TwoCitiesCapital

Retire in Mississippi and, with the money you save on rent, you can travel to Manhattan once a month for an extended weekend and still save on your taxes! Disclosure: I've lived in both.

Yes...as are Jim Carrey, Ryan Reynolds, Michael Buble, Dan Akroyd, Eugene Levy and unfortunately Nickelback! Cheers! Don't forget Avril Lavigne!

As a percentage of total investable assets AFTER the recent run up: FNMAJ: 6.25% in a ROTH IRA FNMA: 2.75% in a taxable account I'm really tempted to lighten up now that they've become such large positions so quickly, but would nearly kill myself if the preferred did go near par after I've been waiting for so long. Think I'm going to hold off for the next 3 months and wait and see what progress is made.

FNMA or FNMAS? Which one will survive the restructured and benefit most? No one can answer that, but it seems like most of the board leans towards the preferred. Many of us maintain exposure to both for the optionality on the common though.

I added after Trump's win, but not adding today. Already had a full position before and just content to let it ride - but yes, I do believe today's appointment increases the likelihood of positive developments for shareholders.

Bit off-topic: but lol, healthcare costs in the USA... that's just ridiculous. It's highway robbery. My oldest had a upper endoscopy on his throat two years ago, the doctor charged $14,000 for the 15 minute procedure. One thousand a minute to put a tube with a camera in a throat. In the US you're expected to pay a premium of a few hundred to a thousand a month just for the privilege of having insurance then the first $x out of pocket before coverage kicks in. The $14k hit the deductible and we paid $4k out of pocket for it. We need a sane system here, this is anything but sane. I like paying out of pocket and knowing prices, but doctors need to know what they're charging as well. I'm sure there are a number of doctors on the board here. My guess is 90% have no idea what a patient is paying for a given procedure. You can negotiate those prices down just like the insurance companies do. You won't get AS good of a deal, but with a little pressure, many offices will concede. I only know because my mom didn't have health insurance when she had my older brother. I think she ended up paying about 30% of what the hospital billed her and the hospital was just like "that's cool." But yea - healthcosts in the U.S. are insane. Too much bloat and inefficiency, a focus on specialization and a lack of generalists, paranoia on being sued over malpractice leading to unnecessary procedures/tests, an inability to deny service to those who don't pay meaning those who do subsidize the cost, limits on re-importing prescription drugs and a push for name brands over generics, and consumers not really knowing the true cost b/c it's paid by insurance which is paid for by their employers. All contribute to insanely high costs and I'm sure there are several others I'm missing. All in all, health care is a disaster of an industry from an economic point of view. My preference would be for everyone to have high deductible, catastrophic insurance coverage that is accepted everywhere with an HSA so we could get some consumer-led cost discipline instituted, but I'd be ok with a single payer system too as long as there was transparency into how much it was costing tax payers. Either would be better than this hybrid system we now have where it's just layers and layers of fat in the middle and a massive separation of the consumer from the cost of the service.

It says that he's not Munger. Not too crazy about this pick either. But why should we be surprised with Bannon and Petreaus also having been selected?

