SharperDingaan

+5%, but the real message is no margin. SD

We actually prefer Mercedes. But since the car is ‘used’ - consider the ‘c’ in Porsche as depreciation ;D SD

Agreed with FFHWatcher There is nothing wrong in taking Mr Market up on his manic moods, we just don't have to be like him. Our longer time horizon, & insistence on physical stock vs put/call options, lets us smooth out the volatility. In option terms we're essentially doing volatilty arbitrage, & leveraging liquidity. When Mr Market is depressed &/or illiquid, he is going to pay us a lot for our cash. Conversely, when he is happy & flush - we'll have a very easy time selling. Mr Market drives the new porshe (& pays the depreciation), we just drive the re-posessed one SD

Sold MFC on the run-up. Reinvested in PD & sold into Q1 seasonality. Reinvested in NEM & 1 other. FBK was a 40% unrealized gain at one point, but is now only 20%. We are longer term investors with a roughly 3-4 yr horizon over which we expect at least a double. If we were wholly unleveraged & did nothing, we would expect a compound return of at least 18%/yr (72/4). With very moderate leverage & seasonal trading we expect to do materially better. In the bad years, we may lose maybe 25-30%/yr. In the good years, we make well over 100%. To ensure that we don't blow our brains out (casino effect), every time we double we withdraw 45% of our total capital. SD

Up 30%+ on realized seasonal sector rotations & unrealized gains. Unrealized gains are down by about 50% but we see it as being largely temporary. If something doubles in 3 vs 2 years its still a compound ROI of 26% SD

3 things missing What do you want the funds for ?, when do you want them ? , & what is your risk tolerance ?. Defines where you need to be (stock vs bond weighting), your time-line (2,4, 6yrs?), & how much loss you're comfortable with (-40% the day after you buy is OK?). Holding the greatest stock in the world is pretty useless to you if you cannot handle its inherent risk & can only hold for 6 months. Filter for the worst sectors over the last year, not security, & go with the best quality in that sector. Both the good & the bad fell with the tide, but all tides eventually rise again - & the good continue to float. 1 company per sector - & only 1. SD

1) Being reserved does not mean that you’re liquid. If you have to sell assets rapidly, into a shallow market, & participants know you need the money, there will be a liquidity discount. And the more complex, or unloved, or unsexy, the asset the higher the discount – if you can sell at all. As many former US Investment Banks discovered, liquidity discounts of 40-50% is not uncommon. Selling shares below book value and parts of their subsidiaries was their best option. 2) Finite insurance is the arcane insurance version of regulatory repo arbitrage. I agree to sell you my poor asset (with a high regulatory capital requirement) & repurchase it back from you in X days at $Y. To pay for the transaction you put up your T-Bill (with a low regulatory capital requirement). At month-end I have the same total assets but require less regulatory capital, as the quality of my assets is now higher – but I pay you a fee for the privilege. Easy target, especially when you gloss over that FFH was essentially the guy with the T-Bill (cash coming from TIG in run-off) 3) Uncovering 3 frauds in a row does not make you an expert, you just think you are. No different to being in a casino & correctly predicting red 3 spins in succession. Because you were right on the last 3 spins you must know what you’re doing, so if you predict the 4th spin will be red it MUST be red – it cannot possibly come up black. SD

All the fed need do is rescind the on-shore restrictions that underpin the Euro$ market. All of a sudden the vast majority of offshore US currency will flood on-shore & in very short order. Instant domestic inflation, material USD devaluation, & a haircut to all foreign holder of USD denominated debt. SD

"What are you trying to say? The option market for Sino wasn't liquid at all" Somebody lent the shorter 10-15% of all the o/s shares on a term loan basis. If the borrower cant repay the term loan in full on its due-date - the lender will ultimately let them roll-over the shortfall at an extortionist interest rate. No different to a conventional loan default. To get the shares to repay the rollover & raise the $ to pay the interest, the shorter will be a heavy buyer of out-of-money calls - & seller of at-the-market puts. Buying in the shares will raise the share price, cause the calls to excercize, & deliver huge quantities of shares to the shorter which he can use to close his short position & escape further losses. The option market should show a rising open interest & more frequent trades as we get further from the short 'event'. It will seem more liquid when in fact it isn't. And if the lender bought a significant portion of the shares the borrower sold he will trap the short & essentially earn an arbitrage profit. .... almost identical to the mechanisms that were acting on FFH a few years back. SD

