December 23, 2011

John Paulson, the hedgie whose incisive analysis of the economy and uncanny ability to lay his finger on the pulse of the market made him and his clients billions during the subprime episode, has run out of luck:

John Paulson, the billionaire money manager mired in the worst slump of his career, lost 10.5 percent in his Gold Fund this year even as the metal heads for its 11th straight annual gain, according to people familiar with the fund’s performance.

The fund, which invests in mining stocks and other gold- related securities, remains the best performer in Paulson’s $28 billion fund family this year. His Paulson Advantage Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, has fallen about 35 percent.

DBRS has confirmed Fairfax at Pfd-3:

DBRS has today confirmed the Senior Unsecured Debt rating of Fairfax Financial Holdings Limited (Fairfax or the Company) at BBB and its Preferred Shares rating at Pfd-3. The trends are Stable. The confirmation reflects the fact that the Company has continued to enjoy strong earnings despite negative underwriting results stemming from ongoing competitive market conditions in commercial insurance markets and adverse catastrophic claims from the tsunami in Japan, earthquakes and storm activity. Strong investment results, including both interest and dividends and gains on investments, continue to distinguish Fairfax’s unique in-house investment management operation, funded through premiums taken in by its insurance operating subsidiaries, although maintaining underwriting profitability is a strategic priority. With an investment bias, Fairfax is able to avoid the worst of the cyclicality inherent in the property and casualty (P&C) insurance industry by choosing not to write policies where inadequate pricing would only give rise to additional underwriting losses.

Financial leverage is increasingly taking the form of more tax-efficient preferred share capital and borrowings at the holding company rather than at the operating subsidiaries. With 100% control of its major operating subsidiaries, the holding company’s cash position is more secure since the upstream dividend flow from its operating subsidiaries has become more predictable, albeit subject to regulatory approvals, especially given excess regulatory capital at all its major operating subsidiaries. Financial leverage, given the Company’s cash position, excellent liquidity and underlying strong regulatory capital ratios, is well within the limits of the assigned rating category.

Nevertheless, despite the strong investment management track record of the Company, accompanied by growing sophistication around enterprise risk management, the underlying competitive and volatile nature of the underlying insurance business, including the increasing risk of catastrophic claims, suggests that the upside potential for Fairfax’s ratings remains limited.

Fairfax is the proud issuer of FFH.PR.C, FFH.PR.E, FFH.PR.G and FFH.PR.I, all FixedResets.

It was a strong day for the Canadian preferred share market, with PerpetualDiscounts up 23bp, FixedResets gaining 11bp and DeemedRetractibles winning 29bp. Volatility was quite good, well-skewed to the upside. Volume was light.

I’ve been taking a correspondence course in Conversational Furrin for the past while so here goes! Police nab your dad! And Poppa swears anew when your niece is bad!*

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.5883 % 2,055.7
FixedFloater 4.97 % 4.74 % 40,255 16.91 1 -1.6975 % 3,099.9
Floater 3.24 % 3.58 % 72,842 18.35 3 1.5883 % 2,219.6
OpRet 4.94 % 1.69 % 63,424 1.39 6 0.2525 % 2,470.8
SplitShare 5.44 % 1.45 % 77,715 0.96 4 0.4173 % 2,572.3
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.2525 % 2,259.4
Perpetual-Premium 5.47 % -4.47 % 89,442 0.09 18 0.2583 % 2,185.2
Perpetual-Discount 5.21 % 5.09 % 108,396 15.15 12 0.2339 % 2,334.2
FixedReset 5.09 % 2.92 % 218,747 2.46 64 0.1072 % 2,352.6
Deemed-Retractible 5.00 % 3.66 % 196,774 2.70 46 0.2904 % 2,247.2
Performance Highlights
Issue Index Change Notes
GWO.PR.N FixedReset -1.90 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.72
Bid-YTW : 4.10 %
BAM.PR.G FixedFloater -1.70 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-23
Maturity Price : 25.00
Evaluated at bid price : 19.11
Bid-YTW : 4.74 %
IAG.PR.E Deemed-Retractible 1.01 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2018-12-31
Maturity Price : 25.00
Evaluated at bid price : 26.02
Bid-YTW : 5.31 %
FTS.PR.G FixedReset 1.04 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2013-09-01
Maturity Price : 25.00
Evaluated at bid price : 26.30
Bid-YTW : 2.30 %
MFC.PR.A OpRet 1.08 % YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2015-12-18
Maturity Price : 25.00
Evaluated at bid price : 25.28
Bid-YTW : 3.83 %
SLF.PR.B Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.05
Bid-YTW : 6.43 %
CU.PR.A Perpetual-Premium 1.56 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-01-22
Maturity Price : 25.25
Evaluated at bid price : 26.00
Bid-YTW : -24.14 %
BAM.PR.K Floater 2.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-23
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.60 %
BAM.PR.B Floater 2.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-23
Maturity Price : 14.66
Evaluated at bid price : 14.66
Bid-YTW : 3.58 %
MFC.PR.F FixedReset 3.02 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 3.91 %
Volume Highlights
Issue Index Shares
Traded
Notes
BNS.PR.X FixedReset 94,754 Nesbitt crossed 90,000 at 27.25.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-04-25
Maturity Price : 25.00
Evaluated at bid price : 27.39
Bid-YTW : 2.42 %
GWO.PR.H Deemed-Retractible 30,875 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 5.43 %
CM.PR.G Perpetual-Discount 30,521 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-01
Maturity Price : 25.00
Evaluated at bid price : 25.31
Bid-YTW : 4.60 %
CM.PR.E Perpetual-Premium 29,836 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2012-01-22
Maturity Price : 25.25
Evaluated at bid price : 25.17
Bid-YTW : 2.02 %
SLF.PR.G FixedReset 29,069 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.01
Bid-YTW : 4.78 %
BNS.PR.Z FixedReset 27,515 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.07 %
There were 22 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.C Deemed-Retractible Quote: 20.67 – 21.39
Spot Rate : 0.7200
Average : 0.5330

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 20.67
Bid-YTW : 6.96 %

GWO.PR.M Deemed-Retractible Quote: 25.60 – 26.09
Spot Rate : 0.4900
Average : 0.3044

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 5.51 %

PWF.PR.A Floater Quote: 19.40 – 19.97
Spot Rate : 0.5700
Average : 0.3927

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-23
Maturity Price : 19.40
Evaluated at bid price : 19.40
Bid-YTW : 2.72 %

PWF.PR.F Perpetual-Discount Quote: 24.95 – 25.40
Spot Rate : 0.4500
Average : 0.2850

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-23
Maturity Price : 24.68
Evaluated at bid price : 24.95
Bid-YTW : 5.33 %

BAM.PR.B Floater Quote: 14.66 – 15.11
Spot Rate : 0.4500
Average : 0.2863

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2041-12-23
Maturity Price : 14.66
Evaluated at bid price : 14.66
Bid-YTW : 3.58 %

BMO.PR.K Deemed-Retractible Quote: 26.31 – 26.69
Spot Rate : 0.3800
Average : 0.2423

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-11-25
Maturity Price : 25.50
Evaluated at bid price : 26.31
Bid-YTW : 4.15 %

* That’s furrin for Merry Christmas and Happy New Year!

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