TwoCitiesCapital

Mnuchin can easily point the finger at congress for no solution. I think every day we are finding out there really isn't a better system. Because, the gov't hasn't technically been repaid yet if you believe the senior preferred issuance was lawful. The gov't was owed 10% coupons with an assumption of principal return. We need one or two more sweeps for total repayment to occur. At which point Mnuchin can say "Gov't has been totally repaid by the original terms, Congress has done nothing, and these companies are badly in need of capital - I'm going to fix this." The status quo is easy - leaving it place accelerates gov't prepayment (a good thing given the 10% coupon it carries). Repaying the gov't is the grease for the next step - recap and release. That's going to be hard enough without the cloud of gov't liability still be owed. If we hit two more payments and he's still not doing anything, then I'm wrong. Until then, that's the assumption I'm operating under.

I've been trying to add here, but company keeps denying me the pre-clearance (I work in Finance). Dunno what's going on or when it will end, but have been trying to increase by a small amount given recent developments in the portfolio and the current share price.

The GSEs have a lot of intertia going against them. Further, there is no tried/true system for handicapping the actions of independent individuals. We need a judge who has a similar interpretation of justice as board members OR we need a figure with the authority to change things in our favor with that authority. It's a simple as that. The discussions here are members discussing the likelihood or a multitude of outcomes, but none of that conversation/reading is actually going to change the outcome. It's simply us as investors getting comfortable with the risks/rewards to size the position accordingly. We simply have to be patient and wait for that decision to be made. This is what it means to be a passive participant via stock. If you want to be the one calling the shots and shaping the outcome - you'd need an activist size stake in the co's, a job at the Treasury, or a job in Congress. Pick your poison. Otherwise, patience and constant re-evaluation are the names of the game.

Not making an argument one which way or another. Printing yourself out of debt and into hyperinflation is its own kind of problem. Was simply showing that the title "total debt to GDP" that excludes public debt is misleading.

This is a bit misleading. "Total" credit would be inclusive of corporate and gov't where this is simply households and non-profits. Total debt across public and private sector has never stopped growing - even when expressed as a percent of GDP. See p.i (p.3 in the pdf) which shows the progression over the last few years of Domestic Nonfinancial Debt https://www.federalreserve.gov/releases/z1/current/z1.pdf

i am confused by the recap scenario on p. 36 of the blueprint. it seems moelis is assuming $7.95 as the common stock value on the IPO date. foortnote 1 then assumes that junior pref get 1.5B shares. this implies that $11.9B of junior pref converts, but it doesnt make explicit what the conversion ratio is. i assume a blueprint funded by junior pref holders are not expecting a discount from the $33B or so junior pref outstanding. there seems to be an assumption that only a portion of the junior pref exchange, though that portion percentage is unstated. so i am not sure you can draw any conclusions about common v junior pref from this presentation...though you conclude that moelis assumes the common will triple in one year Not looking at the current presentation, but the numbers I recall was the preferred owning 27% of the company after the first issuance with 16.1bn shares outstanding...so closer to 4.3bn common shares for the preferred which makes sense. $35bn/$7.95 = ~4.4bn shares so the numbers seem to be in agreement. ok, so if these numbers are right, i guess then moelis assumes all juniors convert at par at $7.95 common price. That's what I took from looking at it and how I got the 1:3 and 1:6 ratios. Would be instructive to know how Moelis came up with the $7.95/per share conversion & issuance price though.

i am confused by the recap scenario on p. 36 of the blueprint. it seems moelis is assuming $7.95 as the common stock value on the IPO date. foortnote 1 then assumes that junior pref get 1.5B shares. this implies that $11.9B of junior pref converts, but it doesnt make explicit what the conversion ratio is. i assume a blueprint funded by junior pref holders are not expecting a discount from the $33B or so junior pref outstanding. there seems to be an assumption that only a portion of the junior pref exchange, though that portion percentage is unstated. so i am not sure you can draw any conclusions about common v junior pref from this presentation...though you conclude that moelis assumes the common will triple in one year Not looking at the current presentation, but the numbers I recall was the preferred owning 27% of the company after the first issuance with 16.1bn shares outstanding...so closer to 4.3bn common shares for the preferred which makes sense. $35bn/$7.95 = ~4.4bn shares so the numbers seem to be in agreement.

Obviously details are up in the air - but if the restructuring takes place as Moelis assumes it will, then the current preferred/common value ratio is now 1:3 and 1:6 for $25 and $50 par respectively. Obviously there are assumptions made with their presentation - like the conversion at $7.95/share for the preferred shares - but preferred shares are trading cheap relative to common if $7.95 is roughly correct.

Good discussion so far. I dialed in, but kept getting interrupted by work and missed this slide. Was there any mention made behind the though process of equitizing current junior preferred shareholders only to re-issue another 25B in preferreds? Is it simply the rate differential that can be achieved?

