JohnDoe700M

http://www.livetradingnews.com/life-and-death-at-chaoda-modern-agriculture-holdings-ltd-hkg0682-55495.htm

Ericopoly: In theory, Greece CDS spikes when Europe implodes -- and, as there's a flight to the safety of the US Dollar in an increasingly deflationary world -- Treasury yields drop. GREEK CDS http://www.bloomberg.com/apps/quote?ticker=CGGB1U5:IND TREASURY YIELD http://www.bloomberg.com/apps/quote?ticker=USGG10YR:IND Another angle: FFH has been buying very high yield Greek debt -- reasonable to argue a Greek CDS position functions as a hedge on this debt allocation, if the CDS were purchased early/cheap enough? Any chance that owning a pile of Greek debt and owning a pile of Greek CDS could be akin to flipping a coin that pays 3:1? If bonds are money-bad, the CDS will do very well. If CDS declines in value, the bond will do very well. One will expire worthless, other will J-curve. Obviously, it's not a 50/50 situation. Hypothetically, something akin to 20/80 split, with 10:1 payout for the 20% probability, and then 2:1 payout for the 80% probability?

Any chance FFH *also* owned Greece CDS?

http://online.wsj.com/article/SB10001424053111904583204576546553664672660.html Wow. http://www.reuters.com/article/2011/05/04/fairfaxfinancial-debt-notes-idUSN0457393520110504

I guess the trillion dollar question is where we are in the chart. 1996/1997/1998? Or: 2002/2003/2004? I love this slide, actually. It shows that in a Japanese situation, when long term bond yields go really, really low, that's the best time to buy equities in terms of market pricing. Now, whether US equities will stay at this low level for the next five years is another question. That's one reason why I like the idea of purchasing equities with high dividend yields. You get a return of intrinsic value that can be used to cover underwriting losses in the P&L. It's even better if the underlying businesses earn in a basket of currencies other than the US dollar, although the US dollar may very well be undervalued at the moment. I am also part of the camp that believes that the US is different than Japan because M&A, our sophisticated bankruptcy system, and the adaptability of US business will cause realization of intrinsic value in equities in a more expedited manner than with Japan. I should also note that my style of equity investing in my own portfolio is way different than what HWIC is practicing. I am very concentrated and don't mind if my portfolio is well in the red at any given time, so long as I believe the intrinsic value is far in excess of my purchase price.

Txlaw, great point / read of the chart. Well taken. My only concern is that the message of this quote -- from an obscure New Zealand paper: Is such (Fed-induced) behavior investing or speculation? Maybe it's neither: it's alchemy.

This is the dreadful Slide 25, from 2006 Fairfax Presentation. http://oi55.tinypic.com/4h426a.jpg

txlaw, point well taken. You gave major props to Richard Koo. I owe major props to you. Love your posts, and always appreciate your insights. Hey, I was one of the very first people on the board to give major props to Richard Koo -- I'm a big fan. I even said a couple of months ago that we'd have problems with the economy because of austerity measures and the continued deleveraging in the private sector. So it's entirely possible that yields will stay low for a long time, especially since over the last month or so, cash has likely been building up at a crazy pace in bank accounts. But that should allow FFH to keep its equity hedge instruments in place, take some bond gains, and redeploy into equities with nice dividends, which will effectively decrease the hedge from 100% to a lower percentage. We'll see what HWIC does.

Indeed, this was Watsa's sentiment as of August 10, 2011 (before the video links): http://www.theglobeandmail.com/report-on-business/economy/fairfaxs-watsa-sees-dirty-thirties-pain-ahead/article2125759/ As early as 2006 (perhaps prior?), FFH had been studying the Japanese experience. The equity hedge and deflation derivative likely reflects a viewpoint far larger and longer than a few quarters. When strip away all the media sensationalism, the S&P500 volatility has simply back-tracked markets to quotational levels from November 2010. 1. Did Fairfax think November 2010 pricing was mouthwatering? 2. Was November 2010 fairly priced, but the "X number of days, thrown in for free" makes the present quotational levels mouthwatering? Otherwise: FFH has been quietly building an ark against a possible probable Japanese structural outcome. Meaning, we're seeing something from Watsa beyond a simple trading position. Apologies for what's turned into a rant. One final point of trivia for perspective and comparison: http://www.bloomberg.com/news/2011-09-05/japanese-stocks-drop-for-second-day-after-u-s-jobs-report-shows-no-growth.html (Next phase: Watsa sells Treasuries, buys Japanese equities?) ;) I am concerned that Slide 25 might be what FFH is concerned about and what FFH is really hedging against. (And, by extension, FFH's deflation derivative would make billions.) Txlaw, I sincerely hope you are roughly right and that everything above is precisely wrong. If FFH stands to make billions... then, trillions of retirement worth will be decimated and forget about capital gains as a source of revenue to the Federal Reserve. Which, among other things, likely explains why Helicopter Ben is printing so early and often. Twice, so far. Three's a charm? 2006_AGM_Slide_Presentation.pdf

This might explain the equity hedge: http://video.cnbc.com/gallery/?video=3000038948 http://www.washingtonpost.com/business/koo-says-us-economy-is-following-japans-pattern/2011/08/26/gIQAp0BpfJ_video.html In such a worldview, a 2% dividend yield is nice but noise.

Demand for longer maturities narrowed the extra yield that investors get for buying 10-year notes instead of two-year debt to 1.71 percentage points, the least since March 2009. “Treasury yields and equities can go down more,” said Yoshiyuki Suzuki, the Tokyo-based head of fixed income at Fukoku Mutual Life Insurance Co., which has the equivalent of $71.5 billion in assets. “People have a fear” that’s increasing appetite for the most secure investments, he said. http://www.businessweek.com/news/2011-09-06/treasuries-gain-as-10-year-yield-falls-to-record-on-stock-rout.html Cutting spending “right now is almost suicidal,” said Bill Gross, who as co-chief investment officer at Newport Beach, California-based Pacific Investment Management Co. runs the world’s biggest bond fund. Gross made the comments in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt after the Sept. 2 jobs report. http://www.businessweek.com/news/2011-09-05/swaps-on-treasuries-reach-record-low-against-bunds-in-s-p-denial.html

The monthly rally comes as bond investors have reduced their expectations for inflation as break-even rates on Treasury Inflation-Protected Securities, or TIPS, are hovering near the lowest since October 2010. The break-even inflation rate, calculated from yield differences on 10-year Treasury notes and inflation-indexed U.S. government bonds of similar maturity, has fallen to 2.02 percent from a high this year of 2.67 percent reached on April 11. http://www.bloomberg.com/news/2011-08-31/treasuries-head-for-biggest-monthly-gain-since-2008-after-u-s-downgrade.html

Treasuries Post Biggest Monthly Gain Since December 2008 on Safety Bid http://www.bloomberg.com/news/2011-08-31/treasuries-head-for-biggest-monthly-gain-since-2008-after-u-s-downgrade.html Treasuries Close Sharply Higher On Disappointing Jobs Data http://www.rttnews.com/Content/USTreasuryMarkets.aspx?Id=1706049&SM=1

http://oi52.tinypic.com/29yfq8m.jpg Not a bad time to be investing...