A_Hamilton

[amazonsearch]Pioneering Portfolio Management: Institutional Investing - David Swensen[/amazonsearch] Hands down the best book on asset allocation out there.

Generally I think you are right Anders, especially if you were to buy the common on Interactive and pay like 2% to borrow. However, the strike on the BAC_A warrants reduces by $.01 for every $.01 the dividend is above $.01 each quarter, so if someday BAC pays $1 in dividends on an annual basis, you are looking at a $0.96 reduction in the strike for that year alone. So, much more then time value going on here...

I thought a lot of people on this board held FFH shares? Anyone realize they are prepped for a major economic contraction throughout the western world? Long long dated treasuries, 85% hedged equity book, $50 billion notional exposure in protection against deflation which cost them half a billion dollars? What do people on this board see that suggests we are not going to have a recession?

Moody’s downgrades Ireland to Ba1; outlook remains negative Frankfurt am Main, July 12, 2011 — Moody’s Investors Service has today downgraded Ireland’s foreign- and local-currency government bond ratings by one notch to Ba1 from Baa3. The outlook on the ratings remains negative. The key driver for today’s rating action is the growing possibility that following the end of the current EU/IMF support programme at year-end 2013 Ireland is likely to need further rounds of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a precondition for such additional support, in line with recent EU government proposals. As stated in Moody’s recent comment, entitled “Calls for Banks to Share Greek Burden Are Credit Negative for Sovereigns Unable to Access Market Funding” (published on 11 July as part of Moody’s Weekly Credit Outlook), the prospect of any form of private sector participation in debt relief is negative for holders of distressed sovereign debt. This is a key factor in Moody’s ongoing assessment of debt-burdened euro area sovereigns. Although Moody’s acknowledges that Ireland has shown a strong commitment to fiscal consolidation and has, to date, delivered on its programme objectives, the rating agency nevertheless notes that implementation risks remain significant, particularly in light of the continued weakness in the Irish economy. The negative outlook on the ratings of the government of Ireland reflects these significant implementation risks to the country’s deficit reduction plan as well as the shift in tone among EU governments towards the conditions under which support to distressed euro area sovereigns will be made available. Despite the increased likelihood of private sector participation, Moody’s believes that the euro area will continue to utilise its considerable economic and financial strength in its efforts to restore financial stability and provide financial support to the Irish government. The strength and financial capacity of the euro area is underpinned by the Aaa strength of many of its members including France and Germany, and indicated by Moody’s Aaa credit ratings on the European Union, the European Central Bank and the European Financial Stability Facility. Moody’s has today also downgraded Ireland’s short-term issuer rating by one notch to Non-Prime (commensurate with a Ba1 debt rating) from Prime-3. In a related rating action, Moody’s has today downgraded by one notch to Ba1 from Baa3 the long-term rating and to Non-Prime from Prime-3 the short-term rating of Ireland’s National Asset Management Agency (NAMA), whose debt is fully and unconditionally guaranteed by the government of Ireland. The outlook on NAMA’s rating remains negative, in line with that of the government’s bond ratings. RATIONALE FOR DOWNGRADE The main driver of today’s downgrade is the growing likelihood that participation of existing investors may be required as a pre-condition for any future rounds of official financing, should Ireland be unable to borrow at sustainable rates in the capital markets after the end of the current EU/IMF support programme at year-end 2013. Private sector creditor participation could be in the form of a debt re-profiling — i.e., the rolling-over or swapping of a portion of debt for longer-maturity bonds with coupons below current market rates – in proportion to the size of the creditors’ holdings of debt that are coming due. Moody’s assumption surrounding increased private sector creditor participation is driven by EU policymakers’ increasingly clear preference — as expressed during the negotiations over the refinancing of Greek debt — for requiring some level of private sector participation given that private investors continue to hold the majority of outstanding debt. A call for private sector participation in the current round of financing for Greece signals that such pressure is likely to be felt during all future rounds of official financing for other distressed sovereigns, including Ba2-rated Portugal (as Moody’s recently stated) as well as Ireland. Although Ireland’s Ba1 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the increased possibility of private sector participation has the effect of further discouraging future private sector lending and increases the likelihood that Ireland will be unable to regain market access on sustainable terms in the near future. This in turn implies that some Irish government bond investors would need to absorb losses. The increased risk of a disorderly and outright payment default or of a disorderly debt restructuring by Greece also increases the risk that Ireland will be unable to regain access to private sector credit. The downward pressure that this creates is mitigated in Ireland’s case by the strong commitment of the Irish government to fiscal consolidation and structural reforms, and by its success, so far, in achieving the fiscal adjustment required by the EU/IMF programme. To date, Ireland has met all of its objectives under that programme. In the first half of 2011, the primary balance target was exceeded, with tax revenues on track and lower-than-anticipated government expenditures. However, Moody’s cautions that implementation risks related to the overall deficit reduction aims of the three-year programme are still significant, particularly in light of the continuing weakness of domestic demand. Apart from Ireland’s adherence to fiscal consolidation, Moody’s also acknowledges the Irish economy’s continued competitiveness and business-friendly tax environment. The considerable wage adjustment that occurred in the course of the crisis reflects the Irish labour market’s flexibility. Taking Ireland’s economic adjustment capacity into account, Moody’s expects that, after a period of prolonged retrenchment, Ireland’s long-term potential growth prospects remain higher than those of many other advanced nations. While the government’s debt-to-GDP burden is expected to be high compared to similarly rated sovereign credits, Ireland has managed elevated levels of indebtedness in the past, and has shown political cohesion while enacting difficult structural adjustments. WHAT COULD CHANGE THE RATING UP/DOWN Moody’s would consider a further rating downgrade if the Irish government is unable to meet the targeted fiscal consolidation goals. A further deterioration in the country’s economic outlook would also exert downward pressure on the rating, as would further market disruption resulting from a disorderly Greek default. Moody’s also notes that upward pressure on the rating could develop if the government’s continued success in achieving its fiscal consolidation targets, supported by a resumption of sustained economic growth, is able to reverse the current debt dynamics, thereby sustainably improving the Irish government’s financial strength. PREVIOUS RATING ACTION AND METHODOLOGIES Moody’s last rating action affecting Ireland was implemented on 15 April 2011, when the rating agency downgraded Ireland’s government bond ratings by two notches to Baa3 from Baa1, and maintained the negative outlook. Moody’s last rating action affecting NAMA was implemented on 15 April 2011, when the rating agency downgraded by two notches to Baa3 from Baa1 the senior unsecured debt issued by NAMA, which is backed by a full guarantee from the Irish government. The negative outlook was maintained.

