ERICOPOLY

Reasons for not walking away from an underwater mortgage (from my perspective): I simply don't like renting. I like to be an owner. I want to cut down that tree that blocks my light, buy furniture that suits the home, put in the patio that I want. I don't want the owner calling me one day and say "I'm selling the house out from under you. Pack your bags, you have 30 days to get the hell out of my house. Meanwhile, I'm listing the property right away and you are going to have realtors walking clients through your home. So sorry!". Last... Many Americans had all of their "savings" plowed into their home and today if they walk away they "lose" it all... you could rightly argue that it's already lost but... they are still in a home they own (benefits of which I listed above). Once they walk away, they have no down payment for the next house because they don't have any meaningful savings outside of their home. It's either stay in the house they love or go and rent and be treated as second class by the landlord who tells you he is selling too (a month after you move in no less).

Here is my advice: 1) Move to Interactive Brokers 2) Buy FFH puts to raise your margin borrowing capacity to a safer level (when they expire worthless you at least have a tax loss) Other ideas to further reduce your margin risk at Interactive Brokers: Sell your energy holdings (assuming no taxable gain): A) replace them with deep-in-the-money LEAPS on those same energy names (if available). OR B) replace them by writing deep-in-the-money puts on those same energy names (the money you get from writing the puts helps count towards your total margin equity, thus increasing margin borrowing capacity and thereby reducing margin risk). You also benefit by not actually borrowing any money, so no margin interest expenses, but you miss out on a dividend which will be partially if not completely (and then some) offset by the volatility premium in the put contract you write. Downside is that soon you won't be able to buy puts anymore on FFH, and if you write deep-in-the-money puts the volatility premium tends to virtually disappear as they go further into the money (increasing the chance of somebody putting the shares to you at the very time you least want them to -- when the shares are crashing... and that's why it's annoying that Interactive Brokers won't grant you a stay of execution and allow you to handle the margin call yourself).

I think a better way of handling this would have been for Fairfax to give us all more time to arrange our affairs. Why the rush?

:D We can increase home prices by destroying current homes or asking teenagers to cohabitate earlier. There’d be a lot of young men who would take that deal.

Selling stock at below IV -- not a great option. Getting a cash dividend means realizing 100% intrinsic value -- best option. People are always bitching that they can't sell FFH at intrinsic value, but taking cash out is getting your intrinsic value piece by piece. Of course, I live on my investments so my perspective is different. When I had a job and didn't need more taxable income, I felt the same way you do. Plus, the market is soft right now anyhow -- paying this dividend does not impact the size of the remaining insurance operations. Instead, it increases float:equity leverage slightly so the equity left behind will compound a wee itty bitty amount faster.

It was worse than that because you are looking only at the pre-tax yield.

I read somewhere yesterday when I opened my Interactive Brokers account that US investors are not allowed to (SEC restriction) trade options of stocks not listed on US markets. Did I understand that correctly? If so, it's a big disappointment I can no longer use options to hedge FFH. I rather like being able to just buy some puts as a means of diversification, rather than reducing my allocation size. And, of course, it's nice to buy some at-the-money calls when it tanks rather than leveraging up via borrowing money (riskier).

Get an account with Interactive Brokers. They give 30% initial and maintenance margin on Toronto FFH. http://www.interactivebrokers.com/en/p.php?f=margin That looks like it's a viable alternative, thanks for the help. I opened an account with Interactive Brokers last night. One thing I learned about their margin program is that they do not have margin calls... instead they just start selling your stuff immediately. So, that's likely a big part of why they allow more liberal margin -- it is inherently less risky for them. Now if delisting from the NYSE makes the FFH stock trade below book value less often, then that lower the risk of this ever being a problem in the first place.

Skates on thin ice... declined!

I read that WEB's credit score is 740 or something. Mine is higher. Got you wondering now eh, how much money does ERICOPOLY have? Better credit than WEB????

What are you referring to when you mentioned the '40% down news and the delisting news....' ? In my first mention of the loan I was trying to get, I mentioned that they required me to put 40% down (I don't want to put more than 20%, which is the standard if I had income). Within a few seconds I saw the news that FFH was being delisted (which set off a round of questions in my head), and then a few seconds later saw that I had to double my down payment if I want that house (There is nothing like being mentally anchored at 20%!).

I appreciate the home loan ideas -- I agree though that it is off topic. I walked in the door and checked my messages and was hit with the 40% down news and the delisting news at the same time (that's the only relation).

