Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3231405 times)

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11740 on: February 19, 2019, 06:01:09 AM »

 Pref prices are truly unbelievable...

Resolving this requires actions/events totally outside our control and outside the cold but certain logic of a bankruptcy court. Having been here a while through the ups and downs, with - in reality - almost zero leverage, I imagine 2/3+ would take a 50% payout on jpf's. I would. In which case pricing of around 30% of par is not out of whack.

But of course we hope and talk our book and think we should get par.

Just keeping it real lest we all run out and get even deeper into this. Even our most prolific GSE cheerleader Glen Bradford is running out steam and looking at stuff like shldq and ctl. After Glen sells, that's probably when there will be a deal.

You're just messin' with us, so please say something useful or move on. If Bradford is considering shldq (i.e., the common), then he is not running out of steam; rather he has lost his mind and any value investing credentials he might claim.

Messin' is not my intention. It's a note of caution that there's significant risk. This is much less predictable and has taken much longer than buying run of the mill chap 11 or near chap 11 bonds (done a number of times - ukraine, worldcom, conseco, etc).  It's also my guess than many would take significantly less than par for the jprefs given these factors which suggests a price ceiling if one were to add. If I recall the Citi pref conversion was at 60%.

Prudence and price information ... I dunno - doesn't seem useless to me but maybe everyone knows everything already. Glen (100% and margined) and Berkowitz (35% concentration and forced to liquidate half) may have lacked prudence. But it's not over as long as we survive.

Cheers!

I agree.  Even in a positive scenario, political factors alone would likely dictate a cap (or conversion rate) at some level below par.  everyone would need to sacrifice, and I believe the large holders know this and are fine with it.  I don't want to debate this as it's a purely subjective view but imo forgone dividends aren't likely enough to satisfy the decision makers in the admin or congress.  there's a reason why many smart investors wake up every day and decide to sell a lot of $ of jr preferred: because there's a wide range of outcomes even at this moment.  and on a separate note, picking personal fights with widely-followed reporters isn't helpful.
Although prudence and downplaying expectations is a smart way to look at this investment, there is another side too.

The mortgage/loan market is a mess extending a dark cloud over the real estate market. Reading Christopher Walen's blog makes this apparent. As such, it may be the government who feels pressure to resolve pending stuff. Which may tilt the balance back to shareholders. After all, lawsuits are a real impediment to progress. So while shareholders may see obstacles to realize gains and may be feeling stretched, it is the government who may be facing a grave problem and an urgency.


cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11741 on: February 19, 2019, 06:27:03 AM »
not sure why this thread is now focusing on Bradford and gasparino.  irrelevant to any real analysis of situation

Seahug

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11742 on: February 19, 2019, 06:34:55 AM »
not sure why this thread is now focusing on Bradford and gasparino.  irrelevant to any real analysis of situation

Yes, sorry about that.


investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11743 on: February 19, 2019, 06:40:32 AM »
not sure why this thread is now focusing on Bradford and gasparino.  irrelevant to any real analysis of situation

while I don't think it should be dwelled on, it's actually relevant imo.   this is as delicate of a political situation as is possible.   perception matters.   creating another carney in gasparino is counterproductive and can actually influence the outcome when he correctly points out (to millions of trump-loving viewers) that the re-election team for trump doesn't want a 'Paulson gets rich' theme as an opposition tool.  this is likely why congress is involved so heavily and perhaps the delays waiting for a potential different court decision.   if it was such a layup, mnuchin and otting could have acted several weeks ago.

locutusoftexas

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11744 on: February 19, 2019, 08:33:09 AM »
Messin' is not my intention. It's a note of caution that there's significant risk. This is much less predictable and has taken much longer than buying run of the mill chap 11 or near chap 11 bonds (done a number of times - ukraine, worldcom, conseco, etc).  It's also my guess than many would take significantly less than par for the jprefs given these factors which suggests a price ceiling if one were to add. If I recall the Citi pref conversion was at 60%.

