merkhet

Impressive! How did you end up in his office, if you don't mind me asking? It was an office visit for the investment club at business school. He made a presentation to us, and we ended up having a quick conversation about Fannie & Freddie after I asked a Q about it.

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/aig-american-international-group/msg197919/#msg197919 We'll probably get a resolution on the AIG case before year-end, which may provide some interesting guidance towards the Fannie & Freddie cases.

I'm expecting a bloodbath come Monday -- should get mighty interesting for those that are thinking about buying more -- I picked up a few more preferred shares today.

Actually, I'm not getting where he sold out of the Common Shares either. Again, this doesn't mean he didn't sell the shares -- it merely means he's no longer disclosing his ownership in them. So long as he's willing to continue paying Cooper & Kirk's legal fees, I'm okay with that.

I don't think he's required to disclose the preferred shares. I know for a fact that, as of February 2014, Paulson & Co. had a very large position in Fannie & Freddie preferreds, but I've never seen them listed in his 13-F. I was at his office, and he stated that it was one of his largest positions. Hell, they extended me an interview because of my questions about Fannie & Freddie. Therefore, I have no reason to doubt the Bloomberg report that Fairholme is limiting its disclosure about the Fannie & Freddie preferred shares -- however, I would note that this would not necessarily rule out the possibility that he has sold his preferreds. Notably, I'm only really bothered to the extent that Fairholme no longer fights the court battle for us in the Court of Federal Claims. Everyone has to decide for himself/herself whether the claims are meritorious or not -- as opposed to just relying on Berkowitz or someone else being in the name.

Damn, I was hoping for a spinoff.

Ackman & Co. talk a little bit about Fannie & Freddie during the Pershing Square Holdings conference call. http://www.pscmevents.com

Why would the strike price increase? Because a smaller (but still good) profit on the warrants of a well capitalized insurance company >> a large (but illusory) profit on the warrants of a not so well capitalized insurance company. For instance, assume that the combined companies are worth $250 billion or thereabouts. That means, the Treasury is, in theory, the owner of around $200 billion of warrants/stock. However, that will all go away the moment that there's a downturn because the company doesn't have much capital. If, instead, the Treasury pays $100 billion into the pot and is able to sell those warrants/stock for $200 billion, the Treasury still comes out ahead w/ $100 billion AND the companies are pretty darn stable w/ $140 billion in capital -- and well on their way to the $250 billion they need in capital. Depending on what you think the $25 billion income stream should be worth, you can then fiddle with the amount that the Treasury owns and provide a larger zone of possible agreement as to the capitalization. (If you give it a 15x multiple, than a 50-50 split would put the Treasury take @ $150 billion and reduce the time to 5% capitalization to around 2 and a half years.)

Sadly, that article seems to ignore two things: (1) The FIA business could probably be sold as a run-off for close to $40 billion or more. (The run-off valuation based off Pershing Square's valuation is about $50 billion discounted @ 10%.) (2) The g-fees can increase to about 100 bps to make after-tax earnings close to $25 billion a year or so. So, even assuming the following: 2.5% cap ratio = $125 billion 5.0% cap ratio = $250 billion You're looking at around 3 to 8 years to full capitalization. Moreover, Treasury's warrants can easily have their strike prices increased so that by exercising the warrants, they could raise a significant amount of capital immediately. (Also, note, Carney got his math wrong -- for some reason, even after paying off Treasury's government preferred, he still uses the $3.8 billion earnings number rather than the $14.3 billion earnings number. Not to malign my former profession, but math isn't the average lawyer's strong suit.)

Neither would I. That said, when people start saying that there's a 90% chance of a climate catastrophe or something along those lines, I can't help but chuckle to myself.

The core of the disagreement is whether the landslide is "definitely going to happen." Many people are incredibly convinced. I think that dynamical systems are very complex, so I am less convinced of certainty. Even in the sandpile example, adding a lot of additional grains of sand does not make it a certainty that a landslide will occur.

http://www.bloomberg.com/news/2014-11-06/fannie-freddie-ceos-tout-their-own-housing-finance-fixes.html Looks like the CEOs are starting to speak up...

I think it was Ben Franklin who used to lie on his couch for a nap with a ball bearing in his hand. He felt like he figured out many things right before falling asleep, and this way, the ball bearing would fall to the floor and wake him up -- letting him record his eureka moments. I have a pretty open schedule. Nothing set in stone on any given day. Sometimes I read annual reports. Sometimes books. I've taken to having a mid-afternoon walk for an hour on the National Mall, and I've found that it helps me figure things out.