True, but you can cherry pick negatives or positives. "The Administration has publicly expressed its desire to work with members of Congress to facilitate a more sustainable housing finance system. Any reform of the housing system likely will impact the cash flows attributable to the GSEs in the 2018 Budget projections in ways that cannot be estimated at this time" "Historically, investors in GSE debt have included thousands of banks, institutional investors such as insurance companies, pension funds, foreign governments and millions of individuals through mutual funds and 401k investments." Also, when have budgets actually mattered to the gov't? Not like any of those estimates actually come to fruition anyways...

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Same. Gave up on the common after the last "unfavorable ruling." I understand the argument for gov't incentive to maximize the warrants, but have far less confidence that everything works out favorably for a restructuring with the common. I'm able to sleep better at night in the preferred.

Good afternoon all, I've been interested in getting into real estate investments for awhile. I'm getting to the point where my capital allows me to play in that sandbox, so I wanted to spend the next year spending my time intensively learning the industry and the opportunities there. There's been a ton of great threads about real estate investments that I already have saved to go through again. I also have a family member who has extensive experience in residential real estate that I can tap. What I am lacking is resources focused on development related activities. This is an area that captures my interest, but that I have zero knowledge of. Anything from developing the raw land to buying commercial buildings to re-zone into residential units is of interest for this thread. I was hoping to hear from those with development experience in the following: 1) Resources to use to learn about the process and everything involved 2) How you think about the developments/investments you make (commercial and/or residential) 3) Generalized timelines from start to cash-flow and the returns you have experienced in the business 4) Tips, anecdotes, and general wisdom from your years in the business Ultimately, I'll be leaving NYC sometime in the next two years and this was one of the few opportunities that currently excites me about the potential of working for myself back in St. Louis. Just trying to cultivate that interest and learn the industry along the way. Thanks!

??? ??? I think it was clear that he was talking about population size and not land mass... So, relative to its population, if Canada is 1/10th the size, but accepts 1/3 the number of immigrants, it's accepting a larger relative proportion of immigrants. I don't know the truth of that statement - simply explaining it how it was intended.

Agreed. I've been selling calls/puts on individuals names and using proceeds to buy puts on the indices. Not a straight arbitrage of difference in volatility between the two, but helps to fund downside protection and long vol positioning.

;D ;D ;D

Nobody would listen to a word I have to say..... :D

While I generally think Buffett is right about high fees, I'm willing to concede a lot of his points as to why the relative performance was SO dismal. Had you told me in 2008 that we'd be trading at a 28-29 P/E in 2017 following two years of corporate profit contraction and that the U.S. economy wouldn't experience a recession despite having the lowest post-recession growth/recovery while facing a double-dip recession by the E.U., a rapidly strengthening dollar, a potential fracturing of the E.U. due to populism, and a near credit crisis in China, and the election of a T.V. personality as president, then I would have told you that you were crazy. That's exactly what happened though. Sometimes, the truth is stranger than fiction.

I don't know Paulson's strategies as well, but 2016 was the first time in 9-years that value stocks outperformed growth. So if you're look at renonwed value investors and suggesting they're not as smart as you once thought they were, it helps to look at the environment that they traditionally operate in. Value stock returns have been dismal - all of the returns have gone to a handful of companies at the top. You can make the argument "they should have adapted", but most that I know that adopt the value framework do so because they know it outperforms over the long-haul and don't try to switch into momentum/growth & value. So, in an environment where the universe of stocks you typically choose from underperforms for 8-9 years in a row, I'm willing to give the value guys a little more room to understand underperformance with the expectation that it comes around and value will likely outperform for the next few years going forward.

I generally agree - I don't quite know if the long-term bond rally is over: 1) I'm a natural contrarian and long-term Treasury shorts/underweights are at extreme levels 2) I don't buy the super-awesome-Trump-everything-is-ok rally which took rates 100+ bps off their lows 3) Pensions' underfunded status ensures that there will be a bid for duration every time rates back up 50-100 bps 4) Demographics, demographics, demographics 5) Relative value - even after currency hedging, the long-end has offered international investors a yield pick-up over their domestic bonds which has driven demand from Europe and Japan for U.S. Treasuries. I don't know if rates will break their prior lows (though I think it's a near certainty in a recessionary scenario), but I do believe the long-end of the curve will remain relatively well bid, even if front-end rates rise, unless if there is an absolute explosion in inflation. Disclosure: Long zero-coupon, 25+ year bonds via an ETF.