I'd be ok with that as long as there was legislation cutting a lot of the tax rebates allowed to lower/middle class individuals so that this doesn't discriminate against the 40% of the population that pays next to nothing in federal income tax. (Yes, I know - that's only Federal income tax, but I don't really count payroll taxes as those are "fees" for services that will be used by most within that populace). Yes. It is. But that is what we have, that is what a democracy inevitably ends up as, and it will end when it can go on no longer. Realistically, the president SHOULDN'T be all that influential - the gov't operates in three branches and the executive branch was intended to be just the branch that enforces the laws and control the military. It was never intended to be a position where you can use your pen and phone to backdoor legislate when Congress doesn't do what you want, or for you to have the ability to involve yourself in international trade deals impacting private companies, or for you to bomb/invade countries Congress hasn't declared war on. The first step to limiting the damage of an ignorant populace voting for presidency would be to go back to limiting the presidency and allowing the checks and balances to prevent most of the damage of trigger happy presidents and the ignorant populace who puts them there. Yes. But the only thing this really accomplishes is increasing voter turnout for those that are even lazier than most now, right? You'll never get this passed. Voter disenfranchisement by laziness, intelligence, or by demographic (since poor people are less likely to have the flexibility to take off work to go vote, let alone take a 2 hour test), is not a way to really makes you appealing to said voters. Do you have any proposed solutions? Or is the system fine in your eyes? You make valid points and I'm not negating them - I'm curious to see if you have any alternative views other than limiting the power of the executive branch. Surely senators and house reps being voted simply due to D/R, male/female, black/white designation is a problem which warrants consideration? I sort of proposed one already. Delegate more to states and Congress and less to president so if an idiot gets elected, it's not the end of the free world. Let the checks and balances actually check and balance? I haven't come up with a perfect solution for presidential voting yet - I don't like the idea of a popular (mob rule) vote OR the electoral college. I've thought about letting the Senate pick the president since we pick the Senate. The Senate would have a maximum of 2 terms. I imagine there are also downfalls with that system as well.

That's the difference between 2 times margin and 10 times margin. At 2 times margin, the bank owns you. At 10 times margin you own the bank!!! Which is why we lever at 2 and not 10. Nobody wants to own a bank in this age...

Yea - most people are going to move to cheaper cost district just so they can retire with fewer dollars. Hell, outside of moving to Florida there's not many people who consider moving states, let alone countries, for retirement. I agree. It's important not to settle for what is reasonable and practical; we should strive to live the lifestyle we dream of because some moderate pressure is good for us as a species. That's how I operate, but it's not how 90% of this country operates. It never has been. It never will be. It's a pipe dream to expect people to be responsible for themselves and do whatever is necessary to survive. However you slice it, the "have nots" outweight the "haves" and will demand at least a modicum of comfort for their lifestyle, at others expense if necessary, because they know they outnumber the "haves". While I agree with you, and it's how I live my life, I also recognize that no one else in this country will ever be expected to do that.

I'd be ok with that as long as there was legislation cutting a lot of the tax rebates allowed to lower/middle class individuals so that this doesn't discriminate against the 40% of the population that pays next to nothing in federal income tax. (Yes, I know - that's only Federal income tax, but I don't really count payroll taxes as those are "fees" for services that will be used by most within that populace). Yes. It is. But that is what we have, that is what a democracy inevitably ends up as, and it will end when it can go on no longer. Realistically, the president SHOULDN'T be all that influential - the gov't operates in three branches and the executive branch was intended to be just the branch that enforces the laws and control the military. It was never intended to be a position where you can use your pen and phone to backdoor legislate when Congress doesn't do what you want, or for you to have the ability to involve yourself in international trade deals impacting private companies, or for you to bomb/invade countries Congress hasn't declared war on. The first step to limiting the damage of an ignorant populace voting for presidency would be to go back to limiting the presidency and allowing the checks and balances to prevent most of the damage of trigger happy presidents and the ignorant populace who puts them there. Yes. But the only thing this really accomplishes is increasing voter turnout for those that are even lazier than most now, right? You'll never get this passed. Voter disenfranchisement by laziness, intelligence, or by demographic (since poor people are less likely to have the flexibility to take off work to go vote, let alone take a 2 hour test), is not a way to really makes you appealing to said voters.

Yea - most people aren't going to move to cheaper cost district just so they can retire with fewer dollars. Hell, outside of moving to Florida there's not many people who consider moving states, let alone countries, for retirement.

I've generally moved to buying/selling in waves to avoid this as I'm inevitably too early with either in most of my decisions. Two strategies that I've employed to help prevent this is: 1) Buy/Sell in fractions - if a position moves up strongly and I'm starting to think it's reaching fair value, sell a portion. I typically sell the first portion in some increment between 10-30% of the entire position depending on how close it is to my estimate of fair value, how far the fundamentals have improved relative to the price, and how comfortable I am holding it. I typically demand another 10% price gap before allowing myself to sell another portion. 2) Covered Calls - if a stock price moves dramatically towards you price target (say on earnings results), I'll often sell covered calls against a portion of the position with strike prices 10-15% above the current price AFTER the initial rally. This forces you to hold on a little longer than you may traditionally hold allowing further exposure to the upside and allowing for premium income to decrease some of the downside.

