Examples of post-crisis value stocks

[scottleey]

Thank you for your comments.

Yeah, glad that you read on them too. I am invested 1.5% of my capital.

I think the investment thesis here is binary, either a refund to private capital by the treasury or no. Very likely case of big payout if yes (so the payoff is still conditional on other factors if the lawsuits were successful).

I read the documents on the lawsuit against the treasury by perry, ralph nader, bruce and bill already and what they basically argue is the illegality of changing the terms of purchase agreement after treasury's conservatorship thereby wiping out private capital even though the public still holds 20.1%.

The arguments were that since treasury is the dominant shareholder, they still owe fiduciary duties to minority shareholders. The laws applicable are delaware law(for fannie) and virginia law(for freddie). In the way they directed all payments to themselves, they did so at the expense of private capital. I think the likely scenario here is that this part of the lawsuit will succeed.

The other part is FHFA's exceeding their statutory authority by not conserving the 2 firms assets (the fifth amendment of US constitution). I think this part of the lawsuit is with merit but does not and will not completely preserve the value of the shares. It all depends on the ongoing bills in the congress with what to do with fannie and freddie.

So i think the rewards are:
That yes the private capital may get payback on the amount owed to them after treasury had been paid full.
And if so that in the event fannie and freddie were not to be wind down then a windfall profit for shareholders.
Even better so if they were relisted to mainboard.
And moreover, i personally think its very very hard to wind them down and have an alternative. These well entrenched positions took decades to culminate (also reason that Buffett bought it years ago, there's a fortune article on it during the 1990s i think. He sold it not bcos of the instrinsic business incidentally but on the CEO trying to aim for very high growth.)

Then I think risks are that:
The record profits of fannie and freddie may not be sustainable with or without some winding down bill (though unlikely which depends on a whole lot more study on the US mortgage industry).
If a bill were to be passed after treasury were paid full but still relatively negligible amount owed to private capital, the shares may still not realize value.
Fannie and freddie are still benefiting from government backstop which supported their dominance in the US secondary market (risk because treasury may use this for argument in the lawsuits for the changed terms of payment. Chances are possible but remote)
Depending on your views of US congress and their time table, there may be able to see where this is heading.

So in essence, i think the risk/reward are very high. You lose all your capital if unsuccessful but small to very big payoff if you have tailwinds. Like a call option with no maturity. Sounds very good to me. What are your thoughts?

[yawnyawn]

Thank you for your comments.

Yeah, glad that you read on them too. I am invested 1.5% of my capital.

I think the investment thesis here is binary, either a refund to private capital by the treasury or no. Very likely case of big payout if yes (so the payoff is still conditional on other factors if the lawsuits were successful).

I read the documents on the lawsuit against the treasury by perry, ralph nader, bruce and bill already and what they basically argue is the illegality of changing the terms of purchase agreement after treasury's conservatorship thereby wiping out private capital even though the public still holds 20.1%.

The arguments were that since treasury is the dominant shareholder, they still owe fiduciary duties to minority shareholders. The laws applicable are delaware law(for fannie) and virginia law(for freddie). In the way they directed all payments to themselves, they did so at the expense of private capital. I think the likely scenario here is that this part of the lawsuit will succeed.

The other part is FHFA's exceeding their statutory authority by not conserving the 2 firms assets (the fifth amendment of US constitution). I think this part of the lawsuit is with merit but does not and will not completely preserve the value of the shares. It all depends on the ongoing bills in the congress with what to do with fannie and freddie.

So i think the rewards are:
That yes the private capital may get payback on the amount owed to them after treasury had been paid full.
And if so that in the event fannie and freddie were not to be wind down then a windfall profit for shareholders.
Even better so if they were relisted to mainboard.
And moreover, i personally think its very very hard to wind them down and have an alternative. These well entrenched positions took decades to culminate (also reason that Buffett bought it years ago, there's a fortune article on it during the 1990s i think. He sold it not bcos of the instrinsic business incidentally but on the CEO trying to aim for very high growth.)

Then I think risks are that:
The record profits of fannie and freddie may not be sustainable with or without some winding down bill (though unlikely which depends on a whole lot more study on the US mortgage industry).
If a bill were to be passed after treasury were paid full but still relatively negligible amount owed to private capital, the shares may still not realize value.
Fannie and freddie are still benefiting from government backstop which supported their dominance in the US secondary market (risk because treasury may use this for argument in the lawsuits for the changed terms of payment. Chances are possible but remote)
Depending on your views of US congress and their time table, there may be able to see where this is heading.

So in essence, i think the risk/reward are very high. You lose all your capital if unsuccessful but small to very big payoff if you have tailwinds. Like a call option with no maturity. Sounds very good to me. What are your thoughts?

It is a high risk investment. However, Bill Ackman has committed 3% of his firm's capital into the common shares of both firms. In the Bloomberg's interview, he spoke about being a common shareholder of Fannie and Freddie means you have to believe that there will be a solution that will benefits all stakeholders so that there will be meat left over for the common shareholders.

He sees government's interest aligned with common shareholders since they will own 80% of the companies after exercising their warrants. I am inclined to think that he may have a solution to this problem that will benefit the common shareholders.

(Not vested yet)

Bill Ackman on Bloomberg TV

[scottleey]

Of course its high risk but the rewards compensate for it, does it not? So it makes sense to hold a small position of like 1-2% that could easily been your transaction cost for the year and go for a long call with no maturity that have good odds right?

Anyway, thanks for sharing.