or more in 2000—and Birmingham are a bit like a Midwestern and suburban version of the Hamptons. There are modern houses on out-of-sight estates. Grosse Pointe would be more like Nantucket but without scrimshaw. “There are so many houses for sale along Lake Shore Drive,” said Joe Warner, editor of The Grosse Pointe News (one of the last papers in the country to advertise “butlers” in its classifieds). “Even through all Detroit’s ups and downs, those houses just never came on the market. They stayed in families for generations.” Mr. Klimisch’s wife, Prudence Cole, a career counselor, described a “level of fear” even among her executive-level friends. One manager at G.M., she said, asked her advice recently about preparing to re-enter the job market. “Now a few years ago, an executive from G.M. would never have asked me that,” Ms. Cole said. “People came to equate the company with stability. You had a job for life. It had 100 years of prosperity and suddenly that’s all gone.”

My oops...thanks FlyingArrow aka SleepingTwinDaddy ;) for the correction... it's always best to attribute the guy doing the heavy lifting...thanks Viking! -O Nope. Thread was watsa's. Spreadsheet was Vikings.

I recall that the original author was Watsa_is_a_randian_hero -O

08 June 2009 This year's International Insurance Society conference opened strongly today (June 8) with an executive panel of world leaders. However, the panellists gave a gloomy outlook towards economic conditions in the coming year. Panelists: Nikolaus von Bomhard, CEO of German reinsurer Munich Re Prem Watsa, chairman and CEO of Canadian firm Fairfax Financial Services Bijan Khosrowshahi, president and CEO of Fuji Fire and Marine in Japan ======================================================================================================== ..... Prem Watsa, chairman and CEO of Canadian firm Fairfax Financial Services, gave an equally ominous verdict on the state of the US economy. With unemployment in the US around 9.5%, Watsa said it was worth remembering when unemployment in 1929 was at 2% and a recovery had been predicted. “They didn’t really think they had a depression. By 1932 unemployment was 25% and stayed there right through to 1941,” Watsa said. “The worry for us is whether the US government with all its might and power can stimulate the economy to offset the deleveraging taking place.” “The stock markets are down 50% so there is a tremendous opportunity in the market but the economy is a worry,” he added. ... “Auto company revenues are down 50%. No matter what planning you have, there is no way to prepare for that,” Watsa said. Source: http://www.reactionsnet.com/Article/2228771/Sectors/23074/CEOs-give-gloomy-outlook.html?Type=Channel&ArticleID=2228771&ID=23074 [registration required]

See post here for the GAO report...

GAO-09-483, Regulation SHO: Recent Actions Appear to Have Initially Reduced Failures to Deliver, but More Industry Guidance Is Needed, May 12, 2009 http://www.gao.gov/pdfs/GAO-09-483?source=ra -O

Hi FFHwatcher, Turn over the other rock...look at ORH rather than FFH. Short interest is still 1M+ on ORH and rising since March09. -O

Much more balanced coverage where the proponent is clearly identified through their affiliation with a hedge fund shorting Fairfax. It may be the start of a new short campaign heading into hurricane season. Keep your powder dry... http://www.nytimes.com/2009/05/31/business/31gret.html Still, Mr. Willens argues that the way Bank of America structured the deal — borrowing shares from other investors and transferring them temporarily to Fairfax — made it more of a “synthetic” than genuine consolidation for Fairfax. “If the I.R.S. countenances this strategy, which involves the use of borrowed stock to achieve affiliation, a fertile new area of tax avoidance will become available,” Mr. Willens wrote, “and tax advisers can be expected to enthusiastically recommend it to their clients.” Courts considering whether a stake has indeed been transferred from one party to another look at many factors. They include these: who has the risk of loss, who has the right to share in any gains and who can vote the stock. Fairfax notes that it, indeed, faced the risks of loss on the shares. But the most important attribute, Mr. Willens says, is who has the right to sell the stake. And in the Fairfax-Odyssey deal, he says, Bank of America’s affiliate held on to that right. For this and other reasons, Mr. Willens said, he believes Fairfax never secured true ownership of the Odyssey stock and the consolidation existed in appearance only. A Bank of America spokesman, Lawrence Di Rita, declined to comment about the transaction. A person briefed on the bank’s work for Fairfax, who requested anonymity because of concerns about litigation, said that Fairfax designed the transaction and that it was the only time the bank had crafted such a structure. Seth Faison, a spokesman for Fairfax, confirmed that the insurer had designed the transaction. He also said that Mr. Willens’s analysis is flawed — including its interpretation of the right to sell. “The transaction in question fully complied with the United States tax laws, and the closing of the 2003 and 2004 tax years by the I.R.S. confirms this conclusion,” he said. Mr. Faison and Fairfax also contend that Mr. Willens can’t be objective about the transaction because he originally examined it for a hedge fund client that is in a legal dispute with Fairfax. The hedge fund, ICP, filed a whistleblower application with the I.R.S., citing Mr. Willens’s analysis of the Fairfax tax structure.

http://www.theglobeandmail.com/report-on-business/one-battle-done-more-to-come-for-mega-brands/article1357476/ settles lawsuit with Rosens cleans up ownership questions debt still an issue Lego files suit -O A small piece on Fairfax's role in Megabloks current survival and possible turnaround... http://www.theglobeandmail.com/report-on-business/rob-magazine/the-empire-strikes-back/article1149686/ overreached with a merger, incorrectly capitalized with debt supply chain problems, problems with acquired company