bluedevil

The Globe and Mail published an exclusive today on discrepancies with Sino Forest that it has uncovered. http://www.theglobeandmail.com/globe-investor/key-partner-casts-doubt-on-sino-forest-claim/article2066110/page1/

Thanks - great article. I think this is exactly what Prem is talking about when emphasized their desire to find competitive advantages that will allow for profitable underwriting no matter the point in the cycle.

The green shoots of a hard market? http://online.wsj.com/article/SB10001424052702303745304576361311924438204.html

Another investigation into alleged insider trading at SAC: http://online.wsj.com/article/SB10001424052702303657404576357692977788176.html

This is scary: http://www.crackhouseormansion.com/

Here is a deeper look at CRM's questionable accounting: http://seekingalpha.com/article/271799-salesforce-com-eye-popping-exec-bonus-plan

I don't disagree with any of that (I own FFH stock myself not bonds), but I recommended this security for a retiring relative who was looking for a safe, income producing investment in a Roth-IRA account, and it makes a lot of sense to me there.

Myth, Why do you think the returns would be so meager? If long-term treasury yields fell to 2.5% due to deflation, wouldn't you expect people to buy long-term Fairfax debt with a yield of 5%? If that happens, you will net around, say, a 50% return, plus the 7.7% coupons you collected along the way. Not crazy, but this is a *relatively* low risk investment. I agree that the ideal way to play deflation would be a cheap bet with big upside, but part of my problem is the difficulty of finding vehicles to do that as a retail investor without access to derivatives. The only retail vehicle I've really heard about (and which Greenville noted) are zero coupon long-term treasury bonds (or just straight long-term treasurys), but the returns there would be pretty disappointing if we don't experience deflation or stock market turbulence. I've been trying to wrack my brain. If you have any ideas, let me know!

They are available to retail investors from I think just about any brokerage like Fidelity or Etrade. But the float is pretty small, so sometimes you have to wait for batches to go on sale.

Guys, Here is an investment idea for those that buy into HWIC's thesis that the US/Europe will soon face deflationary pressures: Fairfax's bonds that mature in 2037. Currently, you can buy these bonds for a yield of 7.7%. Critically, they are non-callable. Suppose the US faces a period of deflationary pressure. The value of ultra long-term, non-callable debt should skyrocket. Moreover, as Fairfax is well-positioned for deflation, it should profit handsomely, accelerating the slow but steady increase in Fairfax's debt ratings to the targeted A-level. If Fairfax's thesis plays out, you could profit handsomely in a few years when you cash in your A-rated, 7.75% coupon bonds into a market where long-term treasuries yield, say, 2.5%. In the interim, you have collected your coupons. Suppose the US does not suffer from deflation. A long-term security from a high-quality, well-managed company focused on increasing its ratings that pays you 7.7% seems pretty good relative to the potential risks. Thoughts?

Here is the pricing on the issue. The 5.75% coupon is about 200 basis points lower than the debt that is being taken out. ---------------------------------------------- NEW YORK (Dow Jones)--Fairfax Financial Holdings Ltd. (FRFHF, FFH.T) sold Wednesday a new 10-year offering in the private-placement Rule 144a market. The $500 million issue was sold via sole bookrunner Bank of America Merrill Lynch. The deal was priced with a 5.75% coupon at a price of 99.646 to yield 5.847% and offered a risk premium of 262.5 basis points over Treasurys. That spread was in line with the issue's launch level, and narrower than earlier 275 basis point area preliminary pricing guidance had suggested. The lower risk premium underscored good demand for the issue. Proceeds will be used for general corporate purposes, which could include the repayment of outstanding debt securities. The deal has been rated Baa3 by Moody's Investors Service and BBB- by Standard & Poor's. -By Kellie Geressy-Nilsen, Dow Jones Newswires; 212-416-2225; [email protected]

I think this is just a straight-up refinancing. They could pay off their debt coming due next year, but I don't think they want to. It seems Fairfax pretty consciously targets a net debt / net total capital in the low 10s.

Myth, A small point: I think that Prem targets 15% return on book value, not tangible book, when he makes acquisitions. Thus, when he buys Zenith at 1.4 book, for example, I think he believes he can return a 15% compound return on the money spent over time. (Hard to do, but with Zenith, you have two factors that make that bogey reasonable. One, a 95% long-term underwriting record. Two, a 95% long-term underwriting record IN workers' compensation, the longest of the long-tail lines. Thus, Zenith provides a type of float that should be an especially good marriage with Hamblin-Watsa's asset management capabilities. Otherwise, I don't think you would see Fairfax pony up that type of money to tangible book for most acquisitions.)

