Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 2943122 times)

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11910 on: March 12, 2019, 02:13:35 PM »
https://www.insidemortgagefinance.com/imfnews/1_1562/daily/White-House-Hikes-Value-of-GSE-Senior-Preferred-1000049865-1.html?ET=imfpubs:e12028:73683a:&st=email&s=imfnews


What a difference a year can make. In the White House’s new budget document, the Trump administration values the senior preferred stock it owns in Fannie Mae and Freddie Mac at $113 billion, an increase of roughly 21% from the year before.
However, there is no detailed explanation on the accounting behind the change.
Since Thanksgiving, the value of GSE common and junior preferred have increased nicely, but both classes of stock are considered highly speculative, the common more than the juniors.
The only class of GSE stock deemed to be of value is the senior preferred owned by the U.S. Treasury Department – though opinions vary widely on what the common and juniors could be worth if a “recap and release” plan is executed by Treasury working in tandem with the Federal Housing Finance Agency.



muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11911 on: March 13, 2019, 06:57:10 AM »
I am out again. I don't think the technicals will show immediate jump from here. I'll closely watch this to see if it is worth another shot.


Now this looks like a timely exit. At that time, it was unclear why I should sell from a fundamental perspective, but now it is clearer. (Otting’s 2-4 week plan probably dead. 3/31 sweep probably will happen. Calabria may increase the capital buffer by retaining earnings while increasing senior preferred liquidation value by same amount etc.)

The price action has been so lame that if I don’t see another Long setup this or next week, then it seems unlikely I’ll get a setup.

Not criticizing your approach here but how do you technically trade a binary decision? The common/preferred are trading as they are because there is a lull in the news and the next known binary decision date is 3/31 and 3+ weeks away. The date/occurance of any upcoming news is known to no one otherwise.

The current technical pattern is one of indecision...because its a binary outcome with no news. Im all for technically trading some issues if one sees fit but this is either yea or nay. Could you pick up a couple small percentages here and there on some very short term time frames? Maybe but with the preferred you will likely lose any gains on the bid ask spread. Price action will not be able to guide you in any fashion with this.

I don’t worry about no news. The crux of technical analysis is to assume that other players in this field is either smarter than me or have insider info or both, and when they act, they will leave their foot print on the chart.

Not trying to highjack the thread but I can tell you what will happen already and Im nor an insider or necessarily smarter. If developments are favorable the price will go UP. If not price will go down. Hopefully not favorably after hours because the securities will gap up and will be priced in instantly and any foot print and will be useless.

I think just like efficient market hypothesis believers, your belief is too idealistic. Your argument assumes that everyone has the same IQ and no one trades on insider information. Therefore prices won’t move until any news come out. I believe otherwise. There are people who trade on grey and black edge and know far more than us. There are also people who trade on white edge but are far smarter than us. Look at Ericopoly on our board. He loaded up call options on MBIA days before their big settlement, based merely on white edge (publicly known info).

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11912 on: March 13, 2019, 07:25:54 AM »
I am out again. I don't think the technicals will show immediate jump from here. I'll closely watch this to see if it is worth another shot.


Now this looks like a timely exit. At that time, it was unclear why I should sell from a fundamental perspective, but now it is clearer. (Otting’s 2-4 week plan probably dead. 3/31 sweep probably will happen. Calabria may increase the capital buffer by retaining earnings while increasing senior preferred liquidation value by same amount etc.)

The price action has been so lame that if I don’t see another Long setup this or next week, then it seems unlikely I’ll get a setup.

Not criticizing your approach here but how do you technically trade a binary decision? The common/preferred are trading as they are because there is a lull in the news and the next known binary decision date is 3/31 and 3+ weeks away. The date/occurance of any upcoming news is known to no one otherwise.

The current technical pattern is one of indecision...because its a binary outcome with no news. Im all for technically trading some issues if one sees fit but this is either yea or nay. Could you pick up a couple small percentages here and there on some very short term time frames? Maybe but with the preferred you will likely lose any gains on the bid ask spread. Price action will not be able to guide you in any fashion with this.

I don’t worry about no news. The crux of technical analysis is to assume that other players in this field is either smarter than me or have insider info or both, and when they act, they will leave their foot print on the chart.

Not trying to highjack the thread but I can tell you what will happen already and Im nor an insider or necessarily smarter. If developments are favorable the price will go UP. If not price will go down. Hopefully not favorably after hours because the securities will gap up and will be priced in instantly and any foot print and will be useless.