It's funny - Donald Trump gets elected president, rates rise to where they were at the beginning of 2016, and everybody is back on the "runaway" inflation argument even though nothing has really changed on that front. Donald Trump isn't printing trillions more dollars. Donald Trump isn't personally giving everyone in the U.S. a raise. Donald Trump hasn't weakened the dollar to the point where import costs are soaring. I know what rates and currencies have done. I've witnessed and watched it. I also know that global central banks have spent trillions over the last 5 years trying to generate inflation and have collectively failed so why do we think D.T.'s election portends a great impact that tens of trillions of dollars failed to achieve? The way I see it, there's three possibilities: 1) Donald Trump is a REAL game changer and we're going to see inflation that was not achievable under coordinated central bank action OR 2) We were on the cusp of inflation regardless because inflation is a monetary phenomenon OR 3) Nothing has really changed and the rates market will resume they're downward trend once markets figure this out D.T.'s spending package hasn't been approved, and if it is, is for $1T over 10 years. We've seen 10x that amount in global central bank action over the past 6 years with near 0 impact on inflation thus far. Further, the spending demographic shift of retiring boomers cutting back is still a drag on growth and inflation for the next 2-3 years, minimum, as is the lack of corporate investment over the past decade. Dollar strength is also disinflationary for all the goods we import (A LOT) as well as corporate profits. To the second point, banks are still sitting on tons and tons of excess reserves and most of the money the Fed has printed is not being circulated. Any money that is being circulated in financial markets is being pulled back as the Fed is hiking rates, long-end rates have risen to 2015 levels prior to the January/February panic, and the dollar is hitting 13 year highs. The velocity of money is still falling, real economic activity is still contracting, and the inflation we're seeing is off a low base AFTER oil prices hand tanked 40-50%. Of course we'd expect this figure to accelerate some once oil prices steadied/rebounded just because of the slow inflation in other things like rents. So that leaves us with the third option. As we've seen many times in the past (i.e. taper tantrum, the end of each Q.E. cycle, etc) the markets are over-reacting and likely to come back down. I would not be at all surprised if rates make new lows over the next 2-3 years and D.T. fails to prove the panacea that 10s of trillions of dollars in printed money couldn't achieve. Having massive amounts of debt is deflationary and every day the world has more of it than it did the day before. D.T.'s plans call for even more. Deflation is still the threat - especially in the event of a recession.

They had large short positions in commodity producers... including RIO, BHP, and others. Thank you...... I wasn't aware of that until I read the annual report again. :-[ I wonder why the CPI index wasn't dropping while the commodity prices collapsed. Does this also include housing prices? That seems to be the only living cost that's jumped by a lot in the past few years. We experienced disinflation because of the commodities, but housing makes up a MASSIVE portion of the index. Something like 25-30%. It basically impossible to get sustained deflation in the CPI unless if it also hits housing and rents.

The article said 4-5 times for equity group. I believe LTCM's leverage was in 20s. Thats 4-5 times for the capital, but the capital is invested in derivatives that have their own leverage, right? Like a derivative Inception? Lol - like using margin to purchase options. Leverage on Leverage.

Let's assume Fairfax invested that whole $1,100 into 30-year Treasuries as would likely be allowed by regulation. 30-year rates are now at 3%. That means Fairfax would earn over $30 per share just from Treasury coupons. Earnings/book value will be noisey with the duration and rates movements, but they'd earn it over the life of the bonds. They only have to hit $500M from insurance to make up the other $20 to hit the low end of my $50-100 target (they made $705M in 2015). So conservative insurance plus 3% gets you to $50-60. i.e. 7-8x earnings. Now, I doubt Fairfax invests the whole amount in 30-year Treasuries. I also doubt Fairfax sits on $10B in cash into perpetuity and I doubt they remain 50-100% hedged into perpetuity. So at some point I expect them to invest it in SOMETHING and to earn a higher return than 3% per annum doing it. A reasonable return target of just 5% with the same $500M-700M on insurance means now we're looking at $75-85 in earnings per share or 5-6x earnings. I'm sorry, I just don't buy the "it doesn't matter if it has to be invested in Treausries argument." The fact is, your shares are more than 2.5x levered to their investments and insurance earnings and that matters no matter what it's invested in.

