muscleman

Is this important? FHFA did the 3rd amendment with treasury. Now we can't expect them to update and say that's wrong and we are going to reverse it.

I see. I sent out 4 questions in the email anyway. My primary question is his view of Margin of Safety on this Fannie and Freddie invesment. :)

Yeah. That's most likely. He may not be able to answer these questions due to legal restrictions. Even if he could, the mom and pop investors in his fund would not understand. I kind of have a feeling that every time he is pressured to put out a reassurance conference call, his fund jumps up huge the next two years. :D

merkhet, did you see this? http://static1.squarespace.com/static/53962eb7e4b053c664d74f3d/t/54c15672e4b0a736d2a3d829/1421956722757/Conference+Call+Press+Release+1_22_2015.pdf I suggest that we gather a number of important F&F questions and send one email. This may get more serious treatment than sending various random F&F questions in various emails. My question about F&F (though he may not be able to answer): 1. What's the legal prospect right now for the Iowa and Sweeney courts? 2. How is Bill Ackman's lawyers helping with the Sweeney court? Are they helpful? 3. Did he track the AIG-Greenberg case? Is he interesting in hiring David Boies to help with the F&F cases?

http://ibkb.interactivebrokers.com/node/2012 Securities accounts with no borrowing of cash or securities Securities customer money is protected as follows: A portion is deposited at 14 large U.S. banks in special reserve accounts for the exclusive benefit of IBLLC's customers. These deposits are distributed across a number of banks with investment-grade ratings so that we can avoid a concentration risk with any single institution. No single bank holds more than 5% of total customer funds held by IBLLC. A portion may be invested in U.S. Treasury securities, including direct investments in short-term Treasury bills and reverse repurchase agreements, where the collateral received is in the form of U.S. Treasury securities. These transactions are conducted with third parties and guaranteed through a central counterparty clearing house (Fixed Income Clearing Corp., or “FICC”). The collateral remains in the possession of IBLLC and held at a custody bank in a segregated Special Custody Account for the exclusive benefit of customers. U.S. Treasury securities may also be pledged to a clearing house to support customer margin requirements on securities options positions. Customer cash is maintained on a net basis in the reserve accounts, which reflects the net credit balances of customers in excess of customer debit balances. To the extent any one customer maintains a margin loan with IBLLC, that loan will be fully secured by stock valued at up to 200% of the loan. Current SEC regulations require broker-dealers to perform a detailed reconciliation of customer money and securities (known as the “reserve computation”) at least weekly to ensure that customer monies are properly segregated from the broker-dealer's own funds. Customer-owned, fully-paid securities are protected in accounts at depositories and custodians that are specifically identified for the exclusive benefit of customers. IBLLC reconciles positions in securities owned by customers daily to ensure that these securities have been received at the depositories and custodians Account Protection Customer securities accounts at IBLLC are protected by the Securities Investor Protection Corporation (“SIPC”) for a maximum coverage of $500,000 (with a cash sublimit of $250,000) and under IBLLC's excess SIPC policy with certain underwriters at Lloyd's of London for up to an additional $30 million (with a cash sublimit of $900,000) subject to an aggregate limit of $150 million. Futures, and options on futures are not covered. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities. For the purpose of determining a customer account, accounts with like names and titles (e.g. John and Jane Smith and Jane and John Smith) are combined, but accounts with different titles are not (e.g. Individual/John Smith and IRA/John Smith). SIPC is a non-profit, membership corporation funded by broker-dealers that are members of SIPC. For more information about SIPC and answers to frequently asked questions (such as how SIPC works, what is protected, how to file a claim, etc.), please refer to the following websites:

I bet his decision to reopen FAIRX may be caused by too much redemptions, and he hoped that new cash infusion would offset the withdraws.

