Cardboard

Forget about Ukraine, it is already a de facto Russian state. Since the port of Sevastopol is no longer on Ukrainian soil, the natural gas price discount that Ukraine was getting no longer applies. With their already semi-bankrupt finances, Ukrainians cannot afford something like a 80% hike on their energy bill. So they will do whatever Russia wants from now on. The large deployment of troops, its cost and preparation is a head scratcher but, that may be part of the plan to prove the capability. Regarding Israel, I mentioned previously that the market was not giving much if any consideration as to a potential attack on Iran. Following what happened, do you believe that they and Saudi Arabia can rely anymore on the assurances from Obama? Treaties are not being enforced (as we saw clearly with Ukraine), red lines mean nothing and all the White House is doing is using a war of words. It is quite probable that they will take matters in their own hands and soon. They seized advanced rockets coming from Iran a week or two ago. Do you believe that they are that naïve about the true intentions of Iran? We have had "world" peace for decades because the two big boys feared annihilation. There was some equilibrium. Smaller nations had to chose a camp and to stick to the plan. Now, it is everyone for itself. While it was not pleasant, it has worked. Right now, I can imagine what goes in the minds of people in Poland, Czech Republic and Estonia with the NATO treaty. Is the U.S. ready to go the distance if they are attacked? Really? The Obama administration thinks that they can ensure world peace by simply sharing smiles and giving hand shakes. That is admirable, but as we have seen now a few times, simply does not work in this paranoid and selfish world. Sanctions also don't work very well if we are to look at history. They caused the rise of Hitler and Japan was under sanctions right before its surprise attack on Pearl Harbour. Now, I know that I will get flak from Democrats from saying that but, that is just reality. A reality that Truman, JFK, Johnson, Clinton and maybe even Carter understood. Fixing the problem is easy. Deploy the missile shield in Poland and Czech Republic and since Russia thinks that we are no longer serious and to punish them for Crimea, put in place a few dozens new Pershing 2 nuclear armed missiles right on the Polish border and give the key to Poland. Things will rapidly get back to normal. Cardboard

Talking about selfish assholes... why do I get mad when my stocks go down? Why do I keep investing instead of spending it all on me? Why do I keep saving to eventually give to these true mindless assholes who keep on reproducing so they are just like others and unable to say no to their animal instincts? These people sure do not question themselves about holding or not the higher moral ground! Cardboard

Hi Ericopoly, Actually, my question was flawed: you are not using IWM to hedge at all your BAC position or essentially your long portfolio. IWM is a straight short with capped downside, while BAC is your long with capped downside using its own puts. The other trades: sell BAC covered calls, sell SHLD puts (with high volatility and premium) are simply ways to raise cash to reduce the cost of the 2 "trades" above. The only risk left I guess, other than treading water, is for you to be forced to buy shares of SHLD or close the position at a loss. Do I now understand it all right? That is actually brilliant and shows the power of concentrating in a few large caps: easy to hedge them with 100% correlated puts. Very useful in times like these. I can't do this with my portfolio with most being small caps that do not have options. So to get a similar "barbell" strategy I would have to short twice as much IWM as you are or find some other short/put strategy for my long exposure. Cardboard

Ericopoly, Did you buy straight IWM puts in your non-margin accounts, like retirement accounts, where you can't short to hedge? I guess in these you would not have to worry about the early taxation issue that you mentioned. Cardboard

Well, that is a good one. :) Just don't forget that Watsa probably thought the same thing 4 or 5 years ago and back then the cart was even moving slower. So you did the right thing by buying these protective calls against your short since who knows when the cart will go on reverse or crash down the hill! Cardboard

I really like both of your posts Frommi and Ericopoly. Shorting is certainly a tough thing to do and as you said Ericopoly recently, the power of retained earnings over just a few years can make the best actual short thesis look quite foolish quickly. While I like my holdings, I feel like I can't count on a raging bull anymore to help them reach fair value. And if we still have a raging bull, it could be a few areas doing really well while value stays flat. So I really like the way you have hedged Ericopoly, but keep in mind that some parabolic move may still form in the more frothy areas of the market while BAC stays flat. Staying flat while everyone is partying feels actually as bad if not worse as going down with everyone else. However, at this point, the risk of staying flat after all these years of large gains may be worth accepting. Cardboard

