Morning Report – Bill Ackman’s Fannie Mae trade 2/13/15

Happy Friday the 13th.

Markets are higher this morning on optimism of a deal in Greece and encouraging economic data out of Germany. The Greek 10 year yield is down almost 100 basis points this morning and is approaching 9%. The market has a risk-on feel with stocks up and bonds / MBS down.

Import prices fell 2.8% MOM and 8% YOY. Consumer sentiment fell from 98.1 to 93.7.

Bloomberg has a good piece on Mel Watt and the issues surrounding principal mods for Fan and Fred loans. The biggest question remains: how can you help underwater homeowners without triggering a wave of strategic defaults? 85% – 90% of people whose mortgage is underwater are current on their payments. The last thing you want to do is encourage them to stop paying in order to get a principal mod. Luckily, time has been doing the heavy lifting here, as the number of homes with negative equity has fallen from 31% in 2012 to just about 17% today. Second, many of those homes are not Fan and Fred loans in the first place, and FHFA is only looking at cutting principal on Fan and Fred loans that it owns. The FHFA Home Price Index, which tracks the prices of homes with a conforming mortgage is within 5% of the peak.

Bob Shiller warns of a bond bubble. He is probably right, although it could last some time. Interest rate cycles are long: the current cycle began in 1981 or so. Note that in the 1950s, the bond market crashed and the generation that lost their shirts in the stock market crash of 1929 ended up blowing up in levered flattening trades. Persistently low interest rates can wreak all sorts of havoc, especially with pension funds and insurance companies. They have a return bogey they must meet, and the actuarial tables couldn’t care less that interest rates are zero. Note that Dr. Cowbell is copacetic with all of this. Note that the 4 most dangerous words in investing are: This Time Is Different.

Bill Ackman sees the common stock of Fannie Mae and Freddie Mac as “the best trade in capital markets” He is betting that Congress will eventually stop taking all of Fannie’s profits and allow them to recapitalize in private markets. The thing is, this is a litigation lottery ticket. It is either worth a lot, or worth nothing. If it actually had access to its profits – it doesn’t – all p/l goes to Treasury – it would have a P/E of 1. FWIW, the Administration is bound and determined to see that Fannie Mae common shareholders do not see a dime. But administrations could change, and Congress may decide that housing reform is simply too tough and we go back to the old F&F.

How bad are things in the energy patch? We have another arctic blast hitting the Eastern part of the country and natural gas cannot get out of its own way.  Kind of amazing, really.

31 Responses

  1. Frist!

    And now I’m going to slip into some yoga pants and go run errands. . .


  2. Heh.

    Sometimes we really do need a “like” button around here.


  3. And Mike’s answer is still a good one.


    • Mich:

      And Mike’s answer is still a good one.

      Well, his answer was actually an unstated premise without any evidence of its truth. At least he was unable to provide any evidence at the time. His position was really just a question-begging tautology…people who doubt evolutionary theory aren’t good critical thinkers, which we know because they doubt evolutionary theory.


  4. If you are a theist don’t you doubt evolution? I don’t see how theism and evolution can coexist.


    • McWing:

      If you are a theist don’t you doubt evolution? I don’t see how theism and evolution can coexist.

      One could posit a theistic first mover who set things in motion and then stood back and let evolution occur.


  5. But that’s not really what is meant by evolution is it? Evolution as posited by advocates is sans Creator and either a result of Panspermia or Primordial Soup.

    Edit: meant to use Abiogenesis resulting from Primordial Soup.


    • McWing:

      But that’s not really what is meant by evolution is it?

      I am certainly no expert in evolutionary theory, but I am not aware that it either posits or depends upon a non-theistic explanation for the origins of the universe.


  6. Well, I guess I’m saying that if one believe’s in a Creator than one does not believe in Evolution as posited by Mike, correct?

    As well as that Limey reporter that asked Scott Walker?


    • George, that depends more on how one believes in a Creator than how one believes in Evolution.

      In seminary, the question was posed, would you rather a God who would if He could, or one who could if He would.

      Is the God you believe in All Powerful or merely more powerful than you and everyone else you know? Is your God one who set up an algorithm for nature that included such an unholiness as random evil and such a dereliction of the duty of All Powerfulness as free will? Or, is your God meddling on Earth like Zeus? Or is your God remote and unknowable?

      Did your God plant a seed in the Virgin Mary to create a manGod in Christ or did your God inspire Jesus of Nazareth to lead and change the world? Is your God Allah whose will is known by what happens, or is your God a moral guide to you to help choose right from wrong and make decisions accordingly?

      Evolution on the other hand says nothing about whether a Creator exists. It is silent on the subject and does not speculate.

      Thus there are many evolutionary biologists who believe in God but many believers in a God who could not possibly have permitted evolution.

      This is like when the Baptist Brigade at Rice came to my dorm room at 6:30 AM and asked me if I thought Jesus was insane, a faker, or THE true Son of God. Being a Jew, my answer was Jesus was A true son of God. Then I got up out of bed and chased the three motherfuckers out of my room. My Catholic roommate never woke up. He probably would have hit them. All. He rated sleep highly.