Saxoband found a neat solution, stealing some money from customers to make up losses... http://brontecapital.blogspot.nl/2015/01/it-is-time-to-close-saxo-bank-down.html This is standard for the forex brokers. You get what is called "slippage" and a certain percentage of trades get reworked at another price. Usually not more than a few percent of total trades, but it happens a lot when things get volatile. Speaking of which, this has impacted Interactive Brokers (IBKR) to a fair degree. Something I have on my list of things to buy at the right price (not there for me yet) but thought it was worth mentioning since some others on this board were interested in the stock. IB lost $120 Million in this saga. I am pretty concerned whether I should move my stock account back to Fidelity. I don't want to wake up one day to find out that IB is bankrupted and affected my account. Thoughts? ::)

http://www.businessinsider.com/interactive-brokers-swiss-franc-loss-2015-1 I am concerned about this. This is not the first time that IBKR suffered losses from its client's negative equity accounts. I remember a while back, IBKR announced that some of their clients got wiped out in some illiquid Singapore stocks, and caused they $20 million. I am worried if someday they could suddenly go bankrupt and affect the money I have? I wonder if I should move back to Fidelity. ::)

+1, thank you merkhet! +1. :)

US based investors may be careful about the PFIC rules from IRS. :)

On one hand, there was the filing that says discovery may conclude in mid-January. On the other hand, the filing also says there were still significant documents not turned in yet. Is it really possible to conclude in mid-January? Anyway, if discover concludes now, it seems to make no more sense to either grant or deny the Government's motion to stay, right?

Yeah. I use Amex preferred on grocery, priceline visa 2% cashback everything (No longer available, but you can use Citi as the alternative), Chase freedom + Sapphire. This combination gives me the best rewards. Chase reward points can be transferred to airline miles on a 1:1 basis.

That's amazing! Which sectors do you focus on?

I will start with mine. I looked at Land's End when it was about to be spun off. I had not much idea how to do valuation on this company. I passed. It was 26 in April and now it is 52. Still don't know how to catch it from hindsight but would like to be enlightened if someone could help. Subaru: As an auto fan, I had no clue why I missed to look at this one when I have looked at GM and Fiat and Renault and all others. Subaru's return is definitely the greatest compared to the other car markers. 700% from 2013 Jan to today. :o ZTS and Allergan: Looked at it after Bill Ackman took a stake. Didn't have any clue how to evaluate the down side.

What's your return in 2014?

I bought BBRY at 9.71 two days before earning release on 12/19. Forgot to post here.

It is clear to me that the economics between different industries vary greatly. Some industries are just so much easier than others. Cable and software seem to have created a lot of billionaires. Others?

These letters are very interesting. I didn't know that he did rights offering in 2006 and 2007. No wonder he did more rights offering in 2013 and 2014. The only difference is that back in 2006 and 2007 he was considered the next Buffet, so no one criticized the rights offering. In 2013 and 2014 he is considered a corporate thief, so everyone hates him so much that people ask "why do you keep diluting existing shareholders"! :) I don't think the value investor base is in general more rational than momentum investors and clueless gambling investors.

Thank you. This seems a big headache that even some companies listed in the US may actually be PFIC. Why is the physical gold fund treated as PFIC?

merkhet, I remember you said there was some deadline for whether to set oral arguments on the Sweeney court on 12/19/2014, right? It seems like the day has passed and she didn't decide to hold oral arguments? Will she just rule next week that the motion to stay is valid or invalid?

Is the gross profit of the company negative? I think you are confusing operating profit and gross profit. Not sure. I believe it depends on whether holding company holds something that produces passive income. But you'd need someone more knowledgeable to say for sure. (You may know the following, so skip if so) The idea behind PFIC is to make it more difficult for US investors to get into non-US listed investment companies (funds) and escape taxation through investments that are not taxed in the foreign country. Otherwise, you could buy into a mutual fund in SomeCountry where cap gains are not taxed at corporate level, the fund invests in stocks, buys/sells, but you never pay short term taxes - you only pay when you sell out of the mutual fund after twenty years. It's not that you are prohibited from owning PFIC. It only hurts you in tax reporting time. If you are small investor, I suggest not owning potential PFICs or owning them in tax sheltered accounts where you and IRS don't care. If you are not small investor, hire someone to do your taxes - just make sure they know about these things. If you are small investor and you screw up with reporting, the likelihood of IRS auditing you is very low. I doubt many holders of GRVY, for example, reported according to PFIC. I doubt any were ever audited. :) GRVY was the only PFIC that I owned I believe. Although I am sure there were other edge cases with cash-rich net-nets... I wonder how many Japanese net-net investors file taxes with PFIC accounting. :) I did some research and there were people complaining that he bought 5 PFICs in his IRA account and later he had to pay tax on these PFICs even though they are in his tax sheltered account! The rules could be very complex and I can't understand it. GRVY is a Korean gaming company. I looked at it in 2010 and I felt lucky that I didn't buy. It seems to be doing horribly right now. Its gross margin is negative, so that means interest makes up more than 75% of its gross income, which puts it in PFIC. This really sucks. Holding PFIC means every year you can elect to either mark to market or pay your share of its operating income tax. If you MtM, you have to pay short term cap gain tax every year, if the price goes up. If you elect QFE, it may not work well if you buy a closed end investment fund at a deep discount to NAV, because you are paying tax on the gain of NAV. Anyway, I bought Pershing square holdings and quickly sold it this month as I learned PFIC. It seems too much headache for small guys like me to handle.

