berkshiremystery

We simply cannot know yet. As Mr. Watsa has said during the conference call, it took 5 years for deflation to set in in Japan... Likewise the New Deal policies worked for 5 years in the '30s, before they worked no more... So, probably we still must wait 2 more years, before knowing for sure. What I am positive about is that, even if there were only a small chance to repeat the '30s experience, seriuos and reliable people should have looked for ways to protect themselves and their companies against such an outcome... Of course, you might argue that FFH's protections have been too extreme and not really justifiable... We will see! giofranchi What we cannot know yet is whether or not FFH will be right on their macro call. However, what I am criticizing FFH for is rejecting the idea that if you focus on valuation (taking into account possible adverse economic scenarios), you can essentially ignore macro forecasts. I adhere to the "don't spend too much time on macro when it comes to investing" school -- Munger style. So even if there is a risk of another deflationary period in the US, the only "risk" is the market pricing your companies at low valuations. At which time you buy more of them! Especially if you have cash coming in a la BRK and MKL. (Incidentally, I don't agree that today is like the 30s -- I believe we learned from that period, and our policy makers have acted differently today to prevent such an occurrence.) Well, to have really learnt from the past would have meant not to get into so much debt anymore, living for two decades beyond our means, squandering precious resources. Instead, we have already let our (US and Europe) debt out of control. We can do things differently, but we cannot assume there is an easy way out. At least not until there is enough evidence! As far as how well value investing worked during the '30s, or in Japan during the last 15 years, the evidence is far from clear... Mr. Graham himself said that only 1 out of 100 managers survived the '30s, among those who weren't already bearish in 1925. Also Mr. Keynes saw his personal worth significantly reduced for many years after 1937. And we are talking about 2 of the most brilliant investment minds of last century! That's why, although I generally agree with you, I don't like very much fixed rules... I want to always keep an open mind and adapt my thinking as circumstances dictate. giofranchi Gio,... too bad you haven't been at this years AGM. At the start of Prem's speech, I felt for 2 minutes that he verbally spoke almost like a priest in a church,...a financial church,... barely remember the exact words,... not sure, I might recall in my mind hearing,... "have faith",... and "believe". Damn that there isn't a full transcript of his entire speech available. Somehow I felt he tried to teach the audience to have faith in HWIC's long term strategies and not to lust for short term gains. ::) ----- I might repost Hoisington words... http://www.hoisingtonmgt.com/hoisington_economic_overview.html http://www.hoisingtonmgt.com/pdf/HIM2013Q2NP.pdf The secular low in bond yields has yet to be recorded. This assessment for a continuing pattern of lower yields in the quarters ahead is clearly a minority view, as the recent selling of all types of bond products attest. http://s12.postimg.org/o677lx471/image.jpg

"If Watsa is right and equity markets begin to unwind, these big unrealized losses will quickly turn into big-time gains. " The thing missing is that the equity portfolio will have losses to match those "big-time gains". There won't be any "big-time gains" until the markets rebound after they've dropped the hedges. I know,... it's technically only a wash, but they protect their company equity base in a sever market crash, while other insurers will be less fortunate. From another perspective,... shareholders are not receiving the returns on the equity portfolio, but are effectively receiving the delta between HWIC's returns and the overall market which can be of course very volatile over the short term. As of June 30, 2013, they have a cushion of over 29% or $7.5 billion in cash and short-term investments to take advantage of market opportunities. I thought you still own some FFH, that you bought some months ago with your portfolio margin.

Article about the 2nd qtr results... Checking in on One of Canada’s Super Investors 2013-08-02 Fool.ca http://www.fool.ca/2013/08/02/checking-in-on-one-of-canadas-super-investors/ Foolish Takeaway Because of the hedges that Fairfax has in place, and the cash on hand, it makes the company a very intriguing contrarian bet. If Watsa is right and equity markets begin to unwind, these big unrealized losses will quickly turn into big-time gains. Watsa will have cash at just the time you want a super-investor to have cash and Fairfax shareholders will once again benefit from his superior insight.

