Mephistopheles

There's someone trying to sell his copy of the poster for $50 on Amazon. Seems he is trying to buy low sell high! Only problem is that everyone else looking at this is a value investor too lol

I think even from a legal perspective, it's hard to argue for the below if you're the government. "At the time of the taking" to me sounds pretty cut and dry. The taking is still occurring as Fairholme holds the shares. August 17, 2012 was merely the start of the taking. Thus, "time of the taking" is not a single point in time in this case, but an ongoing matter. Disclosure: Not a lawyer :D

It's not addressed -- they merely say that the plaintiff doesn't have standing. I agree that the logistics would be messy. The Starr case involves shareholders as of the time the deal was made, correct? So in that case they are demanding a monetary award that reflects the fair value of AIG as of that time period. I can imagine this applying to this case. The big difference here is that the taking is continuing every day. If the judge rules that it's illegal for the government to have done that to the pre-3rd amendment shareholders (who would have to file their own case obviously); why would it not be illegal inherently? If it's a taking, it's a taking, no matter who's holding the shares.

I haven't read the Maniere case yet, so perhaps this was addressed in it. If Judge Sweeney agrees with the motion to dismiss, and the taking only applies to shareholders prior to 8/17/12, then what becomes of all the profits since? Are the shareholders on the day of the third amendment entitled to all of the profits since then? That doesn't make sense either. The sweep is either going to be ruled legal or illegal. If it's illegal, then how can it be that only shareholders as of that day are entitled to profits? Profits will continue to roll in, so who do they belong to?

They do have a separate number for preferred clients as opposed to the automated crap you have to deal with using the regular number. It's called the Premium Services line: 866-204-0150. I've noticed that they're generally more willing to help than the other number.

Make everything look like you're experienced to the max. Seldom, active, aggressive, etc. Then when it asks what your goals are choose all the boxes: income, growth, speculation, etc. Make sure you choose that you have experience with futures and all other securities they ask you about. They once questioned my net worth too (rightfully so). I just told them I had an inheritance.

I haven't looked at the income statement in a while so I can't comment too much on that for now. But I know that the companies will need to raise quite a bit of capital, even assuming that sweep is used towards principle payments. So you need to account for dilution. FNMAS is one of the more expensive ones. I own FREJN, FMCCG, and FMCCN; which are $6.55, $5.51, and $5.26 as of the last tick, on a par value of $50.

While the ultimate resolution will take 2 years or longer, there will be evidence and catalysts along the way to support one way or another, which is a positive for owning the preferreds rather than not, despite the par ceiling. I think people often miss this fact. For instance, say we have a decision in 2017 overturns the 3rd amendment. Rather than an overnight jump from $5 to $50 for the preferreds, I think it's more likely that we see a gradual rise as more transcripts, documents, briefs, etc. are released. After all, the preferreds were selling for less than $1 a few years ago. But the progress in the Claims Court case, various documents and supporting evidence has led to the rise. The ceiling does take away from the upside, but I personally haven't arrived at a valuation for the common that makes me feel like they are a substantially better bet. I used to own a mix of the two before Lamberth threw out the District Court case, but have switched everything to the preferred given that the common have rebounded substantially whereas the preferreds have remained just about where they were after the drop. I also am not sure about what sort of capital raise (dilution) will be required if and when the companies are released; this poses another risk for the common. Can you talk about what upside you see for the preferreds and the specifics you used to calculate that? TIA They're selling for about 11-12 cents on the dollar. I'm not a lawyer but I've read many of the court filings and opinions on both sides of the issue. I think if the rule of law is upheld, it's fairly obvious that the sweep is illegal. Certainly confident enough at 8 to 1 odds. If it gets to 2 to 1 or even, I will probably sell depending on the facts at that time.

