Viking

i wonder if Prem is booted as a director at the annual meeting tomorrow if that does not give Fairfax the green light to unload the shares ?

Greg, yes, i feel for shareholders who have held the stock for the past 10 years; ugly. However, those who bought after the stock cratered last year have done exceptionally well. And the stock is hardly expensive today given how the company is currently positioned: - we are in a hard market for insurance pricing and it looks like it may last another year or even two. That is significant. - the equity portfolio has been performing very well and looks reasonably well positioned moving forward should the economic recovery continue into 2022 The big challenge for investors in Fairfax is lack of trust in Prem. This is a watchout for me; although not currently a big enough concern as i own stock.

So what is going on with BB stock? It is trading today at US $13.20. It has been trading above $13 for three weeks now. Why is it not going back below $9? We are a week away from quarter end. Should BB continue to trade at current levels it would be up about $4.50 / share from March 31 = $450 million mark to market gain for FFH when they report Q2 results. This is about $17/share pre tax. Not a small number. i also continue to think the longer BB shares trade at elevated levels the greater the chance that FF will monetize the asset. The benefits of monetization are numerous; the question is what price will it take?

I think another under-appreciated part of the current steel pricing story is the concentration that now exists in North America on the supply side. Given all the acquisitions (especially those by Cleveland Cliffs) there is now an oligopoly. And NA steel producers are talking/focussed on profitability NOT volume. This makes the current cycle a little different than past cycles and, if true, supports the higher prices for longer thesis.

I think lead times are close to 3 months out. So we know Q2 earnings are going to be historically high. We also know Q3 earnings will be even higher. For Stelco the cash build on their balance sheet will start when they report Q2 earnings. With Q3 earnings in the bag (by the time they report Q2) Stelco management will have confidence in the cash build to communicate more concretely what the plans are for returning cash to shareholders. The CEO is HIGHLY motivated to get the share price higher (given his significant holdings of +10% and blunt comments on the Q1 call). Given where Stelco stock is trading today, Mr Market clearly expects 1.) steel prices to crater lower shortly 2.) Stelco management to do something stupid with the cash It is not clear to me that either of the above will happen. 1.) the demand / supply for North American steel looks like prices will remain higher for longer 2.) since bringing Stelco out of bankruptcy in 2017 Stelco management would get an ‘A’ grade in my book for their strategic vision and capital allocation decisions ————————— Pretty amazing what Kestenbaum has done with Stelco in 4 years. Interesting to read the news stories from 2017 and the scepticism. Great example of what is possible when you have strong management. - https://www.cbc.ca/news/canada/hamilton/stelco-emerges-from-bankruptcy-protection-after-nearly-3-years-1.4186708

FFH. Happy to add to position at current prices. Q2 results should be solid. Hard market continues. Investments should add to net earnings. Shares are trading back below 0.9XBV (whole P&C sector sold off last week).

Hobbit, that is a very good summary. Thank you for taking the time to post it. So you are confident that the valuation of BIAL is roughly accurate at $1.4 billion? If so, Fairfax India is dirt cheap. The question then becomes when will sentiment change and drive the share price closer to BV? What are your thoughts on the share buyback/dutch auction? Is it a marketing exercise by Fairfax India to get the story out (how undervalued the company is)? Or is it to buy out the weak hands (shareholders who are frustrated with multi-year underperformance)? Or the first step to increase Fairfax’s ownership stake - leading to Fairfax buying Fairfax India back down the road? I especially liked your very candid explanation of why the share price is trading so far below BV. I agree with everything you said. I am not sure if time alone will fix this. I hope Fairfax India keeps aggressively buying back stock (and does another big buyback if share continue to trade so far below BV when the dutch auction is completed). Large stock buybacks appear to me the best way to reward current shareholders.

bluedevil, thanks for the suggestion. Rise in trans-Pacific spot rates is relentless — and accelerating New all-time highs for Freightos indexes: $9,889/FEU Asia-East Coast and $6,829/FEU Asia-West Coast - https://www.freightwaves.com/news/rise-in-trans-pacific-spot-rates-is-relentless-and-accelerating ”An import decline caused by congestion would not decrease spot rates. But rates would theoretically decline if there were a decrease in demand caused by a shift in consumer spending away from goods toward services, and/or if future demand fell because it had been pulled forward. Asked by American Shipper for the rationale behind the lower October forecast compared to the May estimate, NRF Vice President for Supply Chain and Customs Policy Jonathan Gold replied, “The numbers we’re seeing now are high because there has been so much pent-up demand and more vaccines mean people are finally getting out of the house to shop again. Retailers have had to import record amounts of merchandise to keep up. “We expect consumer demand to remain strong, but with the ongoing supply chain disruptions and port congestion we’ve seen for months now, many retailers are moving up their holiday imports to be sure that holiday merchandise arrives in time,” said Gold. “That means the peak season that would traditionally come in October will likely come sooner this year, and much of the holiday merchandise will already be here by October.”

