Author Topic: Deflation hedges  (Read 127284 times)

steph

  • Jr. Member
  • **
  • Posts: 82
Deflation hedges
« on: December 01, 2014, 01:02:29 AM »
Hi, Is there a way to know how the CPI hedges are doing?


giofranchi

  • Hero Member
  • *****
  • Posts: 5509
  • Twitter: @giovfranchi
    • Master School Politecnico di Milano
Re: Deflation hedges
« Reply #1 on: December 01, 2014, 04:32:24 AM »
I think each quarter Watsa comments on them, and let us know at which percentage of cost they are reported on the books.

Gio
Portfolio: AAPL, AMZN, BABA, BOSS, BRK.B, FB, FFH, FIH.U, FINX, FWONA, GOOG, IBB, JPM, LBRDA, MKL, NKE, QQQ, SFTBF, SMH, TCEHY, V, XBI, XT

petec

  • Hero Member
  • *****
  • Posts: 1825
Re: Deflation hedges
« Reply #2 on: December 01, 2014, 04:42:01 AM »
I can't find it now but someone on here has previously commented that the swaps appear to be valued as Level 3 assets by FFH, meaning they have considerable flexibility in how they value them.   IIRC the poster felt they valued them using a very conservative internal model because they often seemed to get market down very shortly after they were purchased.

In other words, you might not be able to predict the carrying value even if you can get a price quote.

steph

  • Jr. Member
  • **
  • Posts: 82
Re: Deflation hedges
« Reply #3 on: December 01, 2014, 04:56:55 AM »
ok. Thank you!

captkerosene

  • Newbie
  • *
  • Posts: 47
Re: Deflation hedges
« Reply #4 on: December 01, 2014, 05:01:27 AM »
Could lower oil prices spur deflation?

petec

  • Hero Member
  • *****
  • Posts: 1825
Re: Deflation hedges
« Reply #5 on: December 01, 2014, 05:06:38 AM »
Could lower oil prices spur deflation?

I believe the swaps are on the main CPI index (i.e. including fuel and food) in which case low oil price will be a deflationary factor.   

TwoCitiesCapital

  • Hero Member
  • *****
  • Posts: 2226
Re: Deflation hedges
« Reply #6 on: December 01, 2014, 07:45:01 AM »
It's not just oil - many commodities are significantly off too. Unfortunately, unless if it affects housing/rents then I have a hard time seeing how it will significantly impact the index. Fuel is a low % of spending for most so it will be a low weight in the index.

I do believe that the weakness that were seeing across most industrial commodities/services is supportive of deflationary pressures - this isn't  limited to oil production shifts. Iron, copper, shipping, oil, lumber, natural gas, etc are all down significantly year over year.


benhacker

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 880
Re: Deflation hedges
« Reply #7 on: December 04, 2014, 01:06:42 PM »
Quote
I can't find it now but someone on here has previously commented that the swaps appear to be valued as Level 3 assets by FFH, meaning they have considerable flexibility in how they value them.   IIRC the poster felt they valued them using a very conservative internal model because they often seemed to get market down very shortly after they were purchased.

That was me.

Just checked the latest filing I had, they made a $1B notional purchase for cost of $1.7m on 9/30/2014, and marked the value at $1.45m the same day.  So there model appears to be conservative (or perhaps the bid/ask on these contracts is massive)
Ben Hacker
Beaverton, Oregon - USA

ERICOPOLY

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 7081
Re: Deflation hedges
« Reply #8 on: December 04, 2014, 01:30:36 PM »
lower commodity prices means you can make stuff cheaper.
productivity gains mean you can make stuff cheaper.

lower commodity prices mean consumers can buy more stuff with same paycheck, leading to higher factory utilization and employment gains,

higher productivity means we make products with fewer people.

lately I believe productivity has disappointed during an environment of cheaper commodities.  Isn't this a bullish combination for capacity utilization and employment gains? Somehow I believe that is a headwind to deflation.
« Last Edit: December 04, 2014, 01:33:14 PM by ERICOPOLY »

ni-co

  • Hero Member
  • *****
  • Posts: 978
Re: Deflation hedges
« Reply #9 on: December 04, 2014, 03:06:31 PM »
lower commodity prices means you can make stuff cheaper.
productivity gains mean you can make stuff cheaper.

lower commodity prices mean consumers can buy more stuff with same paycheck, leading to higher factory utilization and employment gains,

higher productivity means we make products with fewer people.

lately I believe productivity has disappointed during an environment of cheaper commodities.  Isn't this a bullish combination for capacity utilization and employment gains? Somehow I believe that is a headwind to deflation.

What was first, deflation or lower oil prices?