TwoCitiesCapital

I get it - but Fairfax stopped underwriting cat on the coast of Florida awhile back. Maybe they haven't had time to let similar policies roll off or reinsurance wasn't attractive to get AWH and Brit out before the storms? That alone would explain why their results were worse. I get that Fairfax's prior insurance acquisitions before the past decade were iffy, but these are companies that have had a long-term track record of success in this industry and I don't buy that one quarter of multiple cats is worth the concern. Also, less related, I'm not sure we will see another hard market in insurance - there's a good argument for why financial markets are better able to underwrite cat risks. It could be the industry evolves, like banking has, where the insurance companies underwrite the risk and then simply securitize a good bit of it and sell to investors. I would hope that there might be one good bull market left, but how long has it been? Over a decade since the last hard market? The industry has been making fundamental changes during that time and hard markets may be more coincident with bear markets/access to capital then they are with cat risk. Anyways, my basic thesis for Fairfax is that the earnings picture changes dramatically once they invest that $10-11B on the balance sheet. Particularly if you believe they haven't lost their investment talent.

Explain how Watt can call receivership when there are still 258 billion left in taxpayers backing. You meant forced R instead of mandatory? You read HERA. Again. R requires very specific and narrow events to be triggered. It is not a free willing tool to be used at will, but of last resort. While I generally believe this will get worked out in time, let us not forget the very, very, very liberal interpretation of Conservatorship and how a de facto liquidation the companies is being done in the name of preserving and conserving the companies' assets. I don't think it would be THAT difficult to come up with a similar bullshit reading and force receivership.

Upon reading this and seeing that Allied was responsible for about $400M of the $900+M cat losses, I decided to go back and look historically at Allied's underwriting. It is impressive. They certainly don't look like some of the companies that FFH bought back in the day that were early disasters (but eventually turned out well). $2.2B in favourable reserve development in the past 15 years. Only one year in 15 years that was over 100% CR. They averaged 90.5. Very consistent. Keep in mind their Portfolio is in the $9B range and they had $400M loss. As a percentage basis, they had more than their fair share within the FFH Group, that I agree with. Take a look at page 18 - "Income Statement" http://www.snl.com/Cache/1001217885.PDF?Y=&O=PDF&D=&fid=1001217885&T=&iid=4078260 That was my impression as well, and Prem even touted their long term compounding of BV with a solid underwriting track record as the underpinning of their quality and reason for paying premium to BV. Yet when you look at this Q numbers, they are significantly worse than legacy Fairfax insurance divisions. What's more, even EXCLUDING the Cat. losses this Q, AWH's CR was 106.2%. Again a Q does not make a reputation, but had AWH been trading on an exchange, I am pretty certain they would have been taken to the woodshed on these numbers. One hopes there is not more to this than just a Q of unfortunate developments. I don't know about where Allied World's exposure is, but it seems reasonable that this would be a bad quarter/half for insurers given the two major hurricanes that made landfall in the U.S. which caused massive flooding in Texas/Florida while wiping out much of the island countries nearby, the wildfires in California, the major earthquake in Mexico, and anything else I may be missing. I think we can have confidence in their decades-long track record and not focus too much on the results of a single quarter that had multiple large cat occurrences.

Agreed on the pricing. As a host, I always felt it was misleading to having cleaning fees and etc. I have a single headline price that is inclusive of all my expenses. What you see in the search is what you pay on my page. As for the exact address, I would suggest just discussing the exact address with your host prior to completing the booking. As a host myself, I don't disclose my address either. Not because I'm looking to deceive my guests (4.7 rating over hundreds of guests over a 6 year period), but because I'm looking to avoid the headache of having this argument with my landlord about the legality of it and whether or not he can simply change the terms of my lease in the middle of the lease period (he can't...doesn't stop the argument). I imagine most hosts in big city hosts are similarly looking to avoid this conflict and therefore make it harder for their landlords/building owners/co-op boards and etc. to discover their activities by not disclosing the exact address except to confirmed reservations.