Prudence and price information ... I dunno - doesn't seem useless to me but maybe everyone knows everything already. Glen (100% and margined) and Berkowitz (35% concentration and forced to liquidate half) may have lacked prudence. But it's not over as long as we survive.

Cheers!

Sorry, the mention of shldq was a personal red flag, in that I learned long ago that the only possible, rational value play in situations with a negative net asset value, a very low stock price, and possible (or imminent) bankruptcy is to own the debt and not the common. Bruce Berkowitz actually destroyed his credibility and his various managed funds by making the rookie error of buying Sears common late in the game, when the cash burn was accelerating and with Lampert clearly willing to burn up the assets rather than to liquidate. Clearly there was no margin of safety.

Bradford has done such a nice job of tracking the GSE situation, I was shocked at the possibility that he would buy the Sears common at this point.

Of course, I have pointed out on this board, that the GSE prefs and common did not qualify as classic value plays once the assets had been written down and the NWS had been implemented, especially given the Executive Branch's need for cash at the time (and maybe now). The asset value was effectively zero and the discounted total value of dividends for shareholders has been zero under these circumstances. So no assets, no future dividends -- just hope that politicians and courts will do the right thing. Sorry, that is not a value play by anyone's definition. At a minimum, no margin of safety. Please forgive my lack of faith in politicians and, over the last two years, the demonstrated incompetency or bias (corruption?) of the federal courts.

By the way, I definitely hope that I am wrong in my skepticism, since this has become a very fundamental Constitutional issue.

Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11745 on: February 19, 2019, 08:35:31 AM »
It's also my guess than many would take significantly less than par for the jprefs given these factors which suggests a price ceiling if one were to add. If I recall the Citi pref conversion was at 60%.

According to this document, https://www.scribd.com/document/13339335/Citi-Tarp-Conversion, Citi prefs were converted either at par or more. However, I don't know enough else to tell you how it all went down.

This article, https://baselinescenario.com/2009/02/27/citigroup-arithmetic-explained/, says that the $3.25 number was likely the product of negotiation, and that the share price immediately prior to the conversion being made public was $2.46, which dropped to $1.57 following the announcement.

Again, I don't know how many strong parallels we can draw here, but it fuels my thesis that the juniors have an embedded call option on the commons, which they can exercise by agreeing the settle the lawsuits.

As for Glen contemplating other investments, I see that as less of him looking to get out soon, and more of him doing early research on where to put his $3M or so in par value once the juniors get there.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11746 on: February 19, 2019, 08:44:54 AM »
@IG
"...perhaps the delays waiting for a potential different court decision.   if it was such a layup, mnuchin and otting could have acted several weeks ago." 

I agree with this.  I think a court win makes everything much much easier. this also would come after calabria is confirmed, so waiting for a possible court win would then be able to be reinforced by a FHFA director who is on record (and never revoked) that NWS is invalid...so with a court win that would be a twofer.  which means that whether fhfa appeals in this circumstance is a very twisted question, which would be resolved by the introduction of the admin plan at that time.  plus mnuchin is real busy now. so I do believe we are in wait for collins mode...though whether or not the dividend is paid out will likely come first   

allnatural

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11747 on: February 19, 2019, 09:41:05 AM »
As optimistic as one can get about Collins case... if we are back to relying on courts for any progress from here... Not a good sign IMO.

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11748 on: February 19, 2019, 09:56:26 AM »
As optimistic as one can get about Collins case... if we are back to relying on courts for any progress from here... Not a good sign IMO.

collins would certainly grease the skids

hardincap

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11749 on: February 19, 2019, 10:05:18 AM »
I don’t think recap is that controversial? Especially given no one seemed to object in calabrias confirmation hearing. Also Calabria said multiple times as soon as 2015 that receivership is legally required, so I hope otting prevents the possibility of Calabria going rogue by moving to recap before Calabria is confirmed. Releasing f&f after they’ve been recapped however is certainly going to be controversial and here a court opinion would help greatly