WideMoat

I agree--underwriting profit is better than a low cost of float. However, when your competitors are writing business at a high cost of float, then perhaps a CR of 98-104 is top performance. Even with a cost of float of 2.8%, that means they can "borrow" money more cheaply than most governments. In this interest rate environment, that looks less valuable, but over the long term, its benefits will reveal.

If you read Note 2: Summary of Significant Accounting Policies, you will see that they have changed their accounting to remove the distortions caused by fx fluctuations. The CR's could not have been affected by fx losses. I'm curious about others interpretation of this. Most simply, FFH has claims liabilities in foreign currencies, and then it pairs them with investments in that same currency. However, if the claims are paid out sooner than the investments mature (or gains/losses realized), then currency moves may look to be more significant for quarterly earnings than they really are. Now, per Note 2, FFH wants to better distinguish realized and unrealized currency gains/losses on their consolidated earnings report. According to the table following Note 2, it looks to me like they take a pre-tax (realized) currency loss on certain underwriting line items. However, the unrealized currency gains/losses that hedge those expenses show up in the comprehensive income table. yea, or nay?

CR was also affected negatively by: 1) currency losses, and 2) a higher expense ratio from writing less business. In my lights, the first is out of your control, and the second should be tolerated. As Buffett has noted, if you cut your staff and expenses when pricing is soft, then you create the wrong incentives--encouraging your people to write bad business to save their jobs.

If currency is a claim on future labor, then a currency should be worth the value of that labor--adjusting for the size of the labor pool willing to work for it, the productivity of that labor pool, and the ease by which it is created (via credit, interest rates, printing presses, etc.).

Why would you convert? Is the convertible trading at less than the notional value of the shares to be received? If so, then why not just short the shares and wait for the relation to normalize? Part of the value of a convertible is the optionality. If you convert, then you basically evaporate a source of value. In my experience, only in rare circumstances do convertibles trade at a meaningful discount to their intrinsic value (like say fall-winter 2008), and thereby mark a better entry vehicle into an equity than the equity itself. So the short answer--no, I've never found it advantageous to actually convert, so don't know the mechanics.

And the bezzle continues to shrink... http://market-ticker.denninger.net/archives/857-The-Bezzle-Defined.html

Thanks Bargain--I especially appreciated the list of top-15 holdings at the end. I share their interest in the "croupiers" of the world economy; they are all just priced so dearly. eBay was cheap for a heartbeat there early in the year, but most croupiers are priced for substantial growth (which may easily pan out--I just don't like paying for it).

Here are only what I would consider the significant changes: Dell up by 10.9M shares to 34.8M shares. GE up from 10.2M shares and 2.6M options to 18.3M shares. Odyssey RE down to 37.8M shares from 42.4M. Pfizer down to 241K shares from 16.3M shares. Sandridge Energy up from 882K shares to 1.24M shares. I suppose the Odyssey move is most surprising to me. I am intrigued by the Dell move; they are the low cost provider, so there are moat benefits there. I wonder how sustainable though? http://www.sec.gov/Archives/edgar/data/915191/000095012309035366/o56652ffe13fvhr.txt

Borrow short at 1%, buy long at 5%. Buy a hedge or a swap if you're nervous. Profit. ;)

The article doesn't pass the smell test for me; the sensational headline is not confirmed by the (seemingly speculative) testimonies. Quote #1: "Berkshire Hathaway “effectively pulled out of the property cat market in June and July. They're keeping their powder dry,” said John Daum, New York-based executive director of Lockton Re, a unit of Kansas City, Mo.-based Lockton Cos." Response: This could be prices and not unusual. Quote #2: "“Pretty much the sentiment within Berkshire...is not to have any catastrophic claims, particularly for the wind peril. We really saw them withdraw fairly significantly out of the wind-exposed cat business,” he said." Response: Wind-exposed cat business is likely only a small portion of their whole reinsurance business; thus reducing exposure there would not justify the title and opening sentence. Quote #3: "Berkshire “doesn't want to have any volatility built into their earnings this year” in the interest of capital and ratings preservation, he said." Response: This runs directly contrary to Buffett's repeated public comments. Volatility is desired; ratings matter little (they still have two top ratings); they have lots of capital and lots of ways to raise more quickly. Quote #4:"Rod Fox, chief executive officer of intermediary TigerRisk Partners in Greenwich, Conn., said: “My understanding is, with their Swiss Re transaction, and their balance sheet, that they have cut back their cat capacity, but I think they will still write some business for clients.”" Response: I don't buy it. Berkshire would not pass up profitable insurance business merely because of a preferred stock holding in an insurance company. Completely separate issues. Quote #5: "Joseph M. Fedor, executive vp of intermediary US Re Group in New York, said the principal reason for the withdrawal is “they supported the cat market mostly because they had a large amount of liquidity in the past, and that has shrunk.” In addition, “they probably feel that the primary rates are under pressure, therefore the reinsurance rates are going to come under pressure,” he said." Response: True--they have less capital, but Buffett would get more if profitable business were out there. The second half of the quote sounds correct. If prices are soft, then Berkshire would write less business. -------------- This strikes me as slipshod, sensationalist journalism. Perhaps Berkshire is conserving capital for ratings, but these quotes are not nearly enough to show it.

#2 is interesting. The truth is that 'Moody's' as a brand name is tarnished, but its models for municipal and corporate credit risk are still valuable. Its structured products ratings were the ones that failed, and they failed masterfully. The discerning buyer should still be willing to pay for the valuable services that Moody's provides. So there still is a valuable business there, with a tarnished nameplate. Why not buy the whole thing? Too expensive at these prices. Without structured products, its annual FCF is below half a billion. A couple weeks ago, I wrote an (admittedly simplistic) analysis on my blog that put their intrinsic value at ~$22 per share. http://widemoatinvesting.wordpress.com/2009/04/08/moodys-intrinsic-value/

Moody's (MCO) was in Oct and Nov, but slowed down significantly in December and January.

Jim, Not a lot to add, but I would say that I am interested in any searching strategies that others use. Most of my approach so far has been ad hoc. I use news readers and then filter for certain search terms--e.g., going private, reverse split, tender offers, bankruptcy, earnings release, etc. I figure that I have only picked through 300 in the last year. If you say 8000, then I need to get more serious. widemoatinvesting.wordpress.com

Buffett sure is unsettling me with all these bond deals. Guess I need to clear out my portfolio of equities and head to the bond shop.