FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[SnarkyPuppy]

Im surprised that some guys are throwing in the towel with the court case on an appeal that was already dismissed. It was ok to hold through an administration that wanted the GSEs dead with all hope hanging on to a couple court cases, and not when the current treasury secretary wants to release them from govt control?

 

I totally appreciate the idea of breaking even and not losing money but dont follow the logic. How is mnuchins whims and biases any worse off then judges and justice system that is crawling at a snails pace?

 

I have a relatively concentrated position (won't go into detail why).  I was OK with holding it through the run-up given the fact that I thought there was a floor on the stock- If Mnuchin failed, we still had the courts.  if the courts failed, we still had Mnuchin.  Therefore, there was a margin of safety on the stock price.  We don't have that anymore. 

 

It's a difficult decision. 

[Read the Footnotes]

I do need more money for education needs. Investing in index funds won't do it. Is there a forum here where I can get some ideas to make higher return?

 

Let me know if you find the alpha forum

 

Where is Alpha Forum?

 

I got a laugh out of this snarky posting by . . . SnarkyPuppy.

 

[waynepolsonAtoZ]

Asset concentration risk is a problem, a problem many if not most rich people have.

[orthopa]

https://www.bloomberg.com/news/videos/2017-02-28/quicktake-the-future-of-fannie-mae-and-freddie-mac

[Luke 532]

I have a relatively concentrated position (won't go into detail why).  I was OK with holding it through the run-up given the fact that I thought there was a floor on the stock- If Mnuchin failed, we still had the courts.  if the courts failed, we still had Mnuchin.  Therefore, there was a margin of safety on the stock price.  We don't have that anymore. 

 

It's a difficult decision.

 

I understand your frustration with one court (Perry) being partially affirmed (arguably the part that impacts pref shares the least), but keep in mind that there are many cases still pending... Delaware, Sweeney, Collins, etc.  With that said, I totally can understand why somebody would want to sell a portion of their holdings given the uncertainty.  Markets, and people make up the markets, mostly hate uncertainty.  I'm standing pat because I still really like the potential reward given the risk.

[investorG]

I have a relatively concentrated position (won't go into detail why).  I was OK with holding it through the run-up given the fact that I thought there was a floor on the stock- If Mnuchin failed, we still had the courts.  if the courts failed, we still had Mnuchin.  Therefore, there was a margin of safety on the stock price.  We don't have that anymore. 

 

It's a difficult decision.

 

I understand your frustration with one court (Perry) being partially affirmed (arguably the part that impacts pref shares the least), but keep in mind that there are many cases still pending... Delaware, Sweeney, Collins, etc.  With that said, I totally can understand why somebody would want to sell a portion of their holdings given the uncertainty.  Markets, and people make up the markets, mostly hate uncertainty.  I'm standing pat because I still really like the potential reward given the risk.

 

for me it's a bet on America. 

 

Either you think someone --- a politician(s) or a judge -- will provide justice or you don't.

 

there is plenty of room for everyone to share in the outstanding work the employees of FNMA and FMCC have produced.

 

all that said, we're only a week removed from a couple setbacks so there's likely more shareholder turnover involved over the near term.  after a major gap drawdown it takes time.

[no_free_lunch]

Im surprised that some guys are throwing in the towel with the court case on an appeal that was already dismissed. It was ok to hold through an administration that wanted the GSEs dead with all hope hanging on to a couple court cases, and not when the current treasury secretary wants to release them from govt control?

 

I totally appreciate the idea of breaking even and not losing money but dont follow the logic. How is mnuchins whims and biases any worse off then judges and justice system that is crawling at a snails pace?

 

Personally I bought in after Mnuchin's comments in November so haven't been holding for years and years.  There is just more information available now than then.  I am not a lawyer but ripping through the legal documents it sounds damming, the government is within it's jurisdiction based on some legislation from 08/09 and arguments regarding the legality of NWS or just about anything else are irrelevant is what I got.  So I have that info, I didn't have it before and the price is the same.  I am also concerned that with all the problems Trump is running into as far as pushing his agenda forward he might have to make compromises.  This could be one of those compromises.  However, still long, still hold preferred's but just not as confident as I used to be in the outcome.

[nodnub]

I have a relatively concentrated position (won't go into detail why).  I was OK with holding it through the run-up given the fact that I thought there was a floor on the stock- If Mnuchin failed, we still had the courts.  if the courts failed, we still had Mnuchin.  Therefore, there was a margin of safety on the stock price.  We don't have that anymore. 

 

It's a difficult decision.

 

I understand your frustration with one court (Perry) being partially affirmed (arguably the part that impacts pref shares the least), but keep in mind that there are many cases still pending... Delaware, Sweeney, Collins, etc.  With that said, I totally can understand why somebody would want to sell a portion of their holdings given the uncertainty.  Markets, and people make up the markets, mostly hate uncertainty.  I'm standing pat because I still really like the potential reward given the risk.