I tend to think of the two as being intertwined and you can't separate one factor from the other easily. You can generally be certain two incredibly successful entrepreneurs worth 15M and 150M are both incredibly skilled and good at what they do. What becomes harder is determining who had more skill and who had more luck. I generally think it's a pretty safe assumption that once somebody has reached a certain level of success, relative to their starting point, that you can be certain they are more skilled than average. But, comparing successful individuals from similar starting points to each other becomes much harder in ranking that because luck plays a larger role in the disparity. I tend to believe that luck comes into everything - skill is recognizing it and taking advantage of it. Do some get more opportunities than others - absolutely! But EVERYONE has opportunities and successful opportunities beget more successful opportunities which naturally leads those who regularly take advantage of their luck to move to the top. Sure, you had those multiple choice questions on that admissions test - but so did everyone else who took that test. Did they do better or worse than you? The luck is the questions - the skill is doing better on the test than everyone else who took it and advancing to a better University because of it. Sure you weren't born in 1300 A.D. - neither was anyone else alive today. The skill is doing better than most with what's available to you and your peers today. Sure not everyone had the same teachers as you - the skill is recognizing when your teachers are lacking and making the most of all resources available to you (coming from a guy who went to university in Mississippi and has done well for himself competing against Ivy League grads for finance jobs in NYC). Sure meeting your spouse is lucky - but there's a correlation to where you meet your spouse based on decisions you made. If you grew-up, and stayed, in middle America, then there's a good chance you went to the same high school as your future spouse. If you moved away and went to university, that dramatically decreases your chances of having a high school sweetheart, but increases your chances of meeting your spouse in college. If you move away from college to a large, metropolitan area, that decreases your chances of meeting your spouse in college, but dramatically increases your chances of meeting a spouse in Chicago/New York/L.A./etc. Luck when you meet them? Yes. Skill in maximizing your options and the pool you're drawing from? Yes.

Agreed. People buying stocks is apparently no problem, but if they buy the same stocks lumped together in an ETF it is the start of a giant crisis .. Right. Sure, there are some fringe issues but consider me skeptical about Vanguard causing the next global meltdown. Would be ironic though if John Bogle causes massive losses for retail investors. I agree with OP and think there are many parts to supporting faster, more severe, drops in the future: 1) The absolute and relative value of U.S. indices compared to global peers 2) The movement towards passive that results in inflows/outflows in indexed names regardless of fundamentals 3) Lack of liquidity with banks removed from proprietary trading and market making 4) Explosion of leveraged algo/momentum traders that trade 1000s of times in a minute creating large amounts of demand/supply out of nowhere When the tide turns, I expect the drop to be significantly faster than prior downturns. It won't matter that GM is trading at a P/E of 4x if retail investors are trying to exit exposure to the S&P - you'll get more selling pressure on GM regardless. Further, algo traders may jump in to short the market to chase momentum which has the potential to dramatically increase the supply of ETF units when retail investors are pulling back and liquidity from banks/market makers is non-existent. We actually have already seen this happen in August of 2015 during the panic surrounding China. There was that day U.S. equity indices opened down several percent and ETFs fared even worse - the selling pressure was so intense that it broke the market mechanism that forces ETFs to trade at/near NAV and many less liquid ETFs traded at significant discounts to NAV. That was a single day and was sparked by panic in a country across the globe. What happens if the selling is more prolonged and the cause for concern more acute to Americans? Chances are you get sharp drawdowns in ETFs that take a day or two to fully bleed into the underlying names as ETFs struggle to rebalance massive outflows on a daily basis. Those who hold individual names may actually have the opportunity to profit simply by watching the movement in ETFs and buying/selling individual names that are large portions of the ETF accordingly since banks won't be playing that function anymore.

Are you kidding me? The Democrats right now vote no on every bill no matter what. Why would you want this kind of senseless people in Congress? Unfortunately, there's no absolute bar for quality that politicians must meet to get votes. We'll vote idiots into office any day if we think they're a hair less idiotic then the prior person.

His returns were better in the partnership days. That's not to say he was a "better" investor as he probably couldn't have deployed tens of billions of dollars in that strategy, but none of us have that problem. His early days are probably the best one for aspiring managers to emulate and leave the Berkshire model as the road map to corporate investments. His strategy had to fundamentally change. If memory serves during the partnership days he categorized holdings into three categories: generals, control situations and arbitrage. My guess is he changed the % of each based on the environment he was in. However at this point, the overwhelming majority of holdings are subsidiaries with some generals. At this point arbitrage is probably no longer a relevant part of Berkshire's strategy. I don't think that was necessarily true. I think he saw the writing on the wall for high turnover necessary to invest hundreds of millions of dollars in cigar butt strategies and that there were likely to few opportunities to do it consistently with an capital growing at an exponential rate. He recognized that his strategy was better suited for smaller sums of money and to scale he'd need to change - not because the strategy was bad, but because he was going to outgrow it. When he wound down the partnership he specifically stated that the new "strategy" was to buy quality companies and hold them. He also said that he expected returns from this strategy to be lower without an actual reduction in risk. He recognized that the strategy would underperform what he had been doing (and it has), BUT you can't manage hundreds of millions, or billions, of dollars the way he was investing. Takes too much work, too much turnover, too much lost to taxes and brokerages, and too few opportunities for you to find to put $10-15 billion to work in any given quarter. It was easier and deleveraging to move to a strategy better suited for investing large sums of money with reasonable returns (i.e. strategically buying quality companies and holding forever). The only thing that forced him to change strategy was the scale he envisioned achieving through Berkshire. Not because anything was fundamentally flawed with the original approach.

His returns were better in the partnership days. That's not to say he was a "better" investor as he probably couldn't have deployed tens of billions of dollars in that strategy, but none of us have that problem. His early days are probably the best one for aspiring managers to emulate and leave the Berkshire model as the road map to corporate investments.