james22

Former hedge fund manager Whitney Tilson said this week the court ruling is a major step in the right direction for Fannie and Freddie investors and has applied significant pressure to the Treasury. Tilson originally recommended Fannie Mae shares to his newsletter subscribers last Thursday, but recommended they take only a 1.5% stake. Tilson said Fannie Mae shares should be up 50% following Mnuchin’s comments. “It's clear that investors don't yet fully appreciate the implications of this ruling. That's why today, we recommend buying the second half of the position, making it a 3% holding,” Tilson wrote Tuesday. https://www.benzinga.com/analyst-ratings/analyst-color/19/09/14415875/analyst-raises-fannie-mae-price-target-following-mnuchin-comments?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+benzinga%2Fanalyst-ratings+%28Channels+-+Analyst+Ratings%29

I'd thought to cap my bet at 10%, but the preferred risk/reward seems very attractive. Just bumped to 15%. Now 4:1 preferred to common.

I'd sure like to see Berkshire make a private offering. Good for Berkshire: 1. They're looking for an elephant. 2. FNF is just the kind of regulated, utility-like investment they favor. 3. They've a history with FNF. Good for FNF: 1. They've the cash. 2. They can make an offer quickly. 3. They'll make a fair offer. 4. The Berkshire name will reassure some that FNF will not likely require a future bailout. 5. Buffett's name is some defense against accusations of cronyism (announce with picture of Obama draping Presidential Medal of Freedom over Buffett).

Funny, still no news coverage.

I think that's about right. The report is very positive in that it confirms many things we've assumed/hoped for. We'll see today how much of that is priced in. But necessarily vague to allow freedom of action (acknowledging the role of congress, etc.). I like to believe they've a plan they're not sharing (acting administratively), but we'll see over the next month or so.

Are you willing to bet on that, muscleman?

Not only is Berkshire selling at a large discount to our estimate of its intrinsic value, but we expect it to grow this value 8% to 10% annually over the long term. In addition, if the current discount narrows (i.e., BRK trades up from 1.26x to 1.50x book value), shares could be worth about $360 in five years, equivalent to a compound annual return of 13%. https://www.checkcapital.com/Research_Reports/BRKB_Report_0819.pdf Hat tip to mdtif. https://boards.fool.com/another-brk-bull-34280630.aspx?sort=postdate

Fannie Mae and Freddie Mac, der.

More BRK @ $196.37.

BRK @ $198.75

I questioned the comment because Hussman has been entirely transparent and consistent in his approach. He's no permabear. But for all his criticism of Fed manipulation, he does never question if this time *is* different because of it. That's either proof of his conviction or willful denial. He's invested into his valuation/sentiment model. I imagine it'd be hard to believe a simple 'don't fight the Fed' strategy superior today. We'll see.

In what way?

Has been. But I've turned the corner. Might as well be entertained. I'm paying for it.

Sure seems like it.

What orthopa and cherzeca said. I've made my bet and I'll live with it. The last thing I'll do is trade around Bloomberg "news" and White House corrections.

What makes you think that, muscleman?

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