Sunrider

Besides - such a settlement couldn't guarantee that another party takes up the case again and re-sues, not really possible for current plaintiffs through their settlement to bar future plaintiffs ... :)

I always wondered how you settle a case like this (well actually multiple cases) - usually that involves no admission of guilt/wrongdoing. So for the breach of contract settlement means .... Oops, we're sorry, shouldn't have done the NWS but still think it was perfectly legal and will now pay the money back to Fannie and Freddie for their boards to decide what to do with it? For the takings? We didn't do anything wrong in taking your stuff away but we'll give it back to you anyway? Remember, it's not as though the government can simply pay the suing shareholders and do a side transaction purchasing their prefs but not those of other shareholders (apart from the fact that technical it would have to be the GSEs buying, who don't have the capital as it would look very odd for the government ot buy in the prefs). Maybe our legal minds on the board have a better view on how this might work but for me it always seemed like the cases will either be won or lost, there is no settlement legal ground as such ...?

Oh man Looking at this from outside the US, one would have to conclude that there is nary a judge there that has a bone of independent thought in their body (or any sort of backbone to speak of). What's wrong with these people and how lazy do they get? Frustrating.

Thank you - these seem to be point in time though ..?

Hi all I'm wondering if anyone could direct me to (or share notes) on what appropriate multiple for FCF, EBITDA are across industries (in the sense of what range they tend to trade at and what normalised looks like). I was looking at the recent Herc Equipment Rental spin-off (HRI) and am trying to wrap my head around whether this is an opportunity worthwhile to invest in or not (so any views on this welcome as well). That led me to wonder what sort of multiples I should put a business like this (cyclical in this case) and businesses in other industries ... people often throw a "this should be x times [insert metric]" around quite often but I don't think I've seen this written down anywhere as ranges of values across industries. Many thanks. C.

Thank you - useful thoughts!

Ben - thanks, I think I got you now and see the error in my thinking (your point re buying something clinched it). As I said in PM, I think I've also derailed the conversation slightly and one of the original issues discussed was shorting (or not) vol. My view is that people need to remember that the VXX does not express the VIX, it's just an average between two future prices (before we go onto whether to use an inverse ETF to express a short view). Thanks - C. Keep in mind, a "-1x" ETF is something you BUY... you go long it... to say it replicates the performance of a short is to me something you would need to quantify with an example, because as someone who shorts a lot, I don't actually understand how they could be the same. I strongly disagree. One is an ETF you buy, and one is a variable rate of interest loan (with which I can use the proceeds to buy something, or hold in cash)... I do not see the equivalence. I get that by calling them "short ETFs" or whatever, folks seem to think there is, but they are like cats and dogs to me. Shorting a funding source, not an investment. Again, I would ask you to provide an example. If I short something, I sell it and I get the proceeds. Then you need to make an assumption about those proceeds (what are they used to purchase, does that ever change, etc). A naked short exposes one to unlimited loss... a -1x ETF does not... so I don't see how then could they ever be equivalent? I don't mean to annoying (at all!), but just try to create an example where the payoff from shorting is like that of buying a -1x fund. They are simply not the same... at all. They are directionally similar, and that is how the marketing pitches them to investors, but they are not what folks think they are. I think what you will see as you noodle on this (or I may be wrong) is that you can construct a long/short *portfolio* that looks like a -1x ETF... but if you model what that portfolio will have to do on a day to day basis to meet it's investment mandate it turns out that the portfolio needs to be adjusted daily to bring it back to a -100% ratio... but I don't have to adjust a short position by itself... so how are they the same? So if you want to say that a -1x ETF is just a short portfolio with the funds from shorts held in cash and rebalanced daily in the direction of market movements to ensure 100% exposure is maintained... well, then I would probably agree that's what (to a rough approximation) a -1x ETF is. But that isn't equivalent to a short position at all... and it has some seriously interesting behavior based on the path of the underlying. I think of leveraged and short ETFs as basically a long short algo that is momentum driven... buy on the way up, sell on the way down. That's all they do... with huge friction.

Thanks - I think we're all talking slightly different things here and are now on the topic of path dependent returns - and I think the simple (non leveraged) inverse and a short in the underlying (absent fees and the other good things you mentioned) should produce the same cumulative return To use your example, replace the -1x ETF with a short position - you get the same result as in your example, correct? As you put it, there's path dependence and one doesn't end up with same price level for symmetrical moves of a short and a long position, i.e. your returns of 90% and -50%, cumulatively, work out to either -5% or -95% in a long and a short position (your 0.2 should be 0.15). Am I understanding your correctly? So the inverse etf does the same as the short position -- which was sort of my starting point ... again, unless I've completely gotten this wrong? Yes. No. Exaggerated case. Day 1 (both start at $1): Underlying up 90%. -1x ETF down 90%. Day 2: Underlying (now at $1.9) down 50% to $0.95 -1x ETF (now at $0.10) up 50% to $0.20 -- This isn't an example intended to show the -1x ETF is worse or bad... just showing path dependence. Run your own numbers. Effects are small for low vol, monotonic movements in price (or actually improved)... but for short term whip saw vol, that is high, both inverse and leveraged (inverse / normal) funds decay. Not to mention fees, and exactly how a inverse fund attains it's goal which isn't so simple. Hope i answered the question you were getting at.

