TwoCitiesCapital

Grantham writes: Maybe he means that he made up his losses in the book of business. Since performance-wise, his sale was not great. If you look at SP500 (I'm eyeballing SPY prices), if he sold at the top of 1997, he sold at ~$97. If he rebought at the very bottom of 2002, he rebought at best at $82. I'd guess that he did not sell at $97 and he did not buy back at $82. So in essence, let's say he really called the dot com bubble. He still avoided at best ~15% drawdown to the bottom... (There's some divvies missing and perhaps he reinvested in bonds that did better than 0% cash). Not a great result if you ask me. Sure, maybe selling now is not like selling in 1997. Maybe it is like selling in late 1999. Maybe. But there's a lot of folks here who have been telling to sell since 2011 or 2014 or 2016 or 2018. Will the real top of the bubble please stand up? Yeah, maybe FAANMGs (which are a large chunk of the market) are ~20-30% overvalued (I'd argue that some of them are close to fairly valued). Yeah, if there's a crash they could overshoot down more than 20-30%. Yeah, good luck timing all that. I think you ingore the alternatives here though. He didn't sell and go to cash right? He sold and went to t-bills. So it's not that he avoided -15%, it's that he made a few % each year over the 5-year time frame his benchmark was -15%. That's a pretty big deal and the type of outperformance people pay hedge funds 2 and 20 to achieve.

I bought more Fairfax today. Already been accumulating it due to its cheapness and the low bar, but also b/c it's made nearly $2B on BB in the last month and the market hasn't moved FFH's shares at all. I know its ephemeral if Prem doesn't capitalize on the rise, but if he does... Risk is limited because FFH shares haven't risen with BB at all so I wouldn't expect them to fall with it either if it blows up and Prem doesn't capitalize. Looking for an easy 10-30% here.

I imagine you can do TRS on just about anything if you're willing to pay the spread to LIBOR. And the bank just needs to be long the stock. Seems like there are plenty of shares/options available for them to do that with. Between open market purchases, options availability, and others entering the market to short the shares at these levels - should be easy for the intermediary to get long the stock to hedge the TRS.

They're up $1.6B on the Blackberry position YTD, on a $10B market cap, and their stock price hasn't moved more than +5% over the same time. Seems to me buying Fairfax is the safest and easiest way to play BB. 1) If Prem doesn't hedge and it keeps running - you get more exposure to the upside without the upside increase in risk b/c the price of FFH isn't increasing. 2) If Prem successfully hedges it - you've locked in that 16% gain and the market will EVENTUALLY reflect that. 3) If Prem doesn't hedge and it crashes - well, Fairfax never ran up with it to begin with so you're risk is limited. Heads you win. Tails you don't lose. You're not going to 1-2x your money on FFH from this so way less sexy than BB outright, but there is very limited risk for any easy 10-30%. The question becomes....how will shareholders feel about Prem if he does not capitalize on this parabolic move up in Blackberry? What will you do if the Blackberry price retreats and we find out that Fairfax did not lock in any of the gains? As SJ correctly points out....a $1 billion unrealized gain on the convertible debs alone? Only of value to us if Prem acts to lock in those gains. Would you be okay if he does not act? If he lets this opportunity pass us by? I don't expect them to monetise. Sharp moves like this don't usually offer big shareholders the chance to liquidate. I bet there's a market if they wanted to sell some OTM covered calls to partially hedge - but really what I expect is for them to enter into a TRS with a bank as they've done on many other single name positions to short before.

Appears to be a private issue. I have looked around for a prospectus but unable to find one. There were a few details of the convertible feature in the news and PR but that’s about it. Regardless of to your thoughts on BTC, hard to deny its clever move by the CEO to exploit this unfulfilled demand in the market. Very clever. Still shocked that the board allowed it since it's unrelated to the underlying business of the co, but very creative and clever for sure and is currently paying off in spades.

