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Fannie/Freddie Investors Lose Lawsuits

http://www.bloomberg.com/news/2014-09-30/fannie-freddie-investor-suits-over-treasury-dividend-thrown-out.html

"The lawsuits, among the first of almost 20 related cases to be decided, were filed by investors including Bruce Berkowitz, the head of Fairholme Capital Management LLC, who was named Morningstar Inc. (MORN)’s domestic stock manager of the decade for the 2000s, and billionaire hedge-fund manager Richard Perry’s Perry Capital LLC."

"Hedge-fund manager Bill Ackman’s Pershing Square Capital Management LP filed a separate suit in August in the U.S. Court of Federal Claims in Washington, claiming the government’s diversion of profits violates the Constitution’s Fifth Amendment, which prohibits the taking of private property for public use without just compensation. Fairholme also has a case in that court that is now in pretrial exchange of information."

Comments

  • beebee
    edited October 2014
    Someone once said,

    "Don't fight the Fed."

    I guess that's especially true in Fed-eral court.

    Who will profit...the Fed, private investors or both?

    "Fannie Mae in August posted its largest quarterly profit since the crisis began, marking its second consecutive profitable quarter. Meanwhile, Freddie Mac reported a quarterly profit for the fifth time since the crisis began."

    Will these prices be "good" for Fannie/Freddies stock prices which ultimately is "good" for private investors?

    FAIRX shareholders own a piece of Freddie's fannie?
  • edited October 2014
    Really bad day...

    image

    Suspect though that the fight is just beginning.
  • beebee
    edited October 2014
    Interesting Read:

    "How are Fannie and Freddie doing today?

    Much better, but both companies still have a very long way to go. Thanks in part to rising home prices, Fannie Mae in August posted its largest quarterly profit since the crisis began, marking its second consecutive profitable quarter. Meanwhile, Freddie Mac reported a quarterly profit for the fifth time since the crisis began.

    The improved finances at both companies led the U.S. Treasury Department in August (2014) to rework the terms of the government bailout. Under the previous agreement, Fannie and Freddie drew money from the Treasury Department as needed to bolster its capital reserves. In exchange, the companies issued preferred stock to the government on which they paid a mandatory 10 percent dividend. Under the new rules, Treasury will simply claim all of Fannie and Freddie’s profits at the end of each quarter and provide capital when necessary in the event of a quarterly loss."

    7-things-you-need-to-know-about-fannie-mae-and-freddie-mac/
  • CAP has an agenda here as well.

    But yes, interesting.

    Thanks bee.
  • Y'all reckon Fairholme will decline less than 5% today?
  • Don't remind us!
  • "...the first of almost 20 related cases..." Am I missing something or is it way too soon to panic?
  • If FAIRX and/or FAAFX really do drop 5% or more, this might be time to add to them. I remember similar volatility in both, FAAFX especially, over MBIA. That ended up not a homerun, since Bruce sold too early, but profitable nonetheless.
  • dryflower said:

    Y'all reckon Fairholme will decline less than 5% today?

    Looks like it may decline 5% today.....maybe more.
    Place your guesses right here, before the market close......
  • edited October 2014
    rjb112 said:

    dryflower said:

    Y'all reckon Fairholme will decline less than 5% today?

    Looks like it may decline 5% today.....maybe more.
    Place your guesses right here, before the market close......
    I'll guess 3.1%.

    Edited to add: WOW. I was way off, probably should have taken a look at how much of the portfolio was Fannie/Freddie.
  • My guess is 4.5%.

    If we can keep it under 5 it will be easier to spin out all the little lies I like to spin out to make myself feel better.
  • My guess is more than 7% down........yes, more than 7%.
  • Down 4.98 % with 13 minutes till close !!
    Derf
  • Closer to -8% than -7%. Do the math.
  • My new estimate: -8%.
  • At least we've forgotten about SHLD for the moment.

    Can't wait for the next bit of bad news.
  • edited October 2014
    Any more guesses out there? You can still log your guess until the actual FAIRX closing price comes out. We should be down a minimum of 8%, possibly even in excess of -8.5%. We don't have prices for a lot of the preferred shares, since M* doesn't even have ticker symbols for many of them. If you estimate -37% for the Fannie and Freddie preferred shares that M* doesn't give the tickers for, it gets very ugly, even -8.8%. And we only know the FAIRX portfolio that has been most recently disclosed, not any changes since then.
  • edited October 2014
    -8%
  • Down -9.6 ouch!
  • ouch it is.
  • The user and all related content has been deleted.
  • Maurice said:

    I know that this is a long shot, but is there a distribution today?

    see above, just doing the math predicts a loss of a minimum of 8%, and -8.8% if you plug in what I did above for the preferred shares of Fannie/Freddie that M* doesn't list the tickers for.
  • Maurice said:

    I know that this is a long shot, but is there a distribution today?

    yes...to the Fed
  • Hi Mo: Last distribution from yahoo Dec. 2013
    Time to check for some dry powder in a day or two!
    Derf
  • I have a big stake in this, but putting more money on the table?

    With such a concentrated portfolio, it makes it simpler to evaluate. What holding do you believe would take off from here? SHLD? A reversal of the F&F decision today?

    I'm thinking that AIG and BAC are decent wagers, but this appears to be very shaky beyond that.
  • I used to own FAIRX, but could not afford the risk of such a concentrated portfolio.
    Even Warren Buffett with all his focus on best ideas does not invest close to 50%
    in a single stock, or 70% in three stocks. Further Bruce focuses a lot on financial
    sectors. Even with all of Bruce's understanding of this sector, the risk is just
    too high. You are essentially betting on almost everyone being wrong and you being
    correct. For a fundamental law of physics, with sufficient data to back you up, you can possibly take on the world. However, stock prices get influenced not just by intrinsic
    fundamentals. Influences of governments, courts, natural disasters, global crisis, etc. can affect prices in unpredictable manner, even if you are right on intrinsic strength of a company.
  • @expatsp.

    Ha! Glad somebody else noticed.
    I remember similar volatility in both, FAAFX especially, over MBIA. That ended up not a homerun, since Bruce sold too early, but profitable nonetheless.
  • Kaspa said:

    I used to own FAIRX, but could not afford the risk of such a concentrated portfolio.

    @Kaspa, I'm in the same boat as you. I used to own FAIRX, but became uncomfortable with having 50% in one stock, and was not comfortable with the risks in Sears, St. Joe, Fannie and Freddie. Seemed like too much risk.

    Bruce Berkowitz is super smart, and may very well end up hitting another home run with his mutual funds, as he did in 2000-2009 and deservedly won the Manager of the Decade Award.
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