While I mentioned previously that I would ignore Fairfax following their non-follow through on buying out Blackberry, I still read the annual letter. Shame on me. By the way, I don't buy the excuse of not following through because they discovered during due diligence that Blackberry could not be bought via an LBO. I mean, any decent investor with available public information could quickly calculate a reasonable amount of additional debt that could be serviced from recurring cash flows and disposable assets. The transaction was presented as a cash offer with partners and with full reputation on the line. Once it fell apart, we are now supposed to believe that Fairfax and very capable Hamblin Watsa and Mr. Watsa himself being a director of BBRY for a long time, had to rely on outsiders or consultants if you will, to figure out that an LBO or adding a bunch of expensive debt on BBRY was impossible... You can draw your own conclusion a few different ways. One thing is certain, if I was a shareholder attending the meeting, I would question him directly about this train of thought. Now getting back to the letter, I would point out that copper has experienced a noticeable drop recently. Unlike oil, it is not impacted much if at all from geopolitical events hence when it drops sharply as it did, it is a sign that something is amiss on the demand side. If you add this to the recent debt default in China and noticeable over-building, they may be on to something. At least, the timing now seems more right than before. Cardboard

I have a fixed rate Heloc on my home that I have used to invest. I could not accept the fact of having all that capital tied up in a nearly non appreciating asset. The result now is that the investments are worth over twice the loaned amount after only 2 1/2 years. If I get this up to 2.5 times the loan value, then the gain will cover the entire value of the home. I don't think that there is any better way available to leverage for the common mortal. It is cheap because it is backed by the value of your home. There is no margin call. You also have the ability to repay a big portion each year if you want without penalties. Like with all forms of leverage there is risk. I think that you need to assess your own financial situation and the potential risks under different scenarios. For example, if the value of my home had been my main asset, I would have been reluctant to enter into such a deal. Regarding where to invest the proceeds, I see leverage as the ultimate form of dry powder. You only want to deploy this in the best forms of investments available. I won't hesitate at all to keep it all in cash if opportunities are scarce. Playing the spread game IMO is the best way to part you with your money. It is best left to the banks. A friend of mine came to me with this idea recently. The amount loaned was several hundred thousands in order to make a "potential" spread of 4%. I simply said to him, what is that additional 4% going to change in your standard of living? The answer was nothing. So I told him to keep that "borrowing power" or "dry powder" for that great business opportunity that will materialize for sure some day. The chance to double or triple your money when blood is running in the streets. Unfortunately, he still succumbed to the pitch from that salesman. They always have some nice charts and tax advantages to put asleep the normally astute business people. What a change from late 2008, 2009 and even 2010 when everyone was so careful about not losing a further dime. Cardboard

What the U.S. should do and Europe? I would highly recommend reading this commentary: www.project-syndicate.org%2Fcommentary%2Fcharles-tannock-calls-for-iran-style-sanctions-against-russia-until-it-withdraws-its-forces-from-ukraine Sorry if the link does not work but, you can Google it. Disappointed I upgraded my IOS. Cardboard

Some people here talk probably like many did in the U.S. when Germany took over Austria, then invaded the Czech Republic. They continued the same talk when Germany invaded Poland, Belgium, France, etc. until they got attacked themselves on a small island very far from the mainland. Some probably still argued at that point that they should only take care of Japan and to let the European deal with their own issues. The world simply does not work that way. The only reason why the Soviet Union did not invade Western Europe is because the U.S., Britain and France said put one foot in Western Germany and we are sending you to hell. Putin is from that era and mentality whether you like it or not. So you may have to deal with him in a fashion that you do not like. It is not much different than when your boy comes home crying because he is being bullied in school. Putin is now pushing to see how far he can go. Only force will stop him. The U.S. is also rich and powerful and with that comes a certain amount of responsibility as to what goes on beyond its borders. There is also a strong economic incentive to spread its values around the world which is good for Coca-Cola, GE, McDonald's and many others. To think that the U.S. would be as well off by staying put at home and letting whomever doing as they please until they touch U.S. ground is beyond naive. Cardboard

