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

[doughishere]

@cherzeca i agree none of the judges seemed inclined to affirm lamberth. if they affirm i would be quite shocked. but i would be equally shocked if they vote for reversal instead of remand on the apa claim, just given the skepticism and general confusion judges displayed towards the Ps arguments. breach of k claim seems more clear cut--hume did a really impressive job--but the fact that judges seemed so disengaged to this argument gives me significant pause.

 

Actually not trying to be a jerk this time but hardincap, at some time you have to become comfortable with the imperfect information and adjust accordingly......theres a point where all you can do is wait and watch the lotus unfold.

 

[Guest cherzeca]

@cherzeca i agree none of the judges seemed inclined to affirm lamberth. if they affirm i would be quite shocked. but i would be equally shocked if they vote for reversal instead of remand on the apa claim, just given the skepticism and general confusion judges displayed towards the Ps arguments. breach of k claim seems more clear cut--hume did a really impressive job--but the fact that judges seemed so disengaged to this argument gives me significant pause.

 

if i were giving odds, i would give 5-10% affirmance, 15-20% reversal and 70-80% remand.  the reason why i would give greater odds for reversal than affirmance is that i believe judges showed absolutely no willingness to drink the anti-injunction/lamberth kool aid, while i think they took seriously the conservator sound and solvent notion, but were pushing back.  millett at one point said, where does the statute talk about rehabilitation, when olson used the term. so i think she wont get to reversal.  the others might

[Luke 532]

if i were giving odds, i would give 5-10% affirmance, 15-20% reversal and 70-80% remand.

 

Assuming very conservative (in my opinion) FNMAS prices* in each given scenario, there is still a large margin of value today. *of course, nobody knows what the market will do.

 

10% chance of affirmance = $0.50 FNMAS price

15% chance of reversal = $10.00 " "

75% chance of remand = $5.00 " "

 

(10% * $0.50) + (15% * $10.00) + (75% * $5.00) = $5.30... or 41% upside from the current $3.75 price.

 

It's an elementary way to look at it, of course, but should give a rough idea to those looking for a back-of-the-napkin calculation.

[Steve_Berk]

I'll go with 25% chance of affirmance, 10% chance of reversal and 65% remand. Which using Luke's method of calculation a price of $4.37, only 16% over the current price.

 

@cherzeca i agree none of the judges seemed inclined to affirm lamberth. if they affirm i would be quite shocked. but i would be equally shocked if they vote for reversal instead of remand on the apa claim, just given the skepticism and general confusion judges displayed towards the Ps arguments. breach of k claim seems more clear cut--hume did a really impressive job--but the fact that judges seemed so disengaged to this argument gives me significant pause.

 

if i were giving odds, i would give 5-10% affirmance, 15-20% reversal and 70-80% remand.  the reason why i would give grater odds for reversal than affirmance is that i believe judges showed absolutely no willingness to drink the anti-injunction/lamberth kool aid, while i think they took seriously the conservator sound and solvent notion, but were pushing back.  millett at one point said, where does the statute talk about rehabilitation, when olson used the term. so i think she wont get to reversal.  the others might

[Guest cherzeca]

I'll go with 25% chance of affirmance, 10% chance of reversal and 65% remand. Which using Luke's method of calculation a price of $4.37, only 16% over the current price.

 

@cherzeca i agree none of the judges seemed inclined to affirm lamberth. if they affirm i would be quite shocked. but i would be equally shocked if they vote for reversal instead of remand on the apa claim, just given the skepticism and general confusion judges displayed towards the Ps arguments. breach of k claim seems more clear cut--hume did a really impressive job--but the fact that judges seemed so disengaged to this argument gives me significant pause.

 

if i were giving odds, i would give 5-10% affirmance, 15-20% reversal and 70-80% remand.  the reason why i would give grater odds for reversal than affirmance is that i believe judges showed absolutely no willingness to drink the anti-injunction/lamberth kool aid, while i think they took seriously the conservator sound and solvent notion, but were pushing back.  millett at one point said, where does the statute talk about rehabilitation, when olson used the term. so i think she wont get to reversal.  the others might

 

@steve_berk

what did you see/hear in ginsburg or brown that made you think affirmance was even a 25% possibility? 

[Steve_Berk]

I'm was only thinking about the APA issue, so I should just qualify--I honestly don't know how to assess the probability on the contract issue, because I feel like the questioning was much less revealing. On the APA issue, Milstein makes it seem like she could go for reversal for reasons I've already articulated--we don't know anything about Brown (other than her prior record). And then you have Ginsburg, who makes it reasonably clear that he wants a remand. But I'm still troubled by his questioning of Olson where he essentially says that a full record could reveal that the conservator acted with a permissible purpose, so I think that leaves the door open for him to determine based on the APA standard of deference that there's enough (citing the 10Q, etc, building a case that there were 'competing views'). I assess affirmance as more likely than reversal because unlike affirmance, I don't see any part of the argument that really leaves the door open for reversal on the APA issue.

