Dazel Posted January 18, 2018 Share Posted January 18, 2018 Also of note I am pretty sure that Bradstreet has made money in Greek bonds...however, I am not sure how much he held into last years rally. Greek debt is the best performing in the world and now yields approx 3.5%....these were generating above 10% yields for a longtime. Of note the U.S 10 year is trading above 2.60% yield at 2.613%. Last years high was 2.63% and as someone else quoted Gundlach (the bond king), he says if we breach 2.63% rates will skyrocket up. This thesis would jive with the real “bond king” Brian Bradstreet’s strategy. Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 The old bond king Bill Gross says the bond bear market is in full swing...this is huge for Fairfax as they hold over 43% (after the sale of first capital) in cash...others bond portfolio will get hit with big losses. Fairfax will avoid the losses and be able to deploy at higher rates. To me this will be the story of 2018...Fairfax hold several commodity related investments as well which have and will continue do well in a rising inflationary environment...Resolute, Altius,Apr energy, Seaspan, Fairfax Africa. Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 To add to the further posts Prem has publically stated that Fairfax believes that rates will rise with global growth...they are right for now let’s see how it plays out...to me defence on bonds which is the greatest portion of their investment allocation and always has been to a point where Bradstreet pulls the trigger at higher rates. Equity holdings are emerging markets skewed $5b in India, $2b in Greece...inflation protected in the commodity related ownership I mentioned in my previous post...boat loads of cash...rising insurance premiums. It’s a good spot to be....the blind bond buyers of the last several years will learn too late that they swimming naked. For those that think Fairfax is lost...Gundlach is advocating commodities and calling for higher rates...Prem and his team were early as per usual but they are positioned for this theme. If it continues to play out the share price will be much higher before the public can figure it out. Unlike everyone else I would like to see this strategy success develop slowly so we get rid of a lot of shares through buy backs at these levels. Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 The old bond king Bill Gross says the bond bear market is in full swing...this is huge for Fairfax as they hold over 43% (after the sale of first capital) in cash...others bond portfolio will get hit with big losses. Fairfax will avoid the losses and be able to deploy at higher rates. To me this will be the story of 2018...Fairfax hold several commodity related investments as well which have and will continue do well in a rising inflationary environment...Resolute, Altius,Apr energy, Seaspan, Fairfax Africa. I'm not quite ready to celebrate on this front. What do you make of the sensitivity analysis in the Q3 report that suggests that FFH's duration has increased? I would presume that this is mostly due to the legacy bond portfolio at Brit? Do you figure they've go that cleaned up yet? SJ Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 For all the bull market enthusiasts...Blackberry may be on the cusp of joining the frenzy. I would not hold a big position directly at these levels but happy to have Fairfax possibly make billions on the frenzy. https://www.reuters.com/article/us-blackberry-software/blackberry-launches-cybersecurity-software-for-self-driving-cars-idUSKBN1F42LX The article missed the Nvidia partnership. Nvidia was the hottest stock in the tech sector last year...stay tuned. I think Blackberry has already joined the frenzy! Yes, it is heartening to see the Blackberry position in the black. What do you envision as FFH's exit-strategy from this large position? Presumably at some point in the future, FFH will want to exercise the conversion privileges on the debt that it holds because the shares have risen. So, with Prem on Blackberry's board of directors, when the BlackBerry investment hits intrinsic value, how does FFH divest its position and re-deploy our capital into the next excellent opportunity? Clearly this one is not like the large positions of yesteryear that FFH had in WFC, JNK and Kraft. Exiting those positions was pretty straightforward because $300m or $500m of additional volume for those mega-caps can be absorbed pretty easily over a relatively small number of trading sessions... SJ Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 SJ, No need for excitement yet...I am always early as well! I will wait for the annual to comment on the duration...It depends on what was held at the longer end of the curve...Allied bonds I think you meant...Brit should be gone. I will post the best example of what I have ever seen by a value investor holding a tech stock during the last bubble....this is not a worry at this point...all of Blackberry would like be sold in pieces...radar to Verizon, patents to a specialty company that is expert in this field, QNX to anyone(Nvidia), lots of cash for easy spin off...if they wanted to realize the value they would get a least $30 tomorrow. If the market starts to appreciate this and then some there other ways to synthetically sell it. Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 SJ, No need for excitement yet...I am always early as well! I will wait for the annual to comment on the duration...It depends on what was held at the longer end of the curve...Allied bonds I think you meant...Brit should be gone. I will post the best example of what I have ever seen by a value investor holding a tech stock during the last bubble....this is not a worry at this point...all of Blackberry would like be sold in pieces...radar to Verizon, patents to a specialty company that is expert in this field, QNX to anyone(Nvidia), lots of cash for easy spin off...if they wanted to realize the value they would get a least $30 tomorrow. If the market starts to appreciate this and then some there other ways to synthetically sell it. No real need to wait for the annual to comment on duration. The basic direction is right there on page 25 of the Q3. Based on a Q3 2017 bond port of $11.9b, a 100 bp parallel shift upward in the yield curve would whack earnings by $229.2m. Based on a Q3 2016 bond port of $10.2B, the same 100 bp parallel shift upward would have whacked earnings by $148.2m. So, given that the bond port has increased by 16 or 17 percent but the earnings impact has increased by ~50%, can one arrive at any other conclusion than an increase in average duration? So, has the duration increase in the bond port been undertaken through active management, or is it legacy from Allied as you suggested? I won't post one of the most disastrous examples of value investors counting on a "sum of the pieces" return. It's called Sears Holdings. The sum of the pieces analysis was probably correct, but execution can be a bitch. SJ Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 Onex synthetically sold the majority of their Celestica holding at the highs in the tech bubble. https://www.theglobeandmail.com/report-on-business/in-its-mind-market-uncouples-onex-shares-from-celesticas/article4153011/ http://www.marketwired.com/press-release/onex-settles-its-celestica-forward-sale-agreements-tsx-ocx.sv-542002.htm Altius did the same thing with their sale of their Aurora shares at the top of the uranium bubble frenzy. http://www.marketwired.com/press-release/altius-minerals-corporation-tsx-als-reports-third-quarter-net-earnings-316-million-tsx-als-958233.htm Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 Ahh SD, Welcome. How was your sum of the parts broken down on Bitcoin? Nice speculation congrats hope you sold. Sears has operating losses of what $15 $20 billion? Pretty clear where the value went! Blackberry is cash flow positive... What if the long term bonds were in Greek debt? Than it’s a home run! It matters in what. Indian business houses really? They using block Chain? Lol. Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 Onex synthetically sold the majority of their Celestica holding at the highs in the tech bubble. https://www.theglobeandmail.com/report-on-business/in-its-mind-market-uncouples-onex-shares-from-celesticas/article4153011/ http://www.marketwired.com/press-release/onex-settles-its-celestica-forward-sale-agreements-tsx-ocx.sv-542002.htm Altius did the same thing with their sale of their Aurora shares at the top of the uranium bubble frenzy. http://www.marketwired.com/press-release/altius-minerals-corporation-tsx-als-reports-third-quarter-net-earnings-316-million-tsx-als-958233.htm Were those synthetic sales made by a Director of the company who is obliged by SEC regulations to report all purchases and sales? Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 Obviuosly. Gerry Schwartz and Brian Dalton are not in jail. Last time I checked they are iconic Canadian entrepreneurs. Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 Fairfax is not selling Blackberry. They will likely make a couple billion by th time they are done it is already one of the great turnaround stories. John Chen is a superstar.... SD you think they issue a new coin? Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 Obviuosly. Gerry Schwartz and Brian Dalton are not in jail. Last time I checked they are iconic Canadian entrepreneurs. So, just to be clear, Gerry Schwartz of Onyx was sitting on Celestica's board of directors and engineered a synthetic sale and reported it to the SEC as an insider transaction for public dissemination? Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 SJ I don’t care...check Onex fiiings I don’t think their lawyers are stupid do you? Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 To SD’s point of The bond portfolio getting “whacked” for $220m on 100 basis point parallel move in yields. What kind of losses would occur on $100 trillion? Whacked?! Yes. http://www.scmp.com/business/companies/article/2104277/its-anybody-guess-which-way-us100-trillion-bond-market-will-go Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 SJ I don’t care...check Onex fiiings I don’t think their lawyers are stupid do you? It's not about whether Onyx's general counsel is stupid. It's about FFH having dropped $1.3b into an investment which is not easily exited, in part because Prem sought a position on the board which requires that he publicly report purchases and sales of BB. If he were not a board member, then it would be an easy thing to sell the BB position over a period of a couple of months, ignoring any price pressure that this might create. The BB position is ~$50/sh. I view this capital as somewhat encumbered due to Prem's board membership. You seem to hold the view that it is not encumbered and have given the example of Onyx using a synthetic disposal approach to support that view. Certainly there is more than one way to dispose of a large investment, but I'm struggling to think of other examples of Directors selling a $1b+ position, which is why I asked whether Gerry Schwartz was actually a Celestica board member (in the same way Prem is a member of BB's board of directors). It's not about lawyers being smart or stupid. If anybody has a really great exit-hypothesis for the BB investment, I'd love to hear it. SJ Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 U.S Treasury moves year over year 2-year 83 basis points 10year 18 bp 30 year -13 In Sd’s number if Bradstreet went long 30 year he has made money....in price and got a high yield...2 to 5 year debt has got “whacked” globally. Greece 10 year -361 bp The answer from me is I don’t know. Will know more after the annual. Link to comment Share on other sites More sharing options...
