dcollon

From Mark Grant at Southwest Securities: I have long held the opinion that the markets, all of them, have been buoyed by what the Fed and the other central banks have done which was to pump a massive amount of money into the system. There are various ways to count this but about $16 trillion is my estimation. The economy in America has been flat-lining while the economies in Europe have been red-lining and while China has claimed growth their numbers did not add up and could not be believed. In other words, the economic fundamentals were not supporting the lofty levels of the markets which had rested upon one thing and one thing alone which was liquidity. I have also stated often enough that the long awaited reversal would take place either due to an "event" or due to a change in the Fed's position where the liquidity was going to be stopped. In one of the clearest and most open meetings ever conducted by the Fed, in my opinion, they said quite clearly that the end to its liquidity operations was coming and while the postulated this and that if the markets did this and that the message was quite clear; we are going to unwind what we have we have done. Yesterday was the first day of the reversal. There will be more days to come. What you are seeing, in the first instance, is leverage coming off the table. With short term interest rates right off of Kelvin's absolute Zero there was been massive leverage utilized in both the bond and equity markets. While it cannot be quantified I can tell you, dealing with so many institutional investors, that the amount of leverage on the books is giant and is now going to get covered. It will not be pretty and it will be a rush through the exit doors as the fire alarm has been pulled by the Fed and the alarms are ringing. There is also an additional problem here. The Street is not what it was. There is not enough liquidity in the major Wall Street banks, any longer, to deal with the amount of securities that will be thrown at them and I expect the down cycle to get exacerbated by this very real issue. Bernanke is no longer at the gate and the Barbarians are going to be out in force. Yesterday was not pretty but today is likely to be worse. Gold is getting smashed, equity futures are down significantly, bonds are taking it on the chin and the only thing that is up is the Dollar. Then besides the Fed's announcement; China is a rose dying on the vine. Their overnight repo rate hit 25% as the fear is palpable in Asia between the collapse of the Everbright Bank and the antics in Japan. The yield on China's three year government bonds rose 12.5% last night while their flash PMI plunged to 48.2 which is the worst number in nine months. Now you may be wondering what to do next. You will hear a lot of people in the media today saying that this is just a normal part of the market's cycle. This is not the case. The Fed has signaled its intentions very clearly. You should be taking profits, taking money off the table and building up your cash positions. Your supplier of opiates has just informed you that your drugs are going to get cut off and preparations need to be made because there is no other supplier of this opiated cash. You can accurately think of the world's central banks as a "cash cartel" and the distribution is being ended. How bad it is going to be is uncertain but BAD, with capital letters, in my estimation. For four years we have lived on drug money supplied by the Fed and their colleagues and what the emperors' can give; they can take away. Eventually Treasury yields will go back down because the Fed will be buying more bonds than the Treasury needs to issue but for now the "leverage issue" will overcome that reality. Mortgage rates will be heading higher, the Real Estate market is going to correct and the days of wine and roses are now behind us.

Although I like the idea of sex, I will go with Alcohol, Tobacco, Chocolate and Insurance.

http://www.bloomberg.com/news/2013-06-18/obama-says-bernanke-fed-term-lasting-longer-than-he-wanted-1-.html

I always enjoy listening to Mr. Price. Thanks for sharing the video and I completely agree...great book.

Gio, I'm glad you were able to watch it. He was a lot funnier than I thought he would be. It was the first time I had seen him present in person. I hope you had a chance to watch some of the other presentations as well. Take care, David

SoGen: Dylan Grice Dylan_Grice.pdf

Albert Edwards Albert_Edwards.pdf

You guys will like Nate's book if you enjoy thinking about statistics (baseball, politics, stocks are just a few of the focuses). I had originally started following Nate's political blog/commentary in the NYT and saw how right his predictions were during the elections (both mid-term and presidential), so I figured I had to read the book.

He's got a Bloomberg on that desk Sanjeev, so he's not that cheap. ;) Great pictures Gio.

They had an A rating, which was always important to them. I don't understand why based on the lines that they were involved with over time. However, every time we met with management they mentioned it. There is plenty of capital that Fairfax will be able to free up.