While the ultimate resolution will take 2 years or longer, there will be evidence and catalysts along the way to support one way or another, which is a positive for owning the preferreds rather than not, despite the par ceiling. I think people often miss this fact. For instance, say we have a decision in 2017 overturns the 3rd amendment. Rather than an overnight jump from $5 to $50 for the preferreds, I think it's more likely that we see a gradual rise as more transcripts, documents, briefs, etc. are released. After all, the preferreds were selling for less than $1 a few years ago. But the progress in the Claims Court case, various documents and supporting evidence has led to the rise. The ceiling does take away from the upside, but I personally haven't arrived at a valuation for the common that makes me feel like they are a substantially better bet. I used to own a mix of the two before Lamberth threw out the District Court case, but have switched everything to the preferred given that the common have rebounded substantially whereas the preferreds have remained just about where they were after the drop. I also am not sure about what sort of capital raise (dilution) will be required if and when the companies are released; this poses another risk for the common.

Shareholders might lose in the court and the 3rd amendment may stay intact, but I personally think there is little to no chance of Fannie and Freddie closing down as profitable businesses. 30-year mortgage will never disappear because it's a part of American culture, to own your own home. Now we have two companies with several trillion dollars in assets and thousands of employees that guarantee mortgages for tens of millions of Americans. Why try to disrupt that and create something new and unproven? I can't imagine anybody in government having political will to do that, especially as we move further along from the crisis and anti -financial services sentiment becomes less and less effective. They had a few bills introduced in the last couple of years, none of which have gained traction. It's not going to happen, just like we won't ever get rid of Medicare or Social Security (not saying we should or shouldn't).

So it's an ideological investment for you? I think it's a value investment for him

Though I don't consider Uber as unethical. Not sure if it's illegal or not. Subletting a room that belongs to your employer on the other hand, I feel is unethical.

This is because the Court of Claims case is regarding whether or not it was an illegal 5th Amendment taking, whereas the District Court litigation is about FHFA not acting as a Conservator, right?

It is an interesting idea, but my opinion is that it wouldn't work. I don't think people mind loosening their wallets when on vacation. The idea of splitting a room with a stranger to just save a few hundred when you're supposed to be out indulging on a vacation isn't too appealing. Furthermore, most people travel in groups most of the time. Of course, then there are cheap value investors who flock to Omaha without any friends. Though that's a small target market. I don't know anything about programming or the amount of time/money investment you'd need to put into this. So maybe if it's relatively little effort and money, it may still be worth it. Are there other Omaha like events that you know of: people traveling alone with short supply of hotel space? Maybe if you find a handful of those then it would work. Take it with a grain of salt, just my humble opinion. Best of luck!

I do have a model for it, which if I shared could be argued as violating an agreement I signed with my current employer. So I won't share it or its conclusions, but I will say that the valuation is entirely ridiculous. Even a small change in sales growth rate or margin can move the valuation by over 20%. So in my view, it's pretty much a waste of time to value, at least in a conventional manner. Personally, I use more of a mosaic approach, and find it far more valuable than my DCF. Amazon is the clear leader in e-retail, at least in the U.S., and that's a massive advantage. As Amazon grows, its scale should allow it greater and greater bargaining power vs. suppliers over time. My view is that this is a sort of self-reinforcing moat, in that it gives Amazon margin that it can either give back to customers, that it can reinvest in future growth, or that it can use to fund new ventures. We see this happen all the time; take a look at Amazon's employee count. In my eyes, it's pretty clear that they're investing ahead of the growth curve to make sure they can maintain a satisfactory service. So long as the ecommerce business continues to grow, I want the company to keep doing that even though it makes profitability and FCF suck. And with ecommerce still in the mid-single digits as a percentage of total retail sales, it can probably grow at a healthy rate for another few decades. It's true that Amazon's GAAP profits and even FCF aren't that impressive, but that's why I like it. One of the things that really reinforced my thoughts here was this blog post by a former employee, indicating that many of Amazon's businesses are already profitable, and the company is reinvesting the cash internally. http://www.eugenewei.com/blog/2013/10/25/amazon-and-the-profitless-business-model-narrative I suspect Amazon will be the largest retailer in the world some day, and when that happens, giving the company any credit for decent margins (compared to other large retailers), and I think the stock looks pretty attractive even now. But you have to believe in the business model to get there. I do. This is a company that requires essentially no capital to scale its ecommerce business; its net negative working capital allows the company to grow to as large as its infrastructure can handle without putting up any more cash. That's an amazing business, and because the business becomes stronger the larger it becomes, these cycles feed on each other. So, that's basically it. There's no magic valuation bullet here; it requires that you believe in the advantages of the business model and that they'll take the business far. Given the track record to date, I think they will. If they do, the stock will look very cheap in hindsight. If they don't, it will prove expensive. Thanks for the explanation, it was very helpful

