omagh

Shalab, Let me know when Coke, Chevron, McDonalds, P&G, Merck, Pfizer, etc liquidate. ;) -O

Buying of bonds has gotten mindless in the corporate debt markets...Corporate debt markets are pricing in wholesale dividend cuts and deflation across the board OR corporate debt markets are in bubble territory. http://runningofthebulls.typepad.com/toros_running_of_the_bull/2010/08/the-bond-market-has-lost-its-mind.html Now, if you have been paying attention, you will see that those yields are comparable to the dividend yields on the equities of those same companies. The following is a comparison between dividend yields and yield-to-maturities of a select group of companies that have issued a significant amount of debt. The bonds all expire in eight to twelve years. http://runningofthebulls.typepad.com/.a/6a00d83451986b69e20133f2c55ed1970b-popup The dividend yields of some of the highest quality companies in the world are comparable to or exceed the bond yields of the debt of those same companies. Frankly, that's nuts.

Transcript is here: http://seekingalpha.com/article/217810-fairfax-financial-holdings-ltd-q2-2010-earnings-call-transcript click tabs in page for opening remarks and Q&A -O

It speaks highly of Fairfax's board. Congratulations to David Johnston. http://www.cbc.ca/canada/story/2010/07/08/f-governor-general-david-johnston-profile.html http://en.wikipedia.org/wiki/Fairfax_Financial#Board_of_Directors -O

http://ir.wrberkley.com/events.cfm At the UBS Conference (11 May 2010), Berkley gave his opinion that the industry is writing at a CR of 110, but fudging with reserve releases. His comments were around slide 8 in the presentation deck. IIRC, he mentioned AIG in comments to an earlier slide. Berkley has been cutting their business due to soft pricing. -O

http://ir.wrberkley.com/events.cfm http://ir.wrberkley.com/common/download/download.cfm?companyid=BER&fileid=373085&filekey=4a097bec-37a7-4d7f-b459-07ef81ee585f&filename=UBS%205-11-2010.pdf Bill Berkley presented recently at the UBS conference. He estimates that the industry is writing business at 110 CR, but fudging with reserve releases. Chart 8 in the 2nd link above shows the gap. A couple of other charts show that we're headed for lows simliar to 1983 and 1999 prior to hard markets. It will take a major cat to blow out a couple of insurers/reinsurers and the tide will turn. If AIG is the one, and the leading writer of weak business, does the government provide backstop or let AIG go? I suspect that they will continue to throw capital at AIG which will continue to distort the natural fallout of the marketplace. -O

Thanks Hoodlum. That's why we keep some dry powder... -O

This may be the article. Definitely unconventional thinking... http://www.theglobeandmail.com/globe-investor/investment-ideas/features/the-buy-side/is-austerity-the-future-for-the-west-not-if-the-generals-can-be-useful/article1577027/

http://www.sec.gov/Archives/edgar/data/915191/000095012310049874/o62061ae13fvhr.txt -O

http://spreadsheets.google.com/pub?key=tIy8S6q-FeHMGdBYCEqQMFg&output=html [edit: fixed column headings] -O

