Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3557725 times)

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13320 on: August 21, 2019, 08:03:01 AM »
I’d fade the Mnuchin leaving trade. It would basically ruin his reputation to leave at such a critical point, not for housing but trade and trump election, and to break his very public commitments. It is very much in his interests to stick it out for another year

You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.
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Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13321 on: August 21, 2019, 09:09:16 AM »
You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

Is every decline of this magnitude and duration attributable to big players trying to get out quietly? At what point can you tell that the trend has reversed? I can see this being plausible but not actionable; things could eventually turn around (we have seen declines like this in the past) and I don't see a way to tell in real time when it has happened.

If Maloni is perceived to be such a "whack job", why would his rumor, and apparently only his rumor, have been enough to propel FNMAS to $14 in the first place?

hardincap

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13322 on: August 21, 2019, 09:20:18 AM »
unfortunately, mnuchin leaving is a real risk imo.   better for his reputation to leave now if his opinion ends up that trump listening to Navarro over him (and many others) will sink the ship.

Sure it is a risk, and if it happens it happens and I’ll move on from this trade. I think it’d be silly to sell now based on this rumor.

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13323 on: August 21, 2019, 09:24:59 AM »
You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

Is every decline of this magnitude and duration attributable to big players trying to get out quietly? At what point can you tell that the trend has reversed? I can see this being plausible but not actionable; things could eventually turn around (we have seen declines like this in the past) and I don't see a way to tell in real time when it has happened.

If Maloni is perceived to be such a "whack job", why would his rumor, and apparently only his rumor, have been enough to propel FNMAS to $14 in the first place?

Variant perceptions. Maloni is perceived by me to be a whack job but that doesn’t mean everyone thinks his is a whack job. Look at the day when he posted the Collins rumor and stock jumped. Volume was low that day. Not many believers.

I don’t see a bottom yet. I base my decisions on the news flow posted here and my feeling of the chart. I’ll let you know when I think a bottom is in. But honestly I don’t have good skills for bottoms. I spent lots of time studying tops, but not much time on bottoms.
I am muslceman. I have more muscle than brain!

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13324 on: August 21, 2019, 09:47:21 AM »
I’d fade the Mnuchin leaving trade. It would basically ruin his reputation to leave at such a critical point, not for housing but trade and trump election, and to break his very public commitments. It is very much in his interests to stick it out for another year

You have to be careful of "buying low sell high" when you see negative news and stock declines. It can keep going on for a long time. The smart guys have been selling since June. I could guess that someone knows Maloni is such a whack job that he's willing to spread any rumors for free to get famous, so they just fed him the Collins rumor, which pumped the stock to 14, and then they started selling day after day since then.

This isn't meant as an attack but an independent observation. I know you have mentioned before multiple times that you were not a great fundamental investor which is fine and a great admission. But I cant help to think that it was how you rationalized things, made correlations, and or assumptions that may have been part of the issue. I say this only because to invest based on rumors, baseless assumptions, strong thoughts about people buying or selling when there is nothing to support the assumptions, tweets, blog posts, etc etc is honestly one of the craziest things I have ever heard of.  Some here have thanked you for observations and again of course we are all welcome to our opinion but idea that the price of the GSEs are influenced by nearly criminal market manipulation, irrational share disposables in illiquid securities, and shadow market deals is a little disconnected.

I think some of what your describing can occur across the market and has occurred over time in other parts of the market as incentives can be bent that way but the hindsight observations your making here, either for longs or shorts are verging on purely entertainment value if that. Again maybe I'm the one with blinders on but a lot of what matters with this security has nothing to do with what your placing value upon. Again Im not insulting you, just my opinion and continue to welcome yours.

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13325 on: August 21, 2019, 09:53:11 AM »
unfortunately, mnuchin leaving is a real risk imo.   better for his reputation to leave now if his opinion ends up that trump listening to Navarro over him (and many others) will sink the ship.

Sure it is a risk, and if it happens it happens and I’ll move on from this trade. I think it’d be silly to sell now based on this rumor.

Or the other 30-40 rumors that have proceeded this one about everything that could go wrong with the GSEs. If mnuchin leaves there is a good chance we are fucked for the obvious reasons. When/once it happens we will be the last to know and prices will reflect that. Not much sense in worrying about it ahead of time.
« Last Edit: August 21, 2019, 10:00:44 AM by orthopa »



Midas79

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13328 on: August 21, 2019, 11:26:17 AM »
https://www.americanbanker.com/opinion/taxpayers-are-the-gses-true-stockholders

Wow. I have seen plenty of hit pieces against FnF, but rarely one aimed squarely at shareholders like this. That said, he manages to make some good points.

