SnarkyPuppy

It would seem that the one remaining key risk that Calabria represented - receivership - is out of the question based on Calabria's statements. Assuming the guys first public statement wasn't an outright lie (when there was no incentive to lie)

Does anyone have a creative downside scenario which is consistent with all of these data points we now have? Genuinely have none aside from Trump impeachment etc. Anything else would contradict something one these guys said (when they simply could have stayed silent...)

The reactions here are nuts. You'd think the preferred weren't 40+% off their recent lows based on the commentary here. Markets have responded. It's going up, but there's just been so many head-fakes in the past that it's a bit more cautious. Prefs trading at 32% of par right now is nuts.

Unbelievable. I honestly think investor fatigue is a big part of the slow market realization. Nobody wants to look at this again

Would it make sense for the government to simply settle wash federal and stay silent on other litigation as part of a recap plan? no. Ps are anxious Ds are chill until the courts screw them Does this not null the contingent liability thesis? Unless the government thinks wash fed has very low probability of success..

Would it make sense for the government to simply settle wash federal and stay silent on other litigation as part of a recap plan?

lol. Stegman is now making administrative reform his battlefield. I do not see this as "on board". More likely, an attempt to infiltrate and maneuver away from the real administrative reform we want. The only good news is that this confirms legislative reform is 100% dead. Seriously, wtf?

Another strong signal, of many.

What about the Venezuelan bolivar? I think if you try to find hurdles lower than that, you'd have to start digging. Same argument applies to Bitcoin Cash.

What about the Venezuelan bolivar?

The status quo argument doesn't make a lot of sense. You simply cannot have 1/5 of the economy sitting behind no capital - as somehow else aptly described it - this will turn from a "status quo" situation to a "hot potato" situation. Markets are not always calm. The 2-year argument isn't the strongest either: - Anti-GSE Congress and Watt in place made any administrative moves more difficult - Lamberth appeal ruling sucked some air out of the room and likely decreased Mnuchin's ability to steer Watt in the right direction - Other priorities, ie tax reform, not only took precedent but potentially would have been more difficult to achieve if GSE reform was tackled first. - 10% moment - Ignores governments incentive - warrant exercise = $100-150bn - The large majority of the "status quo" was a time when you had anti-GSE members in key positions across the executive and legislative branch funded by anti-GSE lobbyists. This is clearly a changing tide. I think that sometimes we overcomplicate the obvious. You have a guy who wrote a 50pg paper solely focused on the rights of shareholders under conservatorship and receivership proceedings based on FDIC precedent. You have a chief of staff who introduced a bill to consider the SPSA preference as redeemed. This is THE key variable in the thesis. And by the way, there really aren't any other actual options in the real world without redeeming the SPSA (a key constraint). On top of all of this, you have the current regulator in the process of finalizing capital requirements, which is directly consistent with Calabria's writing and Mulvaney's stance. You don't need a scale to know a man is fat. Short of actually coming out and literally proclaiming the rights of shareholders, there has been extremely strong signaling which shows where this is directionally headed. Calabria makes no sense to appoint under the "status quo" argument.

Agree. I'm trying to identify any potential holes in the thesis and I think it speaks to where we are at when this is all there is... aside from existential risks in terms of trump impeachment->administration wipeout

Also continued props to cherzeca who was fundamental in shifting my perspective to view this as an engineering problem with "constraints" that must be solved for. (who is also seemingly a dead fan... talk about a misunderstood undervalued mispricing...)