 

I'll go with 25% chance of affirmance, 10% chance of reversal and 65% remand. Which using Luke's method of calculation a price of $4.37, only 16% over the current price.

 

@cherzeca i agree none of the judges seemed inclined to affirm lamberth. if they affirm i would be quite shocked. but i would be equally shocked if they vote for reversal instead of remand on the apa claim, just given the skepticism and general confusion judges displayed towards the Ps arguments. breach of k claim seems more clear cut--hume did a really impressive job--but the fact that judges seemed so disengaged to this argument gives me significant pause.

 

if i were giving odds, i would give 5-10% affirmance, 15-20% reversal and 70-80% remand.  the reason why i would give grater odds for reversal than affirmance is that i believe judges showed absolutely no willingness to drink the anti-injunction/lamberth kool aid, while i think they took seriously the conservator sound and solvent notion, but were pushing back.  millett at one point said, where does the statute talk about rehabilitation, when olson used the term. so i think she wont get to reversal.  the others might

 

@steve_berk

what did you see/hear in ginsburg or brown that made you think affirmance was even a 25% possibility?

[Guest cherzeca]

I'm was only thinking about the APA issue, so I should just qualify--I honestly don't know how to assess the probability on the contract issue, because I feel like the questioning was much less revealing. On the APA issue, Milstein makes it seem like she could go for reversal for reasons I've already articulated--we don't know anything about Brown (other than her prior record). And then you have Ginsburg, who makes it reasonably clear that he wants a remand. But I'm still troubled by his questioning of Olson where he essentially says that a full record could reveal that the conservator acted with a permissible purpose, so I think that leaves the door open for him to determine based on the APA standard of deference that there's enough (citing the 10Q, etc, building a case that there were 'competing views'). I assess affirmance as more likely than reversal because unlike affirmance, I don't see any part of the argument that really leaves the door open for reversal on the APA issue.

 

I'll go with 25% chance of affirmance, 10% chance of reversal and 65% remand. Which using Luke's method of calculation a price of $4.37, only 16% over the current price.

 

@cherzeca i agree none of the judges seemed inclined to affirm lamberth. if they affirm i would be quite shocked. but i would be equally shocked if they vote for reversal instead of remand on the apa claim, just given the skepticism and general confusion judges displayed towards the Ps arguments. breach of k claim seems more clear cut--hume did a really impressive job--but the fact that judges seemed so disengaged to this argument gives me significant pause.

 

if i were giving odds, i would give 5-10% affirmance, 15-20% reversal and 70-80% remand.  the reason why i would give grater odds for reversal than affirmance is that i believe judges showed absolutely no willingness to drink the anti-injunction/lamberth kool aid, while i think they took seriously the conservator sound and solvent notion, but were pushing back.  millett at one point said, where does the statute talk about rehabilitation, when olson used the term. so i think she wont get to reversal.  the others might

 

@steve_berk

what did you see/hear in ginsburg or brown that made you think affirmance was even a 25% possibility?

 

and then there is the treasury purchase sunset argument, which millet didnt want to talk about and which the argument never returned to.  part of me thinks that when the three judges go back to the briefs etc, maybe two of them might be wondering why that wasnt explored.

[Guest cherzeca]

i think luke did a good analysis of valuation (though i would agree that he was being conservative on price). but trading is another story.

 

if there is affirmance or reversal, i think there will be less confusion in marketplace than remand.  with remand, people will be more uncertain as to meaning and portent of holding, and less certain as to how to trade etc. there will be spin, especially by wsj, and share prices may whipsaw. 

 

my only point is that any remand valuation estimate may prove to be a mean between some divergent trading extremes

[merkhet]

Two more articles:

 

http://www.washingtonexaminer.com/lobby-firm-tied-into-barney-frank-nancy-pelosi-uses-lefty-groups-to-help-fannie-invested-hedge-funds/article/2591280#.VzYPPBTplGA.twitter

 

http://www.huffingtonpost.com/entry/vulture-fund-lobbying_us_57350001e4b077d4d6f2a374

[hardincap]

@steve_berk i still dont understand how you get 25% odds of affirmance.  you say youre basing that off low % of reversal on contract and apa, but it doesnt logically follow that affirmance should be high.

