TwoCitiesCapital

I don't like the term free market in this context so I will use a different term. Normal market. You can have a pretty good "normal market" solution to this problem. And that is what Singapore has done. Its extremely effective in providing high degrees of health care availability, good outcomes, no lineups and very low costs. Singapore is a multi-payer system and its the single most effective healthcare system in the world. By "normal market" I mean a system where the vast majority of consumers are paying for thing directly out of their own pockets with money they earned and for their own direct consumption (not to resell to someone else). I would say that housing, stock market, education, car repair, healthcare are mostly abnormal markets since in these cases the consumers are mostly not paying using their own money directly for their direct consumption. Instead they are using loans, insurance. Normal markets work well. In most normal markets prices typically decline, quality improves, pricing is rational and there are no large scale societal problems. Clothing, food, consumer goods are examples. Healthcare is not a normal market since everyone uses insurance. But Singapore found a way to turn it into one. Their system is not a "free" market. But it provides all the true advantages that free markets have. Brad Delong has a solution that essentially accomplishes the same thing and is described here: http://delong.typepad.com/sdj/2007/06/dealing_with_th.html Basically the solution is as follows: 1) Compulsory HSA's and everything paid out of the HSAs up to a certain limit which is dependent on income 2) 100% insured coverage if you exceed the HSA limit This is generally the solution I would advocate for, but just don't see the political will for it. Someone, somewhere, is going to stand up and say that some people still won't be able to afford it and that even the $30-40/month for a high deductible plan would be too much to pay, let along them being on the hook for a $2-3k deductible. We don't have the political will to refuse those people service,s o still don't think this would work - though it would certainly be better than what we have now.

The Libertarian in me hates the idea. The realist in me thinks its the easiest way forward and most likely to happen. I would support it to get away from the monstrosity we have in place now, though my preference would be for everyone to have high-deductible plans and thus force some semblance of pricing discipline into the system and maybe motivate some real solutions. Why would a private market option fail to work: We can't have a free market solution if we cannot discriminate against those who don't pay or provide consumers with the information necessary to differentiate between choices. You can get care for free at any emergency room. They HAVE to treat you. As the burden from free service gets borne by those who do pay, prices will inflate for those services forcing more people to seek the free options and more costs to be borne by fewer and fewer people. You'd expect public outcry, right? Wrong. Paying consumers don't see the cost because they don't pay - their insurance company does. And most consumers don't pay the bulk of their insurance premiums - their employer does. And the litte bit of the cost that we do carry? Comes out automatically from your paycheck and 95% of the population couldn't tell you how much it was or what % of the total cost it represents. Ultimately, the users of the services are 2 steps removed from the cost of the service allowing for increased usage even at inflated prices. Further, even if there was pricing discipline with consumers directly bearing the cost and having the motivation to enact pricing discipline into the process, the information isn't there. You can't differentiate based on price for most services received at hospitals because hospitals themselves cannot quote you how much it costs for a service. A free market solution cannot exist without being able to deny those who don't pay service and allowing those who day the ability to differentiate between products. But we, as a country, don't have the political will to tell people they cannot receive treatment NOR will the government enact a forced pricing scheme on private institutions. So, a public solution is most likely to work and receive the most support since it can coordinate all of that on the back-end. Just my two cents.

Sold a bit of Fairfax to fund my renewed position in Santander for European banking exposure. Have been wrong about SAN for years, but it has been an extraordinary trading vehicle for me. After the market action over the last 2-3 months, seemed like it was a good time to dip back into it - particularly since Fairfax ISN'T going to be repurchasing hand over fist like I thought they might when I bought my last batch.

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets. The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso! I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong. Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest! Well, I mostly agree with that. But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment. Essentially PPP is fundamental analysis performing a relative valuation of two currencies. My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years. So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon). Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade. That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP. SJ That's why you leverage the currency trade using futures OR the currency isn't the investment. I use opportunities like this to pick up foreign assets on the cheap. Typically when the currencies are cheap, it's due to capital flight, which means risk assets are cheap as well. So don't buy pesos - go on hunt for risk assets denominated in pesos. Using $ to buy cheap assets means you get the same typical appreciation when the recovery occurs, but also the 20-30% currency kicker compounding the gains on top of that. There were some large, recongizable names in Brazil/Russia that returned 300-600% in USD terms in the 12-18 months following early 2016 due to the dramatic revaluation in earnings multiples AND currencies.

