Wiggins

https://www.forbes.com/sites/lisettevoytko/2019/09/27/herbalife-pays-sec-20-million-to-settle-charges-it-misled-investors/#1db8503580b8

Calabria was also interviewed yesterday (audio): http://indypolitics.org/redefining-fannie-and-freddie/?fbclid=IwAR2Y2I9kekicUpJgWkgEgNscWj_aAuUITAv5KtpRquOY8UXaV0xrC8nyko0 I think this is his longest interview and also the most reasonable. He says they will build capital for about a year. Some positives are that he corrected the interviewer a couple of times and said that they already ARE private companies with shareholders. And he mentioned the shareholders. His messaging overall is consistent, that he is there to get them out of conservatorship but major changes are up to Congress. Some negatives are that he still talks about fixing problems with their lending standards and de-risking them, but his criticism of the GSEs was more moderate than usual.

A SCOTUS decision would be helpful in sorting out the constitutional issues as well as confirming and putting guardrails on the APA malfeasance upon which the 5th circuit en banc so eloquently ruled. No matter what Mnuchin does, there will be uncertainty for investors until all that is settled. The only thing that can be settled by the end of the year is SCOTUS just taking the case. But methinks Mnuchin has to factor all that in including a likely final SCOTUS ruling before any negiotiation is settled. I'm not saying Mnuchin will wait, just that he has a lot to consider. What does everybody think the odds are of this getting done in the month of October? Thanks in advance for replies.

I think this is from his investor letter issued before the en banc decision, and Value Walk is thus reporting fake news. It sounds like it was issued on the Friday after the Treasury report was released, but immediately prior to the en banc decision coming down. If you scroll down the bottom of this link you will see this quote: "My belief is to continue to relay [sic] on the Fifth Circuit Court in Houston," he wrote. "If this court finds for the plaintiffs in some meaningful way, the debate on the Treasury Report will begin in earnest. Some resolution that makes all constituencies happy will be put in place. If the Fifth Circuit Court does not find for the plaintiffs, the debate on the Treasury Report will not begin in earnest until April of 2021." https://www.valuewalk.com/2019/09/fannie-mae-junior-preferred-shares/

Rop was filed in Michigan just prior to Bhatti being filed in Minnesota, and the two complaints are virtually identical. Rolg or others, have any idea what's going on here? If the judge is slow-walking this, how does that work exactly and when can we expect some action? Thanks

I thank everyone again here for all the great comments and congratulate all the holders. Just finished reading the excellent Willet-authored ruling. There seems to be some debate on COBF over relief and how it would affect commons. It seems to me "prospective" only deals with the constitutional claims, not at all the APA claims. The APA claim is remanded but the en banc majority lay it out pretty starkly. It's inconceivable to me, given Willet's utter dismantling of the NWS action under the APA claim, that relief would not include unwinding the great monetary damage done by the NWS from the get-go (i.e. from the date it was enacted). I mean, it violated the duty to "preserve and conserve", so the thought that relief would not somehow restore the unlawfully confiscated property just doesn't gibe. (Hey, I stole all your sheep and that was found to be illegal, but the ruling is that I get to keep all your sheep as long as I don't do it any more...no). And the largest monetary confiscation was immediately after the NWS was enacted, 2013. Thus, in some fashion, money is returned to the GSEs as Thompson discussed in front of the panel (Judges Stewart, Willet, Haynes...i.e., the Brinks truck conversation). This is likely accomplished as discussed by just voiding the SPS liquidation preference since it's considered paid down and then returns over-payment past the 10% moment, at least. The other alternative, return ALL funds paid over the 10% dividend and keep the SPS liquidation preference intact isn't likely logistically. But, either way, there is no conversion of SPS into commons causing dilution. Given this reality, the commons just gained massive value, possibly low or even high multiples of tens. So, I agree with the other previous comment to this effect. have fun!

https://www.wsj.com/articles/a-primer-on-the-future-of-fannie-freddie-11566898207?mod=hp_lista_pos3 Plan to be released "shortly after Labor day."

