muscleman

I looked at VRX when gio suggested it earlier this year at the $70's. I could not understand it, so I didn't invest. What is your thesis on that?

Is this is real Pabrai Mohnish? He has an ID in this forum? Wow! :o Do you think Mohnish would be caught dead posting on here? Plus he could never write anything that eloquent without using the word "Dhandho" in there somewhere. Plenty of Pabrai groupies out there...they were throwing their underwear at him like he was Tom Jones this weekend. ;D Cheers! Haha. If this is the real Pabrai then my next question is did you charge him the $20 one time membership fee for viewing our stock tips! ;D

Is this is real Pabrai Mohnish? He has an ID in this forum? Wow! :o

ARN: How come its company websites only have info up to 2011? That is weird.

That is right. It is either a win-win situation if they keep the GSEs, or it is a lose-lose situation. Their reason to close these GSEs isn't rational either. If they completely give the mortgage market to the private sector, do they think they don't need to bailout them when these private companies fail? I think they always have to prepare for a bailout in a bad time no matter what they do.

I really envy him and would like to be the same if possible, but I know that is not easy. Well, on the second thought, if you have 6% position in this, and it becomes a 6 begger, your total portfolio return is 30%. So are you just 30% away from pulling an Ericopoly right now? Reread the thread. I initially took a 6% position, that has changed. I apologize! You said in page 23 that you built a much larger position than the initial 6% purchase. I misread that and thought you increased your position to a meaningful 6%. :) I truly admire you! You and Ericopoly run such a concentrated portfolio!

I think there is the interest rate risk, but that is not big enough to be a concern here. If your upside is 20% less, so what? Do you care about that, or do you care more about winning the case? You can think of preferred stocks as bonds, but at the lowest rank. The par value is $25. If the government wants to shutdown the companies, they have to pay at least the par to buy out the preferred holders.

I really envy him and would like to be the same if possible, but I know that is not easy. Well, on the second thought, if you have 6% position in this, and it becomes a 6 begger, your total portfolio return is 30%. So are you just 30% away from pulling an Ericopoly right now?

Thank you! Just to clarify, what do you mean by "Judge Sweeney yesterday ruled against USA's motion to stay 5th Amendment cases in the Court of Claims."? I think Fairholme sued USA for violation of the 5th amendment, but if this is a favorable ruling, it should be that the judge ruled against USA's motion to stay away from 5th amendment? "Stay" is legal parlance for putting something on hold. The US wanted all the Court of Claims cases (those claiming an illegal taking under the 5th Amendment) to be put on hold until the completion of the District Court cases (those cases that question the validity of the Sweep). This could have resulted in years of delay. The judge correctly ruled (IMO) that the 5th Amdendment cases are not path dependent on the DC cases. In other words, the judge implicitly agreed that even if the Sweep is ruled to be valid (the USA wins in DC court), the plaintiffs can still successfully claim an uncompensated taking under the 5th Amendment in the Court of Claims. Got it! Thank you! I think this is great. :)

Thank you! Just to clarify, what do you mean by "Judge Sweeney yesterday ruled against USA's motion to stay 5th Amendment cases in the Court of Claims."? I think Fairholme sued USA for violation of the 5th amendment, but if this is a favorable ruling, it should be that the judge ruled against USA's motion to stay away from 5th amendment?

Read the last few pages for the answer. ;D Buy the cheapest ones regardless of yield. A theory of market price information on Fannie/Freddie preferreds - please correct if you disagree or interpret anything differently: This is a debate, really, over the probability that coupon matters or par value matters as the eventual "anchor" to relative price among preferred issues. You can imagine situations where either is possible: - Coupon: dividend reinstated - Par: restructuring (conversion to common?), liquidation/runoff with principal return relative to par Looking at the RELATIVE price of the various preferred issues, the market seems to be pricing on coupon. As in, essentially saying the probability is 100% coupon, 0% restructuring/liquidation. Maybe that's right, maybe not. There is also a liquidity discount in some preferreds but it appears to me to be rather small as the prices orbit around the relative coupons. Looking at the ABSOLUTE price of the various preferred issues tells you about the probability of value flowing to preferreds at all (let's say, success of the lawsuit, and whether the companies will make enough money to make the preferreds whole), and probably a bit about market interest rates, too. Just some thoughts. I've bought a position in the issues with the biggest % discount to par since, relative to the others, they appear to be a free call option on the market being wrong about that 0% probability of restructuring/liquidation. I was reluctant to pay up for ones like FNMAT and FNMAS b/c the price differential relative to others is so significant. However, I paid a slight premium for FNMAK and FNMAM with relatively high coupons. All depends on the price. Those coupons have the potential to be a massive part of the return, if they don't get redeemed at par. I thought about your Kelly formula suggestion, and increased my holdings in the 401k to 17%. I think that is the max I can afford to lose. Since I add money to my 401k every half month, I can withstand a higher volatility than my main taxable account, which has barely any new money to add to. I have a 7% position in my taxable account. Regarding the series, I have FNMAK for its discount to par, and I also have the most liquid ones(FNMAS, FMCKJ), which have higher yields if divident is resumed.

