Parsad Posted November 13, 2009 Share Posted November 13, 2009 Fairfax purchased $750M of California's $908M in BAB bonds that were ordered. I guess Fairfax is making a bet on the U.S. as well. ;D Cheers! http://www.forbes.com/feeds/afx/2009/11/12/afx7117728.html Link to comment Share on other sites More sharing options...
Myth465 Posted November 13, 2009 Share Posted November 13, 2009 These guys are amazing capital allocators. I say hold your shares and watch them work. http://www.bloomberg.com/apps/news?pid=20601087&sid=aecq.uTk63M4&refer=home California Build America Bonds Hand Buyers $212 Million Gains Up 5% out of the gates with a 7.55% tax free yield. This Broke State Could Reward You Handsomely California recently issued $5.23 billion of 25 and 30-year BABs that pay an annualized rate of 7.4%. But with the Fed reimbursing it for 35% of the interest, the state will only be responsible for 4.8% in the end. To get a similar yield in the in the corporate bond market, an investor could buy bonds of Amgen (Nasdaq: AMGN), Norfolk Southern (NYSE: NSC), or Verizon (NYSE: VZ), three solid companies that shouldn’t be going under any time soon. Link to comment Share on other sites More sharing options...
treasurehunt Posted November 13, 2009 Share Posted November 13, 2009 Some more information on the latest issue of California Build America Bonds: http://www.bloomberg.com/apps/news?pid=20601087&sid=a7hOT3VmX9aY&pos=6 This is 30-year taxable debt that was priced to yield 7.26%. That should provide some nice investment income for Fairfax provided California does not go bust. Link to comment Share on other sites More sharing options...
Nnejad Posted November 13, 2009 Share Posted November 13, 2009 I'm pretty sure the issue Fairfax bought is not tax-free. Link to comment Share on other sites More sharing options...
oldye Posted November 13, 2009 Share Posted November 13, 2009 California's economy is bigger than India's...7.2% yield more than compensates for the chance of default which for all practical purposes is zero. Link to comment Share on other sites More sharing options...
ourkid8 Posted November 13, 2009 Share Posted November 13, 2009 Deals such as this are the reasons why I have 17.82% of my portfolio is in Fairfax Financial! My only regret was not buying more!!!!! :) These guys are amazing capital allocators. I say hold your shares and watch them work. http://www.bloomberg.com/apps/news?pid=20601087&sid=aecq.uTk63M4&refer=home California Build America Bonds Hand Buyers $212 Million Gains Up 5% out of the gates with a 7.55% tax free yield. This Broke State Could Reward You Handsomely California recently issued $5.23 billion of 25 and 30-year BABs that pay an annualized rate of 7.4%. But with the Fed reimbursing it for 35% of the interest, the state will only be responsible for 4.8% in the end. To get a similar yield in the in the corporate bond market, an investor could buy bonds of Amgen (Nasdaq: AMGN), Norfolk Southern (NYSE: NSC), or Verizon (NYSE: VZ), three solid companies that shouldn’t be going under any time soon. Link to comment Share on other sites More sharing options...
Guest kawikaho Posted November 13, 2009 Share Posted November 13, 2009 If it's not a tax free MUNI like bond, then that's not a great bet. Link to comment Share on other sites More sharing options...
oldye Posted November 13, 2009 Share Posted November 13, 2009 If it's not a tax free MUNI like bond, then that's not a great bet. These things bare no more risk than U.S treasuries which are also taxable yet yield 54 million dollars per year vs 33 million for 30 year treasuries... thats 630 million over 30 years Link to comment Share on other sites More sharing options...
Grenville Posted November 13, 2009 Share Posted November 13, 2009 It's interesting to see the purchase of 30 year debt. The yield is good, but the duration is longer than usual. Are they building a deflation bet? Link to comment Share on other sites More sharing options...
Myth465 Posted November 13, 2009 Share Posted November 13, 2009 isnt this about the same rate that they sold debt for. Now a bit of bad news. Unlike conventional munis, which pay interest that is exempt from federal income tax, Build America Bonds are subject to federal tax. That means California paid a higher gross yield on the bonds than it would have paid on conventional munis. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 13, 2009 Share Posted November 13, 2009 It's interesting to see the purchase of 30 year debt. The yield is good, but the duration is longer than usual. Are they building a deflation bet? They would hedge more than 25% of their stocks if they were building a deflation bet. I think they are making a "spread will tighten" bet, and getting paid well while they wait. The Julian Robertson "yields at 20%+" scenario they are not too worried about I suppose, unless they have some new hedges in place. Or do they still have some CDS that would protect them? Link to comment Share on other sites More sharing options...
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