Author Topic: 2017 Annual Letter  (Read 36986 times)


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Re: 2017 Annual Letter
« Reply #110 on: January 06, 2019, 12:04:38 AM »
There are two issues with this sort of thing:
    - they are less than forthcoming in a lot of places - I believe they still have their CPI hedges on in the US. Any orangutan living in the US could have said that wages and prices are increasing. Even in Canada, the house prices have been going through the roof totally out of sync with incomes. So has been the case with income in US and especially so in Canada.
    - the level of criticism leveled at FFH for their behavior is very very low in this board than warranted
They said they were 'required' to sell these holdings --why required to sell these holdings?:

Another cost of our hedging, and why it is extremely unlikely that we will repeat this in
the future, is that it required us to sell some wonderful long term common stock holdings, as shown below:

EDIT: Were these holdings in particular posted as collateral for the hedging?

As I recall the hedges required them to post cash collateral on a regular basis. So they weren’t required to sell these holdings particularly, but they chose to. Again I may be wrong but I remember a lot of debate on the board at that time as to whether these sales had been motivated by the cash calls and it seems they were.

And here is what they said in the 2013 letter -- no mention of a 'requirement' to sell.  It has migrated from 'concern' to 'required':

Given our concern about financial markets and the excellent
returns we achieved on our long term investments, we reluctantly decided to sell our long term holdings of Wells
Fargo (a gain of 125%), Johnson & Johnson (a gain of 47%) and U.S. Bancorp (a gain of 135%).

Yes - they definitely didn't admit at the time that the sale was to finance the hedges. Someone on here figured that out - can't remember who.

The CPI bet is valued at virtually zero. There’s no point selling it. It’s what the equity hedges should have been all along: a low probability high return holding.

House prices rising ahead of incomes is likely to be deflationary at some point, all else equal. The buildup of debt is exactly what they’ve been worrying about. They badly misjudged how long it could continue (and, perhaps, whether it would eventually lead to inflation not deflation given fiat monetary policy).