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Far Horizon

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  • How Buffett Is Changing The Future Of Berkshire's Float - From Insurance To Uncle Sam [View article]
    Very interesting insight. Deferred tax and insurance liabilities share one common feature, they appear on the liability side of the balance sheet, because they are "other peoples money" which must be paid at a future date. To this end, what is invested in using this leverage becomes of secure is the anticipated return on invested float?
    I assume that the BRK investment profile retains a conservative enough profile to secure the liabilities of future tax payments, and that these are carefully duration matched, but this seems a risk to watch as with any leveraged business model.
    On balance, I see advantages in deferred tax float over insurance float, as the latter carries risk in both the final amount of exposure, and the timing of the "repayment". This means that there is a need to back the insurance liabilities with a capital buffer, reducing the leverage efficiency. Thanks for the article which provides excellent food for thought!
    Aug 15 09:21 PM | 4 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    According to OECD stats, Turkey's industrial production grew by 15% between 2010 and q3 2013.
    The growth drivers showed a shift from textiles, to electronics, automotive and other higher tech industries.
    Over the same period the G7 economies industrial growth rate was 4.5%.
    Jan 1 07:57 PM | 3 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    Thanks TAS. I agree that Erdogan is vulnerable right now. The military remains a key player in Turkey, and a coup is a possibility. This is why I am on the sidelines for now.
    However, while I am sure that a change of government would disrupt the markets, I do see the strong positive drivers in Turkey as inevitable in their outcome of economic growth. A change of government could represent a buying opportunity. The worst outcome for the market would be a fragmented coalition, and this would be a signal for me to scale down.
    Jan 1 04:10 PM | 3 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    Thanks for the comment Dodurgali.
    I do mention above the current account deficit, which leaves Turkey vulnerable to external financial influence, a key target of the World Bank programme.
    I am less sanguine about the state of modern Turkish democracy than you seem to be.
    I will have to look more into the environmental topic. Sadly however, history shows that the price for poor environmental management is deferred until years after the profits of economic growth flow through to the markets. My analysis is around the market outlook over 1, 5, and 10 years.
    Jan 1 04:05 PM | 3 Likes Like |Link to Comment
  • Blue Capital Reinsurance Holdings Considerable Capital Appreciation And Yield Opportunity In New, Underfollowed Reinsurer [View article]
    I agree that the risk profile is arguably much higher than portrayed here.
    Collateralised reinsurers are able to access business without strong financial security ratings because they have to put up cash equal to the risk that they accept. This means that they are unable to write a diversified portfolio of business. The assumed loss ratio in the low 20% range and the high rate on line are key assumptions which need careful scrutiny. 20% rate on line means that the price of protection purchased by their clients is 1/5 th of the potential reinsurance claim. A 20% loss ratio means that only 1/5th of the premiums received are paid out in claims.
    Compare that to the price of a 12 month out of the money SPY put !
    Reinsurance contracts that pay that high a price tend to be concentrated in a few key risk areas - Florida hurricane being a good example. Not only are these zones under intense price competition ( recall comments made recently by Warren Buffett that BH were moving out of this space) but losses tend to clump together due to climate issues. The most appropriate risk measure is not the mean or the median loss, it is the 'worst case' scenario, and the probability of that.
    Potential investors in BCRH would be advised to undertake careful scrutiny of their underwriting strategy, portfolio mix, and forward projections of pricing movements. The collateralised reinsurance model is a high risk investment, and the potential for full loss of capital should be one scenario investors should consider.
    Jul 6 11:53 PM | 2 Likes Like |Link to Comment
  • Tesco's Price Drop Offers Excellent Value [View article]
    Thanks for the article which opens up an interesting topic in the current UK supermarket industry -
    There seem to be a couple of investment theses here;
    1. Buy Tesco on value and dividend yield. Here I would consider Sainsbury as a better case. 5.2% yield (ex div in November whereas Tesco has just gone ex div) and a lower pe with a more upmarket brand to fend off the discounters.

    2. Buy Tesco on Overseas growth. My pick here would be Charoen Popkhand, an Asian focused group with strong political capital and good horizontal integration. Tesco is still a UK play, and troubles at home are likely to limit the focus on the overseas markets.