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Lastly, each senior preferred stock purchase agreement provided for a “periodic commitment fee” meant to fully compensate the Treasury for the ongoing support it provided since its December 2009 commitment. To date, not a single penny of such fee has been paid to taxpayers.
...
Second, there should be retroactive payment of the waived past periodic commitment fees — $8 or $9 billion per year for the GSEs combined.

I don't remember this being brought up before, but it actually makes sense that if the NWS had never happened, Treasury would have reinstated the commitment fee on the balance of the funding commitment, especially seeing as the seniors would have been increasingly paid down. If Treasury believes that FnF would have been paying this commitment fee on top of the 10% cash dividends had the NWS not happened, they might not be past the 10% moment after all!

However, the last part is still at least somewhat farcical: if FnF had paid both a commitment fee and a NWS dividend in the same quarter, Treasury would receive exactly the same amount of money. A 10% moment calculation changes, but the actual amount of cash Treasury received wouldn't.

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Also, the Treasury and the GSEs simultaneously entered into the Senior Preferred Stock Purchase Agreements, as amended.
These agreements might best be described as unconditional, irrevocable taxpayer-backed lines of credit. It is only this ongoing taxpayer backing that allows the GSEs to continue operating, to sell trillions of dollars in mortgage-backed securities at advantageous rates, and be in a position to make any profits.

I find this to be largely correct. MBS would not carry nearly the aura of safety they have without the lines of credit. That is why any exit from conservatorship must be accompanied by FnF having lots of capital on the books, enough to keep MBS ratings unaffected. This number could be much larger than what is economical.

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At a conservative 16 basis points per year, taxpayers would earn some $7 billion annually after taxes, according to one estimate.

The amount of capital that can be raised by selling common stock is limited to what the investors think the companies will be worth in their released state. If $7B is knocked off of earnings every year, only the remaining earnings would contribute to a market cap estimate. For example, if FnF normally earn $22B per year, a P/E ratio of 12 implies a market cap of around $250B. Knocking $7B off of earnings lowers that to $180B; if Calabria tries to raise more than that the investors will demand all of the equity (if they don't just walk away), which makes the current common stock, including Treasury's warrants, nigh worthless.



Of course, Pinto makes some truly terrible arguments as well.

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Because of this, the original preferred stock holders or their successors, including Fairholme, have hardly “rightly earned” anything. Without the taxpayer’s gratuitous bailout, their investment would have been worthless.

Does this mean the government can go confiscate all earnings of any other bailed-out company, using this as an argument against why they should not ever have to pay any damages?

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Second, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992warned all investors in Freddie securities, including investors in shares of preferred stock, that they “not be construed” in thinking that the GSE’s would “honor, reimburse, or otherwise guarantee any of their obligations or liabilities.”
Because of this, the original preferred stock holders or their successors, including Fairholme, have hardly “rightly earned” anything.

By that argument, do any stockholders anywhere have any right to anything at all?

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First, if the dividend sweep were to be reversed, a minimum 10% dividend should be paid to taxpayers and continue to be paid on the Treasury’s outstanding senior preferred stock.

If the dividend sweep is reversed the seniors will be gone. Or, alternatively, they would exist but Treasury would have to send FnF a $120B check first.




Naturally this is an opinion piece, so Pinto uses his own definition of what is "rightly earned", which conflicts with that of Berkowitz; this was the entire purpose of the piece to begin with. I don't think there's a risk of Mnuchin taking a hardline stance in regards to extra repayment, though, considering Craig Phillips's comment that Treasury views the seniors as being largely paid back at this point.

WB_fan82

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13329 on: August 21, 2019, 12:10:44 PM »
I think Pinto is referring to the div sweep halted when he says "reversed", not a 5th circuit invalidation/win.

The NWS can halt and the sr. prefs would still remain outstanding.  It's a fair question what the new div rate should be.  4%?  5%?  8%?  Pinto says 10%.

BTW, if they are made non-cumulative as part of any amendment halting the NWS, I think that would instantly shift the entire sr. pref balance into the "capital" column. 

Since no divs would be paid in c-ship anyway (sorry public prefs!), I don't think the coupon on the sr. pref really matters as long as they are non-cumulative (and are redeemable at par by the GSEs).  GSE could retain earnings over time, and at some point raise a bunch of capital to redeem the prefs.