Watsa's Wager on Equity Slump Sends Fairfax Financial to Record

[BargainValueHunter]

http://www.bloomberg.com/news/articles/2016-02-05/watsa-s-wager-on-equity-slump-sends-fairfax-financial-to-record

 

"Prem tends to take large, unconventional risks," Bloomberg Intelligence analyst Lindsay Dutch said in an e-mail. "Fairfax’s equity hedges hurt investment results in 2013, but have already begun to pay off amid market volatility and economic concerns."

 

Fairfax held $299 million in total return swap short positions tied to equity indexes as of Sept. 30, 2015, according to financial documents. In the first nine months of last year, the company gained $611 million on these and equity short bets, up from $108 million in the prior year period. In the last 12 months, every single major global index has declined except for Argentina’s, data compiled by Bloomberg show.

 

 

[TwoCitiesCapital]

http://www.bloomberg.com/news/articles/2016-02-05/watsa-s-wager-on-equity-slump-sends-fairfax-financial-to-record

 

"Prem tends to take large, unconventional risks," Bloomberg Intelligence analyst Lindsay Dutch said in an e-mail. "Fairfax’s equity hedges hurt investment results in 2013, but have already begun to pay off amid market volatility and economic concerns."

 

Fairfax held $299 million in total return swap short positions tied to equity indexes as of Sept. 30, 2015, according to financial documents. In the first nine months of last year, the company gained $611 million on these and equity short bets, up from $108 million in the prior year period. In the last 12 months, every single major global index has declined except for Argentina’s, data compiled by Bloomberg show.

 

That 299M is an understatement. It's closer to $4.3 billion in equity index swaps with another 1.7B in single name swaps. Now way he'd generate $600M in gains on a 300M position.

 

 

 

Glad to see he's getting some recognition though now that it appears 2016 may move very favorably in his direction after years of being "wrong."

 

Now way he generated $600M in gains off of 300M in swaps. Also, it depends on how well the deflation swaps and insurance do in Q1, but I'm beginning to think this may be a billion dollar quarter for him.

[jay21]

IDK how anyone can calculate his gains without considering the cost of carry. With swaps there's real CF outflows and not just MTM losses.

[watsa_is_a_randian_hero]

idk how anyone can consider the stock's rise without considering the depreciation in the CAD for a company whose functional reporting currency is USD?

[Bog]

I agree with you on this.

 

I think about currency moving the other way and how it impacts Fairfax. I probably think to much about thing like this....i guess time will tell how it works out.

 

 

idk how anyone can consider the stock's rise without considering the depreciation in the CAD for a company whose functional reporting currency is USD?

[nwoodman]

I thought this was an interesting observation:

 

" A funny thing happens to an index's valuation when you choose not to entirely ignore the companies that have negative earnings (i.e. losses). Ever wondered what the P/E ratio of the Russell 2000 was given that it is full of companies where the 'E' is negative? The answer is simple - and ugly - as The Wall Street Journal exposes, the aggregate P/E of the Russell 2000 is over 200x which perhaps explains the gaping chasm between bond and equity valuations for this highly credit-sensitive cohort."

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/02/28/20160228_rty2_0.jpg

 

http://www.zerohedge.com/news/2016-02-28/three-charts-no-small-cap-asset-manager-wants-you-see

 

cheers

 

nwoodman