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Today the SCOTUS reads part of a statute and ignores the rest, and we are to respect "the rule of law."
I'm reminded of statement a pirate captain made before the court about governments, just prior to his hanging, circa 1713:
“They vilify us, the scoundrels do, when there is only this difference...they rob the poor under the cover of law...and we plunder the rich under the cover of our own courage.”
Don't let the door hit you on the way out, Director.
why the big dip in pps?
Wipe your monitor...it's here!!!
Understand completely. I'm weary of this as well. If I had bought any of a dozen stocks coming out of the recession, I'd already have what I'm now hoping to get now, and more. No matter...it is what it is.
Agree with you that this case will serve as a bellwether for how far society's institutions have sunk. It's already sad that this has to be resolved at this level. This case is a no-brainer. If the tables were turned and a private citizen were entrusted with funds from the government's coffers and gave them all away, he or she would be in prison cell right now. To rule for the government here would mean no remedy exists for state-sanctioned theft (some say go petition Congress, but FHFA is already violating a law written by the Congress). I think enough Justices will follow the law, however, and I'm happy to see it appears it isn't just about counting liberal and conservative heads.
Good points all. I will say this, however. One need not be fully committed to either strategy (taking gain or buying and holding). I've held over the years and have regretted not taking nearly enough gain during the pops. I could have pocketed the profits and bought the same shares back at a lower price. I own enough shares that if this pops, which I fully expect it to, I can set a target for some stop-limits with about ten to twenty percent of them and still get the lion's share even if it gaps up right after. I want the big bucks at the end of the rainbow, but in the meantime, I think I'll just wet my beak.
Thanks for your post. You make a good point. This ruling could put us further along than we've been since the conservatorship began. From what I've been reading concerning FNMA's valuation, it's a gold mine. Even 20% of its actual value would put the SP in the stratosphere compared to where it is now. The lynchpin of all this is the strength of the ruling. GLTA.
I wish it weren't the truth, but history says it is. I think we win at SCOTUS, but unless the Justices hand down a ruling strong enough to pry the Government's tentacles off, the GSEs will rise for a short time, then bleed their way back down again. Perhaps the combination of shareholder lawsuits combined with the Government losing its cash cow will make it unprofitable and break the logjam, but rest assured, neither the Administration nor the Congress will do any of this of their own free will. Think about it: this week, SCOTUS is likely to overturn actions by each of them.
Absolutely true. The Government only settles if the powers that be perceive their losses will be greater if they do not settle. That would require a monumental loss before SCOTUS, likely with retroactive relief. A highly publicized defeat with a clear majority (or better yet, a unanimous decision voiding the NWS) would also be helpful.
Although it would appear to make a great target for those opposed to Government overreaching, the NWS has never been highly publicized, even by conservative media outlets. Some publicity about it following a decisive rebuke by SCOTUS might spark some interest in the stock, which could prompt the Government to act. That's a stretch, however, as both opposing ideological camps appear dug in.
Short of something that hits the news cycle and perhaps starts up a buying frenzy, I see the same problem keeping the SP deflated: the conservatorship. The GSEs are still in it, and it appears they'll remain in it until forced out, which could happen, but only if the ruling is strong enough. The absence of any real effort to resolve this has made investors wary, which in turn has been holding down the SP. Before being confirmed, Mnuchin said getting the twins out would, "Be a priority" of the administration, which sent the SP to $5. Then nothing happened. MC got appointed Director and everyone spoke of his writings about how he believed the NWS was illegal. Shares hit $3.20, then nothing happened. The En Banc came and went. Shares hit $4.25, then nothing happened. The case was argued before SCOTUS, and there was speculation that the outgoing administration would take action on the way out the door. Shares got to $3.25, then nothing happened. Why aren't we at $3 right now, when the decision is likely either tomorrow or Friday? Each time this stock has risen, the ceiling has gotten lower because the result has been the same.
The key to seeing the huge numbers we've all been waiting for is getting the twins out of conservatorship and re-listed, which this administration and this Congress have shown zero interest in doing. It's all on the courts to force their hands. Come on SCOTUS. GLTA.
Per the red bolded item, was the NWS a valid action by the director?
I'd like to see the decision tomorrow and I hope I'm wrong, but my guess is Friday. Regardless of when they release it, this decision will cause a tsunami in the market, but the news feed is lighter on Friday, so a release then, followed by a weekend, prompts less of a ruckus.
The market will be closed on Monday, July 5th, when the July 4th holiday is observed.
