merkhet

http://www.mortgageorb.com/e107_plugins/content/content.php?content.17082#.VcsRZCSUZMk.twitter It's unclear how recently they reached out -- but it reads like this was post-discovery.

Like Mike Burry did, yes? :P Every now and then life is subject to random error. :P

A lot depends on whether you have an internal or external scorecard. If you spend a lot of time worrying about what others will think of you, then you are likely to subtly change your investment process. If you don't, then you might lose some clients. At the end of the day, you decide what's more important to you. Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

No deadline.

Looks like the government has rolled the dice on unsealing. Responded to both NY Times & Fairholme today. Fairholme: https://www.dropbox.com/s/jgsoie0zma0fjgx/2015-08-10%20Defendant%27s%20Repsonse%20in%20Opposition%20to%20Fairholme%27s%20Motion%20to%20Unseal.pdf?dl=0 New York Times: https://www.dropbox.com/s/4itquy21m60fjbs/2015-08-10%20Defendant%27s%20Repsonse%20in%20Opposition%20to%20New%20York%20Times%20Motion%20to%20Unseal.pdf?dl=0

A failure to respond would likely result in Sweeney ordering an unsealing.

It extended Fairholme's obligation to respond to the government's supplemental motion to dismiss.

Just wanted to bump this. Merkhet, do you agree with this line of reasoning? No need to do it right now. Pershing had a similar argument in its complaint before they withdrew their lawsuit. I presume they did so tactically for a reason.

It does make me wonder why Fairholmes lawyers didnt think of this already. No, I mean the idea that the briefing suspension has to do with a Delaware ruling of some sort. The Delaware amicus brief is incredibly credible. It's just that no one has any evidence as to the why of the briefing suspension.

I would take the Delaware idea with a grain of salt. We have literally zero evidence that the idea is credible.

Ah, gotcha. I basically separated between Group #1 and Group #2 based on the fact that Group #1 had reinvestment opportunities and Group #2 did not. (The distinction between (2) & (3) below may be artificial though because some might view repurchase as a reinvestment opportunity whereas I view it as a return of capital opportunity.) A more granular separation would probably be as follows: (1) Internal reinvestment (2) External reinvestment (3) Share repurchase at accretive prices (4) Dividends I think I would still rank external reinvestment over share repurchase because at any given time, there are multiple external reinvestment opportunities and only one "share repurchase opportunity" -- though I see your point. My thought is that there can be a number of external investments that might make sense even accounting for the extra level of taxation when your stock isn't trading at enough of a discount to intrinsic value to merit a repurchase. (i.e. you can get a 20% CAGR on an external investment and repurchasing would only earn you a 10% CAGR) And, of course, waiting around for your stock to trade at a discount would involve opportunity cost, etc. Basically, at any given time, there may or may not be a discount to the intrinsic value of your own company, but most of the time, there is going to be a cheap industry/company out there somewhere that could possible overcome the additional tax hurdle.

Which part? I'm curious.

I hear this argument all the time but it seems flawed. Option 2 is riskier than Option 1 because management may screw up the repurchases. In other words management may not be good at valuing their own business which they know well and comparing it to the market price versus investing in their business. Yet in option 1 you assume management can properly judge reinvestment into its own business but also acquisitions of businesses they do not know as well as their own. That does not make sense to me. How can they be better at valuing what they do not know than what they do know. Huh? Actually, I don't think that's what I said. I think you're conflating some things, so I'll try it again and see if I can make it clearer. Allow me to go backwards. (The Option #2 management cannot be the same as the Option #1 management by definition... it's an either/or statement) The top of the Pantheon is EITHER the ability to soak up all your free cash into reinvestment to the existing business OR the ability to reallocate cash flows not able to be soaked up by reinvestment to the existing business into unrelated companies via wholesale purchase or partial purchase on the public market. There's no requirement that management can properly judge reinvestment into its own business AND also acquisitions of businesses that they do not know as well as their own. Some CEOs can do this and some cannot. The ones that can understand their own business well but do not have reinvestment avenues and do not fare well investing in other unrelated businesses fall out of Option #1 and fall into Option #2. (e.g. I'm not assuming that management is good at reinvestment and purchasing unrelated businesses but terrible at valuing its own company. I AM, however, saying that some managements can be good at reinvestment into their own companies operationally and yet terrible at figuring out when to repurchase their own shares.) As for whether management is good at evaluating the correct price for its own businesses, I offer you the following statement for which I suspect that I could find proof of but have not done so: "Many managements are notoriously terrible at timing their repurchases so that they are accretive to the remaining shareholders." It would seem that Leon Cooperman and Warren Buffet agree... http://www.businessinsider.com/warren-buffett-letter-to-leon-cooperman-2015-7 ...though I suppose that's not dispositive, since all the people they say are bad at repurchasing their own shares could also be terrible operationally at internal reinvestment. (Though I suspect that's too strong a statement.) Was that clearer or just more confusing?

