DocSnowball

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!

All in the pool, 79.9% belongs to Treasury, the remaining 20.1% (plus retained capital) will account for capital raise. Either heavy dilution is coming for current shareholders (even if preferred convert to commons in some ratio) or receivership with ultimate release as New Cos. Moelis plan may represent aspiration value but not necessarily base case scenario. All I'm saying is that this remains a very high risk proposition until the capitalization plan is clear.

Just catching up with Calabria confirmation and statements. It is clear that capital raise is coming. It is not clear what the status of current shareholders will be. We all agree to that with varying hopes of what will happen. FWIW. I'm imagining a current shareholder at the negotiating table with Treasury, FHFA and various flavors of current shareholders. My prior bias was that the administration has been kind to its supporters to date, but when I reflect carefully on people involved in administrative roles or campaign they are either out the door or some of them are on their way to prison. Therefore one cannot bank on the kindness of these strangers without solid legal representation. I sold all individual holdings and placed a very small amount with Fairholme which has the best legal standing. There is no ten bagger here, but a good long term investment especially after enterprises have a plan to be well capitalized and risk of zero is very low. I'm sure most of this board disagrees with me, if I'm wrong I'm more than happy to miss a double from here.

Thank you - I listened to him explain his position in a very simple way. This is one part of my thesis that I have not been able to disconfirm - this administration backstabbing its own supporters. Then I listened to the en banc audio and shook my head. And the fact that FHFA lied in the Court briefings was immaterial and not even brought up. Unless there is a court verdict in Ps favor, par seems highly unlikely to me.

I have bought FFXDF from JPM Chase Investment account in Dec 2018 without any issues.

GLTY - maybe there is a time for indexing and a time for value and that is something I think about which keeps me going as an active investor Prof. here talks about "returns per unit of stress" which made an impact on my thinking https://fundooprofessor.wordpress.com/2012/04/05/returns-per-unit-of-stress/ When indexes are clearly undervalued or at least fairly valued (like in EM indexes IMHO) I'm happy to index as well now. Too much stress in a 100% active portfolio. As an individual investor with a life, I find it difficult to cultivate more than 5-10 ideas that are honestly within my circle of competence. When they are within it, it doesn't feel like work, and is fun despite the high beta. Also, the last few years have been about disconfirming so many thesis, it is tiring turning over one rock after another and not finding it worth investing. Maybe wiser ones on this thread will comment on how many years or units of learning it takes to be able to manage a full portfolio with lower levels of stress and returns that are consistently positive above inflation

Thanks for sharing your journey Sanjeev, it's a treat. As someone who was born and grew up in Delhi, I really appreciate and enjoy your very astute perspectives!

Otting's statement is the third, after OMB document and Craig Phillips comments back in the fall. With the highlights already mentioned in this thread - the common themes among Treasury, WH and FHFA players are starting to emerge - and the new language "return to private ownership" by Phillips and "release" by Otting is notable. Status quo seems very unlikely now, and restructuring in some form is coming. I'm still risk averse to the commons because receivership and release in the form of New Cos is still not off the table.

And on that note, here is my first (or third) useless comment for 2019. One useless comment from my side - when I look back and reflect on my thesis, it has conveniently drifted from legal (Fifth amendment violation) to Administrative (Restructuring or even receivership with shares in New Co because there is no good alternative). Only solace in the last week has been no significant selling by those closest to being "insiders" to the administration aka Moelis sponsors. Still holding at 10% of portfolio but not sure if this falls under deep value or pure speculation.

2018: -19% 2017: 7% 2016: 192% Antibiotic companies lost more than bitcoin in 2018, down >90% from 2016 highs despite FDA approvals in 2018 - a painful learning experience although the story is not over. Happy to be learning everyday and grateful for the CoBF learning community.

Thanks to all of you, the discussion has helped me as an investor no matter what happens here. FWIW The Barron's article today on Calabria's views mentions prior writings from him on the way out for the GSEs. These lines are interesting on his views where there is some discussion on current shareholders and Government's shares. First article 2015 https://www.cato.org/blog/we-decide-keep-fannie-mae-around If We Decide to Keep Fannie Mae Around… "Break ‘em up. This might be the most controversial, but simply allowing other institutions to enter the market is unlikely to guarantee sufficient competition. We broke up Ma Bell. Under any antitrust standard, Fannie and Freddie are a duopoly. Unless we are repealing the Sherman Act, the two companies should be broken into at least 6 pieces each and barred from merging. Existing shareholders would get shares in the off-spring companies" Second article 2016 https://www.urban.org/policy-centers/housing-finance-policy-center/projects/housing-finance-reform-incubator/mark-calabria-coming-full-circle-mortgage-finance "...the goodwill and human capital within the GSEs would remain. Shareholders would also benefit to the extent that the companies had value. This would require the GSEs to meet bank capital levels. Selling off the government’s preferred shares would assist in this regard..."