Five years ago with this kind of upcoming events we would be trading at $6 by now. I don’t know what happened. The enthusiasm considerably curbed. Similar situation happens to me when my blind dates meet me for the very first time.
I'd love to see a chart with steady growth, but for over a decade this stock has been subject to short-term, news-driven pops in PPS, followed by rapid drop-offs that return the SP to previous levels. We had predictions that the En Banc would lead to movement by the Government that would result in $10 per share. Well, look where we are.
Granted, the finality of a SCOTUS ruling could finally break the logjam and free the way for relief by the courts. That could cause a chain reaction that forces the Government's hand to either release the twins or attempt to settle, but it could be yet another pop and bleed until an actual remedy is crafted. That being said, I'm sure the plaintiffs have the next lawsuit locked and loaded, but that too could bog down for another year or more.
I'm hopeful, but not overly optimistic. GLTA.
Completely agree. Providing shareholders with just compensation a long time ago would have been the answer, but the government wanted to have its cake and eat it too. It didn't want to liquidate F&F, as one would a bankrupt company in receivership. Killing the twins off might have sparked a worldwide depression. But the government didn't want to nurse them back to health either, as that would have resulted in shareholders profiting once again and the government losing its cash cow. So the government opted for this thinly veiled theft, which is about to be exposed. Had Collins been brought as a 5th Amendment "Takings Clause" case, that argument might have held sway with the Justices. If you want everything my shares produce and want to keep taking it forever, you, in effect, want to own my shares, so buy me out. No matter, the government chose conservatorship, and now it's stuck with the law applicable to conservatorship.
I don't know if we'll see any sustained SP above $10 without a release and a re-list.
Congress is the wild card in all these future scenarios. It's been a stalemate for over a decade because maintaining the status quo has been easier than gaining broad enough support for any alternative. The Repubs had both houses for awhile, and couldn't get it done. It simply wasn't something on which they were willing to spend political capital. The Dems had both houses for awhile but were fine keeping F&F in conservatorship. About seven years ago, a legislative proposal that would have codified the theft of the NWS burst the $6.30 PPS bubble created when Ackman got in.
This Congress isn't likely to support any privatization option, but perhaps they will opt for a buyout/settlement solution. It would cost a ton of money, but since when has that ever stopped them?
Prediction SCOTUS June 28 6-3 win $18.00
Any other predictions?
Seems if it is 9-0, the SCOTUS should have never accepted the case after an en banc. Then I remember, all of this is the legal profession and it is the self-perpetuating profession where those billing meters need to be kept running.
If you Google it, various media outlets are treating a Juneteenth federal holiday tomorrow as if it's a done deal. The bill needs to be signed into law, however, and then OPM must notify the federal workforce that it will be observed. This sometimes happens around Christmas, when everyone wonders if the president will extend the usual federal holiday to include Christmas Eve by issuing an executive order. That sometimes happens on short notice, but to do it in the middle of June would be unusual in the extreme.
Quote:
Isn't tomorrow a federal holiday?
A fair question, but throughout California v. Texas, standing has been the main issue. It isn't here. The Justices appeared to have made short work of it during oral argument. I could be wrong, but I doubt it.
Isn't tomorrow a federal holiday?
Not out of Conservatorship "ANY TIME SOON"
It's simple. The more times you tell a lie, the more people believe it. Congress embodies that statement. We are in for the long haul.
CoFC
is that the other court "we" are in?
Great post, with an excellent discussion of the way forward. Thanks. I'm expecting a SCOTUS win, with a remand. For SCOTUS to rule otherwise would be for it to divest the courts from their power to act in cases of malfeasance. I don't think SCOTUS is about to do that.
With this much of a smoking gun evidence SJ or a settlement would appear likely.
Good points all. Thanks. I was, in fact, conflating UST with FHFA, as the entire self-dealing nature of the third Amendment stinks to high heaven. You are correct, however. Treasury has no duty here. At any rate, I think we're aligned as to the potential remedy: voiding of the NWS.
I've heard the valuation estimates attributed to Ackman of approx. $23-$43, but I'm also seeing posts with talk of PPS in the hundreds. I doubt any of these happen without an exit from C-ship and a relist, but what are your ideas on the short term and long term prospects, assuming a positive SCOTUS ruling?
I was thinking about the SCOTUS ruling, but if it opens the door, that's wonderful news. I suppose I'm less than optimistic because after this long a wait, it's hard to get excited at the possibility of yet more litigation. Of course, there could always be a settlement, but negotiations too would take time.
