TwoCitiesCapital

Just the average spreads on the indices as reported by Bloomberg/Barclays. OAS for HY is over 6.5% at this point. For IG it's over 2%. Both are elevated relative to the highs for both 2015/2016 and in 2018 - of course neither of those last two was an official recession. In 2019, HY spreads were as high ~15% so we could have a ways to go, but I think this will likely be more mild. I'm probably a buyer of high yield bonds in excess of 8% spreads and I imagine Fairfax could put some money to work opportunistically in HY, IG, and preferreds @ that time too

And once again....Bitcoin down 43% over the last 24 hours. This is NOT a safe haven asset.

God it's tempting.... Are you willing to sell all your holdings and wait for the bottom to put all your net worth into FRFHF? Not a chance in hell. I've learned hard lessons about extreme concentration and being wrong. My largest position size is now 10% and typically takes years to build to. Though, as mentioned in the other thread, if credit spreads blow out Fairfax may just have a chance to deliver 10-15% ROE even without higher rates...and that would be worth paying the repurchasing all of the shares I sold back in the $500 USD range.

They cannot redeploy a meaningful amount into equities. They can’t recap the subs in any meaningful way and if the equities remain depressed may not be able to grow into a hard market. They certainly don’t have the capacity to grow and buy back stock. The only opportunity is in the bond portfolio - but that could be huge. Yea - if credit spreads explode, they don't necessarily need rates to rise to make decent on the bond portfolio. We're already past the peaks of 2016 and 2018 for the widening of credit spreads. Fingers crossed for 8-10% on high yield and 4-5% on IG corporate. Fairfax is tempting at these prices, but without a meaningful chance to make money on rates we need a larger dislocation to make it up on credit.

God it's tempting....

I modestly increased FMCCJ yesterday @ 11.99

Eh, this is why I've always disliked him. Everything he says is a gross oversimplification. His comments about oil companies being around? Yes, maybe the specific ones he named but very many oil companies in general will NOT be if 2015/2016 is any guide. His comments about Southwest airlines and the loss of market value versus riders totally ignores operating leverage and the negative impact an even modest drop in travel demand has on total profits for airlines. Further, his comments about Southwest dropping 30% and asking "is it really worth 30% less today?!?!" probably wasn't mirrored by a "is it really worth 30% more" following 2019s rally.... Further, is it really the best opportunity in 10 years? December 2017 was lower priced and we didn't have pandemic concerns or dropping profits at that time. December 2018 was lower priced and people were concerned about slowing global growth, but hadn't seen much a dramatic drop-off yet and still no pandemic concerns. The fact of the matter is, after this drop, were still @ like 18-19x trailing earnings that are shrinking - with the potential to rapidly shrink in an actual recession. Hardly the best time in the last 10-15 years to buy and wholey irresponsible to characterize it as that for all of his listeners - particularly if we keep dropping from here.

Lucid. Agreed. Very interesting perspective and comparison to airlines. I'll have to chew on that one.

The fact that BV has dropped a lot - check out the Eurobank and Atlas Holdings share prices. Now, those stocks are cheap so plenty of value has opened up. But it’s arguably in the holdings, not Fairfax. And that interest rates are below 1% all the way down the curve meaning getting a 10-15% ROE is a pipe-dream unless if the insurance markets just go gangbusters. Agreed. Although *arguably* one ought to be looking at the ROE/risk free rate spread when valuing a stock. I think that makes sense in theory, but in practice the swings in the "risk free rate" are far too volatile to be basing my values off of. I don't think the actual values of companies have swing as dramatically upward as the 10-year going from 3.25% down to 0.3% might imply. Nor do I think those same companies lose dramatic value if it goes back to 3.25% in the next 18-24 months. Even using Fed funds rate instead, pretty dramatic swings. So either an absolute rate of return or some longer-term moving average need to be used as your risk free rate. Also, I'd say the swings with Fairfax should be more muted relative to the risk free rate as well given its future earnings are somewhat counter-cyclical (i.e. interest earnings dramatically increase as your discount rate is rising offsetting some of the impact. Vice versa as rates are falling).

I nibbled at a little more of Altius, Eurobank, Annaly, and Sberbank. Have limit orders out on a few more names, but probably won't be hit today now that the initial panic is over. These were all very small incremental purchases. Not convinced the worst is over yet, but am beginning to let the greed take over the fear mechanism - at least with foreign stocks that were dirt cheap to begin with.

The fact that BV has dropped a lot - check out the Eurobank and Atlas Holdings share prices. Now, those stocks are cheap so plenty of value has opened up. But it’s arguably in the holdings, not Fairfax. And that interest rates are below 1% all the way down the curve meaning getting a 10-15% ROE is a pipe-dream unless if the insurance markets just go gangbusters.

