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Liquidation Trust help please... Where can I find current news on distributions? I own 900,000 claims that have been sitting on my account for ages. Do I need to register these somewhere? Are holders of the old common shares ever going to receive any distribution? Excuse my lack of understanding of what is going on.
oops. Didn't break yesterday open. I wonder if all shorts today are going to be toast tomorrow.
Now in the WSJ (Milstein II)
"A Plan to Alter Fannie, Freddie"
http://online.wsj.com/article/SB10000872396390444734804578064742814439714.html
I've had this old account for many years... Changing its name to rosen62 is an ordeal so I post as rros.
Fear factor:
Obviously, the 2 other failed rallies with the subsequent price collapse have instilled fear in holders and there is plenty of selling into strength today.
Let's see prices at the end of this week. There could be some regrets by then.
A speculative reason why R's appeared to be against this it's because we are still under a D's government. If/once Romney wins R's will flip, see all the benefits and none of the warts.
If you are a politician you do not want the opposite party to do something that will be of great benefit to them. Better have Rome burn.
Four, there is a reason why he is not backing out the $33.5b
He uses this amount to argue that the Tsy and Congress have in mind an everlasting appropriation of earnings.
If both Congress and Tsy could expropriate earning for reasons other than crediting taxpayers (like the 33.5) but magically net them against taxpayers, then there would be no conflict. He is actually saying "because Congress has done that, FF cannot do this and taxpayers lose". According to his argument, the 33.5b went into a black hole. Money lost. Cannot be netted. This is the essence of his argument.
His article is very well written. It is logic and precise and has the correct figures for net investment. His article deals with a solution for something we have feared: the Sr. preferred debt. He handles that by conversion to equity so those preferreds need no redemption. Just as part of equity (together with warrants) they could be maximized for a profit.
Thank you, Skibrian.
First article I see mentioning the "deferred tax assets". Author believes it is possible to record a combined 60+ bill profit in 2013. That would put us a lot closer to seeing anything out of DeMarco's "preferred have a claim secondary to taxpayers".
Then, a class action will "suit" you well :)
I am sorry for the unfortunate turn of events.
"it almost certainly will be a class action suit".
This is strange. I always thought that suits looking for a recovery from losses had to have a "prior event of a hit". I hope a class action lawsuit never happens because in that case attorneys will select a time period for the "hit" event and none of us will be part of it. Taint, do you own some of these preferred shares prior to conservatorship? That is the "hit" event.
Unless the outcome of that suit is that the Jrs. must be valued at face. or dividends restored or shares redeemed and all these in their totality of all classes, we may be negatively affected. Like if there is a settlement out of court. Or a negotiated in-court settlement for those part of the class action.
I didn't mean to lecture or anything, sorry...
It's just my background on statistics. 50/50 to us means "complete uncertainty". It is not that half the time "happens" or not, but "the chances" of an outcome upon next draw are half/half so there are no odds favoring any outcome. You can go on a stream of unfavorable outcomes non-stop. You really can't decide because you are in the dark.
Whereas in a 51/49 scenario you know that the unfavorable outcomes will -at some time- stop. With greater chances of that happening as the needle moves from 50/50 to 60/40, 70/30 and so forth.
taint,
Statistically, 50/50 is complete uncertainty. Not a strong probability...
That would be north of 70/30. 50/50 is complete gamble.
What is the rationale for demand for these shares that ends up with price increases? Last time I checked, Tsy stole all earnings leaving no possible recapitalization. Don't get me wrong, I own a bunch. But in the past speculation of potential recap or allowance for retained earnings was in the cards. So there was some logic to the old runs.
The prices on that filing are either historical or outdated. Look at the prices for Ford at around $6.7. F traded at that range between Nov 2007 and Dec 2007. Which matches the prices for Fannie at around $43 for Dec 07 Jan 08. This is off my head, so not exact. But prices appear to be from end of 07 beginning 08. In my view, this means nothing...
"...I think we are in a better position to get a workout solution with an administration that has much more business experience."
With all due respect, business experience does not equate to morals or principles. A guy like MR will most likely kill the old shareholders in favor of new ones. And that would still be a business-like decision. Not making good on a past contract, not even morally right. But a shrewd, practical and convenient decision.
I never said that. All I said is that inferring anything from FNMFO trades is a moot point. As for the future value of the preferreds you must add an unkown political component to your analysis, independent on how well the companies might perform.
