Author Topic: Fairfax 2020  (Read 18532 times)

petec

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Re: Fairfax 2020
« Reply #120 on: March 21, 2020, 03:29:04 AM »

1) I havenít thought it through your way, because I donít know the regulatory rules, but theyíre at $800m ish now and said that $1bn was a reachable target before spreads gapped out, so I can only assume itís more reachable now.


There are two things that have happened over the past few weeks.  The spreads have gapped out, but the risk-free has fallen like a stone:

https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

Short-term governments have dropped from ~2.4% interest in 2019 to ~0.4% interest today, and it has occurred across all short maturities from 3 months to 2 years.  Any governments that need to be rolled in 2020 will face a drastically lower rate.  FFH has $8B of bonds that mature during 2020 and probably about $10b or $11b of cash equivalents.  Assuming that is 75% governments, that might be a total of about $13B in governments that will take a 2% interest rate haircut during 2020, which might reduce interest income by ~$260m for the government portion of the portfolio.  Assuming that there is $5B of corporates that will be rolled, you'd need to gain an extra 500 bps on the corporates you roll to just offset the lower interest rates on the governments.  The math is not particularly nice for FFH on this front.


SJ

No thatís fair. I guess my base case is that when we come out of this the reverse happens: short govt yields rise and spreads compress. That means the short govts donít have to roll onto much lower rates but that anything thatís been redeployed into corporates earns a higher rate. I think thatís reasonably probable, but itís also a best case.
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petec

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Re: Fairfax 2020
« Reply #121 on: March 21, 2020, 03:30:45 AM »
I just hope that they are not shorting all the wrong names Einhorn-style (I.e. all FANG powerhouses listed in the Annual Letter)

I do think itís very odd, the stocks they chose to highlight in the letter. Ok theyíre not optically cheap, but theyíve largely got spectacular business models and growth. There was likely a bubble in some names, and particularly among the unprofitable story stocks, but not the ones they named.
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Xerxes

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Re: Fairfax 2020
« Reply #122 on: March 21, 2020, 02:33:23 PM »
For those of us who are uninitiated in the world corporate bond trading, is there an index based on European corporate bonds that can be bought to capitalize on the short-med term widening of credit spreads ?