Fairfax Financial 1Q16 Earnings Call Notes

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Fairfax Financial Holdings’ (FRFHF) CEO Prem Watsa on Q1 2016 Results

Increased our position in long US treasury bonds

“During the quarter, Mark, we added to U.S. treasury bonds, long U.S. treasury bonds and reduced our cash position some. So, what you see is mainly the increase in U.S. treasury bonds.”

We’re concerned that central banks are out of bullets

“the worry we’ve said for some time is with all of this QE1, 2 and 3 in the United States and then followed by Europe and followed by Japan and negative interest rates in Japan and a whole bunch of negative interest rates in Europe, I think more than half the German market is now negative. And so, in spite of all of that the economy is very weak. And if we go into a recession after six-seven years of economic growth, it won’t be unusual, if we go into a recession. Our view has been for some time that we have no bullets; we have no ammunition. ”

You have a lot of debt that’s been raised in the United States and it’s sitting in mutual funds

“you have a lot of debt that’s been raised in the United States. So, the banks we think are relatively safe because they’ve gone through some tough times in ‘07, ‘08, ‘09 but the risk now is in mutual funds. So, there is a lot of high yield debt in mutual funds; there is a lot of corporate bonds and as emerging market bonds all in mutual fund setting where you can have redemptions at any time”

We watch closely for inflationary pressures but we don’t see them

“We watch it carefully of course but as we look and see there is no real pressure on wages yet. Velocity of money, we look at velocity, we talked about that in our annual meeting, velocity of money in the United States, in Europe and in Japan are coming down significantly. And that happens when you’ve got too much debt in the system. There is too much debt in the United States, there’s a lot of debt in Europe even more than the U.S. in terms of percentage of GDP and in Japan of course is the highest. So, you’re not able to, again, inflation going because velocity of money is just plummeting.”