This is simply untrue. 1) The host loses all revenue from that booking and the days are automatically blocked by Airbnb so they are unable to replace that revenue if they change their minds 2) For every cancellation after the first, in a 12-month period, the host has to pay $50 penalty 3) An automatic review is left on the hosts page disclosing not only the cancellation, but how far before the trip it occurred letting other guests know just how considerate or inconsiderate the host was with the cancellation disclosure 4) The host loses the opportunity to become a "super host" which are the prioritized listings that you will see first in the area so it cuts down on traffic and future revenue. Maybe that means nothing to you as an individual because none of that benefits you, but cancellations can be quite detrimental to a hosts annual income from property.

yea....not sure this should be quite codified like that. For instance, many board members are investors in FNMA. We've been long-term sufferers over years with the expectation of receiving par on the preferreds. If we saw the preferreds double over night (still trade at 1/2 of par) based on some decision/announcement, I think it would be a disaster to say "well, that's a great short-term return, let me sell the position" and then miss out on the second double when your thesis comes to fruition - accepting a 2x over a 4-5x. Why did we hold for years if we'd let it go for so cheaply?!?! That being said, I do trade around core positions based on shorter-term movements. If something rises 20-30% in a relatively short period (a handful of months) and I don't think that much has happened to justify such a movement (i.e. my thesis or any other thesis I can understand hasn't made any progress in playing out), I might trim the position to capture the markets vicissitudes. This is done less to capture the short-term IRRs or based on some threshold calculation and is more simply a recognition of the elevated chance that the share price may return to where it was since nothing is fundamentally different from when it was 20-30% lower. If something had happened to justify the rise, I'd hold steady and may even buy more at that point with annualized. IRRs be damned.

https://www.bloomberg.com/news/articles/2017-10-19/aston-martin-moves-into-miami-condos-in-push-beyond-sports-cars Aston Martin getting involved in luxury condos in Miami A sign that brands can extend beyond the branded product or a sign that companies are getting loose with CapEx/investments and stretching further for returns?

This begs the question - if you like Bridgewaters unique management style so much, why did you leave after just 3.5 years? In my book that is not a long time to spent with an employer your really like working for. One possibility: there are people who think they are good fit to Bridgewater's culture but not the other way around. ;) The other possibility - I didn't move to NYC with an operations position as my goal and the 3 hours of commuting daily were wearing on me after 3.5 years. I interviewed for 3 other positions internally. Received an offer for 1, but it was the one I wanted least of the 3. Decided that it made better sense to leave for a front-office position in NYC, with a better quality of life (no 3 hours a day of commuting), than it did to stay in a position I didn't care for at a company I loved. That being said, I've been at this new company for nearly 3-years and can't confidently say it was the right decision.

I've been rolling SHLD puts for the last 9-10 months or so. It's been quite a profitable strategy, but I had been winding down as business results continue to deteriorate with the horizon to have them fixed by shrinking. Following the sell-off over the past week, I have tripled the notional position in puts with strikes extending to December. At $5 a share, it becomes a lot more palatable to roll the dice on the company - particularly if I'm being paid ~10% per month to do so.

I think Perry retains the FnF position, right? He's doing an orderly liquidation of his fund, but that doesn't mean he's sold FnF yet. Why else continue burning the money to fight the case if everyone but you benefits?

The bloomberg piece says he's shutting his hedge fund. FAIRX is his mutual fund.

https://www.bloomberg.com/news/articles/2017-10-13/bridgewater-is-said-to-refute-grant-s-assertions-in-client-call Jim Grant apologizes and admits the report was sloppy and incorrect.

Would be interesting to see how they calculated that the gov't NOT paying billions to insurers somehow increased the deficit by more than if the gov't DOES pay billions to insurers. I'm sure there's some assumptions about collateral damage and such - would just be curious to see what assumptions those were and how they account for them.

Not an expert on market structure but I think this is why IBKR gives you better executions than retail brokerages. They actually try to route you to the best exchange, including dark pools. Retail brokerages are bribed to send trades to a specific exchange. If the market is quoting 1.00(bid) x 1.05(ask) (spreads aren't usually this wide but just using as an example), I will generally get very close to the ask on a retail brokerage. On IBKR, I get closer to the midpoint. Especially with options. This is all anecdotal, since there is really no way to tell if you get good execution. Did you get a better price because the market moved by the time your order hit the exchange? This is why retail brokerages can earn so much from selling order flow. Retail clients can't even tell they are getting screwed. But you can actually "feel" the difference in execution. Even though it might only be a fraction of a penny per share, it really does feel like night and day between IBKR and the retail brokerages I use (TD, Scotia, BMO). Not sure if US brokers are any better. But if you are only trading $10k, you can safely ignore execution. There are exceptions, illiquid options for example. But otherwise, this is not worth worrying about as long as you use limit orders. The retail brokerages provide good value for small retail clients. This has been my experience as well. Not only are commissions significantly lower for both equities and options (I've been paid to trade and most commissions come out to be less than $2-$3), but orders get filled on IB that don't get filled at Scottrade. I keep the Scottrade account because I like that they reinvest dividends for free (into any equity that I like), but I've had multiple times where I've put in orders both in my Scottrade Account and my IB account and they'll fill, and for better prices, than in my Scottrade account which often doesn't fill at all.

