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  1. I'm really confused. Not even kidding. Not sure if what's going on is selective memory like is so often the case given that this is the corner of B. and Fairfax but they did one about 1 year and a couple of months ago. http://www.fairfax.ca/news/press-releases/press-release-details/2013/Fairfax-Completes-C431000000-Bought-Deal-Financing/default.aspx And that one was to raise money because they had to put a bunch of it into Blackberry as well as supplement the capital needed because their hedges forced them to fork over $2 billion in cash in 2013. So I don't understand the shock, the out of character, and never thought they'd do a bought deal comments. At least for this one, looks like you guys have a consensus that it is to buy a quality insurer. Disclaimer: I haven't reviewed the deal myself or anything about Fairfax since the last quarter, so I have zero opinion on the deal. My review process is a consistent one for all companies I follow/care about. I wait for the annual report to come out as well as the letter. And I first read the whole annual report and decide for myself how they did and then read the Chairman's letter to see what he has to say about how they did to see if I agree. I haven't even reviewed the transcripts from the recent conference calls. So I have no comment other than pointing out the other bought deal in the not too distant past. I missed the earlier bought deal. This is more a matter of principle than anything else. My view is that bought deals just show disrespect towards existing shareholders. They are diluted and have no opportunity to keep their stake in the business. That's unfair. Plain and simple. I was just surprised that Prem Watsa engaged in that. I still respect him and what he has achieved a lot but I'm disappointed that he did do that, even if I understand the circumstances and that it's a common practice in Canada (Bought deals are Canadian specific, they aren't allowed in the States.) In addition, bought deals can have other ramifications. They tend to mess up the trading and attract the wrong crowd, people who want to make a quick return and get out fast. I doubt that's the kind of shareholders Prem wants for the long term. But it might be our opportunity to buy cheaper in the next few months.
  2. FFH doing a bought is quite out of character.... I never thought they would do that.... Very, very surprised.... Not very fair to existing shareholders..... The good news is that bought deals typically attract a crowd that wants to make a quick buck (Not the long term kind that I thought FFH wants).... So I suspect there will be opportunities to buy at a lower price in the next few months....
  3. Very biographical http://chennai36.iitm.ac.in/the-only-way-was-to-go-up-prem-watsas-interview-with-chennai36-part-1/ http://chennai36.iitm.ac.in/what-the-mind-can-conceive-the-mind-can-achieve-prem-watsa-interview-with-chennai-36-part-2/
  4. Harris Kupperman interview: http://classicvalueinvestors.com/i/2013/12/interview-with-harris-kupperman-ceo-of-mongolian-growth-group-2/
  5. http://seattletimes.com/html/localnews/2022337460_childrensdonationxml.html
  6. http://www.thinkadvisor.com/2013/10/14/bob-rodriguez-grades-obama-calls-government-chaos?ref=hp&page_all=1 Love his answer to the last question: A final thought on the debt ceiling impasse? Children must play.
  7. I read Mc Donald's: behind the arches from John Love about 20 years ago (http://www.amazon.com/McDonalds-Behind-John-F-Love/dp/0553347594#). It's a very good read on entrepreneurship and the world of franchisers/franchisees. It tells the story of Ray Kroc and how he built Mc Donald's. I lost the book in a move-in, but I remember a couple of key lessons: - Mc Donald's struggled at the beginning as it charged its franchisees much less than what was then the practice. MCO had to reach a certain size before they became profitable. The first franchisees quickly made a lot of money while MCO was struggling. But it paid off in the long term as it attracted a much higher quality of franchisees; - They own a lot of land. Actually the first CFO thought the company was in the real estate business. I view that as downside protection; - From early on, they had a relentless CEO (Turner) who was critical in developing a disciplined cookie-cutter approach. Kroc was more the guardian of values. This is probably a very good introduction to the world of franchises. Eric
  8. I'm also using HSA Bank with Ameritrade. I researched the topic a couple of years ago and HSA Bank was the only HSA account option I could find where you could manage the investments yourself. Everything else was in mutual funds.
  9. Interesting thread. Good interview below with Bill Fleckenstein on how/why Japan could derail the current rally. http://finance.yahoo.com/blogs/talking-numbers/fleckenstein-why-japan-easy-money-could-blow-america-213918831.html
  10. When a 16 year old day trader goes on tv and brags about her results, it's probably a sign that the market is ready for a correction.... Money printing can do amazing things! http://www.businessinsider.com/rachel-fox-on-cnbc-2013-2
