Money and Finance
- Prem Watsa's 2013 Shareholder Letter - Fairfax Financial
Link to: Prem Watsa's 2013 Shareholder Letter Signs of speculative excesses are everywhere – even though the U.S. economy is still very tepid. The world might muddle through as it did in 2013, but the grand disconnect between stocks and bonds, and...
- Prem Watsa's 2011 Shareholder Letter - Fairfax Financial
We continue to fully hedge our common stock portfolios as our concerns about the United States discussed in our 2010 Annual Report persist, and have been magnified by the financial crisis in Europe, including the underlying austerity programs, and the...
- February 2007 Paper: How Resilient Are Mortgage Backed Securities To Collateralized Debt Obligation Market Disruptions?
Executive SummaryThe mortgage-backed securities (MBS) market has experienced significant changes over the past couple of years. Non-agency (“private label”) securities, which are not guaranteed by the government or the government sponsored enterprises,...
- Prem Watsa's 2010 Shareholder Letter - Fairfax Financial
2010 was a disappointing year for HWIC’s investment results because of the two factors mentioned earlier. Hedging our common stock investment portfolio cost us $936.6 million or $45.61 per share in 2010. Our hedging program masked the excellent common...
- Fairfax Removes Hedges On Equity Portfolio Investments
Fairfax Financial Holdings Limited announces that it has removed the hedge on its equity portfolio investments by covering its S&P and S&P/TSX60 equity index total return swaps.- "During our third quarter conference call on October 31, 2008, I...
Money and Finance
Prem Watsa's 2008 Shareholder Letter - Fairfax Financial
Last year, I quoted Hyman Minsky who said that history shows that “stability causes instability”. He said that prolonged periods of prosperity lead to leveraged financial structures that cause instability – and did we see that in spades in 2008!!With SIVs, CDOs, CDOs squared, among many other structures, leverage on leverage was exposed in 2008. Private equity firms that could do no wrong in 2005/2006 were down 90% from their IPO price in 2007. While Madoff may be the biggest Ponzi scheme yet unearthed, what Mr. Minsky calls Ponzi financial structures, where interest and principal cannot be financed by internal operations, are being unmasked daily in the financial markets. Structured investments based upon consumer debt that we warned you about for some time took a real beating in 2008, as 47% of the original AAA ratings on U.S. residential mortgage-backed and various other asset-backed securities issued between 2005 and 2007 were downgraded. In fact, as of January 9, 2009, over 13% of those securities which had originally been rated as AAA had been downgraded to CCC+ or lower!
Last year, we quoted Ben Graham who said that only 1 in 100 of the investors who were invested in the stock market in 1925 survived the crash of 1929-32. Our experience has been the same. As shown in the table below, we incurred a significant cost annually from 2003 through 2006 because of our equity hedging and CDS exposures. Not shown, of course, is the cost of not reaching for yield in the same time period.
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We think this recession is going to be long and deep and the only comparable data points are the debt deflation that the U.S. experienced in the 1930s and Japan experienced from 1989 to the present time. While the U.S. government has initiated a massive stimulus program and is providing up to $2 trillion for its Financial Stability Program, the effect of these programs will be diminished by the enormous deleveraging going on by businesses and individuals: government in the U.S. only accounts for less than 20% of GNP while the private sector accounts for more than 80%. The situation will have to be monitored carefully over the next few years. Of course, many of these negatives are being discounted in the stock market and credit markets as stock prices are down more than 50% and credit spreads are at record levels. We have not had as many opportunities in both markets in our investing career and we are busy!
Last year, we quoted Ben Graham who said that only 1 in 100 of the investors who were invested in the stock market in 1925 survived the crash of 1929-32. Our experience has been the same. As shown in the table below, we incurred a significant cost annually from 2003 through 2006 because of our equity hedging and CDS exposures. Not shown, of course, is the cost of not reaching for yield in the same time period.
…
We think this recession is going to be long and deep and the only comparable data points are the debt deflation that the U.S. experienced in the 1930s and Japan experienced from 1989 to the present time. While the U.S. government has initiated a massive stimulus program and is providing up to $2 trillion for its Financial Stability Program, the effect of these programs will be diminished by the enormous deleveraging going on by businesses and individuals: government in the U.S. only accounts for less than 20% of GNP while the private sector accounts for more than 80%. The situation will have to be monitored carefully over the next few years. Of course, many of these negatives are being discounted in the stock market and credit markets as stock prices are down more than 50% and credit spreads are at record levels. We have not had as many opportunities in both markets in our investing career and we are busy!
- Prem Watsa's 2013 Shareholder Letter - Fairfax Financial
Link to: Prem Watsa's 2013 Shareholder Letter Signs of speculative excesses are everywhere – even though the U.S. economy is still very tepid. The world might muddle through as it did in 2013, but the grand disconnect between stocks and bonds, and...
- Prem Watsa's 2011 Shareholder Letter - Fairfax Financial
We continue to fully hedge our common stock portfolios as our concerns about the United States discussed in our 2010 Annual Report persist, and have been magnified by the financial crisis in Europe, including the underlying austerity programs, and the...
- February 2007 Paper: How Resilient Are Mortgage Backed Securities To Collateralized Debt Obligation Market Disruptions?
Executive SummaryThe mortgage-backed securities (MBS) market has experienced significant changes over the past couple of years. Non-agency (“private label”) securities, which are not guaranteed by the government or the government sponsored enterprises,...
- Prem Watsa's 2010 Shareholder Letter - Fairfax Financial
2010 was a disappointing year for HWIC’s investment results because of the two factors mentioned earlier. Hedging our common stock investment portfolio cost us $936.6 million or $45.61 per share in 2010. Our hedging program masked the excellent common...
- Fairfax Removes Hedges On Equity Portfolio Investments
Fairfax Financial Holdings Limited announces that it has removed the hedge on its equity portfolio investments by covering its S&P and S&P/TSX60 equity index total return swaps.- "During our third quarter conference call on October 31, 2008, I...