@muscleman There's another rational explanation for why Calabria supports the constitutionality of HERA, and that's the fact that he helped write it and appears to support it and be proud of it. He still keeps an old dog-eared copy remember? And his prior essay on why the NWS was illegal was that HERA does not support it; thus it follows that he believes HERA is lawful. That makes more sense to me rather than he knows how the en banc will rule. @investorG The longer we wait to hear the more that supports a reversal by the 5th, according to others who have analyzed their rulings. There's just no concrete evidence of a bad ruling (and unfortunately no evidence for a good one, either).

thanks. great read all around

I have occasionally wondered if there are fake posts that are aimed to make investors in the GSEs look like idiots, playing in to Gasparino's narrative. This post would nicely fit that bill. I'm sure this happens, and it shouldn't matter because it's a free country and the law is the law, but still... I personally try to skip over all the massive stupid stuff out there, as best as possible. If the law prevails none of this matters. Is this Maloni 2.0? :o

I think this would make a takings case a slam dunk. A) Gov't declares NWS along with a "new capital paradigm" whereby a funding commitment serves to make GSEs safe and sound, and successfully argues this for years in court. B) Whoopsie-daisies, just kidding, that was all BS and now that all capital has been siphoned out, Gov't deems GSEs critically undercapitalized thus receivership is in order. Schizophrenia is too nice of a word to describe this.

+1

It makes sense that Calabria would reverse direction regarding the constitutionality of HERA, given that he helped write it and he keeps an original dog-eared copy of it. In that sense, perhaps he is merely arguing that an unconstitutional structure cannot be a reason for the NWS to be invalid. A key sentence supporting this is: "At all relevant times FHFA argued and continues to argue the issue does not affect the Third Amendment’s validity." I believe his prior arguments against the validity of the NWS were based on the fact that it does not fall within the power of a conservator, i.e. the APA claim. He doesn't speak to this in this latest letter. Does anyone else see it this way?

Yes that makes sense. Thanks for recommending those excellent books. I bought the Intelligent Investor as well at the same time based on your recommendation. I read a little bit of it and enjoyed it but got sidetracked for a book club I'm in so looking forward to getting back to Graham's book. Both just outstanding books and enjoyable to read. It was probably me. It is one of two books I recommend... it and The Intelligent Investor. Glad you liked it! James Montier is great.

I read a book that was recommended by one of you guys: "The Little Book of Behavioral Investing." It was a highly enjoyable read. I can't remember who recommended it, perhaps @muscleman. Thanks for recommending it! Happy birthday to the Nation that has sponsored the GSEs!

in addition to Moelis also "top stock and bond holders" Wow, who is that? Anyone here go?

@muscleman I haven't seen any evidence that everyone thinks TA is voodoo. I think many don't understand what you do is all. What I have seen is that some people are curious about it, myself included. And I generally enjoy your posts. Why don't you ever explain what you're doing, or provide a link to some illustrative instructional info? No intention for insult, but if this is the kind of technical analysis you do, no wonder why you guys all think TA is just non-sense and voodoo. :o

Question: What, pray tell, could be in the Treasury plan that is bad for investors in the short to intermediate term? My thoughts are realistically, nothing. In the short term bullish given that the plan should suggest ending the NWS, probably replace it with a periodic commitment fee. In the long term, probably a wish list of very bank friendly legislative suggestions...

There seems to be an impasse between the economic reality that the GSEs need to continue to exist which involves recapitalization and making investors feel confident to put new money in, and the massive political sentiment against the GSEs held by the TBTF banking cartel. It's hard to imagine the tremendous pressure felt by Mnuchin, Calabria and Trump from the TBTF banking lobby. Given this intense pressure I'd say they're doing a fine job. This would be a perfect time for en banc. I put the odds of a favorable ruling at 60-65%. I also factor there's more upside with a favorable ruling than downside with an unfavorable ruling, perhaps 50% upside and 30% downside depending on the ruling. So overall, I plan to hold on and wait for that ruling. I would also add: wouldn't it make sense for Calabria/Mnuchin to wait for en banc? I mean, with an unfavorable ruling they're essentially where they are now, nothing lost. But with a favorable ruling a huge political decision has been made for them. The bankers cannot be angered with stopping the NWS if it's the courts that decide, but they COULD be truly pissed off if it's Calabria/Mnuchin that decides. Therefore I think it's quite natural that they wait. I wouldn't read anything else into other than that. In the meantime, everything has incrementally gotten better.