  11. For those interested, after the spin-off of PBN, PBG is now trading below cash...
  12. Alive Those who live, are those who strive, those whose Soul, possessed of a firm design, whose mind Envisioning a great destiny and a demanding climb, Walk pensive, engrossed by a goal sublime. Those whose eyes' unswerving, focus on A saintly labor, or higher love, and soldier on, Like the pious prophet, prostrate before the arch, Commited to the toil, and onward march. Those whose heart is good, whose days are full, Are the ones that truly live, by God! The others I pity. For their vague worries yield but a void unforgiving, and the greatest burden: to exist, without living. Victor Hugo
  13. We can differentiate between two kinds of government support: - direct bailout of a failing business. I’d argue that the crisis would have been lesser if the government had not bailed-out bankrupt businesses before. For example, by organizing a bailout of Long Term Capital Management back in 1998 the Fed sent a strong message to the market that it would support any failing financial organization. That led to the crazy growth and risk taking of banks until everything exploded in 2008. Bankers knew they’d get a bailout if they failed. It changed their behaviors (there were other factors like investment banks changing their corporate structures from partnerships to corporations; but I think those had less impact) and created the too big to fail institutions… Another example is the bailout of Chrysler in 1979. The car industry would have restructured much sooner if Chrysler had not been saved then by the government. - Permanent support through lower interest rated than the market would provide. This is my point from earlier and probably the worst kind of intervention because it distorts the market in the long term. Re management not suffering from their bad decisions. I think we all agree this is an issue…. Re AIG I would have preferred a regular bankruptcy. I’m sure many other institutions would have been happy to buy at a crazy discount all the great parts of AIG. But I agree at the time the emergency was such that the government had no choice. The bad decisions had already been made. Why do you think we should not mix morality with good economic decision? Agree with the moral hazard in Iceland. I’m aware too that many people have announced the day of reckoning in Japan for a long time. That actually tells a lot about how resilient modern economies can be. But have you seen Japanese stats on saving rates, aging of the population? Look at Japan P&L and balance sheet. It’s clearly not sustainable and I’d bet a lot of money it will be more than a little hiccup… Here are a bunch of links if you want to start digging: http://www.gurufocus.com/news/154556/kyle-bass-third-quarter-letter-imminent-defaults http://www.zerohedge.com/news/2012-10-27/meanwhile-japan http://www.financialsense.com/contributors/grant-williams/2012/07/30/things-that-make-you-go-hmmm http://www.zerohedge.com/news/when-japan-goes-japanese-presenting-terminal-keynesian-endgame-14-charts http://capitalistexploits.at/2011/11/betting-on-an-inevitable-and-overlooked-crisis/ Your statements contradict themselves: “Fed can buy as many bonds as it wants.” And “the only way inflation is going up is if economy is booming”. That’s not possible in my opinion; monetization of the debt is clearly inflationary in the long term. We live on earth and there is gravity. Again I grew up in France in the 80s and I’ve seen inflation. Believe me it was not due to a booming economy… Also, I think we are in a transition period between a deflation scare period and a real inflation (or stagflation) period. The deflation scare period is ending with massive money printing everywhere (QE3 in September, last week Fed announcement, LTRO in September, Abe elected in Japan, etc). We are now entering (or about to enter) an inflationary phase. Just a quick example from yesterday. I have 4 children and I’m self insured. When I started my current health insurance almost 4 years ago I used to pay $490 a month for the 6 of us. I got a letter yesterday with the new premium : $770 a month for exactly the same coverage… That’s a 57% increase over less than 4 years…. Quite inflationary, no?
  14. Correction below, it's not in bn but in tn... "Interest rates are super low right now and the federal spending is out of control. The annual deficit has averaged $1.3tr a year the past 4 years and the total deficit is $16tr. Total spending is about $3.7tr a year with a revenue of about $2.4tr." Theses numbers are so mind-blowing that I can't even write trillions...
  15. The nature of capitalism is that the competent people take the business or the market share of the incompetents. The incompetents lose market share or become bankrupt and hopefully they learn a lesson. This is how the system cleanses itself naturally with every economic cycle. However, if there is a systematic support through low interest rates or bailouts there is no failure possible… You just reward incompetency and you weaken the strong who cannot gain market share. It’s like pruning in your yard; you have to regularly cut the bad branches so that the nice ones can grow. If you don’t prune them, the beautiful ones cannot grow as much. It’s also not moral as you help/reward the people who took risks that they should not have taken. At the same time, the savers, the people who consume less than they earn, are squeezed because they get a poor return on their investments… I don’t think it’s a very moral society to have a grand-mother who has saved $500k to get a 1% return on her CDs while the idiots who over-extend themselves and bought overpriced properties got helped through lower rates… And the grand mother is going to be financially squeezed by higher inflation… Similarly the current low rates encourage the federal government to continue its insane spending. It pays about $200bn a year in interest with super low rates. They’d pay much more with higher rates and would be forced to get the spending under control… Iceland is the perfect example of what Japan and the US should have done in my opinion. It let the system cleanse itself. Its banks were over-leveraged and exploding, it let the capitalist code take care of the bank losses as it is set up to function. The bank bond holders ate the losses and the bank executives got prosecuted. It was ugly for a while but now the country is recovering nicely. http://www.bloomberg.com/news/2012-09-26/is-remedy-for-next-crisis-buried-in-iceland-view-correct-.html I think it is a more moral society and it pays off in the long term. In contrast, Japan’s crisis is far from over. The day of reckoning is approaching. Sovereign debt to GDP is 220%. Japan’s balance sheet is a disaster. Abe, the new PM elected this weekend has already signaled that he wants the Japanese Central Bank to increase the monetization of the debt…. I suspect the Yen is ready to start a long downward slide… Interest rates are super low right now and the federal spending is out of control. The annual deficit has averaged $1.3bn a year the past 4 years and the total deficit is $16bn. Total spending is about $3.7bn a year with a revenue of about $2.4bn. While better than Japan, nobody with a decent mind would lend money to such a business at current rates… Right now the Fed is monetizing some of the debt and many investors are stupid/sheepish/don’t know what is happening but there will be a moment when the bond will realize/decide that it is not sustainable…. Just like what happened in Spain or in Greece, the market will wake up one day and force the rates up. Nobody knows when it will happen, it’s not predictable imo. But it will happen just like there is gravity… The interest payment that is about $200bn pa will shoot up, especially since most of the debt is short term and needs regular refinancing… Either the Fed will print even more (risk of very serious inflation) or the government decides to be serious and cut drastically the spending. Either way it’s pretty ugly.
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