DocSnowball

Two new pieces of information that are more concerning - definitely cash flows of any company related to China are going to be affected in the next 3 -6 months. If they don't control it yes, and if they do control it then as a lingering risk which rears its head up every few months when cases happen. A new paper out of China: https://www.medrxiv.org/content/10.1101/2020.01.27.20018952v1.full.pdf+html this puts R0 at 4.08 (each infected person spreading to 4 more) and fatality rate at 6.5%. Also, the model fits best with a date of start of outbreak prior to Dec 15th 2019. Either that's true and very concerning, or the model will end up being revised. Chinese cases update from yesterday - an interesting thing to note is the significant number of cases outside Wuhan and Hubei Province. This makes me expect transmission within China will be very very difficult to contain. Outside China, all it takes is a few people traveling while infected and a healthcare system that doesn't pick up early enough on the exposure history/ link to China (or someone doesn't reveal that for fear of discrimination or rejection) http://www.cidrap.umn.edu/news-perspective/2020/01/who-experts-again-weigh-ncov-emergency-status-more-nations-affected Chinese cases pass 6,000 "Early today China's Centers for Disease Control and Prevention (CDC) reported 1,459 new cases spanning 31 of its 33 provinces and administrating regions, boosting the overall total to 5,974. It also reported 26 more deaths, lifting the fatality count to 132. A situation update from the WHO said today that 1,239 illnesses are severe. A Chinese medical site that flagged new reports from China's provinces and cities put the total this afternoon at 6,095 cases, 133 of them fatal. Hubei province, home to Wuhan, where the outbreak was first reported, accounts for roughly half of the cases, with four provinces now reporting more than 200 cases: Zhejiang, Guangdong, Hunan, and Henan. Apart from affected parts of Hubei province, cities reporting the highest numbers of cases are Chongqing, Beijing, and Shanghai."

@muscleman sorry to hear about your family members. One thing to add would be that in the middle of an epidemic, all the bodies may not represent Coronavirus, they could be other diseases as well and the staff is just swamped. http://www.cidrap.umn.edu/news-perspective/2020/01/doubts-rise-about-chinas-ability-contain-new-coronavirus This is an interesting piece out today. A few things are emerging - if the link was from snake or an exotic animal and to a single human, then the virus has been transmitted from human to human quite effectively so far. The New England Journal of Medicine paper out also suggests that the virus is attaching to upper airway epithelial cells more effectively than prior ones causing outbreaks. This estimate puts it that each infected person is spreading it to 2.6 more people (range 1.5 to 3.5). This is much more than SARS or MERS-CoV. The fatality rate is possibly lesser then, otherwise it would have come to attention sooner. We'll have to see - transmissibility and morbidity/mortality are the two most important factors. The cat is out of the bag at this point. I also think this will play out over 3-6 months and the short term is likely to bring more bad news. The large scale actions being taken now in China are to be lauded. Interested, but not able to predict where this will go. Likely will spread but mortality rate might not be as high as we initially think. Another thing that can happen with coronaviruses is that they can evolve during human to human transmission - so there may be a base case scenario where it is transmissible (already) but low mortality, and a less likely but possible worst case scenario where it is transmissible and high mortality.

Thanks for the feedback! Just purchased, excited to listen to it. Thank you Daniel!

Thanks for sharing. I'm curious if you read the non-fiction ones or listened on Audible etc. Putting the non-fiction ones in my 2020 reading list :)

Read this in 2016 and truly loved it. Didn't stop me from going through the earlier phases, but made it interesting to observe and reflect on what was happening!

The practice of adaptive leadership: Tools and tactics for changing your organization and the world - Ronald A. Heifetz, Marty Linksy, Alexander Grashow https://www.amazon.com/Practice-Adaptive-Leadership-Changing-%20%20Organization/dp/1422105768/ref=sr_1_1?s=books&ie=UTF8&qid=1417455266&sr=1-%20%201&keywords=practice+of+adaptive+leadership https://cambridge-leadership.com/our-insights/ The market is an expensive place to find oneself, as wise ones have said. This book greatly helped me develop self-awareness, and develop a leadership course for medical students while at it. A must read for aspiring leaders and those interested in understanding self and diagnosing and impacting systems.