This could have easily been someone closing a position at a loss with a MM buying on the cheap. Or a block transfer negotiated at a lower price. Again, I don't see any reason to feel optimistic. Many like to read the tea leaves but in all honesty in the almost 2 years I have owned these shares there was no volume/price movement that would anticipate any event. Even when hedgies loaded up, months and years later they unloaded perhaps at a loss. So was that loading up an indication of anything? Did they know anything we did not know? If you ask me the after hours trades from yesterday are probably an aftermath effect of 8/17.
These 2 trades were off hours:
16:43:37 500 shares $1800/share
16:43:22 715 shares $1740/share
Prior to this there was 1 trade on 8/20 (1 share @ $2700) and 2 trades on 8/17:
4 shares $2700/share
3 shares $2700/share
Because the trades were after hours, the last official price recorded is still $2700. Yet, 1215 shares moved today at a much lower price. Why should this be seen as optimistic?
Well... I just checked Freddie's last 10Q and there is only 1 tiny mention of "core capital" unrelated to what I wrote. I am afraid I have wasted everybody's time, not to mention I could be totally wrong :(
It looks like we do not really exist.
Joe. It's not in there. It's my own interpretation following this trend of thought.
There are 2 components to Total Capital: a) core capital, and b) general reserves against losses. As part of a ratio, preferred shares are valued at redemption Vs. their par value within core capital. You can see this on sub note (7) page 18 at the bottom ("Preferred stock to core capital ratio"). In other words, the prospectus has set core capital by mandate at $1 for preferred shares. Whether the market values them more, even at redemption value, plays favorable in the ratio preferreds/core. Now, that ratio has collapsed.
From this perspective one can draw the conclusion that the absolute minimum value for preferreds as stated by prospectus is and will always be $1. It is a fixed value that is unrelated to the trading price.
Then, the prospectus presents 2 basic hypothetical scenarios: a) termination/liquidation (I say receivership), b) sale of company and/or similar outcomes. Anything under a) will bring up the liquidation distribution provisions where -according to me- values preferreds at an absolute minimum of $1 because of the distinction of being core capital, and distributions will depend on any legally available funds. Instead, b) scenarios will not value preferreds at $1 but at $25 and distributions will be made of only legally available funds. And in both cases, after any seniority issue has been paid.
It is my own interpretation and I admit I pulled it off out of nowhere. So take it as you may. Remember, by law there is a "minimum, critical and risk based capital" the companies must maintain in relation to "core capital". And core capital has a fixed component set in stone (par value) and a variable component (loss reserves). Minimum, critical and risk capital must be higher than core yielding a surplus, a desirable situation.
KEY POINTS:
a) The shares of Preferred Stock we are offering will have a par value of $1.00 per share.
b) Core capital consists of the par value of...
You can't escape this point. It is in there. In a liquidation, core capital is core capital.
I guess more conclusions can be drawn from studying the core and minimum/critical/risk capital sentences in the 10Qs. I have not done this. So anyone who can help with this interpretation is appreciated. I may be off mark...
Here are some generals statements that pertain to us from this prospectus (mildly edited):
* Dividends on shares of the Preferred Stock are not mandatory.
* Dividends on the Preferred Stock are not cumulative.
* We may redeem the Preferred Stock, in whole or in part, out of legally available funds.
* If we redeem less than all of the outstanding shares of the Preferred Stock, we will select shares to be redeemed by lot or pro rata (as nearly as possible) or by any other method which we deem equitable.
* If we voluntarily or involuntarily dissolve, liquidate or wind up our business, then, after payment of... ...holders will be entitled to receive $25.00 per share. (Here is where I assume that if there are not enough funds to distribute to preferred holders, a minimum of $1 will always be available as per core capital... is this a crazy thought?)
* If our assets available for distribution to shareholders are insufficient... ... the assets will be distributed to the holders "pro rata".
* Holders of the Preferred Stock will not be entitled to be paid any amount... ...until holders of any classes ranking prior are paid in full. (Here I assume *any* amount above the $1 of core capital).
* Our consolidation, merger or combination with or into any other corporation or entity... ...will not constitute a liquidation, dissolution or winding up.
* We will have the right to create and issue additional classes or series of stock ranking prior to, equally with or junior to the Preferred Stock without consent of holders.
* Without the consent of the holders of the Preferred Stock, we will have the right to amend the Certificate of Designation to cure any ambiguity, to correct or supplement any term...
* We may amend the Certificate of Designation only with the consent of the holders of at least two-thirds of the outstanding shares.
* Core capital consists of the par value of outstanding... ...perpetual preferred stock...