Agreed that it is confusing. I don't think our recent experience fits the bill for typical cycles. Typical cycles end in a recession and the recession ends the bear market. But we didn't have a bear market - we had a one month pull back that didn't even break through the long-term trend support despite it's ferocity. And while we had/have a recession, none of the pain/malinvestments were worked out of the system because the pain was met with a wall of trillions of dollars - so everything is ok again and malinvestments are continuing to be made today a la Gamestop. Just the way it was. I tend to view this as a continuation of the prior cycles/expansion. Another wall of money coming soon and the monthly savings refinancing and being couped up could certainly keep this going. But I have a hard time envisioning the stock market keeps up even if the economy does. That being said, I've been sounding the alarm in relative valuations since 2013/2014 and on absolute valuations since 2016-ish (before tax cuts supported the valuation) so take whatever I say with a massive grain of salt. My brother, who has never worked in finance, wants to get a job in finance based off the performance of his day trading portfolio this year. I have an uncle buying penny stocks on the hopes that they 100x and make him rich. His head is in right spot about where he's looking and has the correct timeframe in mind (years - not days/weeks/months), but he's never had an interest in stocks before and is looking to strike gold. We see investors bidding up Hertz in bankruptcy. Gamestop going from $4 to $65 on speculation of a short squeeze and leveraged option buyers. Blackberry tripling over the course of a month on nothing other speculation. Tons of speculation in Tesla - an auto company that has 10x'd from already elevated valuations whose only profits have come from aggressive accounting of future emissions credits. SPACs trading at massive premiums on nothing other than hope of future acquisitions that build value instead instead of destroying it. Credit spreads and HY spreads are tighter than they were pre-covid despite massive destruction to corporate balance sheets and income statements and significantly rising leverage ratios. Apple now trades at $136/share despite the fact that its peak earnings were 2 years ago when it's shares traded for $54/share at the peak of that year. This is NOT beginning of the cycle/fearing the bear market that leads to healthy long-term returns. This is NOT the clearing the board of malinvestment with whatever is left being robust businesses. This is NOT what healthy bull markets are built on. So I don't think this is the beginning of a new bull market.

I hope he's right. Things are getting crazy. Not just Hertz in bankruptcy anymore. It's everywhere you look.

I've wondered about this myself because it's attractive from two perspectives. 1) Deflation and or recession rears its head and you'll get a blowout in corporate/Hy spreads again. 2) Inflation rears its head and you'll get a blowout in rates. While corporates and HY have lower duration than treasuries, let's not pretend a 5-6% HY bond or a 3% corporate will be ok if treasuries launch 2.50 - 3.0%. Plus, duration for both indices is basically the highest it's ever been. Really the only scenario you lose in is the middle ground - long drawn out changes that are slow. Not outright inflation or deflation, but more disinflation. Definitely a potential, but I think it's less and less likely as monetary/fiscal policy and economic fragility are both at extremes.

Yes. Yes it would.

+1

I thought the plan for Helios was that partnering with Fairfax will give them more cred in the global market and help them with fund raising at their end . This is just asking Fairfax for money right after the close. and why is Fairfax bothered with Helios' second best ideas ( the first will go to the helios' fund I presume ) . Fairfax can get better exposure by investing directly in Fund 4 of Helios. And Fairfax has to underwrite the ' reference investments' ? why is that... what a mess... I, too, am a little confused. It seems Fairfax has underwritten an at the money put option in exchange for $3 million in annual premium and at-the-money warrants. Seems like this just leverages the exposure they currently have to FAH. If it goes well, they stand to make tens of millions. If it doesn't go well, they stand to lose tens of millions. All around though - not terribly concerning. The $3 million in annual premiums means that the fund has to have a -9% return over the next 3-years before Fairfax is out any cash. That is certainly possible - maybe even likely - but seems to be giving Fairfax cheap exposure to the upside via the warrants and the downside is finite ($91 million), at a distance (-9% away minimum), and in the future (3 years before Fairfax has to pay the claims). Seems like a decent way to leverage the exposure, but I'm not certain as to how portfolio insurance typically works or is priced to know how this compares to arms-length transactions.

The following is anecdotal, so of limited value. i've recently peripherally participated in online discussion pockets (university 'friends' of my children) related to investments (the students sound bright in general but are not studying and have limited fundamental knowledge about investments). The last discussion centered on how 'cheap' stocks tended to do well and the discussion helped surface the real definition of a cheap stock: a cheap stock. And there's even recent evidence to show for it (!): Our job is to fundamentally discount future cash flows. How does one reflexively discount marginal participation? Agreed. Have had this conversation with a family member recently who targets shares under $10 because they're "cheaper" than others. Doesn't even matter that fractional trading has made this fundamental limitation non-existent, the preference and misunderstanding persists. I don't know how to reflexively take advantage of this - these things rally until they bust and several have already busted (HTZ, NKLA, etc). I think it's just something to realize could be happening which will leave pockets of cheapness in higher priced issues. Though, funnily enough, none of this seems to apply to the traditional basked of higher-priced securities like AMZN, GOOGL, TSLA, etc.

