merkhet

smart to call a portfolio "insurance" that you pay for with negative returns. dog ate my homework. bass is a favorite of mine to listen to on youtube, but he gets into widow maker ideas more often than not +1 It's incredibly brilliant and brings to mind ScottHall's thoughts on how some PMs are great marketers while others are great investors. (Occasionally, you have some that are both.) If you can frame your fund as "insurance," then you earn management fees while losing money steadily because no one expects to make money on their insurance contract. And if/when you have a big year, then it has a two-fer effect because (A) you might make some incentive above your high water mark, and (B) like insurance, people tend to flock into the fund to prevent against the next "cat event."

I would urge a bit of caution. Recall that while Watt took his directions from Treasury during the current administration, there's nothing requiring him to do so in the next administration. If he is somehow forced out, however, then it's a different story.

I chatted with a friend of mine, and the idea seems to be that Bass pitches his funds as insurance. Like, if China goes under, maybe have a little in the fund to protect against it. Etc.

Why just 60-90 days? :)

I think people are overlooking the max win scenario for Trump. (1) Settle the court cases because the underlying documents show bad faith from government (2) Vaguely mention the documents as why but don't release them (3) Let the media foam at the mouth about how this is just a giveaway to cronies (4) "Succumb" to pressure to release the documents (5) Slam the "anti-business" Democrats and use it as a cudgel for years No need for a favorable court decision. Much better this way. They "tried" to keep it out of the public eye, but they had to "correct" the narrative.

Bit of trivia: Cotton used to work @ Cooper & Kirk. :)

Another thing to buy at Costco -- contact lenses. So much cheaper!

This has been a year of many improbable surprises, so I'm making a few slight Bayesian adjustments.

I think deadpsace is thinking about Munger's comments from the Daily Journal meeting earlier this year.

@cherzeca, I agree with that. I can see a few ways around it, such as spinning the companies off and leaving behind the Senior Preferred shares the way Millstein envisioned -- which might get NewCos out from under HERA/FHFA @Flynnstone5, unclear, but I don't immediately see a reason why not -- so long as Ps make a filing to de-designate the documents.

So Millet could potentially just stall indefinitely and P's would simply have no recourse and/or same with other court handling mandamus? This is getting beyond my general knowledge, but I think that's theoretical mostly true. I suppose there are interlocutory appeals or something procedural that can be done once the wait gets egregious. In general, I think you just asssume judges will do their job...eventually. But I could be wrong on this, so I'll defer to someone who has more knowledge than me on this matter. Like, someone who clerked federally or something. My focus is currently on whether the EC ends up voting for Trump on Monday.

There's no set time frame for decisions. (Appeals or Mandamus)

Will he join with the Secretary of Agriculture to build pyramids to store our grain?

I think very similar to that -- Berkowitz floated the idea of buying $1 trillion of assets with $52 billion of equity and borrowing the rest -- giving the NewCo a 5.2% cap ratio. $34 billion would come from making the prefs whole and the remaining $18 billion would be contributed by preferred holders -- likely through a rights offering so that those who didn't want to contribute didn't have to do so. The remaining $4 trillion would have stayed with the GSEs and the legacy structure would remain.

I don't understand how there's much of a difference whether you return the excess payments or not on the senior preferred. Let's say they've overpaid by $187 billion over the last 4+ years versus paying the straight up 10% dividend. Okay, so you deposit $187 billion into the companies' coffers. Then you have a capital stack that looks like this: Gov preferred stock - $187 billion Jr. preferred stock - $34 billion Pub. common stock - residual So it doesn't matter if (A) the $187 billion is used to pay off the senior preferred stock or (B) the $187 billion is given back to the GSEs but is not accrued against the senior preferred stock. Either way, everyone underneath the senior preferred stock (or who remains in the case of the pay off of the senior preferred stock) is "lacking capital." It's not like the $187 billion of senior preferred stock magically disappears at the same time that the companies get back $187 billion of cash...