The U.S. with their current weak international policies has already lost 2 battles on the international front: the Syrian chemical accord and the Iranian deal. Both deals were largely supported by Russia and dictated the terms for the most part. And if you kept track of what is going on, both deals are essentially falling apart with Syria being quite slow giving up its chemical weapons and Iran still moving full steam ahead with its nuke development and constantly threatening to not sign a final deal. So Putin knows he is dealing with a weak opponent talking a lot but, having no teeth. Very different than Reagan or George W. Bush who they considered dangerous. So I think that Russia will do whatever it wants right now until Obama says that they are willing to go to war with them if they cross some "red line": go Defcon 3. It has to be a true red line and not comments like he made about Syria using chemical weapons against his own people. If Russia does not reverse course in Crimea, I believe like other posters that the situation elsewhere will deteriorate. Israel and Saudi Arabia will definitely take that as a green light to take matters in their own hands regarding Iran. Can they trust the U.S. after that? No way! Will Poland continue to trust NATO's help or will it go nuclear? Wherever there are border issues, minorities, language or religious differences will see that as an excuse to act. Regarding Putin and Russia, I am amazed that after multiple centuries that they are still unable to get away from corruption, war, dictators. Vast resources, some of the smartest mathematicians, capable to design top notch weapons but, totally unable to get the country going into some form of positive, stable, growing environment for all their citizens. Cardboard

Hi Sanjeev, Please post the link/press release if your involvement with this financing becomes public. I am always interested learning about such things. Cardboard

"I think some of our canadian friends don't realize that most people in the US have 30 year fixed mortgage rates. I don't think any of us should be rushing to pay back ~4%, 30 year fixed-term, tax deductible debt." That is 2 phenomenal advantages that you guys have. If it wasn't for the 30 year at such low fixed rate (here it is normally locked for only 5 years), I would still recommend Original mungerville suggestion of paying off the mortgage and then to go for a Heloc once the cash is needed to invest. At least up here when you go for that Heloc and demonstrate that you use the proceeds to invest, the interest becomes fully tax deductible and there is no deduction limit. Cardboard

Some additional reasons: Watergate and the resignation of a President. Yom Kippur war and risk of potential escalation during the cold war. And of course, high priced stocks or nifty-fifty to begin with. Cardboard

After all, it seems pretty easy to analyze. Breakdown or quickly shrink the pocket surrounding the quarterback and he won't be so good anymore: passes won't be as precise, interceptions will be made, fumbles will occur. No one could get close to Manning against the Patriots and the end result was pretty clear. How well the attack line will protect these "static" quarterbacks is crucial. Same goes for Brady. These guys make nowhere near the amount of money as receivers and QB's and their careers on average are much shorter but, they are essential to win. The other very interesting fact is that the 49er's were a "hand" away from going to the Super Bowl. So it is not like the Seahawks were such a dominating team all the way to the Super Bowl as today's newspapers make it look like. I am glad I didn't bet on this one because I would have lost. I also assume that ton of money got lost since the Seahawks winning by such margin was totally unexpected. Cardboard

I will never do any business with Royal Bank of Canada. Once upon a time, I came to Ontario for work. I was prior a Quebec resident. I went to a Royal Bank branch to open an account and make a cash deposit. I was asked if I had a visa or passport in order to open the account??? Cardboard

"cardboard are you still on board at pennwest?" Sure, but who am I? I was the idiot who bought an initial position in the $11 range and then doubled down at what looked like the low before the last few days... All the signals seem to point in the right direction except that the market for asset sales remains very weak. The price obtained was very low for these assets. I understand Roberts rationale based on his presentation but, a low price remains a low price. This combined with a reduction of another 4,000 boe/day on the already shocking low production forecast for 2014 really spooked the market. The story has not changed much at all here. The price of entry is only better and with it your eventual rate of return. I bought too early, paid too much from what it is now, but I still think that in 2 or 3 years that the overall return will be quite good. And that is if the guys at CNQ, Suncor and other large firms don't take it out sooner. There is still after all high demand for light products out in Alberta due to the large oil sands production growth (pipeline shipping and refining). And when you look at the CDN$ price lately and their assumption of $89 CDN per barrel of light oil, then you start understanding that this company is pretty cheap now. Regarding their cash flow long term forecast, I would assume that they will hit them close. You still can't be right on since too many prices can vary. However, as long as they target best in class costs and with the assets that they have, it should look fine. This Roberts guy is a chemical/process guy. Not a mine finder. He is working hard on everything that he can control and by the sound of it, it is just discipline and execution. Not landing on the moon type of stuff. BS is not accepted in his office. That is actually exactly what is needed to run a successful income trust which PWT should have been instead of the non-focused mess that it had become. Cardboard