You might want to consider • Somebody had to lend them maybe 10-15% of the total shares o/s for an extended period of time. But the shorter still didn’t think that it was enough - or they would not have also shopped the idea. How many people own at least 15% of TRE? • To make it work the shorter needs to be a net seller all the way down, & in increasing volume. Somebody had to be on the buy side - & you cannot assume that they were not amongst those who lent the shares. Average cost/share just come down, & the position has gone overweight. • To mitigate the risk the shorter needs to be THE net buyer, & in quantity, when the market is attempting to decide the case. Should there be a competing buyer who just buys & holds, they will effectively draw down the artificially high float - & ensure that the shorter cannot cover their term share loan when it comes due. The cost of the loan goes to 20%+ & the option market in TRE suddenly starts to see lots of ‘liquidity’. • No shorter would do this unless they could cap their maximum loss. How many people could quietly give them an OTC call on sufficient quantity ? And why would a competing buyer at the bottom of the panic not be the same person who wrote the OTC call ? As the ‘Dune’ mantra goes; “Fear is the mind killer” SD

It is highly unlikely that there will any buybacks &/or divs. They have used their cashflow to take out the remaining debs, & remove the dilution & price cap that the conversion was imposing. Get over $5/share & the pool of buyers dramatically expands. More demand over a consolidated supply can only drive up the price, but if you want the shares - you now have to buy them out of the market. A desirable thing. If they get FDA approval & the fast-food contracts, the US plants will effectively be utilities with maybe 2/3 of their production earning a fixed spread. And if you are a fixed income fund investing in utilities, you will pretty much have to own FBK (US) because of the asset class diversification it offers. Building practical pressure to split the company. They would seem to be doing the right thing - let them get on with it ! SD

Most folks are not going to be covered as the possibility of a loss seemed to remote to warrant paying the premium. Then when it occurrs, they will be too poor to buy it after replacing the house. Net result is that most of the damages will bypass the market. The costly great white (or wind) combine claims are those from car/farm equipment dealers, as the inventory financing requires the stock to always be insured. For the most part, average Joe will swallow the bulk of the damage to avoid pushing their premiums up. Couple of claims with a lot of PR attached, but thats about it. SD

There are 2 Cdn Banks that like to offer 6 month 'visa account balance transfers' at 0.99% or less, provided you make the minimum payments. With a little shuffling you can use the banks own cash to buy its shares, & earn a dividend well above that 0.99% The other bank likes to offer 1 air-mile for every $ of interest paid on a LOC (mortgage, margin, etc.) A little shuffling to borrow to buy the banks higher yielding pref share, & you've got +ve carry & a free retun flight to Europe every other year And in both cases ..... the bank considers you an excellent customer ;D SD

They beat the street estimate of 2c/share, & EBITA is pretty stable at 15,799. 62M of EBITA/yr x 5/130M shares produces a share value of roughly 2.38. 47% above yesterdays 1.62 close, & 116% above the 1.10 year-end price - yet everyone is whining? Cost-plus volume in the RBK line is significantly reducing the business risk & turning it into a utility making a positive spread – when they have 50% of the market, & their long-term volume that can only grow (there’s no less garbage!). We’d like to see it at 75% It is becoming far easier to split the businesses. SD

Perhaps a mixed blessing but it is more likely that there will be another bailout - with the money going to the German & French banks - & not Ireland. Most folks would think that Greece, & Ireland, would be far better off if they were evicted from Euroland, allowed to declare a moratorium on their debt (as per Iceland), & float their own currencies. Each to their own solution. The fear to date has been the massive German & French bank write-downs that this would trigger – but it’s quite curable by redirecting the bailout, & will end the negotiation. The reality for the young in both countries, is that if you’re ambitious & employable, you are going to have to leave Ireland &/or Greece to seek work elsewhere - & for at least the better part of the next decade. Not a bad thing, but for those left behind or unable to move/adapt it will be gut wrenching. Keep in mind that the last time Ireland was in such bad economic shape was during the Great Depression, & it took a very long time to come out of it. Eighty years of progress has at least produced a more humane approach. SD

