SharperDingaan

Seeing (and acting on) what is really there, versus what you want to see - is a double-edged sword. We are on the edge of another global great depression - if too many people wake up to it at once, it will become reality. Most textbooks hint at what to do. Do whatever it takes, for as long as it takes, and pick up the pieces later - wartime level (or higher), monetary and fiscal spend for years. They are just a little lacking on the mechanics at the extremes, and practice over theory. Now, look around you ..... SD

The political hope is that the Dow either continues rising through November, or at least doesn't fall too much. Enron demonstrated that even if you didn't believe, the smart thing was to keep buying and pushing the price higher - while also taking $ off the table, and covering a portion of the rest with puts. The run-up to the 1929 crash similarly demonstrated that the smart thing was to sell the broader index, take $ off the table, and pile into the nifty-fifty. Margin where you could, and take the $ out - in expectation of wide-spread brokerage and bank failures, ultimately removing your debt. Smart. The Robin Hood phenomena largely mirrors the margin lending of 1929, everybody in the market, and talking up the crowd for fame and glory. Back then it was being the swell at a better speakeasy, today it is posting for likes on social media. Same overall effect, different mechanics. Can't take $ of the table, unless there's a patsy to sell to. Every ponzi scheme eventually collapses under its own weight. The market drops, the patsies can't meet their margin calls, and history repeats. Only this time the rich get richer, 'cause put options are a lot more efficient and effective than shorting. Once the run starts, it doesn't suddenly stop .... it keeps going. When it happens, people need someone to hate - before they can move on. The upcoming election result is a natural break. SD

Just to throw some numbers in, that highlight the severity, This took roughly just one month from the time it became 'public' until the time the funding was announced - Ontario has roughly 38% of Canada's population. Converting to US equivalency, this is roughly CAD 10.5B (4/.38), or USD 8.0B. It is not just size, it is speed as well. " Hard-hit Ontario municipalities will receive nearly $4 billion in funding from the federal and provincial governments to help shore up their finances in the wake of the pandemic-related shutdown. Premier Doug Ford said the funding—$2.2 billion from Ontario and $1.7 billion from the federal government—will help support "homeless shelters, women's shelters, food banks, public health and transit." https://toronto.ctvnews.ca/ontario-municipalities-to-get-4b-in-covid-19-bail-out-1.5040183 Canada's equivalent to this unemployment benefit is the CERB. It has already been extended once to Aug-31, following which most expect it to be rolled into the existing unemployment program. Expect about the same amount, and ability to earn more than currently the case - while also receiving the benefit. A 5% decline in the Dow is conservative. SD

The market is also NOT pricing in this. https://www.cnn.com/2020/07/27/politics/stimulus-negotiations-republican-plan/index.html 'For most recipients of the $600 federal unemployment benefit enhancement, the final checks went out a few days ago. The official deadline is July 31. The federal eviction moratorium expired last week'. Negotiations are not going well, and starting today - the money tap turned off. What do you think happens when millions of people no longer have a cash flow, and there are not enough jobs for them, because there is not enough spending? Do you really think that the Dow stays at 26,500 - or is it much more likely that it falls, and hard? Just a 5% drop is 1,325 points. SD

The market is also NOT pricing in how the municipalities and states are going to finance their Covid-19 related spend. To mitigate material property tax and state income tax hikes, EVERY muni/state in the nation will have to come to market by Mar-31 (year-end). There is no way that the sheer size of the aggregate borrow doesn't disrupt the hell out of the market, and no way that it can be achieved without severe political polarization adding further uncertainty. SD

This will help keep the price down. https://www.theglobeandmail.com/business/article-ontario-court-delays-torstar-takeover-after-rival-bidder-raises/ "Torstar lawyer Ryan Morris cast the two objecting parties as “a bitter, failed bidder and a disgruntled former employee who should not be permitted to disrupt a robust process.” He said NordStar increased its offer for Torstar – publisher of the Toronto Star newspaper – twice as the auction played out, securing the support of the five families who control Torstar’s voting stock and of major shareholder Fairfax Financial Holdings Inc." Most would expect that the FFH presence, and prior history with this kind of thing, was a factor in the court decision. The obvious resolution is another round of bidding, and sale to the highest bidder - if the existing winner is to remain, they pay up for it. Put up the winning bid, and put the peeving lawyer away. There is nothing wrong with fair bidding for an asset. However, it is theft if the selling company doesn't accept the highest bid. Like it or not, all the sellers common shareholders own the company equally. SD

