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Because in court preferreds have a preferential right. With only $1b sitting in front of them, their $19b interest is second in line to being granted judgement. For that to happen, positive equity needs to be present. To an ordinary investor, it would appear that equity isn't available based on book. To a seasoned one, there'll be approximately $19.5b of equity left over after a deferred tax impairment. But, because the rule for calculatimg NWS is based on stated book value, true equity is what I'd describe as a hidden gem.
I asure you, I know of no investor that has successfully produced worthwhile results by relying on blind faith.
In a recievership situation, yes. However, if the new entity takes control of the assets and liabilities, existing shareholders that won't be a part of the new entities have legal recourse. The bill gets in-depth so it's important to read it a few times over.
A chat wasn't how I interpreted your conversation so that works for me.
Go on, slick. Make some money, then come chat.
I'll leave you with a behavioral finance observation.
You thought I meant something based on what I said. The fact is, I didn't mean what you thought I meant at all, even though you interpreted that way.
Imagine if Mnuchin didn't mean what several investors determined in their mind what they thought he meant.
Behavioral finance plays a significant role in the game. It's a good subject to study.
It's a rarity that I miss much when it comes to business analysis, but it's not impossible.
I think you misunderstood me. I'm not expressing an opinion. I'm expressing the fact that a law exists that will do B if A occurs. Nothing less, nothing more. Assuming is the human flaw.
I'm sure he's excited to make you rich!
Then it sounds like you have nothing to worry about. ;)
The preferreds are more risk averse than the commons because of their preferential rights to the equity. Don't assume the companies won't be liquidated. I'm not saying they will or won't. Just don't assume that they can't be, because that's definitely an option.
Conservatorship is nearly identical to a chapter 11, if you understand the process of a chapter 11 which is to conserve and protect the assets of the business until a resolution can be determined.
My thesis is to hold preferreds until a catalyst occurs. I don't know what that could be because there's so many different avenues this investment could travel. Just be aware at all times. This is an investment you definitely have to stay on top of. Remove all biases you may have and don't assume anything.
The post is from 2/15/17.
A fantastical story that bares little truth to someone who's actually studied his entire investing career, like me. Pure rubbish.
I produced a 238% annual return last year. This year my return thusfar is 49.74%. I manage a $34 million investment company. How about you?
I think you missed the entirety of what I said.
Can anyone explain to me how the government benefitted from re-recognizing the Deferred Tax Asset in 2010 that was previously impaired in 2008 when 1. recognition of a deferred tax asset can't take place until the company is no longer in conservatorship and 2. The government can't be a reciever of a tax benefit they are the provider of unless you believe taking money out of your right pocket and placing it in your left pocket produces a gain.
After reading the 10-K's from 2004-2007, I come to a completely different conclusion that's undeniable to such an extent that in 2007 the company stated:
"We recorded net deferred tax assets of $13.0 billion and $8.5 billion as of December 31, 2007 and 2006, respectively, arising to a large extent from differences in the timing of the recognition of derivatives fair value gains and losses for financial statement and income tax purposes."
The reason DTA's have grown to the extent it has is through derivative contract losses. That's just a fact. Sure it's true, in a crafty sort of way, that derivatives didn't cause FnF to collapse. But over time a $3b loss here and a $5b loss there adds to an ever growing DTA account that now must be discounted due to tax law changes. How convenient for them to recognize that a DTA charge off was the issue and ignore the fact that the existence of the DTA was due large in part to derivative losses. That's called crafty accounting where I come from.
No they didn't. It was a temporary impairment until they re-recognized it in 2010.
Because from 2003 - 2007, they built up billions of NOL's through derivative losses which were booked as Deferred Tax Assets. 80% of their DTA's prior to the conservatorship was of bad derivative contract losses. They even break it down in each 10-k. Maybe you should read one or two of them. Off you go now.
I haven't time for you. You want to be a disrespectful little smart ass, go talk to someone else. I make way too much money to talk to punks.
Didn't read past your first sentence. I lack any further time for you. Goodluck, young man.
Thanks. I've spoken to him several times. I'm an accountant. I know what a derivative is and how to read a 10-K. Thanks. Lol.
When derivatives are the reason for your DTA buildup over a period of several years, you're not hedging risk, you're creating it. I've never needed a derivative to "hedge" a risk. I find the idea to be illogical, as most value investors do.
Risk is the difference between what you pay and what it's worth. If you're wrong about either, no amount of hedging is going to save you.
The U.S. economy isn't heavily reliant on your hypothetical acme example, nor is acme already in conservatorship which is the equivalent of chapter 11.
The situation is what it is, regardless if we believe it's right or not. 4 years and the courts have done essentially nothing in our favor. We're running out of time. A 15% tax cut will absolutely put these companies in jeopardy of recievership. That's just a fact that can't be wished away.
Without the current DTA recorded on the books, positive equity would not exist. Because of poor investing choices in previous years through derivatives, Fannie Mae eroded much of its cash. That wasn't the government's fault. That was poor management decisions. When your job is to make sure the U.S. housing market is safe and secure, you don't engaged in derivatives transactions. It's just stupid.
Like it or not, old man Warren Buffett is right, and derivatives was the exact reason he sold his position.