All conversations with former lawyers sooner or later degenerate into word sense. Call it Godwin's Law of Lawyers only with definitions rather than Hitler. :P And it's about to happen again, lol. I think the problem is that we've been a bit fast and loose with the definition of "free cash flow." Some people are using that to mean operating cash flow minus all capital expenditures (regardless of whether it's maintenance cap ex or growth cap ex). Others are using it to refer to what might commonly be called "owner's earnings," which might be operating cash flow minus maintenance cap ex. (And now we're full circle to the OP.) From your description of wanting both growth and free cash flow, I inferred that you were using the former definition rather than the latter -- though I could be totally wrong about that. (It's difficult, though not impossible, to have growth without incremental capital expenditure spend.) The big problem that I think many investors are running into at this point is that it's difficult at any given time to accurately pinpoint a given executive's capital allocation abilities until you've spent some considerable time examining them up, down, backwards, and forwards. Who among us can say honestly to themselves that they would have been able to pinpoint greatness in WEB in 1965? It's easy in hindsight in 2015, but Hindsight Capital is always a winner. At some point, you have to look at your collection of data and make a decision as to whether you're comfortable at the executives' decision-making process w/ capital allocation and then be done with it. And reasonable minds can disagree on this -- look at VRX.

And of course the company magically is in the business where it produces exactly the cash flow that it can reinvest into the growth of the existing company at the same ROE. This is possibly true for small growth companies. Actually they probably produce less FCF than they could reinvest into their growth. So they are not that good according to you? You used the word ideal. Dictionary definition as follows: If you used another word, we'd be having the discussion you think we're having, but you didn't, so we're not. :) There are companies that approach this ideal though. For example, my guess is that Mid-American can deploy large amounts of capital (pretty much all it generates) into 15% pre-tax returns or higher for a pretty significant amount of time. (Other companies in the industry cannot do so at the same level because they utilize a completely different capital structure and philosophy -- contrast Vodafone vs. Liberty Global and their dividend vs. reinvestment philosophies.) Haha. Any company can do that if they have a capital allocator at the head. So you are saying that Jobs should have hired Buffett wannabe to allocate his FCF and AAPL would have been perfect. Indeed, any company can do that if they have a capital allocator at the head, and, yet, there are not so many capital allocators at the head of many of these companies. Management and capital allocation are not necessarily overlapping skill sets. It is rare to find both operational excellence and capital allocation excellence within the same individual or even the same management team. Apple is actually a perfect example of that. It has been a fantastic company to own given that it has had a very long runway for growth, but because of the fact that it was unable to effectively deploy its large amounts of prodigious cash flow, it falls short of the Platonic-Fisher ideal. (No one is saying that you cannot get rich off a company that is not quite the ideal, btw. You can. But you used the word "ideal" and words have specific meanings.) If Jobs had heeded Buffett's advice to sink their truly "free" cash flow into share repurchases, the return would have been even more phenomenal than it already has been.

I would push back on the belief that an ideal company is growing AND throwing off FCF. Option #1: Company creates large amounts of cash flow that it can then reinvest into growth of the existing company or prudently allocate into related/unrelated companies via wholesale purchase or partial purchase on the public markets. In my opinion, this is the best kind of company. Option #2: Company creates large amounts of cash flow that cannot all be reinvested into growth of the existing company or prudently allocated into related/unrelated companies via wholesale purchase or partial purchase on the public markets. Then you have to decide what to do with the cash. Share repurchases are good because there's no tax leakage, but then you have an issue as to how good those repurchases are based on the market prices versus the intrinsic value of a company. Is management good at that? If so, then you're maybe in the same category as Option #1. Alternatively, you can distribute the cash to shareholders, but then the shareholders are forced to pay the dividends tax (unless it qualifies as a return of principal somehow) and you're left in a worse-off position than if you could have reinvested the money at a high reinvestment rate. Highly probable that this is worse than Option #1.

Yea, never assume anything. Always verify for yourself.

Have people considered that the need for auto insurance might not only remain but that the nature of auto insurance in this instance would change dramatically? If the algorithm has a bug in it, it would be like everyone in the country (or a large portion) automatically become drivers all at once. Would it become sort of like supercat instance?

I feel like it's hard to extrapolate these things from anecdotal evidence. I mean, most people haven't even heard of Al Dunlap, etc.

Awesome!

It's rather interesting that the FNMAS preferred shares have increased substantially the last few days while the FNMA common shares have gone the other way. I know I've mentioned it here before, but I would be wary of holding the common shares because of the possibility of significant dilution given the lack of capital at the GSEs.

I probably wouldn't do anything differently -- it might help make my decisions easier if something hits full value a week before it turns into a long-term capital gain, but that's really just on the margin.

http://static1.squarespace.com/static/53962eb7e4b053c664d74f3d/t/55b902f1e4b0c41d46927859/1438188273928/FAAFX_PM+Letter.pdf Oddly enough, Berkowitz is quoting Eddie Lampert in one of his letters. (The Fairholme Allocation Fund.)

I wonder how many FAIRX holders are aware... and how they are reacting. I believe he's down to $5 billion from $8 billion last year pre-Lamberth opinion on GSEs, so my guess is that at least some of the (ex-)holders are aware.

No. The AIG case is against the Fed. Our case is against the Treasury. They have different rules and regulations concerning what they can do. The reason the court ruled against The Fed was based on something called Rule 13(3) which has nothing at all to do with HERA. Additionally, the main crux for the 2008 bailout is that the board consented to going into conservatorship. You'd have to prove coercion of some sort to try and unravel that one. The fact that Fannie & Freddie could have survived the 2008 situation is completely irrelevant.