locutusoftexas

He seems to be quite gleeful about the current state of endless status-quo and its continuation. Filled my cup with joy hearing of Parrott, Deese et al. Supreme Court ruling will be interesting. We have gone from depending on the kindness of strangers to asking for mercy from looters...I think cherzeca you are correct when you say we are back to the legal thesis. And in the longer term (2-3 years), weighing the TINA factor for GSEs and comparing the rate of expected return/risk premium in this investment to alternatives. In one of my earliest posts to this thread (in 2017) I said that the legal thesis was going to be the route to resolving the fates of Fannie and Freddie. I even provided a simple probability model for positive resolution based on the progress in courts as of that post. My basis for this assertion was simple human nature where money is involved -- especially when a policymaker is getting free money (e.g., NWS). I believe that a legislative path for resolution is possible, but the court cases must be resolved first. Even in the absence of the NWS, this could take a long time, so that the time value of money is a key factor in the potential status of the common and Jr Prefs as so-called value investments.

it's not a slam dunk and many will exit but the reasons would be a) the low price b) potential court victories and their impact on stock price even if still in conservatorship and c) Tsy might want to move the ball forward at some point for progress / collect their billions for pet projects. I have no intentions to exit my position. While Yellen/Biden were briefed on the LA, what's to say they don't decide to make another agreement? Here is what I see as to deciding to remain in this investment: (1) Assess the odds of positive court outcomes and account for the length of time for the court to announce a decision. This thread has just the person to do that: cherzeca. If the odds and estimated time to decision meet your value criterion, then stay. (2) Assess the odds that the government will reach a plan and release them and estimate the value based on that plan, including the time elapsed from now to the implementation of the plan. If the value is greater than the current price and the estimated time elapsed meets an obvious criterion for estimating present value of future payments, then stay. (3) Ockham's Razor: Past is prologue and people don't change. The court case will take "forever" and the odds are at best 50-50 that the decision will be positive for current shareholders. Further the Democrats are Democrats and will not be favorable to present private shareholders. Sell, sell, sell and then sell again.

My answer was that the question was unreasonable, being based on an apparently self-evident hypothetical. Therefore his question did in fact waste everyone's time. If one asks a question that attempts to answer itself, then it is just being snarky, true to his moniker. As I continue to say, there are in fact two other possibilities besides his game over scenario: (1) Ample evidence indicates that Mnuchin will do nothing so that Snarky's hypothetical has no practical significance. (2) In addition, as we know, new legislation and in fact the upcoming supreme court decision on the ability of Biden to fire Calabria can result in reversal of the consent decree. Once again, Waters would be involved.

We have ten days left. I do not accept your hypothetical that an "optimistic PSPA amendment unwinding the senior preferred... consent decree" will appear before January 20. The key is that both Treasury and FHFA must officially reach an agreement, which has not occurred yet. On the 20th a new Secretary will be installed. So, in that case, no agreement at least for a while. Then the alternatives are (1) They remain in conservatorship, etc., forever; (2) A new agreement between FHFA and Treasury will be reached; or (3) Congress settles this with a new law. Waters will have a lot to do with (3) and perhaps (2). If your hypothesis is correct (fat chance on reaching an official agreement after the 20th), then they will probably exit conservatorship, and Waters would ideally only be able to hold hearings. Even in that increasingly unlikely instance, however, remember what the greatest philosopher of the 20th century said: "It's not over 'til it's all over." I predict that you and Orthopa will be feasting on crow after the Inauguration. However, I remain never in doubt and often wrong. I am rooting for you both to be enjoying a better meal at that time. It's about money, and not about winning an argument.

1. You assess the odds as perhaps much greater than 50-50 that Mnuchin will execute the 4th amendment before leaving office. That would be great. However, as I said, this is not about investing, it is about politics and people, both of which are at best amoral and unpredictable. So far the optimistic predictions have not panned out. We have 12 days left. I was hopeful four years ago. I have learned. I hope that I am wrong and you are right. 2. I knew that the Sr Preferred are not investible now. However, I thought that someone who wanted to work harder than I would might be able to estimate a value based on the various options for disposing of them as part of the release from conservatorship. If no release occurs and the dividend is paid per the 3rd Amendment, the value to the Treasury is effectively infinite and the value of the common and juniors is zero. 3. I brought up Maxine Waters because she and other Democrats had contacted Calabria to ask him to hold off on this process. It is precisely the possibility of a bill that one cannot ignore. Despite the faith of many that the government would eventually do the right thing by private shareholders, no one in the government has accomplished anything, including the beloved Trump administration. Meanwhile, Maxine Waters is Chairwoman of the House Committee on Financial Services, and sorry to say, yes she can do something, and she will probably have something to do with this. Your comments about her are erroneous and therefore unhelpful. 4. Are you arguing that the court decisions will not affect the timeline and decisions on the release from conservatorship? If so, than again, you are ignoring the practical aspects of negotiation and decision making. Of course the court cannot release them, but certainly court decisions are a significant factor in this. 5. What OMB does is irrelevant. Before the capital raise was instituted by Calabria, Treasury had received the proceeds from the NWS since the 3rd Amendment went into effect. That money went somewhere If they don't want the $Billions or so per quarter received over 8 years, I will be happy to take it.