Depends on how you feel about their purchases. I'm quite confident that they could get more than they paid for probably ALL of their insurance acquisitions in the last 5-6 years so I'm pretty comfortable NOT taking too much of a deduction for goodwill/intangibles. Also, as has been mentioned before, Fairfax has more market exposure/leverage than either Berkshire or Markel. Excluding investments in associates (which I count more as operating business and portfolio investments to be bought/sold), Fairfax has over $1,100 per share in investments per share. When equities were hedged, I looked at Fairfax as a leveraged bond fund. Now that equities are a bit unhedged and Fairfax has sold a good portion of it's bonds, the way i think about it is this. Each share represents roughly represents: $430 in bonds $430 in cash $180 in equities/preferred shares $45 in Fairfax India $35 in other investments PLUS their insurance operations. For $440 per share you get over $1,120 in market exposure PLUS the reasonably profitable insurance companies which have the capacity to do better once the insurance cycle turns. I for one like knowing that I'm getting $1,1120 in market exposure that where i'm getting PAID for the leverage via insurance companies. I wouldn't focus too much on tangible book value at these prices. Lookthrough to what the earnings power of $1,120 in investments plus insurance has the potential to be and then realize that it's a reasonably good return on the $440 price. It's a pretty low bar for Fairfax to hit $50-$100 per share in earnings once that $10B in cash is deployed in assets even if they are returns as low as 2-3% a year.

Finally finished the rolling of FCAU into LEAPs...missed a little of the upside today, but since I'm nearly 2x levered on that exposure now, it wasn't so bad. Purchased more PDER and increased FRFHF by 10% with the cash. Increased FRFHF by 30% by selling a handful of non-significant positions in oil/gas. While the removal of hedges at what may likely be equity market tops is concerning to me, Fairfax has proved they can be nimble and those hedges and duration can come right back on in a day if the market turns. Without the hedges, the earnings power is greatly increased and they have the ability to put billions to work even if they don't re-hedge. Low 400s seems ridiculous.

Oh oh looks like my strategy is taking shape here word by word (notice the coopt) http://www.nytimes.com/2016/11/17/us/politics/democrats-house-senate.html?_r=0 " Senate Democrats’ Surprising Strategy: Trying to Align With Trump Congressional Democrats, divided and struggling for a path from the electoral wilderness, are constructing an agenda to align with many proposals of President-elect Donald J. Trump that put him at odds with his own party. Mr. Trump campaigned on some issues that Democrats have long championed and Republicans resisted: spending more on roads, bridges and rail, punishing American companies that move jobs overseas, ending a lucrative tax break for hedge fund and private equity titans, and making paid maternity leave mandatory.Some Democrats are even co-opting Mr. Trump’s language from the campaign. Every single person in our caucus agrees the system is rigged, said Senator Debbie Stabenow, Democrat of Michigan. Still, there will be areas of bright-line disagreement. Democrats are speaking out against Mr. Trump’s appointment of Stephen K. Bannon as his chief strategist, and will oppose his promised tax cuts for the wealthy and his vow to deport millions of illegal immigrants." If Dems can execute this perfectly ,we would have a single payer aka socialized medicine, free college,complete rejection of conservative ideology and the government bigger than the size of Trump's ego . And 2020 election will be fought on who is more populist than the other. Sounds like a recipe for failure though....

