Fairfax's Watsa sounds caution on global economy, equities

TORONTO, Feb 19 (Reuters) - Prem Watsa, the head of Fairfax
Financial Holdings FFH.TO and a well known contrarian
investor, said on Friday he is concerned about the global
economy, pointing to record low bond yields and limited policy
levers left in the hands of central bankers.
The company, whose equity investment exposure was nearly 90
percent hedged at the end of 2015, has now upped those bets. The
firm has fully hedged its entire equity position by betting on
declines in major indices like the Russell 2000 Index .RUT .
"We continue to be concerned about the prospects of the
financial markets and the economies of North America and Western
Europe," said Watsa on the company's quarterly conference call.
"We see potential for major dislocations in the marketplace with
many significant unintended consequences and we want to protect
our company from them."
The Toronto-based financial services holding company, which
reported its fourth quarter results late on Thursday, saw its
shares close up C$3.50 at C$774 a share on Friday.
Watsa, a devotee of the value investing style favored by
Warren Buffett, made billions for Fairfax by correctly calling
the 2008 financial crisis.
He has since bet on a rebound in the Greek economy via a
number of investments in the country. Watsa has also made bets
that could pay out about $110 billion, if deflationary pressure
increases in the United States and European Union over the next
six or seven years.
"What we're trying to do is protect our company from worst
case events, and deflation is a very difficult environment to
make a return in," he said.
Although the market value of the derivatives has declined to
$272.6 million, from the $656 million that Fairfax initially
paid for them, Watsa is not concerned.
"As we keep saying to our shareholders it's a nine inning
game and we might be in the third or fourth or fifth innings. It
is not over yet."