 

affirmance would mean the anti injunction bar holds... i find it difficult to imagine ginsburg & brown reaching that conclusion

[merkhet]

Two more articles:

 

http://www.washingtonexaminer.com/lobby-firm-tied-into-barney-frank-nancy-pelosi-uses-lefty-groups-to-help-fannie-invested-hedge-funds/article/2591280#.VzYPPBTplGA.twitter

 

http://www.huffingtonpost.com/entry/vulture-fund-lobbying_us_57350001e4b077d4d6f2a374

 

The HuffPo article is particularly interesting:

 

But now, the hedge funds are focused on a third issue — government-sponsored enterprise reform, which refers to the effort to establish new housing finance policy in the wake of the federal takeover of lenders Fannie Mae and Freddie Mac. And it’s the same political firms and the same independent experts that are once again weighing in — coincidentally, all on the side of the hedge funds.

 

Old Washington hands involved in these particular fights say that nothing they’ve seen before in politics has prepared them for the mercenary campaigns the hedge funds are now waging.

 

...

 

They may have finally gone too far. A backlash is brewing, threatening not just their current bets, but their various tax benefits too. One senior House Republican aide who’s worked closely with the hedge funds says that members of Congress have seen enough. “I think on the Fannie stuff, they’ve hurt themselves,” he said. “We’re like, fuck em. If they’re not your friends, they’re your enemies.”

 

On GSE reform, big banks like Bank of America and Citigroup have lobbied for legislation that would eliminate Fannie Mae and Freddie Mac and replace them with a system of government insurance for bank loans. The banks employ dozens of lobbyists, but do not appear to be engaging in the kind of surreptitious campaign the hedge funds are conducting on the other side.

 

Or even against staffers. In the midst of the debate over how to restructure Fannie Mae and Freddie Mac in early 2014, Jim Millstein was sitting down on Capitol Hill with Michael Bright, an aide to Sen. Bob Corker (R-Tenn.), who was working on the legislation. Millstein, like other hedge-fund titans lobbying on the bill, had a set of structural recommendations he thought the Senate should take up.

 

Millstein was worth listening to: While a top Treasury Department official, he had overseen the successful restructuring of AIG after the government bailout. But Millstein had an extra recommendation: The Fannie Mae shareholders needed to be paid out — shareholders like Millstein.

 

The aide told Millstein he didn’t see why shareholders, who bought Fannie stock for pennies when the government had already bailed it out, needed a windfall. The meeting turned tense. “Don’t worry kid, you’re about to get yours,” Millstein said, according to a Democratic committee staffer later briefed on the episode. Bright, reached for comment, declined to speak for this article.

 

A week or so later, the conservative Free Beacon dropped a story headlined, “Banker Who Helped Crash Housing Market Helped Crafting Mortgage Reform.”

 

The headline was absurd — Bright had been a low-level trader at Countrywide Financial Corp. right out of college, hardly in a position to blow up the housing market. But the facts didn’t matter. With the story in print, political operatives could now put the claim on the airwaves, and for cover source it back to the Free Beacon, a neat trick since the same operatives may well have been the ones who fed it to the Beacon. Two weeks later, the 60 Plus Association, a conservative dark money group, put out an attack ad repeating the allegation that “a former Countrywide financial executive is even helping craft the legislation.” The ad ran in North Carolina, Virginia and Idaho, targeting specific lawmakers involved in the legislation.

 

The aggressive tactics appear to have included ethics complaints, too. Campaign for Accountability, a watchdog founded by former employees of Citizens for Responsibility and Ethics in Washington, filed complaints against Corker, the leading Republican sponsor of housing reform legislation with Sen. Mark Warner (D-Va.). The complaints, filed in November, allege Corker engaged in suspicious stock trades.

 

...

 

Either way, the Raben Group immediately circulated the complaints against Corker and Stevens around Washington by email. People close to Corker said they believe the ethics complaints were motivated by the hedge fund lobbying campaign. (Of course, the complaints might also have merit; in fact, both things could be true at the same time.)

 

This fight seems to be heating up, and it's curious to me why it's heating up at this exact moment. Clearly, folks on Capitol Hill are starting to feel a little hot around the collar (Corker's ambush of Ackman makes more sense now) but it's not clear how that's going to play out.

[doughishere]

Merk, add that to corkers interruption during the VRX questioning.

[merkhet]

Merk, add that to corkers interruption of the VRX meetings.

 

Yup, just made an edit to reference that, but it's interesting to me. Also, I recently mentioned to someone that it's curious that Millstein has been particularly quiet lately, and then saw that the HuffPo article went after him pretty hard.