Has anyone come across any recent articles discussing the supply demand dynamic for steel? It is a little bizarre the HRC future pricing just keeps going higher regardless of what is going on in the rest of the commodity complex.

It certainly looks cheap at $13 ($12.60 yesterday). What has surprised me about India and the covid spike of recent months is how well Indian stocks are doing; most of Fairfax Indian stocks are up nicely. And Fairfax India’s publicly traded stocks are also trading up. So why is Fairfax India trading $5 below BV? I think the issue is sentiment; confidence in the parent Fairfax (not Fairfax India). If this does not change i hope Fairfax buys Fairfax India (pull a move out of BAM’s playbook). Perhaps getting more aggressive on the share buybacks (increasing Fairfax’s % ownership) is a step in this direction.

Forestry stocks are pretty unloved right now. Sentiment appears focussed on lumber futures and the fall from $1,600 to $900 level. A 44% decline must mean terrible things are coming... So lumber stocks are trading down around 25% from their highs. The interesting thing is the previous PEAK in lumber futures pricing was $600 in 2018. So with futures at $900 lumber pricing is currently 50% higher than the previous peak. Forest stocks are historically profitable at current lumber pricing levels. Terrible times indeed ? (And the OSB market is still at all time highs.... but let’s just ignore that minor piece of information.)

US housing starts for May have come in just under 1.6 million. The issue appears to be shortages of some building items and my guess is OSB is one of them. Bottom line, the US/Canada are in a housing boom fuelled by crazy low interest rates. While we are seeing weakness in lumber pricing it appears OSB is holding at the highs. Overall this continues to be a very favourable set up for WFG. - https://www.calculatedriskblog.com/2021/06/comments-on-may-housing-starts.html Total housing starts in May were below expectations, and starts in March and April were revised down slightly. Supply constraints probably held back housing starts again in May. ...Single family starts are getting back to more normal levels, but I still expect some further increases in single family starts and completions on a rolling 12 month basis - especially given the low level of existing home inventory.

With Fairfax India trading at US$12.30 and BV around $18 this move does not surprise me. Especially with Fairfax India languishing in the $12 range for the past 4 months. It makes sense Fairfax India would want to take advantage of the situation. Fairfax India has 149.6 million shares outstanding. I think Fairfax controls 1/3 of shares so this leaves a max of 100 million available for the tender. At the midpoint of the offer ($13.75) Fairfax India would retire 7.6 million shares. Fairfax India trades about 80,000 shares per day (on TSE and US) so it would be pretty difficult for Fairfax India to buy 7.6 million shares on the open market in a reasonable amount of time (and not also spike the price significantly to well over $15). it will be interesting to see how Fairfax India shares perform in the next week ? PS: i think Fairfax also believes its share price is severely undervalued... it would not surprise me to see them do something as well in the coming months.

Spec, i am really having a hard time wrapping my head around the balance sheet of companies like Stelco and West Fraser. How does an investor value the cash sitting on the balance sheet? And the cash that will soon be sitting on the balance sheet (once they report Q2 earnings and with Q3 earnings also being near historic highs)? Given where shares are currently trading for both companies i hope they aggressively buy back shares. I think this is better than a special dividend (given where shares are priced today); although i think it is very possible both companies will do a special dividend when they announce Q2 earnings. I wonder if Stelco does not simply let cash build on the balance sheet for another quarter or two in the hopes of getting taken out at CAN +$50/share. For West Fraser i wonder if they do not make a move into Europe; strategically, it looks to me like the lumber world is quickly shrinking and ESG is for real and Europe might provide some learnings they can fast adapt back to North America. Wood really is in the sweet spot of being THE environmentally friendly building product and lumber companies are all talking this aspect up. Mr market currently does not believe prices for steel or lumber will stay above historical averages into 2022 and 2023. This makes no sense to me for lumber given we are in a housing boom (bubble in Canada) driven by historically low interest rates (which will likely be staying low for another year or two). I wonder if we do not have a bit of an oligopoly in the steel market in NA today; and the few larger producers today appear to be very focussed on profitability and less so on volume. Record high steel pricing has been exceptionally resilient (so far) ? Lumber also has consolidated greatly over the past decade (Canadian producers aggressively moving into US) although not as much as steel. In terms of Stelco and their cost position versus the EAF steel producers it appears that with all the new EAF mills that have come on stream the past couple of years the current demand for scrap steel in the US is running far in excess of the supply which is causing pricing for scrap steel to increase dramatically (doubled in price the past year from $250 to over $500 today). It appears this could be a structural issue (not temporary). Bottom line, Stelco’s cost position today is very good; not sure what it looks like in a bad steel market when plants aren’t running full out (which will come again :-). - https://ca.investing.com/commodities/steel-scrap

With the benefit of hindsight, the capital allocation decisions made by the company/CEO since taking the company out of bankruptcy certainly have been very well done. Very strategic and executed over many years. I am looking forward to seeing what they do with all the cash given their outstanding track record. Yes, the shares sold to BMO look like a very good fit. We will see...