Paratek pharmaceuticals (PRTK) FDA approved oral and iv antibiotic for two indications. Holds ~220M in cash and short term, won a recent DoD contract worth another 150M plus in NPV. Has 264M plus in long term debt liability, and currently priced for negative to no NPV for the approved antibiotic due to industry realities (antibiotics don't sell enough to make money spent on post-approval research and marketing expenses). Two companies in the space have already gone bankrupt, with a few more at death's door. Having a large capital cushion means Paretek will survive into and beyond 2021. The catalyst in this industry is the DISARM act which proposes to delink reimbursement hospitals receive for using antibiotics from the lump sum they get from CMS/ Insurances per hospital admission - currently the act is in limbo and may see action either before the election or more likely after the election. CMS has slowly been uncoupling antibiotic payments on its own as well - in the past it was bundled into hospital payments, now CMS covers 75% of the price. While this may not be enough to tick up sales of new antibiotics, it will change CBO estimates of $ impact of DISARM and may be enough for politicians to muster courage to save this much needed industry. Former FDA commissioner Scott Gottlieb stated this space is one of his areas of interest to work in after leaving the FDA. High risk investment that can triple if DISARM act passes or slowly go down to near zero if DISARM act does not pass, but the DoD contract provides some margin of safety for the current market cap of 132M.

2019: 21% 2018: -19% 2017: 7% 2016: 192% Experienced my first investment going down to zero. Antibiotic companies lost more than 90% of their market cap from 2016 to 2019, including the bankruptcy of Achaogen in 2019. Happy to be learning everyday and grateful for the CoBF learning community. Thanks everyone and a happy and prosperous 2020 to all.

thanks for posting allnatural. if this comes to pass, very favorable. as to whether subsequent-to-NWS stockholders acquire litigation standing when they acquire shares, it is not surprising that this might be undecided in ct of fed claims in the takings area, as there haven't been many transactions affecting stock like the NWS, to say the least. Sweeney "should" be able to handle that question as the injury done by the NWS is done with respect to the share rights that the shares confer on the shareholder so that the identity of the shareholder should not matter, but she may feel better if the appeals court handles it (I mean, trial courts should be able to handle novel questions in the first instance knowing there is opportunity for review). so either way, there is treasury exposure going forward, but much more damages potential if all current shareholders have standing. @cherzeca and others understanding the legalities: Thank you for your very insightful comments to date. I have two questions. Does the derivative claim going forward mean that any reparations may end up going to the GSEs? If this is the case, I think it is favorable to individual shareholders like us because greenmail during settlement is less of a concern, or even when one purchased the shares, since money (or tax credit) is flowing back to GSE capital restoration. Secondly, how does Lamberth's breach of covenant ruling factor in to this where he wrote that FHFA did not fulfill it's fiduciary duty to shareholders when negotiating the third amendment with Treasury?

At what point do you think the preferred will be around at least 60% par? After settling the lawsuits and amending SPSA or closing the re-IPO? Originally the thesis was after sweep has ended, now that had happened. What needs to happen next? Do you think the big players are making money from trades or from preferred reaching finish line (IPO)? I cant answer these questions, other than to point out that IF there is no re-IPO before 1/21 and IF a D POTUS is elected and IF calabria/mnuchin wanted to bake the process so there could be no easy way to reverse it, then they would do the litigation settlement and SPSA amendment before the D inauguration. this would create a shareholder valuation that would be too much to be ignored by any D POTUS who wanted to renationalize NWS has not really ended, rather the additional capital retained has been added to the liquidation preference for now. I'm thinking the re-IPO process will force the companies and FHFA to address what happens to preferred and common shares and get the lawsuits out of the way. Trying to keep this is mind and not worry about the day to day news bytes. Yes delay means conversion or resumption of dividends has been delayed, but the timing of release is a small issue compared to the fact that release is being planned for. I don't have a good explanation of market behavior and won't even try, the market doesn't seem to be worrying about political risk when valuing SPY or other equities so hard to use that explanation for GSEs. I do worry about insider information or greenmail which shows up in a conservative position sizing of 5% despite the margin of safety now again offered by Lamberth and Collins.