 

for me it's a bet on America. 

 

Either you think someone --- a politician(s) or a judge -- will provide justice or you don't.

 

there is plenty of room for everyone to share in the outstanding work the employees of FNMA and FMCC have produced.

 

all that said, we're only a week removed from a couple setbacks so there's likely more shareholder turnover involved over the near term.  after a major gap drawdown it takes time.

 

Judges and politicians often don't provide the justice we seek or think we deserve.  Good luck to all!

[investorG]

I have a relatively concentrated position (won't go into detail why).  I was OK with holding it through the run-up given the fact that I thought there was a floor on the stock- If Mnuchin failed, we still had the courts.  if the courts failed, we still had Mnuchin.  Therefore, there was a margin of safety on the stock price.  We don't have that anymore. 

 

It's a difficult decision.

 

I understand your frustration with one court (Perry) being partially affirmed (arguably the part that impacts pref shares the least), but keep in mind that there are many cases still pending... Delaware, Sweeney, Collins, etc.  With that said, I totally can understand why somebody would want to sell a portion of their holdings given the uncertainty.  Markets, and people make up the markets, mostly hate uncertainty.  I'm standing pat because I still really like the potential reward given the risk.

 

for me it's a bet on America. 

 

Either you think someone --- a politician(s) or a judge -- will provide justice or you don't.

 

there is plenty of room for everyone to share in the outstanding work the employees of FNMA and FMCC have produced.

 

all that said, we're only a week removed from a couple setbacks so there's likely more shareholder turnover involved over the near term.  after a major gap drawdown it takes time.

 

Judges and politicians often don't provide the justice we seek or think we deserve.  Good luck to all!

 

of course. there is risk.

 

regarding politicians i go back to the roster:  mnuchin, ross, Paulson/berkowitz, carson, mulvaney, Blackwell. 

 

regarding judges, all it takes is one? (with the assumption that sessions wouldn't appeal).

[Eye4Valu]

People who lack conviction will get shaken out of any investment or speculation, whether the odds are good or bad. I always wondered why this board placed so much weight on the Perry appeal? I have a lot of conviction a favorable judgment will be obtained in Ct. of Claims. To quote Darth Vader, "I find your lack of faith disturbing."

[beaufort]

I have gone over the Perry appeal decision again.  I like the anticipatory breach of contract claim for the preferred.  I agree with Merhket in not having a view (I think that's the way he/she phrased it) on the dividend claim.

 

I bought after the election and Mnuchin's November comments.  For me this investment/speculation has always been about the political solution, backed up by the courts.  I remain convinced of a political solution, because no viable alternative solution has been put forward.

 

In the end, in a political solution, both the common and the preferred do well.  In a legal solution for Perry, currently only the preferred has a chance.  A political solution makes sense, perhaps with some support from other holdings in lawsuits around the country.

[Luke 532]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

[investorG]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

wow - so insightful. thank you.

 

the takings and breach of contract seem much less relevant or powerful than the APA claims or political solution imo. 

 

the takings and breach of claims will take a long time and even if you win the damages payment is likely to be a loss or maybe a limited win from here bc of the stock prices (I know it's only 1 factor) in 2012.  also in the Sweeney case it's less clear if you needed to own pre-sweep to win a damage.

 

it's clear to me we need one of the other lower courts to take judge brown's view on the APA OR a political solution.

 

good luck everyone!

 

ps - great speech last night.

[Flynnstone5]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

As discussed long ago, my concern is do they amend their claim and/or focus on ownership prior to the NWS allowing major prfd P's to settle while everyone else who purchased after the sweep gets screwed. I have less and less faith that any of the litigation is going to help us. As said in the audio, typically conservative judges respect property rights. The question is does the admin respect property rights enough to protect shareholders despite court cases. It seems to me the admin needs some cover in order to make a settlement that benefits shareholders and I can't understand why the Sessions DOJ continues to follow the Obama obstruction theme.

 

Only silver lining in this is that I invested solely on the premise we would win the litigation. If HRC had won, I think common would be at a $1 or less and prfd close by.

[investorG]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

As discussed long ago, my concern is do they amend their claim and/or focus on ownership prior to the NWS allowing major prfd P's to settle while everyone else who purchased after the sweep gets screwed. I have less and less faith that any of the litigation is going to help us. As said in the audio, typically conservative judges respect property rights. The question is does the admin respect property rights enough to protect shareholders despite court cases. It seems to me the admin needs some cover in order to make a settlement that benefits shareholders and I can't understand why the Sessions DOJ continues to follow the Obama obstruction theme.

 

Only silver lining in this is that I invested solely on the premise we would win the litigation. If HRC had won, I think common would be at a $1 or less and prfd close by.