Get an account with Interactive Brokers. They give 30% initial and maintenance margin on Toronto FFH. http://www.interactivebrokers.com/en/p.php?f=margin That looks like it's a viable alternative, thanks for the help.

Tax deduction. You can only deduct mortgage interest up to $100k of principle amount for loans, if those loans weren't used to finance the initial purchase of the home. But you gave me an idea -- maybe I can get a HELOC, and when I draw on it if I use the funds to buy stocks I could then probably deduct it as investment expense (much the same as margin interest). I also wanted a 30 yr fixed loan, but I don't think I can get that with a HELOC (I could be wrong).

It sounds like you have a job then, if you are talking about W2 forms. I said I am retired. There is no W2. Bank account has less than $30k. The money is in the brokerage a/c. You need to have a job to qualify for a conforming loan -- I don't qualify because I don't have a job, so my only option is a "portfolio lender" who will keep the loan on the books. Fannie/Freddie won't touch a loan issued to me (income is required), so that's why I get the door shut in my face. Imagine, you could have $50m in Berkshire stock but... no income!

Eric as a US resident no Canadian broker will open an account for you, thank the SEC for this. I am sure you can find a US domiciled broker who will extend margin on Cdn listed securities. That's so lame. But there's too much lame going around this week. For instance, I've been trying to get a home loan the past couple of days, and I've been experiencing lame on a whole new scale that I never thought existed. I quit my job in early 2008 so the only person who will give me a loan (after much hunting around) wants 40% down and 6.5% on a 30 yr fixed. But if I had a job, it would be less than 5.5% and only 20% down for that 30yr fixed. I asked them how much income I would need from that job to qualify for the 20% down loan, and they said "X". Well, I told them that I already have 40 yrs worth of "X" in hand... 40 birds in hand has got to be worth more than one in the bush right? I asked them what if the person with the income gets laid off? Well, they said he could just go get another job. So I said, well so couldn't I get another job if I had to? I mean, this is absurd. Personally, if it were my money, I'd rather lend it to the guy who had 40 yrs income, and who could pay cash for the full price of the home 4 times over right now (rather than just once over 30 yrs). Is this why the financial system is such a mess, because lenders won't lend money to people of low risk and instead want the person that's one pinkslip away from foreclosure? Why in the world do they act like this?

I take it the new TSX USD denominated version of FFH can be used for this, so no currency conversions needed.

I'm not going to be able to use my FFH as margin equity if I take delivery on the 2011 calls, now that it is going to be a "foreign" listed stock. In order to preserve my margin borrowing capacity I'll need to take delivery of FFH and then move the shares to an account in Canada I assume? Any tips on best/reasonable Canadian brokerage?

I have some good news for you there: I held my NBFCF (Northbridge) shares in my IRA -- traded over the counter. I currently hold SFKUF (SFK.UN) in my IRA -- again, over the counter.

That's what happened with NB. I owned it via the ticker NBFCF.

Don't worry, they had children. http://en.wikipedia.org/wiki/Echo_Boomers In the United States the actual "Echo Boom" was a thirteen year span between 1980 and 1995[40] when for the first time since 1964, the number of live births reached over four million. It wouldn’t be until 1985 that the live birth number would even match that of 1965 at 3.760 million. Also it should be noted that the birthrate of 1971’s 17.2% has yet to be reached according to the 2000 census. [41] One analysis of American demographics locates the increase in births between 1979 and 1992. By this calculation there are 60 million members of the generation, more than three times the size of Generation X, and just shy of the 78.2 million baby boomers

Per the "Monetary History of the United States" by Milton Friedman and Anna Schwartz, from 1875-1900 (i.e. 25 years) consumer prices fell by more than 1% a year. Cheers JEast I'll bet one can't find "quantitative easing" in that book.

The supposed equities bubble is confounding me because a rising tide should lift all boats. YTD performance: Berkshire +6.6% JNJ +3.9% WFC -4%

Where is the fault in that? Is it unethical to sell FFH above fair value? What if he unloads his WFC stake above fair value, is there a duty to tell the buyer that he is getting ripped off? Has Warren ever sold anything above fair value, taking advantage of some rube?

They would hedge more than 25% of their stocks if they were building a deflation bet. I think they are making a "spread will tighten" bet, and getting paid well while they wait. The Julian Robertson "yields at 20%+" scenario they are not too worried about I suppose, unless they have some new hedges in place. Or do they still have some CDS that would protect them?