Prem Watsa Very Worried about Deflation and China 2013-08-02 ValueWalk.com http://www.valuewalk.com/2013/08/prem-watsa-deflation-china/ Prem Watsa On Q&A Everyone’s worried about inflation, and have been worried for 5 years. Remember, 2 things, and we’ve said that it in our annual meeting. One, it took 5 years for deflation to set, to come in, in Japan. After the bubble broke in 1989, it was 1995 that deflation set up began. And then for the next 17 or 18 years, you had deflation in Japan. --- I might also post an older article... Prem Watsa: China Has Biggest Housing Bubble in History 2013-03-11 ValueWalk.com http://www.valuewalk.com/2013/03/prem-watsa-china-has-biggest-housing-bubble-in-history/

Not sure if the article has been posted before... Steven Cohen's SAC Capital, indicted for fraud, a long-time foe of Canadian companies 2013-07-26 VancouverSun.com http://www.vancouversun.com/business/Steven+Cohen+Capital+indicted+fraud+long+time+Canadian+companies/8712730/story.html

The case is slowly crawling forward... Fairfax ‘confident’ claims against SAC will be reinstated 2013-07-25 the Globe & Mail Criminal charges filed against U.S. hedge fund SAC Capital Advisors LP by federal prosecutors could invigorate Fairfax Financial Holdings Ltd.’s lengthy legal battle with the firm and its wealthy founder, Steven Cohen. On Thursday, a grand jury charged that the insider trading at SAC was “substantial, pervasive and on a scale without known precedent in the hedge fund industry.” The move calls into question the future of the aggressive and well-known hedge fund SAC. But for Toronto-based insurer and investment manager Fairfax, the indictment in some ways vindicates its long and high-profile battle with the company. ----- Hedge fund SAC Capital, indicted for fraud, has been frequent foe of Canadian companies 2013-07-25 FinancialPost.com http://business.financialpost.com/2013/07/25/hedge-fund-sac-capital-indicted-for-fraud-has-been-frequent-foe-of-canadian-companies/ Court documents filed by Fairfax in the Superior Court of New Jersey’s appellate division on May 31 say the trial court erred in granting SAC a summary judgment “on hotly disputed questions of material fact,” such as SAC’s economic interest in the alleged scheme’s succes -----

FBI Agents Arrest Tech Analyst Sandeep Aggarwal For Leaking Non-Public Info To A Former SAC Portfolio Manager 2013-07-30 http://www.businessinsider.com/fbi-arrested-sandeep-aggarwal-2013-7

Another article about the WSJ ad... http://www.sfgate.com/technology/businessinsider/article/OVERSTOCK-COM-CEO-Steve-Cohen-Is-Directly-4691873.php

Some really odd smoke signals from Steve Cohen... Steven Cohen throws a party despite his fund's indictment Reuters 2013-07-28 http://www.reuters.com/article/2013/07/28/us-sac-fund-party-idUSBRE96R0BQ20130728 Some in the hedge fund industry said a fierce determination to carry on business as usual was behind Cohen's decision to go ahead with the bash at his 9,000-square-foot home on a street famed for its waterfront mansions. The firm lists its regulatory assets at about $50 billion, a figure that reflects the use of leverage, or borrowed money, to enhance the trading prowess of its $14 billion in capital, of which more than $8 billion comes from Cohen and his employees.

Bernanke AIG Testimony Should Cheer Fannie, Freddie Plaintiffs 2013-07-13 TheStreet http://www.thestreet.com/story/11992156/1/bernanke-aig-testimony-should-cheer-fannie-freddie-plaintiffs.html?puc=yahoo&cm_ven=YAHOO

Sure,... LOL. :P I never expected to become an online customer at Barnes & Noble, ::) but a few weeks ago, I was forced to do it, because I had no other choice. :o It was the "The Oracle & Omaha: How Warren Buffett and His Hometown Shaped Each Other" title published by the Omaha World-Herald. To my surprise Amazon wouldn't have the book and the Herald would only sell it for full price.

