colinwalt Posted March 9, 2016 Share Posted March 9, 2016 Somebody asked if Bruce was crazy to put 16% into this. OK, I will answer without resorting to Eminem: IMO, he is crazy. That's somewhat based on his other positions too, BTW. The counterargument to the "Bruce knows sh17, so he increases position" is "Bruce is blinded by his positions and biases and so he increases position". I'm in the second camp, but I don't give a crap about Bruce, his motivation, his performance and his fund, so I'm not gonna argue about it here. You can do anything you set your mind to, man Yo Brings to mind all those people who thought Bill Miller walked on water... until... it all blew up... (BTW: I asked the "is he crazy for the > 16% position" + said I didn't think so, but I often don't have a clue about this stuff) Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2016 Share Posted March 9, 2016 Which is more speculation. :) In any case, my edit to the above post then becomes relevant. Let's play it through. What does a valid NWS world look like? Let's say that they try to excise the assets from Fannie & Freddie. How do you do that? Do you spin off the new common stock to the government preferred shareholders? That would seem to require another amendment because the government preferred shareholders have access to cash flow and not the residual ownership of the corporations. How do you even structure a spinoff that flows through to preferred shareholders? (These aren't just rhetorical. I can't think of an instance of seeing this, and I literally do not know.) And then that brings up a completely new question for litigation. Assume the NWS is valid. Excise the assets of the GSEs. Doesn't this bring up a new question of whether this is now a de facto liquidation that occurred without the benefit of various protections afforded to people in the various capital structures that happen during an actual receivership? Link to comment Share on other sites More sharing options...
Jurgis Posted March 9, 2016 Share Posted March 9, 2016 BTW, Bruce can blow up even if he wins litigation eventually. All that needs to happen is continued redemptions from his funds because of bad performance. Assume that litigation win comes in 5 years (yeah, I know people suggested that things will resolve faster - do you legal types have a litigation maturity graph? what's the best/median/worst case?). If FAIRX continues underperforming for couple more years, he can lose enough capital to need to sell FNMA positions into weak market. That's one of the reasons I think his position is crazy. Anyway, I should shut up. Yo. Link to comment Share on other sites More sharing options...
colinwalt Posted March 9, 2016 Share Posted March 9, 2016 BTW, Bruce can blow up even if he wins litigation eventually. All that needs to happen is continued redemptions from his funds because of bad performance. Assume that litigation win comes in 5 years (yeah, I know people suggested that things will resolve faster - do you legal types have a litigation maturity graph? what's the best/median/worst case?). If FAIRX continues underperforming for couple more years, he can lose enough capital to need to sell FNMA positions into weak market. That's one of the reasons I think his position is crazy. Anyway, I should shut up. Yo. On the other hand he has a large cash position after selling AIG - maybe it won't be enough, but it seems to me that there's a large margin of safety there. Link to comment Share on other sites More sharing options...
colinwalt Posted March 9, 2016 Share Posted March 9, 2016 Which is more speculation. :) In any case, my edit to the above post then becomes relevant. Let's play it through. What does a valid NWS world look like? Let's say that they try to excise the assets from Fannie & Freddie. How do you do that? Do you spin off the new common stock to the government preferred shareholders? That would seem to require another amendment because the government preferred shareholders have access to cash flow and not the residual ownership of the corporations. How do you even structure a spinoff that flows through to preferred shareholders? (These aren't just rhetorical. I can't think of an instance of seeing this, and I literally do not know.) And then that brings up a completely new question for litigation. Assume the NWS is valid. Excise the assets of the GSEs. Doesn't this bring up a new question of whether this is now a de facto liquidation that occurred without the benefit of various protections afforded to people in the various capital structures that happen during an actual receivership? And assuming this doesn't get resolved before the next Admin takes over - why would the next Admin want to fight to the death in the hope that they win and then end up having to deal with this sh*t? Link to comment Share on other sites More sharing options...
