Fairfax continues large bearish bet; sells out of Wells Fargo, Johnson and Johnson and US Bancorp

Fairfax’s annual letter which is available here was filled with interesting nuggets. We previously looked at his walk through the Blackberry situation but also very interesting was what the Warren Buffett of Canada did with his “long term investments” of Wells Fargo (WFC), Johnson and Johnson (JNJ) and US Bancorp (USB).

We quote from the letter:

Given our concern about financial markets and the excellent returns we achieved on our long term investments, we reluctantly decided to sell our long term holdings of Wells Fargo (a gain of 125%), Johnson & Johnson (a gain of 47%) and U.S. Bancorp (a gain of 135%).

Buffett himself has sold out of Johnson and Johnson (JNJ) but Wells Fargo (WFC) is his number one position and U.S. Bancorp (USB) is a core holding.

Now Wasta and Fairfax have been extremely bearish about global conditions and he believes that stimulus has kicked the can on huge problems.

We quote again:

Signs of speculative excesses are everywhere – even though the U.S. economy is still very tepid. The world might muddle through as it did in 2013, but the grand disconnect between stocks and bonds, and the real economy, continues. You will remember, we consider the 2008 – 2009 contraction to be a one in 50 or a one in 100 year event – similar to the 1930s in the U.S. and Japan since 1990. Because of massive fiscal and monetary stimulus in the U.S., the economic consequences have yet to play out

Watsa notes the high US and UK Total Debt to GDP ratio, tepid economic growth, low inflation, and increasingly large real estate and construction bubble in China as additional reasons for his bearish view and why they have large hedges betting on deflation (CPI-linked derivative contracts) and Equity hedges.

$3.972 billion in unrealized losses since 2010 on the hedges

Since 2010, the equity hedges and CPI-linked deriviatives have lost $3.972 billion in mostly unrealized losses as the market has rallied.

Macro bets like this are unusual for value investors

Large macro bets like this are strange for value investors who tend to merely focus on purchasing cheap assets and build up cash when they can’t find them.

InvestCorrectly Staff
InvestCorrectly Staff

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