CDS settlement is based on the cheapest to deliver bond. So a company can issue a zero coupon long dated bond at a huge discount, default, then the CDS will settle based on the price of that low dollar bond. I don't think this has been true since physical settlement was done away with in favor of cash settlements. Recovery amounts are based on an auction organized by large banks bidding what they'd be willing to pay for the bonds.

Closer to 1.1x when accounting for the $800 million in gains from fare value adjustments to investments in associates. Maybe even a little less when considering unrealized gains in investment portfolio since end of March - probably in the ballpark of $150-200M overall.

$225M is their conservative estimate of the worth. $300M is the realistic/optimistic view given real estate markets and the global economy humming along.

From the meeting today, sounds like buybacks will be the focus on retained earnings over the entire few years, but that current cash is reserved for buying back minority interests as they become available.

I can't find the source, but if my memory serves me correct, Watsa addressed the premium and suggested that in the long-term even that price would be a bargain and that it was purchased with long-term in mind. My guess is that they want to own as much of it as they can and they probably offered a substantial premium to get GVK to sell their minority interest. Not necessarily my type of investing, but they've proven themselves in India and they may be right about owning the airport at any price. Wish I could find the actual quote for you though :/

I have taken a speculative starter position in it again around EUR 0.80. The problem is the last time Greece looked like it was making progress, there was a political surprise and investors lost 99% of their investment. I'm betting it won't happen again, but you never really know... Once bitten, twice shy.

Correct me if I'm wrong, but there are no warrants in Blackberry. Just plain old common shares and $500M in convertible notes?

Yes. What was originally a legal bet now becomes an administrative bet. We'll see what happens. I didn't expect the judicial system to be so bad that all these liberal judges bend the laws to fit their political views. Agreed on the surprise out of the courts. I don't know if its political will that's getting in the way - just really surprised that the courts are willing to stand for a law that supersedes their ability to review/question the law. What is the point of checks & balances at this point...

It's also because some of us think it's kind of pointless to have two threads for the same purpose - I post my sales in the "What are you buying" thread just so all transactions are discussed in one place. Also, I don't post ALL of my transactions - just the ones that cross my mind at the time and the ones that might be worth discussing. I imagine other board members are the same.

I agree with this but i would simplify. economy is in best position in over decade. yes valuations got stretched but i use a relativistic measure since i think cape is exaggerated by FC, and my time horizon is longish. plus, i am pleased to see bitcoin etc has shaken out, not that i was in that. so yes i'm buying the dip here (SPYs) If we replace 2008 with analyst estimates for 2018, the CAPE ratio drops from 33x to 30x. Hardly an improvement and still very much elevated. The beauty of the CAPE ratio is that it doesn't allow for any one year's bad results to impact the measure too much. I've never bought the argument that market multiples can be inflated because yields were low - but many seem to have bought into that. What do they say when yields are at 2014 levels but equity multiples are dramatically above the 2014 comparables?

I tend to agree with this. Demographics support lower rates than would be expected in a similar scenario for the ENTIRE developed world. Further, pensions are dramatically underfunded and have been waiting 10+ years for higher rates that EVERYONE expected to come - at this point, many of them are desperate and dump billions into the marketplace to buy duration the moment rates back up 50 basis points. These are literally the whales in the market place - it pays to pay attention to their motives. With demographics supporting the move into fixed income, forced buyers like pension plans in the mix, and central banks just waiting to buy at the hint of the next downturn - it's hard for me to envision long-term rates (10-years and onwards) getting much above 3% before the next rally in yields starts - particularly IF/WHEN the next hint of economic weakness comes through. T he bond bull market WILL end - I just have a hard time envisioning it's immediate demise in a global environment that reflects demographic demand, low inflation, and desperate buyers with A LOT of money (pensions and Central Banks). I'd revise this theory if inflation were to consistently exceed 2-2.5%. At that point, pensions might delay duration binges a bit in anticipation of higher rates and Central Banks would likely have the confidence to continue hiking which might exceed the drag from any demographic demand. Until then, I'm still in the camp of rates will head lower and this is merely a bounce within the secular trend downward. I have all the respect in the world for Gundlach, but he has been wrong before about the bottom being in for rates and I imagine he may be wrong again. Crazy how some of these fund managers ignore the motives\movements of their largest clients (pensions).