I think just like efficient market hypothesis believers, your belief is too idealistic. Your argument assumes that everyone has the same IQ and no one trades on insider information. Therefore prices won’t move until any news come out. I believe otherwise. There are people who trade on grey and black edge and know far more than us. There are also people who trade on white edge but are far smarter than us. Look at Ericopoly on our board. He loaded up call options on MBIA days before their big settlement, based merely on white edge (publicly known info).

I see. So let me ask you this. Do you think FnF will be recapitalized and released from conservatorship?

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11913 on: March 13, 2019, 07:30:27 AM »
For what it's worth...

@CGasparino
SCOOP: @WhiteHouse pushing expedited Senate confirmation of new FHFA Chief @MarkCalabria in next 2 weeks to jump-start GSE reform; Calabria likely to take a “scalpel” to GSEs reducing footprint in housing mkt seek Congress approval before ending conservatorship more @FoxBusiness


Any thoughts on what approval from congress looks like? Surely they can only implicitly approve it by not explicitly denying it?
Too few words a-la-twit by Gasparino. But it could mean "scalpel" as in really cautious or little, delicate approach... no-big-plan-nothing-to-worry-about. And approval to end c-ship may mean Calabria will seek some comprehensive legislation that will include wrapping things up. Meanwhile, it is possible he will simply recapitalize -partially or totally- the entities. And in the time frame required for this, work with Congress.

RE increasing liquidation pref of Srs. by having FF retain full earnings. Why worry? When Watt/Tsy agreed to it the Jrs. ran. What matters really is that money stays with the companies regardless of how much Srs. balance increases. Why? Because if Srs. find -somehow- their way to the toilette, the money is already with FF.

the flaw with moelis - and why it's likely just a marketing document to help draw attention to the matter - is that investors are unlikely to front the many tens of billions necessary for recap in a series of equity offerings without A) congressional stamp (permanence) or B) exit from conservatorship whereby the company's mgmt and boards are in charge.  Or both A and B.   And Mnuchin doesn't want to risk failure, the stakes are too high, which is likely one reason why he's acted so timidly on the matter.

IMO the one exception to this view is if one or a couple large entities writes a giant check ($25-50bn) overnight at a low price that 1) gets the companies so far down the recapitalization path that its hard to turn back and 2) has such attractive risk-reward profile (ie low stock price) that the upside potential is so great to risk the investment losing material money if political (or economic) winds turn at some point in the future. 

If this scenario is even legally and logistically possible, where a huge chunk is raised overnight private equity style, then the returns to shareholders and govt warrants are likely reduced well below moelis numbers.   Otherwise, I'm prepared for Congress (and perhaps Calabria if confirmed) to possibly play a larger role than expected.

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11914 on: March 13, 2019, 07:44:05 AM »
For what it's worth...

@CGasparino
SCOOP: @WhiteHouse pushing expedited Senate confirmation of new FHFA Chief @MarkCalabria in next 2 weeks to jump-start GSE reform; Calabria likely to take a “scalpel” to GSEs reducing footprint in housing mkt seek Congress approval before ending conservatorship more @FoxBusiness


Any thoughts on what approval from congress looks like? Surely they can only implicitly approve it by not explicitly denying it?
Too few words a-la-twit by Gasparino. But it could mean "scalpel" as in really cautious or little, delicate approach... no-big-plan-nothing-to-worry-about. And approval to end c-ship may mean Calabria will seek some comprehensive legislation that will include wrapping things up. Meanwhile, it is possible he will simply recapitalize -partially or totally- the entities. And in the time frame required for this, work with Congress.

RE increasing liquidation pref of Srs. by having FF retain full earnings. Why worry? When Watt/Tsy agreed to it the Jrs. ran. What matters really is that money stays with the companies regardless of how much Srs. balance increases. Why? Because if Srs. find -somehow- their way to the toilette, the money is already with FF.

the flaw with moelis - and why it's likely just a marketing document to help draw attention to the matter - is that investors are unlikely to front the many tens of billions necessary for recap in a series of equity offerings without A) congressional stamp (permanence) or B) exit from conservatorship whereby the company's mgmt and boards are in charge.  Or both A and B.   And Mnuchin doesn't want to risk failure, the stakes are too high, which is likely one reason why he's acted so timidly on the matter.

IMO the one exception to this view is if one or a couple large entities writes a giant check ($25-50bn) overnight at a low price that 1) gets the companies so far down the recapitalization path that its hard to turn back and 2) has such attractive risk-reward profile (ie low stock price) that the upside potential is so great to risk the investment losing material money if political (or economic) winds turn at some point in the future. 