Any legal experts find anything interesting here? I watched for about 30 minutes but had not much clue which side the judge seemed to favor. :P

I learned this from the Pershing square holdings discussion recently and I think it is worth in depth discussion because not many US investors seem to know it. What foreign entity is classified as PFIC? IRS says: The income test is met if 75% or more of the foreign corporation's gross income is passive income, defined as foreign personal holding company income with modifications. The asset test is met if 50% or more of the foreign corporation's average assets (as defined in the IR Code) produce, or could produce passive income, or are assets (such as cash and bare land) that produce no income. The test is applied based on the foreign corporation's adjusted basis, for U.S. tax purposes, of the assets, or at the election of the particular shareholder, fair market values of the assets. I am confused about this. If a foreign company is losing money on its operations, it should be able to still receive some interest on its cash balance. In that case, can we say more than 75% of the gross income is passive income? What about holding companies like EXOR?

http://www.wsj.com/articles/obamas-fannie-mae-payday-1418344017 Now let's go to the source material. http://www.fhfa.gov/Media/PublicAffairs/Documents/FNM_HTFCMF12112014.pdf In the letter, Watt notes that the FHFA can suspend allocations "upon a finding by the Director that such allocations (1) are contributing, or would contribute, to the financial instability of Fannie Mae; (2) are causing, or would cause, Fannie Mae to be classified as undercapitalized; or (3) are preventing, or would prevent, Fannie Mae from successfully completing a capital restoration plan; 12 USC 4567(b)." He further states that this allocation will not contribute to the financial instability of Fannie Mae, because they have "suspended capital classifications for Fannie Mae during conservatorship and entered into the SPSPA with the Department of the Treasury to maintain positive net worth and avoid receivership," and that "Fannie Mae is not attempting to complete a capital restoration plan." Now, I have a certain amount of disdain for politics, but I am beginning to have a greater appreciation for the strategery (sic) involved. It seems to me that the Administration is pushing Congress towards having a conversation about the fact that the GSEs are undercapitalized. Of course, the Administration's response would then be to tell Congress to pass a bill knowing full well that they won't pass something that the President would sign because it would likely strip out exactly the low-income housing financing provisions that Watt just enacted through his regulatory position as FHFA Chairman. This, naturally, leaves the President open to enacting something similar to the Millstein plan that I posted above this one, leaving the nominal GSEs in conservatorship while spinning off parts of the GSEs into private entities -- all while staying true to their word that they wouldn't take the GSEs out of conservatorship without legislative action of some sort. The Administration can then say, look, we're dealing with the undercapitalization by doing a recap and taking action on protecting taxpayers, but Congress must do its part to deal with the remaining GSEs. (Think immigration.) If the spin off happens, is it bad for the preferred shares? I think if spin off happens, common should receive the spin off shares right? But preferred will not. Will this trigger fraudulent conveyance if they spin off the valuable parts and leave the remaining as a zombie?

This part is very interesting. I originally thought Mr. Obama was involved in 3rd amendment. Now it sounds like he was not, and he started to realize what happened. http://timhoward717.com/2014/12/11/unleashed-at-last/ We will be sharing how Obama came to realize that some of his closest confidantes like Timothy Geithner and Gene Sperling deceived him into believing Fannie and Freddie needed to go. Their motives will be examined in great detail. We have reason to believe Mr. Sperlings fingerprints are all over the lawless third amendment sweep. Sperling earned $887,727 from Goldman Sachs in 2008 for his advice on charitable giving. He then so charitably sought to reward them by handing them Fannie and Freddies lucrative secondary mortgage business.