Some businesses on propane rationing in Quebec from solid contacts. Cardboard

Petey2720, Are Canadian investors allowed? Cardboard

Hi Sanjeev, I didn't mean to be offensive with my post although reading it now, my tone or choice of words was likely inadequate. Bottom line is that I appreciate and respect very much your opinion on stocks. You are able to form a solid thesis and stick with it through thick and thin. You are also very disciplined by trimming your positions as they move up or like you mentioned many times: not falling in love with your stocks. Regarding the fact that you will still discuss other not-owned stocks that is great, however we tend to get much more knowledgeable about the ones we own and also excited about them. Like it is our babies. Personally, I get a tremendous amount of value from this board by proposing an idea for which I am excited about and then to see the reaction and comments from others. You do have a partner to discuss with so the need may not be nowhere near as great but, for me when the consensus on the board says yuk about one of my idea then I feel a high sense of urgency to re-check my thesis. Anyway, I appreciate all that you do for us and understand your reasoning. It would be nice if we could find ways to free up your administrative time so you could gain time to do just what you really enjoy on this site. Cardboard

"Outside of Fairfax and Berkshire, we won't be talking about any of our holdings going forward...you'll have to watch filings or be a partner. ;D " To be honest, I don't understand why you are adopting a new policy at this point. First of all, many money managers tell people why they are buying such and such security. Irwin Michael has a full website dedicated to share his ideas and thought process. To my knowledge, there is nothing illegal, unethical or that would prompt regulatory enforcement for doing such. Second, the money managers who attract money tend to be the ones who share their ideas. If you are quietly doing your business, you turn into an unknown and it becomes very difficult to attract new investors and that is even if you have phenomenal rates of return. Third, I cannot imagine that sharing your ideas on this board has led to investors not investing with you. The way you have shared ideas so far, you can tell a bit what you own, but it remains impossible to copy your approach. If someone has any intention to have his or her money managed by someone, they will contact you if they like your approach and not simply trying to copy. Fourth, while I can understand your unwillingness to discuss lightly traded securities, I cannot see any reason to avoid discussing liquid securities such as a Bank of America even during accumulation. Fifth and finally, I enjoyed sharing my ideas on your website and looking at yours. I thought this was a solid place to find new ideas, to validate or dismiss them. It was a nice give and take process. Now, if the leader does not participate anymore in sharing his ideas, I see the website having greatly diminished in value. Now, I would certainly appreciate reading about your reasons for your change in policy. Cardboard

I think it is due to the fact that oil and gas tanked today in New York and that Canadian Natural Resources has decided to stop looking for a buyer of its Montney property or indicating that interest for assets remains too low. PWT and LTS are both sellers of assets so this could not be good news. This market is really manic-depressive. I read just before Christmas or after a record weekly draw of natural gas that if the winter was just normal from that point on or at the average from the last 5 years that we would exit the winter with inventories at 20 year lows. Since then we have had record cold weather. It will warm up a bit here for a few days like it does every winter and now they are trying to push nat gas below $4. Go figure! I also read on Stockhouse that a giant natural gas cavern used by TransCanada is now empty in Saskatchewan and could lead to rationing. Cardboard

While the media keeps touting that new U.S. oil production is going to create a large glut and is a given, keep in mind that this is all production subject to very large initial decline rates and you never fully know what is below ground level. This is not like the oil sands where production rate is dictated by infrastructure and can stay flat for 50 years unless processing capacity is increased. You need a lot of new wells to see an on-going rate close to what is being produced now. We could see in short order a peak followed by a bust in drilling if new areas are not found. http://www.kxnet.com/story/20480884/chesapeake-drills-unsuccessful-wells-in-southwest-nd http://srsroccoreport.com/the-coming-bust-of-the-great-bakken-oil-field/the-coming-bust-of-the-great-bakken-oil-field/ This could mean trouble for producers, drillers, industrial firms and eventually U.S. employment. Moreover, it could mean higher prices for oil down the road. Cardboard

A whistle-blower does not put his firm or country at risk by revealing its trade secrets to its worst enemies. While the NSA seems to have over-reached, the way this guy acted is totally inadequate. There were other ways to raise concerns or at least to disclose less of what was going on. You also don't go hide in China or Russia when you are apparently caring for the well being of your own country or the U.S. You go public in your own land and are prepared to face the music. A whistle-blower shows courage. This guy has no courage and is a traitor. He fully deserves to live in exile and no deal should ever be reached with him. There needs to be a price for treason. While many people are outraged that the NSA might be looking at their e-mails and phone calls, their goal remains to protect Americans and I would argue the world against terrorism. I have yet to hear about a single example of how the NSA used the data other than for this purpose. Now the world is a much riskier place because of this man. Cardboard

Up 41.3% and deeply disappointed: no progress for about 6 months despite a nice surge peaking in October that has all been reversed and more. Tough to see the index going up everyday while you are doing nothing. Very heavy into oil & gas going into 2014. Cardboard