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Adventures In Following Harris Kupperman

Glen Bradford profile picture
Glen Bradford


  • I still have over a 90% portfolio position in Fannie Mae and Freddie Mac, and yes, I just sold some even though I expect 100% return this month.
  • I sat down and read a few Harris Kupperman blogs this past month and I simply had to get oil tanker and natural gas producer exposure.
  • The premise there is that oil is in a glut and demand went off a cliff, so either they pump too much and fill up oil tankers or cut supply.
  • If they cut supply, then that should help put a floor in for natural gas. Natural gas has been in oversupply for a long time, but times are changing.

I basically stayed up one night reviewing options prices on natural gas producers and oil tankers and moved something like $30k into that on top of around $10k I already put in. My market puts have only lost me money, and I've only ever lost money in options. That said, I'm sticking to my strategies and throwing in new money. Harris Kupperman is my fearless leader and I think he's got the right ideas here, and I think the risk/reward is so asymmetric I couldn't resist buying exposure even though I'm confident I'll collect an easy 300% return or so on my existing investments in the next 12 months.

I tend to try to find highly leveraged situations and try to make life-changing bets. Last year or two, I lost like $125k in FTR call options that would have made me a multi-millionaire if I was right about anything there, but I was not. I'm not going to be right every time. With Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) I will be, but if you haven't noticed, the valuations there have come down to basically my cost basis, or less than that, recently. I happen to think that May is going to be the best month of my life. Fannie Mae and Freddie Mac are going to be reproposing the capital rule, which was necessary in order for FHFA to avoid lawsuits based on the advice of general counsel. I figure that between October 2020 and January 2021, the lawsuits against the government's illegal theft there get settled via conversion terms.

Investment Thesis

Oil is in contango. Oil tanker companies are writing contracts to fill up their boats with oil and sit around in the ocean, and the amount of money they are making according to their stock valuation is unsustainable. According

This article was written by

Glen Bradford profile picture
Glen Bradford MBA contributes to Seeking Alpha primarily to read people's negative feedback so that he can avoid generating unnecessary losses. "Uncertainty will certainly work for me." - Glen Bradford March 2009.Glen wishes you a bright sunny warm day filled with smiles, laughter, and love.The Supreme Court got it wrong, which is sad, but it's not over yet.

Analyst’s Disclosure: I am/we are long DHT, EURN, TNK, STNG, AR, SD, RRC, COG, FMCCL, FMCCM, FMCCN, FMCCT, FMCCI, FMCCG, FMCCT, FMCCS, FNMFO, FNMFN, FMCKP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (57)

Q.Cap profile picture
@Glen Bradford you are a wild man! Look forward to reading more of your articles.
User 47732154 profile picture
Sees Bradford article: gets excited…
Sees that it is not about F&F: frowny face. :(

Glen, my friend, my brother, my comrade in this investment, do not mess with my heart like that. Do not let your need to “fill in the gaps” of time to distract you from the real trade here. Keep dancing on the beach and day drinking until we are there; then we will all be joining you.

The potential greater upside in the tankers you see…I don’t think your article proves just how much more risk and uncertainty is in those versus what we have all been weighing with the twins. The risk for the real trade is time and execution while the tankers still have a dozen things can easily still go wrong.

Milkweed: hold that laughter, yo. Those of us who have been in since the $4s will still have the last laugh here. Need to shake out the scaredy-cats. I think there is some good AT&T stock or whatever relative value out there for you.
Why did the STNG go to $100 last time? Was it market overreaction or was there a material change in the long term prospects of the business.

If it was a market overreaction because the market projected the near term earnings far into the future, it might not happen again. The market knows from last time the spike fades. There is a possibility that a momentum trade develops (and to me, it seems that it is the intent of a lot of people that are suddenly sharing their research) but it will be purely based on greater fool theory and will fizzle out.

You should ask how many tankers(% of fleet) are actually on storage duty. Also, what is the average realized charter rate (blend of time-charter/spot rate) across the entire fleet of the company for each day? People quote the rate realized for one tanker and assume all the tankers in the fleet will/have realize(d) that rate. Also, market cap is meaningless if you have the tankers loaded with debt. You should be looking at enterprise value. And NAV is meaningless. If they were going to sell all ships and go out of business then looking at NAV would make sense.

