Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3155765 times)

DocSnowball

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12520 on: May 22, 2019, 07:19:57 AM »
Don Layton, CEO of Freddie.  This was damned informative.  You can infer what is happening behind the scenes.  I'm still digesting so I dont have anything immediate to say. 

If you are short on time start at 35:55 and watch until the end (9 minutes).

https://www.youtube.com/watch?time_continue=15&v=oHhOwowCg9A

edit: one thing i will say is that anyone reporting on his comments today that says he is skeptical about release from conservatorship is totally wrong, imo.
Thank you. Yes, very informative. He said lawsuits are an impediment to any IPO/recap. He may be right. Perhaps both the sweep and the lawsuits are resolved simultaneously. Berko and Paulson may have some leverage after all.

Exactly- when I try to invert this scenario to envision what a successful recap looks like, the lawsuits need to be resolved prior to recap. A situation like receivership which would increase lawsuits and make some current ones ripe doesn't align with Treasury's interests in maximizing their investment and getting first loss capital ahead of their backstop and FHFA's goal of safety and soundness. That's what made me change my mind and back up the truck after Calabria's interview. It would have taken a lot of back end work for Calabria to mention in public what may happen to preferred and common shareholders (but it's may and not shall so fingers crossed  ;D).


DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12521 on: May 22, 2019, 07:56:07 AM »
I will, but at lower prices.

I'm pretty insensitive to price, given the range of outcomes.

I'll have to pay a higher price as uncertainty is resolved, but the risk/reward should only improve.

That's funny, as I'm sensitive to price given the range of outcomes!  :)
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cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12522 on: May 22, 2019, 08:36:36 AM »
Mnuchin full quote from hearing this morning:

"I think a lot can be done administratively, we're working on that, we're also working on a report for the President. But I would also encourage there is an opportunity for congress on a bipartisan basis to make some significant reforms. These were not entities that were intended to be under government control forever and funded by taxpayer money forever so I hope that Congress would look at this with us but if not we will do things administratively ... this is a priority of ours."

“Our fundamental view is that there should be risk capital in front the government’s money. And whether that’s a government guarantee on securities or treasury line, fundamentally there should be private risk capital that supports a a liquid 30 year mortgage market.”

Thanks for this allnatural. If you have a link to complete text I would love to see it.

Notice reference to govt guarantee OR credit line. Don’t want to make too much from unprepared responses but to me this is important as discussed earlier in thread. The current line is appropriated and can stay intact, likely with a commitment fee, to support GSEs. There has been previous references by mnuchin to a security but not an entity guarantee. As we get further in process and the market requirements as to what is required to get the capital raise executed become apparent we may see more of this

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12523 on: May 22, 2019, 08:42:23 AM »
One would have to wonder if we have met or coming very close to the all in moment if one is inclined to do so. Best would be to hold out till midterms later this year then go for the gusto. Seems like time is the biggest impediment to ROI at this point. If you were willing to put 5-10% etc of your portfolio with what we as investors knew 2-3 years ago it seems like a significant increase in exposure would be in order relative to what is thought/known now.

I was willing to put up to 10% of my portfolio with a coin flip of whether or not they were going to be "wound down". Where we sit now an increase in exposure should be in order no?

I'm about 80/20 preferred to common. I'm expecting the recap to take some time and the dilution issue to put downward pressure on the common.

If we know for sure commons are ok then I'll go all in common if the price is weak enough for a multi bagger return on a sure thing.

Anyone adding to their position with the recent news?

Or waiting for something more "sure" - a court decision, an endorsed plan, etc.?

(Count me in the second group - still a speculative position for me.)

Commons are a crapshoot for reasons previously discussed - have to be a madman to own these.  Jr prefs on the other hand - I'm struggling to see downside unless the plan is:  excessive capital requirements w/ competition and release into the public markets and telling the companies good luck, now capitalize yourselves.  seems unlikely given comments on re-ipo, maximizing govt investment (warrants). 

The IRR on the prefs will fluctuate with deal structure and recap timeliness...but downside below 50% of par seems highly unlikely at this point.  Maybe I have a hole in my head since we're still looking at ~100% (bull case) without meaningful downside.

The way this administration is talking non par for prfd would be a surprise to me. How do you recapitalize a company that no longer is sweeping profits, is going to raise capital via common and possible more prfd and not have the prfd on record not be worth its contracted price? If you are re ipo'ing the company and raising the vast majority via common the prfd is worth par. No bones about it.