As I've said. I think many people stuck with Berkowitz during the biggest meltdown since the great depression. Certainly not anywhere near as many sold out like Romicks did back then. My question now is who is he becoming? Is he still going to be the Berkowitz I knew which I liked. Or is he going to start trying to be a Eddie Lampert? Ian Cummings? Warren Buffett? I'm not saying he can't be like them. But until he really explains what his new plan is or proves he can emulate those guys on the "Buying a business and running it side" and do it WELL I have questions. One last question. FAIRF has been under some selling pressure obviously. Why not buy FAIRF now rather than waiting for those stocks to dip? I think he carries enough cash in reserve and always has that he won't be forced into having to sell them off to cover redemptions. Thanks First, he was at 5% cash at June 30th. He is going to have to sell something to raise cash to meet redemptions (Morningstar estimated net redemptions of $1 billion for june). http://www.investmentnews.com/article/20110706/FREE/110709953 Second, people haven't sold as much Fairholme (relative to FPA) because not enough time has passed with his underperformance--$1 billion of withdrawals last month!--5%+ of the fund's money is gone! On who Berkowitz is, he is the same great investor he has been the past 30 years. The current investment in banks is no different than his bet on banks in the early 90's (except that banks are probably cheaper this time around). He's more than proven his ability to get massive deals done through Hertz/GGP/Americredit, etc. Also, I don't think his sitting as chariman of JOE is really that big of a deal...his investment in financials is a back of the envelope calculation...normalize pre-tax pre-provision profit, subtract a normalized levels of chargeoffs, tax effect, multiply by 10, add excess capital and voila! each name is trading at a price to value of 0.7x or less (I'm oversimplifying, but not by much). I don't own FAIRX for a host of reasons. I don't like open ended mutual funds' tax issues, I prefer to pick my own names, and right now in particular, I think I can get great exposure to the mega banks through the bank TARP warrants and put up less capital to do it, I could go on...

I think Berkowitz is a great manager, and he is positioned to outperform significantly over the next decade. Large cap financials are ridic cheap even with regulations going forward. Steve Romick was on Wealthtrack this week and said that he lost 90% of his asset base in the tech bubble. People always chase returns and then are shocked when they get burned. All of this said, I hope his redemptions become significant enough to force him to sell down names and create some selling pressure in LUK, JOE, and SHLD. Unfortunately his fund is too small to have an impact on his other holdings.

http://mattpauls.com/info/2010/05/benjamin-graham-journal-scans/ 126 pages of pure Ben Graham