I am not a tanker expert by any means. So take my post with a grain of salt. And I am not bearish on tankers. I just don't think the bullish case is very convincing yet. I get a feeling that a pump and dump is going on.
Glen so, if you had 10k what one would you go for out of the bunch.
Anuj Kumar profile picture
This is the greatest article on SA I've ever seen
People who concentrate positions remind me of the live hog trader on the CME who accumulated a fortune and was considered a genius at trading hogs. He knew hog fundamentals cold. Well one year he just knew hog supplies were going to be severely constrained so he built up a full limit long position in hog futures because how could he lose? Well, the USDA came out with one of their periodic pig crop reports and it was super bearish with apparently a huge crop of pigs on there way to market. Well the market tanked limit down for several days and the genius hog trader lost 36 million dollars, his exchange seat, his home in Winnetka and eventually his wife and family. Long story short, the USDA revised their pig crop report as an incorrect number had been entered into the USDA computer; too late for our friend, and the market reversed course and was limit up for several days. The trader's analysis was correct, but a bureaucratic error cost him everything. Consider this story the next time you are so damn sure of yourself that you put almost everything in a few positions. Stupid is as stupid does.
Exile of the Mainstream profile picture
@tigerssaymeow where is that story from? lol
@Exile of the Mainstream Sounds very much like the movie Trading Places. Replace hogs with Frozen Concentrated Orange Juice, add in Eddie Murphy and Dan Aykroyd, and it's pretty similar. www.youtube.com/...
Chicago trader lore. I was a floor trader. Likely a compilation of many traders tapping out as we would say. I always liked the Airport trade where you were one step ahead of your clearing house and loaded up ahead of a major market report and left town. If the trade was a winner you flew back to Chicago. If the trade was a loser, Mexico is always nice this time of year!
When you own a shipping stock of some Greek/Norwegian controlled entity which is registered in some island tax shelter, you don't really own a part of the fleet. These owners are crooks and the Public entity is there for them to transfer risk to you and your wealth to themselves.
Q.Cap profile picture
Well, you invest in Navios family yes. TNK, EURN, DSSI not so much.
How is their corporate governance different? Seems EURN is solid, but I want to hear how you came to the conclusion.
Q.Cap profile picture
I'm no expert in governance, but this is why I exited NNA and stuck with EURN and DSSI - NNA has a long history of arm-in-arm transactions between entities controlled by AF. NNA isn't and won't be run independently, you just can't be confident AF will not shuffle cash and assets between assets to prop up struggling entities. You could argue this is a positive, a luxury some operators don't have. Too much risk and uncertainty for me.
Last year they just killed the good momentum they were experiencing around September issuing shares and diluting shareholders which across AF controlled companies is not uncommon.
Then there is the leverage/inability to reduce debt. It's a leveraged sector, but NNA is one of the most leveraged of them all.
Then you look at the consistent underperformance in the share price. I think investors know that if the stock gets some price appreciation AF will do another raise and knock it back down. So what's the point when there are less levered businesses with CEOs at the helm that don't carry the baggage.
Carlos Vignote Sánchez profile picture
On April 20th, I submitted a brief of Amicus Curiae in the Court of Federal Claims with respect to two cases before judge Sweeney. The judge neither admitted it, nor rejected it, but she read it, which is the purpose of this type of briefs as they don't have any other legal validity. All the lawsuits are meritless.
Glen Bradford profile picture
Carlos, read your amicus brief, you started to lose me when you started talking like a pirate making references to "booty" and then I really stopped paying close attention when you started slandering Tim Pagliara.

As someone who has met Tim on a few separate occasions in different cities, and talks with him from time to time, I must say that your impact here is simply more landfill material.

That said, I am impressed to know that you actually did something, power to you for trying. Good luck with your quest.

Carlos Vignote Sánchez profile picture
The pirates are the conspirators, I'm amicus curiae. Pagliara is the worst. He wants to rip-off the shareholders and be portrayed as an advocate of the shareholders. No values, no ethics, no nothing.
@Carlos Vignote Sánchez what does this have to do with the price of eggs in China?
System Trader profile picture
Agree on the tankers and the natural gas. What on earth moved you to get involved with FTR on the long side? That has been an obvious disaster for years.
Glen Bradford profile picture
Fair question, I have a friend who is in the business and who did work on the finance side; things didn't make the turn that the company seemed to be projecting and that seemed to be possible based on conversations with my friend. I was wrong, unfortunately. If I would have been right my $125K investment could have been like $30-50M or so. Well worth the risk. Instead, as projected, the calls expired worthless and frankly I don't mind that because as projected, the equity became worthless too.

Doesn't mean I'm wrong for doing these kinds of things. Sometimes you can find huge potential and if you can make potentially life changing bets. heads I am worth $2M. Tails I am worth $30M seems fine to me.

