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Bonds Continue To Rally


JEast
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What a difference only few trading days make.  Since the end of the reported June 30 numbers, the 10-year has moved 100-110bp.  Huge move in a such a short period.  Some have speculated what this implies, but here is a call for our friends in the front office to sell a good portion of those long-dated bonds -- with the proceeds, do what you do best.

 

All this good news even prior to heading into the peak hurricane season.

 

As events play out, it would seem that our company is hitting on most, if not all, cylinders.  On any general market pullback, FFH my even get back to extremely undervalued that the market is missing or doesn't care about short-term.

 

-- Prem & Team, buy back a few shares :)

 

 

Cheers

JEast 

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  • 1 month later...

Given the move in the past few days and from the December 31 numbers, the 10-year has moved 75-85bp and the 30-year has moved nearly 120bp.  Huge moves for the year but significant moves from the June 30 when we were in a mark-to-market loss.

 

Another call for our friends in the front office to sell a good portion of those long-dated bonds -- and with the proceeds, do what you do best.

 

 

Cheers

JEast

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  • 2 months later...

As we gather steam back to the bond September lows, let’s see if the FFH team finally sells some of those long dated bonds.  From the 3rd quarter report it would appear that they had not.

 

I am sure HW sees good equity values currently that we could surely exchange.  Given the opportunity for another 25% gain on bonds (some would argue) versus 10%+ earnings yield (plus dividends) seems like an easy exchange.  Some bond gains for more equity positions is requested.  If the birds chirp more, let’s give them a little in the next few weeks :)

 

 

Cheers

JEast

 

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There look to be lots of cross currents currently swirling around:

1.) year end window dressing by funds

2.) low volume due to Christmas holidays

3.) year end tax loss selling

 

Bonds again are at multi-year lows and stocks continue sideways... I wonder if Europe is burning people out, given all the noise since Sept and lack of progress. Perhaps time for the patient to receive a little shock therapy (complements of our hedge fund friends)...  :)

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I think dumping treasuries for equities on a large scale is not an option. Insurance regulators and ratings agencies would freak out. However I bet that if there were seemingly undervalued bonds that had adequate guaranteessuch as munis in 08 or munis they tried to buy within the last year but received no fills, they would swap out their treasuries.

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I hope they sell some.  I understand their deflation thesis but the derivatives give them great protection there.  There's no need to hold the bonds and you'd have to be out of your mind to say they have a margin of safety (vs. the other reason for holding them, which is a macro bet on deflation).

 

Go to cash and wait for opportunities.

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  • 4 weeks later...

Remarkable that the 10y still yields under 2% after the run-up un the stock market.

 

I just watched this interview from Wealthtrack with Robert Kessler (extreme bull on treasuries):

 

http://wealthtrack.com/previous_12-30-2011.php

 

Kessler is aiming for 1% on the 10 year treasuries because of deleveraging and coming deflation.  :o Helps to understand Prem's thesis better, also considering he has the insurance business to think of. Doubt he'll sell any soon!

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  • 3 weeks later...

It would appear after the FED's recent announcement to keep a zero percent environment a year longer than expected, 1% on the 10 year treasuries is more likely than 3% anytime soon.  Irrespective, I still would like HW to sell some of their/our long-term bonds.  Another 70bp would be a nice addition to BV, but assuming FFH is still roughly 90%, or more, hedged, buying some businesses or equities would appear to be more beneficial to long-term shareholders.  My 2 or 3 cents.

 

 

Cheers

JEast

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  • 3 months later...

Just bumping this up to say thanks to the HW team for being more transparent on the bond holdings at both the annual meeting and on the recent conference call.  I emphasis 'team' as most of recognize the strength of the team.

 

It would appear that the cash is surely building (long-term bonds nearly liquidated) with the somewhat recent rally and return back to safety in the bond market.  If a real scare comes, surely bonds will rally even more, but the rally should be captured, in part, with the CPI swaps and the cash now on hand can be spent aggressively in the equity markets.

 

Cheers

JEast

 

 

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