[originally posted by farnamstreet; original lost due to 2xWordPress hacks;recovered from Google] (a few modifications were made to the original for readability) Around 2007, a fictional man named Big Liar, discovered a company, Takhomasak, on the stock exchange that was largely populated with inept management, but otherwise rich in all the bounty. Big Liar thought he could correct the misfortunes of Takhomasak, so he communicated in writing with the owners intentionally evoking comparisons with a wealthy and well respected citizen named Yoda. Big Liar told the shareholders he was smart, full of integrity, and had all the tools necessary to do the job. Not only that, he wanted to do the job in the right way--The way everyone wished corporate america worked. He exposed the virtues of his idol, Yoda, and explained to shareholders his thoughts in detail: He would do whatever it took to turn around Takhomasak, even forgoing stock options and extra renumeration to do so. After all, as a large shareholder, he planned to make money with shareholders, not off them. He stated, "When the share price rises, we will reap our rewards." The owners of Takhomasak were thrilled that someone of such integrity and promise had come to rescue their company. The owners were citizens of GullibleLand and, true to their namesake, they were rather easily persuaded by the smooth talking Big Liar. They quickly voted Big Liar into power. Not long after warning flags started to show. No longer was Big Liar content with a just board seat, now he wanted to run the company. At first he took a fairly small salary, yet still something in the top 10%, of all citizens in GullibleLand. He certainly wasn't hurting. Not to mention as the share-price of Takhomasak improved, Big Liar was given a lot of compensation by his other business partners for his hard work. As the performance of the company began to improve, Big Liar realized he was not making enough money. No longer content to merely make money with shareholders, he quickly escalated his salary to a level in the top 1% of GullibleLand. The owners, looking at the operating performance of their company, decided to over-look this compensation change and rationalized that, hey, ok, we can give him this one. Not much time passed before Big Liar grew tired of going to work everyday for a company called Takhomasak. He reasoned that since he had invested so much time and effort into the company, its name should change as a tribute to him. In choosing a new name he once again looked towards his idol, Yoda, who ran Be Helpful and intentionally invoked comparisons when he proposed the new company should be called Big Head. The shareholders of Big Head--the very shareholders that had elected Big Liar to the company in the first place--began to grow wary and sensed a disturbance in the force. Big Liar was supposed to be different and unlike the other schmucks yet, increasingly, he was behaving as if he were one of them. Looking around, Big Liar, soon found examples of people who made more money than him and his greed started to get the best of him every so slowly. Despite the words he had written, not two years ago, Big Liar realized he could make even more money off the owners of the Big Head. After all, it was now his company. So ever so slightly he started to trade his beliefs for more and more money. After all, the money was quite the seductrice. Like any addict, he thought it would be easy to stop once he tasted the pleasures of the seductrice. Yet her siren song was too strong for him to overcome. Despite personally owning less then 2% of the company, Big Liar claimed, at the shareholders meeting, that he would be "CEO until he dies" which seemed a little peculiar at the time given that he didn't really own that much of the company. The company's owners walked away feeling amiss but couldn't quite put their finger on it. Big Liar's slippery slope continued when he decided to implement a compensation arrangement that was heavily in his favor. Big Liar proposed this to the shareholders and it was the straw that broke the camels back. They realized that Big Liar, was in fact, a big liar. No longer did they trust his word. Instead they viewed everything with healthy skepticism. Big Liar lost their trust. But Big Liar didn't care, no, he had his company, and his millions, and since he was somewhat smart, he knew he would likely do well. Shareholders tried to send Big Liar a message but this was lost on him as he was blinded by the strong pull of the siren song. As time went on Big Liar used his ever growing fortune to acquire more and more of Big Head's stock. ... In the end Big Liar gained a fortune but lost his reputation. It's not clear how the story ends, but one thing is clear: once you lose your reputation you can almost never have it back.

Al, This is classic Templeton. Watsa has spent significant time learning his craft from Templeton who is no longer with us. That education has clearly left its mark and serves FFH shareholders well. -O

At 31 March 2010 there were 20,546,935 shares outstanding. At 31 December 2009 there were 19,988,870 shares outstanding for a difference of 558,065. Shares issued in the $200M offer were 563,381. It looks like 5,316 shares were bought in for a rough total of ~$2M (say $375/share average). Not significant, but a start. -O

If there's a run on NGB, who backstops? The sovereign cannot backstop in my humble opinion unless supported by other Euro countries. That's a high impact risk and non-zero. -O

http://seekingalpha.com/article/201117-w-r-berkley-corporation-q1-2010-earnings-call-transcript?page=-1 W.R. Berkley Corporation (WRB) - Q1 2010 Earnings Call - April 27, 2010 08:30 am ET William Berkley - Chairman and CEO Gene Ballard - SVP and CFO Rob Berkley - President and COO

As a thought experiment, look at the research and development costs required to maintain the moat. Viz: Coke << Gillette << Apple -O

WRB is a <5% holding in a basket of 3 insurers which represent ~35% of portfolio. Buying a 15% ROCE at book value is better than other options being considered at the moment and better than holding cash, although cash weighting is rising in the portfolio overall. Bill Berkley's comments on the catalysts for a hard market are compelling and actors positioned to play that hand will do well. Some more points for the checklist: CEO holds majority of personal wealth here - 5.9M shares focuses on niche insurance markets with less competition CEO understands insurance pricing and implements a pricing/capacity optimization strategy which has outperformed over previous cycles currently shrinking capacity while remaining profitable better underwriters than industry peers and demonstrated over multiple cycles average investors, much worse than BRK or FFH currently using excess capital to buy in shares -- Book value continued to increase due to a combination of our earnings and the improvement in the value of our investmentportfolio. Given our already well-capitalized position, we elected to use most of the earnings generated this quarter to repurchase our shares at prices that we perceived to be attractive. In the long run, we recognize that creating value for our shareholders occurs when we build a better business that has good predictability, high risk-adjusted returns and the right amount of capital, -O

http://finance.yahoo.com/news/W-R-Berkley-Corporation-bw-3224250850.html?x=0&.v=1 First quarter highlights included: * Return on equity was 13.2%. * Book value per share increased 3.6% to $23.80. * GAAP combined ratio was 94.1%. * Repurchased 3.8 million shares of common stock at an average cost of $24.78 per share and an aggregate cost of $95 million. Commenting on the Company’s performance, William R. Berkley, chairman and chief executive officer, said: “We continue to be pleased with our results, especially given the current competitive environment. Our insurance rates remain generally flat, and the pace of the decline in our written premiums has slowed over the past twelve months. We were able to selectively increase prices, although the overall insurance market momentum has not yet turned positive. We are maintaining underwriting discipline and continue to obtain adequately-priced business with customers who value the strengths of our enterprise.

