Crypto webinar tonight; Thoughts on Fannie and Freddie; PG&E and Intelsat getting obliterated; Dealing with a**holes

By Whitney Tilson

Wednesday, November 20, 2019

1) As I discussed in my November 12 and November 15 e-mails, I recently met Eric Wade, the editor of Stansberry Research’s Crypto Capital newsletter.

Eric is super knowledgeable, and I learned a lot about a fascinating sector. But at the end of our conversation, he hadn’t changed my view that, as Warren Buffett said, bitcoin is “probably rat poison squared.”

So Eric made me a friendly offer: He would be happy to take the other side of the bet if I wanted to short bitcoin.

I didn’t even have to think before replying, “Thanks but no thanks.”

This raises an interesting question: If I’m so sure that bitcoin and other cryptocurrencies are techno-libertarian pump-and-dump schemes, then why wouldn’t I eagerly take Eric up on his offer?

The answer is rooted in hard experience over my 15 years as a short-seller:

  • Never short open-ended situations in which other investors’ wild enthusiasm for something exciting and new can wipe you out, and
  • Never short anything in which there is no connection to any fundamental value metric (like future revenues, cash flows, or earnings).

Today, bitcoin trades for a little more than $8,000, with a 52-week range between $3,000 and nearly $14,000. Now that’s volatile!

Since its price isn’t based on any fundamental factor, it could certainly trade down to $1,000 or even $100… or up to $25,000, $100,000, or even, as Eric believes, $1 million someday.

In light of this, I will acknowledge that Eric did persuade me that cryptos are excellent instruments of speculation. They have a great story and are extremely volatile, so if I were forced to allocate a tiny percentage of my portfolio (which, to his credit, is all that Eric recommends), it would be in the crypto space.

If you want to learn more about this emerging area, I highly recommend that you watch the free webinar that Eric is hosting tonight at 8 p.m. Eastern. During it, he’ll share his latest thoughts on the sector, reveal his latest crypto idea, and interview 12-term U.S. Congressman Ron Paul. You can save your spot for it right here. Again, it’s totally free.

2) After 300% run-ups earlier this year, the stocks of the government-sponsored entities (“GSEs”), Fannie Mae (FNMA) and Freddie Mac (FMCC), have taken it on the chin over the past two months.

I’ve just finished writing up a full analysis of the latest developments for this month’s issue of the Empire Investment Report, but I still think their stocks are the most interesting mispriced options in the market. (You can sign up for my newsletter with a 30-day, no-questions-asked, money-back guarantee right here.)

Here’s an insightful Heard on the Street column in today’s Wall Street JournalFannie’s and Freddie’s Long Road to Public Offerings. Excerpt:

There are now some timelines in the way forward to reshape the U.S. housing-finance system. A lot still needs to happen, though.

Mark Calabria, director of the Federal Housing Finance Agency, said at a conference last week that “if all is going well,” the government-sponsored housing-finance giants known as Fannie Mae and Freddie Mac could be in a position to sell shares in public offerings as soon as 2021 or 2022.

That is a key step in the FHFA’s and Treasury Department’s plan to recapitalize Fannie and Freddie and eventually release them from government control. Mr. Calabria further suggested that under that public-offering time frame, the companies could exit government control by 2023.

3) Here’s my friend Michael Kao of Akanthos Capital Management with some breaking news:

Of the myriad lawsuits against the Treasury/FHFA by different classes of GSE investors, one very important hearing regarding the government’s motion to dismiss in the Court of Federal Claims (COFC) was held yesterday.

While I don’t have the full transcript yet, I’ve heard several key soundbites from the presiding Judge, Margaret Sweeney, that appear quite positive for plaintiffs (shareholders):

  • She was concerned that the current terms of the Net Worth Sweep would never allow the GSEs to become solvent and exit conservatorship, and she questioned how the government could justify never allowing repayment of the liquidation preference so that the companies can get back on their feet
  • She opined that Treasury/FHFA placed the GSE’s in a “death grip” and used them as a “piggybank,” comparing government’s actions to “the mob”
  • She opined that a “reasonable investor” would not have expected all profits to be swept to Treasury forever

While these soundbites appear way more constructive than I expected, I caution that the wheels of justice have moved very slowly in these GSE cases. Nevertheless, if the COFC strikes down the government’s motion to dismiss, it will add to the political cover that Mnuchin/Calabria need to do the right thing for shareholders. Stay tuned…

4) One theory as to why the GSEs’ stocks have been so weak is due to the high degree of cross-ownership with two other speculative stocks that are popular among hedge funds: California utility PG&E (PCG) and satellite company Intelsat (I), which have both gotten obliterated recently.

Here’s an article about the latest developments regarding the latter: Intelsat’s stock sinks again as Congress looks to ‘rake’ in revenue from 5G spectrum auction. Excerpt:

Shares of Intelsat S.A. continued to plummet to earth on heavy volume after the U.S. Federal Communications Commission’s decision to move forward with a public auction of new 5G spectrum prompted what was essentially a Congressional money grab.

Intelsat dropped 24.2% to $6.09, the lowest close since April 2018. Trading volume swelled to 35.8 million shares, compared with the full-day average of about 6.8 million shares.

The selloff comes one day after a 40.1% plunge on 56.1 million shares, which was the stock’s biggest-ever one-day decline, and five days after the second-largest drop of 29.2% on 29.7 million shares, which came amid growing concerns over a negative regulatory decision.

5) I recently encountered a guy who’s a real a**hole, which got me thinking…

Most folks have to deal with such people in their lives – like a boss or relative (or even a spouse, if one really marries badly and/or is super unlucky!).

But I don’t.

I’ve given it real thought and can’t think of a single person of note in my life who I consider to be an a**hole.

I think there are a few reasons for this:

  • I’ve had an astounding amount of luck in my life, for which I am grateful for every day.
  • I treat people well. (Funny how if you’re nice to people, they tend to reciprocate.)
  • I’ve had enough success that I haven’t had a boss in 20 years and am financially secure. I’m not crazy-rich like many of the folks around me in the investment industry and on Manhattan’s Upper East Side of Manhattan – the wealthiest Census tract in the U.S. – but I do have “f**k you money,” and
  • I’m ruthless about cutting jerks out of my life. If someone shows you their true colors – and you don’t absolutely have to deal with them – then don’t! It takes almost no effort to block someone’s phone number, e-mail address, and social media accounts. I don’t do it often, but I just did so to someone yesterday, and it feels good to have removed that element of stress from my life.

Best regards,


Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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