Keep in mind this is oil & gas. Governments set the global price, not the ‘free’ market. Country A may have the reserve under its land, but it needs Country B to let it buy the expertise/equipment & ongoing maintenance from the citizens of Country B to get the oil out of the ground. Country B obliges – so long as Country A gives it a sweetheart deal on X% of the output, for an extended period. County A agrees & sells the remaining output on the global market at spot. Country B needs to get its money back, & persuade Country A to buy its goods & balance the terms of trade. Country A agrees to buy weapons & development from Country B at cost, less a little something off the top, along with some surety of supply. We keep selling you oil, & you prop us up if ever we have a possible regime change. Time passes by & declining reservoir pressure results in less production per year. Country B gets fewer sweetheart barrels & makes up its shortfall from the spot market. As Country A has fewer barrels to supply the spot market, price rises. Country C & D also need oil, & note that the higher spot price makes oil fields in Country G & H viable, & that their viability will increase over time as production declines. Deals get done, even though Country G & H are highly unstable. Country H has a lot of population but little oil. To avoid a regime change they need to spread the wealth, & to get the wealth they need to push the price up. Country C is industrializing & to avoid a regime change it needs more oil to power its growth. Country C does a deal with Country A on the same terms as Country B to boost its production with new technology. Spot prices stabilize ($60-70/bbl), but the producing regions get more volatile, as new production comes to the market. Inflation happens & Country G has a regime change. Country H will follow, but its leadership chooses to fight – with the weapons coming from Country B & C. Very bad news being broadcast on CNN 24x7. But if Country B & C agree to pay more, via the spot market, Country H can grease the right wheels & the problem goes away. The price rises & calm returns. SD

There is no market, standardized contract, promotional press, advice, etc - it is entirely bespoke. In Canada you essentially have to approach one of the big 4 tax/wealth-management specialists, tell them EXACTLY what you want to do, & what you want from them - then hand them all your research. They'll give you an opinion, which you give to the custodian (triggering the AML/ATF review process), following which a lawyer who will draft up the contract for you. Cost of replication then becomes just the cost of a new contract. The simpler, & the less said, the better - as there are many potential applications. SD

You would be very surprized at just how easy, & relatively cheap, this is to do - & especially at the retail level. For Canada you need only be a qualified & private investor, specify the custodian, go through AML/ATF verification, have the terms of the trade documented in a legal contract, & have independents both confirm the pricing terms & verify the trigger event. If you're on both sides of the trade (RRSP, TFSA, Private Coy accounts, etc) an ISDA agreement, & collateral posting, is not necessary. Assuming the contract is modeled along the lines of a Credit Default Swap, a sample trigger event would be the failure to file on the TASS database by XYZ Hedge Fund, within X months of due date. Not without risk (audit), & very application specific (tax planning), but quite doable. Just expect some raised eyebrows, & perhaps some unwelcome verification/curiosity, when you talk to your independents. You end up with a derivative that acts like finite insurance (HF reporting lasts an average 7 yrs) but with the exchange mechanism of a CDS swap - so you better understand it! SD

We know the global industry is expected to consolidate, & the process has allready begun (PwC Report). We know that FBK is a weak player, consolidation has always been in the game plan from Day-1, & shareholders are restless. We know that a share price < $5 prevents the significant majority of institutions from owning it. We know that 1/2 the Debs have been called, FBKs pulp markets are likely to remain strong for the next 1-2 years, & that it is highly likely they have the means (COH + credit lines) to recall the remaining Debs anytime they wish. Todays price of 1.56 is up 42% on the year - to go up 100% to 2.20 - what really needs to happen? Most would think we need new shareholders. A 2.5-3:1 share consolidation to get > $5/share With 3:1 consolidation to 44M shares, most would expect a new share issue to retire the remaining debs New shareholders would want an asset sale - as soon as the power contracts start adding EBITA A 2.5-3:1 consolidation produces a current share price range of 1.67-2.00/share. On May-02 the shares closed at 1.64. Patience. SD

Assume that for now, to bet against the industry you need a ‘bespoke’ agreement. It’s going to cost a lot (legal, accounting, ISDA, etc) to structure, the counterparty will have to be a ‘name’, & you’re going to have to effectively bribe them to take the position. It’s highly sensitive, & there’s a risk that its existence (& the counter-party name) could ‘leak’ into the public domain. The counterparty could be a cephalopod or a member of the industry – but it’s much easier to persuade a squid. You might be one or many central bankers. Our agreement gets done. A prominent HF, anywhere in the world, goofs - & one of the counterparties starts to purposely leak. The leaks will stop if a standardized contract is set-up & traded – the HF industry on one side attempting to hedge its regulatory risk, our central-bankers & speculators on the other - with the squid running the book (persuasion). Our market gets born & starts growing. Capitalism does its thing, the players start to drop/consolidate. Safety is sought in ‘too big to fail’, & our market making squids book becomes less profitable. That original ‘bespoke’ agreement matures, & becomes subject to freedom of information searches. Our counterparties huddle & agree to resolve the reputational image problem - with new (& evergreen) agreements on each of the industry’s main players. Protection. Lo & behold – we have a ‘market’ solution to the HF industry, without the need for regulation! ....... And a ‘too big to fail’ solution. Fail to behave - & suffer a material increase in the size of the bet on your failure. To stop the fund withdrawals you need to either side-bar, or have you & your supporters take the other side of the additional bet – with all parties have to post more & more margin the closer you get to failure. Way too damaging on the ego. Elegant solution .... so why does it appear that it hasn’t happened ? SD