An awesome panel on the Charlie Rose show dissects the Goldman lawsuit. This is a political move more than anything which is interesting the the ongoing reforms and regulation. Panel was Michael Lewis, David Boies, and Andrew Ross Sorkin. http://www.charlierose.com/view/interview/10973

Terence Corcoran of the National Post is proposing a positive legal case for Goldman: http://www.financialpost.com/story-printer.html?id=b8c0d98b-6f86-4bcc-af13-19da67c6fb3b -O

Norm, I didn't attend this year. Who mentioned the share buybacks? Shareholder question or Watsa response? -O FFH's prior 20%+ buybacks were mentioned at the meeting as a tantalizing possibility. Oh, and a $25 dividend. ;D (Just don't expect either real soon.)

http://www.theglobeandmail.com/report-on-business/torstar-cash-at-hand-leads-canwest-bidding/article1542453/ Sources indicate a bid that includes newspaper owner Torstar Corp. is now emerging as a favourite, since it is expected to involve more cash than other offers. The publisher of the Toronto Star and 97 other Ontario papers is backed by the deep pockets of Fairfax Financial Holdings Ltd., which owns 19 per cent of Torstar. Torstar would come aboard as the operator of the CanWest papers, but would limit its exposure by contributing a relatively small amount of its own money, while relying on the financial muscle of Fairfax, the insurance company headed by Prem Watsa.

With the spate of improving news lately, I think that we're now moving into Stage 4 in John Train's fictional essay on market cycles and behavioural investing. It appears that the bullish calls are now being made. Paulson and Fisher are here. Who's next? Who's Nouriel Roubini? http://www.marketwatch.com/story/paulson-co-turns-bullish-on-housing-economy-2010-04-21?pagenumber=2 Paulson & Co. covered, or closed, many of its short positions recently and that showed up in stronger returns in April, the fund manager noted. The firm has been "much more aggressive" in positioning its Advantage funds to "participate in a stronger economic recovery," Paulson said. http://www.forbes.com/forbes/2010/0510/finance-emerging-markets-yield-curve-value-portfolio-strategy.html there are many reasons to expect a good return on stocks in 2010. Here are five you likely haven't heard elsewhere. http://online.wsj.com/article/SB10001424052748703404004575198492075706082.html?mod=WSJ_latestheadlines Long-term mutual funds saw net buying for the latest week on continued strength for bond funds, while stock funds in the U.S. and abroad also reported inflows, according to the Investment Company Institute. Total estimated inflows were $9.04 billion for the week ended April 14. For more than a year, the lion's share of investment in mutual funds has gone to bonds, which typically thrive in a lower-interest-rate environment. Meanwhile, stock funds have failed to consistently attract new interest despite the equity market's sharp rally. The excerpt from Train's 1994 essay: 3. The Surge Continues: "Prices seem high. It's too late to buy." More months pass and the market establishes an upward channel. Higher prices pull in buying from the institutions waiting on the sidelines. The public moves from feeling that it is too early to buy to suspecting it might be too late. 4. The Second Stage of the Rocket: "Maybe it's okay to buy." A year or so after the bottom, the public, watching from the sidelines, becomes interested. There are a number of downward bounces, or tests, against the bottom of the market's rising channel. Each time, the recovery starts from a higher level. 5. Not a Cloud in the Sky: "Buy!" More months go by, the market is way up and the public is hooked. Business news is excellent. The "standard forecast" is optimistic. Jazzy new funds proliferate. Some particular market area becomes a market darling, if not a mania, and is bid up to irrational levels. We see, also, the latest leveraging toy—this time, the use of derivatives—on a vast scale. Have fun! -O

OSTK is now back in the good graces of the NASDAQ... http://investors.overstock.com/phoenix.zhtml?c=131091&p=RssLanding&cat=news&id=1409639

Viking, I've been following Watsa for 12+ years and have yet to see a meaningful share repurchase. I'm guessing that Watsa is predisposed to expanding the platform or maintaining cash on hand. If one can obtain float at cost ~2%, lever 5x, and generate a spread of 300-700 points less operating costs and insurance losses, it's not a bad approach to expanding the book value of the business. The A-rating will also have advantages for the platform since it generates a higher spread. If the Templeton approach is 50% discount to 1.3BV, then you're looking at ~0.7BV (~50% discount) to start a meaningful share repurchase. -O