I disagree that the NWS has been ended. I know, even Calabria has claimed that. But as long as the Sr Pfd balance increases right along with retained earnings, the GSEs are only building fictional capital. The NWS is not really ended as long as this continues. One thing that has been lost along the way is what exactly is meant by "capital". I'm seeing similar problems in my discussion with Tim Howard on his blog. I can see five different ways to define capital: [*]Total stockholder equity on the balance sheet [*]Amount of liquidation preference owed to shareholders upon liquidation [*]Core capital: stockholder equity minus cumulative prefs and AOCI [*]Tier 1 capital: core capital minus DTAs [*]CET1 capital: Tier 1 capital minus non-cumulative prefs When you say that only "fictional" capital is being built, that tells me you are using #2 as your definition, or perhaps something not on the list. All other entries on the list will go up with FnF's retained earnings because they are balance sheet calculations: the earnings go on there but the senior pref liquidation preference increases don't. The key is that core capital is defined under HERA, and FnF's post-release capital classifications are defined by HERA. Thus increasing core capital, which retained earnings now do, is important even if the senior pref liquidation preference increases along with it. This is real capital being built in the eyes of the law. The letter agreement might have been thin gruel, but it wasn't a complete nothingburger. The date at which the true NWS would have turned back on has been pushed from around now to 2044 or so. While not being nearly enough to accomplish recap and release, it's a significant step. +1 I think the angst around the "not getting rid of the NWS sweep" is due to shareholders' positioning and situation not improving much. We went from subsidizing 100% of the sweeps to the Treasury with nothing left over for us to subsidizing capital retention and a 10% divvy with nothing left over for us. And the longer that continues, without an equity offering, the less will be left over for us in the future even with profit growth and etc. As of this point in time, a massive equity offering I the near term is the only way to capitalize the companies to prevent the 10% divvy/liquidation preference from absorbing 100% of the economic profit of the entities. This means that there needs to be a settlement of the legal rulings or a fairly quick judgment. Hard to know if it will be positive for us - a quick settlement might be on unfavorable terms as the Treasury is essentially getting paid to wait (via increased preference and compounding divvy) while we're paying to wait, but this does likely mean we're not going to be struggling with this for another 3 years without progress. I think we're going to have events in the near term that prove this a dud or a reward for our patience.

The big boys got the cash; but even the big boys wont waste capital on something that is not something, which what Blackberry was few years ago. Big Techs are not in the business of private equity, where they would buy company and surgically remove what they really like and sell off the pieces. They need to have jewel already polished and in a presentable form, and then ,,, they will pay top dollar and open their checkbooks. That is what John is doing. FFH started as a value investor in BB, but as the initial bet went off, it confused itself/role with that of a passive private equity. If you were to read Watsa' comment about BB back in 2013 in his letter, you will see how irrelevant those comments are today vis a vis what BB looks like today and where it is going. If you were to read Buffet's comment on Apple in late 2016 when he started to swing his bat at Apple in slow motion, you will see his comments are valid 4 years later and in fact have aged well. So definitely the initial thesis was off for BB and Watsa was wrong as he has freely admitted. But that "wrong" is now sunked, and now that you are in the cusp of really getting traction on that investment on the business front, and i am not talking about the short-term non-sticky YOLO, it is not time to exit BB in the way they exited Overstock. Or for that matter when they sold Johnson & Johnson and other holdings higher on the quality ladder. They seem to leave a lot of money on the table. Sure, they can use derivative intelligently as previous posts to lock in some gains. For BB only, I (the short complainer) authorize the intelligent use of shorts to offset a partial downdraft from here. As for position sizing, although myself, I complain about position sizing when it comes to FFH and its market timing (i.e. Stelco), I also admit what i like about FFH is the concentration in its common equity bets. BTW i believe we are still far from the breakeven price for FFH on the commons. I believe it is $17 USD. +1 Generally agree that selling to a party that has some synergies is the best exit strategy at the best price. I certainly hope FFH is able to do so, but if they're not currently entertaining those discussions, it could be worthwhile to consider the current rally as an encouraging environment in which to trim the position in - subject to regulatory approvals and etc. There has been multiple discussions on FFH's average price on BB. I believe all of those discussions end up with a breakeven cost of ~$10 for Fairfax's common equity. This is largely the result of doubling/tripling the position back in 2011/2012 time frame when BB was ~$6-7/share. I believe there is an interview with Prem floating around somewhere from around that time that also confirmed the $10/share breakeven.

Would love to see them list 49% if they could get the same types of prices described as above. Not to cash out or support Fairfax business TBH, but to rapidly grow and take market share in the Indian markets.

