Muddy Waters is short

[buball]

Fairfax-Financial_FFH_MW_20240208.pdf

[chrispy]

The frequently mentioned statement about guiding to 15% CAGR and not hitting it is so obvious that I do not understand why it is worth including for an insurer valued at PB=1

[Mick92]

Even if you buy this, which I don't necessarily, it doesn't really change the Fairfax thesis, they are likely going to make a ridiculous amount of money in the next few years from the core underwriting plus interest and dividends

[hardcorevalue]

Wow this is really weak, even in his bear case (which rests on IFRS 17 mandated change and Digit) he’s calling for an 18% hit to book value. The reason FFH has been crushing it and why it’s cheap is the unbelievable amount of cash it’s making (primarily from bonds and strong underwriting). I like MW but this will age terribly. 

[Daphne]

Sounds like an attempt to push FFH down so they can cover. Not our first rodeo.

[hardcorevalue]

Of course, this is done just before earnings so the company is in a quiet period

[Gregmal]

The reason many of these short sellers play the "accounting" angle is because most folks arent well versed in complex accounting and when they hear someone is an "expert", often just take what the "expert" says in good faith. Which gives some smash and grabber a whole lotta leeway to manufacture rhetoric. 

[gfp]

The IFRS discussion completely ignores the mismatch between the company's short duration bond portfolio and the liabilities at the time the new rules were adopted.  This was the reason FFH had an outsized impact vs. other Canadian insurers at the time.  This was required and audited - its not like they are pulling shit out of thin air.

 

The Digit stuff pretty weak.  FFH only wrote up the preferred shares on the Sequoia deal.  The 49% equity is equity-accounted (only P & L) and held on the books for $130m.  I don't have a clue if an eventual IPO will be a "down round" less than $3.5 Billion.  Digit combined ratios and profitability/losses are fully disclosed in FFH's filings.  There is a mismatch between FFH's calendar year reports and Digit's fiscal year reports apparently.  

 

The muddy waters report seems to conflate "fair value" and carrying value on Digit in a few places.  Fairfax sometimes mentions "fair value," $2.278 Billion at 12/31/2022 - but that isn't what Digit is on FFH's books for.

Edited February 8 by gfp

[Hoodlum]

It would be great to see approval for a Go Digit IPO now.   A nice valuation would squash this pretty quickly.

[Gregmal]

I do hope the old man comes out swinging given the history with short sellers trying to create problems here. 

[Hoodlum]

Fairfax response to this report.

 

https://www.globenewswire.com/news-release/2024/02/08/2826151/0/en/Fairfax-Responds-to-Short-Seller-Report.html

 

Quote

TORONTO, Feb. 08, 2024 (GLOBE NEWSWIRE) -- Earlier today, Muddy Waters Research issued a report regarding Fairfax Financial Holdings Limited (“Fairfax”) (TSX: FFH and FFH.U) suggesting that the book value of Fairfax was overstated. Fairfax disagrees with the allegations and insinuations contained in the report, and would like to assure all shareholders that Fairfax has prepared its financial statements and reporting in accordance with all applicable accounting principles.

Through the first nine months of 2023, Fairfax has achieved record earnings driven by record operating income. Fairfax will release its fourth quarter and year-end financial results next Thursday, February 15, 2024, and a conference call will follow on the morning of Friday, February 16, 2024, and the management of the company is pleased to address any questions relating to those results or the report issued today at that time.

 

[Hektor]

https://finance.yahoo.com/news/fairfax-responds-short-seller-report-144800552.html

 

Fairfax Responds to Short Seller Report

[Hektor]

I hope the shares go back to trading in the 700s 

[Hektor]

4 minutes ago, Hoodlum said:

Fairfax response to this report.

 

https://www.globenewswire.com/news-release/2024/02/08/2826151/0/en/Fairfax-Responds-to-Short-Seller-Report.html

Apologies @Hoodlum, Did not see your post before I posted the yahoo finance link.

[Xerxes]

Why is Becky on CNBC making the comment that “well they survive the last bear attack”. 
 

it is not about survival or not. It is about the merit of the last bear attack.  

[Parsad]

Hmmm, I wonder who the counterparty is for the TRS?  I wonder if Muddy Waters does work for them.  

 

Cheers!

[returnonmycapital]

I'm surprised that CIBC, in their note on the MW report, didn't mention that MW chose only FFH's closely-held investments where fair value exceeds carrying value. What about those that trade publicly whose fair value exceed carrying value... like FIH? Taking my estimate for YE BVPS and adding to it the difference between fair value and carrying value for ALL closely-held investments and incorporating an appropriate haircut for taxes on the difference, FFH's FMBVPS ($987) is more like 8% higher than reported BVPS ($914). The IFRS change argument is ridiculous as all insurers are faced with the same set of accounting rules. It may work better for long tail liabilities than short in a rising interest rate period, but FFH didn't make up the rule to suit its balance sheet and it will suffer relatively if rates decline.

 

What kind of market responds positively to this standard of analysis? How is Brett Horn still employed? So many questions.  

Edited February 9 by returnonmycapital
Should have written YE instead of Q3

[ValueMaven]

Bought some ADRs at $910 !!  

 

Very weak case IMHO ... the float here is very right and illiquid - this can quickly backfire on MW

Edited February 8 by ValueMaven

[sleepydragon]

10 minutes ago, ValueMaven said:

Bought some ADRs at $910 !!  

 

Very weak case IMHO ... the float here is very right and illiquid - this can quickly backfire on MW

What’s the ticket for ADR?

[gfp]

I think they are talking about the US over the counter ticker FRFHF.

 

Interestingly, it seems like Interactive Brokers changed margin requirements for FRFHF mid-day today to 100% initial and 100% maintenance.  FFH shares remain at 30% initial and 30% maintenance.  

[sleepydragon]

1 minute ago, gfp said:

I think they are talking about the US over the counter ticker FRFHF.

 

Interestingly, it seems like Interactive Brokers changed margin requirements for FRFHF mid-day today to 100% initial and 100% maintenance.  FFH shares remain at 30% initial and 30% maintenance.  

It’s OTC (not ADR), so it should be 100% initial margin. Could be ibkr made a mistake..

[ValueMaven]

Sorry - I bought the OTC - FRFHF

[Xerxes]

Who knows maybe the “attention” that this thing generates may end up helping in the medium term, bringing it a premium 

[This2ShallPass]

5 hours ago, ValueMaven said:

Bought some ADRs at $910 !!  

I only have the OTC but considering adding more and thinking of buying FFH.TO (having too much OTC does worry me a bit). Is there any adverse tax consequence of buying FRFHF vs. FFH.TO for an US investor?

 

7 hours ago, Parsad said:

Hmmm, I wonder who the counterparty is for the TRS?  I wonder if Muddy Waters does work for them.  

Maybe, something sounds very fishy about this report. Fairfax should go hard at these guys, shorting is healthy for the market if done right but this is intentionally hurting a company. Whatever said, as unfair as it is, it'll dent the confidence of many investors who were already wary of Fairfax..

 

[nwoodman]

48 minutes ago, Xerxes said:

Who knows maybe the “attention” that this thing generates may end up helping in the medium term, bringing it a premium 

The Q&A portion of the CC next Friday will be fascinating.  Hardly make or break but if they do a good job of addressing these “issues”, then MW may have done us all a huge favour.  I would see it as a great opportunity for some of the other members of the Fairfax C-Suite to shine. Some straight shooting and plain speaking would do wonders.