A bit stunning that the share price hasn't reacted in a meaningful way after Calabria was nominated. Even in the unlikely event that he doesn't get confirmed, the administration undoubtedly would have been aware of his views on the treatment of shareholders and has effectively just "signaled" it's directional view on shareholder treatment. Alternative explanation could be blatant incompetence by the Trump administration (actually not sure we can rule this out) and maybe focusing more on his views of receivership/getting rid of securitization and wanting to move to depository institutions holding mortgages on balance sheet. It's amazing that this paper was written by the next FHFA director: http://investorsunite.org/wp-content/uploads/2015/01/Krimminger-Calabria-HERA-White-Paper-Jan-29.pdf On receivership: My quick read of what he has written is that his comments on receivership were criticism of what the government "should" have done during the small window of opportunity where it may have been feasible to move towards receivership prior to 2012. Regardless - in conjunction w/ comments on legality of net worth sweep and the following statement found in the paper above, I think shareholders do fine in a radical receivership given the PSPA will be (has to be) deemed paid -> assets greater than liabilities -> par liquidation preference on jr pref is paid "Under a receivership, a troubled institution is closed and liquidated. Its assets and liabilities may be transferred to a third party, or they may be temporarily transferred to a bridge bank until the bridge bank can be sold, recapitalized, and returned to the private sector, or liquidated. But stakeholders are protected by the rules of priority of distributing proceeds of asset sales, the liquidation minimum (requiring that stakeholders receive no less than what they would receive in a liquidation), and the claims process. Under this framework, a conservator must, by definition, allow the company under its control to build capital and certainly cannot take actions that are designed to deplete its capital." On shareholders: As a result of investor fatigue and continued disappointment in how negative events seem to pop up out of nowhere, I'm definitely biased in reading certain things in a negative context. With that backdrop, Calabria's paper purposely goes out of the way to use "pre-existing" or "pre-conservatorship" shareholders when talking about common/jr prefs. This may just be parlance to distinguish between the government and other 'stakeholders'... I'm 99% sure this is the how it should be read but I'm exhausted and simply stunned at the current share price. The Third Amendment implemented a “net worth sweep” that strips the Companies of their entire net worth each quarter and prevents the accumulation of any funds to repay pre-conservatorship shareholders, or build capital or any buffer against future losses. As described below, the Third Amendment strips any net worth from the Companies with the intended effect of leaving them with a declining capital buffer against future losses and guaranteeing that the preexisting shareholders would receive no value from any future operations of the Companies. Again, to the extent rights are transferred at the time of a stock being sold, this isn't an issue. But Calabria seems to be a principled guy and I'm trying to handicap the likelihood that he draws the line on paying out liquidation preference to only those who held prior to 2012. Aside from that, it's always been interesting to me how the "value investor" pitches systemic reasons for mispricing due to investor fatigue, surface level news without analysis, misunderstanding of key events, and mistaking "uncertainty" with "risk". Yet the investing community thinks this situation has so much hair on it that I'm actually not entirely sure that if recap/release is literally announced, there won't be an arbitrage opportunity

HAs anyone in this thread directly addressed the significant reduction in Fairholmes ownership? Doesn't seem entirely due to redemptions etc

Given how bitcoin obviously has 0 value, why aren't you short?

Yes, that is the bear case. But without some new thing with some much more attractive properties applicable to being a good store of value, none of the altcoins will have a long term effect on Bitcoin. They may have small short term dillutive effects for a while, but as they become valueless and disappear those small effects will disappear with them. Without substantial new properties/benefits, first mover advantage is everything. Why would you switch from bitcoin if everyone is already using bitcoin and go to a coin almost no one uses that isn't substantially better? It is like facebook, anyone can create a competing social network, but unless there is some feature that is massively better that FB can't copy, why would you switch when everyone you know (and a few billion people you don't know) are already using FB? Any dilution will turn out to be minimal and short lived. I do think there will be an endless number of app coins, which will not dilute BTC because they serve a different purpose altogether. I don't consider Ether, for example, to be a bitcoin competitor, because ETH will never be a store of value. And you value this "cash" why? It doesn't have intrinsic value and is only "valuable" because other people value it and will give you stuff for it. Maybe in the future you will be saying that companies have intrinsic value because they have coinflow. Try paying your federal taxes in bitcoins. You will find out why cash is valuable. Taxation is theft. I don't value things simply because violent thieves prefer them. As a matter of fact, holding your wealth in something the worlds most powerful and organized thieves do not want is a benefit. Wow man very edgy; I was a libertarian in high school too. You may not value freedom from prison, but the vast majority of people do. Extrapolating your extreme ideology onto the rest of the world is a laughably naive behavioral bias. It's like the miser who thinks AAPL is worthless because he uses a $50 Android smartphone. I don't want to pay taxes, but I value my freedom, hence I pay taxes and value dollars. Dread Pirate Roberts similarly believed taxation was theft and that bitcoin was a way to fight the man from behind a computer screen. I pay my taxes for the same reason. I don't want to die. I don't want to be kidnapped and locked in a cage like an animal. That doesn't make them not theft. You were a libertarian in high school? What are you now? Someone who thinks violence and theft is OK? How edgy. If you pay taxes in dollars then you do value dollars because " violent thieves" prefer them. Your actions speak louder than your internet posts. Dollars are incredibly valuable, as like you said, refusing to use dollars can get you killed or locked in a cage like an animal. It doesn't matter if this is good or bad, evil or moral. It is what it is. Letting your political ideology cloud your investment judgment makes for a poor investor. So much irony in this post. Love it