The pendulum is simply swinging from one extreme to the other. When Obama crossed the lines to do all these controversial things, it takes Trump to go to the other extreme to correct it. It's not the opposite extreme - it's the same extreme by an opposing party. I tend to agree with Cherzeca. I hated it when Obama did it. I hate it when Trump does it. I hate 90% of the members of Congress, but I also don't know what can be done to fix the system. Congress is simply a reflection of the population - ultimately, the responsibility rests with the people since we're the ones who put these chumps in power.

Much better, and more concise, defense saying basically the same things I said above. Everyone should just read this and ignore my posts. ;D

They describe the BNY thing the same way you do, so they understood the transaction: "In December 2011, Bridgewater signed a deal with Alexander Hamilton's old bank: Bridgewater fired 91 back-office employees; BoNY hired these 91 practitioners of radical transparency to work Bridgewater's books in an outsourcing contract." I've read the piece, I've spent a few days emailing/chatting with friends about this as well as pondering it. My overall conclusion is this. That Grant has a reputation to defend and he must be sure of whatever he knows to publish this piece. My best guess is there are a few sources inside the company who said "don't quote or mention us, but here's how it works" and they went looking for public scraps to support the story. I've experienced this myself, it isn't uncommon. We don't know what the reality is with Bridgewater. The radical transparency stuff seems weird. Seems even weirder that he can tape employees, but employees aren't allowed to see any management meetings, it's not a two way street. The essence of the article calls into question a number of weird filing issues, the auditor thing and others. But it also points out that for a 1,500 person firm that Dalio and just a few others are really the only ones who invest. And recently Dalio isn't investing anymore, but promoting his book. If anything the article reads like a PSA for subscribers who might be fund clients to consider pulling cash and redeploying elsewhere. There is no "This is Madoff 2.0" or "it's a fraud" just a serious of questions worth considering like "what does it own?" and "why hasn't anyone seen their trades?" I'd be curious to know if anyone has seen the portfolio under an NDA or been able to get a copy under NDA. TwoCities have you seen the portfolio, or any portfolio? No need to know holdings, just a simple yes or know. But they insinuate that it's a shady deal to have done with their custodian - but the fact is they don't work for the custodial unit, didn't have anything to do with custody activities, and simply continued to the same settlement/booking/accounting functions they did before the sale. That transaction literally has nothing to do with anything in the article as proof of fraud other than bringing up something that wouldn't be well understood by those outside of the industry to plant a seed of doubt. It's no different than if Bwater had approached BNY and simply outsourced the back office functionality like other firms have. No one insinuates PIMCO is a fraud simply because State Street acts as it's fund custodian AND its back-office... As far as the recordings, it used to go both ways. It changed after a hit piece had come out a year or two back where some disgruntled employees had shared some details of those meetings without the context being established (IIRC, it was about the rift with Greg Jensen). Recordings were accessible to all while I was there. Even when the recordings went both ways, people would drag the company through the dirt for the practice, so I don't really buy that most people's criticism is a product of the changed policy. Realistically, why is it such a big deal to record all meetings? Most banks I worked with record all phone calls and nobody cares. The tapes are a resource that can be referenced for anything - A record of what was said in the meeting while you were out sick, who asked that question you were supposed to follow up on, what was said in your performance review last quarter, the terms of any verbal agreements that had been made, etc. It also acts as a catalogue for any of the employees who cry wrongful termination when Bridgewater can pull tapes from their last 3 check-ins where they were told they were underperforming with the evidence of how that was being determined. In a city where asset managers have difficulty getting rid of bad employees, and where recruiting is so expensive, this actually makes A LOT of sense. Bridgewater does some wacky things - the tapes aren't really one of them, but it is the one everyone gets caught up on. It's not odd to me that only a few funds have Prime Brokers - when 90% of your trade volume is in derivative contracts, futures/forwards, and currenices - what do you need a prime broker for? They have an equity fund or two - those are the funds that have a prime broker. Bridgewater isn't known for being an equity stock picker. They're a macro house. That is likely why those funds remain incredibly small and are largely employee money. Again, why is this strange? I would've thought that even modest research would point to Bridgewater relying heavily on futures/forwards/currencies and derivatives. How else do they put $160B to work? Ray and a handful of people are on the research team. The research team are the ones who look at the data and determine the broad exposures they want (yes to Chinese banks, no to Italian ones. etc.). From there, it's up to another team to determine the best way to adopt those exposures for each portfolio being managed - do we buy Chinese bank equities and short Italian equities? Do we buy Chinese bank capital and purchase Italian Bank CDS? Each decision is made based on the economic exposure, how closely it has tracked the thesis historically, if that exposure fits the fund/portfolio's guidelines, etc. From there, it goes to the traders who determine the lowest cost execution (lowest $ cost, lowest information leakage, etc.). To characterize this as only a few people making the investment decidions overlooks nearly the entire front office of the company who is involved with the process. Do we really believe that 1000+ employees just sit around all day doing nothing while Ray and 10 others run the whole place? Lastly, I was in the Ops department during my time there. Ive seen the transactions, holdings, and settlements of many funds and product types during my tenor there. They were real enough to all of our counterparties... Like I said, the only thing I see in that article that is in anyway alarming is the load to the auditor. I don't know anything about it and it certainly seems strange - but given how mischaracterized everything else was, I don't really trust that they did their research there either.

