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locutusoftexas

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Everything posted by locutusoftexas

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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?
  9. 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.
  10. +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.
  11. Thank you for your very helpful SA article (above) and for your insights over the years.
  12. 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.
  13. 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.
  14. 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.
  15. 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.
  16. Resolving this requires actions/events totally outside our control and outside the cold but certain logic of a bankruptcy court. Having been here a while through the ups and downs, with - in reality - almost zero leverage, I imagine 2/3+ would take a 50% payout on jpf's. I would. In which case pricing of around 30% of par is not out of whack. But of course we hope and talk our book and think we should get par. Just keeping it real lest we all run out and get even deeper into this. Even our most prolific GSE cheerleader Glen Bradford is running out steam and looking at stuff like shldq and ctl. After Glen sells, that's probably when there will be a deal. You're just messin' with us, so please say something useful or move on. If Bradford is considering shldq (i.e., the common), then he is not running out of steam; rather he has lost his mind and any value investing credentials he might claim.
  17. The above discussion of outcomes seems to assume an orderly real estate/mortgage market. My experience with the stock market, for example, is that things are orderly until they are not. In the latter instance, chaos happens and people can panic as they discover that they are falling down the sinkhole. I believe that we have had orderly markets for the last nine years. That is a long time. A further assumption in the above discussion is that the situation is relatively simple to resolve. By this, I mean that, in many ways the shareholders are helpless and their disposition is at the pleasure of the government. In fact, their existence and basic concepts of stock ownership give them leverage, both in the decision-making process and the public view of stock ownership. The courts' idiocy notwithstanding, arbitrary and demonstrably unfair/unethical treatment of shareholders by the government will leave a stench on stock ownership that will last well beyond this situation. Obama was determined not to let the evil hedge funds profit from the government's "benevolent" rescue of these companies. Like our current president on so many topics, he probably did not understand the stock market but definitely did not care. Failure to realize this has cost the GSE investors a lot of lost opportunities. However, they hold the shares today out of the confidence (and actually hope) that the rule of law will prevail. Maybe they are wrong but at least some of them see the Constitution as worth fighting for. So sooner or later, the fan is going to be hit with some stuff and order will go out the window. From "receivership vs conservatorship" we will transition to a "hot potato" scenario in which the main goal will be to avoid blame for the apparent failure of the housing market. The growing likelihood of this should drive the government to settle this soon and to honor shareholders' and citizens' contracts (i.e., provisions of the common and preferred shares and the Constitution) with the government. Therefore a more interesting question is what happens when the real estate/mortgage market goes south, perhaps in concert with other segments of the financial markets and economy. Until that happens, I believe that the government will not resolve this situation by doing the right thing.
  18. Although I defer to the regulars on this thread, who have a comprehensive picture of the entire situation, I have been hypothesizing the same conversation occasionally over the last year. I would like very much to be wrong.
  19. Thanks very much. Your first sentence answers my implied question. If the NWS will, by design or definition (that is, a priori), run perpetually, then the nationalization has occurred without remuneration to owners and is therefore incomplete. In this case, the plaintiffs (or claimants) must win. With regard to future earnings, the only apparent alternative for the government, instead of distributing earnings to private shareholders (or deferring those payments according to HERA), is to terminate the conservatorship and restore the companies to shareholders, whatever that means. That is what I was attempting to imply in the rest of my comment. I am afraid that implementing such an action is well beyond my competence to analyze. I believe that your other major point, which sounds good to me, is that damage (i.e., the nationalization and the concomitant unconstitutional taking of funds) has already occurred and that compensation is due for activities prior to the case in Claims Court. Thank you again.
  20. Regarding the cases before Sweeney, the key element of the nationalization argument is the implementation of the net worth sweep in perpetuity. If I were the government, I would merely state that the NWS will not operate in perpetuity, thereby implying that the earnings and the company will be returned to shareholders at some time in the future. At this point, Sweeney can and should decree that the government provide a timeline and a blueprint for implementing this change. The government then requests a length of time to do so. This essentially delays any verdict and any action to remunerate shareholders and could go on for years. If Sweeney is worth anything, she should then demand data to determine the profitability of FnF and further to determine whether the government expenditures have been fully repaid via the senior preferred dividends and the net worth sweep. This will take time - again perhaps a lot of time. However, eventually Sweeney should temporarily suspend the NWS, while the government plans its exit. Given the judgment that the government's expenditures and been returned or repaid, subsequent earnings minus the senior preferred dividends should then be paid to private shareholders or alternatively, should be held in an escrow account or deferred according to provisions of HERA. All of these actions could be manipulated by the government to delay a verdict by Sweeney and any payments to shareholders for a very long time. This is no surprise, as civil defendants with a losing case can exploit the design of our legal system to delay any losing verdict until plaintiffs are dead or broke. So private shareholders pay a massive opportunity cost on invested funds and essentially lose all of the original investment. Please tell me that I am in error on this. Thanks in advance.