I share the feeling - in addition bad karma from corrupt stakeholders (the opposite of honest and trustworthy management as Buffet and Munger would say).

Thank you for sharing this paper. To date I have thought that Treasury holds 79.9% of equity in addition to seniors, and one reason why they will not walk away. What of the scenario of receivership and restructuring using a good bank/ bad bank model and Treasury making its money in perpetuity by the explicit guarantee fee instead of over 2-3 years by selling its common equity? In that scenario shareholders are left to get whatever is felt to be the value of the residual bad bank assets, which may be ultimately dependent on a takings claim decision. Appreciate if there is any reason to disconfirm this line of thinking apart from the language in HERA about needing to do this over a few years which I have read.

Nevertheless, fellow travelers getting nervous... https://thehill.com/opinion/finance/420633-fannie-and-freddie-investors-want-us-to-forget-about-the-housing-crisis

:D ;) :D I'm wondering after watching this video and his legal thoughts, which are similar to ours and perhaps any reasonable person, that continued conservatorship is unlikely - 1) scenario 1: exit conservatorship with recap and release - but neither Mnuchin or Calabria have stated support for that 2) scenario 2: receivership - if Treasury/FHFA want to run the companies through receivership and have them re-emerge as whatever they envision (may be 1 or 2 or more likely 4-6 smaller new companies in a competitive market,) then what is the bare minimum they have to do to take care of the preferred and common shareholders in a way that Treasury can still monetize its equity position? That is likely what they will do, with the help of large shareholders who are already friendly with the decision makers - otherwise the alternative to not reaching a negotiated agreement is that restructuring may leave preferred and common owners to fend for themselves in court another decade. And they are not so stupid to leave the big Treasury equity position on the table just to break up/ restructure the companies. My thesis is they will run this through receivership with some legal arrangement for the current shareholders to get equity when the new companies emerge. And the receivership announcement may be the catalyst to bring legislators to the table with Treasury leading the way. Mnuchin has repeatedly talked about not wanting to move markets by showing his hand. I have wondered these markets he worries about are not equity but debt markets, and again they will likely do everything they can to reassure GSE debt holders the debt is secure.

"Mr. Calabria also has questioned the legality of the current arrangement by which the Treasury Department collects the profits of Fannie and Freddie in exchange for its nearly open-ended support of the mortgage-finance giants since the 2008 crisis. That position sides with shareholders of the firms who have challenged in court the FHFA’s administration of the companies."

Looks like a two thirds vote to change terms of the certificates, so it'll come down to institutional ownership. Any way to find which hedge funds own what? I don't want to end up holding preferred that don't get a juicy conversion offer. According to this iHub post https://investorshub.advfn.com/boards/read_msg.aspx?message_id=144033836 big money holds the high yielders like FNMAS, FMCKJ, FNMAT, as well as the $50-par series. That last group includes FNMAG, FNMAK, FNMAL, FNMAM, FNMAN, FMCKP, FMCCK, FMCCO, FMCCP. I would imagine that the conversion offer will take either or both of two things into account: the dividend yield and the then-current price ratio vs commons. I believe there is a reason the high-divs continue to trade at a premium to the low-divs. Thanks Midas. I'm in fnmaj and fnmas roughly 50/50. Fnmaj seems to have always been relatively cheaper. I'll take a look at adding the other series you mentioned. If the only criterion is 2/3rd of holders have to agree, then is it not possible a new hedge fund can simply buy enough of a stake in the preferred series that are at a lower price when that announcement is made? Greenmail is a valid concern, but I don't think the 2/3rd owner limitation will be a big hurdle. FWIW

I faintly remember Prof Damodaran mentioning a Crystal Ball add-in to Excel that has to be purchased separately.

@thowed and @petec Thank you for your replies.

