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...

It's a one-two punch? If 10 year treasuries, sustainably, have a 2% range yield -- this also implies *deflation* expectations, which would impact the clearing price FFH could get for its hedge if had any desire to just close the hedge and allocate the proceeds into distressed equities or vulture investing.

And: Howard Marks, The Tide Goes Out (March 18, 2008)

http://krugman.blogs.nytimes.com/2011/08/08/aaauuuggghhh-market-commentary-edition/

From the first paragraph, Obama might be misreading the situation... This might not be about a political system's inability to act. In might be more about it's ability to act.

http://www.gold-eagle.com/editorials_01/images/seymour062001.gif Just to put the likes of Cramer, Rogers, Paulson, Berkowitz, Faber, Taleb, and the rest of the commentators into an appropriate context: (1) "We will not have any more crashes in our time." - John Maynard Keynes in 1927 (2) "I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." - E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928 "There will be no interruption of our permanent prosperity." - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928 (3) "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding." - Calvin Coolidge December 4, 1928 (4) "There may be a recession in stock prices, but not anything in the nature of a crash." - Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929 (5) "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929 "This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929 "There will be no repetition of the break of yesterday... I have no fear of another comparable decline." - Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929 "We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices." - Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929 (6) "This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." - R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929 "Buying of sound, seasoned issues now will not be regretted" - E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929 "Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom." - R. W. McNeal, financial analyst in October 1929 (7) "The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." - Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929 "Hysteria has now disappeared from Wall Street." - The Times of London, November 2, 1929 "The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before." - Business Week, November 2, 1929 "...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..." - Harvard Economic Society (HES), November 2, 1929 ( 8 ) "... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." - HES, November 10, 1929 "The end of the decline of the Stock Market will probably not be long, only a few more days at most." - Irving Fisher, Professor of Economics at Yale University, November 14, 1929 "In most of the cities and towns of this country, this Wall Street panic will have no effect." - Paul Block (President of the Block newspaper chain), editorial, November 15, 1929 "Financial storm definitely passed." - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929 (9) "I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929 "I am convinced that through these measures we have reestablished confidence." - Herbert Hoover, December 1929 "[1930 will be] a splendid employment year." - U.S. Dept. of Labor, New Year's Forecast, December 1929 (10) "For the immediate future, at least, the outlook (stocks) is bright." - Irving Fisher, Ph.D. in Economics, in early 1930 (11) "...there are indications that the severest phase of the recession is over..." - Harvard Economic Society (HES) Jan 18, 1930 (12) "There is nothing in the situation to be disturbed about." - Secretary of the Treasury Andrew Mellon, Feb 1930 (13) "The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity." - Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930 "... the outlook continues favorable..." - HES Mar 29, 1930 (14) "... the outlook is favorable..." - HES Apr 19, 1930 (15) "While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us." - Herbert Hoover, President of the United States, May 1, 1930 "...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..." - HES May 17, 1930 "Gentleman, you have come sixty days too late. The depression is over." - Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930 (16) "... irregular and conflicting movements of business should soon give way to a sustained recovery..." - HES June 28, 1930 (17) "... the present depression has about spent its force..." - HES, Aug 30, 1930 (18) "We are now near the end of the declining phase of the depression." - HES Nov 15, 1930 (19) "Stabilization at [present] levels is clearly possible." - HES Oct 31, 1931 (20) "All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S." - President F.D. Roosevelt, 1933 This is not a commentary of the markets in 2011 and where may or may not be heading. Only intended as commentary on the ability of experts to have certainty in statements that on paper claim to be confident and reliable, yet in reality is far from certain. Another one to add to the list: http://www.bloomberg.com/news/2011-04-20/geithner-downgrades-his-own-credibility-to-junk-jonathan-weil.html

http://oi56.tinypic.com/288p2l0.jpg

Watsa? (100% hedged equity book, treasury portfolio) Einhorn? (anticipated ratings downgrade, per Q2 '11 letter) http://www.dailymail.co.uk/news/article-2023809/Did-George-Soros-win-10-1-return-S-Ps-US-credit-rating-downgrade.html

Treasuries: Date 1 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr 08/01/11 0.13 0.10 0.16 0.22 0.38 0.55 1.32 2.05 2.77 3.72 4.07 08/02/11 0.05 0.06 0.13 0.17 0.33 0.50 1.23 1.94 2.66 3.59 3.93 08/03/11 0.01 0.02 0.08 0.16 0.33 0.52 1.25 1.94 2.64 3.55 3.89 08/04/11 0.01 0.02 0.05 0.12 0.27 0.44 1.12 1.78 2.47 3.37 3.70 08/05/11 0.01 0.01 0.05 0.11 0.28 0.49 1.23 1.91 2.58 3.49 3.82 08/08/11 0.02 0.05 0.07 0.12 0.27 0.45 1.11 1.75 2.40 3.31 3.68 http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield Russell 2000 appears to be dropping materially faster than the Blue Chip equities book: http://finance.yahoo.com/q/bc?t=5d&s=IWM&l=on&z=l&q=l&c=wfc%2C+jnj%2C+dell&c=%5EGSPC&c=%5EIXIC&c=%5EDJI Interesting.

http://www.iranian.com/main/news/2011/08/08/iran-s-revolutionary-guards-commander-becomes-opec-president Anyone smell a 1973 all-over-again?

Buffett Talks Business (1993)