If this scenario is even legally and logistically possible, where a huge chunk is raised overnight private equity style, then the returns to shareholders and govt warrants are likely reduced well below moelis numbers.   Otherwise, I'm prepared for Congress (and perhaps Calabria if confirmed) to possibly play a larger role than expected.
It is always difficult to tell whether you are gloomy, optimistic, outright negative, long or short. Not that it matters. But sometimes I am not sure where you are coming from. Though you have been very informative (thanks).

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11915 on: March 13, 2019, 08:33:06 AM »
For what it's worth...

@CGasparino
SCOOP: @WhiteHouse pushing expedited Senate confirmation of new FHFA Chief @MarkCalabria in next 2 weeks to jump-start GSE reform; Calabria likely to take a “scalpel” to GSEs reducing footprint in housing mkt seek Congress approval before ending conservatorship more @FoxBusiness


Any thoughts on what approval from congress looks like? Surely they can only implicitly approve it by not explicitly denying it?
Too few words a-la-twit by Gasparino. But it could mean "scalpel" as in really cautious or little, delicate approach... no-big-plan-nothing-to-worry-about. And approval to end c-ship may mean Calabria will seek some comprehensive legislation that will include wrapping things up. Meanwhile, it is possible he will simply recapitalize -partially or totally- the entities. And in the time frame required for this, work with Congress.

RE increasing liquidation pref of Srs. by having FF retain full earnings. Why worry? When Watt/Tsy agreed to it the Jrs. ran. What matters really is that money stays with the companies regardless of how much Srs. balance increases. Why? Because if Srs. find -somehow- their way to the toilette, the money is already with FF.

the flaw with moelis - and why it's likely just a marketing document to help draw attention to the matter - is that investors are unlikely to front the many tens of billions necessary for recap in a series of equity offerings without A) congressional stamp (permanence) or B) exit from conservatorship whereby the company's mgmt and boards are in charge.  Or both A and B.   And Mnuchin doesn't want to risk failure, the stakes are too high, which is likely one reason why he's acted so timidly on the matter.

IMO the one exception to this view is if one or a couple large entities writes a giant check ($25-50bn) overnight at a low price that 1) gets the companies so far down the recapitalization path that its hard to turn back and 2) has such attractive risk-reward profile (ie low stock price) that the upside potential is so great to risk the investment losing material money if political (or economic) winds turn at some point in the future. 

If this scenario is even legally and logistically possible, where a huge chunk is raised overnight private equity style, then the returns to shareholders and govt warrants are likely reduced well below moelis numbers.   Otherwise, I'm prepared for Congress (and perhaps Calabria if confirmed) to possibly play a larger role than expected.

I agree with this as a concern, but I dont share your pessimism.

I do agree that this 3-4 year $150B capital raise is a massive endeavor, and it needs a "lead" investor to jumpstart things.  this could simply be in the form of an initial small investment and a backstop commitment, for which backstop commitment the lead investor would get an inducement. alternatively, a core group of existing investors (Blackstone, capital group, Perry, fairholme, Paulson, ackman etc) could form a lead investor group and commit as a group to invest new money.  you have cited a problem for which there is an answer.

if treasury comes out strongly in favor of a plan and asks for congressional support without offering congress a veto (which congress doesn't have), congress range of action does not include anything that I expect could kill the capital raise.  do you think, based upon what you watched in the Calabria hearing, crapo or Warner is going to introduce legislation to stop it?  even if corker were still around I would still expect merely sound and fury signifying nothing.  but corker has been corked.

« Last Edit: March 13, 2019, 08:43:09 AM by cherzeca »

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11916 on: March 13, 2019, 10:07:22 AM »
back to waiting for godot.....

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11917 on: March 13, 2019, 11:19:51 AM »

I agree with this as a concern, but I dont share your pessimism.