    3. Follow Buffet....with some debate over exactly what he is doing with. Tesco. Surely the best way to follow Buffet is to buy Berkshire Hathaway?
    May 2 10:06 PM | 2 Likes Like |Link to Comment
  • The Singapore Story: No Longer A Sure Thing For Investors? [View article]
    Not short of controversy around this article are we? I always find it interesting to consider polarised arguments, as the truth is often in between. I lived and worked in Singapore for most of the 90's have more of my friends there than anywhere else, and am a frequent visitor.
    The issue for both Singapore and Hongkong as I see it is one of competitive advantage over neighbours as an entrepot economy. As China and S East Asian countries develop more open economies, reduce protectionism, and increase the supply of educated employees - one degree better becomes increasingly hard to maintain. This leads to tougher cost benefit equations for employers, employees, residents and other 'investors'.
    Singapore specifically I see as having progressed fast up the cost curve, while managing to maintain an edge over neighbouring countries. Every time I visit KL, Bangkok, Jakarta, Manila, Ho Chi Minh, I see the edge in evidence, but also how much these places have progressed, and how tenuous is Singapore's grip on the leaderboard. I certainly don't write it off, but the city state has its work cut out to keep ahead - as an entrepot is is essentially dependent on its neighbours - IMHO I think that there will always be a role for Singapore to play, but the real upside for future growth lies elsewhere.
    LKY used to picture Singapore as the "Switzerland of Asia" maybe look to Switzerland to anticipate how things might look in Singapore in the future.
    Apr 9 10:42 PM | 2 Likes Like |Link to Comment
  • Is This The Best Emerging Market For 2014? [View article]
    I would certainly be wary of the downside, and never 'bet the house'. In previous articles I have discussed my logic for an overweight EM allocation, and strategy for using country specific ETF 's to weight this towards countries which show the best prospects ( guided by a risk model I developed for the purpose).
    Even within this strategy, asset allocation should be balanced, and reflect specific risk tolerance and investment goals / time frames.
    Thanks for pointing out the risk, which I take as a given in investments in general and Emerging markets in particular.
    Jan 1 07:46 PM | 1 Like Like |Link to Comment
  • Canadian Dollar Extends Weakness As The Bank Of Canada Sounds Fresh Alarms [View article]
    Interesting to track the commodity based currencies vs the USD. Similar themes with the Aussie dollar. What's your AUD- CAD thesis ?
    Dec 5 07:34 AM | 1 Like Like |Link to Comment
  • Reinsurance Update: Interim 2013 Q1 Earnings Comparisons [View article]
    I agree that the sector is a buy, timing is tricky. The reinsurance sector is awash with capital from hedge funds, pension funds and others seeking yield, and this is putting pressure on pricing. Berkshire Hathaway is also pumping in capital.
    Buying after major events should be a good strategy, but I would choose the stronger and more diversified companies. Look at Partner Re after the NZ and Japan EQ to see the impact of being overweight to the market in a major loss. Check out, if you want to read more on the sector, and where I look at what Ajit Jain at Berkshire is up to. Brian, the sector heavyweights are the big European players, have you thought of including those in your reviews?
    Apr 27 05:41 PM | 1 Like Like |Link to Comment
  • Indonesia: Share The Wealth [View article]
    Yes, you are correct - the text should more accurately read "For the sake of completeness, here is how IF has performed vs SPY since inception in 1990."
    My key point is the volatility of Indonesian investments, much of which has been currency related. The IDR/USD fx rate is telling. This shows how th Rupiah shot from 2000/USD to 16000 in the 90's, then stabilised in a (wide) range between 8000-12000 since then. A comparison from 1990 bears the devaluation in full.
    While as I mention in my article currency risk remains high, a repeat of this devaluation could be considered a 'tail' event.
    Apr 10 08:07 PM | 1 Like Like |Link to Comment
  • Indonesia: Share The Wealth [View article]
    Thanks - independence was declared in 1945, but wasn't recognised by the Dutch until 1949, I chose the latter date as a milestone in economic and political development, as undisputed sovereignty heralded a new era for Indonesia.
    Apr 10 07:42 PM | 1 Like Like |Link to Comment
  • Thailand: Taking A Stake In A Changing Economy [View article]
    I am writing a follow up article and will look at TTF as a comparison.
    Mar 2 11:37 PM | 1 Like Like |Link to Comment
  • Thailand: Taking A Stake In A Changing Economy [View article]
    There is a state telco, and True, a private listed player. I am putting together a follow up article and will include True. Thanks for the suggestion.
    Mar 2 11:31 PM | 1 Like Like |Link to Comment
  • Catlin Group: The Insurance Company You Don't Know About [View article]
    Legal and General and Old Mutual are life insurers, so not strong comparisons to Catlin. I don't know the other two. Godalmightee mentions Amlin, which has a very similar business. My article will compare these two.
    Quick correction to the comment I made above, as the underwriting contribution of. $536m above is for the half year, the implied combined ratio is more like 80%.
    Aug 16 05:23 PM | Likes Like |Link to Comment