No dog in this, but it's not a bad deal for the work-out. Very telling that the principal o/s is being reduced by 80 M - depending on how one calculates. Risk management. Ultimately, the business expectation is that BB is eventually merged into someone bigger, for a smaller slice of a bigger/better pie. But were they not already trapped in BB, there are other/better IT investments. The ongoing opportunity cost is the premium on the call option, at the current yield curve - pretty cheap. Can't really fault the business decision. SD

Keeps circling back to the trust, vision, and reporting thing. Everyone makes mistakes ... but when they keep coming up, and more frequently, it's a pattern. Fair and Friendly might have been the original vision, but it has devolved quite a bit since then. Make your own assessments, but there are plenty of other fish. SD

"Not sure how that is teachable" Friends in low places advise that it's very simple - in their world; the first one or two to forget sleep with the fishes, following which everyone remembers. In our world, it's the metaphorical heads on sticks - same message, but less clean up, and no flies to deal with. African thing ;) SD

Sadly - good leadership, and a good investment, don't have a high degree of correlation. Mostly because leadership is long-term orientated whereas investment is short term orientated. A great business requires reputation, growth & predictability, whereas a great investment - just requires volatility. An Enron a Worldcom, a Nortel were all great investments; both on the way up (long), and on the way down (short). Had you 'invested' wisely, you would have made stupid amounts of money. The leadership in those companies? not so hot. There are all kinds of other examples - and we see them every day. Might not be most peoples preference, but it is just another way of turning a profit. The equation changes when you have partners. Shareholders are NOT partners. no matter how much they might think they are. Partners have unlimited liability exposure to each other, shareholders don't. Different dynamics. SD

Like it or not, FFH is a family business transitioning succession. An inherently higher risk activity. Mistakes are inevitable. There is a reason why merit is a criteria, and not nepotism - and the higher the appointment, the more critical that separation is. It is preferable that the screw-ups happen in a row-boat, not the ship carrying the row-boats; there are lots of potential solutions, but it will be a family decision, not the shareholders. Higher risk, gets settled via a higher price discount. Lower multiples, haircuts for opportunity loss, waning 'popularity', etc. There are plenty of fish in the sea. An investor can toss back an ugly one, and get a replacement, at any time. We wish them luck, but most investors would be better off elsewhere. SD

The purpose of the Covid spend is to get the economy back on its feet. Most people cannot continue to live where they are if their property taxes go up 50% in one year, and more the year after. They have to move - and their forced mass selling into into a buyers market, will drops MV's, which will drop LOC maximums, contracting credit and strangling recovery. Recovery isn't going to happen, if the municipalities or states are bankrupt. Ultimately - the issue is the size of the cumulative debt (muni, state, fed) across all 52 states, and how it gets serviced. If the economic pie is shrinking (or no longer growing), there are hard choices. SD

Covid-19 has been with us for a while now, and we have a better picture of the spend to date on the various stimulus programs. As well as a murky insight into a number of grey elephants that hadn't initially been considered. The economic 'story' is "Yes, it is serious - but it is a temporary blip; that we will recover from once the economy is back up". All canadian municipalities are required to balance their budget every year, with any shortfall charged to the taxbase the following year. Toronto, recently forecast a current year Covid-19 related shortfall of 1.65B, and a property tax-hike of 35% if it weren't addressed - late last week, the Federal Government agreed to fund part of it. Every single municipality in Canada has the same issue, and will seek similar relief. The same Grey Rhino is present in the US. Most project annual Covid-19 spend to exceed the annual spend levels of WWII. During WWII, both the Allies/Axis financed their war efforts via patriotic domestic war-bonds - long/no maturities, and very low rates. The US financed Vietnam by removal of gold backed notes, and the USD as the worlds reserve currency. For a Canada, it is hard to imagine an eventual total Covid-19 recovery bill, of much under 2-3T - net of multiple years of wage subsidies, industry bailouts, mega-project stimulus, and social spend on skills retooling. Canada will come out modernized, and a lot stronger for it - but it's a nation building multi-year project - NOT a 1-2 year project. At 10x Canada's size - the total US bill is roughly 20-30T+. The EU will have something similar. I would like to hear how US based COBF members, would expect a financing of this size to play out - as it has never been done before. My own view is that ultimately, this it is going to require new arrangements, similar to what occurred in the years immediately following the end of WWII. And NONE OF THIS is priced into the market yet. SD

