TwoCitiesCapital

5-year treasuries have a yield of 3.25%. Would love to see this locked in on SOME portion of the portfolio. I simply fear a repeat of 2018 - short duration on the way up (missing interest income but avoiding capital losses) and short duration on the way down (missing interest income and capital gains). A 5-year type ladder wouldn't be taking excessive duration risk and could largely lock in a knowable cash flow of ~750 million - $1 billion per year on the fixed income (pending rate moves). They'd not be taking unnecessary duration risk, they'd solidify a knowable income stream, and retain the optionality of extending duration and/or benefitting from rising rates by having a lower duration portfolio. Really hoping to see the bond portfolio extended out from 1-2 year bonds here in the near future.

They're not the same. One is the appreciation of the existing (and future) investments. The other is increasing your ownership on them without incremental capital of your own. You're correct in that NAV only increases when done at a discount (which is where we're at), but ALL buybacks, even those above NAV, increase your ownership in the underlying business. This is in part why US stocks had such a good decade despite lackluster revenue and profit growth - massive amounts of shares were retired. Most of which were purchased well above book value.

Because there will be a buyer - someday. It's all sentiment driven. This USED to trade at a premium to NAV and had plenty of buyers. They delivered on the results front, but sentiment changed so the premium went to a discount. I didn't own this when it IPO'd because of the premium + the fees. I own it in size today because of the discount. All you need is more people like me which will occur with a change in sentiment. What is the catalyst for that? Who knows, but I don't believe investors will be permanently bearish on something that compounds 10-20% per year that can, and is, actively delivering additional value via the cancellation of shares at a 30-40% discount. Maybe just need the USD to back off it's 20-year highs and the liquidity spigot turned back on which we know will likely happen after the next recession

It's not a value trap if management uses liquidity from monetizations and IPOs to repurchase shares to increase book value. Even if the discount persists, buying shares at a 30-40% discount to NAV is accretive to value even without discount closing. You're getting the underlying performance of the assets + additional accretion from buying $1 at a discount and reducing share count + any closing of the gap to NAV. The last piece is a large one-time kicker, but it's the other two that set up long-term compounding potential while you wait for that one-time kick. It would only be a value trap if you were waiting for that last piece without the first two.

Probably too soon to call it - but damnit of this relief rally doesn't feel good after the last few months. The Celsius bankruptcy is going to be interesting and may have marked the bottom. The claims forms are all denominated in $ despite what they owe me being denominated in various crypto with ever changing dollar valuations - the system wasn't yet ready for a crypto bankruptcy.

I'd be inclined to agree with you if the stock price were over $1,000/USD and monthly/quarterly swings 2-3x what they are today with limited undervaluation relative to the underlying business. But we're not there yet. There's risk here for sure - but with current liquidity, profitability, and valuations? I think it's predominantly skewed to the upside.

I would hope NOT! They've already received the cash from the upward momentum in share price. TRS are typically cash settled monthly or quarterly. So every month/quarter Fairfax is receiving or paying the performance on the shares in cash. What benefit would there be to them to close it now unless if you expect the stock to fall in the coming quarters? I'd much rather they hold onto these until AT LEAST the stock trades at the adjusted book value (looking through to the market value of investments carried @ cost).

Barclays AGG has outperformed the S&P by nearly 7% since this post was made and that was NOT the bottom in bonds. You did better if you kept buying bonds all the way through the June low. I've stopped adding fixed income here and have been slowly reaccumulating commodity names that I trimmed 15-20% ago. Equities may bounce 10-20% on a Fed capitulation and a pause in rate hikes, but ultimately I'm still thinking bonds out perform equities over the next 12-18 month period.

I think the upside to Stelco is likely higher than FFH shares - but less certain. Fairfax has the privilege of being able to wait. As a shareholder in both, I'd hope they do NOT participate in the tender and rather remain aligned with management's position here which is to be buying/holding the shares. Commodity names will be killed in a recession, as always, and may trade lower in the near term. But the recession will do very little to change the fundamental shortages from a decade of under investment OR the themes of electrification, clean steal, peak oil supply,new electric vehicles, etc. I hope Fairfax holds these at least for another 2-3 years to see how it plays out. They're already repurchasing a ton of shares without the stock price reacting - methinks they'll have more opportunities to accumulate even without letting go of these cheap assets.

You're giving up price risk (upside/downside) in exchange for illiquidity and rate reset risk as rates can move meaningfully lower. The rates are high but you get no price improvement if rates move lower. That's why.

I mean, how does anyone outperform if this stuff is true? Nobody wants to invest in EM at the moment (or rarely at for the last decade really). This is demonstrated by net flows and the strength of the USD versus any other currency. So Fairfax has that going for them. Infrastructure assets require long-term outlooks and potentially large upfront cash/capital outlays. This dissuades hedge funds/mutual funds/ETF flows from participating. Fairfax has that going for them. Fairfax has intimate knowledge of the local customs/culture and has been doing business in the area for years. So they have that going for them. Their primary competition will be local businessman - how many of them have the pockets to put something together to bid on multiple infrastructure plays? Fairfax India has itself, it's parent company, a number of investors, and deep pocketed partners. So Fairfax has that going for them. Lots of things make these a natural play for Fairfax and for few others. Doesn't mean they'll get them for a 'steal', but does mean they'll probably do well with the price their able to pay.