Alternatively, we can examine this from another angle. From the same article you posted... Take yourself out of the climate issue and think about this as a quant fund presentation instead. If I came to you with a quant trading algorithm and said, "It backtests really well, and it has a made a few good predictions," what would your response be? What questions might you bring to the table? How skeptical would you be? Now, did you approach the climate issue with the same skepticism as the quant fund example? If not, why not?

Yes, there's a difference between climate and weather. That's why I said it's the less sophisticated version of the Abelian sandpile question. Care to answer the more sophisticated version?

Haha. Either number works.

FiveThirtyEight says the Republicans are most likely going to take the Senate. What this means for energy is anyone's guess...

I'm confused as to what your position is here (and the general position of that Facebook group)... Does my position matter? :) Apparently, to many former classmates, it did. I received PMs asking when I became a Republican. (For the record, before moving to DC, I owned a Prius & tried to get my dad to buy a Nissan Leaf because he doesn't drive much anyway. My parents now drive my Prius. My position is in accordance with the stereotype of Prius drivers.) Yale's Business School (the group was set up for the 2014 & 2015 classes to communicate) has a lot of students who are joint degrees with their Forestry School and the entire school leans fairly eco-friendly. Amazingly, or perhaps predictably, once I revealed my personal position, the rhetoric toned down a notch. And yet, should it have? Nothing had changed in what I had said -- only the perceptions of who was saying it. Highly disappointing since we literally had a required class on avoiding these biases. I'm chuckling because your clarification is as clear as Alan Greenspan! Parsing all of the above, I guess you're on my side. Not that it matters, as you say! That was intentional. :) A more clear statement of my position would be as follows: Clearly, the world is warmer than it used to be. (Surface & Ocean.) It's stupid to claim otherwise. However, it's unclear whether this will necessarily lead to calamitous outcomes. It's similarly stupid to claim otherwise. The question I posed to the group, which went unanswered, and I guess I'll pose here as well is the following: Imagine a completely flat surface and a machine that drops grains of sand onto it one at a time. Over time, you'll build a bit of a sand pile. At some point, each additional grain of sand will either (a) do nothing or (b) cause a landslide. It is difficult to know (1) which grain of sand will do it, (2) whether a landslide will happen and (3) if a landslide happens the general magnitude of the slide. (In mathematical circles, this is an Abelian sandpile problem.) Now, this is a sandpile that exhibits self-organizing criticality with only two variables. Sand and gravity. If we can't figure this one out -- what makes us think that we can figure out the exact future states (or even probabilistic future states) for a much more difficult complex dynamical system, e.g. the climate? It's lunacy. The less sophisticated question (in the same vein) is that if a meteorologist can't tell me if it's going to rain 365 days from now, then what makes anyone think that a climate scientist can tell me what the world looks like 100 years from now.

I'm confused as to what your position is here (and the general position of that Facebook group)... Does my position matter? :) Apparently, to many former classmates, it did. I received PMs asking when I became a Republican. (For the record, before moving to DC, I owned a Prius & tried to get my dad to buy a Nissan Leaf because he doesn't drive much anyway. My parents now drive my Prius. My position is in accordance with the stereotype of Prius drivers.) Yale's Business School (the group was set up for the 2014 & 2015 classes to communicate) has a lot of students who are joint degrees with their Forestry School and the entire school leans fairly eco-friendly. Amazingly, or perhaps predictably, once I revealed my personal position, the rhetoric toned down a notch. And yet, should it have? Nothing had changed in what I had said -- only the perceptions of who was saying it. Highly disappointing since we literally had a required class on avoiding these biases.

So I posted this to a Facebook group put together for students from my graduate school, and people threw a shit fit. You'd think I was reading Thus Spake Zarathustra in a church. Is it really so radical a notion that investing resources to prevent climate change in the future has opportunity costs associated with it? (The current net benefit Ridley talks about can be reframed as an opportunity cost.) Most people ended up decrying right wing lunacy without providing any substantive comments. It was... rather disheartening. Munger once said that you should spend a little time reading people you disagree with because it will help your thinking -- but I guess most people prefer the circlejerk of confirmation bias. :)

Anyone else find it amusing that, on a post about education, there's a TL;DR at the end? :)

Home schooling?

He's a lawyer, not Superman. :) Honestly, I hope that once he's done with AIG, someone hires him for FNMA... Cooper & Olson are good, but I feel Boies is on another level.

If Boies wins in his case, I suspect there will be ramifications for us as well. (Likely positive ones.) Boies is probably the world's best trial lawyer. If you can find the time, search for the YouTube video of his deposition on Bill Gates. He just eviscerates Gates. (And Gates is hardly a mental midget.)

No, slightly different claims.