gfp

I don't usually pull these filings for Fairfax subsidiaries, but I have Odyssey's Q1 2023 NAIC filing and thought some here might find it interesting to see under the hood on one of FFH's largest subsidiaries. Investment holdings are near the end so might be easier to scroll from the end to see those. Lots of deflation derivatives still left on the books. Weird stuff like puts on Milk and Livestock. I assume those are relics of the past, along with the CPI-linked derivatives that were a bet on deflation. Anyway, just in case someone is interested I am attaching the NAIC filing here. Odyssey Q1 2023 NAIC.pdf

SBC isn’t always “bad” because anytime the shares are more dear than cash it might be preferable. You don’t know the future so it’s a guess but sometimes issuing highly valued shares is better than paying cash.

Well I agree that "Quantitative tightening" doesn't matter, Tech almost always has a rich valuation and "bank deposit outflows" doesn't matter. No clue what LEI is so that probably doesn't matter either (number of legal entities that exist at any given time??)

See KCLarkin's post above - just think about it as two separate transactions. One where you get diluted by new share issuance (could be good, could be bad, depending on valuation at the time you are diluted) and one where you pay the employee with that money.

They add non-cash items back in the cash flow statement because those are the rules of that financial statement. It is accounting for the cash. It isn't 'true' earning power and I don't think they are claiming it is (or at least they shouldn't be).

This is standard accounting on the cash flow statement. Use the SEC filing and not some yahoo site. https://www.sec.gov/ix?doc=/Archives/edgar/data/1441816/000144181623000087/mdb-20230430.htm Page 5 will show you statement of cash flows. There is $53.7 million in cash from operations during the quarter. This is not "owner earnings" for the reasons mentioned above.

My point was that they wouldn't be taking credit risk on a BNSF bond. But opinions differ on the direction of long term rates. I think all rates go lower from here and FFH wouldn't be worried about locking in 3yr bonds using forwards at 3.7% if they disagreed with my view that rates aren't headed higher.

Different strokes for different folks. I'd rather see some barbell like stuff than them buying forward contracts to lock in 3yr notes at 3.7 - 3.75% but they have a better track record than I do in the bond market. I prefer the Berkshire method of sticking to t-bills but Fairfax takes a different approach.

If Fairfax is really interested in extending duration while not giving up too much from their t-bill yields or taking additional credit risk I hope they took some of this BNSF offering yesterday. 5.2%, 30+ years, obviously a good credit https://www.sec.gov/Archives/edgar/data/934612/000119312523160840/d477190dfwp.htm

This is so true.

Well you didn't live on less than 60k the year you bought the X3M.

Yes, exactly. The forward SOFR curve is predicting deflationary recession. Something so bad the Federal Reserve would be forced to cut overnight rates and cut them fast. I don't know why you think that predicts sticky inflation. That is deflation.

It's better than that - it's essentially a blended 10% yield to maturity on something like $3B in total capital. Plus the incremental investment in KW that should do well in addition.

Raising bank capital requirements at the onset of an already-underway credit crunch. What could go wrong?

Here is the Fairfax press release on the deal. Love it. https://s1.q4cdn.com/579586326/files/doc_news/2023/PRFFH-June-5-2023-KW-June-2023-Transactions.pdf " Taking into account the discount at which Fairfax acquired the principal balances of the Loans, Fairfax expects the average annual return on the capital deployed by Fairfax in connection with the Loans to exceed 10%. All of the Loans are secured by real property located in the United States with an average loan-to-value ratio of approximately 51% and are supported by completion guarantees issued by the project equity sponsors. More than 70% of the Loans relate to multifamily or student housing development projects with the balance being a mix of industrial, hotel and life science office property development projects." and " In addition to the Transaction, Fairfax also agreed to make a $200 million preferred equity investment in Kennedy Wilson. Under the terms of the agreement relating to the investment, Fairfax will acquire perpetual preferred stock that carries a 6.0% annual dividend rate and is callable by Kennedy Wilson at any time. Additionally, Fairfax acquired 7-year warrants for approximately 12.3 million common shares with an initial strike price of $16.21 per share, based on Kennedy Wilson’s closing price on June 2, 2023."

And froze out so many existing homes from coming on the market.

https://fred.stlouisfed.org/series/T5YIE You are looking in the rear view mirror. Also, the Federal Reserve is next to powerless when it comes to inflation - in either direction. If anything, they are increasing inflation with their current policy rate.

There hasn't really been a "huge rally in equities this year." There has been a very narrow rally in a few very large companies. RSP and IWM are basically flat. Look at 5 year TIPS breakevens. 2%. Exactly what the Fed is targeting. The Fed didn't slay inflation. If anything they made it worse. But it went down on it's own anyway and they can claim it was them and move on with the high-fives.

The high interest rates increase the deficit spending stimulus to the economy, skewing that stimulus heavily towards those who have lots of money already. The problem with the Warren Mosler type of lens on deficit spending and the economy / inflation is that it misses a much larger portion of the monetary system that isn't even measured by the US Government. The monetary system outside of the US dwarfs the measured stuff like M2. If the US monetary system was just what the Federal Government had "control" of, we would be roaring higher. Instead we are just putting along because all of this stimulus is being offset by tightening money, flight to safety, hoarding and risk-off behavior globally. The market is telling you inflation is dead for now and deflationary risks are rising. We'll see how far it goes but the risks are higher that things get much worse because there isn't anything the Fed can do. The Federal Reserve is basically powerless and more of a "placebo effect" or hoping that a projection of confidence sends the correct messaging that might effect behavior in the economy and get what they want. The level of the deficit, higher or lower, is much more effective as a policy tool but it won't be used that way except in the depths of a crisis. The amount of money out there doesn't matter nearly as much as the amount of money that is freely circulating / recirculating. When market participants start with the "risk-off" stuff, the recirculation of money in the economy slows down and that effect dwarfs the small effects of slight changes in the level of deficit spending.

That Morningstar analyst report reads like it was written years ago. On another note, does anybody here know if the profits on the total return swaps on FFH's own shares are tax-free to the company? I know that usually transactions in an issuers own stock are not taxed (for example if Biglari Holdings were to ever record a profit on their holdings of own shares the "profit" would be tax-free) - but I do not know if that extends to derivatives on an issuer's own stock.

Not sure if you are totally getting this chart, but this is maturities of debt owed by the regional banks, not the loans on their books. CMA would be the one on the chart with the most debt coming due this year, not the one with the shortest maturity loan book.

Yeah I was going to mention that there was a seller in addition to that buyer as well. I do think it is likely that the block trades get taken by FIH itself. I guess we'll find out later when they file on SEDI. There are probably investors looking to reduce their exposure to emerging markets and their currencies in this environment. The Indian currency looks to want to go on another leg lower against the US dollar. The central bank is intervening almost every day to supply dollars and prop up the INR. But it is still weak, bumping along the line in the sand at 82.75. It may be more of a general shortage of dollars in Asia than India-specific weakness. We'll see.

That is the coupon-equivalent yield on a $35 Billion bill auction for 21-day bills.

Meanwhile, Berkshire just keeps bidding on these distorted T-bill auctions!

Unfortunately it seems like the debt ceiling will probably not come to a head this week, as the Treasury is signaling for $64 Billion of net new issuance on 6/1 so we will probably have to sit through another month of this "negotiation."