A rights offering is, by definition, selling undervalued shares... why would anyone subscribe to a rights offering that's above the price you can currently get on the market? Also, I think there is very little chance that Mnuchin allows for a release if the companies don't have adequate capital immediately upon release. So my guess is that letting the companies just build capital over time is not likely. Definitely not 8-10 years like Ackman proposed. I could see 2/3 years but that still means there is an equity gap that has to be filled.

Which scenario? If they deduct the dividends already paid in a settlement, as Fairholme's lawyer suggested It would be an odd remedy. I personally think that's the lowest case recovery.

Which scenario?

I'd chafe at being labeled an expert on anything, but I'd say that Fannie S is not just the most liquid stock but the second highest yielding stock if they happen to turn on dividends again. So some of the discount to Series S & T (T being the highest, IIRC) is likely due to liquidity but also likely due to lower potential yields. My entire position is in Series S.

h/t BTShine for texting me on this http://www.washingtonpost.com/news/where-we-live/wp/2016/11/30/fannie-mae-freddie-mac-should-be-privatized-treasury-secretary-nominee-says/ Oh, really, Jeb? Ahem... https://www.bloomberg.com/news/articles/2013-07-24/house-committee-approves-hensarling-s-housing-finance-overhaul He's actually my district rep now that I have moved to Dallas (I think, the map is wonky). Guess I no longer have to write that letter that I'd been planning. Welcome to the club, Jeb. Looks like both Corker and Hensarling have had a come to Jesus moment.

Just to add to this, Congress really doesn't have much of a say in terms of approval. Think about it this way, HERA mandates that FHFA be in charge. In actuality, Treasury seems to be in charge. The only way to change this is to modify HERA. Corker tried to pass Jump Start and couldn't do it. He had to slip it into an omnibus spending bill that couldn't be voted down. Really, all Treasury and FHFA would have to do is agree to modify the terms (Jump Start's language, IIRC, merely deals with selling, disposing, etc. of the senior preferred) of the senior preferred to pay out a zero dividend and wait out the 2018 deadline to call it paid. Alternatively, I've seen a Millstein & Co. presentation that says they should just spin out the company from under the senior preferred and leave the senior preferred as the top layer of a hollowed out shell. Lots of options here. Almost all of which do not require Congressional approval. Mainly I think Congress could try to screw shareholders by requiring very high capital ratios, but you could easily move aside from that by spinning them out to a new company and/or breaking them up to smaller companies so that no one cares. (i.e. the Berkowitz proposal) What's really interesting to me is to look at the Berkowitz proposal in conjunction with some of the numbers that are thrown out in the Ackman proposal. If you're able to keep the cap rate at 5% or lower, and you get some favorable changes to the tax code (also a Mnuchin priority), then you can get a pretty decent ROE on top of which you can slap a multiple and get something higher than par. But this is all speculation until we see what the restructuring looks like...

I wouldn't be surprised to see rights offerings distributed to preferred/common. Agree. It's not over until I've heard from a fat lady. But the past few weeks have been a welcome change from the last two years. :)

Are you referring to the position he sold to Icahn? I know he bought back in after that.. but maybe he sold out again ? If you refer to Fairholme's recent report from mid-year, they have zero exposure to the commons. (http://www.fairholmefundsinc.com/Reports/Funds2016SemiAnnual.pdf) And yes, @hardincap, it was their largest position. Of course, this was almost three years ago, so things may have changed since then.

Not that I've checked, but it's not likely they appear in any of his filings as they are not 13-F securities. It is for this reason they also do not show on Fairholme's 13F. That's what I thought, but someone mentioned how he's the largest owner of Freddie so I figured it's public. Maybe it's from previous filings? I know Fairholme did away with it but then started showing them again in filings... Paulson is in the preferreds. I was fortunate enough to get a meeting with him back in February 2014. He said that it was the firm's largest position (though I'm unclear whether that's largest within a single fund or across all funds). And I have no idea where you guys are getting the idea that Paulson or Berkowitz have added (common or preferreds) since the election. Is this out there somewhere or is it conjecture?

http://www.wsj.com/articles/what-treasury-nominee-steven-mnuchin-means-for-the-mortgage-market-1480539516?mg=id-wsj Yup. Paulson was on the board of Indymac. You beat me to it.