morningstar Posted March 9, 2016 Share Posted March 9, 2016 Which is more speculation. :) In any case, my edit to the above post then becomes relevant. Let's play it through. What does a valid NWS world look like? Let's say that they try to excise the assets from Fannie & Freddie. How do you do that? Do you spin off the new common stock to the government preferred shareholders? That would seem to require another amendment because the government preferred shareholders have access to cash flow and not the residual ownership of the corporations. How do you even structure a spinoff that flows through to preferred shareholders? (These aren't just rhetorical. I can't think of an instance of seeing this, and I literally do not know.) And then that brings up a completely new question for litigation. Assume the NWS is valid. Excise the assets of the GSEs. Doesn't this bring up a new question of whether this is now a de facto liquidation that occurred without the benefit of various protections afforded to people in the various capital structures that happen during an actual receivership? Why would they try to do this? If the government wants to put these companies back in the public domain it would just amend away the NWS itself and sell them - I think this would happen even if the NWS has been affirmed by the courts. I think the government's view of the economic reality here (with which I'd agree) is that private capital involvement in the equity of the GSEs serves no purpose; the government creates all the value and there's no point in sharing the equity, especially since the cost of capital for all the potential buyers is so much higher. Rather, if the NWS is affirmed I would expect to see the current status quo continued indefinitely. At least until we get a political consensus on how to reform the subsidies provided for housing, if that ever occurs - at which point good chance Fannie/Freddie are allowed to run off to near-zero. Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2016 Share Posted March 9, 2016 The main worry about the status quo, of course, is an administration that is hell bent on shutting down the GSEs. Link to comment Share on other sites More sharing options...
doughishere Posted March 9, 2016 Share Posted March 9, 2016 The main worry about the status quo, of course, is an administration that is hell bent on shutting down the GSEs. What if Obama signed an Executive Order terminating the GSEs....you guys are worked up about it now. That cleans the legality issues up and sets an amazing precedent.... Although i just looked it up EOs "are generally used to direct federal agencies and officials in their execution of congressionally established laws or policies." .....generally. Link to comment Share on other sites More sharing options...
Mephistopheles Posted March 9, 2016 Share Posted March 9, 2016 Just a side note - I don't think he was rebalancing his portfolio to pre lamberth because right before Lamberth he was sitting on huge gains. I think current levels or maybe slightly above is when he initiated the position, so he did add more shares purely to increase the position size (for better or for worse) Link to comment Share on other sites More sharing options...
Guest cherzeca Posted March 9, 2016 Share Posted March 9, 2016 The main worry about the status quo, of course, is an administration that is hell bent on shutting down the GSEs. What if Obama signed an Executive Order terminating the GSEs....you guys are worked up about it now. That cleans the legality issues up and sets an amazing precedent.... Although i just looked it up EOs "are generally used to direct federal agencies and officials in their execution of congressionally established laws or policies." .....generally. no legal issue would be cleaned up. if they liquidate GSEs then jr pref and common put in claims. what's value of that claim? need to finish litigation to find out. Link to comment Share on other sites More sharing options...
hardincap Posted March 9, 2016 Share Posted March 9, 2016 there are degrees of intelligence in speculation. some longs like sullivan seem to be running with this settlement communication thing (he tweeted a berk quote and replaced the word communication with negotiations), and i think thats just silly. isnt it expected for two parties in a three year legal war to have at least some communication over possible settlement? actually entering negotiations is entirely different. re: speculating on the legal aspect, i think everyone is to a degree, but theres substantial rational and factual basis for that Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2016 Share Posted March 9, 2016 I think regardless of whether you think that the situation is binary or not -- it's indisputable that losing all the cases concerning the NWS puts you in a significantly worse position than you're in now. Whether that situation is zero or not is up for some discussion, but we can probably all agree on the first part. Link to comment Share on other sites More sharing options...
dowfin1 Posted March 9, 2016 Share Posted March 9, 2016 Financial losses suffered by investors from losing all the cases would be dwarfed by the immeasurable loss to the rule of law in the US. Link to comment Share on other sites More sharing options...
hardincap Posted March 9, 2016 Share Posted March 9, 2016 "immeasurable loss to the rule of law" these kinds of statements irk me a bit because its largely just rhetoric and should have no bearing on the investment decision. will the government actually start trampling over shareholders left and right if they win these lawsuits? of course not. it sets a bad precedent for sure, and yes it justifies indignation and outrage, but cmon, we're all just trying to make a buck here Link to comment Share on other sites More sharing options...