      The Baptist Brigade as they were jokingly known were from Arkansas and I think they were all gone after one semester. Stupidly woke up a football player.


    • McWing:

      Well, I guess I’m saying that if one believe’s in a Creator than one does not believe in Evolution as posited by Mike, correct?

      Well, as Sean Davis demonstrated quite nicely in my link below, I don’t think most people who raise this issue are positing an actual evolutionary theory at all. They tend to have little more than a high school level grasp of evolution, and they use “believe in evolution” as a simple-minded catchall that really means simply “don’t believe in the literal words of the bible”. They do not have in mind a coherent and all encompassing theory about even the origin of earthly species, let alone the origins of the universe. So while they may intend to express contempt for certain theistic beliefs, I wouldn’t say that they are excommunicating any and all theistic believers from the realm of the rational.

      As regards the actual, scientific theories of evolution in all their particulars, again, I am largely ignorant myself, but I am not aware that they either rely on or necessarily imply a non-theistic source of the origins of the universe.


      • Considering what a disaster multiple 3115s were going to be for small business in America this is the best news of the day:

        IRS Makes it Easier for Small Businesses to Apply Repair Regulations to 2014 and Future Years

        IR-2015-29, Feb. 13, 2015

        WASHINGTON —The Internal Revenue Service today made it easier for small business owners to comply with the final tangible property regulations.

        Requested by many small businesses and tax professionals, the simplified procedure is available beginning with the 2014 return taxpayers are filling out this tax season. The new procedure allows small businesses to change a method of accounting under the final tangible property regulations on a prospective basis for the first taxable year beginning on or after Jan. 1, 2014.

        Also, the IRS is waiving the requirement to complete and file a Form 3115 for small business taxpayers that choose to use this simplified procedure for 2014.

        “We are pleased to be able to offer this relief to small business owners and their tax preparers in time for them to take advantage of it on their 2014 return,” said IRS Commissioner John Koskinen. “We carefully reviewed the comments we received and especially appreciate the valuable feedback provided by the professional tax community on this issue.”

        The new simplified procedure is generally available to small businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less. Details are in Revenue Procedure 2015-20, posted today on

        The revenue procedure also requests comment on whether the $500 safe-harbor threshold should be raised for businesses that choose to deduct, rather than capitalize, certain capital expenses.


  7. Well. . . who knew?!

    The online dating site has released its fifth annual Singles in America survey. The survey, which included 5,675 singles 18 and older, was conducted by Helen Fisher,’s chief scientific advisor and a senior research fellow at the Kinsey Institute. The study found that the more emojis people used, the more sex they had ;). Or the more sex they had, the more emojis they used.

    Therein lies the rub. Before looking at the specific data, it’s important to note that while there is a sex-emoji correlation, it’s not necessarily causal. But 54% of “emoji users” had sex in 2014 while only 31% of non-emoji users had sex during the same time period.

    So the next time someone complains about my use of smilies I’m just going to stick my tongue out at them! 😛


  8. Evolution as posited by advocates is sans Creator

    Not necessarily. Mark said it quite well.

    For the record, I’m in the “sans Creator” court.


  9. Here’s a good piece about why I think that asking politicians whether or not they believe in evolution is important:

    In criticizing those who ask about evolution, conservatives have accidentally shown why that question stands out from most. Hot Air’s Allahpundit suggests Walker could have asked the interviewer “when he thinks human life begins, or what his opinion is of genetically modified foods, or fracking.” RedState’s Dan McLaughlin offers some non-science-related questions, like “Should we pay reparations for slavery?” and “Should we support taxpayer funding of abortion?” But the difference between most of those questions and a belief in evolution is that, in the case of the former, there is clearly room for debate, whether it be what we mean by “life” or whether reparations are a good policy. On the other hand, 98 percent of scientists believe in evolution, 88 percent in the safety of genetically modified foods and 87 percent in man-made climate change.

    By asking about evolution, we are effectively asking, “How much of scientific consensus do you need before you reconsider your views?” It is right to ask leaders whether they will be like Jon Huntsman and put the science over the politics, or if they will be like the North Carolina state legislators who, instead of planning for future sea rises, literally changed the state’s climate forecasts. If they don’t believe in evolution, it seems highly unlikely they will defer to the science on climate change.


    • Mich (from your link):

      But that doesn’t take away the fact that a candidate’s answer to the question “Do you believe in evolution?” tells us something very valuable about how a candidate prioritizes scientific evidence against politics in making policy.

