james22

Thinking of this as simply as possible means asking cui bono, and no one benefits from the status quo. I believe the most significant risk today is the housing or stock market crashing. Two years is too long for that reason.

Yes, please. I reckon Buffett would be willing to buy the whole business if he were allowed. I think he's very fond of the core mortgage guarantee business. my thoughts were that Buffett would detoxify the GSEs if he invested. it has been fashionable to hate on the GSEs but if warren buys in, GSEs become apple pie and motherhood I would just be afraid that Buffett's terms would be unfavorable to all current shareholders. He can certainly crush the commons if he gets to dictate the terms, and he could probably find a way to hurt the juniors too if it benefits him/Berkshire enough. Sure, but the value he would add might more than offset?

Yes, please. I reckon Buffett would be willing to buy the whole business if he were allowed. I think he's very fond of the core mortgage guarantee business. my thoughts were that Buffett would detoxify the GSEs if he invested. it has been fashionable to hate on the GSEs but if warren buys in, GSEs become apple pie and motherhood Especially so, having sold out of FNMA/FMCC once before when he became concerned with their management. He is really uniquely suited to lend them credibility. And given the Presidential Medal of Freedom by Obama, he somewhat protects Trump's administration from being seen as favoring "big finance" from the Left.

It seems such an obvious solution. I'd love to see it happen.

Yes, please.

I'm pretty insensitive to price, given the range of outcomes. I'll have to pay a higher price as uncertainty is resolved, but the risk/reward should only improve. That's funny, as I'm sensitive to price given the range of outcomes! :) Really? If FNMA is $9-18 next year, I'll wish I'd have added today whether the shares were $2 or $4. while possible, it's unlikely those price targets you mentioned are achieved. Entry points should matter. Maybe not. What's your price target? But it's also unlikely you'll be able to buy at prices much lower than today (at the same risk/reward). Return is what matters. I accept that I'll get a lesser expected return on the dollars I invest after a favorable en banc ruling than were I to invest today, but it'll be a positive expected return nonetheless.

BRK.B @ $199.98

Let me articulate: Trump comes to believe privatization will hurt his election chances and so puts off the process, advocates of the big banks vs those of the hedge funds can never agree as to the How, court rulings delay the process, the (overvalued) market crashes and puts off the IPO, etc., etc. I can see a process that doesn't get to recapitalization. If you assign the conditional probabilities of FNMA/FMCC exiting conservatorship at 70% AND the preferreds paid out at par at 90%, you've only a 63% chance of getting your double today. Look, the market may not be perfectly efficient, but it isn't dumb either. There are enough bright people with enough money to buy the shares up if they knew it was undervalued. I agree with you that things are looking up (and why I asked if anyone was adding to their position), but I believe it is still a speculative bet.

I've seen scenarios where the preferreds are paid out at 60% par. Still too speculative in my mind for more than a modest bet at this time. Ok so you agree? We are at 50% of par I do believe par is much more likely to be paid out than 60%. Just unwilling to bet the house on it because being paid out isn't yet that much more likely than not being paid out at all. And still thinking it might be less risky to hold a smaller amount of the commons with the same expected return. 1. Mind elaborating on your thoughts about the preferred being paid out in full and not paid out at all an equal outcome? 2. How does diversifying within the share classes change your risk? My assumption would be only possible return? 1. Sorry, that's only my sense from the scenarios I've read. Just too early to assign a probability. 2. If commons have a higher expected return, you can limit your wipeout risk by holding only a fraction as many preferreds with the same expected return. But again, I cannot yet calculate a probability-weighted expected return. Still just winging it. I'd be curious how (if) others calculate: Indicated Annual Return = (GC - L (100-C)) / YP Where G is the expected gain in the event of success. C is the expected percentage chance of success L is the expected loss in the event of failure Y is the expected holding period P is the current price of the security https://seekingalpha.com/article/3317005-warren-buffett-benjamin-graham-and-the-case-for-freddie-mac-and-fannie-mae-preferred-stocks-as-special-situation-investments

You might be anchoring? But at a 50% allocation it probably makes sense to have a higher threshold to add than me at 8%.

I'm pretty insensitive to price, given the range of outcomes. I'll have to pay a higher price as uncertainty is resolved, but the risk/reward should only improve. That's funny, as I'm sensitive to price given the range of outcomes! :) Really? If FNMA is $9-18 next year, I'll wish I'd have added today whether the shares were $2 or $4.

I've seen scenarios where the preferreds are paid out at 60% par. Still too speculative in my mind for more than a modest bet at this time. Ok so you agree? We are at 50% of par I do believe par is much more likely to be paid out than 60%. Just unwilling to bet the house on it because being paid out isn't yet that much more likely than not being paid out at all. And still thinking it might be less risky to hold a smaller amount of the commons with the same expected return.

I'm pretty insensitive to price, given the range of outcomes. I'll have to pay a higher price as uncertainty is resolved, but the risk/reward should only improve. I've seen scenarios where the preferreds are paid out at 60% par. Still too speculative in my mind for more than a modest bet at this time.

The last $100 hamburger I had was in a PA-18-105. It would practically leap into the air & was pretty good on gas. You could land it nearly anywhere. Yep. I'm looking at a Tecnam Astore. Hard to justify today given other activities competing for my time (golf, boating, traveling, etc.). Very expensive when could only use several times a month. Greater wealth would make it possible to enjoy the flying experience rather than worry if the cost per hour was worth it.