Think of your career. For most people - the industry you work in - is the industry in which you got your first full-time job. For the CPA, CFA, lawyer, etc. - it is the industry you went to as soon as you got your designation. Anytime you change jobs, that will be the industry where you are the 'best fit', and where you will get paid most. PROCESS keeps you in the industry swim-lane, and luck chose the industry - it was just where the jobs were at the time. It is the same in investing. To change careers requires ongoing flexibility, significant effort, and ability to absorb loss for an extended period (ask anyone in o/g). An individual might use a MBA/PhD as the change vehicle, an IT manager might use Agile Project Management. A PM has to rely on how often the 'phone rings - today's star value investor being tomorrow's bum. Successful investing requires ongoing mental flexibility, and continuous expansion of circle of competence. A great antidote is to learn how to simultaneously play chess against 4-5 other players, under distraction. It forces one to filter, think flexibly and at speed, in terms of flow versus static positions, and always outside the box (as everyone knows the standard thrusts/parries). Sadly, the former east block players that I used to play with have all passed on now, and their games were always an 'event' - 18 minutes, to win 2 or more games, to the music of Tchaikovsky's 1812 Overture ;D The 'master's' at this used to insist on fireworks for the cannon, played pissed out of their skulls, and were the most cunning evil bastards you'd ever want to play. SD

It will be a year-end 'discussion' item with their auditor. One side will argue that it was isolated, and correctly accounted for via the loss recorded on date on sale. As a result of the sale, the valuation premise of the remaining stake was further strengthened - hence an impairment write-down is not required (opinion). The other side will most likely concur - subject to a disclosure note that outlines the material facts of the transaction. Reader makes his/her own decision. Comes back to the trust, vision, and informational reporting thing. One is either OK with this kind of thing, or not. SD

Assume FFH does NOT record the impairment - subject to an annual future MM impairment charge. It is not unusual for different owners of the Toronto DT towers to have different valuations on their ownership portions of the same tower (precedent)- and just reflects their differing future opinions. IFRS accounting is accepting as long as the opinion and valuation is documented - and there is annual impairment testing (valuation model re-run with current data), if the opinion difference is material. SD

Treat it as a learning experience in investment strategy. Master it, if you intend to invest in the 2nd/3rd world. Three main takeaways. 1. A minority shareholder has no place investing in a FAH. He/she has to trust the majority shareholder, believe in their 'vision', and accept that the entire information structure of the new arrangement - puts them at a severe disadvantage. Lot more 'real' to just write a cheque to Oxfam, or invest in an african gold/platinum miner. 2. FFH sucks at this. Sure, they should do better under the new management going forward - but they are still neophytes. Given how hard it is to outrun devaluation/corruption, and how easy it is to screw up; most would expect more fails than successes. Implies that FAH is worth more as a short, and that there is a bias towards taking the minority out altogether - at a discount. 3. If you want to invest in Africa, use an index fund - & bet against the MCSI Index. Diversifies the risk, buy at a deep liquidity discount when there is a rush for the exits (today), sell at inflated prices when there is a rush back in .... Helios reporting outsized profits, triggering a gold rush ;) We live in interesting times. SD

The reality is that the reputational damage to the Watsa family, is far more damaging than the $ lost. Good intentions are great, but they are well out of their depth in these 2nd/3rd world ventures. If this is truly going to be a long-term thing - at least one family member needs to apprentice on site, under skilled expertise, for an extended period of time. A great opportunity! We wish them luck. SD

It is useful to think in stages. During Covid, Covid Recovery, Post Recovery. Africa doesn't have the medical infrastructure that a NA or Europe has. Hence, most would estimate how long until there is a working vaccine in wide distribution within a NA/Europe, and triple it for Africa (3rd world will be last in line). The reality is that Africa will be achieving herd immunity primarily by contracting Covid, and surviving it - a very difficult business environment for quite some time. If the average devaluation over the next 5 years, is 8%/yr (conservative), a $ invested today is worth 68c. CB's in NA/Europe are dong 'whatever it takes', with current/forecast spending at war time levels in many places. The traditional hedge against unavoidable currency devaluation is precious metals; either bullion itself, or the miners producing it. Africa is home to some of the most productive gold/platinum mines in the world - and the shares of all the bigger miners trade on unrestricted global exchanges, outside of Africa (liquid, enforceable rights, no capital controls). Pretty clear where a foreign investor, wishing to invest in Africa, needs to be. The equation changes if the investor intends to consume the production, as either a tourist, or to make/distribute some other product. Buy that second property in Cape Town ;) not Florida, and visit for 3-4 weeks every year. Use the minerals (China), or resell to others (Glencore, etc.). Point is - there has to be a flexible and intelligent LONG TERM plan If you had a $ today, to put into either a FAH or an ABX, where would you put it? Then, do you really see that changing? while Covid does its thing, around the world? Hence, maybe it's time to rethink the execution. WEB did it with the airline stocks. Africa is a tough place to invest, and we wish them the best of luck. SD

