COBFInfinity

There is no plausible restructuring with meaningful value to common or preferred without a court win, so that argument doesn't make much sense to me.

Yeah, he is. He has spent the last 7-8 years on the beach because he was counting on the payoff the whole time. That's one hell of a vacation, but I guess it's time for him to go back to work. Glen almost played a role in my position here. I had owned a small position in Pfd at the time of the NWS, at which point I dumped them and moved on. But a while later after the price had risen quite a bit, I was curious what was going on and found that Glen was writing articles about the GSEs. I said to myself, "This is the same guy who got scammed by dozens of Chinese frauds just a few years earlier, so I think I will not go back into this trade." Alas, along came Fairholme, Paulson, etc. and I decided to get in along side them. It turns out I should have maintained my skepticism of anything that Glen was doing.

I don't even know if it's worth reading this opinion. I'm only on page 4 and the number of logical errors and dubious reasoning already has me spinning.

Yes, it is an unworkable capital structure. It will have to change at some point, hopefully driven by an upcoming SCOTUS win for plaintiffs.

Don't know, but SCOTUS will release opinion(s) on at least one case next Thursday. Watch this calendar: https://www.scotusblog.com/events/

Do you have a link to this? Never mind, I found it. There are some on this discussion board who have taken the same stance that the NWS has been ended. I did not agree and still don't. But I'm not surprised the DOJ is taking that stance; they want the gov't to keep all stolen funds, past and future.

Yeah, pretty strange that they couldn't find someone to sell to. I would think First Eagle would have paid them something to take over that asset base.

I can't believe anyone still subscribes to the Milton Friedman philosophy on inflation. There hasn't been a useful relationship between M2 and CPI in decades, so why would it start now? Seems pretty reasonable that there will be some inflationary pressures as the economy fully re-opens, but to project that as a new long-term trend seems a bit premature.

We haven't heard much from any of the major institutional players since the amendment, but Fairholme's annual report is out (http://www.fairholmefundsinc.com/Reports/Funds2020Annual.pdf). But keep in mind that there are 3 Fairholme funds and sometimes Berkowitz will write something a little different for each one even in regards to the same investment. So below I consolidated his relevant comments on F&F. Fannie Mae and Freddie Mac's businesses are booming while in conservatorships. The U.S. Treasury has finally agreed to allow them to retain earnings for capital safety and soundness. Treasury still has not agreed that $191 billion of "loans and fees" have been repaid even after receiving over $300 billion of reimbursements and controlling 80% stakes. I expect The Supreme Court will remedy the rights of two highly successful private enterprises and further their exit from federal control. Until then, preferred shareholders remain in a volatile purgatory. A resumption of preferred stock dividends should benefit the Fund's current dividend of 2.0%. That last line sure is interesting. Does he really expect dividends to be turned back on, as opposed to an exchange of JPS into common?

60% of the time, it works every time.

It's a special game of musical chairs: "Who will screw us the least?" Calabria wants to the end the conservatorships, true, but he also wants excessively high capital levels. All of this discussion is a sideshow until SCOTUS opinion is out, or a settlement occurs first. If we lose SCOTUS, the preferreds will be back under 5% of par and we'll have all the time in the world to guess who might be our savior.

Simple: Sr Pfd can't be converted to common (if that's even being considered) unless all litigation is resolved. End of litigation is the first step in all of this.

I disagree that the NWS has been ended. I know, even Calabria has claimed that. But as long as the Sr Pfd balance increases right along with retained earnings, the GSEs are only building fictional capital. The NWS is not really ended as long as this continues. One thing that has been lost along the way is what exactly is meant by "capital". I'm seeing similar problems in my discussion with Tim Howard on his blog. I can see five different ways to define capital: [*]Total stockholder equity on the balance sheet [*]Amount of liquidation preference owed to shareholders upon liquidation [*]Core capital: stockholder equity minus cumulative prefs and AOCI [*]Tier 1 capital: core capital minus DTAs [*]CET1 capital: Tier 1 capital minus non-cumulative prefs When you say that only "fictional" capital is being built, that tells me you are using #2 as your definition, or perhaps something not on the list. All other entries on the list will go up with FnF's retained earnings because they are balance sheet calculations: the earnings go on there but the senior pref liquidation preference increases don't. The key is that core capital is defined under HERA, and FnF's post-release capital classifications are defined by HERA. Thus increasing core capital, which retained earnings now do, is important even if the senior pref liquidation preference increases along with it. This is real capital being built in the eyes of the law. The letter agreement might have been thin gruel, but it wasn't a complete nothingburger. The date at which the true NWS would have turned back on has been pushed from around now to 2044 or so. While not being nearly enough to accomplish recap and release, it's a significant step. Yes, I'm not using the balance sheet calculations, because they ignore that a real liability is being kept off balance sheet as the Sr Pfd balance increases. Now, you might argue that the next agreement (hopefully pushed by a settlement) will finally take care of this, but as of now, it hasn't done anything for us other than create a fictional balance sheet entry that can eventually be relied on to reach capital levels and theoretically allow for paydown of the very real liability of the Sr Pfd. All retained earnings "capital" built under the current agreement is bogus.

