Author Topic: FNMA and FMCC preferreds. In search of the elusive 10 bagger.  (Read 3430864 times)

Luke 5:32

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13700 on: September 10, 2019, 11:45:27 AM »
we can expect the NWS to be stopped (and no 2Q dividend distribution) and a commitment fee for the treasury line sometime before end of month.

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cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13701 on: September 10, 2019, 03:06:10 PM »
two yyuuuge things in SBC testimony today. 1. Crapo blessed the administrative plan and exhorted mnuchin to go forward.  2. mnuchin said he would go to FSOC and make sure that if GSEs raise the amount of capital set forth in fhfa final rule, then FSOC would not deem GSEs SIFIs.

GSEs should have been up again today

orthopa

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13702 on: September 10, 2019, 03:46:46 PM »
we can expect the NWS to be stopped (and no 2Q dividend distribution) and a commitment fee for the treasury line sometime before end of month.  I wouldn't be surprised if nothing much happens and trading prices trend downward in the interim, though I think stopping the NWS should be taken as a formal kickoff for admin reform and should start an uptrend in prices thereafter.

I agree, will likely give another opportunity to add if so inclined. Estimating roughly that the lions share of reform/recap done by next fall its very likely that still at these prices there is nearly a double for some of the preferred in 12 months time. Is there another option to lever this up outside of margin? Even at the most egregious margin rates alot of money can be made in 1 year here it seems.

Buffett, Munger, Druck, Soros talk about that fat pitch and swinging for the fences. This seems like a pretty juicy one over the middle with a planned negotiation on paper from the counterparty regarding the security, a favorable court ruling, a motivated administration who just got the blessing of congress and pretty good chance captialization is kicked off by the end of the month with the NWS ending.

Mephistopheles

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13703 on: September 10, 2019, 04:10:23 PM »
we can expect the NWS to be stopped (and no 2Q dividend distribution) and a commitment fee for the treasury line sometime before end of month.  I wouldn't be surprised if nothing much happens and trading prices trend downward in the interim, though I think stopping the NWS should be taken as a formal kickoff for admin reform and should start an uptrend in prices thereafter.

I agree, will likely give another opportunity to add if so inclined. Estimating roughly that the lions share of reform/recap done by next fall its very likely that still at these prices there is nearly a double for some of the preferred in 12 months time. Is there another option to lever this up outside of margin? Even at the most egregious margin rates alot of money can be made in 1 year here it seems.

Buffett, Munger, Druck, Soros talk about that fat pitch and swinging for the fences. This seems like a pretty juicy one over the middle with a planned negotiation on paper from the counterparty regarding the security, a favorable court ruling, a motivated administration who just got the blessing of congress and pretty good chance captialization is kicked off by the end of the month with the NWS ending.

But of course, everyone knows this and yet the market prices some of these as low as 40% of par today. And we have the government in plain English saying they are going to stop the NWS and recapitalize. So what is the market missing? Or what are we all missing?

Is the major risk that this gets delayed past the election and Trump loses? Say Biden wins, he will probably bring back most of Obama's people (fellow traveler's) to the job. And this whole thing is dead and back to status quo. Is that the only major risk here? I'm sure Mnuchin is well aware of this. So why wouldn't he rush to get this done within a year? Is it even possible to raise $100 billion from start to finish that quickly?

Either the market or we are very very wrong here.

SnarkyPuppy

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13704 on: September 10, 2019, 04:20:00 PM »
we can expect the NWS to be stopped (and no 2Q dividend distribution) and a commitment fee for the treasury line sometime before end of month.  I wouldn't be surprised if nothing much happens and trading prices trend downward in the interim, though I think stopping the NWS should be taken as a formal kickoff for admin reform and should start an uptrend in prices thereafter.

I agree, will likely give another opportunity to add if so inclined. Estimating roughly that the lions share of reform/recap done by next fall its very likely that still at these prices there is nearly a double for some of the preferred in 12 months time. Is there another option to lever this up outside of margin? Even at the most egregious margin rates alot of money can be made in 1 year here it seems.

Buffett, Munger, Druck, Soros talk about that fat pitch and swinging for the fences. This seems like a pretty juicy one over the middle with a planned negotiation on paper from the counterparty regarding the security, a favorable court ruling, a motivated administration who just got the blessing of congress and pretty good chance captialization is kicked off by the end of the month with the NWS ending.