Bill Gross's latest http://media.pimco.com/Documents/13-0651-GBL%20IO%20JUNE%202013_FINAL.pdf

Fairfax Financial (FFH.CN) to acquire American Safety Insurance Holdings for $29.25/sh in cash Monday, June 03, 2013 01:04:50 PM (GMT) Fairfax Financial Holdings Limited (FFH.CN) and American Safety Insurance Holdings, Ltd. (ASI) announced that Fairfax and American Safety have entered into a merger agreement pursuant to which Fairfax will acquire all of the outstanding shares of American Safety common stock. American Safety stockholders will receive $29.25 per share in cash, representing an aggregate transaction value of approximately $306M. The price represents a premium of 22.1% to the closing price of American Safety common stock on 31-May-13, the last trading day prior to this announcement. The transaction is expected to close in Q4 of 2013. The board of American Safety, after unanimously determining that the merger is in the best interest of American Safety and its stockholders, unanimously approved the merger agreement and resolved to recommend that American Safety's stockholders vote to approve the merger. Certain of the directors and executive officers of American Safety, who beneficially own approximately 10% of the outstanding shares of American Safety common stock, have agreed to vote their shares in favor of the merger. The transaction is subject to customary conditions, including approval by American Safety's stockholders and regulatory approvals. There is no financing condition to consummate the transaction. Concurrent with the execution of the merger agreement with American Safety, Fairfax entered into a purchase and sale agreement with Tower Group International, Ltd. pursuant to which Fairfax agreed to sell the Bermuda subsidiary, American Safety Reinsurance, Ltd. promptly upon acquiring it from American Safety. Such transaction is subject to customary conditions including regulatory approvals. The acquisition is expected to be financed using internal resources and is not expected to require Fairfax holding company cash. Fairfax expects several of the American Safety specialty lines groups to move to Crum & Forster and Hudson. The acquisition is expected to provide the Fairfax group with $480M of additional investable assets.

I just read the following headline and thought it fit well within this thread...unbelievable. Priceline (PCLN) announced the pricing of $1 billion principal amount of Convertible Senior Notes due 2020. The notes will pay semiannually at the astonishing rate of 0.35%. Notes may be converted into cash up to their principal amount, and into shares of PCLN stock based on a conversion rate of 0.7604 shares of common stock per $1,000 principal amount. The conversion price of approximately $1,315.10 per share, represented a 66% premium based on the closing price of $792.27 per share on May 29, 2013). If the underwriters' overallotment is fully exercised an additional $150 MM in notes will be issued. At 35-basis points, the buy back of shares with the bond proceeds will be immediately accretive to EPS. As of 1:38 pm EDT PCLN was up $15.28 @ $807.55 /share.

I thought Joy Global had some interesting, but brief, comments on global growth/supply of materials in their earnings release this morning. http://investors.joyglobal.com/releasedetail.cfm?ReleaseID=768021

This is potentially biased, since it's published by the Association of Oil Pipelines, but it's their opinion. http://www.aopl.org/aboutPipelines/

hyten1, I think some of them are getting interesting (RWT & WMC would be two). Obviously, the big question is dependent on each companies business model and structure. In addition, then we have to guess what the fed and the yield curve are going to do to spreads and volume.

James, I don't have specific data on any follow ups, but I thought this article was interesting. http://online.wsj.com/article/SB10001424127887323463704578497003961136978.html

Gio, I enjoyed that interview. Thanks for posting it.

From WSJ. Prosecutors considering using RICO strategy http://online.wsj.com/article/SB10001424127887324102604578497170974034916.html?mod=WSJ_Markets_LEFTTopStories

JEast, This is the man that bought it http://en.wikipedia.org/wiki/Manuel_Moroun. Here's a brief comment from Forbes article: The Ambassador was privately built in 1929 by a palm reader turned financier, Joseph Bower. It became publicly held when Bower put his company, Detroit International Bridge Co., into bankruptcy in the Depression and issued stock as part of a reorganization. In the late 1970s the sage investor Warren Buffett acquired 25% of the stock, emboldening Moroun to act. In 1979 he used his small trucking company’s credit line to buy out Buffett and acquire the rest of the company for a total of $30 million. Thus it became the only major U.S.-Canada crossing that is privately owned. The bridge’s likely worth today:half a billion dollars or more. http://www.forbes.com/sites/joannmuller/2012/01/12/why-one-rich-man-shouldnt-own-an-international-bridge/

I just finished the Shipping Man and really enjoyed the story. I would recommend it to anyone that has an interest in the shipping business, not because of technical knowledge that you will gain, but because the author tells a great story.

Netnet, I have attached a speech, but I'm not sure if it's the one you are looking for, if not I apologize. Munger_USC_April_14_1994.pdf

Jay, Attached is the Cascade data I could find. Cascade.xls

You can essentially look at this one http://www.dataroma.com/m/holdings.php?m=GFT

I'm really enjoying this book. It's a lot of history, but I have enjoyed learning even more about the origins and original structure of AIG.