* Total capital includes core capital and general reserves for mortgage and foreclosure losses...
* When we are classified as "adequately capitalized", we generally can pay a dividend on... ...preferred stock without prior OFHEO approval...
* The class of preferred stock of Freddie Mac created hereby... ... shall have a par value of $1.00 per share and shall consist of 240,000,000 shares.
If you really want to be realistic you may want to read thoroughly the Jr. preferred prospectuses. In them it is stated the shares have risks: other securities could be issued with seniority (it happened), dividends could be suspended without accretion (it happened) and partial redemption could happen (not yet). The partial redemption is particularly risky because the details explain that this partial redemption could be set in price or classes or dates or all of the above. There is also a provision for termination of the companies where the par value is set at $1. So not only this value represents "core capital" but also is used for redeeming them if there is, say, a receivership in the cards. The 85% of Milstein is also worrisome. Since the 79.9% limit meant not bringing GSEs within the government balance sheet Milstein is -for some reason- assuming the government will cross this line and make them part of their books. Or terminate that restriction opening the doors. Is he implying a receivership before any restructuring/capitalization/privatization? Unfortunately, there is no clarity.
But I am afraid that the perception that our shares are "special" because they are *preferred shares* may not be so once you consider the provisions set in the prospectuses. I am sure investors read those as default provisions and -like you- thought the unthinkable was never going to occur. Yet, everyone got shafted... with no recourse. It may seem unfair. Even evil. But Treasury has no reason to feel any guilt. Their "shaft" was part of the prospectuses and was used accordingly. The only two attributes that are helpful to us -my humble layman person writes- are that they are perpetual and that any change to the provisions requires 2/3rd of the votes. But we all know how clever lawyers can be. If not, take a look at what just happened to preferred holders in EMMS due to Indiana specific regulations.
I am not trying to be negative. I am sitting on a pile of shares but I can't help it to be nervous after the most recent Treasury move. And since then, nothing has happened that could appease this fear. Nobody brought up any issues concerning us.
What seems obvious is that both companies will come back as viable businesses. That they both will look like offering a useful service to Americans and that -well run- there are few reasons to terminate them but making them compete with new entrants in a multi-participants market. It is also obvious they will continue to securitize mortgages and their platforms -perhaps unified- will persist. What is not clear yet is, are we going to be completely and absolutely shafted or will someone throw us a bone?
"...and this is on good news?"
Depending on how you read the good news. One reading could be that Treasury has crossed a line and is overunning private rights in the best Chavez-que tradition with absolute impunity.
Maybe because the borrowers whose loans Freddie guarantees are of higher quality, thus they can access refi in an easier/faster way? Refi's lowers the income to bondholders, so perhaps less appetite for Freddie's securities. Since rates could still go lower or barriers to refi become less, there is a risk.
vicious cycle?
or
virtuous cycle?
Folks, watch this video. Tim Massad interview starting minute 10'. Specially minute 17'
http://video.cnbc.com/gallery/?video=3000115173&play=1
This may be the reason commons are bouncing.
"...last question. people say, jim, how could you -- it's a sweetheart interview. how could you not mention the billions of fannie mae loss. that's not your bailiwick? no, i don't manage that but let me say this about that. that's turning around also. and if you look at what fannie mae and freddie mac are doing, you know, they are improving. we're past now the worst of the housing crisis. so i think we'll see a turnaround there as well. and again, if you look at it overall in terms of all of these actions that the federal government, including the federal reserve had to take, they're likely to result in a gain or at least very, very little cost. and that's really the story."
"Anyone that is skittish about what ownership means..."
I am sorry but after Treasury's outright pilferage of earnings my definition of what ownership represents in/for the US has become shaky. I wish not to believe it, but it has happened. I am still hanging in from the belief that black and white is still black and white but the doubt has been planted.
Yes. But unfortunately I do not think the AIG preferred situation can be extended to us. Theirs, were never part of the picture. I remember someone saying in the yahoo board that AIG never stopped paying dividends on them, unlike our case. We were nuked by Paulson as part of a political plan/vision.
I think our best bet is Milstein's words: "AIG is no longer too big to fail". This, if you think about it, has a strong political component and has to strike a chord in Congress.
It does look like DeMarco believes that FF can still be part of the mortage/re picture post-conservatorship. What is not so obvious is how our shares are going to be handled or how his vision may impact us.