This is what I did back in October. Purchased a 2003 996 with 50k miles - 6-speed manual transmission. While I don't expect appreciation, because I'm driving it as my primary, the expectation is that since it IS at the bottom of it's depreciation curve that I'll be able to sell it in 3-5 years for roughly 80% of what I paid for it with the reduction in value coming from the miles I'm putting on it (modest). It may turn out that buying the 15 year-old Porsche was cheaper than buying a nearly-new middle-of-the-line car. It remains to be seen.

It is a very interesting concept. Harley Bassman of PIMCO pointed this out at the end of 2016 as well. The fact that the trade is still alive and well suggests it wasn't a top performer in 2017, but the logic of his trade was sound.

But very interesting article. Reminds me of the ECB structuring Greece's default in such a fashion as to avoid CDS payouts or the hedgefunds who owned Radio Shack stock forcing it into bankruptcy so they could get paid on the CDS they owned on RS debt. Each year, the CDS market gets a bit more corrupted from its purpose with each manipulation shaking the confidence of investors trying to use it for its initial intention of hedging. I wish the regulators/courts/clearing houses/ISDA would step in and fix some of this shit :/

Many CDS are MORE liquid than the underlying credits. This is especially true of the CDX indices. Why would a bank buy credit protection? Because they are too long on a credit. Well, instead of lending too much to that borrower and then hedging it, maybe you shouldn't have lent this much to start with. Instead of considering it "lending too much" we could consider it making a market. They transact to make the market - they hedge it so those activities don't kill them - and the sell it to free up the capital to do it again. This increases liquidity and price discovery. Similar to how the advent of the MBS allowed banks to make more mortgages and dropped the cost for home buyers.

My knowledge of commodities is very little - but according to Dazel, who seems to have some experience with it, the Chinese are the dumb-money and you want to run when you see them. Comment was fairly recent in the Altius thread. No thought on NZC myself - just thought it would be worth mentioning as the contra-side of the argument.

I just have a hard time understanding how their bill gets passed. The simplest route is the most likely - liquidating the companies and rebuilding news ones, to do the same thing, from the scraps that remain and private capital is nowhere close to being the easiest route. Nor does it maximize value for govt. Nor does it jige with the idea of a maintaining a smoothly operating mortgage market. Recapitalization achievs all of those and is way easier. This alone is what gives me confidence

2015: ~(20)% 2016: 24.7% 2017: 25.9% The driving factor behind the performance over the last 3-years has largely been my large allocations to EM and commodity producing companies. Also helping results in 2017 was FNMAJ, SAN/BSBR/BSMX relative value trades, EXO, SBRCY, and leveraged exposure to FCAU. Also, while no individual name was a big contributor to the annual returns, all of the retail names I picked up in Q2/Q3 have done well. Most are up 15-50% in less than 6-months, though the bounce happened so quick that I didn't get full positions in any. Roughly 4-5% of the portfolio was spread across a basket of retail brands. The big OUCH for me was selling puts on Valeant earlier in the year. It worked well for the end of 2016 and early 2017, but I chose to cover in April to limit my losses as it approached it's lows of $8/share in April....right before it bounced to 12 weeks later. The loss from the last position was enough to wipe out all prior gains AND reduce portfolio performance by 1-2%.

What are your thoughts on the equity surviving the current bankruptcy proceedings? I have limited knowledge to know the situations where equity can be expected to continue and those where it gets wiped out.

Is this not the opportunity to back up the truck? As the WSJ states, allowing the companies to retain capital is directly in opposition to the idea of winding them down. If the entities are to be retained, and we know they cannot continue as is, we know something has to change. The most obvious thing would be the NWS. So seems like now is the first time that we've really had concrete evidence that the administration is on our side?

At some point and at some price, this will be a good buy. The hard part is knowing when because the value is dependent as much on government policies as it is the bank itself. The last time I was in Eurobank, it basically lost 90% of its value in response to an election that resulted in deposit flight. The bank was well on its way to recovery at that point - but the election shattered everything. I'm tempted to get back in at this price, and have been watching it the last few months, but also am wary given being burned on it in the past with no fault at the company. Still haven't made up my mind yet.