  21. I have lost the train of thought on this board regarding the cases before Sweeney. Do the claims have a realistic chance of succeeding or will the court go the way of all previous cases and support the de facto nationalization of FnF? In the world that I thought existed, this question would not be necessary. I don't see how the private shares could be ignored or invalidated. Clearly the companies do not have funds to buy them back and Treasury does not want to add the debt to the federal deficit. However, the political opposition to FnF might simply be too powerful, and the federal courts might be too timid. Also, the inertia in government might be too great without some triggering event or crisis. Opinions appreciated.
  22. There has been mention several times of the cancellation of shares by the government. Only the companies can cancel shares and then only shares that they own. The shareholders would have to tender shares to the companies, which would have to purchase them first. In a nationalization, according to the 5th Amendment, the process would consist of the government compensating the shareholders for their shares (ownership), which would at that time be tendered to the companies, which would then cancel the shares. The government would then own the companies through nationalization. Currently the government does not own the companies, even though it has taken the companies' net value and is continuing to take the earnings. This has rendered the privately held shares to have a current value of $0 by standard valuation formulas. However, the shareholders still technically own the companies. The existence of privately held shares and the existence of the 5th Amendment prevent the government from doing absolutely whatever it wants with the companies without considering shareholders, who are the owners.
  23. rros: As an American, I am offended (more disgusted) at the NWS and its use by FHFA (as a pseudo-agent of Treasury) in conjunction with fraudulent accounting to rob the shareholders of their company. I would feel the same about a similar direct action by Congress. I am not sophisticated enough to distinguish, in a legal sense, nationalization of a company from a taking (e.g., see https://www.law.cornell.edu/wex/takings). However, I get your point about the size and temporal extent of the actions taken with regard to GSEs. My point was to make a strong case for nationalization (e.g., NWS operates in perpetuity) and to understand the odds of winning the case in Claims court, which appears to be our best opportunity. Even if, as you suggest, the compensation in Claims court were to fall predictably short of fair and appropriate, my idea here is that a win in a court is likely necessary to induce action on the part of FHFA/Treasury (or Congress) to deliver the GSEs from conservatorship, thereby returning them to their rightful owners, the shareholders. So in such a longer view, the win (and the attendant publicity) would be more important than the compensation in Claims court. Given this view, I don't particularly care in which court or case the shareholders achieve a win. So I agree with everything that you said and appreciate your polite response to my more simple-minded approach to this.
  24. As you know, my few posts have focused on nationalization as the key to shareholders being remunerated properly. Although probably obvious to everyone on the board, the courts/judges have shown a distressing ignorance of simple rules of logic - hence your use of the word "convincing" in the quote. I thought that lawyers were supposed to understand high-school logic. Being a going concern is a necessary condition that the conservator is doing its job, i.e., "If a conservator is doing its job, then the company is a 'going concern.' " However, this is not a sufficient condition, i.e., it is not necessarily true that, "If a company is a going concern, then the conservator is doing its job." In the case of FnF, we have going concerns almost in spite of the conservator and certainly not because of the conservator. Rather, since the courts have ruled that the NWS is "legal," all of the elements of a nationalization are in place. Here I define nationalization to be the legal (i.e., via the use of laws, even certified by courts, if necessary) seizure of private property (i.e., a company) by government. In this case the owners (shareholders) have not been properly remunerated for this seizure (i.e., nationalization) in violation of the Constitution. Note that contrary to the reasoning highlighted by (but not attributed to) rros, if the conservator is taking entirely legal actions, this does not negate the fact the government has taken the property - legally (by definition) - as far as government is concerned. It is the failure to remunerate the owners for this property that violates the Constitution, which equates such ostensibly legal action with robbery. In this regard, the nationalization or property seizure is defined by the Constitution (Amendment 5) as a type of government purchase of property, which involves not only delivery of the property to the government but proper payment of the owners. So the missing link in court action so far is the connection between nationalization, a legal action that is an element of a type of government purchase (legal, since the government and the Constitution defines this type of legal purchase) and a category of theft, in which a legal purchase has resulted in delivery of private property (i.e., the nationalization), but has not been completed by proper payment of the owners. We can always hope that the courts will eventually see the logical error that has been overlooked by judges thus far and declare the NWS to be evidence that the conservator has usurped its duties and most importantly has purposefully failed to fulfill its duties. However, allowing the NWS to stand strengthens the argument that the companies have been nationalized without proper remuneration in violation of the definition by the Constitution of this type of "government purchase."
  25. As I said early on in posting to this thread, human nature being what it is, virtually no one in any administration would be able to turn down risk-free money at the level of ~$20 B/year in perpetuity. Hence the NWS would only stop if a court decrees it to do so. That is how I see the situation, in which case, all court cases could end in judgements for the government, resulting in an effective value of $0 for privately held shares. Admittedly, one exception might lie in someone's perceiving more value in receiving on immediate $100 B payment and at the same time removing the possibility of an unforeseen adverse event or situation for the government. Whatever the odds are of that would define the minimum odds that the NWS will be voluntarily terminated. The maximum odds of NWS termination would be approximately the sum of the probability of at least one successful shareholder lawsuit + the probability that someone prefers the exception laid out in the previous paragraph.
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