All we've seen is capital retention in lieu of an increase in the liquidation preference. This in the face of Lamberth and Collins, and at a time distant enough from the elections. And there is no incentive to act urgently in favor of a shareholder settlement in 2020 until elections are over, otherwise it provides fodder for political opponents coming into the election season. Unless the Courts provide a judgment otherwise, I don't see a dramatic settlement unfolding in the next year.

You'd think. Yet the preferreds fall every day. Just rotation to commons? Im honestly perplexed to a degree also. Preferreds aren't much higher then back just before the Lamberth decision yet look how far we have come and where we are. Maybe it takes the NWS being off permanently or release of capital plan to see much closer to par. Either way seems like price will be up substantially overnight like after the 5th circuit ruling. Personally I was disappointed that even if NWS ends, the capital retained will simply be added to the senior liquidation preference. In essence, all 100% still flows to the Treasury likely for the next couple of years. This combined with the capital raise plans being deferred to after the election is disappointing. I had loaded up my position to 20% of portfolio after Calabria's statements in the early summer about capital building and shareholders getting some conversion, but after this information have cut it down to 5% again. Surprised no one else is bothered about continued usurping of profits despite the court ruling.

That's the part I am struggling with. Despite the court ruling, the current admin plan is to simply add all the retained earnings to the seniors liquidation preference. So all 100% profits are still flowing to the Treasury from a legal standpoint. This one aspect is bothersome - or it may be a negotiating tactic that they want to make sure lawsuits are settled in return for extinguishing this senior liquidation preference or converting it into an explicit commitment fee.

+1 That is why following this saga is so much fun and highly educational as a value investor...

imo craig's abrupt resignation has to be interpreted in this context. occams razor explanation is that whatever happened to derail the original plan caused him to resign. what happens now, i dont think anyone has a clue... Other possibilities: - handing off the role to Calabria or another person after completing his piece of the work - considering more lucrative positions in industry I'm not disagreeing with you; just putting out a broader range of possibilities. Calabria's statements are not consistent with a scuttled plan, although they do indicate that the timeline of events is longer and more variable/dependent on meeting certain pre-established conditions.

link:https://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Dr-Mark-A-Calabria-Director-of-FHFA-at-Mortgage-Bankers-Association-National-Secondary-Market-Conference-Expo-2019.aspx Calabria, yesterday, in prepared remarks: My early guess is that the treasury plan will say something like IPO/Initiate capital build Q1-Q2 2020 to give themselves months of leeway. Both of his statements fit that time period. Vague is the way to go apparently. Reading through his prepared statement (thanks for the link), the overall plan remains consistent. Even the legislative steps are starting to be clearly laid out - explicit guarantee and authorizing FHFA to issue more charters (I'd be curious what the Treasury plan puts down as administrative alternatives to these two). Exactly when the implementation starts, this year or later, is a smaller issue. As bankers I think they understand the value of everything being clearly in writing before it is set in stone, especially given ongoing lawsuits and threat of more as well as the political fallout. Clearly, receivership is out and preferreds and commons have a non-zero value. The odds of recap and release continue to increase with consistency of communications. Even a year of delayed execution only brings down the value of FNMAT by a couple of dollars. The big risks here may be 1) status quo being a less controversial place to be for Treasury if this runs closer to election (so I'll discount NPV by an additional year to account for this) and 2) mechanisms of capital raise and what will happen to current shareholders (so I continue to demand a higher rate of return than alternatives, at least twice as high). Still makes this a good position to hold on to in taxable accounts, and look to add more if prices drop significantly.