"too many unknown variables" for common Agreed. But you can think about just the one, single upcoming variable which is likely to affect them the most: en banc. It could have a huge positive impact on commons. It would help cap the amount of dilution that is going to occur. It's hard to imagine they don't have considerable upside after a positive en banc decision. Preferred shares are not as affected by the en banc decision. recap mechanics should trip you up since no one knows what the hell is coming. this board is a bunch of wild and crazy guys who are into the least speculative bet you can make in this name. which is junior prefs, but still plenty speculative. but then, ahab, you are a hunter for the big whale.... The more I think of the common the more I like them. I'm heavy in them but hedged with prefs. I've been looking for decent investments for years and they seldom come along so when they do I have to go big. I'm looking for a home run so commons have to be involved for me. Some see this as a risky investment but the way I've always seen it is that these are two of the best businesses in the world in an unsustainable position not of their making. Eventually it'll work out. Or I'll go back to work... How big is "big," DR? And how do you see the (commons) outcome? X% chance of X% loss, X% chance of no change, X% chance of X% gain? Anyone?

Exactly. His job is done. Everyone signed off remember? cherzeca, I bet you like this part of the article. "Mr. Phillips and other Treasury officials have been meeting with the biggest American banks to determine how best to raise capital for Fannie and Freddie — a prerequisite to releasing them from government control — as well as how the housing finance system might be restructured, according to two people who participated in the meetings." There is the news they are lining up the bankers. Another check on the list. Mnuchins goal of within 6 months or by the end of the year seems intact. Question for me would be do any of the big preferred holders have influence on "Americas biggest banks"? Can't help but think of John Paulson and Goldman Sachs being thick as thieves - literally - on the infamous ABACUS deal and subsequent lawsuits. This is where JP netted nearly a billion dollars in a single transaction.

Yes Mulveney's bill proposal in 2015 was to have payments retroactively pay down the principal and also at a 5% rate, also retroactively. So, at least it's been proposed already (agreed with DrValue). Also, it could happen without any check being written if it appeared as a credit to be taken out of cash raised from warrant sales, just to name one possibility. I'm not saying any of this will happen or that it is likely, just that it's possible in this way. Further, plaintiffs counsel suggested that overage could appear as a tax credit, which also does not rely on a check being written. On another note, I think Mnuchin is waiting for en banc. He needs that cover. The details of recap and rejiggering of PSPAs which dictate the precise amount of money that will stolen by Treasury from the GSEs when this is wrapped up cannot be calculated or decided until en banc issues their ruling, IMO.

This is the first time I have ever seen any official discuss "negotiating changes to the preferred stock purchase agreements." The timeline (September or October) clearly puts it after the en banc decision. This is a massive step.

If you want to know what berkowtiz/fairholme holds as of recent date it is easy. if you want to know what anyone else held as of a recent date, you are wasting your time I think my point was clear enough... wasn't talking about recent dates or what the hedge funds or private parties report. You would think if a gov agency auctions billions of securities it may be recorded somewhere. I couldn't find it. Perhaps someone else has a better idea of where that info would be.

J. Paulson's purchasing of preferred stock at auction was discussed by Adam Spittler on a QTR podcast. I don't know the source of this information but I have tried to look it up. Perhaps there are some detailed records of the auction, the specific securities that were sold, etc. The FDIC auctioned a lot of assets either directly or through 3rd parties after 2008. I did find the following story that cites specific dates ("2011 sales were March 22, April 13 and May 18") for auctions of Fannie and Freddie preferred stock: https://www.thestreet.com/story/12460420/1/fannie-and-freddie-plaintiffs-eye-fdic-share-sales.html This article also discusses whether the FDIC was given insider information before dumping their securities. They sold in 2011 and the NWS was announced in 2012, after which the value of the securities plummeted. Yet another reason for the protective order.