But of course, everyone knows this and yet the market prices some of these as low as 40% of par today. And we have the government in plain English saying they are going to stop the NWS and recapitalize. So what is the market missing? Or what are we all missing?

Is the major risk that this gets delayed past the election and Trump loses? Say Biden wins, he will probably bring back most of Obama's people (fellow traveler's) to the job. And this whole thing is dead and back to status quo. Is that the only major risk here? I'm sure Mnuchin is well aware of this. So why wouldn't he rush to get this done within a year? Is it even possible to raise $100 billion from start to finish that quickly?

Either the market or we are very very wrong here.

Can we literally list out all potential downside scenarios here?  I share similar sentiments - this at the top of highest conviction trades I've come across.

- Trump + Mnuchin and or Calabria are removed from office unexpectedly
- Entirely private recap with Berkshire etc where the litigation risk is accepted as a liability as part of the deal
- Status quo maintained - Calabria/Mnuchin do not do anything.  Trump loses election and obama-esque admin takes over
- Near term acute drop in housing, economy, and/or stock market causing GSE Incone losses and inability to recap
- Appeal and loss at Supreme Court + status quo argument
- Recapitalize with Junior pref and conv debt senior to existing junior preferred.  Plus government decides it doesn't care about $100bn warrant value

What else?

muscleman

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13705 on: September 10, 2019, 04:44:41 PM »
two yyuuuge things in SBC testimony today. 1. Crapo blessed the administrative plan and exhorted mnuchin to go forward.  2. mnuchin said he would go to FSOC and make sure that if GSEs raise the amount of capital set forth in fhfa final rule, then FSOC would not deem GSEs SIFIs.

GSEs should have been up again today

john Bolton was fired today. I wonder if the market is predicting that Mnuchin is next?

If you look at all these rumors around White House officials, Tilson, John Kelly etc got rumored about their tense relationship with Trump and later they got fired one by one. I think the prior rumor about Mnuchin could be true, and we do see how messy this China trade war has been.
« Last Edit: September 10, 2019, 04:47:12 PM by muscleman »
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cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13706 on: September 10, 2019, 05:28:23 PM »
"Is it even possible to raise $100 billion from start to finish that quickly?"

fnma is due to make a $3.4B dividend distribution for 2019 Q2 at end of month.  assuming treasury and fhfa agree to stop sweep before end of month, and fnma is able to generate $3.4B in net income for the following 4 quarters, fnma will have $20B of net worth by election 2020.  while no-one knows the capital target, this could be as much as $100B for fnma.  so it would be hard to raise $80B certainly, it may be feasible to raise $20B...getting to some 40% of target.

rros

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13707 on: September 10, 2019, 05:57:31 PM »
"Is it even possible to raise $100 billion from start to finish that quickly?"

fnma is due to make a $3.4B dividend distribution for 2019 Q2 at end of month.  assuming treasury and fhfa agree to stop sweep before end of month, and fnma is able to generate $3.4B in net income for the following 4 quarters, fnma will have $20B of net worth by election 2020.  while no-one knows the capital target, this could be as much as $100B for fnma.  so it would be hard to raise $80B certainly, it may be feasible to raise $20B...getting to some 40% of target.
That would be assuming a symbolic fixed rate for the Srs. set at 0.1% and a minimal commitment fee for the 240+ bill not drawn.

Cardboard

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13708 on: September 10, 2019, 06:16:24 PM »
FMCCI is trading at $20.50 or 41% of par. Seems to be among the cheapest ones.

There is a liquidity issue vs FMCKJ but, is there something else? I notice that they are variable dividend and not perpetual so could it be it?


cherzeca

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Re: FNMA and FMCC preferreds. In search of the elusive 10 bagger.
« Reply #13709 on: September 10, 2019, 08:41:31 PM »
"Is it even possible to raise $100 billion from start to finish that quickly?"

fnma is due to make a $3.4B dividend distribution for 2019 Q2 at end of month.  assuming treasury and fhfa agree to stop sweep before end of month, and fnma is able to generate $3.4B in net income for the following 4 quarters, fnma will have $20B of net worth by election 2020.  while no-one knows the capital target, this could be as much as $100B for fnma.  so it would be hard to raise $80B certainly, it may be feasible to raise $20B...getting to some 40% of target.
That would be assuming a symbolic fixed rate for the Srs. set at 0.1% and a minimal commitment fee for the 240+ bill not drawn.

this assumes that the senior preferred are deemed paid in full.  There can be no capital raise without that.  fnma has a line of credit of $114B from treasury.