StubbleJumper Posted January 18, 2018 Share Posted January 18, 2018 To SD’s point of The bond portfolio getting “whacked” for $220m on 100 basis point parallel move in yields. What kind of losses would occur on $100 trillion? Whacked?! Yes. http://www.scmp.com/business/companies/article/2104277/its-anybody-guess-which-way-us100-trillion-bond-market-will-go To be clear, the issue is not whether a fixed income portfolio gets whacked when rates increase; that's a clear duration management question and it's a fact of life for all of us. My only purpose for pointing out that FFH's duration appears as if it may have increased is that we should be circumspect about cheering for rate increases until FFH has finished dropping its duration. Hence my question about whether you figure that they've got the Brit Allied portfolio clean up yet. Otherwise, I tend to agree with your view of the FI port. FFH seems to have gone to cash and short term, which is what you'd like to see if you anticipate an increase in interest rates. SJ Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 SJ they are not exiting....if they are worried they will hedge the bet. It is 3 % of the investment portfolio. At $30 I will worry about this They would be there if they joined Kodak and issued a coin maybe go up 5 times like them!!!! The crypto crowd should start a thread on it!!!! let’s go! If things get stupid( the stock takes off) and they may...I would join your concern. Link to comment Share on other sites More sharing options...
Dazel Posted January 18, 2018 Share Posted January 18, 2018 Thanks SJ I understand your concern greatly! I think i have explained it as much as I can until I see the annual report. Link to comment Share on other sites More sharing options...
Dazel Posted January 19, 2018 Share Posted January 19, 2018 I had a lot going on today...just reread my posts....in aback and forth between many different things I made the mistake of thinking one of the posts was SD’s (an absolute gem highly intelligent and great for this board!)... I apologize for the misrepresentations in Responseto both SJ and SD...not for the response itself. I think I subconsciously would have really liked a head to head with SD on the Indian business houses and discuss the value of a bitcoin....civilization, global warming...Second thought....not really. Cheers, Dazel Link to comment Share on other sites More sharing options...
John Hjorth Posted January 19, 2018 Share Posted January 19, 2018 At least for my part, you're both excused and forgiven, Dazel. I speculate that covers all CoBF fellow board members reading your posts. I got a bit confused during the day about it, though. Absolutely no harm done. Thank you for sharing your thoughts on Fairfax here on CoBF. Please keep your posts coming. At least I learn a lot from them, I have a feeling of other CoBF board members doing the same thing. - - - o 0 o - - - For my part, now back to keeping my mouth shut on Fairfax & reading on CoBF & learning about Fairfax. Link to comment Share on other sites More sharing options...
Dazel Posted January 19, 2018 Share Posted January 19, 2018 https://www.cnbc.com/quotes/?symbol=US10Y 10 year U.S treasury has gone through 2.62% at 2.637%...if this is the trigger that spooks the $100t bond market its the highest rate since 2014...the 2 year going through 2% is the highest since 2008..we will see some fireworks...nice to have about $20 billion in cash. Link to comment Share on other sites More sharing options...
ValueMaven Posted January 19, 2018 Share Posted January 19, 2018 You now have much improved underwriting at FFH from Allied...who knows how that transitions in 2018, but Allied was such a SMART acquisition for FFH honestly...I'll be reinvesting my dividends back into the parent (like I always do)....So what you want, but the future is BRIGHT. For those of you who think Prem has lost his way...lets not forget him covering all of those hedges etc, when Trump was elected. I agree, it was a mistake to hedge the book for so long, esp with those deflation swaps (I was not a fan of those at all)...Cheers, here is to a much brighter future at FFH. PS: I might really try and tackle a detailed SOP valuation for FFH in 2018...if/when I do, I will of course post it here.. Sincerely, VM Link to comment Share on other sites More sharing options...
Cigarbutt Posted January 19, 2018 Share Posted January 19, 2018 One feature that I have followed and that may have implications in the opportunistic "future" of FFH is the growing presence of alternative capital, especially in the reinsurance market. Last year was unusual in terms of the size and frequency of major catastrophes. Despite the losses in several catastrophe bonds, there seems (anecdotal and some data) to be an abundance of capital (often from the same sponsors) who continue to provide "replacement" capital. This appears to be a slight positive for primary insurers as reinsurance rates are "kept" lower but some say alternative capital is looking into the territory of primary carriers as well. I find that the capital inflows provided by the insurance-linked securities market has been unusually strong in the last few years. I suspect that this may be a major enhancer of the underwriting cycle. It must be frustrating for reinsurers to have competitors who can provide capital almost out of thin air in softer environments. Even if this may prolong the softness of the markets, I submit that, in due course, it may also contribute (disappearing capital) to a harder market in a more difficult environment. From my limited perspective, I would like to see net premiums written by the reinsurance segments of FFH to remain stable or even shrink in this environment. www.artemis.bm/deal_directory/cat_bonds_ils_issued_outstanding.html What is a "SOP" valuation? Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now