How about this. Assume you thought this was a coin flip with $1,000 on the line that is put in escrow today. Would you bet someone today on a coin flip that may take place several years from now, with the following outcomes: A) Heads you win $6,000, plus $330 per year upon completion of the flip. B) Tails you lose your $1,000. I don't think Vegas would stay in business very long with those payoffs/probabilities. And I think the odds are better than 50/50 they win the litigation. This is definitely true. I am very impressed with your MBIA trade. You put so much money into that single bet. Do you feel comfortable with Freddie/Fannie preferreds at that kind of concentration, or do you feel like it is just a coin flip type of bet with real downside if bad things happen? I followed you with a 7% position today. I noticed that in Fairholme's smaller fund, Bruce put in 6% for each of these two companies. So that is a total of 12%. The fact that he holds 27% cash in that fund tells me that he has already bought his max limit. I think this is likely to be a very, very binary event. Either a 0x or a 6x-7x plus huge promised yields, with little likelihood of any middle ground unless you sell before the catalyst. I really can't believe that the prefs are still trading at such massive promised returns. At a minimum, i think they should be trading at 33cents on the dollar with facts as they stand today for the prefs with between 5-6% coupons. The implied probability of a legal victory (as is implied by the current market price) is just way off in my judgement. There was mention of the Kelly formula in a prior thread. If you believe in the Kelly formula...even after you adjust it for time value, if you plug in the stats you will see that it warrants a large concentration, if you believe as i do that the probability is greater than 50% that they have a legal victory. I guess you have to ask yourself how many X's do i need in order to warrant a position given an probability of Y. If these prefs ever hit par or higher, i have a large enough concentration in them to pull an Ericopoly. I see. I just don't like the votality of what Kelly formula suggests. I think it all depends on how confident you are. :)

How about this. Assume you thought this was a coin flip with $1,000 on the line that is put in escrow today. Would you bet someone today on a coin flip that may take place several years from now, with the following outcomes: A) Heads you win $6,000, plus $330 per year upon completion of the flip. B) Tails you lose your $1,000. I don't think Vegas would stay in business very long with those payoffs/probabilities. And I think the odds are better than 50/50 they win the litigation. This is definitely true. I am very impressed with your MBIA trade. You put so much money into that single bet. Do you feel comfortable with Freddie/Fannie preferreds at that kind of concentration, or do you feel like it is just a coin flip type of bet with real downside if bad things happen? I followed you with a 7% position today. I noticed that in Fairholme's smaller fund, Bruce put in 6% for each of these two companies. So that is a total of 12%. The fact that he holds 27% cash in that fund tells me that he has already bought his max limit.

I am in Seattle too. I have been quite busy recently. I hope I can get together with you some time later. :)

I used to have Scottrade, but transferred to fido. Three nice things about fido that Scottrade doesn't have: 1. Integration with Turbotax, which makes filing tax really easy each year. 2. Flat $7.95 per trade, even for penny stocks. 3. 24 hour customer service

Just trade frequently. The bid-ask spread and commission will be sufficient to kill you. Assuming long term holders, it will be harder to do this, but still doable. Look at VELT. Significant cash burn and look at the number of total shares increasing QoQ.

