Eric50

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.

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....

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/

Harris Kupperman interview: http://classicvalueinvestors.com/i/2013/12/interview-with-harris-kupperman-ceo-of-mongolian-growth-group-2/

http://seattletimes.com/html/localnews/2022337460_childrensdonationxml.html

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.

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

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.

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

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

For those interested, after the spin-off of PBN, PBG is now trading below cash...

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

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?

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...

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.

Palantir, There is an elephant in the room and you don’t see it. You think monetary easing is the solution while it is the problem. You are advocating more of the same thinking it will solve the problem. But the initial problem was created by the Fed’s monetization. What’s interest rate? It’s the price of money. Historically many countries have tried to control prices and it has never worked. Nixon implemented price controls in the early 70s; it led to instability and inflation. France also tried price controls in the early 80s when I grew up there; believe me the results were not pleasant…. By imposing interest rates, the Fed is actually trying to control the price of money, creating in the process huge misallocations of capital. History just keeps repeating itself. You are saying that tightening right after a credit bubble would be disastrous. There is actually a precedent for that. Back in 1920-21 the Fed’s answer to the depression was to tighten. It was ugly for a few months with a sharp GDP contraction but it did not last long. It cleansed up the system and set the foundation for a strong expansion in the few years to come. Look at Japan. They’ve kept loose monetary policies for more than 20 years and they never cleaned up the excesses of the late 80s. They lost two decades and in the meantime their monetization helped create incredible fiscal unbalances… You are saying there is no evidence that the Fed created and fed the tech and real estate bubbles. Do you really think that we would have had the same bubbles without low interest rates? Would people have borrowed as much with higher interest rates? Sure, the Fed started to raise the rates in 2004 but not enough to break the momentum. This is just human nature, people wanted to keep up with their neighbors… Just don’t add fuel to the fire… Some could see the bubble started to grow in 2002 and 2003 and the reasons why but no one could know when it would burst. Another example is the real estate bubbles in Spain and Ireland. The ECB policy was aligned for the German economy that was in a recession. Both Spain and Ireland economies were overheating at the time. Since they were part of the EZ they had to deal with low interest rates at a time when they should have been much higher. That fed the speculators and the bubbles… Similarly the current policies are creating a bubble in the bond market. I don’t know how much longer it will last but I suspect we’ll know soon. The Fed is trapped: at one moment its monetization won’t lower rates anymore as the bond market will revolt and the value of the dollar will be questioned. More money printing cannot solve the problem; the more the Fed prints, the worst it becomes.

"Man with a hammer..." This is the whole point. Bernanke has only one tool, monetary easing, and that's all he can do... With disastrous results... Your underlying assumption is incorrect: Why did we have the tech bubble in the late 90s? Why did we have the real estate bubble in 2002-2007??? Ever heard about monetary easing and low interest rates back then? Don't you think that those fed the speculation? Easing/printing is all the Fed can do - again they are the ones with only one mental model... And they can't even realize that it has unexpected consequences and create bubbles...

For all the neo-keynesians on this board (and for the others too) there is a must read interview of Leszek Balcerowicz, a Polish economist, in today's WSJ. This is actually an incredible irony: people who understand best the nature of capitalism are often found in former communist countries. "Generally in the West, intellectuals like to blame the markets," he says. "There is a widespread belief that crises occur in capitalism mostly. The word crisis is associated with the word capitalism. While if you look in a comparative way, you see that the largest economic and also human catastrophes happen in non-market systems, when there's a heavy concentration of political power—Stalin, Mao, the Khmer Rouge, many other cases." Going back to the 19th century, industrializing economies recovered best after a crisis with no or limited intervention. Yet Keynesians continue to insist that only the state can compensate for the flaws of the market, he says. "This idea that markets tend to fall into self-perpetuating crises and only wise government can extract the country out of this crisis implicitly assumes that you have two kinds of people. Normal people who are operating in the markets, and better people who work for the state. They deny human nature." http://online.wsj.com/article/SB10001424127887323981504578179310418828782.html

Mark Sellers had the best definition on quotes that I ever read: "To my mind, there are really four different types of moats. The first is being the low-cost provider or company with economies of scale due to size. Wal-Mart is a perfect example of this. Second is having protected intellectual property, such as patents, copyrights, trademarks or FDA approvals. Here examples are drug companies, biotech and entertainment companies like Disney. Third is what tends to be the strongest, but also the rarest, of moats, which come from some sort of “network” effect. This happens for the company acting as the intermediary enabling communication or transactions between two or more parties. More volume begets more volume. This is what’s so powerful about the Chicago Mercantile Exchange, the New York Stock Exchange and eBay. The last kind of moat is when there are high customer-switching costs. You see this in consumer banking or in a payroll processor like Paychex.The most successful companies often have more than one type of moat. Microsoft has the network effect because of all the software created to work with its operating systems. It also has intellectual property rights and economies of scale." Value Investor Insight, June 2005

You don't need one as there are two trunks !

Always interesting to read his thoughts http://www.businessweek.com/articles/2012-10-25/charlie-rose-talks-to-jeremy-grantham

There is also a great interview with Elon Musk in this month's wired. This guy is a real game changer... I love the section on processes and how they lobotomize people... http://www.wired.com/wiredscience/2012/10/ff-elon-musk-qa/

If you're looking for another one, have a look at SPLK. http://www.marketfolly.com/2012/10/zack-buckley-shorts-splunk-value.html

Not sure what to make of this but it could be a very bearish sign and I'd be curious to get some comments on this board. thanks! Eric http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/10/2_Here_Are_Two_Incredibly_Frightening_Charts.html

thesis please :D Alright I'll bite. I can't be sure why other people are shorting Tesla. Here are some of the reasons to short it: #1- They are losing a lot of money. GAAP profits, free cash flow, cash flow from operations... all are negative. Whichever way you cut it, the company is unprofitable. #2- Even if it was profitable, the valuation is a little ridiculous. The market cap is $3B versus less than $300M of equity. #3- Some people like to short ridiculously overhyped IPOs. #4- You could argue that the car industry isn't a great industry to be in (for mass market vehicles; Tesla is very niche so this may not apply). Other countries like Japan massively subsidize their auto industries. #5- Just keep going back to #1. They are massively, massively unprofitable. In YE2011 GAAP losses were $253,922M versus revenues of $204,242M. This is disturbingly unprofitable. I may lose money on this position even if Tesla goes to 0. This could take a while because Tesla has been able to use its stock to raise capital. There is cash flowing in from the capital raises (and a little bit from stock-based compensation) that keeps this company alive. I don't think that Tesla being in danger of breaching its loan covenants on the DOE loan is that deadly because (A) the government is stupid for making the loan in the first place and isn't savvy enough to push this company into bankruptcy and become the bully that owns the whole company and (B) capital raises can keep Tesla afloat. Also: - Tesla funds its operations with cash deposits from customers as decribed below: http://dealbook.nytimes.com/2012/03/22/teslas-ambitions-fueled-by-customer-down-payments/ - negative FCF since inception. No FCF improvement in the last few quarters. - Elon Musk is quite a risk taker (see his own description of a car crash he had in this video (discussed in another thread)).