 

after listening to that podcast I believe the plaintiffs would beg to settle now.  but what's in it for the govt to settle since likely the other apa / injunction cases march ahead?

 

the real settlement is a political solution where everyone wins --- sweep stops, sr preferred canceled, warrants utilized in some form, capital is raised, the companies are reformed and after some time released.

 

also the plaintiffs would be crazy to want an en banc review, based on this podcast, a waste of time and money imo.  just move on with the breach + takings claims, watch the other apa/injunction claims, and hope for supreme court on apa if political avenue stalls.

 

edit: at these prices the main arguments for holding preferred over common are dilution and liquidation imo. courts, not so much, at the moment, unless you bought a long time ago.

[onyx1]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

Great content.  Thanks for posting this Luke.

[rros]

Hamish Hume audio on recent court ruling... https://www.dropbox.com/s/2zi3mnvvr013slj/Hamish%2020170227.m4a?dl=0

 

As discussed long ago, my concern is do they amend their claim and/or focus on ownership prior to the NWS allowing major prfd P's to settle while everyone else who purchased after the sweep gets screwed. I have less and less faith that any of the litigation is going to help us. As said in the audio, typically conservative judges respect property rights. The question is does the admin respect property rights enough to protect shareholders despite court cases. It seems to me the admin needs some cover in order to make a settlement that benefits shareholders and I can't understand why the Sessions DOJ continues to follow the Obama obstruction theme.

 

Only silver lining in this is that I invested solely on the premise we would win the litigation. If HRC had won, I think common would be at a $1 or less and prfd close by.

 

after listening to that podcast I believe the plaintiffs would beg to settle now.  but what's in it for the govt to settle since likely the other apa / injunction cases march ahead?

 

the real settlement is a political solution where everyone wins --- sweep stops, sr preferred canceled, warrants utilized in some form, capital is raised, the companies are reformed and after some time released.

 

also the plaintiffs would be crazy to want an en banc review, based on this podcast, a waste of time and money imo.  just move on with the breach + takings claims, watch the other apa/injunction claims, and hope for supreme court on apa if political avenue stalls.

 

edit: at these prices the main arguments for holding preferred over common are dilution and liquidation imo. courts, not so much, at the moment, unless you bought a long time ago.

Given last night's speech referencing government-private partnerships to invest in infraestructure it is critically important that the nws gets somehow dismantled. Not necessarily the current suits or the hedge funds. But some 3rd party.

 

For silver lining how about this. The narrative is that government has won and hedge funds lost. Period. Even if Mnuchin recaps and many make tons of money, the story and the narrative will still be how hedge funds lost :)

 

Not a bad outcome.

[merkhet]

I have no idea why you guys think Ps would beg to settle now.

[Guest cherzeca]

I have no idea why you guys think Ps would beg to settle now.

 

Mnuchin has said he wants GSEs to continue without govt ownership and with safety to taxpayers...which says to me rebuilt with private capital. So that seems to me that mnuchin is going to have to come to Ps for settlement in order to clear path for additional fundraising. So while this decision was an abomination it accomplished enough for Ps for mnuchin to understand that he needs settlement to pursue his plan.

[rros]

I have no idea why you guys think Ps would beg to settle now.

 

Mnuchin has said he wants GSEs to continue without govt ownership and with safety to taxpayers...which says to me rebuilt with private capital. So that seems to me that mnuchin is going to have to come to Ps for settlement in order to clear path for additional fundraising. So while this decision was an abomination it accomplished enough for Ps for mnuchin to understand that he needs settlement to pursue his plan.

In line with this I wonder what Mnuchin is thinking regarding the nws as a tool that can be used by Treasury to nationalize companies with the agreement of a regulator, in bailout instances. He has to feel very uncomfortable about it given his stance on bailouts.

[investorG]

I have no idea why you guys think Ps would beg to settle now.

 

did you listen to the Hamish hume call?

 

the breach claims will take a year at least, discovery, motions, etc.  takings longer in sweeney.  and the end result is either a loss or a win where --- absent any other solution --- the damages could very well be a less than the current securities value.  in addition, if someone didn't buy pre-2012, then they might be shut out in the takings claim.

 

they need to go through with the cases to keep some leverage in any political negotiations and in case all political solutions fail.  but the call to me suggested all the legal juice is in the APA injunction for the NWS where we need a texas or Midwestern judge to see the craziness of the 3rd amendment.

 

i'd welcome any thoughts where i'm wrong.

[investorG]

I have no idea why you guys think Ps would beg to settle now.

 

Mnuchin has said he wants GSEs to continue without govt ownership and with safety to taxpayers...which says to me rebuilt with private capital. So that seems to me that mnuchin is going to have to come to Ps for settlement in order to clear path for additional fundraising. So while this decision was an abomination it accomplished enough for Ps for mnuchin to understand that he needs settlement to pursue his plan.