That being said heavily contemplating going in on margin with prfd allocation. If unable to due to OTC status will sell some more stuff. At 20% of portfolio now. Margin interest will be 4% and deductible against any gain at tax time. Figure ~6 months to heavy IPO discussion/stopping of NWS and final determination of prfd. The prfd status will be known before IPO so this looks like a 6-8ish month gamble.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12524 on: May 22, 2019, 08:58:36 AM »
@orthopa

Can you go short commons?
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orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12525 on: May 22, 2019, 09:03:44 AM »
@orthopa

Can you go short commons?

Good questions, I dont have IB (which I believe is the most flexible on OTC stuff) and my broker has balked at some stuff in the past. I will find out now.

DRValue

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12526 on: May 22, 2019, 09:22:51 AM »
@orthopa

Can you go short commons?

Good questions, I dont have IB (which I believe is the most flexible on OTC stuff) and my broker has balked at some stuff in the past. I will find out now.

I think you should short commons 😁
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TwoCitiesCapital

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12527 on: May 22, 2019, 09:29:47 AM »
One would have to wonder if we have met or coming very close to the all in moment if one is inclined to do so. Best would be to hold out till midterms later this year then go for the gusto. Seems like time is the biggest impediment to ROI at this point. If you were willing to put 5-10% etc of your portfolio with what we as investors knew 2-3 years ago it seems like a significant increase in exposure would be in order relative to what is thought/known now.

I was willing to put up to 10% of my portfolio with a coin flip of whether or not they were going to be "wound down". Where we sit now an increase in exposure should be in order no?

I'm about 80/20 preferred to common. I'm expecting the recap to take some time and the dilution issue to put downward pressure on the common.

If we know for sure commons are ok then I'll go all in common if the price is weak enough for a multi bagger return on a sure thing.

Anyone adding to their position with the recent news?

Or waiting for something more "sure" - a court decision, an endorsed plan, etc.?

(Count me in the second group - still a speculative position for me.)

I'm torn between adding because outcome appears to be getting more positive than what it was a year ago

and

Reducing exposure because the price reflects those developments, we've been burned by rallies before, and it's what prudent risk/portfolio management would advise.

I think I'm gonna settle in the middle and just hold what I already have recognizing that the 2-3x appreciation we've seen increased the position for me.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12528 on: May 22, 2019, 09:33:31 AM »
One would have to wonder if we have met or coming very close to the all in moment if one is inclined to do so. Best would be to hold out till midterms later this year then go for the gusto. Seems like time is the biggest impediment to ROI at this point. If you were willing to put 5-10% etc of your portfolio with what we as investors knew 2-3 years ago it seems like a significant increase in exposure would be in order relative to what is thought/known now.

I was willing to put up to 10% of my portfolio with a coin flip of whether or not they were going to be "wound down". Where we sit now an increase in exposure should be in order no?

I'm about 80/20 preferred to common. I'm expecting the recap to take some time and the dilution issue to put downward pressure on the common.

If we know for sure commons are ok then I'll go all in common if the price is weak enough for a multi bagger return on a sure thing.

Anyone adding to their position with the recent news?

Or waiting for something more "sure" - a court decision, an endorsed plan, etc.?

(Count me in the second group - still a speculative position for me.)

I'm torn between adding because outcome appears to be getting more positive than what it was a year ago

and

Reducing exposure because the price reflects those developments, we've been burned by rallies before, and it's what prudent risk/portfolio management would advise.

I think I'm gonna settle in the middle and just hold what I already have recognizing that the 2-3x appreciation we've seen increased the position for me.

In your opinion do the prices reflect ending of the NWS and recapitalization? At this point meaning prfd gets roughly par and if converted gets 4 common for each preferred share?

cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #12529 on: May 22, 2019, 09:41:51 AM »
POtus just told chuck and Nancy he wouldn’t work with them until investigations stop.  This after Nancy said potus is engaged in a coverup. So a bipartisan legislative solution doesn’t look good for now.

I’m torn by all this jabbering by Calabria. On one hand it shows some momentum and it also shows MBA/tbtf has no response. But all his talk about competition just unsettled the market. Mnuchin should tell him to stop the amateur hour