One thing I am noting from the latest filing is Sanmar common equity went from 554 (million Indian rupees) to 208,854. There is a section that gives reasoning but it is a 376 fold increase in a quarter and holds up the shareholder equity and book value per share in the bottom line for the year and the quarter. How does such a dramatic increase work out? https://s1.q4cdn.com/293822657/files/doc_financials/quarterly_reports/2018/2018-Q3-Interim-Report-(FIH)-(Final).pdf "Sanmar Common Shares At September 30, 2018 the company estimated the fair value of its investment in Sanmar common shares using a discounted cash flow analysis based on multi-year free cash flow projections with assumed after-tax discount rates ranging from 13.4% to 16.6% and long term growth rates ranging from 3.0% to 4.0% (December 31, 2017 - 15.2% to 19.5% and 2.0% to 3.6%, respectively). Free cash flow projections were based on EBITDA estimates derived from financial information for Sanmar's four business units (with additional financial information and analysis completed for Chemplast's underlying business units involved in new capital projects) prepared in the third quarter of 2018 by Sanmar's management. Discount rates were based on the company's assessment of risk premiums to the appropriate risk-free rate of the economic environment in which Sanmar operates. In the third quarter of 2018 Fairfax India recorded unrealized gains of $225,013 on its investment in Sanmar common shares primarily as a result of: (i) positive operational developments at Sanmar Egypt (successful completion of its increased capacities in Egypt) and Chemplast (will benefit from the completion of new capital projects); (ii) continued strong demand for PVC and related products in India, Europe, the Middle East and North Africa; and (iii) the decrease in the after-tax discount rates (principally related to the decreased risk at Sanmar Egypt as a result of the completion of its capital expenditure project to increase capacity). At September 30, 2018 the company's internal valuation model indicated that the fair value of the company's investment in Sanmar common shares was $208,854 (December 31, 2017 - $556). The changes in fair value of the company's investment in Sanmar common shares for the third quarters and first nine months of 2018 and 2017 are presented in the tables disclosed earlier in note 5."

This assumes a Treasury that is out to get the commons. That was Obama's. If current Treasury dpt. aligns with Moelis or similar while there will be dilution there won't be punishment, in my view. Careful though, unlike the preferreds, if receivership happens or status quo continues the commons can go close to zero in a matter of days.

Refreshing this thread with recent changes in market valuations. Also David Swensen's latest portfolio is 60% VWO (Vanguard emerging markets) and 20% EFA (iShares ex-US developed markets). I realize these are pure asset allocation level choices albeit based on the same thesis as Grantham. Both are at or near 5 year lows. How does one value these markets, meaning are you simply adding default risk to the US equity risk premiums to get to a ERP for these like Professor Damodaran does, or is there a better way to judge whether they are fairly valued or under/over valued? Either way the long term returns >5-10 year timeframe do appear to be better than US markets if one is a passive investor and can slowly drip in.

Started a small position (1% of portfolio) with long timeframe >10 years hopefully. How does one find out about IIFL possible outcomes, I didn't see much detail in the letter. Wondering how well capitalized/ indebted their other investments are given rising interest rates?

This is so true. While any industry is subject to these forces, being in healthcare I can understand that it is by no stretch of imagination a free market, rather dependent on the kindness of strangers. However I've been looking at companies trying to make what Thiel would call Zero to One kind of products (CAR-T cell therapies may be an example of this although most are at rich valuations). Most biotech funds I look at are diversified into owning 100s of companies perhaps for these reasons - this level of diversification is not possible for an individual investor who has the philosophy of owning 5-20 very good companies long term. This is partly why it is so difficult to build a good biotech portfolio, and makes me wonder if I should go back to indexing (better to index albeit ex-US for now than invest actively outside one's circle of competence). David Swensen's latest portfolio is 60% VWO and 20% EFA. That says something! @nsa122: without going into detailed discussion here (there is a separate thread in strategies), my experience in owning early stage biotechs making a single or a few antibiotics has been that the companies are having a hard time surviving because 1) big Pharma is not buying them even after FDA approval 2) inpatient antibiotic sales have been abysmal 3) valuations and short selling prevent them from raising cash. Many are trading below NPV. I've invested in those that offer outpatient transition options, and have seen market caps come down to 10-20% of 52 wk highs at present. As you mention, the lottery ticket aspect is either a new reimbursement model or a legislation that offers pull incentives. Whether this is a failed business model or a value opportunity, only time will tell.

Thank you so much. I started with looking at Orbimed, and it is very informative. Will look forward to reading the others in the future.