So here is what I see: (1) Key decision point on buying more shares before Jan 20: Does he (SM) or doesn't he? The bet appears to be 50-50, since he will keep his cards close to the vest. If yes, game over; if no, go to (3) - (5). (2) Everyone recognizes that in fact this is a bet and not an investment. In this case about all we have is simple technical analysis and the estimation of a minimum possible value, which I believe is not zero. For example, perhaps a strange arbitrage might be possible across securities: common and Jr. Prefs and maybe Sr Prefs. Technical: The trend is your friend. I am suspecting that MM would not be buying yet. If anything, he would probably be selling short right now. (3) The Biden Administration: Clearly Maxine Waters is interested and has plans to modify GSE policies on lending. The Conservatorship must play in this. So for private investors maybe the only important question is, "Will they exit conservatorship in whatever form that is palatable to the Democrats, thereby settling issues of security values?" I think that this is likely but that it will take at least a year. Who knows what that means regarding compensating equity investors, but it could be bad. (4) Other than Mnuchin, the most likely factor in exiting conservatorship sooner: The court cases, although this could take at least a year. Government could settle under Biden; then the exit will take place sooner. The go back to (3) (5) Greed: Thesis: The real reason Mnuchin has done nothing is because the free money streaming to the Treasury is impossible to give up. Then because the Democrats were the ones who nationalized FnF in the first place and gladly robbed the private equity investors, the equity holders other than the Treasury are probably screwed. Given the time value of money and technical analysis, in the 50-50 possibility of action by Mnuchin ("Are you feeling lucky punk?"), the mix of factors above primarily favors selling out right now for actual money or, after Jan. 20, for peanuts. The wild card is the court cases, which could force the Biden Administration toward a fairer outcome for private equity holders, but again, what are the odds of a favorable outcome? Maybe someone in this thread can give more believable odds on positive Mnuchin action or positive outcomes in court.

Thank you for the information and for the more knowledgeable set of questions. This is very helpful in terms of what to investigate next. Thanks for mentioning Paulson.

Much of the discussion seems to revolve around what Mnuchin might be thinking or what his strategy might be, etc. As someone said, no one can read Mnuchin's mind. Similar gaming logic has been applied to Calabria. This has probably reduced confusion on the technical details of different approaches to ending the conservatorship. However, because of our lack of clairvoyance, this clarification has apparently not resulted in actionable ideas on how to approach this investment. Maybe another tack would be fruitful: (1) What does Mnuchin stand to gain by actually implementing a plan to release the companies from conservatorship? (2) What does he stand to lose by not doing so? (3) Similarly, what does Calabria stand to gain if the companies are released from conservatorship? (4) What does he stand to lose by not doing so? The two have very different backgrounds and therefore are likely to have very different goals and values. Mnuchin comes from a transactional background, i.e., investment banking with the goal of financial gain. Calabria's background, on the other hand, is in studies and analysis related to economics and government policy. Does this stimulate any ideas regarding the most likely actions that Manuchin or Calabria would take to maximize their personal gains, given their likely value systems and careers?