I would consider his car in the living room crazy... LOL :o http://s17.postimg.org/5v2qxn073/image.jpg

Some new article from SeekingAlpha.com The Mastermind Investment Strategy: Fairfax Financial... 2013-07-25 http://seekingalpha.com/article/1570992-the-mastermind-investment-strategy-fairfax-financial-holdings-limited?source=yahoo

Warren Buffett celebrates GEICO growth YouTube.com Video (5:36min) http://www.youtube.com/watch?v=ycbYtj6aoE0 http://s21.postimg.org/yvex8izvb/image.jpg

Some AI military drone army from Boston Dynamics will fight future wars... http://www.youtube.com/watch?v=BtRnzlO7m_M http://www.latenightinthemidlands.com/profiles/blogs/new-darpa-robot-can-autonomously-track-people http://www.bostondynamics.com/ http://en.wikipedia.org/wiki/Boston_Dynamics http://technewscast.com/wp-content/uploads/2012/09/darpa-cheetah-robot.jpg http://api.ning.com/files/ArREMguXCIpetC2uG4ois5wpWiDjMecJ3IZi5b2qHK8pI*Q8AM7MhC*L1uv79YN-rTWqBU4UCaH1SYSds0*1Pcy*hbg6d8hn/Boston_Dynamics_Alpha_Dog.png

I don't want to buy the put. I want to write it. Eric,... You should have a close look at Charles Ledley and James Mai in the book "The Big Short". They were in a similar position like you. They started from a garage in Berkley, CA with capital of only $110k in a Schwab account. These two guys were able get a license from Deutsche Bank's KYC program (Know Your Customer program) to trade directly with the most sophisticated, quantitative trading desks with the big boys on Wall Street, but by then they were able to manage already some $30M AUM. The hunting license, they called it. The hunting license had a name: an "ISDA", and was dreamed up by the International Swaps and Derivatives Association. Usually you are only allowed to trade with the big boys if you have something like $2B AUM,... so they got really cheap into the system. So the only available workaround might be to start your own partnership and some people that might help you raise $30M. http://en.wikipedia.org/wiki/Cornwall_Capital http://www.cornwallcapital.com/ There is a chapter in Hedge Fund Wizards about Jamie Mai. It's very interesting. It would seem that Michael Lewis took some artistic license in the telling of the Cornwall Capital story. Ledley and Mai were made to seem like a couple of down on their luck "losers" who somehow strike it big. On the contrary, Mai's father ran AEA Investors, a multi billion dollar PE firm. They were in the process of setting up a family office for Mai to run. So while it is technically true they started with a Schwab account, it was because it was taking some time to get things going and they wanted to get started. There was apparently a lot of money backing them. In addition, they are portrayed as not knowing much about the markets, etc while the truth is they both started at Golub I think it was. Still an interesting story but much less impressive than it was made to seem. They were much savvier than they were given credit for with tons of connections in the market. Kraven,... thanks for pointing this out.

I don't want to buy the put. I want to write it. Eric,... You should have a close look at Charles Ledley and James Mai in the book "The Big Short". They were in a similar position like you. They started from a garage in Berkley, CA with capital of only $110k in a Schwab account. These two guys were able get a license from Deutsche Bank's KYC program (Know Your Customer program) to trade directly with the most sophisticated, quantitative trading desks with the big boys on Wall Street, but by then they were able to manage already some $30M AUM. The hunting license, they called it. The hunting license had a name: an "ISDA", and was dreamed up by the International Swaps and Derivatives Association. Usually you are only allowed to trade with the big boys if you have something like $2B AUM,... so they got really cheap into the system. So the only available workaround might be to start your own partnership and some people that might help you raise $30M. http://en.wikipedia.org/wiki/Cornwall_Capital http://www.cornwallcapital.com/

Guy Spier talks about inflation proof businesses. Video (4:58min) http://s18.postimg.org/njn3fn8pl/image.jpg

