Fairfax Financial Claims in Suit That Third Point's Loeb Lied to Investors!

[Guest broxburnboy]

Zerohedge weighs in on Fairfax/SAC revelations:

 

http://www.zerohedge.com/article/fairfax-chronicles-part-1-exposing-sacs-alleged-market-manipulation-and-insider-trading-sche

[rijk]

in the investment world there are a limited number of true investors (Buffett, Watsa, Klarman) and then there are a large number of "gamblers",..... from watching the video, Mr Loeb definitely belongs in the 2nd category

 

regards

rijk

 

http://www.blip.tv/file/2234740/

[DynamicPerception]

Crip1 and Partner24,

 

My dad had a sign in his workshop.

 

"Women's faults are many,

Men have only two,

Everything they say,

And everything they do."

[Alekbaylee]

My dad had a sign in his workshop.

 

"Women's faults are many,

Men have only two,

Everything they say,

And everything they do."

 

Lol! So true any way you slice/see it!

[Partner24]

Aahaha  :D Indeed!

[link01]

my questions for you guys, though, is why would they target Fairfax in the first place? Watsa had a good reputation and it seems like there would have been a bunch of easier targets.

 

This is what I was thinking.  They are stupid criminals in that they are risking prison time when all they really did was give us outstanding prices at which to go long (with really cheap non-recourse leverage).  It's a better crime to just wait for them to serve things up -- they take all the risk, we take most of the upside.

i think the answer is pretty simple: those hedgies- greedy, ruthless, lawless cowboys on steirods types- thought there was an ACTIONABLE catalyst at the time. ffh, after all, was suffering thru some acquisition hang overs & adverse claims/reserves experience from them. plus, the STORY played extremely well both in the media & amongs their like-minded peers. thus they could add insult to injury if they could make it harder for ffh to obtain access to capital markets at less than credit worthy rates

[ERICOPOLY]

When criminals unload something on the black market inexpensively, the buyer runs the risk of losing everything for accepting stolen property.

 

The novel thing about these financial crimes is that there is no such risk to the buyer.  They drive the price down for whatever reason and then let others participate in the bounty!  They even provide inexpensive non-recourse financing (LEAPS).

 

 

 

This makes the assumption that the criminals are unsuccessful in their endeavours. It appears that they were attempting to kill FFH , put it out of business . It smacks slightly of hubris not to understand that the good guys do not always win.

 

Come June of 2006 that game was already won by the good guys.  Runoff was breaking even as posted months beforehand in the annual report, big gains were being booked on Indian equities, the only catalyst left for the hedgies was a major hurricane season.  But the people who do this professionally were still writing business in Florida, albeit at higher rates (insurance companies).  The expectation as we discussed at the time was to NOT have a repeat of 2005, which of course is exactly what happened.  The hedgies overstepped when they became dependent on natural disaster as their sole recourse -- I remember we were discussing the company otherwise trading at a P/E of 3 for the year due to the big gains coming in.

 

I think they got too emotionally caught up in their lie -- too hard to give up and admit that the good guys has already won.  I remember one of those hedge funds was still trying to short the company even when they had all the CDS hedges during the financial crisis -- was killed in the short ban.

 

[BSB]

According to 5/7 NYT article, the Justice Dept. is growing increasingly interested in their ongoing investigation of Mr. Cohen's SAC. Difficult to explain extraordinary performance (e.g. B. Madoff), in the absence of "any identifiable special sauce". Mr. Holder, please call Patrick Fitzgerald or Elliott Spitzer.

[twacowfca]

When criminals unload something on the black market inexpensively, the buyer runs the risk of losing everything for accepting stolen property.

 

The novel thing about these financial crimes is that there is no such risk to the buyer.  They drive the price down for whatever reason and then let others participate in the bounty!  They even provide inexpensive non-recourse financing (LEAPS).

 

 

 

This makes the assumption that the criminals are unsuccessful in their endeavours. It appears that they were attempting to kill FFH , put it out of business . It smacks slightly of hubris not to understand that the good guys do not always win.

 

Come June of 2006 that game was already won by the good guys.  Runoff was breaking even as posted months beforehand in the annual report, big gains were being booked on Indian equities, the only catalyst left for the hedgies was a major hurricane season.  But the people who do this professionally were still writing business in Florida, albeit at higher rates (insurance companies).  The expectation as we discussed at the time was to NOT have a repeat of 2005, which of course is exactly what happened.  The hedgies overstepped when they became dependent on natural disaster as their sole recourse -- I remember we were discussing the company otherwise trading at a P/E of 3 for the year due to the big gains coming in.

 

I think they got too emotionally caught up in their lie -- too hard to give up and admit that the good guys has already won.  I remember one of those hedge funds was still trying to short the company even when they had all the CDS hedges during the financial crisis -- was killed in the short ban.

 

 

I agree.  The key to our using options to double down on FFH and then double down again before the hurricane season was over was the fractal way hurricanes in the gulf develop.  The key to understanding fractal phenomenae in time series is the high correlation with the recent trend.  It's the same pattern we see with earthquakes.  The hurricane trend in prior years leading up to 2006 had been ominous, but the most recent trend was zip halfway through the 2006 hurricane season.  Therefore, knowing that the strongest predictor was the most recent results, we doubled and redoubled our holding of FFH before the hurricane season was over.  :)

[Uccmal]

This is probably for another thread but I have a question for the board members who were there in 2003-2006.  Without the hedge fund attack would FFHs share price have reached the lows it did?  Would they have had to raise capital at below book from Markel and Longleaf?