Just to give an indication of the FX headwind. 07/09/2019 the ZAR/CAD FX rate was 10.791:1. One year later, 07/09/2020 the ZAR/CAD FX rate was 12.4363:1. ZAR had devalued by 15.25% ((12.4363-10.7910)/10.7910) x 100. The Atlas Mara and CIG investments were made when the ZAR/CAD was stronger. Their cumulative FX devaluation is a lot worse. The FAH books are denominated in USD. Balance Sheet revalues every quarter-end, reducing equity. To maintain the BS ratio's requires fresh capital every year, in addition to the maintenance capex. Not a problem while they are rolling in the investments, but after it's done? Not to say that it cannot work, but it's a lot of work - just to break even. Hopefully, it works out for them. SD https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/?series%5B%5D=FXZARCAD&lookupPage=lookup_daily_exchange_rates_2017.php&startRange=2010-07-09&rangeType=range&rangeValue=1.y&dFrom=&dTo=&submit_button=Submit

Behavioural conditioning requires both rewards and penalties. It can't be one side of the coin only. It is also a simple task to add 'circuit breakers' into the conditioning process, as already occurs on the major exchanges. Sure, it is not libertarian - but neither is the 'real world. It's just an alternative approach, that also solves some practical problems. An echo-chamber is of no value - to anybody. Game in/out friends/undesirables, and you just destroy the value of your time and reputation invested. Self correction. Different strokes. SD

Just to add to this ... Consider upvoting/downvoting + an algorithm as the self-regulating mechanism - by which to move people between tiers. 3 tiers at a different annual subscription rate/year - Tier 1 at zero cost, Tier 2 at $$, Tier 3 at $$$$. You can buy access to a tier, but if behave like an asshole the algorithm bounces you down to a lower tier. Do quality posts, and the algorithm bounces you up a tier (& free of charge for however long you remain in that elevated tier). Incentive driven behaviour, and costs covered. Consider a similar override algorithm for the controversial. A NYC is what it is, because their ain't no shrinking violets, it is very 'grounded', and they ain't above telling anybody off - directly, and with panache :) It is the antidote to echo-chambers. SD

Nice to see. Congratulations! SD

Most long-timers have just evolved over time. At one time they were utter sh1te, and the board was a valuable asset. Over time, the value-add of the board declined as they got better. Eventually, ongoing participation just wasn't worth the upkeep. No dispute that the tone has declined quite a bit over time. I flatly will not post on our positions any more, other than for disclosure or time-capsule purposes. Lots of time for informed enquiry/criticism - but peanut gallery comment? PFO. My own view is that the tone reflects ongoing deterioration in US business leadership/civility. When tolerance of Trump antics are the 'new norm', a decline in tone is pretty much inevitable. SD

He's not wrong - but the timing of all this is the mystery. Reserve status loss is also a LOT more routine than most recognize; everytime a nation's economy reverts to 'dollarization' - versus its own currency. Zimbabwe, South America (multiple times/places), EU member switches to the EU, etc. Most often not 'planned', more a gradual build-up to a tipping-point - and sudden change, expressed as a 'market discontinuity'. Folks don't want to hear it, but the recent technological ability to use CBDC, as a global reserve currency replacement - fundamentally alters everything. The limitation is not the technology, but the thinking/mind-set. Reserve status confers power, but it's a limited term (long-term) engagement, and inherently disruptive (unstable). CBDC offers shared power, no time horizon, and is inherently stabilizing (high volume trade/capital flows settle via the CBDC, low volume trade/tourism flow settle via local currency exchange) Game theory suggests a once-only advantage to the first nation, that converts its reserve currency status to the CBDC A China never gets reserve currency status, and each of the USD, EU, Yuan, etc lose their regional currency status. Unlikely to occur under a Trump - more likely under someone else. The more global disruption/bad community behaviour, the closer the tipping point. SD .