This is the way I look at it too. It seems to me the prize of owning Fairfax (i.e., the intrinsic value) is the tangible book value (plus the addition of any "hidden" tangible assets, such as ICICI Lombard's fair value) you get with every share multiplied by some multiple (positive or negative) to account for the expected, risk-adjusted ROE you expect the company to achieve on that tangible equity. By accounting for, for example, the high quality of Zenith's underwriting ability in the multiple, I believe it is easier to compare across insurance companies.

WHOA-who crapped on Fairfax?!? I love the company, have never sold a share, and think the stock is absolutely undervalued. I'm just saying, since I think most traders value insurance companies off of tangible book value, and given that Fairfax hasn't traded at 1.3 tangible in a while, I think we're going to see the price slink below $400 US over the next few days.

If I had to guess, MR left to eventually pursue other opportunities at a bigger operation. He has run Northbridge for six years now, and was the President of Markel for eleven years before that. He is still quite young (around 45?) but given FFH's decentralized operation (and Andy Bernard's recent promotion to head of all Fairfax insurance operations) I think he ran into the very high-class problem of being (1) young and (2) having no more room to rise.

By my rough calculations, Fairfax's tangible book value is around $315 per share right now (once you credit fair value for their equity investments). Thus, as the trading price now stands, shares are trading at around 1.3x tangible book. Based on its trading prices over the past couple of years, I would expect the price to drop substantially over the next couple of days.

Fairfax has posted the slides from its 2011 Annual Meeting. http://fairfax.ca/Theme/Fairfax/files/2011%20AGM.pdf Some great slides on the level of debt in the United States. I do not, however, understand the slide (#31) on the velocity of money. Can someone help me out with the point there? Also, I did not want to have to beg for someone to post their notes of the AGM, but it looks like we've gotten to that point: please please please. :)

I was very sad that I had to cancel my trip to Toronto this year. Now, after seeing the pictures of this year's dinner, I am distraught! :) Congrats on everything Sanjeev, especially the $11,000+ in donations!

Im pretty sure it is not insider trading because he is not an insider. it is standard practice for hostile acquirers for example to buy a toehold in a target (up to sec disclosure limits of around 5%) before actually going hostile, thereby paying a cheaper price for the first 5% stake.

Buffett makes us read between the lines, but he doesn't leave much for doubt, it seems to me. What he said: Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. What he did not say: I do not feel that Dave's Lubrizol purchase was in any way improper. What he said: Shortly before I left for Asia on March 19, I learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. What he did not say: Who gave him this information. (The SEC?) What he said: Finally, Dave brought the idea for purchasing Lubrizol to me on either January 14 or 15. "In a passing remark" he "mentioned" that he owned stock in the company. What he did not say: Dave told me that he had some stock but I had no freakin idea he had just bought 90,600 shares of Lubrizol and would make a truckload of money if I made an offer. What he said: This time, however, I did not attempt to talk him out of his decision and accepted his resignation. What he did not say: While keeping Dave would make a ton of money for the company, the culture of integrity at Berkshire is more important. What he said: If questioned about this matter in the future, I will simply refer the questioner back to this release. What he did not say: I have nothing nice to say about how Dave acted here. So I am not going to say anything at all.

Looks like Jordan Kuwait Bank is another business owned by KIPCO -- the Kuwaiti company from which Fairfax bought its interest in Gulf Insurance.

The Fairfax suit does include RICO allegations and a request for treble damages. So the maximum potential damages number would be $18 billion + interest. But that is just a number plugged into the complaint. By now, Fairfax has likely submitted expert reports that quantify its actual claimed damages based on the evidence. Though I don't know any of the facts, I doubt it is $6 billion -- that's awfully high for a company that had around a $4 billion market cap at the time. But even if Fairfax can show actual damages of, say, $1 billion (with potential x3) that is an enormous claim.

My two favorite numbers from the letter: around 95% -- the average, consolidated accident year combined ratio of the four main operating subs since 2002 around 8.5% -- the average, consolidated annual reserve releases since 2002

Very exciting. I do hope that Prem talks about this more in his upcoming letter. The Press release is quite vague given that this is a whole new concept. Will AB be responsible for some of the functions FFH has historically held-- setting the compensation of the other presidents, hiring/firing, shifting capital between them, finding acquisitions? Will this lead to some consolidation among the subs?