Exactly. BRK shares and gold aren't currency, and BTC isn't recognized as such by the government yet despite how some people are interpreting that headline. You can't pay your taxes in BTC, you can sell BTC to pay taxes in USD. But that's not a headline that will get clicks... Nor is it inconsistent with the thesis that's been articulated here multiple times.

I bet gold (or any other "store of value" assets) had the same traits as BTC at their early stages of being adopted as a store of value. See my perspective on this matter: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/what-are-cryptocurrencies-(ontological-perspective)/msg320343/#msg320343 Of course, because BTC is at a very early stage, the possible range of outcomes is extremely wide, hence the risk / speculative nature of investing in BTC. It may not turn out to be a good store of value, but fundamentally speaking, I don't think you can claim that it CAN'T be a store of value. The thesis is that if it DOES, it will be worth as much as gold, if not more. We're agreeing. I't speculation at this point, not a store of value. It seems to me that you were stating that 1. because it is being used for speculation that 2. it cannot become a store of value Maybe I misunderstood.

I cheapen the conversation? Dude, this asset is down 80%, was up hundreds of percents, was moving 20%+ a day every day last winter and everybody on every channel and every website was only talking about that. I'm not exactly the one who's bringing speculation into the conversation. Most of the activity around BTC was clearly speculation, and now that the price is down, we're seeing attention drain away from it just like it did from breanie babies. Functionality remains and it'll probably turn into something more useful over time, but the scarcity argument clearly was one used by speculators to explain why price HAD to keep rising. The scarcity doesn't help you much when it comes to just transferring money or other "utility" arguments for it. If you're looking for a store of value over long periods, then why would you look at BTC? It has no track record, has been wildly volatile and regulatory conditions are still fuzzy in many places and for many things. Productive assets have a track record of doing well over time in real terms, so they're a good way to store value against inflation, and even gold, while not productive, at least has a long track record of doing ok. I'm not disagreeing with you that it was used as a means of speculating. There are/were plenty of fools and bad actors involved - I have no control over this and I view this as mutually exclusive from the actual value inherent in bitcoin/how things play out longer term. I've never said I think bitcoin will be used as a utility to transfer payments. I think it's unlikely to be used as a payment rail, but I could be wrong. That would just add to the potential valuation. USD is used for payments as well as a store of value. Again - all else equal productive assets are a better investment than non productive assets (water is also wet). We are talking about buying a new asset prior to it reaching maturity. To be clear, nobody is making definitive statements in here. Or at least I'm not intending to. The framework I use is simple: - What value does bitcoin provide? (I've explained my view) - What are similar assets today that provide that value? (Gold) - Are there key attributes of bitcoin which gold lacks? (Yes, explained in this thread) - Are these attributes relevant to the core of why people own gold? (Yes) - If the market eventually agreed with the above, what is a reasonable proxy for price? (50% of golds value to 100% of golds value = $3.5tn to $7tn) - What odds are the market pricing bitcoin at reaching those values? (Currently 1.1% to 2.2%) - Do I think, given the incremental attributes provided by bitcoin not provided by gold, that the likelihood of hitting the value proxy above is reasonable (no, I think the odds are materially higher and TAM is growing)