[doughishere]

Any word from Epstein. Hes been quiet lately also.

 

The highway is alive folks....

[Steve_Berk]

it's not anything close to a science. My % is only on the APA claim (I don't know how to put a number on the contract claim) -- if you'll see the post I made in response to chezerca, I'm referring to the dialogue between Ginsburg and Olson where Ginsburg makes it seem like he's open to the possibility that the record would demonstrate some kind of lawful purpose on the part of the conservator. That, coupled with his repeated reference to the 10Q's, Grant Thornton and his characterization that there were  'competing views' at the time the NWS was implemented, leaves open the possibility that when he goes back and writes the opinion, he will apply the deferential standard towards the conservator, decide that there's enough on the record that it doesn't have to be supplemented. Now I don't actually think that will happen based on other things he focused on, but I do think there is a good enough chance to bring me to 25%. Anyhow, I'm just making up numbers.

 

@steve_berk i still dont understand how you get 25% odds of affirmance.  you say youre basing that off low % of reversal on contract and apa, but it doesnt logically follow that affirmance should be high.

 

affirmance would mean the anti injunction bar holds... i find it difficult to imagine ginsburg & brown reaching that conclusion

[hardincap]

okay, that part worried me too until hume pointed out the internal projections docs that seemed to surprise him

[merkhet]

Any word from Epstein. Hes been quiet lately also.

 

The highway is alive folks....

 

Epstein last wrote something two days before oral arguments, so he's been active.

[Steve_Berk]

And btw, my degree of confidence on my 25% prediction is about 15%. So it's pretty much meaningless.

 

okay, that part worried me too until hume pointed out the internal projections docs that seemed to surprise him

[TonyG]

I'm going to second that merk. Very odd and interesting all these articles about the same thing past two days. Btw i saw a tweet by tim pagliara the other day saying corker is meeting ackman in a couple weeks (corker was on cnbc that morning). Anyone see that?

[merkhet]

I'm going to second that merk. Very odd and interesting all these articles about the same thing past two days. Btw i saw a tweet by tim pagliara the other day saying corker is meeting ackman in a couple weeks (corker was on cnbc that morning). Anyone see that?

 

Corker extended an invitation to Ackman (or maybe the other way around) during the Valeant "ambush." I originally thought that was for show, in that Corker would never follow through, but Corker mentioned again on CNBC a few days ago that he was going through with the meeting.

 

I wonder if Corker is going to try and back channel Ackman into laying off on the ethics complaints.

 

Again, it's perplexing to me that the hill is so aghast at these tactics. (Akin to the British finding the Americans' revolutionary war tactics to be brutish -- I mean, they don't even walk in formation and they shoot at you from trees!) But it's best not to push someone too far, because cornered animals are unpredictable.

[doughishere]

I'm going to second that merk. Very odd and interesting all these articles about the same thing past two days. Btw i saw a tweet by tim pagliara the other day saying corker is meeting ackman in a couple weeks (corker was on cnbc that morning). Anyone see that?

 

Corker extended an invitation to Ackman (or maybe the other way around) during the Valeant "ambush." I originally thought that was for show, in that Corker would never follow through, but Corker mentioned again on CNBC a few days ago that he was going through with the meeting.

 

I wonder if Corker is going to try and back channel Ackman into laying off on the ethics complaints.

 

Again, it's perplexing to me that the hill is so aghast at these tactics. (Akin to the British finding the Americans' revolutionary war tactics to be brutish -- I mean, they don't even walk in formation and they shoot at you from trees!) But it's best not to push someone too far, because cornered animals are unpredictable.

 

T.H.E.  W.O.R.L.D.S  B.E.S.T  D.R.A.M.A

[Guest cherzeca]

i just dont see all of the drama re GSEs in congress amounting to a hill of beans for at least a year.  paraphrasing serling, we are about to enter the "trump/hillary zone"

[hardincap]

i just dont see all of the drama re GSEs in congress amounting to a hill of beans for at least a year.  paraphrasing serling, we are about to enter the "trump/hillary zone"

 

yeah, seems like noise to me. what does it matter? wont change how judges rule one bit

[merkhet]

That's what I'm getting at though. There's nothing of substance on the legislative agenda at this point, so why would the hard push back through the media? Was this just because Corker has thin skin? Alternatively, what's the point of squeezing Corker in this way? etc.

[doughishere]

That's what I'm getting at though. There's nothing of substance on the legislative agenda at this point, so why would the hard push back through the media? Was this just because Corker has thin skin? Alternatively, what's the point of squeezing Corker in this way? etc.

 

Corker gonna loose his seat this next cycle?