Just to stir the pot. There is an interesting article in the Jan/Feb 2011 FAJ entitled the ABCs of Hedge Funds: Alphas, Betas, and Costs. Notable points are 1) Median fee is 1.5% + 20% incentive fee, 2) 2 in 3 hedge funds cease to exist < 10 yrs of posting results, 3) Survivorship Bias (only get the winners results) is around 5.1%, 4) Backfill bias (only start posting when you have good history) is around 2.05%, 5)Average Alpha is roughly 3% - but up to 80% of it may be nothing more than momentum (ie: Beta) In short, you need to deduct 8.7% (5.1%+2.05%+1.5%) from a HF return just to eliminate the bias & fees. You also pay the HF outlandishly for their Alpha (ie: long-short gains), & it would appear that most of it (per the universe of HFs) is bull. Given that HFs are consistent targets for most regulators in their ‘new orders’, & that if you can’t beat them – join them; A) How do you short specific types of HF ? B) How do you short the HF industry itself ? C) Why is there no ‘standard’ lot for what would clearly be very profitable ? If you’re the regulator, you can control the industry by simply shorting it - or individual HFs within it. Muscular regulation that results in the regulator &/or central bank getting paid for it if the HF fails, or closes? If the private XYZ HF takes a run at you, all you can do to preserve value is buy puts on your own shares – which XYZ is selling to you. Why can you not do the same thing on XYZ HF? SD

This is where the long view counts. Lots of sovereigns have defaulted in the last 50 yrs or so, & almost all had the same experience. It took a while, but the market started lending them money again, & those original bond holders ended up with what were really equity sweeteners (zero-coupon future dated PIK, etc). Worst case. Greece gets ejected from EuroLand, takes back the Drachma, & tells you that they'll repay 40% of the principal of your Euro Backed bond in Drachma -10 yrs from its maturity date. The trader will take the deal, dump the Drachma bond, & be thankful they're out. The value investor would buy the Drachma bond at 30-50% off its intrinsic value, & buy a greek villa at 20-40% off the market value - financed with a Drachma denominated mortgage equal to the FV of the drachma bond. You get your villa today & a interest only 'rent' cost for 10yrs - that is getting cheaper each month (drachma devaluing). End of yr 10 you pay off the morgage with the proceeeds from your drachma bond. The riviera life style year round for maybe 1/2 the cost of a California condo ? SD

All that happens is that the BS & opening equity gets adjusted downwards. They have allready disclosed how much & where the adjustments will be. Because they wrote down plant there is less to depreciate, so most would expect quarterly depreciation from 01/01/2011 onwards to be lower than the previous run-rate. Improved profitability. SD

NPO's are governed by local state law, but most will follow the same principles. As with any liquidation, asset proceeds pay off liabilities in order of seniority. Any surplus goes to repaying the granters of their various endowments (equity equivalent). In a bankruptcy the liabilities > proceeds, & there will be no return of funds. Sale & leaseback of an asset (ie: hospital wing & all related content) is common practice. Usually the result of either 1) bankers pressing for repayment of outstanding loans, 2) the hospital has a funding commitment that it cannot meet from its endowment structures, or 3) the hospital is expanding & this is funding their portion of some partnership agreement. [Googel P3 partnerships] Given that the state is California, its probably 1) or 2) SD

Makes a good story but no different to your office pool winning the lottery. If you don't have a ticket - quit the whining & get over it! The reality is that there will be a industry demutualizaton. As with the LifeCo's; time limited regulatory protection post demutualization, time limited restrictions on the funds (capital requirements), & a lot of whine because of player containment. When the protection ends there will be consolidation. While those without mutual policy holders may be lunch for those with them, its not a done deal. SD