 

mnuchin is smart.  unless I am missing something he knows the perry + fairholme plaintiffs have a weak hand vs. current preferred share pricing.  what would he offer them to settle besides a comprehensive political solution --- which is currently premature?  if mnuchin wants to settle it's with all plaintiffs including the regional APA injunction ones i'd guess - which once again brings back to a comprehensive political solution.  I see no legal settlement at this moment.  if apa had been remanded I would have a different view.

 

edit: another potential positive via the legal channel is sessions, after looking at the 12k documents, decides he's not comfortable defending the gov'ts case and they simply revert back to the prior deal (no nws). i'm guessing this would be easier to do in jan18 due to the jumpstart language (would the overage payments be treated as sr preferred paydown or would govt have to resend cash due to non-relinquish language) but not sure.

[merkhet]

I have no idea why you guys think Ps would beg to settle now.

 

did you listen to the Hamish hume call?

 

the breach claims will take a year at least, discovery, motions, etc.  takings longer in sweeney.  and the end result is either a loss or a win where --- absent any other solution --- the damages could very well be a less than the current securities value.  in addition, if someone didn't buy pre-2012, then they might be shut out in the takings claim.

 

they need to go through with the cases to keep some leverage in any political negotiations and in case all political solutions fail.  but the call to me suggested all the legal juice is in the APA injunction for the NWS where we need a texas or Midwestern judge to see the craziness of the 3rd amendment.

 

i'd welcome any thoughts where i'm wrong.

 

Yes, I listened to the call. Most of your comment is merely that it might take longer. That has little to do with whether it incentivizes Ps to beg to settle as that has more to do with the fundamentals of the breach claims than how long it takes them to litigate it. (Again, I feel the need to point out that I hold only preferred shares. It's probably true that the common shareholders would beg to settle at this point.)

 

Moreover, you should re-listen to Hume's discussion on page 69. He specifically talks about why he thinks the court is wrong. Alternatively, you could read what the court wrote and see where they misapplied Delaware law. Either method should bring you roughly to the same conclusion.

[investorG]

I have no idea why you guys think Ps would beg to settle now.

 

did you listen to the Hamish hume call?

 

the breach claims will take a year at least, discovery, motions, etc.  takings longer in sweeney.  and the end result is either a loss or a win where --- absent any other solution --- the damages could very well be a less than the current securities value.  in addition, if someone didn't buy pre-2012, then they might be shut out in the takings claim.

 

they need to go through with the cases to keep some leverage in any political negotiations and in case all political solutions fail.  but the call to me suggested all the legal juice is in the APA injunction for the NWS where we need a texas or Midwestern judge to see the craziness of the 3rd amendment.

 

i'd welcome any thoughts where i'm wrong.

 

Yes, I listened to the call. Most of your comment is merely that it might take longer. That has little to do with whether it incentivizes Ps to beg to settle as that has more to do with the fundamentals of the breach claims than how long it takes them to litigate it. (Again, I feel the need to point out that I hold only preferred shares. It's probably true that the common shareholders would beg to settle at this point.)

 

Moreover, you should re-listen to Hume's discussion on page 69. He specifically talks about why he thinks the court is wrong. Alternatively, you could read what the court wrote and see where they misapplied Delaware law. Either method should bring you roughly to the same conclusion.

 

I do not know about the Delaware case, maybe that's a better ticket. 

 

the discussion about pre-2012 distinction could be wrong in the breach of contract cases, yes.  but he said it's firmer in the Sweeney takings case.  moreover he said the stock price in 2012 is a key factor in determining damages.  i doubt fairholme is excited about spending another 1-2 years doing this and either losing or winning and getting awarded a few bucks in damages, well below current price levels.  the apa injunction was/is the meat on the bone it appears.

 

[merkhet]

I wasn't talking about the Delaware case. I was talking about how the U.S. Court of Appeals for the D.C. Circuit misapplied Delaware law in the Perry case.

 

He also did not say that the stock price in 2012 would be a key factor in determining damages. Starting @ 34:47

 

"...we would need experts to look at what they think present value of future income streams could have been had there not been a NWS would be one way to do it. The Government will argue in the Takings case... We would not accept this and we would resist it but the government will say in the takings case that the value of what was taken if there was a Takings is measured by the value the day before the taking and they'll look at what the stock was trading for back then which was not very high. So there's a whole range of numbers."

 

Hume said that the government would argue that the value would be based on the stock price in 2012. But, of course, the government would argue that. The government would also argue that the correct damages should be zero, but that's certainly not a key factor in determining damages.

 

And finally, the APA is only the meat on the bones for common shareholders. Not so for preferred shareholders.

 

You should really re-listen to the audio file.