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tsla-tesla-motors/msg311666/#msg311666 I get that it's mostly "growth" CapEx and that they're pushing the industry forward. I don't see how investors benefit from that. Model 3 is sexy - they sell a ton of them and business continues to generate massive losses. They issue more shares and more debt. Build a model S - it's sexy and sell, but they continue to generate massive losses. More shares and more debt. They start developing model X and build a battery factory. It's sexy and sells - they still generate massive losses and buy a semi-related business that's also hemorraghing cash (growth CapEx???). More shares and more debt. I'm not saying that Elon Musk is a failure or that Tesla builds bad cars or whatever. I'm saying they live by the grace of the capital markets and capital markets are fickle things. This month they love Tesla - next month they may hate it. Tesla isn't like Amazon where they can just shut off the spicket of CapEx spending and start minting billions. They shut off the spicket of capital spending and then their sales disappear and all prior revenues were already it on fire so they have nothing left to show for it except a name and an empty factory. Is there value to that brand? Yes. Is it more valuable than all the collections of brands, cash, and assets of other sustainable car manufacturers? I highly doubt it. Maybe they succeed and evolve into a sustainable business model with staying power. Right now - they aren't. It's that simple. They've "generated" enormous wealth for those who are ok with a massively levered company who is swinging for the fences. If they hit a home run - everyone is rich. If they fall short - everyone is broke. There won't be an in between with Tesla.

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too. All of the Musk companies seem like a giant circle jerk - they're buying one another, being the largest investor in the bonds of one another, propping up one another, etc. all while each loses money. These things are only floated at the goodwill of shareholders/debt holders who don't seem to care that the companies, in their current form, or totally unsustainable. If the whole things works, they'll likely end up as powerhouses within their respective industries. If even a singel thing goes wrong at one, it's possible that it brings all 3 down. Yeah, Whose lending Tesla $2 billion during a recession? If credit creation slightly slips its a dead man walking. I think the question is probably, who is buying Tesla in a recession? Could easily see one of the big tech firms buying Tesla if Elon gets desperate and can no longer fund operations. I dunno - maybe? But then Elon would have to go. Not a frequent success story when founders/CEOs stay on as something other than founder/CEO - especially a personality as strong as Elon. Tesla was saved once by a investment from Mercedes. I think it's more likely one of the big auto companies would save Tesla at that point - but at what price? Tesla's valuation would likely have to drop precipitously to where it was more closely aligned with current multiples of other major manufacturers before they'd make a bid.

This seems the most likely to me. They build great products, but haven't yet figured out how to sell them for more than it costs them to make them. They burned $1+ billion prior to the acquisition of Solar City and that was burning $1+ billion too. All of the Musk companies seem like a giant circle jerk - they're buying one another, being the largest investor in the bonds of one another, propping up one another, etc. all while each loses money. These things are only floated at the goodwill of shareholders/debt holders who don't seem to care that the companies, in their current form, or totally unsustainable. If the whole things works, they'll likely end up as powerhouses within their respective industries. If even a singel thing goes wrong at one, it's possible that it brings all 3 down.