Let's say that scotus is ready to deliver a ruling in a few minutes but for some reason or some how the price spikes up to $200 in a few minutes right before scotus.
Will you sell ?
Sad, but true. Given that the warrants are part of the original agreement and their exercise isn't even being challenged by the plaintiffs, I'm inclined to agree they are here to stay.
I'd love for SCOTUS to rule otherwise and truly send a message to the government, but realistically I don't see it.
Here's what one of the three plaintiffs before SCOTUS has to say about warrants:
So you want the government to further prove it can violate private property rights by executing a portion of a highly questionable self-dealing contract based upon a law that bullies people into compliance?
— Marcus Liotta (Tech, SCOTUS Plaintiff) (@MarcusLiotta) June 9, 2021
5th Amendment be damned...
That contract is under dispute in court.
What makes you think that the Supreme Court's decision will have anything to do with the warrants? The plaintiffs encourage Treasury to exercise the warrants as part of its preferred remedy.
Why would they not address the senior preferred shares ? Thompson explained to them in detail the problem and Mnuchin/Calabria strongly hinted in the letter of agreement.
If you are familiar with Supreme Court decisions, they are rarely simple, unless the court is trying to make a point on a relatively new issue. Here, two things appear settled: removal of Director, FHFA, for cause only will be struck down, as will the Third Amendment. The logic behind each of those is fairly simple. It's the remedy that's the tough part.
Regarding the Third Amendment, if you listened to the oral argument, it appears fairly certain that the NWS will be ruled ultra vires. There didn't seem to be any receptive audience for the government's position. If liberal justices like Breyer and Kagan peppered government counsel on such a fundamental question as "under what theory of conservatorship can a conservator give away all of its ward's assets?" does anyone think the solidly conservative majority of Thomas, Gorsuch, Alito and Kavanaugh, will ignore the conservator's violation of its statutory responsibility of "preserving and conserving"? I had my misgivings about how the plaintiffs brought this case, but one thing they did well was they brought it on very technical legal grounds, rather than in equity, which lends itself far more to a decision based upon individual judges' prejudices, especially against "greedy speculators."
I've read lots of arguments about potential conclusions on these boards, but just like the case before SCOTUS, I haven't seen anyone "show their work" and explain how the GSEs become sound and solvent by giving away everything they make in perpetuity. If anyone had such an explanation, they should have delivered it to government counsel about six months ago, because they certainly didn't have one either, and a hypothetical of what could be done ain't working either after eight years of proof to the contrary.
I've always said the big question here is what remedy will be handed down. That could go a lot of ways, which could mean a slim majority and several concurring and/or dissenting opinions. The Justices are aware their decision will have profound real world effects, which could make them cautious. I'd love to see a SCOTUS ruling that voids the NWS and issues a declaratory judgment in which they rule the debt paid and cancel the warrants. I expect far less, however, a voiding of the Third Amendment and a remand to fashion an appropriate remedy. We'd see a bump in the SP from this alone, and it would push us further down the path to ending the conservatorship than we've been in years, so I'd take it.
What exactly is a summary judgment?
Thanks for the info on the moving average. It's nerve wracking in the extreme trying to plan the next move. This stock could blow right through price targets, especially if there's a strong opinion and some publicity to go with it. With a lukewarm or narrow opinion, we could see only a two or three dollar spike in PPS.
A prudent reminder to take profits. I plan to do so as well, just setting my stop-limits higher than $3.20.
Very good point. The "Separations of Powers" issue was sufficient to get SCOTUS to grant cert. Now with a foot in the door, the way is clear to address the other issues. Granted, Mooch did nothing for us in terms of freeing F&F, but he did us a huge favor by getting this in front of the Supremes.
Good post. I'm in favor of the Supremes having as many bases as possible to hang their hats on. I think they have enough. It's wondering what remedy they come back with that keeps me up at night...that and the waiting. Like you, I'm hoping for good times.
I'm almost embarrassed to say, but I actually bought some FNMA this week.
The Irrational Exuberance is always higher in Commons than Jr. Preferreds (the smart money). Might as well take advantage of the Lemmings!
My only intention is to Sell the Pop because FNMA Always Drops.
But I'm hoping the irrational exuberance will allow me to sell at $3.20 later this month or early next.
The Severability Analysis is a little more messy. Remember Sotomayor asking David Thompson, "Why should YOU be entitled to anything just because the Director was unconstitutionally insulated?". Same kind of resistance we saw in the 5th En Banc.