Your love of learning and seeking a mentor is to be applauded. Feedback and reflection along with the growth mindset can set a great example for your next generation as well. Please know that a lot of the advice is meant to alert you to limit permanent capital loss that can and likely will happen in the course of learning - and it may be the best peer mentoring advice one can get (speaking from experience). Finding a mentor in your desired investment philosophy and circle of competence eventually will definitely help. I've been unable to find a good mentor yet as well, but happy to share what I've learnt from my mistakes as a peer (please feel free to DM me if you'd like). I started learning active investing in 2015 at age 39 studying a course on Value investing as part of my MBA - the professor who took the course Anurag Sharma has a nice book called Book of Value if you want to read it - I can't recommend it enough especially the first part. Guy Spier's The Education of a Value Investor also communicates in a story format the mistakes he made early on. Peter Lynch makes it sound too easy, beware of chasing shiny objects. Usually an early good outcome gets you hooked to the field. Most, myself included, make a lot of mistakes early on chasing fairy tales or doubling down on well studied but capital losing bets - one thing that really helped me out is limiting my investable capital account to a separate 10% of portfolio for pre-defined 3 years (think of it as an apprenticeship period). If not for this, I'd be broke and depressed by now, no kidding. You learn so much from your own mistakes. I haven't figured out an answer to the mentor part yet (my developing circle of competence is healthcare and biotech investing), but short of that writing down your thesis and value drivers, even blogging or creating a thread on a forum are helpful tips to putting your thoughts out there and getting peer feedback. Start with an area where you have a circle of competence or would love to develop it, and work on an idea in depth for a week or two to understand the industry, the story and business model, the valuation, the risks, the competitors, the management and their incentives, the headwinds and tailwinds all the companies in the industry are facing, and finally the catalysts and your expectations. Being very clear about your goals is the starting point as many have noted. This will help you chart a path in keeping with these goals. And look out for "value" ways of developing yourself - if one of my goals is to enable the next generation in understanding and building wealth to fulfill their needs and desires and contribute to the good of society, then the time I spend teaching my little kids about money is one of the most valuable rewards for my learning actively about personal finance and investing. This makes the journey a lot more fun and sometimes even better than the results we are all looking for - heads you win, tails you don't lose much.

Agree on preferred. Personally I have little hope from the legislative side given what's transpired so far, esp Collins. Waiting to buy second half of a 10% position after Collins if the opportunity arrives. Lamberth's opinion on FHFA needing to fairly represent shareholders in any negotiation with Treasury is a silver lining as the capital build unfolds; at the very least they won't want to take actions that generate even more lawsuits rather then making them go away.

Thank you. Yes, very informative. He said lawsuits are an impediment to any IPO/recap. He may be right. Perhaps both the sweep and the lawsuits are resolved simultaneously. Berko and Paulson may have some leverage after all. Exactly- when I try to invert this scenario to envision what a successful recap looks like, the lawsuits need to be resolved prior to recap. A situation like receivership which would increase lawsuits and make some current ones ripe doesn't align with Treasury's interests in maximizing their investment and getting first loss capital ahead of their backstop and FHFA's goal of safety and soundness. That's what made me change my mind and back up the truck after Calabria's interview. It would have taken a lot of back end work for Calabria to mention in public what may happen to preferred and common shareholders (but it's may and not shall so fingers crossed ;D).

Court doc attached... Love it (as a non-legal layperson)...the ruling states on page 3 that implied covenant requires a party (FHFA here) "to refrain from arbitrary and unreasonable conduct which has the effect of preventing the other party (shareholders here) to the contract from receiving the fruits of the bargain". I hope this ruling helps shareholders when FHFA and Treasury renegotiate terms later this fall re: the Fruits (dividend and liquidation value of preferred shares). This may be just as important as the restitution claims the trial will bring. For the lawsuits "to go away" as Calabria and Treasury desire (rather than continue and even increase), fair treatment is now a greater expectation based on this ruling.

From his Senate hearing testimony statement: https://www.banking.senate.gov/imo/media/doc/Calabria%20Testimony%202-14-19.pdf "I have even brought with me today my nearly decade old, dog-eared personal copy of HERA. Whatever the policy issue, my first question will always be “what does the statute say?”" Now, he says the statute obligates him to get the companies out of conservatorship. I was wrong, receivership is not his plan of action, neither Treasury's who will lose their investment in such scenario - this risk is disconfirmed based on his statements. Therefore, risk zero is gone, yay!. Competitors will be invited via new charters if Congress legislates, who knows if and when but the bank lobby may get it done eventually. FnF may shrink their footprint over time but this is unlikely to be a problem for a preferred investor (smaller footprint = lesser capital raise needed). He mentions NWS is likely to be gone in the new year, and there will be a negotiated agreement between Treasury and FHFA on the plan ahead and its details, along with what Treasury will do with its stake. Inverting to what all will be needed to do a successful capital raise and capital retention is a good mental exercise here for me - the preferred will either stay and wait their turn to get dividends turned on, or be converted to common in some ratio I have no control over, or be called at par. All in all, this is now a reasonable thesis to continue to carry forward administratively. The lawsuits do need to go away for the capital raise to occur smoothly, and thus provide a margin of safety, especially if you are represented. And fwiw what a crisp interview, I'm truly impressed by how well she had prepared and let him do the talking he really likes to do