Whether or not we think they should or not is irrelevant. They do as demonstrated by the move to dump ALL of their bonds in 2016. Which worked great for 2-years, but then the failure to renter in 2018 just meant it was all reversed and share holder paid the price with near zero interest income for 5 years. We now have another opportunity to re-enter bonds having missed much of the pain in bonds this year. Maybe take the duration of the portfolio out to 4 from 2ish now that rates are up 150-175 bps over the last year. That way they can lock in some of these 3%-ish type yields for the next several years if the bond market is right about a recession being around the corner. Might even pick up some capital gains if the Fed is forced to cut and still not taking a ton of duration risk if yields continue to rise because you can roll 10-20% of the portfolio into those higher yields every year as bonds come due and pay interest.

Probably seemed that way in 1999 with the US being the center of internet revolution and a robust economy. DXY still went from 120 down to 75 over the next 10 years in what we a largely undisturbed downtrend. I'm not betting on the imminent failure of the USD, but we're already seeing the weakening of the petrodollar and the weaponization of reserves may lead to a "small" reduction in its global dominance - but would still be measured in hundreds of billions of orphaned dollars over an intermediate time frame. Not too mention any naturally occurring reversion from a vertical climb or a catch down once the US follows the rest of the world into recession in the short term.

10-year yields back down to 2.9-3.0% after tagging 3.4% a month ago. Markets beginning to price in cuts in Q1 2023 already. 2s-10s most inverted since 2007. 3M-10s probably likely to follow in the next 2-3 months with additional hikes. Really hoping Fairfax is considering extending duration some. Will be a shame if this plays out the exact same way as 2018-2020 and they miss the opportunity to add duration again and we continue the multi year trend of declining investment income before rates rise again. Not suggesting they take the whole portfolio out to 7-10 years, but at least a portion of it!

With the new print, we're already at over 6+% using the above methodology and still have 3-months to be additive before we reset. And here's the thing that's got me reconsidering my skepticism on inflation being sticky. This is the inflation we're experiencing with the USD being near 20+ year highs. What happens if it weakens from here?

Would also add that Coinbase Pro requires NO minimum trading or additional fees, but offers the ability to do limit orders and has lower commissions. Other than a slight cleaner UI, there's basically no reason anyone should use Coinbase over Coinbase Pro that I can see.

There are hard wallets and soft wallets where you can self-custody. There's risk involved here as well, but it's on you and not a third party. I have a hardware wallet from Ledger where I keep most of my crypto. I buy on exchanges and transfer once the balance is high enough where the fees to move are worthwhile.

I don't disagree at crypto's prevalence. I know a TON of people in it. I think the difference versus the dotcom bubble is that most people I know in it have like $200-300 in it. They're f*cking around with Shiba and Dogecoin hoping it'll 100x - very, very few with anything substantial at risk and basically nobody trading on margin or leverage. Very few understand Bitcoin or the value prop and very few have anything worthwhile in it. Despite that - it's use cases are growing. Most retail traders I know are messing with Ethereum and shitcoins. As pointed out, the market has gone from $3T to $700B. Most altcoins are down 80-90% already. Retail has been missing from the market since last summer. Companies are falling apart left and right and declaring bankruptcy. I think we're very near we're bottom if the capitulation event hasn't already occurred. If you're looking to enter the market, now is likely not a bad entry point with a 2-3 year time horizon. BTC has gone down 80+% multiple times - each time bottoming many multiples of the prior bottom and hitting highs many multiples of the prior top. The fundamentals of the network are still growing.

Well, there's our drop below 20k despite never having the blow-off top moment In other news, FTX is reportedly in talks to acquire BlockFi for $25 million. BlockFi was valued as high as $5B a year ago. Between Celsius going under and this desperate move to keep BlockFi afloat, it does seem like billions in deposits are in question regardless of crypto performance. It's gonna be some time before people get excited about crypto again

Asking prices in a number of US cities are down 10-15% based on some headlines/articles I've read. We'll see how that impacts values going forward. I don't expect another 2008, but I do think something has to give between 6+% mortgage rates and median sales prices being up 30% post-covid. Monthly payments on new purchases are through the roof relative to anyone's current rent/mortgage.

I'm not going to say we can't drop more seeing as the current drawdown has already surprised. But should the correction not be somewhat proportionate to the boom? This last 'boom' was way more shallow than prior ones so should we be expecting the same 80+% correction or are we already nearing the bottom at 60-70% because it was a much more tame rally without an extraordinary blow off top that 2013 and 2017 both had? Not to mention from an S-curve growth perspective it seems like Bitcoin adoption is hitting the start of its vertical acceleration with countries, asset manager, payment processors, etc all taking it seriously now versus the prior 2 cycles.

+1 agree with everything said here

You wouldn't consider the collapses of Terra Luna or the insolvency of Celsius to be "big" enough to qualify? Both are resulting in losses in the 10s of billions...

I agree - for now. It's only a matter of time before higher input prices and higher rates strangle economic activity. And then rates will go down to 0% again and inflation will rise in response to the inevitable stimulus and we'll have significantly negative rates again. The next decade will just be bouncing back and forth between less negative and more negative real rates IMO.

You let inflation exceed rates for a LONG time while jawboning about trying to prevent inflation. Negative real rates are here to stay globally. Too much debt to be managed otherwise.