      First of all, there is no policy that depends upon one’s view of evolution, so in fact it tells us nothing whatsoever, much less something valuable, about how a candidate prioritizes scientific evidence against politics in making policy. Second, science can never tell us what political policy should be, and so it can never be said to have been “prioritized” against politics. Science can help inform us about the implications of political policy, but it can never tell us what policy should be. Ultimately policy is about competing values and how those values will be prioritized against each other, not about scientific “truth”. For example, science may be able to help inform us about the impact of man-made activity on the climate, but it can never tell us what political policy should be implemented to address it, because that is dependent upon a cost/benefit valuation between the various policy options, which is an entirely subjective, not scientific, determination. This is the conceit/deceit of the science worshipping left, that their policies are nothing more than the result of “science” and therefore rationally unquestionable, which is of course total bunk, even if one does accept their science as unquestionable (which of course it isn’t.)

      But the difference between most of those questions and a belief in evolution is that, in the case of the former, there is clearly room for debate, whether it be what we mean by “life” or whether reparations are a good policy.

      This is bunk, too. No, there isn’t room for debate on the actual science of life and its beginnings. Biology is pretty clear about what life means in a scientific context and when it begins. This is a good illustration of the above point regarding science and policy being two different things. In fact the science of human life and its beginnings can inform us about that facts of human development, but it can’t tell us what political policy on abortion should be. That determination is a function of both philosophy (when do rights inhere in a human being) and the relative weight one gives to potentially competing values (the rights of mothers vs the rights of unborn babies). The decision to advocate in favor of allowing abortion does not come about as the result of what science says about when human life begins, it comes about despite what science says about when human life begins.

      Asking politicians about whether they accept the science of life beginning at conception, along with their position on legal abortion, would tell us at least as much about “how a candidate prioritizes scientific evidence against politics in making policy” as does the question about evolution. And given that, unlike evolution, abortion is actually an issue that is the subject of intense political controversy and policy making, I would say it tells us much, much more about who does and does not “prioritize” science.


      • Mich:

        I missed this last bit from the article you linked yesterday:

        So why did he not just say that from the start? Why did he decide to hem and haw? It is clear that he was worried what the backlash to that answer might be, no matter how much it was supported by the facts. That cowardice should scare everyone.

        One wonders if the author remembers Obama’s dodge when he was asked about when babies get human rights – “Above my pay grade” – and whether he finds that equally “scary” and ” cowardly”. Somehow I doubt it.


  10. Or his Gay marriage lie?


    • McWing:

      Jonah makes the same point:

      Heck, we now know that Obama lied about opposing gay marriage on religious grounds, or at least that’s what David Axelrod, his most trusted aide, says in his new book. Obama is forgiven by his admirers in the press and elsewhere on the left because they never believed that he opposed gay marriage in the first place and understood that he had to say he did to get elected. Noble lies for me, cynicism for thee.

      That is correct. D’s get away with lies and dodging politically difficult questions because the liberal mainstream media supports the goal towards which the lies/dodges are aimed…electing liberals. R’s don’t get away with it not because the liberal MSM loves “science”, but because it opposes the goal of R lies/dodges…electing conservatives. The evidence that the mainstream media in general gives different treatment to R’s than D’s, and especially the anointed one Obama, is so overwhelming that I am tempted to say that anyone who denies it is a science denier.

      As Kevin Williamson pointed out, the O-care abomination recognizes things like acupuncture, aromatherapy, and homeopathy as legitimate medical treatments, yet no one asks Obama or Pelosi whether they believe in the scientific validity of them. Why? Because as Jonah quite says:

      That’s because the evolution question really isn’t about evolution at all. On the surface, it’s about the culture war. To borrow a phrase from the campus left, Darwinism is used to “otherize” certain people of traditional faith — and the politicians who want their vote. Many of the same people who bleat with fear over the dangers of genetically modified food, fracking, vaccines, or nuclear power and coo with childlike awe over the benefits of non-traditional medicines will nonetheless tell you they are for “science” when in fact they are simply against a certain kind of Christian having any say about anything.

      …Beneath the surface, the salience of evolution as a political football is ultimately about the status of man. Are humans moral creatures whose actions are judged by some external or divine standard, or are we simply accidental winners of an utterly random contest of genes? If it’s the latter, does that mean we are only answerable to whatever ethical standards we invent for ourselves? Few people argue about astrophysics in the same way, even though it’s as problematic a subject for biblical literalists as evolutionary biology, because astrophysics really doesn’t touch on the question, Who (or What or Why) Are We?

      Exactly…the point of the evolution question has nothing to do with “science”. It has to do with a culture war between philosophical world views.


  11. Do any of these people qualify as Critical Thinkers?



  12. I think Krugman’s criticism of Rand Paul is well taken. I doubt Shiller agrees with Rand Paul. It is unlikely that we are faced with inflation; you have taught me that. Until wages go up, inflation is a bogey man. So if there is no inflation, interest rates will stay low. And bonds won’t be attractive. QED. Right?


  13. Mark, true. However the backdrop is that all of the world’s central banks are on a mission to create inflation. Eventually they will succeed…

    I think if you are willing to lend money to the US government for 30 years at 2.3%, you are making a very, very aggressive bet that inflation is dead and buried.


  14. Good Atlantic piece on ISIS

    “What ISIS Really Wants

    The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.

    Graeme Wood
    March 2015”


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