First of all, this investment was never about fundamentals. Yes, the numbers tell us what the government has taken unfairly from private shareholders, but the investment was always predicated on government doing the right thing, including abiding by the Constitution. Secondly, I cannot fathom what you are talking about with regard to the decision on the Texas complaint. The decision was easy and straightforward; even by Alito's and Thomas's reckoning the ultimate intent of the lawsuit was simply to waste time (my inference) with no hope of relief (what Alito said). Read the Constitution. There is no analogy between the FnF court cases and the ridiculous Texas lawsuit. Sorry, just the facts. Finally, since I joined the thread four years ago, I have asked a lot of questions and have read a large number of articles. I am no authority, like Cherzecha or some of the others on the thread. However, I decided that this was going to be about court cases because no one in the government is going to give up a steady, potentially eternal stream of free money of order $ billions in today's dollars. I said this more than once. I even provided a simple probability model of shareholder success based on the total number of court cases. Obama's folks did the original deed. Trump's folks have just gladly accepted the free money. Without a positive court ruling, I believe that private shareholders will continue to suck wind. As I said a few years ago, I would very much like to be wrong. However, there is no evidence that I am, other than perhaps Calabria's possibly right-minded intentions. According to a number of analyses by the really smart folks on this thread, that is probably not enough.

+1 while I agree, it seems possible that some big whale (BRK?) could come in and buy a private placement of newly created convertible senior preferred, after treasury's preferred is nuked. that should still leave juniors at par, but the capital structure will still look top heavy initially. see OXY's convertible pref that BRK bought for an example. I believe that, after the travesty that Buffett's own democrats perpetrated on the FnF shareholders, he would be very unlikely to buy into something that the government has exploited shamelessly and can exploit at will. The politics factor and the greed of previously well-meaning humans turned this supposed value investment into a base speculation, as defined by Ben Graham. To reiterate, we investors were taken for a ride. Not that I am bitter or anything -- Ha Ha. Even "great" value investors were fooled.

Thank you for your very helpful SA article (above) and for your insights over the years.

Vis a vis WEB buying the common. That would be inconsistent with his past investment modus operandi. In this situation, he will normally purchase a preferred issue which satisfies his specs. Given the political nature of these companies and the future prospects for government meddling, I would be shocked if he bought the common. This is also consistent with the fact that Berkshire is an insurance company, requiring that he manage the risk. I am assuming that is why he prefers to buy a preferred issue tailored to his requirements. Given the shoddy treatment by the government of the preferred (and common) shareholders in the GSEs, I also view his desire for a GSE preferred issue to be nil.

I am confident that your understanding of the business and the legal aspects is world class and perhaps unique. The business itself, as described by Peter Lynch many years ago, has very high intrinsic value, and owning these equities was a significant contributor to his reputation. However, after the government took the companies, the equities (common or preferred) were in no way a value investment. While we could argue the details, the easiest way to see this is that, if the equities had been a true value investment, Warren Buffett would not have sold out. Based on what I read, he obviously computed the expected value of the equities to be far below his selling price. He would certainly have accounted for the time value of money and the massive political uncertainty in coming to this decision. Viewed from the present, he was absolutely faithful to his credentials as the greatest value investor in history. Rather, this was a rank speculation of the smelliest kind. It failed every standard criterion of value investing. Given the continuing political and legal uncertainty, predicting the payoff and time frame still has a very low probability of success. More power to rros for holding the winning lottery ticket, but it only pays off if it is sold. In a rank speculation, greed is often a very bad attribute. A 10+ bagger in hand seems far more valuable than a potential 25+ bagger in the bush, so to speak.

Can someone shed some light or provide an estimate of timing on the schedule for the Fairholme lawsuit in Sweeney's Court? The Defendants have just delivered a guide to their omnibus motion to dismiss. Thanks.

Sorry, the mention of shldq was a personal red flag, in that I learned long ago that the only possible, rational value play in situations with a negative net asset value, a very low stock price, and possible (or imminent) bankruptcy is to own the debt and not the common. Bruce Berkowitz actually destroyed his credibility and his various managed funds by making the rookie error of buying Sears common late in the game, when the cash burn was accelerating and with Lampert clearly willing to burn up the assets rather than to liquidate. Clearly there was no margin of safety. Bradford has done such a nice job of tracking the GSE situation, I was shocked at the possibility that he would buy the Sears common at this point. Of course, I have pointed out on this board, that the GSE prefs and common did not qualify as classic value plays once the assets had been written down and the NWS had been implemented, especially given the Executive Branch's need for cash at the time (and maybe now). The asset value was effectively zero and the discounted total value of dividends for shareholders has been zero under these circumstances. So no assets, no future dividends -- just hope that politicians and courts will do the right thing. Sorry, that is not a value play by anyone's definition. At a minimum, no margin of safety. Please forgive my lack of faith in politicians and, over the last two years, the demonstrated incompetency or bias (corruption?) of the federal courts. By the way, I definitely hope that I am wrong in my skepticism, since this has become a very fundamental Constitutional issue.