I do agree that this 3-4 year $150B capital raise is a massive endeavor, and it needs a "lead" investor to jumpstart things.  this could simply be in the form of an initial small investment and a backstop commitment, for which backstop commitment the lead investor would get an inducement. alternatively, a core group of existing investors (Blackstone, capital group, Perry, fairholme, Paulson, ackman etc) could form a lead investor group and commit as a group to invest new money.  you have cited a problem for which there is an answer.

if treasury comes out strongly in favor of a plan and asks for congressional support without offering congress a veto (which congress doesn't have), congress range of action does not include anything that I expect could kill the capital raise.  do you think, based upon what you watched in the Calabria hearing, crapo or Warner is going to introduce legislation to stop it?  even if corker were still around I would still expect merely sound and fury signifying nothing.  but corker has been corked.

potential institutional buyers of tens of billions of dollars in new shares will want either a) some clarity on future year earnings estimates and/or b) a low stock price with excellent risk reward to compensate for the lack of 'a'.   that's just the way it works.

over the near/medium term we can't get 'a' without congress acting, as another congress is right around the corner and who knows what they can / would do if this congress does nothing.  If this congress doesnt act then these potential investors fronting tens of billions in the mean time would likely demand a low stock price (ie more shares relative to current common, any potential jr pref converters, and govt warrants / sr pref conversion (potential if we lose collins).   

adding it up, this suggests to me that moelis and its price targets are not likely without this congress acting. 

investorG

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11918 on: March 13, 2019, 11:27:09 AM »
For what it's worth...

@CGasparino
SCOOP: @WhiteHouse pushing expedited Senate confirmation of new FHFA Chief @MarkCalabria in next 2 weeks to jump-start GSE reform; Calabria likely to take a “scalpel” to GSEs reducing footprint in housing mkt seek Congress approval before ending conservatorship more @FoxBusiness


Any thoughts on what approval from congress looks like? Surely they can only implicitly approve it by not explicitly denying it?
Too few words a-la-twit by Gasparino. But it could mean "scalpel" as in really cautious or little, delicate approach... no-big-plan-nothing-to-worry-about. And approval to end c-ship may mean Calabria will seek some comprehensive legislation that will include wrapping things up. Meanwhile, it is possible he will simply recapitalize -partially or totally- the entities. And in the time frame required for this, work with Congress.

RE increasing liquidation pref of Srs. by having FF retain full earnings. Why worry? When Watt/Tsy agreed to it the Jrs. ran. What matters really is that money stays with the companies regardless of how much Srs. balance increases. Why? Because if Srs. find -somehow- their way to the toilette, the money is already with FF.

the flaw with moelis - and why it's likely just a marketing document to help draw attention to the matter - is that investors are unlikely to front the many tens of billions necessary for recap in a series of equity offerings without A) congressional stamp (permanence) or B) exit from conservatorship whereby the company's mgmt and boards are in charge.  Or both A and B.   And Mnuchin doesn't want to risk failure, the stakes are too high, which is likely one reason why he's acted so timidly on the matter.

IMO the one exception to this view is if one or a couple large entities writes a giant check ($25-50bn) overnight at a low price that 1) gets the companies so far down the recapitalization path that its hard to turn back and 2) has such attractive risk-reward profile (ie low stock price) that the upside potential is so great to risk the investment losing material money if political (or economic) winds turn at some point in the future. 

If this scenario is even legally and logistically possible, where a huge chunk is raised overnight private equity style, then the returns to shareholders and govt warrants are likely reduced well below moelis numbers.   Otherwise, I'm prepared for Congress (and perhaps Calabria if confirmed) to possibly play a larger role than expected.
It is always difficult to tell whether you are gloomy, optimistic, outright negative, long or short. Not that it matters. But sometimes I am not sure where you are coming from. Though you have been very informative (thanks).

I believe the shares are undervalued.  How much so likely depends on the Collins ruling imo.  The Sweeney and Lamberth situations are too uncertain and too far away for the plaintiffs to rely on.  The constitutional angle (including Collins and Bhatti and Rop) seem like long shots.  Thus, I expect current price goals of the main players in terms of a potential 'deal' to stay close to par value if we win Collins outright (and govt doesn't appeal?) and come down to 50-75pct of par if we lose.  for common, collins is also crucial because a loss could lead to sr pref monetization in the form of extra govt shares and dilution, and vice versa. 

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #11919 on: March 13, 2019, 11:44:08 AM »
@IG

I agree with most of this.  I just think that the GSEs have a very favorable future earnings profile, with the possible risk being competition that this or a future congress might seek to promote.  but the GSEs have such a wide moat that I think even a threat of competition is not a big hangup.  now a threat of a congressional wind down of the GSEs is another matter, but I think that is now safely in the past.  and if you are right and I am wrong, I see investor fear of political risk is just something that negatively impacts price for awhile, but doesn't make the recap flat out undoable.

this recap will be a bear no doubt.  I just dont see political risk as a knock out punch if the current administration itself is strongly backing a credible plan