I continue to believe that government will accelerate their unloading from corporate America and eventually we will be the last man standing. In this regard, I think they will pass the ball to a 3rd party and whatever we are hoping for will not come from the government. Both Dems or Reps will refuse to be seen as equity saviors. Haven't sold any of my shares though.
In DeMarco's last presentation (thank you europegoodold) he continues to ask the government to end the conservatorship:
"It is vital to the long-term health of our country's housing and financial markets that Congress and the Administration seek to bring the conservatorships to a conclusion and to define the government’s role and requirements for housing finance in the future."
And you are right, the securities he speaks of are MBS issued by FF. I can't see why this raises hopes:
"As we prepare to transition to a new secondary mortgage market that will operate in a post-conservatorship world, we anticipate that Fannie and Freddie will maintain its own distinct securitization operations and continue to issue their own securities. And while Fannie Mae and Freddie Mac continue their respective corporate activities while in conservatorship, as Conservator, FHFA is thinking ahead to a secondary market with multiple firms competing to bring the capacity of global capital markets to finance individual mortgages around the country."
I believe he is saying the underlying structure and operations will remain (unknown if under the same 2 companies or one merged or another name) but that private capital will enter the market issuing additional securities competing with FF's own structure. And that is only his vision. A multiple participant market along with Fannie and Freddie (or whatever form/shape/color they take).
There is no hidden clue here that can be extrapolated to us. I think we are on the hands of Congress if we wish to see more than a buck. But Tsy can surprise us with a sudden AIG conversion of Srs and *this* may raise some hope. Except that in AIGs plan common equity got hit.
What about intangibles in their books valued at 60+ million? Their books are out of whack.
I would also consider LEAPS for CDE. Consider the price of the stock 1 year from now when all mines come into production.
Wait for the first 30 minutes sell.
650,000 shares exchanged hands already
45,000 shares traded already.
Will we top 5.30 today?
Thank you, Joe. Far from retiring at 46. Will play with a little more then. Made my first move on FRPT yesterday.
gtober, thanks. I will keep it light.
One more for the experts...
I have no experience in buy-write strategies therefore cannot assess the risk. Those who have been at this for a considerable period of time may have an opinion. In a portfolio say of, $100k., is it crazy to play with the whole pool of money?
I need some advice regarding money management. Like if I were going just long or short (naked) I would only use a TOTAL of 10% to 15% of that pool and then split that into micro plays of $2,500 each. The other 85/90% would be splitted in more conservative ideas (not options, perhaps CDs, bonds and cash). But here, I can see that there is more leeway as opposed to a high chance of total loss if playing OTM or a more than average chance of a good loss if playing straight ITM options.
Thank you, both!
Both replies really useful. My conclusion: if unwinding, better to unwind completely and not risk leaving money on the table (for large ITM runs). If slighlty in the money or ATM, leave it alone and get called or buy back the now inexpensive options and live to play another month/strike.
This reminds me I should have learned to play poker better.
Joe, if the stocks moves up and the options become in the money... do you still wait till expiration or you unwind your position?
Thank you, Joe.
You have clarified many of my doubts. I now feel that it is really important to define to what extent one wants to really hold the underlying paper. And one thing you stated that I have missed... if things do not go completely right one can still write calls for months to come :)
Hello Joe, happy to join here...
I am interested in learning the raw concept of profiting from CC. I checked your trades in-depth and noticed your preference for ex high-flyers. Could you share with us what is your reasoning for chosing specific stocks? Is it an attempt to curtail downside risk?
It also appears most of the stocks -even if beaten down- do have the wind behind their back either because of good fundamentals or market projections. Take YGE on photovoltaics. It seems your experience does favor being called away since odds are some of these stocks would improve as we move forward.
Should this be our frame of mind when focusing on CC?
Finally, could you narrow down whether it is better to play ITM or ATM options in regards risk/reward? Who wants 11% in a month playing ATMs if the paper can crater? Are you also taking into account the general state of the market? Take todays market... it appears we are at risk for a larger downshift within a month or two. I like what you are doing but I am also afraid these are times when 30 days can mean simply day and night.
Finally, I have noticed a few of your plays were slightly OTM letting you speculate with a minor percentage of stock appreciation. But then, like on YGE the stock has now fallen $1 behind your entry point. So, in general, is it safer to just go with ITM options and have a greater chance of being called away? Case in point. Today's YGE play
in @ 18.39
March 17.50 calls @ 2.25
Called at 17.50 (18.39 - 17.50= .89)
2.25 - .89 = 1.36 / 18.39 = %7.40 minus commissions.
Your feedback/input is greatly appreciated.