I don't agree with your premise of painting rocks, so I disagree with the rest too. In the case of Bitcoin, the code is literally open source and can be (and has been) forked. You can get the same utility with these forks, or they could be made even better and drain supply away from the original at some point. Someone wanting to put their money in crypto has a growing target area to select from, while someone who wants gold doesn't (apart from mining inflation), so the scarcity argument doesn't play quite the same. The molecular makeup of gold gives it properties that painted rocks don't have, and someone can't just make something appears that looks, feels, behave, in exactly the same way as gold to the molecular level the way that software can be forked. Not that gold is that great to begin with, I prefer productive assets, but this is as far as comparing it to crypto. Yes we understand that you only like productive assets Mr Buffett. Please feel free to continue to invest in them and realize your view is an intelligent one, but not impactful to the asymmetric +EV proposition here. I would never buy a mature store of value like gold, as a value investor. But the strongest contender to replace gold priced at 1% of gold? That's a different question. Bitcoin has unique immutable properties as well. If bitcoin forks to bitcoin cash, it is not dilutive to owners of bitcoin.

One big difference that I see between cryptocurrencies and gold is that you can't make new versions of gold to increase the total supply of "gold-like" things, while you can always (and they do) create new cryptocyrrencies to increase the total supply of "bitcoin-like and ethereum-like" things in circulation even if the supply within once currency is limited. While you're generally correct about gold (there is incremental inflation mined each year and it can be faked), I couldn't disagree more with the notion that new crypto dilute bitcoin. You can argue that a new consensus mechanism may overtake proof of stake as the best for judgment resistance. But the notion that bitcoincash#3 dilutes bitcoin is a stretch argument. It dilutes it if you're trying to speculate in it and see price raise based on scarcity. Not if you just want the utility of sending money. Again, there is rational speculation and I think many in this thread have laid out strong data points as to why bitcoin has fundamental attributes around judgment resistant transfer and store of value. You cheapen the conversation by continuing to anchor back to "speculating trying to get rich". Obviously the goal is to make money (we are investors, after all) but we aren't trading tulips or beanie babies here. The consensus view that bitcoin is simply another widget being traded by clueless and uninformed people falling for a get rich quick scheme is, ironically, uninformed. Again, shitcoin#77 may look dilutive to bitcoin in the short term, but I disagree that there is any meaningful dilutive impact to the censorship resistant non sovereign store of value thesis. Agree to disagree I suppose.

One big difference that I see between cryptocurrencies and gold is that you can't make new versions of gold to increase the total supply of "gold-like" things, while you can always (and they do) create new cryptocyrrencies to increase the total supply of "bitcoin-like and ethereum-like" things in circulation even if the supply within once currency is limited. While you're generally correct about gold (there is incremental inflation mined each year and it can be faked), I couldn't disagree more with the notion that new crypto dilute bitcoin. You can argue that a new consensus mechanism may overtake proof of stake as the best for judgment resistance. But the notion that bitcoincash#3 dilutes bitcoin is a stretch argument.

It's clear that there is tremendous intangible value in an asset that a) cannot be debased and b) that than can be transferred in a judgment resistant manner (ie transfer of value between party A and party B cannot be blocked). It is simply a better version of gold and I would be surprised if this is not recognized over a long period of time. The real risk is whether the censorship resistant non debasable asset will prove to be bitcoin or another cryptocurrency. It's also unclear whether there are better incentive mechanisms for distributed ledgers. Those are the true risks and are somewhat hedgeable. As a corally, from an investment standpoint, it's simply a highly asymmetric trade given the global demand for non sovereign stores of value. There is no traditional margin of safety providing a floor - but price vs value is still a relevant framework. I've been slowly adding - the speed of which more due to the fact that I already have a large position. IMO most other utility coins are useless with some exceptions - but outside of my circle of competence. On a shorter term horizon (since some in this thread are concluding on result due to price - despite criticizing those who made decisions off of price 11 months ago) - it would be weird to be bearish ahead of the commencement of physical clearing of the assets by ICE. Who knows what happens in 1-3 years though.