Note that the starting basis was like $500k-$750k at the time around then I think.
Glen, I am long AR as well. Can you remind me why you do not have FNMAS?
Glen Bradford profile picture
the other preferred are bigger discounts to par.
Great article!
Now this is a concentrated position.
Glen Bradford profile picture
did you stare at orange juice boxes in elementary school?
cfrimodt profile picture
Glen I aggree with you on the nar gas thesis, but you should go for AR instead of RRC, they are so much cheaper and thus has much greater upside. I would recommend reading some of KCI researchs articles on AR. (Long AR)
Glen Bradford profile picture
yeah i bought some AR calls yesterday like $2k.. and then $1k of rrc.. there's a few others, who knows. i certainly don't i haven't done the research, not that i'm not capable, i just haven't really put in effort, which is kind of pathetic, because it isn't that hard, i just would rather swim in the ocean.. thanks for your feedback.
Milkweed profile picture
AR is fully hedged until 2022 I believe and won't benefit from the reset in nat gas pricing until then if they make it. Their break even price is also substantially higher than RRC. They have a large un-hedged liquids exposure that is tied to oil pricing. The bounce in oil prices is probably what's propping them up lately. There is a reason why AR is a lot cheaper than RRC.
jeffkad profile picture
Seems like several knowledgeable authors here on SA are enormously bullish on AR: Long Player, Courage & Conviction, KCI Research.
Milkweed profile picture
I'm making a killing on RRC and COG as associated gas was KILLING nat gas producers and oils pain is nat gas gain. I loaded up on these two early in the market sell off realizing Mr. Market was missing the nat gas story. Nat gas producers had already cut their rig counts in half before CoV and the oil route; they are down more since and oil rig counts are plummeting with associated gas volumes soon to follow. Nat gas is used mostly for heating and cooling in summer so demand is more stable than Mr. Market was pricing in early on in the downturn. Mr. Market is getting it now.

You got this one right except I would play it straight up instead of messing around with options unless you really know what you are doing. RRC is still a triple or more. SLB in oil services is on fire sale and SAND is a leveraged gold play on inflation that's going to come from the federal government filling in for the consumer and another potential multi bagger.

On the other hand F&F's only hope was Trump gets re-elected and freeing them was good politics in his second term when it wasn't in his first. Not only is his re-election in serious jeopardy but F&F's business is going to get hit by this recession. I don't pretend to be an expert on their financials but with a flood of delinquencies to evevtually turn into foreclosures as a LOT of people ain't going right back to their old job even when the all clear signs are up F&F could be drawing on their backstop again and increasing the liquidation preference while decreasing the argument "they paid the government back".

You've got real multi baggers out there right now and once Mr. Market figures out that the people who stripped grocery store shelves bare ain't coming out of hibernation until there is a vaccine or cure and that ain't happening until next year if we are lucky there will be multi-baggers all over the place. If you are smart you will dump your mistake in F&F and redeploy into real businesses selling at fire sale prices that the recession is making available. Mr. Market is giving you a chance at a do over.
Glen Bradford profile picture
okay what do you recommend? Can you list out like all your ideas and how much portfolio weight you have? (by the way, your analysis on fnf is wrong, but that's okay)
Milkweed profile picture
RRC, SLB and SAND are my 3 favorites right now, COG is a near foolproof bet on nat gas but less upside.

You can stick a fork in F&F they are done. Glad I took my near double on FMCCH and ran over the summer when Callabria delivered a laundry list instead of a plan to release em. Remember when I was being ridiculed the next day when the En Banc ruling was announced and the message board and market misread the significance? I'm laughing now.

All the ridicule came from clowns (of which message boards like this one are unfortunately infested) that are best ignored.

I do disagree that the GSE investment thesis is done. The NWS is effectively over due to the September letter agreement, and according to Tim Howard's calculations the GSEs already have enough capital to weather the storm. Of course, that probably won't stop Calabria from imposing much larger capital requirements,probably on the order of 150 billion, but a draw from Treasury seems very unlikely at this point.

There are plenty of ways to make money in the market, and I still believe the GSE junior pref shares are among the best ones. Broad disagreement with this thesis by the market actually benefits me because it allows me to buy more cheaply.
Exile of the Mainstream profile picture
This is a hilarious post. I like Kuppy but he seems to be wrong on tankers right now. Though right on Nat Gas.
calvinfroedge profile picture
Wrong on tankers earning a ton of money? Don't think so. Thesis is correct. Market is irrational.
Glen Bradford profile picture
hey calvin, huge fan
JWVGOETHE profile picture
Hello @calvinfroedge. As my first comment here, I'll second the compliment offered by Glen Bradford. The brain trust around this thesis is impressive. Cheers.
Well Glen, interesting. I jumped into MO for the 9.5% dividend and inevitable capital appreciation.
Glen Bradford profile picture
nice! good for you
When do you guys think the oil tankers will spike back up?
1st QRT Earnings are coming out now and 2nd QRT will be better than 1st. So, this month. DHT earnings was yesterday and they increased their dividend for the money the company is making.
$DHT 5/5/20
$STNG 5/6/20
$INSW 5/7/20
$EURN 5/7/20
$DSSI 5/8/20
$FRO 5/21/20?
$NAT 5/22/20
$TNK 5/22/20
$TNP 6/4/20 or 5/22/20?
Well done and really just in time. Kuppy + VIE is pushing tankers for how long? One year?
Glen Bradford profile picture
eh well, it's not about the past if you want to make good investment decisions, it's about what to do now and who is correct, starting now.

kuppy seems like a genius to me on quite a few approaches
Kuppy is great!!
Glen Bradford profile picture
go kuppy go
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