I'm about 80/20 preferred to common. I'm expecting the recap to take some time and the dilution issue to put downward pressure on the common. If we know for sure commons are ok then I'll go all in common if the price is weak enough for a multi bagger return on a sure thing. Anyone adding to their position with the recent news? Or waiting for something more "sure" - a court decision, an endorsed plan, etc.? (Count me in the second group - still a speculative position for me.)

Good question. I'm FI, so a lot of it is because I enjoy investing. But a) can never be too hedged against any market crash or black swan, and b) while returns diminish, I'm pretty sure more wealth will increase my happiness level - some experiences are simply expensive (track days, poker runs, $100 hamburgers, etc.). I'm willing to work several more years and take some investment risk for those experiences.

In the CNBC interview, Calabria spoke of ensuring the two were safe and sound before offering to investors as well as "we will be suggesting to Congress that Congress come in and do an explicit backstop that is limited, that is defined, that you know where the lines are, that you know who's covered, you know who's not." Don't know if he's certain global investors will buy based on his assurance (and capital level) alone, but don't think he'd allow Congress to keep the offer from being made.

What did you do, grab value line book and start in the 'F' section? It was the 1,245th page in the ten-bagger thread that finally convinced me.

FNMA @ $2.75 FMCC @ $2.65 FNMAS @ $12.25 FNCKJ @ 12.00

Or just one (of size). I'm hoping for an opportunity to recapitalize FNMA and FMCC. Don't expect they'd be allowed to invest more than $20B or so, but Buffett could ride off into the sunset if he was able to invest the entire required $135B+.

Thanks. I made the commons a 3% position today and I'll make the preferreds 5% Monday.

recap mechanics should trip you up since no one knows what the hell is coming. this board is a bunch of wild and crazy guys who are into the least speculative bet you can make in this name. which is junior prefs, but still plenty speculative. but then, ahab, you are a hunter for the big whale.... The more I think of the common the more I like them. I'm heavy in them but hedged with prefs. I've been looking for decent investments for years and they seldom come along so when they do I have to go big. I'm looking for a home run so commons have to be involved for me. Some see this as a risky investment but the way I've always seen it is that these are two of the best businesses in the world in an unsustainable position not of their making. Eventually it'll work out. Or I'll go back to work... How big is "big," DR? And how do you see the (commons) outcome? X% chance of X% loss, X% chance of no change, X% chance of X% gain? Anyone?

All credit to miLucky for picking up on this. The Berkshire Chairman’s letter in the following year’s 2016 annual report made this comment about the General Re purchase: Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock – a boatload of stock – to buy General Reinsurance in late 1998. After some early problems, General Re has become a fine insurance operation that we prize. It was, nevertheless, a terrible mistake on my part to issue 272,200 shares of Berkshire in buying General Re, an act that increased our outstanding shares by a whopping 21.8%. My error caused Berkshire shareholders to give far more than they received (a practice that – despite the Biblical endorsement – is far from blessed when you are buying businesses). Here I defend my initial summary. • It was precisely the use of the “boatload” of Berkshire’s shares in the purchase of General Re that was so seminal and materially beneficial to Berkshire over the subsequent twenty years. • Yes, those shares would now be worth $83 billion at year-end 2018. But it was the purchase of General Re’s investment assets, namely its 90% allocation to fixed-income, that marked Berkshire’s pivot away from a massively overvalued stock market, from its own massively overvalued stock portfolio, which alone was 15% larger than Berkshire’s entire book value, and from its business concentration in property casualty insurance and reinsurance. • You might question the last part of that – the move from insurance, given that General Re, the acquiree, was, in fact, a reinsurer. • Yes, but it wasn’t so much the insurance operation that was attractive – it was the ability to purchase a $25 billion investment portfolio, overwhelmingly bonds, using a stock trading at three times book value when fair value was half as much. • It was the ability to shrink a stock portfolio from 115% of book value to only 69% and to do so by paying no capital gains taxes, then at a 35% corporate rate. • Did management at Berkshire anticipate two decades of subpar stock market returns? Did they recognize that at three times book they possessed overvalued currency? • An acknowledgment of that would suggest perhaps that Berkshire took advantage of General Re, and Berkshire would never utter that. https://boards.fool.com/21419-semper-augustus-recap-and-patience-34208583.aspx?sort=postdate More at the link.

Commodities? ...every recession in the U.S. since 1970 has been preceded by a massive commodity rally. Going into each of the last five recessions, commodities as an asset class have experienced a truly massive rallies, sometimes by as much as 400 percent. During those rallies commodities have vastly outperformed the stock market. Gundlach finds it almost unbelievable how repetitive commodity outperformance late in the business cycle has been historically. “Eerily repetitive” was his actual description. https://oilandgas-investments.com/2018/top-stories/30097/ Commodities have been hurt by the tariff talks and the slowdown in the global economy, Gundlach said. Commodities typically move higher prior to a recession. But he is less sure of this now, because it could be overwhelmed by broader variables like inflation. With a weaker dollar, commodities have a 50%-plus chance of making money, Gundlach said. https://www.advisorperspectives.com/articles/2019/01/08/gundlachs-forecast-for-2019

Yep.