Guest cherzeca Posted March 9, 2016 Share Posted March 9, 2016 change of subject, but still on the speculation theme. what does the board think the fnma jr pref ($25 par) and common go to if NWS invalidated? not just a vacate and remand, or a denial of motion to dismiss, but a full blown invalidation. i'll go first. i own fnma common. i would expect jr pref to go somewhere in the range of $15-$20. not $25 since there is no promise of divs being paid for foreseeable future. the common may have a crazier ride. i expect it will end up above $10, but it may shoot above $15 initially. i can elaborate if you want, but i am more interested in hearing what board thinks. Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2016 Share Posted March 9, 2016 "immeasurable loss to the rule of law" these kinds of statements irk me a bit because its largely just rhetoric and should have no bearing on the investment decision. will the government actually start trampling over shareholders left and right if they win these lawsuits? of course not. it sets a bad precedent for sure, and yes it justifies indignation and outrage, but cmon, we're all just trying to make a buck here Yes, I sort of agree on rhetoric -- but I think the point is that if the holding ends up being that preferred shareholders can bilaterally, with the agreement of management, decide that they will transform their preferred shares into new common shares that are above the rest of the capital structure, that's going to be bad for the stability of companies in general. Theoretically, the very next day, I would go out and start picking up preferred shares and contacting management to carve up companies 50-50. (Change my preferred dividends to a full sweep, and I will vote to increase your pay by a ton!) A few unscrupulous management teams will probably go for it! Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2016 Share Posted March 9, 2016 change of subject, but still on the speculation theme. what does the board think the fnma jr pref ($25 par) and common go to if NWS invalidated? not just a vacate and remand, or a denial of motion to dismiss, but a full blown invalidation. i'll go first. i own fnma common. i would expect jr pref to go somewhere in the range of $15-$20. not $25 since there is no promise of divs being paid for foreseeable future. the common may have a crazier ride. i expect it will end up above $10, but it may shoot above $15 initially. i can elaborate if you want, but i am more interested in hearing what board thinks. I am curious why you think common will have that wild a ride... Link to comment Share on other sites More sharing options...
Guest cherzeca Posted March 9, 2016 Share Posted March 9, 2016 what's your view first? Link to comment Share on other sites More sharing options...
doughishere Posted March 9, 2016 Share Posted March 9, 2016 what's your view first? Lol Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2016 Share Posted March 9, 2016 what's your view first? I suspect that common might get a 3x bump or so, but the overhang of immense dilution from any possible recap will be tough to overcome. Keep in mind, though, this whole thing is textbook speculation. I mean, my answer has about as much validity as me announcing that I suspect God has a handlebar mustache. Link to comment Share on other sites More sharing options...
Guest cherzeca Posted March 10, 2016 Share Posted March 10, 2016 what's your view first? I suspect that common might get a 3x bump or so, but the overhang of immense dilution from any possible recap will be tough to overcome. Keep in mind, though, this whole thing is textbook speculation. I mean, my answer has about as much validity as me announcing that I suspect God has a handlebar mustache. i think if you own fnma, you have to have come to some sort of conclusion with respect of probability of litigation success, and the effect that has on the market price. i dont think this is idle speculation. i think analyzing the effect on market price is as important as analyzing the litigation. @markhet do you think jr pref gets more or less a 3x bump. Link to comment Share on other sites More sharing options...
Eye4Valu Posted March 10, 2016 Share Posted March 10, 2016 I put the odds of God having a handlebar mustache at 60%. Don't ask me why. Link to comment Share on other sites More sharing options...
hardincap Posted March 10, 2016 Share Posted March 10, 2016 FNMAS went up as high as mid $12 pre-lamberth. I think it goes higher than $15-20 range if nws invalidated Link to comment Share on other sites More sharing options...
Guest cherzeca Posted March 10, 2016 Share Posted March 10, 2016 FNMAS went up as high as mid $12 pre-lamberth. I think it goes higher than $15-20 range if nws invalidated any view on common? Link to comment Share on other sites More sharing options...
doughishere Posted March 10, 2016 Share Posted March 10, 2016 Markets can stay irrational for a long time.... Link to comment Share on other sites More sharing options...
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