Also, the CNBC story has this wrong...the rating cut was to Ba2, not Baa2. The following is the full text of the Moody’s statement: Moody’s Investors Service has today downgraded Portugal’s long-term government bond ratings to Ba2 from Baa1 and assigned a negative outlook. Concurrently, Moody’s has also downgraded the government’s short-term debt rating to (P) Not-Prime from (P) Prime-2. Today’s rating action concludes the review of Portugal’s ratings initiated on 5 April 2011. The following drivers prompted Moody’s decision to downgrade and assign a negative outlook: 1. The growing risk that Portugal will require a second round of official financing before it can return to the private market, and the increasing possibility that private sector creditor participation will be required as a pre-condition. 2. Heightened concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilisation targets set out in its loan agreement with the European Union (EU) and International Monetary Fund (IMF) due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system. RATINGS RATIONALE The first driver informing today’s downgrade of Portugal’s sovereign rating is the increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of 2013 and for some time thereafter. Such a scenario would necessitate further rounds of official financing, and this may require the participation of existing investors in proportion to the size of their holdings of debt that will become due. Moody’s notes that European policymakers have grown increasingly concerned about the shifting of Greek debt held by private investors onto the balance sheets of the official sector. Should a Greek restructuring become necessary at some future date, a shift from private to public financing would imply that an increasingly large share of the cost would need to be borne by public sector creditors. To offset this risk, some policymakers have proposed that private sector participation should be a precondition for additional rounds of official lending to Greece. Although Portugal’s Ba2 rating indicates a much lower risk of restructuring than Greece’s Caa1 rating, the EU’s evolving approach to providing official support is an important factor for Portugal because it implies a rising risk that private sector participation could become a precondition for additional rounds of official lending to Portugal in the future as well. This development is significant not only because it increases the economic risks facing current investors, but also because it may discourage new private sector lending going forward and reduce the likelihood that Portugal will soon be able to regain market access on sustainable terms. The second driver of today’s rating action is Moody’s concern that Portugal will not achieve the deficit reduction target — to 3% by 2013 from 9.1% last year as projected in the EU-IMF programme — due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system. As a result, the country may be unable to stabilise its debt/GDP ratio by 2013. Specifically, Moody’s is concerned about the following sources of risk to the budget deficit projections: 1) The government’s plans to restrain its spending may prove difficult to implement in full in sectors such as healthcare, state-owned enterprises and regional and local governments. 2) The government’s plans to improve tax compliance (and, hence, generate the projected additional revenues) within the timeframe of the loan programme and, in combination with the factor above, may hinder the authorities’ ability to reduce the budget deficit as targeted. 3) Economic growth may turn out to be weaker than expected, which would compromise the government’s deficit reduction targets. Moreover, the anticipated fiscal consolidation and bank deleveraging would further exacerbate this. Consensus growth forecasts for the country have been revised downwards following the EU/IMF loan agreement. Even after these downward revisions, Moody’s believes the risks to economic growth remain skewed to the downside. 4) There is a non-negligible possibility that Portugal’s banking sector will require support beyond what is currently envisaged in the EU/IMF loan agreement. Any capital infusion into the banking system from the government would add additional debt to its balance sheet. Moody’s acknowledges that its earlier concerns about political uncertainty within Portugal itself have been largely resolved. Portugal’s national elections on 5 June led to the formation of a viable government, both components of which had campaigned on the basis of supporting the EU-IMF loan agreement negotiated by the previous government. Moody’s also acknowledges the policy initiatives announced at the end of June demonstrate the new Portuguese government’s commitment to the programme. However, the downside risks (as detailed above) are such that Moody’s now considers the government long-term bond rating to be more appropriately positioned at Ba2. The negative outlook reflects the implementation risks associated with the government’s ambitious plans. WHAT COULD CHANGE THE RATING UP/DOWN Developments that could stabilise the outlook or lead to an upgrade would be a reduction in the likelihood that private sector participation might be required as precondition for future rounds of official support or evidence that Portugal is likely to achieve or exceed its deficit reduction targets. A further downgrade could be triggered by a significant slippage in the execution of the government’s fiscal consolidation programme, a further downward revision of the country’s economic growth prospects or an increased risk that further support requires private sector participation.

I wish he would have stopped as I now find him to be a biased source of information (for one), as opposed to a professor trying to articulate possible ways to apply the value investing craft. His consistently repeated phrase about losing 200 bps of performance, for instance. What does he base this on? Is he saying that if you bought the S&P 500 index instead of the S&P 500 equal weight index you lost 200 bps over the past decade? This would be perfectly obvious as small and midcap names outperformed large caps in the past decade. I would bet significant sums of money that the S&P 500 index will outperform an equal weight S&P 500 over the next decade based on current valuations alone. I just find these types of comments to be marketing throw aways so that he can get money into his fundamentally indexed product. Also, he notes that over the last few decades buying stocks with the lowest P/E's has worked better than it has in past periods, and that people should just continue to buy names with low multiples...I agree that it is a great starting point, but not an investment strategy. How much of that increased success of reversion to the mean strategies is due to easy money policies in the Western world over much of the past 30 years? Do you know how many people buying low P/E, higher debt/equity names got an arm chopped off in the crisis and would have lost everything had QE been prescribed in a lower dosage?