Eric,... You might want to lurk into Jim Simons tax strategies. ----- Simons Strategy to Shield Profit From Taxes Draws IRS Ire http://www.bloomberg.com/news/2013-07-01/simons-strategy-to-shield-profit-from-taxes-draws-irs-ire.html http://jewishbusinessnews.com/2013/07/07/james-simons-and-renaissance-in-tax-dispute-with-the-irs/ The Basket Option Renaissance’s strategy involves buying a derivative instrument called a “basket option contract,” from a number of banks. As described in the IRS memo and by people with knowledge of the matter, the transaction worked as follows: i) A bank buys a portfolio of stocks and other instruments that fund managers at Renaissance wanted to trade. The bank hired the fund managers to oversee the portfolio, paying them a nominal fee. ii) Then Medallion bought an option with a term of two years, whose value was linked to the worth of the portfolio. Renaissance had full discretion to trade the securities in the portfolio. iii) Medallion could claim it owned just one asset — the option -which it held for more than a year, allowing any gain to be treated as “long-term” when its investors reported the income on their personal tax returns.

Buffett_Groupie,... You seem to be a financial doctor... ;D But seriously,... somehow I sense that Prem's son, Benjamin seems to be a little more interested in economics and finance than the Buffett boys... Peter and Howard. I might be wrong on my gut feeling, but I also know he seems to be unknown to most of us, and therefor there might be some unexpected surprises. Prem was also considered reclusive some decade ago, so this should apply even more currently to his son.

Here's some good new interview from Guy Spier Why Guy Spier Says Will Never Invest in Retail The Manual of Ideas @ YouTube.com 2013-06-21 Video (9:22min) http://s22.postimg.org/7xvnp6681/image.jpg

I didn't realize Fairfax had given money to Burry. How much had they given him? Well,... according to Uccmal's knowledge here at the board and my own knowledge speaking shortly with Brian after the AGM,... they were investors in Scion, his old fund. They had some insignificant amount with Burry. Here's my old post about this subject: http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-betting-on-demography/msg85431/#msg85431 I finally looked today at my phone pics from the April AGM. http://s4.postimg.org/fv7ig1xbx/image.jpg Brian is the humble genius explaining his investment duties at Fairfax. (I was at this moment behind the camera... making the pic). I only hope they take this time some bigger slice of the cake. :P http://s13.postimg.org/3royzcqrr/image.jpg A big crowd gathers around Brian. http://s24.postimg.org/uduml81ol/image.jpg Prem chatting...

To me it seems there's something cooking in his mind. Usually the best opportunity to set up a new Bermuda reinsurer is after a catastrophe, in a hardening market or some luring mispricing. So, the big question,... why now,... what does Burry see to start business as a hedge fund again. He wouldn't raise money now for a new children's playroom. He must smell some luring opportunity. Just wonder if Fairfax is with him again, and is giving him some $20-50M in seed money. It would be only some small token coin for Prem, but with probably some good long term rewards. I would definitely appreciate it. ;D ;D ;D

Actually my mind is playing for months with the thought of going to the DJCO AGM next year,... at least it's less crowded. It's now or never, someday it might be too late. But it depends personally on so many variables currently in my personal life with scheduling it. So, I will make my final decision early next year, and only if I solved my prior schedules that keep me occupied.

Basically just thanking him. I remember that after I sent the letter, I had received a letter back within 7 days...I thought that was amazing that he read the letter, had it dictated and typed out, and then mailed back to me all within 7 days from when I sent it. I don't know if he really writes letters that much these days as there is just so much notoriety around the company now. Has anyone recently written to him and received a response? Cheers! I wrote my first letter to his office address in January of 1993 mentioned that I was interested to purchase shares in Berkshire, but before I would do so, requesting politely some hard copies of annual reports and 2 compilation booklets of his older shareholder letters. I got them promptly in a Berkshire Hathaway envelope for free. A year later in 1994, as I asked his office address again, I got some anonymous naughty written typewriter notice with Berkshire's address above, asking me to reimburse Berkshire for shipping and handling with some tiny handwritten side note. You can guess who played Scrooge McDuck ;D