We weren't really given a choice... Your options were to vote for the career criminal who has enriched herself by selling political influence for favors/money OR vote for the bigot who had few clear policy stances and appears to lack the temperament for the position OR waste your vote on a third party candidate who is probably unqualified, but embodies the ideals you would like seen put in place. I voted 3rd party, but am not blind to the extremely low likelihood one would ever get elected. Was simply hoping for 5-10% of the popular vote to help influence future policy and encourage people to run in local races. Unfortunately, most of America thinks it's a waste of their time to try to support them since they aren't championed by either major party ( at least not collectively - each side champions some of the ideals of each 3rd party candidate). Since we appear to be ok with blatant career criminals and racist fear mongers as our presidential candidates, we will probably see more of them attempting to run for positions of political power.

Closed out ZROZ back in July since interest rates had hit record lows. Re-entering about 70% my original position now that we've seen a significant sell-off in rates and prices are below where I originally entered the trade at. This is a speculative bet/hedge. I closed all of my shorts and puts over concerns of Trump's lower corporate tax resulting in higher U.S. equity valuations. I am still concerned over the long-term value of equity markets and there's no guarantee his tax policies pass. This is a hedge that is less impacted by the equity markets prospects AND is significantly cheaper now that rates have risen a good bit from where I entered/exited in May/July.

Finally finished the rolling of FCAU into LEAPs...missed a little of the upside today, but since I'm nearly 2x levered on that exposure now, it wasn't so bad. Interesting, could ya elaborate what's the expiration day of those FCAU LEAPs. thanks! January 2018 w/ a strike of $3. Just did it to free up some cash to buy other things while maintaining/incrementally increasing share exposure to FCAU (increased by about 15%). End result is basically the same upside potential for FCAU with incremental exposure added to Fairfax, FNMAJ, and PDER for a leveraged, but more diversified, allocation. Keeps the upside, has the potential to cut my downside through diversification and floor on FCAU related losses, and the "cost" of the leverage was around 3.25%. Seemed like a reasonable bar to outperform given that PDER's dividend exceeds that, Fairfax's dividend gets you 2/3 of the way there, and FNMAJ was in the midst of a major rally (up 30-40% since I purchased). Since margin isn't available to me in my retirement accounts, seemed like a cheapish way to get leverage and immediate exposure for the immediate opportunities I saw in Fairfax, FNMAJ, and PDER.

For all of you who have been pounding the table and hating the hedges, this dramatically increases Fairfax's earnings capability which should be massively bullish - especially since it's down some 10% over the last 5 days. I don't personally like the move, but I have to say - I did the same thing. I removed all my short hedges yesterday. Not because I think the markets are in any less danger, but because I think Trump's cutting the corporate tax rate and repatriating billions to the U.S. at 10% could be the "blow off top" that supports equities at a higher level for the near term before we see the drop I've been anticipating. I didn't want to be short and managing the margin calls if the equity markets went higher by 10-15% so I closed everything out and am sitting on my hands watching now. Surprised to see this about-face turn in Prem though. It's easier for me to be tactical with the thousands that I trade. I'm blown away by how quickly they changed their minds on how a multi-billion portfolio was positioned. I guess it's a good thing they can still turn on a dime.

A 1% to 2% move is non-trivial. On a 30yr it translates to a -19% to -28% return due to its approx 19yr duration. The 30bps to 35bps move in US 10yr and 30yr in the past two days is a huuge move with much higher implications on actual returns. The other issue is for a P&C, the investment leverage is always >1 and in FFH's case, its around 3x, so the implications on ROE for FFH are even more dire due to this. Kudos for him to have had the sense to come out of them. I'm aware of how duration works - we've seen nowhere near a 1-2% move in rates. I thought the prior comment was referencing the notional value of the bonds since rates have only moved 20-30 bps. Which would have been about a 2% move on 10-year bonds in terms of gain/loss to Prem's portfolio. I agree on your point that this is a big move for 30-year Treasuries, but Prem's duration has generally trended around 10...so I don't think he owned $10B in 30 years to begin with. Who knows what he buys back into, but 20-30 bps doesn't strike me as the type of rate move that is going to drive him back into bonds unless if he immediately reverses his concern about rising rates under Trump and moves back to deflationary considerations.