I've become less enchanted with Greenblatt over the last few years as he has worked to push his version of indexed products onto the street. I wish he would have stopped after You Can Be A Stock Market Genius.

Up nevermind. Just read the press release from yesterday. Thx. -A. Hamilton

Munger, Where did you pull the $1 bn share repurchase number from? Thank you. -A. Hamilton

15% Cash (ex-short collateral). Longs are 100% hedged by Russell 2K shorts.

In what sense does he offer no insight? His long term focus on data has lead him to be particularly prescient at spotting anomalies in different asset classes. His datasets are a wonderful toolkit for value investors to say nothing of the innumerable regulators and politicians who would be aided in their policy making activities by quickly reviewing his data. Also, what is wrong with trying to think of a new insurance market that homeowners could utilize to limit their exposure to the price of their home, or, limit their exposure to being unable to come up with the money to pay their mortgage? I don't think you are going to do much better than disability insurance and life insurance but what is the harm in trying to explore that route?

Why don't you just short the index (IWM, SPY, QQQQ)? Why do you need to be going short 2x and 3x? Decay on these things could kill any return you are looking for from your "hedge."

You are correct. 10 warrants=1 share

Yes, multiply by 10.

I'd suggest calling FFH and leaving word with investor relations that you would like a copy mailed to you. They probably have some leftovers. It is worth every page.

I wonder if FFH still owns its $300 million plus in face value of Greek debt...

He can't just Buy the Gap...it is controlled by the Fisher family...and they have a pile of money outside of GPS that they can throw at this thing if it gets hostile...

Obviously the major risk with these guys is pricing regulation from governments. What is interesting to think about, however, is that for developing countries, the governments actually like increased penetration of electronic processing as it increases tax reporting substantially (or at least increases recoveries on audits from merchants). I don't know what this does for valuation, but interesting to think about the different incentives that governments have in the way that they treat these things over the next 5-10 years.

Francis Chou owns some of the bank warrants and wrote about them here (http://www.choufunds.com/pdf/SA10%20pdf.pdf). I picked up some WFC warrants a while ago...figure I'll look at the price again 5 years from now... Below, August 13, 2010 prices of some banks stock warrants. Warrant - JP Morgan Warrant Price - $12.51 Warrant Strike Price - $42.42 Stock Price - $37.50 Expiration Date - 10/28/2018 Strike Price Adjustment - Quarterly Dividend over $0.38 Warrant - Capital One Warrant Price - $14.50 Warrant Strike Price - $42.13 Stock Price - $38.82 Expiration Date - 11/14/2018 Strike Price Adjustment - Quarterly Dividend over $0.375 Warrant - Bank of America, class B Warrant Price - $2.59 Warrant Strike Price - $30.79 Stock Price - $13.23 Expiration Date - 10/28/2018 Strike Price Adjustment - Quarterly Dividend over $0.32 Warrant - Bank of America, class A Warrant Price - $7.12 Warrant Strike Price - $13.30 Stock Price - $13.23 Expiration Date - 1/16/2019 Strike Price Adjustment - Quarterly Dividend over $0.01 Warrant - PNC Warrant Price - $11.50 Warrant Strike Price - $67.33 Stock Price - $55.09 Expiration Date - 12/31/2018 Strike Price Adjustment - Quarterly Dividend over $0.66 Warrant - Wells Fargo Warrant Price - $7.77 Warrant Strike Price - $34.01 Stock Price - $25.84 Expiration Date - 10/28/2018 Strike Price Adjustment - Quarterly Dividend over $0.34 Warrant - Comerica Warrant Price - $12.20 Warrant Strike Price - $29.40 Stock Price - $35.87 Expiration Date - 11/14/2018 Strike Price Adjustment - Quarterly Dividend over $0.66 Warrant - Valley National Warrant Price - $2.24 Warrant Strike Price - $17.77 Stock Price - $13.48 Expiration Date - 11/14/2018 Strike Price Adjustment - Quarterly Dividend over $0.1814

SJ-They've owned USG for a time now. Seems to be a similar play to Abitibi...USG is the low cost producer... Vinod-The holding in Intel is a convertible bond. -A. Hamilton

Very few changes here. Boston Properties holding of $5 million is gone. Biggest change I see is the reduction in the JNJ stake by ~1.5 million shares.

Well they sure do have conviction in the CPI Floors. Notional value is up to 49.1 billion. Over 5% of book value (at cost) has been put into the trade! Hope I own enough FFH to survive what they see coming!