Here's an excerpt of Grant's article about Bridgewater.http://www.zerohedge.com/news/2017-10-11/bridgewater-fraud-here-are-troubling-questions-posed-jim-grant I wonder about the details of the loans to KPMG - that's interesting and potentially troubling. As far the 91 employess at BNY, eh...it's slightly mischaracterized here as being shady. Bridgewater decided to outsource all of its back-office functionality several years back. Instead of firing all of the employees and simply moving to a back office provider (like BNY or State Street), they signed a deal with BNY where BNY would acquire that department and collect a fee for providing the back office services using those employees (and more as necessary). Since then, a number of those workers have left due to natural atrophy over the 6-year period since the transition began which is why the number here is less than the number initially transferred. I would stress that none of these workers worked for the custodial side of BNY at the time. Nor did any of the work for the administrator side at the time. This may have changed since my time there as workers naturally move within the firm, but they were all in a separate unit that existed only to provide Bridgewater with back office support. This is no different than if Bridgewater had gone to BNY (or any other custodial bank that offers the service, like State Street) directly for the outsourcing except that it retained talented Bridgewater employees (WAY better than typical middle/back office staff - trust me!) for the company's benefit as well as taking care of the 100+ back office workers, many of whom had been at the firm for years. I'm less versed on the regulatory stuff - but as someone who has previously been involved with regulatory reporting, I can say there is a ton of ambiguity surrounding how to account for things like derivatives (net or gross exposures) as well as things as simple as long/short positions. Managers make a best efforts report to the SEC and then answer any clarifying questions the SEC has so it's not entirely surprising to me they can't tie out the AUM from regulatory reports. I'm less versed on ownership structures, so the % ownership issues it brings are up in the air - but I'm not convinced that the person who did the digging knew what they were talking about since they missed so badly on the characterization of the employee transfer and the regulatory reporting :/

https://blog.pimco.com/en/2017/10/will-fannie-and-freddie-draw-from-the-treasury-much-ado-about-nothing

As someone who spent roughly 3.5 years there, I can say the system works and it was incredibly refreshing versus my other corporate experiences. It's a true meritocracy and you learn/grow very quickly because there is very little politics to the whole game. You do something well - you hear about it. You do something poorly - you hear about it. And you have the opportunity to provide the same feedback to the entirety of your team (including superiors). There's no backhanded compliments, interpreting cryptic and ambiguous feedback, wondering what someone really meant, if you're really performing up to expectations or not, etc. etc. etc. You know - because you talk about it regularly. I'd say the feedback mechanims (both upwards and downwards) at Bridgewater is on equal par in importance as the actual job role. Some people love it. Some people hate it. You find that all of the employees have been there like 7+ years or less than 2. Very few in between because they wash out or stay for life.

That would be a shame if it is, just when his short would have worked out. I recall Tilson actually writing a great piece on exactly this. Quite humble It was maybe late 2015 into mid 2016 where he acknowledged no longer being able to take it and covering almost all of his short book in November, only to see 90% of them declined by something crazy (like 60% on average) over the next 6 months. Seems like he got whipsawed quite a bit? Was short Netflix back in 2010/2011ish. Realized a good losses on the way up and flipped at the top when he suddenly went long - right before it dropped by ~75%. Maybe he just doesn't have the right personality for being a contrarian? Or maybe should've focused a bit more on risk management so he could stay in his positions? As someone else mentioned, it seemed many of his ideas were derived by others. Maybe that's why he didn't have the conviction to stay with them? He did always seem like a nice and sociable guy, but I never really had any reason to have much respect for him as a "super" investor that he seemed to gain a reputation as within value circles.

The % deductibles were widely adopted after Katrina nearly bankrupted the entire industry selling insurance on the coast. Basically, up to that point, the insurance industry was MASSIVELY underreserved for hurricanes because they hadn't updated their models to account for 1) more people moving to coastal regions and 2) property prices being far elevated relative to inland property. Basically, when you know that there is gonna be a direct hit from a cat 5 hurricane every ~30 years that will wipe out a good chunk of a potentially large city with premium real estate, you need to do something about it to make sure you have it covered. Two ways to do that are to raise premiums or let homeowners be responsible for a good chunk of first loss exposure. The insurance industry chose both. Sure it sucks from a consumer perspective to pay higher prices and still be on the hook for losses - but it was also the consumer's choice spend a small fortune on house in a region predisposed for massively destructive natural disasters and they knew that when they bought the coverage.