 

I am thinking that the severe lows at the beginning of 03 would not have been reached but that FFH would still have had to raise capital at disdadvantageous rates.  Part of the low share price was justifiable and part was not.

 

What do others think?

 

A number of us did very well from the leaps.  I wonder if we would have done as well without the short attacks.  My guess is that it would have been good but perhaps not as lucrative as it turned out.  However, the real world was at play and we identified and stuck with our thesis so the gains are legitimate, but maybe, just maybe, I should mail Daniel Loeb a couple of hundred dollars to help out with his defense.  Or maybe not!

[Parsad]

This is probably for another thread but I have a question for the board members who were there in 2003-2006.  Without the hedge fund attack would FFHs share price have reached the lows it did?  Would they have had to raise capital at below book from Markel and Longleaf?

 

Probably not.

 

I am thinking that the severe lows at the beginning of 03 would not have been reached but that FFH would still have had to raise capital at disdadvantageous rates.  Part of the low share price was justifiable and part was not.

 

What do others think?

 

Agreed.

 

A number of us did very well from the leaps.  I wonder if we would have done as well without the short attacks.  My guess is that it would have been good but perhaps not as lucrative as it turned out.  However, the real world was at play and we identified and stuck with our thesis so the gains are legitimate, but maybe, just maybe, I should mail Daniel Loeb a couple of hundred dollars to help out with his defense.  Or maybe not!

 

You're assuming Loeb made no money from his shorts, and that somehow his nefarious underhanded tricks allowed those long on Fairfax to benefit.  Not true!  They could have driven Fairfax completely under.  You would have lost everything if Prem was not able to raise any financing.  Al, you should be sending money to Markel, Cundill & Southeastern, not Loeb.  Cheers!

[ERICOPOLY]

When criminals unload something on the black market inexpensively, the buyer runs the risk of losing everything for accepting stolen property.

 

The novel thing about these financial crimes is that there is no such risk to the buyer.  They drive the price down for whatever reason and then let others participate in the bounty!  They even provide inexpensive non-recourse financing (LEAPS).

 

 

 

This makes the assumption that the criminals are unsuccessful in their endeavours. It appears that they were attempting to kill FFH , put it out of business . It smacks slightly of hubris not to understand that the good guys do not always win.

 

Come June of 2006 that game was already won by the good guys.  Runoff was breaking even as posted months beforehand in the annual report, big gains were being booked on Indian equities, the only catalyst left for the hedgies was a major hurricane season.  But the people who do this professionally were still writing business in Florida, albeit at higher rates (insurance companies).  The expectation as we discussed at the time was to NOT have a repeat of 2005, which of course is exactly what happened.  The hedgies overstepped when they became dependent on natural disaster as their sole recourse -- I remember we were discussing the company otherwise trading at a P/E of 3 for the year due to the big gains coming in.

 

I think they got too emotionally caught up in their lie -- too hard to give up and admit that the good guys has already won.  I remember one of those hedge funds was still trying to short the company even when they had all the CDS hedges during the financial crisis -- was killed in the short ban.

 

 

I agree.  The key to our using options to double down on FFH and then double down again before the hurricane season was over was the fractal way hurricanes in the gulf develop.  The key to understanding fractal phenomenae in time series is the high correlation with the recent trend.  It's the same pattern we see with earthquakes.  The hurricane trend in prior years leading up to 2006 had been ominous, but the most recent trend was zip halfway through the 2006 hurricane season.  Therefore, knowing that the strongest predictor was the most recent results, we doubled and redoubled our holding of FFH before the hurricane season was over.   :)

 

Another funny tidbit is that despite Katrina/Rita/Wilma, they actually made money in 2005 were it not for the runoff

 

1)  In 2005 runoff lost $536 excluding KRW losses

2)  In 2005 Fairfax as a whole (including runoff) lost $498 million

 

So if you'd had break-even runoff in 2005, they would have actually made a net profit, despite KRW!!!

 

So the shorts only had one thesis:

1)  Continued runoff losses

 

Yet runoff was beginning to break even in 2006.  So the shorts were toast.

 

And they were paying more than 20% per annum to borrow the shares to continue their short.  Something had to give.

 

[T-bone1]

I couldn't agree more Sanjeev.

 

As an investor, it would be nice if hedge funds, high frequency traders etc would send all stocks down occassionally, or even have a flash crash this afternoon . . . but this is very bad socially and economically.  The market exists to provide capital to the economy, not to be a casino (at least its not supposed to be a casino!).

 

If FFH didn't have the backers it did/does and the management team it did/does, the company could have been driven under.  This company is a tremendous force for good in countries all over the world - and I think their culture/employees/economic activity they create is a greater force for good than the very meaningful charity work they did.  It would have been a horrible tradgedy if they were forced into BK or otherwise into the hands of regulators due to the actions of miscreants.

 

. . . Of course buying the LEAPS was great, but I try not to be happy that this happened