Wouldn't that mean ALL amendments were unconstitutional and be a big win for us? I might not be a lawyer, but it seems odd to pick and choose which amendments would be considered invalid at that point in time.

I don't buy that they couldn't. Mnuchin just did some stuff proving he could do stuff - He just didn't do the stuff WE wanted. We can all guess to the reasons why. Maybe it was more important to him to incentivize quick action on the release to avoid Demz screwing it up than it was to ensure rule of law and shareholders' claims were upheld? I don't pretend to know. It's amazing that we're here though - the case seemed so obvious to me even before I invested. It was clear to me there was a wrong that needed to be rectified, and would be, because this is AMERICA and that was my thesis back in 2012. It's amazing to me after 8-9 years, we've made very little progress on that front and have had multiple cases go against us... No idea yet on what I'm going to do. Would love to think I could 7x my money from here in preferred going to par in the next 2 years, but I've been telling myself "it'll be the next 2 years" for the last 8 years. At some point, I just need to throw in the towel. Patience hasn't been a virtue here.

No. In the worst case, people like us get hung to appease the masses :/

So, Sr. preferred remain in place, but payments are suspended until GSEs retain capital upto previously stated levels. Every dollar of retained earnings increases liquidation preference, and there is still no mechanism to reduce it, and NWS payments have been amended to the lesser of increase in book value or 10% of liquidation preference. New capital can only be raised once lawsuits are ruled on or settled. Let me see if I can read in between the lines: Common shares are screwed. Retained earnings are financed @ 10%, non-compounded, because they add to liquidation preference which gets priority payment after recap. Only other way to recap more cheaply is to offer shares quickly. Shares can only be offered quickly if there is a settlement. So, 1) Common gets screwed by dilution of Treasury's 80% AND new offerings coming in the near term with less emphasis on retained earnings And 2) we can expect those new offerings soon as companies and govt now have incentive to settle this quickly (companies to avoid 10% financing of retained earnings for liquidation preference that can never be reduced and govt to unlock the value of its 80% stake to fund new stimulus packages). Does that seem right to everyone else?

I think we'll have to wait and see how it plays out. My limited experience with those I know who took advantage of the moratorium on payments used the additional flexibility to pay down credit card balances and other high-interest forms of financing. While this sucks for the landlords, it does ultimately make the consumers more robust (and lowers monthly servicing payments for those items) and increased their ability to make good on payments, and a payment plan for missed payments, going forward. This is all assuming that they didn't just then blow this benefit by purchasing iPad pros for everyone in the family for Christmas using the credit card again. It seems like this is much what 2008/2009 was - deleveraging of the consumers and businesses at the expense of leveraging at the gov't level which means significantly lower costs of carry. All in all, it should be a net benefit to society that the debt is now financed at 1% instead of 4-15%, but debt is debt and will have to be addressed at some point. In the near term though, I'm not terribly concerned. While there will definitely be a number of examples where consumers are unable to make good on the payments, I imagine at the high level it will all be alright.

Ok, wow... I did some searching and found this. Absolutely bizarre. Don't click the link if you're epileptic. ;D There's more, this is just the first one I clicked... Holy Christ. I am absolutely gobsmacked to see a thread like that. Will FFH's BB investment be rescued by the sudden appearance of a collection of "greater fools?" I guess if you have a choice between being good or being lucky, you'd be well advised to choose the latter... SJ I have no words. I feel like I need a shower after reading this thread. It's like a cesspool of Red Bull, Adderall, and Dorito's dust mixed together, topped off with teenage sweat and hormones. Mind blown. It's beautiful, isn't it? ;D

Well, FFH received a valuable OTM option with the roll, but we'll see a reduction of US$10m per year of interest income. If BB actually does turn the corner, that option could become quite valuable. The fact that BB needed to have the coupon reduced is a bit of a concern, because it really does call into question their ability to write a US$535m cheque in November 2023. I can't say that I am particularly surprised by this outcome, but I had hoped for somewhat more favourable terms. SJ Beginning to look like sacrificing the $10M per year in income to restrike the options was worthwhile now that they're sitting on $250M in paper gains on the options ;D

If true, it is a short-term negative due to the elimination of artificial demand; however, it doesn't really change the valuation models that predict valuations for BTC. Will just remove some of the upside volatility/overshoots of those targets.

Picked up more today at 19.5% of par. Can't decide if this is me being stubborn and throwing good money after bad or a very timely and tactical addition to what is going to be a multibagger. Time will tell.

I typically have better luck searching google and using the logic limit the search just to this website. Maybe that will help?