"@MarkCalabria is waiting on a plan from @USTreasury on reform for Fannie & Freddie, which he expects this summer. (one of two)" Entire tweets and replies compiled here, or should I say his stated timeline of activity as per the reporter (video of interview awaited): https://twitter.com/Jenniferisms/with_replies

Is there a thing as value trading? Use TA to buy securities from amongst an undervalued pool? If it doesn't work out be patient and make a long term call based on fundamentals...do we do some of this when position sizing? Just curious if there is a sweet spot

Thank you for sharing. +1 on the round trip. Slowly working my way back bit by bit :)

Isn't it amazing that every time there was an admin delay, we say "Now the thesis is back to courts", and every time there was a negative court ruling, we say "Courts don't matter. Now the thesis is back to admin reform"? ::) With that said, I do think Collins is promising. But we have been wrong all along the way. ::) Just to add some perspective. My cost basis on the Jrs. is 47 cents or about 2 cents on the dollar. If I were to sell today that would mean 1700% correctness. I would love to be wrong this way only 1 more time in my investing journey. Hats off to you. Do you think the "house money" makes you less risk averse to a loss from these levels? Or is there loss aversion from threat of a big chunk of profit being taxed? If the security was available at today's prices, would you enter into the investment and build this level of allocation? Just curious. I have enjoyed your comments along the ride a lot, worth much more than 2c on the dollar, closer to priceless! Well.. I am far from being in the same league as those members here who write technically savvy, mathematically thorough, legally correct and well researched posts and answers. Those indeed are priceless. So thank you for overestimating me :) It's difficult to say where being risk averse is coming from. As you mentioned, the hatred of having to pay a small fortune to the IRS, the greed of perhaps leaving money on the table, the comfort of sitting on large paper profits... all play a part. Maybe it's inertia. Maybe obstinacy. But over the years and after seeing shares losing a lot of ground -on occasions- I came to the conclusion that at 60% of par it may not be worth to wait for full face value. The time and the battle... Believing there may be other "close to doubles" that can fill the gap of Jrs. at 60% helps keep greed in check. Or transplant it, I should say. Today I would not build the position I originally built back then. Not because of prices nor because risk/reward has changed. But because today's reality (and the information we acquired) is vastly different than the one we faced in 2010. All we had then was our (correct) interpretation of HERA, our correct interpretation of the SPSPAs and a leftist President who had been in office less than 2 years and appeared too timid in the aftermath of decades of Reaganomics. Now we are waking up to the fact the companies had been nationalized and neither courts nor the government seem to know where to go. Still, in this utter confusion I do see benign signs. Since Lamberth, we've had nothing but good news. Scratch that. News becoming better at a compounding rate. While the smallest victories may have gone unnoticed at first -Sweeney's discovery for one-, news from courts continued to build momentum to the upside in an ever so slightly upward slope. More recently, from Willet's dissent to the En Banc proceedings. Perhaps one day this curve goes parabolic. In the face of an improving rate of change of court news, under the belief that Otting, Calabria, Mnuchin and Mulvaney are beneficial to shareholders and being close to a price level I would consider satisfactory, would you recommend becoming conservative taking some chips off the table? In other words, do you think 60% is achievable sometime this year? Thanks for sharing. If I knew whether this will reach 60% of par, wouldn't that be great. Do I think so, yes more likely than not. My context in this is of a small private investor who is not at the negotiation table in a situation without margin of safety and dependent on the kindness of strangers who I can't bring myself to trust; with the legal system so far not standing behind me to serve its role of enabling trust in contracts. My asset allocation approach here is to put in only so much that if it reaches par on best case scenario, then it represents what I'd want at steady state in my portfolio; and so little that if it goes to zero or very low then I won't lose sleep. For me this is 2%, and at par 5%, leaving me with another 5% I can allocate after the binary outcome is over. One can argue using Kelly's formula would be another option, and reach a much higher allocation. I'd have to say I have subjectively felt much better after cutting down my allocation from 15% to 2% here in the last few months, but unlike you it was not a 1700% gain, only 150% and much of it helped offset another investment that didn't work out.