Generally agree with this. Isn't egregious, but is distatseful

There was a chart on zerohedge that showed prior "emergency" cuts by the Fed and then showed the average and median return afterwards 1W, 3M, and 1year afterwards. As presented, it's not very informative IMO - but what I was able to take from it was 6 of the 7 times the Fed did an emergency cut we were heading right into recession (they were clustered in 2000 and 2008 time period). The single outlier was in the late 90s and the exceptional performance following that the result of the tech bubble. Seems likely that things only more roguh going forward but we're probably in a period of consolidation near term and the market recalibrates and people buy the dip.

This is very generalized, but the USD has tended to 'smile' going into recent downturns. Having higher interest rates and being a cleaner dirty shirt has typically meant the currency starts off elevated at the beginning of any slowdown. Then, as Fed cuts rates (or stops raising them) we lose our interest rate advantage and people realize US is not immune to growth concerns and the dollar depreciates relative to other assets. It then appreciates again following it's trough as the US has displayed it's ability to navigate the downturns in a reliably smooth manner and begins hiking rates and removing accommodation. Can't say it will play out the same this time around but it seems like we started off elevated and have started to give some of that back - at least relative to the euro - suggesting the first two steps have been correct so far.

This is probably wrong thread for this, but anyways... I ran the BrooklynInvestor DCF on SP500 and the issue is not Covid, the issue is valuation. Starting with 133.53 SP500 earnings ( from here https://www.multpl.com/s-p-500-earnings/table/by-year , I did not double check ), 0% growth this year, 3% growth rate from here to year 10, 5% discount rate, terminal PE 15, SP500 value would be ~2700. Using 5% growth rate, SP500 value would be 3179. Now, this assumes 5% discount rate, which is basically expected return. If investor wanted more than 5% return, the numbers are way worse. (No, I don't think 25x terminal PE or 4% discount rate make sense. I don't think growth rates above 5% make sense either. Yes, I know that risk free rates are close to zero. I'm not gonna use risk free rates for DCF. But, yeah, that's likely why SP500 is where it is.) ::) That's what I've been saying to people. Coronavirus pricked the confidence of the markets, but the real problem was that we were at like 20x shrinking earnings BEFORE coronavirus was a thing. This is just making it obvious to people how overextended the market was. Everyone I know is still 'buying the dip'. If this is a true bear market, that type of behavior is going to have to be sufficiently punished before it's over.

A significant advantage, one would think. But it seems to fall with the market as the hedge fund owners need cash. I haven't checked all of the preferreds, but the share class I own still seems to be trading in the range it has set for itself the last several months. It is nice to know that even though this thing moves 10-20% at a time, oftentimes, that it didn't do it the same time the market was off 10-20%.

Moved more intermediate bonds into money market. Also started the process of rebalancing back to 50/50 so bought a few thousand of various international funds in my 401k and HSA accounts.

But shouldn't their bond gains be offsetting this? No, because there is very limited duration in their short term portfolio. Short term bonds are up only a few tenths of a percent.

Shocking how quick this all happened. The first couple of days made sense just given how far we'd come and how quickly but I thought we'd at least bounce on the 200 DMA. We blew right through it and kept going... Does make me think it's a bit overdone, but might be another day or two for the much awaited relief bounce.

Sold my final put position. Held onto quite a bit of cash, but started selling cash covered puts on names I own (VIX is at 34!) and purchased more Fairfax India.

Agreed. Not sure this is over and not convinced we've caught down to the fundamentals that have continued to deteriorate month after month. That being said, while I did reinvest my called call proceeds yesterday, the profits I've booked from my put positions sold over the last two days are remaining in cash and am looking to re-add put exposure if we get a subsequent bounce and VIX below 20. Still keeping my overall portfolio allocation at roughly 50/50 and don't think I'll consider adding equity risk back into the portfolio until we're down significantly.

Bitcoin down bigly over the last two days while markets rumble on Coronavirus concerns. 10-year treasuries hitting all time lows and, while down today, GLD is up over the two day period so far. Still don't think Bitcoin behaves like other safe-havens and shouldn't be considered one.

Even Buffett isn't very Buffett like when compared to his 40-year old self.

Had a bunch of my covered calls expire in the money this past Friday, so was flush (~8% of portfolio). Increased Fiat ~15% Increased Altius by ~7% Increased Fairfax India by ~20% Increased Eurobank by ~20% Doubled my small position on XOM Bought AGNC Also moved roughly 3% of portfolio in intermediate treasuries to money market thinking yields may pop back up before they come further down.

I've previously posted links from one of the big 4 auditing firms as well as clarification from the IRS itself that imply retirement accounts are not included in PFIC reporting/tax guidelines. That being said, I can't find the posts to give you the direct links.