Sorry - I may be really daft after a long day at work (or generally), but if I understand the product correctly at -1x gearing, it should produce the same percentage return each day as the underlying, correct? If so, this should mean that the cumulative return is the same for this product and for the underlying (well the cumulative negative, to be precise). This is in contrast to what happens to the leveraged ETFs where the daily reset matters in that the cumulative returns will diverge - another way to put it is that it is my assumption (may well be incorrect) that the daily reset for an unlevered fund (inverse or not) is the same as for an underlying (I.e. No reset). Is that not how it works? I understand that the reset matters for leverage >1 (or below -1) but I don't understand how the reset would work for leverage = 1 ... What's the point of a reset in that case? Thank you - C.

For the shorts Why not go long svxy- should give you the same exposure to the roll loss / convergence to spot phenomenon, unless there's something in the construction of that etf that I'm missing ... And saves you borrow costs? EDIT: I've only had a few minutes to scan through the SVXY prospectus and it says it's geared by -1x, which I read as its daily performance is -1xVIX ... Which in turn should imply that there is no difference in performance over longer timeframes as is the case with >1 multiples. Thus, my above argument should hold that this would be an equivalent/advantaged way of shorting the VIX. Am I missing something here? Thanks C

Bugger. Chris - am I reading this right that the case will go to Judge Caldwell, or is she simply to decide which other judge to allocate it to? If it stays with her - anything in her record that would indicate he pre-dispositions? Thank you C

Thanks Chris. Intuitively I agree with your view that this will not endear D with the judge here and will also look very odd as something to be argued in an appeal (given what I read in P's brief).

Thanks Chris - as always very useful insight (also into what (not) to do with judges). So if I understand you correctly, the decision in Thapur's and there is only a small risk that this may create problems for plaintiffs later on if he rules in their favor? C.

It is but as a lawyer, wouldn't you say that you'd do the exact same thing as it is in your client's interest to stall it? Let's just hope Thapur handles this well so that even if gov then tries to force him off the case it only leads to delays, not another judge. If he doesn't recuse, what's the next step for government? Do they file a motion with another court to force removal of judge? Does the trial proceed and they simply try to appeal any judgement on the grounds of this later on? Thanks C

Thanks Chris. I would think/hope that the playing field for shenanigans would be somewhat limited - depending on how/which plaintiffs win. Clearly the conservator should conserve and rehabilitate. If the NWS is reversed, it seems to me that the GSEs are a short way from not needing a conservator/having been rehabilitated - or how much leeway do you think exists entrenching the conservator status? (Presume plays such as legislating higher capital standards would have to apply across all financial institutions so the lobbying by big banks alone would kill it.) C.

I'm sorry if this is a rather ignorant question - assume shareholders win one or more of the cases and the NWS gets reversed. Just as congress passed an act that established the FHFA as a regulator and then conservator of the GSEs, could it not then pass a law that makes the conservatorship permanent (i.e. no release), or that otherwise disadvantages GSEs free of government control (or with a 70% government shareholder) such that the victory becomes pyhrric ? Thanks! C.

<relief> Already been assigned to Brown, Ginsburg & Millet. The calculations are just for fun.

Guys You're confusing the hello out of me - has the case been assigned to the three judges that were discussed a few pages ago (that was my initial read) or are we hoping two of three end up on the panel and you're figuring out what the odds are of it happening? Thanks. C.

I think your "Who to sell to?" point is a very important one ... which would clearly also limit the potential appreciation to par, if any large holder was selling into that. So I suppose for all of us who may be willing to hold for some time post a legal victory, the more pertinent question is really as to how much capital is needed and when there would be an expectation of dividend payments? @sunrider your question nicely tees up the question i have about the preferreds: who are you going to sell to if you hold them and NWS is invalidated? prefs will clearly jump for a nice return, but how far short of par is the question, and i wonder if w/o dividend in pay mode and no accumulation of dividends, no institution will buy them, and if you have a new class of investors who are saying, hey the GSEs just became investable, they are likely to gravitate to the common, for greater liquidity and more theoretical upside. that is just my sense of the market dynamics. also, i dont think this analysis is tantamount to querying whether god has a handlebar mustache, as i think it is appropriate to the investment decision going in, as well as judging what you do in the event [spits 3 times] NWS is invalidated and you are trying to read the market as to sell or hold

Chris H What's your view (and that of those having offered numbers) on the prefs being held as a dividend investment. On some of them, albeit only once full payments start (a few years out?), you'd be getting a 30 - 40% yield on current purchase price. This may be attractive even to Berkowitz? Of course against that we have to hold the fact that management would likely try to refinance those prefs asap--- but I see that the ones Berkowitz holds most of can only be repaid at certain points in time (e.g. Next in 2020). So perhaps on balance it will depend on how close to par they trade upon legal resolution? Thanks.

Thank you - doesn't seem much hope for an ultimate "out" there.

Another, likely, stupid question (or a simple question with an obvious answer for a layman but perhaps less obvious for a lawyer). If it were indeed the case that the government passed a law that takes said law out of the review of the judiciary, would that not be unconstitutional (checks and balances, etc.)? Alternatively, does such a low not, in effect, create a fourth branch of government aside from the executive, legislative and judiciary branches and would that not be fundamentally at odds with basic/established legal and democratic principles? Thank you.

Folks Help me understand the processing of information by the market here - it seems to me that these other cases now are a bit of a side-show compared to the Delaware case and the 9th circuit discussion above? As this may decide everything fairly quickly (albeit in a way different to what Fairholme et al originally were shooting for). Seems the market doesn't think so? Thanks.

Thank you both

Thank you. Fingers crossed.