Got it, well let's hope there is some legitimacy to it :)

The assertions made are pretty strong. Are you saying that you are not sure whether they are baseless or not? What I don't understand is why would simply making an statement that, for example, "a senior executive met w/Treasury regarding the DTA on the eve of the 3rd amendment" warrant moving forward with discovery? Unless of course they have some memos or what not to back it up. I'm just confused with the way the law and procedure works with these cases. Can anyone just make any wild accusation without at least some basis?

Paragraph 82 is also interesting: Thanks Are these just some strong accusations? Or do they have to have hard evidence to make these specific charges about Geithner et al? Just trying to understand the significance of this. Also, this case seems to be brought on by individual retail investors, right? Doesn't seem like there is a professional money manager involved here.

I took a quick look at this a few weeks ago. World ad spending is about $600 billion, which includes all forms of advertising, growing at 5%. Internet spending is about $140 billion growing at a 20% clip. Of that Google is about $40-50 billion of ad revenue. The aggregate valuation of these media companies looks extreme. An anecdote: GM (largest advertiser in America I think) pulled out of marketing on Facebook a few years ago because it wasn't working for them.

Great thoughts about GAAP vs reality, Scott. How do you value AMZN, if you're willing to share? I too think it's an incredible business, but not sure about the price.

I'm surprised that Ackman's analyst said discovery will take until the end of the year to complete. I was under the impression that all of the parties agreed to a hard deadline of July, after already postponing it once. The analyst's reasoning was that the government is holding back documents which will take time to get released and therefore we'll see another extension. If they are holding back documents (which is a violation already), which then causes a delay in discovery completion, would that not be another violation? Seems like this would only help the plaintiffs case.

Also, there's the issue of not having secured purchases with digital currency. Once you make the purchase, there's no chance in getting your money back no matter what, unless the seller refunds you. Well I think you hit the nail on the head as there is essentially no incentive for the average consumer to change which is absolutely necessary to break the network effects of the major credit card companies. For all its elegance this issue is likely to be the downfall to mass acceptance There are other issues of course. Security - a digital wallet can be "stolen" while a Visa card theft will not be charged to the consumer. Now defenders of crypto currency talk about the many ways to defeat these issues but that adds cost and removes the major advantage. You end up just recreating what is already there with the major credit cards.

Well, BRK shareholders get discounts as well - at NFM, GEICO, etc. We also get an open bar and free food on Friday night and Sunday afternoon. And a cheap meal on Saturday evening.

Well, one is a law enforcement matter and the other breaks the rules of the game.

lol Speaking of conspiracy theories, I've mentioned before that I make sure to read John Carney's tweets just so that I can hold a balanced opinion. A few days ago he kept raving about how the current dividend is now only 6% of the Senior Preferred, implying that the third amendment is proving to be beneficial to shareholders. Of course, he conveniently failed to mention that under this logic the dividend in 2013 was 70%. It's really hard to believe that this guy is playing the role of an unbiased reporter. In fairness, there are crazy people on both sides of the issue. I used to read the timhoward717 site, which seems to be authored by a very informed person, but he holds no credibility to me because of his melodramatic conspiracy theories. Yet somehow the blog gets hundreds of comments with each post, many of them from manic-depressive investors. It's concerning that there is so much untamed emotion out there with this investment. I try to look past all of this and just focus on the facts and the odds. Certainly one of the most fascinating investments I've made. Whatever happens, it will for sure be a great learning experience.