claphands, I think it would make more sense to look at the corporate structure in a tree structure, rather than looking at the guarantor/non-guarantor. http://www.searsholdings.com/invest/docs/Sears_Re_February_2012.pdf Page 7 here will be interesting because it outlines the basic structures, though we still need to figure out where are the rest 20 subs. It looks to me that some guarantors have equity ownerships to non-guarantors, so if the guarantors sub goes under, the debtor can have claims to the equity interests of the non-guarantor subs, so I think looking at the structure from the tree view makes better sense. For example, it appears that Sears Re is directly held by the parent. This means the retails subs can go under and shareholder can still have Sears Re. But how much is it worth? I can't find any data. Someone online said its float is more than the SHLD market cap, but I don't know how to verify that. Here is a better view of their basic corporate structure. But I wish I could see more details. http://www.sec.gov/Archives/edgar/data/1310067/000119312512114869/d276653dex21.htm

Then how did people know that he bought those preferreds? If he didn't say it, people won't know, right? Also there are a few preferreds. I am wondering which is the one that he bought, though I think it probably makes sense to just buy the most liquid ones. Thanks a lot! Any way to know his cost basis? Just looking at one series of one fund, and it looks like he bought at ~5-10% cheaper than the current prices on the preferreds In the link, it said "value". I am wondering if this is mark to market value, or it is his cost basis? If it is his cost basis, I am a bit surprised that he missed all the $1-$5 run up and bought almost at the top.

Then how did people know that he bought those preferreds? If he didn't say it, people won't know, right? Also there are a few preferreds. I am wondering which is the one that he bought, though I think it probably makes sense to just buy the most liquid ones. Thanks a lot! Any way to know his cost basis?

Then how did people know that he bought those preferreds? If he didn't say it, people won't know, right? Also there are a few preferreds. I am wondering which is the one that he bought, though I think it probably makes sense to just buy the most liquid ones.

Has anyone initiated a long position? I am wondering if Obama closes these two twins, he will wipe out the common and repaid the preferred, or will he wipe out the preferred as well?

http://www.sec.gov/Archives/edgar/data/1056831/000105683113000004/xslForm13F_X01/13fFCM63013Submission.xml From the latest 13F, how come I didn't see any Freddie/Fannie preferred? Does the 13F require him to file for the preferred?

Two years ago, with a net worth of more than $5m, I couldn't get a loan for $100k. I was trying to purchase a $200k property in Sacramento, a 4-plex with $32,000 gross rental income. The property was fully occupied, the rents were below market. Wells Fargo and Bank of America, plus other local banks. None would bite. They wouldn't loan me under 2% of my net worth! On a property where I was putting 50% cash down in a market that was already crushed in valuation! The loan amount was roughly 3x the gross rent! And then John Stumpf (Wells Fargo CEO) would get on TV and claim they wanted to make loans but there were no creditworthy opportunities. What an unbelievable statement. Their chief excuse was that I didn't have experience as a landlord. I lived a thousand miles away in Seattle and, as I told them, was going to hire a property manager (with experience). So how did you pay for your current home in CA? Did you pay cash?

I think this is a valid argument, but doesn't this unfairly punish the most loyal partners by constantly worrying about the redemption needs of the least loyal partners? I know there is probably no good way to fix this except to have a long lockup period for the fund.

Good point Kraven. If we find cheap things that is actually not a value trap, we should just buy. By holding a lot of cash and speculating that the market may crash and bring undervalued stocks even more undervalued, what is the difference between a value investor and a market speculator? With that said, since this topic is a discussion for speculating the market, here are my two cents (With my rudimentary understanding of George Soros thinking framework): Market usually goes up, and then suffers from a correction. After a few times, the market will be viewed as invulnerable. When everything is in euphoria, the market will be most vulnerable to crash. As of today, we are not yet to that point, because there are European and China concerns. Also the US economy seems to be in a slow pace for recovery. It is exactly these concerns that will make today's bull market extra long. The recent market setback in May showed us that Fed is watching the market more closely than ever (Quote from Greenlight Capital Q2 2013 letter). Therefore when the eventual market break kicks in, it will not be caused by Fed's QE ending, because Fed will not end the QE in a way that crashes the market. What we really need to watch out is the recovery of the economy in US, and the European and China problems. If they can fixed quickly, the stock market will soon go into euphoria, and the bull market will come to an end. :)