I disagree that the NWS has been ended. I know, even Calabria has claimed that. But as long as the Sr Pfd balance increases right along with retained earnings, the GSEs are only building fictional capital. The NWS is not really ended as long as this continues.

I don't think I said that. I did say that the few preferreds that have low floating rate coupons (some of which would actually be 0% right now) are bad bets. I think everything with a fixed coupon of 4.5-6.0% is where the best values are. It is possible, but I don't think certain, that the even higher coupon issues will get better terms down the line, but you have to pay up for it, which I choose not to do. The interesting question now is should we actually have a preference for Freddie preferreds over Fannie? Based on the $70 billion capital raise limit before SPS paydown is required, Fannie is constrained from exiting conservatorship a lot longer than Freddie. But if the preferreds get exchanged as part of a settlement at the same time, then it may not matter that much as to the actual end date of the conservatorship. Mr. Market didn't make any distinction between the two on Friday, but that was just one day. Does anyone think there will be some price separation favoring Freddie in the near term?

I thought "you need only one", too. So when preferred price started to soften a week or so after that, I bought more preferred for the first time since early 2015. Those shares are down about 60% right now. My plan with this investment has always been "par or bust", so I plan to ride this out even if it's another decade. But I will never again get involved in an investment dependent on litigation.

I never thought that. I have always and only owned preferreds based on the assumption that as long as receivership is avoided, you can't dilute the par value. I never had a clue what might happen to common or assumed it would be treated fairly. I did, however, buy into the assumption that Mnuchin wanted to end the conservatorship, because, you know, he told us that over and over for 4 years. Why he punted, I have no clue. He could have created this blueprint, but not have been so punitive.

you may be right. I have avoided those as well. but 50cents is 12% which isn't insignificant. 6%, actually.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken. your assumptions may be off. Also ideally rather than waiting for par we might want to convert sooner -- if that option is available -- for less than par. The point is there are ZERO scenarios in which the outcome for a 0% preferred is better than one of the fixed rate preferred. However, there are MULTIPLE scenarios in which the outcome is worse - and when it is worse, it may be far worse. So it doesn't seem to me that a $0.50 discount in price is sufficient for that extra risk.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%? So you think FNMAP going from $8 to $30 is just as good as a fixed rate preferred going from $8.50 to $50? Your calculator might be broken.

Finally, someone here to ask: Why buy a preferred with a 0% coupon? I know it's slightly cheaper, but you are betting really heavily on the assumption that it will be treated the same as the rest of the preferreds in an exchange/dividend resumption. Are you not concerned that it will be left outstanding at only trade at 50-60% of par while everyone else has cashed out at 100%?

Unreal. Pre-market bid/ask imply that commons will be down slightly while preferreds get hammered again. A lot of people must have read a different agreement than I did last night.

Exactly why plaintiffs should look to settle before SCOTUS ruling, because if Calabria is shown the door, we may get screwed.

Do you really have confidence that any lawsuit will deliver a big win? I was as gung ho as anyone back in 2014, thinking that Lamberth's first decision was such an obvious mistake. But even the likes of Sweeney, who seemed to be sympathetic for a few years, ultimately implied that she was on Lamberth's side, even after much more evidence of the dirty dealing was revealed. So while there might be temptation to hit it big, my confidence is pretty low that it will ever happen. And preferred is already priced for 400% upside - if you can get that fast, it seems like you should take it. I obviously have no clue what plaintiffs will do or when, but I expect must of them will take a solid victory in share price and sacrifice potential damages in the courts.

That's awfully optimistic given Senior Prefs remain and liquidation pref keeps increasing. I think it would be a pleasant surprise if we're not red. The only thing I know for sure is that there will be massive volume and volatility in both the common and preferred. And while I have close to 0% success predicting security price movements, I actually wouldn't be surprised if the preferred does even better than +30%. Because here is what Mnuchin's punitive blueprint provides for options right now*: Fast Recap or No Recap. So given those two choices, Fast Recap is the one that preferred investor plaintiffs and the companies will choose. I think a settlement occurs before SCOTUS ruling and then capital raise begins. *Based on the assumption that SCOTUS ruling is uncertain. Some, of course, think it's a lock, but we've been disappointed too many times for me to take that view. I dont like negotiating from a position of weakness resulting from the agreement (as opposed to the litigation merits, which I think is a position of strength). I hope Ps agree. See my post right after yours and also consider that, compared to Tsy, plaintiffs will now always be in a position of weakness because a) we want a recap way more than Janet Yellen does and b) playing out the case for several more years will cost a lot in increased liquidation preference and dividends. If your upside is limited to par value and the value of the lawsuit will not accrue to you anyway, why would you keep fighting?